SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
OR
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO______
COMMISSION FILE NUMBER: 0-30619
TRINITY MEDICAL GROUP USA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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FLORIDA 68-0438943
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(STATE OR OTHER JURISDICTION OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
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55 SHAVER STREET, SUITE 320, SAN RAFAEL, CALIFORNIA 94901
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES WITH ZIP CODE)
(415) 256-1995
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
3753 HOWARD HUGHES PARKWAY, 2ND FLOOR, LAS VEGAS, NV 89109
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities 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_____
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. YES___ NO_____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest date.
Class Outstanding at November 6, 2000
Common Stock - $0.001 par value 10,226,000 shares
<PAGE>
INDEX
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PAGE
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COVER PAGE.............................................................................................1
INDEX..................................................................................................2
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements:
Balance Sheets.....................................................................3
Statements of Operations...........................................................4
Statements of Cash Flows...........................................................5
Notes to Financial Statements......................................................6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations.......................................12
Item 3 - Quantitative and Qualitative Disclosure About Market Risk...........................14
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings...................................................................15
Item 2 - Changes in Securities and Use of Proceeds...........................................15
Item 3 - Defaults Upon Senior Securities ....................................................16
Item 4 - Submission of Matters to Vote of Security Holders...................................16
Item 5 - Other Information...................................................................17
Item 6 - Exhibits and Reports on Form 8-K....................................................17
Signatures...................................................................................18
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<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRINITY MEDICAL GROUP USA, INC.
(a company in the development stage)
BALANCE SHEETS
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ASSETS
September 30, December 31,
2000 1999
-------------------- --------------------
(unaudited)
Current Assets:
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Cash $ 113,356 $ 171,485
Subscription receivable 20,000 9,600
Income tax refund receivable 18,951 18,951
-------------------- --------------------
Total current assets 152,307 200,036
Computer equipment 4,972 -
-------------------- --------------------
Total assets $ 157,279 $ 200,036
==================== ====================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 84,799 $ 10,343
Payable to TMG 500,000 -
Accrued liabilities 27,404 -
Accrued commissions 92,850 73,250
Accrued interest 67,960 11,345
Convertible notes payable 772,500 732,500
-------------------- --------------------
Total current liabilities 1,545,513 827,438
Stockholders' deficit:
Common stock, $.001 par value, 50,000,000 shares
authorized, 10,226,000 shares issued and outstanding 10,226 10,226
Deposits on common stock units 570,600 -
Additional paid-in capital 228,574 228,574
Deficit accumulated during the development stage (2,197,634) (866,202)
-------------------- --------------------
Total stockholders' deficit (1,388,234) (627,402)
-------------------- --------------------
Total liabilities and stockholders' deficit $ 157,279 $ 200,036
==================== ====================
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
TRINITY MEDICAL GROUP USA, INC.
(a company in the development stage)
STATEMENTS OF OPERATIONS
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Cumulative Three Months Nine Months
from inception Ended Ended
to September 30, September 30,
September 30, 2000 2000 2000
-------------------------- ------------------- -------------------
(unaudited) (unaudited) (unaudited)
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Operating expenses:
Research and development $ (994,105) $ (500,105) $ (700,105)
General and administrative (726,072) (362,873) (575,832)
-------------------------- ------------------- -------------------
Total operating expenses (1,720,177) (862,978) (1,275,937)
-------------------------- ------------------- -------------------
Other income (expense):
Acquisition costs (404,200) - -
Interest income 3,148 - 1,120
Interest expense (67,960) (19,312) (56,615)
Loss on sale of investments (8,445) - -
-------------------------- ------------------- -------------------
(477,457) (19,312) (55,495)
-------------------------- ------------------- -------------------
Net Loss $ (2,197,634) $ (882,290) $ (1,331,432)
========================== =================== ===================
Basic and diluted loss per common
share $ (0.09) $ (0.13)
=================== ===================
Basic and diluted weighted average
common shares outstanding 10,226,000 10,226,000
=================== ===================
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
TRINITY MEDICAL GROUP USA, INC.
