U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
Quarterly Report under Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the Quarterly Period Ended December 31, 2003
Commission File No. 0-8924
Trinity Learning Corporation
(Exact name of small business issuer as specified in its charter)
Utah 73-0981865
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1831 Second Street, Berkeley, California 94710
(Address of principal executive offices)
(510) 540-9300
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
sections 13 or 15(d) of the Exchange Act during the past 12 months (or such
shorter period that the issuer was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
As of February 6, 2004, 25,620,401 shares of the issuer's Common Stock, no
par value per share, were outstanding.
TRINITY LEARNING CORPORATION AND SUBSIDIARIES
Throughout this report, we refer to Trinity Learning Corporation, together
with its subsidiaries, as "we," "us," "our company," "Trinity" or "the
Company."
THIS FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 2003, CONTAINS FORWARD-
LOOKING STATEMENTS, INCLUDING STATEMENTS ABOUT THE CONTINUED STRENGTH OF
OUR BUSINESS AND OPPORTUNITIES FOR FUTURE GROWTH. IN SOME CASES, YOU CAN
IDENTIFY FORWARD-LOOKING STATEMENTS BY TERMINOLOGY SUCH AS MAY, WILL,
SHOULD, EXPECT, PLAN, INTEND, ANTICIPATE, BELIEVE, ESTIMATE, PREDICT,
POTENTIAL OR CONTINUE, THE NEGATIVE OF SUCH TERMS OR OTHER COMPARABLE
TERMINOLOGY. WE BELIEVE THAT OUR EXPECTATIONS ARE REASONABLE AND ARE BASED
ON REASONABLE ASSUMPTIONS. HOWEVER, SUCH FORWARD-LOOKING STATEMENTS BY
THEIR NATURE INVOLVE RISKS AND UNCERTAINTIES.
WE CAUTION THAT A VARIETY OF FACTORS, INCLUDING BUT NOT LIMITED TO THE
FOLLOWING, COULD CAUSE OUR BUSINESS AND FINANCIAL RESULTS TO DIFFER
MATERIALLY FROM THOSE EXPRESSED OR IMPLIED IN FORWARD-LOOKING STATEMENTS:
OUR ABILITY TO SUCCESSFULLY INTEGRATE TOUCHVISION, INC. ("TOUCHVISION"),
RIVER MURRAY TRAINING PTY LTD ("RMT") AND OUR MAJORITY INTERESTS IN
AYRSHIRE TRADING LIMITED ("AYRSHIRE") AND DANLAS LIMITED ("DANLAS");
DETERIORATION IN CURRENT ECONOMIC CONDITIONS; OUR ABILITY TO PURSUE
BUSINESS STRATEGIES; PRICING PRESSURES; CHANGES IN THE REGULATORY
ENVIRONMENT; OUTCOMES OF PENDING AND FUTURE LITIGATION; OUR ABILITY TO
ATTRACT AND RETAIN QUALIFIED PROFESSIONALS; INDUSTRY COMPETITION; CHANGES
IN INTERNATIONAL TRADE; MONETARY AND FISCAL POLICIES; OUR ABILITY TO
INTEGRATE FUTURE ACQUISITIONS SUCCESSFULLY; AND OTHER FACTORS DISCUSSED
MORE FULLY IN MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS AND RISK FACTORS BELOW, AS WELL AS IN OTHER
REPORTS SUBSEQUENTLY FILED FROM TIME TO TIME WITH THE SECURITIES AND
EXCHANGE COMMISSION. WE ASSUME NO OBLIGATION TO UPDATE ANY FORWARD-LOOKING
STATEMENTS.
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets December 31, 2003 and June 30, 2003.
Consolidated Statements of Operations and Comprehensive Income Three
and Six Months Ended December 31, 2003 and 2002.
Consolidated Statements of Cash Flows Three and Six Months Ended
December 31, 2003 and 2002
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Controls and Procedures
2
TRINITY LEARNING CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
Exhibit 10.1
Exhibit 10.2
Exhibit 10.3
Exhibit 10.4
Exhibit 10.5
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
Page 3
PART I
FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Trinity Learning Corporation and Subsidiaries
Consolidated Balance Sheet
December 31, 2003 June 30, 2003
(Unaudited)
-------------- --------------
Assets
------
Current Assets
--------------
Cash $ 1,470,152 $ 86,511
Accounts Receivable 3,750,685 42,719
Interest Receivable - 41
Prepaid Expense and Other Assets 834,945 97,944
-------------- --------------
Total Current Assets 6,055,782 227,215
Property & Equipment (Note 3)
--------------------
Furniture & Equipment 1,104,500 53,385
Accumulated Depreciation (109,162) (7,824)
-------------- --------------
Net Property & Equipment 995,338 45,561
Intangible Asset (Note 4)
----------------
Technology-Based Asset 6,192,050 1,118,312
Accumulated Amortization (243,936) (167,747)
-------------- --------------
Net Intangible Asset 5,948,114 950,565
Note Receivable (Note 7) - 25,000
Other Assets 817,479 94,003
-------------- --------------
Total Assets $ 13,816,713 $ 1,342,344
============== ==============
Continued
4
Trinity Learning Corporation and Subsidiaries
Consolidated Balance Sheet
December 31, 2003 June 30, 2003
(Unaudited)
-------------- --------------
Liabilities, Minority Interest and Stockholders' Equity
-------------------------------------------------------
Current Liabilities
-------------------
Accounts Payable $ 2,304,384 $ 391,872
Accrued Expenses 1,152,314 270,270
Interest Payable 102,327 63,987
Deferred Revenue (Note 1) 214,036 -
Notes Payable Current (Note 9) 15,715 -
Notes Payable-Related Parties (Notes 8 and 9) 2,642,496 2,147,151
-------------- --------------
Total Current Liabilities 6,431,272 2,873,280
-------------- --------------
Long Term Liabilities
---------------------
Notes Payable Long Term (Notes 8 and 9) 243,074 -
-------------- --------------
Total Long Term Liabilities 243,074 -
-------------- --------------
Total Liabilities 6,674,346 2,873,280
Minority Interest 2,739,458 -
----------------- -------------- --------------
Stockholders' Equity
--------------------
Preferred Stock, 10,000,000 Shares at No Par
Value; No Shares Issued and Outstanding - -
Common Stock, 100,000,000 Shares Authorized
at No Par Value, 25,270,401 and 22,915,641
shares Issued and Outstanding, Respectively 15,972,583 9,693,447
Conditionally redeemable common stock,
4,500,000 and 0 shares, respectively,
at No Par Value 2,250,000 -
Accumulated Deficit (13,718,545) (11,188,913)
Subscription Receivable (35,000) (35,000)
Other Comprehensive Loss (66,129) (470)
-------------- --------------
Total Stockholders' Equity 4,402,909 (1,530,936)
-------------- --------------
Total Liabilities, Minority Interest
and Stockholders' Equity $ 13,816,713 $ 1,342,344
============== ==============
The accompanying notes are an integral part of these financial statements.
5
Trinity Learning Corporation and Subsidiaries
Consolidated Statement of Operations
For the Three Months Ended For the Six Months Ended
December 31, December 31,
2003 2002 2003 2002
Unaudited Unaudited
-------------------------- --------------------------
Revenue
-------
Sales Revenue $ 2,545,557 $ 62,660 $ 3,162,344 $ 62,660
Cost of Sales (801,286) - (1,049,378) -
------------ ------------ ------------ ------------
Gross Profit 1,744,271 62,660 2,112,966 62,660
Expenses
--------
Salaries & benefits 1,631,094 246,948 2,218,447 284,948
Professional fees 343,313 16,158 560,686 339,899
Selling, general &
administrative 1,000,318 330,203 1,331,963 366,433
Depreciation & amortization 288,666 58,210 456,120 58,290
------------ ------------ ------------ ------------
Total Expense 3,263,391 651,519 4,567,216 1,049,570
------------ ------------ ------------ ------------
Loss from Operations (1,519,120) (588,859) (2,454,250) (986,910)
Other Income (Expense)
----------------------
Interest Expense, net (33,291) (24,074) (34,822) (30,844)
Foreign Currency Loss (4,201) - (4,982) -
------------ ------------ ------------ ------------
Total Other Expense (37,492) (24,074) (39,804) (30,844)
Minority Interest (61,440) - (35,578) -
------------ ------------ ------------ ------------
Loss Before Taxes (1,618,052) (612,933) (2,529,632) (1,017,754)
Taxes - - - -
------------ ------------ ------------ ------------
Net Loss $(1,618,052) $ (612,933) $ (2,529,632) $ (1,017,754)
============ ============ ============ ============
Net Loss Per Common Share
Basic $ (0.07) $ (0.10) $ (0.13) $ (0.35)
Diluted $ (0.07) $ (0.10) $ (0.13) $ (0.35)
Weighted Average Shares
Outstanding 22,982,521 6,319,744 20,008,287 2,918,107
The accompanying notes are an integral part of these financial statements
6
Trinity Learning Corporation and Subsidiaries
Consolidated Statement of Comprehensive Income
For the Three Months Ended For the Three Months Ended
December 31, December 31,
2003 2002 2003 2002
Unaudited Unaudited
-------------------------- --------------------------
Before Tax Amount After Tax Amount
Net Loss $(1,618,052) $ (612,933) $ (1,618,052) $ (612,933)
Foreign Currency Translation
Gain (Loss) (67,233) 7,520 (67,233) 7,520
------------ ------------ ------------ ------------
Comprehensive Loss $(1,685,285) $ (605,413) $ (1,685,285) $ (605,413)
============ ============ ============ ============
For the Six Months Ended For the Six Months Ended
December 31, December 31,
2003 2002 2003 2002
Unaudited Unaudited
-------------------------- --------------------------
Before Tax Amount After Tax Amount
Net Loss $(2,529,632) $(1,017,754) $ (2,529,632) $ (1,017,754)
Foreign Currency Translation
Gain (Loss) (66,129) 7,520 (66,129) 7,520
------------ ------------ ------------ ------------
Comprehensive Loss $(2,595,761) $(1,010,234) $ (2,595,761) $(1,010,234)
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements.
7
Trinity Learning Corporation and Subsidiaries
Consolidated Statement of Cash Flows
December 31, 2003 June 30, 2003
(Unaudited)
-------------- --------------
Cash flows from operating activities:
Net loss $ (2,529,632) $ (1,017,754)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 456,120 58,290
Non-cash effect for business acquisition
(net of cash acquired) (877,827) (2,061,734)
Foreign currency translation loss 4,982 -
Stock compensation 100,569 -
Changes in current assets and liabilities,
net of business acquired and business sold:
Accounts receivable (99,090) 16,860
Interest receivable - (698)
Prepaid expenses and other assets 581,547 (828)
Accounts payable, deferred revenue and
accrued expenses 38,704 217,978
Interest payable (64,451) 28,688
-------------- --------------
Net cash used by operating activities (2,389,078) (1,772,288)
Cash flows from investing activities:
Payment for business acquisitions,
net of cash acquired (154,759) -
Capital expenditures (19,963) (6,389)
-------------- --------------
Net cash used by investing activities (174,722) (6,389)
Cash flows from financing activities:
Repayments under short-term notes (500,000) -
Borrowing under short-term notes - 1,652,369
Payments for financing fees (625,859) -
Proceeds from sale of common stock 5,073,300 183,821
-------------- --------------
Net cash provided by financing activities 3,947,441 1,836,190
-------------- --------------
Net increase in cash 1,383,641 57,513
Cash at beginning of period 86,511 1,632
-------------- --------------
Cash at end of period $ 1,470,152 $ 59,145
============== ==============
Supplemental information:
Issuance of common stock for business
acquisitions $ 975,000 $ 75,000
============== ==============
The accompanying notes are an integral part of these financial statements.
