SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT Pursuant
to Section 13 OR 15(d) of
The Securities Exchange Act of 1934
Date of report (Date of earliest event reported):
November 21, 2003 (September 1, 2003)
Trinity Learning Corporation
-----------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Utah
(State of Other Jurisdiction of Incorporation)
0-8924 73-0981865
(Commission File Number) (IRS Employer Identification No.)
1831 Second Street
Berkeley, California 94710
(Address of Principal Executive Offices) (Zip Code)
(510) 540-9300
(Registrant's Telephone Number, Including Area Code)
Item 7. Financial Statements and Exhibits
Included with this amendment to the Report on Form 8-K for Trinity
Learning Corporation, originally filed with the Securities and Exchange
Commission on September 16, 2003, are the financial statements of
TouchVision, Inc., as of June 30, 2003 and June 30, 2002 along with pro
forma financial information giving effect to the acquisition of this
entity.
TouchVision, Inc.
Financial Statements
June 30, 2003
and
June 30, 2002
/Letterhead/
Independent Auditors' Report
-----------------------------
To the Board of Directors of
TouchVision, Inc.
We have audited the accompanying balance sheets of TouchVision, Inc., (a
California corporation), as of June 30, 2003 and 2002, and the related
statements of operations, retained earnings, and cash flows for the years
then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards, in the United States of America. Those standards require that
we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatements. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statements
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of TouchVision, Inc., as
of June 30, 2003 and 2002, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted
accounting principles, in the United States of America.
/S/ Bierwolf, Nilson & Associates
Bierwolf, Nilson & Associates
Salt Lake City, Utah
October 30, 2003
4
TouchVision, Inc.
Balance Sheet
June 30, June 30,
2003 2002
------------ ------------
Assets
Current Assets
--------------
Cash $ 181,949 $ 52,818
Accounts Receivable (net of $8,811 allowance) 93,926 48,034
Employee Advances 54,370 1,305
------------ ------------
Total Current Assets 330,245 102,157
Property & Equipment (Note 7)
--------------------
Computers & Electronics 64,373 63,571
Furniture & Fixtures 16,605 16,605
Software 8,394 8,394
------------ ------------
Total Property & Equipment 89,373 88,570
Less Accumulated Depreciation (77,877) (65,916)
------------ ------------
Net Property & Equipment 11,496 22,654
Other Assets
------------
Security Deposits 35,765 35,784
------------ ------------
Total Other Assets 35,765 35,784
------------ ------------
Total Assets $ 377,506 $ 160,595
============ ============
Continued
5
TouchVision, Inc.
Balance Sheet
June 30, June 30,
2003 2002
------------ ------------
Liabilities & Stockholders' Equity
Current Liabilities
-------------------
Accounts Payable $ 200,905 $ 197,860
Accrued Expenses 220,837 195,302
Unearned Revenue 168,577 86,307
Line of Credit (Note 4) 328,688 259,958
Interest Payable 19,807 13,895
------------ ------------
Total Current Liabilities 938,814 753,322
Long Term Liabilities
---------------------
Notes Payable (Note 5) 100,000 75,000
------------ ------------
Total Long Term Liabilities 100,000 75,000
------------ ------------
Total Liabilities 1,038,814 828,322
------------ ------------
Stockholders' Equity
--------------------
Preferred Stock, 15,000,000 Shares
Authorized; No Par Value Zero Shares
Issued and Outstanding - -
Common Stock, 35,000,000 Shares Authorized;
No Par Value, 11,970,400 Shares Issued
& Outstanding Respectively 383,796 383,796
Accumulated Deficit (1,045,104) (1,051,523)
------------ ------------
Total Stockholders' Equity (661,308) (667,727)
------------ ------------
Total Liabilities & Stockholders' Equity $ 377,506 $ 160,595
============ ============
The accompanying notes are an integral part of these financial statements.
6
TouchVision, Inc.
Statement of Operations
For the Years Ended June 30
2003 2002
------------ ------------
Revenues
--------
Service Income $ 592,361 $ 772,071
Product Sales 1,121,421 1,936,228
------------ ------------
Total Revenues 1,713,782 2,708,299
Cost of Sales 711,395 1,010,290
------------ ------------
Gross Profit 1,002,387 1,698,009
------------ ------------
Expenses
--------
Depreciation & Amortization 11,961 15,464
Salaries & Wages 701,550 1,245,136
Professional Fees 12,412 44,470
Office Expenses 13,714 12,313
Travel & Entertainment - 3,644
Rent Expense 145,024 141,787
General & Administrative 83,177 241,054
------------ ------------
Total Expenses 967,838 1,703,868
------------ ------------
Net Income (Loss) from Operations 34,549 (5,859)
------------ ------------
Other Income (Expenses)
-----------------------
Leasehold Abandonment - (14,229)
Interest Expense (28,129) (20,086)
------------ ------------
Total Other Income (Expense) (28,129) (34,315)
------------ ------------
Net Income (Loss) $ 6,420 $ (40,174)
============ ============
Net (Loss) per Share $ .001 $ (.003)
============ ============
Weighted Average Shares Outstanding 11,970,400 11,970,400
============ ============
The accompanying notes are an integral part of these financial statements.
7
TouchVision, Inc.
Statement of Cash Flows
For the Years Ended June 30
2003 2002
------------ ------------
Cash Flows from Operating Activities
------------------------------------
Net Profit or (Loss) $ 6,420 $ (40,174)
Adjustments to Reconcile Net Profit
or (Loss) to Net Cash:
Amortization & Depreciation 11,961 15,464
Loss on Leasehold Abandonment - 14,229
Changes in Operating Assets & Liabilities:
(Increase) Decrease in Accounts Receivable (45,892) 1,029,791
(Increase) Decrease in Security Deposits 19 (1,914)
(Increase) Decrease in Employee Advances (53,065) 73,744
Increase (Decrease) in Accrued Expenses 25,534 2,973
Increase (Decrease) in Accounts Payable 3,045 (165,901)
Increase (Decrease) in Customer Deposits - (606,821)
Increase (Decrease) in Deferred Revenue 80,270 86,307
Increase (Decrease) in Interest on
Notes Payable 5,912 13,895
------------ ------------
Net Cash (Used) by Operating Activities 36,204 421,593
Cash Flows from Investing Activities
------------------------------------
Purchase of Computers & Electronics (802) -
Purchase of Furniture & Fixtures - (13,910)
------------ ------------
Net Cash (Used) by Investing Activities (802) (13,910)
Cash Flows from Financing Activities
------------------------------------
Stock Issued for Cash - 12,300
Proceeds from Line of Credit 152,612 320,151
Payments made on Line of Credit (83,883) (687,438)
Proceeds from Notes Payable 25,000 -
------------ ------------
Net Cash Provided by Financing Activities 93,729 (354,987)
------------ ------------
Increase (Decrease) in Cash 129,131 52,696
Cash at Beginning of Period 52,818 122
------------ ------------
Cash at End of Period $ 181,949 $ 52,818
============ ============
Disclosures from Operating Activities
-------------------------------------
Interest $ 19,259 $ 10,872
============ ============
Taxes 2,778 9,705
============ ============
The accompanying notes are an integral part of these financial statements.
8
TouchVision, Inc.
Notes to Financial Statements
June 30, 2003
NOTE 1 - CORPORATE HISTORY
The Company was organized on July 5, 1995, under the laws of the state of
California as Eco Technology Solutions, Inc. On November 19, 1998, the
Company filed an amendment to the Articles of Incorporation changing it's
name to TouchVision, Inc. The Company is registered and qualified to do
business in the state of California.
TouchVision, Inc. (TVI) is a provider of technology-enabled information and
learning systems to healthcare providers, financial services companies and
other industry segments. TVI specialized in software systems that provide
end-users convenient, self-service access to information, transactions and
educational content through a variety of interactive devices such as touch-
screens, kiosks, computers, personal digital assistants, and other digital
communication devices. TVI's products are web-enabled and can be deployed
through various broadband and wireless networks.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
A. The Company uses the accrual method of accounting.
B. Revenue Recognition - The Company recognizes revenue once it is
realizable and earned. Revenue from sales of products and related
cost of products sold are recognized when persuasive evidence of an
arrangements exists, delivery has occurred, the seller's price is
fixed or determinable and collectibility is reasonably assured.
C. The Company considers all short term, highly liquid investments that
are readily convertible, within three months, to known amounts as cash
equivalents. The Company currently has no cash equivalents.
