10-Q 1 vemics-10q_123109.htm vemics-10q_123109.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-Q
 
 
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended December 31, 2009
 
Rider 1A
 
Commission file number: 000-52765

VEMICS, INC.
(Exact Name of Registrant as Specified in Its Charter)
 
Nevada
95-4696799
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
523 Avalon Gardens Drive, Nanuet, New York 10954
(Address of principal executive offices) (Zip Code)

(845) 371-7380
(Registrant’s Telephone Number, Including Area Code)
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes x   No  o
 
Rider 1B
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer      ¨     
Accelerated filer                   ¨
Non-accelerated filer        ¨   
Smaller reporting company   x
 (Do not check if a smaller reporting company)        
  
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o     No x
 

 
VEMICS, INC.
FORM 10-QSB QUARTERLY REPORT
FOR THE QUARTER ENDED DECEMBER 31, 2009


 
Part I Financial Information
 Page
       
Item 1.
1
   
1
   
2
   
3
    4
   
5
       
Item 2.
8
       
Item 3.
13
       
Item 4T.
13
       
Part II Other Information
  
       
Item 2
14
       
Item 6.
14
       
Signatures
15
 
                                                                                                                       

PART 1:  FINANCIAL INFORMATION


VEMICS, INC. AND SUBSIDIARY
 
 
   
December 31, 2009
    
June 30,
2009
  
ASSETS
  
unaudited
    
Audited
  
Current assets:
            
Cash and cash equivalents –– interest bearing
   $ 34,368     $ 52,615  
Advances
     2,606       -  
Accounts receivable, net of allowance for doubtful accounts of $-0- and $5,000 at December 31, 2009 and June 30, 2009, respectively
     3,214       3,214  
Total Current Assets
     40,188       55,829  
                 
Property and equipment, net
     10,561       16,544  
                 
Other Assets
                
Deferred Expenses
     60,798       60,798  
Technology and Medical Software, net
     5,941,923       6,814,563  
Goodwill
     681,673       681,673  
      6,684,394       7,557,035  
Total Assets
   $ 6,735,143     $ 7,629,408  
LIABILITIES AND STOCKHOLDERS’ EQUITY
                
Current liabilities:
                
Notes payable –– banks
   $ 87,354     $ 87,354  
Current portion of long-term debt
     4,526,353       3,624,198  
Accounts payable and accrued expenses
     1,427,501       1,585,901  
Deferred income
     60,000       121,620  
Total Current Liabilities
     6,101,208       5,419,073  
Capital long-term liabilities
                
Long-term notes payable
     1,305,198       1,268,996  
Total Liabilities
     7,406,406       6,688,069  
Stockholders’ Equity
                
Common stock,  par value $001 per share, authorized 200,000,000
Issued and outstanding 135,332,558 and 114,562,000 shares at December 31, 2009 and June 30, 2009, respectively
     135,333       114,562  
Additional Paid in Capital
     33,018,557       30,962,043  
Less: Treasury stock, 368,407 shares at both December 31, 2009 and June 30, 2009     (508,195 )     (508,195 )
Accumulated deficit
     (33,316,958 )     (29,627,071 )
Total Stockholders’ Equity
     (671,263 )     941,339  
Total Liabilities and Stockholders’ Equity
   $ 6,735,143     $ 7,629,408  

See notes to financial statements.
 
 
VEMICS, INC. AND SUBSIDIARY

   
For the three
    
For the three
  
   
months ended
    
months ended
  
   
December 31, 2009
    
December 31, 2008
  
   
unaudited
    
unaudited
  
             
Revenues:
   $ 65,582     $ 79,150  
Cost of Services
     2,439       8,431  
Gross Profit
     63,143       70,719  
 
Expenses:
                
Consulting, commissions and travel
     42,089       87,032  
Operational fees and expenses
     130,172       157,115  
Professional fees
     31,040       10,861  
Payroll and related taxes
     175,427       242,405  
Depreciation and amortization
     510,187       497,321  
Production, advertising, brochures and public relations
     38,082       9,056  
Total Expenses
     926,997       1,003,790  
Loss before other expenses
     (863,854 )     (933,071 )
 
Other Income/(Expenses):
                
Redemption Fee
     (160,646 )     44  
Interest expense
     (101,823 )     (38,934 )
Total Other Income/(Expenses)
     (262,469 )     (38,890 )
                 
                 
Net loss available to common stockholders
   $ (1,126,323 )   $ (971,961 )
                 
                 
Net loss per share, to common stockholders
   $ (0.01 )   $ (0.01 )
Weighted average number of shares, basic and diluted
     123,044,835       83,093,198  

See notes to financial statements.
 
