As filed with the Securities and Exchange Commission on November 2, 2001
Registration No. 333-71564
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------
VIRTUAL ACADEMICS.COM, INC.
(Name of Small Business Issuer in its Charter)
Delaware 8299 75-2228820
---------------------------- ---------------------------- -------------------
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Classification Code Number) Identification No.)
Organization)
6421 Congress Avenue, Suite 201
Boca Raton, Florida 33487
(561) 994-4446
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(Address and Telephone Number of Principal Executive Offices)
6421 Congress Avenue, Suite 201
Boca Raton, Florida 33487
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(Address of Principal Place of Business or Intended Principal Place of Business)
Steven M. Bettinger
Chief Executive Officer and President
6421 Congress Avenue, Suite 201
Boca Raton, FL 33487
(561) 994-4446
---------------------------------------------------------
(Name, Address and Telephone Number of Agent for Service)
Copies to:
Nina S. Gordon, P.A.
Broad and Cassel
201 South Biscayne Blvd., Suite 3000
Miami, Florida 33131
(305) 373-9400
Approximate Date of Commencement of Proposed Sale to the Public: As soon as
practicable after the effective date of thisRegistration Statement.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If this is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as SEC, acting pursuant to said Section 8(a), may
determine.
PROSPECTUS
SUBJECT TO COMPLETION DATED NOVEMBER 2, 2001
1,870,000 Shares of Common Stock
VIRTUAL ACADEMICS.COM, INC.
We are registering 1,870,000 shares of common stock held by
unaffiliated third parties.
We will not receive any proceeds from the sale of the 1,870,000 shares
of common stock listed above. We will pay our out-of-pocket expenses, legal and
accounting fees, and expenses incurred in registering these shares for sale.
The stockholders named in this prospectus may offer and sell these
shares at any time using a variety of different methods. The actual number of
shares sold and the prices at which the shares are sold will depend upon the
market price at the time of those sales; therefore, we have not included in this
prospectus information about the price to the public of the shares or the
proceeds to the selling stockholders.
Our common stock is quoted on the OTC Bulletin Board under the symbol
"VADC.OB" On October 8, 2001, the last reported price for our common stock on
the OTC Bulletin Board was $0.90 per share.
You should carefully consider the section titled "Risks of Investing in
Virtual Academics Shares" beginning on page 3 of this prospectus.
------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
------------------------------------
The date of this prospectus is November __, 2001
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------------------------------------
The information in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
Table of Contents
Page
SUMMARY.......................................................................1
RISKS OF INVESTING IN VIRTUAL ACADEMICS SHARES................................3
We have previously experienced losses and may not be able to
operate profitably in the future............................3
Our common stock is listed on the OTC Bulletin Board and is not
actively traded, with the result that the trading price
can be strongly affected by various factors.................3
Our financial performance depends in part on our ability to
increase awareness of the programs offered by us among
adult students and corporate employees, and we may not
be successful in doing so...................................3
We cannot adjust expenses for any particular quarter in response
to revenue shortfalls.......................................4
We operate in a highly competitive market with rapid technology
changes, and we may not have the resources needed to
compete successfully........................................4
Virtual Academics depends on its schools' government authorizations
to operate, and the failure to maintain those
authorizations could prevent Virtual Academics from
operating its current business..............................4
The loss of the services of one or more of our key personnel could
disrupt our operations and damage our ability to
grow our business...........................................5
Purchasers of our shares will not have significant voting power
because management will maintain voting control
after this offering.........................................5
FORWARD-LOOKING STATEMENTS....................................................5
USE OF PROCEEDS...............................................................5
DIVIDEND POLICY...............................................................5
PRICE RANGE OF OUR COMMON STOCK...............................................6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS............................................6
ABOUT VIRTUAL ACADEMICS......................................................10
MANAGEMENT...................................................................20
PRINCIPAL STOCKHOLDERS.......................................................23
SELLING StockholderS.........................................................24
CERTAIN TRANSACTIONS.........................................................25
OUR SECURITIES...............................................................26
SHARES ELIGIBLE FOR FUTURE SALE..............................................27
-i-
Table of Contents
(continued)
Page
HOW THE SHARES MAY BE DISTRIBUTED............................................28
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES..........................................29
LEGAL MATTERS................................................................29
EXPERTS 30
WHERE YOU CAN FIND MORE INFORMATION..........................................30
CONSOLIDATED FINANCIAL STATEMENTS...........................................F-1
-ii-
SUMMARY
Virtual Academics
Through our subsidiaries, Virtual Academics.com, Inc. is engaged in the
online distance learning industry with a focus on the international, mid-career
adult and corporate training markets. Our management has been engaged in this
business since 1993, through various predecessor entities. We own and operate an
online distance learning university and nutrition academy that offers licensed
certificate and degree programs in a variety of concentrations to students in
over 80 countries worldwide. We are licensed by the State Education Departments
of the States of Alabama and Florida and recognized by the provincially run
education agencies of China. In addition to online training, we develop wireless
applications for schools and enterprise companies. Virtual Academics
international educational portal is located at www.virtualacademics.com. None of
the information on our website should be considered included in or incorporated
into this prospectus.
Virtual Academic's History
Virtual Academics began operating in the online distance learning
industry in December 1999, when Steven M. Bettinger and Robert K. Bettinger
transferred their interests in International Educational Group, LLC and its
subsidiaries, Barrington University, Inc. and Spanish University of America
Foundation, Inc., in exchange for approximately 66 2/3% of the then outstanding
common stock received from Virtual Academics' former principal stockholder.
Virtual Academics was incorporated in Delaware in 1988, but had no significant
business operations until the transaction in 1999. Our executive offices are
located at 6421 Congress Ave, Suite 201, Boca Raton, Florida 33487 and our
telephone number is (561) 994-4446.
Summary Consolidated Financial Information
The following is a summary of our consolidated financial statements,
which are included elsewhere in this prospectus, and should be read in
conjunction with those financial statements.
For the years ended June 30,
-------------------------------------------------
2001 2000
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Statement of Operations Data:
Net revenues.......................... $ 2,632,037 $ 1,150,664
Operating expenses.................... 2,517,403 1,572,373
-------------------- --------------------
Income (loss) from operations......... 114,634 (421,709)
--------------------
--------------------
Net income (loss)..................... 322,766 (408,546)
==================== ====================
Share data:
Net income (loss) per common shares -
basic and diluted................... $ 0.04 $ (0.06)
==================== ====================
Weighted average number of common
shares outstanding.................. 7,786,459 6,804,506
==================== ====================
1
As of June 30,
-------------------------------------------------
2001 2000
-------------------- --------------------
-------------------- --------------------
Balance Sheet Data:
Cash and cash equivalents............. $ 1,775,206 $ 465,683
Total current assets.................. $ 4,065,236 $ 1,562,815
Total assets.......................... $ 4,670,901 $ 1,934,433
Total current liabilities............. $ 3,157,262 $ 1,264,185
Total liabilities..................... $ 3,513,467 $ 1,724,691
Stockholders' equity.................. $ 1,157,433 $ 209,742
2
RISKS OF INVESTING IN VIRTUAL ACADEMICS SHARES
You should carefully consider the risks and uncertainties described
below before making an investment decision. Our business, financial condition
and operating results could be adversely affected by any of the following
factors, which could cause the trading price of our common stock to decline, and
you could lose part or all of your investment. Additional risks and
uncertainties not now known to us, or that we currently think are immaterial,
may also impair our business operations.
We have previously experienced losses and may not be able to operate
profitably in the future.
For the year ended June 30, 2001, we reported net income of $322,766
after experiencing a net loss of $408,546 for the year ended June 30, 2000. As
of June 30, 2001, we had an accumulated deficit of $198,115. There can be no
assurance that we will continue to operate profitably in the future. Losses in
the future could materially and adversely affect our business.
Our common stock is listed on the OTC Bulletin Board and is not
actively traded, with the result that the trading price can be strongly affected
by various factors.
Few shares of our common stock trade on the OTC Bulletin Board on any
given day. Therefore, the trading price of our common stock has been, and in the
future is expected to be, strongly affected by a number of factors, including:
o current and anticipated results of operations;
o changes in our business, operations or financial results;
o general market and economic conditions;
o the number of shares outstanding and freely tradable; and
o the number of market makers in our stock.
The trading price of our common stock can be affected if our
stockholders sell substantial amounts of our common stock, including shares
being registered in this offering as well as those issued upon the exercise of
outstanding options. If that occurs, the market price of our common stock is
likely to fall. In addition to 8,604,617 shares of common stock currently
outstanding, our officers, directors, employees and consultants own options to
purchase up to 671,000 additional shares of common stock. As of June 30, 2001,
options exercisable for a total of 103,333 shares had vested.
Our financial performance depends in part on our ability to increase
awareness of the programs offered by us among adult students and corporate
employees, and we may not be successful in doing so.
Increased awareness of the programs offered by us among working adult
students and corporate employees seeking continued education is critical to the
continued acceptance and growth of our programs. If Virtual Academics is unable
to increase awareness of the programs we offer, this could limit our enrollments
and negatively impact our ability to increase revenues and maintain
profitability.
3
The following are some of the factors that could prevent us from
successfully increasing awareness of our programs:
o customer dissatisfaction with our programs and services;
o the emergence of more successful competitors;
o performance problems with our online systems; or
o our failure to maintain or expand our brand.
We cannot adjust expenses for any particular quarter in response to
revenue shortfalls.
A significant amount of our operating costs and expenses are fixed over
the short-term, with faculty compensation and allocated inter-group expenses
representing the only costs that vary directly with revenue. As a result, if
revenue for a particular quarter is below expectations, we could not
proportionately reduce operating expenses for that quarter. Any revenue
shortfall would therefore have an adverse effect on our expected operating
results for that quarter.
We operate in a highly competitive market with rapid technology
changes, and we may not have the resources needed to compete successfully.
Online education is a highly fragmented and competitive market that is
subject to rapid technological change. Competitors vary in size and organization
from traditional colleges and universities, many of which have some form of
online education programs, to for-profit schools, corporate universities, and
software companies providing online education and training software. We also
rely, in some part, on third-party technology, particularly with respect to our
wireless operations. We expect the online education and training market to be
subject to rapid changes in technologies. We may not have the resources
necessary to compete with the rapidly changing technologies being developed by
our competitors, and our success will depend on our ability to adapt to these
changing technologies.
Virtual Academics depends on its schools' government authorizations to
operate, and the failure to maintain those authorizations could prevent Virtual
Academics from operating its current business.
Barrington University operates under a license granted by the Alabama
Department of Education. Additionally, the Academy of Health Science and
Nutrition, Inc. operates under a provisional license granted by the Florida
Department of Education and Wuhan Barrington College operates under an
authorization by the Hubei TV University Province Labor Union Branch. As a
result, Virtual Academics depends on its respective schools to remain in good
standing with the respective government agencies. Loss of any of these
authorizations to operate could prevent us from operating our business. Further,
we are in the process of completing our application for full licensure from the
State of Florida for the Academy of Health Science and Nutrition, Inc. Failure
to receive this license could prevent us from continuing the programs now
offered by the Academy of Health Science and Nutrition, Inc.
4
The loss of the services of one or more of our key personnel could
disrupt our operations and damage our ability to grow our business.
Our performance is substantially dependent on the continued services
and on the performance of our executive officers. The loss of the services of
Steven M. Bettinger, our president and chief executive officer, or Robert K.
Bettinger, our chairman of the Board of Directors, could have a material adverse
effect on our business, results of operations or financial condition.
Purchasers of our shares will not have significant voting power because
management will maintain voting control after this offering.
Our executive officers and directors beneficially own as a group
approximately 46% of our outstanding common stock, and Steven M. Bettinger and
Robert K. Bettinger are our largest shareholders. As a result, management will
be able to control all matters requiring stockholder approval, including the
election of directors and approval of significant corporate transactions. This
control may have the effect of delaying or preventing a change in control of
Virtual Academics.
FORWARD-LOOKING STATEMENTS
Certain important factors may affect our actual results and could cause
those results to differ materially from any forward-looking statements made in
this prospectus or that are otherwise made by us or on our behalf.
"Forward-looking statements" are not based on historical facts and are typically
phrased using words such as "may," "will," "expect," "believe," "anticipate,"
"intend," "could," "estimate" or "continue" and similar expressions or
variations.
