UNITED STATES
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, 2004
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 33487
(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 October 31, 2004, the issuer had outstanding 12,357,271 shares of common
stock, $.001 par value per share.
CENUCO, INC. AND SUBSIDIARIES
FORM 10-QSB
QUARTERLY PERIOD ENDED SEPTEMBER 30, 2004
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheet
As of September 30, 2004 (Unaudited) ..............................3
Consolidated Statements of Operations (Unaudited)
For the Three Months ended September 30, 2004 and 2003.............4
Consolidated Statements of Cash Flows (Unaudited)
For the Three Months Ended September 30, 2004 and 2003.............5
Notes to Consolidated Financial Statements......................6-13
Item 2 - Management's Discussion and Analysis and
Results of Operations.......................................14-18
Item 3 - Control and Procedures.........................................19
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings..............................................19
Item 2 - Changes in Securities and Use of Proceeds......................19
Item 4 - Submission of Matters to a Vote of Security Holders............20
Item 5 - Other Information..............................................20
Item 6 - Exhibits and Reports on Form 8-K...............................21
Signatures..............................................................21
-2-
CENUCO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
September 30, 2004
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents ..................................................... $ 97,426
Short-term Investments ........................................................ 5,203,197
Note Receivable, Current Portion .............................................. 73,852
Accounts Receivable (Net of Allowance for Doubtful Accounts of $18,243) ....... 120
Inventories ................................................................... 69,420
Receivable from Sale of Business .............................................. 300,000
Other Current Assets .......................................................... 99,722
------------
Total Current Assets ...................................................... 5,843,737
------------
PROPERTY AND EQUIPMENT:
Computer Equipment and Software ............................................... 222,138
Furniture, Fixtures and Office Equipment ...................................... 50,699
Leasehold Improvements ........................................................ 3,051
------------
Total Property and Equipment .............................................. 275,888
Less: Accumulated Depreciation ................................................ (155,244)
------------
Total Property and Equipment, Net ......................................... 120,644
------------
OTHER ASSETS:
Note Receivable, less current portion ......................................... 626,148
Security Deposits ............................................................. 8,642
------------
Total Other Assets ........................................................ 634,790
------------
Total Assets .............................................................. $ 6,599,171
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable .............................................................. $ 117,174
Other Accrued Expenses ........................................................ 212,660
Deferred Revenue .............................................................. 917
------------
Total Current Liabilities ................................................. 330,751
LONG-TERM LIABILITIES:
Deferred Gain from Sale of Business ........................................... 200,000
------------
Total Liabilities ......................................................... 530,751
------------
COMMITMENTS AND CONTINGENCIES (See Note 5)
STOCKHOLDERS' EQUITY:
Preferred Stock ($.001 Par Value; 1,000,000 Shares Authorized)
No Shares Issued and Outstanding ) ...................................... -
Common Stock ($.001 Par Value; 25,000,000 Shares Authorized;
12,247,271 Shares Issued and Outstanding) ............................... 12,247
Common Stock Issuable (47,301 shares) ......................................... 47
Additional Paid-in Capital .................................................... 10,480,259
Accumulated Deficit ........................................................... (4,200,574)
Deferred Consulting ........................................................... (223,559)
------------
Total Stockholders' Equity ................................................ 6,068,420
------------
Total Liabilities and Stockholders' Equity ................................ $ 6,599,171
============
See accompanying notes to consolidated financial statements
-3-
CENUCO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three months Ended
September 30,
---------------------------
2004 2003
------------ -----------
NET REVENUES:
Wireless Products and Services .................................. $ 1,501 $ 52,787
------------ -----------
NET REVENUES ........................................................ 1,501 52,787
------------ -----------
COSTS AND EXPENSES:
Cost of Equipment Sales - Wireless Products and Services ........
