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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE PERIOD ENDED DECEMBER 31, 2002
OR
( ) 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 1-13725
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EDT Learning, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 76-0545043
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2999 North 44th Street, Suite 650, Phoenix, Arizona 85018
(address of principal executive offices) (Zip code)
(602) 952-1200
(Registrant's telephone number, including area code)
--------------
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 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 ( ) No (X)
The number of shares of Common Stock of the Registrant, par value $.001 per
share, outstanding at February 7, 2003 was 16,638,471.
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FORM 10-Q REPORT INDEX
10-Q PART AND ITEM NO.
Part I -- Financial Information PAGE
----
Item 1 -- Consolidated Financial Statements (unaudited)
Consolidated Balance Sheets as of December 31, 2002 and
March 31, 2002................................................. 3
Consolidated Statements of Operations for the Three and Nine
Months Ended December 31, 2002 and December 31, 2001........... 4
Consolidated Statement of Changes in Shareholders'
Equity for the Nine Months Ended December 31, 2002............. 5
Consolidated Statements of Cash Flows for the Nine
Months Ended December 31, 2002 and December 31, 2001........... 6
Notes to Consolidated Financial Statements..................... 7
Item 2 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations..........................12
Item 3 -- Qualitative and Quantitative Disclosures about Market Risk.....17
Item 4 -- Controls and Procedures........................................17
Part II -- Other Information
Item 1 -- Legal proceedings..............................................18
Item 2 -- Change in securities and use of proceeds.......................18
Item 3 -- Defaults of senior securities..................................18
Item 4 -- Submission of matters to a vote of security holders............18
Item 5 -- Other information..............................................18
Item 6 -- Exhibits and Reports on Form 8-K...............................18
Signatures...............................................................21
Certifications...........................................................22
2
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EDT LEARNING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
December 31, March 31,
2002 2002
-------- --------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ....................................... $ 428 $ 1,498
Accounts receivable, net of allowance for
doubtful accounts of $681 and $754, respectively .............. 1,144 824
Prepaid and other current assets ................................ 108 427
Notes receivable from affiliated practices-current, net ......... 324 536
-------- --------
Total current assets .......................................... 2,004 3,285
Property and equipment, net ........................................ 1,261 2,137
Goodwill ........................................................... 9,811 7,479
Intangible assets, net ............................................. 1,860 1,984
Notes receivable from affiliated practices, net .................... 418 493
Other assets ...................................................... 280 209
-------- --------
Total assets .................................................. $ 15,634 $ 15,587
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long term debt ............................... $ 1,450 $ 1,337
Accounts payable and accrued liabilities ........................ 2,060 2,203
Current portion of deferred revenue ............................. 806 853
Current portion of capital lease liabilities .................... 397 430
-------- --------
Total current liabilities ..................................... 4,713 4,823
Long term debt, less current maturities ............................ 5,330 5,367
Capital lease liabilities .......................................... 219 536
Deferred revenue ................................................... 56 195
-------- --------
Total liabilities ............................................. 10,318 10,921
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Current stock, $.001 par value 40,000,000 shares
authorized, 17,818,101 and 15,281,485 issued, respectively .... 18 15
Additional paid-in capital ...................................... 33,659 31,336
Accumulated deficit ............................................. (27,220) (25,544)
Less: 1,179,630 treasury share at cost .......................... (1,141) (1,141)
-------- --------
Total shareholders' equity .................................... 5,316 4,666
-------- --------
Total liabilities and shareholders' equity .................... $ 15,634 $ 15,587
======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THE CONSOLIDATED FINANCIAL STATEMENTS
3
EDT LEARNING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share data)
Three Months Ended Nine Months Ended
December 31, December 31,
-------------------- --------------------
2002 2001 2002 2001
-------- -------- -------- --------
Revenues
Learning .................................................... $ 1,075 $ 1,396 $ 3,347 $ 1,681
Dental contracts ............................................ 642 1,629 2,635 5,107
-------- -------- -------- --------
Total revenues .......................................... 1,717 3,025 5,982 6,788
Operating expenses
Research and development .................................... 786 942 2,596 1,423
Sales and marketing ......................................... 427 347 1,278 772
General and administrative .................................. 699 1,006 2,162 1,923
Depreciation and amortization ............................... 493 517 1,484 1,591
-------- -------- -------- --------
Total operating expenses ................................ 2,405 2,812 7,520 5,709
Earnings (loss) from operations ................................ (688) 213 (1,538) 1,079
Interest expense ............................................ (386) (254) (1,152) (814)
Interest income ............................................. 25 53 117 196
Other income ................................................ 82 525 897 701
-------- -------- -------- --------
Income (loss) before income taxes and extraordinary item .... (967) 537 (1,676) 1,162
Income taxes ................................................ -- -- -- --
-------- -------- -------- --------
Income (loss) before extraordinary item ..................... (967) 537 (1,676) 1,162
Extraordinary item - gain on debt forgiveness
(net of tax effect of $0) ................................. -- 101 -- 101
-------- -------- -------- --------
Net income (loss) .............................................. $ (967) $ 638 (1,676) $ 1,263
======== ======== ======== ========
Earnings (loss) per common share - basic and diluted:
Earnings (loss) before extraordinary item .................. $ (0.06) $ 0.04 $ (0.11) $ 0.10
Extraordinary item .......................................... -- 0.01 -- 0.01
-------- -------- -------- --------
Net earnings (loss) ......................................... $ (0.06) $ 0.05 $ (0.11) $ 0.11
======== ======== ======== ========
Weighted average shares outstanding:
Basic ....................................................... 16,638 12,502 15,927 11,205
Diluted ..................................................... 16,638 13,111 15,927 11,408
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THE CONSOLIDATED FINANCIAL STATEMENTS
4
EDT LEARNING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(unaudited)
(in thousands)
Common Stock Additional Total
-------------------- Paid -In Accumulated Treasury Shareholders'
Shares Amount Capital Deficit Stock Equity
-------- -------- -------- -------- -------- --------
Balances, April 1, 2002 ........ 15,281 $ 15 $ 31,336 $(25,544) $ (1,141) $ 4,666
Issuance of common stock ....... 2,537 3 2,323 -- -- 2,326
Net loss ....................... -- -- -- (1,676) -- (1,676)
-------- -------- -------- -------- -------- --------
Balances, December 31, 2002 .... 17,818 $ 18 $ 33,659 $(27,220) $ (1,141) $ 5,316
