UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For the quarter ended October 31, 1999
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-QSB. [x]
As of December 10, 1999, 35,962,653 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 10, 1999 was
approximately $21,450,000, based on the closing price of the stock on
December 10, 1999.
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TRI-NATIONAL DEVELOPMENT CORP.
FORM 10-QSB
FOR THE QUARTER ENDED OCTOBER 31, 1999
INDEX
PAGE
----
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
A) Consolidated Balance Sheets as of October 31, 1998
and 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . .4
B) Consolidated Statements of Operations for
the six months ended October 31, 1998 and 1999 . . . . . . . .5
C) Consolidated Statements of Cash Flows for
the six months ended October 31, 1998 and 1999 . . . . . . . .6
D) Consolidated Statements of Stockholders' Equity for
the six months ended October 31, 1998 and 1999 . . . . . . . .7
E) Notes to the Financial Statements. . . . . . . . . . . . . . .8
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . 17
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . 21
ITEM 2. Changes in Securities and Use of Proceeds. . . . . . . . . . 21
ITEM 3. Default of Senior Securities . . . . . . . . . . . . . . . . 21
ITEM 4. Submission of Matters to a Vote of Security Holders. . . . . 21
ITEM 5. Other Information. . . . . . . . . . . . . . . . . . . . . . 21
ITEM 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . 21
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
A) Consolidated Balance Sheets as October 31, 1998 and 1999
TRI-NATIONAL DEVELOPMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS: OCT 31, 1999 OCT 31, 1998
- ------- ------------ ------------
Current assets:
- ----------------
Cash and cash equivalents $ 226,999 $ 333,748
Accounts receivable, net 415,297 632,903
Citizens Business Bank Judgment
Receivable (Note 2) 5,685,999 5,366,926
----------- -----------
Total current assets 6,328,295 6,333,577
----------- -----------
Investments:
- ------------
NetRom, Inc. convertible preferred
stock (Note 3) 3,000,000 3,000,000
NetRom, Inc. common stock (Note 4) 4,200,000
Taig convertible preferred stock (Note 5) 3,000,000
MRI medical diagnostics, Inc. (Note 6) 26,638 20,050
Hills of bajamar (Note 7) 4,199,641 4,052,158
Plaza resort timeshares (Note 8) 13,640,404 13,079,055
Bajamar las perlas condominiums (Note 9) 6,028,681
Activity link, Inc. ( Note 10) - 183,411
Assisted living-Youngtown (Note 11) 4,007,970 3,992,300
Assisted living-Carlsbad and San Marcos
(Note 12) 178,503
Plaza rosarito (Note 14) 10,973,110 100,000
Portal del mar condominiums (Note 15) 754,494
Hall of fame fitness center (Note 16) 50,558
Alpine gardens east (Note 13) 280,500
International health network (Note 17) 40,584
----------- -----------
Total investments 46,181,083 28,626,974
----------- -----------
Other assets:
- -------------
Capitalized equipment lease 436,999
Property, furniture, and equipment,
net (Note 18) 144,986 637,062
----------- -----------
Total other assets 581,984 637,062
----------- -----------
TOTAL ASSETS $53,091,362 $35,597,613
=========== ===========
Liabilities and stockholders' equity:
- -------------------------------------
Current liabilities:
- --------------------
Accounts payable and accrued liabilities $ 1,417,236 $ 367,449
Citizens Business Bank Judgment legal
expenses (Note 2) 1,990,099 1,878,424
Loans payable-short term-1 year or
less (Note 19) 10,345,355 3,277,048
----------- -----------
Total current liabilities 13,752,691 5,522,921
Deferred revenue-Citizens Business Bank
Judgment (Note 2) 3,695,900 3,488,502
Notes payable-net of current portion
(Note 20) 24,609,488 9,547,294
----------- -----------
Total Liabilities 42,058,079 18,558,717
----------- -----------
Stockholders' equity:
- ---------------------
Common stock 11,375,138 9,069,927
Convertible preferred stock 9,458,000 9,458,000
Accumulated deficit (9,799,854) (1,489,031)
----------- -----------
Total stockholders' equity 11,033,283 17,038,896
----------- -----------
Total liabilities and stockholders' equity $53,091,363 $35,597,613
=========== ===========
See accompanying notes.
3
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B) Consolidated Statements of Operations for the six months ended
October 31, 1998 and 1999
TRI-NATIONAL DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months
Ended
-----------------------------
OCT 31, 1999 OCT 31, 1998
------------ ------------
Revenues:
- ---------
Revenues $ 76,260 $ 369,192
Gain on sale of assets - -
----------- -----------
Total Revenues 76,260 369,192
----------- -----------
Operating Expenses:
- -------------------
Corporate note expense (Excluding
interest) 2,010,192 513,459
Consulting fees 57,020 89,636
Sales and marketing 75,502 24,819
Legal, accounting and insurance 84,015 64,219
Interest expense 694,251 175,653
General and administrative 538,633 577,199
----------- -----------
Total operating expenses 3,459,613 1,444,985
----------- -----------
Loss from Operations (3,383,353) (1,075,793)
Write-down of investments - -
----------- -----------
Net income before taxes (3,383,353) (1,075,793)
Provision for income taxes - -
----------- -----------
Net income (loss) $(3,383,353) $(1,075,793)
=========== ===========
Earnings per share-fully diluted $(0.094) $(0.050)
See accompanying notes.
