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 December 31, 2003
Commission File No. 0-8924
Trinity Learning Corporation
(Exact name of small business issuer as specified in its charter)
Utah 73-0981865
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1831 Second Street, Berkeley, California 94710
(Address of principal executive offices)
(510) 540-9300
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by sections
13 or 15(d) of the Exchange Act during the past 12 months (or such shorter
period that the issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
As of February 6, 2004, 25,620,401 shares of the issuer's Common Stock, no par
value per share, were outstanding.
TRINITY LEARNING CORPORATION AND SUBSIDIARIES
Throughout this report, we refer to Trinity Learning Corporation, together with
its subsidiaries, as "we," "us," "our company," "Trinity" or "the Company."
THIS FORM 10-QSB/A FOR THE QUARTER ENDED DECEMBER 31, 2003, CONTAINS
FORWARD-LOOKING STATEMENTS, INCLUDING STATEMENTS ABOUT THE CONTINUED STRENGTH OF
OUR BUSINESS AND OPPORTUNITIES FOR FUTURE GROWTH. IN SOME CASES, YOU CAN
IDENTIFY FORWARD-LOOKING STATEMENTS BY TERMINOLOGY SUCH AS MAY, WILL, SHOULD,
EXPECT, PLAN, INTEND, ANTICIPATE, BELIEVE, ESTIMATE, PREDICT, POTENTIAL OR
CONTINUE, THE NEGATIVE OF SUCH TERMS OR OTHER COMPARABLE TERMINOLOGY. WE BELIEVE
THAT OUR EXPECTATIONS ARE REASONABLE AND ARE BASED ON REASONABLE ASSUMPTIONS.
HOWEVER, SUCH FORWARD-LOOKING STATEMENTS BY THEIR NATURE INVOLVE RISKS AND
UNCERTAINTIES.
WE CAUTION THAT A VARIETY OF FACTORS, INCLUDING BUT NOT LIMITED TO THE
FOLLOWING, COULD CAUSE OUR BUSINESS AND FINANCIAL RESULTS TO DIFFER MATERIALLY
FROM THOSE EXPRESSED OR IMPLIED IN FORWARD-LOOKING STATEMENTS: OUR ABILITY TO
SUCCESSFULLY INTEGRATE TOUCHVISION, INC. ("TOUCHVISION"), RIVER MURRAY TRAINING
PTY LTD ("RMT") AND OUR MAJORITY INTERESTS IN AYRSHIRE TRADING LIMITED
("AYRSHIRE") AND IRCA (PTY.) LTD. ("IRCA"); 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") which owns 95% Riverbend Group Holdings (Proprietary)
Limited ("Riverbend"), acquired in September 2003, and its 51% interest in IRCA
(Proprietary) Limited ("IRCA") acquired in December 2003 rather than
consolidating the financial results of these entities 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 of $2,112,966 as originally reported for the six
months ended December 31, 2003 was reduced by $552,626 and $783,995 for Ayrshire
and Riverbend, respectively. Operating expense of $4,567,216 as originally
reported for the same period was reduced by $851,482 and $948,856 for Ayrshire
and IRCA respectively. 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 $160,862
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 December 31, 2003 (Unaudited) and
June 30, 2003
Consolidated Statements of Operations and Comprehensive Income
Three and six months ended December 31, 2003 and 2003 (Unaudited)
Consolidated Statements of Cash Flows Three and six months ended
December 31, 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
December 31, 2003
(Unaudited & Restated) June 30, 2003
---------------------- -------------
Assets
Current Assets
Cash $ 658,048 $ 86,511
Accounts Receivable 370,240 42,719
Interest Receivable - 41
Prepaid Expense and Other Current Assets 151,402 97,944
------------ ------------
Total Current Assets 1,179,690 227,215
------------ ------------
Investments in Associated Companies, at Equity, Net (Notes 2 and 5) 2,729,096 -
------------ ------------
Property & Equipment (Note 3)
Furniture & Equipment 52,675 53,385
Accumulated Depreciation (17,225) (7,824)
------------ ------------
Net Property & Equipment 35,450 45,561
------------ ------------
Intangible Assets (Notes 2 and 4)
Purchased Intangible Assets 1,731,379 1,118,312
Accumulated Amortization (112,240) (167,747)
------------ ------------
Net Intangible Asset 1,619,139 950,565
------------ ------------
Note Receivable (Note 8) 1,000,000 25,000
Other Assets - 94,003
------------ ------------
Total Assets $ 6,563,375 $ 1,342,344
============ ============
Liabilities, Contingently Redeemable Equity and Stockholders' Equity
Liabilities
Accounts Payable $ 1,132,177 $ 391,872
Accrued Expenses 402,506 270,270
Interest Payable - 63,987
Deferred Revenue (Note 1) 214,036 -
Notes Payable - Current (Note 10) 15,715 -
Notes Payable-Related Parties (Notes 7, 9 and 10) 15,379 2,147,151
------------ ------------
Current Liabilities 1,779,813 2,873,280
Notes Payable-Long Term (Note 10) 243,074 -
------------ ------------
Total Liabilities 2,022,887 2,873,280
------------ ------------
Contingently Redeemable Equity (Notes 1 and 2) 2,250,000 -
------------ ------------
Stockholders' Equity
Common Stock, 100,000,000 Shares Authorized at No Par Value,
25,270,401 and 14,956,641 shares Issued and Outstanding,
Respectively 16,133,433 9,693,447
Accumulated Deficit (13,791,895) (11,188,913)
Subscription Receivable (35,000) (35,000)
Accumulated Other Comprehensive Loss (16,050) (470)
------------ ------------
Total Stockholders' Equity 2,290,488 (1,530,936)
------------ ------------
Total Liabilities, Contingently Redeemable Equity and Stockholders' Equity $ 6,563,375 $ 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 Six Months Ended
December 31 December 31
(Unaudited) (Unaudited)
2003 (Restated) 2002 2003 (Restated) 2002
------------ ------------ ------------ ------------
Revenue
Sales Revenue $ 726,805 $ 62,660 $ 980,798 $ 62,660
Cost of Sales (171,956) - (204,453) -
------------ ------------ ------------ ------------
Gross Profit 554,849 62,660 776,345 62,660
------------ ------------ ------------ ------------
Expenses
Salaries & Benefits 955,828 246,948 1,523,547 284,948
Professional Fees 323,816 16,158 540,381 339,899
Selling, General & Administrative 355,417 330,203 625,011 366.433
Depreciation & Amortization 149,963 58,210 238,801 58,290
------------ ------------ ------------ ------------
Total Expense 1,785,024 651,519 2,927,740 1,049,570
------------ ------------ ------------ ------------
Loss from Operations (1,230,175) (588,859) (2,151,395) (986,910)
------------ ------------ ------------ ------------
Other Expense
Interest Expense, net 25,061 24,074 48,349 30,844
Equity in Losses of Associated Companies 397,985 - 398,980 -
Foreign Currency Loss 3,851 - 4,258 -
------------ ------------ ------------ ------------
Total Other Expense 426,897 24,074 451,587 30,844
------------ ------------ ------------ ------------
Loss Before Taxes (1,657,072) (612,933) (2,602,982) (1,017,754)
Taxes - - - -
------------ ------------ ------------ ------------
Net Loss $ (1,657,072) $ (612,933) $ (2,602,982) $ (1,017,754)
============ ============ ============ ============
Net Loss Per Common Share
Basic $ (0.08) $ (0.17) $ (0.14) $ (0.28)
============ ============ ============ ============
Diluted $ (0.08) $ (0.17) $ (0.14) $ (0.28)
============ ============ ============ ============
Weighted Average Shares Outstanding 21,570,021 3,602,274 18,772,572 3,602,274
============ ============ ============ ============
A summary of the components of other comprehensive loss for the three and six
months ended December 31, 2003 and 2002 is as follows:
For the Three Months Ended
December 31
2003 (Restated) 2002
------------ ------------
Net Loss $ (1,657,072) $ (612,933)
Foreign currency translation (12,619) 7,520
------------ ------------
Comprehensive Loss $ (1,669,691) $ (605,413)
============ ============
For the Six Months Ended
December 31
2003 (Restated) 2002
------------ ------------
Net Loss $ (2,602,982) $ (1,017,754)
Foreign currency translation (15,580) 7,520
------------ ------------
Comprehensive Loss $ (2,615,562) $ (1,011,234)
============ ============
The accompanying notes are an integral part of these financial statements
Trinity Learning Corporation and Subsidiaries
Consolidated Statement of Cash Flows
Six Months Ended
December 31
(Unaudited)
2003 (Restated) 2002
--------------- -----------
Cash flows from operating activities:
Net loss $(2,602,982) $(1,017,754)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 238,801 58,290
Stock option compensation 219,584 -
Equity in losses of associated companies 398,980 -
Changes in current assets and liabilities, net of business acquired:
Accounts receivable, net (179,047) 16,860
Prepaid expenses and other assets 99,968 (828)
Accounts payable, accrued expenses and deferred revenue 443,243 217,978
Interest payable (190,137) 28,688
----------- -----------
Net cash used by operating activities (1,571,590) (696,766)
----------- -----------
Cash flows from investing activities:
Payment for business acquisitions, net of cash acquired (828,097) 74,958
Notes and interest receivable, net (974,959) (698)
Capital expenditures (16,838) (6,389)
----------- -----------
Net cash (used) provided by investing activities (1,819,894) 67,871
----------- -----------
Cash flows from financing activities:
Proceeds (Repayments) on related party note payable (500,000) 3,928
Borrowings under short term notes - 690,000
Financing fees paid (625,859) -
Proceeds from sale of common stock 5,073,300 -
----------- -----------
Net cash provided by financing activities 3,947,441 693,928
Effect of foreign exchange on cash 15,580 (7,520)
----------- -----------
Net increase in cash 571,537 57,513
Cash at beginning of period 86,511 1,632
----------- -----------
Cash at end of period $ 658,048 $ 59,145
=========== ===========
Supplemental information:
Interest paid $ 6,708 $ -
=========== ===========
Issuance of common stock for business acquisitions $ 975,000 $ 75,000
=========== ===========
Issuance of contingently redeemable equity $ 2,250,000 $ -
=========== ===========
Cancellation of common stock and convertible notes
payable pursuant to the sale of CBL, net $ (592,997) $ -
=========== ===========
The accompanying notes are an integral part of these financial statements
Trinity Learning Corporation and Subsidiaries
Notes to the Financial Statements
December 31, 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 for complete
financial statements. 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"), 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") as well
as our December 1, 2003 acquisition of Danlas Limited ("Danlas"). Ayrshire owns
95% of the issued and outstanding shares of Riverbend Group Holdings (Pty.) Ltd.
