U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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TRINITY LEARNING CORPORATION
(Name of issuer in its charter)
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Utah 8200 73-0981865
(State of incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification No.)
1831 SECOND STREET
BERKELEY, CALIFORNIA 94710
(510) 540-9300
(Address and telephone number of registrant's principal executive offices
and principal place of business)
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With a copy to:
DOUGLAS D. COLE BRENT CHRISTENSEN
1831 SECOND STREET PARSONS BEHLE & LATIMER
BERKELEY, CALIFORNIA 94710 201 SOUTH MAIN STREET, SUITE 1800
(510) 540-9300 SALT LAKE CITY, UTAH 84111
(Name, Address and telephone number (801) 532-1234
of agent for service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after the effective date of this registration statement.
If any the securities being registered on this Form are being offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [x]
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
boxes 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, check the following boxes 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 statement 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. [ ]
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Calculation of Registration Fee
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Title of Each Class Amount Proposed Maximum Proposed Maximum Amount of
Of Securities To Be Offering Price Aggregate Registration
To Be Registered Registered (1) Per Share (2) Offering Price Fee
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Common Stock, No Par Value 27,123,018 $0.85 $23,054,565 $2,921.01
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(1) In addition, pursuant to Rule 416(c) under the Securities Act of 1933, as
amended (the "Securities Act"), this Registration Statement also covers an
indeterminate number of additional shares that may be issuable in connection
with share splits, share dividends or similar transactions.
(2) Estimated pursuant to Rule 457(c) under the Securities Act, solely for the
purpose of calculating the registration fee, based on the average of the bid and
asked prices for the Company's common stock as reported within five business
days prior to the date of this filing.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
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 OR UNTIL THIS 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
selling shareholders may not sell these securities 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.
Subject to completion dated August 13, 2004
TRINITY LEARNING CORPORATION
[GRAPHIC OMITTED] LOGO
27,123,018 Shares
Common Stock
This prospectus relates to the offer and sale of up to 27,123,018 shares
of common stock that may be sold from time to time by the persons listed under
the caption "Selling Security Holders," beginning on page 37.
We will not receive any of the proceeds from the sale of common stock by
the selling security holders. We will pay all expenses in connection with this
offering, and the selling security holders will only be responsible for paying
any sales or brokerage commissions or discounts with respect to sales of their
shares.
The selling security holders may sell shares in the over-the-counter
market or on any stock exchange on which our common stock may be listed at the
time of sale. They may also sell shares in block transactions or private
transactions or otherwise, through brokers or dealers. These sales will be made
either at market prices prevailing at the time of sale or at negotiated prices.
Brokers or dealers may act as agents for the selling stockholders or may
purchase any of the shares as principal. If brokers or dealers purchase shares
as principal, they may sell such shares at market prices prevailing at the time
of sale or at negotiated prices. In lieu of making sales through the use of this
prospectus, the selling stockholders may also make sales of the shares covered
by this prospectus pursuant to Rule 144 or Rule 144A under the Securities Act.
Quotations for our common stock are reported on the National Association
of Securities Dealers, Inc. OTC Bulletin Board under the symbol "TTYL." On
August 9, 2004, the closing bid price for our common stock was $1.00 per share.
For a discussion of certain considerations associated with the purchase of
the common stock offered hereby, see "Risk Factors" beginning on page 5.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities, or determined if this
Prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
________________, 2004
TABLE OF CONTENTS
Prospectus Summary.............................................................3
Risk Factors...................................................................5
Forward-Looking Statements....................................................10
Use of Proceeds...............................................................11
Dilution......................................................................11
Description of Business.......................................................11
Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................................23
Directors and Executive Officers..............................................27
Executive Compensation........................................................30
Security Ownership of Certain Beneficial Owners and Management................31
Certain Relationships and Related Transactions................................33
Legal Proceedings.............................................................34
Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.....................................................34
Description of Securities.....................................................35
Market for Common Shares and Related Stockholder Matters......................36
Selling Security Holders......................................................37
Plan of Distribution..........................................................41
Experts and Counsel...........................................................42
Additional Information........................................................42
Index to Financial Statements.................................................43
Unless the context otherwise requires, references in this prospectus to
"Trinity Learning," "the Company," "we," "us," "our" or "ours" refer to Trinity
Learning Corporation.
You should rely only on the information contained in this prospectus. We
have not authorized any other person to provide you with different information.
If anyone provides you with different or inconsistent information, you should
not rely on it. We are not making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted.
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PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this
prospectus. You should read this entire prospectus carefully, including "Risk
Factors" and our financial statements and the notes to those financial
statements included elsewhere in this prospectus.
Our Company
Trinity Learning Corporation, a publicly held Utah corporation, is a
global learning company specializing in technology-enabled training, education,
and certification services for major customers in multiple global industries. We
are achieving market presence in geographic markets worldwide by acquiring and
integrating companies providing innovative workplace learning solutions in
targeted regions and industry segments. During 2003, we acquired control of four
operating companies located in the United States, Australia and South Africa,
each serving unique segments of the global learning market. Trinity Learning
intends to increase market penetration and the breadth and depth of its products
and services through additional acquisitions, licensing, strategic alliances,
internal business development, and the expansion of sales offices around the
world.
Our company's executive offices are located at 1831 Second Street,
Berkeley, California, 94710. Our telephone number is (510) 540-9300.
Corporate Organization
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, it changed its 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. Immediately prior to the recapitalization, we had
13,419,774 shares of common stock outstanding. Following the recapitalization
and the cancellation of 108,226 shares of common stock beneficially owned by
members of management, there were 13,419,774 shares of common stock outstanding.
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.
On February 22, 2004, we entered into an Agreement and Plan of Merger with
ProsoftTraining, a Nevada corporation, pursuant to which we would have merged
into a wholly-owned subsidiary of ProsoftTraining. This Agreement and Plan of
Merger was mutually terminated on July 23, 2004.
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The Offering
The selling security holders will sell 27,123,018 shares of our common
stock. We currently have 31,040,143 shares of common stock issued and
outstanding and will have the same number of shares of common stock issued and
outstanding following completion of this offering. We will not receive any
proceeds from the sales of common stock by the selling security holders.
Summary Selected Financial Data
The following selected financial information should be read in conjunction
with our consolidated financial statements and the notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," which are included elsewhere in this prospectus. The consolidated
statements of operations data for the transition period ended June 30, 2003 and
the fiscal year ended September 30, 2002 and the consolidated balance sheet data
at June 30, 2003 and September 30, 2002 are derived from audited consolidated
financial statements included elsewhere in this prospectus. The consolidated
statements of operations data and the consolidated balance sheet data for the
period ended September 30, 2001 are derived from audited consolidated financial
statements not included herein. The consolidated statements of operations data
for the nine months ended March 31, 2004 and March 31, 2003 and the consolidated
balance sheet data at March 31, 2004 and March 31, 2003 are derived from
unaudited consolidated financial statements included in this prospectus.
Transition
Nine Months Ended Period Ended Year Ended
March 31, June 30 September 30,
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2004 2003 2003 2002 2001
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(In thousands, except per share data)
Consolidated Statements of Operations Data:
Revenue $ 7,442 $ 165 $ 168 $ -- $ --
Income (loss) from operations $ (4,123) $ (1,634) $ (1,990) $ (553) $ (25)
Net income (loss) $ (3,827) $ (1,701) $ (2,072) $ (566) $ (36)
Net income (loss) per share:
Basic $ (0.17) $ (0.25) $ (0.25) $ (11.66) $ (0.77)
Diluted $ (0.17) $ (0.25) $ (0.25) $ (11.66) $ (0.77)
Consolidated Balance Sheet Data:
Total assets $ 11,312 $ 197 $ 1,342 $ 378 $ --
Short-term debt $ 3,307 $ 2,417 $ 2,147 $ 812 $ 167
Long-term debt $ 240 $ 13 $ -- $ -- $ --
Stockholders' equity $ 3,233 $ (2,606) $ (1,531) $ (771) $ (202)
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RISK FACTORS
Our future operating results are highly uncertain. Before deciding to
invest in our company or to maintain or increase your investment, you should
carefully consider the risks described below, in addition to the other
information contained in this prospectus. The risks and uncertainties described
below are not the only ones that we face. Additional risks and uncertainties not
presently known to us or that we currently deem immaterial may also affect our
business and results of operations. If any of these risks actually occur, our
business, financial condition or results of operations could be seriously
harmed. In that event, the market price for our common stock could decline and
you may lose all or part of your investment.
Risks Related to Our Business and Industry
Additional capital is necessary to sustain and grow our business.
During the development stage of our operations, we expect that operating
revenues generated will be insufficient to cover expenses. For the foreseeable
future, unless and until we attain profitable operations, we will likely
experience a net operating loss or minimal net income. Thus, we will likely be
dependent for the foreseeable future on capital raised in equity and/or debt
financing, and there can be no assurance that we will be able to obtain such
financing on favorable terms, if at all.
If we fail to obtain additional financing and improve our results of
operations, we will be unable to meet our obligations as they become due,
raising 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 its obligations as they become due. That would raise substantial
doubt about our ability to continue as a going concern.
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:
o the ability to assess accurately the value, strengths, weaknesses,
contingent and other liabilities and potential profitability of
acquisition candidates;
o the potential loss of key personnel of an acquired business;
o the ability to integrate acquired businesses and to achieve identified
financial and operating synergies anticipated to result from an
acquisition; and
o 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 have experienced 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 our
financial condition or results of operations.
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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.
We are effectively controlled by our officers and directors.
Our directors and executive officers beneficially own a significant
percentage of our 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.
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. The failure of this market to
develop, or a delay in the development of this market -- 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.
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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 the 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 its 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 adequately
protect our intellectual property could have a material adverse effect on our
business, operating results and financial condition.
There can be no assurance that other parties will not claim that our
current or future products infringe their rights in the intellectual property.
We expect that developers of enterprise applications will increasingly be
subject to infringement claims as the number of products and competitors in its
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.
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 believes
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
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operate that target educational providers could affect our operations in the
future and could limit the ability of various of our subsidiaries to obtain
authorization to operate in certain jurisdictions. If we or various of our
subsidiaries had to comply with, or were 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:
o difficulties in translating its courses into foreign languages;
o international political and economic conditions;
o changes in government regulation in various countries;
o trade barriers;
o difficulty in staffing foreign offices, and in training and retaining
foreign instructors;
o adverse tax consequences; and
o costs associated with expansion into new territories.
We expect that international revenues will continue to be a significant
portion of our total revenues. If we fail to adequately anticipate and respond
to the risks associated with international operations, this failure could have a
material adverse effect on our operating results and stock price.
Risks Related to the Offering
Because our common stock is traded on the OTC Bulletin Board, your ability
to sell your shares in the secondary trading market may be limited.
Our common stock currently is traded on the over-the-counter market on the
OTC Bulletin Board. The OTC Bulletin Board is an inter-dealer, over-the-counter
market that provides significantly less liquidity than the NASDAQ Stock Market
or national or regional exchanges. Securities traded on the OTC Bulletin Board
are usually thinly traded, highly volatile, have fewer market makers and are not
followed by analysts. Consequently, the liquidity of our common stock is
impaired, not only in the number of shares that are bought and sold, but also
through delays in the timing of transactions, and lack of coverage by security
analysts and the news media. As a result, prices for shares of our common stock
may be lower than might otherwise prevail if our common stock was quoted on the
Nasdaq Stock Market or traded on a national securities exchange, like The New
York Stock Exchange or American Stock Exchange.
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Because our common stock is a "penny stock," you may have difficulty
selling them in the secondary trading market.
Federal regulations under the Securities Exchange Act of 1934 regulate the
trading of so-called "penny stocks," which are generally defined as any security
not listed on a national securities exchange or Nasdaq, priced at less than
$5.00 per share and offered by an issuer with limited net tangible assets and
revenues. Since our common stock currently trades on the OTC Bulletin Board at
less than $5.00 per share, our common stock is a "penny stock" and may not be
traded unless a disclosure schedule explaining the penny stock market and the
risks associated therewith is delivered to a potential purchaser prior to any
trade.
In addition, because our common stock is not listed on Nasdaq or any
national securities exchange and currently trades at less than $5.00 per share,
trading in our common stock is subject to Rule 15g-9 under the Exchange Act.
Under this rule, broker-dealers must take certain steps prior to selling a
"penny stock," which steps include:
o obtaining financial and investment information from the investor;
o obtaining a written suitability questionnaire and purchase agreement
signed by the investor; and
o providing the investor a written identification of the shares being
offered and the quantity of the shares.
If these penny stock rules are not followed by the broker-dealer, the investor
has no obligation to purchase the shares. The application of these comprehensive
rules will make it more difficult for broker-dealers to sell our common stock
and our stockholders, therefore, may have difficulty in selling their shares in
the secondary trading market.
We have not paid dividends to our stockholders in the past and we do not
anticipate paying dividends in the near future.
We have not declared or paid cash dividends on our common stock. We intend
to retain all future earnings, if any, to fund the operation of our business,
and therefore we do not anticipate paying dividends on our common stock in the
future.
There are a large number of shares of our common stock underlying our
outstanding warrants, options and convertible notes, all of which may be
available for future sale, which sale may depress the market prices of our
common stock.
The issuance of shares of common stock upon the exercise of our
outstanding options and warrants will result in dilution to the interests of our
shareholders, and may have an adverse effect on the trading price and market for
our common stock. As of July 31, 2004, we had options and warrants outstanding
which may be exercised to acquire 23,575,272 shares of our common stock at
various times. The future sale of these shares may adversely affect the market
price of our common stock. Shares issued upon exercise of our outstanding
warrants and options will also cause immediate and substantial dilution to our
existing shareholders. In addition, as long as these warrants and options remain
outstanding, our ability to obtain additional capital through the sale of our
securities might be adversely affected.
9
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 we have relied, we
may become subject to significant fines and penalties imposed by the SEC and
state securities agencies.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These statements
relate to future events or our future financial performance. In some cases,
forward-looking statements can be identified by terminology, for instance the
terms "may," "will," "should," "expect," "plan," "anticipate," "believe,"
"estimate," "predict," "potential" or "continue," the negative of these terms or
other comparable terminology. In addition, these forward-looking statements
include, but are not limited to, statements regarding the following:
o anticipated operating results and sources of future revenue;
o growth;
o adequacy of our financial resources;
o development of new products and markets;
o obtaining and maintaining regulatory approval and changes in
regulations;
o competitive pressures;
o commercial acceptance of new products;
o changing economic conditions;
o expectations regarding competition from other companies; and
o our ability to manufacture and distribute our products.
Potential investors in our company are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of their
dates. These forward-looking statements are based largely on our current
expectations and are subject to a number of risks and uncertainties. Actual
results will differ and could differ materially from these forward-looking
statements. The factors that could cause actual results to differ materially
from those in the forward-looking statements include the following: (1) industry
conditions and competition, (2) the rate of market acceptance of our products,
(3) our ability to integrate acquired companies, (4) operational risks and
insurance, (5) risks associated with operating in foreign jurisdictions, (6)
product liabilities which may arise in the
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future which are not covered by insurance or indemnity, (7) the impact of
current and future laws and government regulation, as well as repeal or
modification of same, (8) the ability to retain key personnel, (9)
renegotiation, nullification or breach of contracts with distributors, suppliers
or other parties and (10) the relationship with our suppliers. In light of these
risks and uncertainties, there can be no assurance that the matters referred to
in the forward-looking statements contained in this prospectus will in fact
occur.
USE OF PROCEEDS
We will not receive any funds obtained by the selling security holders
from their reoffer and sale of the common stock covered by this prospectus.
DILUTION
The shares offered for sale by the selling shareholders are already
outstanding and, therefore, do not contribute to dilution.
DESCRIPTION OF BUSINESS
General
We are a publicly-held global learning company that provides advanced
learning solutions around the world for corporations, organizations and
individuals. Our mission is to become a leader in offering education, training
and certification services to major customers around the world. We are seeking
to grow rapidly through acquisitions, business development and strategic
relationships.
We commenced our strategy in 2002 to acquire and integrate operating
companies with established customer bases in strategic markets that have
developed proprietary technology-enabled learning, training and certification
systems and services targeted at major customers in worldwide industries. Our
initial target market has been medium to large companies and organizations that
provide workplace training and certification to their employees in a cost
effective and efficient manner. We anticipate that growth will also be achieved
through strategic relationships, licensing and marketing of software and other
technologies, internal business development, and the expansion of sales offices
and other sales representation around the world.
In making acquisitions, we have targeted companies that we believe will
position us to:
o provide workplace learning services to multiple organizational levels of
major employers;
o leverage investments in content and delivery systems across multiple
industry segments;
o cross-market learning services developed by our operating subsidiaries;
o design and implement long-term workplace human capital development
programs for large corporations, organizations and governments; and
o provide meaningful learning experiences to end-users.
We adopted our strategy in 2002 based on competitive analysis, market
research and an analysis of our ability to acquire operating companies in key
market areas and segments and attractive valuations. We have executed this
strategy by identifying and completing a number of strategic acquisitions,
expanding our executive management team, entering into key strategic
relationships with financial advisors and investment banks, and developing and
implementing a development and growth stage financing strategy.
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On February 22, 2004, we entered into an Agreement and Plan of Merger with
ProsoftTraining, a Nevada corporation, pursuant to which we would have merged
into a wholly-owned subsidiary of ProsoftTraining. This Agreement and Plan of
Merger was mutually terminated on July 23, 2004.
The Global Learning Market
According to EduVentures, Inc. and Think Equity Partners, the global
education and training market is estimated at approximately US$2 trillion
annually, with the United States currently accounting for over 35% of the world
market for training and education 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. IDC estimates that worldwide e-learning market
will exceed $23 billion by 2006 and Cortona Consulting estimates that the global
e-learning services market will reach $50 billion by 2010.
We believe that the global learning market will, over time, evolve as it
has in the United States and other developed countries, and will continue to
expand based on market factors including:
o growth and dynamic changes in the world's population base;
o growth and dynamic changes in the world's workforce;
o increased globalization;
o expansion of access to Internet and other communications technologies
around the world.
Changes in the size and make-up of the world's population
According to the Population Resource Center, world population exceeded 6
billion individuals in 2001, with a growth rate of 1.3% annually. Based on 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. Educating and
training these workforce entrants is task of global proportions. 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 will be caused by an
aging workforce and will need to be met through immigration, creating large
opportunities for language and other job training. Other labor shortages will 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 - creating an
expanding market for courses, classes and programs for the 20 percent of the
population that will be over age 65 by the year 2025.
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 will enter the U.S. labor force, joining over 110 million workers already
in the workforce, , with over 25% of new workers 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. At the same time, the average age of the
workforce will increase to age 45 or older by the year 2025. In many cases,
these older workers will have changed jobs or even careers numerous times, with
additional job or career changes likely before reaching the age to receive
retirement benefits - itself climbing nearly to age 70 for the youngest members
of the workforce today. It is generally accepted that young people entering the
workforce today will need to continually adapt to rapid changes in technology,
employment opportunities and skills needed to succeed over their working lives.
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As the global workplace continues to change rapidly, however, 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 on 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 on 12 years of
education.
Globalization and Technology
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, a process known as
"outsourcing" or while collar globalization. In order 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 United States. Enterprise companies (over $500
million in sales) annually spend an average of $3.7 million on learning and
training and are estimated to have collectively spent $11.9 billion on education
in 2003. The annual spending per employee averages $912 for learning and
training programs. The greatest proportion of spending on learning, nearly a
third, was devoted to technical staff. Another major area of expenditure for
training and workplace learning relates to increased emphasis on compliance with
corporate governance regulations and with the compliance to national and
international standards related to workplace health, safety, environmental
regulations and supply-chain quality assurance standards.
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.
Impact of Technology
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 to be in
less developed nations. Worldwide, the "Internet population" is estimated at
nearly 1 billion by The Computer Industry Almanac, 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, such as:
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o traditional classroom instruction at a school, the employer's facility or
at an off-site facility;
o computer-based training and simulation;
o distance education, utilizing printed materials or digital materials;
o online or e-learning, either instructor-mediated or self-paced; or
o hands-on training with machines or devices, either in the workplace or at
a remote facility.
Recognizing that there is no single instructional method or technology
that works for every skill, every type of worker, or for all types of content
that might required in a major employer's overall human capital planning, we
have and will continue to acquire operating companies that, together, represent
a "blended learning" approach to workplace learning. Our operating subsidiaries,
collectively, are experienced in multiple delivery methods, multiple content
specialties, and have designed and implemented a variety of workplace learning
solutions.
Our Business
We are 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. We believe 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, utilizing a
variety of delivery technologies, platforms and methodologies to meet what we
believe is a growing need for global learning solutions. We believe that we 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 believe that our recent acquisitions have positioned us as a global
learning company with the ability to:
o serve major customers in a number of industry verticals from mining to
healthcare to agriculture;
o provide training to multiple levels of an organization from blue collar to
management to executives; and
o utilize a blend of delivery methods including online learning, e-learning,
instructor led training and competency based learning.
We have five (5) major operating subsidiaries: TouchVision, River Murray
Training, Riverbend, IRCA and VILPAS.
TouchVision
As of September 1, 2003, we completed the acquisition of all of the issued
and outstanding shares of TouchVision, Inc., a California corporation
("TouchVision") that is in the business of providing technology-enabled
information and learning systems to healthcare providers, financial services
companies and other industry segments. In consideration for the TouchVision
shares, we issued an aggregate of 1,250,000 restricted shares of our common
stock, 312,500 shares of which are subject to the terms of an escrow agreement
as collateral for the indemnification obligations of the former TouchVision
shareholders. We also agreed to loan to TouchVision the sum of $20,000 per month
for the twelve-month period following closing, to be used for working capital,
having previously loaned TouchVision the sum of $50,000 in June 2003 by way of
bridge financing pending completion of the acquisition. In connection with the
acquisition, TouchVision entered into substantially similar employment
agreements with each of Messrs. Gregory L. Roche and Larry J. Mahar, the former
principals of TouchVision, which have a term of two years and provide for annual
salaries of $120,000. William Jobe, one of our directors, was paid a total of
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$59,500 during the period December 2003 to June 2004 as compensation for merger
and acquisition services associated with our acquisition of TouchVision.
TouchVision specializes in web-based software products that are designed
to be deployed on external and internal websites, a network of self-service
stations, or stand-alone terminals. This hardware independence means the
software can be accessed with a wide variety of end-user devices: web browser
stations, wireless tablets and personal digital assistants (PDA's), kiosks, or
computers.
TouchVision has developed a number of products that are both generally
applicable and industry-specific. The VisMed(R) suite of applications is
specially branded for the healthcare industry. It bundles together many of the
applications listed below as well as e-mail and shopping capabilities.
TouchVision's current products consist of the following:
o CheckIn. CheckIn is the software solution for patient queuing, admitting,
and processing in hospitals, clinics, and other care facilities. It is
designed to replace the paper clipboard and health information forms, and
protects patient privacy in compliance with HIPAA. It also tracks key
performance metrics and offers real-time reporting. At full
implementation, CheckIn will perform automatic verification of insurance
eligibility and collect the patient's copayment. This product is a part of
the VisMed suite.
o Presenter. Digital signs are the computerized replacement of billboards,
message boards, schedule postings, and other static information displays
offering versatility, impact, and reach. TouchVision Presenter is a tool
for managing and displaying information on digital signs from a desktop
web browser. Without any technical skills, personnel can manage welcoming
information on a plasma display, a promotional messages on the attract
loop of a kiosk network, or schedule updates on LCD monitors outside
meeting rooms.
o PathFinder. PathFinder is an interactive facility directory and wayfinder
system that can be viewed on a website or on self-service terminals in a
facility. The software is optimized for large facilities such as
hospitals, schools, institutions, and office complexes that have a need to
conveniently help visitors find a destination. PathFinder users can search
for a destination, view a map showing how to reach the location, and
receive other directional instructions. This product is a part of the
VisMed suite.
o Surveyor. Surveyor is flexible software that presents survey questions to
the user and collects their answers. Answers are then stored in a database
and emailed to the administrator. Surveyor is designed to eliminate the
cost, inconvenience, and inaccuracy of traditional paper surveys. This
product is a part of the VisMed suite.
o Educator. Educator provides a search engine for browsing and viewing
health education content that can be delivered directly to a patient - in
their room or education centers. This product is a part of the VisMed
suite.
o Finder. Finder is a flexible software system that allows the user to
search for information in a database. The selected information is
displayed on the screen with the ability to link to supplemental
information. Common uses of Finder include physician referrals (DrFinder),
staff directories (PeopleFinder), and building directories (OfficeFinder).
o NurseStation. NurseStation is a productivity enhancement tool for nurses,
physicians, and healthcare providers. NurseStation informs a care provider
of whether the patient is currently in his or her room, and tracks other
important parameters such as treating physician, specialist, nurse, and
status. It replaces manual methods such as marker boards at the nurse
station and allows a care provider to conveniently access this important
information from anywhere in the hospital using a handheld device or web
station. This product is a part of the VisMed suite.
o Concierge. Concierge, which is designed to require minimal technical
skills, allows a user to easily update application features, graphical
design, and information content. A library of content display templates
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provides for rapid development of professional pages for websites, web
stations, and kiosks. Concierge's Announcer Module provides a high-profile
scrolling message window to display current announcements and events. This
product is a part of the VisMed suite.
o CareMail. CareMail provides personalized E-Cards for patients. E-Cards can
be created on the facility's website or at web stations inside the
facility. Cards are delivered directly to the patient at facilities with
in-room access, and are printed and delivered at other facilities. This
product is a part of the VisMed suite.
o HR Assist. HR Assist is designed to provide employees with convenient and
secure access to online HR services through use of online resources for
benefits enrollment, 401K management, and other human resources
administration tasks.
o BizBrowser. BizBrowser is an interactive business directory that can be
used for tourism advertising, community resources, and other applications
involving display of business information. Users can search by a variety
of methods to quickly find the business of interest. Numerous promotional
or advertising placement opportunities exist through banners, feature
listings, and display listings.
o Guardian. Guardian is a fault-protection agent for improving the
reliability and user experience of self-service terminals. It monitors
software applications and the Windows operating system to automatically
respond to faults that can occur as well as the printer for paper and
jamming issues, intercepts and replaces operating system messages with
userfriendly messages, and emails messages to the system administrator.
Over the past eight years, TouchVision has demonstrated its ability to
deliver solutions to leading companies in healthcare, financial services,
education, and retail services in the United States. TouchVision serves what we
believe is a large and growing market in the United States and around the world
for products and services that make information and content easily accessible,
particularly where using a personal computer is either cost-prohibitive,
inaccessible or inappropriate. Through its VisMed(R) brand, TouchVision delivers
solutions that are tailored to the unique needs of the healthcare sector;
TouchVision believes that there are similar opportunities for offerings that
focus on other industry sectors and geographic markets. Today, TouchVision's
customers are primarily US based Fortune 1000 companies and educational
institutions.
