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 nine months ended January 31, 2002
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 January 31, 2002, 83,468,562 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 15, 2002 was
approximately $1,086,714 based on the closing price of the stock on
March 15, 2002.
TRI-NATIONAL DEVELOPMENT CORP.
FORM 10-QSB
FOR THE NINE MONTHS ENDED JANUARY 31, 2002
PART I - FINANCIAL INFORMATION
PAGE
----
ITEM 1. Financial Statements (Unaudited)
A) Consolidated Balance Sheets as of January 31, 2001 and 2002 4
B) Consolidated Statements of Income for the nine months
ended January 31, 2001 and 2002 5
C) Consolidated Statements of Cash Flows for the nine months
ended January 31, 2001 and 2002 6
D) Consolidated Statement of changes in Stockholders' Equity
For the nine months ended January 31, 2002 7
D) Notes to the Financial Statements 8
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 22
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings 24
ITEM 2. Changes in Securities and Use of Proceeds 29
ITEM 3. Default of Senior Securities 29
ITEM 4. Submission of Matters to a Vote of Security Holders 29
ITEM 5. Other Information 29
ITEM 6. Exhibits and Reports on Form 8-K 29
Signatures 29
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
3
Tri-National Development Corporation
Consolidated Balance Sheet
At January 31, 2002 and 2001
Assets: Jan 31, 02 Jan 31, 01
- ------- ---------- ----------
Current assets:
- ----------------
Cash in banks $ 8,125 $ 90,422
Cash in banks - Restricted (Note 2) 114,692 93,070
Accounts receivable, net (Note 3) 42,500 1,706,026
Assisted living-Youngtown (Note 4) - 12,334,792
Citizens Business Bank Judgment Receivable (Note 5) - 6,260,602
------------ ------------
Total current assets 165,317 20,484,912
------------ ------------
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) 4,978,218 4,943,717
Plaza resort timeshares (Note 10) 14,648,501 14,645,085
Assisted living-Other Locations in process (Note 11) 450,000 5,454,013
Plaza rosarito (Note 12) 11,507,157 12,248,877
Portal del mar condominiums (Note 13) 573,012 1,484,232
Hall of fame fitness center (Note 14) - -
Alpine Gardens East (15) - 4,371,005
International health network (Note 16) - -
------------ ------------
Total investments 33,306,888 47,457,908
------------ ------------
Other assets:
- -------------
Capitalized equipment lease - 441,300
Property, furniture, and equipment, net - 3,168
Other Assets - 63,828
------------ ------------
Total other assets - 508,296
------------ ------------
Total Assets $ 33,472,205 $ 68,451,116
============ ============
Liabilities and stockholders' equity:
- -------------------------------------
Current liabilities:
- --------------------
Accounts payable and accrued liabilities $ 4,551,391 $ 3,660,346
Citizens Business Bank Judgment expenses (Note 5) - 3,257,295
Loans payable-short term-1 year or less (Note 17) 12,021,223 31,790,364
------------ ------------
Total current liabilities 16,572,614 38,708,005
Deferred revenue - 4,585,115
Judgments Payable (Note 18) 9,397,940
Notes payable-net of current portion (Note 19) 9,079,055 15,919,735
------------ ------------
Total Liabilities 35,049,609 59,212,855
------------ ------------
Stockholders' equity:
- ---------------------
Common stock (100,000,000 Authorized 93,496,798
Outstanding) 15,641,344 15,973,706
Paid in Capital - 1,431,142
Retained Earnings (Deficit) (17,218,747) (8,166,587)
------------ ------------
Total stockholders' equity (1,577,403) 9,238,261
------------ ------------
Total Liabilities and Stockholders' Equity $ 33,472,205 $ 68,451,116
============ ============
The accompanying notes are an integral part of the consolidated financial Statements.
