| ● | Zoom, the cloud meeting company, unifies cloud video conferencing, simple online meetings, and group messaging into one easy-to-use platform; VCI has an exclusive OEM license to deploy Zoom within the healthcare field, and is integrating Zoom with the Trunity platform; and |
| ● | Segura Caixa Adeslas: VCI is leveraging the Trunity platform to provide healthcare training and information to up to 25,000 nurses with Segura Caixa Adeslas’ network in Spain. |
Pursuant to the terms and conditions of the Hosted API License Agreement, VCI has licensed Trunity’s proprietary, backend Application Programming Interface (API) to deliver and make accessible content to its clients. Trunity will also host the API and share in quarterly revenues generated by VCI from use of its API.
Trunity eLearning Platform 2.0
Under development for over a year, we released version 2.0 of the Trunity eLearning Platform in late 2013. This release constituted the largest single release to date and provided us with a next-generation technology foundation with powerful new programming and scalability features that we believe will serve us well for years to come.features. Key components include a next-generation content engine based on highly flexible and scalable NoSQL database technology, as well as a robust new Java-based Application Programming Interface (API). New functionality included in this release includeswas an easily customizable publishing workflow, extensible standards tagging framework (includes Common Core alignment), automatic reading level tagging, and self-assessment, among other new features.
The latest2.0 release has allowed us to augment our Platform with meta-tagging capabilities that allowsallow content to be categorized and aligned to various educational standards such as Common Core. This allows authors, curriculum developers and teachers to find and pull together (via Trunity’s Live CrossLiveCross publishing technology) different content modules to create vBooksTrubooks™ and courses customized for specific curriculum standards and differentiated student learning needs. In particular, the Common Core framework built around the concept of modularized content – adopted by 46 out of 50 states for their K-12 curriculum – has presented unique challenges that traditional textbook publishers have been ill-equipped to address with their monolithic textbook publishing model. As federal funding is often tied to the adoption of these standards and corresponding learning outcomes, we believe that we are well positioned with both the school districts and traditional publishers that have adopted the Common Core standards.
Trunity eLearning Platform 3.0
In 2014, Trunitymid-2014, we announced plans to begin releasing a series of announcements relating to technology upgrades and enhancements torelease our next generation architecture for the Trunity eLearning Platform. Version 3.0, which incorporates several new highly innovative technical frameworks enabling faster and more robust development, weds a new mobile app, branded as Trunity Mobile, with a major enhancement of our content creation and courseware technology, bringing to include makingmarket a suite of leading edge experiences for teachers, students, authors and publishers. Version 3.0 includes a much more robust user interface, as well as a broad range of new features and functionality that further extend Trunity’s technological lead in the entireglobal education technology marketplace. In fact, version 3.0 is designed to help realize Trunity’s vision for a unique eLearning platform, mobile-readya single web-based platform that seamlessly integrates content creation, Trubooks™ and accessible via both the iOScourseware, teacher-to-student and Android mobile operating systems.group-to-group sharing of messages, notes, annotations, content and bookmarks in real-time – all within a single virtual classroom.
Specifically, new features in 3.0 that should serve to definitively differentiate our Platform include a series of major enhancements to existing functionality relating to the delivery and engagement of quizzes, exams, self-assessments and assignments. In addition, we will be introducing flash cards, book and course level store ecommerce integration and reporting, and much more robust highlighting and note-taking capabilities. In addition, version 3.0 will deliver greatly enhanced personalization capabilities that will permit teachers to better assess a student’s learning progress in relation to his or her class peers and allow them to customize learning experiences, instructional approaches and academic support strategies to meet individual learning needs. It is our belief that version 3.0 will serve to meaningfully contribute to the academic success of each student on our Platform, providing for much more efficient and productive student/teacher engagement. As with previous generations of the Platform, authors and instructors will be able to create their own content, upload content from publishers and from open source collections, such as YouTube and the Encyclopedia of the Earth, and to selectively organize that content for use in multiple classrooms and/or as components of Trubooks™.
We released a beta version of 3.0 for general availability in the fall of 2014 and have scheduled the full release to occur in the second quarter of 2015. Additional enhancements to the Platform, in the form of version 3.1, are expected to be released for general availability in the fourth quarter of 2015.
Trunity Mobile
In the third quarter of 2014, we also released our new mobile app, Trunity Mobile, available as a free download to current Trunity student and educator users from the Apple App Store for iOS mobile devices. Trunity Mobile features dynamic, rich media content (audio, video, images, animations, etc.) that engages students and improves learning outcomes. In addition, highlighting and note-taking capabilities are complemented by powerful and intuitive search, automatic content updates and alerts, familiar swipe, tape and pinch/zoom behaviors and a comprehensive, interactive glossary. The key competitive differentiator of our mobile app is that it enables downloads of select content or complete Trubooks™ for offline use, which precisely mirrors the online experience. This unique capability makes Trunity the first educational technology company able to provide a mobile eLearning platform capable of delivering truly interactive functionality for both online and offline use.
In the second quarter of 2015, we expect to release Trunity Mobile 1.2, which will be available for free download on both Android and Windows 7 desktop. In addition, this generation will also feature highlighting/annotation syncing, improved auto-updating functionality and enhanced support for social, collaborative learning. The generation supporting downloads by mobile device users on Windows 8 and 10 operating systems (and potentially Google Chrome) are scheduled to be released late in the fourth quarter of 2015.
Trunity Store
Trunity launched its revamped and greatly enhanced Trunity Store in time for the start of the Winter Quarter/Spring Semester 2015. In addition to providing a much enhanced user interface and full responsive design for purchase via mobile phones, the new store ensures that students are guided to purchase the correct custom Trubook™ course that they are taking, allows single use vouchers to be sold at campus bookstores that can be redeemed at the Trunity Store, much improved store management, reporting, and analytics, along with a number of other new and improved features. The new Trunity Store is also designed for tight integration with the Trunity 3.0 Platform when this is released in the second quarter of 2015.
Global Growth Strategy
Trunity has both a viral as well asand a more traditional sales/partnership marketing strategy. The value of the Trunity community grows with each additional customer that adopts the Trunity eLearning Platform, driving increased traffic, content and collaboration possibilities to other users on the network. Trunity is also partnering with significant system integration firms and channel partners. Trunity has developed significant partnerschannels to deliver digital content to schools in the United States and around the globe.world. Trunity is also is the beneficiary of many grants and partnerships with organizations likeincluding the National Science Foundation (NSF)(“NSF”) and National Aeronautics and Space Administration (NASA)(“NASA”), and leverages those to further its business.
Ukraine
On March 20, 2013, we entered into a transaction pursuant to which the Trunity eLearning Platform was selected by the Ukraine government’s Open World National Project (the “Project”) to serve as the foundation for the country’s national educational network for public school students in grades five through nine, representing approximately 1,500,000 students. In connection with the transaction, we entered into a share purchase agreement and a project agreement providing us with a 15% stake in EDUCOM, a Ukrainian limited liability company (the “JV Company”); and the JV Company entered into a license agreement with us whereby we provided the JV Company with a five-year renewable license to use our Platform in exchange for a license fee of $400,000, of which $100,000 was paid upon signing and the $300,000 balance was paid in April 2013. We expect to generate additional revenue from the Ukrainian joint venture, above and beyond the initial license fee, through the sale of content from the Trunity Knowledge Exchange and from the Ukrainian Knowledge Exchange to be established by us in connection with the venture, however we have yet to generate any such revenue and there can be no assurance that we will ever do so.
It is important to note that the political upheavalunrest that has taken place in Ukraine since February 2014, resulting in the Ukrainian parliament voting to dismiss the country’s president, Victor Yanukovych, and the Russian annexation of Crimea, has created uncertainty as to the viability of the Ukraine government’s Open World National Project; which, in turn, may impact Trunity’s ability to complete the project implementation. Given the recent political climate in Ukraine, the launch of the Open World Project is currently on hold; however, Trunity is poised and ready to proceedProject. In connection with the initiative as soon as we are given approval to do so. To date,Project, we have onboardedon-boarded content to the newly developed Ukrainian Knowledge Exchange, which is expected to be initially rolled out to seventh graders, followed by a phased two-year deployment to ultimately reach all 1.5 million students in grades five through nine. The launch of the Project is currently on hold; however, Trunity is poised and ready to proceed with the initiative as soon as the Ukrainian government is ready to proceed with the Project. In recent discussions with Ukraine’s Ministry of Education, the Ministry indicated that while it is unlikely they will resume the Project during 2015 due to budget constraints caused by the political instability in Ukraine, they believe that their finances will improve sufficiently to restart the effort in 2016.
Africa
On June 5, 2013, we completed a $3.575 million strategic financing led by Pan-African Investment Company (PIC)(“PIC”), which was founded by Dick Parsons and Ronald Lauder. Parsons and Lauder formed PIC to identify, invest in and provide solutions that effect growth and development in Africa. In addition to the investment, we entered into an agreement on June 12, 2013, appointing PIC as our exclusive sales agent in Africa.
According to the United Nations Educational, Scientific and Cultural Organization (UNESCO)(“UNESCO”), 10,000,000 children drop out of primary school every year in sub-Saharan Africa. Even those fortunate enough to complete primary school often leave with literacy and numeracy skills far below their potential. In addition, there is a major shortage of trained teachers. As a result, in order to ensure that every child has access to quality education by 2015, sub-Saharan Africa will need to recruit an estimated 350,000 new teachers every year. Further exacerbating the strain on education systems in Africa is the fact that the continent has the highest concentration of illiterate adults in the world.
Recognizing that education is the key to human development and economic growth, dozens of countries in Africa have embarked on new government-backed initiatives to integrate learning technology into education and training. In fact, with very few exceptions, most of these countries now have official government policies on the use of technology in education, with numerous national digitization projects being funded directly by these central governments with and without the aid of external donors. Global research firm Ambient Insightreports that the growth rates in Africa for custom content development services, cloud-based authoring tools and learning platforms and installed authoring tools and learning platforms are currently the highest in the world.
Consequently, we anticipate establishing a strong presence in Africa as part of our strategy to bring our Platform to the African continent.people.
Middle East
U.SThe Ambient Insight Regional Report, which covers the Middle East market for eLearning products and services, suggests that there are three major catalysts that are driving accelerated adoption in the region: the mass countrywide content digitization efforts in schools; the large scale deployment of tablets in academic segments; and the accelerating adoption of eLearning in higher education. In fact, Persian Gulf countries are increasing their investment in education. In 2015, Saudi Arabia, for example, which has a young and growing population, has allocated $58 billion – more than a quarter of the country’s entire budget expenditure – to education and training (source: Saudi Arabia’s 2015 Fiscal Budget; www.jadwa.com). These initiatives are not the result of the Arab world playing catch-up with practices in the U.S. and elsewhere, but rather of using new learning technologies in innovative ways. Key to the success of these initiatives is exploiting the potential of the internet as a communications tool to link students with teachers and teachers with parents.
In the fall of 2014, Trunity expanded its international presence to the Middle East with the sale of over 6,000 Platform licenses to the Institute of Applied Technology (“IAT”), headquartered in Dubai, with the Trunity Platform currently in use at four different IAT campuses. The sale was accomplished in collaboration with our strategic partner, Houghton Mifflin Harcourt (“HMH”), and its Middle Eastern distributor, All Prints Distributors and Publishers. All Prints is the main supplier of textbooks and educational materials to the major universities, schools and educational institutes in the United Arab Emirates, Qatar, Kuwait, Oman, Jordan, Saudi Arabia, Bahrain, Syria and Lebanon.
U.S. Penetration of Pre-K-12, Colleges and Universities
As of the end of the 2010-2011 school year, the National Center for Educational Statistics reported that the number of public schools (K-12) in the United States totaled 98,817, private schools numbered 33,366, and colleges and universities totaled 7,021.
Our digital textbook Trubook™ solution has seen strong adoption in the U.S. education market since its initial launch in the fall of 2012. The first digital textbookTrubook™ authored on the Trunity eLearning Platform was deployed in the first semester of 2012 at Boston University and sold to 150+ students in a single class at $50 each, expanding to four universities and seven courses by the second semester. We areThis Trubook™ is now used in over 20 colleges and universities, and used in fourfive high schools versus being in only one university in the Spring 2013., and has been sold to over 1,500 students. This increase in sales demonstrates a repeatable and scalable business model to be followed for the continued adoption of ‘Trunitized’truly interactive books. As of the spring of 2014, we have seven textbooks on the Platform, including one specifically geared towards professional trade certifications.
In addition to the continued organic author sign-ups, in 2014 we have launched a large scalelarge-scale author-teacher recruitment campaign, which is specifically geared toward gathering premium content (full textbooks, chapters, courses, modules, videos, PowerPoint and other learning resources) to be sold on the Trunity Knowledge Exchange. The campaign is anchored by Trunity’s participation in a number of well attendedwell-attended industry conferences and trade shows, at which our Chief Education Officer, Dr. Cutler Cleveland, has, and will continue to, lead Trunity-sponsored seminars relating to “how-to-author” and the related benefits of authoring on the Trunity eLearning Platform. In addition, Dr. Cleveland and other members of the Trunity marketing team have, and will continue to host convenient, online webinars to reach and educate authors on the benefits of authoring on the Platform.
As of the end of 2014, we had thirteen Trubooks™ on the Platform, including one specifically geared towards professional trade certifications; and we have contracted with the authors of 14 new Trubooks™ that are currently in production, most of which are expected to be completed and ready for marketing to schools and universities for the 2015/2016 academic year.
Houghton Mifflin Harcourt
Subsequent to the end of 2013,In early 2014, Trunity announced that we signed a Memorandum of Understanding with global education leader Houghton Mifflin Harcourt (“HMH”) to offer select HMH digital content via the Trunity Knowledge Exchange to Pre-K-12 schools, as well as to government agencies and entities responsible for the selection or purchase of educational materials. Among the world’s largest providers of pre-K-12 education solutions and longest-established publishing houses, HMH combines cutting-edge research, editorial excellence and technological innovation to improve teaching and learning environments and solve complex literacy and education challenges. HMH’s interactive, results-driven education solutions are utilized by more than 50 million students in over 150 countries, and its renowned and awarded novels, non-fiction, children’s books and reference works are enjoyed by readers throughout the world.
As one of the world’s leading providers of research-based, technology-enabled education content and solutions, HMH will seek to leverage the robust scalability, rich multi-media, mobile capabilities, and intuitive cloud-based functionality of the Trunity eLearning Platform to provide increased access to its educational content in high growth international markets. BothMoreover both companies hope to leverage our combined strengths to provide an enriching educational experience for both students and teachers anywhere, anytime and on any connected device. It is anticipated that the Trunity eLearning Platform will integrate HMH’s quality content to provide a vibrant, interactive learning vehicle capable of delivering modular, customizable, real-time learning solutions through the cloud.
Both companies have teamed to showcase HMH’s premium learning content through the Trunity eLearning Platform, co-exhibiting at the recent BETT 2014 conference held in London in January 2014.
Market Opportunity
According to market predictions by GSV Advisors and published by Edtech Digest, the global eLearning market is estimated to grow at a Compound Annual Growth Rate of 23% over 2012-2017. In dollars, this translates into $166.5 billion in 2012 and $255 billion in 2017. Part of the reason for global growth of eLearning is because of the increasing reach of wireless connectivity. For example, South Korea, which has one of the highest rated educated systems in the world, aims to have wireless networks in all schools by 2015, when all curriculum materials will be available in digital form.
In its “Global eLearning Report,” investment banking firm IBIS Capital statesAmbient Insight reported that the worldwide market for mobile educationlearning products and services, alone, reached $5.3 billion in 2011 was $3.42012. With a compound annual growth rate of 18.2% for the next five years, it is estimated that the worldwide mobile learning market in 2015 will reach $8.7 billion and it grewwill rise to $4.4$12.2 billion in 2012. By 2020, IBIS projects that this sector of the eLearning market will escalate to $37.8 billion worldwide.by 2017.
The North American market for online learning products will grow to $27.2 billion by 2016, up from the $21.9 billion reached in 2011, according to a new2014 report by Ambient Insight, titled “The North America Market for Self-pacedSelf-Paced eLearning Products and Services: 2011-2016 Forecast and Analysis.”
With respect to the enterprise eLearning marketplace, based on statistics compiled by London-based IBIS Capital, market acceptance of eLearning has resulted in increasing use for both large and small companies, not only in the United States, but globally. Companies are now increasing their use of eLearning regardless of size, but nearly 42% of global Fortune 500 companies used technology during formal learning hours in 2013.
With the advent of tablet computing, the entire industry is undergoing a massive market swing to electronic publishing. Even so, many of the dominant publishers still follow a traditional approach to authoring, editorial reviewing, production and distribution of content,content; delivering e-textbooks that are essentially only flat, electronic versions of the physical textbook. This conservative “status quo” approach does little to reduce costs and time-to-market, and doesn’tdoes not take advantage of powerful capabilities that the new technology medium is able to offer, presenting a major market opportunity for Trunity’s faster, less expensive, better integrated and much more powerful and dynamic solution.
Trunity disrupts this entire‘status quo’ model with itsour modular, customizable content that is easily created and updated. In addition to disrupting the traditional publishing and distribution model (e.g., by crowdsourcing and peer-reviewing educational content from subject matter experts and allowing educators to create from this content custom virtual textbooks complete with learning management and collaboration functionality), Trunity’s “publishing market place”marketplace” approach also provides traditional publishers a neutral “publisher agnostic”“publisher-agnostic” channel to sell content into schools, whereby they can take advantage of the powerful functionality provided by the Trunity eLearning Platform.Platform. Based on increasing demand by customers for functionality (e.g., mixing and matching content from different publishers into customized curriculum, etc.) that most current publishers are unable to meet, we believe this will be an increasingly attractive option for publishers as well as a significant added market opportunity for Trunity.
Technology is not only changing the nature of textbooks and how they are published, but also nearly every other aspect of education – from online schools to digital classrooms, from flipped or blended classrooms to new, interactive teaching materials. In the U.S., studies note that today’s children are already tech-savvy by the time they reach kindergarten. In fact, an October 2013 study by Common Sense Media found that 38% of children younger than two used some type of mobile device; and 40% of families with children now have some type of tablet device in their homes. Consequently, children are being raised as “digital natives,” creating compelling opportunities to approach learning and literacy in ways never thought possible; and provoking school administrators and educators to rethink learning pedagogy and curricula to meet the needs of contemporary students.
