U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15 (d) of
The Securities Exchange Act of 1934
For the fiscal year ended June 30, 2005
Commission File No. 0-8924
Trinity Learning Corporation
(Exact name of small business issuer as specified in its charter)
Utah 3-0981865
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
3685 Mt. Diablo Blvd., Suite 161, Lafayette, California 94549
(Address of principal executive offices)
(925) 284-8025
(Issuer's telephone number)
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act: Common Stock, No Par
Value
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 9 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 [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B in this form, and no disclosure will be contained, to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
The issuer's revenues for the fiscal year ended June 30, 2005: $11,176,975
The aggregate market value of the 34,858,069 shares of voting stock held by
non-affiliates of the Registrant, computed as the average of the closing
bid and asked prices as of October 13, 2005 was approximately $9,063,098.
As of October 13, 2005, the Registrant had outstanding 38,918,013 shares of
common stock, no par value per share.
Throughout this report, we refer to Trinity Learning Corporation, together
with its subsidiaries, as "we," "us," "our company," "Trinity Learning," or
the "Company."
THIS ANNUAL REPORT ON FORM 10-KSB CONTAINS FORWARD-LOOKING STATEMENTS.
THESE STATEMENTS RELATE TO FUTURE EVENTS OR OUR FUTURE FINANCIAL
PERFORMANCE. 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. THESE STATEMENTS ARE ONLY
PREDICTIONS. ACTUAL EVENTS OR RESULTS MAY DIFFER MATERIALLY. IN EVALUATING
THESE STATEMENTS, YOU SHOULD SPECIFICALLY CONSIDER VARIOUS FACTORS,
INCLUDING THE RISKS OUTLINED BELOW. THESE FACTORS MAY CAUSE OUR ACTUAL
RESULTS TO DIFFER MATERIALLY FROM ANY FORWARD-LOOKING STATEMENT.
ALTHOUGH WE BELIEVE THAT THE EXPECTATIONS REFLECTED IN THE FORWARD-LOOKING
STATEMENTS ARE REASONABLE, WE CANNOT GUARANTEE FUTURE RESULTS, LEVELS OF
ACTIVITY, PERFORMANCE OR ACHIEVEMENTS. MOREOVER, NEITHER WE NOR ANY OTHER
PERSON ASSUMES RESPONSIBILITY FOR THE ACCURACY AND COMPLETENESS OF THE
FORWARD-LOOKING STATEMENTS. WE ARE UNDER NO DUTY TO UPDATE ANY OF THE
FORWARD-LOOKING STATEMENTS AFTER THE DATE OF THIS ANNUAL REPORT TO CONFORM
SUCH STATEMENTS TO ACTUAL RESULTS OR TO CHANGES IN OUR EXPECTATIONS.
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TABLE OF CONTENTS
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PART I Page
ITEM 1. DESCRIPTION OF BUSINESS. . . . . . . . . . . . . . . . . . . . .4
ITEM 2. DESCRIPTION OF PROPERTY. . . . . . . . . . . . . . . . . . . . 19
ITEM 3. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . 20
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. . . . . . 20
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS . . . 20
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION. . . 23
ITEM 7. FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . 32
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE. . . . . . . . . . . . . . 74
ITEM 8A. CONTROLS AND PROCEDURES. . . . . . . . . . . . . . . . . . . . 76
ITEM 8B. OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . 77
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS: COMPLIANCE WITH SECTION 16(a)
OF THE EXCHANGE ACT. . . . . . . . . . . . . . . . . . . . . . 78
ITEM 10. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . 81
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . 85
ITEM 13. EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
ITEM 14. PRINCIPAL ACCOUNTANTS FEES AND SERVICES. . . . . . . . . . . . 93
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . 95
EXHIBIT INDEX. . . . . . . . . . . . . . . . . . . . . . . . . 98
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
We are a publicly held global learning company that specializes in
providing technology-enabled learning and certification solutions for
corporations, organizations and individuals in multiple global industries.
Historically, we have focused our marketing on medium to large businesses
and organizations that wish to provide workplace training and certification
to their employees in a cost effective and efficient manner.
In addition to internal growth through business development and expansion
of sales and marketing in existing operations, we have pursued a strategy
of acquiring and integrating other operating companies with established
customer bases in strategic markets and industry segments. Today, target
acquisition candidates typically are expected to meet one or more of these
criteria:
- core operations in the United States
- prime customer relationships in North America
- international sales channels through agents, partners, or sales
offices
- content that can be leveraged by the Company's state-of-the-art
production and communication facility in Carrollton, Texas
TRINITY WORKPLACE LEARNING
In April, 2005, we completed the acquisition of the key operating
assets of the Primedia Workplace Learning division ("PWPL") of PRIMEDIA,
Inc., including PWPL' s content libraries, trademarks, brands, intellectual
property, databases and physical assets. Also included was a 200,000 square
foot state-of-the-art workplace learning content production and delivery
facility in Carrollton, Texas, which is used to deliver integrated learning
solutions to professionals in the homeland security, healthcare,
industrial, fire and emergency, government, law enforcement and private
security markets. We operate the acquired assets as a wholly-owned
subsidiary under the name Trinity Workplace Learning ("TWL").
The content library is used by over 7,000 clients to train, educate
and certify employees in the areas of state and federal regulatory
compliance, ongoing job certification, continuing education, risk
mitigation and in-service education. In addition to its traditional
delivery capabilities such as VHS, DVD, CD-ROM, Internet and print, the
PWPL acquisition makes the Company one of the largest US providers of
satellite-delivered learning content. The satellite network consists of
seven channels that are spread over three key areas: healthcare, government
and industrial. These satellite channels have long-established and
well-respected brand names in their respective industries.
The division, subsequently renamed the Trinity Workplace Learning
division ("TWL"), serves as our primary content creation, marketing and
delivery platform. With a comprehensive video production and distribution
platform, including satellite uplinks and downlinks, plus live and archived
Internet broadcasting capabilities, we have the ability to reach customers
and learners around the world from one central facility. TWL has three key
areas of focus:
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- Healthcare Group. The Healthcare Group ("HCG") focuses primarily
on serving hospitals and long-term care facilities within the
healthcare sector. HCG currently services more than 1,800
hospitals and long-term care institutions and reaches more than
1,800,000 healthcare professionals. HCG provides its training
primarily through our proprietary satellite delivered networks,
with more than 83% of its revenues subscription based with
contracts ranging from one to three years. HCG offers
accreditation for 17 categories of licensed healthcare
professionals, and has issued over 2,600,000 continuing education
certificates. HCG has partnership alliances with the Joint
Commission Resources and the VHA.
- Government Services Group. The Government Services Group ("GSG")
focuses primarily on serving the emergency responder markets. GSG
currently services more than 2,700 agencies and trains more than
300,000 emergency responders in the fields of law enforcement,
fire, emergency medical services, and professional homeland
security. Approximately 90% of its revenue is subscription based
with contract lengths of generally one year in duration. GSG
currently offers more than 2,000 courses through a variety of
delivery channels to its thousands of federal, state and local
customers.
- Industrial Services Group. The Industrial Services Group ("ISG")
offers comprehensive training to the industrial sector and
services some of the largest companies in the United States,
including Global 1000 and Fortune 500 clients. Training in the
industrial segment is increasingly driven by customer mandates
for improved skills as well as for regulatory compliance.
Approximately 10-15% of its revenue is subscription based with
contracts ranging from two to three years. The remaining sales
are single-event transactions. ISG provides its library of more
than 2,000 training courses to its target market primarily
through VHS tapes and CD formats. ISG's commitment to online
offerings has positioned the group to transition from product
sales to a subscription model. ISG supplements all these channels
with associated print material.
KEY BENEFITS OF THE COMBINED OPERATIONS
As a result of the PWPL acquisition, the combination of the Company
and TWL provides a number of key benefits:
- Approximately 235 full-time workplace learning professionals,
including content development, instructional design, training
services, marketing, video production, satellite communications,
Internet and IT and administration. We have an expanded
accounting and finance group that should enhance our financial
controls, cash management, SEC reporting, and Sarbanes-Oxley
compliance.
- A content library of more than 21,000 training courses for the
healthcare, industrial and security government markets.
- Delivery capabilities through a variety of channels, including
satellite, broadband, DVDs, CD-ROM, VHS, print and instructor-led
courses. We currently broadcast content via encrypted satellite
to more than 4,000 installed satellite dishes at customer sites.
This diverse and powerful delivery system should permit us to
cost effectively reach virtually any customer in the world in a
variety of secure channels.
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- A state-of-the-art 200,000 square foot office and production
facility (approximately 20 minutes from Dallas-Fort Worth), built
and equipped at a cost estimated at over $30 million in 1996,
including production studios, satellite uplinks and downlinks. We
now have an extensive information technology infrastructure,
including The Academy, which is a proprietary database for
tracking learners, courses and certifications. We believe that
because an individual's training and certification information
resides within The Academy and is not owned by the employer,
additional revenue could be generated as employees change jobs
and require re-certification. The building also houses a
replication and fulfillment center for in-house, on-demand
creation of VHS tapes, CDs and DVDs, which enables us to leverage
content development across all customer-driven delivery media.
- A full-time customer service center that monitors and services
the Trinity Workplace Learning client base, including providing
professional services and customized solutions. The support group
also makes outbound customer calls to generate sales leads as
well as take incoming customer calls.
THE GLOBAL LEARNING MARKET
According to EduVentures, Inc., the global education and training
market is estimated at approximately $2 trillion annually, with the United
States currently accounting for over 35% of the global market for education
and training services. Within the corporate training market, e-learning,
fueled by increased penetration of computers and workplace access to the
Internet, is playing an increased role in providing employees with training
and workplace learning. DC estimates that the worldwide e-learning services
market will exceed $23 billion by 2006 and Cortona Consulting estimates
that the global e-learning services market will reach $50 billion by 2010.
According to the Population Resource Center, world population exceeded
6 billion individuals in 2001 with a growth rate of 1.3% annually. Based
upon this growth rate, there will be approximately 1 billion new entrants
to the global workforce each decade until at least the middle of this
century. Furthermore, significant changes in the make-up of the world's
population are anticipated in the near future. It is estimated that in
Europe, North America and certain other industrialized nations, anticipated
future labor shortages are expected to be caused by an aging workforce and
will need to be met through immigration, which would drive demand for
language and other job training. Other labor shortages are expected to be
met by full-time and part-time re-entry by "retirees" into the workforce, a
trend that is already gaining momentum in the United States. These re-entry
workers often must be trained or retrained for new job skills, particularly
in computer-related skills. In addition to workplace learning, an aging
population points toward an expanded market for lifelong learning as
longevity increases and people are healthy and active longer into their 70s
and 80s.
Other demographic factors in the make-up of the world's work force are
expected to have a significant impact on the world learning market. In the
United States, according to Ameristat, between 1998 and 2008, over 40
million people are estimated to enter the US labor force, joining over 110
million workers already in the workforce. Furthermore, over 25% of new
workers are expected to be either Hispanic or Asian, thus increasing
diversity in the workplace. A more diverse workforce presents challenges to
employers with regard to language and communication skills, compliance with
laws and regulations regarding employment practices and training in basic
workplace skills.
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As the global workplace continues to change rapidly, the economic
value of a college degree or professional certification continues to
increase. In the United States, the wage premium for a college degree
holder as compared to a high school diploma has nearly doubled since the
late 1970s a statistic that is even more pronounced for women workers.
Around the world, the value of a college degree, particularly from an
accredited U.S. higher education institution, remains one of the most
valuable workplace assets. Through distance and online education, there is
a world market for college degree programs and professional certifications.
Wage differentials based upon education can also be found in the workplace
below the degree level. For example, in Latin America, a worker with six
years of education typically earns 50% more than a worker with no formal
education, and the wage premium increases to 120% based upon 12 years of
education.
Increased globalization is also expected to have a significant impact
on the world learning market. As technology continues to facilitate global
communication and business, corporations will continue to seek out new
foreign markets for highly educated, lower cost workers. For developed
nations to compete with the outsourcing of labor to developing nations,
they must invest in educating and training their workforces. Many companies
already know the benefits of ongoing education and training for their
employees. The American Society for Training and Development ("ASTD")
performed a three-year study of employee education with 575 US-based
publicly-traded firms from various industries. ASTD found that companies
who invested $680 per employee more than the average company increased
their total stockholder return by six percent for the following year. A
survey performed by Chief Learning Officer Magazine and Fairfield Research
Inc., a market research company, looked into the size of the
enterprise-learning market in the US. Companies with over $500 million in
annual sales spent an average of $3.7 million on learning and training and
are estimated to have collectively spent $11.9 billion on education in
2003.
Globalization also presents challenges to large-scale, multinational
employers in global industries that must address their human capital
requirements in a cost-effective manner due to dispersed workforces,
continual introduction of new technologies (including the introduction of
technology to job classifications staffed by entry-level or lower-skilled
workers), global competition, language and cultural barriers and other
demographic factors. Large employers also employ a wide range of personnel
with various educational attainment levels and differing needs for ongoing
training, workplace learning and professional development. In addition,
compliance with local, national and international regulations and standards
is increasingly critical for employers of all sizes.
Just as globalization is expanding the world's workforce to new labor
markets and employers increasingly recognize the return on investment from
a better educated workforce, technology is revolutionizing access to
learning, education and training around the world through computer-based
learning, high-speed network access, distance learning, e-learning and
online accredited education. Access to computers and the Internet continues
to increase dramatically, with the highest rates of growth over the coming
decade expected to be in less developed nations. Worldwide, the Internet
population is estimated at nearly 1 billion by The Computer Industry
Almanac and is expected to grow at a rate of approximately 200 million new
users per year.
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The advent of computer and Internet technology has also presented new
approaches for teaching and training employees. Over the past two decades,
educational research has shown that individuals learn in different ways and
that no one method of teaching or training is optimal across all types of
content or desired educational outcomes. Educational research has shown
that a blended learning approach is generally more successful for the
retention of new learning. Within the overall global learning market, there
are a variety of instructional methods that can be utilized to train
workers. These methods include:
- Classroom instruction at a school, the employer's facility or at
an off-site facility
- Computer-based training and simulation
- Distance education, utilizing printed materials or digital
materials
- Online or e-learning, either instructor-mediated or self-paced
- Hands-on training with machines or devices, either in the
workplace or at a remote facility
STRATEGY
Our goal is to become a leader in the global learning industry and to
create one of the first global brands that integrate products and services
for workplace learning, education and personal growth markets. Key aspects
of our strategy are:
- Cross Selling of Existing Content. We believe that there is
significant customer overlap among its HCG, GSG and ISG industry
verticals. With over 21,000 titles, we believe that there are
significant cross- and up-selling opportunities in the combined
Company and are refocusing our sales force to realize these
synergies.
- Increase Penetration in Key Markets. We intend to market
aggressively to expand our presence in key markets where
significant opportunities lie. For example, HCG currently serves
only 30% of the acute care market and less than 2% of the
long-term care market. GSG currently provides training to less
than 6% of the law enforcement market and only about 7% of the
fire and emergency markets. In addition, the homeland security
market is relatively new and provides substantial opportunity for
growth.
- Acquisitions. We intend to continue our efforts to acquire and
integrate other operating companies with established customer
bases in strategic markets and industry segments. We intend to
acquire operating companies that, when combined with our existing
platform, represent a blended learning approach to workplace
learning.
- Expand Into Key Industry Segments. We are evaluating other
industry segments where we believe that our technology and
infrastructure will allow us to expand. Key among these is
language learning.
- Continue Focus on Cost Savings. We have implemented an extensive
cost savings initiative, which we expect to realize in the next
several quarters. This cost-savings initiative includes:
- Headcount reduction in non-core areas;
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- Conversion of temporary employees to permanent status;
- Re-allocation of internal production staff to eliminate or
reduce freelancers; and
- Elimination of duplicate overhead, such as office space and
back office employees
- Increased Capacity Utilization. TWL's production facility has
additional unutilized capacity. We are in the process of
increasing capacity utilization by one or more of the following:
subleasing unused office space, finding additional third-party
clients for video production facilities and identifying clients
to share our satellite service capacity.
- Integration. TWL now represents substantially all of our assets
and operations. We continue to operate our other subsidiaries in
the United States and in international markets, with the intent
of integrating operations, sales and marketing into TWL. In
cases where integration is not feasible or cost effective, we
anticipate that we will either (a) continue to operate certain
subsidiaries as we have done in the past, (b) seek partnerships
and alliances and other strategic relationships, or (c) divest or
reduce our ownership in selective non-core assets and operations.
- Increase Investor Awareness. We intend to apply for a NASDAQ
Small-Cap or AMEX listing as soon as it meets the listing
requirements.
SUBSIDIARIES
We currently have four wholly owned operating subsidiaries: Trinity
Workplace Learning, TouchVision, River Murray Training, VILPAS, and 51%
interest in the operations of Riverbend. Subsequent to the end of our
fiscal year ended June 30, 2005 we divested our ownership in IRCA
(Proprietary) Limited, previously a 51% subsidiary.
TRINITY WORKPLACE LEARNING
As of April 1, 2005, we 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 PWPL facility. The assets
comprised those relating to PWPL's HCG, GSG, ISG, 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.
In consideration for the Business, we assumed certain liabilities of
PRIMEDIA relating to the Business (the "Assumed Liabilities") in an
aggregate amount estimated at the time of closing to be between $28 and $30
million.
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The purchase price for the Business is subject to a working capital
adjustment whereby the purchase price for the assets will be either reduced
or increased on a dollar-for-dollar basis to the extent that certain
elements of the working capital deficit of the Business as of April 1, 2005
is determined within 90 days of such date to be either, respectively, less
than or greater than $4,000,000. Any such working capital adjustment shall
be satisfied by a cash payment by the responsible party, all pursuant to
the terms of the Asset Purchase Agreement. In connection with the
transactions contemplated by the Purchase Agreement, SBI USA LLC, a
California Limited Liability Company ("SBI"), agreed to guarantee the
performance by the Company of certain leases comprising part of the Assumed
Liabilities. In consideration for such guarantee (the "Guarantee"), we
entered into an agreement with SBI dated April 1, 2005 (the "SBI
Agreement") pursuant to which we agreed, among other things, to issue to
SBI an aggregate of 4,000,000 shares of the Company's common stock (which
stock will carry piggyback registration rights) (the "SBI Shares"), to
reimburse SBI for any expenses incurred by it in connection with the
granting of the Guarantee, to grant SBI the right to appoint an observer to
the Company's Board of Directors, to compensate such observer at the rate
of $15,000 per month, plus expenses, and to indemnify SBI for any
liabilities that might accrue to it pursuant to the Guarantee.
Since closing of the Asset Purchase Agreement, we estimate that we have
been able to better utilize our resources and reduce expenses of the
Business from a combined basis by approximately $3.5 million on an
annualized basis through the following initiatives:
- Because Primedia refreshed and updated the content library prior
to the sale of PWPL, we believe that minimal investment, if any,
in content is needed over the next 12 months. Historically,
Primedia has spent approximately $1.1 million per quarter on
content development;
- As a result of our acquisition of PWPL from Primedia, corporate
overhead expenses of allocated from Primedia to PWPL should be
substantially eliminated;
- We have converted 29 temporary and/or contract employees to
permanent status and eliminated several current job functions for
an annual savings of approximately $1.3 million;
- Because of the office space and administrative support that we
acquired as a result of its acquisition of the Business, we have
implemented annualized cost savings of approximately $300,000
through the elimination of duplicate overhead, such as office
space and certain financial staff in California;
- Other anticipated savings include:
- Annual savings of approximately $125,000 from reduced maintenance
costs related to the purchase of a new computer system. No
significant capital expenditures are planned during the coming 12
months;
- $90,000 reduction of licensing fees paid for learning management
system;
- Bonus and legal fee accruals by PWPL that are no longer payable
of $212,000 and $100,000.
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TOUCHVISION
TouchVision specializes in web-based software products that are
designed to be deployed on external and internal websites, a network of
self-service stations, or stand-alone terminals. This hardware
independence means the software can be accessed with a wide variety of
end-user devices: web browser stations, wireless tablets and personal
digital assistants (PDA's), kiosks, or computers. The addition of
TouchVision provides other Trinity Learning companies with the potential to
incorporate new software and hardware technology and delivery platforms
into their core learning products.
RIVER MURRAY TRAINING
River Murray Training ("RMT"), our Australian subsidiary, provide
consultancy services for customers to establish a sustainable in-house
training system, resource development services to develop customized
learning support materials; and training services to provide a wide
selection of fully accredited training.
The basis of the RMT training model is partnering with companies to
develop training programs, which provides two key benefits for its
customers: first, training is made relevant to the workplace; second,
active involvement of customer personnel in training program development
creates opportunities that foster the creation of a learning environment.
This in turn provides a medium through which the customer can achieve
continuous improvement.
RMT's primary sources of revenue are from the design and delivery of
consulting and training services in the Australian agribusiness industry.
VILPAS
VILPAS is a learning services company headquartered in Oslo, Norway.
For the past five years, it has been engaged in developing e-learning and
other educational initiatives for corporations and organizations in Norway,
Scandinavia and Europe. FunkWeb, a subsidiary of VILPAS, 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 Norway's
associations and programs for the disabled.
FunkWeb provides classroom-based, instructor-led instruction and also
computer-based self-paced study to functionally-disabled individuals
seeking to develop new workplace skills and certifications. Many countries
in Europe and around the world have announced public initiatives to
increase participation rates in the labor force among disabled people.
COMPETITIVE BUSINESS CONDITIONS
The competitive market for corporate training and workplace learning
is fragmented by geography, curricula, and targeted segments of the
workforce. Although there are many companies that provide training, we
believe that we derive our competitive advantage because of our ability to
provide a suite of learning solutions on a worldwide basis at multiple
levels of the workforce ranging from industrial workers to executive
management.
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Generally, most of our competition comes from:
- Smaller, specialized local training companies;
- Providers of online and e-learning products targeted at corporate
soft skills and technical training;
- Not-for-profit trade schools, vocational schools and
universities; and
- Learning services divisions of large, multinational computer,
software and management consulting firms.
We anticipate that market resistance may come from the internal
trainers in the organizations to whom our various operating subsidiaries
sell training and certification. Traditional trainers may see outsourcing
as a threat to their job security. We seek to overcome this by focusing
our business development strategy on senior management in operations,
finance and human resources. We will also reshape the value proposition
for internal training functions from tactical to strategic. We believe we
can enhance the role of internal training and human capital development
departments by providing a proven, integrated set of learning tools. In
this way, we can provide measurable results and increase both the actual
effectiveness and the perceived value of internal training departments.
Each of our operating subsidiaries faces local and regional competition for
customer contracts and for government and non-government funding of
education and training projects. In geographic areas where they hope to
expand, they may face competition from established providers of their
respective products and services.
We believe that our operating subsidiaries derive their competitive
advantage from one or more of the following:
- Proprietary content, software or technology;
- Strategic relationships and alliances, including exclusive
development and marketing relationships; and
- Management's industry and customer relationships.
INTELLECTUAL PROPERTY
Our success and ability to compete are dependent, to a significant
degree, on our ability to develop and maintain the proprietary aspects of
our technology and operate without infringing the proprietary rights of
others. We regard certain aspects of our products and documentation as
proprietary and rely on a combination of trademark, trade secret and
copyright laws and licenses and contractual restrictions to protect our
proprietary rights. These legal protections afford only limited
protection. We seek to protect the source code for our software,
documentation and other written materials under trade secret and copyright
laws. We license software pursuant to license agreements that restrict use
of the software by customers. Finally, we seek to limit disclosure of our
intellectual property by requiring employees, consultants and customers
with access to our proprietary information to execute confidentiality
agreements and by restricting access to source codes. We believe, however,
that in the market for online-learning and other technology-enabled
education, training and certification services that require online business
communications and collaboration, factors such as the technological and
creative skills of our personnel and our ability to develop new products
and enhancements to existing products are more important than the various
legal protections of our technology to establishing and maintaining a
technology leadership position.
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Our products and services, in some cases, are derived from proprietary
content developed by our operating subsidiaries. In other cases, we or our
subsidiaries are licensed to market third-party content or software, or in
some cases to modify or customize third party content to meet the needs of
our clients. In certain cases, where we have made investments to develop
or co-develop certain products or services with third-parties, we and our
operating subsidiaries may be entitled to certain rights of ownership and
copyright of intellectual property to the extent they are delivered to
customers in the format developed by us.
Our products are generally licensed to end-users on a "right-to-use"
basis pursuant to a license that restricts the use of the products for the
customer's internal business purposes. We also rely on "click wrap"
licenses, which include a notice informing the end-user that, by
downloading the product, the end-user agrees to be bound by the license
agreement displayed on the customer's computer screen. Despite efforts to
protect our proprietary rights, unauthorized parties may attempt to copy
aspects of our products or to obtain and use information that is regarded
as proprietary. Policing unauthorized use of products is difficult and,
while we are unable to determine the extent to which piracy of our software
exists, it can be expected to be a persistent problem. In addition, the
laws of many countries do not protect intellectual proprietary rights to as
great an extent as do the laws of the United States. Many of our
subsidiaries operate in countries other than the United States. We are in
the process of reviewing all intellectual property ownership and protection
among all of our recently-acquired operating subsidiaries.