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C) Consolidated Statements of Cash Flows for the six months ended
October 31, 1998 and 1999
TRI-NATIONAL DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months
Ended
-----------------------------
OCT 31, 1999 OCT 31, 1998
------------ ------------
Cash from Operating activities
- ------------------------------
Net cash loss from operations $(2,562,329) $(1,075,793)
Accounts receivable & notes receivable 29,799 (325,824)
Accounts Payable (4,600) 674,892
----------- -----------
Net Cash from Operating activities (2,537,130) (726,725)
----------- -----------
Cash used in Investments
- ------------------------
Furniture and Equipment 55,650 -
Alpine Gardens East (10,000)
MRI Medical Diagnostics (2,000)
Activity Link, Inc. - (73,147)
Assisted Living-Youngtown (5,670) (424,300)
Assisted Living-Carlsbad and San Marcos (74,003) 32,500
U.S. Treasury Securities & CD'S - -
Hills of Bajamar (8,532) (328,497)
Plaza Rosarito (9,921,372) (100,000)
Portal Del Mar (654,494)
Hall of Fame Fitness Center Building -
International Health Network (22,084)
Capitalized equipment lease -
Bajamar Las Perlas Condominiums (28,681)
Plaza Resort Timeshares (260,860)
----------- -----------
Net Cash used in Investments (10,932,046) (893,444)
----------- -----------
Cash provided by financing
- --------------------------
Notes and Loans Payable 12,607,073 1,735,233
Common Stock Private Placements & Warrants 628,079 (797)
----------- -----------
Net Cash provided by financing activities 13,235,152 1,734,436
----------- -----------
Net change in cash and equivalents (234,024) 114,267
Cash and equivalents, beginning of
period 461,023 219,481
----------- -----------
Cash and equivalents, end of period $ 226,999 $ 333,748
=========== ===========
See accompanying notes.
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D) Consolidated Statements of Stockholders' Equity for the six months
ended October 31, 1998 and 1999
TRI-NATIONAL DEVELOPMENT
CORP.
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Common Accum. Total
Stock Stock Deficit Equity
----- ----- ------- ------
<S> <C> <C> <C> <C>
Balances at April 30, 1998 $9,458,000 $9,235,722 $(712,567) $17,981,155
Preferred stock issued - -
Common stock issued 1,511,337 1,511,337
Common stock repurchased -
Minority interest -
Net change in accumulated deficit (5,703,935) (5,703,935)
----------- ----------- ----------- -----------
Balances at April 30, 1999 9,458,000 10,747,059 (6,416,502) $13,788,557
Preferred stock issued -
Common stock issued 628,079 628,079
Common stock repurchased -
Net change in accumulated deficit (3,383,352) (3,383,352)
----------- ----------- ----------- -----------
Balances at October 31, 1999 $9,458,000 $11,375,138 $(9,799,854) $11,033,284
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
6
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E) Notes to the Financial Statements (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. The
Company's development efforts are focused in four major areas: residential
development, resort properties, commercial development and assisted living
facilities.
The Company was incorporated on July 31, 1979 as Rocket Energy Resources
Ltd. under the laws of the Province of British Columbia, Canada by
registration of its Memorandum and Articles. The Company changed its name
to MRI Medical Technologies, Inc. in April of 1989. On December 7, 1992,
the Company changed its name to Tri-National Development Corp. and
recapitalized on the basis of five (5) common shares of MRI Medical
Technologies, Inc. for one (1) common share of Tri-National Development
Corp. In January of 1997, the Shareholders approved a special resolution
to change the corporate domicile from Vancouver, B.C. to the state of
Wyoming. On February 24, 1997, the Company's Articles of Continuation were
accepted by the state of Wyoming and it is now incorporated in good
standing under the laws of the State of Wyoming. The Company maintains its
executive offices in San Diego, California at 480 Camino Del Rio S. in
Suite 140 and its telephone number is 619-718-6370.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Greater San
Diego Imaging Center, a 100% owned subsidiary, Activity Link, Inc., a 100%
owned subsidiary, Tri-National Holdings, SA de CV, a 100% owned subsidiary,
Planificacion Desarrollos de Jayay, SA de CV, a 100% owned subsidiary the
Company. All material intercompany accounts and transactions have been
eliminated in the consolidation.
EARNINGS PER SHARE
Primary earnings per share have been computed based on the weighted average
number of shares and equivalent shares outstanding during each period. The
dilutive effect of stock options and warrants has been considered in the
computation of equivalent shares and is included from the respective dates
of issuance.
The fully diluted computation is based on the number of shares for the six
months ended October 31, 1999 and 1998. The computation contemplates the
dilutive effects of common stock equivalent shares as well as conversion of
the convertible preferred stock.
Since the date of issuance of the warrants and options, both primary and
fully diluted earnings per share computations limit the assumption of the
repurchase of treasury shares to a maximum of 20% of the outstanding shares
of the Company.
FURNITURE AND EQUIPMENT
Furniture and equipment are stated at cost and depreciated over the
estimated useful lives of the assets (five to seven years) using the
straight line method.
NOTE 2. CITIZENS BUSINESS BANK AWARD 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,
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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 Note 4 to these financial
statements, in an effort to control both lawsuits. As a result of the
uncertainty of the final results of the lawsuits, the Company previously
wrote off the investment. In May of 1998, TND and MRI Grand Terrace, Inc.
received judgements 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 judgements
totaling almost $5 million dollars, including punitive and compensatory
damages, plus pre-trial interest. Beginning May 7th, 1998 the $5 million
judgement began accruing, post judgement interest of 10% or $1,400 per day
until the full award is paid. A 35% portion of the award is due to the
Company's attorney. The attorneys, however, filed for recovery of those
fees as an additional award that was heard and approved September 25, 1998.
On December 3, 1998, the court awarded the Company an additional $185,000
in legal fees.
The bank has filed its appeal on June 16, 1999. This gave Tri-National the
right to cross appeal on the basis of the additional damages we believed we
could show. However, we decided not to exercise this right and possibly
open the door for the Appellate Court to return us to court to evaluate
those damages. Instead, we filed our answer to their appeal September 16,
1999 and will now let the Appellate Court proceed.
NOTE 3. 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 accumulates
interest at a rate of 15% per annum and will be convertible into common
stock at $3.00 per share or market price for the 10 day average prior to
the date of conversion, which ever is less, but in no event less than $1.50
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 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, presuming that NetRom, Inc.
achieves its stated projection of $.31 per share in earnings for the year
ending December 31, 1998. In the event that NetRom, Inc. falls below the
$.31 per share earnings projection, but no lower than $.21 in earnings for
that period, then the warrant price will fall to $1.00 per share. Further,
if the earnings fall to between $.11 and $.21, then the option price will
be reduced to $.75 per share and in the event the earnings fall below $.11
per share, the option price will be reduced to $.50 per share. 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 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 850,000 shares within the volume limitations pursuant to
Rule 144. As of October 31, 1999, the Company had sold 850,000 shares at
an average price of $.75 per share.
