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 September 30, 2005
Commission File No. 0-8924
Trinity Learning Corporation
(Exact name of small business issuer as specified in its charter)
Utah
(State or other jurisdiction of
incorporation or organization)
73-0981865
(IRS Employer Identification No.)
3685 Mt. Diablo Blvd., Suite 161, Lafayette, California 94549
(Address of principal executive offices)
(925) 284-8025
(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 [ ]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [x]
As of November 1, 2005, 38,918,013 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 THREE MONTHS ENDED SEPTEMBER 30, 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 . . . . . . . . . . . . . . . . . . . . . .4
Item 1 Consolidated Financial Statements
Consolidated Balance Sheets September 30, 2005
(Unaudited) and June 30, 2005 (Audited) . . . . . . . . . . . . . . .4
Consolidated Statements of Operations and Comprehensive Loss
Three Months Ended September 30, 2005 and 2004. (Unaudited) . . . . .6
Consolidated Statements of Cash Flows Three Months Ended
September 30, 2005 and 2004 (Unaudited) . . . . . . . . . . . . . . .7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . 11
Item 3. Controls and Procedures . . . . . . . . . . . . . . . . . . . . 13
PART II. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . 14
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 14
Item 2. Unregistered Sales of Equity Securities and
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 3. Defaults upon Senior Securities . . . . . . . . . . . . . . . . 14
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . 14
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . 14
Item 6. Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Trinity Learning Corporation and Subsidiaries
Consolidated Balance Sheets
September June
30, 2005 30, 2005
(Unaudited) (Audited)
------------ ------------
Assets
------
Current Assets
Cash and Cash Equivalents, unrestricted $ 2,957,302 $ 752,261
Accounts Receivable 3,248,268 3,540,415
Inventory 1,350,067 1,632,750
Prepaid Expense and Other Current Assets 1,361,403 1,160,272
------------ ------------
Total Current Assets 8,917,040 7,085,698
Property & Equipment, net 5,516,925 5,876,999
Program Inventory, net 4,713,023 5,133,334
Restricted Cash 17,756 5,091,670
Other Assets, net - 197,888
------------ ------------
Total Assets $19,164,744 $23,385,589
============ ============
See accompanying notes to the consolidated financial statements.
4
Trinity Learning Corporation and Subsidiaries
Consolidated Balance Sheets
September June
30, 2005 30, 2005
(Unaudited) (Audited)
------------ ------------
Liabilities, Minority Interest, Contingently Redeemable Equity and
Stockholders' Equity
------------------------------------------------------------------
Liabilities
-----------
Accounts Payable $ 4,336,919 $ 3,134,406
Accrued Expenses 3,039,565 1,625,901
Interest Payable 23,379 23,379
Deferred Revenue 4,034,404 4,042,842
Capital Lease - Current 1,129,269 1,115,666
Notes Payable - Current 140,465 140,465
Notes Payable - Related Parties 320,000 837,173
------------ ------------
Total Current Liabilities 13,024,001 10,919,832
Obligations under Capital Leases 13,047,838 13,242,920
Other Long - Term Liabilities 17,416 7,554
Notes Payable - Long Term 4,963,991 2,109,636
Notes Payable - Long Term, Related Parties 206,448 205,914
------------ ------------
Long Term Liabilities 18,235,693 15,566,024
------------ ------------
Equity Investment 500,000 500,000
------------ ------------
Total Liabilities 31,759,694 26,985,856
------------ ------------
Minority Interest 309,210 287,061
----------------- ------------ ------------
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 - -
Common Stock, 100,000,000 Shares Authorized
at No Par Value, 40,018,013 and 37,719,889
Shares Issued and Outstanding, Respectively 30,986,986 32,000,792
Accumulated Deficit (46,340,470) (38,266,018)
Deferred Financial Advisor Fees (48,960) (142,920)
Other Comprehensive Income (11,716) 10,818
------------ ------------
Total Stockholders' (Deficit) Equity (15,414,160) (6,397,328)
------------ ------------
Total Liabilities, Minority Interest,
Contingently Redeemable Equity and
Stockholders' (Deficit) Equity $19,164,744 $23,385,589
============ ============
See accompanying notes to the consolidated financial statements.