("Riverbend"). These companies are collectively referred to as Riverbend. Danlas
owns 51% of IRCA (Proprietary) Limited ("IRCA"). These companies are
collectively referred to as IRCA.
In the opinion of management, the accompanying unaudited interim consolidated
financial statements reflect all normal recurring adjustments that are necessary
for a fair presentation of the financial position, results of operations and
cash flows for the interim periods presented.
Change in Accounting for Ayrshire / Riverbend and IRCA
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
to use 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.
Our 51% ownership in Ayrshire and in IRCA have 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 shown as an asset,
"Investments in Associated Companies." 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.
o In 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.
o In the IRCA transaction, Section 20.1.19.3 of the Sale of Shares
Agreement ("SOS Agreement") between Danlas Limited, a wholly owned
subsidiary of Trinity, and IRCA Investments (Pty.) Ltd. ("IRCA
Investments"), the minority shareholder in IRCA, prevents IRCA and its
subsidiaries from approving, canceling or effecting "material changes
to the annual budget or any modification thereof, or to its strategic
plans or marketing strategy or incur unbudgeted capital expenditure in
excess of R200,000 (two hundred thousand Rand) per item or R800,000
(eight hundred thousand Rand) in total per annum." Also, pursuant to
Section 19 of the SOS Agreement, Danlas and IRCA Investments are "each
entitled to appoint equal number of directors to the board of
directors" of IRCA. These substantive participating rights of the
minority shareholder will remain in effect until Danlas owns 60% of
IRCA.
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 and in IRCA, respectively, have 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, "Investments in Associated
Companies." 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 acquired 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 December 31, 2003, and June 30, 2003,
deferred revenue was $214,036 and $0, respectively. The Company anticipates that
substantially all such amounts will be earned over the next twelve months.
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 will be reclassified to
intercompany notes receivable and eliminated in consolidation. Notes receivable
also includes advances made to associated companies 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. 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 and six months ended December 31,
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 3,542,000 shares of common stock at prices
ranging from $0.05 to $0.50 per share were outstanding at December 31,
2003; no options were outstanding at December 31, 2002.
o Warrants to purchase 18,714,950 shares of common stock at prices
ranging from $0.05 to $2.00 per share were outstanding at December 31,
2003; no warrants were outstanding at December 31, 2002.
o At December 31, 2003 and 2002, we held 372,500 and 1,000,000 shares in
escrow, respectively.
o In consideration for the Ayrshire shares, we issued a convertible
non-interest-bearing promissory note in the amount of $20,000, which
was outstanding at December 31, 2003 and was convertible into
2,000,000 shares of our common stock.
o In consideration for our investment in IRCA, we issued a convertible
non-interest-bearing promissory note in the amount of $20,000, which
was outstanding at December 31, 2003 and was convertible into
2,500,000 shares of our common stock.
o At December 31 2002, we had the following convertible notes
outstanding: (i) a convertible promissory note in the principal amount
of $500,000 convertible into an undeterminable number of shares of our
common stock, (ii) 1,000,000 convertible notes payable convertible
into 500,000 shares of our common stock, (ii) $245,000 convertible
notes payable convertible into an indeterminable number of shares of
our common stock, and (iv) $114,787 convertible notes payable
convertible into 2,200,000 shares of our common stock.
Three Months Ended Six Months Ended
December 31, December 31,
2003 2002 2003 2002
------------- ------------- ------------- -------------
Numerator-Basic / Diluted
Net (loss) available for common
stockholders $ (1,657,072) $ (612,933) $ (2,602,982) $ (1,017,754)
============= ============= ============= =============
Denominator-Basic / Diluted
Weighted-average common stock outstanding 21,570,021 3,602,274 18,772,572 3,602,274
============= ============= ============= =============
Basic (loss) per share $ (0.08) $ (0.17) $ (0.14) $ (0.28)
============= ============= ============= =============
Stock options to purchase 3,542,000 shares of common stock at prices ranging
from $0.05 to $0.50 per share were outstanding at December 31, 2003; no options
were outstanding at December 31, 2002. Warrants to purchase 18,714,950 shares of
common stock at prices ranging from $0.05 to $2.00 per share were outstanding at
December 31, 2003; no warrants were outstanding at December 31, 2002. At
December 31, 2003 and 2002, we held 372,500 and 1,000,000 shares in escrow,
respectively. In consideration for the Ayrshire shares, we issued a convertible
non-interest-bearing promissory note in the amount of $20,000, which was
outstanding at December 31, 2003 and was convertible into 2,000,000 shares of
our common stock. In consideration for our investment in IRCA, we issued a
convertible non-interest-bearing promissory note in the amount of $20,000, which
was outstanding at December 31, 2003 and was convertible into 2,500,000 shares
of our common stock. At December 31 2002, we had the following convertible notes
outstanding: (i) a convertible promissory note in the principal amount of
$500,000 convertible into an undeterminable number of shares of our common
stock, (ii) 1,000,000 convertible notes payable convertible into 500,000 shares
of our common stock, (ii) $245,000 convertible notes payable convertible into an
indeterminable number of shares of our common stock, and (iv) $114,787
convertible notes payable convertible into 2,200,000 shares of our common stock.
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
adopted SFAS 150 on October 1, 2003 and adoption of SFAS 150 did not
significantly impact 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 and Divestitures
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. 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
results of operations for Ayrshire, using the equity method, have been included
in the Company's financial statements since the date of acquisition.
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).
On December 1, 2003, we completed the acquisition of all the issued and
outstanding shares of Danlas, a British Virgin Islands Company that owns 51% of
IRCA (Proprietary) Limited ("IRCA"), a South African company specializing in
corporate learning, certification and risk mitigation in the area of safety,
health environment and quality assurance ("SHEQ"). IRCA operates in South
Africa, England and the United States through various operating subsidiaries.
Danlas also holds options to acquire the remaining 49% of IRCA. In consideration
for the Danlas shares, the Company (i) issued three convertible promissory notes
in the aggregate principal amount of $40,000 and convertible under certain
conditions into a maximum of 4,500,000 shares of the Company's common
stock, (ii) agreed to advance $500,000 in cash to establish an international
sales force, (iii) provided $500,000 as collateral for an operating line of
credit and, (iv) provided certain future profit thresholds are met, agreed to
issue up to an additional 1,000,000 shares of the Company's common stock. The
first promissory note for $20,000 convertible to 2,500,000 shares has been
classified as contingently redeemable equity at $0.50 per share. 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 results of operations for IRCA, using the equity
method, have been included in the Company's financial statements since the date
of acquisition.
As part of the Danlas transaction, we issued two convertible notes of $10,000
which to purchase the remaining 49% of IRCA. However, the notes are only
effective should Danlas be able to exercise two options for the remaining 49% of
IRCA. The options are exercisable for the period December 1, 2003 to December
31, 2005 commencing 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 2,000,000 shares of our common
stock. As no value has been received, no value has been assigned in our
financial statements for these instruments.
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.
o In 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.
o In the IRCA transaction, Section 20.1.19.3 of the Sale of Shares
Agreement ("SOS Agreement") between Danlas Limited, a wholly owned
subsidiary of Trinity, and IRCA Investments (Pty.) Ltd. ("IRCA
Investments"), the minority shareholder in IRCA, prevents IRCA and its
subsidiaries from approving, canceling or effecting "material changes
to the annual budget or any modification thereof, or to its strategic
plans or marketing strategy or incur unbudgeted capital expenditure in
excess of R200,000 (two hundred thousand Rand) per item or R800,000
(eight hundred thousand Rand) in total per annum." Also, pursuant to
Section 19 of the SOS Agreement, Danlas and IRCA Investments are "each
entitled to appoint equal number of directors to the board of
directors" of IRCA. These substantive participating rights of the
minority shareholder will remain in effect until Danlas owns 60% of
IRCA.
