Attached files
file | filename |
---|---|
8-K - FORM 8-K - Mitesco, Inc. | trunity_8k.htm |
EX-21 - EXHIBIT 21 - Mitesco, Inc. | ex21.htm |
EX-16 - EXHIBIT 16 - Mitesco, Inc. | ex16.htm |
EX-10.1 - EXHIBIT 10.1 - Mitesco, Inc. | ex10_1.htm |
EX-10.5 - EXHIBIT 10.5 - Mitesco, Inc. | ex10_5.htm |
EX-10.4 - EXHIBIT 10.4 - Mitesco, Inc. | ex10_4.htm |
EX-10.3 - EXHIBIT 10.3 - Mitesco, Inc. | ex10_3.htm |
EX-99.2 - EXHIBIT 99.2 - Mitesco, Inc. | ex99_2.htm |
EX-99.3 - EXHIBIT 99.3 - Mitesco, Inc. | ex99_3.htm |
EX-10.2 - EXHIBIT 10.2 - Mitesco, Inc. | ex10_2.htm |
Exhibit 99.1
TRUNITY, INC.
(A Development Stage Company)
Financial Statements
For The Year Ended December 31, 2010
TRUNITY, INC.
Table of Contents
To the Board of Directors and
Stockholders of Trunity, Inc.
We have audited the accompanying balance sheet of Trunity, Inc. (a development stage company) as of December 31, 2010, and the related statements of operations, changes in stockholders’ deficiency, and cash flows for the year then ended and for the period from July 28, 2009 (date of inception) to December 31, 2010. Trunity, Inc.’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides 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, Inc. as of December 31, 2010, and the results of its operations and its cash flows for the year then ended and for the period from July 28, 2009 (date of inception) to December 31, 2010, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency, which raise substantial doubt about its ability to continue as a going concern. Management's plans regarding those matters also are described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Ft Lauderdale, FL
November 8, 2011
(A Development Stage Company)
Balance Sheet
December 31, 2010
ASSETS
Current assets
|
||||
Cash
|
$ | 2,744 | ||
Accounts receivable
|
4,998 | |||
Prepaid expenses and other current assets
|
36,766 | |||
Total current assets
|
44,508 | |||
Property and equipment
|
||||
Fixtures and equipment
|
91,201 | |||
Less accumulated depreciation
|
(30,629 | ) | ||
60,572 | ||||
Capitalized software development costs
|
||||
Costs incurred
|
2,239,165 | |||
Less accumulated amortization
|
(995,316 | ) | ||
1,243,849 | ||||
Other assets
Debt issuance costs, net
|
19,635 | |||
Total other assets
|
19,635 | |||
Total assets
|
$ | 1,368,564 |
The accompanying notes are an integral part of these financial statements.
2
TRUNITY, INC.
(A Development Stage Company)
Balance Sheet
December 31, 2010
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities | ||||
Current portion of notes payable | $ | 771,592 | ||
Accounts payable | 279,826 | |||
Deferred revenue | 78,703 | |||
Accrued expenses | 33,388 | |||
Total current liabilities | 1,163,509 | |||
Long-term liabilities | ||||
Notes payable, less current portion | 3,090,135 | |||
Deferred rent | 16,045 | |||
Total long-term liabilities | 3,106,180 | |||
Total liabilities | 4,269,689 | |||
Commitments and contingencies | ||||
Stockholders’ deficiency | ||||
Common stock, $0.001 par value - 50,000,000 shares authorized, 10,318,005* shares issued and outstanding | 10,318 | |||
Additional paid-in-capital | 1,602,435 | |||
Stock subscription subscribed | 5,000 | |||
Deficit accumulated during development stage | (4,518,878 | ) | ||
Total stockholders' deficiency | (2,901,125 | ) | ||
Total liabilities and stockholders’ deficiency | $ | 1,368,564 |
* As adjusted for a 1 for 3 reverse stock split that occurred in 2011 - see Note 13.
The accompanying notes are an integral part of these financial statements.
3
(A Development Stage Company)
Statement of Operations
For the Year Ended December 31, 2010 and the Period From July 28, 2009
(Date of Inception) to December 31, 2010
|
2010
|
Cumulative from
inception through
December 31,
2010
|
||||||
Net sales
|
$ | 190,432 | $ | 190,432 | ||||
Cost of goods sold
|
79,868 | 79,868 | ||||||
Gross profit
|
110,564 | 110,564 | ||||||
Operating expenses
|
||||||||
Research and development
|
$ | 1,408,018 | $ | 2,608,483 | ||||
Selling, general and administrative
|
789,351 | 1,459,643 | ||||||
2,197,369 | 4,068,126 | |||||||
Loss from operations
|
(2,086,805 | ) | (3,957,562 | ) | ||||
Other income (expense):
|
||||||||
Interest expense
|
(416,583 | ) | (561,316 | ) | ||||
(416,583 | ) | (561,316 | ) | |||||
Net loss
|
$ | (2,503,388 | ) | $ | (4,518,878 | ) |
The accompanying notes are an integral part of these financial statements.
4
(A Development Stage Company)
Statement of Changes in Stockholders’ Deficiency
For the Period From July 28, 2009 (Date of Inception) to December 31, 2010
Par $ .001
Common
Shares*
|
Common
Stock
|
Paid in
Capital
|
Stock
Subscription
Subscribed
(Receivable)
|
Deficit
Accumulated
during the
Development
Stage
|
Total
Stockholders’
Deficiency
|
|||||||||||||||||||
Balance at July 28, 2009 (date of inception) | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||
Issuance of founders stock
|
7,300,667 | 7,301 | (5,901 | ) | 1,400 | |||||||||||||||||||
Sale of common stock
|
880,000 | 880 | 459,120 | (50,000 | ) | 410,000 | ||||||||||||||||||
Stock issuance costs
|
(40,825 | ) | (40,825 | ) | ||||||||||||||||||||
Common stock issued to investors in a debt offering
|
822,000 | 822 | 410,260 | 411,082 | ||||||||||||||||||||
Shares issued for stock offering services
|
33,333 | 33 | 30,792 | 30,825 | ||||||||||||||||||||
Stock based compensation
|
64,941 | 64,941 | ||||||||||||||||||||||
Net loss
|
(2,015,490 | ) | (2,015,490 | ) | ||||||||||||||||||||
Balance at December 31, 2009
|
9,036,000 | $ | 9,036 | $ | 918,387 | $ | (50,000 | ) | $ | (2,015,490 | ) | $ | (1,138,067 | ) | ||||||||||
Sale of common stock
|
1,282,005 | 1,282 | 655,218 | 55,000 | 711,500 | |||||||||||||||||||
Stock issuance costs
|
(12,160 | ) | (12,160 | ) | ||||||||||||||||||||
Stock based compensation
|
40,990 | 40,990 | ||||||||||||||||||||||
Net loss
|
(2,503,388 | ) | (2,503,388 | ) | ||||||||||||||||||||
Balance at December 31, 2010
|
10,318,005 | $ | 10,318 | $ | 1,602,435 | $ | 5,000 | $ | (4,518,878 | ) | $ | (2,901,125 | ) |
* As adjusted for a 1 for 3 reverse stock split that occurred in 2011 - see Note 13.
The accompanying notes are an integral part of these financial statements.