======== ======== ======== ======== ======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THE CONSOLIDATED FINANCIAL STATEMENTS
5
EDT LEARNING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS CASH FLOWS
(unaudited)
(in thousands)
Nine months ended
December 31,
--------------------
2002 2001
------- -------
Net cash used in operating activities ..................... $(1,578) $(1,359)
Cash flows from investing activities:
Repayment of notes receivable .......................... 444 576
Proceeds from practice terminations .................... 1,054 1,428
Issuance of notes receivable ........................... (85) --
Capital expenditures ................................... (89) (17)
------- -------
Net cash provided by investing activities ............ 1,324 1,987
------- -------
Cash flows from financing activities:
Repayment of long-term debt ............................ (485) (834)
Repayment of capital lease liabilities ................. (350) (269)
Proceeds from stock option exercise .................... 19 --
Financing costs ........................................ -- (59)
------- -------
Net cash used in financing activities ................ (816) (1,162)
------- -------
Net change in cash and cash equivalents ................... (1,070) (534)
Cash and cash equivalents, beginning of period ............ 1,498 1,051
------- -------
Cash and cash equivalents, end of period .................. $ 428 $ 517
======= =======
Non cash investing and financing activities:
Issuance of common stock for acquisitions .............. $ 2,307 $ 995
Convertible subordinated notes offset against
receivables from affiliated practices ................ 307 --
Warrants issued in connection with financing costs ..... -- 44
Issuance of common stock to settle debt ................ -- 72
Issuance of debt for acquisition ....................... 500 1,102
Conversion of receivables from affiliated practices
to note receivables .................................. -- 192
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THE CONSOLIDATED FINANCIAL STATEMENTS
6
EDT LEARNING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION
Headquartered in Phoenix, Arizona, EDT Learning, Inc., ("the Company") is a
leading provider of custom, comprehensive e-Learning business solutions for
corporate clients seeking to train non-technical users (individuals with less
computer experience). The Company supports organizations requiring internal
training, product demonstration and customer education programs with the goal of
mapping e-Learning solutions to business results.
The Company began in March of 1998 as a dental practice management company
under the name Pentegra Dental Group, Inc. Its formation included the
simultaneous rollup of dental practices and an initial public offering raising
$25 million in initial capital. The Company's initial goals were to provide
training and practice enhancement services to its affiliated dental practices
spread over 31 states. The Company subsequently shifted its focus away from the
dental practice management industry and toward the e-Learning sector in the
summer of 2001 and changed its name to EDT Learning, Inc.
The unaudited consolidated financial statements included herein have been
prepared by the Company, pursuant to the rules and regulations of the Securities
and Exchange Commission (the "SEC"). Pursuant to such regulations, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. The Company believes the presentation and disclosures
herein are adequate to make the information not misleading, but do not purport
to be a complete presentation inasmuch as all note disclosures required by
generally accepted accounting principles are not included. In the opinion of
management, the consolidated financial statements reflect all elimination
entries and normal recurring adjustments that are necessary for a fair statement
of the results for the interim periods ended December 31, 2002 and 2001.
Fiscal operating results for interim periods are not necessarily indicative
of the results for full years. It is suggested that these consolidated financial
statements be read in conjunction with the financial statements of the Company
and related notes thereto, and management's discussion and analysis related
thereto, all of which are included in the Company's annual report on Form 10-K
for the year ended March 31, 2002, as filed with the SEC.
The accompanying financial statements have been prepared on a basis which
assumes that the Company will continue as a going concern and which contemplates
the realization of assets and the satisfaction of liabilities and commitments in
the normal course of business.
RECENT EVENTS, LIQUIDITY AND MANAGEMENT PLANS
The Company changed its business model from a dental practice management
company to an e-Learning company in the first quarter of fiscal 2001. The
Company is currently implementing its e-Learning strategy, has a limited
operating history with regard to its e-Learning business and is continuing the
development and enhancement of its e-Learning product and service offerings and
related revenue streams. The Company acquired two e-Learning entities during
fiscal 2002, one e-Learning company in June 2002 and a company that develops,
markets and licenses interactive multimedia software in December 2002.
The Company reported a working capital deficit at March 31, 2002 and
December 31, 2002 and negative cash flow from operations for fiscal year 2002
and the nine months ended December 31, 2002. Also, the Company's management
service agreements with the affiliated dental practices begin to expire on April
1, 2003 and will continue to expire through December 31, 2003. This will reduce
revenues and cash flow from this source and accordingly could negatively affect
the Company's liquidity and operating results. During the nine months ended
December 31, 2002, the Company used cash flows from operations of $1.6 million
and reported a working capital deficit of $2.7 million. The items discussed
above and the limited operating history as an e-Learning company raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plan with regard to these matters include continued
development, marketing and licensing of its e-Learning products and services
through both internal growth and acquisition and acceleration of cash
collections from affiliated dental practices by offering a sale of the dental
practices management service agreements earlier than contractually required.
7
Although management continues to pursue these plans, there is no assurance that
the Company will be successful in obtaining sufficient revenues from its
products and services to provide adequate cash flows to sustain operations. The
consolidated financial statements do not include any adjustments related to the
recoverability of assets and classification of liabilities that might result
from the outcome of this uncertainty.
2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses and related disclosure of contingent asset and
liabilities. The more significant areas requiring use of estimates relate to
revenue recognition, bad debts, intangible assets, income taxes and
contingencies and litigation. Management bases its estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumption or conditions.
REVENUE RECOGNITION
The Company recognizes revenue and profit as work progresses on learning
contracts using the percentage-of-completion method, which relies on estimates
of total expected contract revenue and costs. The Company follows this method
since reasonably dependable estimates of the costs applicable to various stages
of a contract can be made. Recognized revenues and profit are subject to
revisions as the contract progresses to completion. Revisions in profit
estimates are charged to income in the period in which the facts that give rise
to the revision become known. Customers sometimes request modifications to
projects in progress which may result in significant revisions to cost estimates
and profit recognition, and the Company may not be successful in negotiating
additional payments related to the changes in scope of requested services.
Provisions for any estimated losses on uncompleted contracts are made in the
period in which such losses become evident. There were no such losses at
December 31, 2002.
