UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the six months ended October 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)
(619) 718-6370
(Registrant's telephone number, including area code)
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 October 31, 2001, 70,594,793 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 December 27, 2001 was
approximately $580,000 based on the closing price of the stock on
December 27, 2001.
==========================================================================
TRI-NATIONAL DEVELOPMENT CORP.
FORM 10-QSB
FOR THE SIX MONTHS ENDED OCTOBER 31, 2001
PART I - FINANCIAL INFORMATION
PAGE
----
ITEM 1. Financial Statements (Unaudited)
A) Consolidated Balance Sheets as of October 31, 2000 and 2001 3
B) Consolidated Statements of Income for the six months
ended October 31, 2000 and 2001 4
C) Consolidated Statements of Cash Flow for the six months
ended October 31, 2000 and 2001 5
D) Consolidated Statement of changes in Stockholders' Equity
For the six months ended October 31, 2001 6
D) Notes to the Financial Statements 7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 20
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings 23
ITEM 2. Changes in Securities and Use of Proceeds 27
ITEM 3. Default of Senior Securities 27
ITEM 4. Submission of Matters to a Vote of Security Holders 28
ITEM 5. Other Information 28
ITEM 6. Exhibits and Reports on Form 8-K 28
Signatures 28
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRI-NATIONAL DEVELOPMENT CORPORATION
CONSOLIDATED BALANCE SHEET
AT OCTOBER 31, 2001 AND 2000
ASSETS: October 31, 01 October 31, 00
- ------ -------------- --------------
Current assets:
- ----------------
Cash in banks $ 5,000 $ 69,047
Cash in banks - Restricted (Note 2) 114,692 93,070
Accounts receivable, net (Note 3) 42,500 1,710,507
Assisted living-Youngtown (Note 4) - 15,718,563
Citizens Business Bank Judgment Receivable (Note 5) - 6,220,282
------------ ------------
Total current assets 162,192 23,811,468
------------ ------------
Investments:
- ------------
NetRom, Inc. convertible preferred stock (Note 6) - 1,292,794
Viper convertible preferred stock (Note 7) 1,150,000 3,000,000
MRI medical diagnostics, Inc. (Note 8) - 18,185
Hills of bajamar (Note 9) 4,957,249 4,955,617
Plaza resort timeshares (Note 10) 14,648,501 14,645,085
Assisted living-Other Locations in process (Note 11) 450,000 5,411,837
Plaza rosarito (Note 12) 11,507,157 12,117,872
Portal del mar condominiums (Note 13) 573,012 1,484,232
Hall of fame fitness center (Note 14) - 50,558
Alpine Gardens East (15) - 4,371,005
International health network (Note 16) - 17,334
------------ ------------
Total investments 33,285,918 47,364,519
------------ ------------
Other assets:
- -------------
Capitalized equipment lease - 441,300
Property, furniture, and equipment, net - 3,169
Other Assets - 34,734
------------ ------------
Total other assets - 479,202
------------ ------------
Total Assets $ 33,448,110 $ 71,655,189
============ ============
Liabilities and stockholders' equity:
- -------------------------------------
Current liabilities:
- --------------------
Accounts payable and accrued liabilities $ 4,607,913 $ 3,310,425
Citizens Business Bank Judgment expenses (Note 5) - 3,236,888
Loans payable-short term-1 year or less (Note 17) 11,967,223 31,879,546
------------ ------------
Total current liabilities 16,575,136 38,426,859
Deferred revenue - 4,565,202
Judgments Payable (Note 18) 9,397,940
Notes payable-net of current portion (Note 19) 9,079,055 19,345,483
------------ ------------
Total Liabilities 35,052,131 62,337,544
------------ ------------
Stockholders' equity:
- ---------------------
Common stock (100,000,000 Authorized
70,594,793 Outstanding) 15,614,094 15,475,629
Paid in Capital - 1,431,142
Retained Earnings (Deficit) (17,218,115) (7,589,126)
------------ ------------
Total stockholders' equity (1,604,021) 9,317,645
------------ ------------
Total Liabilities and Stockholders' Equity $ 33,448,110 $ 71,655,189
============ ============
The accompanying notes are an integral part of the consolidated financial Statements.
3
Tri-National Development Corporation
Consolidated Statement of Income
For six months ended October 31, 2001 and 2000
For six months ended
----------------------------------
October 31, 01 October 31, 00
-------------- --------------
Revenues:
- ---------
Revenues $ - $ 12,004
------------ ------------
Operating Expenses:
- -------------------
Corporate note expense (Excluding interest) - 3,944
Consulting fees 53,591 413,049
Sales and marketing - 49,854
Legal, accounting and insurance 83,152 80,853
Interest expense 877,367 730,216
General and administrative 508,326 439,340
------------ ------------
Total operating expenses 1,522,436 1,717,256
------------ ------------
Loss from Operations (1,522,436) (1,705,252)
Other Income and Losses
- -----------------------
Gain on Debt Settlement & Cancellation (Note 20) 535,367
Writeoff of Investments (Note 21) (2,807,281) -
------------ ------------
Loss before taxes (3,794,350) (1,705,252)
less:income tax - -
------------ ------------
Net income (loss) (3,794,350) (1,705,252)
Primary:
- --------
Income (loss) before extraordinary item $ (0.05) $ (0.03)
Extraordinary item $ - $ -
------------ ------------
Net Income $ (0.05) $ (0.03)
============ ============
Fully diluted:
- --------------
Income (loss) before extraordinary item $ (0.05) $ (0.03)
Extraordinary item $ - $ -
------------ ------------
Net Income $ (0.05) $ (0.03)
============ ============
The accompanying notes are an integral part of the consolidated financial Statements.
