U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal quarter ended: September 30, 2002
Commission file number: 033-25900
VIRTUAL ACADEMICS.COM, INC.
---------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 75-2228820
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6421 CONGRESS AVENUE, SUITE 201
BOCA RATON, FLORIDA 33432
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(Address of principal executive offices)
(Zip code)
(561) 994-4446
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(Registrant's telephone number, including area code)
Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
APPLICABLE TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practical date:
On November 12, 2002, the issuer had outstanding 8,701,467 shares of common
stock, $.001 par value per share.
VIRTUAL ACADEMICS.COM, INC. AND SUBSIDIARIES
FORM 10-QSB
QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002
INDEX
Page
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheets
As of September 30, 2002 (Unaudited) and June 30, 2002................3
Consolidated Statements of Operations (Unaudited)
For the Three Months Ended September 30, 2002 and 2001................4
Consolidated Statements of Cash Flows (Unaudited)
For the Three Months Ended September 30, 2002 and 2001................5
Condensed Notes to Consolidated Financial Statements...................6-8
Item 2 - Management's Discussion and Analysis and
Results of Operations.......................8-15
Item 3 - Control and Procedures.........................................16
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings..............................................16
Item 2 - Changes in Securities and Use of Proceeds......................16
Item 4 - Submission of Matters to a Vote of Security Holders............16
Item 6 - Exhibits and Reports on Form 8-K...............................17
Signatures..............................................................17
Certifications ......................................................18-19
-2-
VIRTUAL ACADEMICS.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, June 30,
2002 2002
----------- -----------
(Unaudited)
CURRENT ASSETS:
Cash and Cash Equivalents ..................................................... $ 1,400,187 $ 1,529,851
Tuition Receivable (Net of Allowance for Doubtful Accounts
of $150,000 and $152,000, respectively) .............................. 1,189,884 1,303,766
Accounts Receivable ........................................................... 69,989 28,413
Inventories ................................................................... 35,265 107,293
Prepaid Recruiting Fees ....................................................... 89,382 94,975
Other Current Assets .......................................................... 25,534 38,554
----------- -----------
Total Current Assets ...................................................... 2,810,241 3,102,852
----------- -----------
PROPERTY AND EQUIPMENT:
Computer Equipment and Software ............................................... 117,584 100,391
Furniture, Fixtures and Office Equipment ...................................... 46,932 46,932
Leasehold Improvements ........................................................ 3,051 3,051
----------- -----------
167,567 150,374
Less: Accumulated Depreciation ................................................ (68,932) (60,619)
----------- -----------
Total Property and Equipment .............................................. 98,635 89,755
----------- -----------
OTHER ASSETS:
Tuition Receivable (Net of Allowance for Doubtful Accounts
of $384,000 and $296,000, respectively) ............................... 1,151,351 1,040,965
Prepaid Recruiting Fees ....................................................... 13,372 15,065
Deferred Tax Asset ............................................................ 269,420 153,156
Security Deposits ............................................................. 8,642 8,642
----------- -----------
Total Other Assets ........................................................ 1,442,785 1,217,828
----------- -----------
Total Assets .............................................................. $ 4,351,661 $ 4,410,435
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable .............................................................. $ 57,442 $ 31,730
Unearned Revenues ............................................................. 2,799,195 2,697,062
Accrued Recruiting Fees ....................................................... 80,069 95,492
Other Accrued Expenses ........................................................ 32,687 71,293
----------- -----------
Total Current Liabilities ................................................. 2,969,393 2,895,577
NON-CURRENT LIABILITIES:
Unearned Revenues ............................................................. 447,439 430,040
Accrued Recruiting Fees ....................................................... 11,978 15,147
----------- -----------
Total Non-Current Liabilities ............................................. 459,417 445,187
----------- -----------
Total Liabilities ......................................................... 3,428,810 3,340,764
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred Stock ($.001 Par Value; 1,000,000 Shares Authorized)
No Shares Issued and Outstanding ) ...................................... - -
Common Stock ($.001 Par Value; 10,000,000 Shares Authorized;
8,701,467 and 8,701,467 Shares Issued and Outstanding at September 30, 2002
and June 30, 2002, respectively) ....................................... 8,701 8,701
Additional Paid-in Capital .................................................... 1,383,264 1,383,264
Accumulated Deficit ........................................................... (469,114) (322,294)
----------- -----------
Total Stockholders' Equity ................................................ 922,851 1,069,671
----------- -----------
Total Liabilities and Stockholders' Equity ................................ $ 4,351,661 $ 4,410,435
=========== ===========
See accompanying notes to consolidated financial statements.
