UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For the nine months ended January 31, 2001
Commission File No. 0-29164
TRI-NATIONAL DEVELOPMENT CORP.
(Name of Small Business Issuer in its charter)
WYOMING 33-0741573
(State of Incorporation) (I.R.S. ID)
480 CAMINO DEL RIO S., SUITE 140
SAN DIEGO, CALIFORNIA 92108
(Address of registrant's principal executive officers)
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value Per Share
(Title of Class)
Indicate by check mark whether Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes [x] No [_]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB. [x]
As of March 21, 2001, 37,685,464 shares of the registrant's common stock
were outstanding. The aggregate market value of the Registrants's free-
trading common stock, held by non-affiliates on March 21, 2001 was
approximately $3,900,000, based on the closing price of the stock on March 21.
TRI-NATIONAL DEVELOPMENT CORP.
FORM 10-QSB
FOR THE QUARTER ENDED JANUARY 31, 2001
PART I - FINANCIAL INFORMATION
PAGE
----
ITEM 1. Financial Statements (Unaudited)
A) Consolidated Balance Sheets as of January 31, 2000 and 2001 3
B) Consolidated Statements of Operations for the nine months
ended January 31, 2000 and 2001 4
C) Consolidated Statements of Cash Flows for the nine months
ended January 31, 2000 and 2001 5
D) Notes to the Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
ITEM 2. Changes in Securities and Use of Proceeds
ITEM 3. Default of Senior Securities
ITEM 4. Submission of Matters to a Vote of Security Holders
ITEM 5. Other Information
ITEM 6. Exhibits and Reports on Form 8-K
Signatures
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRI-NATIONAL DEVELOPMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS: Jan 31, 2001 Jan 31, 2000
- ------- ------------ ------------
Current assets:
- ----------------
Cash in banks $ 90,422 $ 125,957
Cash in banks - Restricted 93,070 1,947,746
Accounts receivable, net 1,706,026 362,236
Assisted living-Youngtown (Note 1) 12,334,792 11,227,503
Assisted living-Other Locations in process
(Note 2 & 3) 5,454,013 541,154
Citizens Business Bank Judgment Receivable (Note 4) 6,260,602 6,092,065
------------ ------------
Total current assets 25,938,924 20,296,661
------------ ------------
Investments:
- ------------
NetRom, Inc. convertible preferred stock (Note 5) 1,292,794 1,292,794
Taig convertible preferred stock (Note 6) 3,000,000 3,000,000
MRI medical diagnostics, Inc. 18,185 26,638
Hills of bajamar (Note 7) 4,943,717 4,198,456
Plaza resort timeshares (Note 8) 14,645,085 14,647,851
Plaza rosarito (Note 9) 12,248,877 11,849,141
Portal del mar condominiums (Note 10) 1,484,232 1,484,232
Alpine Gardens East 4,371,005 4,007,970
Hall of fame fitness center - 50,558
International health network - -
------------ ------------
Total investments 42,003,895 40,557,640
------------ ------------
Other assets:
- -------------
Capitalized equipment lease 441,300 436,999
Property, furniture, and equipment, net 3,169 136,755
Other Assets 63,828 (51,972)
------------ ------------
Total other assets 508,296 521,782
------------ ------------
Total Assets $ 68,451,115 $ 61,376,083
============ ============
Liabilities and stockholders' equity:
- -------------------------------------
Current liabilities:
- --------------------
Accounts payable and accrued liabilities $ 3,660,346 $ 1,826,203
Citizens Business Bank Judgment expenses (Note 4) 3,257,295 3,171,838
Loans payable-short term-1 year or less (Note 11) 31,790,364 21,779,254
------------ ------------
Total current liabilities 38,708,005 26,777,294
Deferred revenue-Citizens Business Bank Judgment
(Note 4) 3,003,307 2,920,227
Other deferred revenue-Plaza Rosarito 1,581,808 -
Notes payable-net of current portion (Note 12) 15,919,735 22,433,408
------------ ------------
Total Liabilities 59,212,855 52,130,930
------------ ------------
Stockholders' equity:
- ---------------------
Common stock 15,973,706 11,015,973
Paid in Capital 1,431,142 805,749
Convertible preferred stock - 9,458,000
Accumulated deficit (8,166,587) (12,034,569)
------------ ------------
Total stockholders' equity 9,238,260 9,245,153
------------ ------------
Total liabilities and stockholders' equity $ 68,451,115 $ 61,376,083
============ ============
See accompanying notes.
3
TRI-NATIONAL DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended
--------------------------------
Jan 31, 2001 Jan 31, 2000
------------ ------------
Revenues:
- ---------
Revenues $ 12,004 $ 194,244
Gain on sale of assets - -
------------ ------------
Total Revenues 12,004 194,244
------------ ------------
Operating Expenses:
- -------------------
Corporate note expense (Excluding interest) 3,944 2,169,449
Consulting fees 424,131 102,601
Sales and marketing 23,458 119,570
Legal, accounting and insurance 116,962 202,391
Interest expense 1,103,196 1,006,966
General and administrative 625,115 933,228
------------ ------------
Total operating expenses 2,296,806 4,534,205
------------ ------------
Loss from Operations (2,284,802) (4,339,961)
Write-down of investments - (4,664)
Gain or (Loss) on sale of investments - (1,251,978)
------------ ------------
Net income before taxes (2,284,802) (5,596,602)
Provision for income taxes - -
------------ ------------
Net income (loss) $ (2,284,802) $ (5,596,602)
============ ============
Earnings per share-fully diluted $ (0.064) $ (0.168)
See accompanying notes.
