Edgar Filing: EDT LEARNING INC

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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 QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003
OR

( ) TRANSITION 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

______________

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 (X) No ( )

Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2 of the Exchange Act). Yes ( ) No (X)

The number of shares of Common Stock of the Registrant, par value $.001
per share, outstanding at November 5, 2003 was 17,370,013, net of shares held in
treasury.

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FORM 10-Q REPORT INDEX

PART I--FINANCIAL INFORMATION PAGE
----------------------------- ----

Item 1--Unaudited Condensed Consolidated Financial Statements

Condensed Consolidated Balance Sheets as of September 30, 2003
(Unaudited) and March 31, 2003..................................... 3

Unaudited Condensed Consolidated Statements of Operations for the
Three and Six Months Ended September 30, 2003 and 2002............. 4

Unaudited Condensed Consolidated Statement of Changes in Shareholders'
Equity for the Six Months Ended September 30, 2003................. 5

Unaudited Condensed Consolidated Statements of Cash Flows for the
Six Months Ended September 30, 2003 and September 30, 2002......... 6

Notes to Unaudited Condensed Consolidated Financial Statements..... 7

Item 2--Management's Discussion and Analysis of Financial
Condition and Results of Operations................................ 17

Item 3--Quantitative and Qualitative Disclosures about Market Risk......... 30

Item 4--Controls and Procedures............................................ 30

PART II--OTHER INFORMATION

Item 1--Legal Proceedings.................................................. 30

Item 2--Change in Securities and Use of Proceeds........................... 31

Item 3--Defaults of Senior Securities...................................... 31

Item 4--Submission of Matters to a Vote of Security Holders................ 32

Item 5--Other Information.................................................. 32

Item 6--Exhibits and Reports on Form 8-K................................... 33

Signatures................................................................. 35

Certifications............................................................. 36

A copy of the annual report on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K, and all amendments to those reports are
available for free on the Company's website, www.edtlearning.com, as soon as
reasonably practical after such material is electronically filed with the
Securities and Exchange Commission.

PART I--FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

EDT LEARNING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

SEPTEMBER 30,
2003 MARCH 31,
(UNAUDITED) 2003 (A)
---------- ----------

ASSETS
Current assets:
Cash and cash equivalents ....................................................... $ 578 $ 409
Accounts receivable, net of allowance for doubtful accounts of $279 and $425,
respectively .................................................................... 986 675
Notes receivable, net of allowance for doubtful accounts of $391 and $553,
respectively .................................................................. 410 270
Prepaid and other current assets ................................................ 111 33
---------- ----------
Total current assets .......................................................... 2,085 1,387

Property and equipment, net ........................................................ 393 485
Goodwill ........................................................................... 8,953 8,823
Intangible assets, net ............................................................. 1,184 1,346
Notes receivable, net of allowance for doubtful accounts of $306 and $607,
respectively ................................................................. 172 326
Other assets ...................................................................... 58 56
---------- ----------
Total assets .................................................................. $ 12,845 $ 12,423
========== ==========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt ............................................... $ 446 $ 728
Accounts payable and accrued liabilities ........................................ 1,993 2,040
Current portion of capital lease liabilities .................................... 404 462
Current portion of deferred revenue ............................................. 629 817
---------- ----------
Total current liabilities ..................................................... 3,472 4,047

Long term debt, less current maturities, net of discount of $1,924 and $2,038,
respectively ................................................................. 5,186 5,863
Capital lease liabilities, less current maturities ................................. 34 193
---------- ----------
Total liabilities ............................................................. 8,692 10,103
---------- ----------

Commitments and contingencies
SHAREHOLDERS' EQUITY:
Convertible preferred stock, $.001 par value 10,000,000 shares authorized,
150,000 and 0 issued, respectively (aggregate liquidation preference
$1,500,000) ................................................................... -- --
Common stock, $.001 par value, 40,000,000 shares authorized, 18,614,726 and
17,018,184 issued, respectively ............................................... 19 17
Additional paid-in capital ...................................................... 35,534 32,854
Accumulated deficit ............................................................. (30,149) (29,300)
Less: 1,244,713 treasury share at cost ......................................... (1,251) (1,251)
---------- ----------
Total shareholders' equity .................................................... 4,153 2,320
---------- ----------
Total liabilities and shareholders' equity .................................... $ 12,845 $ 12,423
========== ==========

(A) Derived from the audited consolidated financial statements as of March 31, 2003.

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

EDT LEARNING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2003 2002 2003 2002
--------- --------- --------- ---------

Revenues
Licenses ............................................... $ 589 $ 41 $ 1,189 $ 53
Service and maintenance ................................ 804 1,100 1,546 2,219
--------- --------- --------- ---------
Total e-Learning revenue ........................... 1,393 1,141 2,735 2,272

Dental contract revenue ................................ 34 821 117 1,993
--------- --------- --------- ---------
Total revenues ..................................... 1,427 1,962 2,852 4,265
--------- --------- --------- ---------

Operating expenses
Research and development ............................... 644 931 1,209 1,838
Sales and marketing .................................... 399 491 711 851
General and administrative ............................. 425 722 1,013 1,435
Depreciation and amortization .......................... 96 452 203 933
--------- --------- --------- ---------
Total operating expenses ........................... 1,564 2,596 3,136 5,057
--------- --------- --------- ---------

Loss from operations ...................................... (137) (634) (284) (792)

Interest expense ....................................... (309) (411) (660) (824)
Interest income and other .............................. 15 56 21 92
Gain on termination of service agreements
with Affiliated Practices ......................... -- 635 14 815
Gain (loss) on settlement of debt and other
obligations ....................................... (30) -- 322 --
--------- --------- --------- ---------

Loss before income taxes ................................. (461) (354) (587) (709)
Income taxes ........................................... -- -- -- --
--------- --------- --------- ---------

Net loss .................................................. (461) (354) (587) (709)
Preferred stock dividends ................................. (15) -- (15) --
Imputed preferred stock dividends ......................... (247) -- (247) --
--------- --------- --------- ---------
Loss available to common shareholders ..................... $ (723) $ (354) $ (809) $ (709)
========= ========= ========= =========

Net loss per share - basic and diluted .................... $ (0.05) $ (0.02) $ (0.05) $ (0.05)
========= ========= ========= =========

Number of shares used in calculation of loss per share,
basic and diluted ..................................... 16,025 16,637 15,911 15,572
========= ========= ========= =========

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

EDT LEARNING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS)

CONVERTIBLE PREFERRED
STOCK COMMON STOCK ADDITIONAL TOTAL
-------------------- ------------------- PAID-IN ACCUMULATED TREASURY SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT STOCK EQUITY
--------- --------- -------- -------- -------- -------- -------- --------

Balances, April 1, 2003 ............ -- $ -- 17,018 $ 17 $ 32,854 $(29,300) $ (1,251) $ 2,320

Issuances of common stock .......... -- -- 25 -- 14 -- -- 14
Repricing of warrants .............. -- -- -- -- 12 -- -- 12
Vesting of restricted stock grant .. -- -- -- -- 20 -- -- 20
Issuance of convertible preferred
stock in private placement (net
of expenses of $212) ............. 150 -- -- -- 1,288 -- -- 1,288
Notes payable converted to
common stock ..................... -- -- 1,572 2 1,099 -- -- 1,101
Preferred stock dividends .......... -- -- -- -- -- (15) -- (15)
Imputed preferred stock
dividends ....................... -- -- -- -- 247 (247) -- --
Net loss ........................... -- -- -- -- -- (587) -- (587)
--------- --------- -------- -------- -------- -------- -------- --------

Balances, September 30, 2003 ....... 150 $ -- 18,615 $ 19 $ 35,534 $(30,149) $ (1,251) $ 4,153
========= ========= ========= ========= ========= ========= ========= =========

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

EDT LEARNING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)

SIX MONTHS ENDED
SEPTEMBER 30,
-------------------
2003 2002
-------- --------

Net cash used in operating activities ...................................................... $ (902) $(1,415)
-------- --------

Cash flows from investing activities:
Repayments of notes receivable .......................................................... 155 388
Proceeds from practice terminations ..................................................... 61 940
Acquisition, royalty earnout ............................................................ (130) --
Capital expenditures .................................................................... -- (83)
Issuance of notes receivable ............................................................ -- (85)
-------- --------
Net cash provided by investing activities ............................................. 86 1,160
-------- --------

Cash flows from financing activities:
Proceeds from issuance of convertible preferred stock ................................... 1,500 --
Repayment of long-term debt ............................................................. (180) (171)
Repayment of capital lease liabilities .................................................. (108) (259)
Proceeds from stock option exercise ..................................................... -- 19
Convertible preferred stock issuance costs .............................................. (212) --
Preferred dividends ..................................................................... (15) --
-------- --------
Net cash used in financing activities ................................................. 985 (411)
-------- --------

Net change in cash and cash equivalents .................................................... 169 (666)
Cash and cash equivalents, beginning of period ............................................. 409 1,498
-------- --------

Cash and cash equivalents, end of period ................................................... $ 578 $ 832
======== ========

Non cash investing and financing activities:
Subordinated notes, Series A conversion into common shares .............................. $ 849 $ --
Issuance of common stock for acquisitions ............................................... -- 2,307
Convertible subordinated notes offset against receivables from affiliated practices ..... -- 307

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

EDT LEARNING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. ORGANIZATION AND NATURE OF OPERATIONS

Headquartered in Phoenix, Arizona, EDT Learning, Inc. ("EDT Learning" or
the "Company") is a leading provider of e-Learning and Web collaboration
software and services. The Company's software has become well recognized for
providing industry-leading software with the most robust set of features and
functionality. With over 15 years of combined e-Learning expertise, EDT Learning
provides proven solutions to corporate, government, and education clients alike.
As a comprehensive provider of e-Learning software and services, EDT Learning's
products and services are offered either as an integrated suite or sold
separately.

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 ("Affiliated Practices") and an initial
public offering (the "IPO") 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 Company has elected not to enter into new dental practice
management contacts, and intends to not renew existing dental practice
management contracts as they expire.

The unaudited condensed 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 unaudited condensed 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
September 30, 2003 and 2002.

