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, 2008





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 York10954


(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






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




There
were 81,656,418 outstanding shares of the issuer’s only class of common equity,
Common Stock, $0.001 par value, on December 31, 2008.






Table of Contents





VEMICS,
INC.


FORM
10-QSB QUARTERLY REPORT


FOR
THE QUARTER ENDED DECEMBER 31, 2008




Tableof
Contents





PagePart
      I Financial InformationItem
      1.
                                  Financial Statements
                                  1Condensed Consolidated Balance Sheet as of December 31, 2008
      (unaudited) and June 30, 2008 (audited)
                                  1Condensed Consolidated Statements of Operations for the Three
      Months Ended December 31, 2008 and 2007 (unaudited)
                                  2Condensed Consolidated Statements of Operations for the Six
      Months Ended December 31, 2008 and 2007 (unaudited)
                                  3Condensed Consolidated Statements of Cash Flows for the Six
      Months Ended December 31, 2008 and 2007 (unaudited)
                                  4Financial Footnotes
                                  6Item
      2.
                                  Management's Discussion and Analysis of Financial Condition and
      Results of Operations
                                  9Item
      3.
                                  Quantitative and Qualitative Disclosure About Market
      Risk
                                  13Item
      4T.
                                  Controls and Procedures
                                  13Part
      II Other InformationItem
      2
                                  Unregistered Sales of Equity Securities and Use of
      Proceeds
                                  14Item
      6.
                                  Exhibits
                                  14Signatures
                                  
                                  15






Table of Contents






PART1:  FINANCIAL INFORMATION





ITEM 1.  FINANCIAL
STATEMENTS








VEMICS,
INC. AND SUBSIDIARY
 CONDENSED
CONSOLIDATED BALANCE SHEETS
 December
      31, 2008
                      
                      
                      June
      30,2008ASSETS
                      
                      unaudited
                      
                      
                      AuditedCurrent
      assets:Cash
      and cash equivalents –– interest bearing
                      
                      $
                      422,977
                      
                      
                      $
                      212,566Accounts
      receivable, net of allowance for doubtful accounts
                        of $5,000 and $-0- at December 31, 2008 and June 30, 2008,
      respectively
                      
                      
                      45,962
                      
                      
                      
                      57,121Advances
                      
                      
                      5,000Total
      Current Assets
                      
                      
                      73,668
                      
                      
                      
                      269,687Property
      and equipment, net
                      
                      
                      42,085
                      
                      
                      
                      66,349Other
      AssetsTechnology
      and Medical Software, net
                      
                      
                      7,540,203
                      
                      
                      
                      8,032,343Goodwill
                      
                      
                      681,673
                      
                      
                      
                      681,6738,221,876
                      
                      
                      
                      8,714,016Total
      Assets
                      
                      $
                      8,337,629
                      
                      
                      $
                      9,050,052LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilities:Notes
      payable –– banks
                      
                      $
                      87,354
                      
                      
                      $
                      299,980Short-term
      notes payable
                      
                      
                      1,997,496
                      
                      
                      
                      1,279,667Accounts
      payable and accrued expenses
                      
                      
                      1,346,528
                      
                      
                      
                      1,839,470Deferred
      income
                      
                      
                      -
                      
                      
                      
                      123,500Total
      Current Liabilities
                      
                      
                      3,431,378
                      
                      
                      
                      3,542,617Other
      long-term liabilitiesLong-term
      notes payable
                      
                      
                      1,214,161
                      
                      
                      
                      1,400,914Total
      Other Long-Term Liabilities
                      
                      
                      1,214,161
                      
                      
                      
                      1,400,914Total
      Liabilities
                      
                      
                      4,645,539
                      
                      
                      
                      4,943,531Stockholders’
      EquityCommon
      stock,  par value $001 per share, authorized
      200,000,000
                        Issued and outstanding 83,093,198 and 68,926,581 shares at
                        December
      31, 2008 and June 30, 2008, respectively
                      
                      
                      83,093
                      
                      
                      
                      68,926Additional
      Paid in Capital
                      
                      
                      27,973,748
                      
                      
                      
                      26,066,447Less:
      Treasury stock, 368,407 shares at both December 31, 2008 and June 30,
      2008
                      
                      
                      (508,195
                      )
                      
                      
                      (508,195
                      )Accumulated
      deficit
                      
                      
                      (23,856,555
                      )
                      
                      
                      (21,520,657
                      )Total
      Stockholders’ Equity
                      
                      
                      3,692,090
                      
                      
                      
                      4,106,521Total Liabilities and Stockholders’ Equity
                      
                      $
                      8,337,629
                      
                      
                      $
                      9,050,052







See notes
to financial statements.





1
 Table of Contents





VEMICS, INC. AND SUBSIDIARY


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS




For
      the three
                                        
                                        
                                        For
      the threemonths
      ended
                                        
                                        
                                        months
      endedDecember
      31, 2008
                                        
                                        
                                        December
      31, 2007unaudited
                                        
                                        
                                        (As
      Restated)Revenues:
                                        
                                        $
                                        79,150
                                        
                                        
                                        $
                                        140,850Cost
      of Services
                                        
                                        
                                        8,431
                                        
                                        
                                        
                                        22,270Gross
      Profit
                                        
                                        
                                        70,719
                                        
                                        
                                        
                                        118,580Expenses:Consulting,
      commissions and travel
                                        
                                        
                                        87,032
                                        
                                        
                                        
                                        300,542Operational
      fees and expenses
                                        
                                        
                                        157,115
                                        
                                        
                                        
