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EX-32.1 - FLORHAM CONSULTING CORPv217788_ex32-1.htm
EX-31.2 - FLORHAM CONSULTING CORPv217788_ex31-2.htm
EX-31.1 - FLORHAM CONSULTING CORPv217788_ex31-1.htm
EX-32.2 - FLORHAM CONSULTING CORPv217788_ex32-2.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-K

x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2010

o
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: 000-52634

OAK TREE EDUCATIONAL PARTNERS, INC.
(Exact name of registrant as specified in its charter)

Delaware
20-2329345
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)

845 Third Avenue, 6th Floor, New York, New York 10022
(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code:
(646) 290-5290

Securities registered pursuant to Section 12(b) of the Act:
None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.0001 per share
 

 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.  Yes  ¨    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x      No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  ¨    No  x

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  Yes  ¨    No  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ¨
Accelerated filer  ¨    
   
Non-accelerated filer (Do not check if a smaller reporting company)  ¨
Smaller reporting company  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ¨     No  x

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was approximately $1,358,563 as of December 31, 2010.

As of March 31, 2011, 22,938,540 shares of the registrant’s common stock, par value $.0001 per share, were issued and outstanding, of which 179,641 shares are held in escrow subject to future earnings attainment.

Documents Incorporated by Reference: None.

 
 

 

OAK TREE EDUCATIONAL PARTNERS, INC.

2010 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

   
Page
PART I
   
Item 1.
Business.
5
Item 1A.
Risk Factors. 
27
Item 1B.
Unresolved Staff Comments. 
34
Item 2.
Properties.  
34
Item 3.
Legal Proceedings.
34
Item 4.
(Removed and Reserved).
35
PART II
   
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.  
35
Item 6.
Selected Financial Data.
38
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
38
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk.
 
Item 8.
Financial Statements and Supplementary Data.
46
Item 9.
Changes and Disagreements With Accountants on Accounting and Financial Disclosure. 
67
Item 9A.
Controls and Procedures.
67
Item 9B.
Other Information.
68
PART III
   
Item 10.
Directors, Executive Officers and Corporate Governance.
69
Item 11.
Executive Compensation.
73
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
80
Item 13.
Certain Relationships and Related Transactions, and Director Independence.
83
Item 14.
Principal Accounting Fees and Services.
88
PART IV
   
Item 15.
Exhibits, Financial Statement Schedules.
88
 
Signatures
92
 
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PART I

Cautionary Statement Concerning Forward-Looking Statements

Our representatives and we may from time to time make written or oral statements that are "forward-looking," including statements contained in this Annual Report on Form 10-K and other filings with the Securities and Exchange Commission, reports to our stockholders and news releases. All statements that express expectations, estimates, forecasts or projections are forward-looking statements within the meaning of the Act. In addition, other written or oral statements which constitute forward-looking statements may be made by us or on our behalf. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," "projects," "forecasts," "may," "should," variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions which are difficult to predict. These risks may relate to, without limitation:

 
·
we are subject to risks relating to enrollment of students. If we are not able to continue to successfully recruit and retain our students, we will not be able to sustain our revenue growth rate;
 
·
we are subject to risks relating to tuition pricing, which could have a material adverse affect on our financial results;
 
·
our course offerings be no longer be current;
 
·
our acquisition strategy may have an adverse effect on our ability to manage our business;
 
·
if we fail to maintain any of our state authorizations, we would lose our ability to operate in that state;
 
·
if any regulatory audit, investigation or other proceeding finds us not in compliance with the numerous laws and regulations applicable to the postsecondary education industry, we may not be able to successfully challenge such finding and our business could suffer;
 
·
if regulators do not approve our acquisitions, the acquired schools’ state licenses, accreditation, and ability to participate in Title IV programs (if applicable) may be impaired;
 
·
state licenses and accreditation requirements may adversely impact our ability to effect a sale of our company or any of our operating businesses;
 
·
we are dependent on the continued services of certain key executives;
 
·
government regulations relating to the Internet could increase our cost of doing business, affect our ability to grow or otherwise have a material adverse effect on our business, financial condition, results of operations and cash flows;
 
·
our financial performance depends, in part, on our ability to keep pace with changing market needs and technology; if we fail to keep pace or fail in implementing or adapting to new technologies, our business may be adversely affected;
 
·
we are subject to risks relating to our information technology, system applications and security systems, which could have a material adverse affect on our financial results;
 
·
our success depends on attracting and retaining qualified personnel;
 
·
we may not be able to adequately protect our intellectual property, and we may be exposed to infringement claims by third parties;
 
·
we may be subject to infringement and misappropriation claims in the future, which may cause us to incur significant expenses, pay substantial damages and be prevented from providing our services;
 
·
our limited operating history and the unproven long-term potential of our business model make evaluating our business and prospects difficult;
 
·
we may need additional capital and may not be able to obtain such capital on acceptable terms;
 
·
we are subject to the risk of being in default under our outstanding secured indebtedness;
 
·
we are subject to the risk of being in default under our outstanding secured obligations;
 
·
Our business may be adversely affected by a further economic slowdown in the U.S. or abroad or by an economic recovery in the U.S.;
 
·
we may not be able to sustain our recent growth rate or profitability, and we may not be able to manage future growth effectively;
 
·
insiders have substantial control over us, and they could delay or prevent a change in our corporate control even if our other stockholders wanted it to occur;
 
·
there may not be sufficient liquidity in the market for our common stock;
 
·
the market price of our common stock may be volatile;
 
·
our outstanding options and warrants may adversely affect us in the future and cause substantial dilution to existing shareholders;
 
·
our common stock may be considered a “penny stock” and may be difficult to sell;
 
·
the market for penny stocks has experienced numerous frauds and abuses which could adversely impact investors in our stock; and

 
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·
we have not paid dividends in the past and do not expect to pay dividends in the future, and any return on investment may be limited to the value of our stock.

Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in or suggested by such forward-looking statements. We undertake no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof. Readers should carefully review the factors described herein and in other documents we file from time to time with the Securities and Exchange Commission, including our Quarterly Reports on Form 10-Q, Annual Reports on Form 10-K, and any Current Reports on Form 8-K filed by us.

 
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Item 1.  Business.

In this report, “Oak Tree”, the “Company,” "we", "us" and "our", refer to Oak Tree Educational Partners, Inc., Educational Investors, Inc., a Delaware corporation (“EII”), Valley Anesthesia, Inc., a Delaware corporation (“Valley”), Training Direct, LLC, a Connecticut limited liability company (“Training Direct” and together with EII and Valley, the “EII Group”), Educational Training Institute, Inc., a New York corporation (“ETI”), Culinary Tech Center, LLC, a New York limited liability company (“CTC”), and Professional Culinary Academy LLC, a New York limited liability company (“PCA”, and together with ETI and CTC, the “Culinary Group”), unless the context otherwise requires. Unless otherwise indicated, the term "year," "fiscal year" or "fiscal" refers to our fiscal year ending December 31st.

Introduction

We own and operate vocational training and technical schools. Through our acquisition of EII, we have acquired schools that provide vocational education for the potential employees in the heath care and medical industries. We have also recently acquired additional affiliated schools that provide educational skills and vocational training in commercial cooking, catering, hotel operations and customer service.

Our Schools

Our for-profit schools operate in two markets: vocational training and test preparation.  The Culinary Group currently maintains six teaching locations in New York State (Albany, Yonkers, Buffalo, Poughkeepsie, Monticello and Queens, New York), and Training Direct maintains a teaching location in Bridgeport, Connecticut.

The Reverse Merger and Acquisition of Training Direct

The Reverse Merger

On December 16, 2009, we executed an agreement and plan of merger with EII Acquisition Corp. (a newly formed acquisition subsidiary of Oak Tree), Educational Investors, Inc., a Delaware corporation (“EII”) and its security holders, Sanjo Squared, LLC, Kinder Investments, LP, Joseph Bianco and Anil Narang (collectively, the “EII Securityholders”). Under the terms of the merger agreement, Mergerco was merged with and into EII, with EII as the surviving corporation of the merger, as a result of which EII became a wholly-owned subsidiary of our company. In connection with the merger, the EII Securityholders received (i) an aggregate of 6,000,000 shares of our common stock, (ii) options to acquire 2,558,968 additional shares of our common stock, 50% of which have an initial exercise price of $0.41 per share and 50% of which have an initial exercise price of $0.228 per share, subject to certain performance targets set forth in the merger agreement, and (iii) 250,000 shares of our Series A Preferred Stock, with each share of Series A Preferred Stock automatically convertible into 49.11333 shares of common stock upon the filing by us of an amendment to our certificate of incorporation which increases the authorized shares of our common stock to at least 50,000,000. As described below, on October 13, 2010, we amended and restated our certificate of incorporation to increase the number of our authorized common stock to 50,000,000 and accordingly, 12,278,333 shares of common stock were issued upon automatic conversion of the Series A Preferred Stock.

Our Board of Directors, by written consent dated as of December 23, 2009, approved the reverse merger and the consummation of the transactions contemplated in the merger agreement. Prior to the consummation of the reverse merger, on December 23, 2009, David Stahler, our former sole officer and director, solicited consents from a majority of the then stockholders via electronic mail, facsimile and telephone seeking approval of the reverse merger and the consummation of the transactions contemplated in the merger agreement.  However, as set forth below, shareholder approval of the reverse merger consummated in December 2009 was not required under the laws of the State of Delaware as a precondition to consummation of such transaction.

The reverse merger was structured as a “reverse triangular merger” in which we, as a public shell company, formed a wholly-owned merger subsidiary in the State of Delaware on December 16, 2010 named EII Acquisition Corp. (“Mergerco”).  Pursuant to the merger agreement, Mergerco was merged with and into EII, with EII as the surviving corporation of the reverse merger.  Each of EII and Mergerco were the “constituent corporations” (as defined in the Delaware General Corporation Law) to the reverse merger.  Pursuant to the merger agreement, we issued the merger consideration (its common stock and preferred stock) to the stockholders of EII in the reverse merger. As a result of such merger, EII (as the surviving entity of the constituent corporations) became our wholly-owned subsidiary.  On December 28, 2009, a Certificate of Merger of Domestic Corporations was filed with the Secretary of State of the State of Delaware, effective as of December 31, 2009.

 
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Although as set forth above we elected to obtain consents to the merger from holders of a majority of our then outstanding shares, neither such consents nor any other shareholder approvals were required as a pre-condition to the valid consummation of the reverse merger in December 2009.  We were not a constituent corporation to the reverse merger and neither our existence, certificate of incorporation, or authorized common stock was affected by the reverse merger of Mergerco with and into EII.  Pursuant to well settled Delaware law, the approval of a corporation’s shareholders would not be required as a condition to the valid consummation of a reverse triangular merger, so long as the shares of common stock and preferred stock issued by us as consideration for the acquisition of the target company (EII, in our case) had been previously authorized under our certificate of incorporation.  As we had a sufficient number of authorized shares of common stock and preferred stock to issue to the EII stockholders in order to consummate the reverse triangular merger transaction between EII and Mergerco, our directors had both the statutory and certificate of incorporation authority to issue such shares for any permissible corporate purpose, such as the EII acquisition.  In substance, Delaware treats reverse triangular merger transactions in the same manner as though we had issued from our authorized and previously unissued common stock, additional shares directly to the stockholders of EII in exchange for 100% of the EII shares.

Approval of the reverse merger by the stockholders of EII was required and was obtained.  In addition, shareholder approval was required from the sole stockholder of Mergerco, which in this case was our company.  In such connection, on December 23, 2009, our board of directors approved of the reverse merger and the consummation of the transactions contemplated thereby by unanimous written consent. Based upon the foregoing, since approval of the Company’s shareholders was not required for the reverse merger, it was permissible for the reverse merger to be consummated and effective on December 31, 2009.
 
The closing of the transactions contemplated by the merger agreement was subject to a number of conditions including, without limitation, completion of due diligence, approval of the merger agreement by the boards of directors of EII and our company and the prior or simultaneous closing of the acquisition of Training Direct, LLC (as discussed below). Accordingly, on December 31, 2009, the parties to the merger agreement deemed all closing conditions to be satisfied and accordingly, the reverse merger was consummated. As a result of the reverse merger, we believe we are no longer a shell corporation as that term is defined in Rule 405 of the Securities Act of 1933, as amended, and Rule 12b-2 of the Securities Exchange Act of 1934, as amended.
 
On December 23, 2009 and May 19, 2010 our board of directors, and on May 19, 2010 Kinder Investments, L.P. and Sanjo Squared, LLC, which were shareholders owning 89.5% of our outstanding shares of common stock on May 19, 2010, approved by written consent: (i) our corporate name change; (ii) the increase in our authorized shares of common stock; and (iii) our 2009 Stock Incentive Plan for key employees, directors, consultants and others providing services to us, pursuant to which up to 1,500,000 shares of common stock shall be authorized for issuance thereunder. The General Partner of Kinder Investments, L.P. is Nesher, LLC. The person having voting, dispositive or investment powers over Nesher is Dov Perlysky, Managing Member. Mr. Perlysky is a member of the Company’s board of directors and therefore, Kinder is a beneficial owner and affiliate of our company. The persons sharing voting, dispositive or investment powers over Sanjo Squared, LLC (50% each) are Joseph J. Bianco and Anil Narang, Managers. Mr. Bianco is  the Chief Executive Officer and Chairman of the board of directors of our company and Mr. Narang is the President, Chief Operating Officer and a member of the board of directors of our company.  Accordingly, Sanjo is a beneficial owner and affiliate of the Company. Kinder and Sanjo proposed to execute, and on May 19, 2010 entered into, shareholder consents approving the name change, share capital increase and 2009 Plan and such consents did not constitute a solicitation on behalf of our company.
 
The determination by our existing board of directors and majority shareholders (Kinder and Sanjo) in May 2010 to approve our name change to Oak Tree Educational Partners, Inc., as well as the share capital increase and the 2009 Plan, was made independently of the merger agreement and recently completed transaction with Culinary Tech Center, LLC and Professional Culinary Academy LLC and its affiliates (the “Culinary Group Acquisition”), and was in no way related to such Culinary Group Acquisition. In addition, consummation of such Culinary Group Acquisition was subject to certain conditions, including our obtaining external financing and the approval of the New York State Department of Education.  Our completed Culinary Group Acquisition is described below.
 
At the closing of the reverse merger, our sole officer resigned and Joseph Bianco was appointed as our Chief Executive Officer, Anil Narang was appointed as our President and Chief Operating Officer, and Kellis Veach was appointed as our Chief Financial Officer and Secretary. In addition, our sole director resigned and Joseph Bianco, Anil Narang, Dov Perlysky, Howard Spindel and David Cohen were appointed as our directors, with such resignation and appointments effective on January 22, 2010, representing the tenth day after mailing our Schedule 14f-1 Information Statement to our shareholders of record.

 
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We filed an Information Statement on Schedule 14C under the Exchange Act, and upon the effectiveness of such Information Statement, we amended and restated our certificate of incorporation on October 13, 2010 to, among other things:

·
increase our authorized common stock to 50,000,000 shares; and
·
change our corporate name to “Oak Tree Educational Partners, Inc.”.

Acquisition of Training Direct

On December 16, 2009, EII entered into an interest  purchase agreement with the members of Training Direct, and our company, pursuant to which EII acquired all outstanding membership interests, on a fully diluted basis, of Training Direct in exchange for (a) $200,000 cash, (b) shares of our common stock having a deemed value of  $600,000 (the “Acquisition Shares”), with such number of Acquisition Shares to be determined by dividing $600,000 by the “Discounted VWAP” (as defined below) for the 20 “Trading Days” (as defined below) immediately following the consummation of the reverse merger, and (c) shares of our  common stock having a deemed value of $300,000 (the “Escrow Shares”), with such number of Escrow Shares to be determined by dividing $300,000 by the Discounted VWAP for the 20 Trading Days immediately following the consummation of the reverse merger. The Escrow Shares will be held in escrow and released therefrom as provided in the purchase agreement. “Discounted VWAP” is defined in the purchase agreement as 70% of the “VWAP” of our common stock, but in no event less than $0.40 per share. “VWAP” is defined in the purchase agreement as a fraction, the numerator of which is the sum of the product of (i) the closing trading price for our common stock on the applicable national securities exchange on each Trading Day of the 20 Trading Days following the consummation of the reverse merger, and (ii) the volume of our common stock on the applicable national securities exchange for each such day and the denominator of which is the total volume of our common stock on the applicable national securities exchange during such twenty day period, each as reported by Bloomberg Reporting Service or other recognized market price reporting service. “Trading Day” is defined in the purchase agreement as any day on which the New York Stock Exchange or other national securities exchange on which our common stock trades is open for trading.  The Discounted VWAP for the twenty Trading Days after the effective date of the reverse merger is $1.67.  Accordingly, on March 3, 2010 we issued an aggregate of 359,281 Acquisition Shares, effective December 31, 2009, and 179,641 Escrow Shares.
 
The closing of the purchase agreement was subject to a number of conditions including, without limitation, approval of the change of ownership of Training Direct by the Connecticut Department of Higher Education, the consummation of the reverse merger, and execution of a certain employment agreement and consulting agreement. On December 31, 2009, the parties to the purchase agreement deemed all closing conditions to be satisfied and accordingly, the purchase and sale of the Training Direct membership interests was consummated simultaneous with the reverse merger.

ETI and the Culinary Group Acquisition

On May 27, 2010, effective May 21, 2010, we entered into agreements to acquire 100% of the equity interests of Educational Training Institute, Inc., Culinary Tech Center, LLC and Professional Culinary Academy LLC; the latter two of which are licensed by the New York State Department of Education.  The Culinary Group provides vocational training in commercial cooking, catering, hotel operations and customer service.

As further described below, on December 1, 2010, we and the Culinary Group satisfied all conditions to closing, including, without limitation, obtaining approval of the acquisition from the New York State Department of Education, and accordingly, the parties consummated the acquisition of the Culinary Group pursuant to amended and restated agreements. The cash portion of the purchase price for the Culinary Group was financed by us through a $10 million senior secured debt facility (the “Loan”) provided by Deerpath Funding, LP (“Deerpath”), a NYC-based provider of financing to middle market companies.

