SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): February 27, 2004
(December 1, 2003)
Trinity Learning Corporation
(Exact Name of Registrant as Specified in Its Charter)
Utah
(State of Other Jurisdiction of Incorporation)
0-8924 73-0981865
(Commission File Number) (IRS Employer Identification No.)
1831 Second Street
Berkeley, California 94710
(Address of Principal Executive Offices) (Zip Code)
(510) 540-9300
(Registrant's Telephone Number, Including Area Code)
Item 7. Financial Statements and Exhibits
Included with this amendment to the Report on Form 8-K for Trinity
Learning Corporation, originally filed with the Securities and Exchange
Commission on December 16, 2003, are the financial statements of IRCA
(Proprietary) Limited, as of June 30, 2003 and June 30, 2002 along with pro
forma financial information giving effect to the acquisition of this
entity.
IRCA (PROPRIETARY) LIMITED
(Registration number 1986/004379/07)
ANNUAL FINANCIAL STATEMENTS
for the year ended 30 June 2003
IRCA (PROPRIETARY) LIMITED
FINANCIAL STATEMENTS
for the year ended 30 June 2003
The reports and statements set out below comprise the annual financial
statements presented to shareholders:
Index Page
Report of the independent auditors 2
Report of the directors 3 - 4
Balance sheet 5
Income statement 6
Statement of changes in equity 7
Cash flow statement 8
Notes to the financial statements 9 - 28
Approval
The financial statements, which appear on pages 3 to 28, were approved by
the board of directors on 10 September 2003 and signed on their behalf.
------------------------ -----------------------
Director Director
Johannesburg
10 September 2003
1
REPORT OF THE INDEPENDENT AUDITORS TO THE SHAREHOLDERS OF
IRCA (PROPRIETARY) LIMITED
We have audited the annual financial statements and group financial
statements of IRCA (Proprietary) Limited set out on pages 3 to 28 for the
year ended 30 June 2003. These financial statements are the responsibility
of the company's directors. Our responsibility is to express an opinion on
these financial statements based on our audit.
Scope
We conducted our audit in accordance with statements of South African
Auditing Standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance that the financial statements are free
of material misstatement. An audit includes:
- examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements,
- assessing the accounting principles used and significant
estimates made by management, and
- evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
Audit opinion
In our opinion, the financial statements fairly present, in all material
respects, the financial position of the company at 30 June 2003 and the
results of its operations and cash flows for the year then ended in
accordance with South African Statements of Generally Accepted Accounting
Practice, and in the manner required by the Companies Act in South Africa.
Emphasis of matter
Without qualifying our opinion above, we draw your attention to the
directors' report relating to the basis of accounting used in the
preparation of the financial statements. In the opinion of the directors,
the assumption of profitable operations and the continued support of
related parties is require in order for the company to continue as a going
concern.
BDO Spencer Steward
Chartered Accountants (South Africa) Pretoria
Registered Accountants and Auditors 10 September 2003
2
The directors present their report for the year ended 30 June 2003. This
report forms part of the audited financial statements.
1. General review
The company's business and operations and the results thereof are
clearly reflected in the attached financial statements. No material
fact or circumstance has occurred between the accounting date and the
date of this report.
The group is in the business of providing risk management services.
2. Statements of responsibility
The directors are responsible for the maintenance of adequate
accounting records and the preparation and integrity of the financial
statements and related information. The auditors are responsible to
report on the fair presentation of the financial statements. The
financial statements have been prepared in accordance with generally
accepted accounting practice and in the manner required by the
Companies Act, 1973.
The directors are also responsible for the company's system of
internal financial control. These are designed to provide reasonable,
but not absolute, assurance as to the reliability of the financial
statements, and to adequately safeguard, verify and maintain
accountability of assets, and to prevent and detect misstatement and
loss. Nothing has come to the attention of the directors to indicate
that any material breakdown in the functioning of these controls,
procedures and systems has occurred during the year under review.
3. Basis of accounting
The company's ability to continue as a going concern is dependant on a
number of factors. The most significant of these is the resumption of
profitable operations and the continuation of existing levels of
finance from the shareholder until the company is able to meet its
obligations in the ordinary course of business.
Based on the above, the directors have developed and are implementing
plans that they believe will enable the company to continue as a going
concern for the foreseeable future. The financial statements have thus
continued to adopt the going concern principle.
4. Dividends
The dividends already declared and paid to members during the period
are as reflected in the attached statement of changes in equity.
5. Share capital
There were no changes in the authorised and issued share capital of
the company during the accounting period under review.
6. Subsequent events
There have been no facts or circumstances of a material nature that
have occurred between the accounting date and the date of this report.
3
IRCA (PROPRIETARY) LIMITED
REPORT OF THE DIRECTORS
for the year ended 30 June 2003
7. Directors
The directors of the company during the accounting period and up to
the date of this report were as follows:
8. Subsidiaries
Details relating to subsidiaries have been disclosed in note 5 of
these annual financial statements.
4
IRCA (PROPRIETARY) LIMITED
BALANCE SHEET
as at 30 June 2003
Group Company
2003 2002 2003 2002
Note R R R R
Assets
Non-current assets 25 612 285 22 958 379 21 375 564 19 477 266
Property, plant and equipment 3 6 680 687 5 717 472 3 506 901 2 685 966
Intangible assets 4 13 633 703 14 042 161 1 692 295 2 256 393
Deferred tax 13 3 746 026 2 546 954 3 765 044 2 492 107
Investment in subsidiaries 5 - - 12 401 324 12 032 800
Investment in associates 6 500 571 301 392 10 000 10 000
Investments 7 540 480 350 400 - -
Loans receivable 8 510 818 - - -
----------- ----------- ----------- -----------
Current assets 21 996 120 22 014 742 16 160 983 16 018 941
Inventories 207 174 238 179 207 174 238 179
Trade and other receivables 20 101 630 20 211 352 15 676 924 15 345 821
Loans receivable 3 593 - - -
Bank balances 1 683 723 1 565 211 276 885 434 941
----------- ----------- ----------- -----------
Total assets 47 608 405 44 973 121 37 536 547 35 496 207
=========== =========== =========== ===========
Equity and liabilities
Capital and reserves 6 653 410 8 817 135 4 907 257 8 475 390
Issued capital 9 17 716 144 17 716 144 17 716 144 17 716 144
Non-distributable reserve 10 881 693 361 026 - -
Accumulated loss (13 186 169) (10 525 036)(12 808 887) (9 240 754)
Minority interest in subsidiaries 1 241 742 1 265 001 - -
Non-current liabilities 29 552 341 11 247 093 26 099 371 6 682 808
Shareholder's loan 11 26 288 155 - 25 636 840 -
Borrowings 12 3 264 186 11 247 093 462 531 6 682 808
Current liabilities 11 402 655 24 908 893 6 529 919 20 338 009
Taxation 1 516 373 589 547 27 888 45 945
Trade and other payables 8 381 457 19 682 439 6 278 926 16 605 271
Current portion of borrowings 12 1 106 069 3 350 114 - 2 400 000
Bank overdraft 15 175 651 919 235 - 919 235
Dividend 16 223 105 367 558 223 105 367 558
----------- ----------- ----------- -----------
Total equity and liabilities 47 608 406 44 973 121 37 536 547 35 496 207
=========== =========== =========== ===========
5
IRCA (PROPRIETARY) LIMITED
INCOME STATEMENT
for the year ended 30 June 2003
Group Company
2003 2002 2003 2002
Note R R R R
Gross revenue 70 681 058 54 555 665 49 895 970 40 960 296
Cost of sales 1 318 209 1 658 818 - -
----------- ----------- ----------- -----------
Gross profit 69 362 849 52 896 847 49 895 970 40 960 296
Other income 1 548 032 1 184 577 191 960 89 764
Operating costs 69 957 924 53 280 767 52 069 364 41 254 414
Net (profit)/Loss on
disposal of subsidiaries 78 547 239 281 (191 960) 400 450
----------- ----------- ----------- -----------
Operating profit 17 874 410 561 376 (1 789 474) (604 804)
Interest received 282 928 535 137 8 083 102 417
Finance costs 20 (3 183 515) (1 714 379) (2 557 396) (1 375 932)
----------- ----------- ----------- -----------
Loss before taxation (2 026 177) (617 866) (4 338 787) (1 878 319)
Taxation 21 (221 271) 418 163 (1 217 084) (376 745)
----------- ----------- ----------- -----------
Loss after taxation (1 804 906) (1 036 029) (3 121 703) (1 501 574)
Attributable to minority
shareholders 409 797 486 290 - -
----------- ----------- ----------- -----------
Loss attributable to
ordinary shareholders (2 214 703) (1 522 319) (3 121 703) (1 501 574)
=========== =========== =========== ===========
6
IRCA (PROPRIETARY) LIMITED
STATEMENT OF CHANGES IN EQUITY
for the year ended 30 June 2003
Group
Non
Share Share Distributable Accumulated
capital premium reserve loss Total
R R R R R
Balance at 01 July 2001 3 998 457 13 745 414 311 526 (8 698 263) 9 357 134
Change in accounting
policy as per note 2.2 63 104 63 104
------------------------------------------------------------
Restated balance 3 998 457 13 745 414 311 526 (8 635 159) 9 420 238
Net loss for the year (1 522 319) (1 522 319)
Dividends (367 558) (367 558)
Reversal of revaluation
of intellectual property (307 125) (307 125)
Currency translation
differences 356 625 356 625
Stamp duties written-off (27 727) (27 727)
------------------------------------------------------------
Balance at 01 July 2002 3 998 457 13 717 687 361 026(10 205 428) 7 871 742
Change in accounting
policy as per note 2.2 (319 608) (319 608)
Restated balance 3 998 457 13 717 687 361 026(10 525 036) 7 552 134
Net loss for the year (2 214 703) (2 214 703)
Dividends (446 430) (446 430)
Surplus on revaluation
of laboratory equipment 41 541 41 541
Currency translation
differences 479 126 479 126
------------------------------------------------------------
Balance at 30 June 2003 3 998 457 13 717 687 881 693(13 186 169) 5 411 668
Company
Share Share Accumulated
capital premium loss Total
R R R R
Balance at 01 July 2001 3 998 457 13 745 414 (7 884 220) 9 859 651
Change in accounting policy
as per note 2.2 512 598 512 598
------------------------------------------------
Restated balances 3 998 457 13 745 414 (7 371 622) 10 372 249
Net loss for the year (1 501 574) (1 501 574)
Dividends (367 558) (367 558)
Stamp duties written-off (27 727) (27 727)
------------------------------------------------
Balance at 01 July 2002 3 998 457 13 717 687 (9 240 473) 7 898 671
Change in accounting policy
as per note 2.2 576 719 576 719
------------------------------------------------
Restated balance 3 998 457 13 717 687 (9 240 754) 8 475 390
Net loss for the year (3 121 703) (3 121 703)
Dividends (446 430) (446 430)
------------------------------------------------
Balance at 30 June 2003 3 998 457 13 717 687(12 808 887) 4 907 257
------------------------------------------------
7
IRCA (PROPRIETARY) LIMITED
CASH FLOW STATEMENT
for the year ended 30 June 2003
Group Company
2003 2002 2003 2002
Note R R R R
Cash flows from
operating activities (11 086 947) (1 695 700)(13 823 978) (1 095 104)
Cash utilised in operating
activities 24.1 (7 345 363) (106 733)(10 609 872) 178 411
Interest received 83 789 243 745 8 083 102 417
Interest paid (3 183 515) (1 714 379) (2 557 396) (1 375 932)
Dividends paid 24.2 (590 883) - (590 883) -
Taxation refunded/(paid) 24.3 22 935 (118 333) - -
Secondary tax on companies
paid 24.4 (73 910) - (73 910) -
Cash flows from investing
activities (4 178 941) (4 218 658) (2 431 406) (2 245 224)
EXPENDITURE TO MAINTAIN
OPERATING CAPACITY
Proceeds of disposals of
property, plant and equipment 774 909 - 273 279 86 837
Proceeds of disposals of
subsidiaries - 50 - 50
EXPENDITURE FOR EXPANSION
Property, plant and equipment
acquired (3 864 413) (2 621 240) (2 704 685) (1 711 400)
Intangible assets acquired (899 357) - - -
Subsidiaries acquired - (1 442 376) - (610 711)
Investment in associate - (10 000) - (10 000)
Investments (190 080) (145 092) - -
CASH FLOWS FROM
FINANCING ACTIVITIES 16 127 985 4 537 825 17 016 563 1 872 166
Decrease in share premium - 27 727 - (27 727)
Loans raised 26 288 155 4 510 098 25 636 840 1 899 893
Loans repaid (10 160 170) - (8 620 277) -
----------- ----------- ----------- -----------
Increase/(decrease) in cash
and cash equivalents 862 097 (1 376 533) 761 179 (1 468 162)
Cash and cash equivalents at
beginning of the year 24.6 645 976 2 022 509 (484 294) 983 868
----------- ----------- ----------- -----------
Cash and cash equivalents at
end of the year 24.6 1 508 073 645 976 276 885 (484 294)
----------- ----------- ----------- -----------
8
IRCA (PROPRIETARY) LIMITED
NOTES TO FINANCIAL STATEMENTS
at 30 June 2003
1 Basis of preparation
The financial statements are prepared in accordance with South African
Statements of Generally Accepted Accounting Practice. The financial
statements are prepared under the historical cost convention as
modified by the revaluation of certain property, plant and equipment,
marketable securities and investment properties.
Unless otherwise specifically stated, the accounting policies adopted
in the preparation of these financial statements are consistent with
those of the previous year.
1.1 Revenue recognition
Revenue is recognised upon delivery of products and acceptance by
customer, or performance of services, net of Value Added Tax and
discounts.
1.2 Basis of consolidation
The consolidated financial statements include those of the holding
company and of its subsidiaries. The results of all other subsidiaries
are included from the dates effective control was acquired and up to
the dates effective control ceased. Intra-group sales and profits are
eliminated fully on consolidation.
1.3 Associates
An associate is an enterprise in which the investor has significant
influence and which is neither a subsidiary nor a joint venture of the
investor.
Interests in associates are carried at cost, except where there is a
permanent decline in value in which case they are written down.
The share of associated retained earnings and reserves is generally
determined from the associate's latest audited financial statements
but, in some instances, unaudited interim results are used. Dividends
received from associates are included in income from investments.
Where the group's share of losses of an associate exceeds the carrying
amount of the associate, the associate is carried at nil. Additional
losses are only recognized to the extent that the group has incurred
obligations or made payments on behalf of the associate.
1.4 Investments
Non-current investments excluding marketable securities are shown at
cost and adjustments are made only where, in the opinion of the
directors, the investment is impaired. Where an investment has been
impaired, it is recognised as an expense in the period in which the
impairment is identified.
