U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
Quarterly Report under Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the Quarterly Period Ended December 31, 2005
Commission File No. 0-8924
TRINITY LEARNING CORPORATION
(Exact name of small business issuer as specified in its charter)
UTAH
(State or other jurisdiction of 73-0981865
incorporation or organization) (IRS Employer Identification No.)
4101 International Parkway, Carrollton, Texas 75007
(Address of principal executive offices)
(972) 309-4000
(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 [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [x]
As of February 8, 2006, 40,678,013 shares of the issuer's Common Stock, no par
value per share, were outstanding.
1
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 FOR THE SIX MONTHS ENDED DECEMBER 31, 2005, 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: DETERIORATION IN
CURRENT ECONOMIC CONDITIONS; OUR ABILITY TO PURSUE BUSINESS STRATEGIES; PRICING
PRESSURES; CHANGES IN THE REGULATORY ENVIRONMENT; 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.
2
PART I.FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets December 31, 2005 (Unaudited) and June 30, 2005 (Audited).
Consolidated Statements of Operations and Comprehensive Loss Three and Six Months Ended December 31, 2005
and 2004. (Unaudited)
Consolidated Statements of Cash Flows Six Months Ended December 31, 2005 and 2004 (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.Unregistered Sales of Equity 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
3
PART I
FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Trinity Learning Corporation and Subsidiaries
Consolidated Balance Sheets
December 31, June 30,
2005 2005
------------- -------------
(Unaudited) (Audited)
------------- -------------
Assets
Current Assets
Cash and Cash Equivalents $ 1,447,247 $ 752,261
Accounts Receivable 5,687,730 3,540,415
Inventory 1,511,073 1,632,750
Prepaid Expense and Other Current Assets 1,810,751 1,160,272
------------- -------------
Total Current Assets 10,456,801 7,085,698
Equity Investment in and Advances to Associated Companies - -
Property & Equipment, net 5,530,103 5,876,999
Goodwill - -
Intangible Assets, net -
Program Inventory, net 4,157,993 5,133,334
Restricted Cash 17,756 5,091,670
Other Assets, net 210,982 197,888
------------- -------------
Total Assets $ 20,373,635 $ 23,385,589
============= =============
Liabilities and Stockholders' Equity
Current Liabilities
Accounts Payable$5,500,518$3,134,406
Accounts Payable - Related Parties
Accrued Expenses3,126,2521,625,901
Interest Payable - 23,379
Deferred Revenue 5,319,178 4,042,842
Capital Lease-Current 1,156,724 1,115,666
Notes Payable - Current 155,742 663,446
Notes Payable - Related Parties 346,676 1,023,087
------------- -------------
Total Current Liabilities 15,605,090 11,628,727
------------- -------------
Obligations under Capital Leases 12,654,108 13,242,920
Notes Payable4,868,0141,586,655
Notes Payable - Related Parties - 20,000
Equity Investment in Associated Company 500,000 500,000
Other Long-Term Liabilities 13,592 7,554
------------- -------------
Long Term Liabilities 18,035,714 15,357,129
------------- -------------
Total Liabilities 33,640,804 26,985,856
------------- -------------
Minority Interest 309,210 287,061
------------- -------------
Contingently Redeemable Equity 2,210,000 2,510,000
------------- -------------
Stockholders' (Deficit) Equity
Preferred Stock, 10,000,000 Shares Authorized at No Par Value,
No Shares Issued and Outstanding - -
Common Stock, 100,000,000 Shares Authorized at No Par Value,
37,719,889 and 31,040,143 shares Issued and Outstanding in December,
2005 and June 2004, Respectively 32,497,128 32,000,792
Accumulated Deficit (48,321,856) (38,266,018)
Deferred Financial Advisor Fees - (142,920)
Other Comprehensive Gain (Loss) 38,349 10,818
------------- -------------
Total Stockholders' Equity (15,786,379) (6,397,328)
------------- -------------
Total Liabilities and Stockholders' Equity $ 20,373.635 $ 23,385,589
============= =============
See accompanying notes to the consolidated financial statements.
