Attached files
file | filename |
---|---|
EX-31.1 - Cliff Rock Resources Corp. | v198878_ex31-1.htm |
EX-14.1 - Cliff Rock Resources Corp. | v198878_ex14-1.htm |
EX-32.1 - Cliff Rock Resources Corp. | v198878_ex32-1.htm |
EX-31.2 - Cliff Rock Resources Corp. | v198878_ex31-2.htm |
EX-32.2 - Cliff Rock Resources Corp. | v198878_ex32-2.htm |
EX-10.8 - Cliff Rock Resources Corp. | v198878_ex10-8.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
þ
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE FISCAL YEAR ENDED JUNE 30,
2010.
|
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE TRANSITION PERIOD FROM ______________
TO________________.
|
VIRTUAL
MEDICAL CENTRE, INC.
(Exact
name of registrant as specified in its charter)
NEVADA
|
98-0459440
|
|
(State
of or other jurisdiction of
incorporation
or organization)
|
(IRS
Employer I.D. No.)
|
L1, 414
Scarborough Beach Road, Osborne Park, WA, Australia, 6017
(Address
of Principal Executive Office)
+61-8-938-0344
(Registrant’s
telephone number, including area code)
Securities
registered under Section 12(b) of the Exchange Act: NONE
Securities
registered under Section 12(g) of the Exchange Act: Common Stock par value
$0.001
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. ¨
Yes þ No
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. ¨Yes þ No
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed under 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. þ Yes ¨ No
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 if Regulation S-T (§229.405 of this
chapter) during the preceding 12 months (or such shorter period that the
registrant was required to submit and post such files) þ Yes ¨ No
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained in this form, and no disclosure will be
contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. ¨
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
definition of “large accelerated filer,” “accelerated filer” and “smaller
reporting Company” in Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated filer ¨
|
Non-accelerated
filer
¨
|
|
Accelerated
filer ¨
|
Smaller reporting Company þ
|
Indicate
by check mark whether the registrant is a shell Company (as defined in Rule
12b-2 of the Act). ¨Yes þ No
The
aggregate market value of the voting and non-voting common equity held by
non-affiliates as of December 31, 2009, based on the closing price of the
Over-The-Counter Bulletin Board was $766,920.
Number of
shares outstanding of the registrant’s common stock, $0.001 par value,
outstanding on October 6, 2010: 84,253,764.
TABLE
OF CONTENTS
Page
|
|||||
PART
I
|
|||||
ITEM 1.
|
DESCRIPTION
OF BUSINESS
|
1
|
|||
ITEM
1A.
|
RISK
FACTORS
|
7
|
|||
ITEM 2.
|
DESCRIPTION
OF PROPERTY
|
16
|
|||
ITEM 3.
|
LEGAL
PROCEEDINGS
|
16
|
|||
ITEM 4.
|
REMOVED
AND RESERVED
|
16
|
|||
PART
II
|
|||||
ITEM 5.
|
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
|
17
|
|||
ITEM 7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
|
19
|
|||
ITEM 8.
|
FINANCIAL
STATEMENTS
|
24
|
|||
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL
DISCLOSURE
|
42
|
|||
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
42
|
|||
ITEM 9B.
|
OTHER
INFORMATION
|
||||
ITEM
10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
43
|
|||
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
45
|
|||
ITEM
12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
|
47
|
|||
ITEM
13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
|
49
|
|||
ITEM 14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
49
|
|||
ITEM 15.
|
EXHIBITS
|
50
|
|||
SIGNATURE
|
52
|
PART
I
ITEM
1 – DESCRIPTION OF BUSINESS
Company
Overview
Virtual
Medical Centre, Inc. (“Virtual Medical,” the “Company,” “we,” or “us”) was
incorporated on February 4, 2005 under the laws of the state of Nevada under the
name “Cliff Rock Resources Corp”, and was originally organized for the purpose
of acquiring mineral exploration projects. On
May 27, 2010, the Company entered into
an Exchange Agreement, more fully described below (the “Exchange Agreement”),
with Virtual Medical Centre Limited (“VMC”), a company incorporated under the
laws of Australia on August 28, 2001. VMC is engaged in the business
of providing online medical content, continuing medical education and health
information to consumers, patients and medical
professionals. Pursuant to the terms of the Exchange Agreement, on
July 12, 2010 the Company filed an amendment to its Articles of Incorporation
changing its name to “Virtual Medical Centre, Inc.”
Merger
of Cliff Rock and VMC
On May
27, 2010 (the “Closing Date”), Cliff Rock entered into the Exchange
Agreement with VMC and a Share Sale Agreement (the “Share Sale
Agreement”) with each of the shareholders and option holders of VMC, pursuant to
which Cliff Rock acquired all of the issued and outstanding ordinary shares
(“VMC Shares”) and options (“VMC Options”) of VMC. Prior to the Exchange
Agreement, there was no relationship between Cliff Rock and VMC or their
respective affiliates, other than in respect of the Exchange Agreement and the
transactions contemplated thereby.
In
accordance with the terms of the Exchange Agreement, Cliff Rock issued an
aggregate of 71,471,764 shares of its common stock, par value $0.001 per share
(the “Cliff Rock Shares”), to the shareholders of VMC (the “VMC Shareholders”)
in exchange for all of the issued and outstanding VMC Shares, or approximately
1.16 Cliff Rock Shares for every VMC Share held by the VMC Shareholders (the
“Share Exchange”).
The
Exchange Agreement provided that after the Closing Date, the Company would use
all reasonable efforts to raise up to AU$6,000,000 ($5,328,000), either through
the issuance of equity, convertible securities or debt, or a combination
thereof, at a purchase price of not less that AU$0.30 ($0.266) per share (the
“Minimum Purchase Price”).
In order
to mitigate the effects of future financings, Wayne Hughes, VMC’s Chief
Executive Officer, Thomas Maher, VMC’s Chief Operating Officer, and Dr. Andrew
Dean, a director of VMC (collectively, the “VMC Directors and Officers”) agreed
that an aggregate of 20,000,000 shares of common stock of Cliff Rock otherwise
issuable to them under the Share Exchange be placed into escrow (the “Escrow
Shares”) for a period of three years from the Closing Date, in accordance with
the terms of an escrow agreement (the “Escrow Agreement”). Under the Escrow
Agreement, one-sixth (1/6) of the Escrow Shares are to be released to the VMC
Officers and Directors, on a pro-rata basis, for every AU$1,000,000 ($888,000)
in financing raised by the Company at a price per share equal to or greater than
AU$0.30 ($0.266) (the “Financing Release”). If the Company
consummates one or more financing transactions at a price per share that is less
than AU$0.30 ($0.266), the Escrow Shares are to be released to the Company for
cancellation at the following rate:
X = Y -
(A)(Y)
B
1
Where:
X
= the number of
Escrow Shares to be released for cancellation by the Company.
Y
= the number of
shares of Cliff Rock Shares (and/or Cliff Rock Shares acquirable upon exercise
or conversion of securities issued in the financing).
A
= the price per
share of Cliff Rock Shares (and/or Cliff Rock Shares acquirable upon exercise or
conversion of securities issued in the financings) issued in the
financing.
B
= AU$0.30
($0.266).
Any
Escrow Shares remaining three years after the Closing Date, after giving effect
to the Financing Release and the cancellation of Escrow Shares set forth above,
will be released to the VMC Officers and Directors.
Under the
Exchange Agreement and the Share Sale Agreement, the VMC Shareholders have
agreed that their Cliff Rock Shares issued pursuant to the Share Exchange are
subject to a six month voluntary lock up commencing on the Closing
Date.
Prior to
the Closing Date, Cliff Rock cancelled 32,500,000 shares of its common
stock. As a result, on the Closing Date, 84,253,764 Cliff Rock Shares
were issued and outstanding, including the 71,471,764 Cliff Rock Shares issued
in connection with the Exchange Agreement, which represented approximately 84.8%
of the post-exchange issued and outstanding shares of Cliff Rock common stock.
Following the Closing Date, in accordance with the terms of the Exchange
Agreement, the authorized capitalization of the Company was increased from
100,000,000 shares of common stock, $0.001 par value, to 200,000,000 shares of
common stock, $0.001 par value, by a Certificate of Amendment effective July 12,
2010. The Company
has further secured the approval of a majority of its shareholders for a further
increase in the Company’s capital stock and authorization of preferred stock and
has filed a preliminary information statement relating to such approval with the
Securities and Exchange Commission on Schedule 14C.
The issuance of the 71,471,764 Cliff
Rock Shares (now, shares of the Company’s common stock) to the VMC
Shareholders was deemed by Cliff Rock and VMC to be a reverse acquisition for
accounting purposes, as the former VMC Shareholders control the Company
following the Share Exchange. Accordingly, VMC is regarded as the predecessor
entity as of the Closing Date. Further, for accounting purposes, the
Company will account for the assets and liabilities of the Company and VMC on a
consolidated basis at their historical cost, with VMC being the acquirer for
accounting purposes.
The Company will continue to file annual and quarterly reports
based upon the fiscal year-end of VMC, the accounting acquirer, which is June
30.
History
of VMC
VMC was originally named “Virtual
Cancer Centre Pty Ltd.” and was incorporated as an Australian corporation on
August 28, 2001, with a name change to “Virtual Medical Centre Pty Ltd.” on July
23, 2007. The Company changed its status from a proprietary company (Pty Ltd) to
a public company (Limited) on December 17, 2007 and further changed its name to
Virtual Medical Centre Limited.
2
Virtual
Cancer Centre was created by Dr. Andrew Dean, a senior palliative care
specialist in Western Australia, in response to the level of misinformation on
medical issues that he perceived on the internet in the early 2000s. Dr. Dean
discovered that his patients had a pronounced need for information on cancer,
and he thus developed an intranet site about cancer at his hospital for his
patients’ use. Shortly after developing his site, medical professionals and
patients from other hospitals requested access to the information, leading to
the creation of the internet-based Virtual Cancer Centre in
August 2001. Virtual Cancer Centre also formed the Editorial Advisory Board
(EAB) to provide
an information resource about popular topics in oncology and to provide a
channel for medical oncologists to communicate this information to their
patients. Virtual Cancer Centre offered reputable health professionals a means
of counterbalancing misleading alternative information found on the internet
with credible, evidence-based health information.
The
Virtual Cancer Centre website grew in popularity and internet traffic on the
strengths of its easy presentation of useful information and successful
implementation of the EAB model (which afforded participating specialists direct
ownership and control of the website and its information). As a
result, practitioners in other specialties began to learn about VMC’s EAB model,
and demand spread to extend the website’s coverage to information on non-cancer
illnesses. Thus, in 2007, Virtual Cancer Centre became the Virtual
Medical Centre (VMC) website, providing free health information to health
professionals and the general public on over 22 specialist areas at its health
portal, www.virtualmedicalcentre.com.
Since its
inception, www.virtualmedicalcentre.com
has grown to become one of Australia’s leading providers of free online
medical content, continuing medical education and health information for
consumers, patients and medical professionals. The VMC website has been expanded
to most medical disciplines, including gastroenterology, rheumatology,
cardiology, respiratory medicine and neurology, and features more than 1,100
medical specialists on the EAB from Australia, the U.S., Canada, New Zealand and
the United Kingdom. The EAB regularly contributes content in the form of
articles and videos and edits and reviews other content for quality control
purposes. Currently, the VMC website has approximately 10,000 members from the
medical community, which represents approximately 20% of all medical
professionals in Australia. The VMC model is to provide up-to-date
and relevant content, designed and written both by doctors for doctors and by
doctors for consumers.
The VMC
website features more than 30,000 pages of medical information, paid market
research and continuing medical education services. Currently, the website
experiences more than 500,000 unique visitors and 5 million page views per
month, with approximately 70% on average of such traffic originating from
Australia, and 10% from the U.S. The Company believes that the
quality and approach to online medical information represented on the www.virtualmedicalcentre.com website
sets it apart from other medical content providers. In contrast to many of its
larger competitors and other sites that provide a fragmented and untargeted
approach to information of a health or medical nature, the guiding
principle of the VMC website is to provide comprehensive, targeted and
current information on a range of health and medical issues and topics in a
consumer and patient friendly medical journal style.
VMC
generates its revenue from large multinational pharmaceutical companies and
other high profile health-related advertisers through the online advertisement
of prescription medicines strictly to doctors and non-prescription health
products to consumers. Additional revenue is also derived from the provision of
content to a leading online publisher, Telstra Australia
(BigPond). For VMC’s fiscal year ended June 30, 2010, Telstra
Australia (BigPond) represented approximately 34% of VMC’s revenue. No other
customer represented more than 10% of VMC’s revenue for the period.
Current
Business of our Company
Following the reverse merger with Cliff
Rock, on May 27, 2010, the Company commenced operations of its business in the
United States. The Company’s stock was initially quoted on the Over-the-Counter
Bulletin Board and is now quoted on the Over the Counter QB (the “OTCQB”) and
Pink Sheets under the symbol “VMCT” (formerly “CLFR”). One hundred
percent of VMC’s earnings are reported and reflected as earnings of the Company,
which currently represent all of the Company’s earnings. We expect to use
earnings from VMC and the proceeds from any future financings to fund our
working capital needs, proposed investments by VMC and future acquisitions as we
continue our growth.
3
We plan to license all content,
information platforms and services from our wholly owned subsidiary VMC. Terms
of the license are under negotiation and are expected to close in the autumn of
2011. We also currently have a licensing arrangement with Telstra
Australia (BigPond) to provide BigPond with comprehensive health and well-being
content for their new online health section.
Strong market demand from the
Australian pharmaceutical industry for a real-time online market research tool
has guided VMC to design, develop and promote two new web portals that are
mutually beneficial: Visum and its associated portal, Primo DR. These portals
are actively expanding VMC’s professional membership base.
|
·
|
Visum:
Visum is a free secure online environment where medical professionals
(specialists and general practitioners) can exchange medical knowledge and
ideas in a trusted, innovative and real-time environment. Visum allows
doctors to post clinical, practice management or health policy questions
and receive virtually immediate responses at no
cost.
|
|
·
|
Primo
DR: Primo DR is Australia’s only online real-time market research tool
that generates virtually immediate responses for specific product or
service questions posted from the high volume of doctors who actively use
the Visum network.
|
The
potential benefits of Visum are illustrated by the largest online physician
community in the U.S., Sermo, which is similar to the Visum network and has
attracted more than 115,000 members who routinely interact with each other
online. Sermo is free to practicing physicians. Revenue is generated as
healthcare institutions, financial services firms and government agencies
purchase Sermo’s products in order to access this elite group of
practitioners.
The Primo
DR portal generates revenue from pay-for-market research. Pharmaceutical,
financial and other companies or individuals pay to pose questions to our pool
of medical professionals.
Currently,
VMC has major pharmaceutical companies as paying clients of Primo DR and is
actively negotiating with several additional companies. VMC currently charges
AU$20,000 ($17,760) per year for a client to post 12 questions annually. VMC’s
forecast is to attract an initial client base of 20 pharmaceutical, medical
device, government and other healthcare-related companies. Additionally, VMC
intends for its future marketing activities to include promotions to medical
practitioners in order to expand the user network and to pharmaceutical company
executives through industry journals.
Presently,
our growth strategy includes actively seeking out potential partners and
acquisition candidates in order to expand and increase what we view as niche
growth opportunities in North America. These opportunities would include
partnering to supply our existing and additional Continuing Medical Education
(CME) modules to the U.S. market, expansion of our paid market research forum
for doctors and surgeons and extension of the VMC white paper sponsorship model
into the U.S. pharmaceutical market as a means of distributing current and
relevant information on pharmaceutical products.
In
addition, our
wholly owned subsidiary, VMC, has identified and entered into an
agreement to purchase a majority interest in Pharmacy Online, a leading
online pharmacy. The investment is expected to be completed in the fourth
quarter of 2010. Following such investments, we expect the Company
and Pharmacy Online to experience growth in their qualified online traffic as we
filter VMC’s viewer traffic through and integrate with the Pharmacy Online site,
and we believe that this will result in increased sales and revenue for both
companies.
4
Competition
There are several other businesses that
offer similar products and services as VMC. The top three Australian health
online information providers measured by site visitors are VMC, NineMSN Health
and MyDr. NineMSN Health is Australia’s largest online content
publisher with 10.3 million people visiting the site every
month. NineMSN Health is a joint venture between Microsoft and PBL
Media, effectively acting as the website for both the Nine Network and MSN in
Australia. The website delivers online and mobile health and wellness
news to all users of MSN and is the default homepage for Internet Explorer users
in Australia. MyDr is an Australian healthcare website intended to
provide Australian consumers with comprehensive health information resources in
Australia. It is a project of the MIMS Consumer Health Group, a division of the
global healthcare publishing company, UBM Medica.