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 was $1,175,235. This
amount comprises legal and financial advisory fees of $175,235 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 $875,463. 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 December 31, 2003, no such impairment
was incurred.
The consideration paid for our investment in IRCA was $1,952,841. This amount
comprises legal, financial advisory and consultancy fees of $702,841 including
the payment to Mr. Steynberg of $612,668 plus 2,500,000 shares of our common
stock valued at $0.50 per share. The net asset value of Ayrshire at acquisition
date was $2,704,870 and our pro rata share of their net assets was $1,379,484.
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 December 31, 2003, no such impairment was incurred.
Divestitures
In December 2003, we sold our interest in CBL Global Corporation and its
Australian subsidiaries (collectively "CBL") to Messrs. Scammell and Kennedy,
the former owners of CBL. In conjunction with the management buyout, we entered
into a Settlement Agreement with respect to our litigation with CBL. Pursuant to
the terms of the agreement, we conveyed all of our interest in CBL back to the
former owners in exchange for surrender and cancellation of 3,000,000 shares of
Company stock issued to them in connection with acquisition of CBL and the
cancellation of $1,000,000 in convertible notes payable to them. Also as a
result of the divestiture, $222,151 owed by CBL to Messrs. Kennedy and Scammell
is no longer an obligation of the Company. Through CBL's strategic alliance with
IRCA, Trinity will continue to market CBL-related workplace learning content and
products in Africa.
As a result of the divestiture, the results of operations for CBL through the
date of divestiture, December 21, 2003 of $368,036 have been included in the
results of operation presented with this report. The accumulated deficit
$1,314,277 resulting from the accumulated operating loss for CBL between October
2002 and December 2003 as well as a comprehensive income of $20,073 are included
with our consolidated accumulated deficit and accumulated other comprehensive
income at December 31, 2003. The net fair value of the assets and liabilities
divested, net of $1,000,000 convertible note payable which was cancelled, the
intercompany receivable from CBL and the cancellation of 3,000,000 shares of
shares of our common stock which was cancelled were recorded as a $592,997
credit to our common stock. No gain or loss was recognized in the Consolidated
Statement of Operations as a result of the divestiture.
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, TouchVision and RMT as if these
acquisitions had occurred at July 1, 2002. In December 2003, we completed the
sale of our interest in CBL to the former owners of CBL. Accordingly, CBL's
business operating results are not included in the Company's combined unaudited
pro forma financial information for the three and six month periods ended
December 31, 2003, and 2002, respectively. The unaudited pro forma financial
information is not intended to represent or be indicative of the consolidated
results of the operations of the Company that would have been reported had these
acquisitions been completed as of the dates presented, nor should it be taken as
a representation of the future consolidated results of operations of the
Company.
Three Months Ended Six Months Ended
December 31 December 31
2003 2002 2003 2002
----------- ----------- ----------- -----------
Revenues $ 647,316 $ 692,357 $ 1,393,018 $ 1,420,959
=========== =========== =========== ===========
Gross Profit $ 475,361 550,611 889,153 1,112,625
=========== =========== =========== ===========
Operating Loss $ (890,715) $ (257,776) $(1,575,428) $ (534,452)
=========== =========== =========== ===========
Net Loss $ (898,054) $ (278,425) $(1,596,234) $ (575,575)
=========== =========== =========== ===========
Net Loss per Common Share $ (0.04) $ (0.01) $ (0.09) $ (0.03)
=========== =========== =========== ===========
Finalization of Purchase Price
Certain information necessary to complete the purchase accounting and our
valuation of our equity method investees 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.
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 December 31, 2003 and June 30, 2003, respectively and depreciation expense
for the six months ended December 31, 2003 and 2002, respectively.
Asset Cost Depreciation Expense Accumulated Depreciation
12/31/2003 06/30/03 12/31/2003 06/30/2002 12/31/2003 06/30/2003
---------- ---------- ---------- ---------- ---------- ----------
Furniture & Equipment $ 52,675 $ 53,385 $ 17,225 $ 80 $ 17,225 $ 7,824
========== ========== ========== ========== ========== ==========
NOTE 4 - Intangible Assets
The Company capitalized intangible assets in its acquisitions of CBL,
TouchVision and RMT. 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 December 31, 2003, respectively, and the expectation that future
revenues for the five year period subsequent to the acquisition will equal or
exceed this amount. Scheduled below is the asset cost and accumulated
amortization at December 31, 2003 and June 30, 2003, respectively, and
amortization expense for the six months ended December 31, 2003 and 2002,
respectively:
Asset Cost Amortization Expense Accumulated Amortization
12/31/2003 06/30/2003 12/31/2003 06/30/2002 12/31/2003 06/30/2003
---------- ---------- ---------- ---------- ---------- ----------
Intangible Asset $1,731,379 $1,118,312 $ 221,576 $ - $ 112,240 $ 167,747
========== ========== ========== ========== ========== ==========
NOTE 5 - Investments in Associated Companies, at Equity
At December 31, 2003, the principal components of Investments in Associated
Companies, at Equity was our 51 % ownership in Ayrshire which owns 95% of
Riverbend and our 51% ownership of IRCA:
Ayrshire IRCA
----------- -----------
Equity investment $ 1,175,235 $ 1,952,841
Equity in loss of unconsolidated subsidiary (294,767) (104,213)
----------- -----------
Balance December 31, 2003 $ 880,468 $ 1,848,628
=========== ===========
Financial position of Ayrshire and of IRCA for the four and 1 month periods,
respectively, ended December 31, 2003.
Ayrshire IRCA
----------- -----------
Income statement information:
Revenue $ 1,238,650 $ 942,896
=========== ===========
Operating loss $ (479,947) $ (83,195)
=========== ===========
Loss before minority interest $ (417,901) (186,740)
=========== ===========
Net loss after loss attributable to minority interest $ (294,767) $ (104,213)
=========== ===========
Financial position information:
Current assets $ 2,302,252 $ 2,573,840
=========== ===========
Noncurrent assets $ 202,496 $ 3,176,455
=========== ===========
Current liabilities $ 980,359 $ 3,701,428
=========== ===========
Long-term liabilities $ 1,324,544 $ -
=========== ===========
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
Total rental expense included in operations for operating leases for the six
months ended December 31, 2003 and 2002, amounted to $78,702 and $27,637,
respectively. Certain lease rentals are subject to renewal options and
escalation based upon property taxes and operating expenses. These operating
lease agreements expire at varying dates through 2005.
Total Minimum Lease Commitments as of December 31, 2003:
Calendar Year Amount
-------------- -------------
2004 $ 129,735
2005 26,693
2006 -
2007 -
Thereafter -
-------------
Total $ 156,427
=============
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 (f/k/a CBL
Acquisition Corporation), and Robert Stephen Scammell, the sole shareholder of
CBL-California, (Case No. 2:03CV00798DAK) alleged, among other things, that
Scammell and CBL-California provided us with misstated financial statements
prior to our merger in October 2002 with CBL-California and CBL Global. On
September 18, 2003, we filed a First Amended Complaint and Jury Demand, which
added as defendants CBL Global and Brian Kennedy, the sole shareholder of
CBL-Australia. The First Amended Complaint alleged causes of action for
violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule
10b-5 promulgated there under, for violations of Section 20(a) of the Securities
Exchange Act of 1934, for declaratory relief and breach of contract, for common
law fraud, and for negligent misrepresentation.
The First Amended Complaint alleged, among other things, that the defendants
were advised by CBL-California's accountant on September 18, 2002 that
CBL-California's financial statements were misstated, and alleged that new
restated financial statements were issued on September 19, 2002. The First
Amended Complaint alleged, however, that the restated financial statements were
not provided to us prior to the October 1, 2002 closing of the merger.
In December, 2003, we sold our interests in CBL Global and its Australian
subsidiaries (collectively "CBL") to Messrs. Scammell and Kennedy, the former
owners of CBL. In conjunction with the management buyout, we entered into a
Settlement Agreement with respect to our litigation with CBL. Pursuant to the
terms of the agreement, we conveyed all of our interest in CBL back to the
former owners in exchange for surrender and cancellation of 3,000,000 shares of
Company stock issued to them in connection with acquisition of CBL and the
cancellation of $1,000,000 in convertible notes payable to them. Also as a
result of the divestiture, $222,151 owed by CBL Global to Messrs. Kennedy and
Scammell is no longer an obligation of the Company.
As a result of the divestiture, the results of operations for CBL through the
date of divestiture, December 21, 2003 of $368,036 have been included in the
results of operation presented with this report. The accumulated deficit
$1,314,277 resulting from the accumulated operating loss for CBL between October
2002 and December 2003 as well as a comprehensive income of $20,073 are included
with our consolidated accumulated deficit and accumulated other comprehensive at
December 31, 2003. The net fair value of the assets and liabilities divested,
net of $1,000,000 convertible note payable which was cancelled, the intercompany
receivable from CBL and the cancellation of 3,000,000 shares of shares of our
common stock which was cancelled were recorded as a $592,997 credit to our
common stock. No gain or loss was recognized in the Consolidated Statement of
Operations as a result of the divestiture.