                                        280,604Professional
      fees
                                        
                                        
                                        10,861
                                        
                                        
                                        
                                        62,901Payroll
      and related taxes
                                        
                                        
                                        242,405
                                        
                                        
                                        
                                        459,458Depreciation
      and amortization
                                        
                                        
                                        497,321
                                        
                                        
                                        
                                        19,168Production,
      advertising, brochures and public relations
                                        
                                        
                                        9,056
                                        
                                        
                                        
                                        132,693Total
      Expenses
                                        
                                        
                                        1,003,790
                                        
                                        
                                        
                                        1,255,366Loss
      before other expenses
                                        
                                        
                                        (933,071
                                        )
                                        
                                        
                                        (1,136,786
                                        )Other
      Income/(Expenses):Interest
      income
                                        
                                        
                                        44
                                        
                                        
                                        
                                        441Interest
      expense
                                        
                                        
                                        (38,934
                                        )
                                        
                                        
                                        (69,965
                                        )Total
      Other Income/(Expenses)
                                        
                                        
                                        (38,890
                                        )
                                        
                                        
                                        (45,465
                                        )Net
      loss available to common stockholders
                                        
                                        $
                                        (971,961
                                        )
                                        
                                        $
                                        (1,206,310
                                        )Net
      loss per share, to common stockholders
                                        
                                        $
                                        (0.01
                                        )
                                        
                                        
                                        (0.0.23
                                        )Weighted
      average number of shares, basic and diluted
                                        
                                        
                                        83,093,198
                                        
                                        
                                        
                                        50,609,453









See notes
to financial statements.








2
 Table of Contents





VEMICS, INC.  AND SUBSIDIARY


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS






For
      the six
                                    
                                    
                                    For
      the sixmonths
      ended
                                    
                                    
                                    months
      endedDecember
      31, 2008
                                    
                                    
                                    December
      31, 2007unaudited
                                    
                                    
                                    unauditedRevenues:
                                    
                                    $
                                    161,510
                                    
                                    
                                    $
                                    307,567Cost
      of Services
                                    
                                    
                                    23,540
                                    
                                    
                                    
                                    58,616Gross
      Profit
                                    
                                    
                                    137,970
                                    
                                    
                                    
                                    248,951Expenses:Consulting,
      commissions and travel
                                    
                                    
                                    217,766
                                    
                                    
                                    
                                    830,565Operational
      fees and expenses
                                    
                                    
                                    326,721
                                    
                                    
                                    
                                    516,589Professional
      fees
                                    
                                    
                                    91,404
                                    
                                    
                                    
                                    147,454Payroll
      and related taxes
                                    
                                    
                                    512,836
                                    
                                    
                                    
                                    787,287Depreciation
      and amortization
                                    
                                    
                                    991,675
                                    
                                    
                                    
                                    33,544Production,
      advertising, brochures and public relations
                                    
                                    
                                    37,997
                                    
                                    
                                    
                                    290,741Total
      Expenses
                                    
                                    
                                    2,178,399
                                    
                                    
                                    
                                    2,606,180Loss
      before other expenses
                                    
                                    
                                    (2,040,429
                                    )
                                    
                                    
                                    (2,357,229
                                    )Other
      Income/(Expenses):Interest
      income
                                    
                                    
                                    4,128
                                    
                                    
                                    
                                    993Interest
      expense
                                    
                                    
                                    (78,130
                                    )
                                    
                                    
                                    (108,940
                                    )Total
      Other Income/(Expenses)
                                    
                                    
                                    (74,002
                                    )
                                    
                                    
                                    (107,947
                                    )(2,114,431
                                    )
                                    
                                    
                                    (2,465,176
                                    )Loss
      before extraordinary itemExtraordinary
      item - litigation, net of expenses and taxes
                                    
                                    
                                    -
                                    
                                    
                                    
                                    650,000Net
      loss available to common stockholders
                                    
                                    $
                                    (2,112,838
                                    )
                                    
                                    $
                                    (1,815,176
                                    )Net
      loss per share, basic and diluted, before extraordinary
    item
                                    
                                    $
                                    (0.03
                                    )
                                    
                                    $
                                    (0.05
                                    )Net
      loss per share, basic and diluted, extraordinary item net
                                    
                                    $
                                    -
                                    
                                    
                                    $
                                    0.01Net
      loss per share, to common stockholders
                                    
                                    $
                                    (0.03
                                    )
                                    
                                    $
                                    (0.04
                                    )Weighted
      average number of shares, basic and diluted
                                    
                                    
                                    83,093,198
                                    
                                    
                                    
                                    50,609,450







See notes
to financial statements.






3
 Table of Contents


.


VEMICS, INC.


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)




For
      the three
                            
                            
                            For
      the threemonths
      ended
                            
                            
                            months
      endedDecember
      31, 2008
                            
                            
                            December
      31, 2007unaudited
                            
                            
                            unauditedCash
      Flows From Operating Activities:Receipts
      from customers
                            
                            $
                            20,902
                            
                            
                            $
                            118,575Payments
      to suppliers, salaries
                            
                            
                            (437,854
                            )
                            
                            
                            (1,088,806
                            )Other
      income received
                            
                            
                            
                            
                            
                            
                            650,000Interest
      received
                            
                            
                            44
                            
                            
                            
                            441Interest
      paid
                            
                            
                            (12,749
                            )
                            
                            
                            (19,599
                            )Net
      Cash Used in Operating Activities
                            
                            
                            (429,657
                            )
                            
                            
                            (339,389
                            )Cash
      Flows Used in Investing Activities:Purchase
      of Technology & Medical Software
                            