5
(A Development Stage Company)
Statement of Cash Flows
For the Year Ended December 31, 2010 and the Period
From July 28, 2009 (Date of Inception) to December 31, 2010
2010
|
Cumulative from
inception through
December 31, 2010
|
|||||||
Cash flows from operating activities
|
||||||||
Net loss
|
$ | (2,503,388 | ) | $ | (4,518,877 | ) | ||
Adjustments to reconcile net loss to net cash (used in) operating activities:
|
||||||||
Depreciation and amortization
|
715,041 | 1,025,945 | ||||||
Employee stock compensation expense
|
35,384 | 60,656 | ||||||
Non-employee stock compensation expense
|
5,607 | 45,274 | ||||||
Changes in operating assets and liabilities:
|
||||||||
Accounts receivable
|
(4,998 | ) | (4,998 | ) | ||||
Prepaid expenses and other assets
|
(18,016 | ) | (36,766 | ) | ||||
Other long-term assets
|
(19,635 | ) | (19,635 | ) | ||||
Accounts payable
|
(48,445 | ) | 279,827 | |||||
Accrued expenses
|
24,197 | 33,388 | ||||||
Deferred revenue
|
78,703 | 78,703 | ||||||
Deferred rent
|
16,045 | 16,045 | ||||||
Accrued interest included in notes payable
|
141,097 | 202,991 | ||||||
Net cash (used in) operating activities
|
(1,578,408 | ) | (2,837,447 | ) | ||||
Cash flows from investing activities
|
||||||||
Purchase of fixed assets
|
(37,517 | ) | (91,202 | ) | ||||
Purchase of other assets
|
(342,346 | ) | (2,239,165 | ) | ||||
Net cash (used in) investing activities
|
(379,863 | ) | (2,330,366 | ) | ||||
Cash flows from financing activities
|
||||||||
Advances from related parties
|
87,354 | 162,354 | ||||||
Repayments of advances from related parties
|
(137,354 | ) | (162,354 | ) | ||||
Issuance of short-term debt
|
100,000 | 100,000 | ||||||
Long-term debt issued to related parties
|
552,257 | 2,597,800 | ||||||
Accrued unpaid interest to related parties
|
235,177 | 318,017 | ||||||
Issuance of long-term debt
|
387,500 | 642,917 | ||||||
Sale of common stock
|
711,500 | 1,564,807 | ||||||
Stock issuance costs
|
(12,160 | ) | (52,985 | ) | ||||
Net cash provided by financing activities
|
1,924,274 | 5,170,557 | ||||||
Net increase (decrease) in cash and cash equivalents
|
(33,997 | ) | 2,744 | |||||
Cash, beginning of period
|
36,741 | — | ||||||
Cash, end of period
|
$ | 2,744 | $ | 2,744 | ||||
Supplemental disclosure of cash flow information:
|
||||||||
Cash paid during the period for interest
|
$ | 42,904 | $ | 42,904 |
The accompanying notes are an integral part of these financial statements.
6
Note 1 – Nature of Business
Trunity, Inc. (“We” or “the Company”) is a “C” Corporation organized under the Laws of Delaware with principal offices in Newburyport, Massachusetts. It was formed on July 28, 2009 to develop a cloud-based knowledge sharing platform that focuses on e-learning, virtual textbooks, customer experience and education marketplace. The Company formed though the acquisition of certain intellectual property by its three founders. The Company is in the development stage and it is presently undertaking research and development of its platform.
Note 2 – Summary of Significant Accounting Policies
Basis of Accounting - The financial statements 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.
Development Stage Operations - The Company has operated as a development stage enterprise since its inception by devoting substantially all of its efforts to business development.
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. In 2010 and 2011, 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.
Revenue Recognition - Revenue is recognized either ratably over the period of the related contract or as services are performed.
Property and Equipment - Property and equipment are stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets. Expenditures for major betterments and additions are capitalized, while replacement, maintenance and repairs, which do not extend the lives of the respective assets, are expensed as incurred.
Accounting for Uncertainty in Income Taxes - Income taxes are accounted for in accordance with FASB 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
7
TRUNITY, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 2010
Note 2 – Summary of Significant Accounting Policies (continued)
Accounting for Uncertainty in Income Taxes (continued) - 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, 2010. 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 2009 and 2010 are subject to examination by federal and state taxing authorities.
Research and Development Costs - The Company capitalizes research and development related to the development of its software platform. Research and development costs not associated with the development of the software platform are expensed in the period in which they are incurred. For the year ended December 31, 2010, the Company capitalized approximately $342,000 of internal development costs.
Stock-Based Compensation - The Company accounts for stock compensation in accordance with FASB ASC 718, “Compensation-Stock Compensation”, which requires companies to expense the fair value of stock options and other forms of stock-based compensation. As the Company is in the development stage, it was unable to reasonably determine the fair value, and expected volatility of its shares. Therefore, as allowed for non-public entities, the Company has elected the intrinsic value method for valuing the impact of stock compensation.
Convertible Debt - The Company assesses whether it has embedded derivatives in accordance with ASC 815, “Accounting for Derivative Instruments and Hedging Activities”. As the Company is in the development stage, it was unable to reasonably determine the fair value of conversion features of its debt which allows holders to convert holdings into common shares of the Company. It has therefore elected to account for these conversion rights using the intrinsic value method.
Common Stock Purchase Warrants - The Company accounts for common stock purchase warrants in accordance with ASC 815, “Accounting for Derivative Instruments and Hedging Activities”.
8
TRUNITY, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 2010
Note 2 – Summary of Significant Accounting Policies (continued)
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 (see Note 13).
Intangible Assets - Intangible assets are recorded at cost and consist of the Trunity Platform software development costs. Amortization is computed using the straight-line method over 3 years. Amortization expense for the year ended December 31, 2010 totaled approximately $689,000.
Financial Instruments and Fair Values - The fair value of a financial instrument represents the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Fair value estimates are made at a specific point in time, based upon relevant market information about the financial instrument.
The carrying amount of cash, trade receivables and other assets approximates fair value due to the short-term maturities of these instruments.
The fair values of all other financial instruments, including debt, approximate their book values as the instruments are short-term in nature or contain market rates of interest.
Subsequent events - Subsequent events were evaluated through November 8, 2011, which is the date the financial statements were available to be issued.
Note 3 – Recent Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board (FASB) issued new accounting guidance on accounting for transfers of financial assets which removes the concept of a qualifying special-purpose entity (QSPE) and clarifies the requirements for isolation and limitations on portions of financial assets that are eligible for sale accounting. The Company adopted the new accounting guidance beginning January 1, 2010. This new accounting guidance did not have a significant impact on the Company’s financial position, cash flows or results of operations.
9
TRUNITY, INC.
(A Development Stage Company)
Notes To The Financial Statements
December 31, 2010
Note 3 – Recent Accounting Pronouncements (continued)
In June 2009, the FASB issued new accounting guidance which revises the approach to determining the primary beneficiary of a variable interest entity (VIE) to be more qualitative in nature and requires companies to more frequently reassess whether they must consolidate a VIE. The Company adopted the new accounting guidance beginning January 1, 2010. This new accounting guidance did not have a significant impact on the Company’s financial position, cash flows or results of operations.
In October 2009, the FASB issued authoritative guidance about the accounting for revenue contracts containing multiple elements, allowing the use of companies’ estimated selling prices as the value for deliverable elements under certain circumstances and to eliminate the use of the residual method for allocation of deliverable elements. This guidance is effective for the Company beginning January 1, 2011. The Company does not expect that this standard will have a significant impact on its financial position or results of operations.