In connection with the Company's initial sales of software licenses during
the quarter ended September 30, 2002, the Company adopted Statement of Position
97-2 as issued by the American Institute of Certified Public Accountants. In
accordance with SOP 97-2, the Company recognizes revenue from the sale of
software if all of the following conditions are met:
* There is persuasive evidence of an arrangement with the customer;
* The product has been delivered to the customer;
* Collection of the fees is probable; and
* The amount of the fees to be paid by the customer is fixed or
determinable.
For arrangements requiring customer acceptance, revenue is deferred until
the earlier of the end of the acceptance period or until written notice of
acceptance is received from the customer. We consider all arrangements with
payment terms longer than normal not to be fixed or determinable. For
arrangements involving extended payment terms, revenue recognition occurs when
payments are due.
The Company has not added to or changed its critical accounting policies
significantly since March 31, 2002 other than in relation to revenue recognition
or the new prouncements discussed below. For a description of these policies,
refer to Note 3 of the consolidated financial statements in the Company's annual
report on Form 10-K for the year ended March 31, 2002.
NEW PRONOUNCEMENTS
In June 2001, SFAS No. 143, "Accounting for Asset Retirement Obligations"
was issued. The standard requires that legal obligations associated with the
retirement of long-lived intangible assets be recorded at fair value when
incurred and will be effective for the Company on April 1, 2003. The adoption of
this statement is not expected to have a material impact on the Company's
consolidated financial position, results of operations or cash flows.
8
In April 2002, SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and
64, Amendment of FASB Statement No. 13, and Technical Corrections" was issued.
This statement provides guidance on the classification of gains and losses from
the extinguishment of debt and on the accounting for certain specified lease
transactions. Under the new guidance of SFAS No. 145, losses from early
extinguishments of debt will be classified as extraordinary items when the
losses are considered unusual in nature and infrequent in occurrence. SFAS No.
145 will be effective for the Company on April 1, 2004.
In June 2002, SFAS No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities" was issued. This statement provides guidance on the
recognition and measurement of liabilities associated with disposal activities
and is effective for the Company on April 1, 2003. The Company is currently
reviewing the provisions of SFAS No. 146 to determine the standard's impact upon
adoption.
In December 2002, SFAS No. 148, "Accounting for Stock-Based Compensation --
Transition and Disclosure -- an amendment of FAS 123" was issued. This statement
amends FASB Statement No. 123, Accounting for Stock-Based Compensation, to
provide alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. In
addition, this Statement amends the disclosure requirements of Statement 123 to
require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. The disclosures required by the
statement are effective for the Company's fiscal year ended March 31, 2003. The
adoption of this statement is not expected to have a material impact on the
Company's consolidated financial position, results of operations or cash flows.
EARNINGS PER SHARE
Earnings per share are computed based upon the weighted average number of
shares of Common Stock and Common Stock equivalents outstanding during each
period. Outstanding options to purchase approximately 1,881,169 and 1,767,080
shares of Common Stock at exercise prices above market value were excluded from
the calculation of earnings per share for the three and nine months ended
December 31, 2002 and 2001 respectively, because their effect would have been
antidilutive.
3. GOODWILL
On April 1, 2002, the Company adopted SFAS 142, "Goodwill and Other
Intangible Assets" and as a result, the Company's goodwill is no longer
amortized. SFAS 142 requires that goodwill be tested annually (or more
frequently if impairment indicators arise) for impairment. Upon initial
application of SFAS 142, the Company determined there was no impairment of
goodwill.
Had the Company adopted SFAS No. 142 on April 1, 2001, net income would
have increased by $23,000 and $69,000 for the three and nine months ended
December 31, 2001 respectively, due to the non-amortization of goodwill. The
adoption of this statement would not have affected basic and diluted earnings
per share before extraordinary item of $0.04 for the three ended December 31,
2001. The adoption of these statement would have increased the basic and diluted
earnings per share before extraordinary item to $0.11 from $0.10 for the nine
months ended December 31, 2001.
9
4. SEGMENT INFORMATION
During the periods ended December 31, 2002 and 2001, the Company had two
reportable segments, learning and dental practice management. The learning
segment included revenues and operating expenses related to the development and
sale of the Company's learning products. The dental practice segment included
revenues from service contracts, operating expenses related to the delivery of
the dental services and other non-operating expenses.
There are no intersegment revenues. The Company does not review assets by
operating segment.
Three Months Ended Nine Months Ended
December 31, December 31,
-------------------- --------------------
2002 2001 2002 2001
------- ------- ------- -------
Revenues
Learning ....................................... $ 1,075 $ 1,396 $ 3,347 $ 1,682
Dental practice management ..................... 642 1,629 2,635 5,106
------- ------- ------- -------
Total revenues ............................. 1,717 3,025 5,982 6,788
------- ------- ------- -------
Operating expenses
Learning ....................................... 1,702 1,289 4,951 2,197
Dental practice management ..................... 703 1,523 2,569 3,512
------- ------- ------- -------
Total operating expenses ................... 2,405 2,812 7,520 5,709
------- ------- ------- -------
Earnings (loss) from operations
Learning ....................................... (627) 107 (1,604) (515)
Dental practice management ..................... (61) 106 66 1,594
------- ------- ------- -------
Total earnings (loss) from operations ...... (688) 213 (1,538) 1,079
------- ------- ------- -------
Non operating income (expense)
Learning ....................................... (198) -- (98) --
Dental practice management ..................... (81) 324 (40) 83
------- ------- ------- -------
Total non-operating expenses ............... (279) 324 (138) 83
------- ------- ------- -------
Income (loss) before income taxes
Learning ....................................... (825) 107 (1,702) (515)
Dental practice management ..................... (142) 430 26 1,677
------- ------- ------- -------
Total income (loss) before income taxes
and extraordinary item ................... $ (967) $ 537 $(1,676) $ 1,162
======= ======= ======= =======
5. BUSINESS COMBINATION
On December 13, 2002, the Company acquired certain assets of LearnLinc
Corporation (LearnLinc), a wholly-owned subsidiary of Mentergy, Inc., in
exchange for $500,000 and the assumption of $462,000 of liabilities. In
addition, the Company will pay a royalty of 20% for all revenues collected from
the sale or license of LearnLinc software over a three-year period. The maximum
amount due under the Royalty Agreement is $5,000,000. The operating results of
LearnLinc are included with the Company's as of November 4, 2002, the date the
Company assumed the operations of LearnLinc.