5
Trinity Learning Corporation and Subsidiaries
Consolidated Statements of Operations and Comprehensive Income
For Three Months Ended on
September 30
2005 2004
------------ ------------
Revenue
-------
Sales Revenue $ 5,348,757 $ 902,854
Cost of Sales (1,230,214) (180,905)
------------ ------------
Gross Profit 4,118,543 721,949
------------ ------------
Expenses
--------
Salaries & Benefits 3,724,926 889,302
Professional Fees 366,214 296,587
Selling, General & Administrative 4,715,376 489,162
Depreciation & Amortization 894,512 47,962
------------ ------------
Total Expense 9,701,028 1,723,013
------------ ------------
Loss from Operations (5,582,485) (1,001,064)
------------ ------------
Other Expense
-------------
Debt Conversion 1,986,311 -
Interest, net 494,580 229,703
Debt Issuance - 7,194
Equity in Losses of Associated Companies - 648,501
Foreign Currency Loss 275 -
------------ ------------
Total Other Expense 2,481,166 885,398
------------ ------------
Minority Interest 10,801 24,876
----------------- ------------ ------------
Loss Before Taxes (8,074,452) (1,861,586)
Taxes - -
------------ ------------
Net Loss $(8,074,452) $(1,861,586)
============ ============
Net Loss Per Common Share
Basic and Diluted $ (0.21) $ (0.06)
============ ============
Weighted Average Shares Outstanding 38,918,013 30,377,643
============ ============
A summary of the components of other comprehensive gain (loss) for the
three months ended September, 2005 and 2004 is as follows:
Three Months ended on
September 30,
2005 2004
(Unaudited)
------------ ------------
Net Loss $(8,074,452) $(1,861,586)
Foreign Currency Translation Gain (Loss) (22,534) 27,589
------------ ------------
Comprehensive Loss $(8,096,986) $(1,833,997)
============ ============
See accompanying notes to the consolidated financial statements.
6
Trinity Learning Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For Three Months Ended on
September 30
2005 2004
(Unaudited) (Unaudited)
------------ ------------
Cash flows from operating activities:
Net loss $(8,074,452) $(1,861,586)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 894,512 47,962
Foreign currency translation gain / loss 275 -
Non-cash debt issuance 3,800 7,194
Non cash interest 146,560 205,753
Equity losses of associated companies - 648,501
Employee stock based compensation 200,000 -
Debt conversion expenses 1,986,311 104,997
Non cash financial advisory fees 93,960 -
Program Inventory (541,000) -
Changes in current assets and liabilities:
Accounts receivable 292,147 (148,105)
Interest receivable - -
Prepaid expenses and other current assets (201,131) (4,623)
Accounts payable and accrued expenses 2,744,810 (47,497)
Accounts payable-related parties - 8,333
Inventory 282,683 -
Deferred revenue (8,438) 239,866
Interest payable - (9,394)
Minority interest 22,149 (24,876)
------------ ------------
Net cash used by operating activities (2,157,814) (833,475)
------------ ------------
Cash flows from investing activities:
Payment for business acquisitions - (4,815)
Restricted cash 5,073,914 (4,491,000)
------------ ------------
Net cash generated by investing activities 5,073,914 (4,495,815)
------------ ------------
Cash flows from financing activities:
Repayment under capital leases (181,479) -
Repayments under borrowings (5,039,442) (550,000)
Borrowing under long-term liabilities 4,509,862 -
Payments for related party - 6,120,000
Fees paid to issue debt - (259,000)
------------ ------------
Net cash provided by financing activities (711,059) 5,311,000
------------ ------------
Effect of foreign exchange on cash (22,534) (27,589)
Net (decrease)increase in cash 2,205,041 (45,879)
------------ ------------
Cash at beginning of period 752,261 892,739
------------ ------------
Cash at end of period $ 2,957,302 $ 846,860
============ ============
See accompanying notes to the consolidated financial statements.
7
Trinity Learning Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For Three Months Ended on
September 30
2005 2004
(Unaudited) (Unaudited)
------------ ------------
Supplemental information:
Interest paid $ 342,280 $ 19,795
============ ============
Income taxes $ - $ -
============ ============
Conversion of notes to common stock $ 787,550 $ -
============ ============
Warrants issued with convertible notes $ - $ 2,863,363
============ ============
Beneficial conversion value of note payable $ - $ 2,070,784
============ ============
See accompanying notes to the consolidated financial statements.
