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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

(Amendment No. 2)

(Mark One)

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2011

or

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to           

Commission File Number:  001-31275

VERTICAL HEALTH SOLUTIONS, INC.

(Exact name of Registrant as specified in its charter)

7760 France Avenue South, 11th Floor, Minneapolis, MN  55435

(Address of principal executive offices) (Zip Code)

(612) 568-4210

(Registrant’s Telephone Number, Including Area Code)

(Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report)

Indicate by check mark whether 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 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.

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

The number of shares of the registrant’s common stock outstanding as of August 15, 2011 was 10,540,406.

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EXPLANATORY NOTE

This Amendment No. 2 (this “Amendment”) on Form 10-Q/A amends the Quarterly Report on Form 10-Q filed by Vertical Health Solutions, Inc. (the “Company”) with the Securities and Exchange Commission (the “SEC”) on August 15, 2011, as amended on August 25, 2011 (the “Original Filing”).  On June 17, 2011, the Company received a comment letter from the staff of the SEC on the Original Filing (the “Original Comment Letter”).  On July 7, 2011, the Company responded to the Original Comment Letter (the “Supplemental Response”).  On August 26, 2011, the Company received a comment letter on the Supplemental Response (the “Second Comment Letter”; and together with the Original Comment Letter, the “Comment Letters”).  The following items have been amended to reflect changes made in response to comments we received from the SEC in the Comment Letters:

·                  Part I — Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

·                  Part II — Item 1A — Risk Factors

·                  Part II — Item 2 — Unregistered Sale of Equity Securities and Use of Proceeds

·                  Part II — Item 6 — Exhibits

Except for the items described above, no other changes have been made to any other items in the Original Filing.

Unless otherwise indicated in this report, this Amendment continues to describe conditions as of the date of the Original Filing, and the disclosures contained herein have not been updated to reflect events, results or developments that have occurred after the Original Filing, or to modify or update those disclosures affected by subsequent events.  Among other things, forward-looking statements made in the Original Filing have not been revised to reflect events, results or developments that have occurred or facts that have become known to us after the date of the Original Filing, and such forward-looking statements should be read in their historical context. This Amendment should be read in conjunction with the Original Filing and the Company’s filings made with the SEC subsequent to the Original Filing, including any amendments to those filings.

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VERTICAL HEALTH SOLUTIONS, INC.

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VERTICAL HEALTH SOLUTIONS, INC.

(A DEVELOPMENT-STAGE COMPANY)

BALANCE SHEETS

(UNAUDITED)

See accompanying notes to the unaudited financial statements.

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VERTICAL HEALTH SOLUTIONS, INC.

(A DEVELOPMENT-STAGE COMPANY)

STATEMENTS OF OPERATIONS

(UNAUDITED)

See accompanying notes to the unaudited financial statements.

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VERTICAL HEALTH SOLUTIONS, INC.

(A DEVELOPMENT-STAGE COMPANY)

STATEMENTS OF CASH FLOWS

(UNAUDITED)

See accompanying notes to the unaudited consolidated financial statements.

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VERTICAL HEALTH SOLUTIONS, INC.

(A DEVELOPMENT-STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

1.                                      BASIS OF PRESENTATION

The accompanying unaudited financial statements of Vertical Health Solutions, Inc. (“VHS” or the “Company”) have been prepared in accordance with United States generally accepted accounting principles for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

The accompanying financial statements include the accounts of the Company and include the acquisition of its wholly-owned subsidiary OnPoint Medical Diagnostics, Inc. (“OnPoint”) which was completed on April 15, 2011 (See Note 2 for discussion of the impact of the reverse merger.).  Intercompany transactions and balances are eliminated in consolidation.

In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.  Operating results for the six-month period ended June 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.

For further information on OnPoint and the reverse acquisition, refer to the 2010 financial statements of OnPoint and footnotes thereto included in the Company’s Current Report on Form 8-K filed with the SEC on April 21, 2011.

The on-going operations of the Company will be that of OnPoint.  OnPoint is developing a software-as-a-service (SAAS) enterprise quality assurance solution for the diagnostics imaging market.  OnPoint has not yet generated any revenue and is considered a development stage company as of June 30, 2011.

2.                                      REVERSE MERGER

VHS, a Florida corporation, and its newly-formed subsidiary, Vertical HS Acquisition Corp., a Delaware corporation (“Merger Sub”) entered into an Agreement and Plan of Merger (the “Merger Agreement”), dated as of February 1, 2011, by and among OnPoint, on the one hand, and VHS and Merger Sub, on the other hand.  Pursuant to the Merger Agreement, Merger Sub, which VHS had incorporated in the state of Delaware for the purpose of completing the transaction, merged into OnPoint (the “Merger”) on April 15, 2011 (the “Closing” or the “Closing Date”) with OnPoint continuing as the surviving entity in the Merger.  As a result of the Merger, OnPoint became a wholly-owned subsidiary of the Company. Immediately prior to the merger, VHS had 44,474,973 shares of common stock outstanding.  The Company then converted certain VHS liabilities aggregating $150,000 into 133,425,011 shares of VHS common stock resulting in 177,899,984 shares outstanding.  On the merger date VHS implemented a 1 for 164 reverse stock split effectively cancelling 176,815,354 shares.  VHS then issued an additional 7,143,113 shares to existing shareholders of OnPoint in exchange for 100% of OnPoint’s outstanding shares.  In addition, OnPoint’s outstanding options, warrants and convertible notes became options, warrants and convertible notes exercisable or convertible into such number of shares of VHS common stock at an exercise or conversion price having the same economic value as prior to the Merger.  Upon completion of the merger, VHS has 8,227,743 shares of common stock outstanding.  All merger transaction costs have been expensed as incurred.

The acquisition was treated as a recapitalization of OnPoint with OnPoint being treated as the accounting acquirer in a reverse merger.  Accordingly, the financial statements of the Company presented reflect the historical results of OnPoint prior to the Merger, and do not include the historical financial results of VHS prior to the consummation of the Merger. Stockholders’ equity (deficit) has been retroactively restated as of December 31, 2010 to reflect the capital structure of VHS after giving effect to the Merger.  The accompanying financial statements as of June 30, 2011 and for the three and six months ended June 30, 2011 and 2010 present the historical financial information of OnPoint consolidated with VHS from the date of reorganization (April 15, 2011) to June 30, 2011.

The operations of OnPoint will be the continuing operations of VHS.   In connection with the merger, OnPoint received $1,145 in cash remaining in VHS’ bank account and assumed $20,428 in accounts payable, $6,597 in accrued expenses and $16,948 in convertible short-term notes which were rewritten in the following terms:  interest at 0.21% per annum; interest and principal is payable on July 15, 2011 and due on demand thereafter; principal and accrued interest is convertible into common stock using a conversion price of 80% of the fair value of the common stock.

Pro forma financial statements have been previously disclosed in the Form 8-K filed on April 21, 2011, as further amended on September 20, 2011.

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3.                                      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION

Use of Estimates

The preparation of financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from such estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments that have maturities of three months or less when acquired to be cash equivalents.  Cash equivalents consist of bank deposits and investments in money market mutual funds.  Cash equivalents subject the Company to concentrations of credit risk.  The Company has invested only in bank checking and savings accounts.  However, it is possible that deposited funds may from time to time exceed amounts insured by the Federal Deposit Insurance Corporation.

