U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2000
Commission file number 033-25900
Virtual Academics.com, Inc.
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(Name of Small Business Issuer in its Charter)
Delaware 75-2228820
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
6421 Congress Ave, Suite 201, Boca Raton, Florida 33487
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(Address of Principal Executive Offices) (Zip Code)
(561) 994-4446
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(Issuer's Telephone Number)
Securities registered under Section 12(b)
of the Act:
Securities registered under Section 12(g) of the Exchange Act:
None
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the past 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 [ ] No [X]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year. $1,150,664.
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days. $8,186,888.25 based on a price of $2.25 per share as of October 2, 2000.
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(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: October 2, 2000: 7,578,617 shares of
common stock.
DOCUMENTS INCORPORATED BY REFERENCE
None
Transitional Small Business Disclosure Format (Check One)
Yes ____ No X
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TABLE OF CONTENTS
Page
PART I........................................................................1
Item 1. Description of Business..........................................1
Item 2. Description of Property.........................................10
Item 3. Legal Proceedings...............................................10
Item 4. Submission of Matters to a Vote of Security Holders.............10
PART II......................................................................11
Item 5. Market for Common Equity and Related Stockholder Matters........11
Item 6. Management's Discussion and Analysis or plan of Operations......11
Item 7. Financial Statements............................................13
Item 8. Changes In and Disagreements With Accountants...................13
PART III.....................................................................14
Item 9. Management......................................................14
Item 10. Executive Compensation..........................................15
Item 11. Security Ownership of Certain Beneficial Owners and Management..16
Item 12. Certain Relationships and Related Transactions..................17
Item 13. Exhibits, Lists and Reports on Form 8-K.........................17
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
BACKGROUND
Through its subsidiaries, Virtual Academics.com, Inc. (the "Company" or
"VADC") is engaged in the online distance learning industry with a focus on the
international, second-career adult and corporate training markets. Management of
VADC has been engaged in this business since 1993, through various predecessor
entities (the "Predecessors"). VADC owns and operates online distance learning
universities which offer more than 1,000 accredited and licensed degree programs
in a variety of concentrations to students from 43 countries worldwide. VADC is
licensed by the State Education Department of the State of Alabama and
recognized by the provincially-run education agencies of China, Canada and
Egypt. VADC operates one of the largest international educational portals
located at www.virtualacademics.com.
VADC was incorporated in the State of Delaware in 1988 but had no
significant business operations until December 1999, when Steven Bettinger and
Robert Bettinger, acquired approximately 66 2/3% of the outstanding common stock
of the Predecessors from a former principal stockholder. Messrs. Bettinger then
contributed their membership interests in the Predecessors to the Company, which
changed its name to Virtual Academics.com, Inc. in January 2000. VADC's
executive offices are located at 6421 Congress Ave, Suite 201, Boca Raton,
Florida 33487 and its telephone number is (561) 994-4446.
STRATEGY
VADC's goal is to strengthen its leadership position within the rapidly
growing online distance education industry, estimated at $5.5 billion by Piper
Jaffray, who is projecting a $50 billion industry by 2005. Key components of
VADC's strategy include:
Marketing Relationships with Business Entities. VADC has realized
growth from marketing relationships with businesses which reimburse employees to
take educational courses, including:
First Union Bank;
Prentice Hall;
Kaplan, Inc.;
The United Electrical Contractors; and
Citibank.
Typically, VADC provides customized distance learning educational
services through its partners or to the workforce of its partners. Frequently,
VADC's corporate partners sponsor students by paying directly or reimbursing
their employees' educational efforts.
Forge Strategic Alliances with State-owned Educational Institutions
Worldwide. Through alliances such as an agreement with Renmin University, a
government-sponsored group of 30 universities in the Peoples Republic of China,
VADC can offer dual-degree programs online throughout the world. VADC
anticipates growth in this and other initiatives in Asia, and has plans to
expand into Latin America.
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Expand Global Enrollment and Recruitment Program. VADC intends to
increase its enrollment through a team of recruiters. The recruiters are based
in areas characterized by a high population of students, including:
Canada;
Malaysia;
Argentina;
Spain;
China;
Japan;
Mexico;
Korea;
Brazil; and
Venezuela
VADC pays each recruiter a referral fee for every student enrolled in
one of its courses. VADC intends to continue to develop relationships with
additional recruiters in geographic areas where it is not currently represented.
Expand through Acquisition. VADC intends to acquire brick and mortar
educational institutions so that it may offer their traditional curricula
online. VADC also intends to acquire carefully selected Internet-based
educational institutions. While VADC is currently exploring certain
acquisitions, VADC is not party to any definitive agreements.
Provide Turnkey e-Business Solutions. Utilizing resources obtained
through its educational partnerships, such as linguistics experts and web design
professionals, VADC's Global e-Business division has the ability to provide
turnkey e-commerce services to American businesses which desire to expand their
presence abroad.
MARKET
The United States and international education market may be divided
into the following segments:
o kindergarten through twelfth grade (and overseas counterparts)
schools ("K-12");
o vocational and technical training schools;
o workplace and consumer training; and
o degree-granting colleges and universities ("Higher
Education").
VADC operates in the Higher Education and workplace and consumer
training segments. The U.S. Department of Education estimated that adults over
24 years of age comprised approximately 6.1 million, or 39.2%, of the 15.5
million students enrolled in Higher Education programs in 1998. Currently, the
U.S. Bureau of Census estimates that approximately 76% of students over the age
of 24 work while attending school. The Department of Education estimates that by
the year 2003, the number of adult students over the age of 24 will remain
approximately the same at 6.1 million, or 40.3%, of the 15.2 million students
projected to be enrolled in Higher Education programs.
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VADC serves the needs of mid-career, working adults, American and
foreign, including:
o Convenient access to a learning environment (primarily through
its Internet-based delivery system);
o Degree programs offered by accredited institutions that can be
completed in a reasonable amount of time for a reasonable
cost;
o Programs that provide knowledge and skills with immediate
practical value in the workplace;
o Education provided by qualified faculty members with current
practical experience in fields related to the subjects they
instruct; and
o Learning resources available electronically to all students in
many languages regardless of geographical location.
VADC believes that the requirements of the adult working population
represent a significant market opportunity to accredited Higher Education
institutions that can offer programs that meet these unique needs.
Most colleges and universities feature a more capital-intensive
teaching and learning model characterized by:
o dormitories, student unions and other significant plant assets
to support the needs of students;
o fully-configured library facilities and related full-time
staff;
o a high percentage of full-time tenured faculty with doctoral
degrees; and
o an emphasis on research and the related staff and facilities.
In addition, the majority of accredited colleges and universities
provide the bulk of their educational programming from September to mid-December
and from mid-January to May. As a result, most full-time faculty members only
teach during that limited period of time. While this structure serves the needs
of the full-time 18 to 24 year old student, it limits the educational
opportunity for working adults who must delay their education for up to five
months during these spring, summer and winter breaks. In addition, this
structure generally requires working adults to attend one or more courses three
times a week, commute to a central site, take work time to complete
administrative requirements and, in undergraduate programs, participate
passively in an almost exclusively lecture-based learning format primarily
focused on a theoretical presentation of the subject matter. For the majority of
working adults, earning an undergraduate degree in this manner would take seven
to ten years. In recent years, many regionally accredited colleges and
universities have begun offering more flexible programs for working adults,
although their focus appears to remain on 18 to 24-year old students.
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VADC EDUCATIONAL ENTITIES
VADC owns and operates several educational entities, including:
o Virtual Academics.com - www.virtualacademics.com is a portal
site that represents all of VADC's products, services and
alliances that offer corporate training and degree granting
institutions.
o Barrington University - Founded in 1991, Barrington is
licensed by the State of Alabama Department of Education and
accredited by the International Association of Universities
and Schools, a non-profit, independent accreditation
association. Barrington is a member of several international
educational organizations.
