form10ksb.htm
U.S.
SECURITIES AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-KSB
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the
fiscal year ended June 30, 2007
Commission
File No. 0-8924
TWL
Corporation
(Name
of
small business issuer in its charter)
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Utah
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73-0981865
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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4101
International Parkway
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Carrollton,
Texas
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75007
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(Address
of principal executive offices)
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(Zip
Code)
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Issuer's
telephone number (972) 309-4000
Securities
registered under Section 12(b) of the Act: None
Securities
registered under Section 12(g) of the Act:
Common
Stock, No Par Value
Check
whether the issuer (1) filed all reports required to be filed by Section 13
or
15(d) of the Exchange
Act
during the past 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes T No
o
Check
if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained,
to
the best of registrant’s knowledge, in definitive proxy on information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No
T
State
issuer’s revenues for its most recent fiscal year, $24,065,918
The
aggregate market value of the voting and non-voting common equity held by
non-affiliates, computed by reference to the average bid and asked price of
such
common equity as of September 28, 2007 was $11,298,930.
As
of
September 20, 2007, the issuer had 188,878,008 outstanding shares of Common
Stock.
DOCUMENTS
INCORPORATED BY REFERENCE: NONE
Transitional
Small Business Disclosure Format (check one): Yes o No
T
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PART
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PART
I
ITEM
1. DESCRIPTION OF BUSINESS
Organizational
History
We
were
incorporated on April 14, 1975 in Oklahoma under the name U.S. Mineral &
Royalty Corp. as an oil and gas exploration, development and operating
company. In 1989, we changed our name to Habersham Energy
Company. Historically, the company was engaged in the business of
acquiring and producing oil and gas properties, but did not have any business
activity from 1995 to 2002. Subsequent to our reorganization in 2002,
we changed our corporate domicile to Utah, amended our capital structure and
changed our name to Trinity Companies Inc. In March 2003, our name was changed
to Trinity Learning Corporation. On September 29, 2006, we changed our name
to
TWL Corporation.
Throughout
this report, we refer to TWL Corporation, together with its subsidiaries, as
"we," "us," "our company," or the “Company."
Recent
Developments
On
May
11, 2007, the executive officers (the “Management”) of the Company, after
completing discussions with KBA Group LLP., its independent registered public
accountants (“KBA”), concluded that the Company’s previously issued financial
statements for the fiscal year ended June 30, 2006, and interim quarterly
periods for the nine months ended March 31, 2006, three months ended September
30, 2006 and six months ended December 31, 2006, which had been filed by the
Company with the Securities and Exchange Commission (the “SEC”) on Form 10-KSB
on November 13, 2006 and Form 10-QSB on May 23, 2006, November 20,
3006, and February 14, 2007, respectively (collectively, the “Reports”), should
no longer be relied upon because of classifications in such financial statements
relating to the treatment of certain long term liabilities which should have
been recorded as current liabilities, the accounting for warrants issued with
debt instruments and the accounting for contingently redeemable stock as more
fully explained below.
The
Company has determined that it will need to amend its Reports in order to amend
the financial statements included therein because of an incorrect classification
of convertible notes payable issued by the Company on March 31, 2006 as
long-term liability. The convertible notes payable should have been
properly recorded as a current liability. The impact on the financial
statements filed by the Company in its Quarterly Report on Form 10-QSB for
the
nine months ended March 31, 2006 (“March 31, 2006 10-QSB”), Annual Report on
Form 10-KSB for the fiscal year ended June 30, 2006 (“June 30, 2006 10-KSB”),
Quarterly Report on Form 10-QSB for the three months ended September 30, 2006
(“September 30, 2006 10-QSB”), and Quarterly Report on Form 10-QSB for the six
months ended December 31, 2006 (“December 30, 2006 10-QSB”), is a
reclassification of $4,500,000 in convertible notes payable from long-term
to
current liabilities. Additionally, certain warrants issued in
connection with the $4,500,000 in convertible notes were previously accounted
for as derivative instruments. Additionally, the impact to the June
30, 2005 10-KSB is the removal of a $373,936 derivative warrant liability and
the reversal of a $373,936 gain recognized on forfeiture of
warrants. The impact on the September 30, 2006 10-QSB and December
31, 2006 10-QSB is the reversal of a $373,936 gain recognized on forfeiture
of
warrants. The accounting for these warrants have been be revised to
be accounted for as a discount on convertible notes payable in the amount of
$774,834, and will be reflected as interest expense in the amended June 30,
2006
10-KSB. Additionally, the Company revised its accounting for
contingently redeemable stock issued in connection with an
acquisition. The impact to March 31, 2006 10-QSB will be the reversal
of $2,210,000 gain recognized due to non-conversion of contingently redeemable
stock.
As
of
June 27, 2007, the Company received an additional $2,777.000 of gross proceeds
(“Proceeds #1”) pursuant to sales by the Company in its private placement
offering (the “Offering”), as previously reported in the Company’s Current
Reports on Form 8-K filed with the SEC on March 20, May 8 and June 14, 2007,
respectively. In consideration of the Proceeds #1, the Company sold an aggregate
of 34,666,665 shares (“Shares #1”) of its common stock, no par value per share
(the “Common Stock”), at a price of $0.03 per share.
Furthermore,
from June 27, 2007 to July 31, 2007, the Company received an additional
$1,290,000 of gross proceeds (“Proceeds #2”, Proceeds #2 and Proceeds #1 shall
collectively be referred to as the “Proceeds”) from sales by the Company in the
Offering. In consideration of the Proceeds, the Company sold an
aggregate of 135,566,662 share (“Shares #2”, Shares #2 and Shares #1 shall
collectively be referred to as the “Shares”) of its Common Stock, at a price of
$0.03 per Share. In addition, one note holder converted their
$280,000 note into 9,333,333 shares of common stock.
The
Shares were sold pursuant to Common Stock Subscription Agreements entered into
by and between the Company and the purchasers’ signatories thereto (the
“Purchasers”). The Company also granted piggy back registration rights to the
Purchasers. The net Proceeds of the Offering are expected to be used
as general working capital and reduction of vendor payables by the
Company.
Pursuant
to the terms of the placement agreement entered into by and between the Company
and the placement agent dated March 6, 2007 (as reported by the Company in
its
Current Report filed with the SEC on Form 8-K on March 20, 2007 [the “Current
Report”], in connection with the sales by the Company of 15% Senior Secured
Convertible Debentures and related warrants), for all proceeds raised by the
Company in the Offering from investors introduced to the Company by the
placement agent, the company has agreed to pay to the placement agent the
following fees: (x) an aggregate advisory fee equal to 8.0% of the
proceeds raised in the Offering, (y) an unallocated expense reimbursement of
2.0% of the proceeds raised in the Offering, and (z) warrants equal to 10%
of
the number and type of shares sold in this Offering exercisable at $0.03 per
Share. The Company further agreed to indemnify the placement agent
against certain civil liabilities, including liabilities under the Securities
Act of 1933, as amended (the “Securities Act”). Therefore, out of the
Proceeds raised, the Company paid the placement agent commissions of
$356,700.
As
of
July 31, 2007, the Company (i) has received aggregate gross proceeds of
$4,347,000 from, and sold 144,899,995 shares of Common Stock in, the Offering,
and (ii) has 188,878,008 shares of Common Stock issued and
outstanding. Further, the company received an additional $1,125,000
from the sale of subordinated debt.
The
Company claims an exemption from the registration requirements of the Securities
Act for the private placement of these securities pursuant to section 4(2)
of
the Act and/or Regulation D promulgated there under since, among other things,
the transaction did not involve a public offering, the investors were accredited
investors and/or qualified institutional buyers, the investors have access
to
information about the Company and their investments, the investors took the
securities for investment and not resale, and the Company took appropriate
measures to restrict the transfer of the securities.
On
July
26, 2007, the board of directors of the Company appointed Ms. Phyllis Farragut
as a member of the board of directors of the Company. There are no
understandings or arrangements between Ms. Farragut and any other person
pursuant to which Ms. Farragut was appointed as director. Effective
as of the date of her appointment, Ms. Farragut was also elected as the
Chairperson of the Company’s Audit Committee.
Effective
as of September 5, 2007, Douglas Cole resigned as Executive Vice President
of
the Company. Mr. Cole also resigned as Secretary of the Company as of
December 31, 2007 and as a director of RMT, a subsidiary of the Company,
effective September 30, 2007. Mr. Cole will remain with the Company
in his position as Vice-Chairman of the board of
directors. Additionally, Mr. Cole will serve as an advisor to the
Company.
On
September 28, 2007, the Company terminated the employment of 29
individuals. This step was taken in an effort to reach cash flow
break even. The Company is also reducing other expense categories as
a part of its cost reduction plan.
General
We
are a
publicly held global learning company, with geographic locations in the United
States and Australia, that specialize in providing technology-enabled learning
and certification solutions for corporations, organizations and individuals
in
multiple global industries. Historically, we have focused our marketing on
medium to large businesses and organizations that wish to provide workplace
training and certification to their employees in a cost effective and efficient
manner.
In
addition to internal growth through business development and expansion of sales
and marketing in existing operations, we have pursued a strategy of acquiring
and integrating other operating companies with established customer bases in
strategic markets and industry segments. Today, target acquisition candidates
typically are expected to meet one or more of these criteria:
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core
operations in the United States
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prime
customer relationships in North
America
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international
sales channels through agents, partners, or sales
offices
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content
that can be leveraged by the Company’s state-of-the-art production and
communication facility in Carrollton,
Texas
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TWL
Knowledge Group, Inc.
In
April,
2005, we completed the acquisition of the key operating assets of the Primedia
Workplace Learning Division (“PWPL”) of PRIMEDIA, Inc., including PWPL’s content
libraries, trademarks, brands, intellectual property, databases and physical
assets. Also included was a 205,000 square foot state-of-the-art workplace
learning content production and delivery facility in Carrollton, Texas, which
is
leased and is used to deliver integrated learning solutions to professionals
in
the homeland security, healthcare, industrial, fire and emergency, government,
law enforcement and private security markets. We operate the acquired
assets as a wholly-owned subsidiary under the name TWL Knowledge Group, Inc.
(“TWLK”).
The
content library is used by over 9,000 clients to train, educate and certify
employees in the areas of state and federal regulatory compliance, ongoing
job
certification, continuing education, risk mitigation and in-service education.
In addition to its traditional delivery capabilities (such as VHS, DVD, CD-ROM)
Internet and print, the PWPL acquisition makes the Company a provider of
satellite-delivered learning content. The satellite network consists of seven
channels that are spread over three key areas: healthcare, government and
industrial. These satellite channels have long-established and well-respected
brand names in their respective industries.
The
division subsequently renamed the TWL Knowledge Group, Inc. serves as our
primary content creation, marketing and delivery platform. With a comprehensive
video production and distribution platform, including satellite uplinks and
downlinks, plus live and archived Internet broadcasting capabilities, we have
the ability to reach customers and learners around the world from one central
facility. Currently not one customer comprises more than 5% of our total
revenues out of more than 1,700 of our active customers.
TWLK
has
three key areas of focus:
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Healthcare
Group. The Healthcare Group (“HCG”) focuses primarily on serving
hospitals and long-term care facilities within the healthcare sector.
HCG
currently services numerous hospitals and long-term care institutions
and
primarily reaches healthcare professionals. HCG provides its training
primarily through our proprietary satellite delivered networks, with
more
than 80% of its revenues subscription based with contracts ranging
from
one to three years. HCG offers accreditation for 17 categories of
licensed
healthcare professionals, and has issued over 2,600,000 continuing
education certificates. HCG has partnership alliances with the Joint
Commission Resources and the VHA.
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Government
Services Group. The Government Services Group (“GSG”) focuses
primarily on serving the emergency responder markets. GSG services
numerous governmental agencies and trains more than 300,000 emergency
responders in the fields of law enforcement, fire, emergency medical
services, and professional homeland security. Approximately 90% of
its
revenue is subscription based with contract lengths of generally
one year
in duration. GSG currently offers more than 2,000 courses through
a
variety of delivery channels to its thousands of federal, state and
local
customers.
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Industrial
Services Group. The Industrial Services Group (“ISG”) offers
comprehensive training to the industrial sector and services some
of the
largest companies in the United States, including Global 1000 and
Fortune
500 clients. Training in the industrial segment is increasingly driven
by
customer mandates for improved skills as well as for regulatory
compliance. Approximately 20% of its revenue is subscription based
with
contracts ranging from one to three years. The remaining sales are
single-event transactions. ISG provides its library of more than
2,000
training courses to its target market primarily through VHS tapes,
CD, and
DVD formats. ISG’s commitment to online offerings has positioned the group
to transition from product sales to a subscription model. ISG supplements
all these channels with associated print
material.
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Key
Benefits of the Combined Operations
As
a
result of the PWPL acquisition, the combination of the Company and TWLK provides
a number of key benefits:
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Approximately
219 full-time workplace learning professionals, including content
development, instructional design, training services, marketing,
video
production, satellite communications, administration, Internet and
IT. We
have an expanded accounting and finance group that should enhance
our
financial controls, cash management, SEC reporting, and Sarbanes-Oxley
compliance.
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A
content library of more than 21,000 training courses for the healthcare,
industrial and security government
markets.
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Delivery
capabilities through a variety of channels, including satellite,
broadband, DVDs, CD-ROM, VHS, print and instructor-led courses. We
currently broadcast content via encrypted satellite to more than
4,000
installed satellite dishes at customer sites. This diverse and powerful
delivery system should permit us to cost effectively reach virtually
any
customer in the world in a variety of secure
channels.
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A
state-of-the-art 205,000 square foot office and production leased
facility
(approximately 20 minutes from Dallas-Fort Worth), built and equipped
at a
cost estimated at over $30 million in 1996, including production
studios,
satellite uplinks and downlinks. We now have an extensive information
technology infrastructure, including The Academy, which is a proprietary
database for tracking learners, courses and certifications. We believe
that because an individual’s training and certification information
resides within The Academy and is not owned by the employer, additional
revenue could be generated as employees change jobs and require
re-certification. The building also houses a replication and fulfillment
center for in-house, on-demand creation of VHS tapes, CDs and DVDs,
which
enables us to leverage content development across all customer-driven
delivery media.
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A
full-time customer service center that monitors and services the
TWLK
client base, including providing professional services and customized
solutions. The support group also makes outbound customer calls to
generate sales leads as well as take incoming customer
calls.
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The
Global Learning Market
According
to EduVentures, Inc., the global education and training market is estimated
at
approximately $2 trillion annually, with the United States currently accounting
for over 35% of the global market for education and training services. Within
the corporate training market, e-learning, fueled by increased penetration
of
computers and workplace access to the Internet, is playing an increased role
in
providing employees with training and workplace learning. DC estimates the
worldwide e-learning services market will exceed $23 billion by 2008 and Cortona
Consulting estimates the global e-learning services market will reach $50
billion by 2010.
According
to the Population Resource Center, world population exceeded 6 billion people
in
2001 with a growth rate of 1.3% annually. Based upon this growth rate, there
will be approximately 1 billion new entrants to the global workforce each decade
until at least the middle of this century. Furthermore, significant changes
in
the make-up of the world’s population are anticipated in the near future. It is
estimated that in Europe, North America and certain other industrialized
nations, anticipated future labor shortages are expected to be caused by an
aging workforce and will need to be met through immigration, which would drive
demand for language and other job training. Other labor shortages are expected
to be met by full-time and part-time re-entry by “retirees” into the workforce,
a trend that is already gaining momentum in the United States. Often these
re-entry workers must be trained or retrained for new job skills, particularly
in computer-related skills. In addition to workplace learning, an aging
population points toward an expanded market for lifelong learning as longevity
increases and people are healthy and active longer into their 70s and
80s.
Other
demographic factors in the make-up of the world’s work force are expected to
have a significant impact on the world learning market. In the United States,
according to Ameristat, between 1998 and 2008, over 40 million people are
estimated to enter the US labor force, joining over 110 million workers already
in the workforce. Furthermore, over 25% of new workers are expected to be either
Hispanic or Asian, thus increasing diversity in the workplace. A more diverse
workforce presents challenges to employers with regard to language and
communication skills, compliance with laws and regulations regarding employment
practices and training in basic workplace skills.
As
the
global workplace continues to change rapidly, the economic value of a college
degree or professional certification continues to increase. In the United
States, the wage premium for a college degree holder as compared to a high
school diploma has nearly doubled since the late 1970s — a statistic that is
even more pronounced for women workers. Around the world, the value of a college
degree, particularly from an accredited U.S. higher education institution,
remains one of the most valuable workplace assets. Through distance and online
education, there is a world market for college degree programs and professional
certifications. Wage differentials based upon education can also be found in
the
workplace below the degree level. For example, in Latin America, a worker with
six years of education typically earns 50% more than a worker with no formal
education, and the wage premium increases to 120% based upon 12 years of
education.
Increased
globalization is also expected to have a significant impact on the world
learning market. As technology continues to facilitate global communication
and
business, corporations will continue to seek out new foreign markets for highly
educated, lower cost workers. For developed nations to compete with the
outsourcing of labor to developing nations, they must invest in educating and
training their workforces. Many companies already know the benefits of ongoing
education and training for their employees. The American Society for Training
and Development (“ASTD”) performed a three-year study of employee education with
575 US-based publicly-traded firms from various industries. ASTD found that
companies who invested $680 per employee more than the average company increased
their total stockholder return by six percent for the following year. A survey
performed by Chief Learning Officer Magazine and Fairfield Research Inc., a
market research company, looked into the size of the enterprise-learning market
in the United States. Companies with over $500 million in annual sales spent
an
average of $3.7 million on learning and training and are estimated to have
collectively spent $11.9 billion on education in 2003.