 
VEMICS, INC.  AND SUBSIDIARY

   
For the six
    
For the six
  
   
months ended
    
months ended
  
   
December 31, 2009
    
December 31, 2008
  
   
unaudited
    
unaudited
  
             
Revenues:
   $ 131,414     $ 161,510  
Cost of Services
     7,937       23,540  
Gross Profit
     123,447       137,970  
                 
Expenses:
                
Stock Issued for Fees and Services
     1,261,393       -  
Consulting, commissions and travel
     35,115       217,766  
Operational fees and expenses
     348,187       326,721  
Professional fees
     97,415       91,404  
Payroll and related taxes
     448,086       512,836  
Depreciation and amortization
     1,013,624       991,675  
Production, advertising, brochures and public relations
     86,208       37,997  
Total Expenses
     3,290,028       2,178,399  
Loss before other expenses
     (3,166,551 )     (2,040,429 )
                 
Other Income/(Expenses):
                
Interest Income       -       4,128  
Redemption Fee
     (321,292 )     -  
Interest expense
     (202,044 )     (78,130 )
Total Other Income/(Expenses)
     (523,336 )     (74,002 )
                 
Net loss available to common stockholders
   $ (3,689,887 )   $ (2,112,838 )
Net loss per share, basic and diluted
   $ (0.03 )   $ (0.03 )
Weighted average number of shares, basic and diluted
     125,879,009       83,093,198  
 
See notes to financial statements.


VEMICS, INC.
(Unaudited)

   
For the six
    
For the six
  
   
months ended
    
months ended
  
   
December 31, 2009
    
December 31, 2008
  
   
unaudited
    
unaudited
  
Cash Flows From Operating Activities:
            
Receipts from customers
   $ 69,794     $ 43,179  
Payments to suppliers, salaries
     (941,463 )     (1,702,757 )
Interest Received             4,128  
Interest paid
     (22,078 )     (31,296 )
Net Cash Used in Operating Activities
     (893,747 )     (1,685,936 )
                 
Cash Flows Used in Investing Activities:
                
Purchase of Technology & Medical Software
     -       (475,271 )
Net Cash Used in Investing Activities
     -       (475,271 )
                 
Cash Flows From Financing Activities:
                
Payments on capital lease obligations
     -       -  
Payments on notes payable
     (25,000 )     (220,926 )
Short term loans proceeds
     900,500       539,985  
Short term loans paid
             (147,442 )
Sale of common stock     -       (1,700,000 )
Net Cash Provided by Financing Activities
     875,500       1,979,563  
                 
Net Increase/(Decrease) in Cash
     (18,247 )     (189,590 )
                 
Cash at the Beginning of Period
     52,615       212,566  
                 
Cash at End of Period
   $ 34,368     $ 22,976  
Reconciliation of Net Loss to Net Cash
            
     Used by Operating Activities
            
Net Loss
   $ (3,689,887 )   $ (2,114,413 )
Adjustments to Reconcile net income/(loss) to net cash
                
        Used by operating activities
                
Depreciation & Amortization
     1,013,624       991,675  
                    Shares issued in exchange for services     1,261,393       -  
Loan Accretion
     321,292       -  
Changes in:
                
Trade receivables
     -       11,419  
Advances
     (2,606 )     -  
Deferred Expenses
     -       -  
                 
Accounts payable and accrued expenses
     84,091       519,943  
Convertible debentures – accrued interest
     179,966       26,185  
Deferred income
     (61,620 )     (123,500 )
     Net Cash Used by Operating Activities
   $ (893,747 )   $ (1,685,936 )

See notes to financial statements.
 

VEMICS, INC.
(Unaudited)

December 31,  2009

1.           BASIS OF PRESENTATION

Vemics, Inc. (the “Company”) builds portal-based, virtual work and learning environments in healthcare and related industries.  Our focus is twofold: iMedicor, our web-based portal which allows physicians and other healthcare providers to exchange patient specific healthcare information via the internet while maintaining compliance with all Health Insurance Portability and Accountability Act of 1986 (“HIPAA”) regulations and; recently acquired ClearLobby technology, our web-based portal adjunct which provides for direct communications between pharmaceutical companies and physicians for the dissemination of information on new drugs without the costs related to direct sales forces.
 