4
Tri-National Development Corporation
Consolidated Statement of Cash Flow
For six months ended October 31, 2001 and 2000
For six months ended
----------------------------------
Oct 31, 01 Oct 31, 00
---------- ----------
Cash from Operating activities
- ------------------------------
Net Income from operations (See reconciliation) $ (21,796) $ (654,879)
Accounts receivable-Trade 521 5,337
Accounts Payable-Trade (834,400) (12,500)
------------ ------------
Net Cash from Operating activities (855,675) (662,042)
------------ ------------
Cash used in Investments
- ------------------------
Furniture and Equipment - (33,036)
Alpine Gardens East - (75,735)
MRI Medical Diagnostics - -
Assisted Living-Youngtown - -
Assisted Living-Other Projects - (2,961,321)
Hills of Bajamar (6,054) (716,040)
Plaza Rosarito (17,080) (234,474)
Portal Del Mar - -
Hall of Fame Fitness Center Building - 150
International Health Network - -
Bajamar Las Perlas Condominiums - -
Plaza Resort Timeshares - -
Other Assets - (20,078)
------------ ------------
Net Cash used in Investments (23,134) (4,040,534)
------------ ------------
Cash provided by Financing
- --------------------------
Notes and Loans Payable 821,118 (1,335,189)
Common Stock Private Placements & Warrants 53,722 991,709
------------ ------------
Net Cash provided by financing activities 874,840 (343,480)
------------ ------------
Net change in cash and equivalents (3,969) (5,046,056)
Cash and equivalents, beginning of period - 5,208,173
------------ ------------
Cash and equivalents, end of period $ (3,969) $ 162,117
============ ============
The accompanying notes are an integral part of the consolidated financial Statements.
5
Tri-National Development Corporation
Consolidated Statement of changes in Stockholders' Equity
For the periods ended April 30, 2000, 2001 and October 31, 2001
RETAINED TOTAL
PREFERRED COMMON PAID IN EARNINGS STOCKHOLDERS'
STOCK STOCK CAPITAL (DEFICIT) EQUITY
----- ----- ------- --------- ------
Balance, April 30, 2000 $ - $13,814,089 $ 1,431,142 $ (5,883,874) $ 9,361,357
Sales of common stock -
Private placements 1,391,741 - 1,391,740
Common stock issued for
services 243,650
Conversion of debt to
common stock 928,957
Common stock purchased
by officers 270,000
Paid in capital -
Alpine Gardens East -
Closed company (803,034)
Paid in capital - Tri-
National Holdings S.A.
de C.V. - Correction (628,108) (628,108)
Net income (loss) (8,540,199)
----------- ----------- ----------- ------------ -----------
Balance, April 30, 2001 $ - $16,648,437 $ - $(14,424,073) $ 2,224,364
=========== =========== =========== ============ ===========
Sales of common stock -
Private placements 53,722 53,722
Common stock issued for
services -
Return of Common Stock to
Treasury (270,000)
Closed GSDIC Common Shares
for Discontinued Subsidiary (818,065)
Closed Retained Earnings
(Deficit) for Discontinued
GSDIC Subsidiary 1,000,309
Net income (loss) (3,794,351) (3,794,351)
----------- ----------- ----------- ------------ -----------
Balance, October 31, 2001 $ - $15,614,094 $ - $(17,218,115) $(1,604,021)
=========== =========== =========== ============ ===========
The accompanying notes are an integral part of the financial statements.
6
TRI-NATIONAL DEVELOPMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED OCTOBER 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 shares 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% owed subsidiary that discontinued operations
in August, 2001, Tri-National Holdings, S.A. de C.V., a 60% owned
subsidiary, Planificacion Desarrollos de Jatay, S.A. de C.V., a 100%
owned subsidiary, and Inmobiliaria Plaza Baja California, S.A., a 100%
owned subsidiary. All material intercompany accounts and transactions
have been eliminated in the consolidation.
For purpose of comparability, certain prior period amounts have been
reclassified to conform with current year presentation. The following is
a summary of significant accounting policies followed in the preparation
of the consolidated financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those
estimates.
7
Furniture and Equipment
Furniture and equipment are stated at cost less accumulated depreciation.
Depreciation is recorded primarily using the straight-line method over
the estimated useful lives of assets, the cost, and related accumulated
depreciation are written off and the resulting gain or loss is
recognized. Maintenance and repairs are charged to expense as incurred,
while renewals and betterments are capitalized.
Furniture and Equipment $33,080
Less: Accumulated Depreciation (33,080)
-------
Net Book Value $ 0
-------
Real Estate Accounting
Investments in real estate are recorded at cost. Cost of holding real
estate in the process of development, including interest, are
capitalized. The recognition of gains on the sale of real estate is
dependent upon the transaction meeting certain criteria relating to the
nature of the property sold and the terms of sale. Under certain
circumstances, the gain, or a portion thereof, may be deferred until the
criteria are met. Losses on disposition of real estate, including
expenses incurred in connection with a disposition, are charged to
current operations.
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 (70,594,793 and 54,098,228 shares, for the six months ended
October 31, 2001 and October 31, 2000, respectively). The diluted 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 70,594,793 and 54,098,228
shares for the years ended October 31, 2001 and October 31, 2000,
respectively. The computation contemplates the dilutive effects of common
stock equivalent shares, as well as conversion of the Convertible
Subordinated Debentures.
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 Association, with the remaining pro-forma
proceeds being applied to reduce interest-bearing liabilities.
Accordingly, interest expense, computed at the Association's average cost
of funds, is reduced and net earnings increased.
Foreign Subsidiary Incorporation
The financial statements of foreign subsidiaries are incorporated into
the consolidated financial statements in accordance with the recently
issued Bulletin B-15, "Foreign Currency Transaction and Translation of
Financial Statements of Foreign Operations" however all of the real
estate projects in Mexico have been purchased in US dollars and are not
yet operational.
8
The accounting records of foreign subsidiaries therefore, are maintained
in US dollars until we begin operations and then we will begin to record
subsequent transactions in conformance with bulletin B-15 and with
international accounting standard No. 21 (IAS-21) "the effects of changes
in foreign exchange rates".