Globalization
also presents challenges to large-scale, multinational employers in global
industries that must address their human capital requirements in a
cost-effective manner due to dispersed workforces, continual introduction of
new
technologies (including the introduction of technology to job classifications
staffed by entry-level or lower-skilled workers), global competition, language
and cultural barriers and other demographic factors. Large employers also employ
a wide range of personnel with various educational attainment levels and
differing needs for ongoing training, workplace learning and professional
development. In addition, compliance with local, national and international
regulations and standards is increasingly critical for employers of all
sizes.
Just
as
globalization is expanding the world’s workforce to new labor markets and
employers increasingly recognize the return on investment from a better educated
workforce, technology is revolutionizing access to learning, education and
training around the world through computer-based learning, high-speed network
access, distance learning, e-learning and online accredited education. Access
to
computers and the Internet continues to increase dramatically, with the highest
rates of growth over the coming decade expected to be in less developed nations.
Worldwide, the Internet population is estimated at nearly 1 billion by The
Computer Industry Almanac and is expected to grow at a rate of approximately
200
million new users per year.
The
advent of computer and Internet technology has also presented new approaches
for
teaching and training employees. Over the past two decades, educational research
has shown that individuals learn in different ways and that no one method of
teaching or training is optimal across all types of content or desired
educational outcomes. Educational research has shown that a blended learning
approach is generally more successful for the retention of new learning. Within
the overall global learning market, there are a variety of instructional methods
that can be utilized to train workers. These methods include:
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Classroom
instruction at a school, the employer’s facility or at an off-site
facility
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Computer-based
training and simulation
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Distance
education, utilizing printed materials or digital
materials
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Online
or e-learning, either instructor-mediated or
self-paced
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Hands-on
training with machines or devices, either in the workplace or at
a remote
facility
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Strategy
Our
goal
is to become a leader in the global learning industry and to create one of
the
first global brands that integrate products and services for workplace learning,
education and personal growth markets. Key aspects of our strategy
are:
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Cross
Selling of Existing Content. We believe that there is significant
customer overlap among its HCG, GSC and ISG industry verticals, with
over
21,000 titles, we believe that there are significant cross- and up-selling
opportunities in the combined Company and are refocusing our sales
force
to realize these synergies.
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Increase
Penetration in Key Markets. We intend to market aggressively to
expand our presence in key markets where significant opportunities
lie.
For example, HCG currently serves only 30% of the acute care market
and
less than 2% of the long-term care market. GSG currently provides
training
to less than 6% of the law enforcement market and only about 7% of
the
fire and emergency markets. In addition, the homeland security market
is
relatively new and provides substantial opportunity for
growth.
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Expand
Into Key Industry Segments. We are evaluating other industry segments
where we believe that our technology and infrastructure will allow
us to
expand. Key among these is language
learning.
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Continue
Focus on Cost Savings. We have implemented an extensive cost savings
initiative, which we expect to realize upon in the next several quarters.
This cost-savings initiative
includes:
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Headcount
reduction in non-core areas;
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Re-allocation
of internal production staff to eliminate or reduce freelancers;
and
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Elimination
of duplicate overhead, such as office space and back office
employees
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Increased
Capacity Utilization. TWLK's production facility has
additional unutilized capacity. We are in the process of
increasing capacity utilization by one or more of the following:
subleasing unused office space, finding additional third-party clients
for
video production facilities and identifying clients to share our
satellite
service capacity.
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Integration. TWLK
now represents substantially all of our assets and
operations. We continue to operate our other subsidiaries in
the United States and in international markets, with the intent of
integrating operations, sales and marketing into TWLK. In cases
where integration is not feasible or cost effective, we anticipate
that we
will either (a) continue to operate certain subsidiaries as we have
done
in the past, (b) seek partnerships and alliances and other strategic
relationships, or (c) divest or reduce our ownership in selective
non-core
assets and operations.
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Increase
Investor Awareness. We intend to apply for a NASDAQ Small-Cap or AMEX
listing as soon as it meets the listing
requirements.
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Subsidiaries
We
currently have two wholly owned operating subsidiaries: TWL Knowledge Group,
Inc. and River Murray Training. In addition we have two subsidiaries from which
we derived no revenue in fiscal 2007: Touch Vision and VILPAS. In
fiscal 2007 we divested our ownership in IRCA (Proprietary) Limited, previously
a 51% subsidiary, and 51% interest in the operations of Riverbend. The IRCA
divesture had previously been fully reserved and did not affect fiscal 2007
financial results.
TWL
Knowledge Group
TWLK
provides integrated learning solutions for compliance, safety, emergency
preparedness, continuing education and skill development in the
workplace. TWLK produces and delivers workplace education and skills
training to organizations via three platforms:
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Numerous
private encrypted global satellite television
networks
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Proprietary
Internet-based Learning Management
System
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Traditional
media such as DVD, CD-ROM and
videotape
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River
Murray Training
River
Murray Training (“RMT”), our Australian subsidiary, provides consultancy
services for customers to establish a sustainable in-house training system,
resource development services to develop customized learning support materials,
and training services to provide a wide selection of fully accredited
training.
The
basis
of the RMT training model is partnering with companies to develop training
programs, which provides two key benefits for its customers: first, training
is
made relevant to the workplace; second, active involvement of customer personnel
in training program development creates opportunities that foster the creation
of a learning environment. This in turn provides a medium through
which the customer can achieve continuous improvement.
RMT's
primary sources of revenue are from the design and delivery of consulting and
training services in the Australian agribusiness industry.
Competitive
Business Conditions
The
competitive market for corporate training and workplace learning is fragmented
by geography, curricula, and targeted segments of the
workforce. Although there are many companies that provide training,
we believe that we derive our competitive advantage because of our ability
to
provide a suite of learning solutions on a worldwide basis at multiple levels
of
the workforce ranging from industrial workers to executive
management.
Generally,
most of our competition comes from:
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Smaller,
specialized local training
companies;
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Providers
of online and e-learning products targeted at corporate soft skills
and
technical training;
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Not-for-profit
trade schools, vocational schools and universities;
and
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Learning
services divisions of large, multinational computer, software and
management consulting firms.
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We
anticipate that market resistance may come from the internal trainers in the
organizations to whom our various operating subsidiaries sell training and
certification. Traditional trainers may see outsourcing as a threat
to their job security. We seek to overcome this by focusing our
business development strategy on senior management in operations, finance and
human resources. We will also reshape the value proposition for
internal training functions from tactical to strategic. We believe we
can enhance the role of internal training and human capital development
departments by providing a proven, integrated set of learning
tools. In this way, we can provide measurable results and increase
both the actual effectiveness and the perceived value of internal training
departments.
Each
of
our operating subsidiaries faces local and regional competition for customer
contracts and for government and non-government funding of education and
training projects. In geographic areas where they hope to expand,
they may face competition from established providers of their respective
products and services.
We
believe that our operating subsidiaries derive their competitive advantage
from
one or more of the following:
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Proprietary
content, software or technology;
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Strategic
relationships and alliances, including exclusive development and
marketing
relationships; and
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Management's
industry and customer
relationships.
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Intellectual
Property
Our
success and ability to compete are dependent, to a significant degree, on our
ability to develop and maintain the proprietary aspects of our technology and
operate without infringing the proprietary rights of others. We
regard certain aspects of our products and documentation as proprietary and
rely
on a combination of trademark, trade secret and copyright laws and licenses
and
contractual restrictions to protect our proprietary rights. These
legal protections afford only limited protection. We seek to protect
the source code for our software, documentation and other written materials
under trade secret and copyright laws. We license software pursuant
to license agreements that restrict use of the software by
customers. Finally, we seek to limit disclosure of our intellectual
property by requiring employees, consultants and customers with access to our
proprietary information to execute confidentiality agreements and by restricting
access to source codes. We believe, however, that in the market for
online-learning and other technology-enabled education, training and
certification services that require online business communications and
collaboration, factors such as the technological and creative skills of our
personnel and our ability to develop new products and enhancements to existing
products are more important than the various legal protections of our technology
to establishing and maintaining a technology leadership position.
Our
products and services, in some cases, are derived from proprietary content
developed by our operating subsidiaries. In other cases, we or our
subsidiaries are licensed to market third-party content or software, or in
some
cases to modify or customize third party content to meet the needs of our
clients. In certain cases, where we have made investments to develop
or co-develop certain products or services with third-parties, we and our
operating subsidiaries may be entitled to certain rights of ownership and
copyright of intellectual property to the extent they are delivered to customers
in the format developed by us.
Our
products are generally licensed to end-users on a "right-to-use" basis pursuant
to a license that restricts the use of the products for the customer's internal
business purposes. We also rely on "click wrap" licenses, which
include a notice informing the end-user that, by downloading the product, the
end-user agrees to be bound by the license agreement displayed on the customer's
computer screen. Despite efforts to protect our proprietary rights,
unauthorized parties may attempt to copy aspects of our products or to obtain
and use information that is regarded as proprietary. Policing
unauthorized use of products is difficult and, while we are unable to determine
the extent to which piracy of our software exists, it can be expected to be
a
persistent problem. In addition, the laws of many countries do not
protect intellectual proprietary rights to as great an extent as do the laws
of
the United States. Many of our subsidiaries operate in countries
other than the United States. We are in the process of reviewing all
intellectual property ownership and protection among all of our
recently-acquired operating subsidiaries.
Employees
As
of
August 31, 2007, we had approximately 219 full time employees located in
California, Texas, South Carolina, Tennessee, Virginia, and
Australia.
The
risks
described below are not the only risks that we face. The risks described below
are the risks that we currently believe are material to our business. However,
additional risks not presently known to us, or risks that we currently believe
are not material, may also impair our business operations. You should also
refer
to the other information set forth in this Annual Report on Form 10-KSB,
including the discussions set forth in "Management's Discussion and Analysis
of
Financial Condition and Results of Operations" and "Description of Business,"
as
well as our financial statements and the related notes.
Business
Risks
Additional
capital is necessary to sustain and grow our
business.
For
the
foreseeable future, unless and until we attain profitable operations, we will
likely experience a net operating loss or minimal net income. Thus, we will
likely be dependent for the foreseeable future on capital raised in equity
and/or debt financing, and there can be no assurance that we will be able to
obtain such financing on favorable terms, if at all.
We
have incurred significant losses to date and expect to continue to incur
losses.
During
the fiscal years ended June 30, 2007 and 2006 we incurred net losses of
approximately $19,970,574 and $20,675,861, respectively. As of June 30, 2007
we
had an accumulated deficit of approximately $79,412,453. We expect to continue
to incur losses for at least the next year. Continuing losses will have an
adverse impact on our cash flow and may impair our ability to raise additional
capital required to continue and expand our operations.
Our
auditors have issued an opinion of a substantial doubt as to the going concern
of the company which may make it more difficult for us to raise
capital.
Our
auditors have included a going concern in their opinion on our financial
statements because of concerns about our ability to continue as a going concern.
These concerns arise from the fact that we have not generated sufficient cash
flows to meet our obligations and sustain our operations and because our
liabilities significantly exceed our assets. If we are unable to
continue as a going concern, you could lose your entire investment in
us. Based on our current cash balance and in light of the recent
private placement offering of Common Stock Subscription Agreements which
generated gross proceeds of $4,347,000, we will not be able to sustain
operations beyond the next three months without additional funding.
We
continue to refine our pricing and our products and services and cannot predict
whether the ongoing changes will be accepted.
Over
the
past few years we have implemented several changes and continue to make such
changes in our pricing and our product and service offerings to increase revenue
and to meet the needs of our customers. We cannot predict whether our
current pricing and products and services, or any ongoing refinements we make
will be accepted by our existing customer base or by prospective
customers. If our customers and potential customers decide not to
accept our current or future pricing or product and service offerings, it could
have a material adverse effect on our business.
As
the percentage of our business that is subject to renewal continues to increase,
those renewals have a more significant impact on our revenue and operating
results.
For
the
year ended June 30, 2007, approximately 45% of our net revenues were derived
from our subscription products. Our subscription customers have no
obligation to renew their subscriptions for our products or services after
the
expiration of the initial subscription period and in fact, some customers have
elected not to renew their subscription. In addition, our customers
may renew at a lower pricing or activity level. During the year ended
June 30, 2007, we renewed 83% of the subscribers which were up for
renewal. The number of accounts up for renewal will continue to
increase during and after 2007. Because a significant portion of our
customer contracts are still operating under their original agreements or have
only renewed one time, we do not have sufficient historical data to accurately
predict future customer renewal rates. Our customers’ renewal rates
may decline or fluctuate as a result of a number of factors, including their
dissatisfaction with our service. If we are unable to renew a
substantial portion of the contracts that are up for renewal or maintain our
pricing, our revenues could be adversely affected, which would have a material
adverse affect on our results of operations and financial
position. In addition, much of our live event activity is of a
recurring and somewhat predictable nature; however, we do not have any long
term
contracts that obligate these customers beyond their current contract
terms. Contracts for our survey and research services typically range
from one to three years in length, and customers are not obligated to renew
their contract with us after their contract expires. If our customers
do not renew their arrangements for our service, or if their activity levels
decline, our revenue may decline and our business will suffer.
Failure
to keep pace with technology and changing market needs could harm our
business.
Our
future success will depend upon our ability to gain expertise in technological
advances rapidly and respond quickly to evolving industry trends and client
needs. We cannot assure you that we will be successful in adapting to
advances in technology, addressing client needs on a timely basis, or marketing
our services and products in advanced formats. In addition, services
and products delivered in the newer formats may not provide comparable training
results. Furthermore, subsequent technological advances may render
moot any successful expansion of the methods of delivering our services and
products. If we are unable to develop new means of delivering our
services and products due to capital, personnel, technological or other
constraints, our business and financial condition could be adversely
affected.
If
we are unable to obtain additional funding, we may have to reduce our business
operations.
Although
we have entered into securities purchase agreements providing financing in
an
aggregate amount of $5,400,000, we will be required to raise additional
financing. We anticipate, based on currently proposed plans and assumptions
relating to our business, that we will require approximately $2,000,000 to
satisfy our operations and capital requirements for the next 12 months.
Therefore, if our marketing campaign is not successful in promoting sales of
our
products, we will be required to seek additional financing. We will
also require additional financing to expand into other markets and further
develop our products and services. With the exception of the
financing in an aggregate amount of $5,400,000 described in "Recent
Developments" section of Prospectus Summary, we have no current arrangements
with respect to any additional financing. Consequently, there can be
no assurance that any additional financing will be available when needed, on
commercially reasonable terms or at all. The inability to obtain additional
capital may reduce our ability to continue to conduct business operations.
Any
additional equity financing may involve substantial dilution to our then
existing shareholders.
As
of June 30, 2007 we identified a material weakness in our internal control
over
financial reporting and cannot assure that we will not find further such
weaknesses in the future.
In
connection with the completion of the audit and issuance of the Company’s
consolidated financials for the year ended June 30, 2006 our predecessor audit
firm identified deficiencies that existed in the design or operation of our
internal controls over financial reporting of our subsidiaries that it
considered to be “material weaknesses”. Section 404 of the
Sarbanes-Oxley Act of 2002 requires management to conduct an annual review
and
evaluation of our internal control over financial reporting and beginning with
the fiscal year ending June 30, 2008 and for the year ended June 30, 2009 to
include a report on, and an attestation by our independent registered public
accountants, of the effectiveness of these controls. In the course of
our assessment of the effectiveness of our internal control over financial
reporting as of June 30, 2006, our auditors identified the following weaknesses
in our financial reporting: (i) inadequate control over activities and reporting
relating to Trinity Learning’s subsidiaries; and (ii) lack of sufficient
resources to identify and properly address technical SEC and reporting
issues. To remediate this we have brought in consultants to assist us
with the analysis and financial statement reporting for debt and equity
financing as well as proper SEC disclosure and reporting.
The
loss of key personnel, including our executive management team, could harm
our
business.
Our
success is largely dependent upon the experience and continued services of
our
executive management team and our other key personnel. The loss of
one or more of our key personnel and a failure to attract, develop or promote
suitable replacements for them may adversely affect our
business.
Our
business strategy is based on sustaining and growing our existing
companies.
Our
growth strategy includes integrating our recent acquisition and building a
world-wide learning technology company. Acquisitions involve various
inherent risks, such as:
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The
potential loss of key personnel of an acquired
business;
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The
ability to integrate acquired businesses and to achieve identified
financial and operating synergies anticipated to result from an
acquisition; and
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Unanticipated
changes in business and economic conditions affecting an acquired
business.
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We
expect
to experience significant growth and expect such growth to continue into the
future. This growth is expected to place a significant strain on our management,
financial, operating and technical resources. Failure to manage this
growth effectively could have a material adverse effect on the company's
financial condition or results of operations.
Expansion
will place significant demands on our marketing, sales, administrative,
operational, financial and management information systems, controls and
procedures. Accordingly, our performance and profitability will
depend on the ability of our officers and key employees to (i) manage our
business and our subsidiaries as a cohesive enterprise, (ii) manage expansion
through the timely implementation and maintenance of appropriate administrative,
operational, financial and management information systems, controls and
procedures, (iii) add internal capacity, facilities and third-party sourcing
arrangements as and when needed, (iv) maintain service quality controls, and
(v)
attract, train, retain, motivate and manage effectively our
employees. There can be no assurance that we will integrate and
manage successfully new systems, controls and procedures for our business,
or
that our systems, controls, procedures, facilities and personnel, even if
successfully integrated, will be adequate to support our projected future
operations. Any failure to implement and maintain such systems,
controls and procedures, add internal capacity, facilities and third-party
sourcing arrangements or attract, train, retain, motivate and manage effectively
our employees could have a material adverse effect on our business, financial
condition and results of operations.
