As filed with the Securities and Exchange Commission on June 14, 2006
Registration Number 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
(AMENDMENT NO. ____)
TRINITY LEARNING CORPORATION
(Name of Small Business Issuer in its Charter)
Utah 8200 73-0981865
---------------- --------------- -----------------
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification
No.)
4101 International Parkway
Carrollton, Texas 75007
(972) 309-4000
--------------
(Address and telephone number of principal executive offices)
Dennis J. Cagan
Chief Executive Officer
Trinity Learning Corporation.
4101 International Parkway
Carrollton, Texas 75007
(972) 309-4000
--------------
(Name, address and telephone number of agent for service)
Copies to:
Darrin M. Ocasio, Esq.
Sichenzia Ross Friedman Ference LLP
1065 Avenue of the Americas, 21st Floor
New York, New York 10018
Tel: (212) 930-9700
Fax: (212) 930-9725
Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this Registration Statement.
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_| ______
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. |_| ________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
CALCULATION OF REGISTRATION FEE
----------------------------------------------------------------------------------------------------------------------------
Proposed Maximum
Title of Each Class of Amount To Be Offering Price Per Share Proposed Maximum Amount of Registration
Securities to be Registered Registered (1) Aggregate Offering Price Fee
----------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------
Common Stock, par value 14,838,959 0.10$ 1,483,896$ 158.78$
$0.001(2)
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Common Stock, par value 1,176,000 0.10$ 117,600$ 12.58$
$0.001(3)
----------------------------------------------------------------------------------------------------------------------------
Common Stock, par value 3,985,041 0.21$ 836,858.61$ 89.54$
$0.001(4)
----------------------------------------------------------------------------------------------------------------------------
Total 20,000,000 2,438,354.61$ 260.90$
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(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) under the Securities Act of 1933, as amended. The average of the
high and low price per share of the Registrant's Common Stock on the
Over-The-Counter Bulletin Board as of June 12, 2006 was $0.10 per share.
(2) Represents shares issuable upon conversion of senior secured convertible
debentures. In accordance with the terms of the senior secured convertible
debentures, the number of shares included herein was determined assuming: (i)
conversion of the entire $4,500,000 principal amount under the senior secured
convertible debentures plus accrued interest at the annual rate of 15% until
maturity, or four years from the date of issuance, taking into effect the
requirement of redemption of 1/24 of the face amount of the debenture each month
beginning on April 1, 2008, and (ii) a conversion price of $0.25. Pursuant to
the registration rights agreement, the resulting number of shares was multiplied
by a factor of 1.3.
(3) Pursuant to the requirements of the registration rights agreement,
represents (i) shares of Common Stock previously issued by the Company to
several investors in connection with a bridge financing transaction entered into
in March of 2005, and (ii) shares of Common Stock underlying the warrants held
by certain warrant holders exercisable at weighted average price of $0.19 per
share. Pursuant to the registration rights agreement, the resulting number of
shares was multiplied by a factor of 1.3.
(4) Represents shares issuable upon exercise of warrants exercisable at a price
of $0.21, price equal to 120% of Closing Bid price of the Company's Common Stock
on the day that is one day prior to the Closing Date as defined the Securities
Purchase Agreement and Common Stock Purchase Warrant entered into on March 31,
2006. Pursuant to the registration rights agreement, the resulting number of
shares was multiplied by a factor of 1.3.
The registrant hereby amends this registration statement on such date or date(s)
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until the registration statement shall
become effective on such date as the commission acting pursuant to said Section
8(a) may determine.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PRELIMINARY PROSPECTUS, SUBJECT TO COMPLETION
DATED JUNE 14, 2006
TRINITY LEARNING CORPORATION
20,000,000 SHARES OF COMMON STOCK
This prospectus relates to the resale by the selling stockholders of up to
20,000,000 shares of our common stock. The selling stockholders may sell common
stock from time to time in the principal market on which the stock is traded at
the prevailing market price or in negotiated transactions.
The total number of shares sold herewith consists of the following shares to be
issued to the selling stockholders: (i) up to 15,496,135 shares issuable upon
conversion of convertible debentures, and (ii) 4,503,865 shares issuable upon
the exercise of warrants. We are not selling any shares of common stock in this
offering and therefore will not receive any proceeds from this offering. We
will, however, receive proceeds from the exercise, if any, of warrants to
purchase up to 4,503,865 shares of common stock. All costs associated with this
registration will be borne by us.
Our common stock currently trades on the Over the Counter Bulletin Board ("OTC
Bulletin Board") under the symbol "TTYL.OB."
On June 5, 2006, the last reported sale price for our common stock on the OTC
Bulletin Board was $0.10 per share.
Investing in these securities involves significant risks.
SEE "RISK FACTORS" BEGINNING ON PAGE 3.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is June 14, 2006
TABLE OF CONTENTS
Page
Prospectus Summary ........................................................ 1
Risk Factors .............................................................. 3
Forward Looking Statements ................................................ 8
Use of Proceeds ........................................................... 9
Management's Discussion and Analysis or Plan of Operation ................. 9
Business .................................................................. 15
Legal Proceedings ......................................................... 22
Description of Property ................................................... 22
Directors and Executive Officers .......................................... 23
Executive Compensation .................................................... 26
Security Ownership of Certain Beneficial Owners and Management ............ 27
Certain Relationships and Related Transactions ............................ 28
Market for Common Equity and Related Stockholder Matters .................. 29
Selling Stockholders ...................................................... 30
Description of Securities ................................................. 31
Plan of Distribution ...................................................... 32
Legal Matters ............................................................. 34
Experts ................................................................... 34
Where You Can Find More Information ....................................... 35
Disclosure of Commission Position on Indemnification
for Securities Act Liabilities ............................................ 35
Index to Consolidated Financial Statements ................................ F-1
You may only rely on the information contained in this prospectus or that we
have referred you to. We have not authorized anyone to provide you with
different information. This prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the common stock
offered by this prospectus. This prospectus does not constitute an offer to sell
or a solicitation of an offer to buy any common stock in any circumstances in
which such offer or solicitation is unlawful. Neither the delivery of this
prospectus nor any sale made in connection with this prospectus shall, under any
circumstances, create any implication that there has been no change in our
affairs since the date of this prospectus or that the information contained by
reference to this prospectus is correct as of any time after its date.
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus. You
should read the entire prospectus carefully, including, the section entitled
"Risk Factors" before deciding to invest in our common stock. Trinity Learning
Corporation is referred to throughout this prospectus as "Trinity," "Company,"
"we" or "us."
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
RECENT DEVELOPMENTS
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.
Private Financing Transaction
On March 31, 2006, we entered into a Securities Purchase Agreement with
certain accredited investors for the issuance of an aggregate of $4,500,000 in
face amount of 15% Senior Secured Convertible Debentures (the "Debentures")
maturing March 31, 2010, and four year warrants (the "Warrants") to
purchase an aggregate of 7,200,000 shares of common stock of the Company. The
Debentures accrue interest at a rate of 15% per annum.
The Debentures are convertible into shares of the Company's common stock at a
price equal to $0.25 per share. The Company is obligated to pay 1/24th of the
face amount of the Debenture on the first of every month, starting March 31,
2008, which payment can be made in cash or in common stock of the Company. The
Company may pay this amortization payment in cash or in stock at the lower of
$0.25 per share (the "Set Price") or 80% of the volume weighted average price of
the Company's stock for the twenty trading days prior to the repayment date. The
Company's obligation to repay Debentures is secured by all of its assets, and
the assets of its wholly owned subsidiary, Trinity Workplace Learning
Corporation (the "Subsidiary"), pursuant to a certain Security Agreement which
the Company and the Subsidiary entered into with the investors on March 31,
2006. In addition, the Company's Subsidiary entered into a Subsidiary Guarantee
with the investors on March 31, 2006 pursuant to which the Subsidiary agreed to
guarantee the Company's repayment of the Debentures to the investors.
1
In the event of default, the investors may require payment, which shall be the
greater of: (A) 130% of the principal amount of the Debenture to be prepaid,
plus all accrued and unpaid interest thereon, or (B) the principal amount of the
Debenture to be prepaid, divided by the conversion price on (x) the date the
default amount is demanded or otherwise due or (y) the date the default amount
is paid in full, whichever is less, multiplied by the volume weighted average
price on (x) the date the default amount is demanded or otherwise due or (y) the
date the default amount is paid in full, whichever is greater.
The Warrants are exercisable into shares of the Company's common stock at a
price equal 120% of closing bid price of the Company's common stock on the day
that is one day prior to the initial closing date. If at any time after one year
from the date of issuance of the Warrant, there is no effective registration
statement registering the resale of the shares underlying the Warrant, then the
Warrant may be exercised at such time by means of a cashless basis. The number
of shares underlying the warrants equals 40% of the shares of common stock
issuable on full conversion of the Debentures at the Set Price (as if the
Debentures were so converted on March 31, 2006).
The conversion price of the debentures and the exercise price of the
warrants may be adjusted in certain circumstances such as if we pay a stock
dividend, subdivide or combine outstanding shares of common stock into a greater
or lesser number of shares, or take such other actions as would otherwise result
in dilution of the investors' position.
The investors have agreed to restrict their ability to convert their
debentures or exercise their warrants and receive shares of our common stock
such that the number of shares of common stock held by them in the aggregate and
their affiliates after such conversion of the Debentures does not exceed 4.99%
or exercise of the Warrants does not exceed 9.99% of the then issued and
outstanding shares of common stock. Furthermore, the investors may exercise
the Warrants on a cashless basis if the shares underlying the Warrants are not
then registered. In the event of a cashless exercise, we will not receive any
proceeds.
To meet our present and future liquidity requirements, we are continuing to seek
additional funding through private placements, conversion of outstanding loans
and payables into common stock, development of the business of our
newly-acquired subsidiaries, collections on accounts receivable, and through
additional acquisitions that have sufficient cash flow to fund subsidiary
operations. There can be no assurance that we will be successful in obtaining
more debt and/or equity financing in the future or that our results of
operations will materially improve in either the short- or the long-term. Based
upon our cash balance at June 1, 2006 we will not be able to sustain operations
for approximately two months without additional sources of financing. If we fail
to obtain such financing and improve our results of operations, we will be
unable to meet our obligations as they become due. That would raise substantial
doubt about our ability to continue as a going concern.
Our principal executive office is located at 4101 International Parkway,
Carrollton, Texas 75007 and our telephone number at that location is (972)
309-4000.
This Offering
Shares offered by Selling
Stockholders...................... Up to 20,000,000 shares, consisting of
14,838,959 shares issuable upon the
conversion of secured convertible notes,
up to 3,985,041 shares issuable upon the
exercise of warrants, and up to 518,824
shares and up to 657,176 warrants
previously issued to several investors in
March of 2005.
Common Stock to be outstanding
after the offering................ 61,615,513 *
Use of Proceeds................... We will not receive any proceeds from the
sale of the common stock hereunder. See "Use
of Proceeds" for a complete description.
Risk Factors...................... The purchase of our common stock involves a
high degree of risk. You should carefully
review and consider "Risk Factors" beginning
on page 3
OTC Bulletin Board
Trading Symbol.................... TTYL.OB
* Based on the current issued and outstanding number of shares of 41,615,513 as
of June 5, 2006, and assuming issuance of all shares registered herewith, the
number of shares offered herewith represents approximately 48.06% of the total
issued and outstanding shares of common stock.
2
RISK FACTORS
An investment in our shares involves a high degree of risk. Before making an
investment decision, you should carefully consider all of the risks described in
this prospectus. If any of the risks discussed in this prospectus actually
occur, our business, financial condition and results of operations could be
materially and adversely affected. If this were to happen, the price of our
shares could decline significantly and you may lose all or a part of your
investment. The risk factors described below are not the only ones that may
affect us. Our forward-looking statements in this prospectus are subject to the
following risks and uncertainties. Our actual results could differ materially
from those anticipated by our forward-looking statements as a result of the risk
factors below. See "Forward-Looking Statements."
RISKS RELATED TO OUR BUSINESS
---------------------------------
WE HAVE INCURRED SIGNIFICANT LOSSES TO DATE AND EXPECT TO CONTINUE TO INCUR
LOSSES.
During the fiscal years ended June 30, 2005 and 2004 we incurred net losses of
approximately $15,615,042 and $11,462,063, respectively. For nine months ended
March 31, 2006 and 2005, we incurred net losses of approximately $14,279,161 and
$6,904,182, respectively. As of June 30, 2005, we had an accumulated deficit of
approximately $38,266,018. As of March 31, 2006, we had an accumulated deficit
of approximately $52,545,179. We expect to continue to incur losses for at least
the next 12 months. Continuing losses will have an adverse impact on our cash
flow and may impair our ability to raise additional capital required to continue
and expand our operations.
OUR AUDITORS HAVE ISSUED A GOING CONCERN OPINION WHICH MAY MAKE IT MORE
DIFFICULT FOR US TO RAISE CAPITAL.
Our auditors have included a going concern opinion on our financial statements
because of concerns about our ability to continue as a going concern. These
concerns arise from the fact that we have not generated sufficient cash flows to
meet our obligations and sustain our operations. If we are unable to continue as
a going concern, you could lose your entire investment in us.
IF WE ARE UNABLE TO OBTAIN ADDITIONAL FUNDING, WE MAY HAVE TO REDUCE OUR
BUSINESS OPERATIONS.
Although we have entered into securities purchase agreements providing for $4.5
million financing, we will likely be required to raise additional financing. We
anticipate, based on currently proposed plans and assumptions relating to our
business, that we will require approximately $4 million to satisfy our
operations and capital requirements for the next 12 months. Therefore, if our
marketing campaign is not successful in promoting sales of our products, we will
be required to seek additional financing. We will also require additional
financing to expand into other markets and further develop our products and
services. With the exception of the $4.5 million financing described in "Recent
Developments" section of Prospectus Summary, we have no current arrangements
with respect to any additional financing. Consequently, there can be no
assurance that any additional financing will be available when needed, on
commercially reasonable terms or at all. The inability to obtain additional
capital may reduce our ability to continue to conduct business operations. Any
additional equity financing may involve substantial dilution to our then
existing shareholders.
