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EXCEL - IDEA: XBRL DOCUMENT - VIRTUAL MEDICAL INTERNATIONAL, INC.Financial_Report.xls






UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[X]
QUARTERLY REPORT UNDER TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2011
OR
[   ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 000-53941

VIRTUAL MEDICAL INTERNATIONAL, INC.
(Formerly, QE Brushes, Inc.)
(Exact name of registrant as specified in its charter)

NEVADA
(State or other jurisdiction of incorporation or organization)

469 St. Pierre Road
Los Angeles, California   90077
(Address of principal executive offices, including zip code.)

(310) 470-2616
(Registrant’s  telephone number, including area code)

Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 last 90 days.   YES [X]     NO [   ]

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 (SS 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   YES [   ]     NO [X]

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,” “non-accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 
Large Accelerated Filer
[   ]
 
Accelerated Filer
[   ]
 
Non-accelerated Filer
[   ]
 
Smaller Reporting Company
[X]
 
(Do not check if smaller reporting company)
     

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   YES [X]     NO [   ]

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicated the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date 25,367,541 as of August 22, 2011
 




 
 

 


TABLE OF CONTENTS

 
Page
 
 
   
 
   
Financial Statements.
3
 
   
   
Balance Sheets (Unaudited)
F-1
   
F-2
   
F-3
   
F-4
 
   
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
8
 
   
Quantitative and Qualitative Disclosures About Market Risk.
9
 
   
Controls and Procedures.
9
 
   
   
 
   
Risk Factors.
10
 
   
Other Information.
10
 
   
Exhibits.
10
 
   
11
 
 
12










 
-2-

 

PART I. – FINANCIAL INFORMATION

VIRTUAL MEDICAL INTERNATIONAL, INC.
(Formerly QE Brushes, Inc.)
(A Development Stage Company)
Balance Sheets
(Unaudited)


   
June 30,
 
December 31,
   
2011
 
2010
ASSETS
       
CURRENT ASSETS
       
Cash
$
361
$
100
Total Current Assets
 
361
 
100
Other Assets
       
         
Investment in securities available for sale, (net of market adjustment
of $5,544,000 and 4,620,000 respectively)
 
252,000
 
1,176,000
Total Other Assets
 
252,000
 
1,176,000
Total Assets
$
252,361
$
1,176,100
         
LIABILITIES AND STOCKHOLDERS’ EQUITY
       
CURRENT LIABILITIES:
       
Accounts payable
$
45,363
$
21,661
Note payable - related party
 
54,553
 
19,567
Total Current Liabilities
 
99,916
 
41,228
         
Stockholders’ Equity
       
Preferred stock, $.00001 par, 50,000,000 shares authorized,
44,479,500 shares issued and outstanding
 
445
 
445
Common stock, $.00001 par, 250,000,000 shares authorized
25,367,541  shares issued and outstanding, respectively
 
254
 
254
Additional paid-in capital
 
83,291,570
 
83,291,570
Accumulated other comprehensive (loss)
 
(5,544,000)
 
(4,620,000)
Deficit accumulated during the development stage
 
(77,595,824)
 
(77,537,397)
         
Total Stockholders’ Equity
 
152,445
 
1,134,872
         
Total Liabilities and Stockholders’ Equity
$
252,361
$
1,176,100










The accompanying notes are an integral part of these unaudited financial statements.
F-1

 
-3-

 


VIRTUAL MEDICAL INTERNATIONAL, INC.
(Formerly QE Brushes, Inc.)
(A Development Stage Company)
Statements of Expenses
(Unaudited)


           
From Inception
           
(July 19, 2007)
   
Three Months Ended
 
Six Months Ended
 
Through
   
June 30,
 
June 30,
 
June 30,
   
2011
 
2010
 
2011
 
2010
 
2011
INCOME:
 
260
 
-
 
260
 
-
 
260
                     
OPERATING EXPENSES:
                   
Legal fees
$
8,380
$
11,788
$
12,994
$
12,898
$
89,850
Accounting fees
 
12,210
 
8,589
 
20,765
 
12,089
 
66,141
Office expense
 
131
 
280
 
131
 
946
 
6,239
Interest expense
 
123
 
-
 
123
 
-
 
123
License and fees
 
44
 
1,579
 
7,060
 
2,581
 
12,968
Consulting
 
15,325
 
1,790
 
15,325
 
2,965
 
42,274,374
Travel
 
-
 
1,605
 
-
 
1,606
 
2,315
Product development costs
 
-
 
-
 
-
 
-
 
25,271
Website
 
2,289
 
-
 
2,289
 
-
 
2,289
Loss on disposal of inventory
 
-
 
-
 
-
 
-
 
14,114
Total operating expenses
 
38,502
 
25,631
 
58,687
 
33,085
 
42,493,684
                     
OPERATING LOSS
 
(38,242)
 