D. Primary Earnings Per Share amounts are based on the weighted average
number of shares outstanding at the dates of the financial statements.
Fully Diluted Earnings Per Shares shall be shown on stock options and
other convertible issues that may be exercised within ten years of the
financial statement dates.
E. Depreciation: The cost of property and equipment is depreciated over
the estimated useful lives of the related assets. The cost of
leasehold improvements is depreciated (amortized) over the lesser of
the length of the related assets or the estimated lives of the assets.
Depreciation is computed on the straight line method for reporting
purposes and for tax purposes.
F. Issuance of Subsidiary's Stock: The Company has elected to account for
shares issued by its subsidiary as an equity transaction.
G. Use of Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Continued
9
TouchVision, Inc.
Notes to Financial Statements
June 30, 2003
NOTE 3 - NEW TECHNICAL PRONOUNCEMENTS
In October 2002, SFAS Number 147 ("SFAS 147"), "Acquisitions of Certain
Financial Institutions an amendment of FASB Statement Numbers 72 and 144
and FASB Interpretation Number 9" was issued to be used in acquisitions of
financial institutions after October 1, 2002. It is anticipated that SFAS
No 147 will have no effect upon the Company's financial statements.
In December 2002, SFAS Number 148 ("SFAS 148"), "Accounting for Stock-Based
Compensation Transition and Disclosure an amendment of FASB Statement
Number 123" was issued for fiscal years beginning after December 15, 2003.
Adoption of SFAS 148 will not have an impact on the Company's financial
statements at June 30, 2003.
In April 2003, SFAS Number 149 ("SFAS 149"), "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities" was issued for fiscal
quarters that began prior to June 15, 2003. Adoption of SFAS 149 will have
no effect upon the Company's financial statements.
In May 2003, SFAS Number 150 ("SFAS 150"), "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity"
was issued for the first interim period beginning after June 15, 2003. It
is anticipated that SFAS 150 will have no effect upon the Company's
financial statements.
NOTE 4 - SHORT TERM BORROWINGS AND CREDIT LINES
The Company has available unsecured and committed operating lines of credit
with several entities, providing for borrowings in an aggregate amount of
$397,250 and $300,000 at June 30, 2003 and 2002, respectively. Interest,
payable monthly, is computed at rates that range from 5.58% to 11.5% for
the year ended June 30, 2003, and 6.25% to 6.88% for the year ended June
30, 2002. At June 30, 2003 and June 30, 2002, the lending institutions had
advanced the Company a total of $328,687 and $259,958, respectively. The
Company has also incurred, and paid interest in the amount of $19,259 and
$10,872, for the periods June 30, 2003 and 2002, respectively.
NOTE 5 - NOTES PAYABLE
The Company has the following notes payable obligations 2003 2002
------------ ------------
Note payable to corporation, due June 29, 2005, plus
interest payable annually at 6%. $ 25,000 $ -
Unsecured note payable to individual accruing interest
at 10% annually until July1, 2003, principal and
interest due monthly, thereafter until July 1, 2023. 50,000 50,000
Unsecured note payable to individual accruing interest
at 10% annually until July 1, 2003, principal and
interest due monthly, thereafter until July 1, 2023. 25,000 25,000
------------ ------------
Total 100,000 75,000
Less Current Maturities - -
------------ ------------
Total Notes Payables $ 100,000 $ 75,000
============ ============
Continued
10
TouchVision, Inc.
Notes to Financial Statements
June 30, 2003
NOTE 5 - NOTES PAYABLE (continued)
Following are maturities of long-term debt for each of the next five years;
Year Amount
2003 $ -
2004 -
2005 25,000
2006 -
2007 -
Thereafter 75,000
------------
Total $ 100,000
============
NOTE 6 - OPERATING LEASES
On June 19, 2001, the Company signed a lease agreement to occupy office
space in a multi-tenant business park. The Company pays $8,978 per month
for a 9,866 square foot facility. In addition to the monthly rent, the
Company is also responsible for common area charges at approximately $2,269
per month. The lease became effective December 1, 2001 and it expires on
November 30, 2006 at which point the Company has the option to renew. A
prepayment of rent of $11,247 was made and a security deposit of $33,742
was paid to the landlord to secure the premises. The office is located at
11095 Knott Avenue, Suite B, Cypress, California 90603.
On January 16, 2002, the Company amended its lease agreement with Warland
Investments Company to include relocating to a smaller office space. The
Company pays $5,385 per month for a 5,790 square foot facility. In
addition to the monthly rent, the Company is responsible for common area
charges at approximately $1,448 per month. The lease became effective
March 1, 2002 and it expires on February 28, 2005 at which point the
Company has the option to renew. On March 1, 2003, the base monthly rent
increased by 4% and will increase an additional 4% on March 1, 2004. A
prepayment of rent of $6,832 was made and a security deposit was paid to
the landlord to secure the premises. The office is located at 11095 Knott
Avenue, Suites D through G, Cypress, California 90630.
The Company has an operating lease with Balboa Capital Corporation for
computer equipment and office furniture. The lease commenced September
2000 and continues through September 2003. The lease payments are $1,758
per month.
The Company is leasing a copy machine from Toshiba Financial Services. The
monthly payments are $108 for a period of 36 months. The lease began in
June 2001. The Company has the option to purchase the copier at the end of
the lease term.
The Company has two leases with Graybar Financial Services for computer
equipment and a telephone system. The lease terms are fifty-five and sixty
months, respectively, commencing in January 2001. The monthly lease
payments are $137 and $906, respectively, with a purchase option at the
close of the term for both agreements.
Continued
11
TouchVision, Inc.
Notes to Financial Statements
June 30, 2003
NOTE 6 - OPERATING LEASES continued
The following is a schedule of future minimum payments under operating
leases as of June 30, 2003.
Periods Amount
------- ------------
2004 $ 118,355
2005 102,605
2006 72,173
2007 5,577
2008 -
------------
Total $ 298,710
============
Rent expense entering into the determination of net loss follows:
Year Ended June 30
2003 2002
------------ ------------
Minimum rent on operating leases $ 145,024 $ 141,787
------------ ------------
Total Rent Expense $ 145,024 $ 141,787
============ ============
NOTE 7 - DEPRECIATION
The Company capitalizes the purchase of equipment and fixtures for major
purchases in excess of $500 per item. Capitalized amounts are depreciated
over the useful life of the assets using the straight-line method of
depreciation.
Scheduled below are the assets, costs and accumulated depreciation at June
30, 2003 and 2002.
Depreciation Accumulated
Cost Expense Depreciation
------------------- ------------------- -------------------
Assets 2003 2002 2003 2002 2003 2002
------ --------- --------- --------- --------- --------- ---------
Computers & Electronics $ 64,373 $ 63,571 $ 8,563 $ 13,076 $ 63,692 $ 55,129
Furniture & Fixtures 16,605 16,605 2,782 1,159 5,791 3,009
Software 8,394 8,394 616 1,229 8,394 7,778
--------- --------- --------- --------- --------- ---------
Totals $ 89,373 $ 88,570 $ 11,961 $ 15,464 $ 77,877 $ 65,916
========= ========= ========= ========= ========= =========
Continued
12
TouchVision, Inc.
Notes to Financial Statements
June 30, 2003
NOTE 8 - INCOME TAXES
Income tax expense includes federal and state taxes currently payable and
deferred taxes arising from timing differences between income for
financial reporting and income tax purposes.
The Company has adopted Statement of Financial Accounting Standards Number
109 ("SFAS No. 109") "Accounting for Income Taxes." SFAS No. 109 requires
an asset and liability approach for financial accounting and reporting for
income tax purposes. This statement recognizes (a) the amount of taxes
payable or refundable for the current year and (b) deferred tax liabilities
and assets for future tax consequences of events that have been recognized
in the financial statements of tax returns.
Deferred income taxes result from temporary differences in the recognition
of accounting transactions for tax and financial reporting purposes. There
were no temporary differences at June 30, 2003 and earlier years;
accordingly no deferred tax liabilities have been recognized for all years.
The Company has cumulative net operating loss carryforwards of over
$1,040,000 at June 30, 2003 and $1,050,000 at June 30, 2002. No effect has
been shown in the financial statements for the net operating loss
carryforwards as the likelihood of future tax benefit from such net
operating loss carryforwards is not probable. Accordingly, the potential
tax benefits of the net operating loss carryforwards at June 30, 2003 and
June 30, 2002 have been offset by valuation reserves of the same amount.
