U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
Quarterly Report under Section 13 or 1 (d) of
the Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 2006
Commission File No. 0-8924
Trinity Learning Corporation
(Exact name of small business issuer as specified in its charter)
Utah 73-0981865
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
4101 International Parkway, Carrollton, Texas 75007
(Address of principal executive offices)
(972) 309-4000
(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 May 22, 2006, 41,615,513 shares of the issuer's Common Stock, no par
value per share, were outstanding.
TRINITY LEARNING CORPORATION AND SUBSIDIARIES
Throughout this report, we refer to Trinity Learning Corporation,
together with its subsidiaries, as "we," "us," "our company," "Trinity" or
"the Company."
THIS FORM 10-QSB FOR THE NINE MONTHS ENDED MARCH 31, 2006, 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.
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets March 31, 2006 (Unaudited) and June 30, 2005
(Audited).
Consolidated Statements of Operations and Comprehensive Loss Three and Nine
Months Ended March 31, 2006 and 2005. (Unaudited)
Consolidated Statements of Cash Flows Nine Months Ended March 31, 2006 and
2005 (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Controls and Procedures
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits
PART I
FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Trinity Learning Corporation and Subsidiaries
Consolidated Balance Sheets
March 31, June 30,
2006 2005
--------------------------
(Unaudited) (Audited)
Assets
Current Assets
Cash and Cash Equivalents $ 1,250,652 $ 752,261
Accounts Receivable 4,617,595 3,540,415
Inventory 1,460,141 1,632,750
Prepaid Expense and Other Current Assets 189,900 1,160,272
--------------------------
Total Current Assets 7,518,288 7,085,698
Property & Equipment, net 5,355,748 5,876,999
Program Inventory, net 3,313,319 5,133,334
Restricted Cash - 5,091,670
Other Assets, net - 197,888
--------------------------
Total Assets $16,187,355 $23,385,589
============ ============
See accompanying notes to the consolidated financial statements.
4
Trinity Learning Corporation and Subsidiaries
Consolidated Balance Sheets
March 31, June 30,
2006 2005
--------------------------
(Unaudited) (Audited)
Liabilities and Stockholders' Equity
Current Liabilities
Accounts Payable $6,257,809 $3,134,406
Accrued Expenses 3,557,466 1,625,901
Interest Payable - 23,379
Deferred Revenue 4,687,366 4,042,842
Capital Lease-Current 1,177,817 1,115,666
Notes Payable Current 113,538 663,446
Notes Payable - Related Parties 363,333 1,023,087
--------------------------
Total Current Liabilities 16,157,329 11,628,727
--------------------------
Obligations under Capital Leases 12,351,625 13,242,920
Notes Payable 4,739,529 1,586,655
Notes Payable Related Parties 20,000 20,000
Equity Investment in Associated Company - 500,000
Other Long-Term Liabilities - 7,554
--------------------------
Long Term Liabilities 17,111,154 15,357,129
--------------------------
Total Liabilities 33,268,483 26,985,856
--------------------------
Minority Interest 309,210 287,061
--------------------------
Contingently Redeemable Equity 800,000 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, 41,615,513
and 37,719,889 shares Issued and
Outstanding in March, 2006 and June
2005, Respectively 33,989,891 32,000,792
Accumulated Deficit (52,159,501) (38,266,018)
Deferred Financial Advisor Fees - (142,920)
Other Comprehensive Gain (Loss) (20,728) 10,818
--------------------------
Total Stockholders' Equity (18,190,338) (6,397,328)
--------------------------
Total Liabilities and Stockholders' Equity $16,187,355 $23,385,589
============ ============
See accompanying notes to the consolidated financial statements.
