U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
Quarterly Report under Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 2005
Commission File No. 0-8924
Trinity Learning Corporation
(Exact name of small business issuer as specified in its charter)
Utah 73-0981865
(State or other jurisdiction of (IRS Employer Identification No)
incorporation or organization)
1831 Second Street, Berkeley, California 94710
(Address of principal executive offices)
(510) 540-9300
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
sections 13 or 15(d) of the Exchange Act during the past 12 months (or such
shorter period that the issuer was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X]
No [ ]
As of May 12, 2005, 33,719,889 shares of the issuer's Common Stock, no par
value per share, were outstanding.
TRINITY LEARNING CORPORATION AND SUBSIDIARIES
Throughout this report, we refer to Trinity Learning Corporation, together
with its subsidiaries, as "we," "us," "our company," "Trinity" or "the
Company."
THIS FORM 10-QSB FOR THE NINE MONTHS ENDED MARCH 31, 2005, CONTAINS
FORWARD-LOOKING STATEMENTS, INCLUDING STATEMENTS ABOUT THE CONTINUED
STRENGTH OF OUR BUSINESS AND OPPORTUNITIES FOR FUTURE GROWTH. IN SOME
CASES, YOU CAN IDENTIFY FORWARD-LOOKING STATEMENTS BY TERMINOLOGY SUCH AS
"MAY", "WILL", "SHOULD", "EXPECT", "PLAN", "INTEND", "ANTICIPATE",
"BELIEVE", "ESTIMATE", "PREDICT", "POTENTIAL" OR "CONTINUE", THE NEGATIVE
OF SUCH TERMS OR OTHER COMPARABLE TERMINOLOGY. WE BELIEVE THAT OUR
EXPECTATIONS ARE REASONABLE AND ARE BASED ON REASONABLE ASSUMPTIONS.
HOWEVER, SUCH FORWARD-LOOKING STATEMENTS BY THEIR NATURE INVOLVE RISKS AND
UNCERTAINTIES.
WE CAUTION THAT A VARIETY OF FACTORS, INCLUDING BUT NOT LIMITED TO THE
FOLLOWING, COULD CAUSE OUR BUSINESS AND FINANCIAL RESULTS TO DIFFER
MATERIALLY FROM THOSE EXPRESSED OR IMPLIED IN FORWARD-LOOKING STATEMENTS:
DETERIORATION IN CURRENT ECONOMIC CONDITIONS; OUR ABILITY TO PURSUE
BUSINESS STRATEGIES; PRICING PRESSURES; CHANGES IN THE REGULATORY
ENVIRONMENT; OUR ABILITY TO ATTRACT AND RETAIN QUALIFIED PROFESSIONALS;
INDUSTRY COMPETITION; CHANGES IN INTERNATIONAL TRADE; MONETARY AND FISCAL
POLICIES; OUR ABILITY TO INTEGRATE FUTURE ACQUISITIONS SUCCESSFULLY; AND
OTHER FACTORS DISCUSSED MORE FULLY IN MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS AND RISK FACTORS BELOW, AS
WELL AS IN OTHER REPORTS SUBSEQUENTLY FILED FROM TIME TO TIME WITH THE
SECURITIES AND EXCHANGE COMMISSION. WE ASSUME NO OBLIGATION TO UPDATE ANY
FORWARD-LOOKING STATEMENTS.
-2-
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets March 31, 2005 (Unaudited) and June
30, 2004 (Audited).