4
TRI-NATIONAL DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
--------------------------------
Jan 31, 2001 Jan 31, 2000
------------ ------------
Cash from Operating activities
- ------------------------------
Net cash loss from operations $ (659,889) $ (4,392,677)
Accounts receivable & notes receivable 9,818 152,166
Accounts Payable - -
------------ ------------
Net Cash from Operating activities (650,071) (4,240,511)
------------ ------------
Cash used in Investments
- ------------------------
Furniture and Equipment - 63,881
Alpine Gardens East (75,735) -
MRI Medical Diagnostics - (2,000)
Assisted Living-Youngtown - (14,683,173)
Assisted Living-Other Locations (3,003,497) (166,154)
NetRom Convertible Preferred Stock - 1,707,206
Hills of Bajamar (724,140) (7,347)
Plaza Rosarito (255,775) (10,772,403)
Portal Del Mar - (1,384,232)
Hall of Fame Fitness Center Building 50,708 -
International Health Network - 1,166
Other Assets (11,840) -
Plaza Resort Timeshares - (1,293,307)
------------ ------------
Net Cash used in Investments (4,020,279) (26,536,363)
------------ ------------
Cash provided by financing
- --------------------------
Notes and Loans Payable (1,671,841) 32,120,640
Common Stock Private Placements & Warrants 1,317,510 268,914
------------ ------------
Net Cash provided by financing activities (354,331) 32,389,554
------------ ------------
Net change in cash and equivalents (5,024,681) 1,612,680
Cash and equivalents, beginning of period 5,208,173 461,023
------------ ------------
Cash and equivalents, end of period $ 183,492 $ 2,073,703
============ ============
See accompanying notes.
5
TRI-NATIONAL DEVELOPMENT CORP.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDING JANUARY 31, 2001 (Unaudited)
NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS ACTIVITY
Tri-National Development Corp. ("TND" or the "Company") is a multi-faceted
international real estate development, sales and management company,
publicly traded under the symbol "TNAV" on the NASDAQ OTC BB and under the
symbol "TND" on the Hamburg Stock Exchange and the Frankfurt Stock
Exchange. The Company's development efforts are focused in four major
areas: residential development, resort properties, commercial development
and senior and assisted living facilities.
The Company was incorporated on July 31, 1979 as Rocket Energy Resources
Ltd. under the laws of the Province of British Columbia, Canada by
registration of its Memorandum and Articles. The Company changed its name
to MRI Medical Technologies, Inc. in April of 1989. On December 7, 1992,
the Company changed its name to Tri-National Development Corp. and
recapitalized on the basis of five (5) common shares of MRI Medical
Technologies, Inc. for one (1) common share of Tri-National Development
Corp. In January of 1997, the Shareholders approved a special resolution
to change the corporate domicile from Vancouver, B.C. to the state of
Wyoming. On February 24, 1997, the Company's Articles of Continuation were
accepted by the state of Wyoming and it is now incorporated in good
standing under the laws of the State of Wyoming. The Company maintains its
executive offices in San Diego, California at 480 Camino Del Rio S. in
Suite 140 and its telephone number is 619-718-6370.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Greater San
Diego Imaging Center, a 100% owned subsidiary, Tri-National Holdings, SA de
CV, a 100% owned subsidiary, Planificacion Desarrollos de Jayay, SA de CV,
a 100% owned subsidiary, Inmobilaria Plaza Baja California, S.A. and Alpine
Gardens East, Inc., a 51% owned subsidiary. All material intercompany
accounts and transactions have been eliminated in the consolidation.
EARNINGS PER SHARE
Primary earnings per share have been computed based on the weighted average
number of shares and equivalent shares outstanding during each period. The
dilutive effect of stock options and warrants has been considered in the
computation of equivalent shares and is included from the respective dates
of issuance.
The fully diluted computation is based on the number of shares for the nine
months ended January 31, 2000 and 2001. The computation contemplates the
dilutive effects of common stock equivalent shares as well as conversion of
the convertible preferred stock.
Since the date of issuance of the warrants and options, both primary and
fully diluted earnings per share computations limit the assumption of the
repurchase of treasury shares to a maximum of 20% of the outstanding shares
of the Company.
In prior quarters, the Company had inadvertently included common stock
issued as collateral for loans in the total issued and outstanding. In the
current quarter and year end, the Company has made the proper calculations
and deducted common shares issued as collateral from the total issued and
outstanding.
6
FURNITURE AND EQUIPMENT
Furniture and equipment are stated at cost and depreciated over the
estimated useful lives of the assets (three to five years) using the
straight line method.
NOTE 2. ASSISTED LIVING - YOUNGTOWN
In January of 1998, TND, through its majority owned subsidiary, Alpine
Gardens East, finalized negotiations and executed agreements to purchase
its first assisted living facility to be built and delivered, for a
combination of $110,000 in cash, 864,500 shares of the Company Class B
Series B Convertible Preferred Stock, which was converted to 864,500 common
shares and a new mortgage. Tri-National, through Alpine Gardens East,
intends to own and operate this 126-bed assisted living facility in
Youngtown, Arizona. This facility is planned to include 40 two-bedroom
units, 50 one-bedroom units and 36 units reserved for Alzheimer and
Dementia residents. In June of 1998, the Company closed on this property.
