U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal quarter ended: September 30, 2003
Commission file number: 033-25900
CENUCO, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2228820
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6421 CONGRESS AVENUE, SUITE 201
BOCA RATON, FLORIDA 33432
(Address of principal executive offices)
(Zip code)
(561) 994-4446
(Registrant's telephone number, including area code)
Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
APPLICABLE TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practical date:
On November 10, 2003, the issuer had outstanding 9,009,141 shares of common
stock, $.001 par value per share.
CENUCO, INC. AND SUBSIDIARIES
FORM 10-QSB
QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheets
As of September 30, 2003 (Unaudited) and June 30, 2003..........3A-B
Consolidated Statements of Operations (Unaudited)
For the Three Months Ended September 30, 2003 and 2002.............4
Consolidated Statements of Cash Flows (Unaudited)
For the Three Months Ended September 30, 2003 and 2002.............5
Condensed Notes to Consolidated Financial Statements.............6-9
Item 2 - Management's Discussion and Analysis and
Results of Operations..........................................10-19
Item 3 - Control and Procedures.........................................20
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings..............................................20
Item 2 - Changes in Securities and Use of Proceeds......................20
Item 4 - Submission of Matters to a Vote of Security Holders............21
Item 5 - Other Information..............................................21
Item 6 - Exhibits and Reports on Form 8-K...............................21
Signatures..............................................................21
-2-
CENUCO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, June 30,
2003 2003
----------- -----------
(Unaudited)
CURRENT ASSETS:
Cash and Cash Equivalents ........................................ $ 109,253 $ 295,088
Short-term Investment ............................................ 704,944 701,614
Tuition Receivable - current (Net of Allowance for Doubtful
Accounts of $96,000 and $108,000, respectively) .............. 778,068 870,261
Accounts Receivable (Net of Allowance for Doubtful Accounts of
$9,027 and $9,027, respectively) ............................. 25,184 19,262
Inventories ...................................................... 29,653 32,814
Prepaid Recruiting Fees .......................................... 34,830 45,852
Other Current Assets ............................................. 40,219 28,122
----------- -----------
Total Current Assets ......................................... 1,722,151 1,993,013
----------- -----------
PROPERTY AND EQUIPMENT:
Computer Equipment and Software .................................. 187,023 170,225
Furniture, Fixtures and Office Equipment ......................... 50,699 50,699
Leasehold Improvements ........................................... 3,051 3,051
----------- -----------
240,773 223,975
Less: Accumulated Depreciation ................................... (109,866) (98,646)
----------- -----------
Total Property and Equipment ................................. 130,907 125,329
----------- -----------
OTHER ASSETS:
Tuition Receivable -non-current (Net of Allowance for Doubtful
Accounts of $348,000 and $346,000, respectively) ............. 512,403 542,310
Prepaid Recruiting Fees .......................................... 54,477 36,121
Security Deposits ................................................ 8,642 8,642
----------- -----------
Total Other Assets ........................................... 575,522 587,073
----------- -----------
Total Assets ................................................. $ 2,428,580 $ 2,705,415
=========== ===========
(continued)
See accompanying notes to consolidated financial statements
-3A-
CENUCO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
September 30, June 30,
2003 2003
----------- -----------
(Unaudited)
CURRENT LIABILITIES:
Accounts Payable ................................................. $ 12,439 $ 21,762
Unearned Revenues ................................................ 971,991 984,396
Accrued Recruiting Fees .......................................... 17,387 20,544
Other Accrued Expenses ........................................... 48,521 90,695
----------- -----------
Total Current Liabilities .................................... 1,050,338 1,117,397
----------- -----------
NON-CURRENT LIABILITIES:
Unearned Revenues ................................................ 1,528,730 1,528,502
Accrued Recruiting Fees .......................................... 9,784 16,184
----------- -----------
Total Non-Current Liabilities ................................ 1,538,514 1,544,686
----------- -----------
Total Liabilities ............................................ 2,588,852 2,662,083
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT):
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;
9,009,141 and 8,981,061 Shares Issued and Outstanding at
September 30, 2003 and June 30, 2003, respectively) .......... 9,009 8,981
Additional Paid-in Capital ....................................... 1,696,099 1,671,827
Accumulated Deficit .............................................. (1,852,380) (1,611,476)
Deferred Compensation ............................................ (13,000) (26,000)
----------- -----------
Total Stockholders' Equity (Deficit) ......................... (160,272) 43,332
----------- -----------
Total Liabilities and Stockholders' Equity (Deficit) ......... $ 2,428,580 $ 2,705,415
=========== ===========
See accompanying notes to consolidated financial statements
-3B-
CENUCO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended
September 30,
-------------------------
2003 2002
----------- -----------
(Unaudited) (Unaudited)
NET REVENUES:
Tuition and Tuition-related .................... $ 214,299 $ 280,619
Wireless Products and Services ................. 52,787 175,907
----------- -----------
NET REVENUES ....................................... 267,086 456,526
----------- -----------
COSTS AND EXPENSES:
Cost of Equipment Sales ........................ 9,083 98,010
Instructional and Educational Support .......... 8,567 20,068