5
Trinity Learning Corporation
Consolidated Statement of Operations
For Three Months Ended For Nine Months Ended
March 31 March 31
2006 2005 2006 2005
(Unaudited) (Unaudited)
-------------- -------------- ------------- -------------
Revenue
Sales Revenue $ 6,147,414 $ 518,095 $20,171,919 $ 2,328,592
Cost of Sales (1,746,910) (62,228) (4,482,252) (280,563)
-------------- -------------- ------------- -------------
Gross Profit 4,400,504 455,867 15,689,667 2,048,029
-------------- -------------- ------------- -------------
Expense
Salaries & Benefits 4,258,007 754,393 13,541,418 2,611,262
Professional Fees 1,007,449 380,368 2,099,264 779,311
Professional Fees
Related Parties - - - -
Selling, General &
Administrative 5,361,524 1,404,012 11,265,928 2,532,581
Depreciation &
Amortization 174,577 24,520 487,059 105,871
-------------- -------------- ------------- -------------
Total Expenses 10,901,557 2,563,293 27,393,669 6,029,025
Loss from Operations (6,201,053) (2,107,426) (11,104,002) (3,980,996)
-------------- -------------- ------------- -------------
Other Expense
Interest, net (475,677) (480,335) (2,775,431) (992,023)
-------------- -------------- ------------- -------------
Equity Losses and
Impairment of
Investment in
Associated Companies - (538,291) - (1,837,719)
Debt Conversion - (22,834) (1,614,064) (183,206)
Gain due to
non-conversion of
contingently
redeemable stock 2,210,000 - 2,210,000 -
Gain (Loss) on Sale
of Assets - - 1,000 -
Foreign Currency
Gain (Loss) - (65) (184) (2,281)
-------------- -------------- ------------- -------------
Total Other Expense 1,734,323 (1,041,525) (2,178,679) (3,015,229)
-------------- -------------- ------------- -------------
Minority Interest - 44,935 (10,801) 92,043
-------------- -------------- ------------- -------------
Loss Before Taxes (4,666,730) (3,104,016) (13,893,482) (6,904,182)
Income Taxes - - - -
-------------- -------------- ------------- -------------
Total Income Tax Expense - - - -
-------------- -------------- ------------- -------------
Net Loss $ (4,666,730) $ (3,104,016) $(13,893,482) $ (6,904,182)
============== ============== ============= =============
Net Loss Per Share
Basic and Diluted $ (0.11) $ (0.10) $ (0.34) $ (0.22)
============== ============== ============= =============
Weighted Average
Shares Outstanding 4,607,388 32,372,341 39,454,326 31,386,772
============== ============== ============= =============
See accompanying notes to the consolidated financial statements.
6
Trinity Learning Corporation
Consolidated Statement of Operations
A summary of the components of other comprehensive loss for the three and nine months
ended March 31, 2006 and 2005 follows:
For Three Months Ended For Nine Months Ended
March 31 March 31
2006 2005 2006 2005
(Unaudited) (Unaudited)
-------------- -------------- ------------- -------------
Net Loss $ (4,666,730) $ (3,104,016) $(13,893,482) $ (6,904,182)
Foreign Currency
Translation Gain/(Loss) 2,652 5,591 (31,547) 23,272
-------------- -------------- ------------- -------------
Comprehensive Loss (4,664,078) (3,098,425) (13,925,029) (6,880,910)
-------------- -------------- ------------- -------------
See accompanying notes to the consolidated financial statements.
7
Trinity Learning Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Nine Months Ended March 31,
2006 2005
(Unaudited)
------------ ------------
Cash flows from operating activities:
Net loss $(13,893,482) $(6,904,182)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization 487,059 105,871
Bad debt expense 465,800 1,000,000
Gain due to non-conversion of contingently
redeemable stock (2,210,000) -
Foreign currency translation gain/loss 184 -
Non cash debt issuance - 53,277
Non cash interest expense 50,533 1,097,771
Equity losses of associated companies - 1,837,719
Employee stock based compensation 800,000 241,983
Non cash financial advisory fees 594,470 75,000
Debt conversion expenses 3,682,047
Program inventory 1,820,015 -
Changes in current assets and liabilities,
net of businesses acquired and sold:
Accounts receivable (1,077,180) (19,830)
Prepaid expenses and other current assets 970,373 58,523
Accounts payable and accrued expenses 5,054,967 66,895
Accounts payable-related party - (77,988)
Inventory 172,609 -
Accrued expenses - (62,720)
Deferred revenue 644,524 76,992
Interest payable (23,379) 2,255
Minority interest 22,149 (67,179)
------------ ------------
Net cash provided (used) by operating
activities (2,439,311) (2,515,613)
------------ ------------
Cash flows from investing activities:
Payment for business acquisitions - (7,314)
Payment for business acquisitions -
related party - (4,815)
Restricted cash 5,091,670 (4,491,000)
Advances to associated companies - -
Capital expenditures (1,295) (16,611)
------------ ------------
Net cash provided (used) by investing
activities 5,090,375 (4,519,740)
------------ ------------
Cash flows from financing activities:
Repayment for capital leases (829,144) -
Borrowings under notes 100,000 -
Borrowings under notes related party - -
Repayments under borrowings (5,323,529) -
Repayments under short-term notes - (544,118)
Repayments under short-term notes
related party (750,000) (155,000)
Borrowing under notes and contingent liability - 7,672,500
Borrowings under long-term liabilities 4,500,000 -
Payments for financing fees - (259,000)
Other financing activities 150,000 106,415
Proceeds from sale of common stock - 21,250
------------ ------------
Net cash provided (used) by financing
activities (2,152,673) 6,842,047
------------ ------------
Effct of foreign exchange on cash - (23,272)
Net increase (decrease) in cash 498,391 (216,578)
------------ ------------
Cash at beginning of period 752,261 892,739
------------ ------------
Cash at end of period $ 1,250,652 $ 676,161
============ ============
See accompanying notes to the consolidated financial statements.