In July of 1999, a formal ground breaking took place with the Mayor of
Youngtown and the Company for the recently finished construction on two
models. The Company has received $10,500,000 in construction financing from
Del Mar Mortgage for the buildout of the rest of the project, which is now
completed.
NOTE 3. ASSISTED LIVING - OTHER LOCATIONS IN PROCESS
In October of 1998, the Company entered into a purchase agreement to
acquire 3.66 acres of undeveloped property overlooking the Pacific Ocean in
Carlsbad, California for $2,900,000, with a $125,000 down payment. The
Company, through its majority owned subsidiary, Alpine Gardens East, plans
to develop and operate this 180-bed assisted living facility, with an
Alzheimer's care component. As of January 31, 2001, the Company had paid
a total of $125,000 in connection with this acquisition.
In November of 1999, the Company closed and completed escrow to acquire a
fully-zoned 22-acre parcel of real property with plans, located in
Temecula, California for $4,300,000 for a combination of cash and notes.
The Company plans to develop a fully-inclusive senior community that will
offer medical facilities, Alzheimer's and dementia care, independent and
assisted living and senior single family housing. The Company has named the
project, Temecula Gardens, Inc. and plans to start construction in mid- 2001.
In April of 1999, the Company acquired 2.39 acres of undeveloped land in
San Marcos, California for $800,000 (See "BUSINESS"). The Company plans to
develop a 60-unit Alzheimer's care facility.
NOTE 4. CITIZENS BUSINESS BANK JUDGMENT RECEIVABLE
In March 1992, the Company advanced $383,064 to MRI Medical Diagnostics,
Inc. for a joint venture interest in its subsidiary, MRI Grand Terrace,
Inc., a California corporation, to enable it to acquire a retirement hotel
located in Grand Terrace, California. In addition to the joint venture
interest, the loan was evidenced by a 15% note receivable from MRI Medical
Diagnostics, Inc. and a second trust deed and an assignment of rents from
MRI Grand Terrace, Inc.. On March 22, 1993, MRI Grand Terrace, Inc. filed
a complaint against Chino Valley Bank, now known as Citizens Business Bank
(AMEX:CVB), as a result of the purchase of the residential retirement hotel
in Grand Terrace from the Chino Valley Bank. MRI Grand Terrace, Inc.
claimed that the sellers of the property (Chino Valley Bank) had failed to
disclose that the property's parking lot encroached on the property of the
adjacent parcel of land. Contrary to the bank's representations, the
Conditional Use Permit (CUP) under which the hotel was operating was in
violation, which restricted the ability of TND and MRI Grand Terrace, Inc.
to operate, refinance or sell the facility. MRI Grand Terrace, Inc.
stopped making mortgage payments to the mortgage holder (the same Chino
Valley Bank), which then filed a Notice of Default as an initial step to
foreclosure on the
7
property. MRI Grand Terrace, Inc. then sought Bankruptcy protection in
July of 1993, and was ultimately dismissed from Bankruptcy in May of 1995.
The Chino Valley Bank subsequently sold the property in foreclosure to
itself. TND filed it's own action against the Chino Valley Bank in early
1995, claiming that it was defrauded and misrepresented when it advanced
the $383,064 for the closing in 1992. The Company purchased the stock of
MRI Grand Terrace, Inc., as described in Note 4 to these financial
statements, in an effort to control both lawsuits. As a result of the
uncertainty of the final results of the lawsuits, the Company previously
wrote off the investment. In May of 1998, TND and MRI Grand rrace, Inc.
received judgments in their favor for fraud, intentional misrepresentation
and deceit/negligent misrepresentation in the Superior Court of San
Bernardino, California. TND and MRI Grand Terrace, Inc. received judgments
totaling almost $5 million dollars, including punitive and compensatory
damages, plus pre-trial interest. Beginning May 7th, 1998 the $5 million
judgment began accruing, post judgment interest of 10% or $1,400 per day
until the full award is paid. A 35% portion of the award is due to the
Company's attorney. The attorneys, however, filed for recovery of those
fees as an additional award that was heard and approved September 25, 1998.
On December 3, 1998, the court awarded the Company an additional $185,000
in legal fees.
The bank has filed its appeal on June 16, 1999. This gave Tri-National the
right to cross appeal on the basis of the additional damages we believed we
could show. However, we decided not to exercise this right and possibly
open the door for the Appellate Court to return us to court to evaluate
those damages. Instead, we filed our answer to their appeal September 16
1999, held oral arguments on September 6, 2000 and will now let the
Appellate Court proceed.
The deferred income from this judgment receivable as of January 31, 2001 is
$3,003,307.
NOTE 5. NETROM, INC. CONVERTIBLE PREFERRED STOCK
In January of 1998, the Company, on behalf of its wholly-owned Mexican
subsidiary, Planificacion y Desarrollo Regional Jatay, S.A. de C.V., sold
50 acres of its Hills of Bajamar property to NetRom, Inc., a California
publicly traded corporation for $60,000 per acre, for a total purchase price
of $3,000,000, plus construction and management contracts on said 50 acres.
NetRom, Inc. delivered to Tri-National Development Corp. at closing,
1,000,000 shares of its Preferred Convertible stock at a value of $3.00 per
share for a total value of $3,000,000. The preferred stock accumulated
interest at a rate of 15% per annum and was to be convertible into common
stock at $3.00 per share or market price for the 10 day average prior to
the date of conversion, whichever is less, but in no event less than $1.50
per share. The conversion date was at the option of Tri-National
Development Corp., however, no sooner than 12 months from the date of
closing and in no case later than 15 days after the common stock of NetRom,
Inc. trades at or above $4.00 per share for a period of thirty consecutive
days.