COSTS AND EXPENSES:
Cost of Equipment Sales - Wireless Products and Services ........ 3,323 9,083
Research and Development ........................................ 5,018 17,641
Bad Debt Expense ................................................ 20,343 -
Selling and Promotion ........................................... 99,285 35,940
General and Administrative ...................................... 773,179 336,902
------------ -----------
Total Operating Expenses .................................... 901,148 399,566
------------ -----------
LOSS FROM OPERATIONS ................................................ (899,647) (346,779)
OTHER INCOME:
Interest Income ................................................. 13,203 3,782
------------ -----------
LOSS BEFORE DISCONTINUED OPERATIONS ................................. (886,444) (342,997)
DISCONTINUED OPERATIONS:
Gain from Sale of Discontinued Operations, net of income taxes .. 1,814,648 -
Income from Discontinued Operations ............................. 104,622 102,093
------------ -----------
Total Income from Discontinued Operations ................... 1,919,270 102,093
------------ -----------
NET INCOME (LOSS) ................................................... $ 1,032,826 $ (240,904)
============ ===========
INCOME (LOSS) PER COMMON SHARE- BASIC
Loss from continuing operations ................................. $ (0.08) $ (0.05)
Income from discontinued operations ............................. 0.16 0.01
------------ -----------
Net income (loss) per common share .............................. $ 0.08 $ (0.04)
============ ===========
INCOME (LOSS) PER COMMON SHARE - DILUTED
Loss from continuing operations ................................. $ (0.07) $ (0.05)
Income from discontinued operations ............................. 0.14 0.01
------------ -----------
Net income (loss) per common share .............................. $ 0.07 $ (0.04)
============ ===========
Weighted Common Shares Outstanding - Basic .................. 12,226,753 6,819,620
============ ===========
Weighted Common Shares Outstanding - Diluted ................ 13,952,665 6,819,620
============ ===========
See accompanying notes to consolidated financial statements
-4-
CENUCO, INC. AND SUBSIDIARES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended
September 30,
-------------------------
2004 2003
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Loss from Continuing Operations .................................... $ (886,444) $ (342,997)
Adjustments to Reconcile Net Loss from Continuing Operations
to Net Cash Used in Operating Activities:
Depreciation ................................................ 9,408 11,220
Stock-Based Compensation .................................... 319,262 28,300
Provision for Doubtful Accounts ............................. 20,343 -
(Increase) Decrease in:
Accounts Receivable ....................................... 6,473 (5,922)
Inventories ............................................... (51,138) 3,161
Other Current Assets ...................................... (327,406) (12,097)
Increase (Decrease) in:
Accounts Payable .......................................... (14,443) (9,323)
Other Accrued Expenses .................................... 85,901 (33,174)
Deferred Revenue .......................................... (2,750) -
----------- -----------
Net Cash Flows Used in Continuing Operating Activities ................. (840,794) (360,832)
----------- -----------
Income (loss) from Discontinued Operations ......................... 1,919,270 102,093
Adjustments to Reconcile Income (Loss) from Discontinued
Operations to Net Cash Used in Discontinued Operating Activities:
Gain from Sale of Discontinued Operation .................... (1,894,648) -
Net Decrease in Net Liabilities of Discontinued Operations .. 316,979 93,032
----------- -----------
Net Cash Provided by Discontinued Operating Activities ................. 341,601 195,125
----------- -----------
Net Cash Flows Used in Operating Activities ............................ (499,193) (165,707)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Decrease) Increase in Short-term Investment ....................... 186,801 (3,330)
Acquisition of Property and Equipment .............................. (2,000) (16,798)
----------- -----------
Net Cash Flows Provided by (Used in) Investing Activities .............. 184,801 (20,128)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Exercise of Stock Options and Warrants ............... 105,500 -
----------- -----------
Net Cash Flows Provided by Financing Activities ........................ 105,500 -
----------- -----------
Net Decrease in Cash and Cash Equivalents .............................. (208,892) (185,835)
Cash and Cash Equivalents - Beginning of Year .......................... 306,318 295,088
----------- -----------
Cash and Cash Equivalents - End of Period .............................. $ 97,426 $ 109,253
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest ........................................................... $ - $ -
=========== ===========
Income Taxes ....................................................... $ - $ -
=========== ===========
See accompanying notes to consolidated financial statements
-5-
CENUCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
Cenuco, Inc., a Florida corporation ("Cenuco") and wholly-owned subsidiary of
Cenuco, Inc. (a Delaware corporation), has pioneered the ability to transmit
live streaming video onto cellular phones, cellular capable Personal Digital
Assistants, 802.x devices, and remote computers. The patent pending core
technology has been productized as a security remote video monitoring family of
products for the retail/consumer, small to medium size enterprise, as well as
for large enterprise, government, and homeland security market sectors. Cenuco's
cellular remote video monitoring products are approved for sale to all Federal
and military agencies, including the Department of Homeland Security. Cenuco was
issued a five-year General Services Administration Contract number,
GS-04F-0025N, in July 2003. Cenuco also develops wireless solutions and web
services for the academic, real estate, and other markets. By offering remote
monitoring services and technologies as a product and for licensing, Cenuco is
positioned to grow within the application space worldwide.