(a company in the development stage)
STATEMENTS OF CASH FLOWS
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<CAPTION>
Cumulative
from inception Nine months
to Ended
September 30, 2000 September 30, 2000
--------------------- ------------------
(unaudited) (unaudited)
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Cash flows from operating activities:
Net loss $ (2,197,634) $ (1,331,432)
Adjustments to reconcile net loss to net
cash used in operating activities:
Stock issued for services 229,200 -
Loss on sale of investments 8,445 -
Changes in assets and liabilities:
Income tax refund receivable (18,952) -
Accounts payable 84,799 74,456
Payable to TMG 500,000 500,000
Accrued liabilities, commissions and interest 188,214 103,619
--------------------- ------------------
Net cash used in operating activities (1,205,928) (653,357)
--------------------- ------------------
Cash flows from investing activities:
Purchases of fixed assets (4,972) (4,972)
Purchases of investments (69,330) -
Proceeds from sale of investments 60,886 -
--------------------- ------------------
Net cash used in investing activities (13,416) (4,972)
--------------------- ------------------
Cash flows from financing activities:
Proceeds from issuance of convertible notes payable 772,500 40,000
Net proceeds from sale of common stock not
issued at period end 550,600 550,600
Collection of subscription receivable 9,600 9,600
--------------------- ------------------
Net cash provided by financing activities 1,332,700 600,200
--------------------- ------------------
Net increase (decrease) in cash 113,356 (58,129)
Cash - beginning of period - 171,485
--------------------- ------------------
Cash - end of period $ 113,356 $ 113,356
===================== ==================
Non-cash investing and financing activities:
Issuance of common stock to founding shareholders
in exchange for subscription receivable $ 9,600 $ -
===================== ==================
Subscription of common stock units $ 20,000 $ 20,000
===================== ==================
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
TRINITY MEDICAL GROUP USA, INC.
(a company in the development stage)
NOTES TO FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements contain all adjustments
(consisting only of normal recurring adjustments) which in the opinion of
management are necessary to present fairly the financial position of the Company
at September 30, 2000, and the results of its operations and its cash flows for
the three and nine month periods ended September 30, 2000. The financial
statements do not include comparative third quarter information because the
Company had no activity during the nine month period ended September 30, 1999.
Certain information and footnote disclosures normally included in financial
statements have been condensed or omitted pursuant to rules and regulations of
the Securities and Exchange Commission, although the Company believes that the
disclosures in the financial statements are adequate to make the information
presented not misleading.
The financial statements included herein should be read in conjunction with the
financial statements included in the Company's Form 10-SB as of December 31,
1999 and for the period from inception (September 28, 1998) to December 31,
1999, filed with the Securities and Exchange Commission on May 12, 2000.
NOTE B - PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the related assets,
which ranges from three to five years. The cost and related accumulated
depreciation of equipment sold or otherwise disposed of are removed from the
accounts and the resulting gains or losses are included in the statement of
operations.
NOTE C - GOING CONCERN
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the financial
statements, the Company is in the development stage and, at September 30, 2000
has accumulated losses amounting to $2,197,634. For the nine month period ended
September 30, 2000, and for the period from inception to September 30, 2000 the
Company used $653,357 and $1,205,928, respectively, of cash in its operations.
The Company or its affiliate, Trinity Assets Company Limited (see Note I), has
not yet submitted an application for an approval from the Thai Ministry of
Health or Food and Drug Administration to market, distribute and manufacture
REMUNE. Approval of REMUNE by the Thai Food and Drug Administration or Ministry
of Public Health is necessary for the marketing, distribution and manufacture of
REMUNE. If the Thai Food and Drug Administration does not approve
6
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TRINITY MEDICAL GROUP USA, INC.
(a company in the development stage)
NOTES TO FINANCIAL STATEMENTS
REMUNE, it cannot be marketed, sold or manufactured in Thailand and the Company
will be unable to generate any revenue in Thailand.
The Company requires substantial capital to pursue its operating strategy, which
includes commercialization of the drug REMUNE, and currently has limited cash
for operations. Until the Company can obtain revenues sufficient to fund working
capital needs and additional research and development costs necessary to obtain
the regulatory approvals for commercialization, the Company will be dependent
upon external sources of financing. These factors, among others, raise
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern for a reasonable period of time.
The Company intends to market REMUNE in the countries where it has the rights
through partner or affiliated firms, which will carry out the local regulatory
requirements, distribution, and product support (see Note I). The Company
intends to finance the aforementioned activities through a secondary offering.