Additionally, NetRom, Inc. provided TND warrants to purchase 1,000,000
common shares at a price of $1.25 per share, presumed that NetRom, Inc.
would achieve its stated projection of $.31 per share in earnings for the
year ending December 31, 1998. In the event that NetRom, Inc. fell below
the $.31 per share earnings projection, but no lower than $.21 in earnings
for that period, then the warrant price would fall to $1.00 per share.
Further, if the earnings fell to between $.11 and $.21, then the option
price would be reduced to $.75 per share and in the event the earnings fell
below $.11 per share, the option price would be reduced to $.50 per share.
The price and terms for the property were based on arms length negotiations
between the parties and was approved by the Board of Directors of TND and
the shareholders of NetRom, Inc. at their Annual Meeting of Shareholders,
held on January 19, 1998.
In April of 1999, the Company converted the 1,000,000 shares of Netrom,
Inc. preferred shares to 2,320,345 shares of restricted common shares and
released for sale shares within the volume limitations pursuant to Rule
144. As of January 31, 2000, the Company has sold 1,320,345 shares at an
average price of approximately $.40.
8
NOTE 6. TAIG VENTURES, INC. PREFERRED CONVERTIBLE STOCK
In June of 1998, the Company, on behalf of its wholly-owned Mexican
subsidiary, Planificacion y Desarrollo Regional Jatay, S.A. de C.V., a
Mexican corporation, sold 50 acres of its Hills of Bajamar property to Taig
Ventures, Inc., a Utah telecommunications corporation for $60,000 per acre,
for a total purchase price of $3,000,000, plus construction and management
contracts on said 50 acres.
Taig Ventures, Inc. delivered to Tri-National Development Corp. at closing,
3,000,000 shares of its Convertible Preferred Non-Voting Class B shares at
a value of $1.00 per share for a total value of $3,000,000. The preferred
stock accumulates interest at a rate of 15% per annum and will be
convertible into common stock at $1.00 per share or market price for the 10
day average prior to the date of conversion, whichever is less, but in no
event less than $.75 per share. The conversion date is at the option of
Tri-National Development Corp., however, no sooner than 12 months from the
date of closing and in no case later than 15 days after the common stock of
Taig Ventures, Inc. trades at or above $2.00 per share for a period of
thirty consecutive days.
Additionally, Taig Ventures, Inc. provided TND warrants to purchase
1,000,000 common shares at a price of $3.00 per share, presuming that
Taig's common shares are trading at $4.00 or higher; $2.00 per shares if
Taig's common shares are trading between $3.00 and $4.00 per share; $1.25
per share if Taig's common shares are trading between $2.00 and $3.00; and
in no event less than $.75. The price and terms for the property are based
on arms length negotiations between the parties and was approved by the
Board of Directors of TND and the shareholders of Taig Ventures, Inc. at
their Annual Meeting of Shareholders, held on April 30, 1999.
NOTE 7. REAL ESTATE DEVELOPMENT PROPERTY: HILLS OF BAJAMAR
The Hills of Bajamar property is a 2,500-acre parcel located in the
Municipality of Ensenada, on the Pacific Ocean side of Baja California,
Mexico, roughly 50 miles south of San Diego, California. The purchase
contract completed in 1992 through the Company's wholly-owned Mexican
subsidiary, Planificacion Desarollos de Jatay, S.A. de C.V.
("Planificacion"), provides for an overall purchase price of $6,000,000 for
the 2,500 acres ($2,400 per acre or $.60 per sq. meter). The property is
being purchased on a gradual basis in 247-acre increments at $600,000
apiece. In September 1998, the Company, in accordance with its contract,
had taken title to an additional 247 acres. In September 2000, in
accordance with its contract, the Company made its scheduled $600,000
payment. This gives the Company title to a total of approximately 750
acres and gives the Company building rights to all 2,500 acres. This also
places the balance of roughly 1,750 acres in trust with Banco Ixe, with
title to additional acres being released to the Company as annual payments
are made to the seller. In the event the Company is unable to make its
scheduled annual payments, the trust is subject to cancellation and the
property will be subject to refinancing under which the Company may be
required to pay a significantly higher price per acre. Balance owing on the
remaining 1,750 acres is $4,200,000 at $600,000 annually with no interest
until 2003.
NOTE 8. PLAZAS RESORT TIMESHARES AND COMMERCIAL PROPERTY
In December of 1996, the Company entered into an acquisition agreement with
Valcas Internacional, S.A., to acquire 100% of the stock of Inmobilaria
Plaza Baja California, S.A., a Mexican corporation, including its existing
assets, which include 16+ developed acres of ocean front land within the
Bajamar resort with plans for 328 vacation ownership (timeshare) units,
plus a 26,000 square-foot adjacent commercial building under construction
for $13,079,055, payable with notes for $9,079,055 and 1,000,000 Class B
Series B Convertible Preferred shares with a value of $4.00 per share(See
"NOTES PAYABLE"). During the Company's year end April 30, 2000, the Company
paid $200,000 additional as it modified the original contract and converted
the Class B Series B Preferred shares to common.