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.
3
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.
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.
4
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.
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.
5
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.
INABILITY TO FIND A QUALIFIED PERMANENT CHIEF EXECUTIVE OFFICER, COULD IMPAIR
OUR ABILITY TO OPERATE.
If we are unable to retain in the future the services of our current Chief
Executive Officer, Dennis J. Cagan, our business could suffer. Our success is
highly dependent on our ability to attract and retain qualified management
personnel. We are highly dependent on our management, in particular, our Chief
Executive Officer, who is critical to the development of our technologies and
business. There can be no assurance that we will be successful in our attempts
to find a qualified replacement. Our inability to find a qualified permanent
Chief Executive Officer could have a material adverse effect on our operations.
If we are unable to find this individual, we may experience difficulties in
competing effectively, developing our technology and implementing our business
strategies. We do not have key man life insurance in place for any person
working for us.
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.
6
RISKS RELATING TO OUR CURRENT FINANCING AGREEMENT:
-------------------------------------------------------
THERE ARE A LARGE NUMBER OF SHARES UNDERLYING OUR CONVERTIBLE DEBENTURES DUE
MARCH 31, 2010, AND WARRANTS THAT MAY BE AVAILABLE FOR FUTURE SALE AND THE SALE
OF THESE SHARES MAY DEPRESS THE MARKET PRICE OF OUR COMMON STOCK.
As of June 5, 2006, we had 41,615,513 shares of common stock issued and
outstanding. As of June 5, 2006, we had outstanding options and warrants to
purchase additional 44,258,657 shares of common stock. In the offering pursuant
to this registration statement, the selling stockholders may sell up to
15,496,135 shares of common stock and 4,503,865 shares of common stock
underlying warrants.
IF WE ARE REQUIRED FOR ANY REASON TO REPAY OUR OUTSTANDING SECURED CONVERTIBLE
DEBENTURES, WE WOULD BE REQUIRED TO DEPLETE OUR WORKING CAPITAL, IF AVAILABLE,
OR RAISE ADDITIONAL FUNDS. OUR FAILURE TO REPAY THE SECURED CONVERTIBLE
DEBENTURES, IF REQUIRED, COULD RESULT IN LEGAL ACTION AGAINST US, WHICH COULD
REQUIRE THE SALE OF SUBSTANTIAL ASSETS.
On March 31, 2006, we entered into a Securities Purchase Agreement for the sale
of an aggregate of $4,500,000 in principal amount of secured convertible
debentures. The secured convertible notes are due and payable, with 15%
interest, four years from the date of issuance, unless sooner converted into
shares of our common stock. In addition, any event of default such as our
failure to repay the principal or interest when due, our failure to issue shares
of common stock upon conversion by the holder, or our failure to timely file a
registration statement or have such registration statement declared effective,
could require the early repayment of the secured convertible debentures,
including a default interest rate of 18% on the outstanding principal balance of
the debentures if the default is not cured with the specified grace period. At
the present moment, we do not anticipate that the full amount of the secured
convertible notes will be converted into shares of our common stock, in
accordance with the terms of the secured convertible debentures. However, if we
are required to repay the secured convertible debentures, we would be required
to use our limited working capital and raise additional funds. If we were unable
to repay the debentures when required, the debenture holders could commence
legal action against us and foreclose on all of our assets to recover the
amounts due. Any such action would require us to curtail or cease operations.
RISKS RELATED TO OUR COMMON STOCK:
--------------------------------------
THERE IS A LIMITED MARKET FOR OUR COMMON STOCK WHICH MAY MAKE IT MORE DIFFICULT
FOR YOU TO DISPOSE OF YOUR STOCK.
Our common stock has been quoted on the OTC Bulletin Board under the symbol
"TTYL.OB" since November 21, 2001. There is a limited trading market for our
common stock. For example, approximately more than one-third of the trading days
during November of 2005 saw no trading in our stock at all. During that same
period, the largest number of shares traded in one day was 435,000. Accordingly,
there can be no assurance as to the liquidity of any markets that may develop
for our common stock, the ability of holders of our common stock to sell our
common stock, or the prices at which holders may be able to sell our common
stock.
OUR HISTORIC STOCK PRICE HAS BEEN VOLATILE AND THE FUTURE MARKET PRICE FOR OUR
COMMON STOCK MAY CONTINUE TO BE VOLATILE. FURTHER, THE LIMITED MARKET FOR OUR
SHARES WILL MAKE OUR PRICE MORE VOLATILE. THIS MAY MAKE IT DIFFICULT FOR YOU TO
SELL OUR COMMON STOCK FOR A POSITIVE RETURN ON YOUR INVESTMENT.
The public market for our common stock has historically been very volatile.
Since the day out stock began being quoted on the Over-The-Counter Bulletin
Board on November 21, 2001and through June 5, 2006, the market price for our
common stock has ranged from $2.10 to $0.10. Any future market price for our
shares may continue to be very volatile. This price volatility may make it more
difficult for you to sell shares when you want at prices you find attractive. We
do not know of any one particular factor that has caused volatility in our stock
price. However, the stock market in general has experienced extreme price and
volume fluctuations that often are unrelated or disproportionate to the
operating performance of companies. Broad market factors and the investing
public's negative perception of our business may reduce our stock price,
regardless of our operating performance. Market fluctuations and volatility, as
well as general economic, market and political conditions, could reduce our
market price. As a result, this may make it difficult or impossible for you to
sell our common stock for a positive return on your investment.
7
OUR COMMON STOCK IS SUBJECT TO THE "PENNY STOCK" RULES OF THE SEC AND THE
TRADING MARKET IN OUR SECURITIES IS LIMITED, WHICH MAKES TRANSACTIONS IN OUR
STOCK CUMBERSOME AND MAY REDUCE THE VALUE OF AN INVESTMENT IN OUR STOCK.
Our common stock is currently listed for trading on the OTC Bulletin Board which
is generally considered to be a less efficient market than markets such as
NASDAQ or other national exchanges, and which may cause difficulty in conducting
trades and difficulty in obtaining future financing. Further, our securities are
subject to the "penny stock rules" adopted pursuant to Section 15 (g) of the
Securities Exchange Act of 1934, as amended, or Exchange Act. The penny stock
rules apply to non-NASDAQ companies whose common stock trades at less than $5.00
per share or which have tangible net worth of less than $5,000,000 ($2,000,000
if the company has been operating for three or more years). Such rules require,
among other things, that brokers who trade "penny stock" to persons other than
"established customers" complete certain documentation, make suitability
inquiries of investors and provide investors with certain information concerning
trading in the security, including a risk disclosure document and quote
information under certain circumstances. Penny stocks sold in violation of the
applicable rules may entitle the buyer of the stock to rescind the sale and
receive a full refund from the broker.
Many brokers have decided not to trade "penny stock" because of the requirements
of the penny stock rules and, as a result, the number of broker-dealers willing
to act as market makers in such securities is limited. In the event that we
remain subject to the "penny stock rules" for any significant period, there may
develop an adverse impact on the market, if any, for our securities. Because our
securities are subject to the "penny stock rules," investors will find it more
difficult to dispose of our securities. Further, for companies whose securities
are traded in the OTC Bulletin Board, it is more difficult: (i) to obtain
accurate quotations, (ii) to obtain coverage for significant news events because
major wire services, such as the Dow Jones News Service, generally do not
publish press releases about such companies, and (iii) to obtain needed capital.
WE HAVE NOT PAID CASH DIVIDENDS IN THE PAST AND DO NOT EXPECT TO PAY CASH
DIVIDENDS IN THE FUTURE. ANY RETURN ON INVESTMENT MAY BE LIMITED TO THE VALUE OF
OUR STOCK.
We have never paid cash dividends on our stock and do not anticipate paying cash
dividends on our stock in the foreseeable future. The payment of cash dividends
on our stock will depend on our earnings, financial condition and other business
and economic factors affecting us at such time as the board of directors may
consider relevant. If we do not pay cash dividends, our stock may be less
valuable because a return on your investment will only occur if our stock price
appreciates.
USE OF PROCEEDS
This prospectus relates to shares of our common stock that may be offered and
sold from time to time by the selling stockholders. We will not receive any
proceeds from the sale of shares of common stock in this offering. We will,
however, receive proceeds from the exercise, if any, of warrants to purchase
4,503,865 shares of common stock.
FORWARD-LOOKING STATEMENTS
Our representatives and we may from time to time make written or oral statements
that are "forward-looking," including statements contained in this prospectus
and other filings with the Securities and Exchange Commission, reports to our
stockholders and news releases. All statements that express expectations,
estimates, forecasts or projections are forward-looking statements within the
meaning of the Act. In addition, other written or oral statements which
constitute forward-looking statements may be made by us or on our behalf. Words
such as "expects," "anticipates," "intends," "plans," "believes," "seeks,"
"estimates," "projects," "forecasts," "may," "should," variations of such words
and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and
involve risks, uncertainties and assumptions which are difficult to predict.
Therefore, actual outcomes and results may differ materially from what is
expressed or forecasted in or suggested by such forward-looking statements. We
undertake no obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or otherwise. Important
factors on which such statements are based are assumptions concerning
uncertainties, including but not limited to uncertainties associated with the
following:
(a) volatility or decline of our stock price;
(b) potential fluctuation in quarterly results;
(c) our failure to earn revenues or profits;
(d) inadequate capital and barriers to raising the additional capital or to
obtaining the financing needed to implement its business plans;
(e) inadequate capital to continue business;
(f) changes in demand for our products and services;
(g) rapid and significant changes in markets;
(h) litigation with or legal claims and allegations by outside parties;
(i) insufficient revenues to cover operating costs.
8
USE OF PROCEEDS
This prospectus relates to shares of our common stock that may be offered and
sold from time to time by selling stockholders. We will receive no proceeds from
the sale of shares of common stock in this offering. However, we will receive
proceeds from the exercise, if any, of the warrants owned by the selling
stockholders.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
THE FOLLOWING DISCUSSION WHICH SETS FORTH MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE FISCAL QUARTER ENDED MARCH 31, 2006, SHOULD BE READ IN CONJUNCTION WITH
OUR CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND NOTES TO THOSE STATEMENTS.
IN ADDITION TO HISTORICAL INFORMATION, THE FOLLOWING DISCUSSION AND OTHER PARTS
OF THIS REGISTRATION STATEMENT CONTAIN FORWARD-LOOKING INFORMATION THAT INVOLVES
RISKS AND UNCERTAINTIES.
RESULTS OF OPERATIONS
THIRD QUARTER ENDED MARCH 31, 2006 AS COMPARED TO THE THIRD QUARTER ENDED MARCH
31, 2005
Our revenues for third quarter 2006 were $6,147,414, as compared to $518,095 for
the third quarter 2005. This increase in revenues is due primarily to the
acquisition of Primedia Workplace Learning. The three month period in 2005
comprises three months' revenue of RMT, TouchVision and VILPAS while 2006
includes revenues of RMT, TouchVision, VILPAS and Trinity Workplace Learning.
Costs of sales, which consist of labor, hardware costs, cost of goods sold and
other incidental expenses, was $1,746,910 for the third quarter 2006 as compared
to $62,228 for the third quarter 2005, resulting in gross profit of $4,400,504
for the third quarter 2006, as compared to $455,867 for the third quarter 2005.
This increase in costs and in gross profit was due to the acquisition of
Primedia Workplace Learning. Operating expenses for third quarter 2006 were
$10,801,557 as compared to $2,563,293 for the third quarter 2005. This increase
was due primarily to acquisition of Primedia Workplace Learning along with
increases in selling, general and administrative costs as well as amortization
expense.
Other Expense for the third quarter of 2006 reflected income of $1,734,323
compared to expense of $1,041,525 for the third quarter 2005. This income is
primarily due to recognizing a gain on the non-conversion of contingently
redeemable stock of $2,210,000.
We reported net loss available for common stockholders of $4,666,730 or $0.11
per share for the third quarter 2006, compared with a net loss of $3,104,016 or
$0.10 per share for the third quarter 2005.
NINE MONTHS ENDED MARCH 31, 2006 AS COMPARED TO THE NINE MONTHS ENDED MARCH 31,
2005
Our sales revenue for the nine months ended March 31, 2006 were $20,171,919, as
compared to $2,328,592 for the nine months ended March 31, 2005. This increase
in revenues was primarily due to the acquisition of Primedia Workplace Learning.
The nine month period in 2005 comprises nine months' revenue of RMT, TouchVision
and Vilpas while the nine month period in 2006 comprises nine months' of RMT,
TouchVision, Vilpas and Trinity Workplace Learning.
Costs of sales, which consist of labor and hardware costs, and other incidental
expenses, was $4,482,252 for the nine months ended March 31, 2006 as compared to
$280,563 for the nine months ended March 31, 2005, resulting in gross profit of
$15,689,667 for the nine months ended March 31, 2006 as compared to $2,048,029
for the nine months ended March 31, 2005. This increase is due primarily to
acquisition of Primedia Workplace Learning.
9
Operating expenses for the nine months ended March 31, 2006 were $27,593,669 as
compared to $6,029,025 for the nine months ended March 31, 2005. This increase
was due primarily to the acquisition of Primedia Workplace Learning resulting in
increases in selling, general and administrative costs as well as depreciation
and amortization expense.
Other Expense of $2,178,679 for the nine months ended March 31, 2006 was
$836,550 less than that for the nine months ended March 31, 2005. This decrease
in expense is primarily due to a gain recognized on the non- conversion of
contingently redeemable stock of $2,210,000 and prior year losses in associated
companies of $1,837,719 offset by a loss on conversion of notes payable
$1,430,858 and increases in net interest expense of $1,783,408. Included in
interest expense of $2,775,431 is $1,495,564 attributable to amortization of
discounts on the Laurus note.