4
Trinity Learning Corporation
Consolidated Statement of Operations
For Three Months Ended For Six Months Ended
December 31 December 31
2005 2004 2005 2004
(Unaudited) (Unaudited)
------------- ------------- ------------- -------------
Revenue
Sales Revenue $ 8,675,748 $ 907,643 $ 14,024,505 $ 1,810,497
Cost of Sales (2,184,869) (37,430) (2,735,342) (218,335)
------------- ------------- ------------- -------------
Gross Profit 6,490,879 870,213 11,289,163 1,592,162
Expense
Salaries & Benefits 3,826,685 967,567 9,337,498 1,856,869
Professional Fees 719,259 102,356 1,085,473 398,943
Professional Fees - Related Parties - - - -
Selling, General & Administrative 2,780,675 639,407 7,143,011 1,128,569
Depreciation & Amortization 171,075 33,389 312,481 81,351
------------- ------------- ------------- -------------
Total Expenses 7,497,694 1,742,719 17,878,463 3,465,732
Loss from Operations (1,006,815) 872,506 (6,589,300) (1,873,570)
Other Expense
Interest, net 2,087,174 442,361 2,581,754 672,064
Equity Losses and Impairment of Investment in Associated Companies - 590,554 - 1,239,055
Debt Conversion (672,247) 153,178 1,314,064 160,372
Impairment of Intangible Assets - - - -
(Gain) Loss on Sale of Assets (1,000) - (1,000) -
Foreign Currency Gain (Loss) (91) 2,216 184 2,216
------------- ------------- ------------- -------------
Total Other Expense 1,413,836 (1,188,309) 3,895,002 2,073,707
------------- ------------- ------------- -------------
Minority Interest - 22,232 (10,801) 47,108
------------- ------------- ------------- -------------
Loss Before Taxes (2,420,651) (2,038,583) (10,495,103) (3,900,169)
Income Taxes - - - -
------------- ------------- ------------- -------------
Total Income Tax Expense - - - -
------------- ------------- ------------- -------------
Net Loss (2,420,651) (2,038,583) (10,495,103) (3,900,169)
------------- ------------- ------------- -------------
Net Loss Per Share - Basic and Diluted (0.06) (0.07) (0.26) (0.13)
------------- ------------- ------------- -------------
Weighted Average Shares Outstanding 40,018,013 (31,282,043) 40,018,013 30,894,443
------------- ------------- ------------- -------------
A summary of the components of other comprehensive loss for the three and six months ended December 31, 2005 and 2004 follows:
For Three Months Ended For Six Months Ended
December 31 December 31
2005 2004 2005 2004
(Unaudited) (Unaudited)
------------- ------------- ------------- -------------
Net Loss $ (2,420,651) $ (2,038,583) $(10,495,103) $ (3,900,169)
Foreign Currency Translation Gain/(Loss)-(9,908)-17,681
------------- ------------- ------------- -------------
Comprehensive Loss (520,651) (2,048,491) (6,850,827) (3,882,488)
------------- ------------- ------------- -------------
See accompanying notes to the consolidated financial statements.