Research and Development ....................... 17,641 21,968
Selling and Promotion .......................... 35,328 114,466
General and Administrative ..................... 441,153 473,812
----------- -----------
Total Operating Expenses ................... 511,772 728,324
----------- -----------
LOSS FROM OPERATIONS ............................... (244,686) (271,798)
OTHER INCOME:
Interest Income ................................ 3,782 8,714
----------- -----------
LOSS BEFORE INCOME TAXES ........................... (240,904) (263,084)
INCOME TAX BENEFIT (EXPENSE):
Deferred Income Tax ............................ - 116,264
----------- -----------
Total Income Tax Benefit (Expense) ......... - 116,264
----------- -----------
NET LOSS ........................................... $ (240,904) $ (146,820)
=========== ===========
Net Loss Per Common Share - Basic ............ $ (0.03) $ (0.02)
=========== ===========
Weighted Common Shares Outstanding - Basic ... 8,984,724 8,701,467
=========== ===========
See accompanying notes to consolidated financial statements
-4-
CENUCO, INC. AND SUBSIDIAIRES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended
September 30,
--------------------------
2003 2002
--------- -----------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss ....................................................... $(240,904) $ (146,820)
Adjustments to Reconcile Net Loss to Net Cash Flows
Used in Operating Activities:
Depreciation ............................................ 11,220 8,313
Non-cash Compensation ................................... 28,300 -
Deferred Income Taxes ................................... - (116,264)
Provision for Doubtful Accounts ......................... (10,075) -
(Increase) Decrease in:
Tuition Receivable .................................... 103,586 113,882
Accounts Receivable ................................... (5,922) (41,576)
Inventories ........................................... 3,161 72,028
Prepaid Recruiting Fees ............................... 11,022 5,593
Other Current Assets .................................. (12,097) 13,020
Other Assets:
Tuition Receivable - Non-current ...................... 28,589 (110,386)
Prepaid Recruiting Fees - Non-current ................. (18,356) 1,693
Increase (Decrease) in:
Accounts Payable ..................................... (9,323) 25,712
Unearned Revenues .................................... (12,405) 102,133
Accrued Recruiting Fees .............................. (3,157) (15,423)
Other Accrued Expenses ............................... (33,174) (38,606)
Other Liabilities:
Unearned Revenues - Non-current ...................... 228 17,399
Accrued Recruiting Fees - Non-current ................ (6,400) (3,169)
--------- -----------
Net Cash Flows Used in Operating Activities ........................ (165,707) (112,471)
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in Short-term Investment .............................. (3,330) -
Acquisition of Property and Equipment .......................... (16,798) (17,193)
--------- -----------
Net Cash Flows Proveded by (Used in) Investing Activities .......... (20,128) (17,193)
--------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents ............... (185,835) (129,664)
Cash and Cash Equivalents - Beginning of Year ...................... 295,088 1,529,851
--------- -----------
Cash and Cash Equivalents - End of Period .......................... $ 109,253 $ 1,400,187
========= ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest ........................................................ $ - $ -
========= ===========
Income Taxes .................................................... $ - $ -
========= ===========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued for services performed ..................... $ 9,000 $ -
========= ===========
See accompanying notes to consolidated financial statements
-5-
CENUCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION
Currently, Cenuco, Inc., (a Delaware corporation) and Subsidiaries (the
"Company") is engaged in two different business segments:
Through our subsidiaries, we are 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 (the "Predecessors"). 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, respectively. In addition to online
training, we develop wireless applications for schools and enterprise companies.
Additionally, the Company has established a technology subsidiary called Cenuco,
Inc., a Florida corporation ("Cenuco"). Cenuco is a wholly-owned subsidiary that
develops wireless e-learning platform and technologies in the academic, consumer
and corporate marketplaces. We are also engaged in the development and sale of
wireless solutions and web services, which include the development of
business-to-business and business-to-consumer wireless applications, and state
of the art web technology and design services, though our subsidiary.
Our executive office is located at 6421 Congress Ave, Suite 201, Boca Raton,
Florida 33487 and we have an administrative office at 801 Executive Park Drive,
Mobile, Alabama 36606.
Our reportable segments are strategic business units that offer different
products, which complement each other. They are managed separately based on the
fundamental differences in their operations.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC"). The accompanying consolidated
financial statements for the interim periods are unaudited and reflect all
adjustments (consisting only of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation of the financial
position and operating results for the periods presented. The consolidated
financial statements include the accounts of the Company and its wholly-owned
subsidiaries. All significant intercompany accounts and transactions have been
eliminated. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted. These
consolidated financial statements should be read in conjunction with the
consolidated financial statements for the year ended June 30, 2003 and notes
thereto contained in the Company's report on Form 10-KSB as filed with the SEC.
The results of operations for the three months ended September 30, 2003 are not
necessarily indicative of the results for the full fiscal year ending June 30,
2004.