Our
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 might never become profitable.
We
have
never been profitable. As of June 30, 2007 we have a substantial
accumulated deficit in the amount of $79,412,453, and we expect our cumulative
net losses and cumulative negative cash flow to continue until we can increase
our revenues and/or reduce our costs. Long-term demand for our
service will depend upon, among other things, whether we obtain and produce
high
quality programming consistent with consumers' tastes; the willingness of
consumers to pay for our products and services; the cost and availability of
our
leased satellites; our marketing and pricing strategy; and the marketing and
pricing strategy of our competitors. If we are unable ultimately to
generate sufficient revenues to become profitable and have positive cash flow,
we could default on our commitments and may have to discontinue operations
or
seek a purchaser for our business or assets.
Failure
of our leased satellites would significantly damage our
business.
We
lease
one satellite for use in our TWLK business and currently derive approximately
30% of our revenues from satellite customers. Satellites are subject to a number
of risks including: degradation and durability of solar panels, quality of
construction; random failure of satellite components, which could result in
significant damage to or loss of a satellite; amount of fuel satellites consume;
and damage or destruction by electrostatic storms or collisions with other
objects in space, which occur only in rare cases. In the ordinary
course of operation, satellites experience failures of component parts and
operational and performance anomalies. These failures and anomalies
are expected to continue in the ordinary course, and it is impossible to predict
if any of these future events will have a material adverse effect on our
operations. The loss of our satellite transmission capabilities would
have a significant impact on our business. To date we have not
experienced any of the above referenced problems.
Our
national broadcast studio, terrestrial repeater network, satellite uplink
facility or other ground facilities could be damaged by natural catastrophes
or
terrorist activities.
Our
national broadcast studios are located in our leased corporate offices in
Carrollton, Texas. An earthquake, tornado, flood, terrorist attack or other
catastrophic event could damage our national broadcast studio, terrestrial
repeater network or satellite uplink facility, interrupt our service and harm
our business. We do not have replacement or redundant facilities that can be
used to assume the functions of our terrestrial repeater network, national
broadcast studio or satellite uplink facility in the event of a catastrophic
event. Any damage to the satellite that transmits to our terrestrial repeater
network would likely result in degradation of our service for some subscribers
and could result in complete loss of service in certain areas. Damage to our
national broadcast studio would restrict our programming production and require
us to obtain programming from third parties to continue our service. Damage
to
our satellite uplink facility could result in a complete loss of service until
we could identify a suitable replacement facility and transfer our operations
to
that site. To date we have not experienced any of the above referenced
problems.
We
are controlled by current officers, directors and principal
stockholders.
Our
directors, executive officers and principal stockholders and their affiliates
beneficially own approximately 58.00% of the outstanding shares of our common
stock. So long as our directors, executive officers and principal stockholders
and their affiliates control a large portion of our fully diluted equity, they
may continue to have the ability to elect our directors and determine the
outcome of votes by our stockholders on corporate matters, including mergers,
sales of all or substantially all of our assets, charter amendments and other
matters requiring stockholder approval. This substantial interest may have
a
negative impact on the market price of our common stock by discouraging
third-party investors.
Our
business will suffer if technology-enabled learning products and services are
not widely adopted.
Our
technology-enabled solutions represent a new and emerging approach for the
workplace learning and education, and training market. Our success
will depend substantially upon the widespread adoption of e-learning products
for education and training. The early stage of development of this
market makes it difficult to predict customer demand accurately. A
delay in, or failure of, this market to develop, whether due to technological,
competitive or other reasons, would
severely limit the growth of our
business and adversely affect our financial performance.
We
face significant competition from other companies and changing
technologies.
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 our competitors have substantially greater financial,
manufacturing, marketing and technical resources, as well as having a larger
market presence than we do and represent significant long-term
competition. In the event that such a competitor is able to
significantly improve the education marketplace, we may not be able to compete
successfully in such markets. We believe that competition will continue to
increase, resulting in the market pressure to develop and undertake similar
or
superior technological advances. Such pressure could adversely affect our
pricing, gross margins and our ability to compete if we are not able to undergo
similar significant and rapid technological changes commensurate with such
competition. 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. However, there can be no assurance that our assessment of
the market place is correct, or that our products and services will be accepted
now or in the future.
Failure
on our part to attract and retain sufficient skilled personnel, particularly
sales and marketing personnel and product development personnel, may limit
the
rate at which we can grow, may adversely affect our quality or availability
of
our products and may result in less effective management of our business, any
of
which may harm our business and financial performance. Qualified
personnel are in great demand throughout the learning and software development
industry. Moreover, newly hired employees generally take several
months to attain full productivity, and not all new hires satisfy performance
expectations.
The
length of the sales cycle for services may make our operating results
unpredictable and volatile.
The
period between initial contact with a potential customer and the purchase of
our
products by that customer typically ranges from three to eighteen months.
Factors that contribute to the long sales cycle include (a) the need to educate
potential customers about the benefits of our services; (b) competitive
evaluations and bidding processes managed by customers; (c) customers' internal
budgeting and corporate approval processes; and (d) the fact that large
corporations often take longer to make purchasing decisions due to the size
of
their organizations.
Our
business may suffer if we are not successful in developing, maintaining and
defending proprietary aspects of technology used in our products and
services.
Our
success and ability to compete are dependent, to a significant degree, on our
ability to develop and maintain the proprietary aspects of our technology and
operate without infringing the proprietary rights of others. Litigation may
be
necessary in the future to enforce our intellectual property rights, to protect
trade secrets, to determine the validity and scope of the proprietary rights
of
others or to defend against claims of infringement or invalidity. Any such
litigation, even if we prevailed, could be costly and divert resources and
could
have a material adverse effect on our business, operating results and financial
condition. We can give no assurance that our means of protecting our proprietary
rights will be adequate, or that our competitors will not independently develop
similar technology. Any failure by us to protect our intellectual
property could have a material adverse effect on our business, operating results
and financial condition.
There
can
be no assurance that other parties will not claim that our current or future
products infringe their rights in the intellectual property. We expect that
developers of enterprise applications will increasingly be subject to
infringement claims as the number of products and competitors in our industry
segment grows and as the functionality of products in different segments of
the
software industry increasingly overlaps. Any such claims, with or without merit,
could be time consuming to defend, result in costly litigation, divert
management's attention and resources, cause product shipment delays or require
us to enter into marginally acceptable terms. A successful infringement claim
against us and our failure or inability to license the infringed rights or
develop license technology with comparable functionality, could have a material
adverse effect on our business, financial condition and operating
results.
We
integrate third-party software into some of our products. This third-party
software may not continue to be available on commercially reasonable terms.
We
believe, however, there are alternative sources for such technology. If we
are
unable to maintain licenses to the third-party software included in our
products, distribution of our products could be delayed until equivalent
software could be developed or licensed and integrated into our products. This
delay could materially adversely affect our business, operating results and
financial condition.
Laws
and regulations can affect our operations and may limit our ability to operate
in certain jurisdictions.
Providers
of educational programs to the public must comply with many laws and regulations
of federal, state and international governments. We believe that we and our
operating subsidiaries are in substantial compliance with all laws and
regulations applicable to our learning business in the various jurisdictions
in
which we and our subsidiaries operate. However, laws and regulations in the
various jurisdictions in which our subsidiaries operate that target educational
providers could affect our operations in the future and could limit the ability
of our subsidiaries to obtain authorization to operate in certain jurisdictions.
If we or various of our subsidiaries had to comply with, or was found in
violation of, a jurisdiction’s current or future licensing or regulatory
requirements, we could be subject to civil or criminal sanctions, including
monetary penalties; we could be also 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.
Risks
related tour business in Australia
We
derive
less than 2% of our revenues from our operations in Australia. Accordingly,
our
results of operations and prospects are subject, to some extent, to the
economic, political and legal developments in Australia.
While
Australia’s economy has experienced growth in the past several years, growth has
been uneven, both geographically and among various sectors of the
economy. The Australian government has implemented various measures
to encourage economic growth and guide the allocation of resources. Some of
these measures benefit the overall economy of Australia, but may also have
a
negative effect on us. Our operating results and financial condition may be
adversely affected by the government’s potential control over capital and
technological investments or changes in tax regulations. In the future, the
Australian government may play a significant role in regulating education
marketplace development by imposing various policies. It could also exercise
significant control over Australia’s economic growth through the allocation of
resources, controlling payment of foreign currency-denominated obligations,
setting monetary policy and providing preferential treatment to particular
industries or companies.
Fluctuation
of the Australian dollar may indirectly affect our financial condition by
affecting the volume of cross-border money flow.
The
value
of the Australian Dollar fluctuates and is subject to changes in political
and
economic conditions in Australia. The conversion of the Australian Dollar into
foreign currencies, including United States dollars, is further subject to
rates
as set by the Australian National bank, the foreign exchange market rates and
current exchange rates of a basket of currencies on the world financial markets.
As of September 14, 2007, the exchange rate between the Australian Dollar and
the United States dollar was 1.19 Australian Dollars to every one United States
dollar. Accordingly, fluctuation of the Australian Dollar may indirectly affect
our financial condition by affecting the volume of cross-border money
flow.
We
may have difficulty establishing adequate management, legal and financial
controls in Australia.
Australia
where the Company operates historically has adopted the Western style management
and financial reporting concepts and practices, as well as in modern banking,
computer and other control systems. However, if these conditions or practices
change, we may have difficulty in hiring, training and retaining a sufficient
number of qualified employees to work in Australia. As a result of this risk,
we
may experience difficulty in establishing management, legal and financial
controls, collecting financial data and preparing financial statements, books
of
account and corporate records and instituting business practices that meet
newly
adopted standards. To date we have not experienced any of the above referenced
problems.
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:
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Difficulties
in translating our courses into foreign
languages;
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International
political and economic conditions;
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Changes
in government regulation in various
countries;
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Difficulty
in staffing foreign offices, and in training and retaining foreign
instructors;
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Adverse
tax consequences; and
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Costs
associated with expansion into new
territories.
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We
have extended the payment cycle for suppliers beyond normal
terms.
In
order
to conserve cash, we have not paid our supplier vendors in accordance with
stated terms. This may have an effect on future availability, pricing
and terms on purchases. As a result our product offerings and service
may suffer and cause a decline in our revenues while increasing our cost of
business.
Capital
Risk
We
are authorized to issue “blank check” preferred stock which if issued without
stockholders approval, may adversely affect the rights of holders of our common
stock.
Our
certificate of incorporation authorizes the issuance of up to 10,000,000 shares
of "blank check" preferred stock with such designations, rights and preferences
as may be determined from time to time by our Board of Directors, of which
we
have currently designated and issued 4,300,000 shares of Series A preferred
stock. Accordingly, our Board of Directors is empowered,
without stockholder approval, to issue preferred stock with dividend,
liquidation, conversion, voting or other rights which would adversely affect
the
voting power or other rights of our stockholders. In the event of issuance,
the
preferred stock could be utilized, under certain circumstances, as a method
of
discouraging, delaying or preventing a change in control, which could have
the
effect of discouraging bids for the Company and thereby prevent stockholders
from receiving the maximum value for their shares. We have no present intention
to issue any shares of our preferred stock in order to discourage or delay
a
change of control. However, there can be no assurance that preferred stock
will
not be issued at some time in the future.
The
availability of a large number of authorized but unissued shares of common
stock
may, upon their issuance, lead to dilution of existing
stockholders.
We
are
authorized to issue 750,000,000 shares of common stock as of September 17,
2007
of which 188,878,008 shares were issued and outstanding. In connection with
the
financing arrangement that we entered into in August of 2006 and March 2007,
we
also have outstanding senior secured convertible debentures that may be
converted into up to 187,500,000 shares of common stock at a fixed conversion
price of $0.03, outstanding Series A convertible preferred stock that may be
converted into up to 112,083,333 shares of common and warrants to purchase
up to
45,017,684 shares of common stock and stock options granted to acquire
70,930,148 shares of common stock. Assuming conversion and exercise of these
instruments, we will be left with more than 146,000,000 authorized shares of
common stock that remain unissued. These shares may be issued by our Board
of
Directors without further stockholder approval. The issuance of large numbers
of
shares, possibly at below market prices, is likely to result in substantial
dilution to the interests of other stockholders. In addition, issuances of
large
numbers of shares may adversely affect the market price of our common
stock.
There
are a large number of shares underlying our convertible debentures due March
31
2010, warrants that may be available for future sale and outstanding Series
A
convertible preferred stock and the sale of these shares may depress the market
price of our common stock.
As
of
September 17, 2007, we had 188,878,008 shares of common stock issued and
outstanding. In connection with the financing arrangements that we
entered into in August of 2006, we also have outstanding senior secured
convertible notes that may be converted into up to 187,500,000 shares of common
stock at a fixed conversion price of $0.03, outstanding warrants to purchase
45,017,684 shares of common stock, and outstanding Series A convertible
preferred stock that may be converted into up to 112,083,333 shares of common
stock.
If
we are required for any reason to repay our outstanding secured convertible
debentures, we would be required to deplete our working capital, if available,
or raise additional funds. Our failure to repay the secured
convertible debentures, if required, could result in legal action against us,
which could require the sale of substantial assets.
In
connection with a Securities Purchase Agreement entered into on March 31, 2006,
beginning March 31, 2008, we must repay 1/24 of the face amount of our
debentures on a monthly basis, and having the ability to make this payment
in
cash or in stock based upon a 20% discount from the market price at the time
of
repayment, the repayment in shares of the principal and interest on the
debentures may result in substantial dilution to the interests of our other
holders of common stock. The sale of these shares may depress the
market price of our common stock and cause dilution tour existing
stockholders.
As
of
September 17, 2007, we had 188,878,008 shares of common stock issued and
outstanding. In connection with the financing arrangement that we entered into
with Palisades in March 2006 and pursuant to the Letter Agreement #1, we also
have outstanding secured convertible debentures that may be converted into
an
estimated 187,500,000 shares of common stock at the fixed conversion price
of
$0.03 per share. In addition, beginning March 31, 2008, we must repay 1/24
of
the face amount of our debentures on a monthly basis. We may have the ability
to
make this payment in cash or in stock based upon a 20% discount from the market
price at the time of repayment. The repayment in shares of the principal and
interest on the debentures may result in substantial dilution to the interests
of our other holders of common stock. The sale of these shares may depress
the
market price of our common stock and cause dilution to our existing
stockholders.
The
variable repayment price feature of our convertible debentures could require
us
to issue a substantially greater number of shares, which will cause dilution
to
our existing stockholders. If we elect to repay the debentures and interest
in
shares, the number of shares we will be required to issue upon repayment of
the
debentures will increase if the market price of our stock
decreases.
Using
the
closing bid price of $0.043 of our common stock on September 18, 2007, assuming
full repayment of the principal and interest of the $5,625,000 in principal
amount of convertible debentures in shares of our common stock, and based upon
a
20% discount from the market price at the time of repayment of our debentures
and 10% discount from the market price at the time of the interest payment,
we
would be required to issue 130,813,953 shares of common stock for the repayment
of debentures, 21,802,326 shares for the repayment of interest, for an aggregate
total of 152,616,729 or 80.80% of the 188,878,008 shares of common stock issued
and outstanding on September 17, 2007. However, due to the floating repayment
rates, we do not know the exact number of shares that we could issue upon
repayment of the principal and interest on the debentures.
The
following is an example of the amount of shares of our common stock issuable
upon repayment of 1/24th of the $4,500,000 principal amount of convertible
debentures or $187,500 on a monthly basis, plus accrued interest at 15% per
annum over four years, based on market prices assumed to be 25%, 50% and 75%
below the closing bid price on September 17, 2007 of $0.043:
Repayment
of Debentures
|
%
BELOW MARKET
|
|
|
PRICE
PER SHARE
|
|
|
WITH
20% DISCOUNT
|
|
|
NUMBER
OF SHARES
|
|
|
PERCENTAGE*
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
25 |
% |
|
$ |
0.032
|
|
|
$ |
0.026
|
|
|
|
174,418,605
|
|
|
|
92.34 |
% |
| |
50 |
% |
|
|
0.022
|
|
|
|
0.017
|
|
|
|
261,627,907
|
|
|
|
138.52 |
% |
| |
75 |
% |
|
|
0.011
|
|
|
|
0.009
|
|
|
|
523,255,814
|
|
|
|
277.03 |
% |
*
Based
upon 188,878,008 shares of common stock outstanding as of September 17, 2007.
The convertible debentures contain provisions that limit the stockownership
of
the holder of those debentures to 4.99%. Nevertheless, the percentages set
forth
in the table reflect the percentage of shares that may be issued to the holders
in the aggregate.
As
illustrated, the number of shares of common stock issuable in connection with
the conversion of the repayment of the debentures will increase if the market
price of our stock declines, which will cause dilution to our existing
stockholders.
The
large number of shares issuable upon conversion of the repayment of the
convertible debentures may result in a change of
control.
As
there
is no limit on the number of shares that may be issued upon conversion of the
repayment amounts of the convertible debentures, these issuances may result
in
the holder of the debentures controlling us. It may be able to exert substantial
influence over all matters submitted to a vote of the shareholders, including
the election and removal of directors, amendments to our articles of
incorporation and by-laws, and the approval of a merger, consolidation or sale
of all or substantially all of our assets. In addition, this concentration
of
ownership could inhibit the management of our business and affairs and have
the
effect of delaying, deferring or preventing a change in control or impeding
a
merger, consolidation, takeover or other business combination which our
shareholder, may view favorably.