9
NOTE 9. PLAZA ROSARITO
On November 20, 1998, Tri-National Holdings, S.A. de C.V., a owned Mexican
subsidiary, purchased the Plaza San Fernando from Banco Bital with a $1
million cash down payment. In July of 1999, Capital Trust, Inc. of New
York, the Company Investment Banker, provided the remaining $8 million
necessary to close and complete the escrow and will maintain a
participation in the project. In March of 2001, the Company received a 60-
day forbearance from Capital Trust, Inc. for the repayment of the $8
million. Plaza San Fernando's appraised value is in excess of $33 million.
Fonatur, the tourism arm of the Mexican government, has approved a $38
million loan for the construction of a hotel and convention center on a
portion of the property. The Company intends to joint venture this
component with a major U.S. hotel operator.
The Company has renamed this property, Plaza Rosarito. It is located in
the heart of Rosarito Beach in Baja California, Mexico, minutes from the
20th Century fox film studio where "Titanic" was filmed and down the street
from the famous Rosarito Beach Hotel. Plaza Rosarito includes 15 acres of
undeveloped oceanfront land zoned for the 450-room hotel and convention
center, 18 acres of developed land, including 187,500 square feet of
existing steel, concrete and marble commercial space, 42 developed
residential lots and a 80% complete 36-unit condominium complex. The
Company plans to sell the 30 condominiums at $100,000 each with a 20% down
payment and the balance at 11% over 10 years. The Company's initial plans
are to sell the 42 residential lots at approximately $30,000 each with a
20% down payment and the balance at 11% over 10 years. The Company has
initial plans and will start to execute multi-year, triple- net leases from
established preliminary commitments for approximately 100,000 square feet
of the existing commercial property at up to $2.00 per square foot per
month from U.S. and Mexican retail operations, consistent with comparable
lease rates in the area, which upon full lease up should generate in excess
of $4 million annually and become one of the most significant shopping
centers in Baja California. The Company has already pre-leased roughly 60%
of the 187,500 square foot shopping center. Additionally, the Company
received approval to sell the commercial space as condominiums at up to
$200 per square foot, with a 30% down payment and the balance at 14% over
5 years. This allows the Company an additional exit vehicle if desired and
an alternative to leasing. The down payments would be deposited into an
escrow account, until the Company completes approximately $1,500,000 in
improvements, of which approximately $800,000 has already been completed.
Upon full sell out, the projected gross revenues generated from the
property could be in excess of $35 million, with down payments over $11
million and annual mortgage payments of roughly $5 million.
NOTE 10. PORTAL DEL MAR CONDOMINIUMS
In February of 1999, the Company, through a Mexican subsidiary, signed
purchase agreements and provided the $500,000 down payment to acquire
Portal Del Mar for $1,250,000. Portal Del Mar is a 123-unit, 2 and 3-bedroom
condominium development on 6 acres overlooking the Pacific Ocean in
Baja California, Mexico, just south of Rosarito Beach. The 126 ocean view
condominiums are in various stages of completion, with approximately 46
completed. The Company recently received a financing commitment for $7.5
million to complete the remaining 80 units, add a clubhouse, 3 tennis
courts, 2 pools and a spa with beach access and palapas. Each condo
completed is intended to include an oversize terrace with ocean views.
Comparable condominiums located across the road are selling in the $250,000
range. The Company arranged financing for the remaining $750,000 of
acquisition cost and closed escrow on this property in June of 1999 and
intends to initially operate this property as a hotel and eventually begin
timeshare sales in late 2001. The Company expects to start timeshare sales
at $5,000 per week with a $1,500 down payment and the balance at 12% over
7 years. Upon full sell out of the 6,222 weeks at an average price of
$5,000, the projected gross revenues would exceed $31 million with down
payments of $9 million and annual mortgage payments of approximately $2.5
million.
10
NOTE 11. LOANS PAYABLE SHORT-TERM
To implement its business strategy, the Company initially funded
acquisitions, development and general working capital by issuing a Private
Placement of nine-month Corporate Notes at 10% interest per annum. The
investors principal and interest are guaranteed by the Company and further
bonded by New England International Surety Co., for up to $15 million. The
Company collateralized the $15 million in bonding from New England
International Surety Co. with a portion of its Hills of Bajamar property
and paid over $1,000,000 in bonding fees. As of January 31, 2001 the
Company had $11,262,481 in Corporate Notes outstanding, of which all are
due. The Company intends to repay the principal and interest with cash
flow generated from operations, property specific mortgages and the sale of
its $30 million Series B Convertible Debentures. New England International
Surety Co. has not performed and the matter has been turned over to legal
counsel to pursue the recovery of the bonding fees through litigation.
The Company made the private offering of its nine-month corporate notes
("Notes") in reliance on exemptions from the registration requirements of
the Securities Act of 1933 and applicable state securities laws. Recently,
the Company became the subject of a cease and desist order issued by the
Wisconsin Securities Division, based on sales of its Notes to Wisconsin
residents. The nine- month promissory note program was brought to the
Company by the investment banking firm, Johnson, Richards & Company, Inc.,
and the Company relied on representations made by that firm that a federal
exemption was available under the right terms and conditions. With the
proceeds being used for specific projects etc., the Notes were considered
commercial paper and exempt from securities registration. Although the
Company believes it properly met the criteria for exemption, because it
used the proceeds to acquire real estate and is arguing that the sales met
the requirements of the Wisconsin private offering exemption, it has paid
off all of the Notes due in Wisconsin. The Company has also agreed to a
voluntary cease and desist order in California with respect to sales of
those same Notes in that state. The California Department of Corporations
required the Company to offer rescission to California investors in that
offering and all California investors accepted the rescission. This
requires the Company to repay all California investors their principal
only, which the Company has already started paying. The California order
does not prohibit future exempt or qualified sales of the Company's
securities in California.
