U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB/A
(Amendment No. 1)
Quarterly Report under Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 2003
Commission File No. 0-8924
Trinity Learning Corporation
(Exact name of small business issuer as specified in its charter)
Utah 73-0981865
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1831 Second Street, Berkeley, California 94710
(Address of principal executive offices)
(510) 540-9300
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by sections
13 or 15(d) of the Exchange Act during the past 12 months (or such shorter
period that the issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
As of November 14, 2003, 27,560,401 shares of the issuer's Common Stock, no par
value per share, were outstanding.
TRINITY LEARNING CORPORATION AND SUBSIDIARIES
Throughout this report, we refer to Trinity Learning Corporation, together with
its subsidiaries, as "we," "us," "our company," "Trinity" or "the Company."
THIS FORM 10-QSB/A FOR THE QUARTER ENDED SEPTEMBER 30, 2003, CONTAINS
FORWARD-LOOKING STATEMENTS, INCLUDING STATEMENTS ABOUT THE CONTINUED STRENGTH OF
OUR BUSINESS AND OPPORTUNITIES FOR FUTURE GROWTH. IN SOME CASES, YOU CAN
IDENTIFY FORWARD-LOOKING STATEMENTS BY TERMINOLOGY SUCH AS MAY, WILL, SHOULD,
EXPECT, PLAN, INTEND, ANTICIPATE, BELIEVE, ESTIMATE, PREDICT, POTENTIAL OR
CONTINUE, THE NEGATIVE OF SUCH TERMS OR OTHER COMPARABLE TERMINOLOGY. WE BELIEVE
THAT OUR EXPECTATIONS ARE REASONABLE AND ARE BASED ON REASONABLE ASSUMPTIONS.
HOWEVER, SUCH FORWARD-LOOKING STATEMENTS BY THEIR NATURE INVOLVE RISKS AND
UNCERTAINTIES.
WE CAUTION THAT A VARIETY OF FACTORS, INCLUDING BUT NOT LIMITED TO THE
FOLLOWING, COULD CAUSE OUR BUSINESS AND FINANCIAL RESULTS TO DIFFER MATERIALLY
FROM THOSE EXPRESSED OR IMPLIED IN FORWARD-LOOKING STATEMENTS: OUR ABILITY TO
SUCCESSFULLY INTEGRATE TOUCHVISION, INC. ("TOUCHVISION"), RIVER MURRAY TRAINING
PTY LTD ("RMT") AND OUR MAJORITY INTEREST IN AYRSHIRE TRADING LIMITED
("AYRSHIRE"); DETERIORATION IN CURRENT ECONOMIC CONDITIONS; OUR ABILITY TO
PURSUE BUSINESS STRATEGIES; PRICING PRESSURES; CHANGES IN THE REGULATORY
ENVIRONMENT; OUTCOMES OF PENDING AND FUTURE LITIGATION; OUR ABILITY TO ATTRACT
AND RETAIN QUALIFIED PROFESSIONALS; INDUSTRY COMPETITION; CHANGES IN
INTERNATIONAL TRADE; MONETARY AND FISCAL POLICIES; OUR ABILITY TO INTEGRATE
FUTURE ACQUISITIONS SUCCESSFULLY; AND OTHER FACTORS DISCUSSED MORE FULLY IN
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS AND RISK FACTORS BELOW, AS WELL AS IN OTHER REPORTS SUBSEQUENTLY
FILED FROM TIME TO TIME WITH THE SECURITIES AND EXCHANGE COMMISSION. WE ASSUME
NO OBLIGATION TO UPDATE ANY FORWARD-LOOKING STATEMENTS.
The Company is filing this Form 10-QSB/A as a result of its determination, as
disclosed in its Form 8K filed October 18, 2004, to use the equity method of
accounting with respect to the Company's 51% interest in Ayrshire Trading
Limited ("Ayrshire") that owns 95% of Riverbend Group Holdings (Proprietary)
Limited ("Riverbend"), acquired in September 2003, rather than consolidating the
financial results of this entity with those of the Company, as was reflected in
the Company's original report on Form 10-QSB. As a result of this change, gross
profit as originally reported of $368,695 for the three months ended September
30, 2003 was reduced by $147,199 and operating expense of $1,303,827 for the
same period was reduced by $200,891. The Company has also changed the
calculation for stock-based compensation to include a volatility factor of 70%
where previously we had used a zero volatility factor in the Black-Scholes
valuation model. This resulted in additional salary expense of $39,780.
This Amendment continues to reflect circumstances of the date of the original
filing of the Form 10-QSB, and we have not made any attempt to modify or update
the disclosures contained therein to reflect events that occurred at a later
date, except for the items related to the restatement and as otherwise expressly
stated herein.
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets September 30, 2003 (Unaudited) and
June 30, 2003
Consolidated Statements of Operations and Comprehensive Income
Three months ended September 30, 2003 and 2003 (Unaudited)
Consolidated Statements of Cash Flows
Three months ended September 30, 2003 and 2002 (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Controls and Procedures
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
PART I
FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Trinity Learning Corporation and Subsidiaries
Consolidated Balance Sheet
September 30, 2003
(Unaudited & Restated) June 30, 2003
---------------------- -------------
Assets
Current Assets
Cash $ 927,034 $ 86,511
Accounts Receivable 298,975 42,719
Interest Receivable - 41
Prepaid Expense and Other Current Assets 211,837 97,944
------------ ------------
Total Current Assets 1,437,846 227,215
------------ ------------
Investments in Associated Company, at Equity, Net (Notes 2 and 5) 1,179,993 -
------------ ------------
Property & Equipment (Note 3)
Furniture & Equipment 100,432 53,385
Accumulated Depreciation (12,788) (7,824)
------------ ------------
Net Property & Equipment 87,644 45,561
------------ ------------
Intangible Assets (Notes 2 and 4)
Purchased Intangible Assets 2,849,690 1,118,312
Accumulated Amortization (251,723) (167,747)
------------ ------------
Net Intangible Asset 2,597,967 950,565
------------ ------------
Note Receivable (Note 8) 300,000 25,000
Other Assets 84,575 94,003
------------ ------------
Total Assets $ 5,688,025 $ 1,342,344
============ ============
Liabilities, Contingently Redeemable Equity and Stockholders' Equity
Liabilities
Accounts Payable $ 585,968 $ 391,872
Accrued Expenses 544,313 270,270
Interest Payable 85,577 63,987
Deferred Revenue (Note 1) 127,016 -
Notes Payable-Related Parties (Notes 9 and 10) 1,661,362 2,147,151
------------ ------------
Current Liabilities 3,004,236 2,873,280
Notes Payable-Long Term (Note 10) 433,220 -
------------ ------------
Total Liabilities 3,437,456 2,873,280
------------ ------------
Contingently Redeemable Equity (Notes 1 and 2) 1,000,000 -
------------ ------------
Stockholders' Equity
Common Stock, 100,000,000 Shares Authorized at No Par Value,
22,915,641 and 14,956,641 shares Issued and Outstanding,
Respectively 13,423,823 9,693,447
Accumulated Deficit (12,134,823) (11,188,913)
Subscription Receivable (35,000) (35,000)
Accumulated Other Comprehensive Loss (3,431) (470)
------------ ------------
Total Stockholders' Equity 1,250,569 (1,530,936)
------------ ------------
Total Liabilities, Contingently Redeemable Equity and Stockholders' Equity $ 5,688,025 $ 1,342,344
============ ============
The accompanying notes are an integral part of these financial statements.
Trinity Learning Corporation and Subsidiaries
Consolidated Statement of Operations and Comprehensive Loss
Three Months Ended
September 30
(Unaudited)
2003 (Restated) 2002
----------------------------------
Revenue
Sales Revenue $ 253,993 $ -
Cost of Sales (32,497) -
------------ ------------
Gross Profit 221,496 -
------------ ------------
Expenses
Salaries & Benefits 567,719 38,000
Professional Fees 216,565 323,741
Selling, General & Administrative 269,594 36,130
Depreciation & Amortization 88,838 80
------------ ------------
Total Expense 1,142,716 397,951
------------ ------------
Loss from Operations (921,220) (397,951)
------------ ------------
Other Expense
Interest Expense, net 23,288 6,770
Equity in Losses of Associated Companies 995 -
Foreign Currency Loss 407 -
------------ ------------
Total Other Expense 24,690 6,770
------------ ------------
Loss Before Taxes (945,910) (404,721)
Taxes - -
------------ ------------
Net Loss $ (945,910) $ (404,721)
============ ============
Net Loss Per Common Share
Basic $ (0.06) $ (8.13)
============ ============
Diluted $ (0.06) $ (8.13)
============ ============
Weighted Average Shares Outstanding 15,652,516 49,774
============ ============
A summary of the components of other comprehensive loss for the first quarter
ended September 30, 2003 and 2002 is as follows:
For the Three Months Ended
September 30
(Unaudited)
2003 (Restated) 2002
----------------------------------
Net Loss $ (945,910) $ (404,721)
Foreign currency translation (2,961) -
------------ ------------
Comprehensive Loss $ (948,871) $ (404,721)
============ ============
The accompanying notes are an integral part of these financial statements
Trinity Learning Corporation and Subsidiaries
Consolidated Statement of Cash Flows
Three Months Ended
September 30
(Unaudited)
2003 (Restated) 2002
----------------------------------
Cash flows from operating activities:
Net loss $ (945,910) $ (404,721)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 88,838 80
Stock option compensation 98,514 -
Equity in losses of associated company 995 -
Changes in current assets and liabilities, net of business acquired:
Accounts receivable, net (14,434) -
Prepaid expenses and other current assets (34,238) (2,199)
Accounts payable, accrued expenses and deferred revenue 56,912 178,751
Interest payable 21,590 7,468
----------- -----------
Net cash used by operating activities (727,733) (220,621)
----------- -----------
Cash flows from investing activities:
Payment for business acquisitions, net of cash acquired (225,369) -
Notes receivable, net (274,959) -
Capital expenditures (10,635) (6,151)
----------- -----------
Net cash used by investing activities (510,963) (6,151)
----------- -----------
Cash flows from financing activities:
Proceeds (Repayments) on related party note payable (500,000) 3,928
Borrowing under short term notes - 590,000
Financing fees paid (428,242) -
Proceeds from sale of common stock, net 3,004,500 -
----------- -----------
Net cash provided by financing activities 2,076,258 593,928
Effect of foreign exchange rates on cash 2,961 -
----------- -----------
Net increase in cash 840,523 367,156
Cash at beginning of period 86,511 1,632
----------- -----------
Cash at end of period $ 927,034 $ 368,788
=========== ===========
Supplemental information:
Interest paid $ 2,716 $ -
=========== ===========
Issuance of common stock for business acquisitions $ 975,000 $ -
=========== ===========
Issuance of contingently redeemable equity $ 1,000,000 $ -
=========== ===========
The accompanying notes are an integral part of these financial statements
Trinity Learning Corporation and Subsidiaries
Notes to the Financial Statements
September 30, 2003
NOTE 1. ACCOUNTING POLICIES
Overview
We commenced a strategy in 2002 to acquire operating companies in strategic
markets that have developed proprietary technology-enabled learning, training
and certification services targeted at major customers in worldwide industries.
