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: March 31, 2003
Commission file number: 033-25900
CENUCO, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2228820
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6421 CONGRESS AVENUE, SUITE 201
BOCA RATON, FLORIDA 33432
(Address of principal executive offices)
(Zip code)
(561) 994-4446
(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 April 30, 2003, the issuer had outstanding 8,714,757 shares of common stock,
$.001 par value per share.
CENUCO, INC. AND SUBSIDIARIES
FORM 10-QSB
QUARTERLY PERIOD ENDED MARCH 31, 2003
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheets
As of March 31, 2003 (Unaudited) and June 30, 2002..............3
Consolidated Statements of Operations (Unaudited)
For the Three and Nine Months Ended March 31, 2003 and 2002.....4
Consolidated Statements of Cash Flows (Unaudited)
For the Nine Months Ended March 31, 2003 and 2002...............5
Condensed Notes to Consolidated Financial Statements.........6-10
Item 2 - Management's Discussion and Analysis and
Results of Operations.......................................11-19
Item 3 - Control and Procedures.........................................19
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings..............................................19
Item 2 - Changes in Securities and Use of Proceeds......................20
Item 4 - Submission of Matters to a Vote of Security Holders............20
Item 5 - Other Information..............................................20
Item 6 - Exhibits and Reports on Form 8-K...............................20
Signatures..............................................................20
-2-
CENUCO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, June 30,
2003 2002
----------- -----------
(Unaudited)
CURRENT ASSETS:
Cash and Cash Equivalents ................................................. $ 1,048,810 $ 1,529,851
Tuition Receivable - current (Net of Allowance for Doubtful Accounts
of $109,000 and $152,000, respectively) .......................... 885,119 1,303,766
Accounts Receivable ....................................................... 56,371 28,413
Inventories ............................................................... 33,325 107,293
Prepaid Recruiting Fees ................................................... 72,003 94,975
Other Current Assets ...................................................... - 38,554
----------- -----------
Total Current Assets .................................................. 2,095,628 3,102,852
----------- -----------
PROPERTY AND EQUIPMENT:
Computer Equipment and Software ........................................... 159,516 100,391
Furniture, Fixtures and Office Equipment .................................. 50,700 46,932
Leasehold Improvements .................................................... 3,051 3,051
----------- -----------
213,267 150,374
Less: Accumulated Depreciation ............................................ (89,299) (60,619)
----------- -----------
Total Property and Equipment .......................................... 123,968 89,755
----------- -----------
OTHER ASSETS:
Tuition Receivable -non-current (Net of Allowance for Doubtful Accounts
of $415,000 and $296,000, respectively) ........................... 806,257 1,040,965
Prepaid Recruiting Fees ................................................... 12,803 15,065
Deferred Tax Asset ........................................................ 416,100 153,156
Security Deposits ......................................................... 8,642 8,642
----------- -----------
Total Other Assets .................................................... 1,243,802 1,217,828
----------- -----------
Total Assets .......................................................... $ 3,463,398 $ 4,410,435
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable .......................................................... $ 40,759 $ 31,730
Unearned Revenues ......................................................... 1,223,232 2,697,062
Accrued Recruiting Fees ................................................... 38,683 95,492
Other Accrued Expenses .................................................... 43,239 71,293
----------- -----------
Total Current Liabilities ............................................. 1,345,913 2,895,577
NON-CURRENT LIABILITIES:
Unearned Revenues ......................................................... 1,471,132 430,040
Accrued Recruiting Fees ................................................... 6,878 15,147
----------- -----------
Total Non-Current Liabilities ......................................... 1,478,010 445,187
----------- -----------
Total Liabilities ..................................................... 2,823,923 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;
8,714,757 and 8,701,467 Shares Issued and Outstanding at March 31, 2003
and June 30, 2002, respectively) ................................... 8,715 8,701
Additional Paid-in Capital ................................................ 1,453,724 1,383,264
Accumulated Deficit ....................................................... (783,964) (322,294)
Deferred Compensation ..................................................... (39,000) -
----------- -----------
Total Stockholders' Equity ............................................ 639,475 1,069,671
----------- -----------
Total Liabilities and Stockholders' Equity ............................ $ 3,463,398 $ 4,410,435
