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TNTY > SEC Filings for TNTY > Form 10-Q on 19-Nov-2012All Recent SEC Filings

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Form 10-Q for TRUNITY HOLDINGS, INC.


19-Nov-2012

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements

The following discussion of our financial condition and results of operations for three months and nine months ended September 30, 2012 and for the period from July 28, 2009 (inception) to September 30, 2012 should be read in conjunction with the financial statements and the notes to those statements that are included elsewhere in this report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Item 1.01. "Risk Factors," "Forward-Looking Statements" and "Business" in our Current Report on Form 8-K reporting our reverse merger transactionwith Brain Tree International Inc. ("BTI") dated January 31, 2012 (the "Merger") filed on January 31, 2012, and amended on March 13, 2012, May 9, 2012 and June 7, 2012. We use words such as anticipate," estimate," plan," project," continuing," ongoing," expect," believe," intend," may," will," should," could," and similar expressions to identify forward-looking statements.

Overview

Trunity is a Delaware corporation with its principal office in Newburyport, Massachusetts. We were formed on July 28, 2009, to develop a cloud-based knowledge-sharing platform that focuses on e-learning, virtual textbooks, customer experience and the education marketplace. We were formed though the acquisition of certain intellectual property by our three founders. We are in the development stage and are presently undertaking research and development of our platform. Our core products, Knowledge, Learn and Connect, are in production and operational, and are currently in use by certain 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 ever achieve profitability.

Except as specifically noted to the contrary, the following discussion relates only to Trunity since, as a result of the Merger, the only historical financial statements presented for the Company in periods following the merger with BTI will be those of the operating entity, Trunity, Inc.

Results of Operations

We are a development stage company with minimal cash assets and limited operations. Our fiscal year end is December 31. We recently elected to change from BTI's June 30 fiscal year end, as reported in our Form 8-K current report filed on May 21, 2012.

Our revenues of $80,619 and $124,322 for the three and nine months ended September 30, 2012, respectively, represent revenues primarily from licensing, sales of services and advertising. We had revenues of $12,282 and $255,363 for the three and nine months ended September 30, 2011, respectively, with most of the nine months revenue representing the final portion of a significant service contract. We believe that our revenue will increase during the remainder of 2012 based upon our revenue recognition from licensing revenue, specific marketing efforts and "word of mouth" from satisfied users of our platform; however, there can be no assurance that this expected revenue increase will occur.

Our total operating expenses for the three months ended September 30, 2012 of $445,844 decreased 18.5% from the comparable period in 2011, as a result of a decrease in salary and amortization expense offset by an increase in research and development and administrative costs. Salary expenses included in operating expenses for the three months ended September 30, 2012 of approximately $234,900 represents a decrease of 11.8% over the comparable period in 2011 due to the reduction of employees and use of third party consultants instead. Research and development and administrative expenses of $96,134 for the three months ended September 30, 2012 represents an increase of 22.6% over the comparable period in 2011 primarily due to an increase in marketing and sales expenses as a result of the Company's increased efforts to execute various marketing and sales agreements to generate new sales. Amortization and depreciation expenses for the three months ended September 30, 2012 was $102,802 and $12,008, respectively, compared to $192,365 and $12,682 for the prior year period. The decrease in amortization expense is due to the initial investment amount for the platform being fully amortized at the end of the second quarter. We expect that our general and administrative expenses will continue to increase in future periods as our business expands.

Our total operating expenses for the nine months ended September 30, 2012 of $1,651,872 increased 14.8% from the comparable period in 2011, as a result of our expanding operations and the costs associated with the Merger and related SEC filings and compliance mostly offset by less research and development expenses capitalized as platform software costs on the balance sheet. Salary expenses for the first nine months of 2012 of $817,203 represents an increase of approximately 66.3% over the comparable period in 2011 due to the addition of employees in the first half of 2012 for the growth of our operations. Research and development and administrative expenses of $229,936 for the nine months ended September 30, 2012 represent a decrease of 32.1% over the comparable period in 2011, primarily due to less research and development expenses capitalized as platform software costs on the balance sheet. This decrease in research and development and administrative expenses were also offset by increases in professional fees relating to the Merger, ongoing capital raising efforts and public company compliance, and an increase in marketing and sales expenses as a result of the Company's increased efforts to execute various marketing and sales agreements to generate new sales and enhance the Company's profile. Amortization and depreciation expenses for the nine months ended September 30, 2012 was $565,671 and $39,063, respectively, compared to $576,239 and $32,053 the prior year period. We expect that our general and administrative expenses will continue to increase in future periods as our business expands

Interest expense for three and nine months ended September 30, 2012 of $48,680 as compared to $356,303 and $466,346, respectively for the three and nine months ending September 30, 2011 represent a decrease of 86% and 90%, respectively due to the outstanding debt during the first nine months of 2011 being converted during the prior year period into shares partially offset by an increase in interest expense for working capital loans-related party and the newly issued debenture notes during the current year period and amortization of the discount on convertible debt.