Deferred Tax Asset: 2003 2002
------------------- ------------ ------------
Current Tax Asset Value of Net Operating Loss
Carryforwards at Current Prevailing Federal
Tax Rate $ 418,041 $ 420,609
Evaluation Allowance (418,041) (420,609)
------------ ------------
Net Tax Asset $ - $ -
============ ============
NOTE 9 - NET EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per common share (BEPS) is based on the weighted-
average number of common shares outstanding during each period. Diluted
earnings (loss) per common share is based on shares outstanding (computed
as under BEPS) and dilutive potential common shares. Shares from the
exercise of the outstanding options were not included in the computation of
diluted loss per share, because their inclusion would have been
antidilutive for the years ended June 30, 2003 and 2002.
Continued
13
TouchVision, Inc.
Notes to Financial Statements
June 30, 2003
NOTE 9 - NET EARNINGS (LOSS) PER SHARE continued
The following data shows the shares used in the computing loss per common
share including dilutive potential common stock;
2003 2002
------------ ------------
Common shares outstanding during the entire period. 11,970,400 11,970,400
Weighted-average shares paid for, but not issued during
the period. - -
------------ ------------
Weighted-average number of common shares used in basic EPS
dilutive effect of options. 11,970,400 11,970,400
============ ============
Weighted-average number of common shares and dilutive
potential common shares used in diluted EPS. 11,970,400 11,970,400
============ ============
Shares from the exercise of the outstanding options were not included in
the computation of diluted loss per share because their inclusion would
have been antidilutive for the years ended June 30, 2003 and 2002.
NOTE 10 - SUBSEQUENT EVENTS
On September 1, 2003, the Company completed a transaction with Trinity
Learning Corporation ("TLC"), (a Utah corporation) wherein the Company
received 1,250,000 shares of restricted TLC common stock in exchange for
all of the Company's issued and outstanding shares of common stock. In
addition, TLC has agreed to loan the Company $20,000 a month for the
twelve-month period following closing, to be used for working capital.
14
Trinity Learning Corporation
Unaudited Pro Forma Consolidated Financial Statements
June 30, 2003
Trinity Learning Corporation
Unaudited Pro Forma Consolidated Balance Sheet
June 30, 2003
-------------
Assets
------
Current Assets
Cash $ 268,460
Accounts Receivable 136,645
Interest Receivable 41
Employee Advances 54,370
Prepaid Expense 97,944
-------------
Total Current Assets 557,460
-------------
Property & Equipment (Note 3)
Furniture & Equipment 64,881
Accumulated Depreciation (7,824)
-------------
Net Property & Equipment 57,057
-------------
Intangible Asset (Note 4)
Technology-Based Asset 2,404,620
Accumulated Amortization (167,747)
-------------
Net Intangible Asset 2,236,873
Other Assets 129,768
-------------
Total Assets $ 2,981,158
=============
Liabilities and Stockholders' Equity
------------------------------------
Current Liabilities
Accounts Payable $ 592,777
Accrued Expenses 491,107
Deferred Revenue 168,577
Interest Payable 83,794
Line of Credit (Note 7) 328,688
Notes Payable Related Party (Notes 6 & 8) 2,147,151
-------------
Total Current Liabilities 3,812,094
-------------
Long Term Liabilities
Notes Payable (Note 8) 75,000
-------------
Total Long Term Liabilities 75,000
-------------
Total Liabilities 3,887,094
-------------
Stockholders' Equity
Preferred Stock, 10,000,000 Shares at No Par Value;
No Shares Issued and Outstanding -
Common Stock, 100,000,000 Shares Authorized at No Par Value,
16,206,641 shares and 49,774 shares Issued and Outstanding,
Respectively 10,318,447
Accumulated Deficit (11,188,913)
Subscription Receivable (35,000)
Other Comprehensive Income (470)
-------------
Total Stockholders' Equity (905,936)
-------------
Total Liabilities and Stockholders' Equity $ 2,981,158
=============
The accompanying notes are an integral part of these financial statements.
16
Trinity Learning Corporation
Consolidated Statement of Operations
June 30, 2003
-------------
Revenue
Sales Revenue $ 1,881,572
Cost of Sales (711,395)
-------------
Gross Profit 1,170,177
Expenses
Salaries & Benefits 1,744,673
Professional Fees 450,248
General & Administrative 312,108
Travel & Entertainment 182,593
Depreciation & Amortization 187,458
Rent 189,548
Office Expense 59,050
-------------
Total Expense 3,125,678
-------------
Income (Loss) from Operations (1,955,501)
-------------
Other Income (Expense)
Interest Income (528)
Interest Expense (105,043)
Foreign Currency Gain / (Loss) (4,582)
-------------
Total Other Income (Expense) (110,153)
-------------
Income (Loss) Before Taxes (2,065,654)
Taxes -
-------------
Net Income (Loss) $ (2,065,654)
=============
Net Loss Per Common Share $ (0.21)
=============
Weighted Average Shares Outstanding 9,614,218
=============
A summary of the components of other comprehensive income for the
transition period from October 1, 2002 to June 30, 2003 is as follows:
June 30, 2003
Before After
Tax Amount Tax Amount
------------ ------------
Net Income (Loss) $ (2,065,654) $ (2,065,654)
Foreign currency translation (470) (470)
------------ ------------
Total Other Comprehensive Income $ (2,066,124) $(2,066,124)
============ ============
The accompanying notes are an integral part of these financial statements.
17
Trinity Learning Corporation
Notes to the Financial Statements
June 30, 2003
NOTE 1 - Corporate History
Trinity Learning Corporation ("Trinity," "the Company" or "we") was
incorporated on April 14, 1975 in Oklahoma under the name U.S. Mineral &
Royalty Corp. as an oil and gas exploration, development and operating
company. In 1989, the Company changed its name to Habersham Energy
Company. Historically, the Company was engaged in the business of
acquiring and producing oil and gas properties, but did not have any
business activity from 1995 to 2002. Pursuant to its reorganization in
2002, the Company changed its domicile to Utah, amended its capital
structure and changed its name to Trinity Companies Inc., then, in March
2003, to Trinity Learning Corporation. Until adoption of its recent
operating strategy in 2002, the Company had not had any business activity
since 1995.
Pursuant to a series of related transactions that closed on October 1,
2002, ("the Acquisition Date") the Company issued 3,000,000 restricted
shares of its common stock, issued $1,000,000 in convertible promissory
notes and assumed $222,151 in indebtedness to acquire Competency Based
Learning, Inc. (CBL-California), a California corporation and two related
Australian companies, Competency Based Learning, Pty. Ltd. ACN 084 763 780
("CBL-Australia") and ACN 082 126 501 Pty. Ltd. (collectively referred to
as "CBL"). The transactions were effected through CBL Global Corp. ("CBL
Global"), a wholly-owned subsidiary.
On June 16, 2003, we completed a recapitalization of our common stock by
(i) effecting a reverse split of our outstanding common stock on the basis
of one share for each 250 shares owned, with each resulting fractional
share being rounded up to the nearest whole share, and (ii) subsequently
effecting a forward split by dividend to all shareholders of record, pro
rata, on the basis of 250 shares for each one share owned. The record
date for the reverse and forward splits was June 4, 2003. Immediately
prior to the recapitalization, we had 13,419,774 shares of common stock
outstanding. Following the recapitalization and the cancellation of
108,226 shares of common stock beneficially owned by members of management,
we had 13,419,774 shares of common stock outstanding.
On August 6, 2003, our board of directors approved a change in our fiscal
year-end from September 30 to June 30 to align with those of the companies
we had already acquired or were at that time in the process of acquiring.
The information presented in this transition report on Form 10-KSB relates
to the period October 1, 2002 through June 30, 2003.
On September 1, 2003, we completed the acquisition of all of the issued and
outstanding shares of TouchVision, a California corporation that is in the
business of providing technology-enabled information and learning systems
to healthcare providers, financial services companies and other industry
segments. In consideration for the TouchVision shares, we issued an
aggregate of 1,250,000 restricted shares of our common stock, of which
312,500 shares are subject to the terms of an escrow agreement as
collateral for the indemnification obligations of the former TouchVision
shareholders. We also agreed to loan to TouchVision the sum of $20,000 per
month for the twelve-month period following closing, to be used for working
capital. We had previously loaned TouchVision the sum of $50,000 in June,
2003 by way of bridge financing pending completion of the acquisition. In
connection with the acquisition, TouchVision entered into substantially
similar employment agreements with each of Messrs. Gregory L. Roche and
Larry J. Mahar, the former principals of TouchVision, which have a term of
two years and provide for annual salaries of $120,000. In conjunction with
the acquisition of TouchVision, we issued 735,000 stock options pursuant to
the 2002 Stock Plan at $0.50 per share.