NOTE 4. NETROM, INC. COMMON STOCK
In June of 1998, NetRom, Inc. exercised an option to acquire an additional
200 acres of the Company's Hills of Bajamar property for $4.2 million. The
$4.2 million was paid with 4.2 million restricted shares of NetRom, Inc.
common stock. By exercising its option to acquire the 200 acres, NetRom,
Inc. increases their total holdings to 250 acres. The combined parcel will
be utilized via a joint venture arrangement with Tri-National to develop an
extreme sports destination resort on a 500-acre total parcel. This
investment of 4.2 million
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common shares of NetRom, Inc. represents approximately 30% of the total
shares outstanding of NetRom, Inc.
In April of 1999, this transaction was mutually undone. Neither company
was best served by maintaining the inventory of either the stock or the
land. Consequently, the sale was annulled resulting in the cancellation of
the 4,200,000 restricted common shares of Netrom, Inc. and return of the
200 acres of the Company's Hills of Bajamar.
NOTE 5. 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 (see "Business").
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, which ever is less, but in no
event less than $.75 per share. The conversion date is at the option of
Tri-National Development Corp., however, no sooner than 12 months from the
date of closing and in no case later than 15 days after the common stock of
Taig Ventures, Inc. trades at or above $2.00 per share for a period of
thirty consecutive days.
Additionally, Taig Ventures, Inc. provided TND warrants to purchase
1,000,000 common shares at a price of $3.00 per share, presuming that
Taig's common shares are trading at $4.00 or higher; $2.00 per shares if
Taig's common shares are trading between $3.00 and $4.00 per share; $1.25
per share if Taig's common shares are trading between $2.00 and $3.00; and
in no event less than $.75. The price and terms for the property are based
on arms length negotiations between the parties and was approved by the
Board of Directors of TND and the shareholders of Taig Ventures, Inc. at
their Annual Meeting of Shareholders, held on April 30, 1999.
NOTE 6. INVESTMENT IN MRI MEDICAL DIAGNOSTICS, INC., A COLORADO
CORPORATION
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 (2), 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 retains approximately 415,000 post-split shares of MRI-Med.
MRI-Med is currently traded on the Over the Counter Bulletin Board under
the symbol "MMDI" and trades in the $.05 to $.10 range.
NOTE 7. REAL ESTATE DEVELOPMENT PROPERTY: HILLS OF BAJAMAR
The Hills of Bajamar (formerly the Santa Fe Ranch) consists of
approximately 2,470 acres (divided into ten 247 acres parcels) of
undeveloped land located fifty miles south of San Diego, California on the
Pacific Coast side of the State of Baja California, Mexico, in the
Municipality of Ensenada. The Company originally
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had a right to acquire a 100% interest in the property pursuant to a series
of agreements requiring ongoing payments, for each 247 acres parcel
released by the vendor.
In an effort to accommodate the Vancouver Stock Exchange, which the Company
was trading on at the time, the Company entered into an agreement with
Pacific Medical International, Inc. (PMI) whereby, subject to TND
shareholder approval, TND divested itself of all of its rights in
consideration for: retention of 86.45 acres of the first parcel of the
Santa Fe Ranch to be released by the original vendor; and the greater of
(1) a one percent royalty on the gross proceeds from the sale of any land
that is part of the said Santa Fe Ranch, or (2) $150,000 for each 247 acres
parcel released by the vendor, beginning with the release of the fourth
parcel and continuing with each release thereafter.
Prior to receiving shareholder approval, the Board renegotiated the
agreement and, on June 23, 1995, the Company held an Extraordinary General
Shareholder Meeting that approved the renegotiated agreement. Under the
renegotiated agreement, the Company was granted 51% of the issued and
outstanding shares of PMI with any dilution of stock to raise further
funding to come from the shareholdings of the minority shareholders of PMI
and not their treasury. PMI also agreed to assume a convertible promissory
note to a Mr. Yates on renegotiated terms and Yates agreed to such
assumption by PMI. The Yates note was originally secured by the Company's
rights to its 86.45 acres of the Santa Fe Ranch. The renegotiated note
with PMI provided for Yates to receive the greater of $2,000 or 50% of the
sale price for each acre of the Santa Fe Ranch sold until all funds due to
him were paid, with Yates also to receive a lien against the first 250
acres of the Santa Fe Ranch as security.
The Company then entered into a new agreement in November of 1996 with PMI
to acquire all right and title to the 237 acres then fully paid and in
escrow, as well as, the balance of the contract for the remaining 2,233
acres for a $700,000 promissory note payable, 500,000 shares of TND Class
B Series B Preferred Stock at a value of $4.00 per share and the return of
its 51% interest in PMI. In January of 1998, the Company converted the
$700,000 promissory note into 1,000,000 common shares of the Company. The
Company's basis in the Hills of Bajamar taking into account cash invested,
stock issued and notes given, totals $4,159,159. PMI remains responsible
for its own debts, including Mr. Yates.
In September of 1998, the Company, in accordance with its contract, took
title to an additional 257 acres, for a total of 494 acres, and placed the
balance of 2,000 acres of Hills of Bajamar in trust with Banco Ixe. Title
to the 2,000 acres will be released to the Company as annual payments are
made to the seller. The Company is scheduled to make its next payment of
$600,000 on December 15, 1999 and take title to an additional 247 acres.
NOTE 8. PLAZAS RESORT TIMESHARES AND COMMERCIAL PROPERTY
In December of 1996, the Company entered into an acquisition agreement with
Valcas Internacional, S.A., to acquire 100% of the stock of Inmobilaria
Plaza Baja California, S.A., a Mexican corporation, including its existing
assets, which include 16+ developed acres of ocean front land within the
Bajamar resort with plans for 328 vacation ownership (timeshare) units,
plus a 26,000 square-foot adjacent commercial building under construction
for $13,079,055, payable with notes for $9,079,055 and 1,000,000 Class B
Series B Convertible Preferred shares with a value of $4.00 per share. See
details for Notes Payable. During the Company's second quarter, the Company
paid $200,000 additional as it modified the original contract.