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 December 31,
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 $15,379 is due December 31,
2004 and accrues interest at a rate of 6% per annum.
On December 17, 2003, we entered into an agreement with Titan Aviation Ltd
("Titan"), a Guernsey company, for the purpose of having Titan act as our
representative in our acquisition of IRCA. Mr. Martin Steynberg, a member of our
board of directors, is the managing director of Titan. Mr. Steynberg is a
shareholder in IRCA Investments (Proprietary) Limited which owns 49% of IRCA.
Under the terms of the agreement, we will pay Titan four million rand or
approximately $612,668. This amount has been included with accounts payable as
of December 31, 2003. This amount has been included in Accounts Payable at March
31, 2004.
As of July 15, 2002, Trinity entered in a two-year Advisory Agreement with
Granite Creek Partners, LLC ("GCP") (formerly Kings Peak Advisors, LLC) with
automatic renewal for a 12-month period. Under the terms of the Advisory
Agreement, GCP agreed to provide the Company with general corporate, financial,
business development and investment advisory services on a non-exclusive basis.
GCP is a private company whose principals are Douglas Cole and Edward Mooney,
who are officers and directors of Trinity, and Mr. Swindells. The Advisory
Agreement was suspended in August 2003.
The Advisory Agreement provided that GCP would be compensated for its various
advisory services as follows: (i) for general corporate advisory services, an
initial retainer of $25,000 and a fee of $20,000 per month throughout the term
of the agreement, payable, at GCP's option, in shares of common stock at a price
per share equal to $0.025; (ii) for financial advisory services, a fee based on
10% of the gross proceeds of any equity financings and/or 1.5% of any gross
proceeds of debt financings that are completed by underwriters or placement
agents introduced by GCP, as well as any fees which may be due to GCP for its
assistance in identifying prospective investors pursuant to terms and conditions
of offering memoranda issued by the Company; (iii) for merger and acquisition
services involving a transaction resulting from a contact provided by GCP, a
sliding fee based on a percentage of the value of the
transaction, subject to an additional $100,000 bonus in the event the
transaction is valued at $3,000,000 or more; (iv) in respect of general business
development advisory services, a fee to be negotiated with GCP based upon
certain agreed-upon fee parameters between the parties; and (v) in respect of
debt, credit or leasing facilities, a fee to be negotiated on a case-by-case
basis.
Trinity acknowledged that it was indebted to GCP for prior services rendered
since April 1, 2002 in the amount of $30,000, up to 50% of which amount is
payable, at GCP's option, in shares of common stock at a price per share of
$0.025. The total number of shares of common stock issuable to GCP under the
Advisory Agreement may not exceed 4,400,000 shares. Through December 31, 2003,
GCP had earned a total of $315,000 under the Advisory Agreement, $110,000 of
which was converted into 4,400,000 shares of common stock in March 2003. Of the
balance of $205,000, $187,087 has been paid to GCP, leaving a balance owing at
December 31, 2003 of $17,913.
As of July 31, 2002, we entered into a Advisory Agreement with European American
Securities, Inc. ("EAS"), for whom Mr. Swindells is a director, pursuant to
which EAS agreed to provide financial advisory and investment banking services
to the Company in exploration of the following strategic alternatives: (a) a
private placement of the Company's convertible promissory notes, (b) a private
placement of the Company's common or preferred stock, and (c) one or more
possible purchase transactions by the Company. In exchange for such services, we
agreed to pay EAS a retainer fee of $5,000 per month and a commission ranging
from 5% to 7% based on the type of transaction consummated, such fees to be paid
in cash or our common stock, at EAS' option. Through December 31, 2003, EAS had
earned a total of $734,773 under the Advisory Agreement. Of the balance of
$734,773, $429,773 has been paid to EAS, leaving a balance owing at December 31,
2003 of $305,000. In January 2004, at EAS' election, $250,000 or 250,000 shares
was paid to EAS in the Company's common stock.
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.
From time to time, since inception of our current operating strategy, Mr.
Swindells has provided short-term working capital loans on a non-interest
bearing basis. During our previous fiscal year, we were advanced $145,000 by Mr.
Swindells, and during the transition period from October 1, 2002 to June 30,
2003, we were advanced an additional $780,000 by Mr. Swindells. The principal
may be converted into such other debt or equity securities financings that we
may issue in private offerings while the loan is outstanding. In September 2003,
we repaid $500,000 on the $925,000 note balance then outstanding. In November
2003, the remaining balance of $425,000 was converted in to 850,000 shares of
common stock and issued to Mr. Swindells.
NOTE 10 - Notes Payable
At December 31, 2003, notes payable to accredited investors and related parties
totaled $274,168 as compared with $2,147,151 at June 30, 2003. The notes bear
interest between the rates of 0% and 10% per annum. Certain notes are
convertible into the Company's common stock.
The Company has the following notes payable obligations:
December 31, June 30,
2003 2003
----------- ----------
Note payable to bank due October 29, 2004, plus interest
payable annually at 9.5%, secured by vehicle. $ 15,715 $ -
Note payable to related parties due December 21, 2004, plus
interest payable at 7% per annum, see Note 9. 15,379 -
Borrowings under revolving line of credit issued by a bank,
plus interest payable at prime plus 2.625%. 99,950 -
Borrowings under revolving line of credit issued by a bank,
plus interest payable at prime plus 6.75%. 34,076 -
Borrowings under revolving line of credit issued by a third
party creditor, plus interest payable at prime plus 1.99%. 15,003 -
Notes payable to third party individuals, due September 1,
2006, plus interest payable at 10% per annum. 94,045 -
Unsecured notes payable to related parties, see Note 7 for
due date, plus accrued interest at a rate of 7% per annum. - 222,151
Convertible notes payable to related parties, see Note 7 for
due date, plus accrued interest at a rate of 7% per annum. - 1,000,000
----------- ----------
Total Notes Payable 274,168 2,147,151
Less: Current Maturities 31,094 (2,147,151)
----------- ----------
Long Term Notes Payable $ 243,074 $ -
=========== ==========
NOTE 11 - Stockholders' Equity
On December 2, 2002, at a special meeting of our shareholders, the 2002 Stock
Plan was approved. The Plan allowed for a maximum aggregate number of shares
that may be optioned and sold under the plan of (a) 3,000,000 shares, plus (b)
an annual 500,000 increase to be added on the last day of each fiscal year
beginning in 2003 unless a lesser amount is determined by the board of
directors. The plan became effective with its adoption and remains in effect for
ten years unless terminated earlier. On December 30, 2003, the board of
directors amended the 2002 Stock Plan to allow for a maximum aggregate number of
shares that may be optioned and sold under the plan of (a) 6,000,000 shares,
plus (b) an annual 1,000,000 increase to be added on the last day of each fiscal
year beginning in 2004 unless a lesser amount is determined by the board of
directors. Options granted under the plan vest 25% on the day of the grant and
the remaining 75% vests monthly over the next 36 months. As of December 31, and
June 30, 2003, 4,047,000 and 2,447,000 options, respectively, have been granted
at prices ranging from $0.05 per share to $0.50 per share of which 1,453,390 and
963,625 were vested as of December 31 and June 30, 2003, respectively.
Between January and April 2003, we received subscriptions to our December 2002
Private Placement Memorandum totaling $250,000 from outside investors to
purchase 250,000 units at a price of $1.00 per unit. Each unit entitles the
holder to two shares of our common stock and two three year warrants, each to
purchase an additional share of common stock for $1.00 per share. If all
warrants are fully exercised by the holder of such warrants, a bonus warrant
will be issued entitling the holder to purchase one additional share of common
stock for $2.00.
Between June and October 2003, we received subscriptions to our May 2003 Private
Placement Memorandum ("May 2003 PPM") totaling $5,073,300 from outside investors
to purchase 5,073,300 units at a price of $1.00 per unit. Each unit entitles the
holder to two shares of our common stock and two three year warrants, each to
purchase an additional share of common stock for $1.00 per share. If all
warrants are fully exercised by the holder of such warrants, a bonus warrant
will be issued entitling the holder to purchase one additional share of common
stock for $2.00. In connection with the May 2003 Private Placement, we issued to
various financial advisors, 567,160 additional shares of our common stock and
five-year warrants to purchase 200,050 shares of our common stock.
As of July 31, 2002, we entered into an Advisory Agreement with EAS, for whom
Mr. Swindells is a director, pursuant to which EAS agreed to provide financial
advisory and investment banking services to the Company in exploration of the
following strategic alternatives: (a) a private placement of the Company's
convertible promissory notes, (b) a private placement of the Company's common or
preferred stock, and (c) one or more possible purchase transactions by the
Company. In exchange for such services, we agreed to pay EAS a retainer fee of
$5,000 per month and a commission raging from 5% to 7% based on the type of
transaction consummated; such fees to be paid in cash or our common stock, at
EAS' option. Through December 31, 2003, EAS had earned a total of $734,773 under
the Advisory Agreement. Of the balance of $734,773, $429,773 has been paid to
EAS, leaving a balance owing at December 31, 2003 of $305,000. In January 2004,
at EAS' election, $250,000 or 250,000 shares was paid to EAS in the Company's
common stock.