Barrington operates a traditional bricks and mortar college in
Vancouver, British Columbia, Canada. Barrington offers the following
programs:
School of Business:
Business Administration;
E-Commerce MBA;
Business Accounting;
Business Law;
Management;
Entrepreneurship;
Finance;
Marketing;
Hospitality/Hotel & Restaurant Management;
International Business Law;
Human Resource Management; and
Business Communications
School of Arts and Sciences:
Computer Science;
Management Information Systems; and
Health Science.
Barrington has an international presence because of its Internet
locations, including:
www.barrington.edu, an educational portal that offers Bachelor's and
Master's degrees through virtual online distance learning.
www.barrington.gr.jp/home.htm, a Japanese language web site that offers
Barrington degrees and training in Japan and for Japanese speaking people
worldwide.
www.barrington.edu/china, a Chinese language web site that offers
Chinese-speaking people access to the Barrington programs.
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www.barrington.edu/espanol, a complete Spanish language duplication of
our Barrington English language web site.
www.barrington-arabic.net, an Arabic language web site that offers
Barrington courses and business training programs to 22 countries in the Middle
East. Its distance learning programs are the only recognized and approved
distance learning programs in the Arab League of Nations.
Spanish University of America ("SUA"), located at
www.spanishuniversity.edu, a complete Spanish language distance learning
institution offered over the Internet to Spanish language speaking countries, or
approximately 25 percent of the world's population. SUA was the first Hispanic
Internet university. SUA offers degrees such as:
Business;
Psychology;
Sociology;
Political Science; and
Health Science.
CyberUniversity, located at www.cyberuniversity.edu, is the world's
first cyber university offering programs to students all over the world in
multiple languages. Courses are offered through Alston University, and are given
in the following concentrations:
Business School;
Health Care;
Engineering;
Behavioral Sciences; and
Education.
ACADEMIC PROGRAMS
VADC offers several academic programs, including:
Chinese MBA. Offered in conjunction with Renmin University, the third
largest university in the People's Republic of China, the programs are offered
as dual degrees for Business School Graduate Students who desire degrees from an
American university to complement their degrees from Chinese universities.
Spanish MBA. Offered in Spanish through Barrington University, the
program awards a degree to Spanish-speaking students who desire a degree from an
American university to complement their degrees from Spanish universities.
E-Commerce MBA. VADC recently commenced offering this program, which
curricula are designed to explore non-traditional subjects such as e-commerce
and information technology. These programs are offered in English, Chinese,
Spanish and Arabic.
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www.kaplan.com. VADC recently entered into an agreement with Kaplan,
Inc. to offer Kaplan's test preparatory courses online, including courses
designed to prepare for the following tests:
AP;
SAT;
GRE;
GMAT;
LSAT;
MCAT; and
TOEFL
Certification Programs. VADC offers the complete Microsoft training
library, which offer certification in the following areas, among others:
Windows 98;
HTML 4;
Java;
Windows NT 4;
Windows NT MCSE;
Microsoft Exchange Server;
Visual C++; and
Visual Basic.
In addition, VADC offers certification in several other areas,
including:
Bookkeeping;
Restaurants;
Paralegal; and
Nutrition.
TEACHING MODEL
VADC's teaching/learning model has the following major characteristics:
Tuition. All VADC students must pay a registration fee to cover the
costs of books, study manuals and other materials necessary for their studies.
Generally, registration fees are approximately $450 and tuition fees range from
$3,300 to $6,500. Scholarships and discounts are available to certain students.
Frequently, tuition qualifies as a tax-deductible expense incurred as part of an
effort to maintain or improve job-related skills.
Curriculum. The standardized curriculum for each degree program is
designed to provide students with specified levels of knowledge and skills
regardless of delivery method or location. The curriculum provides for the
achievement of specific educational outcomes and is designed to integrate
academic theory and professional practice with a focus on application to the
workplace. Although VADC is responsible for degree requirements and educational
outcomes, students and their employers often provide input to our faculty in
designing curriculum, and class projects are
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typically based on issues relevant to the companies and the human resources
departments of companies that employ our students.
Faculty. Faculty applicants must possess an earned master's or doctoral
degree from an accredited institution and have a minimum of five years recent
professional experience in a field related to the subject matter in which they
seek to mentor. To help promote quality delivery of the curriculum, faculty
members are required to:
o complete an initial assessment conducted by staff and faculty;
o complete a series of certification workshops related to
grading, facilitation of the teaching/learning model,
oversight of study group activities, adult learning theory,
and use of the Internet;
o participate in ongoing development activities; and
o receive ongoing performance evaluations by students, peer
faculty and staff.
The results of these evaluations are used to establish developmental
plans to improve individual faculty performance and to determine continued
eligibility of faculty members to instruction.
VADC's mentor/faculty is comprised of approximately 16 full-time
faculty and 22 part-time mentor/faculty. Most mentor/faculty members are
recruited as the result of referrals from faculty, students and corporate
contacts. All part-time faculty are contracted on a course-by-course basis.
Online Chat. VADC students are encouraged to participate in an
interactive live-chat email center which provides a forum for potential
candidates or students to discuss any aspect of the educational process. This
feature is available 24-hours a day, seven days a week.
Interactive Learning. Courses are designed to combine individual and
group activity with interaction between and among students and the instructor.
The curriculum requires a high level of student participation for purposes of
increasing the student's ability to work as part of a team.
Learning Resources. Students and faculty members are provided with
electronic and other learning resources for their information needs. These
extensive electronic resources minimize VADC's need for capital-intensive
library facilities and holdings.
Low Attrition Rate. The VADC schools have less than a 15% student
dropout rate, compared to a rate of more than 35% compared to traditional brick
and mortar universities. VADC feels that its customer service and its targeted
client, the mid-career adult, is responsible for this success.
Academic Quality. Any student having earned a high school diploma,
General Equivalency Diploma ("GED") or international equivalent may apply to any
VADC bachelor's degree program. Any student having earned a Bachelor's degree or
international equivalent, or registered in one of the VADC universities'
combination Bachelor's/Master's degree program may apply to any VADC master's
degree program. As is the case with traditional colleges and universities, VADC
purchases
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the GED course content from major educational publishers. By having access to
quality curricula, VADC may maintain high academic standards.
OTHER OPERATIONS
The Global-E-BusinessGroup - www.global-e-businessgroup.com is a
turnkey business-to-business marketing web site and program that is being
developed and offers American businesses the opportunity to create an
e-marketing presence in the emerging market of China. Its services are
duplicated in Arabic and Spanish.
This program is ideally suited for the small to medium/medium-large
company who has little or no experience with global trade. By utilizing VADC's
resources and personnel who have a command of the international markets,
language and culture, participating businesses can utilize the Global-E-Business
Group for:
o Language translation of their existing web site;
o Maintaining, servicing and hosting of their foreign (and
English) language web site;
o Translation of customer inquiries;
o Assistance with foreign trade issues such as customs, shipping
and governmental regulations;
o Travel arrangements; and
o Protocol aid and preparedness on cultural affairs and customs.
COMPETITION
General. The market for online distance learning services is relatively
new, intensely competitive, rapidly evolving and subject to rapid technological
change as the market is characterized by an increasing number of entrants that
have introduced or developed products and services similar to those offered by
VADC. VADC expects competition not only to persist, but to increase. Increased
competition may result in course price reductions, reduced margins and loss of
market share. Competitors fall into several categories, including other online
distance learning providers, traditional "snail mail" correspondence courses and
traditional universities and colleges expanding their course offerings online.