Trinity Learning Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Nine Months Ended March 31,
2006 2005
(Unaudited)
------------ ------------
Supplemental information:
Interest paid $ 1,310,676 $ 71,119
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.
9
Trinity Learning Corporation and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2006
GENERAL
Trinity Learning has elected to omit substantially all footnotes to the
consolidated financial statements for the three and nine months ended March
31, 2006 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.
OTE 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 205,000 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.
10
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 and nine months
ended March 31, 2006, 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.
Use of Estimates
The preparation of the Company's financial statements in conformity with
accounting principles generally accepted in the United States of America
necessarily requires it to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the balance sheet dates and the reported amounts
of revenues and costs during the reporting periods. Actual results could
differ from those estimates. On an ongoing basis, the Company reviews its
estimates based on information that is currently available. Changes in
facts and circumstances may cause the Company to revise its estimates.
Significant estimates include revenue recognition policy, valuation and
allocation of the purchase consideration of the assets and liabilities and
assets acquired in business combinations and equity investments in
associated companies, our determination of fair value of common stock
issued in business combinations and equity investments in associated
companies, and the annual valuation and review for impairment of assets
acquired and of long-lived assets.
NOTE 2 GOING CONCERN
To meet our present and future liquidity requirements, we are continuing to
seek additional funding through private placements, conversion of
outstanding loans and payables into common stock, development of the
business of our newly-acquired businesses, collections on accounts
receivable, and through additional acquisitions that have sufficient cash
flow to fund subsidiary operations. There can be no assurance that we will
be successful in obtaining more debt and/or equity financing in the future
or that our results of operations will materially improve in either the
short- or the long-term. Based upon our cash balance at May 1, 2006 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 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.
11
Overview
Our financial statements are prepared using accounting principles generally
accepted in the United States of America generally applicable to a going
concern, which contemplates the realization of assets and liquidation of
liabilities in the normal course of business. Currently, we do not have
significant cash, material assets or an established source of revenues
sufficient to cover our operating costs and to allow us to continue as a
going concern. We do not currently possess a financial institution source
of financing and we cannot be certain that our existing sources of cash
will be adequate to meet our liquidity requirements. Based upon our cash
balance at May 1, 2006, 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 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
THIRD QUARTER ENDED MARCH 31, 2006 AS COMPARED TO THE THIRD QUARTER ENDED
MARCH 31, 2005
Our revenues for third quarter 2006 were $6,147,414, as compared to
$518,095 for the third quarter 2005. This increase in revenues is due
primarily to the acquisition of Primedia Workplace Learning. The three
month period in 2005 comprises three months' revenue of RMT, TouchVision
and VILPAS while 2006 includes revenues of RMT, TouchVision, VILPAS and
Trinity Workplace Learning.
Costs of sales, which consist of labor, hardware costs, cost of goods
sold and other incidental expenses, was $1,746,910 for the third quarter
2006 as compared to $62,228 for the third quarter 2005, resulting in gross
profit of $4,400,504 for the third quarter 2006, as compared to $455,867
for the third quarter 2005. This increase in costs and in gross profit was
due to the acquisition of Primedia Workplace Learning. Operating expenses
for third quarter 2006 were $10,601,557 as compared to $2,563,293 for the
third quarter 2005. 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.