10
The purchase price has initially been calculated as follows:
(In thousands)
Issuance of debt ........................................ $ 500
Acquisition costs ....................................... 60
------
Net purchase price, including acquisition costs ...... $ 560
Assumed liabilities ..................................... 462
------
Total purchase price ................................. $1,022
======
The total purchase price has initially been allocated to assets acquired
and liabilities assumed based upon their estimated fair values in accordance
with Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations". The excess purchase price over the estimated fair value of the
tangible and identifiable intangible assets acquired and liabilities assumed has
been assigned to goodwill. EDT expects to complete the assessment during March
2003.
The purchase price has initially been allocated as follows:
Purchase
Price
Allocation
----------
(in thousands)
Current assets ........................................ $ 124
Property and equipment ................................ 50
Goodwill .............................................. 348
Identifiable intangible assets ........................ 500
Current liabilities, including deferred revenue ....... (1,022)
-------
$ --
=======
The following unaudited pro forma summary of financial information presents
the Company's combined results of operations as if the acquisition of LearnLinc
had occurred at the beginning of the periods presented, after including the
impact of certain adjustments including: (i) interest expense related to the
debt issued as part of the acquisition and (ii) increase in amortization of the
identifiable intangible asset recorded as part of the acquisition.
December 31, 2002
--------------------------
Three months Nine months
ended ended
-------- --------
Proforma Proforma
(in thousands,
except per share data)
Revenues ................................. $ 1,846 $ 6,885
Loss from operations ..................... (697) (1,602)
Net loss ................................ (977) (1,830)
Loss per basic and diluted share ......... $ (0.06) $ (0.11)
Weighted average shares outstanding:
Basic and diluted .................... 16,638 15,927
The pro forma financial information presented does not purport to indicate
what the combined results of operations would have been had the merger occurred
at the beginning of the periods presented or the results of operations that may
be obtained in the future. Additionally, the pro forma financial information
presented does not reflect the anticipated cost savings resulting from the
integration of the Company's and LearnLinc's operations.
11
6. COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS
The Company has pending lawsuits against three affiliated practices for
defaulting in the payment of the required service fees. The Company is seeking
damages equal to past due and remaining service fees, consequential damages
equal to the value of the intangible practice asset and attorney's fees. The
Company is also party to two other legal disputes arising from the ordinary
course of its e-Learning business.
On August 27, 2002 Computer Associates International Inc., filed in the
Superior Court of the State of Arizona in and for the County of Maricopa
claiming breach of software license/agreement and other fees for services in the
amount of $389,000. The Company thereafter filed an answer and counterclaim on
October 4, 2002 alleging damages in the amount of $389,000. On November 4, 2002
two former employees of Quisic Corporation, filed in the Superior Court of the
State of California for the County of Los Angeles Central District claiming
damages in the amount of $6.4 million against the Board of Directors of Quisic
Corporation resulting from their employment termination by Quisic alleging among
other things breach of contract. The Company is a third party defendant with a
mere allegation of successor liability to the extent the Quisic defendants are
found liable and to the extent the plaintiff proves successor liability by the
Company. The Company only acquired certain assets of Quisic Corporation in an
asset purchase transaction and does not believe it has any successor liability.
The Company believes that it will prevail in these matters.
While in the opinion of management, resolution of these matters is not
expected to have a material adverse effect on the Company's financial position,
results of operations or cash flows, the ultimate outcome of any litigation is
uncertain. Were an unfavorable outcome to occur, the impact could be material to
the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS CONTAINS CERTAIN FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995. THESE STATEMENTS ARE BASED ON CURRENT PLANS AND EXPECTATIONS OF EDT
LEARNING, INC. AND INVOLVE RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL
FUTURE ACTIVITIES AND RESULTS OF OPERATIONS TO BE MATERIALLY DIFFERENT FROM THAT
SET FORTH IN THE FORWARD-LOOKING STATEMENTS. IMPORTANT FACTORS THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER INCLUDE, AMONG OTHERS, RISKS ASSOCIATED WITH THE
E-LEARNING BUSINESS, FLUCTUATIONS IN OPERATING RESULTS AND VARIATIONS IN STOCK
PRICE, CHANGES IN GOVERNMENT REGULATIONS, COMPETITION, RISKS RELATED TO THE
COMPANY'S ABILITY TO CONTINUE AS A GOING CONCERN AND RISKS DETAILED IN EDT
LEARNING'S SEC FILINGS.
OVERVIEW
Headquartered in Phoenix, Arizona, EDT Learning is a leading provider of
custom, comprehensive e-Learning business solutions for corporate clients
seeking to train non-technical users (individuals with less computer
experience). The Company supports organizations requiring internal training,
product demonstration and customer education programs with the goal of mapping
e-Learning solutions to business results.
RESULTS OF OPERATIONS
As an extension of its educational and training background, the Company has
broadened its reach to focus on the larger growing e-Learning and corporate
training market. With the launch of the Company's state of the art learning
management system and its e-Learning engine, the Company now provides a
comprehensive array of e-Learning content, hosting and delivery services. The
Company's synchronous and asynchronous content delivery solutions provide an
array of e-Learning products that are customized to each corporate client. The
Company is positioning itself in the corporate training sector of the e-Learning
marketplace leveraging its existing infrastructure and using scale provided by
an integrated product.
The Company continues to provide services to its Affiliated Practices in
accordance with the modified service agreements. The actual terms of the various
service agreements vary slightly on a case-by-case basis, depending on
negotiations with the individual Affiliated Practices. Those modified service
agreements require in general that the Company provide: access to online
practice enhancement services; access to online tools and payroll services;
access to certain on-site consulting and seminar programs; and the use of the
tangible assets owned by the Company located at each affiliated dental practice
location. The service fees payable to the Company under the modified service
agreements are guaranteed by the owner-dentists. The Company's management
service agreements with the affiliated dental practices begin to expire on April
1, 2003 and will continue to expire through December 31, 2003. This will reduce
revenues and cash flow from this source and accordingly could negatively affect
the Company's liquidity and operating results.
12
The operations of the Company involve many risks, which, even through a
combination of experience, knowledge and careful evaluation, may not be
overcome. These risks include the fact that the market for e-Learning products
and services is in the early stages of development and may not grow to a
sufficient size or at a sufficient rate to sustain the Company's business. The
Company also faces intense competition from other e-learning providers and may
be unable to compete successfully. Many of the Company's existing and potential
competitors have longer operating histories and significantly greater financial,
technical and other resources and therefore may be able to more quickly respond
to changing opportunities or customer requirements. New competitors are also
likely to enter this market in the future due to the lack of significant
barriers to enter the market. The Company cannot assure investors that it will
be able to contend effectively with such increased competition.