The addition of TouchVision provides our other subsidiaries with the
potential to incorporate new software and hardware technology and delivery
platforms into their core learning products. We anticipate that the TouchVision
suite of products will have broad application in technology-enabled workplace
learning where access to a desk-top computer is not available to many sectors of
the workforce. While continuing to develop its own unique customer
opportunities, TouchVision will work closely with our other operating companies
to co-develop workforce training applications and distribution platforms.
River Murray Training (RMT)
As of September 1, 2003, we completed the acquisition of all of the issued
and outstanding shares of River Murray Training Pty Ltd ("RMT") an Australian
company that is in the business of providing workplace training programs for
various segments of the food production industry, including viticulture and
horticulture. In consideration for the shares of RMT, we issued 700,000
restricted shares of our common stock, 350,000 shares of which are subject to
the terms of an escrow agreement as collateral for the indemnification
obligations of the former RMT shareholders. We also loaned US$49,000 to RMT for
the purpose of repaying outstanding loans advanced to RMT by its former
shareholders.
RMT is a privately owned training company whose mission is to assist
companies in developing and managing their own sustainable in-house training
system. RMT provides a "one stop shop" approach to meeting company's training
needs and has three separate business units to support this "one stop shop"
approach: (i) consultancy services to help establish a sustainable in-house
training system; (ii) resource development services to develop customized
learning support materials; and (iii) training services which provide a wide
selection of fully accredited training. The basis of the RMT training model is
partnering with companies to develop training programs, which provides two key
benefits for its customers: first, training is made relevant to the workplace;
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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.
In 1992, the Australian National Training Authority was established to
provide a national focus for vocational and educational training to ensure that
all workers met the same competency standards. In order to provide this level of
standardized content the Australian government designed the Australian Quality
Training Framework ("AQTF"), which is a set of nationally agreed-upon standards
that ensure the quality of vocational education and training services throughout
Australia. In 1997 RMT was one of the early designers of content for the wine
and viticulture industry in Australia, designing content that met AQTF
standards. As a Registered Training Organization based in Australia's major wine
production region and one of its primary regions for agricultural products, RMT
has developed and maintains 350 training modules, with the majority in the wine
sector. Its major customers in this sector are large wine-producing companies
that receive Australian government funding for vocational training. Other
modules developed by RMT include training for retail services, small business
office administration and frontline management in the seafood and horticulture
industries as well as public services
RMT's primary sources of revenue are from the design and delivery of
consulting and training services in the Australian agribusiness industry. RMT
believes that future growth will come from training for the public-sector,
agribusiness, and geographic expansion. For example, based on RMT's content and
experience, we have begun to market training services in the California
viticulture industry.
We believe that RMT's operations can benefit from our other subsidiaries
that operate in markets outside Australia, primarily by introducing enhanced
online learning capabilities to leverage the curriculum and staff of RMT to
viticulture and agriculture regions throughout Australia. RMT is also exploring
the possibility of modifying training curriculum available to it as an RTO for
use in other global markets, including content in areas such as operational
management which have applications across multiple geographic markets and
industries.
Riverbend
Riverbend Group Holdings (Proprietary) Limited ("Riverbend"), through its
various subsidiaries, is a provider of online university degrees and other
workplace learning services to corporations and individuals in South Africa. We
acquired our interest in Riverbend in September 2003, when we completed the
acquisition of 51% of the issued and outstanding shares of Ayrshire Trading
Limited, a British Virgin Islands company ("Ayrshire") that owns 95% of
Riverbend and acquired the option to purchase the remaining 49% of Ayrshire.
In consideration for the Ayrshire shares, we issued a convertible
non-interest-bearing promissory note in the amount of US$20,000, which amount is
convertible from time to time, but no later than December 30, 2006, into a
maximum of 2,000,000 restricted shares of our common stock. Of these shares, up
to 400,000 may be withheld in satisfaction for any breach of warranties by the
former shareholders of Ayrshire. The Ayrshire shares are subject to escrow and
pledge agreements and will be reconveyed to the former shareholders in the event
of a default by us of certain terms and conditions of the acquisition
agreements. As further consideration for the Ayrshire shares, we agreed to make
a non-interest-bearing loan of U.S. $1,000,000 to Ayrshire. The option to
acquire the remaining 49% of Ayrshire may be exercised in consideration for the
issuance of 1,500,000 additional shares of our common stock, subject to certain
adjustments. In connection with the Riverbend acquisition, we agreed to appoint
Mr. Arthur Kidson to its board of directors, to serve until its next annual
meeting, and to invite Mr. Nigel Tattersal to attend all meetings of its board
of directors as an observer until its next annual meeting.
The addition of Riverbend expands our product offering to higher education
and online degrees. Riverbend, founded in 1998, operates through four operating
subsidiaries. Together, these operating subsidiaries have developed a holistic
approach to technology-enabled learning, education and training. Riverbend,
Price Waterhouse Coopers and a South African media group are co-owners of
Riverbed's primary subsidiary, eDegree, and a provider of corporate learning
solutions including online degrees from some of South Africa's most respected
universities. Other Riverbend subsidiaries include Learning Advantage, a
customized learning solutions provider to corporations, Reusable Objects, a
leading-edge learning software developer, and Learning Strategies, an e-learning
consulting services provider. These Riverbend subsidiaries serve major corporate
customers in South Africa and are leaders in South Africa's initiative to
increase employment and competitiveness by expanding and improving adult
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basic education and training. We anticipate that Riverbend's future revenue
generation will occur primarily through product development, business
development and geographic expansion.
eDegree is Riverbend's primary subsidiary that currently accounts for
approximately 70% of Riverbend's total revenue. eDegree's core business
surrounds e-learning and online learning support. The company partners with
universities and corporations in order to maximize the use of the Internet for
instructional effectiveness. eDegree is currently supplying and managing
education and training to learners via several different delivery formats.
eDegree offers academic institutions and corporate partners one or any of the
following services:
o instructional design and educational project management expertise;
o curriculum development and courseware design;
o interactive e-learning content conversion methodologies to meet customized
education and training needs;
o delivering e-learning interventions;
o management and administration of the delivery of e-learning courses;
o object-oriented software expertise used in the development of e-learning
tools and interactive content; and
o internal quality assurance capabilities.
eDegree has successfully created, designed, developed, and administered
courses on behalf of and in partnership with a number of leading South African
academic institutions. It is currently supplying and actively managing the
delivery of online education in collaboration with educational institutions to
more than 4,000 students worldwide. We anticipate that eDegree's future revenue
growth will be derived from broader distribution on behalf of its existing
programs and geographic growth through development of new partnerships with
educational institutions, corporations and government programs worldwide.
Reusable Objects, another Riverbend subsidiary that currently represents
approximately 10% of Riverbend's revenues, designs and develops software tools
for the efficient authoring, development, management and publishing of
instructional software programs. In particular, the "Construct" suite of tools
includes a dynamic software utility for the creation of "learning objects" that
can be comprised of one or more web pages, text documents, presentations, or
multimedia items that can indexed, archived, and distributed to learners.
Reusable Objects' products allow it to create cost-effective solutions designed
in such a way that they can be deployed for a variety of courses and programs
customized to the needs of differing contexts, target audiences, technical
platforms and educational frameworks. Learner management, presentation of
multiple perspectives, and use of interesting and appropriate graphics, and
audio/video tools are central to Reusable Objects' solutions strategy. Reusable
Objects focuses heavily on encouraging skills development and application
instead of memorization and retention of factual information. We anticipate that
Reusable Objects' revenue growth will be derived from increased product
development and product deployment to corporations and universities both locally
in South Africa and worldwide in conjunction with growth in other Riverbend
businesses. It is anticipated that 30% to 50% of Reusable Objects' revenue
growth will be outside of South Africa over the next few years.
Learning Strategies, which represents less than 10% of Riverbend's
revenues, is a consulting organization that assists large corporations, public
entities and higher education institutions in understanding the most suitable
learning and knowledge management approach in the modern technological
environment. Learning Strategies' consultants provide consulting in the areas of
strategy, knowledge management, financial management, human resource management,
supply chain optimization, general process improvement and assessment of
management information needs. As part of their leadership and industrial
relations services, consultants facilitate team building, manage conflict
through mediation, provide training for effective workplace relations, and
develop and implement organizational transformation and restructuring. Learning
Strategies' customers are primarily corporations based in South Africa, and we
do not anticipate significant growth by Learning Strategies for the foreseeable
future.
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Learning Advantage specializes in the supply and support of world-class
e-learning applications. In marketing partnerships with leading companies such
as Docent, Saba, and others, Learning Advantage is supplying educational
software and managing e-learning solutions throughout South Africa. Learning
Advantage is licensed to distribute a wide range of e-learning support tools and
has extensive experience in the installation, configuration, end-user training
and support of its products. Currently, Learning Advantage represents less than
15% of total Riverbend's revenue. It is anticipated that revenue growth will be
derived from the development of new product and geographic expansion.
It is anticipated that product and marketing synergies will be developed
between Riverbend and our other operating subsidiaries, primarily in the areas
of online learning for degree programs and other courses, and in software
development and support. We believe that due to certain cost structures and
efficiencies, Riverbend Group subsidiaries can provide technical expertise,
software programming, and other development and support services for customer
projects initiated outside of South Africa.
IRCA
IRCA (Proprietary) Limited ("IRCA") is an international firm specializing
in corporate learning, certification, and risk mitigation in the areas of
safety, health environment, and quality assurance ("SHEQ"). The company is
headquartered in South Africa and operates international sales offices and
operations in South Africa, the United Kingdom, Australia, Malaysia and North
America.
We acquired our interest in IRCA in December 2003 when we completed the
acquisition of all of the issued and outstanding shares (the "Danlas Shares") of
Danlas Limited, a British Virgin Islands company ("Danlas") that owns 51% of
IRCA and holds an option to acquire the remaining 49%. In consideration for the
Danlas Shares, we (i) issued three convertible promissory notes in the aggregate
principal amount of $40,000 and convertible, under certain terms and conditions,
into a maximum of 4,500,000 shares of common stock, (ii) agreed to advance
$500,000 in cash to establish an international sales force, (iii) agreed to
provide $500,000 for certain bank guarantees and, (iv) agreed to issue up to an
additional 1,000,000 shares of common stock in the event certain profit
thresholds are met. The Danlas Shares were pledged and deposited in escrow at
closing as security for the due performance of our obligations under the
promissory notes. In the event of a default by us under the notes, the Danlas
Shares will be deemed sold back to the vendor at their par value. An event of
default under the Note includes, among other things, a voluntary or involuntary
bankruptcy proceeding involving us and the failure by us to list its shares of
common stock on a major stock exchange by December 30, 2005.
In connection with its acquisition of its interest in IRCA, we entered in
an agreement with Titan Aviation Ltd. a private company held in trust, of which
Mr. Steynberg along with other business partners is a beneficiary, pursuant to
which it paid Titan Aviation on May 14, 2004 the sterling equivalent of the sum
of 4,000,000 South African Rand (or $607,165) for various services rendered to
IRCA. We also agreed to appoint Mr. Martin Steynberg to our Board of Directors,
to serve until our next annual general meeting, and to invite Mr. Carel
Labuschagne to attend all meetings of our board of directors as an observer
until our next annual general meeting. Messrs. Steynberg and Labuschagne were
both principals of IRCA.
IRCA provides international risk assessment, consulting, and
behavior-based management and training services, with specific emphasis
integration of services to clients in the field of Safety & Health, Environment
and Quality (SHEQ), as follows:
o Technical Services. IRCA provides a variety of services in the areas of
environmental impact assessment and management, process safety, chemistry
(process and analytical) and environmental engineering, thus enabling it
to comprehensively addresses the safety, health and environmental risks of
its clients through assessment, mitigation design and design
implementation.
o Consulting Services. IRCA advises and assists organizations in respect of
the SHEQ-related exposures. IRCA's professionals assess workplace issues
related to SHEQ, advise clients on learning programs and other
interventions that can reduce corporate financial risks, and assist in the
implementation and certification of programs. Guidance and standards of
operation are provided based on international best
19
practices, helping organizations to reduce the impact of identified risks
and to implement acceptable levels of control regarding residual risks.
o Training. IRCA provides a variety of on-site training courses, some of
which are done in conjunction with BSI (British Standards Institution) to
ensure that the latest standards, practices and knowledge are
incorporated. IRCA is an accredited training provider and presents a
variety of SHEQ training courses. The courses incorporate international
standards and practices and are adapted to the environment of the various
countries in which IRCA operates. This ensures that individual needs of
executives, management, supervisors, representatives and workers are
satisfied. Courses presented range from basic shop floor training aimed at
the workforce, to highly technical, specialist risk assessment techniques
for functional specialists. All training is presented in public course
forums, as well as in-house for organizations that require inclusion of
their own standards and logos. IRCA also offers web-based distance
learning.
IRCA's clients include a number of Fortune 1000 companies operating in
Africa, Europe, Australia, and the United States. We anticipates that the
acquisition of IRCA will provide us with an international sales force, increased
customer penetration in the mining industry and a cross-industry product segment
that can be sold with our other products. We believe that number of IRCA
products and services can be sold by our operating subsidiaries in other
geographic markets.
VILPAS
Effective March 1, 2004, we completed the acquisition of all of the issued
and outstanding shares of Virtual Learning Partners, AS (which subsequently
changed its name to Trinity Learning AS) ("VILPAS"), a learning services company
registered under the laws of Norway and headquartered in Oslo, Norway. VILPAS
owns 51% of FunkWeb AS ("FunkWeb"), a Norwegian learning services company that
is also headquartered in Oslo. FunkWeb Consulting AS is a wholly owned
subsidiary of FunkWeb, a consulting firm.
In consideration for the shares of VILPAS, we issued a
non-interest-bearing promissory note in the principal amount of $500,000
convertible into 1,000,000 shares of our common stock and agreed to issue up to
an additional 200,000 shares of our common stock in the event certain revenue
and profit thresholds are met during calendar 2004. The shares of VILPAS were
delivered into escrow at closing and will be held in escrow as security for the
due performance of our's obligations under the convertible promissory note. In
the event of a default by us the Note, the escrow agent will return the VILPAS
shares to vendors upon delivery by them to the escrow agent of (i) the cancelled
note, (ii) any and all shares issued by us upon conversion of the note, and
(iii) any additional revenue-based shares that had been issued by us.
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, also headquartered in Oslo, 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. We believe that FunkWeb
provides a model which may be replicated in other geographic countries.
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
20
believe that it derives competitive advantage because of its 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.
Most of our competition, in general sense, comes from:
o smaller, specialized local training companies;
o providers of online and e-learning products targeted at corporate soft
skills and technical training;
o not-for-profit trade schools, vocational schools and universities; and
o learning services divisions of large, multinational computer, software and
management consulting firms.
We anticipate that market resistance may come from the trainers in the
organizations to whom its various operating subsidiaries sell. Traditional
trainers may see outsourcing as a threat to their job security. We are seeking
to overcome this by focusing its business development strategy on senior
management in operations, finance and human resources. It will also reshape the
value proposition for internal training functions from tactical to strategic. We
believe it can enhance the role of internal training and human capital
development departments by providing a proven, integrated set of learning tools.
In this way, it can provide measurable results and increase both the actual
effectiveness and the perceived value of internal training departments.
Each of our operating subsidiaries face 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:
o proprietary content, software or technology;
o strategic relationships and alliances, including exclusive development and
marketing relationships;
o strategic minority stockholders; and
o management's industry and customer relationships.
Intellectual Property
Our success and ability to compete are dependent, to a significant degree,
on its ability to develop and maintain the proprietary aspects of its technology
and operate without infringing the proprietary rights of others. We regard
certain aspects of our products and documentation as proprietary and relies on a
combination of , trademark, trade secret and copyright laws and licenses and
contractual restrictions to protect its proprietary rights. These legal
protections afford only limited protection. We seeks to protect the source code
for its software, documentation and other written materials under trade secret
and copyright laws. It licenses software pursuant to license agreements that
restrict use of the software by customers. Finally, we seek to limit disclosure
of its intellectual property by requiring employees, consultants and customers
with access to its 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 its
personnel and its ability to develop new products and enhancements to existing
products are more important than the various legal protections of its technology
to establishing and maintaining a technology leadership position.
Our products and services, in some cases, are derived from proprietary
content developed by its 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
21
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 relies 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 its 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 its 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 its recently-acquired operating subsidiaries.
Employees
As of July 31, 2004, we had 310 full time employees located in California,
Australia, England, Norway and South Africa. Most of these persons were employed
by our subsidiaries in South Africa.
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, it changed its 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. Immediately prior to the recapitalization, we had
13,419,774 shares of common stock outstanding. Following the recapitalization
and the cancellation of 108,226 shares of common stock beneficially owned by
members of management, there were 13,419,774 shares of common stock outstanding.
On August 6, 2003, our board of directors approved a change in its fiscal
year-end from September 30 to June 30 to align it with those of the companies it
had already acquired or were at that time in the process of acquiring.
We completed our first acquisition in October 2002 when it acquired
Competency Based Learning, Inc., a California corporation ("CBL-California"),
and two related Australian companies, Competency Based Learning, Pty. Ltd. and
ACN 082 126 501 Pty. Ltd., (collectively referred to as "CBL Australia"), in
consideration for the issuance of a total of 3,000,000 restricted shares of our
common stock and $1,000,000 in convertible promissory notes and the assumption
of $222,151 in indebtedness. The transactions were effected through CBL Global
Corp. ("CBL"), our wholly-owned subsidiary. Effective December 22, 2003, we sold
our interests in CBL and its Australian and Californian subsidiaries (the "CBL
Companies") to the former owners of the CBL Companies. In conjunction with the
management buyout, we entered into a settlement agreement with respect to its
litigation with CBL and the CBL Companies. Pursuant to this agreement, we
conveyed all of its interest in the CBL Companies back to the former owners,
along with a cash settlement of $25,000, in exchange for (i) surrender and
cancellation of all shares of our stock issued to the former owners in
connection with the acquisition of the CBL Companies, (ii) the cancellation of
$1.0 million in convertible notes payable and other obligations under the
original transaction agreements, (iii) the waiver of certain other closing
conditions in the original transaction agreement, and (iv) the assumption of
certain financial obligations and accounts payable of CBL. The parties also
exchanged mutual
22
releases of claims in connection with the original transactions, and we
dismissed its litigation against the CBL Companies and their former owners.
On February 22, 2004, we entered into an Agreement and Plan of Merger with
ProsoftTraining, a Nevada corporation, pursuant to which we would have merged
into a wholly-owned subsidiary of ProsoftTraining. This Agreement and Plan of
Merger was mutually terminated on July 23, 2004.
Properties and Facilities
Our corporate office in Berkeley, California is sub-leased from an
unaffiliated third party. The term of the lease commenced September 1, 2003 and
expires August 31, 2004 with an option to renew for three months. Our various
subsidiaries lease facilities in Australia, South Africa, England, Norway and
California, in each case from unaffiliated third parties. These facilities are
adequate for its needs at the present time and foreseeable future.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Our fiscal year ends on June 30. This management's discussion and analysis
of financial condition and results of operations contains forward-looking
information that involves risks and uncertainties. Our actual results could
differ materially from those anticipated by this forward-looking information.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed or referred to herein under the heading "Risk
Factors". This management's discussion and analysis of financial condition and
results of operations should be read in conjunction with our financial
statements and related notes included elsewhere in this joint proxy/prospectus.
General
On August 6, 2003, our board of directors approved a change in our fiscal
year-end from September 30 to June 30 in order to align it with those of the
companies we had already acquired or were at that time in the process of
acquiring. We accordingly filed a transition report on Form 10-KSB for the
period from October 1, 2002 to June 30, 2003 (the "transition period"). During
the previous fiscal year ended September 30, 2002, we substantially reorganized
our business and changed our strategic business plan. This reorganization
continued into the subsequent transition period and into the fiscal year covered
by this report. As part of this reorganization, we incurred significant costs
associated with hiring new management, acquiring new office facilities and
engaging professional advisors to assist it in the process of developing and
executing new business opportunities. We also sought and obtained debt and
equity financing which permitted us to complete our various corporate
acquisitions in the transition period and in fiscal 2004.
Results of Operations
Nine Months Ended March 31, 2004 Compared to March 31,2003
Our gross sales revenues were $7,442,802 for the nine months ended March
31, 2004, as compared to $164,660, the amount we reported for the nine months
ended March 31, 2003. This significant increase in revenues is due to the
acquisition, in September 2003 of our interests in TouchVision, RMT and
Riverbend, and in December 2003, of our interest in IRCA. The period in 2003
comprises six months revenue of CBL which was our sole operating subsidiary in
that period. The period in 2004 includes seven months of revenue from
TouchVision, RMT and Riverbend, and four months of revenue from our interest in
IRCA. Revenues of CBL, which was sold by us effective December 22, 2003, were
included through such date. The business results for VILPAS will not be included
for March, 2004 until the fourth quarter 2004 as its activity was de minimus to
our overall operating results.
Costs of sales, which consist of labor and hardware costs, and other
incidental expenses, were $2,526,528 for the nine months ended March 31, 2004 as
compared to $0 for the same period in the prior year, resulting in gross
23
profit of $4,916,274 for the nine months ended March 31, 2004, as compared to
$164,660 for the nine months ended March 31, 2003. These increases in both costs
and gross profit were due to and associated with increased revenues resulting
from the acquisitions completed by us in September and December 2003.
Operating expenses for the nine months ended March 31, 2004 were
$9,038,939, as compared to $1,799,244 for the nine month period ended March 31,
2003. This increase was due primarily to a significant increase in salaries and
benefits which increased $4,538,882 from $673,001 for the nine-month period
ended March 31, 2003 to $5,211,883 for the nine-month period ended March 31,
2003. The increase is largely due to the acquisition of the new subsidiaries
($3.5 million), expansion of the global sales force ($0.4 million), and the
addition of finance, administrative and executive staff ($0.8 million) in
support of the new operating strategy.
Other significant increases in operating expenses resulted from increases
in selling, general and administrative expense, and depreciation and
amortization expense. Selling, general and administrative expense of $2,238,386
for the nine-months ended March 31, 2004 increased $1,876,154 from $362,232 for
the nine months ended March 31, 2003. Selling, general and administrative costs
attributable to the new subsidiaries totaled $1,904,063. Selling, general and
administrative costs attributable to the establishment of an international sales
force totaled $396,685. Depreciation and amortization expense increased from
$5,675 for the nine months ended March 31, 2003 to $745,582 for the nine months
ended March 31, 2004. Included in the increase of $739,907 is $339,079
attributable to amortization of intangible assets and $400,828 attributable to
depreciation expense, both as a result of the acquisitions of TouchVision, RMT,
Riverbend and IRCA.
We reported net loss available for common stockholders of $3,826,667, or
$0.17 per share on a diluted basis, for the nine months ended March 31, 2004,
compared with a net loss of $1,701,754 or $0.25 per share on a diluted basis,
for the same period last year.
Transition Period Ended June 30, 2003 Compared to Fiscal Year Ended
September 30, 2002
Our revenues for the nine-month transitional period ended June 30, 2003
were $167,790, as compared to $0 for the fiscal year ended September 30, 2002.
These revenues were generated by CBL, our sole operating subsidiary during the
period. Net loss for the nine-month transitional period ended June 30, 2003 was
$(2,101,336) as compared to $(565,931) for the fiscal year ended September 30,
2002.
Our operating expenses increased from $552,774 for the year ended
September 30, 2002 to $2,150,418 for the nine-month transitional period ended
June 30, 2003. This increase was due primarily to a significant increase in
salaries and benefits, which increased $960,123 from $83,000 for the year ended
September 30, 2002 to $1,043,123 for the period ended June 30, 2003. Of this
amount, $603,551 was paid for salaries and related tax, medical and other
benefits for the thirteen employees of CBL. During the period, we also hired our
president, chief financial officer and chief learning officer and incurred the
salary expense associated with these positions. Other significant increases in
operating expenses were related to travel and entertainment expenses, which
increased $121,725, from $60,868 for the year ended September 30, 2002 to
$182,593 for the transition period ended June 30, 2003. Professional fees
increased from $363,770 to $437,836, and included financial advisory and legal
expenses associated with financing and acquisition activities. Also included in
operating expense is $167,747 amortization expense resulting from the $1,118,312
capitalization of intellectual property acquired with CBL and related
amortization of this asset. Other expense of $113,639 increased substantially,
from $14,983 for the year ended September 30, 2002. This increase is primarily
attributable to interest paid on various loans incurred immediately prior to and
during the period.
Liquidity and Capital Resources
Our expenses are currently greater than our revenues. We have a history of
losses, and our accumulated deficit as of March 31, 2004 was $15,015,580, as
compared to $11,188,913 as of June 30, 2003.
At March 31, 2004, we had a cash balance of $971,849 compared to $86,511
at June 30, 2003. Net cash used by operating activities during the nine months
ended March 31, 2004 was $1,409,348, attributable primarily to our loss from
operations of $3,826,667. Included in cash used by operating activities were
payments for accounting
24
and insurance of $393,000. Net cash generated by financing activities was
$5,668,580 for the nine months ended March 31, 2004 representing the net of
borrowings and repayments under short-term notes of $293,247 plus $5,838,148 in
proceeds from issuance of common stock, conversion of bridge loans to common
stock and the exercise of warrants and options, less financing fees of $462,815.
Of these funds, an aggregate of $2,090,700 was advanced to our subsidiaries;
$500,000 was pledged as a letter of credit to IRCA; $492,250 was paid for
financing related legal fees and sales commissions; $1,023,100 was paid for
acquisition related legal and financial advisor fees; $500,000 was repaid on
short-term promissory notes to a related party; and $130,000 was paid for other
financial advisory fees.
Accounts receivable increased from $42,719 at June 30, 2003 to $3,919,391
at March 31, 2004. This increase is due to receivables owed to the four
subsidiaries we acquired during the autumn of 2003.
Accounts payable increased from $391,872 at June 30, 2003 to $2,538,840 at
March 31, 2004. This increase is attributable to expenses incurred in connection
with our acquisitions and our continuing corporate expansion during the year.
On May 28, 2004, notes payable to the former owners of VILPAS in the
principal amount of $500,000 and to the former owners of the Danlas Shares in
the aggregate principal amount of $30,000 (see "Description of Business - Our
Business - IRCA") were converted to 1,000,000 and 3,500,000 shares,
respectively, of our common stock.
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 its growth. Capital expenditures, excluding
purchases financed through capital lease, during the first nine months of fiscal
years 2004 and 2003 were $186,593 and $12,834, respectively.
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 4,520,065 shares of
our common stock. Financing fees incurred in connection with the sale of the
notes are approximately $241,200.
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
fails to obtain such financing and improve its 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.
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
matures on October 27, 2004, bears interest at the rate of twelve percent (12%).
The holder of the note has 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. We also entered into a registration
rights agreement with Oceanus covering the shares issuable upon any conversion
of the note and the shares underlying the warrant.