The
lower the stock price, the greater the number of shares could be issued pursuant
to the conversion of the prepayment amounts under the convertible
debentures.
The
number of shares that could be issued upon conversion of the repayment amounts
scheduled under the convertible debentures is determined by the market price
of
our common stock prevailing at the time of each conversion. The lower the market
price the greater the number of shares issuable under the agreement. Upon
issuance of the shares, to the extent that holder of those shares will and
may
attempt to sell the shares into the market, these sales may further reduce
the
market price of our common stock. This in turn will increase the number of
shares issuable under the agreement. This may lead to an escalation of lower
market prices and ever greater numbers of shares to be issued. A larger number
of shares issuable at a discount to a continuously declining stock price will
expose our stockholders to greater dilution and a reduction of the value of
their investment.
The
issuance of our stock upon conversion of the convertible debentures could
encourage short sales by third parties, which could contribute to the future
decline of our stock price.
The
convertible debentures have the potential to cause significant downward pressure
on the price of our common stock. This is particularly the case if the shares
issued upon conversion and placed into the market exceed the market's ability
to
absorb the increased number of shares of stock. Such an event could place
further downward pressure on the price of our common stock. The opportunity
exists for short sellers and others to contribute to the future decline of
our
stock price. If there are significant short sales of our stock, the price
decline that would result from this activity will cause the share price to
decline more so, which, in turn, may cause long holders of the stock to sell
their shares thereby contributing to sales of stock in the market. If there
is
an imbalance on the sell side of the market for the stock, our stock price
will
decline.
Pursuant
to the terms of our registration rights agreement entered into in connection
with our securities purchase agreement dated March 31, 2006, if we do not have
a
registration statement registering the shares underlying the senior secured
convertible debentures and warrants declared effective on or before July 31,
2006, we are obligated to pay liquidated damages in the amount of 1.5% per
month
of the face amount of the issued and outstanding senior secured convertible
debentures outstanding, which equals $67,500, until the registration statement
is declared effective, subject to an overall limit of up to 15 months of partial
liquidated damages. These liquidated damages must be paid in cash. If we have
to
pay the liquidated damages, we would be required to use our limited working
capital and potentially raise additional funds. The company has
obtained a waiver from the holders of the debentures.
RISKS
RELATED TO OUR COMMON STOCK:
There
is a limited market for our common stock which may make it more difficult for
you to dispose of your stock.
Our
common stock has been quoted on the OTC Bulletin Board under the symbol
"TWLP.OB” since October 13, 2006. Prior to that point it was quoted on the OTC
Bulletin Board under the symbol "TTYL.OB”. There is a limited trading market for
our common stock. Accordingly, there can be no assurance as to the
liquidity of any markets that may develop for our common stock, the ability
of
holders of our common stock to sell our common stock, or the prices at which
holders may be able to sell our common stock.
Our
historic stock price has been volatile and the future market price for our
common stock may continue to be volatile. Further, the limited market
for our shares will make our price more volatile. This may make it
difficult for you to sell our common stock for a positive return on your
investment.
The
public market for our common stock has historically been very volatile. Since
the day out stock began being quoted on the OTC Bulletin Board on November
21,
2001 and through June 30, 2007, the market price for our common stock has ranged
from $2.10 to $0.02. Any future market price for our shares may
continue to be very volatile. This price volatility may make it more difficult
for you to sell shares when you want at prices you find attractive. We do not
know of any one particular factor that has caused volatility in our stock
price. However, the stock market in general has experienced extreme
price and volume fluctuations that often are unrelated or disproportionate
to
the operating performance of companies. Broad market factors and the
investing public's negative perception of our business may reduce our stock
price, regardless of our operating performance. Market fluctuations and
volatility, as well as general economic, market and political conditions, could
reduce our market price. As a result, this may make it difficult or
impossible for you to sell our common stock for a positive return on your
investment.
Our
common stock is subject to the “penny stock” rules of the SEC and the trading
market in our securities is limited, which makes transactions in our stock
cumbersome and may reduce the value of an investment in our
stock.
Our
common stock is currently listed for trading on the OTC Bulletin Board which
is
generally considered to be a less efficient market than markets such
as NASDAQ or other national exchanges, and which may cause difficulty in
conducting trades and difficulty in obtaining future financing. Further, our
securities are subject to the "penny stock rules" adopted pursuant to
Section 15 (g) of the
Securities Exchange Act of 1934, as amended, or
Exchange Act. The penny stock rules apply to non-NASDAQ companies whose common
stock trades at less than $5.00 per share or which have tangible net worth
of
less than $5,000,000 ($2,000,000 if the company has been operating for three
or
more years). Such rules require, among other things, that
brokers who trade "penny stock" to persons other than "established customers"
complete certain documentation, make suitable inquiries of investors
and provide investors with certain information concerning
trading in the security, including a risk disclosure document and
quote information under certain circumstances. Penny stocks sold in violation
of
the applicable rules may entitle the buyer of the stock to rescind the sale
and
receive a full refund from the broker.
Many
brokers have decided not to trade "penny stock" because of the requirements
of
the penny stock rules and, as a result, the number of broker-dealers willing
to
act as market makers in such securities is limited. In the event that we remain
subject to the "penny stock rules" for any significant period, there may develop
an adverse impact on the market, if any, for our securities. Because our
securities are subject to the "penny stock rules," investors will find it more
difficult to dispose of our securities. Further, for companies whose securities
are traded in the OTC Bulletin Board,
it is more difficult: (i) to obtain accurate quotations, (ii) to obtain coverage
for significant news events because major wire services, such as the Dow Jones
News Service, generally do not publish press releases about such companies,
and
(iii) to obtain needed capital.
We
have not paid cash dividends in the past and do not expect to pay cash dividends
in the future. Any return on investment may be limited to the value
of our stock.
We
have
never paid cash dividends on our stock and do not anticipate paying cash
dividends on our stock in the foreseeable future. The payment of cash dividends
on our stock will depend on our earnings, financial condition and other business
and economic factors affecting us at such time as the board of directors may
consider relevant. If we do not pay cash dividends, our stock may be
less valuable because a return on your investment will only occur if our stock
price appreciates.
ITEM
2. DESCRIPTION OF PROPERTY
We
lease
a facility located in Carrollton, Texas on 14.79 acres of property and consists
of a two story structure and parking for approximately 650 vehicles. The
building is approximately seven years old and consists of 205,750 rentable
square feet which we lease from an unaffiliated third party on a ten year lease
with seven years remaining. The facility is used for production, warehouse
and
office space. The lease payment is approximately $176,000 per month. The
premises are suitable for their intended uses.
ITEM
3. LEGAL PROCEEDINGS
The
Company has agreed in connection with its purchase of the Primedia Workplace
Learning assets to assume the defense of certain litigation, entitled ARGUS
1
SYSTEMS CORPORATION V. PRIMEDIA WORKPLACE LEARNING L.P., ET AL., No.
04-CV-138918, District Court of Fort Bend County, Texas (the "Argus Claim"),
regarding claims made by Argus 1 Systems Corporation ("Plaintiff") resulting
from that certain Memorandum of Understanding, dated May 22, 2003, ("MOU")
by
and between Plaintiff and PWPL. Plaintiff has alleged various contracts and
tort
claims and seeks among other things license fees, attorney fees and actual
and
punitive damages related to the sale of proprietary content to the Department
of
Homeland Security. The PWPL purchase agreement provides that the Company shall
generally be responsible for paying that portion of any Recovery (as defined
therein) relating to license fees, royalty fees, or other damages arising from
any sales other conduct after the purchase of the PWPL assets and be responsible
for the payment of all on-going license or royalty fees relating to periods
thereafter. In addition, some of the cost and recoveries may be split on a
50/50
basis. The Company has not yet been named as a party to the litigation, has
not
engaged legal counsel for the matter, and has conducted no discovery. The
Company is unable to estimate the likelihood of an unfavorable outcome or the
amount or range of any potential loss its potential liability or legal exposure
for the litigation.
Current
and previous directors of the Company have been sued by SBI
Group. The suit relates to a guarantee issued to Primedia Inc. by SBI
Group for the asset purchase of PWPL by TWL. Primedia Inc. has sued
SBI Group under the guarantee provision due to non-payment of building lease
payments and satellite transponder usage by the Company. Under the
terms of this guarantee provision, the Company is required to indemnify SBI
Group. The Company has previously accrued all amounts due to
Primedia.
In
addition, the Company is a defendant in a number of lawsuits brought by its
trade creditors. However, the Company believes that subsequent to its
successful funding, such litigation will not have a material adverse effect
on
the Company. Also, the Company has the amounts in dispute accrued for
in accounts payable with an additional accrual of approximately $100,000 for
potential legal fees recorded in accrued expenses – professional fees (see Note
5).
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
None.
PART
II
ITEM
5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS,
AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES
Market
Information
Our
common stock has been quoted on the National Association of Securities Dealers
OTC Electronic Bulletin Board since December 23, 2003 under the symbol "TTYL."
Prior to this date, Trinity Learning's common stock was traded on the Pink
Sheets, a privately owned company headquartered in New York.
The
following table sets forth the high and low bid quotations, as provided by
the
OTC Bulletin Board, for our common stock as reported by NASDAQ. These prices
are
based on inter-dealer bid prices, without markup, markdown, commissions or
adjustments and may not represent actual transactions.
|
Fiscal
Year ending June 30, 2007:
|
|
High
|
|
|
Low
|
|
| |
|
|
|
|
|
|
|
April
1, 2007 to June 30, 2007
|
|
$ |
0.15
|
|
|
$ |
0.04
|
|
|
January
1, 2007 to March 31, 2007
|
|
$ |
0.08
|
|
|
$ |
0.04
|
|
|
October
1, 2006 to December 31, 2006
|
|
$ |
0.10
|
|
|
$ |
0.02
|
|
|
July
1, 2006 to September 30, 2006
|
|
$ |
0.14
|
|
|
$ |
0.06
|
|
| |
|
|
|
|
|
|
|
|
|
Fiscal
Year ending June 30, 2006:
|
|
High
|
|
|
Low
|
|
| |
|
|
|
|
|
|
|
|
|
April
1, 2006 to June 30, 2006
|
|
$ |
0.23
|
|
|
$ |
0.08
|
|
|
January
1, 2006 to March 31, 2006
|
|
$ |
0.30
|
|
|
$ |
0.14
|
|
|
October
1, 2005 to December 31, 2005
|
|
$ |
0.32
|
|
|
$ |
0.21
|
|
|
July
1, 2005 to September 30, 2005
|
|
$ |
0.32
|
|
|
$ |
0.20
|
|
The
shares quoted are subject to the provisions of Section 15(g) and Rule 15g-9
of
the Securities Exchange Act of 1934, as amended (the Exchange Act"), commonly
referred to as the "penny stock" rule. Section 15(g) sets forth certain
requirements for transactions in penny stocks and Rule 15(g)9(d)(1) incorporates
the definition of penny stock as that used in Rule 3a51-1 of the Exchange
Act.
The
Commission generally defines penny stock to be any equity security that has
a
market price less than $5.00 per share, subject to certain exceptions. Rule
3a51-1 provides that any equity security is considered to be a penny stock
unless that security is: registered and traded on a national securities exchange
meeting specified criteria set by the Commission; authorized for quotation
on
The NASDAQ Stock Market; issued by a registered investment company; excluded
from the definition on the basis of price (at least $5.00 per share) or the
registrant's net tangible assets; or exempted from the definition by the
Commission. Trading in the shares is subject to additional sales
practice requirements on broker-dealers who sell penny stocks to persons other
than established customers and accredited investors, generally persons with
assets in excess of $1,000,000 or annual income exceeding $200,000, or $300,000
together with their spouse.
For
transactions covered by these rules, broker-dealers must make a special
suitability determination for the purchase of
such securities and must have
received the purchaser's written consent to
the transaction prior to the purchase.
Additionally, for any transaction involving a penny stock, unless exempt, the
rules require the delivery, prior to the first transaction, of a risk disclosure
document relating to the penny stock market. A broker-dealer also
must disclose the commissions payable to both the broker-dealer and the
registered representative, and current quotations for the securities. Finally,
the monthly statements must be sent disclosing recent price information for
the
penny stocks held in the account and information on the limited market in penny
stocks. Consequently, these rules may restrict the ability of broker dealers
to
trade and/or maintain a market in the company’s common stock and may affect the
ability of shareholders to sell their shares.
Holders
As
of
September 17, 2007, we had approximately 603 shareholders of
record.
Dividends
We
have
not declared any dividends to date. We have no present intention of paying
any
cash dividends on our common stock in the foreseeable future, as we intend
to
use earnings, if any, to generate growth. The payment by us of dividends, if
any, in the future, rests within the discretion of our Board of Directors and
will depend, among other things, upon our earnings, our capital requirements
and
our financial condition, as well as other relevant factors. There are no
material restrictions in our certificate of incorporation or bylaws that
restrict us from declaring dividends.
Securities
authorized for issuance under equity compensation plans.
The
following table shows information with respect to each equity compensation
plan
under which the Company’s common stock is authorized for issuance as June 30,
2007.
|
Plan
Category
|
|
Number
of securities to be issued upon exercise of outstanding options,
warrants
and rights
|
|
|
Weighted
average exercise price of outstanding options, warrants and
rights
|
|
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
|
|
| |
|
|
|
|
|
|
|
|
|
| |
|
(a)
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans approved by security holders
|
|
|
70,825,803
|
|
|
$ |
0.09
|
|
|
|
39,500
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans not approved by security holders
|
|
None
|
|
|
None
|
|
|
None
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
70,825,803
|
|
|
$ |
0.09
|
|
|
|
39,500
|
|
Recent
Sales of Unregistered Securities
In
July
and August, 2006, we issued to certain accredited investors 2,800,000 shares
of
preferred stock convertible at $0.10 per share in exchange for the 7,200,000
warrants previously issued to these accredited investors exercisable at $0.21
per share in consideration of the investor agreeing to subordinate its senior
secured interest to Laurus Master Fund, Ltd., in all of the assets of the
Company and further agreed to modify their conversion price on previously issued
debt from $0.25 to $0.03 per common share.
In
August
of 2006, the Company issued to Darrin M. Ocasio 1,800,000 shares of common
Stock
pursuant to the agreement entered into in March 2006, as a performance bonus
stock award.
On
August
31, 2006, we issued to Laurus Master Fund, Ltd., 1,500,000 shares of preferred
stock convertible at $0.08 per share in consideration of the sale of a secured
three-year term note with a principal amount of $2,500,000 and a secured
three-year revolving note with a maximum amount available of $5,000,000 to
Laurus Master Fund, Ltd.
During
the fourth quarter, the Company sold 92,566,667 shares of no par value common
stock at a price of $0.03 per share pursuant to its private placement
offering. As of June 30, 2007, the Company received aggregate gross
proceeds of $2,777,000 pursuant to this offering.
All
of
the above offerings and sales were deemed to be exempt under rule 506 of
Regulation D and/or Section 4(2) of the Securities Act of 1933, as amended.
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
accredited investors, business associates of TWL Corporation or executive
officers of TWL Corporation and transfer was restricted by TWL Corporation
in
accordance with the requirements of the Securities Act of 1933. In addition
to
representations by the above-referenced persons, we have made independent
determinations that all of the above-referenced persons were accredited or
sophisticated investors, and that they were capable of analyzing the merits
and
risks of their investment, and that they understood the speculative nature
of
their investment. Furthermore, all of the above-referenced persons were provided
with access to our Securities and Exchange Commission filings.
ITEM
6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
Some
of
the statements contained in this Form 10-KSB that are not historical facts
are
"forward-looking statements" which can be identified by the use of terminology
such as "estimates," "projects," "plans," "believes," "expects," "anticipates,"
"intends," or the negative or other variations, or by discussions of strategy
that involve risks and uncertainties. We urge you to be cautious of the
forward-looking statements, that such statements, which are contained in this
Form 10-KSB, reflect our current beliefs with respect to future events and
involve known and unknown risks, uncertainties and other factors affecting
our
operations, market growth, services, products and licenses. All written and
oral
forward-looking statements made in connection with this Form 10-KSB that are
attributable to us or persons acting on our behalf are expressly qualified
in
their entirety by these cautionary statements. Given the uncertainties that
surround such statements, you are cautioned not to place undue reliance on
such
forward-looking statements. No assurances can be given regarding the achievement
of future results, as actual results may differ materially as a result of the
risks we face, and actual events may differ from the assumptions underlying
the
statements that have been made regarding anticipated events. Factors that may
cause actual results, our performance or achievements, or industry results,
to
differ materially from those contemplated by such forward-looking statements
include without limitation:
|
1.
|
Our
ability to attract and retain management, and to integrate and maintain
technical information and management information
systems;
|
|
2.
|
Our
ability to generate customer demand for our
products;
|
|
3.
|
The
intensity of competition; and
|
|
4.
|
General
economic conditions.
|
Seasonality
The
Company's operations are seasonal in nature. Operating results have historically
been stronger in the second half of the year with generally strongest results
generated in the fourth quarter of the year. This seasonality causes,
and will likely continue to cause, a variation in the Company's quarterly
operating results. Such variations have an effect on the timing of the Company's
cash flows and the reported quarterly results.
Overview
Our
financial statements are prepared using accounting principles generally accepted
in the United States of America generally applicable to a going concern, which
contemplates the realization of assets and liquidation of liabilities in the
normal course of business. Currently, we do not have significant cash, nor
do we
have an established source of revenues sufficient to cover our operating costs
to allow us to continue as a going concern. Except as noted below we
do not currently possess a financial institution source of financing and it
is
unlikely that our existing sources of cash will be adequate to meet our
liquidity requirements.