-3-
VIRTUAL ACADEMICS.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months
Ended September 30,
---------------------------
2002 2001
----------- -----------
(Unaudited) (Unaudited)
NET REVENUES ................................... $ 456,526 $ 814,177
----------- -----------
COSTS AND EXPENSES:
Cost of Equipment Sales .................... 98,010 -
Instructional and Educational Support ...... 20,068 139,268
Research and Development ................... 21,968 -
Selling and Promotion ...................... 114,466 132,898
Salaries ................................... 202,782 184,253
General and Administrative ................. 271,030 335,970
----------- -----------
Total Operating Expenses ............... 728,324 792,389
----------- -----------
(LOSS) INCOME FROM OPERATIONS .................. (271,798) 21,788
OTHER INCOME:
Interest Income ............................ 8,714 12,499
----------- -----------
(LOSS) INCOME BEFORE INCOME TAXES .............. (263,084) 34,287
INCOME TAX BENEFIT (EXPENSE):
Deferred Income Tax ........................ 116,264 (12,686)
----------- -----------
Total Income Tax Benefit (Expense) ..... 116,264 (12,686)
----------- -----------
NET (LOSS) INCOME .............................. $ (146,820) $ 21,601
=========== ===========
BASIC AND DILUTED:
Net (Loss) Income Per Common Share ....... $ (0.02) $ 0.00
=========== ===========
Weighted Common Shares Outstanding ....... 8,701,467 8,839,633
=========== ===========
See accompanying notes to consolidated financial statements.
-4-
VIRTUAL ACADEMICS.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months
Ended September 30,
-------------------------
2002 2001
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) Income .......................................... $ (146,820) $ 21,601
Adjustments to Reconcile Net (Loss) Income to Net Cash Flows
Used in Operating Activities:
Depreciation ........................................ 8,313 6,737
Deferred Income Taxes ............................... (116,264) 12,686
(Increase) Decrease in:
Tuition Receivable ................................ 113,882 (613,996)
Accounts Receivable ............................... (41,576)
Inventories ....................................... 72,028 -
Prepaid Recruiting Fees ........................... 5,593 8,178
Other Current Assets .............................. 13,020 (97,489)
Other Assets:
Tuition Receivable - Non-current .................. (110,386) 379,921
Prepaid Recruiting Fees - Non-current ............. 1,693 (11,400)
Increase (Decrease) in:
Accounts Payable ................................. 25,712 41,168
Unearned Revenues ................................ 102,133 94,693
Accrued Recruiting Fees .......................... (15,423) 18,879
Other Accrued Expenses ........................... (38,606) 593
Other Liabilities:
Unearned Revenues - Non-current .................. 17,399 56,636
Accrued Recruiting Fees - Non-current ............ (3,169) 2,783
----------- -----------
Net Cash Flows Used in Operating Activities .................... (112,471) (79,010)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Property and Equipment ...................... (17,193) (20,874)
----------- -----------
Net Cash Flows Used in Investing Activities .................... (17,193) (20,874)
----------- -----------
Net Decrease in Cash and Cash Equivalents ...................... (129,664) (99,884)
Cash and Cash Equivalents - Beginning of Period ................ 1,529,851 1,775,206
----------- -----------
Cash and Cash Equivalents - End of Period ...................... $ 1,400,187 $ 1,675,322
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest .................................................... $ - $ -
=========== ===========
Income Taxes ................................................ $ - $ -
=========== ===========
See accompanying notes to consolidated financial statements.