We reported net loss available for common stockholders of $14,279,161 or $0.36
per share for the nine months ended March 31, 2006, compared with a net loss of
$6,904,182 or $0.22 per share for the nine months ended March 31, 2005.
LIQUIDITY AND CAPITAL RESOURCES
AS OF THIRD QUARTER ENDED MARCH 31, 2006
Our expenses are currently greater than our revenues. We have a history of
losses, and our accumulated deficit as of March 31, 2006 was $52,545,179 as
compared to $38,266,018 as of June 30, 2005.
At March 31, 2006, we had an unrestricted cash balance of $1,250,652 compared to
$752,261 at June 30, 2005. Net cash used by operating activities during the nine
months ended March 31, 2006 was $2,439,311. Net cash generated by investing
activities was $5,090,375 for the nine months ended March 31, 2006. Net cash
used by financing activities during the nine months ended March 31, 2006 was
2,152,673.
Accounts receivable increased from $3,540,415 at June 30, 2005 to $4,617,595 at
March 31, 2006. This increase is due primarily to increased sales efforts to our
customers.
Accounts payable increased from $3,134,406 at June 30, 2005 to $6,257,697 at
March 31, 2006. Accrued expenses increased from $1,625,901 at June 30, 2005 to
$3,557,466 at March 31, 2006. The changes in accounts payable and accrued
expenses are attributable to the negative cash flow.
As a professional services organization we are not capital intensive. Capital
expenditures historically have been for computer-aided instruction, accounting
and project management information systems and general-purpose computer
equipment to accommodate our growth.
We continued to seek equity and debt financing in fiscal 2006 to support our
growth and to finance recent and proposed acquisitions:
On March 2, 2006, Jack Rutherford loaned to us an amount of $100,000 which is
convertible pursuant to the terms of the loan into 625,000 shares of Common
Stock. In addition we issued 625,000 warrants exercisable at $0.20 per share to
Mr. Rutherford in consideration of the loan made. We further sold 250,000
warrants exercisable at $0.15 per share to Mr. Rutherford in consideration for
his investment in the amount of $100,000 in us on March 2, 2006. The issuance of
these securities was made in reliance on Section 4(2) of the Securities Act as a
transaction not involving any public offering. No advertising or general
solicitation was employed in offering the securities, and the issuance of the
securities was made to an existing shareholder of our company.
On March 3, 2006, William T. Merrill purchased 156,250 shares of Common Stock of
the Company at $0.16 per share or $25,000. In addition we issued 156,250
warrants exercisable at $0.20 per share to Mr. Merrill in consideration of the
purchase. 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.
On March 3, 2006, David Spada purchased 156,250 shares of Common Stock of the
Company at $0.16 per share or $25,000. In addition we issued 156,250 warrants
exercisable at $0.20 per share to Mr. Spada in consideration of the purchase.
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.
On March 31, 2006, the Company entered into a Securities Purchase Agreement (the
"Securities Agreement") with certain accredited investors for the issuance of up
to an aggregate of $8,500,000 in face amount of 15% Senior Secured Convertible
Debentures (the "Debentures") maturing March 31, 2010, and four year warrants
(the "Warrants") to purchase an aggregate of 13,600,000 share of common stock of
the Company. The Debentures accrue interest at a rate of 15% per annum and we
issued to Palisades Master Fund LP a face amount of $4,500,000 in Debentures and
warrants to purchase an aggregate of 7,200,000 shares of common stock pursuant
to the first closing which occurred on March 31, 2006. The Company claims an
exemption from the registration requirements of the Act for the private
placement of these securities pursuant to Section 4(2) of the Act and/or
Regulation D promulgated thereunder since, among other things, the transaction
did not involve a public offering, the investors were accredited investors
and/or qualified institutional buyers, the investors had access to information
about the company and their investment, the investors took the securities for
investment and not resale, and the Company took appropriate measures to restrict
the transfer of the securities.
10
To meet our present and future liquidity requirements, we are continuing to seek
additional funding through private placements, conversion of outstanding loans
and payables into common stock, development of the business of our
newly-acquired subsidiaries, collections on accounts receivable, and through
additional acquisitions that have sufficient cash flow to fund subsidiary
operations. There can be no assurance that we will be successful in obtaining
more debt and/or equity financing in the future or that our results of
operations will materially improve in either the short- or the long-term. Based
upon our cash balance at June 1, 2006 we will not be able to sustain operations
for more than two months without additional sources of financing. If we fail to
obtain such financing and improve our results of operations, we will be unable
to meet our obligations as they become due. That would raise substantial doubt
about our ability to continue as a going concern.
THE FOLLOWING DISCUSSION WHICH SETS FORTH MANAGEMENT'S DISCUSSION AND ANALYSIS
AS OF DECEMBER 31, 2005, SHOULD BE READ IN CONJUNCTION WITH OUR CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES TO THOSE STATEMENTS. IN ADDITION TO
HISTORICAL INFORMATION, THE FOLLOWING DISCUSSION AND OTHER PARTS OF THIS
REGISTRATION STATEMENT CONTAIN FORWARD-LOOKING INFORMATION THAT INVOLVES RISKS
AND UNCERTAINTIES.
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 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.
11
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.
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").
12
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.
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 two
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 Scandinavia
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.
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.
13
LIQUIDITY AND CAPITAL RESOURCES
AS OF FISCAL YEAR END ON JUNE 30, 2005
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.
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, and
$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. 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.
14
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.
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.
RECENT DEVELOPMENTS
Currently the Company is trying to obtain additional equity or debt financing of
approximately $7.5 to $10.0 million. The proceeds will be used for general
working capital purposes and should provide sufficient cash to sustain
operations into early 2007. There can be no assurance that the Company will be
successful in completing this transaction.
BUSINESS
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.
15
GENERAL
Trinity Learning is creating a global learning company by acquiring operating
subsidiaries that specialize in educational and training content, delivery, and
services for particular industries or that target a particular segment of the
workforce. Trinity Learning believes that there are product and service
synergies between and among our various subsidiaries that position us to create
a global learning company that can provide integrated learning services to
corporations, organizations, educational institutions, and individual learners,
using a variety of delivery technologies, platforms and methods to meet the
growing need for global learning solutions. Trinity Learning believes that it
will be one of the first companies to be able to serve major multinational
employers at multiple levels of their organizations and assist these customers
to meet the challenges of a major turnover in the world's workforce over the
coming decade. Factors such as demographics, technology, and globalization will
require enterprises, organizations and governments around the world to invest in
human capital to remain competitive.
We operate through our primary operating subsidiary, Trinity Workplace Learning,
located in our 205,000 square foot digital multimedia production center in
Carrollton, Texas, in the greater Dallas metropolitan area. At this Global
Learning Center we create, distribute and archive rich media for workplace
learning and certification for approximately 7,000 corporate, institutional and
government customers in healthcare, industrial services, and public safety
including homeland security, first responders, and federal agencies. We
distribute content to our customers through a variety of learning media
including satellite, broadband, e-learning, CD-ROM, and DVDs. Our proprietary
brands include The Law Enforcement Training Network, HomelandOne, the Fire and
Emergency Training Network, and others. In our healthcare industry vertical we
participate in 17 distinct accreditations for medical-related continuing
professional education and certification. While our strategic focus is to grow
our assets and operations in North America, we continue to also explore
acquisition and alliance candidates in Western Europe and we continue to
maintain ownership positions in small operating subsidiaries in Australia and
Norway and we have an ongoing investment in a learning company in South Africa.
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:
- 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 majority of
its revenues subscriptions 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. Majority 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. A small portion 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.
16
As a result of the PWPL acquisition, the combination of the Company and TWL
provides a number of key benefits:
- Approximately 209 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.
- 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.
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.
17
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.
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, to create one of
the first global brands that integrate products and services for workplace
learning, education and personal growth markets, and to engage in accretive
acquisitions which in the Company's management's belief will substantially
benefit the Company. 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.
18
- 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;
- 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.
RECENT DEVELOPMENTS
Private Financing Transaction
On March 31, 2006, we entered into a Securities Purchase Agreement with
certain accredited investors for the issuance of an aggregate of $4,500,000
in face amount of 15% Senior Secured Convertible Debentures (the "Debentures")
maturing March 31, 2010, and four year warrants (the "Warrants") to
purchase an aggregate of 7,200,000 shares of common stock of the Company. The
Debentures accrue interest at a rate of 15% per annum.
The Debentures are convertible into shares of the Company's common stock at a
price equal to $0.25 per share. The Company is obligated to pay 1/24th of the
face amount of the Debenture on the first of every month, starting March 31,
2008, which payment can be made in cash or in common stock of the Company. The
Company may pay this amortization payment in cash or in stock at the lower of
$0.25 per share (the "Set Price") or 80% of the volume weighted average price of
the Company's stock for the twenty trading days prior to the repayment date. The
Company's obligation to repay Debentures is secured by all of its assets, and
the assets of its wholly owned subsidiary, Trinity Workplace Learning
Corporation (the "Subsidiary"), pursuant to a certain Security Agreement which
the Company and the Subsidiary entered into with the investors on March 31,
2006. In addition, the Company's Subsidiary entered into a Subsidiary Guarantee
with the investors on March 31, 2006 pursuant to which the Subsidiary agreed to
guarantee the Company's repayment of the Debentures to the investors.
In the event of default, the investors may require payment, which shall be the
greater of: (A) 130% of the principal amount of the Debenture to be prepaid,
plus all accrued and unpaid interest thereon, or (B) the principal amount of the
Debenture to be prepaid, divided by the conversion price on (x) the date the
default amount is demanded or otherwise due or (y) the date the default amount
is paid in full, whichever is less, multiplied by the volume weighted average
price on (x) the date the default amount is demanded or otherwise due or (y) the
date the default amount is paid in full, whichever is greater.
The Warrants are exercisable into shares of the Company's common stock at a
price equal 120% of closing bid price of the Company's common stock on the day
that is one day prior to the initial closing date. If at any time after one year
from the date of issuance of the Warrant, there is no effective registration
statement registering the resale of the shares underlying the Warrant, then the
Warrant may be exercised at such time by means of a cashless basis. The number
of shares underlying the warrants equals 40% of the shares of common stock
issuable on full conversion of the Debentures at the Set Price (as if the
Debentures were so converted on March 31, 2006).
The conversion price of the debentures and the exercise price of the
warrants may be adjusted in certain circumstances such as if we pay a stock
dividend, subdivide or combine outstanding shares of common stock into a greater
or lesser number of shares, or take such other actions as would otherwise result
in dilution of the investors' position.
19
The investors have agreed to restrict their ability to convert their
debentures or exercise their warrants and receive shares of our common stock
such that the number of shares of common stock held by them in the aggregate and
their affiliates after such conversion of the Debentures does not exceed 4.99%
or exercise of the Warrants does not exceed 9.99% of the then issued and
outstanding shares of common stock. Furthermore, the investors may exercise
the Warrants on a cashless basis if the shares underlying the Warrants are not
then registered. In the event of a cashless exercise, we will not receive any
proceeds.
SUBSIDIARIES
We currently have three wholly owned operating subsidiaries: Trinity Workplace
Learning, 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.
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.
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.
20
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.
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.
21
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.
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 June 5, 2006, we had approximately 226 full time employees located in
Texas, Australia and Norway.
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. As of June 5, 2006, the Company has been named as a
party to this litigation, has engaged legal counsel for the matter, and has
expects to conduct discovery shortly. 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.
In addition, the Company is a defendant in a number of lawsuits brought by its
trade creditors. However, the Company believes that subsequent to successful
funding that it currently hopes to achieve, such litigations will not have a
material adverse effect on the Company.
DESCRIPTION OF PROPERTY
In May of 2006, we moved our headquarters from California to Texas. As of June
5, 2006, 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.
22
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth the names, ages and titles of our executive
officers and directors.
Name Age Position
--------------------- ------ ------------------------------------
Dennis J. Cagan 60 Chief Executive Officer, President and Director
Patrick R. Quinn 46 Chief Financial Officer
Douglas Cole 51 Executive Vice President and Director
William D. Jobe 67 Director
Richard G. Thau 58 Director
Arthur Ronald Kidson 62 Director
Ron S. Posner 63 Director
*Rich Marino resigned and terminated his employment as President, Chief
Executive Officer and as an employee of the Company on May 3, 2006.
Certain biographical information pertaining to the above-named officers and
directors is set forth below:
DENNIS J. CAGAN. Mr. Cagan was appointed as our Chief Executive Officer and
President on May 9, 2006. Mr. Cagan has also 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.
DOUG COLE. Mr. Cole is Vice Chairman and Executive Vice President, has been a
director of the Company since 2002 and was our Chief Executive Officer until
February 1, 2006 when the company moved its corporate headquarters to Texas. For
the past 28 years, Mr. Cole has worked in the information technology industry,
with a focus on sales and marketing. He has successfully completed numerous
acquisitions, OEM agreements, International Distribution and strategic
partnerships for and among various companies over his career. Ranging from
Hewlett Packard , Canon, Texas Instruments, Sony and IBM. 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. 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. Mr. Cole is a graduate of the University of
California , Berkeley.
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.
23
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.
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.
EMPLOYMENT AGREEMENTS WITH MANAGEMENT
We entered into a three-year employment agreement with Patrick Quinn, our Vice
President of Finance and Chief Financial Officer on February 1, 2006. The
agreement initially provided for base salary of $187,000 per annum ("Annual Base
Salary"). According to the agreement, the annual base salary may be further
adjusted from time to time by the Board of Directors. The Board will review Mr.