8
Trinity Learning Corporation and Subsidiaries
Notes to the Financial Statements
(Unaudited)
December 31, 2003
NOTE 1. ACCOUNTING POLICIES
OVERVIEW
The accompanying unaudited interim consolidated financial statements and
related notes have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-QSB and Rule 10-01 of Regulation S-X. Accordingly,
they do not include all the information and footnotes required by generally
accepted accounting principles for complete financial statements. These
financial statements include the accounts of Trinity and its consolidated
subsidiaries. All significant intercompany transactions and accounts have
been eliminated in consolidation.
These unaudited interim consolidated financial statements should be read in
conjunction with the audited financial statements and related notes thereto
included in the Company's Transition Report on Form 10-KSB for the
transition period from October 1, 2002 to June 30, 2003. On August 6, 2003,
our board of directors approved a change in our fiscal year-end from
September 30 to June 30 to align with those of the companies we had already
acquired or were at that time in the process of acquiring. The results of
operations for the six months ended December 31, 2003, are not necessarily
indicative of the operating results for the full year and future operating
results may not be comparable to historical operating results due to our
September 1, 2003 acquisitions of TouchVision, Inc. ("TouchVision"); River
Murray Training Pty Ltd ("RMT"); and 51% of the issued and outstanding
shares of Ayrshire Trading Limited ("Ayrshire"), as well as our December 1,
2003 acquisition of Danlas Limited ("Danlas"). Ayrshire owns 95% of the
issued and outstanding shares of Riverbend Group Holdings (Pty.) Ltd.
("RGH"). These companies are collectively referred to as Riverbend. Danlas
owns 51% of IRCA (Proprietary) Limited ("IRCA"). These companies are
collectively referred to as IRCA.
In the opinion of management, the accompanying unaudited interim
consolidated financial statements reflect all normal recurring adjustments
that are necessary for a fair presentation of the financial position,
results of operations and cash flows for the interim periods presented.
The preparation of the Company's unaudited interim consolidated financial
statements in conformity with generally accepted accounting principles
necessarily requires it to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the balance sheet dates and the reported amounts
of revenues and costs during the reporting periods. Actual results could
differ from those estimates. On an ongoing basis, the Company reviews its
estimates based on information that is currently available. Changes in
facts and circumstances may cause the Company to revise its estimates.
INCOME (LOSS) PER COMMON SHARE
Basic earnings (loss) per common share is computed by dividing net income
(loss) available for common stockholders by the weighted average number of
common shares outstanding for the period. Diluted earnings (loss) per
common share ("DEPS") is computed giving effect to all dilutive potential
shares of common stock issuable upon the exercise of stock options and
warrants. DEPS is computed by dividing net income (loss) available for
common stockholders by the weighted-average common shares and dilutive
9
potential common shares that were outstanding during the period. Shares
from the exercise of the outstanding options and warrants were not included
in the computation of DEPS, because their inclusion would have been
antidilutive for the six months ended December 31, 2003.
In accordance with the disclosure requirements of Statement of Accounting
Standards No. 128 ("SFAS 128"), "Earnings per Share," a reconciliation of
the numerator and denominator of basic and diluted income (loss) per common
share is provided as follows:
For the Three Months Ended For the Six Months Ended
December 31, December 31,
2003 2002 2003 2002
Unaudited Unaudited
-------------------------- --------------------------
Numerator-Basic
Net (loss) available for
common stockholders $(1,618,052) $ (612,933) $ (2,529,632) $ (1,017,754)
Denominator-Basic
Weighted-average common
stock outstanding 22,982,521 6,319,744 20,008,287 2,918,107
Basic (loss) per share $ (0.07) $ (0.10) $ (0.13) $ (0.35)
Numerator-Diluted
Net (loss) available for
common stockholders $(1,618,052) $ (612,933) $ (2,529,632) $ (1,017,754)
Denominator-Diluted
Weighted-average common
stock outstanding 22,982,521 6,319,744 20,008,287 2,918,107
Effect of dilutive securities
Stock options - - - -
Warrants - - - -
Diluted (loss) per share $ (0.07) $ (0.10) $ (0.13) $ (0.35)
Stock options to purchase 3,542,000 shares of common stock at prices
ranging from $0.05 to $0.50 per share were outstanding at December 31,
2003, but were not included in the computation of diluted loss per share
because the exercise price was greater than the average market value of the
shares of common stock. Warrants to purchase 12,966,650 shares of common
stock at prices ranging from $0.05 to $1.00 per share were outstanding at
December 31, 2003, but were not included in the computation of diluted loss
per share because the exercise price was greater than the average market
value of the shares of common stock.
DEFERRED REVENUE
Deferred revenue in the accompanying consolidated balance sheets represents
advanced billings to clients in excess of costs and earnings on uncompleted
contracts. As of December 31, 2003 and June 30, 2003, deferred revenue was
$214,036 and $0, respectively. The Company anticipates that substantially
all such amounts will be earned over the next twelve months.
STOCK-BASED COMPENSATION
In January 2003, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 148 ("SFAS 148"),
"Accounting for Stock-Based Compensation Transition and Disclosure."
10
SFAS 148 amends FASB Statement 123 ("SFAS 123"), "Accounting for Stock-
Based Compensation," to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-
based employee compensation. In addition, SFAS 148 amends the disclosure
requirements of SFAS 123 to require prominent disclosure in both annual and
interim financial statements of the method of accounting for stock-based
employee compensation and the effect of the method used on reported
results. SFAS 148 is effective for fiscal years, including interim periods
beginning after December 15, 2002, and thus, this disclosure is included in
the table below. SFAS 148 also requires disclosure of pro-forma results on
the interim basis as if the Company had applied the fair value recognition
provisions of SFAS 123. The Company implemented the fair value based
method of accounting for stock-based employee compensation during the
transition period from October 1, 2002 to June 30, 2003. See Note 11-Stock
Option Plan.
RECENTLY ISSUED ACCOUNTING ISSUED ACCOUNTING STANDARDS
In June 2002, the FASB issued Statement of Financial Accounting Standard
No. 146 ("SFAS 146"), "Accounting for Costs Associated with Exit or
Disposal Activities." SFAS 146 replaces Emerging Issues Task Force
("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (Including Certain
Costs Incurred in a Restructuring)" in its entirety and addresses
significant issues relating to recognition, measurement and reporting costs
associated with an exit or disposal activity, including restructuring
activities. Under EITF Issue No. 94-3, a liability is recognized, measured
and reported as of the date of an entity's commitment to an exit plan.
Pursuant to SFAS 146, a liability is recorded on the date on which the
obligation is incurred and should be initially measured at fair value.
SFAS 146 is effective for exit or disposal activities initiated after
December 31, 2002. The Company adopted SFAS 146 on July 1, 2003. See Note
2 Acquisitions and Divestitures.
EITF Consensus Issue No.00-21 ("EITF 00-21"), "Revenue Arrangements with
Multiple Deliverables" was first discussed at the July 2000 EITF meeting
and was issued in February 2002. Certain revisions to the scope of the
language were made and finalized in May 2003. EITF 00-21 addresses the
accounting for multiple element revenue arrangements, which involve more
than one deliverable or unit of accounting in circumstances, where the
delivery of those units takes place in different accounting periods. EITF
00-21 requires disclosures of the accounting policy for revenue recognition
of multiple element revenue arrangements and the nature and description of
such arrangements. The accounting and reporting requirements are effective
for revenue arrangements entered into in fiscal periods beginning after
June 15, 2003. The Company has completed its initial evaluation and
adoption of EITF 00-21 does not have a significant impact on the Company's
financial statements. The Company continues its evaluation to determine
whether the reporting requirements of EITF 00-21 will impact the Company's
financial statements in the future.
In May 2003, the FASB issued Statement of Financial Accounting Standards
No. 150 ("SFAS 150"), "Accounting for Certain Instruments with
Characteristics of Both Liabilities and Equity." SFAS 150 establishes
standards for how an issuer classifies and measures certain financial
instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its
scope as a liability (or an asset in some circumstances). SFAS 150 is
effective for financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. As permitted, the Company adopted
SFAS 150 on October 1, 2003 and adoption of SFAS 150 did not have a
significant impact on the Company's financial statements.
11
RECLASSIFICATIONS
Certain reclassifications have been made to the 2002 financial statements
and notes to conform to the 2003 presentation with no effect on
consolidated net loss, equity or cash flows as previously reported.
NOTE 2 ACQUISITIONS AND DIVESTITURES
On September 1, 2003, we completed the acquisition of all of the issued and
outstanding shares of TouchVision, a California corporation that is in the
business of providing technology-enabled information and learning systems
to healthcare providers, financial services companies and other industry
segments. In consideration for the TouchVision shares, we issued an
aggregate of 1,250,000 restricted shares of our common stock, of which
312,500 shares are subject to the terms of an escrow agreement as
collateral for the indemnification obligations of the former TouchVision
shareholders. We also agreed to loan to TouchVision the sum of $20,000 per
month for the twelve-month period following closing, to be used for working
capital. We had previously loaned TouchVision the sum of $50,000 in June
and July, 2003 by way of bridge financing pending completion of the
acquisition. In connection with the acquisition, TouchVision entered into
substantially similar employment agreements with each of Messrs. Gregory L.
Roche and Larry J. Mahar, the former principals of TouchVision, which have
a term of two years and provide for annual salaries of $120,000. In
conjunction with the acquisition of TouchVision, we issued 735,000 stock
options pursuant to the 2002 Stock Plan at $0.50 per share. On October 1,
2003, we advanced $150,000 to pay off a loan payable to a bank, which was
guaranteed by the Small Business Administration.
On September 1, 2003, we completed the acquisition of all of the issued and
outstanding shares of RMT, an Australian company that is in the business of
providing workplace training programs for various segments of the food
production industry, including viticulture and horticulture. In
consideration for the shares of RMT we issued 700,000 restricted shares of
our common stock, of which 350,000 shares are subject to the terms of an
escrow agreement as collateral for the indemnification obligations of the
former RMT shareholders. We also loaned US$49,000 to RMT for the purpose
of repaying outstanding loans advanced to RMT by its former shareholders.