Several current and potential competitors have longer operating histories,
larger installed student bases, greater name recognition, longer relationships
with students and the public and significantly greater financial, technical,
marketing and public relations resources.
Admissions Standards. To gain admission to the undergraduate programs,
applicants must have a high school diploma or GED and satisfy certain minimum
grade point average, employment and age requirements. Additional requirements
may apply to individual programs. Students already in undergraduate programs
elsewhere may petition to be admitted on provisional status if they do not meet
certain admission requirements.
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To gain admission to the graduate programs, students must have an
undergraduate degree from an accredited college or university and satisfy
minimum grade point average, work experience and employment requirements.
Additional requirements may apply to individual programs. Students in graduate
programs may petition to be admitted on provisional status if they do not meet
certain admission requirements.
Academic Accountability. VADC utilizes an institution-wide system for
the assessment of the educational outcomes of its students. The information
generated is employed to improve the quality of the curriculum, the instruction
and the teaching/learning model. VADC's undergraduate and graduate students
complete a comprehensive cognitive (core degree subject matter) and affective
(educational, personal and professional values) assessment prior to and upon the
completion of their core degree requirements.
Students in VADC programs evaluate both academic and administrative
quality. This evaluation begins with a registration survey and continues with
the evaluation of the curriculum, faculty, delivery method, instruction and
administrative services upon the conclusion of each course. The evaluation also
includes a survey of a random selection of graduates 2-3 years following their
graduation. The results provide an ongoing basis for improving the
teaching/learning model, selection of educational programs and instructional
quality.
CUSTOMERS
VADC's customers consist of working adult students, colleges and
universities, governmental agencies and employers. Following is an approximate
breakdown of students by the level of program they are seeking, as of September
25, 2000.
Programs
Master's Degree 42%
Bachelor's Degree 55
Certificate Level 3
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Total programs 100%
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Based on surveys, the average age of a VADC student is 33 years old,
approximately 72% of VADC students are male and 28% female, the average annual
household income of a VADC student is $56,000. Additionally, the average VADC
student has some college experience and averages approximately seven years of
work experience.
MARKETING
To date, the bulk of VADC's marketing efforts have revolved around word
of mouth efforts. Recently, VADC began experimenting with traditional print
advertisements in USA Today, Business Week and other traditional print
publications. In addition, VADC markets itself over the Internet through
search engine optimization techniques.
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EMPLOYEES
As of October 2, 2000, VADC had approximately 12 full-time employees.
None of the VADC's employees are represented by a labor union. VADC has not
experienced any work stoppages and generally believes that its relationship with
its employees is good.
GOVERNMENT REGULATION
General. With the exception of state licensing regulation described
below, VADC is subject to little governmental regulation other than the
securities laws and regulations applicable to all publicly owned companies and
laws and regulations applicable to businesses generally. Few laws or regulations
are directly applicable to access to, or commerce on, the Internet. Due to the
increasing popularity and use of the Internet, it is likely that a number of
laws and regulations may be adopted at the local, state, national or
international levels with respect to the Internet. Any new legislation could
inhibit the growth in use of the Internet and decrease the acceptance of the
Internet as a communications and commercial medium, which could in turn decrease
the demand for its services or otherwise have a material adverse effect on
VADC's future operating performance.
Licensing. Barrington University is licensed by the State Education
Department of Alabama, which provides the basis for recognition and acceptance
by employers, other higher education institutions and governmental entities of
the degrees and credits earned by students. Barrinton will come up for
re-licensing in June 2001.
Accreditation. Accreditation is a system for recognizing educational
institutions and their programs for performance, integrity and quality. In the
United States, this recognition comes primarily from regional associations.
Colleges and universities depend on accreditation in evaluating transfers of
credit and applications to graduate schools. Also, certain scholarship grants
are restricted to students attending institutions accredited by certain
associations.
VADC's member schools are accredited by the International Association
of Universities and Schools, a non-profit independent international
accreditation organization.
ITEM 2. DESCRIPTION OF PROPERTY
VADC's corporate headquarters are located at 6421 Congress Avenue,
Suite 201, Boca Raton, Florida. This facility consists of approximately 3,400
square feet of office space, leased from a non-affiliated third party at an
annual rent of approximately $39,000. The lease expires in July 2005.
VADC's Canadian operations approximately 3,500 square feet of space in
Vancouver, British Columbia which is paid for by its recruiter at that location.
VADC believes that in the event that the leases with respect to any of
the aforementioned facilities should not be renewed, alternative space will be
available at comparable rates.
ITEM 3. LEGAL PROCEEDINGS
VADC is not involved in any legal proceedings which would have a
material effect on its business or results of operations.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On February 1, 2000, a majority of VADC's stockholders approved by
written consent VADC's 2000 Performance Equity Plan (the "2000 Plan").
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
VADC's common stock has been traded in the over-the-counter market and
quoted on the OTC Electronic Bulletin Board under the symbol "VADC.OB" since
January 4, 2000. The reported high and low sale prices for the common stock are
shown below for the periods indicated. The prices do not always represent actual
transactions.
High ($) Low ($)
-------- -------
First Quarter (commencing January 4, 2000) 7.50 4.25
Second Quarter 5.75 1.50
Third Quarter (through September 29, 2000) 3.50 1.34
As of October 2, 2000, there were approximately 963 record owners of
VADC common stock.
VADC has never paid cash dividends on its common stock. VADC intends to
keep future earnings, if any, to finance the expansion of its business. We do
not anticipate that any cash dividends will be paid in the foreseeable future.
During the quarter ended June 30, 2000, VADC issued 1,100,000 shares of
common stock to Gilder Funding Corp. for $440,000 in a private placement. Such
shares were issued pursuant to the exemption from registration afforded by
Section 4(2) of the Securities Act of 1933, as amended.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
The following discussion and analysis should be read in conjunction
with the financial statements appearing elsewhere in this Report. These
financial statements reflect the consolidated operations of VADC for the year
ended June 30, 2000 ("Fiscal 2000").
The following may contain 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. VADC does
not have a policy of updating forward-looking statements and thus
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it should not be assumed that silence over time means that actual events are
bearing out as we estimated in such forward-looking statements.
VADC is in the distance learning industry. VADC currently operates its
main school, Barrington University, from Mobile, Alabama, where the school is
licensed by the State of Alabama Department of Education, code of Alabama, Title
16-46-1 through 10. VADC offers degrees and training programs to students in 43
countries and in eight languages (English, Spanish, Chinese, Japanese, Korean,
Portuguese, Russian and Arabic). The programs are virtual in their delivery
format and can be completed from a laptop or home computer, worldwide. Many of
these programs are offered as distance learning (correspondence) as well. VADC
is recognized by governments in China, Egypt and Canada and offers these same
programs internationally. In addition to degree completion programs, VADC
focuses on training corporate personnel, which is considered a major growth
area.
RESULTS OF OPERATIONS
Revenue - For Fiscal 2000, the Company had a 38% increase in earned
revenues to $1,150,664 from $833,018 for the fiscal year ended June 30, 1999
("Fiscal 1999"). The increase in revenues is due primarily to an increase in the
number of students that have been registered. VADC recognizes tuition as earned
revenue over a 24-month period. Unearned revenue is the amount of tuition that
has not yet been earned but is a receivable to VADC from its students.