In January 2010, the FASB issued guidance that requires reporting entities to make new disclosures about recurring or nonrecurring fair-value measurements, including significant transfers into and out of Level 1 and Level 2 fair value measurements and information on purchases, sales, issuances, and settlements on a gross basis in the reconciliation of Level 3 fair value measurements. The Company adopted the new accounting guidance beginning January 1, 2010. This update had no impact on the Company’s financial position, cash flows or results of operations.
In July 2010, the FASB issued Accounting Standards Update No. 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses (“ASU 2010-20”). This ASU requires enhanced disclosures with disaggregated information regarding the credit quality of an entity’s financing receivables and its allowance for credit losses. The update also requires disclosure of credit quality indicators, past due information, and modifications of financing receivables. This ASU is effective for interim and annual reporting periods ending after December 15, 2010. The Company adopted this ASU beginning with its annual reporting period ended December 31, 2010. This new accounting guidance did not have a significant impact on the Company’s financial position, cash flows or results of operations.
In April 2010, the FASB issued ASU 2010-17, “Revenue Recognition—Milestone Method”, which provides guidance on defining the milestone and determining when the use of the milestone method of revenue recognition for research and development transactions is appropriate. It provides criteria for evaluating if the milestone is substantive and clarifies that a vendor can recognize consideration that is contingent upon achievement of a milestone as revenue in the period in which the milestone is achieved, if the milestone meets all the criteria to be considered substantive. ASU 2010-17 is effective for milestones achieved in fiscal years, and interim periods within those years beginning on or after June 15, 2010 with prospective application. Early adoption is permitted with specific provisions. The Company adopted these amendments in the third quarter of 2010 and the adoption did not have a material impact on the disclosures in the Company’s financial statements.
10
TRUNITY, INC.
(A Development Stage Company)
Notes To The Financial Statements
December 31, 2010
Note 4 – Property and Equipment
A summary of property and equipment at December 31, 2010 is as follows:
Furniture and fixtures
|
$ | 11,315 | ||
IT Equipment and software
|
79,886 | |||
Total Property and Equipment
|
91,201 | |||
Less: Accumulated depreciation
|
(30,629 | ) | ||
Net Property and Equipment
|
$ | 60,572 |
The amounts charged to operations for depreciation for the year ended December 31, 2010 was approximately $25,700.
Note 5 – Intangible Assets
Intangible assets were comprised of the following at December 31, 2010:
Trunity Platform |
Estimated
Life
|
Gross Cost |
Accumulated
Amortization
|
Net Book
Value
|
||||||||||
Assets Acquired from Trunity, LLC | 3 years | $ | 1,775,000 | $ | (887,500 | ) | $ | 887,500 | ||||||
Internal Costs Capitalized for period from July 28, 2009 (inception to December 31, 2009) | 3 years | 121,819 | (50,758 | ) | $ | 71,060 | ||||||||
Internal costs capitalized for the twelve months ended December 31, 2010 | 3 years | 342,346 | (57,057 | ) | $ | 285,289 | ||||||||
Carrying Value | $ | 1,243,849 |
Estimated future amortization expense is as follows:
Year ending December 31, | ||||
2011 | $ | 746,388 | ||
2012 | 440,403 | |||
2013 | 57,057 | |||
Total future amortization expense | $ | 1,243,849 |
11
TRUNITY, INC.
(A Development Stage Company)
Notes To The Financial Statements
December 31, 2010
Note 6 – Notes Payable
At December 31, 2010, outstanding notes payable is made up of the following.
Note Holder
|
Principal
|
Accrued
Interest |
Unamoetized
Discount |
Outstanding
December 31, 2010 |
||||||||||||
Trunity LLC
|
$ | 1,800,000 | $ | 216,592 | $ | 2,016,592 | ||||||||||
Notes Payable to Founders
|
797,799 | 101,425 | 899,224 | |||||||||||||
Notes payable to related parties
|
$ | 2,915,816 | ||||||||||||||
8% Convertible Notes
|
616,500 | 71,270 | (284,360 | ) | 403,410 | |||||||||||
9% Convertible Notes
|
437,500 | 437,500 | ||||||||||||||
Note sold to an outside investor
|
100,000 | 5,000 | 105,000 | |||||||||||||
Notes payable to investors
|
$ | 945,910 | ||||||||||||||
Total notes payable
|
$ | 3,861,726 |
Trunity, LLC Note - Trunity, LLC was formed by the three founders of the Company to acquire the technology platform used by the Company. The assets of Trunity, LLC, which consisted chiefly of the rights to the technology platform, was sold to the Company for $1.8 million in the form of a Note bearing interest of 8% payable with 120 monthly installments, maturing in June 2019. No payments have been made on this note through December 31, 2010.
In July 2011, all principal due on this note was converted to common shares of the Company and distributed to the three owners of Trunity, LLC.
Notes Payable to Founders - In 2009, the Company entered into line of credit agreements with two of the founders to borrow up to $0.9 million, as needed, to fund working capital needs of the Company. These notes carried an interest rate of 10% and were to expire in September and December 2012. During 2010, approximately $0.5 million was borrowed by the Company under these agreements. No repayments were made on these Notes through December 31, 2010.
In July 2011, all principal and interest due on these notes was converted to shares of common stock in the Company.
8% Convertible Promissory Notes - In 2009, the Company completed an offering of $616,500 in principal amount of 8% Convertible Promissory Notes. The notes had a maturity of July 1, 2014, and accrued interest at a rate of 8% per annum payable maturity or conversion.
12
TRUNITY, INC.
(A Development Stage Company)
Notes To The Financial Statements
December 31, 2010
Note 6 – Notes Payable (continued)
8% Convertible Promissory Notes (continued) - The notes included conversion features that allowed holders to convert their holdings to shares of the Company’s stock upon:
●
|
A qualified financing event (defined as the sale of $1 million or greater of equity securities), debt automatically converts at a price equivalent to the offering price.
|
|
●
|
At the discretion of the debt holder for a fixed price of $1 per share.
|
|
●
|
Upon change of control of the Company, the debt holder could convert at fixed price of $1 per share.
|
Using the intrinsic value method, the Company determined that these conversion features had no value upon issuance or at December 31, 2010.
In consideration for the purchase of the notes, the investors received 4 shares of the Company’s common stock for every dollar invested in this offering. A total of 822,000 shares (2,466,000 shares as adjusted for the 1 for 3 reverse stock split in 2011) were issued to the Note purchasers. The Company determined that the value of these shares were $0.1667 per share, or $411,082 in total, and has accounted for these shares as a note discount to be amortized over the term of the notes using the effective interest method.
In February 2011, these notes and accrued but unpaid interest were automatically converted to common shares upon the completion of a qualified financing event.
9% Convertible Promissory Notes - In December 2009, the Company began an offering of 9% Convertible Promissory Notes. The notes had 5 year maturities from date issued, and interest on the notes accrued at the rate of 9% per annum and was paid monthly. The offering concluded in 2010 raising a total of $437,500. These notes included conversion features that allowed holders to convert their debt to Company’s stock within the first 3 years:
●
|
In years 1 and 2 notes were convertible at a price of $2 per share.
|
|
●
|
In year 3 notes were convertible a price of $3 per share.
|
Using the intrinsic value method, the Company determined that these conversion features had no value upon issuance or at December 31, 2010.
In April 2011, these notes were converted to common shares upon a special offer to convert the debt which all debt holders exercised.