Taxes
The Corporation and its affiliates file a consolidated federal income tax
return and income tax expense is apportioned among all affiliates based
upon their taxable income or loss and tax credits. At the end of the
last filed fiscal year April 30, 2001, the corporation had a net
operation loss carry forward of $10,400,514.
Common Stock Issued as Collateral
As of October 31, 2001, the Company had 18,791,200 issued and outstanding
common shares pledged as collateral for loans.
Stock issued to Capital Trust, Inc.
A total of 4,000,000 restricted common shares were issued to Capital
Trust, Inc. of New York. There were 500,000 shares issued as a retainer
for investment banking services and 3,500,000 shares in connection with
the $8 million loan for the closing of Plaza Rosarito (See "BUSINESS").
The 4,000,000 common shares will be canceled upon repayment of the loan.
As the 3,500,000 shares were issued for collateral purposes only, they
are not included in the issued and outstanding calculations. In
addition, 2,000,000 restricted common shares were issued to The A.J.
Hester Group, which have requested to be returned by our legal counsel.
Stock issued to Villa Serena H.O.A.
A total of 1,200,000 restricted common shares were issued to Villa Serena
Homeowners Association as collateral for a $300,000 loan. The 1,200,000
common shares will be canceled upon repayment of the loan. As these
shares were issued for collateral purposes only, they are not included in
the issued and outstanding calculations.
Stock issued to Silver Pointe Investments, LLC
A total of 2,112,000 were transferred to Silver Pointe Investments, LLC
as collateral for a $750,000 loan. The 2,112,000 common shares will be
canceled upon repayment of their funds. As these shares were issued for
collateral purposes only, they are not used in the issued and outstanding
calculations.
Stock issued to Norman Lizt
A total of 980,000 restricted common shares were issued to Norman Lizt as
collateral for a $400,000 loan in connection with the acquisition of the
land in San Marcos, California. As these shares were issued for
collateral purposes only, they are not included in the issued and
outstanding calculations.
9
Stock issued to Pacific Horizon
A total of 9,000,000 restricted common shares were issued to Pacific
Horizon as collateral for a $2,700,000 loan in connection with the bridge
loan for the land in Temecula, California. As these shares were issued
for collateral purposes only, they are not included in the issued and
outstanding calculations.
Related party Transactions
Certain executive officers, directors and their related interests are
loan customers of the Corporation's affiliates. The Securities and
Exchange Commission ("SEC") has determined that, with respect to the
Corporation and significant subsidiaries (as defined by the SEC),
disclosure of borrowings by directors and executive officers and certain
of their related interests should be made if the loans are greater that
5% of stockholders' equity, in the aggregate. There were no loans
outstanding to officers or directors at October 31, 2001.
Contingent Liability
Due to a lack of funds, the Company has been unable to provide Directors
and Officers Insurance to its officers and directors. Although the
corporate By-Laws indemnify all officers and directors, the Board of
Directors approved a resolution as additional indemnification for the
Company to defend, indemnify and provide restitution to its officers and
directors at the expense of the Company.
NOTE 2. CASH IN BANKS RESTRICTED
The restricted cash in banks is funds left over from the $8 million loan
from Capital Trust, Inc. that the Company did not have signature
authority. The funds have since been recovered by the receiver (See
"LEGAL PROCEEDINGS").
NOTE 3. ACCOUNTS AND NOTES RECEIVABLE
Notes Receivable
San Diego Soccer Development Corp. $ 42,500
---------
Total Accounts and Notes Receivable $ 42,500
---------
NOTE 4. ASSISTED LIVING - YOUNGTOWN
In June of 1998, AGE closed on a 5.5 acre developed parcel to build its
first independent and assisted living project, known as Youngtown
Gardens, in Youngtown, Arizona, just north of Phoenix and adjacent to Sun
City. In July of 1999, a formal ground breaking took place for the
recently finished construction on two models. The project was virtually
completed with a $10,500,000 construction loan from Vestin Mortgage
(formerly Del Mar Mortgage). This facility included 40 two-bedroom
units, 50 one-bedroom units and 36 units reserved for Alzheimer and
Dementia residents, which were never occupied.
To reduce its liability during the fourth quarter ending April 30, 2001,
the Company successfully completed an assignment of the $13,000,000
defaulted construction loan and accrued interest and penalties to its
minority partner in this project in exchange for a reduced participation
of 20% of the potential future net profits after debt service.
10
NOTE 5. 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 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 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 Terrace, Ic. 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 filed its appeal on June 16, 1999. We filed our answer to their
appeal September 16 1999, oral arguments were held on September 6, 2000
and we received notice from the Appellate Court that the case would be
sent back to the State Court for retrial.
NOTE 6. 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.
11
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 April 30, 2001, the Company has sold 1,820,345 shares at an
average price of approximately $.30. The Company still owns
approximately 100,000 common shares (post 1 for 5 reverse split) with a
market price of $.07 per share. Current NetRom, Inc. management is in
the process of renegotiating this contract. The Company wrote this
investment down to $0.
NOTE 7. VIPER NETWORKS, INC. (FORMERLY 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
12
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.
On November 15, 2000, Taig Ventures, Inc. executed a definitive
Securities Purchase Agreement and Plan of Reorganization (the "Purchase
Agreement") pursuant to which Taig Ventures, Inc., acquired 100% of the
outstanding common shares of Viper Networks, Inc. ("VIPER-CA"), a
California corporation, in exchange for 36,000,000 common shares of Taig
Ventures, Inc..