Unearned revenue at the beginning of Fiscal 2000: $ 701,655
Tuition from students during Fiscal 2000: 1,893,664
Earned revenue: (1,150,664)
-----------
Unearned revenue at end of Fiscal 2000: $ 1,444,655
===========
Instruction and Educational Support consists of supplies such as
textbooks to students, which vary with the revenue, and computer software and
internet expenses. Instruction and Educational Support for Fiscal 2000 increased
$159,077 or 10.6% as a percentage of revenue from Fiscal 1999. During Fiscal
2000, the costs of textbooks and related materials increased due to a new
program with the Company's primary supplier. Software and Internet costs
increased due to computer software upgrading in order for VADC to enter new
markets and upgrade technology.
Selling and Promotion - VADC is committed to increase its percentage of
revenue received by concentrating more of its efforts on Internet optimization
and the ranking of its web sites. Selling and promotion consist primarily of
recruiting fees paid to 3rd party recruiters, advertising and travel expenses.
Selling and promotion increased $175,668 or 8.7% as a percentage of revenue from
Fiscal 1999. Recruiting fees went down by .9% as a percentage of sales while the
cost of advertising increased by $46,016 or 3.7% of sales as we repositioned the
Company to reach more students via the internet. Travel increased by $74,996 or
6% of sales as a result of travel relating to promoting the Company to both the
investment community and the education community.
General and Administrative Expenses - For Fiscal 2000, the Company's
general and administrative expenses increased by $593,437 or 40% of revenue.
This increase was primarily related to the relocation of VADC's general
headquarters from New York to Florida, increased personnel to handle to growth
of business, software development and additional professional services due to
the cost of operating a public company.
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LIQUIDITY AND CAPITAL RESOURCES
For Fiscal 2000, the Company had $465,683 in cash and equivalents on
hand to meet its obligations, which represented an increase of $455,961 from the
beginning of Fiscal 2000.
In February 2000, the Company consummated a private placement to an
investor of 2,200,000 shares of common stock. This private placement raised a
total of $990,000. Of the 2,200,000 shares sold, 1,100,000 shares were sold for
$440,000 in cash and the balance of the shares were sold for a 7% unsecured
promissory note (the "Promissory Note"), due February 10, 2001. Only 1,100,000
shares were issued, the balance of the shares will be issued upon receipt of
payment of the Promissory Note. All of the funds from this private placement
will be used a working capital.
In June 2000, the Company entered into an agreement with a financial
advisor to arrange a private placement or series of private placements of debt
or equity securities. The private placements, if successful, will have estimated
aggregate gross proceeds of not less than $5 million and up to a maximum of $20
million.
For the year ended June 30, 1999 and 2000, the Company had a positive
cash flow from operating activities of $164,013 and $115,932 respectively. We
expect that the operations will continue to provide positive cash flows.
The Company feels that with continued positive cash flow and the
infusion of the additional working capital, the Company is well capitalized to
fund its operations over the ensuing 12-month period, including the expected
growth during this period.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. SFAS No.
133 is effective for all fiscal quarters beginning with the quarter ending July
31, 1999. In July 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133" which deferred the effective date for all fiscal years
beginning after June 15, 2000. The adoption of SFAS No. 133 is not expected to
have a material effect on our results of operations, financial position or cash
flows.
ITEM 7. FINANCIAL STATEMENTS
The financial statements required by this report are included,
commencing on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
On August 28, 2000, VADC's Board of Directors recommended and approved
the replacement of its principal accountants, Sweeney, Gates & Co. ("SG"). Also,
on August 28, 2000, the Board of Directors recommended and approved the
replacement firm of Grant Thornton LLP as VADC's independent auditors, effective
August 28, 2000.
13
<PAGE>
SG has not issued an audit report on VADC's financial statements.
During the period of SG's engagement, there were no disagreements with SG on any
matter of accounting principles or practices, financial statement disclosures,
or auditing scope or procedure, which, had they not been resolved to the
satisfaction of SG, would have caused it to make reference to the subject matter
of such disagreements in connection with issuing its reports. Also, no
reportable events, within the meaning of Item 304(a)(1)(v) of Registration S-K,
occurred during the two most recently completed years and subsequent interim
periods, preceding this change.
VADC provided SG with these disclosures, and SG furnished a letter,
addressed to the Securities and Exchange Commission, stating that it agreed with
the statements contained herein.
PART III
ITEM 9. MANAGEMENT
The following individuals comprise our management team:
Steven M. Bettinger, 29 years old, has served as VADC's Chief Executive
Officer, President and Director since 1993, when he founded the Company. Mr.
Bettinger also founded Barrington University, Spanish University of America and
Cyber University. Mr. Bettinger also founded in 1999 and serves as an executive
officer and director of Continuing Care.com, a web portal developer for senior
living and the senior service industry. In addition, Mr. Bettinger founded and
later sold taxreturnsusa.com, one of the first online tax preparation companies.
Mr. Bettinger received his B.S. in Business Administration (honors) from
Syracuse University.
Robert K. Bettinger, 63 years old, has served as the Chairman of the
Board of Directors of VADC since 1993. Mr. Bettinger is also the President of
Barrington University, VADC's primary Internet school. Mr. Bettinger graduated
with an education degree from Long Island University and completed his Master's
degree at Teacher's College, Columbia University. Mr. Bettinger was a teacher,
counselor and administrator in the New York public school system from 1960 to
1977.
Dr. Mahmoud Hassan, 49 years old, has served as Executive Vice
President and director since 1997. From 1991 to the present, Dr. Hassan has
served as a Lecturer in Mathematics and Computer Design and Freelance Graphics
at Kingsborough Community College in New York. From 1993 to 1987, Dr. Hassan
served as a Lecturer for Save the Children Adult Education Program in Egypt,
where he taught courses in Space Planning and Interior Design. Dr. Hassan has
served in managerial positions for projects undertaken by several Middle Eastern
construction companies, mostly related to hotel design. Dr. Hassan received his
Ph.D. (Interior Design) and MFA (Interior Design) from Pacific Western
University, and his BAA (Interior Design) from the Faculty of Applied Arts,
Kelwan University, Egypt.
Andrew Lockwood, 32 years old, has served as a director since April
2000. Since April 2000, Mr. Lockwood has served as Executive Vice
President--Business Development and General Counsel of Shochet Holding Corp. a
publicly-traded financial services company based in South Florida. From April
1999 to April 2000, Mr. Lockwood was employed as an attorney in the corporate
and securities department of Atlas Pearlman, P.A., a law firm located in Fort
Lauderdale, Florida. From 1996 to March 1999, Mr. Lockwood was employed as an
attorney in the corporate securities department of Graubard, Mollen & Miller, a
law firm located in New York City. Mr.
14
<PAGE>
Lockwood received his J.D. from St. John's University School of Law and his B.A.
from Wesleyan University. Mr. Lockwood is a member in good standing of each of
the New York and Florida Bar Associations.
Jack P. Phelan, 51 years old, has served as a director since March
2000. Since June 1998, Mr. Phelan served as President of Helios International
Asset Management, a registered investment advisor located in Boca Raton,
Florida. From January 1995 to June 1998, Mr. Phelan served as President of
Nicholson/Kenny Capital Management, a investment management firm located in Boca
Raton, Florida. Mr. Phelan is a member of the Association of Investment
Management Research, the New York Society of Security Analysis, the Financial
Analysts Society of South Florida, the International Society of Financial
Analysts and the International Association for Financial Planning. Mr. Phelan is
also a member of MENSA and the International Society of Philosophical Enquiry.
Directors are elected at each annual meeting of stockholders. Directors
hold office until the next annual meeting of stockholders. Executive officers
are elected by and serve at the discretion of the Board of Directors. The Board
of Directors held approximately six meetings during Fiscal 2000 and consented to
approximately 20 corporate resolutions. There are no committees of the Board of
Directors.