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
any forward-looking statements. Differences in actual results may be caused by
factors such as those discussed in "Risks of Investing in Virtual Academics
Shares" as well as those discussed elsewhere in this prospectus and in our
filings with the SEC.
Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee that they will be
achieved. Except as we are required by applicable law, we do not intend to
update any of the forward-looking statements to conform these statements to
actual results.
USE OF PROCEEDS
We will receive no proceeds from the shares being offered by the
selling stockholders under this prospectus.
DIVIDEND POLICY
We have never paid any cash dividends on our common stock. We do not
currently anticipate paying cash dividends for the foreseeable future, but
instead we plan to retain any earnings to fund our growth. The decision to pay
dividends on our common stock in the future will depend on our ability to
generate earnings, our need for capital, our overall financial condition and
other factors that our Board of Directors may consider to be relevant.
5
PRICE RANGE OF OUR COMMON STOCK
Our common stock has been traded in the over-the-counter market and
quoted on the OTC Bulletin Board under the symbol "VADC.OB" since January 4,
2000. The reported high and low sale prices for the common stock are shown below
for the periods indicated. The prices reflect inter-dealer prices, without
retail mark-up, markdown or commissions, and may not always represent actual
transactions.
Quarter Ended High ($) Low ($)
--------------------------------------- --------------- ---------------
September 30, 2001 2.70 0.85
June 30, 2001 3.15 1.50
March 31, 2001 2.72 1.19
December 31, 2000 2.44 0.38
September 30, 2000 3.50 1.34
June 30, 2000 5.75 1.50
March 31, 2000(1) 7.38 4.25
_________________________
(1) Beginning January 4, 2000
As of October 2, 2001, there were approximately 956 record owners of
our common stock.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The following discussion and analysis should be read in conjunction
with the financial statements appearing elsewhere in this prospectus. These
financial statements reflect our consolidated financial position and operations
for the fiscal year ended June 30, 2001.
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.
Our branch school in China, Wuhan Barrington College, was approved by
the Hubei Province Education Department on November 3, 2000 - File [2000]#115.
This Wuhan Barrington College is licensed in cooperation with the Hubei Union
University, which now has over 2,000 students. We also have established a dual
degree program with the Universidad Yacambu of Lara Venezuela to offer Spanish
language degree programs. With this agreement, we will now have governmental
approved curriculum in Spanish to market to the global Hispanic community. In
addition to degree completion programs, we are focusing on training corporate
personnel, continuing education courses and wireless technology for education,
which we believe is a major growth area.
6
Additionally, we are currently developing affordable wireless platforms
to provide companies with quality training services for their employees. Our
staff will work directly with human resource departments to ensure the training
is scalable and applicable to their employees' needs. We will enable our
wireless application protocol technology to provide seamless information to all
employees, regardless if they are at home, in the office or out in the field.
Through a pilot program, we are currently offering a limited number of our
business courses through the wireless Palm Pilot and other wireless application
protocol enabled equipment. This technology will provide students the means to
post messages, communicate with instructors and fellow students, complete exams,
and to review syllabi and grades.
We have received full licensure from the Alabama Department of
Education for Barrington University, which is owned by Virtual Academics.com,
Inc.
Seasonality in Results of Operations
We experience seasonality in our results of operations primarily as a
result of changes in the level of student enrollments and course completion.
While we enroll students throughout the year, average enrollments and course
completion and related revenues generally are lower in December and January than
in 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.
Results of Operations
Year Ended June 30, 2001 compared to Year Ended June 30, 2000
Revenues
For fiscal 2001, we had a 128.7% increase in earned revenues to
$2,632,037 from $1,150,664 for the fiscal year ended June 30, 2000. The increase
in revenues is due primarily to an increase in the number of students that have
been registered. Substantial increases in revenue and profitability can be
achieved through modest improvements in student course completion rates.
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
7
telephone call from a school counselor if they have not completed courses. 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.
For the year ended June 30, 2001, unearned revenues' activity consisted of the
following:
Unearned revenue at the beginning of fiscal 2001: $1,444,665
Tuition from students during fiscal 2001: 4,438,369
Earned revenue: (2,632,037)
------------
Unearned revenue at the end of fiscal 2001: $3,250,997
============
Instruction and Educational Support
Instruction and educational support expenses consist primarily of
student supplies such as textbooks as well as postage and shipping, credit card
fees, computer related expenses, and printing fees. For fiscal 2001,
instructional and educational support expenses increased by 66% to $423,951 or
16% of net revenues as compared to $254,832 or 22% of net revenues for fiscal
2000. The increase in instructional and educational support expenses was
attributable to Virtual Academics' growth as well as the increased cost of
postage and delivery incurred for shipping books and supplies to our foreign
students and increased credit card fees due to the fact that we encourage
students to join our tuition payment program whereby students pay monthly by
credit card. Instructional and educational support expenses decreased as a
percentage of net revenue due to the fact that computer-related expenses
remained relatively stable in relation to the increase in net revenues.
Selling and Promotion
Selling and promotion expense consists primarily of recruiting fees and
advertising. For fiscal 2001, selling and promotion expenses increased by 14% to
$426,831 or 16% of net revenues as compared to $374,943 or 32% of net revenues
for fiscal 2000. The increase in selling and promotion expenses is attributable
to our increased advertising efforts. For fiscal 2001, advertising expense
amounted to approximately $218,300 as compared to $59,500 for fiscal 2000.
Additionally, our recruiting fees decreased to $163,458 for fiscal 2001 from
$216,300 for fiscal 2000. The decrease is attributable to our decreased use of
recruiters to obtain students. The decrease in selling costs as a percentage of
revenue is due to the increased level of sales. Although 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 2002.
General and Administrative Expenses
General and administrative expenses, which includes payroll,
professional fees, rent, travel and entertainment, insurance, bad debt, and
other expenses, were $1,666,621 for fiscal 2001 as compared to $942,598 for
fiscal 2000. This amounted to 63% of net revenues for fiscal 2001 as compared to
82% for fiscal 2000. The increase was primarily due to three factors:
8
First, personnel-related costs increased by 135% to $596,123 for fiscal
2001 from $280,345 for the fiscal 2000. This reflected a growth in the number of
employees from five at June 30, 2000 to 15 at June 30, 2001 as a result of the
growth that we are experiencing. Our staffing increases were needed to handle
student relations, develop new programs, perform administrative tasks and
develop our wireless technologies. Second, we incurred bad debt expense of
$448,481 for fiscal 2001 as compared to $43,764 for fiscal 2000. The increase in
bad debt expense is primarily due to the following two factors: (1) the dramatic
growth that Virtual Academics experienced in fiscal 2001 and (2) increasing
delinquency of certain student accounts.
Interest Income
Interest income was $93,451 for fiscal 2001 as compared to $7,031 for
fiscal 2000. In connection with the collection of the $550,000 promissory note
related to the private placement, we collected approximately $54,000 of interest
income. We currently invest our excess cash balances in primarily two
interest-bearing accounts with two financial institutions.
As a result of the foregoing factors, as well as the recognition of the
deferred tax benefit of approximately $115,000, we recognized net income of
$322,766 or $.04 per share for fiscal 2001 as compared to a net loss of
$(408,546) or $(.06) per share for fiscal 2000.
Liquidity and Capital Resources
As of June 30, 2001, we had $1,775,206 in cash and equivalents on hand
to meet our obligations, which represented an increase of $1,309,523 from the
beginning of fiscal 2001.
In February 2000, we consummated a private placement to an investor of
2,200,000 shares of common stock. This private placement raised a total of
$990,000. Of the 2,200,000 shares sold, 1,100,000 shares were sold for $440,000
in cash and the balance of the shares were sold for a $550,000, 7% unsecured
promissory note, which was paid in May 2001. All of the funds from this private
placement will be used as working capital.
For fiscal 2001 and 2000, we had a positive cash flow from operating
activities of $820,818 and $115,932, respectively. We expect that our operations
will continue to provide positive cash flows.
We feel that with continued positive cash flow, we are well capitalized
to fund our operations over the ensuing 12-month period, including the expected
growth during this period.
Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 141, Business Combinations, and
No. 142, Goodwill and Other Intangible Assets. Statement No. 141 is effective
for all business combinations initiated after June 30, 2001, while Statement No.
142 is effective for fiscal years beginning after December 15, 2001. Under the
new rules, goodwill and intangible assets deemed to have indefinite lives will
no longer be amortized but will be subject to annual impairment tests in
accordance with Statements 141 and 142. Other intangible assets will continue to
9
be amortized over their useful lives. Virtual Academics will apply the new rules
on accounting for goodwill and other intangible assets beginning in the first
quarter of 2002. Application of the non-amortization provisions of Statement No.
142 are not expected to have a material effect on Virtual Academics' financial
position or results of operations.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial
Statements, which was adopted in fiscal 2001. SAB 101 did not have a material
effect on our financial position or results of operations in fiscal 2001.
ABOUT VIRTUAL ACADEMICS
Background
Through our subsidiaries, Virtual Academics is engaged in the online
distance learning industry with a focus on the international, mid-career adult
and corporate training markets. Our management has been engaged in this business
since 1993, through various predecessor entities. We own and operate an online
distance learning university and nutrition academy that offers licensed
certificate and degree programs in a variety of concentrations to students in
over 80 countries worldwide. We are licensed by the State Education Department
of the State of Alabama, have received a provisional license from the Florida
State Board of Nonpublic Career Education, and are recognized by the
provincially run education agencies of China. In addition to online training, we
develop wireless applications for schools and enterprise companies. Virtual
Academics' international educational portal is located at
www.virtualacademics.com. None of the information on our website should be
considered included in or incorporated into this prospectus.
Strategy
Our goal is to strengthen our position within the rapidly growing
online distance education industry, estimated at $5.5 billion by Piper Jaffray,
who is projecting a $50 billion industry by 2005. Key components of our strategy
currently include:
Marketing Relationships with Business Entities. We have realized growth
from continuing marketing relationships with businesses that reimburse employees
to take educational courses, including:
United States Postal Service;
Chase Manhattan Bank;
Intel;
Lucent; and
Chrysler Corp.
Although these employees represent a small part of our current student
population, we expect this segment to be a growing part of the student
population in the future.
Typically, we provide customized distance learning educational services
through our partners or to the workforce of its partners. Frequently, our
corporate partners sponsor students by paying directly or reimbursing their
employees' educational efforts.
10
Forge Strategic Alliances with State-owned Educational Institutions
Worldwide. Through alliances such as an agreement with Renmin University, Peking
University and other universities in the Peoples Republic of China, we offer
dual-degree programs online throughout various countries. We anticipate growth
through this and other initiatives in Asia. By means of an agreement with
Yacambu and Santa Maria Universities of Venezuela, we plan to expand into Latin
America.
Expand Global Enrollment and Recruitment Program. We intend to increase
our enrollment through a team of representatives. The representatives are
currently based in areas characterized by what management believes to be a large
number of students, including:
Canada;
Malaysia;
Argentina;
Spain;
China;
Japan;
Mexico;
Korea;
Brazil; and
Venezuela
We pay each representative a referral fee for every student enrolled in
one of our courses. We intend to continue to develop relationships with
additional representatives in geographic areas where we are not currently
represented.
Expand through Acquisition. We are currently seeking to acquire
traditional educational institutions so that we may offer their traditional
curricula online. We will consider acquisitions of carefully selected
Internet-based educational institutions. While we continually evaluate certain
acquisition opportunities, we are not currently party to any definitive
agreements.
Provide Turnkey Wireless Solutions. Using resources obtained through
research and development and certain partnerships, our wireless division has the
ability to provide turnkey wireless services to schools and enterprise
businesses that desire to expand their technology and presence.
Market
The United States and international education market may be divided
into the following segments:
o Kindergarten through 12th grade (and overseas counterparts) schools;
o Vocational and technical training schools;
o Workplace and consumer training; and
o Higher education, degree-granting colleges and universities.
11
We operate in the higher education and workplace and consumer training
segments. The U.S. Department of Education estimated that adults over 24 years
of age comprised approximately 6.1 million, or 39.3%, of the 15.5 million
students enrolled in higher education programs in 1998. Currently, the U.S.
