United States

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

(Mark One)

 

ý

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended September 30, 2002.

 

OR

 

o

Transaction report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the transition period from                     to                    .

 

 

Commission File Number 0-21421

 

 

VCAMPUS CORPORATION

(Exact name of registrant as specified in its charter)

 

 

Indicate by check mark whether the 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  ý   No  o

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

 

 

PART I — FINANCIAL INFORMATION

 

Item 1.  Financial Statements

 

VCAMPUS CORPORATION

 

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

		Three Months Ended September 30,						Nine Months Ended September 30,
		2001			2002			2001			2002
Revenues:
Online tuition revenues		$	1,516,767		$	1,558,116		$	4,725,867		$	4,377,821
Virtual campus software revenues		18,142			—			60,613			—
Development and other revenues		106,005			147,994			422,679			381,331
Product sales revenues		3,905			—			42,040			—
Other service revenues		34,014			29,697			105,848			75,564
Instructor-led training revenues		—			—			102,584			—
Net revenues		1,678,833			1,735,807			5,459,631			4,834,716
Costs and expenses:
Cost of revenues		187,372			514,172			901,496			1,086,536
Sales and marketing		1,051,096			834,131			3,728,946			2,208,511
Product development and operations		661,565			565,505			1,880,531			1,703,064
General and administrative		467,962			430,235			1,577,548			1,219,252
Depreciation and amortization		502,455			290,740			1,560,797			1,095,019
Reorganization & other non-recurring costs		—			192,000			—			192,000
Stock-based compensation		—			10,995			440,898			64,194
Total costs and expenses		2,870,450			2,837,778			10,090,216			7,568,576
Loss from operations		(1,191,617		)	(1,101,971		)	(4,630,585		)	(2,733,860		)
Interest income (expense)		15,431			64,925			30,123			(192,140		)
Loss on debt extinguishment		—			—			—			(503,246		)
Net loss		$	(1,176,186	)	$	(1,037,046	)	$	(4,600,462	)	$	(3,429,246	)
Dividends to preferred stockholders		(96,813		)	(1,757,812		)	(327,334		)	(2,683,164		)
Net loss attributable to common stockholders		$	(1,272,999	)	$	(2,794,858	)	$	(4,927,796	)	$	(6,112,410	)
Net loss per share, basic		$	(0.89	)	$	(1.83	)	$	(4.10	)	$	(4.11	)
Net loss per share — assuming dilution		$	(0.89	)	$	(1.83	)	$	(4.10	)	$	(4.11	)

 

See accompanying notes.

 

2

 

VCAMPUS CORPORATION

CONSOLIDATED BALANCE SHEETS

 

		December 31 2001			September 30, 2002			Proforma as of September 30, 2002
					(Unaudited)			(Unaudited)
								(See Note H)
ASSETS
Current assets:
Cash and cash equivalents		$	2,027,771		$	2,192,417		$	2,262,137
Accounts receivable, less allowance of $99,000 and $68,000 at December 31, 2001 and September 30, 2002, respectively		668,180			387,794			387,794
Loans receivable from related parties		140,183			133,463			133,463
Loans receivable — current		159,736			58,940			58,940
Prepaid expenses and other current assets		287,393			391,706			391,706
Total current assets		3,283,263			3,164,320			3,234,040
Property and equipment, net		944,795			375,267			375,267
Capitalized software costs and courseware development costs, net		1,146,230			1,118,984			1,118,984
Acquired online publishing rights, net		6,230			—			—
Loans receivable — less current portion		95,441			73,155			73,155
Other assets		242,886			194,849			194,849
Other intangible assets, net		1,022,165			802,455			802,455
Goodwill, net		270,499			328,317			328,317
Total assets		$	7,011,509		$	6,057,347		$	6,127,067
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	1,261,799		$	1,019,426		$	1,019,426
Accrued expenses		1,203,103			1,145,733			1,145,733
Capital lease obligation — current portion		206,924			68,903			68,903
Notes payable — current portion		492,351			—			—
Deferred revenues		1,003,892			1,189,647			1,189,647
Accrued dividends payable		—			70,273			70,273
Total current liabilities		4,168,069			3,493,982			3,493,982
Long-term liabilities:
Notes payable — less current portion		—			118,948			118,948
Capital lease obligation — less current portion		29,707			—			—
Total liabilities		4,197,776			3,612,930			3,612,930
Stockholders’ equity:
Series C convertible Preferred Stock, $0.01 par value per share; aggregate liquidation preference of $7,910,172 at December 31, 2001 and September 30, 2002;  1,000,000 shares authorized; 623,339 shares issued and  outstanding at December 31, 2001 and September 30, 2002		6,233			6,233			6,233
Series D convertible Preferred Stock, $0.01 par value per share; aggregate liquidation preference of  $8,363,924 at December 31, 2001 and September 30,  2002; 1,200,000 shares authorized; 1,013,809 shares issued and outstanding at December 31, 2001 and September 30, 2002		10,138			10,138			10,138
Series E convertible Preferred Stock, $0.01 par value per share; aggregate liquidation preference of $1,940,467 and $1,793,110 at December 31, 2001 and September 30, 2002, respectively;  3,000,000 shares authorized; 545,075 and 567,440 shares issued and outstanding at December  31, 2001 and September 30, 2002, respectively		5,451			5,674			5,674
Series F convertible Preferred Stock, $0.01 par value per share; aggregate liquidation preference of  $924,993 and $1,050,000 at December 31,  2001 and September 30, 2002, respectively; 3,000,000 shares authorized; 2,642,836 and 3,000,000 shares issued and outstanding at December  31, 2001 and September 30, 2002, respectively		26,428			30,000			30,000
Series F-1 convertible Preferred Stock, $0.01 par value per share; aggregate liquidation preference of $0 and $510,445 at December 31, 2001 and September 30, 2002, respectively; 1,458,413 shares authorized; 0 and 1,458,413 shares issued and outstanding at December  31, 2001 and September 30, 2002, respectively		—			14,584			14,584
Series F-2 convertible Preferred Stock, $0.01 par value per share; aggregate liquidation preference of $0 and $965,230 at December 31, 2001 and  September 30, 2002, respectively; 60,000 shares authorized; 0 and 27,578 shares issued and outstanding at December 31, 2001 and September 30, 2002,  respectively		—			276			276
Series G convertible Preferred Stock, $0.01 par value per share; aggregate liquidation preference of $0, $1,018,944, and $1,091,652 at December 31, 2001, September 30, 2002 and September 30, 2002 on a pro forma basis, respectively; 80,000 shares authorized; 0, 46,400 and 49,320 shares issued and outstanding at December 31, 2001, September 30, 2002 and September 30, 2002 on a pro forma basis, respectively		—			464			493
Common Stock, $0.01 par value per share; 36,000,000 shares authorized; 1,469,868 and 1,527,305 shares issued and outstanding at December 31, 2001 and September 30, 2002, respectively		14,699			15,273			15,273
Additional paid-in capital		79,910,507			85,533,908			85,615,882
Series F convertible Preferred Stock subscribed		(100,000		)	—			—
Accumulated deficit		(77,059,723		)	(83,172,133		)	(83,184,416		)
Total stockholders’ equity		2,813,733			2,444,417			2,514,137
Total liabilities and stockholders’ equity		$	7,011,509		$	6,057,347		$	6,127,067