To
meet
our present and future liquidity requirements, we will continue to seek
additional funding through private placements, conversion of outstanding loans
and payables into common stock, development of the business of our
newly-acquired subsidiaries, collections on accounts receivable, and through
additional acquisitions that have sufficient cash flow to fund subsidiary
operations. There can be no assurance that we will be successful in obtaining
more debt and/or equity financing in the future or that our results of
operations will materially improve in either the short or the long-term. If
we
fail to obtain such financing and improve our results of operations, we will
be
unable to meet our obligations as they become due. That would raise substantial
doubt about our ability to continue as a going concern.
Results
of Operations
Revenues
decreased $1,774,550 or 6.9%, to $24,065,918 for 2007 from $25,840,468 for
2006. Revenues for 2007 consisted of $10,824,859 in subscription
based, $8,863,538 in single event sales, $2,081,210 in production revenue and
$2,296,311 in other. In 2006, revenues consisted of $13,501,787 in
subscription based, $8,005,726 in single event sales, $1,396,951 in production
revenue and $2,936,004 in other.
Subscription
based revenues decreased $2,676,928 or 19.8% during 2007. Although we
strive to increase our renewal rate with existing subscription customers we
are
not always successful. The decrease in subscription revenues resulted
primarily from decreases in sales to our healthcare and government
customers. Revenue from our healthcare and government customers
declined $1,422,675 and $1,100,586 respectively, due in part to our inability
to
provide updated training materials and course offerings. We
anticipate subscription revenue to remain flat during 2008.
Single
event sales increased $857,812 or 10.7% during 2007. Our single event
sales consist of setup fees, seminar revenue and training materials and services
that do not obligate our customers to continued or repeat sales. This
increase is attributable to increased sales to our industrial customers
$1,820,849 offset by decreased sales to our government customers $699,079 and
customers of our Australian subsidiary $232,341.
Our
production revenue which comprises use of studio, taping and editing services
increased $684,259 or 49.0% during 2007. We anticipate revenue
associated with our production facilities to increase during 2008.
Total
expenses for fiscal year 2007 were $31,236,396 as compared to $40,579,634 for
the fiscal year 2006
Royalty,
printing, delivery and communication costs, which include production costs,
transponder lease and product development costs were $5,585,917 for the fiscal
year 2007 as compared to $7,036,893 for the fiscal year 2006. This
$1,450,976 or 20.6% decline in costs is attributable primarily to decreased
product development costs $601,141 and cost of goods $601,410, due to the
decreased availability of cash resources.
Salary
and Benefits decreased $1,654,942 due to attrition in administrative positions
resulting in favorable wage and benefit costs $1,618,608, the elimination of
incentive accruals $400,000 offset by increased commission expense
of $363,666.
Due
to
the Company’s active management of its limited cash resources we incurred less
expense for selling, general and administration expenses. Selling, General
and
Administrative expenses are comprised of professional fees, utilities,
maintenance and repairs, personal and real property taxes, travel, and
marketing, decreased $6,177,164, or 52.4% to $5,617,865 for 2007 from 11,795,029
for 2006. The decline is attributable to decreased expenses of our
foreign subsidiaries $1,468,894, office supplies $802,702 and repairs and
maintenance for our enterprise software $404,761. We also noted
decreases in travel $410,650, telephone expenses $191,984, professional fees
$1,085,750 and the expensing of warrants in the prior year associated with
a
prior credit agreement $2,067,983.
Amortization
of program inventory decreased $848,197 due to the unamortized balance at June
31, 2006, were fully amortized during the second quarter, and no additional
amounts were capitalized in fiscal year 2007.
Other
income (expense) increased $1,772,901, or 29.9%, to $7,709,596 for 2007 from
$5,936,695 for 2006. This change is attributable to an increase in
interest expense of $3,535,820, with a partial offset of $1,614,064 from a
debt
refinancing loss in the prior year. The increase in interest expense
is primarily due to debt discount on recent financings and amortization of
loan
origination fees associated with incremental debt and modifications of debt
terms resulting in additional debt discount.
We
reported net loss available for common stockholders of $19,970,574 or $0.38
per
share for the fiscal year 2007 as compared to $21,175,861 or $0.52 per share
for
the fiscal year 2006.
The
following describes underlying trends in the businesses of each of our three
subsidiaries that operate as a single business segment.
VILPAS. During
2005, the Norwegian government refined its mandates with regard to functionally
disabled workers, with funding modified to target not only training of the
handicapped but also at subsidizing direct employment of handicapped and
challenged individuals. FunkWeb, a majority owned subsidiary of VILPAS, revised
some of its programs and market strategies to be able to participate in
government programs aimed directly at increasing employment among functionally
disabled workers. Subsequent to June 30, 2005 the Norwegian
government modified its approach to handicapped workers back, toward increased
funding for these initiatives. There is little or no seasonality to
the business of VILPAS. The majority of operating costs are fixed costs, with
some variable costs incurred, related to cost of instructors, which costs may
vary depending upon enrollment. Management has commenced identifying
potential business partners and potential merger and acquisition targets in
Norway and Scandinavia with the goal of strengthening and expanding the
longer-term business operations of VILPAS and Funkweb. Such
partnerships or acquisitions could dilute the Company’s ownership positions from
current levels.
RMT. During
fiscal year 2005 there has been a continued general reduction in Australian
government subsidies for corporate training. As a result, RMT and other
Registered Training Organizations must rely on competitive advantages to retain
clients and to attract new customers. Accordingly, during 2005 a significant
portion of RMT financial and management resources were allocated for the purpose
of developing new products and services to expand its reach beyond the
Australian viticulture industry. The efforts have resulted in
the development of FMRMT's eLearning site ( www.r-m-t-online.com) which offers
a
range of Certificate IV and Diploma qualifications using a facilitated, online
blend of learning. Training course and products available through
this new medium include: Training and Assessment courses for careers
in training, Frontline Management Training, Small Business Management Training,
Retail Management courses, HR Management courses, and Viniculture/ Horticulture
Management credentials. There is little or no seasonality to RMT's
business.
Variable
costs for RMT primarily include one-time and ongoing expenses for outsourced
course development and, at times, instructors. Presently, RMT sells its products
and services in Australia in local currency (Australian Dollars) and there
is
little or no effect from currency exchange. In the future, if RMT is successful
in selling in markets outside of Australia, foreign exchange factors may impact
the ability of RMT to market and compete in a profitable manner.
Liquidity
and Capital Resources
Operating
Activities
Our
expenses are currently greater than our revenue. We have a history of
losses, and our accumulated deficit as of June 30, 2007 was $79,412,453, as
compared to $59,441,879 as of June 30, 2006. As of June 30, 2007, our
liabilities exceeded our assets by $24,788,379.
At
June
30, 2007 we had a cash balance of $1,348,397. Net cash used by
operating activities during the fiscal year 2007 was $4,006,467, attributable
to
our loss from continuing operation. Net cash provided by investing
activities was $2,749,467. Net cash provided by financing activities
was $2,424,058, attributable to cash received from borrowings $4,692,660, offset
by the repayment on capital leases $1,413,383 and debt $855,219.
Accounts
payable decreased $2,223,353 to $4,606,735 at June 30, 2007 from $6,830,088
at
June 30, 2006. This decrease is attributable to our efforts to bring
our past due account balances to more acceptable aging levels. Accrued expenses
increased $2,832,242 due primarily to increases in interest expense associated
with long-term debt $754,149, rent and lease liabilities $1,737,703, dividends
payable on preferred stock $267,167 and all other accrued expenses
$73,223.
As
a
professional services organization we are not capital
intensive. Capital expenditures historically have been for
computer-aided instruction, accounting and project management information
systems, and general-purpose computer equipment to accommodate our
growth.
We
continued to seek equity and debt financing in fiscal 2007 to support our growth
and to finance proposed acquisitions.
On
August
31, 2006, TWL Corporation (the “Company”) entered into agreements with Laurus
Master Fund, Ltd., a Cayman Islands corporation (“Laurus”), pursuant to which
the Company sold debt and issued preferred stock of the Company to Laurus in
a
private offering pursuant to exemption from registration under Section 4(2)
of
the Securities Act of 1933, as amended. The securities being sold and
issued to Laurus include the following:
|
|
1.
|
A
secured three-year term note (the “Secured Note”) with a principal amount
of $2,500,000 (the “Secured Note Amount”), which matures on August 31,
2009 (the “Maturity Date”);
|
|
|
2.
|
A
secured three-year revolving note with a principal amount of $5,000,000
(the “Revolving Note”; the Revolving Note and the Secured Note shall be
collectively referred to as the
“Notes”);
|
|
|
3.
|
1,500,000
shares (the “Shares”) of preferred stock (the “Preferred Stock”), of the
Company, which is redeemable by the Company at a price of $0.08 per
share
(the “Set Price”) at any time until August 31, 2011, and may be converted
by Laurus at any time into common stock, no par value per share (the
“Common Stock”), of the Company at the Set
Price.
|
Of
the
Secured Notes, net proceeds of $2,173,000 were received by the Company on the
Closing Date. Any proceeds of the Revolving Note will be deposited in
a restricted account with First National Bank Southwest as security for the
total loan amount and for use by us to make acquisitions as approved by
Laurus. We also agreed to pay, out of the Loan proceeds, the sum of
$270,000 to Laurus Capital Management, LLC, the manager of Laurus, the sum
of
$60,000 to Laurus as reimbursement for Laurus’ legal fees, due diligence fees
and expenses incurred in connection with the transaction, and $2,000 to Loeb
& Loeb LLP as escrow agent fees.
We
also
have notes payable with TIGP, a related entity totaling $5,625,000, bearing
interest at 15%, due fiscal 2010 through 2011. These instruments are
convertible into a significant number of our common
shares. Additionally, we have obligations under capital leases
totaling approximately $12,000,000 payable from fiscal 2008 through fiscal
2014.
To
meet
our present and future liquidity requirements, we are continuing to seek
additional funding through private placements, conversion of outstanding loans
and payables into common stock, development of the businesses of our
newly-acquired subsidiaries, collections on accounts receivable, and through
additional acquisitions that have sufficient cash flow to fund subsidiary
operations. There can be no assurance that we will be successful in
obtaining more debt and/or equity financing in the future or that our results
of
operations will materially improve in either the short- or the long-term. If
we
fail to obtain such financing and improve our results of operations, we will
be
unable to meet our obligations as they become due. This raises
substantial doubt about our ability to continue as a going concern.
Our
financial statements are prepared using generally accepted accounting principles
in the United States of America applicable to a going concern, which
contemplates the realization of assets and liquidation of liabilities in the
normal course of business. Currently, we do not have significant
cash. To sustain operations our material assets are pledged as
security for the Laurus credit facility. We do not have an
established source of revenues sufficient to cover our operating costs that
will
allow us to continue as a going concern. We do not currently possess
a financial institution source of financing and we cannot be certain that our
existing sources of cash will be adequate to meet our liquidity requirements.
Based upon our cash balance at June 30, 2007, we will not be able to sustain
operations for more than 3 month(s) without additional
sources of financing.
Off
Balance Sheet Arrangements
We
do not
have any off balance sheet arrangements that will have a current or future
effect on our financial condition, revenues, operating results, liquidity or
capital expenditures.
ITEM
7. FINANCIAL STATEMENTS
The
Financial Statements that constitute Item 7 are included at the end of this
report beginning on Page F-1.
ITEM
8. CONTROLS AND PROCEDURES
TWL
Corporation (“TWL”) maintains disclosure controls and procedures that are
designed to ensure that information required to be disclosed in its reports
pursuant to the Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms, and that such information is accumulated and communicated
to our management, including our chief executive officer and chief financial
officer, as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls and procedures,
management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives. Management is required to apply its
judgment in evaluating the cost-benefit relationship of possible controls and
procedures.
As
required by Rule 13a-15(b) of the Securities and Exchange Commission, we carried
out an evaluation under the supervision and with the participation of our
management, including our chief executive officer and our chief financial
officer, of the effectiveness of the design and operation of our disclosure
controls and procedures as of June 30, 2007. Based on this evaluation, our
chief
executive officer and our chief financial officer have concluded the disclosure
controls and procedures are designed to ensure required information be disclosed
by us in the reports we file or submit under the Securities Exchange Act of
1934, as amended, and be recorded, processed, summarized and reported, within
the time periods specified in the Commission's rules and forms, which were
not
effective as of June 30, 2007. There have not been significant changes in our
internal controls over financial reporting that occurred during fourth fiscal
quarter of the Company's fiscal year ending June 30, 2007 that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
In
connection with the restatements of the prior 10-KSB, 10-QSB, and the current
10-KSB filing, management has concluded that material weaknesses over financial
reporting exist and the Company continues to review its disclosure, financial
information, internal controls and procedures and organization and staffing
of
its corporate accounting department in connection with its current filings.
The
Company retained an independent third party to assist with the review of
disclosure requirements for SEC reporting. In addition, the Company continues
to
retain outside legal counsel to assist in, among other things, its efforts
to
timely file or submit our future reports under the Securities Exchange Act
of
1934, as amended. Management intends to continue focusing on strengthening
the
Company's controls and procedures, as it relates to financial reporting
matters.
As
of the
end of the period covered by this report, under the supervision and with the
participation of our chief executive officer and chief financial officer, we
conducted an evaluation of our disclosure controls and procedures (as defined
in
Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this
evaluation, our chief executive officer and chief financial officer concluded
that for the fiscal year ended June 30, 2007, our disclosure controls and
procedures are effective to ensure all information required to be disclosed
by
us in the reports we file or submit under the Exchange Act is: (1) accumulated
and communicated to our management, including our chief executive officer and
chief financial officer, as appropriate to allow timely decisions regarding
required disclosure; and (2) recorded, processed, summarized and reported,
within the time periods specified in the Commission's rules and forms. There
was
no change in our internal controls or in other factors that could affect these
controls during our last fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
ITEM
8A. OTHER INFORMATION
None.
PART
III
ITEM
9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTORS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Directors
and Executive Officers
The
following table sets forth the names, ages and titles of our executive officers
and directors.
|
Name
|
|
Age
|
|
Dennis
J. Cagan
|
|
62
|
|
Patrick
R. Quinn
|
|
47
|
|
Douglas
D. Cole
|
|
52
|
|
Laird
Cagan (1)
|
|
49
|
|
William
D. Jobe
|
|
69
|
|
Richard
G. Thau
|
|
60
|
|
Phyllis
Farragut (2)
|
|
60
|
|
David
B Batstone (3)
|
|
49
|
|
|
(1)
|
Laird
Cagan was appointed as a member of the Company’s Board of Directors on
April 26, 2007.
|
|
|
(2)
|
Phyllis
Farragut was appointed to the board of directors on July 26,
2007. Ms. Farragut also serves as the chair person for the
audit committee.
|
|
|
(3)
|
David
B. Batstone was appointed as a member of the Company’s Board of Directors
on September 13, 2006
|
Certain
biographical information pertaining to the above-named officers and directors
is
set forth below:
DENNIS
J. CAGAN. Mr. Cagan was appointed as our permanent Chief
Executive Officer and President on August 31, 2006. Mr. Cagan has
also served as a director since May 2005. He has been in the high
technology industry as an active entrepreneur for over 38 years, having founded
over a dozen different companies. He has been an investor and professional
board
member (over 40 boards) for over 25 years. Most recently as the
founder, Chairman and CEO of the Santa Barbara Technology Group, LLC, Mr. Cagan
oversees all activities including monitoring portfolio investments, consulting
to early-stage technology companies, and selecting new
investments. Santa Barbara Technology Group, LLC is a private
investment and consulting firm engaged primarily in working with, and investing
in early-stage technology companies in Santa Barbara. Mr. Cagan is currently
on
the Boards of Directors of Acorn Technologies, Inc.; Pacific Palisades; BNI
Holdings, Goleta, CA. (formerly Bargain Network); InQ, Inc. (Chairman), Agoura
Hills, CA.; Nutricate Corp., Santa Barbara, CA.; Truston, Inc., Santa
Barbara, CA. (Chairman); and SaluDent International, Inc., Santa Barbara, CA.
(Chairman). His non-profit activities include: Executive Board, California
Coast
Venture Forum; and Board of Directors, Santa Barbara County's United
Way.
DOUG
COLE. Mr. Cole is Vice Chairman and Executive Vice President, has been
a director of the Company since 2002 and was our Chief Executive Officer until
February 1, 2006 when the company moved its corporate headquarters to Texas.
For
the past 28 years, Mr. Cole has worked in the information technology industry,
with a focus on sales and marketing. He has successfully completed numerous
acquisitions, OEM agreements, International Distribution and strategic
partnerships for and among various companies over his career, ranging from
Hewlett Packard, Canon, Texas Instruments, Sony and IBM. From 1998 to 2000,
Mr.
Cole served as a director of RateXchange Corporation and as a director of two
of
its subsidiaries, RateXchange I, Inc. and PolarCap, Inc. He served as Chairman,
Chief Executive Officer, President and Principal Accounting Officer of
RateXchange from 1999 to 2000. Mr. Cole was the founder and Chief
Executive Officer of Great Bear Technology from its inception in 1992 until
its
merger with Graphic Zone Inc. in 1992. Mr. Cole is a graduate of the
University of California, Berkeley.