Bureau of Census estimates that approximately 76% of students, over the age of
24, work while attending school. The Department of Education estimates that by
the year 2003, the number of adult students over the age of 24 will remain
approximately the same at 6.1 million, or 40.1%, of the 15.2 million students
projected to be enrolled in higher education programs.
We serve the needs of mid-career, working adults, American and foreign,
by providing:
o Convenient access to a learning environment (primarily through our
website);
o Degree programs offered by licensed institutions that can be completed
in a reasonable amount of time for a reasonable cost;
o Programs that provide knowledge and skills with immediate practical
value in the workplace;
o Education provided by qualified faculty members with current practical
experience in fields related to the subjects they
instruct; and
o Learning resources available electronically to all students in many
languages regardless of geographical location.
We believe that the requirements of the adult working population
represent a significant market opportunity to higher education institutions that
can offer programs that meet these unique needs.
Most colleges and universities feature a more capital-intensive
teaching and learning structure characterized by:
o Dormitories, student unions and other significant plant assets to
support the needs of students;
o Fully configured library facilities and related full-time staff;
o A high percentage of full-time tenured faculty with doctoral degrees;
and
o An emphasis on research and the related staff and facilities.
In addition, the majority of colleges and universities provide the bulk
of their educational programming from September to mid-December and from
mid-January to May. As a result, most full-time faculty members only teach
during that limited period of time. While this structure serves the needs of the
full-time 18- to 24-year-old student, it limits the educational opportunity for
working adults who must delay their education for up to five months during these
spring, summer and winter breaks. In addition, this structure generally requires
working adults to attend one or more courses three times a week, commute to a
central site, take work time to complete course requirements and, in
undergraduate programs, participate passively in an almost exclusively
lecture-based learning format primarily focused on a theoretical presentation of
12
the subject matter. For the majority of working adults, earning an undergraduate
degree in this manner would take seven to ten years. In recent years, many
traditional colleges and universities have begun offering more flexible programs
for working adults, although their focus appears to remain on 18- to 24-year-old
students.
Virtual Academics Entities
We own and operate several educational entities, including:
o Virtual Academics.com - www.virtualacademics.com is a web site through
which all of our products, services and alliances can
be accessed.
o Barrington University - Founded in 1991, Barrington is licensed by the
State of Alabama Department of Education and offers
Bachelor and Master degrees via the traditional and wireless Internet.
o Academy of Health Science and Nutrition, Inc.- Founded in 2001, the
Academy was granted a provisional license by the Florida
State Board of Nonpublic Career Education and offers certificate
training in nutrition awareness via the traditional and
wireless Internet.
o VADC Wireless- Founded in 2001, we have developed wireless solutions
for universities and enterprise businesses.
Applications include the Campus Concierge, which enables schools to
create a wireless environment for their administration,
students and beyond. Additional applications include the Real Estate
Concierge, which enables the Real Estate professional
community to have wireless access to multiple listing services.
See www.vadcrealty.com.
Academic Programs
We offer several specialty academic programs, including:
Chinese MBA. Offered in conjunction with Renmin University, the third
largest university in the People's Republic of China, our programs are dual
degrees for business school graduate students who desire degrees from an
American university to complement their degrees from Chinese universities.
Spanish MBA. Offered in Spanish in conjunction with Jakambu University
through Barrington University, the program awards a degree to Spanish-speaking
students who desire a degree from an American university to complement their
degrees from Spanish universities.
Certification Programs. We offer a complete certificate-training
library for the working adult, including certification in the following areas:
Windows 98;
HTML 4;
Java;
Windows NT 4;
Windows NT MCSE;
Microsoft Exchange Server;
Visual C++; and
Visual Basic.
13
Teaching Structure
VADC's teaching structure has the following major characteristics:
Tuition. All of our students must pay a registration fee to cover the
costs of books, study manuals and other materials necessary for their studies.
Generally, registration fees are approximately $450 and tuition fees range from
$850 to $6,500 per program. Scholarships and discounts are available to certain
students who demonstrate financial need. Frequently, tuition qualifies as a
tax-deductible expense incurred as part of an effort to maintain or improve
job-related skills.
Curriculum. The standardized curriculum for each program is designed to
provide students with specified levels of knowledge and skills regardless of
delivery method or location. The curriculum provides for the achievement of
specific educational goals and is designed to integrate academic theory and
professional practice with a focus on application to the workplace. Although we
are responsible for academic requirements and educational goals, students and
their employers often provide input to our faculty in designing curricula, and
class projects are typically based on issues relevant to the companies and the
human resource departments of companies that employ our students.
Faculty. Faculty applicants must possess an earned master's degree from
an accredited institution and have a minimum of five years' professional
experience in a field related to the subject matter in which they seek to
mentor. To help promote quality delivery of the curricula, faculty members are
required to:
o Complete an initial assessment conducted by staff and faculty;
o Complete a series of certification workshops related to grading,
teaching, oversight of study group activities, adult
learning theory, and use of the Internet;
o Participate in ongoing development activities; and
o Receive ongoing performance evaluations by students, peer faculty and
staff.
The results of these evaluations are used to establish plans to improve
individual faculty performance and to determine continued eligibility of faculty
members to instruct.
Our faculty is comprised of approximately 25 part-time persons. Most
faculty members are recruited as the result of referrals from faculty, students
and corporate contacts. All part-time faculties are contracted with on a
course-by-course basis.
14
Online Chat. Our students are encouraged to participate in an
interactive live-chat email center, which provides a forum for potential
candidates or students to discuss any aspect of the educational process. This
feature is available 24-hours a day, seven days a week.
Interactive Learning. Courses are designed to combine individual and
group activity with interaction between and among students and the instructor.
The curriculum requires a high level of student participation in order to
enhance the student's ability to complete the courses.
Learning Resources. Students and faculty members are provided with
electronic and other learning resources for their information needs. These
extensive electronic resources minimize our need for capital-intensive library
facilities and holdings.
Low Attrition Rate. The Virtual Academic schools currently have less
than a 15% student dropout rate, which management believes is lower than that
experienced by traditional universities. We feel that our customer service and
our targeted client, the mid-career adult, are the reasons for this success.
Academic Quality. Any student having earned a high school diploma,
General Equivalency Diploma or international equivalent may apply to earn any
Virtual Academic certificate or enter into a bachelor's degree program. Any
student having earned a Bachelor's degree or international equivalent, or
registered in one of the Virtual Academic universities' combination
Bachelor's/Master's degree programs may apply to enter into any Virtual Academic
master's degree program.
Other Operations
Wireless Technologies. We recognized very early on that wireless
technology would serve as an effective agent for communication and the delivery
of information. In doing so, we have recently allocated resources to develop a
business model to best capitalize on this burgeoning technology. We have split
our wireless business into three distinct areas: wireless applications,
enterprise solutions, and wireless training. Rather than focus strictly on
proprietary wireless applications, or third-party development, we are attempting
to position ourselves as a premier end-to-end wireless solutions provider. To
meet the demands of these new markets, in the fourth quarter of fiscal 2001, we
have enhanced our operations by upgrading to carrier-grade wireless technology
and industry-leading hardware, have enhanced security measures, and have hired
qualified information technology professionals to properly design and implement
customized wireless solutions.
We believe that the suite of services currently being developed by us
are diversified enough to meet the demands of any size client. Rather than limit
our targeted market and services to strictly mid-to-large size companies, we
have decided to offer affordable wireless services and solutions to any size
client seeking to go wireless.
The following describes some of the main applications we are currently
developing:
Campus Concierge - Our wireless campus solution, "Campus Concierge"
provides any size school with the wireless faculty and student services they
need. By integrating our Campus Concierge in existing systems, schools can now
increase their reach by extending services beyond campus boundaries.
15
By simply using their handheld wireless devices, students can access grades and
syllabi, contact professors, learn of campus events, and access course content.
Faculty and staff also may access important department information, interact
with students, and gain mobile access to their personal information. In
addition, the Campus Concierge can integrate with existing campus security and
police, and emergency services for one-touch communication, and thus increasing
campus safety.
Real Estate Concierge- Our wireless Real Estate Concierge application
offers real-time access to the Multiple Listing Service database for real estate
agents to use while in the field. This service allows real estate agents to have
the most current information on the Multiple Listing Service listings without
having to return to their computer, or otherwise connect with a host database.
In addition, the Real Estate Concierge offers a client management program to
organize contacts.
Convention Concierge- We believe that the convention market is a
significant and underserved market. We are developing a working model that will
allow the convention attendee to have access to all of the exhibitors, plus
various points-of-interest in the host city-all via a wireless handheld device.
Instead on having to carry cumbersome brochures, the attendee can now access a
database with all the exhibitors and their locations. Beyond the convention
walls, the Convention Concierge provides a complete search reference and guide
to various highlights within the host city.
The wireless products discussed above are currently being developed and
in the testing stage. We currently have not generated any revenues from these
products and there can be no assurances that we will be able to do so in the
future.
Competition
General. The market for online distance learning services is relatively
new, intensely competitive, rapidly evolving and subject to rapid technological
change as the market is characterized by an increasing number of entrants that
have introduced or developed products and services similar to those offered by
us. We expect competition not only to persist, but also to increase. Increased
competition may result in course price reductions, reduced margins and loss of
market share. Competitors fall into several categories, including other online
distance learning providers, traditional "snail mail" correspondence courses and
traditional universities and colleges expanding their course offerings online.
Several current and potential competitors have longer operating histories,
larger established student bases, greater name recognition, longer relationships
with students and the public and significantly greater financial, technical,
marketing and public relations resources.
Admissions Standards. To gain admission to the undergraduate programs,
applicants must have a high school diploma or General Equivalency Diploma and
satisfy certain minimum grade point average, employment and age requirements.
Additional requirements may apply to individual programs. Students already in
undergraduate programs elsewhere may petition to be admitted on provisional
status if they do not meet certain admission requirements.
To gain admission to the graduate programs, students must have an
undergraduate degree from an accredited college or university or international
equivalent and satisfy minimum grade point average, work experience and
employment requirements.
16
Additional requirements may apply to individual programs. Students in graduate
programs may petition to be admitted on provisional status if they do not meet
certain admission requirements.
Academic Accountability. We utilize an institution-wide system for the
assessment of the educational outcomes of our students. The information
generated is used to improve the quality of the curriculum, the instruction and
the teaching/learning model. Our undergraduate and graduate students complete a
comprehensive cognitive (core degree subject matter) and affective (educational,
personal and professional values) assessment prior to and upon the completion of
their core degree requirements.
Students in our programs evaluate both academic and administrative
quality. This evaluation begins with a registration survey and continues with
the evaluation of the curriculum, faculty, delivery method, instruction and
administrative services upon the conclusion of each course. The evaluation also
includes a survey of a random selection of graduates 2-3 years following their
graduation. The results provide an ongoing basis for improving our approach to
teaching, our selection of educational programs, and our instructional quality.
Customers
Our customers consist of working adult students, colleges and
universities, governmental agencies and employers. The following is an
approximate breakdown of students by the level of program they are seeking, as
of September 1, 2001:
Combined bachelor's/master's program 12%
Master's degree 46%
Bachelor's degree 41%
Certificate level 1%
----
Total programs 100%
====
Based on surveys we perform, the average age of our student is 35 years
old and approximately 65% of our students are male and 35% are female.
Additionally, our average student has some college experience and averages
approximately seven years of work experience.
Marketing
To date, the bulk of our marketing efforts have revolved around word of
mouth efforts. We also have been advertising in USA Today, Business Week and
other traditional print publications. In addition, we market ourselves over the
Internet through techniques to increase the number of times our website is
selected by search engines.
Employees
As of September 1, 2001, we had approximately 15 full-time employees
and 25 part-time faculty members. None of our employees are represented by a
labor union. We have not experienced any work stoppages and generally believe
that our relationship with our employees is good.
17
Government Regulation
General. With the exception of state licensing regulation described
below, we are subject to little governmental regulation other than the
securities laws and regulations applicable to all publicly owned companies and
laws and regulations applicable to businesses generally. Relatively few laws or
regulations are currently directly applicable to access to, or commerce on, the
Internet. Due to the increasing popularity and use of the Internet, it is likely
that a number of laws and regulations may be adopted at the local, state,
national or international levels with respect to the Internet. Any new
legislation could inhibit the growth in use of the Internet and decrease the
acceptance of the Internet as a communications and commercial medium, which
could in turn decrease the demand for our services or otherwise have a material
adverse effect on our future operating performance.