Our mission is to become a leading global learning solution corporation through
acquisition, business development and strategic relationships. The accompanying
unaudited interim consolidated financial statements and related notes have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and with the
instructions to Form 10-QSB and Rule 10-01 of Regulation S-B. Accordingly, they
do not include all the information and footnotes required by accounting
principles generally accepted in the United States of America. These financial
statements include the accounts of Trinity Learning Corporation and its
consolidated subsidiaries. All significant intercompany transactions and
accounts have been eliminated in consolidation.
These unaudited interim consolidated financial statements should be read in
conjunction with the audited financial statements and related notes thereto
included in the Company's Transition Report on Form 10-KSB for the transition
period from October 1, 2002 to June 30, 2003. On August 6, 2003, our board of
directors approved a change in our fiscal year-end from September 30 to June 30
to align with those of the companies we had already acquired or were at that
time in the process of acquiring. The results of operations for the three months
ended September 30, 2003, are not necessarily indicative of the operating
results for the full year and future operating results may not be comparable to
historical operating results due to our October 1, 2002 acquisition of CBL
Global Corporation and related companies ("CBL"), and our September 1, 2003
acquisitions of all of the issued and outstanding shares of TouchVision, Inc.
("TouchVision") and of River Murray Training Pty Ltd ("RMT"); and 51% of the
issued and outstanding shares of Ayrshire Trading Limited ("Ayrshire"). Ayrshire
owns 95% of the issued and outstanding shares of Riverbend Group Holdings (Pty.)
Ltd. ("Riverbend"). These companies are collectively referred to as Riverbend.
In the opinion of management, the accompanying unaudited interim consolidated
financial statements reflect all normal recurring adjustments that are necessary
for a fair presentation of the financial position, results of operations and
cash flows for the interim periods presented.
Change in Accounting for Ayrshire / Riverbend
As disclosed in our Form 8K dated October 18, 2004, we announced that in
the process of preparing and completing its audit for the fiscal year ended June
30, 2004, we reviewed our earlier determination to consolidate the financial
statements of our 51% ownership of Ayrshire which owns 95% of Riverbend. This
consolidation was reflected in the Company's interim financial statements
included in its previously-filed quarterly reports for fiscal 2004. After this
review and following discussions by the Company's officers with its predecessor
auditor Chisholm, Bierwolf, Nilson & Associates and its current auditor BDO
Spencer Steward, the Company's Board of Directors concluded on October 12, 2004
that these investments should have been accounted for using the equity method of
accounting with respect to the Company's interest in IRCA and Riverbend, rather
than consolidating the financial results of these entities with those of the
Company.
The equity method of accounting requires an investor to incorporate its pro
rata share of the investee's earnings into its earnings. However, rather than
include each component, e.g. sales, cost of sales, operating expenses, the
investor only includes its share of the investee's net income or loss as a
separate line item in its net income. The net income impact is identical whether
the equity method of accounting is used or full consolidation is employed. Under
the equity method of accounting, the balance sheet of the investee is not
consolidated with the balance sheet of the investor. Rather, the fair value of
the consideration paid is recorded as an asset, "Investment in
Associated Company." The equity method of accounting is used for investments in
which the investor has significant influence over the operations of the investee
but lacks operating control.
Principles of Consolidation and Basis of Presentation
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. Our
consolidated financial statements include the accounts of the company and our
wholly-owned subsidiaries. All significant intercompany transactions are
eliminated in consolidation.
Our 51% ownership in Ayrshire has been accounted for in the financial statements
included with this report using the equity method of accounting. The equity
method of accounting requires an investor to incorporate its pro rata share of
the investee's earnings into its earnings. However, rather than include each
component, e.g. sales, cost of sales, operating expenses, the investor only
includes its share of the investee's net income or loss as a separate line item
in its income. The net income impact is identical whether the equity method of
accounting is used or full consolidation is employed. Under the equity method of
accounting, the balance sheet of the investee is not consolidated with the
balance sheet of the investor. Rather, the fair value of the consideration paid
is recorded as an asset, "Investment in Associated Company." The equity method
of accounting is used for investments in which the investor has significant
influence over the operations of the investee but lacks operating control. (See
Notes 2 and 5).
Use of Estimates
The preparation of the Company's unaudited interim consolidated financial
statements in conformity with accounting principles generally accepted in the
United States of America necessarily requires it to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the balance sheet dates and
the reported amounts of revenues and costs during the reporting periods. Actual
results could differ from those estimates. On an ongoing basis, the Company
reviews its estimates based on information that is currently available. Changes
in facts and circumstances may cause the Company to revise its estimates.
Significant estimates include:
Purchase Accounting. The Company accounts for its investments in its
subsidiaries using the purchase method of accounting. Intangible assets are
recognized apart from goodwill if they are contractual in nature or separately
identifiable. Acquisitions are measured on the fair value of consideration
exchanged and, if the consideration given is not cash, measurement is based on
the fair value of the consideration given or the fair value of the assets
acquired whichever is more reliably measured. The excess of cost of an acquired
entity over the net amounts assigned to acquire assets and liabilities assumed
shall be recognized as goodwill. The valuation and allocation process relies on
significant assumptions made by management. In particular, the value of the
shares issued to effect the purchase.
Identifiable Intangible Assets. The Company amortizes identifiable intangible
assets over their useful life unless that life is determined to be indefinite.
The remaining useful life of an intangible asset that is being amortized is
evaluated each reporting period as to whether events and circumstances warrant a
revision to the remaining period of amortization. Goodwill is not amortized and
is tested for impairment on an annual basis. The implied fair value of goodwill
is determined by allocating fair value to all assets and liabilities acquired;
the excess of the price paid over the amounts assigned to assets and liabilities
acquired is the implied fair value of goodwill.
Revenue Recognition
We earn our revenues primarily from service-related contracts, including
operations and maintenance services and a variety of technical assistance
services, and are accounted for over the period of performance, in proportion to
the costs of performance, evenly over the period, or over units of production.
Four basic criteria must be met before revenue can be recognized: (1) persuasive
evidence of an arrangement exists; (2) delivery has occurred or services
rendered; (3) the fee is fixed and determinable; and (4) collectibility is
reasonably assured. The Company determines whether criteria (3) and (4) are met
based on judgments regarding the nature of the fee charged for services rendered
and products delivered and the collectibility of those fees.
Deferred Revenue
We record deferred revenue which are amounts that have been billed in advance of
services provided. Deferred revenue includes amounts which have been billed and
not collected for which revenue is being recognized ratably over the contract
period. We acquired approximately $60,000 of deferred revenue in connection with
the acquisition of TouchVision, Inc. As of September 30, 2003, and June 30,
2003, deferred revenue was $127,016 and $0, respectively. The Company
anticipates that substantially all such amounts will be earned over the next
twelve months.
Allowance for Uncollectible Accounts Receivable
Our accounts receivable are reduced by an allowance for accounts that may become
uncollectible in the future. We base our estimated allowance for uncollectible
accounts primarily on management's evaluation of the financial condition of our
clients. Management regularly evaluates the adequacy of the allowance for
uncollectible accounts by taking into consideration factors such as the type of
client; governmental agencies or private sector; trends in actual and forecasted
credit quality of the client, including delinquency and late payment history;
and current economic conditions that may affect a client's ability to pay.
Concentrations of Credit Risk
Financial instruments, which potentially subject us to concentrations of credit
risk, consist principally of trade receivables. Concentrations of credit risk
with respect to trade receivables are limited due to the large number of clients
that comprise our customer base and their dispersion across different business
and geographic areas. Our cash balances and short-term investments are
maintained in accounts held by major banks and financial institutions located
primarily in the United States and Australia. We estimate and maintain an
allowance for potentially uncollectible accounts and such estimates have
historically been within management's expectations.
Cash and Cash Equivalents
We consider all highly liquid instruments with original maturities of three
months or less to be cash equivalents.
Property and Equipment
Property and equipment are stated at cost. In the year assets are retired or
otherwise disposed of, the costs and related accumulated depreciation are
removed from the accounts, and any gain or loss on disposal is reflected in
income. Depreciation is provided on the straight-line method using estimated
lives ranging from three to five years for property and equipment. Leasehold
improvements are amortized over the length of the lease or estimated useful
life, whichever is less. Property and equipment is periodically reviewed for
impairment. When such impairment is identified, it is recorded as a loss in that
period.