5
Trinity Learning Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Six Months Ended December 31,
2005 2004
------------- -------------
(Unaudited)
Cash flows from operating activities:
Net loss $(10,495,103) $ (3,900,169)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization 312,481 81,351
Foreign currency translation gain/loss 184 -
Non cash debt issuance - 30,443
Non cash interest expense 1,642,864 611,068
Equity losses and impairment of investment in associated companies - 1,239,055
Employee stock based compensation 200,000 241,983
Bad debt expense 361,700 -
Non cash financial advisory fees 142,920 45,000
Debt conversion expenses 1,314,064 -
Program inventory 763,708 -
Changes in current assets and liabilities, net
of businesses acquired and sold:
Accounts receivable (2,147,315) 29,762
Prepaid expenses and other current assets (650,479) 18,840
Accounts payable and accrued expenses 3,866,462 (101,216)
Accounts payable-related party - (36,980)
Inventory 121,676 -
Accrued expenses - -
Deferred revenue 1,276,336 -
Interest payable (23,379) (15,051)
Minority interest 22,149 (7,615)
------------- -------------
Net cash provided (used) by operating activities (3,291,732) (1,763,529)
------------- -------------
Cash flows from investing activities:
Payment for business acquisitions - (7,314)
Payment for business acquisitions - related party - (4,815)
Restricted cash 5,073,914 (4,491,000)
Advances to associated companies - -
Capital expenditures - (16,611)
------------- -------------
Net cash provided (used) by investing activities 5,073,914 (4,519,740)
------------- -------------
Cash flows from financing activities:
Repayment for capital leases (547,754) -
Borrowings under notes - -
Borrowings under notes - related party - -
Repayments under borrowings (5,039,442) -
Repayments under short-term notes - (544,118)
Repayments under short-term notes - related party - (155,000)
Borrowing under notes and contingent liability - 7,672,500
Borrowings under long-term liabilities 4,500,000 -
Payments for financing fees (259,000)
Proceeds from sale of common stock 21,250
------------- -------------
Net cash provided (used) by financing activities (1,087,196) 6,735,632
------------- -------------
Effect of foreign exchange on cash (17,681)
------------- -------------
Net increase (decrease) in cash 694,986 434,682
Cash at beginning of period 752,261 892,739
------------- -------------
Cash at end of period $ 1,447,247 $ 1,327,421
============= =============
Supplemental information:
Interest paid $ 159,000 $ 71,119
============= =============
Warrants issued with convertible notes $ - $ 2,863,363
============= =============
Beneficial conversion value of note payable $ - $ 2,070,784
============= =============
See accompanying notes to the consolidated financial statements.
6
Trinity Learning Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2005
GENERAL
Trinity Learning has elected to omit substantially all footnotes to the
consolidated financial statements for the three and six months ended December
31, 2005 since there have been no material changes (other than indicated in
other footnotes) to the information previously reported by the Company in their
Annual Report filed on Form 10-KSB for the fiscal year ended June 30, 2005.
UNAUDITED INFORMATION
The information furnished herein was taken from the books and records of the
Company without audit. However, in the opinion of management, the accompanying
unaudited interim consolidated financial statements reflect all adjustments that
are necessary for a fair presentation of the financial position, results of
operations and cash flows for the interim periods presented.
NOTE 1. ACCOUNTING POLICIES
Overview
Trinity Learning is creating a global learning company by acquiring operating
subsidiaries that specialize in educational and training content, delivery, and
services for particular industries or that target a particular segment of the
workforce. Trinity Learning believes that there are product and service
synergies between and among our various subsidiaries that position us to create
a global learning company that can provide integrated learning services to
corporations, organizations, educational institutions, and individual learners,
using a variety of delivery technologies, platforms and methods to meet the
growing need for global learning solutions. Trinity Learning believes that it
will be one of the first companies to be able to serve major multinational
employers at multiple levels of their organizations and assist these customers
to meet the challenges of a major turnover in the world's workforce over the
coming decade. Factors such as demographics, technology, and globalization will
require enterprises, organizations and governments around the world to invest in
human capital to remain competitive.