PATRICK
R. QUINN. Mr. Quinn was appointed as the Company's Chief
Financial Officer in May 2005, and subsequently appointed as the Company’s Chief
Operating Officer on August 31, 2006. From March 2004 to May, 2005, Mr. Quinn
was employed by Primedia Workplace Learning ("PWPL") as the Chief Financial
Officer. PWPL was a wholly-owned subsidiary of Primedia Inc (NYSE
PRM). From 2000 to 2003 Mr. Quinn was Chief Financial Officer for
Fusion Laboratories, Inc. From 1997 to 2000 Mr. Quinn was Chief
Financial Officer of B.R. Blackmarr &Associates, until its merger into
BrightStar Information Technology Corp (NASDAQ BTSR) where he was the
Controller. From 1989 to 1997 Mr. Quinn was Vice President/Chief
Financial Officer for Affiliated Computer Systems/Precept. Mr. Quinn
has also been an adjunct professor of finance in the MBA program at the
University of Dallas, where he was rated in the top 5% of the adjunct
faculty.
WILLIAM
D. JOBE. Mr. Jobe has been a director of the Company since 2002. He has
been a private venture capitalist and a computer, communications and software
industry advisor since 1991. Prior to that time, he worked in
executive management for a number of firms in the computer, software and
telecommunications industries including MIPS Technology Development, where
he
served as President, and Data General, where he was Vice President of North
American Sales. Mr. Jobe has served as a director for a number of
privately held and publicly held high technology companies including Qualix
Group, Inc., Fulltime Software, Inc., Multimedia Access Corporation where he
served as chairman of the board and director, Viewcast.com, GreatBear Technology
Company, Tanisys Technology, Inc. and Interand Group.
RICHARD
G. THAU. Mr. Thau has been a director of the Company since
2004. Mr. Thau is currently self-employed and is actively engaged in
consultant/mentor/advisor activities. He is also an 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. Mr. Thau is Chairman of Availigent Systems and holds
advisory and/or board positions at Symphoniq Corp, LandSonar, Inc., iBreva
and
Nomea. Mr. Thau is a graduate of the State University of New York at
Stony Brook.
DAVID
B. BATSTONE. Mr. Batstone was appointed as a member of our
Board of Directors on May 3, 2006. Prior to joining the Company's
Board, David Batstone has been a fully tenured Professor at the University
of
San Francisco from fall of 1994 to the present date. He also has served as
President of Right Reality, a publishing and consulting firm since he founded
the company in September 2004. He currently serves as the Senior
Editor of Worthwhile magazine - a post he has held since the fall of 2004 -
and
Editor-at-Large of Sojourners magazine – a post he had held since the fall of
2001. In the fall of 1998 David Batstone was part of the founding
team that launched Business 2.0 magazine, and served on the executive editorial
team until he departed in fall of 2000. In 2000 and 2001 David
Batstone was a managing partner in the investment banking firm,
NetCatalyst. He received his B.A. from Westmont College in Santa
Barbara, CA in May, 1980; his M. Div. from the Pacific School of Religion in
Berkeley in May, 1984; his Ph.D. from the Graduate Theological Union/University
of California Berkeley in May 1989.
LAIRD
Q. CAGAN. Mr. Cagan, age 49, is a co-founder and, since
2001, has been Managing Director of Cagan McAfee Capital Partners, LLC (“CMCP”),
a merchant bank based in Cupertino, California. Since 2004, Mr. Cagan
has also been a Managing Director of Chadbourn Securities, Inc., a NASD licensed
broker-dealer. He also continues to serve as President of Cagan
Capital, LLC, a merchant bank he formed in 1990, the operation of which
transitioned into CMCP. Mr. Cagan has served or serves on the Board
of Directors of the following companies: Evolution Petroleum
Corporation, a Houston-based public company involved in the acquisition,
exploration, development, and production of crude oil and natural gas resources
(since 2003, where Mr. Cagan is also a co-founder and Chairman); American
Ethanol Inc, an ethanol company headquartered in Chicago, Illinois (since 2006,
where Mr. Cagan is also a co-founder); Real Foundations, Inc., a real
estate-focused consulting firm (from 2000 to 2004); Burstein Technologies,
a
development stage medical devices company (from 2005 to 2006); Pacific Asia
Petroleum, a New York-based public company involved in the acquisition,
exploration, development, and production of coal bed methane, natural gas and
oil resources in China (since 2007, where Mr. Cagan was also a co-founder,
CEO
and President of Advanced Drilling Services, an entity that merged with Pacific
Asia Petroleum in 2007); WorldSage, Inc., a Cupertino, California-based public
development stage company focused on acquiring for-profit, post-secondary
educational companies (since 2006); Fortes Financial Corporation, an Irvine,
California-based development stage company creating a mortgage bank (since
2007); and TWL Corporation, a Carrollton, Texas-based
publicly-traded workplace training and education company (since
2007
Mr.
Cagan
has been involved over the past 25 years as a venture capitalist, investment
banker and principal, in a wide variety of financings, mergers, acquisitions
and
investments of high growth companies in a wide variety of
industries. At Goldman, Sachs & Co. and Drexel Burnham Lambert
Mr. Cagan was involved in over $14 billion worth of transactions. Mr.
Cagan attended M.I.T. and received his BS and MS degree in engineering, and
his
MBA, all from Stanford University. He is a member of the Stanford
University Athletic Board and Chairman of the SF Bay Chapter of the Young
Presidents’ Organization.
PHYLLIS
FARRAGUT. Ms. Farragut is currently the President and CEO of
Admiral Communications/AV, a company she founded that provides specialty trade
construction design, sales and installation of structured cabling, access
control, CCTV, audiovisual equipment and security. From 1987 until
1996, Ms. Farragut served as Executive Vice President/Chief Financial Officer
of
Westcott Communications, Inc., the company that later became TWL
Corporation. During her nine years with Westcott revenues grew from
$8 million to $100 million per year, and the company had a very successful
initial Public Offering. Following the sale of Westcott to PRIMEDIA
in 1996, she became the Chief Operating Officer/Chief Financial Officer of
Claim
Services Resource Group, Inc., a national outsourcing company that specialized
in temporary personnel staffing in the healthcare industry. In December 2001
Ms.
Farragut negotiated the sale of the company to Perot Systems for $60
million. Ms. Farragut is a graduate of Mississippi State
University with a BS in Accounting, and is also a Certified Public
Accountant.
Code
of Ethics
We
have
adopted a code of ethics that applies to all employees of our company, including
employees of our subsidiaries, as well as each member of our board of
directors. The code of ethics is available on our website at
www.trinitylearning.com.
Audit
Committee
The
Company has an Audit Committee established in accordance with Section 3(a)
(58)
(A) of the Securities Exchange Act of 1934, which consists of Richard Thau,
William Jobe and Phyllis Farragut, who is the Chairperson of the
committee. This committee, among other things, reviews the annual audit with
the
Company's independent accountants. In addition, the audit committee has the
sole
authority and responsibility to select, evaluate, and, where appropriate,
replace the independent auditors or nominate the independent auditors for
shareholder approval. The Company's Board of Directors has determined that
the
Company has at least one audit committee financial expert on its Audit
Committee. Mr. Phyllis Farragut, the audit committee financial expert, is
independent as that term is used in Item 7(d) (3) (iv) of Schedule 14A under
the
Securities Act of 1934.
Section
16(A) Beneficial Ownership Reporting Compliance
Section
16(a) of the Securities Exchange Act of 1934 requires our directors and
executive officers and persons who beneficially own more than ten percent of
a
registered class of our equity securities to file with the SEC initial reports
of ownership and reports of change in ownership of common stock and other equity
securities of our Company. Officers, directors and greater than ten percent
stockholders are required by SEC regulations to furnish us with copies of all
Section 16(a) forms they file. To our knowledge, the following persons have
failed to file, on a timely basis, the identified reports required by Section
16(a) of the Exchange Act as of June 30, 2007:
|
Name
and Relationship
|
|
Number
of late reports
|
|
Transactions
not timely reported
|
|
Known
failures to file a required form
|
|
Dennis
J. Cagan
|
|
0
|
|
0
|
|
0
|
|
Patrick
R. Quinn
|
|
1
|
|
1
|
|
0
|
|
Douglas
D. Cole
|
|
2
|
|
1
|
|
0
|
|
William
D. Jobe
|
|
1
|
|
1
|
|
0
|
|
Richard
G. Thau
|
|
1
|
|
1
|
|
0
|
|
David
B. Batstone
|
|
0
|
|
0
|
|
0
|
|
Ron
S. Posner
|
|
1
|
|
1
|
|
0
|
|
Phyllis
Farragut
|
|
N/A
|
|
N/A
|
|
0
|
|
Laird
Cagan
|
|
0
|
|
0
|
|
0
|
ITEM
10. EXECUTIVE COMPENSATION
The
table
below sets forth certain information regarding the annual and long-term
compensation for services by the named executive officers to us in all
capacities for the fiscal years ended June 30, 2007, 2006 and 2005. 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
|
|
|
Name
& Principal Position
|
Year
|
|
Salary
|
|
|
Bonus
|
|
|
Other
Annual Compensation
|
|
|
Restricted
Stock Awards
|
|
|
Stock
Options
|
|
|
Long
Term Incentivve Payout
|
|
|
All
Other Compensation
|
|
| |
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Shares
|
|
|
Shares
|
|
|
$
|
|
|
$
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dennis
Cagan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief
Executive Officer,
|
2007
|
|
$ |
250,000
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
25,136,860
|
|
|
|
-
|
|
|
|
-
|
|
|
President
and Director (1)
|
2006
|
|
|
41,666
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
375,000
|
|
|
|
-
|
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Doug
Cole
|
2007
|
|
$ |
180,000
|
|
|
|
-
|
|
|
$ |
12,000
|
|
|
|
-
|
|
|
|
5,380,338
|
|
|
|
-
|
|
|
|
-
|
|
|
Executive
Vice
|
2006
|
|
|
198,359
|
|
|
|
|
|
|
|
6,000
|
|
|
|
|
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
President
|
2005
|
|
|
180,000
|
|
|
|
-
|
|
|
|
64,000
|
|
|
|
-
|
|
|
|
500,000
|
|
|
|
-
|
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patrick
R. Quinn
|
2007
|
|
$ |
187,000
|
|
|
|
-
|
|
|
$ |
12,000
|
|
|
|
-
|
|
|
|
4,385,402
|
|
|
|
-
|
|
|
|
-
|
|
|
Chief
Financial Officer,
|
2006
|
|
|
186,500
|
|
|
|
|
|
|
|
5,000
|
|
|
|
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
Chief
Operating Officer
|
2005
|
|
|
25,223
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
250,000
|
|
|
|
-
|
|
|
|
-
|
|
(1)
Mr.
Cagan was appointed on May 9, 2006, as the Company's Chief Executive
Officer.
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 and are eligible to receive compensation
of
$2,500 per quarter. We do not pay any fees for attendance at
committee meetings.
Employment
Agreements with the Management
We
entered into a fulltime employment agreement (the "Agreement") with Dennis
J.
Cagan, our Chief Executive Officer, President and Director, on September 1,
2006. The Agreement is effective for a term beginning on the date of the
Agreement and terminating on December 31, 2009 (the "Employment Period"), unless
earlier terminated as provided in the Agreement. The Agreement may
also be renewed by mutual written agreement between Mr. Cagan and the Company.
Mr. Cagan' base compensation under the Agreement is $250,000 per year.
Furthermore, Mr. Cagan shall be awarded pursuant to the Agreement the amount
of
stock options equal to 3% of the total number of fully diluted equity composed
of the sum of (i) the number of shares
of common stock of the Company outstanding on
the date of the grant, (ii) the total amount of all granted options outstanding
on the date of the grant (regardless of vesting), and (iii) the total
amount of stock options authorized to be granted by the Company under the 2002
Stock Option Plan (including any increases authorized by the board of
directors within the fourth quarter of the 2006 calendar year) (the
"Options"). The Options shall vest as follows: 1/3 to vest on the
date of the Agreement, and with 1/36 of the balance to vest each month over
a 36
month period beginning on the date of the Agreement; provided
that upon a change of control (as defined in the Agreement), 100% of
all unvested options will vest, and provided further that in the event that
Mr.
Cagan's employment is terminated pursuant to Section 4(d)(i) of the Agreement,
then he shall be entitled to an acceleration of vesting of 1/2 of the remaining
unvested Options. Furthermore, Mr. Cagan is entitled to certain bonus
compensation based on certain Company benchmarks as set forth in Exhibit A
annexed to the Agreement.
The
Company is required to promptly reimburse Mr. Cagan for all business related
out-of-pocket expenses reasonably incurred in performing his responsibilities
under the agreement. Mr. Cagan is entitled to a certain amount of
days of paid vacation, to be scheduled and taken in accordance with the
Company's standard vacation policies. In addition, Mr. Cagan is
entitled to sick leave and holidays at full pay in accordance with the Company's
policies established and in effect from time to time. The Agreement
also contains customary provisions for disability, death, confidentiality,
indemnification and non-competition. Both the Company and Mr. Cagan
have the right to voluntarily terminate the Agreement at any time with or
without cause. If the Company voluntarily terminates the Agreement,
the Company must pay Mr. Cagan a cash sum equal to his monthly salary over
a 12
month period; provided that, said compensation will include all accrued vacation
pay and bonuses, if any, as Mr. Cagan would have been entitled to pursuant
to
the Agreement. If Mr. Cagan resigns from his employment, he will be
entitled to receive compensation amount equal to his annual base salary of
$250,000 plus any accrued leave through the date of termination. All
of Mr. Cagan's rights to his annual base salary and benefits hereunder which
accrue or become payable after the date of such termination of the Employment
Period shall cease upon such termination. In addition, Mr. Cagan
shall be eligible for payment of any bonuses (earned prior to termination)
as
provided in the Bonus Plan (as defined in the Agreement) and be entitled
to exercise his Options in accordance with Exhibit "B" annexed to the
Agreement.
We
entered into a 22 month employment agreement with Patrick Quinn, our Vice
President of Finance, and Chief Financial Officer and Chief Operating Officer
on
February 1, 2006. The agreement initially provided for base salary of $187,000
per annum ("Annual Base Salary"). According to the agreement, the annual base
salary may be further adjusted from time to time by the Board of Directors.
The
Board will review Mr. Quinn’s salary at least once during each calendar year,
beginning with calendar year 2007. Mr. Quinn is eligible to
participate in all executive benefit plans and to receive an annual bonus on
such terms, at such time and in such amount as determined by the Board of
Directors. As part of the compensation package given to Mr. Quinn, he will
receive during the calendar year of 2006,250,000 stock options which shall
vest
over a three-year period pursuant to the Company's 2002 Stock Option
Plan. Mr. Quinn's employment period will continue until December 31,
2008 unless earlier terminated. If we terminate the agreement without cause
(as
defined in the agreement), Mr. Quinn is entitled to receive his annual base
salary at the rate then in effect and all benefits then afforded to senior
executives for a six month period after the date of termination, together with
expenses incurred as of the date of termination. In addition, the Company shall
pay Mr. Quinn the portion of the Annual Bonus attributable to any calendar
year
of the Company (or portion thereof) accrued through the date of termination.
If
Mr. Quinn terminates the agreement (as defined in the agreement), Mr. Quinn
is
entitled to receive his Annual Base Salary plus any accrued leave through the
date of termination. All of Mr. Quinn’s rights to Annual Base Salary
and benefits pursuant to the Employment Agreement which accrue or become payable
after the date of such termination of the employment period shall cease upon
such termination. The agreement contains a non-competition covenant
that survives for a period of six months after termination of
employment.
We
entered into a three-year employment agreement with Douglas Cole, our Executive
Vice President on February 1, 2006. The agreement initially provided for base
salary of $180,000 per annum ("Annual Base Salary"). According to the agreement,
the annual base salary may be further adjusted from time to time by the Board
of
Directors. The Board will review Mr. Cole's salary at least once during each
calendar year, beginning with calendar year 2007. Mr. Cole is eligible to
participate in all executive benefit plans and to receive an annual bonus on
such terms, at such time and in such amount as determined by the Board of
Directors. As part of the compensation package given to Mr. Cole, he
will receive during the calendar year of 2006, 250,000 stock options which
shall
vest over a three-year period pursuant to the Company's 2002 Stock Option Plan.
Mr. Cole’s employment period will continue until December 31, 2007 unless
earlier terminated. If we terminate the agreement without cause (as
defined in the agreement), Mr. Cole is entitled to receive his annual base
salary at the rate
then in effect and all benefits then
afforded to senior executives for a six month period after
the date of termination, together with expenses incurred as
of the date of termination. In
addition, the Company shall pay Mr. Cole the portion of the Annual Bonus
attributable to any calendar year of the Company (or portion thereof) accrued
through the date of termination. If Mr. Cole terminates the agreement (as
defined in the agreement), Mr. Cole is entitled to receive his
Annual Base Salary plus any accrued leave through the date of
termination. All of Mr. Cole's rights to Annual Base Salary and
benefits pursuant to the Employment Agreement which accrue or become payable
after the date of such termination of the employment period shall cease upon
such termination. The agreement contains a non-competition covenant that
survives for a period of six months after termination of
employment. Mr. Cole resigned from the company on September 5,
2007.