Notes Receivable
Notes receivable includes advances made to our subsidiaries in advance of the
acquisition of that subsidiary. When the acquisition is finalized and should
that subsidiary be consolidated, the note receivable is reclassified to
intercompany notes receivable and eliminated in consolidation. Notes receivable
also includes advances made to an associated company accounted for using the
equity method of accounting. Notes receivable from associated companies are
evaluated quarterly for collectibility and amounts deemed uncollectible are
written off in the period they are deemed uncollectible.
Contingently Redeemable Equity
Contingently redeemable equity are shares of our common stock issuable upon the
conversion of notes payable upon the satisfaction of certain conditions pursuant
to a contingent stock arrangement. The contingent stock arrangement is dependent
on the satisfaction of certain conditions by us, most notably the listing of our
common stock an a major stock exchange in the United States of America, for whom
there are financial requirements for listing. The value of the contingently
redeemable equity is based on the number of shares to be issued at $0.50 per
share.
Software Development Costs
Software development costs are charged to expense as incurred until
technological feasibility is attained. Technological feasibility is attained
when the Company's software has completed system testing and has been determined
viable for its intended use. The time between the attainment of technological
feasibility and completion of software development has been short with
immaterial amounts of development costs incurred during this period.
Accordingly, software costs have not been capitalized other than product
development costs acquired through technology business combinations and
technology purchases.
Earnings per Share
Basic earnings (loss) per common share is computed by dividing net income (loss)
available for common stockholders by the weighted average number of common
shares outstanding for the period. Diluted earnings (loss) per common share
("DEPS") is computed giving effect to all dilutive potential shares of shares
issued but held in escrow, common stock issuable upon the conversion of notes
payable or the exercise of stock options and warrants or the conversion of notes
and interest payable. DEPS is computed by dividing net income (loss) available
for common stockholders by the weighted-average common shares and dilutive
potential common shares that were outstanding during the period. Shares from the
release of escrow shares, conversion of notes payable or the exercise of options
and warrants for common shares were not included in the computation of DEPS
because their inclusion would have been antidilutive for the three months ended
September 30, 2003 and 2002.
If the company were to include all potential shares in the calculation, the
following items would be included:
o Stock options to purchase 3,182,000 shares of common stock at prices
ranging from $0.05 to $0.50 per share were outstanding at September
30, 2003; no options were outstanding at September 30, 2002.
o Warrants to purchase 5,677,000 shares of common stock at prices
ranging from $0.50 to $2.00 per share were outstanding at September
30, 2003; no warrants were outstanding at September 30, 2002.
o At September 30, 2003 and 2002, we held 1,372,500 and 1,000,000 shares
in escrow respectively.
o At September 30, 2003 we had the following convertible notes
outstanding: (i) a convertible non-interest-bearing promissory note in
the amount of $20,000, convertible into 2,000,000 shares of our common
stock and (ii) a $425,000 convertible promissory note convertible into
and indeterminable number of shares of our common stock.
o At September 30, 2002, we had the following convertible notes
outstanding (i) a convertible promissory note in the principal amount
of $166,963 was convertible, under certain conditions, into 3,200,000
shares of common stock and (ii) a convertible promissory note
convertible into an indeterminable number of shares of our common
stock.
Three Months Ended
September 30,
2003 2002
------------ ------------
Numerator-Basic / Diluted
Net (loss) available for common stockholders $ (945,910) $ (404,821)
============ ============
Denominator-Basic/ Diluted
Weighted-average common stock outstanding 15,652,516 49,774
============ ============
Basic loss per share $ (0.06) $ (8.13)
============ ============
Stock-Based Compensation
In January 2003, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 148 ("SFAS 148"), "Accounting for
Stock-Based Compensation - Transition and Disclosure." SFAS 148 amends FASB
Statement 123 ("SFAS 123"), "Accounting for Stock-Based Compensation," to
provide alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. In
addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require
prominent disclosure in both annual and interim financial statements of the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. SFAS 148 is effective for fiscal
years, including interim periods beginning after December 15, 2002. SFAS 148
also requires disclosure of pro-forma results on the interim basis as if the
Company had applied the fair value recognition provisions of SFAS 123. The
Company adopted the fair value based method of accounting for stock-based
employee compensation during the transition period from October 1, 2002 to June
30, 2003 and there was not a material impact to the financial results of the
Company (see Note 12-Stock Option Plan).
Goodwill and Other Intangibles Resulting from Business Acquisitions
The Company adopted Statement of Financial Accounting Standard No. 142 ("SFAS
142"), "Goodwill and other Intangible Assets," at the beginning of fiscal 2003.
As required, the Company identified its reporting units and the amounts of other
intangible assets, and other assets and liabilities allocated to those reporting
units. This Statement addresses the accounting and reporting of goodwill and
other intangible assets subsequent to their acquisition. SFAS No.142 provides
that (i) goodwill and indefinite-lived intangible assets will no longer be
amortized, (ii) impairment will be measured using various valuation techniques
based on discounted cash flows, (iii) goodwill will be tested for impairment at
least annually at the reporting unit level, (iv) intangible assets deemed to
have an indefinite life will be tested for impairment at least annually, and (v)
intangible assets with finite lives will be amortized over their useful lives.
The Company does not have any intangible assets with indefinite lives. See Note
2 "Acquisitions and Divestitures" for more information.
Recently Issued Accounting Standards
In June 2002, the FASB issued Statement of Financial Accounting Standard No. 146
("SFAS 146"), "Accounting for Costs Associated with Exit or Disposal
Activities." SFAS 146 replaces Emerging Issues Task Force ("EITF") Issue No.
94-3, "Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring)"
in its entirety and addresses significant issues relating to recognition,
measurement and reporting costs associated with an exit or disposal activity,
including restructuring activities. Under EITF Issue No. 94-3, a liability is
recognized, measured and reported as of the date of an entity's commitment to an
exit plan. Pursuant to SFAS 146, a liability is recorded on the date on which
the obligation is incurred and should be initially measured at fair value. SFAS
146 is effective for exit or disposal activities initiated after December 31,
2002. The Company adopted SFAS 146 on July 1, 2003 and adoption of SFAS 146 did
not significantly impact the Company's financial statements.
EITF Consensus Issue No.00-21 ("EITF 00-21"), "Revenue Arrangements with
Multiple Deliverables" was first discussed at the July 2000 EITF meeting and was
issued in February 2002. Certain revisions to the scope of the language were
made and finalized in May 2003. EITF 00-21 addresses the accounting for multiple
element revenue arrangements, which involve more than one deliverable or unit of
accounting in circumstances, where the delivery of those units takes place in
different accounting periods. EITF 00-21 requires disclosures of the accounting
policy for revenue recognition of multiple element revenue arrangements and the
nature and description of such arrangements. The accounting and reporting
requirements are effective for revenue arrangements entered into in fiscal
periods beginning after June 15, 2003. The Company has completed its initial
evaluation and adoption of EITF 00-21 does not have a significant impact on the
Company's financial statements. The Company continues its evaluation to
determine whether the reporting requirements of EITF 00-21 will impact the
Company's financial statements in the future.
In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150
("SFAS 150"), "Accounting for Certain Instruments with Characteristics of Both
Liabilities and Equity." SFAS 150 establishes standards for how an issuer
classifies and measures certain financial instruments with characteristics of
both liabilities and equity. It requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset in some
circumstances). SFAS 150 is effective for financial instruments entered into or
modified after May 31, 2003, and otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003. As permitted, the Company
will adopt SFAS 150 on October 1, 2003 and does not anticipate a significant
impact on the Company's financial statements.
Reclassifications
Certain reclassifications have been made to the 2002 financial statements and
notes to conform to the 2003 presentation with no effect on consolidated net
loss, equity or cash flows as previously reported.
NOTE 2 - Acquisitions
We commenced a strategy in 2002 to acquire operating companies in strategic
markets that have developed proprietary technology-enabled learning, training
and certification services targeted at major customers in worldwide industries.
Our mission is to become a leading global learning solution corporation through
acquisition, business development and strategic relationships.
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. The determination of
purchase price was based on, among other things, annual revenue for the two
preceding years relative to comparable market based values for publicly traded
companies. We also agreed to loan to TouchVision the sum of $20,000 per month
for the twelve-month period following closing, to be used for working capital.
We had previously loaned TouchVision the sum of $50,000 in June and July, 2003
by way of bridge financing pending completion of the acquisition. Subsequent to
the acquisition, loans to TouchVision have been classified with intercompany
loans and eliminated in consolidation. The results of operations for TouchVision
have been consolidated in the Company's financial statements since the date of
acquisition.
On September 1, 2003, we completed the acquisition of all of the issued and
outstanding shares of RMT, an Australian company that is in the business of
providing workplace training programs for various segments of the food
production industry, including viticulture and horticulture. In consideration
for the shares of RMT we issued 700,000 restricted shares of our common stock,
of which 350,000 shares are subject to the terms of an escrow agreement as
collateral for the indemnification obligations of the former RMT shareholders.
The determination of purchase price was based on, among other things, annual
revenue for the two preceding years relative to comparable market based values
for publicly traded companies. We also loaned US$49,000 to RMT for the purpose
of repaying outstanding loans advanced to RMT by its former shareholders. The
loan has been classified as an intercompany loan and eliminated in
consolidation. The results of operations for RMT have been consolidated in the
Company's financial statements since the date of acquisition.
On September 1, 2003, we completed the acquisition of 51% of the issued and
outstanding shares of Ayrshire that owns 95% of Riverbend, a South African
company that provides learning services to corporations and individuals in South
Africa. 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 determination of purchase price was based on, among other
things, annual revenue for the two preceding years relative to comparable market
based values for publicly traded companies. The Ayrshire shares are subject to
escrow and pledge agreements and 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. The
promissory note has been accounted for as contingently redeemable equity at a
value equal to 2,000,000 shares at $0.50 per share.