 

See accompanying notes.

 

3

 

VCAMPUS CORPORATION

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		Nine Months Ended September 30,
		2001			2002
Operating activities
Net loss		$	(4,600,462	)	$	(3,429,246	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		736,358			605,517
Amortization		824,439			489,502
Bad debt expense		—			68,832
Loss on debt extinguishment		—			503,246
Debt discount amortization		—			193,363
Stock option and warrant compensation		440,898			64,194
Decrease in allowance for doubtful accounts		(96,154		)	(43,265		)
Changes in operating assets and liabilities:
Increase (decrease) in accounts receivable		(151,409		)	438,621
Increase in prepaid expenses and other current assets		(36,365		)	(170,472		)
Decrease in other assets		6,279			48,037
Increase in accounts payable and accrued expenses		(530,578		)	(233,569		)
Increase in deferred revenues		23,714			185,755
Net cash used in operating activities		(3,383,280		)	(1,279,485		)
Investing activities
Purchases of property and equipment		(32,863		)	(43,024		)
Capitalized software and courseware development costs		(375,305		)	(294,134		)
Proceeds from loans receivable		53,023			28,334
Advances under loans (interest) receivable		(8,243		)	(5,252		)
Proceeds from loans receivable from related parties		—			5,503
Advances under loans receivable from related parties		(6,001		)	(5,616		)
Net cash used in investing activities		(369,389		)	(314,189		)
Financing activities
Proceeds from issuance of common stock		2,763,703			—
Proceeds from the issuance of Series E convertible Preferred Stock		188,328			—
Proceeds from issuance of Series F convertible Preferred Stock		—			225,007
Proceeds from the issuance of Series F-2 convertible Preferred Stock		—			605,064
Proceeds from the issuance of Series G convertible Preferred Stock		—			988,944
Proceeds from notes payable		1,150,000			100,000
Payments on capital lease obligations		—			(160,695		)
Net cash provided by financing activities		4,102,031			1,758,320
Net increase in cash and cash equivalents		349,362			164,646
Cash and cash equivalents at the beginning of the period		243,204			2,027,771
Cash and cash equivalents at the end of the period		$	592,566		$	2,192,417
Supplemental cash flow information:

 

See accompanying notes.

 

4

 

VCAMPUS CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note A — Basis of Presentation

 

The accompanying financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the interim periods are not necessarily indicative of the results that may be expected for any future period, including the year ending December 31, 2002. For further information, refer to the audited financial statements and footnotes thereto included in the VCampus Corporation (“VCampus” or the “Company”) Annual Report on Form 10-K for the year ended December 31, 2001.

 

Note B — Equity Transactions

 

In March 2002, the Company issued 1,458,413 shares of Series F-1 Preferred Stock and five-year fully vested warrants to purchase 14,584 shares of common stock at $4.00 per share in exchange for the cancellation of a note in the original principal amount of $500,000 plus $10,445 in accrued interest.  Each share of Series F-1 Preferred Stock was initially convertible into 1/10th of a share of common stock at any time at the election of the holder.  The excess of the fair value of the Preferred Stock and warrants over the carrying value of the note amounted to $267,488 and was recognized as a loss on debt extinguishment in March 2002.  The carrying value of the debt at the time of its conversion was $324,392, excluding accrued interest of $10,445.  The extinguishment of the debt resulted in the write-off of $50,121 in deferred debt issuance costs.  The excess of the value of common stock into which the Series F Preferred Stock is convertible over the amount allocated to the Preferred Stock amounted to $44,282.  Such amount represented a beneficial conversion feature discount and was recognized as a deemed dividend to the preferred stockholder upon stockholder approval of the transaction in May 2002.