Certain reclassifications have been made to the prior period's consolidated
statements of operations to conform to the current period's presentation.
-6-
CENUCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Company recognizes tuition and registration revenue based on the number of
courses actually completed in each student's course of study. For example, if a
student completes three out of his nine required courses, the Company will
recognize 33% of the tuition regardless of the amount of time that the student
has taken to fulfill these requirements.
Tuition refunds are based on the date that the student cancels and the policy is
as follows: If the student withdraws within 5 calendar days after midnight of
the day the student signs the Enrollment Agreement (Full Refund Period) the
student will receive a full refund with no further obligation. If the student
cancels after the Full Refund Period but before the school receives the first
completed lesson, the student will be charged a registration fee of $150 and the
student will receive a full refund less the registration fee charge. If the
student cancels after the school receives the first completed lesson, the
student's tuition obligation will be their registration fee plus a portion of
the remaining tuition as defined below.
Percentage of Course Completed Amount of Tuition Obligated
------------------------------ ---------------------------
10% of less 10% of tuition
Between 11% - 25% 25% of tuition
Between 26% - 50% 50% of tuition
Over 50% Obligated for full tuition.
When a student withdraws, the Company writes off the remaining tuition
receivable balance against the remaining unearned revenue balance and records a
net increase or decrease to net revenues.
In connection with the development and sale of wireless solutions and web
services, which include the development of business-to-business and
business-to-consumer wireless applications, and state of the art web technology
and design services, the Company recognizes revenue as services are performed or
products are delivered.
Stock Options
The Company accounts for stock options issued to employees in accordance with
the provisions of Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations. As
such, compensation cost is measured on the date of grant as the excess of the
current market price of the underlying stock over the exercise price. Such
compensation amounts, if any, are amortized over the respective vesting periods
of the option grant. The Company adopted the disclosure provisions of SFAS No.
123, "Accounting for Stock-Based Compensation" and SFAS 148, "Accounting for
Stock-Based Compensation -Transition and Disclosure", which permits entities to
provide pro forma net income (loss) and pro forma earnings (loss) per share
disclosures for employee stock option grants as if the fair-valued based method
defined in SFAS No. 123 had been applied. The Company accounts for stock options
and stock issued to non-employees for goods or services in accordance with the
fair value method of SFAS 123.
-7-
CENUCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Earnings (Loss) Per Common Share
Basic net earnings (loss) 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. The
reconciliation between the computations is as follows:
Net Loss Basic Shares Basic EPS
---------- ------------ ---------
Three months ended September 30, 2003 $(240,904) 8,984,724 $(.03)
Three months ended September 30, 2002 $(146,820) 8,701,467 $(.02)
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 loss and loss per
share would have been changed to the pro forma amounts indicated below for the
three months ended September 30, 2003 and 2002:
For the three months ended
September 30,
--------------------------
2003 2002
---------- ----------
Net earnings (loss)
As reported .................... $(240,904) $(146,820)
Pro forma ...................... (269,677) (146,820)
Basic earnings (loss) per share
As reported .................... (.03) (.02)
Pro forma ...................... (.03) (.02)
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.
NOTE 3 - STOCKHOLDERS' EQUITY (DEFICIT)
Common stock
On September 18, 2003, the Company issued 15,000 shares of common stock to
independent directors for services rendered. Such shares were valued at their
market value on the date of issuance at $1.02 per share and recorded consulting
expense of $15,300 related to the consulting services.
On September 18, 2003, the Company issued 13,080 shares of common stock for
services amounting to $9,000. Such shares were valued at their market value at
the beginning of the quarter of the services performed.
-8-
CENUCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 4 - SEGMENT INFORMATION
For the three months ended September 30, 2003 and 2002, the Company operated in
two reportable business segments - (1) the online distance learning industry and
(2) the development and sales of wireless solutions and web services. The online
distant learning segment provides internet education to student internationally.
The latter segment includes development of business-to- business and
business-to-consumer wireless applications, and state of the art web technology
and design services. The Company's reportable segments are strategic business
units that offer different products, which compliment each other. They are
managed separately based on the fundamental differences in their operations.
Information with respect to these reportable business segments for the three
months ended September 30, 2003 and 2002 is as follows:
For the Three Months
Ended September 30,
2003 2002
----------- -----------
Net
Sales:
Online distance learning ..................... $ 214,299 $ 280,619
Wireless solutions ........................... 52,787 175,907
----------- -----------
Total Net Sales .............................. 267,086 456,526
----------- -----------
Costs and Operating Expenses:
Online distance learning ..................... 179,881 325,338
Wireless solutions ........................... 331,891 402,986
----------- -----------
Total Costs and Operating Expenses: .......... 511,772 728,324
----------- -----------
Interest Income:
Online distance learning ..................... 90 6,768
Wireless solutions ........................... 3,692 1,946
----------- -----------
Total Interest Income ........................ 3,782 8,714
----------- -----------
Net Income (Loss):
Online distance learning ..................... 34,508 78,313
Wireless solutions ........................... (275,412) (225,133)
----------- -----------
Total Net Loss: .............................. $ (240,904) $ (146,820)
=========== ===========
Total Assets:
Online distance learning ..................... 1,471,638 3,686,173
Wireless solutions ........................... 956,942 665,488
----------- -----------
$ 2,428,580 $ 4,351,661
=========== ===========
-9-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
GENERAL
The following analysis of the results of operations and financial
condition of the Company should be read in conjunction with the consolidated
financial statements for the year ended June 30, 2003 and notes thereto
contained in the Report on Form 10-KSB of Cenuco, Inc. as filed with the SEC.