Other Expense for the third quarter of 2006 reflected income of
$1,734,323 compared to expense of $1,041,525 for the third quarter 2005.
This income is primarily due to recognizing a gain on the non-conversion of
contingently redeemable stock of $2,210,000.
12
We reported net loss available for common stockholders of $4,666,730
or $0.11 per share for the third quarter 2006, compared with a net loss of
$3,104,016 or $0.10 per share for the third quarter 2005.
NINE MONTHS ENDED MARCH 31, 2006 AS COMPARED TO THE NINE MONTHS ENDED MARCH
31, 2005
Our sales revenue for the nine months ended March 31, 2006 were
$20,171,919, as compared to $2,328,592 for the nine months ended March 31,
2005. This increase in revenues was primarily due to the acquisition of
Primedia Workplace Learning. The nine month period in 2005 comprises nine
months' revenue of RMT, TouchVision and Vilpas while the nine month period
in 2006 comprises nine months' of RMT, TouchVision, Vilpas and Trinity
Workplace Learning.
Costs of sales, which consist of labor and hardware costs, and other
incidental expenses, was $4,482,252 for the nine months ended March 31,
2006 as compared to $280,563 for the nine months ended March 31, 2005,
resulting in gross profit of $15,689,667 for the nine months ended March
31, 2006 as compared to $2,048,029 for the nine months ended March 31,
2005. This increase is due primarily to acquisition of Primedia Workplace
Learning.
Operating expenses for the nine months ended March 31, 2006 were
$26,793,669 as compared to $6,029,025 for the nine months ended March 31,
2005. This increase was due primarily to the acquisition of Primedia
Workplace Learning resulting in increases in selling, general and
administrative costs as well as depreciation and amortization expense.
Other Expense of $2,178,679 for the nine months ended March 31, 2006
was $836,550 less than that for the nine months ended March 31, 2005. This
decrease in expense is primarily due to a gain recognized on the non-
conversion of contingently redeemable stock of $2,210,000 and prior year
losses in associated companies of $1,837,719 offset by a loss on conversion
of notes payable $1,430,858 and increases in net interest expense of
$1,783,408. Included in interest expense of $2,775,431 is $1,495,564
attributable to amortization of discounts on the Laurus note.
We reported net loss available for common stockholders of $13,293,482
or $0.34 per share for the nine months ended March 31, 2006, compared with
a net loss of $6,904,182 or $0.22 per share for the nine months ended March
31, 2005.
Liquidity and Capital Resources
Our expenses are currently greater than our revenues. We have a
history of losses, and our accumulated deficit as of March 31, 2006 was
$52,159,501 as compared to $38,266,018 as of June 30, 2005.
At March 31, 2006, we had an unrestricted cash balance of $1,250,652
compared to $752,261 at June 30, 2005. Net cash used by operating
activities during the nine months ended March 31, 2006 was $2,439,311. Net
cash generated by investing activities was $5,090,375 for the nine months
ended March 31, 2006. Net cash used by financing activities during the
none months ended March 31, 2006 was 2,152,673.
Accounts receivable increased from $3,540,415 at June 30, 2005 to
$4,617,595 at March 31, 2006. This increase is due primarily to increased
sales efforts to our customers.
Accounts payable increased from $3,134,406 at June 30, 2005 to
$6,257,809 at March 31, 2006. Accrued expenses increased from $1,625,901
at June 30, 2005 to $3,557,466 at March 31, 2006. 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 2006 to
support our growth and to finance recent and proposed acquisitions:
13
On March 2, 2006, Jack Rutherford purchased 625,000 shares of Common
Stock of the Company at $0.16 per share or $100,000. In addition we issued
625,000 warrants exercisable at $0.20 per share to Mr. Rutherford in
consideration of the purchase. We further issued 250,000 warrants
exercisable at $0.15 per share to Mr. Rutherford in consideration for a
loan made in the amount of $100,000 by Mr. Rutherford to the Company on
March 1, 2006. The issuance of these securities was made in reliance on
Section 4(2) of the Securities Act as a transaction not involving any
public offering. No advertising or general solicitation was employed in
offering the securities, and the issuance of the securities was made to an
existing shareholder of our company.