The Company filed a registration statement on Form SB-2 on October 20, 2000 to
register 2,000,000 common shares to be sold by the Company directly or through
underwriters or dealers from time to time.
The Company's initial efforts have focused on the research and development of
REMUNE (through Trinity Medical Group, Ltd. or Trinity Assets Company Limited,
affiliates of the Company) and securing sales and marketing rights in Thailand.
There can be no assurance that management will be successful in raising the
necessary funds to complete the clinical trials and obtain the necessary
government approvals for the manufacture and sale of REMUNE. The Company's
ability to continue as a going concern will depend upon these factors and the
success of future operations.
NOTE D - RECLASSIFICATIONS
Certain reclassifications have been made to the 1999 financial statements to
conform with the current period presentation.
NOTE E - LOSS PER SHARE
Excluded from the computation of basic and diluted loss per common share were
stock options and warrants outstanding for the purchase of 224,350 shares of
common stock as of September 30, 2000 because the representative share
increments would be antidilutive. Also excluded from the computation of basic
and diluted loss per common share were 906,560 shares of common stock issuable
as of September 30, 2000 upon the conversion of convertible notes payable
because the representative share increments would be antidilutive. The
aforementioned amount issuable includes accrued interest and commissions that
are payable in common stock upon conversion.
7
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TRINITY MEDICAL GROUP USA, INC.
(a company in the development stage)
NOTES TO FINANCIAL STATEMENTS
NOTE F - NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (SFAS) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 is effective for fiscal years beginning after June 15, 2000. SFAS No. 133
requires that all derivative instruments be recorded on the balance sheet at
their fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the type
of hedge transaction. The Company does not expect that the adoption of SFAS No.
133 will have a material impact on its financial statements.
In March 2000, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 101B. SAB 101B delays the effective date of SAB
101, "Revenue Recognition in Financial Statements," to the fourth quarter for
fiscal years beginning after December 15, 1999. SAB 101 provides guidance on
revenue recognition and the SEC staff's views on the application of accounting
principles to selected revenue recognition issues. The Company does not
anticipate that the application of this pronouncement will have a material
impact on its financial statements.
In March 2000, the Financial Accounting Standards Board issued Interpretation
No. 44 (FIN 44), "Accounting for Certain Transactions involving Stock
Compensation." FIN 44 clarifies the application of Accounting Principles Board
Opinion No. 25 (APB 25) and is effective July 1, 2000. FIN 44 clarifies the
definition of "employee" for purposes of applying APB 25, the criteria for
determining whether a plan qualifies as a noncompensatory plan, the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award, and the accounting for an exchange of stock compensation awards
in a business combination. The adoption of FIN 44 did not have a material impact
on the Company's financial statements.
NOTE G- CONVERTIBLE NOTES PAYABLE
During the nine months ended September 30, 2000, the Company sold 8 units of its
convertible notes payable at a price of $5,000 per unit to accredited investors
in a private placement offering. Each unit consists of a $5,000, 10% note due
August 30, 2001. Each unit is convertible into 5,000 shares of the Company's
common stock at the election of the Company. Interest accrued on each unit is
convertible to common stock at a rate of $1 per share at the date of conversion.
As of September 30, 2000, no units had been converted to common stock.
NOTE H- COMMON STOCK UNITS
On June 21, 2000, the Company began to raise additional capital under a new
private placement offering. A maximum of 175 preferred stock units at $4,000 per
unit were initially offered in
8
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TRINITY MEDICAL GROUP USA, INC.
(a company in the development stage)
NOTES TO FINANCIAL STATEMENTS
the private placement. Because the Company was not authorized to issue preferred
stock, the units were subsequently changed to common stock units. Each unit
consists of one thousand shares of the Company's Common Stock, par value $.001,
and a non-callable common stock purchase warrant (the "Warrant"). Each of the
Warrants entitles the registered holder to purchase up to one thousand shares of
the Common Stock at a price of $4.00 per share for a period of 24 months from
the date of the Private Placement Prospectus, July 24, 2000. The Common Shares
and the Warrant included in the units will not be separately transferable until
90 days after the date of the Prospectus or such earlier date as the Company may
determine. The Company received a total of $634,000 through this private
placement offering, for an aggregate of 158.5 units sold. Net proceeds to the
Company were $570,600, after commissions paid or accrued. Because the Company
has not issued the common stock subscribed as of September 30, 2000, it has
presented the net proceeds of $570,600 as Deposits on Common Stock Units in the
accompanying balance sheet. Also included in Deposits on Common Stock Units is
$20,000 of common stock units subscribed. The related Subscription Receivable
was satisfied on November 1, 2000.