Intangible Assets

Intangible assets are stated at cost and are comprised of a software technology license agreement with Mayo Foundation for Medical Education and Research, a minority stockholder, and deferred debt financing costs incurred in connection with the Company’s issuance of convertible debt.  Amortization for the license is provided on the straight-line method over the estimated useful life of the license of 3 years.  Amortization for the deferred debt financing costs is provided on the effective-interest method over the term of the related debt.

Revenue Recognition

The Company is a development stage company and has not generated any revenue from inception (February 1, 2009) through June 30, 2011.

Software Development Costs

Costs related to research, design and development of software products prior to establishment of technological feasibility, are charged to research and development expense as incurred.  Software development costs are capitalized beginning when a product’s technological feasibility has been established and ending when a product is available for general release to customers.  Capitalized software development costs will be amortized over the estimated economic life of the underlying products which will generally range from two to six years.  During the six months ended June 30, 2011, the Company capitalized $205,394 of software development costs.  The software was not available for customer use at June 30, 2011 and therefore, there was no amortization.

Stock-Based Compensation

The Company recognizes expense for its stock-based compensation based on the fair value of the awards granted.  The fair value of stock options is estimated at the date of grant using the Black-Scholes option valuation model. The Company makes assumptions about complex and subjective variables and the related tax impact.  These variables include, but are not limited to, the Company’s stock price volatility and stock option exercise behaviors.  The Company recognizes the compensation cost for stock-based awards on a straight-line basis over the requisite service period for the entire award.

Net Loss per Share

Basic net income (loss) per share is calculated by dividing the net income (loss) for the period by the weighted-average number of common shares outstanding during the period.  Diluted net income (loss) per share is calculated by dividing net income (loss) for the period by the weighted-average number of common shares outstanding during the period, increased by potentially dilutive common shares (“dilutive securities”) that were outstanding during the period.  Dilutive securities include stock options and warrants granted and convertible debt.

For the six months ended June 30, 2011 and 2010, options, warrants, and conversion shares related to convertible debt were excluded from the calculation of the diluted net loss per share as their effect would have been antidilutive.

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Income Taxes

The Company accounts for income taxes using the asset and liability approach which requires the recognition of deferred tax assets and liabilities for the tax consequences of temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes using enacted tax rates in effect for the years in which the differences are expected to reverse.  Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

The Company accounts for income taxes pursuant to Financial Accounting Standards Board guidance specifically related to uncertain tax positions.  This guidance presents a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  The Company believes its income tax filing positions and deductions will be sustained upon examination and, accordingly, no accrual related to uncertain tax positions has been recorded at June 30, 2011 and December 31, 2010. The Company’s remaining open tax years subject to examination include 2008, 2009 and 2010.  This standard also provides guidance on derecognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods and income tax disclosures.

The Company has recorded a full valuation allowance against its deferred tax assets at June 30, 2011 and December 31, 2010.

Recent Accounting Pronouncements

There were no new accounting standards issued or effective during the three months ended June 30, 2011 that had or are expected to have a material impact on the Company’s results of operations, financial condition or cash flows.

4.                                      LIQUIDITY AND CAPITAL RESOURCES

For the six months ended June 30, 2011, we incurred losses from operations of $(1,186,553). At June 30, 2011, we have cash, including restricted cash, of $486,972, an accumulated deficit of $(3,437,719) and working capital of $193,817. Our ability to continue as a going concern is dependent on our ability to raise the required additional capital or debt financing to meet short and long-term operating requirements.  During the second quarter of 2011, we sold common stock of $525,000 and an additional $150,000 in July and August 2011.  We believe that future private placements of equity capital and debt financing are needed to fund our long-term operating requirements.  Additional financing may not be available upon acceptable terms, or at all.  If adequate funds are not available or are not available on acceptable terms, we may not be able to take advantage of prospective business endeavors or opportunities, which could significantly and materially restrict our operations. We are continuing to pursue external financing alternatives to improve our working capital position. If we are unable to obtain the necessary capital, we may have to reduce our operating expenses.

5.             RESTRICTED CASH

At June 30, 2011, the Company had $75,240 of restricted cash being held in an escrow account relating to recent purchases of the Company’s common stock.  In order to qualify for certain state of Minnesota tax credits, the investing shareholders must obtain approval from the state of Minnesota prior to their invested funds being released to the Company.  The Company typically expects these funds to be released in 2 to 4 weeks.

6.             CONVERTIBLE DEBT

In October 2010, the Company began a $1.5 million private placement convertible debt offering.  The notes bear interest at 10% per annum and are fully convertible into common stock.  The holder can convert all or a portion of the principal and accrued interest under the notes into common shares of the Company at any time prior to payment.  For amounts not previously converted, principal will be satisfied in four equal installments commencing on September 30, 2011 and thereafter on February 29, 2012, July 31, 2012, and December 31, 2012.  Accrued interest is payable on December 31, 2011 and on each of the principal satisfaction dates.  The conversion price is the lesser of $0.65 per share or 65% of the volume weighted average price of the common stock for the twenty trading dates preceding a conversion; however, the conversion price shall not be less than $0.25 per share. The Company estimated its common stock fair value to be $0.65 during this offering period and therefore, determined there was no beneficial conversion feature to record.  In addition, if the Company did not complete a “reverse merger” with a public entity by March 31, 2011, the holders could demand repayment along with a penalty equal to 25% of the principal balance.  The convertible debt holders extended the completion date for the reverse merger to the

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closing date of April 15, 2011 and no debt holders made a demand for payment.  A total of $1,347,500 of convertible notes have been issued pursuant to this offering during fourth quarter of 2010 and first quarter of 2011.

In connection with the notes, the Company incurred legal costs of $29,980 and finder’s fees of $176,675, which were paid out of the net proceeds to third-party selling agents, and the Company issued warrants to purchase 207,307 shares of the Company’s common stock to the selling agents.  The warrants have a fair market value of $113,928.  Total debt financing costs of $320,583 were capitalized and are being recognized over the term of the related convertible debt using the effective interest rate method.

On June 7, 2011, $1,017,500 of this convertible debt and $46,980 of accrued interest was converted to 1,637,663 shares of common stock.  The debt was converted at $0.65 per share, therefore, there was no contingent beneficial conversion feature that needed to be recorded.

The following is a summary of the convertible notes payable as of June 30, 2011:

7.                                      STOCKHOLDERS’ EQUITY (DEFICIT)

Common Stock Issuances & Redemptions

During the second quarter of 2011, 525,000 shares of common stock along with warrants to purchase 262,500 shares of common stock were issued at $1.00 per unit price for aggregate proceeds of $455,750, net of offering costs of $69,250.  See the terms of the warrants below.  Additionally, 1,637,663 shares of common stock were issued in exchange for convertible debt ($1,017,500) and the related accrued interest ($46,980), which was converted at $0.65 per share.

Stock Purchase Warrant Grants

For warrants and options granted to non-employees in exchange for services, the Company records the fair value of the equity instrument using the Black-Scholes pricing model unless the value of the services is more readily determinable.

In connection with the private placement unit offering, 262,500 stock warrants were issued to purchasers of common stock, which have an exercise price of $2.00 per share and a term of 5 years.  In addition, 78,500 stock warrants were issued to the selling agent, which have an exercise price of $2.00 per share and a term of 5 years.  Additionally, in connection with the conversion of debt to equity on June 7, 2011, a true up calculation was performed as a result of accrued interest being converted and the selling agents were issued an additional 29,229 stock warrants which had a fair value of $16,063 and was expensed to interest expense.