(25,631)
 
(58,427)
 
(33,085)
 
(42,493,424)
                     
IMPAIRMENT ON LONG LIVED
ASSET
 
-
 
-
 
-
 
-
 
(35,102,400)
                     
NET LOSS BEFORE OTHER
COMPREHENSIVE LOSS
 
(38,242)
 
(25,631)
 
(58,427)
 
(33,085)
 
(77,595,824)
                     
OTHER COMPREHENSIVE LOSS
                   
Unrealized loss in investments
available for sale
 
(252,000)
 
-
 
(924,000)
 
-
 
(5,544,000)
Total comprehensive loss
 
(252,000)
 
-
 
(924,000)
 
-
 
(5,544,000)
                     
NET LOSS
$
(290,242)
$
(25,631)
$
(982,427)
$
(33,085)
$
(83,139,824)
                     
Weighted average number of shares
 
14,453,953
 
7,832,363
 
14,453,953
 
7,347,624
   
                     
Basic net loss per share
$
(0.02)
$
(0.00)
$
(0.07)
$
(0.00)
   





The accompanying notes are an integral part of these unaudited financial statements.
F-2

 
-4-

 


VIRTUAL MEDICAL INTERNATIONAL, INC.
(Formerly QE Brushes, Inc.)
(A Development Stage Company)
Statements of Cash Flows
(Unaudited)


       
From Inception
       
(July 19, 2007)
   
Six Months Ended
 
Through
   
June 30,
 
June 30,
   
2011
 
2010
 
2011
Cash Flows From Operating Activities
           
 
Net Loss
$
(58,427)
$
(33,085)
$
(77,595,824)
 
Adjustments to reconcile net loss to net cash
           
   
used in operating activities:
           
   
Common stock issued for services
 
-
 
1,500
 
42,261,094
   
Impairment of long lived asset
 
-
 
-
 
35,102,400
 
Changes in assets and liabilities:
           
   
Prepaid expenses
 
-
 
(14,114)
 
142
   
Accounts payable
 
23,702
 
2,172
 
45,221
     
Total cash used in operating activities
 
(34,725)
 
(43,527)
 
(186,967)
                   
Cash Flows From Financing Activities
           
 
Sale of common stock to founder
 
-
 
-
 
3,775
 
Notes payable - related party
 
34,986
 
-
 
54,553
 
Proceeds from sale of common stock
 
-
 
-
 
129,000
     
Total cash provided by financing activities
 
34,986
 
-
 
187,328
                   
     
Net Increase (Decrease) in Cash
 
261
 
(43,527)
 
361
                   
     
Cash at Beginning of Period
 
100
 
48,253
 
-
                   
     
Cash at End of Period
$
361
$
4,726
$
361
                   
Supplemental Disclosure of Cash Flow Information
           
   
Interest paid
$
-
$
-
$
31
   
Income taxes paid
$
-
$
-
$
-
Non- Cash transactions from investing and financing activities
           
   
Asset purchase agreement
$
-
$
-
$
5,796,000
   
Mark to market AFSS
$
924,000
$
-
$
5,292,000
   
Acquisition of subsidiary
$
-
$
-
$
35,102,165











F-3
The accompanying notes are an integral part of these unaudited financial statements.

 
-5-

 

VIRTUAL MEDICAL, INTERNATIONAL
(FORMERLY QE BRUSHES, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)


NOTE 1 — BASIS OF PRESENTATION

The unaudited financial statements of Virtual Medical International, Inc. (hereafter referred to as “VMI” or the “Company”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Although certain information normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted, the Company believes that the disclosures are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the financial statements and notes thereto for the fiscal year ended December 31, 2010, included in the Company’s Form 10-K.

The financial statements included herein reflect all normal recurring adjustments that, in the opinion of management, are necessary for a fair presentation. The results for interim periods are not necessarily indicative of trends or of results to be expected for the full year ended December 31, 2011.

Reclassifications

Certain reclassifications have been made to prior period’s balances to conform to classifications used in 2011.


NOTE 2. – DESCRIPTION OF BUSINESS

Virtual Medical International, Inc., formerly known as QE Brushes, Inc. (the predecessor name of the corporation) was incorporated in Nevada on July 19, 2007, for the purpose of developing, manufacturing and selling toothbrushes designed specifically for dogs and cats. Subsequently, the board of directors and shareholders decided to change the business direction and the name of the company. On August 26, 2010, the name was officially changed to Virtual Medical International, Inc.