ITEM
11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The
following table sets forth certain information as of September 22, 2007
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 188,878,008 outstanding shares
of
common stock as of September 17, 2007. Unless otherwise indicated,
the address for each of the following is 4101 International Parkway Carrollton,
Texas 75007.
|
Beneficial
Owner
|
|
Number
of Shared Owned
|
|
|
Number
of Options & Warrants (1)
|
|
|
|
|
|
Total
Beneficial Ownership (2)
|
|
|
Percent
of Class Beneficially Owned
|
|
|
Dennis
J. Cagan
|
|
|
-
|
|
|
|
5,961,362
|
|
|
|
(3 |
) |
|
|
5,961,362
|
|
|
|
3.06 |
% |
|
Chief
Executive Officer, President and Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patrick
R. Quinn
|
|
|
-
|
|
|
|
1,157,567
|
|
|
|
(4 |
) |
|
|
1,157,567
|
|
|
|
*
|
|
|
Chief
Financial Officer and Chief Operating Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Doug
Cole
|
|
|
2,009,972
|
|
|
|
1,777,573
|
|
|
|
(5 |
) |
|
|
3,787,545
|
|
|
|
*
|
|
|
Executive
Vice President and Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William
Jobe
|
|
|
200,000
|
|
|
|
1,196,978
|
|
|
|
(6 |
) |
|
|
1,396,978
|
|
|
|
*
|
|
|
Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard
G. Thau
|
|
|
-
|
|
|
|
1,378,416
|
|
|
|
(7 |
) |
|
|
1,378,416
|
|
|
|
*
|
|
|
Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
B. Batstone
|
|
|
-
|
|
|
|
537,223
|
|
|
|
(8 |
) |
|
|
537,223
|
|
|
|
*
|
|
|
Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Laird
Cagan
|
|
|
-
|
|
|
|
243,412,022
|
|
|
|
(9 |
) |
|
|
243,412,022
|
|
|
|
56.31 |
% |
|
Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Phyllis
Farragut
|
|
|
-
|
|
|
|
104,550
|
|
|
|
(10 |
) |
|
|
104,550
|
|
|
|
*
|
|
|
Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mary
Losty
|
|
|
10,000,000
|
|
|
|
-
|
|
|
|
|
|
|
|
10,000,000
|
|
|
|
5.29 |
% |
|
9
Manito Drv
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cambridge,
MD 21013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Linden
Growth Partners/
|
|
|
16,666,666
|
|
|
|
-
|
|
|
|
|
|
|
|
16,666,666
|
|
|
|
8.82 |
% |
|
7185
S. State St.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clarks
Summit, PA 18411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fredrick
Vogel
|
|
|
10,000,000
|
|
|
|
-
|
|
|
|
|
|
|
|
10,000,000
|
|
|
|
5.29 |
% |
|
1660
N. LaSalle Dr. #2411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chicago,
IL 60614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
executive officer and directors of the Company as a group (8
persons)
|
|
|
2,209,972
|
|
|
|
255,525,691
|
|
|
|
|
|
|
|
257,735,663
|
|
|
|
58.00 |
% |
*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 June 30, 2007.
(2) Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission. In computing the number of shares beneficially
owned by a person and the percentage ownership of that person, shares of common
stock subject to options held by that person that are currently exercisable
or
become exercisable within 60 days following June 30, 2007 are deemed
outstanding. These shares, however, are not deemed outstanding for
the purpose of computing the percentage ownership of any other person. Unless
otherwise indicated in the footnotes to this table, the persons and entities
named in the table have sole voting and sole investment power with respect
to
the shares set forth opposite such shareholder’s name.
(3) Consists of (i) 25,000
stock options granted on October 9, 2002, which are fully vested and
expire on October 9, 2007; (ii) 125,000 stock options granted on May 19, 2005;
(iii) 125,000 stock options granted on February 8, 2006, which are fully vested
and expire on February 8, 2011; (iv)
250,000 stock options granted on May 9, 2006;
(v) 6,349,300 stock options granted on September 26, 2006; (vi) 18,787,560
stock
options granted on April 9, 2007; and (vii) 1,00,000 stock options granted
on
August 23, 2007. **
(4) Consists
of (i) 250,000 stock options, granted on April 18, 2005; (ii) 250,000 stock
options granted on February 8, 2006; (iii) 250,000 stock options granted on
May
3, 2006; (iv) 1,650,000 stock options granted on September 26, 2006; and (v)
2,735,402 stock options granted on April 9, 2007. **
(5) Consists
of (i) 250,000 stock options granted on December 1, 2002 which are
fully vested and expire on December 1, 2007; (ii) 250,000 stock options granted
on December 31, 2003, which are fully vested and expire on December
31, 2008 (iii) 250,000 stock options granted on January
28, 2005; (iv) 250,000 stock options granted on April 18, 2005; (v) 250,000
stock options granted on February 8, 2006; (vi) 525,000 stock options granted
on
September 26, 2006; (vii) 4,855,338 stock options granted on April 9, 2007;
and
(viii) 1,000,000 stock options were granted on August 21, 2007. **
(6) Consists
of (i) 25,000 stock options granted on October 9, 2002, which are fully vested
and expire on October 9, 2007; (ii) 125,000 stock options granted on December
31, 2003, fully vested and which expire December 31, 2008;
(iii) 25,000 stock options granted on September 1, 2004, which are
fully vested and expire on September 1, 2009; (iv) 125,000 stock options granted
on January 28, 2005; (v) 125,000 stock options granted on April 18, 2005; (vi)
150,000 stock options granted on February 8, 2006, which are fully vested and
expire on February 8, 2011; (vii) 320,000 stock options granted on September
26,
2006; (viii) 1,776,585 stock options granted on April 9, 2007; and (ix)
2,546,837 stock options granted on August 21, 2007. **
(7) Consists
of (i) 25,000 stock options granted on October 9, 2002 which are fully vested
and expire on October 9, 2007; (ii) 125,000 stock options granted on
February 1, 2004, fully vested and expire on February 1, 2009; (iii) 50,000
stock options granted on September 1, 2004, fully vested
and expire on September 1, 2009; (iv) 125,000 stock options granted on January
28, 2005; (v) 125,000 stock options granted on April 18, 2005; (v) 175,000
stock
options granted on February 8, 2006; (vi) 430,000 stock options granted on
September 26, 2006; (vii) 2,163,422 stock options granted on April 9, 2007;
and
(viii) 2,500,000 stock options granted on August 21, 2007. **
(8) Consists
of (i) 50,000 stock options, granted on October 9, 2002 which are fully vested
and expire on October 9, 2007; (ii) 265,000 stock options granted on September
26, 2006; (iii) 1,260,802 stock options granted on September 26, 2006; and
(iv)
2,000,000 stock options granted on August 21 2007. **
(9)
Consists of (i) 265,000 stock options granted April 26, 2007; and 1,000,000
granted on August 21, 2007; (ii) conversion to 150,000,000 shares of common
stock related to the transfer of debt from Palisades to TGIP; (iii)
93,333,333 shares of common stock related to the transfer of debt
from Palisades to TGIP. **
(10)
Consists of 2,500,000 stock options granted on August 21, 2007. **
**
Unless
otherwise stated, all stock options granted expire 5 years from the date of
the
respective stock option grant.
Options/SARs
Grants During Last Fiscal Year
The
following table sets forth the individual grants of stock options for each
of
the below named executive officers for the fiscal year ended June 30, 2007.
No
stock options were exercised during the fiscal year ended June 30,
2007.
|
2007
Individual Executive Grants
|
|
Name
|
|
Number
of Securities Underlying Options
|
|
|
%
of Total Options granted to Employees in Fiscal Year
|
|
|
Exercise
Price per Share
|
|
Expiration
Date
|
|
Dennis
Cagan
|
|
|
6,029,300
|
|
|
|
|
|
$ |
0.06
|
|
September
26, 2013
|
| |
|
|
320,000
|
|
|
|
|
|
$ |
0.06
|
|
September
26, 2013
|
| |
|
|
18,787,560
|
|
|
|
|
|
$ |
0.07
|
|
April
9, 2014
|
| |
|
|
25,136,860
|
|
|
|
37.97 |
% |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Doug
Cole
|
|
|
525,000
|
|
|
|
|
|
|
$ |
0.06
|
|
September
26, 2013
|
| |
|
|
4,855,338
|
|
|
|
|
|
|
$ |
0.07
|
|
April
9, 2014
|
| |
|
|
5,380,338
|
|
|
|
8.13 |
% |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patrick
R. Quinn
|
|
|
1,650,000
|
|
|
|
|
|
|
$ |
0.06
|
|
September
26, 2013
|
| |
|
|
2,735,402
|
|
|
|
|
|
|
$ |
0.07
|
|
April
9, 2014
|
| |
|
|
4,385,402
|
|
|
|
6.62 |
% |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
a group - Executive
|
|
|
34,902,600
|
|
|
|
52.72 |
% |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
options granted in fiscal 2007
|
|
|
66,203,718
|
|
|
|
|
|
|
|
|
|
|
Aggregate
Option Exercises In Last Fiscal Year and Fiscal Year End Option
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, as of
June 30, 2007. This table reflects September 1, 2007, as the vesting date of
the
options set forth below. No stock options were exercised as of June
30, 2007.
|
Name
|
|
Shares
Acquired on Exercise
|
|
|
Value
Realized
|
|
|
Number
of Underlying Options as of Sept. 1, 2007; Exercisable /
Unexercisable
|
|
|
Exercise
Value of Unexercised Options at below date Exercisable /
Unexercisable
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($0.11
on 6/30/07)
|
|
|
Dennis
Cagan
|
|
|
-
|
|
|
|
-
|
|
|
|
4,890,817
/ 20,771,042
|
|
|
$ |
537,990
/ $2,284,815
|
|
|
Doug
Cole
|
|
|
-
|
|
|
|
-
|
|
|
|
1,489,148
/ 5,141,189
|
|
|
$ |
163,806
/ $565,531
|
|
|
Patrick
R. Quinn
|
|
|
-
|
|
|
|
-
|
|
|
|
964,756
/ 4,170,645
|
|
|
$ |
106,123
/ $458,771
|
|
THE
2002 STOCK PLAN
As
of
June 30, 2007, an aggregate of 100,000,000 shares of our common stock are
currently authorized for issuance pursuant to our 2002 Stock Plan. This plan
was
approved on December 2, 2002, at a special meeting of our shareholders. The
Plan
allowed for a maximum aggregate number of shares that may be optioned and sold
under the plan of (a) 3,000,000 shares, plus (b) an annual 500,000 increase
to
be added on the last day of each fiscal year beginning in 2003 unless a lesser
amount is determined by the board of directors. The plan became effective with
its adoption and remains in effect for ten years unless terminated earlier.
On
December 30, 2003, the board of directors amended the 2002 Stock Plan to allow
for a maximum aggregate number of shares that may be optioned and sold under
the
plan of (a) 6,000,000 shares, plus (b) an annual 1,000,000 increase to be added
on the last day of each fiscal year beginning in 2004 unless a lesser amount
is
determined by the board of directors. Options granted under the plan vest pro
rata over a 48 month period. In some cases, selected officers and
directors have been given accelerated vesting schedules.
ITEM
12. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
On
April
26, 2007, the board of directors of the Company appointed Laird Q. Cagan (Mr.
Cagan) as a director of the Company. There are no understandings or
arrangements between Mr. Cagan and any other person pursuant to which Mr. Cagan
was selected as a director. Mr. Cagan is the cousin of Dennis J.
Cagan, the Company’s Chief Executive Officer, President and a member of the
board of directors. Mr. Cagan is the general partner of Trinity
Investments GP, an entity which acquired the debt previously issued to Palisades
Master Fund, Ltd., (Palisades) with a face value of $4,500,000. This
entity also entered into a debt financing transaction pursuant to which the
Company received proceeds totaling $1,125,000 through June 30,
2007. In connection with this transaction and the transfer of the
Palisades notes payable, the Company also transferred 2,800,000 preferred shares
and reduced the conversion into common stock price to $0.03 per
share. The Company recorded a deemed dividend for the reduction in
conversion price totaling $3,725,000. Interest expense on the notes
during the period the note was held by Trinity Investments GP totaled
$273,000.
|
|
|
Description
|
| |
|
|
|
3(i).1
|
|
Articles
of Restatement of the Articles of Incorporation of Trinity Learning
Corporation dated February 25, 2003. (4)
|
| |
|
|
|
3(i).2
|
|
Articles
of Amendments of the Company filed on September 29, 2006 with the
Secretary of State of the State of Utah to (i) increase the authorized
common stock of the Company from 100,000,000 shares to 750,000,000
shares,
and (ii) to change the name of the Company to TWL Corporation.
(2)
|
| |
|
|
|
3(i).3
|
|
Articles
of Restatement of the Articles of Incorporation of the Company filed
with
the Secretary of State of the State of Utah on August 31,
2006. (3)
|
| |
|
|
|
3(ii)
|
|
Bylaws
of Trinity Companies, Inc. (1)
|
| |
|
|
|
4.1
|
|
Statement
of designation, powers, preferences and rights of the Series A Preferred
Stock. (3)
|
| |
|
|
|
10.1
|
|
Asset
Purchase Agreement dated April 1, 2005 among the Company, Primedia,
Inc.,
its wholly-owned entity Primedia Digital Video Holdings LLC and Primedia
Workplace Learning LP. (7)
|
| |
|
|
|
10.2
|
|
Securities
Purchase Agreement dated as of March 31, 2006 by and among Trinity
Learning Corporation and the investors. (8)
|
| |
|
|
|
10.3
|
|
Form
of 15% Senior Secured Convertible Debenture of Trinity Learning
Corporation. (8)
|
| |
|
|
|
10.4
|
|
Form
of Warrant issued to the investors in connection with the Securities
Purchase Agreement dated as of March 31,
2006. (8)
|
| |
|
|
|
10.5
|
|
Registration
Rights agreement dated as of March 31, 2006 by and among Trinity
Learning
Corporation and the investors. (8)
|
| |
|
|
|
10.6
|
|
Security
Agreement dated as of March 31, 2006 by and among Trinity Learning
Corporation, TWL Knowledge Group Inc and the
investors. (8)
|
| |
|
|
|
10.7
|
|
Subsidiary
Guarantee dated as of March 31, 2006 by Trinity Workplace Learning
Corporation. (8)
|
| |
|
|
|
10.8
|
|
Voting
Agreement dated as of March 31, 2006 entered into in connection with
the
Securities Purchase Agreement dated as of March 31,
2006.
|
| |
|
|
|
10.9#
|
|
Employment
Agreement entered into by and between Dennis J. Cagan and the Company
dated September 1, 2006. (5)
|
| |
|
|
|
10.10#
|
|
Employment
Agreement entered into by and between Patrick R. Quinn and the Company
dated February 1, 2006. (6)
|
| |
|
|
|
10.11#
|
|
Employment
Agreement entered into by and between Douglas D. Cole and the Company
dated February 1, 2006. (6)
|
| |
|
|
|
10.12
|
|
Security
Agreement dated August 31, 2006 by and among the Company, Laurus
Master
Fund, Ltd., and TWL Knowledge Group Inc. (3)
|
| |
|
|
|
10.13
|
|
IP
Security Agreement dated August 31, 2006 by and between Laurus Master
Fund, Ltd. and TWL Knowledge Group Inc. (3)
|
| |
|
|
|
10.14
|
|
Secured
Non-Convertible Term Note dated August 31, 2006 payable to Laurus
Master
Fund, Ltd. (3)
|
| |
|
|
|
10.15
|
|
Secured
Non-Convertible Revolving Note dated August 31, 2006 payable to Laurus
Master Fund, Ltd. (3)
|
| |
|
|
|
10.16
|
|
Funds
Escrow Agreement dated August 31, 2006 by and among TWL Corporation,
Laurus Master Fund, Ltd. and Loeb & Loeb,
Ltd. (3)
|
| |
|
|
|
10.17
|
|
Registration
Rights Agreement dated August 31,2006 by and between TWL Corporation
and
Laurus Master Fund, Ltd. (3)
|
| |
|
|
|
10.18
|
|
Stock
Pledge Agreement dated August 31, 2006 by and among Laurus Master
Fund,
Ltd., TWL Corporation and TWL Knowledge Group
Inc. (3)
|
| |
|
|
|
10.19
|
|
Subordination
Agreement dated August 31, 2006 by and among Laurus Master Fund,
Ltd.,
Palisades Master Fund LP, TWL Corporation and TWL Knowledge Group
Inc. (3)
|
| |
|
|
|
10.20
|
|
Letter
Agreement entered into by and between TWL Corporation and Palisades
Master
Fund LP dated July 27, 2006. (3)
|
| |
|
|
|
10.21
|
|
Letter
Agreement entered into by and between TWL Corporation and Palisades
Master
Fund LP dated July 31, 2006. (3)
|
| |
|
|
|
10.22
|
|
Lock-up
Letter Agreement by and between TWL Corporation and Laurus Master
Fund,
Ltd. (3)
|
| |
|
|
|
10.23
|
|
Voting
Agreement dated March 31, 2006. (9)
|
| |
|
|
|
10.24
|
|
Escrow
Agreement dated March 31, 2005 entered into by and among the Company,
Palisades Master Fund,LP and Sichenzia Ross Friedman Ference
LLP.(9)
|
|
Exhibit
No.