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The table below sets forth information relating to the compensation the
Company paid during the past two fiscal years to: (i) the President and Chief
Executive Officer; and (ii) each executive officer who earned more than $100,000
during Fiscal 2000 (the "Named Executive Officer").
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------------------------------------------------------------------------------------------------------------------
Restricted Securities
Other Annual Stock Underlying LTIP
Name and Principal Salary Bonus Compensation Awards Options Payouts All Other
Position Fiscal Year ($) ($) ($) ($) SAR (#) ($) Compensation
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Steven M. Bettinger, 2000 $133,692 -0- -0- $250,000 100,000 -0- -0-
President and Chief
Executive Officer
</TABLE>
EMPLOYMENT AGREEMENTS
The Company is a party to an employment agreement with Steven M.
Bettinger, its President and Chief Executive Officer, which was entered into
December 1, 1999 for a term of two years. The employment agreement provides for
an annual salary of $150,000, and a bonus determined in the sole discretion of
the Company's Board of Directors. In connection with the employment agreement,
Mr. Steven M. Bettinger was granted options under the 2000 Plan to purchase a
total of 100,000 shares of common stock at an exercise price equal to $2.50 per
share. The options vest 1/3 per year beginning one year from the date of grant.
The employment agreement provides for automatic 12-month renewals unless the
employment agreement is terminated by the Company or Steven M. Bettinger with 30
days prior written notice.
15
<PAGE>
The Company is a party to an employment agreement with Robert K.
Bettinger, its Chairman of the Board of Directors and Secretary, which was
entered into December 1, 1999 for a period of two years. The employment
agreement provides for an annual salary of $10,800 and bonus determined in the
sole discretion of the Company's Board of Directors. In connection with the
employment agreement, Mr. Robert K. Bettinger was granted options under the 2000
Plan to purchase a total of 100,000 shares of common stock at an exercise price
equal to $2.50. The options vest 1/3 per year beginning one year from the date
of grant. The employment agreement provides for automatic 12-month renewals
unless the employment agreement is terminated by the Company or Robert K.
Bettinger with 30 days prior written notice.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning individual grants
of options made during Fiscal 2000 to the Named Executive Officer.
<TABLE>
<CAPTION>
% of Total
Number of Shares Options Granted Exercise or
Underlying Options to Employees in Base Price Expiration
Granted (#)(1) Fiscal Year ($/Sh) Date
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Steven M. Bettinger.............. 100,000 21.86% $2.50 May 2009
</TABLE>
STOCK OPTIONS HELD AT END OF FISCAL 2000
The following table indicates the total number and value of exercisable
and unexercisable stock options held by the Named Executive Officer as of June
30, 2000. No options to purchase stock were exercised by the Named Executive
Officer in Fiscal 2000.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at Fiscal Year-End (#) Options at Fiscal Year-End ($)
-------------------------------------- -----------------------------------------
Name Exercisable Unexercisable Exercisable(1) Unexercisable
------------------------------- ---------------- ------------------ ------------------ -------------------
<S> <C> <C> <C> <C>
Steven M. Bettinger......... 0 100,000 0 0
<FN>
-------------
(1) Based on the over-the-counter Electronic Bulletin Board last sales price for
the Company's common stock on October 2, 2000 in the amount of $2.25 per share.
</FN>
</TABLE>
2000 PERFORMANCE EQUITY PLAN
On February 1, 2000, the Company adopted and implemented the 2000 Plan.
The purpose of the 2000 Plan is to advance the interests of the Company by
providing an additional incentive to attract and retain qualified and competent
persons as employees, officers, directors and consultants upon whose efforts and
judgment the success of the Company is largely dependent. The 2000 Plan was
effective as of February 1, 2000, and, unless sooner terminated by the Board of
Directors of the Company in accordance with the terms thereof, shall terminate
on February 1, 2010. The number of shares of common stock which may be issued
under the 2000 Plan is 1,000,000. As of October 2, 2000, options to purchase a
total of 457,500 had been granted pursuant to the 2000 Plan, all of which are
outstanding and none of which are exercisable.
16
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides certain information regarding our common
stock beneficially owned as of October 2, 2000 by:
o each person who is known by us to own beneficially 5% or more
of our common stock;
o each of our executive officers and directors; and
o all of our executive officers and directors as a group.
In accordance with SEC rules, options or warrants not exercisable within 60 days
of this report are not considered part of the holder's beneficial ownership. As
of October 2, 2000, there were 7,578,617 shares of common stock outstanding.
Unless otherwise stated, the address for the beneficial shareholder is 6421
Congress Ave., Suite 201, Boca Raton, Florida 33487.
<TABLE>
<CAPTION>
Name and Address of Number of Shares of Common Stock
the Beneficial Owner Beneficially Owned Percentage %
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Steven M. Bettinger 2,670,000 35.23
Robert K. Bettinger 1,270,000 16.76
Mahmoud Hassan
3235 Emmons Ave. Apt 320
Brooklyn, NY 11235 0 0
Andrew Lockwood
Shochet Securities, Inc.
405 Plaza Real
Boca Raton, FL 33432 0 0
Jack Phelan 0 0
Gilder Funding Corp. (1)
12000 N. Bayshore Drive, Suite 210,
North Miami, FL 33181 1,100,000(1) 14.51
-----------------------------------------------------------------------------------------------------------------------
All executive officers and
Directors as a group (5 persons) 3,940,000 52.4%
-----------------------------------------------------------------------------------------------------------------------
<FN>
(1) Does not include 1,100,000 additional shares issuable to Gilder Funding Corp. upon satisfaction of the
Promissory Note. See Item 6 of Management's Discussion and Analysis or Plan of Operations.
</FN>
</TABLE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Form of Registrant's Certificate of Incorporation(1)
3.2 Form of Registrant's Amended and Restated Bylaws(1)
10.1 Form of 2000 Performance Equity Plan(1)*
10.2 Employment Agreement between the Registrant and Steven M.
Bettinger(1)
10.3 Employment Agreement between the Registrant and Robert K.
Bettinger(1)
27.1 Financial Data Schedule (SEC use only)
17
<PAGE>
* Management Compensation Plan or Arrangement
(1) Filed herewith
(b) Reports on 8-K
On August 30, 2000, VADC filed a current report on Form 8-K to disclose
that VADC had changed its Independent Certifying Accountants from Sweeney, Gates
& Co. to Grant Thornton LLP.
18
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, as amended, the registrant caused this report to be signed on its
behalf by the undersigned and duly authorized on October 6, 2000.
Virtual Academics.com, Inc.
By: /s/ Steven M. Bettinger
------------------------
Steven M. Bettinger
Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons in the capacities and on
the date indicated above.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Steven M. Bettinger Chief Executive Officer, President and October 6, 2000
----------------------- Director
Steven M. Bettinger
/s/ Robert K. Bettinger Chairman of the Board of Directors October 6, 2000
----------------------- (Principal Accounting and Financial
Robert K. Bettinger Officer)
/s/ Mahmoud Hassan Executive Vice President and Director October 6, 2000
-----------------------
Mahmoud Hassan
/s/Andrew Lockwood Director October 6, 2000
-----------------------
Andrew Lockwood
/s/ Jack P. Phelan Director October 6, 2000
-----------------------
Jack P. Phelan
</TABLE>
19
<PAGE>
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Virtual Academics.com, Inc.
We have audited the accompanying consolidated balance sheet of Virtual
Academics.com, Inc. and Subsidiaries (the "Company") as of June 30, 2000 and the
related consolidated statements of operations, stockholders' equity and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Virtual
Academics.com, Inc. and Subsidiaries at June 30, 2000, and the consolidated
results of their operations and their consolidated cash flows for the year ended
June 30, 2000, in conformity with accounting principles generally accepted in
the United States of America.