In December 2003, we completed the sale of our interests in CBL Global and CBL
to the former owners of CBL. In conjunction with the management buyout, we
entered into a Settlement Agreement with respect to our litigation with CBL as
described in our 10KSB filed with the U.S. Securities and Exchange Commission.
We acquired CBL from its former owners in October 2002. Pursuant to the terms of
the agreement, we have conveyed all our interest in CBL back to the former
owners in exchange for surrender and cancellation of all shares of Trinity stock
issued to them in connection with the acquisition of CBL and the of
approximately $1,000,000 in convertible notes payable to them. As a result of
the sale, we recorded an increase in stockholders' equity of $592,997.
From time to time, since inception of our current operating strategy, Mr.
Swindells has provided short-term working capital loans on a non-interest
bearing basis. During our previous fiscal year, we were advanced $145,000 by Mr.
Swindells, and during the transition period from October 1, 2002 to June 30,
2003, we were advanced an additional $780,000 by Mr. Swindells. The principal
may be converted into such other debt or equity securities financings that we
may issue in private offerings while the loan is outstanding. In September 2003,
we repaid $500,000 on the $925,000 note balance then outstanding. In November
2003, the remaining balance of $425,000 was converted into 850,000 shares of
common stock and issued to Mr. Swindells.
Finally, 100,000 shares of the Company's common stock were issued to Mr. Posner
for finders' fees for the Riverbend transaction.
NOTE 12 - Stock Option Plan
On December 2, 2002, at a special meeting of our shareholders, the 2002 Stock
Plan was approved. The Plan allowed for a maximum aggregate number of shares
that may be optioned and sold under the plan of (a) 3,000,000 shares, plus (b)
an annual 500,000 increase to be added on the last day of each fiscal year
beginning in 2003 unless a lesser amount is determined by the board of
directors. The plan became effective with its adoption and remains in effect for
ten years unless terminated earlier. On December 30, 2003, the board of
directors amended the 2002 Stock Plan to allow for a maximum aggregate number of
shares that may be optioned and sold under the plan of (a) 6,000,000 shares,
plus (b) an annual 1,000,000 increase to be added on the last day of each fiscal
year beginning in 2004 unless a lesser amount is determined by the board of
directors. Options granted under the plan vest 25% on the day of the grant and
the remaining 75% vests monthly over the next 36 months.
The following schedule summarizes the activity during the three months ended
December 31, 2003.
Weighted
Number of Average
Shares Exercise Price
----------- --------------
Outstanding at September 30, 2003 3,182,000 $ 0.23
Options Granted 925,000 0.50
Options Exercised - -
Options Canceled 565,000 0.24
----------- -----------
Options Outstanding at December 31, 2003 3,542,000 $ 0.36
=========== ===========
Options Exercisable at December 31, 2003 1,448,938 $ 0.30
=========== ===========
The following schedule summarizes the activity during the six months ended
December 31, 2003.
Weighted
Number of Average
Shares Exercise Price
----------- --------------
Outstanding at June 30, 2003 2,447,000 $ 0.23
Options Granted 1,660,000 0.50
Options Exercised - -
Options Canceled 565,000 0.24
----------- -----------
Options Outstanding at December 31, 2003 3,542,000 $ 0.36
=========== ===========
Options Exercisable at December 31, 2003 1,448,938 $ 0.30
=========== ===========
In accordance with Statement of Financial Accounting Standards Number 123,
"Accounting for Stock-Based Compensation," option expense of $121,070 and
$219,584 was recognized for the three months and six months ended December 31,
2003, respectively:
December 31, 2003
-----------------
Five-Year Risk Free Interest Rate 3.27%
Dividend Yield Nil
Volatility 70%
Average Expected Term (Years to Exercise) 5
Stock options outstanding and exercisable under 2002 Stock Plan as of December
31, 2003 are as follows:
Average
Weighted Remaining Average
Number of Average Contractual Number Weighted
Range of Options Exercise Life of Options Exercise
Exercise Price Outstanding Price (Years) Vested Price
-------------- ----------- -------- ----------- ---------- --------
$0.05 600,000 $0.05 3.8 334,110 $0.05
$0.25 1,049,000 $0.25 3.9 540,164 $0.25
$0.50 1,893,000 $0.50 4.7 574,664 $0.50
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 funding through senior convertible bridge notes to
raise sufficient funds to continue operations and fund its ongoing
development, merger and acquisition activities. In January 2004, we
commenced a $3,000,000 offering of senior convertible bridge notes to
accredited investors, the proceeds of which will be used for (i)
corporate administration, (ii) the expansion of subsidiary operations,
and (iii) expenses and funds advanced for acquisitions in 2003. In
conjunction with the offering, we have engaged various financial
advisory firms and other finders to identify prospective investors. We
anticipate closing the offering by February 29, 2004.
(b) Generate sufficient cash flow to sustain and grow subsidiary
operations and, if possible, create excess cash flow for corporate
administrative expenses through our operating subsidiaries; and
(c) Identify prospective acquisition targets with sufficient cash flow to
fund subsidiary operations, as well as potentially generating
operating cash flow that may sustain corporate administrative
expenses.
Trinity's future capital requirements will depend on its ability to successfully
implement these initiatives and other factors, including our ability to maintain
our existing customer base and to expand our customer base into new geographic
markets, and overall financial market conditions in the United States and other
countries where we will seek prospective investors.
NOTE 14 - Subsequent Events
We have entered into a definitive agreement to acquire Virtual Learning Partners
SA ("VILPAS"), a learning services company headquartered in Oslo, Norway. We
anticipate closing this transaction within the next 30 days. We will acquire
VILPAS through a combination of stock and cash payments. Among its various
business development initiatives, VILPAS is majority owner of FunkWeb, also
headquartered in Oslo. FunkWeb is a leading provider of workplace training and
retraining for disabled persons. In conjunction with national and local
employment programs, FunkWeb has a successful track record in providing disabled
persons with skills, certifications and job placement services primarily related
to information technologies, web-based systems, and computing. The minority
partner in FunkWeb is the Norwegian Federation of Functionally Disabled People,
a non-government organization (NGO) representing many of the country's
associations and programs for the disabled.
Beginning February 2004, we had received subscriptions to our January 2004
Offering of up to $3,000,000 Senior Convertible Bridge Notes (the "Notes")
totaling $1,060,000. The Notes will mature in twelve months plus accrued
interest at a rate of 7% per annum. The Notes will be convertible at 80% of the
"Next Equity Financing" offering price. The Next Equity Financing shall mean a
common stock equity financing in which proceeds equal or exceed $5,000,000,
which shall include any principal or interest accrued under the Notes. The
Company expects to complete the Next Equity Financing in early 2004. In
addition, for each $1.00 invested, the investor shall receive a 5 year warrant
to purchase a share of the Company's common stock at $1.00 per share.
On February 23, 2004, Trinity Learning Corporation (the "Company") announced
that it had entered into an Agreement and Plan of Merger (the "Merger
Agreement") with ProsoftTraining, a Nevada corporation ("Prosoft"), and MTX
Acquisition Corp., a Utah corporation and a wholly-owned subsidiary of Prosoft
(the "Merger Sub"), pursuant to which the Merger Sub will be merged with and
into the Company, with the Company continuing as the surviving corporation
wholly-owned by Prosoft (the "Merger"). Upon completion of the Merger, holders
of Company common stock will be entitled to receive one (1) share (the "Exchange
Ratio") of Prosoft common stock for each share of Company common stock held by
them. Prosoft will assume all outstanding options to purchase shares of Company
common stock, which will become exercisable to purchase the number of shares of
Prosoft common stock at the exercise price as adjusted by the Exchange Ratio.
The Merger is intended to be a tax-free reorganization under Section 368(a) of
the Internal Revenue Code of 1986, as amended. The consummation of the Merger is
subject to the approval of the stockholders of each of the Company and Prosoft,
effectiveness of the Form S-4 Registration Statement to be filed by Prosoft,
regulatory approvals, satisfactory agreements with certain creditors and other
customary closing conditions.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Our fiscal year ends on June 30. This management's discussion and analysis
of financial condition and results of operations and other portions of this
Quarterly Report on Form 10-QSB/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 and 2004 have been 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 and December 1,
2003, respectively, we completed the following four non-related acquisitions. On
February 23, 2004, we announced that we had entered into an Agreement and Plan
of Merger with ProsoftTraining. Additional information concerning these
transactions and the various companies involved were filed on Forms 8-K.
TouchVision (California)
We completed the acquisition of all of the issued and outstanding shares of
TouchVision, Inc., a California corporation ("TouchVision") that is in the
business of providing technology-enabled information and learning systems to
healthcare providers, financial services companies and other industry segments.