IRCA (PROPRIETARY) LIMITED
NOTES TO FINANCIAL STATEMENTS
at 30 June 2003
1.5 Property, plant and equipment
All property, plant and equipment are initially recorded at cost.
Depreciation is calculated on the straight-line method to write off
the cost of each asset, or the revalued amounts, to their residual
values over their estimated useful lives. The depreciation rates
applicable to each category of property, plant and equipment are as
follows:
Motor vehicles 20 %
Furniture and fittings 10 %
Software development cost 33 %
Office equipment 20 %
Software and electronic equipment 33 %
Leasehold improvements 20 %
Where the carrying amount of an asset is greater than its estimated
recoverable amount, it is written down immediately to its recoverable
amount (i.e. impairment losses are recognised).
Gains and losses on disposal of property, plant and equipment are
determined by reference to their carrying amount and are taken into
account in determining operating profit.
1.6 Intangible assets
Expenditure on acquired patents, trademarks and licenses is
capitalized and amortized using the straight-line method over their
useful lives. Intangible assets are not revalued. The carrying amount
of each intangible asset is reviewed annually and adjusted for
impairment where it is considered necessary.
The difference between the fair value of the consideration paid and
the fair value of net tangible assets of subsidiaries at the date of
acquisition is charged or credited to goodwill arising on
consolidation. Goodwill is amortized over a period of 20 years. In the
event of a permanent impairment in the value of a subsidiary, the
relevant unamortised balance is written off.
The amortisation rates applicable to each category of intangible
assets is as follows:
Goodwill on business units acquired 20 %
Goodwill on consolidation 5 %
Patents and trademarks purchased 10 %
IRCA (PROPRIETARY) LIMITED
NOTES TO FINANCIAL STATEMENTS
at 30 June 2003
1.7 Leased assets
Leases of property, plant and equipment where the company assumes
substantially all the benefits and risks of ownership are classified
as finance leases. Finance leases are capitalised at the estimated
present value of the underlying lease payments. Each lease payment is
allocated between the liability and finance charges to achieve a
constant rate on the finance balance outstanding. The corresponding
rental obligations, net of finance charges, are included in other
long-term payables. The interest element of the finance charge is
charged to the income statement over the lease period. The property,
plant and equipment acquired under finance leasing contracts are
depreciated over the useful life of the assets.
Leases of assets under which all the risks and benefits of ownership
are effectively retained by the lessor are classified as operating
leases. Payments made under operating leases are charged to the income
statement on a straight-line basis over the period of the lease.
1.8 Inventories
Long-term contracts in progress are valued at cost, comprising direct
expenditure and attributable overheads, together with a proportion of
the estimated total profit earned on the work completed to date, less
progress payments received and receivable. Provision is made for all
losses expected to arise on completion of the contracts.
Inventories are stated at the lower of cost and net realisable value.
Cost is determined on a first in, first out basis and includes
transport and handling costs. Where necessary, provision is made for
obsolete, slow moving and defective inventories.
1.9 Taxation
Deferred taxation is provided at legislated future rates using the
balance sheet liability method. Full provision is made for all
temporary differences between the tax base of an asset or liability
and its balance sheet carrying amount.
No deferred tax liability is recognised in those circumstances where
the initial recognition of an asset or liability has no impact on
accounting profit or taxable income.
Assets are not raised in respect of the deferred taxation on assessed
losses unless it is probable that future taxable profits will be
available against which the deferred tax asset can be realised in the
foreseeable future.
Secondary Taxation on Companies is provided in respect of expected
dividend payments net of dividends received or receivable and is
recognised as a taxation charge for the year.
IRCA (PROPRIETARY) LIMITED
NOTES TO FINANCIAL STATEMENTS
at 30 June 2003
1.10 Research and development expenditure
Research and development expenditure, including the design and
production of prototypes of new models, is written off as incurred.
Development expenditure is charged to operating profit in the period
in which it is incurred until all recognised asset recognition
criteria are met. Thereafter all direct costs and an appropriate
portion of overhead costs incurred in bringing the product to a
marketable state are capitalised. Capitalised development costs are
amortized based on the estimated unit sales over the life cycle of the
product, commencing when the product is available for general release
to customers; the amortisation period does not exceed 3 years.
1.11 Provisions
Provisions are recognised when the company has a present legal or
constructive obligation as a result of past events, it is probable
that an outflow of resources embodying economic benefits will be
required to settle the obligation, and a reliable estimate of the
amount of the obligation can be made.
The company recognizes the estimated liability on all products still
under warranty at the balance sheet date. This provision is calculated
based on service histories. Employee entitlements to annual leave and
long service leave are recognised when they accrue to employees. A
provision is made for the estimated liability for annual leave and
long-service leave as a result of services rendered by employees up to
the balance sheet date.
1.12 Employee benefits
Defined contribution plans
Contributions to a defined contribution plan in respect of service in
a particular period are recognised as an expense in that period.
1.13 Translation of foreign currencies
Transactions
Foreign currency transactions are recorded, on initial recognition in
Rand, by applying to the foreign currency amount the exchange rate
between the Rand and the foreign currency at the date of the
transaction.
At each balance sheet date:
(a) foreign currency monetary items are reported using the closing
rate,
(b) non-monetary items, which are carried in terms of historical cost
denominated in a foreign currency, are reported using the exchange
rate at the date of the transaction, and
(c) non-monetary items which are carried at fair value denominated in
a foreign currency are reported using the exchange rates that existed
when the values were determined.
IRCA (PROPRIETARY) LIMITED
NOTES TO FINANCIAL STATEMENTS
at 30 June 2003
Exchange differences arising on the settlement of monetary items or on
reporting an enterprise's monetary items at rates different from those
at which they were initially recorded during the period, or reported
in previous financial statements, are recognised as income or expenses
in the period in which they arise.
Net investment in a foreign entity
Exchange differences arising on a monetary item that, in substance,
forms part of the net investment in a foreign entity are classified as
equity in the financial statements until the disposal of the net
investment, at which time they are recognised as income or expenses.
Foreign entities
In translating the financial statements of a foreign entity for
incorporation in the financial statements, the following procedures
are used:
(a) The assets and liabilities, both monetary and non-monetary, of the
foreign entity are translated at the closing rate.
(b) Income and expense items of the foreign entity are translated at
exchange rates at the dates of the transactions.
(c) All resulting exchange differences are classified as equity until
the disposal of the net investment.
1.14 Financial instruments
Financial instruments carried on the balance sheet include cash and
bank balances, investments, receivables, trade creditors, leases and
borrowings. The particular recognition methods adopted are disclosed
in the individual policy statements associated with each item.
1.15 Comparative figures
Comparative figures are regrouped or restated where necessary in
accordance with current year classifications.
2. Changes in accounting policy
2.1 Investments
The goodwill paid on investments in subsidiaries are no longer being
amortised by the holding company. Investment in subsidiaries are now
stated at cost less any impairment on the investments.
2.2 Retained profits at beginning of year
The effect of the change in accounting policy referred to in 2.1 on
retained profits at the beginning of the year has been as follows:
IRCA (PROPRIETARY) LIMITED
NOTES TO FINANCIAL STATEMENTS
at 30 June 2003
Group Company
2002 2001 2002 2001
R R R R
- Accumulated loss as
previously reported (10 205 428) (8 698 263) (9 817 473) (7 884 220)
- Prior year adjustment
relating to years before 2002 63 104 63 104 512 599 512 599
- Restatement of 2002 results 181 386 - 628 217 -
- Amortisation of intangible
assets (564 098) - (564 098) -
----------- ----------- ----------- -----------
Restated retained earnings (10 525 036) (8 635 159) (9 240 755) (7 371 621)
=========== =========== =========== ===========
The effect on the group's balance sheet is as follows:
Net Tax Total
- Decrease in value of consolidation
goodwill - 2002 (2 565 975) - (2 565 975)
=========== =========== ===========
- Increase in value of intangible
assets - 2002 2 256 393 - 2 256 393
=========== =========== ===========
The effect on the company's balance sheet is as follows:
Net Tax Total
- Decrease in value of investments - 2002 (2 820 491) - (2 820 491)
- Increase in value of intangible
assets - 2002 2 256 393 - 2 256 393
IRCA (PROPRIETARY) LIMITED
NOTES TO FINANCIAL STATEMENTS
at 30 June 2003
3. Property, plant and equipment
Group
2003 2002
Accumulated Accumulated
Cost/ Depre- Carrying Cost/ deprec- Carrying
valuation ciation value valuation iation value
Owned assets -
Land and
buildings - - - 416 388 - 416 388
Laboratory
equipment 3 898 562 1 791 750 2 106 812 3 476 072 1 601 214 1 874 858
Motor vehicles 363 146 290 840 72 306 519 266 463 690 55 576
Furniture and
fittings 660 081 331 273 328 808 604 608 280 854 323 754
Software
development
cost 3 204 169 1 947 233 1 256 936 2 375 267 1 193 451 1 181 816
Office equipment 887 820 631 447 256 373 749 110 555 782 193 328
Computer equipment 54 962 5 130 49 832 1 053 211 842
Computer software
and electronic
equipment 2 431 280 1 165 523 1 265 757 1 912 388 702 536 1 209 852
Leasehold
improvements 322 278 198 039 124 239 264 423 171 069 93 354
------------------------------------------------------------------
11 822 298 6 361 235 5 461 063 10 318 575 4 968 807 5 349 768
------------------------------------------------------------------
2003 2002
Accumulated Accumulated
Cost/ Depre- Carrying Cost/ deprec- Carrying
valuation ciation value valuation iation value
Owned assets -
Instalment sale
agreement
Laboratory
equipment - - - 250 000 112 500 137 500
Motor vehicles 236 235 53 077 183 158 236 234 6 030 230 204
Office equipment 336 322 33 632 302 690 - - -
Computer software
and electronic
equipment 906 813 173 037 733 776 - - -
------------------------------------------------------------------
1 479 370 259 746 1 219 624 486 234 118 530 367 704
------------------------------------------------------------------
13 301 668 6 620 981 6 680 687 10 804 809 5 087 337 5 717 472
------------------------------------------------------------------
IRCA (PROPRIETARY) LIMITED
NOTES TO FINANCIAL STATEMENTS
at 30 June 2003
The carrying amounts of property, plant and equipment can be reconciled as
follows:
Carrying
Value at Carrying
beginning value
of Reclassified Depre- at end
Year Additions on Disposals ciation of year
R R R R R R
Owned assets
Land and
buildings 416 388 - - (416 388) - -
Laboratory
equipment 1 874 858 597 491 - (49 309) (316 228) 2 106 812
Motor vehicles 55 576 45 000 - (7 181) (21 089) 72 306
Furniture and
fittings 323 754 63 822 - - (58 768) 328 808
Software
development cost 1 181 816 828 904 - - (753 784) 1 256 936
Office equipment 193 328 108 426 - 41 032 (86 413) 256 373
Computer equipment 842 - 53 910 - (4 920) 49 832
Computer software
and electronic
equipment 1 209 852 971 191 (78 689) (278 899) (557 698) 1 265 757
Leasehold
improvements 93 354 57 855 - - (26 970) 124 239
5 349 768 2 672 689 (24 779) (710 745)(1 825 870) 5 461 063
==================================================================
Carrying
Value at Carrying
beginning value
of Reclassified Depre- at end
Year Additions on Disposals ciation of year
R R R R R R
Owned assets -
Instalment sale
agreement
Laboratory
equipment 137 500 - - (137 500) - -
Motor vehicles 230 204 - - - (47 046) 183 158
Office equipment - 336 322 - - (33 632) 302 690
Computer software
and electronic
equipment - 855 402 78 689 (25 759) (174 556) 733 776
367 704 1 191 724 78 689 (163 259) (255 234) 1 219 624
5 717 472 3 864 413 53 910 (874 004)(2 081 104) 6 680 687
==================================================================
IRCA (PROPRIETARY) LIMITED
NOTES TO FINANCIAL STATEMENTS
at 30 June 2003
Company
2003 2002
Accumulated Accumulated
Cost/ Depre- Carrying Cost/ Depre- Carrying
valuation ciation value valuation ciation value
R R R R R R
Owned assets
Motor vehicles 4 000 1 800 2 200 4 000 1 000 3 000
Furniture and
fittings 561 066 284 152 276 914 547 290 241 861 305 429
Software
development cost 3 203 421 1 947 150 1 256 271 2 375 267 1 193 451 1 181 816
Computer software
and electronic
equipment 2 200 560 962 820 1 237 740 1 686 291 490 570 1 195 721
==================================================================
5 969 047 3 195 922 2 773 125 4 612 848 1 926 882 2 685 966
2003 2002
Accumulated Accumulated
Cost/ Depre- Carrying Cost/ Depre- Carrying
valuation ciation value valuation ciation value
R R R R R R
Owned assets -
Instalment sale
agreement
Computer software
and electronic
equipment 906 813 173 037 733 776 - - -
6 875 860 3 368 959 3 506 901 4 612 848 1 926 882 2 685 966
The carrying amounts of property, plant and equipment can be
reconciled as follows:
Carrying
Value at Carrying
beginning value
of Reclassified Depre- at end
Year Additions on Disposals ciation of year
R R R R R R
Owned Assets -
Installment
sale agreement
Computer software
and electronic
equipment - 855 402 78 689 (25 759) (174 556) 733 776
------------------------------------------------------------------
2 685 966 2 704 685 - (346 355)(1 537 395) 3 506 901
==================================================================
IRCA (PROPRIETARY) LIMITED
NOTES TO FINANCIAL STATEMENTS
at 30 June 2003
4. Intangible assets
Group
2003 2002
Accumulated Accumulated
Cost/ Depre- Carrying Cost/ Depre- Carrying
valuation ciation value valuation ciation value
R R R R R R
Goodwill on
business units
acquired 3 653 190 1 183 710 2 469 480 2 820 491 564 098 2 256 393
Consolidation
goodwill 10 824 327 1 498 293 9 326 034 10 732 183 963 108 9 769 075
Patents and
trademarks
purchased 2 666 742 828 553 1 838 189 2 666 742 650 049 2 016 693
------------------------------------------------------------------
17 144 259 3 510 556 13 633 703 16 219 416 2 177 255 14 042 161
The carrying amounts of intangible assets can be reconciled as follows:
Carrying
value at Carrying
beginning of value at end
year Additions Amortisation of year
Goodwill on business units
acquired 2 256 393 832 698 (619 611) 2 469 480
Consolidation goodwill 9 769 075 66 659 (509 700) 9 326 034
Patents and trademarks
purchased 2 016 693 - (178 504) 1 838 189
--------------------------------------------------
14 042 161 899 357 (1 307 815) 13 633 703
Company
2003 2002
Accumulated Accumulated
Cost/ Depre- Carrying Cost/ Depre- Carrying
valuation ciation value valuation ciation value
R R R R R R
Goodwill on
business units
acquired 2 820 491 1 128 196 1 692 295 2 820 491 564 098 2 256 393
IRCA (PROPRIETARY) LIMITED
NOTES TO FINANCIAL STATEMENTS
at 30 June 2003
The carrying amounts of intangible assets can be reconciled as follows:
Carrying
value at Carrying
beginning of value at end
year Amortisation of year
R R R
Goodwill on business units acquired 2 256 393 (564 098) 1 692 295
Group Company
2003 2002 2003 2002
R R R R
5. Investment in subsidiaries
Shares at cost - - 13 137 019 13 644 582
Loans to subsidiaries - - 474 176 435 120
International Risk Control
Australia (Pty) Ltd - - 329 761 388 299
Chemtaur (Pty) Ltd - - 144 415 46 821
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
- - 13 611 195 14 079 702
Less:
Loans from subsidiaries - - 1 209 871 2 046 902
Business System & Metrics
(Pty) Ltd - - 914 482 914 482
Poltech (Pty) Ltd - - 4 771 841 802
Netrisk (Pty) Ltd - - 290 618 290 618
----------- ----------- ----------- -----------
- - 12 401 324 12 032 800
=========== =========== =========== ===========
Loans from and to subsidiaries are unsecured and not subject to any fixed
terms of repayment. No interest is charged by subsidiaries at present but
these arrangements are subject to revision from time to time.