On March 3, 2006, William T. Merrill purchased 156,250 shares of
Common Stock of the Company at $0.16 per share or $25,000. In addition we
issued 156,250 warrants exercisable at $0.20 per share to Mr. Merrill in
consideration of the purchase. The issuance of these securities was made in
reliance on Section 4(2) of the Securities Act as a transaction not
involving any public offering. No advertising or general solicitation was
employed in offering the securities, and the issuance of the securities was
made to an existing shareholder of our company.
On March 3, 2006, David Spada purchased 156,250 shares of Common Stock
of the Company at $0.16 per share or $25,000. In addition we issued 156,250
warrants exercisable at $0.20 per share to Mr. Spada in consideration of
the purchase. The issuance of these securities was made in reliance on
Section 4(2) of the Securities Act as a transaction not involving any
public offering. No advertising or general solicitation was employed in
offering the securities, and the issuance of the securities was made to an
existing shareholder of our company.
On March 31, 2006, the Company entered into a Securities Purchase
Agreement (the "Securities Agreement") with certain accredited investors
for the issuance of up to an aggregate of $8,500,000 in face amount of 15%
Senior Secured Convertible Debentures (the "Debentures") maturing March 31,
2010, and four year warrants (the "Warrants") to purchase an aggregate of
13,600,000 share of common stock of the Company. The Debentures accrue
interest at a rate of 15% per annum and we issued to Palisades Master Fund
LP a face amount of $4,500,000 in Debentures and warrants to purchase an
aggregate of 7,200,000 shares of common stock pursuant to the first closing
which occurred on March 31, 2006. The Company claims an exemption from the
registration requirements of the Act for the private placement of these
securities pursuant to Section 4(2) of the Act and/or Regulation D
promulgated thereunder since, among other things, the transaction did not
involve a public offering, the investors were accredited investors and/or
qualified institutional buyers, the investors had access to information
about the company and their investment, the investors took the securities
for investment and not resale, and the Company took appropriate measures to
restrict the transfer of the securities.
To meet our present and future liquidity requirements, we are
continuing to seek additional funding through private placements,
conversion of outstanding loans and payables into common stock, development
of the business of our newly-acquired subsidiaries, collections on accounts
receivable, and through additional acquisitions that have sufficient cash
flow to fund subsidiary operations. There can be no assurance that we will
be successful in obtaining more debt and/or equity financing in the future
or that our results of operations will materially improve in either the
short- or the long-term. Based upon our cash balance at May 1, 2006 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.
14
ITEM 3. CONTROLS AND PROCEDURES
Trinity Learning maintains disclosure controls and procedures that are
designed to ensure that information required to be disclosed in its reports
pursuant to the Securities Exchange Act of 1934 (the "Exchange Act"), as
amended, is recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and forms, and that such information
is accumulated and communicated to our management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure. In designing and evaluating
the disclosure controls and procedures, management recognized that any
controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control
objectives, and management necessarily was required to apply its judgment
in evaluating the cost-benefit relationship of possible controls and
procedures.
Our Chief Executive Officer and Chief Financial Officer, after
conducting an evaluation, together with other members of management, of the
effectiveness of the design and operation of our disclosure controls and
procedures at the end of the period covered by this report, have concluded
that our disclosure controls and procedures were effective to ensure that
information required to be disclosed by us in our reports filed or
submitted under the Exchange Act is recorded, processed, summarized, and
reported within the time periods specified in the rules and forms of the
SEC. There were no significant changes in our internal controls or in
other factors that could significantly affect these controls subsequent to
that evaluation, and there were no significant deficiencies or material
weaknesses in such controls requiring corrective actions.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On March 2, 2006, Jack Rutherford purchased 625,000 shares of Common
Stock of the Company at $0.16 per share or $100,000. In addition we issued
625,000 warrants exercisable at $0.20 per share to Mr. Rutherford in
consideration of the purchase. We further issued 250,000 warrants
exercisable at $0.15 per share to Mr. Rutherford in consideration for a
loan made in the amount of $100,000 by Mr. Rutherford to the Company on
March 1, 2006. The issuance of these securities was made in reliance on
Section 4(2) of the Securities Act as a transaction not involving any
public offering. No advertising or general solicitation was employed in
offering the securities, and the issuance of the securities was made to an
existing shareholder of our company.