8
Trinity Learning Corporation and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 2005
GENERAL
-------
Trinity Learning has elected to omit substantially all footnotes to the
consolidated financial statements for the three months ended September,
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,
2005.
UNAUDITED INFORMATION
---------------------
The information furnished herein was taken from the books and records of
the Company without audit. However, in the opinion of management, the
accompanying unaudited interim consolidated financial statements reflect
all adjustments that are necessary for a fair presentation of the financial
position, results of operations and cash flows for the interim periods
presented.
NOTE 1. ACCOUNTING POLICIES
----------------------------
Overview
--------
Trinity Learning is creating a global learning company by acquiring
operating subsidiaries that specialize in educational and training content,
delivery, and services for particular industries or that target a
particular segment of the workforce. Trinity Learning believes that there
are product and service synergies between and among our various
subsidiaries that position us to create a global learning company that can
provide integrated learning services to corporations, organizations,
educational institutions, and individual learners, using a variety of
delivery technologies, platforms and methods to meet the growing need for
global learning solutions. Trinity Learning believes that it will be one
of the first companies to be able to serve major multinational employers at
multiple levels of their organizations and assist these customers to meet
the challenges of a major turnover in the world's workforce over the coming
decade. Factors such as demographics, technology, and globalization will
require enterprises, organizations and governments around the world to
invest in human capital to remain competitive.
We operate through our primary operating subsidiary, Trinity Workplace
Learning, located in our 200,000 square foot digital multimedia production
center in Carrollton, Texas, in the greater Dallas metropolitan area. At
this Global Learning Center we create, distribute and archive rich media
for workplace learning and certification for approximately 7,000 corporate,
institutional and government customers in healthcare, industrial services,
and public safety including homeland security, first responders, and
federal agencies. We distribute content to our customers through a variety
of learning media including satellite, broadband, e-learning, CD-ROM, and
DVDs. Our proprietary brands include The Law Enforcement Training Network,
HomelandOne, the Fire and Emergency Training Network, and others. In our
healthcare industry vertical we participate in 17 distinct accreditations
for medical-related continuing professional education and certification.
While our strategic focus is to grow our assets and operations in North
America, we continue to also explore acquisition and alliance candidates in
Western Europe and we continue to maintain ownership positions in small
operating subsidiaries in Australia, Norway and California and we have an
ongoing investment in a learning company in South Africa.
The accompanying unaudited interim consolidated financial statements and
related notes have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim financial
information and with the instructions to Form 10-QSB and Item 310 of
Regulation S-B. Accordingly, they do not include all the information and
footnotes required by accounting principles generally accepted in the
United States of America for complete financial statements. These
financial statements include the accounts of Trinity and its consolidated
subsidiaries. All significant intercompany transactions and accounts have
been eliminated in consolidation.
These unaudited interim consolidated financial statements should be read in
conjunction with the audited financial statements and related notes thereto
included in the Company's Annual Report on Form 10-KSB for the year ended
June 30, 2005. The results of operations for the three months ended
September 30, 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 April 1, 2005 acquisition of
Primedia Workplace Learning.
In the opinion of management, the accompanying unaudited interim
consolidated financial statements reflect all normal recurring adjustments
that are necessary for a fair presentation of the financial position,
results of operations and cash flows for the interim periods presented.