The Company plans to be in the business of medical education through the internet, and will seek to develop and or acquire websites that are designed to convey to patients the risks and benefits of medical treatments in an easy to understand, yet comprehensive fashion. By using these services, patients will be able to make more informed decisions regarding their care and treatment thereby decreasing risk of a misinformed malpractice suit against a physician or a hospital.

This decrease in risk will result in a decrease in the overall cost to malpractice liability insurance companies, which represent our primary compensation targets. The company also plans to create virtual waiting rooms where patients will be able to see physicians online twenty four hours a day.


NOTE 3. – GOING CONCERN

The company has incurred net losses from the date of inception (July 19, 2007) through June 30, 2011, and has generated minimal revenue. Currently the company has minimal cash and will have to raise additional capital through the sale of equity securities.



F-4

 
-6-

 


VIRTUAL MEDICAL, INTERNATIONAL
(FORMERLY QE BRUSHES, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)


These conditions and uncertainties raise substantial doubt as to the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if VMI is unable to continue as a going concern.


NOTE 4. – STOCKHOLDERS’ EQUITY

The accumulated other comprehensive loss account was charged $5,544,000 for the decrease in value of the investment in securities available for sale (1,680,000 shares of common stock of Entertainment Arts Research, Inc.).


NOTE 5. – RELATED PARTY

The current CEO of VMI, Frank D’ Ambrosio has advanced WMI $19,567 through June 30, 2011. This amount bears no interest, is unsecured and due on demand. There was not a cash advance to VMI, rather Frank D’ Ambrosio caused various invoices to be paid on behalf of VMI.

During the first quarter ended March 31, 2011, VMI borrowed $34,986 from two shareholders of the company; Marc Stein advanced $4,000 and Nicholas D’Ambrosio advanced $30,986. These advances are unsecured, due on demand, and bear 2% interest.
























F-5

 
-7-

 

ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

This section of the quarterly report includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like: believe, expect, estimate, anticipate, intend, project and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements, which apply only as of the date of this report. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results of our predictions.

We are a start-up corporation and have not yet generated or realized any revenues from our business operations. Our auditors have issued a going concern opinion on the financial statements for the year ended December 31, 2010. The Company has now begun to generate limited revenue.

Results of Operations

During the six months ended June 30, 2011, we had revenues of $260 and incurred operating expenses of $58,427, which were primarily legal, accounting and consulting fees. During the comparable three month period ended June 30, 2010, the Company had no revenues and incurred operating expenses of $33,085, which primarily consisted of legal, accounting and license fees.

For the period ending June 30, 2011, the Company experienced an unrealized loss in investments available for sale in the amount of $924,000 as a result of a decline in the market value of the investment.  There were no unrealized losses from investments for the period ending June 30, 2010.

We own and operate two public portal websites: Explain My Surgery.com and Explain My Chiropractic Care.com. The purpose of each site is to provide patients with an easy to understand, interactive information system that educates patients, allows them to understand the risks, benefits and alternatives to surgical or chiropractic intervention.  Prior to December 2010, we were engaged in the business of manufacturing and selling toothbrushes specifically for use by pet owners to clean canine and feline mouths.  We never generated any revenues from the sale of toothbrushes.

Financial Condition

Cash remained virtually unchanged from December 31, 2010 to June 30, 2011, increasing from $100 to $361.  Current operating expenses are paid through borrowings from a related party. Accounts payable increased from $21,661 as of December 31, 2010 to $45,363 as of June 30, 2011. In order to pay current operating expenses, the Company borrowed $34,986 from friends of the Company’s president.   The Company also owns 1,680,000 shares of common stock of Entertainment Arts, Inc., which trades on the over-the-counter pink sheets. The market price of the stock was $.15 per share on June 30, 2011, which resulted in a market value of $252,000.  The price dropped by almost 50% from the previous quarter. The common stock of Entertainment Arts, Inc. is thinly traded and Virtual medical does not intend to sell this stock in the short-term.

Liquidity

The Company has limited capital resources and may have to rely upon the additional sale of equity securities in order to continue in business. There is no assurance that financing, whether debt or equity, will be available to the Company at any particular time, or could be obtained on terms satisfactory to the Company.

Our common stock is thinly traded on the Bulletin Board operated by the Financial Industry Regulatory Authority (FINRA).


 
-8-

 

Capital Resources

The Company owns no property or assets other than 1,680,000 restricted shares of common stock with a current market price of $0.15 per shares or approximately $252,000.