Licensing. Barrington University is licensed by the State Education
Department of Alabama, which provides the basis for recognition and acceptance
by employers, other higher education institutions and governmental entities of
the degrees and credits earned by students. Barrington's license has been
accepted until June 2002. Additionally, the Florida State Board of Nonpublic
Career Education has granted us a provisional license through May 31, 2002 for
the Academy of Health Sciences and Nutrition, Inc. Under the provisional
license, we are permitted to begin official operations, advertise, solicit and
enroll students and collect fees. Each school seeking a regular license to
operate must submit to the State Board evidence of having met the state's
minimum requirements. The minimum requirements include, among other things:
o submission of a copy of the applicant's articles of incorporation;
o submission of the applicant's financial statements;
o establishing standard practices related to the instructional program;
o maintaining minimum standards for school operations;
o maintaining a qualified administrative staff and organization;
o developing training for school administrators; and
o developing student services.
Particularly with respect to distance education and correspondence
schools, an applicant will also have to provide copies of:
o the first 25% of lessons and an outline of the balance;
o an inventory of equipment and material to be provided to students;
o a detailed description of how each program will be conducted;
o if the retention rate is less than 20%, a description of the school's
retention policy; and
o if the placement percentage is less than 60%, a description of the
placement process and statistical placement information.
We are in the process of seeking full licensure from the Florida State
Board of Nonpublic Career Education for the Academy of Health Sciences. There
can be no assurances, however, that the Academy will be able to become fully
licensed.
18
Accreditation. Accreditation is a system for recognizing educational
institutions and their programs for performance, integrity and quality. In the
United States, this recognition comes primarily from regional associations.
Colleges and universities depend on accreditation in evaluating transfers of
credit and applications to graduate schools. Also, certain scholarship grants
are restricted to students attending institutions accredited by certain
associations.
Our schools are members of the International Association of
Universities and Schools, an international membership organization that is not
recognized by the United Sates Department of Education.
Description of Property
Our corporate headquarters are located at 6421 Congress Avenue, Suite
201, Boca Raton, Florida. This facility consists of approximately 5,000 square
feet of office space, leased from a non-affiliated third party at an annual rent
of approximately $39,000. The lease expires in July 2005. Additionally, we
maintain an office in Mobile, Alabama for administrative purposes and it
consists of approximately 1,500 square feet of office space, which we lease from
a non-affiliated third party.
Our Canadian operations maintain approximately 3,500 square feet of
space in Vancouver, British Columbia, which is paid for by our representative at
that location.
All of the foregoing facilities are in good condition and are adequate
for currently anticipated needs. We believe that in the event that the leases
with respect to any of the aforementioned facilities should not be renewed,
alternative space will be available at comparable rates.
Legal Proceedings
The Trade School Review Association filed a complaint against us on
July 3, 2001 in the Superior Court for the State of California for the County of
San Diego. The association alleges in its complaint that we have violated
California's Private Postsecondary and Vocational Education Reform Act of 1989,
California's false advertising statutes and California's Consumer Legal Remedies
Act and seeks an injunction against unlawful practices, disgorgement of profits,
restitution and attorneys' fees, all in unspecified amounts. We intend to
vigorously contest this lawsuit. In October 2001, we received a proposal from
the association regarding a possible settlement, to which we are currently
analyzing our response. Inasmuch as this matter is in its preliminary stages, we
are not able at this time to assess the likelihood of a favorable or unfavorable
outcome to the litigation or whether a settlement can be reached.
Other litigation is from time to time pending against us is in the
ordinary course of business and we believe this litigation will not have a
material adverse effect on our financial condition.
19
MANAGEMENT
Directors and Executive Officers
The following individuals currently serve as the directors and
executive officers of Virtual Academics.com:
Director
Name Age Position Since
---------------------- ----- ------------------------------------------------- --------
Steven M. Bettinger 30 Chief Executive Officer, President and Director 1993
Robert K. Bettinger 64 Chairman of the Board of Directors 1993
Steven E. Kincade 49 Director 2001
Andrew Lockwood 33 Director 2000
Jack P. Phelan 51 Director 2000
Steven M. Bettinger, 30 years old, has served as our Chief Executive
Officer, President and Director of Virtual Academics and our predecessor since
1993. Additionally, Steven M. Bettinger founded in 1999 and serves as an
executive officer and director of Continuing Care.com, a web portal developer
for senior living and the senior services industry. Steven M. Bettinger received
his B.S. in Business Administration with honors from Syracuse University. Steven
M. Bettinger is Robert Bettinger's son.
Robert K. Bettinger, 64 years old, has served as the Chairman of the
Board of Directors of Virtual Academics and our predecessor since 1993. Robert
K. Bettinger is also the President of Barrington University. Robert K. Bettinger
graduated with an education degree from Long Island University. Robert K.
Bettinger was a teacher, counselor and administrator in the New York public
school system from 1960 to 1977. Robert K. Bettinger is Steve M. Bettinger's
father.
Steven E. Kincade, 49 years old, has served as a director since April
2001. Since May 2001, Mr. Kincade has served as Vice President of Carrier
Management - Worldwide for Research in Motion Limited, a designer, manufacturer
and marketer of wireless solutions for the mobile communications workplace
located in Waterloo, Ontario, Canada. From July 1992 to May 2001, Mr. Kincade
was employed by Motorola as Vice President of Enterprise and Partner Solutions,
Vice President of Wireless Advanced Messaging and other positions. From February
1985 to June 1992, Mr. Kincade was employed by EDS/SHL Systemhouse, Inc. as Vice
President and General Manager.
Andrew Lockwood, 33 years old, has served as a director since April
2000. Since September 2001, he has served as President of the Shochet division
of BlueStone Capital Corp., a New York based investment broker and financial
services firm that acquired certain assets of Shochet Securities, Inc. in August
2001. From April 2000 to August 2001, Mr. Lockwood has served as Executive Vice
President--Business Development and General Counsel of Shochet Holding Corp. a
publicly traded financial services company based in South Florida. From April
1999 to April 2000, Mr. Lockwood was employed as an attorney in the corporate
and securities department of Atlas Pearlman, P.A., a law firm located in Fort
Lauderdale, Florida. From 1996 to March 1999, Mr. Lockwood was employed as an
attorney in the corporate securities department of Graubard, Mollen & Miller, a
law firm located in New York City. Mr. Lockwood received his J.D. from St.
20
John's University School of Law and his B.A. from Wesleyan University. Mr.
Lockwood is a member in good standing of each of the New York and Florida Bar
Associations.
Jack P. Phelan, 51 years old, has served as a director since March
2000. Since June 1998, Mr. Phelan served as President of Helios International
Asset Management, a registered investment advisor located in Boca Raton,
Florida. From January 1995 to June 1998, Mr. Phelan served as President of
Nicholson/Kenny Capital Management, an investment management firm located in
Boca Raton, Florida. Mr. Phelan is a member of the Association of Investment
Management Research, the New York Society of Security Analysis, the Financial
Analysts Society of South Florida, the International Society of Financial
Analysts and the International Association for Financial Planning. Mr. Phelan is
also a member of MENSA and the International Society of Philosophical Enquiry.
Directors are elected at each annual meeting of stockholders and hold
office until the next annual meeting of stockholders. Executive officers are
appointed by and serve at the discretion of the Board of Directors. The Board of
Directors held five meetings during fiscal 2001 and consented to approximately
10 corporate actions. There are no committees of the Board of Directors.
Summary Compensation Table
The table below sets forth information relating to the compensation
Virtual Academics paid during the past two fiscal years to Steven M. Bettinger,
the President and Chief Executive Officer. No other employee of Virtual
Academics received more than $100,000 during fiscal 2001.
Long-Term
Annual Compensation Compensation
---------------------------------------------------------------------------------------------------------------------
Restricted Securities
Other Annual Stock Underlying LTIP
Name and Principal Fiscal Salary Bonus Compensation Awards Options Payouts All Other
Position Year ($) ($) ($) ($) SAR (#) ($) Compensation
---------------------------------------------------------------------------------------------------------------------
Steven M.Bettinger, 2001 $195,461 -0- -0- $ 55,000(1) 100,000 -0- -0-
President and Chief
Executive Officer 2000 $133,692 -0- -0- $250,000(2) 100,000 -0- -0-
(1) Represents value of 100,000 stock options granted to Steven M. Bettinger at an exercise price of $0.55
(2) Represents value of 100,000 stock options granted to Steven M. Bettinger at an exercise price of $2.50
Employment Agreements
We were a party to an employment agreement with Steven M. Bettinger,
our President and Chief Executive Officer, which was entered into December 1,
1999 for a term of two years. The employment agreement provided for an annual
salary of $150,000, and a bonus determined in the sole discretion of our Board
of Directors. Effective January 1, 2001, the Board of Directors approved a new
two-year employment agreement, which provides an increase in salary for Steven
Bettinger to $250,000 per year and a bonus to be determined in the sole
discretion of our Board of Directors. In connection with his employment
agreements, Steven Bettinger was granted options under the 2000 Performance
Equity Plan to purchase a total of 200,000 (100,000 each year) shares of common
stock in fiscal 2001 and fiscal 2000 at an exercise price equal to the
21
fair value market value on the date of grant. These options vest 1/3 per year
beginning one year from the date of grant. Steven Bettinger's new employment
agreement entitles him to receive options to purchase 100,000 shares of our
common stock each year of employment at fair market value on the date of grant
and which vest 1/3 per year beginning one year from the date of grant. The
employment agreement provides for automatic 12-month renewals unless the
employment agreement is terminated by us or Steven Bettinger with 30 days' prior
written notice.
We were also a party to an employment agreement with Robert K.
Bettinger, our Chairman of the Board of Directors and Secretary, which was
entered into December 1, 1999 for a period of two years. The employment
agreement provided for an annual salary of $10,800 and a bonus determined in the
sole discretion of our Board of Directors. Effective January 1, 2001, our Board
of Directors approved a new two-year employment agreement, which provides for an
increase in salary for Robert Bettinger to $85,000 per year and a bonus to be
determined in the sole discretion of our Board of Directors. In connection with
his employment agreements, Robert Bettinger was granted options under the 2000
Plan to purchase a total of 200,000 shares (100,000 each year) of common stock
in fiscal 2001 and fiscal 2000 at an exercise price equal to the fair market
value on the date of grant. The options vest 1/3 per year beginning one year
from the date of grant. Robert Bettinger's new employment agreement entitles him
to receive options to purchase 100,000 shares of our common stock each year of
employment at fair market value on the date of grant and which vest 1/3 per year
beginning one year from the date of grant. The employment agreement provides for
automatic 12-month renewals unless the employment agreement is terminated by us
or Robert Bettinger with 30 days prior written notice.
Option Grants in Last Fiscal Year
The following table sets forth information concerning individual grants
of options made during fiscal 2001 to Steven M. Bettinger.
% of Total
Number of Shares Options Granted Exercise or
Underlying Options to Employees in Base Price Expiration
Name Granted (#) Fiscal Year ($/Sh) Date
-------------------------- ---------------------- ------------------- -------------- ------------------
Steven M. Bettinger 100,000 27.7% $0.55 December 2010
Stock Options Held at End of Fiscal 2001
The following table indicates the total number and value of exercisable
and unexercisable stock options held by Steven M. Bettinger as of June 30, 2001.
No options to purchase stock were exercised by Steven M. Bettinger in fiscal
2001.
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at Fiscal Year-End (#) Options at Fiscal Year-End ($)(1)
------------------------------------------ ---------------------------------------
Name Exercisable Unexercisable Exercisable(1) Unexercisable
--------------------------- -------------------- ------------------ ------------------ -----------------
Steven M. Bettinger 33,333 166,667 $46,466 $233,333
(1) Based on the OTC Bulletin Board last sales price for Virtual Academics'
common stock on September 1, 2001 in the amount of $1.40 per share.