The acquisition was effected through a Plan of Reorganization (the
"Reorganization"), with Viper Networks, Inc. as the surviving
corporation. Upon consummation of the Purchase Agreement, Reorganization
and approval by the shareholders and the Board of Directors of Taig
Ventures, Inc. at an Extraordinary Meeting of the Shareholders held
December 29, 2000, (1) the name of the Company was changed to Viper
Networks, Inc., leaving VIPER-CA, as a wholly-owned subsidiary and (2) a
reverse split of the common stock was effected on a 1 for 12 basis. The
preferred shares were not affected by the reverse split of the common
stock.
The Company is confident Viper Networks, Inc. will complete its filings
with the U.S. Securities and Exchange Commission and make application to
the NASD or another stock exchange for the public trading of their common
stock, there can be no assurances that they will be successful in their
efforts. In addition, the Company obtained a new appraisal for the Hills
of Bajamar in March of 2001 of $23,333 per acre. As such, the Company
has reduced the value of the preferred stock on its balance sheet from
$3,000,000 to $1,150,000.
NOTE 8. MRI MEDICAL DIAGNOSTICS, INC.
In 1992 the Company sold its wholly owned subsidiary, MRI Medical
Diagnostics Inc., a California corporation to Petro-Global, Inc., a
Colorado publicly traded corporation. In return, the Company received
6,000,000 restricted common shares of the purchaser, Petro-Global, Inc.,
plus certain mineral properties and leases. In 1992, the mineral
properties were written down to a nil value in the records and the name
was changed from Petro-Global, Inc. to MRI Medical Diagnostics, Inc.
(MRI-Med). MRI-Med filed for Chapter 11 bankruptcy protection in July 1993
in conjunction with the Chino Valley Bank action (see Note 2). After
dividends in kind totaling 2,000,000 shares in 1992 and 1993 to TND
shareholders, and due to uncertainty in the underlying value of the
remaining 4,000,000 MRI-Med shares held by the Company, the carrying cost
of these shares was written-off in 1994. Tri-National Development Corp.
filed a reorganization plan on behalf of MRI-Med in August 1995 and, in
settlement of the litigation described in Note (5), the Company received
5,900,000 shares of MRI-Med at a deemed value of $0.50 per share, ordered
by the U.S. Federal Bankruptcy Court, plus 1,400,000 shares for
reimbursement of current expenses. In July of 1997, MRI-Med
recapitalized on a 1 for 5 basis. The investment is recorded in the
books at a cost of $496,994. The Company declared and paid a stock
dividend of 750,000 shares of MRI-Med to TND shareholders of record
August 31, 1997 and declared a second stock dividend of an additional
750,000 to TND shareholders of record January 27, 1998. After the stock
dividends paid to TND
13
shareholders in 1992, 1993, 1997 and 1998, and shares sold to finance the
reorganization, the Company retained approximately 415,000 post-split
shares of MRI-Med. In September 2000, MRI-Med completed a reverse merger
with HomeZipr, Inc., a Delaware corporation, specializing in providing
residential mortgages. MRI-Med subsequently completed a name change to
HomeZipr, Inc. and recapitalized its common stock on a 1 for 18 basis.
HomeZipr, Inc. now trades on the NASDAQ OTC BB under the symbol, "HZPR".
After the last reverse split, the market value of the remaining common
shares the Company owns has an effective value of $0.
NOTE 9. 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 its second 247-acre parcel and in September
2000, in accordance with its contract, the Company had taken title to its
third 247-acre parcel. This last 247-acre parcel leaves the Company
title to a total of approximately 600 acres with construction rights to
all 2,500 acres and places the unpaid balance of roughly 1,750 acres in
trust with Banco Ixe. Title to additional acres will be 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 Company
maintains ownership of any the property already paid for, while the
unpaid property in 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 10. 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 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
into subordinated 15% Convertible Debentures. The Debentures were
subsequently converted to common stock.
NOTE 11. 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,
planned to develop and operate this assisted living facility, with an
Alzheimer's care component. As of April 30, 2001, the Company had
14
paid a total of $125,000 in connection with this investment, prior to
forgoing its rights to complete the acquisition due to limited available
funds.
In November of 1999, the Company, through a joint venture agreement,
closed and completed escrow to acquire the 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. During the fourth quarter ending
April 30, 2001, the joint venture filed for Chapter 11 Reorganization to
receive the time required to close on the necessary financing to pay off
the bridge loan and provide the construction financing. The joint
venture plans were to develop a fully-inclusive senior community that
would offer medical facilities, Alzheimer's and dementia care,
independent and assisted living and senior single family housing. The
joint venture named this project, The Arbors at Temecula.
In April of 1999, the Company acquired 2.39 acres of undeveloped land in
San Marcos, California for $450,000 (See "Legal Proceedings"). The
Company planned to develop a 60-unit Alzheimer's care facility.
NOTE 12. PLAZA ROSARITO
On November 20, 1998, Tri-National Holdings, S.A. de C.V., a 60% 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 provided $8 million which included the funds necessary to
close and complete the escrow. In March of 2001, the Company signed a
60-day forbearance with Capital Trust, Inc. for the repayment of the $8
million and subsequently defaulted (See "LEGAL PROCEEDINGS"). Plaza San
Fernando's appraised value is in excess of $23 million. Fonatur, the
tourism arm of the Mexican government, previously issued a guarantee for
a $38 million loan for the construction of a hotel and convention center
on a portion of the property. The Company has always intended to joint
venture this component with a major U.S. hotel operator.
The Company 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 30-unit condominium
complex. The Company initially planned 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 could generate in excess of $4 million annually and become one of the
most significant shopping centers in Baja California. The Company
previously received letters of interest for 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
could allow the Company an additional exit vehicle if desired and an
alternative to leasing. The down payments were to be deposited into an
escrow account, until the Company completed approximately $2,100,000 in
improvements, of which approximately $800,000 has already been completed.
Upon full sell out, the projected gross revenues generated from the
property
15
could be in excess of $35 million, with down payments over $11 million
and annual mortgage payments of roughly $5 million (See "Legal
Proceedings").