NOTE I- RELATED PARTY TRANSACTIONS
The Company and Trinity Medical Group, Ltd. (TMG) entered into an Assignment
Agreement on August 3, 2000, whereby all of Trinity Medical Group, Ltd.'s
rights, title, and interests in the License and Collaboration agreement and
Stock Purchase Agreement were assigned to the Company. There was no accounting
recognition by the Company as a result of the transfer of the License and
Collaboration Agreement and the related Stock Purchase Agreement.
The License and Collaboration Agreement between Trinity Medical Group, Ltd. and
The Immune Response Corporation, entered into in 1995, provided for possible
termination of the License and Collaboration Agreement if the marketing approval
for REMUNE in Thailand was not granted before December 31, 2000. On September
29, 2000, The Immune Response Corporation and the Company amended the License
and Collaboration Agreement to set the earliest possible termination date to
August 2001.
On August 4, 2000, The Company assigned through a Sublicense and Supply
Agreement the sales, distribution, manufacturing and marketing rights to REMUNE
in Thailand to Trinity Assets Company Limited, an affiliate of the Company and
Trinity Medical Group, Ltd. The manufacturing rights assigned to Trinity Assets
Company Limited are non-exclusive. Trinity Assets Company Limited is related
through common ownership. Two of the Company's directors, Inthanom John
Churdboonchart and Orranart Victoria Churdboonchart, are beneficial owners of
the Company's common stock and are shareholders of Trinity Assets Company
Limited. The Sublicense and Supply Agreement provides that the Company will
realize a minimum gross profit from the sale of REMUNE to Trinity Assets Company
Limited in Thailand and that profits, as defined, from the sale of REMUNE in
licensed territories other than Thailand will be shared equally. It is the
intent of the
9
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TRINITY MEDICAL GROUP USA, INC.
(a company in the development stage)
NOTES TO FINANCIAL STATEMENTS
parties that if and when Trinity Assets Company Limited begins to manufacture
REMUNE, the Company will continue to realize revenues either from the purchase
and resale of REMUNE to Trinity Assets Company Limited or as royalties from
Trinity Assets Company Limited on its sales of REMUNE to others. Specific terms
of the resale gross profit or royalties have not been negotiated by the parties
at this time. The Company has also agreed to provide support to Trinity Assets
Company Limited (in the form and substance satisfactory to both parties) for the
warehousing, transportation, and production of any related capital assets, plant
and equipment, etc. which are necessary for the marketing, promoting and selling
of REMUNE in Thailand. This support may be in the form of providing interest
bearing loans to Trinity Assets Company Limited or capital, in exchange for
equity ownership of Trinity Assets Company Limited; no specific terms of the
support have been negotiated by the parties at this time. Under the terms of the
Sublicense and Supply Agreement, the Company will pay Trinity Assets Company
Limited for specified research personnel, travel, laboratory, facility and
publication costs associated with clinical trials of REMUNE until full
regulatory approval in Thailand is granted.
During the three months ended September 30, 2000, the Company paid Trinity
Medical Group, Ltd. approximately $200,000 for costs incurred related to the
research and development of the drug REMUNE. As of September 30, 2000, the
Company has also recorded a liability for amounts payable to Trinity Medical
Group, Ltd. in the amount of $500,000. The amounts paid or payable to Trinity
Medical Group, Ltd. were incurred by the Company under the terms and conditions
of the Collaboration and Supply Agreement, dated December 1, 1999.
NOTE J - COMMITMENTS
On September 5, 2000, the Company entered into a two year employment agreement
with its Chief Financial Officer, whereby the Officer will be paid a minimum
annual salary of $160,000 and receive a minimum annual bonus equal to 10% of the
annual salary amount. The Officer was also granted 50,000 non-statutory stock
options with a term of 10 years and an exercise price of $4.00. The market price
of the Company's common stock was equal to the exercise price at the date of
grant. The Officer will receive a minimum of 50,000 additional stock options on
each anniversary date of the employment agreement. If the Officer is terminated
without cause as defined, the minimum salary, bonus and certain other benefits
must continue to be paid through the remaining term of the employment agreement.