 
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The Amended and Restated Agreement and Plan of Merger

On December 1, 2010 (the “Closing Date”), we consummated the acquisition of ETI pursuant to an amended and restated agreement and plan of merger dated as of November 30, 2010 (the “Merger Agreement”) by and among the Company, ETI Acquisition Corp. (a newly formed acquisition subsidiary of the Company) (“Mergerco”), ETI and its stockholders being Messrs. Joseph Monaco, Harold Kaplan and their wives and daughters (collectively, the “ETI Stockholders”) pursuant to which Mergerco was merged with and into ETI, with ETI as the surviving corporation of the merger (the “Merger”).  Upon consummation of the Merger, ETI became our wholly-owned subsidiary. Under the terms of the Merger Agreement, the ETI Stockholders were issued an aggregate of 1,200,000 shares of our common stock (the “Merger Shares”), representing $3.0 million of our common stock valued at $2.50 per share.  In addition, under the Merger Agreement, the ETI Stockholders are entitled to receive contingent merger consideration in the form of $500,000 of additional shares of our common stock, based upon the Culinary Group reaching a certain cumulative EBITDA level in 2011.  The contingent merger consideration is valued based on the volume weighted average price of our common stock for the 20 trading days prior to determination of the applicable EBITDA of the Culinary Group in fiscal 201l.

The Amended and Restated Membership Interest Purchase Agreement

Immediately following consummation of the Merger referred to above, we consummated the acquisition of CTC and PCA pursuant to an amended and restated membership interest purchase agreement (the “Purchase Agreement”) with the Culinary Group and Messrs. Monaco and Kaplan, the sole members of CTC and PCA.  Under the terms of the Purchase Agreement, ETI (now a wholly-owned subsidiary of the Company) purchased from Messrs. Monaco and Kaplan 100% of the membership interests of each of CTC and PCA.  The purchase price for such equity membership interests paid at closing was $1.5 million, in cash, in equal amounts to Messrs. Monaco and Kaplan or their designee(s).

On the Closing Date, Messrs. Monaco and Kaplan entered into employment agreements (the “Employment Agreements”) with us expiring December 31, 2013, pursuant to which they shall serve as Executive Vice Presidents of the Company and the President and Chief Operating Officer, respectively, of the Culinary Group. Such executives shall each receive base salaries of $150,000 in 2010, increasing to $200,000 in 2011 and $250,000 in each of 2012 and 2013; provided, that, in the event that the cumulative pre-tax income of the Culinary Group in 2011 does not equal or exceed the cumulative pre-tax income in 2010, then the base salaries for 2012 and 2013 shall remain at $200,000.  In addition, Messrs. Monaco and Kaplan shall be entitled to discretionary bonuses, as determined by our board of directors.

The following diagram sets forth our corporate structure, after giving effect to consummation of the transactions contemplated by the Merger Agreements and the Purchase Agreements described below.
 
 
 
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The Loan Agreement

On the Closing Date, we completed the Loan with Deerpath pursuant to a Loan Agreement dated November 30, 2010 by and among the Company and its subsidiaries and Deerpath (the “Loan Agreement”), and received gross proceeds of $3,000,000 as an initial drawdown (the “Initial Loan”), a portion of which was used to fund the acquisition of CTC and PCA. We paid an aggregate amount of $185,000 to Deerpath at the closing, consisting of structuring and closing fees and expenses.  Deerpath may, at its sole discretion, make additional Loans up to an aggregate amount equal to $7,000,000 (the “Additional Loans”).

In exchange for the Initial Loan, we issued to Deerpath (i) a senior secured initial term promissory note in the principal amount of $3,000,000 (the “Note”); (ii) a warrant (the “Warrant”) initially exercisable to purchase 628,857 shares of our common stock, representing 2.5% of our fully diluted common stock as of the Closing Date, at an exercise price of $0.50 per share; and (iii) 1,886,571 shares of our common stock (the “Deerpath Shares”), representing 7.5% of our fully diluted common stock as of the Closing Date. The number of shares of our common stock issuable upon exercise of the Deerpath Warrant is subject to customary anti-dilution adjustments.

Under the terms of the Loan Agreement, the principal amount of the Loan and Additional Loans (collectively, the “Principal Debt”) shall bear interest at a rate equal to the lesser of (i) 13.50% per annum; and (ii) the maximum rate of interest Deerpath may receive under applicable law. The principal amount and all accrued and unpaid interest under the Loan and Additional Loans shall be repaid by us on or prior to November 30, 2015 (the “Maturity Date”). Commencing on January 1, 2011 and continuing until the Principal Debt is paid in full (a) accrued and unpaid interest shall be paid by us in arrears on the first day of each month; and (b) we shall make payments of Principal Debt on a quarterly basis in an amount equal to $75,000 per quarter. In addition, we may elect to prepay any or all of the Principal Debt upon 2 business day’s prior written notice to Deerpath in a minimum amount of $100,000 and in minimum increments of $10,000 for any amounts in excess of $100,000. We shall pay a cash prepayment premium of 3%, 2% or 1% of the Principal Debt being prepaid if such prepayment occurs on or prior to the first, second or third anniversaries of the Closing Date, respectively.

The Loan and Additional Loans are secured by a first priority lien and security interest on all of the assets of the Company and its subsidiaries pursuant to a security agreement (the “Security Agreement”) dated as of November 30, 2010, among the Company, each of its subsidiaries and Deerpath, as well as by a pledge of all of the equity that the Company and certain of its subsidiaries owns in each of their respective subsidiaries pursuant to a pledge agreement (the “Pledge Agreement”) dated as of November 30, 2010, among the Company, certain of its subsidiaries and Deerpath.  Due to the entry by the Company into the Security Agreement with Deerpath, Valley Anesthesia, Inc. (“Valley”), the Company’s wholly owned subsidiary, entered into a Subordination and Intercreditor Agreement (the “Subordination Agreement”) and Amended and Restated Security Agreement (the “Valley Security Agreement”) with Valley Anesthesia Educational Programs, Inc. (“VAEP”), pursuant to which VAEP agreed to subordinate its security interest in all of Valley’s assets, as well as repayment, covering a 6-year installment promissory note in the principal amount of $2,000,000 (the “VAEP Note”) previously issued by Valley to VAEP in connection with Valley’s August 2009 purchase of a majority of the equity of VAEP, in favor of Deerpath’s priority first lien and security interest.

In consideration for its execution of the Subordination Agreement, Oak Tree and each of its subsidiaries guaranteed the VAEP Note and, pursuant to an amended and restated security agreement, Oak Tree and its subsidiaries granted VAEP a lien, subordinated to the Deerpath lien and any other senior secured indebtedness (including acquisition indebtedness), on the assets and properties of Oak Tree and its subsidiaries.  In addition, Oak Tree’s principal shareholders, Kinder Investments, LP, Joseph J. Bianco and Anil Narang agreed to guaranty, under certain circumstances, the payment when due of up to nine monthly installments, totaling a maximum of approximately $319,500, of the VAEP Note.

Our History

Prior to the reverse merger, we were an Internet professional services firm. We provided our clients with an integrated set of strategic, creative and technology services that enabled them to effect and maximize their Internet business. Our services included advising clients on developing business models for their Internet activities, identifying opportunities to improve operational efficiencies through online opportunities and planning for the operations and organization necessary to support an online business. Our services also included developing graphic designs and web sites for our clients. We also recommended and installed appropriate hardware and software networks to enable online sales, support and communication, and managed the hosting of clients' websites in certain cases.
 
In 2006, we entered into our first Internet consulting agreement and since then completed web design and project work for another five clients located in New York. For the year ended December 31, 2009, we had consulting revenues of $16,252, as compared to $14,025 for the year ended December 31, 2008. The decrease in the 2009 period was due to fewer projects completed for new and existing clients.

 
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In 2009, our sole officer and director determined that there was inadequate demand for our consulting services and sought to redirect our focus to acquiring a growing operating business. On December 31, 2009, we consummated the reverse merger with EII simultaneous with EII’s acquisition of Training Direct.  As a result of the reverse merger, we will carry out the business and operations of the EII Group, and we discontinued our consulting operations.

On December 1, 2010, we consummated the acquisition of the Culinary Group, which are affiliated schools that provide educational skills and vocational training in commercial cooking, catering, hotel operations and customer service.

Our Current Businesses

EII

EII was incorporated in the State of Delaware on July 20, 2009 for the purpose of acquiring vocational, training and technical schools, with an initial emphasis on the health care and medical industries. EII’s wholly-owned subsidiary, Valley Anesthesia, Inc., was incorporated on July 15, 2009 in the State of Delaware. Effective August 20, 2009, Valley Anesthesia, Inc. purchased certain assets and assumed certain liabilities and operations of Valley Anesthesia Educational Programs, Inc., which was incorporated in the State of Iowa on March 10, 1993,  for an aggregate purchase price of $3,838,215, plus certain contingent payments which are subject to the achievement of predetermined operating milestones.

Valley

Through Valley, we provide comprehensive review and update courses and study materials that aid Student Registered Nurse Anesthetists (“SRNA”) and Graduate Registered Nurse Anesthetists (“GRNA”) in preparation for the National Certifying Exam (“NCE”) throughout the continental United States.

Valley’s principal service is a three-day comprehensive review and update course designed to prepare SRNAs for the NCE. Valley also offers a 600-page basic manual. Additionally, Valley offers MemoryMasterTM, which is a collection of approximately 4,000 questions and answers designed to further assist its students in preparation for the NCE. Valley presented 10 courses in 2007, 11 courses in 2008, 12 courses in 2009 and 13 courses in 2010. In addition, Valley has 14 courses scheduled for 2011.

Valley’s revenue is currently generated from three sources: (i) seminars, (ii) manuals, and (iii) MemoryMasterTM.  In addition, Valley anticipates that there will be a fourth revenue source beginning in 2011, which is from on-line practice examinations that management expects to launch in the second quarter of 2011.

Training Direct

EII’s wholly-owned subsidiary, Training Direct, LLC, was organized as a limited liability company in the State of Connecticut on January 7, 2004.  Training Direct provides “distance learning” and “residential training” educational programs for students to become eligible for entry-level employment in a variety of fields and industries. Training Direct strives to assist those who may not have realized their full potential in the workplace by finding such individuals a new career direction and assisting in progressing their learning skills necessary to reach their earning and personal development possibilities and goals. Training Direct maintains licenses from the Connecticut Commissioner of Higher Education, the Connecticut Department of Health Services and the National Health Career Association, and is an Eligible Training Provider under the Workforce Investment Act. Such licenses require that Training Direct have a competent faculty, offer educationally sound and up-to-date courses and course materials, and be subject to inspections and approvals by outside examining committees.

The Culinary Group

Culinary Tech Center and Professional Culinary Academy were each formed in the State of New York on June 13, 2008 and July 18, 2008, respectively.  CTC and PCA offer training programs that prepare students for entry level employment in the culinary field.  Courses include comprehensive six and nine-month programs in both commercial cooking and catering.  All programs require students to complete an externship that provides experience working in a foodservice establishment.  Graduates prepare for careers in restaurants, bakeries, corporate and other food service departments, as well as catering and take-out prepared foods.  Some CTC locations also offer courses in hotel operations and customer service that prepare students for entry level positions in such fields.  CTC and PCA maintain licenses from the New York State Department of Education.

 
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Educational Training Institute

Educational Training Institute was formed in the State of New York on December 28, 1992. ETI provides customized training courses for “at risk” high school students on behalf of school districts.  Courses include hotel operations, customer service and job readiness.  ETI also provides a non-training direct placement service that helps vocational rehabilitation clients find jobs.

Our Offices and Other Corporate Information

EII’s and Valley’s principal executive offices are located at 845 Third Avenue, 6th Floor, New York, New York 10022, and its telephone number is (646) 290-5290. Valley’s principal operating office is located at 1995 Country Club Blvd, Clive, Iowa 50325 and its telephone number is (515) 221-2590. Valley maintains a website at www.valleyanesthesia.com. Training Direct’s principal executive offices are located at 3885 Main Street, 2nd Floor, Bridgeport, Connecticut 06606 and its telephone number is (203) 372-8842. Training Direct maintains a website at www.trainingdirectusa.org. The Culinary Group principal executive offices are located at 424 West 33rd Street, New York, New York 10001 and its telephone number is (212) 243-5081.  The Culinary Group maintains a website at www.traininginstitute.ny.com. The contents of such websites are not part of this report.

Valley’s Program Offerings

Seminars

Each review and update course includes 26 hours over a three-day time period. The courses are located throughout the United States in areas with high concentrations of nursing programs. Seminars are typically held in hotel conference rooms located close to airports to minimize logistical issues for traveling students.

Registration for the seminars can be completed online, by mail or by telephone. Registration for courses for the following year occurs at the end of August. Once the registration period has commenced, there is significant enrollment in the seminars within a couple days. Seminars in Cleveland and Philadelphia have traditionally had the highest student enrollments with two courses in Cleveland that included 217 and 216 students, respectively, and 215 students in Philadelphia in 2007. In 2008, the seminars had enrollments for two courses in Philadelphia of 224 and 220 students, respectively and in Cleveland for two courses of 219 and 216 students, respectively. In 2009, the seminars had enrollments for two courses in Cleveland of 211 and 209 students, respectively, a course in Philadelphia with enrollment of 218 students and a course in Dallas with enrollment of 217 students.  In 2010, the seminars had enrollments for a course in Orlando with 226 enrollments a course in Philadelphia with 215 enrollments, a course in Cleveland with 214 enrollments and a course in Dallas with 200 enrollments.

Manuals

Valley publishes a course manual which is purchased by students enrolled in the seminars and others. The course manual consists of over 600 pages and is printed by a third party. While the volume is fairly substantial, the complexity of the printing is not excessive and the manuals are not bound. Production costs were approximately $175,000 in 2007, $186,000 in 2008, $182,000 in 2009 and $177,000 in 2010. The manuals are ordered from the printers each fall after registration has begun for the following year’s courses and correspondingly, the majority of the printing costs are incurred in the fourth quarter. Since the per unit cost to print 100 manuals is the same as the cost to print one, Valley only orders enough books to meet its known demand. As Valley receives additional orders, it places orders with its vendor to print the required quantity to meet the additional demand.

MemoryMasterTM

Valley offers its MemoryMasterTM study guide collection of approximately 4,000 questions and answers to aid its students in preparation for the NCE by facilitating the memorization and understanding of a large body of anesthesia-related facts, concepts and issues. MemoryMasterTM content is categorized according to the outline provided by the Council on Certification of Nurse Anesthesia, which includes:

 
·
basic and related clinical sciences;

 
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·
equipment, instrumentation and technology;
 
·
basic principles of anesthesia;
 
·
advanced principles of anesthesia; and
 
·
professional issues.

MemoryMasterTM is offered in two forms: (i) a bound, soft covered book, and (ii) flash cards.  The book provides the entire MemoryMasterTM content in a side-by-side format, with questions appearing on the left side of each page and the corresponding answers on the right side.

MemoryMasterTM is printed by the same third party source as the course manuals. MemoryMasterTM can also be ordered from the printers on an as needed basis. Management estimates that MemoryMasterTM accounted for approximately $340,000 and $353,000 of revenue in 2009 and 2010, respectively. Historically, the fourth quarter includes the greatest amount of MemoryMasterTM shipments and related revenue.

On-Line Practice Examinations

Valley anticipates that there will be a fourth revenue source beginning in 2011, which is from on-line practice examinations that management expects to launch in the second quarter of 2011. Valley’s on-line practice examinations will be a test assessment program where students can visit a mock testing center on-line. Practice examinations and subject-specific quizzes will be available for student practice purposes. Valley believes that this will be a popular addition to its offerings, and that most students who take its courses, and others who do not, will avail themselves of the new test assessment center.

Training Direct’s Program Offerings

Distance Learning Programs

Distance learning programs provide an additional opportunity to individuals who may not have acquired all of the education they need and are unable to take advantage of residential training educational opportunities. Distance learning is defined as enrollment and study with an educational institution that provides lesson materials prepared in a sequential and logical order for study by students on their own, allowing students to acquire new professional skills while studying at home at their own pace. In order to help each student in their field of study, Training Direct provides counseling and lesson assistance by telephone and through mail.

Training Direct’s distance learning offerings include educational programs in the following fields and industries:

 
·
medical office assistance;
 
·
medical billing and coding;
 
·
hotel-motel front office;
 
·
veterinary assistant;
 
·
paralegal; and
 
·
pharmacy technician.

All of Training Direct’s courses are priced at $1,295 to $1,600 per program. Students may pay via cash, credit card, money order or check.

When each lesson is completed, the student mails the assigned work to the school for correcting, grading, comment and subject matter guidance by qualified instructors. Corrected assignments are rapidly returned to the student, providing a personalized student-teacher relationship.

Medical Office Assistant Program

Training Direct’s medical office assistant curriculum prepares the student for a wide range of entry-level office positions in different areas of the health industry. The curriculum prepares a student for potential employment in medical offices, clinics, public health departments and hospitals. The student acquires a basic understanding of medical terminology, records management, financial administration and administrative procedures which relate to the functioning of a medical office. An outline of the medical office assistant curriculum includes the following, without limitation:

 
·
introduction to medical office assistance;

 
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·
introduction to medical terminology;
 
·
advanced medical terminology and pharmacology;
 
·
administrative medical assistance;
 
·
medical, legal and ethical responsibilities;
 
·
computers and information processing;
 
·
patients' medical records;
 
·
drug and prescription records;
 
·
office maintenance and management;
 
·
fees, credit and collection;
 
·
health insurance systems;
 
·
bookkeeping;
 
·
payroll procedures; and
 
·
job search techniques.

A high school diploma or general education degree is required for applicants to become eligible for the program. Upon successful completion of the program, the student receives a diploma.

Medical Billing and Coding Program

Training Direct’s medical insurance billing and coding curriculum prepares the student for entry-level employment to process insurance claims for a medical office. There are multiple roles that the student can fulfill with this curriculum, such as patient and administration contact, working with computers, and accounting tasks. Specific potential career duties consist of: (i) data collection from patients, hospitals, laboratories and physicians; (ii) diagnostic and procedure coding; (iii) timely generation of claims to maximize cash flow for the medical practice; (iv) keeping up to date on insurance plans, rules and regulations; (v) bookkeeping transactions; and (vi) follow-up on claims.

An outline of the medical billing and coding curriculum includes the following, without limitation:

 
·
introduction to medical terminology;
 
·
advanced medical terminology and pharmacology;
 
·
fundamentals of health insurance coverage;
 
·
source documents and the insurance claim cycle;
 
·
coding diagnosis;
 
·
coding procedures;
 
·
the health insurance claim form;
 
·
fees: private insurance and managed care, the Medicaid program;
 
·
the Medicare program;
 
·
workers’ compensation coverage and other disability programs; and
 
·
patient billing: credit and collection practices.

In this program, the student acquires an understanding of basic medical terminology, anatomy and physiology, procedural and diagnostic coding, types of medical insurance programs, insurance claims completion and submission, payment and follow-up procedures, relevant office skills and the role of computers in the medical office. Upon successful completion of the program, the student receives a diploma. In addition, this course offers students an optional opportunity to become nationally certified by the National Healthcare Association.