NOTE 9. LA PERLA CONDOMINIUMS
In January of 1999, the Company entered into an acquisition agreement with
Valcas Internacional, S.A. to acquire 2+ developed acres of ocean front
land within the Bajamar resort, with plans for a 32-unit condominium
complex for $6,000,000. The Company paid $1,000,000 in accordance with the
new contract for the 32-unit La Perla condominiums to be built and signed
notes for an additional $5,000,000, pursuant to a construction contract
executed simultaneously.
NOTE 10. ACTIVITY LINK, INC.
In January of 1998, TND, through its wholly owned subsidiary, Tri-National
Resorts Management, Inc., acquired 85% of Activity Link, Inc., a Nevada
corporation, for a combination of $228,000 in cash and 75,000 shares of
restricted Common Stock in TND and a quarterly distribution of profits in
the amount of 15%, once Activity Link, Inc. achieved $300,000 in net
profits. Activity Link, Inc. owned the proprietary rights to "Activity
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Link", a reservation system for many different types of tourist activities
that was planned to access directly the concierge desks of major hotels and
resorts. The hotels and resorts were to be billed for each ticket or
reservation paid through Activity Link. Three beta sites for Activity Link
were being prepared for a vacation ownership developer in Hawaii, starting
in late 1998.
As previously announced, the Company reduced its position in Activity Link
to allow the pursuit of outside financing to successfully launch the
project. When raising sufficient amounts of outside capital proved more
difficult than originally planned, it became apparent that the Company's
capital would still be required to move the project forward. Management
made the decision that its time, effort and resources could better serve
the shareholders in its real estate projects, choosing to stay tightly
focused.
As of October 31, 1999, no restricted Common Stock in TND had been issued
and a total of $110,000 had been invested in connection with this
acquisition. The Company has written this investment off to $0.
NOTE 11. ASSISTED LIVING - YOUNGTOWN
In January of 1998, TND finalized negotiations and executed agreements to
purchase its first assisted living facility to be built and delivered, for
a combination of $110,000 in cash, 864,500 shares of the Company Class B
Series B Convertible Preferred Stock and a new mortgage for a total of
$8,140,000. Tri-National, through its majority owned subsidiary, Alpine
Gardens East, intends to own and operate this 126-bed assisted living
facility in Youngtown, Arizona. This facility is planned to include 40
two-bedroom units, 50 one-bedroom units and 36 units reserved for Alzheimer
and Dementia residents. In June of 1998, the Company closed on this
property. In July of 1999, a formal ground breaking took place with the
Mayor of Youngtown and the Company for the recently finished construction
on two models. The Company has received $10,500,000 in construction
financing from Del Mar Mortgage for the buildout of the rest of the
project, which is well underway with a target completion date of March 2000.
NOTE 12. ASSISTED LIVING - CARLSBAD
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,
intends to develop and operate this 180-bed assisted living facility, with
an Alzheimer's care component. As of October 31, 1999, the Company had
paid a total of $125,000 in connection with this acquisition.
NOTE 13. ALPINE GARDENS EAST
Alpine Gardens East is a Nevada corporate formed to own and operate
assisted living facilities in the southwest United States. As of October
31, 1999, the Company has paid $280,500 in cash and the issuance of 864,500
shares of Class B Series B preferred stock, which was converted during year
end April 30, 1999 to 864,500 common shares.
NOTE 14. PLAZA ROSARITO
On November 20, 1998, Tri-National Holdings, S.A. de C.V., a wholly-owned
Mexican subsidiary, purchased the Plaza San Fernando property from Banco
Bital with a $1 million cash down payment. In July of 1999, Capital Trust,
Inc. of New York, one of the Company's Investment Bankers, provided the
remaining $8 million necessary to close and complete the escrow and will
maintain a participation in the project. Plaza San Fernando's appraised
value is in excess of $33 million. Tri-National has renamed this property,
Plaza Rosarito. It is located in the heart of Rosarito Beach in Baja
California, Mexico, minutes from the 20th Century fox film studio where
"Titanic" was filmed and down the street from the famous Rosarito Beach
Hotel. Plaza Rosarito includes 15 acres of undeveloped oceanfront land
zoned for a 450-room hotel and convention center that is already approved
for a $38 million construction loan from Fonatur, the tourism arm of the
Mexican government, and 18 acres of developed land, including 187,500
square feet of existing steel and concrete commercial space, 52 developed
residential lots and a 80% complete 36-unit condominium complex. The
Company has started selling the shopping center as commercial condominiums
at an average price of up to $170 per square foot.
11
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NOTE 15. PORTAL DEL MAR CONDOMINIUMS
In February of 1999, Tri-National Portal, S.A. de C.V., a wholly-owned
Mexican subsidiary of Tri-National Development Corp., signed purchase
agreements and provided the $100,000 down payment to acquire Portal Del Mar
for $1,250,000. Portal Del Mar is a 126-unit, 2 and 3-bedroom condominium
development on 6 acres overlooking the Pacific Ocean in Baja California,
Mexico, just south of Rosarito Beach. The 126 ocean view condominiums are
in various stages of completion, with approximately 46 completed. The
Company plans to add a clubhouse, 3 tennis courts, 2 pools and a spa with
beach access and palapas. Each condo completed is intended to include
solid wood doors with electronic entry card, tile floors throughout, floor
to ceiling sliding glass door that give way to an oversize terrace with
ocean views, full kitchen, cable TV, VCR, phone and fireplace. Comparable
condominiums located across the road are selling in the $250,000 range.
The Company closed on this property in June of 1999. The Company intends
to initially operate the project as a hotel and spa and eventually sell the
condominiums as timeshare at an average price of $6,000 per week.
NOTE 16. FORMER BANCO ATLANTICO BUILDING
In February of 1999, Tri-National Tijuana, S.A. de C.V., a newly formed,
wholly-owned Mexican subsidiary, signed purchase agreements and provided
the $25,000 down payment to acquire Banco Atlantico for $950,000. Banco
Atlantico is a 20,000 square foot, 2-story commercial building in the heart
of the banking district in Tijuana, Mexico.
NOTE 17. INTERNATIONAL HEALTH NETWORKS, INC.