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial information.  Accordingly, they do not include all of the information and footnotes required by generally accepted principles in the United States for full year financial statements.  In the opinion of management, all adjustments considered necessary for a fair presentation have been included and are of a normal, recurring nature.  Operating results for the six and three month period ended December 31, 2009, are not necessarily indicative of the results that may be expected for the full year. These consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto that are included in the Company’s Form 10-K for the fiscal year ended June 30, 2009.
 
2.           GOING CONCERN

From inception through June 30, 2009, the Company has been in the development stage, devoting substantially all of its efforts to research and development of its technologies, acquisition of equipment and raising capital.  The Company has incurred operating losses to date and has an accumulated deficit of approximately $33,316,000 and $29,627,000 at December 31, 2009 and at June 30, 2009, respectively.  The Company’s activities have been primarily financed through convertible debentures, private placements of equity securities and capital lease financing.  The Company intends to raise additional capital through the issuance of debt or equity securities to fund its operations.  The financing may not be available on terms satisfactory to the Company, if at all. However, no formal commitments or arrangements to advance or loan funds to the Company or repay any such advances or loans exist.  There is no legal obligation for either management or significant stockholders to provide additional future funding.

3.           NET EARNING (LOSS) PER SHARE
 
Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding for the period, less shares subject to repurchase.  Diluted net loss per share reflects the potential dilution of securities by adding other common stock equivalents, including stock options, shares subject to repurchase, warrants and convertible notes in the weighted-average number of common shares outstanding for a period, if dilutive.  All potentially dilutive securities have been excluded from the computation, as their effect is anti-dilutive.
 
 
4.           WARRANTS
 
As of December 31, 2009, following warrants were outstanding:
 
No. shares
    
Expiration
    
Exercise Price
  
  778,419       2010     $ 1.50  
  2,206,666       2010-2011     $ .60  
  1,430,000       2011     $ .24  
  1,541,667       2011     $ .12  
  4,000,000       2013     $ .04  
  13,620,000       2013-2014     $ .05  
  1,000,000       2014     $ .01  

Management has not assigned a value to these warrants, as it is not practicable to estimate fair value for these financial instruments.  It also reserves the rights to redeem the warrants at $.10 per warrant if there is a subsequent initial public offering and market value per share meets certain levels.

5.           RELATED PARTY TRANSACTIONS

One member of our Board of Directors since 2002 is the largest individual investor in the Company, having invested $3,681,200 to date (or $3,733,254 when including accrued interest on convertible debt that was converted to equity).  . He currently owns or controls 25,746,795 shares of common stock and has the right to acquire 2,896,140 additional shares of common stock pursuant to currently exercisable warrants.

6.           TECHNOLOGY AND MEDICAL SOFTWARE

The Company has capitalized all acquisition costs associated with the acquisition of NuScribe Inc. In addition, we have elected to capitalize all related development costs associated with completion of the site. The iMedicorÔ product was launched in late October 2007 and we have begun to amortize its cost on a straight line basis over 60 months.  Amortization expenses were $510,187 for the three months ended December 31, 2009.
 
    12/31/2009     6/30/2009  
Technology and medical software    $ 10,008,893     $ 10,008,893  
Less: Accumulated Amortization           4,066,970       3,194,330  
                 
    $ 5,941,923     $ 6,814,563  
 
7.           SHORT AND LONG TERM DEBT
 
   Convertible Debentures
   $ 3,943,956  
   Notes Payable
     1,887,595  
   Total
   $ 5,831,551  
   Less: portion in current liabilities
     (4,526,343 )
   Balance of long term debt
   $ 1,305,198  
         
   Long term debt matures as follows:
        
   June 30, 2010
   $ 4,526,353  
   June 30, 2011
     1,305,198  
   Total
   $ 5,831,551  
 
 
 
Convertible Debentures

The Company has issued Convertible Debentures at various times, interest rates on these debentures vary from 8% to 17.98% with various maturity dates through December 31, 2009.
 