The aggregate amounts owing by and to subsidiaries, including the loans
above and current accounts, are as follows:
Owing by subsidiaries 7 069 666 5 566 312 475 726 436 669
=========== =========== =========== ===========
Owing to subsidiaries 6 418 361 9 474 865 1 822 049 2 337 383
=========== =========== =========== ===========
Interest in subsidiaries
IRCA (PROPRIETARY) LIMITED
NOTES TO FINANCIAL STATEMENTS
at 30 June 2003
Issued
Share Percentage
Capital holding Shares at cost
2003 2002 2003 2002
R % % R R
International Loss Control
Africa (Pty) Ltd 2 000 100 100 - -
Occupational Health Africa
(Pty) Ltd 10 100 100 - -
Business Systems & Metrics
(Pty) Ltd 100 100 100 914 483 914 483
International Risk Control
Australia (Pty) Ltd 1 60 60 625 399 625 399
International Risk Control
America Inc. 8 000 100 70 4 127 972 4 127 972
Poltech (Pty) Ltd 120 - 100 - 7 378 566
Netrisk (Pty) Ltd 120 100 100 290 518 290 518
International Loss Control
Africa (Pty) Ltd 2 000 100 100 10 10
International Occupational
Health Africa (Pty) Ltd 10 100 100 210 000 210 000
Chemtaur Technologies (Pty) Ltd 200 - 75 6 968 636 6 968 637
----------- -----------
13 137 019 13 644 582
=========== ===========
Group Company
2003 2002 2003 2002
R R R R
6. Investment in associates
Associates 500 571 301 392 10 000 10 000
Equity accounted
BSI Quality Services (Pty) Ltd
40% interest in unlisted shares of BSI Quality Services (Pty) Ltd, a company
involved in quality testing laboratories.
Carrying value of investment:
Shares at cost 10 000 10 000 10 000 10 000
Retained earnings since
acquisition 490 531 291 392 - -
----------- ----------- ----------- -----------
500 531 301 392 10 000 10 000
=========== =========== =========== ===========
IRCA (PROPRIETARY) LIMITED
NOTES TO FINANCIAL STATEMENTS
at 30 June 2003
Summary financial information of BSI Quality Services (Pty) Ltd
Group Company
2003 2002 2003 2002
R R R R
Assets
Non current 340 951 422 049 - -
Current 4 635 763 4 015 543 - -
----------- ----------- ----------- -----------
4 976 714 4 437 592 - -
=========== =========== =========== ===========
Equity and liabilities
Equity and reserves 2 736 327 2 238 478 - -
Non current liabilities 114 129 113 859 - -
Current liabilities 2 126 258 2 085 255 - -
----------- ----------- ----------- -----------
4 976 714 4 437 592 - -
=========== =========== =========== ===========
Turnover 10 246 657 5 637 184 - -
=========== =========== =========== ===========
Net profit 497 849 728 480 - -
Babu's Laboratory Services (Pty) Ltd
40% interest in unlisted shares of Babu's Laboratory Services (Pty) Ltd, a company
involved in laboratory services.
Carrying value of investment:
Shares at cost 40 - - -
=========== =========== =========== ===========
Summary financial information of Babu's Laboratory Services (Pty) Ltd
Assets
Non current 224 250 - - -
Current - - - -
----------- ----------- ----------- -----------
224 250 - - -
=========== =========== =========== ===========
Equity and liabilities
Equity and reserves (286 568) - - -
Non current liabilities 510 818 - - -
Current liabilities - - - -
----------- ----------- ----------- -----------
224 250 - - -
=========== =========== =========== ===========
Turnover - - - -
=========== =========== =========== ===========
Net loss (239 213) - - -
=========== =========== =========== ===========
7. Investments
Momentum Endowment Policy 540 480 350 400 - -
=========== =========== =========== ===========
The guaranteed amount of the
policy is R 640 720 payable
on 1 January 2005.
IRCA (PROPRIETARY) LIMITED
NOTES TO FINANCIAL STATEMENTS
at 30 June 2003
Group Company
2003 2002 2003 2002
R R R R
8. Loans receivable
Babu's Laboratory Services
(Pty) Ltd 510 818 - - -
=========== =========== =========== ===========
The loan is unsecured, bears no interest and has no fixed term of repayment.
9. Issued capital
Authorised
- 200 000 Ordinary shares of
10 cent each 20 000 20 000 20 000 20 000
- 20 000 Redeemable Preference
shares of 1 cent each with a
preference dividend rate of
67% of the prime interest rate. 200 200 200 200
=========== =========== =========== ===========
Issued
-134 569 Ordinary shares of 10
cent each 13 457 13 457 13 457 13 457
-3 985 Redeemable Preference
shares of 1 cent each 40 40 40 40
Share premium
- Redeemable preference shares 3 984 960 3 984 960 3 984 960 3 984 960
- Ordinary shares 13 717 687 13 717 687 13 717 687 13 717 687
----------- ----------- ----------- -----------
17 716 144 17 716 144 17 716 144 17 716 144
=========== =========== =========== ===========
The 3 985 redeemable preference shares may be redeemed at the company's option, at a
premium of R 999.99 per share.
10. Non-distributable reserve
Balance at beginning of year 361 026 311 526 - -
Movement during year:
-Surplus arising from
revaluation of laboratory
equipment. 41 541 (307 125) - -
-Currency translation
differences 479 126 356 625 - -
----------- ----------- ----------- -----------
Balance at end of year 881 693 361 026 - -
=========== =========== =========== ===========
Comprising:
Surplus arising from
revaluation of laboratory
equipment. 41 541 - - -
Currency translation
differences 840 152 361 026 - -
----------- ----------- ----------- -----------
881 693 361 026 - -
=========== =========== =========== ===========
IRCA (PROPRIETARY) LIMITED
NOTES TO FINANCIAL STATEMENTS
at 30 June 2003
Group Company
2003 2002 2003 2002
R R R R
11. Shareholder's loan
IRCA Investments (Pty) Ltd 26 288 155 - 25 636 840 -
=========== =========== =========== ===========
The loan is unsecured,has no fixed terms of repayment and a portion of the loan bears
interest at a rate of prime + 2%.
12. Borrowings
Nedcor loan 1 026 053 1 621 216 - -
Mortgage Bond 2 637 600 2 867 425 - -
Instalment sale agreements 1 021 966 232 788 777 896 -
Glenrand MIB Limited - 9 875 777 - 9 082 808
----------- ----------- ----------- -----------
4 685 619 14 597 206 777 896 9 082 808
Less: Current portion included
in:
- Trade and other payables (315 365) - (315 365) -
- Current portion of borrowings(1 106 068) (3 350 113) - (2 400 000)
----------- ----------- ----------- -----------
3 264 186 11 247 093 462 531 6 682 808
=========== =========== =========== ===========
The Nedcor loan bears interest at 10% per annum and is repayable in
monthly instalments of R 42 794 commencing 1 April 2002. Secured by
laboratory equipment with a book value of R 1 857 544 (2002 - R 1 800
905)
The mortgage bond is a secured loan bearing interest at 13.45% per
annum repayable in monthly instalments of R 55 771 commencing 1 March
2002.
Secured as follows:
A first mortgage bond over portion 316 of the Farm The Willows No. 340
for an amount of R 1 000 000; a first mortgage bond by SJD Nel over
Erf 3602 Randpark Ridge Ext. 54 for an amount of R 650 000; a first
mortgage bond by SJ Van Rensburg over Erf 3417 Eldoraigne Ext. 32 for
an amount of R 800 000; a first mortgage bond by PD Van Dyk over Erf
1018 Ext 2 for an amount of R 100 000; a first mortgage bond by D
Bakker over portion 3 of Erf 1746 Highveld Ext 7 for an amount of R 1
200 000; cession of a life insurance policy in the name of SJD Nel for
an amount of R 200 000; cession of homeowners insurance and SASRIA
policy for replacement value of improvements on any property
mortgaged; cession of a cash investment of R 100 000 by SJD Nel;
suretyship by SJD Nel, DM Van Dyk, D Bakker, M Bakker, J van Rensburg,
PD van Dyk, SF Van Rensburg and WA Lombard
Liabilities under instalment sale agreements are payable over periods
from 1 to 3 years at effective interest rates ranging from 16% to 17%
per annum. Secured by property plant and equipment as per note 2.
IRCA (PROPRIETARY) LIMITED
NOTES TO FINANCIAL STATEMENTS
at 30 June 2003
Group Company
2003 2002 2003 2002
R R R R
13. Deferred tax
Balance at beginning of year 2 546 954 2 069 417 2 492 107 2 069 417
Movements during year
attributable to:
- Temporary differences 318 001 (10 593) 391 956 246 840
- Tax losses 881 071 175 850 880 981 175 850
- Acquired - 312 280 - -
----------- ----------- ----------- -----------
Balance at end of year 3 746 026 2 546 954 3 765 044 2 492 107
=========== =========== =========== ===========
The balance comprises:
- Capital allowances (264 295) - - -
- Provisions 269 898 324 725 24 621 269 898
----------- ----------- ----------- -----------
- Tax losses 3 675 679 2 222 209 3 675 679 2 222 209
=========== =========== =========== ===========
3 681 282 2 546 934 3 700 300 2 492 107
=========== =========== =========== ===========
14. Employee benefits
Pensions
Defined contribution retirement plan
It is the policy of the company to provide retirement benefits to all its
employees. A number of defined contribution provident funds, all of which
are subject to the Pensions Fund Act exist for this purpose. All the
schemes are funded both by member and by company contributions, which are
charged to the income statement as they are incurred. The total company
contribution to such schemes in 2003 was R1 670 125 (2002: R1 792 739).
The total group contribution to such schemes in 2003 was R 3 167 412
(2002: R1 792 739).
15. Bank overdraft
The banking facilities of one of the company's subsidiaries,
Inspectorate M&L (Pty) Ltd is secured by a cession of book debts and
the Momentum endowment policy.
16. Dividends
Cumulative preference dividend of
R 22.32 per share 446 430 367 558 446 430 367 558
========= ========= ========= =========
Comprising:
Dividends paid 223 325 - 223 325 -
Dividends provided as payable in cash 223 105 367 558 223 105 367 558
--------- --------- --------- ---------
446 430 367 558 446 430 367 558
========= ========= ========= =========
IRCA (PROPRIETARY) LIMITED
NOTES TO FINANCIAL STATEMENTS
at 30 June 2003
Group Company
2003 2002 2003 2002
R R R R
17. Operating profit
Operating profit is stated after:
Income
Income from subsidiaries 1 071 003 118 761 1 071 003 -
-Interest - 118 761 - -
-Administration fees 1 071 003 - 1 071 003 -
Profit on foreign exchange - 104 236 - 89 764
Expenditure
Auditors' remuneration 390 540 382 006 210 749 149 529
-Audit fee 290 060 382 006 98 586 149 529
-Prior year under-provision 100 480 - 112 163 -
Depreciation 3 388 918 2 548 299 2 101 370 1 609 910
-Property, plant and equipment 2 081 103 1 286 648 1 537 272 1 045 812
-Amortisation of intangible
assets 1 307 815 1 261 651 564 098 564 098
Lease rentals 3 314 891 2 058 020 1 569 200 1 144 296
-Premises 1 944 045 1 148 539 680 942 531 898
-Motor vehicles 80 979 138 352 - -
-Equipment 1 289 867 771 129 888 258 612 398
Loss on disposals of property,
plant and equipment 99 095 52 776 73 076 37 603
Loss on foreign exchange 32 791 - 74 095 -
=========== =========== ===========
18. Director's emolumentsEmoluments received
Directors - executive
-In connection with the
affairs of the company or its
subsidiaries 3 564 527 6 124 802 3 232 564 5 840 776
=========== =========== =========== ===========
Details of directors' service contracts
No directors have service contracts with notice periods in excess of
one year and with provisions for predetermined compensation on
termination of the contracts exceeding one year's salary and benefits
in kind.
IRCA (PROPRIETARY) LIMITED
NOTES TO FINANCIAL STATEMENTS
at 30 June 2003
19. Discontinued operation
On 1 March 2003 a division of IRCA (Pty) Ltd was transferred to a
subsidiary Poltech (Pty) Ltd.