As of June 30, 2011, the Company had the following warrants to purchase common stock outstanding:

Stock Option Grants

During the six months ended June 30, 2011, the Company granted 150,000 options in March 2011 and 300,000 options during April and May 2011.

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For the three months ended June 30, 2011 and 2010 and the six months ended June 30, 2011 and 2010, total stock-option compensation expense was $132,234 and $103,899; and $262,640 and $464,488;  respectively.

At June 30, 2011, total unrecognized compensation expense related to non-vested stock options granted prior to that date was $554,720, which is expected to be recognized over a weighted average period of 4 years.

The following is a summary of stock option activity under the 2011 Omnibus Incentive Compensation Plan during the six months ended June 30, 2011:

8.             EARNINGS (LOSS) PER SHARE

The following table provides a reconciliation of the numerators and denominators used in calculating basic and diluted earnings (loss) per share for the three and six months ended June 30, 2011 and 2010.

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9.                                      SUBSEQUENT EVENTS

Through August 15, 2011, the Company issued 150,000 shares of common stock and warrants to purchase 75,000 shares of common stock pursuant to the Company’s ongoing private placement offering with proceeds before issuance costs aggregating $150,000 at unit price of $1.00.  Issuance costs include fees aggregating $19,500 and issuance of 22,500 stock warrants to the selling agent.

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Cautionary Note Regarding Forward-Looking Statements

The Securities and Exchange Commission, or SEC, encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions.  Certain statements that we may make from time to time, including, without limitation, statements contained in this Quarterly Report on Form 10-Q, constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  These statements may be made directly in this Quarterly Report, and they may also be made a part of this Quarterly Report by reference to other documents filed with the SEC, which is known as “incorporation by reference.”

Words such as “may,” “anticipate,” “estimate,” “expects,” “projects,” “intends,” “plans,” “believes” and words and terms of similar substance used in connection with any discussion of future operating or financial performance, identify forward-looking statements.  All forward-looking statements are management’s present expectations of future events and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.  These risks and uncertainties include, among other things:  our need for additional capital to fund the current level of our research and development programs; our inability to further identify, develop and achieve commercial success for new products and technologies; the development of competing diagnostic products; our ability to protect our proprietary technologies; patent-infringement claims; risks of new, changing and competitive technologies and regulations in the United States and internationally; and other factors discussed under the heading Item 1A “Risk Factors” in this Quarterly Report on Form 10-Q.

In light of these assumptions, risks and uncertainties, the results and events discussed in the forward-looking statements contained in this Quarterly Report or in any document incorporated by reference might not occur.  You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this Quarterly Report or the date of the document incorporated by reference in this Quarterly Report.  We are not under any obligation, and we expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable law.  All subsequent forward-looking statements attributable to Vertical Health Solutions, Inc., referred to herein as VHS, VHS’s wholly-owned subsidiary, OnPoint Medical Diagnostics, Inc., referred to herein as OnPoint, or to any person authorized to act on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.

Introduction

Vertical Health Solutions, Inc. was incorporated in March 2000, as a Florida corporation under the name LabelClick.com, Inc. In January 2001, VHS changed its name to Vertical Health Solutions, Inc.

On February 1, 2011, VHS entered into the Agreement and Plan of Merger, by and among OnPoint, on the one hand, and VHS and Vertical HS Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of VHS, referred to herein as Merger Sub, on the other hand, which we refer to as the Reverse Merger Agreement.  The transactions contemplated by the Reverse Merger Agreement were consummated on April 15, 2011, referred to herein as the Closing or the Closing Date.

Pursuant to the Reverse Merger Agreement, on the Closing Date, Merger Sub merged with and into OnPoint, which we refer to as the Reverse Merger, with OnPoint being the surviving corporation and becoming a wholly-owned subsidiary of VHS, and the outstanding shares of capital stock of OnPoint were converted into an aggregate of 7,143,113 shares of common stock of VHS, on the terms and conditions as set forth in the Reverse Merger Agreement.  This summary of the Reverse Merger is qualified in its entirety by reference to the actual agreement, a copy of which was filed as an exhibit to VHS’s Current Report on Form 8-K, filed with the SEC, on February 7, 2011.

The consummation of the transactions contemplated by the Reverse Merger Agreement resulted in a change of control of VHS.

Following the Closing Date of the Reverse Merger, OnPoint became our wholly-owned operating subsidiary.  The business of OnPoint constitutes all of our operations.  OnPoint was deemed to have been the accounting acquirer in the Reverse Merger.  Accordingly, the financial statements of the Company presented in Item 1 “Financial Statements” reflect the historical results of OnPoint prior to the Reverse Merger, and of the combined entities following the Reverse Merger, and

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do not include the historical financial results of VHS prior to the consummation of the Reverse Merger.  Stockholders’ equity (deficit) has been retroactively restated as of June 30, 2011 and December 31, 2010 to reflect the capital structure of VHS after giving effect to the Reverse Merger.

This discussion and analysis should be read in conjunction with the financial statements and notes, and other financial information included in this report and the financial statements of OnPoint included in our Current Report on Form 8-K, filed on April 21, 2011 as amended on September 20, 2011.  With respect to this discussion, the terms “OnPoint,” the “Company,” “we,” “us,” and “our” refer to OnPoint Medical Diagnostics, Inc.

Overview

OnPoint is a development stage company founded to commercialize Magnetic Resonance Imaging, or MRI, quality assurance testing software and technologies developed by Mayo Clinic.

Since our inception in February 2009, we have incurred losses and negative cash flows from operations, and such losses have continued subsequent to June 30, 2011.  As of June 30, 2011, we had an accumulated deficit of $3,437,719 and anticipate incurring additional losses for at least the next several years.  We expect to spend significant resources over the next several years to ready our initial product for commercial sale, enhance our technologies, and to fund future research and development.  Through June 30, 2011, we have not generated any revenue as we have devoted substantially all of our efforts to the development and commercialization of software technology.  In order to achieve profitability, we must continue to develop software products and technologies that can be commercialized by us or through existing and future collaborations.  We have identified specific strategies to grow sales and operations to meet our commercialization goals.  Prior to commercialization, we will work closely with luminaries in our target market to take our quality assurance and accreditation software through structured software release life cycles, composed of discrete phases and system testing.  These luminaries are show sites that represent customers in our target market including imaging centers, small community hospitals and large healthcare institutions.

Revenue

As of June 30, 2011, we have not generated any revenue.

Software Research and Development

Our software research and development expense consist primarily of consultant costs relating to software engineers, programmers, and research related to the software as further described under “Results of Operations” below.  In January of 2011, we determined that our MRI quality assurance software technology had met the technological feasibility test and therefore, current expenditures, aggregating $205,394, to commercialize the product have been capitalized as software development costs.

General and Administrative

Our general and administrative expenses consist primarily of compensation paid to employees and related benefit expenses for business development, financial, legal and other administrative functions.   In addition, we incur external costs for professional fees for legal, patent and accounting services.  We expect that our general and administrative expenses, both internal and external, will increase as we are now a public company.