/s/ Grant Thornton LLP
Miami, Florida
September 19, 2000
F-1
<PAGE>
To the Partners
International Educational Group, L.L.C.
INDEPENDENT AUDITOR'S REPORT
I have audited the accompanying combined balance sheet of International
Educational Group, L.L.C. as of June 30, 1999 and the related combined statement
of operations for the twelve month period ending June 30, 1999, and combined
statement of cash flows and the combined statement of partners' equity for the
twelve months ended June 30, 1999. These financial statements are the
responsibility of International Educational Group, L.L.C.'s management. My
responsibility is to express an opinion on these financial statements based on
my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of
International Educational Group, L.L.C. as of June 30, 1999 and the results of
its operations for the twelve month period ending June 30, 1999 and its cash
flows and partners' equity for the twelve months ended June 30, 1999, in
conformity with generally accepted accounting principles.
Michael G. Chandross, CPA, P.A.
Pompano Beach, Florida
August 26, 1999 (except as to note 3, which is as of September 29, 1999
and note 6, which is as of October 6, 1999)
F-2
<PAGE>
Virtual Academics.com, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
June 30,
<TABLE>
<CAPTION>
ASSETS
2000 1999
---------------- ---------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 465,683 $ 9,722
Tuition receivable, current, net of allowance for doubtful
accounts of approximately $72,000 and $67,000 in 2000
and 1999 958,438 556,541
Prepaid recruiting fees, current 90,835 144,403
Other prepaid expenses 47,859 -
---------------- ---------------
Total current assets 1,562,815 710,666
Property and equipment
Computer equipment 22,577 14,826
Furniture and fixtures 35,386 20,060
---------------- ---------------
57,963 34,886
Less: Accumulated depreciation (16,033) (13,011)
---------------- ---------------
Total property and equipment 41,930 21,875
Other assets
Tuition receivable, non-current, net of allowance
for doubtful accounts of approximately $28,000 and
$17,000 in 2000 and 1999 277,371 139,135
Prepaid recruiting fees, non-current 45,285 14,311
Security deposits 7,032 4,400
---------------- ---------------
Total assets $ 1,934,433 $ 890,387
================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 9,069 $ 17,259
Unearned revenue 1,023,136 638,387
Accrued recruiting fees 99,406 125,890
Income tax payable - 4,427
Other accrued expenses 132,574 5,442
---------------- ---------------
Total current liabilities 1,264,185 791,405
Non-current liabilities
Unearned revenue 421,529 63,268
Accrued recruiting fees 38,977 31,472
---------------- ---------------
Total non-current liabilities 460,506 94,740
Stockholders' equity
Preferred stock, authorized 1,000,000 shares, par value $.001
in 2000 and .00001 in 1999 issued and outstanding 0 shares
in 2000 and 1999 - -
Common stock, authorized 11,000,000 shares, par value $.001
in 2000 and .00001 in 1999 issued and outstanding 7,483,233
shares in 2000 and 746,660 shares in 1999 7,483 746
Capital paid-in excess of par value 1,273,140 -
Note receivable from subscription (550,000) -
Accumulated (deficit) earnings (520,881) 3,496
---------------- ---------------
Total stockholders' equity 209,742 4,242
---------------- ---------------
Total liabilities and stockholders' equity $ 1,934,433 $ 890,387
================ ===============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
Virtual Academics.com, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended June 30,
<TABLE>
<CAPTION>
2000 1999
---------------- ---------------
<S> <C> <C>
Revenues $ 1,150,664 $ 833,018
Costs and expenses
Instruction and educational support 254,832 95,755
Selling and promotion 374,943 199,275
General and administrative expenses 942,598 349,161
---------------- ---------------
Total costs and expenses 1,572,373 644,191
---------------- ---------------
(Loss) income from operations (421,709) 188,827
Interest income 7,031 -
---------------- ---------------
(Loss) income before provision for income taxes (414,678) 188,827
(Benefit) provision for income taxes (6,132) 6,060
---------------- ---------------
Net (Loss) income $ (408,546) $ 182,766
================ ===============
Per share data (Notes A and D)
(Loss) earnings per common share - basic and diluted $ (.06) $ .24
================ ===============
Pro forma net income (UNAUDITED)
(Loss) income before (benefit) provision for
income taxes $ (414,678) $ 188,827
================ ===============
(Benefit) provision for income taxes $ (6,132) $ 64,651
================ ===============
Net (Loss) income $ (408,546) $ 124,176
================ ===============
Pro forma net (loss) income per share, basic and diluted $ (.06) $ .17
================ ===============
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE>
Virtual Academics.com, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
Year Ended June 30, 2000
<TABLE>
<CAPTION>
Note
Receivable
Common Stock Capital Paid from Accumulated
------------------------- In Excess of Issuance (Deficit)
Shares Amount Par Value of Stock Earnings Total
----------- ----------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance
June 30, 1998 746,660 $ 746 $ - $ - $ (28,978) $ (28,232)
Net income - - - - 182,766 182,766
Distributions - - - - (150,292) (150,292)
Adjustments for
reverse merger - - - - - -
----------- ----------- ------------- ------------- ------------- ------------
Balance
July 1, 1999 746,660 $ 746 $ - $ - $ 3,496 $ 4,242
Net income to
December 8, 1999 - - - - 112,335 112,335
Distributions - - - - (88,250) (88,250)
Adjustments for
reverse merger 5,600,073 5,600 37,902 - (27,581) 15,921
----------- ----------- ------------- ------------- ------------- ------------
Balance, December 8,
1999 6,346,733 6,346 37,902 - - 44,248
Net loss from December 9,
1999 to June 30, 2000 - - - - (520,881) (520,881)
Issuance of stock as
compensation to
consultants 36,500 37 246,338 - - 246,375
Sale of stock 1,100,000 1,100 438,900 - - 440,000
Stock subscribed for - - 550,000 (550,000) - -
----------- ----------- ------------- ------------- ------------- ------------
Balance
June 30, 2000 7,483,233 $ 7,483 $ 1,273,140 $ (550,000) $ (520,881) $ 209,742
=========== =========== ============= ============= ============= ============
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
Virtual Academics.com, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended June 30,
<TABLE>
<CAPTION>
2000 1999
---------------- ---------------
<S> <C> <C>
Cash flows from operating activities
Net (loss) earnings $ (408,546) $ 182,766
Adjustments to reconcile net (loss) earnings to net cash provided
by operating activities
Depreciation 7,587 5,341
Consulting expense on common stock issued to non-employees 246,375 -
(Increase) decrease in assets
Tuition receivable, current (401,897) (394,714)
Prepaid recruiting fees, current 53,568 (140,636)
Other prepaid expenses (47,859) -
Other assets
Tuition receivable, non-current (138,236) (98,678)
Prepaid recruiting fees, non-current (30,974) (13,968)
Security deposits (2,632) -
Increase (decrease) in liabilities
Accounts payable (8,190) 1,626
Unearned revenue, current 384,749 487,703
Accrued recruiting fees, current (26,484) 121,967
Due to Partner - (62,394)
Income taxes payable (4,427) 2,416
Other accrued expenses and taxes payable 127,132 (7,296)
Other liabilities
Unearned revenue, non-current 358,261 49,542
Accrued recruiting fees, non-current 7,505 30,338
---------------- ---------------
Net cash provided by operating activities 115,932 164,013
Cash flows used in investing activities
Acquisition of property and equipment (27,642) (13,862)
---------------- ---------------
Net cash used in investing activities (27,642) (13,862)
Cash flows from financing activities
Proceeds from sale of common stock 440,000 -
Adjustments made pursuant to reverse merger 15,921 -
Distributions to members prior to merger (88,250) (150,292)
---------------- ---------------
Net cash provided by (used in) financing activities 367,671 (150,292)
---------------- ---------------
Net increase (decrease) in cash and cash equivalents 455,961 (141)
Cash and cash equivalents
At beginning of year 9,722 9,863
---------------- ---------------
At end of year $ 465,683 $ 9,722
================ ===============
Supplemental information:
Interest paid $ 29 $ 1,672
================ ===============
Income taxes paid $ - $ -
================ ===============
Non-cash financing activities
In February 2000, the Company recorded a $550,000 subscription note
receivable as described in Note D.