Note Sold to an Outside Investor - In October 2010, the Company issued a single $50,000 promissory note to an investor. The note called for fixed interest of $5,000 per month. This note had a maturity of January 8, 2011. Additionally, 100,000 warrants to purchase shares of Company stock were issued to this investor. See note 9 below, for a description of these warrants. In August 2011, this note with accrued but unpaid interest was converted to common shares.
Interest expense recognized on the above notes for the year ended December 31, 2010 was approximately $416,600.
13
TRUNITY, INC.
(A Development Stage Company)
Notes To The Financial Statements
December 31, 2010
Note 6 – Notes Payable (continued)
The future maturities of all notes at December 31, 2010 are as follows:
Year ending December 31,
|
||||
2011
|
$ | 771,592 | ||
2012
|
1,079,225 | |||
2013
|
180,000 | |||
2014
|
583,410 | |||
2015 and thereafter
|
1,247,500 | |||
Total Notes Payable
|
3,861,726 | |||
Notes Payable - Current Portion
|
(771,592 | ) | ||
Notes Payable, Net of Current Portion
|
$ | 3,090,135 |
Note 7 – Stockholders’ Equity
The Company has one class of stock, common, which has a par value of $0.001 per share. The Company has authorized up to 50,000,000 shares to be issued. All share issuances disclosed below have been retroactively adjusted for a 1 for 3 reverse stock split that occurred in 2011 (see Note 13).
Issuance of Founders’ stock - Shortly after the formation of the Company, a total of 7,300,667 shares were issued to founders of the Company and others at the direction of the founders.
Sale of Common Stock - During 2009, the Company raised gross proceeds of approximately $460,000 through the sale of 880,000 shares of its common stock to accredited investors at an average price of $0.52 per share. The sale of these shares took place throughout 2009. The Company incurred stock issuance costs in the period that totaled $40,825 of which $30,825 was from the issuance of 33,333 shares to brokers in exchange for services related to the share offering.
During 2010, the Company raised gross proceeds of approximately $653,000 through the sale of 1,282,005 shares of its common stock to accredited investors at an average price of $0.51 per share (as adjusted for the 1 for 3 reverse stock split in 2011).
The sale of these shares took place throughout 2010. The Company incurred stock issuance costs in the year that totaled $12,160.
Shares issued in connection with 8% Convertible Promissory Notes - During 2009, the Company issued 822,000 shares of common stock related to the sale of $616,500 in principal amount of 8% Convertible Promissory Notes. As detailed in Note 6, the $411,082 value of these shares has been recorded as an increase in stockholders’ equity and discount to notes payable.
14
TRUNITY, INC.
(A Development Stage Company)
Notes To The Financial Statements
December 31, 2010
Note 8 – Stock Options
In 2009, the Company approved the 2009 Employee, Director and Consultant Stock Option Plan and authorized an option pool of 5,500,000 shares. Stock options typically vest over a 3 year period and have a life of 10 years from the date granted. In 2009, the Company accelerated the option vesting of certain employees who terminated their employment, but, agreed to work in a consulting capacity. In exchange for the accelerated vesting, the employees agreed to shorter expiration periods for their options. In 2010, the Company issued options to employees and consultants of the company to purchase shares of the Company’s common stock at an exercise price of $0.11 per share.
A summary of options issued, exercised and expired for the period ended December 31, 2010 is as follows (shares have been retroactively adjusted for the 1 for 3 reverse stock split in 2011):
Number of
Shares
|
Weighted-
Average
Exercise
Price
|
Weighted-
Average
Intrinsic
Value
|
Weighted-
Average
Remaining
Contractual
Life (years)
|
|||||||||||||
Outstanding at December 31, 2009
|
995,000 | $ | 0.33 | $ | 0.17 | |||||||||||
Granted
|
265,000 | 0.33 | 0.29 | |||||||||||||
Exercised
|
— | — | — | |||||||||||||
Cancelled
|
— | — | — | |||||||||||||
Outstanding at December 31, 2010
|
1,260,000 | $ | 0.33 | $ | 0.07 | 7.29 | ||||||||||
Exercisable at December 31, 2010
|
73,736 | $ | 0.33 | $ | 0.17 | 7.79 |
For 2010, the Company recognized stock compensation expense of approximately $41,000 using the intrinsic value method.
At December 31, 2010, there was approximately $174,000 in compensation cost related to nonvested awards that has not yet been recognized. The weighted-average period over which this cost is expected to be recognized is 2.27 years.
Note 9 – Warrants to Purchase Common Stock
In connection with the issuance of some Notes and the sale of shares of common stock in 2010, the Company issued warrants to purchase 189,150 shares of the Company’s common stock at exercise price of $1.00 per share. These warrants are still outstanding as of December 31, 2010, and expire at various dates in 2013. Based on the intrinsic valuation method, the warrants were determined to have no fair value at the time issued and at December 31, 2010.
15
TRUNITY, INC.
(A Development Stage Company)
Notes To The Financial Statements
December 31, 2010
Note 9 – Warrants to Purchase Common Stock (continued)
A summary of warrants issued, exercised and expired for the year ended December 31, 2010 is as follows:
Warrants | ||||
Balance at December 31, 2009
|
— | |||
Issued
|
189,150 | |||
Exercised | — | |||
Expired
|
— | |||
Balance at December 31, 2010
|
189,150 |
Note 10 – Income Taxes
The Company did not provide a current U.S. federal or state income tax provision or benefit for the period presented because it has experienced operating losses. The Company recognized deferred tax assets, primarily for the benefit to be realized from offsetting its current net operating loss to taxable income in future periods. However, the Company has provided a full valuation allowance on the deferred tax assets, because evidence does not indicate that the deferred tax assets will more likely than not be realized.
At December 31, 2010, deferred tax assets consisted of the following:
Net operating loss carryforward
|
$ | 1,779,738 | ||
Less: valuation allowance
|
(1,779,738 | ) | ||
Net deferred tax asset
|
$ | — |
The Company’s effective income tax rate is lower than what would be expected if the federal statutory rate were applied to the loss from operations primarily because of the effect of the state tax benefit, net of federal benefit, and the change in the valuation allowance provided against deferred tax assets.
At December 31, 2010, the Company had net operating losses of approximately $3.9 million that can be carried forward for up to twenty years and deducted against future taxable income. The net operating loss carryforwards expire in various years through 2030 and may be subject to certain limitations under federal and state tax laws. The change in the valuation allowance for the year ended December 31, 2010 was approximately $985,000.
Note 11 – Related Parties
The Company’s three founders, Terry Anderton, Les Anderton, and Joakim Lindblom have a number of transactions that warrant disclosure per ASC 850, Related Party Disclosures.
Loans - The Trunity, LLC Note with the Company is beneficially owned by the three founders of the Company. The loan balance at December 31, 2010 was approximately $2 million. Terms of the loan were disclosed in Note 6.
16
TRUNITY, INC.
(A Development Stage Company)
Notes To The Financial Statements
December 31, 2010
Note 11 – Related Parties (continued)
Credit agreements with Terry Anderton and Les Anderton had outstanding balances of approximately $166,000 and $734,000, respectively, at December 31, 2010.
Founder Stock Transactions - Upon forming the Company in 2009, 3,333,333 shares were issued to both Terry Anderton and Les Anderton for a total of 6,666,667 shares (as adjusted for a 1 for 3 reverse stock split in 2011). At December 31, 2010: Terry Anderton directly and indirectly, through his children’s trust accounts, controlled 3,183,333 shares; Les Anderton directly and indirectly, with his wife, controlled 3,133,333 shares.