On September 1, 2003, we completed the acquisition of 51% of the issued and
outstanding shares of Ayrshire that owns 95% of Riverbend Group Holdings
(Proprietary) Limited ("Riverbend"), a South African company that provides
learning services to corporations and individuals in South Africa. We also
acquired the option to purchase the remaining 49% of Ayrshire. In
consideration for the Ayrshire shares, we issued a convertible non-
interest-bearing promissory note in the amount of $20,000, which amount is
convertible from time to time but no later than December 30, 2006 into a
maximum of 2,000,000 shares of our common stock, which has been recorded as
conditionally redeemable common stock in stockholders' equity at $0.50 per
share. Of these shares, up to 400,000 may be withheld in satisfaction for
any breach of warranties by the former shareholders of Ayrshire. The
Ayrshire shares are subject to escrow and pledge agreements will be
reconveyed to the former shareholders in the event of a default by us of
certain terms and conditions of the acquisition agreements, including,
among other things, a voluntary or involuntary bankruptcy proceeding
involving us or the failure by us to list our shares of common stock on a
major stock exchange by December 30, 2006.
As further consideration for the Ayrshire shares, we agreed to make a non-
interest-bearing loan of $1,000,000 to Ayrshire, $300,000 of which was
advanced at closing of the acquisition and $700,000 was advanced on
November 3, 2003. We may exercise an option to acquire the remaining 49%
of Ayrshire in consideration for the issuance of 1,500,000 shares of our
common stock, subject to certain adjustments.
12
On December 1, 2003, we completed the acquisition of all the issued and
outstanding shares of Danlas, a British Virgin Islands Company that owns
51% of IRCA (Proprietary) Limited ("IRCA"), a South African company
specializing in corporate learning, certification and risk mitigation in
the area of safety, health environment and quality assurance ("SHEQ").
IRCA operates in South Africa, England and the United States through
various operating subsidiaries. Danlas also holds options to acquire the
remaining 49% of IRCA. In consideration for the Danlas shares, the Company
(i) issued three convertible promissory notes in the aggregate principal
amount of $40,000 and convertible under certain conditions into a maximum
of 4,500,000 shares of the Company's common stock, (ii) agreed to advance
$500,000 in cash to establish an international sales force, (iii) provided
$500,000 for certain bank guarantees and, (iv) provided certain future
profit thresholds are met, agreed to issue up to an additional 1,000,000
shares of the Company's common stock. The first promissory note for
$20,000 convertible to 2,500,000 shares has been classified as
conditionally redeemable common stock at $0.50 per share. The remaining
$20,000 in promissory notes has been classified as intercompany note
payable and eliminated in the consolidation of the Company and its
subsidiaries at December 31, 2003.
PURCHASED INTANGIBLE ASSETS
Of the total purchase price paid for the TouchVision acquisition,
approximately $1,292,970 has been allocated to purchase intangible assets,
which include software, and is being amortized on a straight line basis
over a useful life of five years.
Of the total purchase price paid for the RMT acquisition, approximately
$390,630 has been allocated to purchase intangible assets, which include
software, and is being amortized on a straight line basis over a useful
life of five years.
Of the total purchase price paid for the Riverbend acquisition,
approximately $1,000,000 has been allocated to purchase intangible assets,
which include software, and is being amortized on a straight line basis
over a useful life of five years.
Of the total purchase price paid for the Danlas acquisition, approximately
$1,250,000 has been allocated to purchased intangible assets, which include
software, and is being amortized on a straight line basis over a useful
life of five years.
DIVESTITURES
In December, 2003, we sold our interests in CBL Global Corporation ("CBL
Global") and its Australian subsidiaries (collectively "CBL") to Messrs.
Scammell and Kennedy, the former owners of CBL. In conjunction with the
management buyout, we entered into a Settlement Agreement with respect to
our litigation with CBL. Pursuant to the terms of the agreement, we
conveyed all of our interest in CBL back to the former owners in exchange
for surrender and cancellation of 3,000,000 shares of Company stock issued
to them in connection with acquisition of CBL and the cancellation of
$1,000,000 in convertible notes payable to them. Also as a result of the
divestiture, $222,151 owed by CBL Global to Messrs. Kennedy and Scammell is
no longer an obligation of the Company.
13
PRO FORMA RESULTS
The operating results of CBL, TouchVision, RMT, Danlas and our interest in
Ayrshire have been included in the accompanying consolidated financial
statements from the date of acquisition forward and, for CBL, up to the
date of divestiture. Accordingly, CBL business' results of operations were
included from October 1, 2002 to December 22, 2003. The business results
of operations of RMT, TouchVision and Ayrshire are included for the period
September 1, 2003 through December 31, 2003. The business results of
operations for Danlas are included for December, 2003.
The following unaudited pro forma financial information presents the
combined results of operations of the Company and TouchVision, RMT, Danlas
and our interest in Ayrshire as if these acquisitions had occurred at July
1, 2002. In December 2003, we completed the sale of our interest in CBL to
the former owners of CBL. Accordingly, CBL's business operating results
are not included in the Company's combined unaudited pro forma financial
information for the three and six month periods ended December 31, 2003,
and 2002, respectively. The unaudited pro forma financial information is
not intended to represent or be indicative of the consolidated results of
the operations of the Company that would have been reported had these
acquisitions been completed as of the dates presented, nor should it be
taken as a representation of the future consolidated results of operations
of the Company.
For the Three Months Ended For the Six Months Ended
December 31, December 31,
2003 2002 2003 2002
Unaudited Unaudited
-------------------------- --------------------------
Revenues $ 4,900,389 $ 3,195,853 $ 9,901,046 $ 6,003,715
Operating Loss $(1,168,810) $ 534 $ (1,764,789) $ 29,999
Net Loss Available for
Common Stockholders $(1,511,875) $ (172,193) $ (2,343,269) $ (458,284)
Net Loss per Common Share
Basic $ (0.07) $ (0.03) $ (0.12) $ (0.16)
Diluted $ (0.07) $ (0.03) $ (0.12) $ (0.16)
FINALIZATION OF PURCHASE PRICE
Certain information necessary to complete the purchase accounting is not
yet available, including the completion of independent valuations of the
intangible assets for each of the four acquisitions. Purchase accounting
will be finalized upon receipt of these independent valuations.
NOTE 3 - Fixed Assets
The Company capitalizes furniture and equipment purchases in excess of
$5,000 or at lower amounts based on local jurisdiction. Capitalized
amounts are depreciated over the useful life of the assets using the
straight-line method of depreciation. Scheduled below are the assets,
cost, and accumulated depreciation at December 31, 2003 and June 30, 2003,
respectively and depreciation expense for the six months ended December 31,
2003 and 2002, respectively.
14
Accumulated
Asset Cost Depreciation Expense Depreciation
12/31/2003 06/30/03 12/31/03 12/31/02 12/31/03 06/30/03
----------- ---------- ---------- ---------- ---------- ----------
Furniture
& Equipment $1,104,500 $ 53,385 $ 74,085 $ 2,375 $ 109,162 $ 7,824
NOTE 4 TECHNOLOGY-BASED INTANGIBLE ASSETS
The Company capitalized technology-based intangible assets in its
acquisitions of CBL, TouchVision, RMT, Danlas and Ayrshire
("acquisitions"). The amounts capitalized were equal to the difference
between the consideration paid for acquisitions including any liabilities
assumed and the value of the other assets acquired. Other assets were
valued at the current value at the date of the acquisitions including the
net value of fixed assets, historical price less accumulated depreciation,
of $1,002,10002,743. The technology-based intangible assets are being
amortized over a five-year period using the straight-line method. The
values assigned to the technology-based intangible assets are considered
appropriate - until the Company receives independent valuations - based on
average annual revenues earned from licensing of these assets over the two
year period ended September 30, 2003 and December 31, 2003, respectively,
and the expectation that future revenues for the five year period
subsequent to the acquisition will equal or exceed this amount. Scheduled
below is the asset cost and accumulated amortization at December 31, 2003
and June 30, 2003, respectively, and amortization expense for the six
months ended December 31, 2003 and 2002, respectively:
Accumulated
Asset Cost Depreciation Expense Depreciation
12/31/2003 06/30/03 12/31/03 12/31/02 12/31/03 06/30/03
----------- ----------- ---------- ---------- ---------- ----------
Intangible
Asset $6,192,050 $ 1,118,312 $ 382,035 $ 55,915 $ 243,936 $ 167,747
NOTE 5 Commitments and Contingencies
Total rental expense included in operations for operating leases for the
six months ended December 31, 2003 and 2002, amounted to $171,186 and
$27,637, respectively. Certain lease rentals are subject to renewal
options and escalation based upon property taxes and operating expenses.
These operating lease agreements expire at varying dates through 2008.
Total Minimum Lease Commitments as of December 31, 2003:
Calendar Year Amount
------------- -------------
2004 $ 639,640
2005 526,520
2006 364,189
2007 257,893
Thereafter 662,412
-------------
Total $ 2,450,654
=============
15
NOTE 6 Legal Proceedings
On September 12, 2003, we filed a Complaint in the United States District
Court for the District of Utah, Central Division, against CBL Global (f/k/a
CBL Acquisition Corporation), and Robert Stephen Scammell, the sole
shareholder of CBL-California, (Case No. 2:03CV00798DAK) alleged, among
other things, that Scammell and CBL-California provided us with misstated
financial statements prior to our merger in October 2002 with CBL-
California and CBL Global. On September 18, 2003, we filed a First Amended
Complaint and Jury Demand, which added as defendants CBL Global and Brian
Kennedy, the sole shareholder of CBL-Australia. The First Amended
Complaint alleged causes of action for violations of Section 10(b) of the
Securities Exchange Act of 1934 and Rule 10b-5 promulgated there under, for
violations of Section 20(a) of the Securities Exchange Act of 1934, for
declaratory relief and breach of contract, for common law fraud, and for
negligent misrepresentation.
The First Amended Complaint alleged, among other things, that the
defendants were advised by CBL-California's accountant on September 18,
2002 that CBL-California's financial statements were misstated, and alleged
that new restated financial statements were issued on September 19, 2002.
The First Amended Complaint alleged, however, that the restated financial
statements were not provided to us prior to the October 1, 2002 closing of
the merger.
In December, 2003, we sold our interests in CBL Global and its Australian
subsidiaries (collectively "CBL") to Messrs. Scammell and Kennedy, the
former owners of CBL. In conjunction with the management buyout, we
entered into a Settlement Agreement with respect to our litigation with
CBL. Pursuant to the terms of the agreement, we conveyed all of our
interest in CBL back to the former owners in exchange for surrender and
cancellation of 3,000,000 shares of Company stock issued to them in
connection with acquisition of CBL and the cancellation of $1,000,000 in
convertible notes payable to them. Also as a result of the divestiture,
$222,151 owed by CBL Global to Messrs. Kennedy and Scammell is no longer an
obligation of the Company.
NOTE 7 Notes Receivable
On June 5, 2003, we agreed to lend TouchVision $50,000 in two equal
installment of $25,000 each. Interest accrued on the unpaid principal
amount of the note at a rate equal to six percent per year. Interest
accrued under the note is paid annually, with the first payment due June 5,
2004. All unpaid principal and interest are due June 29, 2005. At June
30, 2003, $25,000 had been advanced to TouchVision and accrued interest
totaled $41. Subsequent to the TouchVision acquisition on September 1,
2003, this note receivable along with accrued interest thereon was
reclassified to intercompany notes receivable and intercompany notes
payable. Accordingly, these balances were eliminated in consolidation of
the Company and its subsidiaries at December 31, 2003.