Hotel-Motel Program

Training Direct’s hotel-motel career training curriculum prepares the student for entry-level employment in the Hospitality industry. The student learns about the typical organizational structure of the industry, how each department functions, what the staffing requirements are for each department, as well as the character traits necessary for successful employment for each part of the organization. At the completion of the curriculum, the student is ready to apply for employment in any number of hospitality functions such as front desk operations, catering, housekeeping, sales and promotions, maintenance, purchasing and convention organization. Considerable attention is also given to personnel selection, organization and management. This is an employee intensive industry where human relations are an important component to successful career advancement.

 
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An outline of the hotel-motel curriculum includes the following, without limitation:

 
·
the Hospitality industry;
 
·
personnel requirements;
 
·
the General Manager and Assistant Manager;
 
·
front desk operations;
 
·
the desk clerk;
 
·
uniformed services;
 
·
guest relations;
 
·
the sales department;
 
·
conventions and meetings;
 
·
accounting procedures;
 
·
cleaning and maintenance personnel;
 
·
food and beverage management team;
 
·
inventories and control; and
 
·
career guidance.

Upon successful completion of the program, the student receives a diploma.

Veterinary Assistant Program

Training Direct’s veterinary assistant curriculum prepares the student for entry-level employment under the supervision of veterinarians to diagnose and treat animals for injuries, illness and routine veterinary needs such as standard inoculations and periodic check ups. Veterinary assistants perform many tasks ranging from soothing and quieting animals under treatment to drawing blood, inserting catheters and conducting laboratory tests.

An outline of the veterinary assistant curriculum includes the following, without limitation:

 
·
introduction to medical terminology;
 
·
advanced medical terminology and pharmacology;
 
·
introduction to small animal care;
 
·
animal rights and welfare;
 
·
nutrition and digestive system;
 
·
animal studies, including dogs, cats, rabbits, hamsters, amphibians, reptiles, birds, fish and others;
 
·
introduction to veterinary practice;
 
·
care and maintenance of a veterinary facility;
 
·
administrative duties;
 
·
ethics; and
 
·
fee collection procedures, billing and payroll.

In this program, the student acquires an understanding of basic medical terminology, the history, breeds and types of animal groups, feeding, handling, care, housing and diseases of animals, key terms, organizational structure and functions of the veterinary clinic, and interacting with professional aspects of veterinary practices. Upon successful completion of the program, the student receives a diploma.

Paralegal Program

Training Direct’s paralegal course prepares students for entry-level employment positions to assist lawyers. The student gains an understanding of the scope of law that is practiced in law offices, corporations and government agencies.

This is an intensive course requiring extensive reading including cases in many areas of the law. In addition to understanding the breadth of the paralegal profession, students begin by learning legal terminology and then study the judicial system, civil and criminal law, the anatomy of a trial as well as pretrial procedures and research. Students also study different areas of law including Bankruptcy, Estate Planning, Family Law, Real Estate, Contracts, Torts, Immigration and Naturalization and Collections.

An outline of the paralegal curriculum includes the following, without limitation:

 
·
the paralegal profession;

 
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·
law seminars covering roots of American law, organization of the American legal system, sources of law, the trial, and legal terminology;
 
·
legal research tools;
 
·
cause of action in a civil case, pre-trial discovery, admissibility and use of evidence, and trial preparation;
 
·
contracts;
 
·
Federal bankruptcy;
 
·
criminal law;
 
·
estate planning;
 
·
family law;
 
·
real estate;
 
·
torts;
 
·
immigration and naturalization; and
 
·
collections.

The duration of this course is six months on a part-time basis. Upon successful completion of the program, the student receives a diploma.

Pharmacy Technician Program

Training Direct’s pharmacy technician curriculum prepares the student for entry-level employment positions to work under the supervision of pharmacists, to help prepare medications for dispensing to patients, label of medications, perform inventories and order supplies, prepare intravenous solutions, help maintain records, and perform other duties as directed by pharmacists.

An outline of the pharmacy technician curriculum includes the following, without limitation:

 
·
introduction to pharmacy technicians;
 
·
introduction to medical terminology;
 
·
advanced medical terminology and pharmacology;
 
·
home and long term health care;
 
·
regulatory standards in pharmacy practice;
 
·
computer applications;
 
·
medication errors;
 
·
pharmaceutical dosage forms;
 
·
pharmaceutical calculations;
 
·
drug distribution systems; and
 
·
customer care.

In this course, the student acquires a basic understanding of medical terminology, pharmacological terms, organizational structure and function of the pharmacy, regulatory standards in the practice of pharmacy, drug-use control and information services, administrative aspects of pharmacy technology and professional aspects of pharmacy technology. The duration of this course is six months on a part-time basis. The completion of this program provides the student with the knowledge necessary to pass the national Pharmacy Technician Certification Board exam. A high school diploma or general education degree is required for applicants to become eligible for this program. Upon successful completion of the program, the student receives a diploma.

Residential Training Program

Training Direct offers a comprehensive Certified Nurse's Aide Program to assist its students with developing the skills and knowledge necessary to obtain an entry-level position as a Nurse's Aide in a health care facility. The training program provides the student with both basic knowledge and practical experience in the terminology, procedures, and techniques required of a Nurse's Aide. This training program meets the Connecticut Department of Health Services guidelines for eligibility to take the State certification exam for Nurse's Aides.  Training Direct also offers residential training programs in medical billing and coding and recently started programs in pharmacy technology and phlebotomy.

 
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Student Services

The student services office is available to assist students with a wide range of administrative, advisory, referral and employment assistance matters.

In particular, every program at the school includes career preparation lessons to review hiring procedures, to help students write resumes and to improve employment interview skills. Student Services matches students with potential employers who contact Training Direct throughout the year to fill openings.

Educational Training Institute’s Program Offerings

ETI provides vocational training to “at risk” high school students that would benefit from training to ease the transition from high school into the job market. The creative and flexible teaching methods of ETI’s instructors assist students in achieving success and reaching their goals by meeting students’ individual learning needs. All students have been referred by city, state or federal agencies, as well as city school districts.  ETI also offers a direct-job placement service for vocational rehabilitation clients.

ETI focuses on following training programs to school districts and high school students:

·
hotel operations;
·
customer service; and
·
job readiness.

In connection with our hotel operations program, we place our students in an internship position in the hospitality industry which may include, without limitation, housekeeping, security, maintenance and hosting.  With respect to customer service training, we place our students in an internship position working as a call center representative, a customer service representative, reservation agent or guest service representative.

In our job readiness training program, we seek to assist our students in developing the following skills: (i) communication; (ii) job seeking; (iii) job application completion; (iii) resume writing and interviewing skills; (iv) industry literacy; and (v) time management.  We also conduct mock job interviews with our students to help them learn interviewing skills, and to put such skills into practice.  We also seek to place students in an externship position in each student’s area of interest.

Our direct job placement program assists vocational rehabilitation clients with finding employment opportunities.

ETI does not have any dedicated facilities because its classes are held in high schools.

The Culinary Group’s Program Offerings

CTC and PCA offer culinary training in classroom, kitchen and industry environments. The program includes an externship that will offer students hands-on experience that best suits their abilities and career goals while expanding their knowledge of the culinary field.  CTC and PCA also offer performance-based professional and employment skills that are imperative to succeed in today’s culinary marketplace.

Our training emphasizes “learning by doing” with special attention given to the practical side of commercial food preparation. Graduates prepare for careers in restaurants, bakeries, corporate and other food service departments, as well as the expanding fields of catering and take-out prepared foods. Entry level positions that may be obtained upon successful completion of our courses include, without limitation, sous chef, garde manger, pantry person, and short-order or line cook.

CTC and PCA offer the following culinary courses to its students:

·
commercial cooking plus externship;
·
commercial cooking and catering plus externship;
·
customer service; and
·
hotel operations.

In order to qualify for enrollment at CTC and PCA, a prospective student must provide a referral from a city, state or federal agency or proof of high school graduation or equivalency.  In addition, a prospective student must visit the school for a tour and personal interview and complete and sign an enrollment agreement.  Each school has its own admissions staff to handle information requests, student screening, interviews and the enrollment process.

 
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CTC has three locations in New York (Albany, Yonkers and Queens).  PCA has three locations in New York (Buffalo, Poughkeepsie and Monticello).

Commercial Cooking Plus Externship Course

CTC’s and PCA’s commercial cooking plus externship course covers a period of 6 months or 600 hours, which includes (i) skills development (100 hours); (ii) food preparation (100 hours); (iii) catering (75 hours); (iv) quantity food production (100 hours); (v) food sanitation (25 hours); and (vi) externship (200 hours).

The skills development portion of this course is an introduction to commercial cooking that covers all of the basics, from measuring and knife skills, to a wide variety of cooking techniques.  Our food preparation curriculum covers the basics of the commercial kitchen, including equipment and procedures used in professional food establishments.  Here, we also seek to teach our students to master the practical skills of food selection, handling and cooking, as well as displaying and serving prepared foods in an attractive and appetizing manner. Our catering and quantity food production curriculum deal with planning, preparing, presenting and serving foods for catered affairs such as parties, receptions and business conferences and for other large numbers of people while controlling food quality and quantity.   In these portions of the course, our students will learn to work as a team member in a busy commercial kitchen.  With respect to food sanitation, our students will learn to maintain proper health and sanitation standards in a food service establishment.

The final portion of our commercial cooking plus externship course is obtaining on-the-job, practical experience in a working foodservice establishment through our externship program. The externship is a continuation of the in-school learning process, giving students the opportunity to sharpen and expand their cooking skills in a real-world environment.

Commercial Cooking and Catering Plus Externship Course

Our commercial cooking and catering plus externship course covers a period of 9 months or 900 hours.  Specific curriculum includes (i) skills development (100 hours); (ii) food preparation (100 hours); (iii) baking and cake decoration (100 hours); catering (100 hours); (iv) restaurant management, consisting of food sanitation, food purchasing and restaurant operations (100 hours); (v) quantity food production (100 hours); and (vi) externship (300 hours).

The skills development, food preparation, catering, quantity food production, food sanitation and externship portions of this course cover similar areas of the culinary arts that we teach in our commercial cooking plus externship course.  Our baking and cake decorating curriculum teaches our students how to effectively bake bread, rolls, cakes, pies and pastries in quantity.  Here, we also develop the art of decorating cakes with color and form to create a professional product.  With respect to restaurant management, we teach our students techniques for maintaining, ordering, receiving and storing inventory for food service establishments according to the specific needs of such establishments.  In addition, our students will learn the fundamentals in operating a food service establishment.

Customer Service Course

Our customer service course covers a period of 6 months or 600 hours, which includes (i) effective oral communication (100 hours); (ii) literacy for the workplace (90 hours); (iii) career development (60 hours); (iv) introduction to customer service (30 hours); (v) effective customer relations (100 hours); (vi) office practices (90 hours); (vii) salesmanship (30 hours); and (viii) internship (100 hours).

In our effective oral communication curriculum, the student will be able to define factors influencing effectiveness of speech, voice and body language, and principles of active listening.  We also teach our students to define various verbal units, and will provide them with a written selection containing inaccurate word selection and help them to identify verbal fault.  Finally, we teach principles of general telephone etiquette and ways of projecting an appropriate telephone personality.

With respect to literacy for the workplace, students will study the principles of grammar and punctuation, vocabulary development, and basic principles of effective reading and writing skills.  In a skills development laboratory, students will create written critiques of both fiction and non-fiction works, as well as newspaper and magazine articles. In the career development portion of our customer service course, students will develop cover letter and resume writing skills, job search skills and successful interview techniques.  We will also present ethical and legal considerations for the workplace and how our students can get ahead on the job.  Students will role-play in mock interviews both as interviewees and employers.

 
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The introduction to customer service and effective customer relations curriculums cover the basics of customer service with a wide range of job assignments that will be vital to the customer service specialist, including, basic technology and understanding the use of computers and other office machinery.  Students will be able to define the fundamentals of customer service interaction with problem solving and conflict resolution scenarios.  During an interaction skill building laboratory, the student will role play situations involving customer inquiries, problems and complaints while being recorded for subsequent review and analysis.  In the office practices and salesmanship portions of this course, students will familiarize themselves with front desk procedures, records and file management, basic supply management and the handling of mail, e-mail documents and other confidential correspondence.  In addition, our students will gain an understanding of the behavior and mentality that is crucial to becoming an effective salesman.

The final portion of this course is internship placement, which is a continuation of the in-school learning process, and provides the student the opportunity to sharpen and expand his/her skills in a real-world environment.

Hotel Operations Course

Our hotel operations course covers a period of 6 months or 600 hours.  Specific curriculum includes (i) effective oral communication (100 hours); (ii) literacy for the workplace (90 hours); (iii) career development (60 hours); (iv) introduction to the hospitality industry (30 hours); (v) front desk operations (100 hours); (vi) hospitality law and security (60 hours); (vii) housekeeping and facilities management (60 hours); and (viii) internship (100 hours).

The effective oral communication, literacy for the workplace, career development and internship portions of this course are similar to what we teach in our customer service course; however, here we focus on the hospitality industry.  In introduction to the hospital industry, students will learn different sectors of the hospitality industry, including, without limitation, hotel organizations, staffing and operational functions of each department, and basic technologies utilized by a hotel.  With respect to front desk operations, students will understand reservation functions, rooms, bedding and rates, guest procedures and effective guest relations.  Students will also become familiar with common front desk reports, controls and their management functions.

The hospitality law and security curriculum covers procedures and equipment for fire safety, accident and crime prevention, and dealing with medical emergencies.  In housekeeping and facilities management, students will learn staffing responsibilities, and the organization of the housekeeping and engineering departments.

Our Industries

General

The domestic non-traditional education sector is a significant and growing component of the postsecondary degree-granting education industry, which was estimated to be a $386 billion industry in 2007, according to the Digest of Education Statistics published in 2009 by the U.S. Department of Education’s National Center for Education Statistics. According to the same study, in 2007, over 6.9 million, or 38%, of all students enrolled in higher education programs were over the age of 24, and enrollment in degree-granting institutions between 2008 and 2017 is expected to increase 19% for students over age 25. These students would not be classified as traditional (i.e., 18 to 24 years of age, living on campus, supported by parents, and not working full-time). The nontraditional students typically are looking to improve their skills and enhance their earnings potential within the context of their careers. Although it may be expected that the recession of 2008 and 2009 may have temporarily reduced domestic enrollment, we believe that the demand for non-traditional education will continue to increase, reflecting the knowledge-based economy in the U.S and economic dislocations resulting from the recent recession.

Many working learners seek accredited degree programs that provide flexibility to accommodate the fixed schedules and time commitments associated with their professional and personal obligations. The education formats offered by our institutions enable working learners to attend classes and complete coursework on a more convenient schedule than traditional universities offer. Although more colleges and universities are beginning to address some of the needs of working learners, many universities and institutions do not effectively address the needs of working learners for the following reasons:
 
 
·
Traditional universities and colleges were designed to fulfill the educational needs of conventional, full-time students ages 18 to 24, and that industry sector remains the primary focus of these universities and institutions. This focus has resulted in a capital-intensive teaching/learning model that may be characterized by: (i) a high percentage of full-time, tenured faculty; (ii) physical classrooms, library facilities and related full-time staff; (iii) dormitories, student unions, and other significant physical assets to support the needs of younger students; and (iv) an emphasis on research and related laboratories, staff, and other facilities.

 
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·
The majority of accredited colleges and universities continue to provide the bulk of their educational programming on an agrarian calendar with time off for traditional breaks. The traditional academic year runs from September to mid-December and from mid-January to May. As a result, most fulltime faculty members only teach during that limited period of time. While this structure may serve the needs of the full-time, resident, 18 to 24 year old student, it limits the educational opportunities for working learners who must delay their education for up to four months during these traditional breaks.
 
·
Traditional universities and colleges may also be limited in their ability to provide the necessary customer service for working learners because they lack the necessary administrative and enrollment infrastructure.
 
·
Diminishing financial support for public colleges and universities has required them to focus more tightly on their existing student populations and missions, which has reduced access to education.

Valley

According to the American Association of Nurse Anesthetists (“AANA”), in the United States there were 118 accredited nurse anesthesia programs in 2010. This number grew from 108 programs in 2006, 2007, 2008 and 2009, and from 95 programs in 2005. Most SRNAs are registered with the AANA. As set forth in the table below, the number of SRNAs registered with the AANA has increased substantially over the past eleven years. Valley has developed strategic relationships with accredited nurse anesthesia programs and with the AANA. Many of the programs have requested that Valley provide courses specifically for their programs, however, Valley currently provides courses for only one school located in Tennessee.

SRNAs Registered with AANA
 
Year
 
Registered SRNAs
 
       
1999
    2,372  
2005
    4,300  
2006
    4,800  
2007
    5,042  
2008
    5,317  
2009
    5,610  
2010
    5,717  

Source: AANA

As indicated above, the number of registered SRNAs more than doubled from 1999 to 2010. This growth in SRNAs in the United States has expanded Valley’s potential customer base to whom Valley markets its services.  The following table sets forth a comparison of registered SRNAs with the number of students enrolled in Valley’s courses each year:

Valley’s Market Share  
Year  
Registered SRNAs
   
Students Enrolled in
Valley’s Courses
   
% Registered SRNAs
Enrolled
 
                         
1999
    2,372       986       41.6 %
2005
    4,300       1,522       35.4 %
2006
    4,800       1,901       39.6 %
2007
    5,042       1,976       39.1 %
2008
    5,317       2,085       39.2 %
2009
    5,610       2,147       38.3 %
2010
    5,717       2,146       37.5 %

Source: AANA

Training Direct

Training Direct is one of the largest schools operating in the state of Connecticut within the Higher Educational Community that offers short term training programs, which lead to numerous employment opportunities within the Health Care Profession. Our Certified Nurse’s Aide training program as well as Medical Billing and Coding Specialist course are both under four weeks in length and have been very popular among our student population.

 
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Training Direct is also one of the only private schools offering distance learning education programs in the State of Connecticut. Our distance education programs offer our students the ability to take courses from home without having to attend a classroom setting due to such things as family or transportation constraints.

The Culinary Group

According to the IBIS World’s Industry Report: Technical & Trade Schools (2009), the Culinary Group and Training Direct operate in the $15.4 billion technical and trade schools industry.  From 2004 to 2009, the industry experienced stable growth of 5.7% per year, driven by greater use of technology in various trades, as well as a general need for continuing education.  The recession has not had a material impact on the industry.  In fact, enrollment growth has strengthened due to workers seeking out training to improve their employment prospects.