Through adoption of the Trunity eLearning Platform, we believe our technology holds the power to engage students and educators, alike, in rich, compelling learning experiences that serve to develop more meaningful knowledge and skill development, particularly with problem-solving, creativity and critical thinking skills so highly desired in today’s global marketplace. Moreover, because our Platform offers the potential to increase access to educational resources and experts that extend learning beyond the capacities or limitations of individual schools or communities, Trunity has the power to change the paradigm of traditional teaching and learning; helping students of all ages, cultural backgrounds and geographic vicinities to take greater responsibility for their own educational destinies – exploring and engaging knowledge with unfettered curiosity, thus creating successive generations of lifelong learners.
Our History
Trunity, Inc. was formed on July 28, 2009 through the acquisition of certain intellectual property by its three founders, Terry B. Anderton, Dr. Joakim Lindblom and Les V. Anderton. In early 2012, the Company became a publicly-traded company through a reverse merger with Brain Tree International, Inc., a Utah corporation (“BTI”).
BTI was incorporated on July 26, 1983 to specialize in the development of high technology products or applications including, but not limited to, electronics, computerized technology, new technological product fields, and precious metals. At the time of the reverse merger, BTI was a shell company with no assets.
On January 24, 2012, Trunity Holdings, Inc. (“THI” or the “Company”), Trunity, Inc. (“Trunity”) and Trunity Acquisition Corporation (“TAC”), a wholly-owned subsidiary of THI, all Delaware corporations, entered into an Agreement and Plan of Merger (the “Merger Agreement”). Pursuant to the terms of the Merger Agreement, on January 24, 2012, TAC merged with and into Trunity, with Trunity remaining as the surviving corporation and a wholly-owned subsidiary of THI (the “Merger”). As consideration for the Merger, as of the closing of the Merger, (i) each of the 961,974 shares of common stock of THI owned by Trunity were cancelled, (ii) each issued and outstanding share of common stock of Trunity was converted into the right to receive one share of the common stock of THI; and (iii) each share of TAC was converted into one share of Trunity common stock. As a result of the Merger, the former shareholders of Trunity hold 99% of the common stock of THI.
In order to facilitate the reverse merger transaction, immediately prior to execution of the Merger Agreement, Trunity acquired a 90.1% interest in Brain Tree International, Inc., a Utah corporation (“BTI”), pursuant to a Stock Purchase Agreement with the three principal shareholders of THI, as a result of which Trunity acquired 961,974 BTI shares for the price of $325,000 plus 325,000 shares of Trunity common stock. As part of the transaction, on January 24, 2012, immediately prior to the Merger, BTI reincorporated in Delaware and changed its name from Brain Tree International, Inc. to Trunity Holdings, Inc. Pursuant to the reincorporation, 105,064 minority shares of BTI automatically converted into the same number of shares of THI.
Description of Revenues Sources
Trunity derives the majority of its revenue from four sources: license revenue; professional services; transaction revenue from the sale of virtual textbooks and related content; and advertising within the Trunity domain.
| | —● | Licensing Revenue – Trunity charges a per user subscription-based license fee for the use of our cloud-based software solutions, and collects a per transaction fee on any content sold to the licensees end-users via the Trunity eLearning Platform. We charge a licensing fee on a monthly basis in the commercial enterprise sector depending on the number of users and other factors, including bandwidth and storage requirements. We typically enter into a minimum of a one-year contract with both our educational and commercialbusiness enterprise customers. |
| | —● | Transaction Revenue – Trunity sells living digital textbooks (marketed asvBooksTrubooks™), lesson plans and other related content through our on-line Trunity Knowledge Exchange content store. WeWith the exception of our proprietary content, such as ourMindBenders Educational Learning Series™, we do not own the content; however, we make a margin of 30%–50% on all content sold through the Trunity Knowledge Exchange store.store. We expect this source of revenue to be a significant source of growth for the Company going forward. |
| | —● | Professional Services – Trunity provides specialized services and consulting to its customers. These services including data migration, and creative and engineering services required to utilize our software products effectively. We charge a competitive hourly rate based on the skillsetskill set and time commitment required by theeach customer. |
| | —● | Advertising Revenue – We have over 1,000,000 pageapproximately 1 million views per month during the school year on knowledge collection sites hosted on the Trunity eLearning Platform. Some of these sites are publicly available and host advertising provided through a well-known online search engine site. |
Current and Potential Customers
Our customers include the authors who author on or sell their content via the Trunity eLearning Platform, Ukraine government’s Open World National Project, National Council for Science and the Environment, Climate Adaptation and Mitigation E-Learning, numerous universities, colleges and high schools, internetand Internet providers,. among several others. We are aggressively pursuing new business opportunities, as we will need to substantially increase revenues in order to achieve and sustain profitability.
We have recently hired internal marketing and sales staff to accelerate our pursuit of new opportunities, and have engaged The Wavesense Group, LLC, a management consulting firm highly specialized in creating and executing sales, marketing and go-to-market strategies for young, high growth companies. We are also pursuing a reseller relationship with several significant systems integrators and resellers in the markets that we have targeted. We intend to work with large resellers to leverage their market presence and current customer bases.
Research and Development
With the launch of the Trunity eLearning Platform 2.0 in 2013, we have made the transition from development stage to full commercial operations. In 2014, we began development on the next generation, version 3.0, and the related Trunity has spent approximately $1,700,000Mobile app, which was released for mobile devices on the iOS platform in the fall of 2014. Ongoing development and implementation of key, new enhancements to the Platform and Trunity Mobile have progressed through the end of 2014; and in the second quarter of 2015, we plan the full release of 3.0 and the next release (version 1.2) of Trunity Mobile for use on mobile devices on the Android and Windows 7 operating systems.
Our research and development duringexpenses were $892,092 and $838,925 for the last two fiscal years.years ended December 31, 2014 and 2013, respectively. We believe that our future success depends on our ability to continually maintain and improve our core technologies, enhance our existing products and services, and develop new products and technologies that meet an expanding range of markets and customer requirements. In the development of new products and enhancements to the Trunity eLearning Platform, we use our own development tools extensively. We have traditionally relied primarily on the internal development of our technologies. Based on timing and cost considerations, however, we may in the future consider acquiring technology or products from third parties.
Intellectual Property
Trunity relies on a combination of patent, copyright, trademark and trade secret laws, as well as confidentiality and invention agreements with its employees, independent contractors and clients to protect information whichthat the Company believes is proprietary or constitute trade secrets.
In addition, Trunity has filed two patent applications (comprising eight unique concepts), which in 2012 were converted from provisional to full patent applications:
| ● | System and Method for Virtual Textbook Creation and Remuneration: United States Patent Application #13585948;#13/585,948; filed August 15, 2012; inventors are Kevin H. Eaton, Halldor F. Utne, Joakim F. Lindblom; assigned to Trunity, Inc. |
| ● | System and Method for Dynamic Cross Publishing of Content Across Multiple Sites: United States Patent Application # 13679007;#13/679,007; filed November 16, 2012; published July 4, 2013; inventor is Joakim F. Lindblom; assigned to Trunity, Inc. |
We are working on additional patent applications whichthat we expect to file in 2014.2015. There can be no assurance that any of these patents will ultimately be filed and/or issued.
We have used, registered and/or applied to register certain trademarks and service marks for our technologies, products and services. We currently have four trademarks registered or pending registration in the U.S.
Competition
Trunity faces substantial competition from numerous other companies, most of whom have financial and other resources substantially greater than ours. Trunity’s principal competitors consist of educational publishing companies and open source platforms such as Pearson, McGraw-Hill, Blackboard Inc. and Moodle. These and other competitors may prove more successful in offering similar products and/or may offer alternative products that prove superior in performance and/or more popular with potential customers than our products. Trunity’s ability to commercialize its products and grow and achieve profitability in accordance with its business plan will depend on itsour ability to satisfy itsour customers and withstand increasing competition by providing high-quality products at reasonable prices. There can be no assurance that we will be able to achieve or maintain a successful competitive position.
Employees
As of March 31, 2014,2015, Trunity had 12five employees, of which allfour are full-time employees.and one is a part-time employee. None of our employees are represented by a labor union or subject to a collective bargaining agreement. Trunity also has over fifteen contractors and consultants, most of whom are full-time.
Consultants
In an effort to contain our initial operating expenses while gaining access to the specialized services we need to rapidly grow our Company, we expect to rely heavily on outside consultants to provide us with a wide range of expertise. Our current consulting arrangements include:
| ● | Hanover|Elite, which we engaged in mid-2013 to serve as our investor and public relations counsel of record; |
| ● | The Wavesense Group, LLC, which we engaged in 2013 to help us develop and further refine new business development, key messaging and customer relationship management solutions that will allow us to optimize our promising growth potential in the global education technology market place; and |
| ● | Neueon, which we engaged in 2013 to conduct an errors and omission assessment of the Trunity eLearning Platform and provide Fractional-CTO services with the appropriate level of technical guidance and oversight for early stage and evolving organizations.
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Management
Trunity’s management consists of experienced finance, sales, marketing and engineering professionals from the networking, technology and software industry. Biographical and other information on our executive officers and directors is set forth in “Item 10. Directors, Executive Officers and Corporate Governance” of this Report.
Impact of JOBS Act
On April 5, 2012, the Jumpstart Our Business Startup Act of 2012 (the “JOBS Act”) was enacted into law. Under the JOBS Act, Congress established a new statutorily defined category of registrant referred to as an “emerging growth company” (“EGC”) which, among other things, affords such registrants with relief from certain disclosure requirements under the Securities Exchange Act of 1934 (the “Exchange Act”) for so long as they continue to qualify as an EGC.
A registrant qualifies as an EGC if it has total annual gross revenues of less than $1 billion as of the end of its most recent completed fiscal year and has not filed for its initial public offering of common equity securities under the Securities Act of 1933 (the “Securities Act”) prior to December 9, 2011. Under this definition, we qualify as an EGC.
For so long as we qualify as an EGC:
| ● | We will not be required to comply with the auditor attestation over internal control requirements under §404(b) of the Sarbanes-Oxley Act of 2002 (“SOX”). |
| ● | We may elect to comply with the following scaled-back executive compensation disclosure requirements (“Reduced Executive Compensation Disclosures”): (a) EGCs are not required to comply with the annual “say on pay” and “say on golden parachute” advisory voting requirements and rules promulgated under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), (b) EGCs are not required to include the disclosures that will be required under future rules to be promulgated under the Dodd-Frank Act as to the relationship between executive compensation and company performance, and the ratio of CEO pay to median employee pay, and (c) EGCs may elect to provide the same level of executive compensation disclosures as required by Smaller Reporting Companies (as defined under Rule 12b-2 promulgated under the Exchange Act and referred to herein as “SRCs”), which includes, among other things, the omission of Compensation Disclosure and Analysis discussion, inclusion of fewer tables, and disclosure of compensation for only the CEO and the two next highest paid officers. |
| ● | We may elect on a one-time basis not to comply with new or revised accounting principles that apply to public companies, as long as we comply once the rules become applicable for private companies. We are required to make an irrevocable election which will continue for so long as we retain our status as an EGC status. |
| ● | We will not be required to comply with any Public Company Accounting Oversight Board rules regarding mandatory audit firm rotation and auditor discussion and analysis should such rules be adopted. |
As an EGC, we are not required to take advantage of all of the benefits made available to us under the JOBS Act described above, but may instead opt-in to certain of those scaled-back disclosures and phased-in requirements as we so desire. However, as discussed above, we are not permitted to selectively opt-in with respect to compliance with new or revised accounting rules or pronouncements. Accordingly, we have irrevocably elected to opt out of compliance with any new or revised accounting principles until any such rules become applicable to private companies.
Under the JOBS Act, we will retain our status as an EGC until the earliest of: (1) the last day of the fiscal year during which we have total annual gross revenues of $1,000,000,000 (as may be adjusted under the JOBS Act) or more; (2) the last day of the fiscal year following the fifth anniversary of the date of the first sale of our common equity securities pursuant to an effective registration statement under the Securities Act; (3) the date on which we have, during the previous 3-year period, issued more than $1,000,000,000 in non-convertible debt; or (4) the date on which we are deemed to be a “large accelerated filer” under Rule 12b-2 promulgated under the Exchange Act.
It should be noted that we also currently qualify as a SRCs. As a result, in the event that we are no longer an EGC, we will continue to be exempt from the auditor attestation requirements of SOX and eligible to comply with the Reduced Executive Compensation Disclosures for so long as we qualify as a SRCs. We also may elect to provide other scaled-back disclosures applicable to SRCs (not just those relating to Reduced Executive Compensation Disclosures).
Where You Can Find Additional Information
The Company is subject to the reporting requirements under the Exchange Act. The Company files with, or furnishes to, the SEC quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports and will furnish its proxy statement. These filings are available free of charge on the Company’s website, http://www.trunity.com, shortly after they are filed with, or furnished to, the SEC.
The SEC maintains an Internet website, http://www.sec.gov, which contains reports, proxy and information statements and other information regarding issuers.
Investing in our common stock is speculative and involves a high degree of risk. Prospective investors should carefully consider the following risks and uncertainties and all other information contained or referred to in this Annual Report before investing in our common stock. We believe that the risks and uncertainties described below are all of the material risks we face; however, additional risks and uncertainties that we are unaware of, or that we currently deem immaterial, also may become important factors that affect us. Our business, financial condition or results of operations could be materially and adversely affected by some or all of the matters described below or other currently unknown factors. In that case, the value of our Common Stock could decline, and investors could lose all of their investment.
Risks Related to Our Business
General; We Have Limited Operating History.
Trunity was formed in 2009 and has a limited operating history with substantial operating losses. The Company has yet to generate any significant revenues, and the commercial value of its products and services is uncertain. There can be no assurance that the Company will ever be profitable. Further, the Company is subject to all the risks inherent in a new business including, but not limited to: intense competition, lack of sufficient capital, loss of protection of proprietary technology and trade secrets, difficulties in commercializing its products, managing growth and hiring and retaining key employees; adverse changes in costs and general business and economic conditions; and the need to achieve product acceptance, to enter and develop new markets and to develop and maintain successful relationships with customers.
Intellectual Property.
The Company relies primarily on a combination of trade secrets, patents, copyright and trademark laws, and confidentiality procedures to protect its proprietary technology, which is its principal asset.
The Company’s ability to compete effectively will depend to a large extent on its success in protecting its proprietary technology, both in the United States and abroad. There can be no assurance that (i) any patent that the Company applies for will be issued, (ii) any patents issued will not be challenged, invalidated, or circumvented, (iii) that the Company will have the financial resources to enforce its patents or (iv )the patent rights granted will provide any competitive advantage. The Company could incur substantial costs in defending any patent infringement suits or in asserting its patent rights, including those granted by third parties, and the Company might not be able to afford such expenditures.
Although the Company has entered into confidentiality and invention agreements with its key personnel, there can be no assurance that these agreements will be honored or that the Company will be able to protect its rights to its non-patented trade secrets and know-how effectively. There can be no assurance that competitors will not independently develop substantially equivalent or superior proprietary information and techniques or otherwise gain access to the Company’s trade secrets and know-how. In addition, the Company may be required to obtain licenses to patents or other proprietary rights from third parties. If the Company does not obtain required licenses, it could encounter delays in product development or find that the development, manufacture or sale of products requiring these licenses could be foreclosed.
Need for Additional Funds.
We currently have enough cash on hand or commitments from investors to fund operations for approximately the next two months.month. Consequently, we are in the process of raising substantial additional funds. Without such additional funds, we may have to cease operations. The Company will require substantial additional funding for its contemplated research and development activities, commercialization of its products and services and ordinary operating expenses. Adequate funds for these purposes may not be available when needed or on terms acceptable to the Company. Insufficient funds may require the Company to delay or scale back its activities or to cease operations.
Going Concern.
The financial statements have been prepared assuming the Company will continue as a going concern. The Company has incurred net losses and negative operating cash flow since its inception. To the extent the Company may have negative cash flows in the future, it will continue to require additional capital to fund operations. The Company obtained additional capital investments under various debt and common stock issues. Although management continues to pursue its financing plans, there is no assurance that the Company will be successful in obtaining sufficient revenues to generate positive cash flow. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.
Competition.
The Company faces substantial competition from numerous other companies, most of whom have financial and other resources substantially greater than those of the Company. The Company’s principal competitors consist of educational publishing companies and open source platforms such as Pearson, Blackboard, Inc. and Moodle. These and other competitors may prove more successful in offering similar products and/or may offer alternative products that prove superior in performance and/or more popular with potential customers than the Company’s products. The Company’s ability to commercialize its products and grow and achieve profitability in accordance with its business plan will depend on its ability to satisfy its customers and withstand increasing competition by providing high-quality products at reasonable prices. There can be no assurance that the Company will be able to achieve or maintain a successful competitive position.
Operational failures in our network infrastructure could disrupt our remote hosting and application services, could cause us to lose clients, sales to potential clients and could result in increased expenses and reduced revenues.
Unanticipated problems affecting our network systems could cause interruptions or delays in the delivery of the hosting services and other application services we provide to some of our clients. We provide remote hosting and other application services through computer hardware that is currently located in third-party co-location facilities in various locations in the United States. We do not control the operation of these co-location facilities. Lengthy interruptions in our hosting service or other application services could be caused by the occurrence of a natural disaster, power loss, vandalism or other telecommunications problems at the co-location facilities or if these co-location facilities were to close without adequate notice. Although we have developed redundancies in some of our systems, we are exposed to the risk of network failures in the future.
We currently do not have adequate computer hardware and systems to provide alternative service for most of our hosting or application service clients in the event of an extended loss of service at the co-location facilities. Though some of our co-location facilities are served by data backup redundancy at other facilities, they are not equipped to provide full disaster recovery to all of our hosting and application services clients. If there are operational failures in our network infrastructure that cause interruptions, slower response times, loss of data or extended loss of service for our hosting and application services clients, we may be required to issue credits or pay penalties, current clients may terminate their contracts or elect not to renew them, and we may lose sales to potential clients. If we determine that we need additional hardware and systems, we may be required to make further investments in our network infrastructure, reducing our operating margins and diverting capital from other efforts.
Because we generally recognize revenues ratably over the term of our contract with a client, downturns or upturns in sales will not be fully reflected in our operating results until future periods.