VMC’s primary U.S. competitor is WebMD,
the leading US provider of health information services, serving consumers,
physicians, healthcare professionals, employers and health plans through its
public and private online portals and health-focused publications. Approximately
80 million unique visitors access the WebMD Health Network each month. The
Network includes WebMD Health, Medscape, MedicineNet, eMedicine, eMedicine
Health, RxList, theHeart.org and drugs.com.
We believe that, in providing an
innovative multi-faceted online medical resource for health consumers and health
professionals, VMC competes, and the Company is poised to compete, in these
markets by virtue of:
|
·
|
the
unbiased nature of our extensive and growing free content on two levels: a
readily accessible patient level and a password secure professional level.
The credibility of the content is indicated by our international
accreditation with Health On the Net (“HON”), a non-governmental
non-profit organization, through their ethical code
certification, which is annually reviewed by
HON;
|
|
·
|
our
altruistic independent EAB who volunteer their time to developing and
improving our web content, as they are passionate about VMC and patient
and consumer education;
|
|
·
|
our
online tools that allow patients and consumers to track and monitor their
health and various conditions;
|
|
·
|
our
sought-after Continuing Medical Education (CME) programs. Australia’s main
CME provider, the Royal Australian College of General Practitioners, have
accredited VMC’s CME programs and featured our model as an effective model
of education for health professionals. Further, we have been approached by
interested parties who believe the model would translate well to the U.S.;
and
|
|
·
|
our
status as the only company with a separate forum for health consumers and
a password secure forum for doctors. Our doctor’s forum, Visum, follows a
similar model to the popular U.S. Sermo forum. On average,
Visum’s doctor registrations have increased over 30% per month since its
launch in November 2009, and as of June 30, 2010 there were approximately
500 doctors using this website.
|
Intellectual
Property
We rely on a combination of copyright
and trade secret law, and nondisclosure and non-compete agreements to protect
our proprietary content, computer software and databases. In addition, we
require that all employees sign an agreement prohibiting them from disclosing or
using our confidential information and requiring them to disclose and assign to
us any new ideas, developments, discoveries or inventions related to our
business. Further, we enter into non-disclosure agreements with business
partners and customers in the ordinary course of business. The Company
presently has no formal trademark or patent protection in Australia or the
U.S.
5
As noted above, we plan to license all
content, information platforms and services from our wholly owned subsidiary VMC
by the end of the year 2010 and we currently have a
licensing arrangement with Telstra Australia (BigPond) to provide BigPond with
comprehensive health and well-being content for their new online health
section.
Research
and Development
For VMC’s fiscal year ended June 30,
2009, approximately $770,000 was spent on research and development (“R&D”)
activities, of which approximately $246,000 was eligible for a tax concession
from the Australian government as a government incentive for R&D under
Section 39J of the Australian Industry Research and Development Act
1986. For VMC’s fiscal year ended June 30, 2010, approximately
$925,000 was spent on R&D, of which approximately $270,000 was eligible for
a tax concession from the Australian government. The balance of such R&D
expenditures were funded from the Company’s operating amounts.
Regulatory
Approvals and Government Regulation
We believe that we are compliant with
all Australian healthcare legislation including the Therapeutic Guidelines and
Medicines Australia legislation which regulates the advertising and
communication of over the counter and prescription medicines and
devices. We believe that we are compliant with the Australian Spam
Act (Cth) 2003 and the Privacy Act (Cth) 1988 (our privacy policy is available
here: http://www.virtualmedicalcentre.com/featuredpages.asp?artid=86).
In addition, we are accredited by HON through a code certification indicating
our website operates at the highest level of transparency and ethical standards
under such code (our advertising policy is available here: http://www.virtualmedicalcentre.com/featuredpages.asp?artid=72).
As we
begin to focus on the U.S. market, the information and advertising featured on
our website relating to pharmaceutical and other medical products will be
subject to regulation by the U.S. Food and Drug Administration (“FDA”) and the
U.S. Federal Trade Commission (“FTC”). The FDA also regulates the
safety and advertising of over-the-counter drugs. Specific portions
of our website may be spotlighted by regulators, especially discussions
concerning the use of over-the-counter drugs, regulated products or potential
sponsorships of pharmaceutical and medical products. The U.S. Federal Food, Drug
and Cosmetic Act (the “FDC Act”) covers the approval of prescription drugs and
regulates the dissemination and marketing of information about such
drugs. Therefore, to the extent we advertise products subject to the
FDC Act, we must use care to comply with these requirements, including those
related to the promotion of prescription drugs through our online
advertising. We will work to comply with FDA and FTC regulations,
along with any state requirements based on states’ consumer protection
statutes. The increased regulations of our website due to U.S.
federal and state directives could make it more difficult for us to obtain
advertising and sponsorship revenue.
We are
currently in negotiations with a leading U.S. distributor to provide them with,
or to independently distribute, our existing and newly developed content for an
independent medical or scientific education program as CME for medical
professionals. Once this partnership is in place, we anticipate FDA
evaluation of the CME activities to determine their independence from and
non-promotion of providers and supporters. In addition, we will work
with the U.S. distributor to seek accreditation by the Accreditation Council for
Continuing Medical Education, which oversees and accredits providers of CME
programs.
6
Our
website features advertising and promotional activities which would be subject
to U.S. federal and state consumer protection laws regulating unfair and
deceptive practices, including the Controlling the Assault of Non-Solicited
Pornography and Marketing Act of 2003 (the “CAN-SPAM Act”) and data protection
regulation. These consumer protection laws regulate the presentation
of content on a website and also contain standards for security, access, notice
and choice. We will work to remain in compliance with these consumer
protection laws, but a determination that we do not meet the standards could
result in monetary liability and adversely affect our business. As we
branch into the U.S. market, we intend to structure our website and other
operations to comply with laws in some states prohibiting business entities from
practicing medicine. Our current and continuing goal is to employ and
work with medical professionals to provide health information to consumers, and
we have no intention of providing medical care or advice. Further, we
also intend to structure our relationships with physicians and entities so as to
avoid any non-compliance with federal and state healthcare anti-kickback
laws.
Employees
As
of October 6, 2010, the Company, including our Australian subsidiary, VMC, has 9
full-time employees, 4 part-time employees and 11 contractors, including 8
medical researchers, a medical spokesperson, a marketing director and the chief
financial officer.
We
believe that we have a satisfactory relationship with our employees, none of
whom are represented by a union or other collective bargaining
group.
ITEM
1A – RISK FACTORS
You
should carefully consider the following factors and other information set forth
in this report, including our financial statements and the related notes. The
risks set forth below are in addition to risks that apply to most businesses.
Our business and future performance may be affected by the
following:
We
have incurred significant operating losses and may not be profitable in the
future, if ever, and we may be unable to continue as a going
concern.
As of the
fiscal year ended June 30, 2010, we had a cash and cash equivalent balance of
$41,475. We have incurred significant operating losses since our inception,
resulting in a deficit of $1,465,928 for the fiscal year ended June 30, 2010.
Such losses are expected to continue for the foreseeable future and until such
time, if ever, as we are able to attain sales levels sufficient to support our
operations. We do not currently have sufficient cash to meet our operating needs
for the next twelve months. In addition to our anticipated revenues, we estimate
that we will need to raise approximately $2,000,000 to meet our outstanding
obligations and to cover our operating expenses for the next twelve
months.
Our
history of losses, operating cash needs, cash consumption, and doubt as to
whether we will ever become profitable, are factors that raise substantial doubt
as to our ability to continue as a going concern. If we are unable to
achieve revenues or obtain financing, then we may not be able to commence
revenue-generating operations or continue as a going concern.
We
have found material weaknesses in our system of internal controls over financial
reporting and disclosure controls as of June 30, 2010, which could adversely
affect our ability to record, process, summarize and report certain financial
data. As a result, our internal controls over financial reporting and disclosure
controls and procedures are ineffective as of June 30, 2010.
In connection with its evaluation of
the effectiveness of the Company’s internal controls over financial reporting as
of June 30, 2010, our management determined that two deficiencies: (i) a lack of
sufficient internal accounting resources; and (ii) a lack of segregation of
duties to ensure adequate review of financial statement preparation. In light of
these material weaknesses, management has concluded that we did not maintain
effective internal control over financial reporting as of June 30, 2010, both
individually and in the aggregate, constituted material weaknesses in the
Company’s internal controls over financial reporting because they resulted in a
reasonably possibility that a material misstatement could occur in our annual or
interim financial statements and not be prevented or detected.
A clear
and concise segregation of duties is important to maximize checks and balances
so that no single individual has control over two or more phases of a
transaction or operation. A strong segregation of duties also is critical to
reduce effectively the risk of mistakes and inappropriate actions to prevent
fraud and to discourage collusion. It can be difficult for small businesses to
always have a clear separation of duties because there simply are not enough
personnel to cover each and every process and procedure. Ultimately, checks and
balances need to be in place as a supportive measure to the business operations,
but also as a fraud prevention measure. Because we have limited financial
personnel and limited resources, compliance with segregation of duties and
proper oversight of control requirements is extremely difficult.
As a
result of these material weaknesses in the Company’s internal controls over
financial reporting, management has concluded that as of June 30, 2010, the
Company’s internal controls over financial reporting were not effective. Such
material weaknesses in internal controls over financial reporting also led our
management to conclude that the Company’s disclosure controls and procedures
were not effective as of June 30, 2010, to ensure that certain financial
information related to these matters required to be disclosed in the Company’s
filings and submissions to the SEC under the Securities Exchange Act of 1934 are
recorded, processed, summarized and reported within the required time
periods.
We are a
non-accelerated filer and are required to comply with the internal control
reporting and disclosure requirements of Section 404 of the Sarbanes-Oxley Act
for the fiscal year ended June 30, 2010. Although we are working to comply with
these requirements, we have limited financial personnel, making compliance with
Section 404 – especially with segregation of duty control requirements – very
difficult and cost ineffective, if not impossible. We may not be able to devote
sufficient personnel and resources to internal accounting functions and
financial statement preparation. Therefore, there can be no assurance that
remediation of these material weaknesses will occur in the near future.
Moreover, there can be no assurance that the Company will not discover
additional material weaknesses or combinations of significant deficiencies as it
evaluates and tests such controls in the future. Such material weaknesses could
adversely affect our ability to record, process, summarize and report our
financial information.
Failure
to achieve and maintain effective internal controls could have a material
adverse effect on our business, operating results and stock price.
As
indicated in the previous risk factor, our management has identified material
weaknesses in our internal control over financial reporting and in our
disclosure controls and procedures. In addition, if we fail to achieve and
maintain the adequacy of our internal controls and disclosure 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. Moreover, effective internal controls, particularly those
related to revenue recognition, are important to helping ensure that we produce
reliable financial reports and are important to helping prevent financial fraud.
If we cannot provide reliable financial reports or prevent fraud, our business
and operating results could be harmed, investors could lose confidence in our
reported financial information, and the trading price of our stock could drop
significantly.
7
We
may not be able to obtain sufficient capital and may be forced to limit the
scope of our operations or discontinue operations.
If we are
not able to secure the financing we need at the current time or in the future,
we may not be able to undertake any planned operational expansions or
acquisitions. As a result, we may have to modify our business plans accordingly
or may be required to discontinue our business operations. There is no assurance
that additional financing will be available to us when needed, or if made
available, on terms that are favorable to us. Further, any future
capital investments could dilute or otherwise materially and adversely affect
the holdings or rights of our existing shareholders. In addition, new equity or
convertible debt securities issued by us to obtain financing could have rights,
preferences and privileges senior to those granted to existing
shareholders.
We
may make acquisitions or investments in new businesses, products or technologies
that involve additional risks, which could disrupt our business or harm our
financial condition or results of operations.
As part of our business strategy, we
have made, and expect to continue to make, acquisitions of businesses or
investments in companies that offer complementary products, services and
technologies. Such acquisitions or investments involve a number of risks,
including:
|
·
|
Assimilating
operations and products may be unexpectedly
difficult;
|
|
·
|
Management’s
attention may be diverted from other business
concerns;
|
|
·
|
We
may enter markets in which we have limited or no direct
experience;
|
|
·
|
We
may lose key employees, customers or vendors of an acquired
business;
|
|
·
|
The
synergies or cost savings we expected to achieve may not be
realized;
|
|
·
|
We
may not realize the value of the acquired assets relative to the price
paid; and
|
|
·
|
Despite
our diligent efforts, we may not succeed at integration, quality control
or other customer issues.
|
These
factors could have a material adverse effect on our business, financial
condition and operating results. Consideration paid for any future acquisitions
could include our stock or require that we incur additional debt and contingent
liabilities. As a result, future acquisitions could cause dilution of existing
equity interests and earnings per share. Before we enter into any acquisition,
we perform significant due diligence to ensure the potential acquisition fits
with our strategic objectives. In addition, we believe we have adequate
resources and appropriate integration procedures to transition the newly
acquired company efficiently.
We
may not be able to manage our growth effectively.
The
expansion necessary for us to fully exploit the market for our products and
services requires an effective planning and management
process. Growth, if it occurs, will likely place a significant strain
on our managerial, operational and financial resources. To manage our
growth, we must implement and improve our operational system and expand, train
and manage our employee base. There can be no assurance that our
systems, procedures or controls will be adequate to support operations or that
management will be able to achieve the expansion necessary to fully exploit the
market for our products and services, and the failure to do so would have a
material adverse effect on our business, operations and financial
condition.
Our
results of operations could be adversely affected by impairment of our goodwill
or other intangible assets.
When we
acquire a business, we record goodwill equal to the excess of the amount we pay
for the business, including liabilities assumed, over the fair value of the
tangible and intangible assets of the business we acquire. Goodwill and other
intangible assets that have indefinite useful lives must be tested at least
annually for impairment. The specific guidance for testing goodwill and other
non-amortized intangible assets for impairment requires management to make
certain estimates and assumptions when allocating goodwill to reporting units
and determining the fair value of reporting unit net assets and liabilities,
including, among other things, an assessment of market conditions, projected
cash flows, investment rates, cost of capital and growth rates, which could
significantly impact the reported value of goodwill and other intangible assets.
Fair value is generally determined using a combination of the discounted cash
flow, market multiple and market capitalization valuation approaches. Absent any
impairment indicators, we generally perform our impairment tests annually in the
fourth quarter, using available forecast information.
8
If at any
time we determine an impairment has occurred, we are required to reflect the
reduction in value as an expense within operating income, resulting in a
reduction of earnings in the period such impairment is identified and a
corresponding reduction in our net asset value.
We
are subject to the periodic reporting requirements of the Securities Exchange
Act of 1934, which will require us to incur audit fees and legal fees in
connection with the preparation of such reports. These additional
costs will reduce or might eliminate our profitability.
We
are required to file periodic reports with the SEC pursuant to the Securities
Exchange Act of 1934 (the “Exchange Act”) and the rules and regulations
promulgated thereunder. To comply with these requirements, our
independent registered auditors will have to review our quarterly financial
statements and audit our annual financial statements. Given the
significance of the operations of our Australian subsidiary to our business, our
financial statements must be audited in accordance with Australian accounting
standards. Auditing by a non-U.S. independent registered
auditor for compliance with U.S. generally accepted accounting principles (GAAP)
is permitted under SEC rules and such audited financial statements may be
considered acceptable for U.S. company periodic reports, if such auditor is
registered with the Public Company Accounting Oversight Board (PCAOB) and an
U.S. independent PCAOB registered accounting firm conducts a review of the
quality controls of the non-U.S. auditors and a review of one of their PCAOB
engagements.
Moreover, our legal counsel will have to review and
assist in the preparation of such reports. The costs charged by these
professionals for such services cannot be accurately predicted at this time,
because factors such as the number and type of transactions that we engage in
and the complexity of our reports cannot presently be determined and will have a
major effect on the amount of time to be spent by our auditors and
attorneys. However, the incurrence of such costs will be an expense
to our operations and thus have a negative effect on our ability to meet our
overhead requirements and earn a
profit.
9
Our
business may suffer if we are unable to establish and expand our brand
recognition.
The
establishment and expansion of our brand in the U.S. is critical to building our
customer base and successfully implementing our business strategy. At
present, our products and services focus primarily on Australia. While we are
actively expanding our
site http://www.virtualmedicalcentre.com in the United
States, there can be no assurance that the market will positively accept our
services, products, or brand. The success of our business will depend upon
widespread market acceptance of our current and future products and services,
and there can be no assurance as to the overall acceptance by our targeted
customers of such products and services. Further, there can be no assurance that
the market for these products and/or services will develop or be
sustained.
The
establishment and enhancement of our brand will also depend, in part, on our
success in creating a user-friendly experience. There can be no
assurance that we will be successful in achieving this goal. If
customers who use our products and services do not perceive our existing
products and services to be useful or high quality, or if we modify or alter our
brand image, introduce new services or enter into new business ventures that are
not favorably received, the value of our brand could be significantly
diminished, thereby decreasing the attractiveness of the products and services
that we offer.
We
may issue additional equity shares to fund our Company’s operational
requirements which would dilute our shareholder’s share ownership.