 

In May and June 2002, the Company completed the following equity financing transactions:

 

1.               The sale of 242,859 shares of Series F Preferred Stock for $85,000 in cash at $0.35 per share and warrants to purchase 6,071 shares of common stock at $4.00 per share.  Each share of Series F Preferred Stock was initially convertible into 1/10th of a share of common stock at any time at the election of the holder.  The proceeds were allocated to the Preferred Stock and the warrants based on their relative fair values.  The excess of the value of common stock into which the Series F Preferred Stock is convertible over the proceeds allocated to the Preferred Stock amounted to $57,104.  Such amount represented a beneficial conversion feature discount and was recognized as a deemed dividend to preferred stockholders upon stockholder approval of the offering in May 2002.

 

2.               The sale of 17,859 shares of Series F-2 Preferred Stock for approximately $625,000 in cash at $35.00 per share (each of which Series F-2 Preferred Share was initially convertible into 10 shares of common stock) and warrants to purchase a total of 160,365 shares of common stock at $4.00 per share. The proceeds were allocated to the Preferred Stock and the warrants based on their relative fair values.  The excess of the value of common stock into which the Series F-2 Preferred Stock is convertible over the proceeds allocated to the Preferred Stock amounted to $579,746.  Such amount represented a beneficial conversion feature discount and was recognized as a deemed dividend to preferred stockholders upon stockholder approval of the offering in May 2002.

 

3.               The issuance of 5,878 shares of Series F-2 Preferred Stock plus a warrant to purchase 5,878 shares of common stock at $4.00 per share, in exchange for the cancellation of a convertible promissory note in the principal and accrued interest amount of $205,730, each of which Series F-2 Preferred Share was initially convertible into 10 shares of common stock. The excess of the fair value of the Preferred Stock and warrants over the net carrying value of the debt was $170,677 and was recognized as a loss on debt extinguishment.  The carrying value of the debt at the time of its conversion was $143,944, excluding accrued interest of $5,730.  The extinguishment of the debt resulted in the write-off of $16,038 in deferred debt issuance costs.  The excess of the value of common stock into which the Series F Preferred Stock is convertible over the amount allocated to the Preferred Stock amounted to $24,267.  Such amount represented a beneficial conversion feature discount and was recognized as a deemed dividend to the preferred stockholder upon stockholder approval of the transaction in May 2002.

 

4.               The issuance of 3,841 shares of Series F-2 Preferred Stock in exchange for the cancellation of $126,970 of accounts payable, each of which Series F-2 Preferred Share was initially convertible into 10 shares of common stock.  The excess of the fair value of the Preferred Stock over the carrying value of the accounts payable amounting to $65,081 was recognized as a loss on the exchange.  The excess of the value of common stock into which the Series F Preferred Stock is convertible over the

 

5

 

amount allocated to the Preferred Stock amounted to $57,627.  Such amount represented a beneficial conversion feature discount and was recognized as a deemed dividend to the preferred stockholder upon stockholder approval of the transaction in May 2002.

 

5.               The sale of 114,305 shares of Series F Preferred Stock for $40,007 in cash at $0.35 per share and warrants to purchase 2,858 shares of common stock at $4.00 per share.  Each share of Series F Preferred Stock was initially convertible into 1/10th of a share of common stock at any time at the election of the holder.  The proceeds were allocated to the Preferred Stock and the warrants based on their relative fair values.  The excess of the value of common stock into which the Series F Preferred Stock is convertible over the proceeds allocated to the Preferred Stock amounted to $17,685.  Such amount represented a beneficial conversion feature discount and was recognized as a deemed dividend to preferred stockholders upon stockholder approval of the offering in May 2002.

 

On July 8, 2002 the Company effected a one-for-ten reverse stock split of its common stock.  All share and per share numbers of common stock have been restated to reflect the stock split.

 

In September 2002, the Company issued 46,400 shares of Series G Preferred Stock at a purchase price of $21.96 per share (10 times the trailing five-day average closing price of its common stock) to accredited investors.  Under the terms of the financing agreement, the Company also issued five-year fully vested warrants to purchase 116,000 shares of common stock at $2.42 per share.  Each share of Series G Preferred Stock is initially convertible into 10 shares of common stock at any time at the election of the holder.  The excess of the value of common stock into which the Series G Preferred Stock is convertible over the proceeds allocated to the Preferred Stock amounted to $185,883.  Such amount represented a beneficial conversion feature discount and was immediately recognized as a deemed dividend to preferred stockholders.  The issuance of the Series G Preferred Stock triggered an antidilution adjustment in the conversion price of the Series F, F-1 and F-2 Preferred Stock from $3.50 to $2.196.  As result, the number of common shares potentially issuable upon conversion of the Series F, F-1 and F-2 Preferred Stock has increased from 721,620 to 1,150,124.  The Company recorded a deemed dividend of $1,499,762 in connection with this adjustment.

 

Note C — Net Loss Per Share

 

The following table sets forth the computation of basic and diluted net loss per share:

 

		Three Months Ended September 30,						Nine Months Ended September 30,
		2001			2002			2001			2002
Numerator:
Net loss		$	(1,176,186	)	$	(1,037,046	)	$	(4,600,462	)	$	(3,429,246	)
Accrued dividends to preferred stockholders		(96,813		)	(1,757,812		)	(327,334		)	(2,683,164		)
Net loss available to common stockholders		$	(1,272,999	)	$	(2,794,858	)	$	(4,927,796	)	$	(6,112,410	)
Denominator:
Denominator for basic earnings per share — weighted-average shares		1,426,955			1,523,790			1,200,706			1,485,426
Denominator for diluted earnings per share — adjusted weighted-average shares		1,426,955			1,523,790			1,200,706			1,485,426
Basic net loss per share		$	(0.89	)	$	(1.83	)	$	(4.10	)	$	(4.11	)
Diluted net loss per share		$	(0.89	)	$	(1.83	)	$	(4.10	)	$	(4.11	)