We are also currently negotiating the issuance of a $5.5 million
convertible note, the proceeds of which would be used for operating capital and
future acquisitions.
25
Critical Accounting Policies and Estimates
Our financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America and form the basis
for the following discussion and analysis on critical accounting policies and
estimates. The preparation of these financial statements required us to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. We base these estimates on historical experience and on various
other assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources. These estimates and assumptions are evaluated on a regular basis.
Actual results may differ from these estimates under different assumptions or
conditions. A summary of our significant accounting policies is set out in Note
2 to our audited financial statements.
Related Party Transactions
Our corporate reorganization during the fiscal year ended September 30,
2002 was effected primarily by two of our officers and directors, Messrs.
Douglas Cole and Edward Mooney. During that fiscal year and the transition
period subsequent thereto, we entered into several transactions with these
individuals and with entities controlled by them, as well as entities controlled
by Theodore Swindells, one of our significant stockholders.
As of August 8, 2002, we formalized a Debt Conversion Agreement with
Global Marketing Associates, Inc. ("GMA"), holder of a convertible promissory
note (the "GMA Note") in the principal amount of $166,963, pursuant to which the
principal amount of the note, along with accrued interest thereon, was made
convertible, under certain conditions, into 3,200,000 shares of our common
stock. The GMA Note was originally issued in November 2000 to the attorneys of
our predecessor company and was subsequently acquired by Pacific Management
Services, Inc., who assigned the note to GMA. GMA subsequently assigned the
right to acquire 2,600,000 of the 3,200,000 shares of common stock into which
the note is convertible, to several persons, comprising Messrs. Cole, Mooney,
and Swindells and European American Securities, Inc., a private entity of which
Theodore Swindells is a principal. Pursuant to the assignment, Messrs. Cole and
Mooney each acquired the right to acquire 600,000 shares of the common stock
into which the GMA Note was convertible and Mr. Swindells acquired the right to
acquire 1,000,000 shares. As of January 2003, all 3,200,000 shares of our common
stock had been issued pursuant to the terms of the GMA Note. Fifty percent of
such shares are subject to a two-year lock-up provision that restricts transfer
of such shares without prior written consent of our board of directors.
As of July 15, 2002, we entered in a two-year Advisory Agreement with
Granite Creek Partners, LLC ("GCP"), formerly King's Peak Advisors, LLC,
automatically renewable for an additional 12-month period. Under the terms of
the Advisory Agreement, GCP agreed to provide us with general corporate,
financial, business development and investment advisory services on a
non-exclusive basis. These services include assisting with the identification of
placement agents, underwriters, lenders and other sources of financing, as well
as additional qualified independent directors and members of management. GCP is
a private company whose principals are Douglas Cole and Edward Mooney, two of
our officers and directors, and Theodore Swindells. At its August 19, 2003
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. Of the balance of $205,000, $203,469 has been paid to GCP,
leaving a balance owing at December 31, 2003 of $1,531.
As of July 31, 2002, we entered into an Advisory Agreement with European
American Securities, Inc. ("EAS"), a private entity of which Theodore 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 respecting financial advisory and investment
banking services rendered in connection with our senior convertible bridge note
offering, which closed on May 28, 2004, for which we paid EAS a fee of 10%.
Through July 31, 2004, EAS had earned a total of $861,450
26
pursuant to our arrangement with them, of which $345,450 was earned in
connection with private equity and/or debt transactions and $415,000 was earned
for advisory services in connection with certain acquisitions. As of July 31,
2004, the balance owed to EAS was $76,961.
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, as follows: $145,000 during the fiscal year ended September 30,
2001 and $780,000 during the transition period from October 1, 2002 to June 30,
2003. 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 balance of $425,000. 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.
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, GSP
exercised its warrants in a cashless exercise for which it received a total of
126,042 shares of common stock.
Effective October 1, 2002, we issued an aggregate of 1,200,000 restricted
shares of our common stock at a price of $0.025 per share to our three
directors, Messrs. Cole, Mooney and Jobe, in consideration for past services
valued at $30,000.
In connection with its acquisition of our interest in IRCA, we entered
into an agreement with Titan Aviation Ltd., 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 Aviation 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,
receives a monthly fee of $2,000 for services to IRCA and 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 June 2004 as compensation for merger and acquisition
services associated with our acquisition of TouchVision.
DIRECTORS AND EXECUTIVE OFFICERS
Biographical Information
The following table sets forth the names, ages and titles of our executive
officers and directors.
Name Age Position
---- --- --------
Douglas D. Cole 49 Chief Executive Officer and Director
Edward P. Mooney 44 President and Director
Richard J. Marino 56 Chief Operating Officer
Christine R. Larson 50 Chief Financial Officer
William D. Jobe 65 Director
Richard G. Thau 57 Director
Arthur Ronald Kidson 61 Director
Martin Steynberg 42 Director
27
Certain biographical information pertaining to the above-named officers
and directors is set forth below.
Douglas D. Cole. Mr. Cole has been a director of Trinity Learning
Corporation since January 2002 and has served as our chief executive officer
since August 2002. For the past 25 years, Mr. Cole has worked in the information
technology industry, with a focus on sales and marketing. He has successfully
completed numerous acquisitions and strategic partnerships for and among various
companies. He served as a director of USA Broadband, Inc., a publicly-traded
company specializing in delivery of digital video and television programming,
from October 2001 to October 2003, and served as interim president of its
operating subsidiary, Cable Concepts, Inc., from November 2001 to April 2002.
From August 1998 to June 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 April 1999 to February 2000. He
served as the Chief Executive Officer of PolarCap, Inc. from its inception until
August 1998. Mr. Cole was the founder and Chief Executive Officer of Great Bear
Technology from its inception in 1992 until its merger with Graphic Zone Inc. in
1992.
Edward P. Mooney. Mr. Mooney has been a director of Trinity Learning
Corporation since January 2002 and has served as our President since October 1,
2002. Mr. Mooney has 20 years' experience in corporate development, corporate
finance, and financial research and analysis. He served as a director and
officer of USA Broadband, Inc., a publicly-traded company, from April 2001 to
October 2003, and he also served as interim Chief Executive Officer until
September 2002 and provided consulting services to USA Broadband until May 2003.
Prior thereto, Mr. Mooney was self-employed as a corporate consultant. Mr.
Mooney served as a director for RateXchange Corporation from November 1998 to
April 2000 and as Executive Vice President from April 1999 to April 2000. Mr.
Mooney also served as a director of WorldPort Communications, Inc. from
September 1996 to May 1998 and as President from September 1996 to April 1997.
During 2002, Mr. Mooney served as a director of Category 5 Technologies, Inc. a
publicly traded company. He also served as a director of InterAmericas
Communications Corporation, HQ Office International and HQ Office Supplies
Warehouse.
Richard J. Marino. Mr. Marino was appointed as Trinity Learning
Corporation's Chief Operating Officer in May 2004. Mr. Marino has over 20 years
of senior executive management experience in global operations, product
development and sales for major publishing and media companies. Prior to joining
us, Mr. Marino was most recently vice-president and publisher of Dowden Health
Media. Prior thereto, from 2001 until August 2003, Mr. Marino was managing
partner of the Management Group, LLC, a business services organization. During
2001, Mr. Marino was also chief executive officer of Standard Media
International, publisher of The Industry Standard Magazine. From 1999 to 2001,
Mr. Marino was chief operating officer of CNET Networks, Inc., which operated
one of the world's largest websites offering a variety of products and services.
Mr. Marino has a degree in business administration from Huron University in
Huron, South Dakota.
Christine R. Larson. Ms. Larson has over 20 years' experience as a
business and financial professional. She has served as our chief financial
officer since January 2003. Prior to that time, she worked as an independent
financial and marketing consultant to start-up software, hardware and internet
service companies. In 1999, she worked for KPMG Consulting, Inc. She was
previously employed from 1985 to 1998 by Bank of America Corporation, most
recently as a senior vice president in their interactive services division.
While working at Bank of America Corporation, she served as chief financial
officer of their leasing subsidiary, BA Leasing and Capital Corporation and of
their venture capital subsidiary, BA Ventures Inc. She is a certified public
accountant licensed in the state of California.
William D. Jobe. Mr. Jobe has been a director of Trinity Learning
Corporation since January 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
28
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 Trinity Learning
Corporation since January 2004. Mr. Thau is a self-employed
consultant/mentor/advisor, and investor in early stage information technology
companies and serves as an executive-in-residence at InterWest Partners. From
1990 to 1999, Mr. Thau served as Director, Chairman of the Board and CEO of
FullTime Software (formerly Qualix Group), a provider of software for network
based computing. He also is the former CEO of Micro-MRP.
Arthur Ronald Kidson. Mr. Kidson has been a director of Trinity Learning
Corporation since January 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. Mr. Kidson has an accounting degree from the
University of South Africa and completed the Stanford University Executive
Program in 1986.
Martin Steynberg. Mr. Steynberg has been a director of Trinity Learning
Corporation since January 2004. He was appointed to the board pursuant to the
terms of the agreement by which Trinity Learning acquired its interest in IRCA
(Proprietary) Limited. Mr. Steynberg has served as the Chief Executive Officer
of Titan Aviation Ltd., a Guernsey corporation, since 1999. Prior to that, Mr.
Steynberg was the managing director of Hubschrauber Transport GMBH in Austria
from 1997 to 1999. From 1995 to 1997, Mr. Steynberg was a partner with Barnard
and Co. Chartered Accountants (SAICA) in South Africa.
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 review of Forms 3 and 4 and amendments
thereto furnished to us during our most recent fiscal year and Forms 5 and
amendments thereto furnished to us, or any written representations made to us
that no Form 5 was required, we believe that all reporting requirements under
Section 16(a) were met in a timely manner by the persons who were executive
officers, directors or greater than 10% stockholders of Trinity Learning
Corporation during the transition period ended June 30, 2003, except for the
following: a Form 3 for Douglas D. Cole that was due to be filed on or before
January 30, 2002 was filed on December 18, 2003; a Form 3 for Edward P. Mooney
that was due to be filed on or before February 8, 2002 was filed on December 2,
2003; a Form 3 for Christine R. Larson that was due to be filed on or before
January 23, 2003 was filed on December 2, 2003; and a Form 3 for William D. Jobe
that was due to be filed on or before February 8, 2002 was filed on December 2,
2003. In addition, Forms 4 were due to be filed in respect of certain
transactions involving these persons at various dates in 2002 and 2003; the
information pertaining to these transactions was included in the information
provided in their respective Forms 3.
29
EXECUTIVE COMPENSATION
The table below sets forth certain information regarding the annual and
long-term compensation for services to us in all capacities for the fiscal year
ended June 30, 2004, the nine month transitional period ended June 30, 2003 and
the fiscal year ended September 30, 2002 of Messrs. Douglas Cole and Edward
Mooney and Christine R. Larson. These individuals received no other compensation
of any type, other than as set out below, during the fiscal years indicated.
Summary Compensation Table
Annual Compensation Long Term Compensation
----------------------------- --------------------------------------------
Other
Annual Restricted Long Term All Other
Compen- Stock Stock Incentive Compen-
Name and Principal Position Year Salary Bonus sation Awards Options Payouts sation
--------------------------- ---- ------ ----- ------ ------ ------- ------- ------
Douglas D. Cole 2004 $180,000 - $12,000 - 250,000 - -
Chief Executive Officer 2003 $135,000 $25,000 $9,000 - 250,000 - -
2002 $75,000 - $5,000 - - - $12,500
Edward P. Mooney 2004 $180,000 - $12,000 - 250,000 - -
President 2003 $135,000 $25,000 $9,000 - 250,000 - -
2002 - - - - - - $12,500
Christine R. Larson 2004 $165,000 - $9,000 250,000 - -
Chief Financial Officer 2003 $45,800 - - 200,000 - -
2002 - - - - - - -
The following table sets forth the individual stock option grants made
during the fiscal year ended June 30, 2004 to each of the above named executive
officers.
Stock Option Grants in Last Fiscal Year
Individual Grants
--------------------
% of Total Options
Number of Securities Granted to Employees Exercise Price
Name Underlying Options in Fiscal Year per Share Expiration Date
---- ------------------ -------------- --------- ---------------
Douglas D. Cole 250,000 5.9% $0.50 December 31, 2008
Edward P. Mooney 250,000 5.9% $0.50 December 31, 2008
Christine R. Larson 250,000 5.9% $0.50 December 31, 2008
The following table sets forth the aggregate stock option exercises and
fiscal year-end option values for each of the above named executive officers for
the fiscal year ended June 30, 2004.
Aggregate Option Exercises in Last Fiscal Year and FY-End Values
The following table sets forth the aggregate stock option exercises and
fiscal year-end option values for each of the above named executive officers. No
stock options were exercised during the year ended June 30, 2004.
30
Number of Securities
Shares Underlying Unexercised Value of Unexercised
acquired on Options at FY-End Options at FY-End
Name Exercise Value Realized Exercisable/Unexercisable Exercisable/Unexercisable
---- -------- -------------- ------------------------- -------------------------
Douglas D. Cole - - 254,965 / 245,035 $87,157/$100,343
Edward P. Mooney - - 254,965 / 245,035 $87,157/$100,343
Christine R. Larson - - 216,815/233,185 $77,619/$97,380
As of August 12, 2002, we formalized an employment agreement that provides
for the employment of Mr. Cole as chief executive officer at an annual salary of
$180,000, or such higher rate as the board of directors may determine. The
agreement, which has a two-year term from August 12, 2002, is automatically
renewable for a further twelve-month period, unless earlier terminated. In
addition to his salary, Mr. Cole is entitled to $1,000 per month for automobile
reimbursement and various other benefits. On October 1, 2002, we entered into an
employment agreement with Mr. Mooney on substantially similar terms to the
agreement with Mr. Cole, pursuant to which Mr. Mooney agreed to serve as our
president. We have entered into a similar employment agreement with Ms. Larson.
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.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of July 31, 2004
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 31,040,143 outstanding shares of
common stock as of July 31, 2004. Unless otherwise indicated, the address for
each of the following is 1831 Second Street, Berkeley, California 94710.
Number of Total Percent of Class
Name and Address of Number of Options & Beneficial Beneficially
Beneficial Owner Shares Owned Warrants (1) Ownership (2) Owned
---------------- ------------ ------------ ------------- -----
Douglas D. Cole 2,126,987(4) 286,473(4)(5) 2,413,460 7.70%
Chief Executive Officer and Director
Edward P. Mooney 2,046,987(4) 286,473(4)(5) 2,333,460 7.45%
President and Director
William Jobe 200,000 80,614 280,614 *
6654 Bradbury Court
Fort Worth, TX 76132
Director
Arthur R. Kidson - 58,361 58,361 *
2 Epsom Road
Stirling, East London
Republic of South Africa
Director
31
Number of Total Percent of Class
Name and Address of Number of Options & Beneficial Beneficially
Beneficial Owner Shares Owned Warrants (1) Ownership (2) Owned
---------------- ------------ ------------ ------------- -----
Martin Steynberg 1,756,069(3) 1,756,069 5.35%
P.O Box 10326
George
Republic of South Africa
Director
Richard Thau - 85,166 85,166 *
2468 Sharon Oaks Drive
Menlo Park, CA 94025
Director
Richard Marino - 101,892(5) 101,892 *
Chief Operating Officer
Christine R. Larson - 245,171(5) 245,171 *
Chief Financial Officer
Steven Hanson 2,080,000 3,000,000 5,080,000 14.92%
1319 NW 86th Street
Vancouver, WA 98665
5% Shareholder
Theodore Swindells 2,709,093(4) 1,575,000(4) 4,284,093 13.14%
11400 Southeast 8th Street
Bellevue, WA 98004
5% Shareholder
Luc Verelst 3,675,138 4,000,000 7,675,138 21.90%
Verbier, Switzerland 1936
5% Beneficial Owner
Granite Creek Partners, LLC 1,622,910(4) - 1,622,910 5.23%
1338 South Foothill Drive
Salt Lake City, UT 84108
5% Beneficial Owner
All executive officers and directors of the 4,373,974(3)(4) 2,907,775(3)(4) 7,281,749 21.43%
Company as a group (8 persons)
* Denotes less than one percent (1%).
(1) Reflects warrants, options or other convertible securities that will be
exercisable, convertible or vested as the case may be within 60 days of
July 31, 2004.
(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
July 31, 2004 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
stockholder's name.
(3) Includes shares issuable upon certain performance criteria for our
operating subsidiary, IRCA Pty. Ltd. Mr. Steynberg owns 31% of Musca
Holding Limited, a British Virgin Company, an he disclaims beneficial
ownership of the shares owned by Musca and/or are issuable to Musca. A
proportionate ownership of these shares is included in the calculation of
beneficiary ownership for Mr. Steynberg.
(4) Includes shares owned by Granite Creek Partners, LLC, a Utah limited
liability corporation ("GCP") (formerly known as Kings Peak Advisors,
LLC). Mr. Cole, Mr. Mooney and Mr. Swindells
32
each own a 33-1/3% interest in GCP, and each disclaims beneficial
ownership of the shares in the Company that are issuable to GCP.
Proportionate ownership of these shares is included in the calculation of
beneficiary ownership for Mr. Cole, Mr. Mooney and Mr. Swindells.
(5) Includes that portion of options that have vested or will vest within 60
days from November 4, 2003 under the 2002 Stock Plan.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Our corporate reorganization during the fiscal year ended September 30,
2002 was effected primarily by two of our officers and directors, Messrs.
Douglas Cole and Edward Mooney. During that fiscal year and the transition
period subsequent thereto, we entered into several transactions with these
individuals and with entities controlled by them, as well as entities controlled
by Theodore Swindells, one of our significant stockholders.
As of August 8, 2002, we formalized a Debt Conversion Agreement with
Global Marketing Associates, Inc. ("GMA"), holder of a convertible promissory
note (the "GMA Note") in the principal amount of $166,963, pursuant to which the
principal amount of the note, along with accrued interest thereon, was made
convertible, under certain conditions, into 3,200,000 shares of our common
stock. The GMA Note was originally issued in November 2000 to the attorneys of
our predecessor company and was subsequently acquired by Pacific Management
Services, Inc., who assigned the note to GMA. GMA subsequently assigned the
right to acquire 2,600,000 of the 3,200,000 shares of common stock into which
the note is convertible, to several persons, comprising Messrs. Cole, Mooney,
and Swindells and European American Securities, Inc., a private entity of which
Theodore Swindells is a principal. Pursuant to the assignment, Messrs. Cole and
Mooney each acquired the right to acquire 600,000 shares of the common stock
into which the GMA Note was convertible and Mr. Swindells acquired the right to
acquire 1,000,000 shares. As of January 2003, all 3,200,000 shares of our common
stock had been issued pursuant to the terms of the GMA Note. Fifty percent of
such shares are subject to a two-year lock-up provision that restricts transfer
of such shares without prior written consent of our board of directors.
As of July 15, 2002, we entered in a two-year Advisory Agreement with
Granite Creek Partners, LLC ("GCP"), formerly King's Peak Advisors, LLC,
automatically renewable for an additional 12-month period. Under the terms of
the Advisory Agreement, GCP agreed to provide us with general corporate,
financial, business development and investment advisory services on a
non-exclusive basis. These services include assisting with the identification of
placement agents, underwriters, lenders and other sources of financing, as well
as additional qualified independent directors and members of management. GCP is
a private company whose principals are Douglas Cole and Edward Mooney, two of
our officers and directors, and Theodore Swindells. At its August 19, 2003
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. Of the balance of $205,000, $203,469 has been paid to GCP,
leaving a balance owing at December 31, 2003 of $1,531.
As of July 31, 2002, we entered into an Advisory Agreement with European
American Securities, Inc. ("EAS"), a private entity of which Theodore 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 respecting financial advisory and investment
banking services rendered in connection with our senior convertible bridge note
offering, which closed on May 28, 2004, for which we paid EAS a fee of 10%.
Through July 31, 2004, EAS had earned a total of $861,450 pursuant to our
arrangement with them, of which $345,450 was earned in connection with private
equity and/or debt transactions and $415,000 was earned for advisory services in
connection with certain acquisitions. As of July 31, 2004, the balance owed to
EAS was $76,961.
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, as follows: $145,000 during the fiscal year ended
33
September 30, 2001 and $780,000 during the transition period from October 1,
2002 to June 30, 2003. 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 balance of $425,000. 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.
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, GSP
exercised its warrants in a cashless exercise for which it received a total of
126,042 shares of common stock.
Effective October 1, 2002, we issued an aggregate of 1,200,000 restricted
shares of our common stock at a price of $0.025 per share to our three
directors, Messrs. Cole, Mooney and Jobe, in consideration for past services
valued at $30,000.
In connection with its acquisition of our interest in IRCA, we entered
into an agreement with Titan Aviation Ltd., 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 Aviation 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,
receives a monthly fee of $2,000 for services to IRCA and 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.
LEGAL PROCEEDINGS
None.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
On July 8, 2004, we notified Chisholm, Bierwolf & Nilson, LLC, ("CBN") of
our decision to dismiss CBN as our independent auditors and we engaged BDO
Spencer Steward to serve as our independent auditor for the fiscal year ended
June 30, 2004. The decision to change auditors was approved by our Board of
Directors.
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 its 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 its 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
34
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 the Registrant 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.
Effective July 8, 2004, we engaged BDO Spencer Steward as our independent
auditors with respect to our fiscal year ending June 30, 2004. We also engaged
BDO Seidman, LLP as independent accountants on whom BDO Spencer Steward is
expected to express reliance in connection with the delivery of its audit report
regarding significant subsidiaries.
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 Spencer Steward 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 Spencer
Steward 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 February 19, 2004, our independent auditors, Bierwolf, Nilson &
Associates, Certified Public Accountants, informed us that on February 10, 2004,
that firm had merged its operations into CBN and was therefore effectively
resigning as our auditors. Bierwolf, Nilson & Associates had audited our
financials statements for the fiscal year ended September 30, 2002 and the
transition period ended June 30, 2003 and its reports for each 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.
There were no disagreements between us and Bierwolf, Nilson & Associates 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 Bierwolf, Nilson &
Associates into CBN.
DESCRIPTION OF SECURITIES
We are authorized to issue 110,000,000 shares of common stock, no par
value, and 10,000,000 shares of undesignated preferred stock, no par value per
share. As of July 31, 2004, there were 31,040,143 shares of common stock
outstanding, which were held of record by 625 stockholders, and there were no
shares of preferred stock outstanding.
Holders of common stock are entitled to one vote per share on all matters
to be voted upon by the stockholders. Holders of common stock do not have
cumulative voting rights, and, therefore, holders of a majority of the shares
voting for the election of directors can elect all of the directors. In such
event, the holders of the remaining shares will not be able to elect any
directors. Subject to preferences that may be applicable to any then-outstanding
preferred stock, holders of common stock are entitled to receive such dividends
as may be declared from time to time by our board of directors out of funds
legally available therefore. We have never declared or paid cash dividends on
our capital stock, expect to retain future earnings, if any, for use in the
operation and expansion of its business, and do not anticipate paying any cash
dividends in the foreseeable future.
In the event of liquidation, dissolution or winding up of our company,
holders of common stock are entitled to share ratably in all assets legally
available for distribution after payment of all debts and other liabilities and
subject to the prior rights of the holders of any preferred stock then
outstanding. Holders of common stock have no preemptive or other subscription or
conversion rights, and there are no redemption or sinking fund provisions
applicable to the common stock.
35
Our Amended and Restated Articles of Incorporation authorize 10,000,000
shares of undesignated preferred stock. Our board of directors will have the
authority, without any further vote or action by our stockholders, to issue from
time to time the preferred stock in one or more series and to fix the price,
rights, preferences, privileges and restrictions thereof, including dividend
rights, dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares constituting
a series or the designation of such series. The issuance of preferred stock,
while providing desirable flexibility in connection with possible acquisitions
and other corporate purposes, could decrease the amount of earnings and assets
available for distribution to holders of common stock or adversely affect the
rights and powers, including voting rights, of the holders of common stock, and
may have the effect of delaying, deferring or preventing a change in control of
our company without further action by the stockholders. We have no current plans
to issue any shares of preferred stock.
MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
As of July 31, 2004, there were 625 holders of record of our common stock.
Our common stock has traded 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 sporadically on
the Pink Sheets. For the period from December 23, 2003 to August 11, 2004, the
high ask and low bid for Trinity Learning's common stock on the OTC Electronic
Bulletin Board were $2.50 and $0.80, respectively. The amounts reflect
inter-dealer prices, without retail mark-up, markdown or commission, and may not
represent actual transactions.
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
for the period December 23-31, 2003, the quarters ended June 30, 2004 and March
31, 2004 and for the period from July 1 - August 11, 2004. These prices are
based on inter-dealer bid prices, without markup, markdown, commissions, or
adjustments and may not represent actual transactions.
Quarter/Period Low High
-------------- ------ ------
July 1 - August 11, 2004 $ 0.85 $ 1.20
April 1, 2004 - June 30, 2004 $ 0.80 $ 1.50
January 1, 2004 - March 31, 2004 $ 1.50 $ 2.50
December 23, 2003 - December 31, 2003 $ 1.59 $ 1.59
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.
The 2002 Stock Plan
On December 2, 2002, at a special meeting of our shareholders, the 2002
Stock Plan was approved. The maximum aggregate number of shares that may be
optioned and sold under the plan is the total of (a) 3,000,000 shares, (b) an
annual 500,000 increase to be added on the last day of each fiscal year
beginning in 2003 unless a lesser amount is determined by the board of
directors. The plan became effective with its adoption and remains in effect for
ten years unless terminated earlier. On December 30, 2003, our Board of
Directors approved an increase in the base number of shares issuable pursuant to
the Stock Plan from 3,000,000 to 6,000,000 and changed the annual increase in
the number of shares issuable under the Stock Plan from 500,000 to 1,000,000.
These increases were approved to accommodate the increased number of options
issuable pursuant to our corporate acquisitions. 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 table sets forth certain information regarding securities
authorized for issuance under the 2002 Stock Plan, as of July 31, 2004.
36
Equity Compensation Plan Information
Number of Securities to be Weighted Average Number of Securities
Issued upon Exercise of Exercise Price of Remaining Available for
Plan Category Outstanding Options Outstanding Options Future Issuance
------------- ------------------- ------------------- ---------------
2002 Stock Plan 5,545,000 $0.45 1,909,590
SELLING SECURITY HOLDERS
The following table details the name of each selling security holder, the
number of shares owned by the selling security holder, and the number of shares
that may be offered for resale under this prospectus. Because each selling
security holder may offer all, some, or none of the shares it acquires on
exercise of its warrants, and because there are currently no agreements,
arrangements, or understandings with respect to the sale of any of the shares,
no definitive estimate as to the number of shares that will be held by each
selling security holder after the offering can be provided. The following table
has been prepared assuming that all shares offered under this prospectus will be
sold to parties unaffiliated with the selling security holders. Except as
indicated, none of the selling security holders has had a significant
relationship with us within the past three years, other than as a result of the
ownership of our shares or other securities. Unless otherwise indicated, the
selling security holders have sole voting and investment power over their
respective shares. The term "selling security holder" or "selling security
holders" includes the stockholders listed below and their transferees,
assignees, pledgees, donees or other successors. Each selling stockholder
reserves the right to accept or reject, in whole or in part, any proposed sale
of shares. Each selling stockholder also may offer and sell less than the number
of shares indicated. No selling stockholder is making any representation that
any shares covered by this prospectus will or will not be offered for sale.