When our products are fully launched we will recognize most of our revenues from clients monthly over the terms of their agreements, which are expected to be 12 months. As a result, much of the revenue we will report in each quarter is attributable to agreements entered into during previous quarters. Consequently, a decline in sales, client renewals, or market acceptance of our products in any one quarter would not necessarily be fully reflected in the revenues in that quarter, and would negatively affect our revenues and profitability in future quarters. This ratable revenue recognition also makes it difficult for us to rapidly increase our revenues through additional sales in any period, as revenues from new clients generally are recognized over the applicable agreement term.
Governmental Incentives.
The Company’s business plan relies to some extent on the availability of federal and state incentives for K-12 schools to implement online course offerings. There can be no assurance that some or all of these incentives will not be substantially reduced or eliminated, nor can there be any assurance that any currently proposed incentives will actually take effect.
Government regulation of the Internet and ecommerce is evolving and unfavorable changes could substantially harm our business and results of operations.
As Internet commerce continues to evolve, increasing regulation by federal, state or foreign agencies becomes more likely. Existing and future laws and regulations may impede the growth and use of the Internet or other online services. These regulation and laws may address pricing, content, copyrights, distribution, electronic contracts and other communications, consumer protection, the provision of online payment services, broadband residential Internet access and the characteristics and quality of products and services. It is not clear how existing laws governing issues such as property ownership, sales, and other taxes, libel and personal privacy apply to the Internet and ecommerce. Unfavorable resolution of these issues could have a material adverse effect on the Company’s business, results of the operations and financial condition.
Management and Dependence on Key Personnel.
The success of the Company will depend in large part upon the skill and efforts of its executive officers, Nicole Fernandez-McGovern, Joakim Lindblom, Cutler Cleveland and other key personnel, including those who may be hired. Loss of any such personnel, whether due to resignation, death, and disability or otherwise, could have a material adverse effect on the Company. In addition, as we seek to expand our organization, the hiring of qualified sales, technical and support personnel could be difficult due to the limited number of qualified professionals. Failure to attract, integrate and retain key personnel would result in disruptions to our operations, including adversely affecting the timeliness of product releases, the successful implementation and completion of company initiatives and the results of our operations.
Our current principal shareholders and management own a significant percentage of our stock and will be able to exercise significant influence over our affairs.
Our executive officers and directors, as of March 31, 2014,2015, beneficially own approximately 8.5%22.6% of the issued and outstanding Common Stock. Consequently, these shareholders may be able to determine the composition of the Board of Directors, retain the voting power to approve matters requiring shareholder approval and continue to have control over the Company’s operations. The interests of these shareholders may be different from the interests of other shareholders on these matters. The concentration of ownership could also have the effect of delaying or preventing a change in control or otherwise discourage a potential acquirer from attempting to obtain control of the Company.
Calamities.
Although the Company maintains insurance which it considers prudent, there can be no assurance that such insurance will prove adequate in the event of actual casualty losses or broader calamities such as terrorist attacks, earthquakes, financial crises, economic depressions or other catastrophic events, which are either uninsurable or not economically insurable. Any such losses could have a material adverse effect on the Company.
If our products contain errors, new product releases are delayed or our services are disrupted, we could lose new sales and be subject to significant liability claims.
Because our software products are complex, they may contain undetected errors or defects, known as bugs. Bugs can be detected at any point in a product’s life cycle, but are more common when a new product is introduced or when new versions are released. We have frequent new product and functionality releases, and those releases may be delayed from their scheduled date due to a wide range of factors. Finally, our service offerings may be disrupted causing delays or interruptions in the services provided to our clients. In the past, we have encountered defects in our product releases, product development delays and interruptions in our service offerings. Despite our product testing, planning and other quality control efforts, we anticipate that our products and services may encounter undetected defects, release delays and service interruptions in the future. Significant errors in our products, delays in product releases or disruptions in the provision of our services could lead to:
| ● | delays in or loss of market acceptance of our products; |
| ● | diversion of our resources; |
| ● | a lower rate of license renewals or upgrades; |
| ● | injury to our reputation; and |
| ● | increased service expenses or payment of damages. |
Because our clients use our products to store, retrieve and utilize critical information, we may be subject to significant liability claims if our products do not work properly or if the provision of our services is disrupted. Such claims could result in significant expenses, disrupt sales and affect our reputation and that of our products. We cannot be certain that the limitations of liability set forth in our licenses and agreements would be enforceable or would otherwise protect us from liability, and our insurance may not cover all or any of the claims. A material liability claim against us, regardless of its merit or its outcome, could result in substantial costs, significantly harm our business reputation and divert management’s attention from our operations.
If we fail to keep pace with rapid technological changes, our competitive position will suffer.
The eLearning industry is characterized by rapid technological change. Failure to respond to technological advances could make our business less efficient, or cause our products to be of a lesser quality than those of our competitors. These advances could also allow competitors to provide higher quality services at lower costs than we can provide. Thus, if we are unable to adopt or incorporate technological advances, our services will become uncompetitive.
We could lose revenues if there are changes in the spending policies or budget priorities for government funding of research institutions, foundations, universities and other education providers.
Most of our customers and potential customers are research institutions, foundations, universities and other education providers who depend substantially on government funding. Accordingly, any general decrease, delay or change in federal, state or local funding for colleges, universities, schools and other education providers could cause our current and potential customers to reduce their purchases of our products and services, or to decide not to renew service contracts, either of which could cause us to lose revenues. In addition, a specific reduction in governmental funding support for products such as ours would also cause us to lose revenues. The severe economic downturn experienced in the U.S. and globally has caused many of our clients to experience severe budgetary pressures, which has and will likely continue to have a negative impact on sales of our products. Continuing unfavorable economic conditions may result in further budget cuts and lead to lower overall spending, including information technology spending, by our current and potential clients, which may cause our revenues to decrease.
Security Breaches Could Damage Our Business.Business.
Concerns over the security of transactions conducted on the Internet and the privacy of users may inhibit the growth of the Internet, social networking sites, online services and online commerce. Failure to successfully prevent security breaches could significantly harm the Company’s business and expose the Company to litigation. Anyone who is able to circumvent the Company’s security measures could misappropriate proprietary information, including personal data, cause interruptions in the Company’s operations or damage its brand and reputation. The Company cannot assure the investors that its financial systems and other technological resources are completely secure from security breaches or sabotage. The Company may have to incur significant costs to protect against security breaches or to alleviate problems caused by breaches. Further, any well-publicized compromise of the Company’s security or the security of any other Internet provider could deter people from using the Company’s services or the Internet to conduct transactions that involve transmitting confidential information or downloading sensitive materials. The occurrence of one or more of these events could have a material adverse effect on the Company’s business, results of operations and financial condition.
Risks Related to our Foreign Business
We are currently doing business or attempting to do business in several foreign countries, including Ukraine and Dubai, and we plan to expand our operations into many more countries, mostly in the Third World. While we believe that these international operations have a substantial profit potential, these operations are subject to significant additional risks not faced in our domestic operations, including, but not limited to, risks relating to political instability, armed conflict (specially(particularly in Ukraine), legal systems which may not adequately protect contract and intellectual property rights, as well as risks relating to potential financial crises and currency exchange controls. There can be no assurance that these international risks will not materially adversely affect our business.
Risks Related to our Common Stock; Liquidity Risks
Volatility of Stock Price.
The market prices for securities of emerging and development stage companies such as the Company have historically been highly volatile. Difficulty in raising capital as well as future announcements concerning the Company or its competitors, including the results of testing, technological innovations or new commercial products, government regulations, developments concerning proprietary rights, litigation or public concern as to safety of potential products developed by the Company or others, may have a significant adverse impact on the market price of the Company’s stock.
We Have No Intention to Pay Dividends on Our Common Stock.
For the near-term, we intend to retain any remaining future earnings, if any, to finance our operations and do not anticipate paying any cash dividends with respect to our Common Stock.
Our Common Stock is Quoted on the OTC Bulletin Board (“OTCBB”) and the OTCQB, and Therethere is Minimal Liquidity in the Trading Market for Our Common Stock.
Our Common Stock is quoted on the OTCBB and the OTCQB under the symbol “TNTY”. There has been only minimal trading of our common stock, and no assurance can be given as to when, if ever, an active trading market will develop or, if developed, that it will be sustained. As a result, investors may be unable to sell their shares of our Common Stock.
Possible Depressive Effect on Price of Securities of Future Sales of Common Stock.
As a result of the Merger, the Company has issued to the former Trunity shareholders 33,231,037 shares of the Company’s Common Stock. These shares are no longer restricted securities subject to Rule 144. The sale or availability for sale of substantial amounts of Common Stock in the public market under Rule 144 or otherwise could materially adversely affect the prevailing market prices of the Company’s Common Stock and could impair the Company’s ability to raise additional capital through the sale of its equity securities.
Possible Adverse Effects of Authorization and Issuance of Preferred Stock.
The Company’s Board of Directors is authorized to issue up to 50,000,000 shares of preferred stock. The Board of Directors has the power to establish the dividend rates, liquidation preferences, voting rights, redemption and conversion terms and privileges with respect to any series of preferred stock. The issuance of any series of preferred stock having rights superior to those of the Common Stock may result in a decrease in the value or market price of the Common Stock and could further be used by the Board as a device to prevent a change in control favorable to the Company. Holders of preferred stock to be issued in the future may have the right to receive dividends and certain preferences in liquidation and conversion rights. The issuance of such preferred stock could make the possible takeover of the Company or the removal of management of the Company more difficult, and adversely affect the voting and other rights of the holder of the Common Stock, or depress the market price of the Common Stock.
Disclosures Relating to Low Priced Stocks; Restrictions on Resale of Low Price Stocks and on Broker-Dealer Sale; Possible Adverse Effect of “Penny Stock” Rules on Liquidity for the Company’s Securities.Securities.
Since the Company has net tangible assets of less than $1,000,000, transactions in the Company’s securities are subject to Rule 15g-9 under the Exchange Act which imposes additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and “accredited investors” (generally, individuals with a net worth in excess of $1,000,000 or annual incomes exceeding $200,000 or $300,000 together with their spouses). For transactions covered by this Rule, a broker-dealer must make a special suitability determination for the purchaser and shall receive the purchaser’s written consent to the transaction prior to the sale. Consequently, this Rule may affect the ability of broker-dealers to sell the Company’s securities, and may affect the ability of shareholders to sell any of the Company’s securities in the secondary market.
The Commission has adopted regulations which generally define a “penny stock” to be any non-NASDAQ equity security of a small company that has a market price (as therein defined) less than $5.00 per share, or with an exercise price of less than $5.00 per share subject to certain exceptions, and which is not traded on any exchange or quoted on NASDAQ. For any transaction by broker-dealers involving a penny stock (unless exempt), the rules require delivery, prior to a transaction in a penny stock, of a risk disclosure document relating to the penny stock market. Disclosure is also required to be made about compensation payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements are required to be sent disclosing recent price information for the penny stock held in an account and information on the limited market in penny stocks.
Not applicable.
The Company does not own any real property. In August 2013, the Company executed a lease for 8,713 square feet for its former corporate offices located in Portsmouth, New Hampshire. The lease commenced on August 9, 2013 and hashad a five-year term ending on September 8, 2018. The monthly rental payments for the first year arewere $10,165 per month and willwere scheduled to increase on each anniversary at a rate of 3% per annum. Also theThe Company iswas required to pay its proportionate share of the building’s common area maintenance (“CAM”), and real estate taxes, utilities serving the premises and the cost of premises janitorial service. These additional items areservice estimated to total $5,900be $5,210 on a monthly basis.
On August 11, 2014, the landlord of our former corporate offices in Portsmouth, New Hampshire declared the Company in default based on its failure to pay rent and other charges due since July 2014. The Company vacated the premises on August 22, 2014, and moved its office to smaller, less expensive premises in the neighboring area. Past due amounts owed on the lease through the date of surrender of the premises total approximately $51,000. Total payments from surrender through the end of the lease would be approximately $900,000. The Company is attempting to negotiate a settlement of the lease with the landlord based on an offset for the fair market rental value of the premises and a discount to present value, as well as a discount based on the Company’s precarious financial condition. The space has been leased to a new tenant controlled by the Company's former CEO, Terry Anderton, effective January 1, 2015. No legal demands have been filed by either party. The Company has recorded total liability of $100,000 to cover its exposure based on the lease, an amount equal to its pending settlement offer to the landlord. There can be no assurance that settlement of this lease will not have a material adverse effect on the Company.
In September 2013, the Company executed a lease for office space located in Palo Alto, California. The lease commenced on September 1, 2013 with monthly payments of $600 per month and hashad a twelve monthtwelve-month term ending on August 31, 2014. The Company has sublet partial spacea portion of the office in Palo Alto for $300 a month through the end of the rental term ending on August 31, 2014. Upon expiration of the lease term the Company vacated the property.
In September 2014, the Company executed a lease for office space located in Portsmouth, New Hampshire. The lease commenced on September 1, 2014, with monthly payments of $3,000 per month on a month-to-month term. The Company vacated the property as of January 31, 2015. In April 2015, the Company executed a lease commencing on May 1, 2015, for office space located in Davie, Florida for its corporate offices. The lease has monthly payments of $954 per month for a six-month term and has an option to extend the lease for another six-month term.
In February 2012, Trunity and ourthe Company’s former CEO, Terry Anderton, were served with a complaint filed by an ex-Trunity, employee, William Horn, in the Nashua, New Hampshire, Superior Court. The plaintiff served as Executive Vice President of Marketing & Business Development from March until August 2011 at an annual salary of $100,000. He assertsasserted whistleblower status and allegesalleged that he was wrongfully terminated because of his allegations that the Company had violated securities, tax and employment laws. The complaint seekssought unspecified damages under the New Hampshire Whistleblower Act and common law, including reinstatement, back pay and attorney’s fees and costs. In May 2012, wethe Company responded to the complaint by denying all material allegations and filing a counterclaim against the plaintiff for breach of contract, tortious interference with contractual and business relations, breach of fiduciary duty and violation of the Uniform Trade Secrets Act. Discovery has begun; a deposition of Mr. HornSubstantial discovery was conducted on March 25, 2013. No expert has been disclosed by Mr. Horn for liability or damages.taken.
On June 13, 2013, the Court granted ourthe Company Motion to Dismiss Terry Anderton, in his individual capacity, from the case. Therefore, Trunity remainsremained the sole defendant in this matter. We continue to proceed with discovery and may schedule a second deposition of the plaintiff based upon the additional documents and information produced by the plaintiff pursuant to the Court’s Order. As discovery continues, third party depositions are expected to be scheduled.
Trial of the case is nowwas scheduled for the weeks of June 16 and June 23, 2014. Pretrial materials are due May 23,
On April 14, 2014, and a trial conference has been scheduled for June 6, 2014. Based on the preliminary information available to us, we believe that the complaint is without merit and intend to vigorously defendparties mediated the case and prosecutesettlement terms reached. On May 8, 2014, following mediation, Mr. Horn signed a Confidential Settlement Agreement and General Release, which became effective on the counterclaim.
Mediation is mandatory in New Hampshire. A half-day mediation has been scheduled for April 14, 2014. To date, there has not been aeighth day following his signature. The case was settled based on Trunity’s agreement to pay $60,000 to Mr. Horn, less applicable withholding and taxes, as well as confidentiality provisions, non-disparagement, and the parties exchanging mutual releases. The settlement demand from Plaintiff. Moreover, at this point in the litigation, Trunity has paid in full the deductible under the applicable insurance policy andpayment was made by the insurance company, is paying forwhich has paid all costs of the defense of this case.litigation above the $50,000 deductible. The parties filed Docket Markings bringing the case to conclusion.
There are no other material pending legal proceedings to which we are a party or to which any of our property is subject and, to the best of our knowledge, no such actions against us are contemplated or threatened.
Not Applicable.
Our Common Stock is quoted on the Over-the-Counter Bulletin Board (“OTCBB”) and the OTCQB under the symbol “TNTY” (which was changed from “BNTE” in February 2012 as a result of the Merger). There has been no material trading in our stock.
The following table shows the high and low closing prices for the periods indicated:
| Quarter ended | | High | | | Low | |
| March 31, 2014 | | $ | 0.23 | | | $ | 0.23 | |
| June 30, 2014( through April 11, 2014) | | $ | 0.23 | | | $ | 0.23 | |
| Quarter ended | | High | | | Low | |
| March 31, 2013 | | $ | 0.85 | | | $ | 0.80 | |
| June 30, 2013 | | $ | 0.59 | | | $ | 0.50 | |
| September 30, 2013 | | $ | 0.37 | | | $ | 0.33 | |
| December 31, 2013 | | $ | 0.30 | | | $ | 0.30 | |
| Quarter ended | | High | | | Low | |
| March 31, 2015 | | $ | 0.12 | | | $ | 0.07 | |
| June 30, 2015( through April 13, 2015) | | $ | 0.10 | | | $ | | |
| Quarter ended | | High | | | Low | |
| March 31, 2012 | | $ | 5.00 | | | $ | 5.00 | |
| June 30, 2012 | | $ | 3.00 | | | $ | 3.00 | |
| September 30, 2012 | | $ | 3.00 | | | $ | 3.00 | |
| December 31, 2012 | | $ | 0.40 | | | $ | 0.40 | |
| Quarter ended | | High | | | Low | |
| March 31, 2014 | | $ | 0.32 | | | $ | 0.17 | |
| June 30, 2014 | | $ | 0.24 | | | $ | 0.15 | |
| September 30, 2014 | | $ | 0.20 | | | $ | 0.05 | |
| December 31, 2014 | | $ | 0.18 | | | $ | 0.05 | |
| Quarter ended | | High | | | Low | |
| March 31, 2013 | | $ | 0.85 | | | $ | 0.80 | |
| June 30, 2013 | | $ | 0.59 | | | $ | 0.50 | |
| September 30, 2013 | | $ | 0.37 | | | $ | 0.33 | |
| December 31, 2013 | | $ | 0.30 | | | $ | 0.30 | |
The above information was obtained from Yahoo! Finance. Because these are over the counter market quotations, these quotations reflect inter-dealer prices, without retail mark-up, markdown or commissions and may not represent actual transactions. There is currently no public trading market for our preferred stock.
The last sale price of our common stock as reported on the OTC Bulletin Board and OTCQB on April 11, 201413, 2015 was $0.23.$0.09. As of March 31, 2014,2015, there were 381391 record holders of the Company’s Common Stock.