 

Note D — Intangible Assets

 

Other intangible assets were comprised of:

 

 

6

 

Amortization expense for other intangible assets is expected to be as follows:

 

2002		$	52,645
2003		210,579
2004		210,579
2005		157,536
2006		131,014
Thereafter		40,102
		$	802,455

 

Note E — Legal Proceedings

 

The Virginia Department of Taxation recently completed an audit of VCampus’ sales and use tax payments from August 1998 through October 2001.  In July 2002, the Company received a draft assessment which contemplated a payment of taxes, penalties and interest by VCampus of $212,719 primarily associated with the alleged failure of VCampus to assess use tax on third-party royalties paid by VCampus to content providers for courses delivered online by the Company. This was a draft document and was not yet a formal assessment by the Virginia Department of Taxation. The Company paid $18,928 for sales and use tax and interest on non-contested items on November 1, 2002. The Company, using outside counsel, has formally contested several items covered by the draft assessment. The Company is currently contesting the penalty assessed on the non-contested items. Additionally, the Company is formally contesting the assessment of  use tax on the royalties paid by VCampus to content providers for courses delivered online by the Company. The Company is also contesting the methodology used by the Virginia Department of Taxation to estimate said royalties. The Company does not have a firm estimate of expectations of liability for this issue or anticipated legal costs, and has reason to believe that the potential liability will be reduced to the point where it will not be considered material. Accordingly, the Company cannot estimate at this time the amount of the liability to be incurred, if any. No amounts have been accrued in the financial statements for this potential liability.

 

The Company’s previously disclosed and ongoing dispute with a former employee has been scheduled for mediation on December 10, 2002.

 

Note F — Adoption of FAS 142

 

On January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (SFAS 142).  In accordance with the provisions of SFAS 142, the Company reclassified the net carrying value of its workforce intangible asset recognized in connection with the acquisition of HTR, Inc. ($57,818) into goodwill on January 1, 2002.  The workforce asset comprised at-will employees and no longer met the criteria for recognition apart from goodwill.  Amortization of goodwill, including goodwill previously identified as a workforce intangible, ceased on January 1, 2002.  The Company does not have any indefinite-lived intangibles.  In accordance with SFAS 142, the Company reviewed the useful lives of its intangible assets and determined that they remained appropriate.

 

In connection with the goodwill impairment evaluation, SFAS 142 required the Company to perform an assessment of whether there is an indication that goodwill is impaired at the date of adoption. To accomplish this, the Company identified its reporting units and determined the carrying value of each reporting unit by assigning the assets and liabilities, including existing goodwill and intangible assets, to those reporting units as of the date of the adoption and determined the fair value of each reporting unit and compared it to the reporting unit’s carrying amount.  As discussed below, the Company considers itself to have a single reporting unit.  To the extent the reporting unit’s carrying amount exceeds its fair value, an indication exists that the reporting unit’s goodwill may be impaired and the Company must perform the second step of the impairment test.  In the second step, the Company must compare the implied fair value of the reporting unit’s goodwill, determined by allocating the reporting unit’s fair value to all of its assets and liabilities in a manner similar to a purchase price allocation in accordance with SFAS 141, to its carrying amount, both of which would be measured as of the date of adoption.

 

The Company performed the initial goodwill impairment test required by SFAS 142 during the second quarter of fiscal 2002.  The Company considers itself to have a single reporting unit.  Accordingly, all of the Company’s goodwill is associated with the entire Company.  As of June 30, 2002, based on the Company’s market capitalization, there was no impairment of goodwill recorded upon implementation of SFAS 142.  The Company will continue to test for impairment on an annual basis, coinciding with its fiscal year end, or on an interim basis if circumstances change that would more likely than not reduce the fair value of the Company’s reporting unit below its carrying amount.

 

Note G — New Accounting Pronouncements

 

On January 1, 2002, the Company adopted the provisions of Statement of Financial Accounting Standards No.144 (“SFAS 144”),  “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS 144 addresses the financial accounting and reporting for the impairment or disposal of long-lived assets.  SFAS 144 supersedes Statement of Financial Accounting Standards No 121 (“SFAS

 

7

 

121”) “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,” but retains the fundamental provisions of SFAS 121 for (i) recognition/measurement of impairment of long-lived assets to be held and used and (ii) measurement of long-lived assets to be disposed of by sale.  SFAS 144 also supersedes the accounting and reporting provisions of Accounting Principles Board’s No.30 (“APB 30”), “Reporting the Results of Operations -Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions,” for segments of a business to be disposed of but retains APB 30’s reporting requirement to report discontinued operations separately from continuing operations and extends that reporting requirement to a component of an entity that either has been disposed of or is classified as held for sale. Adoption of this standard did not have any material impact on the Company’s financial statements.

 

On January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections” (SFAS 145). Under FASB Statement No. 4, all gains and losses from extinguishments of debt were required to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. SFAS 145 eliminates Statement 4 and, thus, the exception to applying APB Opinion 30, “Reporting the Results of Operations – Reporting the Efforts of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions,” to all gains and losses related to extinguishments of debt.  As a result, the Company has classified the charges related to the conversion of debt and issuance of warrants as other expense, instead of extraordinary loss on extinguishment of debt, in the accompanying statements of operations.