On September 30, 2004, the Company sold substantially all of the assets and
business of its subsidiary, Barrington University, Inc. (See Note 3).
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 and adjustments for
the asset sale) 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, 2004 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, 2004 are not necessarily indicative of the results for the
full fiscal year ending June 30, 2005.
Certain reclassifications have been made to the prior period's consolidated
statements of operations to conform to the current period's presentation.
Inventories
Inventories, consisting of security cameras and equipment, are stated at the
lower of cost or market utilizing the first-in, first-out method.
-6-
CENUCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 2004
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
The Company follows the guidance of the Securities and Exchange Commission's
Staff Accounting Bulletin 104 for revenue recognition. In general, the Company
records revenue when persuasive evidence of an arrangement exists, services have
been rendered or product delivery has occurred, the sales price to the customer
is fixed or determinable, and collectability is reasonably assured. The
following policies reflect specific criteria for the various revenues streams of
the Company:
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 wireless
technology and services, the Company recognizes revenue as services are
performed on a pro-rata basis over the contract term or products are delivered.
The Company has executed a distribution agreement whereby the distributor may
purchase wireless product on consignment. Any sales made to the distributor
under this agreement will be recorded as a deferred revenue liability until such
time as the distributor has sold the product at which time the Company will
recognize the related revenues.
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.
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, 2004 and 2003:
-7-
CENUCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 2004
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Stock Options (continued)
For the three months ended
September 30,
--------------------------
2004 2003
----------- ----------
Net income (loss) as reported ............. $ 1,032,826 $ (240,904)
(Add) Less: total stock-based employee
compensation expense determined under
fair value based method, net of related
tax effect ................................ (53,303) (28,773)
----------- ----------
Pro forma net income (loss) ............... $ 979,523 $ (269,677)
=========== ==========
Basic income (loss) per share:
As reported ................... $ .08 $ (.03)
=========== ==========
Pro forma ..................... $ .08 $ (.03)
=========== ==========
Diluted income (loss) per share:
As reported ................... $ .07 $ (.03)
=========== ==========
Pro forma ..................... $ .07 $ (.03)
=========== ==========
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.
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. For the three months ended
September 30, 2003, 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. Not included in basic shares are
4,126,000 stock options and warrants because they are anti-dilutive in 2003. The
reconciliation between the computations is as follows:
2004 2003
---- ----
Income (loss) available to common shares .. $ 1,032,826 $ (240,904)
----------- ----------
Weighted average shares outstanding-basic 12,226,753 6,819,620
----------- ----------
Earnings (loss) per share - Basic ......... $ 0.08 $ (0.04)
=========== ==========
Income (loss) available to common shares .. $ 1,032,826 $ (240,904)
----------- ----------
Weighted average shares outstanding-basic 12,226,753 6,819,620
Effect of dilutive securities:
Stock options ............................. 1,063,656 -
Warrants .................................. 662,256 -
----------- ----------
Weighted average shares outstanding-diluted 13,952,665 6,819,620
----------- ----------
Earnings (loss) per share - Diluted ....... $ 0.07 $ (0.04)
=========== ==========
-8-
CENUCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 2004
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Intangibles and other Long-Lived Assets
The Company reviews the carrying value of intangibles and other long-lived
assets for impairment at least annually or whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of long-lived assets is measured by comparison of
its carrying amount to the undiscounted cash flows that the asset or asset group
is expected to generate. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the property, if any, exceeds its fair market value. Goodwill
represents the excess of the cost of the Company's acquired subsidiaries or
assets over the fair value of their net assets at the date of acquisition. Under
Statement of Financial Accounting Standards ("SFAS") No. 142, effective the
first quarter of the year ended December 31, 2002, goodwill is no longer subject
to amortization over its estimated useful life; rather, goodwill is subject to
at least an annual assessment for impairment applying a fair-value based test.
Recent Accounting Pronouncements
In March 2004, the Financial Accounting Standards Board (FASB) approved the
consensus reached on the Emerging Issues Task Force (EITF) Issue No. 03-1, "The
Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments." The objective of this Issue is to provide guidance for identifying
impaired investments. EITF 03-1 also provides new disclosure requirements for
investments that are deemed to be temporarily impaired. The accounting
provisions of EITF 03-1 are effective for all reporting periods beginning after
June 15, 2004, while the disclosure requirements are effective only for annual
periods ending after June 15, 2004. The Company has evaluated the impact of the
adoption of EITF 03-1 and does not believe the impact will be significant to the
Company's overall results of operations, cash flows or financial position.