NOTE 8 Related Party Transactions
From time to time, Ms. McPherson and Ms. Hayman, officers of RMT, have
advanced funds to RMT. The current balance of $15,379 is due December 31,
2004 and accrues interest at a rate of 6% per annum.
From time to time, certain shareholders of IRCA have advanced funds to
IRCA. Of the current balance of $2,301,573, $750,000 is non-interest
bearing and due June 30, 2004; $20,000 is non-interest bearing and has no
fixed terms of repayment and the remaining amount due of $1,531,573 has no
fixed terms of repayment and bears interest at a Republic of South Africa
Bank prime rate.
16
On December 17, 2003, we entered into an agreement with Titan Aviation Ltd.
("Titan"), a Guernsey company, for the purpose of having Titan act as our
representative in our acquisition of IRCA. The managing director of Titan
is Mr. Martin Steynberg, a member of our board of directors and a shareholder
in IRCA Investments (Proprietory) Limited which owns 49% of IRCA. Under the
terms of the agreement, the Company will pay Titan four million rand or
approximately $612,668 on March 1, 2004.
From time to time certain shareholders of Riverbend have advanced funds to
Riverbend. The current balance of $325,544 is non-interest bearing and
these are no fixed terms for repayment.
As of July 15, 2002, Trinity entered in a two-year Advisory Agreement with
Granite Creek Partners, LLC ("GCP"), formerly Kings Peak Advisors, LLC with
automatic renewal for a 12-month period. Under the terms of the Advisory
Agreement, GCP agreed to provide the Company with general corporate,
financial, business development and investment advisory services on a
non-exclusive basis. GCP is a private company whose principals are Douglas
Cole and Edward Mooney, who are officers and directors of Trinity, and Mr.
Swindells. The Advisory Agreement was suspended in August 2003.
The Advisory Agreement provided that GCP would be compensated for its
various advisory services as follows: (i) for general corporate advisory
services, an initial retainer of $25,000 and a fee of $20,000 per month
throughout the term of the agreement, payable, at GCP's option, in shares
of common stock at a price per share equal to $0.025; (ii) for financial
advisory services, a fee based on 10% of the gross proceeds of any equity
financings and/or 1.5% of any gross proceeds of debt financings that are
completed by underwriters or placement agents introduced by GCP, as well as
any fees which may be due to GCP for its assistance in identifying
prospective investors pursuant to terms and conditions of offering
memoranda issued by the Company; (iii) for merger and acquisition services
involving a transaction resulting from a contact provided by GCP, a sliding
fee based on a percentage of the value of the transaction, subject to an
additional $100,000 bonus in the event the transaction is valued at
$3,000,000 or more; (iv) in respect of general business development
advisory services, a fee to be negotiated with GCP based upon certain
agreed-upon fee parameters between the parties; and (v) in respect of debt,
credit or leasing facilities, a fee to be negotiated on a case-by-case
basis.
Trinity acknowledged that it was indebted to GCP for prior services
rendered since April 1, 2002 in the amount of $30,000, up to 50% of which
amount is payable, at GCP's option, in shares of common stock at a price
per share of $0.025. The total number of shares of common stock issuable
to GCP under the Advisory Agreement may not exceed 4,400,000 shares.
Through December 31, 2003, GCP had earned a total of $315,000 under the
Advisory Agreement, $110,000 of which was converted into 4,400,000 shares
of common stock in March 2003. Of the balance of $205,000, $187,087 has
been paid to GCP, leaving a balance owing at December 31, 2003 of $17,913.
As of July 31, 2002, we entered into a Advisory Agreement with European
American Securities, Inc. ("EAS") pursuant to which EAS agreed to provide
financial advisory and investment banking services to the Company in
exploration of the following strategic alternatives: (a) a private
placement of the Company's convertible promissory notes, (b) a private
placement of the Company's common or preferred stock, and (c) one or more
possible purchase transactions by the Company. In exchange for such
services, we agreed to pay EAS a retainer fee of $5,000 per month and a
commission ranging from 5% to 7% based on the type of transaction
consummated. Such fees to be paid in cash or our common stock, at EAS'
option. Through December 31, 2003, EAS had earned a total of $734,773
under the Advisory Agreement. Of the balance of $734,773, $429,773 has
been paid to EAS, leaving a balance owing at December 31, 2003 of $305,000,
of which, $125,000 or 250,000 shares was paid to EAS in the Company's
common stock in January 2004.
17
As of August 8, 2002, Trinity formalized a Debt Conversion Agreement with
Global Marketing Associates, Inc. ("GMA"), holder of a convertible
promissory note (the "GMA Note") in the principal amount of $166,963,
pursuant to which the principal amount of the note, along with accrued
interest thereon, was made convertible, under certain conditions, into
3,200,000 shares of common stock. The GMA Note was originally issued in
November 2000 to the Company's former attorneys and was subsequently
acquired by Pacific Management Services, Inc., who assigned the note to
GMA; both entities are unrelated to Trinity. GMA subsequently assigned the
right to acquire 2,600,000 of the 3,200,000 shares of common stock into
which the note is convertible, to several persons, comprising Messrs. Cole,
Mooney, Swindells and EAS. Pursuant to the assignment, Messrs. Cole and
Mooney each acquired the right to acquire 600,000 shares of the common
stock into which the GMA Note is convertible and Mr. Swindells acquired
the right to acquire 1,000,000 shares. Fifty percent of the shares
issuable upon the conversion of the GMA Note are subject to a two-year
lock-up provision that restricts transfer of such shares without prior
written consent of Trinity's board of directors. As of December 31, 2003,
3,200,000 shares of our common stock had been issued pursuant to the terms
of the GMA Note.
From time to time, since inception of our current operating strategy, Mr.
Swindells has provided short-term working capital loans on a non-interest
bearing basis. During our previous fiscal year, we were advanced $145,000
by Mr. Swindells, and during the transition period from October 1, 2002 to
June 30, 2003, we were advanced an additional $780,000 by Mr. Swindells.
The principal may be converted into such other debt or equity securities
financings that we may issue in private offerings while the loan is
outstanding. In September 2003, we repaid $500,000 on the $925,000 note
balance then outstanding. In November 2003, the remaining balance of
$425,000 was converted in to 850,000 shares of common stock and issued to
Mr. Swindells.
NOTE 9 - Notes Payable
On December 31, 2003, notes payable to accredited investors and related
parties totaled $2,901,285 as compared with $2,147,151 at June 30, 2003.
The notes bear interest between the rates of 0% and 12% per annum, some of
which are secured by our common stock. Certain notes are convertible into
the Company's common stock.
18
The Company has the following notes payable obligations:
December June
31, 2003 30, 2003
------------ ------------
Note payable to related parties; see Note 8
for due date, plus interest payable at 7% per annum. $ 15,379 $ -
Unsecured note payable to a related party, IRCA
investments, non-interest bearing, see Note 8 for
due dates. 750,000 -
Unsecured note payable to a related party, IRCA
investments, non-interest bearing and no fixed
terms of repayment, see Note 8. 20,000 -
Unsecured notes payable to a related party, IRCA
Investments, has no fixed terms of repayment and
bears interest at a rate of prime. See Note 8. 1,531,573 -
Unsecured notes payable, due to Riverbend
shareholders, has no fixed terms of repayment and
is non-interest bearing. See Note 8. 325,544 -
Borrowings under revolving line of credit issued by
a bank, plus interest payable at prime plus 2.625%. 99,950 -
Borrowings under revolving line of credit issued by
a bank, plus interest payable at prime plus 6.75%. 34,076 -
Borrowings under revolving line of credit issued by
a third party creditorbank, plus interest payable
at prime plus 1.99%. 15,003 -
Notes payable to third party individuals, due
September 1, 2006, plus interest payable at 10%
per annum. 94,045 -
Unsecured convertible notes payable due on December
1, 2003, see Note 8. - 925,000
Note payable to bank due October 29, 2004, plus
interest payable annually at 9.5%, secured by vehicle. 15,715 -
Unsecured notes payable to a related party see Note 6. - 222,151
Convertible notes payable to a related party, see Note 6. - 1,000,000
Total Notes Payable 2,901,285 2,147,151
------------ ------------
Less: Current Maturities 15,715 (2,147,151)
------------ ------------
Long Term Notes Payable $ 2,885,570 $ -
============ ============
19
NOTE 10 - Stockholders' Equity
On December 2, 2002, at a special meeting of our shareholders, the 2002
Stock Plan was approved. The Plan allowed for a maximum aggregate number
of shares that may be optioned and sold under the plan of (a) 3,000,000
shares, plus (b) an annual 500,000 increase to be added on the last day of
each fiscal year beginning in 2003 unless a lesser amount is determined by
the board of directors. The plan became effective with its adoption and
remains in effect for ten years unless terminated earlier. On December 30,
2003, the board of directors amended the 2002 Stock Plan to allow for a
maximum aggregate number of shares that may be optioned and sold under the
plan of (a) 6,000,000 shares, plus (b) an annual 1,000,000 increase to be
added on the last day of each fiscal year beginning in 2004 unless a lesser
amount is determined by the board of directors. Options granted under the
plan vest 25% on the day of the grant and the remaining 75% vests monthly
over the next 36 months. As of December 31, and June 30, 2003, 4,047,000
and 2,447,000 options, respectively, have been granted at prices ranging
from $0.05 per share to $0.50 per share of which 1,453,390 and 963,625 were
vested as of December 31 and June 30, 2003, respectively.
Between January and April 2003, we received subscriptions to our December
2002 Private Placement Memorandum totaling $250,000 from outside investors
to purchase 250,000 units at a price of $1.00 per unit. Each unit entitles
the holder to two shares of our common stock and two three year warrants,
each to purchase an additional share of common stock for $1.00 per share.
If all warrants are fully exercised by the holder of such warrants, a bonus
warrant will be issued entitling the holder to purchase one additional
share of common stock for $2.00.
Between June and October 2003, we received subscriptions to our May 2003
Private Placement Memorandum ("May 2003 PPM") totaling $5,073,300 from
outside investors to purchase 5,073,300 units at a price of $1.00 per unit.
Each unit entitles the holder to two shares of our common stock and two
three year warrants, each to purchase an additional share of common stock
for $1.00 per share. If all warrants are fully exercised by the holder of
such warrants, a bonus warrant will be issued entitling the holder to
purchase one additional share of common stock for $2.00. In connection
with the May 2003 Private Placement, we issued to various financial
advisors, 567,160 additional shares of our common stock and five-year
warrants to purchase 200,050 shares of our common stock.
As of July 31, 2002, we entered into an Advisory Agreement with EAS
pursuant to which EAS agreed to provide financial advisory and investment
banking services to the Company in exploration of the following strategic
alternatives: (a) a private placement of the Company's convertible
promissory notes, (b) a private placement of the Company's common or
preferred stock, and (c) one or more possible purchase transactions by the
Company. In exchange for such services, we agreed to pay EAS a retainer
fee of $5,000 per month and a commission raging from 5% to 7% based on the
type of transaction consummated. Such fees to be paid in cash or our
common stock, at EAS' option. Through December 31, 2003, EAS had earned a
total of $734,773 under the Advisory Agreement. Of the balance of
$734,773, $429,773 has been paid to EAS, leaving a balance owing at
December 31, 2003 of $305,000 of which, $125,000 or 250,000 shares was paid
to EAS in the Company's common stock in January 2004.