These financial statements reflect the consolidated operations of Cenuco, Inc.
(formerly Virtual Academics.com, Inc.) for the three months ended September 30,
2003 and 2002, respectively.
This report on Form 10-QSB contains forward-looking statements. These
statements consist of any statement other than a recitation of historical fact
and can be identified by the use of forward-looking terminology such as "may,"
"expect," "anticipate," "estimate" or "continue" or the negative thereof or
other variations thereon or comparable terminology. The reader is cautioned that
all forward-looking statements are necessarily speculative and there are certain
risks and uncertainties that could cause actual events or results to differ
materially from those referred to in such forward-looking statements. We do not
have a policy of updating forward-looking statements and thus it should not be
assumed that silence over time means that actual events are bearing out as we
estimated in such forward-looking statements.
On December 11th, 2002, the Board of Directors of Virtual
Academics.Com, Inc. recommended and approved the change of its name to Cenuco,
Inc. to better reflect our business direction and operation. Effective December
17, 2002, a majority of our shareholders approved of the name change. Reflecting
the changing focus of our business, we plan to accelerate the development of our
suite of fully integrative wireless solutions for the Security, Real Estate and
Insurance markets.
The change in name signifies the focus on our development of wireless
applications, while maintaining our market presence in the distance-learning
sector. We will continue to expand our online distance- learning programs,
including the AIG Environmental Institute, the Innovation Institute, Barrington
University and the Academy of Health Science and Nutrition.
The development and cultivation of wireless applications will now serve
as the focal point for our initiatives. Already, the wireless subsidiary has
produced viable solutions for the real estate and security markets. In addition,
we launched our retail line of wireless video monitoring solutions,
MommyTrack(TM). The product offers the world's first truly mobile plug and play
surveillance monitoring solution for the consumer. For the three months
September 30, 2003, revenue from our MommyTrack product amounted to
approximately $4,400.
Through our subsidiaries, we are engaged in the online distance
learning business with a focus on the international, second-career adult and
corporate training markets. We currently operate our main school, Barrington
University, from Mobile, Alabama, where the State of Alabama Department of
Education, Code of Alabama, Title 16-46-1 through 10, licenses the school. We
offer degrees and training programs to students in over 80 countries and in
multiple languages. The programs are "virtual" in their delivery format and can
be completed from a laptop, home computer or through a wireless device.
In addition to degree completion programs, we are focusing on training
corporate personnel, continuing education (CE) courses and wireless technology
for education, which we believe is a major growth area.
-10-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
(Continued)
We are currently developing affordable wireless platforms to provide
companies with quality training services for their employees. Our staff works
directly with Human Resource departments to ensure the training is scalable and
applicable to their employees' needs. Our technology provides seamless
information to all employees, regardless if they are in the home, office or out
in the field.
We have released other wireless application products that are currently
being used in the Security, Real Estate and insurance industries. The software
applications are compatible with most existing wireless devices. We expect to
release several academic and training solutions in fiscal 2004.
We have received full approval for Sallie Mae funding for our students
that qualify for Sallie Mae loans. Sallie Mae has been providing funds for
educational loans. Sallie Mae currently owns or manages student loans for more
than seven million borrowers and is the nation's leading provider of educational
loans.
We operate in two reportable business segments - (1) the online
distance learning industry, and (2) the development and sales of wireless
solutions and web services. The latter segment includes development of
business-to-business and business-to-consumer wireless applications, and state
of the art web technology and design services. Our reportable segments are
strategic business units that offer different products. They are managed
separately based on the fundamental differences in their operations and are
discussed separately below.
SEASONALITY IN RESULTS OF OPERATIONS
We experience seasonality in our results of operations from our online
distance-learning segment primarily as a result of changes in the level of
student enrollments and course completion. While we enroll students throughout
the year, December and January average enrollments and course completion and
related revenues generally are lower than other quarters due to seasonal breaks
in December and January. Accordingly, costs and expenses historically increase
as a percentage of tuition and other net revenues as a result of certain fixed
costs not significantly affected by the seasonal second quarter declines in net
revenues.
We experience a seasonal increase in new enrollments in August of each
year when most other colleges and universities begin their fall semesters. As a
result, instructional costs and services and selling and promotional expenses
historically increase as a percentage of tuition and other net revenues in the
fourth quarter due to increased costs in preparation for the August peak
enrollments.