NOTE 3 - SALE OF SUBSIDIARY
Effective September 30, 2004, the Company entered into a Purchase and Sale
Agreement (the "Sale Agreement") and sold substantially all of the assets of its
subsidiary, Barrington University, Inc for $1,000,000, subject to a reduction of
$200,000 if the buyer does not collect 95% of the receivables on the books as of
September 30, 2004 prior to September 30, 2005. In connection with the Sale
Agreement, the Company is to receive $300,000 in cash. As of September 30, 2004,
the cash was held in escrow and was received by the Company in October 2004. As
of September 30, 2004, the Company reflected a receivable from the sale of
business on the accompanying balance sheet. Additionally, the buyer executed a
promissory note in favor of the Company in the amount of $700,000 payable as
follows:
(a) Twenty (20) equal and consecutive quarterly payments of $29,122.87
each (amortized on the basis of $500,000), with payments beginning on
March 1, 2005. Interest accrues at a rate of 6% per annum. During the
first 6 months, interest will accrue but not be paid. The $15,000 of
interest accrued is payable in 5 equal monthly installments beginning
December 1, 2004.
(b) A final balloon payment of $200,000 due on January 1, 2010. If the
purchase price is reduced due to buyer not collecting 95% of the
receivables on the books as of September 30, 2004 prior to September
30, 2005, the final balloon payment will be eliminated.
-9-
CENUCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 2004
NOTE 3 - SALE OF SUBSIDIARY (continued)
As a result of the sale of the Company's subsidiary, for the three months ended
September 30, 2004, the Company recorded a gain of $1,814,648 and a deferred
gain on the sale of $200,000 (representing the contingent balloon payment due).
The results of operations of the Company's Barrington University subsidiary is
reported separately as a discontinued operation, and prior periods have been
restated in the Company's financial statements, related footnotes and the
management's discussion and analysis to conform to this presentation.
The Company's income (loss) from discontinued operations for the three months
ended September 30, 2004 and 2003 are summarized as follows:
For the Three Months Ended,
September 30,
2004 2003
---- ----
Sales ...................................... $ 261,288 $ 214,299
Operating Expenses ......................... 156,666 112,206
---------- ----------
Net loss from discontinued operations before
gain on sale .............................. 104,622 102,093
Gain on sale of assets of subsidiary ....... 1,814,648 -
---------- ----------
Income (loss) from discontinued
operations ................................. $1,919,270 $ 102,093
========== ==========
The gain on sale from the sale of substantially all of the assets of the
Company's Barrington subsidiary is calculated as follows:
Sale price for subsidiary's assets .......................... $ 1,000,000
Less: direct transaction expenses:
Investment banking fee ................................... (80,000)
Add: net deficit of subsidiary at date of sale .............. 1,094,648
Less: deferred gain on sale of subsidiary ................... (200,000)
-----------
Gain on disposal of subsidiary, net of taxes ................ $ 1,814,648
===========
-10-
CENUCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 2004
NOTE 3 - STOCKHOLDERS' EQUITY
Common stock
In July 2004, the Company issued 10,000 shares previously issuable.
On July 23, 2004, the Company issued an aggregate of 34,000 shares of common
stock (17,000 common shares each) to two employees' of the Company for services
rendered. Such shares were valued at their market value on the date of issuance
at $3.71 per share. The Company recorded compensation of $126,140 related to
these services.
During the quarter ended September 30, 2004, the Company shall issue 265 shares
of common stock for services rendered. The Company valued these shares at their
market value on the first date at the beginning of the service period at $5.65
per share and recorded professional fees of $1,500. As of September 30, 2004,
these shares had not been issued and are included in common stock issuable on
the consolidated balance sheet.
During the quarter ended September 30, 2004, the Company issued 100,000 shares
of common stock upon the exercise of 100,000 warrants for proceeds of $100,000
or $1.00 per share.
During the quarter ended September 30, 2004, the Company issued 10,000 shares of
common stock upon the exercise of 10,000 options for proceeds of $5,500 or $.55
per share. As of September 30, 2004, these shares had not been issued and are
included in common stock issuable on the consolidated balance sheet.
Common stock options and warrants
On July 23, 2004, the Company granted options to purchase 60,000 shares of
common stock to employees of the Company. The options are exercisable at $3.70
per share, which exceeds the fair market value of the common stock at the grant
date. Accordingly, under APB 25, no compensation expense was recognized. The
options expire on July 23, 2014 or earlier due to employment termination.