REVENUES
Total revenues generated for the three months ended December 31, 2002 and
2001 were $1.7 million and $3.0 million respectively, a decrease of $1.3
million. The Company recognized $1.1 million in learning revenues in the three
months ended December 31, 2002 compared with $1.4 million of learning revenues
in the three months ended December 31, 2001, a decrease of $321,000. The
decrease is primarily attributable to a decrease in learning contract revenue in
the three months ended December 31, 2002. Revenue from dental contacts decreased
by $987,000 during the three months ended December 31, 2002 as compared to the
three months ended December 31, 2001 due to the modification and termination of
certain dental contracts. Dental contract revenue will continue to decline as
the contracts reach their expiration dates, generally over the next 3 to 12
months. This will reduce revenue and cash flow from this source and accordingly
could negatively affect the Company's liquidity and operating results.
Total revenues generated for the nine months ended December 31, 2002 and
2001 were $6.0 million and $6.8 million respectively, a decrease of $806,000.
The Company recognized $3.3 million in learning revenues in the nine months
ended December 31, 2002 compared with $1.7 million of learning revenues in the
nine months ended December 31, 2001, an increase of $1.6 million. The increase
is a result of the Company's continuing expansion into the e-Learning
marketplace and has been fueled by the acquisitions in fiscal 2002 of
Learning-Edge, Inc. and ThoughtWare Technologies, Inc., the acquisition of
certain assets of Quisic Corporation in June 2002 and the acquisition of certain
assets of LearnLinc Corporation in December 2002. Revenue from dental contracts
decreased by $2.5 million during the nine months ended December 31, 2002 as
compared to the nine months ended December 31, 2001 due to the modification and
termination of certain dental contracts. Dental contract revenue will continue
to decline as the contracts reach their expiration dates, generally over the
next 3 to 12 months. This will reduce revenue and cash flow from this source and
accordingly could negatively affect the Company's liquidity and operating
results.
OPERATING EXPENSES
Operating expenses consist of research and development, sales and
marketing, general and administrative and depreciation and amortization
expenses. The Company incurred operating expenses of $2.4 million and $2.8
million for the three months ended December 31, 2002 and 2001, respectively, a
decrease of $407,000. The Company incurred operating expenses of $7.5 million
and $5.7 million for the nine months ended December 31, 2002 and 2001
respectively, an increase of $1.8 million.
Research and development expenses include expenses incurred in connection
with providing e-learning services, development of new products and new product
versions and consist primarily of salaries and benefits, communication equipment
and supplies. Research and development expenses were $786,000 during the three
13
months ended December 31, 2002 compared with $942,000 during the three months
ended December 31, 2001, a decrease of $156,000. The decrease is attributed to
the decrease in learning revenue in the three months ended December 31, 2002.
Research and development expenses were $2.6 million during the nine months ended
December 31, 2002 compared with $1.4 million during the nine months ended
December 31, 2001, an increase of $1.2 million. The increase is a result of the
Company's continuing expansion into the e-Learning marketplace.
Sales and marketing expenses consist primarily of sales and marketing
salaries and benefits, travel, advertising, and other marketing literature.
Sales and marketing expenses were $427,000 and $1.3 million for the three and
nine months ended December 31, 2002 compared with $347,000 and $772,000 for the
three and nine months ended December 31, 2001, increases of $80,000 and
$506,000, respectively. The increases are a result of the Company's continuing
expansion into the e-Learning marketplace.
General and administrative expenses consist of the corporate expenses of
the Company. These corporate expenses include salaries and benefits of
executive, finance and administrative personnel, occupancy, bad debt expense,
professional services, travel, office costs and other general corporate
expenses.
For the three months ended December 31, 2002 and 2001, general and
administrative expenses were $699,000 and $1.0 million respectively, a decrease
of $307,000. General and administrative expenses decreased primarily due to
decreases in salaries and benefits of $241,000 and professional services of
$214,000. These were offset by increases in occupancy of $65,000, bad debt
expense of $45,000 and insurance of $20,000.
For the nine months ended December 31, 2002 and 2001, general and
administrative expenses were $2.2 million and $1.9 million respectively, an
increase of $239,000. General and administrative expenses increased primarily
due to increases in occupancy of $65,000, bad debt expense of $152,000 and
insurance of $126,000. These were offset by decreases in salaries and benefits
of $119,000 and professional services of $103,000.
Depreciation and amortization expenses were $493,000 and $1.5 million for
the three and nine months ended December 31, 2002 compared with $517,000 and
$1.6 million for three and nine months ended December 31, 2001, decreases of
$24,000 and $107,000, respectively. The decreases are primarily due to the
modification and terminations of the service agreements that returned ownership
of dental practice equipment to the related dental practices. A portion of these
decreases were offset by depreciation of the property and equipment purchased in
the acquisitions of Learning-Edge, Inc., ThoughtWare Technologies, Inc., certain
assets of Quisic Corporation and certain assets of LearnLinc Corporation.
INTEREST EXPENSE, INTEREST INCOME AND OTHER INCOME
Interest expense increased $132,000 from $254,000 for the three months
ended December 31, 2001 to $386,000 for the three months ended December 31,
2002. Interest expense increased $338,000 from $814,000 for the nine months
ended December 31, 2001 to $1.2 million for the nine months ended December 31,
2002. The increases are primarily attributable to the amortization of the
warrant discount and beneficial conversion feature related to the Private
Placement Offering consummated by the Company in March 2002. Interest expense
related to the amortization of the warrant discount and beneficial conversion
feature was $123,000 and $369,000 for the three and nine months ended December
31, 2002.
Interest income decreased $28,000 from $53,000 for the three months ended
December 31, 2001 to $25,000 for the three months ended December 31, 2002.
Interest income decreased $79,000 from $196,000 for the nine months ended
December 31, 2001 to $117,000 for the nine months ended December 31, 2002. The
decreases are attributable to note receivable collections and the subsequent
declining principal balances on the Company's notes receivable.