Fiscal operating results for interim periods are not necessarily
indicative of the results for full years. It is suggested that these unaudited
condensed consolidated financial statements be read in conjunction with the
consolidated 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 as of and for the year ended March
31, 2003, as filed with the SEC.

The accompanying unaudited condensed consolidated 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.
The Company changed its business model from a dental practice management company
to an e-Learning company in the summer of 2001. The Company is currently
implementing its e-Learning strategy and has a limited operating history in the
e-Learning business.

The Company had a working capital deficiency, and incurred an operating
loss and had negative cash flows from operations during the three and six months
ended September 30, 2003 and during fiscal 2003. As part of the Company's legacy
business, services were provided to affiliated dental practices in accordance
with modified service agreements. Those services generally were access to online
enhancement, online payroll processing and online consulting and seminars. As
anticipated and previously announced, nearly all of those legacy service
agreements terminated during fiscal 2003 which will reduce revenues and cash
flow from this source and accordingly will negatively affect the Company's
liquidity and operating results. These matters, among others, including those
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. 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. Continuation of the Company is dependent on
the Company's ability to raise additional equity or debt capital, to increase
its e-Learning revenues, to generate positive cash flows from operations and to
achieve profitability. The unaudited condensed 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 Company has not materially added to or changed its significant
accounting policies since March 31, 2003. 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 as of and for the year ended March 31, 2003.

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, accounts receivable and notes receivable valuation
reserves, realizability of intangible assets, realizability of income tax assets
and the evaluation of 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 such estimates
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
materially differ from these estimates under different assumptions or
conditions.

RECLASSIFICATIONS

Certain prior year balances in the unaudited condensed consolidated financial
statements have been reclassified to conform to the current year presentation.

STOCK-BASED COMPENSATION

The Company has adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," for disclosure purposes. Under SFAS No. 123, the Company measures
compensation expense for its stock-based employee compensation plan using the
intrinsic value method prescribed in Accounting Principles Board ("APB") No. 25,
"Accounting for Stock Issued to Employees" and its related interpretations. The
Company provides pro forma disclosure of the effect on net income or loss as if
the fair value based method prescribed in SFAS No. 123 has been applied in
measuring compensation expense.

The fair value for options granted was estimated at the date of grant using a
Black-Scholes option-pricing model with the following weighted-average
assumptions for the three and six months ended September 30, 2003 and 2002.

SIX MONTHS ENDED SEPTEMBER 30,
--------------------------------------
2003 2002
------------------ -------------------
Risk free interest rate 3.88% - 4.45% 4.17%
Dividend yield 0% 0%
Volatility factors of the expected
market price of the Company's
common stock 70% - 139% 90%
Expected life of options
10 years 10 years

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS):

THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2003 2002 2003 2002
------- ------- ------- -------

Loss, available to common shareholders, as ........ $ (723) $ (354) $ (849) $ (709)
reported
Plus: Stock based employee compensation expense
included in reported net income (loss) ......... -- -- -- --
Less: Total stock based employee compensation
expense determined using fair value based
method ......................................... (28) (47) (86) (217)
------- ------- ------- -------
Pro forma net income (loss) ....................... $ (751) $ (401) $ (935) $ (926)
======= ======= ======= =======

Loss per share:
Basic and diluted - as reported ................... $(0.05) $(0.02) $(0.05) $(0.05)
======= ======= ======= =======
Basic and diluted - pro forma ..................... $(0.05) $(0.02) $(0.06) $(0.06)
======= ======= ======= =======

RECENT ACCOUNTING PRONOUNCEMENTS

In April 2003, SFAS No. 149, "AMENDMENT OF STATEMENT 133 ON DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES" was issued. This statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." This
statement is effective for contracts entered into or modified after June 30,
2003. Adoption of this statement is not expected to have a significant effect on
the Company's consolidated financial position or results of operations.

In May 2003, SFAS No. 150, "ACCOUNTING FOR CERTAIN FINANCIAL INSTRUMENTS
WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY" was issued. This statement
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. This
statement is effective for financial instruments entered into or modified after
May 31, 2003 otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003, except for mandatorily redeemable financial
instruments of nonpublic entities. The adoption of SFAS No. 150 did not have a
significant effect on the Company's consolidated financial position, results of
operations, or cash flows.

In July 2003, the EITF reached a consensus on EITF 03-5, "Applicability
of AICPA SOP 97-2 to Non-Software Deliverables." EITF 03-5 provides accounting
guidance on whether non-software deliverables (e.g., non-software related
equipment or services) included in an arrangement that contains software are
within the scope of SOP 97-2. The consensus was reached that SOP 97-2 is
applicable to any non-software deliverables if the software deliverable is
essential to its functionality. Companies are required to adopt this consensus
in the first reporting period (annual or interim) beginning after August 13,
2003. The adoption of EITF 03-5 did not have a material impact on the Company's
consolidated financial position or results of operations.

3. EARNINGS PER SHARE

Basic earnings per share are computed by dividing net loss available to
common stockholders by the weighted-average number of common shares outstanding
for the reporting period. Diluted earnings per share are computed similar to
basic earnings per share while giving effect to all potential dilutive common
stock equivalents that were outstanding during the period. For the three and six
months ended September 30, 2003 and 2002, options and warrants to purchase
9,531,977 and 8,606,018 shares of common stock were excluded from the
computation of diluted loss per share because of their anti-dilutive effect.
Furthermore, a restricted stock grant of 450,000 shares and 3,000,000 shares
issuable upon conversion of the Company's convertible preferred stock have been
excluded from the diluted loss per share calculations.

4. SEGMENT INFORMATION

During the three and six months ended September 30, 2003 and 2002, the
Company had two reportable segments, e-Learning and dental practice management.
The e-Learning segment included revenues and operating expenses related to the
development and sale of the Company's e-Learning products. The dental practice
management 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. Summary financial information of the
segments is as follows:

THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2003 2002 2003 2002
-------- -------- -------- --------
Revenues:
Licenses ......................... $ 589 $ 41 $ 1,189 $ 53
Service and maintenance .......... 804 1,100 1,546 2,219
-------- -------- -------- --------
Total e-Learning revenues ..... 1,393 1,141 2,735 2,272
Dental practice management ....... 34 821 117 1,993
-------- -------- -------- --------
Total revenues ............... $ 1,427 $ 1,962 $ 2,852 $ 4,265
======== ======== ======== ========

Operating expenses:
e-Learning ....................... $ 1,641 $ 1,967 $ 3,163 $ 3,191
Dental practice management ....... (77) 629 (27) 1,866
-------- -------- -------- --------
Total operating expenses ..... $ 1,564 $ 2,596 $ 3,136 $ 5,057
======== ======== ======== ========

Loss from operations:
e-Learning ....................... $ (248) $ (826) $ (428) $ (919)
Dental practice management ....... 111 192 144 127
-------- -------- -------- --------
Total loss from operations ... $ (137) $ (634) $ (284) $ (792)
======== ======== ======== ========

Capital expenditures:
e-Learning ....................... $ -- $ -- $ -- $ 83
Dental practice management ....... -- -- -- --
-------- -------- -------- --------
Total capital expenditures ... $ -- $ -- $ -- $ 83
======== ======== ======== ========

SEPTEMBER 30, MARCH 31,
2003 2003
------------- -------------
Total assets:
e-Learning................................... $ 11,448 $ 11,081
Dental practice management................... 1,397 1,342
------------- -------------
Total assets............................... $ 12,845 $ 12,423
============= =============

5. GOODWILL AND INTANGIBLE ASSETS, NET

Goodwill consisted of the following:

SEPTEMBER 30, MARCH 31,
2003 2003
------------ ------------
(IN THOUSANDS)
Goodwill................................... $ 8,953 $ 8,823
============ ============

The changes in the carrying amount of the goodwill for the six months
ended September 30, 2003:

LEARNING
SEGMENT
------------

Balance, March 31, 2003................................... $ 8,823
LearnLinc royalty earnout.............................. 130
------------
Balance, September 30, 2003............................... $ 8,953
============

Intangible assets consisted of the following (in thousands):

SEPTEMBER 30, 2003
----------------------------------------------
GROSS CARRYING ACCUMULATED
AMOUNT AMORTIZATION NET
-------------- -------------- --------------
AMORTIZED INTANGIBLE ASSETS:
Deferred offering costs...... $ 857 $ (128) $ 729
Purchase software............ 675 (231) 444
Customer relationship........ 32 (21) 11
-------------- -------------- --------------
$ 1,564 $ (380) $ 1,184
============== ============== ==============

MARCH 31, 2003
----------------------------------------------
GROSS CARRYING ACCUMULATED
AMOUNT AMORTIZATION NET
-------------- -------------- --------------
AMORTIZED INTANGIBLE ASSETS:
Deferred offering costs...... $ 1,020 $ (249) $ 771
Purchase software............ 675 (118) 557
Customer relationship........ 32 (14) 18
-------------- -------------- --------------
$ 1,727 $ (381) $ 1,346
============== ============== ==============

6. ACCOUNT PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities consisted of the following:

SEPTEMBER 30, MARCH 31,
2003 2003
------------- -------------
(IN THOUSANDS)
Accounts payable trade............................ $ 759 $ 681
Accrued state sales tax........................... 38 384
Accrued interest.................................. 287 310
Amount payable to Quisic shareholders............. 250 150
Amounts related to acquisitions................... 46 73
Accrued salaries and related benefits............. 145 160
Amount payable to third party providers........... 221 37
Deferred rent liability........................... 100 89
Lease termination liability....................... 89 101
Other............................................. 58 55
------------- -------------
Total accounts payable and accrued liabilities. $ 1,993 $ 2,040
============= =============

7. LONG-TERM DEBT

Long-term debt consisted of the following:

SEPTEMBER 30, MARCH 31,
2003 2003
------------- -------------
(IN THOUSANDS)

Convertible redeemable subordinated notes..... $ 5,775 $ 5,775
Subordinated notes, Series A.................. -- 849
Subordinated promissory notes................. 1,072 1,072
Shareholders' notes payable................... 327 430
Notes payable................................. 382 503
------------- -------------
7,556 8,629
Less: current portion of long-term debt....... (446) (728)
Discount................................ (962) (1,019)
beneficial conversion feature........... (962) (1,019)
------------- -------------
Long-term debt................................ $ 5,186 $ 5,863
============= =============

In March 2002, the Company completed a Private Placement Offering (the
"Offering") raising capital of $5,775,000. Under the terms of the Offering, the
Company issued convertible redeemable subordinated notes ("the notes") and
warrants to purchase 5,775,000 shares of the Company's common stock. The notes
bear interest at 12% per annum and require quarterly interest payments with the
principal due at maturity on March 29, 2012. The note holders may convert the
notes into shares of the Company's common stock at a price equal to $1.00 per
share. The Company may force redemption of the notes into shares of the
Company's common stock at the conversion price, if at any time the closing price
of the Company's common stock equals or exceeds $3.00 per share for 20
consecutive trading days. The notes are subordinated to any present or future
senior indebtedness, with no waiver required. The placement agent was paid a
commission of $577,500, or 10% of the gross proceeds, plus $173,250, which
represented a 3% non-accountable expense fee and received a warrant to purchase
$577,500 of convertible redeemable subordinated notes with detachable warrants
to purchase 577,500 shares of the Company's common stock at the same terms and
with the same provisions as the Offering.