4
Tri-National Development Corporation
Consolidated Statement of Income
For nine months ended January 31, 2002 and 2001
For nine months ended
----------------------------------
January 31, 02 January 31, 01
-------------- --------------
Revenues:
- ---------
Revenues $ 52,225 $ 12,004
------------ ------------
Operating Expenses:
- -------------------
Corporate note expense (Excluding interest) - 3,944
Consulting fees 62,951 424,131
Sales and marketing - 23,458
Legal, accounting and insurance 84,837 116,962
Interest expense 876,988 1,103,196
General and administrative 550,517 625,115
------------ ------------
Total operating expenses 1,575,293 2,296,806
------------ ------------
Loss from Operations (1,523,068) (2,284,802)
Other Income and Losses
- -----------------------
Gain on Debt Settlement & Cancellation (Note 20) 535,367
Writeoff of Investments (Note 21) (2,807,281) -
------------ ------------
Loss before taxes (3,794,983) (2,284,802)
less: income tax - -
------------ ------------
Net income (loss) (3,794,983) (2,284,802)
Primary:
- --------
Income (loss) before extraordinary item $ (0.05) $ (0.06)
Extraordinary item $ - $ -
------------ ------------
Net Income $ (0.05) $ (0.06)
============ ============
Fully diluted:
- --------------
Income (loss) before extraordinary item $ (0.05) $ (0.06)
Extraordinary item $ - $ -
------------ ------------
Net Income $ (0.05) $ (0.06)
============ ============
The accompanying notes are an integral part of the consolidated financial Statements.
5
Tri-National Development Corporation
Consolidated Statement of Cash Flow
For nine months ended January 31, 2002 and 2001
For nine months ended
----------------------------------
Jan 31, 02 Jan 31, 01
---------- ----------
Cash from Operating activities
- ------------------------------
Net Income from operations (See reconciliation) $ (22,429) $ (659,889)
Accounts receivable-Trade 521 9,818
Accounts Payable-Trade - -
------------ ------------
Net Cash from Operating activities (21,908) (650,071)
------------ ------------
Cash used in Investments
- ------------------------
Furniture and Equipment - -
Alpine Gardens East - (75,735)
MRI Medical Diagnostics - -
Assisted Living-Youngtown - -
Assisted Living-Other Projects - (3,003,497)
Hills of Bajamar (27,023) (724,140)
Plaza Rosarito (17,080) (255,775)
Portal Del Mar - -
Hall of Fame Fitness Center Building - 50,708
International Health Network - -
Bajamar Las Perlas Condominiums - -
Plaza Resort Timeshares - -
Other Assets - (11,840)
------------ ------------
Net Cash used in Investments (44,103) (4,020,279)
------------ ------------
Cash provided by Financing
- --------------------------
Notes and Loans Payable (15,805) (1,671,841)
Common Stock Private Placements & Warrants 80,972 1,317,510
------------ ------------
Net Cash provided by financing activities 65,167 (354,331)
------------ ------------
Net change in cash and equivalents (844) (5,024,681)
Cash and equivalents, beginning of period 123,661 5,208,173
------------ ------------
Cash and equivalents, end of period $ 122,817 $ 183,492
============ ============
The accompanying notes are an integral part of the consolidated financial Statements.
6
Tri-National Development Corporation
Consolidated Statement of changes in Stockholders' Equity
For the periods ended April 30, 2000, 2001 and January 31, 2002
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 80,972 80,972
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) (3,794,983) (3,794,983)
----------- ----------- ----------- ------------ -----------
Balance, January 31, 2002 $ - $15,641,344 $ - $(17,218,747) $(1,577,403)
=========== =========== =========== ============ ===========
The accompanying notes are an integral part of the financial statements.
7
TRI-NATIONAL DEVELOPMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JANUARY 31, 2002 (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.
8
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 (83,468,562 and 37,685,464 shares, for the nine months ended
January 31, 2002 and January 31, 2001, 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.
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.
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".
9
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 January 31, 2002, the Company had 19,792,000 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 been 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.
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.
10
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 January 31, 2002.
Contingent Liability
Due to a lack of funds, the Company has been unable to provide Directors
and Officers Insurance to its officers and directors.
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 seized 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 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.
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 future net profits after debt service.
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
11
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., 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, 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 filed its appeal on June 16, 1999. We filed our answer to their
appeal September 16 1999, held oral arguments on September 6, 2000 and
received notice from the Appellate Court that the case would be sent back
to the State Court for retrial, which as of March, 2002 was underway.
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.
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
12
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 had sold 1,820,345 shares at an
average price of approximately $.30. The Company 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.
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
is 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.
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..
13
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 5).
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 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
14
Company's wholly-owned Mexican subsidiary, Planificacion Desarollos
Regional 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. The Company
retains title to a total of approximately 600 acres with construction
rights to all 2,500 acres and the unpaid balance of roughly 1,750 acres
is 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 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. The lender has
been attempting to foreclose on this property, which is currently in a
Chapter 11 proceeding.
15
In April of 1999, the Company acquired 2.39 acres of undeveloped land in
San Marcos, California for $400,000 (See "Note 18"). 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 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 (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 $2.5 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
16
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, agreed to convert
their loan to a 33 1/3% equity position in the project. The parties are
attempting to develop a plan for completion of the project.