Consolidated Statements of Operations and Comprehensive Loss
Three and Nine Months Ended March 31, 2005 and 2004. (Unaudited)
Consolidated Statements of Cash Flows Nine Months Ended March 31,
2005 and 2004 (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Controls and Procedures
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits
-3-
PART I
FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Trinity Learning Corporation and Subsidiaries
Consolidated Balance Sheets
March 31, 2005 June 30, 2004
(Unaudited) (Audited)
--------------- ---------------
Assets
------
Current Assets
Cash and Cash Equivalents, unrestricted $ 676,161 $ 892,739
Accounts Receivable 262,994 243,164
Prepaid Expense and Other Current Assets 171,279 229,802
--------------- ---------------
Total Current Assets 1,110,434 1,365,705
Equity Investment in and Advances to
Associated Companies - 1,922,935
Property & Equipment, net 48,269 37,160
Goodwill 1,865,000 1,849,526
Intangible Assets, net 341,892 434,958
Restricted Cash 4,996,185 500,000
Other Assets, net 377,624 142,856
--------------- ---------------
Total Assets $ 8,739,404 $ 6,253,140
=============== ===============
Liabilities, Minority Interest, Contingently Redeemable Equity and
------------------------------------------------------------------
Stockholders' Equity
--------------------
Liabilities
-----------
Accounts Payable $ 881,546 $ 814,651
Accounts Payable-Related Parties - 77,988
Accrued Expenses 658,472 721,192
Interest Payable 23,379 21,124
Deferred Revenue 162,677 85,685
Contingent Liability 478,963 -
Notes Payable Current 655,693 418,954
Notes Payable - Related Parties 727,520 740,476
--------------- ---------------
Current Liabilities 3,588,250 2,880,070
--------------- ---------------
Notes Payable Long Term 1,262,508 71,829
Notes Payable Long Term, Related Parties 20,000 40,000
--------------- ---------------
Long Term Liabilities 1,282,508 111,829
Warrant to Purchase Common Stock 2,863,363 -
Equity Investment in and Advances to
Associated Company 500,000 -
--------------- ---------------
Total Liabilities 8,234,121 2,991,899
--------------- ---------------
Minority Interest 239,542 306,721
----------------- --------------- ---------------
Contingently Redeemable Equity 2,510,000 2,510,000
Stockholders' (Deficit) Equity
Preferred Stock, 10,000,000 Shares
Authorized at No Par Value, No Shares
Issued and Outstanding in 2005 or 2004 - -
Common Stock, 100,000,000 Shares
Authorized at No Par Value, 33,663,716
and 31,040,143 shares Issued and
Outstanding at March 31, 2005 and
June 30, 2004 27,285,088 23,092,957
Accumulated Deficit (29,555,158) (22,650,976)
Other Comprehensive Income 25,811 2,539
--------------- ---------------
Total Stockholders' (Deficit) Equity (2,244,259) 444,520
--------------- ---------------
Total Liabilities, Minority Interest,
Contingently Redeemable Equity and
Stockholders' (Deficit) Equity $ 8,739,404 $ 6,253,140
=============== ===============
See accompanying notes to the consolidated financial statements.
-4-
Trinity Learning Corporation and Subsidiaries
Consolidated Statements of Operations and Comprehensive Income
For Three Months Ended on For Nine Months Ended on
March 31, March 31,
2005 2004 2005 2004
(Unaudited) (Unaudited)
------------ ------------ ------------ ------------
Revenue
Sales Revenue $ 518,095 $ 705,460 $ 2,328,592 $ 1,686,258
Cost of Sales (62,228) (152,910) (280,563) (357,363)
------------ ------------ ------------ ------------
Gross Profit 455,867 552,550 2,048,029 1,328,895
------------ ------------ ------------ ------------
Expenses
Salaries & Benefits 754,393 1,119,641 2,611,262 2,643,188
Professional Fees 380,368 303,986 779,311 844,367
Selling, General &
Administrative 1,404,012 230,753 2,532,581 855,943
Depreciation & Amortization 24,520 (42,341) 105,871 196,460
------------ ------------ ------------ ------------
Total Expense 2,563,293 1,612,039 6,029,025 4,539,958
------------ ------------ ------------ ------------
Loss from Operations (2,107,426) (1,059,489) (3,980,996) (3,211,063)
------------ ------------ ------------ ------------
Other Expense
Interest, net (480,335) (73,326) (992,023) (121,675)
Debt Issuance (22,834) (1,312,378) (183,206) (1,312,378)
Equity in Losses of Associated
Companies (538,291) (223,196) (1,837,719) (622,176)
Foreign Currency Loss (65) (205) (2,281) (4,463)
------------ ------------ ------------ ------------
Total Other Expense (1,041,525) (1,609,105) (3,015,229) (2,060,692)
------------ ------------ ------------ ------------
Minority Interest 44,935 - 92,043 -
----------------- ------------ ------------ ------------ ------------
Loss Before Taxes (3,104,016) (2,668,594) (6,904,182) (5,271,575)
Taxes - - - -
------------ ------------ ------------ ------------
Net Loss $(3,104,016) $(2,668,594) $(6,904,182) $(5,271,575)
============ ============ ============ ============
Net Loss Per Common Share
Basic and Diluted $(0.10) $(0.10) $(0.22) $(0.25)
============ ============ ============ ============
Weighted Average Shares
Outstanding 32,372,341 25,516,167 31,386,772 20,886,478
============ ============ ============ ============
A summary of the components of other comprehensive gain (loss) for the three and nine
months ended March 31, 2005 and 2004 is as follows:
For Three Months Ended on For Nine Months Ended on
March 31, March 31,
2005 2004 2005 2004
(Unaudited) (Unaudited)
------------ ------------ ------------ ------------
Net Loss $(3,104,016) $(2,668,594) $(6,904,182) $(5,271,575)
Foreign Currency Translation
Gain (Loss) 5,591 39,105 23,272 23,525
------------ ------------ ------------ ------------
Comprehensive Loss $(3,098,425) $(2,629,489) $(6,880,910) $(5,248,050)
============ ============ ============ ============
See accompanying notes to the consolidated financial statements.