Other income includes the gains recorded from terminating the service
agreements of the Affiliated Practices and the sale of Company assets. Other
income decreased $443,000 from $525,000 for the three months ended December 31,
2001 to $82,000 for the three months ended December 31, 2002. Other income
increased $196,000 from $701,000 for the nine months ended December 31, 2001 to
$897,000 for the nine months ended December 31, 2002.
14
INCOME TAX EXPENSE
The Company recorded no tax benefit during the three and nine months ended
December 31, 2002, because it concluded it is not likely it would be able to
recognize its net operating loss carry forwards due to the lack of operating
history of its eBusiness plan. These net operating loss carry forwards begin to
expire in 2018. At December 31, 2002, the Company also has a net deferred tax
asset of $6.3 million with a corresponding valuation allowance. These tax
benefits are scheduled to expire over a period of nine to fourteen years.
The Company recorded no tax expense during the three and nine months ended
December 31, 2001 due to the utilization of its net operating loss carryforward.
NEW PRONOUNCEMENTS
In June 2001, SFAS No. 143, "Accounting for Asset Retirement Obligations"
was issued. The standard requires that legal obligations associated with the
retirement of long-lived intangible assets be recorded at fair value when
incurred and will be effective for the Company on April 1, 2003. The adoption of
this statement is not expected to have a material impact on the Company's
consolidated financial position, results of operations or cash flows.
In April 2002, SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and
64, Amendment of FASB Statement No. 13, and Technical Corrections" was issued.
This statement provides guidance on the classification of gains and losses from
the extinguishment of debt and on the accounting for certain specified lease
transactions. Under the new guidance of SFAS No. 145, losses from early
extinguishments of debt will be classified as extraordinary items when the
losses are considered unusual in nature and infrequent in occurrence. SFAS No.
145 will be effective for the Company on April 1, 2004.
In June 2002, SFAS No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities" was issued. This statement provides guidance on the
recognition and measurement of liabilities associated with disposal activities
and is effective for the Company on April 1, 2003. The Company is currently
reviewing the provisions of SFAS No. 146 to determine the standard's impact upon
adoption.
In December 2002, SFAS No. 148, "Accounting for Stock-Based Compensation --
Transition and Disclosure -- an amendment of FAS 123" was issued. This statement
amends FASB Statement No. 123, Accounting for Stock-Based Compensation, to
provide alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. In
addition, this Statement amends the disclosure requirements of Statement 123 to
require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. The disclosures required by the
statement are effective for the Company's fiscal year ended March 31, 2003. The
adoption of this statement is not expected to have a material impact on the
Company's consolidated financial position, results of operations or cash flows.
LIQUIDITY AND CAPITAL RESOURCES
The Company changed its business model from a dental practice management
company to an e-Learning company in the first quarter of fiscal 2001. The
Company is currently implementing its e-Learning strategy, has a limited
operating history with regard to its e-Learning business and is continuing the
development and enhancement of its e-Learning product and service offerings and
related revenue streams. The Company acquired two e-Learning entities during
fiscal 2002, one e-Learning company in June 2002 and a company that develops,
markets and licenses interactive multimedia software in December 2002.
The Company reported a working capital deficit at March 31, 2002 and
December 31, 2002 and negative cash flow from operations for fiscal year 2002
and the nine months ended December 31, 2002. Also, the Company's management
service agreements with the affiliated dental practices begin to expire on April
1, 2003 and will continue to expire through December 31, 2003. This will reduce
revenues and cash flow from this source and accordingly could negatively affect
the Company's liquidity and operating results. During the nine months ended
December 31, 2002, the Company used cash flows from operations of $1.6 million
15
and reported a working capital deficit of $2.7 million. The items discussed
above and the limited operating history as an e-Learning company raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plan with regard to these matters include continued
development, marketing and licensing of its e-Learning products and services
through both internal growth and acquisition and acceleration of cash
collections from affiliated dental practices by offering a sale of the dental
practices management service agreements earlier than contractually required.
Although management continues to pursue these plans, there is no assurance that
the Company will be successful in obtaining sufficient revenues from its
products and services to provide adequate cash flows to sustain operations.
The Company has made acquisitions, and management expects that other
e-learning businesses will be acquired in the future. There can be no assurance
that the Company will be able to identify or reach mutually agreeable terms with
acquisition candidates and their owners, or that the Company will be able to
profitably manage additional businesses or successfully integrate such
additional businesses into the Company at all, or without substantial costs,
delays or other problems. There can be no assurance that businesses acquired
will achieve sales and profitability that justify the investment made by the
Company. Any inability on the part of the Company to control these risks
effectively and integrate and manage acquired businesses could have a material
adverse effect on the Company. Acquisitions may result in increased depreciation
and amortization expense; increase interest expense, increased financial
leverage or decrease operating results.
The Company's service agreements with affiliated dental practices begin to
expire on April 1, 2003 and will continue to expire through December 31, 2003,
which will reduce revenues and cash flow from this source and accordingly could
negatively affect the Company's liquidity and operating results. During the nine
months ended December 31, 2002, the Company received $1.1 million in cash from
terminating the service agreements with Affiliated Practices. These cash
collections accelerate the date at which the Company would be required to
sustain its operations solely on cash collections derived from e-learning
revenues. However, there can be no assurance that the Company's e-Learning
strategies will be achieved or that the affiliated dental practices will
continue to agree upon terms acceptable to the Company.
At December 31, 2002, the Company had a working capital deficit of $2.7
million. Current assets included $428,000 in cash and $1.5 million in accounts
and notes receivable. Current liabilities consisted of $806,000 of deferred
revenue, $1.5 million of current maturities of long-term debt and capital leases
and $2.1 million in accounts payable and accrued liabilities.
During the nine months ended December 31, 2002 and 2001, the Company used
$1.6 million and $1.4 million respectively for operating activities, primarily
from the use of working capital.
The Company had outstanding total debt (secured and unsecured promissory
notes) of $8.7 million at December 31, 2002. Of that amount, the Company has
$5.8 million of convertible redeemable subordinated notes, which mature on March
29, 2012. The remaining balance of $2.9 million is owed to various parties with
differing maturities as follows: $389,000 are unsecured notes which arose as
part of the Company's initial public offering and are due on March 30, 2003;
$250,000 is a promissory note related to the LearnLinc acquisition and is due in
December 2003; $69,000 are unsecured promissory notes of which were issued to
former shareholders of Omega Orthodontics, Inc. or were assumed by the Company
as part of its acquisition of Omega Orthodontics, Inc. and are due in fiscal
2003 and 2004. $1.3 million are unsecured promissory notes of which $1.0 million
were issued to former shareholders of Learning-Edge, Inc. and $0.3 million were
assumed by the Company as part of its acquisition of Learning-Edge, Inc. These
notes mature in fiscal 2004 and 2005. $849,000 are unsecured convertible
promissory notes which were issued to dentists which the Company affiliated with
as part of its dental practice management business and are due in July 2004.