Quinn's salary at least once during each calendar year, beginning with calendar
year 2007. Mr. Quinn is eligible to participate in all executive benefit plans
and to receive an annual bonus on such terms, at such time and in such amount as
determined by the Board of Directors. As part of the compensation package given
to Mr. Quinn, he will receive during the calendar year of 2006, 250,000 stock
options which shall vest over a three-year period pursuant to the Company's 2002
Stock Option Plan. Mr. Quinn's employment period will continue until December
31, 2007 unless earlier terminated. If we terminate the agreement without cause
(as defined in the agreement), Mr. Quinn is entitled to receive his annual base
salary at the rate then in effect and all benefits then afforded to senior
executives for a six month period after the date of termination, together with
expenses incurred as of the date of termination. In addition, the Company shall
pay Mr. Quinn the portion of the Annual Bonus attributable to any calendar year
of the Company (or portion thereof) accrued through the date of termination. If
Mr. Quinn terminates the agreement (as defined in the agreement), Mr. Quinn is
entitled to receive his Annual Base Salary plus any accrued leave through the
date of termination. All of Mr. Quinn's rights to Annual Base Salary and
benefits pursuant to the Employment Agreement which accrue or become payable
after the date of such termination of the employment period shall cease upon
such termination. The agreement contains a non-competition covenant that
survives for a period of six months after termination of employment.
We entered into a three-year employment agreement with Douglas Cole, our
Executive Vice President on February 1, 2006. The agreement initially provided
for base salary of $180,000 per annum ("Annual Base Salary"). According to the
agreement, the annual base salary may be further adjusted from time to time by
the Board of Directors. The Board will review Mr. Cole's salary at least once
during each calendar year, beginning with calendar year 2007. Mr. Cole is
eligible to participate in all executive benefit plans and to receive an annual
bonus on such terms, at such time and in such amount as determined by the Board
of Directors. As part of the compensation package given to Mr. Cole, he will
receive during the calendar year of 2006, 250,000 stock options which shall vest
over a three-year period pursuant to the Company's 2002 Stock Option Plan. Mr.
Cole's employment period will continue until December 31, 2007 unless earlier
terminated. If we terminate the agreement without cause (as defined in the
agreement), Mr. Cole is entitled to receive his annual base salary at the rate
then in effect and all benefits then afforded to senior executives for a six
month period after the date of termination, together with expenses incurred as
of the date of termination. In addition, the Company shall pay Mr. Cole the
portion of the Annual Bonus attributable to any calendar year of the Company (or
portion thereof) accrued through the date of termination. If Mr. Cole terminates
the agreement (as defined in the agreement), Mr. Cole is entitled to receive his
Annual Base Salary plus any accrued leave through the date of termination. All
of Mr. Cole's rights to Annual Base Salary and benefits pursuant to the
Employment Agreement which accrue or become payable after the date of such
termination of the employment period shall cease upon such termination. The
agreement contains a non-competition covenant that survives for a period of six
months after termination of employment.
We appointed Dennis Cagan as the Company's Chief Executive Officer ("CEO") on
May 9, 2006. Mr. Cagan continues to serve on the Company's Board of Directors.
We entered in to a consulting agreement with CaganCo Incorporated ("Cagan
Inc."), a limited liability company which Mr. Cagan controls, pursuant to which
Cagan Inc. will receive compensation of $240,000 per year and Mr. Cagan will
serve as the Company's Chief Executive Officer. Mr. Cagan will personally
receive stock options to purchase 250,000 shares of the Company's common stock
(the "Options"), such that 50% of the Options will vest immediately on the date
of appointment as interim CEO and 50% of the Options will vest six months from
the date of appointment. The exercise price is $0.16 per share. Mr. Cagan will
also be eligible to participate in all executive bonus programs that all of the
Company's executives are eligible for.
24
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 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. 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, Ron Posner, Arthur
Kidson, Dennis Cagan and Patrick Quinn inadvertently filed their Form 3s late,
(ii) Doug Cole, 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 inadvertently filed his Form 4 late with regards to private transfers
without consideration of shares held by him in a limited liability company of
which he is a member and manager.
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.
25
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 information as of June 5, 2006.
These individuals received no other compensation of any type, other than as set
out below, during the periods indicated.
SUMMARY COMPENSATION TABLE
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
-------------------------------------------------------------------------------------
Dennis Cagan 2006* $240,000 - - - 375,000 - -
Chief Executive
Officer and
Director (1)
Doug Cole
Executive Vice
Presient 2006* $180,000 - $12,000 - 250,000 - -
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
Edward P. Mooney
President(3) 2005 $180,000 - $12,000 - 500,000 - -
2004 $180,000 $12,000 - 250,000 - -
2003 $135,000 $25,000 $9,000 - 250,000 -
Rich Marino
Chief Operating
Officer (2) 2005 $210,000 $30,000 $17,000 - 250,000 - -
2004 - - - - - - -
2003 - - - - - - -
Patrick R. Quinn
Chief Financial
Officer
(Partial year) 2006* $180,000 - $5,000 - 500,000 - -
2005 $25,223 - - - 250,000 - -
* Amounts shown for the 2006 fiscal year ending June 30, 2006, are stated as of June 5, 2006.
(1) Mr. Cagan was appointed on May 9, 2006, as the Company's Chief Executive Officer.
(2) Mr. Marino resigned as the Company's Chief Executive Officer on May 3, 2006.
(3) Mr. Mooney resigned as President of the company on January 9, 2006.
26
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
The following table sets forth the individual grants of stock options for each
of the below named executive officers, as of June 8, 2006. No stock options were
exercised during the period ending June 8, 2006.
Individual Grants
-------------
% of Total
Number of Total Options
Securities Granted to Exercise
Underlying Employees in Price Expiration
Name Options Fiscal Year per Share Date
----------------- ----------- ------------- ------------- -------------
Dennis Cagan 125,000 9.09% $0.16 5/09/2011
250,000 18.18% $0.19 2/08/2011
Doug Cole 250,000 18.18% $0.19 2/08/2011
Patrick R. Quinn 250,000 18.18% $0.19 2/08/2011
250,000 18.18% $0.16 5/03/2011
Rich Marino (1) 250,000 18.18% $0.19 2/08/2011
(1) Rich Marino resigned as the Company's Chief Executive Officer on May 3,
2006.
The following table sets forth the aggregate stock option exercises and fiscal
year-end option values for each of the above named executive officers, as of
June 8, 2006. This table reflects September 1, 2006, as the vesting date of the
options set forth below. No stock options were exercised as of June 8, 2006.
Number of Securities Exercise Value
Shares Underlying Unexercised of Unexercised
Acquired Options as of Sep. Options at below date
on Value 1, 2006; Exercisable/ Exercisable/
Name Exercise Realized Unexercisable Unexercisable
------------------ -------- ---------- --------------------- ---------------------
($0.10 on 6/08/05)
Dennis Cagan 0 0 346,896 / 178,104 $34,690 / $17,810
Doug Cole 0 0 908,474 / 341,526 $90,847 / $34,153
Edward P. Mooney 0 0 78,045 / 171,955 $7,805 / $17,196
Patrick R. Quinn 0 0 322,461 / 427,539 $32,246 / $42,754
Rich Marino (1) 0 0 234,295 / 515,705 $23,430 / $51,571
(1) Rich Marino resigned as the Company's Chief Executive Officer on May 3,
2006.
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.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of June 5, 2006 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 41,615,513 outstanding shares of common stock
as of June 5, 2006. Unless otherwise indicated, the address for each of the
following is 4101 International Parkway Carrollton, Texas 75007.
Total Percent
Number of Beneficial of Class
Number of Options & Ownership Beneficially
Beneficial Owner Shares Owned Warrants (1) (2) Owned
------------------------------- ------------ ------------ ----------- ------------
Dennis J. Cagan
Chief Executive Officer
and Director 0 346,869 (3) 346,869 *
Doug Cole
Executive Vice President
and Director 2,009,972 908,474 (4) 2,918,446 6.86%
William Jobe
6654 Bradbury Court
Fort Worth, TX 76132
Director 200,000 467,964 (5) 667,964 1.58%
Arthur R. Kidson
2 Epsom Road
Stirling, East London
Republic of South Africa
Director 0 346,499 (6) 346,499 *
Richard G. Thau
2468 Sharon Oaks Drive
Menlo Park, CA 94025
Director 0 509,644 (7) 509,644 1.21%
Ron S. Posner
820 Stony Hill Road
Tiburon, CA 94920
Director 100,000 224,425 (8) 324,425 *
Patrick R. Quinn
Chief Financial Officer 0 322,461 (9) 322,461 *
Steven Hanson
1319 NW 86th Street
Vancouver, WA 98665
5% Shareholder 2,000,000 3,000,000 5,000,000 12.01%
Theodore Swindells
11400 Southeast 8th Street
Bellevue, WA 98004
5% Shareholder 1,550,000 1,275,000 2,825,000 6.79%
Luc Verelst
Verbier, Switzerland 1936
5% Beneficial Owner 3,725,138 4,000,000 7,725,138 18.56%
All executive officers and
directors of the Company as a
group (7 persons) 2,309,972 3,126,336 5,414,234 12.1%
*Denotes less than one percent (1%).
** Unless otherwise stated, all stock options granted expire 5 years from the
date of the respective stock option grant.
(1) Reflects warrants, options or other convertible securities that will be
exercisable, convertible or vested as the case may be within 60 days of June 5,
2006.
(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 June 5, 2006 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) Consists of (i) 25,000 stock options, which are fully vested, granted on
October 9, 2002 and which expire on October 9, 2007; (ii) 125,000 stock options
granted on May 19, 2005, of which 71,896 would vest by September 1, 2006; (iii)
250,000 stock options granted on May 9, 2006, of which 125,000 would vest by
September 1, 2006; and (iv) 125,000 stock options granted on February 8, 2006,
fully vested. **
(4) Consists of (i) 250,000 stock options, fully vested, granted on December 1,
2002 and which expire on October 9, 2007; (ii) 250,000 stock options granted on
December 31, 2003, of which 234,490 would vest by September 1, 2006; (iii)
250,000 stock options granted on January 28, 2005, of which 164,023 would vest
by September 1, 2006; (iv) 250,000 stock options granted on April 18, 2005, of
which 148,850 would vest by September 1, 2006; and (v) 250,000 stock options
granted on February 8, 2006, of which 111,111 would vest by September 1, 2006.
**
(5) Consists of (i) 25,000 stock options, fully vested, granted on October 9,
2002; (ii) 125,000 stock options granted on December 31, 2003, of which 117,245
would vest by September 1, 2006; (iii) 25,000 stock options granted on September
1, 2004, of which 19,283 would vest by September 1, 2006; (iv) 125,000 stock
options granted on January 28, 2005, of which 82,011 would vest by September 1,
2006; (v) 125,000 stock options granted on April 18, 2005, of which 74,425 would
vest by September 1, 2006; and (v) 150,000 stock options granted on February 8,
2006, which are fully vested. **
(6) Consists of (i) 125,000 stock options granted on February 1, 2004, of which
114,641 would vest by September 1, 2006; (ii) 25,000 stock options granted on
September 1, 2004, of which 19,283 would vest by September 1, 2006; (iii) 50,000
stock options granted on January 28, 2005, of which 32,805 would vest by
September 1, 2006; (iv) 50,000 stock options granted on April 18, 2005, of which
29,770 would vest by September 1, 2006; and (v) 150,000 stock options granted on
February 8, 2006, which are fully vested. **
(7) Consists of (i) 25,000 stock options, which are fully vested, granted on
October 9, 2002 and which expire on October 9, 2007; (ii) 125,000 stock options
granted on February 1, 2004, of which 114,641 would vest by September 1, 2006;
(iii) 50,000 stock options granted on September 1, 2004, of which 38,566 would
vest by September 1, 2006; and (iv) 125,000 stock options granted on January 28,
2005, of which 82,011 would vest by September 1, 2006; (v) 125,000 stock options
granted on April 18, 2005, of which 74,425 would vest by September 1, 2006; and
(vi) 175,000 stock options granted on February 8, 2006, which are fully vested.
**
(8) Consists of (i) 25,000 stock options, which are fully vested, granted on
April 1, 2003 and which expire on October 9, 2007; (ii) 125,000 stock options
granted on April 18, 2005, of which 74,425 would vest by September 1, 2006; and
(iii) 125,000 stock options granted on February 8, 2006, fully vested. **
(9) Consists of (i) 250,000 stock options, granted on April 18, 2005, of which
148,850 would vest by September 1, 2006; (ii) 250,000 stock options granted on
February 8, 2006, fully vested; and (iii) 250,000 stock options granted on April
18, 2005, of which 62,500 would vest by September 1, 2006. **
27
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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 were 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.
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.
28
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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 5, 2006.
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.
Fiscal Year ending June 30, 2006: High Low
-------------------------------- ------------ ------------
April 1, 2006 to June 30, 2006 * $ 0.20 $ 0.10
January 1, 2006 to March 31, 2006 $ 0.30 $ 0.14
October 1, 2005 to December 31, 2005 $ 0.31 $ 0.21
July 1, 2005 to September 30, 2005 $ 0.31 $ 0.20
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
* As of June 5, 2006
NUMBER OF STOCKHOLDERS
As of June 5, 2006, there were approximately 795 shareholders of record of our
common stock.
DIVIDEND POLICY
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.
REPURCHASES OF COMMON STOCK
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 5, 2006.
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.
29
Equity Compensation Plan Information
The following table sets forth certain information regarding securities
authorized for issuance under the 2002 Stock Plan at June 5, 2006:
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 14,467,000 $0.38 5,533,000
SELLING STOCKHOLDERS
The following table presents information regarding the selling stockholders.