-5-
Trinity Learning Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Nine Months Ended March 31,
2005 2004
--------------- ---------------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net loss $ (6,904,182) $ (5,271,575)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization 105,871 196,460
Bad debt expense 1,000,000 -
Non-cash effect for business acquisition
and divestiture
Foreign currency translation loss - -
Non-cash debt issuance 53,277 -
Non cash interest 1,097,771 63,069
Equity losses of associated companies 1,837,719 622,176
Employee stock based compensation 241,983 219,584
Debt conversion expenses - 1,312,378
Non cash financial advisory fees 75,000 125,000
Changes in current assets and liabilities:
Accounts receivable (19,830) (2,956)
Interest receivable - -
Prepaid expenses and other current assets 58,523 (112,743)
Accounts payable, deferred revenue and accrued
expenses 66,895 357,095
Accounts payable-related parties (77,988) 142,657
Accrued expenses (62,720) 245,519
Deferred revenue 76,992 112,760
Interest payable 2,255 22,588
Minority interest (67,179) -
--------------- ---------------
Net cash used by operating activities (2,515,613) (1,967,988)
--------------- ---------------
Cash flows from investing activities:
Payment for business acquisitions (7,314) (506,150)
Payment for business acquisitions
related party (4,815) (929,045)
Restricted cash (4,491,000) (500,000)
Advances to associated companies - -
Notes receivable - (975,000)
Capital expenditures (16,611) (19,998)
--------------- ---------------
Net cash used by investing activities (4,519,740) (2,930,193)
--------------- ---------------
Cash flows from financing activities:
Repayments under short-term notes (544,118) -
Repayments under short-term notes
related party (155,000) (500,000)
Borrowings under short-term notes and
contingent liability 7,672,500 1,395,550
Payments for financing fees (259,000) (4,418)
Payments for financing fees related party - (458,397)
Other financing activities 106,415 -
Conversion of bridge loan to common stock - -
Exercise of warrants and options - 28,848
Proceeds from sale of common stock 21,250 4,973,300
--------------- ---------------
Net cash provided by financing activities 6,842,047 5,434,883
Effect of foreign exchange on cash (23,272) (23,525)
--------------- ---------------
Net (decrease)increase in cash (216,578) 513,177
Cash at beginning of period 892,739 86,511
--------------- ---------------
Cash at end of period $ 676,161 $ 599,688
=============== ===============
Supplemental information:
Interest paid $ 71,119 $ -
Conversion of bridge notes to common stock $ - $ 2,148,378
=============== ===============
Warrants issued with convertible notes $ 2,863,363 $ 599,923
=============== ===============
Beneficial conversion value of note payable $ 2,070,784 $ -
=============== ===============
Cancellation of common stock and convertible
notes payable pursuant to the sale of CBL,
net $ - $ 461,063
=============== ===============
Issuance of common stock for business
acquisitions $ - $ 975,000
=============== ===============
Issuance of convertible redeemable equity $ - $ 2,250,000
=============== ===============
See accompanying notes to the consolidated financial statements.
-6-
Trinity Learning Corporation and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2005
GENERAL
Trinity Learning has elected to omit substantially all footnotes to the
consolidated financial statements for the three and nine months ended March 31,
2005 since there have been no material changes (other than indicated in other
footnotes) to the information previously reported by the Company in their Annual
Report filed on Form 10-KSB for the fiscal year ended June 30, 2004.