As part of the Ayrshire transaction, we also acquired the option to purchase the
remaining 49% of Ayrshire, subject to certain limitations. The option is
exercisable for a period of ten years from the day upon which the average
closing price per share of the Company's common stock for a period of ten days
equals or exceeds $2.00. The purchase consideration for the remaining 49% is
1,500,000 shares of our common stock.
As further consideration for the Ayrshire shares, we agreed to make a
non-interest-bearing loan of $1,000,000 to Ayrshire, $300,000 of which was
advanced at closing of the acquisition and $700,000 was advanced on November 3,
2003. The loan to Ayrshire has been recorded accounted for as a note receivable
(See Note 8).
Emerging Issues Task Force Issue 96-16, "Investor's Accounting for an Investee
When the Investor Has a Majority Voting Interest but the Minority Shareholders
Have Certain Approval or Voting or Veto Rights" (EITF 96-16) provides guidance
as to the distinction between protective rights of the minority shareholder
which do not overcome the presumption of consolidation and substantive
participating rights of the minority shareholder. Substantive participating
rights that allow the minority shareholder to participate in establishing
operating and capital decisions in the ordinary course of business, overcome the
presumption that the investor should consolidate the investee. In the case of
the Riverbend transaction, Section 20.2.11.3 of the Definitive Agreement ("the
Agreement") between Trinity, the majority owner in Ayrshire, and Great Owl
Limited ("Great Owl"), the minority owner in Ayrshire, prevents Ayrshire and its
subsidiaries from approving, canceling or effecting "material changes to the
annual budget or any modification thereof" or "incur unbudgeted capital
expenditure of US$150,000 per item or US$500,000 per annum." Also, pursuant to
Section 18.3 of the Agreement, Trinity and Great Owl are "each entitled to
appoint an equal number of directors to the board of directors" of Ayrshire.
These substantive participating rights of the minority shareholder preclude
consolidation of this investment and will remain in effect until Trinity owns
100% of Ayrshire.
Purchased Intangible Assets
Of the total purchase price paid for the TouchVision acquisition, approximately
$1,340,749 has been allocated to purchased intangible assets and are being
amortized on a straight line basis over a useful life of five years until an
independent valuation is performed and identifiable intangible assets can be
recognized apart from goodwill and their useful lives established.
Of the total purchase price paid for the RMT acquisition, approximately $390,630
has been allocated to purchased intangible assets and are being amortized on a
straight line basis over a useful life of five years until an independent
valuation is performed and identifiable intangible assets can be recognized
apart from goodwill and their useful lives established.
Investments in Associated Companies, at Equity
The consideration paid for our investment in Ayrshire is $1,180, 988. This
amount comprises legal and financial advisory fees of $180,988 plus 2,000,000
shares of our common stock valued at $0.50 per share. The net asset value of
Ayrshire at acquisition date was $1,806,886 and our pro rata share of their net
assets was $875,436. Investments in Associated Companies, at Equity are
periodically reviewed for impairment. When such impairment is identified, it is
recorded as a loss in that period. As of September 30, 2003, no such impairment
was incurred.
Pro Forma Results
The operating results of CBL, TouchVision, and RMT have been included from the
date of acquisition forward. TouchVision and RMT's results of operations for the
months of July and August 2003 were not included in the Company's consolidated
statements of operations.
The following unaudited pro forma financial information presents the combined
results of operations of the Company and CBL, TouchVision and RMT as if these
acquisitions had occurred at July 1, 2002. The unaudited pro forma financial
information is not intended to represent or be indicative of the consolidated
results of the operations of the Company that would have been reported had these
acquisitions been completed as of the dates presented, nor should it be taken as
a representation of the future consolidated results of operations of the
Company.
Three Months Ended
September 30
2003 2002
----------- -----------
Revenue $ 834,075 $ 792,498
=========== ===========
Gross Profit $ 502,165 $ 625,910
=========== ===========
Operating Loss $ (958,578) $ (442,029)
=========== ===========
Net Loss $ (994,257) $ (451,199)
=========== ===========
Net Loss Per Common Share $ (0.06) $ (0.03)
=========== ===========
Finalization of Purchase Price
Certain information necessary to complete the purchase accounting and our
valuation of our equity method investee is not yet available, including the
completion of independent valuations of the intangible assets for each of the
three acquisitions. Purchase accounting will be finalized upon receipt of these
independent valuations.
Anticipated Acquisition
On September 18, 2003 we announced that we had entered into a definitive
agreement to acquire majority ownership of IRCA (Pty.) Ltd. ("IRCA"), an
international firm specializing in corporate learning, certification, and risk
mitigation in the areas of safety, health environment, and quality assurance
("SHEQ"). We anticipate closing this transaction within the next 60 days. IRCA
is headquartered in South Africa and also operates international sales offices
and operations in the United Kingdom and Australia. We will acquire a majority
interest in IRCA through a combination of stock and cash payments. The
definitive agreement contains certain closing conditions and certain future
provisions that will enable Trinity to acquire full ownership of IRCA and its
various operating subsidiaries.
NOTE 3 - Property and Equipment
The Company capitalizes furniture and equipment purchases in excess of $5,000 or
at lower amounts based on local jurisdiction. Capitalized amounts are
depreciated over the useful life of the assets using the straight-line method of
depreciation. Scheduled below are the assets, cost, and accumulated depreciation
at September 30, 2003 and June 30, 2003, respectively and depreciation expense
for the three months ended September 30, 2003 and 2002, respectively.
Asset Cost Depreciation Expense Accumulated Depreciation
09/30/2003 06/30/03 09/30/2003 09/30/2002 09/30/2003 06/30/2003
---------- ---------- ---------- ---------- ---------- ----------
Furniture & Equipment $ 100,432 $ 53,385 $ 4,862 $ 80 $ 12,788 $ 7,824
========== ========== ========== ========== ========== ==========
NOTE 4 - Intangible Assets
The Company capitalized intangible assets in its acquisitions of CBL,
TouchVision, and RMT ("acquisitions"). The amounts capitalized were equal to the
difference between the consideration paid for acquisitions including any
liabilities assumed and the value of the other assets acquired. The intangible
assets are being amortized over a five-year period using the straight-line
method. The values assigned to the intangible assets are considered appropriate
- until the Company receives independent valuations - based on average annual
revenues earned from licensing of these assets over the two year period ended
September 30, 2003 and the expectation that future revenues for the five year
period subsequent to the acquisition will equal or exceed this amount. Scheduled
below is the asset cost and accumulated amortization at September 30, 2003 and
June 30, 2003, respectively, and amortization expense for the three months ended
September 30, 2003 and 2002, respectively:
Asset Cost Amortization Expense Accumulated Amortization
09/30/2003 06/30/2003 09/30/2003 09/30/2002 09/30/2003 06/30/2003
---------- ---------- ---------- ---------- ---------- ----------
Intangible Asset $2,849,690 $1,118,312 $ 83,976 $ - $ 251,723 $ 167,747
========== ========== ========== ========== ========== ==========
NOTE 5 - Investments in Associated Companies, at Equity
At September 30, 2003, the principal components of Investments in Associated
Companies, at Equity was our 51% ownership in Ayrshire which owns 95% of
Riverbend:
Ayrshire
-----------
Equity investment $ 1,180,988
Equity in loss of unconsolidated subsidiary (995)
-----------
Balance September 30, 2003 $ 1,179,993
===========
Financial position of Ayrshire for the one month period ended September 30,
2003.
Ayrshire
-----------
Income statement information:
Revenue $ 362,794
===========
Operating loss $ (48,128)
===========
Loss before minority interest $ (26,371)
===========
Net loss after gain attributable to minority interest $ (995)
===========
Financial position information:
Current assets $ 1,634,389
===========
Noncurrent assets $ 166,821
===========
Current liabilities $ 612,333
===========
Long-term liabilities $ 639,876
===========
Investments in Associated Companies, at Equity are periodically reviewed for
impairment. When such impairment is identified, it is recorded as a loss in that
period
NOTE 6 - Commitments
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 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 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.
TouchVision leases office space pursuant to a lease agreement for its operations
located in California. The lease term will expire on February 28, 2005.
TouchVision will pay a minimum of $5,600 per month. TouchVision also leases
office equipment pursuant to lease arrangements which will expire by September
30, 2005 and which total $1,258 per month.
On May 1, 2002, RMT signed a lease agreement to lease commercial space for its
corporate offices in South Australia. RMT pays $7,333 per annum or monthly
payments of $611. The term of the lease expires on April 30, 2005. On July 28,
2000, RMT signed a lease agreement for office equipment. The term of the lease
is for five years. The monthly payment is $339. The lease agreement expires on
June 28, 2005.
Total Minimum Lease Commitments as of September 30, 2003:
Calendar Year Amount
------------- ----------
2003 $ 58,474
2004 161,123
2005 58,416
2006 30,069
Thereafter 2,516
----------
Total $ 310,498
==========
NOTE 7 - Legal Proceedings
On September 12, 2003, we filed a Complaint in the United States District Court
for the District of Utah, Central Division, against CBL Global Corporation
(f/k/a CBL Acquisition Corporation), and Robert Stephen Scammell, the sole
shareholder of Competency Based Learning, Inc. ("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 Competency Based Learning Pty. Ltd.
("CBL-Australia"). The First Amended Complaint alleges causes of action for
violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule
10b-5 promulgated there under, for violations of Section 20(a) of the Securities
Exchange Act of 1934, for declaratory relief and breach of contract, for common
law fraud, and for negligent misrepresentation.
The First Amended Complaint 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.
NOTE 8 - Notes Receivable
On June 5, 2003, we agreed to lend TouchVision $50,000 in two equal installments
of $25,000 each. Interest accrued on the unpaid principal amount of the note at
a rate equal to six percent per year. Interest accrued under the note is paid
annually, with the first payment due June 5, 2004. All unpaid principal and
interest are due June 29, 2005. At June 30, 2003, $25,000 had been advanced to
TouchVision and accrued interest totaled $41. Subsequent to the TouchVision
acquisition on September 1, 2003, this note receivable was reclassified to
intercompany notes receivable and eliminated in consolidation at September 30,
2003.