The results relating to this division in the records of IRCA (Pty) Ltd
are as follows:
Gross Taxation Net
Operating profit -2003 (1 169 835) - (1 169 835)
=========== =========== ===========
-2002 (2 319 588) - (2 319 588)
=========== =========== ===========
Loss on closure of
division -2003 (191 960) (11 518) (180 442)
=========== =========== ===========
Group Company
2003 2002 2003 2002
R R R R
20. Finance costsLong-term loans 2 966 449 1 690 131 2 465 823 1 375 135
Bank overdrafts and acceptances 19 952 22 073 - -
Finance leases 144 721 1 227 91 573 797
Other 52 393 948 - -
----------- ----------- ----------- -----------
3 183 515 1 714 379 2 557 396 1 375 932
21. Taxation
South African normal tax
- Current tax 922 800 537 475 - -
- Deferred tax
Current year (1 199 072) (165 257) (1 272 937) (422 690)
- Prior year adjustments (852) - - -
(277 124) 372 218 (1 272 937) (422 690)
----------- ----------- ----------- -----------
Secondary tax on companies 55 853 45 945 55 853 45 945
----------- ----------- ----------- -----------
Tax for the year (221 271) 418 163 (1 217 084) (376 745)
=========== =========== =========== ===========
Reconciliation of rate of
taxation % % % %
South African normal tax rate 30.0 30.0 30.0 30.0
----------- ----------- ----------- -----------
Adjusted for:
- Disallowable expenditure
(exempt income) (25.0) (90.0) (3.0) (13.0)
- Secondary tax on companies 3.0 (7.0) 1.0 3.0
----------- ----------- ----------- -----------
Net reduction (22.0) (97.0) (2.0) (10.0)
----------- ----------- ----------- -----------
Effective rate 8.0 (67.0) 28.0 20.0
=========== =========== =========== ===========
IRCA (PROPRIETARY) LIMITED
NOTES TO FINANCIAL STATEMENTS
at 30 June 2003
No provision has been made for 2003 taxation as the company has an
estimated tax loss of R12 252 262 (2002 : R9 531 172) which will be
available for set off against future taxable income.
Group Company
2003 2002 2003 2002
R R R R
22. Related parties
Identity of related parties
The company's principal shareholders are IRCA Investments (Pty) Ltd and Catwalk
404 (Pty) Ltd. Both companies are incorporated in South Africa.
The subsidiaries of the group are identified in note 5 and the associates and
joint venture in note 6.
The directors are listed in the directors' report.
Loans to/from related parties
For details on loans to/from the holding company , refer to note 11.
For details on loans to/from subsidiaries, refer to note 5.
For details on loans to/from associates and joint ventures, refer to note 6.
Directors
For details on directors' remuneration, refer to note 18.
For information about directors' service contracts, refer to note 18.
23. Commitments
Operating lease commitments
The future minimum lease payments under non-cancelable operating leases are as
follows:
Not later than 1 year 968 115 - 968 115 -
Later than 1 year and not
later than 5 years 1 059 060 - 1 059 060 -
----------- ----------- ----------- -----------
2 027 175 - 2 027 175 -
=========== =========== =========== ===========
IRCA (PROPRIETARY) LIMITED
NOTES TO FINANCIAL STATEMENTS
at 30 June 2003
Group Company
2003 2002 2003 2002
R R R R
24. Notes to the cash flow statement
24.1 Cash utilised in operating activities
Net loss before taxation (2 026 177) (617 866) (4 338 787) (1 878 319)
Adjustments for:
Depreciation and
amortisation 3 388 918 2 548 299 2 101 370 1 609 910
Interest received (282 928) (535 137) (8 083) (102 417)
finance costs 3 183 515 1 714 379 2 557 396 1 375 932
Movement due to prior year
adjustment in investments (426 939) - (426 939) -
Loss on disposals of property,
plant and equipment 99 095 52 776 73 076 37 603
Loss on disposals of
subsidiaries and associates 78 547 239 281 (191 960) 400 450
Retained income from associates (199 139) (291 392) - -
Other non cash items - - 250 498 -
----------- ----------- ----------- -----------
3 814 892 3 110 340 16 571 1 443 159
Movements in working capital
Decrease/(increase) in
inventories 31 005 (60 578) 31 005 (189 545)
Decrease/(increase) in
accounts receivable 109 722 (3 397 432) (331 103) (4 695 382)
(Decrease)/increase in
accounts payable (11 300 982) 240 937(10 326 345) 3 620 179
----------- ----------- ----------- -----------
(7 345 363) (106 733)(10 609 872) 178 411
=========== =========== =========== ===========
24.2 Reconciliation of dividends
paid during year
Appropriation in income
statement (446 430) (367 558) (446 430) (367 558)
Movement in dividend payable (144 453) 367 558 (144 453) 367 558
----------- ----------- ----------- -----------
Payments made (590 883) - (590 883) -
=========== =========== =========== ===========
24.3 Reconciliation of taxation
paid during year
Charge in income statement 221 271 (418 163) 1 217 084 376 745
Adjustment for deferred tax
and STC (1 143 219) (119 312) (1 217 084) (376 745)
Movement in taxation balance 944 883 419 142 - -
----------- ----------- ----------- -----------
Amounts refunded/
(payments made) 22 935 (118 333) - -
=========== =========== =========== ===========
IRCA (PROPRIETARY) LIMITED
NOTES TO FINANCIAL STATEMENTS
at 30 June 2003
Group Company
2003 2002 2003 2002
R R R R
24.4 Reconciliation of STC
paid during year
Charge in income statement (55 853) (45 945) (55 853) (45 945)
Movement in STC balance (18 057) 45 945 (18 057) 45 945
----------- ----------- ----------- -----------
Payments made (73 910) - (73 910) -
=========== =========== =========== ===========
24.5 Cash utilised in discontinued
operations
Trading losses (1 169 835) (2 319 588) (1 169 835) (2 319 588)
Profit on disposal of division 191 960 - 191 960 -
----------- ----------- ----------- -----------
(977 875) (2 319 588) (977 875) (2 319 588)
=========== =========== =========== ===========
24.6 Cash and cash equivalents
Cash and cash equivalents
consist of cash on hand and
balances with banks. Cash and
cash equivalents included in
the cash flow statement
comprise the following
balance sheet amounts:
Bank balances 1 683 723 1 565 211 276 885 434 941
Bank overdraft (175 651) (919 235) - (919 235)
----------- ----------- ----------- -----------
1 508 072 645 976 276 885 (484 294)
=========== =========== =========== ===========
IRCA (PROPRIETARY) LIMITED.
Consolidated Financial Statements
(In U.S. Dollars)
June 30, 2003
and
June 30, 2002
IRCA (Pty.) Ltd.
Consolidated Balance Sheet
June 30, 2003 June 30, 2002
------------- -------------
Assets
------
Current Assets
Cash $ 221,885 $ 62,291
Accounts Receivable 2,691,005 1,948,981
Other Current Assets 28,216 22,968
------------- -------------
Total Current Assets 2,941,106 2,034,240
------------- -------------
Property & Equipment (Note 3)
Furniture & Equipment 1,780,694 1,041,908
Accumulated Depreciation (886,351) (490,572)
------------- -------------
Net Property & Equipment 894,343 551,336
------------- -------------
Intangible Asset (Note 4)
Technology-Based Asset 2,295,102 1,564,038
Accumulated Amortization (469,958) (209,953)
------------- -------------
Net Intangible Asset 1,825,144 1,354,085
Deferred Tax Asset (Note 7) 501,481 245,603
Other Non-current Assets 207,748 62,852
------------- -------------
Total Assets $ 6,369,822 $ 4,248,117
============= =============
Liabilities and Stockholders' Equity
------------------------------------
Current Liabilities
Accounts Payable 1,122,026 1,897,978
Accrued Expenses 232,864 92,294
Note Payable-Current 148,069 323,051
------------- -------------
Total Current Liabilities 1,502,959 2,313,323
------------- -------------
Long Term Liabilities
Notes Payable Related Party (Note 6) 3,519,195 -
Notes Payable Long Term 456,977 1,084,557
Total Long Term Liabilities 3,956,172 1,084,557
------------- -------------
Total Liabilities 5,479,131 3,397,880
------------- -------------
Minority Interest 166,231 121,984
------------- -------------
Stockholders' Equity
Common Stock, 200,000 Shares Authorized at Rand 0.10
Par Value, 134,569 shares outstanding, respectively 1,671 1,671
Redeemable Preference Stock, 20,000 Shares Authorized
at Rand 0.01 Par Value, 3,985 shares outstanding,
respectively 5 5
Capital contributed in excess of par value 2,198,138 2,198,138
Non-distributable reserve 5,158 -
Accumulated Deficit (1,545,308) (1,290,284)
Other Comprehensive Income (Loss) 64,796 (181,277)
------------- -------------
Total Stockholders' Equity 724,460 728,253
------------- -------------
Total Liabilities and Stockholders' Equity $ 6,369,822 $ 4,248,117
============= =============
The accompanying notes are an integral part of these financial statements.
IRCA (Pty.) Ltd.
Consolidated Statement of Operations
June 30, 2003 June 30, 2002
------------- -------------
Revenue
Sales Revenue $ 8,138,924 $ 6,017,490
Cost of Sales 151,792 182,968
------------- -------------
Gross Profit 7,987,132 5,834,522
Operating Expense 7,886,444 5,876,869
------------- -------------
Income (Loss) from Operations 100,688 (42,347)
------------- -------------
Other Income (Expense)
Interest Expense, net (334,003) (130,070)
------------- -------------
Total Other (Expense) (334,003) (130,070)
------------- -------------
Net Loss before Minority Interest and Taxes (233,315) (172,417)
Minority Interest (47,188) -
------------- -------------
Net Loss Before Taxes (280,503) (172,417)
Income Tax Credit 25,479 -
------------- -------------
Net Loss (255,024) (172,417)
============= =============
Net Loss Per Common Share $ (1.90) $ (1.28)
Weighted Average Shares Outstanding 134,569 134,569
A summary of the components of other comprehensive income for the transition period
from October 1, 2002 to June 30, 2003 is as follows:
Transition Period
October 1, 2002 to
June 30, 2003
Before After
Tax Amount Tax Amount
------------- -------------
Net Income (Loss) $ (280,503) $ (255,024)
Foreign currency translation 64,796 64,796
------------- -------------
Total Other Comprehensive Income $ (215,707) $ (190,228)
============= =============
The accompanying notes are an integral part of these financial statements
IRCA (PTY.) LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 DESCRIPTION OF BUSINESS
IRCA (Pty) Ltd. ("IRCA" or "the Company"), an international firm
specializing in corporate learning, certification, and risk mitigation in
the areas of Safety, Health Environment, and Quality Assurance ("SHEQ").
IRCA is headquartered in South Africa and operates international sales
offices and operations in the United Kingdom and the United States. IRCA,
founded in 1993, operates in South Africa, England and the United States
through various operating subsidiaries. IRCA's professionals assess
workplace issues related to safety, health, environment and quality, advise
clients on learning programs and other interventions that can reduce
corporate financial risks, and assist in the implementation and
certification of programs. IRCA develops proprietary content and also
markets best practice SHEQ content and programs developed by other leading
certification and standards organizations. Clients include many Fortune
1000 companies operating in Africa, Europe, Australia, and the United
States.
On December 1, 2003, Trinity Learning Corporation ("Trinity") 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"). Danlas was incorporated in 2003. Danlas
also holds options to acquire the remaining 49% of IRCA. In consideration
for the Danlas shares, Trinity (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 Trinity'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 Trinity's common
stock.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Method of Accounting. The Company uses the accrual method of accounting.
Foreign Currency Translation. The Company does business using the South
African rand. The current rate method was used to translate the
consolidated financial statements into US dollars. All assets and
liabilities of the Company are translated at the then current rates.
Equity accounts are translated at the appropriate historical rate. Revenue
and expenses are translated at the weighted-average rate for the year.
Translation gains and losses are recorded as Other Comprehensive Income in
the Equity section of the Balance Sheet.
Consolidation Policies. The consolidated financial statements include the
financial statements of the Company and the subsidiaries controlled by the
Company at June 30, 2003. Control is achieved where the Company has the
power to govern the financial and operating policies of the subsidiary
enterprise so as to obtain benefits from its activities. The results of
subsidiaries acquired or disposed of during the year are included in the
consolidated income statement from the effective date of acquisition or up
the effective date of disposal, as appropriate. Intercompany transactions
and balances have been eliminated in consolidation.
Fixed Assets. Fixed assets are stated at cost less accumulated
depreciation. Costs include all those directly attributable to bringing
the assets to working condition for intended use. Depreciation is
calculated using straight line methods over 3 to 6 years for furniture,
equipment and leasehold improvements and 2 years for software.
Patents, Trademarks and Licenses. The expenditures for patents, trademarks
and licenses are capitalized as intangible assets and amortized using
straight-line methods over the useful life of the asset, but generally over
ten years. The carrying amount of each intangible asset is reviewed
annually and adjusted for impairment where necessary.
Revenue. Revenue is recorded in the financial statements at the date the
goods are delivered to customers or services are performed.
Goodwill. Goodwill, being the excess purchase price of shares in
subsidiaries over the net assets acquired, is no longer being amortized by
the holding company. Investment in subsidiaries are now stated at cost
less any impairment on the investments. The unamortized balance of
goodwill is included in technology based intangible assets.
Impairment. A periodic impairment review of assets is carried out by
comparing the net book value with their fair values. Where the fair value
is less than the net book value, the impairment is charged against income
to reduce the carrying amount of the affected assets to recoverable
amounts.
Accruals. An accrual is recognized when there is a legal or constructive
obligation, as a result of a past event for which it is probable that a
transfer of economic benefits will be required to settle the obligation and
a reliable estimate can be made of the amount of the obligation.
Cash and Cash Equivalents. Cash and Cash equivalents consist of bank
balances, deposits and cash, net of bank overdrafts.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statement and accompanying notes. Actual results could differ from those
estimates.
Income Taxes. The Company uses an asset and liability approach for
financial accounting and reporting for income tax purposes. The Company
has cumulative losses providing a probable future economic benefit. The
resulting deferred tax asset was $501,481 and $245,603 at June 30, 2003 and
2002 respectively.
NOTE 3 FIXED ASSETS
The Company capitalizes all furniture and equipment purchases at cost.
Depreciation is calculated using straight line methods over 5 to 10 years
for furniture, equipment, vehicles and leasehold improvements and 3 years
for software. Scheduled below are the assets, cost, depreciation expense,
and accumulated depreciation at June 30, 2003 and 2002, respectively.
Depreciation Accumulated
Asset Cost Expense Depreciation
06/30/2003 06/30/2002 06/30/2003 06/30/2002 06/30/2003 06/30/2002
Furniture
& Equipment $1,780,694 $1,041,908 $ 239,639 $ 141,917 $ 886,351 $ 490,572
NOTE 4 TECHNOLOGY BASED ASSETS
Development costs considered to have an enduring benefit are capitalized
and amortized using straight-line methods over five years. Internal
software development costs are generally expensed. Requirements adopted by
the directors for capitalization of development costs include;
- technical feasibility of completion and the intention to complete
development,
- probability of resulting economic benefit,
- adequacy of available resources to complete development, and
- whether particular cost is measurable.
Depreciation Accumulated
Asset Cost Expense Depreciation
06/30/2003 06/30/2002 06/30/2003 06/30/2002 06/30/2003 06/30/2002
Intangible Asset $2,295,102 $1,564,038 $ 150,595 $ 139,160 $ 469,958 $ 209,953
NOTE 5 OPERATING LEASES
The Company leases office facilities in South Africa and equipment under
non-cancelable long term leases.