EMPLOYEES
As of September 30, 2005, we had approximately 256 full time employees
located in California, Texas, Australia and Norway.
CORPORATE BACKGROUND
We were incorporated on April 14, 1975 in Oklahoma under the name U.S.
Mineral & Royalty Corp. as an oil and gas exploration, development and
operating company. In 1989, we changed our name to Habersham Energy
Company. Historically, the company was engaged in the business of
acquiring and producing oil and gas properties, but did not have any
business activity from 1995 to 2002. Subsequent to our reorganization in
2002, we changed our corporate domicile to Utah, amended our capital
structure and changed our name to Trinity Companies Inc. In March 2003,
our name was changed to Trinity Learning Corporation.
On June 16, 2003, we completed a recapitalization of our common stock
by (i) effecting a reverse split of our outstanding common stock on the
basis of one share for each 250 shares owned, with each resulting
fractional share being rounded up to the nearest whole share, and (ii)
subsequently effecting a forward split by dividend to all stockholders of
record, pro rata, on the basis of 250 shares for each one share owned. The
record date for the reverse and forward splits was June 4, 2003. As a
result of the recapitalization, the number of shares outstanding 13,419,774
remained unchanged. Between July and October 2003, an additional 19,090
shares of common stock were issued to shareholders, and shares owned by
members of management were cancelled pursuant to this recapitalization.
On August 6, 2003, our board of directors approved a change in our fiscal
year-end from September 30 to June 30 to align it with those of the
companies we had already acquired or were at that time in the process of
acquiring.
-13-
RISK FACTORS
You should carefully consider the following risks before making an
investment in our company. In addition, you should keep in mind that the
risks described below are not the only risks that we face. The risks
described below are the risks that we currently believe are material to our
business. However, additional risks not presently known to us, or risks
that we currently believe are not material, may also impair our business
operations. You should also refer to the other information set forth in
this Annual Report on Form 10-KSB, including the discussions set forth in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Description of Business," as well as our financial
statements and the related notes.
ADDITIONAL CAPITAL IS NECESSARY TO SUSTAIN AND GROW OUR BUSINESS.
For the foreseeable future, unless and until we attain profitable
operations, we will likely experience a net operating loss or minimal net
income. Thus, we will likely be dependent for the foreseeable future on
capital raised in equity and/or debt financing, and there can be no
assurance that we will be able to obtain such financing on favorable terms,
if at all.
OUR BUSINESS STRATEGY IS BASED ON ACQUIRING AND CONSOLIDATING ADDITIONAL
SUITABLE OPERATING COMPANIES AT ATTRACTIVE VALUATIONS.
Our growth strategy includes integrating our recent acquisitions and
building a world-wide learning technology company. Acquisitions involve
various inherent risks, such as:
- The ability to assess accurately the value, strengths,
weaknesses, contingent and other liabilities and potential
profitability of acquisition candidates;
- The potential loss of key personnel of an acquired business;
- The ability to integrate acquired businesses and to achieve
identified financial and operating synergies anticipated to
result from an acquisition; and
- Unanticipated changes in business and economic conditions
affecting an acquired business.
WE NEED TO SUCCESSFULLY INTEGRATE RECENTLY ACQUIRED AND POTENTIAL
ADDITIONAL OPERATING COMPANIES.
As a result of recent acquisitions and, as part of our general
business strategy, we expect to experience significant growth and expect
such growth to continue into the future. This growth is expected to place
a significant strain on our management, financial, operating and technical
resources. Failure to manage this growth effectively could have a material
adverse effect on the company's financial condition or results of
operations.
-14-
There can be no assurance that we will be able to effectively
integrate the acquired companies with our own operations. Expansion will
place significant demands on our marketing, sales, administrative,
operational, financial and management information systems, controls and
procedures. Accordingly, our performance and profitability will depend on
the ability of our officers and key employees to (i) manage our business
and our subsidiaries as a cohesive enterprise, (ii) manage expansion
through the timely implementation and maintenance of appropriate
administrative, operational, financial and management information systems,
controls and procedures, (iii) add internal capacity, facilities and
third-party sourcing arrangements as and when needed, (iv) maintain service
quality controls, and (v) attract, train, retain, motivate and manage
effectively our employees. There can be no assurance that we will
integrate and manage successfully new systems, controls and procedures for
our business, or that our systems, controls, procedures, facilities and
personnel, even if successfully integrated, will be adequate to support our
projected future operations. Any failure to implement and maintain such
systems, controls and procedures, add internal capacity, facilities and
third-party sourcing arrangements or attract, train, retain, motivate and
manage effectively our employees could have a material adverse effect on
our business, financial condition and results of operations.
OUR BUSINESS MIGHT NEVER BECOME PROFITABLE.
We have never been profitable. We have a substantial accumulated
deficit, and we expect our cumulative net losses and cumulative negative
cash flow to continue until we can increase our revenues and/or reduce our
costs. Long-term demand for our service will depend upon, among other
things, whether we obtain and produce high quality programming consistent
with consumers' tastes; the willingness of consumers to pay for our
products and services; the cost and availability of our leased satellites;
our marketing and pricing strategy; and the marketing and pricing strategy
of our competitors. If we are unable ultimately to generate sufficient
revenues to become profitable and have positive cash flow, we could default
on our commitments and may have to discontinue operations or seek a
purchaser for our business or assets.
FAILURE OF OUR LEASED SATELLITES WOULD SIGNIFICANTLY DAMAGE OUR BUSINESS.
We lease one satellite for use in our Workplace Learning business.
Satellites are subject to a number of risks including: degradation and
durability of solar panels, quality of construction; random failure of
satellite components, which could result in significant damage to or loss
of a satellite; amount of fuel satellites consume; and damage or
destruction by electrostatic storms or collisions with other objects in
space, which occur only in rare cases. In the ordinary course of
operation, satellites experience failures of component parts and
operational and performance anomalies. These failures and anomalies are
expected to continue in the ordinary course, and it is impossible to
predict if any of these future events will have a material adverse effect
on our operations.
-15-
OUR NATIONAL BROADCAST STUDIO, TERRESTRIAL REPEATER NETWORK, SATELLITE
UPLINK FACILITY OR OTHER GROUND FACILITIES COULD BE DAMAGED BY NATURAL
CATASTROPHES OR TERRORIST ACTIVITIES.
An earthquake, tornado, flood, terrorist attack or other catastrophic
event could damage our national broadcast studio, terrestrial repeater
network or satellite uplink facility, interrupt our service and harm our
business. We do not have replacement or redundant facilities that can be
used to assume the functions of our terrestrial repeater network, national
broadcast studio or satellite uplink facility in the event of a
catastrophic event.
Any damage to the satellite that transmits to our terrestrial repeater
network would likely result in degradation of our service for some
subscribers and could result in complete loss of service in certain areas.
Damage to our national broadcast studio would restrict our programming
production and require us to obtain programming from third parties to
continue our service. Damage to our satellite uplink facility could result
in a complete loss of service until we could identify a suitable
replacement facility and transfer our operations to that site.
WE ARE EFFECTIVELY CONTROLLED BY OUR OFFICERS AND DIRECTORS.
Our directors and executive officers beneficially own a significant
percentage of the company's outstanding shares of common stock. As a
result, these people exert substantial influence over our affairs and may
have the ability to substantially influence all matters requiring approval
by the stockholders, including the election of directors.
WE ARE SUBJECT TO COMPLIANCE WITH SECURITIES LAW, WHICH EXPOSES US TO
POTENTIAL LIABILITIES, INCLUDING POTENTIAL RESCISSION RIGHTS.
We have periodically offered and sold our common stock to investors
pursuant to certain exemptions from the registration requirements of the
Securities Act of 1933, as well as those of various state securities laws.
The basis for relying on such exemptions is factual; that is, the
applicability of such exemptions depends upon our conduct and that of those
persons contacting prospective investors and making the offering. We have
not received a legal opinion to the effect that any of our prior offerings
were exempt from registration under any federal or state law. Instead, we
have relied upon the operative facts as the basis for such exemptions,
including information provided by investors themselves.
If any prior offering did not qualify for such exemption, an investor
would have the right to rescind its purchase of the securities if it so
desired. It is possible that if an investor should seek rescission, such
investor would succeed. A similar situation prevails under state law in
those states where the securities may be offered without registration in
reliance on the partial preemption from the registration or qualification
provisions of such state statutes under the National Securities Markets
Improvement Act of 1996. If investors were successful in seeking
rescission, we would face severe financial demands that could adversely
affect our business and operations. Additionally, if we did not in fact
qualify for the exemptions upon which it has relied, we may become subject
to significant fines and penalties imposed by the SEC and state securities
agencies.
-16-
OUR GROWTH STRATEGY IS DEPENDENT ON A VARIETY OF REQUIREMENTS, ANY ONE OF
WHICH MAY NOT BE MET.
Our growth strategy and future profitability will be dependent on our
ability to recruit additional management, operational and sales
professionals and to enter into contracts with additional customers in
global markets. There can be no assurance that our business development,
sales, or marketing efforts will result in additional customer contracts,
or that such contracts will result in profitable operations. Further, our
growth strategy includes plans to achieve market penetration in additional
industry segments. In order to remain competitive, we must (a) continually
improve and expand our workplace learning and other curricula, (b)
continually improve and expand technology and management-information
systems, and (c) retain and/or recruit qualified personnel including
instructional designers, computer software programmers, learning
consultants, sales engineers, and other operational, administrative and
sales professionals. There can be no assurance that we will be able to
meet these requirements.
OUR BUSINESS WILL SUFFER IF TECHNOLOGY-ENABLED LEARNING PRODUCTS AND
SERVICES ARE NOT WIDELY ADOPTED.
Our technology-enabled solutions represent a new and emerging approach
for the workplace learning and education, and training market. Our success
will depend substantially upon the widespread adoption of e-learning
products for education and training. The early stage of development of
this market makes it difficult to predict customer demand accurately. A
delay in, or failure of, this market to develop, whether due to
technological, competitive or other reasons, would severely limit the
growth of our business and adversely affect our financial performance.
WE FACE SIGNIFICANT COMPETITION FROM OTHER COMPANIES.
The education marketplace is fragmented yet highly competitive and
rapidly evolving, and is expected to continue to undergo significant and
rapid technological change. Other companies may develop products and
services and technologies superior to our services, which may result in our
services becoming less competitive. Many of these companies have
substantially greater financial, manufacturing, marketing and technical
resources than we do and represent significant long-term competition. To
the extent that these companies offer comparable products and services at
lower prices or at higher quality and more cost effectively, our business
could be adversely affected.
Our future growth depends on successful hiring and retention,
particularly with respect to sales, marketing and development personnel,
and we may be unable to hire and retain the experienced professionals we
need to succeed.
Failure on our part to attract and retain sufficient skilled
personnel, particularly sales and marketing personnel and product
development personnel, may limit the rate at which we can grow, may
adversely affect our quality or availability of our products and may result
in less effective management of our business, any of which may harm our
business and financial performance. Qualified personnel are in great
demand throughout the learning and software development industry.
Moreover, newly hired employees generally take several months to attain
full productivity, and not all new hires satisfy performance expectations.
-17-
THE LENGTH OF THE SALES CYCLE FOR SERVICES MAY MAKE OUR OPERATING RESULTS
UNPREDICTABLE AND VOLATILE.
The period between initial contact with a potential customer and the
purchase of our products by that customer typically ranges from six to
eighteen months. Factors that contribute to the long sales cycle include
(a) the need to educate potential customers about the benefits of our
services; (b) competitive evaluations and bidding processes managed by
customers; (c) customers' internal budgeting and corporate approval
processes; and (d) the fact that large corporations often take longer to
make purchasing decisions due to the size of their organizations.
OUR BUSINESS MAY SUFFER IF WE ARE NOT SUCCESSFUL IN DEVELOPING, MAINTAINING
AND DEFENDING PROPRIETARY ASPECTS OF TECHNOLOGY USED IN OUR PRODUCTS AND
SERVICES.
Our success and ability to compete are dependent, to a significant
degree, on our ability to develop and maintain the proprietary aspects of
our technology and operate without infringing the proprietary rights of
others. Litigation may be necessary in the future to enforce our
intellectual property rights, to protect trade secrets, to determine the
validity and scope of the proprietary rights of others or to defend against
claims of infringement or invalidity. Any such litigation, even if we
prevailed, could be costly and divert resources and could have a material
adverse effect on our business, operating results and financial condition.
We can give no assurance that our means of protecting our proprietary
rights will be adequate, or that our competitors will not independently
develop similar technology. Any failure by us to protect our intellectual
property could have a material adverse effect on our business, operating
results and financial condition.
There can be no assurance that other parties will not claim that our
current or future products infringe their rights in the intellectual
property. We expect that developers of enterprise applications will
increasingly be subject to infringement claims as the number of products
and competitors in our industry segment grows and as the functionality of
products in different segments of the software industry increasingly
overlaps. Any such claims, with or without merit, could be time consuming
to defend, result in costly litigation, divert management's attention and
resources, cause product shipment delays or require us to enter into
marginally acceptable terms. A successful infringement claim against us
and our failure or inability to license the infringed rights or develop
license technology with comparable functionality, could have a material
adverse effect on our business, financial condition and operating results.
We integrate third-party software into some of our products. This
third-party software may not continue to be available on commercially
reasonable terms. We believe, however, there are alternative sources for
such technology. If we are unable to maintain licenses to the third-party
software included in our products, distribution of our products could be
delayed until equivalent software could be developed or licensed and
integrated into our products. This delay could materially adversely affect
our business, operating results and financial condition.
-18-
LAWS AND REGULATIONS CAN AFFECT OUR OPERATIONS AND MAY LIMIT OUR ABILITY TO
OPERATE IN CERTAIN JURISDICTIONS.
Providers of educational programs to the public must comply with many
laws and regulations of federal, state and international governments. We
believe that we and our operating subsidiaries are in substantial
compliance with all laws and regulations applicable to our learning
business in the various jurisdictions in which we and our subsidiaries
operate. However, laws and regulations in the various jurisdictions in
which our subsidiaries operate that target educational providers could
affect our operations in the future and could limit the ability of our
subsidiaries to obtain authorization to operate in certain jurisdictions.
If we or various of our subsidiaries had to comply with, or was found in
violation of, a jurisdiction's current or future licensing or regulatory
requirements, we could be subject to civil or criminal sanctions, including
monetary penalties; we could also be barred from providing educational
services in that jurisdiction. In addition, laws and regulatory decisions
in many areas other than education could also adversely affect our
operations. Complying with current or future legal requirements could have
a material adverse effect on our operating results and stock price.
CHANGES IN EXCHANGE RATES CAN UNPREDICTABLY AND ADVERSELY AFFECT OUR
CONSOLIDATED OPERATING RESULTS.
Our consolidated financial statements are prepared in U.S. dollars,
while the operations of our foreign subsidiaries are conducted in their
respective local currencies. Consequently, changes in exchange rates can
unpredictably and adversely affect our consolidated operating results, and
could result in exchange losses. We do not hedge against the risks
associated with fluctuations in exchange rates. Although we may use
hedging techniques in the future, we may not be able to eliminate or reduce
the effects of currency fluctuations. Thus, exchange rate fluctuations
could have a material adverse impact on our operating results and stock
price.
OUR BUSINESS IS ALSO SUBJECT TO OTHER RISKS ASSOCIATED WITH INTERNATIONAL
OPERATIONS.
Our financial results may be adversely affected by other international
risks, such as:
- Difficulties in translating our courses into foreign languages;
- International political and economic conditions;
- Changes in government regulation in various countries;
- Trade barriers;
- Difficulty in staffing foreign offices, and in training and
retaining foreign instructors;
- Adverse tax consequences; and
- Costs associated with expansion into new territories.
ITEM 2. DESCRIPTION OF PROPERTY
Our major facilities are located in Carrollton, Texas. Premises are
located on 14.79 acres of property and consist of a two story structure and
parking for approximately 650 vehicles. The building is approximately
seven years old and consists of 205,750 rentable square feet which is
leased from an unaffiliated third party on a ten year lease with nine years
remaining. The facility is used for production, warehouse and office space.
The lease payment is approximately $176,000 per month. The premises are
suitable for their intended uses.
-19-
We lease executive office space on the first floor of a four story
office building in Lafayette, CA. The space is leased from an unaffiliated
third party. The lease is a 2 year term which commenced on May 1, 2005.
Monthly rent is approximately $2,200. The office is 900 square feet with 2
partitioned offices and one large multi-use space which includes two desks,
conference area, storage and IT equipment. These premises are suitable for
their intended use.
ITEM 3. LEGAL PROCEEDINGS
The Company has agreed in connection with its purchase of the Primedia
Workplace Learning assets to assume the defense of certain litigation,
entitled ARGUS 1 SYSTEMS CORPORATION V. PRIMEDIA WORKPLACE LEARNING L.P.,
ET AL., No. 04-CV-138918, District Court of Fort Bend County, Texas (the
"Argus Claim"), regarding claims made by Argus 1 Systems Corporation
("Plaintiff") resulting from that certain Memorandum of Understanding,
dated May 22, 2003, ("MOU") by and between Plaintiff and PRIMEDIA Workplace
Learning LP, a Delaware limited partnership ("PWPL"). Plaintiff has
alleged various contract and tort claims and seeks among other things
license fees, attorney fees and actual and punitive damages. The Primedia
Workplace purchase agreement provides that the Company shall generally be
responsible for paying that portion of any Recovery (as defined therein)
relating to license fees, royalty fees, or other damages arising from any
sales other conduct after the purchase of the Workplace assets and be
responsible for the payment of all on-going license or royalty fees
relating to periods thereafter. In addition, some of the cost and
recoveries may be split on a 50/50 basis. The Company has not yet been
named as a party to the litigation, has not engaged legal counsel for the
matter, and has conducted no discovery. The Company is unable to estimate
the likelihood of an unfavorable outcome or the amount or range of any
potential loss its potential liability or legal exposure for the
litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND SMALL
BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES
At November 1, 2005, we had approximately 601 shareholders of record.
Our common stock has been quoted on the National Association of Securities
Dealers OTC Electronic Bulletin Board since December 23, 2003 under the
symbol "TTYL." Prior to this date, Trinity Learning's common stock was
traded on the Pink Sheets, a privately owned company headquartered in New
York. Neither we nor any of our affiliated purchasers, as that term is
defined in Rule 10b-18 under the Securities Exchange Act of 1934,
repurchased any of our common stock during the period April 1 through June
30, 2005.
The following table sets forth the high and low bid quotations, as
provided by the OTC Bulletin Board, for our common stock as reported by
NASDAQ. These prices are based on inter-dealer bid prices, without markup,
markdown, commissions or adjustments and may not represent actual
transactions.
-20-
Fiscal Year Ended June 30, 2005: High Low
-------------------------------- ------------ ------------
April 1, 2005 to June 30, 2005 $ 0.45 $ 0.22
January 1, 2005 to March 31, 2005 $ 1.05 $ 0.13
October 1, 2004 to December 31, 2004 $ 1.50 $ 0.70
July 1, 2004 to September 30, 2004 $ 1.65 $ 0.85
Fiscal Year Ended June 30, 2004: High Low
-------------------------------- ------------ ------------
April 1, 2004 to June 30, 2004 $ 1.50 $ 0.80
January 1, 2004 to March 31, 2004 $ 2.50 $ 1.50
October 1, 2003 to December 31, 2003 $ 1.59 $ 0.03
July 1, 2003 to September 30, 2003 $ N/A $ N/A
We have never declared or paid dividends on our common stock in the
past, and we do not intend to pay such dividends in the foreseeable future.
Any future determination to pay dividends will be at the discretion of our
board of directors and will depend on our financial condition, results of
operations, capital requirements and other factors our board of directors
deems relevant.
Neither we nor any of our affiliated purchasers, as that term is
defined in Rule 10b-18 under the Securities Exchange Act of 1934,
repurchased any of our common stock during the period April 1 through June
30, 2005.
THE 2002 STOCK PLAN
An aggregate of 13,500,000 shares of our common stock are currently
authorized for issuance pursuant to our 2002 Stock Plan. This plan was
approved on December 2, 2002, at a special meeting of our shareholders.
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.
-21-
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth certain information regarding
securities authorized for issuance under the 2002 Stock Plan at June 30,
2005:
Number of Weighted Number of
Securities Average Securities
to be Issued Exercise Remaining
Upon Exercise Price of Available
of Outstanding Outstanding for Future
Plan Name Options Options Issuance
------------------------- ---------------- ------------- -------------
Equity compensation
plan approved by
security holders 11,665,000 $0.36 1,800,000
RECENT SALES OF UNREGISTERED SECURITIES
The following is information as to certain securities we have sold
during the fiscal year ended June 30, 2005, that were not registered under
the Securities Act of 1933, as amended:
During the period February 2004 to November 2004, certain warrant
holders from our 2002 Bridge Financing exercised warrants at $0.05 per
share for 1,238,542 shares of our common stock. The issuance of these
securities was made in reliance on Section 4(2) of the Securities Act as a
transaction not involving any public offering. No advertising or general
solicitation was employed in offering the securities, the offerings and
sales were made to a limited number of persons, and we restricted transfer
of the securities in accordance with the requirements of the Securities
Act.
On July 29, 2004, we issued a secured convertible promissory note in
the principal amount of $500,000 to Oceanus Value Fund, L.P. ("Oceanus").
The note matured on October 27, 2004 and bore interest at the rate of
twelve percent (12%). The holder of the note had the option to participate
in a subsequent financing made during the term of the note, and in lieu of
all or part of any cash payment that would otherwise be made to us in
connection with such financing, the holder may elect to contribute $1.00 of
debt forgiveness under the note for each $1.00 of such participation. In
connection with the issuance of the note, we also issued to Oceanus a
five-year warrant to purchase up to 125,000 shares of our common stock at a
price of $1.00 per share. The issuance of these securities was made in
reliance on Section 4(2) of the Securities Act as a transaction not
involving any public offering. No advertising or general solicitation was
employed in offering the securities, the offerings and sales were made to
one entity, and we restricted transfer of the securities in accordance with
the requirements of the Securities Act. The recipient of the securities
represented its intention to acquire the securities for investment only,
and not with a view to or for sale in connection with any distribution
thereof, and appropriate legends were affixed to the instruments issued in
such transactions.
-22-
On August 31, 2004, we entered into a series of agreements with Laurus
Master Fund, Ltd. ("Laurus") whereby we issued to Laurus (i) a secured
convertible term note ("Note") in the principal amount of $5.5 million and
(ii) a five-year warrant ("Warrant") to purchase up to 1,600,000 shares of
our common stock at a price of $0.81 per share. The principal amount of
the Note and accrued interest thereon was convertible into shares of our
common stock at a price of $0.72 per share, subject to anti-dilution
adjustments. Under the terms of the Note, the monthly principal payment
amount of approximately $22,000.00, plus the monthly interest payment
(together, the "Monthly Payment"), was payable in either cash or, if
certain criteria are met, including the effectiveness of a current
registration statement covering the shares of our common stock into which
the Note is convertible, through the issuance of our common stock. Laurus
had the option to convert the entire principal amount of the Note, together
with interest thereon, into shares of our common stock, provided that such
conversion does not result in Laurus beneficially owning more that 4.99% of
our outstanding shares of common stock. The issuance of the Note and the
Warrant was made in reliance on Section 4(2) of the Securities Act as a
transaction not involving any public offering. No advertising or general
solicitation was employed in offering the securities, the offerings and
sales were made to one entity, and we restricted transfer of the securities
in accordance with the requirements of the Securities Act. The recipient
of the securities represented its intention to acquire the securities for
investment only, and not with a view to or for sale in connection with any
distribution thereof, and appropriate legends were affixed to the
instruments issued in such transactions.
On February 4, 2005, we issued an aggregate of 127,419 restricted
shares of our common stock to Laurus, upon conversion of $44,117.64 of
principal amount and accrued interest of $13,221.19 of the Note. The
issuance of these securities was made in reliance on Section 4(2) of the
Securities Act of 1933 as a transaction not involving any public offering.
The Note, as amended, provided for a conversion rate of $0.45 for the first
$250,000 of principal converted.
On January 31, 2005, we issued 50,000 restricted shares of our common
stock to three affiliates of MCC Financial Services. The shares were
issued in consideration as partial payment for investor relations services
at a deemed price of $0.44 per share. The issuance of these securities was
made in reliance on Section 4(2) of the Securities Act as a transaction not
involving any public offering. No advertising or general solicitation was
employed in offering the securities, and the issuance of the securities was
made to an existing shareholder of our company.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
This management's discussion and analysis of financial condition and
results of operations and other portions of this report contain
forward-looking information that involves risks and uncertainties. Our
actual results could differ materially from those anticipated by this
forward-looking information. This management's discussion and analysis of
financial condition and results of operations should be read in conjunction
with the financial statements and the related notes included elsewhere in
this report.
-23-
OVERVIEW
In the first quarter of fiscal year 2005, we announced that we had
modified our strategy to focus our management and financial resources on
new acquisition targets and operations in North America, with a secondary
focus on Western Europe. During the remainder of fiscal 2005 management
focused its efforts on identifying and analyzing various merger and
acquisition candidates in the United States. These efforts culminated with
the announcement on April 1, 2005 of an asset purchase agreement whereby we
acquired substantially all of the assets of Primedia Workplace Learning
from Primedia, Inc.