The exercise price for the warrants is $3.00 per share. The Company may
force redemption of the warrants into shares of the Company's common stock at
the exercise price, if at any time the closing price of the Company's common
stock equals or exceeds $5.50 per share for 20 consecutive trading days. The
warrants expire on March 29, 2005. The fair value of the warrants was estimated
using a Black-Scholes pricing model with the following assumptions: contractual
and expected life of three years, volatility of 75%, dividend yield of 0%, and a
risk-free rate of 3.87%. The fair value was then used to calculate a discount of
$1,132,000, which is being amortized to interest expense over ten years, the
term of the notes. As the carrying value of the notes is less than the
conversion value, a beneficial conversion feature of $1,132,000 was calculated
and recorded as an additional discount to the notes and is being amortized to
interest expense over the term of the notes. Upon conversion, any remaining
discount associated with the beneficial conversion feature will be expensed in
full at the time of conversion.

In October 2001, the Company issued $1.1 million of subordinated
promissory notes to the shareholders of Learning-Edge, Inc. under the terms of
the acquisition agreement (the "Learning-Edge Notes"). The Learning-Edge Notes
bear interest at rates ranging from at 7.5% to 9.0% and are due in two equal
installments on April 5, 2005 and on October 1, 2005, respectively. If the
Company raises additional capital equal to or in excess of $3 million, 25% of
the principal of the Learning-Edge Notes is to be repaid. For each $500,000
raised above $3 million, the repayment percentage increases by 15%. If more than
$5 million is raised, 100% of the principal of the Learning-Edge Notes is to be
repaid. The holders of the Learning-Edge Notes waived the accelerated payment
schedule in relation to the Offering.

On September 19, 2003, $849,000 or all of the outstanding Subordinated
Notes, Series A ("Series A Notes") were converted into the Company's common
stock. The conversion price of $0.54 was determined using the average of the
preceding twenty days closing price of the Company's common stock. Based on the
amount of outstanding debt, divided by the conversion price, the Company issued
1,572,222 common shares to the holders of the Series A Notes. The Company also
recorded a $252,000 charge (reflected in gain (loss) on settlement of debt)
associated with the conversion due to the closing price of the Company's common
stock on the day of conversion being greater that the conversion price. Holders
of $253,000 of the Series A debt were related parties of the Company.

In connection with the IPO, the Company issued $468,000 of notes payable
to certain shareholders formerly owning preferred stock. The notes bear 6%
interest and were originally payable on the earlier of March 30, 2003 or the
date upon which the Company offers and sells an amount of equity securities
equal or greater to the gross proceeds of the IPO. During the six months ended
September 30, 2003 and the year ended March 31, 2003, $4,000 and $58,000 of
accrued interest on certain of these notes was added to the principal balance
and the maturity date was extended to April 1, 2005. The new principal balance
on the extended notes is $267,000 and the interest rate was increased to 10%.
The remaining $60,000 in principal amount of these notes is currently past due.

In connection with the acquisition of certain assets of LearnLinc
Corporation, the Company issued a $250,000 note payable. The note bears interest
at 6% with quarterly interest payments and is due on December 13, 2003.

The aggregate maturities of long-term debt excluding capital leases for
each of the next five years subsequent to September 30, 2003 were as follows (in
thousands):

Amounts past due................................................... $ 60
2004............................................................... 386
2005............................................................... 803
2006............................................................... 532
2007............................................................... --
2008............................................................... --
Thereafter......................................................... 5,775
-----------
$ 7,556
===========

8. STOCK OPTION PLANS AND WARRANTS

The Company grants stock options under its 1997 Stock Compensation Plan
(the "Plan"). The Company recognizes stock-based compensation issued to
employees at the intrinsic value between the exercise price of options granted
and the fair value of stock for which the options may be exercised. However, pro
forma disclosures as if the Company recognized stock-based compensation at the
fair value of the options themselves are presented below.

Under the Plan, the Company is authorized to issue 3,500,000 shares of
Common Stock pursuant to "Awards" granted to officers and key employees in the
form of stock options and restricted stock grants.

There were 2,134,313 options granted under the Plan at September 30,
2003. The Compensation Committee administers the Plan. These stock options have
contractual terms of 10 years and have an exercise price no less than the fair
market value of the stock at grant date. The options vest at varying rates over
a one to five year period.

Following is a summary of the status of the Company's stock options as of
September 30, 2003:

WEIGHTED
NUMBER OF WEIGHTED AVERAGE
SHARES AVERAGE FAIR-VALUE
UNDERLYING EXERCISE OF OPTIONS
OPTIONS PRICES GRANTED
------------- ------------- -------------

Outstanding at March 31, 2003................. 1,835,865 $ 1.82

Granted....................................... 322,500 0.49 $ 0.37
=============
Exercised..................................... -- --
Forfeited..................................... (24,052) 0.66
Expired....................................... -- --
------------- -------------
Outstanding at September 30, 2003............. 2,134,313 $ 1.56
============= =============

The following table summarizes information about stock options
outstanding at September 30, 2003:

OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- --------------------------
WEIGHTED NUMBER OF WEIGHTED
AVERAGE WEIGHTED AVERAGE AVERAGE
NUMBER OF EXERCISE REMAINING CONTRACTUAL NUMBER OF EXERCISE
SHARES PRICE LIFE (YEARS) SHARES PRICE
------------ ----------- --------------------- ------------ ------------
(SHARE DATA IN THOUSANDS)

$ 0.01 - $ 0.99 1,375,581 $ 0.53 8.05 773,253 $ 0.53
$ 1.00 - $ 1.99 107,125 1.59 6.95 97,525 1.56
$ 2.00 - $ 2.99 430,000 2.22 5.78 378,000 2.25
$ 3.00 - $ 8.50 221,607 7.31 4.60 201,929 7.52
------------ ------------
2,134,313 1,450,707
============ ============

The following table summarizes information about stock purchase warrants
outstanding at September 30, 2003:

WARRANTS OUTSTANDING WARRANTS EXERCISABLE
----------------------------------------------- --------------------------
WEIGHTED NUMBER OF WEIGHTED
AVERAGE WEIGHTED AVERAGE AVERAGE
NUMBER OF EXERCISE REMAINING CONTRACTUAL NUMBER OF EXERCISE
SHARES PRICE LIFE (YEARS) SHARES PRICE
------------ ----------- --------------------- ------------ ------------
(SHARE DATA IN THOUSANDS)

$ 0.42 - $ 0.42 543,182 $ 0.42 7.89 543,182 $ 0.42
$ 0.44 - $ 0.44 132,972 0.44 7.95 132,972 0.44
$ 0.50 - $ 0.50 25,000 0.50 2.25 25,000 0.50
$ 1.50 - $ 1.50 921,510 1.50 3.89 921,510 1.50
$ 3.00 - $ 3.00 5,775,000 3.00 1.49 5,775,000 3.00
------------ ------------
7,397,664 7,397,664
============ ============

In December 2001, the Company, under the initiative of the Compensation
Committee with the approval of the Board of Directors, issued its chief
executive officer an incentive stock grant under the 1997 Stock Compensation
Plan of 450,000 restricted shares of the Company's common stock as a means to
retain and incentivize the chief executive officer. The shares 100% vest after
10 years from the date of grant. The shares were valued at $405,000 based on the
closing price of the stock on the date of grant, which is recorded as
compensation expense ratably over the ten-year vesting period.

The vesting of the incentive shares accelerates based on the Company's
share price as follows:

PERFORMANCE CRITERIA SHARES VESTED
--------------------------------------------------------------------- ----------------

Share price trades for $4.50 per share for 20 consecutive days 150,000 shares
Share price trades for $8.50 share for 20 consecutive days 150,000 shares
Share price trades for $12.50 per share for 20 consecutive days 150,000 shares

On September 16, 2003, the Company completed the private placement of
convertible preferred stock with detachable warrants. The placement agent was
paid a commission of $150,000 or 10% of the gross proceeds plus $45,000, which
represented a 3% non-accountable expense fee. In addition, the placement agent
received a warrant to purchase 3 units at the same terms of the original units
(see Note 10).

The placement agent was paid a commission of $577,500, or 10% of the
gross proceeds, plus $173,250, which represented a 3% non-accountable expense
fee and received a warrant to purchase $577,500 of convertible redeemable
subordinated notes with detachable warrants to purchase 577,500 shares of the
Company's common stock at the same terms and with the same provisions as the
Offering.

9. COMMITMENTS AND CONTINGENCIES

The Company is subject to various commitments and contingencies as
described in Note 16 to the consolidated financial statements in the Company's
Annual Report on Form 10-K as of and for the year ended March 31, 2003. The
significant items included were Lease Commitments, Employment Agreements,
Litigation and Royalty Agreements. During the six month period ended September
30, 2003, the following commitments and contingencies arose or were settled:

The Company's wholly owned subsidiary, TW Acquisition Subsidiary, Inc.
was a respondent in a claim asserted by the Tennessee Department of Revenue
alleging a sales and use tax liability of approximately $384,000 from sales made
by its predecessor, ThoughtWare Technologies, Inc. The Company was notified on
July 29, 2003, that the sales tax assessment was abated. Accordingly, the
Company has reversed $352,000 of the accrued liability as of June 30, 2003. As
the purchase allocation period to the acquisition was closed, the $352,000 was
recorded as other income rather than a reduction to goodwill.