-11-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
(Continued)
RESULTS OF OPERATIONS
Three Months Ended September 30, 2003 compared to Three Months Ended September
30, 2002
Consolidated results
The following discussion relates to our consolidated results of
operations. Further discussion and analysis of operating results follows and is
discussed by segment.
Revenues
For the three months ended September 30, 2003, we had a 41% decrease in
earned revenues to $267,086 from $456,526 for the three months ended September
30, 2002.
Cost of Equipment Sales
For the three months ended September 30, 2003 and 2002, we incurred cost
of sales related to the sale of equipment of $9,083 and $98,010, respectively.
Instruction and Educational Support
Instruction and educational support expenses related to our online
distant-learning segment. For the three months ended September 30 2003,
instructional and educational support expenses decreased by 57% to $8,567 or
3.2% of net revenues as compared to $20,068 or 4.4% of net revenues for the
three months ended September 30, 2002.
Selling and Promotion
Selling and promotion expense consists primarily of recruiting fees,
advertising, trade show expense, and travel. For the three months ended
September 30, 2003, selling and promotion expenses decreased by 69% to $35,328
or 13.2% of net revenues as compared to $114,466 or 25.1% of net revenues for
the three months ended September 30, 2002.
General and Administrative Expenses
General and administrative expenses, which includes salaries,
professional fees, rent, travel and entertainment, insurance, bad debt, and
other expenses, were $441,153 for the three months ended September 30, 2003 as
compared to $473,812 for the three months ended September 30, 2002. This
amounted to 165.2% of net revenues for the three months ended September 30, 2003
as compared to 104% for the three months ended September 30, 2002.
Interest Income
Interest income was $3,782 for the three months ended September 30,
2003 as compared to $8,714 for the three months ended September 30, 2002, a
decrease of $4,932
-12-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
(Continued)
RESULTS OF OPERATIONS (Continued)
Three Months Ended September 30, 2003 compared to Three Months Ended September
30, 2002
Income Taxes
Deferred tax assets and liabilities are provided for significant income
and expense items recognized in different years for tax and financial reporting
purposes. As of September 30, 2002, we did not record a valuation allowance on
the deferred tax assets because the Company's ability to realize these benefits
was "more likely than not". The deferred tax asset was reported in the
accompanying balance sheet at September 30, 2002. As of September 30, 2003, the
net deferred taxes have been fully offset by a valuation allowance since the
Company cannot currently conclude that it is more likely than not that the
benefits will be realized. The net operating loss carryforward for income tax
purposes of approximately $1,175,000 expires beginning in 2017. Internal Revenue
Code Section 382 places a limitation on the amount of taxable income that can be
offset by carryforwards after a change in control (generally greater than a 50%
change in ownership).
Online Distance Learning Segment
Revenues
For the three months ended September 30, 2003, we had a 24% decrease in
earned revenues to $214,299 from $280,619 for the three months ended September
30, 2002. The decrease in revenues is due primarily to a decrease in the number
of students that have registered for our programs. Additionally, our students
completed their courses at a slower rate than expected. Unearned revenue
represents the portion of tuition revenue invoiced but not earned and is
reflected as a liability in the accompanying consolidated balance sheets. Since
we will recognize tuition and registration revenue based on the number of
courses actually completed in each student's course of study, student course
completion efforts, if successful, are extremely beneficial to operating
results. During the three months ended September 30, 2003, we experienced a
general slowdown in course completion by our students, which had an adverse
effect on our revenue. We have recently increased our marketing efforts and
expect student enrollment to increase in the second quarter of fiscal 2004.
Tuition refunds are based on the date that the student cancels and the
policy is as follows: If the student withdraws within 5 calendar days after
midnight of the day the student signs the Enrollment Agreement (Full Refund
Period) the student will receive a full refund with no further obligation. If
the student cancels after the Full Refund Period but before the school receives
the first completed lesson, the student will be charged a registration fee of
$150 and the student will receive a full refund less the registration fee
charge. If the student cancels after the school receives the first completed
lesson, the student's tuition obligation will be their registration fee plus a
portion of the remaining tuition as defined below.
Percentage of Course Completed Amount of Tuition Obligated
------------------------------ ---------------------------
10% of less 10% of tuition
Between 11% - 25% 25% of tuition
Between 26% - 50% 50% of tuition
Over 50%. Obligated for full tuition.
-13-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
(Continued)
RESULTS OF OPERATIONS (Continued)
Three Months Ended September 30, 2003 compared to Three Months Ended September
30, 2002
When a student withdraws, we write off the remaining tuition receivable
balance against the remaining unearned revenue balance and recorded a net
increase or decrease to net revenues. The effect on net revenues was
approximately a decrease of approximately $2,000 for the three months ended
September 30, 2003.