NOTE 13. 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 112-unit, 2 and 3-
bedroom condominium development on 6 acres overlooking the Pacific Ocean
in Baja California, Mexico, just south of Rosarito Beach. The 112 ocean
view condominiums are in various stages of completion, with approximately
46 completed. The Company is seeking 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. In October of 2001, the lender that provided the remaining
$750,000 to close escrow, converted their loan to a 33 1/3% equity
position in the project, leaving a 33 1/3% equity position to the Company
and a 33 1/3% to Bersain Guttierrez. The parties are now attempting to
develop a plan for completion of the project.
NOTE 14. HALL OF FAME FITNESS CENTER
In February of 1999, the Company, through a Mexican subsidiary, signed
purchase agreements and provided a non-refundable $50,000 down payment to
acquire the former Banco Atlantico building for $950,000. The former
Banco Atlantico building is a 20,000 square foot, 2-story commercial
building in the heart of the banking district in Tijuana, Mexico. With a
primary focus of restructuring the $8 million loan with Capital Trust,
the Company cancelled the $50,000 down payment has subsequently elected
not to move forward with this project.
NOTE 15. ALPINE GARDENS EAST, INC.
Alpine Gardens East, Inc. ("AGE") is a Nevada corporation created to
acquire and develop senior and assisted living facilities primarily in
the S.W. United States. In January of 1998, the Company acquired 51% of
this corporation for a combination of $270,500 in cash and 864,500 shares
of Class B Series B preferred stock. The Class B Series B preferred
stock was converted into subordinated 15% Convertible debentures. The
Debentures were subsequently converted to 864,500 common shares during
year end April 30, 2000. AGE facilities were expected to combine
housing, minimum health care and personal support for elderly residents
who need assistance with certain activities of daily living, without the
need of a complete nursing facility. The Company has wrote off the value
of this investment to $0, as it no longer maintains a majority interest
in the Youngtown Gardens (See Note 9). The Company negotiated an
agreement to eliminate all liabilities in exchange for a lower 20%
participation of any and all future profits.
NOTE 16. INTERNATIONAL HEALTH NETWORKS, INC.
International Health Networks, (IHN) is Nevada corporation and a
majority-owned non-active entity of the Company. IHN was intended to be
a multitude of U.S. medical
16
services designed for Mexico that the Company has envisioned for the past
several years as the magnet for attracting the retiree market in Baja
California, Mexico.
The primary focus for IHN has been to build a planned medical campus on
Hills of Bajamar property. The medical campus was originally conceived
by the Company in 1997 and called for 150 acres at the south end of the
property. The Company would retain the construction rights to build all
required facilities on the combined 250 acres and maintain a property
management contract. The campus would include an acute care hospital
associated with a recognized U.S. medical provider, a medical school
complete with dormitories, class rooms and auditorium, medical exhibition
center, R & D facilities for pharmaceutical industry and facilities for
long-term care combined with anti-aging and wellness programs. This
campus would be important not only to the region, but to the Company's
desire to create a retirement mecca on its properties.
NOTE 17. LOANS PAYABLE SHORT-TERM
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. 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 and the bonding company, New England
International Surety, was brought to the Company by the investment
banking firm, Johnson, Richards & Company, Inc. (See Legal Proceedings),
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 and North Carolina with respect to sales of those same Notes
in that state. The California Department of Corporations and the North
Carolina Department of Corporations both required the Company to offer
rescission to investors in that offering and all California and North
Carolina investors accepted that rescission offer. This requires the
Company to repay all California and North Carolina 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 and Connecticut
Department of Banking are currently examining the sales of the Notes to
its residents. In the event that it is found that the sales did not meet
the requirements of applicable exemptions from registration, it is the
position that the Company must refund all investments in the Notes to
Louisiana and Connecticut 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.
17
Because the Company has relied on federal and state exemptions for
placement of its Notes, 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.
Short-term notes payable at October 31, 2001, consisted of the following:
Corporate Notes payable
9-month notes, interest at 10%,
currently overdue $11,367,167
Notes payable, short term - currently overdue
interest at 10%, due January 31, 2001 600,056
-----------
TOTAL $11,967,223
===========
NOTE 18. JUDGMENTS PAYABLE
Capital Trust, Inc. $ 8,432,183
Funding Associates 267,757
Commercial Money Center 250,000
First Regional Bank, FBO Norman Lizt 450,000
-----------
$ 9,397,940
===========
NOTE 19. NOTES PAYABLE
Long-term notes payable at October 31, 2001, consisted of the following:
8% note payable and cash payable to
DUBSCA upon closing of vacation
ownership (timeshare) project $ 9,079,055
-----------
TOTAL $ 9,079,055
===========
NOTE 20. DEBT CANCELLATION
Scripps Bank $ 7,965
Corporate Notes Bonds Insurance 188,071
Corporate Notes Commission 334,331
-----------
TOTAL $ 535,367
===========
18
NOTE 21. WRITE-OFF OF INVESTMENTS
Write off of investment in Alpine Gardens East, Inc. $ 2,343,923
Write off of investment in Portal Del Mar, J.V. 396,024
Write off of investment in El Mirador 50,000
Write off of International Health Networks 17,334
TOTAL $ 2,807,281
===========
EXTRAORDINARY ITEM, NET OF TAX
The Company over the last several years achieved a number of acquisitions
with the use of Convertible Preferred Stock and cash. The contractual
agreements underlying the Convertible Preferred Stock called for the
Company to achieve a trading value of $3.00 per share within a 24 month
period or by January 31, 2000, whichever came first. The agreements
further allowed for the sellers to petition the Company to convert these
Convertible Preferred Shares to interest bearing Convertible Debenture
instruments in the event the Company was not able to meet the $3.00
qualification. The majority of the sellers in fact did request and were
satisfied with the receipt of the appropriate instruments in February and
March of 2000. Subsequently, the note holders elected to convert these
Convertible Debentures into common stock as per their right under the
terms and contained therein. The net effect of this for the year ending
April 30, 2000 is an extraordinary gain in the amount of $7,889,017.