On July 28, 2004, the Company granted options to purchase 15,000 shares of
common stock to an employee of the Company. The options are exercisable at $4.00
per share, which exceeds the fair market value of the common stock at the grant
date. Accordingly, under APB 25, no compensation expense was recognized. The
options expire on July 28, 2014 or earlier due to employment termination.
A summary of the status of the Company's outstanding stock options as of
September 30, 2004 and changes during the three months ended September 30, 2004
is as follows:
Weighted Average
Exercise
Shares Price
---------- ----------------
Outstanding at June 30, 2004 ........... 1,361,000 $ 0.96
Granted .............................. 75,000 3.77
Exercised ............................ (10,000) (0.55)
Forfeited ............................ (100,000) (1.73)
--------- --------
Outstanding at September 30, 2004 ...... 1,326,000 $ 1.07
========= ========
Options exercisable at end of period ... 721,000 $ 0.39
========= ========
Weighted-average fair value of options
granted during the period ............ $ 3.71
-11-
CENUCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 2004
NOTE 3 - STOCKHOLDERS' EQUITY (continued)
Common stock options
The following information applies to options outstanding at September 30, 2004:
Options Outstanding Options Exercisable
-------------------------- ---------------------
Weighted -
Range Average Weighted - Weighted -
of Remaining Average Average
Exercise Contractual Exercise Exercise
Prices Shares Life (Years) Price Shares Price
-------- --------- ------------ ---------- ------- ----------
$0.35 220,000 8.00 $ 0.35 146,667 $0.35
$0.42 220,000 8.17 $ 0.42 146,667 $0.42
$0.55 276,000 7.25 $ 0.55 276,000 $0.55
$1.15 295,000 9.50 $ 1.15 8,333 $1.15
$1.55 40,000 8.50 $ 1.55 13,333 $1.55
$2.00 175,000 9.00 $ 2.00 75,000 $2.00
$2.50 25,000 6.50 $ 2.50 55,000 $2.50
$3.71 60,000 9.75 $ 3.71 - $ -
$4.00 15,000 9.85 $ 4.00 - $ -
---------
1,326,000
=========
Common stock warrants
A summary of the status of the Company's outstanding stock warrants granted for
services as of September 30, 2004 and changes during the three months ended
September 30, 2004 is as follows:
Weighted
Average
Exercise
Shares Price
---------- --------
Outstanding at June 30, 2004 ...... 2,900,000 $ 3.50
Granted ........................... - -
Exercised ......................... (100,000) (1.00)
Forfeited ......................... - -
---------- --------
Outstanding at September 30, 2004 . 2,800,000 $ 3.59
========== ========
Warrants exercisable at end of year 2,800,000 $ 3.59
========== ========
The following information applies to all warrants outstanding at September 30,
2004:
Warrants Outstanding Warrants Exercisable
-------------------------- ---------------------
Weighted -
Range Average Weighted - Weighted -
of Remaining Average Average
Exercise Contractual Exercise Exercise
Prices Shares Life (Years) Price Shares Price
-------- --------- ------------ ---------- --------- ----------
$1.00 800,000 4.20 $ 1.00 800,000 1.00
$4.50 1,650,000 4.88 $ 4.50 1,650,000 4.50
$5.00 to
$6.50 350,000 4.99 $ 5.21 350,000 5.21
---------
2,800,000
=========
-12-
CENUCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
SEPTEMBER 30, 2004
NOTE 5 - SUBSEQUENT EVENTS
In October 2004, the Company issued 10,000 common shares previously issuable.
On October 29, 2004, the Company issued 100,000 shares of common stock upon the
exercise of 100,000 warrants for proceeds of $100,000
On October 25, 2004, the Company announced that it has entered into an Asset
Purchase Agreement, dated as of October 21, 2004 (the "Purchase Agreement"),
with Omni Point Marketing, LLC, a Florida limited liability company ("Omni
Point"), pursuant to which the Company agreed to acquire substantially all of
the assets of Omni Point for an aggregate purchase price of $22,500,000, payable
in a combination of $5,400,000 in cash and $17,100,000 in shares of the
Company's common stock, valued at $4.00 per share. In addition, pursuant to the
Purchase Agreement, the Company will assume all of Omni Point's obligations,
duties and liabilities with respect to its customer contracts, equipment leases,
real property leases, and the liabilities of Omni Point as reflected on its
balance sheet at closing, including tax accruals for sales, employee withholding
and payroll taxes.