-5-
VIRTUAL ACADEMICS.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
Virtual Academics.com, Inc. ("VADC" or the "Company") is a distance learning
company that provides Internet education to students throughout the world. The
business is primarily conducted under the names of Barrington University (the
"School"), Virtual Academics.com, Cenuco and the Academy of Health Science and
Nutrition (the "Academy"). Additionally, the Company established a wireless
e-learning platform in the academic, consumer and corporate marketplaces. The
Company is also engaged in the development and sale of wireless solutions and
web services, which include the development of business-to-business and
business-to-consumer wireless applications, and state of the art web technology
and design services.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC"). The accompanying consolidated
financial statements for the interim periods are unaudited and reflect all
adjustments (consisting only of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation of the financial
position and operating results for the periods presented. The consolidated
financial statements include the accounts of the Company and its wholly owned
subsidiaries. All significant intercompany accounts and transactions have been
eliminated. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted. These
consolidated financial statements should be read in conjunction with the
consolidated financial statements for the year ended June 30, 2002 and notes
thereto contained in the Company's report on Form 10-KSB as filed with the SEC.
The results of operations for the three months ended September 30, 2002 are not
necessarily indicative of the results for the full fiscal year ending June 30,
2003.
Certain reclassifications have been made to the prior period's consolidated
statements of operations to conform to the current period's presentation.
NOTE 2 - REVENUE RECOGNITION
The Company recognizes tuition and registration revenue based on the number of
courses actually completed in each student's course of study. For example, if a
student completes three out of his nine required courses, the Company will
recognize 33% of the tuition regardless of the amount of time that the student
has taken to fulfill these requirements.
In connection with the development and sale of wireless solutions and web
services, which include the development of business-to-business and
business-to-consumer wireless applications, and state of the art web technology
and design services, the Company recognizes revenue as services are performed or
on a pro rata basis over the contract term.
-6-
VIRTUAL ACADEMICS.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 3 - STOCKHOLDERS' EQUITY
On February 1, 2000, the Company adopted a stock option plan (the "2000
Performance Equity Plan"). The purpose of the plan is to advance the interests
of the Company by providing an additional incentive to attract and retain
qualified and competent persons as employees, officers, directors and
consultants upon whose efforts and judgment the success of the Company is
largely dependent. The plan was effective as of February 1, 2000 and, unless
sooner terminated by the Board of Directors of the Company in accordance with
the terms thereof, shall terminate on February 1, 2010. The plan provides for
both incentive stock options and nonqualified stock options to be granted.
Options to purchase a maximum of 1,000,000 shares may be granted and the
exercise prices of the options granted pursuant to this plan are determined by
the Board or an option committee but may not be less than 100% of the fair
market value on the day of grant.
On August 29, 2002, the Company granted options to purchase 240,000 shares of
common stock to certain employees of the Company. The options are exercisable at
$.42 per share, which was the fair market value of the common stock at the grant
date. Accordingly, under APB 25, no compensation expense was recognized.
On August 29, 2002, the Company granted options to purchase 20,000 shares of
common stock to non-employee directors. The options expire on August 29, 2012
and are exercisable at $.42 per share, which was the fair market value of the
common stock at the grant date. Accordingly, under APB 25, no compensation
expense was recognized.
Had compensation cost for the stock option plan been determined based on the
fair value of the options at the grant dates consistent with the method of SFAS
123, "Accounting for Stock Based Compensation", the Company's net earnings and
earnings per share would have been changed to the pro forma amounts indicated
below for the three months ended September 30, 2002:
Net earnings
As reported ........ $ (146,820)
Pro forma .......... (233,140)
Basic earnings per share
As reported ........ (.02)
Pro forma .......... (.03)
-7-
VIRTUAL ACADEMICS.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 4 - SEGMENT INFORMATION (Continued)
Currently, the Company operates in two reportable business segments - (1) the
online distance learning industry and (2) the development and sales of wireless
solutions and web services. The online distant learning segment provides
internet education to students. The latter segment includes development of
business-to-business and business-to-consumer wireless applications, and state
of the art web technology and design services. The Company's reportable segments
are strategic business units that offer different products, which complement
each other. They are managed separately based on the fundamental differences in
their operations. During the three months ended September 30, 2001, the Company
did not have any reportable segments.