9
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 November 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 - NOTES PAYABLE
----------------------
On July 13, 2005, the Company entered into a Credit Agreement (the
"Credit Agreement") with Instream Investment Partners, LLC, as
administrative agent, and certain lenders (the "Lenders"). Pursuant to the
terms of the Credit Agreement, the Lenders loaned to the Company
$3,500,000. The Company may borrow up to an additional $1,000,000 under the
Credit Agreement until January` 13, 2006. The loan matures on January 13,
2007, with interest payable monthly at the rate of 12% per annum. The
obligations of the Company under the Credit Agreement are secured by a
security interest in substantially all existing and hereafter acquired
assets of the Company. TouchVision, Inc. and Trinity Workplace Learning
Corporation, subsidiaries of the Company, each have guaranteed the
obligations of the Company under the Credit Agreement, and have granted the
Lenders a security interest in substantially all of their respective
existing and hereafter acquired assets. The Company also granted to the
Lenders warrants (the "Warrants") to acquire up to an aggregate of 5.25% of
the outstanding common stock of the Company on a fully-diluted basis, and
entered into a Registration Rights Agreement with respect to the common
stock issuable upon exercise of the Warrants. Copies of the Credit
Agreement, the form of Warrant and the Registration Rights Agreement
(collectively, the "Agreements") were filed in a Report on Form 8K. A
portion of the proceeds of the Credit Agreement was used by the Company to
repay all amounts outstanding under the Secured Convertible Term Note and
Securities Purchase Agreement (the "Laurus Agreements") dated August 31,
2004 with Laurus Master Fund, Ltd. ("Laurus"). In connection therewith,
Laurus converted a portion of the note into 1,198,124 shares of common
stock at a conversion price of $0.24 per share.
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 November 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.
On September 30, 2005, we issued an aggregate of 1,100,000 restricted
shares of our common stock to Inspire AS upon conversion of a $500,000
note. The note, as amended, provided for a conversion rate of $0.4545 per
share. The issuance of these securities was made in reliance on Section
4(2) of the Securities Act of 1933 as a transaction not involving any
public offering. The note was issued pursuant to out acquisition of
Vilpas.
10
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, 2005 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.
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 November 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.
Effective April 1, 2005, Trinity Learning Corporation (the "Company")
entered into and closed an asset purchase agreement (the "Asset Purchase
Agreement") with PRIMEDIA Inc. and two PRIMEDIA affiliates
(collectively,"PRIMEDIA"), whereby PRIMEDIA sold to the Company certain
assets related to its PRIMEDIA's Workplace Learning division ("PWPL"). The
assets comprised those relating to PWPL's Healthcare Group, Government
Services Group, Industrial Services Group, Shared Services Group, and all
other assets of PWPL, including all of the assets of PRIMEDIA Digital Video
Holdings LLC, excluding only those assets primarily related to the
operations of PWPL's Financial Services Group and/or PWPL's Interactive
Medical Network business (such acquired assets referred to collectively
hereinafter as the "Business"). These assets are comprised of content
libraries, trademarks, brands, intellectual property, databases, and
physical assets. Included in the sale are certain video production and
distribution capabilities used to deliver integrated learning solutions to
professionals in the homeland security, healthcare, industrial, fire &
emergency, government, law enforcement and private security markets
currently served by PWPL. The consolidated financial statements reflect
the consolidation of this entity into our company.
Results of Operations
---------------------
First Quarter Ended September 30, 2005 as Compared to the First Quarter
Ended September 30, 2004
-----------------------------------------------------------------------
Our revenues for first quarter 2005 were $5,348,757, as compared to
$902,854 for the first quarter 2004. This increase in revenues is due
primarily to the acquisition of Primedia Workplace Learning. The three
month period in 2004 comprises three months' revenue of RMT, TouchVision
and VILPAS while the 2005 includes revenues of RMT, TouchVision and VILPAS
and Trinity Workplace Learning.
Costs of sales, which consist of labor, hardware costs, cost of goods
sold and other incidental expenses, was $1,230,214 for the first quarter
2005 as compared to $180,905 for the first quarter 2004, resulting in gross
profit of $4,118,543 for the first quarter 2005, as compared to $721,949
for the first quarter 2004. This increase in costs and in gross profit was
due to the acquisition of Primedia Workplace Learning. Operating expenses
for first quarter 2005 were $9,701,028 as compared to $1,723,013 for the
first quarter 2004. This increase was due primarily to acquisition of
Primedia Workplace Learning along with increases in selling, general and
administrative costs as well as amortization expense.
11
Other Expense of $2,481,166 was $1,595,768 greater than that for the
first quarter 2004. This increase is primarily due to the loss on
conversion of notes payable of $1,986,311.
We reported net loss available for common stockholders of $8,074,452
or $0.20 per share for the first quarter 2005, compared with a net loss of
$1,861,586 or $0.06 per share for first quarter 2004.