                            
                            (135,000
                            )
                            
                            
                            (30,440
                            )Net
      Cash Used in Investing Activities
                            
                            
                            (135,000
                            )
                            
                            
                            (30,440
                            )Cash
      Flows From Financing Activities:Payments
      on capital lease obligations
                            
                            
                            -
                            
                            
                            
                            (834
                            )Payments
      on notes payable
                            
                            
                            (7,946
                            )
                            
                            
                            -Short
      term loans proceeds
                            
                            
                            399,985
                            
                            
                            
                            337,500Short
      term loans paid
                            
                            
                            
                            
                            
                            
                            (5,189
                            )Net
      Cash Provided by Financing Activities
                            
                            
                            399,985
                            
                            
                            
                            331,477Net
      Increase/(Decrease) in Cash
                            
                            
                            (172,618
                            )
                            
                            
                            (38,352
                            )Cash
      at the Beginning of Period
                            
                            
                            195,594
                            
                            
                            
                            246,630Cash
      at End of Period
                            
                            $
                            22,976
                            
                            
                            $
                            208,278





See notes
to financial statements.






4
 Table of Contents




VEMICS,
INC.
 CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
  Reconciliation
      of Net Loss to Net CashUsed
      by Operating ActivitiesNet
      Loss
                    
                    $
                    (971,961
                    )
                    
                    $
                    (1,206,310
                    )Adjustments
      to Reconcile net income/(loss) to net cashUsed
      by operating activitiesDepreciation
      & Amortization
                    
                    
                    497,321
                    
                    
                    
                    19,167Changes
      in:Trade
      receivables
                    
                    
                    6,752
                    
                    
                    
                    (253,035
                    )Other
      receivables
                    
                    
                    -
                    
                    
                    
                    650,000Accounts
      payable and accrued expenses
                    
                    
                    77,046
                    
                    
                    
                    169,663Convertible
      debentures – accrued interest
                    
                    
                    26,816
                    
                    
                    
                    50,366Deferred
      income
                    
                    
                    (65,000
                    )
                    
                    
                    230,760Net
      Cash Used by Operating Activities
                    
                    $
                    (429,657
                    )
                    
                    $
                    (339,389
                    )





See notes
to financial statements.






5
 Table of Contents




VEMICS, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





December
2008





1.           BASIS
OF PRESENTATION





Vemics,
Inc. (the “Company”) was organized on July 17, 2001 as a Delaware
corporation.  The Company is engaged as a visual communications hosted
service providing the ability to end users to replicate the same dynamic of a
live business meeting or classroom.  The Company has developed a
proprietary user interface that sits on top of a technology platform that is
built on a series of licensing agreements that, in total, enables real time,
interactive instructor-led courses or business meetings to be delivered via
easily accessible, broadband connections to our servers using standard off the
shelf modern computers.





The table
below shows the sales percentages by division for the three months ended
December 31, 2008 and 2007,
respectively:




2008
                          
                          
                          2007Revenues:Education
                          
                          
                          84
                          %
                          
                          
                          88
                          %Healthcare
                          
                          
                          16
                          %
                          
                          
                          12
                          %Total
                          
                          
                          100
                          %
                          
                          
                          100
                          %





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
three-month period ended December 31, 2008, 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, 2008.





As of
December 31, 2008, there have been no material changes to any of the significant
accounting policies described in our Form 10-K for the fiscal year ended June
30, 2008, except for the adoption of Financial Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes.”





2.           PRINCIPLES
OF CONSOLIDATION





On
November 8, 2005, OMII Corp. acquired all the shares of Vemics, Inc. the
Delaware Corporation in an exchange of stock transaction and it became a 100%
owned subsidiary of OMII.  The name of OMII was then changed to
Vemics, Inc., a Nevada corporation.  Therefore, the accompanying
presentation presents the historic financials of Vemics, Delaware, the
accounting acquirer.





3.           GOING
CONCERN





From
inception through June 30, 2005, the Company had 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 $23,847,000 and $21,521,000 at December 31, 2008 and at June 30,
2008, 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.





4.           NET
EARNING (LOSS) PER SHARE





Basic and
diluted net loss per share information is presented under the requirements of
SFAS No. 128, Earnings per Share.  Basic net loss per share is
computed by dividing net loss by the weighted average number of shares of the
Company’s common stock (the “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.





6
 Table of Contents




5.           WARRANTS





As of
December 31, 2008, the Company has issued warrants to purchase 120,000 shares of
Common Stock reserved for issuance upon exercise of warrants to various
shareholders.  These warrants have an expiration of five years from
their date of issuance and expire at various dates through December
2013.  Each warrant will entitle the holder thereof to purchase one
share of Common Stock at an exercise price of $.05 per share.





As of
December 31, 2008, the Company has issued warrants to purchase 1,541,667 shares
of Common Stock reserved for issuance upon exercise of warrants to various
shareholders.  These warrants have an expiration of three years from
their date of issuance and expire at various dates through October
2011.  Each warrant will entitle the holder thereof to purchase one
share of Common Stock at an exercise price of $.12 per share.





As of
December 31, 2008, the Company has issued warrants to purchase 4,916,667 shares
of Common Stock reserved for issuance upon exercise of warrants to various
shareholders.  These warrants have an expiration of three years from
their date of issuance and expire at various dates through July
2011.  Each warrant will entitle the holder thereof to purchase one
share of Common Stock at an exercise price of $.04 to $.24 per
share.