Amount outstanding      
Interest Rate
  
Conversion Features
$ 150,000         17.98 %  
convertible into common shares at $.45 per share.
Original interest rate was 17.98%, however interest is not accruing per
subsequent agreement between parties
  270,000         8.00 %  
convertible into common shares at $.138 per share. No longer
accruing interest.
  57,500         12.00 %   
convertible into common shares at 10% discount to the 20 day
trailing average closing price
  23,800   (Ucko)     4.00 %  convertible into common shares at $.05 per share
  370,000         10.00 %    
convertible into common shares at $.05 per share, with an
additional redemption premium of 50% of principal on conversion
  3,072,656         15.00 %  convertible into common shares at $.05 per share
$ 3, 943,956              
 
 
NOTES PAYABLE
      
       
Delk Road
   $ 281,282  
Director
     600,000  
Director
     1,006,313  
    $ 1,887,595  
 
8.    IMPAIRMENT AND GOODWILL

Long-lived assets are reviewed for impairment annually as of December 31, 2009 and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimate undiscounted future cash flows expected to be generated by the asset.  If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount of the asset exceeds the fair value of the asset.  The Company has also evaluated the goodwill for impairment as of December 31, 2009 utilizing present value method to projected cash flows and concluded that no impairment has occurred.
 
9.      SUBSEQUENT EVENTS
 
On January 27th, 2010 the company entered into a bridge financing agreement with an accredited investor totaling $600,000.  Portions of these funds were received prior to the end of the quarter ending December 31, 2009, however no definitive agreement was reached until January 2010.  Full details of the agreement are explained in PART II: Item 2 of this 10-Q filing as well as the company’s 8-K dated February 4, 2010.
 
 

Statements made in this Quarterly Report on Form 10-Q, including without limitation this Management's Discussion and Analysis of Financial Condition and Operations, other than statements of historical information, are forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  These forward-looking statements may sometimes be identified by such words as "may," "will," "expect," "anticipate," "believe," "estimate" and "continue" or similar words.

We believe that it is important to communicate our future expectations to investors.  However, these forward-looking statements involve many risks and uncertainties, including the risk factors disclosed under the heading “Risk Factors” included in the Company's Form 10-K filed with the Securities and Exchange Commission (“SEC”) on October 14, 2008.Our actual results could differ materially from those indicated in such forward-looking statements as a result of certain factors.  We are under no duty to update any of the forward-looking statements after the date of this Report on Form 10-Q to conform these statements to actual results.

Overview
The Company has built a portal-based, virtual work, learning and communication/collaboration environment  for healthcare and related industries called iMedicor. Our primary focus shifted with our acquisition of iMedicor, which we acquired in connection with the acquisition of NuScribe, Inc. on October 17, 2006.  Currently, our efforts are concentrated on providing secure, on-line communications, collaboration, learning and productivity solutions to healthcare and related markets, and facilitating cost-effective communications between physicians and other healthcare related workers and pharmaceutical, medical device and medical insurance companies.
 
iMedicor was launched in October of 2007 with early registration far exceeding our pre-launch estimates by over 200% .  In February of 2009 we re-launched iMedicor as version 2.0 with completely redesigned functionality and security.  During the redesign phase we focused less on increasing membership and more on working with a core group of physician members to address functionality within the site and make recommended changes for the launch of the 2.0 version.  Currently iMedicor is a free service for all users as we build a customer base; however, we currently generate revenues through the delivery of on-line CME courses and have begun generating revenues from various components within iMedicor; focusing on direct pharmaceutical company to physician marketing and product dissemination.  We have several new programs scheduled to launch in the third fiscal quarter beginning in February/March 2010 designed around pharmaceutical marketing to physicians which we expect to generate significant revenue for the Company We also expect to begin to generate additional revenues as iMedicor member physicians begin to use our inter—EMR communications tool sometime in the third quarter and later in the calendar year the redesigned NuScribe Voice Recognition Application.
 
Our sales remained flat in other areas for the quarter ended December 31, 2009 from 2008, as most of our internal efforts have been devoted to establishing new relationships with strategic partners, developing a pharmaceutical marketing sales channels and the redesign of the iMedicor portal and it’s integration with partner sites and the introduction of increased functionality.  We are, however, in the process of launching several new programs with pharmaceutical companies and one medical liability insurance company which we expect to start producing revenue in the third fiscal quarter 2010.
 