Expenses
Instruction and Educational Support
Instruction and educational support expenses consist primarily of
student supplies such as textbooks as well as course development fees, credit
card fees, computer related expenses, and printing fees. For the three months
ended September 30, 2003, instructional and educational support expenses
decreased by 57.3% to $8,567 or 4% of net revenues as compared to $20,068 or
7.15% of net revenues for the three months ended September 30, 2002. The
decrease in instructional and educational support expenses and the related
percentages was mainly attributable to the fact that we have enrolled fewer
students in the current period and we are able to purchase text books from a new
supplier at reduced prices. Accordingly, student supply expense was $783 or 0.4%
of revenues for the three months ended September 30, 2003 as compared to $3,993
or 1.4% of revenue for the three months ended September 30, 2002. Printing and
reproduction costs increased to $3,084 for the three months ended September 30,
2003 as compared to $1,440 for the three months ended September 30, 2002.
Computer and internet expenses increased to $1,994 for the three months ended
September 30, 2003 as compared to $1,667 for the three months ended September
30, 2002. Additionally, we didn't incurred costs associated with course
development for the three months ended September 30, 2003 as compared to $8,292
for the three months ended September 30, 2002.
Selling and Promotion
Selling and promotion expense consists primarily of recruiting fees,
advertising and travel. For the three months ended September 30, 2003, selling
and promotion expenses decreased by 101.5% to $(612) or 1.0% of net revenues as
compared to $39,564 or 14.1% of net revenues for the three months ended
September 30, 2002. The decrease in selling and promotion expenses is
attributable to the shift in our selling and promotion efforts to our wireless
solutions segment. For the three months ended September 30. 2003, advertising
expense amounted to $9,222 as compared to $28,680 for the three months ended
September 30, 2002. Additionally, our recruiting fees decreased to $(11,031) for
three months ended September 30, 2003 from $8,554 for the three months ended
September 30, 2002. The decrease is attributable to our decreased use of
recruiters to obtain students and a general slow-down in new students.
Additionally, during the three months ended September 30, 2003, we reversed
accrued recruiting fees due to the withdrawal of students that attributed to the
recoding of recruiting fee income. We are currently running advertisements in
various national publications and newspapers in order to attract more students.
We expect our advertising budget to increase through the end of fiscal 2004.
-14-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
(Continued)
RESULTS OF OPERATIONS (CONTINUED)
Three Months Ended September 30, 2003 compared to Three Months Ended September
30, 2002
Online Distance Learning Segment (Continued)
General and Administrative Expenses
General and administrative expenses, which includes salaries,
professional fees, rent, travel and entertainment, insurance, bad debt, and
other expenses, were $171,926 for the three months ended September 30, 2003 as
compared to $265,706 for the three months ended September 30, 2002. This
amounted to 80.23% of net revenues for the three months ended September 30, 2003
as compared to 94.7% for the three months ended September 30, 2002. The decrease
was primarily due to the following factors:
The cost of professional fees decreased to $15,634 for the three months
ended September 30, 2003 as compared to $25,634 for the three months ended
September 30, 2002. During the three months ended September 30, 2002, we
incurred additional costs associated with the filing of a registration statement
with the Securities and Exchange Commission and incurred legal expenses in
connection with the dismissal of a lawsuit. For the three months ended September
30, 2003, salaries were $93,526 as compared to salaries of $84,888 for the three
months ended September 30, 2002. The increase in salaries was attributable to
new staff recruited as an effort to increase the number of student enrolled.
Additionally, we experienced a decrease in postage and delivery and telephone
expenses due to a decrease in student activity. We incurred bad debt expense of
$(10,076) for the three months ended September 30, 2003 as compared to $86,578
for the three months ended September 30, 2002 For the three months ended
September 30, 2003, we reduced our allowance for doubtful account die to the
withdrawal of inactive students.
Interest Income
Interest income was $90 for the three months ended September 30, 2003
as compared to $6,768 for the three months ended September 30, 2002, a decrease
of $6,678 due to the fact that cash was transferred to our wireless segment. We
currently invest our excess cash balances in primarily two interest-bearing
accounts with two financial institutions.
-15-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
(Continued)
RESULTS OF OPERATIONS (CONTINUED)
Three Months Ended September 30, 2003 compared to Three Months Ended September
30, 2002
Wireless and Web Solutions Segment
For the three months ended September 30, 2003 and 2002, we had net
revenues of $52,787 and $175,907, respectively, which consisted of the
following:
Equipment Sales ........................ $ 848 $ 97,090
Wireless Solutions and Web Services .... 17,851 60,511
Other .................................. 34,088 18,306
-------- --------
$ 52,787 $175,907
======== ========
For the three months ended September 30, 2002, equipment sales included
revenues from the sale of telephone equipment or approximately $78,000 that we
no longer sell in the current period. Additionally, in the three months ended
September 30, 2002, we had non-recurring revenues from certain web related
development service amounting to approximately $30,000.
For the three months ended September 30, 2003 and 2002, we incurred
cost of sales related to the sale of equipment of $9,083 and $98,010,
respectively.
For the three months ended September 30, 2003 and 2002, we incurred
research and development expenses from the development of our new products of
$17,641 and $21,968, respectively.
