UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarter ended: September 30, 2002
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from: ---------- to ----------
Commission File Number: 0-31813
ONCOURSE TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
NEVADA 91-1922441
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3106 South 166th Street
New Berlin, WI 53151
(Address of principal executive offices)
Issuer's telephone number: (262) 860-0565
Issuer's facsimile number: (262) 860-0561
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. [ X ] Yes [ ] No
Number of shares outstanding of each of the issuer's class of common equity, as
of November 13, 2002: 18,848,666
This Quarterly Report on Form 10-QSB includes financial statements, which have
not been reviewed by an independent public accountant under Item 310(b) of
Regulation S-B. The Company discontinued its engagement of Arthur Andersen LLP
on June 7, 2002, and is still in the process of retaining a new independent
public accountant as of the date this Form 10-QSB was filed.
Transitional Small Business Disclosure Format (Check one): Yes [ ]; No [ X ]
ONCOURSE TECHNOLOGIES, INC.
FORM 10-QSB
TABLE OF CONTENTS
ITEM PAGE
---- ----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements: 3
Consolidated Balance Sheets 4
Consolidated Statements of Operations 6
Consolidated Statements of Cash Flows 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis 13
Item 3. Controls and Procedures 17
PART II OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
This Quarterly Report on Form 10-QSB includes financial statements, which have
not been reviewed by an independent public accountant under Item 310(b) of
Regulation S-B. The Company discontinued its engagement of Arthur Andersen LLP
on June 7, 2002, and is still in the process of retaining a new independent
public accountant as of the date this Form 10-QSB was filed. The Company
expects to engage a new public accountant, which will review the financial
statements contained in this Form 10-QSB after it has been engaged. Upon
completion of the review, if there is a change in these financial statements,
the Company will file an amended report on Form 10-QSB containing the reviewed
financial statements, a discussion of any material changes from the unreviewed
financial statements and any other section of the Form 10-QSB that is amended to
reflect any changes in the financial statements.
OnCourse Technologies, Inc. and Subsidiaries
Consolidated Balance Sheets
As of September 30, 2002 (Unaudited) and December 31, 2001 (Audited)
September 30, December 31,
Assets 2002 2001
------ ------------- -----------
Current Assets:
Cash $ 178,877 $ 76,761
Accounts Receivable, Less Allowance for Doubtful
Accounts of $157,939 and $163,054, Respectively 1,209,459 1,081,189
Prepaids and Other Assets 273,709 139,138
Deferred Income Tax Asset 701,431 633,805
----------- -----------
Total Current Assets 2,363,476 1,930,893
Note Receivable from Shareholder -- 48,684
Capitalized Software, Less Accumulated Amortization
of $3,630,026 and $2,558,611, Respectively 4,990,378 5,014,774
Property and Equipment, at Cost:
Computer Equipment and Purchased Software 471,087 448,998
Capital Projects in Process -- 42,357
Furniture, Fixtures and Vehicles 137,922 131,649
----------- -----------
Total Property and Equipment 609,009 623,004
Less- Accumulated Depreciation (396,753) (313,993)
----------- -----------
Net Property and Equipment 212,256 309,011
Goodwill, Less Accumulated Amortization
of $2,156,755 and $2,156,755, Respectively 5,720,555 5,978,166
Assembled Workforce, Less Accumulated
Amortization of $60,238 and $60,238, Respectively 159,762 159,762
Trade Names, Less Accumulated Amortization
of $97,778 and $70,278, Respectively 452,222 479,722
Distribution Network, Less Accumulated Amortization
of $228,572 and $164,286, Respectively 371,428 435,714
Other Assets 95,037 158,829
----------- -----------
Total Assets $14,365,114 $14,515,555
----------- -----------
----------- -----------
The accompanying consolidated notes to financial statements are an
integral part of these consolidated balance sheets.
ONCOURSE TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
As of September 30, 2002 (Unaudited) and December 31, 2001 (Audited)
September 30, December 31,
Liabilities and Shareholders' Equity 2002 2001
------------------------------------ ------------- ------------
Current Liabilities:
Line of Credit $ 339,000 $ 120,000
Current Portion of Long-Term Debt 120,941 113,122
Current Portion of Capital Leases 3,900 5,380
Accounts Payable 1,091,465 1,021,673
Accrued Commissions 117,314 109,813
Accrued Wages and Other Liabilities 288,226 194,750
Notes Payable to Shareholders and Employees 259,353 126,821
Deferred Revenue 1,943,146 1,889,657
----------- -----------
Total Current Liabilities 4,163,345 3,581,216
Line of Credit 1,099,950 1,099,950
Notes Payable to Shareholders and Employees, Less 80,710 --
Current Portion
Long-Term Debt, Less Current Portion 944,402 730,388
Capital Lease Obligations, Less Current Portion 1,410 1,313
Deferred Income Tax Liability -- 397,936
Shareholders' Equity:
Common Stock, $0.001 Par Value, 50,000,000 Shares
Authorized, and 18,848,666 and 18,269,253 Shares
Issued and Outstanding, Respectively 18,849 18,269
Preferred Stock, $0.001 Par Value and No Par
Value, Respectively, 10,000,000 Shares
Authorized, 192 and 192 Shares Issued and
Outstanding, Respectively 192,000 192,000
Additional Paid-In Capital 15,594,706 15,256,331
Warrants 558,171 628,539
Stock Options 69,110 60,598
Retained Deficit (8,357,539) (7,450,985)
----------- -----------
Total Shareholders' Equity 8,075,297 8,704,752
----------- -----------
Total Liabilities and Shareholders' Equity $14,365,114 $14,515,555
----------- -----------
----------- -----------
The accompanying consolidated notes to financial statements are an
integral part of these consolidated balance sheets.