The
Company’s continued viability depends on its ability to raise capital. Changes
in economic, regulatory or competitive conditions may lead to cost increases.
Our management may also determine that it is in the best interest of the Company
to develop new services or products. In any such case, additional
financing will likely be required for the Company to meet its operational
requirements. There can be no assurances that the Company will be able to obtain
such financing on terms acceptable to the Company and at times required by the
Company, if at all. In such event, the Company may be required to materially
alter its business plan or curtail all or a part of its operational
plans. The sale or the proposed sale of substantial amounts of our
common stock, preferred stock or other securities in the public markets or in
private transactions may adversely affect the market price of our common stock
and dilute the share ownership of existing shareholders. Further, the
issuance of preferred stock or securities could be on terms superior to the
terms of the existing common stock.
The
price of our common stock may be volatile.
As of
October 6, 2010, the last trade price of our common stock, as quoted on the
OTCQB and Pink Sheets, was $0.285. The price may fluctuate significantly in
response to a number of factors, many of which are beyond our control. These
factors include:
|
·
|
announcements
of technological innovations or new products or services by us or our
competitors;
|
|
·
|
government
regulatory action affecting our products or our competitors' products in
the U.S., Australia and other foreign
countries;
|
|
·
|
developments
or disputes concerning copyright, trademark patent or proprietary
rights;
|
|
·
|
economic
conditions in the U.S., Australia or
elsewhere;
|
|
·
|
actual
or anticipated fluctuations in our operating
results;
|
|
·
|
broad
market fluctuations;
|
|
·
|
failure
of the Company to earn revenues or
profits;
|
|
·
|
inadequate
capital to continue or expand our business, and inability to raise
additional capital or financing to implement our business
plans;
|
|
·
|
failure
to further commercialize our technology or to make
sales;
|
10
|
·
|
reduction
in demand for our products and
services;
|
|
·
|
potential
litigation with or legal claims and allegations by third parties, which
would reduce our revenue and increase
costs;
|
|
·
|
insufficient
revenues to cover operating costs;
|
|
·
|
the
non-proprietary nature of aspects of the Company's
business;
|
|
·
|
further
dilution of existing shareholders' ownership in Company;
and
|
|
·
|
uncollectible
accounts and the incurrence of expenses to collect amounts owed to the
Company.
|
Our
shares of common stock are very thinly traded, and the price may not reflect our
value. There can be no assurance that there will be an active market for our
shares of common stock in the future.
Our
shares of common stock are thinly traded. Due to the illiquidity, the market
price may not accurately reflect the relative value of the Company. There can be
no assurance that there will be an active market for our shares of Common Stock
either now or in the future. Investors may not be able to liquidate their
investment or liquidate it at a price that reflects the value of the business.
If a more active market should develop, the price may be highly volatile.
Because there may be a low price for our shares of common stock, many brokerage
firms may not be willing to effect transactions in the securities. Even if an
investor finds a broker willing to effect a transaction in the shares of our
common stock, the combination of brokerage commissions, transfer fees, taxes, if
any, and any other selling costs may exceed the selling price. Further, many
lending institutions will not permit the use of such shares of common stock as
collateral for a loan.
The
global economic downturn could adversely affect our advertising revenues and our
overall financial condition.
The global economic downturn could
impact our healthcare-related services, including the ability of our medical
professional base to regularly contribute and edit content for our health
portal. The economic downturn could also impact the Company’s ability
to generate revenues through online advertising as potential advertisers may
reduce the number of their advertisements or withdraw advertisements completely
due to budgetary cutbacks within their own pharmaceutical or health-related
companies. The troubled economy could also challenge the financial
health of our advertisers, potentially resulting in their failure to make timely
payments to the Company. Any one or more of these possibilities could
have an adverse effect on our business, revenues and overall financial
position.
Our
international operations may subject us to additional costs and
risks.
While the Company, through its wholly
owned subsidiary VMC, is established in Australia and its health portal is
well-known among the Australian medical community, we may face challenges in
managing the overseas operations in the U.S. with potential issues in
integrating the U.S. personnel and work products into the overall Company and
the lack of direct control over the U.S. operations. The Company
could face additional costs associated with the U.S. operations in the event of
changes in foreign laws, regulations and policies. Unfavorable changes in the
foreign currency exchange rates could increase the costs of our operations in
the United States, and we do not currently engage in any activities to hedge our
foreign currency exposure.
In addition, our international
operations and business presents us with additional risk exposures, including
the following:
|
·
|
Unexpected
changes in regulatory
requirements;
|
11
|
·
|
Difficulties
in staffing and managing foreign
operations;
|
|
·
|
Potentially
adverse tax consequences; and
|
|
·
|
Cultural
and legal differences in the conduct of
business.
|
Any one
or more of these factors could have a material adverse effect on our
international operations and, consequently, on our business, financial condition
and operating results.
Our
internet-based business has limited operating history.
Our internet-based service business has
a limited operating history and in its short history has undergone extensive and
substantial alterations in order to remain current and competitive with the
ever-changing markets for internet businesses. As the market for
healthcare information and related services on the internet continues to evolve
and change, we cannot guarantee that our business will continue to be
profitable. Competitors with similar business plans to provide
healthcare information have had varied success rates and some have filed for
bankruptcy or been unable to continue operations.
If
we do not respond rapidly to technological changes or to changes in industry
standards, our products and services could become obsolete.
The market for internet-based products
and services is characterized by rapid technological change and frequent
introductions of new products and services. We may be unable to
respond quickly or effectively to these developments. We may
experience difficulties with software development, hardware design,
manufacturing or marketing that could delay or prevent our development,
introduction or marketing of new products and enhancements. The
introduction of new products and services by our competitors, the market
acceptance of products and services based on new or alternative technologies or
the emergence of new industry standards could render our existing or future
products obsolete. If our products and services become
technologically obsolete, we may be unable to generate interest in our products
and services and consequently, we may be unable to generate revenues, either
through advertising or otherwise.
We
operate in a highly competitive market.
Competition
for internet-based businesses funded primarily by advertiser sales is intense
and is expected to increase. Increased competition could result in reductions in
our ad sales, pages views, gross margins and market share and have a material
adverse effect on our business, financial condition and results of operations.
We compete with other providers of healthcare information
services. Some competitors have formed business alliances with other
competitors that may affect our ability to work with some potential customers.
In addition, if some of our competitors merge, a stronger competitor may emerge.
Some principal competitors include: Nine MSN Health, MyDr and
WebMD.
Many of
our current and potential competitors have significantly greater financial,
technical, product development, marketing and other resources, and market
recognition than we have. These competitors may be in a position to devote
greater resources to the development, promotion and sale of their products and
services than we can. Our competitors also have, or may develop or acquire, a
more dedicated viewer base than we have. As a result of these factors, our
competitors may be able to respond more quickly to new or emerging technologies,
changes in customer requirements and changes in the political, economic or
regulatory environment in the healthcare industry.
12
Our
success depends on our management team, the loss of any of whom could disrupt
our business operations.
We
believe that our continued success will depend to a significant extent upon the
efforts and abilities of our management team, particularly our chief executive
officer, Wayne Hughes, our chief financial officer, Stuart Usher, and our chief
operating officer, Thomas Maher. We cannot ensure that we will be
able to retain the services of such officers, and our failure to retain them
could adversely affect our ability to execute our future acquisitions and to
manage the operations of the business. This could have a material
adverse effect on the Company’s business, financial condition and results of
operations. We do not currently carry key-man life insurance on any
of our executive officers. Further, Mr. Usher is an independent
contractor of the Company.
We
rely on the experience and expertise of our skilled employees, and must continue
to attract and retain qualified technical, marketing and managerial personnel in
order to succeed.
Our
future success will depend largely upon our ability to attract and retain highly
skilled technical, managerial and marketing personnel, and there is significant
competition for such personnel in our industry. We try to ensure that we offer
competitive compensation and benefits as well as opportunities for continued
development. There can be no assurance that we will continue to be successful in
attracting and retaining the personnel we require to develop new and enhanced
products and to continue to grow and operate profitably. We continually strive
to recruit and train required personnel as well as retain key
employees.
We
may experience capacity constraints and failures of our systems.
The
performance of our servers and other technological systems is critical to our
business. Any sustained or repeated system failures that cause
interruption or increases in response times could reduce the attractiveness of
our products and services and have a serious impact on our business and
perception by customers. An increase in users of our products and
services could strain the capacity of the software and hardware that we use,
including server and network capacity, which could lead to slower performance or
complete outages of our website, thereby adversely affect the market acceptance
of our products and services.
Our
operations are also dependent on our ability to protect our computer equipment
and the information stored and maintained by it against damage by fire, power
loss, telecommunications failures, unauthorized intrusions and other
events. The occurrence of any of these events could result in
interruptions, delays or cessations in service to our customers.
If
we are not able to adequately protect our intellectual property, other parties
may develop competing products and/or services that utilize our intellectual
property.
At this
time, we have not obtained any trademark or patent protection on our products in
the United States. At this time, we intend to rely solely on
copyright and trade secret protection and confidentiality and/or
license agreements with our employees, customers, partners and others to protect
our intellectual property; however, no assurance can be made that third parties
will not develop competing products that utilize our intellectual
property.
In
addition, there can be no assurance that other parties will not assert
infringement claims against us. Any such claims, with or without
merit, could be time-consuming to defend, result in costly litigation, divert
management’s attention and resources or require us to enter into royalty or
licensing agreements. There can be no assurance that such licenses
would be available on commercially reasonable terms, if at all, and the
assertion or prosecution of any such claims could have a material adverse effect
on our business, financial condition and operations.
13
We
do not intend to pay any cash dividends in the foreseeable future and,
therefore, any return on an investment in our stock must come from increases in
the fair market value and trading price of such stock.
We have
not paid any cash dividends on our common stock and do not intend to pay cash
dividends on our common stock in the foreseeable future. We intend to retain
future earnings, if any, for reinvestment in the development and expansion of
our business. Any credit agreements, which we may enter into with institutional
lenders, may restrict our ability to pay dividends. Whether we pay
cash dividends in the future will be at the discretion of our board of directors
and will be dependent upon our financial condition, results of operations,
capital requirements and any other factors that the board of directors decides
is relevant. Therefore, any return on an investment in our stock must come from
increases in the fair market value and trading price of such stock.
There
is limited liquidity on the OTCQB and the Pink Sheets.
When
fewer shares of a security are being traded on the OTCQB and Pink Sheets,
volatility of prices may increase and price movement may outpace the ability of
the OTCQB and Pink Sheets to deliver accurate quote information. Due to lower
trading volumes in our Common Stock, there may be a lower likelihood of a
person’s orders for shares of our Common Stock being executed, and current
prices may differ significantly from prices quoted by the OTCQB or Pink Sheets
at the time of order entry.
Because
our Common Stock is quoted on the OTCQB and the Pink Sheets, your ability to
sell shares in the secondary trading market may be limited.
Our
Common Stock is currently quoted on the over-the-counter market on the OTCQB and
the Pink Sheets. Consequently, the liquidity of our Common Stock is impaired,
not only in the number of shares that are bought and sold, but also through
delays in the timing of transactions, and coverage by security analysts and the
news media, if any, of our Company. As a result, prices for shares of our Common
Stock may be lower than might otherwise prevail if our Common Stock were quoted
and traded on NASDAQ or a national securities exchange.
There
is a limitation in connection with the editing and canceling of orders on the
OTCQB and the Pink Sheets.
Orders
for OTCQB and Pink Sheet securities may be canceled or edited like orders for
other securities. All requests to change or cancel an order must be submitted
to, received and processed by the OTCQB or Pink Sheets. Due to the manual order
processing involved in handling OTCQB and Pink Sheets trades, order processing
and reporting may be delayed. As a result, it may not be possible to
edit orders. Consequently, it may not be possible for the Company’s shareholders
to sell our Common Stock at optimum trading prices.
We
are subject to penny stock rules which will make the shares of our Common Stock
more difficult to sell.
We are
subject to the SEC’s “penny stock” rules since our shares of Common Stock sell
below $5.00 per share. Penny stocks generally are equity securities with a per
share price of less than $5.00. The penny stock rules require broker-dealers to
deliver a standardized risk disclosure document prepared by the SEC which
provides information about penny stocks and the nature and level of risks in the
penny stock market. The broker-dealer must also provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson, and monthly account statements showing the
market value of each penny stock held in the customer’s account. The bid and
offer quotations, and the broker-dealer and salesperson compensation information
must be given to the customer orally or in writing prior to completing the
transaction and must be given to the customer in writing before or with the
customer’s confirmation.
14
In
addition, the penny stock rules require that prior to a transaction the broker
dealer must make a special written determination that the penny stock is a
suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction. The penny stock rules are burdensome and may
reduce purchases of any offerings and reduce the trading activity for shares of
our common stock. As long as our shares of common stock are subject to the penny
stock rules, the holders of such shares of common stock may find it more
difficult to sell their securities.
There
is a risk of market fraud within the penny stock market.
Shareholders
should be aware that, according to SEC Release No. 34-29093, the market for
penny stocks has suffered in recent years from patterns of fraud and
abuse. Such patterns include (1) control of the market for the
security by one or a few broker-dealers that are often related to the promoter
or issuer; (2) manipulation of prices through prearranged matching of purchases
and sales and false and misleading press releases; (3) boiler room practices
involving high-pressure sales tactics and unrealistic price projections by
inexperienced sales persons; (4) excessive and undisclosed bid-ask differential
and markups by selling broker-dealers; and (5) the wholesale dumping of the same
securities by promoters and broker-dealers after prices have been manipulated to
a desired level, along with the resulting inevitable collapse of those prices
and with consequent investor losses. We are aware of the abuses that have
occurred historically in the penny stock market. Although we do not expect to be
in a position to dictate the behavior of the market or of broker-dealers who
participate in the market, management will strive within the confines of
practical limitations to prevent the described patterns from being established
with respect to our securities. The occurrence of these patterns or practices
could increase the volatility of our share price.
The
use of the internet for commerce may be subject to further government regulation
and other legal uncertainties.
As the
use of the internet for commerce evolves, federal, state, local or foreign
governments may adopt regulations covering issues such as user privacy, pricing,
content and quality of products and services. Although many of these
regulations may not apply to our business directly, we expect that laws and
regulations relating to products and services provided through the internet
would have a direct or indirect effect upon our business. It is
possible that legislation could expose companies involved in Internet commerce
to liability, which could limit the growth of the general use of the
internet. If enacted, such laws, rules or regulations could limit the
market for our products and services, which could have a material adverse effect
on our business and operations.
We
may not be able to maintain adequate insurance for product or service liability
on reasonable terms in the future.
The Company is exposed to potential
product liability risks which are inherent in the research and development,
manufacturing, marketing and use of its products or products developed with
future co-development alliance partners. It will be necessary for us
to secure insurance to help manage such risks. However, we may not be able to
maintain insurance for product or service liability on reasonable terms in the
future and, in addition, our insurance may not be sufficient to cover large
claims, or the insurer could disclaim coverage on our claims. If we fails to
meet its clients' expectations, our reputation could suffer and we could be
liable for damages.
15
ITEM
2 – DESCRIPTION OF PROPERTY
Our
principal executive offices are located at L1, 414 Scarborough Beach Road,
Osborne Park, WA 6017, Australia, PO Box 1173, Osborne Park, WA 6916,
Australia. We have entered into a three-year lease for such space for
$4,732 per
month. Such lease expires in May 2012.
We intend
to have a US office but have not as yet entered into a lease for such
space.
The
Company also owns the IQUE Claim, located on Vancouver Island, British Columbia.
In light of the Company’s current commercial focus and the uncertainty regarding
the number of mineral exploration phases the Company would have to conduct
before concluding that there are, or are not, commercially viable minerals on
the IQUE Claim, on August 1, 2010, the Company made the decision to abandon the
IQUE Claim with no further obligations or costs to the Company.
ITEM
3 – LEGAL PROCEEDINGS
We know
of no material, active or pending legal proceedings against us, nor are we
involved as a plaintiff in any material proceedings or pending litigation. There
are no proceedings in which any of our directors, officers or affiliates, or any
registered beneficial shareholder are an adverse party or has a material
interest adverse to us.
ITEM
4 – (REMOVED AND RESERVED)
16
PART
II
ITEM
5 – MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASE OF EQUITY SECURITIES
Cliff
Rock Shares began trading on the OTCBB on April 9, 2008 under the stock symbol
“CLFR”. Our common stock currently trades on the OTCQB and Pink Sheets
under the symbol “VMCT.”
As of
October 6, 2010, the last sale price of our common stock as reported on the
OTCQB and Pink Sheets was $0.285 per share.
For the period between August 30, 2010,
the date on which the Company began to be quoted on the OTCQB, and September 10,
2010, the high and low bid quotations for the Company’s shares of Common stock
are $0.37 and $0.30, respectively.