The accompanying notes are an integral part of these statements.
</TABLE>
F-6
<PAGE>
Virtual Academics.com, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
NOTE A - OWNERSHIP AND OPERATIONS
Virtual Academics.com, Inc. (the "Company") is engaged in distance learning
through its subsidiaries to provide Internet education to students
throughout the world. The business is conducted under the name of
Barrington University (the "School") and Virtual Academics.com, Inc.
The International Association of Universities and Schools and the Global
Accreditation Association accredits the School; the Alabama Department of
Education licenses the School. The Company's administrative and sales
office is located in Boca Raton, Florida. There are also arrangements with
several international universities that confer dual degrees with the School
whereas, based on the School's approval of the curriculum, a degree will be
issued by the School upon completion of the students' studies at an
international university.
On December 8, 1999, Steve Bettinger and Robert Bettinger (the Bettingers)
acquired 4,200,000 shares of Donnebrooke Corp. from a principal
stockholder. After the purchase of these shares Donnebrooke Corp. had
6,346,733 shares outstanding. Accordingly, the Bettingers owned
approximately 66% of Donnebrooke Corp.'s outstanding common shares after
the purchase. In connection with the purchase of Donnebrooke Corp.'s
shares, the Bettingers, also owners of International Educational Group,
LLC, and its subsidiaries, Barrington University, Inc., an Alabama
Corporation, and Spanish University of America Foundation, Inc.,
transferred their interest in these companies to Donnebrooke Corp.
Donnebrooke Corp. then changed its name to Virtual Academics.com, Inc.
Since Donnebrooke was inactive and had no operations, for accounting
purposes the acquisitions of the Bettingers' entities were accounted for as
a reverse merger and recapitalization. Therefore, the financial statements
of the Company reflect the assets, liabilities and operations of the
Bettingers' entities as if they had been the reporting entity since
inception.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly owned. All significant
intercompany accounts and transactions have been eliminated.
(continued)
F-7
<PAGE>
Virtual Academics.com, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 2000
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Management Estimates
The preparation of these financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reported period. Examples are
the provision for doubtful accounts, unearned revenue, and prepaid and
accrued recruiting fees. Actual results could differ from those estimates.
Cash and Cash Equivalents
All cash and money market accounts are reported as Cash and Cash
Equivalents.
Fair Value of Financial Instruments
The carrying value of cash and cash equivalents, tuition receivables and
accounts payable approximate fair value due to the short term maturities of
these instruments.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization
are provided using the straight-line method over the estimated economic
lives of the assets, which are from five to seven years.
Expenditures for major renewals and betterments that extend the useful
lives of property and equipment are capitalized. Expenditures for
maintenance and repairs are charged to expense as incurred.
Stock-based Compensation
Options granted under the Company's Stock Option Plan are accounted for
Under APB 25, "Accounting for Stock Issued to Employees", and related
interpretations. The Company's policy is to grant options with an exercise
price equal to the quoted market price of its stock on the grant date.
Accordingly, no compensation cost is recognized for those options granted.
Stock issued in lieu of compensation is valued at the fair market value of
the stock at the date of issuance.
(continued)
F-8
<PAGE>
Virtual Academics.com, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 2000
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Revenue Recognition
The school's curriculum is designed to allow a student to earn a degree or
certificate by self-study. Each student, upon registration, is given an ID
number and a password to begin his/her studies. Enrollment is completed
upon the receipt of an initial payment at which time all of the course
materials, which include core textbooks, are delivered to the student. The
school offers a variety of degree and certificate programs and students are
requested to complete payment within one year of enrollment, but two-year
payment plans are offered upon request. All payment plans are without
interest. Degrees are not conferred if a student is not fully paid.
Revenue is recognized as earned as the student completes his or her course
of study. A 24 month period is used as the estimated time period for the
average degree completion, and revenue is recognized on the straight-line
method over this 24 month period.
Revenue earned from students participating in dual degree programs with
foreign universities is recognized when the degree is issued upon
graduation.
In fiscal 2000, one recruiter's recruiting efforts accounted for
approximately 25% of the Company's total revenues.
Tuition Receivable
The Company, in the ordinary course of business finances the tuition,
without interest, over a period of up to twenty-four months. Because a
significant part of the tuition is deferred, the Company does not impute
interest with respect to receivables that mature in more than one year.
Tuition receivables are stated at the amount of unpaid principal, reduced
by an allowance for loans losses. Provisions for estimated losses on
student loans are charged to income in amounts sufficient to maintain the
allowance at a level considered adequate to cover the losses of tuition
receivables based upon historical trends, economic conditions and other
information.
Recruiting Fees
Students learn about the school via the Internet or are recruited through a
worldwide network of recruiters. Recruiters are paid upon receipt of
tuition payment by the student. Recruiting fees are accrued for the tuition
due the Company, and prepaid for the revenue that has been deferred.
Recruiting fees are amortized over 24 months to match the revenue
recognition period.
(continued)
F-9
<PAGE>
Virtual Academics.com, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 2000
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Research and Development
All costs incurred for research and development are expensed.
Instruction and Education Support
Instruction and educational support consists of supplies such as textbooks
to students, computer software and internet expenses.
Advertising
Advertising is expensed as incurred. Advertising expenses for the years
ended June 30, 2000 and 1999 totaled $59,506 and $ 13,489, respectively.
Income Taxes
Deferred tax assets and liabilities are recorded based on the difference
between the tax basis of assets and liabilities and their carrying amounts
for financial reporting purposes. In addition, the current or deferred tax
consequences of a transaction are measured by applying the provisions of
enacted tax laws to determine the amounts of taxes payable currently or in
future years.
The pro forma income taxes on the statement of operations for fiscal 2000
does not reflect income taxes on results of operations before the merger as
operations for the year then ended resulted in a net loss for which income
taxes would not be applicable. Pro forma income taxes for 1999 have been
provided to reflect the taxes that would have otherwise been payable if the
Company was not operating as an LLC.
Computer software
The Company accounts for the costs of computer software developed or
obtained for internal use in accordance with Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use."
Earnings Per Share
Basic net earnings per share equals net earnings (loss) divided by the
weighted average shares outstanding during the year. The computation of
diluted net earnings per share does not include dilutive common stock
equivalents in the weighted average shares outstanding as they would be
antidilutive in 2000. The reconciliation between the computations is as
follows:
Net (Loss) Income Basic Shares Basic EPS
----------------- -------------- -------------
2000 $ (408,546) 6,804,506 $ (.06)
1999 $ 182,766 746,660 $ .24
Not included in basic shares are the weighted average common stock
equivalents of 457,500 because they are anti-dilutive in 2000.
Recent Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This Statement establishes accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging
activities. SFAS No. 133 is effective for all fiscal quarters beginning
with the quarter ending July 31, 1999. In July 1999, the FASB issued SFAS
No. 137, "Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement No. 133" which
deferred the effective date for all fiscal years beginning after June 15,
2000. The adoption of SFAS No. 133 is not expected to have a material
effect on our results of operations, financial position or cash flows.
Reclassifications
Certain 1999 amounts have been reclassified to conform to the 2000
presentation.