NOTE K - SUBSEQUENT EVENTS
On October 19, 2000, in connection with a Section 4(2) exempt offering, the
Company issued a $500,000 convertible promissory note to an "accredited
investor" as defined in Regulation D promulgated under the Securities Act of
1933, as amended. The note matures on October 19, 2001 and bears interest at 8%
per annum, with interest payments due and payable semi-annually. The
10
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TRINITY MEDICAL GROUP USA, INC.
(a company in the development stage)
NOTES TO FINANCIAL STATEMENTS
note is convertible at the conversion price equal to the lesser of (i) $4.00 or
(ii) 80% of the average closing bid price of the common stock, par value $0.001,
for the ten (10) consecutive trading days preceding the conversion date. The
note is convertible at the option of the holder for the entire term of the note.
The note is convertible at the option of the Company provided that the
registration statement filed on Form SB-2 on October 20, 2000 has been effective
for ninety (90) consecutive days and the Company's common stock has had a
closing bid price equal to or greater than $4.00 for the five (5) consecutive
trading days preceding the delivery of the conversion notice. On the date of
conversion, the Company shall also issue to the holder a warrant to purchase
such number of shares of the company's common stock equal to aggregate the
number of shares of common stock issued upon conversion of this note. The
warrant shall have an exercise price equal to $4.00 per share and shall have a
term of five years from its date of issuance. Interest accruing on the note is
payable, at the option of the Company, in cash or in accordance with the
aforementioned conversion terms of the note. The terms of the note also prevent
the Company from pledging any of its assets, including licenses, to any third
party or incurring any indebtedness senior to the note.
On November 10, 2000, the Company and Trinity Medical Group, Ltd. terminated the
Collaboration and Supply Agreement, dated December 1, 1999.
11
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Forward-Looking Statements
--------------------------
This report contains certain forward-looking statements which involve
substantial risks and uncertainties. These forward-looking statements can
generally be identified because the context of the statement includes words such
as "may," "will," "expect," "anticipate," "intend," "estimate," "continue,"
"believe," or other similar words. Similarly, statements that describe our
future plans, objectives and goals are also forward-looking statements. Our
factual results, performance or achievements could differ materially from those
expressed or implied in these forward-looking statements as a result of certain
factors, including those listed in this report.
Overview
--------
Trinity Medical Group USA, Inc. was incorporated in the State of Delaware on
September 28, 1998 and reincorporated in Nevada in November of 1999 with its
principal place of business in California. In December 1999, as the result of a
reorganization, we became a Florida corporation. The Company is an affiliate of
Trinity Medical Group, Ltd., a Thailand Company
(http://www.trinitygroups/trinity medical/dsmb.htm). The Churdboonchart Trinity
Trust owns approximately 70% of the Company's common stock. The beneficiaries of
The Churdboonchart Trinity Trust are also the majority owners of Trinity Medical
Group, Ltd. The Company is a late development stage Company with rights to
market an HIV-Immunogen also known as REMUNE(TM), a patented therapeutic vaccine
treatment, designed to induce specific T cell responses in people infected with
the Human Immunodeficiency Virus (HIV). REMUNE is an immune-based therapy
consisting of whole inactivated HIV-1 virus depleted of its gp120 coat protein
based on Dr. Jonas Salk's patented vaccine technology. REMUNE is a trademark of
The Immune Response Corporation.
Trinity Medical Group, Ltd. was formed in 1995 after the principals of Trinity
Medical Group, Ltd. entered into a license and collaboration agreement dated
September 15, 1995 with The Immune Response Corporation (NASDAQ: IMNR) to
develop and market REMUNE in ten Southeast Asian countries including Malaysia,
The Philippines, Singapore, Sri Lanka, Myanmar, Laos, Cambodia, Vietnam and
Indonesia, with Thailand as the lead nation. Trinity Medical Group, Ltd. also
entered into a stock purchase agreement on September 15, 1995 with The Immune
Response Corporation and purchased 333,334 shares of common stock of The Immune
Response Corporation at $15 per share on April 30, 1996. Under the stock
purchase agreement, Trinity Medical Group, Ltd. was also obligated to purchase
an additional 333,333 shares of common stock of The Immune Response Corporation
at $15 per share upon receiving the required marketing approval from the
governing health authority of Thailand for the drug therapy REMUNE. Trinity
Medical Group, Ltd. was further obligated to purchase an additional 333,333
shares of common stock of The Immune Response Corporation at $15 per share upon
receiving the required factory establishment license or approval from the
governing health authority of Thailand to manufacture the drug therapy REMUNE.