Total Minimum Future Lease Commitments as of June 30, 2003:
Calendar Year Amount
------------------- ------------
2003 $ 55,739
2004 55,739
2005 and thereafter 121,951
------------
Total $ 233,429
============
NOTE 6 RELATED PARTY TRANSACTIONS
From time to time, certain employees and shareholders have advanced funds
to IRCA. The loans are unsecured, has no fixed repayment terms and bears
interest at rate of prime plus 2%.
NOTE 7 INCOME TAXES
The Company uses an asset and liability approach for financial accounting
and reporting for income tax purposes. The Company has cumulative losses
providing a probable future economic benefit. Deferred tax assets and the
valuation account at June 30, 2003 and at June 30, 2002 are as follows:
Deferred Tax Assets June 30, 2003 June 30, 2002
------------- -------------
Capital Allowances $ (35,381) $ -
Provisions 36,131 31,315
Tax Losses 500,731 214,288
------------- -------------
Total $ 501,481 $ 245,603
============= =============
NOTE 8 SUBSEQUENT EVENTS
On December 1, 2003, Trinity completed the acquisition of all the issued
and outstanding shares of Danlas, a British Virgin Islands Company that
owns 51% of IRCA, a South African company specializing in corporate
learning, certification and risk mitigation in the area of safety, health
environment and quality assurance ("SHEQ"). Danlas was incorporated in
2003. Danlas also holds options to acquire the remaining 49% of IRCA. In
consideration for the Danlas shares, Trinity (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
Trinity'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 Trinity's
common stock.
Trinity Learning Corporation
Unaudited Pro Forma Consolidated Financial Statements
June 30, 2003
Trinity Learning Corporation
Unaudited Pro Forma Consolidated Balance Sheet
June 30, 2003
-------------
Assets
Current Assets
Cash $ 288,396
Accounts Receivable 2,733,724
Prepaid Expense 97,985
Other Current Assets 28,216
-------------
Total Current Assets 3,148,321
-------------
Property & Equipment (Note 3)
Furniture & Equipment 947,728
Accumulated Depreciation (7,824)
-------------
Net Property & Equipment 939,904
-------------
Intangible Asset (Note 4)
Technology-Based Asset 3,354,140
Accumulated Amortization (167,747)
-------------
Net Intangible Asset 3,186,393
Other Assets
Notes Receivable (Note 5) 25,000
Other Assets 301,751
-------------
Other Assets 326,751
-------------
Total Assets $ 7,601,369
=============
Continued
Trinity Learning Corporation
Unaudited Pro Forma Consolidated Balance Sheet
June 30, 2003
-------------
Liabilities and Stockholders' Equity
------------------------------------
Current Liabilities
Accounts Payable $ 1,513,898
Accrued Expenses 503,133
Interest Payable 63,987
Note Payable Current (Note 8) 148,069
Notes Payable Related Party (Notes 7 & 8) 5,666,346
-------------
Total Current Liabilities 7,895,433
Long Term Liabilities
Notes Payable Long Term (Note 8) 436,977
-------------
Total Long Term Liabilities 436,977
-------------
Total Liabilities 8,352,411
-------------
Minority Interest (470,105)
-------------
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, 17,456,641 shares and 49,774 shares Issued and
Outstanding, Respectively 10,943,447
Accumulated Deficit (11,188,913)
Subscription Receivable (35,000)
Other Comprehensive Income (470)
-------------
Total Stockholders' Equity (280,936)
-------------
Total Liabilities and Stockholders' Equity $ 7,601,369
=============
The accompanying notes are an integral part of these financial statements.
Trinity Learning Corporation
Unaudited Pro Forma Consolidated Statement of Operations
June 30, 2003
-------------
Revenue
Sales Revenue $ 8,306,714
Cost of Sales (151,792)
-------------
Gross Profit 8,154,922
-------------
Expenses
Operating Expense 9,893,689
-------------
Total Expense 9,893,689
-------------
Loss from Operations (1,738,767)
-------------
Other Income (Expense)
Interest Expense, net (411,355)
Foreign Currency Gain / (Loss) (4,582)
-------------
Total Other Income (Expense) (415,937)
-------------
Loss Before Taxes & Minority Interest (2,154,704)
Minority Interest
Minority Interest 54,576
-------------
Loss Before Taxes (2,100,128)
Taxes -
-------------
Net Loss $ (2,100,128)
Net Loss Per Common Share $ (0.19)
=============
Weighted Average Shares Outstanding 10,864,218
=============
A summary of the components of other comprehensive income for the
transition period from October 1, 2002 to June 30, 2003 is as follows:
Transition Period
October 1, 2002 to
June 30, 2003
Before After
Tax Amount Tax Amount
------------- -------------
Net Loss $(2,100,128) $(2,100,128)
Foreign currency translation (470) (470)
------------- -------------
Total Other Comprehensive Income $(2,100,598) $(2,100,598)
============= =============
The accompanying notes are an integral part of these financial statements
Trinity Learning Corporation
Notes to the Financial Statements
June 30, 2003
NOTE 1 - Corporate History
Trinity Learning Corporation ("Trinity," "the Company" or "we") was
incorporated on April 14, 1975 in Oklahoma under the name U.S. Mineral &
Royalty Corp. as an oil and gas exploration, development and operating
company. In 1989, the Company changed its name to Habersham Energy
Company. Historically, the Company was engaged in the business of
acquiring and producing oil and gas properties, but did not have any
business activity from 1995 to 2002. Pursuant to its reorganization in
2002, the Company changed its domicile to Utah, amended its capital
structure and changed its name to Trinity Companies Inc., then, in March
2003, to Trinity Learning Corporation. Until adoption of its recent
operating strategy in 2002, the Company had not had any business activity
since 1995.
Pursuant to a series of related transactions that closed on October 1,
2002, ("the Acquisition Date") the Company issued 3,000,000 restricted
shares of its common stock, issued $1,000,000 in convertible promissory
notes and assumed $222,151 in indebtedness to acquire Competency Based
Learning, Inc. (CBL-California), a California corporation and two related
Australian companies, Competency Based Learning, Pty. Ltd. ACN 084 763 780
("CBL-Australia") and ACN 082 126 501 Pty. Ltd. (collectively referred to
as "CBL"). The transactions were effected through CBL Global Corp. ("CBL
Global"), a wholly-owned subsidiary.
On June 16, 2003, we completed a recapitalization of our common stock by
(i) effecting a reverse split of our outstanding common stock on the basis
of one share for each 250 shares owned, with each resulting fractional
share being rounded up to the nearest whole share, and (ii) subsequently
effecting a forward split by dividend to all shareholders of record, pro
rata, on the basis of 250 shares for each one share owned. The record
date for the reverse and forward splits was June 4, 2003. Immediately
prior to the recapitalization, we had 13,419,774 shares of common stock
outstanding. Following the recapitalization and the cancellation of
108,226 shares of common stock beneficially owned by members of management,
we had 13,419,774 shares of common stock outstanding.
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 information presented in this transition report on Form 10-KSB relates
to the period October 1, 2002 through June 30, 2003.
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").
Danlas was incorporated in 2003. 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 Trinity'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 Trinity's common stock.
NOTE 2 - Significant Accounting Policies
A. Method of Accounting. The Company uses the accrual method of
accounting.
B. Revenue Recognition - The Company recognizes revenue once it is
realizable and earned. Revenue from sales of products and related
cost of products sold are recognized when persuasive evidence of an
arrangements exists, delivery has occurred, the seller's price is
fixed or determinable and collectibility is reasonably assured.
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. Use of Estimates. The preparation of the financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
F. 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 and the subsidiaries controlled by the
Company at June 30, 2003. Control is achieved where the Company has
the power to govern the financial and operating policies of the
subsidiary enterprise so as to obtain benefits from its activities.
The results of subsidiaries acquired or disposed of during the year
are included in the consolidated income statement from the effective
date of acquisition or up the effective date of disposal, as
appropriate. Intercompany transactions and balances have been
eliminated in consolidation.
G. 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. Statement of Operations accounts are
translated at the average exchange rates for the year. Translation
gains and losses are recorded as Other Comprehensive Income in the
Equity section of the Balance Sheet.
H. Purchase Accounting. The purchase value of fixed assets purchased in
the acquisition of CBL and IRCA were determined based on their
historical value less accumulated depreciation. All other assets were
valued at their current value and a technology-based intangible asset
was recorded.
I. Primary Earnings Per Share Amounts are based on the weighted number
of shares outstanding at the dates of the financial statements. Fully
Diluted Earnings Per Share shall be shown on stock option and other
convertible issues that may be exercised within the next ten years.
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, depreciation expense, and accumulated depreciation at June 30, 2003
and September 30, 2002.
Depreciation Accumulated
Asset Cost Expense Depreciation
06/30/2003 09/30/2002 06/30/2003 09/30/2002 06/30/2003 09/30/2002
Furniture
& Equipment $ 947,728 $ 6,151 $ 7,744 $ 80 $ 7,824 $ 80
NOTE 4 Technology-Based Intangible Assets
The Company capitalized technology-based intangible assets in its
acquisition of CBL and IRCA. The amount capitalized is equal to the
difference between the consideration paid for the subsidiaries 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 acquisition
including the net value of fixed assets, historical price less accumulated
depreciation. The technology-based intangible assets are being amortized
over a five-year period using the straight-line method. The value assigned
to the technology-based intangible assets are considered appropriate based
on average annual revenues earned from licensing of these asset over the
two year period prior to the acquisitions and the expectation that future
revenues for the five year period subsequent to the acquisition will equal
or exceed these amounts. Scheduled below is the total asset cost,
amortization expense and accumulated amortization at June 30, 2003.
Depreciation Accumulated
Asset Cost Expense Depreciation
06/30/2003 09/30/2002 06/30/2003 09/30/2002 06/30/2003 09/30/2002
Intangible Asset $3,354,140 $ - $ 167,747 $ - $ 167,747 $ -
NOTE 5 Notes Receivable
On June 5, 2003, we agreed to lend TouchVision, Inc. ("TouchVision")
$50,000 in two equal installments of $25,000 each. Interest accrues 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.
NOTE 6 - Operating Leases
In July 2003, the Company signed a lease agreement for new office space at
1831 Second Street in Berkeley, California. The lease term commenced
September 1, 2003 and will expire on May 31, 2004. The Company will pay a
minimum of $5,025 per month. The Company paid $10,050 upon the execution
of the lease that includes $5,025 security deposit that may be refunded at
the end of the lease.
CBL-Australia leases contiguous office space pursuant to two separate lease
agreements for its operations located in Queensland, Australia. The term
of the first lease expires in January 2004 with a three year option to
renew. The monthly rental amount of that lease is $2,471. The term of the
second lease expires in January 2007 with a three year option to renew.
The monthly rental amount of that lease is $2,140. CBL-Australia also
leases a car for use by Brian Kennedy, its chief executive officer. The
lease expires in October 2005; the monthly rental amount is $338.
IRCA leases office and warehouse facilities in South Africa and equipment
under non-cancelable long term leases.
Total Minimum Lease Commitments as of June 30, 2003:
Calendar Year Amount
------------- ---------
2003 $ 152,725
2004 317,627
2005 100,246
2006 47,828
Thereafter 133,557
---------
Total $ 751,983
=========
NOTE 7 Related Party Transactions
From time to time, certain employees and shareholders have advanced funds
to IRCA. The loans are unsecured, has no fixed repayment terms and bears
interest at rate of prime (South Africa) plus 2%.
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 will provide the Company 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 Trinity, and Mr. Theodore
Swindells.
The Advisory Agreement provides that GCP will 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, which monthly fee amount is 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 June 30, 2003, GCP had earned a total of $285,000 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 $175,000, $134,132 has
been paid to GCP, leaving a balance owing at June 30, 2003 of $40,868.
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, including Messrs. Cole,
Mooney and Swindells. 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 January 2003, 3,200,000 shares of our
common stock had been issued pursuant to the terms of the GMA Note.
Pursuant to the acquisition of CBL on October 1, 2002 described in Note 1
above, we issued to shareholders of CBL two convertible promissory notes in
the amounts of $485,000 and $515,000. The notes accrue interest at 7% per
annum and are considered due and payable upon the earlier of September 1,
2004 or the date, upon which we close an equity financing, the net proceeds
of which, together with the net proceeds of all equity financing conducted
by the Company after the Acquisition Date, equal or exceeds $10,000,000.
The conversion price on the notes is $2.00 per share of common stock. At
June 30, 2003, accrued interest totaled $52,356.
At the Acquisition Date, we issued two unsecured promissory notes in the
amount of $222,151 to cancel three unsecured promissory notes previously
issued by CBL-Australia and CBL-California to its shareholders, Messrs.
Scammell and Kennedy. The notes accrue interest at 7% per annum and are
considered due and payable upon the earlier of the September 1, 2003 or the
date, upon which the company closes an equity financing, the net proceeds
of which, together with the net proceeds of all equity financing conducted
by us after the Acquisition Date, equal or exceeds $3,000,000. At June 30,
2003, accrued interest totaled $11,631. The notes were due and payable on
September 1, 2003 for which the payment has not been made pending the
outcome of a lawsuit filed against Messrs. Scammell and Kennedy, see Note
14, Subsequent Events.
Concurrent with its acquisition of CBL, Trinity (i) issued promissory notes
to certain individuals and entities for a total principal amount of
$500,000 ("Bridge Financing Amount"), such notes ("Bridge Financing Notes")
are convertible under certain conditions into shares of common stock, and
(ii) in connection with the issuance of the Bridge Financing Notes, issued
warrants ("Bridge Financing Warrants") to the holders of the Notes to
purchase additional shares of Common Stock. Of the Bridge Financing
Amount, $55,000 was advanced by KPA and $120,000 by Mr. Swindells.
The Bridge Financing Notes bear interest at a rate of 9% per annum and are
due one year from the date of the respective notes, unless automatically
converted upon the closing by the Company of an equity financing consisting
of at least 500,000 shares of common stock. On May 19, 2003, the principal
amount of $500,000 and accrued interest of $34,745 on the respective notes
were converted into 1,336,867 shares of common stock at $0.40 per share.
The Bridge Financing Warrants are exercisable for a period of one year at a
price of $0.05 per share, and contain a net issuance provision whereby the
holders may elect a cashless exercise of such warrants based on the fair
market value of the common stock at the time of conversion.
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. Theodore 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.
NOTE 8 - Notes Payable
At June 30, 2003, notes payable to accredited investors and related parties
totaled $6,123,323. The notes bear interest between the rates of 0% and
17% per annum, some of which are secured by our common stock. Certain
notes are convertible into the Company's common stock.