UNAUDITED INFORMATION
The information furnished herein was taken from the books and records of the
Company without audit. However, in the opinion of management, the accompanying
unaudited interim consolidated financial statements reflect all adjustments that
are necessary for a fair presentation of the financial position, results of
operations and cash flows for the interim periods presented.
NOTE 1. ACCOUNTING POLICIES
Overview
Trinity Learning is creating a global learning company by acquiring operating
subsidiaries that specialize in educational and training content, delivery, and
services for particular industries or that target a particular segment of the
workforce. Trinity Learning believes that there are product and service
synergies between and among our various subsidiaries that position us to create
a global learning company that can provide integrated learning services to
corporations, organizations, educational institutions, and individual learners,
using a variety of delivery technologies, platforms and methods to meet the
growing need for global learning solutions. Trinity Learning believes that it
will be one of the first companies to be able to serve major multinational
employers at multiple levels of their organizations and assist these customers
to meet the challenges of a major turnover in the world's workforce over the
coming decade. Factors such as demographics, technology, and globalization will
require enterprises, organizations and governments around the world to invest in
human capital to remain competitive.
The accompanying unaudited interim consolidated financial statements and related
notes have been prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial information and
with the instructions to Form 10-QSB and Item 310 of Regulation S-B.
Accordingly, they do not include all the information and footnotes required by
accounting principles generally accepted in the United States of America for
complete financial statements. These financial statements include the accounts
of Trinity and its consolidated subsidiaries. All significant intercompany
transactions and accounts have been eliminated in consolidation.
These unaudited interim consolidated financial statements should be read in
conjunction with the audited financial statements and related notes thereto
included in the Company's Annual Report on Form 10-KSB for the year ended June
30, 2004. The results of operations for the three and nine months ended March
31, 2005, are not necessarily indicative of the operating results for the full
year and future operating results may not be comparable to historical operating
results due to our September 1, 2003 acquisitions of TouchVision, Inc.
("TouchVision"); River Murray Training Pty Ltd ("RMT"); and 51% of the issued
and outstanding shares of Ayrshire Trading Limited ("Ayrshire"), as well as our
December 1, 2003 acquisition of Danlas Limited ("Danlas") and March 1, 2004
acquisition of Trinity Learning AS ("VILPAS"). Ayrshire owns 95% of the issued
and outstanding shares of Riverbend Group Holdings (Pty.) Ltd. ("Riverbend").
These companies are collectively referred to as Riverbend. Danlas owns 51% of
IRCA (Proprietary) Limited ("IRCA"). These companies are collectively referred
to as IRCA. In addition, the financial statements do not include information
with respect to the Primedia acquisition.
-7-
In the opinion of management, the accompanying unaudited interim consolidated
financial statements reflect all normal recurring adjustments that are necessary
for a fair presentation of the financial position, results of operations and
cash flows for the interim periods presented.
Use of Estimates
The preparation of the Company's financial statements in conformity with
accounting principles generally accepted in the United States of America
necessarily requires it to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the balance sheet dates and the reported amounts of revenues
and costs during the reporting periods. Actual results could differ from those
estimates. On an ongoing basis, the Company reviews its estimates based on
information that is currently available. Changes in facts and circumstances may
cause the Company to revise its estimates. Significant estimates include
revenue recognition policy, valuation and allocation of the purchase
consideration of the assets and liabilities and assets acquired in business
combinations and equity investments in associated companies, our determination
of fair value of common stock issued in business combinations and equity
investments in associated companies, and the annual valuation and review for
impairment of assets acquired and of long-lived assets.
NOTE 2 GOING CONCERN
To meet our present and future liquidity requirements, we are continuing to seek
additional funding through private placements, conversion of outstanding loans
and payables into common stock, development of the business of our newly-
acquired businesses, collections on accounts receivable, and through additional
acquisitions that have sufficient cash flow to fund subsidiary operations.
There can be no assurance that we will be successful in obtaining more debt
and/or equity financing in the future or that our results of operations will
materially improve in either the short- or the long-term. Based upon our cash
balance at May 1, 2005 we will not be able to sustain operations for more than
two months without additional sources of financing. If we fail to obtain such
financing and improve our results of operations, we will be unable to meet our
obligations as they become due. That would raise substantial doubt about our
ability to continue as a going concern.