During the three months ended September 30, 2003, the Company was
successful in settling long-term debts and acquisition related liabilities at
amounts less than their recorded values. The Company paid $89,000 in order to
settle debts of $260,000 during the three months ended September 30, 2003.
Accordingly the Company has recorded the difference of $171,000 as other income
in the period. In addition, the Company removed $51,000 of accounts payable
related to its acquisitions of Learning-Edge, Inc. and ThoughtWare Technologies,
Inc. since it determined these amounts were not valid claims against the
Company. As the purchase allocation period related to these acquisitions was
closed, the $51,000 was recorded as other income rather than a reduction to
goodwill.

Effective May 1, 2003, certain employees of the Company terminated their
employment with the Company and created a new company, Interactive Alchemy, Inc.
("IA"). The Company entered into a non-cancelable three-year subcontractor
agreement with IA whereby the Company is required to source its custom content
development services through IA. The Company provides IA with certain facilities
and administrative support for which in exchange it receives a specified amount
of support services. Furthermore, the agreement provides for a specified fee
sharing arrangement between the Company and IA for all custom content
development services provided. During the three and six month periods ended
September 30, 2003, the Company incurred approximately $182,000 and $333,000 of
fees to IA in connection with this agreement.

The Company has pending lawsuits against several affiliated practices for
defaulting in the payment of the required service fees and it attempting to
collect upon a judgment against one other affiliated practice. 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.
Previously disclosed litigation involving the Company and Computer Associates
International Inc., settled at mediation, without the terms of the settlement
being disclosed.

On November 4, 2002, two former employees of Quisic Corporation, filed
suit in the Superior Court of the State of California 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 an
allegation of successor liability to the extent the Quisic defendants are found
liable and to the extent the plaintiffs prove 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.

On June 11, 2003, Kepner-Tregoe, Inc. filed suit in the Supreme Court of
the State of New York, County of New York, on Internal & External
Communications, Inc., Quisic Corporation, Investor Growth Capital, Ltd.,
Investor Group, L.P., Leeds Equity Partners III, L.P., et al. seeking to collect
an arbitration award against Quisic in the amount of $1,701,331. The defendants
have filed a motion to dismiss and EDT Learning has filed a verified answer in
this matter denying any liability. The Company is a third party defendant with
an 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 believes that it will not have liability in this matter to
the plaintiff.

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 in the two Quisic acquisition
lawsuits, the impact could be material to the Company.

10. PRIVATE PLACEMENT OFFERING

On September 16, 2003, the Company completed its private placement of
convertible preferred stock with detachable warrants. The Company sold 30 units
at $50,000 each and raised a total of $1,500,000. Each unit consisted of 5,000
shares of preferred stock, par value $0.001 and a warrant to purchase 25,000
shares of common stock. The convertible preferred stock is convertible into the
Company's common stock at a price of $0.50 per share (subject to adjustment in
certain events, with a floor of $0.30), and the warrants are immediately
exercisable at a price of $1.50 per share with a three-year term. Accordingly,
each share of preferred stock is convertible into 20 shares of common stock and
retains a $10 liquidation preference. The Company will pay an 8% dividend to
holders of the convertible preferred stock, and the dividend is cumulative. The
convertible preferred stock is non-voting and non-participating. The shares of
convertible preferred stock will not be registered under the Securities Act of
1933, as amended, and were offered in a private placement providing exemption
from registration. The placement agent was paid a commission of $150,000 or 10%
of the gross proceeds plus $45,000, which represented a 3% non-accountable
expense fee and received a warrant to purchase 3 units at the same terms of the
original units. In addition, the Company paid $17,000 in legal and accounting
fees bringing the net proceeds raised to $1,288,000. The Company plans on using
the net proceeds for general working capital, to expand its sales and marketing
activities and to retire certain acquisition related liabilities.

The cash proceeds of the private placement of convertible preferred
stock was allocated prorata between the relative fair values of the preferred
stock and warrants at issuance using the Black Scholes valuation model for
valuing the warrants. After allocating the proceeds between the preferred stock
and warrant, an effective conversion price was calculated for the convertible
preferred stock to determine the beneficial conversion discount for each share.
The aggregate value of the warrants and the beneficial conversion discount of
$247,000 is considered a deemed dividend in the calculation of loss per share.

11. AMERICAN STOCK EXCHANGE NOTIFICATION

During the three months ended September 30, 2003, the Company was
notified by the American Stock Exchange ("Amex" or "Exchange") that it did not
meet certain of the Exchange's continued listing standards. Specifically, the
Company was not in compliance with Section 1003(a)(ii) with shareholders' equity
of less than $4 million and losses from continuing operations and/or net losses
in three of its four most recent fiscal years. As of September 30, 2003, the
Company is in compliance with this listing standard with shareholders equity of
$4.2 million. If in the future, the Company fails to meet the listing standards
of the Exchange the Company would be required to submit a plan to the Exchange
describing how it intended to re-gain compliance within the Exchange's required
time frame, which is generally eighteen months. The Company's ability to
continue to meet the Exchange's listing requirements cannot be assured.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

STATEMENTS CONTAINED IN THIS FORM 10-Q THAT INVOLVE WORDS LIKE
"ANTICIPATES," "EXPECTS," "INTENDS," "PLANS," "BELIEVES," "SEEKS," "ESTIMATES"
AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS
WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, THE
SECURITIES ACT OF 1933, AS AMENDED, AND THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED. SUCH FORWARD-LOOKING STATEMENTS INVOLVE CERTAIN RISKS AND UNCERTAINTIES
THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM ANTICIPATED RESULTS.
THESE RISKS AND UNCERTAINTIES INCLUDE, BUT ARE NOT LIMITED TO, OUR DEPENDENCE ON
OUR PRODUCTS OR SERVICES, MARKET DEMAND FOR OUR PRODUCTS AND SERVICES, OUR
ABILITY TO ATTRACT AND RETAIN CUSTOMERS AND CHANNEL PARTNERS, OUR ABILITY TO
EXPAND OUR TECHNOLOGICAL INFRASTRUCTURE TO MEET THE DEMAND FROM OUR CUSTOMERS,
OUR ABILITY TO RECRUIT AND RETAIN QUALIFIED EMPLOYEES, THE ABILITY OF CHANNEL
PARTNERS TO SUCCESSFULLY RESELL OUR SERVICES, THE STATUS OF THE OVERALL ECONOMY,
THE STRENGTH OF COMPETITIVE OFFERINGS, THE PRICING PRESSURES CREATED BY MARKET
FORCES, AND THE OTHER RISKS DISCUSSED HEREIN. ALL FORWARD-LOOKING STATEMENTS
INCLUDED IN THIS REPORT ARE BASED ON INFORMATION AVAILABLE TO US AS OF THE DATE
HEREOF. WE EXPRESSLY DISCLAIM ANY OBLIGATION OR UNDERTAKING TO RELEASE PUBLICLY
ANY UPDATES OR REVISIONS TO ANY FORWARD-LOOKING STATEMENTS CONTAINED HEREIN, TO
REFLECT ANY CHANGE IN OUR EXPECTATIONS OR IN EVENTS, CONDITIONS OR CIRCUMSTANCES
ON WHICH ANY SUCH STATEMENT IS BASED. OUR REPORTS ARE AVAILABLE FREE OF CHARGE
AS SOON AS REASONABLY PRACTICABLE AFTER WE FILE THEM WITH THE SEC AND MAY BE
OBTAINED THROUGH OUR WEBSITE.

OVERVIEW

As of September 30, 2003 we offered to our customers a wide array of
e-Learning and training products and services. Our four-product suite
(LearnLinc, MeetingLinc, ConferenceLinc, and SupportLinc) also lets customers
collaborate and present over the Internet in one-to-one, one-to-many, and
many-to-many communication formats. Our Web collaboration suite of products is
sold in both an application service provider ("ASP") or hosted basis (a periodic
license) and on a purchase client hosted basis (client server software sold as a
non-periodic, perpetual license). While we are a comprehensive provider of
e-Learning products, over the past 18 months we shifted our focus away from our
lower margin custom content service business and toward our higher margin
software products with particular emphasis since December of 2002 on our Web
collaboration and virtual classroom suite led by LearnLinc.

In addition to our web collaboration and virtual classroom software, we
also offer software that facilitates the management of users and e-Learning
content through EDT's Learning Management System ("LMS"). Our LMS has been
combined with a suite of workforce management solutions (the "ThoughtWare
Suite"), which includes Career Planner, Job Seeker, and Performance Coach. Our
LMS software is offered in an ASP format using a periodic per user per period
annual license agreement.

For the development of custom online content we offer an award winning
content development software, (i-Canvas) which is sold on an individual user
perpetual license basis. We continue to provide to our customers award winning
custom content services including the development of online course material
specific to our customers. Custom content services are bid on a
project-by-project basis and revenue is recognized on the
percentage-of-completed contract method.

Finally, we offer a library of online courses focused upon the training
of executives on essential business topics, including an online "mini-MBA"
program. Customers subscribe for a period of time per course, with the license
providing for access over typically one year from date the students first access
of the course.

The Company began operations in March of 1998 under the name Pentegra
Dental Group, Inc. Its formation included the simultaneous roll-up of 50
businesses and an initial public offering. The Company's initial goals were to
provide training and practice enhancement services nationwide to our affiliated
dental practices including the use of our proprietary Web-based management and
financial reporting system. Beginning in April of 2000, the Company modified its
affiliated service agreements and commensurate with that change the Company
recorded certain charges against earnings during the fiscal year ending March
31, 2001. The Company evolved from its legacy business into its current
e-Learning focus during its fiscal year 2002, and accordingly, changed its name
to EDT Learning, Inc. (now trading as AMEX:EDT).