Number of Shares
Issuable Assuming Percent Shares Beneficially Owned
Full Conversion of Ownership After Offering
Selling Stockholder Notes/Exercise Assuming Full Number of Shares
------------------- of Warrants Conversion (4) Included Herein Number Percent
--------------- ------------- ------------------ ------ -------
Palisades Master Fund LP 14,480,000(1) 25.81% (2) 18,824,000(3) -0- --
Jack Rutherford 638,568(5) 1.51% 830,138 -0- --
William T. Merrill 132,978(5) * 172,931 -0- --
David Spada 132,978(5) * 172,931 -0- --
* less than 1%.
(1) Number of shares includes (i) shares issuable upon conversion of the
convertible debentures by the selling stockholder, assuming a conversion price
of $0.25, which represents 147% of the closing price of $0.17 on the date we
entered into the Securities Purchase Agreement pursuant to which the we sold the
convertible debentures, and (ii) shares issuable upon exercise of the warrants
issued to the selling stockholder.
(2) Assumes waiver by the selling stockholder of the provision that limits the
number of shares to be held by it to 4.99%.
(3) Number of shares includes shares issuable as interest payments on the entire
$4,500,000 principal amount of the senior secured convertible debentures plus
accrued interest at the annual rate of 15% until maturity, or four years from
the date of issuance, taking into effect the requirement of redemption of 1/24
of the face amount of the debenture each month beginning on April 1, 2008,. In
addition, it includes additional shares to be issued upon the exercise of the
warrants. Under the terms of the secured convertible debentures, for purposes of
determining the total number of shares to be included in this registration
statement, we are required to multiply by a factor of 1.3 the number of shares
issuable upon conversion of the convertible debentures and upon exercise of the
warrants.
(4) The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d-3 of the Securities Exchange Act of 1934, and the
information is not necessarily indicative of beneficial ownership for any other
purpose. Under such rule, beneficial ownership includes any shares as to which
the selling stockholders has sole or shared voting power or investment power and
also any shares, which the selling stockholders has the right to acquire within
60 days. The actual number of shares of common stock issuable upon the
conversion of the secured convertible notes is subject to adjustment. The
percentage of shares owned by each selling stockholder is based on a total
outstanding number of 41,615,513 as of June 5, 2006.
(5) Number of shares includes (i) shares of common stock issued to the selling
stockholders in consideration of their respective investment in the Company, and
(ii) shares issuable upon exercise of the warrants issued to the selling
stockholders.
The following is a description of the selling shareholders relationship to us
and how each the selling shareholder acquired the shares to be sold in this
offering:
30
On March 31, 2006, we entered into a Securities Purchase Agreement with certain
accredited investors for the issuance of an aggregate of $4,500,000 in face
amount of 15% Senior Secured Convertible Debentures (the "Debentures") maturing
March 31, 2010, and four year warrants (the "Warrants") to purchase an aggregate
of 7,200,000 shares of common stock of the Company. The Debentures accrue
interest at a rate of 15% per annum . The Debentures are convertible into shares
of the Company's common stock at a price equal to $0.25 per share. The Company
is obligated to pay 1/24th of the face amount of the Debenture on the first of
every month, starting March 31, 2008, which payment can be made in cash or in
common stock of the Company. The Company may pay this amortization payment in
cash or in stock at the lower of $0.25 per share (the "Set Price") or 80% of the
volume weighted average price of the Company's stock for the twenty trading days
prior to the repayment date. The Company's obligation to repay Debentures is
secured by all of its assets, and the assets of its wholly owned subsidiary,
Trinity Workplace Learning Corporation (the "Subsidiary"), pursuant to a certain
Security Agreement which the Company and the Subsidiary entered into with the
investors on March 31, 2006. In addition, the Company's Subsidiary entered into
a Subsidiary Guarantee with the investors on March 31, 2006 pursuant to which
the Subsidiary agreed to guarantee the Company's repayment of the Debentures to
the investors.
In the event of default, the investors may require payment, which shall be the
greater of: (A) 130% of the principal amount of the Debenture to be prepaid,
plus all accrued and unpaid interest thereon, or (B) the principal amount of the
Debenture to be prepaid, divided by the conversion price on (x) the date the
default amount is demanded or otherwise due or (y) the date the default amount
is paid in full, whichever is less, multiplied by the volume weighted average
price on (x) the date the default amount is demanded or otherwise due or (y) the
date the default amount is paid in full, whichever is greater.
The Warrants are exercisable into shares of the Company's common stock at a
price equal 120% of closing bid price of the Company's common stock on the day
that is one day prior to the initial closing date. If at any time after one year
from the date of issuance of the Warrant, there is no effective registration
statement registering the resale of the shares underlying the Warrant, then the
Warrant may be exercised at such time by means of a cashless basis. The number
of shares underlying the warrants equals 40% of the shares of common stock
issuable on full conversion of the Debentures at the Set Price (as if the
Debentures were so converted on March 31, 2006).
The investors have agreed to restrict their ability to convert their
debentures or exercise their warrants and receive shares of our common stock
such that the number of shares of common stock held by them in the aggregate and
their affiliates after such conversion of the Debentures does not exceed 4.99%
or exercise of the Warrants does not exceed 9.99% of the then issued and
outstanding shares of common stock. Furthermore, the investors may exercise
the Warrants on a cashless basis if the shares underlying the Warrants are not
then registered. In the event of a cashless exercise, we will not receive any
proceeds.
On March 2, 2006, Jack Rutherford loaned to us an amount of $100,000 which is
convertible pursuant to the terms of the loan into 625,000 shares of Common
Stock. In addition we issued 625,000 warrants exercisable at $0.20 per share to
Mr. Rutherford in consideration of the loan made. We further sold 250,000
warrants exercisable at $0.15 per share to Mr. Rutherford in consideration for
his investment in the amount of $100,000 in us on March 2, 2006.
On March 3, 2006, we sold to William T. Merrill 156,250 restricted shares of
Common Stock in consideration of $25,000. In addition we issued to Mr. Merrill
156,250 warrants exercisable at $0.20 per share which expire on March 3, 2008.
On March 3, 2006, we sold to David Spada 156,250 restricted shares of Common
Stock in consideration of $25,000. In addition we issued to Mr. Spada 156,250
warrants exercisable at $0.20 per share which expire on March 3, 2008.
DESCRIPTION OF SECURITIES
The following description of our capital stock and provisions of our articles of
incorporation and bylaws, each as amended, is only a summary. You should also
refer to the copies of our articles of incorporation and bylaws which are
included as exhibits to our Quarterly Report on 10-QSB filed on May 20, 2003 and
Quarterly report on Form 10-QSB filed on August 21, 2005, respectively. Our
authorized capital stock consists of 100,000,000 shares of common stock, no par
value per share, and 10,000,000 shares of preferred stock, no par value per
share. As of June 5, 2006, there were 41,615,513 shares of common stock issued
and outstanding and no shares of preferred stock issued and outstanding.
COMMON STOCK
We are authorized to issue 100,000,000 shares of common stock of which as of
June 5, 2006, 41,615,513 shares are issued and outstanding. Holders of our
common stock are entitled to one vote for each share held on all matters
submitted to a vote of our stockholders. Holders of our common stock are
entitled to receive dividends ratably, if any, as may be declared by the board
of directors out of legally available funds, subject to any preferential
dividend rights of any outstanding preferred stock. Upon our liquidation,
dissolution or winding up, the holders of our common stock are entitled to
receive ratably our net assets available after the payment of all debts and
other liabilities and subject to the prior rights of any outstanding preferred
stock. Holders of our common stock have no preemptive, subscription, redemption
or conversion rights. The outstanding shares of common stock are fully paid and
nonassessable. The rights, preferences and privileges of holders of our common
stock are subject to, and may be adversely affected by, the rights of holders of
shares of any series of preferred stock which we may designate and issue in the
future without further stockholder approval.
31
PREFERRED STOCK
Our board of directors is authorized without further stockholder approval, to
issue from time to time up to a total of 10,000,000 shares of preferred stock in
one or more series and to fix or alter the designations, preferences, rights and
any qualifications, limitations or restrictions of the shares of each series,
including the dividend rights, dividend rates, conversion rights, voting rights,
term of redemption, redemption price or prices, liquidation preferences and the
number of shares constituting any series or designations of these series without
further vote or action by the stockholders. The issuance of preferred stock may
have the effect of delaying, deferring or preventing a change in control of our
management without further action by the stockholders and may adversely affect
the voting and other rights of the holders of common stock. The issuance of
preferred stock with voting and conversion rights may adversely affect the
voting power of the holders of common stock, including the loss of voting
control to others. Currently, there are no shares of preferred stock outstanding
and we have no present plans to issue any shares of preferred stock.
WARRANTS
Through June 5, 2006, 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:
As of June 5, 2006, we had the following warrants outstanding:
Warrants to acquire 250,000 shares that expire on March 2, 2008, and that are
currently exercisable at $0.15 per share.
Warrants to acquire 750,000 shares that are currently exercisable at $0.20 per
share. Of these warrants, 500,000 expire on March 2, 2008, 125,000 expire on
March 3, 2008 and 125,000 expire on March 4, 2008.
Warrants to acquire 15,887,677 shares that are currently exercisable at $0.25
per share. Of these warrants, 2,938,000 expire on September 30, 2007, 7,708,600
expire on October 31, 2007, 850,000 expire on November 25, 2007, 20,000 expire
on July 8, 2008, 200,050 expire on October 31, 2008, 1,476,027 expire on January
6, 2009, 1,146,000 expire on February 27, 1010 and 1,549,000 expire in May 27,
2010.
Warrants to acquire 3,391,362 shares that expire on July 13, 2010 and that are
currently exercisable at $0.26 per share.
Warrants to acquire 376,818 shares that expire on July 13, 2010 and that are
currently exercisable at $0.27 per share.
Warrants to acquire 75,000 shares that are currently exercisable at $0.30 per
share. Of these warrants, 50,000 expire on March 13, 2008, and 25,000 expire on
March 21, 2008.
Warrants to acquire 1,600,000 shares that expire on August 31, 2009 and that are
currently exercisable at $0.81 per share.
Warrants to acquire 5,873,300 shares that are currently exercisable at $1.00 per
share. Of these warrants, 425,000 expire in November 25, 2007, 125,000 expire in
July 28, 2009, 3,854,300 expire on October 31, 2010, and 1,469,000 expire in
September 30, 2010.
Warrants to acquire 312,500 shares that are exercisable at $0.20 per share and
which expire on March 3, 2008.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is Standard Registrar &
Transfer, 12528 So. 1840 East, Draper, Utah 84020.
PLAN OF DISTRIBUTION
The selling stockholders, or their pledgees, donees, transferees, or any of
their successors in interest selling shares received from the named selling
stockholders as a gift, partnership distribution or other non-sale-related
transfer after the date of this prospectus (all of whom may be a selling
stockholder) may sell the common stock offered by this prospectus from time to
time on any stock exchange or automated interdealer quotation system on which
the common stock is listed or quoted at the time of sale, in the
over-the-counter market, in privately negotiated transactions or otherwise, at
fixed prices that may be changed, at market prices prevailing at the time of
sale, at prices related to prevailing market prices or at prices otherwise
negotiated. The selling stockholders may sell the common stock by one or more of
the following methods, without limitation:
32
o Block trades in which the broker or dealer so engaged will attempt to sell the
common stock as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
o An exchange distribution in accordance with the rules of any stock exchange on
which the common stock is listed;
o Ordinary brokerage transactions and transactions in which the broker solicits
purchases;
o Privately negotiated transactions;
o In connection with short sales of company shares;
o Through the distribution of common stock by any selling stockholder to its
partners, members or stockholders;
o By pledge to secure debts of other obligations;
o In connection with the writing of non-traded and exchange-traded call options,
in hedge transactions and in settlement of other transactions in standardized or
over-the-counter options;
o Purchases by a broker-dealer as principal and resale by the broker-dealer for
its account; or
o In a combination of any of the above.
These transactions may include crosses, which are transactions in which the same
broker acts as an agent on both sides of the trade. The selling stockholders may
also transfer the common stock by gift. We do not know of any arrangements by
the selling stockholders for the sale of any of the common stock.
The selling stockholders may engage brokers and dealers, and any brokers or
dealers may arrange for other brokers or dealers to participate in effecting
sales of the common stock. These brokers or dealers may act as principals, or as
an agent of a selling stockholder. Broker-dealers may agree with a selling
stockholder to sell a specified number of the stocks at a stipulated price per
share. If the broker-dealer is unable to sell common stock acting as agent for a
selling stockholder, it may purchase as principal any unsold shares at the
stipulated price. Broker-dealers who acquire common stock as principals may
thereafter resell the shares from time to time in transactions in any stock
exchange or automated interdealer quotation system on which the common stock is
then listed, at prices and on terms then prevailing at the time of sale, at
prices related to the then-current market price or in negotiated transactions.
Broker-dealers may use block transactions and sales to and through
broker-dealers, including transactions of the nature described above. The
selling stockholders may also sell the common stock in accordance with Rule 144
or Rule 144A under the Securities Act, rather than pursuant to this prospectus.
In order to comply with the securities laws of some states, if applicable, the
shares of common stock may be sold in these jurisdictions only through
registered or licensed brokers or dealers.
From time to time, one or more of the selling stockholders may pledge,
hypothecate or grant a security interest in some or all of the shares owned by
them. The pledgees, secured parties or person to whom the shares have been
hypothecated will, upon foreclosure in the event of default, be deemed to be
selling stockholders. The number of a selling stockholder's shares offered under
this prospectus will decrease as and when it takes such actions. The plan of
distribution for that selling stockholder's shares will otherwise remain
unchanged. In addition, a selling stockholder may, from time to time, sell the
shares short, and, in those instances, this prospectus may be delivered in
connection with the short sales and the shares offered under this prospectus may
be used to cover short sales.