Pacific Medical International, Inc. was issued 500,000 Class B Series B
Preferred Shares at a value of $4.00 per share for a total of $2,000,000,
in connection with acquisition of a minority interest in Planificacion
Desarrollos de Jatay, S.A. de C.V.. The Preferred Shares were converted
into 15% debenture in the amount of $2,000,000. The debenture was later
converted to 837,000 common shares at a market price of $.65 per share,
totaling $544,050.
Alpine Gardens East, Inc. was issued 864,500 Class B Series B Preferred
Shares at a value of $4.00 per share for a total of $3,458,000, in
connection with the acquisition of 51% interest. The Preferred Shares
were converted into 15% debenture in the amount of $3,458,000. The
debenture was later converted to 864,000 common shares at a market price
of $.80 per share, totaling $691,600.
Valcas Internacional, S.A. was issued 1,000,000 Class B Series B
Preferred Shares at a value of $4.00 per share for a total of $4,000,000,
in connection with the acquisition of the Plaza Resort timeshare project.
The Preferred Shares were converted into 15% debenture in the amount of
$4,000,000. The debenture was later converted to 1,333,333 common shares
at a market price of $.25 per share, totaling $333,333.
LEASES
The Company leases one office facility in San Diego, California and one
in Ensenada, Baja California under operating leases which expire in 2001
and the year 2002, 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 October 31, 2001 are as
follows:
2001 $210,700
2002 252,840
--------
$463,540
========
19
GOING CONCERN
We require significant additional capital to restructure the Company's
existing debt, build out and operate planned properties and for general
working capital needs. Most critically, the $8,300,000 judgment held
against the Company and several of its officers and directors by Capital
Trust, Inc. and the $12,000,000 in nine-month corporate notes must both
be restructured. We also require additional capital to invest in any new
opportunities. Capital markets have recently been volatile and uncertain.
These markets may not improve, and we may not be able to access these
markets to raise additional capital. If we fail to obtain required new
financing, the failure would have a materially adverse effect on our
business and our financial condition. For example, if we are unable to
access capital markets, we may have to restrict our activities or sell
our interests, in one or more of our subsidiaries or other ventures
earlier than planned or at a "distressed sale" price.
The Company experienced net losses of approximately $8,540,199 in the
year ended April 30, 2001, primarily due to several write downs and write
offs, net income of $532,629 in the year ended April 30, 2000 and a net
loss of $2,906,671 for the year ended April 30, 1999. Losses are likely
to be significant for at least the next year to possibly two years as we
restructure our debt and continue to invest additional funds into
existing projects to bring them to cash flow, as well as investing in new
projects. We may not generate profits in the short term or at all. If we
fail to achieve profitability, that failure could have a negative effect
on the market value of our common stock.
The Company believes that the sale of residential lots within its Vinas
de Bajamar development over the next 12 months will result in immediate,
long-term and consistent revenues to support the Company's operations
through its reorganization and provide cash flow to pay off 100% of its
creditors.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS 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.
Plan of Operation
Background
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
20
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 for the completion of development and
repayment of debt on its current projects. This need led to the filing
of a voluntary Chapter 11 Bankruptcy filing in the San Diego Federal
Bankruptcy Court on October 23, 2001.
In the schedules filed with the bankruptcy court, the Company listed
approximately $86,000,000 in assets and roughly $33,000,000 in total
debt. The Company's total assets listed in the bankruptcy schedules are
based on current market values per U.S. appraisals, versus the assets
listed on a cost basis in the Company's audited year end April 30, 2001
balance sheet in accordance with GAAP. The filing of the Chapter 11
proceeding allows the Company an automatic stay from its creditors.
The largest asset listed in the Company's Chapter 11 schedules is the
ownership of 100% of the stock in Planificacion Desarrollos de Jatay,
S.A. de C.V. ("Planificacion"), a Mexican corporation, valued at
$49,000,000. Planificacion was formed for the sole purpose of buying,
owning and developing the 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 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. As of April 30, 2001, the Company had purchased and
taken title to a total of approximately 750 acres and the unpaid balance
of roughly 1,750 acres remains in trust with Banco Ixe. A certified
U.S. appraisal completed in March of 2001 valued the property in excess
of $23,333 per acre. The purchase terms were negotiated in 1991 prior to
four events: (1) the passage of NAFTA; (2) the liberalization of foreign
ownership of land in Mexico; (3) the California Department of Real Estate
issuing a decree that the advertisement in California for sale of foreign
homes and land is no longer subject to their jurisdiction; and (4) the
mega-developments in the area (see below).
The Hills of Bajamar property is located in the region that has become
known as "the Gold Coast" because of the current and planned
developments. New developments in the region include: (1) access to U.S.
title insurance; (2) access to U.S. mortgage money; (3) a $200 million
plan to privatize and expand the port of Ensenada, which is underway and
is to include a 70 mile railroad link to the United States, Baja
California's first container- handling facility, and a new passenger
cruise ship terminal, which is also under construction; (4) a $400
million power plant that will generate 440 megawatts, enough to power one
million homes, to be built in the Rosarito and Ensenada area; (5) the
possible legislation of casino gaming which would be a tremendous
windfall for the Mexican economy and the Baja California coast; (6)
construction is under way on Puerto Salina, a reported $150 million,
600-boat marina that is located just one mile north of the Hills of
Bajamar or 46 nautical miles south of San Diego; (7) Fox Studios has
built a movie studio located on a 150-acre site just north of the Hills
of Bajamar with a project cost in excess of $55 million for the filming
of the movie, the Titanic. There are many additional movies scheduled
for filming at this same studio. Fox recently announced the addition of
"Fox World", a $100 million theme park to the studio.