NOTE 3 SUBSEQUENT EVENTS
On April 1, 2005, we entered into and closed an asset purchase agreement with
Primedia, Inc. and two Primedia affiliates. The assets comprised those relating
to PWPL's Healthcare Group, Government Services Group, Industrial Services
Group, and all other assets of PWPL, including all of the assets of Primedia
Digital Video Holdings LLC, excluding only those assets primarily related to the
operations of PWPL's Financial Services Group and/or PWPL's Interactive Medical
Network business. These assets are comprised of content libraries, trademarks,
brands, intellectual property, databases and physical assets.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Our fiscal year ends on June 30. This management's discussion and analysis of
financial condition and results of operations and other portions of this
Quarterly Report on Form 10-QSB contain forward looking information that
involves risks and uncertainties. Our actual results could differ materially
from those anticipated by this forward looking information. Factors that could
cause or contribute to such differences include, but are not limited to, those
discussed or referred to in the Annual Report on Form 10-KSB for the fiscal year
ended June 30, 2004 under the heading Information Regarding Forward-Looking
Statements and elsewhere. Investors should review this quarterly report on Form
10-QSB in combination with our Annual Report on Form 10-KSB in order to have a
more complete understanding of the principal risks associated with an investment
in our common stock. This management's discussion and analysis of financial
condition and results of operations should be read in conjunction with our
unaudited condensed consolidated financial statements and related notes included
elsewhere in this document.
-9-
Overview
Our financial statements are prepared using accounting principles generally
accepted in the United States of America generally applicable to a going
concern, which contemplates the realization of assets and liquidation of
liabilities in the normal course of business. Currently, we do not have
significant cash, material assets or an established source of revenues
sufficient to cover our operating costs and to allow us to continue as a going
concern. We do not currently possess a financial institution source of
financing and we cannot be certain that our existing sources of cash will be
adequate to meet our liquidity requirements. Based upon our cash balance at May
1, 2005, we will not be able to sustain operations for more than two months
without additional sources of funding. To meet our present and future liquidity
requirements, we will continue to seek additional funding through private
placements, conversion of outstanding loans and payables into common stock,
development of the business of our newly-acquired subsidiaries, collections on
accounts receivable, and through additional acquisitions that have sufficient
cash flow to fund subsidiary operations. There can be no assurance that we will
be successful in obtaining more debt and/or equity financing in the future or
that our results of operations will materially improve in either the short- or
the long-term. If we fail to obtain such financing and improve our results of
operations, we will be unable to meet our obligations as they become due. That
would raise substantial doubt about our ability to continue as a going concern.
In September and December 2003, we completed the acquisition, respectively, of
our interest in Riverbend and IRCA. Our interim financial statements as
originally filed for the periods ending September 30, 2003 and December 31, 2003
and March 31, 2004 reflected the consolidation of those entities with our
company. Our investments in Riverbend and IRCA have been re-classified in our
year-end audited financial statements as equity investments and, accordingly,
the financial results of these companies have not been consolidated with our
financial statements. We have filed amended quarterly reports for the periods
ended September 30 and December 31, 2003 and March 31, 2004 that reflect this
change in accounting treatment.
On January 7, 2005, we closed an offering of Notes in the aggregate principal
amount of $1,552,500. The Notes mature in twelve months and accrue interest at
a rate of 9% per annum. The principal amount of the Notes and accrued interest
thereon are convertible into shares of our common stock at any time prior to the
due date of the Notes, at a conversion price of $0.73 per share. In connection
with the issuance of the Notes, we also issued three-year warrants to purchase
an aggregate of 2,126,712 shares of our common stock at an exercise price of
$1.50 per share.
On January 14, 2005, our registration statement related to the offer and sale of
up to 36,572,999 shares of common stock went effective. These shares include
8,800,000 shares that are issuable pursuant to the terms of a convertible
promissory note and 1,600,000 shares issuable upon the exercise of warrants,
both issued to Laurus. Our prospectus was supplemented on February 2, 2005 to
(i) provide information regarding the offering of "Notes" in the aggregate
principal amount of $1,552,500 which closed on January 7, 2005; (ii) the
resignation of our Chief Financial Officer, Christine R. Larson, on January 21,
2005; and (iii) the execution of an amended agreement ("amending Agreement")
with Laurus. The Amending Agreement provides that the conversion price under
the Term Note will be changed to $0.45 from $0.72 for the first $250,000
aggregate principal amount of the Term Note converted into shares of our common
stock on or after January 31, 2005, and we agreed to register the additional
shares of its common stock that will be issuable as a result of this change in
conversion price.