In consideration for the TouchVision shares, we issued an aggregate of 1,250,000
restricted shares of our common stock, of which 312,500 shares are subject to
the terms of an escrow agreement as collateral for the indemnification
obligations of the former TouchVision shareholders. We also agreed to loan to
TouchVision the sum of $20,000 per month for the twelve-month period following
closing, to be used for working capital. We had previously loaned TouchVision
the sum of $50,000 in June and July, 2003 by way of bridge financing pending
completion of the acquisition. In connection with the acquisition, TouchVision
entered into substantially similar employment agreements with each of Messrs.
Gregory L. Roche and Larry J. Mahar, the former principals of TouchVision, which
have a term of two years and provide for annual salaries of $120,000. On October
1, 2003, we advanced $150,000 to TouchVision, the proceeds of which were used to
pay off a loan payable to a bank, which was guaranteed by the Small Business
Administration.
River Murray Training Pty. Ltd. (Australia)
We completed the acquisition of all of the issued and outstanding shares of
River Murray Training Pty Ltd ("RMT") an Australian company that is in the
business of providing workplace training programs for various
segments of the food production industry, including viticulture and
horticulture. In consideration for the shares of RMT we issued 700,000
restricted shares of our common stock, of which 350,000 shares are subject to
the terms of an escrow agreement as collateral for the indemnification
obligations of the former RMT shareholders. We also loaned US$49,000 to RMT for
the purpose of repaying outstanding loans advanced to RMT by its former
shareholders.
Riverbend Group Holdings (Proprietary) Limited (South Africa)
We completed the acquisition of 51% of the issued and outstanding shares of
Ayrshire Trading Limited, a British Virgin Islands company ("Ayrshire") that
owns 95% of Riverbend Group Holdings (Proprietary) Limited ("Riverbend"), a
South African company that provides learning services to corporations and
individuals in South Africa. We also acquired the option to purchase the
remaining 49% of Ayrshire. In consideration for the Ayrshire shares, we issued a
convertible non-interest-bearing promissory note in the amount of US$20,000,
which amount is convertible from time to time, but no later than December 30,
2006, into a maximum of 2,000,000 restricted shares of our common stock. 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.
IRCA
On December 1, 2003, we completed the acquisition of all the issued and
outstanding shares of Danlas, a British Virgin Islands Company that owns 51% of
IRCA (Proprietary) Limited ("IRCA"), a South African company specializing in
corporate learning, certification and risk mitigation in the area of safety,
healthy environment and quality assurance ("SHEQ"). IRCA operates in South
Africa, England and the United States through various operating subsidiaries.
Danlas also holds options to acquire the remaining 49% of IRCA.
In consideration for the Danlas shares, the Company (i) issued three
convertible promissory notes in the aggregate principal amount of $40,000 and
convertible into a maximum of 4,500,000 shares, under certain conditions, of the
Company's common stock, (ii) agreed to advance $500,000 in cash to establish an
international sales force, (iii) provided $500,000 for certain bank guarantees
and, (iv) provided certain future profit thresholds are met, agreed to issue up
to an additional 1,000,000 shares of the Company's common stock. The first
promissory note for $20,000 convertible to 2,500,000 shares has been classified
as contingently redeemable equity at $0.50 per share.
Our 51% ownership in IRCA 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.
ProsoftTraining
On February 23, 2004, Trinity Learning Corporation (the "Company")
announced that it had entered into an Agreement and Plan of Merger (the "Merger
Agreement") with ProsoftTraining, a Nevada corporation ("Prosoft"), and MTX
Acquisition Corp., a Utah corporation and a wholly-owned subsidiary of Prosoft
(the "Merger Sub"), pursuant to which the Merger Sub will be merged with and
into the Company, with the Company continuing as the surviving corporation
wholly-owned by Prosoft (the "Merger"). Upon completion of the Merger, holders
of Company common stock will be entitled to receive one (1) share (the "Exchange
Ratio") of Prosoft common stock for each share of Company common stock held by
them. Prosoft will assume all outstanding options to purchase shares of Company
common stock, which will become exercisable to purchase the number of shares of
Prosoft common stock at the exercise price as adjusted by the Exchange Ratio.
The Merger is intended to be a tax-free reorganization under Section 368(a) of
the Internal Revenue Code of 1986, as amended. The consummation of the Merger is
subject to the approval of the stockholders of each of the Company and Prosoft,
effectiveness of the Form S-4 Registration Statement to be filed by Prosoft,
regulatory approvals, satisfactory agreements with certain creditors and other
customary closing conditions.
Competency Based Learning, Inc.
In December 2003, we completed the sale of our interests in CBL Global
Corporation ("CBL Global") and its Australian subsidiaries (collectively "CBL")
to the former owners of CBL. In conjunction with the management buyout, we
entered into a Settlement Agreement with respect to our litigation with CBL as
described in our 10KSB filed with the U.S. Securities and Exchange Commission.
We acquired CBL from its former owners in October 2002. Pursuant to the terms of
the agreement, we have conveyed all our interest in CBL back to the former
owners in exchange for surrender and cancellation of all shares of Trinity stock
issued to them in connection with the acquisition of CBL and the of
approximately $1,000,000 in convertible notes payable to them. Also as a result
of the divestiture, $222,151 owed by CBL Global to Messrs. Kennedy and Scammell
is no longer an obligation of the Company. We made the decision to divest our
company of CBL following our acquisition in the autumn of 2003 of the four
companies described above. Continued operation of CBL would have required
significant cash infusion on behalf of the Company. Through CBL's strategic
alliance with IRCA, Trinity will continue to market CBL-related workplace
learning content and products in Africa.
Change in Accounting for Ayrshire / Riverbend and IRCA
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
to use 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.
Our 51% ownership in Ayrshire and in IRCA have 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 shown as an asset, "Investments in Associated
Companies." 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.
o In 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.
o In the IRCA transaction, Section 20.1.19.3 of the Sale of Shares
Agreement ("SOS Agreement") between Danlas Limited, a wholly owned
subsidiary of Trinity, and IRCA Investments (Pty.) Ltd. ("IRCA
Investments"), the minority shareholder in IRCA, prevents IRCA and its
subsidiaries from approving, canceling or effecting "material changes
to the annual budget or any modification thereof, or to its strategic
plans or marketing strategy or incur unbudgeted capital expenditure in
excess of R200,000 (two hundred thousand Rand) per item or R800,000
(eight hundred thousand Rand) in total per annum." Also, pursuant to
Section 19 of the SOS Agreement, Danlas and IRCA Investments are "each
entitled to appoint equal number of directors to the board of
directors" of IRCA. These substantive participating rights of the
minority shareholder will remain in effect until Danlas owns 60% of
IRCA.
Change in Fiscal Year
On August 6, 2003, our board of directors approved a change in our fiscal
year-end from December 31 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 six months of fiscal year 2004 include four month's
results of operations for the two companies we recently acquired as well as
CBL's activity for the first six months of fiscal year 2004. Revenues from our
clients were $980,798 for the first six months of fiscal year 2004, compared
with $62,660 for the six month period ended December 2002. Of the total increase
in revenues from our clients, $810,758 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 Policy 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 six
months ended December 31, 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 and in IRCA have 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 products or 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
From time to time, Ms. McPherson and Ms. Hayman, officers of RMT, have
advanced funds to RMT. The current balance of $15,379 is due December 31, 2004
and accrues interest at a rate of 6% per annum.
On December 17, 2003, we entered into an agreement with Titan Aviation Ltd
("Titan"), a Guernsey company, for the purpose of having Titan act as our
representative in our acquisition of IRCA. Mr. Martin Steynberg, a member of our
board of directors, is the managing director of Titan. Mr. Steynberg is a
shareholder in IRCA Investments (Proprietary) Limited which owns 49% of IRCA.
Under the terms of the agreement, we will pay Titan four million rand or
approximately $612,668 on March 1, 21004. This amount has been included with
accounts payable as of December 31, 2003.
As of August 8, 2002, we formalized a Debt Conversion Agreement with Global
Marketing Associates, Inc. ("GMA"), holder of a convertible promissory note (the
"GMA Note") in the principal amount of $166,963, pursuant to which the principal
amount of the note, along with accrued interest thereon, was made convertible,
under certain conditions, into 3,200,000 shares of common stock. The GMA Note
was originally issued in November 2000 to our company's former attorneys and was
subsequently acquired by Pacific Management Services, Inc., who assigned the
note to GMA; both entities are unrelated to us. GMA subsequently assigned the
right to acquire 2,600,000 of the 3,200,000 shares of common stock into which
the note is convertible, to several persons, comprising Messrs. Cole, Mooney,
and Swindells as well as European American Securities, Inc. ("EAS"). Pursuant to
the assignment, Messrs. Cole and Mooney each acquired the right to acquire
600,000 shares of the common stock into which the GMA Note is convertible and
Mr. Swindells acquired the right to acquire 1,000,000 shares. As of January
2003, all 3,200,000 shares of our common stock had been issued pursuant to the
terms of the GMA Note. Fifty percent of the shares issuable upon the conversion
of the GMA Note are subject to a two-year lock-up provision that restricts
transfer of such shares without prior written consent of our board of directors.