The Company has the following notes payable obligations:
June 30, 2003
-------------
Unsecured convertible notes payable due on
December 1, 2003, see Note 7. $ 925,000
Unsecured notes payable to shareholders of IRCA,
no fixed maturity, plus accrued interest at a rate
of prime (South Africa) plus 2%, see Note 7. 3,519,195
Unsecured notes payable to related parties, see Note 7
for due date, plus accrued interest at a rate of 7%
per annum. 222,151
Convertible notes payable to related parties, see Note 7
for due date, plus accrued interest at a rate of 7% per
annum. 1,000,000
-------------
-------------
Unsecured convertible note payable, non interest bearing,
due December 30, 2005 20,000
-------------
-------------
Secured mortgage payable due March 1, 2006, plus accrued
interest at a rate of 13.45% per annum 353,096
-------------
-------------
Installment notes payable, secured by property and equipment,
payable over periods from one to three years plus accrued
interest at rates ranging from 10 to 17% per annum. 83,881
-------------
Total Notes Payable 6,123,323
Less: Current Maturities (5,666,346)
-------------
Long Term Notes Payable 456,977
=============
NOTE 9 - Stockholders' Equity
On February 5, 2002, the Company effected a one hundred for one (100 for 1)
reverse split. No shareholder was reversed below 100 shares. Shareholders
with 100 shares or less, prior to the reverse, were not affected.
On May 5, 2002, the Company amended its Articles of Incorporation to
reflect a change in par value from $0.10 per share to no par value per
share. Accordingly, this change effecting the common stock and additional
paid in capital values has been retroactively applied to all prior years.
On October 1, 2002, the Company issued a total of 3,000,000 shares of
common stock in conjunction with its acquisition of CBL-Australia and CBL-
California at $0.025 per share. Accordingly, $75,000 has been charged to
common stock to reflect the total cost of the shares.
On October 1, 2002, the Company authorized a Stock Purchase Agreement in
order to retain qualified directors and officers. The Stock Purchase
Agreement allows various directors to purchase an aggregate of 1,200,000
shares of the Company's common stock at a price of $0.025 per share. The
purchase price shall be payable by each Purchaser in the form of the
cancellation of the Company's obligation to pay the various Purchasers a
total of $30,000 as compensation for services already performed by
Purchaser for the Company.
On October 2, 2002, the Company issued 1,070,000 shares of common stock in
settlement of outstanding amounts due for services rendered to the Company.
These shares were issued at $0.025 per share totaling $26,750.
On October 21, 2002, the Company adopted and approved the "2002 Stock Plan"
which was approved by the Company's shareholders at its special shareholder
meeting on December 2, 2002. The Plan authorizes issuance of 3,000,000
shares to be increased by 500,000 shares annually. The plan expires in ten
years. As of June 30, 2003, 2,447,000 options have been granted at prices
ranging from $0.05 per share to $0.50 per share of which 963,625 were
vested as of June 30, 2003.
During the period November 15, 2002 to January 21, 2003, we issued
3,200,000 shares in exchange for $166,953, respectively of unsecured notes
payable. The original amount of the note was $166,963 (See Notes 7 and 8).
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.
On March 20, 2003, we issued 4,400,000 shares of common stock in settlement
of $110,000 of amounts due to GCP (see Note 7).
On May 19, 2003, we issued 1,250,000 and 86,867 shares of the common stock
in exchange for the total principal Bridge Financing Notes of $500,000 and
the accrued interest payable on such notes of $34,745, respectively (see
Note 7).
On June 16, 2003, we completed a recapitalization of its common stock by
effecting a reverse split of its outstanding common stock on the basis of
one share for each 250 shares owned, with each resulting fractional share
being rounded up to the nearest whole share, and subsequently effecting a
forward split by dividend to all shareholders of record, pro rata, on the
basis of 250 shares for each one share owned. Immediately prior to the
recapitalization, we had 13,419,774 shares of common stock outstanding.
Following the recapitalization and the cancellation of 108,226 shares of
common stock beneficially owned by members of management, the Company had
13,419,774 shares of common stock outstanding.
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.
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.
On September 1, 2003, 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.
NOTE 10 Stock Option Plan
On December 2, 2002, at a special meeting of our shareholders, the 2002
Stock Plan was approved. The maximum aggregate number of shares that may
be optioned and sold under the plan is the total of (a) 3,000,000 shares,
(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. 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 nine-month transition period ended June 30, 2003.
2002 STOCK PLAN
-----------------------
Weighted
Average
Number of Exercise
Shares Price
----------- -----------
Outstanding at October 1, 2002 - $ -
Options Granted 2,447,000 $ 0.23
Options Exercised - -
Options Canceled - -
----------- -----------
Options Outstanding at June 30, 2003 2,447,000 $ 0.23
=========== ===========
Options Exercisable at June 30, 2003 963,625 $ 0.22
=========== ===========
In accordance with Statement of Financial Accounting Standards Number 123,
"Accounting for Stock-Based Compensation", option expense of $76,774 was
recognized for the nine-month transition period ended June 30, 2003.
June 30, 2003
Five-Year Risk Free Interest Rate 3.01%
Dividend Yield nil
Volatility nil
Average Expected Term (Years to Exercise) 4.4
Stock options outstanding and exercisable under 2002 Stock Plan as of June
30, 2003 are as follows:
Average
Weighted Remaining Weighted
Range of Number of Average Contractual Number Average
Exercise Options Exercise Life of Options Exercise
Price Granted Price (Years) Vested Price
$0.05 600,000 $0.05 4.3 262,500 $0.05
$0.25 1,589,000 $0.25 4.3 624,813 $0.25
$0.50 258,000 $0.50 4.6 76,313 $0.50
NOTE 11 - Income Taxes
Income tax expense includes federal and state taxes currently payable and
deferred taxes arising from timing differences between income for financial
reporting and income tax purposes.
The Company has adopted Statement of Financial Accounting Standards Number
109 ("SFAS No. 109") "Accounting for Income Taxes." SFAS No. 109 requires
an asset and liability approach for financial accounting and reporting for
income tax purposes. This statement recognizes (a) the amount of taxes
payable or refundable for the current year and (b) deferred tax liabilities
and assets for future tax consequences of events that have been recognized
in the financial statements or tax returns.
Deferred income taxes result from temporary differences in the recognition
of accounting transactions for tax and financial reporting purposes.
There were no temporary differences at June 30, 2003 and earlier years;
accordingly, no deferred tax liabilities have been recognized for all
years.
The Company has cumulative net operating loss carryforwards of over
$11,100,000 at June 30, 2003 and $9,100,000 at September 30, 2002. No
effect has been shown in the financial statements for the net operating
loss carryforwards as the likelihood of future tax benefit from such net
operating loss carryforwards is not probable. Accordingly, the potential
tax benefits of the net operating loss carryforwards at June 30, 2003 and
September 30, 2002 have been offset by valuation reserves of the same
amount.
Deferred tax assets and the valuation account at June 30, 2003 and at
September 30, 2002 are as follows:
June September
30, 2003 30, 2002
Deferred Tax Asset ------------ ------------
Net Operating Loss Carryforwards $ 4,600,000 $ 3,800,000
Valuation Allowance (4,600,000) (3,800,000)
------------ ------------
Total $ - $ -
============ ============
NOTE 12 - Net Earnings (Loss) Per Share
Basic earnings (loss) per common share ("BEPS") are based on the weighted-
average number of common shares outstanding during each period. Diluted
earnings (loss) per common share ("DEPS") are based on shares outstanding
(computed under BEPS) plus dilutive potential common shares. Shares from
the exercise of the outstanding options were not included in the
computation of DEPS, because their inclusion would have been antidilutive
for the nine months ended June 30, 2003.
The following data shows the shares used in the computing loss per common
share including dilutive potential common stock at June 30, 2003:
Amount
-------------
Common shares outstanding including 2,500,000
convertible note shares issued to IRCA shareholders
at June 30, 2003. 17,456,641
Weighted-average number of common shares including
2,500,000 convertible note shares issued to IRCA
shareholders used in basic EPS dilutive effect of
options. 10,864,218
Weighted-average number of common shares and dilutive
potential common shares including 2,500,000 convertible
note shares issued to IRCA shareholders used in
diluted EPS. 10,864,218
NOTE 13 - 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 equity funding through private placements to
raise sufficient funds to continue operations and fund its
ongoing development, merger and acquisition activities. In May
2003, we commenced a $5,000,000 private placement, 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
private placement, we have engaged various financial advisory
firms and other finders to identify prospective investors. We
completed the private offering on October 31, 2003.
(b) Continue conversion of certain outstanding loans and payables
into common stock in order to reduce future cash obligations;
(c) 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
(d) 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 14 - New Technical Pronouncements
In October 2002, Statement of Financial Accounting Standards Number 147
("SFAS 147"), "Acquisitions of Certain Financial Institutions an
amendment of FASB Statements No. 72 and 144 and FASB Interpretation No. 9"
was issued to be used in acquisitions of financial institutions after
October 1, 2002. It is anticipated that SFAS 147 will have no effect upon
the Company's financial statements.
In December 2002, Statement of Financial Accounting Standards Number 148
("SFAS 148"), "Accounting for Stock-Based Compensation Transition and
Disclosure an amendment of FASB Statement No. 123" was issued for fiscal
years beginning after December 15, 2003. It is anticipated that SFAS 148
will have no effect upon the Company's financial statements.
In April 2003, Statement of Financial Accounting Standards Number 149
("SFAS 149"), "Amendment of Statement 133 on Derivative Instruments and
Hedging Activities" was issued for fiscal quarters that began prior to June
15, 2003. Adoption of SFAS 149 will have no effect upon the Company's
financial statements.
In May 2003, Statement of Financial Accounting Standards Number 150 ("SFAS
150"), "Accounting for Certain Financial Instruments with Characteristics
of Both Liabilities and Equity" was issued for the first interim period
beginning after June 15, 2003. The Company anticipates that SFAS 150 may
impact the accounting for certain future acquisitions and the anticipated
distribution of stock for services.
NOTE 14 - Subsequent Events
On July 8, 2003, we issued a five-year warrant to Merriman, Curran, Ford &
Co. a financial service company, to purchase up to 20,000 shares of our
common stock for a period of five years at $0.50 per share in consideration
for financial advisory services provided to us by the firm.
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,
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 September 1, 2003, 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.
On September 1, 2003, 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 $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. 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 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.
During the period June 1, 2003 to October 31, 2003, we sold by way of
private placement an aggregate of 5,143,300 units at a price of $1.00 per
unit, for aggregate consideration of $5,143,300. 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 $448,105 in commissions and issued to
various financial advisors, 567,160 additional shares of our common stock
and five-year warrants to purchase 207,050 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
thereunder.
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 (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
thereunder, 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 alleges, 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 alleges, however, that the restated financial
statements were not provided to us prior to the October 1, 2002 closing of
the merger. The First Amended Complaint seeks damages in an amount to be
proven at trial, but which amount presently is estimated to exceed, at a
minimum, the full amount of the consideration paid by us and CBL Global in
the merger, as well as treble damages, and attorneys' fees. The First
Amended Complaint also seeks a declaration that we (i) are entitled to
retain certain of our shares of common stock that were issued in connection
with the acquisition of CBL and placed in escrow, (ii) are entitled to set-
off amounts owed to Messrs. Scammell and Kennedy pursuant to the CBL
acquisition; and (iii) are entitled to seek the return of the shares of our
common stock that have already have been distributed to defendants Messrs.
Kennedy and Scammell in the merger. We intend to vigorously pursue our
claims against the defendants.
Trinity Learning Corporation
Unaudited Pro Forma Consolidated Financial Statements
June 30, 2003
Trinity Learning Corporation
Unaudited Pro Forma Consolidated Balance Sheet
June 30, 2003
-------------
Assets
------
Current Assets
Cash $ 288,396
Accounts Receivable 2,733,724
Prepaid Expense 97,944
Other Current Assets 28,257
-------------
Total Current Assets 3,148,321
-------------
Property & Equipment (Note 3)
Furniture & Equipment 947,728
Accumulated Depreciation (7,824)
-------------
Net Property & Equipment 939,904
-------------
Intangible Asset (Note 4)
Technology-Based Asset 4,317,761
Accumulated Amortization (167,747)
-------------
Net Intangible Asset 4,150,014
Other Assets
Notes Receivable (Note 5) 25,000
Other Assets 301,751
-------------
Other Assets 326,751
-------------
Total Assets $ 8,564,990
=============
Continued
Trinity Learning Corporation
Unaudited Pro Forma Consolidated Balance Sheet
June 30, 2003
-------------
Liabilities and Stockholders' Equity
------------------------------------
Current Liabilities
Accounts Payable $ 1,513,898
Accrued Expenses 503,133
Interest Payable 63,987
Note Payable Current (Note 8) 148,069
Notes Payable Related Party (Notes 7 & 8) 5,666,346
-------------
Total Current Liabilities 7,895,433
-------------
Long Term Liabilities
Notes Payable Long Term (Note 8) 456,977
-------------
Total Long Term Liabilities 456,977
-------------
Total Liabilities 8,352,411
-------------
Minority Interest 493,516
-------------
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, 17,456,641 shares and 49,774 shares Issued and
Outstanding, Respectively 9,693,447
Conditionally Redeemable Common Stock, 2,500,000 shares,
at No Par Value 1,250,000
Accumulated Deficit (11,188,913)
Subscription Receivable (35,000)
Other Comprehensive Income (470)
-------------
Total Stockholders' Equity (280,936)
-------------
Total Liabilities and Stockholders' Equity $ 8,564,990
=============
The accompanying notes are an integral part of these financial statements.
Trinity Learning Corporation
Unaudited Pro Forma Consolidated Statement of Operations
June 30, 2003
-------------
Revenue
Sales Revenue $ 8,306,714
Cost of Sales (151,792)
-------------
Gross Profit 8,154,922
-------------
Expenses
Operating Expense 9,893,689
-------------
Total Expense 9,893,689
-------------
Loss from Operations (1,738,767)
-------------
Other Income (Expense)
Interest Expense, net (411,355)
Foreign Currency Gain / (Loss) (4,582)
-------------
Total Other Income (Expense) (415,937)
-------------
Loss Before Taxes & Minority Interest (2,154,704)
Minority Interest
Minority Interest 27,537
-------------
Loss Before Taxes (2,127,167)
Taxes -
-------------
Net Loss $ (2,127,167)
Net Loss Per Common Share $ (0.25)
=============
Weighted Average Shares Outstanding 8,364,218
=============
A summary of the components of other comprehensive income for the
transition period from October 1, 2002 to June 30, 2003 is as follows:
June 30, 2003
Before After
Tax Amount Tax Amount
------------ ------------
Net Loss $(2,127,167) $(2,127,167)
Foreign currency translation (470) (470)
------------ ------------
Total Other Comprehensive Income $(2,127,637) $(2,127,637)
============ ============
The accompanying notes are an integral part of these financial statements
Trinity Learning Corporation
Notes to the Financial Statements
June 30, 2003
NOTE 1 - CORPORATE HISTORY
Trinity Learning Corporation ("Trinity," "the Company" or "we") was
incorporated on April 14, 1975 in Oklahoma under the name U.S. Mineral &
Royalty Corp. as an oil and gas exploration, development and operating
company. In 1989, the Company changed its name to Habersham Energy
Company. Historically, the Company was engaged in the business of
acquiring and producing oil and gas properties, but did not have any
business activity from 1995 to 2002. Pursuant to its reorganization in
2002, the Company changed its domicile to Utah, amended its capital
structure and changed its name to Trinity Companies Inc., then, in March
2003, to Trinity Learning Corporation. Until adoption of its recent
operating strategy in 2002, the Company had not had any business activity
since 1995.