Results of Operations
Third Quarter Ended March 31, 2005 as Compared to the Third Quarter Ended March
31, 2004
Our sales revenues for third quarter 2005 were $518,095, as compared to
$705,460 for the third quarter 2004. This decrease in revenues is due primarily
to unfavorable sales for Touchvision, Danlas, RMT and Trinity offset by
increased revenues due to the acquisition of VILPAS. The three month period in
2004 comprises three months' revenue of CBL and three months each of RMT and
TouchVision while the three month period in 2005 comprises three months' revenue
of RMT, TouchVision and VILPAS.
-10-
Costs of sales, which consist of labor and hardware costs, and other
incidental expenses, was $62,228 for the third quarter 2005 as compared to
$152,910 for the third quarter 2004, resulting in gross profit of $455,867 for
the third quarter 2005, as compared to $552,550 for the third quarter 2004.
This decrease in costs and decrease in gross profit was due to a decrease in
product sales with an offsetting decrease in cost of goods sold for hardware.
Operating expenses for third quarter 2005 were $2,562,587 as compared to
$1,612,039 for the third quarter 2004. This increase was due primarily to
increases in selling, general and administrative costs as well as amortization
expense.
Other Expense of $1,041,624 was $567,481 less than that for the third
quarter 2004. This decrease is primarily due to the reduction in costs
associated with debt issuance of $1,289,544 offset by increased costs associated
with companies accounted for on an equity basis of $315,095 and net interest
expense of $406,869. Included in interest expense of $503,268 is $411,180
attributable to amortization of discounts on the Laurus note.
We reported net loss available for common stockholders of $3,104,016, or
$0.10 per share for the third quarter 2005, compared with a net loss of
$2,668,594 or $0.10 per share for third quarter 2004.
Nine Months Ended March 31, 2005 as Compared to the Nine Months Ended March 31,
2004
Our sales revenues for the nine months ended March 31, 2005 were
$2,328,592, as compared to $1,686,258 for the nine months ended March 31, 2004.
This increase in revenues was primarily due to the TouchVision, RMT and VILPAS
acquisitions ("acquisitions") in September 2003 and March 2004, respectively,
offset by the divestiture of CBL in December 2003. The nine month period in
2004 comprises nine months' revenue of CBL and six months each of RMT and
TouchVision while the nine month period in 2005 comprises nine months' revenue
of RMT, TouchVision and VILPAS.
Costs of sales, which consist of labor and hardware costs, and other
incidental expenses, was $280,563 for the nine months ended March 31, 2005 as
compared to $357,363 for the nine months ended March 31, 2004, resulting in
gross profit of $2,048,029 for the nine months ended March 31, 2005, as compared
to $1,328,895 for the nine months ended March 31, 2004. The increase in gross
profit was due to and associated with increased revenues resulting from the
acquisitions completed by us in September 2003 and March 2004 offset by the
divestiture of CBL in December 2003.
Operating expenses for the nine months ended March 31, 2005 were $6,028,319
as compared to $4,539,958 for the nine months ended March 31, 2004. This
increase was due primarily to a significant increase in selling, general and
administrative expenses which increased $1,676,638 from $855,943 for the nine
months ended March 31, 2004. This increase is largely due to the addition of
the three new subsidiaries. However, professional fees decreased $65,056 as did
depreciation and amortization expense by $90,589; again, due to the divestiture
of CBL in December 2003. Salaries and benefits slightly decreased by $31,926 to
$2,611,262.
Other Expense of $3,015,229 for the nine months ended March 31, 2005 was
$954,537 greater than that for the nine months ended March 31, 2004. This
increase in expense is primarily due to an increase in losses of $1,215,543 in
associated companies accounted for on an equity basis, offset by a decrease in
interest expense of $258,824. Included in interest expense of $1,175,229 is
$1,022,248 attributable to amortization of discounts on the Laurus and Oceanus
notes of $959,420 and $62,828, respectfully.