Additionally, the Louisiana Commissioner of Securities is currently
examining the sales of the Notes to Louisiana residents. In the event that
it is found that the sales did not meet the requirements of applicable
exemptions from registration in Louisiana, it is the position of the State
of Louisiana that the Company must refund all investments in the Notes to
Louisiana purchasers. The Company issued approximately $1,500,000 in Notes
to Louisiana investors. The Company has already started to pay off Notes
due in Louisiana and intends to meet the balance of the refund obligation
with a combination of revenues generated by Plaza Rosarito, equity and/or
debt financing and the leveraging of portions of its real estate portfolio.
There can be no absolute assurance, however, that the violations will in
fact be cured in this manner and therefore it is possible that further
remedial action may be required.
Because the Company has relied on federal and state exemptions for
placement of its Notes, it is possible that other states may find that the
Company did not comply with the various blue sky exemptions. The
consequences of any such violations may vary from state to state, but could
include the requirement that the Company rescind some or all of the sales
in such states at the request of the affected subscribers and prepare
formal registration statements and/or other documentation at the request of
the securities regulators. Additionally, the Company and/or its officers
may be subject to civil and/or criminal fines or penalties including, but
not limited to, a sanction with regard to the Company's ability to make any
public offering in the future. It is believed that the Company can
continue its operations through its development of cash and revenues from
its ongoing operations despite the rescission offer in California and
potential refund to Louisiana investors.
11
Short-term notes payable at January 31, 2001, consisted of the following:
Corporate Notes payable
9-month notes, interest at 10%,
currently due $11,264,229
Note payable to Capital Trust
Guaranteed by 3 officers and
Directors and a first trust deed on
Plaza Rosarito, interest at 12%
due November 21, 2001 8,000,000
Notes payable, short term
interest at 10%, due January 31, 2001 1,906,237
Note payable to Norman Lizt
complete purchase of San Marcos land 435,042
Note payable to Del Mar Mortgage
Construction loan for Youngtown Gardens
interest at 14.5%, due February, 2001 10,600,000
Note payable to Palomar Investments
interest at 10%, due October 1, 2001 19,898
TOTAL $31,790,364
===========
NOTE 12. LONG-TERM NOTES PAYABLE
Long-term notes payable at January 31, 2001, consisted of the following:
Note payable to Palomar Investments
Payment 12% due April 30, 2001 $ 300,693
Note payable for capital lease to
Commercial Money Center, Inc. 419,524
(See "LEGAL PROCEEDINGS")
Note payable and cash payable to
DUBSCA upon closing of vacation
ownership (timeshare) project 9,079,055
Note payable to North County Bank
Guaranteed by a stockholder and equipment,
due in monthly installments of $860, with
interest at 10.5%, through October, 2001 13,526
Note payable to Solymar, Inc. 864,937
Temecula Land
Rothwell-Myers 2,700,000
Pacific Horizon 2,542,000
TOTAL $15,919,735
===========
12
NOTE 13. PROPERTY, FURNITURE AND EQUIPMENT
Furniture and equipment consists of the following:
January 31, 2001
----------------
Furniture and equipment $474,380
Less accumulated depreciation (29,912)
--------
$444,468
========
NOTE 14. LEASES
The Company leases one office facility in San Diego, California and one in
Ensenada, Baja California under operating leases which expire in 2000 and
the year 2001, respectively. The leases generally require the Company to
pay all maintenance, insurance and property taxes and are subject to
certain minimum escalation provisions. The Company also leases autos,
equipment and computers.
Future minimum operating lease payments as of January 31, 2000 are as follows:
2000 $210,700
2001 252,840
--------
$463,540
========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANAYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Overview
The Company was organized to create and realize value by identifying and
making opportunistic real estate investments through the direct
acquisition, rehabilitation, development, financing and management of real
properties and/or participation in these activities through the purchase of
debt instruments or equity interests of entities engaged in such real
estate business. The Company's business strategy is to maximize
shareholder value, focusing on three priorities: growth, profitability and
liquidity through both domestic and international real estate investments.
The Company's primary source of equity financing has been through private
placement of its securities, including short-term corporate notes
("Notes"). As of January 31, 2001, the Company had $11,664,984 outstanding
pursuant to private placement offerings of its Notes, which are all now
due. The Company intends to repay the principal and interest with cash
flow generated from operations, property specific mortgages and the sale of
its $30 million Series B Convertible Debentures (see below).
To continue its business strategy, the Company intends to fund its next
round of acquisitions, development and general working capital by issuing
a Private Placement of $30,000,000 Fully-Amortized, 10.75% Series B
Convertible Debentures ("Debentures"). The Debentures are collateralized
by U.S. Treasury Bonds and a First Mortgage on roughly 1,239 residential lots.
In addition to the Debentures, the Company is seeking property specific
mortgage financing, as well as joint venture partners to finance projects.
13
Following the completion of the sale of the Debentures, the Company
believes it will have sufficient funds to complete development of several
of its current projects, which will produce increased revenues to the
Company. Once the projects including condominium sales at Youngtown
Gardens, residential lot sales at Vinas de Bajamar, monthly rental income
from Portal Del Mar and monthly lease payments from Plaza Rosarito begin
producing an income, the Company can move away from financing its
operations through the sale of securities. However, there is no assurance
that the Company will be able to do so.