On March 3, 2006, William T. Merrill purchased 156,250 shares of
Common Stock of the Company at $0.16 per share or $25,000. In addition we
issued 156,250 warrants exercisable at $0.20 per share to Mr. Merrill in
consideration of the purchase. The issuance of these securities was made in
reliance on Section 4(2) of the Securities Act as a transaction not
involving any public offering. No advertising or general solicitation was
employed in offering the securities, and the issuance of the securities was
made to an existing shareholder of our company.
On March 3, 2006, David Spada purchased 156,250 shares of Common Stock
of the Company at $0.16 per share or $25,000. In addition we issued 156,250
warrants exercisable at $0.20 per share to Mr. Spada in consideration of
the purchase. The issuance of these securities was made in reliance on
Section 4(2) of the Securities Act as a transaction not involving any
public offering. No advertising or general solicitation was employed in
offering the securities, and the issuance of the securities was made to an
existing shareholder of our company.
15
On March 2, 2006, Jack Rutherford loaned to the Company an amount of
$100,000 which is convertible pursuant to the terms of the loan into
625,000 shares of Common Stock. In addition we issued 625,000 warrants
exercisable at $0.20 per share to Mr. Rutherford in consideration of the
loan made. We further issued 250,000 warrants exercisable at $0.15 per
share to Mr. Rutherford in consideration for the loan made in the amount of
$100,000 by Mr. Rutherford to the Company on March 1, 2006. The issuance of
these securities was made in reliance on Section 4(2) of the Securities Act
as a transaction not involving any public offering. No advertising or
general solicitation was employed in offering the securities, and the
issuance of the securities was made to an existing shareholder of our
company.
On March 3, 2006, William T. Merrill loaned to the Company an amount
of $25,000 which is convertible pursuant to the terms of the loan into
156,250 shares of Common Stock. In addition we issued 156,250 warrants
exercisable at $0.20 per share to Mr. Merrill in consideration of the loan
made. The issuance of these securities was made in reliance on Section 4(2)
of the Securities Act as a transaction not involving any public offering.
No advertising or general solicitation was employed in offering the
securities, and the issuance of the securities was made to an existing
shareholder of our company.
On March 3, 2006, David Spada loaned to the Company an amount of
$25,000 which is convertible pursuant to the terms of the loan into 156,250
shares of Common Stock. In addition we issued 156,250 warrants exercisable
at $0.20 per share to Mr. Spada in consideration of the loan made. The
issuance of these securities was made in reliance on Section 4(2) of the
Securities Act as a transaction not involving any public offering. No
advertising or general solicitation was employed in offering the
securities, and the issuance of the securities was made to an existing
shareholder of our company.
On March 31, 2006, we entered into a Securities Purchase
Agreement with certain accredited investors for the issuance of up to
an aggregate of $8,500,000 in face amount of 15% Senior Secured
Convertible Debentures (the "Debentures") maturing March 31, 2010, and
four year warrants (the "Warrants") to purchase an aggregate of
13,600,000 shares of common stock of the Company. The Debentures accrue
interest at a rate of 15% per annum and we issued to Palisades Master
Fund LP a face amount of $4,500,000 in Debentures and warrants to
purchase an aggregate of 7,200,000 shares of common stock pursuant to
the first closing which occurred on March 31, 2006. The Company claims an
exemption from the registration requirements of the Act for the private
placement of these securities pursuant to Section 4(2) of the Act and/or
Regulation D promulgated thereunder since, among other things, the
transaction did not involve a public offering, the investors were
accredited investors and/or qualified institutional buyers, the investors
had access to information about the company and their investment, the
investors took the securities for investment and not resale, and the
Company took appropriate measures to restrict the transfer of the
securities.
The Company paid investment banking fees of $405,000 in connection
with the loan (or financing).
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None.
16
ITEM 6. EXHIBITS
The following exhibits are filed herewith:
10.1 Employment Agreement dated as of February 1, 2006, by and between
the Company and Doug Cole.
10.2 Employment Agreement dated as of February 1, 2006, by and between
the Company and Patrick Quinn.
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.
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
TRINITY LEARNING CORPORATION
May 22, 2006 By: /S/ DENNIS J. CAGAN
------------------------------
Dennis J. Cagan
Chief Executive Officer
May 22, 2006 By:/S/ Patrick R. Quinn
------------------------------
Patrick R. Quinn
Chief Financial Officer
18