The Company will defer payment of 10% of the purchase price for a period of one
year after the closing to secure indemnity obligations of Omni Point for any
breach of the Purchase Agreement, and as an offset against any adjustments
resulting from a post-closing audit of Omni Point's financial statements. The
deferred amount will be payable in the Company's common stock.
At the closing, the Company will also issue warrants to purchase up to 750,000
shares of its common stock each to Michael Brauser and Scott Hirsch, affiliates
of Omni Point as follows: 500,000 warrants issued at closing at an exercise
price of $4.00 per share; 500,000 warrants issued at closing at an exercise
price of $5.00 per share; and 500,000 warrants issued at closing at an exercise
price of $6.00 per share. In addition, the Company may issue warrants to
purchase up to 1,500,000 shares of its common stock to each of Messrs. Brauser
and Hirsch as earn-out consideration over the next three years.
The closing is conditioned on, among other things, the Company's stockholders'
approval to issue shares of the Company's common stock in connection with the
acquisition. Because the number of shares of the Company's common stock to be
issued in connection with the acquisition will exceed 20% of the Company's
current outstanding shares, the Company is required to seek stockholder approval
of the issuance of such shares, in accordance with Section 712 of the Listing
Standards, Policies and Requirements of the American Stock Exchange.
In the event the Purchase Agreement is terminated as a result of a material
breach by either party, which is not cured within 5 days of receipt of written
notice from the non-breaching party, the breaching party will be required to pay
the non-breaching party $1,000,000.
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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, 2004 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.
for the three months ended September 30, 2004 and 2003, 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.
The development and cultivation of wireless applications has served as
the focal point for our initiatives. Our wireless segment has produced viable
solutions for the security monitoring markets. In addition, we launched our line
of wireless video monitoring solutions, Mobile Monitor, MommyTrack(TM) and
Cenuco Transmitter. The products offer truly mobile surveillance monitoring
solution for the consumer and business market.
We are engaged in a wireless application technology business, primarily
related to the transmission of secure and non-secured video onto cellular
platforms via proprietary technologies. This is also known as remote video
monitoring via cellular device. In this wireless segment, Cenuco provides
cellular carriers, Internet Service Providers, resellers, and distributors a
host of wireless video streaming products which generate an increase in
subscriber adoption of wireless data services, as well as broadband Internet
services. The business model provides additional recurring monthly service
revenue models for carriers, ISPs, resellers and distributors. We are currently
in deployment negotiations and/or testing relationships with a number of
international and national cellular carriers, retail chains, major distribution
providers, resellers, and potential technology licensees on a global basis.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2004 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2003
Revenues
For the three months ended September 30, 2004, revenues from the sale
of our wireless products and services was $1,501 as compared to $52,787 for the
three months ended September 30, 2003 as summarized as follows. During the three
months ended September 30, 2004, we recorded sales returns of $3,450 from the
return of software.
Equipment and Software Sales ...... $ (2,176) $ 848
Wireless Solutions and Web Services 3,677 17,851
Other ............................. - 34,088
-------- --------
$ 1,501 $ 52,787
======== ========
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
(Continued)
RESULTS OF OPERATIONS (Continued)
THREE MONTHS ENDED SEPTEMBER 30, 2004 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2003
Cost of Equipment Sales
For the three months ended September 30, 2004 and 2003, we incurred
cost of sales related to the sale of equipment of $3,323 and $9,083,
respectively.
Research and Development
For the three months ended September 30, 2004, research and development
expense amounted to $5,018 as compared to $17,641 for the three months ended
September 30, 2003. We continue to develop our products and expect this amount
to increase in the future.
Bad Debt Expense
For the three months ended September 30, 2004, bad debt expense
amounted to $20,343 as compared to $0 for the three months ended September 30,
2003.
Selling and Promotion
For the three months ended September 30, 2004, selling and promotion
expenses amounted to $99,285, which included $13,987 in commission expense,
$31,675 in advertising expense, printing and reproduction expense of $644,
travel expenses of $50,515, and other expenses of $2,464. 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.
General and Administrative
For the three months ended September 30, 2004, we incurred $773,179 of
general and administrative expenses, which included salaries expense of
$226,890, consulting expense of $30,229, rent expense of $22,803, professional
fees of $25,516, and other expenses. Additionally, for the three months ended
September 30, 2004, we recorded non-cash compensation of $319,262 from the
amortization of deferred compensation and from the issuance of common stock for
services rendered. For three months ended September 30, 2003, we incurred
$336,902 of general and administrative expenses, which included salaries of
$129,643, consulting expense of $74,483, computer and internet related expenses
of $1,323, rent expense of $21,529, professional fees of $25,580 and other
expenses. The increase in consulting fees for the three months ended September
30, 2004 as compared to the three months ended September 30, 2003 was
attributable to an increase in fees paid for public relations services related
to our MommyTrack product.