The
following table summarizes the high and low bid quotations of Cliff Rock Shares
on the OTCBB as reported by FINRA for each of the quarterly periods since April
9, 2008 and for the most recent six months.
Quarterly High and Low Bid
Quotations
Quarter
Ended
|
High | Low | ||||||
Through
May 27, 2010
|
$
|
0.015
|
$ |
0.015
|
||||
March
31, 2010
|
$
|
0.095
|
$ |
0.095
|
||||
December
31, 2009
|
$
|
0.06
|
$ |
0.06
|
||||
September
30, 2009
|
$
|
0.06
|
$ |
0.06
|
||||
June
30, 2009
|
$
|
0.03
|
$ |
0.03
|
||||
March
31, 2009
|
$
|
0.03
|
$ |
0.03
|
||||
December
31, 2008
|
$
|
0.03
|
$ |
0.03
|
||||
September
30, 2008
|
$
|
0.09
|
$ |
0.03
|
||||
June
30, 2008
|
$
|
0.083
|
$ |
0.083
|
Monthly High and Low Bid
Quotations for the Most Recent Six Months
Month
Ended
|
High | Low | ||||||
Through
May 27, 2010
|
$ |
0.015
|
$ |
0.015
|
||||
April
2010
|
$ |
0.015
|
$ |
0.015
|
||||
March
2010
|
$ |
0.06
|
$ |
0.06
|
||||
February
2010
|
$ |
0.06
|
$ |
0.06
|
||||
January
2010
|
$ |
0.06
|
$ |
0.06
|
Following the Share Exchange on May 27,
2010, the high and low bid quotations for the Company’s shares on the OTCBB as
reported by FINRA have been:
Month
Ended
|
High | Low | ||||||
July
2010
|
$ |
0.42
|
$ |
0.38
|
||||
June
2010
|
$ |
0.40
|
$ |
0.32
|
||||
May
30 ,2010
|
$ |
0.50
|
$ |
0.015
|
17
The high
and low bid quotations for the Company’s shares on the OTCQB and Pink Sheets
have been:
Month
Ended
|
High
|
Low
|
||||||
Through
October 12, 2010
|
$ | 0.35 | $ | 0.28 | ||||
September
2010
|
$ | 0.36 | $ | 0.29 | ||||
August
2010
|
$ | 0.40 | $ | 0.33 |
Holders
The
Company’s shares are issued in registered form. Colonial Stock Transfer Company,
of 66 Exchange Place, Salt Lake City, Utah 84111 (801) 355-5740 (Phone), (801)
355-6506 (Fax), is the transfer agent for our shares.
On May
27, 2010, the Company cancelled 32,500,000 shares of its common
stock. As a result, as of October 6, 2010, the Company had 84,253,764
issued and outstanding common shares, held by 86 shareholders.
Common
Stock
We are
currently authorized to issue 200,000,000 shares of common stock, par value
$0.001. As of October 6, 2010, 84,253,764 shares of common stock were
issued and outstanding.
Dividend
Policy
We have
not paid any cash dividends on the shares of common stock, and we have no
intention of paying any dividends on our shares of common stock in the near
future. Our current policy is to retain earnings, if any, for use in our
operations and in the development of our business. Our future dividend policy
will be determined from time to time by our board of directors.
Securities
Authorized for Issuance Under Equity Compensation Plans
Under the
terms of their respective employment agreements, each of Messrs. Hughes and
Maher is eligible to earn shares of the Company’s common stock and options to
purchase shares of the Company’s common stock in accordance with an Executive
Performance Bonus Schedule, copies of which were filed as schedules to such
employment agreements as Exhibits 10.4 and 10.5, respectively, to the
Company’s Current Report on Form 8-K filed on May 28,
2010. According to such Executive Performance Bonus Schedule, awards
may be granted to each of Messrs. Hughes and Maher as follows:
|
§
|
Website Member Subscription
Based Awards – The Company may grant options upon
obtaining certain threshold numbers of subscribers to the Company’s
website. At each milestone number of subscribers achieved, the
Company may grant 100,000 options for a maximum total of 700,000 options
for all milestones in the aggregate once the Company has obtained
1,000,000 subscribers. Upon issuance, the options are
immediately exercisable for an exercise price of AU$0.16 ($0.137) and
expire four years from the date of
grant.
|
|
§
|
Sustained Website Traffic Based
Awards – The Company may grant options upon obtaining certain
threshold numbers of unique visitors to the Company’s website that are
sustained over a six-month period of time. At each milestone
number of unique visitors sustained over a six-month period, the Company
may grant 100,000 options for a maximum total of 500,000 options for all
milestones in the aggregate once the Company has achieved 2,000,000
sustained, unique visitors. Upon issuance, the options are
immediately exercisable for an exercise price of AU$0.16 ($0.137) and
expire four years from the date of
grant.
|
18
|
§
|
Publicly Traded Company Based
Award – The Company may grant 250,000 shares of Company common
stock upon becoming a publicly traded company prior to June 1,
2011.
|
ITEM
6 – SELECTED FINANCIAL DATA
Not
applicable.
ITEM
7 – MANAGEMENTS’ DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Forward-Looking
Statements
The
information set forth in Management’s Discussion and Analysis of Financial
Condition and Results of Operations (“MD&A”) contains certain
“forward-looking statements” within the meaning of Section 27A of the Securities
Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as
amended, and the Private Securities Litigation Reform Act of 1995, including,
among others (i) expected changes in the Company’s revenues and profitability,
(ii) prospective business opportunities and (iii) the Company’s strategy for
financing its business. Forward-looking statements are statements other than
historical information or statements of current condition. Some forward-looking
statements may be identified by use of terms such as “believes,” “anticipates,”
“intends” or “expects.” These forward-looking statements relate to the plans,
objectives and expectations of the Company for future operations. Although the
Company believes that its expectations with respect to the forward-looking
statements are based upon reasonable assumptions within the bounds of its
knowledge of its business and operations, in light of the risks and
uncertainties inherent in all future projections, the inclusion of
forward-looking statements in this Annual Report should not be regarded as a
representation by the Company or any other person that the objectives or plans
of the Company will be achieved.
You
should read the following discussion and analysis in conjunction with the
Financial Statements and Notes attached hereto, and the other financial data
appearing elsewhere in this Annual Report.
The
Company’s results of operations could differ materially from those projected in
the forward-looking statements as a result of numerous factors, including, but
not limited to, the following: the inability of the Company to insure against
certain risks, inflationary and deflationary conditions and cycles, currency
exchange rates, changing government regulations domestically and internationally
affecting our products and businesses.
Results
of Operations for the Year Ended June 30, 2010 Compared to the Year Ended June
30, 2009
Revenues
For year
fiscal year ended June 30, 2010 and 2009, we generated revenues of $842,589 and
$487,619, respectively. The increase in revenue from 2009 was due to the reasons
described below:
19
Advertising
Revenue
Advertising
revenue came from advertising and sponsorship for both our medical consumer
services (content aimed at general consumers) and medical professional services
(content aimed at medical professionals).
Advertisement
placements appeared on both the VMC website and our bi-weekly e-newsletters.
Sponsorship included providing educational information relevant to the disease
and product area, creating interactive screening and monitoring tools, and
promoting educational videos and brochures.
Advertising
revenue came from advertising and sponsorship for both the medical consumer and
medical professionals market. Earnings from the medical consumer market were
primarily a result of increased revenues from VMC’s joint venture with Telstra
Australia’s ISP company, BigPond.
Increases
in the medical professional market were attributable to contracts for 12-month
advertising and educational sponsorships with new clients, St. Jude Medical,
Orphan Australia and Novogen Consumer Healthcare. VMC’s significant growth in
revenue in this market as compared to the same periods last year were due to VMC
continuing to develop our relationship and reputation within the pharmaceutical
industry and also to evolve our product offering to better respond to clients’
needs. VMC intends to continue to enhance its product offering to the
pharmaceutical industry in an effort to further increase revenue.
Operating
Expenses
Our
operating expenses were $2,555,850 and $1,853,481 for the fiscal years ended
June 30, 2010 and 2009, respectively. The increase in our expenses was
primarily due to the costs incurred relating to the Exchange Agreement and
capital raising activities undertaken by us. Capital raising costs increased our
expenditure by $150,862. In addition, we incurred additional costs
relating to the audit and the conversion of our financial statements into U.S.
generally accepted accounting principles (“GAAP”), in relation to the Exchange
Agreement.
Employee
Expenses
During
the fiscal year ended June 30, 2010, our employee expenses increased to
$1,121,854 from $851,963 for the fiscal year ended June 30,
2009. This increase in employee expenses was due to the hiring of
additional staff to assist in the Company’s increased operating activity in
2010.
Travel
expenses
Our
travel expenses for the year ended June 30, 2010 increased to $130,234 from
$79,311 for the fiscal year ended June 30, 2009. During the fiscal
year ended June 30, 2010, we incurred significant travel to the U.S. in relation
to the Exchange Agreement. In addition, we expect to continue to
incur significant travel costs over the next 12 months as we pursue additional
funding and expand our U.S. operations.
Professional
Fees
Professional
fees increased from $329,768 for the fiscal year ended June 30, 2009 to $562,622
for the fiscal year ended June 30, 2010. This is due to increased
legal and accounting fees relating to the audit of the Company’s financial
statements, the conversion of the Company’s financial statements into GAAP and
the structuring and execution of the Exchange Agreement.
20
Marketing
Expense
Expenditures
relating to advertising and marketing increased from $250,729 to $419,360 for
the fiscal years ended June 30, 2009 and 2010, respectively. During
the fiscal year ended June 30, 2010, the Company increased marketing spending in
order to take advantage of the new advertising opportunities in
Australia.
General
and Administrative Expenses
General
and administrative expenses increased from $298,830 to $436,204 for the fiscal
years ended June 30, 2009 and 2010, respectively. This is due to an
increase in travel and other expenses related to the execution of the Exchange
Agreement.
Other
Income (Expenses)
Research
and Development Grant
A portion
of VMC’s revenue is the result of a grant from the Australian government, in the
form of a tax offset from the Australian federal government’s Department of AUS
Industry, for research and development expenses. This program was put in place
to encourage businesses to invest in research and development. Australian
companies apply for these grants, and this is VMC’s eighth year of participation
in this program.
We realized net other income (expenses)
of $247,333 and $216,630 for the years ended June 30, 2010 and 2009,
respectively. The other income was comprised primarily of research and
development grants from the Australian government of $277,663 and $231,239
during those years.
Net
Loss from Operations
Net
loss from operations was $1,465,928 and $1,149,232, respectively, for the fiscal
years ended June 30, 2010 and 2009. The increase in the Company’s
losses from operations is due to the costs of execution of the Exchange
Agreement, which was partially offset by the increase in our
revenue.
Liquidity
and Capital Resources
Since its
inception, we have funded our operations primarily through advertising revenue
and private sales of our common stock. As of the fiscal year ended June 30,
2010, we had cash and cash equivalents in the amount of
$41,475. Based on our current plan of operations, management believes
that we will require a minimum of approximately $2,000,000 for the next twelve
(12) months.
At
present, we do not have sufficient resources to fund our current operations, pay
our debts and other liabilities (including those assumed under the Exchange
Agreement) and operate at our current levels for the next twelve months. As a
result, our auditors have expressed doubt about our ability to continue as a
going concern unless we are able to raise additional
capital. Accordingly, we need to raise additional funds and, in order
to do so, our management intends to apply for research and development grants
from the Australian government. If such application is granted, the
Company could potentially receive as much as $300,000, which the Company intends
to use mainly for research and development. However, no assurance can be given
that the Company’s application will be granted.
21
Management
currently anticipates, although no assurance can be given, that advertising
revenue for the next twelve (12) months would be approximately
$1,000,000.
Assuming
that the Company is given the grant discussed above and further assuming that
the Company earns revenue as anticipated, the Company will continue to have cash
shortfalls. We plan to finance operations with external debt and/or
equity financing. We intend to procure financing in order to fund our
operations, however, no assurance can be given that such financing will be
available to us, or if available, that such will be on terms favorable to us. If
we are unable to secure the financing required, or if we do not meet anticipated
future revenue goals, our management intends to take actions necessary to ensure
the conservation of adequate cash to enable the Company to continue to finance
its operations, although there can be no assurance that we will be able to do
so.
Significant
Accounting Policies
Use
of Estimates
The preparation of financial statements
in conformity with GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses during the
reporting periods. Actual results could differ from those
estimates.
Recent
Accounting Pronouncements
In
January 2010, the FASB issued Accounting Standards Update 2010-02, Consolidation
(Topic 810): Accounting and Reporting for Decreases in Ownership of a
Subsidiary. This amendment to Topic 810 clarifies, but does not change, the
scope of current US GAAP. It clarifies the decrease in ownership provisions of
Subtopic 810-10 and removes the potential conflict between guidance in that
Subtopic and asset derecognition and gain or loss recognition guidance that may
exist in other US GAAP. An entity will be required to follow the amended
guidance beginning in the period that it first adopts FAS 160 (now included in
Subtopic 810-10). For those entities that have already adopted FAS 160, the
amendments are effective at the beginning of the first interim or annual
reporting period ending on or after December 15, 2009. The amendments should be
applied retrospectively to the first period that an entity adopted FAS 160. The
Company does not expect the provisions of ASU 2010-02 to have a material effect
on the financial position, results of operations or cash flows of the
Company.
In
January 2010, the FASB issued Accounting Standards Update 2010-01, Equity (Topic
505): Accounting for Distributions to Shareholders with Components of Stock and
Cash (A Consensus of the FASB Emerging Issues Task Force). This amendment to
Topic 505 clarifies the stock portion of a distribution to shareholders that
allows them to elect to receive cash or stock with a limit on the amount of cash
that will be distributed is not a stock dividend for purposes of applying Topics
505 and 260. Effective for interim and annual periods ending on or after
December 15, 2009, and would be applied on a retrospective basis. The Company
does not expect the provisions of ASU 2010-01 to have a material effect on the
financial position, results of operations or cash flows of the
Company.
In
December 2009, the FASB issued Accounting Standards Update 2009-17,
Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises
Involved with Variable Interest Entities. This Accounting Standards Update
amends the FASB Accounting Standards Codification for Statement
167.
22
In
December 2009, the FASB issued Accounting Standards Update 2009-16, Transfers
and Servicing (Topic 860): Accounting for Transfers of Financial Assets. This
Accounting Standards Update amends the FASB Accounting Standards Codification
for Statement 166.
In
October 2009, the FASB issued Accounting Standards Update 2009-15, Accounting
for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance
or Other Financing. This Accounting Standards Update amends the FASB Accounting
Standard Codification for EITF 09-1.
In
October 2009, the FASB issued Accounting Standards Update 2009-14, Software
(Topic 985): Certain Revenue Arrangements That Include Software Elements. This
update changed the accounting model for revenue arrangements that include both
tangible products and software elements. Effective prospectively for revenue
arrangements entered into or materially modified in fiscal years beginning on or
after June 15, 2010. Early adoption is permitted. The Company does not expect
the provisions of ASU 2009-14 to have a material effect on the financial
position, results of operations or cash flows of the Company.
In
October 2009, the FASB issued Accounting Standards Update 2009-13, Revenue
Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements. This update
addressed the accounting for multiple-deliverable arrangements to enable vendors
to account for products or services (deliverables) separately rather than a
combined unit and will be separated in more circumstances that under existing US
GAAP. This amendment has eliminated that residual method of allocation.
Effective prospectively for revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15, 2010. Early adoption is
permitted. The Company does not expect the provisions of ASU 2009-13 to have a
material effect on the financial position, results of operations or cash flows
of the Company.
In
September 2009, the FASB issued Accounting Standards Update 2009-12, Fair Value
Measurements and Disclosures (Topic 820): Investments in Certain Entities That
Calculate Net Asset Value per Share (or Its Equivalent). This update provides
amendments to Topic 820 for the fair value measurement of investments in certain
entities that calculate net asset value per share (or its equivalent). It is
effective for interim and annual periods ending after December 15, 2009. Early
application is permitted in financial statements for earlier interim and annual
periods that have not been issued. The Company does not expect the provisions of
ASU 2009-12 to have a material effect on the financial position, results of
operations or cash flows of the Company.
In July
2009, the FASB ratified the consensus reached by EITF (Emerging Issues Task
Force) issued EITF No. 09-1, (ASC Topic 470) "Accounting for Own-Share Lending
Arrangements in Contemplation of Convertible Debt Issuance" ("EITF 09-1"). The
provisions of EITF 09-1, clarifies the accounting treatment and disclosure of
share-lending arrangements that are classified as equity in the financial
statements of the share lender. An example of a share-lending arrangement is an
agreement between the Company (share lender) and an investment bank (share
borrower) which allows the investment bank to use the loaned shares to enter
into equity derivative contracts with investors. EITF 09-1 is effective for
fiscal years that beginning on or after December 15, 2009 and requires
retrospective application for all arrangements outstanding as of the beginning
of fiscal years beginning on or after December 15, 2009. Share-lending
arrangements that have been terminated as a result of counterparty default prior
to December 15, 2009, but for which the entity has not reached a final
settlement as of December 15, 2009 are within the scope. Effective for
share-lending arrangements entered into on or after the beginning of the first
reporting period that begins on or after June 15, 2009. The Company does not
expect the provisions of EITF 09-1 to have a material effect on the financial
position, results of operations or cash flows of the Company.