Most of the selling security holders acquired their shares in various
private placements that we have conducted over the course of the past two years.
Certain of our affiliates, identified below, acquired many of their shares
pursuant to various agreements with us (see "Certain Relationships and Related
Transactions"), and many of these shares were made subject to that certain
registration agreement (the "Registration Agreement") entered into in June 2003
between such parties and each of us, Standard Registrar and Transfer Company and
the National Association of Securities Dealers, Inc., which provided that such
shares would not be publicly sold unless and until such time as an effective
registration statement covering such securities is on file with the United
States Securities and Exchange Commission.
Number of Shares Number of
Owned Prior to Number of Shares Owned Percentage Owned
Selling Securityholder Offering Shares Offered After Offering After Offering
-------------------------------------------------------------------------------------------------------------------------------
Adams, Laramie 29,413 29,413 0
Adams, Michael 29,413 29,413 0
Agnew, Devin Victor (11) 1,548 1,548 0
Agnew, Clifford Bryce (11) 41,287 41,287 0
Anderson, John 30,000 30,000 0
Anderson, Michael (12) 100,000 100,000 0
Avis, Christine 2,500 2,500 0
Baker-Simms, Beverly 1,000 1,000 0
Banque Franck, Galland & Cie SA 41,851 41,851 0
Bautista, Calixto (11) 1,548 1,500 0
Bishop, Daniel (11) 1,032 1,032 0
Bishop, Carol (Trust) (11) 2,580 2,580 0
Burrus, Yves 384,005 384,005 0
37
Number of Shares Number of
Owned Prior to Number of Shares Owned Percentage Owned
Selling Securityholder Offering Shares Offered After Offering After Offering
-------------------------------------------------------------------------------------------------------------------------------
Carter, Elaine Anne (11) 36,128 36,128 0
Chandler, Deanna & Allen 40,000 40,000 0
Chanobie Resources Limited 33,487 33,487 0
Ciardi, Francesco 245,990 245,990 0
Cole, Casey (2) (16) 50,000 50,000 0
Cole, Kelli (2) (16) 50,000 50,000 0
Cole, Ryan (2) (16) 50,000 50,000 0
Cole, Douglas & Corinne (1) (16) 336,017 336,017 0
Cole, Doug (1) (3) 1,100,000 1,100,000 0
Dam, JC 167,402 167,402 0
d'Amore, Melissa 5,000 5,000 0
d'Amore, Tancredi 5,000 5,000 0
Dawson, Roland Arthur 20,119 20,000 119
Debarge, Alexandra 5,000 5,000 0
Debarge, Iona 5,000 5,000 0
Debarge, Oliver 20,000 20,000 0
Debarge, Robina 5,000 5,000 0
Dent, David 40,215 40,215 0
Dileva, Rosario Antonio (16) 20,000 20,000 0
Doxford, Tim 2,000 2,000 0
Elmwood Capital (12) 300,000 300,000 0
European American Perinvest Group (5)(14) 644,199 644,199 0
Fischer, Brandi 40,000 40,000 0
Fitzsimmons, Michael 66,290 66,290 0
Garafas, George 1,000 1,000 0
Garelick, Steve (16) 5,000 5,000 0
Global Marketing Associates, Inc. (3) 600,000 600,000 0
Grace Investment Ltd. 169,832 169,832 0
Granite Creek Partners LLC (3) 1,622,910 1,622,910 0
Groefsema, Jakob 25,160 25,160 0
Gygax, Katie 2,000 2,000 0
Hancock Investment Ltd. 83,909 83,909 0
Hanley, Louis Patrick 20,000 20,000 0
Hanson, Brooke L. 40,000 40,000 0
Hanson, Bryce 40,000 40,000 0
Hanson, Steven 2,000,000 2,000,000 0
Hayman, Ildi (10) 350,000 350,000 0
Hedblom, Per 10,027 10,027 0
Hermitage Securities Limited 300,000 300,000 0
Hofstad, Bernt 214,204 214,204 0
Hufstetler, Guy 40,000 40,000 0
Hufstetler, Rod 55,600 55,600 0
Hufstetler, Lois 80,000 80,000 0
Huguenot Memorial Church 12,500 12,500 0
Hulick, Robert & Susan 20,000 20,000 0
Hume, Gary 11,344 11,344 0
Hustler, Trudie 1,000 1,000 0
Hyacinth Resources, Inc. (16) 750,000 750,000 0
Isom, Terry 100,000 100,000 0
Jennings, Malcom 140,568 140,568 0
Jobe, William (3) (4) 200,000 200,000 0
38
Number of Shares Number of
Owned Prior to Number of Shares Owned Percentage Owned
Selling Securityholder Offering Shares Offered After Offering After Offering
-------------------------------------------------------------------------------------------------------------------------------
King, James 246,025 246,025 0
Klug, John 80,000 80,000 0
Knecht, Hanspeter 143,727 85,000 58,727
LB (Swiss) Private Bank Ltd. 63,452 63,452 0
Leopoldino, Helder 2,000 2,000 0
Lerdal, Mark (12) 50,000 50,000 0
Lesner, Michael (11) 5,161 5,161 0
Lombard Odier Hentsch & Cie 200,000 200,000 0
Loomis, Troy 200,000 200,000 0
Maclachlan, Neil T. 84,846 84,846 0
Mahar, Larry (11) 558,920 558,920 0
Mak, Alexander 50,000 50,000 0
Malonga-Matouba, Mihambanou 40,223 40,223 0
McPherson, Barbara (10) 350,000 350,000 0
Merriman, Jonathan 67,478 67,478 0
Merriman Curhan Ford & Co. (12) 100,000 100,000 0
Mooney, Vincenza Nancy (6) (16) 35,000 35,000 0
Mooney, Branden (6) (16) 75,000 75,000 0
Mooney, Danielle (6) (16) 75,000 75,000 0
Mooney, Edward & Teresa Trust (6) (16) 256,017 256,017 0
Mooney, Edward (3) (6) 1,100,000 1,100,000 0
Moore, Paul 128,790 62,500 0
Morton, James 5,000 5,000 0
Mullen, Peter 100,000 100,000 0
Munson, Eric 116,290 112,500 0
Nye, Daniel (13) 150,000 150,000 0
Olson, Jeff & Debra 40,000 20,000 0
Oltramare, Nicolas 167,594 167,594 0
Park Place Columbia Ltd. 551,487 551,487 0
Parson, William (11) 1,548 1,500 0
Penn, Richard (11) 39,780 39,780 0
Perrette, Jean-Rene 433,640 433,640 0
Pictet & Cie, Carsten Beyer 259,063 259,063 0
Pictet Private Equity Investors SA 100,000 100,000 0
Posner, Ronald (15) 100,000 100,000 0
Robbins, R.S. 30,000 30,000 0
Roche, Gregory (11) 558,920 558,920 0
Rodas, Gabriel (11) 1,548 1,548 0
Rogers, Malcolm (12) 200,000 200,000 0
Rotter, Bradley (12) 200,000 200,000 0
Roue, Naz 1,000 1,000 0
Sassi, Ismael 72,025 72,025 0
Schmidt, Robert B. 8,350 8,350 0
Senglaub, Joseph 30,000 30,000 0
Senglaub, Michael & Doris 100,000 50,000 0
Skauklas, Thomas 150,000 150,000 0
St. Vincent Catholic Church (16) 25,000 25,000 0
Staring Company Ltd. 500,000 500,000 0
Steinmetz, John (19) 125,000 125,000 0
Stratford, Val 40,000 40,000 0
Swindells, Theodore (7) (17) 1,654,140 1,654,140 0
39
Number of Shares Number of
Owned Prior to Number of Shares Owned Percentage Owned
Selling Securityholder Offering Shares Offered After Offering After Offering
-------------------------------------------------------------------------------------------------------------------------------
Swindells, Theodore (3) (7) 1,000,000 1,000,000 0
Tate, Joseph P. 90,000 90,000 0
Tate, Joseph P. 160,000 160,000 0
Terra Nova Explorer's Fund I 250,048 250,048 0
Thread Needle Street LLC (7) 500,000 500,000 0
TN Capital Equities, Ltd. (9) 40,721 40,721 0
Troncin, Gwen 5,000 5,000 0
Troncin, Gerard 30,000 30,000 0
Vejby, Michele (12) 20,000 20,000 0
Verelst, Luc (8) 3,675,138 3,675,138 0
Wace, N.J. 60,000 60,000 0
Weldon, Elizabeth 25,000 25,000 0
Weldon, John (16) 100,000 100,000 0
Westby, Kaare 50,000 50,000 0
Westland Utracht Effectenbank NV 359,496 359,496 0
Whiteman, Paul 5,000 5,000 0
Winkelman, P.H.M. 41,947 41,947 0
Wouters, Albert 170,087 170,087 0
Yundt, William 15,479 15,479 0
Zachrisson, Mia 5,000 5,000 0
(1) Douglas Cole is our Chief Executive Officer and one of our directors.
(2) Casey, Kelli and Ryan Cole are children of Douglas Cole, our Chief
Executive Officer and one of our directors.
(3) Shares covered by the Registration Agreement.
(4) William Jobe is one of our directors.
(5) Of this amount, 400,000 shares are subject to the Registration Agreement.
(6) Edward Mooney is our President and one of our directors. Vincenza Nancy
Mooney is Edward Mooney's mother. Branden Mooney and Danielle Mooney are
children of Edward Mooney. The Edward and Teresa Trust is an affiliate of
Edward Mooney.
(7) Theodore Swindells and entities controlled by him beneficially own
approximately 12.2% of our securities. See "Security Ownership of Certain
Beneficial Owners and Management."
(8) Luc Verelst beneficially owns approximately 20.45% of our securities. See
"Security Ownership of Certain Beneficial Owners and Management."
(9) TN Capital Equities, Ltd. received these shares in payment of a finder's
fee in connection with our private placement that closed in October 2003.
(10) These shares were acquired from us in connection with the acquisition of
our interest in River Murray Training (Pty.) Ltd.. See "Description of our
Business - Our Business - River Murray Trainity (Pty.) Ltd. (RMT)."
(11) These shares were acquired from us in connection with our acquisition of
TouchVision, Inc. See "Description of our Business - Our Business -
TouchVision."
(12) These shares were issued by us in exchange for investment advisory and/or
consulting services rendered to our company.
(13) Of these shares, 100,000 were issued by us in exchange for investment
advisory and/or consulting services rendered to our company. Of the total
number of shares, 50,000 are subject to the Registration Agreement..
(14) Of these shares, 250,000 were issued by us in payment of finder's fees in
connection with private placements.
(15) These shares were issued in payment of a finder's fee.
(16) These shares were transferred from Granite Creek Partners LLC (f/k/a Kings
Peak Advisors LLC) and are subject to the Registration Agreement.
(17) Of this amount, 986,017 shares were transferred from Granite Creek
Partners LLC and are subject to the Registration Agreement.
40
PLAN OF DISTRIBUTION
The selling security holders and any of their pledgees, assignees, and
successors-in-interest may, from time to time, sell any or all of their shares
of common stock they acquire on exercise of their warrants or options on any
stock exchange market or trading facility on which our shares are traded or in
private transactions. These sales may be at fixed or negotiated prices. The
selling security holders may use any one or more of the following methods when
selling shares.
o Ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o Block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the block
as principal to facilitate the transaction;
o Purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o Privately negotiated transactions;
o Short sales;
o Broker-dealers may agree with the selling security holders to sell a
specified number of such shares at a stipulated price per share;
o A combination of any such methods of sale; and
o Any other method permitted pursuant to applicable law.
Rather than sell shares under this prospectus, the selling security
holders may sell shares under Rule 144 adopted under the Securities Act of 1933,
after at least one year elapses from the date the warrants or options are
exercised and the other requirements of the Rule are satisfied. The selling
security holders may also engage in short sales against the box, puts and calls,
and other transactions in our securities or derivatives of our securities and
may sell or deliver shares in connection with these trades.
The selling security holders may pledge their shares to their brokers
under the margin provisions of customer agreements. If a selling security holder
defaults on a margin loan, the broker may, from time to time, offer and sell the
pledged shares. Broker-dealers engaged by a selling security holder to sell its
shares may arrange for other broker-dealers to participate in sales.
Broker-dealers may receive commissions or discounts from the selling security
holders (or, if any broker-dealer acts as agent for the purchaser of shares,
from the purchaser) in amounts to be negotiated.
The selling security holders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act of 1933 in connection with such sales. In such
event, any commissions received by such broker-dealers or agents and any profit
on the resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts.
We have agreed to pay all fees and expenses incident to the registration
of the shares. We have agreed to indemnify the selling security holders against
certain losses, claims, damages, and liabilities, including liabilities under
the Securities Act of 1933. The selling security holders have also agreed to
indemnify us, and our directors, officers, agents, and representatives against
certain liabilities, including certain liabilities under the Securities Act of
1933. In the opinion of the Securities and Exchange Commission such
indemnification agreements are against public policy as expressed in the
Securities Act of 1933 and are, therefore, unenforceable. The selling security
holders and other persons participating in the distribution of the shares
offered hereby are subject to the applicable
41
requirements of Regulation M promulgated under the Securities Exchange Act of
1934 in connection with the sale of the shares.
The selling securityholders have agreed to the following volume
restrictions concerning resale of their shares following the effective date of
this registration statement ("Effective Date"): (a) a maximum of 33% of the
registered shares can be offered and sold during the 90-day period following the
Effective Date; (b) up to a further 33% of the registered shares can be offered
and sold during the period between 91 and 180 days following the Effective Date;
and (c) the remaining 34% of the registered shares can be offered and sold
during the period between 181 and 270 days following the Effective Date.
EXPERTS AND COUNSEL
The audited financial statements of Trinity Learning are included herein
in reliance on the report of Bierwolf, Nilson & Associates, given on the
authority of such firm and its successor firm, Chisholm, Bierwolf & Nilson, LLC,
as experts in auditing and accounting.
Parsons Behle & Latimer, Salt Lake City, Utah, will pass on the validity
of our common stock being offered by this prospectus.
ADDITIONAL INFORMATION
We have filed a registration statement on Form SB-2 with the SEC for the
common stock offered by the selling security holders under this prospectus. This
prospectus does not include all of the information contained in the registration
statement. You should refer to the registration statement and its exhibits for
additional information that is not contained in this prospectus. Whenever we
make reference in this prospectus to any of our contracts, agreements or other
documents, you should refer to the exhibits attached to this registration
statement for copies of the actual contract, agreement or document.
We file annual, quarterly and special reports and other information with
the Securities and Exchange Commission. You may read and copy any document we
file with the SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the Public Reference Room. Our SEC filings are also available to
the public at the SEC's web site at http://www.sec.gov.
In addition, we maintain an Internet website at www.trinitylearning.com. We do
not intend that our website be a part of this prospectus.
42
INDEX TO FINANCIAL STATEMENTS
Audited Financial Statements for the Transition Period ended June 30, 2003 and
the year ended September 30, 2002
Independent Auditor's Report dated October 18, 2003 F-1
Consolidated Balance Sheet as of June 30, 2003 and September 30, 2002 F-2
Consolidated Statements of Operations for the Transition Period
ended June 30, 2003 and the year ended September 30, 2002 F-3
Statement of Stockholders' Equity for the Period from
October 1, 2001 to June 30, 2003 F-4
Consolidated Statements of Cash Flows for the Transition
Period ended June 30, 2003 and the year ended September 30, 2002 F-5
Notes to Consolidated Financial Statements F-6
Unaudited Financial Statements as of March 31, 2004
Consolidated Balance Sheets March 31, 2004 and June 30, 2003 F-17
Consolidated Statements of Operations and Comprehensive Income
Three and Nine Months Ended March 31, 2004 and 2003 F-19
Consolidated Statements of Cash Flows Three and Nine Months
Ended March 31, 2004 and 2003 F-20
Notes to Consolidated Financial Statements F-21
43
BIERWOLF, NILSON & ASSOCIATES
CERTIFIED PUBLIC ACCOUNTANTS
1453 SOUTH MAJOR STREET
SALT LAKE CITY UTAH 84115
Telephone (801) 363-1175 Fax (801) 363-0615
A Partnership Nephi J. Bierwolf, CPA
of Professional Corporations Troy F. Nilson, CPA
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Trinity Learning Corporation
We have audited the accompanying consolidated balance sheet of Trinity Learning
Corporation, (a Utah corporation) as of June 30, 2003 and September 30, 2002,
and the related consolidated statements of operations, stockholders' equity and
cash flows for the transition period October 1, 2002 to June 30, 2003 and the
fiscal year ended September 30, 2002. These consolidated financial statements
are the responsibility of the management of Trinity Learning Corporation. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards, in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall consolidated financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Trinity Learning Corporation as
of June 30, 2003 and September 30, 2002, and the consolidated results of their
operations and its cash flows for the transition period October 1, 2002 to June
30, 2003 and the fiscal year ended September 30, 2002, in conformity with
generally accepted accounting principles, in the United States of America.
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 its 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.
Bierwolf, Nilson & Associates
Salt Lake City, Utah
October 18, 2003
F-1
Trinity Learning Corporation
Consolidated Balance Sheet
June 30, 2003 September 30, 2002
------------------ ------------------
Assets
------
Current Assets
Cash $ 86,511 $ 368,788
Accounts Receivable 42,719 -
Interest Receivable 41 1,826
Prepaid Expense 97,944 1,500
------------------ ------------------
Total Current Assets 227,215 372,114
------------------ ------------------
Property & Equipment (Note 3)
Furniture & Equipment 53,385 6,151
Accumulated Depreciation (7,824) (80)
------------------ ------------------
Net Property & Equipment 45,561 6,071
------------------ ------------------
Intangible Asset (Note 4)
Technology-Based Asset 1,118,312 -
Accumulated Amortization (167,747) -
------------------ ------------------
Net Intangible Asset 950,565 -
------------------ ------------------
Other Assets
Notes Receivable (Note 5) 25,000 -
Other Assets 94,003 -
------------------ ------------------
Total Assets $ 1,342,344 $ 378,185
================== ==================
Liabilities and Stockholders' Equity
------------------------------------
Current Liabilities
-------------------
Accounts Payable 391,872 229,375
Accrued Expenses 270,270 83,000
Interest Payable 63,987 25,001
Notes Payable (Notes 7 & 8) - 694,352
Notes Payable - Related Party (Notes 7 & 8) 2,147,151 117,611
------------------ ------------------
Total Liabilities 2,873,280 1,149,339
------------------ ------------------
Stockholders' Equity
--------------------
Preferred Stock, 10,000,000 Shares at No Par
Value; No Shares Issued and Outstanding (Note 9) - -
Common Stock, 100,000,000 Shares Authorized
at No Par Value, 14,956,641 shares and
49,774 shares Issued and Outstanding,
Respectively (Notes 9 & 10) 9,693,447 8,380,775
Accumulated Deficit (11,188,913) (9,116,929)
Subscription Receivable (Note 9) (35,000) (35,000)
Other Comprehensive Income (470) -
------------------ ------------------
Total Stockholders' Equity (1,530,936) (771,154)
------------------ ------------------
Total Liabilities and Stockholders' Equity $ 1,342,344 $ 378,185
================== ==================
The accompanying notes are an integral part of these financial statements.
F-2
Trinity Learning Corporation
Consolidated Statement of Operations
Transition Period
October 1, 2002 to Fiscal Year Ended
June 30, 2003 September 30, 2002
------------------ ------------------
Revenue $ 167,790 -
-------
Expenses
--------
Salaries & Benefits 1,043,123 83,000
Professional Fees 437,836 363,770
General & Administrative 228,931 31,647
Travel & Entertainment 182,593 60,868
Depreciation & Amortization 175,497 80
Rent 44,524 3,750
Office Expense 45,336 9,659
------------------ ------------------
Total Expense 2,157,840 552,774
------------------ ------------------
Income (Loss) from Operations (1,990,050) (552,774)
------------------ ------------------
Other Income (Expense)
----------------------
Interest Income (487) 1,826
Interest Expense (76,865) (14,983)
Foreign Currency Gain / (Loss) (4,582) -
------------------ ------------------
Total Other Income (Expense) (81,934) (13,157)
------------------ ------------------
Income (Loss) Before Taxes (2,071,984) (565,931)
Taxes - -
------------------ ------------------
Net Income (Loss) $ (2,071,984) (565,931)
================== ==================
Net Loss Per Common Share $ (0.25) (11.66)
================== ==================
Weighted Average Shares Outstanding 8,364,218 48,540
================== ==================
A summary of the components of other comprehensive income for the
transition period from October 1, 2002 to June 30, 2003 is as follows:
Transition Period
October 1, 2002 to June 30, 2003
Before Tax Amount After Tax Amount
------------------ ------------------
Net Income (Loss) $ (2,071,984) $ (2,071,984)
Foreign currency translation (470) (470)
------------------ ------------------
Total Other Comprehensive Income $ (2,072,454) $ (2,072,454)
================== ==================
The accompanying notes are an integral part of these financial statements
F-3
Trinity Learning Corporation
Statement of Stockholders' Equity
For the Period October 1, 2001 to June 30, 2003
Additional Comprehensive Accumulated
Shares Amount Paid-in-Capital Income Deficit
--------------- --------------- --------------- --------------- ---------------
Balance at October 1, 2001 46,174 $ 4,617 $ 8,341,158 $ - $ (8,550,998)
Issuance of Shares for a
Subscription Receivable 3,500 35,000 - - -
Rounding Due to Reverse Split 100 1,000 (1,000) - -
Change in Par Value - 8,340,158 (8,340,158) - -
Net Loss for the Period Ended
September 30, 2002 - - - - (565,931)
--------------- --------------- --------------- --------------- ---------------
Balance at September 30, 2002 49,774 8,380,775 - - (9,116,929)
Shares Issued for CBL Global
Corp. Acquisition 3,000,000 75,000 - - -
Shares Issued for Services at
$0.025 per Share 6,670,000 166,750 - - -
Shares Issued for Conversion on
Note Payable at $0.052 per Share 3,200,000 166,963 - - -
Shares Issued for Conversion of
Note and Interest Payable at
$0.40 per Share 1,336,867 534,745 - - -
Shares Issued for Cash at $0.50
per Share 700,000 350,000 - - -
Cost of Share Issuance - (57,560)
Foreign Currency Translation - - - (470) -
Stock Option Issuance - 76,774 - - -
Net Loss for the Period Ended
June 30, 2003 - - - - (2,071,984)
--------------- --------------- --------------- --------------- ---------------
Balance at June 30, 2003 14,956,641 $ 9,693,447 $ - $ (470) $ (11,188,913)
=============== =============== =============== =============== ===============
The accompanying notes are an integral part of these financial statements
F-4
Trinity Learning Corporation
Consolidated Statement of Cash Flows
Transition Period Fiscal Year Ended
October 1, 2002 to September 30,
June 30, 2003 2002
--------------- ---------------
Cash Provided by Operating Activities
-------------------------------------
Net Income (Loss) $ (2,071,984) $ (565,931)
Adjustments to reconcile Net Loss to Net Cash Used
Depreciation & Amortization Expense 175,497 80
Non-Cash Effect from Foreign Currency Translation (397) -
Non-Cash Effect from Stock Option Issuance 76,774 -
Non-Cash Effect from Write-Off of Fixed Asset 6,071 -
Non-Cash Effect from CBL Global Acquisition 159,728 -
Non-Cash Effect from Stock Issuance for Services 166,750 -
Non-Cash Effect from Interest Payable Conversion to Common Stock 34,745 -
(Increase)/Decrease in Accounts Receivable (42,719) -
(Increase)/Decrease in Interest Receivable 1,785 (1,826)
(Increase)/Decrease in Prepaid Expense (96,444) (1,500)
(Increase)/Decrease in Other Assets (94,003) -
Increase in Accounts Payable 162,497 284,133
Increase in Accrued Expense 187,270 -
Increase in Interest Payable 38,987 14,983
--------------- ---------------
Net Cash (Used) by Operating Activities (1,295,443) (270,061)
--------------- ---------------
Cash (Used) by Investing Activities
-----------------------------------
(Purchase) of Fixed Assets (34,274) (6,151)
(Cash Paid) for Investment in Notes Receivable (25,000) -
--------------- ---------------
Total Cash (Used) by Investing Activities (59,274) (6,151)
--------------- ---------------
Cash Provided by Financing Activities
-------------------------------------
Proceeds from Issuance of Unsecured Convertible Notes 780,000 645,000
Proceeds from Issuance of Common Stock 350,000 -
Costs Associated with Issuance of Common Stock (57,560) -
--------------- ---------------
Total Cash Provided by Financing Activities 1,072,440 645,000
--------------- ---------------
Net Increase (Decrease) in Cash (282,277) 368,788
Consolidated Cash at Beginning of Period 368,788 -
--------------- ---------------
Cash at End of Period $ 86,511 $ 368,788
=============== ===============
The accompanying notes are an integral part of these financial statements
F-5
Trinity Learning Corporation
Notes to the Financial Statements
June 30, 2003
NOTE 1 - Corporate History
Trinity Learning Corporation ("Trinity," "the Company" or "we") was 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, the Company
changed its 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. Pursuant to its
reorganization in 2002, the Company changed its domicile to Utah, amended its
capital structure and changed its name to Trinity Companies Inc., then, in March
2003, to Trinity Learning Corporation. Until adoption of its recent operating
strategy in 2002, the Company had not had any business activity since 1995.
Pursuant to a series of related transactions that closed on October 1, 2002,
("the Acquisition Date") the Company issued 3,000,000 restricted shares of its
common stock, issued $1,000,000 in convertible promissory notes and assumed
$222,151 in indebtedness to acquire Competency Based Learning, Inc.
(CBL-California), a California corporation and two related Australian companies,
Competency Based Learning, Pty. Ltd. ACN 084 763 780 ("CBL-Australia") and ACN
082 126 501 Pty. Ltd. (collectively referred to as "CBL"). The transactions were
effected through CBL Global Corp. ("CBL Global"), a wholly-owned subsidiary.
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 shareholders 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. Immediately prior to the recapitalization, we had
13,419,774 shares of common stock outstanding. Following the recapitalization
and the cancellation of 108,226 shares of common stock beneficially owned by
members of management, we had 13,419,774 shares of common stock outstanding.
On August 6, 2003, our board of directors approved a change in our fiscal
year-end from September 30 to June 30 to align with those of the companies we
had already acquired or were at that time in the process of acquiring. The
information presented in this transition report on Form 10-KSB relates to the
period October 1, 2002 through June 30, 2003.