Dividends
The Company has never declared or paid any cash dividends on its common stock. We have never paid cash dividends on our common stock. Under Delaware law, we may declare and pay dividends on our capital stock either out of our surplus, as defined in the relevant Delaware statutes, or if there is no such surplus, out of our net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. If, however, the capital of our Company, computed in accordance with the relevant Delaware statutes, has been diminished by depreciation in the value of our property, or by losses, or otherwise, to an amount less than the aggregate amount of the capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets, we are prohibited from declaring and paying out of such net profits and dividends upon any shares of our capital stock until the deficiency in the amount of capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets shall have been repaired. The Company does not intend to declare or pay any cash dividends on its common stock in the foreseeable future. The holders of the Company’s common stock are entitled to receive only such dividends (cash or otherwise) as may be declared by the Company’s Board of Directors.
Equity Compensation Plans
For information on the Company’s equity compensation plans, see “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”
Sales of Unregistered Securities
Early 20142015 Private Placements
From March 1, In 2015, the Company borrowed from accredited investors and related parties (the “Debenture Holders”) $212,000 ($15,000 was provided by the Interim CEO and CFO and $25,000 was provided by board member Les V. Anderton) pursuant to an Unsecured Redeemable Debenture Series F (the “Series F Debentures”) that will pay interest during the Debenture term in the amount of 10% of the principal amount. The holders of the Series F Debentures also received warrants to acquire 212,000 shares of Common Stock for an exercise price of $0.15 per share, exercisable over three years equal to 100% of the principal amount of the debenture. In addition the Company will issue the Debenture Holders warrants (the “2015 Warrant”) to purchase 212,000 shares of the Company’s Common Stock at a price per 2015 Warrant Share to be determined. The Company incurred no commission costs in connection with these transactions.
2014 to April 11,Private Placements of Common Stock
During the year ended December 31, 2014, the Company raised gross proceeds of $53,000$761,025 through the sale of 353,3334,630,390 shares of its Common Stock to accredited investors in private placement transactions at a price of $0.165 per share. Each investor also received a five-year warrant to purchase one share of common stockCommon Stock for every four shares purchased at an exercise price of $0.50 per share. In addition,The Company incurred $22,951 of securities issuance costs and issued 114,756 warrants representing commissions paid to broker-dealers who assisted with these transactions and repurchased 667,702 shares of common stock for $66,770 from the former CEO in connection with these transactions.
March 2014 weConvertible Promissory Note
In March 2014, the Company borrowed $100,000 from an accredited investor pursuant to a six monthsix-month convertible promissory note (the “Note”) bearing interest at 10% per year. The noteNote is convertible at $.165$0.165 per share with the same warrant coverage as for the shares privately sold as set forth above.share. The Company incurred $5,000 of securities and debt issuance costs and issued 25,000 warrants representing commissionscommission paid to broker-dealersa broker-dealer who assisted with this transaction and repurchased 101,010 shares of common stock for $10,101 from the former CEO in connection with this transaction.
The entire principal balance of this Note, together with all unpaid interest accrued thereon, was due and payable on September 24, 2014 (the “Maturity Date”). The principal amount of this Note was convertible in increments of $10,000 into Common Stock of the Company at a price of $0.165 per share (the “Conversion Shares”). Upon conversion, the Holder was entitled to receive, in addition to the Conversion Shares, a five-year warrant to purchase, at $0.50 per share, an amount of shares of Common Stock equal to 25% of the number of Conversion Shares. The Note was converted effective July 1, 2014 to 606,061 shares of Common Stock and 151,515 warrants were issued to the holder.
During the year ended December 31, 2014, interest expense of $2,685 on the Note was recorded.
July 2014 Convertible Promissory Notes
In July 2014, the Company issued Convertible Promissory Notes with an aggregate face value of $52,500 for cash ($27,500 was provided by the interim CEO and CFO and two board members). The Convertible Promissory Notes accrue interest at an annual rate of 10%, mature in July 2015, and are convertible into the Company’s Common Stock at a conversion rate of $0.165 per share. The holders of the Convertible Promissory Notes also received warrants to acquire 318,182 shares of Common Stock for an exercise price of $0.50 per share, exercisable over five years.
The Company allocated the proceeds from the Convertible Promissory Notes to the warrants and the notes based on their relative fair values, allocated $6,117 to the warrants, and determined that there were aggregate beneficial conversion features of $8,512. The fair value of the warrants was determined using a Black-Scholes valuation model and the following assumptions: volatility – 43.99% to 44.08%, risk free rate – 1.66 to 1.74% %, dividend rate – 0.00%. The amount allocated to the warrants and beneficial conversion features; totaling $14,629 was recorded as a discount against the Convertible Promissory Notes, with offsetting entry to additional paid-in capital. The discounts are being amortized into interest expense over the term of the Convertible Promissory Notes.
During the year ended December 31, 2014, the Company recorded amortization of the discount of $7,218 and recorded interest expense of $2,584. As of December 31, 2014, the carrying value of the Convertible Promissory Notes was $45,089, net of unamortized discounts of $7,411.
August 2014 and November Convertible Debentures (Series C)
In August 2014, the Company issued Series C Convertible Debentures (the “Series C Debentures”) with an aggregate face value of $350,833 in exchange for the cancellation of Series B Convertible Debentures with outstanding principal and accrued interest of $350,833. The Series C Debentures accrue interest at an annual rate of 10%, mature in July and November 2015, and are convertible into the Company’s common stock at a conversion rate of $0.20 per share. The holders of the Series C Debentures also received warrants to acquire 1,500,000 shares of common stock for an exercise price of $0.20 per share, exercisable over five years.
The Company allocated the face value of the Series C Debentures to the warrants and the debentures based on their relative fair values, and allocated $72,869 to the warrants, which was recorded as a discount against the Series C Debentures, with offsetting entry to additional paid-in capital. The fair value of the warrants was determined using a Black-Scholes valuation model and the following assumptions: volatility – 43.74% and 44.28%, risk free rate – 1.62 and 1.67% %, dividend rate – 0.00%. The discount was fully expensed upon execution of the new debentures as debt extinguishment costs.
During the year ended December 31, 2014, the Company recorded debt extinguishment costs related to the Series C Debentures of $72,869. As of December 31, 2014, the carrying value of the Series C Debentures was $350,833 and interest expense of $11,847 was recorded.
July to November 2014 Convertible Debentures (Series D)
During the months of July through November 2014, the Company issued Series D Convertible Debentures (the “Series D Debentures”) with an aggregate face value of $763,199 in exchange for $176,718 of cash plus accrued interest ($35,000 was provided by the interim CEO and CFO), in settlement of a Series A Convertible Debenture with outstanding principal and accrued interest of $26,477, and in settlement of Series B Convertible Debentures with aggregate outstanding principal and accrued interest of $560,003, of which $287,159 represented a conversion of notes payable-related parties to the Founders. The Series D Debentures accrue interest at an annual rate of 12%, mature in July through November 2015, and are convertible into the Company’s Common Stock at a conversion rate of $0.165 per share. The holders of the Series D Debentures also received warrants to acquire 3,332,000 shares of Common Stock for an exercise price of $0.20 per share, exercisable over five years.
The Company allocated the face value of the Series D Debentures to the warrants and the debentures based on their relative fair values, allocated $115,945 to the warrants, and determined that there were aggregate beneficial conversion features of $121,282. The fair value of the warrants was determined using a Black-Scholes valuation model and the following assumptions: volatility – 43.63% to 44.28%, risk free rate – 1.60 to 1.69% %, dividend rate – 0.00%. The amount allocated to the warrants and beneficial conversion features totaling $237,227 was recorded as a discount against the Series D Debentures, with offsetting entry to additional paid-in capital. A portion of the discount was fully expensed upon execution of the new debentures as debt extinguishment costs and the remaining amount are being amortized into interest expense over the term of the Series D Debentures.
During the year ended December 31, 2014, the Company recorded debt extinguishment costs of $237,227, amortization of the discount related to the Series D Debentures of $9,992 and interest expense of $22,868. As of December 31, 2014, the carrying value of the Series D Debentures was $743,132, net of unamortized discounts of $20,067.
November and December 2014 Unsecured Redeemable Debentures (Series E)
In October and November 2014, the Company borrowed from accredited investors and related parties (the “Debenture Holders”) $145,000 pursuant to an Unsecured Redeemable Debenture Series E (the “Series E Debentures”) that will pay interest during the Debenture term in the amount of 15% of the principal amount. The holders of the Series E Debentures also received warrants to acquire 145,000 shares of Common Stock for an exercise price of $0.15 per share, exercisable over four years equal to 100% of the principal amount of the debenture. In addition the Company will issue the Debenture Holders warrants (the “2015 Warrant”) to purchase 145,000 shares of the Company’s Common Stock at a price per 2015 Warrant Share to be determined. The Company incurred no commission costs in connection with these transactions.
The Company allocated the face value of the Series E Debentures to the warrants and the debentures based on their relative fair values, allocated $7,945 to the warrants, and determined that there were aggregate beneficial conversion features of $137,055. The fair value of the warrants was determined using a Black-Scholes valuation model and the following assumptions: volatility – 42.31% to 44.28%, risk free rate – 1.63 to 1.75% %, dividend rate – 0.00%. The amount allocated to the warrants and beneficial conversion features totaling $145,000 was recorded as a discount against the Series E Debentures, with offsetting entry to additional paid-in capital. The discounts are being amortized into interest expense over the term of the Series E Debentures.
During the year ended December 31, 2014, the Company recorded amortization of the discount of $33,725 and recorded interest expense of $2,509. As of December 31, 2014, the carrying value of the Series E Debentures was $33,725, net of unamortized discounts of $111,275.
November 2014 Convertible Debenture with Peak One Opportunity Fund, L.P.
In November 2014, the Company entered into a Securities Purchase Agreement with Peak One Opportunity Fund, L.P. (“Peak”) pursuant to which the Company sold to Peak for $112,500 a Convertible Debenture (the “Peak Debenture”) in the principal amount of $125,000 (the “Principal Amount”) due on November 6, 2017 (the “Maturity Date”). Pursuant to the Peak Debenture, the Company agreed to pay interest on the Principal Amount outstanding from time to time in arrears (i) upon conversion or (ii) on the Maturity Date, at the rate of 5% per annum. The Company has the option to redeem the Peak Debenture prior to the Maturity Date at any time or from time to time by paying the Principal Amount plus accrued interest. Beginning 91 days after the issue date, Peak may convert the principal and accrued interest (the “Conversion Amount”) into shares of Common Stock at a conversion price for each share of Common Stock (the “Conversion Price”) equal to 65% of the lowest closing bid price (as reported by Bloomberg LP) of Common Stock for the 20 trading days immediately preceding the date of conversion of the Debenture (subject to equitable adjustments resulting from any stock splits, stock dividends, recapitalizations or similar events). In addition with the Peak Agreement, the Company paid issuance costs of $10,000 and issued 137,500 shares of restricted Common Stock to cover the expenses incurred and analysis performed by Peak in connection with the transaction. On the date of issuance, the Company recorded the fair value of the conversion option of $66,423 as a derivative liability and debt discount to be amortized into interest expense through the maturity date. During the year ended December 31, 2014, the Company recognized $3,336 of amortization of the discount. As of December 31, 2014, the Peak Debenture is carried at $61,913, net of unamortized discount of $63,087.
The fair value of the 137,500 shares of restricted stock of $24,750, and $10,000 of issuance costs added to the principal, was recorded as deferred issuance costs to be amortized into interest expense over the term of the debenture. During the year ended December 31, 2014, the Company recognized $1,745 of interest expense from the amortization of deferred financing fees.
July 2012 Convertible Debentures (Series A)
In July 2012, the Company issued Convertible Debentures (the “Series A Debentures”) with an aggregate face value of $215,300 Canadian Dollars ($197,344 as of December June 30, 2014). The Series A Debentures matured in July 2014, bore interest at an annual rate of 10% through July 2014 and 12% thereafter, and were convertible at the option of the holders into Units, each consisting of a) one share of Common stock and b) one warrant to purchase one share of common stock at 0.40 Canadian Dollars per share (“Unit”). The number of Units issuable upon conversion of the Series A Debentures is determined by dividing the then outstanding principal and accrued but unpaid interest by a) 0.35 Canadian Dollars if a Liquidity Event, as defined in the Debenture agreement, occurs within six months of the closing of the offering of the July Notes, or b) 0.32 Canadian Dollars if a Liquidity Event does not occur within six months of the closing of the offering of the Series A Debentures.
In July 2014, the holder of a Series A Debenture exchanged the debenture with a face value of $25,000 Canadian Dollars ($23,360 US), and accrued interest of $3,336 Canadian Dollars (US$3,117) for a Series D Convertible Debenture with a face amount of US$26,477. The Company recorded a loss on early extinguishment of debt of $6,728, primarily related to fair value of the warrants in relation to the debt (relative fair value) on the debt exchange transaction. The Company has defaulted on its obligation to pay the remaining principal amount of debentures due October and November 2014. The total amount due on these debentures, including interest, is $167,540. The Company has negotiated restructured terms with the majority of the debenture holders and is attempting to complete the formal restructuring of these debt obligations.
In 2012, the Company recorded a beneficial conversion feature based on the intrinsic value of the conversion feature equal to the excess of the fair value of one Unit over the conversion rate of 0.32 Canadian Dollars. The fair value of one Unit was estimated based on the most recent sale of common stock in a private placement immediately preceding the issuance of the July Notes and, for the warrant contained in one Unit, using a Black-Scholes valuation model and the following assumptions: volatility – 50.50%, risk free rate – 0.22%, dividend rate – 0.00%. The Company recorded a discount against the debt for the beneficial conversion feature totaling $84,788, which is being amortized into interest expense through the maturity dates of the Series A Debentures.
For the years ended December 31, 2014 and 2013, the Company recorded amortization of the discount of $24,730 and $42,394, respectively. As of December 31, 2014, the net carrying value of the outstanding Series A Debentures totaled $167,540, and no unamortized discount remains. During the years ended December 31, 2014 and 2013, we recorded interest expense on the Series A Debentures of $15,212 and $21,013, respectively.
In connection with the issuance of the Series A Debentures, the Company paid transactions fees to brokers consisting of cash of $85,237, and warrants to purchase 43,497 shares of common stock over a two-year period at an exercise price of 0.40 Canadian Dollars. The Company estimated the fair value of the warrants using a Black-Scholes valuation model and the following assumptions: volatility – 50.49%, risk free rate – 0.22%, dividend rate – 0.00%. The Company allocated a portion of the fair value of the consideration totaling $52,869 to debt issuance costs, which was capitalized and is being amortized into interest expense over the two-year terms of the Series A Debentures. The remaining portion of the fair value of the transactions costs, totaling $36,126, was allocated to equity, treated as equity issuance costs, and recorded against additional paid-in capital.
Amortization of debt issuance costs on the Series A Debentures of $13,217 and $26,435 was recorded during the years ended December 31, 2014 and 2013, respectively.
August and September 2012 Convertible Debentures (Series B)
In August and September 2012, the Company issued Convertible Debentures (the “Series B Debentures-Issuance I”) with an aggregate face value of $330,900. The Series B Debentures-Issuance I matured in August and September 2014, bore interest at an annual rate of 10%, and were convertible at the option of the holders into Units, each consisting of a) one share of common stock and b) one warrant to purchase one share of Common Stock at $0.40 per share (“Unit”). The number of units issuable upon conversion of the Series B Debentures-Issuance I was determined by dividing the then outstanding principal and accrued but unpaid interest by a) $0.35 if a Liquidity Event, as defined in the debenture agreements, occurs within six months of the closing of the offering of the Series B Debentures-Issuance I, or b) $0.32 if a Liquidity Event does not occur within six months of the closing of the offering of the Series B Debentures-Issuance I.
In September 2014, all of the holders of the Series B Debentures-Issuance I exchanged the debentures with an aggregate face value of $330,900 and accrued interest of $66,000 for either a Series C or D Debenture with an aggregate face value of $397,080. The Company recorded a loss on early extinguishment of debt of $56,308, primarily related to fair value of the warrants in relation to the debt (relative fair value) on the debt exchange transaction.
In 2012, the Company recorded a beneficial conversion feature based on the intrinsic value of the conversion feature equal to the excess of the fair value of one Unit over the conversion rate of $0.32. The fair value of one Unit was estimated based on the most recent sale of Common Stock in a private placement immediately preceding the issuance of the Series B Debentures-Issuance I and, for the warrant contained in one Unit, using a Black-Scholes valuation model and the following assumptions: volatility – 50.50%, risk free rate – 0.22%, dividend rate – 0.00%. The Company recorded a discount against the debt for the beneficial conversion feature totaling $115,712, which was being amortized into interest expense through the maturity dates of the Series B Debentures-Issuance I.
For the years ended December 31, 2014 and 2013, the Company recorded amortization of the discount of $38,571 and $57,856, respectively. As of December 31, 2014, there was no remaining balance outstanding on the Series B Debentures-Issuance I.
In connection with the issuance of the Series B Debentures-Issuance I, the Company paid cash transactions fees to brokers totaling $30,456. The Company allocated a portion of the transaction fees totaling $19,806, to debt issuance costs, which was capitalized and is being amortized into interest expense over the two-year terms of the August and September Notes. The remaining portion of the fair value of the transactions costs, totaling $10,650 was allocated to equity, treated as equity issuance costs, and recorded against additional paid-in capital. Amortization of debt issuance costs on the Series B Debentures-Issuance I of $6,602 and $9,903 was recorded for the years ended December 31, 2014 and 2013, respectively.
October and November 2012 Convertible Debentures (Series B)
In October and November 2012, the Company issued Convertible Debentures (“Series B Debentures-Issuance II”) with an aggregate face value of $624,372 of which $565,372 represented a conversion of notes payable-related parties to the Founders. In 2013, two of the founders sold a portion of their debenture totaling $141,800 of their aggregate face to third parties. The Series B Debentures-Issuance II matured in October and November 2014, bore interest at an annual rate of 10%, and were convertible at the option of the holders into Units, each consisting of a) one share of common stock and b) one warrant to purchase one share of common stock at $0.40 per share (“Unit”). The number of Units issuable upon conversion of the Series B Debentures-Issuance II is determined by dividing the then outstanding principal and accrued but unpaid interest by a) $0.35 if a Liquidity Event, as defined in the debenture agreements, occurs within six months of the closing of the offering of the Series B Debentures-Issuance II, or b) $0.32 if a Liquidity Event does not occur within six months of the closing of the offering of the Series B Debentures-Issuance II.