These stock purchase obligations of Trinity Medical Group, Ltd. became the
obligations of the Company as a result of the collaboration and supply agreement
and the assignment agreement between the Company and Trinity Medical Group, Ltd.
12
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Plan of Operation
-----------------
We have minimal operations, nominal assets and no revenues from operations. We
have less than one year business history. Our estimates indicate that we will
not generate internal cash flows until at least the first quarter of 2001. As
such, we may be required to raise additional funds prior to the end of the first
quarter of 2001. As we do not have any external sources of funding, our
inability to successfully implement our business strategy and to raise
additional financing by the end of the first quarter of 2001 may compromise our
ability to achieve our projected revenues.
Our goal is to develop our initial product, REMUNE, so that it may be sold
throughout our licensed territory. We intend to support the regulatory approvals
and then distribute the product first in Thailand. We later intend to engage in
sub-license and supply agreements with parties in our licensed territory
countries who will carry out local regulatory requirements, distribution and
product support for REMUNE. In Thailand, we have sub-licensed our rights to
REMUNE to Trinity Assets Company Limited, an affiliate of the Company and
Trinity Medical Group, Ltd.
We, through our sub-licensee, Trinity Assets Company Limited, intend to secure
regulatory approval for the sale of REMUNE in Thailand during the calendar year
2001. Our affiliated researchers have concluded a Phase II clinical study in
Thailand of 297 individuals infected with HIV and continue to analyze the study
group. The results of this study were presented at five major scientific
conferences in 2000: at the UN/WHO AIDS conference in Geneva, Switzerland, the
UCLA AIDS Conference held in Palm Springs, California, the 5 Asia-Pacific
Congress of Medical Virology in Bali, Indonesia, the First International
Conference of Vaccine Development and Immunotherapy in HIV, Florida, USA and the
XIII International AIDS Conference in Durban, South Africa. We believe we now
have the necessary technical support for full regulatory approval and through
our Thai affiliate, Trinity Assets Company Limited, will be submitting an
application for commercialization of REMUNE to the Thai regulatory officials.
On December 24, 1999, Mahidol University in Thailand applied for expanded
testing of REMUNE with the Ministry of Public Health in Thailand. The extended
project will be coordinated by Mahidol University with Dr. Vina Churdboonchart,
principal investigator, in Bangkok, Thailand and will confirm the effectiveness
of REMUNE and study the long term effects of REMUNE on up to 10,000 HIV infected
individuals. This extended study of REMUNE is not connected to the request for
full commercial approval to be presented to the Thai Food and Drug
Administration.
Upon sufficient capitalization, we intend to directly purchase, or lend capital
to Trinity Assets Company Limited so they may purchase, plant, equipment and
secure land leases in 2001 for a handling and storage facility in Thailand. The
facility will be located close to the Bangkok International Airport and will
receive REMUNE shipment in bulk. The facility will be built to U.S. FDA Good
Manufacturing Practice standards and provide for climate controlled and secure
warehousing. The estimated cost of the facility is $12 million and will require
six months to one year to construct. The capital for this project would be
provided by product revenue and the sale of shares of capital stock, issuance of
debt or financing by a banking institution. We intend to increase our employment
base in the first quarter of 2001. We intend to add clinical study supervisors,
engineering consultants and additional directors during the first quarter of
2001. From our present level of 3 employees, we estimate having about 10
employees by the end of the first quarter of 2001.
13
<PAGE>
Liquidity and Capital Resources
-------------------------------
The Company's cash at September 30, 2000 was $113,400. We raised an additional
$450,000, net of $50,000 in commissions, in October 2000 through our third
private placement (a $500,000 convertible promissory note). Pursuant to a total
of three private placements, we have raised approximately $1,900,000 through the
sale or subscription of convertible promissory notes and common stock units. We
intend to convert the convertible debt outstanding as of September 30, 2000 to
common stock during the fourth quarter of 2000.