OnCourse Technologies, Inc. and Subsidiaries
Consolidated Statements of Operations
For the Three and Nine Months Ended September 30, 2002 and 2001 (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
2002 2001 2002 2001
-------- -------- -------- --------
Net Sales $1,163,407 $1,261,199 $3,676,979 $ 3,997,336
Cost of Sales 606,278 502,575 1,654,896 1,373,725
---------- ---------- ---------- -----------
Gross Profit 557,129 758,624 2,022,083 2,623,611
Selling Expenses 585,814 558,722 1,529,938 1,724,905
Research and Development 51,044 71,462 197,114 232,328
Goodwill and Other Intangible Amortization 30,595 334,511 91,786 1,006,588
General and Administrative Expenses 438,369 518,932 1,362,841 1,646,408
---------- ---------- ---------- -----------
Operating Loss (548,693) (725,003) (1,159,596) (1,986,618)
Interest Expense 37,232 36,535 110,183 94,319
---------- ---------- ---------- -----------
Loss Before Income Taxes (585,925) (761,538) (1,269,779) (2,080,937)
Income Tax Benefit 159,403 177,808 367,486 397,009
---------- ---------- ---------- -----------
Net Loss $ (426,522) $ (583,730) $ (902,293) $(1,683,928)
---------- ---------- ---------- -----------
Basic and Diluted Loss Per Share $ (0.03) $ (0.03) $ (0.05) $ (0.09)
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
The accompanying consolidated notes to financial statements are an
integral part of these consolidated statements.
OnCourse Technologies, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2002 and 2001 (Unaudited)
Nine Months Ended
September 30,
-----------------------
2002 2001
-------- --------
Cash Flows from Operating Activities:
Net Loss $ (902,293) $(1,683,928)
Adjustments to Reconcile Net Loss to Net Cash
Provided by Operating Activities-
Depreciation and Amortization 1,317,882 1,942,878
Loss on Disposal of Property and Equipment 42,356 1,795
Non-Cash Compensation -- 1,275
Non-Cash Consulting Services 29,512 306,690
Deferred Income Taxes, Net (300,735) (280,753)
Changes in Current Assets and Liabilities-
Accounts Receivable (128,270) (100,451)
Prepaids and Other Current Assets (34,594) (145,805)
Accounts Payable 69,792 184,258
Accrued Liabilities 96,718 (5,592)
Deferred Revenue 53,489 6,781
----------- -----------
Net Cash Provided by Operating Activities 243,857 227,148
----------- -----------
Cash Flows From Investing Activities:
Capitalized Software Development Costs (1,047,020) (979,476)
Purchase of Property and Equipment (28,361) (89,139)
Other Assets (8,129) (629)
----------- -----------
Net Cash Used in Investing Activities (1,083,510) (1,069,244)
----------- -----------
Cash Flows From Financing Activities:
Proceeds From Line of Credit, Net 219,000 42,182
Proceeds From Long-Term Debt and Notes Payable
to Shareholders and Employees 525,000 500,000
Payments on Long-Term Debt and Notes Payable
to Shareholders and Employees (89,925) (80,693)
Payments on Capital Lease Obligation, Net (1,383) (9,145)
Proceeds from Preferred Stock Issuance -- 192,000
Proceeds from Common Stock Issuance 240,393 107,499
Decrease (Increase) in Notes Receivable
from Shareholder 48,684 (2,741)
----------- -----------
Net Cash Provided by Financing Activities 941,769 749,102
----------- -----------
Net Increase (Decrease) in Cash 102,116 (92,994)
Cash, Beginning of Period 76,761 200,411
----------- -----------
Cash, End of Period $178,877 $107,417
----------- -----------
----------- -----------
The accompanying consolidated notes to financial statements are an
integral part of these consolidated statements.
OnCourse Technologies, Inc. and Subsidiaries
Consolidated Notes to Financial Statements
For the Nine Months Ended September 30, 2002 and 2001 (Unaudited)
(1) Basis of Presentation-
---------------------
The accompanying unaudited condensed consolidated financial statements of
OnCourse Technologies, Inc. (the "Company") have been prepared by the
Company pursuant to the rules and regulations of the Securities and
Exchange Commission.
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All intercompany transactions and
accounts have been eliminated in consolidation.
The information furnished herein reflects all adjustments and accruals that
management believes are necessary to fairly state the operating results for
the respective periods. Certain information and footnote disclosures
normally included in annual financial statements prepared in accordance
with generally accepted accounting principles have been omitted pursuant to
such rules and regulations of the Securities and Exchange Commission under
item 310 of Regulation S-B. The notes to the condensed financial
statements should be read in conjunction with the notes to the consolidated
financials contained in the Company's Form 10-KSB for the year ended
December 31, 2001. The Company's management believes that the disclosures
are sufficient for interim financial reporting purposes. The results of
operations for any interim period are not necessarily indicative of the
results for the year.
(2) Liquidity-
---------
The Company has incurred losses over the last three years and has negative
working capital. Based upon its current plans, the Company believes it has
the ability to raise sufficient equity and debt funds to meet its operating
expenses and capital requirements through fiscal year 2002 and into fiscal
year 2003. There is no assurance that such additional funds will be
available on acceptable terms, if at all. Should the plans contemplated by
management not be consummated, the Company may have to seek alternative
sources of capital, borrow under its line of credit or reevaluate its
operating plans.
(3) Summary of Significant Accounting Policies-
------------------------------------------
(a) Revenue Recognition-
-------------------
Revenue from product sales and related training is recognized upon customer
acceptance and delivery of the product and training services performed
provided that no significant contractual obligations remain. Customer
acceptance is realized after either the customer pays for the software or
upon receiving a document from the customer stating that the product has
been accepted by the customer. Included in deferred revenues as of
September 30, 2002 and December 31, 2001 is approximately $786,000 and
$709,000, respectively, of products, which have been delivered and
invoiced, but for which the Company has not been notified of customer
acceptance and training services invoiced but not yet performed.
Revenues also include separate maintenance fees whereby the Company
provides ongoing customer support and product upgrades. Such contracts are
reflected as deferred revenue and amortized ratably over the term of the
maintenance period ranging from 12 to 60 months, which begins after the
expiration of free support included with the initial purchase of the
software for some of the Company's products.