 

Note H — Subsequent Pro Forma Events

 

In November 2002, the Company issued 2,800 and 120 shares of Series G Preferred Stock at a purchase price of $24.90 per share (10 times the trailing five-day average closing price of its common stock) to accredited investors and a placement agent, respectively.  Under the terms of this financing, the Company also issued five-year fully vested warrants to purchase 7,000 and 300 shares of common stock at $2.74 per share to the same accredited investors and placement agent, respectively.  Each share of Series G Preferred Stock is initially convertible into 10 shares of common stock at any time at the election of the holder.  The excess of the value of common stock into which the Series G Preferred Stock is convertible over the proceeds allocated to the Preferred Stock amounted to $12,283.  Such amount represented a beneficial conversion feature discount and was immediately recognized as a deemed dividend to preferred stockholders.  These transactions are reflected in the pro forma balance sheet as if such transactions had been completed on September 30, 2002.

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Statements in this Form 10-Q that are not descriptions of historical facts are forward-looking statements that are subject to risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors, including those set forth herein and in the Company’s other SEC filings, and including, in particular, the availability of sufficient capital to finance the Company’s business plan on terms satisfactory to the Company, the Company’s history of losses, projection of future losses and need to raise additional capital, market acceptance of our current and future products, and growing competition.

 

Results of Operations

 

Three Months Ended September 30, 2002 Compared to Three Months Ended September 30, 2001

 

Summary

 

For the three months ended September 30, 2002, the Company incurred a net loss to common stockholders of $2,797,858 (or $1.83 per share after accrual of dividends to preferred stockholders), as compared to a net loss to common stockholders of $1,272,999 (or $0.89 per share), for the three months ended September 30, 2001.  The net loss for the three months ended September 30, 2002 includes a non-recurring charge of $192,000 related to a lease for office space the Company is no longer using and $1,685,645 of non-cash deemed dividends to preferred shareholders in connection with the issuance of the Series G Preferred Stock.  The increase in the net loss in the third quarter of 2002 as compared to the third quarter of 2001 was due primarily to this increase in deemed dividends to preferred stockholders.

 

Net Revenues

 

 

8

 

Online tuition revenues increased 2.7% to $1,558,116 in the third quarter of 2002, compared to $1,516,767 for the same period in 2001. The Company believes that online tuition revenues will continue to constitute the  majority of the Company’s total revenues as the Company adds new customers and as its existing customer base matures.

 

Online development and other revenues increased 39.6% to $147,994 in the third quarter of 2002, compared to $106,005 for the third quarter of 2001. The increase was primarily due to an increase in the number of courses development orders and a newly awarded development contract.

 

Virtual campus software revenues, product sales revenues, other service revenues and instructor led-training revenues decreased due to the Company’s move to an exclusive online business focus.

 

The following table sets forth selected financial data:

 

 

Cost of Revenues

 

Cost of revenues increased 174.4% to $514,172 in the third quarter of 2002 as compared to $187,372 for the third quarter of 2001.  The increase was due primarily to the sale of courses with relatively high levels of associated royalties under one of the Company’s large contracts which expires in June 2003.

 

Operating Expenses

 

Sales and Marketing.  Sales and marketing expenses decreased 20.6% to $834,131 in the third quarter of 2002 as compared to $1,051,096 for the third quarter in 2001.  Although the Company increased its sales headcount during the third quarter of 2002, compared to headcount in that area earlier in 2002, sales and marketing expenses for the three months ended September 30, 2002, nonetheless, decreased as compared to the same period in 2001 primarily due a comparatively lower headcount and direct marketing costs.  During the third quarter of 2002 and 2001, the Company contributed $150,342 and $75,879, respectively, to a marketing and development fund (the “Development Fund”) jointly administered by the Company and one of its larger customers as required pursuant to the terms of the Company’s contract with that customer.  The Development Fund’s primary goal is to fund marketing and development to grow online revenues for both that customer and derivatively for the Company in the form of course registration fees.  Amounts required to be contributed by the Company to the Development Fund are determined under the contract based on meeting or exceeding certain thresholds in course registrations on that customer’s virtual campus which amounts, are expensed as marketing costs in the same period as the Company recognizes revenue from such registrations.  Contributions to the Development Fund represented 29.3% and 22.6% of the recognized revenues attributable to that customer in the third quarter of 2002 and 2001, respectively.

 

Product Development and Operations.  Product development and operations expenses decreased 14.5% to $565,505 in the third quarter of 2002 as compared to $661,565 for the third quarter of 2001.  The decrease was due to the Company’s cost cutting initiatives primarily in headcount and data center outsourcing costs.

 

General and Administrative.  General and administrative expenses decreased 8.1% to $430,235 in the third quarter of 2002 as compared to $467,962 for the third quarter of 2001.  The decrease was due to the Company’s cost cutting initiatives primarily in headcount and associated overhead.

 

Depreciation and Amortization.  Depreciation and amortization expense decreased 42.1% to $290,740 in the third quarter of 2002 as compared to $502,455 for the third quarter of 2001.  The decrease was due primarily to the fact that certain of the Company’s fixed as well as intangible assets have been fully depreciated and amortized, respectively.  In addition, upon the adoption of FAS 142 on January 1, 2002, the Company ceased amortization of goodwill.

 

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Reorganization and other non-recurring charges.  Reorganization and other non-recurring charges were $192,000 in the third quarter of 2002 and represent the minimum amount due under a lease for office space the Company is no longer using.

 

Interest Income.  Interest income for the three months ended September 30, 2002 consists primarily of debt discount and deferred debt offering costs amortization related to the remaining balance of the $925,000 of convertible promissory notes issued in December 2001.  This was partially offset by the cancellation of a put liability in connection with warrants to purchase the Company’s stock.  Interest income for the three months ended September 30, 2001 was primarily derived from income earned on divestiture related notes receivable.