Results of Operations
Nine Months Ended January 31, 2001 Compared to Nine Months Ended January 31,
2000. During the nine months ended January 31, 2001, the Company had
a net loss of $(2,284,802) or $(0.064) per share, as compared to a net loss
of $(5,596,602) or $(0.168) per share for the same period ended January 31,
2000. This change is primarily attributable to a reduction in the overall
expenses associated with the Company's offering of its short-term
promissory notes ("Notes") since the Company voluntarily ceased offering
the Notes. Operating expenses for the nine months ending January 31, 2001
was $2,296,896, a decrease from $2,237,699 for the nine months ending
January 31, 2000. This decrease is attributable to a reduction in the
overall expenses associated with the Notes since the Company voluntarily
ceased offering the Notes, and the resulting decrease in corporate note
expense to $3,944 for the nine months ended January 31, 2001, compared to
$2,169,449 for the nine months ended January 31, 2000. For the nine months
ended January 31, 2001, the Company had total revenues of $12,004 compared
with $194,244 in total revenues for the nine months ended January 31, 2000.
The Company's general and administrative expense for the nine months ended
January 31, 2001 decreased to $625,115 from $933,228 for the same period
ending January 31, 2000. This slight decrease is attributable to primarily
to the Company's cost cutting efforts and the aforementioned decreases in
the overall expenses associated with the Notes.
Liquidity and Capital Reserves
Net change in cash and equivalents during the nine months ended January 31,
2001 was $(5,024,681), compared to a net change in cash of $1,612,680 for
the nine months ended January 31, 2000. This difference is attributed to
primarily to cash used during the nine months ended January 31, 2000 in the
construction of Youngtown Gardens. Net cash used by operating activities
totaled $(650,071) for the nine months ended January 31, 2001, a decrease
of $3,590,440 from $(4,240,511) for the nine months ended January 31, 2000.
This difference is attributable primarily to a decrease in the net cash
loss from operations and a decrease in the overall expenses associated with
the Notes during the nine months ended January 31, 2001 as compared to the
same period in 2000.
Net cash used by investing activities totaled $(4,020,279) during the nine
months ended January 31, 2001, compared to $(26,536,363) provided during
the nine months ended January 31, 2000. This difference is primarily
attributable to funds used for Plaza Rosarito during the nine months ended
October 31, 2000.
Net cash provided by financing activities totaled $(354,331) for the nine
months ended January 31, 2001, compared to $32,389,554 in financing
activities for the nine months ended January 31, 2000. This decrease is
primarily attributable to the loan the Company placed for the acquisition
of Plaza Rosarito and construction loan to build the Youngtown Gardens
during the nine months ended January 31, 2000.
At January 31, 2001, the Company's cash, which includes cash reserves and
cash available for investment, was $183,492, down from $2,073,703 at
January 31, 2000. The slight decrease is primarily attributable to
construction financing and mortgages for the acquisition and development of
the Company's properties, including Alpine Gardens East, Youngtown Gardens,
Temecula
14
Gardens, Carlsbad and San Marcos, California properties, the Hills of
Bajamar, Plaza Rosarito and Portal Del Mar.
Plan of Operation
To date, the Company has obtained funds for the acquisition of its
properties from the sale of common stock and 9-month promissory notes
("Notes"). Recently, state and federal securities regulators have begun to
target nine-month note programs, primarily being offered by sham and/or
start-up companies. The Company has agreed to voluntarily cease sales of
its Notes, although management feels that the program met the requirements
of federal and state exemptions from registration for sales of commercial
paper. Due to the cessation of its Note sales, the Company has experienced
an immediate need for alternative funding both to service the existing
Notes and for the completion of development on its current projects.
Although the Company hopes to pay off the Notes with proceeds generated
from operations and proceeds generated from the $30 Million Series B
Convertible Debentures Offering. Additional funding may be required for
acquisition of additional properties and completion of development of
existing properties. The Company believes that completion of development
will result in an immediate, long-term and consistent increase in the
Company's revenues, and that revenues generated from existing properties
can be used to acquire new properties and to build up and diversify the
Company's real estate investment portfolio.
15
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Citizens Business Bank Lawsuit and Subsequent $5 Million Award
On August 14, 1998, Tri-National and its wholly owned subsidiary, MRI Grand
Terrace, Inc., appeared in the Superior Court of San Bernardino before the
Honorable Barry Plotkin, to hear Chino Valley Bank, now known as Citizens
Business Bank (AMEX:CVB), attempt to attack the judgment of approximately
$5,000,000 signed by Judge Plotkin on June 3, 1998. Tri-National
successfully defeated the bank's motion for a new trial, as well as a
motion for the Judge to set aside the jury's verdicts reached on May 7,
1998. In denying Citizens Business Bank's motions, the court upheld the
jury's respective verdicts of 12 to 0 and 11 to 1, wherein they found the
bank guilty of fraud and negligent misrepresentation in connection with the
sale of the Grand Terrace Retirement Hotel to Tri-National and MRI Grand
Terrace, Inc. in 1992. On August 17, 1998, the bank posted a $7.5 million
bond to allow time to decide whether or not to start the appeal process.
Post judgment interest against the bank continues at the rate of
approximately $500,000 per year. Citizens Business Bank has a total net
worth of approximately $100 million.
Additionally, Tri-National's motion for attorney fees and costs was heard
and approved on September 25, 1998. On December 3, 1998, the court awarded
the Company an additional $185,000. These costs are in addition to the
existing $5,000,000 judgment for punitive and compensatory damages,
including pre-trial interest.