23
ITEM
7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not
applicable.
ITEM
8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
24
FINANCIAL
STATEMENT TABLE OF CONTENT
Report
of Independent Registered Public Accounting Firm
|
26
|
|
Consolidated
Balance Sheets
|
27
|
|
Consolidated
Statements of Operations
|
28
|
|
Consolidated
Statements of Stockholders’ Equity (Deficit)
|
29
|
|
Consolidated
Statements of Cash Flows
|
30
|
|
Notes
to Consolidated Financial Statements
|
31
|
25
26
VIRTUAL
MEDICAL CENTRE, INC.
Consolidated
Balance Sheets
June 30,
2010
|
June 30,
2009
|
|||||||
ASSETS
|
||||||||
CURRENT
ASSETS
|
||||||||
Cash
|
$ | 41,475 | $ | 135,119 | ||||
Prepaid
expenses
|
8,254 | 18,180 | ||||||
Accounts
receivable, net of allowance for doubtful accounts of $1,000
and $-0-, respectively
|
27,271 | 54,730 | ||||||
Research
and development receivable
|
269,639 | 246,604 | ||||||
Total
Current Assets
|
346,639 | 454,633 | ||||||
PROPERTY
AND EQUIPMENT, net
|
41,389 | 47,233 | ||||||
TOTAL
ASSETS
|
$ | 388,028 | $ | 501,866 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
|
||||||||
CURRENT
LIABILITIES
|
||||||||
Accounts
payable and accrued expenses
|
$ | 1,168,431 | $ | 442,588 | ||||
Notes
payable-related parties
|
143,308 | - | ||||||
Convertible
notes payable, net
|
104,438 | - | ||||||
Lines
of credit payable
|
19,230 | 7,783 | ||||||
Current
portion - capital lease obligation
|
13,387 | 14,306 | ||||||
Current
employee benefits payable
|
164,237 | 92,637 | ||||||
Deferred
revenues
|
174,196 | 126,699 | ||||||
Total
Current Liabilities
|
1,787,227 | 684,013 | ||||||
LONG
TERM LIABILITIES
|
||||||||
Capital
leases obligation, less current maturities
|
13,358 | 22,330 | ||||||
Long
term employee benefits payable
|
18,777 | 18,922 | ||||||
Total
Long Term Liabilities
|
32,135 | 41,252 | ||||||
TOTAL
LIABILIITES
|
$ | 1,819,362 | $ | 725,265 | ||||
STOCKHOLDERS'
EQUITY (DEFICIT)
|
||||||||
Common
stock (post merger), $0.001 par value, 200,000,000 shares authorized,
84,253,764 shares issued and outstanding
|
$ | 84,254 | $ | - | ||||
Common
stock (pre-merger), no par value, unlimited shares authorized, 59,749,794
shares issued and outstanding, respectively
|
- | 3,584,149 | ||||||
Additional
paid-in capital
|
3,742,653 | - | ||||||
Other
comprehensive income
|
130,164 | 114,929 | ||||||
Accumulated
deficit
|
(5,388,405 | ) | (3,922,477 | ) | ||||
Total
Stockholders' Equity (Deficit)
|
$ | (1,431,334 | ) | $ | (223,399 | ) | ||
TOTAL
LIABILITIES AND STOCKHOLDERS'
|
||||||||
EQUITY
(DEFICIT)
|
$ | 388,028 | $ | 501,866 |
The
accompanying notes are an integral part of these consolidated financial
statements.
27
VIRTUAL
MEDICAL CENTRE, INC.
Consolidated
Statements of Operations
For the Year Ended
|
||||||||
June 30,
|
||||||||
2010
|
2009
|
|||||||
REVENUES
|
$ | 842,589 | $ | 487,619 | ||||
OPERATING
EXPENSES
|
||||||||
Depreciation
expense
|
15,810 | 26,215 | ||||||
Impairment
of investments
|
- | 95,976 | ||||||
Employment
expenses
|
1,121,854 | 851,963 | ||||||
Professional
fees
|
562,622 | 329,768 | ||||||
Marketing
expenses
|
419,360 | 250,729 | ||||||
General
and administrative expenses
|
436,204 | 298,830 | ||||||
Total
Operating Expenses
|
2,555,850 | 1,853,481 | ||||||
LOSS
FROM OPERATIONS
|
(1,713,261 | ) | (1,365,862 | ) | ||||
OTHER
INCOME AND EXPENSE
|
||||||||
Interest
income
|
2,704 | - | ||||||
Research
and development income
|
277,663 | 231,239 | ||||||
Interest
expense
|
(33,034 | ) | (14,609 | ) | ||||
Total
Other Income and Expense
|
247,333 | 216,630 | ||||||
NET
LOSS BEFORE INCOME TAXES
|
(1,465,928 | ) | (1,149,232 | ) | ||||
Income
taxes
|
- | - | ||||||
NET
LOSS
|
$ | (1,465,928 | ) | $ | (1,149,232 | ) | ||
FOREIGN
CURRENCY TRANSLATION GAIN (LOSS)
|
15,235 | (35,922 | ) | |||||
TOTAL
COMPREHENSIVE INCOME
|
$ | (1,450,693 | ) | $ | (1,185,154 | ) | ||
BASIC
AND DILUTED LOSS PER COMMON SHARE
|
$ | (0.02 | ) | $ | (0.02 | ) | ||
WEIGHTED
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
|
62,265,090 | 57,504,382 |
The
accompanying notes are an integral part of these consolidated financial
statements.
28
VIRTUAL
MEDICAL CENTRE, INC.
Consolidated
Statements of Stockholders' Equity (Deficit)
Total
|
||||||||||||||||||||||||
Additional
|
Other
|
Stockholders'
|
||||||||||||||||||||||
Common Stock
|
Paid-in
|
Comprehensive
|
Accumulated
|
Equity
|
||||||||||||||||||||
Shares
|
Amount
|
Capital
|
Income
|
Deficit
|
(Deficit)
|
|||||||||||||||||||
Balance,
July 1, 2008
|
56,608,813 | $ | 2,908,278 | $ | - | $ | 150,851 | $ | (2,773,245 | ) | $ | 285,884 | ||||||||||||
Stock
issued for cash, net
|
2,805,600 | 617,603 | - | - | - | 617,603 | ||||||||||||||||||
Stock
issued for services
|
335,381 | 58,268 | - | - | - | 58,268 | ||||||||||||||||||
Net
loss
|
- | - | - | (35,922 | ) | (1,149,232 | ) | (1,185,154 | ) | |||||||||||||||
Balance,
June 30, 2009
|
59,749,794 | 3,584,149 | - | 114,929 | (3,922,477 | ) | (223,399 | ) | ||||||||||||||||
Stock
issued for cash, net
|
1,162,595 | 162,955 | - | - | - | 162,955 | ||||||||||||||||||
Stock
issued for services
|
565,375 | 79,803 | - | - | - | 79,803 | ||||||||||||||||||
Recapitalization
pursuant to reverse merger agreement
|
22,776,000 | (3,742,653 | ) | 3,742,653 | - | - | - | |||||||||||||||||
Net
loss
|
- | - | - | 15,235 | (1,465,928 | ) | (1,450,693 | ) | ||||||||||||||||
Balance,
June 30, 2010
|
84,253,764 | $ | 84,254 | $ | 3,742,653 | $ | 130,164 | $ | (5,388,405 | ) | $ | (1,431,334 | ) |
The
accompanying notes are an integral part of these consolidated financial
statements.
29
VIRTUAL
MEDICAL CENTRE, INC.
Consolidated
Statements of Cash Flows
For the Year Ended
|
||||||||
June 30,
|
||||||||
2010
|
2009
|
|||||||
OPERATING
ACTIVITIES
|
||||||||
Loss
from Operations
|
$ | (1,465,928 | ) | $ | (1,149,232 | ) | ||
Adjustments
to reconcile loss from operations to the net cash used in operating
activities:
|
||||||||
Impairment
of investments
|
- | 95,976 | ||||||
Amortization
of discount on debt
|
12,366 | - | ||||||
Allowance
for doubtful accounts
|
1,000 | - | ||||||
Depreciation
|
15,810 | 26,214 | ||||||
Common
stock issued for services
|
79,803 | 58,268 | ||||||
Changes
in Operating Assets and Liabilities
|
||||||||
Prepaid
expenses
|
9,926 | (54,730 | ) | |||||
Accounts
receivable
|
26,459 | 63,323 | ||||||
Tax
refund receivable
|
(23,035 | ) | 102,982 | |||||
Accounts
payable and accrued expenses
|
725,843 | (25,992 | ) | |||||
Employee
benefits
|
71,455 | 56,415 | ||||||
Deferred
revenue
|
47,497 | 126,699 | ||||||
Net
Cash Used in Operating Activities
|
(498,804 | ) | (700,077 | ) | ||||
INVESTING
ACTIVITIES
|
||||||||
Sale
of investment
|
- | 7,284 | ||||||
Purchase
of property and equipment
|
(9,966 | ) | - | |||||
Net
Cash Provided by (Used in) Investing Activities
|
(9,966 | ) | 7,284 | |||||
FINANCING
ACTIVITIES
|
||||||||
Proceeds
from the issuance of share capital
|
162,955 | 617,603 | ||||||
Proceeds
from notes payable
|
297,411 | - | ||||||
Repayment
of notes payable
|
(21,658 | ) | - | |||||
Repayment
of capital leases and credit lines payable
|
(5,889 | ) | (15,036 | ) | ||||
Net
Cash Provided by Financing Activities
|
432,819 | 602,567 | ||||||
NET
INCREASE (DECREASE) IN CASH
|
(75,951 | ) | (90,226 | ) | ||||
EFFECT
OF FOREIGN CURRENCY TRANSLATION
|
(17,693 | ) | (56,824 | ) | ||||
CASH
AT BEGINNING OF YEAR
|
135,119 | 282,169 | ||||||
CASH
AT END OF YEAR
|
$ | 41,475 | $ | 135,119 | ||||
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION
|
||||||||
CASH
PAID FOR:
|
||||||||
Interest
|
$ | 20,427 | $ | 12,590 | ||||
Income
Taxes
|
$ | - | $ | - |
The
accompanying notes are an integral part of these consolidated financial
statements.
30
VIRTUAL
MEDICAL CENTRE, INC.
Notes to
Consolidated Financial Statements
June 30,
2010 and 2009
NOTE 1 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Nature of
Business
Cliff
Rock Resources Corp. (the “Company”) was incorporated in the State of Nevada on
February 4, 2005 with the intention of acquiring mineral exploration
projects.
On May
27, 2010 (the “Closing Date”), the Company acquired Virtual Medical Centre
Limited. (“VMC”), a corporation organized under the laws of Australia on August
28, 2001. As of the Closing Date, the former VMC shareholders held
approximately 84.8% of the issued and outstanding shares of Cliff
Rock. The issuance of the 71,471,764 shares of Cliff Rock was deemed
to be a reverse acquisition for accounting purposes, by the Company of VMC, as
VMC will control the post–exchange company. Accordingly, VMC, the
accounting acquirer entity, is regarded as the predecessor entity as of May 27,
2010.
Under the
Exchange Agreement, VMC has become a wholly owned subsidiary of the Company, and
VMC will continue to own its assets and operate its business as a wholly-owned
subsidiary of the Company.
VMC is
engaged in the business of providing free medical information to the general
public and health professionals using the Company’s proprietary health
portal. VMC has established more than 1,100 Australian medical
specialists who regularly contribute and provide content quality control.
Currently, VMC has approximately 10,000 members from the medical profession,
which represents approximately 20% of all medical doctors and medical
specialists in Australia.
Result of
Audit
Upon the audit of the Company’s
financial statements for the year ended June 30, 2010, the Company’s independent
public accountant
has determined that
the figures contained in
the financial statements that form part of the Company’s Quarterly Report on Form
10-Q for the quarter ended June 30, 2010, particularly those in the
Consolidated Balance Sheet, contained numbers that differ
from those that are
included in the financial
statements that form part
of the Company’s Annual
Report on Form 10-K for the period ending June 30,
2010.
Use of
Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates.
Accounting
Basis
The
Company’s financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America and include the
accounts of the Company and VMC. All significant intercompany accounts have been
eliminated in the consolidation. The Company has adopted a June 30 fiscal year
end.
Cash and Cash
Equivalents
For
purposes of the Statement of Cash Flows, the Company considers all highly liquid
instruments purchased with a maturity of three months or less to be cash
equivalents to the extent the funds are not being held for investment
purposes.
31
VIRTUAL
MEDICAL CENTRE, INC.
Notes to
Consolidated Financial Statements
June 30,
2010 and 2009
NOTE
1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Concentration of Credit
Risk
Financial
instruments, which potentially subject the Company to significant concentrations
of credit risk, consist principally of cash, accounts receivable, and research
and development receivables.
Cash and
cash equivalents are deposited in various financial institutions, which may be
in excess of insurance limits.
Accounts
receivables are due from a limited group of customers. At June 30, 2010,
one individual customer represented 100% of the outstanding
balance.
Advertising and Marketing
Costs
The
Company expenses advertising and marketing costs in the period incurred.
Advertising and marketing expenses of $419,360 and $250,729 were incurred for
the years ended June 30, 2010 and 2009, respectively.
Employee
benefits
a)
|
Defined
contribution plans
|
A defined
contribution plan is a post-employment benefit plan under which an entity pays
fixed contributions into a separate entity and will have no legal or
constructive obligation to pay further amounts. Obligations for contributions to
defined contribution plans are recognized as a personnel expense in profit or
loss when they are due. Prepaid contributions are recognized as an asset to the
extent that a cash refund or a reduction in future payments is available. The
Company incurred $80,405 and $60,077 of expense under its defined contribution
plans for the years ended June 30, 2010 and 2009, respectively.
b)
|
Long-term
employee benefits
|
The
Company’s net obligation in respect of long-term employee benefits is the amount
of future benefit that employees have earned in return for their service in the
current and prior periods plus related on-costs; that benefit is discounted to
determine its present value, and the fair value of any related assets is
deducted. The discount rate is the yield at the reporting date on Commonwealth
Government bonds that have maturity dates approximating the terms of the
Company’s obligations.
c)
|
Short-term
employee benefits
|
Short-term
employee benefit obligations are measured on an undiscounted basis and are
expensed as the related service is provided. A liability is recognized for the
amount expected to be paid under short-term cash bonus or profit-sharing plans
if the Company has a present legal or constructive obligation to pay this amount
as a result of past service provided by the employee and the obligation can be
estimated reliably.
Valuation of Long-Lived
Assets
Long-lived
tangible assets and definite-lived intangible assets are reviewed for possible
impairment whenever events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable. The Company uses an
estimate of undiscounted future net cash flows of the assets over the remaining
useful lives in determining whether the carrying value of the assets is
recoverable. If the carrying values of the assets exceed the expected future
cash flows of the assets, the Company recognizes an impairment loss equal to the
difference between the carrying values of the assets and their estimated fair
values. Impairment of long-lived assets is assessed at the lowest levels for
which there are identifiable cash flows that are independent from other groups
of assets. The evaluation of long-lived assets requires the Company to use
estimates of future cash flows. However, actual cash flows may differ from the
estimated future cash flows used in these impairment tests. As of June 30, 2010,
management does not believe any of the Company’s assets were
impaired.
32
VIRTUAL
MEDICAL CENTRE, INC.
Notes to
Consolidated Financial Statements
June 30,
2010 and 2009
NOTE
1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue
Recognition
VMC
generates revenue through online advertising of prescription
medicines to doctors and non-prescription health products to consumers by large
multinational pharmaceutical companies and other
high
profile health related advertisers. Additional revenue is also derived from the
provision of content to an online publisher.
Revenue Recognition
(Continued)
The
Company recognizes revenue when products are fully delivered or services have
been provided and collection is reasonably assured. Goods and services tax is
excluded from revenues but is recorded as a liability until paid.
Depreciation
Property
and equipment are reported at cost, less accumulated depreciation. Depreciation
is recognized in profit or loss on a diminishing value basis over the estimated
useful lives of each part of an item of property and
equipment. Depreciation methods, useful lives and residual values are
reviewed at each reporting date. The cost of maintenance and repairs, which do
not improve or extend the useful life of the respective asset, is charged to
earnings as incurred, whereas significant renewals and improvements are
capitalized.
The
estimated useful lives for the current and comparative periods are as
follows:
Computer
equipment
|
3 –
6 years
|
Motor
vehicles
|
5 –
6 years
|
Fixtures
and fittings
|
7.5 – 11 years
|
Stock-based
compensation
As of
June 30, 2010, the Company has not issued any share-based payments to its
employees.