(b) Software Development Costs-
--------------------------
Software development costs incurred in the research and development of new
software products and enhancements to existing software products are
expensed as incurred until technological feasibility of the product is
established. From the time technological feasibility is established until
the product is released, all software costs are capitalized. In addition,
capitalized software includes software acquired in the acquisition of a
subsidiary. Capitalized costs are reported at the lower of unamortized
costs or net realizable value. The costs are amortized over the greater of
the amount computed using (a) the ratio that current gross revenues for the
product bear to the total of current and anticipated future gross revenues
for that product or (b) the straight-line method over the remaining
estimated economic life of the product. During the three and nine months
ended September 30, 2002 and 2001, the Company amortized the capital
software costs straight-line over either three or five years.
Costs incurred up to technological feasibility are considered research and
development costs. These costs are expensed as incurred. Research and
development costs were approximately $51,000 and $71,000 for the three
months ended September 30, 2002 and 2001, respectively. Research and
development costs were approximately $197,000 and $232,000 for the nine
months ended September 30, 2002 and 2001, respectively.
Computer software development costs capitalized in the three months ended
September 30, 2002 and 2001 were approximately $392,000 and $333,000,
respectively. Computer software development costs capitalized in the nine
months ended September 30, 2002 and 2001 were approximately $1,047,000 and
$979,000, respectively. Amortization expense for the three months ended
September 30, 2002 and 2001 of approximately $369,000 and $301,000,
respectively, is included in cost of sales in the consolidated statements
of operations. Amortization expense for the nine months ended September
30, 2002 and 2001 was approximately $1,071,000 and $832,000, respectively.
(c) Goodwill and Other Intangibles-
------------------------------
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141 "Business Combinations" and No. 142
"Goodwill and Other Intangible Assets" effective for fiscal years beginning
after December 31, 2001. Under the new rules goodwill and intangible
assets deemed to have indefinite lives will no longer be amortized but will
be subject to periodic impairment tests in accordance with the Statements.
Other intangible assets will continue to be amortized over their useful
lives. The statement also requires business combinations initiated after
June 30, 2001 to be accounted for using the purchase method of accounting,
and broadens the criteria for recording intangible assets separate from
goodwill.
Effective January 1, 2002, the amortization of goodwill and intangible
assets with indefinite lives was discontinued. The Company anticipates
that the application of the nonamortization provisions will increase 2002
net income approximately $1,187,000 ($0.07 per diluted share) per year
compared to fiscal 2001. During 2002, the Company will perform the first
of the required impairment tests of goodwill and indefinite lived
intangible assets as of January 1, 2002. The Company has not yet
determined what effect these tests will have on net income and the
financial position of the Company.
Goodwill consisting of excess of cost over fair value of the assets
acquired in previous acquisitions was amortized on a straight-line basis
over seven years for the three and nine months ended September 30, 2001.
Goodwill net of accumulated amortization expense was approximately
$5,721,000 and $5,978,000 as of September 30, 2002 and December 31, 2001,
respectively. Goodwill amortization for the three months ended September
30, 2002 and 2001 was approximately $0 and $296,000, respectively.
Goodwill amortization for the nine months ended September 30, 2002 and 2001
was approximately $0 and $891,000, respectively.
The purchase price allocation relating to the assets acquired in the
January 31, 2000 acquisition of TekSoft, Inc. ("TekSoft") resulted in
several intangible assets: $220,000 for Assembled Workforce, $550,000 for
Trade Names and $600,000 for Distribution Network. The amortization of the
Assembled Workforce was discontinued in 2002 in accordance with the
Statements of Financial Accounting Standards No. 141 "Business
Combinations" and No. 142 "Goodwill and Other Intangible Assets" effective
for the fiscal years beginning after December 31, 2001. The amortization
of the Assembled Workforce, which was provided utilizing the straight-line
method over the estimated useful life of seven years for the three and nine
months ended September 30, 2001, was discontinued as of January 1, 2002.
The amortization for Distribution Network and Trade Names continues in 2002
and is provided utilizing the straight-line method over the estimated
useful life of seven years and fifteen years, respectively. Total
amortization expense relating to Assembled Workforce was approximately $0
and $8,000 for the three months ended September 30, 2002 and 2001,
respectively. The total amortization expense relating to Assembled
Workforce was approximately $0 and $24,000 for the nine months ended
September 30, 2002 and 2001, respectively. Total amortization expense
relating to Distribution Network and Trade Names was approximately $31,000
for each of the three months ended September 30, 2002 and 2001 and $92,000
for each of the nine months ended September 30, 2002 and 2001.
(4) Long-Lived Assets-
-----------------
In August 2001, the FASB issued SFAS No. 144, "Accounting for Impairment or
Disposal of Long-Lived Assets" (SFAS 144). SFAS 144 establishes a single
accounting model for long-lived assets to be disposed of by sale and
provides additional implementation guidance for assets to be held and used
and assets to be disposed of other than by sale. There will be no
financial implication related to the adoption of SFAS 144, and the guidance
will be applied on a prospective basis. The Company adopted the statement
effective January 1, 2002.
(5) Notes Receivable from Shareholder-
---------------------------------
In March 2002, a shareholder paid the Company the outstanding note
receivable and accrued interest.
(6) Notes Payable to Shareholders and Employees-
-------------------------------------------
In July 2002, the Company issued a $75,000 demand note payable to two
officers of the Company. The note has an interest rate of 8% and principle
and interest are due sixty days after a written request for payment by the
note holders. As security to the note holders, the Company agreed to issue
300,000 shares of its Common Stock in the event that the Company defaulted
on the note.
In June 2002, the Company issued a $150,000 demand note payable to two
officers of the Company. The note has an interest rate of 8% and principle
and interest are due sixty days after a written request for payment by the
note holders. As security to the note holders, the Company agreed to issue
600,000 shares of its Common Stock in the event that the Company defaulted
on the note.