IBIS World’s Industry Report: Technical & Trade Schools (2009) forecasts that the technical and trade school industry is expected to grow by 5.1% per year from 2009 to 2014, reaching an industry size of $19.7 billion.  Revenue growth is expected to be a function of downstream demand for various trades.  The recent increase in the unemployment rate is expected to benefit the technical and trade school industry, as individuals seek out training programs to improve their skill set.  Demand for workers in most trades is expected to recover in 2011, with electricians and healthcare workers experiencing a higher rate of growth than general employment.

Our Strategies and Key Corporate Objectives

Our goal is to become a leading owner/operator of for-profit schools and to grow both internally and through the acquisition of additional for-profit vocational training and other schools.  We believe that the highly-fragmented for-profit education industry lends itself to such a strategy, as two other publicly traded for-profit education companies, Bridgepoint Education, Inc. (NYSE:BPI) and Apollo Group Inc., have employed similar strategies to build their businesses.  We intend to achieve this goal by implementing the following strategies:
 
·           Growth through acquisitions.   We believe that there are a number of opportunities to acquire for both cash and our securities, the assets or equity of a number of small profitable competitors which we will seek to integrate with our operations and effect significant cost savings from back-office integration.  Our acquisition model is to seek to acquire schools at multiples of approximately 3.5 times their historical earnings before interest, taxes, depreciation and amortization, or EBITDA.
·           Internal growth opportunities.  We believe that there are a number of revenue growth opportunities for each of the our existing schools, including expanding our course offerings, which we believe is a more cost-effective method of diversifying and increasing revenue than applying for additional state licenses and developing new curriculum, and our anticipation of obtaining national accreditation for the Culinary Group that will enable it to offer student-loan-eligible programs intend to expand the course offering at existing and acquired state licensed schools,.
·           Market-leading schools  We believe that Training Direct, the Culinary Group and Valley are recognized leaders in their respective markets, as Training Direct is a leading provider of short-term training programs for healthcare professionals and distance learning or correspondence school programs in Connecticut, the Culinary Group is a leading culinary training school in New York State, and Valley is the leading provider of test preparation seminars and material for the National Certifying Exam for Student Registered Nurse Anesthetists.
·           Achieve a cost savings integration strategy.  We have been pursuing a non-invasive cost-savings and integration strategy with easily-outsourced back-office functions being integrated at the corporate-level in order to achieve cost savings and to allow each of our schools to focus on operations and not administrative tasks.  We expect to achieve cost savings from (i) integrating marketing and advertising campaigns, (ii) staff reductions from integrating administrative, compliance and accounting functions, and (iii) professional fees.

Our goal is to also strengthen and capitalize on our position as a provider of high quality, accessible education for individuals throughout the United States. Our principal focus is to provide high quality educational products and services to our students in order for them to maximize the benefit of their educational experience.

Generally, we intend to use our expertise to enhance the quality, delivery and student outcomes associated with the respective curricula across our entire group of subsidiaries. We believe we can leverage our organizational capabilities to offer innovative products, optimize our cost structure and create new growth opportunities. Finally, we intend to continue to invest in our people, systems and organization, as they are the foundation for our future success. In our opinion, these efforts are the basis for enabling us to meet and exceed our customer’s expectations and further differentiate us from our competition.

 
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Specifically, our key business development objectives over the next three to five years are to seek and consummate potential acquisitions with companies engaged in the business of providing vocational training and test preparation products and services. In addition, management intends to launch and further develop on-line test assessment programs and web-based course offerings.

Management has identified a number of such potential acquisitions within the broad context of vocational training and test preparation.  Currently, we have not signed any definitive agreement with respect to any additional acquisitions. Management believes that in addition to the usual advantages of “rolling up” similar companies, such as reduced administrative overhead, vocational schools in particular lend themselves to significant enhancement through synergy among the schools. For example, Training Direct’s licensure in the State of Connecticut can be used to sanction related course offerings currently in place in an acquisition target. Thus by acquisition, Training Direct may be able to significantly expand its course offerings and subject areas, without commensurate increases in overhead. Similarly, Valley, which management believes has a valuable brand name among anesthetists, can acquire a program that actually trains (rather than test-prepares) anesthetists, making profitable use of its reputation that has been established over the course of a decade.

Moreover, management believes that the vocational training space is highly fragmented and offers many opportunities for the acquisition and enhancement of small-niche schools, and we plan to aggressively pursue an acquisition strategy over the course of the next three to five years.

Generally, we believe that because of the small, development-stage nature of many potential acquisition targets that opportunities for synergy, such as those described above for Valley, Training Direct, ETI and the Culinary Group, will provide significant opportunities for revenue-expansion and increased profitability, without significant operational cost increases.

Valley, Training Direct, ETI and the Culinary Group, as well as many potential acquisition targets, have limited or nascent on-line utilities. As with the new Valley test assessment center, we believe that Valley, Training Direct, ETI and the Culinary Group can expand revenue by offering distance learning and distance practice products related to their existing in-classroom programs. Training Direct believes that its existing distance learning program described above, which involves mailing student work papers back and forth, can be substantially enhanced by use of the Internet, both in terms of enlarging the number of students who can take such courses and by significantly reducing costs.

Valley intends to eventually develop an online course, so that students who cannot travel to a specific classroom seminar can still enroll for a Valley course. Such an online program would also be a useful addition for refresher training for students who have actually attended a seminar. Development of this program has just begun and it is not expected to be available for at least two years.

Our Course Materials

Valley, Training Direct and the Culinary Group have been developing on-line educational programs, including Valley’s on-line testing examination center. In addition, Valley’s, Training Direct’s and the Culinary Group’s programs are continually updated to ensure that students are always current with the most updated practices and procedures. Any major revisions to Training Direct’s curriculum are always reviewed by the Connecticut Department of Higher Education for final approval. All programs lead to certification from the National Health Career Association or Connecticut State Licensure. To date, the costs of such research and development activities have been immaterial and are not borne by our customers.

Our Customers and Marketing

Valley

Customers

Valley’s customer base consists almost exclusively of SRNAs preparing to take the NCE. It takes considerable commitment by individuals to become a Certified Registered Nurse Anesthetist (“CRNA”). The education and experience requirements to become a CRNA include the following:

 
·
a Bachelor’s of Science in Nursing or other appropriate baccalaureate degree;

 
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·
a current license as a registered nurse;
 
·
at least one year’s experience in an acute care nursing setting;
 
·
graduation from an accredited graduate school of nurse anesthesia;
 
·
clinical training in university-based or large community hospitals; and
 
·
passing a national certification examination following graduation.

Because there are extensive steps and financial resources required for eligibility to sit for the NCE, SRNAs are highly incented to pass the exam and are typically willing to enroll in courses to obtain any advantage for passing the NCE. According to the AANA, in 2005 the reported average annual salary for a CRNA was $160,000. The high salaries paid to CRNAs provide further incentive to SRNAs to pass the certification exam on the first or second attempt. Moreover, due to what management believes is a high demand for CRNAs in the industry, students that pass the certifying exam are employed almost immediately.

As a result of the strong demand for CRNAs and the benefits associated with passing the exam, annual enrollment in Valley’s courses has increased since 1998:

Student Enrollments in Valley’s Courses
 
Year
 
No. of Students Enrolled
   
Growth Rate
 
             
1998
    935       N/A  
1999
    986       5.5 %
2000
    1,113       12.9 %
2001
    1,211       8.8 %
2002
    1,354       11.8 %
2003
    1,488       9.9 %
2004
    1,510       1.5 %
2005
    1,522       0.8 %
2006
    1,901       24.9 %
2007
    1,976       4.0 %
2008
    2,085       5.5 %
2009
    2,147       3.0 %
2010
    2,146       0.0 %

Marketing

Once a year, Valley undertakes a mailing of approximately 5,000 brochures to students and program directors for schools that teach SRNAs. Such brochures include information regarding Valley’s review and update course, course schedules, course pricing, and other related data. In addition, Valley relies on word of mouth amongst SRNAs, program directors and schools with respect to its review and update courses.

Training Direct

Customers

Training Direct enrolls a wide variety of students in its programs; from working executives in our distance education courses, to the unemployed who have been referred to us by a variety of state agencies for our residential programs. Training Direct targets people looking to enhance their current careers or seeking to enter the Health Care Industry.

Students in Training Direct’s Residential Training program are trained for entry-level positions in the healthcare industry.  Students in the Distance Learning programs are interested in augmenting their training in their current field or finding a new career direction. The student body is comprised of “general population” students, i.e., those that are paying their own tuition and agency-referred students, i.e., students referred by local, state or federal agencies.  General population students have historically accounted for 70% of Training Direct’s revenue and agency customers have historically accounted for 30% of revenue.  In 2009, Training Direct had 257 agency students that were referred from a variety of Connecticut state agencies.

 
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Marketing

Training Direct does a variety of community outreach as well as print media, which covers over half of the State of Connecticut. Because of its reputation in the community, Training Direct’s referral business has been consistently strong. Training Direct expects advertising and promotional costs to remain consistent with our growth and revenue.

ETI and the Culinary Group

Customers

ETI’s students have been referred by city, state or federal agencies, as well as city school districts.  Substantially all of CTC’s and PCA’s students have been referred by a city, state or federal agency or from school districts in New York State.

The Culinary Group receives most of its student referrals through the Rehabilitation Act and the federal Workforce Investment Act.  The Rehabilitation Act is a federal government program under the Department of Education that provides comprehensive vocational rehabilitation services designed to help persons with physical and mental disabilities become employable and achieve financial independence.  It is funded primarily by the federal government with required state fund matching (21.3%) and is administered by vocational rehabilitation agencies designated by each state.  The Workforce Investment Act, or WIA, is a federal government program under the U.S. Department of Labor.  The WIA provides federal assistance to prepare youth and unskilled adults for entry into the labor force and to provide job training to economically disadvantaged and other individuals facing serious barriers to employment.  The program is administered at the state and local level through state-level departments of labor and “investment systems” that include Workforce Investment Boards whose role includes direct funding to workforce development programs, publish research and oversee one-stop career centers, where job seekers can get employment information and learn about training opportunities.

Marketing

We manage the marketing strategy for the schools at the corporate-level and implement the strategy at the school-level.  Marketing strategy includes advertising decisions (such as print and direct marketing,), pricing strategy and networking with government agencies and school districts.  The Culinary Group provides on-going feedback as to the effectiveness of the marketing strategy and recommendations on additional initiatives to pursue.  We also manage the websites for the Culinary Group at the corporate-level.

Our Competition and Competitive Advantages

Valley

Valley recognizes few if any direct competitors. There are a limited number of companies publishing manuals designed to help students prepare for the NCE, including, without limitation, Concepts Anesthesia Review, and Board Stiff Live. However, these competitors are not providing an exam review course. Management believes that this enables Valley to take advantage of potential growth opportunities within its market with limited price or other competition. In 2010, Dannemiller, a company engaged in the continuing medical education business, announced that it will be offering a review course for the NCE. The Company has yet to see what impact Dannemiller will have on Valley’s business, if any.

Training Direct

Training Direct has very limited competition in Connecticut. Both the Nurse’s Aide Training and Medical Billing and Coding courses are very much in demand because Training Direct is located in an area which has a very high concentration of hospitals and medical facilities. There are a number of large, publicly-traded companies that operate in the vocational training industry, including Corinthian Colleges, Lincoln Education Services, and Universal Technical Institute.  However, none offer programs that compete with Training Direct.

ETI and the Culinary Group

ETI competes for agency-referred students with local non-profit organizations and community colleges.  CTC and PCA compete for agency-referred students with local non-profit organizations and community colleges. CTC and PCA have been able to establish itself as a market leader, and the preferred schools of agencies, due to its superior graduation and placement rates when compared with its competitors.  In the event that CTC and/or PCA obtain Title IV accreditation, it will compete with local proprietary schools including the Star Career Academy, the Institute of Culinary Education and the French Culinary Institute.  We believe that there is significant student demand for these programs, and we believe that CTC and PCA will be able to compete effectively with these schools.  CTC and PCA believe that the job placement rates for its graduates compares favorably to those of its competitors.

 
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Our Regulatory Environment

Our operations are subject to significant regulations. New or revised interpretations of regulatory requirements could have a material adverse effect on us. In addition, changes in existing or new interpretations of applicable laws, rules, or regulations could have a material adverse effect on our accreditation, authorization to operate in various states, permissible activities, and operating costs. The failure to maintain or renew any required regulatory approvals, accreditation, or state authorizations could have a material adverse effect on us.

A state license is required for a proprietary school to operate in a given state.  The licensing process is time-consuming and expensive.  In most states the process to obtain a license takes about one year, while in New York the process takes at least two years due to the large number of applicants and an especially rigorous approval process.  The process consists of four primary steps: (i) applicant receives a list of required paperwork that includes the approval of faculty, facility, curriculum, financial performance, transcripts, diploma and owners, (ii) applicant prepares and submits the necessary paperwork, (iii) state government department reviews paperwork and approves or denies each paperwork submission, and (iv) applicant re-submits paperwork, as necessary.  The review process is especially arduous and time-consuming as the government bureaus dedicated to reviewing license applications are usually relatively small.  For example, there are approximately five people in the entire office that review New York State license applications.  In addition, state regulatory bodies are known for being extremely detail-oriented and force resubmissions due to minor errors.  The cost of obtaining a license includes at least $10,000 in fees, as well as the cost of a financial audit, curriculum development, hiring trained faculty and other related expenses.  Also, a school’s state license is subject to an ongoing review of regulation compliance.

Training Direct’s operations are regulated by the Department of Higher Education of the State of Connecticut (the “DHE”) from which Training Direct received its initial approval and license in 2004. The DHE seeks to promote a postsecondary system of distinctive strengths which, through overall coordination and focused investment, assures state citizens access to high quality educational opportunities, responsiveness to individual and State needs, and efficiency and effectiveness in the use of resources. The Board of Governors for Higher Education is the statewide coordinating and planning authority for Connecticut's public and independent colleges and universities. The Board makes higher education policy, reviews public college and university missions and budgets, recommends system-wide budgets to the Governor and State General Assembly, licenses and accredits academic programs and institutions (both public and independent), evaluates institutional effectiveness and coordinates programs and services between the public and independent sectors. Under the Board’s supervision, the DHE carries out Board policy, administers statewide student financial aid programs, oversees private occupational schools and conducts research and analysis on issues important to legislators and the public.

The DHE maintains and ensures that the approved occupational schools offer programs and courses that have proper organization and structure that meet their stated objectives. Also, the DHE maintains and ensures that approved occupational schools under their licensure follow all state statutes and regulations. 

National Accreditation is required in order for a proprietary school to be eligible for Title IV funding.  The ability for students to receive student loans and grants greatly enhances a school’s revenue generating ability.  In order to apply for accreditation, a school must have been in operation (including a state license(s)) for at least two years.  A school must apply to one of three accreditation bureaus (ACICS, ACCET and ACCSCT) that require submitting paperwork similar to the state license application.  The initial accreditation process takes one year.  A school’s accreditation is subject to the school maintaining its state license(s) and an ongoing review of regulation compliance.

Our Existing Licenses

The Culinary Group and Training Direct, as holders of state department of education licenses, are required to remain compliant with regulations relating to curriculum, faculty, facilities, placement rates and finances.  In addition, both have to maintain different approvals from industry associations and governing bodies which require compliance procedures.  Below is a list of the licenses and approvals held at each school.

 
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School Licenses and Approvals


School
 
Type
 
Issuing Body
 
Required to:
Training Direct
 
License
 
Connecticut Commissioner of Higher Education
 
Operate in state
   
License
 
Connecticut Department of Health Services
 
Operate in state
   
Approval
 
Eligible Training Provider(1)
 
Receive agency referrals
   
Approval
 
National Health Career Association
 
Allow graduates to take certification exam
   
Approval
 
Veterans Administration - GI Bill
 
Provide reimburseable training
   
Approval
 
Veterans Administration - Vocational Rehabilitation and Employment Services
 
Receive agency referrals
             
Culinary
 
License
 
New York State Education Department - Bureau of Proprietary School Supervision
 
Operate in state
   
Approval
 
New York State Education Department - VESID(2)
 
Receive agency referrals
   
Approval
 
Veterans Administration - Vocational Rehabilitation and Employment Services
 
Receive agency referrals
             
ETI
 
N/A
 
N/A
 
N/A
             
Valley
 
N/A
 
N/A
 
N/A

(1)
Under the Workforce Investment Act.
(2)
Vocational and Educational Services for Individuals with Disabilities (VESID)

Valley and ETI do not require any state licenses or approvals because they are not degree or certificate-granting schools.  Although the Culinary Group intends to apply for national accreditation under Title IV, at present none of our schools are nationally accredited.

Our Intellectual Property
 
We own and use the trademark MemoryMasterTM, which is registered with the United States Patent and Trademark Office in the name of Valley. In addition, all of Valley’s other course materials are the subject of copyright registrations with the United States Patent and Trademark Office in the name of Valley. Copyright registrations expire over various periods of time.  We vigorously defend against infringements of our trademarks, service marks, and copyrights.

 Seasonality
 
Our cash receipts fluctuate primarily as a result of the pattern of student enrollments. Generally, the schools’ highest enrollment and cash receipts typically occur in the fall, which corresponds to the third and fourth quarters our fiscal year. Enrollment is slightly lower in the spring, and the lowest enrollment generally occurs during the summer months. Our operating costs are relatively fixed and do not fluctuate as significantly on a quarterly basis. Our variable expenses fluctuate in accordance with course offerings and include course materials, salaries and (for Valley) facility costs.

Employees

We have a total of 55 full-time employees and 10 part-time employees.  There are five executive officers, including CEO, President/COO, CFO and the Executive VPs.  The Executive VPs have a support staff of five.  Training Direct has six full-time employees and ten part-time employees.  The Culinary Group has 24 full time employees, ETI has 11 full time employees and Valley has four full time employees.  None of our employees are covered by collective bargaining agreements. We believe that our relations with our employees are good.

The table set forth below lists our office and school locations and the number of full time employees, or FTE, at each location.  Note that ETI does not have any dedicated facilities as classes are taught in high schools around New York City and New York’s Westchester County.  Over the next 12 months, the Company does not expect to add significant personnel at any of these schools.