Our plan includes charging pharmaceutical and other healthcare related companies an initial set up fee of up to $95,000 to upload all product specific programs, in all formats.  The initial fee will cover the set up costs and the first 1,500 qualified "click throughs" (i.e., a qualified click through is a physician or physicians trusted source, downloading any information available on specific products inside iMedicor).  Once the 1,500 click throughs are exhausted, iMedicor will charge between $25.00 and $50.00 per additional click through.  Our first contract for this format was signed with the American Medical Association Insurance Agency (AMAIA) on August of 2009, and seminars have begun as of September to promote AMAIA products to physicians and physician practices.
 
 
As of December 31, 2009, we required approximately $180000 to $200,000 of cash per month to fund our operations, however in the interest of preserving available cash we have reduced that figure to approximately $130,000 per month as of the date of this filing.   This amount may increase as we expand our sales and marketing efforts and continue to develop new products and services; however, if we do not raise additional capital in the near future we will have to curtail our spending and downsize our operations.  Our cash needs are primarily attributable to funding sales and marketing efforts, strengthening technical and helpdesk support, expanding our development capabilities, satisfying existing obligations and building administrative infrastructure, including costs and professional fees associated with being a public company. 
 
We require substantial, immediate funding to meet our current operating and capital expenditure requirements.  To execute on our business plan successfully, we will need to raise additional money in the near future.  The exact amount of funds raised, if any, will determine how aggressively we can grow and what additional projects we will be able to undertake.  In the quarter ended December 31, 2009, we were successful in raising $330,000 through short-term debt instruments.  All funds raised have been used to maintain current operations and continue development work on iMedicor as we begin to establish paying clients and generate additional revenues.

We are currently seeking up to $10,000,000 in capital through a private placement of preferred stock.  The exact amount of funds raised, if any, will determine how aggressively we can grow and what additional projects we will be able to undertake.  No assurance can be given that we will be able to raise additional capital, when needed or at all, or that such capital, if available, will be on terms acceptable to us.  If we are unable to raise additional capital, we could be required to substantially reduce operations, terminate certain products or services or pursue exit strategies.

Critical Accounting Policies and Estimates

Our discussion and analysis of financial condition and results of operations are based upon the condensed financial statements, which have been prepared in accordance with generally accepted accounting principles as recognized in the U.S.  The preparation of these financial statements requires that we make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and disclosure of contingent assets and liabilities.  Our estimates include those related to revenue recognition, the valuation of inventory, and valuation of deferred tax assets and liabilities, useful lives of intangible assets and accruals.  We base our estimates on historical experience and on various other assumptions that management believes to be reasonable under the circumstances.  Actual results may differ from these estimates under different assumptions or conditions.

Critical Accounting Policies and Estimates

Our discussion and analysis of financial condition and results of operations are based upon the condensed financial statements, which have been prepared in accordance with generally accepted accounting principles as recognized in the U.S.  The preparation of these financial statements requires that we make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and disclosure of contingent assets and liabilities.  Our estimates include those related to revenue recognition, the valuation of inventory, and valuation of deferred tax assets and liabilities, useful lives of intangible assets and accruals.  We base our estimates on historical experience and on various other assumptions that management believes to be reasonable under the circumstances.  Actual results may differ from these estimates under different assumptions or conditions.
 
 
Results of Operations

Three months ended December 31, 2009 Compared to Three Months Ended December 31, 2008

The following table sets forth for the periods indicated the percentage of total revenues represented by certain items reflected in our statements of operations:

   
Three Months Ended December 31
  
 
   (unaudited)
    2009           2008        
   
 
                  
Net Sales and Revenues
   $ 65,582       100 %   $ 79,150       100 %
Cost of Services
     2,439       4 %     8,431       11 %
Gross Profit
     63,413       96 %     70,719       89 %
                                 
Operational General and Administrative Expenses     416,810       635 %     506,469       714 %
Depreciation and amortization
     510,187       778 %     497,321       703 %
Total Expenses
     926,997       1,413 %     1,003,790       1,266 %
Loss before other income (expense)
   $ (863,854 )     1,317 %   $ (933,071 )     1.179 %
 
 
Revenues
 
The Company's revenues for the three months ended December 31, 2009 decreased by 17% to  $65,582 from $79,150 in comparable period ending December 31, 2008, due wholly to the termination of sales of the NuScribe Voice Recognition Appliance and Application (“Nuscribe”).  The termination was instituted prior to the quarter ending December 31, 2008, however there were several sales which were initiated prior to the termination but finalized during that quarter, attributing to the difference in revenues from 2008 to 2009.  The termination in NuScribe sales was intentional, as this component is being redesigned to be bundled as an online application within the iMedicor™ Portal.  The company believes that there is a significant market for the redesigned, on-line NuScribe, and expects it to be a significant revenue driver in the pay-for services within the portal.
 