 

Nine Months Ended September 30, 2002 Compared to Nine Months Ended September 30, 2001

 

Summary

 

For the nine months ended September 30, 2002, the Company incurred a net loss of $6,112,410 (or $4.11 per share after accrual of dividends for preferred stockholders) as compared to a net loss of $4,927,796 (or $4.10 per share) for the nine months ended September 30, 2001.  The increase in the net loss for the nine months ended September 30, 2002 as compared to the nine months ended September 30, 2001 was due primarily to the increase in dividends to preferred stockholders as a result of issuance of the Series F, F-1, F-2 and G Preferred Stock, and the $503,246 of loss on debt extinguishments recorded during the nine months ended September 30, 2002.  The decrease in total revenues in the nine months ended September 30, 2002 as compared to the nine months ended September 30, 2001 was more than offset by the decrease in operating expenses in the same two periods.

 

Net Revenues

 

 

Online tuition revenues decreased 7.4% to $4,377,821 for the nine months ended September 30, 2002, compared to $4,725,867 for the same period in 2001. The decrease is primarily due to a decrease in revenue from clients within the telecommunications industry.

 

Online development and other revenues decreased 9.8% to $381,331 for the nine months ended September 30, 2002, compared to $422,679 for the same period in 2001.  The decrease is primarily due to a decrease in course development orders.

 

Virtual campus software revenues, product sales revenues, other service revenues and instructor-led training revenues decreased due to the Company’s move to an exclusive online business focus.

 

The following table sets forth selected financial data:

 

 

Cost of Revenues

 

Cost of revenues increased 20.5% to $1,086,536 for the nine months ended September 30, 2002 as compared to $901,496 for the same period in 2001.  The increase was due primarily to the sale of courses with relatively high associated royalties under one of the

 

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Company’s large customer contracts which expires in June 2003.

 

Operating Expenses

 

Sales and Marketing.  Sales and marketing expenses decreased 40.8% to $2,208,511 for the nine months ended September 30, 2002 as compared to $3,728,946 for the same period in 2001.  Although the Company increased its sales headcount during the third quarter of 2002 compared to headcount in that area earlier in 2002, sales and marketing expenses for the nine months ended September 30, 2002, nonetheless, decreased as compared to the same period in 2001 primarily due a comparatively lower headcount and direct marketing costs.  During the nine months ended September 30 2002 and 2001, the Company contributed $396,800 and $266,228, respectively, to a marketing and development fund (the “Development Fund”) jointly administered by the Company and one of its larger customers as required pursuant to the terms of the Company’s contract with that customer.  The Development Fund’s primary goal is to fund marketing and development to grow online revenues for both that customer and derivatively for the Company in the form of course registration fees.  Amounts required to be contributed by the Company to the Development Fund are determined under the contract based on meeting or exceeding certain thresholds in course registrations on that customer’s virtual campus which amounts, are expensed as marketing costs in the same period as the Company recognizes revenue from such registrations.  Contributions to the Development Fund represented 28.8% and 23.0% of the recognized revenues attributable to that customer in the nine months ended September 30, 2002 and 2001, respectively.

 

Product Development and Operations.  Product development and operations expenses decreased 9.4% to $1,703,064 for the nine months ended September 30, 2002 compared to $1,880,531 for the same period in 2001.  The decrease was due to the Company’s cost cutting initiatives primarily in headcount and data center outsourcing costs.

 

General and Administrative.  General and administrative expenses decreased 22.7% to $1,219,252 for the nine months ended September 30, 2002 as compared to $1,577,548 for the same period in 2001.  The decrease was due to the Company’s cost cutting initiatives primarily in headcount and associated overhead.

 

Depreciation and Amortization.  Depreciation and amortization expense decreased 29.8% to $1,095,019 for the nine months ended September 30, 2002 as compared to $1,560,797 for the same period in 2001.  The decrease was due primarily to the fact that certain of the Company’s fixed, as well as intangible, assets have been fully depreciated and amortized, respectively.  In addition, upon the adoption of FAS 142 on January 1, 2002, the Company ceased amortization of goodwill.

 

Stock-based compensation.  Stock-based compensation expense for the nine months ended September 30, 2002 consists primarily of the fair value of stock issued as a sign-on bonus to the Company’s newly appointed CFO and as customary payment to certain of the Company’s non-employee directors for their participation in Board and Board Committee meetings.  Stock-based compensation expense for the nine months ended September 30, 2001 includes the final vesting of warrants issued to Qwest Communications (approximately $166,000) related to their equity investment in VCampus in the second quarter of 2000 and compensatory stock options and stock warrants issued in conjunction with the issuance and extinguishments of debt to and  by two VCampus directors, both based on the Black-Scholes valuation method

 

Interest expense.  Interest expense for the nine months ended September 30, 2002 consists primarily of debt discount and deferred debt offering costs amortization related to remaining balance of the $925,000 of convertible promissory notes issued in December 2001.  Interest income for the nine months ended September 30, 2001 was primarily derived from income earned on divestiture related notes receivable.

 

Liquidity and Capital Resources

 

As of September 30, 2002, the Company had $2,192,417 in cash and cash equivalents, an increase of $164,646 from December 2001, attributable primarily to financings and customer prepayments, partially offset by the net loss during that period.  Cash utilized in operating activities was $1,279,485 for the nine months ended September 30, 2002. Net cash used in operating activities for the same period in 2001 was $3,383,280. The decrease in cash utilized in operating activities is primarily due to reductions in operating loss.

 

Net cash utilized in investing activities was $314,189 for the nine months ended September 30, 2002 and $369,389 for the nine months ended September 30, 2001. The use of cash for investing activities in both periods was primarily attributable to software development costs that were capitalized.