The Company requires substantial capital to pursue its operating strategy and
currently has limited cash for operations. Until we can obtain revenues
sufficient to fund working capital needs, we will be dependent upon external
sources of financing. To date, we have no internal sources of liquidity and do
not expect to generate any internal cash flow until the first quarter of 2001.
For the nine months ended September 30, 2000, we have used approximately
$653,000 of cash in our operations. For the period from inception (September 28,
1998) to September 30, 2000 we have used approximately $1,206,000 of cash in our
operations. This cash was provided by financing activities which included the
sale or subscription of convertible notes payable and common stock units. The
cash used in operations related primarily to officer salaries and director
expenses and to pay our affiliates for expenses incurred related to the research
and development of our product, REMUNE. We also expect to incur approximately
$500,000 in expense related to the research and development of our product,
REMUNE, during the fourth quarter of 2000. Our current monthly operating
overhead is approximately $65,000 which amount will increase if and as we expand
our operations. Currently, we rely upon our current stockholders to lend money
and fund our monthly operating overhead, as we have limited working capital.
We do not have any other commitments to secure additional capital and there is
no assurance that any additional funds needed will be available on favorable
terms, if at all. We require substantial working capital to fund our business.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company has no derivative financial instruments and no exposure to foreign
currency exchange rates or interest rate risk.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Pursuant to an Agreement for the Exchange of Common Stock, dated December 31,
1999, between the shareholders of the Company and August Project III Corp., a
Florida corporation ("August Project"), August Project issued to the Company's
shareholders 5,226,000 shares of Common Stock in exchange for 100% of the
outstanding shares of the Company. In addition, certain shareholders of August
Project sold 4,867,000 shares to the shareholders of the Company in exchange for
$175,000. Following the merger, the shareholders of the predecessor Company
owned a total of 10,093,000 out of a total of 10,226,000 outstanding shares of
August Project. August Project was the surviving corporation after the merger.
Prior to the merger, August Project had been approved for listing on the
National Quotation Service Pink Sheets with the following trading symbol: AUUK.
On January 5, 2000, August Project changed its name to Trinity Medical Group
USA, Inc.
On May 12, 2000 the Company submitted a Form 10-SB to the SEC in order to become
a publicly reporting company. On May 19, 2000 the SEC notified the Company that
the filing was acknowledged and would not need to be reviewed; thus allowing the
Company to proceed with its plans. The principal United States market in which
our common stock is and has been traded is the Pink Sheet Service of the
National Association of Securities Dealers. Our common stock began trading in
July 2000 under the symbol TMGU. Firms making a market in Trinity common stock
include Knight Trading and Salomon Grey. We intend to apply for listing of our
shares of common stock on the Over the Counter Bulletin Board when the Form SB-2
registration statement we filed on October 20, 2000 becomes effective. Further,
we intend to apply for listing on the NASDAQ Small Cap or National Market when
we meet the necessary listing requirements.
The Company has paid no dividends on its common stock and cannot assure that it
will achieve sufficient earnings to pay cash dividends on its common stock in
the near future. Further, the Company intends to retain earnings to fund its
operations. Therefore, the Company does not anticipate paying any cash dividends
on its common stock in the near future.
In connection with the December Private Placement the Company issued 154.5
notes. The notes were sold to "accredited investors", as that term is defined in
Regulation D promulgated under the Securities Act of 1933, as amended, (the
"Securities Act"). The notes were sold in Units. Each Unit cost $5,000 and
consisted of a $5,000, 10% per annum note of the Company due August 31, 2001
convertible into 5,000 shares of the Company's common stock, $0.001 par value,
per share (the "Notes"). The aggregate offering price was $772,500 and the
Company received net proceeds in the amount of $767,500. The Company believes
that the exemption afforded by Section 4(2) of the Securities Act and Regulation
D promulgated thereunder, is applicable to the above issuances as a transaction
by an issuer not involving a public offering. The proceeds from this private
placement were used to satisfy the Company's initial developmental business
expenses.