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, 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. Except as noted below 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.
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 and are
incorporated herein by reference. 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.
In connection with the execution of the Credit Agreement, the Company
issued Warrants to the Lenders, which Warrants are exercisable for a period
of five years and permit the holders the right to acquire up to an
aggregate of 5.25% of the outstanding common stock of the Company on a
fully diluted basis at a price per share equal to $0.266, subject to
adjustment as provided in the Warrants. The Company believes that the
issuance of the Warrants is exempt from the registration requirements of
the Securities Act of 1933 pursuant to Section 4(2) thereof. A copy of the
form of Warrant is filed as Exhibit 99.2 hereto and is incorporated herein
by reference. As noted above, on July 13, 2005, in connection with the
payoff of amounts outstanding under the Laurus Agreements, Laurus converted
-24-
a portion of the note into 1,198,124 shares of common stock at a conversion
price of $0.24 per share. The Company believes that the issuance of common
stock upon conversion of the note is exempt from the registration
requirements of the Securities Act of 1933 pursuant to Section 4(2)
thereof.
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.
Currently the Company is trying to obtain additional equity financing
of approximately $2 million. The proceeds will be used for general working
capital purposes and should provide sufficient cash to sustain operations
into early 2006. There can be no assurance that the Company will be
successful in completing this transaction.
RESULTS OF OPERATIONS
FISCAL YEAR ENDED JUNE 30, 2005 AS COMPARED TO THE FISCAL YEAR ENDED JUNE
30, 2004
Our sales revenues for fiscal year 2005 were $11,176,975 as compared
to $2,590,091 for 12-month period ended June 30, 2004. This significant
increase in revenues is due to the acquisition of assets of Primedia
Workplace Learning on April 1, 2005. The results for fiscal year 2005
include three months of operations associated with the Primedia assets, and
12 months of operations of TouchVision, RMT, and Vilpas. The fiscal year
2004 included ten months of revenue from TouchVision ($1,113,463) and RMT
($639,678), and four months of revenue from VILPAS ($669,160).
Additionally, revenues of CBL ($167,790), which was sold by us effective
December 22, 2003, were included through such date.
Costs of sales, which consist of labor and hardware costs, and other
incidental expenses, were $2,910,244 for the fiscal year 2005 as compared
to $475,076 for the fiscal year 2004, resulting in gross profit of
$8,266,731 for the fiscal year 2005 as compared to $2,115,015 for the
fiscal year 2004. These increases in both costs and gross profit were due
to and associated with increased revenues resulting from the acquisition
completed by us in April 2005.
Operating expenses for fiscal year 2005 were $16,802,125 as compared
to $7,190,975 for fiscal year 2004. This increase was due primarily to a
significant increase in salaries and benefits, which increased $3,861,131
from $3,636,498 for the fiscal year fiscal year 2004 to $7,497,629 for the
fiscal year 2005. The increase is largely due to the acquisition of the
assets of Primedia Workplace Learning.
Other significant increases in operating expense resulted from
increases in selling, general and administrative expense, professional
fees, and depreciation and amortization expense. Selling, general and
administrative expense was $4,837,038 for fiscal 2005 as compared to
$1,886,514 for fiscal year 2004. Depreciation and amortization expense
increased to $2,783,664 in fiscal 2005 as compared to $279,360 for fiscal
year 2004, due primarily to the acquisition of assets from Primedia.
-25-
Other Expense of $7,135,563 for the year ended June 30, 2005 was
$756,920 greater than the year ended June 30, 2004. Net interest expense
($2,445,410) and losses from equity investments ($1,299,195) accounted for
most of the Other Operating Expenses during fiscal year 2005. During the
fiscal year 2004, Other Operating Expenses were substantially due to
non-recurring losses in associated companies accounted for on an equity
basis of $2,714,985, and debt conversion expense of $3,449,332. Losses in
associated companies arise from Riverbend, ($536,936) and IRCA
($2,178,049). The loss in IRCA includes a $884,963 charge for impairment.
Debt conversion expense comprises non-cash expense associated with the
conversion of the 2004 Bridge Loan at $0.60 per share when the fair market
value of shares trading publicly was $1.05 to $1.25 per share. The IRCA
impairment expense of $884,963 is equal to the write down to $0 of our
initial investment in IRCA, net of current year operating losses and
amortization of identifiable intangible assets. We wrote down our
investment in IRCA to $0 as a result of current year operating performance
and anticipated operating losses in IRCA for the foreseeable future. These
losses are, in part, a result of the weakening of the US dollar in relation
to the South African Rand and the resulting down turn in mining operations
in South Africa, IRCA's primary customer base. During the year ended June
30, 2005, we absorbed losses of $500,000 due to the $500,000 we deposited
as collateral in support of IRCA's operating line of credit. The weakening
U.S dollar also negatively impacted the translated results for each of the
foreign subsidiaries.
We reported net loss available for common stockholders of $15,615,042
or $0.49 per share for the fiscal year 2005 as compared with $11,462,063,
or $0.50 per share for the fiscal year 2004.
At June 30, 2005 the following unaudited pro forma financial
information presents the combined results of operations of the Company and
twelve months of operations of Trinity Workplace Learning for the year
then ended. The Company's investments in Riverbend and IRCA are accounted
for on an equity basis. Accordingly, Riverbend's and IRCA's business
operating results are not included in the Company's combined unaudited pro
forma financial information for the twelve month periods ended June 30,
2005 and 2004. In October 2005, The Company and IRCA completed a
Settlement Agreement whereby we mutually rescinded the original acquisition
agreement, resulting in no ownership positions for IRCA in our company and
vice versa (see "Subsequent Events IRCA Settlement Agreement").
We operate as a single business segment and have one product offering
which is training and education; however, our consolidated subsidiaries are
organized geographically into reporting segments consisting of the United
States Division, the European Division, the Australia Division and the
South Africa Division. Our United States division comprises our corporate
operations and subsidiaries domiciled in the United States of America. The
European division comprises subsidiaries domiciled in Europe; the Australia
Division comprises subsidiaries domiciled in Australia. The South Africa
division comprises non-consolidated subsidiaries domiciled in South Africa
accounted for using the equity method of accounting and includes a two
person office owned by them in Australia.
-26-
As of and for the fiscal year ended June 30, 2005:
Investment
Depreciation Losses in
Operating & Associated
Revenue Loss Amortization Companies
------------ ------------ ------------ ------------
United States $ 9,171,584 $(8,139,211) $ 2,766,795 $ -
Europe 1,497,556 (204,031) 1,714 -
Australia 507,834 (102,415) 15,155 -
South Africa - (89,736) - -
------------ ------------ ------------ ------------
Total $ 11,176,974 $(8,535,393) $ 2,783,664 $ -
============ ============ ============ ============
As of and for the fiscal year ended June 30, 2004:
Investment
Depreciation Losses in
Operating & Associated
Revenue Loss Amortization Companies
------------ ------------ ------------ ------------
United States $ 1,113,463 $(4,680,565) $ 221,883 $ -
Europe 669,160 (19,866) 19,616 -
Australia 807,468 (375,529) 37,861 -
South Africa - - - (2,714,985)
------------ ------------ ------------ ------------
Total $ 2,590,091 $(5,075,960) $ 279,360 $(2,714,985)
============ ============ ============ ============
The following describes underlying trends in the businesses of each of
our three subsidiaries that operate as a single business segment and have
one product offering which is training and education.
VILPAS. During 2005, the Norwegian government refined its mandates
with regard to functionally disabled workers, with funding modified to
target not only training of the handicapped but also at subsidizing direct
employment of handicapped and challenged individuals. FunkWeb, a majority
owned subsidiary of VILPAS, revised some of its programs and market
strategies to be able to participate in government programs aimed directly
at increasing employment among functionally disabled workers. Subsequent
to June 30, 2005 the Norwegian government modified its approach to
handicapped workers back, toward increased funding for these initiatives.
There is little or no seasonality to the business of VILPAS. The majority
of operating costs are fixed costs, with some variable costs incurred
related to cost of instructors, which costs may vary depending upon
enrollment. Management has commenced identifying potential business
partners and potential merger and acquisition targets in Norway and
Scandanavia with the goal of strengthening and expanding the longer-term
business operations of VILPAS and Funkweb. Such partnerships or
acquisitions could dilute the Company's ownership positions from current
levels.
-27-
RMT. During fiscal year 2005 there has been a continued general
reduction in Australian government subsidies for corporate training. As a
result, RMT and other Registered Training Organizations must rely on
competitive advantages to retain clients and to attract new customers.
Accordingly, during 2005 a significant portion of RMT financial and
management resources were allocated for the purpose of developing new
products and services to expand its reach beyond the Australian viticulture
industry. The efforts have resulted in the development of FMRMT's
eLearning site ( www.r-m-t-online.com) which
offers a range of Certificate IV and Diploma qualifications using a
facilitated, online blend of learning. Training course and products
available through this new medium include: Training and Assessment courses
for careers in training, Frontline Management Training, Small Business
Management Training, Retail Management courses, HR Management courses, and
Viniculture/ Horticulture Management credentials. There is little or no
seasonality to RMT's business.
New investment for courseware increased during fiscal year 2005.
Variable costs for RMT primarily include one-time and ongoing expenses for
outsourced course development and, at times, instructors. Presently, RMT
sells its products and services in Australia in local currency (Australian
Dollars) and there is little or no effect from currency exchange. In the
future, if RMT is successful in selling in markets outside of Australia,
foreign exchange factors may impact the ability of RMT to market and
compete in a profitable manner.
TOUCHVISION. TouchVision has begun to expand its business into
developing new software and consulting services for the hospital and
healthcare market, while continuing to supply industry sectors it has
focused on in the past. We believe investments in technology infrastructure
by hospitals and healthcare providers will be stable in the coming fiscal
years. There is little or no seasonality to the business of TouchVision. In
addition to sales through its existing sales force, TouchVision is in the
process of exploring distribution or licensing arrangements with outside
companies selling to the healthcare industry. Depending on sales channel
mix, some sales through outside agents may result in lower retained
revenues but, due to corresponding lower fixed costs, these sales may
nonetheless have a positive impact on the bottom line. Following the
acquisition of assets from Primedia, Inc. the Company commenced exploring
opportunities to achieve operating efficiencies through the integration of
certain financial, technical, and customer support aspects of the
TouchVision business into the operations of Trinity Workplace Learning.
These efforts are continuing.
LIQUIDITY AND CAPITAL RESOURCES
Our expenses are currently greater than our revenues. We have a
history of losses, and our accumulated deficit as of June 30, 2005 was
$38,266,018, as compared to $22,650,976 as of June 30, 2004.
At June 30, 2005, we had a cash balance of $752,261. Net cash used by
operating activities during the fiscal year 2005 was $1,176,953,
attributable primarily to our loss from operations of $15,615,042. Net
cash generated by financing activities was $6,467,688 for fiscal year 2005.
Accounts receivable increased to $3,540,415 at June 30, 2005. This
increase is due to the addition of the receivables owed to Trinity
Workplace Learning.
-28-
Accounts payable increased to $3,134,406 at June 30, 2005. Accrued
expenses increased to $1,625,901 at June 30, 2005. These increases are
attributable to expenses incurred by our operating subsidiaries, including
Trinity Workplace Learning, and our corporate office expenditures during
the year.
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 2005 to
support our growth and to finance recent and proposed acquisitions:
On August 31, 2004, we entered into a series of agreements with Laurus
Master Fund, Ltd. ("Laurus") whereby we issued to Laurus (i) a secured
convertible term note ("Note") in the principal amount of $5.5 million and
(ii) a five-year warrant ("Warrant") to purchase up to 1,600,000 shares of
our common stock at a price of $0.81 per share. Of the Note proceeds, the
outstanding principal balance of $500,000 was repaid to Oceanus, $233,000
was used for operations, $4,491,000 was deposited in a restricted account
as security for the total loan amount and for use by us to make
acquisitions as approved by Laurus. Restricted funds may also be released
for operations at a rate of 25% of the dollar volume of our stock for a
twenty day period. The principal amount of the Note carries an interest
rate of prime plus two percent, subject to adjustment, and we must make
monthly payments of at least $22,000, commencing November 1, 2004, toward
the outstanding non-restricted principal amount. The principal amount of
the Note and accrued interest thereon is convertible into shares of our
common stock at a price of $0.72 per share, subject to anti-dilution
adjustments. We have granted Laurus a right of first refusal with respect
to any debt or equity financings and Laurus has the right to loan to us up
to an additional $2.2 million, within 270 days of closing, on the same
terms and conditions as contained in the Laurus agreements pertaining to
the Note and Warrant.
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 and are
incorporated herein by reference. 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.
-29-
In connection with the execution of the Credit Agreement, the Company
issued Warrants to the Lenders, which Warrants are exercisable for a period
of five years and permit the holders the right to acquire up to an
aggregate of 5.25% of the outstanding common stock of the Company on a
fully diluted basis at a price per share equal to $0.266, subject to
adjustment as provided in the Warrants. The Company believes that the
issuance of the Warrants is exempt from the registration requirements of
the Securities Act of 1933 pursuant to Section 4(2) thereof. A copy of the
form of Warrant is filed as Exhibit 99.2 hereto and is incorporated herein
by reference. As noted above, on July 13, 2005, in connection with the
payoff of amounts outstanding under the Laurus Agreements, Laurus converted
a portion of the note into 1,198,124 shares of common stock at a conversion
price of $0.24 per share. The Company believes that the issuance of common
stock upon conversion of the note is exempt from the registration
requirements of the Securities Act of 1933 pursuant to Section 4(2)
thereof.
DURING FISCAL YEAR 2004 OUR FINANCING ACTIVITIES WERE AS FOLLOWS:
In February 2004, we entered into term credit agreements with Hong
Kong League Central Credit Union and with HIT Credit Union for a total of
$250,000. The obligation matures February 2005. Interest on these notes is
payable monthly at 12% per annum. Interest on these notes was prepaid on
September 1, 2004.
On May 28, 2004, we closed the offering of senior convertible bridge
notes that we commenced in January 2004. A total of $2,695,000 was raised
in the offering, to be used for (i) corporate administration, (ii) the
expansion of subsidiary operations, and (iii) expenses and commitments made
for acquisitions in 2003. As of May 28, 2004, the entire aggregate
principal amount of the notes, plus accrued interest thereon, was converted
into a total of 4,520,069 shares of our common stock.
On July 29, 2004, we issued a secured convertible promissory note in
the principal amount of $500,000 to Oceanus Value Fund, L.P. ("Oceanus").
On September 1, 2004, we repaid the principal owing on the promissory note
plus accrued proceeds from the Laurus transaction described below.
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 businesses 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.
-30-
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. To sustain operations and our material
assets are pledged as security for the Instream credit facility. We do not
have an established source of revenues sufficient to cover our operating
costs that will 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 June 30, 2005, we
will not be able to sustain operations for more than 6 month(s) without
additional sources of financing.
Currently the Company is trying to obtain additional equity financing
of approximately $2 million. The proceeds will be used for general working
capital purposes and should provide sufficient cash to sustain operations
into early 2006. There can be no assurance that the Company will be
successful in completing this transaction.
-31-
ITEM 7. FINANCIAL STATEMENTS
/Letterhead/
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
-------------------------------------------------------
Board of Directors and Shareholders
Trinity Learning Corporation
Lafayette, California
We have audited the accompanying balance sheet of Trinity Learning
Corporation as of June 30, 2005, and the related statements of operations,
stockholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audit.
We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement.
The Company is not required to have, nor were we engaged to perform, audits
of its internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly, we
express no such opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Trinity Learning
Corporation as of June 30, 2005, and the results of their operations and
their cash flows for the year then ended, in conformity with accounting
principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 14 to the
financial statements, the Company has a working capital deficit and has
suffered recurring operating losses, which raises substantial doubt about
its ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 14. The financial statements
do not include any adjustments that might result from the outcome of these
uncertainties.
/S/ Chisholm, Bierwolf & Nilson, LLC
Chisholm, Bierwolf & Nilson, LLC
Bountiful, Utah
November 1, 2005
/Letterhead/
Report of Independent Registered Public Accounting Firm
Board of Directors and Corporation
Trinity Learning Company
Berkeley, California
We have audited the accompanying consolidated statement of operations and
comprehensive loss, stockholders' equity (deficit) and cash flows of
Trinity Learning Corporation for the year ended June 30, 2004. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an option on these financial statements
based on our audit.
We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatements.
The Company is not required to have, nor were we engaged to perform, an
audit of its internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Trinity
Learning Corporation at June 30, 2004, and the results of its operations
and its cash flows for the year then ended, in conformity with accounting
principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 15 to the
financial statements, the Company has suffered losses from operations and
has negative working capital. These conditions raise substantial doubt
about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 15. The financial
statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ BDO Spencer Steward
Pretoria, South Africa
November 22, 2004
Trinity Learning Corporation and Subsidiaries
Consolidated Balance Sheet
June 30, 2005
---------------
Assets
Current Assets
Cash and Cash Equivalents $ 752,261
Accounts Receivable 3,540,415
Inventory 1,632,750
Prepaid Expenses and Other Current Assets 1,160,272
---------------
Total Current Assets 7,085,698
Property & Equipment, net 5,876,999
Program Inventory, net 5,133,334
Restricted Cash 5,091,670
Debt Insurance Costs 197,888
---------------
Total Assets $ 23,385,589
===============
Liabilities and Stockholders' Equity (Deficit)
Liabilities
Accounts Payable $ 3,134,406
Accrued Expenses 1,625,901
Interest Payable 23,379
Deferred Revenue 4,042,842
Capital Lease Current 1,115,666
Notes Payable Current 663,446
Notes Payable Related Parties 1,023,087
---------------
Total Current Liabilities 11,628,727
---------------
Obligations under capital leases 13,242,920
Notes Payable Non-current 1,586,655
Notes Payable Related Parties 20,000
Equity Investment in Associated Company 500,000
Other Long-term Liabilities 7,554
---------------
Long-Term Liabilities 15,357,129
---------------
Total Liabilities 26,985,856
Minority Interest 287,061
---------------
Contingently Redeemable Equity 2,510,000
---------------
Stockholders' Equity (Deficit)
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 shares Issued and
Outstanding 32,000,792
Accumulated Deficit (38,266,018)
Deferred Financial Advisor Fees (142,920)
Other Comprehensive Gain (Loss) 10,818
---------------
Total Stockholders' Equity (Deficit) (6,397,328)
Total Liabilities and Stockholders' Equity (Deficit) $ 23,385,589
===============
The accompanying notes are an integral part of these financial statements.
-34-
Trinity Learning Corporation and Subsidiaries
Consolidated Statements of Operations and Comprehensive Loss
Fiscal Year Ended Fiscal Year Ended
June 30, 2005 June 30, 2004
----------------- -----------------
Revenue
Sales Revenue $ 11,176,975 $ 2,590,091
Cost of Sales (2,910,244) (475,076)
----------------- -----------------
Gross Profit 8,266,731 2,115,015
Expense
Salaries & Benefits 7,497,629 3,636,498
Professional Fees 1,495,874 1,163,603
Professional Fees Related Parties 187,920 225,000
Selling, General & Administrative 4,837,038 1,886,514
Depreciation & Amortization 2,783,664 279,360
----------------- -----------------
Total Expense 16,802,125 7,190,975
----------------- -----------------
Loss from Operations (8,535,394) (5,075,960)
Other Income (Expense)
Interest, net (2,445,410) (209,863)
Equity Losses and Impairment of Investment
in Associated Companies (4,192,460) (2,714,985)
Debt Conversion (231,579) (3,449,332)
Impairment of Intangible Assets (234,280) -
Gain/(Loss) on Sale of Assets (31,834) -
Foreign Currency Gain (Loss) - (4,463)
----------------- -----------------
Total Other Income (Expense) (7,135,563) (6,378,643)
----------------- -----------------
Minority Interest 59,215 (7,460)
----------------- -----------------
Loss Before Income Taxes (15,611,742) (11,462,063)
Income Taxes 3,300 -
----------------- -----------------
Net Loss $ (15,615,042) $ (11,462,063)
================= =================
Net Loss Per Common Share Basic and Diluted $ (0.49) $ (0.50)
================= =================
Weighted Average Shares Outstanding 31,925,184 22,827,313
================= =================
A summary of the components of other comprehensive loss for the fiscal year
ended June 30, 2005 and 2004 as follows:
Fiscal Year Ended Fiscal Year Ended
June 30, 2005 June 30, 2004
----------------- -----------------
Net Loss $ (15,615,042) $ (11,462,063)
Foreign Currency Translation Gain (Loss) 8,279 3,009
----------------- -----------------
Comprehensive Loss (15,606,763) (11,459,054)
================= =================
The accompanying notes are an integral part of these financial statements
-35-
Trinity Learning Corporation and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity (Deficit)
Other
Deferred Compre-
Shares of Accumu- Subscrip Financial hensive
Common Common lated -tion Advisory Gain
Stock Stock Deficit Receivable Fees (Loss)
----------- ---------- ------------- ---------- --------- ------------
Balance
at June
30, 2003 $14,956,641 $9,693,447 $(11,188,913) $(35,000) $ - $(470)
Shares
Issued for
TouchVision
and RMT
Acquisitions
at $0.50
per Share 1,950,000 975,000 - - - -
Shares
Issued for
Cash at
$0.50 per
Share (2) 9,946,600 4,973,300 - - - -
Shares
Issued for
Conversion
of Note
Payable to
a Related
Party at
$0.50 per
Share (2) 850,000 425,000 - - - -
Shares
Rescinded
in CBL
Divestiture(3,000,000) 461,063 - - - -
Cancellation
of
Subscription
Receivable - - - 35,000 - -
Shares
Issued for
Conversion
of Note and
Interest
Payable at
Weighted
Average
Price of
$1.11 per
Share (2) 4,520,069 5,034,044 - - - -
The accompanying notes are an integral part of these financial statements
-36-
Trinity Learning Corporation and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity (Deficit)
Other
Deferred Compre-
Shares of Accumu- Subscrip Financial hensive
Common Common lated -tion Advisory Gain
Stock Stock Deficit Receivable Fees (Loss)
----------- ---------- ------------- ---------- --------- ------------
Value
Attributed
to Stock
Purchase
Warrants - 1,245,580 - - - -
Exercise
of Warrants
and Stock
Options 858,952 36,646 - - - -
Shares
Issued for
Services 957,881 728,941 - - - -
Employee
Stock Based
Compensation - 526,491 - - - -
Foreign
Currency
Translation - - - - - 3,009
Cost of
Share
Issuance
(2) - (1,006,555) - - - -
Net Loss
Year Ended
June
30, 2004 - - (11,462,063) - - -
----------- ---------- ------------- ---------- --------- ------------
Balance
at June
30, 2004 31,040,143 23,092,957 (22,650,976) - - 2,539
Exercise of
Warrants at
$0.05 per
Share 300,000 15,000 - - - -
Exercise of
Warrants at
$0.05 per
Share 62,500 3,125 - - - -
The accompanying notes are an integral part of these financial statements
-37-
Trinity Learning Corporation and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity (Deficit)
Other
Deferred Compre-
Shares of Accumu- Subscrip Financial hensive
Common Common lated -tion Advisory Gain
Stock Stock Deficit Receivable Fees (Loss)
----------- ---------- ------------- ---------- --------- ------------
Shares
Issued
for
Services
at $0.90
per Share 200,000 180,000 - - (180,000) -
Exercise
of Warrants
at $0.05
per Share 62,500 3,125 - - - -
Shares
Issued for
Services
at $0.90
per Share 217,600 195,840 - - (195,840) -
Shares
Issued for
Services
at Market
rate of
$0.45 per
Share 50,000 22,500 - - - -
Shares
Issued for
Services
at $0.45
per Share 127,419 57,339 - - - -
Shares
Issued for
Conversion
of Note at
Interest
Payable at
$0.73 per
Share 1,201,762 877,279 - - - -
Shares
Issued for
Conversion
of Note
and
Interest
Payable
at $0.73
per Share 181,964 132,833 - - - -
The accompanying notes are an integral part of these financial statements
-38-
Trinity Learning Corporation and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity (Deficit)
Other
Deferred Compre-
Shares of Accumu- Subscrip Financial hensive
Common Common lated -tion Advisory Gain
Stock Stock Deficit Receivable Fees (Loss)
----------- ---------- ------------- ---------- --------- ------------
Shares
Issued for
Conversion
of Note
and
Interest
Payable
at $0.73
per Share 69,828 50,974 - - - -
Employee
Stock
Based
Compensation - 752,063 - - - -
Shares
Issued for
Services
at $0.25
per Share 150,000 37,500 - - - -
Shares
Issued for
Services
at Current
Market
Price of
$0.16 per
Share 4,000,000 640,000 - - - -
Shares
Issued for
Conversion
of Note
and
Interest
Payable
at $0.73
per Share 56,173 41,006 - - - -
Value
Attributed
to
Discount
on
Convertible
Note - 2,506,027 - - - -
The accompanying notes are an integral part of these financial statements
-39-
Trinity Learning Corporation and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity (Deficit)
Other
Deferred Compre-
Shares of Accumu- Subscrip Financial hensive
Common Common lated -tion Advisory Gain
Stock Stock Deficit Receivable Fees (Loss)
----------- ---------- ------------- ---------- --------- ------------
Value
Attributed
to Stock
Purchase
Warrants - 3,393,224 - - - -
Amortization
of Deferred
Financial
Advisory Fees - - - - 232,920 -
Foreign
Currency
Translation - - - - - 8,279
Net Loss Year
Ended June
30, 2005 - - - - - (15,615,042)
----------- ---------- ------------- ---------- --------- ------------
Balance
at June
30, 2005 37,719,889 32,000,792 (38,266,018) - (142,920) 10,818
=========== ========== ============= ========== ========= ============
The accompanying notes are an integral part of these financial statements
-40-
Trinity Learning Corporation and Subsidiaries
Consolidated Statements Cash Flows
Fiscal Year Ended Fiscal Year Ended
June 30, 2005 June 30, 2004
----------------- -----------------
Cash flows from operating activities:
Net loss $ (15,615,042) $ (11,462,063)
Adjustments to reconcile net loss to net
cash provided by operating activities
Loss on disposal of assets 31,834 -
Depreciation and amortization 3,016,587 279,360
Bad debt expense - -
Stock issued for services 757,339 728,941
Equity losses and impairment of investment
in associated companies 4,192,461 2,714,985
Equity Losses/Bridge Loan - -
Impairment of Assets - Goodwill - -
Impairment of Intangible Assets 234,280 -
Employee stock-based compensation 752,063 526,491
Non-cash interest expense 2,100,229 135,286
Debt conversion expense 231,579 3,449,332
Changes in current assets and liabilities,
net of businesses acquired and sold:
Accounts receivable 2,911,206 61,237
Inventory (383,427) -
Prepaid expenses and other current assets 152,915 143,879
Accounts payable 1,477,415 125,704
Accounts payable related parties (77,988) 10,120
Accrued expenses (47,637) 125,424
Deferred revenue (937,631) (459,609)
Interest payable 46,524 (63,896)
Minority interest (19,660) 12,085
----------------- -----------------
Net cash used by operating activities (1,176,953) (3,672,724)
Cash flows from investing activities:
Payments for business acquisitions/divestiture,
net of cash acquired - (421,228)
Overdraft acquired in acquisition (386,362) -
Proceeds from sale of asset 11,901 -
Payments for program inventory (463,238) -
Restricted cash (4,484,619) (500,000)
Advances to associated companies - (1,080,000)
Capital expenditures (117,174) (21,220)
----------------- -----------------
Net cash (used) provided by investing activities (5,439,492) (2,022,448)
The accompanying notes are an integral part of these financial statements
-41-
Trinity Learning Corporation and Subsidiaries
Consolidated Statements Cash Flows
Fiscal Year Ended Fiscal Year Ended
June 30, 2005 June 30, 2004
----------------- -----------------
Cash flows from financing activities:
Borrowings under notes 8,029,477 2,945,000
Borrowings under notes related party 4,413 50,000
Repayments under notes (869,176) -
Repayments under short-term notes
related party - (500,000)
Payments for financing fees (197,888) (691,540)
Payments for financing fees related party - (315,015)
Payments for capital leases (266,542) -
Payments for lines of credit (253,846) -
Proceeds from exercise of warrants and options 21,250 36,646
Proceeds from sale of common stock - 4,973,300
----------------- -----------------
Net cash provided (used) by financing activities 6,467,688 6,498,391
Effect of foreign exchange on cash 8,279 3,009
----------------- -----------------
Net increase (decrease) in cash (140,478) 806,228
----------------- -----------------
Cash at beginning of period 892,739 86,511
----------------- -----------------
Cash at end of period $ 752,261 $ 892,739
================= =================
Supplemental information:
Interest paid $ 64,541 $ 37,052
Income taxes 3,300 -
Issuance of common stock for business
acquisitions - 975,000
Issuance of common stock for conversion
of debt related party - 425,000
Issuance of common stock conversion of
bridge note 1,102,092 5,025,852
Warrants issued with convertible notes 2,863,363 1,253,772
Beneficial conversion value of note payable 2,070,784 -
Issuance of contingently redeemable equity - 2,510,000
Cancellation of common stock and convertible
notes payable pursuant to the sale of CBL - 461,063
Cancellation of subscriptions receivable - 35,000
The accompanying notes are an integral part of these financial statements
-42-
Trinity Learning Corporation and Subsidiaries
Notes to Consolidated Financial Statements
June 30, 2005
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.