We operate through our primary operating subsidiary, Trinity Workplace Learning,
located in our 205,000 square foot digital multimedia production center in
Carrollton, Texas, in the greater Dallas metropolitan area. At this Global
Learning Center we create, distribute and archive rich media for workplace
learning and certification for approximately 7,000 corporate, institutional and
government customers in healthcare, industrial services, and public safety
including homeland security, first responders, and federal agencies. We
distribute content to our customers through a variety of learning media
including satellite, broadband, e-learning, CD-ROM, and DVDs. Our proprietary
brands include The Law Enforcement Training Network, HomelandOne, the Fire and
Emergency Training Network, and others. In our healthcare industry vertical we
participate in 17 distinct accreditations for medical-related continuing
professional education and certification. While our strategic focus is to grow
our assets and operations in North America, we continue to also explore
acquisition and alliance candidates in Western Europe and we continue to
maintain ownership positions in small operating subsidiaries in Australia,
Norway and California and we have an ongoing investment in a learning company in
South Africa.
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 Item 310 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 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 Annual Report on Form 10-KSB for the year ended June
30, 2005. The results of operations for the three and six months ended December
31, 2005, 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 April 1, 2005 acquisition of Primedia Workplace Learning.
7
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.
Use of Estimates
The preparation of the Company's 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
revenue recognition policy, valuation and allocation of the purchase
consideration of the assets and liabilities and assets acquired in business
combinations and equity investments in associated companies, our determination
of fair value of common stock issued in business combinations and equity
investments in associated companies, and the annual valuation and review for
impairment of assets acquired and of long-lived assets.
NOTE 2 - GOING CONCERN
To meet our present and future liquidity requirements, we are continuing to seek
additional funding through private placements, conversion of outstanding loans
and payables into common stock, development of the business of our
newly-acquired businesses, 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. Based
upon our cash balance at February 1, 2006 we will not be able to sustain
operations for more than two months without additional sources of financing. 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 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Our fiscal year ends on June 30. This management's discussion and analysis of
financial condition and results of operations and other portions of this
Quarterly Report on Form 10-QSB contain forward looking information that
involves risks and uncertainties. Our actual results could differ materially
from those anticipated by this forward looking information. Factors that could
cause or contribute to such differences include, but are not limited to, those
discussed or referred to in the Annual Report on Form 10-KSB for the fiscal year
ended June 30, 2005 under the heading Information Regarding Forward-Looking
Statements and elsewhere. Investors should review this quarterly report on Form
10-QSB in combination with our Annual 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.
8
Overview
Our financial statements are prepared using accounting principles generally
accepted in the United States of America generally 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, material assets or 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. Based upon our cash balance at
February 1, 2006, we will not be able to sustain operations for more than two
months without additional sources of funding. 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.
Effective April 1, 2005, Trinity Learning Corporation (the "Company") entered
into and closed an asset purchase agreement (the "Asset Purchase Agreement")
with PRIMEDIA Inc. and two PRIMEDIA affiliates (collectively,"PRIMEDIA"),
whereby PRIMEDIA sold to the Company certain assets related to its PRIMEDIA's
Workplace Learning division ("PWPL"). The assets comprised those relating to
PWPL's Healthcare Group, Government Services Group, Industrial Services Group,
Shared Services Group, and all other assets of PWPL, including all of the assets
of PRIMEDIA Digital Video Holdings LLC, excluding only those assets primarily
related to the operations of PWPL's Financial Services Group and/or PWPL's
Interactive Medical Network business (such acquired assets referred to
collectively hereinafter as the "Business"). These assets are comprised of
content libraries, trademarks, brands, intellectual property, databases, and
physical assets. Included in the sale are certain video production and
distribution capabilities used to deliver integrated learning solutions to
professionals in the homeland security, healthcare, industrial, fire &
emergency, government, law enforcement and private security markets currently
served by PWPL. The consolidated financial statements reflect the consolidation
of this entity into our company.
Results of Operations
Second Quarter Ended December 31, 2005 as Compared to the Second Quarter Ended
December 31, 2004
Our revenues for second quarter 2006 were $8,675,748, as compared to
$907,643 for the second quarter 2005. This increase in revenues is due
primarily to the acquisition of Primedia Workplace Learning. The three month
period in 2005 comprises three months' revenue of RMT, TouchVision and VILPAS
while 2006 includes revenues of RMT, TouchVision and VILPAS and Trinity
Workplace Learning.