Results of Operations

Three and six months ended June 30, 2011 compared to June 30, 2010

Software Research and Development Expenses.  Our research and development expenses were $0 and $0 for the three and six months ended June 30, 2011 compared to $31,696 and $40,674 for the three and six months ended June 30, 2010.  The decrease was due to the fact that the Company has obtained technological feasibility and has capitalize the costs incurred for software developers and software engineers who are working on bringing the product to market.  The costs capitalized were $125,119 and $205,394 for the three and six months ended June 30, 2011.  We anticipate development costs will increase as we secure the necessary funding so we are able to accelerate our software development process.

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General and Administrative Expenses.  Our general and administrative expenses were $283,446 and $544,481 for the three and six months ended June 30, 2011 compared to $276,052 and $905,007 for the three and six months ended June 30, 2010.  We anticipate that general and administrative expenses will increase as we begin to incur costs relating to our operations as a public company and increase our investment in business development required to support our research and development efforts.  Payroll expenses for 2011 are $115,000 greater than 2010.  Accounting and legal expenses are $50,000 greater than 2010.  Insurance expense is $15,000 greater than 2010.  A large part of our general and administrative expenses is for stock options.  Stock option expense was $116,170 and $246,576 for the three and six months ended June 30, 2011 compared to $103,899 and $464,488 for the three and six months ended June 30, 2010.

Merger Related Costs.  Merger related costs were $215,924 and $323,717 for the three and six months ended June 30, 2011 and $0 and $0 for the three and six months ended June 30, 2010.  The merger and related expenses were incurred for the merger with VHS and OnPoint that occurred on April 15, 2011.

Interest Expense.  Interest expense was $244,048 and $318,775 for the three and six months ended June 30, 2011 compared to $0 and $0 for the three and six months ended June 30, 2010.  In October, 2010, we entered into a 10% convertible debt financing agreement with certain of our investors, which provided for $1,347,500 in funding.  In connection with the notes, we incurred legal costs of $29,980 and finder’s fees of $176,675, which were paid out of the net proceeds to third-party selling agents, and we issued warrants to purchase 207,307 of our common shares to the selling agents.  The warrants have a relative fair market value of $113,928.

Total debt financing costs of $320,583 were capitalized and are being amortized over the term of the related convertible debt using the effective interest rate method.  There was no debt outstanding for the six months ending June 30, 2010.

Liquidity and Capital Resources

At June 30, 2011, we had cash and restricted cash of $486,972 and working capital of $193,817. Through June 30, 2011, we have funded substantially all of our operations and capital expenditures through private placements of equity and convertible debt securities totaling $2,192,500.

The convertible notes have a mandatory conversion feature whereby the outstanding principal amount automatically, and without any further action by the note holders, converts to common stock.  In addition, the holders of such convertible notes have the option to convert the accrued but unpaid interest on such convertible notes into shares of common stock.  Therefore, the only financial obligation associated with these notes would be if the investors elect to receive accrued interest in cash, instead of shares of common stock.  The first interest payment, if any, is not due until December 31, 2011.  On June 7, 2011, debt holders converted $1,017,500 of convertible debt plus accrued interest of $46,980 resulting in $330,000 in principal remaining outstanding at June 30, 2011.

Under our existing license agreement with Mayo, we have an obligation to pay a minimum royalty of $50,000 per year to Mayo for the year ended December 31, 2011.  We do not have any other material contractual obligations as of April 15, 2011.

Additionally, we are currently expending cash resources on re-writing the user interface, creating a flexible reporting framework, redesigning the database, and porting the customer specific system to a more extensible and configurable platform.  Without further financing, we expect that expenditures in connection with these research and development efforts will have a material negative impact on our short term liquidity position.

Based on our current operating plan, we expect that our existing cash and cash equivalents will fund our operations through October 31, 2011.

In order to fully fund our research and development efforts, and successfully commercialize our product, we are seeking to raise additional capital during the remainder of 2011 to fund our operations and future development. A capital raise could include the securing of funds through new strategic partnerships or collaborations, the sale of common stock or other equity securities or the issuance of debt.  We expect that substantially all of our operating capital for the foreseeable future will come from external sources such as strategic partnerships or collaborations, the sale of common stock or other equity securities or the issuance of debt.  We do not expect a material amount of our operating capital to come from internal sources such as revenue generated from product sales since our product is not yet commercially available.  We cannot assure you that any such capital raising transaction will be available to us as needed, or on favorable terms.

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We are subject to those risks associated with any software company.  In addition, we operate in an environment of rapid technological change and we are largely dependent on the services of our employee and consultants.  We cannot assure you that our development projects will be successful, that any product will be commercially viable, or that we will be able to attract and retain the necessary employees and consultants to complete development and commercialize our product.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with United States generally accepted accounting principles, or GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and reported amount of revenue and expenses during the reporting period. On an ongoing basis, we evaluate our judgments and estimates, including those related to revenue recognition, long-lived assets, accrued liabilities, share-based payments and income taxes. We base our judgment and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in Note 3 to our financial statements, we believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our financial statements:

Research and Development

Costs related to research, design and development of software products prior to establishment of technological feasibility, are charged to research and development expense as incurred.  Software development costs are capitalized beginning when a product’s technological feasibility has been established and ending when a product is available for general release to customers.  Capitalized software development costs will be amortized over the estimated economic life of the underlying products, which will generally range from two to six years.  During the three months ended June 30, 2011, we capitalized $125,119 of software development costs.  The software was not available for customer use at June 30, 2011 and therefore, there was no amortization.

Intangible Assets

Intangible assets are stated at cost and are comprised of a software technology license agreement with Mayo Foundation for Medical Education and Research, a minority stockholder, and deferred debt financing costs incurred in connection with our issuance of convertible promissory notes.  Amortization for the license is provided on the straight-line method over the estimated useful life of the license of 3 years.  Amortization for the deferred debt financing costs is provided on the effective-interest method over the term of the related debt.

Income Taxes

We account for income taxes using the asset and liability approach which requires the recognition of deferred tax assets and liabilities for the tax consequences of temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes using enacted tax rates in effect for the years in which the differences are expected to reverse.  Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

We account for income taxes pursuant to Financial Accounting Standards Board guidance specifically related to uncertain tax positions.  This guidance presents a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.  We believe our income tax filing positions and deductions will be sustained upon examination and, accordingly, no accrual related to uncertain tax positions has been recorded at June 30, 2011 and December 31, 2010. Our remaining open tax years subject to examination include the periods 2008, 2009 and 2010.  This standard also provides guidance on derecognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods and income tax disclosures.

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We have recorded a full valuation allowance against our deferred tax assets at June 30, 2011 and December 31, 2010.

Stock-Based Compensation

We recognize expense for stock-based compensation based on the fair value of the awards granted.  The fair value of stock options is estimated at the date of grant using the Black-Scholes option valuation model. We make assumptions about complex and subjective variables and the related tax impact.  These variables include, but are not limited to, our stock price volatility and stock option exercise behaviors. For volatility, we are currently using comparable public companies. We recognize the compensation cost for stock-based awards on a straight-line basis over the requisite service period for the entire award.

Our carrying values of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and debt are a reasonable approximation of their fair value.  The estimated fair values of financial instruments have been determined by us using available market information and appropriate valuation methodologies.

We have not entered into and do not expect to enter into, financial instruments for trading or hedging purposes.  We do not currently anticipate entering into interest rate swaps and/or similar instruments.  Our primary market risk exposure with regard to financial instruments is to changes in interest rates, which would impact interest income earned on such instruments.  We have no material currency exchange or interest rate risk exposure as of June 30, 2011.  Therefore, there will be no ongoing exposure to a potential material adverse effect on our business, financial condition or results of operation for sensitivity to changes in interest rates or to changes in currency exchange rates.