In 2009 and 2010, Joakim Lindblom was granted stock options to purchase 333,333 and 100,000 shares, respectively, at a strike price of $0.33. In 2011, Mr. Lindblom was granted additional options to purchase an additional 353,333 shares. All share amounts have been adjusted for the 1 for 3 reverse stock split that occurred in 2011.
In 2011, various notes with the founders were converted to shares of common stock in the Company. The following shares (after the 1 for 3 reverse split of its common shares) were issued to the founders upon conversion of the Trunity, LLC note payable and notes payable to the founders.
Shares Issued Upon Conversion | ||||||||
Trunity, LLC
Note
|
Notes
payable to
founders
|
|||||||
Terry Anderton | 3,200,000 | 856,000 | ||||||
Les Anderton | 3,200,000 | 3,116,000 | ||||||
Joakim Lindblom | 800,000 | |||||||
7,200,000 | 3,972,000 |
Sales, Receivables and Accruals - There were none in 2010.
Note 12 – Commitments and Contingencies
In 2010, the Company entered into a lease agreement for 6,400 square feet of office space located in Newburyport, Massachusetts. This lease is effective from August 2010 through July 2013. This agreement provided a free rent period of the first four months of the term. The minimum lease payments payable over the remaining life of that agreement are:
Lease Contract (Description) | 2011 | 2012 | 2013 | Total | ||||||||||||
Three year lease ending July 31, 2013 | $ | 91,206 | $ | 91,206 | $ | 53, 203 | $ | 235,615 |
In 2010, the Company recognized approximately $46,000 in rent expense.
17
TRUNITY, INC.
(A Development Stage Company)
Notes To The Financial Statements
December 31, 2010
Note 13 – Subsequent Events
9% Convertible Promissory Notes issued in 2010, Converted to shares in 2011 - As described in Note 6, the Company raised $437,500 through the sale of Convertible Promissory Notes in 2010. In 2011 this debt was converted to 1,458,333 shares (4,375,000 shares as adjusted for the 1 for 3 reverse split in 2011).
$100,000 Note sold to an Investor in 2010, Converted to shares in 2011 - In 2010, the Company sold a note to an investor which had a fixed interest of $5,000 per month. In 2011, the Company converted this note and accrued but unpaid interest to 133,333 shares.
Sale of Shares in and 2011 - In 2011, the Company sold 2.3 million shares for approximately $1.2 million.
Letter of Intent to Acquire another Company - In April 2011, the Company signed a letter of intent to purchase a majority ownership stake in another company. The terms of this agreement call for certain actions to be undertaken by both parties. In 2011, the Company has made deposits of $175,000 pursuant to this agreement.
2011 3 for 1 Reverse share split of Common Shares - During 2011, the Company implemented a 3 for 1 reverse share split of its shares. This transaction had the effect of reducing the number of outstanding shares from 38,874,291 to 12,958,135. The 2010 financial statements have been retroactively adjusted to reflect the stock split.
Private placement with Greenhills Ventures - In October 2011, the Company entered into a non-binding draft securities purchase agreement with Greenhills Ventures, LLC. The agreement calls for Greenhills to invest a maximum of $3 million in preferred stock of the Company. The funds are to be invested in three tranches which will be paid upon the Company satisfying operational and performance based conditions. The final conditions of this agreement are being negotiated.
18
TRUNITY, INC.
(A Development Stage Company)
Financial Statements
For The Period Ended December 31, 2009
TRUNITY, INC.
Table Of Contents
1
|
||
Financial Statements
|
||
2-3
|
||
4
|
||
5
|
||
6
|
||
7-17
|
To the Board of Directors and
Stockholders of Trunity, Inc.
We have audited the accompanying balance sheet of Trunity, Inc. (a development stage company) as of December 31, 2009, and the related statements of operations, changes in stockholders’ deficiency, and cash flows for the period from July 28, 2009 (date of inception) to December 31, 2009. Trunity, Inc.’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides 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, Inc. as of December 31, 2009, and the results of its operations and its cash flows for the period from July 28, 2009 (date of inception) to December 31, 2009, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency, which raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters also are described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Ft Lauderdale, FL
November 8, 2011
(A Development Stage Company)
Balance Sheet
December 31, 2009
ASSETS |
|
|||
Curent assets
|
||||
Cash
|
$ | 36,741 | ||
Prepaid expenses and other current assets
|
18,750 | |||
Total current assets
|
55,491 | |||
Property and equipment
|
||||
Fixtures and equipment
|
53,685 | |||
Less accumulated depreciation
|
(4,919 | ) | ||
48,766 | ||||
Capitalized software development costs
|
||||
Costs incurred
|
1,896,819 | |||
Less accumulated amortization
|
(305,985 | ) | ||
1,590,834 | ||||
Total assets
|
$ | 1,695,091 |
The accompanying notes are an integral part of these financial statements.
|
2 |
TRUNITY, INC.
(A Development Stage Company)
Balance Sheet
December 31, 2009
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY | ||||
Current liabilities
|
||||
Current portion of notes payable
|
$ | 392,592 | ||
Accounts payable
|
328,273 | |||
Accrued expenses
|
9,191 | |||
Total current liabilities
|
730,056 | |||
Long-term liabilities
|
||||
Notes payable, less current portion
|
2,103,102 | |||
Total long-term liabilities
|
2,103,102 | |||
Total liabilities
|
2,833,158 | |||
Commitments and contingencies
|
||||
Stockholders’ deficiency
|
||||
|
||||
Common stock, $0.001 par value - 50,000,000 shares authorized, 9,036,000*
shares issued and outstanding |
9,036 | |||
Additional paid-in-capital
|
918,387 | |||
Stock subscription receivable
|
(50,000 | ) | ||
Deficit accumulated during development stage
|
(2,015,490 | ) | ||
Total stockholders’ deficiency
|
(1,138,067 | ) | ||
Total liabilities and Stockholders’ deficiency |
$
|
1,695,091 |
* As adjusted for a 1 for 3 reverse stock split that occurred in 2011 - see Note 13.
The accompanying notes are an integral part of these financial statements.
|
3
|
(A Development Stage Company)
Statement of Operations
For the Period From July 28, 2009 (Date of Inception) to December 31, 2009
Net sales
|
$ | — | |||
Operating expenses
|
|||||
Research and development
|
1,200,465 | ||||
Selling, general and administrative
|
670,292 | ||||
1,870,757 | |||||
Loss from operations
|
(1,870,757 | ) | |||
Other income (expense):
|
|||||
Interest expense
|
(144,733 | ) | |||
(144,733 | ) | ||||
Net loss
|
$ | (2,015,490 | ) |
The accompanying notes are an integral part of these financial statements.
|
4
|
(A Development Stage Company)
Statement of Changes in Stockholders’ Deficiency
For the Period From July 28, 2009 (Date of Inception) to December 31, 2009
Deficit
|
||||||||||||||||||||||||
Accumulated
|
||||||||||||||||||||||||
Par $ .001
|
Stock
|
during the
|
Total
|
|||||||||||||||||||||
Common
|
Common
|
Paid in
|
Subscription
|
Development
|
Stockholders’
|
|||||||||||||||||||
Shares*
|
Stock
|
Capital
|
Receivable
|
Stage
|
Equity
|
|||||||||||||||||||
Balance at July 28, 2009 (date of inception)
|
— | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||
Issuance of founders’ stock
|
7,300,667 | 7,301 | (5,901 | ) | 1,400 | |||||||||||||||||||
Sale of common stock
|
880,000 | 880 | 459,120 | (50,000 | ) | 410,000 | ||||||||||||||||||
Stock issuance costs
|
(40,825 | ) | (40,825 | ) | ||||||||||||||||||||
Common stock issued to investors in a debt offering
|
822,000 | 822 | 410,260 | 411,082 | ||||||||||||||||||||
Shares issued for stock offering services
|
33,333 | 33 | 30,792 | 30,825 | ||||||||||||||||||||
Stock based compensation
|
64,941 | 64,941 | ||||||||||||||||||||||
Net loss
|
(2,015,490 | ) | (2,015,490 | ) | ||||||||||||||||||||
Balance at December 31, 2009
|
9,036,000 | $ | 9,036 | $ | 918,387 | $ | (50,000 | ) | $ | (2,015,490 | ) | $ | (1,138,067 | ) |
* As adjusted for a 1 for 3 reverse stock split that occurred in 2011 - see Note 13.