International Health Networks, (IHN) is Nevada corporation and a majority-
owned subsidiary of the Company. IHN is headed up by three prominent
physicians, all of whom are also shareholders of Tri-National, including
Dr. Jerry Parker, who is a director of the Company. IHN is 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 is a planned medical campus, to be built on Hills
of Bajamar property. The medical campus was originally contracted for by
IHN in 1997 in an agreement that called for 150 acres at the south end of
the property at a price of $25,000 per acre with an option for an
additional 100 acres at $60,000 per acre for 3 years. The Company retained
the construction rights to build all required facilities on the combined
250 acres and maintain a property management contract. The campus is to
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 is important not only to the region, but to
the Company's desire to create a retirement mecca on its properties. With
IHN now a majority-owned subsidiary of TND, the original contract is being
revised.
NOTE 18. FURNITURE AND EQUIPMENT
Furniture and equipment consists of the following:
Furniture and equipment $631,715
Less accumulated depreciation (49,731)
--------
$581,984
========
NOTE 19. LOANS PAYABLE SHORT-TERM
To implement its business strategy, the Company intends to initially fund
acquisitions, development and general working capital by issuing a Private
Placement of nine-month Corporate Notes at 10% interest per annum to
institutional and accredited investors. The investors principal and
interest are guaranteed by the Company and further bonded by New England
Surety Co., for up to $15 million. The Company collateralized the $15
million in bonding from New England Surety Co. with 187 acres of its Hills
of Bajamar property. The Company intends to repay the principal and
interest with cash flow generated from leases and sales of residential
lots, condominiums, single-family homes and timeshares. As of October 31,
1999 the Company placed $11,664,984 in Corporate Notes, of which $2,079,775
will be retired in the next 12 months.
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<PAGE>
The Company has made prior, private offerings of its securities, including
its common stock and short-term promissory 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 short-term promissory notes to Wisconsin residents in
an approximate amount of $400,000. Although the Company is arguing that
the sales meet the requirements of the Wisconsin private offering
exemption, it is currently in negotiation with the State of Wisconsin to
resolve this issue. Additionally, the Louisiana Commissioner of Securities
has opened an investigation of 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, which total approximately $1,300,000. The
State of California has not opened a formal investigation into the sale of the
notes, but has requested information. The Company believes the inquiry is
directed at the investment bankers who sold the notes. The Company intends
to meet any refund obligations, if necessary, and repay notes as they come
due in the ordinary course of business with proceeds from the commercial
condominium sales at Plaza Rosarito; residential lot sales at the Hills of
Bajamar; and of a $25 million placement of its preferred stock. 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 securities, 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 fines, penalties, or other appropriate actions required
by the regulatory authorities and possible sanctions with regard to the
Company's ability to make any public offering in the future. It is
currently believed that the potential violations in Louisiana and Wisconsin
involve only a small portion of the Company's securities. Consequently, in
the event the Company was required to rescind or refund these sales, it is
believed that the Company could continue its operations by completing the
maximum amount of the preferred offering.
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NOTE 20. LONG-TERM NOTES PAYABLE
Long-term notes payable at October 31, 1999, consisted of the following:
Note payable to Scripps Bank secured
By vehicle, due in monthly installments
Of $460 per month, including interest of
7.45% through September 2001 $ 10,906
Note payable to Greater San Diego
Imaging Center, LLC balloon
Payment 12% due January 30, 2000 312,000
Note payable for capital lease to
Commercial Money Center, Inc. 454,887
Notes payable to Valcas Internacional,
S.A. de C.V., pursuant to La Perla 5,000,000
Construction contract
Corporate Notes payable to accredited
Investors - 10% per annum 9,585,209
Winsconsin Investors 443,073
Louisiana Investors 1,636,702
Note payable and cash payable to
DUBSCA upon closing of vacation
ownership (timeshare) project 9,079,055
Note payable to Capital Trust
Guaranteed by 3 officers and
Directors and a first trust deed on
Plaza Rosarito, interest at 12%
Due October 1, 2000 8,000,000
Note payable to North County Bank
Guaranteed by a stockholder and equipment,
due in monthly installments of $860, with
interest at 10.5%, through October, 2001 19,916
Note payable to Delanorte Investments, Inc., interest
At 10%, due November 1, 2000 229,200
Note payable to Greater San Diego Imaging
Center, LLC - 3% per month, due October 1, 2000 25,473
-----------
34,954,843
Less current portion (10,345,355)
-----------
Long-term debt, net of current portion $24,609,488
===========
Maturities of long-term debt are as follows:
Period ending
October 31 Amount
---------- ------
2000 $10,345,355
2001 6,152,372
2002 6,152,372
2003 6,152,372
2004 6,152,372
-----------
$34,954,843
===========
14
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NOTE 21. LEASES
The Company leases two office facilities in San Diego, California and one
in Ensenada, Baja California under operating leases which expire in 1999
and the year 2000, 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, 1999 are as follows:
1999 $210,700
2000 252,840
--------
$463,540
========
NOTE 22. GREATER SAN DIEGO IMAGING CENTER
This facility has provided magnetic resonance imaging (MRI) services in the
San Diego area since 1990. On June 4, 1996 the Company entered into an
Asset Purchase Agreement with Greater San Diego Imaging Center (GSDIC) with
an effective date of November 1, 1996. GSDIC owns and operates a magnetic
resonance imaging center in San Diego, California. The Company agreed to
purchase the fixed assets, certain trade accounts receivable, certain
assignable contracts, leases and agreements, prepaid expenses and the
goodwill of the business. The purchase price is $599,999 for the fixed
assets and $1.00 for other assets and is payable as follows:
(a) by payment of $325,000, of which $25,000 U.S. was paid upon execution
of the agreement (partially paid from deposit on letter agreement), and
(b) by the issuance of 857,142 common shares of TND based upon a value of
$0.35 U.S. per share for total share consideration having a value of
$300,000 U.S., and
(c) on December 30, 1996, the Company entered into an agreement with First
Colonial Ventures, Ltd., Nevada publicly traded company, to sell it 1/3 of
GSDIC for $350,000 cash, payable over twelve months. As of April 30, 1998,
First Colonial had paid a total of $112,367, with unpaid principal,
interest and penalties of $357,748. The Company declared First Colonial in
default and retained the 1/3 interest as liquidated damages.