21
Sales
GMA International, a world-renowned master planner, was retained to
develop a master plan for the first 1,250 acres named, Vinas de Bajamar,
which is now finalized. The zoning has been approved and a construction
company has been retained to start cutting the roads in accordance with
the master plan. This allows the Company to launch a 1,400 residential
lot sales program.
The Company plans to sell the lots starting at $20,000 to $30,000 each
with 10% down and zero interest financing for 8 years. Upon full sell out
of the 1,400 residential lots, the projected gross revenues would exceed
$35 million with total down payments of $3.5 million and annual mortgage
payments of roughly $4 million. However, to raise immediate capital the
Company has released a limited number of lots at a cash price of $6,000
each. The Company is currently filming the property with digital
technology and anticipates including these images with the master plan
and lot map to support sales on its web site as soon as it is available.
Stewart Title of Houston, Texas will be doing all of the title work for
this property.
The roads and utilities to the Hills of Bajamar are anticipated to be
completed by Promar, S.A. de C.V., a Mexican development company,
pursuant to a contract and in accordance with the master plan. The
Company has been informed by Promar that the improvements to the property
will be completed by a U.S. construction company, which also has been
contracted by Promar to build a new international airport 7 miles to the
southeast of the property. The improvements are to be paid by Promar as
an additional cost to the airport. This will significantly enhance the
Hills of Bajamar, while allowing Promar access to the airport from the
main coast highway by way of a toll road off ramp through a portion of
the Hills of Bajamar.
The Company believes that the sale of residential lots and revenues
generated from construction of homes on these lots within its Vinas de
Bajamar development over the next 12 months will result in immediate,
long-term and consistent revenues to support the Company's operations
through its reorganization and provide cash flow to pay off 100% of its
creditors.
22
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 filed its appeal on June 16, 1999. We filed our answer to their
appeal September 16 1999, oral arguments were held on September 6, 2000
and we received notice from the Appellate Court that the case would be
sent back to the State Court for retrial.
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. In October of 2001, the lender
that provided the remaining $750,000 to close escrow, converted their
loan to a 33 1/3% equity position in the project, leaving a 33 1/3%
equity position to the Company and a 33 1/3% to Bersain Guttierrez. The
parties are now attempting to develop a plan for completion of the
project.
Commercial Money Center
This was a loan against the MRI equipment at the Greater San Diego MRI
Center. The Company is liable for a $250,000 judgment.
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
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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 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 nine-month promissory note program and the bonding company,
New England International Surety, 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. The
investors principal and interest were
24
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 July 31, 2001 the Company had roughly $12,000,000 in
Corporate Notes outstanding, of which all are due. 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 previously withdrew its collateral when New
England could not comply with the bonding agreements.
Senior Care Industries, Inc.
On March 28, 2001, Tri-National Development Corp. (the "Company") entered
into agreements with Senior Care Industries, Inc. (OTC BB:SENC), a
publicly-listed Nevada corporation ("Senior Care"), to sell certain real
estate assets of the Company for a combination of cash, assumed debt and
convertible preferred stock for a total of approximately $70,229,055. The
purchase offer became effective and escrow was to close on April 30,
2001. Closing was subject to a cash down payment at closing of
$10,000,000, of which a $8,000,000 payment was to be made to Capital
Trust, Inc. of New York for the repayment of the loan made on the
Company's Plaza Rosarito in July of 1999.
By April 30, 2001, when Senior Care was unable to make the scheduled
$10,000,000 cash down payment, the Company on May 5, 2001 terminated
their agreements. Subsequently, at the request of Senior Care, they
revised the agreements to state the overall purchase would be dictated by
terms and conditions Senior Care could negotiate, with Capital Trust's,
approval to payoff the $8,000,000 loan. Once those agreements became
effective, Senior Care was to finalize agreements with Capital Trust and
upon its approval the Company would call a Board of Directors meeting to
seek approval and if approved, set a closing date. This never occurred
and subsequently the Company once again terminated all relations with
Senior Care on July 2, 2001.
As the payoff of this loan has been the most pressing issue facing the
Company and to assure the release of Tri-National's corporate guarantee,
as well as the personal guarantees given by Michael Sunstein and his
wife, Dr. Jerry Parker and his wife and Lic. Bersain Gutierrrez and his
wife and the subsequent judgments secured by Capital Trust in the amount
of $8,300,000 held against each of these parties-individually and
collectively, the Contract for Deed for Plaza Rosarito, as stated, was
subject to the approval of Capital Trust. Capital Trust has never
accepted any of the offers submitted by Senior Care and continues to
enforce both the corporate and personal guarantees and judgments. In
addition, Capital Trust has requested and been granted a State of
California court appointed receiver. The receiver's sole responsibility
was to place a mortgage on Plaza Rosarito on behalf of Capital Trust,
which could replace the corporate and personal gurantees and subsequent
judgments. As detailed in our last Annual Report, at the time the loan
was made to complete this acquisition, there was never a mortgage placed
on the any of the properties that comprise Plaza Rosarito primarily the
187,500 square foot shopping center and the 15 acres of beachfront land,
leaving the property free of all liens and encumbrances and Capital
Trust's $8,000,000 loan effectively unsecured by Plaza Rosarito.
However, Capital Trust acknowledges that the Company never took advantage
of the situation as we could have by securing a construction loan and
placing a subsequent lien on the property in front of Capital Trust.
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This was a moral dilemma for Tri-National management since the
opportunity was obvious, and the need for such funding was paramount, but
Capital Trust was ethically if not legally entitled to a mortgage based
on the original contracts for their $8,000,000 loan. After
consideration, the Company chose not to abuse the situation and continues
to work to resolve the situation in a way that serves both parties.
In spite of all the facts and documents to the contrary, Senior Care is
now claiming all of the Purchase Offers that were previously executed
were not subject to either Board of Director or Capital Trust, Inc.
approval. Further, it was of the recent opinion of Judge Strauss of the
California State Court in San Diego that indeed the transaction had not
closed and then issued a restraining order against Senior Care
Industries, Inc. and its officers and directors from making any further
actions regarding this property.