In March 2002, approximately $80,700 in notes payables to former
shareholders of TekSoft were renegotiated to interest only notes through
December 31, 2003. The interest rate on the notes was reduced from 16.5%
to a floating rate of prime plus 2.0%. The note holders have the option
after January 1, 2003 to convert the note to a three-year note at a fixed
rate of interest of prime plus 2.0% at the time of conversion. As of
September 30, 2002, the balance of these notes was approximately $80,700 at
an interest rate of 6.75%.
As of March 31, 2002, the Company had several notes payable and loans to
the former shareholders and employees of TekSoft. The notes had interest
rates of 16.5% and were payable monthly and matured at various dates
through April 2002. These notes are secured by substantially all of
TekSoft's property and equipment. One of the notes was paid in full in
April 2002 and another was paid in full in May 2002. The balance of the
remaining note as of September 30, 2002 was approximately $34,000 with the
due date extended on a month-to-month basis.
In February 2002, the Company paid the remaining principal on a $5,000
interest bearing demand note payable to one of its shareholders. The
Company accrued interest expense on this note at 7% per year. Interest has
not been paid since its inception and is accrued as of September 30, 2002.
(7) Debt-
----
In August 2002, the Company signed a $300,000 term note with a non-related
company that has a maturity date of September 15, 2004. The debt has
monthly principal and interest payments of $13,510.13 commencing on October
15, 2002 and is due on the fifteenth day of each month thereafter until
paid in full. The interest rate is 7%. The debt is secured by all of the
assets of the Company.
In May 2002, the Company and its bank added an additional line of credit
agreement, which provides for borrowings up to $100,000 through August 12,
2002. In August 2002, the bank further extended the maturity date to
November 12, 2002. The revolving line of credit is limited to a borrowing
base calculated as a specific percentage of qualifying accounts receivable,
property and equipment and net capitalized software. The interest rate for
the revolving line of credit is at prime plus 1.5%. The debt facility is
secured by all of the assets of the Company. Borrowings under this line
of credit facility were $89,000 as of September 30, 2002 (See Note 10).
In March 2002, the Company and its bank agreed to extend the maturity date
on the $250,000 line of credit from March 13, 2002 to May 13, 2002. In May
2002, the bank further extended the maturity date to January 31, 2003.
Borrowings under this line of credit facility were $250,000 as of September
30, 2002.
(8) Shareholders' Equity -
---------------------
In September 2002, the Company offered and issued 19,875 shares of Company
common stock, 19,875 Class A stock purchase warrants and 19,875 Class B
stock purchase warrants as payment of $9,938 in professional services to a
vendor. The warrants were issued with initial estimated values (based on
Black-Scholes valuation model) ranging from $0.10 to $0.18 for each Class A
warrant and from $0.11 to $0.20 for each Class B warrant and expire in 2005
and 2007, respectively. Each warrant represents the right to purchase one
share of the Company's common stock at an exercise price ranging from $0.75
to $1.00 per share.
On September 30, 1999, the Company acquired Cimtronics, Inc. for 153,846
shares to the former shareholders of Cimtronics. In addition, under the
terms specified in the purchase agreement, the former shareholders of
Cimtronics may receive up to 153,846 additional shares over the five years
ending September 30, 2004 based on net income, as defined in the agreement.
During the nine months ended September 30, 2002, an additional 60,127
shares were earned under this agreement at an approximate value of $0.13
per share. An additional $7,756 was allocated to goodwill. As of
September 30, 2002, all of the 153,846 of contingent shares have been
earned and issued.
In June 2002, the Company offered and issued 14,113 shares of Company
common stock, 14,113 Class A stock purchase warrants and 14,113 Class B
stock purchase warrants as payment of $7,664 in professional services to a
vendor. The warrants were issued with initial estimated values (based on
Black-Scholes valuation model) ranging from $0.20 to $0.44 for each Class A
warrant and from $0.23 to $0.48 for each Class B warrant and expire in 2005
and 2007, respectively. Each warrant represents the right to purchase one
share of the Company's common stock at an exercise price ranging from $0.75
to $1.00 per share.
On January 31, 2000, the Company acquired TekSoft for 4,500,060 shares to
the former shareholders of TekSoft. In addition, under the terms specified
in the purchase agreement, the former shareholders of TekSoft may receive
up to 1,500,000 additional shares over the five years ending January 31,
2005 if net sales, as defined in the agreement, increases. During the nine
months ended September 30, 2002, an additional 72,991 shares were earned
under this agreement at a value of $0.28 per share. An additional $20,437
was allocated to goodwill. As of September 30, 2002, 739,877 of the
contingent shares have been earned and issued.
In May 2002, the Company changed its Preferred Stock from no par to a par
value of $0.001 per share.
In April 2002, the Company offered and issued 250,000 units in private
placements to an individual deemed financially capable of making the
investment. Units include one share of Company common stock and one two-
year Class D common stock purchase warrant and one three-year Class A
common stock purchase warrant and expire in 2004 and 2005, respectively.
The units were sold for $0.50 per unit. The exercise price for the Class D
warrant was $0.65 per share. The exercise price for the Class A warrant
was $0.85 per share. The Company estimated the value of the warrants to be
$0.22 for each Class D warrant and $0.25 for each Class A warrant based on
the Black-Scholes valuation model.
In March 2002, the Company offered and issued 150,000 units in a private
placement to an officer of the Company. Units included one share of
Company common stock and one three-year Class A common stock purchase
warrant and one five-year Class B common stock purchase warrant and expire
in 2005 and 2007, respectively. The units sold for $0.50 per unit. The
exercise price for the Class A warrant was $0.75 per share. The exercise
price for the Class B warrant was $1.00 per share. The Company estimated
the value of the warrants to be $0.21 for each Class A warrant and $0.23
for each Class B warrant based on the Black-Scholes valuation model.
In January 2002, the Company offered and issued 12,307 shares of Company
common stock, 12,307 Class A stock purchase warrants and 12,307 Class B
stock purchase warrants as payment of $12,307 in professional services to a
vendor. The warrants were issued with initial estimated values (based on
Black-Scholes valuation model) of $0.42 for each Class A warrant and $0.48
for each Class B warrant and expire in 2005 and 2007, respectively. Each
warrant represents the right to purchase one share of the Company's common
stock at an exercise price of $1.75 per share.