Cost of Services

Cost of services as a percentage of revenues was 4% for the quarter ended December 31, 2009 as compared to 11% for the quarter ended December 31, 2008.  The decrease in cost of services can be attributed to the limited sales of NuScribe, which bore a higher cost of sale than other services offered.
 

Operational, General and Administrative Expenses

Operational, general and administrative expenses decreased to $416,810 in the quarter ended December 31, 2009 from $506,469 for the quarter ended December 31, 2008, or 17%.  The Company continues to cut costs and consolidate its workforce where possible to conserve cash.

Depreciation and Amortization

Depreciation and Amortization expenses increased for the quarter ending December 31, 2009 to $510,187 from $497,321 for the quarter ending December 31, 2008 or 1.9%, representing no material difference.
 
Loss from Operations

Income (loss) from operations for the quarter ended December 31, 2009 totaled ($863,854) or approximately 1,317% of net revenue compared to ($933,071) or approximately 1,171% of net revenue for the quarter ended December 31, 2008.  As stated before, the decrease in income was wholly due to the election to terminate sales of Nuscribe while developing the on-line version of this tool for deployment in the iMedicor portal.
 
Six Months Ended December 31, 2009 Compared to Six Months Ended December 31, 2008

The Following sets forth for the periods indicated the percentage of total revenues represented by certain items reflected in our statement of operations.
 
   
Six Months Ended December 31
  
 
   (unaudited)  
    2009     2009     2008     2008  
   
 
    
 
    
 
      
Revenues
   $ 131,414       100 %   $ 161,510       100 %
Cost of Services
     7,937       6 %     23,540       15 %
Gross Profit
     123,447       94 %     137,970       85 %
                                 
Operational, General and Administrative Expenses
     2,276,404       1,732 %     1,186,724       859 %
Depreciation and amortization
     1,013,624       771 %     991,675       719 %
Total Expenses
     3,290,028       2,504 %     2,178,399       1,578 %
Loss before other income (expense)
   $ (3,166,511 )     2,410 %   $ (2,040,429 )     947 %

Revenues

The Company’s revenues for the six months ended December 31, 2009 decreased by 19% to $131,414 from $161,510 in the six months ended December 31, 2008.  As previously noted, this decrease in sales is attributed entirely to the termination of sales of the NuScribe application and appliance.
 
 
Cost of Services                                

Cost of services for the six months ended December 31, 2009, was 6% as compared to 15% for the the six months ended December 31, 2008, representing the reduced cost of services/sales associated with the reduced sales of NuScribe.

Operational, General and Administrative Expenses

Operational, general and administrative expenses increased to $2,276,404 for the six months ended December 31, 2009 as compared to $1,186,724 for the the six months ended December 31, 2008, or 92%.  This increase reflects the company’s decision to pay certain vendors with shares of common stock in the company as opposed to cash.

Depreciation and Amortization

Depreciation and Amortization expenses increased for the six months ended December 31, 2008 to $1,013,624 from $991,675 of the six months ended December 31, 2008, representing no material difference.

Loss from Operations

Income (loss) from operations for the six months ended December 31, 2009 totaled (3,166,511) or approximately 2,410% of net revenue as opposed to (2,357,229) or approximately 947% of net revenue for the six months ended December 31, 2008.  The increase in loss from operations for the six months ended December 31, 2009 was largely due to the Company’s election to issue stock for fees and services in the quarter ended September 30, 2009, , which enabled the Company to maintain a high pace of development, pubic relations, investor relations and sales during a period when the company had little cash available.
 
Liquidity and Capital Resources

Cash and cash equivalents were $34,368 at December 31, 2009 compared to $52,615 at June 30, 2008.

Net cash used by operating activities was $893,747 for the six months ended December 31, 2009 as compared to $1,685,936 for the six months ended December 31, 2008.  The decrease  is primarily due to the company’s continued cost-cutting to preserve cash.

Net cash used by investing activities was $0 for the six months ended December 31, 2009 as compared to cash used by investing activities of $475,271 for the six months ended December 31, 2008, and was primarily due to capitalization of technology development costs and the purchase in September 2008 of the ClearLobby technology platform.