This facility, with tenant improvements, was originally financed for $2.5
million. The equipment has a current appraisal of $1.2 million and tenant
improvements valued at $241,000. A $75,000 "open unit" upgrade was
completed for claustrophobic and large patients.
Effective August 31, 1999, the space lease expired and the landlord
insisted on a new 5-year lease at an increase that would have brought the
monthly rental to almost $9,000 per month. Additionally, parent company
and personal guarantees were required. It was determined that the business
could not support the expenses required to justify a large financial
commitment. Consequently, the center was closed effective August 31, 1999.
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANAYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
OVERVIEW
The Company was organized to create and realize value by identifying
and making opportunistic real estate investments through the direct
acquisition, rehabilitation, development, financing and management of real
properties and/or participation in these activities through the purchase of
debt instruments or equity interests of entities engaged in such real
estate business. The Company s business strategy is to maximize
shareholder value, focusing on three priorities: growth and profitability
through both domestic and international real estate investments. The
Company s primary source of equity financing has been through private
placement of its securities, including short-term promissory notes.
Through October 31, 1999, the Company raised a total of $11,664,984
pursuant to offerings of its short-term promissory notes and gross proceeds
of $1,250,000 pursuant to offerings of its common stock.
The Company s projects include current and planned multi-use
developments primarily in the S.W. United States and Northern Baja
California, Mexico. The Company currently owns and operates each of these
projects either directly or through local subsidiaries. The Company
started buying property in 1991 some 50 miles south of the San Diego
border, in a region known as the Gold Coast, the stretch of land in between
Tijuana and Ensenada. Since that time, there has been an enormous amount
of development in the area, with a new marina, plans for a new
international airport, film studios, and numerous commercial and
residential complexes proposed, initiated and constructed. As a result,
the Company s property has seen dramatic appreciation and drawn the
Company's focus to this area in Mexico. Since then, the Company has
significantly added to its real estate holdings in this region through
options and purchases of numerous projects, utilizing its long standing
relationships and reputation to purchase quality properties at significant
values.
Most of the additional Mexican projects the Company has acquired
involve purchases from a Mexican Bank Trust program previously known as
Fobaproa and renamed "IPAB". This agency is a Mexican version of the
Resolution Trust Corporation in the U.S. which was created a number of
years ago to liquidate massive quantities of U.S. bank properties taken
back after default. It is reported that there are up to $96 billion worth
of Mexican real estate properties under "IPAB" jurisdiction. The Company
has been working in Mexico for almost ten years now, and has developed a
reputation as a strong development partner, a contributor to the
communities in which it works, and a company with major development and
financing resources. As a direct result of the credibility and respect the
Company has gained, it is being given the opportunity to participate in the
acquisition of some of these properties at terms that represent very
attractive values. This allows the Company to become a major force in the
ongoing development of this rapidly growing region.
The Company is also actively pursuing, through a separate division,
the development of assisted living facilities, primarily in the S.W. United
States. This division was created to meet the growing need for well-person
care for aging baby boomers. The Company sees significant potential
synergy between the Baja developments and the assisted living division as
the Company works with strategic partners to bring U.S. quality medical
care to Northern Baja, thereby allowing the provision of assisted living
facilities at a greatly reduced cost relative to similar U.S. properties.
In keeping in line with the Company's business strategy and real estate
investment objectives, this division balances the Company's optimum real
estate holdings between Mexico and the United States.
RESULTS OF OPERATIONS
YEAR ENDED APRIL 30, 1999 COMPARED TO YEAR ENDED APRIL 30, 1998.
During the year ended April 30, 1999, the Company incurred a net loss of
$(2,906,671) or $(0.113) per share as compared to a net income of $798,390
or $0.046 per share for the same period ended April 30, 1998. This change
is primarily attributable primarily to an increase in legal and accounting
fees in relation to the Company's offering of it short-term promissory not,
and the resulting increase in corporate note expense to $1,863,942 for the
year ended April 30, 1999 from $39,597 for the year ended April 30, 1998.
For the year ended April 30, 1999, the Company had total revenues of
$611,861 compared with $434,413 in total revenues for the preceding fiscal
year end.
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<PAGE>
The Company's general and administrative expense for the year ended
April 30, 1999 increased to $1,532,684 from $963,821 for the same period
ending April 30, 1998. This increase is attributable to primarily to the
aforementioned increases in legal and accounting fees, the increased
corporate note expense resulting from the offering of the Company's short-
term promissory notes, resulting in increased consulting fees to $926,640
in 1999 from $96,242 in 1998, and an increase in sales and marketing
expenses to $448,944 in 1999 from $40,664 in 1998.
PERIOD ENDED OCTOBER 31, 1999 COMPARED TO PERIOD ENDED OCTOBER 31,
1998. During the six month period ended July 31, 1999, the Company
incurred a net loss of $(3,383,353) or $(0.094) per share as compared to a
net loss of $(1,075,793) or $(0.05) per share for the same six months ended
October 31, 1998. This change is attributable primarily to an increase in
operating expenses for the period as a result of increased corporate note
expense and consulting fees. For the six months ended October 31, 1999,
the Company had total revenues of $76,200 compared to $369,192 in total
revenues for the same period ended October 31, 1998.
The Company's general and administrative expense for the six months
ended October 31, 1999 decreased to $538,633 from $577,199 for the same
period ended October 31, 1998. Total operating expenses of the Company
increase to $3,459,613 for the period ended October 31, 1999 from
$1,075,793 for the same period ended October 31, 1998. The increase in
total operating expense can be attributed to an increase in corporate note
expense to $2,010,192 for the period ended October 31, 1999 from $513,459
for the same period ended October 31, 1998. This increase is due to the
sale of the Company's short-term promissory notes pursuant to federal and
state exemptions from registration.