20
From time to time, since inception of our current operating strategy, Mr.
Swindells has provided short-term working capital loans on a non-interest
bearing basis. During our previous fiscal year, we were advanced $145,000
by Mr. Swindells, and during the transition period from October 1, 2002 to
June 30, 2003, we were advanced an additional $780,000 by Mr. Swindells.
The principal may be converted into such other debt or equity securities
financings that we may issue in private offerings while the loan is
outstanding. In September 2003, we repaid $500,000 on the $925,000 note
balance then outstanding. In November 2003, the remaining balance of
$425,000 was converted into 850,000 shares of common stock and issued to
Mr. Swindells.
Finally, 100,000 shares of the Company's common stock were issued to Mr.
Posner for finders' fees and for the Riverbend transaction.
NOTE 11 Stock Option Plan
On December 2, 2002, at a special meeting of our shareholders, the 2002
Stock Plan was approved. The Plan allowed for a maximum aggregate number
of shares that may be optioned and sold under the plan of (a) 3,000,000
shares, plus (b) an annual 500,000 increase to be added on the last day of
each fiscal year beginning in 2003 unless a lesser amount is determined by
the board of directors. The plan became effective with its adoption and
remains in effect for ten years unless terminated earlier. On December 30,
2003, the board of directors amended the 2002 Stock Plan to allow for a
maximum aggregate number of shares that may be optioned and sold under the
plan of (a) 6,000,000 shares, plus (b) an annual 1,000,000 increase to be
added on the last day of each fiscal year beginning in 2004 unless a lesser
amount is determined by the board of directors. Options granted under the
plan vest 25% on the day of the grant and the remaining 75% vests monthly
over the next 36 months.
The following schedule summarizes the activity during the three months
ended December 31, 2003.
2002 STOCK PLAN
-------------------------
Weighted
Average
Number of Exercise
Shares Price
------------ ------------
Number of SharesWeighted Average Exercise Price
Outstanding at September 30, 2003 3,182,000 $ 0.23
Options Granted 925,000 0.50
Options Exercised - -
Options Canceled 565,000 0.24
Options Outstanding at December 31, 2003 3,542,000 $ 0.36
Options Exercisable at December 31, 2003 1,448,938 $ 0.30
21
The following schedule summarizes the activity during the six months ended
December 31, 2003.
2002 STOCK PLAN
--------------------------
Weighted
Average
Number of Exercise
Shares Price
------------ ------------
Outstanding at June 30, 2003 2,447,000 $ 0.23
Options Granted 1,660,000 0.50
Options Exercised - -
Options Canceled 565,000 0.24
Options Outstanding at December 31, 2003 3,542,000 $ 0.36
Options Exercisable at December 31, 2003 1,448,938 $ 0.30
In accordance with Statement of Financial Accounting Standards Number 123,
"Accounting for Stock-Based Compensation," option expense of $41,835 and
$100,569 was recognized for the three months and six months ended December
31, 2003, respectively:
December
31, 2003
------------
Five-Year Risk Free Interest Rate 3.27%
Dividend Yield Nil
Volatility Nil
Average Expected Term (Years to Exercise) 5
Stock options outstanding and exercisable under 2002 Stock Plan as of
December 31, 2003 are as follows:
Average
Weighted Remaining Weighted
Range of Number of Average Contractual Number Average
Exercise Options Exercise Life Of Options Exercise
Price Outstanding Price (Years) Vested Price
----------- ----------- ----------- ----------- ----------- -----------
$0.05 600,000 $0.05 3.8 334,110 $0.05
$0.25 1,049,000 $0.25 3.9 540,164 $0.25
$0.50 1,893,000 $0.50 4.7 574,664 $0.50
22
NOTE 12 - Going Concern
Our financial statements are prepared using generally accepted accounting
principles applicable to a going concern, which contemplates the
realization of assets and liquidation of liabilities in the normal course
of business. Currently, we do not have significant cash or other material
assets, nor do we have an established source of revenues sufficient to
cover our operating costs and to allow us to continue as a going concern.
We do not currently possess a financial institution source of financing and
we cannot be certain that our existing sources of cash will be adequate to
meet our liquidity requirements. However, we have undertaken the following
to meet our liquidity requirements:
(a) Seek additional funding through senior convertible bridge notes
to raise sufficient funds to continue operations and fund its
ongoing development, merger and acquisition activities. In
January 2004, we commenced a $3,000,000 offering of senior
convertible bridge notes to accredited investors, the proceeds of
which will be used for (i) corporate administration, (ii) the
expansion of subsidiary operations, and (iii) expenses and funds
advanced for acquisitions in 2003. In conjunction with the
offering, we have engaged various financial advisory firms and
other finders to identify prospective investors. We anticipate
closing the offering by February 29, 2004.
(b) Generate sufficient cash flow to sustain and grow subsidiary
operations and, if possible, create excess cash flow for
corporate administrative expenses through our operating
subsidiaries; and
(c) Identify prospective acquisition targets with sufficient cash
flow to fund subsidiary operations, as well as potentially
generating operating cash flow that may sustain corporate
administrative expenses.
Trinity's future capital requirements will depend on its ability to
successfully implement these initiatives and other factors, including our
ability to maintain our existing customer base and to expand our customer
base into new geographic markets, and overall financial market conditions
in the United States and other countries where we will seek prospective
investors.
NOTE 13 Subsequent Events
We have entered into a definitive agreement to acquire Virtual Learning
Partners SA ("VILPAS"), a learning services company headquartered in Oslo,
Norway. We anticipate closing this transaction within the next 30 days.
We will acquire VILPAS through a combination of stock and cash payments.
Among its various business development initiatives, VILPAS is majority
owner of FunkWeb, also headquartered in Oslo. FunkWeb is a leading
provider of workplace training and retraining for disabled persons. In
conjunction with national and local employment programs, FunkWeb has a
successful track record in providing disabled persons with skills,
certifications and job placement services primarily related to information
technologies, web-based systems, and computing. The minority partner in
FunkWeb is the Norwegian Federation of Functionally Disabled People, a non-
government organization (NGO) representing many of the country's
associations and programs for the disabled.
23
Beginning February 2004, we had received subscriptions to our January 2004
Offering of up to $3,000,000 Senior Convertible Bridge Notes (the "Notes")
totaling $1,060,000. The Notes will mature in twelve months plus accrued
interest at a rate of 7% per annum. The Notes will be convertible at 80%
of the "Next Equity Financing" offering price. The Next Equity Financing
shall mean a common stock equity financing in which proceeds equal or
exceed $5,000,000, which shall include any principal or interest accrued
under the Notes. The Company expects to complete the Next Equity Financing
in early 2004. In addition, for each $1.00 invested, the investor shall
receive a 5 year warrant to purchase a share of the Company's common stock
at $1.00 per share.
On February 23, 2004, Trinity Learning Corporation (the "Company")
announced that it had entered into an Agreement and Plan of Merger (the
"Merger Agreement") with ProsoftTraining, a Nevada corporation ("Prosoft"),
and MTX Acquisition Corp., a Utah corporation and a wholly-owned subsidiary
of Prosoft (the "Merger Sub"), pursuant to which the Merger Sub will be
merged with and into the Company, with the Company continuing as the
surviving corporation wholly-owned by Prosoft (the "Merger"). Upon
completion of the Merger, holders of Company common stock will be entitled
to receive one (1) share (the "Exchange Ratio") of Prosoft common stock for
each share of Company common stock held by them. Prosoft will assume all
outstanding options to purchase shares of Company common stock, which will
become exercisable to purchase the number of shares of Prosoft common stock
at the exercise price as adjusted by the Exchange Ratio. The Merger is
intended to be a tax-free reorganization under Section 368(a) of the
Internal Revenue Code of 1986, as amended. The consummation of the Merger
is subject to the approval of the stockholders of each of the Company and
Prosoft, effectiveness of the Form S-4 Registration Statement to be filed
by Prosoft, regulatory approvals, satisfactory agreements with certain
creditors and other customary closing conditions.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Our fiscal year ends on June 30. This management's discussion and
analysis of financial condition and results of operations and other
portions of this Quarterly Report on Form 10-QSB contain forward looking
information that involves risks and uncertainties. Our actual results could
differ materially from those anticipated by this forward looking
information. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed or referred to in the
Transition Report on Form 10-KSB for the period ended June 30, 2003, filed
on November 17, 2003, under the heading Information Regarding Forward-
Looking Statements and elsewhere. Investors should review this quarterly
report on Form 10-QSB in combination with our Transition Report on Form 10-
KSB in order to have a more complete understanding of the principal risks
associated with an investment in our common stock. This management's
discussion and analysis of financial condition and results of operations
should be read in conjunction with our unaudited condensed consolidated
financial statements and related notes included elsewhere in this document.
The following discussion contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. Our
actual results could differ materially from those described here. This
Management's Discussion and Analysis ("MDA") should be read in conjunction
with the Consolidated Financial Statements and the footnotes for the three
months ended September 30, 2003 included elsewhere in this report as well
as the MDA and the Consolidated Financial Statements included in the
Transition Report on Form 10-KSB for the transition period from October 1,
2002 to June 30, 2003, which was previously filed with the Securities and
Exchange Commission.
OVERVIEW
We commenced a strategy in 2002 to acquire operating companies in strategic
markets that have developed proprietary technology-enabled learning,
training and certification services targeted at major customers in
worldwide industries. Our mission is to become a leading global learning
solution corporation through acquisition, business development and
strategic relationships. provide advanced learning solutions around the
world for corporations, organizations and individuals. Our mission is to
become a leading global learning solution corporation through acquisition,
business development and strategic relationships. We commenced our
strategy in 2002 to acquire operating companies in strategic markets that
have developed proprietary technology-enabled learning, training and
certification services targeted at major customers in worldwide industri We
earn revenues from selling our services to medium to large companies and
organizations that provide workplace training and certification to their
employees. The principal components of our costs of sales are labor costs
for employees who are directly involved in providing services to clients.
Other costs of sales include expenses associated with specific projects
including materials and incidental expenses. Operating expenses include
salaries and benefits for management, administrative, marketing and sales
personnel, research and development, occupancy and related overhead costs.
24
Following our initial acquisition of CBL, and related companies,
discussed below, our corporate development efforts in 2003 were
concentrated on the identification of additional acquisition candidates
including due diligence, negotiation of terms and conditions, and the
development of integration and financing strategies for each acquisition.
We have also focused on raising growth capital through private placements
to be used as working capital for Trinity and our subsidiaries. On
September 1 and December 1, 2003, respectively, we completed the following
four non-related acquisitions. Additional information concerning these
transactions and the various companies involved were filed on Forms 8-K.