16
The following schedule details all of the Company's indebtedness and the
required contractual payments related to such obligations at December 31, 2002
(in thousands):
Due in less Due in one to Due in four to Due after
Total than one year three years five years five years
------- ------------- ----------- ---------- ----------
Long term debt .................... $ 8,676 $ 1,450 $ 1,451 $ -- $ 5,775
Capital lease obligations ......... 733 456 274 3 --
Operating lease obligations ....... 2,691 644 1,230 562 255
------- ------- ------- ------- -------
Total commitments ................. $12,100 $ 2,550 $ 2,955 $ 565 $ 6,030
======= ======= ======= ======= =======
Cash generated from investing activities was $1.1 million and $1.4 million
in cash received from service agreement terminations and $444,000 and $576,000
from the collection of notes receivable during the nine months ended December
31, 2002 and 2001 respectively. The Company used cash of $250,000 as the initial
payment for the LearnLinc acquisition during the nine months ended December 31,
2002. Cash used in investing activities was $89,000 and $17,000 for capital
expenditures and $85,000 and $-0- for the issuance of notes receivable during
the nine months ended December 31, 2002 and 2001, respectively.
During the nine months ended December 31, 2002 and 2001, $585,000 and $1.1
million respectively was used to repay long-term debt and capital leases. The
Company received $19,000 in cash from the exercise of stock options during the
nine months ended December 31, 2002.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The following discusses our exposure to market risk related to changes in
interest rates, equity prices and foreign currency exchange rates. Market risk
generally represents the risk of loss that may result from the potential change
in the value of a financial instrument as a result of fluctuations in interest
rates and market prices. We have not traded or otherwise bought and sold
derivatives nor do we expect to in the future. We also do not invest in market
risk sensitive instruments for trading purposes.
The primary objective of the Company's investment activity is to preserve
principal while at the same time maximizing yields without significantly
increasing risk. To achieve this objective, the Company maintains its portfolio
of cash equivalents in a variety of money market funds.
As of December 31, 2002, the carrying value of our outstanding convertible
redeemable subordinated notes was approximately $3.9 million at a fixed interest
rate of 12%. In certain circumstances, we may redeem this long-term debt. Our
other components of indebtness bear fixed interest rates of 6% to 9%. Because
the interest rates on these instruments are fixed, a hypothetical 10% change in
interest rates would not have a material impact on our financial condition,
revenues or operations. Increases in interest rates could, however, increase the
interest expense associated with future borrowings, if any. We do not hedge
against interest rate increases.
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Our Chief Executive Officer and our Vice President of Finance, after
evaluating the effectiveness of the Company's "disclosure controls and
procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a-14(c)
and 15-d-14(c) as of a date (the "Evaluation Date") within 90 days before the
filing date of this quarterly report, have concluded that as of the Evaluation
Date, our disclosure controls and procedures were adequate and designed to
ensure that material information relating to us and our consolidated
subsidiaries would be made known to them by others within those entities.
CHANGES IN INTERNAL CONTROLS
There were no significant changes in our internal controls or to our
knowledge, in other factors that could significantly affect our disclosure
controls and procedures subsequent to the Evaluation Date.
17
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has pending lawsuits against three affiliated practices for
defaulting in the payment of the required service fees. The Company is seeking
damages equal to past due and remaining service fees, consequential damages
equal to the value of the intangible practice asset and attorney's fees. The
Company is also party to two other legal disputes arising from the ordinary
course of its e-Learning business.
On August 27, 2002 Computer Associates International Inc., filed in the
Superior Court of the State of Arizona in and for the County of Maricopa
claiming breach of software license/agreement and other fees for services in the
amount of $389,000. The Company thereafter filed an answer and counterclaim on
October 4, 2002 alleging damages in the amount of $389,000. On November 4, 2002
two former employees of Quisic Corporation, filed in the Superior Court of the
State of California for the County of Los Angeles Central District claiming
damages in the amount of $6.4 million against the Board of Directors of Quisic
Corporation resulting from their employment termination by Quisic alleging among
other things breach of contract. The Company is a third party defendant with a
mere allegation of successor liability to the extent the Quisic defendants are
found liable and to the extent the plaintiff proves successor liability by the
Company. The Company only acquired certain assets of Quisic Corporation in an
asset purchase transaction and does not believe it has any successor liability.
The Company believes that it will prevail in these matters.
While in the opinion of management, resolution of these matters is not
expected to have a material adverse effect on the Company's financial position,
results of operations or cash flows, the ultimate outcome of any litigation is
uncertain. Were an unfavorable outcome to occur, the impact could be material to
the Company.
ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS OF SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
Exhibit
Number Description Of Exhibits
------ -----------------------
3.1(1) Restated Certificate of Incorporation of Pentegra Dental Group,
Inc.
3.2(1) Bylaws of Pentegra Dental Group, Inc.
3.3(7) Restated Certificate of Incorporation of Pentegra Dental Group,
Inc.
3.4(7) Amendment of Bylaws of Pentegra Dental Group, Inc.
3.5(8) Restated Certificate of Incorporation of e-dentist.com, Inc.
4.1(1) Form of certificate evidencing ownership of Common Stock of
Pentegra Dental Group, Inc.
4.2(1) Form of Registration Rights Agreement for Owners of Founding
Affiliated Practices
4.3(1) Registration Rights Agreement dated September 30, 1997 between
Pentegra Dental Group, Inc. and the stockholders named therein
4.4(2) Form of Stockholders' Agreement for Owners of Affiliated
Practices
18
4.5(3) Form of Indenture from Pentegra Dental Group, Inc. to U.S. Trust
Company of Texas, N.A., as Trustee relating to the Convertible
Debt Securities
4.6(7) Form of certificate evidencing ownership of Common Stock of
e-dentist.com, Inc. 4.7 Form of Convertible Redeemable
Subordinated Note 4.8 Form of Redeemable Warrant
+10.1(1) Pentegra Dental Group, Inc. 1997 Stock Compensation Plan
+10.2(1) Form of Service Agreement
10.3(4) Credit Agreement dated June 1, 1998 between Bank One, Texas, N.A.
and Pentegra Dental Group, Inc.