22
2000 Performance Equity Plan
On February 1, 2000, we adopted and implemented the 2000 Performance
Equity Plan. The purpose of the 2000 Plan is to advance the interests of Virtual
Academics 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 Virtual Academics is largely
dependent. The 2000 Plan was effective as of February 1, 2000, and, unless
sooner terminated by our Board of Directors in accordance with the terms
thereof, shall terminate on February 1, 2010. The number of shares of common
stock that may be issued upon the exercise of options granted under the 2000
Plan is 1,000,000. As of June 30, 2001, options to purchase a total of 671,000
shares had been granted pursuant to the 2000 Plan, all of which are outstanding
and 103,333 of which are exercisable.
PRINCIPAL STOCKHOLDERS
The following table provides certain information regarding our common
stock beneficially owned as of September 15, 2001 by:
o each person who is known by us to own beneficially 5% or more of our
common stock;
o each of our executive officers and directors; and
o all of our executive officers and directors as a group.
In accordance with SEC rules, options or warrants not exercisable
within 60 days of the date of this prospectus are not considered part of the
holder's beneficial ownership. As of October 8, 2001, there were 8,604,617
shares of common stock outstanding. Unless otherwise stated, the address for
each stockholder is c/o Virtual Academics.com, Inc., 6421 Congress Ave., Suite
201, Boca Raton, Florida 33487.
Name and Address of Number of Shares of Common Stock
The Beneficial Owner Beneficially Owned Percentage %
------------------------------------------------ --------------------------------------- -----------------------------
Steven M. Bettinger 2,703,333 31.3
Robert K. Bettinger 1,303,333 15.1
Steven E. Kincade 0 0
Andrew Lockwood 3,333 0
Jack Phelan 5,000 0
------------------------------------------------ --------------------------------------- -----------------------------
All executive officers and directors as a
group (5 persons) 4,014,999 46.3%
------------------------------------------------ --------------------------------------- -----------------------------
Gilder Funding Corp.
12000 N. Bayshore Drive, Suite 210,
North Miami, FL 33181 1,188,855 13.8%
Warren and Marianne Gilbert
12000 N. Bayshore Drive, Suite 210,
North Miami, FL 33181 1,188,855 13.8%
Bonnie A. Snyder
3675 Country Club Drive, Suite 1906
Aventura, FL 33180 479,444 5.6%
23
Steven M. Bettinger's and Robert K. Bettinger's beneficial ownership
each includes options to purchase 33,333 shares of our common stock.
Andrew Lockwood's beneficial ownership includes options to purchase
3,333 shares of our common stock and Jack Phelan's beneficial ownership includes
options to purchase 5,000 shares of our common stock.
The beneficial ownership of all executive officers and directors
includes options to purchase a total of 74,999 shares of our common stock.
Gilder Funding Corp.'s beneficial ownership includes 482,777 shares of
common stock owned jointly by Warren and Marianne Gilbert and 52,833 shares of
common stock owned by Private Trust Corporation TTEE New Amsterdam Investment
Trust for the benefit of Warren and Marianne Gilbert. Gilder Funding's
beneficial ownership does not include 479,444 shares of common stock owned by
Bonnie A. Snyder, the adult daughter of Stanley Snyder, a principal shareholder
of Gilder Funding, and 238,334 shares of common stock owned by Barbara K.
Snyder, the wife of Stanley Snyder, a principal shareholder of Gilder Funding.
Warren and Marianne Gilbert's beneficial ownership includes 653,245
shares of common stock owned by Gilder Funding in which Warren Gilbert is a
principal shareholder and 52,833 shares of common stock owned by Private Trust
Corporation TTEE New Amsterdam Investment Trust for the benefit of Warren and
Marianne Gilbert. Their beneficial ownership does not include 165,000 shares
owned directly by Marriane Gilbert's brother.
Bonnie A. Snyder's beneficial ownership does not include 238,334 shares
owned directly by her mother, Barbara K. Snyder, or 653,245 shares owned by
Gilder Funding, in which her father, Stanley Snyder, is a principal shareholder.
SELLING STOCKHOLDERS
The following table shows certain information as of the date of this
prospectus regarding the number of shares of our common stock owned by the
selling stockholders and the number of shares the selling stockholders are
including for sale in this prospectus. This table assumes that all shares
offered for sale in the prospectus are sold. No selling stockholder has been
within the last three years or is currently affiliated with us.
24
Ownership of Common Stock Number Offered By Ownership of Common Stock
Selling Before Offering Selling After Offering
Stockholder Stockholder
---------------------------------- ---------------------------- --------------------- --------------------------------
Number Percent Number Percent
---------------------------------- ------------- ------------ --------------------- ------------ ----------------
Gilder Funding Corp. 653,245 7.6 499,445 153,800 1.8
Warren and Marianne Gilbert 482,777 5.6 334,444 148,333 1.7
Anton Vanderheyden 165,000 1.9 165,000 0 0
Barbara K. Snyder 238,334 2.8 95,000 143,334 1.7
Bonnie A. Snyder 479,444 5.6 409,444 70,000 *
Parkplace Consulting, Inc. 302,233 3.5 266,667 35,566 *
Neal Moskowitz FBO
Evan Moskowitz UMTGA 50,000 * 50,000 0 0
Neal Moskowitz FBO
Ian Moskowitz UMTGA 50,000 * 50,000 0 0
-------------------------------
* Less than 1%.
The selling stockholders listed above that are not individuals have
provided us with additional information regarding the individuals who exercise
control over the selling stockholder. The proceeds of any sale of shares
pursuant to this prospectus will be for the benefit of the individuals that
control the selling entity. The following is a list of the selling stockholders
and the individuals who exercise the right to vote or dispose of the shares
owned by each entity:
Gilder Funding Corp. - Warren Gilbert and Stanley Snyder.
Parkplace Consulting, Inc. - Laine Moskowitz.
CERTAIN TRANSACTIONS
Steven M. Bettinger and Robert K. Bettinger are also the majority
stockholders of a consulting company that renders Internet consulting services
to us. During the years ended June 30, 2001 and 2000, fees paid to the
consulting company amounted to approximately $48,000 and $31,000, respectively.
In February 2000, Virtual Academics entered into a subscription
agreement with Gilder Funding Corp. for a total of 2,200,000 shares of common
stock. The shares were purchased for an aggregate amount of $990,000. The
purchase price was payable as $440,000 in cash for the initial 1,100,000 shares
of common stock and the issuance of a 7% promissory note in the principal amount
of $550,000 for the remaining 1,100,000 shares of common stock. The note matured
on February 2, 2001 and was paid in full in May 2001. The remaining shares of
common stock were issued in June 2001. The funds raised from the sale of common
stock are being used as working capital. The subscription agreement also
provided that Virtual Academics register the resale of these shares on behalf of
the stockholders.
25
OUR SECURITIES
The following summarizes the important provisions of our capital stock.
For more information about our capital stock, please see our restated
certificate of incorporation, as amended, that has been incorporated by
reference into the registration statement of which this prospectus forms a part.
Under our restated certificate of incorporation, as amended, the
authorized but unissued and unreserved shares of our capital stock will be
available for issuance for general corporate purposes, including possible stock
dividends, future mergers or acquisitions, or private or public offerings.
Except as may otherwise be required by applicable law or regulations,
stockholder approval will not be required for the issuance of those shares.
Our authorized capital stock consists of 10,000,000 shares of common
stock, par value $.001 per share, and 1,000,000 shares of preferred stock, par
value $.001 per share. As of the date of this prospectus, 8,604,617 shares of
common stock and no shares of preferred stock are outstanding.
Common Stock
Each share of our common stock entitles the holder to one vote on all
matters submitted to a vote of the stockholders. The holders of common stock are
entitled to receive dividends, when, as and if declared by the Board of
Directors, in its discretion, from funds legally available therefor. We do not
currently intend to declare or pay cash dividends in the foreseeable future, but
rather intend to retain any future earnings to finance the expansion of our
businesses. If we liquidate or dissolve, the holders of our common stock are
entitled to share ratably in our assets, if any, legally available for
distribution to stockholders after the payment of all of our debts and
liabilities and payment of the liquidation preference of any outstanding shares
of preferred stock.
Our common stock has no preemptive rights and no subscription,
redemption or conversion privileges. Our common stock does not have cumulative
voting rights, which means that the holders of a majority of the outstanding
shares of our common stock voting for the election of directors can elect all
members of the Board of Directors. A majority vote is also sufficient for other
actions that require the vote or concurrence of stockholders.
Preferred Stock
Our Board of Directors has the authority to issue up to 1,000,000
shares of preferred stock in one or more series. The Board of Directors can
determine the number of shares in each series, as well as the voting and other
rights of the series, including the dividend rights and dividend rate, terms of
redemption, conversion rights and liquidation preferences. The Board of
Directors has the authority to determine these rights without any further vote
or action by the stockholders. As of the date of this Prospectus, no shares of
our preferred stock have been issued.
"Anti-Takeover" Provisions
Although the Board of Directors is not currently aware of any takeover
attempts, our restated certificate of incorporation, as amended, and bylaws
26
contain certain provisions that may be deemed to be "anti-takeover" because they
may deter, discourage or make more difficult the assumption of control of the
company by another corporation or person through a tender offer, merger, proxy
contest or similar transaction or series of transactions. These provisions were
adopted unanimously by our Board of Directors and approved by our stockholders.
Authorized but Unissued Shares. We authorized 10,000,000 shares of
common stock and 1,000,000 shares of preferred stock. These shares were
authorized for the purpose of providing our Board of Directors with as much
flexibility as possible to issue additional shares for proper corporate
purposes, including equity financing, acquisitions, stock dividends, stock
splits, other grants of stock options, and other purposes. The issuance of
shares of preferred stock may have an adverse effect on the holders of our
common stock. Our stockholders do not have preemptive rights with respect to the
purchase of any shares. Therefore, such issuances could result in a dilution of
voting rights and book value per share as to our common stock.
No Cumulative Voting. Our bylaws do not contain any provisions for
cumulative voting. Cumulative voting entitles stockholders to as many votes as
equal the number of shares owned by such holder multiplied by the number of
directors to be elected. A stockholder may cast all these votes for one
candidate or distribute them among any two or more candidates. Thus, cumulative
voting for the election of directors allows a stockholder or group of
stockholders that hold less than 50% of the outstanding shares voting to elect
one or more members of a board of directors. Without cumulative voting for the
election of directors, the vote of holders of a plurality of the shares voting
is required to elect any member of a board of directors and would be sufficient
to elect all the members of the board being elected.
General Effect of Anti-Takeover Provisions. The overall effect of these
provisions may be to deter a future tender offer or other takeover attempt that
some stockholders might view to be in their best interest, as the offer might
include a premium over the market price of our common stock at that time. In
addition, these provisions may have the effect of assisting our current
management in retaining its positions and better enable it to resist changes
that some stockholders may want to make if dissatisfied with the conduct of our
business.
SHARES ELIGIBLE FOR FUTURE SALE
Of the 8,604,617 shares of our common stock outstanding as of the date
of this prospectus, 6,845,029 shares of common stock are restricted securities,
as that term is defined in Rule 144 promulgated under the Securities Act.
Of the 8,604,617 shares currently outstanding, 3,940,000 shares are
owned by our affiliates, as that term is defined under the Securities Act.
Pursuant to an SEC interpretive letter, the resale of the shares owned by
affiliates of a blank check company may be carried out only pursuant to a
registered offering, such as under this prospectus. A "blank check company" is a
development stage company that has no specific business plan or purpose or has
indicated its business plan is to engage in a merger or acquisition with an
unidentified entity or person. The SEC also follows this position with respect
to shares of a blank check company sold directly to non-affiliates in an
unregistered offering.
When a company is no longer considered a blank check company, Rule 144
may be available for resales of the company's shares acquired after that time.
Under Rule 144, if certain other conditions are satisfied, a person who has
27
beneficially owned restricted shares for at least one year is entitled to sell
within any three-month period a number of shares up to the greater of 1% of the
total number of outstanding shares of common stock, or if the common stock is
quoted on Nasdaq or an exchange, the average weekly trading volume during the
four calendar weeks preceding the sale. A person who has not been our affiliate
for at least three months immediately preceding the sale, and who has
beneficially owned the shares of common stock for at least two years, is
entitled under Rule 144, if the rule is available, to sell the shares without
regard to any of the volume limitations described above.
No prediction can be made as to the effect, if any, that sales of
shares or the availability of shares for sale as described above will have on
the market prices of the common stock prevailing from time to time.