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.
Future operating results may not be comparable to historical operating
results due to our September 1, 2003 acquisitions of TouchVision, Inc.
("TouchVision"); River Murray Training Pty Ltd ("RMT"); and 51% of the
issued and outstanding shares of Ayrshire Trading Limited ("Ayrshire"), as
well as our December 1, 2003 acquisition of Danlas Limited ("Danlas") and
March 1, 2004 acquisition of Trinity Learning AS ("VILPAS"), formerly known
as Virtual Learning Partners, AS. 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.
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.
43-
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.
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
Our consolidated financial statements include the accounts of the Company
and our controlled subsidiaries. All significant inter-company
transactions are eliminated in consolidation.
Our 51% ownership in IRCA and our 51% ownership in Ayrshire, which owns 95%
of Riverbend, have been accounted for in the financial statements included
with this report using the equity method of accounting. Emerging Issues
Task Force Issue 96-16, "Investor's Accounting for an Investee When the
Investor Has a Majority Voting Interest but the Minority Shareholders Have
Certain Approval or Voting or Veto Rights" (EITF 96-16) provides guidance
as to the distinction between protective rights of the minority shareholder
which do not overcome the presumption of consolidation and substantive
participating rights of the minority shareholder. Substantive participating
rights that allow the minority shareholder to participate in establishing
operating and capital decisions in the ordinary course of business,
overcome the presumption that the investor should consolidate the investee.
- In the 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 (ring) 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.
-44-
- 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(ring) 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.
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 measurable. The excess of cost of an acquired
entity over the net amounts assigned to identifiable acquired assets and
liabilities assumed is recognized as goodwill. The valuation and
allocation process relies on significant assumptions made by management, in
particular, the value of the shares issued to affect the purchase prior to
the Company having established a trading market for its stock.
REVENUE RECOGNITION
The Company applies the provisions of SEC Staff Accounting Bulletin ("SAB")
No. 104, REVENUE RECOGNITION IN FINANCIAL STATEMENTS ("SAB104"), which
provides guidance on the recognition, presentation and disclosure of
revenue in financial statements filed with the SEC. The SAB 104 outlines
the basic criteria that much be met to recognize revenue and provides
guidance for disclosure related to revenue recognition policies. We earn
our revenues primarily from service-related contracts, including operations
and maintenance services and a variety of technical assistance services.
Revenue is generally recognized on a straight-line basis, unless evidence
suggests that the revenue is earned or obligations are fulfilled in a
different pattern over the contractual term of the arrangement or the
expected period, during which those specified services will be performed,
whichever is longer. 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. Advance payments are recorded on the
Consolidated Balance Sheet as deferred revenue. The Company also earns
revenue from the sale of hardware containing software, and accounts for
this revenue in accordance with SOP 97-2, Software Revenue Recognition in
accordance with EITF 03-5. To date, such revenues have not been
significant.
-45-
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. We estimate and maintain
an allowance for potentially uncollectible accounts and such estimates have
historically been within management's expectations. Our cash balances,
restricted cash and short-term investments are maintained in accounts held
by major banks and financial institutions located primarily in the United
States, Norway, South Africa and Australia. No single customer accounts
for revenues or receivables greater than 10% of Company totals.
CASH AND CASH EQUIVALENTS
We consider all highly liquid instruments with original maturities of three
months or less to be cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash and cash equivalents, accounts receivable and
accounts payable approximates fair value due to the short-term maturity of
these instruments. The carrying value of notes payable approximates fair
value because negotiated terms and conditions are consistent with current
market rates. Determination of the fair value of notes payable to related
parties cannot be estimated because of the favorable conditions given to
the Company by these parties not otherwise available from third parties.
It is not practicable to estimate the fair value of notes payable issued
for acquisitions and equity investments because they were issued at a
substantial conversion premium and contain no stated payment terms. The
carrying value of equity investments and advances to associated companies
approximates fair value. We evaluate such assets on a regular basis by
looking at cash flows, market conditions and current and anticipated future
performance. In June 2005, we incurred an impairment charge of $2,083,806
and $884,963, respectively.
ACCOUNTS RECEIVABLE
Accounts receivable are uncollateralized customer obligations due under
normal trade terms. Management regularly evaluates the need for an
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. Management has determined that
allowance for bad debt will be based on a percentage of aged receivables.
Allowance for bad debt at June 30, 2005 was $267,045.
PROPERTY AND EQUIPMENT
Property and equipment, net are stated at cost less accumulated
depreciation and amortization. Depreciation of property and equipment,
including the amortization of leasehold improvements, is provided at rates
based on the estimated useful lives or lease terms, if shorter, using
primarily the straight-line method. Improvements are capitalized while
maintenance and repairs are expensed as incurred. Whenever significant
events or changes occur, such as those affecting general market conditions
or pertaining to a specific industry or an asset category, the Company
reviews the property and equipment for impairment. When such factors,
events or circumstances indicate that property and equipment should be
-46-
evaluated for possible impairment, the Company used an estimate of cash
flows (undisclosed and without interest charges) over the remaining lives
of the assets to measure recoverability. If the estimated cash flows are
less than the carrying value of the asset, the loss is measured as the
amount by which the carrying value of the asset exceeds fair value.
Depreciation expense for the period ended June 30, 2005 and 2004 is
$2,783,664 and $279,360 respectively.
INVENTORY
The Company uses the weighted average FIFO method for inventory. The
Company's inventory consists of saleable videotapes, CD ROM's, and DVD's,
printed product (supporting materials for the videotapes and CD ROM's such
as manuals, training guides, program guides, etc.), and Calibre products
(high quality inventory such as gun bags, police batons, etc.). In
addition, inventory is divided into the three main divisions at the Company
Industrial, Government, and Healthcare.
FAIR VALUE OF COMMON STOCK
Contingently redeemable equity represents the value of shares of our common
stock issuable upon the conversion of notes payable in excess of the face
value of these notes issued in the acquisition of VILPAS and the
acquisition of equity interest in each of the Riverbend and IRCA
transactions. The stock arrangements are 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 valuation and allocation process
relies on significant assumptions made by management, in particular, the
value of the shares issued to affect the purchase prior to the Company
having established a trading market for its stock. When it becomes
probable that redemption will occur, the Company will record changes in
fair value in the Statement of Operations.
ALLOCATION OF PURCHASE CONSIDERATION IN BUSINESS COMBINATIONS
The Company accounts for its investments in its subsidiaries using the
purchase method of accounting. 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. The Company amortizes identifiable
intangible assets over their useful life unless that life is determined to
be indefinite. The 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.
-47-
ALLOCATION OF PURCHASE CONSIDERATION FOR EQUITY INVESTMENTS IN ASSOCIATED
COMPANIES
The excess of the consideration paid for equity investments in associated
companies over our pro rata share of the investee's net assets is allocated
to intangibles and goodwill similar to a purchase business combination. 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. The Company amortizes identifiable intangible assets over
their useful life unless that life is determined to be indefinite. In each
of the Riverbend and the IRCA transactions, the Company received an option,
exercisable under certain conditions, to acquire the additional 49% of each
of those companies. Using the Black Scholes option valuation model, a
value was assigned to each of the intangible assets associated with those
options. The 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. The value of
the Equity Investments in Associated Companies is tested for impairment on
an annual basis. At June 30, 2004, based on actual performance and
forecasts for future performance, the value of the IRCA investment after
application of current year losses and amortization of intangible assets,
was written down to $0 and impairment expense of $884,963 was recorded in
the statement of operations. At June 30, 2005 the Company reassessed the
value of its investments in RMT, Vilpas and TouchVision and determined it
was appropriate to write down its investment in these entities to $0.
SOFTWARE DEVELOPMENT COSTS
Software development costs related to software that the company licenses to
customers 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 (LOSS) 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 potential dilutive
shares including shares 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 release
of escrow shares, the 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 anti-dilutive for the
fiscal year ended June 30, 2005 and fiscal year ended June 30, 2004. If
the Company were to include all potential shares in the calculation, the
following items would be included:
-48-
Basic and diluted net loss per common share for the fiscal periods ended
June 30, 2005 and 2004 were calculated as follows:
For the Year Ended For the Year Ended
June 30, 2005 June 30, 2004
----------------- -----------------
Numerator-Basic / Diluted
Net loss available for common stockholders $ (15,615,042) $ (11,462,063)
================= =================
Denominator-Basic / Diluted
Weighted-average common stock outstanding 31,925,184 22,827,313
================= =================
Basic / Diluted loss per share $ (0.49) $ (0.50)
================= =================
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 more prominent disclosure in
both annual and interim financial statements of the method of accounting
for employee stock option grants and the effect of the method used on
reported results.
The Company has adopted the fair value based method of accounting for
stock-based employee compensation in accordance with Statement of Financial
Accounting Standards Number 123 (REVISED 2004), "Accounting for Stock-Based
Compensation" (SFAS 123(R)). In accordance with SFAS 123 (R), option
expense of $752,063 and $526,491 was recognized for the fiscal year ended
June 30, 2005 and 2004 , respectively. The expense was calculated using
the Black-Scholes valuation model with the following assumptions:
June 30, 2005 June 30, 2004
----------------- -----------------
Five-Year Risk Free Interest Rate 4.25% 3.13%
Dividend Yield Nil Nil
Volatility 126% 70%
Average Expected Term (Years to Exercise) 5 5
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)
-49-
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.
We regularly evaluate whether events and circumstances have occurred which
indicate a possible impairment of goodwill and other intangible assets. In
evaluating whether there is an impairment of goodwill and other intangible
assets, we evaluate the performance of each subsidiary relative to its
performance in prior periods, its budget and its upcoming three year
forecast. Based on our review of the goodwill and other intangible assets,
we concluded that we did have impairment and recognized an expense of
$2,083,806 at June 30, 2005.
RECENTLY ISSUED ACCOUNTING STANDARDS
FIN NO. 46, CONSOLIDATION OF VARIABLE INTEREST ENTITIES
In January 2003, the FASB issued FASB Interpretation No. 46, ("FIN 46"),
Consolidation of Variable Interest Entities ("VIE"). Until this
interpretation, the Company generally included another entity in its
consolidate financial statements only if it controlled the entity through
voting interests. FIN No. 46 requires a variable interest entity, as
defined, to be consolidated by a company if that company is subject to a
majority of the risk of loss from the variable interest entity's activities
or entitled to receive a majority of the entity's residual returns. FIN
No. 46 is effective for reporting periods ending after December 15, 2003.
The adoption of FIN No. 46 did not have an impact on the Company's
consolidated financial statements.
SAB NO. 104, REVENUE RECOGNITION
On December 2003, the SEC issued SAF No. 104. SAB No. 104 revises or
rescinds portions of the interpretative guidance included in Topic 13 of
the codification of staff accounting bulletins in order to make this
interpretive guidance consistent with current authoritative accounting and
auditing guidance and SEC rules and regulations. It also rescinds the
Revenue Recognition in Financial Statements Frequently Asked Questions and
Answers document issued on conjunction with Topic 13. Selected portions of
that document have been incorporated into Topic 13. The adoption of SAB
No. 104 in December 2004 did not have an impact on the Company's financial
position, results of operations or cash flows.
FSP NO. 129-1, DISCLOSURE OF INFORMATION ABOUT CAPITAL STRUCTURE, RELATING
TO CONTINGENTLY CONVERTIBLE SECURITIES
On April 9, 2004, FASB issued FASB Staff Position No. FAS 129-1,
"Disclosure of Information about Capital Structure, Relating to
Contingently Convertible Securities" ("FSP 129-1"). FSP 129-1 clarifies
that the disclosure requirements of Statement of Financial Accounting
Standards No. 129, "Disclosure of Information about Capital Structure"
applies to all contingently convertible securities and to their potentially
dilutive effects on earnings per share ("EPS"), including those for which
the criteria for conversion have not been satisfied, and thus are not
included in the computation of diluted EPS. The guidance in FSP 129-1 is
effective immediately and applies to all existing and newly created
securities. Our required FSP 129-1 disclosures are included above under
"Income Per Common Share." Our contingently redeemable equity is
convertible to shares of our common stock; however, the conversion would be
anti-dilutive.
-50-
SFAS NO. 151, INVENTORY COSTS
In November 2004, the FASB issued SFAS No. 151, "Inventory Costs." This
statement amends the guidance in ARB No. 43, Chapter 4, "Inventory
Pricing", to clarify the accounting for abnormal amounts of idle facility
expense, freight, handling costs, and wasted material (spoilage). In
addition, this Statement requires that allocation of fixed production
overheads to the costs of conversion be based on the normal capacity of the
production facilities. The adoption of SFAS No. 151 did not have an impact
on the Company's consolidated financial statements.
SFAS NO. 123(REVISED 2004), SHARE-BASED PAYMENT
In December 2004, the FASB issued No. 123, "Summary of Statement No. 123
(Revised 2004). This Statement is a revision of FASB Statement No. 123,
"Accounting for Stock-Based Compensation." This Statement supersedes APB
Opinion No. 25, "Accounting for Stock Issued to Employees", and its related
implementation guidance. This Statement establishes standards for the
accounting for transactions in which an entity exchanges its equity
instruments for goods or services. It also addresses transactions in which
an entity incurs liabilities in exchange for goods or services that are
based on fair value of the entity's equity instruments or that may be
settled by the issuance of those equity instruments. This Statement
focuses primarily on accounting for transactions in which an entity obtains
employee services in share-based payment transactions. This Statement does
not change the accounting guidance for share-based payment transactions
with parties other than employees provided in Statement 123 as originally
issued and EITF Issue No. 96-18, "Accounting for Equity Instruments that
are Issued to Other than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services." The Company is currently evaluating the
provisions of SFAS 123(Revised 2004) and the impact that it will have on
its share-based employee compensation programs.
SFAS NO. 153, EXCHANGES OF NON-MONETARY ASSETS, AN AMENDMENT OF APB OPINION
NO. 29
In December 2004, the FASB issued SFAS No. 153, which amends ARB 29 to
eliminate the exception for non-monetary exchanges of similar productive
assets and replaces it with a general exception for exchanges of
non-monetary assets that do not have commercial substance. SFAS 153 is
effective for non-monetary asset exchanges occurring in fiscal periods
beginning after June 15, 2005. We do not anticipate that the adoption of
this standard will have a material impact on our financial statements.
EITF NO. 03-01, THE MEANING OF OTHER-THAN-TEMPORARY IMPAIRMENT AND ITS
APPLICATION TO CERTAIN INVESTMENTS
In March 2004, the EITF reached a consensus on EITF No. 03-01, "The Meaning
of Other-Than-Temporary Impairment and Its Application to Certain
Investments." EITF 03-01 provides guidance on other-than-temporary
impairment models for marketable debt and equity securities accounted for
under SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," and SFAS No. 124, "Accounting for Certain Investments Held by
Not-for-Profit Organizations," and non-marketable equity securities
accounted for under the cost method. The EITF developed a basic three-step
model to evaluate whether an investment is other-than-temporarily impaired.
The FASB issued EITF 03-01 in September 2004 which delayed the effective
date of the recognition and measurement provisions of EITF 03-01. We do
not expect the adoption of EITF 03-01 to have a material impact on the
Company's consolidated financial statements.
-51-
EITF NO. 03-13, APPLYING THE CONDITIONS IN PARAGRAPH 42 OF SFAS NO. 144,
ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS, IN
DETERMINING WHETHER TO REPORT DISCONTINUED OPERATIONS
In November 2004, the EITF reached a consensus on EITF No. 01-13, "Applying
the Conditions In Paragraph 42 of SFAS No. 144, Accounting for the
Impairment of Disposal of Long-Lived Assets, in Determining Whether to
Report Discontinued Operations." In this consensus, the EITF provided
guidance on how an ongoing entity should evaluate whether the operations
and cash flow of a disposed component have been or will be eliminated form
the ongoing operations of the entity. The adoption of EITF 03-13 in 2004
did not have a material impact on the Company's consolidated financial
statements.
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.
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. In consideration for the business, we assumed
certain liabilities of PRIMEDIA relating to the business of in he aggregate
amount estimated at the time of closing to be between $28 and $30 million.
TouchVision
-----------
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. As of June 30, 2004, we
had loaned TouchVision a total of $200,000 pursuant to this agreement.
This loan has been eliminated in consolidation at June 30, 2004. 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. This loan
has also been eliminated in consolidation at June 30, 2004.
-52-
The following table summarizes the TouchVision assets acquired and
liabilities assumed as of the closing date in connection with $625,000
common stock issued and acquisition related costs of $80,602:
Cash acquired $ 102,357
Tangible assets acquired 269,213
Intangible assets acquired 350,281
Goodwill 910,000
-------------
Total assets acquired 1,631,851
Liabilities assumed 926,249
-------------
Net assets acquired $ 705,602
=============
The acquisition was accounted for using the purchase method of accounting.
Intangible assets will be amortized over varying periods, as indicated by
independent valuations, using the straight-line method. Allocation of the
excess of merger consideration over the net book value of assets acquired
between goodwill and intangible assets was determined by an independent,
third-party professional valuation firm. As the merger consideration was
paid entirely in shares of the Company's common stock, the goodwill
acquired may not be amortized for federal income tax purposes. The
goodwill arising from the acquisition is allocated to the United States
geographic segment.
In August 2005 the Company decided to pursue strategic business
alternatives for its TouchVision subsidiary. These alternatives included a
sale, divestiture, joint venture, license of intellectual property or
closure of the business. Presently, the Company plans to consummate a
software license assignment or close the business. Further the Company
chose to write down its investment of $0 in Touchvision as of June 30,
2005.
RIVER MURRAY TRAINING
---------------------
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.
The following table summarizes the RMT assets acquired and liabilities
assumed as of the closing date in connection with $350,000 common stock
issued and acquisition related costs of $26,517:
-53-
Cash acquired $ 37,979
Tangible assets acquired 78,673
Intangible assets acquired 18,000
Goodwill 376,517
-------------
Total assets acquired 511,169
Liabilities assumed 145,744
-------------
Net assets acquired $ 365,425
=============
The acquisition was accounted for using the purchase method of accounting.
Intangible assets will be amortized over varying periods, as indicated by
independent valuations, using the straight-line method. Allocation of the
excess of merger consideration over the net book value of assets acquired
between goodwill and intangible assets was determined by an independent,
third-party professional valuation firm. As the merger consideration was
paid entirely in shares of the Company's common stock, the goodwill
acquired may not be amortized for federal income tax purposes. The
goodwill arising from the acquisition is allocated to the Australian
geographic segment.
Due to the uncertainty of its international operations and lack of positive
cash flow, the Company has chosen to write down its investment to $0 in
River Murray Training as of June 30, 2005.
VILPAS
------
On March 1, 2004, we completed the acquisition of all the issued and
outstanding shares of VILPAS (f/k/a Virtual Learning Partners AS). In
consideration for the VILPAS shares we issued a convertible
non-interest-bearing promissory note in the principal amount of $500,000,
which note is convertible from time to time but no later than August 5,
2005 into a maximum of 1,000,000 shares of our common stock. The value of
shares issuable upon conversion (based upon a $0.80 per share value) in
excess of the note amount has been classified as contingently redeemable
equity. Of these shares, up to 20% may be withheld in satisfaction for any
breach of warranties by the former shareholders of VILPAS. 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 VILPAS shares are subject to
escrow and pledge agreements and will be re-conveyed 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
February 5, 2005, subject to a six-month extension in the event a listing
application is in process on such date.
The following table summarizes the VILPAS assets acquired and liabilities
assumed as of the closing date in connection with the $500,000 convertible
note payable issued, the $300,000 recorded as conditionally redeemable
equity in our balance sheet and acquisition related costs of $52,869:
-54-
Cash acquired $ 1,052,270
Tangible assets acquired 339,986
Intangible assets acquired 210,177
Goodwill 563,009
-------------
Total assets acquired 2,165,442
Liabilities assumed 1,017,937
Minority interest 294,636
-------------
Net assets acquired $ 852,869
=============
The acquisition was accounted for using the purchase method of accounting.
Intangible assets will be amortized over varying periods, as indicated by
an independent valuation, using the straight-line method. Allocation of
the excess of merger consideration over the net book value of assets
acquired between goodwill and intangible assets was determined by an
independent, third-party professional valuation firm. As the merger
consideration was paid entirely with a promissory note with no payment
terms and convertible into shares of the Company's common stock, the
goodwill acquired may not be amortized for federal income tax purposes.
The goodwill arising from the acquisition is allocated to the European
geographic segment.
Due to the uncertainty of its international operations and lack of positive
cash flow, the Company has chosen to write down its investment in Vilpas to
$0 as of June 30, 2005.