(9) Stock Option Plan-
-----------------
In March 2002, the Board of Directors authorized 250,000 stock options for
distribution in 2002 at an exercise price of $0.37 per share for the
benefit of current employees with 50,000 reserved for new employees. The
vesting period will be five years or less based on the years of service
performed by the employee. The options will expire December 31, 2010.
In 2001, the Company granted 140,000 stock options to an independent
contractor at an exercise price of $0.65 per share, and which vest over a
12-month period ending May 3, 2002. The options expire May 3, 2007.
During the three months ended September 30, 2002 and 2001, the Company
recorded legal and professional expenses for the options vesting during
this period of $0 and $55,924, respectively. During the nine months ended
September 30, 2002 and 2001, the Company recorded legal and professional
expenses of $8,512 and $55,924, respectively. As of September 30, 2002,
all of the options were vested.
During the nine months ended September 30, 2002, none of the stock options
granted by the Company were exercised.
(10) Subsequent events-
-----------------
Subsequent to September 30, 2002, the Company and the bank extended the
maturity date on the $100,000 line of credit facility from November 12,
2002 to February 12, 2003.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The following discussion and analysis should be read in conjunction with the
Company's Consolidated Financial Statements and notes thereto and the other
financial information appearing elsewhere in this filing. In addition to
historical information, the following discussion and other parts of this filing
contain forward-looking information that involves risks and uncertainties. The
Company's actual results could differ materially from those anticipated by such
forward-looking information due to competitive factors, risks associated with
the Company's plans and other information expressed or implied by these forward-
looking statements. There may be other risks and circumstances that management
is unable to predict. When used in this Quarterly Report, the words "believes",
"expects", "intends", "plans", "anticipates", "estimates" and similar
expressions are intended to identify forward looking statements, although there
may be some forward-looking statements not accompanied by these expressions.
All forward-looking statements are intended to be covered by the safe harbor
created by Section 21E of the Securities Exchange Act of 1934.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
The Company's sales continue to be negatively affected by the U.S. economy that
has caused the Company's manufacturing driven customers to delay making
investments in technology-based software solutions. The Company's strategy
during 2002 was to continue its investment and development of its technology in
preparation for the bi-annual International Manufacturing Technology Show (IMTS)
held in September 2002 and with the expectation that the economy was going to
improve moderately during the third and fourth quarters of 2002. As part of its
strategy, the Company further planned on making expense reductions if the
economy didn't improve before and after the IMTS show. The Company met its goal
of completing its targeted product development for the show and received
positive feedback and interest in its products based on the newest revisions of
its software. However, the economy didn't improve as expected. As a result,
the Company incurred higher than anticipated losses. The Company plans to begin
implementing cost reductions during the fourth quarter that are expected to
eventually reduce annual operating costs by approximately $700,000.
The Company believes that the investment made in its product development will
increase sales significantly during the next twelve months. The Company has
two customers that have indicated that their management team has verbally
approved the purchase of the Company's estimating software for a combined sales
value of $816,000 and are currently preparing the purchase orders. The Company
expects to receive the purchase orders in November 2002. These sales will be
recognized over the next twelve months with approximately $600,000 recognized in
2002.
The Company's net sales decreased from $1,261,000 for the three months ended
September 30, 2001 to $1,163,000 for the same period in 2002 for an 8% decrease.
In the case of the Company's estimating products that have lesser competition,
sales have partially declined due to delays in the sale of its software products
as potential buyers have pushed back the timing of their purchases in efforts to
conserve cash or until economic conditions improve. While the same delays have
occurred for the Company's computer-aided-design/computer-aided-manufacturing
(CAD/CAM) software products, the Company also faces a significantly higher
number of competitors vying for fewer sales opportunities. This competition for
CAD/CAM sales has led to discounting off of list price. Deferred revenue
increased 10% from $1,763,000 as of June 30, 2002 to $1,943,000 as of September
30, 2002, which contributed to sales being down compared to last year.
Cost of sales was $606,000 or 52% of net sales for the three months ended
September 30, 2002 as compared to $503,000 or 40% for the same period in 2001.
The gross margin percentage for the three months ended September 30, 2002
declined from the same period in 2001 mostly due to an increase in fixed
capitalized software amortization expense for the Company's products and was
further negatively impacted by a reduction in sales. The capitalized software
amortization expense for the three months ended September 30, 2002 was $369,000
compared to $301,000 for the three months ended September 30, 2001. This
increase is due to the Machine Shop Estimating 9.0 and 9.5, CAMWorks 2001,
CAMWorks 2001 Plus and ProCAM II products for which the Company began amortizing
capitalized costs after their product releases on various dates during or after
the three months ended June 30, 2001, but before the beginning of the three
months ended September 30, 2002. Many of the other costs recorded as cost of
sales are fixed in nature as well.
Selling expenses increased 5% to $586,000 for the three months ended September
30, 2002 as compared to $559,000 for the same period in 2001. Selling expenses
as a percentage of net sales were 50% and 44% for the three months ended
September 30, 2002 and 2001, respectively. The increase in selling expenses
was largely due to expenses related to the bi-annual IMTS show held in September
2002. The Company incurred approximately $80,000 of additional expenses for the
three months ended September 30, 2002 related to the seven day show that it
didn't incur for the same period in 2001. The bi-annual show expenses along with
reduced sales contributed to the increase in selling expenses as a percentage of
net sales. Offsetting the higher show expenses was reduced spending in
advertising and promotional activities for the Company's products in 2002 as
compared to 2001. The advertising reduction was made due to the Company's
decision to direct its resources to developing its product offerings. Also
contributing to the reduction was the decline in the economy causing sales to
decline, which tightened cash flows and restricted spending.
Total research and development expense was $51,000 and $71,000 for the three
months ended September 30, 2002 and 2001, respectively.