As of
December 31, 2008, the Company has warrants to purchase 6,385,086 shares of
Common Stock reserved for issuance upon exercise of warrants to various
shareholders and service providers.  These warrants have an expiration
date of five years from their date of issuance and expire at various dates
through February 2010.  Each warrant will entitle the holder thereof
to purchase one share of Common Stock at an exercise price ranging from $.60 to
$1.50 per share.  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.





6.           RELATED
PARTY TRANSACTIONS





One
member of our Board of Directors, who has served since 2002, has the largest
individual investor in the Company, having invested $3,681,200 to
date.  He currently owns 22,850,655 shares of Common Stock and has the
right to acquire 2,896,140 additional shares of Common Stock pursuant to
currently exercisable warrants.





The
Company has borrowed $1,519,883 and $1,400,914 as of December 31, 2008 and June
30, 2008 including accrued interest, respectively from one member of the board
of directors at a rate of interest is at 4%.





7.          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 its completion.  The iMedicorTM
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
$486,945 for the three months ended December 31, 2008.




12/31/2008
                    
                    
                    6/30/2008Technology
      and medical software
                    
                    $
                    9,738,893
                    
                    
                    $
                    9,263,894Less:
      Accumulated Amortization
                    
                    
                    2,198,690
                    
                    
                    
                    1,231,550$
                    7,540,203
                    
                    
                    $
                    8,032,344




8.           SHORT
TERM NOTES PAYABLE





Payments
related to the short-term notes payable is comprised of the
following:




12/31/2008
                        
                        
                        6/30/2008Short-term note
      payable
                        
                        $
                        568,922
                        
                        
                        $
                        -0-Short-term
      portion of long-term note payable
                        
                        
                        264,273
                        
                        
                        
                        357,461Note
      payable banks
                        
                        
                        87,354
                        
                        
                        
                        299,980Convertible
      debentures – 15%
                        
                        
                        308,423
                        
                        
                        
                        -0-Convertible
      debentures - 17.98%
                        
                        
                        150,000
                        
                        
                        
                        150,000Convertible
      debentures – 8%
                        
                        
                        270,000
                        
                        
                        
                        270,000Convertible
      debentures – 10% - 12%
                        
                        
                        435,879
                        
                        
                        
                        502,206Total
      Short-term notes payable
                        
                        $
                        2,084,850
                        
                        
                        $
                        1,579,647


7
 Table of Contents




9.           ASSET
PURCHASE AGREEMENT – ClearLobby, Inc.





As
previously reported on Current Report on Form 8-K, on September 12, 2008, the
Company entered into a Limited Asset Purchase Agreement (“Purchase Agreement”)
with ClearLobby, Inc., a Delaware corporation, pursuant to which the Company
agreed to purchase trademarks, software, license agreements and other assets
related to ClearLobby's pharmaceutical communications platform
technology.  The ClearLobby technology will lead to an online service
designed to change the dynamic between physicians and pharmaceutical companies
by placing control of the relationship firmly in the hands of the
physician.





In
consideration for the assets purchased under the Purchase Agreement, the Company
paid $250,000, consisting of $10,000 in cash and $240,000 in the form of an
unsecured promissory note (the “Promissory Note”), and 20,000 shares of
restricted Common Stock of the Company.  The Promissory Note bears no
interest and is payable in twelve monthly installments of $20,000 beginning on
January 31, 2009 and each succeeding month-end thereafter until the Promissory
Note is paid in full on December 30, 2009, however, by recent agreement from
both parties, the first payment is now due on or before March 31,
2009.




10.        CONVERTIBLE
NOTES





As
previously reported on Current Report on Form 8-K, beginning on December 22,
2008, the Company entered into a series of Convertible Promissory Notes (the
"Convertible Notes") with independent private accredited investors totaling an
aggregate gross investment of $1.65 million.  The Company has received
$300,000 of these gross proceeds through December 31, 2008 and another $150,000
in January 2009.  The remaining $1,200,000 is due on or before
February 20, 2009.





The
Convertible Notes provide for the repayment of principle to the investors on or
before the maturity dates, which range between June 1, 2009 and August 1, 2009,
which date can be extended for an additional six-months at the Company's sole
discretion.  The Convertible Notes provide for fifteen (15%) percent
annual interest payable on the maturity date to the investors in either cash or
stock in the discretion of the investor.





Interest
on the Convertible Notes is due on the maturity date of each
Note.  Under certain circumstances, the Company can prepay each
Convertible Note prior to the maturity date or prior to conversion with 30-days'
advance notice to the investors.  The Convertible Notes also contain
certain affirmative and negative covenants relating to the Company's
operations.





As
holders of the Convertible Notes, the investors have the option to convert the
Convertible Notes at $0.05 per share into the Common Stock.  The
Convertible Notes carry a liquidation redemption fee equal to 50% of each Note,
which fee is due to the investors from the Company upon
repayment.  For example, an investor who paid in principle of $200,000
would receive $300,000 at redemption, plus interest accrued to
date.





In
connection with this borrowing, the Company is obligated to issue warrants to
the investors to purchase up to an aggregate of 660,000 shares of Common
Stock.  The exercise price of each warrant will be $0.05 per share and
the warrants will have a 5-year term, unless previously exercised.





11.           SUBSEQUENT
EVENTS





NaviNet®





On
February 9, 2009, the Company announced a partnership to integrate its iMedicorTM
ClearLobby pharmaceutical communications application with the NaviNet®real-time healthcare communications platform from NaviMedix,
Inc.  The Company previously reported this partnership in a Current
Report on Form 8-K on December 15, 2008.  The partnership will provide
a secure link to more than 700,000 physicians in the NaviNet Provider Network,
enabling easier online communications and enhanced educational opportunities on
key medications and drug therapies.  The integration will facilitate a
more connected healthcare community by linking key stakeholders, including
physicians, hospitals, health insurance providers and pharmaceutical companies,
a critical factor in improving the quality of care throughout the entire
healthcare continuum.