NOTE 2 - Significant Accounting Policies
A. Method of Accounting. The Company uses the accrual method of accounting.
B. Revenue and Expense Recognition. Revenues and directly related expenses
are recognized in the financial statements in the period when the goods
are shipped to the customer.
C. Cash and Cash Equivalents. The Company considers all short-term, highly
liquid investments that are readily convertible within three months to
known amounts, as cash equivalents.
D. Depreciation and Amortization. The cost of property and equipment is
depreciated over the estimated useful lives of the related assets. The
cost of leasehold improvements is amortized over the lesser of the length
of the lease of the related assets or the estimated lives of the assets.
Depreciation and amortization is computed on the straight-line method.
E. Use of Estimates. The preparation of the financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
F. Consolidation Policies. The accompanying consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries.
Intercompany transactions and balances have been eliminated in
consolidation.
F-6
G. Foreign Currency Translation/Remeasurement Policy. Assets and liabilities
that occur in foreign currencies are recorded at historical cost and
translated at exchange rates in effect at the end of the reporting period.
Statement of Operations accounts are translated at the average exchange
rates for the year. Translation gains and losses are recorded as Other
Comprehensive Income in the Equity section of the Balance Sheet.
H. Purchase Accounting. The cost of fixed assets purchased in the acquisition
of CBL was determined based on their historical value less accumulated
depreciation. All other assets were valued at their current value and a
technology-based intangible asset was recorded.
NOTE 3 - Fixed Assets
The Company capitalizes furniture and equipment purchases in excess of $5,000 or
at lower amounts based on local jurisdiction. Capitalized amounts are
depreciated over the useful life of the assets using the straight-line method of
depreciation. Scheduled below are the assets, cost, depreciation expense, and
accumulated depreciation at June 30, 2003 and September 30, 2002.
Asset Cost Depreciation Expense Accumulated Depreciation
06/30/2003 09/30/2002 06/30/2003 09/30/2002 06/30/2003 09/30/2002
----------- ----------- ----------- ----------- ----------- -----------
Furniture &
Equipment $ 53,385 $ 6,151 $ 7,750 $ 80 $ 7,824 $ 80
NOTE 4 - Technology-Based Intangible Assets
The Company capitalized a technology-based intangible asset in its acquisition
of CBL. The amount capitalized is equal to the difference between the
consideration paid for CBL including any liabilities assumed and the value of
the other assets acquired. Other assets were valued at the current value at the
date of the acquisition including the net value of fixed assets, historical
price less accumulated depreciation, of $53,385. The technology-based intangible
asset is being amortized over a five-year period using the straight-line method.
The value assigned to the technology -based intangible asset is considered
appropriate based on average annual revenues earned from licensing of this asset
in excess of $300,000 over the two year period ended June 30, 2002 and the
expectation that future revenues for the five year period subsequent to the
acquisition will equal or exceed this amount. Scheduled below is the asset cost,
amortization expense and accumulated amortization at June 30, 2003.
Asset Cost Amortization Expense Accumulated Amortization
06/30/2003 09/30/2002 06/30/2003 09/30/2002 06/30/2003 09/30/2002
----------- ----------- ----------- ----------- ----------- -----------
Intangible Asset $ 1,118,312 $ - $ 167,747 $ - $ 167,747 $ -
NOTE 5 - Notes Receivable
On June 5, 2003, we agreed to lend TouchVision, Inc. ("TouchVision") $50,000 in
two equal installments of $25,000 each. Interest accrues on the unpaid principal
amount of the note at a rate equal to six percent per year. Interest accrued
under the note is paid annually, with the first payment due June 5, 2004. All
unpaid principal and interest are due June 29, 2005. At June 30, 2003, $25,000
had been advanced to TouchVision and accrued interest totaled $41.
NOTE 6 - Operating Leases
In July 2003, the Company signed a lease agreement for new office space at 1831
Second Street in Berkeley, California. The lease term commenced September 1,
2003 and will expire on May 31, 2004. The Company will pay a minimum of $5,025
per month. The Company paid $10,050 upon the execution of the lease that
includes $5,025 security deposit that may be refunded at the end of the lease.
F-7
CBL-Australia leases contiguous office space pursuant to two separate lease
agreements for its operations located in Queensland, Australia. The term of the
first lease expires in January 2004 with a three year option to renew. The
monthly rental amount of that lease is $2,471. The term of the second lease
expires in January 2007 with a three year option to renew. The monthly rental
amount of that lease is $2,140. CBL-Australia also leases a car for use by Brian
Kennedy, its chief executive officer. The lease expires in October 2005; the
monthly rental amount is $338.
Total Minimum Lease Commitments as of June 30, 2003:
Calendar Year Amount
------------- --------------
2003 $ 49,791
2004 56,032
2005 31,236
2006 29,607
Thereafter 2,477
--------------
Total $ 169,143
==============
NOTE 7 - Related Party Transactions
As of July 15, 2002, Trinity entered in a two-year Advisory Agreement with Kings
Peak Advisors, LLC ("KPA") with automatic renewal for a 12-month period. Under
the terms of the Advisory Agreement, KPA will provide the Company with general
corporate, financial, business development and investment advisory services on a
non-exclusive basis. These services include assisting with the identification of
placement agents, underwriters, lenders and other sources of financing, as well
as additional qualified independent directors and members of management. KPA is
a private company whose principals are Douglas Cole and Edward Mooney, who are
officers and directors of Trinity, and Mr. Theodore Swindells.
The Advisory Agreement provides that KPA will be compensated for its various
advisory services as follows: (i) for general corporate advisory services, an
initial retainer of $25,000 and a fee of $20,000 per month throughout the term
of the agreement, which monthly fee amount is payable, at KPA's option, in
shares of common stock at a price per share equal to $0.025; (ii) for financial
advisory services, a fee based on 10% of the gross proceeds of any equity
financings and/or 1.5% of any gross proceeds of debt financings that are
completed by underwriters or placement agents introduced by KPA, as well as any
fees which may be due to KPA for its assistance in identifying prospective
investors pursuant to terms and conditions of offering memoranda issued by the
Company; (iii) for merger and acquisition services involving a transaction
resulting from a contact provided by KPA, a sliding fee based on a percentage of
the value of the transaction, subject to an additional $100,000 bonus in the
event the transaction is valued at $3,000,000 or more; (iv) in respect of
general business development advisory services, a fee to be negotiated with KPA
based upon certain agreed-upon fee parameters between the parties; and (v) in
respect of debt, credit or leasing facilities, a fee to be negotiated on a
case-by-case basis.
Trinity acknowledged that it was indebted to KPA for prior services rendered
since April 1, 2002 in the amount of $30,000, up to 50% of which amount is
payable, at KPA's option, in shares of common stock at a price per share of
$0.025. The total number of shares of common stock issuable to KPA under the
Advisory Agreement may not exceed 4,400,000 shares. Through June 30, 2003, KPA
had earned a total of $285,000 under the Advisory Agreement, $110,000 of which
was converted into 4,400,000 shares of common stock in March 2003. Of the
balance of $175,000, $134,132 has been paid to KPA, leaving a balance owing at
June 30, 2003 of $40,868.
As of August 8, 2002, Trinity formalized a Debt Conversion Agreement with Global
Marketing Associates, Inc. ("GMA"), holder of a convertible promissory note (the
"GMA Note") in the principal amount of $166,963, pursuant to which the principal
amount of the note, along with accrued interest thereon, was made convertible,
under certain conditions, into 3,200,000 shares of common stock. The GMA Note
was originally issued in November 2000 to the Company's former attorneys and was
subsequently acquired by Pacific Management Services, Inc., who assigned the
note to GMA; both entities are unrelated to Trinity. GMA subsequently assigned
the right to acquire 2,600,000 of the 3,200,000 shares of common stock into
which the note is convertible, to several persons, including Messrs. Cole,
Mooney and Swindells. Pursuant to the assignment, Messrs. Cole and Mooney each
acquired the right to acquire 600,000 shares of the common stock into which the
GMA Note is convertible and Mr. Swindells
F-8
acquired the right to acquire 1,000,000 shares. Fifty percent of the shares
issuable upon the conversion of the GMA Note are subject to a two-year lock-up
provision that restricts transfer of such shares without prior written consent
of Trinity's board of directors. As of January 2003, 3,200,000 shares of our
common stock had been issued pursuant to the terms of the GMA Note.
Pursuant to the acquisition of CBL on October 1, 2002 described in Note 1 above,
we issued to shareholders of CBL two convertible promissory notes in the amounts
of $485,000 and $515,000. The notes accrue interest at 7% per annum and are
considered due and payable upon the earlier of September 1, 2004 or the date,
upon which we close an equity financing, the net proceeds of which, together
with the net proceeds of all equity financing conducted by the Company after the
Acquisition Date, equal or exceeds $10,000,000. The conversion price on the
notes is $2.00 per share of common stock. At June 30, 2003, accrued interest
totaled $52,356.
At the Acquisition Date, we issued two unsecured promissory notes in the amount
of $222,151 to cancel three unsecured promissory notes previously issued by
CBL-Australia and CBL-California to its shareholders, Messrs. Scammell and
Kennedy. The notes accrue interest at 7% per annum and are considered due and
payable upon the earlier of the September 1, 2003 or the date, upon which the
company closes an equity financing, the net proceeds of which, together with the
net proceeds of all equity financing conducted by us after the Acquisition Date,
equal or exceeds $3,000,000. At June 30, 2003, accrued interest totaled $11,631.
The notes were due and payable on September 1, 2003 for which the payment has
not been made pending the outcome of a lawsuit filed against Messrs. Scammell
and Kennedy, see Note 14, Subsequent Events.
Concurrent with its acquisition of CBL, Trinity (i) issued promissory notes to
certain individuals and entities for a total principal amount of $500,000
("Bridge Financing Amount"), such notes ("Bridge Financing Notes") are
convertible under certain conditions into shares of common stock, and (ii) in
connection with the issuance of the Bridge Financing Notes, issued warrants
("Bridge Financing Warrants") to the holders of the Notes to purchase additional
shares of Common Stock. Of the Bridge Financing Amount, $55,000 was advanced by
KPA and $120,000 by Mr. Swindells.
The Bridge Financing Notes bear interest at a rate of 9% per annum and are due
one year from the date of the respective notes, unless automatically converted
upon the closing by the Company of an equity financing consisting of at least
500,000 shares of common stock. On May 19, 2003, the principal amount of
$500,000 and accrued interest of $34,745 on the respective notes were converted
into 1,336,867 shares of common stock at $0.40 per share. The Bridge Financing
Warrants are exercisable for a period of one year at a price of $0.05 per share,
and contain a net issuance provision whereby the holders may elect a cashless
exercise of such warrants based on the fair market value of the common stock at
the time of conversion.
From time to time, since inception of our current operating strategy, Mr.
Swindells has provided short-term working capital loans on a non-interest
bearing basis. During our previous fiscal year, we were advanced $145,000 by Mr.
Theodore Swindells, and during the transition period from October 1, 2002 to
June 30, 2003, we were advanced an additional $780,000 by Mr. Swindells. The
principal may be converted into such other debt or equity securities financings
that we may issue in private offerings while the loan is outstanding. In
September 2003, we repaid $500,000 on the $925,000 note balance then
outstanding.
NOTE 8 - Notes Payable
At June 30, 2003, notes payable to accredited investors and related parties
totaled $2,147,151 as compared with $811,963 at September 30, 2002. The notes
bear interest between the rates of 0% and 7% per annum, some of which are
secured by our common stock. Certain notes are convertible into the Company's
common stock.
F-9
The Company has the following notes payable obligations:
September 30,
June 30, 2003 2002
------------------------------
Convertible Bridge Financing notes payable to investors due
between June 15, 2003 and September 15, 2003 plus accrued
interest at a rate of 9% per annum. One May 19, 2003,
$445,000 was converted to common stock, see Note 7 $ - $ 445,000
Unsecured convertible notes payable due on December 1, 2003,
see Note 7 925,000 145,000
Unsecured convertible notes payable convertible after August
2002 plus accrued interest at a rate of 6% per annum. As of
January 2003 $104,352 was converted to common stock, see
Note 7 - 104,352
Unsecured convertible notes payable to related parties
convertible after August 2002 plus accrued interest at a
rate of 6% per annum. As of January 2003, $62,611 was
converted common stock, see Note 7 - 62,611
Convertible Bridge Financing notes payable to related
parties due between June 15, 2003 and September 15, 2003
plus accrued interest at a rate of 9% per annum. On May 19,
2003, $55,000 was converted to common stock, see Note 7 - 55,000
Unsecured notes payable to related parties, see Note 7 for
due date, plus accrued interest at a rate of 7% per annum 222,151 -
Convertible notes payable to related parties, see Note 7 for
due date, plus accrued interest at a rate of 7% per annum 1,000,000 -
----------- -----------
Total Notes Payable 2,147,151 811,963
Less: Current Maturities (2,147,151) (811,963)
----------- -----------
Long Term Notes Payable - -
=========== ===========
NOTE 9 - Stockholders' Equity
On February 5, 2002, the Company effected a one hundred for one (100 for 1)
reverse split. No shareholder was reversed below 100 shares. Shareholders with
100 shares or less, prior to the reverse, were not affected.
On May 5, 2002, the Company amended its Articles of Incorporation to reflect a
change in par value from $0.10 per share to no par value per share. Accordingly,
this change effecting the common stock and additional paid in capital values has
been retroactively applied to all prior years.
On October 1, 2002, the Company issued a total of 3,000,000 shares of common
stock in conjunction with its acquisition of CBL-Australia and CBL-California at
$0.025 per share. Accordingly, $75,000 has been charged to common stock to
reflect the total cost of the shares.
On October 1, 2002, the Company authorized a Stock Purchase Agreement in order
to retain qualified directors and officers. The Stock Purchase Agreement allows
various directors to purchase an aggregate of 1,200,000 shares of the Company's
common stock at a price of $0.025 per share. The purchase price shall be payable
by each Purchaser in the form of the cancellation of the Company's obligation to
pay the various Purchasers a total of $30,000 as compensation for services
already performed by Purchaser for the Company.
On October 2, 2002, the Company issued 1,070,000 shares of common stock in
settlement of outstanding amounts due for services rendered to the Company.
These shares were issued at $0.025 per share totaling $26,750.
F-10
On October 21, 2002, the Company adopted and approved the "2002 Stock Plan"
which was approved by the Company's shareholders at its special shareholder
meeting on December 2, 2002. The Plan authorizes issuance of 3,000,000 shares to
be increased by 500,000 shares annually. The plan expires in ten years. As of
June 30, 2003, 2,447,000 options have been granted at prices ranging from $0.05
per share to $0.50 per share of which 963,625 were vested as of June 30, 2003.
During the period November 15, 2002 to January 21, 2003, we issued 3,200,000
shares in exchange for $166,953, respectively of unsecured notes payable. The
original amount of the note was $166,963 (See Notes 7 and 8).
Between January and April 2003, we received subscriptions to our December 2002
Private Placement Memorandum totaling $250,000 from outside investors to
purchase 250,000 units at a price of $1.00 per unit. Each unit entitles the
holder to two shares of our common stock and two three year warrants, each to
purchase an additional share of common stock for $1.00 per share. If all
warrants are fully exercised by the holder of such warrants, a bonus warrant
will be issued entitling the holder to purchase one additional share of common
stock for $2.00.
On March 20, 2003, we issued 4,400,000 shares of common stock in settlement of
$110,000 of amounts due to Kings Peak Advisory, LLC (see Note 7).
On May 19, 2003, we issued 1,250,000 and 86,867 shares of the common stock in
exchange for the total principal Bridge Financing Notes of $500,000 and the
accrued interest payable on such notes of $34,745, respectively (see Note 7).
On June 16, 2003, we completed a recapitalization of its common stock by
effecting a reverse split of its 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 subsequently effecting a forward
split by dividend to all shareholders of record, pro rata, on the basis of 250
shares for each one share owned. Immediately prior to the recapitalization, we
had 13,419,774 shares of common stock outstanding. Following the
recapitalization and the cancellation of 108,226 shares of common stock
beneficially owned by members of management, the Company had 13,419,774 shares
of common stock outstanding.
Between June and October 2003, we received subscriptions to our May 2003 Private
Placement Memorandum ("May 2003 PPM") totaling $5,143,300 from outside investors
to purchase 5,143,300 units at a price of $1.00 per unit. Each unit entitles the
holder to two shares of our common stock and two three year warrants, each to
purchase an additional share of common stock for $1.00 per share. If all
warrants are fully exercised by the holder of such warrants, a bonus warrant
will be issued entitling the holder to purchase one additional share of common
stock for $2.00. In connection with the May 2003 Private Placement, we issued to
various financial advisors, 567,160 additional shares of our common stock and
five-year warrants to purchase 207,050 shares of our common stock.
NOTE 10 - Stock Option Plan
On December 2, 2002, at a special meeting of our shareholders, the 2002 Stock
Plan was approved. The maximum aggregate number of shares that may be optioned
and sold under the plan is the total of (a) 3,000,000 shares, (b) an annual
500,000 increase to be added on the last day of each fiscal year beginning in
2003 unless a lesser amount is determined by the board of directors. The plan
became effective with its adoption and remains in effect for ten years unless
terminated earlier. Options granted under the plan vest 25% on the day of the
grant and the remaining 75% vests monthly over the next 36 months. The following
schedule summarizes the activity during the nine-month transition period ended
June 30, 2003.
F-11
2002 STOCK PLAN
---------------
Weighted
Average Exercise
Number of Shares Price
---------------- --------------
Outstanding at October 1, 2002 - $ -
Options Granted 2,447,000 $0.23
Options Exercised - -
Options Canceled - -
---------------- --------------
Options Outstanding at June 30, 2003 2,447,000 $0.23
================ ==============
Options Exercisable at June 30, 2003 963,625 $0.22
================ ==============
In accordance with Statement of Financial Accounting Standards Number 123,
"Accounting for Stock-Based Compensation", option expense of $76,774 was
recognized for the nine-month transition period ended June 30, 2003.
June 30, 2003
-------------
Five-Year Risk Free Interest Rate 3.01%
Dividend Yield nil
Volatility nil
Average Expected Term (Years to Exercise) 4.4
Stock options outstanding and exercisable under 2002 Stock Plan as of June 30,
2003 are as follows:
Average
Weighted Remaining Weighted
Number of Average Contractual Number of Average
Range of Options Exercise Life Options Exercise
Exercise Price Granted Price (Years) Vested Price
-------------- ------- ----- ------- ------ -----
$0.05 600,000 $0.05 4.3 262,500 $0.05
$0.25 1,589,000 $0.25 4.3 624,813 $0.25
$0.50 258,000 $0.50 4.6 76,313 $0.50
NOTE 11 - Income Taxes
Income tax expense includes federal and state taxes currently payable and
deferred taxes arising from timing differences between income for financial
reporting and income tax purposes.
The Company has adopted Statement of Financial Accounting Standards Number 109
("SFAS No. 109") "Accounting for Income Taxes." SFAS No. 109 requires an asset
and liability approach for financial accounting and reporting for income tax
purposes. This statement recognizes (a) the amount of taxes payable or
refundable for the current year and (b) deferred tax liabilities and assets for
future tax consequences of events that have been recognized in the financial
statements or tax returns.
Deferred income taxes result from temporary differences in the recognition of
accounting transactions for tax and financial reporting purposes. There were no
temporary differences at June 30, 2003 and earlier years; accordingly, no
deferred tax liabilities have been recognized for all years.
The Company has cumulative net operating loss carryforwards of over $11,100,000
at June 30, 2003 and $9,100,000 at September 30, 2002. No effect has been shown
in the financial statements for the net operating loss carryforwards as the
likelihood of future tax benefit from such net operating loss carryforwards is
not probable.
F-12
Accordingly, the potential tax benefits of the net operating loss carryforwards
at June 30, 2003 and September 30, 2002 have been offset by valuation reserves
of the same amount.
Deferred tax assets and the valuation account at June 30, 2003 and at September
30, 2002 are as follows:
June 30, 2003 September 30, 2002
------------- ------------------
Deferred Tax Asset
------------------
Net Operating Loss Carryforwards $ 4,600,000 $ 3,800,000
Valuation Allowance (4,600,000) (3,800,000)
-------------- --------------
Total $ - $ -
============== ==============
NOTE 12 - Net Earnings (Loss) Per Share
Basic earnings (loss) per common share ("BEPS") are based on the
weighted-average number of common shares outstanding during each period. Diluted
earnings (loss) per common share ("DEPS") are based on shares outstanding
(computed under BEPS) plus dilutive potential common shares. Shares from the
exercise of the outstanding options were not included in the computation of
DEPS, because their inclusion would have been antidilutive for the nine months
ended June 30, 2003.
The following data shows the shares used in the computing loss per common share
including dilutive potential common stock at June 30, 2003:
Amount
------
Common shares outstanding at June 30, 2003 14,956,641
===============
Weighted-average number of common shares used in
basic EPS dilutive effect of options 8,364,218
===============
Weighted-average number of common shares and dilutive
potential common shares used in diluted EPS 8,364,218
===============
NOTE 13 - Going Concern
Our financial statements are prepared using generally accepted accounting
principles applicable to a going concern, which contemplates the realization of
assets and liquidation of liabilities in the normal course of business.
Currently, we do not have significant cash or other material assets, nor do we
have an established source of revenues sufficient to cover our operating costs
and to allow us to continue as a going concern. We do not currently possess a
financial institution source of financing and we cannot be certain that our
existing sources of cash will be adequate to meet our liquidity requirements.
However, we have undertaken the following to meet our liquidity requirements:
(a) Seek additional equity funding through private placements to raise
sufficient funds to continue operations and fund its ongoing
development, merger and acquisition activities. In May 2003, we
commenced a $5,000,000 private placement, the proceeds of which will
be used for (i) corporate administration, (ii) the expansion of
subsidiary operations, and (iii) expenses and funds advanced for
acquisitions in 2003. In conjunction with the private placement, we
have engaged various financial advisory firms and other finders to
identify prospective investors. We completed the private offering on
October 31, 2003.
(b) Continue conversion of certain outstanding loans and payables into
common stock in order to reduce future cash obligations;
F-13
(c) Generate sufficient cash flow to sustain and grow subsidiary
operations and, if possible, create excess cash flow for corporate
administrative expenses through our operating subsidiaries; and
(d) Identify prospective acquisition targets with sufficient cash flow
to fund subsidiary operations, as well as potentially generating
operating cash flow that may sustain corporate administrative
expenses.
Trinity's future capital requirements will depend on its ability to successfully
implement these initiatives and other factors, including our ability to maintain
our existing customer base and to expand our customer base into new geographic
markets, and overall financial market conditions in the United States and other
countries where we will seek prospective investors.
NOTE 14 - New Technical Pronouncements
In October 2002, Statement of Financial Accounting Standards Number 147 ("SFAS
147"), "Acquisitions of Certain Financial Institutions - an amendment of FASB
Statements No. 72 and 144 and FASB Interpretation No. 9" was issued to be used
in acquisitions of financial institutions after October 1, 2002. It is
anticipated that SFAS 147 will have no effect upon the Company's financial
statements.
In December 2002, Statement of Financial Accounting Standards Number 148 ("SFAS
148"), "Accounting for Stock-Based Compensation - Transition and Disclosure - an
amendment of FASB Statement No. 123" was issued for fiscal years beginning after
December 15, 2003. It is anticipated that SFAS 148 will have no effect upon the
Company's financial statements.
In April 2003, Statement of Financial Accounting Standards Number 149 ("SFAS
149"), "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities" was issued for fiscal quarters that began prior to June 15, 2003.
Adoption of SFAS 149 will have no effect upon the Company's financial
statements.
In May 2003, Statement of Financial Accounting Standards Number 150 ("SFAS
150"), "Accounting for Certain Financial Instruments with Characteristics of
Both Liabilities and Equity" was issued for the first interim period beginning
after June 15, 2003. The Company anticipates that SFAS 150 may impact the
accounting for certain future acquisitions and the anticipated distribution of
stock for services.
NOTE 15 - Subsequent Events
On July 8, 2003, we issued a five-year warrant to Merriman, Curran, Ford & Co. a
financial service company, to purchase up to 20,000 shares of our common stock
for a period of five years at $0.50 per share in consideration for financial
advisory services provided to us by the firm.
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. We also agreed to loan to
TouchVision the sum of $20,000 per month for the twelve-month period following
closing, to be used for working capital. We had previously loaned TouchVision
the sum of $50,000 in June, 2003 by way of bridge financing pending completion
of the acquisition. In connection with the acquisition, TouchVision entered into
substantially similar employment agreements with each of Messrs. Gregory L.
Roche and Larry J. Mahar, the former principals of TouchVision, which have a
term of two years and provide for annual salaries of $120,000. In conjunction
with the acquisition of TouchVision, we issued 735,000 stock options pursuant to
the 2002 Stock Plan at $0.50 per share.
On September 1, 2003, we completed the acquisition of all of the issued and
outstanding shares of River Murray Training Pty Ltd ("RMT") an Australian
company that is in the business of providing workplace training programs for
various segments of the food production industry, including viticulture and
horticulture. In consideration for the
F-14
shares of RMT we issued 700,000 restricted shares of our common stock, of which
350,000 shares are subject to the terms of an escrow agreement as collateral for
the indemnification obligations of the former RMT shareholders. We also loaned
US$49,000 to RMT for the purpose of repaying outstanding loans advanced to RMT
by its former shareholders.
On September 1, 2003, we completed the acquisition of 51% of the issued and
outstanding shares of Ayrshire Trading Limited, a British Virgin Islands company
("Ayrshire") that owns 95% of Riverbend Group Holdings (Proprietary) Limited
("Riverbend"), a South African company that provides learning services to
corporations and individuals in South Africa. We also acquired the option to
purchase the remaining 49% of Ayrshire. In consideration for the Ayrshire
shares, we issued a convertible non-interest-bearing promissory note in the
amount of $20,000, which amount is convertible from time to time but no later
than December 30, 2006 into a maximum of 2,000,000 shares of our common stock.
Of these shares, up to 400,000 may be withheld in satisfaction for any breach of
warranties by the former shareholders of Ayrshire. The Ayrshire shares are
subject to escrow and pledge agreements will be reconveyed to the former
shareholders in the event of a default by us of certain terms and conditions of
the acquisition agreements, including, among other things, a voluntary or
involuntary bankruptcy proceeding involving us or the failure by us to list our
shares of common stock on a major stock exchange by December 30, 2006.
As further consideration for the Ayrshire shares, we agreed to make a
non-interest-bearing loan of $1,000,000 to Ayrshire, $300,000 of which was
advanced at closing and $700,000 was advanced On November 3, 2003. We may
exercise an option to acquire the remaining 49% of Ayrshire in consideration for
the issuance of 1,500,000 shares of our common stock, subject to certain
adjustments.