 
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Facilities and Employees


School or Corporate Function
 
Location
 
Description
 
Rent/owned
 
FTEs
Corporate HQ
 
New York, NY
 
CEO, President/COO executive offices
 
Rent(1)
 
2
                 
Corporate Operations HQ
 
New York, NY
 
Executive VPs executive offices and support functions
 
Rent
 
7
                 
Training Direct
 
Bridgeport, CT
 
Executive offices, support functions and classrooms
 
Rent(3)
 
6
                 
Culinary Institute
 
Albany, NY
 
Culinary Tech Center (CTC) classrooms
 
Rent
 
4
   
Yonkers, NY
 
CTC classrooms
 
Rent
 
4
   
Queens, NY (4)
 
CTC classrooms
 
Rent
 
6
   
Buffalo, NY
 
Professional Culinary Academy (PCA) classrooms
 
Rent
 
4
   
Poughkeepsie, NY
 
PCA classrooms
 
Rent
 
3
   
Monticello, NY
 
PCA classrooms
 
Rent
 
3
                 
ETI
 
N/A
 
N/A
 
N/A
 
11
                 
Valley
 
Clive, IA
 
Executive offices and support functions
 
Rent
 
4(2)

(1)
Lease expired August 2010 and is now month-to-month.
(2)
Two of Valleys FTEs are teachers who travel from city to city to teach each seminar.
(3)
Lease expires October 2019.
(4)
Location will be closed after completion of Manhattan facility by early 2011.
 
 
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Item 1A.  Risk Factors.

You should carefully consider the risks described below in conjunction with our forward looking statement related risks as set forth in the beginning of this report, as well as the other information in this report, when evaluating our business and future prospects. Should any of the following risks actually occur, our business, financial condition and results of operations could be seriously harmed. In that event, the market price of our common stock could decline and investors could lose all or a portion of the value of their investment in our common stock.

Risks Related to Our Business and Industry in Which We Operate

We are subject to risks relating to enrollment of students. If we are not able to continue to successfully recruit and retain our students, we will not be able to sustain our revenue growth rate.

Building awareness of our schools and the programs we offer is critical to our ability to attract prospective students. If our schools are unable to successfully market and advertise their educational programs, our schools’ ability to attract and enroll prospective students in such programs could be adversely affected, and, consequently, our ability to increase revenue or maintain profitability could be impaired. It is also critical to our success that we convert these prospective students to enrolled students in a cost-effective manner and that these enrolled students remain active in our programs. Some of the factors that could prevent us from successfully enrolling and retaining students in our programs include:

 
·
economic downturns or recovery;
 
·
the emergence of more attractive competitors;
 
·
factors related to our marketing, including the cost and effectiveness of Internet advertising and broad-based branding campaigns;
 
·
inability to expand program content and develop new programs in a timely and cost-effective manner;
 
·
performance problems with, or capacity constraints of, our online education delivery systems;
 
·
failure to maintain accreditation;
 
·
inability to continue to recruit, train and retain quality faculty;
 
·
student or employer dissatisfaction with the quality of our services and programs;
 
·
student financial, personal or family constraints;
 
·
adverse publicity regarding us, our competitors or online or for-profit education generally;
 
·
tuition rate reductions by competitors that we are unwilling or unable to match;
 
·
a decline in the acceptance of online education;
 
·
increased regulation of online education, including in states in which we do not have a physical presence;
 
·
a decrease in the perceived or actual economic benefits that students derive from our programs or education in general; and
 
·
litigation or regulatory investigations that may damage our reputation.

We are subject to risks relating to tuition pricing, which could have a material adverse affect on our financial results.

If other educational institutions reduce their price of tuition, our educational programs could become less attractive to prospective students. In addition, we may be unable, for competitive reasons, to maintain and increase tuition rates in the future, thereby adversely affecting future revenues and earnings.

Our course offerings may no longer be current.

Our educational programs are concentrated in selected areas of healthcare, the culinary arts, law and business. If applicant career interests shift away from these fields, and we do not anticipate or adequately respond to that trend, future enrollment and revenue may decline. If employment opportunities for our graduates in fields related to their educational programs decline, future enrollment and revenue may decline as potential applicants choose to enroll at other educational institutions offering different courses of study.

Our acquisition strategy may have an adverse effect on our ability to manage our business.

Selective acquisitions form part of our strategy to expand our business. We have limited prior experience integrating any new companies into ours, and we believe that integration of a new company’s operation and personnel will require significant management attention and additional infrastructure. The diversion of our management’s attention from our business and any difficulties encountered in the integration process could have an adverse effect on our ability to manage our business.

 
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Our ability to grow through future acquisitions or investments or hiring will depend on the availability of suitable acquisition and investment candidates at an acceptable cost, our ability to compete effectively to attract these candidates, and the availability of financing to complete larger acquisitions. We may face significant competition in executing our growth strategy. Future acquisitions or investments could result in potential dilutive issuances of equity securities or incurrence of debt, contingent liabilities or impairment of goodwill and other intangible assets, any of which could adversely affect our financial condition and results of operations. The benefits of an acquisition or investment may also take considerable time to develop and any particular acquisition or investment may not produce the intended benefits.

Future acquisitions would also expose us to potential risks, including risks associated with the assimilation of new operations, technologies and personnel, unforeseen or hidden liabilities, the diversion of resources from our existing businesses, educational programs and technologies, the inability to generate sufficient revenue to offset the costs and expenses of acquisitions, and potential loss of, or harm to, our relationships with employees and students as a result of the integration of new businesses.

If we fail to maintain any of our state authorizations, we would lose our ability to operate in that state.
 
Training Direct and the Culinary Group are authorized and licensed to operate and to grant certificates by the applicable state agency of each state where such authorization is required and where we maintain a campus. In order to maintain these licenses, schools must remain in compliance with each state’s regulations through an annual review of faculty, facility, curriculum, financial performance, transcripts, diplomas and ownership.  Failure to comply with state regulations can result in various penalties, including without limitation, fines, repayment of state financial aid funds, reduction or revocation of eligibility for federal financial aid programs, limitations on ability to grant degrees and certificates, and loss of license. The loss of such authorization in one or more states could have a material adverse effect on our business, financial condition, results of operations and cash flows. Loss of authorization in one or more states could increase the likelihood of additional scrutiny and potential loss of operating and/or degree granting authority in other states in which we operate, which would further impact our business.

If any regulatory audit, investigation or other proceeding finds us not in compliance with the numerous laws and regulations applicable to the postsecondary education industry, we may not be able to successfully challenge such finding and our business could suffer.
 
Due to the highly regulated nature of the postsecondary education industry, we are subject to audits, compliance reviews, inquiries, complaints, investigations, claims of non-compliance and lawsuits by state governmental agencies, regulatory agencies, accrediting agencies, present and former students and employees, shareholders and other third parties, any of whom may allege violations of any of the regulatory requirements applicable to us. If the results of any such claims or actions are unfavorable to us, we may be required to pay monetary fines or penalties, be required to repay funds received under state financial aid programs, have restrictions placed on or terminate our schools’ or programs’ eligibility to participate in state or federal financial aid programs, have limitations placed on or terminate our schools’ operations or ability to grant degrees and certificates, have our schools’ accreditations restricted or revoked, or be subject to civil or criminal penalties. Any one of these sanctions could materially adversely affect our business, financial condition, results of operations and cash flows and result in the imposition of significant restrictions on us and our ability to operate.

If regulators do not approve our acquisitions, the acquired schools’ state licenses, accreditation, and ability to participate in Title IV programs (if applicable) may be impaired.
 
When we acquire a school, we must seek approval from most applicable state agencies and accrediting agencies because an acquisition is considered a change of ownership or control of the acquired institution under applicable regulatory standards. If the acquired school participates in Title IV programs (which provide for government funded student loans), we would be required to receive the approval of the U.S. Department of Education to effect a change of ownership or control of the school.  Compliance with the U.S. Department of Education standards can result in the temporary suspension of the institution’s participation in the Title IV programs unless a timely and materially complete application for recertification is filed with the U.S. Department of Education and it issues a temporary provisional certification.
 
Currently none of our schools are nationally accredited.  The Culinary Group is planning to apply for national accreditation in 2011.  If not approved, Culinary Group students will not be able to apply for Title IV financial aid programs.  If we are unable to obtain approvals from the state agencies, accrediting agencies or U.S. Department of Education for any institution we may acquire in the future, depending on the size of that acquisition, it would have a material adverse effect on our business and achieving our growth strategy.

 
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State licenses and accreditation requirements may adversely impact our ability to effect a sale of our company or any of our operating businesses.
 
A change of ownership or control of our company or any of our operating subsidiaries, depending on the type of change, may require the prior approval of state licensing agencies and in some cases, the U.S. Department of Education. State licensing agencies, including the Connecticut Department of Higher Education (“DHE”) and the New York State Department of Education (the “DOE”), have adopted the change of ownership and control standards.  Such a change of ownership or control could require recertification and reauthorization by state licensing agencies, including the DHE and DOE. There can be no assurances that such recertification would be obtained on a timely basis if we chose to sell either Training Direct or the Culinary Group.  In addition, some other states where Training Direct and the Culinary Group are presently licensed have requirements governing change of ownership or control that require approval of the change to remain authorized to operate in those states. If regulators do not approve or delay their approval of transactions involving a change of control of our company, our state licenses and accreditation may be impaired.

We are dependent on the continued services of certain key executives.

We are currently dependent on the continued services of certain key executive officers, including Anil Narang, Joseph Monaco and Harold Kaplan.  Messrs. Monaco and Kaplan, the former owners of Training Direct and the Culinary Group, have significant operating experience and industry contacts in the for-profit education industry, including relationships with the state agencies regulating our businesses in Connecticut.  Similarly, Timothy Sauvage and Barbara Paradise, the current president and vice president of our Valley subsidiary, have significant operating experience and industry contacts in their respective for-profit education companies.   Although each of such persons have signed non-competition agreements, and have employment agreements and equity interests in our Company, the departure of any of such persons could have a material adverse effect on the business of our company as it may be difficult to find one or more suitable replacements.

Government regulations relating to the Internet could increase our cost of doing business, affect our ability to grow or otherwise have a material adverse effect on our business, financial condition, results of operations and cash flows.
 
The increasing popularity and use of the Internet and other online services has led and may lead to further adoption of new laws and regulatory practices in the U.S. or foreign countries and to new interpretations of existing laws and regulations. These new laws and interpretations may relate to issues such as online privacy, copyrights, trademarks and service marks, sales taxes, value-added taxes, withholding taxes, allocation and apportionment of income amongst various state, local and foreign jurisdictions, fair business practices and the requirement that online education institutions qualify to do business as foreign corporations or be licensed in one or more jurisdictions where they have no physical location or other presence. New laws, regulations or interpretations related to doing business over the Internet could increase our costs and materially and adversely affect our enrollments, which could have a material adverse affect on our business, financial condition, results of operations and cash flows.

 
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Our financial performance depends, in part, on our ability to keep pace with changing market needs and technology; if we fail to keep pace or fail in implementing or adapting to new technologies, our business may be adversely affected.
 
Increasingly, prospective employers of students who graduate from our schools demand that their new employees possess appropriate technological skills and also appropriate “soft” skills, such as communication, critical thinking and teamwork skills. These skills can evolve rapidly in a changing economic and technological environment. Accordingly, it is important for our schools’ educational programs to evolve in response to these economic and technological changes. The expansion of existing programs and the development of new programs may not be accepted by current or prospective students or the employers of our graduates. Even if our schools are able to develop acceptable new programs, our schools may not be able to begin offering those new programs as quickly as required by prospective employers or as quickly as our competitors offer similar programs. In addition, we may be unable to obtain specialized accreditations or licensures that may make certain programs desirable to students. To offer a new academic program, we may be required to obtain federal, state and accrediting agency approvals, which may be conditioned or delayed in a manner that could significantly affect our growth plans. If we are unable to adequately respond to changes in market requirements due to regulatory or financial constraints, unusually rapid technological changes, or other factors, our ability to attract and retain students could be impaired, the rates at which our graduates obtain jobs involving their fields of study could suffer, and our business, financial condition, results of operations and cash flows could be adversely affected.
 
Establishing new academic programs or modifying existing programs requires us to make investments in management and capital expenditures, incur marketing expenses and reallocate other resources. We may have limited experience with the courses in new areas and may need to modify our systems and strategy or enter into arrangements with other educational institutions to provide new programs effectively and profitably. If we are unable to increase the number of students or offer new programs in a cost-effective manner, or are otherwise unable to manage effectively the operations of newly established academic programs, our business, financial condition, results of operations and cash flows could be adversely affected.
 
We have invested and continue to invest significant resources in information technology, which is a key element of our business strategy. Our information technology systems and tools could become impaired or obsolete due to our action or failure to act. For instance, we could install new information technology without accurately assessing its costs or benefits, or we could experience delayed or ineffective implementation of new information technology. Similarly, we could fail to respond in a timely or sufficiently competitive way to future technological developments in our industries. Should our action or failure to act impair or otherwise render our information technology less effective, this could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We are subject to risks relating to our information technology, system applications and security systems, which could have a material adverse affect on our financial results.

The performance and reliability of our computer networks and system applications, especially our online educational platforms and student operational and financial packaging applications, are critical to our reputation and ability to attract and retain students. System errors and/or failures could adversely impact our delivery of educational content to our online students. In addition, system errors could result in delays and/or errors in processing student financial payment and related disbursements. Major risks involved in such network infrastructure include any break-downs or system failures resulting in a sustained shutdown of all or a material portion of our servers, including failures which may be attributable to sustained power shutdowns, or efforts to gain unauthorized access to our systems causing loss or corruption of data or malfunctions of software or hardware. Security breaches of our information systems can also create unauthorized disclosure of confidential information, such as the personal information of our students or credit card information. If we are unable to prevent such security breaches, our operations could be disrupted, our students could suffer financial loss or become the victims of identity theft, or we may suffer reputational damage and/or financial loss because of lost or misappropriated information.

Our network systems are also vulnerable to damage from fire, flood, power loss, telecommunications failures, computer viruses, hacking and similar events. Any network interruption, virus or other inadequacy that causes interruptions in the availability of the online educational programs or deterioration in the quality of access to the online educational platforms could reduce our student’s satisfaction and ultimately harm our business, financial condition and results of operations. In addition, any security breach caused by hackings, which involve efforts to gain unauthorized access to information or systems, or to cause intentional malfunctions or loss or corruption of data, software, hardware or other computer equipment, and the inadvertent transmission of computer viruses could have a material adverse effect on our business, financial condition and results of operations. We do not maintain insurance policies covering losses relating to our network systems and we do not have business interruption insurance.

 
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Our success depends on attracting and retaining qualified personnel.
 
We depend on a core management and key executives. In particular, we rely on the expertise and experience of our senior officers and key employees in our business operations and their personal relationships with our other significant shareholders, employees, the regulatory authorities, and our students. If any of them become unable or unwilling to continue in their present positions, or if they join a competitor or form a competing company in contravention of their employment agreements, we may not be able to identify a replacement easily, our business may be significantly disrupted and our financial condition and results of operations may be materially adversely affected. We currently maintain key-man life insurance in the amount of $2.5 million for Anil Narang, our President and Chief Operating Officer. We do not currently maintain key-man life insurance for any of our other key personnel.
 
We may not be able to adequately protect our intellectual property, and we may be exposed to infringement claims by third parties.

We believe the copyrights, service marks, trademarks, trade secrets and other intellectual property we use are important to our business, and any unauthorized use of such intellectual property by third parties may adversely affect our business and reputation. We rely on the intellectual property laws and contractual arrangements with our employees, clients, business partners and others to protect such intellectual property rights. Third parties may be able to obtain and use such intellectual property without authorization. Moreover, litigation may be necessary in the future to enforce our intellectual property rights, which could result in substantial costs and diversion of our resources, and have a material adverse effect on our business, financial condition and results of operations.

We may be subject to infringement and misappropriation claims in the future, which may cause us to incur significant expenses, pay substantial damages and be prevented from providing our services.

Our success depends, in part, on our ability to carry out our business without infringing the intellectual property rights of third parties. We may be subject to litigation involving claims of patent, copyright or trademark infringement, or other violations of intellectual property rights of third parties. Future litigation may cause us to incur significant expenses, and third-party claims, if successfully asserted against us, may cause us to pay substantial damages, seek licenses from third parties, pay ongoing royalties, redesign our services or technologies, or prevent us from providing services or technologies subject to these claims. Even if we were to prevail, any litigation would likely be costly and time-consuming and divert the attention of our management and key personnel from our business operations.

Risks Related to Our Financial Condition and Results of Operations

Our limited operating history and the unproven long-term potential of our business model make evaluating our business and prospects difficult.

Inasmuch as our operating history is limited, the revenue and income potential of our business and markets are yet to be fully proven. In addition, we are exposed to risks, uncertainties, expenses and difficulties frequently encountered by companies at an early stage of development. Some of these risks and uncertainties relate to our ability to:

 
·
increase our student enrollment by expanding the type, scope and technical sophistication of the educational services we offer;
 
·
respond effectively to competitive pressures;
 
·
respond in a timely manner to technological changes or resolve unexpected network interruptions;
 
·
comply with changes to regulatory requirements;
 
·
maintain adequate control of our costs and expenses;
 
·
increase awareness of our educational programs; and
 
·
attract and retain qualified management and employees.

We cannot predict whether we will meet internal or external expectations of our future performance. If we are not successful in addressing these risks and uncertainties, our business, financial condition and results of operations may be materially adversely affected.

We may need additional capital and may not be able to obtain such capital on acceptable terms.

Capital requirements are difficult to plan in our industry. We currently expect that we will need capital to fund our future acquisitions, educational program development, technological infrastructure and sales and marketing activities.

 
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Our ability to obtain additional capital on acceptable terms is subject to a variety of uncertainties, including:

 
·
investors’ perceptions of, and demand for, securities of vocational, training and technical schools;
 
·
conditions of the United States and other capital markets in which we may seek to raise funds;
 
·
our future results of operations, financial condition and cash flows;
 
·
governmental regulation of educational program providers; and
 
·
economic, political and other conditions in United States.

Any failure by us to raise additional funds on terms favorable to us, or at all, may have a material adverse effect on our business, financial condition and results of operations. For example, we may not be able to carry out parts of our growth strategy to acquire vocational, training and/or technical schools that are complementary to our existing business or necessary to maintain our growth and competitiveness.

We are subject to the risk of being in default under our outstanding secured indebtedness.

On December 1, 2010, we completed a loan with Deerpath Funding, LP and received gross proceeds of $3,000,000 as an initial drawdown.  Deerpath may, at its sole discretion, make additional loans up to an aggregate amount equal to $7,000,000. Our indebtedness to Deerpath is and will be evidenced by our 13.5% senior secured notes that mature on November 30, 2015.  Our obligations to Deerpath are secured by first priority liens and security interests on all of our assets.  Commencing on January 1, 2011 and continuing until the principal debt is paid in full (a) accrued and unpaid interest shall be paid by us in arrears on the first day of each month; and (b) we shall make payments of principal debt on a quarterly basis in an amount equal to $75,000 per quarter.  Any event of default, such as our failure to repay the principal or interest when due or failure to comply with certain financial covenants (if not waived at the sole discretion of Deerpath), could render all of our obligations to become immediately due and payable.  In such event, we would be required to use our limited working capital to repay these obligations; failing which the lender could commence legal action against us and foreclose on all of our assets to recover the amounts due. Any such action would require us to curtail or cease operations.