(a)           Disclosure Controls and Procedures:  Our chief executive officer and chief financial officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2011. Based on this evaluation, our chief executive officer and our chief financial officer concluded that, as of June 30, 2011, our disclosure controls and procedures were not effective to ensure that information required to be disclosed by us in our reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our chief executive officer and our chief financial officer as appropriate to allow timely decisions regarding required disclosure.

(b)           Changes in Internal Controls.  Other than changes which may be associated with the reverse acquisition of OnPoint described below, there were no significant changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act), identified in connection with the evaluation of such internal control that occurred during our last fiscal quarter, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

(c)           OnPoint Acquisition.  On April 15, 2011, we acquired OnPoint through a reverse acquisition.  We are in the process of integrating OnPoint.  Our management is analyzing, evaluating and, where necessary, implementing changes in controls and procedures.  Due to the significance of this acquisition and the limited period of time since the acquisition date, we did not have sufficient resources available to assess the internal controls of OnPoint for the quarter ended June 30, 2011.  Therefore, we excluded OnPoint from our evaluation of internal controls over financial reporting contained in this quarterly report.  However, management considers the OnPoint acquisition material to the results of operations, cash flows and financial positions of the Company and believes that the disclosure controls and procedures of OnPoint will have a material effect on internal controls over financial reporting.  OnPoint will be included in the overall assessment of, and report on, internal controls over financial reporting as of December 31, 2011.

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PART II.  OTHER INFORMATION

ITEM 1.     LEGAL PROCEEDINGS

The Company’s management knows of no material existing or pending legal proceedings or claims against the Company, nor is the Company involved as a plaintiff in any material proceeding or pending litigation.  To the Company’s knowledge, no director, officer or affiliate of the Company, and no owner of record or beneficial owner of more than five percent (5%) of the Company’s securities, or any associate of any such director, officer or security holder is a party adverse to the Company or any of its subsidiaries or has a material interest adverse to the Company or any of its subsidiaries in reference to pending litigation.

ITEM 1A.     RISK FACTORS

Risks Related To Our Business and Industry

Our auditors have expressed substantial doubt about our ability to continue as a going concern.

Our audited financial statements for the year ended December 31, 2010, were prepared under the assumption that we will continue our operations as a going concern. We have a limited operating history with no revenues and have incurred cumulative net losses of $3,437,719 through June 30, 2011. As a result, our independent registered public accounting firm in their audit report on our 2010 Financial Statements has expressed substantial doubt about our ability to continue as a going concern. Continued operations are dependent on our ability to complete equity or debt formation activities or to generate profitable operations. Given the recent downturn in the economy, such capital formation activities may not be available or may not be available on reasonable terms. Our financial statements do not include any adjustments that may result from the outcome of this uncertainty. If we cannot continue as a viable entity, our stockholders may lose some or all of their investment in us.

We are a development stage company.  We have incurred losses since inception and expect to incur significant net losses in the foreseeable future and may never become profitable.

We are in the development stage and have a limited operating history for you to consider in evaluating our business and prospects.  We have not yet generated any sales or net income.  We have incurred operating losses since inception and expect to incur significant net losses in the foreseeable future.  There can be no assurance that we will be able to generate significant revenues from the sales of current or future products. Our ability to achieve profitability will depend on, among other things, our success in selling our products, managing our expense levels and quickly integrating newly-hired personnel, including management.

We will need additional capital to fund our operations.

We are seeking to raise additional capital in 2011 to fund our operations and future development. A capital raise could include the securing of funds through new strategic partnerships or collaborations, the sale of common stock or other equity securities or the issuance of debt.  In the event we do not enter into a corporate collaboration or undertake a financing of debt or equity securities, we may not have sufficient cash on hand to fund our operations.  We can give no assurances that we will be able to enter into a strategic transaction or raise any additional capital or if we do, that such additional capital will be sufficient to meet our needs, or on terms favorable to us.

If we are unable to raise additional funds, we will need to do one or more of the following:

·                                          further delay, scale-back or eliminate some or all of our product development programs;

·                                          attempt to sell our company;

·                                          cease operations; or

·                                          declare bankruptcy.

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Initiating and expanding sales and marketing activities and continuing our development efforts will require significant expenditures of capital.  The actual amount and timing of capital requirements may differ materially from our estimates, depending on the demand for our products and as a result of new market developments and opportunities. We may determine that it is necessary or desirable to obtain financing for such requirements through borrowings or the issuance of debt or equity securities. Debt financing would increase leverage, while equity financing may dilute the ownership of stockholders. There can be no assurance as to whether, or as to the terms on which, we will be able to obtain such financing. Any failure to generate sufficient funds from operations or equity or debt financing to meet our capital requirements could have a material adverse effect on our business, financial condition and results of operations.

At June 30, 2011, we had cash and cash equivalents of $486,972 and working capital of $193,817. Through June 30, 2011, we have funded substantially all of our operations and capital expenditures through private placements of equity and convertible debt securities totaling $2,192,500.  Based on our operating plan, we expect that our existing cash and cash equivalents will fund our operations only through October 31, 2011.

Our success depends upon maintaining our license to critical intellectual property.

Our success depends upon our maintaining the license with Mayo Foundation for Medical Education and Research for the technology which comprises our product.  The license is currently in good standing.  Future defaults by us, however, could result in the termination of the license which is critical to our business.

Our success depends on the development and modification of our licensed technology.

The MRI quality assurance system was developed by Mayo Clinic and has been used by them since 2006, where the system successfully performed automated quality control on over 200,000 MRI images.  Since the MRI quality assurance software is currently customer specific, we will need to create a more extensible and configurable platform by updating the existing user interface, re-writing the reporting framework and extending the database for broader commercial use.  The Company is using the services of consultants to make such changes.  Software development always involves uncertainty as to the length of time and cost associated with making needed developments and modifications.  Delays in effecting the development and modifications may have significant adverse affects on the Company.

Our success is dependent on market acceptance of our products.

Our ability to gain market acceptance and to grow will largely depend upon our success in effectively and efficiently communicating product benefits to the key buyer groups and distinguishing our products from other similar products.  To gain market share, we must also overcome the established relationships between other service providers and customers.  We cannot assure you that we will be able to achieve success, to gain market acceptance and to grow.  Our failure to achieve market acceptance of our products would have a material adverse effect on our business, financial condition and results of operations.

We may have undisclosed liabilities and any such liabilities could harm our revenues, business, prospects, financial condition and results of operations.

Prior to March 2009, OnPoint was a wholly owned subsidiary of Healthcare IP Partners.  In March 2009, Healthcare IP Partners distributed certain shares of OnPoint owned by Healthcare IP Partners to the individual stockholders of Healthcare IP Partners (other than the founders), referred to herein as the Initial Distribution.  In September 2010, shares of OnPoint were issued to Healthcare IP Partners in settlement of $500,000 outstanding debt of OnPoint owed to Healthcare IP Partners, which shares were then distributed with the remaining shares of OnPoint owned by Healthcare IP Partners to the individual stockholders of Healthcare IP Partners (other than the founders), referred to herein as the Second Distribution.  This debt consisted of a one-time pre-formation charge, miscellaneous start-up costs, and monthly shared services/consulting fees. The debt settlement was necessary to eliminate the outstanding debt on the balance sheet in order for OnPoint to raise additional capital.  The Initial Distribution and the Second Distribution are referred to herein as the Restructuring.  Following the Restructuring, Healthcare IP Partners did not own any shares of OnPoint.  We believe that this settlement with Healthcare IP Partners is final and that there is only a remote chance that we could still be liable for any future claim from Healthcare IP Partners or any stockholder of Healthcare IP Partners relating to or in connection with the Restructuring.  Any such claim could harm our revenues, business, prospects, financial condition and results of operations assuming our acceptance of responsibility for such claim.