Pursuant to a series of related transactions that closed on October 1,
2002, ("the Acquisition Date") the Company issued 3,000,000 restricted
shares of its common stock, issued $1,000,000 in convertible promissory
notes and assumed $222,151 in indebtedness to acquire Competency Based
Learning, Inc. (CBL-California), a California corporation and two related
Australian companies, Competency Based Learning, Pty. Ltd. ACN 084 763 780
("CBL-Australia") and ACN 082 126 501 Pty. Ltd. (collectively referred to
as "CBL"). The transactions were effected through CBL Global Corp. ("CBL
Global"), a wholly-owned subsidiary.
On June 16, 2003, we completed a recapitalization of our common stock by
(i) effecting a reverse split of our outstanding common stock on the basis
of one share for each 250 shares owned, with each resulting fractional
share being rounded up to the nearest whole share, and (ii) subsequently
effecting a forward split by dividend to all shareholders of record, pro
rata, on the basis of 250 shares for each one share owned. The record
date for the reverse and forward splits was June 4, 2003. Immediately
prior to the recapitalization, we had 13,419,774 shares of common stock
outstanding. Following the recapitalization and the cancellation of
108,226 shares of common stock beneficially owned by members of management,
we had 13,419,774 shares of common stock outstanding.
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 information presented in this transition report on Form 10-KSB relates
to the period October 1, 2002 through June 30, 2003.
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").
Danlas was incorporated in 2003. 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 Trinity'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 Trinity's common stock.
NOTE 2 - Significant Accounting Policies
A. Method of Accounting. The Company uses the accrual method of
accounting.
B. Revenue Recognition - The Company recognizes revenue once it is
realizable and earned. Revenue from sales of products and
related cost of products sold are recognized when persuasive
evidence of an arrangements exists, delivery has occurred, the
seller's price is fixed or determinable and collectibility is
reasonably assured.
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. Use of Estimates. The preparation of the financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
F. 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 and the subsidiaries controlled
by the Company at June 30, 2003. Control is achieved where the
Company has the power to govern the financial and operating
policies of the subsidiary enterprise so as to obtain benefits
from its activities. The results of subsidiaries acquired or
disposed of during the year are included in the consolidated
income statement from the effective date of acquisition or up the
effective date of disposal, as appropriate. Intercompany
transactions and balances have been eliminated in consolidation.
G. 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. Statement of Operations accounts
are translated at the average exchange rates for the year.
Translation gains and losses are recorded as Other Comprehensive
Income in the Equity section of the Balance Sheet.
H. Purchase Accounting. The purchase value of fixed assets
purchased in the acquisition of CBL and IRCA were determined
based on their historical value less accumulated depreciation.
All other assets were valued at their current value and a
technology-based intangible asset was recorded.
I. Primary Earnings Per Share Amounts are based on the weighted
number of shares outstanding at the dates of the financial
statements. Fully Diluted Earnings Per Share shall be shown on
stock option and other convertible issues that may be exercised
within the next ten years.
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, depreciation expense, and accumulated depreciation at June 30, 2003
and September 30, 2002.
Depreciatio Accumulated
Asset Cost Expense Depreciation
06/30/2003 09/30/2002 06/30/2003 09/30/2002 06/30/2003 09/30/2002
---------- ---------- ---------- ---------- ---------- ----------
Furniture
& Equipment $ 947,728 $ 6,151 $ 7,744 $ 80 $ 7,824 $ 80
NOTE 4 Technology-Based Intangible Assets
The Company capitalized technology-based intangible assets in its
acquisition of CBL and IRCA. The amount capitalized is equal to the
difference between the consideration paid for the subsidiaries 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 acquisition
including the net value of fixed assets, historical price less accumulated
depreciation. The technology-based intangible assets are being amortized
over a five-year period using the straight-line method. The value assigned
to the technology-based intangible assets are considered appropriate based
on average annual revenues earned from licensing of these asset over the
two year period prior to the acquisitions and the expectation that future
revenues for the five year period subsequent to the acquisition will equal
or exceed these amounts. Scheduled below is the total asset cost,
amortization expense and accumulated amortization at June 30, 2003.
Depreciation Accumulated
Asset Cost Expense Depreciation
06/30/2003 09/30/2002 06/30/2003 09/30/2002 06/30/2003 09/30/2002
---------- ---------- ---------- ---------- ---------- ----------
Intangible Asset $4,317,761 $ - $ 167,747 $ - $ 167,747 $ -
NOTE 5 Notes Receivable
On June 5, 2003, we agreed to lend TouchVision, Inc. ("TouchVision")
$50,000 in two equal installments of $25,000 each. Interest accrues 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.
NOTE 6 - Operating Leases
In July 2003, the Company signed a lease agreement for new office space at
1831 Second Street in Berkeley, California. The lease term commenced
September 1, 2003 and will expire on May 31, 2004. The Company will pay a
minimum of $5,025 per month. The Company paid $10,050 upon the execution
of the lease that includes $5,025 security deposit that may be refunded at
the end of the lease.
CBL-Australia leases contiguous office space pursuant to two separate lease
agreements for its operations located in Queensland, Australia. The term
of the first lease expires in January 2004 with a three year option to
renew. The monthly rental amount of that lease is $2,471. The term of the
second lease expires in January 2007 with a three year option to renew.
The monthly rental amount of that lease is $2,140. CBL-Australia also
leases a car for use by Brian Kennedy, its chief executive officer. The
lease expires in October 2005; the monthly rental amount is $338.
IRCA leases office and warehouse facilities in South Africa and equipment
under non-cancelable long term leases.
Total Minimum Lease Commitments as of June 30, 2003:
Calendar Year Amount
------------- ---------
2003 $ 152,725
2004 317,627
2005 100,246
2006 47,828
Thereafter 133,557
---------
Total $ 751,983
=========
NOTE 7 Related Party Transactions
From time to time, certain employees and shareholders have advanced funds
to IRCA. The loans are unsecured, has no fixed repayment terms and bears
interest at rate of prime (South Africa) plus 2%.
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 will provide the Company 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 Trinity, and Mr. Theodore
Swindells.
The Advisory Agreement provides that GCP will 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, which monthly fee amount is 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 June 30, 2003, GCP had earned a total of $285,000 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 $175,000, $134,132 has
been paid to GCP, leaving a balance owing at June 30, 2003 of $40,868.
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, including Messrs. Cole,
Mooney and Swindells. 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 January 2003, 3,200,000 shares of our
common stock had been issued pursuant to the terms of the GMA Note.
Pursuant to the acquisition of CBL on October 1, 2002 described in Note 1
above, we issued to shareholders of CBL two convertible promissory notes in
the amounts of $485,000 and $515,000. The notes accrue interest at 7% per
annum and are considered due and payable upon the earlier of September 1,
2004 or the date, upon which we close an equity financing, the net proceeds
of which, together with the net proceeds of all equity financing conducted
by the Company after the Acquisition Date, equal or exceeds $10,000,000.
The conversion price on the notes is $2.00 per share of common stock. At
June 30, 2003, accrued interest totaled $52,356.
At the Acquisition Date, we issued two unsecured promissory notes in the
amount of $222,151 to cancel three unsecured promissory notes previously
issued by CBL-Australia and CBL-California to its shareholders, Messrs.
Scammell and Kennedy. The notes accrue interest at 7% per annum and are
considered due and payable upon the earlier of the September 1, 2003 or the
date, upon which the company closes an equity financing, the net proceeds
of which, together with the net proceeds of all equity financing conducted
by us after the Acquisition Date, equal or exceeds $3,000,000. At June 30,
2003, accrued interest totaled $11,631. The notes were due and payable on
September 1, 2003 for which the payment has not been made pending the
outcome of a lawsuit filed against Messrs. Scammell and Kennedy, see Note
14, Subsequent Events.
Concurrent with its acquisition of CBL, Trinity (i) issued promissory notes
to certain individuals and entities for a total principal amount of
$500,000 ("Bridge Financing Amount"), such notes ("Bridge Financing Notes")
are convertible under certain conditions into shares of common stock, and
(ii) in connection with the issuance of the Bridge Financing Notes, issued
warrants ("Bridge Financing Warrants") to the holders of the Notes to
purchase additional shares of Common Stock. Of the Bridge Financing
Amount, $55,000 was advanced by KPA and $120,000 by Mr. Swindells.
The Bridge Financing Notes bear interest at a rate of 9% per annum and are
due one year from the date of the respective notes, unless automatically
converted upon the closing by the Company of an equity financing consisting
of at least 500,000 shares of common stock. On May 19, 2003, the principal
amount of $500,000 and accrued interest of $34,745 on the respective notes
were converted into 1,336,867 shares of common stock at $0.40 per share.
The Bridge Financing Warrants are exercisable for a period of one year at a
price of $0.05 per share, and contain a net issuance provision whereby the
holders may elect a cashless exercise of such warrants based on the fair
market value of the common stock at the time of conversion.
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. Theodore 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.
NOTE 8 - Notes Payable
At June 30, 2003, notes payable to accredited investors and related parties
totaled $6,123,323. The notes bear interest between the rates of 0% and
17% per annum, some of which are secured by our common stock. Certain
notes are convertible into the Company's common stock.
The Company has the following notes payable obligations:
June 30, 2003
--------------
Unsecured convertible notes payable due on December 1,
2003, see Note 7. $ 925,000
Unsecured notes payable to shareholders of IRCA, no
fixed maturity, plus accrued interest at a rate of prime
(South Africa) plus 2%, see Note 7. 3,519,195
Unsecured notes payable to related parties, see Note 7 for
due date, plus accrued interest at a rate of 7% per annum. 222,151
Convertible notes payable to related parties, see Note 7
for due date, plus accrued interest at a rate of 7% per annum. 1,000,000
Unsecured convertible note payable, non interest bearing,
due December 30, 2005 20,000
Secured mortgage payable due March 1, 2006, plus accrued
interest at a rate of 13.45% per annum 353,096
Installment notes payable, secured by property and equipment,
payable over periods from one to three years plus accrued
interest at rates ranging from 10 to 17% per annum. 83,881
-------------
Total Notes Payable 6,123,323
Less: Current Maturities (5,666,346)
-------------
Long Term Notes Payable 456,977
=============
NOTE 9 - Stockholders' Equity
On February 5, 2002, the Company effected a one hundred for one (100 for 1)
reverse split. No shareholder was reversed below 100 shares. Shareholders
with 100 shares or less, prior to the reverse, were not affected.
On May 5, 2002, the Company amended its Articles of Incorporation to
reflect a change in par value from $0.10 per share to no par value per
share. Accordingly, this change effecting the common stock and additional
paid in capital values has been retroactively applied to all prior years.
On October 1, 2002, the Company issued a total of 3,000,000 shares of
common stock in conjunction with its acquisition of CBL-Australia and CBL-
California at $0.025 per share. Accordingly, $75,000 has been charged to
common stock to reflect the total cost of the shares.
On October 1, 2002, the Company authorized a Stock Purchase Agreement in
order to retain qualified directors and officers. The Stock Purchase
Agreement allows various directors to purchase an aggregate of 1,200,000
shares of the Company's common stock at a price of $0.025 per share. The
purchase price shall be payable by each Purchaser in the form of the
cancellation of the Company's obligation to pay the various Purchasers a
total of $30,000 as compensation for services already performed by
Purchaser for the Company.
On October 2, 2002, the Company issued 1,070,000 shares of common stock in
settlement of outstanding amounts due for services rendered to the Company.
These shares were issued at $0.025 per share totaling $26,750.
On October 21, 2002, the Company adopted and approved the "2002 Stock Plan"
which was approved by the Company's shareholders at its special shareholder
meeting on December 2, 2002. The Plan authorizes issuance of 3,000,000
shares to be increased by 500,000 shares annually. The plan expires in ten
years. As of June 30, 2003, 2,447,000 options have been granted at prices
ranging from $0.05 per share to $0.50 per share of which 963,625 were
vested as of June 30, 2003.
During the period November 15, 2002 to January 21, 2003, we issued
3,200,000 shares in exchange for $166,953, respectively of unsecured notes
payable. The original amount of the note was $166,963 (See Notes 7 and 8).
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.
On March 20, 2003, we issued 4,400,000 shares of common stock in settlement
of $110,000 of amounts due to GCP (see Note 7).
On May 19, 2003, we issued 1,250,000 and 86,867 shares of the common stock
in exchange for the total principal Bridge Financing Notes of $500,000 and
the accrued interest payable on such notes of $34,745, respectively (see
Note 7).
On June 16, 2003, we completed a recapitalization of its common stock by
effecting a reverse split of its outstanding common stock on the basis of
one share for each 250 shares owned, with each resulting fractional share
being rounded up to the nearest whole share, and subsequently effecting a
forward split by dividend to all shareholders of record, pro rata, on the
basis of 250 shares for each one share owned. Immediately prior to the
recapitalization, we had 13,419,774 shares of common stock outstanding.
Following the recapitalization and the cancellation of 108,226 shares of
common stock beneficially owned by members of management, the Company had
13,419,774 shares of common stock outstanding.
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.
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.
On September 1, 2003, 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.
NOTE 10 Stock Option Plan
On December 2, 2002, at a special meeting of our shareholders, the 2002
Stock Plan was approved. The maximum aggregate number of shares that may
be optioned and sold under the plan is the total of (a) 3,000,000 shares,
(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. 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 nine-month transition period ended June 30, 2003.
2002 STOCK PLAN
------------------------
Weighted
Average
Number Exercise
of Shares Price
------------------------
Number of SharesWeighted Average Exercise Price
Outstanding at October 1, 2002 - $ -
Options Granted 2,447,000 $ 0.23
------------------------
Options Exercised - -
Options Canceled - -
Options Outstanding at June 30, 2003 2,447,000 $ 0.23
Options Exercisable at June 30, 2003 963,625 $ 0.22
In accordance with Statement of Financial Accounting Standards Number 123,
"Accounting for Stock-Based Compensation", option expense of $76,774 was
recognized for the nine-month transition period ended June 30, 2003.