SEPTEMBER 30, MARCH 31,
2003 2003
------------- -------------
Total assets:
e-Learning.................................... $ 11,448 $ 11,081
Dental practice management.................... 1,397 1,342
------------- -------------
Total assets.............................. $ 12,845 $ 12,423
============= =============

RESULTS OF OPERATIONS

As of September 30, 2003, we offered to our customers a wide array of
e-Learning and training products and services. Since December of 2002 we have
placed special emphasis on sales and marketing efforts that have been directed
at our virtual classroom Web casting and online collaboration four-product suite
led by LearnLinc. We continue to offer for those seeking to manage users and
e-Learning content EDT's Learning Management System, which has been combined
with a suite of workforce management solutions - which includes Career Planner,
Job Seeker, and Performance Coach. For the development of custom online content
we offer an award winning content development software, i-Canvas and award
winning custom content services, which have been providing proven results for
over 15 years. Finally, we offer a library of online courses focused upon the
training of executives on essential business topics.

In connection with implementing its e-Learning strategy, the
Company acquired the assets of two e-Learning entities during fiscal 2003 and
acquired two e-Learning entities during fiscal 2002.

On October 1, 2001, the Company acquired all of the outstanding capital
stock of Learning-Edge, Inc., an Arizona based private e-learning company. The
Company issued 1,950,000 common shares and $1.1 million of debt under the terms
of the acquisition agreement. The debt bears interest at rates ranging from 7.5%
to 9.0% and is due in two equal installments on April 1, 2005 and on October 1,
2005, respectively. The Company also assumed approximately $2.9 million of
Learning-Edge debt as part of this acquisition. The operating results of
Learning-Edge are included with the Company as of October 1, 2001.

On January 15, 2002, the Company acquired all of the outstanding
capital stock of ThoughtWare Technologies, Inc., a Tennessee based private
company. The Company issued 1,550,000 common shares under the terms of the
acquisition agreement. The Company also assumed approximately $1.5 million of
ThoughtWare debt as part of this acquisition. Since January 2002, operating
results of ThoughtWare are included with the Company's results from operations.

On June 14, 2002, the Company acquired certain assets of Quisic
Corporation ("Quisic"); a California based private e-Learning company in an
asset purchase and common stock purchase transaction that involved the issuance
of 2,000,000 common shares to certain shareholders of Quisic. An additional
500,000 shares of common stock of the Company were contingently issuable upon
the achievement of certain cash basis sales targets, as defined, for the
12-month period following the close of the acquisition. As of June 30,2003, the
cash basis sales targets were not achieved. The operating results of Quisic have
been included in the consolidated operations of the Company commencing June 17,
2002.

The purchase agreement also provides for the Company to remit to the
seller, during the 5 year period following the close of the acquisition, 100% of
the first $1,250,000 of proceeds and 50% of the remaining proceeds from the
sales of software licenses for certain specified products, as defined, and
collection of notes. Since the closing date of the acquisition and through
September 30, 2003, the Company has collected funds subject to this provision of
the agreement totaling $250,000, all of which has been withheld and not remitted
to the seller as of September 30, 2003 in accordance with the Company's
understanding of the escrow and indemnity provisions of the Asset Purchase
Agreement.

Effective November 4, 2002, the Company acquired certain assets of
Mentergy, Inc. ("Mentergy"), a wholly owned subsidiary of Mentergy, Ltd, in
exchange for $500,000 and the assumption of $462,000 of liabilities. In
addition, the Company has agreed to pay a royalty of 20% for all revenues
collected from the sale or license of LearnLinc software over a three-year
period. The first $600,000 of sales is not subject to the royalty. The maximum
amount due under the Royalty Agreement is $5,000,000. The Company accounts for
any such amounts collected as additional purchase consideration in accordance
with EITF No. 95-8 at the time such amounts are collected. The operating results
are included with the Company's as of November 4, 2002.

As a part of our legacy business we provided services to certain
affiliated practices in accordance with modified service agreements. Those
services generally included access to online enhancement, access to online
payroll processing, access to online consulting and seminars. For the fiscal
years ending March 31, 2003 and 2002, we earned dental revenues of $3.1 million
and $6.6 million, respectively. As anticipated and previously announced, nearly
all of those legacy service agreements terminated during fiscal 2003. In fiscal
2004, $171,000 is anticipated in dental revenues and $235,000 from the
collection of notes receivable from those dental practices that had executed a
legacy management services agreement ("Affiliated Practices").

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 barrier
to entry in the market share. See "Additional Risk Factors That May Affect Our
Operating Results and The Market Price of Our Common Stock."

REVENUES

Total revenues generated for the three months ended September 30, 2003
and September 30, 2002 were $1.4 million and $2.0 million respectively, a
decrease of $600,000. e-Learning revenues for the three months ended September
30, 2003 and September 30, 2002 were $1.4 million and $1.1 million,
respectively, an increase of $300,000. The increase was a result of an increase
in license revenue of $500,000 which was partially offset by a decrease of
$296,000 in service and maintenance revenues. 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 2003 of certain assets of LearnLinc and
Quisic. Revenue from dental contracts decreased by $787,000 from $821,000 for
the three months ended September 30, 2002 to $34,000 for the three months ended
September 30, 2003 due to the previously announced and planned modification and
termination of certain dental management service contracts. As anticipated and
previously announced, nearly all of those legacy management service agreements
terminated during fiscal 2003 and only $171,000 is anticipated to be earned as
dental revenue for fiscal 2004.

Total revenues generated for the six months ended September 30, 2003
and 2002 were $2.9 million and $4.3 million respectively, a decrease of $1.4
million. The Company recognized $2.7 million in learning revenues in the six
months ended September 30, 2003 compared with $2.3 million of learning revenues
in the six months ended September 30, 2002, an increase of $400,000. 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 2003 of certain
assets of LearnLinc and Quisic. Revenue from dental contracts decreased by $1.9
million during the six months ended September 30, 2003 due to the previously
announced and planned modification and termination of certain dental management
service contracts. As anticipated and previously announced, nearly all of those
legacy management service agreements terminated during fiscal 2003 and only
$171,000 is anticipated to be earned as dental revenue for fiscal 2004.

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 $1.6 million for the three
months ended September 30, 2003, a decrease of $1.0 million from $2.6 million
for the three months ended September 30, 2002. This is due to decreases in
salaries and wages of $702,000, depreciation and amortization of $356,000,
telephone of $41,000, accounting fees of $40,000, travel and entertainment of
$36,000, investor relations of $51,000, seminars and education of $38,000,
office supplies of $14,000, advertising and printing of $13,000 and occupancy of
$13,000. These were offset by increases of $271,000 in product development
costs, $11,000 in insurance and $6,000 of bad debt expense. The Company has
reduced head count from 65 in September of 2002 to 44 at September 30, 2003. In
addition, the Company has streamlined its operations by closing non-essential
facilities and consolidating those functions in its Phoenix and Troy, New York
locations.

The Company incurred operating expenses of $3.1 million and $5.1 million
for the six months ended September 30, 2003 and 2002 respectively, a decrease of
$2.0 million.

Research and development expenses represent expenses incurred in
connection with the provision of 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 for the three months ended September 30, 2003 and September 30, 2002
were $644,000 and $931,000, respectively, a decrease of $287,000. The decrease
is a result of the Company's closure of the Memphis and Los Angeles offices,
outsourcing of custom content development and elimination of dental operations
costs. These changes caused a decrease in salaries and wages of $527,000 and
dental operations of $13,000. This was partially offset by an increase in cost
of sales of $267,000 due to increased royalty payments and costs of custom
development.

The Company incurred research and development costs of $1.2 million and
$1.8 million for the six months ended September 30, 2003 and 2002 respectively,
a decrease of $600,000. The decrease is primarily a result of a decrease in
compensation expenses of $894,000. This was partially offset by an increase in
cost of sales of $341,000 due to increased royalty payments and costs of custom
development.

Sales and marketing expenses consist primarily of sales and marketing
salaries and benefits, travel, advertising, and other marketing literature.
Sales and marketing expenses were $399,000 and $491,000 for the three months
ended September 30, 2003 and September 30, 2002, respectively, a decrease of
$92,000. The decrease is a result of a decrease in travel expenses of $56,000,
miscellaneous office expenses of $19,000, telephone of $11,000 and salaries and
benefits of $6,000.

The Company incurred $711,000 and $851,000 in sales and marketing
expenses for the six months ended September 30, 2003 and 2002 respectively, a
decrease of $140,000. This decrease is primarily a result of decreases in
general office expenses of $83,000 and travel expenses of $65,000.

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, rent, bad debt expense,
professional services, travel, office costs and other general corporate
expenses. During the three months ended September 30, 2003 and September 30,
2002, general and administrative expenses were $425,000 and $722,000,
respectively, a decrease of $297,000. The change in general and administrative
expenses was primarily due to decreases in compensation and related benefit
expense of $159,000, accounting fees of $40,000, investor relations and board
fees of $51,000, telephone of $21,000, occupancy of $13,000, travel expenses of
$10,000, and legal fees of $8,000.

The Company incurred general and administrative expenses of $1.0
million and $1.4 million for the six months ended September 30, 2003 and 2002
respectively, a decrease of $400,000. The change in general and administrative
expenses was primarily due to decreases in compensation expenses of $254,000,
legal fees of $129,000 and investor relations of $78,000. These decreases were
partially offset by an increase of $147,000 in bad debt expense.

For the three months ended September 30, 2003 and September 30, 2002
depreciation and amortization expense was $96,000 and $452,000, respectively.
For the six months ended September 30, 2003 and September 30, 2002 depreciation
and amortization expense was $203,000 and $933,000, respectively. Beginning in
fiscal 2003 the Company ceased amortizing goodwill in accordance with SFAS No.
142. The decrease is also attributed to the modification and termination of the
service agreements that returned ownership of the dental practice equipment to
the related dental practices.

INTEREST EXPENSE

Interest expense of $309,000 for the three months ended September 30,
2003 decreased by $102,000 from $411,000 for the three months ended September
30, 2002. The decrease was primarily a result of a reduction in interest expense
associated with the Company's interest bearing liabilities. Interest expense for
the six months ended September 30, 2003 and 2002 was $660,000 and $824,000
respectively, a decrease of $164,000.

GAIN ON TERMINATION AND RESTRUCTURING OF SERVICE CONTRACTS WITH AFFILIATED
PRACTICES

The gain of $635,000 for the three months ended September 30, 2002
relates to a variety of transactions with Affiliated Practices, including the
results of negotiated settlements, the results of litigation to enforce
contracts and modified service agreements. There were no like items for the
three months ended September 30, 2003.