During the period June 1, 2003 to October 31, 2003, we sold by way of private
placement an aggregate of 5,143,300 units at a price of $1.00 per unit, for
aggregate consideration of $5,143,300. Each unit comprised two shares of our
common stock and two warrants, each exercisable for one additional share of our
common stock. In addition, each unit carried the right to acquire an additional
warrant to purchase, under certain conditions, up to one additional share of
common stock. In connection with the private placement, we paid $448,105 in
commissions and issued to various financial advisors, 567,160 additional shares
of our common stock and five-year warrants to purchase 207,050 shares of our
common stock. In our opinion, the offer and sale of these securities was exempt
by virtue of Section 4(2) of the Securities Act and the rules promulgated
thereunder.
On September 12, 2003, we filed a Complaint in the United States District Court
for the District of Utah, Central Division, against CBL Global Corporation
(f/k/a CBL Acquisition Corporation), and Robert Stephen Scammell, the sole
shareholder of CBL-California, (Case No. 2:03CV00798DAK) alleging, among other
things, that Scammell and CBL-California provided us with misstated financial
statements prior to our merger in October 2002 with CBL-California and CBL
Global. On September 18, 2003, we filed a First Amended Complaint and Jury
Demand, which added as defendants CBL-Global and Brian Kennedy, the sole
shareholder of CBL-Australia. The First Amended Complaint alleges causes of
action for violations of Section 10(b) of the Securities Exchange Act of 1934
and Rule 10b-5 promulgated thereunder, for violations of Section 20(a) of the
Securities Exchange Act of 1934, for declaratory relief and breach of contract,
for common law fraud, and for negligent misrepresentation.
The First Amended Complaint alleges, among other things, that the defendants
were advised by CBL-California's accountant on September 18, 2002 that
CBL-California's financial statements were misstated, and alleges that new
restated financial statements were issued on September 19, 2002. The First
Amended Complaint alleges, however, that the restated financial statements were
not provided to us prior to the October 1, 2002 closing of the merger. The First
Amended Complaint seeks damages in an amount to be proven at trial, but which
amount presently is estimated to exceed, at a minimum, the full amount of the
consideration paid by us and CBL Global in the merger, as well as treble
damages, and attorneys' fees. The First Amended Complaint also seeks a
declaration that we (i) are entitled to retain certain of our shares of common
stock that were issued in connection with the acquisition of CBL and placed in
escrow, (ii) are entitled to set-off amounts owed to Messrs. Scammell and
Kennedy pursuant to the CBL acquisition; and (iii) are entitled to seek the
return of the shares of our common stock that have already have been distributed
to defendants Messrs. Kennedy and Scammell in the merger. We intend to
vigorously pursue our claims against the defendants.
F-15
On September 18, 2003 we announced that we had entered into a definitive
agreement to acquire majority control of IRCA (Pty.) Ltd. ("IRCA"), an
international firm specializing in corporate learning, certification, and risk
mitigation in the areas of safety, health environment, and quality assurance
("SHEQ"). We anticipate closing this transaction within the next 30 days. IRCA
is headquartered in South Africa and also operates international sales offices
and operations in the United Kingdom and the United States. We will acquire
majority interest in IRCA through a combination of stock and cash payments. The
definitive agreement contains certain closing conditions and certain future
provisions that will enable Trinity to acquire full ownership of IRCA and its
various operating subsidiaries.
F-16
CONSOLIDATED FINANCIAL STATEMENTS
Trinity Learning Corporation and Subsidiaries
Consolidated Balance Sheet
March 31, 2004 June 30, 2003
(Unaudited)
--------------- ---------------
Assets
------
Current Assets
Cash $ 971,849 $ 86,511
Accounts Receivable, net 3,919,391 42,719
Interest Receivable - 41
Prepaid Expense and Other Assets 360,951 97,944
--------------- ---------------
Total Current Assets 5,252,191 227,215
--------------- ---------------
Property & Equipment (Note 3)
Furniture & Equipment 1,408,553 53,385
Accumulated Depreciation (253,058) (7,824)
--------------- ---------------
Net Property & Equipment 1,155,495 45,561
--------------- ---------------
Intangible Asset
Goodwill (Note 2) 1,914,881 524,800
Technology-Based Asset, net (Notes 2 and 4) 2,150,794 425,765
--------------- ---------------
Net Intangible Assets 4,065,675 950,565
Note Receivable (Note 7) - 25,000
Restricted Cash (Note 2) 500,000 -
Prepaid Acquisition Costs 89,081 -
Other Assets 249,408 94,003
--------------- ---------------
Total Assets $ 11,311,850 $ 1,342,344
=============== ===============
Liabilities, Minority Interest and Stockholders' Equity
-------------------------------------------------------
Liabilities
Accounts Payable $ 2,538,840 $ 391,872
Accrued Expenses 1,278,347 270,270
Interest Payable - 63,987
Deferred Revenue (Note 1) 645,934 -
Notes Payable - Current (Note 9) 575,234 -
Notes Payable-Related Parties (Notes 8 and 9) 2,732,420 2,147,151
--------------- ---------------
Current Liabilities 7,770,775 2,873,280
Notes Payable-Long Term (Notes 8 and 9) 240,074 -
--------------- ---------------
Total Liabilities 8,010,849 2,873,280
--------------- ---------------
Minority Interest 68,494 -
--------------- ---------------
Stockholders' Equity
Preferred Stock, 10,000,000 Shares at No Par
Value; No Shares Issued and Outstanding - -
Common Stock, 100,000,000 Shares Authorized
at No Par Value, 27,665,966 and 14,956,641
shares Issued and Outstanding, Respectively 15,412,641 9,693,447
Conditionally redeemable common stock, 4,500,000
and 0 shares, respectively, at No Par Value 2,750,000 -
Accumulated Deficit (15,015,580) (11,188,913)
Subscription Receivable - (35,000)
Other Comprehensive Loss 85,446 (470)
--------------- ---------------
Total Stockholders' Equity 3,232,507 (1,530,936)
--------------- ---------------
Total Liabilities, Minority Interest and Stockholders' Equity $ 11,311,850 $ 1,342,344
=============== ===============
F-17
Trinity Learning Corporation and Subsidiaries
Consolidated Statement of Operations
For Three Months Ended on For Nine Months Ended on
March 31 March 31
2004 2003 2004 2003
(Unaudited) (Unaudited)
------------------------------ ------------------------------
Revenue
Sales Revenue $ 4,280,305 $ 95,192 $ 7,442,802 $ 164,660
Cost of Sales (1,476,997) - (2,526,528) -
------------- ------------- ------------- -------------
Gross Profit 2,803,308 95,192 4,916,274 164,660
------------- ------------- ------------- -------------
Expenses
Salaries & benefits 2,993,436 369,222 5,211,883 673,001
Professional fees 282,402 252,907 843,088 758,336
Selling, general & administrative 906,423 104,039 2,238,386 362,232
Depreciation & amortization 289,462 3,229 745,582 5,675
------------- ------------- ------------- -------------
Total Expense 4,471,723 729,397 9,038,939 1,799,244
------------- ------------- ------------- -------------
Loss from Operations (1,668,415) (634,205) (4,122,665) (1,634,584)
------------- ------------- ------------- -------------
Other Income (Expense)
Interest Expense, net (72,699) (30,287) (107,521) (67,170)
Foreign Currency Gain(Loss) 520 - (4,463) -
------------- ------------- ------------- -------------
Total Other Income (Expense) (72,179) (30,287) (111,984) (67,170)
Minority Interest (443,560) - (407,982) -
------------- ------------- ------------- -------------
Loss Before Taxes (1,297,034) (664,492) (3,826,667) (1,701,754)
Taxes - - - -
------------- ------------- ------------- -------------
Net Loss $ (1,297,034) $ (664,492) $ (3,826,667) $ (1,701,754)
============= ============= ============= =============
Net Loss Per Common Share
Basic $ (0.05) $ (0.07) $ (0.17) $ (0.25)
============= ============= ============= =============
Diluted $ (0.05) $ (0.07) $ (0.17) $ (0.25)
============= ============= ============= =============
Weighted Average Shares Outstanding 26,103,667 9,194,774 21,920,228 6,838,345
============= ============= ============= =============
F-18
Trinity Learning Corporation and Subsidiaries
Consolidated Statement of Comprehensive Income
Three Months ended on Three Months Ended on
March 31, March 31,
2004 2003 2004 2003
(Unaudited) (Unaudited)
-------------------------------- --------------------------------
Before Tax Amount After Tax Amount
Net Loss $ (1,297,034) $ (664,492) $ (1,297,034) $ (664,492)
Foreign Currency Translation Gain 151,573 - 151,573 -
-------------- -------------- -------------- --------------
Comprehensive Loss $ (1,145,461) $ (664,492) $ (1,145,461) $ (664,492)
============== ============== ============== ==============
Nine Months ended on Nine Months Ended on
March 31, March 31,
2004 2003 2004 2003
-------------------------------- --------------------------------
Before Tax Amount After Tax Amount
Net Loss $ (3,826,667) $ (1,701,754) $ (3,826,667) $ (1,701,754)
Foreign Currency Translation Gain 85,444 - 85,444 -
-------------- -------------- -------------- --------------
Comprehensive Loss $ (3,741,223) $ (1,701,754) $ (3,741,223) $ (1,701,754)
============== ============== ============== ==============
F-19
Trinity Learning Corporation and Subsidiaries
Consolidated Statement of Cash Flows
For the Nine Months Ended on March 31,
2004 2003
(Unaudited)
--------------------------------
Cash flows from operating activities:
Net loss $ (3,826,667) $ (1,701,754)
Adjustments to reconcile net loss to net cash used by operating
activities:
Depreciation and amortization 745,582 5,675
Non-cash effect for business acquisition and divestiture 620,518 132,325
Foreign currency translation loss 4,463 -
Minority interest (407,982) -
Stock compensation 194,777 -
Changes in current assets and liabilities, net of business
acquired and business sold:
Accounts receivable 262,317 33,526
Interest receivable 41 (2,792)
Prepaid expenses and other assets (333,294) 2,392
Accounts payable, deferred revenue and accrued expenses 1,310,800 (25,684)
Interest payable 20,097 59,261
-------------- --------------
Net cash used by operating activities (1,409,348) (1,497,051)
-------------- --------------
Cash flows from investing activities:
Payment for business acquisitions and divestiture, net of cash acquired (3,187,301) -
Capital expenditures (186,593) (12,834)
-------------- --------------
Net cash used by investing activities (3,373,894) (12,834)
-------------- --------------
Cash flows from financing activities:
Repayments under short-term notes (500,000) -
Borrowing under short-term notes 793,247 990,621
Payments for financing fees (462,815) -
Conversion of bridge loan to common stock 836,000 -
Exercise of warrants and options 28,848 -
Proceeds from sale of common stock 4,973,300 558,713
-------------- --------------
Net cash provided by financing activities 5,668,580 1,549,334
-------------- --------------
Net increase in cash 885,338 39,449
Cash at beginning of period 86,511 1,632
-------------- --------------
Cash at end of period $ 971,849 $ 41,081
============== ==============
Supplemental information:
Issuance of common stock for business acquisitions $ 975,000 $ 75,000
============== ==============
Issuance of convertible redeemable common stock $ 2,750,000 $ -
============== ==============
Cancellation of common stock and convertible
notes payable pursuant to the sale of CBL $ (2,722,151) $ -
============== ==============
Cancellation of subscriptions receivable $ (35,000) $ -
============== ==============
F-20
Trinity Learning Corporation and Subsidiaries
Notes to the Financial Statements
(Unaudited)
March 31, 2004
NOTE 1. ACCOUNTING POLICIES
Overview
The accompanying unaudited interim consolidated financial statements and related
notes have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-QSB and Rule 10-01 of Regulation S-X. Accordingly, they do not include all
the information and footnotes required by generally accepted accounting
principles 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.
References herein to "we", "our", "us" or "the Company" all refer to Trinity
Learning Corporation.
These unaudited interim consolidated financial statements should be read in
conjunction with the audited financial statements and related notes thereto
included in our Transition Report on Form 10-KSB for the transition period from
October 1, 2002 to June 30, 2003. On August 6, 2003, our board of directors
approved a change in our fiscal year-end from September 30 to June 30 to align
with those of the companies we had already acquired or were at that time in the
process of acquiring. The results of operations for the nine months ended March
31, 2004, 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 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"). Ayrshire owns 95% of the issued
and outstanding shares of Riverbend Group Holdings (Pty.) Ltd. ("Riverbend").
These companies are collectively referred to as Riverbend. Danlas owns 51% of
IRCA (Proprietary) Limited ("IRCA"). These companies are collectively referred
to as IRCA.
In the opinion of management, the accompanying unaudited interim consolidated
financial statements reflect all normal recurring adjustments that are necessary
for a fair presentation of the financial position, results of operations and
cash flows for the interim periods presented.
The preparation of our unaudited interim consolidated financial statements in
conformity with generally accepted accounting principles 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,
we review our estimates based on information that is currently available.
Changes in facts and circumstances may cause us to revise our estimates.
Income (Loss) Per Common Share
Basic earnings (loss) per common share is computed by dividing net income (loss)
available for common stockholders by the weighted average number of common
shares outstanding for the period. Diluted earnings (loss) per common share
("DEPS") is computed giving effect to all dilutive potential shares of common
stock issuable upon the exercise of conditionally redeemable shares, stock
options and warrants. DEPS is computed by dividing net income (loss) available
for common stockholders by the weighted-average common shares and dilutive
potential common shares that were outstanding during the period. Shares from the
conversion of the conditionally redeemable stock, and exercise of the
outstanding options and warrants were not included in the computation of DEPS,
because their inclusion would have been antidilutive for the nine months ended
March 31, 2004.
In accordance with the disclosure requirements of Statement of Accounting
Standards No. 128 ("SFAS 128"), "Earnings per Share," a reconciliation of the
numerator and denominator of basic and diluted income (loss) per common share is
provided as follows:
F-21
Three Months Ended Nine Months Ended
March 31, March 31,
2004 2003 2004 2003
---- ---- ---- ----
Numerator-Basic
Net (loss) available for common
stockholders $ (1,297,394) $ (664.492) $ (3,826,667) $ (1,701,754)
Denominator-Basic
Weighted-average common stock outstanding 26,103,667 9,194,774 21,920,228 6,838,345
Basic (loss) per share $ (0.05) $ (0.07) $ (0.17) $ (0.25)
Numerator-Diluted
Net (loss) available for common stockholders $ (1,297,394) $ (664,492) $ (3,826,667) $ (1,701,754)
Denominator-Diluted
Weighted-average common stock outstanding 26,103,667 9,194,774 21,920,228 6,838,345
Effect of dilutive securities
Conditionally redeemable common stock - - - -
Stock options - - - -
Warrants - - - -
Diluted (loss) per share $ (0.05) $ (0.07) $ (0.17) $ (0.25)
Deferred Revenue
Deferred revenue in the accompanying consolidated balance sheets represents
advanced billings to clients in excess of costs and earnings on uncompleted
contracts. As of March 31, 2004 and June 30, 2003, deferred revenue was $645,934
and $0, respectively. We anticipate that substantially all such amounts will be
earned over the next twelve months.
Stock-Based Compensation
In January 2003, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 148 ("SFAS 148"), "Accounting for
Stock-Based Compensation - Transition and Disclosure." SFAS 148 amends FASB
Statement 123 ("SFAS 123"), "Accounting for Stock-Based Compensation," to
provide alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. In
addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require
prominent disclosure in both annual and interim financial statements of the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. SFAS 148 is effective for fiscal years,
including interim periods beginning after December 15, 2002, and thus, this
disclosure is included in the table below. SFAS 148 also requires disclosure of
pro-forma results on the interim basis as if we had applied the fair value
recognition provisions of SFAS 123. We implemented the fair value based method
of accounting for stock-based employee compensation during the transition period
from October 1, 2002 to June 30, 2003. See Note 11-Stock Option Plan.
Goodwill and Other Intangibles Resulting from Business Acquisitions (In Part)
We adopted Statement of Financial Accounting Standard No. 142 ("SFAS 142"),
"Goodwill and other Intangible Assets," at the beginning of fiscal 2003. As
required, we identified our reporting units and the amounts of goodwill, 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.
SFAS No. 142 requires that goodwill be tested for impairment upon adoption of
the Statement, as well as annually thereafter. We completed our transitional
goodwill impairment test during the third quarter of 2004 and had no impairment
losses. Other intangible assets deemed to have an indefinite life are tested for
impairment by comparing the fair value of the asset to its carrying amount. We
do not have other intangible assets with indefinite lives. See Note 2
"Acquisitions and Divestitures" for more information.
F-22
Recently Issued Accounting Standards
In June 2002, the FASB issued Statement of Financial Accounting Standard No. 146
("SFAS 146"), "Accounting for Costs Associated with Exit or Disposal
Activities." SFAS 146 replaces Emerging Issues Task Force ("EITF") Issue No.
94-3, "Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring)"
in its entirety and addresses significant issues relating to recognition,
measurement and reporting costs associated with an exit or disposal activity,
including restructuring activities. Under EITF Issue No. 94-3, a liability is
recognized, measured and reported as of the date of an entity's commitment to an
exit plan. Pursuant to SFAS 146, a liability is recorded on the date on which
the obligation is incurred and should be initially measured at fair value. SFAS
146 is effective for exit or disposal activities initiated after December 31,
2002. We adopted SFAS 146 on July 1, 2003. See Note 2 - Acquisitions and
Divestitures.
EITF Consensus Issue No. 00-21 ("EITF 00-21"), "Revenue Arrangements with
Multiple Deliverables" was first discussed at the July 2000 EITF meeting and was
issued in February 2002. Certain revisions to the scope of the language were
made and finalized in May 2003. EITF 00-21 addresses the accounting for multiple
element revenue arrangements, which involve more than one deliverable or unit of
accounting in circumstances, where the delivery of those units takes place in
different accounting periods. EITF 00-21 requires disclosures of the accounting
policy for revenue recognition of multiple element revenue arrangements and the
nature and description of such arrangements. The accounting and reporting
requirements are effective for revenue arrangements entered into in fiscal
periods beginning after June 15, 2003. We have completed our initial evaluation
and adoption of EITF 00-21 does not have a significant impact on our financial
statements. We continues our evaluation to determine whether the reporting
requirements of EITF 00-21 will impact our financial statements in the future.
In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150
("SFAS 150"), "Accounting for Certain Instruments with Characteristics of Both
Liabilities and Equity." SFAS 150 establishes standards for how an issuer
classifies and measures certain financial instruments with characteristics of
both liabilities and equity. It requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset in some
circumstances). SFAS 150 is effective for financial instruments entered into or
modified after May 31, 2003, and otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003. As permitted, we adopted
SFAS 150 on September 1, 2003 and adoption of SFAS 150 did not have a
significant impact on our financial statements.
Reclassifications
Certain reclassifications have been made to the 2003 financial statements and
notes to conform to the 2004 presentation with no effect on consolidated net
loss, equity or cash flows as previously reported.
F-23
NOTE 2 - ACQUISITIONS AND DIVESTITURES
On September 1, 2003, we completed the acquisition of all of the issued and
outstanding shares of TouchVision. In consideration for the TouchVision shares,
we issued an aggregate of 1,250,000 restricted shares of our common stock, of
which 312,500 shares are subject to the terms of an escrow agreement as
collateral for the indemnification obligations of the former TouchVision
shareholders. We also agreed to loan to TouchVision the sum of $20,000 per month
for the twelve-month period following closing, to be used for working capital.
We had previously loaned TouchVision the sum of $50,000 in June and July, 2003
by way of bridge financing pending completion of the acquisition. In connection
with the acquisition, TouchVision entered into substantially similar employment
agreements with each of Messrs. Gregory L. Roche and Larry J. Mahar, the former
principals of TouchVision, which have a term of two years and provide for annual
salaries of $120,000. In conjunction with the acquisition of TouchVision, we
issued 735,000 stock options pursuant to the 2002 Stock Plan at $0.50 per share.
On October 1, 2003, we advanced $150,000 to pay off a loan payable to a bank,
which was guaranteed by the Small Business Administration.
On September 1, 2003, we completed the acquisition of all of the issued and
outstanding shares of RMT. In consideration for the shares of RMT we issued
700,000 restricted shares of our common stock, of which 350,000 shares are
subject to the terms of an escrow agreement as collateral for the
indemnification obligations of the former RMT shareholders. We also loaned
US$49,000 to RMT for the purpose of repaying outstanding loans advanced to RMT
by its former shareholders.
On September 1, 2003, we completed the acquisition of 51% of the issued and
outstanding shares of Ayrshire that owns 95% of Riverbend. 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, which has been recorded as conditionally redeemable common stock in
stockholders' equity at $0.50 per share. Of these shares, up to 400,000 may be
withheld in satisfaction for any breach of warranties by the former shareholders
of Ayrshire. The Ayrshire shares are subject to escrow and pledge agreements
will be reconveyed to the former shareholders in the event of a default by us of
certain terms and conditions of the acquisition agreements, including, among
other things, a voluntary or involuntary bankruptcy proceeding involving us or
the failure by us to list our shares of common stock on a major stock exchange
by December 30, 2006.
As further consideration for the Ayrshire shares, we agreed to make a
non-interest-bearing loan of $1,000,000 to Ayrshire, $300,000 of which was
advanced at closing of the acquisition and $700,000 was advanced on November 3,
2003. 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.
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. 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, we (i) issued
three convertible promissory notes in the aggregate principal amount of $40,000
and convertible under certain conditions into a maximum of 4,500,000 shares of
the Company's common stock, (ii) agreed to advance $700,000 in cash to establish
an international sales force, (iii) provided $500,000 for certain bank
guarantees and, (iv) provided certain future profit thresholds are met, agreed
to issue up to an additional 1,000,000 shares of the Company's common stock. The
first promissory note for $20,000 convertible to 2,500,000 shares has been
classified as conditionally redeemable common stock at $0.50 per share. The
remaining $20,000 in promissory notes has been classified as intercompany note
payable and eliminated in the consolidation of the Company and its subsidiaries
at March 31, 2004. On May 13, 2004, Musca notified us of their intention to
convert two of the promissory notes for 51% and 23.9 % of the ownership of IRCA.
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, which has been recorded as conditionally redeemable common stock
in stockholders' equity at $0.50 per share. Of these shares, up to 20% may be
withheld in satisfaction for any breach of warranties by the former shareholders
of VILPAS. The VILPAS shares are subject to escrow and pledge agreements and
will be reconveyed to the former shareholders in the event of a default by us of
certain terms and conditions of the acquisition agreements, including, among
other things, a voluntary or involuntary bankruptcy proceeding involving us or
the failure by us to list our shares of common stock on a major stock exchange
by February 5, 2005, subject to a six-month extension in the event a listing
application is in process on such date. On May 11, 2004, VILPAS notified us of
their intention to convert the promissory note.
F-24
Purchased Intangible Assets
Changes in the net carrying amount of goodwill for the nine months ended March
31, 2004 are as follows:
Balance as of June 30, 2003 $ (524,800)
Goodwill acquired during the period $1,914,881
Goodwill divested during the period $ (524,800)
Balance as of March 31, 2004 $1,914,881
The Company completed its first transitional goodwill impairment test during the
third quarter of 2004 and had no impairment losses.
The values assigned to the technology-based intangible assets are considered
appropriate based on independent valuations. The technology-based intangible
assets are being amortized over varying periods, as indicated by independent
valuations, using the straight-line method. The following table sets forth the
Company's acquired other intangible assets at March 31, 2004 and June 30, 2003,
which will continue to be amortized:
2004 2003
---- ----
Gross Gross
Carrying Accumulated Net Carrying Carrying Accumulated Net Carrying
Amount Amortization Amount Amount Amortization Amount
------ ------------ ------ ------ ------------ ------
Amortizable other intangible assets:
Trade names and trademarks $ 429,841 $ 22,390 $ 407,451 $ - $ - $ -
Backlog 448,000 74,479 373,521 3,882 582 3,300
Current and Core Technology 414,579 48,395 366,184 584,002 166,321 417,681
Distributor Agreements 253,000 26,833 226,167 - - -
Customer Relationships 609,728 33,182 576,546 - - -
Other intangibles 222,894 21,969 200,925 5,628 844 4,784
Total $ 2,378,042 $ 227,248 $ 2,150,794 $ 593,512 $ 167,747 $ 425,765
Divestitures
In December, 2003, we sold our interests in CBL Global Corporation ("CBL
Global") and its Australian subsidiaries (collectively "CBL") to Messrs.
Scammell and Kennedy, the former owners of CBL. In conjunction with the
management buyout, we entered into a Settlement Agreement with respect to our
litigation with CBL. Pursuant to the terms of the agreement, we conveyed all of
our interest in CBL back to the former owners in exchange for surrender and
cancellation of 3,000,000 shares of Company stock issued to them in connection
with acquisition of CBL and the cancellation of $1,000,000 in convertible notes
payable to them. Also, as a result of the divestiture, $222,151 owed by CBL
Global to Messrs. Kennedy and Scammell is no longer an obligation of the
Company.
Pro Forma Results
The operating results of CBL, TouchVision, RMT, Danlas and our interest in
Ayrshire have been included in the accompanying consolidated financial
statements from the date of acquisition forward and, for CBL, up to the date of
divestiture. Accordingly, CBL business' results of operations were included from
October 1, 2002 to December 22, 2003. The business results of operations of RMT,
TouchVision and Ayrshire are included for the period September 1, 2003 through
March 31, 2004. The business results of operations for Danlas are included for
the period December 1, 2003 through March 31, 2004. The business results for
VILPAS will not be included for March 2004 until the fourth quarter 2004 as its
activity was de minimus to the Company's overall operating results.
The following unaudited pro forma financial information presents the combined
results of operations of the Company and TouchVision, RMT, Danlas and our
interest in Ayrshire as if these acquisitions had occurred at July 1, 2002. In
December 2003, we completed the sale of our interest in CBL to the former owners
of CBL. Accordingly, CBL's business operating
F-25
results are not included in the Company's combined unaudited pro forma financial
information for the three and nine month periods ended March 31, 2004, and 2003,
respectively. The unaudited pro forma financial information is not intended to
represent or be indicative of the consolidated results of the operations of the
Company that would have been reported had these acquisitions been completed as
of the dates presented, nor should it be taken as a representation of the future
consolidated results of operations of the Company.
Three Months Ended Nine Months Ended
March 31 March 31
------------------------------ ------------------------------
2004 2003 2004 2003
---- ---- ---- ----
Revenues $ 4,098,199 $ 4,001,089 $ 11,471,661 $ 9,774,108
Operating Profit(Loss) $ (757,204) $ (324,829) $ (2,710,270) $ 187,966
Net Loss Available for Common Stockholders $ (885,644) $ (561,935) $ (3,168,635) $ (868,089)
Net Loss per Common Share
Basic $ (0.03) $ (0.02) $ (0.14) $ (0.04)
Diluted $ (0.03) $ (0.02) $ (0.14) $ (0.04)
Finalization of Purchase Price
Certain information necessary to complete the purchase accounting for VILPAS is
not yet available, including the completion of an independent valuation of its
intangible assets. Purchase accounting will be finalized upon receipt of this
independent valuation.