The
Company adopted ASC 718, Stock-based Compensation, using the modified
prospective method. Under this transition method, stock compensation expense
includes compensation expense for all stock-based compensation awards granted,
based on the grant-date fair value estimated in accordance with the provisions
of ASC 718.
Net Loss per Common
Share
Basic
loss per share is calculated by dividing the Company’s net loss applicable to
common shareholders by the weighted average number of common shares during the
period. Diluted earnings per share is calculated by dividing the Company’s net
income available to common shareholders by the diluted weighted average number
of shares outstanding during the year. The diluted weighted average number of
shares outstanding is the basic weighted number of shares adjusted for any
potentially dilutive debt or equity. The Company had 329,281 and -0- in warrants
and 3,916,670 and 2,416,670 in options as of June 30, 2010 and 2009,
respectively, which are excluded from the computation of weighted average shares
outstanding because they are anti-dilutive.
33
VIRTUAL
MEDICAL CENTRE, INC.
Notes to
Consolidated Financial Statements
June 30,
2010 and 2009
NOTE
1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
For the Year Ended
June 30, 2010
|
For the Year Ended
June 30, 2009
|
|||||||
Net
Loss (numerator)
|
$ | (1,465,928 | ) | $ | (1,149,232 | ) | ||
Weighted
Average Shares Outstanding
|
62,265,090 | 57,504,382 | ||||||
Net
Loss per common share
|
$ | ( 0.02 | ) | $ | ( 0.02 | ) |
Income
Taxes
The
Company applies ASC 740, Income Taxes, which requires the asset and liability
method of accounting for income taxes. The asset and liability method
requires that the current or deferred tax consequences of all events recognized
in the financial statements are measured by applying the provisions of enacted
tax laws to determine the amount of taxes payable or refundable currently or in
future years. Deferred tax assets are reviewed for recoverability and the
Company records a valuation allowance to reduce
its deferred tax assets when it is more likely than not that all or some portion
of the deferred tax assets will not be recovered. ASC 740 requires recognition
and measurement of uncertain tax positions using a “more-likely-than-not”
approach, requiring the recognition and measurement of uncertain tax
positions.
The
Company files income tax returns in the United States and Australia, which are
subject to examination by the tax authorities in these jurisdictions. Generally,
the statute of limitations related to the Company’s federal income tax is three
years although there are instances where the statute of limitations is extended
or indefinite in Australia
Foreign Currency
Translation
The
Company’s functional and reporting currency is the United States dollar.
Monetary assets and liabilities denominated in foreign currencies are translated
in accordance with ASC 830, Foreign Currency Translation
Matters, using the
exchange rate prevailing at the balance sheet date. Gains and losses arising on
settlement of foreign currency denominated transactions or balances are included
in the determination of income. Foreign currency transactions are primarily
undertaken in Australian dollars. The Company has not, to the date of these
financials statements, entered into derivative instruments to offset the impact
of foreign currency fluctuations.
Other Comprehensive Income
(Loss)
ASC 220,
Comprehensive Income establishes standards for the reporting and display of
comprehensive loss and its components in the financial statements. As of June
30, 2010 and 2009, the Company had Other Comprehensive Income (Loss) of $15,235
and ($35,922) respectively. The losses were primarily attributable to changes in
foreign currency rates.
Research and Development
Expense
The
Company expenses research and development costs during the period incurred. The
Company incurred research and development expense of $925,552 and $770,763
during the years ended June 30, 2010 and 2009, respectively.
34
VIRTUAL
MEDICAL CENTRE, INC.
Notes to
Consolidated Financial Statements
June 30,
2010 and 2009
NOTE
1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Accounts
Receivable
The
Company periodically reviews its trade receivables for potential collectability
issues. The Company’s accounts receivable are net of an allowance for
doubtful accounts of $1,000 and $-0- as of June 30, 2010 and 2009,
respectively.
Recent Accounting
Pronouncements
In
January 2010, the FASB issued Accounting Standards Update 2010-02, Consolidation
(Topic 810): Accounting and Reporting for Decreases in Ownership of a
Subsidiary. This amendment to Topic 810 clarifies, but does not change, the
scope of current US GAAP. It clarifies the decrease in ownership provisions of
Subtopic 810-10 and removes the potential conflict between guidance in that
Subtopic and asset derecognition and gain or loss recognition guidance that may
exist in other US GAAP. An entity will be required to follow the amended
guidance beginning in the period that it first adopts FAS 160 (now included in
Subtopic 810-10). For those entities that have already adopted FAS 160, the
amendments are effective at the beginning of the first interim or annual
reporting period ending on or after December 15, 2009. The amendments should be
applied retrospectively to the first period that an entity adopted FAS
160.
In
January 2010, the FASB issued Accounting Standards Update 2010-01, Equity (Topic
505): Accounting for Distributions to Shareholders with Components of Stock and
Cash (A Consensus of the FASB Emerging Issues Task Force). This amendment to
Topic 505 clarifies the stock portion of a distribution to shareholders that
allows them to elect to receive cash or stock with a limit on the amount of cash
that will be distributed is not a stock dividend for purposes of applying Topics
505 and 260. Effective for interim and annual periods ending on or after
December 15, 2009, and would be applied on a retrospective basis.
In
December 2009, the FASB issued Accounting Standards Update 2009-17,
Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises
Involved with Variable Interest
Entities.
This Accounting Standards Update amends the FASB Accounting Standards
Codification for Statement 167.
In
December 2009, the FASB issued Accounting Standards Update 2009-16, Transfers
and Servicing (Topic 860): Accounting for Transfers of Financial Assets. This
Accounting Standards Update amends the FASB Accounting Standards Codification
for Statement 166.
In
October 2009, the FASB issued Accounting Standards Update 2009-15, Accounting
for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance
or Other Financing. This Accounting Standards Update amends the FASB Accounting
Standard Codification for EITF 09-1.
In
October 2009, the FASB issued Accounting Standards Update 2009-14, Software
(Topic 985): Certain Revenue Arrangements That Include Software Elements. This
update changed the accounting model for revenue arrangements that include both
tangible products and software elements. Effective prospectively for revenue
arrangements entered into or materially modified in fiscal years beginning on or
after June 15, 2010. Early adoption is permitted.
In
October 2009, the FASB issued Accounting Standards Update 2009-13, Revenue
Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements. This update
addressed the accounting for multiple-deliverable arrangements to enable vendors
to account for products or services (deliverables) separately rather than a
combined unit and will be separated in more circumstances that under existing US
GAAP. This amendment has eliminated that residual method of allocation.
Effective prospectively for revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15, 2010. Early adoption is
permitted.
35
VIRTUAL
MEDICAL CENTRE, INC.
Notes to
Consolidated Financial Statements
June 30,
2010 and 2009
NOTE
1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent Accounting
Pronouncements (Continued)
Company
(share lender) and an investment bank (share In September 2009, the FASB issued
Accounting Standards Update 2009-12, Fair Value Measurements and Disclosures
(Topic 820): Investments in Certain Entities That Calculate Net Asset Value per
Share (or Its Equivalent). This update provides amendments to Topic 820 for the
fair value measurement of investments in certain entities that calculate net
asset value per share (or its equivalent). It is effective for interim and
annual periods ending after December 15, 2009. Early application is permitted in
financial statements for earlier interim and annual periods that have not been
issued.
In July
2009, the FASB ratified the consensus reached by EITF (Emerging Issues Task
Force) issued EITF No. 09-1, (ASC Topic 470) "Accounting for Own-Share Lending
Arrangements in Contemplation of Convertible Debt Issuance" ("EITF 09-1"). The
provisions of EITF 09-1, clarifies the accounting treatment and disclosure of
share-lending arrangements that are classified as equity in the financial
statements of the share lender. An example of a share-lending arrangement is an
agreement between the
borrower)
which allows the investment bank to use the loaned shares to enter into equity
derivative contracts with investors. EITF 09-1 is effective for fiscal years
that beginning on or after December 15, 2009 and requires retrospective
application for all arrangements outstanding as of the beginning of fiscal years
beginning on or after December 15, 2009. Share-lending arrangements that have
been terminated as a result of counterparty default prior to December 15, 2009,
but for which the entity has not reached a final settlement as of December 15,
2009 are within the scope. Effective for share-lending arrangements entered into
on or after the beginning of the first reporting period that begins on or after
June 15, 2009.
The
Company has reviewed the above pronouncements and does not expect any of the
provisions to have a material effect on the financial position, results of
operations or cash flows of the Company.
NOTE
2 – GOING CONCERN
The
accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the
Company as a going concern. However, the Company has an accumulated
deficit of $5,388,405 as of June 30, 2010. The Company currently has
limited liquidity, and has not completed its efforts to establish a stabilized
source of revenues sufficient to cover operating costs over an extended period
of time.
Management
anticipates that the Company will be dependent, for the near future, on
additional investment capital to fund operating expenses. The Company
intends to position itself so that it may be able to raise additional funds
through the capital markets. In light of management’s efforts, there are no
assurances that the Company will be successful in this or any of its endeavors
or become financially viable and continue as a going concern.
36
VIRTUAL
MEDICAL CENTRE, INC.
Notes to
Consolidated Financial Statements
June 30,
2010 and 2009
NOTE
3 – PROPERTY AND EQUIPMENT
Property
and equipment consisted of the following as of June 30, 2010 and 2009,
respectively:
Computer
Equipment
|
$ | 62,350 | $ | 58,573 | ||||
Fixtures
and Fittings
|
28,311 | 21,853 | ||||||
Motor
Vehicles
|
65,113 | 61,168 | ||||||
Other
|
4,415 | 2,818 | ||||||
Total
Property and Equipment
|
160,189 | 144,412 | ||||||
Accumulated
Depreciation
|
(118,800 | ) | (97,179 | ) | ||||
Net
Property and Equipment
|
$ | 41,389 | $ | 47,233 |
NOTE
4 – CONVERTIBLE NOTES PAYABLE
As of
June 30, 2010 and 2009, the Company had notes payable totaling $125,000 and
$-0-, respectively. These notes are secured by all of the assets of the Company
and carry interest at 3-30% per annum. The maturity dates all are
less than one year. The notes are convertible into the Company’s
common stock at $0.35 per share and one warrant for every common share converted
with an exercise price of $0.30 per share.
In
accordance with ASC 470, Debt, the Company has analyzed the beneficial
nature of the conversion terms and determined that a beneficial conversion
feature (BCF) exists. The Company calculated the value of the BCF
using the intrinsic method as stipulated in ASC 470. Based on the
stock price on the day of commitment, the agreed upon conversion price and the
fair value of the warrant, the BCF was valued at $32,928. The BCF has
been recorded as a discount to the debenture payable and to Additional Paid-in
Capital.
In
accordance with ASC 470, the Company is amortizing the BCF over the life of the
note. As of June 30, 2010 the Company has recognized $20,562 in
amortization which has been charged to interest expense resulting in a carrying
value of $104,438 as of June 30, 2010.
NOTE
5 – LINES OF CREDIT PAYABLE
The
Company has other short-term borrowings from third parties totaling $19,230 and
$7,733 as of June 30, 2010 and 2009. These notes are due on demand
and do not accrue interest and include bank credit lines.
NOTE
6 – NOTES PAYABLE-RELATED PARTIES
On June
1, 2010, the Company entered into a $250,000 line of credit with a shareholder.
The line of credit bears interest at 4% per annum, is unsecured and due with
accrued interest at June 30, 2010. The Company has drawn $100,000 on the line of
credit as of June 30, 2010 and accordingly had $150,000 in used credit
facilities as of that date. The line of credit is convertible into any private
placement that the Company may complete prior to its repayment.
37
VIRTUAL
MEDICAL CENTRE, INC.
Notes to
Consolidated Financial Statements
June 30,
2010 and 2009
As of
June 30, 2010, the Company owes an additional $43,308 in loans to shareholders.
These loans are unsecured, due upon demand and non interest
bearing.
NOTE
7 – CAPITAL LEASE OBLIGATIONS
The
Company leases a motor vehicle under a finance lease agreement with monthly
payments due of $1,482. The liability bears interest at 8.5% and matures in June
2012. Minimum principle payments under capital lease obligations are as
follows:
2011
|
$ | 13,387 | ||
2012
|
13,358 | |||
Total
|
$ | 26,745 |
NOTE
8 – CAPITAL STOCK
The
Company’s current authorized capitalization consists of 200,000,000 shares of
common stock, $0.001 par value. At June 30, 2010, the total issued
and outstanding common shares were 84,253,764.
During
the year ended June 30, 2010, the Company issued 1,162,595 shares of its no par
value common stock for net proceeds of $184,716 in cash. In addition
the Company issued 565,375 common shares in exchange for services valued at
$79,803.
On May
27, 2010, the Company entered into the Exchange Agreement, as described
above. In accordance with the terms of the Exchange Agreement, the
Company issued 71,471,764 Cliff Rock Shares, to the VMC Shareholders, which
constitutes approximately 84.8% of the post-exchange issued and outstanding
Cliff Rock Shares. Prior to the Closing Date, the Company cancelled
32,500,000 shares of its common stock. As a result, on the Closing
Date, 84,253,764 Cliff Rock Shares were issued and outstanding, including the
issuance of 71,471,764 Cliff Rock Shares in connection with the Exchange
Agreement.
NOTE
9 – INCOME TAXES
The
Company provides for income taxes under ASC 740, Income Taxes. ASC 740 requires
the use of an asset and liability approach in accounting for income taxes.
Deferred tax assets and liabilities are recorded based on the differences
between the financial statement and tax bases of assets and liabilities and the
tax rates in effect when these differences are expected to reverse. ASC 740
requires the reduction of deferred tax assets by a valuation allowance if, based
on the weight of available evidence, it is more likely than not that some or all
of the deferred tax assets will not be realized.
The
Company is subject to income taxes under the laws of Australia. The provision
for income taxes differs from the amounts which would be provided by applying
the statutory Australian federal income tax rate of 30% to the net loss before
provision for income taxes for the following reasons:
June 30,
2010
|
June 30,
2009
|
|||||||
Income
tax expense at statutory rate
|
$ | (439,778 | ) | $ | (344,770 | ) | ||
Change
in valuation allowance
|
439,778 | 344,770 | ||||||
Income
tax expense
|
$ | - | $ | - |
38
VIRTUAL
MEDICAL CENTRE, INC.
Notes to
Consolidated Financial Statements
June 30,
2010 and 2009
NOTE
9 – INCOME TAXES (CONTINUED)
The
components of income tax expense for the years ended June 30, 2010 and 2009 are
as follows:
June 30,
2010
|
June 30,
2009
|
|||||||
Current
|
$ | - | $ | - | ||||
Deferred
|
(439,778 | ) | (344,770 | ) | ||||
Change
in valuation allowance
|
439,778 | 344,770 | ||||||
Income
tax expense
|
$ | - | $ | - |
Net
deferred tax assets consist of the following components as of:
June 30,
2010
|
June 30,
2009
|
|||||||
NOL
Carryover
|
1,616,746 | 1,176,967 | ||||||
Valuation
allowance
|
(1,616,746 | ) | (1,176,967 | ) | ||||
Net
deferred tax asset
|
$ | - | $ | - |
Due to
the change in ownership provisions of the Income Tax laws of Australia, net
operating loss carry forwards of approximately AU$2,600,000 ($2,200,000) for
Australian federal income tax reporting purposes are subject to annual
limitations. Should a change in ownership occur, net operating loss carry
forwards may be limited as to use in future years.
NOTE
10 – WARRANTS AND OPTIONS
The
following table summarizes the changes in warrants outstanding and the related
prices for the shares of the Company’s common stock issued to the convertible
note holders.
Number of
Warrants
|
Weighted
Average
Exercise Price
|
|||||||
Outstanding
as of June 30, 2008
|
-
|
$
|
0.00
|
|||||
Granted
|
-
|
0.00
|
||||||
Exercised
|
-
|
0.00
|
||||||
Cancelled
|
-
|
0.00
|
||||||
Outstanding
as of June 30, 2009
|
-
|
0.00
|
||||||
Granted
|
429,281
|
0.30
|
||||||
Exercised
|
-
|
0.00
|
||||||
Cancelled
|
(100,000
|
)
|
0.30
|
|||||
Outstanding
at June 30, 2010
|
329,281
|
$
|
0.30
|
39
VIRTUAL
MEDICAL CENTRE, INC.
Notes to
Consolidated Financial Statements
June 30,
2010 and 2009
NOTE
10 – WARRANTS AND OPTIONS (CONTINUED)
The
following table summarizes the changes in options outstanding and the related
prices for the shares of the Company’s common stock issued to employees and
non-employees of the Company. These warrants were granted in lieu of cash
compensation for services performed.