In October and November 2014, all but one of the holders of the Series B Debentures-Issuance II exchanged the debentures with an aggregate face value of $464,440 and accrued interest of $51,317 for either a Series C or D Debenture with an aggregate face value of $513,757. The Company recorded a loss on early extinguishment of debt of $212,261, primarily related to fair value of the warrants in relation to the debt (relative fair value) on the debt exchange transaction. The Company has defaulted on its obligation to pay the remaining principal amount of a debenture due October and November 2014. The total amount due on this debenture, including interest, is $161,932. The Company has negotiated restructured terms with the majority of the debenture holders and is attempting to complete the formal restructuring of this debt obligation.
The Company recorded a beneficial conversion feature based on the intrinsic value of the conversion feature equal to the excess of the fair value of one Unit over the conversion rate of $0.32. The fair value of one Unit was estimated based on the most recent sale of Common Stock in a private placement immediately preceding the issuance of the Series B Debentures-Issuance II and, for the warrant contained in one Unit, using a Black-Scholes valuation model and the following assumptions: volatility – 50.50%, risk free rate – 0.22%, dividend rate – 0.00%. The Company recorded a discount against the debt for the beneficial conversion feature totaling $254,004, which is being amortized into interest expense through the maturity dates of the Series B Debentures-Issuance II.
For the years ended December 31, 2014 and 2013, the Company recorded amortization of the discount of $127,193 and $105,694, respectively. As of December 31, 2014, the net carrying value of the Series B Debentures-Issuance II totaled $161,932 and no unamortized discount remains. For the years ended December 31, 2014 and 2013, interest expense on the Series B Debentures-Issuance II of $55,100 and $62,437, respectively, was recorded. In connection with the issuance of the Series B Debentures-Issuance II, the Company paid no cash transactions fees to brokers.
Early 2013 Private Placement
From January through May 2013, the Company raised gross proceeds of $275,000 through the sale of 687,500 shares of its Common Stock to accredited investors in private placement transactions at a price of $0.40 per share. Each investor also received a two year warrant to purchase one share of common stock at an exercise price of $1.00 per share for each $1.00 invested. The Company incurred stock issuance costs of approximately $8,000 consisting chiefly of commissions paid to broker-dealers who assisted with the offering.
June 2013 Private Placement
On June 5, 2013, the Company completed the closing of a private placement (the “Private Placement”) with 35 accredited investors (the “Investors”), pursuant to which the Company sold to the Investors an aggregate of 8,936,470 shares of our common stock (the “Common Stock”) at a purchase price of $0.40 per share, resulting in gross offering proceeds of $3,574,588. In addition, the Investors received two-year warrants to purchase an aggregate of 8,936,470 shares of Common Stock at an exercise price of $1.00 per share (the “Investor Warrants”). The Company received net proceeds of approximately $3.3 million after payment of placement agent fees and costs relating to the Private Placement. The net proceeds from the Private Placement have been and will be used to fund the Company’s ongoing operations and to provide working capital.
In consideration for services rendered as the exclusive placement agent in the Private Placement, the Company paid ACGM, Inc., New York, New York (the “Placement Agent”) cash commissions totaling $178,729 (5% of the gross offering proceeds). In addition, as consideration for services rendered in connection with the Private Placement, the Company issued to the Placement Agent 357,459 restricted shares of our Common Stock, representing 8% of the gross proceeds of the Private Placement at a price of $0.80 per share to determine the number of shares issued to the Placement Agent.
The lead investor in the Private Placement was Pan-African Investment Company, LLC (“PIC”), a New York City-based private investment firm which invested $1,000,000 and purchased 2,500,000 shares of Common Stock and received an Investor Warrant to purchase 2,500,000 shares. In connection with PIC’s lead investment the Company, its major shareholders and PIC agreed to appoint a PIC representative to the Trunity Board of Directors and to nominate that designee for reelection by the shareholders at each annual meeting held while PIC owns at least 2% of the Company’s issued and outstanding Common Stock. In addition, the Company and PIC entered into a Memorandum of Understanding to structure a formal business relationship whereby PIC will have the exclusive right to introduce the Trunity eLearning Platform to African countries seeking to improve the quality of education for their citizens.
On September 9, 2013, we filed a Registration Statement on Form S-1 with the U.S. Securities and Exchange Commission (“SEC”) relating to the resale of (i) 8,936,470 shares of common stock, and (ii) 8,936,470 shares of common stock issuable upon exercise of warrants, sold to the Investors in the Private Placement. On September 30, 2013, the Registration Statement was declared effective by the SEC.
2012 Private Placements
During 2012, we raised gross proceeds of approximately $875,000 through the sale of 2,462,211 shares of our common stock to investors at an average price of $0.35 per share. These sales of shares occurred at various times throughout 2012. The Company incurred stock issuance costs of approximately $45,000 consisting chiefly of commissions paid to broker-dealers who assisted with the offering
July 2012 Convertible Debentures
In July 2012, the Company issued convertible debentures (“July Notes”) with an aggregate face value of $215,300 Canadian Dollars ($205,224 as of December 31, 2013). The July Notes mature in July 2014, bear interest at an annual rate of 10%, and are convertible at the option of the holders into Units, each consisting of a) one share of common stock and b) one warrant to purchase one share of common stock at 0.40 Canadian Dollars per share (“Unit”). The number of Units issuable upon conversion of the notes is determined by dividing the then outstanding principal and accrued but unpaid interest by a) 0.35 Canadian Dollars if a Liquidity Event, as defined in the debenture agreements, occurs within six months of the closing of the offering of the notes, or b) 0.32 Canadian Dollars if a Liquidity Event does not occur within six months of the closing of the offering of the July Notes.
The Company recorded a beneficial conversion feature based on the intrinsic value of the conversion feature equal to the excess of the fair value of one Unit over the conversion rate of 0.32 Canadian Dollars. The fair value of one Unit was estimated based on the most recent sale of common stock in a private placement immediately preceding the issuance of the July Notes and, for the warrant contained in one Unit, using a Black Scholes valuation model and the following assumptions: volatility – 50.50%, risk free rate - 0.22%, dividend rate – 0.00%. The Company recorded a discount against the debt for the beneficial conversion feature totaling $84,788, which is being amortized into interest expense through the maturity dates of the July Notes. For the twelve months ended December 31, 2013, the Company recorded amortization of the discount of $42,394. As of December 31, 2013, the net carrying value of the July Notes totaled $180,494, net of unamortized discount of $24,730. For the twelve months ended December 31, 2013, interest expense on the July Notes of $20,910 was recorded.
In connection with the issuance of the July Notes, the Company paid transactions fees to brokers consisting of cash of $85,237, and warrants to purchase 43,497 shares over a two-year period for an exercise price of 0.40 Canadian Dollars. The Company estimated the fair value of the warrants using a Black Scholes valuation model and the following assumptions: volatility – 50.49%, risk free rate – 0.22%, dividend rate – 0.00%.
The Company allocated a portion of the fair value of the consideration totaling $52,869, to debt issuance costs, which was capitalized and is being amortized into interest expense over the two-year terms of the July Notes. The remaining portion of the fair value of the transactions costs, totaling $36,126 was allocated to equity, treated as equity issuance costs, and recorded against additional paid in capital. Amortization of debt issuance costs on the July Notes of $26,435 was recorded for twelve months ended December 31, 2013.
September 2012 Convertible Debentures
In September 2012, the Company issued convertible debentures (“September Notes”) with an aggregate face value of $330,900. The September Notes mature in September 2014, bear interest at an annual rate of 10%, and are convertible at the option of the holders into Units, each consisting of a) one share of common stock and b) one warrant to purchase one share of common stock at $0.40 per share (“Unit”). The number of units issuable upon conversion of the notes is determined by dividing the then outstanding principal and accrued but unpaid interest by a) $0.35 if a Liquidity Event, as defined in the debenture agreements, occurs within six months of the closing of the offering of the notes, or b) $0.32 if a Liquidity Event does not occur within six months of the closing of the offering of the September Notes.
The Company recorded a beneficial conversion feature based on the intrinsic value of the conversion feature equal to the excess of the fair value of one Unit over the conversion rate of $0.32. The fair value of one Unit was estimated based on the most recent sale of common stock in a private placement immediately preceding the issuance of the Notes and, for the warrant contained in one Unit, using a Black Scholes valuation model and the following assumptions: volatility – 50.50%, risk free rate – 0.22%, dividend rate – 0.00%. The Company recorded a discount against the debt for the beneficial conversion feature totaling $115,712, which is being amortized into interest expense through the maturity dates of the September Notes. For the 12 months ended December 31, 2013, the Company recorded amortization of the discount of $57,856. As of December 31, 2013, the net carrying value of the September Notes totaled $292,329, net of unamortized discount of $38,571. For the twelve months ended December 31, 2013 interest expense on the September Notes of $33,090 was recorded.
In connection with the issuance of the September Notes, the Company paid cash transactions fees to brokers totaling $30,456. The Company allocated a portion of the transaction fees totaling $19,806, to debt issuance costs, which was capitalized and is being amortized into interest expense over the two-year terms of the September Notes. The remaining portion of the fair value of the transactions costs, totaling $10,650 was allocated to equity, treated as equity issuance costs, and recorded against additional paid in capital. Amortization of debt issuance costs on the September Notes of $9,903 was recorded for the twelve months ended December 31, 2013.
October and November 2012 Convertible Debentures
In October and November 2012, the Company issued convertible debentures (“October and November Notes”) with an aggregate face value of $624,372 of which $313,440 represented a conversion of notes payable related parties to the Founders. The October and November Notes mature in October and November 2014, bear interest at an annual rate of 10%, and are convertible at the option of the holders into Units, each consisting of a) one share of common stock and b) one warrant to purchase one share of common stock at $0.40 per share (“Unit”). The number of units issuable upon conversion of the October and November Notes is determined by dividing the then outstanding principal and accrued but unpaid interest by a) $0.35 if a Liquidity Event, as defined in the debenture agreements, occurs within six months of the closing of the offering of the October and November Notes, or b) $0.32 if a Liquidity Event does not occur within six months of the closing of the offering of the October and November Notes.
The Company recorded a beneficial conversion feature based on the intrinsic value of the conversion feature equal to the excess of the fair value of one Unit over the conversion rate of $0.32. The fair value of one Unit was estimated based on the most recent sale of common stock in a private placement immediately preceding the issuance of the Notes and, for the warrant contained in one Unit, using a Black Scholes valuation model and the following assumptions: volatility – 50.50%, risk free rate –0.22%, dividend rate – 0.00%. The Company recorded a discount against the debt for the beneficial conversion feature totaling $254,004, which is being amortized into interest expense through the maturity dates of the October and November Notes. For the twelve months ended December 31, 2013, the Company recorded amortization of the discount of $127,193. As of December 31, 2013 the net carrying value of the October and November Notes totaled $518,678 net of unamortized discount of $105,694. For the twelve months ended December 31, 2013 interest expense on the October and November Notes of $61,437 was recorded.
In connection with the issuance of the October and November Notes, the Company paid no cash transactions fees to brokers.
Purchases by Issuer and Its Affiliates
None.
This Item is not required for Smaller Reporting Companies.
The following discussion and analysis should be read in conjunction with the financial statements and notes thereto appearing elsewhere herein.
Overview
Trunity Holdings, Inc. (“Trunity,” “Company,” “we,” “us”, or “our”) is a Delaware corporation headquartered in Portsmouth, New Hampshire.Davie, Florida. The Company’s wholly-owned subsidiary, Trunity, Inc., a Delaware corporation (“Trunity, Inc.”), also based in Portsmouth,Davie, Florida, New Hampshire, has pioneered a collaborative knowledge management, publishing and education delivery platform – the Trunity eLearning Platform (the “Platform”) – which provides an end-to-end solution for the rapidly growing eTextbook,digital textbook, eLearning and enterprise training market places.marketplaces.
As a result of the Platform’sPlatform’s innovative multi-tenant cloud-based architecture, Trunity has enabled transformational classroom learning, allowing content from multiple sources to be assembled by instructors into customized living digital textbooks (“– vBooksTrubooks™”) – and courseware andall delivered with real-time updates directly to the student on any Internet-enabled computer or mobile device.
TheTrunity offers a Learning Content Management System ("LCMS") that has been built from the ground up atop a robust knowledge gathering and management platform, collectively referred to as the Trunity eLearning Platform has. This Platform currently comprises four unique features: tightly integrated components:
1) | 1. | Modular Digital Content:Trunity Author It converts text™: functionality for collaboratively gathering, organizing and rich mediapublishing knowledge content, into discrete, coherent packages of information. This “modularization” enables every piece of content to be utilized in a customized fashion by an unlimited number of instructorssuch as for encyclopedias, knowledge bases and course developers.e-textbooks.
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2) | 2. | Real-Time Content Creation:Trunity Reader™: Content on the Platform can be updated in real-time; a change made to a base version of a chapter, lesson, or assignment is instantly “pushed” to all users. In addition to these attributes, the Platform is a cloud-based technology that is agnostic in regards to devicefunctionality for teaching and operating system.learning management, such as assignments, quizzes, exams, grading and reporting.
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3) | 3. | Customizable Content: Modular LiveCrossTrunity Classroom™ published content creates an unprecedented ability: functionality for collaboration and online social interaction, such as messaging, forums, commenting, rating, tagging and sharing, and allowing instructors and course developers to customize both the nature of the content they choose, and the sequence in which that content is presented to students.build customized, content-oriented virtual classrooms;.
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4) | 4. | Collaborative Learning Environments: Trunity’s LiveCross™ publishing feature enables instructors and course developers to easily share and discover content on the Web or in the Trunity Knowledge Exchange,: store functionality for distributing and to pull thatmonetizing living content, into their courses with a few simple clicks.such as royalty tracking, real-time updates and analytics.
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Connecting these components is an integrated core that includes identity/profile management, knowledge taxonomy management, content exchange, ecommerce and search functionality. Depending on the application, all or any subset of the functional components can be deployed for a specific customer solution. Also, the Platform can be used as a stand-alone solution or may be integrated with existing data systems. Ultimately, our strategy is to treat all components of content within the system as assets – from textbooks and lectures to assignments and exams – all of which may be shared, modified and re-used effortlessly on a per-permission/policy/fee basis via Trunity’s integrated publishing and ecommerce infrastructure.
The Trunity Knowledge Exchange can deliver quality content from various sources, including traditional publishers, collaborative crowd-sourced communities, individual authors and teachers, as well as institutional repositories and content partners.
The Trunity eLearning Platform currently hosts a growing community of textbook authors and instructors in higher education and K-12, who use the Platform to deliver their classes. Trunity has recentlyWe have entered an agreement with the National Council of Science and the Environment (NCSE)("NCSE"), a not-for-profit organization that engages scientists, educators, policy-makers, environmental managers, government agencies, conservationists and business leaders in programs that foster collaboration between diverse institutions and individuals creating and using environmental knowledge to make science useful to policies and decisions on critical environmental issues. Both Trunity and NCSE will be co-marketing the Trunity eLearning Platform to the over 2,500 authors currently accessing the Encyclopedia of the Earth. The Trunity eLearning Platform also host the Encyclopedia of the Earth is an award-winning, open source collection of over 8,000 peer-reviewed educational content modules contributed by several thousand content experts made up of many of the world’s top scientists and educators.
We have customers both domestically and internationally, as we have won a significant national project in the Ukraine. In addition, we host the collection on Climate Adaptation and Mitigation E-Learning (CAMEL)("CAMEL"), an open source educational project funded by the National Science Foundation, which also serves as core content contributors to the Trunity Knowledge Exchange. Educators can readily LiveCross™ publish content modules from the Encyclopedia of Earth and CAMEL into customized Trubooks™ for their students. We believe that our cloud-based platform,Platform, which tightly integrates expert validated learning content with learning management, has the capability to disrupt the traditional education market place.marketplace.
Trunity expanded its international presence into the Middle East in the fall of 2014 with the sale of over 6,000 Platform licenses to the Institute of Applied Technology ("IAT") headquartered in Dubai, with the Trunity platform currently in use at four different IAT campuses. The sale was accomplished in collaboration with our strategic partner Houghton Mifflin Harcourt and its Middle Eastern distributor, All Prints Distributors and Publishers. All Prints is the main supplier of textbooks and educational materials to all the major universities, schools and educational institutes in the United Arab Emirates, Qatar, Kuwait, Oman, Jordan, Saudi Arabia, Bahrain, Syria and Lebanon. We have plans of continued expansion into other regions internationally in 2015.
Content modularization capabilities allow our products to be mixed and matched and purchased in whole or in part. Our core products are in production and operational, and are currently in use by a growing number of paying customers; however, our revenues are well below the level needed for profitability. We believe that our focused marketing efforts as well as the impact of positive “word of mouth” from satisfied users will enable us to substantially increase revenues; however, there can be no assurance that we will achieve profitability at any time in the foreseeable future.
Critical Accounting Policies
Basis of Accounting
The financial statements of the Company are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these financial statements requires our management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and related notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. We believe the following critical accounting policies affect its more significant judgments and estimates used in the preparation of financial statements.
Transition from Development Stage to Full Commercial Operations
The Company has operated as a development stage enterprise since its inception by devoting substantially all of its efforts to business development. In the first quarter of 2013, the Company began its transition from development stage to full commercial operations and is now largely focused on actively marketing the Trunity eLearning Platform to prospective customers, strategic business partners and users worldwide.
Going Concern
The financial statements have been prepared assuming the Company will continue as a going concern. The Company has incurred net losses and had negative operating cash flow since its inception. To the extent the Company may haveexperiences negative cash flows in the future;future, it will continue to require additional capital to fund operations. The Company has historically obtained additional capital investments under various debt and common stock issues.issuances. Although management continues to pursue its financing plans, there can beis no assurance that the Company will be successful in obtaining additional funding on commercially acceptable terms or at all, orgenerating sufficient revenues to generateprovide positive cash flow.flow or that financing at acceptable terms, if at all. In addition, the Company has defaulted some of its lease and debt obligations as of December 31, 2014. Although the Company is currently in negotiations related to these defaults, there is no assurance that any negotiations will be successful in reducing the Company’s liabilities under default. Based on these factors, the Company may be unable to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts or classification of liabilities that might result frombe necessary should the outcome of these uncertainties. We may notCompany be ableunable to obtain financing or capital on commercially acceptable terms or at all.continue as a going concern.