TouchVision (California)
We completed the acquisition of all of the issued and outstanding
shares of TouchVision, Inc., a California corporation ("TouchVision") that
is in the business of providing technology-enabled information and learning
systems to healthcare providers, financial services companies and other
industry segments. In consideration for the TouchVision shares, we issued
an aggregate of 1,250,000 restricted shares of our common stock, of which
312,500 shares are subject to the terms of an escrow agreement as
collateral for the indemnification obligations of the former TouchVision
shareholders. We also agreed to loan to TouchVision the sum of $20,000 per
month for the twelve-month period following closing, to be used for working
capital. We had previously loaned TouchVision the sum of $50,000 in June
and July, 2003 by way of bridge financing pending completion of the
acquisition. In connection with the acquisition, TouchVision entered into
substantially similar employment agreements with each of Messrs. Gregory L.
Roche and Larry J. Mahar, the former principals of TouchVision, which have
a term of two years and provide for annual salaries of $120,000. On
October 1, 2003, we advanced $150,000 to TouchVsion the proceeds of which
were used to pay off a loan payable to a bank, which was guaranteed by the
Small Business Administration.
River Murray Training Pty. Ltd. (Australia)
We completed the acquisition of all of the issued and outstanding
shares of River Murray Training Pty Ltd ("RMT") an Australian company that
is in the business of providing workplace training programs for various
segments of the food production industry, including viticulture and
horticulture. In consideration for the shares of RMT we issued 700,000
restricted shares of our common stock, of which 350,000 shares are subject
to the terms of an escrow agreement as collateral for the indemnification
obligations of the former RMT shareholders. We also loaned US$49,000 to
RMT for the purpose of repaying outstanding loans advanced to RMT by its
former shareholders.
Riverbend Group Holdings (Proprietary) Limited (South Africa)
We completed the acquisition of 51% of the issued and outstanding
shares of Ayrshire Trading Limited, a British Virgin Islands company
("Ayrshire") that owns 95% of Riverbend Group Holdings (Proprietary)
Limited ("Riverbend"), a South African company that provides learning
services to corporations and individuals in South Africa. We also acquired
the option to purchase the remaining 49% of Ayrshire. In consideration
for the Ayrshire shares, we issued a convertible non-interest-bearing
promissory note in the amount of US$20,000, which amount is convertible
from time to time, but no later than December 30, 2006, into a maximum of
2,000,000 restricted shares of our common stock, which has been recorded as
conditionally redeemable common stock in stockholders' equity at $0.50 per
share. Of these shares, up to 400,000 may be withheld in satisfaction for
any breach of warranties by the former shareholders of Ayrshire. The
Ayrshire shares are subject to escrow and pledge agreements will be
25
reconveyed to the former shareholders in the event of a default by us of
certain terms and conditions of the acquisition agreements, including,
among other things, a voluntary or involuntary bankruptcy proceeding
involving us or the failure by us to list our shares of common stock on a
major stock exchange by December 30, 2006.
As further consideration for the Ayrshire shares, we agreed to make a
non-interest-bearing loan of U.S. $1,000,000 to Ayrshire, $300,000 of which
was advanced at closing and the remaining $700,000 was advanced on November
3, 2003. We may exercise an option to acquire the remaining 49% of
Ayrshire in consideration for the issuance of 1,500,000 shares of our
common stock, subject to certain adjustments.
In connection with the Riverbend acquisition, we agreed to appoint Mr.
Arthur Kidson to our board of directors, to serve until our next annual
meeting. In addition, we agreed to invite Mr. Nigel Tattersal to attend
all meetings of our board of directors as an observer until our next annual
meeting. Messrs. Kidson and Tattersal are both principals of Riverbend.
IRCA
On December 1, 2003, we completed the acquisition of all the issued
and outstanding shares of Danlas, a British Virgin Islands Company that
owns 51% of IRCA (Proprietary) Limited ("IRCA"), a South African company
specializing in corporate learning, certification and risk mitigation in
the area of safety, healthy environment and quality assurance ("SHEQ").
IRCA operates in South Africa, England and the United States through
various operating subsidiaries. Danlas also holds options to acquire the
remaining 49% of IRCA.
In consideration for the Danlas shares, the Company (i) issued three
convertible promissory notes in the aggregate principal amount of $40,000
and convertible into a maximum of 4,500,000 shares, under certain
conditions, of the Company's common stock, (ii) agreed to advance $500,000
in cash to establish an international sales force, (iii) provided $500,000
for certain bank guarantees and, (iv) provided certain future profit
thresholds are met, agreed to issue up to an additional 1,000,000 shares of
the Company's common stock. The first promissory note for $20,000
convertible to 2,500,000 shares has been classified as conditionally
redeemable common stock at $0.50 per share. The remaining $20,000 in
promissory notes has been classified as intercompany note payable and
eliminated in the consolidation of the Company and its subsidiaries at
December 31, 2003.
Competency Based Learning, Inc.
In December 2003, we completed the sale of our interests in CBL
Global Corporation ("CBL Global") and its Australian subsidiaries
(collectively "CBL") to the former owners of CBL. In conjunction with the
management buyout, we entered into a Settlement Agreement with respect to
our litigation with CBL as described in our 10KSB filed with the U.S.
Securities and Exchange Commission. We acquired CBL from its former owners
in October 2002. Pursuant to the terms of the agreement, we have conveyed
all our interest in CBL back to the former owners in exchange for surrender
and cancellation of all shares of Trinity stock issued to them in
connection with the acquisition of CBL and the of approximately $1,000,000
in convertible notes payable to them. Also as a result of the divestiture,
$222,151 owed by CBL Global to Messrs. Kennedy and Scammell is no longer an
obligation of the Company. We made the decision to divest our company of
CBL following our acquisition in the autumn of 2003 of the four companies
described above. Continued operation of CBL would have required
significant cash infusion on behalf of the Company. Through IRCA, Trinity
will continue to market CBL-related workplace learning content and products
in Africa.
26
CHANGE IN FISCAL YEAR
On August 6, 2003, our board of directors approved a change in our
fiscal year-end from September 30 to June 30 to align it with those of the
companies we had already acquired or were at that time in the process of
acquiring. The information presented in Transition Report on Form 10-KSB
relates to the transition period October 1, 2002 through June 30, 2003.
Results for six months of fiscal year 2004 reflect four months'
results of operations for the three companies we recently acquired on
September 1, 2003 and one month's result of operations for the company we
acquired on December 1, 2003. CBL's activity is reflected for the period
July 1, 2003 through December 22, 2003.
Revenues from our clients were $3,162,344 for the first six months of
fiscal year 2004, compared with $62,660 for the same six months ended
December 31, 2002. Of the total increase in revenues from our clients,
approximately $3,100,000 was due to the four acquisitions described above
that we made during the first six months of fiscal year 2004.
We believe that the acquisitions we completed in the first six months
of fiscal year 2004 will shift our business in the direction of markets
that we believe offer good growth potential for the Company.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions in certain circumstances that affect amounts
reported in the accompanying consolidated financial statements and related
footnotes. In preparing these financial statements, management has made
its best estimate and judgments of certain amounts included in the
financial statements, giving consideration to materiality. Historically,
our estimates have not materially differed from actual results.
Application of these accounting policies, however, involves exercise of
judgment and use of assumptions as to future uncertainties. As a result,
actual results could differ from these estimates.
Material accounting policies that we believe are the most critical to
investor's understanding of our financial results and condition and require
complex management judgment have been expanded and are discussed below.
Information regarding our other accounting policies is included in our
Transition Report on Form 10-KSB for the transition period ended June 30,
2003.
A. Method of accounting. The Company uses the accrual method of
accounting.
B. Revenue and expense recognition. Revenues and directly related
expenses are recognized in the financial statements in the period when
the goods are shipped to the customer.
C. Cash and cash equivalents. The Company considers all short-term,
highly liquid investments that are readily convertible within three
months to known amounts, as cash equivalents.
D. Depreciation and amortization. The cost of property and equipment is
depreciated over the estimated useful lives of the related assets.
The cost of leasehold improvements is amortized over the lesser of the
length of the lease of the related assets or the estimated lives of
the assets. Depreciation and amortization is computed on the
straight-line method.
E. Consolidation policies. The accompanying consolidated financial
statements include the accounts of the Company and its wholly owned
subsidiaries. Intercompany transactions and balances have been
eliminated in consolidation.
27
F. Foreign currency translation/remeasurement policy. Assets and
liabilities that occur in foreign currencies are recorded at
historical cost and translated at exchange rates in effect at the end
of the reporting period.
ADOPTION OF STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
In June 2002, the FASB issued Statement of Financial Accounting
Standard No. 146 ("SFAS 146"), "Accounting for Costs Associated with Exit
or Disposal Activities." SFAS 146 replaces Emerging Issues Task Force
("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (Including Certain
Costs Incurred in a Restructuring)" in its entirety and addresses
significant issues relating to recognition, measurement and reporting costs
associated with an exit or disposal activity, including restructuring
activities. Under EITF Issue No. 94-3, a liability is recognized, measured
and reported as of the date of an entity's commitment to an exit plan.
Pursuant to SFAS 146, a liability is recorded on the date on which the
obligation is incurred and should be initially measured at fair value.
SFAS 146 is effective for exit or disposal activities initiated after
December 31, 2002. The Company adopted SFAS 146 on July 1, 2003. See Note
2 Acquisitions and Divestitures.
EITF Consensus Issue No.00-21 ("EITF 00-21"), "Revenue Arrangements
with Multiple Deliverables" was first discussed at the July 2000 EITF
meeting and was issued in February 2002. Certain revisions to the scope
language were made and finalized in May 2003. EITF 00-21 addresses the
accounting for multiple element revenue arrangements, which involve more
than one deliverable or unit of accounting in circumstances, where the
delivery of those units takes place in different accounting periods. EITF
00-21 requires disclosures of the accounting policy for revenue recognition
of multiple element revenue arrangements and the nature and description of
such arrangements. The accounting and reporting requirements are effective
for revenue arrangements entered into in fiscal periods beginning after
June 15, 2003. The Company has completed its initial evaluation and
adoption of EITF 00-21 does not have a significant impact on the Company's
financial statements. The Company continues its evaluation to determine
whether the reporting requirements of EITF 00-21 will impact the Company's
financial statements in the future.
In January 2003, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standard No. 148 ("SFAS 148"),
"Accounting for Stock-Based Compensation Transition and Disclosure."
SFAS 148 amends FASB Statement 123 ("SFAS 123"), "Accounting for Stock-
Based Compensation," to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-
based employee compensation. In addition, SFAS 148 amends the disclosure
requirements of SFAS 123 to require prominent disclosure in both annual and
interim financial statements of the method of accounting for stock-based
employee compensation and the effect of the method used on reported
results. SFAS 148 is effective for fiscal years, including interim periods
beginning after December 15, 2002, and thus, this disclosure is included in
the table below. SFAS 148 also requires disclosure of pro-forma results on
the interim basis as if the Company had applied the fair value recognition
provisions of SFAS 123. The Company implemented the fair value based
method of accounting for stock-based employee compensation during the
transition period from October 1, 2002 to June 30, 2003. Implementing SFAS
148 did not impact the financial results of the Company significantly.