With this
agreement, all healthcare providers using NaviNet will have a direct connection
to pharmaceutical information through ClearLobby, providing them with the
ability to access critical information on medications and drug developments,
including timely product-specific educational resources, peer-reviewed journals,
white papers, clinical research studies, webinars and audio
programs.  Physicians will also have “24/7” access to pharmaceutical
representatives for live inquiries and can order product samples or request a
consultation, all in an easy-to-use, Web-based service.





Franklyn
Ideas





On
February 11, 2009, the Company announced a partnership with a leading
pharmaceutical marketing firm, Franklyn Ideas, LLC, to execute an online
communications program designed for use by pharmaceutical companies utilizing
the Company’s iMedicorTM medical communications portal.  Franklyn Ideas
program for the Company is designed to maximize the promotional effectiveness of
pharmaceutical product information transmitted to healthcare providers through
the portal.  One of the marketing agencies behind the launch of
Lipitor, one of the world’s best selling drugs, Franklyn Ideas, currently serves
some of the world’s largest pharmaceutical companies and has engineered
marketing programs for hundreds of brands.





8
 Table of Contents







ITEM2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS





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





We are a
provider of portal-based, virtual work and learning environments that enable
organizations of any size to communicate, work and learn at a distance as if
everyone were in the same room.  Our hosted, service solutions
eliminate the need for companies to buy, integrate or maintain continually
evolving collaborative technologies and provide a single point of access for
online communication, collaboration and learning.





Our
primary focus shifted with our acquisition of NuScribe and subsequent deployment
of iMedicorTM.  Currently, our efforts are concentrated on providing
secure, on-line communications, collaboration, learning and productivity
solutions to the healthcare and related markets.  We supply
organizations of all sizes with subscription-based access to fully
collaborative, real-time productivity tools that accelerate the flow of
information and education to a rapidly dispersing and highly mobile global
workforce.  Secondarily, we plan to provide direct access to
physicians by pharmaceutical companies, circumventing the pharmaceutical
companies need for costly and only moderately effective direct sales
forces.





Currently,
iMedicorTM is a free service for all users as we build a customer base; however,
we expect to begin generating revenues from various components within
iMedicorTM, including direct
pharmaceutical company to physician marketing and product dissemination and
inter-Electronic Medical Records (“EMR”) communications, sometime in the third
quarter or fourth quarter of our 2008 fiscal year.





Our sales
in other areas decreased for the quarter ended December 31, 2008 from 2007, as
most of our internal efforts have been devoted to redesigning iMedicorTM with
increased functionality and establishing new relationships with companies which
we believe will be driving forces in significantly increasing the iMedicorTM user
base and ultimately drive significantly increased revenues to the
Company.  The launch of iMedicorTM's redesigned site with added
functionality and integration into ClearLobbyTM and NaviNetTM is scheduled for
late in February 2009.





Our
iMedicorTM and LiveAccess solutions are focused on education, collaboration,
and training.  We offer our services through two separate divisions,
Education and Training
and Healthcare
Services.





We
anticipate having five sources of income.  We will generate our
primary source of revenue through charging pharmaceutical companies an initial
set up fee of approximately $95,000 per year to upload their 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 a physician’s trusted source, downloading any
information available on specific products inside iMedicorTM).  Once
the 1,500 click throughs are exhausted, iMedicorTM currently intends to
charge $25 to $50 per additional click through.  The second source of
revenue will be derived through our iMedicorTM Integration Driver, allowing
physicians and hospitals using different, incompatible EMR systems to exchange
patient information for a monthly fee currently ranging between $25 and $35 per
user.  Providing premium services through iMedicorTM, such as NuScribeTM
and LiveAccessTM for a monthly fee of $99 to $199 per user represents the third
source of revenue.  Production, distribution and archiving of
sponsored and pay per view CME courses will provide the fourth revenue
source.  Lastly, we expect to generate revenues from direct marketing
to our iMedicorTM user-base on an “opt in” unobtrusive level from companies who
have a desire to reach this particular demographic.  This last source
of revenue, while ultimately expected to be a primary revenue stream, will take
longer to develop however, we do expect to announce our first client during our
third quarter 2008.





As of
December 31, 2008, we require approximately $200,000 per month to fund our
operations.  If we are successful in raising additional capital, this
amount may increase as we expand our sales and marketing efforts and continue to
develop new products and services.  Our cash needs are primarily
attributable to funding sales, 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, 2008, we were successful
in raising $300,000 through short-term debt instruments, and subsequently in
January 2009, we raised $150,000 in additional funds on the same terms with
another $1,200,000 committed by February 20, 2009.  These funds will
be used to maintain current operations and continue development work on
iMedicorTM as we begin to establish paying clients and generate additional
revenues.





No
assurance can be given that our current private placement will be successful or
that even the minimum offering amount will be raised.  Thereafter,
there is no assurance 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.  We are currently seeking to raise up to $10,000,000 in capital
through a private placement of preferred stock.  If we are not able to
raise additional capital in the near term, our business will likely suffer and
we will be required to reduce operations substantially, terminate certain
products or services or pursue exit strategies in the near future.