The gains of $14,000 and $815,000 for the six months ended September
30, 2003 and 2002 relate to a variety of transactions with Affiliated Practices,
including the results of negotiated settlements, the results of litigation to
enforce contracts and modified service agreements. As anticipated and previously
announced, nearly all of those legacy service agreements terminated during
fiscal 2003.

GAIN ON SETTLEMENT OF DEBT AND OTHER OBLIGATIONS

During the three months ended September 30, 2003, the Company recognized
a gain of $222,000 relating to the settlement of debt and other obligations.
This was offset by a loss on the conversion of shareholder notes to common stock
of $252,000.The resulting net loss for the three months ended September 30, 2003
was $30,000. There were no like items for the three months ended September 30,
2002.

Also included for the six months ended September 30, 2003, is a gain of
$352,000 relating to a state sales tax settlement. As part of the acquisition of
ThoughtWare in January of 2002, the Company assumed a sales and use tax
liability of $384,000. On July 29, 2003, the Company was notified by the state
taxing authorities that the amount due relating to the sales tax would be
removed from the assessment resulting in a net amount due of $32,000. As the
purchase allocation period related to the acquisition was closed, the $352,000
was recorded as other income rather than a reduction to goodwill. There were no
like items for the six months ended September 30, 2002.

INCOME TAX EXPENSE

The Company recorded no tax benefit during the three and six months
ended September 30, 2003 or 2002 because it concluded it is not likely it would
be able to recognize the tax asset created due to the lack of operating history
of its e-Learning business strategy. At March 31, 2003, the Company has a net
deferred tax asset of $9.9 million with a corresponding valuation allowance. The
Company's tax benefits are scheduled to expire over a period of six to fourteen
years.

LIQUIDITY AND CAPITAL RESOURCES

The Company has a working capital deficiency, incurred an operating loss
and had negative cash flows from operations during the six months ended
September 30, 2003. As part of the Company's legacy business, services were
provided to affiliated dental practices in accordance with modified service
agreements. Those services generally were access to online enhancement, online
payroll processing and online consulting and seminars. As anticipated and
previously announced, nearly all of those legacy service agreements terminated
during fiscal 2003 which will reduce revenues and cash flow from this source and
accordingly will negatively affect the Company's liquidity and operating
results. These matters, among others, including those 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 includes continued
development, marketing and licensing of its e-Learning products and services.
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.

In order to increase its liquidity, the Company has developed a plan
consisting of the following strategies; (i) implement its e-Learning based
strategic business plan and (ii) restructure or extend outstanding obligations
to reduce cash outflows for debt service and (iii) seek if necessary funding
from the placement of debt or equity securities providing additional capital.
However, there can be no assurance that the Company's e-Learning strategies will
be achieved or that creditors of the Company will accept delayed or reduced sums
or that the Company will be able to acquire additional sums.

The Company's service agreements with affiliated dental practices nearly
all terminated during fiscal 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 six months ended September 30, 2003 and 2002, the
Company received $61,000 and $940,000 respectively, in cash from terminating the
service agreements with affiliated practices. These cash collections accelerate
the date at which the Company will 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. The Company
currently does not have existing working capital and does not generate positive
cash flows from operations. As a result, we may not have sufficient financial
resources to satisfy our obligations as they come due in the near term.

As of September 30, 2003, the Company had a working capital deficit of
$1.4 million. Current assets included $578,000 in cash, $986,000 in accounts
receivable and $410,000 in notes receivable. Current liabilities consisted of
$629,000 of deferred revenue, $850,000 of current maturities of long-term debt
and capital leases and $2.0 million in accounts payable and accrued liabilities.

Cash used in operating activities was $902,000 during the six months
ended September 30, 2003 and $1.4 million during the six months ended September
30, 2002. Cash used in operating activities during the six months ended
September 30, 2003 was primarily attributable to a net loss of $587,000,
increases in accounts receivable and prepaid expenses of $363,000 and $97,000,
respectively and a decrease in deferred revenue of $196,000. These items were
offset by $203,000 of depreciation and amortization expense and discount
accretion on debt of $114,000. Cash used in operating activities during the six
months ended September 30, 2002 was primarily attributable to a net loss of
$709,000, increases in accounts receivable of $198,000, and decreases in
deferred revenue, accounts payable and accrued liabilities, and current portion
of long-term debt of $513,000, $433,000, and $612,000 respectively. These items
were partially offset by $933,000 of depreciation and amortization expense.

Cash provided by investing activities was $86,000 and $1.2 million for
the six months ended September 30, 2003 and September 30, 2002, respectively.
Cash provided by investing activities for the six months ended September 30,
2003 was primarily due to $155,000 from the repayment of notes receivable,
proceeds received from practice terminations of $61,000 offset by $130,000 of
acquisition related royalty payments. Cash provided by investing activities
during the six months ended September 30, 2002 was primarily due to proceeds
received from practice terminations of $940,000 and the repayment of notes
receivable of $388,000.

Cash provided by financing activities was $985,000 during the six
months ended September 30, 2003, while cash used in financing activities was
$411,000 during the six months ended September 30, 2002. Cash provided by
financing activities during the six months ended September 30, 2003 was due to
the net proceeds of $1,288,000 related to the issuance of convertible preferred
stock and warrants which was partially offset by repayment of debt and capital
leases of $288,000. Cash used in financing activities during the six months
ended September 30, 2002 was primarily attributable to the repayment of debt and
capital leases totaling $430,000.

On September 16, 2003, the Company completed its private placement of
convertible preferred stock with detachable warrants. The Company sold 30 units
at $50,000 each and raised a total of $1,500,000. Each unit consisted of 5,000
shares of convertible preferred stock, par value $0.001 and a warrant to
purchase 25,000 shares of common stock. The convertible preferred stock is
convertible into the Company's common stock at a price of $0.50 per share
(subject to adjustment in certain events, with a floor of $0.30), and the
warrants are immediately exercisable at a price of $1.50 per share with a
three-year term. Accordingly, each share of preferred stock is convertible into
20 shares of common stock and retains a $10 liquidation preference. The Company
will pay an 8% dividend to holders of the convertible preferred stock, and the
dividend is cumulative. The convertible preferred stock is non-voting and
non-participating. The shares of convertible preferred stock will not be
registered under the Securities Act of 1933, as amended, and were offered in a
private placement providing exemption from registration. The placement agent was
paid a commission of $150,000 or 10% of the gross proceeds plus $45,000, which
represented a 3% non-accountable expense fee and received a warrant to purchase
3 units at the same terms of the original units. In addition, the Company paid
$17,000 in legal and accounting fees bringing the net proceeds raised to
$1,288,000. The Company plans on using the net proceeds for general working
capital, to expand its sales and marketing activities and to retire certain
acquisition related liabilities.

On September 19, 2003, $849,000 or all of the outstanding Subordinated
Notes Series A ("Series A Notes ") were converted into the Company's common
stock. The conversion price of $0.54 was determined using the average of the
preceding twenty days closing price of the Company's common stock. Based on the
amount of outstanding Series A debt outstanding, divided by the conversion
price, the Company issued 1,572,222 common shares to the holders of the Series A
Notes. The Company also recorded a $252,000 charge (reflected in gain (loss) on
settlement of debt) associated with the conversion due to the closing price of
the Company's common stock on the day of conversion being greater that the
conversion price. Holders of $253,000 of Series A debt were related parties of
the Company.

In connection with the IPO, the Company issued $468,000 of notes
payable to certain shareholders formerly owning preferred stock. The notes bear
6% interest and were originally payable on the earlier of March 30, 2003 or the
date upon which the Company offers and sells an amount of equity securities
equal or greater to the gross proceeds of the IPO. During the six months ended
September 30, 2003 and the year ended March 31, 2003, $4,000 and $58,000 of
accrued interest on certain of these notes was added to the principal balance
and the maturity date was extended to April 1, 2005. The new principal balance
on the extended notes is $267,000 and the interest rate was increased to 10%.
The remaining $60,000 in principal amount of these notes is currently past due.

Effective May 1, 2003, certain employees of the Company terminated
their employment with the Company and created a new company, Interactive
Alchemy, Inc. ("IA"). The Company entered into a non-cancelable three-year
subcontractor agreement with IA whereby the Company is required to source its
custom content development services through IA. The Company provides IA with
certain facilities and administrative support for which in exchange it receives
a specified amount of support services. Furthermore, the Company's fee sharing
arrangement generally provides for the Company and IA to receive 20% and 80% of
all custom content development services provided, respectively.

CONTRACTUAL OBLIGATIONS

The following schedule details all of the Company's indebtedness and
the required payments related to such obligations at September 30, 2003 (in
thousands):

DUE IN DUE
IN LESS DUE IN DUE IN IN YEARS AFTER
THAN ONE YEAR YEAR FOUR AND FIVE
TOTAL YEAR TWO THREE FIVE YEARS
------- ------- ------- ------- ------- -------

Long term debt ................... $ 7,556 $ 446 $ 803 $ 532 $ -- $ 5,775
Capital lease obligations ........ 438 404 27 7 -- --
Operating lease obligations ...... 2,200 623 557 465 310 245
Base salary commitments
under employment
agreements .................... 840 465 375 -- -- --
------- ------- ------- ------- ------- -------
Total contractual obligations .... $11,034 $ 1,938 $ 1,762 $ 1,004 $ 310 $ 6,020
======= ======= ======= ======= ======= =======

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company's discussion and analysis of its financial condition and
results of operations are based upon its consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements in

conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. The more significant areas
requiring use of estimates relate to revenue recognition, accounts receivable
and notes receivable valuation reserves, realizability of intangible assets,
realizability of deferred income tax assets, and the evaluation of 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 such estimates 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 materially differ from these
estimates under different assumptions or conditions.

Our critical accounting policies and estimates are included in the
Company's Annual Report on Form 10-K for the year ended March 31, 2003 as filed
with the SEC.

RECENT ACCOUNTING PRONOUNCEMENTS

ADDITIONAL RISK FACTORS THAT MAY AFFECT OUR OPERATING RESULTS AND THE MARKET
PRICE OF OUR COMMON STOCK

You should carefully consider the risks described below. The risks and
uncertainties described below are not the only ones we face. If any of the
following risks actually occur, our business, financial condition or results of
operations could be materially and adversely affected. In that case, the trading
price of our common stock could be adversely affected.