The accompanying notes are an integral part of these financial statements.
|
5
|
(A Development Stage Company)
Statement of Cash Flows
For the Period From July 28, 2009 (Date of Inception) to December 31, 2009
Cash flows from operating activities
|
|
|||
Net loss
|
$ | (2,015,490 | ) | |
Adjustments to reconcile net loss to net cash (used in) operating activities:
|
||||
Depreciation and amortization
|
310,904 | |||
Employee stock compensation expense
|
25,273 | |||
Non-employee stock compensation expense
|
39,668 | |||
Changes in operating assets and liabilities:
|
||||
Prepaid expenses and other assets
|
(18,750 | ) | ||
Accounts payable
|
328,273 | |||
Accrued expenses
|
9,191 | |||
Accrued interest included in notes payable
|
61,892 | |||
Net cash (used in) operating activities
|
(1,259,039 | ) | ||
Cash flows from investing activities
|
||||
Purchase of fixed assets
|
(53,684 | ) | ||
Purchase of other assets
|
(1,896,819 | ) | ||
Net cash (used in) investing activities
|
(1,950,503 | ) | ||
Cash flows from financing activities
|
||||
Advances from related parties
|
75,000 | |||
Repayments of advances from related parties
|
(25,000 | ) | ||
Long-term debt issued to related parties
|
2,045,543 | |||
Accrued unpaid interest to related parties
|
82,840 | |||
Issuance of long-term debt
|
255,417 | |||
Proceeds from sale of common stock
|
853,308 | |||
Payment of stock issuance costs
|
(40,825 | ) | ||
Net cash provided by financing activities
|
3,246,283 | |||
Net increase in cash
|
36,741 | |||
Cash, at inception
|
— | |||
Cash, end of period
|
$ | 36,741 | ||
|
||||
Supplemental disclosure of cash flow information
|
||||
Cash paid during the period for interest | $ | — |
The accompanying notes are an integral part of these financial statements.
|
6
|
Note 1 – Nature of Business
Trunity, Inc. (“We” or “the Company”) is a “C” Corporation organized under the Laws of Delaware with principal offices in Newburyport, Massachusetts. It was formed on July 28, 2009 to develop a cloud-based knowledge sharing platform that focuses on e-learning, virtual textbooks, customer experience and education marketplace. The Company formed though the acquisition of certain intellectual property by its three founders. The Company is in the development stage and it is presently undertaking research and development ofits platform.
Note 2 – Summary of Significant Accounting Policies
Basis of Accounting -The financial statements 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.
Development Stage Operations - The Company has operated as a development stage enterprise since its inception by devoting substantially all of its efforts to business development.
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. In 2010 and 2011, 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.
Revenue Recognition - During the period from July 28, 2009 to December 31, 2009, the Company had no revenue.In future periods, revenue will be recognized either ratably over the period of the related contract or as services are performed.
Property and Equipment - Property and equipment are stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets. Expenditures for major betterments and additions are capitalized, while replacement, maintenance and repairs, which do not extend the lives of the respective assets, are expensed as incurred.
7
TRUNITY, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 2009
Note 2 – Summary of Significant Accounting Policies (continued)
Accounting for Uncertainty in Income Taxes - Income taxes are accounted for in accordance with FASB 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, 2009. 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 year 2009 is subject to examination by federal and state taxing authorities.
Research and Development Costs- The Company capitalizes research and development related to the development of its software platform. Research and development costs not associated with the development of the software platform are expensed in the period in which they are incurred. For the period ended December 31, 2009 the Company capitalized approximately $122,000 of internal development costs.
Stock-Based Compensation- The Company accounts for stock compensation in accordance with FASB ASC 718, “Compensation-Stock Compensation”, which requires companies to expense the fair value of stock options and other forms of stock-based compensation. As the Company is in the development stage, it was unable to reasonably determine the fair value, and expected volatility of its shares. Therefore,as allowed for non-public entities, the Company has elected the intrinsic value method for valuing the impact of stock compensation.
Convertible Debt - The Company assesses whether it has embedded derivatives in accordance with ASC 815,”Accounting for Derivative Instruments and Hedging Activities”. As the Company is in the development stage, it was unable to reasonably determine the fair value of conversion features of its debt which allows holders to convert holdings into common shares of the Company. It has therefore elected to account for these conversion rights using the intrinsic value method.
8
TRUNITY, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 2009
Note 2 – Summary of Significant Accounting Policies (continued)
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 in ASC Topic 505-20 (see Note 13).
Intangible Assets - Intangible assets are recorded at cost and consist of the Trunity Platform software development costs. Amortization is computed using the straight-line method over 3 years. Amortization expense for the period from July 28, 2009 (date of inception) to December 31, 2009 totaled $305,985.
Financial Instruments and Fair Values- The fair value of a financial instrument represents the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Fair value estimates are made at a specific point in time, based upon relevant market information about the financial instrument.
The carrying amount of cash, trade receivables and other assets approximates fair value due to the short-term maturities of these instruments.
The fair values of all other financial instruments, including debt, approximate their book values as the instruments are short-term in nature or contain market rates of interest.
Subsequent Events - Subsequent events were evaluated through November 8, 2011, which is the date the financial statements were available to be issued.
Note 3 – Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements - In June 2009, the Financial Accounting Standards Board (FASB) issued new accounting guidance on accounting for transfers of financial assets which removes the concept of a qualifying special-purpose entity (QSPE) and clarifies the requirements for isolation and limitations on portions of financial assets that are eligible for sale accounting. The Company adopted the new accounting guidance beginning January 1, 2010. This new accounting guidance is not expected to have a significant impact on the Company’s financial position, cash flows or results of operations.
In June 2009, the FASB issued new accounting guidance which revises the approach to determining the primary beneficiary of a variable interest entity (VIE) to be more qualitative in nature and requires companies to more frequently reassess whether they must consolidate a VIE. The Company adopted the new accounting guidance beginning January 1, 2010. This new accounting guidance is not expected to have a significant impact on the Company’s financial position, cash flows or results of operations.
9
TRUNITY, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 2009
Note 3 – Recent Accounting Pronouncements (continued)
In October 2009, the FASB issued authoritative guidance about the accounting for revenue contracts containing multiple elements, allowing the use of companies’ estimated selling prices as the value for deliverable elements under certain circumstances and to eliminate the use of the residual method for allocation of deliverable elements. This guidance is effective for the Company beginning January 1, 2011. The Company does not expect that this standard will have a significant impact on its financial position or results of operations.