Information with respect to these reportable business segments for the three
months September 30, 2002 is as follows.
For the Three Months Ended September 30, 2002
---------------------------------------------
Online Distance Wireless Consolidated
Learning Solutions Total
----------- ----------- -----------
Net Sales .................. $ 280,619 $ 175,907 $ 456,526
Costs and Operating Expenses (317,821) (394,534) (712,355)
Depreciation ............... (7,517) (796) (8,313)
Amortization ............... - (7,656) (7,656)
Interest Income ............ 6,768 1,946 8,714
Income Tax Benefit ......... 16,277 99,987 116,264
----------- ----------- -----------
Net Income (Loss) .......... $ (21,674) $ (125,146) $ (146,820)
=========== =========== ===========
Total Assets ............... $ 3,686,173 $ 665,488 $ 4,351,661
----------- ----------- ===========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
GENERAL
The following analysis of the results of operations and financial
condition of the Company should be read in conjunction with the consolidated
financial statements for the year ended June 30, 2002 and notes thereto
contained in the Report on Form 10-KSB of Virtual Academics.com, Inc. as filed
with the SEC. These financial statements reflect the consolidated operations of
Virtual Academics.com, Inc. for the three months ended September 30, 2002 and
2001, respectively.
-8-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
(Continued)
This report on Form 10-QSB contains forward-looking statements. These
statements consist of any statement other than a recitation of historical fact
and can be identified by the use of forward-looking terminology such as "may,"
"expect," "anticipate," "estimate" or "continue" or the negative thereof or
other variations thereon or comparable terminology. The reader is cautioned that
all forward-looking statements are necessarily speculative and there are certain
risks and uncertainties that could cause actual events or results to differ
materially from those referred to in such forward-looking statements. We do not
have a policy of updating forward-looking statements and thus it should not be
assumed that silence over time means that actual events are bearing out as we
estimated in such forward-looking statements.
Through our subsidiaries, we are engaged in the online distance
learning business with a focus on the international, second-career adult and
corporate training markets. We currently operate our main school, Barrington
University, from Mobile, Alabama, where the State of Alabama Department of
Education, Code of Alabama, Title 16-46-1 through 10, licenses the school. We
offer degrees and training programs to students in over 80 countries and in
multiple languages. The programs are "virtual" in their delivery format and can
be completed from a laptop, home computer or through a wireless device.
In addition to degree completion programs, we are focusing on training
corporate personnel, continuing education (CE) courses and wireless technology
for education, which we believe is a major growth area.
Additionally, we are currently developing affordable wireless platforms
to provide companies with quality training services for their employees. Our
staff works directly with Human Resource departments to ensure the training is
scalable and applicable to their employees' needs. Our technology provides
seamless information to all employees, regardless if they are in the home,
office or out in the field.
We have released other wireless application products that are currently
being used in the Security, and Real Estate industries and are currently
developing application products for the Insurance and Sports Information
industries. The software applications are compatible with all existing wireless
devices. We expect to release several academic and training solutions in fiscal
2003. Future applications include solutions for the medical and hospitality
industries.
We have received full licensure from the Alabama Department of
Education for Barrington University, which is owned by Virtual Academics.com,
Inc.
We have received full licensure from the Florida Department of
Education for The Academy of Health Science and Nutrition, which is owned by
Virtual Academics.com, Inc.
We have received full approval for Sallie Mae funding for our students
that qualify for Sallie Mae loans. Sallie Mae has been providing funds for
educational loans. Sallie Mae currently owns or manages student loans for more
than seven million borrowers and is the nation's leading provider of educational
loans.