To the extent required under the Securities Act, the aggregate amount of selling
stockholders' shares being offered and the terms of the offering, the names of
any agents, brokers, dealers or underwriters, any applicable commission and
other material facts with respect to a particular offer will be set forth in an
accompanying prospectus supplement or a post-effective amendment to the
registration statement of which this prospectus is a part, as appropriate. Any
underwriters, dealers, brokers or agents participating in the distribution of
the common stock may receive compensation in the form of underwriting discounts,
concessions, commissions or fees from a selling stockholder and/or purchasers of
selling stockholders' shares, for whom they may act (which compensation as to a
particular broker-dealer might be less than or in excess of customary
commissions). Neither we nor any selling stockholder can presently estimate the
amount of any such compensation.
33
The selling stockholders and any underwriters, brokers, dealers or agents that
participate in the distribution of the common stock will be deemed to be
"underwriters" within the meaning of the Securities Act, and any discounts,
concessions, commissions or fees received by them and any profit on the resale
of the securities sold by them may be deemed to be underwriting discounts and
commissions. If a selling stockholder is deemed to be an underwriter, the
selling stockholder may be subject to certain statutory liabilities including,
but not limited to Sections 11, 12 and 17 of the Securities Act and Rule 10b-5
under the Exchange Act. Selling stockholders who are deemed underwriters within
the meaning of the Securities Act will be subject to the prospectus delivery
requirements of the Securities Act. The SEC staff is of a view that selling
stockholders who are registered broker-dealers are deemed to be underwriters
under the Securities Act while affiliates of registered broker-dealers may be
underwriters under the Securities Act. We will not pay any compensation or give
any discounts or commissions to any underwriter in connection with the
securities being offered by this prospectus.
A selling stockholder may enter into hedging transactions with broker-dealers
and the broker-dealers may engage in short sales of the common stock in the
course of hedging the positions they assume with that selling stockholder,
including, without limitation, in connection with distributions of the common
stock by those broker-dealers. A selling stockholder may enter into option or
other transactions with broker-dealers, who may then resell or otherwise
transfer those common stock. A selling stockholder may also loan or pledge the
common stock offered hereby to a broker-dealer and the broker-dealer may sell
the common stock offered by this prospectus so loaned or upon a default may sell
or otherwise transfer the pledged common stock offered by this prospectus.
The selling stockholders and other persons participating in the sale or
distribution of the common stock will be subject to applicable provisions of the
Exchange Act, and the rules and regulations under the Exchange Act, including
Regulation M. This regulation may limit the timing of purchases and sales of any
of the common stock by the selling stockholders and any other person. The
anti-manipulation rules under the Exchange Act may apply to sales of common
stock in the market and to the activities of the selling stockholders and their
affiliates. Regulation M may restrict the ability of any person engaged in the
distribution of the common stock to engage in market-making activities with
respect to the particular common stock being distributed for a period of up to
five business days before the distribution. These restrictions may affect the
marketability of the common stock and the ability of any person or entity to
engage in market-making activities with respect to the common stock.
We have agreed to indemnify the selling stockholder and any brokers, dealers and
agents who may be deemed to be underwriters, if any, of the common stock offered
by this prospectus, against specified liabilities, including liabilities under
the Securities Act. The selling stockholder has agreed to indemnify us against
specified liabilities.
The issued and outstanding common stock, as well as the common stock to be
issued offered by this prospectus was originally, or will be, issued to the
selling stockholders pursuant to an exemption from the registration requirements
of the Securities Act, as amended. We agreed to register the common stock issued
or to be issued to the selling stockholders under the Securities Act, and to
keep the registration statement of which this prospectus is a part effective
until all of the securities registered under this registration statement have
been sold. We have agreed to pay all expenses incident to the registration of
the common stock held by the selling stockholders in connection with this
offering, but all selling expenses related to the securities registered shall be
borne by the individual holders of such securities pro rata on the basis of the
number of shares of securities so registered on their behalf.
We cannot assure you that the selling stockholders will sell all or any portion
of the common stock offered by this prospectus. In addition, we cannot assure
you that a selling stockholder will not transfer the shares of our common stock
by other means not described in this prospectus.
LEGAL MATTERS
The validity of the common stock has been passed upon by Sichenzia Ross Friedman
Ference LLP.
EXPERTS
The Company's balance sheets as of June 30, 2005, and the related statements of
operations, stockholders' equity, and cash flows for the years then ended
included in this Prospectus have been audited by Chisholm, Bierwolf & Nilson,
LLC, respectively, Certified Public Accountants, as set forth in their report
appearing elsewhere herein and are included in reliance upon such report given
upon the authority of said firm as experts in auditing and accounting.
The Company's statements of operations, stockholders' equity, and cash flows for
the year ended June 30, 2004 included in this Prospectus have been audited by
BDO Seidman, LLP, Independent Registered Public Accounting Firm, as set forth in
their report appearing elsewhere herein and included in reliance upon such
report given upon the authority of said firm as experts in auditing and
accounting.
34
WHERE YOU CAN FIND MORE INFORMATION
Trinity Learning Corporation is subject to the informational requirements of the
Securities Exchange Act of 1934, and in accordance therewith files reports,
proxy or information statements and other information with the Securities and
Exchange Commission. Such reports, proxy statements, other information and a
copy of the registration statement and the exhibits and schedules that were
filed with the registration statement may be inspected without charge at the
public reference facilities maintained by the SEC in 100 F Street, N.E.,
Washington, D.C. 20549, and at the SEC's regional offices at 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661, Woolworth Building, 233 Broadway
New York, New York Statements made in this prospectus regarding the contents of
any contract, agreement or other document that is filed as an exhibit to the
registration statement are not necessarily complete, and we refer you to the
full text of the contract or other document filed as an exhibit to the
registration statementCopies of all or any part of the registration statement
may be obtained from the SEC upon payment of the prescribed fee. Information
regarding the operation of the public reference rooms may be obtained by calling
the SEC at 1-800-SEC-0330. The SEC maintains a web site that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the SEC. The address of the site is
http://www.sec.gov.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
Our Articles of Incorporation, as amended, provide to the fullest extent
permitted by Utah law, our directors or officers shall not be personally liable
to us or our shareholders for damages for breach of such director's or officer's
fiduciary duty. The effect of this provision of our Articles of Incorporation,
as amended, is to eliminate our rights and our shareholders (through
shareholders' derivative suits on behalf of our company) to recover damages
against a director or officer for breach of the fiduciary duty of care as a
director or officer (including breaches resulting from negligent or grossly
negligent behavior), except under certain situations defined by statute. We
believe that the indemnification provisions in our Articles of Incorporation, as
amended, are necessary to attract and retain qualified persons as directors and
officers.
Section 16-10a-841 of the Utah Revised Business Corporation Act provides that a
corporation may indemnify a director, officer, employee or agent made a party to
an action by reason of that fact that he or she was a director, officer employee
or agent of the corporation or was serving at the request of the corporation
against expenses actually and reasonably incurred by him or her in connection
with such action if he or she acted in good faith and in a manner he or she
reasonably believed to be in, or not opposed to, the best interests of the
corporation and with respect to any criminal action, had no reasonable cause to
believe his or her conduct was unlawful.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
35
TRINITY LEARNING CORPORATION
INDEX TO FINANCIAL STATEMENTS
June 30, 2005
Report of Independent Registered Public Accounting Firm (2005) F-1
Report of Independent Registered Public Accounting Firm (2004) F-2
Financial Statements:
Balance Sheet as F-3
Statement of Operations F-4
Statement of Stockholders' Equity F-5 to F-7
Statement of Cash Flows F-8
Notes to Financial Statements F-9 to F-29
March 31, 2006
Condensed Balance Sheet as of March 31, 2006 (Unaudited)
and as of June 30, 2005 (Audited) F-30
Consolidated Statement of Operations for the Three Months
Ended March 31, 2006 and 2005 (Unaudited), and for the
Nine Months Ended March 31, 2006 and 2005 (Unaudited) F-31
Consolidated Statements of Cash Flows for the nine months ended
March 31, 2006 and 2005 (Unaudited) F-32
Notes to Condensed (Unaudited) Financial Statements F-33 to F-35
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, and the results of their operations and their cash flows
of Trinity Learning Corporation for the year ended June 30, 2005, 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
F-1
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, and the results of its operations and its cash
flows of Trinity Learning Corporation for the year ended June 30, 2004, 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 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.
/s/ BDO Spencer Steward
Pretoria, South Africa
November 22, 2004
F-2
TRINITY LEARNING CORPORATION AND SUBSIDIARIES
BALANCE SHEET
As of June 30, 2005
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.
F-3
TRINITY LEARNING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
For the Fiscal Year Ended June 30, 2005 and June 30, 2004
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
F-4
TRINITY LEARNING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Deficit)
For the Fiscal Year Ended June 30, 2005 and June 30, 2004
Shares of Accumulated Subscription Deferred Financial Other Comprehensive
Common Stock Common Stock Deficit Receivable Advisory Fees Gain (Loss) Total
Balance at June 30, 2003 $ 14,956,641 $ 9,693,447 $(11,188,913) $ (35,000) $ - $ (470) $(1,530,936)
Shares Issued for TouchVision
and RMT Acquisitions at $0.50
per Share 1,950,000 975,000 - - - - 975,000
Shares Issued for Cash at $0.50
per Share 9,946,600 4,973,300 - - - - 4,973,300
Shares Issued for Conversion
of Note Yapable to a Related
Party at $0.50 per Share 850,000 425,000 - - - - 425,000
Shares Rescinded in CBL
Divestiture (3,000,000) 461,063 - - - - 461,063
Cancellation of Subscription
Receivable - - - 35,000 - - 35,000
Shares Issued for Conversion
of Note and Interest Payable
at Weighted Average Price
of $1.11 per Share 4,520,069 5,034,044 - - - - 5,034,044
Value Attributed to Stock
Purchase Warrants - 1,245,580 - - - - 1,245,580
Exercise of Warrants and
Stock Options 858,952 36,646 - - - - 36,646
Shares Issued for Services 957,881 728,941 - - - - 728,941
Employee Stock Based
Compensation 526,491 - - - - - 526,491
Foreign Currency Translation - - - - - 3,009 3,009
Cost of Share Issuance - (1,066,555) - - - - (1,006,555)
Net Loss Year Ended June 30, 2004 - - (11,462,063) - - - (11,462,063)
Balance at June 30, 2004 31,040,143 23,092,957 (22,650,976) - - 2,539 444,520
---------- ----------- ------------ ------- -------- ------- ------------
The accompanying notes are an integral part of these financial statements.
F-5
TRINITY LEARNING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Deficit)
For the Fiscal Year Ended June 30, 2005 and June 30, 2004
Shares of Accumulated Subscription Deferred Financial Other Comprehensive
Common Stock Common Stock Deficit Receivable Advisory Fees Gain (Loss) Total
Balance at June 20, 2004 $31,040,143 $ 23,092,957 $ - $ - $ - $ 2,539 $ 444,520
Exercise of Warrants at $0.50
per Share 300,000 15,000 - - - - 15,000
Exercise of Warrants at $0.05
per Share 62,500 3,125 - - - - 3,125
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 - - - - 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 22,000 - - - - 22,500
Shares Issued for Services at
$0.45 per Share 127,419 57,339 - - - - 57,339
Shares Issued for Conversion
of Note at Interest Payable
at $0.73 per Share 1,201,762 877,279 - - - - 877,279
Shares Issued for Conversion
of Note and Interest Payable
at $0.73 per share 181,964 132,833 - - - - 132,833
Shares Issued for Conversion
of Note and Interest Payable
at $0.73 per Share 69,828 50,974 - - - - 50,974
Employee Stock Based
Compensation - 752,063 - - - - 752,063
Shares Issued for Services
at $0.25 per Share 150,000 37,500 - - - - 37,500
Shares Issued for Services
at Current Market Price of
$0.16 per Share 4,000,000 640,000 - - - - 640,000
Shares Issued for Conversion
of Note and Interest Payable
at $0.73 per Share 56,173 41,006 - - - - 41,006
Value Attributed to Discount
on Convertible Note - 2,506,027 - - - - 2,506,027
Value Attributed to Stock
Purchase Warrants - 3,393,224 - - - - 3,393,224
Amortization of Deferred
Financial Advisory Fees - - - - 232,920 - 232,920
Foreign Currency Translation - - - - - 8,279 8,279
Net Loss Year Ended
June 20, 2005 - - (15,615,042) - - - (15,615,042)
Balance at Jun 30, 2005 37,719,889 32,000,792 (38,266,018) - (142,920) 10,818 (6,397,328)
----------- ----------- ------------ ------- --------- ------- ------------
The accompanying notes are an integral part of these financial statements.
F-6
TRINITY LEARNING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Fiscal Year Ended June 30, 2005 and June 30, 2004
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)
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
F-7
TRINITY LEARNING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Fiscal Year Ended 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.
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
F-8
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.
- 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.
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.
F-9
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 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.
F-10
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.
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:
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)
================= =================
F-11
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) 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 consolidated 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.
F-12
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.
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.
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
F-13
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, in the 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.
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.
F-14
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:
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:
F-15
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.
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
F-16
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.
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.
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 July 1, 2003 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.
F-17
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 July 1, 2003. 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)
============= =============
F-18
NOTE 3 INVENTORIES
Inventories consist 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)
============ ============ ============
F-19
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.
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.
F-20
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.
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:
F-21
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
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
=============
F-22
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
=========== =========== =========== ===========
F-23
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.
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
F-24
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.
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. 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.