We reported net loss available for common stockholders of $6,904,182, or
$0.22 per share for the nine months ended March 31, 2005, compared with a net
loss of $5,271,575 or $0.25 per share for the nine months ended March 31, 2004.
-11-
The following describes underlying trends our business including three of our
operating subsidiaries.
TRINITY. Our growth remains ambitious, and remains based on acquisitions,
internal growth, and alliances. We believe the recent asset purchase
transaction from Primedia provides us with the capacity to layer new business
units onto our production, delivery and administrative platforms at Trinity
Workplace Learning, without the need for significant new capital expenditure in
the near future. We believe we now offer target acquisition candidates a
valuable marketing and production platform, and an opportunity to extend the
depth and reach of products and services to new markets.
We are presently exploring opportunities for synergy, cross-marketing and other
collaborations between Trinity Workplace Learning and our other operating
subsidiaries and strategic alliance partners. While we are focused on building
our market share and capabilities in North America, we continue to believe in
the global learning market and will seek to leverage our assets and investments
in North America by marketing products and services internationally through
partnerships, alliances and licensing agreements.
VILPAS. The Norwegian government is currently refining its mandates with regard
to functionally disabled workers, with funding now targeted at not only training
of the handicapped but also at subsidizing direct employment of handicapped and
challenged individuals. FunkWeb, a majority owned subsidiary of VILPAS, is in
the process of revising some of its programs and market strategies to be able to
participate in government programs aimed directly at increasing employment among
functionally disabled workers. 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.
RMT. Over the past year there has been a 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, RMT is in the process of
developing new products and services to expand its reach beyond the Australian
viticulture industry. There is little or no seasonality to RMT's business. New
investment for courseware may increase in the coming fiscal year as RMT develops
new courses to market in Australia and in markets outside Australia. Variable
costs for RMT primarily include one-time and ongoing expenses for outsourced
course development and, at times, instructors. Presently, RMT sells its
products and services in Australia in local currency (Australian Dollars) and
there is little or no effect from currency exchange. In the future, if RMT is
successful in selling in markets outside of Australia, foreign exchange factors
may impact the ability of RMT to market and compete in a profitable manner.
TouchVision. TouchVision has begun to expand its business into developing new
software and consulting services for the hospital and healthcare market, while
continuing to supply industry sectors it has focused on in the past. We believe
investments in technology infrastructure by hospitals and healthcare providers
will be stable in the coming fiscal years. There is little or no seasonality to
the business of TouchVision. In addition to sales through its existing sales
force, TouchVision is in the process of establishing distribution arrangements
with outside companies selling to the healthcare industry. Depending on sales
channel mix, some sales through outside agents may result in lower retained
revenues but, due to corresponding lower fixed costs, these sales may
nonetheless have a positive impact on the bottom line.
Liquidity and Capital Resources
Our expenses are currently greater than our revenues. We have a history of
losses, and our accumulated deficit as of March 31, 2005 was $29,555,158 as
compared to $22,650,976 as of June 30, 2004.
At March 31, 2005, we had an unrestricted cash balance of $676,161 compared
to $892,739 at June 30, 2004. Net cash used by operating activities during the
nine months ended March 31, 2005 was $2,515,613, attributable primarily to our
loss from operations of $6,904,182. Net cash generated by financing activities
was $6,842,047 for the nine months ended March 31, 2005 representing the net of
subscriptions received as well as borrowings and repayments under short and
long-term notes of $6,973,382 less fees associated with debt issuance of
$259,000. Of these funds, an aggregate of $185,000 was advanced to our
consolidated subsidiaries and $4,491,000 was deposited in a bank in support of
future acquisitions.
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Accounts receivable increased from $243,164 at June 30, 2004 to $262,994 at
March 31, 2005. This increase is due primarily to the timing of billings to and
collections from our customers.
Accounts payable decreased from $892,639 at June 30, 2004 to $881,546 at
March 31, 2005. Accrued expenses decreased from $721,192 at June 30, 2004 to
$658,472 at March 31, 2005. These changes are attributable to expenses incurred
by the three subsidiaries we acquired during fiscal year 2004 and our continuing
corporate expansion during the year as well as timing of billings from and
payments to our creditors.
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. Capital expenditures, excluding
purchases financed through capital lease, during the nine months ended March 31,
2005 and 2004, were $16,611 and $19,998, respectively.