WE HAVE A LIMITED OPERATING HISTORY, WHICH MAKES IT DIFFICULT TO EVALUATE OUR
BUSINESS.

We have a limited operating history in the e-Learning business and
particularly as a provider of web conferencing and web collaboration software.
While the organizations that we have acquired have been engaged in the
e-Learning business for over ten years, we only recently acquired those assets
and you should not rely on our historical results as an indication of our future
performance. Over the past 15 months we have made significant changes to our
product mix and service mix, our growth strategies, our sales and marketing
plans, and other operational matters, including a significant reduction in our
employee base. As a result, it may be difficult to evaluate an investment in our
company, and we cannot be certain that our business model and future operating
performance will yield the results that we intend. In addition, the competitive
and rapidly changing nature of the e-Learning and Web conferencing markets makes
it difficult for us to predict future results. Our business strategy may be
unsuccessful and we may be unable to address the risks we face.

THE COMPANY FACES RISKS ENCOUNTERED BY EARLY-STAGE COMPANIES IN INTERNET-RELATED
BUSINESSES AND MAY BE UNSUCCESSFUL IN ADDRESSING THESE RISKS.

The Company faces risks frequently encountered by early-stage companies
in new and rapidly evolving markets. Specific risks the Company faces relate to
the demand for e-Learning products and services, and broad and timely acceptance
of the Company's e-Learning products and services. The Company may fail to
adequately address these risks and, as a consequence, its business may suffer.
To address these risks, the Company must:

o successfully introduce and attract new customers to its e-Learning
products;

o successfully implement its sales and marketing strategy to
generate sufficient revenues to sustain operations;

o foster existing relationships with its customers to provide for
continued or recurring business; and

o successfully address and establish new products and technologies.

THE COMPANY'S QUARTERLY OPERATING RESULTS ARE UNCERTAIN AND MAY FLUCTUATE
SIGNIFICANTLY.

The Company's operating results have varied significantly from quarter
to quarter and are likely to continue to fluctuate as a result of a variety of
factors, many of which the Company cannot control. Factors that may adversely
affect the Company's quarterly operating results include:

o the size and timing of product orders;

o the mix of revenue from custom services and software products;

o the market acceptance of the Company's products and services;

o the Company's ability to develop and market new products in a
timely manner and the market acceptance of these new products;

o the timing of revenues and expenses relating to the Company's
product sales; and,

o the timing of revenue recognition.

Expense levels are based, in part, on expectations as to future revenue
and to a large extent are fixed in the short term. To the extent the Company is
unable to predict future revenue accurately, the Company may be unable to adjust
spending in a timely manner to compensate for any unexpected revenue shortfall.

WE HAVE SIGNIFICANT OPERATING LOSSES AND HAVE LIMITED FINANCIAL RESOURCES

We have incurred substantial operating losses and have limited
financial resources at our disposal. We have substantial current and long-term
obligations that we will not be able to satisfy without additional debt and/or
equity capital and ultimately generating profits and cash flows from our
e-Learning operations. As we transition from the management of dental practices,
from which we received substantial cash flows during the past two years, to
being a provider of e-Learning services, we will need to show growth and
financial improvement in our e-Learning operating segment. We may not be
successful in raising additional debt or equity capital and may not become
profitable in our e-Learning business. As a result, we may not have sufficient
financial resources to satisfy our obligations as they come due in the near
term.

OUR AUDITORS HAVE EXPRESSED SUBSTANTIAL DOUBT AS TO OUR ABILITY TO CONTINUE AS A
GOING CONCERN

Our consolidated financial statements have been prepared on a basis which
assumes that we will continue as a going concern and which contemplates the
realization of our assets and the satisfaction of our liabilities and
commitments in the normal course of business. The Company has a significant
working capital deficiency, and has suffered substantial recurring losses and
negative cash flows from operations. Also, the Company's management service

agreements with the affiliated dental practices nearly all expired during fiscal
2003 and will continue to expire through December 31, 2003, which will reduce
revenues and cash flows from this source and accordingly will negatively affect
the Company's liquidity and operating results. These matters, among others, and
the limited operating history as an e-Learning company, caused our independent
accountants to express their substantial doubt as to our ability to continue as
a going concern.

YOUR OWNERSHIP INTEREST IN THE COMPANY WILL BE DILUTED UPON ISSUANCE OF SHARES
WE HAVE RESERVED FOR FUTURE ISSUANCE

On September 30, 2003, 18,614,726 shares of our common stock were
issued, of which 1,244,713 were held in treasury, and 22,487,000 additional
shares of our common stock were reserved for issuance. The issuance of these
additional shares will reduce your percentage ownership in the Company.

The following shares were reserved for issuance as of September 30, 2003:

o Issued and outstanding stock options to purchase common shares
totaling approximately 2,134,000;
o Issued and outstanding warrants to purchase common shares totaling
approximately 7,397,664;
o Issued and outstanding warrant to purchase $577,500 of convertible
redeemable subordinated notes with detachable warrants for 577,500
common shares, all of which are exercisable for or convertible
into an aggregate 1,155,000 common shares;
o Issued and outstanding warrant to purchase 15,000 shares of
convertible preferred stock with detachable warrants for 75,500
common shares, all of which are exercisable for or convertible
into a potential aggregate 575,000 common shares;
o A restricted stock grant to receive shares totaling approximately
450,000; and
o Shares issuable upon the conversion of convertible redeemable
subordinated notes and preferred stock totaling a potential
aggregate of 10,775,000 common shares.

The existence of these reserved shares coupled with other factors, such
as the relatively small public float, could adversely affect prevailing market
prices for our common stock and our ability to raise capital through an offering
of equity securities.

THE LOSS OF THE SERVICES OF THE COMPANY'S SENIOR EXECUTIVES AND KEY PERSONNEL
WOULD LIKELY CAUSE THE COMPANY'S BUSINESS TO SUFFER.

The Company's success depends to a significant degree on the
performance of its senior management team . The loss of any of these individuals
could harm the Company's business. The Company does not maintain key person life
insurance for any officers or key employees other than James Powers. The
Company's success also depends on its ability to attract, integrate, motivate
and retain additional highly skilled technical, sales and marketing, and
professional services personnel. To the extent the Company is unable to attract
and retain a sufficient number of additional skilled personnel, the Company's
business will suffer.

THE COMPANY'S INTELLECTUAL PROPERTY MAY BECOME SUBJECT TO LEGAL CHALLENGES,
UNAUTHORIZED USE OR INFRINGEMENT, ANY OF WHICH COULD DIMINISH THE VALUE OF ITS
PRODUCTS AND SERVICES.

The Company's success depends in large part on its proprietary
technology. If the Company fails to successfully enforce its intellectual
property rights, the value of these rights, and consequently the value of its
products and services to the Company's customers, could diminish substantially.
It may be possible for third parties to copy or otherwise obtain and use its
intellectual property or trade secrets without the Company's authorization, and
it may also be possible for third parties to independently develop substantially
equivalent intellectual property. Currently, the Company does not have patent
protection in place related to its products and services. Litigation may be
necessary in the future to enforce the Company's intellectual property rights,
to protect trade secrets or to determine the validity and scope of the
proprietary rights of others. From time to time the Company has received, and
may in the future receive, notice of claims of infringement of other parties'
proprietary rights. Such claims could result in costly litigation and could
divert management and technical resources. These types of claims could also
delay product shipment or require the Company to develop non-infringing
technology or enter into royalty or licensing agreements, which agreements, if
required, may not be available on reasonable terms, or at all.

A DETERIORATION OF GENERAL ECONOMIC CONDITIONS MAY MATERIALLY AND ADVERSELY
AFFECT THE COMPANY'S BUSINESS.

The Company's revenues are subject to fluctuation as a result of
general economic conditions. The Company's customers may reduce their
expenditures for education and training during economic downturns. Therefore, a
continued economic downturn could adversely affect the Company's business.

WE OFFER OUR WEB COLLABORATION PRODUCTS ON AN ASP BASIS SO IF WE DO NOT INCREASE
THE CAPACITY OF OUR INFRASTRUCTURE IN EXCESS OF CUSTOMER DEMAND, CUSTOMERS MAY
EXPERIENCE SERVICE PROBLEMS.

We expect the demand on our ASP business to increase significantly.
Accordingly, we must increase our capacity to keep pace with that growth in
demand. To accommodate increased customer usage requires a significant increase
in the capacity of our infrastructure and may cause us to invest significant
resources or capital. If we fail to increase our capacity in a timely and
efficient manner, customers may experience service problems that could cause us
to lose customers and decrease our revenue.

COMPETITION IN THE WEB CONFERENCING SERVICES MARKET IS INTENSE AND WE MAY
BE UNABLE TO COMPETE SUCCESSFULLY, PARTICULARLY AS A RESULT OF RECENT
ANNOUNCEMENTS FROM LARGE SOFTWARE COMPANIES.

The market for web conferencing services is relatively new, rapidly
evolving and intensely competitive. Competition in our market will continue to
intensify and may force us to reduce our prices, or cause us to experience
reduced sales and margins, loss of market share and reduced acceptance of our
services. Many of our competitors have larger and more established customer
bases, longer operating histories, greater name recognition, broader service
offerings, more employees and significantly greater financial, technical,
marketing, public relations and distribution resources than we do. We expect
that we will face new competition as others enter our market to develop web
conferencing services. These current and future competitors may also offer or
develop products or services that perform better than ours. In addition,
acquisitions or strategic partnerships involving our current and potential
competitors could harm us in a number of ways.

FUTURE REGULATIONS COULD BE ENACTED THAT EITHER DIRECTLY RESTRICT OUR BUSINESS
OR INDIRECTLY IMPACT OUR BUSINESS BY LIMITING THE GROWTH OF INTERNET-BASED
BUSINESS AND SERVICES.

As commercial use of the Internet increases, federal, state and foreign
agencies could enact laws or adopt regulations covering issues such as user
privacy, content and taxation of products and services. If enacted, such laws or
regulations could limit the market for our products and services. Although they
might not apply to our business directly, we expect that laws or rules
regulating personal and consumer information could indirectly affect our
business. It is possible that such legislation or regulation could expose
companies involved in providing Internet-based services to liability, which
could limit the growth of Web use generally and thereby reduce demand for our
products and services. Such legislation or regulation could dampen the growth in
Web usage and decrease its acceptance as a medium of communications and
commerce.