June 30, 2003
-------------
Five-Year Risk Free Interest Rate 3.01%
Dividend Yield nil
Volatility nil
Average Expected Term (Years to Exercise) 4.4
Stock options outstanding and exercisable under 2002 Stock Plan as of June
30, 2003 are as follows:
Average
Weighted Remaining Number
Range of Number of Average Contractual Number Average
Exercise Options Exercise Life of Options Exercise
Price Granted Price (Years) Vested Price
----------- ------------ ----------- ----------- ----------- -----------
$0.05 600,000 $0.05 4.3 262,500 $0.05
$0.25 1,589,000 $0.25 4.3 624,813 $0.25
$0.50 258,000 $0.50 4.6 76,313 $0.50
NOTE 11 - Income Taxes
Income tax expense includes federal and state taxes currently payable and
deferred taxes arising from timing differences between income for financial
reporting and income tax purposes.
The Company has adopted Statement of Financial Accounting Standards Number
109 ("SFAS No. 109") "Accounting for Income Taxes." SFAS No. 109 requires
an asset and liability approach for financial accounting and reporting for
income tax purposes. This statement recognizes (a) the amount of taxes
payable or refundable for the current year and (b) deferred tax liabilities
and assets for future tax consequences of events that have been recognized
in the financial statements or tax returns.
Deferred income taxes result from temporary differences in the recognition
of accounting transactions for tax and financial reporting purposes.
There were no temporary differences at June 30, 2003 and earlier years;
accordingly, no deferred tax liabilities have been recognized for all
years.
The Company has cumulative net operating loss carryforwards of over
$11,100,000 at June 30, 2003 and $9,100,000 at September 30, 2002. No
effect has been shown in the financial statements for the net operating
loss carryforwards as the likelihood of future tax benefit from such net
operating loss carryforwards is not probable. Accordingly, the potential
tax benefits of the net operating loss carryforwards at June 30, 2003 and
September 30, 2002 have been offset by valuation reserves of the same
amount.
Deferred tax assets and the valuation account at June 30, 2003 and at
September 30, 2002 are as follows:
June September
Deferred Tax Asset 30, 2003 30, 2002
------------ ------------
Net Operating Loss Carryforwards $ 4,600,000 $ 3,800,000
Valuation Allowance (4,600,000) (3,800,000)
------------ ------------
Total $ - $ -
============ ============
NOTE 12 - Net Earnings (Loss) Per Share
Basic earnings (loss) per common share ("BEPS") are based on the weighted-
average number of common shares outstanding during each period. Diluted
earnings (loss) per common share ("DEPS") are based on shares outstanding
(computed under BEPS) plus dilutive potential common shares. Shares from
the exercise of the outstanding options were not included in the
computation of DEPS, because their inclusion would have been antidilutive
for the nine months ended June 30, 2003.
The following data shows the shares used in the computing loss per common
share including dilutive potential common stock at June 30, 2003:
Amount
-------------
Common shares outstanding including 2,500,000
convertible note shares issued to IRCA shareholders
at June 30, 2003. 17,456,641
=============
Weighted-average number of common shares including
2,500,000 convertible note shares issued to IRCA
shareholders used in basic EPS dilutive effect of
options. 10,864,218
=============
Weighted-average number of common shares and dilutive
potential common shares including 2,500,000 convertible
note shares issued to IRCA shareholders used in diluted
EPS. 10,864,218
=============
NOTE 13 - 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 equity funding through private placements to
raise sufficient funds to continue operations and fund its
ongoing development, merger and acquisition activities. In May
2003, we commenced a $5,000,000 private placement, 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
private placement, we have engaged various financial advisory
firms and other finders to identify prospective investors. We
completed the private offering on October 31, 2003.
(b) Continue conversion of certain outstanding loans and payables
into common stock in order to reduce future cash obligations;
(c) 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
(d) 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 14 - New Technical Pronouncements
In October 2002, Statement of Financial Accounting Standards Number 147
("SFAS 147"), "Acquisitions of Certain Financial Institutions an
amendment of FASB Statements No. 72 and 144 and FASB Interpretation No. 9"
was issued to be used in acquisitions of financial institutions after
October 1, 2002. It is anticipated that SFAS 147 will have no effect upon
the Company's financial statements.
In December 2002, Statement of Financial Accounting Standards Number 148
("SFAS 148"), "Accounting for Stock-Based Compensation Transition and
Disclosure an amendment of FASB Statement No. 123" was issued for fiscal
years beginning after December 15, 2003. It is anticipated that SFAS 148
will have no effect upon the Company's financial statements.
In April 2003, Statement of Financial Accounting Standards Number 149
("SFAS 149"), "Amendment of Statement 133 on Derivative Instruments and
Hedging Activities" was issued for fiscal quarters that began prior to June
15, 2003. Adoption of SFAS 149 will have no effect upon the Company's
financial statements.
In May 2003, Statement of Financial Accounting Standards Number 150 ("SFAS
150"), "Accounting for Certain Financial Instruments with Characteristics
of Both Liabilities and Equity" was issued for the first interim period
beginning after June 15, 2003. The Company anticipates that SFAS 150 may
impact the accounting for certain future acquisitions and the anticipated
distribution of stock for services.
NOTE 14 - Subsequent Events
On July 8, 2003, we issued a five-year warrant to Merriman, Curran, Ford &
Co. a financial service company, to purchase up to 20,000 shares of our
common stock for a period of five years at $0.50 per share in consideration
for financial advisory services provided to us by the firm.
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,
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 September 1, 2003, 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.
On September 1, 2003, 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 $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. 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 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.
On December 1, 2003, Trinity completed the acquisition of all the issued
and outstanding shares of Danlas, a British Virgin Islands Company that
owns 51% of IRCA, a South African company specializing in corporate
learning, certification and risk mitigation in the area of safety, health
environment and quality assurance ("SHEQ"). Danlas was incorporated in
2003. Danlas also holds options to acquire the remaining 49% of IRCA. In
consideration for the Danlas shares, Trinity (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
Trinity'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 Trinity's
common stock.
During the period June 1, 2003 to October 31, 2003, we sold by way of
private placement an aggregate of 5,143,300 units at a price of $1.00 per
unit, for aggregate consideration of $5,143,300. 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 $448,105 in commissions and issued to
various financial advisors, 567,160 additional shares of our common stock
and five-year warrants to purchase 207,050 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
thereunder.
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 (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
thereunder, 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 alleges, 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 alleges, however, that the restated financial
statements were not provided to us prior to the October 1, 2002 closing of
the merger. The First Amended Complaint seeks damages in an amount to be
proven at trial, but which amount presently is estimated to exceed, at a
minimum, the full amount of the consideration paid by us and CBL Global in
the merger, as well as treble damages, and attorneys' fees. The First
Amended Complaint also seeks a declaration that we (i) are entitled to
retain certain of our shares of common stock that were issued in connection
with the acquisition of CBL and placed in escrow, (ii) are entitled to set-
off amounts owed to Messrs. Scammell and Kennedy pursuant to the CBL
acquisition; and (iii) are entitled to seek the return of the shares of our
common stock that have already have been distributed to defendants Messrs.
Kennedy and Scammell in the merger. We intend to vigorously pursue our
claims against the defendants.
Trinity Learning Corporation
Unaudited Pro Forma Financial Statements
June 30, 2003
Trinity Learning Corporation
Unaudited Pro Forma Consolidating Balance Sheet
June 30, 2003
Adjustments
Trinity IRCA Debits Credits Total
----------- ----------- ----------- ----------- -----------
Assets
Current Assets
Cash $ 86,511 $ 221,885 c) 20,000 $ 288,396
Accounts Receivable 42,719 2,691,005 2,733,724
Prepaid Expense
University 97,944 - 97,944
Other Current Assets 41 28,216 28,257
----------- ----------- -----------
Total Current Assets 227,215 2,941,106 3,148,321
Property & Equipment
Furniture & Equipment 53,385 1,780,694 b) 886,351 947,728
Accumulated
Depreciation (7,824) (886,351) b) 886,351 (7,824)
----------- ----------- -----------
Net Property &
Equipment 45,561 894,343 939,904
Intangible Asset
Technology-Based Asset
Science University 1,118,312 2,295,102 c) 3,199,449 a)2,295,102 4,317,761
Accumulated
Amortization (167,747) (469,958) a) 469,958 (167,747)
----------- ----------- -----------
Net Intangible Asset 950,565 1,825,144 4,150,014
Other Assets
Notes Receivable 25,000 - 25,000
Other Assets 94,003 709,229 a) 501,481 301,751
----------- ----------- -----------
Other Assets 119,003 709,229 326,751
----------- ----------- -----------
Total Assets $ 1,342,344 $ 6,369,822 $ 8,564,990
=========== =========== ===========
Continued
Trinity Learning Corporation
Unaudited Pro Forma Consolidating Balance Sheet
June 30, 2003
Adjustments
Trinity IRCA Debits Credits Total
----------- ----------- ----------- ----------- -----------
Liabilities and Equity
----------------------
Current Liabilities
Accounts Payable 391,872 1,122,026 1,513,898
Accrued Expense
University 270,270 232,864 503,133
Interest Payable 63,987 - 63,987
Notes Payable - Current - 148,069 148,069
Notes Payable
Related Party 2,147,151 3,519,195 5,666,346
----------- ----------- -----------
Total Current
Liabilities 2,873,280 5,022,154 7,895,433
----------- ----------- -----------
Long Term Liabilities
Notes Payable
Related Party - 456,977 456,977
----------- ----------- -----------
Total Long Term
Liabilities - 456,977 456,977
----------- ----------- -----------
Total Liabilities 2,873,280 5,479,131 8,352,410
Minority Interest - 166,232 a) 286,751 493,516
c) 40,533
Stockholders' Equity
Common Stock 9,693,447 2,199,814 c) 2,199,814 9,693,447
Conditionally
Redeemable Stock c)1,250,000 1,250,000
Accumulated Deficit (11,188,913) (1,545,308) a) 2,747,205 c)4,292,513 (11,188,913)
Subscription
Receivable (35,000) - - - (35,000)
Other Comprehensive
Income (470) 69,954 * 69,954 (470)
----------- ----------- -----------
Total Stockholders'
Equity (1,530,936) 724,460 (280,936)
----------- ----------- -----------
Total Liabilities &
Stockholders' Equity $ 1,342,344 $ 6,369,823 $ 8,564,990
=========== =========== ===========
*Consists of a) $25,479 and c) $44,475
--Continued--
Trinity Learning Corporation
Unaudited Pro Forma Consolidating Financial Statements
June 30, 2003
To adjust IRCA financial statements to U.S. GAAP financial statements including
the write-off of goodwill, other intangible assets and deferred tax assets, and
the adjustment to associated accounts Minority Interest, and Other
Comprehensive Income.
Debits Credits
------------ ------------
Income Statement
----------------
Tax Credit $ 25,479
Accumulated Deficit 159,308
Depreciation & Amortization Intangible Assets $ 150,595
Minority Interest in Net Loss, Current Period 34,192
Balance Sheet
-------------
Accumulated Amortization Technology Based Asset $ 469,958
Accumulated Deficit Prior Period 2,747,205
Other Comprehensive Income 25,479
Technology Based Asset $ 2,295,102
Other Assets (Deferred Tax Asset) 501,481
Minority Interest 286,751
Accumulated Deficit Current Period 159,308
To record IRCA fixed assets at their fair value based on historical book value less
accrued depreciation.
Debits Credits
------------ ------------
Accumulated Depreciation $ 886,351
Furniture and Equipment $ 886,351
To record the issuance of 2,500,000 shares of Trinity Learning Common Stock, No Par
Value, at $0.50 per share for a total of $1,250,000, the cancellation of Danlas'
Equity with 51% ownership in IRCA obtained for $20,000 and the net investment as a
Technology Based - Intangible Asset.
Debits Credits
------------ ------------
Income Statement
----------------
Accumulated Deficit $ 40,533
Minority Interest in Net Loss, Current Period $ 40,533
Balance Sheet
-------------
Technology-Based Asset $ 3,199,449
Common Stock IRCA 2,199,814
Accumulated Deficit Current Period 159,308
Other Comprehensive Income IRCA 44,475
Cash $ 20,000
Minority Interest 40,533
Conditionally Redeemable Stock 1,250,000
Accumulated Deficit Prior Period 4,292,513
--Continued
Trinity Learning Corporation
Unaudited Pro Forma Consolidating Statement of Operations
Trinity IRCA
------------ ------------
October
1, 2002 Fiscal Year Dr(Cr)
to June Ended June Acq'n
30, 2003 30, 2003 Entries Total
------------ ------------ ------------ ------------
Revenue
Sales Revenue $ 167,790 $ 8,138,924 $ 8,306,714
Cost of Sales - (151,792) (151,792)
Gross Profit 167,790 7,987,132 8,154,922
------------ ------------ ------------
Expenses
Operating Expenses 2,157,840 7,886,444 a) (150,595) 9,893,689
------------ ------------ ------------
Total Expense 2,157,840 7,886,444 9,893,689
------------ ------------ ------------
Income (Loss) from Operations (1,990,050) 10,688 (1,738,767)
------------ ------------ ------------
Other Income (Expense)
Interest Expense, net (77,352) (334,003) (411,355)
Foreign Currency Gain/(Loss) (4,582) - (4,582)
------------ ------------ ------------
Total Other Income (Expense) (81,934) (334,003) (415,937)
Loss Before Taxes (2,071,984) (233,315) (2,154,704)
Tax Credit - 25,479 a) 25,479 -
------------ ------------ ------------
Net Loss Before
Minority Interest (2,071,984) (207,836) (2,154,704)
------------ ------------ ------------
Minority Interest a) (34,192)
Minority Interest - (47,188) c) (40,533) 27,537
------------ ------------ ------------
Net Loss $(2,071,984) $ (255,024) $(2,127,167)
============ ============ ============
A summary of the components of other comprehensive income for the
transition period from October 1, 2002 to June 30, 2003 is as follows:
Transition Period
October 1, 2002
to June 30, 2003
--------------------------
Before After
Tax Amount Tax Amount
------------ ------------
Net Income (Loss) $(2,100,128) $(2,100,128)
Foreign currency translation (470) (470)
------------ ------------
Total Other Comprehensive Income $(2,100,598) $(2,100,598)
============ ============
See accompanying notes to financial statements
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 hereunto duly authorized.
TRINITY LEARNING CORPORATION
Date: February 27, 2004 By: /s/ DOUGLAS D. COLE
--------------------------------
Douglas D. Cole
Chief Executive Officer