As of July 15, 2002, we entered in a two-year Advisory Agreement with
Granite Creek Partners, LLC ("GCP"), formerly King's Peak Advisors, LLC,
automatically renewable for an additional 12-month period. Under the terms of
the Advisory Agreement, GCP agreed to provide us with general corporate,
financial, business development and investment advisory services on a
non-exclusive basis. These services include assisting with the identification of
placement agents, underwriters, lenders and other sources of financing, as well
as additional qualified independent directors and members of management. GCP is
a private company whose principals are Douglas Cole and Edward Mooney, who are
officers and directors of our company, and Theodore Swindells. At its August 19,
2003 meeting, the board of directors' voted to suspend the Advisory Agreement
from August 15, 2003 until January 2004. Through December 31, 2003, GCP had
earned a total of $315,000 under the Advisory Agreement, $110,000 of which was
converted into 4,400,000 shares of common stock in March 2003. Of the balance of
$205,000, $187,087 was paid to GCP, leaving a balance owing at December 31, 2003
of $17,913. The Advisory Agreement was suspended in August 2003.
As of July 31, 2002, we entered into a Advisory Agreement with EAS pursuant
to which EAS agreed to provide financial advisory and investment banking
services to the Company in exploration of the following strategic alternatives:
(a) a private placement of the Company's convertible promissory notes, (b) a
private placement of the Company's common or preferred stock, and (c) one or
more possible purchase transactions by the Company. In exchange for such
services, we agreed to pay EAS a retainer fee of $5,000 per month and a
commission ranging from 5% to 7% based on the type of transaction consummated,
such fees being payable in cash or the Company's common stock at EAS' option.
Through December 31, 2003, EAS had earned a total of $734,773 under the Advisory
Agreement. Of the balance of $734,773, $429,773 has been paid to EAS, leaving a
balance owing at December 31, 2003 of $305,000 of which $250,000 or 250,000
shares in the Company's common stock was paid to EAS in January 2004.
From time to time, since inception of our current operating strategy, Mr.
Swindells has provided short-term working capital loans on a non-interest
bearing basis. During our previous fiscal year, we were advanced $145,000 by Mr.
Swindells, and during the transition period from October 1, 2002 to June 30,
2003, we were advanced an additional $780,000 by Mr. Swindells. The principal
may be converted into such other debt or equity securities financings that we
may issue in private offerings while the loan is outstanding. In September 2003,
we repaid $500,000 on the loan balance then outstanding. In November 2003, the
remaining balance of $425,000 was converted to 850,000 shares of common stock
and issued to Mr. Swindells.
RESULTS OF OPERATIONS
Second Quarter Ended December 31, 2003 Compared to December 31, 2002
Our gross sales revenues were $726,805 for the quarter ended December 31,
2003, as compared to $62,660, the amount we reported for the quarter ended
December 31, 2002. The increase in revenues was due to the acquisitions of
TouchVision and RMT ("acquisitions") which provided the revenues for the second
quarter of fiscal year 2004.
Costs of sales for the quarter ended December 31, 2003 were $171,956 and
consist of labor and hardware costs, and other incidental expenses, as compared
to $0 for the same period last year. This increase was a result of the
acquisitions, which increased costs of sales.
Our gross profit was $554,849 for the quarter ended December 31, 2003, as
compared to $62,660, the amount we reported for the quarter ended December 31,
2002. The increase in gross profit was due to the acquisitions, which provided
$473,335 in gross profit.
Operating expense for the quarter ended December 31, 2003 was $1,785,024 as
compared with $651,519 for the same period same period in the prior year. The
increase in operating expenses was due in part to the additional operating costs
of the acquisitions totaling $531,600. Trinity corporate expenses increased
$379,329 to $778,401 when compared to the same period last year. This increase
is attributable to increased salaries and benefits expense in support of our new
strategy and 2002 Stock Plan expense of $121,070. At December 31, 2003 there
were eight full time employees in Trinity corporate as compared to two employees
at December 31, 2002.
Other expense of $426,897 was $402,823 greater than the prior year and is
attributable to the losses in our equity investments in associated companies of
$397,985 of which $104,213 is attributable to IRCA and $293,772 is attributable
to Ayrshire / Riverbend.
We reported net loss available for common shareholders of $1,657,072 or
$0.07 per share on a diluted basis, for the quarter ended December 31, 2003,
compared with a net loss of $612,933, or $0.10 per share on a diluted basis, for
the same period last year.
Six Months Ended December 31, 2003 Compared to December 31, 2002
Our gross sales revenues were $980,798 for the six months ended December
31, 2003, as compared to $62,660, the amount we reported for the six months
ended December 31, 2002. The increase in revenues was primarily due to the
TouchVision and RMT acquisitions ("acquisitions") which provided the revenues
for the second six months of fiscal year 2004.
Costs of sales for the six months ended December 31, 2003, which consist of
labor and hardware costs, and other incidental expenses, were $204,453, as
compared to $0 for the same period last year. This increase was a result of the
acquisitions, which increased costs of sales.
Our gross profit was $776,345 for the six months ended December 31, 2003,
as compared to $62,660, the amount we reported for the six months ended December
31, 2002. The increase in gross profit was due to the acquisitions, which
provided $606,611 in gross profit.
Operating expense for the six months ended December 31, 2003 increased to
$2,927,740 as compared with $1,049,570 for the same period last year. The
increase in operating expenses of $1,878,170 was due to the acquisitions
($681,400), six months of operating costs in CBL as compared to three months in
the prior year ($241,047) and increased Trinity corporate costs ($666,447). The
increase in Trinity corporate costs is primarily due to an increase in salaries
and benefits costs of $537,963 of which $219,584 is for the 2002 Stock Plan. At
December 31, 2003 there were eight full time employees in Trinity corporate as
compared to two employees at December 31, 2002.
Other expense of $451,587 was $420,743 greater than the prior year and is
attributable to the losses in our equity investments in associated companies of
$398,980 of which $104,213 is attributable to IRCA and $294,767 is attributable
to Riverbend.
We reported net loss available for common shareholders of 2,602,982, or
$0.14 per share on a diluted basis, for the six months ended December 31, 2003,
compared with a net loss of $1,017,754 or $0.28 per share on a diluted basis,
for the same period last year.
Liquidity and Capital Resources
Our expenses are currently greater than our revenues. We have a history of
losses, and our accumulated deficit as of December 31, 2003 was $13,791,895, as
compared to $11,188,913 as of June 30, 2003.
At December 31, 2003, we had a cash balance of $658,048 as compared to
$86,511 at June 30, 2003. Net cash used by operating activities during the six
months ended December 31, 2003 was $1,571,590, attributable primarily to our
loss from operations of $2,602,982. Cash generated by financing activities was
$3,947,441 for the six months ended December 31, 2003 representing the net of
repayments under short-term notes of $500,000, financing fees of $625,859 and
$5,073,300 in proceeds from issuance of common stock.
Accounts receivable increased from $42,719 at June 30, 2003 to $370,240 at
December 31, 2003. This increase is due to receivables owed to the two
subsidiaries we acquired in September 2003.
Accounts payable increased from $391,872 at June 30, 2003 to $1,132,177 at
December 31, 2003. This increase is attributable to expenses incurred in
connection with our acquisitions, and our continuing corporate expansion during
the year.
We commenced a private offering of our securities in May 2003. As of
October 31, 2003, we had closed the offering and raised an aggregate of
$5,073,300. Of these funds, $141,719, $87,108 and $277,625, were advanced as
loans to our subsidiaries, CBL, RMT, and TouchVision, respectively, $1,000,000
and $20,000 were advanced as loans to our equity method investees Ayrshire /
Riverbend and IRCA, respectively, $625,859 was paid in commissions to financial
advisors for fundraising activities, and $500,000 was repaid on short-term
promissory notes to a related party.
As a professional services organization we are not capital intensive.
Capital expenditures historically have been for computer-aided instruction,
accounting and project management information systems and general-purpose
computer equipment to accommodate our growth. Capital expenditures, excluding
purchases financed through capital lease, during the first six months of fiscal
years 2004 and 2003 were $16,838 and $6,389, respectively.
Currently, we do not have significant cash or other material assets, nor do
we have an established source of revenues sufficient to cover our operating
costs and to allow us to continue as a going concern. We do not currently
possess a financial institution source of financing and we cannot be certain
that our existing sources of cash will be adequate to meet our liquidity
requirements. However, we have undertaken the following to meet our liquidity
requirements:
(a) Seek additional funding through senior convertible bridge notes to
raise sufficient funds to continue operations and fund its ongoing
development, merger and acquisition activities. In January 2004, we
commenced a $3,000,000 offering of senior convertible bridge notes to
accredited investors, the proceeds of which will be used for (i)
corporate administration, (ii) the expansion of subsidiary operations,
and (iii) expenses and commitments made for acquisitions in 2003. In
conjunction with the offering, we have engaged various financial
advisory firms and other finders to identify prospective investors. We
anticipate closing the offering by February 29, 2004.
(b) Generate sufficient cash flow to sustain and grow subsidiary
operations and, if possible, create excess cash flow for corporate
administrative expenses through our operating subsidiaries; and
(c) Identify prospective acquisition targets with sufficient cash flow to
fund subsidiary operations, as well as potentially generating
operating cash flow that may sustain corporate administrative
expenses.