Costs of sales, which consist of labor, hardware costs, cost of goods sold and
other incidental expenses, was $2,184,869 for the second quarter 2006 as
compared to $37,430 for the second quarter 2005, resulting in gross profit of
$6,490,879 for the second quarter 2006, as compared to $870,213 for the second
quarter 2005. This increase in costs and in gross profit was due to the
acquisition of Primedia Workplace Learning. Operating expenses for second
quarter 2006 were $7,497,694 as compared to $1,742,719 for the second quarter
2005. This increase was due primarily to acquisition of Primedia Workplace
Learning along with increases in selling, general and administrative costs as
well as amortization expense.
Other Expense for the second quarter of 2005 was $1,131,836 compared to
$1,188,309 for the second quarter 2004. This increase is primarily due to
interest expense on long-term debt.
We reported net loss available for common stockholders of $2,420,651 or $0.06
per share for the second quarter 2006, compared with a net loss of $2,038,583 or
$0.07 per share for the second quarter 2005.
Six Months Ended December 31, 2005 as Compared to the Six Months Ended December
31, 2004
Our sales revenue for the six months ended December 31, 2005 were $14,024,505,
as compared to $1,810,497 for the six months ended December 31, 2004. This
increase in revenues was primarily due to the acquisition of Primedia Workplace
Learning. The six month period in 2004 comprises six months' revenue of RMT,
TouchVision and Vilpas while the six month period in 2005 comprises six months'
of RMT, TouchVision Vilpas and Trinity Workplace Learning.
Costs of sales, which consist of labor and hardware costs, and other incidental
expenses, was $2,735,342 for the six months ended December 31, 2005 as compared
to $218,335 for the six months ended December 31, 2004, resulting in gross
profit of $11,289,163 for the six months ended December 31, 2005 as compared to
$1,592,162 for the six months ended December 31, 2004. This increase is due
primarily to acquisition of Primedia Workplace Learning.
Operating expenses for the six months ended December 31, 2005 were $17,878,463
as compared to $3,465,732 for the six months ended December 31, 2004. This
increase was due primarily to the acquisition of Primedia Workplace Learning
resulting in increase in selling, general and administrative costs as well as
depreciation and amortization expense.
Other Expense of $3,895,002for the six months ended December 31, 2005 was
$1,821,295 greater than that for the six months ended December 31, 2004. This
increase in expense is primarily due to an increase in interest expense
$1,909,690, loss on conversion of notes payable $1,153,692 offset by prior year
losses in associated companies of $1,239,055. Included in interest expense of
$2,581,754 is $1,495,564 attributable to amortization of discounts on the Laurus
note.
We reported net loss available for common stockholders of $10,495,103 or $0.26
per share for the six months ended December 31, 2005, compared with a net loss
of $3,900,169 or $0.13 per share for the six months ended December 31, 2004.
9
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, 2005 was $48,321,856 as
compared to $38,266,018 as of June 30, 2005.
At December 31, 2005, we had an unrestricted cash balance of $1,447,247 compared
to $752,261 at June 30, 2005. Net cash used by operating activities during the
six months ended December 31, 2005 was $3,291,732 attributable primarily to our
increase of accounts receivable. Net cash generated by investing activities was
$5,073,914 for the six months ended December 31, 2005 representing the net of
other financing activity and borrowings under short-term notes.
Accounts receivable increased from $3,540,415 at June 30, 2005 to $5,687,730 at
December 31, 2005. This increase is due primarily to increased sales efforts to
our customers.
Accounts payable increased from $3,134,406 at June 30, 2005 to $5,500,518 at
December 31, 2005. Accrued expenses increased from $1,625,901 at June 30, 2005
to $3,126,252 at December 31, 2005. The changes in accounts payable and accrued
expenses are attributable to the negative cash flow.
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.