18
NOTE 2 - Significant Accounting Policies
A. Method of Accounting. The Company uses the accrual method of
accounting.
B. Revenue Recognition - The Company recognizes revenue once it is
realizable and earned. Revenue from sales of products and related
cost of products sold are recognized when persuasive evidence of an
arrangements exists, delivery has occurred, the seller's price is
fixed or determinable and collectibility is reasonably assured.
C. Cash and Cash Equivalents. The Company considers all short-term,
highly liquid investments that are readily convertible within three
months to known amounts, as cash equivalents.
D. Depreciation and Amortization. The cost of property and equipment is
depreciated over the estimated useful lives of the related assets.
The cost of leasehold improvements is amortized over the lesser of the
length of the lease of the related assets or the estimated lives of
the assets. Depreciation and amortization is computed on the
straight-line method.
E. Use of Estimates. The preparation of the financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
F. Consolidation Policies. The accompanying consolidated financial
statements include the accounts of the Company and its wholly owned
subsidiaries. Intercompany transactions and balances have been
eliminated in consolidation.
G. Foreign Currency Translation/Remeasurement Policy. Assets and
liabilities that occur in foreign currencies are recorded at
historical cost and translated at exchange rates in effect at the end
of the reporting period. Statement of Operations accounts are
translated at the average exchange rates for the year. Translation
gains and losses are recorded as Other Comprehensive Income in the
Equity section of the Balance Sheet.
H. Purchase Accounting. The purchase value of fixed assets purchased in
the acquisition of CBL and TouchVision were determined based on their
historical value less accumulated depreciation. All other assets were
valued at their current value and a technology-based intangible asset
was recorded.
I. Primary Earnings Per Share Amounts are based on the weighted number
of shares outstanding at the dates of the financial statements. Fully
Diluted Earnings Per Share shall be shown on stock option and other
convertible issues that may be exercised within the next ten years.
NOTE 3 - Fixed Assets
The Company capitalizes furniture and equipment purchases in excess of
$5,000 or at lower amounts based on local jurisdiction. Capitalized
amounts are depreciated over the useful life of the assets using the
straight-line method of depreciation. Scheduled below are the assets,
cost, depreciation expense, and accumulated depreciation at June 30, 2003
and September 30, 2002.
Accumulated
Asset Cost Depreciation Expense Depreciation
06/30/2003 09/30/2002 06/30/2003 09/30/2002 06/30/2003 09/30/2002
---------- ---------- ---------- ---------- ---------- ----------
Furniture &
Equipment $ 64,881 $ 6,151 $ 7,750 $ 80 $ 7,824 $ 80
19
NOTE 4 Technology-Based Intangible Assets
The Company capitalized technology-based intangible assets in its
acquisition of CBL and TouchVision. The amount capitalized is equal to the
difference between the consideration paid for the subsidiaries including
any liabilities assumed and the value of the other assets acquired. Other
assets were valued at the current value at the date of the acquisition
including the net value of fixed assets, historical price less accumulated
depreciation. The technology-based intangible assets are being amortized
over a five-year period using the straight-line method. The value assigned
to the technology-based intangible assets are considered appropriate based
on average annual revenues earned from licensing of these asset over the
two year period prior to the acquisitions and the expectation that future
revenues for the five year period subsequent to the acquisition will equal
or exceed these amounts. Scheduled below is the total asset cost,
amortization expense and accumulated amortization at June 30, 2003.
Accumulated
Asset Cost Amortization Expense Amortization
06/30/2003 09/30/2002 06/30/2003 09/30/2002 06/30/2003 09/30/2002
----------- ---------- ---------- ---------- ---------- ----------
Intangible Asset $ 2,404,620 $ - $ 167,747 $ - $ 167,747 $-
NOTE 5 - Operating Leases
In July 2003, the Company signed a lease agreement for new office space at
1831 Second Street in Berkeley, California. The lease term commenced
September 1, 2003 and will expire on May 31, 2004. The Company will pay a
minimum of $5,025 per month. The Company paid $10,050 upon the execution
of the lease that includes $5,025 security deposit that may be refunded at
the end of the lease.
CBL-Australia leases contiguous office space pursuant to two separate lease
agreements for its operations located in Queensland, Australia. The term
of the first lease expires in January 2004 with a three year option to
renew. The monthly rental amount of that lease is $2,471. The term of the
second lease expires in January 2007 with a three year option to renew.
The monthly rental amount of that lease is $2,140. CBL-Australia also
leases a car for use by Brian Kennedy, its chief executive officer. The
lease expires in October 2005; the monthly rental amount is $338.
On June 19, 2001, TouchVision signed a lease agreement to occupy office
space in a multi-tenant business park. TouchVision pays $8,978 per month
for a 9,866 square foot facility. In addition to the monthly rent,
TouchVision is also responsible for common area charges at approximately
$2,269 per month. The lease became effective December 1, 2001 and it
expires on November 30, 2006 at which point TouchVision has the option to
renew. A prepayment of rent of $11,247 was made and a security deposit of
$33,742 was paid to the landlord to secure the premises. The office is
located in Cypress, California.
On January 16, 2002, TouchVision amended its lease agreement with Warland
Investments Company to include relocating to a smaller office space.
TouchVision pays $5,385 per month for a 5,790 square foot facility. In
addition to the monthly rent, TouchVision is responsible for common area
charges at approximately $1,448 per month. The lease became effective
March 1, 2002 and it expires on February 28, 2005 at which point
TouchVision has the option to renew. On March 1, 2003, the base monthly
rent increased by 4% and will increase an additional 4% on March 1, 2004.
A prepayment of rent of $6,832 was made and a security deposit was paid to
the landlord to secure the premises. The office is located at 11095 Knott
Avenue, Suites D through G, Cypress, California 90630.
20
TouchVision has an operating lease with Balboa Capital Corporation for
computer equipment and office furniture. The lease commenced September
2000 and continues through September 2003. The lease payments are $1,758
per month.
TouchVision is leasing a copy machine from Toshiba Financial Services. The
monthly payments are $108 for a period of 36 months. The lease began in
June 2001. The Company has the option to purchase the copier at the end of
the lease term.
TouchVision has two leases with Graybar Financial Services for computer
equipment and a telephone system. The lease terms are fifty-five and sixty
months, respectively, commencing in January 2001. The monthly lease
payments are $137 and $906, respectively, with a purchase option at the
close of the term for both agreements.
Total Minimum Lease Commitments as of June 30, 2003:
Calendar Year Amount
------------- ------------
2003 $ 101,211
2004 151,084
2005 57,398
2006 41,438
Thereafter 2,477
------------
Total $ 353,608
============
NOTE 6 Related Party Transactions
As of July 15, 2002, Trinity entered in a two-year Advisory Agreement with
Kings Peak Advisors, LLC ("KPA") with automatic renewal for a 12-month
period. Under the terms of the Advisory Agreement, KPA will provide the
Company with general corporate, financial, business development and
investment advisory services on a non-exclusive basis. These services
include assisting with the identification of placement agents,
underwriters, lenders and other sources of financing, as well as additional
qualified independent directors and members of management. KPA is a
private company whose principals are Douglas Cole and Edward Mooney, who
are officers and directors of Trinity, and Mr. Theodore Swindells.
The Advisory Agreement provides that KPA will be compensated for its
various advisory services as follows: (i) for general corporate advisory
services, an initial retainer of $25,000 and a fee of $20,000 per month
throughout the term of the agreement, which monthly fee amount is payable,
at KPA's option, in shares of common stock at a price per share equal to
$0.025; (ii) for financial advisory services, a fee based on 10% of the
gross proceeds of any equity financings and/or 1.5% of any gross proceeds
of debt financings that are completed by underwriters or placement agents
introduced by KPA, as well as any fees which may be due to KPA for its
assistance in identifying prospective investors pursuant to terms and
conditions of offering memoranda issued by the Company; (iii) for merger
and acquisition services involving a transaction resulting from a contact
provided by KPA, a sliding fee based on a percentage of the value of the
transaction, subject to an additional $100,000 bonus in the event the
transaction is valued at $3,000,000 or more; (iv) in respect of general
business development advisory services, a fee to be negotiated with KPA
based upon certain agreed-upon fee parameters between the parties; and (v)
in respect of debt, credit or leasing facilities, a fee to be negotiated on
a case-by-case basis.