-9-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
(Continued)
We operate in two reportable business segments - (1) the online
distance learning industry, and (2) the development and sales of wireless
solutions and web services. The latter segment includes development of
business-to-business and business-to-consumer wireless applications, and state
of the art web technology and design services. Our reportable segments are
strategic business units that offer different products, which complement each
other. They are managed separately based on the fundamental differences in their
operations and are discussed separately below.
SEASONALITY IN RESULTS OF OPERATIONS
We experience seasonality in our results of operations from our online
distance learning segment primarily as a result of changes in the level of
student enrollments and course completion. While we enroll students throughout
the year, December and January average enrollments and course completion and
related revenues generally are lower than other quarters due to seasonal breaks
in December and January. Accordingly, costs and expenses historically increase
as a percentage of tuition and other net revenues as a result of certain fixed
costs not significantly affected by the seasonal second quarter declines in net
revenues.
We experience a seasonal increase in new enrollments in August of each
year when most other colleges and universities begin their fall semesters. As a
result, instructional costs and services and selling and promotional expenses
historically increase as a percentage of tuition and other net revenues in the
fourth quarter due to increased costs in preparation for the August peak
enrollments.
We anticipate that these seasonal trends in the second and fourth
quarters will continue in the future.
CURRENT DEVELOPMENTS
Our wholly-owned subsidiary, Cenuco, Inc., unveiled its mobile
video-monitoring solution, MommyTrack (TM), live on the FOX News Network in New
York on October 17, 2002. Steven Bettinger, our President and CEO, appeared with
Roy Stanley, President and CEO of Philadelphia-based World Wide Net, Inc. World
Wide Net has signed a distribution contract obligating it to purchase $3.1
million of our MommyTrack(TM) and corporate monitoring systems. Additionally,
our MommyTrack (TM) system was featured on a local news program in the South
Florida area. We expect initial shipments to occur in December 2002 and continue
through December 2003.
MommyTrack(TM) allows concerned parents to quickly and discreetly
monitor and view their child's well-being in real-time, without being limited to
a stagnant location for viewing. The MommyTrack (TM) system comes complete with
all of the necessary components for parents to unobtrusively monitor and protect
their child, and readily integrates with most home computers in a user-friendly
and economical manner.
-10-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
(Continued)
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 2001
ONLINE DISTANCE LEARNING SEGMENT
Revenues
For the three months ended September 30, 2002, we had a 65.5% decrease
in earned revenues to $280,619 from $814,177 for the three months ended
September 30, 2001. The decrease in revenues is due primarily to a decrease in
the number of students that have registered for our programs. Additionally, our
students completed their courses at a slower rate than expected. Unearned
revenue represents the portion of tuition revenue invoiced but not earned and is
reflected as a liability in the accompanying consolidated balance sheets. Since
we will recognize tuition and registration revenue based on the number of
courses actually completed in each student's course of study, student course
completion efforts, if successful, are extremely beneficial to operating
results. School personnel typically employ an approach based upon establishing
personal relationships with students; for example, students may receive a
telephone call from a school counselor if they have not completed courses.
During the three months ended September 30, 2002, we experienced a general
slowdown in course completion by our students, which had an adverse effect on
our revenue.
Our operating results may be impacted negatively by the registration of
new students because we incur costs to enroll students but registration fees are
initially deferred and then recognized with tuition over the course of the study
period, under the guidelines of SEC Staff Accounting Bulletin 101.
Expenses
Instruction and Educational Support
Instruction and educational support expenses consist primarily of
student supplies such as textbooks as well as course development fees, credit
card fees, computer related expenses, and printing fees. For the three months
ended September 30, 2002, instructional and educational support expenses
decreased by 85.6% to $20,068 or 7.2% of net revenues as compared to $139,268 or
17% of net revenues for the three months ended September 30, 2001. The decrease
in instructional and educational support expenses and the related percentages
was mainly attributable to the fact that we are able to purchase text books from
a new supplier at reduced prices. Printing and reproduction costs decreased to
$1,441 for the three months ended September 30, 2002 as compared to $13,903 for
the three months ended September 30, 2001. This was offset by increased costs
associated with course development for the three months ended September 30, 2002
of $12,260.