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Our future revenues are unpredictable and we expect our operating results to fluctuate from period to period.

Our limited operating history and the uncertain nature of the market make it difficult for us to accurately forecast our future revenues in any given period. We have limited experience in financial planning for our business on which to base our planned operating expenses. If our revenues in a particular period fall short of our expectations, we will likely be unable to quickly adjust our spending in order to compensate for that revenue shortfall. As a result, our operating results would be adversely affected.  Our operating results are likely to fluctuate substantially from period to period as a result of a number of factors, many of which are beyond our control. These factors include:

·                                          the amount and timing of operating costs and capital expenditures relating to expansion of our operations;

·                                          the rate at which potential users adopt our products;

·                                          the announcement or introduction of new or enhanced products by our competitors;

·                                          our ability to attract and retain qualified personnel; and

·                                          the pricing policies of our competitors.

Our business model is evolving and unproven.

Our business model is unproven and is likely to continue to evolve.  Accordingly, our business model may not be successful and may need to be changed. Our ability to generate significant revenues will depend, in large part, on our ability to successfully market our products to potential users who may not be convinced of the need for our products and services or may be reluctant to rely upon third parties to develop and provide these products. We intend to continue to develop our business model as our market continues to evolve.

We need to increase brand awareness.

Due to a variety of factors, our opportunity to achieve and maintain a significant market share may be limited. Developing and maintaining awareness of our brand name, among others, is critical. Further, the importance of brand recognition will increase as competition in our market increases. Successfully promoting and positioning our brand will depend largely on the effectiveness of our marketing efforts and our ability to develop industry-leading products at competitive prices. Therefore, we may need to increase our financial commitment to creating and maintaining brand awareness. If we fail to successfully promote our brand name or if we incur significant expenses promoting and maintaining our brand name, it could have a material adverse effect on our results of operations.

We compete in highly competitive markets.

The market for MRI quality assurance software solutions is new and currently just evolving.  Overall, the quality control market within the medical industry is fragmented, with much of the work still being performed manually.  As such our primary competitor today is the manual process performed by technologists and recorded in a paper-based log book.  The only direct competitor with a software solution is Radiological Imaging Technology, who does not offer a cloud-based solution.  Potential competitors include large, multi-national companies who have a larger installed base of users, longer operating histories, greater name recognition and substantially greater technical, marketing, and financial resources.

Although we believe we will compete favorably in our market, new competitors could develop that may have longer operating histories, established ties to customers, greater brand awareness and well-accepted products. These competitors in the market space could have greater financial, technical and marketing resources. Our ability to compete depends, in part, upon a number of factors outside our control, including the ability of our competitors to develop alternatives that are competitive with our products.

Our success depends, in part, upon our intellectual property rights.

Our success depends, in part, upon our intellectual property rights.  We will also rely upon a combination of trade secret, nondisclosure and other contractual arrangements, and copyright and trademark laws to protect our proprietary rights.  We will enter into confidentiality agreements with our employees and contractors and limit access to and distribution of our proprietary information. There can be no assurance that such steps will be adequate to deter misappropriation of our

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proprietary information or that we will be able to detect unauthorized use and take appropriate steps to enforce our intellectual property rights.

Our ability to manage growth will affect our management systems, infrastructure and resources.

Our ability to successfully offer products and implement our business plan in the market requires an effective planning and management process. We are in the process of initiating our operations, and we intend to increase our headcount substantially. Beginning our operations and experiencing rapid growth will place a significant strain on our management systems, infrastructure and resources. To manage anticipated growth, we will need to develop and improve our operational, financial, accounting and other internal systems. In addition, our future success will depend in large part upon our ability to recruit, train, motivate and retain managers and other employees and maintain product quality. If we are unable to manage anticipated growth effectively, it could have a material adverse effect on the quality of our products and our business, financial condition, and results of operations.

We depend on key personnel and will need to attract and retain additional personnel.

Our success will depend in large part upon the key personnel we intend to hire.  At this time, we have only our President and Chief Executive Officer, William Cavanaugh, and our Interim Chief Financial Officer, Treasurer and Secretary, Mark Steege, in place as part of our management team.  We intend to recruit other key members of the management team.  If we do not quickly and efficiently integrate these key personnel into our management and culture, our business could suffer. Our future success depends on our ability to identify, attract, hire, train, retain and motivate highly skilled executive, technical, managerial, sales and marketing and business development personnel. We intend to hire additional executive, technical, sales, and marketing, business development and administrative personnel during the next year. Competition for qualified personnel is intense. If we fail to successfully attract, assimilate and retain a sufficient number of qualified executive, technical, managerial, sales and marketing, business development and administrative personnel, our business could suffer. The loss of the services of these key employees could have an adverse effect on our business. In addition, if one or more of these key employees resigns to join a competitor or to form a competing company, the loss of such employees and any resulting loss of existing or potential customers to such competitor could have a material adverse effect on our business, financial condition and results of operations. In the event of the loss of any such personnel, there can be no assurance that we would be able to prevent the unauthorized disclosure or use of our practices or procedures by such personnel. Although we intend to have key employees execute agreements containing confidentiality covenants, there can be no assurance that courts will enforce such covenants as written or that the agreements will deter conduct prohibited by such covenants.

Our organizational documents limit director liability.

Our Articles of Incorporation and Bylaws provide for indemnification of directors to the full extent permitted by law, eliminate or limit the personal liability of our directors and shareholders of monetary damages for certain breaches of fiduciary duty. Such indemnification may be available for liabilities arising in connection with the Merger. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or persons controlling our business pursuant to the foregoing provisions, we have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

We may be subject to potential product liability and other claims and we may not have the insurance or other resources to cover the costs of any successful claims.

Defects in our products could subject us to potential product liability claims that our products caused some harm to the human body.  Our product liability insurance may not be adequate to cover future claims.  Product liability insurance is expensive and, in the future, may not be available on terms that are acceptable to us, if it is available at all.  Plaintiffs may also advance other legal theories supporting their claims that our products or actions resulted in some harm.  A successful claim brought against us in excess of any insurance coverage could significantly harm our business and financial condition.

Risks Related to Our Common Stock

We expect an illiquid market for our common stock.

The shares for our common stock are currently subject to very limited trading.  We are unable to predict if a trading market will develop and be sustained following the completion of the Merger on April 15, 2011, but we expect any such market to involve limited liquidity for some period of time.

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We expect the market price for our common stock to be volatile.

The price of our common stock is expected to be volatile and an investment in our common stock could decline in value.