Nevertheless, the possibility that substantial amounts of common stock may be
sold in the public market may adversely affect prevailing prices for the common
stock and could impair our ability to raise capital in the future through the
sale of equity securities.
HOW THE SHARES MAY BE DISTRIBUTED
The selling stockholders may sell shares of common stock in various
ways and at various prices. Some of the methods by which the selling
stockholders may sell shares include:
o ordinary brokerage transactions and transactions in which the broker
solicits purchasers or makes arrangements for other brokers to
participate in soliciting purchasers;
o privately negotiated transactions;
o block trades in which the broker or dealer will attempt to sell the
shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
o purchases by a broker or dealer as principal and resale by that broker
or dealer for the selling stockholder's account under this prospectus
in the over-the-counter market at prices and on terms then prevailing
in the market;
o sales under Rule 144, if available, rather than using this prospectus;
o a combination of any of these methods of sale; and
o any other legally permitted method.
The applicable sales price may be affected by the type of transaction.
The selling stockholders may also pledge shares as collateral for
margin loans under their customer agreements with their brokers. If there is a
default by the selling stockholders, the brokers may offer and sell the pledged
shares. When selling shares of common stock, the selling stockholders intend to
comply with the prospectus delivery requirements under the Securities Act, by
delivering a prospectus to each purchaser. We may file any supplements,
amendments or other necessary documents in compliance with the Securities Act
that may be required in the event a selling stockholder defaults under any
customer agreement with brokers.
28
Brokers and dealers may receive commissions or discounts from the
selling stockholders or, in the event the broker-dealer acts as agent for the
purchaser of the shares, from that purchaser, in amounts to be negotiated. These
commissions are not expected to exceed those customary in the types of
transactions involved.
We cannot estimate at the present time the amount of commissions or
discounts, if any, that will be paid by the selling stockholders in connection
with the sales of the shares.
The selling stockholders and any broker-dealers or agents that
participate with a selling stockholder in sales of the shares may be deemed to
be "underwriters" within the meaning of the Securities Act in connection with
such sales. In that event, any commissions received by the broker-dealers or
agents and any profit on the resale of the shares purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act.
Under the securities laws of certain states, the shares may be sold in
those states only through registered or licensed broker-dealers. In addition,
the shares may not be sold unless the shares have been registered or qualified
for sale in the relevant state or unless the shares qualify for an exemption
from registration or qualification.
We have agreed to pay all of our out-of-pocket expenses and our
professional fees and expenses incident to the registration of the shares.
The selling stockholders and other persons participating in the
distribution of the shares offered under this prospectus are subject to the
applicable requirements of Regulation M promulgated under the Exchange Act in
connection with sales of the shares.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Our restated certificate of incorporation, as amended, generally
provides for indemnification of each director, employee or agent as long as
these individuals acted in good faith and in a manner he or she believed to be
in or not opposed to our best interest and had no reasonable cause to believe
that such conduct was unlawful.
The SEC is of the opinion that indemnification of directors, officers
and controlling persons for liabilities arising under the Securities Act is
against public policy and is, therefore, unenforceable.
LEGAL MATTERS
The legality of the securities offered by this prospectus will be
passed upon by Broad and Cassel, a partnership including professional
associations, Miami, Florida.
Certain partners of Broad and Cassel own a total of 250,000 shares of
our common stock, which were acquired by them as personal investments and not in
connection with any legal services provided to us.
29
EXPERTS
Our Consolidated Financial Statements as of June 30, 2001 and for each
of the years ended June 30, 2001 and 2000 included in this prospectus have been
included herein in reliance upon the report of Grant Thornton LLP, independent
certified public accountants, which appears elsewhere in this prospectus, and
are included upon the authority of this firm as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form SB-2 with
respect to the securities being offered hereby. This prospectus does not contain
all of the information set forth in the registration statement, as permitted by
the rules and regulations of the SEC. For further information, you should refer
to the registration statement and to the exhibits filed with the registration
statement. Each statement made in this prospectus referring to a document filed
as an exhibit to the registration statement is qualified by reference to the
exhibit for a complete statement of its terms and conditions.
We also file annual, quarterly and special reports and other
information with the SEC. You may read and copy any report or document we file,
and the registration statement, including the exhibits, may be inspected at the
SEC's public reference room located at 450 Fifth Street, N.W., Washington, D.C.
20549. Please call the SEC at 1-800-SEC-0330 for further information. Our SEC
filings are also available to the public from the SEC's web site at:
http://www.sec.gov.
We will provide without charge to each person, including any beneficial
owner, to whom a prospectus is delivered, upon written or oral request of that
person, a copy of any and all of the information that has been incorporated by
reference in this prospectus, excluding exhibits unless those exhibits are
specifically incorporated by reference into the documents requested. Please
direct such requests to the chief financial officer, Virtual Academics.com,
Inc., 6421 Congress Avenue, Suite 201, Boca Raton, FL 33487, telephone number
(561) 994-4446.
You should only rely on the information incorporated by reference or
provided in this prospectus. We have not authorized anyone else to provide you
with different information. Our common stock is not being offered in any state
where the offer is not permitted. You should not assume that the information in
this prospectus is accurate as of any date other than the date on the front of
this document.
30
Virtual Academics.com, Inc. and Subsidiaries
CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001
CONTENTS
Report of Independent Certified Public Accountants F-2
Consolidated Financial Statements:
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statement of Changes in Stockholders' Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7 to F-15
F-1
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Virtual Academics.com, Inc.
We have audited the accompanying consolidated balance sheet of Virtual
Academics.com, Inc. and Subsidiaries (the "Company") as of June 30, 2001 and
2000 and the related consolidated statements of operations, stockholders' equity
and cash flows for the two years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Virtual
Academics.com, Inc. and Subsidiaries at June 30, 2001 and 2000, and the
consolidated results of their operations and their consolidated cash flows for
the two years ended June 30, 2001, in conformity with accounting principles
generally accepted in the United States of America.
/s/ Grant Thornton LLP
Miami, Florida
August 17, 2001
F-2
VIRTUAL ACADEMICS.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
--------------- --------------
June 30, June 30,
2001 2000
--------------- --------------
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents $ 1,775,206 $ 465,683
Tuition Receivable (Net of Allowance for Doubtful Accounts
of $193,000 and $72,000, respectively) 2,119,182 958,438
Prepaid Recruiting Fees 145,018 90,835
Other Prepaid Expenses 25,830 47,859
--------------- --------------
Total Current Assets 4,065,236 1,562,815
--------------- --------------
PROPERTY AND EQUIPMENT:
Computer Equipment and Software 69,274 22,577
Furniture, Fixtures and Office Equipment 46,932 35,386
Leasehold Improvements 3,051 --
--------------- --------------
119,258 57,963
Less: Accumulated Depreciation (32,647) (16,033)
--------------- --------------
Total Property and Equipment 86,611 41,930
--------------- --------------
OTHER ASSETS:
Tuition Receivable (Net of Allowance for Doubtful Accounts
of $172,000 and $28,000, respectively) 379,921 277,371
Prepaid Recruiting Fees 16,511 45,285
Deferred Tax Asset 114,681 --
Security Deposits 7,941 7,032
--------------- --------------
Total Other Assets 519,054 329,688
--------------- --------------
Total Assets $ 4,670,901 $ 1,934,433
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Account Payable $ 15,392 $ 9,069
Unearned Revenues 2,914,678 1,023,136
Accrued Recruiting Fees 89,318 99,406
Other Accrued Expenses 137,874 132,574
--------------- --------------
Total Current Liabilities 3,157,262 1,264,185
--------------- --------------
NON-CURRENT LIABILITIES:
Unearned Revenues 336,319 421,529
Accrued Recruiting Fees 19,286 38,977
--------------- --------------
Total Non-Current Liabilities 356,205 460,506
--------------- --------------
Total Liabilities 3,513,467 1,724,691
--------------- --------------
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;
8,604,617 and 7,483,233 Shares Issued and Outstanding, respectively) 8,604 7,483
Additional Paid-In Capital 1,346,944 1,273,140
Note Receivable from Subscription - (550,000)
Accumulated Deficit (198,115) (520,881)
--------------- --------------
Total Stockholders' Equity 1,157,433 209,742
--------------- --------------
Total Liabilities and Stockholders' Equity $ 4,670,901 $ 1,934,433
=============== ==============
The accompanying notes are an integral part of these consolidated financial statements
F-3
VIRTUAL ACADEMICS.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the year ended
June 30
----------------------------------
2001 2000
--------------- --------------
NET REVENUES $ 2,632,037 $ 1,150,664
--------------- --------------
COST AND EXPENSES:
Instructional and Educational Support 423,951 254,832
Selling and Promotion 426,831 374,943
General and Administrative 1,666,621 942,598
--------------- --------------
Total Operating Expenses 2,517,403 1,572,373
--------------- --------------
INCOME (LOSS) FROM OPERATIONS 114,634 (421,709)
OTHER INCOME:
Interest Income 93,451 7,031
--------------- --------------
INCOME BEFORE INCOME TAXES 208,085 (414,678)
INCOME TAX BENEFIT (114,681) (6,132)
--------------- --------------
NET INCOME (LOSS) $ 322,766 $ (408,546)
=============== ==============
BASIC AND DILUTED:
Net Income (loss) Per Common Share: $ 0.04 $ (0.06)
=============== ==============
Weighted Common Shares Outstanding 7,786,459 6,804,506
=============== ==============
The accompanying notes are an integral part of these consolidated financial statements
F-4
VIRTUAL ACADEMICS.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the year ended June 30, 2001
NOTE
RECEIVABLE
ADDITIONAL FROM TOTAL
COMMON STOCK PAID-IN ISSUANCE OF ACCUMULATED STOCKHOLDERS'
$.001 Par CAPITAL STOCK DEFICIT EQUITY
----------------------- -------------- -------------- ------------------ ----------------
Shares Amount
---------- --------- -------------- -------------- ------------------ ----------------
Balance at June 30, 1998 746,660 $ 746 $ - $ - $ (28,978) $ (28,232)
Net income - - - - 182,766 182,766
Distributions - - - - (150,292) (150,292)
---------- --------- -------------- -------------- ------------------ ----------------
Balance at December 31, 1999 746,660 746 - - 3,496 4,242
Net Income to December 8, 1999 - - - - 112,335 112,335
Distributions - - - - (88,250) (88,250)
Adjustments for Reverse Merger 5,600,073 5,600 37,902 - (27,581) 15,921
---------- --------- -------------- -------------- ------------------ ----------------
Balance at December 8, 1999 6,346,733 6,346 37,902 - - 44,248
Net Loss from December 9, 1999 to
June 30, 2000 - - - - (520,881) (520,,881)
Issuance of Stock as Compensation
to Consultants 36,500 37 246,338 - - 246,375
Sale of Stock 1,100,000 1,100 438,900 - - 440,000
Stock Subscribed for - - 550,000 (550,000) - -
---------- --------- -------------- -------------- ------------------ ----------------
Balance at June 30, 2000 7,483,233 7,483 1,273,140 (550,000) (520,881) 209,742
Net Income - - - - 322,766 322,766
Issuance of Stock Options as
Compensation to Consultants - - 17,820 - - 17,820
Payment of Subscription Receivable 1,100,000 1,100 (1,100) 550,000 550,000
Issuance of Stock for Services 1,000 1 1,799 1,800
Issuance of Stock as Compensation
to Consultants 20,384 20 55,285 - - 55,305
---------- --------- -------------- -------------- ------------------ ----------------
Balance at June 30, 2001 8,604,617 $ 8,604 $ 1,346,944 $ - $ (198,115) $ 1,157,433
========== ========= ============== ============== ================== ================
The accompanying notes are an integral part of these consolidated financial statements
F-5
VIRTUAL ACADEMICS.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the year ended June 30
-------------------------------------
2001 2000
----------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 322,766 $ (408,546)
Adjustments to Reconcile Net Income to Net Cash Flows
Provided by Operating Activities:
Depreciation 16,614 7,587
Consulting Expense on Common Stock Issued to Non-employees 55,305 246,375
Consulting Expense on Stock Options Issued to Non-employees 17,820 -
Expense associated on Common Stock Issued to Non-employees 1,800 -
(Increase) Decrease in:
Tuition Receivable (1,160,744) (401,897)
Prepaid Recruiting Fees (54,183) 53,568
Other Prepaid Expenses 22,029 (47,859)
Other Assets:
Tuition Receivable Non Current (102,550) (138,236)
Prepaid Recruiting Fees Non Current 28,774 (30,974)
Deferred Tax Asset (114,681) -
Security Deposits (909) (2,632)
Increase (Decrease) in:
Accounts Payable 6,324 (8,190)
Unearned Revenues 1,891,542 384,749
Accrued Recruiting Fees (10,088) (26,484)
Income Taxes Payable - (4,427)
Other Accrued Expenses 5,300 127,132
Other Liabilities:
Unearned Revenues Non Current (84,610) 358,261
Accrued Recruiting Fees Non Current (19,691) 7,505
----------------- ---------------
Net Cash Flows Provided by Operating Activities 820,818 115,932
----------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Property and Equipment (61,295) (27,642)
----------------- ---------------
Net Cash Flows Used in Investing Activities (61,295) (27,642)
----------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of Common Stock - 440,000
Proceeds from the Note Receivable 550,000
Adjustments made pursuant to the reverse merger - 15,921
Distribution to Members prior to Merger - (88,250)
----------------- ---------------
Net Cash Flows Provided by Financing Activities 550,000 367,671
----------------- ---------------
Net Increase in Cash and Cash Equivalents 1,309,523 455,961
Cash and Cash Equivalents - Beginning of Period 465,683 9,722
----------------- ---------------
Cash and Cash Equivalents - End of Period $ 1,775,206 $ 465,683
================= ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ - $ 29
================= ===============
Income Taxes $ - $ -
================= ===============
The accompanying notes are an integral part of these consolidated financial statements
F-6
Virtual Academics.com, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001
NOTE A - OWNERSHIP AND OPERATIONS
Virtual Academics.com, Inc. (the "Company") is engaged in distance learning
through its subsidiaries to provide Internet education to students throughout
the world. The business is conducted under the names of Barrington University
(the "School") and Virtual Academics.com, Inc.