Note 4 – Asset Acquisition from Trunity, LLC
On July28, 2009, the Company completed the acquisition of the assets of Trunity, LLC for the total consideration of $1.8 million in exchange for a promissory note. The following table presents the allocation of the purchase consideration to the intangible assets acquired based on their book values. The purchase price was allocated as follows:
Capitalized software development costs
|
$ | 1,775,000 | ||
Other current assets
|
25,000 | |||
Total
|
$ | 1,800,000 |
Note 5 – Property and Equipment
A summary of property and equipment at December 31, 2009 is as follows:
Furniture and fixtures
|
$ | 2,662 | ||
IT Equipment and software
|
51,023 | |||
|
||||
Total Property and Equipment
|
53,685 | |||
|
||||
Less: Accumulated depreciation
|
(4,919 | ) | ||
|
||||
Net Property and Equipment
|
$ | 48,766 |
The amounts charged to operations for depreciation for the period from July 28, 2009 to December 31, 2009 was $4,919.
10
TRUNITY, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 2009
Note 6 – Intangible Assets
Intangible assets were comprised of the following at December 31, 2009:
Trunity platform
|
Estimated Life
|
Gross Cost
|
Accumulated Amortization
|
Net Book Value
|
|||||||||
|
|
|
|
|
|||||||||
Assets acquired from Trunity, LLC
|
3 years
|
$ | 1,775,000 | $ | (295,833 | ) | $ | 1,479,167 | |||||
Internal costs capitalized for period ended December 31, 2009
|
3 years
|
121,819 | (10,152 | ) | 111,667 | ||||||||
|
|
||||||||||||
Carrying value
|
|
$ | 1,590,834 |
Estimated future amortization expense is as follows:
Year ending December 31,
|
|
|||
2010
|
$ | 632,273 | ||
2011
|
632,273 | |||
2012
|
326,287 | |||
Total future amortization expense
|
$ | 1,590,834 |
Note 7 – Notes Payable
At December 31, 2009, outstanding notes payable is made up of the following:
Note Holder
|
Principal
|
Accrued Interest
|
Unamortized Discount
|
Outstanding
December 31, 2009 |
||||||||||||
|
|
|
|
|
||||||||||||
Trunity LLC
|
$ | 1,800,000 | $ | 72,592 |
|
$ | 1,872,592 | |||||||||
Notes Payable to Founders
|
295,543 | 10,248 |
|
305,791 | ||||||||||||
Notes payable to related parties
|
|
$ | 2,178,383 | |||||||||||||
|
|
|||||||||||||||
8% Convertible Notes
|
616,500 | 21,950 | (371,138 | ) | 267,312 | |||||||||||
9% Convertible Notes
|
50,000 | 50,000 | ||||||||||||||
Notes payable to investors
|
$ | 317,312 | ||||||||||||||
|
||||||||||||||||
Total notes payable
|
$ | 2,495,695 |
11
TRUNITY, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 2009
Note 7 – Notes Payable (continued)
Trunity, LLC Note –Trunity, LLC was formed by the three founders of the Company to acquire the technology platform used by the Company. The assets of Trunity, LLC, which consisted chiefly of the rights to the technology platform, was sold to the Company for $1.8 million in the form of a Note bearing interest of 8% payable with 120 monthly installments, maturing in June 2019. No payments have been made on this note during 2009.
In July 2011, all principal due on this note was converted to common shares of the Company and distributed to the three owners of Trunity, LLC.
Notes Payable to Founders - During 2009, the Company entered into line of credit agreements with two of the founders to borrow up to $0.9 million, as needed, to fund working capital needs of the Company. These notes carried an interest rate of 10% and were to expire in September and December 2012. During 2009, approximately $0.3 million was borrowed by the Company under these agreements. No repayments were made on these Notes during 2009.
In July 2011, all principal and interest due on these notes was converted to shares of common stock in the Company.
8% Convertible Promissory Notes - During 2009, the Company completed an offering of $616,500 in principal amount of 8% Convertible Promissory Notes. The notes had a maturity of July 1, 2014, and accrued interest at a rate of 8% per annum payable maturity or conversion.
The notes included conversion features that allowed holders to convert their holdings to shares of the Company’s stock upon:
·
|
A qualified financing event (defined as the sale of $1 million or greater of equity securities), debt automatically converts at a price equivalent to the offering price.
|
|
·
|
At the discretion of the debt holder for a fixed price of $1 per share.
|
|
·
|
Upon change of control of the Company, the debt holder could convert at fixed price of $1 per share.
|
Using the intrinsic value method, the Company determined that these conversion features had no value upon issuance or at December 31, 2009.
In consideration for the purchase of the notes, the investors received 4 shares of the Company’s common stock for every dollar invested in this offering. A total of 822,000 shares (2,466,000 shares as adjusted for the 1 for 3 reverse stock split in 2011) were issued to the Note purchasers. The Company determined that the value of these shares were $0.1667 per share, or $411,082 in total, and has accounted for these shares as a note discount to be amortized over the term of the notes using the effective interest method.
In February 2011, these notes and accrued but unpaid interest were automatically converted to common shares upon the completion of a qualified financing event.
12
TRUNITY, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 2009
Note 7 – Notes Payable (continued)
9% Convertible Promissory Notes - In December 2009, the Company began an offering of 9% Convertible Promissory Notes. The notes had 5 year maturities from date issued, and interest on the notes accrued at the rate of 9% per annum and waspaid monthly.The offering concluded in 2010 raising a total of $437,500. These notes included conversion features that allowed holders to convert their debt to Company’s stock within the first 3 years:
·
|
In years 1 and 2 notes were convertible at a price of $2 per share.
|
|
·
|
In year 3 notes were convertible a price of $3 per share.
|
Using the intrinsic value method, the Company determined that these conversion features had no value upon issuance or at December 31, 2009.
In April 2011, these notes were converted to common shares upon a special offer to convert the debt which all debt holders exercised.
Interest expense recognized on the above notes for the period from July 28, 2009 to December 31, 2009 was $144,733.
The future maturities of all notes at December 31, 2009 are as follows:
Year ending December 31,
|
|
|||
2010
|
$ | 392,592 | ||
2011
|
180,000 | |||
2012
|
435,791 | |||
2013
|
180,000 | |||
2014 and thereafter
|
1,307,311 | |||
|
||||
Total Notes Payable
|
$ | 2,495,695 | ||
Notes Payable - Current Portion
|
(392,592 | ) | ||
|
||||
Notes Payable, Net of Current Portion
|
$ | 2,103,102 |
The Company has one class of stock, common, which has a par value of $0.001 per share. The Company has authorized up to 50,000,000 shares to be issued. All share issuances disclosed below have been retroactively adjusted for a 1 for 3 reverse stock split that occurred in 2011 (see Note 13).
Issuance of Founders’ stock -Shortly after the formation of the Company, a total of 7,300,667 shares were issued to founders of the Company and others at the direction of the founders.
13
TRUNITY, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 2009
Note 8 – Stockholders’ Equity (continued)
Sale of Common Stock - During 2009, the Company raised gross proceeds of approximately$460,000 through the sale of 880,000 sharesof its common stock to accredited investors at an average price of $0.52per share. The sale of these shares took place throughout 2009. The Company incurred stock issuance costs in the year that totaled $40,825 of which $30,825 was from the issuance of 33,333 shares to brokers in exchange for services related to the share offering.
Shares issued in connection with 8% Convertible Promissory Notes - During 2009, the Company issued 822,000 sharesof common stock related to the sale of $616,500 in principal amount of 8% Convertible Promissory Notes. As detailed in Note 7, the $411,082 value of these shareshas been recorded as an increase in stockholders’ equity and discount to notespayable.