The market price of our common stock and the market prices for securities of software or medical imaging companies in general, are expected to be highly volatile. The following factors, in addition to other risk factors described in this Quarterly Report, and the potentially low volume of trades in our common stock, may have a significant impact on the market price of our common stock, some of which are beyond our control:

·                                          announcements of technological innovations and discoveries by us or our competitors;

·                                          developments concerning any research and development, manufacturing, and marketing collaborations;

·                                          new products or services that we or our competitors offer;

·                                          actual or anticipated variations in operating results;

·                                          the initiation, conduct and/or outcome of intellectual property and/or litigation matters;

·                                          changes in financial estimates by securities analysts;

·                                          conditions or trends in software or other medical imaging industries;

·                                          regulatory developments in the United States and other countries;

·                                          changes in the economic performance and/or market valuations of other software or medical imaging companies;

·                                          our announcement of significant acquisitions, strategic partnerships, joint ventures or capital commitments;

·                                          additions or departures of key personnel;

·                                          global unrest, terrorist activities, and economic and other external factors; and

·                                          sales or other transactions involving our common stock.

The stock market in general has recently experienced relatively large price and volume fluctuations.  In particular, market prices of securities of software companies have experienced fluctuations that often have been unrelated or disproportionate to the operating results of these companies.  Continued market fluctuations could result in extreme volatility in the price of our common stock, which could cause a decline in the value of our common stock.  Prospective investors should also be aware that price volatility may be worse if the trading volume of our common stock is low.

We do not expect to pay cash dividends in the foreseeable future.

No dividends have ever been paid by us and it is anticipated that any future profits received from operations will be retained for operations. We do not anticipate the payment of cash dividends on our capital stock in the foreseeable future, and any decision to pay dividends will depend upon our profitability at the time, cash available, and other factors. Therefore, no assurance can be given that there will ever be any such cash dividend or distribution in the future.

Because OnPoint became a public company as a result of the Merger and not a public offering, we may not attract the attention of major brokerage firms and, as a public company, will incur substantial expenses.

As a result of the Merger, OnPoint became a publicly-traded company and, accordingly, will be subject to the information and reporting requirements of the United States securities laws. The costs to public companies of preparing and filing annual and quarterly reports, proxy statements and other information with the SEC and furnishing audited reports to

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stockholders will cause our expenses to be higher than they would be if it were a privately-held company. Security analysts of major brokerage firms may not provide coverage of our business. No assurance can be given that brokerage firms will undertake to make a market for our common stock in the future.

Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. If we cannot provide reliable financial reports or prevent fraud, our operating results and financial condition could be harmed.

We are required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, which requires annual management assessments of the effectiveness of our internal controls over financial reporting. During the course of our testing, we may identify deficiencies which we may not be able to remediate in time to meet the deadline imposed by the Sarbanes-Oxley Act of 2002 for compliance with the requirements of Section 404. In addition, if we fail to maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002. Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 could have a material adverse effect on our business and operating results. In addition, current and potential stockholders could lose confidence in our financial reporting, which could have a material adverse effect on our stock price.

Our compliance with the Sarbanes-Oxley Act and SEC rules concerning internal controls will be time consuming, difficult and costly.

 As a reporting company, it will be time consuming, difficult and costly for us to develop and implement the internal controls and reporting procedures required by Sarbanes-Oxley. We will need to hire additional financial reporting, internal control, and other finance staff in order to develop and implement appropriate internal controls and reporting procedures. If we are unable to comply with Sarbanes-Oxley’s internal controls requirements, we may not be able to obtain the independent accountant certifications that Sarbanes-Oxley Act requires publicly-traded companies to obtain.

A significant number of the shares of our common stock will be eligible for sale, and their sale could depress the market price of our common stock.

The sale of a significant number of shares of our common stock in the public market following the Merger could harm the market price of our common stock. As additional shares of our common stock become gradually available for resale in the public market, the supply of our common stock will increase, which could decrease its market price. Some or all of the shares of our common stock may be offered from time to time in the open market pursuant to Rule 144 (or pursuant to a registration statement, if one is effective), and these sales may have a depressive effect on the market for the shares of our common stock. In general, a person who has held restricted shares for a period of one year from the filing of the Company’s Form 8-K relating to the Merger containing the Form 10 information may, upon filing of a notification on Form 144 with the SEC, sell into the market our common stock.

Our common stock will be considered “a penny stock” and may be difficult to sell.

The SEC has adopted regulations that generally define “penny stock” to be an equity security that has a market or exercise price of less than $5 per share, subject to specific exemptions. Initially, the market price of our common stock is less than $5 per share and therefore is designated a “penny stock” under SEC rules. This designation requires any broker or dealer selling our common stock to disclose certain information about the transaction, obtain a written agreement from the investor and determine that the investment in our common stock by the investor is a reasonably suitable investment for such investor. These rules may restrict the ability of brokers or dealers to sell our common stock and, as a result, may affect the ability of investors to sell their shares. In addition, unless and until our common stock is listed for trading on a national securities exchange, investors may find it difficult to obtain accurate quotations of the price of our common stock and may experience a lack of buyers to purchase such stock or a lack of market makers to support the stock price. Resale restrictions on transferring “penny stocks” are sometimes imposed by some states, which may make transactions in our stock more difficult and may reduce the value of your investment.

Substantial future issuances of our common stock could depress our stock price.

The market price for our common stock could decline, perhaps significantly, as a result of issuances of a large number of shares of our common stock in the public market or even the perception that such issuances could occur.  Sales of

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a substantial number of these shares of our common stock, or the perception that holders of a large number of shares intend to sell their shares, could depress the market price of our common stock.

You will experience additional dilution upon the conversion of the convertible notes or the exercise of warrants or options.

As of June 30, 2011, we have 557,359 shares of common stock issuable upon conversion of our convertible promissory notes (at an assumed conversion price of $0.65 per share), 659,787 shares of common stock issuable upon exercise of outstanding warrants and 1,050,000 shares of common stock issuable upon exercise of outstanding options.  In addition, we will be entitled to reserve a pool of stock options representing approximately 20% of the shares of our common stock for the Employee Stock Option Pool, pursuant to our 2011 Omnibus Incentive Compensation Plan. The Employee Stock Option Pool will automatically increase each year such that the total number of shares available for issuance under the 2011 Omnibus Incentive Compensation Plan is equal to 20% of the fully-diluted shares as of the date of such increase.

If the holders of those convertible notes, warrants, or options convert or exercise their rights, you may experience dilution in the net tangible book value of your common stock.

Our Directors and officers, as well as certain stockholders, will have a high concentration of common stock ownership.

As of June 30, 2011, our officers and directors will beneficially own approximately 25% of our outstanding common stock (assuming none of our remaining notes are converted).  In addition, certain of existing stockholders will beneficially own more than 10% of our common stock following the Merger.  Such a high level of ownership by such persons may have a significant effect in delaying, deferring or preventing any potential change in control of us.  Additionally, as a result of their high level of ownership, our officers, directors and such stockholders might be able to strongly influence the actions of our board of directors, and the outcome of actions brought to our stockholders for approval. Such a high level of ownership may adversely affect the voting and other rights of our stockholders.

Reverse Merger

On February 1, 2011, VHS, OnPoint and Merger Sub entered into the Reverse Merger Agreement.  Pursuant to the Reverse Merger Agreement, Merger Sub merged into OnPoint on April 15, 2011 with OnPoint continuing as the surviving entity in the Merger.