For the three months ended September 30, 2003, selling and promotion
expenses amounted to $35,940, which included $18,365 in commission expense,
$8,138 in advertising expense, printing and reproduction expense of $3,848, and
travel expenses of $5,589. For the three months ended September 30, 2002,
selling and promotion expenses amounted to $74,902, which included $4,732 in
commission expense, $2,088 in advertising expense, $51,510 of trade show
expense, and other expenses.
For the three months ended September 30, 2003, we incurred $269,227 of
general and administrative expenses, which included salaries expense of
$104,643, consulting expense of $74,483, computer and internet related expenses
of $1,323, rent expense of $10,804, professional fees of $9,946 and other
expenses. For the three months ended September 30, 2002, we incurred $208,106 of
general and administrative expenses, which included salaries of $117,894,
consulting expense of $18,000, computer and internet related expenses of $3,037,
rent expense of $4,308, licensing fees of $7,656 and other expenses. The
increase in consulting fees for the three months ended September 30, 2003 as
compared to the three months September 30, 2002 was attributable to an increase
in fees paid for public relations services related to our MommyTrack product.
The increase in rent expense for the three months ended September 30, 2003 as
compared to the three moths ended September 30, 2002 was attributable the
increase in rent allocated to our wireless segment related to an increase in
office space used by this segment.
-16-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
(Continued)
RESULTS OF OPERATIONS (CONTINUED)
Three Months Ended September 30, 2003 compared to Three Months Ended September
30, 2002
Wireless and Web Solutions Segment (Continued)
For the three months ended September 30, 2003 and 2002, interest income
was $3,692 and $1,946, respectively. We currently invest our excess cash
balances in primarily two interest-bearing accounts with two financial
institutions.
Overall Consolidated results
Net income (loss)
As a result of the foregoing factors, we recognized a net loss of
$(240,904) or $(.03) per share on a consolidated basis for the three months
ended September 30, 2003 as compared to net loss of $(146,820) or $(.02) per
share for the three months ended September 30, 2002.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2003, we had $814,197 in cash and equivalents and a
short-term investment on hand to meet our obligations.
During the three months ended September 30, 2003, we invested
substantial time and resources developing and evaluating products and
opportunities for our wireless solutions segment. We will continue to develop
new wireless solutions for both of our segments and may consider acquisitions,
business combinations, or start up proposals, which could be advantageous to our
product lines or business plans, although the Company expects to be profitable
in the future there can be no assurance.
Net cash used in operations was $165,707 for the three months ended
September 30, 2003 as compared to net cash used in operations of $112,471 for
the three months ended September 30, 2002. We used additional cash funds for
salaries and expenses related to the development of our wireless security
products and a significant decrease in revenues. We feel that with expected
positive cash flow, our current cash balance is sufficient to sustain our
operations over the ensuing 12-month period, including the expected growth
during this period.
Net cash used in investing activities for the three months ended
September 30, 2003 was $20,128 as compared to $17,193 for the three months ended
September 30, 2002 and related to the acquisition of property and equipment of
$16,798 and an increase in a short-term investment of $3,330. During the three
months ended September 30, 2003, we acquired computer equipment to be used in
the development of our wireless solutions.
We currently have no material commitments for capital expenditures. Our
future growth is dependent on our ability to raise capital for expansion, and to
seek additional revenue sources. If we decide to pursue any acquisition
opportunities or other expansion opportunities, we may need to raise additional
capital, although there can be no assurance such capital- raising activities
would be successful.
-17-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
(Continued)
CRITICAL ACCOUNTING POLICIES
A summary of significant accounting policies is included in Note 1 to
the audited financial statements included in this Annual Report on Form 10-KSB
for the year ended June 30, 2003. We believe that the application of these
policies on a consistent basis enables us to provide useful and reliable
financial information about our operating results and financial condition.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.
We account for stock options issued to employees in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations. As such,
compensation cost is measured on the date of grant as the excess of the current
market price of the underlying stock over the exercise price. Such compensation
amounts, if any, are amortized over the respective vesting periods of the option
grant. We adopted the disclosure provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation" and SFAS 148, "Accounting for Stock-Based Compensation
-Transition and Disclosure", which permits entities to provide pro forma net
income (loss) and pro forma earnings (loss) per share disclosures for employee
stock option grants as if the fair-valued based method defined in SFAS No. 123
had been applied. We account for stock options and stock issued to non-employees
for goods or services in accordance with the fair value method of SFAS 123.
We recognize tuition and registration revenue based on the number of
courses actually completed in each student's course of study. For example, if a
student completes three out of his nine required courses, the Company will
recognize 33% of the tuition regardless of the amount of time that the student
has taken to fulfill these requirements. Tuition refunds are based on the date
that the student cancels and the policy is as follows: If the student withdraws
within 5 calendar days after midnight of the day the student signs the
Enrollment Agreement (Full Refund Period) the student will receive a full refund
with no further obligation. If the student cancels after the Full Refund Period
but before the school receives the first completed lesson, the student will be
charged a registration fee of $150 and the student will receive a full refund
less the registration fee charge. If the student cancels after the school
receives the first completed lesson, the student's tuition obligation will be
their registration fee plus a portion of the remaining tuition as defined below.