Number of Options
|
Weighted
Average
Exercise Price
|
|||||||
Outstanding
as of June 30, 2008
|
1,250,000
|
$
|
0.137
|
|||||
Granted
|
1,166,670
|
0.0086
|
||||||
Exercised
|
-
|
0.00
|
||||||
Cancelled
|
-
|
0.00
|
||||||
Outstanding
as of June 30, 2009
|
2,416,670
|
0.077
|
||||||
Granted
|
1,500,000
|
0.314
|
||||||
Exercised
|
-
|
0.00
|
||||||
Cancelled
|
-
|
0.00
|
||||||
Outstanding
at June 30, 2010
|
3,916,670
|
$
|
0.163
|
NOTE
11 – EXCHANGE AGREEMENT
On May
27, 2010, Cliff Rock Resources, Corp (“Cliff Rock”) entered into an Exchange
Agreement with Virtual Medical Centre, Pty Ltd (the “Company”) wherein each
share of the Company shall be exchanged into the right to receive that number of
shares in Cliff Rock equal to 71,471,764 divided by the total number of shares
of the Company issued and outstanding immediately prior thereto, so that after
giving effect to the Exchange Agreement Cliff Rock shall be the holder of all of
the issued and outstanding shares of the Company. The common shares received by
the former shareholders of VMC represented
Approximately
84.8% of the outstanding common stock following the execution of the Exchange
Agreement. Accordingly, the former shareholders of VMC have the
capability to substantially control the vote on all significant matters
pertaining to the Company without approval of the shareholders.
The
Company will account for this transaction as a reverse acquisition, with Cliff
Rock as the continuing legal entity and the Company presented as the accounting
acquirer. Therefore, the historical financial statements presented
herein reflect only those of the Company, the accounting
acquirer. The reverse acquisition is presented as a recapitalization
of the Company. Accordingly, the historical stockholders’ equity
(deficit) of the Company prior to the acquisition transaction has been
retroactively restated pursuant to ASC 805, Business Combinations.
NOTE
12 – COMMITMENT AND CONTINGENCIES
The
Company leases its office premises under an operating lease. The lease is for
three years beginning on May 1, 2009. Future commitments under operating leases
are as follows:
2011
|
$ | 61,138 | ||
2012
|
50,948 | |||
Total
|
$ | 112,086 |
40
VIRTUAL
MEDICAL CENTRE, INC.
Notes to
Consolidated Financial Statements
June 30,
2010 and 2009
NOTE
13 – SUBSEQUENT EVENTS
The
Company is currently in negotiations with another company concerning a possible
merger agreement.
On August
24, 2010, the Company awarded executive performance bonuses to 2 executive
officers. The bonuses provide 100,000 stock options at $0.137 per share,
exercisable within 4 years from the date of the grant upon the Company reaching
25,000 subscribers and an additional 100,000 stock options at $0.137 per share
upon the Company reaching 300,000 unique visitors over a six-month
period.
The
Company is in default on $30,000 of its notes payable to related parties. The
Company is negotiating an extension of the due date for the notes payable. Notes
payable totaling $80,000 have been extended until November 1, 2010. Notes
payable of $15,000 have been extended to October 18, 2010. The extension
fee was $28,000.
The
Company is offering by means of a Confidential Private Placement Memorandum up
to a maximum of Twenty Million (20,000,000) shares of its Series A Convertible
Preferred Stock, $0.001 par value per share, convertible into shares of its
common stock, $0.001 par value per share, at an offering price of Forty Cents
($0.40) per share of Series A Preferred Stock, for a maximum total of Eight
Million Dollars ($8,000,000).
The
Company has drawn down the $150,000 that remained on its related party line of
credit.
In
accordance with ASC 855-10, Company management reviewed all material events
through the date of this report and there are no additional subsequent events to
report.
41
ITEM
9 – CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
As
reported in the Company’s Current Report on Form 8-K filed with the SEC on
August 20, 2010, on August 13, 2010, Manning Elliott LLP (“Manning Elliott”)
resigned as the Company’s independent certified public
accountants. Manning Elliott served as the Company’s independent
certified public accountants for each of the fiscal years ended September 30,
2005, 2006, 2007, 2008 and 2009, and for the first and second fiscal quarters of
2010. The resignation of Manning Elliott was approved by the Company’s Board of
Directors.
On August 13, 2010, the Company engaged
Hall Chadwick as the Company’s new independent certified public
accountants.
There were no changes in accounting
principles or disagreements with our auditors regarding applications of any
accounting principles during the fiscal years ended June 30, 2010 and
2009.
ITEM
9A – CONTROLS AND PROCEDURES
Disclosure
Controls and Procedures
The
chief executive officer and the chief financial officer, after evaluating the
effectiveness of the Company's “disclosure controls and procedures” (as defined
in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e);
collectively, “Disclosure Controls”) as of the end of the period covered by this
annual report (the “Evaluation Date”) have concluded that as of the Evaluation
Date, our Disclosure Controls were not effective to provide reasonable assurance
that information required to be disclosed in our reports filed or submitted
under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified by the SEC, and that material
information relating to our company and any consolidated subsidiaries is made
known to management, including the chief executive officer and chief financial
officer, particularly during the period when our periodic reports are being
prepared to allow timely decisions regarding required disclosure.
Internal
Control over Financial Reporting
Management
is responsible for establishing and maintaining adequate internal control over
financial reporting for the Company. As defined by the Public Company
Accounting Oversight Board Auditing Standard No. 5, a material weakness is a
deficiency or a combination of deficiencies, such that there is a reasonable
possibility that a material misstatement of the annual or interim financial
statements will not be prevented or detected.
Management
assessed the effectiveness of our internal control over financial reporting as
of the Evaluation Date based on criteria for effective internal control over
financial reporting described in Internal Control—Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission. Based on this evaluation, management has determined that
as of the Evaluation Date, there were material weaknesses in our internal
control over financial reporting. The material weaknesses identified
during management’s assessment were (i) a lack of sufficient internal accounting
resources; and (ii) a lack of segregation of duties to ensure adequate review of
financial statement preparation. In light of these material weaknesses,
management has concluded that we did not maintain effective internal control
over financial reporting at the Evaluation Date.
A
clear and concise segregation of duties is important to maximize checks and
balances so that no single individual has control over two or more phases of a
transaction or operation. A strong segregation of duties also is critical to
reduce effectively the risk of mistakes and inappropriate actions to prevent
fraud and to discourage collusion. It can be difficult for small businesses such
as the Company to always have a clear separation of duties because of
insufficient personnel to cover each and every process and procedure.
Ultimately, checks and balances need to be in place as a supportive measure to
the business operations, but also as a fraud prevention measure as well. Because
we have limited financial personnel and limited resources, there is a reasonable
possibility that a material misstatement of our annual or interim financial
statements will not be prevented or detected on a timely basis by the Company’s
internal controls procedures. However, the Company’s management
believes that the material weaknesses set forth above were the result of the
scale of our operations, are intrinsic to our small size and are of a nature
that companies of our size would normally encounter. In order to
remediate such weaknesses, the Company has engaged the services of a third-party
accountant as well as skilled outside consultants tasked to assist the Company
in strengthening its internal control procedures over financial reporting.
The addition of these individuals has led management to believe that the
weaknesses discussed above did not have a material effect on our financial
results.
42
In
connection with the evaluation referred to in the foregoing paragraph, we have
identified no change in our internal control of financial reporting that
occurred during the year ended June 30, 2010, that has materially affected, or
is reasonably likely to materially affect, our internal control over financial
reporting.
We
are a non-accelerated filer and are required to comply with the internal control
reporting and disclosure requirements of Section 404 of the Sarbanes-Oxley Act
for fiscal years ending June 30, 2010. Although we are working to comply with
these requirements, we have limited financial personnel, making compliance with
Section 404 – especially with segregation of duty control requirements – very
difficult and cost ineffective, if not impossible.
PART
III
ITEM
10 – DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The
Company presently has 3 directors and 3 executive officers. The
following table sets forth biographical information for each of the Company’s
current executive officers and directors:
Name
|
|
Age
|
|
Position
|
Served as a
Director or Officer
since
|
|
Wayne
Hughes
|
44
|
Chief
Executive Officer; Director
|
May
27, 2010
|
|||
Stuart
Usher
|
37
|
Chief
Financial Officer
|
May
27, 2010
|
|||
Thomas
Maher
|
52
|
Chief
Operating Officer
|
May
27, 2010
|
|||
Dr.
Andrew Dean
|
47
|
Director
|
June
28, 2010
|
|||
Clifford
Rosenberg
|
43
|
Director
|
June
28,
2010
|
Wayne Hughes - Mr.
Hughes co-founded VMC and, since August 2001, has served as the Managing
Director and member of the board of directors of VMC. Mr. Hughes has
served as Chairman of the Board of Directors of VMC since August
2001. Under the Exchange Agreement, Mr. Hughes was appointed the
Chief Executive Officer of the Company beginning on May 27, 2010. He
has an extensive business background ranging from forming numerous start-up
companies to serving as corporate senior management. Prior to founding VMC, Mr.
Hughes has owned and operated various enterprises for over 20 years. Mr. Hughes
completed his MBA at the University of Western Australia in 2004 specializing in
Strategic Management.
Stuart Usher - Mr.
Usher began to serve as the CFO of the Company as of May 27, 2010, and also
currently serves as the Chief Financial Officer of VMC, a position he has held
since August 2009; Mr. Usher serves in each role as an independent
contractor. Mr. Usher also serves as an Executive Director of Epic
Corporate Solutions, a position he has held since April 2008, where he provides
a range of professional advisory services. From 2005 to March 2008, Mr. Usher
served as Associate Director at HealthTec Growth Partners Pty Ltd, a corporate
advisory firm specialising in the listing on ASX of new Healthcare
companies. Mr. Usher is a CPA, an Associate member of the Institute of
Chartered Secretaries and Administrators and a member of ‘Chartered Secretaries
Australia’ where he has attained the status of Chartered Company Secretary. Mr.
Usher was awarded a Bachelor of Business degree from Edith Cowan University
in 1994.
Thomas Maher - Mr.
Maher serves as the Chief Operating Officer of the Company, a position he
assumed on May 27, 2010. Mr. Maher also serves as the General Manager
of VMC, a position he has held since 2004, where he is responsible for product
research and development, revenue generation, strategic planning and other areas
related to the development and growth of VMC. Mr. Maher is also
Secretary to the VMC Board of Directors, which began in September 2007. He
earned his Executive Master of Business Administration degree from the
University of Western Australia in 2004.
43
Dr. Andrew Dean – Dr. Dean
has served as our director since June 2010 and currently serves as a
non-managing director and consultant of VMC, a position he assumed in September
2001. Since 2005, Mr. Dean has served as the Honorary Medical Officer
in the Department of Medical Oncology at Sir Charles Gairdner
Hospital. He also serves as a Medical Oncologist at St. John of God
Oncology, Subiaco & Perth Oncology, where he began to provide his services
in 2007. He received his Bachelor of Medicine and Bachelor of Surgery
degrees from the University of Liverpool in 1985.
Clifford Rosenberg – Mr.
Rosenberg has served as our director since June 2010. He has also
served as a non-managing director of VMC since August 2009 and as a consultant
of VMC since April 2009. Since November 2009, Mr. Rosenberg has served as
the Managing Director of LinkedIn Australia. Beginning in
November 2007, he served as the Chairman of Sound Alliance, an online publisher
of web communities. From 2003 to 2006, he served as the Managing
Director of Yahoo! Australia & NZ. He received his Bachelor of Business
Science Degree in 1985 from the University of Cape Town in South Africa and his
Master of Science in Management from Boston University in 1988.
Board
Meetings and Committees
The Company held no formal meetings of
its board of directors (the “Board”) during the last 12 months. All proceedings
of the Board were conducted by resolutions consented to in writing by the
directors and filed with the minutes of the proceedings of the directors. Such
resolutions consented to in writing by the directors entitled to vote on that
resolution at a meeting of the directors are, according to the Nevada Revised
Statutes and the by-laws of the Company, as valid and effective as if they had
been passed at a meeting of the directors duly called and held. We do not
presently have a policy regarding director attendance at meetings.
At present, the Company’s independent
directors are Dr. Dean and Mr. Rosenberg. Our third director, Wayne
Hughes, is not independent. Our determination of independence of directors is
made by using the definition of “independent director” contained under Rule
5605(a)(2) of the NASDAQ Marketplace Rules. In determining whether or not these
individuals constituted “independent directors” under such definition, the Board
considered the terms of Dr. Dean’s appointment letter to the Board, which
provide that Dr. Dean is to receive AU$46,000 ($40,848) in annual consulting
fees in addition to an annual AU$30,000 ($26,640) in director fees, and the
terms of Mr. Rosenberg’s appointment letter to the Board, which provide that Mr.
Rosenberg is to receive AU$46,000 ($40,848) in annual consulting fees in
addition to an annual AU$20,000 ($13,320) in director fees.
Since the Share Exchange, the Company
has held no formal meetings of its Board and has acted solely by resolutions
consented to in writing and filed with the minutes of the proceedings of the
Board. We do not have standing audit, nominating or compensation committees, or
committees performing similar functions. As we have been a shell corporation,
our former Board believed that it was not necessary to have standing audit,
nominating or compensation committees because the functions of such committees
were adequately performed by the Board. Our full Board performs the services of
audit, nominating and compensation committee. The directors, excluding Mr.
Hughes, who perform the functions of auditing, nominating and compensation
committees are independent by the standards of such independence for such roles
under Rule 5605(a)(2) of the NASDAQ Marketplace Rules. However, at
such time in the future that we appoint additional independent directors to the
board; we expect to form the standing board committees comprised solely of
independent directors.
Family
Relationships
There are
no family relationships between any of our directors or executive
officers.
44
Code
of Ethics
The
Company’s Board has adopted and approved a Code of Ethics (the “Code”) to apply
to our principal executive officers and senior financial officers. The Code sets
forth the ethical foundations for all Company activities and relationships and
governs legal compliance, conflicts of interest, and other Company
policies. The Code was approved on October 12, 2010.
ITEM
11 – EXECUTIVE COMPENSATION
The
following table sets forth information concerning the compensation paid and
awarded to those individuals serving as our officers following the entry into
the Exchange Agreement. It includes compensation paid to our Chief
Executive Officer, our Chief Financial Officer, our Chief Operating Officer and
our former President as of the fiscal year ended June 30, 2010 and
2009. All figures below are in US dollars and are based on an
exchange rate of US$0.8567 for every AU$1.00 as of June 30, 2010 and US$0.8048
for every AU$1.00 as of June 30, 2009.
Name and Principal
Position
|
Year
|
Salary
|
Bonus
|
Stock
Awards
|
Options
Awards
|
Non-
Equity
Incentive
Plan
Compensat
ion
|
Change in
Pension
Value
and Non-
qualified
Deferred
Compensa
tion
Earnings(1)
|
All Other
Compensa
Tion
|
Total
|
|||||||||||||||||||||||||
(US$)
|
(US$)
|
(US$)
|
(US$)
|
(US$)
|
(US$)
|
(US$)
|
(US$)
|
|||||||||||||||||||||||||||
Michael
Raymort(2)
|
2010
|
nil
|
nil
|
nil
|
nil
|
nil
|
nil
|
nil
|
nil
|
|||||||||||||||||||||||||
Former
President, Treasurer & Secretary
|
2009
|
nil
|
nil
|
nil
|
nil
|
nil
|
nil
|
nil
|
nil
|
|||||||||||||||||||||||||
Wayne
Hughes(3)
|
2010
|
$ |
220,550
|
nil
|
nil
|
nil
|
nil
|
$ |
19,845
|
$ |
39,995
|
(4) | $ |
280,390
|
||||||||||||||||||||
Chief
Executive Officer
|
2009
|
$ |
187,000
|
nil
|
nil
|
nil
|
nil
|
$ |
16,830
|
$ |
41,941
|
(5) | $ |
245,771
|
||||||||||||||||||||
Stuart
Usher(6)
|
2010
|
$ |
28,716
|
nil
|
nil
|
nil
|
nil
|
nil
|
nil
|
$ |
28,716
|
|||||||||||||||||||||||
Chief
Financial Officer
|
2009
|
$ |
5,984
|
nil
|
nil
|
nil
|
nil
|
nil
|
nil
|
$ |
5,984
|
|||||||||||||||||||||||
Thomas
Maher(7)
|
2010
|
$ |
132,330
|
nil
|
nil
|
nil
|
nil
|
$ |
11,910
|
$ |
17,644
|
(8) | $ |
161,884
|
||||||||||||||||||||
Chief
Operating Officer
|
2009
|
$ |
112,200
|
nil
|
nil
|
nil
|
nil
|
$ |
10,098
|
$ |
14,960
|
(8) | $ |
137,258
|
(1) All
amounts within this column represent superannuation (pension) guarantees, as
required by Australian law.
(2) Dr.
Raymont was employed by Cliff Rock and resigned from his positions as President,
Secretary and Treasurer of the Company effective May 27, 2010 in conjunction
with the Exchange Agreement.