Note 9 – Stock Options
In 2009, the Company approved the 2009 Employee, Director and Consultant Stock Option Plan and authorized an option pool of 5,500,000 shares. Stock options typically vest over a 3 year period and have a life of 10 years from the date granted.In 2009, the Company issued options to employees and consultants of the company to purchase shares of the Company’s common stock at an exercise price of $0.11 per share. Also in 2009, the Company accelerated the option vesting of certain employees who terminated their employment, but, agreed to work in a consulting capacity. In exchange for the accelerated vesting, the employees agreed to shorter expiration periodsfor their options.
A summary of options issued, exercised and expired for the period ended December 31, 2009 is as follows (shares have been retroactively adjusted for the 1 for 3 reverse stock splitin 2011):
Weighted-
|
||||||||||||||||
Weighted-
|
Weighted-
|
Average
|
||||||||||||||
Average
|
Average
|
Remaining
|
||||||||||||||
Number
|
Exercise
|
Intrinsic
|
Contractual
|
|||||||||||||
of Shares
|
Price
|
Value
|
Life (years)
|
|||||||||||||
Outstanding at July 28, 2009 (inception)
|
— | |||||||||||||||
Granted
|
995,000 | $ | 0.33 | $ | 0.17 | |||||||||||
Exercised
|
— | — | — | |||||||||||||
Cancelled
|
— | — | — | |||||||||||||
Outstanding at December 31, 2009
|
995,000 | $ | 0.33 | $ | 0.17 | 7.92 | ||||||||||
Exercisable at December 31, 2009
|
291,667 | $ | 0.33 | $ | 0.17 | 3.82 |
For 2009, the Company recognized stock compensation expense of approximately $65,000 using the intrinsic value method.
14
TRUNITY, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 2009
Note 9 – Stock Options (continued)
At December 31, 2009, there was approximately $104,000 in compensation cost related to nonvested awards that has not yet been recognized. The weighted-average period over which this cost is expected to be recognized is 2.62 years.
Note 10 – Income Taxes
The Company did not provide a current U.S. federal or state income tax provision or benefit for the period presented because it has experienced operating losses. The Company recognized deferred tax assets, primarily for the benefit to be realized from offsetting its current net operating loss to taxable income in future periods. However, the Company has provided a full valuation allowance on the deferred tax assets,, because evidence does not indicate that the deferred tax assets will more likely than not be realized.
At December 31, 2009, deferred tax assets, calculated at an effective tax rate of 39.4%, consisted of the following:
Net operating loss carryforward
|
$ | 794,457 | ||
Less: valuation allowance
|
(794,457 | ) | ||
Net deferred tax asset
|
$ | — |
The Company’s effective income tax rate is lower than what would be expected if the federal statutory rate were applied to the loss from operations primarily because of the effect of the state tax benefit, net of federal benefit, and the change in the valuation allowance provided against deferred tax assets.
At December 31, 2009, the Company had net operating losses of approximately $2 million that can be carried forward for up to twenty years and deducted against future taxable income. The net operating loss carryforwards expire in various years through 2029 and may be subject to certain limitations under federal and state tax laws.
Note 11 – Related Parties
The Company’sthree founders, Terry Anderton, Les Anderton, and Joakim Lindblom have a number of transactions that warrant disclosure per ASC 850, Related Party Disclosures.
Loans - The Trunity, LLC Note with the Company is beneficially owned by the three founders of the Company. The loan balance at December 31, 2009 was approximately $2 million. Terms of the loan were disclosed in Note 7.
Credit agreements with Terry Anderton and Les Anderton had outstanding balances of approximately $79,000 and $177,000 at December 31, 2009.
15
TRUNITY, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 2009
Note 11 – Related Parties (continued)
Founder Stock Transactions -Upon forming the Company, 3,333,333 shares were issued to both Terry Anderton and Les Anderton for a total of 6,666,667 shares (as adjusted for a 1 for 3 reverse split in 2011). At December 31, 2009: Terry Anderton directly and indirectly, through his children’s trust accounts, controlled3,183,333 shares; Les Anderton directly and indirectly, with his wife, controlled3,133,333 shares.
Joakim Lindblom was granted stock options to purchase 333,333 shares at a strike price of $0.33 per share through December 31, 2009. In 2010 and 2011, Mr. Lindblom was granted additional options to purchase an additional 100,000 and 453,333 shares, respectively. All share amounts have been adjusted for the 1 for 3 reverse split that occurred in 2011.
In 2011,various notes with the founders were converted to shares of common stock in the Company. The following shares(after the 1 for 3 reverse split of its common shares) were issued to the founders upon conversion of theTrunity, LLC note payable and notes payable to the founders.
|
Shares Issued Upon Conversion
|
|||||||
|
Trunity, LLC
Note |
Notes
payable to founders |
||||||
Terry Anderton
|
3,200,000 | 3,116,000 | ||||||
Les Anderton
|
3,200,000 | 856,000 | ||||||
Joakim Lindblom
|
800,000 | |||||||
|
7,200,000 | 3,972,000 |
Sales, Receivables and Accruals - There were none in 2009.
Note 12 – Commitments and Contingencies
In 2009, the Company leased space in a facility in Portsmouth, New Hampshire. For 2009, the Company recorded rent expense of approximately $16,000.
In 2010, the Company entered into a new lease agreement for 6,400 square feet in Newburyport, Massachusetts. This lease is effective from August 2010 through July 2013. The minimum lease payments over the life of that agreement are:
Lease Contract (Description)
|
2010
|
2011
|
2012
|
2013
|
Total
|
|||||||||||||||
Three year lease ending July 31, 2013
|
$ | 7,600 | $ | 91,206 | $ | 91,206 | $ | 53,203 | $ | 243,216 |
16
TRUNITY, INC.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 2009
Note 13 – Subsequent Events
9% Convertible Promissory Notes issued in 2010, Converted to shares in 2011-As described in Note 7, the Company raised $437,500 through the sale of Convertible Promissory Notes in 2010. In 2011 this debt was converted to 1,458,333 shares (4,375,000 shares as adjusted for the 1 for 3 reverse split in 2011).
$100,000 Note sold to an Investor in 2010, Converted to shares in 2011 -In 2010, the Company sold a note to an investor which had a fixed interest of $5,000 per month. In 2011, the Company converted this note and accrued but unpaid interest to 133,333 shares.
Sale of Shares in 2010 and 2011 - In 2010, the Company sold 1.3 million shares for approximately $700,000. In 2011, the Company sold 2.3 million shares for approximately $1.2 million.
Letter of Intent to Acquire another Company - In April 2011, the Company signed a letter of intent to purchase a majority ownership stake in another company. The terms of this agreement call for certain actions to be undertaken by both parties. In 2011, the Company has made deposits $175,000 pursuant to this agreement.
2011 3 for 1 Reverse share split of Common Shares - During 2011, the Company implemented a 3 for 1 reverse share split of its shares. This transaction had the effect of reducing the number of outstanding shares from 38,874,291 to 12,958,135 at the date of the stock split. The 2009 financial statements have been retroactively adjusted to reflect the stock split.
Private placement with GreenhillsVentures - In October 2011, the Company entered into a non-binding draft securities purchase agreement with Greenhills Ventures, LLC. The agreement calls for Greenhills to invest a maximum of $3 million in preferred stock of the Company. The funds are to be invested in three tranches which will be paid upon the Company satisfying operational and performance based conditions. The final conditions of this agreement are being negotiated.
17