The bank has filed its appeal on June 16, 1999. This gave Tri-National the
right to cross appeal on the basis of the additional damages we believed we
could show. However, we decided not to exercise this right and possibly
open the door for the Appellate Court to return us to court to evaluate
those damages. Instead, the Company filed its answer to their appeal on
September 16, 1999, held oral arguments on September 6, 200 and will let
the Appellate Court proceed.
Silver Pointe Investments, LLC
Sliver Pointe Investments, LLC provided the remaining $750,000 bridge loan
to complete the acquisition of the Portal Del Mar property. The six-month
loan was due in January, 2000. However, there are several issues to be
resolved between the parties, which are now in the hands of local counsel.
Commercial Money Center
This was a loan against the MRI equipment at the Greater San Diego MRI
Center, which the Company has withheld payments due to consequential legal
theories, which will be resolved in court. It is believed that the Company
could be liable for up to $250,000.
Short Term Corporate Notes
The Company has made private offerings of its securities, including its
common stock and nine-month corporate notes ("Notes"), in reliance on
exemptions from the registration requirements of the Securities Act of 1933
and applicable state securities laws. Recently, the Company became the
subject of a cease and desist order issued by the Wisconsin Securities
Division, based on sales of its Notes to Wisconsin residents. The nine-month
promissory note program was brought to the Company by the investment
banking firm, Johnson, Richards & Company, Inc., and the Company relied on
representations made by that firm that a federal exemption was available
under the right terms and conditions. With the proceeds being used for
specific projects etc., the Notes were considered commercial paper and
exempt from securities registration. Although the Company believes it
properly met the criteria for exemption, because it used the proceeds to
acquire real estate and is arguing that the sales met the requirements of
the Wisconsin private
16
offering exemption, it has paid off all of the Notes due in Wisconsin. The
Company has also agreed to a voluntary cease and desist order in California
with respect to sales of those same Notes in that state. The California
Department of Corporations required the Company to offer rescission to
California investors in that offering and all California investors accepted
that rescission offer. This requires the Company to repay all California
investors their principal only, which the Company has already started
paying. The California order does not prohibit future exempt or qualified
sales of the Company's securities in California.
Additionally, the Louisiana Commissioner of Securities is currently
examining the sales of the Notes to Louisiana residents. In the event that
it is found that the sales did not meet the requirements of applicable
exemptions from registration in Louisiana, it is the position of the State
of Louisiana that the Company must refund all investments in the Notes to
Louisiana purchasers. The Company issued approximately $1,500,000 in Notes
to Louisiana investors. The Company has already started to pay off Notes
due in Louisiana and intends to meet the balance of the refund obligation
with a combination of revenues generated by Plaza Rosarito, equity and/or
debt financing and the leveraging of portions of its real estate portfolio.
There can be no absolute assurance, however, that the violations will in
fact be cured in this manner and therefore it is possible that further
remedial action may be required.
Because the Company has relied on federal and state exemptions for
placement of its Notes, it is possible that other states may find that the
Company did not comply with the various blue sky exemptions. The
consequences of any such violations may vary from state to state, but could
include the requirement that the Company rescind some or all of the sales
in such states at the request of the affected subscribers and prepare
formal registration statements and/or other documentation at the request of
the securities regulators. Additionally, the Company and/or its officers
may be subject to civil and/or criminal fines or penalties including, but
not limited to, a sanction with regard to the Company's ability to make any
public offering in the future. It is believed that the Company can
continue its operations through its development of cash and revenues from
its ongoing operations despite the rescission offer in California and
potential refund to Louisiana investors.
New England International Surety
As stated, to implement its business strategy, the Company initially funded
acquisitions, development and general working capital by issuing a Private
Placement of nine-month Corporate Notes at 10% interest per annum. The
investors principal and interest are guaranteed by the Company and further
bonded by New England International Surety Co., for up to $15 million. The
Company collateralized the $15 million in bonding from New England
International Surety Co. with a portion of its Hills of Bajamar property
and paid over $1,000,000 in bonding fees. As of January 31, 2001 the
Company had $11,664,984 in Corporate Notes outstanding, of which all are
due. The Company intends to repay the principal and interest with cash
flow generated from operations, property specific mortgages and the sale of
its Series B Convertible Debentures. New England International Surety Co.
has not performed and the matter has been turned over to legal counsel to
pursue the recovery of the bonding fees through litigation.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULT OF SENIOR SECURITIES
None.
17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
An Annual Meeting of the Shareholders was held during the quarter ending
January 31, 2001. The meeting was held on December 29, 2000 and the proxy
statement has been incorporated by reference herein.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON Form 8-K
(a) REPORTS ON FORM 8-K. For the quarter ending January 31, 2001,
one report on Form 8-K was filed by the Company on December 16,
2000 and is incorporated by reference herein.
(b) EXHIBITS. The following exhibits are filed as a part of this report:
None
SIGNATURES:
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of San Diego, California, on this 21st day of March, 2001.
Tri-National Development Corp.,
a Wyoming Corporation
/s/ MICHAEL A. SUNSTEIN /s/ GILBERT FUENTES
BY: Michael A. Sunstein BY: Gilbert Fuentes
TITLE: Chief Executive Officer, TITLE: Chief Financial Officer,
President, Director Treasurer
/s/ JASON A. SUNSTEIN
BY: Jason A. Sunstein
TITLE: Senior V.P.,
Secretary
18