=========== ===========
See accompanying notes to consolidated financial statements
-3-
CENUCO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months For the Nine Months
Ended March 31, Ended March 31,
-------------------------- ---------------------------
2003 2002 2003 2002
----------- ---------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
NET REVENUES ..................................... $ 449,381 $ 951,554 $ 1,386,821 $ 2,537,233
----------- ---------- ----------- -----------
COSTS AND EXPENSES:
Cost of Equipment Sales ...................... 8,285 6,363 155,301 6,363
Instructional and Educational Support ........ 31,102 79,514 83,976 247,569
Research and Development ..................... 17,886 - 41,493 -
Selling and Promotion ........................ 104,630 194,935 321,395 389,569
General and Administrative ................... 418,503 654,943 1,525,746 1,848,272
----------- ---------- ----------- -----------
Total Operating Expenses ................. 580,406 935,755 2,127,911 2,491,773
----------- ---------- ----------- -----------
(LOSS) INCOME FROM OPERATIONS .................... (131,025) 15,799 (741,090) 45,460
OTHER INCOME:
Interest Income .............................. 3,059 8,383 16,476 31,375
----------- ---------- ----------- -----------
(LOSS) INCOME BEFORE INCOME TAXES ................ (127,966) 24,182 (724,614) 76,835
INCOME TAX BENEFIT (EXPENSE):
Current ...................................... - (97,245) - (115,147)
Deferred Income Tax .......................... 64,220 114,270 262,944 114,270
----------- ---------- ----------- -----------
Total Income Tax Benefit (Expense) ....... 64,220 17,025 262,944 (877)
----------- ---------- ----------- -----------
NET (LOSS) INCOME ................................ $ (63,746) $ 41,207 $ (461,670) $ 75,958
=========== =========== =========== ===========
BASIC AND DILUTED:
Net (Loss) Income Per Common Share - Basic . $ (0.01) $ 0.00 $ (0.05) $ 0.01
=========== =========== =========== ===========
Net (Loss) Income Per Common Share - Diluted $ (0.01) $ 0.00 $ (0.05) $ 0.01
=========== =========== =========== ===========
Weighted Common Shares Outstanding - Basic . 8,714,757 8,695,294 8,707,239 8,642,441
=========== =========== =========== ===========
Weighted Common Shares Outstanding - Diluted 8,714,757 8,946,341 8,707,239 8,905,565
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements
-4-
CENUCO, INC. AND SUBSIDIAIRES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months
Ended March 31,
---------------------------
2003 2002
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) Income .......................................... $ (461,670) $ 75,958
Adjustments to Reconcile Net (Loss) Income to Net Cash Flows
Used in Operating Activities:
Depreciation ........................................ 28,680 20,461
Non-cash Compensation ............................... 31,474 30,000
Deferred Income Taxes ............................... (262,944) (96,368)
Provision for Doubtful Accounts ..................... 76,098 190,000
(Increase) Decrease in:
Tuition Receivable ................................ 461,250 321,626
Accounts Receivable ............................... (27,958) -
Inventories ....................................... 73,968 -
Prepaid Recruiting Fees ........................... 22,972 56,488
Other Current Assets .............................. 38,554 (28,424)
Other Assets:
Tuition Receivable - Non-current .................. 116,007 (721,660)
Prepaid Recruiting Fees - Non-current ............. 2,262 2,334
Security Deposits ................................. - (236)
Increase (Decrease) in:
Accounts Payable ................................. 9,029 13,524
Unearned Revenues ................................ (383,577) (185,753)
Accrued Recruiting Fees .......................... (56,809) 20,682
Other Accrued Expenses ........................... (28,054) 64,652
Other Liabilities:
Unearned Revenues - Non-current .................. (49,161) 55,482
Accrued Recruiting Fees - Non-current ............ (8,269) (1,671)
----------- -----------
Net Cash Flows Used in Operating Activities .................... (418,148) (182,905)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Property and Equipment ...................... (62,893) (25,394)
----------- -----------
Net Cash Flows Used in Investing Activities .................... (62,893) (25,394)
----------- -----------
Net Decrease in Cash and Cash Equivalents ...................... (481,041) (208,299)
Cash and Cash Equivalents - Beginning of Period ................ 1,529,851 1,775,206
----------- -----------
Cash and Cash Equivalents - End of Period ...................... $ 1,048,810 $ 1,566,907
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest .................................................... $ - $ -
=========== ===========
Income Taxes ................................................ $ - $ -
=========== ===========
See accompanying notes to consolidated financial statements
-5-
CENUCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
Cenuco, Inc. (the "Company") is 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. Additionally, the Company is a
distance learning company that provides Internet education to students
throughout the world. The Company's businesses are primarily conducted under the
names of Barrington University (the "School"), 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.