Contractual Obligations

 
Payments due by periods
Obligations
Total
Less than
1-3 Years
3-5 Years
More than
   
1 year
   
5 years
Long-Term Debt Obligations
-0-
-0-
-0-
-0-
-0-
Capital (Finance) Lease Obligations
-0-
-0-
-0-
-0-
-0-
Operating Lease Obligations
-0-
-0-
-0-
-0-
-0-
Purchase Obligations
-0-
-0-
-0-
-0-
-0-
Other Long Term Liabilities
-0-
-0-
-0-
-0-
-0-
Total
-0-
-0-
-0-
-0-
-0-

Changes in Accounting Policies

We did not change our accounting policies during 2011 or 2010.

Off-Balance Sheet Arrangements

During the six months ended June 30, 2011, we did not have any off-balance sheet arrangements.

ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

ITEM 4.          CONTROLS AND PROCEDURES.

We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. We conducted an evaluation (the “Evaluation”), under the supervision and with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures (“Disclosure Controls”) as of the end of the period covered by this report pursuant to Rule 13a-15 of the Exchange Act. Based on this Evaluation, our CEO and CFO concluded that our Disclosure Controls were not effective because of the identification of a material weakness in our internal control over financial reporting which is identified below, which we view as an integral part of our disclosure controls and procedures.

The material weakness relates to the monitoring and review of work performed by our limited accounting staff in the preparation of financial statements, footnotes and financial data provided to our independent registered public accounting firm in connection with the annual audit. More specifically, the material weakness in our internal control over financial reporting is due to the fact that:

 
-  
The Company lacks proper segregation of duties. We believe that the lack of proper segregation of duties is due to our limited resources.
 
-  
The Company does not have a comprehensive and formalized accounting and procedures manual.


 
-9-

 

There were no changes in our internal control over financial reporting during the quarter ended June 30, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


PART II – OTHER INFORMATION

ITEM 1A.       RISK FACTORS.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

ITEM 5.          OTHER INFORMATION.

On July 8, 2011, David Hostelley resigned as our principal financial officer, principal accounting officer, treasurer and was replaced in these positions by Frank d’Ambrosio, our current president, principal executive officer and director.  This matter was supposed to be reported on Form 8-K on or before July 14, 2011, but was not.

ITEM 6.          EXHIBITS.

   
Incorporated by reference
 
Exhibit
Document Description
Form
Date
Number
Filed herewith
3.1
Articles of Incorporation.
S-1
3/16/09
3.1
 
           
3.2
Bylaws.
S-1
3/16/09
3.2
 
           
4.1
Specimen Stock Certificate.
S-1
3/16/09
4.1
 
           
10.1
Consulting Agreement – Greg Ruff
8-K
9/16/10
10.1
 
           
10.2
Consulting Agreement – Robert Tassinari
8-K
9/16/10
10.2
 
           
10.3
Agreement with Entertainment Arts Research
8-K
9/16/10
10.1
 
           
10.4
Agreement with Entertainment Arts Research
8-K
12/10/10
10.1
 
           
31.1
Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
X
           
32.1
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
X
           
99.1
Audit Committee Charter.
10-K
4/12/10
99.1
 
           
99.2
Disclosure Committee Charter.
10-K
4/12/10
99.2
 
 
 
 

 


 
-10-

 


SIGNATURES

In accordance with Section 13 or 15(d) of the Securities and Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 22nd day of August, 2011.

 
VIRTUAL MEDICAL INTERNATIONAL, INC.
 
(the “Registrant”)
   
     
 
BY:
FRANCIS D’AMBROSIO
   
Francis D’Ambrosio
   
Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer




















 
-11-

 


EXHIBIT INDEX

   
Incorporated by reference
 
Exhibit
Document Description
Form
Date
Number
Filed herewith
3.1
Articles of Incorporation.
S-1
3/16/09
3.1
 
           
3.2
Bylaws.
S-1
3/16/09
3.2
 
           
4.1
Specimen Stock Certificate.
S-1
3/16/09
4.1
 
           
10.1
Consulting Agreement – Greg Ruff
8-K
9/16/10
10.1
 
           
10.2
Consulting Agreement – Robert Tassinari
8-K
9/16/10
10.2
 
           
10.3
Agreement with Entertainment Arts Research
8-K
9/16/10
10.1
 
           
10.4
Agreement with Entertainment Arts Research
8-K
12/10/10
10.1
 
           
31.1
Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
X
           
32.1
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
X
           
99.1
Audit Committee Charter.
10-K
4/12/10
99.1
 
           
99.2
Disclosure Committee Charter.
10-K
4/12/10
99.2
 




 
 
 
 
 

 




 
-12-