10.4(5) Modification to Credit Agreement between Pentegra Dental Group,
Inc. and Bank One, Texas, N.A. dated September 9, 1998
10.5(5) Agreement and Plan of Merger among Pentegra Dental Group, Inc.,
Liberty Dental Alliance, Inc., Liberty Acquisition Corporation,
James M. Powers, Jr., Sylvia H. McAlister and William Kelly dated
as of November 13, 1998
10.6(2) First Amendment to Credit Agreement by and among Pentegra Dental
Group, Inc. and Bank One, Texas, N.A. dated as of February 9,
1999
10.7(2) First Amendment to the Agreement and Plan of Merger by and among
Pentegra Dental Group, Inc., Liberty Dental Alliance, Inc.,
Liberty Acquisition Corporation, James M. Powers, Jr., Sylvia H.
McAlister and William Kelly dated as of January 29, 1999
10.8(6) Third Amendment to Credit Agreement
+10.9(7) Employment Agreement dated November 12, 2000 between
e-dentist.com and James M. Powers, Jr.
+10.10(7) Employment Agreement dated February 15, 2001 between
e-dentist.com and Charles Sanders
+10.11(7) Employment Agreement dated February 15, 2001 between
e-dentist.com and James Dunn, Jr.
10.12(7) Asset Purchase Agreement by and among e-dentist.com, Inc. and
Dexpo.com, Inc. 10.13(7) Fourth Amendment of Credit Agreement
10.14(9) Plan of Reorganization and Agreement of Merger by and among EDT
Learning, Inc., Edge Acquisition Subsidiary, Inc. and the
Stockholders of Learning-Edge, Inc.
10.15(10) Plan of Reorganization and Agreement of Merger by and among EDT
Learning, Inc., TW Acquisition Subsidiary, Inc., ThoughtWare
Technologies, Inc. and the Series B Preferred Stockholder of
ThoughtWare Technologies, Inc.
10.16(11) Asset Purchase Agreement by and among EDT Learning, Inc. and
Quisic Corporation. Common Stock Purchase Agreement by and
between EDT Learning, Inc., Investor Growth Capital Limited, A
Guernsey Corporation and Investor Group, L.P., A Guernsey Limited
Partnership and Leeds Equity Partners III, L.P.
10.17(12) Asset Purchase Agreement by and among EDT Learning, Inc., and
Mentergy, Inc. and its two wholly-owned subsidiaries, LearnLinc
Corp and Gilat-Allen Communications, Inc.
- ----------
(1) Previously filed as an exhibit to EDT Learning's Registration Statement on
Form S-1 (No. 333-37633), and incorporated herein by reference.
(2) Previously filed as an exhibit to EDT Learning's Registration Statement on
Form S-4 (No. 333-78535), and incorporated herein by reference.
(3) Previously filed as an exhibit to EDT Learning's Registration Statement on
Form S-4 (No. 333-64665), and incorporated herein by reference.
(4) Previously filed as an exhibit to EDT Learning's Quarterly Report on Form
10-Q for the fiscal quarter ended June 30, 1998.
(5) Previously filed as an exhibit to EDT Learning's Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 1998.
(6) Previously filed as an exhibit to EDT Learning's Annual Report on Form 10-K
for the year ended March 31, 2000.
(7) Previously filed as an exhibit to EDT Learning's Annual Report on Form 10-K
for the year ended March 31, 2001.
(8) Previously filed as an exhibit to EDT Learning's Annual Report on Form 10-K
for the year ended March 31, 2002.
(9) Previously filed as an exhibit to EDT Learning's Form 8-K filed October 16,
2001.
(10) Previously filed as an exhibit to EDT Learning's Form 8-K filed January 30,
2002.
(11) Previously filed as an exhibit to EDT Learning's Form 8-K filed July 2,
2002.
(12) Previously filed as an exhibit to EDT Learning's Form 8-K filed December
20, 2002.
19
+ Management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to the requirements of Item 14(c) of Form
10-K.
REPORTS ON FORM 8-K
1) Current Report on Form 8-K dated December 20, 2002 (Item 7.
Acquisition or Disposition of Assets).
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant, EDT Learning, Inc., has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
EDT Learning, Inc.
Dated: February 14, 2003
By: /s/ James M. Powers, Jr.
------------------------------------
Chairman of the Board, President and
Chief Executive Officer
By: /s/ Brian L. Berry
------------------------------------
Vice President of Finance (Principal
Financial Officer)
21
CERTIFICATION
I, James M. Powers, Jr. certify that:
1. I have reviewed this quarterly report on Form 10-Q of EDT Learning,
Inc.,
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 officer 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 we 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 officer 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 officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
By: /s/ James M. Powers, Jr.
-----------------------------------
James M. Powers, Jr.,
Chairman of the Board, President and
Chief Executive Officer
February 14, 2003
22
CERTIFICATION
I, Brian L. Berry certify that:
1. I have reviewed this quarterly report on Form 10-Q of EDT Learning,
Inc.,
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 officer 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 we 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 officer 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 officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
By: /s/ Brian L. Berry
--------------------------
Brian L. Berry
Vice President of Finance
February 14, 2003
23
Certification Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of EDT Learning, Inc. (the Company)
on Form 10-Q for the periods ending December 31, 2002 as filed with the
Securities Exchange Commission on the date here of (the Report). I, James M.
Powers, Jr., Chief Executive Officer of the Company, certify, pursuant to 18
U.S.C.ss.1350, as adopted pursuant toss.906 of the Sarbanes-Oxley Act of 2002,
that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of
the Company.
By: /s/ James M. Powers, Jr.
-------------------------------------
James M. Powers, Jr.,
Chairman of the Board, President and
Chief Executive Officer
February 14, 2003
24
Certification Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of EDT Learning, Inc. (the Company)
on Form 10-Q for the periods sending December 31, 2002 as filed with the
Securities Exchange Commission on the date here of (the Report). I, Brian L.
Berry, Vice President of Finance of the Company, certify, pursuant to 18 U.S.C.
ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002,
that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of
the Company.
By: /s/ Brian L. Berry
--------------------------
Brian L. Berry
Vice President of Finance
February 14, 2003
25