AYRSHIRE
--------
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. We also acquired the option to purchase the remaining 49% of
Ayrshire. In consideration for the Ayrshire shares, we issued a
convertible non-interest-bearing promissory note in the amount of $20,000,
which amount is convertible from time to time but no later than December
30, 2006 into a maximum of 2,000,000 shares of our common stock. The value
of shares issuable upon conversion (based upon a $0.50 per share value) in
excess of the note amount has been classified as contingently redeemable
equity. 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 will be re-conveyed 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 of June 30, 2004, no shares had been
issued in exchange for the convertible promissory note.
-55-
In connection with this acquisition, 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. The remaining $700,000 was
advanced on November 3, 2003. The loan to Ayrshire has been accounted for
as a note receivable. 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. The Company has
allocated $325,000 of the consideration paid to this intangible asset.
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
issued a convertible promissory note in the aggregate principal amount of
$20,000 convertible under certain conditions into a maximum of 2,500,000
shares of the Company's common stock, (ii) agreed to advance $500,000 in
cash to Danlas 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 value of
shares issuable upon conversion (based upon a $0.50 per share value) in
excess of the note amount has been classified as contingently redeemable
equity. 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. The $500,000
deposited as collateral in support of a bank line of credit is classified
as restricted cash in the Company's balance sheet. In consideration of the
operating results for the year and management's estimate of future cash
flows, the Company wrote down its remaining investment in IRCA of
approximately $884,963 to $0, as of June 30, 2004. We wrote down our
investment in IRCA as a result of current year operating performance and
anticipated operating losses in IRCA for the foreseeable future. These
losses are, in part, a result of the weakening of the US dollar in relation
to the South African Rand and the resulting downturn in mining operations
in South Africa.
As part of the Danlas transaction, we issued two convertible notes of
$10,000 each, with 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.
PRO FORMA RESULTS (UNAUDITED)
SFAS 142 requires goodwill and other intangible assets to be tested for
impairment at least annually. Accordingly, we have completed our annual
review of the recoverability of goodwill as of June 30, 2005, which
indicated that impairment of goodwill had been experienced. We believe the
following method we use in testing impairment of goodwill provides us with
a reasonable basis in determining whether an impairment charge should be
taken.
-56-
We regularly evaluate whether events and circumstances have occurred which
indicate a possible impairment of goodwill and other intangible assets. In
evaluating whether there is an impairment of goodwill and other intangible
assets, we evaluate the performance of each subsidiary relative to its
performance in prior periods, its budget and its upcoming three year
forecast. We also evaluate the revenue achieved per share of our common
stock issued as part of the purchase consideration in relation to market
capitalization of publicly traded training companies for current and prior
periods. Based on our impairment test of the goodwill and other intangible
assets at June 30, 2005, we concluded that we did have impairment of
goodwill and intangibles in the amount of $2,083,806 resulting in full
impairment of intangibles at June 30, 2005.
The following table sets forth the Company's acquired other intangible
assets at June 30, 2005:
2005
---------------------------------------------------------
Weighted
Gross Average Net
Carrying Life in Accumulated Impairment Carrying
Amount Months Amortization Write Off Amount
----------- --------- ------------- ---------- ---------
Tradenames and
Trademarks $ 156,841 58 $ 59,971 $ 96,870 $ -
Backlog 40,600 36 11,572 29,028 -
Current and
Core Technology 152,317 9 152,317 - -
Customer Relationships 175,100 55 66,179 108,381 -
Other intangibles 53,600 13 53,600 - -
----------- --------- ------------- ---------- ---------
Total $ 578,458 38 $ 344,179 $ 234,280 $ -
=========== ========= ============= ========== =========
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.
-57-
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 of $1,314,277 resulting from the accumulated operating loss for CBL
between October 2002 and December 2003, as well as comprehensive income of
$20,073 for the same period, are included with our consolidated accumulated
deficit and accumulated other comprehensive income at June 30, 2004. The
net fair value of the assets and liabilities divested, net of a $1,000,000
convertible note payable which was cancelled, the inter-company receivable
from CBL and the cancellation of 3,000,000 shares of shares of our common
stock, was recorded as a $461,063 net 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 (UNAUDITED)
The operating results of CBL, TouchVision, and RMT have been included in
the accompanying consolidated financial statements from the date of
acquisition forward and, for CBL, up to the date of divestiture.
Accordingly, CBL business' results of operations were included from October
1, 2002 to December 22, 2003. The business results of operations of RMT
and TouchVision are included for the period September 1, 2003 through June
30, 2004. The business results for VILPAS are included for the period
March 1, 2004 through June 30, 2004.
The following unaudited pro forma financial information for June 30, 2004
presents the combined results of operations of the Company and TouchVision,
RMT, and VILPAS assuming the acquisitions occurred October 1, 2002. In
December 2003, we completed the reversal of the purchase 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 fiscal year ended June 30, 2004. At June 30,
2005, the following unaudited pro forma financial information presents the
combined results of operations for the Company which includes the asset
purchase of PWPL for the entire year. 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.
(Unaudited)
-----------------------------
Fiscal Fiscal
Year Ended Year Ended
June 30, June 30,
2005 2004
------------- -------------
Revenue $ 41,208,418 $ 3,115,500
============= =============
Gross Profit $ 27,279,729 $ 2,363,177
============= =============
Operating Loss $(24,722,782) $ (5,203,706)
============= =============
Net Loss $(35,550,937) $(12,924,746)
============= =============
Net Loss per Common Share
Basic / Diluted $ (1.12) $ (0.57)
============= =============
-58-
NOTE 3 INVENTORIES
Inventories consists of the following:
June 30, 2005
-------------
Books and collateral materials $ 863,756
CD's and video tapes $ 768,994
-------------
Total Inventory $ 1,632,750
=============
NOTE 4 PROPERTY AND EQUIPMENT
Property and equipment, net, including those held under capital leases,
consisted of the following:
June 30, 2005
-------------
Cost
-------------
Buildings and improvements $ 8,579,009
Furniture and fixtures 87,330
-------------
8,666,339
Less: Accumulated depreciation (2,789,340)
-------------
$ 5,876,999
=============
NOTE 5 EQUITY INVESTMENTS IN AND ADVANCES TO ASSOCIATED COMPANIES
At June 30, 2005, the principal components of Equity Investments in and
Advances to Associated Companies were the following:
Ayrshire IRCA Total
------------ ------------ ------------
Equity investment $ 1,379,871 $ 2,178,049 $ 3,557,920
Cash Advances 1,000,000 80,000 1,080,000
Impairment in equity investment (1,842,935) (964,963) (2,807,898)
Equity losses of unconsolidated
subsidiaries (536,936) (1,793,086) (2,330,022)
------------ ------------ ------------
Balance June 30, 2005 $ 0 $ (500,000) $ (500,000)
============ ============ ============
-59-
The consideration paid for our investment in Ayrshire was $1,379,871. This
amount comprises legal and financial advisory fees of $379,871 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. Equity Investments in Associated
Companies are periodically reviewed for impairment. The difference between
our investment and our pro rata share of Ayrshire's net assets has been
allocated to goodwill and to intangible assets. Equity Investments in
Associated Companies are periodically reviewed for impairment. When such
impairment is identified, it is recorded as an impairment change in that
period. As of June 30, 2005, we recognized impairment loss for Ayrshire
of $1,842,935. This impairment was recognized due to Ayrshire's continued
operating losses, and future economic uncertainties in the markets Ayrshire
serves.
The consideration paid for our investment in IRCA was $2,178,049. This
amount comprises legal, financial advisory and consultancy fees of
$928,049, including the payment to Mr. Steynberg of $607,165, plus
2,500,000 shares of our common stock valued at $0.50 per share. The net
asset value of IRCA at acquisition date was $2,704,870 and our pro rata
share of their net assets was $1,379,484. The difference between our
investment and our pro rata share of IRCA's net assets has been allocated
to goodwill and to intangible assets. Equity Investments in Associated
Companies are periodically reviewed for impairment. When such impairment
is identified, it is recorded as a loss in that period. As of June 30
2005 and 2004, we recognized an impairment loss for IRCA of $80,000 and
$884,963, respectively. We wrote down our investment in IRCA to $0 as a
result of current year operating performance and anticipated operating
losses in IRCA for the foreseeable future. These losses are, in part, a
result of the weakening of the US dollar in relation to the South African
Rand and the resulting down turn in mining operations in South Africa.
As a result of IRCA's continued unfavorable operating environment, we have
absorbed losses up to $500,000, the amount we have deposited as collateral
in support of IRCA's operating line of credit.
In connection with 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. The
remaining $700,000 was advanced on November 3, 2003. The note is due
December 30, 2006 provided that, if by December 2005 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 further consideration for our December 1,
2003 purchase of 51% of IRCA, we agreed to make a non-interest-bearing loan
of $80,000 to IRCA Australia, which was advanced during fiscal 2004.
-60-
Note 6 Commitments and Contingencies
Total rent expense under operating leases was $1,690,200 and $161,758 for
the years ended June 30, 2005 and 2004, respectively. Certain leases are
subject to escalation clauses and certain leases contain renewal options.
The leases relate to Trinity's operating facilities, the 36 MHz Ku-band
transponder, and several copier/printers. Minimum rental commitments under
the non-cancelable operating leases are as follows:
Years ending June 30,
---------------------
2006 $ 2,120,074
2007 2,120,074
2008 2,120,074
2009 2,263,487
2010 2,335,194
Thereafter 8,562,379
------------
$ 19,521,282
=============
The Company has agreed in connection with its purchase of the Primedia
Workplace Learning assets to assume the defense of certain litigation,
entitled Argus 1 Systems Corporation v. Primedia Workplace Learning L.P.,
et al., No. 04-CV-138918, District Court of Fort Bend County, Texas (the
"Argus Claim"), regarding claims made by Argus 1 Systems Corporation
("Plaintiff") resulting from that certain Memorandum of Understanding,
dated May 22, 2003, ("MOU") by and between Plaintiff and PRIMEDIA Workplace
Learning LP, a Delaware limited partnership ("PWPL"). Plaintiff has
alleged various contract and tort claims and seeks among other things
license fees, attorney fees and actual and punitive damages. The Primedia
Workplace purchase agreement provides that the Company shall generally be
responsible for paying that portion of any Recovery (as defined therein)
relating to license fees, royalty fees, or other damages arising from any
sales other conduct after the purchase of the Workplace assets and be
responsible for the payment of all on-going license or royalty fees
relating to periods thereafter. In addition, some of the cost and
recoveries may be split on a 50/50 basis. The Company has not yet been
named as a party to the litigation, has not engaged legal counsel for the
matter, and has conducted no discovery. The Company is unable to estimate
the likelihood of an unfavorable outcome or the amount or range of any
potential loss its potential liability or legal exposure for the
litigation.
The Company is in ordinary and routine litigation incidental to its
business. In the opinion of management, there is no pending legal
proceeding that would have a material adverse effect on the consolidated
financial statements of the Company.
-61-
NOTE 7 RELATED PARTY TRANSACTIONS
During the period June 2004 to October 2004, Mr. Swindells advanced us
$155,000. On August 10, 2004 we repaid $50,000 of this amount and on
November 2, 2004 we paid the remaining balance of $105,000. On October 14,
2004, Mr. Swindells exercised warrants to purchase 300,000 shares of our
common stock at $0.05 per share. On April 22, 2005 Mr. Swindells advanced
$300,000 to us by way of short-term non-interest bearing working capital
loan. In October 2005 the Company repaid $250,000 on this loan.
From time to time, Jan-Olaf Willums, an officer of VILPAS, as well as
companies of which he is a director, have advanced funds to VILPAS. The
current balance of $171,224, of which $94,777 bears interest at 8% per
annum and $76,447 is non-interest bearing, has no fixed terms of repayment.
NOTE 8 NOTES PAYABLE
As of June 30, 2005, notes payable consisted of the following:
June 30, 2005
-------------
Notes payable to third parties:
Third party individuals; due September 1, 2006, unsecured,
interest at 10% per annum, interest only payable monthly,
principal due in full at maturity. $ 91,384
Bank note payable; secured by Company vehicle, interest at
9.5% per annum, monthly payment of $574, matures October
2006. 18,741
Revolving bank lines of credit; unsecured, interest ranging
from prime plus 2.625% to prime plus 6.75%, monthly payments
of principal and interest. 132,389
Revolving third party line of credit; unsecured, interest at
prime plus 1.99%, monthly payments of principal and interest. 8,076
Convertible note payable to third party net of unamortized
discount of $2,067,984 attributed to warrant and unamortized
discount of $1,495,566 attributable to beneficial conversion
interest at prime plus 2% payable monthly, principal
payments of $22,059 on the outstanding non-related
principal amount due the first of each month beginning
November 1, 2004 until August 31, 2007 when any remaining
principal and interest are due, convertible at $0.72 per
share, warrants are for five years to purchase 1,6000,000
shares of common stock at $0.82 per share. 1,759,978
Convertible notes payable to third parties, net of
unamortized discount of $102,305 attributed to warrants and
unamortized discount of $133,166 attributed to beneficial
conversion; interest at 9% per annum, principal and
interest due January 7, 2006, convertible at $0.45 per
share, warrants are for three years to purchase 2,126,712
shares of common stock at $1.50 per share. 239,529
-62-
Notes payable to related parties:
Note payable to related party; due December 31, 2004,
past due, unsecured, interest at 6% per annum. 17,173
Note payable to a related party; unsecured, interest at
8% per annum on $94,777; non-interest bearing on
$76,447, payable on demand. 185,914
Note payable to a related party, unsecured, non-interest
bearing, due December 31, 2005 300,00
Convertible note payable to a related party for VILPAS
purchase; due August 5, 2005, unsecured, non-interest
bearing, convertible at $0.50 per share. 500,000
Convertible note payable to a related party for IRCA
purchase; due December 31, 2005, unsecured, non-interest
bearing, convertible at $0.01 per share. 20,000
Convertible note payable to a related party for Riverbend
purchase; due December 31, 2006, unsecured, non-interest
bearing convertible at $0.01 per share. 20,000
Notes payable for capital lease obligations:
Capital leases payable to third party, monthly payment
of $176,673 through November 2008 then increasing to
$194,600 per month through maturity date, interest at
7.25%, secured by building 14,358,586
-------------
Total notes payable 17,651,774
Less: current maturities - notes related party (1,023,087)
Less: current maturities - notes payable (663,446)
Less: current maturities - capital leases (1,115,666)
-------------
Long-term notes payable $ 14,849,575
=============
Maturity schedule for notes payable:
Fiscal Year Amount
----------- -------------
2006 2,802,199
2007 1,575,435
2008 6,083,303
2009 1,532,261
2010 1,723,100
Thereafter 7,499,026
-------------
Less: Unamortized discount and warrants at
June 30, 2005 (3,563,550)
-------------
Total $ 17,651,774
=============
-63-
NOTE 9 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. On April 17, 2005, 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) 11,000,000 shares, plus (b) an annual 500,000 increase to be added in
fiscal 2003 and 1,000,000 shares on the last day of each fiscal year
thereafter 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 fiscal years
ended June 30, 2005 and June 30, 2004, respectively:
2005 2004
----------------------- -----------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
----------- ----------- ----------- -----------
Outstanding at beginning of year 5,570,000 $ 0.43 2,447,000 $ 0.23
Granted 6,220,000 0.25 4,245,000 0.50
Exercised - - (45,410) 0.05
Canceled (125,000) 0.30 (1,076,590) 0.29
----------- ----------- ----------- -----------
Outstanding at end of year 11,665,000 $ 0.33 5,570,000 $ 0.43
=========== =========== =========== ===========
Exercisable at year-end 6,367,431 $ 0.36 2,571,524 $ 0.39
=========== =========== =========== ===========
-64-
Stock options outstanding and exercisable under 2002 Stock Plan as of June
30, 2005 are as follows:
Price Outstanding Price Life (Years) (Exercisable) Price
------- ----------- -------- ------------ ------------ --------
$0.05 500,000 $0.05 2.28 468,980 $0.05
$0.25 725,000 0.25 2.57 643,569 0.25
$0.50 4,220,000 0.50 3.51 2,773,485 0.50
$0.85 100,000 0.85 4.18 45,887 0.85
$0.50 1,140,000 0.20 4.58 475,242 0.20
$0.22 4,355,000 0.22 4.80 1,423,774 0.22
$0.50 500,000 0.50 4.80 500,000 0.50
$0.27 125,000 0.27 4.89 36,494 0.27
----------- -------- ------------ --------
11,665,000 $ 0.33 6,367,431 $ 0.36
=========== ======== ============ ========
There are 1,841,000 options available for grant at June 30, 2005. The
weighted average grant date fair value of options granted as of June 30,
2005 and 2004 is $0.33 and $0.43, respectively.
-65-
NOTE 10 WARRANTS
Through June 30, 2005, the Company had issued warrants for purchase of its
common stock to investors and service providers in connection with its
financing transactions. The principal terms of the warrants are summarized
below:
2005
---------------------------------------------
Exercise Price Exercisable
Description Shares Per Share Through
-------------------------------------------------------------------------------------
Granted
-------
2002 Bridge Loan - - August 2004
October 2002 Equity Private Placement 500,000 1.00 May 2006
October 2002 Equity Private Placement
Bonus Warrants (1) 250,000 2.00 n/a
May 2003 Equity Private Placement 2,438,000 1.00 August 2006
May 2003 Equity Private Placement 7,708,600 1.00 October 2006
May 2003 Equity Private Placement
Bonus Warrants (1) 5,073,300 2.00 n/a
Warrants issued to Mr. Swindells on
note conversion 850,000 1.00 November 2006
Bonus warrants to Mr. Swindells (1) 425,000 2.00 n/a
2004 Bridge Loan Warrant 2,695,000 1.00 February and
May 2009
Warrants issued to Financial Advisors 20,000 0.50 July 2008
Warrants issued to Financial Advisors 190,050 0.60 October 2008
Warrants issued to Financial Advisors 10,000 0.50 October 2008
Warrants issued to Financial Advisors 125,000 1.00 July 2009
Warrants issued to Financial Advisors 1,600,000 0.81 August 2009
2005 Convertible Loan Warrants 2,160,411 1.50 January 2008
-------------- -------------- -------------
Total Granted 24,045,361 1.27
Exercised
---------
2005 Convertible Loan Warrants (684,384)
--------------
Total Outstanding 23,360,977
==============
(1) Bonus warrants are issuable upon exercise of the original warrant.
NOTE 11 INCOME TAXES
The Company accounts for corporate income taxes in accordance with
Statement of Accounting Standards Number 109 ("SFAS No. 109") "Accounting
for Income Taxes." SFAS No. 109 requires an asset and liability approach
for financial accounting and reporting for income tax purposes. This
approach results in the recognition of deferred tax assets (future tax
benefits) and liabilities for the expected future tax consequences of
temporary timing differences between book and carrying amounts and the tax
basis of assets and liabilities. Future tax benefits are subject to a
valuation allowance to the extent of the likelihood that the deferred tax
assets may not be realized.
-66-
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The
Company's total deferred tax asset, and deferred tax asset valuation
allowance at June 30, 2005 is as follows:
June 30, 2005
-------------
Net operating loss carryforward
Federal $ 2,860,502
State 375,142
Foreign 685,500
Reserve for deferred revenues
Federal 1,336,500
State 314,500
Accrued compensation costs
Federal 46,000
State 10,800
Accrued amortization
Federal 52,400
State 12,300
Accumulated depreciation
Federal 268,100
State 63,100
-------------
6,024,844
Less valuation allowance for deferred
tax assets (6,024,844)
-------------
Net Current Deferred Tax Assets $ -
=============
The valuation allowance for deferred tax assets was increased by $2,742,844
during the year ended June 30, 2005.
At June 30, 2005, the Company has available net operating loss
carryforwards of approximately $8,413,242 for federal income tax purposes
that begin to expire in 2021. The federal carryforwards resulted from
losses generated in 2001 through 2005. The Company also has net operating
loss carryforwards available for state income tax purposes of $ 4,689,274
that begin to expire in 2021. The Company also has approximately
$1,816,000 of foreign net operating loss carryforwards. These loss
carryovers are limited per Section 382.
-67-
The reconciliation of income tax computed at statutory rates of income tax
benefits is as follows:
2005 2004
------------ ------------
Expense at Federal statutory rate 34% $(4,118,209) $(2,611,436)
State tax effects, net of Federal tax benefits (711,313) (664,032)
Nondeductible expenses 2,202,578 1,733,530
Foreign tax effects (116,000) (330,000)
Taxable temporary differences - 184
Deductible temporary differences - (9,686)
Acquired net operating loss carryforward from
subsidiary - (411,000)
Deferred tax asset valuation allowance 2,742,844 2,292,440
------------ ------------
Income tax provision $ - $ -
============ ============
No goodwill is expected to be deductible for tax purposes in any
geographical segment.
The components of income (loss) before taxes for domestic and foreign
operations are as follows for the year ended June 30, 2005 and 2004.
2005 2004
---------------------------- ----------------------------
Domestic Foreign Domestic Foreign
------------- ------------- ------------- -------------
Revenues $ 9,171,584 $ 2,005,390 $ 1,113,464 $ 1,476,628
Expenses 18,166,359 2,549,310 5,097,996 2,568,056
------------- ------------- ------------- -------------
Loss from Operations (8,994,775) (543,920) (3,984,532) (1,091,428)
Other Expenses (6,131,620) (3,942) (6,377,645) (999)
Minority Interest
and Equity - 59,215 - (7,459)
------------- ------------- ------------- -------------
Loss before Income Taxes $(15,126,395) $ (488,647) $(10,362,177) $ (1,099,886)
============= ============= ============= =============
NOTE 12 SEGMENT AND RELATED INFORMATION
We operate as a single business segment and have one product offering which
is training and education; however, our consolidated subsidiaries are
organized geographically into reporting segments consisting of the United
States Division, the European Division, the Australia Division and the
South Africa Division. Our United States division comprises our corporate
operations and subsidiaries domiciled in the United States of America. The
European division comprises subsidiaries domiciled in Europe; the Australia
Division comprises subsidiaries domiciled in Australia. The South Africa
division comprises non-consolidated subsidiaries domiciled in South Africa
accounted for using the equity method of accounting including a two person
office owned by them in Australia.
-68-
As of and for the fiscal year ended June 30, 2005:
Investment
Depreciation Losses in
Operating & Associated Accounts
Revenue Loss Amortization Companies Receivable
------------ ------------ ------------ ------------ ------------
United States $ 9,171,584 $(8,139,211) $ 2,766,795 $ - $ 3,341,809
Europe 1,497,556 (204,031) 1,714 - 116,968
Australia 507,834 (102,415) 15,155 - 81,638
South Africa - (89,736) - - -
------------ ------------ ------------ ------------ ------------
Total $ 11,176,974 $(8,535,393) $ 2,783,664 $ - 3,540,415
============ ============ ============ ============ ============
Property Total Net
Goodwill & Equipment Assets Assets
------------ ------------ ------------ ------------
United States $ - $ 5,827,092 $22,595,955 $(6,325,637)
Europe - 19,369 617,500 18,315
Australia - 30,538 172,134 (90,006)
South Africa - - - -
------------ ------------ ------------ ------------
Total - $ 5,876,999 $ 23,385,589 $(6,397,328)
============ ============ ============ ============
NOTE 13 STOCKHOLDERS' EQUITY
In October 2002, we (i) issued convertible promissory notes in the
aggregate principal amount of $500,000 (the "Bridge Financing Notes") to
certain individuals and entities, and (ii) in connection with the issuance
of the Bridge Financing Notes, issued warrants to the holders of the notes
to purchase additional shares of common stock. Of the total principal
amount of the Bridge Financing Notes, $55,000 was advanced by GCP and
$120,000 by Mr. Swindells. On May 19, 2003, the aggregate principal amount
of the Bridge Financing Notes and accrued interest thereon of $34,745 was
converted into 1,336,867 shares of common stock at a price of $0.40 per
share. The warrants issued in connection with the Bridge Financing Notes
are exercisable for a period of one year at a price of $0.05 per share, and
contain a net issuance provision whereby the holders may elect a cashless
exercise of such warrants based on the fair market value of the common
stock at the time of conversion. On March 26, 2004, GCP exercised its
warrants in a cashless exercise for which it received a total of 126,042
shares of common stock.
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. 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. During the period June 2004 to July 2004 Mr.
Swindells advanced us $120,000. On August 10, 2004 we repaid $50,000 of
this amount.
-69-
During the period February 2004 to November 2004, certain warrant holders
from the 2002 Bridge Financing exercised warrants at $0.05 per share for
1,238,542 shares of our common stock. Included in this amount are 126,042
shares issued to Granite Creek Partners ("GCP"), formerly known as Kings
Peak Advisory, LLC.