9
 Table of Contents




Healthcare
Services





For the
past twelve months, we have shifted most of our resources to the build-out and
promotion of iMedicorTM, a collaborative online portal designed for and by
medical professionals to facilitate practice
productivity.  iMedicorTMoffers a rapid, secure
exchange of education, information and ideas in real-time which is the
cornerstone of the Company’s Healthcare Services division.  On October
9, 2007, the Company announced the commercial launch of iMedicorTM, the health
industry's first free HIPAA compliant personal health information exchange and
secure messaging portal for physician collaboration and
community.





iMedicorTM’s
features include HIPAA compliant electronic transfer of patient medical
information, voice-recognition medical transcription, electronic medical records
and image transfer and storage, and live-interactive CME content product, in
conjunction with our Education and TrainingDivision.  We believe this
combination of features addresses both existing educational needs for physicians
and other healthcare providers and the ability to transfer personal health
information electronically in a method that satisfies federal HIPAA regulations
that proscribe the transmission of records via email.  Currently all
aspects of iMedicorTMare offered free of charge to physicians and other healthcare providers
using the portal.  The content sponsors pay for CME content, which can
be accessed via the portal.





Education
and Training





Our focus
in the Education and Training Division has been twofold:





·
            The
      delivery of CME (Continuing Medical Education) courses to the medical
      community in the U.S., which continues to
grow.




·
            The
      licensing of our productivity tools to state education departments in the
      U.S.  The state of Pennsylvania is our first customer in this
      effort.  We plan a sales campaign to increase our state
      education department customer base.




We are
currently contemplating transferring all CME and healthcare related activities
from the Education and Training division to the Healthcare Services
division.  We may reorganize the Education and Training division by
transferring the remaining functions of that division to one of the Company's
Education and Training strategic partners.  We have no firm plans
currently, however.





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 and 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.  For a complete description of accounting policies, see
the Company's Form 10-K for the fiscal year ended June 30, 2008, filed with the
SEC on October 14, 2008.  There were no significant changes in
critical accounting provisions.





Results of
Operations





Three
months ended December 31, 2008 Compared to Three Months Ended December 31,
2007




10
 Table of Contents





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)2008
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  2007Net
      Sales and Revenues
                                                  
                                                  $
                                                  79,150
                                                  
                                                  
                                                  
                                                  100
                                                  %
                                                  
                                                  $
                                                  140,850
                                                  
                                                  
                                                  
                                                  100
                                                  %Cost
      of Services
                                                  
                                                  
                                                  8,431
                                                  
                                                  
                                                  
                                                  11
                                                  %
                                                  
                                                  
                                                  22,270
                                                  
                                                  
                                                  
                                                  16
                                                  %Gross
      Profit
                                                  
                                                  
                                                  70,719
                                                  
                                                  
                                                  
                                                  89
                                                  %
                                                  
                                                  
                                                  118,580
                                                  
                                                  
                                                  
                                                  84
                                                  %Operational
      General and Administrative Expenses
                                                  
                                                  
                                                  506,469
                                                  
                                                  
                                                  
                                                  714
                                                  %
                                                  
                                                  
                                                  1,236,198
                                                  
                                                  
                                                  
                                                  878
                                                  %Depreciation
      and amortization
                                                  
                                                  
                                                  497,321
                                                  
                                                  
                                                  
                                                  703
                                                  %
                                                  
                                                  
                                                  19,168
                                                  
                                                  
                                                  
                                                  16
                                                  %Bad
      debt expenses
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  0
                                                  %
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  0
                                                  %Total
      Expenses
                                                  
                                                  
                                                  1,003,790
                                                  
                                                  
                                                  
                                                  1,266
                                                  %
                                                  
                                                  
                                                  1,255,366
                                                  
                                                  
                                                  
                                                  1,059
                                                  %Loss
      before other income (expense)
                                                  
                                                  $
                                                  (933,071
                                                  )
                                                  
                                                  
                                                  1,317
                                                  %
                                                  
                                                  $
                                                  (1,136,786
                                                  )
                                                  
                                                  
                                                  959
                                                  %




Revenues





The
Company's revenues for the three months ended December 31, 2008 decreased by 44%
to $79,150 from $140,850 in 2007, due largely to a decrease in sales of the
NuScribe Voice Recognition Appliance and Application.  The decrease in
NuScribe sales was intentional, as this component is being redesigned to be
bundled as an online application within the iMedicorTM Portal.  During
the redesign period, sales efforts of the stand-alone voice recognition engine
decreased significantly and the Company redirected its sales team, which had
been engaged in NuScribe sales, to building a user base within the iMedicorTM
Portal.





By
December 31, 2008, we had registered more than 70,000 individual accounts within
iMedicorTM, which exceeded our pre-launch projections by more than
200%.  Currently iMedicorTM is a free service for all users as we build
a customer base; however, we expect to begin generating revenues from various
components within iMedicorTM, including but not limited
to the redesigned NuScribe Voice Recognition Application, sometime in the first
quarter or our next fiscal year, beginning July 1, 2009.





Our sales
in other areas remained flat for the period ending December 31, 2008 from 2007,
as most of our internal efforts have been devoted to establishing new
relationships with companies like Microsoft and Dell, which we believe will be
driving forces in significantly increasing the iMedicorTM user base and ultimately
drive significantly increased revenues to the Company.





Cost
of Services





Cost of
services as a percentage of revenues was 11% for the quarter ended December 31,
2008 as compared to 16% for the quarter ended December 31, 2007 representing no
significant difference.





Operational,
General and Administrative Expenses





Operational,
general and administrative expenses decreased to $506,469 in the quarter ended
December 31, 2008 from $1,255,366 in 2007, or 60%.  The Company
consolidated it’s workforce to focus most of out efforts on the iMedicorTM build-out and to conserve
available cash and has also phased out all marketing a sales operations overseas
in Russia and other countries as the focus has turned specifically to the US
Healthcare Services market.