We have also granted a lien and security interest on our assets (subordinated to up to $10.0 million of senior secured indebtedness) to the former owners of Valley to secure repayment of $1,502,563 of 2.5% installment notes due to such owners or their affiliates which call for monthly payments and mature on July 20, 2015.

Our business may be adversely affected by a further economic slowdown in the U.S. or abroad or by an economic recovery in the U.S.
 
The U.S. and much of the world economy are in the midst of an economic downturn. We believe the current economic downturn has contributed to a portion of our recent enrollment growth as an increased number of working learners seek to advance their education to improve job security or reemployment prospects. This effect cannot be quantified. However, to the extent that the economic downturn has increased demand for our programs, a subsequent economic recovery may eliminate this effect and reduce such demand as fewer potential students seek to advance their education. This reduction could have a material adverse effect on our business, financial condition, results of operations and cash flows. A worsening of the economic downturn may reduce the demand for our programs among students and the willingness of employers to sponsor educational opportunities for their employees, either of which could materially and adversely affect our business, financial condition, results of operations and cash flows.
 
We may not be able to sustain our recent growth rate or profitability, and we may not be able to manage future growth effectively.
 
Our ability to sustain our current rate of growth or profitability depends on a number of factors, including our ability to obtain and maintain regulatory approvals, our ability to attract and retain students, our ability to maintain operating margins, our ability to recruit and retain high quality academic and administrative personnel and competitive factors. In addition, growth may place a significant strain on our resources and increase demands on our management information and reporting systems, financial management controls, and personnel. Although we have made a substantial investment in augmenting our financial and management information systems and other resources to support future growth, we cannot assure you that we will have adequate capacity to accommodate substantial growth or that we will be able to manage further growth effectively. Failure to do so could adversely affect our business, financial condition, results of operations and cash flows.

 
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Risks Relating to Our Securities

Insiders have substantial control over us, and they could delay or prevent a change in our corporate control even if our other stockholders wanted it to occur.
 
Our executive officers and directors hold approximately 97.5% (see Item 12 herein) of our outstanding common stock, which includes (i) shares owned by our officers and/or directors, (ii) shares attributable to certain entities in which our officers and directors share beneficial ownership, and (iii) shares issuable upon exercise of stock options which have vested as of the date of this report. Accordingly, these stockholders are able to control all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This could delay or prevent an outside party from acquiring or merging with us even if our other stockholders wanted it to occur. 

There may not be sufficient liquidity in the market for our common stock.

Our common stock is quoted on the Pink Sheets under the current symbol "OTED". There is a limited trading market for our common stock. Accordingly, there can be no assurance as to the liquidity of any markets that may develop for our common stock, the ability of holders of our common stock to sell our common stock, or the prices at which holders may be able to sell our common stock.

The market price of our common stock may be volatile.

     The market price of our common stock may be highly volatile, as is the stock market in general, and the market for Pink Sheets quoted stocks in particular. Some of the factors that may materially affect the market price of our common stock are beyond our control, such as changes in financial estimates by industry and securities analysts, conditions or trends in the industry in which we operate or sales of our common stock.  These factors may materially adversely affect the market price of our common stock, regardless of our performance.  In addition, the public stock markets have experienced extreme price and trading volume volatility.  This volatility has significantly affected the market prices of securities of many companies for reasons frequently unrelated to the operating performance of the specific companies.  These broad market fluctuations may adversely affect the market price of our common stock.

Our outstanding options and warrants may adversely affect us in the future and cause substantial dilution to existing shareholders.

As of March 31, 2011, we had 22,938,540 shares of common stock outstanding, of which 179,641 are held in escrow and are subject to earn-out provisions. In addition, there are outstanding 5-year options to purchase an aggregate of 3,436,328 shares of common stock expiring December 31, 2014 and outstanding warrants to purchase 46,000 shares of common stock expiring on June 30, 2016 at an exercise price of $0.05 per share. On June 1, 2010, holders of warrants to purchase an aggregate of 878,000 shares of our common stock exercised such warrants on a cashless basis pursuant to which we issued an aggregate of 862,034 shares to such holders. In addition, on June 30, 2010, we consummated a private offering with two accredited investors and/or qualified institutional buyers pursuant to which we sold and issued to the investors warrants to purchase an aggregate of 70,500 shares of our common stock at an exercise price of $0.50 per share, subject to certain adjustments as set forth therein, beginning on June 30, 2010 through June 30, 2015. In connection with our loan agreement, on December 1, 2010, we issued to Deerpath Funding, LP a warrant initially exercisable to purchase 628,857 shares of common stock at an exercise price of $0.50 per share and a warrant exercisable to purchase 150,000 shares of common stock at an exercise price of $0.50 per share to an unaffiliated company as compensation for services performed in connection with the Deerpath Loan Agreement.

The exercise of these options and warrants will cause dilution in the interests of other shareholders as a result of the additional common stock that would be issued upon conversion and/or exercise. Moreover, subject to any applicable lock-up restrictions, sales of the shares of our outstanding common stock and shares issuable upon exercise of the options and warrants could have a depressive effect on the price of our stock, particularly if there is not a coinciding increase in demand by purchasers of our common stock. Further, the terms on which we may obtain additional financing during the period any of such securities remain outstanding may be adversely affected by the existence of these securities as well.

Our common stock may be considered a “penny stock” and may be difficult to sell.

     The SEC has adopted regulations which generally define a “penny stock” to be an equity security that has a market price of less than $5.00 per share or an exercise price of less than $5.00 per share, subject to specific exemptions. The market price of our common stock is less than $5.00 per share and, therefore, it may be designated as a “penny stock” according to SEC rules.  This designation requires any broker or dealer selling these securities to disclose certain information concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase the securities.  These rules may restrict the ability of brokers or dealers to sell our common stock and may affect the ability of investors to sell their shares.

 
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The market for penny stocks has experienced numerous frauds and abuses which could adversely impact investors in our stock.

Pink Sheets securities are frequent targets of fraud or market manipulation, both because of their generally low prices and because Pink Sheets reporting requirements are less stringent than those of the stock exchanges.

Patterns of fraud and abuse include:

 
(a)
Control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer;
 
(b)
Manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases;
 
(c)
“Boiler room" practices involving high pressure sales tactics and unrealistic price projections by inexperienced sales persons;
 
(d)
Excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and
 
(e)
Wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the inevitable collapse of those prices with consequent investor losses.
 
Our management is aware of the abuses that have occurred historically in the penny stock market.

We have not paid dividends in the past and do not expect to pay dividends in the future, and any return on investment may be limited to the value of our stock.

We have never paid any cash dividends on our common stock and do not anticipate paying any cash dividends on our common stock in the foreseeable future and any return on investment may be limited to the value of our stock.  We plan to retain any future earnings to finance growth.

Item 1B. Unresolved Staff Comments.

Not applicable.

Item 2. Properties.

EII’s and Valley’s principal executive offices are located at 845 Third Avenue, 6th Floor, New York, New York 10022. Valley rents office space from one of its officers on a month-to-month basis and pays $725 per month. EII also reimburses another officer $2,992 per month for rent of office space on a month-to-month basis. Valley’s principal operating office is located at 1995 Country Club Blvd, Clive, Iowa 50325. Training Direct’s principal executive offices are located at 3885 Main Street, 2nd Floor, Bridgeport, Connecticut 06606, which also houses the company’s classrooms, and offices for administration, admissions, and student services, in approximately 6,000 square feet. Such premises are leased with a rental payment of $6,026 per month, plus annual increases of 3% or the CPI annual increase, if greater, and expires in October 2019.  The Culinary Group’s principal executive offices are located at 424 West 33rd Street, New York, NY  10001.  Such premisies are leased with a rental payment of $4,165 per month and expires in April 2014.  The Culinary Group conducts its classes in space at six locations in the state of New York which it leases or rents on a month-to-month basis. Three of these locations are leased with leases expiring though December, 2011.

We believe that our facilities are adequate to meet our current needs. Our offices are in good condition and are sufficient to conduct our operations. We do not intend to renovate, improve, or develop properties. We are not subject to competitive conditions for property and currently have no property to insure. We have no policy with respect to investments in real estate or interests in real estate and no policy with respect to investments in real estate mortgages. Further, we have no policy with respect to investments in securities of or interests in persons primarily engaged in real estate activities.

Item 3. Legal Proceedings.

Neither we nor any of our direct or indirect subsidiaries is a party to, nor is any of our property the subject of, any legal proceedings other than ordinary routine litigation incidental to their respective businesses. There are no proceedings pending in which any of our officers, directors or 5% shareholders are adverse to us or any of our subsidiaries or in which they are taking a position or have a material interest that is adverse to us or any of our subsidiaries.

 
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Neither we nor any of our subsidiaries is a party to any administrative or judicial proceeding arising under federal, state or local environmental laws.

From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business.

Item 4.  (Removed and Reserved).

PART II

Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

The common stock was approved for quotation on the Over–the-Counter Bulletin Board on April 28, 2008 under the symbol “FHMS”. On April 7, 2010, our common stock moved from quotation of the Over–the-Counter Bulletin Board to the Pink Sheets.  Effective December 21, 2010, FINRA approved our application to voluntarily change the symbol of our common stock on the Pink Sheets to “OTED”.

The following table sets forth the quarterly high and low bid prices for the common stock for the last two fiscal years. The prices set forth below represent inter-dealer quotations, without retail markup, markdown or commission and may not be reflective of actual transactions.

Fiscal Quarter
 
High
   
Low
 
Quarter ended March 31, 2009
  $ 1.01     $ 0.16  
Quarter ended June 30, 2009
  $ 0.35     $ 0.16  
Quarter ended September 30, 2009
  $ 0.26     $ 0.16  
Quarter ended December 31, 2009
  $ 1.50     $ 1.50  
Quarter ended March 31, 2010
  $ 3.50     $ 1.50  
Quarter ended June 30, 2010
  $ 2.50     $ 2.00  
Quarter ended September 30, 2010
  $ 2.50     $ 0.10  
Quarter ended December 31, 2010
  $ 3.50     $ 2.50  
Quarter ended March 31, 2011*
  $ 2.75     $ 2.50  

* Through March 31, 2011.

The shares quoted are subject to the provisions of Section 15(g) and Rule 15g-9 of the Securities Exchange Act of 1934, as amended (the Exchange Act"), commonly referred to as the "penny stock" rule. Section 15(g) sets forth certain requirements for transactions in penny stocks and Rule 15g-9(d)(1) incorporates the definition of penny stock as that used in Rule 3a51-1 of the Exchange Act.
 
The Commission generally defines penny stock to be any equity security that has a market price less than $5.00 per share, subject to certain exceptions. Rule 3a51-1 provides that any equity security is considered to be a penny stock unless that security is: registered and traded on a national securities exchange meeting specified criteria set by the Commission; authorized for quotation on The NASDAQ Stock Market; issued by a registered investment company; excluded from the definition on the basis of price (at least $5.00 per share) or the registrant's net tangible assets; or exempted from the definition by the Commission. Trading in the shares is subject to additional sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and accredited investors, generally persons with assets in excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together with their spouse.
 
For transactions covered by these rules, broker-dealers must make a special suitability determination for the purchase of such securities and must have received the purchaser's written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the rules require the delivery, prior to the first transaction, of a risk disclosure document relating to the penny stock market. A broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, and current quotations for the securities. Finally, the monthly statements must be sent disclosing recent price information for the penny stocks held in the account and information on the limited market in penny stocks. Consequently, these rules may restrict the ability of broker dealers to trade and/or maintain a market in the company’s common stock and may affect the ability of shareholders to sell their shares.

 
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Number of Shareholders

As of March 31, 2011, there were 22,938,540 shares of our common stock issued and outstanding, of which 179,641 shares are held in escrow and are subject to earn-out provisions, and approximately 124 holders of record of our common stock. This number excludes any estimate by us of the number of beneficial owners of shares held in street name, the accuracy of which cannot be guaranteed. The transfer agent for our common stock is American Stock Transfer & Trust Co. LLC, 59 Maiden Lane, New York, N.Y. 10038.

Dividends

We have never declared or paid dividends on our common stock.  We intend to retain earnings, if any, to support the development of our business and therefore do not anticipate paying cash dividends for the foreseeable future.  Payment of future dividends, if any, will be at the discretion of our board of directors after taking into account various factors, including current financial condition, operating results and current and anticipated cash needs.

Securities Authorized for Issuance Under Equity Compensation Plans

Equity Compensation Plan Information

The following table presents information as of December 31, 2010 with respect to compensation plans under which equity securities were authorized for issuance.

   
Number of
securities
to be issued upon
exercise of
outstanding
options,
warrants and rights
(a)
   
Weighted average
exercise price of
outstanding options,
warrants and rights
(b)
   
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column
(a))
(c)
 
Equity compensation plans approved by security holders
                 
2009 Stock Incentive Plan (1)
    877,360     $ 0.50       622,640  
                         
Equity compensation plans not approved by security holders
        $        
Total
    877,360     $ 0.50       622,640  
 
(1)  On December 23, 2009, our board of directors have consented in writing to approve our 2009 Stock Incentive Plan for key employees, directors, consultants and others providing services to us, pursuant to which up to 1,500,000 shares of common stock shall be authorized for issuance thereunder. On May 19, 2010, Kinder Investments, L.P. and Sanjo Squared, LLC, each affiliates of our company, have entered into a written shareholder consent authorizing, among other things, the 2009 Stock Incentive Plan.

Other than as set forth above, we do not have any stock option, bonus, profit sharing, pension or similar plan.

On January 6, 2011, we issued 5-year options to purchase an aggregate of 150,000 shares of common stock to three employees of the Company (50,000 options each), including Kellis Veach, our Chief Financial Officer, at an exercise price of $2.75, as compensation for services performed on behalf of the Company.  These options are exercisable as to 16,667 shares on January 6, 2011, as to 16,667 shares on January 6, 2012, and as to 16,666 shares on January 6, 2013.

 
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On February 7, 2011, we issued 5-year options to purchase an aggregate of 50,000 shares of common stock to an employee of the Company at an exercise price of $2.75, as compensation for services performed on behalf of the Company.  These options are exercisable as to 16,667 shares on February 7, 2011, as to 16,667 shares on February 7, 2012, and as to 16,666 shares on February 7, 2013.

The above table does not include the following stock option grants which were made outside of the 2009 Stock Incentive Plan.

On August 20, 2009, Joseph Bianco purchased options to purchase 1,166,667 (the “Bianco EII Stock Options”) shares of EII common stock at an exercise price equal to $0.25 per share with respect to 583,334 options and $0.45 per share with respect to 583,333 options in exchange for a $10,000 principal amount promissory note from Mr. Bianco, as compensation for services performed on behalf of EII in his capacity as Chief Executive Officer.

Under the merger agreement, the Bianco EII Stock Options were converted into 5-year options to purchase an aggregate of 1,279,484 shares of our common stock at an exercise price equal to $0.228 per share with respect to 639,742 options (the “Bianco Tier I Options”) and $0.41 per share with respect to 639,742 options (the “Bianco Tier II Options”). The Bianco Tier I Options shall be exercisable only if the EBTDA Per Share for the applicable Measuring Period exceeds the Base Tier I EBTDA Per Share and the Bianco Tier II Options shall be exercisable only if the EBTDA Per Share for the applicable Measuring Period exceeds the Base Tier II EBTDA. The Bianco Tier I and Tier II Options shall be deemed vested as of the date of grant.

Base Tier I EBTDA Per Share means: (1) $0.036 for the Measuring Year ending December 31, 2010, (2) $0.055 for the Measuring Year ending December 31, 2011, (3) $0.091 for the Measuring Year ending December 31, 2012, (4) $0.109 for the Measuring Year ending December 31, 2013, and (5) $0.137 for the Measuring Year ending December 31, 2014. Base Tier II EBTDA Per Share means: (1) $0.055 for the Measuring Year ending December 31, 2010, (2) $0.091 for the Measuring Year ending December 31, 2011, (3) $0.137 for the Measuring Year ending December 31, 2012, (4) $0.164 for the Measuring Year ending December 31, 2013, and (5) $0.191 for the Measuring Year ending December 31, 2014. EBTDA Per Share means (1) the net income after taxes (exclusive of any non-recurring or extraordinary items paid or accrued) of us and our consolidated subsidiaries (if any) in the applicable Measuring Year, plus (A) federal and state income taxes paid or accrued in such Measuring Year, (B) amounts paid or accrued in such Measuring Year in respect of depreciation of tangible assets, (C) amounts paid or accrued in such Measuring Year in respect of non-cash interest charges, and D) amounts paid or accrued in such Measuring Year in respect of amortization of intangible assets, including goodwill, all as set forth on the our audited consolidated statements of income or operations and our consolidated subsidiaries (if any) in the applicable Measuring Year and as determined in accordance with Generally Accepted Accounting Principles ("GAAP") by our independent accountants, divided by (2) the weighted average of the outstanding common stock, measured on a fully diluted basis.

On August 20, 2009, Anil Narang purchased options to purchase 1,166,667 (the “Narang EII Stock Options”) shares of EII common stock at an exercise price equal to $0.25 per share with respect to 583,334 options and $0.45 per share with respect to 583,333 options in exchange for a $10,000 principal amount promissory note from Mr. Narang, as compensation for services performed on behalf of EII in his capacity as President and Chief Operating Officer.

Under the merger agreement, the Narang EII Stock Options were converted into 5-year options to purchase an aggregate of 1,279,484 shares of our common stock at an exercise price equal to $0.228 per share with respect to 639,742 options (the “Narang Tier I Options”) and $0.41 per share with respect to 639,742 options (the “Narang Tier II Options”). The Narang Tier I Options shall be exercisable only if the EBTDA Per Share for the applicable Measuring Period exceeds the Base Tier I EBTDA Per Share and the Narang Tier II Options shall be exercisable only if the EBTDA Per Share for the applicable Measuring Period exceeds the Base Tier II EBTDA. The Narang Tier I and Tier II Options shall be deemed vested as of the date of grant.  Base Tier I EBTDA Per Share and EBTDA Per Share have the same meanings set forth above.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

There were no purchases or repurchases of our equity securities by the Company or any affiliated purchasers.