 

Net cash provided by financing activities was $1,758,320 for the nine months ended September 30, 2002 and $4,102,031 for the nine months ended September 30, 2001.  Cash provided by financing activities in the nine months ended September 30, 2002 primarily consisted of cash proceeds received from the issuance of Series F, F-2 and G convertible Preferred Stock.  Under the terms of the Company’s equity line agreement with H&QGF, which was terminated during 2001, the Company drew down $213,150 during January and February 2001.  In February 2001, the Company secured $1,150,000 of debt financing through the issuance of short-term notes

 

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bearing interest at 10% to Barry Fingerhut, then a director and stockholder of the Company, and John Sears, a director of the Company.  These notes were cancelled in March 2001 in exchange for shares of common stock and warrants.  In May and June 2001, the Company raised approximately $3,200,000 though the issuance of common stock and warrants.

 

In March 2002, the Company issued 1,458,413 shares of Series F-1 Preferred Stock and five-year fully vested warrants to purchase 14,584 shares of common stock at $4.00 per share in exchange for the cancellation of a note in the original principal amount of $500,000 plus $10,445 in accrued interest.  Each share of Series F-1 Preferred Stock was initially convertible into 1/10th of a share of common stock at any time at the election of the holder.

 

In May and June 2002, the Company completed the following equity financing transactions:

 

1.               The sale of 242,859 shares of Series F Preferred Stock for $85,000 in cash at $0.35 per share and warrants to purchase 6,071 shares of common stock at $4.00 per share.  Each share of Series F Preferred Stock was initially convertible into 1/10th of a share of common stock at any time at the election of the holder.

 

2.               The sale of 17,859 shares of Series F-2 Preferred Stock for approximately $625,000 in cash at $35.00 per share, each of which Series F-2 Preferred Share was initially convertible into 10 shares of common stock, and warrants to purchase a total of 160,365 shares of common stock at $4.00 per share.

 

3.               The issuance of 5,878 shares of Series F-2 Preferred Stock plus a warrant to purchase 5,878 shares of common stock at $4.00 per share, in exchange for the cancellation of a convertible promissory note in the principal and accrued interest amount of $205,730, each of which Series F-2 Preferred Share was initially convertible into 10 shares of common stock.

 

4.               The issuance of 3,841 shares of Series F-2 Preferred Stock in exchange for the cancellation of $126,970 of accounts payable, each of which Series F-2 Preferred Share was initially convertible into 10 shares of common stock.

 

5.               The sale of 114,305 shares of Series F Preferred Stock for $40,007 in cash at $0.35 per share and warrants to purchase 2,858 shares of common stock at $4.00 per share.  Each share of Series F Preferred Stock was initially convertible into 1/10th of a share of common stock at any time at the election of the holder.

 

The conversion price applicable to the Series F, F-1 and F-2 Preferred Stock adjusted automatically from $3.50 to $2.196 as a result of antidilution rights triggered by the Series G financing in September 2002.

 

In September 2002, the Company issued 46,400 shares of Series G Preferred Stock at a purchase price of $21.96 per share (10 times the trailing five-day average closing price of its common stock) to accredited investors.  Under the terms of this financing, the Company also issued five-year fully vested warrants to purchase 116,000 shares of common stock at $2.42.  Each share of Series G Preferred Stock is convertible into 10 shares of common stock at any time at the election of the holder.  The excess of the value of common stock into which the Series G Preferred Stock is convertible over the proceeds allocated to the Preferred Stock amounted to $185,883.  Such amount represented a beneficial conversion feature discount and was immediately recognized as a deemed dividend to preferred stockholders.

 

The Company expects negative cash flow from operations to continue at least into the third quarter of 2003.  VCampus will need to raise additional funds, by as early as the end of 2002,  through public or private sale of equity or debt securities or from other sources to build the Company’s core online business and to maintain compliance with NASDAQ SmallCap Market listing requirements.  The Company cannot assure that additional funds will be available when needed, or that if funds are available, they will be on terms favorable to the Company and its stockholders.  If unable to obtain sufficient funds or if adequate funds are not available on terms considered acceptable, the Company may be unable to meet its business objectives. A lack of sufficient funds could also prevent VCampus from taking advantage of important opportunities or being able to respond to competitive conditions. Any of these results could have a material adverse effect on the business, financial condition and results of operations for the Company.

 

If the Company does not address its funding needs, it will be materially adversely affected. The Company’s future capital requirements will depend on many factors, including, but not limited to, acceptance of and demand for its products and services, the types of arrangements that the Company may enter into with clients and content providers, and the extent to which the Company invests in new technology and research and development projects.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

Not applicable

 

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Item 4.  Controls and Procedures

 

(a) Within 90 days prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation and as a result of the corrective actions set forth below, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective.  Based upon that evaluation, the Company instituted additional controls designed to ensure that all decisions relating to financial or accounting matters, including in particular decisions regarding disclosure of financial or operating performance information, are routed through and approved by the Company’s Chief Financial Officer prior to release.  In addition, at the direction of the Chief Executive Officer, the Company’s Controller plans to issue a Company-wide communication reminding all employees to report to the Controller any events that might warrant public disclosure by the Company.

 

(b) Except as noted below, there have been no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.  Based on the Company’s evaluation, the Company has since instituted a new policy designed to ensure that the same accounting department employees handling check disbursements are not also responsible for opening and reconciling the bank statements.  In addition, the Company has instituted a policy whereby each week the responsibility for bank deposits is rotated to a different employee.  Finally, at the direction of the Chief Executive Officer, the Company is updating its list of authorized signatories required for undertaking various purchases and other obligations and is communicating this information and related policies to all employees.