The net loss for the three months ended September 30, 2012 was $445,348 compared with a net loss of $895,711 for the third quarter of 2011, a decrease of 50% , or $450,363. The net loss for the nine months ended September 30, 2012 was $1,618,549 compared with a net loss of $1,751,547 for the third quarter of 2011, a decrease of 8%, or $132,998. The net loss decrease for the 2012 period is due principally to less interest expense and debt extinguishment costs recorded in the current periods versus in the prior periods offset by an increase in marketing and sales efforts in an effort to generate new licensing and service sales.

Liquidity and Capital Resources

Liquidity is the ability of a company to generate sufficient cash to satisfy its needs for operations. At September 30, 2012, we had negative working capital of $1,000,104 as compared to negative working capital of $497,760 at December 31, 2011. Our increase of negative working capital of approximately 101% is primarily attributable to decreases in cash and increases in accrued expenses and debt to generate cash for operations.

Our current assets at September 30, 2012, included cash and accounts receivable, net. Our current liabilities at September 30, 2012, included accounts payables, notes payable - related parties, accrued expenses representingaccrued interest, professional fees and vacation expense and amounts owed to shareholders for working capital loans and deferred revenue.

Net cash used in operating activities was $1,133,942 for the nine months ended September 30, 2012, as compared to $1,243,707 for the nine months ended September 30, 2011 and $4,853,982 for the period from July 28, 2009 (inception) to September 30, 2012. Working capital changes utilized cash of $202,259 in the current period as compared to $100,453 for the nine months ended September 30, 2011 due to the continued growth of our Company. In addition net income was adjusted for non-cash items by an increase of $78,572 in the current year as compared to the nine months ended September 30, 2011 due to additional stock compensation expense as a result of more issuances in options to employee and directors of our Company and accretion for debt discount and issuance costs. The increase in cash used for operating activities for the period from July 28, 2009 (inception) to September 30, 2012 is as a result of continued working capital requirements resulting in a use of cash of $1,063,238 and adjustments to non-cash items of $2,609,346 for stock compensation expense and depreciation and amortization related to the development of our Company.

Net cash used in investing activities was approximately $592,365 for the nine months ended September 30, 2012, as compared to net cash used of $192,569 for the nine months ended September 20, 2011 and $3,495,635 for the period from July 28, 2009 (inception) to September 30, 2012, which primarily reflects our website development investments, acquisition of our subsidiary and purchase of additional equipment.

Net cash provided by financing activities for the nine months ended September 30, 2012 was approximately $1,604,703 as compared to the $1,461,757 for the quarter ended September 30, 2011. This reflects proceeds from the private sale of our securities, issuance of our convertible debentures and proceeds from notes payable to related parties. Net cash provided by financing activities for the period from July 28, 2009 (inception) to September 30, 2012, was approximately $8,351,147 and proceeds from the private sale of our securities, issuance of our convertible debentures and proceeds from notes payable to related parties.

We do not have any commitments for capital expenditures during the next 12 months nor do we have any committed external sources of capital. Our working capital is not sufficient to fund our operations and permit us to satisfy our obligations as they become due. While we continue to raise proceeds from the sale of our securities subsequent to September 30, 2012, we have continued to expand our business and our expenses are increasing despite our focused cost-control efforts. In addition, our executive officers have been deferring substantially all of their salary to date. Even if we are successful in substantially increasing our revenues from expected sales, we will still need to raise substantial additional working capital. We do not have any firm commitments to provide the additional capital which is needed and there are no assurances that we will be able to secure capital on terms acceptable to us, if at all. Our ability to significantly increase our revenues and successfully raise additional working capital is key to our ability to continue as a going concern. If we are not successful in both of these efforts, we may be forced to significantly curtail or cease our operations.