Unregistered Sales of Equity Securities and Use of Proceeds

During the fourth quarter of 2010, we issued (or contracting to issue) equity securities without registration under the Securities Act of 1933, as amended, as follows:

 
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On October 13, 2010, we issued an aggregate of 12,278,333 shares of common stock to the holders of our 250,000 shares of Series A Preferred Stock which automatically converted into such shares of common stock at a conversion ratio equal to 49.11333 shares of common stock for each share of Series A Preferred Stock upon the filing by us on October 13, 2010 of an amendment to our certificate of incorporation which increases the authorized shares of our common stock to 50,000,000 shares.

On December 1, 2010 (the “Closing Date”), we consummated the acquisition of ETI pursuant to an amended and restated agreement and plan of merger dated as of November 30, 2010 (the “Merger Agreement”) by and among the Company, ETI Acquisition Corp. (a newly formed acquisition subsidiary of the Company) (“Mergerco”), ETI and its stockholders being Messrs. Joseph Monaco, Harold Kaplan and their wives and daughters (collectively, the “ETI Stockholders”) pursuant to which Mergerco was merged with and into ETI, with ETI as the surviving corporation of the merger (the “Merger”).  Upon consummation of the Merger, ETI became our wholly-owned subsidiary. Under the terms of the Merger Agreement, the ETI Stockholders were issued an aggregate of 1,200,000 shares of our common stock (the “Merger Shares”), representing $3.0 million of our common stock valued at $2.50 per share.  In addition, under the Merger Agreement, the ETI Stockholders are entitled to receive contingent merger consideration in the form of $500,000 of additional shares of our common stock, based upon the Culinary Group reaching a certain cumulative EBITDA level in 2011.  The contingent merger consideration is valued based on the volume weighted average price of our common stock for the 20 trading days prior to determination of the applicable EBITDA of the Culinary Group in fiscal 201l.

On the Closing Date, we completed the Loan with Deerpath pursuant to a Loan Agreement dated November 30, 2010 by and among the Company and its subsidiaries and Deerpath (the “Loan Agreement”), and received gross proceeds of $3,000,000 as an initial drawdown (the “Initial Loan”), a portion of which was used to fund the acquisition of CTC and PCA. In exchange for the Initial Loan, we issued to Deerpath (i) a senior secured initial term promissory note in the principal amount of $3,000,000 (the “Note”); (ii) a warrant (the “Warrant”) initially exercisable to purchase 628,857 shares of our common stock, representing 2.5% of our fully diluted common stock as of the Closing Date, at an exercise price of $0.50 per share; and (iii) 1,886,571 shares of our common stock (the “Deerpath Shares”), representing 7.5% of our fully diluted common stock as of the Closing Date. The number of shares of our common stock issuable upon exercise of the Deerpath Warrant is subject to customary anti-dilution adjustments.

On December 2, 2010, we issued a warrant to purchase 150,000 shares of common stock to West End Capital Advisory, Inc. at an exercise price of $0.50 as compensation for services performed in connection with the Deerpath Loan Agreement.

We believe that all of the offerings and sales were deemed to be exempt under Section 4(2) of the Securities Act of 1933, as amended. No advertising or general solicitation was employed in offering the securities. The offerings and sales were made to a limited number of persons, all of whom were accredited investors, business associates of the Company or executive officers of the Company, and transfer was restricted by the Company in accordance with the requirements of the Securities Act of 1933. In addition to representations by the above-referenced persons, we have made independent determinations that all of the above-referenced persons were accredited or sophisticated investors, and that they were capable of analyzing the merits and risks of their investment, and that they understood the speculative nature of their investment. Furthermore, all of the above-referenced persons were provided with access to our Securities and Exchange Commission filings.

Item 6.  Selected Financial Data.

Not applicable.

Item 7. Management’s Discussion and Analysis of Financial Condition or Results of Operations.

WE URGE YOU TO READ THE FOLLOWING DISCUSSION IN CONJUNCTION WITH OUR CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES THERETO BEGINNING ON PAGE F-1. THIS DISCUSSION MAY CONTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS COULD DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY THE FORWARD-LOOKING STATEMENTS AS A RESULT OF A NUMBER OF FACTORS, INCLUDING BUT NOT LIMITED TO THE RISKS AND UNCERTAINTIES DISCUSSED UNDER THE HEADING “RISK FACTORS” IN THIS FORM 10-K AND IN OUR OTHER FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. IN ADDITION, SEE “CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTSSET FORTH IN THIS REPORT.

 
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Overview

Florham Consulting Corp. ("Florham Consulting") was formed on February 9, 2005 as a Delaware corporation. On October 13, 2010 Florham Consulting amended its Certificate of Incorporation to, among other things, change its name to Oak Tree Educational Partners, Inc. (‘Oak Tree” or the “Company” or “we”).  We have included elsewhere herein the financial statements of Oak Tree Educational Partners, Inc. and Subsidiaries as of December 31, 2010 and 2009 and for the year December 31, 2010 and for the period from July 20, 2009(inception)  through December 31,2009. On December 31, 2009, Oak Tree completed a reverse merger with Educational Investors, Inc.  (“EII”). Under accounting principles generally accepted in the United States, the share exchange is considered to be an in substance capital transaction, as opposed to a business combination.  Accordingly, the accounting for the share exchange is identical to that resulting from a reverse acquisition, with no goodwill being recorded.  Under reverse takeover accounting, the post reverse acquisition fiscal historical financial statements of the legal acquirer, Florham Consulting, are those of the legal acquiree which is considered to be the accounting acquirer, EII.  Shares and per share amounts reported have been adjusted to reflect the recapitalization resulting from the revere merger.

EII was incorporated on July 20, 2009.  EII through its wholly-owned subsidiary, Valley Anesthesia, Inc. (“Valley”), purchased certain assets and assumed certain liabilities of Valley Anesthesia Educational Programs, Inc. (“VAEP”) effective August 20, 2009. EII acquired the Membership Interest in Training Direct LLC (“Training Direct”) effective December 31, 2009. On December 1, 2010, certain transactions were consummated effective November 30, 2010, whereby Educational Training Institute, Inc. (“ ETI”) became a wholly-owned subsidiary of Oak Tree and Culinary Tech Center, LLC (“ CTC”) and Professional Culinary Academy (“PCA”) became wholly-owned subsidiaries of ETI.
 
 
The following discussion and analysis of financial condition and results of operations relates to the operations and financial condition reported in the financial statements of Oak Tree Educational Partners, Inc. and Subsidiaries as of December 31, 2010 and 2009 and should be read in conjunction with such financial statements and related notes included herein.

EII was incorporated for the purpose of acquiring vocational, training and technical schools, with an initial emphasis on the health care and medical industries.  Through its Valley Anesthesia, Inc. subsidiary, EII provides comprehensive review and update courses and study materials that aid Student Registered Nurse Anesthetists (“SRNA”) and Graduate Registered Nurse Anesthetists (“GRNA”) in preparation for the National Certifying Exam (“NCE”) throughout the continental United States.  Through its Training Direct subsidiary, EII provides “distance learning” and “residential training” educational programs for students to become eligible for entry-level employment in a variety of fields and industries. The company strives to assist those who may not have realized their full potential in the workplace in finding a new career direction and progressing in learning skills necessary to reach their earning and personal development possibilities and goals. Training Direct maintains approvals from the Connecticut Commissioner of Higher Education, the Connecticut Department of Health Services and the National Health Career Association, and is an Eligible Training Provider under the Workforce Investment Act. Such approvals require that the company have a competent faculty, offer educationally sound and up to date courses and course materials, and be subject to inspections and approvals by outside examining committees.  The Company through ETI provides vocational education and training programs to students under funded programs by various school districts at various training sites located in New York State.  The Company also provides Job Readiness and Direct Placement Services under a New York State contract. The Company through CTC owns and operates three vocational training schools licensed by the New York State Department of Education. Each licensed vocational training school provides its vocational education and training programs to students primarily for two New York State agencies.  The Company through PCA owns and operates three vocational training schools licensed by the New York State Department of Education. Each licensed vocational training school provides vocational education and training programs to students primarily for a New York State agency.

Acquisitions

Effective August 20, 2009, Valley purchased certain assets and assumed certain liabilities of Valley Anesthesia Educational Programs, Inc. for $3,838,215.  The purchase price included $2,000,000 cash, a promissory note at fair value of $1,702,883, the present value of an earnout of $79,990 and net liabilities assumed of $55,342. The purchase method of accounting was used for this transaction and the purchase price was allocated to the fair value of financial assets, liabilities, tradename/trademark/content, group and non-group registrations, website, review manuals and covenant not-to compete aggregating $3,654,658, and the excess of the purchase price over the fair value of the identifiable assets was realized as goodwill. 

 
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On December 16, 2009, EII entered into an Interest  Purchase Agreement ("TDI Agreement") with Training Direct LLC ("TDI") and its members and the Company pursuant to which EII acquired all outstanding membership interests, on a fully diluted basis, of TDI in exchange for (a) $200,000 cash, (b) shares of the Company's Common Stock having a deemed value of $600,000 (the "Acquisition Shares"), with such number of Acquisition Shares to be determined by dividing $600,000 by the "Discounted VWAP" (as defined below) for the twenty (20) "Trading Days" (as defined below) immediately following the consummation of the Reverse Merger and (c) shares of the Company's Common Stock having a deemed value of $300,000 (the "Escrow Shares"), with such number of Escrow Shares to be determined by dividing $300,000 by the Discounted VWAP for the twenty (20) Trading Days immediately following the consummation of the Reverse Merger. The Escrow Shares will be held in escrow and released therefrom as provided in the TDI Agreement. The closing of the TDI Agreement occurred on December 31, 2009. "Discounted VWAP" is defined in the TDI Agreement as seventy percent (70%) of the "VWAP" of the Company's Common Stock, but is in no event less than $0.40 per share. "VWAP" is defined in the TDI Agreement as a fraction, the numerator of which is the sum of the product of (i) the closing trading price for the Company's Common Stock on the applicable national securities exchange on each Trading Day of the twenty (20) Trading Days following the consummation of the Reverse Merger and (ii) the volume of the Company's  Common Stock on the applicable national securities exchange for each such day and the denominator of which is the total volume of the Company's Common Stock on the applicable national securities exchange during such twenty day period, each as reported by Bloomberg Reporting Service or other recognized market price reporting service. "Trading Day" is defined in the TDI Agreement as any day on which the New York Stock Exchange or other national securities exchange on which the Company's Common Stock trades is open for trading. The Discounted VWAP for the twenty Trading Days after the effective date of the Reverse Merger was $1.67.  Accordingly, an aggregate of 359,281 Acquisition Shares and 179,641 Escrow Shares have been issued.

On May 27, 2010, effective May 21, 2010, we entered into agreements to acquire 100% of the equity interests of Educational Training Institute, Inc., Culinary Tech Center, LLC and Professional Culinary Academy LLC; the latter two of which are licensed by the New York State Department of Education.  The Culinary Group provides vocational training in commercial cooking, catering, hotel operations and customer service.

As further described below, on December 1, 2010, we and the Culinary Group satisfied all conditions to closing, including, without limitation, obtaining approval of the acquisition from the New York State Department of Education, and accordingly, the parties consummated the acquisition of the Culinary Group pursuant to amended and restated agreements. The cash portion of the purchase price for the Culinary Group was financed by us through a $10 million senior secured debt facility (the “Loan”) provided by Deerpath Funding, LP (“Deerpath”), a NYC-based provider of financing to middle market companies.

On December 1, 2010 (the “Closing Date”), we consummated the acquisition of ETI pursuant to an amended and restated agreement and plan of merger dated as of November 30, 2010 (the “Merger Agreement”) by and among the Company, ETI Acquisition Corp. (a newly formed acquisition subsidiary of the Company) (“Mergerco”), ETI and its stockholders being Messrs. Joseph Monaco, Harold Kaplan and their wives and daughters (collectively, the “ETI Stockholders”) pursuant to which Mergerco was merged with and into ETI, with ETI as the surviving corporation of the merger (the “Merger”).  Upon consummation of the Merger, ETI became our wholly-owned subsidiary. Under the terms of the Merger Agreement, the ETI Stockholders were issued an aggregate of 1,200,000 shares of our common stock (the “Merger Shares”), representing $3.0 million of our common stock valued at $2.50 per share.  In addition, under the Merger Agreement, the ETI Stockholders are entitled to receive contingent merger consideration in the form of $500,000 of additional shares of our common stock, based upon the Culinary Group reaching a certain cumulative EBITDA level in 2011.  The contingent merger consideration is valued based on the volume weighted average price of our common stock for the 20 trading days prior to determination of the applicable EBITDA of the Culinary Group in fiscal 201l.

Immediately following consummation of the Merger referred to above, we consummated the acquisition of CTC and PCA pursuant to an amended and restated membership interest purchase agreement (the “Purchase Agreement”) with the Culinary Group and Messrs. Monaco and Kaplan, the sole members of CTC and PCA.  Under the terms of the Purchase Agreement, ETI (now a wholly-owned subsidiary of the Company) purchased from Messrs. Monaco and Kaplan 100% of the membership interests of each of CTC and PCA.  The purchase price for such equity membership interests paid at closing was $1.5 million, in cash, in equal amounts to Messrs. Monaco and Kaplan or their designee(s).

On the Closing Date, we completed the Loan with Deerpath pursuant to a Loan Agreement dated November 30, 2010 by and among the Company and its subsidiaries and Deerpath (the “Loan Agreement”), and received gross proceeds of $3,000,000 as an initial drawdown (the “Initial Loan”), a portion of which was used to fund the acquisition of CTC and PCA. We paid an aggregate amount of $185,000 to Deerpath at the closing, consisting of structuring and closing fees and expenses.  Deerpath may, at its sole discretion, make additional Loans up to an aggregate amount equal to $7,000,000 (the “Additional Loans”).

 
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In exchange for the Initial Loan, we issued to Deerpath (i) a senior secured initial term promissory note in the principal amount of $3,000,000 (the “Note”); (ii) a warrant (the “Warrant”) initially exercisable to purchase 628,857 shares of our common stock, representing 2.5% of our fully diluted common stock as of the Closing Date, at an exercise price of $0.50 per share; and (iii) 1,886,571 shares of our common stock (the “Deerpath Shares”), representing 7.5% of our fully diluted common stock as of the Closing Date. In the event that after the Closing Date, the number of shares of our fully diluted common stock increases (with certain exceptions as set forth in the Loan Agreement), we will be required to issue additional Warrants and Deerpath Shares so that Deerpath maintains its ownership of warrants to purchase 2.5% of the then fully diluted common stock, and Deerpath Shares representing 7.5% of the then fully diluted shares.

Under the terms of the Loan Agreement, the principal amount of the Loan and Additional Loans (collectively, the “Principal Debt”) shall bear interest at a rate equal to the lesser of (i) 13.50% per annum; and (ii) the maximum rate of interest Deerpath may receive under applicable law. The principal amount and all accrued and unpaid interest under the Loan and Additional Loans shall be repaid by us on or prior to November 30, 2015 (the “Maturity Date”). Commencing on January 1, 2011 and continuing until the Principal Debt is paid in full (a) accrued and unpaid interest shall be paid by us in arrears on the first day of each month; and (b) we shall make payments of Principal Debt on a quarterly basis in an amount equal to $75,000 per quarter. In addition, we may elect to prepay any or all of the Principal Debt upon 2 business day’s prior written notice to Deerpath in a minimum amount of $100,000 and in minimum increments of $10,000 for any amounts in excess of $100,000. We shall pay a cash prepayment premium of 3%, 2% or 1% of the Principal Debt being prepaid if such prepayment occurs on or prior to the first, second or third anniversaries of the Closing Date, respectively.

The Loan and Additional Loans are secured by a first priority lien and security interest on all of the assets of the Company and its subsidiaries pursuant to a security agreement (the “Security Agreement”) dated as of November 30, 2010, among the Company, each of its subsidiaries and Deerpath, as well as by a pledge of all of the equity that the Company and certain of its subsidiaries owns in each of their respective subsidiaries pursuant to a pledge agreement (the “Pledge Agreement”) dated as of November 30, 2010, among the Company, certain of its subsidiaries and Deerpath.  Due to the entry by the Company into the Security Agreement with Deerpath, Valley Anesthesia, Inc. (“Valley”), the Company’s wholly owned subsidiary, entered into a Subordination and Intercreditor Agreement (the “Subordination Agreement”) and Amended and Restated Security Agreement (the “Valley Security Agreement”) with Valley Anesthesia Educational Programs, Inc. (“VAEP”), pursuant to which VAEP agreed to subordinate its security interest in all of Valley’s assets, as well as repayment, covering a 6-year installment promissory note in the principal amount of $2,000,000 (the “VAEP Note”) previously issued by Valley to VAEP in connection with Valley’s August 2009 purchase of a majority of the equity of VAEP, in favor of Deerpath’s priority first lien and security interest.

In consideration for its execution of the Subordination Agreement, Oak Tree and each of its subsidiaries guaranteed the VAEP Note and, pursuant to an amended and restated security agreement, Oak Tree and its subsidiaries granted VAEP a lien, subordinated to the Deerpath lien and any other senior secured indebtedness (including acquisition indebtedness), on the assets and properties of Oak Tree and its subsidiaries.  In addition, Oak Tree’s principal shareholders, Kinder Investments, LP, Joseph J. Bianco and Anil Narang agreed to guaranty, under certain circumstances, the payment when due of up to nine monthly installments, totaling a maximum of approximately $319,500, of the VAEP Note.

Liquidity and Capital Resources

As of December 31, 2010, we had a working capital deficit of approximately $230,000 after taking into account all current assets and all current liabilities, which liabilities include approximately $1,362,000 of deferred revenue that will be earned during the following year.
 
Net cash used in operating activities for the year ended December 31, 2010 was approximately $354,000. While the Company incurred a loss during the year ended December 31, 2010 in the approximate amount of $1,315,000, included in expenses was approximately $522,000 of depreciation and amortization, $344,000 of stock based compensation, and $154,000 of warrant based interest, which amounts are non-cash.

Net cash used in investing activities for the year ended December 31, 2010 of approximately $1,578,000 was primarily related to the cash used for the purchase of Culinary Group in the approximate amount of $1,500,000 and the purchase of fixed assets in the approximate amount of $78,000.

Net cash provided by financing activities of approximately $1,976,000 was primarily related proceeds from senior debt borrowing in the approximate amount of $3,000,000, less approximately $650,000 of costs incurred in the financing and approximately $374,000 for payments of notes and capital lease obligations.