Goodwill and other intangible amortization expenses were $31,000 and $335,000
for the three months ended September 30, 2002 and 2001, respectively. The
decrease is attributed to the Company implementing the Financial Accounting
Standards Board's Statements of Financial Accounting Standard No. 142 "Goodwill
and Other Intangible Assets" effective for fiscal years beginning after December
31, 2001. Under the new rules goodwill and intangible assets deemed to have
indefinite lives will no longer be amortized but will be subject to periodic
impairment tests in accordance with the Statements. Other intangible assets
will continue to be amortized over their useful lives. The amortization expense
for goodwill was $0 and $296,000 for the three months ended September 30, 2002
and 2001, respectively. The amortization expense for other intangibles was
$31,000 and $38,000 for the three months ended September 30, 2002 and 2001,
respectively. The decrease in amortization of other intangibles is related to
the Assembled Workforce acquired as part of the TekSoft acquisition, which under
the new accounting rules has an indefinite life and therefore is no longer
amortized.
General and administrative expenses decreased to $438,000 for the three months
ended September 30, 2002 compared to $519,000 for the same period in 2001.
General and administrative expenses as a percentage of net sales were 38% of net
sales for the three months ended September 30, 2002 as compared to 41% for 2001.
The dollar decrease occurred mostly due to reductions in professional and legal
expenses. The Company recorded $42,000 for the three months ended September 30,
2001 for a professional services agreement for consulting services as compared
to $0 for the three months ended September 30, 2002. The Company issued 300,000
shares of common stock in 2000 for these services at a value of $2.00 per share.
In February 2001, this agreement was extended an additional nine months to
February 2002, which reduced the monthly amortization related to this agreement
from $50,000 to $14,000. Lower spending levels for other professional and legal
services and other general administrative expenses during the three months ended
September 30, 2002 contributed to the decrease from 2001.
Operating expenses including goodwill and other intangible asset amortization
were $1,106,000 for the three months ended September 30, 2002 as compared to
$1,484,000 for the same period in 2001.
Interest expense increased from $36,500 for the three months ended September 30,
2001 to $37,200 for the three months ended September 30, 2002. The 2% increase
is attributed to additional debt incurred by the Company that was used to
finance the development of the Company's new products released in 2001 and
continued during the nine months ended September 30, 2002 and to fund losses
that the Company incurred for the same period. The Company's strategy was to
meet targeted product development goals that it set for the IMTS show and
borrowed money to support this strategy. The Company also retained employees
that it believed necessary to support growth that the Company was expecting in
the third and fourth quarters in 2002. Offsetting the Company's higher debt was
the benefits of lower interest rates during the three months ended September 30,
2002 as compared to interest rates in the same period in 2001.
The Company had a pre-tax loss of $586,000 for the three months ended September
30, 2002 as compared to the $762,000 pre-tax loss for the three months ended
September 30, 2001.
The net loss after the tax benefit was $427,000 and $584,000 for the three
months ended September 30, 2002 and 2001, respectively.
NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
The comments made in the previous "THREE MONTHS ENDED SEPTEMBER 30, 2002 and
2001" section relative to the impact that the economy had on sales are equally
appropriate when analyzing the Company's sales for the nine months ended
September 30, 2002 and 2001. The Company's net sales decreased from $3,997,000
for the nine months ended September 30, 2001 to $3,677,000 for the same period
in 2002 for an 8% decrease. Deferred revenue increased 3% from $1,890,000 as of
December 31, 2001 to $1,943,000 as of September 30, 2002.
Cost of sales was $1,655,000 or 45% of net sales for the nine months ended
September 30, 2002 as compared to $1,374,000 or 34% for the same period in 2001.
The gross margin percentage for the nine months ended September 30, 2002
declined from the same period in 2001 mostly due to an increase in fixed
capitalized software amortization expense for the Company's products and was
further impacted by a reduction in sales. The capitalized software amortization
expense for the nine months ended September 30, 2002 was $1,071,000 compared to
$832,000 for the nine months ended September 30, 2001. This increase is due to
the Machine Shop Estimating 9.0 and 9.5, CAMWorks 2001, CAMWorks 2001 Plus and
ProCAM II products for which the Company began amortizing capitalized costs
after their product releases on various dates during or after the nine months
ended September 30, 2001, but before the beginning of the nine months ended
September 30, 2002. Many of the other costs recorded as cost of sales are fixed
in nature as well.
Selling expenses decreased 11% to $1,530,000 for the nine months ended September
30, 2002 as compared to $1,725,000 for the same period in 2001. Selling
expenses as a percentage of net sales were 42% and 43% for the nine months ended
September 30, 2002 and 2001, respectively. The decline in selling expenses
occurred largely due to reduced spending in advertising and promotional
activities for the Company's products in 2002 as compared to 2001. The
advertising reduction was made due to the Company's decision to direct its
resources to product development. Also contributing to the reduction was the
decline in the economy causing sales to decline, which tightened cash flows and
restricted spending.
Total research and development expense was $197,000 and $232,000 for the nine
months ended September 30, 2002 and 2001, respectively.
Goodwill and other intangible amortization expenses were $92,000 and $1,007,000
for the nine months ended September 30, 2002 and 2001, respectively. The
decrease is attributed to the Company implementing the Financial Accounting
Standards Board's Statements of Financial Accounting Standard No. 142 "Goodwill
and Other Intangible Assets" effective for fiscal years beginning after December
31, 2001. Under the new rules goodwill and intangible assets deemed to have
indefinite lives will no longer be amortized but will be subject to periodic
impairment tests in accordance with the Statements. Other intangible assets
will continue to be amortized over their useful lives. The amortization expense
for goodwill was $0 and $891,000 for the nine months ended September 30, 2002
and 2001, respectively. The amortization expense for other intangibles was
$92,000 and $116,000 for the nine months ended September 30, 2002 and 2001,
respectively. The decrease in amortization of other intangibles is related to
the Assembled Workforce acquired as part of the TekSoft acquisition, which under
the new accounting rules has an indefinite life and therefore is no longer
amortized.