21
Trinity acknowledged that it was indebted to KPA for prior services
rendered since April 1, 2002 in the amount of $30,000, up to 50% of which
amount is payable, at KPA's option, in shares of common stock at a price
per share of $0.025. The total number of shares of common stock issuable
to KPA under the Advisory Agreement may not exceed 4,400,000 shares.
Through June 30, 2003, KPA had earned a total of $285,000 under the
Advisory Agreement, $110,000 of which was converted into 4,400,000 shares
of common stock in March 2003. Of the balance of $175,000, $134,132 has
been paid to KPA, leaving a balance owing at June 30, 2003 of $40,868.
As of August 8, 2002, Trinity formalized a Debt Conversion Agreement with
Global Marketing Associates, Inc. ("GMA"), holder of a convertible
promissory note (the "GMA Note") in the principal amount of $166,963,
pursuant to which the principal amount of the note, along with accrued
interest thereon, was made convertible, under certain conditions, into
3,200,000 shares of common stock. The GMA Note was originally issued in
November 2000 to the Company's former attorneys and was subsequently
acquired by Pacific Management Services, Inc., who assigned the note to
GMA; both entities are unrelated to Trinity. GMA subsequently assigned the
right to acquire 2,600,000 of the 3,200,000 shares of common stock into
which the note is convertible, to several persons, including Messrs. Cole,
Mooney and Swindells. Pursuant to the assignment, Messrs. Cole and Mooney
each acquired the right to acquire 600,000 shares of the common stock into
which the GMA Note is convertible and Mr. Swindells acquired the right to
acquire 1,000,000 shares. Fifty percent of the shares issuable upon the
conversion of the GMA Note are subject to a two-year lock-up provision that
restricts transfer of such shares without prior written consent of
Trinity's board of directors. As of January 2003, 3,200,000 shares of our
common stock had been issued pursuant to the terms of the GMA Note.
Pursuant to the acquisition of CBL on October 1, 2002 described in Note 1
above, we issued to shareholders of CBL two convertible promissory notes in
the amounts of $485,000 and $515,000. The notes accrue interest at 7% per
annum and are considered due and payable upon the earlier of September 1,
2004 or the date, upon which we close an equity financing, the net proceeds
of which, together with the net proceeds of all equity financing conducted
by the Company after the Acquisition Date, equal or exceeds $10,000,000.
The conversion price on the notes is $2.00 per share of common stock. At
June 30, 2003, accrued interest totaled $52,356.
At the Acquisition Date, we issued two unsecured promissory notes in the
amount of $222,151 to cancel three unsecured promissory notes previously
issued by CBL-Australia and CBL-California to its shareholders, Messrs.
Scammell and Kennedy. The notes accrue interest at 7% per annum and are
considered due and payable upon the earlier of the September 1, 2003 or the
date, upon which the company closes an equity financing, the net proceeds
of which, together with the net proceeds of all equity financing conducted
by us after the Acquisition Date, equal or exceeds $3,000,000. At June 30,
2003, accrued interest totaled $11,631. The notes were due and payable on
September 1, 2003 for which the payment has not been made pending the
outcome of a lawsuit filed against Messrs. Scammell and Kennedy, see Note
14, Subsequent Events.
Concurrent with its acquisition of CBL, Trinity (i) issued promissory notes
to certain individuals and entities for a total principal amount of
$500,000 ("Bridge Financing Amount"), such notes ("Bridge Financing Notes")
are convertible under certain conditions into shares of common stock, and
(ii) in connection with the issuance of the Bridge Financing Notes, issued
warrants ("Bridge Financing Warrants") to the holders of the Notes to
purchase additional shares of Common Stock. Of the Bridge Financing
Amount, $55,000 was advanced by KPA and $120,000 by Mr. Swindells.
22
The Bridge Financing Notes bear interest at a rate of 9% per annum and are
due one year from the date of the respective notes, unless automatically
converted upon the closing by the Company of an equity financing consisting
of at least 500,000 shares of common stock. On May 19, 2003, the principal
amount of $500,000 and accrued interest of $34,745 on the respective notes
were converted into 1,336,867 shares of common stock at $0.40 per share.
The Bridge Financing Warrants are exercisable for a period of one year at a
price of $0.05 per share, and contain a net issuance provision whereby the
holders may elect a cashless exercise of such warrants based on the fair
market value of the common stock at the time of conversion.
From time to time, since inception of our current operating strategy, Mr.
Swindells has provided short-term working capital loans on a non-interest
bearing basis. During our previous fiscal year, we were advanced $145,000
by Mr. Theodore Swindells, and during the transition period from October 1,
2002 to June 30, 2003, we were advanced an additional $780,000 by Mr.
Swindells. The principal may be converted into such other debt or equity
securities financings that we may issue in private offerings while the loan
is outstanding. In September 2003, we repaid $500,000 on the $925,000 note
balance then outstanding.
NOTE 7 - Short Term Borrowings and Credit Lines
TouchVision has available unsecured and committed operating lines of credit
with several entities, providing for borrowings in an aggregate amount of
$397,250 and $300,000 at June 30, 2003 and 2002, respectively. Interest,
payable monthly, is computed at rates that range from 5.58% to 11.5% for
the year ended June 30, 2003, and 6.25% to 6.88% for the year ended June
30, 2002. At June 30, 2003 and June 30, 2002, the lending institutions had
advanced TouchVision a total of $328,687 and $259,958, respectively.
TouchVision has also incurred, and paid interest in the amount of $19,259
and $10,872, for the years ended June 30, 2003 and 2002, respectively.
NOTE 8 - Notes Payable
At June 30, 2003, notes payable to accredited investors and related parties
totaled $2,147,151 as compared with $811,963 at September 30, 2002. The
notes bear interest between the rates of 0% and 10.0% per annum, some of
which are secured by our common stock or certain assets in our
subsidiaries. Certain notes are convertible into the Company's common
stock.
The Company has the following notes payable obligations: June September
30, 2003 30, 2002
------------ -----------
Convertible Bridge Financing notes payable to investors
due between June 15, 2003 and September 15, 2003 plus
accrued interest at a rate of 9% per annum. On May 19,
2003, $445,000 was converted to common stock, see Note 7. $ - $ 445,000
Unsecured convertible notes payable due on December 1,
2003, see Note 7. 925,000 145,000
Unsecured convertible notes payable convertible after
August 2002 plus accrued interest at a rate of 6% per
annum. As of January 2003, $104,352 was converted to
common stock, see Note 7. - 104,352
Unsecured convertible notes payable to related parties
convertible after August 2002 plus accrued interest at
a rate of 6% per annum. As of January 2003, $62,611 was
converted common stock, see Note 7. - 62,611
Unsecured Notes Payable to unrelated individuals accruing
interest at 10% per annum until July 1, 2003, principal
and interest due monthly thereafter until July 2023. 75,000 75,000
Convertible Bridge Financing notes payable to related
parties due between June 15, 2003 and September 15,
2003, plus accrued interest at a rate of 9% per annum.
On May 19, 2003, $55,000 was converted to common stock,
see Note 7. - 55,000
Unsecured notes payable to related parties, see Note 7
for due date, interest payable interest at a rate of 7%
per annum. 222,151 -
Convertible notes payable to related parties, see Note 7
for due date, plus accrued interest at a rate of 7% per
annum. 1,000,000 -
------------ -----------
Total Notes Payable 2,222,151 886,963
Less: Current Maturities (2,147,151) (811,963)
------------ -----------
Long Term Notes Payable 75,000 75,000
============ ===========
Following are maturities of long-term debt for each of the next five years:
Year Amount
-------- ------------
2003 $ -
2004 -
2005 25,000
2006 -
2007 -
Thereafter 75,000
------------
Total $ 100,000
============
NOTE 9 - Stockholders' Equity
On February 5, 2002, the Company effected a one hundred for one (100 for 1)
reverse split. No shareholder was reversed below 100 shares. Shareholders
with 100 shares or less, prior to the reverse, were not affected.
On May 5, 2002, the Company amended its Articles of Incorporation to
reflect a change in par value from $0.10 per share to no par value per
share. Accordingly, this change effecting the common stock and additional
paid in capital values has been retroactively applied to all prior years.