Trinity's future capital requirements will depend on its ability to
successfully implement these initiatives and other factors, including our
ability to maintain our existing customer base and to expand our customer base
into new geographic markets, and overall financial market conditions in the
United States and other countries where we will seek prospective investors.
To meet our present and future liquidity requirements, we will continue to
seek additional funding through private placements, conversion of outstanding
loans and payables into common stock, development of the business of our
newly-acquired subsidiaries, collections on accounts receivable, and through
additional acquisitions that have sufficient cash flow to fund subsidiary
operations. There can be no assurance that we will be successful in obtaining
more debt and/or equity financing in the future or that our results of
operations will materially improve in either the short- or the long-term. If we
fail to obtain such financing and improve our results of operations, we will be
unable to meet our obligations as they become due. That would raise substantial
doubt about our ability to continue as a going concern.
ITEM 3. CONTROLS AND PROCEDURES
Our Chief Executive Officer and Chief Financial Officer, after conducting
an evaluation, together with other members of our management, of the
effectiveness of the design and operation of our disclosure controls and
procedures as of the end of the period covered by this report, have concluded
that our disclosure controls and procedures were effective to ensure that
information required to be disclosed by us in our reports filed or submitted
under the Securities Exchange Act of 1934 (the "Exchange Act") is recorded,
processed, summarized, and reported within the time periods specified in the
rules and forms of the SEC. There were no significant changes in our internal
controls or in other factors that could significantly affect these controls
subsequent to that evaluation, and there were no significant deficiencies or
material weaknesses in such controls requiring corrective actions.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On September 12, 2003, we filed a Complaint in the United States District
Court for the District of Utah, Central Division, against CBL Global Corporation
("CBL Global") (f/k/a CBL Acquisition Corporation), and Robert Stephen Scammell,
the sole shareholder of CBL-California, (Case No. 2:03CV00798DAK) alleging,
among other things, that Scammell and CBL-California provided us with misstated
financial statements prior to our merger in October 2002 with CBL-California and
CBL Global. On September 18, 2003, we filed a First Amended Complaint and Jury
Demand, which added as defendants CBL-Global and Brian Kennedy, the sole
shareholder of CBL-Australia. The First Amended Complaint alleges causes of
action for violations of Section 10(b) of the Securities Exchange Act of 1934
and Rule 10b-5 promulgated there under, for violations of Section 20(a) of the
Securities Exchange Act of 1934, for declaratory relief and breach of contract,
for common law fraud, and for negligent misrepresentation.
The First Amended Complaint alleged, among other things, that the
defendants were advised by CBL-California's accountant on September 18, 2002
that CBL-California's financial statements were misstated, and alleges that new
restated financial statements were issued on September 19, 2002. The First
Amended Complaint alleged, however, that the restated financial statements were
not provided to us prior to the October 1, 2002 closing of the merger.
In December, 2003, we sold our interests in CBL Global and its Australian
subsidiaries (collectively "CBL"), Messrs. Scammell and Kennedy, to the former
owners of CBL. In conjunction with the management buyout, we entered into a
Settlement Agreement with respect to our litigation with CBL. Pursuant to the
terms of the agreement, we have conveyed all of our interest in CBL back to the
former owners in exchange for surrender and cancellation of 3,000,000 shares of
Trinity stock issued to them in connection with acquisition of CBL and the
cancellation of $1,000,000 in convertible notes payable to them. Also as a
result of the divestiture, $222,151 owed by CBL Global to Messrs. Kennedy and
Scammell is no longer an obligation of the Company.
ITEM 2. CHANGES IN SECURITIES
Recent Sales of Unregistered Securities
On December 1, 2003, we completed the acquisition of all the issued and
outstanding shares of Danlas, a British Virgin Islands Company that owns 51% of
IRCA (Proprietary) Limited ("IRCA"), a South African company specializing in
corporate learning, certification and risk mitigation in the area of safety,
health environment and quality assurance ("SHEQ"). IRCA operates in South
Africa, England and the United States through various operating subsidiaries.
Danlas also holds options to acquire the remaining 49% of IRCA. In consideration
for the Danlas shares, the Company (i) issued three convertible promissory notes
in the aggregate principal amount of $40,000 and convertible into a maximum of
4,500,000 shares of the Company's common stock, (ii) agreed to advance $500,000
in cash to establish an international sales force, (iii) provided $500,000 for
certain bank guarantees and, (iv) provided certain future profit thresholds are
met, agreed to issue up to an additional 1,000,000 shares of the Company's
common stock., which has been recorded as contingently redeemable equity in
stockholders' equity at $0.50 per share. In our opinion, the offer and sale of
these securities was exempt by virtue of Section 4(2) of the Securities Act and
the rules promulgated there under.
During the period June 1, 2003 to October 31, 2003, we sold by way of
private placement an aggregate of 5,073,300 units at a price of $1.00 per unit,
for aggregate consideration of $5,073,300. Each unit comprised two shares of our
common stock and two warrants, each exercisable for one additional share of our
common stock. In addition, each unit carried the right to acquire an additional
warrant to purchase, under certain conditions, up to one additional share of
common stock. In connection with the private placement, we paid $470,510 in
commissions and issued to various financial advisors 567,160 additional shares
of our common stock and five-year warrants to purchase 200,050 shares of our
common stock. In our opinion, the offer and sale of these securities was exempt
by
virtue of Section 4(2) of the Securities Act and the rules promulgated there
under.
During the period from September 27, 2002 to June 30, 2003 we issued
convertible unsecured promissory notes to Mr. Swindells, who lends money to us
from time to time on a non-interest bearing basis, in the total principal amount
of $925,000. The principal may be converted into such other debt or equity
securities financings that we may issue in private offerings while the note is
outstanding. In September 2003, we repaid $500,000 on the note balance then
outstanding. In November 2003, the remaining balance of $425,000 was converted
in to 850,000 shares of common stock and issued to Mr. Swindells. In our
opinion, the offer and sale of these securities was exempt by virtue of Section
4(2) of the Securities Act and the rules promulgated there under.
As of July 31, 2002, we entered into an Advisory Agreement with EAS
pursuant to which EAS agreed to provide financial advisory and investment
banking services to the Company in exploration of the following strategic
alternatives: (a) a private placement of the Company's convertible promissory
notes, (b) a private placement of the Company's common or preferred stock, and
(c) one or more possible purchase transactions by the Company. In exchange for
such services, we agreed to pay EAS a retainer fee of $5,000 per month and a
commission ranging from 5% to 7% based on the type of transaction consummated,
such fees being payable in cash or the Company's common stock at EAS' option.
Through December 31, 2003, EAS had earned a total of $734,773 under the Advisory
Agreement. Of the balance of $734,773, $429,773 has been paid to EAS, leaving a
balance owing at December 31, 2003 of $305,000 of which $250,000 or 250,000
shares in the Company's common stock was paid to EAS in January 2004. In our
opinion, the offer and sale of these securities was exempt by virtue of Section
4(2) of the Securities Act and the rules promulgated there under.
Through February 18, 2004, we had received subscriptions to our January
2004 Offering of up to $3,000,000 Senior Convertible Bridge Notes (the "Notes")
totaling $935,000. The Notes will mature in twelve months plus accrued interest
at a rate of 7% per annum. The Notes will be convertible at 80% of the "Next
Equity Financing" offering price. The Next Equity Financing shall mean a common
stock equity financing in which proceeds equal or exceed $5,000,000, which shall
include any principal or interest accrued under the Notes. The Company expects
to complete the Next Equity Financing in early 2004. In addition, for each $1.00
invested, the investor shall receive a 5 year warrant to purchase a share of the
Company's common stock at $1.00 per share.
Finally, 100,000 shares of the Company's common stock were issued to Mr.
Posner in January 2004 for finders' fees for the Riverbend transaction. In our
opinion, the offer and sale of these securities was exempt by virtue of Section
4(2) of the Securities Act and the rules promulgated there under.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits were filed with our 10 QSB on February 23, 2004:
10.1 Agreement dated August 9, 2003 between the Company and London Court
Ltd.
10.2 Agreement dated May 30, 2003 between the Company and ACAP Financial,
Inc.
10.3 Agreement dated May 29, 2003 between the Company and Merriman Curhan
Ford & Co.
10.4 Agreement dated April 11, 2003 between the Company and TN Capital
Equities, Ltd.
10.5 Agreement dated December 17, 2003 between the Company and Titan
Aviation Ltd.
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 November 18, 2003, we filed a Current Report on Form 8-K concerning
our acquisition of River Murray Training Pty. Ltd.
2. On November 25, 2003, we filed a Current Report on Form 8-K amending the
report on Form 8-K filed on September 16, 2003, concerning our acquisition of
TouchVision, Inc.
3. On November 28, 2003, we filed a Current Report on Form 8-K amending the
report on Form 8-K filed on September 16, 2003, concerning our acquisition of
Riverbend Group Holding (Pty.) Ltd.
4. On December 17, 2003 we filed a Current Report on Form 8-K concerning
our acquisition of Danlas 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
-----------------------
Douglas D. Cole
Chief Executive Officer
October 28, 2004 By: /S/ CHRISTINE R. LARSON
-----------------------
Christine R. Larson
Chief Financial Officer