-11-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
(Continued)
RESULTS OF OPERATIONS (Continued)
THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 2001
ONLINE DISTANCE LEARNING SEGMENT (Continued)
Selling and Promotion
Selling and promotion expense consists primarily of recruiting fees,
advertising and travel. For the three months ended September 30, 2002, selling
and promotion expenses decreased by 70% to $39,564 or 14% of net revenues as
compared to $132,898 or 16% of net revenues for the three months ended September
30, 2001. The decrease in selling and promotion expenses is attributable to the
shift in our selling and promotion efforts to our wireless solutions segment.
Additional, we decreased the frequency of our newspaper adverting for the three
months ended September 30, 2002 as compared to the three months ended September
30, 2001. For the three months ended September 30, 2002, advertising expense
amounted to $28,681 as compared to $31,988 for the three months ended September
30, 2001. Additionally, our recruiting fees decreased to $8,554 for three months
ended September 30, 2002 from $71,521 for the three months ended September 30,
2001. The decrease is attributable to our decreased use of recruiters to obtain
students. We are currently running advertisements in various national
publications and newspapers in order to attract more students. We expect our
advertising budget to remain constant through the end of fiscal 2003.
Salaries
For the three months ended September 30, 2002, salaries were $84,888 as
compared to salaries of $184,253 for the three months ended September 30, 2001.
The decrease in salaries was attributable to the allocation of administrative
and executive salaries to our wireless segment, which we have concentrated a
significant part of our resources and efforts.
General and Administrative Expenses
General and administrative expenses, which includes professional fees,
rent, travel and entertainment, insurance, bad debt, and other expenses, were
$180,818 for the three months ended September 30, 2002 as compared to $335,970
for the three months ended September 30, 2001. This amounted to 64% of net
revenues for the three months ended September 30, 2002 as compared to 41% for
the three months ended September 30, 2001. The decrease was primarily due to the
following factors:
The cost of professional fees decreased to $25,634 for the three months
ended September 30, 2002 as compared to $100,149 for the three months ended
September 30, 2001. During the three months ended September 30, 2001, we
incurred additional costs associated with the filing of a registration statement
with the Securities and Exchange Commission and incurred legal expenses in
connection with the settlement of a lawsuit. Additionally, we experienced a
decrease in postage and delivery and telephone expenses due to a decrease in
student activity. Due to continuing analysis of our tuition receivables, we
incurred bad debt expense of $86,578 for the three months ended September 30,
2002 as compared to $51,285 for the three months ended September 30, 2001.
-12-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
(Continued)
RESULTS OF OPERATIONS (Continued)
THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 2001
ONLINE DISTANCE LEARNING SEGMENT (Continued)
Interest Income
Interest income was $6,768 for the three months ended September 30,
2002 as compared to $12,499 for the three months ended September 30, 2001. We
currently invest our excess cash balances in primarily two interest-bearing
accounts with two financial institutions.
Income Taxes
Deferred tax assets and liabilities are provided for significant income
and expense items recognized in different years for tax and financial reporting
purposes. As of September 30, 2002, we did not record a valuation allowance on
the deferred tax assets because our ability to realize these benefits is "more
likely than not". The deferred tax asset was reported in the accompanying
balance sheet at September 30, 2002 and June 30, 2002. The deferred tax asset is
sustained by the Company's ability to generate operating profits and should
projected operating profits deteriorate then the deferred tax asset would be
eliminated. We were able to utilize previous year's net operating losses to
offset our income in fiscal year 2001. Accordingly, for the three months ended
September 30, 2002 and 2001, we recorded an income tax benefit (expense) of
$116,264 and $(12,686), respectively.