NOTE 3 - FIXED ASSETS
The Company capitalizes furniture and equipment purchases in excess of $5,000 or
at lower amounts based on local jurisdiction. Capitalized amounts are
depreciated over the useful life of the assets using the straight-line method of
depreciation. Scheduled below are the assets, cost, and accumulated depreciation
at March 31, 2004 and June 30, 2003, respectively and depreciation expense for
the nine months ended March 31, 2004 and 2003, respectively.
Asset Cost Depreciation Expense Accumulated Depreciation
3/31/04 6/30/03 3/31/04 3/31/03 3/31/04 6/30/03
Furniture & Equipment $ 1,408,553 $ 53,385 $ 406,503 $ 5,675 $ 253,058 $ 7,824
F-26
NOTE 4 - TECHNOLOGY-BASED INTANGIBLE ASSETS
The Company capitalized technology-based intangible assets in its acquisitions
of CBL, TouchVision, RMT, Danlas and Ayrshire ("acquisitions"). The amounts
capitalized were equal to the difference between the consideration paid for
acquisitions including any liabilities assumed and the value of the other assets
acquired, as indicated by independent valuations. Other assets were valued at
the current value at the date of the acquisitions including the net value of
fixed assets, historical price less accumulated depreciation, of $1,102,000. The
technology-based intangible assets are being amortized over varying periods, as
indicated by independent valuations, using the straight-line method. Scheduled
below is the asset cost and accumulated amortization at March 31, 2004 and June
30, 2003, respectively, and amortization expense for the nine months ended March
31, 2004 and 2003, respectively:
Asset Cost Depreciation Expense Accumulated Depreciation
3/31/04 6/30/03 3/31/04 3/31/03 3/31/04 6/30/03
Intangible Asset $ 2,378,042 $ 593,512 $ 339,079 $ - $ 227,248 $ 167,747
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Total rental expense included in operations for operating leases for the nine
months ended March 31, 2004 and 2003, amounted to $463,260 and $30,029,
respectively. Certain lease rentals are subject to renewal options and
escalation based upon property taxes and operating expenses. These operating
lease agreements expire at varying dates through 2008.
Total Minimum Lease Commitments as of March 31, 2004:
Calendar Year Amount
------------- -------------
2004 $ 832,884
2005 856,040
2006 422,426
2007 273,186
Thereafter 680,940
-------------
Total $ 3,065,476
=============
NOTE 6 - LEGAL PROCEEDINGS
On September 12, 2003, we filed a Complaint in the United States District Court
for the District of Utah, Central Division, against CBL Global (f/k/a CBL
Acquisition Corporation), and Robert Stephen Scammell, the sole shareholder of
CBL-California, (Case No. 2:03CV00798DAK) alleged, among other things, that
Scammell and CBL-California provided us with misstated financial statements
prior to our merger in October 2002 with CBL-California and CBL Global. On
September 18, 2003, we filed a First Amended Complaint and Jury Demand, which
added as defendants CBL Global and Brian Kennedy, the sole shareholder of
CBL-Australia. The First Amended Complaint alleged causes of action for
violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule
10b-5 promulgated there under, for violations of Section 20(a) of the Securities
Exchange Act of 1934, for declaratory relief and breach of contract, for common
law fraud, and for negligent misrepresentation.
The First Amended Complaint alleged, among other things, that the defendants
were advised by CBL-California's accountant on September 18, 2002 that
CBL-California's financial statements were misstated, and alleged that new
restated financial statements were issued on September 19, 2002. The First
Amended Complaint alleged, however, that the restated financial statements were
not provided to us prior to the October 1, 2002 closing of the merger.
In December, 2003, we sold our interests in CBL Global and its Australian
subsidiaries (collectively "CBL") to Messrs. Scammell and Kennedy, the former
owners of CBL. In conjunction with the management buyout, we entered into a
Settlement Agreement with respect to our litigation with CBL. Pursuant to the
terms of the agreement, we conveyed all of our interest in CBL back to the
former owners in exchange for surrender and cancellation of 3,000,000 shares of
Company stock issued to them in connection with acquisition of CBL and the
cancellation of $1,000,000 in convertible notes payable to them. Also, as a
result of the divestiture, $222,151 owed by CBL Global to Messrs. Kennedy and
Scammell is no longer an obligation of the Company.
F-27
NOTE 7 - NOTES RECEIVABLE
On June 5, 2003, we agreed to lend TouchVision $50,000 in two equal installment
of $25,000 each. Interest accrued on the unpaid principal amount of the note at
a rate equal to six percent per year. Interest accrued under the note is paid
annually, with the first payment due June 5, 2004. All unpaid principal and
interest are due June 29, 2005. At June 30, 2003, $25,000 had been advanced to
TouchVision and accrued interest totaled $41. Subsequent to the TouchVision
acquisition on September 1, 2003, this note receivable along with accrued
interest thereon was reclassified to intercompany notes receivable and
intercompany notes payable. Accordingly, these balances are eliminated in
consolidation of the Company and its subsidiaries at March 31, 2004.
NOTE 8 - RELATED PARTY TRANSACTIONS
From time to time, Ms. McPherson and Ms. Hayman, officers of RMT, have advanced
funds to RMT. The current balance of $15, 234 is due December 31, 2004 and
accrues interest at a rate of 6% per annum.
From time to time, certain shareholders of IRCA have advanced funds to IRCA. Of
the current balance of $2,326,021, $750,000 is non-interest bearing and due June
30, 2004; $40,000 is non-interest bearing and has no fixed terms of repayment
and the remaining amount due of $1,536,021 has no fixed terms of repayment and
bears interest at a Republic of South Africa Bank prime rate.
On December 17, 2003, amended on March 1, 2004, we entered into an agreement
with Titan Aviation Ltd ("Titan"), a Guernsey company, for the purpose of having
Titan act as a representative of IRCA. Mr. Martin Steynberg, a member of our
board of directors, is the managing director of Titan. Mr. Steynberg is a
shareholder in IRCA Investments (Proprietary) Limited which owns 49% of IRCA.
Under the revised terms of the agreement, we will pay Titan four million rand or
approximately $600,000 in May 2004.
On December 15, 2003, the Company's Board of Directors approved a payment of
$64,315 to Mr. William D. Jobe, a member of our board of directors, as
compensation for merger and acquisition services associated with our acquisition
of TouchVision.
From time to time certain shareholders of Riverbend have advanced funds to
Riverbend. The current balance of $392,179 is non-interest bearing and there are
no fixed terms for repayment.
On July 15, 2002, Trinity entered in a two-year Advisory Agreement with Granite
Creek Partners, LLC ("GCP") (formerly Kings Peak Advisors, LLC) with automatic
renewal for a 12-month period. Under the terms of the Advisory Agreement, GCP
agreed to provide the Company with general corporate, financial, business
development and investment advisory services on a non-exclusive basis. GCP is a
private company whose principals are Douglas Cole and Edward Mooney, who are
officers and directors of Trinity, and Mr. Swindells. The Advisory Agreement was
suspended in August 2003.
The Advisory Agreement provided that GCP would be compensated for its various
advisory services as follows: (i) for general corporate advisory services, an
initial retainer of $25,000 and a fee of $20,000 per month throughout the term
of the agreement, payable, at GCP's option, in shares of common stock at a price
per share equal to $0.025; (ii) for financial advisory services, a fee based on
10% of the gross proceeds of any equity financings and/or 1.5% of any gross
proceeds of debt financings that are completed by underwriters or placement
agents introduced by GCP, as well as any fees which may be due to GCP for its
assistance in identifying prospective investors pursuant to terms and conditions
of offering memoranda issued by the Company; (iii) for merger and acquisition
services involving a transaction resulting from a contact provided by GCP, a
sliding fee based on a percentage of the value of the transaction, subject to an
additional $100,000 bonus in the event the transaction is valued at $3,000,000
or more; (iv) in respect of general business development advisory services, a
fee to be negotiated with GCP based upon certain agreed-upon fee parameters
between the parties; and (v) in respect of debt, credit or leasing facilities, a
fee to be negotiated on a case-by-case basis.
Trinity acknowledged that it was indebted to GCP for prior services rendered
since April 1, 2002 in the amount of $30,000, up to 50% of which amount is
payable, at GCP's option, in shares of common stock at a price per share of
$0.025. The total number of shares of common stock issuable to GCP under the
Advisory Agreement may not exceed 4,400,000 shares. Through March 31, 2004, GCP
had earned a total of $315,000 under the Advisory Agreement, $110,000 of which
was converted into 4,400,000 shares of common stock in March 2003. Of the
balance of $205,000, $203,469 has been paid to GCP, leaving a balance owing at
March 31, 2004 of $1,531.
F-28
On July 31, 2002, amended on January 1, 2004, we entered into an Advisory
Agreement with European American Securities, Inc. ("EAS") pursuant to which EAS
agreed to provide financial advisory and investment banking services to the
Company. Through March 31, 2004, EAS had earned a total of $807,716 under the
Advisory Agreement. Of the balance of $807,716, $431,421 has been paid to EAS
and $125,000 or 250,000 shares was paid to EAS in the Company's common stock in
January 2004, leaving a balance owing at March 31, 2004 of $376,295.
On August 8, 2002, Trinity formalized a Debt Conversion Agreement with Global
Marketing Associates, Inc. ("GMA"), holder of a convertible promissory note (the
"GMA Note") in the principal amount of $166,963, pursuant to which the principal
amount of the note, along with accrued interest thereon, was made convertible,
under certain conditions, into 3,200,000 shares of common stock. The GMA Note
was originally issued in November 2000 to the Company's former attorneys and was
subsequently acquired by Pacific Management Services, Inc., who assigned the
note to GMA; both entities are unrelated to Trinity. GMA subsequently assigned
the right to acquire 2,600,000 of the 3,200,000 shares of common stock into
which the note is convertible, to several persons, comprising Messrs. Cole,
Mooney, Swindells and EAS. Pursuant to the assignment, Messrs. Cole and Mooney
each acquired the right to acquire 600,000 shares of the common stock into which
the GMA Note is convertible and Mr. Swindells acquired the right to acquire
1,000,000 shares. Fifty percent of the shares issuable upon the conversion of
the GMA Note are subject to a two-year lock-up provision that restricts transfer
of such shares without prior written consent of Trinity's board of directors. As
of March 31, 2004, 3,200,000 shares of our common stock had been issued pursuant
to the terms of the GMA Note.
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 in to 850,000 shares of common stock and issued to Mr. Swindells.
NOTE 9 - NOTES PAYABLE
On March 31, 2004, notes payable to accredited investors and related parties
totaled $3,546,531 as compared with $2,147,151 at June 30, 2003. The notes bear
interest between the rates of 0% and 12% per annum, some of which are secured by
our common stock. Certain notes are convertible into the Company's common stock.
The Company has the following notes payable obligations:
March 31, June 30,
2004 2003
-----------------------------
Note payable to related parties; see Note 8 for due date,
plus interest payable at 6% per annum $ 15,234 $ -
Unsecured note payable to a related party, IRCA Investments,
non-interest bearing, see Note 8 for due dates 750,000 -
Unsecured note payable to a related party, IRCA Investments,
non-interest bearing and no fixed terms of repayment, see
Note 8 40,000 -
Unsecured notes payable to a related party, IRCA
Investments, has no fixed terms of repayment and bear
interest at a rate of prime. See Note 8 1,536,021 -
Unsecured notes payable, due to Hong Kong Credit Union, due
February 5, 2005 and bears interest at 12% per annum 250,000 -
Senior Convertible Bridge Notes, due in twelve months and
bear interest at 7% per annum. See Note 10 310,000 -
Unsecured notes payable, due to Riverbend shareholders, has
no fixed terms of repayment and is non-interest bearing. See
Note 8 392,179 -
F-29
Borrowings under revolving line of credit issued by a bank,
plus interest payable at prime plus 2.625% 99,950 -
Borrowings under revolving line of credit issued by a bank,
plus interest payable at prime plus 6.75% 34,042 -
Borrowings under revolving line of credit issued by a third
party creditor, plus interest payable at prime plus 1.99% 12,419 -
Notes payable to third party individuals, due September 1,
2006, plus interest payable at 10% per annum 93,649 -
Unsecured convertible notes payable due on December 1, 2003,
see Note 8 - 925,000
Note payable to bank due October 29, 2004, plus interest
payable annually at 9.5%, secured by vehicle 14,234 -
Unsecured notes payable to a related party, see Note 6 - 222,151
Convertible notes payable to a related party, see Note 6 - 1,000,000
------------- -------------
Total Notes Payable 3,547,728 2,147,151
Less: Current Maturities 575,234 (2,147,151)
------------- -------------
Related Parties and Long Term Notes Payable $ 2,972,494 $ -
============= =============
NOTE 10 - STOCKHOLDERS' EQUITY
Between June and October 2003, we received subscriptions to our May 2003 Private
Placement Memorandum ("May 2003 PPM") totaling $4,973,300 from outside investors
to purchase 4,973,300 units at a price of $1.00 per unit. Each unit entitles the
holder to two shares of our common stock and two three year warrants, each to
purchase an additional share of common stock for $1.00 per share. If all
warrants are fully exercised by the holder of such warrants, a bonus warrant
will be issued entitling the holder to purchase one additional share of common
stock for $2.00. In connection with the May 2003 Private Placement, we issued to
various financial advisors, 567,160 additional shares of our common stock and
five-year warrants to purchase 200,050 shares of our common stock.
We completed the acquisition of all of the issued and outstanding shares of
TouchVision. In consideration for the TouchVision shares, we issued an aggregate
of 1,250,000 restricted shares of our common stock, of which 312,500 shares are
subject to the terms of an escrow agreement as collateral for the
indemnification obligations of the former TouchVision shareholders.
We completed the acquisition of all of the issued and outstanding shares of RMT.
In consideration for the shares of RMT we issued 700,000 restricted shares of
our common stock, of which 350,000 shares are subject to the terms of an escrow
agreement as collateral for the indemnification obligations of the former RMT
shareholders.
We completed the acquisition of 51% of the issued and outstanding shares of
Ayrshire that owns 95% of Riverbend. We also acquired the option to purchase the
remaining 49% of Ayrshire. In consideration for the Ayrshire shares, we issued a
convertible non-interest-bearing promissory note in the amount of US$20,000,
which amount is convertible from time to time, but no later than December 30,
2006, into a maximum of 2,000,000 restricted shares of our common stock, which
has been recorded as conditionally redeemable common stock in stockholders'
equity at $0.50 per share. Of these shares, up to 400,000 may be withheld in
satisfaction for any breach of warranties by the former shareholders of
Ayrshire. The Ayrshire shares are subject to escrow and pledge agreements will
be reconveyed to the former shareholders in the event of a default by us of
certain terms and conditions of the acquisition agreements, including, among
other things, a voluntary or involuntary bankruptcy proceeding involving us or
the failure by us to list our shares of common stock on a major stock exchange
by December 30, 2006.
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. Danlas also holds options to acquire the remaining 49% of IRCA. In
consideration for the Danlas shares, the Company (i) issued three convertible
promissory notes in the aggregate principal amount of $40,000 and convertible
into a maximum of 4,500,000 shares, under certain conditions, of the Company's
common stock, (ii) agreed to
F-30
advance $700,000 in cash to establish an international sales force, (iii)
provided $500,000 for certain bank guarantees and, (iv) provided certain future
profit thresholds are met, agreed to issue up to an additional 1,000,000 shares
of the Company's common stock. The first promissory note for $20,000 convertible
to 2,500,000 shares has been classified as conditionally redeemable common stock
at $0.50 per share. The remaining $20,000 in promissory notes has been
classified as intercompany note payable and eliminated in the consolidation of
the Company and its subsidiaries at March 31, 2004. On May 13, 2004, Musca
notified us of their intention to convert two of the promissory notes for 51%
and 23.9% of the ownership of IRCA.
On March 1, 2004, we completed the acquisition of all the issued and outstanding
shares of VILPAS. 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, which has been recorded as
conditionally redeemable common stock in stockholders' equity at $0.50 per
share. Of these shares, up to 20% may be withheld in satisfaction for any breach
of warranties by the former shareholders of VILPAS. The VILPAS shares are
subject to escrow and pledge agreements will be reconveyed to the former
shareholders in the event of a default by us of certain terms and conditions of
the acquisition agreements, including, among other things, a voluntary or
involuntary bankruptcy proceeding involving us or the failure by us to list our
shares of common stock on a major stock exchange by February 5, 2005, subject to
a six-month extension in the event a listing application is in process on such
date. On May 11, 2004, VILPAS notified us of their intention to convert the
promissory note.
In December 2003, we completed the sale of our interests in CBL Global and CBL
to the former owners of CBL. In conjunction with the management buyout, we
entered into a Settlement Agreement with respect to our litigation with CBL as
described in our 10KSB filed with the U.S. Securities and Exchange Commission.
We acquired CBL from its former owners in October 2002. Pursuant to the terms of
the agreement, we have conveyed all our interest in CBL back to the former
owners in exchange for surrender and cancellation of all shares of Trinity stock
issued to them in connection with the acquisition of CBL and the of
approximately $1,000,000 in convertible notes payable to them.
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.
On July 31, 2002, amended on January 1, 2004, we entered into an Advisory
Agreement with EAS pursuant to which EAS agreed to provide financial advisory
and investment banking services to the Company. Through March 31, 2004, EAS had
earned a total of $807,716 under the Advisory Agreement of which, $125,000 or
250,000 shares was paid to EAS in the Company's common stock in January 2004.
Through May 7, 2004, we had received subscriptions to our January 2004 offering
of up to $3,000,000 Senior Convertible Bridge Notes (the "Notes") totaling
$1,146,000. The Notes mature in twelve months plus accrued interest at a rate of
7% per annum. The Notes are convertible at 80% of the "Next Equity Financing"
offering price or at $0.60 per share if converted prior to May 15, 2004. As of
March 31, 2004 $836,000 plus accrued interest had been converted to 1,652,892
shares of common stock. Financing fees payable at March 31, 2004 are $114,600.
Finally, 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 quarter
437,500 shares of the Company's common stock were issued at $1.67 per share for
the exercise of warrants resulting in gross proceeds to the Company of $28,125.
NOTE 11 - STOCK OPTION PLAN
On December 2, 2002, at a special meeting of our shareholders, the 2002 Stock
Plan was approved. The Plan allowed for a maximum aggregate number of shares
that may be optioned and sold under the plan of (a) 3,000,000 shares, plus (b)
an annual 500,000 increase to be added on the last day of each fiscal year
beginning in 2003 unless a lesser amount is determined by the board of
directors. The plan became effective with its adoption and remains in effect for
ten years unless terminated earlier. On December 30, 2003, the board of
directors amended the 2002 Stock Plan to allow for a maximum aggregate number of
shares that may be optioned and sold under the plan of (a) 6,000,000 shares,
plus (b) an annual 1,000,000 increase to be added on the last day of each fiscal
year beginning in 2004 unless a lesser amount is determined by the board of
directors. Options granted under the plan vest 25% on the day of the grant and
the remaining 75% vests monthly over the next 36 months.
F-31
The following schedule summarizes the activity during the three months ended
March 31, 2004.
2002 STOCK PLAN
---------------
Weighted
Average
Number of Exercise
Shares Price
------------ ------------
Outstanding at December 31, 2003 3,542,000 $ 0.23
Options Granted 375,000 0.50
Options Exercised (14,452) 0.05
Options Canceled (262,548) 0.24
------------ ------------
Options Outstanding at March 31, 2004 3,640,000 $ 0.36
============ ============
Options Exercisable at March 31, 2004 1,616,432 $ 0.33
============ ============
The following schedule summarizes the activity during the nine months ended
March 31, 2004.
2002 STOCK PLAN
---------------
Weighted
Average
Number of Exercise
Shares Price
------------ ------------
Outstanding at June 30, 2003 2,447,000 $ 0.23
Options Granted 2,035,000 0.50
Options Exercised (14,452) 0.05
Options Canceled (827,548) 0.26
------------ ------------
Options Outstanding at March 31, 2004 3,640,000 $ 0.36
============ ============
Options Exercisable at March 31, 2004 1,616,432 $ 0.33
============ ============
In accordance with Statement of Financial Accounting Standards Number 123,
"Accounting for Stock-Based Compensation," option expense of $17,434 and
$194,777 was recognized for the three months and nine months ended March 31,
2004, respectively:
March 31, 2004
--------------
Five-Year Risk Free Interest Rate 3.05%
Dividend Yield Nil
Volatility Nil
Average Expected Term (Years to Exercise) 5
Stock options outstanding and exercisable under 2002 Stock Plan as of March 31,
2004 are as follows:
Average
Weighted Remaining Weighted
Number of Average Contractual Number of Average
Range of Options Exercise Life Options Exercise
Exercise Price Outstanding Price (Years) Vested Price
-------------- ----------- ----- ------- ------ -----
$0.05 575,000 $0.05 3.5 356,027 $0.05
$0.25 800,000 $0.25 3.7 460,411 $0.25
$0.50 2,265,000 $0.50 4.5 799,993 $0.50
There are 2,360,000 options available for grant at March 31, 2004.
NOTE 12 - GOING CONCERN
Our financial statements are prepared using generally accepted accounting
principles 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
F-32
and we cannot be certain that our existing sources of cash will be adequate to
meet our liquidity requirements. However, we have undertaken the following to
meet our liquidity requirements:
(a) Seek additional funding through senior convertible bridge notes to
raise sufficient funds to continue operations and fund its ongoing
development, merger and acquisition activities. In January 2004, we
commenced a $3,000,000 offering of senior convertible bridge notes
to accredited investors, the proceeds of which will be used for (i)
corporate administration, (ii) the expansion of subsidiary
operations, and (iii) expenses and funds advanced for acquisitions
in 2003.
(b) Generate sufficient cash flow to sustain and grow subsidiary
operations and, if possible, create excess cash flow for corporate
administrative expenses through our operating subsidiaries; and
(c) Identify prospective acquisition targets with sufficient cash flow
to fund subsidiary operations, as well as potentially generating
operating cash flow that may sustain corporate administrative
expenses.
Trinity's future capital requirements will depend on its ability to successfully
implement these initiatives and other factors, including our ability to maintain
our existing customer base and to expand our customer base into new geographic
markets, and overall financial market conditions in the United States and other
countries where we will seek prospective investors.
If the proposed merger between us and ProsoftTraining, a Nevada corporation is
completed, it is anticipated that the merger will improve liquidity in the
merged company's stock. However, if the merger is not completed, we may be
required to pay certain termination fees and the price of our common stock may
decline. Furthermore, we have and will incur significant costs related to the
merger, such as legal, accounting and some of the fees and expenses of financial
advisors, which costs must be paid even if the merger is not completed.
Regardless of whether the merger is completed, we anticipate that we will still
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.
NOTE 13 - SUBSEQUENT EVENTS
On February 23, 2004, we announced that we had entered into an Agreement and
Plan of Merger (the "Merger Agreement") with ProsoftTraining, a Nevada
corporation ("Prosoft"), and MTX Acquisition Corp., a Utah corporation and a
wholly-owned subsidiary of Prosoft (the "Merger Sub"), pursuant to which the
Merger Sub will be merged with and into the Company, with the Company continuing
as the surviving corporation wholly-owned by Prosoft (the "Merger"). Upon
completion of the Merger, holders of Company common stock will be entitled to
receive one (1) share (the "Exchange Ratio") of Prosoft common stock for each
share of Company common stock held by them. Prosoft will assume all outstanding
options to purchase shares of Company common stock, which will become
exercisable to purchase the number of shares of Prosoft common stock at the
exercise price as adjusted by the Exchange Ratio. The Merger is intended to be a
tax-free reorganization under Section 368(a) of the Internal Revenue Code of
1986, as amended. The consummation of the Merger is subject to the approval of
the stockholders of each of the Company and Prosoft, effectiveness of the Form
S-4 Registration Statement to be filed by Prosoft, regulatory approvals,
satisfactory agreements with certain creditors and other customary closing
conditions. We anticipate that a joint proxy statement and registration
statement on Form S-4 will be filed by Prosoft in the near future.
F-33
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. Indemnification of Directors and Officers.
Our bylaws provide, among other things, that the personal liability our
directors or officers to us or our stockholders shall be eliminated or limited
to the fullest extent permitted under Utah law, which law permits elimination of
personal liability except for liability for (i) the amount of a financial
benefit received by a director to which he is not entitled, (ii) an intentional
infliction of harm on us or our shareholders, (iii) unlawful distributions, and
(iv) intentional violations of criminal law. Our bylaws also provide that we
shall indemnify, to the fullest extent permitted by Utah law, an individual that
is made a party to a proceeding because the person is or was a director or
officer of our company against liability incurred in such proceeding. We may
purchase and maintain liability insurance on behalf of our directors, officers
and employees in respect of liability asserted against or incurred by such
persons in their capacities as directors, officers or employees of our company.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to our directors, officers and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
ITEM 25. Other Expenses of Issuance and Distribution.
The following table sets forth the various costs and expenses to be paid
by us with respect to the sale and distribution of the securities being
registered. All of the amounts shown are estimates except for the SEC
registration fee.
-----------------------------------------------------------------------
Securities and Exchange Commission Filing Fee $ 3,000.00
-----------------------------------------------------------------------
Printing Fees and Expenses 2,000.00
-----------------------------------------------------------------------
Legal Fees and Expenses 25,000.00
-----------------------------------------------------------------------
Blue Sky Fees and Expenses 5,000.00
-----------------------------------------------------------------------
Miscellaneous 3,000.00
-----------------------------------------------------------------------
TOTAL $ 38,000.00
-----------------------------------------------------------------------
We will bear all costs, expenses and fees in connection with the
registration of the shares. The selling stockholders will bear all commissions
and discounts, if any, attributable to the sales of the shares.
ITEM 26. Recent Sales of Unregistered Securities.
The following is information as to all securities we have sold within the
past three years that were not registered under the Securities Act of 1933, as
amended:
On February 4, 2002, we issued 3,500 restricted shares of our common stock
(as presently constituted) to W.F. Fund LLC for an aggregate purchase price of
$35,000. The consideration was paid in the form of a promissory note secured by
the shares of our common stock purchased with the note. The shares of common
stock were issued to an accredited investor in a private placement transaction
in reliance upon the exemption provided by Section 4(2) of the Securities Act.
Additionally, we granted the subscriber a two year option to purchase 8,000
shares at $1.00 per share.
On March 15, 2002, we effected a reverse stock split pursuant to which one
share of our post-split common stock would represent one hundred outstanding
shares of pre-split common stock. Any stockholder who otherwise would have been
entitled to receive a fractional share, because the number of shares of common
stock they hold is not evenly divisible by one hundred, was entitled to have
such fractional number rounded up so as to receive a full share in lieu of the
fractional share. We issued 100 shares of post-reverse split common stock in
connection with this rounding-up following the reverse split.