On December 17, 2002, the Company changed its name to Cenuco, Inc. and symbol to
CNUO. The Board of Directors of Virtual Academics.Com, Inc. recommended and the
majority of the shareholders approved the change of its name to Cenuco, Inc. to
better reflect its business direction and operation. Reflecting the changing
focus of its business, the Company plans to accelerate the development of its
suite of fully integrated wireless solutions for the Security, Real Estate and
Insurance markets.
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, as amended,
and notes thereto contained in the Company's report on Form 10-KSB, as amended,
as filed with the SEC. The results of operations for the nine months ended March
31, 2003 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 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
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
products are delivered.
-6-
CENUCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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. Tuition refunds are based on the date
that the student cancels and the policy is as follows: If the student withdraws
within 5 calendar days after midnight of the day the student signs the
Enrollment Agreement (Full Refund Period) the student will receive a full refund
with no further obligation. If the student cancels after the Full Refund Period
but before the school receives the first completed lesson, the student will be
charged a registration fee of $150 and the student will receive a full refund
less the registration fee charge. If the student cancels after the school
receives the first completed lesson, the student's tuition obligation will be
their registration fee plus a portion of the remaining tuition as defined below.
Percentage of Course Completed Amount of Tuition Obligated
------------------------------ ---------------------------
10% of less 10% of tuition
Between 11% - 25% 25% of tuition
Between 26% - 50% 50% of tuition
Over 50% Obligated for full tuition.
When a student withdraws, the Company writes off the remaining tuition
receivable balance against the remaining unearned revenue balance and records a
net increase or decrease to net revenues and did not have a material effect on
the Company's consolidated results of operations.
Stock Options
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. Had
compensation cost for the stock options granted to employees and non-employee
directors 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 nine months ended March
31, 2003:
Net earnings
As reported ......................... $ (461,670)
Pro forma ........................... (560,990)
Basic earnings per share
As reported ......................... (.05)
Pro forma ........................... (.06)
-7-
CENUCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 3 - STOCKHOLDERS' EQUITY
Common stock
On December 3, 2002, the Company issued 13,290 shares of common stock to
consultants for services rendered. Such shares were valued at their market value
on the date of issuance at $1.39 per share and recorded consulting expense of
$18,474 related to the consulting services.
Stock options
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 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.
On January 7, 2003, the Company granted options to purchase 10,000 shares of
common stock to an employee of the Company. The options are exercisable at $1.55
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 January 7, 2003, the Company granted options to purchase 40,000 shares of
common stock to consultants for serviced rendered and to be rendered through
December 2003. The options expire on January 7, 2013 and are exercisable at
$1.55 per share, which was the fair market value of the common stock at the
grant date. These options were valued using the Black-Scholes pricing method at
a fair value of $1.30 per option. Accordingly, the Company recorded consulting
expense of $13,000 and deferred compensation of $39,000 that will be amortized
over the service period.
NOTE 4 - SEGMENT INFORMATION
Currently, the Company operates in two reportable business segments - (1) the
online distance learning industry and (2) the development and sale of wireless
products and services. The online distant learning segment provides internet
education to students domestically and internationally. 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.
-8-
CENUCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 4 - SEGMENT INFORMATION (Continued)
Information with respect to these reportable business segments for the nine and
three months March 31, 2003 and 2002 is as follows.