As further consideration for our September 1, 2003 purchase of 51% of Ayrshire,
we agreed to make a non-interest-bearing loan of $1,000,000 to Ayrshire,
$300,000 of which was advanced at closing of the acquisition and $700,000 was
advanced on November 3, 2003. The note is due December 30, 2006 provided that if
by December 2005, a an option to purchase the additional 49% of Ayrshire has not
been exercised, the loan shall be repayable in five equal annual installments,
the first installment being payable on December 31, 2007 and the remaining
installments payable in yearly intervals thereafter. As part of the agreement,
we may exercise the option to acquire the remaining 49% of Ayrshire in
consideration for the issuance of an additional 1,500,000 shares of our common
stock.
NOTE 9 - Related Party Transactions
From time to time, Ms. Barbara McPherson and Ms. Ildi Hayman, officers of RMT,
have advanced funds to RMT. The current balance of $13,835 is due December 31,
2004 and accrues interest at a rate of 6% per annum.
As of July 15, 2002, Trinity entered in a two-year Advisory Agreement with Kings
Peak Advisors, LLC ("KPA") with automatic renewal for a 12-month period. Under
the terms of the Advisory Agreement, KPA 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. KPA 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 KPA 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 KPA'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 KPA, as well as any
fees which may be due to KPA 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 KPA, 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 KPA
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 KPA for prior services rendered
since April 1, 2002 in the amount of $30,000, up to 50% of which amount is
payable, at KPA'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 KPA under the
Advisory Agreement may not exceed 4,400,000 shares. Through September 30, 2003,
KPA had earned a total of $315,000 under the Advisory Agreement, $110,000 of
which was converted into 4,400,000 shares of common stock in March 2003. Of the
balance of $205,000, $156,310 has been paid to KPA, leaving a balance owing at
September 30, 2003 of $48,690.
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.
Between December 2002 and March 2003, 3,200,000 shares of our common stock were
issued pursuant to this arrangement. The shares were issued at $0.052 per share.
Pursuant to the acquisition of CBL on October 1, 2002, 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 September 30, 2003, accrued interest totaled $70,000. We also
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 were 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 September 30, 2003, accrued interest totaled $15,550. 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 5, Commitments and Contingencies.
From time to time, since inception of our current operating strategy, Mr.
Theodore 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. The issuance of securities, should it occur, is made in
reliance on Section 4(2) of the Securities Act as a transaction not involving
any public offering.
NOTE 10 - Notes Payable
At September, 2003, notes payable to accredited investors and related parties
totaled $2,094,582 as compared with $2,147,151 at June 30, 2003. The notes bear
interest between the rates of 0% and 10% 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:
September 30, June 30,
2003 2003
------------ ------------
Unsecured non-interest bearing convertible notes payable to
a related party due on December 1, 2003, see Note 9. $ 425,000 $ 925,000
Note payable to bank due October 29, 2004, plus interest
payable annually at 9.5%, secured by vehicle. 15,367 -
Note payable to related parties; due December 31, 2004, plus
interest payable at 7% per annum, see Note 9. 13,835 -
Secured note payable to bank due August 29, 2007, plus
interest payable at prime plus 2%. 150,000 -
Borrowings under revolving line of credit issued by a bank,
plus interest payable at prime plus 2.625%. 99,950 -
Borrowings under revolving line of credit issued by a bank,
plus interest payable at prime plus 6.75%. 34,975 -
Borrowings under revolving line of credit issued by a third
party creditor, plus interest payable at prime plus 1.99%. 38,872 -
Notes payable to third party individuals, due September 1,
2006, plus interest payable at 10% per annum. 94,056 -
Unsecured notes payable to related parties see Notes 7 & 9
for due date, plus accrued interest at a rate of 7% per
annum. 222,527 222,151
Convertible notes payable to related parties, see Notes 7 &
9 for due date, plus accrued interest at a rate of 7% per
annum. 1,000,000 1,000,000
------------ ------------
Total Notes Payable 2,094,582 2,147,151
Less: Current Maturities (1,661,362) (2,147,151)
------------ ------------
Long Term Notes Payable $ 433,220 $ -
============ ============
NOTE 11 - Stockholders' Equity
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
September 30, and June 30, 2003, 3,182,000 and 2,447,00 options, respectively,
have been granted at prices ranging from $0.05 per share to $0.50 per share of
which 1,303,125 and 963,625 were vested as of September 30 and June 30, 2003,
respectively.
Between January and April 2003, we received subscriptions to our December 2002
Private Placement Memorandum totaling $250,000 from outside investors to
purchase 250,000 units at a price of $1.00 per unit. Each unit entitles the
holder to two shares of our common stock and two three year warrants, each to
purchase an additional share of
common stock for $1.00 per share. If all warrants are fully exercised by the
holder of such warrants, a bonus warrant will be issued entitling the holder to
purchase one additional share of common stock for $2.00.
Between June and October 2003, we received subscriptions to our May 2003 Private
Placement Memorandum ("May 2003 PPM") totaling $5,073,300 from outside investors
to purchase 5,073,300 units at a price of $1.00 per unit. Each unit entitles the
holder to two shares of our common stock and two three year warrants, each to
purchase an additional share of common stock for $1.00 per share. If all
warrants are fully exercised by the holder of such warrants, a bonus warrant
will be issued entitling the holder to purchase one additional share of common
stock for $2.00. In connection with the May 2003 Private Placement, we issued to
various financial advisors, 563,160 additional shares of our common stock and
five-year warrants to purchase 200,050 shares of our common stock.
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.
NOTE 12 - 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 three months ended September 30,
2003:
2002 Stock Plan
---------------
Weighted
Number of Average Exercise
Shares Price
------------ ------------
Outstanding at June 30, 2003 2,447,000 $0.23
Options Granted 735,000 $0.50
Options Exercised - -
Options Canceled - -
------------ ------------
Options Outstanding at September 30, 2003 3,182,000 $0.29
============ ============
Options Exercisable at September 30, 2003 1,303,125 $0.26
============ ============
In accordance with Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation", and Statement of Financial Accounting
Standards No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure" option expense of $98,514 was recognized for the three months ended
September 30, 2003:
September 30, 2003
------------------
Five-Year Risk Free Interest Rate 3.63%
Dividend Yield Nil
Volatility 70%
Average Expected Term (Years to Exercise) 5
Stock options outstanding and exercisable under 2002 Stock Plan as of September
30, 2003 are as follows:
Average
Weighted Remaining Average
Number of Average Contractual Number Weighted
Range of Options Exercise Life of Options Exercise
Exercise Price Granted Price (Years) Vested Price
-------------- --------- -------- ----------- ---------- --------
$0.05 600,000 $0.05 4.1 287,500 $0.05
$0.25 1,589,000 $0.25 4.2 724,125 $0.25
$0.50 993,000 $0.50 4.7 291,500 $0.50
NOTE 13 - Going Concern
Our financial statements are prepared using accounting principles generally
accepted in the United States of America 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 - Subsequent Events
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, 563,160 additional shares of our common stock and
five-year warrants to purchase 200,050 shares of our common stock.
From time to time, since inception of our current operating strategy, Mr.
Theodore 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. The issuance of securities, should it occur, is made in
reliance on Section 4(2) of the Securities Act as a transaction not involving
any public offering.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Our fiscal year ends on June 30. This management's discussion and analysis
of financial condition and results of operations and other portions of this
Quarterly Report on Form 10-QSB/A contain forward looking information that
involves risks and uncertainties. Our actual results could differ materially
from those anticipated by this forward looking information. Factors that could
cause or contribute to such differences include, but are not limited to, those
discussed or referred to in the Transition Report on Form 10-KSB for the period
ended June 30, 2003, filed on November 17, 2003, under the heading Information
Regarding Forward-Looking Statements and elsewhere. Investors should review this
quarterly report on Form 10-QSB/A in combination with our Transition Report on
Form 10-KSB in order to have a more complete understanding of the principal
risks associated with an investment in our common stock. This management's
discussion and analysis of financial condition and results of operations should
be read in conjunction with our unaudited condensed consolidated financial
statements and related notes included elsewhere in this document.
OVERVIEW
We commenced a strategy in 2002 to acquire operating companies in strategic
markets that have developed proprietary technology-enabled learning, training
and certification services targeted at major customers in worldwide industries.
Our mission is to become a leading global learning solution corporation through
acquisition, business development and strategic relationships. We earn revenues
from selling our services to medium to large companies and organizations that
provide workplace training and certification to their employees. The principal
components of our costs of sales are labor costs for employees who are directly
involved in providing services to clients. Other costs of sales include expenses
associated with specific projects including materials and incidental expenses.
Operating expenses include salaries and benefits for management, administrative,
marketing and sales personnel, research and development, occupancy and related
overhead costs.
Following our initial acquisition of CBL and related companies, discussed below,
our corporate development efforts in 2003 were concentrated on the
identification of additional acquisition candidates including due diligence,
negotiation of terms and conditions, and the development of integration and
financing strategies for each acquisition. We have also focused on raising
growth capital through private placements to be used as working capital for
Trinity and our subsidiaries. On September 1, 2003, we completed the following
three non-related acquisitions.
TouchVision (California)
We completed the acquisition of all of the issued and outstanding shares of
TouchVision, Inc., a California corporation ("TouchVision") that is in the
business of providing technology-enabled information and learning systems to
healthcare providers, financial services companies and other industry segments.
In consideration for the TouchVision shares, we issued an aggregate of 1,250,000
restricted shares of our common stock, of which 312,500 shares are subject to
the terms of an escrow agreement as collateral for the indemnification
obligations of the former TouchVision shareholders. We also agreed to loan to
TouchVision the sum of $20,000 per month for the twelve-month period following
closing, to be used for working capital. We had previously loaned TouchVision
the sum of $50,000 in June and July, 2003 by way of bridge financing pending
completion of the acquisition. In connection with the acquisition, TouchVision
entered into substantially similar employment agreements with each of Messrs.