LIQUIDITY AND CAPITAL RESERVES
Net change in cash during the fiscal year ended April 30, 1999 was
$241,542, compared to a net change in cash of $185,924 for the fiscal year
ended April 30, 1998. Net cash used by operating activities totaled
$(2,853,817) for the year ended April 30, 1999, an increase of $1,478,291
from $(1,375,526) used by operating activities during the year ended April
30,1998. This difference is attributable primarily to an increase in
interest paid on corporate notes during the fiscal year ended April 30,
1999 as compared to the same period in 1998.
Net cash used by investing activities totaled $(2,194,540) during the
year ended April 30, 1999, compared to $(37,321) provided during the year
ended April 30, 1998, a difference of $2,157,219. This difference is
primarily attributable to an increase in expenditures for the acquisition
and development of the Company's properties, including Alpine Gardens East,
Assisted Living - Youngtown, Assisted Living - Carlsbad, Temecula and San
Marcos, California, the Hills of Bajamar, Plaza Rosarito and Portal Del Mar.
Net cash used by investing activities totaled $(10,932,046) during the six
months ended October 31, 1999, compared to $(893,444) provided during the
six months ended for the same period last year. The increase is primarily
attributable to the acquisition and development of Plaza Rosarito and
Portal Del Mar.
Net cash provided by financing activities totaled $5,289,899 for the
year ended April 30, 1999, an increase of $3,691,128 from $1,598,771 used
by financing activities during the year ended April 30, 1998. This
difference is primarily attributable to private placements of the Company's
common stock and warrants, as well as an increase in notes and loans
payable. The Company also repurchased shares of its common stock during
the period ended April 30, 1999, in the amount of $3,381,174. Net cash
provided by financing activities totaled $13,235,152 for the six months
ended October 31, 1999, an increase of $11,500,716 from $1,734,436 provided
by financing activities during the six months ended October 31, 1998. This
difference is primarily attributable to an increase in notes and loans
payable.
At April 30, 1999, the Company's cash, which includes cash reserves
and cash available for investment, was $461,023, up from $219,481 at the
preceding fiscal year end. As of October 31, 1999, the Company's cash
reserves and cash available for investment was $226,999, and increase
primarily attributable to an increase in notes and loans payable following
the placement of the short-term promissory notes.
17
<PAGE>
PLAN OF OPERATION
To date, the Company has obtained funds for the acquisition of its
properties from the sale of common stock and short-term promissory notes.
The net proceeds of these offerings and the cash flow from the properties
have been, and are expected to continue to be, sufficient to fund the
Company's operations. However, additional funding will be required for
acquisition of additional properties. As a growth company with a low priced
stock, the Company has had to buy relatively expensive money to execute its
business strategy and growth. This high cost is evident in our past
fiscal year and first two quarters with the huge fees, sales commissions,
associated expenses and interest expense, which translated into the year
end loss of $.11 per share and first six months ended loss of $.094 per
share. As a growth company, the Company has focused on the acquisition of
properties that will support that growth and properties that will quickly
begin contributing to earnings and cash flow. The Company incurred these
losses in order to provide for this growth and the opportunity to benefit
the shareholders with consistent annual earnings for the next ten years and
more.
To help provide for these consistent annual earnings, the Company has
formed a mortgage company to arrange financing for prospective customers to
facilitate sales of residential lots, condominiums, single-family homes and
timeshare sales. Such mortgages will not only facilitate sales, but
typically earn consistent predictable income while enhancing the balance
sheet. The principal sources of income from the mortgage subsidiary are:
(1) interest income earned on mortgage loans, (2) net gains from sale of
loans, if sold, and (3) loan servicing fees. The Company has started or
plans to start sales of the following projects during its next quarter of
operation and continuing through the next twelve months.
PLAZA ROSARITO
In July of 1999, the Company closed escrow on Plaza Rosarito in Baja
California, which includes 15 acres of undeveloped beach front land zoned
for a 450-room hotel with convention center, an existing 187,500 square
foot shopping center, an existing 80% complete condominium complex and 42
residential lots.
A. Fonatur, the tourism arm of the Mexican government, has approved a $38
million loan for the construction of a hotel and convention center. The
Company intends to joint venture this component with a major U.S. hotel
operator.
B. The Company has already sold roughly 40% of the 187,500 square foot
shopping center as commercial condominiums at an average of $170 per square
foot, with a 30% down payment and the balance at 15% over 10 years. All
cash purchasers are receiving a 10% discount. The down payments are being
deposited into an escrow account, until the Company completes approximately
$1,500,000 in improvements, which is already well underway.
C. The Company plans to sell the 30 condominiums at $100,000 each with a
20% down payment and the balance at 11% over 10 years.
D. The Company plans to sell the 42 residential lots at $30,000 each with
a 20% down payment and the balance at 11% over 10 years.
Upon full sell out, the projected gross revenues generated from B, C,
and D would be in excess of $41 million with down payments over $11 million
and annual mortgage payments of roughly $5.6 million.
PORTAL DEL MAR
In June of 1999, the Company opened escrow on Portal Del Mar in Baja
California, which includes 123 condominiums with 46 units 80% complete and
77 at foundation. The Company intends to ultimately sell the condominiums
as timeshares starting at $3,000 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 $4,000,
the projected gross revenues would exceed $24 million with down payments of
$12 million and annual mortgage payments of approximately $2.3 million.
18
<PAGE>
HILLS OF BAJAMAR
The Company currently owns 494 acres out of a contract for 2,500 acres
of undeveloped land in Baja California. In July of 1999, the Company
subdivided and zoned 300 acres for 1,100 1/4 acre residential lots. The
Company plans to sell the lots starting at $30,000 each with 10% down and
1% per month at 12% interest per year for 180 months. Pursuant to the
proposed master plan, the remaining acres are conservatively estimated to
be valued at $20,000 per acre (actual bank appraisal completed last year
valued the property at $71,000 per acre). Balance owing on the remaining
2,006 acres is $4,800,000 at $600,000 annually with no interest until 2003.
Upon full sell out of the 1,100 residential lots, the projected gross
revenues would exceed $33 million with total down payments of $3.3 million
and annual mortgage payments of roughly $3.6 million.