On October 1, 2002, the Company issued a total of 3,000,000 shares of
common stock in conjunction with its acquisition of CBL-Australia and CBL-
California at $0.025 per share. Accordingly, $75,000 has been charged to
common stock to reflect the total cost of the shares.
On October 1, 2002, the Company authorized a Stock Purchase Agreement in
order to retain qualified directors and officers. The Stock Purchase
Agreement allows various directors to purchase an aggregate of 1,200,000
shares of the Company's common stock at a price of $0.025 per share. The
purchase price shall be payable by each Purchaser in the form of the
cancellation of the Company's obligation to pay the various Purchasers a
total of $30,000 as compensation for services already performed by
Purchaser for the Company.
24
On October 2, 2002, the Company issued 1,070,000 shares of common stock in
settlement of outstanding amounts due for services rendered to the Company.
These shares were issued at $0.025 per share totaling $26,750.
On October 21, 2002, the Company adopted and approved the "2002 Stock Plan"
which was approved by the Company's shareholders at its special shareholder
meeting on December 2, 2002. The Plan authorizes issuance of 3,000,000
shares to be increased by 500,000 shares annually. The plan expires in ten
years. As of June 30, 2003, 2,447,000 options have been granted at prices
ranging from $0.05 per share to $0.50 per share of which 963,625 were
vested as of June 30, 2003.
During the period November 15, 2002 to January 21, 2003, we issued
3,200,000 shares in exchange for $166,953, respectively of unsecured notes
payable. The original amount of the note was $166,963 (See Notes 7 and 8).
Between January and April 2003, we received subscriptions to our December
2002 Private Placement Memorandum totaling $250,000 from outside investors
to purchase 250,000 units at a price of $1.00 per unit. Each unit entitles
the holder to two shares of our common stock and two three year warrants,
each to purchase an additional share of common stock for $1.00 per share.
If all warrants are fully exercised by the holder of such warrants, a bonus
warrant will be issued entitling the holder to purchase one additional
share of common stock for $2.00.
On March 20, 2003, we issued 4,400,000 shares of common stock in settlement
of $110,000 of amounts due to Kings Peak Advisory, LLC (see Note 7).
On May 19, 2003, we issued 1,250,000 and 86,867 shares of the common stock
in exchange for the total principal Bridge Financing Notes of $500,000 and
the accrued interest payable on such notes of $34,745, respectively (see
Note 7).
On June 16, 2003, we completed a recapitalization of its common stock by
effecting a reverse split of its outstanding common stock on the basis of
one share for each 250 shares owned, with each resulting fractional share
being rounded up to the nearest whole share, and subsequently effecting a
forward split by dividend to all shareholders of record, pro rata, on the
basis of 250 shares for each one share owned. Immediately prior to the
recapitalization, we had 13,419,774 shares of common stock outstanding.
Following the recapitalization and the cancellation of 108,226 shares of
common stock beneficially owned by members of management, the Company had
13,419,774 shares of common stock outstanding.
Between June and October 2003, we received subscriptions to our May 2003
Private Placement Memorandum ("May 2003 PPM") totaling $5,143,300 from
outside investors to purchase 5,143,300 units at a price of $1.00 per unit.
Each unit entitles the holder to two shares of our common stock and two
three year warrants, each to purchase an additional share of common stock
for $1.00 per share. If all warrants are fully exercised by the holder of
such warrants, a bonus warrant will be issued entitling the holder to
purchase one additional share of common stock for $2.00. In connection
with the May 2003 Private Placement, we issued to various financial
advisors, 567,160 additional shares of our common stock and five-year
warrants to purchase 207,050 shares of our common stock.
On September 1, 2003, we completed the acquisition of all of the issued and
outstanding shares of River Murray Training Pty Ltd ("RMT") an Australian
company that is in the business of providing workplace training programs
for various segments of the food production industry, including viticulture
and horticulture. In consideration for the shares of RMT we issued 700,000
restricted shares of our common stock, of which 350,000 shares are subject
to the terms of an escrow agreement as collateral for the indemnification
obligations of the former RMT shareholders.
25
NOTE 10 Stock Option Plan
On December 2, 2002, at a special meeting of our shareholders, the 2002
Stock Plan was approved. The maximum aggregate number of shares that may
be optioned and sold under the plan is the total of (a) 3,000,000 shares,
(b) an annual 500,000 increase to be added on the last day of each fiscal
year beginning in 2003 unless a lesser amount is determined by the board of
directors. The plan became effective with its adoption and remains in
effect for ten years unless terminated earlier. Options granted under the
plan vest 25% on the day of the grant and the remaining 75% vests monthly
over the next 36 months. The following schedule summarizes the activity
during the nine-month transition period ended June 30, 2003.
2002 STOCK PLAN
--------------------------
Weighted
Average
Number of Exercise
Shares Price
------------ ------------
Outstanding at October 1, 2002 - $ -
Options Granted 2,447,000 $ 0.23
Options Exercised - -
Options Canceled - -
------------ ------------
Options Outstanding at June 30, 2003 2,447,000 $ 0.23
============ ============
Options Exercisable at June 30, 2003 963,625 $ 0.22
============ ============
In accordance with Statement of Financial Accounting Standards Number 123,
"Accounting for Stock-Based Compensation", option expense of $76,774 was
recognized for the nine-month transition period ended June 30, 2003.
June 30, 2003
-------------
Five-Year Risk Free Interest Rate 3.01%
Dividend Yield nil
Volatility nil
Average Expected Term (Years to Exercise) 4.4
Stock options outstanding and exercisable under 2002 Stock Plan as of June
30, 2003 are as follows:
Average
Weighted Remaining Weighted
Range of Number of Average Contractual Number of Average
Exercise Options Exercise Life Options Exercise
Price Granted Price (Years) Vested Price
----------- ----------- ----------- ----------- ----------- -----------
$0.05 600,000 $0.05 4.3 262,500 $0.05
$0.25 1,589,000 $0.25 4.3 624,813 $0.25
$0.50 258,000 $0.50 4.6 76,313 $0.50
26
NOTE 11 - Income Taxes
Income tax expense includes federal and state taxes currently payable and
deferred taxes arising from timing differences between income for financial
reporting and income tax purposes.
The Company has adopted Statement of Financial Accounting Standards Number
109 ("SFAS No. 109") "Accounting for Income Taxes." SFAS No. 109 requires
an asset and liability approach for financial accounting and reporting for
income tax purposes. This statement recognizes (a) the amount of taxes
payable or refundable for the current year and (b) deferred tax liabilities
and assets for future tax consequences of events that have been recognized
in the financial statements or tax returns.
Deferred income taxes result from temporary differences in the recognition
of accounting transactions for tax and financial reporting purposes.
There were no temporary differences at June 30, 2003 and earlier years;
accordingly, no deferred tax liabilities have been recognized for all
years.
The Company has cumulative net operating loss carryforwards of over
$12,100,000 at June 30, 2003 and $9,100,000 at September 30, 2002. No
effect has been shown in the financial statements for the net operating
loss carryforwards as the likelihood of future tax benefit from such net
operating loss carryforwards is not probable. Accordingly, the potential
tax benefits of the net operating loss carryforwards at June 30, 2003 and
September 30, 2002 have been offset by valuation reserves of the same
amount.
Deferred tax assets and the valuation account at June 30, 2003 and at
September 30, 2002 are as follows:
June September
Deferred Tax Asset 30, 2003 30, 2002
------------ ------------
Net Operating Loss Carryforwards $ 5,000,000 $ 3,800,000
Valuation Allowance (5,000,000) (3,800,000)
------------ ------------
Total $ - $ -
============ ============
NOTE 12 - Net Earnings (Loss) Per Share
Basic earnings (loss) per common share ("BEPS") are based on the weighted-
average number of common shares outstanding during each period. Diluted
earnings (loss) per common share ("DEPS") are based on shares outstanding
(computed under BEPS) plus dilutive potential common shares. Shares from
the exercise of the outstanding options were not included in the
computation of DEPS, because their inclusion would have been antidilutive
for the nine months ended June 30, 2003.