For the Nine Months Ended March 31, 2003
------------------------------------------
Online Distance Wireless Consolidated
Learning Solutions Total
----------- ----------- ------------
Net Sales ......................... $ 1,029,865 $ 356,956 $ 1,386,821
Costs and Operating Expenses ...... (883,228) (1,244,683) (2,127,911)
Interest Income ................... 9,511 6,965 16,476
Income Tax Benefit (Provision) .... (13,936) 276,880 262,944
----------- ----------- ------------
Net Income (Loss) ................. $ 142,212 $ (603,882) $ (461,670)
=========== =========== ===========
Total Assets ...................... $ 2,046,167 $ 1,417,231 $ 3,463,398
----------- ----------- ------------
For the Three Months Ended March 31, 2003
------------------------------------------
Online Distance Wireless Consolidated
Learning Solutions Total
----------- ----------- ------------
Net Sales ......................... $ 377,693 $ 71,688 $ 449,381
Costs and Operating Expenses ...... (147,880) (432,526) (580,406)
Interest Income ................... 521 2,538 3,059
Income Tax Benefit (Provision) .... (40,108) 104,328 64,220
----------- ----------- -----------
Net Income (Loss) ................. $ 190,226 $ (253,972) $ (63,746)
=========== =========== ===========
-9-
CENUCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 4 - SEGMENT INFORMATION (Continued)
For the Nine Months Ended March 31, 2002
------------------------------------------
Online Distance Wireless Consolidated
Learning Solutions Total
----------- ----------- ------------
Net Sales ......................... $ 2,448,565 $ 88,668 $ 2,537,233
Costs and Operating Expenses ...... (2,261,378) (230,395) (2,491,773)
Interest Income ................... 29,154 2,221 31,375
Income Tax (Provision) Benefit .... (877) - (877)
----------- ----------- -----------
Net Income (Loss) ................. $ 215,464 $ (139,506) $ 75,958
=========== =========== ===========
Total Assets ...................... $ 4,170,531 $ 573,243 $ 4,743,774
=========== =========== ===========
For the Three Months Ended March 31, 2002
------------------------------------------
Online Distance Wireless Consolidated
Learning Solutions Total
----------- ----------- ------------
Net Sales ......................... $ 888,114 $ 63,440 $ 951,554
Costs and Operating Expenses ...... (718,978) (216,777) (935,755)
Interest Income ................... 6,309 2,074 8,383
Income Tax Benefit ................ 17,025 - 17,025
----------- ----------- -----------
Net Income (Loss) ................. $ 192,470 $ (151,263) $ 41,207
=========== =========== ===========
-10-
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, as amended, of Virtual Academics.com,
Inc. as filed with the SEC. These financial statements reflect the consolidated
operations of Cenuco, Inc. (formerly Virtual Academics.com, Inc.) for the three
and nine months ended March 31, 2003 and 2002, respectively.
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.
On December 11th, 2002, the Board of Directors of Virtual
Academics.Com, Inc. recommended and approved the change of its name to Cenuco,
Inc. to better reflect our business direction and operation. Effective December
17, 2002, a majority of our shareholders approved of the name change. Reflecting
the changing focus of our business, we plan to accelerate the development of our
suite of fully integrative wireless solutions for the Security, Real Estate and
Insurance markets.
The change in name signifies the focus on our development of wireless
applications, while maintaining our market presence in the distance- learning
sector. We will continue to expand our online distance- learning programs,
including the AIG Environmental Institute, the Innovation Institute, Barrington
University and the Academy of Health Science and Nutrition.
The development and cultivation of wireless applications will now serve
as the focal point for our initiatives. Already, the wireless subsidiary has
produced viable solutions for the real estate and security markets. In addition,
we launched our line of wireless video monitoring solutions, MommyTrack(TM) and
CenVid(TM). Both products offer the world's first truly mobile surveillance
monitoring solution for the consumer and business market.
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.
-11-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
(Continued)
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, Real Estate and insurance industries. The software
applications are compatible with most existing wireless devices. We expect to
release several academic and training solutions in fiscal 2003.
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.
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.
-12-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
(Continued)
RESULTS OF OPERATIONS
Nine Months Ended March 31, 2003 compared to Nine Months Ended March 31, 2002
Online Distance Learning Segment
Revenues
For the nine months ended March 31, 2003, we had a 57.9% decrease in
earned revenues to $1,029,865 from $2,448,565 for the nine months ended March
31, 2002. The decrease in revenues is due primarily to a decrease in the number
of students that have registered for our programs. We have decreased our
marketing efforts and have been focusing on our wireless segment. 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. During the nine months ended March 31, 2003, we experienced a general
slowdown in course completion by our students, which had an adverse effect on
our revenue.