Net cash provided by financing activities was $875,500 for the six months ended December 31, 2009 as compared to net cash used by financing activities of $1,979,563 for the six months ended December 31, 2008.  The difference is attributed to the sale of $1,700,000 worth of the company’s common stock in July of 2008

Beginning on August of 2009, the Company entered into a series of Convertible Promissory Notes with independent private accredited investors totaling an aggregate gross investment of $720,000.  $290,000 of these investments are from one investor, Sonoran Pacific Resources, and are considered part of a larger bridge funding investment of $600,000 reported in the company’s Form 8-K Report filed February 4, 2010.
 
 
Due to our serious cash position and the reduction in sales revenue prior to generating any revenues through the iMedicor website, the Company has continued to reduce costs where possible, including eliminating certain non-essential staff positions and reducing or eliminating non-essential operating costs.  The company’s operational expenses, excluding shares issued for fees and services, averaged approximately $180,000 per month for the three months ending December 31, 2009.  As of the date of this filing, the company has further reduced operational costs to approximately $130,000 per month.

The Company continues to operate at a loss and is projected to do so until the third or fourth quarter of this fiscal year.  The Company is reliant, therefore, on raising capital through equity investments and/or debt instruments to maintain operations.  The Company is actively engaging in fundraising efforts to increase its current level of operations.  

ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

N/A.

ITEM 4T.  CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures
 
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our the Exchange Act, reports are recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Our management (with the participation of our Chief Executive Officer, Chief Operating Officer and Chief Financial Officer) evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of December 31, 2008, the period covered by this Form 10-Q.

Based on this evaluation, the chief executive officer and chief financial officer concluded that our disclosure controls and procedures are not effective to ensure that information required to be disclosed by us in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.

(b)  Changes in Internal Controls over Financial Reporting

There have been no changes in our internal controls over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during the three-months ended December 31, 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
 
PART II – OTHER INFORMATION

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

As previously noted,  the company has entered into a series of convertible promissory notes (the “Notes”) with accredited investors representing an aggregate investment of  $430,000,  The Notes carry an annual interest of 10% and a conversion option into common stock in the company at a rate of $0.05 per share.  If the investors elect to convert the loan amount into the company’s common stock, there will be a redemption fee associated with the conversion equal to 50% of the principal amount of the loan.  If all of the $430,000 invested is converted into common stock, the total number of shares that will be issued at conversion is 12,900,000.

Additionally, in January of 2010, the company issued a series of convertible promissory notes to an independent accredited investor, Sonoran Pacific Resources, for an aggregate gross investment of $600,000 representing 12 units of a bridge funding with each unit representing $50,000.  The Convertible Notes bear interest at the rate of 10% per annum and provide for the repayment, in either cash or stock at the discretion of the investor, of principle and unpaid interest thereon to the Investors within 120 days of receipt of funds.  In addition  the Convertible Notes provide for, the immediate payment of 500,000 shares of common stock in the Company per unit and 1 warrant to purchase up to 1 million additional shares in the Company.  The Investors may at any time prior to the payment of the Convertible Notes convert all or any portion of the Convertible Notes into shares of common stock in the Company at a conversion rate of $0.05 per share.
 
In connection with the borrowing, the Company is obligated to issue warrants (the “Warrants”) to the Investors to purchase per Unit up to an aggregate of 1 million shares of the Company's common stock.  The exercise price of each Warrant escalates during the 5 year period beginning with $0.05 in year one and increasing to $0.15 in year 2, $0.30 in year three, $0.50 in year four and $1.00 in year five.
 
The Company issued and sold the Convertible Note and Warrants in a private placement transaction made in reliance upon the exemption from securities registration afforded by Section 4(2) under the Securities Act and Regulation D thereunder.  The Company believes that the Investors are “accredited investors” as defined in Rule 501 of Regulation D under the Securities Act.

Item 6.  Exhibits
 
 
 
 

 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
                                                                           
 
Vemics, Inc.
(Registrant)
  
       
Date: February 22, 2010
By:
/s/ Fred Zolla                   
    Fred Zolla  
    President and Chief Executive Officer  
    (Principal Executive Officer)  
 
       
Date: February 22, 2010  
By:
/s/ Craig Stout              
    Craig Stout  
    Interim Chief Financial Officer  
    (Principal Accounting Officer)