In January 2004, the Company commenced an offering of up to $3,000,000
Senior Convertible Bridge Notes (the "Notes"). The Notes were convertible
at 80% of the "Next Equity Financing" offering price. In addition, for
each $1.00 invested, the investor received a five year warrant to purchase
a share of the Company's common stock at $1.00 per share. Using the Black
Scholes option valuation model a value of $1,245,580 was attributed to the
warrants and recorded as a discount on notes payable. On March 25, 2004,
the Company's board of directors voted to allow conversion of the notes and
accrued interest if converted prior to April 5, 2004 at a conversion price
of $0.60 per share. As a result, certain investors elected to convert
$836,000 in principal of the total amount then outstanding of $1,146,000
plus accrued interest of $5,108 as of March 25, 2004. The difference of
$1,312,378 between the fair market value of the shares issued calculated
using $1.25 per share and the carrying value of the debt plus accrued
interest of the debt retired was recorded as debt conversion expense. At
its May 12, 2004 meeting, the board voted to allow the remaining investors
to convert principal and interest at $0.60 per share. As a result, on May
28, 2004 investors converted the remaining principal then outstanding of
$1,859,000 plus accrued interest of $11,922 to common stock. The
difference of $2,136,954 between the fair market value of the shares then
outstanding calculated using $1.05 per share and the carrying value of the
debt plus accrued interest of the debt retired was recorded as debt
conversion expense. As a result of these transactions 4,520,069 shares of
our common stock were issued and a net credit to common stock of $5,034,044
was recorded. Financing fees incurred in connection with the sale of the
notes are approximately $241,200
During 2004, 100,000 and 40,721 shares of the Company's common stock were
issued to Mr. Ron Posner and TN Capital Equities, Inc. for finders' fees
for the Riverbend and IRCA acquisitions and for fundraising, respectively.
During the year ended June 30, 2004, 858,952 shares of the Company's common
stock were issued at a weighted average price per share $0.04 for the
exercise of options and warrants resulting in gross proceeds to the Company
of $34,375.
On July 29, 2004, we issued a secured promissory note in the principal
amount of $500,000 to Oceanus Value Fund, L.P., ("Oceanus"). In connection
with the issuance of the note, we also issued to Oceanus a five-year
warrant to purchase up to 125,000 shares of our common stock at a price of
$1.00 per share. A value attributable to the warrants using the Black
Scholes option valuation model of $188,842 was determined and recorded as a
discount on notes payable.
-70-
On August 31, 2004, we entered into a series of Agreements with Laurus
whereby we issued to Laurus (i) a secured convertible tern note in the
principal amount of $5.5 million and (ii) a five-year warrant to purchase
up to 1,600,000 shares of our common stock at a price of $0.81 per share.
Of the note proceeds, $4,491,000 was deposited in a restricted account as
security for the total loan amount and for use by us to make acquisitions
as approved by Laurus; the outstanding principal balance of $500,000 was
repaid to Oceanus and the reminder of the loan proceeds was used for
operating needs. The principal amount of the Term Note carries an interest
rate of prime plus two percent, subject to adjustment, and we must make
monthly principal payments of at least $22,059, commencing November 1,
2004, toward the outstanding non-restricted principal amount. The
principal amount of the Term Note and accrued interest thereon are
convertible into shares of our common stock at a price of $0.72 per share,
subject to anti-dilution adjustments. A value attributable to the warrants
using the Black Scholes option valuation model of $2,863,363 was determined
and recorded as a liability and a discount on notes payable. A value
attributable to the beneficial conversion feature of the Term Note using
the Black Scholes option valuation model of $2,070,784 was determined and
recorded as a credit to common stock and a discount on notes payable.
On January 7, 2005, we closed an offering of Notes in the aggregate
principal amount of $1,552,500. The Notes mature in twelve months and
accrue interest at a rate of 9% per annum. The principal amount of the
Notes and accrued interest thereon are convertible into shares of our
common stock at any time prior to the due date of the Notes, we also issued
three-year warrants to purchase an aggregate of 2,126,712 shares of our
common stock at an exercise price of $1.50 per share.
NOTE 14 GOING CONCERN
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 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. These
conditions raise substantial doubt about our ability to continue as a going
concern.
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.
On July 15, 2005, we closed a $4,500,000 financing facility from Instream
Capital LLC ("Instream"). The Credit Agreement ("Agreement") is a secured,
nonconvertible 18-month interest-only loan. The Agreement bears interest
at the rate of twelve percent (12%). A portion of the proceeds were used
to repay the Company's previous interim financing obtained from Laurus in
summer 2004. The remaining net proceeds will be used for working capital.
-71-
Currently the Company is trying to obtain additional equity financing of
approximately $2 million. The proceeds will be used for general working
capital purposes and should provide sufficient cash to sustain operations
into early 2006. There can be no assurance that the Company will be
successful in completing this transaction.
The Company intends to use Trinity Workplace Learning ("TWL") in
Carrollton, Texas as its hub of operations. All future acquisitions and
product offerings must be complementary to this location and
infrastructure. During the fiscal year ended June 30, 2005 the TWL
location began major strategic cost cutting efforts, along with revenue
generating opportunities. TWL eliminated selected senior management and
selected middle management, along with significant staff positions. In
addition, TWL converted many of their contracted personnel to permanent
employee positions with the Company, including appointing corporate counsel
to handle legal matters for the Company. These cost cutting efforts have
been estimated to save the Company a total of $3 million over the next 12
months.
In addition to cost cutting efforts, the Company has also made efforts to
sub-lease portions of their 200,000 square foot facility in Texas for an
estimated $1 million dollars in income. In addition to sub-leasing office
space, the Company is in the final stages of an agreement, wherein the
excess capacity of their Pan Am Sat transponder will be brokered out other
companies. This agreement will bring an estimated $350,000 of income to
the Company.
Finally, the Company is in the process of closing or selling TouchVision,
their wholly-owed subsidiary in California. This will save the Company an
estimated $300,000 in operating costs per year. The Company is also
focusing on reduced spending procedures on product development resulting in
annual savings of approximately $2 million.
Trinity's future capital requirements will depend on our 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 15 SUBSEQUENT EVENTS
In October 2005, the parties entered into a Settlement Agreement with
provisions as follows: (a) Musca, TLC and Danlas agreed to cancel the
definitive agreement, and Danlas, IRCA and IRCA Investments agreed to
cancel the sale of shares agreement; (b) all rights and obligations of the
parties contained in the sale of shares and definitive agreements, which
have not been exercised and/or fulfilled, shall expire; (c) any transfer of
shares that may have been effected as envisaged in the sale of shares
agreement and the definitive agreement, is void ab initio, and the parties
agree to co-operate to the extent necessary to restore their positions as
shareholders as they were before the conclusion of the sale of shares
agreement, the definitive agreement and related agreements; (d) IRCA and
IRCA Investments abandon all claims which either of them may have against
Trinity International in terms of, arising from, or in connection with the
expansion contribution; (e) Trinity Learning cedes all of its rights under
terms of the interest free loan to Musca; (f) all options to purchase stock
of Trinity Learning granted or to have been granted to employees, directors
or officers of IRCA shall be rescinded; (g) IRCA, IRCA Investments and
Musca shall indemnify Trinity Learning and hold it harmless against any
loss which the Company may suffer as a result of any of the managers of
-72-
these entities and/or Titan Aviation exercising their respective rights to
acquire shares in the share capital of Trinity Learning. Further, the
parties agreed that they shall take the necessary steps to release the bank
guarantee, and to arrange for the repayment to Trinity Learning of the
amount of $250,000 deposited by TLC with Standard Bank Limited (plus
accrued interest). Such funds have been released and transferred to
Trinity Learning. Finally, the parties agreed that all disputes which
exist between them in terms of, arising from, or in connection with the
definitive agreement, the sale of shares agreement and/or the relationship
between the parties are fully and finally settled with effect from the
effective date, and all obligations which each of them may owe to any other
of them and all claims (arising out of contract, delict, and statute),
which each of them may have against any other of them (irrespective of
whether that claim would ordinarily arise in terms of the laws of the RSA
or any other jurisdiction), in terms of, arising from, or in connection
with the definitive agreement, the sale of shares agreement and all
agreement contained in appendices thereto and/or the relationship between
the parties generally from the commencement of such relationship until and
including the signature date shall have been settled.
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 and are incorporated herein by reference. 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.
In connection with the execution of the Credit Agreement, the Company
issued Warrants to the Lenders, which Warrants are exercisable for a period
of five years and permit the holders the right to acquire up to an
aggregate of 5.25% of the outstanding common stock of the Company on a
fully diluted basis at a price per share equal to $0.266, subject to
adjustment as provided in the Warrants. The Company believes that the
issuance of the Warrants is exempt from the registration requirements of
the Securities Act of 1933 pursuant to Section 4(2) thereof. A copy of the
form of Warrant is filed as Exhibit 99.2 hereto and is incorporated herein
by reference. As noted above, on July 13, 2005, in connection with the
payoff of amounts outstanding under the Laurus Agreements, Laurus converted
a portion of the note into 1,198,124 shares of common stock at a conversion
price of $0.24 per share. The Company believes that the issuance of common
stock upon conversion of the note is exempt from the registration
requirements of the Securities Act of 1933 pursuant to Section 4(2)
thereof.
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In October 2005, The Company and IRCA completed a Settlement Agreement
whereby we mutually rescinded the original acquisition agreement, resulting
in no ownership positions for IRCA in our company and vice versa.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
RECENT CHANGES IN ACCOUNTANTS
As was previously reported, we appointed Chisholm, Bierwolf & Nilson,
LLC, on December 13, 2004, to serve as our independent auditor for the
fiscal year ended June 30, 2005. The decision to change auditors was
approved by our Audit Committee. Chisholm, Bierwolf & Nilson, LLC and its
predecessor entity, Bierwolf, Nilson & Associates, had audited our
financial statements for the transition period ended June 30, 2003 and the
year ended September 30, 2002. We had not consulted with Chisholm,
Bierwolf & Nilson, LLC during the two fiscal years ended June 30, 2005 and
June 30, 2004 or during the subsequent interim reporting periods through
and including the termination date of December 13, 2004, on either the
application of accounting principles or type of opinion Chisholm, Bierwolf
& Nilson, LLC might issue on our financial statements
On December 6, 2004, we notified BDO Spencer Steward ("BDO") of our
decision to dismiss BDO as our independent auditors. BDO audited the
financial statements for the years ended June 30, 2003 and 2004 for IRCA
(Proprietary) Limited ("IRCA"), a South African company, in which we,
through our wholly owned subsidiary, Danlas Limited, acquired 51% of the
issued and outstanding shares in the fiscal year ended June 30, 2004.
BDO audited our financials statements for the fiscal year ended June
30, 2004. BDO's auditor's report for the year ended June 30, 2004 contained
a separate paragraph stating, "The accompanying financial statements have
been prepared assuming that the Company will continue as a going concern.
As discussed in Note 14 to the financial statements, the Company has
suffered losses from operations and has negative working capital. These
conditions raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described
in Note 14. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty." Except as so noted,
BDO's report for this period did not contain an adverse opinion or
disclaimer of opinion, nor was it qualified or modified as to uncertainty,
audit scope or accounting principles.
In connection with the audit of the period ended June 30, 2004, there
were no disagreements or reportable events between us and BDO on any
matters of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which, if not resolved to the
satisfaction of BDO, would have caused them to make a reference to the
subject matter of the disagreements or reportable events in connection with
their reports. However, BDO informed us of its findings of material
internal control weaknesses.
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Effective July 8, 2004, we engaged BDO as our principal independent
auditors with respect to our fiscal year ending June 30, 2004. The
decision to change auditors was approved by our board of directors. Prior
to their appointment, BDO had previously audited IRCA for the fiscal year
ended June 30, 2003. During the fiscal year ended September 30, 2002, the
transition period ended June 30, 2003 and through the date of their
engagement, we did not consult BDO with respect to (i) the application of
accounting principles to a specified transaction, either completed or
proposed, or the type of audit opinion that might be rendered on our
financial statements, and neither a written report was provided to us nor
was oral advice provided that BDO concluded was an important factor
considered by us in reaching a decision as to the accounting, auditing or
reporting issue, or (ii) any matter that was the subject of a disagreement
or event identified in response to paragraph (a)(1)(iv) of Item 304 of
Regulation S-B.
On July 8, 2004, we also notified Chisholm, Bierwolf & Nilson, LLC,
("CBN") of our decision to dismiss CBN as our independent auditors. CBN's
predecessor firm, Bierwolf, Nilson & Associates ("BNA"), audited our
financial statements for the fiscal year ended September 30, 2002 and the
transition period ended June 30, 2003. BNA's auditor's report for the
transition period ended June 30, 2003 contained a separate paragraph
stating, "The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going concern. As
discussed in Note 13 to the consolidated financial statements, the
Company's significant operating losses raise substantial doubt about our
ability to continue as a going concern. These consolidated financial
statements do not include any adjustments that might result from the
outcome of this uncertainty." BNA's auditor's report for the fiscal year
ended September 30, 2002 contained a separate paragraph stating, "The
accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 10 to the
financial statements, the Company's significant operating losses raise
substantial doubt about our ability to continue as a going concern. These
financial statements do not include any adjustments that might result from
the outcome of this uncertainty." Except as so noted, BNA's reports for
each of these two periods did not contain an adverse opinion or disclaimer
of opinion, nor were they qualified or modified as to uncertainty, audit
scope or accounting principles.
In connection with audits of the transition period ended June 30, 2003
and the fiscal year ended September 30, 2002, and any subsequent interim
period preceding the date hereof, there were no disagreements or
reportable events between us and CBN or its predecessor entity BNA on
any matters of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which, if not resolved to the
satisfaction of CBN or BNA, would have caused them to make a reference to
the subject matter of the disagreements or reportable events in connection
with their reports.
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On February 19, 2004, our independent auditors, BNA, informed us that
on February 10, 2004, that it had merged its operations into CBN and was
therefore effectively resigning as our auditors. BNA had audited our
financial statements for the fiscal year ended September 30, 2002 and the
transition period ended June 30, 2003 and its reports for each of these two
periods did not contain an adverse opinion or disclaimer of opinion, nor
were they qualified or modified as to BNA on any matter regarding
accounting principles or practices, financial statement disclosure, or
auditing scope or procedure during the past two fiscal years or any
subsequent interim period preceding the date of the merger that resulted in
the effective resignation of Bierwolf, Nilson & Associates as our auditors.
Our board of directors confirmed that we would continue our engagement with
CBN and approved the change in auditors resulting from the merger of BNA
into CBN.
ITEM 8A. 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, 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.
In connection with the completion of its audit of, and the issuance of
its report on, Trinity Learning's consolidated financial statements for the
year ended June 30, 2004, BDO Spencer Steward ("BDO") identified
deficiencies that existed in the design or operation of our internal
controls over financial reporting that it considered to be "material
weaknesses." The Public Company Accounting Oversight Board has defined a
material weakness as "a significant deficiency or combination of
significant deficiencies that results in more than a remote likelihood that
a material misstatement of the annual or interim financial statements will
not be prevented or detected." BDO advised the Audit Committee of Trinity
Learning's Board of Directors of the following material weaknesses in our
financial reporting: (i) inadequate control over activities and reporting
relating to Trinity Learning's investments in its South African
subsidiaries; and (ii) lack of sufficient resources to identify and
properly address technical SEC and reporting issues.
We did not timely file this annual report on Form 10-KSB or, with
respect to the audited and pro forma financial statements relating to our
acquisition of the Primedia assets, our Current Report on Form 8-K. In
addition, as noted above and as previously disclosed, material weaknesses
had been identified by BDO that contributed to our failure to timely file
our annual report on Form 10-KSB for the fiscal year ending June 30, 2004.
Accordingly, our chief executive officer and our chief financial officer
have concluded that such controls and procedures were not effective as of
June 30, 2004 or September 30, 2004.
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In connection with its audit of, and the issuance of its report on our
consolidated financial statements for the year ended June 30, 2005,
Chisholm Bierwolf & Nilson, Certified Public Accountants, of Bountiful,
Utah, concurred with the conclusions of BDO with respect to these material
weaknesses and informed the Audit Committee of Trinity Learning's Board of
Directors of the following material weaknesses in our financial reporting:
(i) inadequate control over activities and reporting relating to Trinity
Learning's investments in its South African subsidiaries, as well as their
TouchVision subsidiary in California and (ii) lack of sufficient resources
to identify and properly address technical SEC and reporting issues.
As required by Rule 13a-15(b) of the Securities and Exchange
Commission, we carried out an evaluation under the supervision and with the
participation of our management, including our chief executive officer and
our chief financial officer, of the effectiveness of the design and
operation of our disclosure controls and procedures as of June 30, 2005.
Based on this evaluation, our chief executive officer and our chief
financial officer have concluded that the disclosure controls and
procedures that are designed to ensure that information required to be
disclosed by us in the reports that we file or submit under the Securities
Exchange Act of 1934, as amended, is recorded, processed, summarized and
reported, within the time periods specified in the Commission's rules and
forms, were not effective as of June 30, 2005. Chisholm Bierwolf & Nilson
has not provided an attestation report on management's assessment of our
internal control over financial reporting.
There was no change in our internal control over financial reporting
that occurred during fourth fiscal quarter of the Company's fiscal year
ending June 30, 2005 that has materially affected, or is reasonably likely
to materially affect, our internal control over financial reporting.
In light of the material weaknesses identified by BDO, the Company has
undertaken a review of its disclosure, financial information, internal
controls and procedures and organization and staffing of its corporate
accounting department. In connection with its acquisition of the Primedia
assets, the Company significantly bolstered its internal accounting and
auditing staff and, in May, 2005, appointed Patrick Quinn as its new Chief
Financial Officer. The Company also has appointed a general counsel and has
retained additional outside legal counsel to assist it, among other things,
in its efforts to timely file or submit our future reports under the
Securities Exchange Act of 1934, as amended. Management intends to
continue focusing on strengthening the Company's controls and procedures.
ITEM 8B. OTHER INFORMATION
None.
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTORS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Directors and Executive Officers
The following table sets forth the names, ages and titles of our
executive officers and directors.
Name Age Position
--------------------- ------ ------------------------------------
Doug Cole 50 Chief Executive Officer and Director
Edward P. Mooney 46 President and Director
Richard J. Marino 56 Chief Operating Officer
Patrick R. Quinn 45 Chief Financial Officer
William D. Jobe 67 Director
Richard G. Thau 58 Director
Arthur Ronald Kidson 62 Director
Ron S. Posner 63 Director
Dennis J. Cagan 60 Director
Certain biographical information pertaining to the above-named officers and
directors is set forth below:
DOUG COLE. Mr. Cole has been a director of the Company and our Chief
Executive Officer since 2002. For the past 25 years, Mr. Cole has worked
in the information technology industry, with a focus on sales and
marketing. He has successfully completed numerous acquisitions and
strategic partnerships for and among various companies. He served as a
director of USA Broadband, Inc., a publicly-traded company specializing in
delivery of digital video and television programming, from 2001 to 2003,
and served as interim president of its operating subsidiary, Cable
Concepts, Inc., from 2001 to 2002. From 1998 to 2000, Mr. Cole served as a
director of RateXchange Corporation and as a director of two of its
subsidiaries, RateXchange I, Inc. and PolarCap, Inc. He served as
Chairman, Chief Executive Officer, President and Principal Accounting
Officer of RateXchange from 1999 to 2000. He served as the Chief Executive
Officer of PolarCap, Inc. from its inception until 1998. Mr. Cole was the
founder and Chief Executive Officer of Great Bear Technology from its
inception in 1992 until its merger with Graphic Zone Inc. in 1992.
EDWARD P. MOONEY. Mr. Mooney has been a director of the Company since
2002 and our President since 2002. Mr. Mooney has 20 years experience in
corporate development, corporate finance, and financial research and
analysis. He served as a director and officer of USA Broadband, Inc., a
publicly-traded company, from 2001 to 2003, and he also served as interim
Chief Executive Officer until 2002 and provided consulting services to USA
Broadband until 2003. Prior thereto, Mr. Mooney was self-employed as a
corporate consultant. Mr. Mooney served as a director for RateXchange
Corporation from 1998 to 2000 and as Executive Vice President from 1999 to
2000. Mr. Mooney also served as a director of WorldPort Communications,
Inc. from 1996 to 1998 and as President from 1996 to 1997. During 2002 Mr.
Mooney served as a director of Category 5 Technologies, Inc. a publicly
traded company. He also served as a director of InterAmericas
Communications Corporation, HQ Office International and HQ Office Supplies
Warehouse.
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RICHARD J. MARINO. Mr. Marino was appointed as the Company's Chief
Operating Officer in 2004. Mr. Marino has over 20 years of senior
executive management experience in global operations, product development
and sales for major publishing and media companies. Prior to joining us,
Mr. Marino was most recently vice-president and publisher of Dowden Health
Media. Prior thereto, from 2001 until 2003, Mr. Marino was managing
partner of the Management Group, LLC, a business services organization.
During 2001, Mr. Marino was also chief executive officer of Standard Media
International, publisher of The Industry Standard Magazine. From 1999 to
2001, Mr. Marino was chief operating officer of CNET Networks, Inc., which
operated one of the world's largest websites offering a variety of products
and services.
PATRICK R. QUINN. Mr. Quinn was appointed as the Company's Chief
Financial Officer in May 2005. In his capacity as CFO, Mr. Quinn is
responsible for all facets of accounting, budgeting, treasury and cash
management services and has also implemented the compliance process and
procedures for Sarbanes-Oxley. Most recently, Mr. Quinn was employed by
Primedia Workplace Learning ("PWPL") as Chief Financial Officer from March
2004 to May, 2005. PWPL was a wholly-owned subsidiary of Primedia Inc
(NYSE PRM). From 2000 to 2003 Mr. Quinn was Chief Financial Officer for
Fusion Laboratories, Inc. From 1997 to 2000 Mr. Quinn was Chief Financial
Officer of B.R. Blackmarr & Associates, until its merger into BrightStar
Information Technology Corp (NASDAQ BTSR) where he was the Controller.
From 1989 to 1997 Mr. Quinn was Vice President/Chief Financial Officer for
Affiliated Computer Systems/Precept. Mr. Quinn has also been an adjunct
professor of finance in the MBA program at the University of Dallas, where
he was rated in the top 5% of the adjunct faculty.
WILLIAM D. JOBE. Mr. Jobe has been a director of the Company since
2002. He has been a private venture capitalist and a computer,
communications and software industry advisor since 1991. Prior to that
time, he worked in executive management for a number of firms in the
computer, software and telecommunications industries including MIPS
Technology Development, where he served as President, and Data General,
where he was Vice President of North American Sales. Mr. Jobe has served
as a director for a number of privately held and publicly held high
technology companies including Qualix Group, Inc., Fulltime Software, Inc.,
Multimedia Access Corporation where he served as chairman of the board and
director, Viewcast.com, GreatBear Technology Company, Tanisys Technology,
Inc. and Interand Group.
RICHARD G. THAU. Mr. Thau has been a director of the Company since
2004. Mr. Thau is a self-employed consultant/mentor/advisor, and investor
in early stage information technology companies and serves as an
executive-in-residence at InterWest Partners. From 1990 to 1999, Mr. Thau
served as Director, Chairman of the Board and CEO of FullTime Software
(formerly Qualix Group), a provider of software for network-based
computing. He also is the former CEO of Micro-MRP.
ARTHUR RONALD KIDSON. Mr. Kidson has been a director of the Company
since 2004 and is a chartered accountant in South Africa. Mr. Kidson was
appointed a director pursuant to the terms of the agreement by which
Trinity Learning acquired its interest in RiverBend Group Holdings
(Proprietary) Limited. From 1998 to 2000, Mr. Kidson served as the
Executive Director of Price Waterhouse Coopers Chartered Accountants in
South Africa. Prior to that, Mr. Kidson served as Chairman of Coopers &
Lybrand Chartered Accountants in South Africa.
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RON S. POSNER. Mr. Posner has been a director of the Company since
May 2005. Mr. Posner is Chairman of NetCatalyst, a high-technology mergers
and acquisitions firm, and a founding general partner of PS Capital LLC, an
angel venture capital firm. Mr. Posner has over 30 years experience in the
technology industry, having held CEO positions with a number of high
technology companies, including Peter Norton Computing, a PC utilities
software company. He has been an active investor and advisor to a number of
Internet companies including PrizeCentral.com (now called Flipside.com and
part of Vivendi-Universal Net Group), tunes.com (now part of Universal
Music Group), Spinner.com (now part of AOL Time Warner), STV.com (now part
of Sonic Foundry), Match.com (now part of TicketMaster City Search, Inc.),
and Novatel Wireless. Mr. Posner serves on the Boards of Directors of
eChinaCash and Puresight.
DENNIS J. CAGAN. Mr. Cagan has served as a director since May 2005.
He has been in the high technology industry as an active and successful
entrepreneur for over 38 years, having founded over a dozen different
companies. He has been an investor and professional board member (over 40
boards) for over 25 years. Most recently as the founder, Chairman and CEO
of the Santa Barbara Technology Group, LLC, Mr. Cagan oversees all
activities including monitoring portfolio investments, consulting to
early-stage technology companies, and selecting new investments. Santa
Barbara Technology Group, LLC is a private investment and consulting firm
engaged primarily in working with, and investing in early-stage technology
companies in Santa Barbara. The firm has become an important connection
for any high-tech start-up on the California Central Coast. They provide
world-class management assistance, strategic guidance, and valuable
connections for entrepreneurs. They provide young companies access to
financing and operational and technological infrastructure. Mr. Cagan is
currently on the Boards of Directors of Acorn Technologies, Inc.; Pacific
Palisades; BNI Holdings, Goleta, CA. (formerly Bargain Network); InQ, Inc.