BAJAMAR PROPERTIES (EXCLUSIVE OF ESCROW TO ACQUIRE HOTEL AND GOLF
PROPERTIES)
The Company is purchasing developed land for the construction of 32
condominiums, known as La Perla, and a 26,000 square foot commercial
building and suites across from the main hotel overlooking the Pacific
Ocean within the Bajamar Resort. The 32 units have current reservations
with deposits.
The Company is purchasing an additional 16-acre parcel adjacent to La
Perla, zoned for the construction of 326 timeshare units purchased with
plans and permits for $12 million with a balance of approximately $7.8
million payable from construction draws when available. The 326 units are
projected to generate gross sales in excess of $180 million, with
commissions, marketing and construction expenses estimated at roughly $90
million.
YOUNGTOWN, ARIZONA
This 126-unit assisted living facility is currently under construction
on a 6-acre site in Youngtown, Arizona just outside of Phoenix. The models
are completed and the infrastructure for remainder of the property is
progressing. The Company plans to sell the 126 units at $197,500 each as
investments to accredited investors and then maintain a management contract
for the facility. The Company currently has 200 reservations for the 126
units.
All of the properties and potential sales channels listed above do not
include management contracts, which could provide for additional annual
cash flows.
SECURITIES LAW ISSUES.
The Company has made prior, private offerings of its securities,
including its common stock and short-term promissory 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 short-term promissory notes to Wisconsin
residents in an approximate amount of $400,000. Although the Company is
arguing that the sales meet the requirements of the Wisconsin private
offering exemption, it is currently in negotiation with the State of
Wisconsin to resolve this issue. Additionally, the Louisiana Commissioner
of Securities has opened an investigation of 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, which
total approximately $1,300,000. The State of California has not opened a
formal investigation into the sale of the notes, but has requested information.
The Company believes the inquiry is directed at the investment bankers who
sold the notes. The Company intends to meet any refund obligations, if
necessary, and repay notes as they come due in the ordinary course of
business with proceeds from the commercial condominium sales at Plaza
Rosarito; residential lot sales at the Hills of Bajamar; and of a $25 million
placement of its preferred stock. 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 securities, 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
19
<PAGE>
regulators. Additionally, the Company and/or its officers may be subject
to fines, penalties, or other appropriate actions required by the
regulatory authorities and possible sanctions with regard to the Company's
ability to make any public offering in the future. It is currently
believed that the potential violations in Louisiana and Wisconsin involve
only a small portion of the Company's securities. Consequently, in the
event the Company was required to rescind or refund these sales, it is
believed that the Company could continue its operations by completing the
maximum amount of the preferred offering.
YEAR 2000 ISSUES
Some older computer software was written using two digits rather than
four to define the applicable year. As a result, those computer programs
have time-sensitive programming software that recognize a date using "00"
as the year 1900 rather than the year 2000. This could cause a system
failure or miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process transactions, create
tenant statements, or engage in similar normal business activities.
The Company's plan to resolve Year 2000 issues involves the following
four phases: assessment, remediation, testing and implementation. To date,
the Company has assessed all existing internally used hardware and systems
(both information technology and non-information technology) that could be
significantly affected by the Year 2000 issue. Based on these assessments,
management believes that existing hardware and systems used by the Company
are Year 2000 compliant. Additionally, as of July 31, 1999, the Company
successfully upgraded the existing network and property
operations/accounting systems. These upgrades were instituted to meet
current and future needs of the Company, not as a result of our initial
Year 2000 assessment. The Company has taken precautions, including testing
these systems prior to implementation, to insure that all upgrades and
modifications are Year 2000 cpliant.
The Company has queried and/or received disclosure statements from
significant external service providers. To date, the Company is not aware
of any Year 2000 problems with these third parties that would materially
impact the Company's results of operations, liquidity or capital resources.
However, the Company has no means of ensuring that external service
providers will be Year 2000 compliant. The inability of these service
providers to complete their Year 2000 resolution processes in a timely
manner could impact the Company. The effect of non-compliance by service
providers is not determinable. The Company has initiated the transition to
internalize property management, accounting and sales and leasing of its
properties, thereby significantly reducing the use of third parties in
these areas.
As noted above, the Company has completed the initial assessment and
believes the existing internal systems and upgrades are Year 2000
compliant. The Company does not expect historical and future costs related
to the Year 2000 issue to have a material effect on the consolidated
financial position or results of operations of the Company. Although
management does not currently believe that the effect of the Year 2000
problem will have a material impact on the Company, there is no guarantee
that unforeseen circumstances will not arise which could cause a material
adverse effect upon the Company's operations.
20
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 19 in notes to the financial statements regarding the sale of
short-term notes.
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 Annual Meeting of the Shareholders were held during the six months ended
October 31, 1999. However, the Company has set its Annual Meeting of the
Shareholders for December 22, 1999. The Proxy Statement is incorporated by
reference.
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, 1999, no
reports on Form 8-K were filed by the Company.
(b ) EXHIBITS. The following exhibits are filed as a part of this report:
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
27.1 Financial Data Schedule
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 10th day of December, 1999.
TRI-NATIONAL DEVELOPMENT CORP.,
a Wyoming Corporation
/s/ MICHAEL A. SUNSTEIN /S/ GILBERT FUENTES
BY: Michael A. Sunstein BY: Gilbert Fuentes
TITLE:Chief Executive Officer, President TITLE:Chief Financial Officer,
Director Treasurer
/s/ JASON A. SUNSTEIN
BY: Jason A. Sunstein
TITLE:Vice President,
Secretary
21
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-2000
<PERIOD-END> OCT-31-1999
<CASH> 226,999
<SECURITIES> 0
<RECEIVABLES> 6,101,296
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,328,295
<PP&E> 631,715
<DEPRECIATION> (49,731)
<TOTAL-ASSETS> 53,091,362
<CURRENT-LIABILITIES> 13,752,691
<BONDS> 0
0
9,458,000
<COMMON> 11,375,138
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 53,091,363
<SALES> 0
<TOTAL-REVENUES> 76,260
<CGS> 0
<TOTAL-COSTS> 2,765,362
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 694,251
<INCOME-PRETAX> (3,383,353)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,383,353)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,383,353)
<EPS-BASIC> (.094)
<EPS-DILUTED> (.094)
</TABLE>