 

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings

 

The Virginia Department of Taxation recently completed an audit of VCampus’ sales and use tax payments from August 1998 through October 2001. The Company first received a draft assessment which contemplated a payment of taxes, penalties and interest by VCampus of $212,719 primarily associated with the alleged failure of VCampus to assess use tax on third-party royalties paid by VCampus to content providers for courses delivered online by the Company. This was a draft document and was not yet a formal assessment by the Virginia Department of Taxation. The Company paid $18,928 for sales and use tax and interest on non-contested items on November 1, 2002. The Company, with outside counsel, has formally contested several items covered by the draft assessment. The Company is currently contesting the penalty assessed on the non-contested items. Additionally, the Company is formally contesting the assessment of  use tax on the royalties paid by VCampus to content providers for courses delivered online by the Company. The Company is also contesting the methodology used by the Virginia Department of Taxation to estimate said royalties. The Company does not have a firm estimate of expectations of liability for this issue or anticipated legal costs, and has reason to believe that the potential liability will be reduced to the point where it will not be considered material. Accordingly, the Company cannot estimate at this time the amount of the liability to be incurred, if any. No amounts have been accrued in the financial statements for this potential liability.

 

The Company’s previously disclosed and ongoing dispute with a former employee has been scheduled for mediation on December 10, 2002.

 

Item 2. Changes in Securities

 

(a)       No modifications.

 

(b)      No limitations or qualifications.

 

(c)       From July 1, 2002 to September 30, 2002, the Company issued the following unregistered securities:

 

46,400 shares of Series G Preferred Stock for $1,018,944 in cash at  $21.96 per share and five-year fully vested warrants to purchase 116,000 shares of common stock at $2.42 per share.  Each share of Series G Preferred Stock is initially convertible into 10 shares of common stock at any time at the election of the holder.

 

The sales of the above securities were deemed to be exempt from registration under the Act in reliance upon section 4(2) of the Securities Act of 1933, as amended (the “Act”), or Regulation D promulgated thereunder as transactions by an issuer not involving a public offering. Recipients of the securities in each such transaction represented their intentions to acquire such securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the instruments issued in such transactions. All recipients had adequate access to information about the Company.

 

Item 5. Other Information.

 

In July 2002, the Company engaged Ernst and Young LLP, its independent auditor, to review and prepare its 2001 federal and state income tax returns.  The Company’s audit committee approved and ratified this engagement on November 1, 2002.

 

In November 2002, the Company issued 2,800 and 120 shares of Series G Preferred Stock at a purchase price of $24.90 per share (10 times the trailing five-day average closing price of its common stock) to accredited investors and a placement agent, respectively.  Under the terms of this financing, the Company also issued five-year fully vested warrants to purchase 7,000 and 300 shares of common stock at $2.74 per share to the same accredited investors and placement agent, respectively.  Each share of Series G Preferred Stock is initially convertible into 10 shares of common stock at any time at the election of the holder.  The excess of the value of common stock into which the Series G Preferred Stock is convertible over the proceeds allocated to the Preferred Stock amounted to $12,283.  Such amount represented a beneficial conversion feature discount and was immediately recognized as a deemed dividend to preferred stockholders.  These transactions are reflected in the pro forma balance sheet as if such transactions had been completed on September 30, 2002.

 

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Item 6. Exhibits

 

(a)          Exhibits

 

Exhibit No.

 

Exhibit No.		Description
99.1		Certification of Chief Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
99.2		Certification of Chief Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act

 

(b)         Reports on Form 8-K.

 

1.               VCampus filed a current report on Form 8-K on July 8, 2002 announcing completion of its 1-for-10 reverse stock split.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by each of the undersigned thereunto duly authorized.

 

	VCAMPUS CORPORATION
	By:  /s/ DANIEL J. NEAL
		Daniel J. Neal
		Chief Executive Officer
	By:  /s/ CHRISTOPHER L. NELSON
	Christopher L. Nelson
	Chief Operating Officer and Chief
	Financial Officer
	(Principal Financial and Accounting
	Officer)
Date: November 14, 2002

 

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Section 302 Certification

 

CERTIFICATION

 

Securities and Exchange Act of 1934 Rule 13a-14 as adopted pursuant to Section 302 of Sarbanes-Oxley Act of 2002:

 

I, Daniel J. Neal, CEO, certify that:

 

1.               I have reviewed this quarterly report on Form 10-Q of VCampus Corporation;

 

2.               Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

 

3.               Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

 

4.               The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

 

a.               designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

 

b.              evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

 

c.               presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

 

5.               The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

 

a.               all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

 

b.              any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

 

6.               The registrant’s other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

Date:	November 14, 2002	By:	/s/ DANIEL J. NEAL
		Daniel J. Neal
		Chief Executive Officer

 

17

 

Section 302 Certification

 

CERTIFICATION

 

Securities and Exchange Act of 1934 Rule 13a-14 as adopted pursuant to Section 302 of Sarbanes-Oxley Act of 2002:

 

I, Christopher L. Nelson, certify that:

 

1.     I have reviewed this quarterly report on Form 10-Q of VCampus Corporation;

 

2.               Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

 

3.               Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

 

4.               The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

 

a.               designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

 

b.              evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

 

c.               presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

 

5.               The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

 

a.               all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

 

b.              any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

 

6.               The registrant’s other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

Date:	November 14, 2002	By:	/s/ CHRISTOPHER L. NELSON
				Christopher L. Nelson
				Chief Financial Officer

 

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EXHIBIT INDEX

 

Exhibit No.		Description
99.1		Certification of Chief Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
99.2		Certification of Chief Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act

 

 

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