WIRELESS AND WEB SOLUTIONS SEGMENT
Our wireless and web solutions subsidiary, Cenuco, Inc., began
operations in December 2001. Accordingly, no comparable financial information is
available for the comparable period in fiscal 2001.
For the three months ended September 30, 2002, we had revenues from web
design and hosting and wireless solutions of $175,907.
We incurred cost of sales related to the sale of equipment of $98,010.
We incurred research and development expenses from the development of
our new products.
Selling and promotion expenses amounted to $74,902, which included
$4,732 in commission expense, $2,088 in advertising expense, $51,510 of trade
show expense, and other expenses.
Salaries were $117,894 for the three months ended September 30, 2002.
This reflected a growth in the number of employees during the three months ended
September 30, 2002 as a result of the growth that we are experiencing and new
development projects. We increased our technical staff to develop our wireless
technologies.
-13-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
(Continued)
RESULTS OF OPERATIONS (Continued)
WIRELESS AND WEB SOLUTIONS SEGMENT (Continued)
For the three months ended September 30, 2002, we incurred $90,212 of
general and administrative expenses, which included licensing fees of $7,656,
consulting expense of $18,000, computer and internet related expenses of $3,037,
rent expense of $4,308, professional fees of $8,874 and other expenses.
Interest income was $1,946 for the three months ended September 30,
2002. We currently invest our excess cash balances in primarily two
interest-bearing accounts with two financial institutions.
Overall Consolidated Results
As a result of the foregoing factors, we recognized a net loss of
$(146,820) or $(.02) per share on a consolidated basis for the three months
ended September 30, 2002 as compared to net income of $21,601 or $.00 per share
for the three months ended September 30, 2001.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2002, we had $1,400,187 in cash and equivalents on
hand to meet our obligations.
During the three months ended September 30, 2002, we invested
substantial time and resources developing and evaluating products and
opportunities for our wireless solutions segment. We will continue to develop
new wireless solutions for both of our segments and may consider acquisitions,
business combinations, or start up proposals, which could be advantageous to our
product lines or business plans. No assurance can be given that any such
project, acquisition or combination will be successful.
Net cash used in operations was $112,471 for the three months ended
September 30, 2002 as compared to net cash used in operations of $79,010 for the
three months ended September 30, 2001. We used additional cash funds for
salaries and expenses related to the development of our wireless security
products. We feel that with expected positive cash flow, we are well capitalized
to fund our operations over the ensuing 12-month period, including the expected
growth during this period.
Net cash used in investing activities for the three months ended
September 30, 2002 was $17,193 as compared to $20,784 for the three months ended
September 30, 2001 and related to the acquisition of property and equipment.
We currently have no material commitments for capital expenditures. Our
future growth is dependent on our ability to raise capital for expansion, and to
seek additional revenue sources. If we decide to pursue any acquisition
opportunities or other expansion opportunities, we may need to raise additional
capital, although there can be no assurance such capital- raising activities
would be successful.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
(Continued)
CRITICAL ACCOUNTING POLICIES
A summary of significant accounting policies is included in Note 1 to
the audited financial statements included in our Annual Report on Form 10-KSB
for the year ended June 30, 2002 as filed with the United States Securities and
Exchange Commission. We believe that the application of these policies on a
consistent basis enables us to provide useful and reliable financial information
about our operating results and financial condition.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.
We account for stock transactions in accordance with APB Opinion No.
25, "Accounting for Stock Issued to Employees." In accordance with Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation," we adopted the pro forma disclosure requirements of SFAS 123.
RECENT ACCOUNTING PRONOUNCEMENTS
In August 2001, the FASB issued Statement No. 144 (SFAS 144)
"Accounting for the Impairment or Disposal of Long-Lived Assets." This statement
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets. This statement supersedes Statement No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of." SFAS 144 is effective for fiscal years beginning after December 15, 2001.