The International Association of Universities and Schools and the Global
Accreditation Association accredits the School; the Alabama Department of
Education licenses the School. The Company's administrative and sales offices
are located in Boca Raton, Florida and Mobile, Alabama. There are also
arrangements with several international universities that confer dual degrees
with the School whereas, based on the School's approval of the curriculum, a
degree will be issued by the School upon completion of the students' studies at
an international university. The Company caters to a wide variety of students.
On December 8, 1999, Steve Bettinger and Robert Bettinger (the "Bettingers")
acquired 4,200,000 shares of Donnebrooke Corp. from a principal stockholder.
After the purchase of these shares, Donnebrooke Corp. had 6,346,733 shares
outstanding. Accordingly, the Bettingers owned approximately 66% of Donnebrooke
Corp.'s outstanding common shares after the purchase. In connection with the
purchase of Donnebrooke Corp.'s shares, the Bettingers, also owners of
International Educational Group, LLC, and its subsidiaries, Barrington
University, Inc., an Alabama Corporation, and Spanish University of America
Foundation, Inc., transferred their interests in these companies to Donnebrooke
Corp. Donnebrooke Corp. then changed its name to Virtual Academics.com, Inc.
Since Donnebrooke was inactive and had no operations at the time of these
transactions, for accounting purposes the acquisitions of the Bettingers'
entities were accounted for as a reverse merger and recapitalization. Therefore,
the financial statements of the Company reflect the assets, liabilities and
operations of the Bettingers' entities as if they had been the reporting entity
since inception.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of the Company and
its subsidiaries, all of which are wholly owned. All significant intercompany
accounts and transactions have been eliminated.
Management Estimates
The preparation of these financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
F-7
Virtual Academics.com, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001
expenses during the reported period. Examples are the provision for doubtful
accounts, unearned revenue, and prepaid and accrued recruiting fees. Actual
results could differ from those estimates.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly
liquid instruments purchased with a maturity of three months or less and money
market accounts to be cash equivalents.
Fair Value of Financial Instruments
The carrying value of cash and cash equivalents, tuition receivables and
accounts payable approximate fair value due to the short term maturities of
these instruments.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization are
provided using the straight-line method over the estimated economic lives of the
assets, which are from five to seven years. Depreciation expense was
approximately $16,620 and $7,600 for the years ended June 30, 2001 and 2000,
respectively.
Expenditures for major renewals and betterments that extend the useful lives of
property and equipment are capitalized. Expenditures for maintenance and repairs
are charged to expense as incurred.
Stock-based Compensation
Options granted under the Company's Performance Equity Plan are accounted for
under APB 25, "Accounting for Stock Issued to Employees", and related
interpretations. The Company's policy is to grant options with an exercise price
equal to the quoted market price of its stock on the grant date. Accordingly, no
compensation cost is recognized for those options granted. Stock issued in lieu
of compensation is valued at the fair market value of the stock at the date of
issuance.
Revenue Recognition
The school's curriculum is designed to allow a student to earn a degree or
certificate by self-study. Each student, upon registration, is given an
identification number and a password to begin his/her studies. Enrollment is
completed upon the receipt of an initial payment at which time all of the course
materials, which include core textbooks, are delivered to the student. The
school offers a variety of degree and certificate programs and students are
requested to complete payment within one year of enrollment, but two-year
payment plans are offered upon request. All payment plans are without interest.
Degrees are not conferred if a student has not fully paid. Through September
2000, revenue was recognized as earned as the student completed his or her
course of study. A 24-month period was used as the estimated time period for the
F-8
Virtual Academics.com, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001
average degree completion, and revenue was recognized on the straight-line
method over this 24-month period. Revenue earned from students participating in
dual degree programs with foreign universities was recognized when the degree
was issued upon graduation.
The Company has developed a new database of student activity, which allows it to
more easily and accurately track student data including student progress on a
course-by-course basis. Accordingly, the Company changed its method of
calculating revenue to be recognized each quarter. For students registering on
or after October 1, 2000, 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 or her
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.
The Company will utilize the previous method for all students registered prior
to October 1, 2000. The change in accounting method did not have a material
effect on the consolidated financial statements.
In fiscal 2001 and 2000, one recruiter's recruiting efforts accounted for
approximately 20% and 25% of the Company's total revenues, respectively.
Tuition Receivable
The Company, in the ordinary course of business finances the tuition, without
interest, over a period of up to twenty-four months. Because a significant part
of the tuition is deferred, the Company does not impute interest with respect to
receivables that mature in more than one year.
Tuition receivables are stated at the amount of unpaid principal, reduced by an
allowance for loan losses. Provisions for estimated losses on student loans are
charged to income in amounts sufficient to maintain the allowance at a level
considered adequate to cover the losses of tuition receivables based upon
historical trends, economic conditions and other information. In the fourth
quarter of fiscal 2001 and 2000, the Company increased the provision for
estimated losses on student loans by approximately $56,000 and $38,000,
respectively.
Recruiting Fees
Students learn about the School via the Internet or are recruited through a
worldwide network of recruiters. Recruiters are paid upon receipt of tuition
payment by the student. Recruiting fees are accrued for the tuition due the
Company, and prepaid for the revenue that has been deferred. The Company
amortizes recruiting fees using the same method as the Company recognizes the
related tuition revenue.
Research and Development
All costs incurred for research and development are expensed. These costs were
insignificant in both fiscal 2001 and 2000.
F-9
Virtual Academics.com, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001
Instruction and Education Support
Instruction and educational support consists of supplies such as textbooks to
students, computer software and Internet expenses.
Advertising
Advertising is expensed as incurred. Advertising expenses for the years ended
June 30, 2001 and 2000 totaled $217,675 and $59,506, respectively.
Income Taxes
Deferred tax assets and liabilities are recorded based on the difference between
the tax basis of assets and liabilities and their carrying amounts for financial
reporting purposes. In addition, the current or deferred tax consequences of a
transaction are measured by applying the provisions of enacted tax laws to
determine the amounts of taxes payable currently or in future years.
Computer Software
The Company accounts for the costs of computer software developed or obtained
for internal use in accordance with Statement of Position 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use". The
Company capitalized software development costs amounting to $12,000. Computer
software costs are recorded at cost and are being amortized using the
straight-line method over five years.
Earnings Per Share
Basic net earnings per share equals net earnings (loss) divided by the weighted
average shares outstanding during the year. The computation of diluted net
earnings per share does not include dilutive common stock equivalents in the
weighted average shares outstanding as they would be antidilutive in 2000. The
reconciliation between the computations is as follows:
Net (Loss) Income Basic Shares Diluted Shares Basic EPS
----------------- ------------ -------------- -----------
2001 $ 322,766 7,532,576 7,786,459 $ .04
2000 $ (408,546) 6,804,506 6,804,506 $ (.06)
Not included in basic shares are the weighted average common stock equivalents
of 457,500 because they are anti-dilutive in 2000. In 2001, the dilutive
weighted average shares outstanding includes 253,883 dilutive common stock
equivalents (i.e., effect of the options).
Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets. Statement No. 141 is effective for all
F-10
Virtual Academics.com, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001
business combinations initiated after June 30, 2001, while Statement No. 142 is
effective for fiscal years beginning after December 15, 2001. Under the new
rules, goodwill and intangible assets deemed to have indefinite lives will no
longer be amortized but will be subject to annual impairment tests in accordance
with the Statements. Other intangible assets will continue to be amortized over
their useful lives. The Company will apply the new rules on accounting for
goodwill and other intangible assets beginning in the first quarter of 2002.
Application of the non-amortization provisions of the Statement are not expected
to have a material effect on the Company's financial position or results of
operations.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial
Statements, which was adopted in fiscal 2001. SAB 101 did not have a material
effect on the Company's financial position or results of operations in fiscal
2001.
Reclassifications
Certain 2000 amounts have been reclassified to conform to the 2001 presentation.
NOTE C - COMMITMENTS AND CONTINGENCIES
Employment Agreements
The Company has entered into employment agreements with two of its executive
officers for a 24-month period ending January 1, 2003, subject to automatic
renewals of 12-month terms unless terminated by the Company or the employee with
30-days' prior written notice.
In addition to an annual salary of $250,000 and $85,000 for the President and
Chief Executive Officer and the Chairman of the Board and Secretary,
respectively, the agreements entitle the officers to receive options to purchase
100,000 shares of common stock of the Company each year of employment at fair
market value. These options, a total of 200,000 options each for fiscal 2001 and
2000, were issued under the Company's stock option plan (see Note D). These
options vest 1/3 per year, beginning one year from the date of grant. The
agreements also provide for the receipt of an annual bonus at the discretion of
the Board of Directors.
Leases
The Company leases its Florida and Alabama offices under leases that expire
through fiscal 2006. The office lease agreements have certain escalation clauses
and renewal options. Future minimum rental payments required under this
operating lease is as follows:
Period Ended June 30, 2002 $ 60,658
Period Ended June 30, 2003 38,698
Period Ended June 30, 2004 31,950
Period Ended June 30, 2005 33,228
Period Ended June 30, 2006 2,880
F-11
Virtual Academics.com, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001
Rent expense for the twelve-month periods ended June 30, 2001 and 2000 was
$50,638 and $51,722, respectively.
Capital Raising
On June 21, 2000, the Company entered into an agreement with an investment
banker to arrange a private placement or series of private placements of debt or
equity securities of the Company. No warrants or additional compensation were
issued or paid to the investment banker in fiscal 2001 and as of June 30, 2001
the agreement had expired. The Company does not intend to renew or extend the
agreement.
Litigation
The Company is involved in litigation in the ordinary course of business, which
would not have a material effect on our business or results of operations. In
particular, the Trade School Review Association ("Trade School") filed a
complaint against the Company on July 3, 2001 in the Superior Court for the
State of California for the County of San Diego. Trade School alleges in its
complaint that the Company have violated the Private Postsecondary and
Vocational Education Reform Act of 1989, California's false advertising
statutes, and the Consumer Legal Remedies Act. The Company intends to vigorously
contest the lawsuit. Inasmuch as the lawsuit is in its preliminary stages, the
Company cannot express an opinion as to the likelihood of a favorable or
unfavorable outcome to the litigation.