In October 2005, the Company and IRCA completed a Settlement Agreement
whereby we mutually rescinded the original acquisition agreement, resulting
in no ownership positions for IRCA in our company and vice versa (see
"Subsequent Events IRCA Settlement Agreement)
Liquidity and Capital Resources
-------------------------------
Our expenses are currently greater than our revenues. We have a
history of losses, and our accumulated deficit as of September 30, 2005 was
$46,304,470 as compared to $38,266,018 as of June 30, 2005.
At September 30, 2005, we had an unrestricted cash balance of
$2,957,302 compared to $752,261 at June 30, 2005. Net cash used by
operating activities during the three months ended September 30, 2005 was
$1,616,814 attributable primarily to our increase of accounts receivable.
Net cash generated by investing activities was $4,532,914 for the three
months ended September 30, 2005 representing the net of other financing
activity and borrowings under short-term notes.
Accounts receivable decreased from $3,540,415 at June 30, 2004 to
$3,248,268 at September 30, 2005. This decrease is due primarily to the
timing of billings to our customers.
Accounts payable increased from $3,134,406 at June 30, 2005 to
$4,336,919 at September 30, 2005. Accrued expenses increased from
$1,625,901 at June 30, 2005 to $3,039,565 at September 30, 2005. The
changes in accounts payable and accrued expenses are attributable to the
negative cash flow.
As a professional services organization we are not capital intensive.
Capital expenditures historically have been for computer-aided instruction,
accounting and project management information systems and general-purpose
computer equipment to accommodate our growth.
We continued to seek equity and debt financing in fiscal 2005 to
support our growth and to finance recent and proposed acquisitions:
On July 13, 2005, the Company entered into a Credit Agreement (the
"Credit Agreement") with Instream Investment Partners, LLC, as
administrative agent, and certain lenders (the "Lenders"). Pursuant to the
terms of the Credit Agreement, the Lenders loaned to the Company
$3,500,000. The Company may borrow up to an additional $1,000,000 under the
Credit Agreement until January` 13, 2006. The loan matures on January 13,
2007, with interest payable monthly at the rate of 12% per annum. The
obligations of the Company under the Credit Agreement are secured by a
security interest in substantially all existing and hereafter acquired
assets of the Company. TouchVision, Inc. and Trinity Workplace Learning
Corporation, subsidiaries of the Company, each have guaranteed the
obligations of the Company under the Credit Agreement, and have granted the
Lenders a security interest in substantially all of their respective
existing and hereafter acquired assets. The Company also granted to the
Lenders warrants (the "Warrants") to acquire up to an aggregate of 5.25% of
the outstanding common stock of the Company on a fully-diluted basis, and
entered into a Registration Rights Agreement with respect to the common
stock issuable upon exercise of the Warrants. Copies of the Credit
Agreement, the form of Warrant and the Registration Rights Agreement
(collectively, the "Agreements") were filed in a Report on Form 8K. A
portion of the proceeds of the Credit Agreement was used by the Company to
repay all amounts outstanding under the Secured Convertible Term Note and
Securities Purchase Agreement (the "Laurus Agreements") dated August 31,
2004 with Laurus Master Fund, Ltd. ("Laurus"). In connection therewith,
Laurus converted a portion of the note into 1,198,124 shares of common
stock at a conversion price of $0.24 per share.
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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 November 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.
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.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On July 15, 2005, we issued an aggregate of 1,198,124 unrestricted
shares of our common stock to Laurus Master Fund, Ltd., upon conversion of
$287,549.69 of debt owed under a secured convertible promissory note issued
on August 31, 2004. The issuance of these securities was made in reliance
on Section 4(2) of the Securities Act of 1933 as a transaction not
involving any public offering. These securities were issued to an
accredited investor as defined under the securities laws and converted at
$0.24 per share.
On September 30, 2005, we issued an aggregate of 1,100,000 restricted
shares of our common stock to Inspire AS upon conversion of a $500,000
note. The note, as amended, provided for a conversion rate of $0.4545 per
share. The issuance of these securities was made in reliance on Section
4(2) of the Securities Act of 1933 as a transaction not involving any
public offering. The note was issued pursuant to out acquisition of
Vilpas.
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
November 15, 2005 By: /S/ DOUGLAS D. COLE
---------------------------------
Douglas D. Cole
Chief Executive Officer
November 15, 2005 By: /S/ Patrick R. Quinn
---------------------------------
Patrick R. Quinn
Chief Financial Officer
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