F-25
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 SEGMENTS 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. 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)
============ ============ ============ ============
As of and for the fiscal year ended June 30, 2004:
Investment
Depreciation Losses in
Operating & Associated Accounts
Revenue Loss Amortization Companies Receivable
------------ ------------ ------------ ------------ ------------
United States $ 1,113,463 $(4,680,565) $ 221,883 $ - $ 140,560
Europe 669,160 (19,866) 19,616 - 45,116
Australia 807,468 (375,529) 37,861 - 57,488
South Africa - (89,736) - (2,714,985) -
------------ ------------ ------------ ------------ ------------
Total $ 2,590,091 $(5,075,960) $ 279,360 $(2,714,985) 243,164
============ ============ ============ ============ ============
Property Total Net
Goodwill & Equipment Assets Assets
------------ ------------ ------------ ------------
United States $ 910,000 $ 3,517 $ 3,997,388 $ 320,538
Europe 563,009 - 1,701,409 117,409
Australia 376,517 33,643 554,343 6,729
South Africa - - - -
------------ ------------ ------------ ------------
Total 1,849,526 $ 37,160 $ 6,253,140 $ 444,520
============ ============ ============ ============
F-26
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.
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.
F-27
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.
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
F-28
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 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.
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.
F-29
TRINITY LEARNING CORPORATION AND SUBSIDIARIES
BALANCE SHEET
As of March 31, 2006 (Unaudited) and June 30, 2005 (Audited)
March 31, June 30,
2006 2005
--------------------------
(Unaudited) (Audited)
Assets
Current Assets
Cash and Cash Equivalents $ 1,250,652 $ 752,261
Accounts Receivable 4,617,595 3,540,415
Inventory 1,460,141 1,632,750
Prepaid Expense and Other Current Assets 189,900 1,160,272
--------------------------
Total Current Assets 7,518,288 7,085,698
Property & Equipment, net 5,355,748 5,876,999
Program Inventory, net 3,313,319 5,133,334
Restricted Cash - 5,091,670
Other Assets, net - 197,888
--------------------------
Total Assets $16,187,355 $23,385,589
============ ============
Liabilities and Stockholders' Equity
Current Liabilities
Accounts Payable $5,937,697 $3,134,406
Accrued Expenses 3,557,466 1,625,901
Interest Payable - 23,379
Deferred Revenue 4,687,366 4,042,842
Capital Lease-Current 1,177,817 1,115,666
Notes Payable Current 113,538 663,446
Notes Payable - Related Parties 363,333 1,023,087
--------------------------
Total Current Liabilities 15,837,217 11,628,727
--------------------------
Obligations under Capital Leases 12,351,625 13,242,920
Notes Payable 4,739,529 1,586,655
Notes Payable Related Parties 20,000 20,000
Equity Investment in Associated Company - 500,000
Other Long-Term Liabilities 815,000 7,554
--------------------------
Long Term Liabilities 17,926,154 15,357,129
--------------------------
Total Liabilities 33,763,371 26,985,856
--------------------------
Minority Interest 0 287,061
--------------------------
Contingently Redeemable Equity 800,000 2,510,000
--------------------------
Stockholders' (Deficit) Equity
Preferred Stock, 10,000,000 Shares
Authorized at No Par Value, No Shares
Issued and Outstanding - -
Common Stock, 100,000,000 Shares
Authorized at No Par Value, 41,615,513
and 37,719,889 shares Issued and
Outstanding in March, 2006 and June
2005, Respectively 34,189,891 32,000,792
Accumulated Deficit (52,545,179) (38,266,018)
Deferred Financial Advisor Fees - (142,920)
Other Comprehensive Gain (Loss) (20,728) 10,818
--------------------------
Total Stockholders' Equity (18,376,016) (6,397,328)
--------------------------
Total Liabilities and Stockholders' Equity $16,187,355 $23,385,589
============ ============
See accompanying notes to the consolidated financial statements.
F-30
TRINITY LEARNING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 2006 and 2005 (Unaudited), and
For Nine Months Ended March 31, 2006 and 2005 (Unaudited)
For Three Months Ended For Nine Months Ended
March 31 March 31
2006 2005 2006 2005
(Unaudited) (Unaudited)
-------------- -------------- ------------- -------------
Revenue
Sales Revenue $ 6,147,414 $ 518,095 $20,171,919 $ 2,328,592
Cost of Sales (1,746,910) (62,228) (4,482,252) (280,563)
-------------- -------------- ------------- -------------
Gross Profit 4,400,504 455,867 15,689,667 2,048,029
-------------- -------------- ------------- -------------
Expense
Salaries & Benefits 4,458,007 754,393 14,341,418 2,611,262
Professional Fees 1,007,449 380,368 2,099,264 779,311
Professional Fees
Related Parties - - - -
Selling, General &
Administrative 5,161,524 1,404,012 10,665,928 2,442,845
Depreciation &
Amortization 174,577 24,520 487,059 105,871
-------------- -------------- ------------- -------------
Total Expenses 10,801,557 2,563,293 27,593,669 5,939,289
Loss from Operations (6,401,053) (2,107,426) (11,904,002) (3,891,260)
-------------- -------------- ------------- -------------
Other Expense
Interest, net (475,678) (480,335) (2,775,432) (992,023)
Equity Losses and
Impairment of
Investment in
Associated Companies - (538,291) - (1,837,719)
Debt Conversion - (22,834) (1,614,064) (183,206)
Gain (Loss) on Sale
of Assets - - 1,000 -
Gain due to
non-conversion of
contingently
redeemable stock 2,210,000 - 2,210,000 -
Foreign Currency
Loss - (65) (184) (2,281)
-------------- -------------- ------------- -------------
Total Other Income
and Expense 1,734,323 (1,041,525) (2,178,679) (3,015,229)
-------------- -------------- ------------- -------------
Loss From Continuing
Operations Before Taxes (4,666,730) (3,148,951) (14,082,682) (6,906,500)
Income Taxes - - - -
-------------- -------------- ------------- -------------
Total Income Tax Expense - - - -
-------------- -------------- ------------- -------------
Loss from Continuing
Operations $ (4,666,730) $ (3,148,951) $(14,082,682) $ (6,906,500)
============== ============== ============= =============
Discontinued Operations
Gain (Loss) on
Discontinued Operations - 44,935 (196,479) 2,318
Total Gain (Loss)on
Discontinued Operations - 44,935 (196,479) 2,318
Net Loss (4,66,732) (3,104,016) (14,279,161) (6,904,182)
============== ============== ============== ============
Net(Income)Loss Per Common
Share - Basic and Dilutive
Net (Income)Loss from
Continuing Operations $ (0.11) $ (0.10) $ (0.36) $ (0.22)
============== ============== ============= =============
Gain (Loss) from
Discontinued
Operations $ - $ - $ - $ -
============== ============== ============== ============
Net (Earnings) Loss
Per Share $ (0.11) $ (0.10) $ (0.36) $ (0.22)
============== ============== ============== ==============
Weighted Average
Shares Outstanding 40,607,388 32,372,341 39,454,326 31,386,772
============== ============== ============= =============
A summary of the components of other comprehensive loss for the three and nine months
ended March 31, 2006 and 2005 follows:
For Three Months Ended For Nine Months Ended
March 31 March 31
2006 2005 2006 2005
(Unaudited) (Unaudited)
-------------- -------------- ------------- -------------
Net Loss $ (4,666,732) $ (3,104,016) $(14,279,161) $ (6,904,182)
Foreign Currency
Translation Gain/(Loss) 2,652 5,591 (31,547) 23,272
-------------- -------------- ------------- -------------
Comprehensive Loss (4,664,080) (3,098,425) (14,310,708) (6,880,910)
============== ============== ============= ==============
See accompanying notes to the consolidated financial statements.
F-31
TRINITY LEARNING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended March 31, 2006 and 2005
Nine Months Ended March 31,
2006 2005
(Unaudited)
------------ ------------
Cash flows from operating activities:
Net loss $(14,279,160) $(6,904,182)
Less Gain (Loss) from Discounted Operations (196,479) 2,318
------------- -----------
Net Loss from Continuing Operations (14,082,681) (6,906,500)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization 487,059 105,871
Bad debt expense 465,800 1,000,000
Gain due to non-conversion of contingently
redeemable stock (2,210,000) -
Foreign currency translation gain/loss 184 -
Non cash debt issuance - 53,277
Non cash interest expense 61,881 1,097,771
Equity losses of associated companies - 1,837,719
Employee stock based compensation 800,000 241,983
Non cash financial advisory fees 594,470 75,000
Debt conversion expenses 3,882,047
Program inventory 1,820,015 -
Changes in current assets and liabilities,
net of businesses acquired and sold:
Accounts receivable (1,077,180) (19,830)
Prepaid expenses and other current assets 970,373 58,523
Accounts payable and accrued expenses 5,054,967 (60,686)
Accounts payable-related party - (77,988)
Inventory 172,609 -
Accrued expenses - (62,720)
Deferred revenue 644,524 76,992
Interest payable (23,379) 2,255
Minority interest - -
------------ ------------
Net cash provided (used) by operating
activities (2,439,311) (2,515,613)
------------ ------------
Cash flows from investing activities:
Payment for business acquisitions - (7,314)
Payment for business acquisitions -
related party - (4,815)
Restricted cash 5,091,670 (4,491,000)
Advances to associated companies - -
Capital expenditures (1,295) (16,611)
------------ ------------
Net cash provided (used) by investing
activities 5,090,375 (4,519,740)
------------ ------------
Cash flows from financing activities:
Repayment for capital leases (829,144) -
Borrowings under notes 100,000 -
Borrowings under notes related party - -
Repayments under borrowings (5,323,529) -
Repayments under short-term notes - (544,118)
Repayments under short-term notes
related party (750,000) (155,000)
Borrowing under notes and contingent liability - 7,672,500
Borrowings under long-term liabilities 4,500,000 -
Payments for financing fees - (259,000)
Other financing activities 150,000 106,415
Proceeds from sale of common stock - 21,250
------------ ------------
Net cash provided (used) by financing
activities (2,152,673) 6,842,047
------------ ------------
Effect of foreign exchange on cash - (23,272)
Net cash provided by (used in)
continuing operations 498,391 (193,306)
Net cash provided by (used in)
Discontinued operations - -
------------ -----------
Net increase (decrease) in cash 498,391 (216,578)
------------ ------------
Cash at beginning of period 752,261 892,739
------------ ------------
Cash at end of period $ 1,250,652 $ 676,161
============ ============
Nine Months Ended March 31,
2006 2005
(Unaudited)
------------ ------------
Supplemental information:
Interest paid $ 1,310,676 $ 71,119
Warrants issued with convertible notes $ - $ 2,863,363
Beneficial conversion value of note payable $ - $ 2,070,784
See accompanying notes to the consolidated financial statements.
F-32
TRINITY LEARNING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Nine Months Ended March 31, 2006
GENERAL
Trinity Learning has elected to omit substantially all footnotes to the
consolidated financial statements for the three and nine months ended March 31,
2006 since there have been no material changes (other than indicated in other
footnotes) to the information previously reported by the Company in their Annual
Report filed on Form 10-KSB for the fiscal year ended June 30, 2005.
UNAUDITED INFORMATION
The information furnished herein was taken from the books and records of the
Company without audit. However, in the opinion of management, the accompanying
unaudited interim consolidated financial statements reflect all adjustments that
are necessary for a fair presentation of the financial position, results of
operations and cash flows for the interim periods presented.
NOTE 1. ACCOUNTING POLICIES
OVERVIEW
Trinity Learning is creating a global learning company by acquiring operating
subsidiaries that specialize in educational and training content, delivery, and
services for particular industries or that target a particular segment of the
workforce. Trinity Learning believes that there are product and service
synergies between and among our various subsidiaries that position us to create
a global learning company that can provide integrated learning services to
corporations, organizations, educational institutions, and individual learners,
using a variety of delivery technologies, platforms and methods to meet the
growing need for global learning solutions. Trinity Learning believes that it
will be one of the first companies to be able to serve major multinational
employers at multiple levels of their organizations and assist these customers
to meet the challenges of a major turnover in the world's workforce over the
coming decade. Factors such as demographics, technology, and globalization will
require enterprises, organizations and governments around the world to invest in
human capital to remain competitive.
We operate through our primary operating subsidiary, Trinity Workplace Learning,
located in our 205,000 square foot digital multimedia production center in
Carrollton, Texas, in the greater Dallas metropolitan area. At this Global
Learning Center we create, distribute and archive rich media for workplace
learning and certification for approximately 7,000 corporate, institutional and
government customers in healthcare, industrial services, and public safety
including homeland security, first responders, and federal agencies. We
distribute content to our customers through a variety of learning media
including satellite, broadband, e-learning, CD-ROM, and DVDs. Our proprietary
brands include The Law Enforcement Training Network, HomelandOne, the Fire and
Emergency Training Network, and others. In our healthcare industry vertical we
participate in 17 distinct accreditations for medical-related continuing
professional education and certification. While our strategic focus is to grow
our assets and operations in North America, we continue to also explore
acquisition and alliance candidates in Western Europe and we continue to
maintain ownership positions in small operating subsidiaries in Australia,
Norway and California and we have an ongoing investment in a learning company in
South Africa.
The accompanying unaudited interim consolidated financial statements and related
notes have been prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial information and
with the instructions to Form 10-QSB and Item 310 of Regulation S-B.
Accordingly, they do not include all the information and footnotes required by
accounting principles generally accepted in the United States of America for
complete financial statements. These financial statements include the accounts
of Trinity and its consolidated subsidiaries. All significant intercompany
transactions and accounts have been eliminated in consolidation.
These unaudited interim consolidated financial statements should be read in
conjunction with the audited financial statements and related notes thereto
included in the Company's Annual Report on Form 10-KSB for the year ended June
30, 2005. The results of operations for the three and nine months ended March
31, 2006, are not necessarily indicative of the operating results for the full
year and future operating results may not be comparable to historical operating
results due to our April 1, 2005 acquisition of Primedia Workplace Learning.
In the opinion of management, the accompanying unaudited interim consolidated
financial statements reflect all normal recurring adjustments that are necessary
for a fair presentation of the financial position, results of operations and
cash flows for the interim periods presented.
F-33
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.