(Chairman), Agoura Hills, CA.; Nutricate Corp., Santa Barbara, CA.;
Truston, Inc., Santa Barbara, CA. (Chairman); and SaluDent International,
Inc., Santa Barbara, CA. (Chairman). His non-profit activities include:
Executive Board, California Coast Venture Forum; and Board of Directors,
Santa Barbara County's United Way.
AUDIT COMMITTEE
The Company has an Audit Committee established in accordance with
Section 3(a) (58) (A) of the Securities Exchange Act of 1934, which
consists of Richard Thau, William Jobe and Arthur Kidson. Richard Thau is
the interim Chairperson of the committee. This committee, among other
things, reviews the annual audit with the Company's independent
accountants. In addition, the audit committee has the sole authority and
responsibility to select, evaluate, and, where appropriate, replace the
independent auditors or nominate the independent auditors for shareholder
approval. The Company's Board of Directors has determined that the Company
has at least one audit committee financial expert on its Audit Committee.
Mr. Richard Thau, the audit committee financial expert, is independent as
that term is used in Item 7(d) (3) (iv) of Schedule 14A under the
Securities Act of 1934.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Our directors and executive officers and persons who hold more than
10% of our outstanding common stock are subject to the reporting
requirements of Section 16(a) of the Exchange Act ("Section 16(a)"), which
require them to file reports with respect to their ownership of common
stock and their transactions in common stock.
-80-
Based solely upon a review of Forms 3, 4 and 5 and amendments thereto
as well as written representations provided to us by our executive
officers, directors and 10 percent shareholders, we are unaware of any such
persons failing to file on a timely basis any reports required by Section
16(a) of the Exchange Act, except for the following: (i) Richard Thau,
Rich Marino, Ron Posner, Arthur Kidson, Dennis Cagan and Patrick Quinn
inadvertently filed their Form 3s late, (ii) Doug Cole, Edward Mooney,
Rich Marino, William Jobe, Richard Thau, Arthur Kidson and Ron Posner
inadvertently filed their Form 4s late with regards to stock options
granted to them under the Company's 2002 Stock Option Plan in 2004 and
2005, and (iii) Doug Cole and Edward Mooney inadvertently filed their Form
4s late with regards to private transfers without consideration of shares
held by them in a limited liability company of which they are members and
managers.
CODE OF ETHICS
We have adopted a code of ethics that applies to all employees of our
company, including employees of our subsidiaries, as well as each member of
our board of directors. The code of ethics is available on our website at
www.trinitylearning.com.
ITEM 10. EXECUTIVE COMPENSATION
The table below sets forth certain information regarding the annual and
long-term compensation for services by the named executive officers to us
in all capacities for the fiscal years ended June 30, 2005 and 2004, the
nine month transitional period ended June 30, 2003 and the fiscal year
ended September 30, 2002. These individuals received no other compensation
of any type, other than as set out below, during the fiscal years
indicated.
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Annual Compensation Long Term Compensation
------------------------------ ---------------------------------
Long
Other Restr Term All
Name & Annual icted Incen- Other
Principal Compen Stock Stock tive Compen
Position Year Salary Bonus sation Awards Options Payout sation
-------------------------------------------------------------------------------------
Doug Cole
Chief Executive
Officer 2005 $180,000 - $64,000 - 500,000 - -
2004 $180,000 - $12,000 - 250,000 - -
2003 $135,000 $25,000 $ 9,000 - 250,000 - $12,500
2002 $ 75,000 - $ 5,000 - - - $12,500
Edward P. Mooney
President 2005 $180,000 - $12,000 - 500,000 - -
2004 $180,000 $12,000 - 250,000 - -
2003 $135,000 $25,000 $9,000 - 250,000 -
2002 - - - - - - $12,500
Rich Marino
Chief Operating
Officer 2005 $210,000 $30,000 $17,000 - 250,000 - -
2004 - - - - - - -
2003 - - - - - - -
2002 - - - - - - -
Patrick R. Quinn
Chief Financial
Officer
(Partial year) 2005 $25,223 - - - 250,000 - -
Christine R. Larson
Chief Financial
Officer
(Partial year) 2005 $145,269 - $6,730 - 80,000 - -
2004 $165,000 - $9,000 250,000 - -
2003 $ 45,800 - - - 200,000 - -
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The following table sets forth the individual stock option grants made
during the fiscal year ended June 30, 2005 to each of the above named
executive officers.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
Individual
Grants
-------------
% of Total
Number of Total Options
Securities Granted to Exercise
Underlying Employees in Price Expiration
Name Options Fiscal Year per Share Date
----------------- ----------- ------------- ------------- -------------
Doug Cole 250,000 - $0.22 4/18/2010
250,000 9.8% $0.50 1/27/2005
Edward P. Mooney 250,000 - $0.22 4/18/2010
250,000 9.8% $.050 1/27/2005
Rich Marino 250,000 4.9% $0.22 4/18/2010
Patrick R. Quinn 250,000 4.9% $0.22 4/18/2010
Christine R. Larson 80,000 1.6% $0.50 1/28/2010
The following table sets forth the aggregate stock option exercises and
fiscal year-end option values for each of the above named executive
officers for the fiscal year ended June 30, 2005.
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Values
The following table sets forth the aggregate stock option exercises and
fiscal year-end option values for each of the above named executive
officers. No stock options were exercised during the year ended June 30,
2005.
Number of Securities Exercise Value
Shares Underlying Unexercised of Unexercised
Acquired Options at FY-End Options at FY-End
on Value Exercisable/ Exercisable/
Name Exercise Realized Unexercisable Unexercisable
------------------ -------- ---------- --------------------- ---------------------
($0.28 on 6/30/05)
Doug Cole 0 0 556,923 / 443,078 $11,405 / $11,095
Edward P. Mooney 0 0 556,923 / 443,078 $11,405 / $11,095
Rich Marino 0 0 231,834 / 293,166 $10,076 / $10,674
Patrick R. Quinn 0 0 78,045 / 171,955 $4,683 / $10,317
Christine R. Larson 0 0 416,679 / 113,321 $5,253 / $1,494
Compensation of Directors
Non-employee members of our board of directors have been granted options
from time to time to purchase shares of our common stock, but are not
otherwise compensated in their capacity as directors. We do not pay any
fees for attendance at committee meetings.
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ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information as of October 13,
2005 regarding current beneficial ownership of our common stock by (i) each
person known by us to own more than 5% of the outstanding shares of our
common stock, (ii) each of our executive officers and directors, and (iii)
all of our executive officers and directors as a group. Except as noted,
each person has sole voting and sole investment or dispositive power with
respect to the shares shown. The information presented is based on
38,918,013 outstanding shares of common stock as of October 13, 2005.
Unless otherwise indicated, the address for each of the following is 3685
Mt. Diablo Blvd, Suite 161, Lafayette, California 94549.
Total Percent
Number of Beneficial of Class
Number of Options & Ownership Beneficially
Beneficial Owner Shares Owned Warrants (1) (2) Owned
------------------------------- ------------ ------------ ----------- ------------
Doug Cole
Chief Executive
Officer and Director 2,433,927 659,460 3,093,387 7.8%
(3)
Edward P. Mooney
President and Director 2,353,927 659,460 3,013,3870 7.5%
(3 )
William Jobe
6654 Bradbury Court
Fort Worth, TX 76132
Director 200,000 244,326 444,326 1.1%
Arthur R. Kidson
2 Epsom Road
Stirling, East London
Republic of South Africa
Director 0 150,171 150,171 0.4%
Richard G. Thau
2468 Sharon Oaks Drive
Menlo Park, CA 94025
Director 0 256,319 256,319 0.7%
Ron S. Posner
820 Stony Hill Road
Tiburon, CA 94920
Director 100,000 75,138 175,138 0.4%
Dennis J. Cagan
903 Laguna Street
Santa Barbara, CA 93101
Director 0 74,138 74,138 0.2%
Richard Marino
Chief Operating Officer 0 289,918 289,918 0.7%
Patrick R. Quinn
Chief Financial Officer 0 103,333 103,333 0.3%
-84-
Steven Hanson
1319 NW 86th Street
Vancouver, WA 98665
5% Shareholder 2,080,000 3,000,000 5,080,000 12.1%
Theodore Swindells
11400 Southeast 8th Street
Bellevue, WA 98004
5% Shareholder 2,850,000 1,275,000 4,125,000 9.8%
Luc Verelst
Verbier, Switzerland 1936
5% Beneficial Owner 3,675,138 4,000,000 7,675,138 17.9%
All executive officers and
directors of the Company as a
group (9 persons) 4,059,944 2,512,263 6,572,207 15.9%
(3)
* Denotes less than one percent (1%).
(1) Reflects warrants, options or other convertible securities that will
be exercisable, convertible or vested as the case may be within 60
days of October 13, 2005.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that
person, shares of common stock subject to options held by that person
that are currently exercisable or become exercisable within 60 days
following October 13, 2005 are deemed outstanding. These shares,
however, are not deemed outstanding for the purpose of computing the
percentage ownership of any other person. Unless otherwise indicated
in the footnotes to this table, the persons and entities named in the
table have sole voting and sole investment power with respect to the
shares set forth opposite such shareholder's name.
(3) Includes 847,910 shares owned by Granite Creek Partners, LLC, a Utah
limited liability corporation ("GCP"). Messrs. Cole and Mooney are
each managers and members of GCP. Each disclaims beneficial ownership
of the shares in the Company except to the extent of their pecuniary
interest therein.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Our corporate reorganization during the fiscal year ended September
30, 2002 was effected primarily by two of our officers and directors,
Messrs. Douglas Cole and Edward Mooney. During that fiscal year and the
transition period subsequent thereto, we entered into several transactions
with these individuals and with entities affiliated with them, as well as
entities affiliated with Theodore Swindells, a significant stockholder of
our company.
-85-
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
Messrs. Cole, Mooney and Mr. Swindells. At our August 19, 2003 board of
directors', meeting, our board of directors voted to suspend the Advisory
Agreement from August 15, 2003 until January 2004, and this agreement
remains suspended. 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 our common stock in March 2003. The remaining balance
of $205,000 was paid in full to GCP as of June 30, 2004.
As of July 31, 2002, we entered into an Advisory Agreement with EAS, a
private entity of which Mr. Swindells is a principal, pursuant to which EAS
agreed to provide financial advisory and investment banking services to us
in connection with various equity and/or debt transactions. 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, at EAS' option, in cash or our common
stock. On October 2, 2003, we renewed the agreement with EAS on terms
similar to those contained in the first agreement. On January 1, 2004, we
amended the October 2003 agreement in connection with our January 2004
senior convertible bridge note offering, which closed on May 28, 2004, for
which we paid EAS a fee of 10%. Through June 30, 2004, EAS had earned a
total of $1,065,104 pursuant to our arrangement with them, of which
$345,450 was earned in connection with private equity and/or debt
transactions and $719,654 was earned for advisory services in connection
with certain acquisitions. In January 2004, 250,000 shares of our common
stock with a fair market value of $375,000 was paid to EAS in the Company's
common stock. As of June 30, 2004, the balance owed to EAS was $66,653.
On May 27, 2004, European American Perinvest Group, a subsidiary of EAS,
invested $100,000 in our 2004 senior convertible bridge note offering. On
May 28, 2004, this investment was converted to 166,699 restricted shares of
our common stock as part of the total conversion of this financing to
4,520,069 shares of our common stock.
During the period August 2001 to June 30, 2002, Mr. Swindells advanced
a total of $925,000 to us by way of short-term non-interest bearing working
capital loans. We repaid $500,000 of the total amount owing in September
2003 and issued an aggregate of 850,000 shares of our common stock to Mr.
Swindells in November 2003 in payment of the remaining balance of $425,000.
During the period June 2004 to October 2004, Mr. Swindells advanced us
$155,000. On August 10, 2004 we repaid $50,000 of this amount and on
November 2, 2004 we paid the remaining balance of $105,000. On October 14,
2004, Mr. Swindells exercised warrants to purchase 300,000 shares of our
common stock at $0.05 per share.
-86-
In October 2002, we issued convertible promissory notes in the
aggregate principal amount of $500,000 (the "Bridge Financing Notes") to
certain individuals and entities, and in connection with the issuance of
the Bridge Financing Notes, issued warrants to the holders of the notes to
purchase additional shares of common stock. Of the total principal amount
of the Bridge Financing Notes, $55,000 was advanced by GCP and $120,000 by
Mr. Swindells. On May 19, 2003, the aggregate principal amount of the
Bridge Financing Notes and accrued interest thereon of $34,745 was
converted into 1,336,867 shares of common stock at a price of $0.40 per
share. The warrants issued in connection with the Bridge Financing Notes
are exercisable for a period of one year at a price of $0.05 per share, and
contain a net issuance provision whereby the holders may elect a cashless
exercise of such warrants based on the fair market value of the common
stock at the time of conversion. On March 26, 2004, GCP exercised its
warrants in a cashless exercise for which it received a total of 126,042
shares of common stock.
In connection with our acquisition of our interest in IRCA, we entered
into an agreement with Titan Aviation Ltd. ("Titan"), a private company
held in a trust of which Mr. Martin Steynberg and other business partners
are the beneficiaries. Pursuant to this agreement, we paid Titan on May
14, 2004 the sterling equivalent of the sum of 4,000,000 South African Rand
(or $607,165) in consideration for various services rendered to IRCA. Mr.
Steynberg, who is a stockholder in IRCA Investments (Proprietary) Limited,
which owns 25.1% of IRCA, became a director of our company on January 1,
2004 pursuant to the terms of the IRCA acquisition.
William Jobe, one of our directors, was paid a total of $59,500 during
the period December 2003 to May 2004 as compensation for merger and
acquisition services associated with our acquisition of TouchVision. In
August 2004, we paid Mr. Jobe an additional $4,815 in connection with the
TouchVision transaction.
Ted Swindells, a holder of approximately 9.8% of the Company's Common
Stock, lent the Company $300,000 in April, 2005 pursuant to a non interest
bearing unsecured demand promissory note. The loan proceeds were used for
working capital. $250,000 of the loan was repaid in October, 2005.
ITEM 13. EXHIBITS
Exhibit
No. Description
------- ---------------------------------------------------------------
2.1 Articles of Restatement of the Articles of Incorporation of
Trinity Learning Corporation dated February 25, 2003. (4)
2.2 Bylaws of Trinity Companies, Inc. (1)
10.1 Financial Advisory Agreement and Indemnification Letter entered
into as of July 31, 2002 between Trinity Companies, Inc. and
European American Securities, Inc. (1)
-87-
10.2 Debt Conversion Agreement dated as of August 8, 2002 between
Trinity Companies, Inc. and Global Marketing Associates, Inc.
(1)
10.3 Form of Executive Employment Agreement. (1)
10.4 Advisory Agreement dated as of July 15, 2002 between Trinity
Companies, Inc. and Kings Peak Advisors, LLC. (1)
10.5 Agreement and Plan of Reorganization dated as of October 1, 2002,
among the Company, Competency Based Learning, Inc. and CBL
Acquisition Corp. (2)
10.6 Securities Purchase Agreement dated as of October 1, 2002 between
CBL Acquisition Corp. and Brian Kennedy, relating to shares of
Competency Based Learning, Pty. Ltd ACN 084 763 780. (2)
10.7 Securities Purchase Agreement dated as of October 1, 2002 by and
among CBL Acquisition Corp. and Brian Kennedy and Robert Stephen
Scammell, relating to shares of ACN 082 126 501 Pty. Ltd. (2)
10.8 Escrow Agreement dated as of October 1, 2002 by and among the
Company, CBL Acquisition. Corp., Robert Stephen Scammell, Brian
Patrick Kennedy and Heritage Bank of Commerce. (2)
10.9 Convertible Promissory Note in the principal amount of $485,000
dated October 1, 2002 issued by CBL Acquisition Corp. to Robert
Stephen Scammell. (2)
10.10 Convertible Promissory Note in the principal amount of $515,000
dated October 1, 2002 issued by CBL Acquisition Corp. to Brian
Kennedy. (2)
10.11 Promissory Note in the principal amount of US$198,079.12 dated
October 1, 2002 issued by CBL Acquisition Corp. to Robert
Stephen Scammell. (2)
10.12 Promissory Note in the principal amount of AUD$36,100.80 dated
October 1, 2002 issued by CBL Acquisition Corp. to Brian
Kennedy. (2)
10.13 Employment Agreement dated as of September 1, 2002 between CBL
Acquisition Corp. and Robert Stephen Scammell. (2)
10.14 Employment Agreement dated as of September 1, 2002 between CBL
Acquisition Corp. and Brian Kennedy. (2)
10.15 Security Agreement dated as of October 1, 2002 by and between CBL
Acquisition Corp., Robert Stephen Scammell and Trinity Companies,
Inc. (2)
10.16 Form of Deed of Charge executed as of October 1, 2002 by
Competency Based Learning Pty Ltd. (2)
10.17 Form of Guarantee and Indemnity executed as of October 1, 2002 by
Competency Based Learning Pty Ltd. (2)
10.18 Form of Guarantee and Indemnity executed as of October 1, 2002 by
ACN 082 126 501 Pty. Ltd. (2)
10.19 Form of Stock Purchase Agreement entered into as of October 1,
2002 between Trinity Companies, Inc., and each of its directors.
(2)
10.20 Note and Warrant Purchase Agreement dated as of August 20, 2002
between Trinity Companies and various purchasers. (2)
10.21 Form of Convertible Promissory Note issued pursuant to the Note
and Warrant Purchase Agreement dated as of August 20, 2002. (2)
10.22 Form of Warrant issued pursuant to the Note and Warrant Purchase
Agreement dated as of August 20, 2002. (2)
10.23 Commercial Tenancy Agreement between Wedgetail Systems PTY LTD
ACN 003356429 and Competency Based Learning PTY LTD CAN 084
763780 dated December 12, 2000. (3)
10.24 Deed of Variation of Lease dated 1 July 2002 between Wedgetail
Systems PTY LTD ACN 003356429 and Competency Based Learning PTY
LTD ACN 084 763780. (3)
-88-
10.25 Registration Agreement dated June 2003 between Trinity Learning
Corporation and certain of its shareholders. (5)
10.26 Securities Purchase Agreement date September 1, 2003 by and among
Trinity Learning Corporation and the shareholders of TouchVision,
Inc. (6)
10.27 Escrow Agreement dated September 1, 2003 by and among Trinity
Learning Corporation, Gregory L. Roche, Larry J. Mahar and
Heritage Bank of Commerce. (6)
10.28 Promissory Note dated September 1, 2003 from TouchVision, Inc.
to Trinity Learning Corporation. (6)
10.29 Employment Agreement dated September 1, 2003 between TouchVision,
Inc. and Gregory L. Roche. (6)
10.30 Employment Agreement dated September 1, 2003 between TouchVision,
Inc. and Larry J. Mahar. (6)
10.31 Securities Purchase Agreement date August 12, 2003 by and among
Trinity Learning Corporation and Barbara McPherson and Ildi
Hayman. (6)
10.32 Escrow Agreement dated August 12, 2003 by and among Trinity
Learning Corporation, Barbara McPherson, Ildi Hayman and Heritage
Bank of Commerce. (6)
10.33 Acquisition Agreement dated September 1, 2003 between Great Owl
Limited, a British Virgin Islands company, and Trinity Learning
Corporation. (6)
10.34 Escrow Agreement dated September 1, 2003 by and among Great Owl
Limited, a British Virgin Islands company, Trinity Learning
Corporation, and Reed Smith of London as escrow agent. (6)
10.35 Deed of Pledge dated September 1, 2003 by Trinity Learning
Corporation to Great Owl Limited, a British Virgin Islands
company. (6)
10.36 Warranties of Seller under the Acquisition Agreement dated
September 1, 2003 between Great Owl Limited, a British Virgin
Islands company, and Trinity Learning Corporation. (6)
10.37 Warranties of Purchaser under the Acquisition Agreement dated
September 1, 2003 between Great Owl Limited, a British Virgin
Islands company, and Trinity Learning Corporation. (6)
10.38 Convertible Promissory Note dated September 1, 2003, issued by
Trinity Learning Corporation to Great Owl Limited, a British
Virgin Islands company. (6)
10.39 Acquisition Agreement dated December 1, 2003 between Musca
Holding Limited, Trinity Learning Corporation and Danlas Limited.
(7)
10.40 Escrow Agreement dated December 1, 2003 by and among Musca
Holding Limited, Trinity Learning Corporation, and Reed Smith of
London as escrow agent. (7)
10.41 Deed of Pledge dated December 1, 2003 by Trinity Learning
Corporation, a Utah corporation, to Musca Holding Limited, a
British Virgin Islands company. (7)
10.42 Warranties of Seller under the Acquisition Agreement dated
December 1, 2003 between Musca Holding Limited, a British Virgin
Islands company, and Trinity Learning Corporation. (7)
10.43 Warranties of Purchaser under the Acquisition Agreement dated
December 1, 2003 between Musca Holding Limited, a British Virgin
Islands company, and Trinity Learning Corporation. (7)
10.44 Convertible Promissory Note in the principal amount of $20,000.00
dated December 1, 2003, issued by Trinity Learning Corporation, a
Utah corporation, to Musca Holding Limited, a British Virgin
Islands company. (7)
-89-
10.45 Convertible Promissory Note in the principal amount of $10,000.00
dated December 1, 2003, issued by Trinity Learning Corporation, a
Utah corporation, to Musca Holding Limited, a British Virgin
Islands company. (7)
10.46 Convertible Promissory Note in the principal amount of $10,000.00
dated December 1, 2003, issued by Trinity Learning Corporation, a
Utah corporation, to Musca Holding Limited, a British Virgin
Islands company. (7)
10.47 Settlement and Release Agreement made as of December 17, 2003, by
and among Trinity Learning Corporation, CBL Global Corp.,
Competency Based Learning, Inc., Competency Based Learning Pty.
Ltd. ACN 084 763 780, ACN 082 126 501 Pty Ltd, Stephen Scammell,
and Brian Kennedy. (8)
10.48 Finder's Fee Agreement dated August 9, 2003 between Trinity
Learning Corporation and London Court Ltd. (9)
10.49 Placement Agent Agreement dated May 30, 2003 between the Company
and ACAP Financial, Inc. (9)
10.50 Financial Advisory Agreement dated May 29, 2003 between the
Company and Merriman Curhan Ford & Co. (9)
10.51 Finder's Fee Agreement dated April 11, 2003 between the Company
and TN Capital Equities, Ltd. (9)
10.52 Agreement dated December 17, 2003 between Trinity Learning
Corporation and Titan Aviation Ltd. (9)
10.53 Acquisition Agreement dated March 1, 2004 by and among Trinity
Learning Corporation and the Shareholders. (10)
10.54 Escrow Agreement dated March 1, 2004 by and among Trinity
Learning Corporation, the Shareholders, Jan-Olaf Willums as
Shareholder Representative and Heritage Bank of Commerce as
escrow agent. (10)
10.55 Convertible Promissory Note in the principal amount of
$500,000.00 dated March 1, 2004, issued by Trinity Learning
Corporation to Inspire AS. (10)
10.56 Amended Agreement dated March 1, 2004 between Trinity Learning
Corporation and Titan Aviation Ltd. (11)
10.57 Sublease Agreement dated July 22, 2003 between Trinity Learning
Corporation and Vargus Marketing Group, Inc. (11)
10.58 Amended Agreement dated January 1, 2004 between the Company and
European American Securities (12)
10.59 Agreement dated July 14, 2002 between the Company and Lynne
Longmire. (12)
10.60 Agreement dated December 12, 2002 between the Company and
Acquimmo-Salenko M&A. (12)
10.61 Agreement dated January 23, 2004 between the Company and Bathgate
Capital Partners, LLC. (12)
10.62 Agreement dated February 3, 2004 between the Company and Doherty
& Co., LLC. (12)
10.63 Agreement dated February 19, 2004 between the Company and Nordic
Enterprise BV. (12)
10.64 Agreement dated March 1, 2004 between the Company and VanCamp
Advisors, LLC. (12)
10.65 Agreement dated March 22, 2004 between the Company and Newforth
Partners, LLC. (12)
10.66 Agreement dated March 23, 2004 between the Company and GVC
Financial Services, LLC. (12)
10.67 Agreement and Plan of Merger dated February 22, 2004 between
ProsoftTraining and the Company. (16)
10.68 Termination Agreement between the Company and ProsoftTraining
dated July 22, 2004. (16)
10.69 Amended and Restated 2002 Stock Plan. (13) #
10.70 Securities Purchase Agreement dated July 29, 2004 between the
Company and Oceanus Value Fund, L.P. (16)
-90-
10.71 Senior Secured Promissory Note dated July 29, 2004 issued by the
Company to Oceanus Value Fund, L.P. (16)
10.72 Security Agreement dated July 29, 2004 between the Company and
Oceanus Value Fund, L.P. (16)
10.73 Registration Rights Agreement dated July 29, 2004 between the
Company and Oceanus Value Fund, L.P. (16)
10.74 Warrant dated July 29, 2004 to Oceanus Value Fund, L.P. (16)
10.75 Financial Advisory Agreement dated July 19, 2004 between the
Company and Merriman Curhan Ford & Co. (16)
10.76 Agreement dated July 8, 2004 between the Company and TN Capital
Equities, Ltd. (16)
10.77 Agreement dated July 23, 2004 between the Company and Bridgewater
Capital Corporation. (16)
10.78 Securities Purchase Agreement dated August 31, 2004 between
Trinity Learning Corporation and Laurus Master Fund, Ltd. (17)
10.79 Restricted Account Agreement dated August 31, 2004 between North
Fork Bank, Trinity Learning Corporation and Laurus Master Fund,
Ltd. (17)
10.80 Restricted Account Letter Agreement dated August 31, 2004 between
Laurus Master Fund, Ltd. and Trinity Learning Corporation. (17)
10.81 Secured Convertible Term Note dated August 31, 2004 issued by
Trinity Learning Corporation to Laurus Master Fund, Ltd. (17)
10.82 Common Stock Purchase Warrant dated August 31, 2004 issued by
Trinity Learning Corporation to Laurus Master Fund, Ltd. (17)
10.83 Registration Rights Agreement dated August 31, 2004 between
Trinity Learning Corporation and Laurus Master Fund , Ltd. (17)
10.84 Stock Pledge Agreement dated August 31, 2004 among Laurus Master
Fund, Ltd., Trinity Learning Corporation and TouchVision, Inc.