NOTE D - COMMON STOCK
On February 1, 2000, the Company adopted a stock option plan (the "2000
Performance Equity Plan") for periods not to exceed ten years. The majority
stockholders of the Company approved the Plan. The plan provides options
exercisable for a maximum of 1,000,000 shares of common stock to be granted.
Both incentive and nonqualified stock options may be granted under the Plan. The
exercise price of options granted pursuant to this plan is determined by a
committee but may not be less than 100% of the fair market value on the day of
grant. For holders of 10% or more of the combined voting power of all classes of
the Company's stock, options may not be granted at less than 110% of the fair
value of the common stock at the date of grant and the option may not exceed 5
years. There were no options exercised during the fiscal years 2001 and 2000.
There were 147,500 and no options forfeited during fiscal 2001 and 2000,
respectively.
The exercise prices of all options granted by the Company equal the market price
at the dates of grant. No compensation expense has been 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 year ended June 30, 2001:
F-12
Virtual Academics.com, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001
Net earnings
As reported $ 322,766
Pro forma 291,291
Basic earnings per share
As reported .04
Pro forma .04
The above pro forma disclosures may not be representative of the effects on
reported net earnings for future years as options vest over several years and
the Company may continue to grant options to employees.
The fair value of each option grant is estimated on the date of grant using the
binomial option-pricing model with the following weighted-average assumptions
used for grants in 2001: dividend yield of -0- percent; expected volatility
ranging from 52 percent to 318 percent; risk-free interest rate ranging from
5.73 percent to 5.79 percent and an expected holding periods of 5 years.
A summary of the status of the Company's outstanding stock options as of June
30, 2001 and 2000 and changes during the year ending on that date is as follows:
Weighted
Average
Exercise
Shares Price
-------------------- ----------------------
Outstanding at June 30, 1999 -- --
Granted 457,500 $ 2.51
Exercised -- --
Forfeited -- --
-------------------- ----------------------
Outstanding at June 30, 2000 457,500 $ 2.51
Granted 361,000 .66
Exercised -- --
Forfeited (147,500) 2.50
-------------------- ----------------------
Outstanding at June 30, 2001 671,000 $ 1.51
==================== ======================
Options exercisable at end of year 103,333 $ 2.51
==================== ======================
Weighted-average fair value of options granted during the year 2001 2000
-------------------- ----------------------
$0.40 $1.29
F-13
Virtual Academics.com, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001
The following information applies to options outstanding at June 30, 2001:
Options Outstanding Options Exercisable
----------------------------------- -----------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Shares Contractual Exercise Shares Exercise
Range of Exercise Prices (000) Life Price (000) Price
--------------------------- --------------- ---------------- -------------- ---------- --------------
$2.50 to $2.656 330,000 8.96 2.51 -- --
$.55 to $.2.12 361,000 9.49 .66
On November 20, 2000, the Company granted 25,000 options at an exercise price of
$2.12 under this plan. On December 31, 2000, the Company granted 336,000 options
at an exercise price of $.55 under this plan. Of the 336,000 options granted,
66,000 were granted to consultants.
Additionally, the Company cancelled 30,000 options during fiscal 2001. There
were no options exercised during the fiscal year ended 2001.
The exercise price of all options granted by the Company equals the market price
at the date of grant. Accordingly, no compensation expense has been recognized
on options granted to employees. The Company granted 66,000 options to
consultants. These options were valued using the Black-Scholes pricing method at
a fair value of $.27 per option. Accordingly, the Company recorded consulting
expense of $17,820.
In February 2000, the Company entered into a subscription agreement for a total
of 2,200,000 shares of common stock. The shares were purchased for an aggregate
amount of $990,000. The purchase price was payable as $440,000 in cash for the
initial 1,100,000 shares of common stock and the issuance of a 7% promissory
note in the principal amount of $550,000 for the remaining 1,100,000 shares of
common stock. The note matured on February 2, 2001 and was paid in full in May
2001. The remaining shares of common stock were issued by the Company in June
2001.
On December 26, 2000, the Board of Directors authorized the Company to
repurchase, in the open market, up to 200,000 shares of the common stock of the
Corporation, to demonstrate its belief that the per share price of the Company's
common stock is significantly undervalued and to indicate to outside investors
its confidence in the current and future business prospects of the Company. As
of June 30, 2001, no shares have been repurchased.
In fiscal 2000, the Company agreed to issue 20,834 shares of common stock as
compensation to consultants. Accordingly, expense of $55,305 was recorded based
upon the fair value of the stock at issuance and paid-in capital was
correspondingly credited in fiscal 2000. The Company issued these shares on July
25, 2000.
On May 16, 2001, the Company issued 1,000 shares of common stock as compensation
to an independent contractor. Expense of $1,800 was recorded based upon the fair
value of the stock at issuance and paid-in capital was correspondingly credited.
F-14
Virtual Academics.com, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001
NOTE E - INCOME TAXES
Benefit for income taxes for the year ended June 30, 2000 of $6,132 represents
an accrual that was reversed which was made prior to the reverse merger.
Deferred tax assets and liabilities are provided for significant income and
expense items recognized in different years for tax and financial reporting
purposes. Temporary differences, which give rise to net deferred tax assets
follow:
2001 2000
-------------------- ----------------------
Deferred tax benefits (liability) - current
Allowance for doubtful accounts $ 86,325 $ 39,466
Cash to accrual conversion (8,500)
Deferred tax benefits - noncurrent
Depreciation 2,363 5,755
Net operating loss carryforward 25,993 141,452
Other, net -- --
-------------------- ----------------------
Total deferred tax assets 114,681 178,173
Less: Valuation allowance -- (178,173)
-------------------- ----------------------
$ 114,681 $ --
==================== ======================
In fiscal 2000, the Company's effective tax rate is lower than the statutory
rate due to the 100% valuation allowance on the deferred tax assets. The Company
recorded a full valuation allowance for the deferred tax assets at June 30, 2000
as the Company's ability to realize these benefits is not "more likely than
not". Accordingly, no net deferred tax assets are reported in the accompanying
balance sheets at June 30, 2000. As of June 30, 2001, the Company is not
recording a valuation allowance on the deferred tax assets because the Company's
ability to realize these benefits is "more likely than not". The deferred tax
asset is reported in the accompanying balance sheet at June 30, 2001.
NOTE F - RELATED PARTY TRANSACTIONS
The Company's Chief Executive Officer and President, and its Chairman of the
Board and Secretary, are also both the majority stockholders of a consulting
company that renders Internet consulting services to the Company. During the
years ended June 30, 2001 and 2000, fees paid to the consulting company amounted
to approximately $48,000 and $31,000, respectively.
F-15
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Virtual Academics may agree to the terms and conditions upon which any director,
officer, employee or agent accepts an office or position and in its bylaws, by
contract or in any other manner may agree to indemnify and protect any director,
officer, employee or agent of Virtual Academics, or any person who serves at the
request of Virtual Academics as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, to the fullest extent permitted by the Delaware Revised
Statutes (including, without limitation, the statutes, case law and principles
of equity) of the State of Delaware. If the Delaware Revised Statutes (including
without limitation, the statutes, case law or principles of equity, as the case
may be) of the State of Delaware are amended or changed to permit or authorize
broader rights of indemnification to any of the persons referred to in the
immediately preceding sentence, then Virtual Academics shall be automatically
authorized to agree to indemnify such respective persons to the fullest extent
permitted or authorized by such law, as so amended or changed, without the need
for amendment or modification of the certificate of incorporation of Virtual
Academics and without further action by the directors or stockholders of Virtual
Academics.
Without limiting the generality of the foregoing, to the fullest extent
permitted or authorized by the Delaware Revised Statutes as now in effect and as
the same may from time to time hereafter be amended, no director of Virtual
Academics shall be personally liable to Virtual Academics or to its stockholders
for monetary damages for breach of fiduciary duty as a director. Any repeal or
modification of the immediately preceding sentence shall not adversely affect
any right or protection of a director of Virtual Academics existing hereunder
with respect to any act or omission occurring prior to or at the time of such
repeal or modification.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Virtual Academics estimates that its expenses in connection with this
registration statement will be as follows:
SEC registration fee.........................................$ 421.00
Legal fees and expenses...................................... 10,000.00
Accounting fees and expenses................................. 10,000.00
Miscellaneous................................................ 579.00
----------
Total........................................................$21,000.00
==========
II-1
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
In February 2000, Virtual Academics entered into a subscription
agreement with Gilder Funding Corp. for a total of 2,200,000 shares of common
stock. The shares were purchased for an aggregate amount of $990,000. The
purchase price was payable as $440,000 in cash for the initial 1,100,000 shares
of common stock and the issuance of a 7% promissory note in the principal amount
of $550,000 for the remaining 1,100,000 shares of common stock. The note matured
on February 2, 2001 and was paid in full in May 2001. The remaining shares of
common stock were issued to in June 2001. The funds raised from the sale of
common stock are being used as working capital. The subscription agreement also
provided that Virtual Academics register the resale of these securities on
behalf of the stockholders. In undertaking this transaction, Virtual Academics
relied on the exemption from registration set forth in Section 4(2) of the
Securities Act. The purchaser's subscription agreement set forth various
representations to Virtual Academics, including as to the purchaser's
sophistication and ability to analyze and bear the risks of the investment and
its acknowledgment that the resale of the shares is restricted. No commissions
were paid in connection with this transaction.
In fiscal 2000, Virtual Academics agreed to issue 20,834 shares of
common stock as compensation to various consultants. Virtual Academics issued
these shares on July 25, 2000. On May 16, 2001, Virtual Academics issued 1,000
shares of common stock as compensation to an independent contractor. The
foregoing shares were issued in exchange for services rendered to Virtual
Academics in reliance on the exemption from registration set forth in Section
4(2) of the Securities Act. No commissions were paid in connection therewith.
ITEM 27. EXHIBITS.
Exhibit No. Description of Exhibit
----------- ----------------------
3.1 Restated Certificate of Amendment, as amended (1)
3.2 Bylaws (1)
5.1 Opinion of Broad and Cassel (2)
23.1 Consent of Broad and Cassel (filed as part of Exhibit 5.1)
23.2 Consent of Grant Thornton LLP (2)
24 Power of Attorney (see page II-4 of the registration statement
as originally filed)
--------------
(1) Filed as an exhibit of the same number to the Virtual Academics Form
10-KSB for the fiscal year ended June 30, 2000.
(2) Filed herewith.
II-2
ITEM 28. UNDERTAKINGS.
(a) Rule 415 Offering. The undersigned company hereby undertakes:
(1) To file, during any period in which offers or sales of
securities are being made, a post-effective amendment to this registration
statement to: (i) include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933 (the "Securities Act"); (ii) reflect in the prospectus
any facts or events which, individually or together, represent a fundamental
change in the information set forth in the registration statement; and (iii)
include any additional or changed material information on the plan of
distribution.
(2) For determining liability under the Securities Act, to treat
each post-effective amendment as a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) Acceleration of Effective Date. Insofar as indemnification
for liabilities arising under the Securities Act may be permitted to directors,
officers or persons controlling the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(c) Transactions with or by Selling Security Holders. The
undersigned registrant hereby undertakes to file a post-effective amendment to
this Registration Statement in the event that there is a change in the plans,
proposals, agreements, arrangements or understandings, if any, with respect to
transactions with or by selling security holders.
II-3
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorizes this registration
statement to be signed on its behalf by the undersigned, in the City of Boca
Raton, Florida in the State of Florida on the 1st day of November, 2001.
VIRTUAL ACADEMICS.COM, INC.
By: /s/ Steven M. Bettinger
-------------------------------------
Steven M. Bettinger,
Chief Executive Officer and President
In accordance with the requirements of the Securities Act of 1933,
as amended, this registration statement has been signed by the following
persons in the capacities and on the dates stated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Steven M. Bettinger Chief Executive Officer, President and November 1, 2001
-----------------------
Steven M. Bettinger Director
* Chairman of the Board of Directors November 1, 2001
-----------------------
Robert K. Bettinger (Principal Accounting and Financial Officer)
* Director November 1, 2001
-----------------------
Andrew Lockwood
* Director November 1, 2001
-----------------------
Jack P. Phelan
* Director November 1, 2001
-----------------------
Steven Kincade
By: /s/ Steven M. Bettinger
-----------------------
Steven M. Bettinger,
Attorney-in-fact
II-4