27
The following data shows the shares used in the computing loss per common
share including dilutive potential common stock at June 30, 2003:
Amount
------------
Common shares outstanding including 1,250,000 shares issued
to TouchVision shareholders at June 30, 2003. 16,206,641
============
Weighted-average number of common shares including 1,250,000
shares issued to TouchVision shareholders used in basic EPS
dilutive effect of options. 9,614,218
============
Weighted-average number of common shares and dilutive
potential common shares including 1,250,000 shares issued to
TouchVision shareholders used in diluted EPS. 9,614,218
============
NOTE 13 - Going Concern
Our financial statements are prepared using generally accepted accounting
principles applicable to a going concern, which contemplates the
realization of assets and liquidation of liabilities in the normal course
of business. Currently, we do not have significant cash or other material
assets, nor do we have an established source of revenues sufficient to
cover our operating costs and to allow us to continue as a going concern.
We do not currently possess a financial institution source of financing and
we cannot be certain that our existing sources of cash will be adequate to
meet our liquidity requirements. However, we have undertaken the following
to meet our liquidity requirements:
(a) Seek additional equity funding through private placements to raise
sufficient funds to continue operations and fund its ongoing
development, merger and acquisition activities. In May 2003, we
commenced a $5,000,000 private placement, the proceeds of which will
be used for (i) corporate administration, (ii) the expansion of
subsidiary operations, and (iii) expenses and funds advanced for
acquisitions in 2003. In conjunction with the private placement, we
have engaged various financial advisory firms and other finders to
identify prospective investors. We completed the private offering on
October 31, 2003.
(b) Continue conversion of certain outstanding loans and payables into
common stock in order to reduce future cash obligations;
(c) Generate sufficient cash flow to sustain and grow subsidiary
operations and, if possible, create excess cash flow for corporate
administrative expenses through our operating subsidiaries; and
(d) Identify prospective acquisition targets with sufficient cash flow to
fund subsidiary operations, as well as potentially generating
operating cash flow that may sustain corporate administrative
expenses.
Trinity's future capital requirements will depend on its ability to
successfully implement these initiatives and other factors, including our
ability to maintain our existing customer base and to expand our customer
base into new geographic markets, and overall financial market conditions
in the United States and other countries where we will seek prospective
investors.
28
NOTE 14 - New Technical Pronouncements
In October 2002, Statement of Financial Accounting Standards Number 147
("SFAS 147"), "Acquisitions of Certain Financial Institutions an
amendment of FASB Statements No. 72 and 144 and FASB Interpretation No. 9"
was issued to be used in acquisitions of financial institutions after
October 1, 2002. It is anticipated that SFAS 147 will have no effect upon
the Company's financial statements.
In December 2002, Statement of Financial Accounting Standards Number 148
("SFAS 148"), "Accounting for Stock-Based Compensation Transition and
Disclosure an amendment of FASB Statement No. 123" was issued for fiscal
years beginning after December 15, 2003. It is anticipated that SFAS 148
will have no effect upon the Company's financial statements.
In April 2003, Statement of Financial Accounting Standards Number 149
("SFAS 149"), "Amendment of Statement 133 on Derivative Instruments and
Hedging Activities" was issued for fiscal quarters that began prior to June
15, 2003. Adoption of SFAS 149 will have no effect upon the Company's
financial statements.
In May 2003, Statement of Financial Accounting Standards Number 150 ("SFAS
150"), "Accounting for Certain Financial Instruments with Characteristics
of Both Liabilities and Equity" was issued for the first interim period
beginning after June 15, 2003. The Company anticipates that SFAS 150 may
impact the accounting for certain future acquisitions and the anticipated
distribution of stock for services.
NOTE 15 - Subsequent Events
On July 8, 2003, we issued a five-year warrant to Merriman, Curran, Ford &
Co. a financial service company, to purchase up to 20,000 shares of our
common stock for a period of five years at $0.50 per share in consideration
for financial advisory services provided to us by the firm.
On September 1, 2003, we completed the acquisition of all of the issued and
outstanding shares of TouchVision, a California corporation that is in the
business of providing technology-enabled information and learning systems
to healthcare providers, financial services companies and other industry
segments. In consideration for the TouchVision shares, we issued an
aggregate of 1,250,000 restricted shares of our common stock, of which
312,500 shares are subject to the terms of an escrow agreement as
collateral for the indemnification obligations of the former TouchVision
shareholders. We also agreed to loan to TouchVision the sum of $20,000 per
month for the twelve-month period following closing, to be used for working
capital. We had previously loaned TouchVision the sum of $50,000 in June,
2003 by way of bridge financing pending completion of the acquisition. In
connection with the acquisition, TouchVision entered into substantially
similar employment agreements with each of Messrs. Gregory L. Roche and
Larry J. Mahar, the former principals of TouchVision, which have a term of
two years and provide for annual salaries of $120,000. In conjunction with
the acquisition of TouchVision, we issued 735,000 stock options pursuant to
the 2002 Stock Plan at $0.50 per share.
On September 1, 2003, we completed the acquisition of all of the issued and
outstanding shares of River Murray Training Pty Ltd ("RMT") an Australian
company that is in the business of providing workplace training programs
for various segments of the food production industry, including viticulture
and horticulture. In consideration for the shares of RMT we issued 700,000
restricted shares of our common stock, of which 350,000 shares are subject
to the terms of an escrow agreement as collateral for the indemnification
obligations of the former RMT shareholders. We also loaned US$49,000 to
RMT for the purpose of repaying outstanding loans advanced to RMT by its
former shareholders.
29
On September 1, 2003, we completed the acquisition of 51% of the issued and
outstanding shares of Ayrshire Trading Limited, a British Virgin Islands
company ("Ayrshire") that owns 95% of Riverbend Group Holdings
(Proprietary) Limited ("Riverbend"), a South African company that provides
learning services to corporations and individuals in South Africa. We also
acquired the option to purchase the remaining 49% of Ayrshire. In
consideration for the Ayrshire shares, we issued a convertible non-
interest-bearing promissory note in the amount of $20,000, which amount is
convertible from time to time but no later than December 30, 2006 into a
maximum of 2,000,000 shares of our common stock. Of these shares, up to
400,000 may be withheld in satisfaction for any breach of warranties by the
former shareholders of Ayrshire. The Ayrshire shares are subject to escrow
and pledge agreements will be reconveyed to the former shareholders in the
event of a default by us of certain terms and conditions of the acquisition
agreements, including, among other things, a voluntary or involuntary
bankruptcy proceeding involving us or the failure by us to list our shares
of common stock on a major stock exchange by December 30, 2006.
As further consideration for the Ayrshire shares, we agreed to make a non-
interest-bearing loan of $1,000,000 to Ayrshire, $300,000 of which was
advanced at closing and $700,000 was advanced On November 3, 2003. We may
exercise an option to acquire the remaining 49% of Ayrshire in
consideration for the issuance of 1,500,000 shares of our common stock,
subject to certain adjustments.
During the period June 1, 2003 to October 31, 2003, we sold by way of
private placement an aggregate of 5,143,300 units at a price of $1.00 per
unit, for aggregate consideration of $5,143,300. Each unit comprised two
shares of our common stock and two warrants, each exercisable for one
additional share of our common stock. In addition, each unit carried the
right to acquire an additional warrant to purchase, under certain
conditions, up to one additional share of common stock. In connection with
the private placement, we paid $448,105 in commissions and issued to
various financial advisors, 567,160 additional shares of our common stock
and five-year warrants to purchase 207,050 shares of our common stock. In
our opinion, the offer and sale of these securities was exempt by virtue
of Section 4(2) of the Securities Act and the rules promulgated
thereunder.
On September 12, 2003, we filed a Complaint in the United States District
Court for the District of Utah, Central Division, against CBL Global
Corporation (f/k/a CBL Acquisition Corporation), and Robert Stephen
Scammell, the sole shareholder of CBL-California, (Case No. 2:03CV00798DAK)
alleging, among other things, that Scammell and CBL-California provided us
with misstated financial statements prior to our merger in October 2002
with CBL-California and CBL Global. On September 18, 2003, we filed a
First Amended Complaint and Jury Demand, which added as defendants CBL-
Global and Brian Kennedy, the sole shareholder of CBL-Australia. The First
Amended Complaint alleges causes of action for violations of Section 10(b)
of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder, for violations of Section 20(a) of the Securities Exchange Act
of 1934, for declaratory relief and breach of contract, for common law
fraud, and for negligent misrepresentation.
30
The First Amended Complaint alleges, among other things, that the
defendants were advised by CBL-California's accountant on September 18,
2002 that CBL-California's financial statements were misstated, and alleges
that new restated financial statements were issued on September 19, 2002.