General and administrative expenses decreased to $1,363,000 for the nine months
ended September 30, 2002 compared to $1,646,000 for the same period in 2001.
General and administrative expenses as a percentage of net sales decreased to
37% of net sales for the nine months ended September 30, 2002 as compared to 41%
for 2001. The decrease occurred mostly due to reductions in professional and
legal expenses. The Company recorded $21,000 for the nine months ended
September 30, 2002 for a professional services agreement for consulting services
as compared to the $162,000 for the nine months ended September 30, 2001. This
represents a decrease of $141,000 in general and administrative expenses from
the nine months ended September 30, 2001. The Company issued 300,000 shares of
common stock in 2000 for these services at a value of $2.00 per share. In
February 2001, this agreement was extended an additional nine months to February
2002, which reduced the monthly amortization related to this agreement from
$50,000 to $14,000. In addition, significant legal and professional expenses
were incurred during the nine months ended September 30, 2001 associated with
the Company's follow-on expenses for the 10-SB and various other SEC filings.
The same level of professional and legal expenses was not incurred during the
nine months ended September 30, 2002 thus contributing to the expense decrease.
Operating expenses including goodwill and other intangible asset amortization
were $3,182,000 for the nine months ended September 30, 2002 as compared to
$4,610,000 for the same period in 2001.
Interest expense increased from $94,000 for the nine months ended September 30,
2001 to $110,000 for nine months ended September 30, 2002. The increase is
attributed to additional debt incurred by the Company that was used to finance
the development of the Company's new products released in 2001 and continued
during the nine months ended September 30, 2002 and to fund losses that the
Company incurred for the same period. The Company's strategy was to meet
targeted product development goals that it set for the IMTS show and borrowed
money to support this strategy. The Company also retained employees that it
believed necessary to support growth that it was expecting in the third and
fourth quarters in 2002. Offsetting the Company's higher debt was the benefits
of lower interest rates during the three months ended September 30, 2002 as
compared to interest rates in the same period in 2001
The Company had a pre-tax loss of $1,270,000 for the nine months ended September
30, 2002 as compared to the $2,081,000 pre-tax loss for the nine months ended
September 30, 2001.
The net loss after the tax benefit was $902,000 and $1,684,000 for the nine
months ended September 30, 2002 and 2001, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred losses over the last three years and has negative
working capital. Based upon its current plans, the Company is expecting to
reduce its annual operating expense approximately $700,000 beginning in the
fourth quarter 2002. In addition, the Company believes it has the ability to
raise sufficient equity and debt funds to meet its operating expenses and
capital requirements through fiscal year 2002 and into fiscal year 2003.
However, there is no assurance that such additional funds will be available on
acceptable terms, if at all. Should the plans contemplated by management not be
consummated, the Company may have to seek alternative sources of capital or
reevaluate its operating plans.
The Company's cash position as of September 30, 2002 was approximately $179,000
as compared to $77,000 as of December 31, 2001. During the nine months ended
September 30, 2002, net cash provided by operating activities was $244,000
versus $227,000 for the nine months ended September 30, 2001. The relatively
low amount of cash flow from operations for the nine months ended September 30,
2002 is largely related to reduced sales caused by the recessionary period
experienced by the Company and the manufacturing marketplace and the Company not
reducing spending to offset the sales decline. As a result, the Company
incurred higher than planned losses during 2002. The Company decided to retain
all of its employees because it believed it necessary in order to handle its
expected sales growth in 2002 as well as continue developing the next generation
of manufacturing software. Management has identified annual expense reductions
of approximately $700,000 and will begin implementing the reductions in the
fourth quarter 2002.
Cash flows used in investing activities were $1,084,000 and $1,069,000 for the
nine months ended September 30, 2002 and 2001, respectively. The Company
invested $1,047,000 in capitalized software development costs and $36,000 for
property and equipment and other assets for the nine months ended September 30,
2002 as compared to $979,000 and $90,000, respectively, for the same period in
2001.
The Company had positive cash flows from financing activities of $942,000 and
$749,000 for the nine months ended September 30, 2002 and 2001, respectively.
The financing activities for the nine months ended September 30, 2002 were
primarily comprised of positive inflows of $219,000 on the line of credit
facility, $300,000 of term debt, $240,000 of common stock proceeds, $225,000 of
notes payable to shareholders and a $49,000 shareholder payment of notes
receivable, which were partially offset by $91,000 of payments on long-term
debt, notes payables to shareholders and capital lease obligations.
The Company's working capital as of September 30, 2002 was a negative $1,800,000
as compared to the negative working capital of $1,650,000 as of December 31,
2001. The $150,000 decrease in working capital from the December 31, 2001
balance is largely attributable to the unfavorable effects of a $219,000
increase in the current portion of the line of credit, $133,000 increase in the
current portion of notes payable to shareholders, $163,000 increase in accounts
payables and accrued expenses and $53,000 increase in deferred revenue, which
were partially offset by the favorable effects of a $102,000 increase in cash,
$128,000 increase in net accounts receivables, $134,000 increase in prepaid and
other current assets and a $68,000 increase in deferred income tax assets. The
remaining $14,000 difference relates to an increase in accrued commissions and
current portion of long-term debt. The short-term line of credit facility
increase and additional $225,000 notes payable to shareholders is largely due to
lower sales and slower cash collections due to the recession experienced during
the nine months ended September 30, 2002 and the Company's strategy of
furthering the development of its products in anticipation of the IMTS show in
September 2002. The combined spending and lower sales resulted in losses that
caused a decline in working capital and adversely affected the Company's ability
to pay its vendors on a timely basis.