Revenue Recognition
The Company’s revenue model consists of Software as a Service (SaaS)("SaaS") licensing and hosting revenue, for sites using the Company’s platform, as well as revenues generated from consulting, revenue sharing with our authors, publishers and advertising revenue.advertising. All SaaS revenue is recognized ratably over the contract period.
Consulting revenues are earned for web site development services and are recognized on a time and materials basis, billed in accordance with contractual milestones negotiated with the customer. Revenues are recognized as the services are performed and amounts are earned in accordance with FASB ASC Topic 605 Revenue Recognition. We consider amounts to be earned once evidence of an arrangement has been obtained, services are delivered, fees are fixed or determinable, and collectability is probable. In certain contracts, revenue is earned upon achievement of certain milestones indicated in the client agreements.
Services under these contracts are typically provided in less than a year and represent the contractual milestones or output measure, which reflect the earnings pattern.
Digital content book revenues are earned and recognized as transactions are entered on the Trunity eLearning Platform by customers purchasing digital content through the Trunity Knowledge Exchange website.
Advertising revenue is earned from search engine providers based on search activity for sites hosted by the Company.
Revenues recognized in excess of billings are recorded as Unbilled Revenue (an asset). Billings in excess of revenues recognized are recorded as Deferred Revenue (a liability) until revenue recognition criteria are met. Client prepayments are deferred and recognized over future periods as services are delivered or performed.
Accounts Receivable
We estimate credit loss reserves for accounts receivable on an individual receivable basis. A specific impairment allowance reserve is established based on expected future cash flows and the financial condition of the debtor. We charge off customer balances in part or in full when it is more likely than not that we will not collect that amount of the balance due. We consider any balance unpaid after the contract payment period to be past due. We believe all accounts receivable due at December 31, 20132014 and 20122013 to be collectible.
Accounting for Uncertainty in Income Taxes
Income taxes are accounted for in accordance with FASB Accounting Standards Codification (“ASC”) Topic 740, “Income Taxes” (“ASC 740”). Under ASC 740, income taxes are recognized for the amount of taxes payable for the current year and deferred tax assets and liabilities for the future tax consequence of events that have been recognized differently in the financial statements than for tax purposes. Deferred tax assets and liabilities are established using statutory tax rates and are adjusted for tax rate changes. We consider accounting for income taxes critical to our operations because management is required to make significant subjective judgments in developing our provision for income taxes, including the determination of deferred tax assets and liabilities, and any valuation allowances that may be required against deferred tax assets.
ASC 740 clarifies the accounting for uncertainty in income tax recognized in an entity’s financial statements and requires companies to determine whether it is “more likely than not” that a tax position will be sustained upon examination by the appropriate taxing authorities before any part of the benefit can be recorded in the financial statements. For those tax positions where it is not “more likely than not” that a tax benefit will be sustained, no tax benefit is recognized. Where applicable, associated interest and penalties are also recorded. This interpretation also provides guidance on de-recognition, classification, accounting in interim periods, and expanded disclosure requirements.
Based on our evaluation, we have concluded that there are no significant uncertain tax positions requiring recognition in our financial statements. Our evaluation was performed for the tax period from July 28, 2009 (inception) to December 31, 2013.2014. We may from time to time be assessed interest or penalties by major tax jurisdictions, although any such assessments are expected to be minimal and immaterial to our financial results. In the event we have received an assessment for interest and/or penalties, it would be classified in the financial statements as selling, general and administrative expense. The tax years 2010 through 20132014 are subject to examination by federal and state taxing authorities.
Taxes on Revenue Producing Transactions
The Company earns revenues through various services. Service revenue is taxable in some jurisdictions throughout the United States, and the Company could be responsible for collecting those taxes subject to state or local requirements. The Company is not aware of any transactions which would necessitate the fiduciary responsibility of collecting and remitting sales based taxes.
Website Development
We have adopted the provisions of FASB ASC Topic No. 350 Intangible-Goodwill and Other. Research and development costs incurred in the planning stage of a website are expensed, while development costs of the website to be sold, leased, or otherwise marketed are subject are capitalized and amortized over the estimated three year life of the asset. Development costs of computer software to be sold, leased, or otherwise marketed are subject to capitalization beginning when a product’s technological feasibility has been established and ending when a product is available for general release to customers. In most instances, the Company’s products are released soon after technological feasibility has been established. Therefore, costs incurred subsequent to achievement of technological feasibility are usually not significant, and generally most software development costs have been expensed as incurred. During the twelve monthsyear ended December 31, 20132014 and 2012,2013, we incurred and capitalized $519,733$598,285 and $548,031,$519,733, respectively in platform development costs. Amortization for these costs recorded during the twelve months ended December 31, 2014 and 2013, was $129,603 and 2012, was $105,751, and $182,677, respectively.
Stock-Based Compensation
We recognize compensation costs to employees under FASB ASC “Topic 718”, Compensation – Stock Compensation (“ASC 718”). Under FASB ASC 718, companies are required to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share-based compensation cost for stock options is estimated at the grant date based on each option’s fair-value as calculated by the Black-Scholes-Merton (“BSM”) option-pricing model. Share basedShare-based compensation arrangements may include stock options, restricted share plans, performance based awards, share appreciation rights and employee share purchase plans. Such compensation amounts, if any, are amortized over the respective vesting periods of the option grant.
Equity instruments issued to other than employees are recorded on the basis of the fair value of the instruments, as required by FASB ASC Topic 505, Equity Based Payments to Non-Employees. In general, the measurement date is when either a (a) performance commitment, as defined, is reached or (b) the earlier of (i) the non-employee performance is complete or (ii) the instruments are vested. The measured value related to the instruments is recognized over a period based on the facts and circumstances of each particular grant as defined in the FASB ASC.
Derivative Financial Instruments
The Company assesses whether it has embedded derivatives in accordance with FASB ASC Topic 815, (“ASC 815”) Accounting for Derivative Instruments and Hedging Activities. The Company accounts for its derivative instruments as either assets or liabilities and carries them at fair value.
For derivative instruments that hedge the exposure to changes in the fair value of an asset or a liability and that are designated as fair value hedges, both the net gain or loss on the derivative instrument as well as the offsetting gain or loss on the hedged item attributable to the hedged risk are recognized in earnings in the current period. Derivatives that do not qualify as hedges must be adjusted to fair value through current income. The Company does not have any derivatives that qualify as hedges.
Warrants
The Company accounts for common stock purchase warrants in accordance with ASC 815. As is consistent with its handling of stock compensation and embedded derivative instruments, the Company’s cost for stock warrants is estimated at the grant date based on each warrant’s fair-value as calculated by the Black-Scholes-Merton (“BSM”) option-pricing model value method for valuing the impact of the expense associated with these warrants.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.
Stockholders’ Equity
Shares of common stock issued for other than cash have been assigned amounts equivalent to the fair value of the service or assets received in exchange. Common stock share amounts in these financial statements have been retroactively adjusted for the effects of a 1 for 3 reverse stock split that occurred in 2011, as required by ASC Topic 505-20.
Results of Operations
Years ended December 31, 20132014 and 20122013
Net sales for the twelve monthsyear ended December 31, 20132014 increased 10.7%29% to $227,655 compared to $176,437 compared to $159,359reported for the prior twelve month periodperiod. Revenues in 2014 were generated largely from subscription-based licensing fees per user for the use of our cloud-based software solutions in connection with our non-exclusive License and Distribution Agreement with HMH, transaction fees for content sold via the Trunity eLearning Platform and the Trunity Knowledge Exchange store and licensing fees for the use of our API to market the platform in the prior year. Revenueshealthcare industry. Conversely, revenues in 2013 largely stemmed largely from licensing fees paid to the Company by EDUCOM, the joint venture company formed in connection with the Ukraine Government’s Open World National Project, originally signed by the Companywhich has since stalled due to political unrest in March 2013. that global region.
We believe that our revenue will significantly increase during 20142015 due to a number of new digital textbooks being authored and/or published on the Platform and made available to students, teachers and school systems for the 2015-2016 school year, continued sales with HMH based on our distribution agreement, as well as anticipated revenue from our recently signed agreement with VCI for the licensing of the our API solution. We also continue to make additional investments to add books on our platform and globally marketing the digital textbooks and courseware authored and/or published on our Platform for the 2015-2016 school years. Included in the new content now being actively marketed and offered on the Platform is Trunity’s new MindBenders Educational Learning Series™, a 25-episode video learning series developed by Trunity in collaboration with a world recognized educational expert, author, television host and stage edutainment performer and co-hosted by a team of reality-based science television celebrities. Although we believe that our revenue will continue to increase and strengthen in 2015 based upon revenue recognition from licensing revenue, from new and existing relationships, specific marketing initiatives and “word of mouth” from satisfied users of our platform; however,platform, there can be no assurance that this expected revenue increase will occur.
Our total operating expenses for 2013 were $3,106,956,2014 of $3,127,104 reflected a 30.1%small increase from totalof 0.6% compared to operating expenses of $2,387,390 reported$3,106,956 for the twelve months ended December 31, 2012. The increase was attributed to the increase in selling, general and administrative (SG&A) expenses, which increased 51.9% to $2,268,031 from $1,493,233 on a comparable year-over-year basis.2013. SG&A expenses included non-cash stock compensation expense of $227,129 in 2013 which$450,736 as compared to non-cash stock compensationthe prior year of $227,129 representing an increase of 98.5% as a result of the exercise price modification for active employee and director options to the stock’s current market price and issuance of new options for the prior CEO. Also included is amortization expense of $122,107$540,041 for the current year versus $454,518 in the prior year accretionended December 31, 2013 representing an increase of 18.8% due to continued development of the platform for debt discountsmobile apps and version 3.0. Lastly included in SG&A was expense of $70,000 related to the issuance costs of $320,979shares for services versus $31,144 in 2013the previous year and an additional $50,000 accrual for liability associated with a former lease for Portsmouth offices. The increase of non-cash SG&A expenses was offset by a reduction in payroll expenses of $1,500,944 in comparison to $79,461 inprior year of $1,687,354 due to the prior year. In addition, non-cash expense for shares issued in conversionreduction of payablesemployees and services which totaled $57,500 and shares issued in exchange for services which totaled $31,144 were also booked asthe reclassification of platform cloud expenses of $148,503 to cost of goods sold. Overall we have taken measures to reduce our SG&A expenses in 2013,by moving our development team offshore, which compared to $0has allowed the reduction of the corporate office space and $0, respectively, in 2012. We also expanded our executive and sales and marketing teams with direct hires and paid consultants in 2013 and invested in several marketing initiatives, including participation in industry conferences,reduced international travel to international market places to pursue business development opportunities, and the development of a new web site and marketing collateral materials.costs.
In 2013,2014, we continued to invest heavily in the ongoing development and enhancements to the Trunity eLearning Platform, to include development of the Platform’s next generation 3.0 version and Trunity Mobile, our related mobile app; as well as development of our new proprietary MindBenders Educational Learning Series™. Consequently, research and development costs remained relatively flat(R&D) expenses rose 6.3% to $892,092 from $838,925 on a comparable year-over-year basis, decreasing a modest 6.2% to $838,925 from $894,157 in 2013 and 2012, respectively.basis.
As a result of increaseddecreased SG&A expenses partially offset by the declineincrease in R&D expenses, the loss from operations for the twelve12 months ended December 31, 20132014 increased 31.6%2.1% to $3,008,877$3,072,415 compared to a loss from operations of $2,428,483$3,008,877 reported for 2012.the previous year.
After includingfactoring interest expense of $392,645,$381,941, loss from disposal of fixed assets of $5,692, and loss on debt extinguishment of $310,096, the 2013 net loss increasedfor the twelve months ended December 31, 2014 rose 10.8% to $3,401,522$3,770,144. This compared to a net loss of $2,428,483 in 2012,$3,401,522 for the twelve months ended December 31, 2013, which included a provision for interest expense of $141,930. The increase in interest expense on a comparable year-over-year basis was attributable to our debentures being outstanding during the full year in 2013 as opposed to part of 2012 which resulted in increased interest payments as well as an increase in accretion for debt discounts and issuance costs.$392,645.
Liquidity and Capital Resources
We have financed our operations since inception through the sale of debt and equity securities. As of December 31, 20132014 and 20122013 we had working capital deficits of $1,124,965$3,104,467 and $891,160,$1,124,964, respectively. Our increase of negative working capital of approximately 26.2%176% is primarily attributable to decreases in cash and increasesoffset by an increase in accruedprepaid expenses and debtother current assets, coupled with an increase in accounts payable, accrued interest and other liabilities, the carrying value for debentures and a convertible note issued to generate cash for operations.raise capital.
Our current assets at December 31, 2013,2014, included cash, and accounts receivable, net.net and prepaid expenses. Our current liabilities at the end of 2013,2014, included accounts payables, notes payable of related parties, convertible notes payable, accrued expenses representing accrued interest, professional fees and vacation expense, debentures, deferred revenue and amounts owed to shareholders for working capital loans and deferred revenue.other current liabilities.
Net cash used in operating activities was $2,108,952$1,438,384 for 2013,2014, as compared to $1,448,425$2,108,952 for 2012. Working2013. Non-cash charges applied against working capital changes utilized cash of $220,195for the twelve-months ended December 31, 2014 included $565,160 in the current period as compared to $61,106 for 2012 due to increasedepreciation and amortization; $450,736 in deferred revenue and accrued expense and interest offset by decrease in accounts payable. In addition, net loss was adjusted for non-cash items by an increase of $153,423 in the current year as compared to 2012 due to additional stock compensation expense, as a result of more issuances of options to employees and directors of the Company and$248,604 in accretion for debt discountdiscounts and issuance costs, offsetcosts; $70,000 value in shares issued for services; $20,752 value in warrants issued in exchange for services, $310,096 for loss on debt extinguishment and $1,001 for fair value of embedded conversion feature. For the twelve months ended December 31, 2013, net cash used in operating activities was impacted by a reduction in amortization asnon-cash charges of a result of the initial platform costs being fully expensed.$493,123 for depreciation and amortization; $227,129 for stock-based compensation; $320,979 for accretion for debt discounts and issuance costs; and $31,144 for loss on debt extinguishment.
Net cash used in investing activities was approximately $561,558$597,173 for 2013,2014 as compared to net cash used of $564,372$561,558 for 2012,2013, which primarily reflects our platform development investments, filing costs of our patents and purchase of additional equipment.
Net cash provided by financing activities for 20132014 was $3,468,850$1,237,610 as compared to the $1,903,386$3,468,850 for 2012.2013. This reflects proceeds from the private sale of our securities, proceeds from exercise of common stock options offset by repayment to notes to related parties.
Specific details related to our financing activities are as follows:
2015 Private Placements
In 2015, the Company borrowed from accredited investors and related parties (the “Debenture Holders”) $212,000 ($15,000 was provided by the Interim CEO and CFO and $25,000 was provided by board member Les V. Anderton) pursuant to an Unsecured Redeemable Debenture Series F (the “Series F Debentures”) that will pay interest during the Debenture term in the amount of 10% of the principal amount. The holders of the Series F Debentures also received warrants to acquire 212,000 shares of Common Stock for an exercise price of $0.15 per share, exercisable over three years equal to 100% of the principal amount of the debenture. In addition the Company will issue the Debenture Holders warrants (the “2015 Warrant”) to purchase 212,000 shares of the Company’s Common Stock at a price per 2015 Warrant Share to be determined. The Company incurred no commission costs in connection with these transactions.
2014 Private Placements of Common Stock
During the year ended December 31, 2014, we raised gross proceeds of $761,025 through the sale of 4,630,390 shares of Common Stock to accredited investors in private placement transactions at a price of $0.165 per share. Each investor also received a five-year warrant to purchase one share of Common Stock for every four shares purchased at an exercise price of $0.50 per share. We incurred $22,951 of securities issuance costs and issued 114,756 warrants representing commissions paid to broker-dealers who assisted with these transactions and repurchased 667,702 shares of common stock for $66,770 from the former CEO in connection with these transactions.
March 2014 Convertible Promissory Note
In March 2014, we borrowed $100,000 from an accredited investor pursuant to a six-month convertible promissory note (the “Note”) bearing interest at 10% per year. The Note is convertible at $0.165 per share. We incurred $5,000 of securities and debt issuance costs and issued 25,000 warrants representing commission paid to a broker-dealer who assisted with this transaction and repurchased 101,010 shares of common stock for $10,101 from the former CEO in connection with this transaction.
The entire principal balance of this Note, together with all unpaid interest accrued thereon, was due and payable on September 24, 2014 (the “Maturity Date”). Upon payment in full of all principal and interest payable hereunder, this Note shall be surrendered to us for cancellation. The principal amount of this Note may be converted in increments of $10,000 of our Common Stock at a price of $0.165 per share (the “Conversion Shares”). Upon conversion, the Holder shall receive, in addition to certificates for the Conversion Shares, a five-year warrant to purchase at $0.50 per share an amount of shares of Common Stock equal to 25% of the number of Conversion Shares. The Note was converted effective July 1, 2014 to 606,061 shares of Common Stock and 151,515 warrants were issued to the holder.
During the year ended December 31, 2014, interest expense on the Note of $2,685 was recorded.
July 2014 Convertible Promissory Notes
In July 2014, we issued Convertible Promissory Notes with an aggregate face value of $52,500 for cash ($27,500 was provided by the interim CEO and CFO and two board members). The Convertible Promissory Notes accrue interest at an annual rate of 10%, mature in July 2015, and are convertible into the Company’s Common Stock at a conversion rate of $0.165 per share. The holders of the Convertible Promissory Notes also received warrants to acquire 318,182 shares of Common Stock for an exercise price of $0.50 per share, exercisable over five years.
We allocated the proceeds from the Convertible Promissory Notes to the warrants and the notes based on their relative fair values, allocated $6,117 to the warrants, and determined that there were aggregate beneficial conversion features of $8,512. The fair value of the warrants was determined using a Black-Scholes valuation model and the following assumptions: volatility – 43.99% to 44.08%, risk free rate – 1.66 to 1.74% %, dividend rate – 0.00%. The amount allocated to the warrants and beneficial conversion features; totaling $14,629 was recorded as a discount against the Convertible Promissory Notes, with offsetting entry to additional paid-in capital. The discounts are being amortized into interest expense over the term of the Convertible Promissory Notes.