The Company anticipated starting 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 could exceed $31 million with down payments of $9 million
and annual mortgage payments of approximately $2.5 million.
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 and 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 reduced the value of
this investment to zero, as it no longer maintains a majority interest in
the Youngtown Gardens (See Note 9) and its joint venture regarding
Temecula is in foreclosure. The Company negotiated an agreement to
eliminate all liabilities relative to Youngtown in exchange for a 20%
participation of any 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 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
17
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. This entity is currently on hold.
NOTE 17. LOANS PAYABLE SHORT-TERM
The Company has made private offerings of its securities, consisting of
its common stock, as well as issuing 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 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, North Carolina and Connecticut with respect to sales of those
same Notes in those States. The California Department of Corporations
and the North Carolina Department of Corporations both required the
Company to offer rescission to investors and all California and North
Carolina investors accepted that rescission offer. This required the
Company to repay all California and North Carolina investors their
principal only, which the Company began paying. None of the State orders
prohibit future registered, exempt or qualified sales of the Company's
securities.
Additionally, the Louisiana Commissioner of Securities is 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 likely their position will be 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 already began paying Notes due in
Louisiana. There can be no absolute assurance, however, that the
violations will in fact be cured in the intended 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, 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.
18
Short-term notes payable at January 31, 2002, 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 654,056
-----------
TOTAL $12,021,223
===========
NOTE 18. JUDGMENTS PAYABLE
Capital Trust, Inc. $ 8,432,183
Funding Associates 265,757
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 January 31, 2002, 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. INCOME
Revenues generated for years 2001 and 2002:
4/30/01 4/30/00
------- -------
Interest Income - Morgan Stanley Dean Witter $ 933 $ 1,177
Greater San Diego Imaging Center - MRI Fees 11,127 193,402
------- --------
Total Income $12,060 $194,579
======= ========
NOTE 21. WRITE-DOWN OF INVESTMENTS
Write down of investment in Alpine Gardens East, Inc. $1,441,980
Write down of investment in Viper Networks, Inc. 1,850,000
Write off of investment in Carlsbad property 145,291
Write off doubtful accounts from Greater San Diego
Imaging Center 123,389
----------
TOTAL $3,560,000
==========
NOTE 22. WRITE-DOWN OF MARKETABLE SECURITIES
Write down of NetRom Common Stock $1,292,794
Write off of MRI Medical Diagnostics, Inc. Common Stock 18,185
----------
TOTAL $1,310,979
==========
19
NOTE 23. JUDGMENT LOSSES
Capital Trust, Inc. $432,183
Commercial Money Center 265,757
Funding Associates 250,000
--------
TOTAL $947,940
========
NOTE 24. LOSS ON SALE OF SECURITIES
As of April 30, 2001, the Company has sold 1,820,345 common shares of
NetRom, Inc. at an average price of approximately $.30, for a loss of
approximately $1,251,978. The Company owns approximately 100,000 common
shares (post 1 for 5 reverse split) with a market price of $.05 per
share.
NOTE 25. 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.
20
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 January 31, 2002 are as
follows:
2002 $210,700
2003 252,840
--------
$463,540
========
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.
21
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 the issuance of 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 for the completion of development and repayment of debt on its
current projects. This need, coupled with Senior Care Industries filing
of an Involuntary Chapter 11 in August 2001 against Tri-National, led to
the need to file 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
three parcels of which it retains title to 600 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
22
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.
Sales
GMA International, a well respected 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 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 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 planned 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.
23
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 begin the payback of
the planned 100% return to its creditors.
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
continued 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 were in addition
to the $5,000,000 judgment for punitive and compensatory damages,
including pre-trial interest.
The bank filed its appeal on June 16, 1999. The Company filed its answer
to their appeal on September 16, 1999. Oral arguments were held on
September 6, 2000 and the Appellate Court, based on their finding of
inconsistent jury verdicts, returned the case to the State Court for
retrial. The case is currently proceeding toward 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 at which point Silverpoint began
legal proceedings to recover their funds. The parties then agreed to a
joint venture to resolve the dispute. The parties continue to have issues
resolve prior to proceeding.
Commercial Money Center
This was a loan against the MRI equipment at the Greater San Diego MRI
Center, which the Company withheld payments for due to consequential
legal theories, which will be resolved in court. The Company is liable
for a $250,000 judgment.
24
Short Term Corporate Notes
The Company had issued 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 voluntary cease and desist orders in California, North Carolina and
Connecticut with respect to sales of those same Notes in those States.