(17)
10.85 Master Security Agreement dated August 31, 2004 among Laurus
Master Fund, Ltd., Trinity Learning Corporation and TouchVision,
Inc. (17)
10.86 Subsidiary Guarantee dated August 31, 2004 among Laurus Master
Fund, Ltd., Trinity Learning Corporation and TouchVision, Inc.
(17)
10.87 Agreement dated August 11, 2004 between the Company and Resource
Works, Inc.(19)
10.88 Agreement dated October 1, 2004 between the Company and MCC
Financial Services Advisors, Inc.(19)
10.89 Agreement dated October 12, 2004 between the Company and Hyacinth
Resources, Inc.(19)
10.90 Credit Agreement between the Company and Instream Investment
Partners, dated as of July 13, 2005. (20)
10.91 Registration Rights Agreement between the Company and Instream
Capital LLC, dated July 13, 2005. (20)
10.92 Credit Agreement between the Company and Instream Investment
Partners, LLC, dated as of July 13, 2005. (20)
10.93 Form of Warrant (20)
10.94 Asset Purchase Agreement dated April 1, 2005 among the Company,
PRIMEDIA Inc., its wholly-owned entity PRIMEDIA Digital Video
Holdings LLC, and PRIMEDIA Workplace Learning LP. (21)
10.95 SBI Agreement dated April 1, 2005 between SBI and the Company.
(21) IRCA Settlement Agreement.
16.1 Letter provided by Bierwolf, Nilson & Associates. (14)
16.2 Letter provided by Chisholm, Bierwolf & Nilson, LLC. (15)
21.1 Subsidiaries of Trinity Learning Corporation.*
31.1 Certification of Chief Executive Officer.*
31.2 Certification of Chief Financial Officer.*
32.1 Certification of Chief Executive Officer.*
32.2 Certification of Chief Financial Officer,*
-91-
* Filed herewith.
# Denotes a management contract or compensatory plan.
(1) Incorporated by reference from the quarterly report on Form
10-QSB filed by the registrant on August 21, 2002.
(2) Incorporated by reference from the current report on Form 8-K
filed by the registrant on October 16, 2002.
(3) Incorporated by reference from the annual report on Form 10-KSB
filed by the registrant on January 10, 2003.
(4) Incorporated by reference from the quarterly report on Form
10-QSB filed by the registrant on May 20, 2003.
(5) Incorporated by reference from the current report on Form 8-K
filed by the registrant on June 19, 2003.
(6) Incorporated by reference from a current report on Form 8-K filed
by the registrant on September 16, 2003.
(7) Incorporated by reference from a current report on Form 8-K filed
by the registrant on December 17, 2003.
(8) Incorporated by reference from a current report on Form 8-K filed
by the registrant on January 6, 2004.
(9) Incorporated by reference from the quarterly report on Form
10-QSB filed by the registrant on February 23, 2004.
(10) Incorporated by reference from a current report on Form 8-K filed
by the registrant on March 2, 2004.
(11) Incorporated by reference from the quarterly report on Form
10-QSB filed by the registrant on May 17, 2004.
(12) Incorporated by reference from the quarterly report on Form
10-QSB/A filed by the registrant on June 14, 2004.
(13) Incorporated by reference from the Registration Statement on Form
S-8 filed by the registrant on February 6, 2004.
(14) Incorporated by reference from the current report on Form 8-K
filed by the registrant on February 24, 2004.
(15) Incorporated by reference from the current report on Form 8-K/A
filed by the registrant on July 26, 2004.
(16) Incorporated by reference from the Registration Statement on Form
SB-2 filed by the registrant on August 13, 2004.
(17) Incorporated by reference from the current report on Form 8-K
filed by the registrant on September 7, 2004.
(18) Incorporated by reference from the current report on Form 8-K
filed by the registrant on October 18, 2004.
(19) Incorporated by reference from the annual report on Form 10-KSB
filed by the registrant on December 3, 2004.
(20) Incorporated by reference from the current report on Form 8-K
filed by the registrant on July 15, 2005.
(21) Incorporated by reference from the current report on Form 8-K
filed by the registrant on April 7, 2005.
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ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
AUDIT AND OTHER FEES
The Audit Committee has selected and retained Chisholm, Bierwolf &
Nilson, L.L.C. as our independent auditors for the fiscal year ended 20,
2005. This is the first year that Chisholm, Bierwolf & Nilson, LLC has
audited our financial statements.
The following table presents fees for professional services rendered
by our auditors for the audit of our annual financial statements for the
fiscal years ended June 30, 2005 and June 30, 2004 and fees billed for
other services rendered by them during those periods:
Chisholm, Bierwolf, Nilson, LLC
--------------------------------
Fiscal 2005 Fiscal 2004
--------------- ---------------
Audit Fees (1) $ 108,725 $ -
Audit-Related Fees (2) - -
Tax Tax Fees (3) - -
All Other Fees (4) - -
--------------- ---------------
Total $ 108,725 $ -
=============== ===============
BDO Spencer Steward
--------------------------------
Fiscal 2005 Fiscal 2004
--------------- ---------------
Audit Fees (1) $ 77,131 $ 190,000
Audit-Related Fees (2) 1,581 -
Tax Tax Fees (3) - 50,530
All Other Fees (4) 13,963 -
--------------- ---------------
Total $ 92,675 $ 240,530
=============== ===============
Bierwolf, Nilson & Associates, LLC
--------------------------------
Fiscal 2005 Fiscal 2004
--------------- ---------------
Audit Fees (1) $ - $ 15,000
Audit-Related Fees (2) - 97,433
Tax Tax Fees (3) - -
All Other Fees (4) - -
--------------- ---------------
Total $ - $ 112,433
=============== ===============
(1) Audit Fees consist of an estimate of fees to be billed for the annual
audits and quarterly reviews.
(2) Audit-Related Fees consist of fees billed for various SEC filings and
accounting research.
(3) Tax Fees consist of fees billed for tax consultation and assistance in
the preparation of tax returns.
(4) All other fees.
-93-
All audited-related services, tax services and other services were
pre-approved by the Audit Committee, which concluded that the provision of
those services by BDO Spencer Steward was compatible with the maintenance
of that firm's independence in the conduct of its auditing functions.
Pre-Approval Policy
The policy of the Audit Committee is to pre-approve all auditing and
non-auditing services of the independent auditors, subject to de minimus
exceptions for other than audit, review, or attest services that are
approved by the Audit Committee prior to completion of the audit.
Alternatively, the engagement of the independent auditors may be entered
into pursuant to pre-approved policies and procedures established by the
Committee, provided that the policies and procedures are detailed as to the
particular services and the Committee is informed of each service.
-94-
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
November 21, 2005 By: /S/ DOUGLAS D. COLE
------------------------------------------
Douglas D. Cole
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
Signature Title Date
-------------------------- ---------------------------- -------------
/s/ Douglas D. Cole Chief Executive Office November 21, 2005
-------------------------- (Principal Executive Officer)
Douglas Cole and Director
/s/ Edward Patrick Mooney President and Director November 21, 2005
--------------------------
Edward Patrick Mooney
/s/ Patrick R. Quinn Chief Financial Officer November 21, 2005
--------------------------
Patrick R. Quinn
s/ William D. Jobe Director November 21, 2005
--------------------------
William D. Jobe
/s/ Richard G. Thau Director November 21, 2005
--------------------------
Richard G. Thau
/s/ Arthur Ronald Kidson Director November 21, 2005
--------------------------
Arthur Ronald Kidson
/s/ Ronald Posner Director November 21, 2005
--------------------------
Ronald Posner
/s/ Dennis Cagan Director November 21, 2005
--------------------------
Dennis Cagan
-95-
Exhibit Index
---------------
Exhibit
No. Description
------- ---------------------------------------------------------------
2.1 Articles of Restatement of the Articles of Incorporation of Trinity
Learning Corporation dated February 25, 2003. (4)
2.2 Bylaws of Trinity Companies, Inc. (1)
10.1 Financial Advisory Agreement and Indemnification Letter entered into as of
July 31, 2002 between Trinity Companies, Inc. and European American
Securities, Inc. (1)
10.2 Debt Conversion Agreement dated as of August 8, 2002 between Trinity
Companies, Inc. and Global Marketing Associates, Inc. (1)
10.3 Form of Executive Employment Agreement. (1)
10.4 Advisory Agreement dated as of July 15, 2002 between Trinity Companies,
Inc. and Kings Peak Advisors, LLC. (1)
10.5 Agreement and Plan of Reorganization dated as of October 1, 2002, among the
Company, Competency Based Learning, Inc. and CBL Acquisition Corp. (2)
10.6 Securities Purchase Agreement dated as of October 1, 2002 between CBL
Acquisition Corp. and Brian Kennedy, relating to shares of Competency
Based Learning, Pty. Ltd ACN 084 763 780. (2)
10.7 Securities Purchase Agreement dated as of October 1, 2002 by and among CBL
Acquisition Corp. and Brian Kennedy and Robert Stephen Scammell, relating
to shares of ACN 082 126 501 Pty. Ltd. (2)
10.8 Escrow Agreement dated as of October 1, 2002 by and among the Company, CBL
Acquisition. Corp., Robert Stephen Scammell, Brian Patrick Kennedy and
Heritage Bank of Commerce. (2)
10.9 Convertible Promissory Note in the principal amount of $485,000 dated
October 1, 2002 issued by CBL Acquisition Corp. to Robert Stephen
Scammell. (2)
10.10 Convertible Promissory Note in the principal amount of $515,000 dated
October 1, 2002 issued by CBL Acquisition Corp. to Brian Kennedy. (2)
10.11 Promissory Note in the principal amount of US$198,079.12 dated October 1,
2002 issued by CBL Acquisition Corp. to Robert Stephen Scammell. (2)
10.12 Promissory Note in the principal amount of AUD$36,100.80 dated October 1,
2002 issued by CBL Acquisition Corp. to Brian Kennedy. (2)
10.13 Employment Agreement dated as of September 1, 2002 between CBL Acquisition
Corp. and Robert Stephen Scammell. (2)
10.14 Employment Agreement dated as of September 1, 2002 between CBL Acquisition
Corp. and Brian Kennedy. (2)
10.15 Security Agreement dated as of October 1, 2002 by and between CBL
Acquisition Corp., Robert Stephen Scammell and Trinity Companies, Inc. (2)
10.16 Form of Deed of Charge executed as of October 1, 2002 by Competency Based
Learning Pty Ltd. (2)
10.17 Form of Guarantee and Indemnity executed as of October 1, 2002 by
Competency Based Learning Pty Ltd. (2)
10.18 Form of Guarantee and Indemnity executed as of October 1, 2002 by ACN 082
126 501 Pty. Ltd. (2)
10.19 Form of Stock Purchase Agreement entered into as of October 1, 2002 between
Trinity Companies, Inc., and each of its directors. (2)
10.20 Note and Warrant Purchase Agreement dated as of August 20, 2002 between
Trinity Companies and various purchasers. (2)
10.21 Form of Convertible Promissory Note issued pursuant to the Note and Warrant
Purchase Agreement dated as of August 20, 2002. (2)
10.22 Form of Warrant issued pursuant to the Note and Warrant Purchase Agreement
dated as of August 20, 2002. (2)
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10.23 Commercial Tenancy Agreement between Wedgetail Systems PTY LTD ACN
003356429 and Competency Based Learning PTY LTD CAN 084 763780 dated
December 12, 2000. (3)
10.24 Deed of Variation of Lease dated 1 July 2002 between Wedgetail Systems PTY
LTD ACN 003356429 and Competency Based Learning PTY LTD ACN 084 763780.
(3)
10.25 Registration Agreement dated June 2003 between Trinity Learning Corporation
and certain of its shareholders. (5)
10.26 Securities Purchase Agreement date September 1, 2003 by and among Trinity
Learning Corporation and the shareholders of TouchVision, Inc. (6)
10.27 Escrow Agreement dated September 1, 2003 by and among Trinity Learning
Corporation, Gregory L. Roche, Larry J. Mahar and Heritage Bank of
Commerce. (6)
10.28 Promissory Note dated September 1, 2003 from TouchVision, Inc. to Trinity
Learning Corporation. (6)
10.29 Employment Agreement dated September 1, 2003 between TouchVision, Inc. and
Gregory L. Roche. (6)
10.30 Employment Agreement dated September 1, 2003 between TouchVision, Inc. and
Larry J. Mahar. (6)
10.31 Securities Purchase Agreement date August 12, 2003 by and among Trinity
Learning Corporation and Barbara McPherson and Ildi Hayman. (6)
10.32 Escrow Agreement dated August 12, 2003 by and among Trinity Learning
Corporation, Barbara McPherson, Ildi Hayman and Heritage Bank of Commerce.
(6)
10.33 Acquisition Agreement dated September 1, 2003 between Great Owl Limited, a
British Virgin Islands company, and Trinity Learning Corporation. (6)
10.34 Escrow Agreement dated September 1, 2003 by and among Great Owl Limited, a
British Virgin Islands company, Trinity Learning Corporation, and Reed
Smith of London as escrow agent. (6)
10.35 Deed of Pledge dated September 1, 2003 by Trinity Learning Corporation to
Great Owl Limited, a British Virgin Islands company. (6)
10.36 Warranties of Seller under the Acquisition Agreement dated September 1,
2003 between Great Owl Limited, a British Virgin Islands company, and
Trinity Learning Corporation. (6)
10.37 Warranties of Purchaser under the Acquisition Agreement dated September 1,
2003 between Great Owl Limited, a British Virgin Islands company, and
Trinity Learning Corporation. (6)
10.38 Convertible Promissory Note dated September 1, 2003, issued by Trinity
Learning Corporation to Great Owl Limited, a British Virgin Islands
company. (6)
10.39 Acquisition Agreement dated December 1, 2003 between Musca Holding Limited,
Trinity Learning Corporation and Danlas Limited. (7)
10.40 Escrow Agreement dated December 1, 2003 by and among Musca Holding Limited,
Trinity Learning Corporation, and Reed Smith of London as escrow agent.
(7)
10.41 Deed of Pledge dated December 1, 2003 by Trinity Learning Corporation, a
Utah corporation, to Musca Holding Limited, a British Virgin Islands
company. (7)
10.42 Warranties of Seller under the Acquisition Agreement dated December 1, 2003
between Musca Holding Limited, a British Virgin Islands company, and
Trinity Learning Corporation. (7)
10.43 Warranties of Purchaser under the Acquisition Agreement dated December 1,
2003 between Musca Holding Limited, a British Virgin Islands company, and
Trinity Learning Corporation. (7)
10.44 Convertible Promissory Note in the principal amount of $20,000.00 dated
December 1, 2003, issued by Trinity Learning Corporation, a Utah
corporation, to Musca Holding Limited, a British Virgin Islands company.
(7)
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10.45 Convertible Promissory Note in the principal amount of $10,000.00 dated
December 1, 2003, issued by Trinity Learning Corporation, a Utah
corporation, to Musca Holding Limited, a British Virgin Islands company.
(7)
10.46 Convertible Promissory Note in the principal amount of $10,000.00 dated
December 1, 2003, issued by Trinity Learning Corporation, a Utah
corporation, to Musca Holding Limited, a British Virgin Islands company.
(7)
10.47 Settlement and Release Agreement made as of December 17, 2003, by and among
Trinity Learning Corporation, CBL Global Corp., Competency Based Learning,
Inc., Competency Based Learning Pty. Ltd. ACN 084 763 780, ACN 082 126
501 Pty Ltd, Stephen Scammell, and Brian Kennedy. (8)
10.48 Finder's Fee Agreement dated August 9, 2003 between Trinity Learning
Corporation and London Court Ltd. (9)
10.49 Placement Agent Agreement dated May 30, 2003 between the Company and ACAP
Financial, Inc. (9)
10.50 Financial Advisory Agreement dated May 29, 2003 between the Company and
Merriman Curhan Ford & Co. (9)
10.51 Finder's Fee Agreement dated April 11, 2003 between the Company and TN
Capital Equities, Ltd. (9)
10.52 Agreement dated December 17, 2003 between Trinity Learning Corporation and
Titan Aviation Ltd. (9)
10.53 Acquisition Agreement dated March 1, 2004 by and among Trinity Learning
Corporation and the Shareholders. (10)
10.54 Escrow Agreement dated March 1, 2004 by and among Trinity Learning
Corporation, the Shareholders, Jan-Olaf Willums as Shareholder
Representative and Heritage Bank of Commerce as escrow agent. (10)
10.55 Convertible Promissory Note in the principal amount of $500,000.00 dated
March 1, 2004, issued by Trinity Learning Corporation to Inspire AS. (10)
10.56 Amended Agreement dated March 1, 2004 between Trinity Learning Corporation
and Titan Aviation Ltd. (11)
10.57 Sublease Agreement dated July 22, 2003 between Trinity Learning Corporation
and Vargus Marketing Group, Inc. (11)
10.58 Amended Agreement dated January 1, 2004 between the Company and European
American Securities (12)
10.59 Agreement dated July 14, 2002 between the Company and Lynne Longmire. (12)
10.60 Agreement dated December 12, 2002 between the Company and Acquimmo-Salenko
M&A. (12)
10.61 Agreement dated January 23, 2004 between the Company and Bathgate Capital
Partners, LLC. (12)
10.62 Agreement dated February 3, 2004 between the Company and Doherty & Co.,
LLC. (12)
10.63 Agreement dated February 19, 2004 between the Company and Nordic Enterprise
BV. (12)
10.64 Agreement dated March 1, 2004 between the Company and VanCamp Advisors,
LLC. (12)
10.65 Agreement dated March 22, 2004 between the Company and Newforth Partners,
LLC. (12)
10.66 Agreement dated March 23, 2004 between the Company and GVC Financial
Services, LLC. (12)
10.67 Agreement and Plan of Merger dated February 22, 2004 between
ProsoftTraining and the Company. (16)
10.68 Termination Agreement between the Company and ProsoftTraining dated July
22, 2004. (16)
10.69 Amended and Restated 2002 Stock Plan. (13) #
10.70 Securities Purchase Agreement dated July 29, 2004 between the Company and
Oceanus Value Fund, L.P. (16)
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10.71 Senior Secured Promissory Note dated July 29, 2004 issued by the Company to
Oceanus Value Fund, L.P. (16)
10.72 Security Agreement dated July 29, 2004 between the Company and Oceanus
Value Fund, L.P. (16)
10.73 Registration Rights Agreement dated July 29, 2004 between the Company and
Oceanus Value Fund, L.P. (16)
10.74 Warrant dated July 29, 2004 to Oceanus Value Fund, L.P. (16)
10.75 Financial Advisory Agreement dated July 19, 2004 between the Company and
Merriman Curhan Ford & Co. (16)
10.76 Agreement dated July 8, 2004 between the Company and TN Capital Equities,
Ltd. (16)
10.77 Agreement dated July 23, 2004 between the Company and Bridgewater Capital
Corporation. (16)
10.78 Securities Purchase Agreement dated August 31, 2004 between Trinity
Learning Corporation and Laurus Master Fund, Ltd. (17)
10.79 Restricted Account Agreement dated August 31, 2004 between North Fork Bank,
Trinity Learning Corporation and Laurus Master Fund, Ltd. (17)
10.80 Restricted Account Letter Agreement dated August 31, 2004 between Laurus
Master Fund, Ltd. and Trinity Learning Corporation. (17)
10.81 Secured Convertible Term Note dated August 31, 2004 issued by Trinity
Learning Corporation to Laurus Master Fund, Ltd. (17)
10.82 Common Stock Purchase Warrant dated August 31, 2004 issued by Trinity
Learning Corporation to Laurus Master Fund, Ltd. (17)
10.83 Registration Rights Agreement dated August 31, 2004 between Trinity
Learning Corporation and Laurus Master Fund , Ltd. (17)
10.84 Stock Pledge Agreement dated August 31, 2004 among Laurus Master Fund,
Ltd., Trinity Learning Corporation and TouchVision, Inc. (17)
10.85 Master Security Agreement dated August 31, 2004 among Laurus Master Fund,
Ltd., Trinity Learning Corporation and TouchVision, Inc. (17)
10.86 Subsidiary Guarantee dated August 31, 2004 among Laurus Master Fund, Ltd.,
Trinity Learning Corporation and TouchVision, Inc. (17)
10.87 Agreement dated August 11, 2004 between the Company and Resource Works,
Inc.(19)
10.88 Agreement dated October 1, 2004 between the Company and MCC Financial
Services Advisors, Inc.(19)
10.89 Agreement dated October 12, 2004 between the Company and Hyacinth
Resources, Inc.(19)
10.90 Credit Agreement between the Company and Instream Investment Partners,
dated as of July 13, 2005. (20)
10.91 Registration Rights Agreement between the Company and Instream Capital LLC,
dated July 13, 2005. (20)
10.92 Credit Agreement between the Company and Instream Investment Partners, LLC,
dated as of July 13, 2005. (20)
10.93 Form of Warrant (20)
10.94 Asset Purchase Agreement dated April 1, 2005 among the Company, PRIMEDIA
Inc., its wholly-owned entity PRIMEDIA Digital Video Holdings LLC, and
PRIMEDIA Workplace Learning LP. (21)
10.95 SBI Agreement dated April 1, 2005 between SBI and the Company. (21) IRCA
Settlement Agreement.
16.1 Letter provided by Bierwolf, Nilson & Associates. (14)
16.2 Letter provided by Chisholm, Bierwolf & Nilson, LLC. (15)
21.1 Subsidiaries of Trinity Learning Corporation.*
31.1 Certification of Chief Executive Officer.*
31.2 Certification of Chief Financial Officer.*
32.1 Certification of Chief Executive Officer.*
32.2 Certification of Chief Financial Officer,*
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* Filed herewith.
# Denotes a management contract or compensatory plan.
(1) Incorporated by reference from the quarterly report on Form 10-QSB filed by
the registrant on August 21, 2002.
(2) Incorporated by reference from the current report on Form 8-K filed by the
registrant on October 16, 2002.
(3) Incorporated by reference from the annual report on Form 10-KSB filed by
the registrant on January 10, 2003.
(4) Incorporated by reference from the quarterly report on Form 10-QSB filed by
the registrant on May 20, 2003.
(5) Incorporated by reference from the current report on Form 8-K filed by the
registrant on June 19, 2003.
(6) Incorporated by reference from a current report on Form 8-K filed by the
registrant on September 16, 2003.
(7) Incorporated by reference from a current report on Form 8-K filed by the
registrant on December 17, 2003.
(8) Incorporated by reference from a current report on Form 8-K filed by the
registrant on January 6, 2004.
(9) Incorporated by reference from the quarterly report on Form 10-QSB filed by
the registrant on February 23, 2004.
(10) Incorporated by reference from a current report on Form 8-K filed by the
registrant on March 2, 2004.
(11) Incorporated by reference from the quarterly report on Form 10-QSB filed by
the registrant on May 17, 2004.
(12) Incorporated by reference from the quarterly report on Form 10-QSB/A filed
by the registrant on June 14, 2004.
(13) Incorporated by reference from the Registration Statement on Form S-8 filed
by the registrant on February 6, 2004.
(14) Incorporated by reference from the current report on Form 8-K filed by the
registrant on February 24, 2004.
(15) Incorporated by reference from the current report on Form 8-K/A filed by
the registrant on July 26, 2004.
(16) Incorporated by reference from the Registration Statement on Form SB-2
filed by the registrant on August 13, 2004.
(17) Incorporated by reference from the current report on Form 8-K filed by the
registrant on September 7, 2004.
(18) Incorporated by reference from the current report on Form 8-K filed by the
registrant on October 18, 2004.
(19) Incorporated by reference from the annual report on Form 10-KSB filed by
the registrant on December 3, 2004.
(20) Incorporated by reference from the current report on Form 8-K filed by the
registrant on July 15, 2005.
(21) Incorporated by reference from the current report on Form 8-K filed by the
registrant on April 7, 2005.
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