During the year ended December 31, 2014, we recorded amortization of the discount of $7,218 and recorded interest expense of $2,584. As of December 31, 2014, the carrying value of the Convertible Promissory Notes was $45,089, net of unamortized discounts of $7,411.
August 2014 and November Convertible Debentures (Series C)
In August 2014, we issued Series C Convertible Debentures (the “Series C Debentures”) with an aggregate face value of $350,833 in exchange for the cancellation of Series B Convertible Debentures with outstanding principal and accrued interest of $350,833. The Series C Debentures accrue interest at an annual rate of 10%, mature in July and November 2015, and are convertible into our common stock at a conversion rate of $0.20 per share. The holders of the Series C Debentures also received warrants to acquire 1,500,000 shares of common stock for an exercise price of $0.20 per share, exercisable over five years.
We allocated the face value of the Series C Debentures to the warrants and the debentures based on their relative fair values, and allocated $72,869 to the warrants, which was recorded as a discount against the Series C Debentures, with offsetting entry to additional paid-in capital. The fair value of the warrants was determined using a Black-Scholes valuation model and the following assumptions: volatility – 43.74% and 44.28%, risk free rate – 1.62 and 1.67% %, dividend rate – 0.00%. The discount was fully expensed upon execution of the new debentures as debt extinguishment costs.
During the year ended December 31, 2014, we recorded debt extinguishment costs related to the Series C Debentures of $72,869. As of December 31, 2014, the carrying value of the Series C Debentures was $350,833 and interest expense of $11,847 was recorded.
July to November 2014 Convertible Debentures (Series D)
During the months of July through November 2014, we issued Series D Convertible Debentures (the “Series D Debentures”) with an aggregate face value of $763,199 in exchange for $176,718 of cash plus accrued interest ($35,000 was provided by the interim CEO and CFO), in settlement of a Series A Convertible Debenture with outstanding principal and accrued interest of $26,477, and in settlement of Series B Convertible Debentures with aggregate outstanding principal and accrued interest of $560,003, of which $287,159 represented a conversion of notes payable-related parties to the Founders. The Series D Debentures accrue interest at an annual rate of 12%, mature in July through November 2015, and are convertible into the Company’s Common Stock at a conversion rate of $0.165 per share. The holders of the Series D Debentures also received warrants to acquire 3,332,000 shares of Common Stock for an exercise price of $0.20 per share, exercisable over five years.
We allocated the face value of the Series D Debentures to the warrants and the debentures based on their relative fair values, allocated $115,945 to the warrants, and determined that there were aggregate beneficial conversion features of $121,282 The fair value of the warrants was determined using a Black-Scholes valuation model and the following assumptions: volatility – 43.63% to 44.28%, risk free rate – 1.60 to 1.69% %, dividend rate – 0.00%. The amount allocated to the warrants and beneficial conversion features totaling $237,227 was recorded as a discount against the Series D Debentures, with offsetting entry to additional paid-in capital. A portion of the discount was fully expensed upon execution of the new debentures as debt extinguishment costs and the remaining amount are being amortized into interest expense over the term of the Series D Debentures.
During the year ended December 31, 2014, we recorded debt extinguishment costs of $237,227, amortization of the discount related to the Series D Debentures of $9,992 and interest expense of $22,868. As of December 31, 2014, the carrying value of the Series D Debentures was $743,132, net of unamortized discounts of $20,067.
November and December 2014 Unsecured Redeemable Debentures (Series E)
In October and November 2014, we borrowed from accredited investors and related parties (the “Debenture Holders”) $145,000 pursuant to an Unsecured Redeemable Debenture Series E (the “Series E Debentures”) that will pay interest during the Debenture term in the amount of 15% of the principal amount. The holders of the Series E Debentures also received warrants to acquire 145,000 shares of Common Stock for an exercise price of $0.15 per share, exercisable over four years equal to 100% of the principal amount of the debenture. In addition we will issue the Debenture Holders warrants (the “2015 Warrant”) to purchase 145,000 shares of the Company’s Common Stock at a price per 2015 Warrant Share to be determined. We incurred no commission costs in connection with these transactions.
We allocated the face value of the Series E Debentures to the warrants and the debentures based on their relative fair values, allocated $7,945 to the warrants, and determined that there were aggregate beneficial conversion features of $137,055. The fair value of the warrants was determined using a Black-Scholes valuation model and the following assumptions: volatility – 42.31% to 44.28%, risk free rate – 1.63 to 1.75% %, dividend rate – 0.00%. The amount allocated to the warrants and beneficial conversion features totaling $145,000 was recorded as a discount against the Series E Debentures, with offsetting entry to additional paid-in capital. The discounts are being amortized into interest expense over the term of the Series E Debentures.
During the year ended December 31, 2014, we recorded amortization of the discount of $33,725 and recorded interest expense of $2,509. As of December 31, 2014, the carrying value of the Series E Debentures was $33,725, net of unamortized discounts of $111,275.
November 2014 Convertible Debenture with Peak One Opportunity Fund, L.P.
In November 2014, we entered into a Securities Purchase Agreement with Peak One Opportunity Fund, L.P. (“Peak”) pursuant to which the Company sold to Peak for $112,500 a Convertible Debenture (the “Peak Debenture”) in the principal amount of $125,000 (the “Principal Amount”) due on November 6, 2017 (the “Maturity Date”). Pursuant to the Peak Debenture, we agreed to pay interest on the Principal Amount outstanding from time to time in arrears (i) upon conversion or (ii) on the Maturity Date, at the rate of 5% per annum. We have the option to redeem the Peak Debenture prior to the Maturity Date at any time or from time to time by paying the Principal Amount plus accrued interest. Beginning 91 days after the issue date, Peak may convert the principal and accrued interest (the “Conversion Amount”) into shares of Common Stock at a conversion price for each share of Common Stock (the “Conversion Price”) equal to 65% of the lowest closing bid price (as reported by Bloomberg LP) of Common Stock for the 20 trading days immediately preceding the date of conversion of the Debenture (subject to equitable adjustments resulting from any stock splits, stock dividends, recapitalizations or similar events). In addition with the Peak Agreement, we paid issuance costs of $10,000 and issued 137,500 shares of restricted Common Stock to cover the expenses incurred and analysis performed by Peak in connection with the transaction. On the date of issuance, we recorded the fair value of the conversion option of $66,423 as a derivative liability and debt discount to be amortized into interest expense through the maturity date. During the year ended December 31, 2014, we recognized $3,336 of amortization of the discount. As of December 31, 2014, the Peak Debenture is carried at $61,913, net of unamortized discount of $63,087.
The fair value of the 137,500 shares of restricted stock of $24,750, and $10,000 of issuance costs added to the principal, was recorded as deferred issuance costs to be amortized into interest expense over the term of the debenture. During the year ended December 31, 2014, we recognized $1,745 of interest expense from the amortization of deferred financing fees.
July 2012 Convertible Debentures (Series A)
In July 2012, we issued Convertible Debentures (the “Series A Debentures”) with an aggregate face value of $215,300 Canadian Dollars ($197,344 as of December June 30, 2014). The Series A Debentures matured in July 2014, bore interest at an annual rate of 10% through July 2014 and 12% thereafter, and were convertible at the option of the holders into Units, each consisting of a) one share of Common stock and b) one warrant to purchase one share of common stock at 0.40 Canadian Dollars per share (“Unit”). The number of Units issuable upon conversion of the Series A Debentures is determined by dividing the then outstanding principal and accrued but unpaid interest by a) 0.35 Canadian Dollars if a Liquidity Event, as defined in the Debenture agreement, occurs within six months of the closing of the offering of the July Notes, or b) 0.32 Canadian Dollars if a Liquidity Event does not occur within six months of the closing of the offering of the Series A Debentures.
In July 2014, the holder of a Series A Debenture exchanged the debenture with a face value of $25,000 Canadian Dollars (US$23,360), and accrued interest of $3,336 Canadian Dollars (US$3,117) for a Series D Convertible Debenture with a face amount of US$26,477. We recorded a loss on early extinguishment of debt of $6,728, primarily related to fair value of the warrants in relation to the debt (relative fair value) on the debt exchange transaction. We defaulted on its obligation to pay the remaining principal amount of debentures due October and November 2014. The total amount due on these debentures, including interest, is $167,540. We have negotiated restructured terms with the majority of the debenture holders and is attempting to complete the formal restructuring of these debt obligations.
In 2012, we recorded a beneficial conversion feature based on the intrinsic value of the conversion feature equal to the excess of the fair value of one Unit over the conversion rate of 0.32 Canadian Dollars. The fair value of one Unit was estimated based on the most recent sale of common stock in a private placement immediately preceding the issuance of the July Notes and, for the warrant contained in one Unit, using a Black-Scholes valuation model and the following assumptions: volatility – 50.50%, risk free rate – 0.22%, dividend rate – 0.00%. We recorded a discount against the debt for the beneficial conversion feature totaling $84,788, which is being amortized into interest expense through the maturity dates of the Series A Debentures.
For the years ended December 31, 2014 and 2013, we recorded amortization of the discount of $24,730 and $42,394, respectively. As of December 31, 2014, the net carrying value of the outstanding Series A Debentures totaled $167,540, and no unamortized discount remains. During the years ended December 31, 2014 and 2013, we recorded interest expense on the Series A Debentures of $15,212 and $21,013, respectively.
In connection with the issuance of the Series A Debentures, we paid transactions fees to brokers consisting of cash of $85,237, and warrants to purchase 43,497 shares of common stock over a two-year period at an exercise price of 0.40 Canadian Dollars. We estimated the fair value of the warrants using a Black-Scholes valuation model and the following assumptions: volatility – 50.49%, risk free rate – 0.22%, dividend rate – 0.00%. We allocated a portion of the fair value of the consideration totaling $52,869 to debt issuance costs, which was capitalized and is being amortized into interest expense over the two-year terms of the Series A Debentures. The remaining portion of the fair value of the transactions costs, totaling $36,126, was allocated to equity, treated as equity issuance costs, and recorded against additional paid-in capital.
Amortization of debt issuance costs on the Series A Debentures of $13,217 and $26,435 was recorded during the years ended December 31, 2014 and 2013, respectively.
August and September 2012 Convertible Debentures (Series B)
In August and September 2012, we issued Convertible Debentures (the “Series B Debentures-Issuance I”) with an aggregate face value of $330,900. The Series B Debentures-Issuance I matured in August and September 2014, bore interest at an annual rate of 10%, and were convertible at the option of the holders into Units, each consisting of a) one share of common stock and b) one warrant to purchase one share of Common Stock at $0.40 per share (“Unit”). The number of units issuable upon conversion of the Series B Debentures-Issuance I was determined by dividing the then outstanding principal and accrued but unpaid interest by a) $0.35 if a Liquidity Event, as defined in the debenture agreements, occurs within six months of the closing of the offering of the Series B Debentures-Issuance I, or b) $0.32 if a Liquidity Event does not occur within six months of the closing of the offering of the Series B Debentures-Issuance I.
In September 2014, all of the holders of the Series B Debentures-Issuance I exchanged the debentures with an aggregate face value of $330,900 and accrued interest of $66,000 for either a Series C or D Debenture with an aggregate face value of $397,080. We recorded a loss on early extinguishment of debt of $56,308, primarily related to fair value of the warrants in relation to the debt (relative fair value) on the debt exchange transaction.
In 2012, we recorded a beneficial conversion feature based on the intrinsic value of the conversion feature equal to the excess of the fair value of one Unit over the conversion rate of $0.32. The fair value of one Unit was estimated based on the most recent sale of Common Stock in a private placement immediately preceding the issuance of the Series B Debentures-Issuance I and, for the warrant contained in one Unit, using a Black-Scholes valuation model and the following assumptions: volatility – 50.50%, risk free rate – 0.22%, dividend rate – 0.00%. We recorded a discount against the debt for the beneficial conversion feature totaling $115,712, which was being amortized into interest expense through the maturity dates of the Series B Debentures-Issuance I.
For the years ended December 31, 2014 and 2013, we recorded amortization of the discount of $38,571 and $57,856, respectively. As of December 31, 2014, there was no remaining balance outstanding on the Series B Debentures-Issuance I.
In connection with the issuance of the Series B Debentures-Issuance I, we paid cash transactions fees to brokers totaling $30,456. We allocated a portion of the transaction fees totaling $19,806, to debt issuance costs, which was capitalized and is being amortized into interest expense over the two-year terms of the August and September Notes. The remaining portion of the fair value of the transactions costs, totaling $10,650 was allocated to equity, treated as equity issuance costs, and recorded against additional paid-in capital. Amortization of debt issuance costs on the Series B Debentures-Issuance I of $6,602 and $9,903 was recorded for the years ended December 31, 2014 and 2013, respectively.
October and November 2012 Convertible Debentures (Series B)
In October and November 2012, we issued Convertible Debentures (“Series B Debentures-Issuance II”) with an aggregate face value of $624,372 of which $565,372 represented a conversion of notes payable-related parties to the Founders. In 2013, two of the founders sold a portion of their debenture totaling $141,800 of their aggregate face to third parties. The Series B Debentures-Issuance II matured in October and November 2014, bore interest at an annual rate of 10%, and were convertible at the option of the holders into Units, each consisting of a) one share of common stock and b) one warrant to purchase one share of common stock at $0.40 per share (“Unit”). The number of Units issuable upon conversion of the Series B Debentures-Issuance II is determined by dividing the then outstanding principal and accrued but unpaid interest by a) $0.35 if a Liquidity Event, as defined in the debenture agreements, occurs within six months of the closing of the offering of the Series B Debentures-Issuance II, or b) $0.32 if a Liquidity Event does not occur within six months of the closing of the offering of the Series B Debentures-Issuance II.
In October and November 2014, all but one of the holders of the Series B Debentures-Issuance II exchanged the debentures with an aggregate face value of $464,440 and accrued interest of $51,317 for either a Series C or D Debenture with an aggregate face value of $513,757.We recorded a loss on early extinguishment of debt of $212,261, primarily related to fair value of the warrants in relation to the debt (relative fair value) on the debt exchange transaction. We defaulted on our obligation to pay the remaining principal amount of a debenture due October and November 2014. The total amount due on this debenture, including interest, is $161,932. We have negotiated restructured terms with the majority of the debenture holders and we are attempting to complete the formal restructuring of this debt obligation.
We recorded a beneficial conversion feature based on the intrinsic value of the conversion feature equal to the excess of the fair value of one Unit over the conversion rate of $0.32. The fair value of one Unit was estimated based on the most recent sale of Common Stock in a private placement immediately preceding the issuance of the Series B Debentures-Issuance II and, for the warrant contained in one Unit, using a Black-Scholes valuation model and the following assumptions: volatility – 50.50%, risk free rate – 0.22%, dividend rate – 0.00%. We recorded a discount against the debt for the beneficial conversion feature totaling $254,004, which is being amortized into interest expense through the maturity dates of the Series B Debentures-Issuance II.
For the years ended December 31, 2014 and 2013, we recorded amortization of the discount of $127,193 and $105,694, respectively. As of December 31, 2014, the net carrying value of the Series B Debentures-Issuance II totaled $161,932 and no unamortized discount remains. For the years ended December 31, 2014 and 2013, interest expense on the Series B Debentures-Issuance II of $55,100 and $62,437, respectively, was recorded. In connection with the issuance of the Series B Debentures-Issuance II, we paid no cash transactions fees to brokers.
Early 2013 Private Placement
From January through May 2013, we raised gross proceeds of $3,849,588$275,000 through the sale of 9,623,970687,500 shares of our common stockits Common Stock to accredited investors in private placement transactions at a price of $0.40 per share. These salesEach investor also received a two year warrant to purchase one share of shares occurredcommon stock at various times throughout 2013. The Companyan exercise price of $1.00 per share for each $1.00 invested. We incurred stock issuance costs of $186,729approximately $8,000 consisting chiefly of commissions paid to broker-dealers who assisted with the offering.
June 2013 Private Placement
On June 5, 2013, we completed the closing of a private placement (the “Private Placement”) with 35 accredited investors (the “Investors”), pursuant to which the Company sold to the Investors an aggregate of 8,936,470 shares of our common stock (the “Common Stock”) at a purchase price of $0.40 per share, resulting in gross offering proceeds of $3,574,588. In addition, the Investors received two-year warrants to purchase an aggregate of 8,936,470 shares of Common Stock at an exercise price of $1.00 per share (the “Investor Warrants”). We received net proceeds of approximately $3.3 million after payment of placement agent fees and costs relating to the Private Placement. The net proceeds from the Private Placement has been used to fund our ongoing operations and to provide working capital.
In consideration for services rendered as the exclusive placement agent in the Private Placement, we paid ACGM, Inc., New York, New York (the “Placement Agent”) cash commissions totaling $178,729 (5% of the gross offering proceeds). In addition, as consideration for services rendered in connection with the Private Placement, the Companywe issued to the Placement Agent 357,459 restricted shares of our Common Stock, representing 8% of the gross proceeds of the Private Placement at a price of $0.80 per share to determine the number of shares issued to the Placement Agent. Working capital was also raised from loans made to the Company by its founders, which were $122,456 in 2013.
During 2014 through April 11, we raised gross proceeds of $53,000 throughThe lead investor in the sale of 353,333Private Placement was Pan-African Investment Company, LLC (“PIC”), a New York City-based private investment firm which invested $1,000,000 and purchased 2,500,000 shares of Common Stock to accredited investors in private placement transactions at a price of $0.165 per share. Each investor alsoand received a five-year warrantan Investor Warrant to purchase one share2,500,000 shares. In connection with PIC’s lead investment the Company, its major shareholders and PIC agreed to appoint a PIC representative to the Trunity Board of Directors and to nominate that designee for reelection by the shareholders at each annual meeting held while PIC owns at least 2% of our issued and outstanding Common Stock. In addition, we entered into a Memorandum of Understanding to structure a formal business relationship whereby PIC will have the exclusive right to introduce the Trunity eLearning Platform to African countries seeking to improve the quality of education for their citizens.