The California and North Carolina Department of Corporations required the
Company to offer rescission to their respective investors regarding the
issuance of the notes and all California investors accepted that
rescission offer. This required the Company to repay all California
investors their principal only, which the Company had started paying.
The State orders do not prohibit future registered, exempt or qualified
sales of the Company's securities in those States.
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 will probably be
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 paid some of the Notes due in Louisiana. There can be no assurance,
however, that the violations will in fact be cured 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.
New England International Surety
As stated, to implement its business strategy, the Company initially
funded acquisitions, development and general working capital by issuing
the aforementioned nine-month Corporate Notes at 10% interest per annum.
The investors principal and interest were guaranteed by the Company and
further bonded by New England International Surety Co., for up to $15
million. The Company agreed to collateralize the $15 million in bonding
from New England International Surety Co. with a portion of its Hills of
Bajamar
25
property. Additionally, it was required to pay 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. The Company intended
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. The Company
previously withdrew its collateral when New England could not comply with
the bonding agreements, by failing to repay even one single penny to any
of the investors that had relied on their guarantee. This in spite of
numerous requests and meetings for that purpose by the Company and many
of the noteholders.
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 of the various
assets would be dictated by whatever terms and conditions Senior Care
could negotiate with Capital Trust's approval to payoff the $8,000,000
loan, which terms would then be required to be presented for approval to
Tri-National Development Corp., the parent company, and its subsidiaries
Board of Directors for their approval. Presuming the required approvals
being sought were gained after the various Board of Directors meetings,
the Company and Senior Care would have set a mutually acceptable closing
date. Senior Care never reached agreement with Capital Trust and
consequently none of the approvals were ever gained and subsequently the
Company once again terminated all relations with Senior Care effective
close of business on July 2, 2001.
The payoff of this $8,300,000 Judgment to Capital Trust has been the most
pressing issue facing the Company, as well as to assure the release of
Tri-National's corporate guarantee, and 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 also secured
by Capital Trust in the amount of $8,300,000 against each of these
parties-individually and collectively. Consequently, it was quite obvious
why the Contract for Deed for Plaza Rosarito, as stated, was subject to
the approval of Capital Trust. Capital Trust 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
26
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 as to 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.
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.
Without a successful resolution to pay off Capital Trust, Senior Care
attempted to have TND accept 100% of the consideration being offered for
the assets be made in shares of their Convertible Preferred stock. As
stated previously, after careful consideration, extensive due diligence
and the reality of Senior Cares inability to perform, the Board of
Directors of the Company refused to accept the terms and risks associated
with the last proposal by Senior Care and terminated the entire
transaction effective close of business, July 2, 2001.
In spite of all the facts and documents to the contrary, Senior Care is
now claiming all of the Purchase Agreements 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 the Companys' properties.
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 stated "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".
27
Senior Care announced that it chose to move forward with the tender offer
regardless of the termination of the sale of assets. If Senior Care was
successful in acquiring 51% of the Company through the tender offer, they
would have acquired 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 was the considered and unequivocal opinion of Management and the Board
of Directors, after considerable due diligence, that the Tender Offer was
absolutely and most clearly not in the best interests of the Company or
its shareholders and should be rejected. Senior Care repeatedly had not
delivered on commitments it 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 Capital Trust debt and thereby free the Company to move forward. We
believed there was no benefit to the transaction and that in the long
run, shareholders would realize no increased value or improvement of
their position at such time as their shares would possibly become liquid
and tradable, and that they would in fact have suffered very significant
further dilution and loss. The Tender Offer became a hostile takeover
attempt, which management believed served no one except the insiders at
Senior Care.
After several extensions due to Seniors Cares inability to secure
Security and Exchange Commission approval of their filing for the
registration of their shares, which was necessary to effect a tender
offer, they finally withdrew their tender offer in December of 2001.
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 through its local legal
counsel of English and Gloven, filed an answer to the involuntary
bankruptcy petition filed by Senior Care 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. The case is
expected to reach trial sometime in June of 2002 and finally resolve the
ownership issue Tri-National's Mexican assets.
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.
28
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 is represented in the Reorganization by 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the stockholders for a vote during the nine
months ended January 31, 2002.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON Form 8-K
(a) REPORTS ON FORM 8-K. For the nine months ended January 31,
2002, three reports on Form 8-K were 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 15th day of March, 2002.
Tri-National Development Corp.,
a Wyoming Corporation
/s/ MICHAEL A. SUNSTEIN
BY: Michael A. Sunstein
TITLE: Chief Executive Officer,
President, Treasurer, and Director
29