 
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On April 11, 2011, we obtained short term loans aggregating $360,000 from Venturetek LP, an unrelated entity (as to $240,000) and Black Bear Trading Corp., an entity owned by the sister of Joseph J. Bianco, our Chief Executive Officer (as to $120,000).  The loans are evidenced by our unsecured 13.5% promissory notes payable on September 30, 2011; provided, that neither the notes nor any interest thereon may be repaid unless, as at the scheduled repayment date, we and our subsidiaries are in compliance with certain covenants in our loan agreement with Deerpath, including our financial covenants. In consideration for loans, we issued warrants to purchase an aggregate of 169,200 shares of our common stock at an exercise price of $2.50 per share, subject to certain adjustments provided therein.  Mr. Bianco disclaims any interest in the securities, including 56,400 of the warrants, issued to Black Bear Trading Corp.

Although we expect that our available funds and funds to be generated from our ongoing operations will be sufficient to meet our anticipated needs for 12 months, we may need to obtain additional capital to continue to grow our business. Our cash requirements may vary materially from those currently anticipated due to changes in our operations, including the timing of our receipt of revenues.  Our ability to obtain additional financing in the future will depend in part upon the prevailing capital market conditions, as well as our business performance. There can be no assurance that we will be successful in our efforts to arrange additional financing on terms satisfactory to us or at all.

Critical Accounting Policies and Estimates

Our financial information has been prepared in accordance with generally accepted accounting principles in the United States, which requires us to make judgments, estimates and assumptions that affect (1) the reported amounts of our assets and liabilities, (2) the disclosure of our contingent assets and liabilities at the end of each fiscal period and (3) the reported amounts of revenues and expenses during each fiscal period.  We continually evaluate these estimates based on our own historical experience, knowledge and assessment of current business and other conditions, our expectations regarding the future based on available information and reasonable assumptions, which together form our basis for making judgments about matters that are not readily apparent from other sources.  Since the use of estimates is an integral component of the financial reporting process, our actual results could differ from those estimates.  Some of our accounting policies require a higher degree of judgment than others in their application.

When reviewing our financial statements, you should consider (1) our selection of critical accounting policies, (2) the judgment and other uncertainties affecting the application of those policies, and (3) the sensitivity of reported results to changes in conditions and assumptions.  We believe the following accounting policies involve the most significant judgment and estimates used in the preparation of our financial statements.

Use of estimates in the preparation of financial statements

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results may differ from those estimates.  Estimates are used in accounting for, among other things, useful lives for depreciation and amortization, estimates of fair value when recording share based compensation, future cash flows associated with impairment testing for long-lived assets, deferred tax assets and the related valuation allowances and contingencies, including going concern assessments.

Goodwill and Indefinite Lived Intangibles

The Company performs an annual review of goodwill and indefinite lived intangibles for possible impairment, requiring the comparison of fair market value to carrying value.  Fair market value is estimated using the present value of expected future cash flows and other internally calculated measures.

Impairment of long-lived assets
 
In the event that facts and circumstances indicate that the cost of an asset may be impaired, an evaluation of recoverability would be performed.  If an evaluation is required, the estimated future undiscounted cash flows associated with the asset would be compared to the asset’s carrying amount to determine if a write-down to market value is required. 

Income taxes
 
The Company utilizes the asset and liability method of accounting for income taxes.  The asset and liability method requires that the current or deferred tax consequences of all events recognized in the financial statements are measured by applying the provisions of enacted tax laws to determine the amount of taxes payable or refundable currently or in future years.  An allowance against deferred tax assets is recognized when it is more likely than not that such tax benefits will not be realized.  Adjustment to the deferred tax assets and liabilities balances are recognized in income as they occur.

 
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 Revenue Recognition

The Company derives its revenue substantially from tuition and fees charged for courses and the sale of manuals and study guides.  The tuition and fees are recognized as revenue at the time of the attendance at the course. Revenue is recognized and  manuals and study guides are shipped to customers.   Fees for courses and study guides are paid in advance and the Company refunds only a portion of the fee upon cancellation. Deferred revenue is recorded when course fees are received in advance of the time of the attendance at the course and when the manual and study guides are shipped. Deferred revenue is also recorded for undelivered course hours in excess of tuition billed.  Tuition billed to students is recognized as revenue ratably on a straight line basis over the schedule of classroom attendance. The Company does not accept returns of manuals and study guides.  Therefore, the principals of revenue recognition are considered and applied in the Company’s recognition of revenue.

Off-Balance Sheet Arrangements

The Company, through its bank, issued an irrevocable letter of credit to the State of Connecticut Department of Higher Education in the amount of $40,000, as required.  This letter of credit may not be extended beyond December 31, 2021. As collateral for the letter of credit, the Company purchased a Certificate of Deposit with the bank in the amount of $40,000 which is included in Other Assets in the accompanying financial statements.

The Company conducts its operations from leased facilities.

The Company does not have any other off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
 
Results of Operations
 
The following table shows the results of our business.  All references to the results for the year ended December 31, 2009 include the results of operations of EII from July 20, 2009, the date of inception, and results of operations of VAI from August 20, 2009, the date of purchase of certain assets and operations of Valley Anesthesia Educational Programs, Inc., through December 31, 2009.

 
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YEAR ENDED DECEMBER 31, 2010 AND FROM JULY 20, 2009 (INCEPTION) THROUGH DECEMBER 31, 2009


         
% of
         
% of
 
          
Revenue
         
Revenue
 
    
2010
   
2010
   
2009
   
2009
 
                         
NET REVENUE
  $ 3,209,454       100 %   $ 850,285       100 %
COST OF REVENUE
    1,233,964       38 %     221,155       26 %
SELLING AND ADMINISTRATIVE EXPENSES
    1,993,114       62 %     377,590       44 %
ACQUISITION-RELATED COSTS
    73,103       2 %     393,015       46 %
STOCK BASED COMPENSATION
    344,260       11 %     754,417       89 %
DEPRECIATION AND AMORTIZATION
    502,382       16 %     140,490       17 %
TOTAL OPERATING EXPENSES
    4,146,823       129 %     1,886,667       222 %
(LOSS) FROM OPERATIONS
    (937,369 )     -29 %     (1,036,382 )     -122 %
INTEREST INCOME
    1,443       0 %     293       0 %
INTEREST EXPENSE
    (337,831 )     -11 %     (37,867 )     -4 %
TOTAL OTHER EXPENSE
    (336,388 )     -10 %     (37,574 )     -4 %
(LOSS) BEFORE INCOME TAXES
    (1,273,757 )     -40 %     (1,073,956 )     -126 %
INCOME TAXES
    41,071       1 %     -       0 %
NET (LOSS)
  $ (1,314,828 )     -41 %   $ (1,073,956 )     -126 %

Revenue.   Net revenue for the year ended December 31, 2010 was approximately $3,209,000 compared to $850,000 for the period from July 20, 2009 (Inception) through December 31, 2009. For the year ended December 31, 2010, revenue from distance learning and residential training educational programs was approximately 42%, revenue from review and update courses was approximately 29%, and revenue from the sale of manuals and Memory MasterTM study guides was approximately 29%.  For the period from July 20, 2009 (Inception) through December 31, 2009, revenue from review and update courses was approximately 42% and revenue from the sale of manuals and Memory MasterTM study guides was approximately 58%.  Revenue from distance learning and residential training education programs are the results of operations of Training Direct, which was acquired on December 31, 2009 and the Culinary Group, which was acquired December 1, 2010. 

Cost of Revenue.  Cost of revenue for the year ended December 31, 2010 was approximately $1,234,000, which included costs associated with distance learning and residential training courses of approximately 61%, the cost of conference facilities for review and update courses of approximately 10%, the costs of printing and shipping of manuals of approximately 17% and other costs of approximately 12%.  Cost of revenue for the period from July 20, 2009 (Inception) through December 31, 2009 was approximately $221,000, which included the cost of conference facilities for review and update courses of approximately 19%, the cost of printing and shipping of manuals of 56% and other costs of 25%.

Selling and Administrative Expenses.   Selling and administrative expenses for the year ended December 31, 2010 were approximately $1,993,000, and include salaries, payroll taxes and benefits in the approximate amount of $1,170,000, costs associated with public company reporting in the approximate amount of $262,000, and other expenses of approximately $561,000. For the period from July 20, 2009 (Inception) through December 31, 2009, selling and administrative expenses were approximately $378,000 and consist primarily of salaries, payroll taxes and benefits in the approximate amount of $260.000 and other expenses of approximately $118,000.

Acquisition-Related Costs.  The Company incurred approximately $73,000 of acquisition related costs in the consummation of transactions for the Culinary Group during the year ended December 31, 2010, and incurred approximately $393,000 of costs related to the purchase of certain assets and assumption of certain liabilities of Valley Anesthesia Educational Programs, Inc and the acquisition of Training Direct during the period from July 20, 2009 (Inception) through December 31, 2009.

Stock Based Compensation.   The Company recorded stock based compensation in the amount of approximately $344,000 for the year ended December 31, 2010 primarily as the result of the Company granting 329,010 options to management in December 2009 and approximately $754,000 primarily as the result of the Company granting  548,350 options to members of the board of directors and  a consultant in December 2009.

 
- 44 -

 

Depreciation and Amortization.  Depreciation and amortization was approximately $502,000 for the year ended December 31, 2010 compared to approximately $140,000 for the period from July 20, 2009 (Inception) through December 31, 2009.  The amount for the year ended December 31, 2010 is substantially attributable to the amortization of intangible assets allocated in the purchase of certain assets and assumption of certain liabilities from Valley Anesthesia Educational Programs, Inc. and allocated in the purchase of Training Direct. The amount for the period from July 20, 2009 (Inception) through December 31, 2009 is substantially attributable to the amortization of intangible assets allocated in the purchase of certain assets and assumption of certain liabilities from Valley Anesthesia Educational Programs, Inc.

Interest expense.  Interest expense during the year ended December 31, 2010 in the amount of approximately $338,000 primarily relates to the note issued to sellers in connection with the purchase of certain assets and assumption of certain liabilities from Valley Anesthesia Educational Programs, Inc. in the approximate amount of $117,000 and  warrant based interest in the approximate amount of $154,000 related to the issuance of 70,500 warrants in connection with the borrowing of $150,000 during the year ended December 31, 2010. The fair value of the warrants was determined by the Black-Scholes option pricing model.  Interest expense during the period from July 20, 2009 (Inception) through December 31, 2009 in the amount of approximately $38,000 primarily relates to the note issued to sellers in connection with the purchase of certain assets and assumption of certain liabilities from Valley Anesthesia Educational Programs, Inc.

Income taxes.  The Company incurred losses for the year ended December 31, 2010 and for the period from July 20, 2009 (Inception) through December 31, 2009.  The Company has provided current income tax expense of approximately $35,000 based on income generated in certain states and deferred income tax expense of approximately $6,000 for the year ended December 31, 2010.
 
 
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Item 8.   Financial Statements and Supplementary Data.
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Oak Tree Educational Partners, Inc.
New York, NY
 
We have audited the accompanying consolidated balance sheets of Oak Tree Educational Partners, Inc. and Subsidiaries (collectively, the “Company”) as of December 31, 2010 and 2009, and the related consolidated statements of operations, changes in shareholders’ equity, and cash flows for the year ended December 31, 2010, and the period July 20, 2009 (inception) through December 31, 2009. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Oak Tree Educational Partners, Inc. and Subsidiaries as of December 31, 2010 and 2009, and the results of its operations and its cash flows for the year ended December 31, 2010, and the period July 20, 2009 (inception) through December 31, 2010, in conformity with accounting principles generally accepted in the United States of America.
 
/s/ Raich Ende Malter & Co. LLP
Raich Ende Malter & Co. LLP
New York, New York
April 12, 2011
 
 
- 46 -

 
 
OAK TREE EDUCATIONAL PARTNERS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets
December 31, 2010 and 2009


   
As of
   
As of
 
    
December 31, 2010
   
December 31, 2009
 
ASSETS
           
Current Assets
           
Cash
  $ 604,401     $ 560,497  
Accounts receivable, net of allowance for uncollectable accounts of $16,246 as of December 31, 2010 and $12,688 as of December 31, 2009
    1,539,778       177,237  
Inventory
    50,762       43,836  
Other current assets
    40,463       41,197  
      2,235,404       822,767  
                 
Fixed Assets, net
    237,832       164,978  
                 
Other Non-Current Assets
               
Intangible assets, net of accumulated amortization of $617,661 as of December 31, 2010 and $139,661 as of December 31, 2009
    5,751,339       4,226,340  
Deferred tax asset
    13,618       19,245  
Financing costs, net of accumulated amortization of $9,262 as of
               
December 31, 2010 and none as of December 31, 2009
    546,478       -  
Other
    106,126       90,013  
Goodwill
    617,506       323,296  
      7,035,067       4,658,894  
                   
    $ 9,508,303     $ 5,646,639  
                 
LIABILITIES AND SHAREHOLDERS' EQUITY
               
Current Liabilities
               
Current maturities of notes payable and capital lease obligations
  $ 336,823     $ 78,743  
Promissory note payable
    437,501       -  
Accounts payable
    146,047       112,210  
Accrued liabilities
    177,952       68,371  
Income taxes payable
    5,533       19,245  
Deferred revenue
    1,361,528       708,562  
      2,465,384       987,131  
                 
Other Liabilities
               
Note payable, net of current portion
    1,355,531       1,680,037  
Senior secured note payable, net of current portion and discount
    2,191,201       -  
Capital lease obligations, net of current portion
    11,071       31,870  
Earnout liabilities
    648,705       199,495  
      4,206,508       1,911,402  
                 
      6,671,892       2,898,533  
                 
Commitments and Contingencies
               
                 
Shareholders' Equity
               
Preferred stock - 2,000,000 shares authorized, $.0001 par value, 250,000 shares designated as Series A shares issued and outstanding; none as of December 31, 2010 and 250,000 as of December 31, 2009
    -       25  
Common stock - 50,000,000 shares, $.0001 par value, authorized at December 31, 2010 and 10,000,000 shares, par value $.0001 authorized at December 31, 2009: issued and outstanding;  22,938,540 as of December 31, 2010 and 6,525,981 as of December 31, 2009
    2,294       653  
Additional paid In capital
    5,363,510       3,841,677  
Accumulated deficit
    (2,388,784 )     (1,073,956 )
Shares held in escrow
    (119,505 )     -  
Notes receivable
    (21,104 )     (20,293 )
      2,836,411       2,748,106  
                   
    $ 9,508,303     $ 5,646,639  

See notes to consolidated financial statements

 
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OAK TREE EDUCATIONAL PARTNERS, INC. AND SUBSIDIARIES

Consolidated Statements of Operations
Year Ended December 31, 2010
and from July 20, 2009 (Inception) through December 31, 2009


         
July 20, 2009 (Inception)
 
    
Year Ended
   
Through
 
    
December 31, 2010
   
December 31, 2009
 
              
Revenue, net
  $ 3,209,454     $ 850,285  
                 
Operating Expenses
               
Cost of revenue
    1,233,964       221,155  
Selling and administrative expenses
    1,993,114       377,590  
Acquisition-related costs
    73,103       393,015  
Stock based compensation
    344,260       754,417  
Depreciation and amortization
    502,382       140,490  
      4,146,823       1,886,667  
                 
Loss from Operations
    (937,369 )     (1,036,382 )
                 
Other Income (Expense)
               
Interest income
    1,443       293  
Interest expense
    (337,831 )     (37,867 )
      (336,388 )     (37,574 )
                 
Loss Before Income Taxes
    (1,273,757 )     (1,073,956 )
                 
Income Taxes
               
Current
    35,444       19,245  
Deferred
    5,627       (19,245 )
      41,071       -  
                 
Net Loss
  $ (1,314,828 )   $ (1,073,956 )
                 
Net Loss Per Common Share - basic and diluted:
  $ (0.13 )   $ (0.17 )
                 
Weighted Average Number of Shares Oustanding - basic and diluted
    9,818,333       6,166,700  

See notes to consolidated financial statements

 
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OAK TREE EDUCATIONAL PARTNERS, INC. AND SUBSIDIARIES

Consolidated Statement of Changes in Shareholders' Equity
July 20, 2009 (Inception) Through December 31, 2010


                             
Additional
                     
Total
 
    
Preferred Stock
   
Common Stock
   
Paid In
   
Accumulated
   
Shares Held
   
Notes
   
Shareholders'
 
    
Shares
   
Amount
   
Shares
   
Amount
   
Capital
   
Deficit
   
in Escrow
   
Receivable
   
Equity
 
                                                       
Balance - July 20, 2009
    -     $ -       -     $ -     $ -     $ -     $ -     $ -     $ -  
                                                                         
Proceeds from sale of common stock
    -       -       16,666,667       16,667       2,483,333       -               -       2,500,000  
                                                                         
Common stock options issued in exchange for notes receivable
    -       -       -       -       20,000       -               (20,000 )     -  
                                                                         
Costs incurred in sale of common stock
    -       -       -       -       (49,844 )     -               -       (49,844 )
                                                                         
Compensatory element of stock options and warrants
    -       -       -       -       755,255       -               -       755,255  
                                                                         
Interest on notes receivable
    -       -       -       -       -       -               (293 )     (293 )
                                                                         
Shares issued for purchase of subsidiary
    -       -       359,281       36       599,964       -               -       600,000  
                                                                         
Effect of shares issued in reverse merger
    250,000       25       (10,666,667 )     (16,067 )     16,042       -               -       -  
                                                                         
Effect of shares assumed in reverse merger
    -       -       166,700       17       16,927       -               -       16,944  
                                                                         
Warrants assumed in reverse merger
    -       -       -       -               -                       -  
                                                                         
Net Loss
    -       -       -       -       -       (1,073,956 )             -       (1,073,956 )
                                                                                  
Balance - December 31, 2009
    250,000       25       6,525,981       653       3,841,677       (1,073,956 )     -       (20,293 )     2,748,106  
 
 
- 49 -

 
 
OAK TREE EDUCATIONAL PARTNERS, INC. AND SUBSIDIARIES

Consolidated Statement of Changes in Shareholders' Equity - Continued
July 20, 2009 (Inception) Through December 31, 2010

 
                           
Additional
                     
Total
 
   
Preferred Stock
   
Common Stock
   
Paid In
   
Accumulated
   
Shares Held
   
Notes
   
Shareholders'
 
   
Shares
   
Amount
   
Shares
   
Amount
   
Capital
   
Deficit
   
in Escrow
   
Receivable
   
Equity
 
                                                       
Shares issued into escrow for earnout liability
    -     $ -       179,641     $ 18     $ 119,487     $ -       (119,505 )   $ -     $ -  
                                                                         
Stock based compensation
    -