We continued to seek equity and debt financing in fiscal 2006 to support
our growth and to finance recent and proposed acquisitions:
On July 13, 2005, the Company entered into a Credit Agreement (the "Credit
Agreement") with Instream Investment Partners, LLC, as administrative agent, and
certain lenders (the "Lenders"). Pursuant to the terms of the Credit Agreement,
the Lenders loaned to the Company $3,500,000. The Company may borrow up to an
additional $1,000,000 under the Credit Agreement until January` 13, 2006. The
loan matures on January 13, 2007, with interest payable monthly at the rate of
12% per annum. The obligations of the Company under the Credit Agreement are
secured by a security interest in substantially all existing and hereafter
acquired assets of the Company. TouchVision, Inc. and Trinity Workplace Learning
Corporation, subsidiaries of the Company, each have guaranteed the obligations
of the Company under the Credit Agreement, and have granted the Lenders a
security interest in substantially all of their respective existing and
hereafter acquired assets. The Company also granted to the Lenders warrants (the
"Warrants") to acquire up to an aggregate of 5.25% of the outstanding common
stock of the Company on a fully-diluted basis, and entered into a Registration
Rights Agreement with respect to the common stock issuable upon exercise of the
Warrants. Copies of the Credit Agreement, the form of Warrant and the
Registration Rights Agreement (collectively, the "Agreements") were filed in a
Report on Form 8K. A portion of the proceeds of the Credit Agreement was used
by the Company to repay all amounts outstanding under the Secured Convertible
Term Note and Securities Purchase Agreement (the "Laurus Agreements") dated
August 31, 2004 with Laurus Master Fund, Ltd. ("Laurus"). In connection
therewith, Laurus converted a portion of the note into 1,198,124 shares of
common stock at a conversion price of $0.24 per share.
10
To meet our present and future liquidity requirements, we are continuing 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. Based
upon our cash balance at February 1, 2006 we will not be able to sustain
operations for more than two months without additional sources of financing. 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
Trinity Learning maintains disclosure controls and procedures that are designed
to ensure that information required to be disclosed in its reports pursuant to
the Securities Exchange Act of 1934 (the "Exchange Act"), as amended, is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls and procedures,
management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, and management necessarily was required to apply its
judgment in evaluating the cost-benefit relationship of possible controls and
procedures.
Our Chief Executive Officer and Chief Financial Officer, after conducting
an evaluation, together with other members of management, of the effectiveness
of the design and operation of our disclosure controls and procedures at 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 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.
11
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
As noted above under "Part I, Item 2, Liquidity and Capital Resources", the
Company on July 13, 2005, entered into a Credit Agreement (the "Credit
Agreement") with Instream Investment Partners, LLC, as administrative agent, and
certain lenders (the "Lenders"). Pursuant to the terms of the Credit Agreement,
the Lenders loaned to the Company $4,500,000. Per the Covenant calculations,
the Company is in default of Section 6.11 of the Credit Agreement because it
does not meet a tangible net worth requirement. The Company disputes the
default which was caused by negative goodwill related to the purchase price
allocation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of Shareholders on December 14, 2005. The
Company failed to receive a quorum of the shareholders at the meeting. The
meeting was continued by the shareholders present in person or by proxy until
December 30, 2005, to allow additional time for proxies to come in. The Company
failed to receive a quorum at the continued meeting. No action was taken at
either the original or continued meeting.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. - EXHIBITS
The following exhibits are filed herewith:
31.1 Certification of the Company's Chief Executive Officer.
31.2 Certification of the Company's President and Chief Financial Officer.
32.1 Certification of the Company's Chief Executive Officer.
32.2 Certification of the Company's President and Chief Financial Officer.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TRINITY LEARNING CORPORATION
/S/ RICHARD J. MARINO
------------------------
Richard J. Marino
February 14, 2005 By: Chief Executive Officer
/S/ Patrick R. Quinn
-----------------------
Patrick R. Quinn
February 14, 2005 By: Chief Financial Officer
13