Subsequently, Senior Care advised Tri-National that it fully intended to
proceed with the Tender Offer it issued on May 22, 2001, wherein Senior
Care Industries, Inc. (OTC BB: SENC) filed an initial Form TO-T with the
U.S. Securities and Exchange Commission making and elaborating an offer
to buy up to 51% of the outstanding common stock of Tri-National
Development Corp. (OTC BB:TNAV). "Senior Care is offering to buy up to
51% of the outstanding Common shares of Tri-National Development Corp.,
or approximately 20,000,000 common shares. The terms of the offer are as
follows: For every three (3) shares of Tri-National common stock that
are tendered, Senior Care is offering one (1) share of Senior Care common
stock plus one (1) warrant giving the holder the right at the holder's
option to purchase one (1) additional share of Senior Care common stock
for a period of one year by the payment of $1.00 to Senior Care".
The offer states "Shareholders of the Company may tender their Tri-
National common shares at any time after the date of the tender offer,
May 22, 2001, up to and including the new extended date of September 30,
2001. It is not anticipated at this time that shareholders will be able
to tender their Tri-National common shares after September 30, 2001. If
a total of 51% of the common shares of Tri-National are not tendered to
Senior Care by September 30, 2001, then Senior Care may at its option (a)
extend the offering period, (b) accept the shares which have been
tendered, or (c) opt not to accept any tendered shares. If more than 51%
of the common shares of Tri-National are tendered to Senior Care by
September 30, 2001, then Senior Care may at its option (a) accept the
full amount tendered or (b) accept any amount between 51% and the full
amount tendered by accepting a fixed and equal percentage of all blocks
of shares tendered".
Senior Care has announced that it chose to move forward with the tender
offer regardless of the termination of the sale of assets. If Senior
Care is successful in acquiring 51% of the Company through the tender
offer, they would acquire controlling interest in the Company, thereby
controlling the assets in the proposed sale without ever closing the
escrow or providing any cash payments to the Company, and without Board
of Directors approval or a shareholders meeting to vote on the
transaction.
It is the considered and unequivocal opinion of Management and the Board
of Directors, after considerable due diligence, that this Tender Offer is
absolutely and most clearly not in the best interests of the Company or
its shareholders and should be rejected. Senior Care has repeatedly not
delivered on commitments it has made which were specific conditions of
their agreements with Tri-National. They were unable to make any of the
above referenced cash payments to which they had committed in order to
resolve the
26
Capital Trust debt and thereby free the Company to move forward. We
believe there is no benefit to the transaction and that in the long run,
shareholders will realize no increased value or improvement of their
position at such time as their shares become liquid and tradable, and
that they will in fact have suffered very significant further dilution
and loss. The Tender Offer has at this point in time become a hostile
takeover attempt, and we do not believe that it serves anyone but the
insiders at Senior Care.
Additionally, on September 17, 2001, the Company filed a lawsuit against
Senior Care in the U.S. District Court in the Southern District of
California. The lawsuit asserts that Senior Care is guilty of fraud,
fraudulent inducement, breach of contract and S.E.C. violations, and
seeks actual, consequential and exemplary damages, an injunction against
further misrepresentations by Senior Care regarding its ownership of Tri-
National assets, and a declaratory judgment adjudicating the rights of
the parties under an agreement entered into by them relating to the sale
of certain assets and property in Baja California, Mexico. This lawsuit
was filed on behalf of the Company by Gerald Padmore of Cox Padmore
Skolnik & Shakarchy, a partner and head of the firm's Denver, Colorado
office.
Further, on September 12, 2001 the Company filed an answer to the
involuntary bankruptcy petition filed by Senior Care against the Company
on August 23, 2001. Senior Care's filing of the involuntary bankruptcy
petition is yet another deliberate attempt to control the assets of the
Company without delivering on any of the financial commitments previously
made. The Company asserts in its answer that Senior Care filed the
petition in bad faith, knowing that several of the alleged creditors were
not creditors of Tri-National, and the Company is also asking for a
judgment against Senior Care for costs, attorney fees and punitive
damages.
On October 23, 2001, the Company filed a voluntary Chapter 11 bankruptcy
petition in the San Diego Bankruptcy Court. The petition was accompanied
by all of the schedules of Tri-National's assets and debts, its statement
of affairs and a list of its shareholders.
According to the schedules, the current market value of Tri-National's
assets is approximately $86 million, while its debts, both secured and
unsecured, total approximately $33 million. The reason for the filing is
apparent from a reading of the schedules: Tri-National has valuable,
unencumbered land, but no cash with which to satisfy the claims of its
creditors.
The Company has retained Colin Wied, a top San Diego attorney and past
president of the State Bar of California and San Diego County Bar
Associations with 35 years of legal experience and vast bankruptcy
knowledge, to pursue this matter on its behalf. The Company intends to
take aggressive action to defend itself and its shareholders and
creditors.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULT OF SENIOR SECURITIES
None.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the stockholders for a vote during the six
months ended October 31, 2001.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON Form 8-K
(a) REPORTS ON FORM 8-K. For the six months ended October 31,
2001, two reports on Form 8-K was filed by the Company on
October 26, 2001, July 10, May 29, 2001 and May 24, 2001 and
are incorporated by reference herein.
(b) EXHIBITS. The following exhibits are filed as a part of this
report:
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 27th day of December, 2001.
Tri-National Development Corp.,
a Wyoming Corporation
/s/ MICHAEL A. SUNSTEIN
BY: Michael A. Sunstein
TITLE: Chief Executive Officer,
President, Treasurer, and Director
/s/ JASON A. SUNSTEIN
BY: Jason A. Sunstein
TITLE: Senior V.P.,
Secretary
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