WE DEPEND LARGELY ON ONE-TIME SALES TO GROW REVENUES.

A high percentage of our revenue is attributable to one-time purchases
by our customers rather than long term recurring contracts. As a result, our
inability to continue to obtain new agreements and sales may result in lower
than expected revenue, and therefore, harm our ability to sustain operations or
profitability on a consistent basis, which could also cause our stock price to
decline. Further, because we face competition from larger better-capitalized
companies, we could face increased downward pricing pressure that could cause a
decrease in our gross margins.

OUR OPERATING RESULTS MAY SUFFER IF WE FAIL TO DEVELOP AND FOSTER OUR VALUE
ADDED RESELLER OR DISTRIBUTION RELATIONSHIPS.

We have an existing channel and distribution network that provides
growing revenues and contributes to our high margin software sales. These
distribution partners are not obligated to distribute our services at any

particular minimum level. As a result, we cannot accurately predict the amount
of revenue we will derive from our distribution partners in the future. The
inability of our distribution partners to sell our products to their customers
and increase their distribution of our products could result in significant
reductions in our revenue, and therefore, harm our ability to sustain
profitability on a consistent basis.

THE GROWTH OF OUR BUSINESS SUBSTANTIALLY DEPENDS ON OUR ABILITY TO SUCCESSFULLY
DEVELOP AND INTRODUCE NEW SERVICES AND FEATURES IN A TIMELY MANNER.

We acquired our Web collaboration, Web conferencing and virtual
classroom software in November of 2002. With our focus upon that product suite
our growth depends on our ability to continue to develop new features, products
and services around that suite and line of products. We may not successfully
identify, develop and market new products and features in a timely and
cost-effective manner. If we fail to develop and maintain market acceptance of
our existing and new products to offset our continuing development costs, then
our net losses will increase and we may not be able to sustain profitability on
a consistent basis.

IF WE FAIL TO OFFER COMPETITIVE PRICING, WE MAY NOT BE ABLE TO ATTRACT
AND RETAIN CUSTOMERS.

Because the Web conferencing market is relatively new and still
evolving, the prices for these services are subject to rapid and frequent
changes. In many cases, businesses provide their services at significantly
reduced rates, for free or on a trial basis in order to win customers. Due to
competitive factors and the rapidly changing marketplace, we may be required to
significantly reduce our pricing structure, which would negatively affect our
revenue, margins and our ability to sustain profitability on a consistent basis.
We have an existing channel and distribution network that provides growing
revenues and contributes to our high margin software sales. These distribution
partners are not obligated to distribute our services at any particular minimum
level. As a result, we cannot accurately predict the amount of revenue we will
derive from our distribution partners in the future. Our inability of our
distribution partners to sell our products to their customers and increase their
distribution of our products could result in significant reductions in our
revenue, and therefore, harm our ability to sustain profitability on a
consistent basis.

OUR INTERNATIONAL DISTRIBUTOR NETWORK MAY CAUSE COSTS THAT ARE NOT ANTICIPATED.

We continue to expand internationally through our value added reseller
network and OEM partners. We have limited experience in international operations
and may not be able to compete effectively in international markets. We face
certain risks inherent in conducting business internationally, such as: our
inability to establish and maintain effective distribution channels and
partners; the varying technology standards from country to country; our
inability to effectively protect our intellectual property rights or the code to
our software; our inexperience with inconsistent regulations and unexpected
changes in regulatory requirements in foreign jurisdictions; language and
cultural differences; fluctuations in currency exchange rates; our inability to
effectively collecting accounts receivable; or our inability to manage sales and
other taxes imposed by foreign jurisdictions.

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 September 30, 2003, the carrying value of our outstanding
convertible redeemable subordinated notes was approximately $5.8 million at a
fixed interest rate of 12%. In certain circumstances, we may redeem this
long-term debt. Our other components of indebtedness 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

We evaluated the design and operation of our disclosure controls and
procedures to determine whether they were effective, as of September 30, 2003,
in ensuring that we disclose the required information in a timely manner and in
accordance with the Securities Exchange Act of 1934, as amended, or the Exchange
Act, and the rules and forms of the Securities and Exchange Commission.
Management, including our principal executive officer and principal financial
officer, supervised and participated in the evaluation. The principal executive
officer and principal financial officer concluded, based on their review, that
our disclosure controls and procedures, as defined by Exchange Act Rules
13a-14(c) and 15d-14(c), are effective and ensure that we disclose the required
information in reports that we file under the Exchange Act and that the filings
are recorded, processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms. No significant
changes were made to our internal controls or other factors that could
significantly affect these controls subsequent to the date of their evaluation.

A control system, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of the control
system are met. Because of the inherent limitations in all control systems no
evaluation of controls can provide absolute assurance that all control issues,
if any, within a company have been detected.

PART II--OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS

On September 16, 2003, the Company completed its private placement of
convertible preferred stock and detachable warrants. The Company sold 30 units
at $50,000 each and raised a total of $1,500,000. Each unit consisted of 5,000
shares of convertible preferred stock, par value $0.001 and a warrant to
purchase 25,000 shares of common stock. The convertible preferred stock is
convertible into the Company's common stock at a price of $0.50 per share
(subject to adjustment in certain events, with a floor of $0.30), and the
warrants are exercisable at a price of $1.50 per share with a three-year term.
The Company will pay an 8% dividend to holders of the convertible preferred
stock, and the dividend is cumulative. The convertible preferred stock is
non-voting and non-participating. The shares of convertible preferred stock will
not be registered under the Securities Act of 1933, as amended, and were offered
in a private placement providing exemption from registration. The placement
agent was paid a commission of $150,000 or 10% of the gross proceeds plus
$45,000, which represented a 3% non-accountable expense fee and received a
warrant to purchase 3 units at the same terms of the original units. In
addition, the Company paid $17,000 in legal and accounting fees bringing the net
proceeds raised to $1,288,000. The Company plans on using the net proceeds for
general working capital, to expand its sales and marketing activities and to
retire certain acquisition related liabilities.

ITEM 3. DEFAULTS OF SENIOR SECURITIES

None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

At our annual meeting of stockholders held on August 16, 2003 the following
matters were submitted to a vote of stockholders:

1) Election of directors:

NAME FOR WITHHELD
---------------------------- ------------- --------------

Daniel T. Robinson, Jr. 11,083,786 121,514

James H. Collins 11,083,786 121,514

2) Approval and ratification of selection of BDO Seidman, LLP as independent
auditors for the fiscal year ended March 31, 2004:

FOR AGAINST ABSTAINED
------------------- --------------- -------------------

11,202,800 1,000 1,500

ITEM 5. OTHER INFORMATION

Additional Disclosures Concerning Mr. Brian L. Berry: Brian Berry has
served as EDT Learning's Vice President of Finance and principal financial
officer since August of 2002 and prior to that served as the Corporate
Controller for the Company since October of 1998. In 1999, the Securities and
Exchange Commission initiated a Rule 102(e) proceeding against Mr. Berry, among
others, in his role as manager for Coopers & Lybrand and their audit of the
fiscal 1994 financial statements of California Micro Devices, Inc. An
administrative hearing was held in 2000 and the Administrative Law Judge
dismissed the claim in 2001. Subsequently, the Division of Enforcement of the
SEC appealed that decision and on July 29, 2003, the SEC reversed the decision
of the Administrative Law Judge, finding that Mr. Berry, among others, violated
Generally Accepted Auditing Standards in connection with certain limited aspects
of the audit. It was undisputed that senior management of California Micro
Devices, in connection with the audit, intentionally misled Mr. Berry and the
Coopers & Lybrand audit team. The SEC has concluded that Mr. Berry should be
barred from practicing before it. Mr. Berry intends to appeal the decision of
the Commission and seek a stay of the order. Based on a motion filed by Mr.
Berry, the Commission has granted a 60 day stay of their own decision, in order
to allow him to seek similar relief from the Court of Appeals. Mr. Berry has
filed for a stay with the Court of Appeals and is awaiting a decision. The
Commissions stay remains in effect pending a determination from the Court of
Appeals. Mr. Berry will be seeking to overturn the Commission's ruling and to
reinstate the dismissal of the claim against him. The Company cannot predict at
this time what, if any, impact the Commission's decision will have on Mr.
Berry's role with the Company.

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.
3.6(14) Certificate of Designations of Series A Preferred Stock
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
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(8) Form of Convertible Redeemable
Subordinated Note
4.8(8) Form of Redeemable Warrant (2002 Private Placement Offering)
4.9(14) Form of Redeemable Warrant (2003 Private Placement Offering)
+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.
10.16(12) Asset Purchase Agreement by and among EDT Learning, Inc., and
Mentergy, Inc. and its wholly-owned subsidiaries, LearnLinc Corp
and Gilat-Allen Communications, Inc.
10.17(14) Subcontractor Agreement between EDT Learning, Inc. and Interactive
Alchemy, Inc.
16(13) Letter re Change in Certifying Accountant
++31.1 Chief Executive Officer Section 302 Certification
++31.2 Principal Financial Officer Section 302 Certification
++32.1 Chief Executive Officer Section 906 Certification
++32.2 Principal Financial Officer Section 906 Certification
-----------

(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.
(13) Previously filed as an exhibit to EDT Learning's Form 8-K filed April 3,
2003.
(14) Previously filed as an exhibit to EDT Learning's Quarterly Report on Form
10-Q for the fiscal quarter ended June 30, 2003.

+ 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.
++ Furnished herewith as an Exhibit

(b) REPORTS ON FORM 8-K.

A Report on Form 8-K was filed July 1, 2003 furnishing under Item 12 our press
release announcing our operating results for the year ended March 31, 2003.

A Report on Form 8-K was filed August 13, 2003 furnishing under Item 12 our
press release announcing our operating results for the quarter ended June 30,
2003.

A Report on Form 8-K was filed September 18, 2003 furnishing under Item 9 our
press release announcing the closing of our Private Placement Offering.

A Report on Form 8-K was filed November 6, 2003 furnishing under Item 12 our
press release announcing our operating results for the quarter ended September
30, 2003.

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: November 6, 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)