The Company had total interest bearing debt of $2,850,000 and $2,197,000 as of
September 30, 2002 and December 31, 2001, respectively, consisting of current
and long-term portions of a line of credit, term debt, capital leases and notes
payable to shareholders. This represents an increase of $653,000 during the
nine months ended September 30, 2002, which was made up of a $300,000 term note,
a $219,000 increase in the Company's line of credit facility and $225,000 of
notes payable to shareholders, which were partially offset by a $78,000
reduction in term debt, a $12,000 reduction in notes payables to shareholders
and a $1,000 reduction in capital leases. As of September 30, 2002, the Company
had borrowings of $1,099,950 and $339,000 against its $1,100,000 long-term line
of credit and $350,000 short-term line of credit facilities, respectively.
Subsequent to September 30, 2002, the Company and its bank agreed to extend the
maturity date of the additional $100,000 line of credit agreement from November
12, 2002 to February 12, 2003. The Company intends on seeking additional debt
and equity financing to supplement its cash needs. However, there are no
assurances that the bank or other lending or equity sources will provide
additional capital financing.
Shareholder's Equity decreased to $8,075,000 as of September 30, 2002 compared
to $8,705,000 as of December 31, 2001. The decrease in Shareholder's Equity for
the nine months ended September 30, 2002 is largely attributed to a $902,000 net
loss and $4,000 of dividends accrued on preferred stock. This decrease was
partially offset by $239,000 of proceeds from the issuance of common stock for
cash and services, $28,000 of common stock for contingent shares earned and
$9,000 of stock options issued.
The Company invested $1,047,000 in capitalized software for the nine months
ended September 30, 2002. This compares to $979,000 for the nine months ended
September 30, 2001. The Company believes that the development work done in 2001
and the nine months ended September 30, 2002 related to automatic feature
recognition as found in its CAMWorks and ProCAM II CAD/CAM software and the
integration of this technology with its estimating software will provide
significant revenue opportunities in the fourth quarter 2002 and 2003.
Offsetting $28,000 of property and equipment purchases for the nine months ended
September 30, 2002 was a disposal of a partially developed customer relationship
management software package that has a book value of approximately $42,000. The
Company determined that the cost to complete the development and implementation
of this package was significantly higher than planned and decided that it would
seek other alternatives.
The Company intends on financing future expenditures for property and equipment,
capitalized software and sales growth using capital provided by sales of common
stock through private placement activities. Capital is required in order to
supplement lower than expected internally generated cash flows from operations
due to the recessionary period experienced during the nine months ended
September 30, 2002 and the year ended December 31, 2001 and as projected for the
third quarter of 2002. However, Management expects cash flow from operation to
increase as the Company begins implementing targeted cost reductions beginning
in the fourth quarter 2002.
ITEM 3. CONTROLS AND PROCEDURES
Within 90 days prior to the date of this report, the Company carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and the Company's
Chief Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Based on this evaluation, the
Company's Chief Executive Officer and Chief Financial Officer concluded that the
Company's disclosure controls and procedures were effective. It should be noted
that in designing and evaluating the disclosure controls and procedures,
management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, and management necessarily was required to apply its
judgment in evaluating the cost-benefit relationship of possible controls and
procedures.
There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect the internal controls subsequent
to the date the Company completed its evaluation.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company may be subject to contingent liabilities resulting from litigation
and claims incident to the ordinary course of business. As of the date of this
report, the Company does not believe that it is subject to any legal proceedings
the probable resolution of which would have material adverse effect on the
business or financial condition of the Company.
ITEM 2. CHANGES IN SECURITIES
In September 2002, the Company offered and issued 19,875 shares of Company
common stock, 19,875 Class A stock purchase warrants and 19,875 Class B stock
purchase warrants as payment of $9,938 in professional services to a vendor.
The warrants were issued with initial estimated values (based on Black-Scholes
valuation model) ranging from $0.10 to $0.18 for each Class A warrant and from
$0.11 to $0.20 for each Class B warrant and expire in 2005 and 2007,
respectively. Each warrant represents the right to purchase one share of the
Company's common stock at an exercise price ranging from $0.75 to $1.00 per
share.
On September 30, 1999, the Company acquired Cimtronics, Inc. for 153,846 shares
to the former shareholders of Cimtronics. In addition, under the terms
specified in the purchase agreement, the former shareholders of Cimtronics may
receive up to 153,846 additional shares over the five years ending September 30,
2004 based on net income, as defined in the agreement. During the nine months
ended September 30, 2002, an additional 60,127 shares were earned under this
agreement at an approximate value of $0.13 per share. An additional $7,756 was
allocated to goodwill. As of September 30, 2002, all of the 153,846 of
contingent shares have been earned and issued.
The Company believes that it has satisfied the exemption from the securities
registration requirement provided by Section 4(2) of the Securities Act of 1933
and Regulation D promulgated thereunder for all of the above-described
transactions.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company was not in default with regards to its debt facilities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted during the three months ended September 30, 2002
covered by this report to a vote of security holders, through the solicitation
of proxies or otherwise.
ITEM 5. OTHER INFORMATION
None Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-B
Exhibit No. Page Number Description
----------- ----------- -----------
10(a) 21 Business Note dated August 12, 2002. Extends the
maturity date of Business Note dated November 12,
2002.
(b) REPORTS ON FORM 8-K
None Applicable.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
OnCourse Technologies, Inc.
a Nevada Corporation
By: /s/ Bernard A. Woods, III Date: November 14, 2002
----------------------------
Bernard A. Woods III, CEO
By: /s/ Charles W. Beyer Date: November 14, 2002
----------------------------
Charles W. Beyer, President
By: /s/ William C. Brown Date: November 14, 2002
----------------------------
William C. Brown, CFO
CERTIFICATIONS
--------------
I, Bernard A. Woods III, Chief Executive Officer of OnCourse Technologies, Inc.,
certify that:
1. I have reviewed this quarterly report on Form 10-QSB of OnCourse
Technologies, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
/s/ Bernard A. Woods, III
-------------------------
Bernard A. Woods III
Chief Executive Officer
I, William C. Brown, Chief Financial Officer of OnCourse Technologies, Inc.,
certify that:
1. I have reviewed this quarterly report on Form 10-QSB of OnCourse
Technologies, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
/s/ William C. Brown
--------------------
William C. Brown
Chief Financial Officer