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 nine months
ended March 31, 2003, instructional and educational support expenses decreased
by 68.5% to $83,976 or 8.2% of net revenues as compared to $247,569 or 10.1% of
net revenues for the nine months ended March 31, 2002. The decrease in
instructional and educational support expenses and the related percentages was
mainly attributable to the fact that we have enrolled less students in the
current period and we are able to purchase text books from a new supplier at
reduced prices. Accordingly, student supply expense was $34,280 or 3.3% of
revenues for the nine months ended March 31, 2003 as compared to $141,970 or
5.8% of revenue for the nine months ended March 31, 2002. Printing and
reproduction costs decreased to $16,790 for the nine months ended March 31, 2003
as compared to $22,629 for the nine months ended March 31, 2002. Computer and
internet expenses decreased to $5,901 for the nine months ended March 31, 2003
as compared to $54,287 for the nine months ended March 31, 2002 due to a
decreased need for development and maintenance of our websites related to our
online university. This was offset by increased costs associated with course
development for the nine months ended March 31, 2003 of $11,592 as compared to
$5,400 for the nine months ended March 31, 2002.
-13-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
(Continued)
RESULTS OF OPERATIONS (CONTINUED)
Nine Months Ended March 31, 2003 compared to Nine Months Ended March 31, 2002
Online Distance Learning Segment (Continued)
Selling and Promotion
Selling and promotion expense consists primarily of recruiting fees,
advertising and travel. For the nine months ended March 31, 2003, selling and
promotion expenses decreased by 53% to $115,190 or 11.2% of net revenues as
compared to $333,764 or 13.6% of net revenues for the nine months ended March
31, 2002. The decrease in selling and promotion expenses is attributable to the
shift in our selling and promotion efforts to our wireless solutions segment.
For the nine months ended March 31, 2003, advertising expense amounted to
$85,422 as compared to $98,651 for the nine months ended March 31, 2002.
Additionally, our recruiting fees decreased to $19,136 for nine months ended
March 31, 2003 from $210,249 for the nine months ended March 31, 2002. The
decrease is attributable to our decreased use of recruiters to obtain students
and a general slow-down in new 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 or increase
through the end of fiscal 2003.
General and Administrative Expenses
General and administrative expenses, which includes salaries,
professional fees, rent, travel and entertainment, insurance, bad debt, and
other expenses, were $684,062 for the nine months ended March 31, 2003 as
compared to $1,680,045 for the nine months ended March 31, 2002. This amounted
to 66.4% of net revenues for the nine months ended March 31, 2003 as compared to
68.6% for the nine months ended March 31, 2003. The decrease was primarily due
to the following factors:
The cost of professional fees decreased to $64,778 for the nine months
ended March 31, 2003 as compared to $258,696 for the nine months ended March 31,
2002. During the nine months ended March 31, 2002, 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 dismissal
of a lawsuit. For the nine months ended March 31, 2003, salaries were $190,857
as compared to salaries of $570,392 for the nine months ended March 31, 2002.
The decrease in salaries was attributable to the allocation of administrative
and executive salaries to our wireless segment, where we have concentrated a
significant part of our resources and efforts. Additionally, we experienced a
decrease in postage and delivery and telephone expenses due to a decrease in
student activity. We incurred bad debt expense of $246,279 for the nine months
ended March 31, 2003 as compared to $302,217 for the nine months ended March 31,
2002, as a result of student inactivity.
Interest Income
Interest income was $9,511 for the nine months ended March 31, 2003 as
compared to $29,154 for the nine months ended March 31, 2002, a decrease of
$19,643 due to the fact that cash was transferred to our wireless segment. We
currently invest our excess cash balances in primarily two interest-bearing
accounts with two financial institutions.
-14-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
(Continued)
RESULTS OF OPERATIONS (CONTINUED)
Nine Months Ended March 31, 2003 compared to Nine Months Ended March 31, 2002
Wireless and Web Solutions Segment
For the nine months ended March 31, 2003 and 2002, we had net revenues
of $356,956 and $88,668, respectively, which consisted of the following:
Equipment Sales ........................ $182,566 $ 6,488
Wireless Solutions and Web Services .... 150,873 82,180
Other .................................. 23,517 -
-------- --------
$356,956 $ 88,668
======== ========
For the nine months ended March 31, 2003 and 2002, we incurred cost of
sales related to the sale of equipment of $155,301 and $6,363, respectively.
For the nine months ended March 31, 2003 and 2002, we incurred research
and development expenses from the development of our new products of $41,493 and
$0, respectively.