(continued)
F-10
<PAGE>
Virtual Academics.com, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 2000
NOTE C - COMMITMENTS
Employment Agreements
The Company has entered into employment agreements with two of its
executive officers for a 24 month period, subject to automatic renewals of
12-month terms unless terminated by the Company or the employee with a 30
day prior written notice.
In addition to an annual salary of $150,000 and $10,800 for the President
and Chief Executive Officer and the Chairman of the Board and Secretary,
respectively, the agreements entitle the officers to receive options to
purchase 100,000 shares of common stock of the Company each year of
employment.
The agreements also provide for the receipt of an annual bonus at the
discretion of the Board of Directors. The bonus may take the form of cash,
options to purchase common stock of the Company or restricted stock of the
Company.
Leases
The Company leases its Florida offices under a lease that expires in 2005.
Future minimum rental payments required under this operating lease is as
follows:
Period Ended June 30, 2001 $ 39,090
Period Ended June 30, 2002 39,090
Period Ended June 30, 2003 20,652
Period Ended June 30, 2004 16,965
Period Ended June 30, 2005 16,965
Rent expense for the twelve-month periods ended June 30, 2000 and 1999 was
$51,722 and $58,615, respectively.
NOTE D - COMMON STOCK
On February 1, 2000, the company adopted a stock option plan (the "2000
Performance Equity Plan") for periods not to exceed ten years. The plan
provides for a maximum of 1,000,000 shares of common stock to be awarded of
both incentive stock options and nonqualified stock options. The exercise
price of common shares issued pursuant to this plan is determined by a
committee but may not be less than 100% of the fair market value on the day
of grant. For holders of 10% or more of the combined voting power of all
classes of the Company's stock, options may not be granted at less than
110% of the fair value of the common stock at the date of grant and the
option may not exceed 5 years. There were no options exercised or forfeited
during the year.
(continued)
F-11
<PAGE>
Virtual Academics.com, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 2000
NOTE D - COMMON STOCK - Continued
The exercise price of all options granted by the Company equals the
market price at the date of grant. No compensation expense has been
recognized. Had compensation cost for the stock option plan been
determined based on the fair value of the options at the grant dates
consistent with the method of SFAS 123, "Accounting for Stock Based
Compensation", the Company's net earnings and earnings per share would
have been changed to the pro forma amounts indicated below for the year
ended June 30, 2000:
Net earnings
As reported $(408,546)
Pro forma (435,788)
Basic earnings per share
As reported (.06)
Pro forma (.06)
The above pro forma disclosures may not be representative of the effects on
reported net earnings for future years as options vest over several years
and the Company may continue to grant options to employees.
The fair value of each option grant is estimated on the date of grant using
the binomial option-pricing model with the following weighted-average
assumptions used for grants in 2000: dividend yield of -0- percent;
expected volatility of 52 percent; risk-free interest rate of 5.79 percent
and an expected holding periods of 5 years.
(continued)
F-12
<PAGE>
Virtual Academics.com, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 2000
NOTE D - COMMON STOCK - Continued
A summary of the status of the Company's fixed stock options as of June 30,
2000 and changes during the year ending on that date is as follows:
<TABLE>
<CAPTION>
Weighted
Average
Shares Exercise
(000) Price
-------------- --------------
<S> <C> <C>
Outstanding at beginning of year - -
Granted 457,500 2.51
Exercise - -
Forfeited - -
-------------- --------------
Outstanding at end of year 457,500 2.51
============== ==============
Options exercisable at end of year -
Weighted-average fair value of options
granted during the year $ 1.29
</TABLE>
The following information applies to options outstanding at June 30, 2000.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------- -----------------------
Weighted -
Average Weighted - Weighted -
Remaining Average Average
Shares Contractual Exercise Shares Exercise
Range of Exercise Prices (000) Life Price (000) Price
------------------------ ----------- ------------ ----------- -------------- ----------
<S> <C> <C> <C> <C> <C>
$2.50 to $2.656 457,500 10.87 2.51 - -
</TABLE>
In February 2000, the Company entered into a subscription agreement for a
total of 2,200,000 shares of common stock. The shares were purchased for an
aggregate amount of $990,000. The purchase price is payable as $440,000 in
cash for the initial 1,100,000 shares of common stock and the issuance of a
7% promissory note in the principal amount of $550,000 for the remaining
1,100,000 shares of common stock. The note matures on February 2, 2001. The
remaining shares of common stock are retained by the Company until the note
is satisfied in full.
F-13
<PAGE>
Virtual Academics.com, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 2000
NOTE E - CAPITAL RAISING
On June 21, 2000, the Company entered into an agreement with an investment
banker to arrange a private placement or series of private placements of
debt or equity securities of the Company. The private placement will have
estimated aggregate gross proceeds of not less than $5 million and up to a
maximum of $20 million. The investment banker will also assist the company
with respect to business analysis, management and potential acquisitions.
The agreement expires no later than 180 days from inception. In addition to
the retainer fee, expenses and a placement fee, the advisor is entitled to
receive 5% of the common shares outstanding in the form of purchase
warrants at $ .01 per share. The warrants are to be issued, 3% on the date
the agreement was signed, 1% on the first closing of not less than $ 5
million, and 1% on the second closing date. The investment banker is also
entitled to receive additional warrants equal to 10% of the shares of any
private placements made. These additional warrants will have an exercise
price equal to the share price paid pursuant to the private placement.
NOTE F - INCOME TAXES
Benefit for income taxes for the year ended June 30, 2000 of $6,132
represents an accrual that was reversed which was made prior to the reverse
merger. Prior to the reverse merger, International Educational Group L.L.C.
was a limited liability company and was not required to pay any Federal or
State income taxes. For the year ended June 30, 1999, the provision for
income taxes consists of current expense in the amount of $6,060 for
Barrington University, Inc.
Deferred tax assets and liabilities are provided for significant income and
expense items recognized in different years for tax and financial reporting
purposes. Temporary differences which give rise to net deferred tax assets
follow:
<TABLE>
<CAPTION>
2000 1999
--------------- ----------------
<S> <C> <C>
Deferred tax benefits (liability) - current
Allowance for doubtful accounts $ 39,466 $ 33,270
Cash to accrual conversion (8,500) (11,334)
Deferred tax benefits - noncurrent
Depreciation 5,755 105
Net operating loss carryforward 141,452 -
Other, net - -
--------------- ----------------
Total deferred tax assets 178,173 22,041
Less: Valuation allowance (178,173) (22,041)
--------------- ----------------
$ - $ -
=============== ================
</TABLE>
The Company's effective tax rate is lower than the statutory rate due to
the 100% valuation allowance on the deferred tax assets.
F-14
<PAGE>
Virtual Academics.com, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
June 30, 2000
NOTE F - INCOME TAXES - Continued
The Company recorded a full valuation allowance for the deferred tax assets
at June 30, 2000 and 1999 as the Company's ability to realize these
benefits is not "more likely than not". Accordingly, no net deferred tax
assets are reported in the accompanying balance sheets at June 30, 2000 and
1999.
NOTE G - RELATED PARTY TRANSACTIONS
The majority shareholders of the company are also the majority shareholders
of a consulting company that renders services to the Company. During the
year ended June 30, 2000 fees paid to the consulting company amounted to
$30,900.
F-15
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
3.1 Form of Registrant's Certificate of Incorporation
3.2 Form of Registrant's Amended and Restated Bylaws
10.1 Form of 2000 Performance Equity Plan
10.2 Employment Agreement between the Registrant and Steven M.
Bettinger
10.3 Employment Agreement between the Registrant and Robert K.
Bettinger
27.1 Financial Data Schedule