(3) Mr.
Hughes was appointed as the Company's Chief Executive Officer in conjunction
with the Exchange Agreement. The figures above represent fees paid to
Mr. Hughes for services rendered to VMC during the fiscal years ended June 30,
2010 and 2009. Mr. Hughes also serves as the Chief Executive Officer
of VMC and Executive Director to its board of directors.
(4)
Includes $17,644 in fees for service to the VMC board of directors and $22,351
in automobile-related expenses under Mr. Hughes’ car allowance.
(5)
Includes $14,960 in fees for service to the VMC board of directors and $26,981
in automobile-related expenses under Mr. Hughes’ car allowance.
45
(6) Mr.
Usher was appointed as our Chief Financial Officer of the Company in conjunction
with the Exchange Agreement. The figures above represent fees paid to
Mr. Usher for services rendered to VMC during the fiscal year ended June 30,
2010.
(7) Mr.
Maher was appointed as our Chief Operating Officer in conjunction with the
Exchange Agreement. The figures above represent fees paid to Mr.
Maher for services rendered to VMC during the fiscal years ended June 30, 2010
and 2009. Mr. Maher also serves as Chief Operating Officer of VMC and
Secretary to its board of directors.
(8)
Represents fees for service rendered as secretary of VMC board of
directors.
Employment
Contracts
In June
2007, VMC entered into an employment agreement with Wayne
Hughes. Pursuant to the terms of such agreement, Mr. Hughes was
appointed to serve as the Managing Director of VMC and the Executive Chairman of
VMC’s Board and was entitled to compensation in the amount of AU$250,000
($222,000) per annum plus statutory superannuation payments, AU$30,000 ($26,640)
per annum for service to the VMC board of directors, as well as a car allowance
in the amount of up to AU$45,000 ($39,960) per annum. Mr. Hughes
accrues eight weeks of annual leave each year.
Also, in
June 2007, VMC entered into an employment agreement with Thomas
Maher. Pursuant to the terms of such agreement, Mr. Maher was
appointed to serve as the General Manager of VMC and Secretary to VMC’s Board
and was entitled to compensation in the amount of AU$150,000 ($133,200) per
annum plus statutory superannuation payments and AU$30,000 ($26,640) per annum
for service to the VMC board of directors. Mr. Maher accrues six weeks of
annual leave each year.
Both
agreements provided that the executive would be granted a yearly 9% increase in
salary at such time as the Company has sufficient working capital and would be
eligible for a performance bonus in the form of stock options in the event that
VMC exceeds threshold numbers of subscribers and website visitors, engages in a
successful public listing or exceeds a net after-tax profit target set by the
Board.
In order
to terminate the agreement, Mr. Hughes or Mr. Maher must provide three months
written notice or VMC must provide (i) three months written notice in the event
of the executive’s inability to perform his duties due to incapacitation or
illness for nine months out of any twelve month period, (ii) one month notice if
the executive is found guilty of any serious breach of the agreement or
unreasonably neglects his duties under the agreement, (iii) no notice if the
executive in convicted of a major criminal offense, or (iv) three months written
notice without reason, in which event the executive is entitled to all bonuses
earned through the date of termination, a severance payment of two years’ salary
plus an additional six months’ salary for each five years’ of completed service
to VMC, and continued payment of private health insurance and financial planning
assistance for a period of two years.
Each
agreement also contains standard provisions regarding the confidentiality of
information, non-competition and non-solicitation provisions.
Outstanding
Equity Awards
There
were no outstanding equity awards to our executive officers as of June 30,
2010. However, each of Messrs. Hughes and Maher is eligible for
additional option grants under an Executive Performance Bonus Schedule, copies
of which were filed as schedules to such individuals’ employment agreements as
Exhibits 10.4 and 10.5, respectively, to the Current Report on Form 8-K
filed on May 28, 2010. According to such Executive Performance Bonus Schedule,
upon VMC’s achievement of certain performance milestones related to membership
on VMC’s website and sustained website traffic levels, 100,000 vested options to
purchase Company common stock for an exercise price of AU$0.16 ($0.137) per
share are issuable (at each milestone level) to each of Messrs. Hughes and
Maher, which options expire four years from the date of grant. The
Company’s Board determined that the 25,000 member and 300,000 visitor sustained
website traffic thresholds had been met, and therefore, on August 24, 2010,
awarded each of Messrs. Hughes and Maher 200,000 vested options each at an
exercise price of AU$0.16 ($0.137) expiring on August 25, 2014, the fourth
anniversary of the date of grant. The grant date valuation for such options was
$46,008 for each of Messrs. Hughs and Maher.
46
Director
Compensation
In
addition to serving as a member of the board of director, Mr. Hughes is an
executive officer of the Company. His compensation for his services
as a director is included in the Executive Compensation table above in the
column entitled “All Other Compensation.”
The
following table sets forth information concerning the compensation paid and
awarded to our non-executive directors for the fiscal year ended June 30,
2010. All figures below are in US dollars and are based on an
exchange rate of US$0.8567 for every AU$1.00.
Name
Of
Director
|
Fees Earned
or Paid in
Cash
($)
|
Stock Awards
($)
|
Option
Awards
($)
|
Non-equity
Incentive
Plan
Compensation
|
Changes in
Pension Value
and
Nonqualified
Compensation
Earnings
|
All
Other
Compensation
|
Total
($)
|
|||||||||||||||||||||
Andrew
Dean
|
$ |
17,644
|
nil
|
nil
|
nil
|
nil
|
nil
|
$ |
17,644
|
|||||||||||||||||||
Clifford
Rosenberg
|
$ |
17,644
|
nil
|
$ |
52,035
|
nil
|
nil
|
$ |
14,232
|
(2) | $ |
83,911
|
(1)
|
Represents
500,000 options to purchase the Company's common stock at an exercise
price of AU$0.50 per share.
|
(2)
|
Represents
payment for consulting services rendered to
VMC.
|
Dr.
Andrew Dean and Mr. Clifford Rosenberg (through CJR Media Pty Ltd) have waived
their entitlements to any consulting fees payable and directors fees
payable for the periods July 1, 2007 to June 30, 2010 and April 1, 2009 to June
30, 2010, respectively, in excess of the amounts accrued in the financial
statements as at June 30, 2010.
ITEM
12 – SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The
following table sets forth information regarding the number of shares of our
common stock beneficially owned as of October 6, 2010 by (i) each stockholder
who we know to own beneficially 5% or more of our outstanding common stock; (ii)
all directors; (iii) all nominees for director; (iv) our executive officers; and
(v) all executive officers and directors as a group. Except as otherwise
indicated, we believe, based on information furnished by such persons, that each
person listed below has sole voting and investment power over the shares of
common stock shown as beneficially owned, subject to community property laws,
where applicable. Beneficial ownership is determined under the rules of the SEC
and includes any shares which the person has the right to acquire within 60 days
after October 6, 2010 through the exercise of any stock option, warrant or other
right.
47
Name and Address
of Beneficial
Owners*
|
Title/Status
|
Number of Shares
Owned
|
Right to
Acquire(1)
|
Total
|
Percentage
of Class(2)
|
|||||||||||||
Wayne
Hughes(3)
|
Chief
Executive Officer
|
13,265,656 | (4) (5) | 200,000 | 13,465,656 | 15.9 | % | |||||||||||
Stuart
Usher(3)
|
Chief
Financial Officer
|
0 | 0 | 0 | 0 | |||||||||||||
Thomas
Maher(3)
|
Chief
Operating Officer
|
3,250,855 | (4)(6) | 200,000 | 3,450,850 | 4.1 | % | |||||||||||
Clifford
Rosenberg
PO
Box 707
Bondi
Junction
Sydney
NSW 1355,
Australia |
Director
|
5,812 | 500,000 | 505,812 | ** | |||||||||||||
Andrew
Dean
15
Pownall Gardens
Churchlands
Perth
WA 6018,
Australia |
Director,
5%
holder |
16,334,881 | (4)(7) | 0 | 16,334,881 | 19.4 | % | |||||||||||
Cunningham
Peterson Sharb
PO
Box Z5467
St.
George TCE
Perth,
WA 6831,
Australia |
5%
holder
|
4,940,892 | 0 | 4,940,892 | 5.9 | % | ||||||||||||
The
Sports Café Australia P/L
Mezzanine
Level BGC Centre
28
The Esplanade
Perth,
WA 6831,
Australia |
5%
holder
|
7,635,180 | 625,000 | 8,260,180 | 9.7 | % | ||||||||||||
Viaticus
Capital P/L
PO
Box Z5425
St.
George TCE
Perth,
WA 6831,
Australia |
5%
holder
|
5,785,536 | 525,000 | 6,310,536 | 7.4 | % | ||||||||||||
Welas
PTY Ltd.
Unit
4, 8 Milson Road
Cremore,
Sydney
NSW 2090 Australia
|
5%
holder
|
9,012,072 | 2,066,670 | 11,078,742 | 12.8 | % | ||||||||||||
Window
Capital, P/L
L1,
914 Hay St.,
Perth
WA 6000,
Australia
|
5%
holder
|
35,576,274 | (8) | 400,000 | 35,976,274 | 42.5 | % | |||||||||||
Officers
and directors as a group (5)
|
32,857,204 | 900,000 | 33,757,204 | 39.64 | % |
* Unless
otherwise indicated, the address for the above-named stockholders is L1, 414
Scarborough Beach Road,
Osborne
Park, WA 6017, Australia
** Less
than 1%
(1)
Reflect options to purchase shares of the Company’s common stock.
(2) Based
on 84,253,764 shares of common stock outstanding on October 6,
2010.
(3)
Address is L1, 414 Scarborough Beach Road, Osborne Park, WA 6017, Australia, PO
Box 1173, Osborne Park, WA 6916, Australia
(4)
Shares are held in the name of Window Capital, P/L.
(5)
Includes 9,000,000 shares of common stock held in escrow and subject to
forfeiture in accordance with the Exchange Agreement discussed under Item 2.01
of the Current Report on Form 8-K/A filed by the Company on September 7,
2010.
(6)
Includes 1,000,000 shares of common stock held in escrow and subject to
forfeiture in accordance with the Exchange Agreement discussed under Item 2.01
of the Current Report on Form 8-K/A filed by the Company on September 7,
2010.
(7)
Includes 10,000,000 shares of common stock held in escrow subject to forfeiture
and subject to forfeiture in accordance with the Exchange Agreement discussed
under Item 2.01 of the Current Report on Form 8-K/A filed by the Company on
September 7, 2010.
(8)
Includes a total of 32,851,392 shares of common stock held in the aggregate by
Messrs. Hughes and Maher and Dr. Dean, collectively, including the
20,000,000 shares of common stock held in escrow and subject to forfeiture in
accordance with the Exchange Agreement discussed under Item 2.01 of the
Current Report on Form 8-K/A filed by the Company
on
September 7, 2010.
48
ITEM
13 – CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
In the
fiscal year ended June 30, 2008, VMC used the website development and design
services of Titan Global Consulting Pty Ltd, a company in which Wayne Hughes,
our Chief Executive Officer, is a director. The relationship was disclosed
to the rest of the VMC Board and the contract was approved by a majority of the
other VMC Board members. In addition, amounts billed VMC by Titan were based on
normal market rates for such supplies and were due and payable under normal
payment terms.
The
aggregate value of transactions and outstanding balances relating to key
management personnel and entities over which they have control or significant
influence were as follows:
Transaction Value Year
Ended
|
Balance
Outstanding at
|
|||||||||||||||||
June 30,
|
June 30,
|
|||||||||||||||||
Name
|
Transaction
|
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Wayne
Hughes
|
Website
and development
fees
|
$ | 8,015 | $ | 26,180 | $ | - | $ | - | |||||||||
TOTAL
|
$ | 8,015 | $ | 26,180 | $ | - | $ | - |
All
figures above are in US dollars and are based on an exchange rate of US$0.8567
for every AU$1.00 as of June 30, 2010 and US$0.8048 for every AU$1.00 as of June
30, 2009.
ITEM
14 – PRINCIPAL ACCOUNTANT FEES AND SERVICES
The
following table presents fees for professional audit services rendered by the
Company’s registered accounting firm for the audit of our annual financial
statements for the years ended June 30, 2010 and 2009 and fees for other
services rendered by such firms during those periods.
2010
|
2009
|
|||||||
Audit
Fees
|
$ | 92,424 | $ | 43,085 | ||||
Audit
Related Fees
|
- | - | ||||||
Tax
Fees
|
- | - | ||||||
All
Other Fees
|
- | - | ||||||
Total
|
$ | 92,424 | $ | 43,085 |
49
PART
IV
ITEM
15 EXHIBITS
Exhibit No.
|
|
Description
|
2.1
|
Exchange
Agreement dated May 27, 2010 (Exhibit 2.1 to our Current Report on Form
8-K as filed with the SEC on May 28, 2010).
|
|
3.1
|
Articles
of Incorporation (Exhibit 3.1 to our Form SB-2 Registration Statement as
filed with the SEC on January 18, 2006).
|
|
3.2*
|
Certificate
of Amendment to Articles of Incorporation, dated July 12,
2010.*
|
|
3.3
|
Bylaws
of the Company (Exhibit 3.2 to our Form SB-2 Registration Statement as
filed with the SEC on January 18, 2006).
|
|
4.1
|
Form
of Promissory Note (Exhibit 10.4 to our Quarterly Report on Form 10-Q for
the fiscal quarter ended June 30, 2010 as filed with the SEC on August 23,
2010).
|
|
4.2
|
Form
of Common Stock Purchase Warrant (Exhibit 10.5 to our Quarterly Report on
Form 10-Q for the fiscal quarter ended June 30, 2010 as filed with the SEC
on August 23, 2010).
|
|
10.1
|
Form
of Share Sale Agreement for Non-Option Holders (Exhibit 10.1 to our
Current Report on Form 8-K as filed with the SEC on May 28,
2010).
|
|
10.2
|
Form
of Share Sale Agreement for Option Holders (Exhibit 10.2 to our Current
Report on Form 8-K as filed with the SEC on May 28,
2010).
|
|
10.3
|
Form
of Escrow Agreement (Exhibit 10.3 to our Current Report on Form 8-K as
filed with the SEC on May 28, 2010).
|
|
10.4
|
Employment
Agreement between Virtual Medical Centre, Limited and Wayne Hughes
(Exhibit 10.4 to our Current Report on Form 8-K as filed with the SEC on
May 28, 2010).
|
|
10.5
|
Employment
Agreement between Virtual Medical Centre, Limited and Thomas Maher
(Exhibit 10.5 to our Current Report on Form 8-K as filed with the SEC on
May 28, 2010).
|
|
10.6
|
Agreement
between Virtual Medical Centre, Limited and Andrew Dean (Exhibit 10.2 to
our Current Report on Form 8-K as filed with the SEC on August 20,
2010).
|
|
10.7
|
Agreement
between Virtual Medical Centre, Limited and CJR Media Pty Ltd. (Exhibit
10.3 to our Current Report on Form 8-K as filed with the SEC on August 20,
2010).
|
|
10.8*
|
Partner
Content Services Agreement between Virtual Medical Centre, Limited and
Telstra Corporation Limited.
|
|
14.1*
|
Code
of Ethics
|
|
16.1
|
Resignation
Letter from Manning Elliott LLP (Exhibit 16.1 to our Current Report on
Form 8-K as filed with the SEC on August 20, 2010).
|
|
21.1
|
Subsidiary
List. (Exhibit 21.1 to our Current Report on Form 8-K/A as
filed with the SEC on September 7, 2010)
|
|
31.1*
|
Sarbanes
Oxley Section 302
Certification
|
50
31.2*
|
Sarbanes
Oxley Section 302 Certification
|
|
32.1*
|
Sarbanes
Oxley Section 906 Certification
|
|
32.2*
|
Sarbanes
Oxley Section 906
Certification
|
* Filed
herewith.
51
SIGNATURE
In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, there unto duly
authorized.
VIRTUAL
MEDICAL CENTRE, INC.
|
||
By:
|
/s/ Wayne Hughes
|
|
Wayne
Hughes
|
||
Chief Executive Officer
|
Pursuant to
the requirements of the Securities Exchange Act of 1934, as amended, this report
has been signed by the following persons in the capacities and on the dates
indicated.
NAME
|
TITLE
|
DATE
|
||
/s/ Wayne Hughes
|
Chief
Executive Officer
|
October
13, 2010
|
||
Wayne
Hughes
|
and
Director
|
|||
/s/ Stuart Usher
|
Chief
Financial Officer
|
October
13, 2010
|
||
Stuart
Usher
|
||||
/s/ Thomas Maher
|
Chief
Operating Officer
|
October
13, 2010
|
||
Thomas
Maher
|
||||
/s/Andrew Dean
|
Director
|
October
13, 2010
|
||
Andrew
Dean
|
||||
/s/Clifford Rosenberg
|
Director
|
October
13, 2010
|
||
Clifford
Rosenberg
|
52