The First Amended Complaint alleges, however, that the restated financial
statements were not provided to us prior to the October 1, 2002 closing of
the merger. The First Amended Complaint seeks damages in an amount to be
proven at trial, but which amount presently is estimated to exceed, at a
minimum, the full amount of the consideration paid by us and CBL Global in
the merger, as well as treble damages, and attorneys' fees. The First
Amended Complaint also seeks a declaration that we (i) are entitled to
retain certain of our shares of common stock that were issued in connection
with the acquisition of CBL and placed in escrow, (ii) are entitled to set-
off amounts owed to Messrs. Scammell and Kennedy pursuant to the CBL
acquisition; and (iii) are entitled to seek the return of the shares of our
common stock that have already have been distributed to defendants Messrs.
Kennedy and Scammell in the merger. We intend to vigorously pursue our
claims against the defendants.
On September 18, 2003 we announced that we had entered into a definitive
agreement to acquire majority control of IRCA (Pty.) Ltd. ("IRCA"), an
international firm specializing in corporate learning, certification, and
risk mitigation in the areas of safety, health environment, and quality
assurance ("SHEQ"). We anticipate closing this transaction within the next
30 days. IRCA is headquartered in South Africa and also operates
international sales offices and operations in the United Kingdom and the
United States. We will acquire majority interest in IRCA through a
combination of stock and cash payments. The definitive agreement contains
certain closing conditions and certain future provisions that will enable
Trinity to acquire full ownership of IRCA and its various operating
subsidiaries.
31
Trinity Learning Corporation
Supplementary Schedules
Unaudited Pro Forma Consolidated Financial Statements
For the Period Ended
June 30, 2003
Trinity Learning Corporation
Unaudited Pro Forma Consolidating Balance Sheet
June 30, 2003
Trinity Adjustments
Learning Touch -----------------------
Corporation Vision Debits Credits Total
----------- ----------- ----------- ----------- -----------
Assets
------
Current Assets
Cash $ 86,511 $ 181,949 $ 268,460
Accounts Receivable 42,719 93,926 136,645
Interest Receivable 41 - 41
Employee Advance - 54,370 54,370
Prepaid Expenses 97,944 - 97,944
----------- ----------- -----------
Total Current Assets 227,215 330,245 557,460
----------- ----------- -----------
Property & Equipment
Furniture & Fixtures 53,385 89,373 a) 77,877 64,881
Accumulated
Depreciation (7,824) (77,877) a) 77,877 (7,824)
----------- ----------- -----------
Net Property &
Equipment 45,561 11,496 57,057
----------- ----------- -----------
Intangible Asset
Technology-Based
Asset 1,118,312 - b)1,286,308 2,404,620
Accumulated
Amortization (167,747) - (167,747)
----------- ----------- -----------
Net Intangible
Assets 950,565 - 2,236,873
Other Assets
Notes Receivable 25,000 - b) 25,000 -
Other Assets 94,003 35,765 129,768
----------- ----------- -----------
Total Other Assets 119,003 35,765 129,768
----------- ----------- -----------
Total Assets $ 1,342,344 $ 377,506 $ 2,981,158
=========== =========== ===========
Continued
33
Trinity Learning Corporation
Unaudited Pro Forma Consolidating Balance Sheet
June 30, 2003
Trinity Adjustments
Learning Touch -----------------------
Corporation Vision Debits Credits Total
----------- ----------- ----------- ----------- -----------
Liabilities and Equity
----------------------
Current Liabilities
Accounts Payable $ 391,872 $ 200,905 $ 592,777
Accrued Expenses 270,270 220,837 491,107
Deferred Revenue - 168,577 168,577
Interest Payable 63,987 19,807 83,794
Lines of Credit - 328,688 328,688
Notes Payable -
Related Party 2,147,151 - 2,147,151
----------- ----------- -----------
Total Current
Liabilities 2,873,280 938,814 3,812,094
----------- ----------- -----------
Long Term Liabilities
Notes Payable -
Related Party - 100,000 b) 25,000 75,000
----------- ----------- -----------
Total Long Term
Liabilities - 100,000 75,000
----------- ----------- -----------
Total Liabilities 2,873,280 1,038,814 3,887,094
----------- ----------- -----------
Stockholders' Equity
Preferred Stock - - -
Common Stock 9,693,447 383,796 b) 383,796 b) 625,000 10,318,447
Accumulated Earnings
(Deficit) (11,188,913) (1,045,104) b) 41 b)1,045,063 (11,188,913)
Subscription
Receivable (35,000) - (35,000)
Other Comprehensive
Income (470) - (470)
----------- ----------- -----------
Total Stockholders'
Equity (1,530,936) (661,308) (905,936)
----------- ----------- -----------
Total Liabilities and
Stockholders' Equity $ 1,342,344 $ 377,506 $ 2,981,158
=========== =========== ===========
Continued
34
Trinity Learning Corporation
Unaudited Pro Forma Consolidating Balance Sheet
June 30, 2003
a) To record TouchVision fixed assets at their fair value based on
historical book value less accrued depreciation.
Debits Credits
----------- -----------
Furniture and Equipment $ 77,877
Accumulated Depreciation $ 77,877
b) To record the issuance of 1,250,000 shares of Trinity Learning Common
Stock, No Par Value, at $0.50 per share for a total of $625,000, the
cancellation of TouchVision's Equity, the elimination of $25,000
loaned to TouchVision with related interest and the net investment in
TouchVision as a Technology Based - Intangible Asset.
Touchvision Debits Credits
----------- -----------
Technology-Based Asset $1,286,308
Common Stock TouchVision 383,796
Notes Payable TouchVision 25,000
Interest Income - Trinity Learning Corporation 41
Accumulated Deficit TouchVision $ 1,045,104
Common Stock Trinity Learning Corporation 625,000
Interest Expense 41
Notes Receivable 25,000
Continued
35
Trinity Learning Corporation
Unaudited Pro Forma Consolidating Statement of Operations
Trinity
Learning
Corporation Touch
------------ Vision
October ------------
1, 2002 Fiscal Year
to June Ended June Acq'n
30, 2003 30, 2003 Entries Total
------------ ------------ ------------ ------------
Revenue
Sales Revenue $ 167,790 $ 1,713,782 $ $ 1,881,572
Cost of Sales - (711,395) (711,395)
------------ ------------ ------------
Gross Profit 167,790 1,002,387 1,170,177
Expenses
Salaries & Benefits 1,043,123 701,550 1,744,673
Professional Fees 437,836 12,412 450,248
General & Administrative 228,931 83,177 312,108
Travel & Entertainment 182,593 - 182,593
Depreciation & Amortization 175,497 11,961 187,458
Rent 44,524 145,024 189,548
Office Expense 45,336 13,714 59,050
------------ ------------ ------------
Total Expenses 2,157,840 967,838 3,125,678
------------ ------------ ------------
Income (Loss) from
Operations (1,990,050) (34,549) (1,955,501)
------------ ------------ ------------
Other Income (Expenses)
Interest Income (487) - b) (41) (528)
Interest Expense (76,865) (28,219) b) 41 (105,043)
Foreign Currency Gain/(Loss) (4,582) - (4,582)
------------ ------------ ------------
Total Other Income
(Expenses) (81,934) (28,219) (110,153)
------------ ------------ ------------
Income (Loss) Before Taxes (2,071,984) 6,330 (2,065,654)
Taxes - - -
------------ ------------ ------------
Net Income (Loss) $(2,071,984) $ 6,330 $ (2,065,654)
============ ============ ============
Net Loss Per Common Share $ (0.25) $ (0.21)
============ ============
Weighted Average Shares
Outstanding 8,364,218 1,250,000 9,614,218
============ ============= ============
Continued
36
Trinity Learning Corporation
Unaudited Pro Forma Consolidating Statement of Operations
A summary of the components of other comprehensive income for the
transition period from October 1, 2002 to June 30, 2003 is as follows:
Transition Period
October 1, 2002
to June 30, 2003
Before After
Tax Amount Tax Amount
------------ ------------
Net Income (Loss) $ (2,065,654) $ (2,065,654)
Foreign Currency Translation (470) (470)
------------ ------------
Total Other Comprehensive Income $ (2,066,124) $ (2,066,124)
============ ============
37
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 hereunto duly authorized.
TRINITY LEARNING CORPORATION
Date: November 17, 2003 By: /s/ DOUGLAS D. COLE
--------------------------------------
Douglas D. Cole
Chief Executive Officer
38