Pursuant to a series of related transactions which closed on October 1,
2002, we issued 3,000,000 restricted shares of our common stock and issued
US$1,000,000 in convertible promissory notes to two individuals in connection
with our acquisition of Competency Based Learning, Inc., a California
corporation, and two related Australian companies, Competency Based Learning,
Pty. Ltd. ACN 084 763 780 and ACN 082 126 501 Pty. Ltd. 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 transfer was restricted by us in
accordance with the requirements of the Securities Act. The recipients of the
securities
II-1
represented their intention to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof and
appropriate legends were affixed to the share certificates and other instruments
issued in such transactions.
Effective October 1, 2002, we issued an aggregate of 1,200,000 restricted
shares of our common stock at a price of $0.025 per share to three directors in
consideration for past services valued in the aggregate at $30,000. 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, all of whom were directors and
existing shareholders, and we restricted transfer of the securities in
accordance with the requirements of the Securities Act. The recipients of the
securities represented their intention to acquire the securities for investment
only and not with a view to or for sale in connection with any distribution
thereof and appropriate legends were affixed to the share certificates and other
instruments issued in such transactions.
As of October 2, 2002, we issued an aggregate of 1,070,000 restricted
shares of our common stock valued in the aggregate at $26,750 ($0.025 per share)
to eight unrelated individuals and entities in settlement of outstanding amounts
due such persons for services rendered to us. 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. No advertising or general
solicitation was employed in offering the securities, the offerings and sales
were made to a limited number of persons, all of whom were business associates,
and we restricted transfer of the securities in accordance with the requirements
of the Securities Act. The recipients of the securities represented their
intention to acquire the securities for investment only and not with a view to
or for sale in connection with any distribution thereof and appropriate legends
were affixed to the share certificates and other instruments issued in such
transactions.
During the period June 2002 to September 2002, we issued convertible
promissory notes to certain individuals and entities for a total principal
amount of $500,000, ("2002 Bridge Financing"). In connection with the issuance
of these notes, we also issued warrants to purchase additional shares of our
common stock. 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. No advertising or general solicitation was employed in offering the
securities, the offerings and sales were made to a limited number of persons,
all of whom were business associates, and we restricted transfer of the
securities in accordance with the requirements of the Securities Act. The
recipients of the securities represented their intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the share
certificates and other instruments issued in such transactions.
On May 19, 2003, we issued an aggregate of 1,336,867 restricted shares of
our common stock upon conversion of all of principal amount of the Bridge
Financing Notes of $500,000, as well as accrued interest thereon totaling
$34,745. 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.
During the period October 2002 to March 2003, we issued an aggregate of
3,200,000 restricted shares of our common stock pursuant to the terms of a
convertible promissory note. 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, the
principals of which were directors and existing shareholders, and we restricted
transfer of the securities in accordance with the requirements of the Securities
Act. The recipients of the securities represented their intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the share
certificates and other instruments issued in such transactions.
During the period January 2003 to April 2003, we issued 500,000 restricted
shares of common stock at a price of $0.50 for aggregate consideration of
$250,000, pursuant to a private offering of 350,000 units to investors. Each
unit consisted of two restricted shares of our common stock and two warrants,
each entitling the holder to purchase one additional share of our common stock
at a price of $1.00 per share, and the right to acquire an additional bonus
warrant upon exercise of the two original warrants, each such bonus warrant
entitling the holder to purchase one additional share of common stock at $2.00
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 a limited number of persons, and we restricted
transfer in accordance with the requirements of the Securities Act.
On July 8, 2003, we issued a five-year warrant to Merriman, Curran, Ford &
Co. a financial service company, to purchase up to 20,000 shares of our common
stock for a period of five years at $0.50 per share in consideration for
financial
II-2
advisory services provided to us by the firm. The issuance of these securities
was made in reliance on Section 4(2) of the Securities Act as a transaction not
involving any public offering.
On September 1, 2003, we issued an aggregate of 1,250,000 restricted
shares of our common stock to the twelve shareholders of TouchVision, Inc. in
exchange for acquisition of all of the issued and outstanding shares of
TouchVision, a California corporation that is in the business of providing
technology-enabled information and leaning systems. The issuance of these
securities was made in reliance on Section 4(2) of the Securities Act as a
transaction not involving any public offering. No advertising or general
solicitation was employed in offering the securities, the offerings and sales
were made to a limited number of persons, and we restricted transfer of the
securities in accordance with the requirements of the Securities Act. The
recipients of the securities represented their intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the share
certificates and other instruments issued in such transactions.
On September 1, 2003, we issued 700,000 restricted shares of our common
stock to two shareholders of River Murray Training Pty. Ltd. ("RMT") in exchange
for all of the issued and outstanding shares of RMT, an Australian company that
is in the business of providing workplace training programs for various segments
of the food production industry, including viticulture and horticulture. The
issuance of these securities was made in reliance on Section 4(2) of the
Securities Act as a transaction not involving any public offering. No
advertising or general solicitation was employed in offering the securities, the
offerings and sales were made to a limited number of persons, and we restricted
transfer of the securities in accordance with the requirements of the Securities
Act. The recipients of the securities represented their intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the share
certificates and other instruments issued in such transactions.
On September 1, 2003 we issued a $20,000 convertible promissory note that
converts into 2,000,000 restricted shares of our common stock in consideration
for 51% of the issued and outstanding shares of Ayrshire Trading Limited, a
British Virgin Islands company, that owns 95% of Riverbend Group Holdings
(Proprietary) Limited. The note converts at $0.01 per share and conversion of
the note is mandatory by maturity, December 30, 2006. The issuance of these
securities was made in reliance on Section 4(2) of the Securities Act as a
transaction not involving any public offering. No advertising or general
solicitation was employed in offering the securities, the offerings and sales
were made to a limited number of persons, and we restricted transfer of the
securities in accordance with the requirements of the Securities Act. The
recipients of the securities represented their intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the share
certificates and other instruments issued in such transactions.
During the period June 2003 to October 2003, we sold by way of private
placement an aggregate of 5,073,300 units at a price of $1.00 per unit, for
aggregate consideration of $5,073,300. Each unit comprised two shares of our
common stock and two warrants, each warrant exercisable for one additional share
of our common stock. In addition, each unit carried the right to acquire an
additional warrant to purchase, under certain conditions, up to one additional
share of common stock. In connection with the private placement, we issued
567,160 additional restricted shares of our common stock to various financial
advisors in payment of fees and also issued five-year warrants to purchase an
additional 200,050 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. The recipients of the securities represented
their intention to acquire the securities for investment only and not with a
view to or for sale in connection with any distribution thereof and appropriate
legends were affixed to the share certificates and other instruments issued in
such transactions.
During the period from September 2002 to June 2003 we issued convertible
unsecured non-interest-bearing promissory notes to Mr. Theodore Swindells, in
consideration for working capital loans, in the total principal amount of
$925,000. In September 2003, we repaid $500,000 on the note balance then
outstanding. In November 2003, the remaining balance of $425,000 was converted
in to 850,000 restricted shares of common stock at a deemed price of $0.50 per
share and such shares were issued to Mr. Swindells. In addition, we issued
850,000 warrants exercisable for an additional share of our common stock at
$1.00 per share. The warrants carry the right to acquire an additional warrant
to purchase, under certain conditions, 425,000 shares of our common stock at
$2.00 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, and the issuance of the securities was made to an existing
shareholder of our company.
On December 1, 2003, we completed the acquisition of all the issued and
outstanding shares of Danlas Limited, a British Virgin Islands Company that owns
51% of IRCA (Proprietary) Limited ("IRCA"). In consideration for the Danlas
shares, we issued a convertible promissory note of $20,000 convertible into a
maximum of 2,500,000 shares of our common stock, two additional convertible
promissory notes of $10,000 each convertible into the remaining aggregate 49% of
IRCA
II-3
shares and agreed to issue up to an additional 1,000,000 shares of our in the
event IRCA achieves certain profit thresholds. These 2,500,000 shares have been
recorded as conditionally redeemable common stock in stockholders' equity at
$0.50 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 a limited number of persons,
and we restricted transfer of the securities in accordance with the requirements
of the Securities Act. The recipients of the securities represented their
intention to acquire the securities for investment only and not with a view to
or for sale in connection with any distribution thereof and appropriate legends
were affixed to the instruments issued in such transactions.
In January 2004, we issued 250,000 restricted shares of our common stock
to European American Securities, Inc. at a deemed price of $0.50 per share in
partial settlement of amounts owing to this entity for financial advisory and
investment banking services. 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.
In January 2004, we issued 100,000 restricted shares of our common stock
to Ronald Posner in payment of finders' fees in respect of our acquisition of
our interest in Riverbend Group Holdings (Proprietary) Limited. 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. The recipients of the securities
represented their intention to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof and
appropriate legends were affixed to the share certificates and other instruments
issued in such transactions.
On March 1, 2004, we completed the acquisition of all of the issued and
outstanding shares of Virtual Learning Partners AS ("VILPAS"), a Norwegian
learning services company. In consideration for the VILPAS shares, we issued a
non-interest-bearing promissory note in the principal amount of $500,000, which
note is convertible into 1,000,000 shares of our common stock. We also agreed to
issue up to an additional 200,000 restricted shares of our common stock in the
event certain revenue and profit thresholds are met by VILPAS during calendar
2004. The issuance of these securities was made in reliance on Section 4(2) of
the Securities Act as a transaction not involving any public offering. No
advertising or general solicitation was employed in offering the securities, the
offerings and sales were made to a limited number of persons, and we restricted
transfer of the securities in accordance with the requirements of the Securities
Act. The recipients of the securities represented their intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the
instruments issued in such transactions.
On March 19, 2004, we issued 40,721 restricted shares of our common stock
in payment of finder's fees in connection with the private placement of our
securities which closed in October 2003. 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.
During the period February 2004 to May 2004, we issued convertible
promissory notes in the principal amount of $2,695,000. The notes matured in 12
months and accrued interest at a rate of 7% per annum. The principal amount of
the notes and accrued interest thereon are convertible into restricted shares of
our common stock at a deemed price of $0.60 per share. In connection with the
issuance of the promissory notes, we also issued 2,695,000 warrants exercisable
for an aggregate of 2,695,000 shares of our common stock at an exercise price of
$1.00 per share. As of May 2004, all of the principal amount of the notes, along
with $17,041 in accrued interest thereon, had been converted into an aggregate
of 4,520,069 restricted 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. The
recipients of the securities represented their intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the
instruments issued in such transactions.
During the period February 2004 to May 2004, certain warrant holders from
the 2002 Bridge Financing, exercised warrants at $0.05 per share for 687,500
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.
II-4
In March 2004, Granite Creek Partners exercised its warrant for 137,500
shares exercisable at $0.05 per share in a cashless exercise and received
126,042 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.
In May 2004, the former shareholders of VILPAS converted their
non-interest bearing promissory note into 1,000,000 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.
During the period May 2004 to June 2004, Danlas converted its $20,000
non-interest bearing promissory note into 2,500,000 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
matures on October 27, 2004 and bears interest at the rate of twelve percent
(12%). The holder of the note has 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.
ITEM 27. Exhibits
Exhibit
Number Description
------ -----------
2.1 Articles of Restatement of the Articles of Incorporation of Trinity
Learning Corporation dated February 25, 2003 (4)
2.2 Bylaws of Trinity Companies, Inc. (1)
5.1 Opinion of Parsons Behle & Latimer **
10.1 Financial Advisory Agreement and Indemnification Letter entered into
as of July 31, 2002 between Trinity Companies, Inc. and European
American Securities, Inc. (1)
10.2 Debt Conversion Agreement dated as of August 8, 2002 between Trinity
Companies, Inc. and Global Marketing Associates, Inc. (1)
10.3 Form of Executive Employment Agreement. (1)
10.4 Advisory Agreement dated as of July 15, 2002 between Trinity
Companies, Inc. and Kings Peak Advisors, LLC. (1)
10.5 Agreement and Plan of Reorganization dated as of October 1, 2002,
among the Company, Competency Based Learning, Inc. and CBL Acquisition
Corp. (2)
10.6 Securities Purchase Agreement dated as of October 1, 2002 between CBL
Acquisition Corp. and Brian Kennedy, relating to shares of Competency
Based Learning, Pty. Ltd ACN 084 763 780. (2)
II-5
10.7 Securities Purchase Agreement dated as of October 1, 2002 by and among
CBL Acquisition Corp. and Brian Kennedy and Robert Stephen Scammell,
relating to shares of ACN 082 126 501 Pty. Ltd. (2)
10.8 Escrow Agreement dated as of October 1, 2002 by and among the Company,
CBL Acquisition Corp., Robert Stephen Scammell, Brian Patrick Kennedy
and Heritage Bank of Commerce. (2)
10.9 Convertible Promissory Note in the principal amount of $485,000 dated
October 1, 2002 issued by CBL Acquisition Corp. to Robert Stephen
Scammell. (2)
10.10 Convertible Promissory Note in the principal amount of $515,000 dated
October 1, 2002 issued by CBL Acquisition Corp. to Brian Kennedy. (2)
10.11 Promissory Note in the principal amount of US$198,079.12 dated October
1, 2002 issued by CBL Acquisition Corp. to Robert Stephen Scammell.
(2)
10.12 Promissory Note in the principal amount of AUD$36,100.80 dated October
1, 2002 issued by CBL Acquisition Corp. to Brian Kennedy. (2)
10.13 Employment Agreement dated as of September 1, 2002 between CBL
Acquisition Corp. and Robert Stephen Scammell. (2)
10.14 Employment Agreement dated as of September 1, 2002 between CBL
Acquisition Corp. and Brian Kennedy. (2)
10.15 Security Agreement dated as of October 1, 2002 by and between CBL
Acquisition Corp., Robert Stephen Scammell and Trinity Companies, Inc.
(2)
10.16 Form of Deed of Charge executed as of October 1, 2002 by Competency
Based Learning Pty Ltd. (2)
10.17 Form of Guarantee and Indemnity executed as of October 1, 2002 by
Competency Based Learning Pty Ltd. (2)
10.18 Form of Guarantee and Indemnity executed as of October 1, 2002 by ACN
082 126 501 Pty. Ltd. (2)
10.19 Form of Stock Purchase Agreement entered into as of October 1, 2002
between Trinity Companies, Inc., and each of its directors. (2)
10.20 Note and Warrant Purchase Agreement dated as of August 20, 2002
between Trinity Companies and various purchasers. (2)
10.21 Form of Convertible Promissory Note issued pursuant to the Note and
Warrant Purchase Agreement dated as of August 20, 2002. (2)
10.22 Form of Warrant issued pursuant to the Note and Warrant Purchase
Agreement dated as of August 20, 2002. (2)
10.23 Commercial Tenancy Agreement between Wedgetail Systems PTY LTD ACN
003356429 and Competency Based Learning PTY LTD CAN 084 763780 dated
December 12, 2000. (3)
10.24 Deed of Variation of Lease dated 1 July 2002 between Wedgetail Systems
PTY LTD ACN 003356429 and Competency Based Learning PTY LTD ACN 084
763780. (3)
10.25 Registration Agreement dated June 2003 between Trinity Learning
Corporation and certain of its shareholders. (5)
10.26 Securities Purchase Agreement date September 1, 2003 by and among
Trinity Learning Corporation and the shareholders of TouchVision, Inc.
(6)
10.27 Escrow Agreement dated September 1, 2003 by and among Trinity Learning
Corporation, Gregory L. Roche, Larry J. Mahar and Heritage Bank of
Commerce. (6)
10.28 Promissory Note dated September 1, 2003 from TouchVision, Inc. to
Trinity Learning Corporation. (6)
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10.29 Employment Agreement dated September 1, 2003 between TouchVision, Inc.
and Gregory L. Roche. (6)
10.30 Employment Agreement dated September 1, 2003 between TouchVision, Inc.
and Larry J. Mahar. (6)
10.31 Securities Purchase Agreement date August 12, 2003 by and among
Trinity Learning Corporation and Barbara McPherson and Ildi Hayman.
(6)
10.32 Escrow Agreement dated August 12, 2003 by and among Trinity Learning
Corporation, Barbara McPherson, Ildi Hayman and Heritage Bank of
Commerce. (6)
10.33 Acquisition Agreement dated September 1, 2003 between Great Owl
Limited, a British Virgin Islands company, and Trinity Learning
Corporation. (6)
10.34 Escrow Agreement dated September 1, 2003 by and among Great Owl
Limited, a British Virgin Islands company, Trinity Learning
Corporation, and Reed Smith of London as escrow agent. (6)
10.35 Deed of Pledge dated September 1, 2003 by Trinity Learning Corporation
to Great Owl Limited, a British Virgin Islands company. (6)
10.36 Warranties of Seller under the Acquisition Agreement dated September
1, 2003 between Great Owl Limited, a British Virgin Islands company,
and Trinity Learning Corporation. (6)
10.37 Warranties of Purchaser under the Acquisition Agreement dated
September 1, 2003 between Great Owl Limited, a British Virgin Islands
company, and Trinity Learning Corporation. (6)
10.38 Convertible Promissory Note dated September 1, 2003, issued by Trinity
Learning Corporation to Great Owl Limited, a British Virgin Islands
company. (6)
10.39 Acquisition Agreement dated December 1, 2003 between Musca Holding
Limited, Trinity Learning Corporation and Danlas Limited. (7)
10.40 Escrow Agreement dated December 1, 2003 by and among Musca Holding
Limited, Trinity Learning Corporation, and Reed Smith of London as
escrow agent. (7)
10.41 Deed of Pledge dated December 1, 2003 by Trinity Learning Corporation,
a Utah corporation, to Musca Holding Limited, a British Virgin Islands
company. (7)
10.42 Warranties of Seller under the Acquisition Agreement dated December 1,
2003 between Musca Holding Limited, a British Virgin Islands company,
and Trinity Learning Corporation. (7)
10.43 Warranties of Purchaser under the Acquisition Agreement dated December
1, 2003 between Musca Holding Limited, a British Virgin Islands
company, and Trinity Learning Corporation. (7)
10.44 Convertible Promissory Note in the principal amount of $20,000.00
dated December 1, 2003, issued by Trinity Learning Corporation, a Utah
corporation, to Musca Holding Limited, a British Virgin Islands
company. (7)
10.45 Convertible Promissory Note in the principal amount of $10,000.00
dated December 1, 2003, issued by Trinity Learning Corporation, a Utah
corporation, to Musca Holding Limited, a British Virgin Islands
company. (7)
10.46 Convertible Promissory Note in the principal amount of $10,000.00
dated December 1, 2003, issued by Trinity Learning Corporation, a Utah
corporation, to Musca Holding Limited, a British Virgin Islands
company. (7)
10.47 Settlement and Release Agreement made as of December 17, 2003, by and
among Trinity Learning Corporation, CBL Global Corp., Competency Based
Learning, Inc., Competency Based Learning Pty. Ltd. ACN 084 763 780,
ACN 082 126 501 Pty Ltd, Stephen Scammell, and Brian Kennedy. (8)
10.48 Finder's Fee Agreement dated August 9, 2003 between Trinity Learning
Corporation and London Court Ltd. (9)
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10.49 Placement Agent Agreement dated May 30, 2003 between the Company and
ACAP Financial, Inc. (9)
10.50 Financial Advisory Agreement dated May 29, 2003 between the Company
and Merriman Curhan Ford & Co. (9)
10.51 Finder's Fee Agreement dated April 11, 2003 between the Company and TN
Capital Equities, Ltd. (9)
10.52 Agreement dated December 17, 2003 between Trinity Learning Corporation
and Titan Aviation Ltd. (9)
10.53 Acquisition Agreement dated March 1, 2004 by and among Trinity
Learning Corporation and the Shareholders. (10)
10.54 Escrow Agreement dated March 1, 2004 by and among Trinity Learning
Corporation, the Shareholders, Jan-Olaf Willums as Shareholder
Representative and Heritage Bank of Commerce as escrow agent. (10)
10.55 Convertible Promissory Note in the principal amount of $500,000.00
dated March 1, 2004, issued by Trinity Learning Corporation to Inspire
AS. (10)
10.56 Amended Agreement dated March 1, 2004 between Trinity Learning
Corporation and Titan Aviation Ltd. (11)
10.57 Sublease Agreement dated July 22, 2003 between Trinity Learning
Corporation and Vargus Marketing Group, Inc. (11)
10.58 Amended Agreement dated January 1, 2004 between the Company and
European American Securities (12)
10.59 Agreement dated July 14, 2002 between the Company and Lynne Longmire.
(12)
10.60 Agreement dated December 12, 2002 between the Company and
Acquimmo-Salenko M&A. (12)
10.61 Agreement dated January 23, 2004 between the Company and Bathgate
Capital Partners, LLC. (12)
10.62 Agreement dated February 3, 2004 between the Company and Doherty &
Co., LLC. (12)
10.63 Agreement dated February 19, 2004 between the Company and Nordic
Enterprise BV. (12)
10.64 Agreement dated March 1, 2004 between the Company and VanCamp
Advisors, LLC. (12)
10.65 Agreement dated March 22, 2004 between the Company and Newforth
Partners, LLC. (12)
10.66 Agreement dated March 23, 2004 between the Company and GVC Financial
Services, LLC. (12)
10.67 Agreement and Plan of Merger dated February 22, 2004 between
ProsoftTraining and the Company. *
10.68 Termination Agreement between the Company and ProsoftTraining dated
July 22, 2004. *
10.69 Amended and Restated 2002 Stock Plan. (13) #
10.70 Securities Purchase Agreement dated July 29, 2004 between the Company
and Oceanus Value Fund, L.P. *
10.71 Senior Secured Promissory Note dated July 29, 2004 issued by the
Company to Oceanus Value Fund, L.P. *
10.72 Security Agreement dated July 29, 2004 between the Company and Oceanus
Value Fund, L.P. *
10.73 Registration Rights Agreement dated July 29, 2004 between the Company
and Oceanus Value Fund, L.P. *
10.74 Warrant dated July 29, 2004 to Oceanus Value Fund, L.P. *
10.75 Financial Advisory Agreement dated July 19, 2004 between the Company
and Merriman Curhan Ford & Co. *
10.76 Agreement dated July 8, 2004 between the Company and TN Capital
Equities, Ltd. *
II-8
10.77 Agreement dated July 23, 2004 between the Company and Bridgewater
Capital Corporation. *
16.1 Letter provided by Bierwolf, Nilson & Associates. (14)
16.2 Letter provided by Chisholm, Bierwolf & Nilson, LLC. (15)
21.1 Subsidiaries of Trinity Learning Corporation. *
23.1 Consent of Independent Public Accountant *
23.2 Consent of Parsons Behle & Latimer *
24.1 Power of Attorney (included in signature page).
* Filed herewith.
** To be filed by amendment.
# Denotes a management contract or compensatory plan.
(1) Incorporated by reference from the quarterly report on Form 10-QSB
filed by the registrant on August 21, 2002.
(2) Incorporated by reference from the current report on Form 8-K filed by
the registrant on October 16, 2002.
(3) Incorporated by reference from the annual report on Form 10-KSB filed
by the registrant on January 10, 2003.
(4) Incorporated by reference from the quarterly report on Form 10-QSB
filed by the registrant on May 20, 2003.
(5) Incorporated by reference from the current report on Form 8-K filed by
the registrant on June 19, 2003.
(6) Incorporated by reference from a current report on Form 8-K filed by
the registrant on September 16, 2003.
(7) Incorporated by reference from a current report on Form 8-K filed by
the registrant on December 17, 2003.
(8) Incorporated by reference from a current report on Form 8-K filed by
the registrant on January 6, 2004.
(9) Incorporated by reference from the quarterly report on Form 10-QSB
filed by the registrant on February 23, 2004.
(10) Incorporated by reference from a current report on Form 8-K filed by
the registrant on March 2, 2004.
(11) Incorporated by reference from the quarterly report on Form 10-QSB
filed by the registrant on May 17, 2004.
(12) Incorporated by reference from the quarterly report on Form 10-QSB/A
filed by the registrant on June 14, 2004.
(13) Incorporated by reference from the Registration Statement on Form S-8
filed by the registrant on February 6, 2004.
(14) Incorporated by reference from the current report on Form 8-K filed by
the registrant on February 24, 2004.
(15) Incorporated by reference from the current report on Form 8-K/A filed
by the registrant on July 26, 2004.
ITEM 28. Undertakings.
The undersigned Registrant hereby undertakes:
II-9
(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;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of this registration statement (or the most recent post-effective
amendment hereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in this 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 price may be reflected in the form of prospectus
filed with the SEC under Rule 424(b) if, in the aggregate, the changes in 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 this registration statement or any
material change to such information in this registration statement.
(2) That, for the purpose of determining any liability under the Securities Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered herein, 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 that remain unsold at the termination of the
offering.
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 SEC 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
question 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.
II-10
SIGNATURES
Pursuant to 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 for filing on Form SB-2 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Berkeley, California on August 13, 2004.
TRINITY LEARNING CORPORATION
By: /s/ Douglas D. Cole
Douglas D. Cole
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned officers and
directors of Trinity Learning Corporation, a Utah corporation, do hereby
constitute and appoint Douglas Cole and Edward P. Mooney and each of them, their
lawful attorneys-in-fact and agents with full power and authority to do any and
all acts and things and to execute any and all instruments which said attorneys
and agents, and any one of them, determine may be necessary or advisable or
required to enable said corporation to comply with the Securities Act and any
rules or regulations or requirements of the Securities and Exchange Commission
in connection with this Registration Statement. Without limiting the generality
of the foregoing power and authority, the powers granted include the power and
authority to sign the names of the undersigned officers and directors in the
capacities indicated below to this Registration Statement, to any and all
amendments, both pre-effective and post-effective, and supplements to this
Registration Statement, and to any and all instruments or documents filed as
part of or in conjunction with this Registration Statement or amendments or
supplements thereof, and each of the undersigned hereby ratifies and confirms
all that said attorneys and agents, or any one of them, shall do or cause to be
done by virtue hereof. This Power of Attorney may be signed in several
counterparts.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the date indicated. Pursuant to the requirements of the
Securities Act of 1933, this Registration Statement has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
Signature Title Date
--------- ----- ----
/s/ Douglas D. Cole Chief Executive Officer August 13, 2004
------------------------------ (Principal Executive
Douglas Cole Officer) and Director
/s/ Edward Patrick Mooney President and Director August 13, 2004
------------------------------
Edward Patrick Mooney
/s/ Christine R. Larson Chief Financial Officer August 13, 2004
------------------------------
Christine R. Larson
/s/ Cynthia Jorgensen Controller August 13, 2004
------------------------------
Cynthia Jorgensen
/s/ William D. Jobe Director August 13, 2004
------------------------------
William D. Jobe
/s/ Richard G. Thau Director August 13, 2004
------------------------------
Richard G. Thau
/s/ Arthur Ronald Kidson Director August 13, 2004
------------------------------
Arthur Ronald Kidson
/s/ Martin Steynberg Director August 13, 2004
------------------------------
Martin Steynberg