Gregory L. Roche and Larry J. Mahar, the former principals of TouchVision, which
have a term of two years and provide for annual salaries of $120,000.
River Murray Training Pty. Ltd. (Australia)
We completed the acquisition of all of the issued and outstanding shares of
River Murray Training Pty Ltd ("RMT") an Australian company that is in the
business of providing workplace training programs for various segments of the
food production industry, including viticulture and horticulture. In
consideration for the shares of RMT we issued 700,000 restricted shares of our
common stock, of which 350,000 shares are subject to the terms of an escrow
agreement as collateral for the indemnification obligations of the former RMT
shareholders. We also loaned US$49,000 to RMT for the purpose of repaying
outstanding loans advanced to RMT by its former shareholders.
Riverbend Group Holdings (Proprietary) Limited (South Africa)
We completed the acquisition of 51% of the issued and outstanding shares of
Ayrshire Trading Limited, a British Virgin Islands company ("Ayrshire") that
owns 95% of Riverbend Group Holdings (Proprietary) Limited ("Riverbend"), a
South African company that provides learning services to corporations and
individuals in South Africa. We also acquired the option to purchase the
remaining 49% of Ayrshire. In consideration for the Ayrshire shares, we issued a
convertible non-interest-bearing promissory note in the amount of US$20,000,
which amount is convertible from time to time, but no later than December 30,
2006, into a maximum of 2,000,000 restricted shares of our common stock. 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 U.S. $1,000,000 to Ayrshire, $300,000 of which was
advanced at closing and the remaining $700,000 was advanced on November 3, 2003.
We may exercise an option to acquire the remaining 49% of Ayrshire in
consideration for the issuance of 1,500,000 shares of our common stock, subject
to certain adjustments.
Our 51% ownership in Ayrshire has been accounted for in the financial
statements included with this report using the equity method of accounting. The
equity method of accounting requires an investor to incorporate its pro rata
share of the investee's earnings into its earnings. However, rather than include
each component, e.g. sales, cost of sales, operating expenses, the investor only
includes its share of the investee's net income or loss as a separate line item
in its net income. The net income impact is identical whether the equity method
of accounting is used or full consolidation is employed. Under the equity method
of accounting, the balance sheet of the investee is not consolidated with the
balance sheet of the investor. Rather, the fair value of the consideration paid
is recorded as an asset, "Investment in Associated Company." The equity method
of accounting is used for investments in which the investor has significant
influence over the operations of the investee but lacks operating control.
Emerging Issues Task Force Issue 96-16, "Investor's Accounting for an
Investee When the Investor Has a Majority Voting Interest but the Minority
Shareholders Have Certain Approval or Voting or Veto Rights" (EITF 96-16)
provides guidance as to the distinction between protective rights of the
minority shareholder which do not overcome the presumption of consolidation and
substantive participating rights of the minority shareholder. Substantive
participating rights that allow the minority shareholder to participate in
establishing operating and capital decisions in the ordinary course of business,
overcome the presumption that the investor should consolidate the investee. In
the case of the Riverbend transaction, Section 20.2.11.3 of the Definitive
Agreement ("the Agreement") between Trinity, the majority owner in Ayrshire, and
Great Owl Limited ("Great Owl"), the minority owner in Ayrshire, prevents
Ayrshire and its subsidiaries from approving, canceling or effecting "material
changes to the annual budget or any modification thereof" or "incur unbudgeted
capital expenditure of US$ 150,000 per item or US$500,000 per annum." Also,
pursuant to Section 18.3 of the Agreement, Trinity and Great Owl are "each
entitled to appoint an equal number of directors to the board of directors" of
Ayrshire. These substantive participating rights of the minority shareholder
preclude consolidation of this investment and will remain in effect until
Trinity owns 100% of Ayrshire.
IRCA
We have entered into a definitive agreement to acquire majority control of
IRCA (Pty) Ltd. ("IRCA"), an international firm specializing in corporate
learning, certification, and risk mitigation in the areas of Safety, Health
Environment, and Quality Assurance ("SHEQ"). We anticipate closing this
transaction within the next 30 days. IRCA is headquartered in South Africa and
operates international sales offices and operations in the Australia and the
United States. We will acquire majority interest in IRCA through a combination
of stock and cash payments. The definitive agreement contains certain closing
conditions and certain future provisions that will enable Trinity to acquire
full ownership of IRCA and its various operating subsidiaries.
IRCA, founded in 1993, operates in South Africa, England and Australia
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.
Competency Based Learning, Inc.
We completed our first acquisition in October 2002 when we acquired
Competency Based Learning, Inc., a California corporation ("CBL-California"),
and two related Australian companies, Competency Based Learning, Pty. Ltd. and
ACN 082 126 501 Pty. Ltd., (collectively referred to as "CBL Australia"), in
consideration for the issuance of a total of 3,000,000 restricted shares of our
common stock and $1,000,000 in convertible promissory notes and the assumption
of $222,527 in indebtedness. The transactions were effected through CBL Global
Corp. ("CBL Global") our wholly-owned subsidiary. CBL-California and
CBL-Australia are sometimes hereinafter collectively referred to as "CBL." The
acquisition of CBL provided us with proprietary workplace learning content for
the global mining and power generation industries, initial contracts with
employers in these industries, an experienced staff of instructional designers
and learning system developers and a proprietary workplace learning system.
Since the acquisition, CBL Global has concentrated its efforts on the
development of additional learning content and new products. It has focused its
business development activities in its core industry segments and in new
geographic markets. In September 2003, we initiated legal proceedings against
CBL-California and the former principals of CBL-California and CBL-Australia
pursuant to which, among other things, we are seeking to enforce the
indemnification provisions of the agreements relating to the CBL acquisition.
See "Item 1. Legal Proceedings."
In conjunction with our proposed acquisition of IRCA, we anticipate that we
will combine the operations of CBL Global with those of IRCA whereby IRCA will
market CBL Global products and CBL Global will operate primarily as a resource
to support development of additional products to be sold by IRCA and other
Trinity subsidiaries. These efforts are intended to reduce the operating costs
of CBL Global as an independent operating unit and to accelerate return on our
investment in the development of CBL Global intellectual property.
Change in Accounting for Ayrshire / Riverbend
As disclosed in our Form 8K dated October 18, 2004, we announced that in
the process of preparing and completing its audit for the fiscal year ended June
30, 2004, we reviewed our earlier determination to consolidate the financial
statements of our 51% ownership of Ayrshire which owns 95% of Riverbend. This
consolidation was reflected in the Company's interim financial statements
included in its previously-filed quarterly reports for fiscal 2004. After this
review and following discussions by the Company's officers with its predecessor
auditor Chisholm, Bierwolf, Nilson & Associates and its current auditor BDO
Spencer Steward, the Company's Board of Directors concluded on October 12, 2004
that these investments should have been accounted for using the equity method of
accounting with respect to the Company's interest in IRCA and Riverbend, rather
than consolidating the financial results of these entities with those of the
Company.
The equity method of accounting requires an investor to incorporate its pro
rata share of the investee's earnings into its earnings. However, rather than
include each component, e.g. sales, cost of sales, operating expenses, the
investor only includes its share of the investee's net income or loss as a
separate line item in its net income. The net income impact is identical whether
the equity method of accounting is used or full consolidation is employed. Under
the equity method of accounting, the balance sheet of the investee is not
consolidated with the balance sheet of the investor. Rather, the fair value of
the consideration paid is recorded as an asset, "Investment in Associated
Company." The equity method of accounting is used for investments in which the
investor has significant influence over the operations of the investee but lacks
operating control.
Change in Fiscal Year
On August 6, 2003, our board of directors approved a change in our fiscal
year-end from September 30 to June 30 to align it with those of the companies we
had already acquired or were at that time in the process of acquiring. The
information presented in Transition Report on Form 10-KSB relates to the
transition period October 1, 2002 through June 30, 2003.
Results for the first quarter of fiscal year 2004 include one month's
results of operations for the two companies we recently acquired as well as
CBL's activity for the first three months of fiscal year 2004. Revenues from our
clients were $253,993 for the first quarter of fiscal year 2004, compared with
$0 for the same quarter ended September 30, 2002. Of the total increase in
revenues from our clients, $165,620 was due to the two acquisitions described
above that we made during the first quarter of fiscal year 2004.
We believe that the acquisitions we completed in the first quarter of
fiscal year 2004 will shift our business in the direction of markets that we
believe offer good growth potential for the Company.
Critical Accounting Policies and Management Judgment
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions in certain circumstances that
affect amounts reported in the accompanying consolidated financial statements
and related footnotes. In preparing these financial statements, management has
made its best estimate and judgments of certain amounts included in the
financial statements, giving consideration to materiality. Historically, our
estimates have not materially differed from actual results. Application of these
accounting policies, however, involves exercise of judgment and use of
assumptions as to future uncertainties. As a result, actual results could differ
from these estimates.
Material accounting policies that we believe are the most critical to
investor's understanding of our financial results and condition and require
complex management judgment have been expanded and are discussed below.
Information regarding our other accounting policies is included in our
Transition Report on Form 10-KSB for the transition period ended June 30, 2003.
No other material changes to such information have occurred during the three
months ended September 30, 2003.
1. Consolidation Policy. Our consolidated financial statements include
the accounts of the company and our wholly-owned subsidiaries. All
significant intercompany transactions are eliminated in consolidation.