Plan of Operation

Trunity has developed a cloud-based knowledge management and sharing platform that focuses on the rapidly growing e-learning, virtual textbook, customer experience and education marketplaces. As a result of the platform's innovative architecture, Trunity enables unique real-time/end-to-end integration of knowledge and learning ecosystems, including (but not limited to) peer-reviewed crowdsourcing of high-value content from communities of expert contributors (today over 4,800 of the world's top scientists use the Trunity platform and we have been growing at over 100 per month) that gets assembled into virtual textbooks (Trunity Knowledge) and delivered through Trunity's virtual classroom solution (Trunity Learn) to customers. Trunity has been the recipient of funding from several National Science Foundation (NSF) grants to develop this disruptive solution and is partnered with National Science Foundation (NSF), The National Academy's of Science (NAS), The Encyclopedia of the Earth and the National Council for Science and the Environment (NCSE) along with over 140 additional institutional contributors as core content contributors and customers. We believe there is a substantial market opportunity of more than 250 million potential users of our platform due to its proven ease of use, searchability of ideas, thoughts and research, and ability to archive and organize data in a sophisticated and easy to use format.

Trunity recently signed a licensing agreement with Global Social Ventures, a U.S. and India venture investment group doing business as Trunity India to market and resell the Trunity Platform for the territories of India, Pakistan, Burma, Nepal, Bangladesh and Sri Lanka. The royalty license fee charged by Trunity to Global Social Ventures is 7.5% of gross revenue, with estimated minimum five-year royalties of $400,000. In addition, Global Social Ventures is responsible for the server and support infrastructure costs for Trunity India. As India and its neighboring countries contain a population of over 1 billion people, largely English speaking, this represents a very large and potentially valuable market for Trunity. Trunity India continues to expand and currently has 15 full time employees and is ramping its sales and marketing effort in the territory covered by their license agreement.

The New Hampshire EPSCoR (Office of Experimental Program to Stimulate Competitive Research) program at University of New Hampshire recently selected and signed a contract to use Trunity as their platform of choice for collaboration and content sharing in June of 2012. In September 2012 the implementation was complete and in full production. UNH paid Trunity for the second year of the project in September 2012. As part of this contract, Trunity is providing a secure, cloud-based collaboration space for hundreds of scientists, educators, students, and administrators from the NH K-12, higher-ed, non profit and private sectors. The Trunity platform will be a shared collaboration tool amongst several prominent New Hampshire colleges. According to the EPSCoR director, UNH is in year two of a 5-year National Science Foundation (NSF) grant. Trunity's contract value for the five year term is estimated at $150,000 for licensing fees as well as additional fees for professional services to support their platform during this period.

Trunity has added "The Encyclopedia of Life" as a major new content partner to its network of over 90 current expert content partners. This partner has given permission to import all of its library of over 500,000 high quality expert reviewed content items for use within Trunity's virtual textbooks and other education and training solutions. Trunity continues to add about 100 new author sign-ups per month through its Encyclopedia of Earth, CAMEL and other expert content properties.

Trunity's recently launched its first virtual textbook solution after six months of testing. First customer deployment was with Boston University in the 2012 fall semester, with over 150 students purchasing a Trunity textbook in a single class. We received inquiries from over 50 colleges and universities seeking demo copies of our textbook solution. The average introductory textbook price is $40-$50 per book per student for this class.

Lastly, Trunity in September 2012 signed a marketing and reseller agreement with Brand Aid a specialized digital marketing firm specializing in the healthcare and pharmaceutical industries. Brandaid selected Trunity's knowledge sharing platform based on its unique capabilities to capture and share specialized high value knowledge in a secure gated on-line community. During the third quarter of 2012 Trunity and Brand Aid jointly secured a contract with Pacira Pharmaceuticals which is estimated to generate approximately $208,000 in revenues during the last quarter of 2012 and the first quarter of 2013. Trunity has developed a pipeline of opportunities that it believes will lead to significant revenue in the healthcare and pharmaceutical industries.

Inflation

In the opinion of management, inflation has not and will not have a material effect on our operations in the immediate future. Management will continue to monitor inflation and evaluate the possible future effects of inflation on our business and operations.

Critical Accounting Policies

Website Development

We have adopted the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Codification No. 350 Intangible-Goodwill and Other . Costs incurred in the planning stage of a website are expensed, while costs incurred in the development stage are capitalized and amortized over the estimated three year life of the asset.

Stock-Based Compensation

We recognize compensation costs to employees under FASB Accounting Standards Codification No. 718, Compensation - Stock Compensation . Under FASB Accounting Standards Codification No. 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 arrangements include stock options, restricted share plans, performance based awards, share appreciation rights and employee share purchase plans. As such, compensation cost is measured on the date of grant at their fair value. 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 Accounting Standards Codification No. 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 Accounting Standards Codification.

Recent Accounting Pronouncements

The recent accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.

Off-balance Sheet Arrangements

As of the date of this report, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term "off-balance sheet arrangement" generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with us is a party, under which we have any obligation arising under a guarantee contract, derivative instrument or variable interest or a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.

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