Depreciation
and Amortization





Depreciation
and Amortization expenses increased for the quarter ending December 31, 2008 to
$497,321 from $19,168.  This is entirely attributed to the assignment
of the purchase price of NuScribe and its iMedicorTM website to a technology
asset and the subsequent amortization of that asset.  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 its completion.  The iMedicorTM
product was launched in late October 2007 and we have begun to amortize its cost
on a straight-line basis over 60 months.





11
 Table of Contents




Loss
from Operations





Income
(loss) from operations for the quarter ended December 31, 2008 totaled
($933,071) or approximately 1,317% of net revenue compared to ($1,136,786) or
approximately 959% of net revenue for the quarter ended December 31,
2007.  The decrease in income from operations for the quarter ended
December 31, 2008 was primarily due to the Company’s focus on the continued
development of iMedicorTM and on the increase of the iMedicorTM portal’s user base
and the belief that a larger user base prior to instituting revenue generating
programs via the iMedicorTM portal would inherently increase the value of not
only the portal, but the company as well.  It should also be noted
that the disparity between percentage losses between the quarter ended December
31, 2008 and December 31, 2007 is wholly attributable to the amortization of the
iMedicorTM technology asset and in fact, without the increase in depreciation and
Amortization, the operating loss for the three months ending December 31, 2008
would have been a smaller percentage of revenue than the operating loss from the
same three months in 2007.


Six
Months Ended December 31, 2008 Compared to Six Months Ended December 31,
2007





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)2008
                                                  
                                                  
                                                  2008
                                                  
                                                  
                                                  2007
                                                  
                                                  
                                                  2008Revenues
                                                  
                                                  $
                                                  161,510
                                                  
                                                  
                                                  
                                                  100
                                                  %
                                                  
                                                  $
                                                  307,567
                                                  
                                                  
                                                  
                                                  100
                                                  %Cost
      of Services
                                                  
                                                  
                                                  23,540
                                                  
                                                  
                                                  
                                                  15
                                                  %
                                                  
                                                  
                                                  58,616
                                                  
                                                  
                                                  
                                                  19
                                                  %Gross
      Profit
                                                  
                                                  
                                                  137,970
                                                  
                                                  
                                                  
                                                  85
                                                  %
                                                  
                                                  
                                                  248,951
                                                  
                                                  
                                                  
                                                  81
                                                  %Operational
      General and Administrative Expenses
                                                  
                                                  
                                                  1,186,742
                                                  
                                                  
                                                  
                                                  859
                                                  %
                                                  
                                                  
                                                  2,572,636
                                                  
                                                  
                                                  
                                                  1,033
                                                  %Depreciation
      and amortization
                                                  
                                                  
                                                  991,675
                                                  
                                                  
                                                  
                                                  719
                                                  %
                                                  
                                                  
                                                  33,544
                                                  
                                                  
                                                  
                                                  13
                                                  %Bad
      debt expenses
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  0
                                                  %
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  0
                                                  %Total
      Expenses
                                                  
                                                  
                                                  2,176,806
                                                  
                                                  
                                                  
                                                  1,578
                                                  %
                                                  
                                                  
                                                  2,606,180
                                                  
                                                  
                                                  
                                                  1,046
                                                  %Loss
      before other income (expense)
                                                  
                                                  
                                                  (2,040,429
                                                  )
                                                  
                                                  
                                                  1,478
                                                  %
                                                  
                                                  
                                                  (2,357,229
                                                  )
                                                  
                                                  
                                                  947
                                                  %





Revenues





The
Company’s revenues for the six months ended December 31, 2008 decreased by 47%
to $161,510 from $307,567 in 2007.  This decrease is attributed to the
management’s decision to move away from the general subscription-based
communications and education market and focus its efforts primarily in the
healthcare market, providing communications and education.  By
changing the focus of the Company, traditional sales opportunities were less
available until such a time as iMedicorTM was ready for launch.





The
development of the iMedicorTM portal has become the Company’s primary
focus.  As a result, revenues decreased as more of the Company’s
resources were allocated to iMedicorTM as well as the establishment of
relationships with medical societies, educational institutions and technology
companies, which we believe will be the cornerstone of the success of
iMedicorTM.





Additionally,
the company phased out the direct sales of the NuScribe Voice Recognition
Appliance in preparation for its redesign and integration as an on-line feature
of the iMedicorTM portal.  The decrease in NuScribe sales was
intentional, as this component is being redesigned to be bundled as an online
application within the iMedicorTM Portal.  During the redesign period,
sales efforts of the stand-alone voice recognition engine decreased
significantly and the Company redirected its sales team, which had been engaged
in NuScribe sales, to building a user base within the iMedicorTM
Portal.





Cost
of
Services





Cost of
services for the six months ended December 31, 2008, was 15% as compared to 19%
for the previous six months, representing no material difference.





Operational,
General and Administrative Expenses





Operational,
general and administrative expenses decreased to $1,186,724 for the six months
ended December 31, 2008 as compared to $2,572,636 for the prior six months, or
54%.  This decrease is due primarily to the consolidation of our
workforce, the slow-down of NuScribe sales efforts and the phase-out of overseas
marketing and sales efforts.  increased expenses associated with the
acquisition of NuScribe and the assumption of its workforce and operational
expenses.


Depreciation
and Amortization





Depreciation
and Amortization expenses increased for the six months ended December 31, 2008
to $991,675 from $33,544, which is entirely attributed to the assignment of the
purchase price of NuScribe and iMedicorTM to a technology asset and
the subsequent amortization of that asset.