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In connection with a June 2000 private placement the Company initially issued
158.5 Preferred Stock units at $4,000 per unit. Because the Company was not
authorized to issue preferred stock, the units were subsequently changed to
Common Stock Units. The units were sold to "accredited investors", as that term
is defined in Regulation D promulgated under the Securities Act of 1933, as
amended, (the "Securities Act"). Each unit consists of one thousand shares of
the Company's Common Stock, par value $.001, and a non-callable common stock
purchase warrant (the "Warrant"). Each of the Warrants entitles the registered
holder to purchase up to one thousand shares of the Common Stock at a price of
$4.00 per share for a period of 24 months from the date of the private placement
prospectus, July 24, 2000. The Common Shares and the Warrant included in the
units will not be separately transferable until 90 days after the date of the
prospectus or such earlier date as the Company may determine. The Company
received net proceeds of approximately $571,000 under this private placement
offering. The proceeds from this private placement will be used to meet the
Company's continuing operating expense requirements, including the cost of
filing the aforementioned Registration Statement.
On October 19, 2000, in connection with a Section 4(2) exempt offering, the
Company issued a $500,000 convertible promissory note to an "accredited
investor" as defined in Regulation D promulgated under the Securities Act of
1933, as amended. The note matures on October 19, 2001 and bears interest at 8%
per annum, with interest payments due and payable semi-annually. The note is
convertible at the conversion price equal to the lesser of (i) $4.00 or (ii) 80%
of the average closing bid price of the common stock, par value $0.001, for the
ten (10) consecutive trading days preceding the conversion date. The note is
convertible at the option of the holder for the entire term of the note. The
note is convertible at the option of the Company provided that the registration
statement filed on Form SB-2 on October 20, 2000 has been effective for ninety
(90) consecutive days and the Company's common stock has had a closing bid price
equal to or greater than $4.00 for the five (5) consecutive trading days
preceding the delivery of the conversion notice. On the date of conversion, the
Company shall also issue to the holder a warrant to purchase such number of
shares of the Company's common stock equal to aggregate the number of shares of
common stock issued upon conversion of this note. The warrant shall have an
exercise price equal to $4.00 per share and shall have a term of five years from
its date of issuance. Interest accruing on the note is payable, at the option of
the Company, in cash or in accordance with the aforementioned conversion terms
of the note. The terms of the note also prevent the Company from pledging any of
its assets, including licenses, to any third party or incurring any indebtedness
senior to the note. The Company received net proceeds of approximately $450,000
under this private placement offering. The proceeds from this private placement
will be used to meet the Company's continuing operating expense requirements,
including the cost of filing the aforementioned Registration Statement.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None
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ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A) EXHIBITS:
2.1 Agreement for the Exchange of Common Stock by and among
August Project III Corp. (1)
3.1 State of Florida Articles of Incorporation of August
Project III dated July 1997 (1)
3.2 State of Florida Certificate of Amendment of the
Certificate of Incorporation of the company dated
January 2000 (1)
3.3 By-Laws of the company (1)
4.1 Registration Rights Agreement (1)
4.2 Promissory Note (1)
4.3 Registration Rights Agreement (1)
4.4 Form of Common Stock Purchase Warrant (1)
4.5 Subscription Agreement (1)
4.6 Convertible Promissory Note (1)
4.7 Common Stock Unit Acknowledgement Letter
10.1 Sublicense and Supply Agreement between the company and
Trinity Assets Company Limited dated August 4, 2000 (1)
10.2 Supplement to Sublicense and Supply Agreement between
the company and Trinity Assets Company Limited dated
August 5, 2000 (1)
10.3 Amendment No. 1 to the License and Collaboration
Agreement dated September 29, 2000 (1)
10.4 Assignment Agreement between Trinity Medical Group, Ltd.
and the company dated August 3, 2000 (1)
10.5 Gary E. Wilson's Employment Agreement (1)
10.6 Dr. James S. Namnath's Employment Contract (1)
27.1 Financial Data Schedule
(1) Filed with the Company's Registration Statement on Form SB-2 filed on
October 20, 2000.
B) REPORTS ON FORM 8-K
There were no reports filed on Form 8-K during the third quarter of
2000.
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SIGNATURES
Pursuant to the requirements 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.
TRINITY MEDICAL GROUP USA, INC.
-------------------------------
Registrant
Date: November 14, 2000 By: /s/ Gary E. Wilson
------------------
Gary E. Wilson,
Executive Vice President - Finance,
Chief Financial Officer
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