For the nine months ended March 31, 2003, selling and promotion
expenses amounted to $206,205, which included $16,021 in commission expense,
$5,362 in advertising expense, $97,427 of trade show expense, printing and
reproduction expense of $25,642, travel expenses of $31,125, and licensing fees
of $30,628. For the nine months ended March 31, 2002, selling and promotion
expenses amounted to $55,805, which included $40,015 in commission expense.
For the nine months ended March 31, 2003, we incurred $841,684 of
general and administrative expenses, which included salaries expense of
$449,837, consulting expense of $76,895, computer and internet related expenses
of $12,226, rent expense of $31,967, professional fees of $46,221 and other
expenses. For the nine months ended March 31, 2002, we incurred $168,227 of
general and administrative expenses, which included salaries of $49,385,
consulting expense of $6.545, computer and internet related expenses of $7,892,
rent expense of $4,196, licensing fees of $68,062 and other expenses. For the
nine months ended March 31, 2003, salaries were $449,837 for the nine months
ended March 31, 2003 as compared to $49,385 for the nine months ended March 31,
2002. This reflected a growth in the number of employees during the nine months
ended March 31, 2003 as a result of the growth that we are experiencing and new
development projects as well as the allocation of administrative and executive
salaries to our wireless segment. Additionally, since we began our wireless
segment in November 2001, amounts for the nine months ended March 31, 2002 do
not reflect the entire period. We increased our technical staff to develop our
wireless technologies.
-15-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
(Continued)
RESULTS OF OPERATIONS (CONTINUED)
Nine Months Ended March 31, 2003 compared to Nine Months Ended March 31, 2002
Wireless and Web Solutions Segment (Continued)
For the nine months ended March 31, 2003 and 2002, interest income was
$6,965 and $2,221, respectively. We currently invest our excess cash balances in
primarily two interest-bearing accounts with two financial institutions.
Overall Consolidated Results
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 March 31, 2003, we did not record a valuation allowance on the
deferred tax assets because we believe that we will realize these benefits "more
likely than not". The Company expects the wireless segment to begin to generate
profits. The Company will continue to evaluate their performance and should
projected operating profits not occur, then an allowance will be established.
The deferred tax asset was reported in the accompanying balance sheet at March
31, 2003 and June 30, 2002. We were able to utilize previous year's net
operating losses to offset our income in fiscal year 2001. Accordingly, for the
nine months ended March 31, 2003 and 2002, we recorded an income tax benefit
(expense) of $262,944 and $(877), respectively.
Net income (loss)
As a result of the foregoing factors, we recognized a net loss of
$(461,670) or $(.05) per share on a consolidated basis for the nine months ended
March 31, 2003 as compared to net income of $75,958 or $.01 per share for the
nine months ended March 31, 2002.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2003, we had $1,048,810 in cash and equivalents on hand
to meet our obligations.
During the nine months ended March 31, 2003, 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, although the Company expects to be profitable in the future
there can be no assurance.
-16-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
(Continued)
Net cash used in operations was $418,148 for the nine months ended
March 31, 2003 as compared to net cash used in operations of $182,905 for the
nine months ended March 31, 2002. We used additional cash funds for salaries and
expenses related to the development of our wireless security products and a
significant decrease in revenues. We feel that with expected positive cash flow,
our current cash balance is sufficient to sustain our operations over the
ensuing 12-month period, including the expected growth during this period.
Net cash used in investing activities for the nine months ended March
31, 2003 was $62,893 as compared to $25,394 for the nine months ended March 31,
2002 and related to the acquisition of property and equipment. During the nine
months ended March 31, 2003, we acquired computer equipment to be used in the
development of our wireless solutions.
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.
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,
as amended, 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.
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.
We recognize 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. Tuition refunds are based on the date
that the student cancels and the policy is as follows: If the student withdraws
within 5 calendar days after midnight of the day the student signs the
Enrollment Agreement (Full Refund Period) the student will receive a full refund
with no further obligation.
-17-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
(Continued)
If the student cancels after the Full Refund Period but before the school
receives the first completed lesson, the student will be charged a registration
fee of $150 and the student will receive a full refund less the registration fee
charge. If the student cancels after the school receives the first completed
lesson, the student's tuition obligation will be their registration fee plus a
portion of the remaining tuition as defined below.