Our 51% ownership in Ayrshire has been accounted for in the financial
statements included with this report using the equity method of
accounting. The equity method of accounting requires an investor to
incorporate its pro rata share of the investee's earnings into its
earnings. However, rather than include each component, e.g. sales,
cost of sales, operating expenses, the investor only includes its
share of the investee's net income or loss as a separate line item in
its income. The net income impact is identical whether the equity
method of accounting is used or full consolidation is employed. Under
the equity method of accounting, the balance sheet of the investee is
not consolidated with the balance sheet of the investor. Rather, the
fair value of the consideration paid is recorded as an asset,
"Investment in Associated Company." The equity method of accounting is
used for investments in which the investor has significant influence
over the operations of the investee but lacks operating control.
2. Revenue Recognition. We earn our revenues primarily from
service-related contracts, including operations and maintenance
services and a variety of technical assistance services, and are
accounted for over the period of performance, in proportion to the
costs of performance, evenly over the period, or over units of
production. Four basic criteria must be met before revenue can be
recognized: (1) persuasive evidence of an arrangement exists; (2)
delivery has occurred or services rendered; (3) the fee is fixed and
determinable; and (4) collectibility is reasonably assured. The
Company determines whether criteria (3) and (4) are met based on
judgments regarding the nature of the fee charged for services
rendered and products delivered and the collectibility of those fees.
3. Deferred Revenue. We record deferred revenue which are amounts that
have been billed in advance of services provided. Deferred revenue
includes amounts which have been billed and not collected for which
revenue is being recognized ratably over the contract period. We
acquired approximately $60,000 of deferred revenue in connection with
the acquisition of TouchVision, Inc. As of September 30, 2003, and
June 30, 2003, deferred revenue was $127,016 and $0, respectively. The
Company anticipates that substantially all such amounts will be earned
over the next twelve months.
4. Contingently Redeemable Equity. Contingently redeemable equity are
shares of our common stock issuable upon the conversion of notes
payable upon the satisfaction of certain conditions pursuant to a
contingent stock arrangement. The contingent stock arrangement is
dependent on the satisfaction of certain conditions by us, most
notably the listing of our common stock an a major stock exchange in
the United States of America, for whom there are financial
requirements for listing. The value of the contingently redeemable
equity is based on the number of shares to be issued at $0.50 per
share.
5. Common Stock Valuation. To determine the value of the stock issued for
the September 1, 2004 consideration paid for subsidiaries and the
investment in its equity method of accounting investee, the Company
used a value of $0.50 per share of common stock as the fair value.
Such determination is based upon its then current fundraising efforts
in which the Company raised in excess of $3,000,000 at $0.50 per
share.
6. Allocation of Consideration for Investments in Subsidiaries. The
excess of the consideration paid for subsidiaries over the fair value
of acquired tangible assets less the fair value of acquired
liabilities is assigned to intangible assets and goodwill. The Company
obtains an independent third party valuation to ascertain the amount
to allocate to identifiable intangible assets and the useful lives of
those assets.
Adoption of Statements of Financial Accounting Standards
In June 2002, the FASB issued Statement of Financial Accounting Standard
No. 146 ("SFAS 146"), "Accounting for Costs Associated with Exit or Disposal
Activities." SFAS 146 replaces Emerging Issues Task Force ("EITF") Issue No.
94-3, "Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring)"
in its entirety and addresses significant issues relating to recognition,
measurement and reporting costs associated with an exit or disposal activity,
including restructuring activities. Under EITF Issue No. 94-3, a liability is
recognized, measured and reported as of the date of an entity's commitment to an
exit plan. Pursuant to SFAS 146, a liability is recorded on the date on which
the obligation is incurred and should be initially measured at fair value. SFAS
146 is effective for exit or disposal activities initiated after December 31,
2002. The Company adopted SFAS 146 on July 1, 2003 and adoption of SFAS 146 did
not significantly impact the Company's financial statements.
EITF Consensus Issue No.00-21 ("EITF 00-21"), "Revenue Arrangements with
Multiple Deliverables" was first discussed at the July 2000 EITF meeting and was
issued in February 2002. Certain revisions to the scope language were made and
finalized in May 2003. EITF 00-21 addresses the accounting for multiple element
revenue arrangements, which involve more than one deliverable or unit of
accounting in circumstances, where the delivery of those units takes place in
different accounting periods. EITF 00-21 requires disclosures of the accounting
policy for revenue recognition of multiple element revenue arrangements and the
nature and description of such arrangements. The accounting and reporting
requirements are effective for revenue arrangements entered into in fiscal
periods beginning after June 15, 2003. The Company has completed its initial
evaluation and adoption of EITF 00-21 does not have a significant impact on the
Company's financial statements. The Company continues its evaluation to
determine whether the reporting requirements of EITF 00-21 will impact the
Company's financial statements in the future.
In January 2003, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 148 ("SFAS 148"), "Accounting for
Stock-Based Compensation - Transition and Disclosure." SFAS 148 amends FASB
Statement 123 ("SFAS 123"), "Accounting for Stock-Based Compensation," to
provide alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. In
addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require
prominent disclosure in both annual and interim financial statements of the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. SFAS 148 is effective for fiscal years,
including interim periods beginning after December 15, 2002, and thus, this
disclosure is included in the table below. SFAS 148 also requires disclosure of
pro-forma results on the interim basis as if the Company had applied the fair
value recognition provisions of SFAS 123. The Company changed to the fair value
based method of accounting for stock-based employee compensation during the
transition period from October 1, 2002 to June 30, 2003. Adopting SFAS 148 did
not impact the financial results of the Company significantly.
In April 2003, the FASB issued Statement of Financial Accounting Standards
No. 149 ("SFAS 149"), "Amendment of Statement 133 on Derivative Instruments and
Hedging Activities." SFAS 149 amends and clarifies
financial accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities. The accounting and reporting
requirements will be effective for contracts entered into or modified after June
30, 2003 and for hedging relationships designated after June 30, 2003.
Currently, we do not have any derivative instruments and do not anticipate
entering into any derivative contracts. Accordingly, adoption of SFAS 149 does
not have a significant impact to our financial statements.
In May 2003, the FASB issued Statement of Financial Accounting Standards
No. 150 ("SFAS 150"), "Accounting for Certain Instruments with Characteristics
of Both Liabilities and Equity." SFAS 150 establishes standards for how an
issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer
classify a financial instrument that is within its scope as a liability (or an
asset in some circumstances). SFAS 150 is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003. As
permitted, the Company will adopt SFAS 150 on October 1, 2003. The Company does
not anticipate adoption of SFAS 150 to significantly impact the Company's
financial statements.
Related Party Transactions
As of August 8, 2002, we formalized a Debt Conversion Agreement with Global
Marketing Associates, Inc. ("GMA"), holder of a convertible promissory note (the
"GMA Note") in the principal amount of $166,963, pursuant to which the principal
amount of the note, along with accrued interest thereon, was made convertible,
under certain conditions, into 3,200,000 shares of common stock. The GMA Note
was originally issued in November 2000 to our company's former attorneys and was
subsequently acquired by Pacific Management Services, Inc., who assigned the
note to GMA; both entities are unrelated to us. GMA subsequently assigned the
right to acquire 2,600,000 of the 3,200,000 shares of common stock into which
the note is convertible, to several persons, including Messrs. Cole and Mooney,
who are officers and directors of our company. 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. Theodore Swindells
acquired the right to acquire 1,000,000 shares. As of January 2003, all
3,200,000 shares of our common stock had been issued pursuant to the terms of
the GMA Note. Fifty percent of the shares issuable upon the conversion of the
GMA Note are subject to a two-year lock-up provision that restricts transfer of
such shares without prior written consent of our board of directors.
As of July 15, 2002, we entered in a two-year Advisory Agreement with KPA
(see "Item 5. Market for Common Equity and Related Stockholder Matters"),
automatically renewable for an additional 12-month period. Under the terms of
the Advisory Agreement, KPA agreed to provide us with general corporate,
financial, business development and investment advisory services on a
non-exclusive basis. These services include assisting with the identification of
placement agents, underwriters, lenders and other sources of financing, as well
as additional qualified independent directors and members of management. KPA is
a private company whose principals are Douglas Cole and Edward Mooney, who are
officers and directors of our company, and Theodore Swindells. At its August 19,
2003 meeting, the board of directors' voted to suspend the Advisory Agreement
from August 15, 2003 until January 2004. Through September 30, 2003, KPA had
earned a total of $315,000 under the Advisory Agreement, $110,000 of which was
converted into 4,400,000 shares of common stock in March 2003. Of the balance of
$205,000, $156,310 was paid to KPA, leaving a balance owing at September 30,
2003 of $48,690.
In October 2002, we (i) issued Bridge Financing Notes (see "Item 5. Market
for Common Equity and Related Stockholder Matters") to certain individuals and
entities for a total principal amount of $500,000 that were convertible under
certain conditions into shares of common stock, and (ii) in connection with the
issuance of the Bridge Financing Notes, issued the 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. On May 19, 2003, the entire Bridge Financing Amount of $500,000 and
accrued interest thereon totaling $34,745 was converted into 1,336,867 shares of
common stock at a price of $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 loan balance then outstanding. The
issuance of securities, should it occur, is made in reliance on Section 4(2) of
the Securities Act as a transaction not involving any public offering.
RESULTS OF OPERATIONS
First Quarter Ended September 30, 2003 Compared to September 30, 2002
Our gross sales revenue was $253,993 for the quarter ended September 30,
2003, as compared to $0, the amount we reported for the quarter ended September
30, 2002. The increase in revenues was due to the CBL, TouchVision, and RMT
("acquisitions") which provided the revenues for the first quarter of fiscal
year 2004.
Costs of sales for the quarter ended September 30, 2003, which consist of
labor and hardware costs, and other incidental expenses, was $32,947, as
compared to $0 for the same period last year. This increase was a result of the
acquisitions, consistent with the change in gross revenue.
Our gross profit was $221,496 for the quarter ended September 30, 2003, as
compared to $0, the amount we reported for the quarter ended September 30, 2002.