On September 9, 2013, we filed a Registration Statement on Form S-1 with the U.S. Securities and Exchange Commission (“SEC”) relating to the resale of (i) 8,936,470 shares of common stock, for every fourand (ii) 8,936,470 shares purchased at anof common stock issuable upon exercise price of $0.50 per share. In addition,warrants, sold to the Investors in March 2014 we borrowed $100,000 from an accredited investor pursuant to a six month convertible promissory note bearing interest at 10% per year. The note is convertible at $.165 per share with the same warrant coverage as forPrivate Placement. On September 30, 2013, the shares privately sold as set forth above. We incurred $5,000 of securities issuance costs representing commissions paid to broker-dealers who assisted these transactions.Registration Statement was declared effective by the SEC.
We are actively seeking more funding from private debt and equity investors, as we will need to raise substantial additional capital in order to finance our plan of operations. Our cash position as of December 31, 20132014 was $812,064, which will not be adequate to support operations for the remainder of 2014.only $14,119. As of the date of this report, we have cash and commitments sufficient to fund operations for the next two months. There can be no assuranceone month. However, we have a line of credit from a related party that we will be able to raise the necessary funds. If we do not raise the necessary funds, we will be forced to cease operations.fund working captial needs as necessary.
Plan of OperationOperations
We have developed a collaborative knowledge management, publishing and education delivery platform whichthat provides an end-to-end solution for the rapidly growing digital content books, e-learning, enterprise training and education marketplaces. As a result of the Trunity eLearning Platform’sPlatform’s innovative multi-tenant cloud-based architecture, this enables a unique integration of academic content with learning management systems. It allows content from multiple sources to be assembled into customized living textbooksTrubooks™ and courseware and delivered with real-time updates directly to the student on any Internet-enabled computer or smart mobile device. All content powered by us is seamlessly integrated with learning management, social collaboration, standards and measurement tagging, real-time analytics and royalty tracking functionality. The content is available to be purchased or shared via the Trunity Knowledge Exchange or within private communities powered by the Platform.
In mid-2014, we announced plans to release our next generation architecture for the Trunity eLearning Platform. Version 3.0, which incorporates several new highly innovative technical frameworks enabling faster and more robust development, weds a new mobile app, branded as Trunity Mobile, with a major enhancement of our content creation and courseware technology, bringing to market a suite of leading edge experiences for teachers, students, authors and publishers. Version 3.0 includes a much more robust user interface, as well as a broad range of new features and functionality that further extend Trunity’s technological lead in the global education technology marketplace. In fact, version 3.0 is designed to help realize Trunity’s vision for a unique eLearning platform: a single web-based platform that seamlessly integrates content creation, Trubook™ and courseware, teacher-to-student and group-to-group sharing of messages, notes, annotations, content and bookmarks in real-time – all within a single virtual classroom.
Specifically, new features in version 3.0 that should serve to definitively differentiate our Platform include a series of major enhancements to existing functionality relating to the delivery and engagement of quizzes, exams, self-assessments and assignments. In addition, we will be introducing flash cards, book and course level store ecommerce integration and reporting, and much more robust highlighting and note-taking capabilities. In addition, version 3.0 will deliver greatly enhanced personalization capabilities that will permit teachers to better assess a student’s learning progress in relation to his or her class peers and allow them to customize learning experiences, instructional approaches and academic support strategies to meet individual learning needs. It is our belief that version 3.0 will serve to meaningfully contribute to the academic success of each student on our Platform, providing for much more efficient and productive student/teacher engagement. As with previous generations of the Platform, authors and instructors will be able to create their own content, upload content from publishers and from open source collections, such as YouTube and the Encyclopedia of the Earth, and to selectively organize that content for use in multiple classrooms and/or as components of Trubook™.
We released a beta version of 3.0 for general availability in the fall of 2014 and have scheduled the full release to occur in the second quarter of 2015. Additional enhancements to the Platform, in the form of version 3.1, are expected to be released for general availability in the fourth quarter of 2015.
In the third quarter of 2014, we also released our new mobile app, Trunity Mobile, available as a free download to current Trunity student and educator users from the Apple App Store for iOS mobile devices. Trunity Mobile features dynamic, rich media content (audio, video, images, animations, etc.) that engages students and improves learning outcomes. In addition, highlighting and note-taking capabilities are complemented by powerful and intuitive search, automatic content updates and alerts, familiar swipe, tape and pinch/zoom behaviors and a comprehensive, interactive glossary. The key competitive differentiator of our mobile app is that it enables downloads of select content or complete Trubooks™ for offline use, which precisely mirrors the online experience. This unique capability makes Trunity the first educational technology company able to provide a mobile eLearning platform capable of delivering truly interactive functionality for both online and offline use.
In the second quarter of 2015, we expect to release Trunity Mobile 1.2, which will be available for free download on both Android and Windows 7 desktop. In addition, this generation will also feature highlighting/annotation syncing, improved auto-updating functionality and enhanced support for social, collaborative learning. The generation supporting downloads by mobile device users on Windows 8 and 10 operating systems (and potentially Google Chrome) are scheduled to be released late in the fourth quarter of 2015.
Our Trubook™ solution has seen strong adoption in the U.S. education market since its initial launch in the fall of 2012. The first Trubook™ authored on the Trunity eLearning Platform was deployed in the first semester of 2012 at Boston University and sold to 150+ students in a single class at $50 each, expanding to four universities and seven courses by the second semester. This Trubook™ is now used in 20 colleges and universities, and used in five high schools, and has been sold to over 1,500 students. This increase in sales demonstrates a repeatable and scalable business model to be followed for the continued adoption of truly interactive books.
In addition to the continued organic author sign-ups, in 2014 we launched a large scale author-teacher recruitment campaign which is specifically geared toward gathering premium content (full textbooks, chapters, courses, modules, videos, PowerPoint and other learning resources) to be sold on the Trunity Knowledge Exchange. The campaign is anchored by Trunity’s participation in a number of well attended industry conferences and trade shows, at which our Chief Education Officer, Dr. Cutler Cleveland, has and will continue to lead Trunity-sponsored seminars relating to “how-to-author” and the related benefits of authoring on the Trunity eLearning Platform. In addition, Dr. Cleveland and other members of the Trunity marketing team have and will continue to host convenient, online webinars to reach and educate authors on the benefits of authoring on the Platform.
As of the end of 2014, we had seven Trubooks™ on the Platform, including one specifically geared towards professional trade certifications; and we have contracted with the authors of 14 new Trubooks™ that are currently in production, most of which are expected to be completed and ready for marketing to schools and universities for the 2015/2016 academic year.
In January 2014, we signed a Memorandum of Understanding with global education leader Houghton Mifflin Harcourt (“HMH”) to offer select HMH digital content via the Trunity Knowledge Exchange to Pre-K-12 schools, as well as to government agencies and entities responsible for the selection or purchase of educational materials. Among the world’s largest providers of pre-K-12 education solutions and longest-established publishing houses, HMH combines cutting-edge research, editorial excellence and technological innovation to improve teaching and learning environments and solve complex literacy and education challenges. HMH’s interactive, results-driven education solutions are utilized by more than 50 million students in over 150 countries, and its renowned and awarded novels, non-fiction, children’s books and reference works are enjoyed by readers throughout the world. On July 21, 2014, we entered into a non-exclusive and licensed distribution agreement with HMH whereby 6,610 units of HMH’s Holt McDougal Chemistry & Physics ©2012 Online Interactive Content have been sold and are now accessible to its students, anywhere, anytime and on any desktop or mobile computing device via the Trunity eLearning Platform. We continue to actively pursue sales opportunities with HMH in collaboration with their sales and marketing efforts.
As one of the world’s leading providers of research-based, technology-enabled education content and solutions, HMH is seeking to leverage the robust scalability, rich multi-media, mobile capabilities, and intuitive cloud-based functionality of the Trunity eLearning Platform to provide increased access to its educational content in high growth international markets. Moreover both companies hope to leverage our combined strengths to provide an enriching educational experience for both students and teachers anywhere, anytime and on any connected device. It is anticipated that the Trunity eLearning Platform will integrate HMH’s quality content to provide a vibrant, interactive learning vehicle capable of delivering modular, customizable, real-time learning solutions through the cloud.
Both companies teamed up to showcase HMH’s premium learning content through the Trunity eLearning Platform, co-exhibiting at the recent BETT 2014 conference held in London in January 2014 and QITCOM show in QATAR in May 2014. Both companies are planning on continuing to jointly showcase our combined solutions at more industry events in 2015.
On March 20, 2013, we entered into a transaction pursuant to which the Trunity eLearning Platform was selected by the Ukraine Government’s Open World National Project to serve as the foundation for the country’s national educational network for public school students in grades five through nine, representing approximately 1,500,000 students. It is important to note that the political unrest that has taken place in Ukraine since February 2014, resulting in the Ukrainian parliament voting to dismiss the country’s president, Victor Yanukovych, and the Russian annexation of Crimea, have created uncertainty as to the viability of the Open World National Project; which, in turn, may impact Trunity’s ability to complete the project implementation. We have on-boarded content to the newly developed Ukrainian Knowledge Exchange; however given the recent political climate in Ukraine, the launch of the Open World National Project is currently on hold. Nonetheless, Trunity is poised and ready to proceed with the initiative as soon as the Ukrainian government is ready to proceed with the Project.
On June 5, 2013, we completed a $3.575 million strategic funding led by Pan-African Investment Company ("PIC"), which was founded by Dick Parsons and Ronald Lauder. Parsons and Lauder formed PIC to identify, invest in and provide solutions that effect growth and development in Africa. In addition to the investment, we entered into an agreement appointing PIC as our exclusive sales agent in Africa. We anticipate a presence in Africa as part of our strategy to bring our platform to the African continent.
Trunity expanded our international presence into the Middle East in the fall of 2014 with the sale of over 6,000 Platform licenses to the Institute of Applied Technology ("IAT") headquartered in Dubai, with the Trunity platform currently in use at four different IAT campuses. The sale was accomplished in collaboration with our strategic partner HMH and its Middle Eastern distributor, All Prints Distributors and Publishers. All Prints is the main supplier of textbooks and educational materials to all the major universities, schools and educational institutes in the United Arab Emirates, Qatar, Kuwait, Oman, Jordan, Saudi Arabia, Bahrain, Syria and Lebanon.
Content modularization capabilities allow our products to be mixed and matched and purchased in whole or in part. The Trunity Knowledge Exchange delivers quality content from various sources, such as traditional publishers, collaborative crowd sourced communities, individual authorsOur core products are in production and teachers,operational, and are currently in use by a growing number of paying customers; however, our revenues are well below the level needed for profitability. We believe that our focused marketing efforts as well as institutional repositories and content partners. Our Platform currently hosts a growing communitythe impact of several thousand expert contributors made uppositive “word of many ofmouth” endorsements from satisfied users will enable us to substantially increase revenues; however, there can be no assurance that we will achieve profitability at any time in the world’s top scientists and educators, who create peer-reviewed educational content. We have customers both domestically and internationally, as we have won a significant national project in Ukraine. In addition, we host many National Science Foundation (NSF) and NASA-funded projects, including The National Council for Science, and the Environment (NCSE), Encyclopedia of the Earth (EoE) and Climate Adaptation and Mitigation E-Learning (CAMEL), all of which serve as core content contributors to the Trunity Knowledge Exchange. In addition, we completed a significant project for The National Academy of Sciences to develop and deploy an online collaboration workspace for scientists to exchange and publish scientific findings from the investigation of declassified satellite earth imagery.foreseeable future.
Our current market penetration strategies are focused on optimizing prevailing opportunities within threefour key channels: K-12, Higher Education, and International Initiatives which include national education ministries and private schools.Enterprise. These efforts are expected to yield notable revenue growth for Trunity in 2014,2015, and represent what we believe is the beginning of a positive, upward trend. Moreover, our go-to-market strategy is expected to continue attracting significant new revenue opportunities for the Company, serving to further validate our technology and vision. As progress is made in this regard, we expect to play a meaningful role in transforming the publishing industry and improving the quality of content being delivered to students worldwide.
This Item is not required for a Smaller Reporting Company.
TRUNITY HOLDINGS, INC.
CONTENTS
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To the Board of Directors and
Stockholders of Trunity Holdings, Inc.
We have audited the accompanying consolidated balance sheets of Trunity Holdings, Inc. and its subsidiary as of December 31, 20132014 and 2012,2013, and the related statements of operations and comprehensive loss, stockholders’ equity (deficit), and cash flows for each of the years in the two-year period ended December 31, 20132014 and 2012.2013. Trunity Holdings, Inc.’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our 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 Trunity Holdings, Inc. and its subsidiary as of December 31, 20132014 and 2012,2013, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 20132014 in conformity with accounting principles generally accepted in the United States of America.
/s/ Cherry Bekaert LLP
Fort Lauderdale, Florida
April 15, 2014
2015
TRUNITY HOLDINGS, INC. AND SUBSIDIARY
| | | December 31, | | | December 31, | | |
| | | 2013 | | | 2012 | | |
| | | | | | | | | | | | | |
| ASSETS | | | | | | | | | | | | |
| Current assets | | | | | | | | | | | | |
| Cash | | $ | 812,064 | | | $ | 13,724 | | | $ | 14,119 | | | $ | 812,064 | |
| Accounts receivable | | | 2,729 | | | | 1,615 | | | | 3,020 | | | | 2,729 | |
| Prepaid expenses and other current assets | | | 41,636 | | | | — | | |
| Prepaid, expenses and other current assets | | | | 107,487 | | | | 41,636 | |
| Total current assets | | | 856,429 | | | | 15,339 | | | | 124,626 | | | | 856,429 | |
| | | | | | | | | | | | | | | | | |
| Property and equipment | | | | | | | | | | | | | | | | |
| Fixtures and equipment | | | 210,172 | | | | 178,348 | | | | 76,095 | | | | 210,172 | |
| Less accumulated depreciation | | | (164,226 | ) | | | (125,621 | ) | | | (56,379 | ) | | | (164,226 | ) |
| | | | 45,946 | | | | 52,727 | | | | 19,716 | | | | 45,946 | |
| | | | | | | | | | |
| Capitalized software development costs | | | | | | | | | | | | | | | | |
| Costs incurred | | | 3,634,029 | | | | 3,114,295 | | | | 4,232,313 | | | | 3,634,029 | |
| Less accumulated amortization | | | (2,917,866 | ) | | | (2,463,347 | ) | | | (3,457,907 | ) | | | (2,917,866 | ) |
| | | | | 774,406 | | | | 716,163 | |
| | | | 716,163 | | | | 650,948 | | | | | | | | | |
| Other assets | | | | | | | | | | | | | | | | |
| Debt issuance costs and other assets | | | 32,022 | | | | 60,305 | | | | 45,899 | | | | 32,022 | |
| | | | | | | | | | | | | | | | | |
| TOTAL ASSETS | | $ | 1,650,560 | | | $ | 779,319 | | | $ | 964,647 | | | $ | 1,650,560 | |
| | | | | | | | | | | | | | | | | |
| LIABILITIES | | | | | | | | | | | | | | | | |
| Current liabilities | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| Accounts payable | | $ | 394,325 | | | $ | 619,304 | | | $ | 984,841 | | | $ | 394,325 | |
| Accrued interest and other liabilities | | | 279,465 | | | | 133,235 | | | | 302,368 | | | | 279,717 | |
| Notes payable-related party | | | 252 | | | | 70,761 | | |
| Debentures Series A and B, carrying value | | | 991,501 | | | | — | | |
| Convertible note payable | | | — | | | | 49,024 | | |
| Debentures Series A,B,C, D and E at carrying value | | | | 1,457,163 | | | | 991,501 | |
| Convertible debenture | | | | 115,463 | | | | — | |
| Deferred revenue | | | 315,850 | | | | 28,267 | | | | 324,169 | | | | 315,850 | |
| Deferred rent, current portion | | | — | | | | 5,907 | | |
| Convertible promissory note | | | | 45,089 | | | | — | |
| Total current liabilities | | | 1,981,393 | | | | 906,498 | | | | 3,229,093 | | | | 1,981,393 | |
| | | | | | | | | | | | | | | | | |
| Long-term liabilities | | | | | | | | | | | | | | | | |
| Deferred rent, long term portion | | | 2,515 | | | | — | | |
| Deferred rent, long-term portion | | | — | | | | 2,515 | |
| Debentures Series A and B, carrying value | | | — | | | | 776,007 | | | — | | | | — | |
| Total long-term liabilities | | | 2,515 | | | | 776,007 | | | — | | | | 2,515 | |
| | | | | | | | | | | | | | | | | |
| Total Liabilities | | | 1,983,908 | | | | 1,682,505 | | |
| TOTAL LIABILITIES | | | | 3,229,093 | | | | 1,983,908 | |
| | | | | | | | | | | | | | | | | |
| Commitments and Contingencies | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| STOCKHOLDERS’ (DEFICIT) EQUITY | | | | | | | | | | | | | | | | |
Common stock, $0.0001 par value - 50,000,000 share authorized, 46,697,891 and 36,131,432 shares issued and outstanding at December 31, 2013 and December 31, 2012, respectively. | | | 4,670 | | | | 3,613 | | |
| Additional paid-in-capital | | | 12,396,355 | | | | 8,438,000 | | |
Preferred stock 0.0001 par value- 50,000,000 shares authorized; None issued and outstanding | | | | | | | | | |
| Common stock, $0.0001 par value – 200,000,000 shares authorized, 54,803,131 and 46,697,891 shares issued and outstanding at December 31, 2014 and December 31, 2013, respectively | | | | 5,480 | | | | 4,670 | |
| Additional paid-in capital | | | | 14,220,267 | | | | 12,396,355 | |
| Other comprehensive loss | | | 3,649 | | | | (8,299 | ) | | | 17,974 | | | | 3,649 | |
| Accumulated Deficit | | | (12,738,022 | ) | | | (9,336,500 | ) | |
| Accumulated deficit | | | | (16,508,167 | ) | | | (12,738,022 | ) |
| Total Stockholders’ Deficit | | | | (2,264,446 | ) | | | (333,348 | ) |
| | | | | | | | | | | | | | | | | |
| Total Stockholders’ (Deficit) Equity | | | (333,348 | ) | | | (903,186 | ) | |
| | | | | | | | | | |
TOTAL LIABILTIES AND STOCKHOLDERS’ (DEFICIT) EQUITY | | $ | 1,650,560 | | | $ | 779,319 | | |
| TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY | | | $ | 964,647 | | | $ | 1,650,560 | |
The accompanying Notesnotes are an integral part of the Consolidated Financial Statements.
TRUNITY HOLDINGS, INC. AND SUBSIDIARY