We do not believe the adoption of SFAS No. 144 will have a material effect on
our consolidated financial position or results of operations.
In November 2001, the FASB EITF reached a consensus to issue a FASB
Staff Announcement Topic No. D-103 (re-characterized in January 2002 as EITF
Issue No. 01-14), "Income Statement Characterization of Reimbursement Received
for `Out-of-Pocket' Expenses Incurred" which clarifies that reimbursements
received for out-of-pocket expenses incurred should be characterized as revenue
in the statement of operations. This consensus should be applied in financial
reporting periods beginning after December 15, 2001. Upon application of this
consensus, comparative financial statements for prior periods should be
reclassified to comply with the guidance in this consensus. The adoption of this
consensus did not have a material effect on our consolidated financial position
or results of operations.
In July 2002, the FASB issued Statement No. 146 (SFAS 146), "Accounting
for Costs Associated with Exit or Disposal Activities." This Standard supercedes
the accounting guidance provided by Emerging Issues Task Force Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity" (including "Certain Costs Incurred in a Restructuring").
SFAS No. 146 requires companies to recognize costs associated with exit
activities when they are incurred rather than at the date of a commitment to an
exit or disposal plan. SFAS No. 146 is to be applied prospectively to exit or
disposal activities initiated after December 31, 2002. We are currently
evaluating this Standard.
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ITEM 3. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, under the supervision and with the participation of our
chief executive officer and principal financial and accounting officer,
conducted an evaluation of our "disclosure controls and procedures" (as defined
in the Securities Exchange Act of 1934 (the "Exchange Act") Rules 13a-14(c))
within 90 days of the filing date of this Quarterly Report on Form 10-QSB (the
"Evaluation Date"). Based on their evaluation, our chief executive officer and
principal financial and accounting officer have concluded that as of the
Evaluation Date, our disclosure controls and procedures are effective to ensure
that all material information required to be filed in this Quarterly Report on
Form 10-QSB has been made known to them in a timely fashion.
Changes in Internal Controls
There have been no significant changes (including corrective actions
with regard to significant deficiencies or material weaknesses) in our internal
controls or in other factors that could significantly affect these controls
subsequent to the Evaluation Date set forth above.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time the company faces litigation in the ordinary course
of business. Currently we are not involved with any litigation which will have a
material adverse effect on our financial condition.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On August 29, 2002, we granted options to purchase 240,000 shares of
common stock to certain employees of the Company. The options are exercisable at
$.42 per share, which was the fair market value of the common stock at the grant
date. Accordingly, under APB 25, no compensation expense was recognized.
On August 29, 2002, we granted options to purchase 20,000 shares of
common stock to non-employee directors. The options expire on August 29, 2012
and are exercisable at $.42 per share, which was the fair market value of the
common stock at the grant date. Accordingly, under APB 25, no compensation
expense was recognized.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.4 Reseller Agreement
99.1 Certification of CEO Pursuant to Section 906 of
Sarbanes-Oxley Act of 2002
99.2 Certification of CFO Pursuant to Section 906 of
Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, duly authorized.
VIRTUAL ACADEMICS.COM, INC.
Dated: November 14, 2002 By: /s/ Steven Bettinger
-------------------------------
Steven Bettinger, President and
Chief Executive Officer
Dated: November 14, 2002 By: /s/ Robert Bettinger
--------------------------------
Robert Bettinger, Chairman of the
Board, Treasurer, Principal
Financial and Accounting Officer
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CERTIFICATION
I, Steven Bettinger, the Chief Executive Officer of Virtual Academics.com, Inc.,
certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Virtual
Academics.com, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002 /s/ Steven Bettinger
-----------------------------------------
Steven Bettinger, Chief Executive Officer
-18-
CERTIFICATION
I, Robert Bettinger, Principal Financial and Accounting Officer of Virtual
Academics.com, Inc. certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Virtual
Academics.com, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002 /s/ Robert Bettinger
-----------------------------------------
Robert Bettinger
Principal Financial and Accounting Officer
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