The increase in gross profit was due to the acquisitions, consistent with the
changes described above.
Operating expense for the quarter ended September 30, 2003 increased by
$744,665, to $1,142,716 as compared with $397,951 for the same period last year.
The increase in operating expenses was due, in part, to the additional labor,
benefits, and other administrative costs for Trinity corporate personnel, which
comprised eight full time employees in the current quarter as compared to one
employee for the same period last year. Salaries and benefits attributable to
the increase in Trinity corporate employees totaled $242,798. Other increases
resulted from the acquisitions described above. Salaries and benefits
attributable to the acquisitions was $285,140. The increase in amortization
expense is a result of the capitalization of intellectual property acquired from
CBL Global, TouchVision and RMT and related amortization of these assets.
Other expense increased $17,920 from the same period last year. Net
interest expense for the quarter ended September 30, 2003 increased by $16,518
due to the interest paid on various loans incurred immediately prior to and
during the period. Equity in losses of associated companies of $(995) is that
portion of Ayrshire / Riverbend losses attributable to our 51% ownership of
Ayrshire.
We reported net loss available for common shareholders of $945,910, or
$0.05 per share on a diluted basis, for the quarter ended September 30, 2003,
compared with a net loss of $404,821, or $8.34 per share on a diluted basis, for
the same period last year.
Liquidity and Capital Resources
Our expenses are currently greater than our revenues. We have had a history
of losses, and our accumulated deficit as of September 30, 2003 was $12,134,823,
as compared to $11,188,913 as of June 30, 2003. Our liabilities increased by
$564,000 as a result of the consolidation of TouchVision and RMT. The decrease
in notes payable is a result of the $500,000 repayment in September on the note
payable to a related party partially offset by the consolidation of TouchVision
and RMT balances of $447,000.
At September 30, 2003, we had a cash balance of $927,034 compared to
$86,511 at June 30, 2003. Net cash used by operating activities during the three
month period ended September 30, 2003 was $727,733 attributable primarily to our
loss from operations of $945,910. Cash generated by financing activities was
$2,076,258 for the quarter ended September 30, 2003 representing the net of
repayments under short-term notes of $500,000, financing fees of $428,242 and
$3,004,500 in proceeds from issuance of common stock.
Accounts payable increased from $391,872 at September 30, 2002 to $585,968
at September 30, 2003. This increase is attributable to the addition of CBL,
TouchVision and RMT.
We commenced a private offering of our securities in May 2003. As of
October 31, 2003, we had closed the offering and raised an aggregate of
$5,073,300. Of these funds, $254,000, $81,663, $240,000 and $1,000,000 were
advanced as loans to our subsidiaries, CBL, RMT, TouchVision and Riverbend,
respectively, $441,105 was paid in commissions to financial advisors for
fundraising activities, and $500,000 was repaid on short-term promissory notes
to a related party.
To meet our present and future liquidity requirements, we will continue to
seek additional funding through private placements, conversion of outstanding
loans and payables into common stock, development of the business of our
newly-acquired subsidiaries and through additional acquisitions that have
sufficient cash flow to fund subsidiary operations. There can be no assurance
that we will be successful in obtaining more debt and/or equity financing in the
future or that our results of operations will materially improve in either the
short- or the long-term. If we fail to obtain such financing and improve our
results of operations, we will be unable to meet our obligations as they become
due. That would raise substantial doubt about our ability to continue as a going
concern.
ITEM 3. CONTROLS AND PROCEDURES
Our Chief Executive Officer and Chief Financial Officer, after conducting
an evaluation, together with other members of our management, of the
effectiveness of the design and operation of our disclosure controls and
procedures as of the end of the period covered by this report, have concluded
that our disclosure controls and procedures were effective to ensure that
information required to be disclosed by us in our reports filed or submitted
under the Securities Exchange Act of 1934 (the "Exchange Act") is recorded,
processed, summarized, and reported within the time periods specified in the
rules and forms of the SEC. There were no significant changes in our internal
controls or in other factors that could significantly affect these controls
subsequent to that evaluation, and there were no significant deficiencies or
material weaknesses in such controls requiring corrective actions.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On September 12, 2003, we filed a Complaint in the United States District
Court for the District of Utah, Central Division, against CBL Global Corporation
(f/k/a CBL Acquisition Corporation), and Robert Stephen Scammell, the sole
shareholder of CBL-California, (Case No. 2:03CV00798DAK) alleging, among other
things, that Scammell and CBL-California provided us with misstated financial
statements prior to our merger in October 2002 with CBL-California and CBL
Global. On September 18, 2003, we filed a First Amended Complaint and Jury
Demand, which added as defendants CBL-Global and Brian Kennedy, the sole
shareholder of CBL-Australia. The First Amended Complaint alleges causes of
action for violations of Section 10(b) of the Securities Exchange Act of 1934
and Rule 10b-5 promulgated there under, for violations of Section 20(a) of the
Securities Exchange Act of 1934, for declaratory relief and breach of contract,
for common law fraud, and for negligent misrepresentation.
The First Amended Complaint 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.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Recent Sales of Unregistered Securities
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. The issuance of these
securities was made in reliance on Section 4(2) of the Securities Act as a
transaction not involving any public offering.
On September 1, 2003, we issued an aggregate of 1,250,000 restricted shares
of our common stock to the twelve shareholders of TouchVision, Inc. in exchange
for 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 leaning systems. The issuance of these securities was made in
reliance on Section 4(2) of the Securities Act as a transaction not involving
any public offering. No advertising or general solicitation was employed in
offering the securities, the offerings and sales were made to a limited number
of persons, and we restricted transfer of the securities in accordance with the
requirements of the Securities Act. The recipients of the securities represented
their intention to acquire the securities for investment only and not with a
view to or for sale in connection with any distribution thereof and appropriate
legends were affixed to the share certificates and other instruments issued in
such transactions. 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 issued 700,000 restricted shares of our common
stock to two shareholders of River Murray Training Pty. Ltd. ("RMT") in exchange
for all of the issued and outstanding shares of RMT, an Australian company that
is in the business of providing workplace training programs for various segments
of the food production industry, including viticulture and horticulture. The
issuance of these securities was made in reliance on Section 4(2) of the
Securities Act as a transaction not involving any public offering. No
advertising or general solicitation was employed in offering the securities, the
offerings and sales were made to a limited number of persons, and we restricted
transfer of the securities in accordance with the requirements of the Securities
Act. The recipients of the securities represented their intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the share
certificates and other instruments issued in such transactions.
On September 1, 2003 we issued a $20,000 convertible promissory note that
is convertible into 2,000,000 restricted shares of our common stock in
consideration for 51% of the issued and outstanding shares of Ayrshire Trading
Limited a British Virgin Islands company, that owns 95% of Riverbend Group
Holdings (Proprietary) Limited. The note converts at $0.01 per share and
conversion of the note is mandatory by maturity, December 30, 2006. The issuance
of these securities was made in reliance on Section 4(2) of the Securities Act
as a transaction not involving any public offering. No advertising or general
solicitation was employed in offering the securities, the offerings and sales
were made to a limited number of persons, and we restricted transfer of the
securities in accordance with the requirements of the Securities Act. The
recipients of the securities represented their intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the share
certificates and other instruments issued in such transactions.
During the period June 1, 2003 to October 31, 2003, we sold by way of
private placement an aggregate of 5,073,300 units at a price of $1.00 per unit,
for aggregate consideration of $5,073,300. Each unit comprised two shares of our
common stock and two warrants, each exercisable for one additional share of our
common stock. In addition, each unit carried the right to acquire an additional
warrant to purchase, under certain conditions, up to one additional share of
common stock. In connection with the private placement, we paid $441,105 in
commissions and issued to various financial advisors, 563,160 additional shares
of our common stock and five-year warrants to purchase 200,050 shares of our
common stock. In our opinion, the offer and sale of these securities was exempt
by virtue of Section 4(2) of the Securities Act and the rules promulgated there
under.
During the period from September 27, 2002 to June 30, 2003 we issued
convertible unsecured promissory notes to Mr. Swindells, who lends money to us
from time to time on a non-interest bearing basis, in the total principal amount
of $925,000. The principal may be converted into such other debt or equity
securities financings that we may issue in private offerings while the note is
outstanding. In September 2003, we repaid $500,000 on the note balance then
outstanding. The issuance of securities, should it occur, is made in reliance on
Section 4(2) of the Securities Act as a transaction not involving any public
offering.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed herewith:
31.1 Certification of the Company's Chief Executive Officer.
31.2 Certification of the Company's Chief Financial Officer.
32.1 Certification of the Company's Chief Executive Officer.
32.2 Certification of the Company's Chief Financial Officer.
(b) Reports on Form 8-K
1. On July 18, 2003, we filed a Current Report on Form 8-K concerning an
agreement to acquire TouchVision, Inc.
2. On August 5, 2003, we filed a Current Report on Form 8-K concerning an
agreement to acquire IRCA (PTY) Ltd.
3. On August 8, 2003, we filed a Current Report on Form 8-K concerning a
decision by our Board of Directors to change our fiscal year-end to June 30.
4. On August 20, 2003, we filed a Current Report on Form 8-K concerning an
agreement to acquire River Murray Training Ltd.
5. On September 16, 2003, we filed a Current Report on Form 8-K concerning
our acquisition of TouchVision, Inc.
6. On September 16, 2003, we filed a Current Report on Form 8-K concerning
our acquisition of River Murray Training Ltd.
7. On September 16, 2003, we filed a Current Report on Form 8-K concerning
our acquisition of control of Ayrshire Trading Limited.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TRINITY LEARNING CORPORATION
October 28, 2004 By: /S/ DOUGLAS D. COLE
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Douglas D. Cole
Chief Executive Officer
October 28, 2004 By: /S/ CHRISTINE R. LARSON
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Christine R. Larson
Chief Financial Officer