12
 Table of Contents




Loss
from Operations





Income
(loss) from operations for the six-month period ended December 31, 2008 totaled
($2,040,429) or approximately 1,478% of net revenue compared to ($2,357,229) or
approximately 947% of net revenue for the six-month period ended December 31,
2007.  The decrease in income from operations for the quarter ended
December 31, 2008 was primarily due to the Company’s focus on the continued
development of iMedicorTM and on the increase of the iMedicorTM portal’s user base
and the belief that a larger user base prior to instituting revenue generating
programs via the iMedicorTM portal would inherently increase the value of not
only the portal, but the company as well.  It should also be noted
that the disparity between percentage losses between the quarter ended December
31, 2008 and December 31, 2007 is wholly attributable to the amortization of the
iMedicorTM technology asset and in fact, without the increase in depreciation and
Amortization, the operating loss for the three months ending December 31, 2008
would have been a smaller percentage of revenue than the operating loss from the
same three months in 2007.


Liquidity and Capital
Resources




Cash and
cash equivalents were $22,976 at December 31, 2008 compared to $212,566 at June
30, 2008.  $200,000 of this difference is due to the company’s
election to use an interest-bearing certificate of deposit it held with a bank,
which was offsetting a note payable accruing greater interest to pay down a
significant portion of that note.
 
 Net cash
used by operating activities was $429,657 for the six months ended December 31,
2008 as compared to $339,389 for the six months ended December 31,
2007.  The increase is due wholly to other income of $650,000 received
in the quarter ending December 31, 2007.





Net cash
used by investing activities was $135,000 for the six months ended December 31,
2008 as compared to cash used by investing activities of $30,440 for the six
months ended December 31, 2007, and was primarily due to capitalization of
technology development costs.





Net cash
provided by financing activities was $392,039 for the six months ended December
31, 2008 as compared to net cash used by financing activities of $331,447 for
the six months ended December 31, 2007, representing no material
difference.





Beginning
on December 22, 2008, the Company entered into a series of Convertible
Promissory Notes with independent private accredited investors totaling an
aggregate gross investment of $1.65 million.  The Company has received
$300,000 of these gross proceeds through December 31, 2008 and another $150,000
in January 2009.  The remaining $1,200,000 is due on or before
February 20, 2009.  The Company has not received these amounts as of
the date of this filing on Form 10-Q, however, management believes this amount
will be received on February 19, 2009.


Due to
our serious cash position and the reduction in sales revenue prior to generating
revenues through the iMedicorTM 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 continues to operate at a loss and is projected to do so until the third
or fourth quarter of fiscal 2009.  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.  In July 2008, we
issued 14,166,667 shares of Common Stock through a private offering to
accredited investors through which we raised
$1,700,000.  Notwithstanding the receipt of this additional capital,
the Company requires significant additional capital to cover its current
overhead as well as to satisfy existing obligations.





ITEM3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK





N/A.





ITEM4T.  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 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.





13
 Table of Contents




PART
II – OTHER INFORMATION





Item2.  Unregistered Sales of Equity Securities and Use
of Proceeds





As
previously reported in on Form 8-K on January 20, 2009, between December 22,
2008, and January 16, 2009, the Company entered into a series of Convertible
Promissory Notes (the “Convertible  Notes”) with independent
private accredited investors (the “Investors”) totaling an aggregate gross
investment of $1.65 million.  As of December 31, 2008, $300,000 of
these notes had been executed and funds had been received.  The
Convertible Notes provide for the repayment of principle to the Investors on or
before the maturity dates, which range between June 1, 2009 and August 1, 2009,
which date can be extended for an additional six-month period at the Company’s
sole discretion.  The Convertible Notes provide for fifteen (15%)
percent annual interest payable on the maturity date to the Investors in either
cash or stock in the discretion of the Investor.  Interest on the
Convertible Notes is due on the maturity date of each Note.  Under
certain circumstances, the Company can prepay each Convertible Note prior to the
maturity date or prior to conversion with 30-days’ advance notice to the
Investors.  The Convertible Notes also contain certain affirmative and
negative covenants relating to the Company’s operations.





As
holders of the Convertible Notes, the Investors have the option to convert the
Convertible Notes at $0.05 per share into the Common Stock.  The
Convertible Notes carry a liquidation redemption fee equal to 50% of each Note,
which fee is due to the Investors from the Company upon
repayment.  For example, an Investor who paid in principle of $200,000
would receive $300,000 at redemption, plus interest accrued to
date.





In
connection with the borrowing, the Company is obligated to issue warrants to the
Investors to purchase up to an aggregate of 660,000 shares of the Common
Stock.  The exercise price of each warrant will be $0.05 per share and
the Warrants will have a 5-year term, unless previously exercised.





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.





Item6.  Exhibits




31.1
            Certification of the President and Chief Executive
      Officer pursuant to Rule
13a-14(a).


31.2
            Certification of the Chief Financial Officer and
      Treasurer pursuant to Rule
13a-14(a).


32
            Certification of the President and Chief Executive Officer
      and Chief Financial Officer and Treasurer pursuant to 18 U.S.C. ss.1350,
      as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of
      200






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SIGNATURES





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 17,
2009
                                        By:
                                        /s/ Fred
      ZollaPresident
      and Chief Executive Officer(Principal
      Executive Officer)Date:
      February 17,
    2009
                                        
                                        /s/ Craig
      StoutCraig
      StoutInterim
      Chief Financial Officer(Principal
      Accounting Officer)













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