Percentage of Course Completed Amount of Tuition Obligated
------------------------------ ---------------------------
10% of less 10% of tuition
Between 11% - 25% 25% of tuition
Between 26% - 50% 50% of tuition
Over 50% Obligated for full tuition.
When a student withdraws, we write off the remaining tuition receivable
balance against the remaining unearned revenue balance and recorded a net
increase or decrease to net revenues. The effect on net revenues was
approximately a decrease of approximately $2,000 for the three months ended
September 30, 2003.
-18-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
(Continued)
CRITICAL ACCOUNTING POLICIES (Continued)
In connection with the development and sale of wireless solutions and
web services, which include the development of business-to-business and
business-to-consumer wireless applications, and state of the art web technology
and design services, the Company recognizes revenue as services are performed or
on a pro rata basis over the contract term.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has recently issued several
new accounting pronouncements:
In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities." FIN 46 requires that if an entity
has a controlling financial interest in a variable interest entity, the assets,
liabilities and results of activities of the variable interest entity should be
included in the consolidated financial statements of the entity. FIN 46 requires
that its provisions are effective immediately for all arrangements entered into
after January 31, 2003. The Company does not have any variable interest entities
created after January 31, 2003. For those arrangements entered into prior to
January 31, 2003, the FIN 46 provisions are required to be adopted at the
beginning of the first interim or annual period beginning after June 15, 2003.
The Company has not identified any variable interest entities to date.
In January 2003, the EITF finalized a consensus on Issue No. 02-16,
"Accounting by a Customer (Including a Reseller) for Cash Consideration Received
from a Vendor." The Task Force concluded that cash consideration in excess of
specific identifiable costs, including sales incentives, allowances, discounts,
coupons, rebates and price reductions, when meeting certain criteria, constitute
a reduction in vendor price, and should therefore be reflected as a reduction in
cost of sales when the related merchandise is sold. The EITF concluded that this
literature should be applied to new arrangements, including modifications of
existing arrangements, entered into after December 31, 2002. We adopted EITF
02-16 as of January 1, 2003. The adoption of EITF 02-16 had an immaterial impact
on our consolidated financial position and results of operations.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity." This
statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. This statement is effective for financial instruments entered into or
modified after May 31, 2003, and otherwise is effective for the first interim
period beginning after June 15, 2003, with certain exceptions. The adoption of
SFAS No. 150 did not have a significant impact on our consolidated financial
position or results of operations.
-19-
ITEM 3. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, we conducted an
evaluation, under the supervision and with the participation of the Chief
Executive Officer and Principal Accounting Officer, of our disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934 (the "Exchange Act")). Based on this evaluation, the Chief
Executive Officer and Principal Accounting Officer concluded that the Company's
disclosure controls and procedures are effective to ensure that information
required to be disclosed by the Company in reports that it files or submits
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in Securities and Exchange Commission rules and
forms. There was no change in the Company's internal control over financial
reporting during the Company's most recently completed fiscal quarter that has
materially affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.
Changes in Internal Controls
There have been no significant changes (including corrective actions
with regard to significant deficiencies or material weaknesses) in our internal
controls or in other factors that could significantly affect these controls
subsequent to the Evaluation Date set forth above.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time the company faces litigation in the ordinary course
of business. Currently we are not involved with any litigation which will have a
material adverse effect on our financial condition.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On September 18, 2003, the Company issued 15,000 shares of common stock
to independent directors for services rendered. Such shares were valued at their
market value on the date of issuance at $1.02 per share and recorded consulting
expense of $15,300 related to the consulting services.
On September 18, 2003, the Company issued 13,080 shares of common stock
for debt amounting to $9,000. Such shares were valued at their market value at
the beginning of the quarter of the services performed.
-20-
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
31.1 Certification of Chief Executive Officer in accordance with 18
U.S.C. Section 1350, as adopted by Section 302 of the
Sarbanes-Oxley Act of 2002 (3)
31.2 Certification of Principal Financial Officer in accordance
with 18 U.S.C. Section 1350, as adopted by Section 302 of the
Sarbanes-Oxley Act of 2002 (3)
32.1 Certification of Chief Executive Officer in accordance with 18
U.S.C. Section 1350, as adopted by Section 906 of the
Sarbanes-Oxley Act of 2002 (3)
32.1 Certification of Principal Financial Officer in accordance
with 18 U.S.C. Section 1350, as adopted by Section 906 of the
Sarbanes-Oxley Act of 2002 (3)
(b) Reports on Form 8-K
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, duly authorized.
CENUCO, INC. AND SUBSIDIARIES
Dated: November 14, 2003 By: /s/ Steven Bettinger
---------------------------
Steven Bettinger, President
and Chief Executive Officer
Dated: November 14, 2003 By: /s/ Robert Bettinger
-----------------------------
Robert Bettinger, Chairman of the
Board, Treasurer, Principal
Financial and Accounting Officer
-21-