28
In April 2003, the FASB issued Statement of Financial Accounting
Standards No. 149 ("SFAS 149"), "Amendment of Statement 133 on Derivative
Instruments and Hedging Activities." SFAS 149 amends and clarifies
financial accounting and reporting for derivative instruments, including
certain derivative instruments embedded in other contracts (collectively
referred to as derivatives) and for hedging activities. The accounting and
reporting requirements will be effective for contracts entered into or
modified after June 30, 2003 and for hedging relationships designated after
June 30, 2003. Currently, we do not have any derivative instruments and do
not anticipate entering into any derivative contracts. Accordingly,
adoption of SFAS 149 has no significant impact on our financial statements.
In May 2003, the FASB issued Statement of Financial Accounting
Standards No. 150 ("SFAS 150"), "Accounting for Certain Instruments with
Characteristics of Both Liabilities and Equity." SFAS 150 establishes
standards for how an issuer classifies and measures certain financial
instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its
scope as a liability (or an asset in some circumstances). SFAS 150 is
effective for financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. As permitted, the Company adopted
SFAS 150 on October 1, 2003. Accordingly, adoption of SFAS 150 did not
have a significant impact on the Company's financial statements.
RELATED PARTY TRANSACTIONS
From time to time, Ms. McPherson and Ms. Hayman, officers of RMT, have
advanced funds to RMT. The current balance of $15,379 is due December 31,
2004 and accrues interest at a rate of 6% per annum.
From time to time, certain shareholders of IRCA have advanced funds to
IRCA. Of the current balance of $2,301,573, $750,000 is non-interest
bearing and due June 30, 2004; $20,000 is non-interest bearing and has no
fixed terms of repayment and the remaining amount due of $1,531,573 has no
fixed terms of repayment and bears interest at a Republic of South Africa
Bank prime rate.
On December 17, 2003, we entered into an agreement with Titan Aviation
Ltd. ("Titan"), a Guernsey company, for the purpose of having Titan act as
our representative in our acquisition of IRCA. The managing partner of
Titan is Mr. Martin Steynberg, a member of our board of directors and a
shareholder in IRCA Investments (Proprietory) Limited which owns 49% of
IRCA. Under the terms of the agreement, the Company will pay Titan four
million rand or approximately $612,668 on March 1, 2004.
From time to time certain shareholders of Riverbend have advanced
funds to Riverbend. The current balance of $325,544 is non-interest
bearing and these are no fixed terms for repayment.
As of August 8, 2002, we formalized a Debt Conversion Agreement with
Global Marketing Associates, Inc. ("GMA"), holder of a convertible
promissory note (the "GMA Note") in the principal amount of $166,963,
pursuant to which the principal amount of the note, along with accrued
interest thereon, was made convertible, under certain conditions, into
3,200,000 shares of common stock. The GMA Note was originally issued in
November 2000 to our company's former attorneys and was subsequently
acquired by Pacific Management Services, Inc., who assigned the note to
GMA; both entities are unrelated to us. GMA subsequently assigned the
right to acquire 2,600,000 of the 3,200,000 shares of common stock into
which the note is convertible, to several persons, comprising Messrs. Cole,
Mooney, and Swindells as well as European American Securities, Inc.
("EAS"). Pursuant to the assignment, Messrs. Cole and Mooney each acquired
the right to acquire 600,000 shares of the common stock into which the GMA
Note is convertible and Mr. Swindells acquired the right to acquire
1,000,000 shares. As of January 2003, all 3,200,000 shares of our common
stock had been issued pursuant to the terms of the GMA Note. Fifty
percent of the shares issuable upon the conversion of the GMA Note are
subject to a two-year lock-up provision that restricts transfer of such
shares without prior written consent of our board of directors.
29
As of July 15, 2002, we entered in a two-year Advisory Agreement with
Granite Creek Partners, LLC ("GCP"), formerly Kings Peak Advisors, LLC.,
automatically renewable for an additional 12-month period. Under the
terms of the Advisory Agreement, GCP agreed to provide us with general
corporate, financial, business development and investment advisory services
on a non-exclusive basis. These services include assisting with the
identification of placement agents, underwriters, lenders and other sources
of financing, as well as additional qualified independent directors and
members of management. GCP is a private company whose principals are
Douglas Cole and Edward Mooney, who are officers and directors of our
company, and Theodore Swindells. At its August 19, 2003 meeting, the
board of directors' voted to suspend the Advisory Agreement from August 15,
2003 until January 2004. Through December 31, 2003, GCP had earned a total
of $315,000 under the Advisory Agreement, $110,000 of which was converted
into 4,400,000 shares of common stock in March 2003. Of the balance of
$205,000, $187,087 was paid to GCP, leaving a balance owing at December 31,
2003 of $17,913.
As of July 31, 2002, we entered into a Advisory Agreement with EAS
pursuant to which EAS agreed to provide financial advisory and investment
banking services to the Company in exploration of the following strategic
alternatives: (a) a private placement of the Company's convertible
promissory notes, (b) a private placement of the Company's common or
preferred stock, and (c) one or more possible purchase transactions by the
Company. In exchange for such services, we agreed to pay EAS a retainer
fee of $5,000 per month and a commission ranging from 5% to 7% based on the
type of transaction consummated, such fees being payable in cash or the
Company's common stock at EAS' option. Through December 31, 2003, EAS had
earned a total of $734,773 under the Advisory Agreement. Of the balance of
$734,773, $429,773 has been paid to EAS, leaving a balance owing at
December 31, 2003 of $305,000 of which $125,000 or 250,000 shares in the
Company's common stock was paid to EAS in January 2004.
From time to time, since inception of our current operating strategy,
Mr. Swindells has provided short-term working capital loans on a non-
interest bearing basis. During our previous fiscal year, we were advanced
$145,000 by Mr. Swindells, and during the transition period from October
1, 2002 to June 30, 2003, we were advanced an additional $780,000 by Mr.
Swindells. The principal may be converted into such other debt or equity
securities financings that we may issue in private offerings while the loan
is outstanding. In September 2003, we repaid $500,000 on the loan balance
then outstanding. In November 2003, the remaining balance of $425,000 was
converted to 850,000 shares of common stock and issued to Mr. Swindells.
RESULTS OF OPERATIONS
SECOND QUARTER ENDED DECEMBER 31, 2003 COMPARED TO DECEMBER 31, 2002
Our gross sales revenues were $2,545,557 for the quarter ended
December 31, 2003, as compared to $62,660, the amount we reported for the
quarter ended December 31, 2002. The increase in revenues was primarily
due to the CBL, TouchVision, RMT, Danlas and Riverbend acquisitions
("acquisitions") which provided the revenues for the second quarter of
fiscal year 2004.
Costs of sales for the quarter ended December 31, 2003, which consist
of labor and hardware costs, and other incidental expenses, increased by
$801,286, as compared to $0 for the same period last year. This increase
was a result of the acquisitions, which increased costs of sales.
Our gross profit was $1,744,271 for the quarter ended December 31,
2003, as compared to $62,660, the amount we reported for the quarter ended
December 31, 2002. The increase in gross profit was due to the
acquisitions, which provided $1,744,271 in gross profit.
30
Operating expenses for the quarter ended December 31, 2003 increased
by $2,611,872, or 400%, over the amount we reported for the same period
last year. The increase in operating expenses was primarily due to the
additional labor, benefits, travel and entertainment expense in the
acquired companies during the second three months of fiscal year 2004 and
an increase in amortization expense as a result of the capitalization of
intellectual property acquired from TouchVision, RMT, Danlas, and
Riverbend. Net interest expense for the quarter ended December 31, 2003
increased by $9,217 due to the additional interest paid on various loans
incurred immediately prior to the period.
We reported net loss available for common shareholders of $1,618,052,
or $0.07 per share on a diluted basis, for the quarter ended December 31,
2003, compared with a net loss of $612,933, or $0.10 per share on a diluted
basis, for the same period last year.
SIX MONTHS ENDED DECEMBER 31, 2003 COMPARED TO DECEMBER 31, 2002
Our gross sales revenues were $3,162,344 for the six months ended
December 31, 2003, as compared to $62,660, the amount we reported for
the six months ended December 31, 2002. The increase in revenues was
primarily due to the CBL, TouchVision, RMT, Danlas and Ayrshire
acquisitions ("acquisitions") which provided the revenues for the second
six months of fiscal year 2004.
Costs of sales for the six months ended December 31, 2003, which
consist of labor and hardware costs, and other incidental expenses,
increased by $1,049,378, as compared to $0 for the same period last year.
This increase was a result of the acquisitions, which increased costs of
sales.
Our gross profit was $2,112,966 for the six months ended December 31,
2003, as compared to $62,660, the amount we reported for the six months
ended December 31, 2002. The increase in gross profit was due to the
acquisitions, which provided all of the gross profit.
Operating expenses for the six months ended December 31, 2003
increased by $3,517,646 or 335%, over the amount we reported for the same
period last year. The increase in operating expenses was primarily due to
the additional labor, benefits, travel and entertainment expense in the
acquired companies during the second three months of fiscal year 2004 and
an increase in amortization expense as a result of the capitalization of
intellectual property acquired from CBL Global, TouchVision, RMT, Danlas,
and Riverbend. Net interest expense for the six months ended December 31,
2003 increased by $3,978 due to the additional interest paid on various
loans incurred immediately prior to the period.
We reported net loss available for common shareholders of $2,529,632,
or $0.13 per share on a diluted basis, for the six months ended December
31, 2003, compared with a net loss of $1,017,754 or $0.35 per share on a
diluted basis, for the same period last year.
LIQUIDITY AND CAPITAL RESOURCES
Our expenses are currently greater than our revenues. We have a
history of losses, and our accumulated deficit as of December 31, 2003 was
$13,718,545, as compared to $11,188,913 as of June 30, 2003.
31
At December 31, 2003, we had a cash balance of $1,470,152 compared to
$86,511 at June 30, 2003. Net cash used by operating activities during
the six months ended December 31, 2003 was $2,389,078, attributable
primarily to our loss from operations of $2,529,632. Cash generated by
financing activities was $3,947,441 for the six months ended December 31,
2003 representing the net of repayments under short-term notes of $500,000,
financing fees of $470,510 and $5,073,300 in proceeds from issuance of
common stock.
Accounts receivable increased from $42,719 at June 30, 2003 to
$3,750,685 at December 31, 2003. This increase is due to receivables owed
to the four subsidiaries we acquired during the autumn of 2003.
Accounts payable increased from $391,872 at June 30, 2003 to
$2,304,384 at December 31, 2003. This increase is attributable to expenses
incurred in connection with our acquisitions, and our continuing corporate
expansion during the year.
We commenced a private offering of our securities in May 2003. As of
October 31, 2003, we had closed the offering and raised an aggregate of
$5,073,300. Of these funds, $141,719, $87,108, $277,625, $1,000,000 and
$20,000 were advanced as loans to our subsidiaries, CBL Global, RMT,
TouchVision, Riverbend, and IRCA, respectively, $470,510 was paid in
commissions to financial advisors for fundraising activities, and $500,000
was repaid on short-term promissory notes to a related party.
As a professional services organization we are not capital intensive.
Capital expenditures historically have been for computer-aided instruction,
accounting and project management information systems and general-purpose
computer equipment to accommodate our growth. Capital expenditures,
excluding purchases financed through capital lease, during the first six
months of fiscal years 2004 and 2003 were $19,963 and $6,389, respectively.