-15-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
(Continued)
RESULTS OF OPERATIONS (Continued)
THREE MONTHS ENDED SEPTEMBER 30, 2004 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2003
Interest Income
For the three months ended September 30, 2004 and 2003, interest income
was $13,203 and $3,782, respectively. We currently invest our excess cash
balances in primarily two interest-bearing accounts with two financial
institutions.
Discontinued Operations
For the three months ended September 30, 2004, income from discontinued
operations was $1,919,270 and consisted of a gain from the sale of all of the
assets of our subsidiary of $1,814,648 and income from discontinued operations
of $104,622. For the three months ended September 30, 2003, income from
discontinued operations was $102,093 related to income from discontinued
operations.
Net income (loss)
As a result of the foregoing factors, we recognized net income of
$1,032,826 or $.08 per share (basic) and $.07 per share (diluted) on a
consolidated basis for the three months ended September 30, 2004 as compared to
net loss of $(240,904) or $(.04) per share (basic and diluted) for the three
months ended September 30, 2003.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2004, we had $5,300,623 in cash and cash
equivalents and a short-term investment on hand to meet our obligations.
In fiscal 2004, in connection with a private placement, we sold one
unit for $100,000 comprised of 100,000 shares of common stock and warrants
entitling the holder to purchase up to 100,000 shares of the Company's common
stock, at an exercise price of $1.00. Additionally, in March 2004, we
consummated a capital raise through a private placement offered to accredited
investors. We offered, through a placement agent, investment units consisting of
5,000 shares of its common stock offered at $4.00 per share with a callable
warrant to purchase 5,000 shares of its common stock at $4.50 per share. The
private placement was originally to be for a maximum amount of $5,000,000, but
was subsequently increased to a maximum of $6,000,000. In fiscal 2004, we sold
30,000 units under the private placement aggregating 1,500,000 shares of common
stock and 1,500,000 warrants for net proceeds of approximately $5,300,184.
Additionally, we received proceeds of $274,800 from the exercise of options and
warrants. In the future, we plan on raising additional funds to expand our
operations or to pursue acquisition opportunities or other expansion
opportunities.
-16-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
(Continued)
During the three months ended September 30, 2004, 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 $499,193 for the three months ended
September 30, 2004 as compared to net cash used in operations of $165,707 for
the three months ended September 30, 2003. For the three months ended September
30, 2004, we used cash in continuing operations of $840,794 offset by cash
provided by discontinued operations of $341,601. For the three months ended
September 30, 2003, we used cash in continuing operations of $360,832 offset by
cash provided by discontinued operations of $195,125. We feel that 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 provided by investing activities for the three months ended
September 30, 2004 was $184,801 as compared to net cash used in investing
activities of $(20,128) for three months ended September 30, 2003 and primarily
related to our investment in (decrease in) certificate of deposits during the
three months ended September 30, 2004 of $186,801 and $(3,330), respectively.
Additional we acquired property and equipment of $(2,000) and $(16,768) for the
three months ended September 30, 2004 and 2003, respectively.
Net cash provided by financing activities for the three months ended
September 30, 2004 was $105,500 and related to cash proceeds received from the
exercise of stock options and warrants.
On October 25, 2004, we announced that we have entered into an Asset
Purchase Agreement, dated as of October 21, 2004 (the "Purchase Agreement"),
with Omni Point Marketing, LLC, a Florida limited liability company ("Omni
Point"), pursuant to which we agreed to acquire substantially all of the assets
of Omni Point for an aggregate purchase price of $22,500,000, payable in a
combination of $5,400,000 in cash and $17,100,000 in shares of the Company's
common stock, valued at $4.00 per share. The payment of the cash portion of the
purchase price will substantially decrease our current cash balance.
Other than the Asset Purchase Agreement discussed above, we 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 our Annual Report on Form 10-KSB
for the year ended June 30, 2004. 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.