Percentage of Course Completed Amount of Tuition Obligated
------------------------------ ---------------------------
10% of less 10% of tuition
Between 11% - 25% 25% of tuition
Between 26% - 50% 50% of tuition
Over 50% Obligated for full tuition.
When a student withdraws, the Company writes off the remaining tuition
receivable balance against the remaining unearned revenue balance and records a
net increase or decrease to net revenues and did not have a material effect on
the Company's consolidated results of operations.
RECENT ACCOUNTING PRONOUNCEMENTS
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. The adoption of this
standard had no impact on our financial position of results of operations.
In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, Accounting for Stock-Based Compensation - Transition and
Disclosure. Statement 148 provides alternative methods of transition to
Statement 123's fair value method of accounting for stock-based employee
compensation. It also amends the disclosure provisions of Statement 123 and APB
Opinion No. 28, Interim Financial Reporting, to require disclosure in the
summary of significant accounting policies of the effects of an entity's
accounting with respect to stock-based employee compensation on reported net
income and earnings per share in annual and interim financial statements.
Statement 148's amendment of the transition and annual disclosure requirements
of Statement's 123 are effective for fiscal years ending after December 15,
2002. Statement 148's amendment of the disclosure requirements of Opinion 28 is
effective for interim periods beginning after December 15, 2002, and is
reflected herein.
In November 2002, the FASB issued FASB Interpretation No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others" (FIN 45). FIN 45 requires that
upon issuance of a guarantee, a guarantor must recognize a liability for the
fair value of an obligation assumed under a guarantee. FIN 45 also requires
additional disclosures by a guarantor in its interim and annual financial
statements about the obligations associated with guarantees issued. The
recognition provisions of FIN 45 are effective for any guarantees issued or
modified after December 31, 2002. The disclosure requirements are effective for
financial statements of interim or annual periods ending after December 15,
2002. . The adoption of this pronouncement does not have a material effect on
the earnings or financial position of the Company.
-18-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
(Continued)
In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities." FIN 46 requires that if an entity
has a controlling financial interest in a variable interest entity, the assets,
liabilities and results of activities of the variable interest entity should be
included in the consolidated financial statements of the entity. FIN 46 requires
that its provisions are effective immediately for all arrangements entered into
after January 31, 2003. The Company does not have any variable interest entities
created after January 31, 2003. For those arrangements entered into prior to
January 31, 2003, the FIN 46 provisions are required to be adopted at the
beginning of the first interim or annual period beginning after June 15, 2003.
The Company has not identified any variable interest entities to date and will
continue to evaluate whether it has variable interest entities that will have a
significant impact on its consolidated balance sheet and results of operations.
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 January 7, 2003, the Company granted options to purchase 10,000
shares of common stock to an employee of the Company. The options are
exercisable at $1.55 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.
-19-
On January 7, 2003, the Company granted options to purchase 40,000
shares of common stock to consultants for serviced rendered and to be rendered
through December 2003. The options expire on January 7, 2013 and are exercisable
at $1.55 per share, which was the fair market value of the common stock at the
grant date. These options were valued using the Black-Scholes pricing method at
a fair value of $1.30 per option. Accordingly, the Company recorded consulting
expense of $13,000 and deferred compensation of $39,000 that will be amortized
over the service period.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
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
On January 2, 2003, we filed an 8-K that disclosed our name change.
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.
CENUCO, INC. AND SUBSIDIARIES
(Formerly Virtual Academics.com, Inc.)
Dated: May 15, 2003 By: /s/ Steven Bettinger
-------------------------------
Steven Bettinger, President and
Chief Executive Officer
Dated: May 15, 2003 By: /s/ Robert Bettinger
---------------------------------
Robert Bettinger, Chairman of the
Board, Treasurer, Principal
Financial and Accounting Officer
-20-
CERTIFICATIONS
I, Steven Bettinger, the Chief Executive Officer of Cenuco, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Cenuco, 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 officer 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 officer 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: May 15, 2003 /s/ Steven Bettinger
--------------------
Steven Bettinger,
Chief Executive Officer
-21-
CERTIFICATIONS
I, Robert Bettinger, Principal Financial and Accounting Officer of Cenuco, Inc.
certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Cenuco, 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 officer 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 officer 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: May 15, 2003 /s/ Robert Bettinger
--------------------
Robert Bettinger, Principal Financial
and Accounting Officer
-22-