Currently, we do not have significant cash or other material assets,
nor do we have an established source of revenues sufficient to cover our
operating costs and to allow us to continue as a going concern. We do not
currently possess a financial institution source of financing and we cannot
be certain that our existing sources of cash will be adequate to meet our
liquidity requirements. However, we have undertaken the following to meet
our liquidity requirements:
(a) Seek additional funding through senior convertible bridge notes
to raise sufficient funds to continue operations and fund its
ongoing development, merger and acquisition activities. In
January 2004, we commenced a $3,000,000 offering of senior
convertible bridge notes to accredited investors, the proceeds of
which will be used for (i) corporate administration, (ii) the
expansion of subsidiary operations, and (iii) expenses and
commitments made for acquisitions in 2003. In conjunction with the
offering, we have engaged various financial advisory firms and
other finders to identify prospective investors. We anticipate
closing the offering by February 29, 2004.
(b) Generate sufficient cash flow to sustain and grow subsidiary
operations and, if possible, create excess cash flow for
corporate administrative expenses through our operating
subsidiaries; and
(c) Identify prospective acquisition targets with sufficient cash
flow to fund subsidiary operations, as well as potentially
generating operating cash flow that may sustain corporate
administrative expenses.
32
Trinity's future capital requirements will depend on its ability to
successfully implement these initiatives and other factors, including our
ability to maintain our existing customer base and to expand our customer
base into new geographic markets, and overall financial market conditions
in the United States and other countries where we will seek prospective
investors.
To meet our present and future liquidity requirements, we will
continue to seek additional funding through private placements, conversion
of outstanding loans and payables into common stock, development of the
business of our newly-acquired subsidiaries, collections on accounts
receivable, and through additional acquisitions that have sufficient cash
flow to fund subsidiary operations. There can be no assurance that we will
be successful in obtaining more debt and/or equity financing in the future
or that our results of operations will materially improve in either the
short- or the long-term. If we fail to obtain such financing and improve
our results of operations, we will be unable to meet our obligations as
they become due. That would raise substantial doubt about our ability to
continue as a going concern.
ITEM 3. CONTROLS AND PROCEDURES
Our Chief Executive Officer and Chief Financial Officer, after
conducting an evaluation, together with other members of our management, of
the effectiveness of the design and operation of our disclosure controls
and procedures as of the end of the period covered by this report, have
concluded that our disclosure controls and procedures were effective to
ensure that information required to be disclosed by us in our reports filed
or submitted under the Securities Exchange Act of 1934 (the "Exchange Act")
is recorded, processed, summarized, and reported within the time periods
specified in the rules and forms of the SEC. There were no significant
changes in our internal controls or in other factors that could
significantly affect these controls subsequent to that evaluation, and
there were no significant deficiencies or material weaknesses in such
controls requiring corrective actions.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On September 12, 2003, we filed a Complaint in the United States
District Court for the District of Utah, Central Division, against CBL
Global Corporation ("CBL Global") (f/k/a CBL Acquisition Corporation), and
Robert Stephen Scammell, the sole shareholder of CBL-California, (Case No.
2:03CV00798DAK) alleging, among other things, that Scammell and CBL-
California provided us with misstated financial statements prior to our
merger in October 2002 with CBL-California and CBL Global. On September
18, 2003, we filed a First Amended Complaint and Jury Demand, which added
as defendants CBL-Global and Brian Kennedy, the sole shareholder of CBL-
Australia. The First Amended Complaint alleges causes of action for
violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule
10b-5 promulgated there under, for violations of Section 20(a) of the
Securities Exchange Act of 1934, for declaratory relief and breach of
contract, for common law fraud, and for negligent misrepresentation.
The First Amended Complaint alleged, among other things, that the
defendants were advised by CBL-California's accountant on September 18,
2002 that CBL-California's financial statements were misstated, and alleges
that new restated financial statements were issued on September 19, 2002.
The First Amended Complaint alleged, however, that the restated financial
statements were not provided to us prior to the October 1, 2002 closing of
the merger.
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In December, 2003, we sold our interests in CBL Global and its
Australian subsidiaries (collectively "CBL"), Messrs. Scammell and Kennedy,
to the former owners of CBL. In conjunction with the management buyout, we
entered into a Settlement Agreement with respect to our litigation with
CBL. Pursuant to the terms of the agreement, we have conveyed all of our
interest in CBL back to the former owners in exchange for surrender and
cancellation of 3,000,000 shares of Trinity stock issued to them in
connection with acquisition of CBL and the cancellation of $1,000,000 in
convertible notes payable to them. Also as a result of the divestiture,
$222,151 owed by CBL Global to Messrs. Kennedy and Scammell is no longer an
obligation of the Company.
ITEM 2. CHANGES IN SECURITIES
Recent Sales of Unregistered Securities
On December 1, 2003, we completed the acquisition of all the issued
and outstanding shares of Danlas, a British Virgin Islands Company that
owns 51% of IRCA (Proprietary) Limited ("IRCA"), a South African company
specializing in corporate learning, certification and risk mitigation in
the area of safety, health environment and quality assurance ("SHEQ").
IRCA operates in South Africa, England and the United States through
various operating subsidiaries. Danlas also holds options to acquire the
remaining 49% of IRCA. In consideration for the Danlas shares, the Company
(i) issued three convertible promissory notes in the aggregate principal
amount of $40,000 and convertible into a maximum of 4,500,000 shares of the
Company's common stock, (ii) agreed to advance $500,000 in cash to
establish an international sales force, (iii) provided $500,000 for certain
bank guarantees and, (iv) provided certain future profit thresholds are
met, agreed to issue up to an additional 1,000,000 shares of the Company's
common stock., which has been recorded as conditionally redeemable common
stock in stockholders' equity at $0.50 per share. In our opinion, the
offer and sale of these securities was exempt by virtue of Section 4(2) of
the Securities Act and the rules promulgated there under.
During the period June 1, 2003 to October 31, 2003, we sold by way of
private placement an aggregate of 5,073,300 units at a price of $1.00 per
unit, for aggregate consideration of $5,073,300. Each unit comprised two
shares of our common stock and two warrants, each exercisable for one
additional share of our common stock. In addition, each unit carried the
right to acquire an additional warrant to purchase, under certain
conditions, up to one additional share of common stock. In connection with
the private placement, we paid $470,510 in commissions and issued to
various financial advisors 567,160 additional shares of our common stock
and five-year warrants to purchase 200,050 shares of our common stock. In
our opinion, the offer and sale of these securities was exempt by virtue
of Section 4(2) of the Securities Act and the rules promulgated
there under.
During the period from September 27, 2002 to June 30, 2003 we issued
convertible unsecured promissory notes to Mr. Swindells, who lends money to
us from time to time on a non-interest bearing basis, in the total
principal amount of $925,000. The principal may be converted into such
other debt or equity securities financings that we may issue in private
offerings while the note is outstanding. In September 2003, we repaid
$500,000 on the note balance then outstanding. On October 30, 2003, we
converted the balance of $425,000 to 850,000 shares of our common stock and
issued warrants to purchase an additional 850,000 shares of common stock
for $1.00 per share on terms identical to those of our private placement
offering described in the above paragraph. In November 2003, the remaining
balance of $425,000 was converted in to 850,000 shares of common stock and
issued to Mr. Swindells. In our opinion, the offer and sale of these
securities was exempt by virtue of Section 4(2) of the Securities Act and
the rules promulgated there under.
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As of July 31, 2002, we entered into a Advisory Agreement with EAS
pursuant to which EAS agreed to provide financial advisory and investment
banking services to the Company in exploration of the following strategic
alternatives: (a) a private placement of the Company's convertible
promissory notes, (b) a private placement of the Company's common or
preferred stock, and (c) one or more possible purchase transactions by the
Company. In exchange for such services, we agreed to pay EAS a retainer
fee of $5,000 per month and a commission ranging from 5% to 7% based on the
type of transaction consummated, such fees being payable in cash or the
Company's common stock at EAS' option. Through December 31, 2003, EAS had
earned a total of $734,773 under the Advisory Agreement. Of the balance of
$734,773, $429,773 has been paid to EAS, leaving a balance owing at
December 31, 2003 of $305,000 of which $125,000 or 250,000 shares in the
Company's common stock was paid to EAS in January 2004. In our opinion,
the offer and sale of these securities was exempt by virtue of Section 4(2)
of the Securities Act and the rules promulgated there under.
Beginning February 2004, we had received subscriptions to our January
2004 Offering of up to $3,000,000 Senior Convertible Bridge Notes (the
"Notes") totaling $1,060,000. The Notes will mature in twelve months plus
accrued interest at a rate of 7% per annum. The Notes will be convertible
at 80% of the "Next Equity Financing" offering price. The Next Equity
Financing shall mean a common stock equity financing in which proceeds
equal or exceed $5,000,000, which shall include any principal or interest
accrued under the Notes. The Company expects to complete the Next Equity
Financing in early 2004. In addition, for each $1.00 invested, the
investor shall receive a 5 year warrant to purchase a share of the
Company's common stock at $1.00 per share.
Finally, 100,000 shares of the Company's common stock were issued to
Mr. Posner for finders' fees and for the Riverbend transaction. In our
opinion, the offer and sale of these securities was exempt by virtue of
Section 4(2) of the Securities Act and the rules promulgated there under.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed herewith:
10.1 Agreement dated August 9, 2003 between the Company and
London Court Ltd.
10.2 Agreement dated May 30, 2003 between the Company and ACAP
Financial, Inc.
10.3 Agreement dated May 29, 2003 between the Company and
Merriman Curhan Ford & Co.
10.4 Agreement dated April 11, 2003 between the Company and TN
Capital Equities, Ltd.
10.5 Agreement dated December 17, 2003 between the Company and
Titan Aviation Ltd.
31.1 Certification of the Company's Chief Executive Officer
31.2 Certification of the Company's Chief Financial Officer
32.1 Certification of the Company's Chief Executive Officer
32.2 Certification of the Company's Chief Financial Officer
(b) Reports on Form 8-K
1. On November 18, 2003, we filed a Current Report on Form 8-K
concerning our acquisition of River Murray Training Pty. Ltd.
2. On November 25, 2003, we filed a Current Report on Form 8-K
amending the report on Form 8-K filed on September 16, 2003, concerning our
acquisition of TouchVision, Inc.
3. On November 28, 2003, we filed a Current Report on Form 8-K
amending the report on Form 8-K filed on September 16, 2003, concerning our
acquisition of Riverbend Group Holding (Pty.) Ltd.
We filed the following reports on Form 8-K during the quarter ended
September 30, 2003:
4. On December 17, 2003 we filed a Current Report on Form 8-K
concerning our acquisition of Danlas Limited.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
TRINITY LEARNING CORPORATION
February 23, 2004 By: /S/ DOUGLAS D. COLE
-----------------------------------
Douglas D. Cole
Chief Executive Officer
February 23, 2004 By: /S/ CHRISTINE R. LARSON
-----------------------------------
Christine R. Larson
Chief Financial Officer
37