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 wireless
technology and services, we recognize revenue as services are performed on a
pro-rata basis over the contract term or products are delivered. We have
executed a distribution agreement whereby the distributor may purchase wireless
product on consignment. Any sales made to the distributor under this agreement
will be recorded as a deferred revenue liability until such time as the
distributor has sold the product at which time we will recognize the related
revenues.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has recently issued the
following new accounting pronouncement:
In March 2004, the Financial Accounting Standards Board (FASB) approved
the consensus reached on the Emerging Issues Task Force (EITF) Issue No. 03-1,
"The Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments." The objective of this Issue is to provide guidance for identifying
impaired investments. EITF 03-1 also provides new disclosure requirements for
investments that are deemed to be temporarily impaired. The accounting
provisions of EITF 03-1 are effective for all reporting periods beginning after
June 15, 2004, while the disclosure requirements are effective only for annual
periods ending after June 15, 2004. We have evaluated the impact of the adoption
of EITF 03-1 and do not believe the impact will be significant to our overall
results of operations, cash flows or financial position.
-18-
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
In July 2004, we issued 10,000 shares previously issuable.
On July 23, 2004, we issued 34,000 shares of common stock to two
employees of the Company for services rendered.
During the quarter ended September 30, 2004, we shall issue 265 shares
of common stock for services rendered. As of September 30, 2004, these shares
had not been issued and are included in common stock issuable on the
consolidated balance sheet.
During the quarter ended September 30, 2004, we issued 100,000 shares
of common stock upon the exercise of 100,000 warrants for proceeds of $100,000
During the quarter ended September 30, 2004, we issued 10,000 shares of
common stock upon the exercise of 10,000 options for proceeds of $5,500. As of
September 30, 2004, these shares had not been issued and are included in common
stock issuable on the consolidated balance sheet.
-19-
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
On October 25, 2004, we announced that it has entered into an Asset
Purchase Agreement, dated as of October 21, 2004 (the "Purchase Agreement"),
with Omni Point Marketing, LLC, a Florida limited liability company ("Omni
Point"), pursuant to which we agreed to acquire substantially all of the assets
of Omni Point for an aggregate purchase price of $22,500,000, payable in a
combination of $5,400,000 in cash and $17,100,000 in shares of the Company's
common stock, valued at $4.00 per share. In addition, pursuant to the Purchase
Agreement, we will assume all of Omni Point's obligations, duties and
liabilities with respect to its customer contracts, equipment leases, real
property leases, and the liabilities of Omni Point as reflected on its current
balance sheet, including tax accruals for sales, employee withholding and
payroll taxes.
We will defer payment of 10% of the purchase price for a period of one
year after the closing to secure indemnity obligations of Omni Point for any
breach of the Purchase Agreement, and as an offset against any adjustments
resulting from a post-closing audit of Omni Point's financial statements. The
deferred amount will be payable in the Company's common stock.
At the closing, we will also issue warrants to purchase up to 750,000
shares of its common stock each to Michael Brauser and Scott Hirsch, affiliates
of Omni Point as follows: 500,000 warrants issued at closing at an exercise
price of $4.00 per share; 500,000 warrants issued at closing at an exercise
price of $5.00 per share; and 500,000 warrants issued at closing at an exercise
price of $6.00 per share. In addition, we may issue warrants to purchase up to
1,500,000 shares of its common stock to each of Messrs. Brauser and Hirsch as
earn-out consideration over the next three years.
The closing is conditioned on, among other things, our stockholders'
approval to issue shares of the Company's common stock in connection with the
acquisition. Because the number of shares of the Company's common stock to be
issued in connection with the acquisition will exceed 20% of the Company's
current outstanding shares, we are required to seek stockholder approval of the
issuance of such shares, in accordance with Section 712 of the Listing
Standards, Policies and Requirements of the American Stock Exchange.
In the event the Purchase Agreement is terminated as a result of a
material breach by either party, which is not cured within 5 days of receipt of
written notice from the non-breaching party, the breaching party will be
required to pay the non-breaching party $1,000,000.
-20-
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Purchase and Sale Agreement between Cenuco, Inc. and
Barrington University dated September 30, 2004. (1)
10.4 Form of subscription agreement used in private placement (2)
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
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
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
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
----------
(1) As filed with Form 8-K on October 5, 2004.
(2) As filed with Form 10-QSB on February 13, 2004.
(b) Reports On Form 8-K
On October 5th, 2004, we announced the consummation of the sale of
substantially all of the assets of our subsidiary, Barrington
University, Inc. and the resignation of Tuyen V. Do from our Board of
Directors.
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 12, 2004 By: /s/ Steven Bettinger
--------------------
Steven Bettinger, President and
Chief Executive Officer
Dated: November 12, 2004 By: /s/ Adam Wasserman
------------------
Adam Wasserman, Chief Financial Officer
and Principal Accounting Officer
-21-