We continued to seek equity and debt financing in second quarter 2005 to
support our growth and to finance recent and proposed acquisitions. In this
regard, on July 29, 2004, we issued a secured convertible promissory note in the
principal amount of $500,000 to Oceanus Value Fund, L.P. ("Oceanus"). On
September 1, 2004, we repaid the principal owing on the promissory note plus
accrued proceeds from the Laurus transaction described below.
On August 31, 2004, we entered into a series of agreements with Laurus
Master Fund, Ltd. ("Laurus") whereby we issued to Laurus (i) a secured
convertible term note in the principal amount of $5.5 million and (ii) a five-
year warrant to purchase up to 1,600,000 shares of our common stock at a price
of $0.81 per share. Of the note proceeds, $233,000 was used for operations,
$4,491,000 was deposited in a restricted account as security for the total loan
amount and for use by us to make acquisitions as approved by Laurus; however,
funds may be released for operations at a rate of 25% of the dollar volume of
our stock for a twenty day period, and the outstanding principal balance of
$500,000 was repaid to Oceanus. The principal amount of the note carries an
interest rate of prime plus two percent, subject to adjustment, and we must make
monthly principal payments of at least $22,059, commencing November 1, 2004,
toward the outstanding non-restricted principal amount. The principal amount of
the note and accrued interest thereon is convertible into shares of our common
stock at a price of $0.72 per share, subject to anti-dilution adjustments.
On January 7, 2005, we closed an offering of convertible notes ("Notes") in
the aggregate principal amount of $1,552,500. The Notes mature in twelve months
and accrue interest at a rate of 9% per annum. The principal amount of the
Notes and accrued interest thereon are convertible into shares of our common
stock at any time prior to the due date of the Notes, at a conversion price of
$0.73 per share. In connection with the issuance of the Notes, we also issued
three-year warrants to purchase an aggregate of 2,126,712 shares of our common
stock at an exercise price of $1.50 per share.
To meet our present and future liquidity requirements, we are continuing to
seek additional funding through private placements, conversion of outstanding
loans and payables into common stock, development of the business of our newly-
acquired subsidiaries, collections on accounts receivable, and through
additional acquisitions that have sufficient cash flow to fund subsidiary
operations. There can be no assurance that we will be successful in obtaining
more debt and/or equity financing in the future or that our results of
operations will materially improve in either the short- or the long-term. Based
upon our cash balance at May 1, 2005 we will not be able to sustain operations
for more than two months without additional sources of financing. If we fail to
obtain such financing and improve our results of operations, we will be unable
to meet our obligations as they become due. That would raise substantial doubt
about our ability to continue as a going concern.
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ITEM 3. CONTROLS AND PROCEDURES
Trinity Learning maintains disclosure controls and procedures that are
designed to ensure that information required to be disclosed in its reports
pursuant to the Securities Exchange Act of 1934 (the "Exchange Act"), as
amended, is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms, and that such information is accumulated
and communicated to our management, including our Chief Executive Officer and
Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure. In designing and evaluating the disclosure controls and
procedures, management recognized that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and management necessarily was
required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.
Our Chief Executive Officer and Chief Financial Officer, after conducting
an evaluation, together with other members of management, of the effectiveness
of the design and operation of our disclosure controls and procedures at the end
of the period covered by this report, have concluded that our disclosure
controls and procedures were effective to ensure that information required to be
disclosed by us in our reports filed or submitted under the Exchange Act is
recorded, processed, summarized, and reported within the time periods specified
in the rules and forms of the SEC. There were no significant changes in our
internal controls or in other factors that could significantly affect these
controls subsequent to that evaluation, and there were no significant
deficiencies or material weaknesses in such controls requiring corrective
actions.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
The following exhibits are filed herewith:
31.1 Certification of the Company's Chief Executive Officer.
31.2 Certification of the Company's President and Chief Financial Officer.
32.1 Certification of the Company's Chief Executive Officer.
32.2 Certification of the Company's President and Chief Financial Officer.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TRINITY LEARNING CORPORATION
May 13, 2005 By: /S/ DOUGLAS D. COLE
-------------------------------------------
Douglas D. Cole
Chief Executive Officer
May 13, 2005 By: /S/ EDWARD P. MOONEY
--------------------------------------------
Edward P. Mooney
President and Chief Financial Officer
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