F-34
NOTE 2 GOING CONCERN
To meet our present and future liquidity requirements, we are continuing to seek
additional funding through private placements, conversion of outstanding loans
and payables into common stock, development of the business of our
newly-acquired businesses, collections on accounts receivable, and through
additional acquisitions that have sufficient cash flow to fund subsidiary
operations. There can be no assurance that we will be successful in obtaining
more debt and/or equity financing in the future or that our results of
operations will materially improve in either the short- or the long-term. Based
upon our cash balance at May 1, 2006 we will not be able to sustain operations
for more than two months without additional sources of financing. If we fail to
obtain such financing and improve our results of operations, we will be unable
to meet our obligations as they become due. That would raise substantial doubt
about our ability to continue as a going concern.
NOTE 3 DISCONTINUED OPERATIONS
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 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, direct, 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.
F-35
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.
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.
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.
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Our Articles of Incorporation, as amended, provide to the fullest extent
permitted by Utah law, our directors or officers shall not be personally liable
to us or our shareholders for damages for breach of such director's or officer's
fiduciary duty. The effect of this provision of our Articles of Incorporation,
as amended, is to eliminate our rights and our shareholders (through
shareholders' derivative suits on behalf of our company) to recover damages
against a director or officer for breach of the fiduciary duty of care as a
director or officer (including breaches resulting from negligent or grossly
negligent behavior), except under certain situations defined by statute. We
believe that the indemnification provisions in our Articles of Incorporation, as
amended, are necessary to attract and retain qualified persons as directors and
officers.
Section 16-10a-841 of the Utah Revised Business Corporation Act provides that a
corporation may indemnify a director, officer, employee or agent made a party to
an action by reason of that fact that he or she was a director, officer employee
or agent of the corporation or was serving at the request of the corporation
against expenses actually and reasonably incurred by him or her in connection
with such action if he or she acted in good faith and in a manner he or she
reasonably believed to be in, or not opposed to, the best interests of the
corporation and with respect to any criminal action, had no reasonable cause to
believe his or her conduct was unlawful.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth an estimate of the costs and expenses payable by
Trinity Learning Corporation in connection with the offering described in this
registration statement. All of the amounts shown are estimates except the
Securities and Exchange Commission registration fee:
Securities and Exchange Commission Registration Fee $260.90
Accounting Fees and Expenses $27,000*
Legal Fees and Expenses $40,000*
-------
Total $67,261*
=======
_______________
*ESTIMATED
ITEM 26. 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.
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.
On March 2, 2006, Jack Rutherford purchased 625,000 shares of Common Stock of
the Company at $0.16 per share or $100,000. In addition we issued 625,000
warrants exercisable at $0.20 per share to Mr. Rutherford in consideration of
the purchase. We further issued 250,000 warrants exercisable at $0.15 per share
to Mr. Rutherford in consideration for a loan made in the amount of $100,000 by
Mr. Rutherford to the Company on March 1, 2006. The issuance of these securities
was made in reliance on Section 4(2) of the Securities Act as a transaction not
involving any public offering. No advertising or general solicitation was
employed in offering the securities, and the issuance of the securities was made
to an existing shareholder of our company.
On March 3, 2006, William T. Merrill purchased 156,250 shares of Common Stock of
the Company at $0.16 per share or $25,000. In addition we issued 156,250
warrants exercisable at $0.20 per share to Mr. Merrill in consideration of the
purchase. 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.
On March 3, 2006, David Spada purchased 156,250 shares of Common Stock of the
Company at $0.16 per share or $25,000. In addition we issued 156,250 warrants
exercisable at $0.20 per share to Mr. Spada in consideration of the purchase.
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.
On March 2, 2006, Jack Rutherford loaned to the Company an amount of $100,000
which is convertible pursuant to the terms of the loan into 625,000 shares of
Common Stock. In addition we issued 625,000 warrants exercisable at $0.20 per
share to Mr. Rutherford in consideration of the loan made. We further issued
250,000 warrants exercisable at $0.15 per share to Mr. Rutherford in
consideration for the loan made in the amount of $100,000 by Mr. Rutherford to
the Company on March 1, 2006. The issuance of these securities was made in
reliance on Section 4(2) of the Securities Act as a transaction not involving
any public offering. No advertising or general solicitation was employed in
offering the securities, and the issuance of the securities was made to an
existing shareholder of our company.
On March 3, 2006, William T. Merrill loaned to the Company an amount of $25,000
which is convertible pursuant to the terms of the loan into 156,250 shares of
Common Stock. In addition we issued 156,250 warrants exercisable at $0.20 per
share to Mr. Merrill in consideration of the loan made. 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.
On March 3, 2006, David Spada loaned to the Company an amount of $25,000 which
is convertible pursuant to the terms of the loan into 156,250 shares of Common
Stock. In addition we issued 156,250 warrants exercisable at $0.20 per share to
Mr. Spada in consideration of the loan made. 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.
On March 31, 2006, we entered into a Securities Purchase Agreement with
certain accredited investors for the issuance of an aggregate of $4,500,000
in face amount of 15% Senior Secured Convertible Debentures (the "Debentures")
maturing March 31, 2010, and four year warrants (the "Warrants") to
purchase an aggregate of 7,200,000 shares of common stock of the Company. The
Debentures accrue interest at a rate of 15% per annum. The Company claims an
exemption from the registration requirements of the Act for the private
placement of these securities pursuant to Section 4(2) of the Act and/or
Regulation D promulgated thereunder since, among other things, the transaction
did not involve a public offering, the investors were accredited investors
and/or qualified institutional buyers, the investors had access to information
about the company and their investment, the investors took the securities for
investment and not resale, and the Company took appropriate measures to restrict
the transfer of the securities.
The Company has also agreed to issue Darrin M. Ocasio 1,800,000 shares of common
stock, as of March 31, 2006, in consideration of the assistance rendered by Mr.
Ocasio in the Company's fundraising efforts which resulted in the Company's sale
of Debentures pursuant to the Securities Purchase Agreement, dated March 31,
2006.
Exhibit
No. Description
------- ---------------------------------------------------------------
3(i) Articles of Restatement of the Articles of Incorporation of Trinity
Learning Corporation dated February 25, 2003. (4)
3(ii) Bylaws of Trinity Companies, Inc. (1)
5.1 Consent of Sichenzia Ross Friedman Ference LLP. *
10.1 Note and Warrant Purchase Agreement dated as of August 20, 2002 between
Trinity Companies and various purchasers. (2)
10.2 Form of Convertible Promissory Note issued pursuant to the Note and Warrant
Purchase Agreement dated as of August 20, 2002. (2)
10.3 Form of Warrant issued pursuant to the Note and Warrant Purchase Agreement
dated as of August 20, 2002. (2)
10.4 Securities Purchase Agreement date August 12, 2003 by and among Trinity
Learning Corporation and Barbara McPherson and Ildi Hayman. (3)
10.5 Escrow Agreement dated August 12, 2003 by and among Trinity Learning
Corporation, Barbara McPherson, Ildi Hayman and Heritage Bank of Commerce. (3)
10.6 Acquisition Agreement dated September 1, 2003 between Great Owl Limited, a
British Virgin Islands company, and Trinity Learning Corporation. (3)
10.7 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. (3)
10.8 Deed of Pledge dated September 1, 2003 by Trinity Learning Corporation to
Great Owl Limited, a British Virgin Islands company. (3)
10.9 Warranties of Seller under the Acquisition Agreement dated September 1,
2003 between Great Owl Limited, a British Virgin Islands company, and
Trinity Learning Corporation. (3)
10.10 Warranties of Purchaser under the Acquisition Agreement dated September 1,
2003 between Great Owl Limited, a British Virgin Islands company, and
Trinity Learning Corporation. (3)
10.11 Convertible Promissory Note dated September 1, 2003, issued by Trinity
Learning Corporation to Great Owl Limited, a British Virgin Islands
company. (3)
10.12 Acquisition Agreement dated December 1, 2003 between Musca Holding Limited,
Trinity Learning Corporation and Danlas Limited. (4)
10.13 Escrow Agreement dated December 1, 2003 by and among Musca Holding Limited,
Trinity Learning Corporation, and Reed Smith of London as escrow agent. (4)
10.14 Deed of Pledge dated December 1, 2003 by Trinity Learning Corporation, a
Utah corporation, to Musca Holding Limited, a British Virgin Islands
company. (4)
10.15 Warranties of Seller under the Acquisition Agreement dated December 1, 2003
between Musca Holding Limited, a British Virgin Islands company, and
Trinity Learning Corporation. (4)
10.16 Warranties of Purchaser under the Acquisition Agreement dated December 1,
2003 between Musca Holding Limited, a British Virgin Islands company, and
Trinity Learning Corporation. (4)
10.17 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.(4)
10.18 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.(4)
10.19 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.(4)
10.20 Acquisition Agreement dated March 1, 2004 by and among Trinity Learning
Corporation and the Shareholders. (5)
10.21 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. (5)
10.22 Convertible Promissory Note in the principal amount of $500,000.00 dated
March 1, 2004, issued by Trinity Learning Corporation to Inspire AS. (5)
10.23 Amended Agreement dated March 1, 2004 between Trinity Learning Corporation
and Titan Aviation Ltd. (6)
10.24 Form of Warrant (9)
10.25 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. (10)
10.26 SBI Agreement dated April 1, 2005 between SBI and the Company. (10) IRCA
Settlement Agreement.
10.27 Securities Purchase Agreement dated as of March 31, 2006 by and among
Trinity Learning Corporation and the investors. (11)
10.28 Form of 15% Senior Secured Convertible Debenture of Trinity Learning
Corporation. (11)
10.29 Form of Warrant of Trinity Learning Corporation. (11)
10.30 Registration Rights Agreement dated as of March 31, 2006 by and among
Trinity Learning Corporation and the investors. (11)
10.31 Security Agreement dated as of March 31, 2006 by and among Trinity Learning
Corporation, Trinity Workplace Learning Corporation and the investors. (11)
10.32 Subsidiary Guarantee dated as of March 31, 2006 by Trinity Workplace
Learning Corporation. (11)
10.33 Consulting Agreement entered into with CaganCo Incorporated, dated May 9, 2005.* #
16.1 Letter provided by Bierwolf, Nilson & Associates. (7)
16.2 Letter provided by Chisholm, Bierwolf & Nilson, LLC. (8)
21.1 Subsidiaries of Trinity Learning Corporation.(12)
23.1 Consent of Chisholm, Bierwolf & Nilson, LLC *
23.2 Consent of BDO Spencer Steward. *
* Exhibit 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 a current report on Form 8-K filed by the
registrant on September 16, 2003.
(4) Incorporated by reference from a current report on Form 8-K filed by the
registrant on December 17, 2003.
(5) Incorporated by reference from a current report on Form 8-K filed by the
registrant on March 2, 2004.
(6) Incorporated by reference from the quarterly report on Form 10-QSB filed by
the registrant on May 17, 2004.
(7) Incorporated by reference from the current report on Form 8-K filed by the
registrant on February 24, 2004.
(8) Incorporated by reference from the current report on Form 8-K/A filed by
the registrant on July 26, 2004.
(9) Incorporated by reference from the current report on Form 8-K filed by the
registrant on July 15, 2005.
(10) Incorporated by reference from the current report on Form 8-K filed by the
registrant on April 7, 2005.
(11) Incorporated by reference from the current report on Form 8-K filed by the
registrant on April 3, 2006.
(12) Incorporated by reference from the annual report on Form 10-KSB filed by
the registrant on November 21, 2005.
ITEM 28. UNDERTAKINGS
A. The undersigned registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
after the effective date of the Registration Statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration
Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected
in the form of a prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in
the volume and price represent no more than a 20 percent
change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
registration statement; and
(iii) To include any material information with respect
to the plan of distribution not previously disclosed in the
Registration Statement or any material change to such
information in the Registration Statement.
2. That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
3. To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
4. That, for the purpose of determining liability of the registrant under
the Securities Act of 1933 to any purchaser in the initial
distribution of the securities:
The undersigned registrant undertakes that in a primary offering of securities
of the undersigned registrant pursuant to this Registration Statement,
regardless of the underwriting method used to sell the securities to the
purchaser, if the securities are offered or sold to such purchaser by means of
any of the following communications, the undersigned registrant will be a seller
to the purchaser and will be considered to offer or sell such securities to such
purchaser:
(i) Any preliminary prospectus or prospectus of the
undersigned registrant relating to the offering required to
be filed pursuant to Rule 424 ( 230.424 of this chapter);
(ii) Any free writing prospectus relating to the
offering prepared by or on behalf of the undersigned
registrant or used or referred to by the undersigned
registrant;
(iii) The portion of any other free writing prospectus
relating to the offering containing material information
about the undersigned registrant or its securities provided
by or on behalf of the undersigned registrant; and
(iv) Any other communication that is an offer in the
offering made by the undersigned registrant to the
purchaser.
B. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of
Carrollton, State of Texas on June 14, 2006.
Trinity Learning Corporation
/s/Dennis J. Cagan
-------------------------------
By: Dennis J. Cagan
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Dennis Cagan his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and any
subsequent registration statements pursuant to Rule 462 of the Securities Act of
1933 and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that attorney-in-fact or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
Signature Title Date
/s/ Dennis J. Cagan Chief Executive Officer and June 14, 2006
------------------------ President, and Director
Dennis J. Cagan
/s/ Patrick R. Quinn Chief Financial Officer June 14, 2006
------------------------
Patrick R. Quinn
/s/ Douglas D. Cole Executive Vice President and June 14, 2006
------------------------ Director
Douglas D. Cole
/s/ William D. Jobe Director June 14, 2006
------------------------
William D. Jobe
/s/ Richard G. Thau Director June 14, 2006
------------------------
Richard G. Thau
/s/ Arthur Ronald Kidson Director June 14, 2006
------------------------
Arthur Ronald Kidson
/s/ Ron S. Posner Director June 14, 2006
------------------------
Ron S. Posner