(continued)
|
|
Description
|
| |
|
|
|
16.1
|
|
Letter
provided by KBA, LLC (8)
|
| |
|
|
|
|
|
List
of Subsidiaries of TWL Corporation. *
|
| |
|
|
|
|
|
Certification
of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002*
|
| |
|
|
|
|
|
Certification
of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002*
|
| |
|
|
|
|
|
Certification
of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002*
|
| |
|
|
|
|
|
Certification
of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002*
|
|
*
|
|
Exhibit
filed herewith
|
|
#
|
|
Denotes
a management contract or compensatory plan.
|
| |
|
|
|
(1)
|
|
Incorporated
by reference from the quarterly report on Form 10-QSB filed by the
registrant on August 21, 2002.
|
| |
|
|
|
(2)
|
|
Incorporated
by reference from the current report on Form 8-k filed by the registrant
on September 10, 2007.
|
| |
|
|
|
(3)
|
|
Incorporated
by reference from the current report on Form 8-k filed by the registrant
on August 9, 2007.
|
| |
|
|
|
(4)
|
|
Incorporated
by reference from the current report on Form 8-k filed by the registrant
on August 1, 2007.
|
| |
|
|
|
(5)
|
|
Incorporated
by reference from the current report on Form 8-k filed by the registrant
on July 30, 2007.
|
| |
|
|
|
(6)
|
|
Incorporated
by reference from the quarterly report on Form 10-QSB filed by the
registrant on May 23, 2006.
|
| |
|
|
|
(7)
|
|
Incorporated
by reference from the current report on Form 8-k filed by the registrant
on July 5, 2007.
|
| |
|
|
|
(8)
|
|
Incorporated
by reference from the current report on Form 8-k filed by the registrant
on June 14, 2007.
|
| |
|
|
|
(9)
|
|
Incorporated
by reference from the amend report on Form 10-KSB filed by the registrant
on November 13,2006
|
ITEM
14. PRINCIPAL ACCOUNTANT FEES AND
SERVICES.
AUDIT
AND OTHER FEES
The
Audit
Committee has selected and retained KBA Group LLP as our independent registered
public accountants for the fiscal year ended June 30, 2007.
The
following table presents fees for professional services rendered by our
independent registered public accountants for the audit of our annual financial
statements for the fiscal years ended June 30, 2007 and June 30, 2006 and fees
billed for other services rendered by them during those periods:
| |
|
KBA
|
|
|
Chisolm,
Bierwolf,
|
|
| |
|
Group
LLP
|
|
|
Nilson,
LLC
|
|
| |
|
Fiscal
2007
|
|
|
Fiscal
2006
|
|
|
Audit
fees (1)
|
|
$ |
203,300
|
|
|
$ |
108,725
|
|
|
Audit-related
fees (2)
|
|
|
30,030
|
|
|
|
-
|
|
|
Comment
Letter
|
|
|
-
|
|
|
|
-
|
|
|
Tax
fees (3)
|
|
|
-
|
|
|
|
-
|
|
|
All
other fees (4)
|
|
|
-
|
|
|
|
-
|
|
|
Total
|
|
$ |
233,330
|
|
|
$ |
108,725
|
|
(1)
Audit
Fees consist of fees billed or to be billed for the annual audits and quarterly
reviews.
(2)
Audit-Related Fees consist of fees billed for various SEC filings.
(3)
Tax
Fees consist of fees billed for preparation of tax returns.
(4)
All
other fees.
All
audited-related services, tax services and other services were pre-approved
by
the Audit Committee, which concluded that the provision of those services by
KBA
Group LLP and Chisholm, Bierwolf & Nilson, and L.L.C. was compatible with
the maintenance of that firm's independence in the conduct of its auditing
functions.
Pre-Approval
Policy
The
policy of the Audit Committee is to pre-approve all auditing and non-auditing
services of the independent auditors, subject to de minimus exceptions for
other
than audit, review, or attest services that are approved by the Audit Committee
prior to completion of the audit. Alternatively, the engagement of the
independent auditors may be entered into pursuant to pre-approved policies
and
procedures established by the Committee, provided that the policies and
procedures are detailed as to the particular services and the Committee is
informed of each service.
In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant has
duly
caused this report to be signed on its behalf by the undersigned, thereunto
duly
authorized.
| |
TWL
CORPORATION
|
| |
|
|
| |
|
|
| |
By:
|
/s/
Dennis J. Cagan
|
|
| |
|
Dennis
J. Cagan
|
| |
|
Chief
Executive Officer
|
| |
|
|
| |
TWL
CORPORATION
|
| |
|
|
| |
|
|
| |
By:
|
/s/
Patrick R. Quinn
|
|
| |
|
Patrick
R. Quinn
|
| |
|
Chief
Financial Officer
|
In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on
the
dates indicated.
|
Signature
|
|
Title
|
|
Date
|
| |
|
|
|
|
|
/s/
Dennis J. Cagan
|
|
Chief
Executive Officer, President and Director
|
|
October
12, 2007
|
|
Dennis
J. Cagan
|
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
|
/s/
Douglas D. Cole
|
|
Director
|
|
October
12, 2007
|
|
Douglas
D. Cole
|
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
|
/s/
William D. Jobe
|
|
Director
|
|
October
12, 2007
|
|
William
D. Jobe
|
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
|
/s/
Richard G. Thau
|
|
Director
|
|
October
12, 2007
|
|
Richard
G. Thau
|
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
|
/s/
Larid Cagan
|
|
Director
|
|
October
12, 2007
|
|
Laird
Cagan
|
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
|
/s/
Phyllis Farragut
|
|
Director
|
|
October
12, 2007
|
|
Phyllis
Farragut
|
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
|
/s/
David B. Batstone
|
|
Director
|
|
October
12, 2007
|
|
David
B. Batstone
|
|
|
|
|
TWL
CORPORATION AND SUBSIDIARIES
Index
to Financial Statements
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
Report
of Independent Registered Public Accounting Firm
|
F-3
|
|
Consolidated
Balance Sheet
|
F-4
|
|
Consolidated
Statements of Operations
|
F-5
|
|
Consolidated
Statements of Changes in Stockholders' Deficit
|
F-6
|
|
Consolidated
Statements of Cash Flows
|
F-7
|
|
Notes
to Consolidated Financial Statements
|
F-8
|
/Letterhead/
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Board of Directors
TWL
Corporation and Subsidiaries
We
have
audited the accompanying consolidated balance sheet of TWL Corporation and
Subsidiaries as of June 30, 2007, and the related consolidated statements of
operations and comprehensive loss, changes in stockholders’ deficit and cash
flows for the year then ended. These consolidated financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. 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 financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of TWL Corporation
and Subsidiaries as of June 30, 2007, and the consolidated results of their
operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of
America.
The
accompanying financial statements have been prepared assuming the Company will
continue as a going concern. As discussed in Note 1 to the financial
statements, the Company has suffered recurring losses from operations, has
used
significant cash flows in operating activities and has liabilities significantly
in excess of assets. These factors raise substantial doubt about the
Company’s ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
/s/KBA
GROUP LLP
Dallas,
Texas
October
10, 2007
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Audit
Committee
TWL
Corporation (formerly Trinity Learning Corporation)
Lafayette,
California
We
have
audited the accompanying consolidated statement of operations and comprehensive
loss, stockholders’ equity (deficit) and cash flows of TWL
Corporation (formerly Trinity Learning Corporation) for the year ended
June 30, 2006. These financial statements are the responsibility of
the Company’s
management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We
conducted our audit in accordance with the standards of the PCAOB (United
States). Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are
free
of material misstatement. The Company is not required to have, nor
were we engaged to perform, audit of its internal control over financial
reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the
overall financial statement presentation. We believe that our audit
provide a reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present
fairly,
in all material respects, the financial position of TWL
Corporation (formerly Trinity Learning Corporation) at June 30, 2006,
and the results of its operations and its cash flows for the year then ended,
in
conformity with accounting principles generally accepted in the United States
of
America.
The
accompanying financial statements have been prepared assuming the Company
will
continue as a going concern. As discussed in Note 1 to the financial
statements, the Company has a working capital deficit and has suffered recurring
operating losses, which raises substantial doubt about its ability to continue
as a going concern. Management’s
plans in
regard to these matters are also described in Note 1. The financial
statements do not include any adjustments that might result from the outcome
of
these uncertainties.
As
discussed in Note 17 to the consolidated financial statements, there were
errors
in reporting the Company’s accounting for warrants associated with debt
financing, errors in the classification of short and long term convertible
debt,
errors in reporting the non-conversion of contingently redeemable stock,
and
errors in reporting the Company’s accrued liabilities in the balance sheet and
the statements of operations that were discovered by
management. Accordingly, the consolidated financial statements have
been restated to correct the errors.
/s/ Chisholm, Bierwolf & Nilson, LLC
Chisholm,
Bierwolf & Nilson, LLC
Bountiful,
Utah
October
13, 2006 except for Notes 1, 2, 4, 6, 9, 12, 13 and 17 dated September 15,
2007
TWL
Corporation and Subsidiaries
Consolidated
Balance Sheet
| |
|
June
30, 2007
|
|
|
ASSETS
|
|
|
|
| |
|
|
|
|
Current
assets
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
1,348,397
|
|
|
Accounts
receivable, net of allowance for doubtful accounts of
$446,498
|
|
|
2,638,731
|
|
|
Inventory,
net
|
|
|
785,147
|
|
|
Prepaid
expenses and other current assets
|
|
|
568,396
|
|
|
Total
current assets
|
|
|
5,340,671
|
|
| |
|
|
|
|
|
Property
and equipment, net
|
|
|
5,482,151
|
|
|
Loan
origination costs
|
|
|
935,559
|
|
|
Other
assets
|
|
|
67,979
|
|
|
Total
assets
|
|
$ |
11,826,360
|
|
| |
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
| |
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
Line
of credit
|
|
$ |
1,060,115
|
|
|
Notes
payable, net of unamortized discount of $288,888
|
|
|
750,389
|
|
|
Notes
payable - related parties, net of unamortized discount of
$255,036
|
|
|
1,004,185
|
|
|
Accounts
payable
|
|
|
4,606,735
|
|
|
Accrued
expenses
|
|
|
6,508,203
|
|
|
Interest
payable including amount due to related parties of
$891,998
|
|
|
1,190,066
|
|
|
Deferred
revenue
|
|
|
3,890,182
|
|
|
Current
portion of obligations under capital leases
|
|
|
1,289,191
|
|
|
Total
current liabilities
|
|
|
20,299,066
|
|
|
Long-term
liabilities
|
|
|
|
|
|
Notes
payable - less current portion, net of unamortized discount of
$337,039
|
|
|
1,277,961
|
|
|
Notes
payable - related parties, less current portion, net of unamoritized
discount of $701,348
|
|
|
4,220,527
|
|
|
Obligations
under capital leases - less current portion
|
|
|
10,754,435
|
|
|
Other
long-term liabilities
|
|
|
62,750
|
|
|
Total
long-term liabilities
|
|
|
16,315,673
|
|
|
Total
liabilities
|
|
|
36,614,739
|
|
| |
|
|
|
|
|
Commitments
and contingencies (Note 5)
|
|
|
|
|
| |
|
|
|
|
|
Stockholders'
deficit
|
|
|
|
|
|
Preferred
stock 10,000,000 shares no par value authorized:
|
|
|
|
|
|
Series
A, 1,500,000 issued and outstanding; liquidation
preference of $1.00 per share, plus accrued unpaid
dividends
|
|
|
1,875,000
|
|
|
Series
B, 2,800,000 shares
to be issued and outstanding; liquidation preference of $1.00 per
share, plus accrued unpaid dividends
|
|
|
6,533,333
|
|
|
Common
stock, 750,000,000 shares authorized; 136,544,680shares issued and
outstanding
|
|
|
46,230,596
|
|
|
Accumulated
deficit
|
|
|
(79,412,453 |
) |
|
Other
comprehensive loss
|
|
|
(14,855 |
) |
|
Total
stockholders' deficit
|
|
|
(24,788,379 |
) |
| |
|
|
|
|
|
Total
liabilities and stockholders' deficit
|
|
$ |
11,826,360
|
|
The
accompanying notes are an integral part of this consolidated financial
statement
TWL
Corporation and Subsidiaries
Consolidated
Statements of Operations and Comprehensive Loss
| |
|
Year
Ended June 30,
|
|
| |
|
2007
|
|
|
2006
|
|
|
Revenues,
net
|
|
|
|
|
|
|
|
Subscription
|
|
$ |
10,824,859
|
|
|
$ |
13,501,787
|
|
|
Single
event
|
|
|
8,863,538
|
|
|
|
8,005,726
|
|
|
Production
|
|
|
2,081,210
|
|
|
|
1,396,951
|
|
|
Other
|
|
|
2,296,311
|
|
|
|
2,936,004
|
|
|
Total
revenues, net
|
|
|
24,065,918
|
|
|
|
25,840,468
|
|
| |
|
|
|
|
|
|
|
|
|
Cost
and Expenses
|
|
|
|
|
|
|
|
|
|
Royalty,
printing, delivery and communications costs
|
|
|
5,585,917
|
|
|
|
7,036,893
|
|
|
Salaries
and benefits
|
|
|
16,549,477
|
|
|
|
18,204,419
|
|
|
Selling,
general & administrative excluding salaries and
benefits
|
|
|
5,617,865
|
|
|
|
11,795,029
|
|
|
Amortization
of program inventory
|
|
|
2,142,145
|
|
|
|
2,991,189
|
|
|
Depreciation
& amortization of property and equipment
|
|
|
1,340,992
|
|
|
|
1,052,104
|
|
|
Total
expenses
|
|
|
31,236,396
|
|
|
|
41,079,634
|
|
| |
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(7,170,478 |
) |
|
|
(15,239,166 |
) |
| |
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
Interest,
net, including related party interest of $4,074,849 for
2007
|
|
|
(7,902,630 |
) |
|
|
(4,366,810 |
) |
|
Income
in non-consolidated affiliate
|
|
|
83,197
|
|
|
|
-
|
|
|
Loss
on refinancing of debt
|
|
|
-
|
|
|
|
(1,614,064 |
) |
|
Other
income
|
|
|
109,837
|
|
|
|
44,179
|
|
|
Total
other income and (expense)
|
|
|
(7,709,596 |
) |
|
|
(5,936,695 |
) |
| |
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(14,880,074 |
) |
|
|
(21,175,861 |
) |
| |
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
-
|
|
|
|
-
|
|
|
Net
loss
|
|
|
(14,880,074 |
) |
|
|
(21,175,861 |
) |
| |
|
|
|
|
|
|
|
|
|
Preferred
stock dividends
|
|
|
5,090,500
|
|
|
|
-
|
|
|
Net
loss attributable to common stockholders
|
|
|
(19,970,574 |
) |
|
|
(21,175,861 |
) |
| |
|
|
|
|
|
|
|
|
|
Net
loss per common share - basic and dilutive
|
|
$ |
(0.38 |
) |
|
$ |
(0.52 |
) |
| |
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
|
52,083,355
|
|
|
|
40,335,278
|
|
|
Components
of other comprehensive income (loss):
|
|
| |
|
Year
Ended June 30,
|
|
| |
|
2007
|
|
|
2006
|
|
|
Net
loss attributable to common stockholders
|
|
$ |
(19,970,574 |
) |
|
$ |
(21,175,861 |
) |
|
Foreign
currency translation loss
|
|
|
(18,985 |
) |
|
|
(6,688 |
) |
|
Comprehensive
loss
|
|
$ |
(19,989,559 |
) |
|
$ |
(21,182,549 |
) |
The
accompanying notes are an integral part of these consolidated financial
statements
TWL
Corporation and Subsidiaries
Consolidated
Statements of Changes in Stockholders' Deficit
Years
ended June 30, 2007 and 2006
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Deferred
|
|
|
|
|
| |
|
Preferred
Stock
|
|
|
Common
Stock
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Financial
|
|
|
|
|
| |
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Deficit
|
|
|
Income
(Loss)
|
|
|
Advisory
Fees
|
|
|
Total
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at July 1, 2005
|
|
|
-
|
|
|
$ |
-
|
|
|
|
37,719,889
|
|
|
$ |
32,000,792
|
|
|
$ |
(38,266,018 |
) |
|
$ |
10,818
|
|
|
$ |
(142,920 |
) |
|
$ |
(6,397,328 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for partial conversion of note payable at $0.24 per
share
|
|
|
-
|
|
|
|
-
|
|
|
|
1,198,124
|
|
|
|
287,550
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
287,550
|
|
|
Shares
issued for conversion at $0.45 per share
|
|
|
-
|
|
|
|
-
|
|
|
|
1,100,000
|
|
|
|
500,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
500,000
|
|
|
Employee
stock based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
828,308
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
828,308
|
|
|
Amortization
of deferred financial advisory fees
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
142,920
|
|
|
|
142,920
|
|
|
Shares
issued for services at $0.25 per share
|
|
|
-
|
|
|
|
-
|
|
|
|
100,000
|
|
|
|
25,374
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25,374
|
|
|
Shares
issued for services at $0.24 per share
|
|
|
-
|
|
|
|
-
|
|
|
|
560,000
|
|
|
|
134,400
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
134,400
|
|
|
Shares
issued for cash at $0.16 per share
|
|
|
-
|
|
|
|
-
|
|
|
|
937,500
|
|
|
|
150,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
150,000
|
|
|
Value
attributed to stock purchase warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
348,672
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
348,672
|
|
|
Divesture
of associated companies
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,010,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,010,000
|
|
|
Discount
on note payable
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
774,834
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
774,834
|
|
|
Foreign
currency translation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,688 |
) |
|
|
-
|
|
|
|
(6,688 |
) |
|
Net
loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(21,175,861 |
) |
|
|
-
|
|
|
|
-
|
|
|
|
(21,175,861 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at June 30, 2006
|
|
|
-
|
|
|
|
-
|
|
|
|
41,615,513
|
|
|
|
38,059,930
|
|
|
|
(59,441,879 |
) |
|
|
4,130
|
|
|
|
-
|
|
|
|
(21,377,819 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
stock based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
839,392
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
839,392
|
|
|
Common
shares and warrants issued for services
|
|
|
-
|
|
|
|
-
|
|
|
|
1,800,000
|
|
|
|
129,907
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
129,907
|
|
|
Additional
common shares issued for cash received during
2006
|
|
|
-
|
|
|
|
-
|
|
|
|
562,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Common
shares to be issued for cash received
|
|
|
-
|
|
|
|
-
|
|
|
|