As a result of the Reverse Merger, each share of capital stock of OnPoint was converted into one share of common stock of VHS.  Immediately following the Merger, VHS owned 100% of the outstanding capital stock of OnPoint.  In connection with the Reverse Merger, VHS issued an aggregate of 7,143,113 shares of common stock.  Of the 7,143,113 shares of common stock to be issued to shareholders of OnPoint, 1,000,000 shares of common stock (the “Escrow Shares”) were delivered to Private Bank Minnesota (the “Escrow Agent”) and held in escrow pursuant to the Reverse Merger Agreement and the terms of the share escrow agreement, dated April 15, 2011, among the Escrow Agent, OnPoint, and VHS (the “Escrow Agreement”).  The Escrow Shares will be disbursed to the shareholders of OnPoint upon receipt by VHS of an aggregate of $1,000,000 in equity financing (the “Equity Release Amount”); provided, the Equity Release Amount is received on or before December 31, 2011.  If the Equity Release Amount is received on or before December 31, 2011, the shares of common stock held in the Escrow Fund shall be distributed to the shareholders of OnPoint pro rata based on such shareholders percentage ownership immediately prior to the Effective Time.  If the Equity Release Amount is not received on or before December 31, 2011, the Escrow Shares shall be released by the Escrow Agent to VHS on January 1, 2012 and shall thereafter be cancelled by VHS.

The issuance of common stock in connection with the Reverse Merger was exempt from registration under Section 4(2) of the Securities Act and Rule 506 of Regulation D thereunder.  The Company relied on the following facts to make this exemption available: (i) the common stock was issued to the existing stockholders of OnPoint, all of which are accredited investors and therefore did not exceed the maximum purchaser limitation; (ii) the information statement describing the merger was only provided to existing stockholders of OnPoint and did not violate the general solicitation rules; and (iii) all of the securities have the status of securities acquired in a transaction under Section 4(2) of the Securities Act and cannot be resold without registration or an exemption therefrom.

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Initial Closing of Private Placement

On June 7, 2011, VHS completed the initial closing of a private placement to accredited investors of 525,000 units, at a purchase price of $1.00 per unit, for approximately $525,000 in gross proceeds. Each unit consisted of one share of common stock and a warrant to purchase 0.5 shares of common stock.  Pursuant to a Confidential Private Placement Memorandum, VHS issued an aggregate of approximately 525,000 shares of common stock, together with warrants to purchase approximately 262,500 shares of common stock at an exercise price of $2.00 per share.

In connection with this offering, the Company engaged Emergent Financial Group, Inc. to act as exclusive placement agent (the “Placement Agent”). The Placement Agent received commissions of 10% of the gross proceeds of the offering and a corporate finance fee of 3% of the gross proceeds of the offering for providing certain services as Placement Agent.  The Placement Agent will also receive a five-year warrant to buy a number of shares of common stock equal to 10% of the number of shares of common stock sold in the offering and the shares of common stock that may be issued upon the exercise of warrants sold in the offering, subject to certain limitations (the “Placement Agent Warrant”).  The Placement Agent Warrant will have an exercise price of $2.00 per share and will be issued at the final closing of the offering.  In addition, the Placement Agent will be reimbursed, on an accountable basis, for up to $15,000 of its fees and expenses in connection with the offering.

Additional closings of the offering may be held until the earlier of August 15, 2011 or the completion of the sale of up to an aggregate maximum gross proceeds of $5,000,000.  The net proceeds of the offering shall be used (i) to support the development and commercialization of MRI quality assurance software technologies; (ii) to support the development and commercialization of quality assurance software technologies for additional diagnostic modalities; and (iii) for general corporate purposes.

The shares were sold, and the warrants were issued, pursuant to the exemption from registration afforded by Section 4(2) of the Securities Act and Rule 506 of Regulation D thereunder.  The Company relied on the following facts in making such exemption available: (i) the offer and sale of these securities was made to thirteen accredited investors and therefore did not exceed the maximum purchaser limitation or violate the general solicitation rules; and (ii) all of the securities have the status of securities acquired in a transaction under Section 4(2) of the Securities Act and cannot be resold without registration or an exemption therefrom.

Conversion of 10% Notes

On June 7, 2011, the Company entered into a bridge note conversion agreement with certain of its existing bridge note holders to convert all or a portion of the outstanding principal balance (plus accrued interest) of such holders’ 10% conversion promissory notes (the “10% Notes”) into shares of common stock at a conversion price of $0.65 per share.  In consideration for conversion, the Company provided such holders with registration rights.  Holders of $1,017,500 of 10% Notes have converted their 10% Notes into 1,637,663 shares of common stock.  As of June 30, 2011, there were $330,000 of 10% Notes outstanding.

The securities issued in connection with the bridge note conversion agreement were exempt from registration under Section 3(a)(9) of the Securities Act.  The Company relied on the following facts in making such exemption available: (i) this was an exchange of its equity securities of the Company for new equity securities of the Company; (ii) such exchange only occurred with existing security holders; and (iii) no commission or other remuneration was paid or given directly or indirectly for soliciting such exchange.

Amendment to Selling Agent Agreement

On June 28, 2011, VHS, OnPoint and Emergent Financial Group, Inc. (“Emergent”) entered into an amendment (the “Amendment”) to the Selling Agency Agreement (as defined below) in order to finalize the number of shares of our common stock underlying the Selling Agent Warrants (as defined below) to which Emergent was entitled.  Pursuant to the Amendment, Emergent received Selling Agent Warrants to purchase an aggregate of 236,537 shares of our common stock at an exercise price of $1.00 per share.  The Selling Agent Warrants expire on March 2, 2016.

By way of background, on September 10, 2010, OnPoint and Emergent entered into a selling agency agreement (the “Selling Agency Agreement”) relating to the private placement of $1,347,500 of the 10% Notes whereby Emergent agreed to act as OnPoint’s agent for such offer and sale. Pursuant to the terms of the Selling Agency Agreement, Emergent was eligible to receive commissions of 10% of the principal amount of the 10% Notes and a non-accountable expense allowance of 3% of the principal amount of the 10% Notes for providing services as selling agent.  Emergent was also entitled to receive a five-year warrant exercisable for 10% of the maximum number of shares which may be issued upon conversion of the principal and accrued interest of the 10% Notes at the rate of $0.65 per share, with an exercise price of $1.00 per share (the “Selling

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Agent Warrants”).  Pursuant to the terms of the Selling Agency Agreement, Emergent was paid $134,750 in commissions and $40,425 as a non-accountable expense allowance.

As previously disclosed, on June 7, 2011 the Company entered into a bridge note conversion agreement with certain holders of the 10% Notes to convert all or a portion of the outstanding principal balance (plus accrued interest) of such holders’ 10% Notes into shares of common stock, at a conversion price of $0.65 per share.  Holders of $1,017,500 of 10% Notes converted their 10% Notes into 1,637,663 shares of common stock.  As a result of such conversion, the parties were able to finalize the number of shares to which Emergent was entitled pursuant to the Selling Agency Agreement.

The issuance of securities in connection with the Amendment was exempt from registration under Section 4(2) of the Securities Act.  The Company relied on the following facts to make this exemption available: (i) the Placement Agent had enough knowledge and experience in finance and business matters to evaluate the risks and merits of the investment, or is able to bear the investment’s economic risk; (ii) the Placement Agent had access to the type of information normally provided in a prospectus; and (iii) the Placement Agent agreed not to resell or distribute the securities to the public.  In addition, there was no public solicitation or general advertising in connection with such issuance.

None.

None.

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+              Confidential Treatment Requested.  Confidential Materials omitted and filed separately with the Securities and Exchange Commission.

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SIGNATURES

Pursuant to the requirements 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.

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EXHIBIT INDEX