UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
TRINITY MEDICAL GROUP USA, INC.
(Name of small business issuer in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
FLORIDA 8731 68-0438943
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
30021 TOMAS STREET, SUITE 300
RANCHO SANTA MARGARITA, CALIFORNIA 92688
(949) 459 2170
(Address and telephone number of principal executive offices)
JAMES NAMNATH, CHIEF EXECUTIVE OFFICER
TRINITY MEDICAL GROUP USA, INC.
55 SHAVER STREET, SUITE 320
SAN RAFAEL, CALIFORNIA 94901
(415) 256-1995
(name, address and telephone number for Agent of Service)
Copy to:
Christopher S. Auguste
Parker Chapin LLP
The Chrysler Building
405 Lexington Avenue
New York, New York 10174
Tel: (212) 704-6230
Fax: (212) 704-6288
-----------------------------------------------------------------------------
(Name, address and telephone number of agent for service)
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: FROM TIME TO TIME
AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
<PAGE>
-------------------------------------------------
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
-------------------------------------------------
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
-------------------------------------------------
If delivery of the prospectus is expected to be made pursuant to Rule
434, check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
-----------------------------------------------------------------------------------------------------------------------
Title of each Proposed Proposed
class of securities Amount to Be maximum offering maximum aggregate Amount of
to be registered Registered price per Share (1) offering price registration fee
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Common Shares, 2,000,000(1)(2) $4.25 $8,500,000 $2,244.00
Par Value $0.001
Common Shares, 493,000(3) $4.25 $2,095,250 $553.32
Par Value $0.001
Common Shares, 878,538(1)(4) $4.25 $3,733,787 $986.03
Par Value $0.001
Common Shares, 332,850(1)(5) $4.25 $1,414,612 $373.45
Par Value $0.001
Common Shares, 450,000(1)(6) $4.25 $1,912,500 $504.90
Par Value $0.001
Common Shares, 60,000(7) $4.25 $ 255,000 $67.34
Par Value $0.001
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee. In
accordance with Rule 457(g), the registration fee for these shares is
calculated based upon a price which represents the highest of : (i) the
price at which the warrants may be exercised; (ii) the offering price of
securities of the same class included in the registration statement; and
(iii) the price of securities of the same class, as determined by Rule
457(c).
(2) Represents shares to be issued by Registrant from time to time.
(3) Represents shares of common stock issued to service providers.
(4) Represents shares of common stock issued upon the conversion of convertible
notes payable.
(5) Represents shares of common stock issuable upon exercise of warrants
evidencing the right to purchase shares of common stock and shares of
common stock sold or subscribed.
(6) Represents estimate of shares of common stock issuable upon exercise of
warrants evidencing the right to purchase shares of common stock and shares
of common stock issuable upon the conversion of convertible promissory
note.
(7) Represents shares of common stock issuable upon exercise of non-statutory
stock options evidencing the right to purchase shares of common stock.
-------------------------------------------------
<PAGE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A) MAY DETERMINE.
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED , 2000
PROSPECTUS
TRINITY MEDICAL GROUP USA, INC.
4,214,388 SHARES OF COMMON STOCK
Of the 4,214,388 shares of common stock offered hereby, 2,000,000
shares are being offered by us and 2,214,388 shares are being offered
by the selling security holders. Prior to this offering, there has been
a limited public market for the common stock.
We will provide specific terms for the sale of the common stock in
supplements to this prospectus. You should read this prospectus and the
applicable prospectus supplement carefully before you invest.
Our common stock is traded on the Pink Sheet Service under the symbol
"TMGU." On December 4, 2000, the last reported sale price of our common
stock on the Pink Sheet Service was $2.50 per share.
-----------------------------------------------
THE SECURITIES OFFERED IN THIS PROSPECTUS INVOLVE A HIGH DEGREE OF
RISK. YOU SHOULD CAREFULLY CONSIDER THE FACTORS DESCRIBED UNDER THE HEADING RISK
FACTORS BEGINNING ON PAGE 3 OF THIS PROSPECTUS.
-----------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is , 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
About This Prospectus 2
Prospectus Summary 2
Risk Factors 3
Information Regarding Forward Looking Statements 7
Use of Proceeds 8
Determination of Offering Price 8
Selling Security Holders 9
Plan of Distribution 11
Legal Proceedings 14
Directors, Executive Officers, Promoters and Control Persons 14
Security Ownership of Certain Beneficial Owners and Management 16
Description of Securities 18
Experts 19
Disclosure of Commission Position on Indemnification for Securities Act Liabilities 20
Organization within Last Five Years 21
Description of Business 21
Management's Discussion and Analysis or Plan of Operation 27
Description of Property 30
Certain Relationships and Related Transactions 30
Market for Common Equity and Related Stockholder Matters 31
Executive Compensation 33
Where You Can Find Additional Information 34
Financial Statements F-1
Part II II-1
</TABLE>
<PAGE>
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we filed with
the Securities and Exchange Commission. We may sell shares of our common stock
described in this prospectus in one or more offerings up to a total of 2,000,000
shares of common stock, and the selling security holders may sell up to
2,214,388 shares of common stock. This prospectus provides you with a general
description of the common stock that may be offered by us or the selling
security holders. Each time we sell shares of our common stock, we will provide
a prospectus supplement that will contain specific information about the terms
of that offering. The prospectus supplement also may add, update or change
information contained in this prospectus. You should read both this prospectus
and any prospectus supplement together with additional information described
under the heading "Where You Can Find Additional Information."
PROSPECTUS SUMMARY
THE COMPANY.
Unless the context otherwise requires, the terms "we", "our", "us",
"the company" and "Trinity USA" refer to Trinity Medical Group USA, Inc., a
Florida corporation. Trinity Medical Group USA, Inc. (www.trinitymg.com) 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. On July 12, 2000, we became a reporting company. Trinity
USA is an affiliate of Trinity Medical Group, Ltd., a Thailand company
(http://www.trinitycorp.com/trinitymedical.htm).
We are a late development stage company with rights to market an
HIV-Immunogen, also known as REMUNE, a patented therapeutic vaccine treatment,
designed to induce specific T cell responses in people infected with the Human
Immunodeficiency Virus (HIV). REMUNE is a registered trademark of The Immune
Response Corporation. Our rights 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, were acquired from The Immune Response Corporation (NASDAQ: IMNR).
REMUNE is designed to stimulate an HIV-infected individual's immune
system to attack HIV, the virus that causes AIDS. We believe that results from
previous clinical trials demonstrate that REMUNE significantly boosts
HIV-specific immune responses and may induce a positive virologic effect in
HIV-infected individuals. Furthermore, we believe REMUNE stimulates the
production of specific antiviral substances that naturally protect components of
the immune system from HIV infection. Leading HIV clinical researchers have
begun to recognize that in order to effectively stop or slow the progression of
HIV to AIDS, therapies must stimulate HIV-specific cell mediated immune
responses in infected individuals in addition to reducing viral load through the
use of anti-viral drugs. Trinity USA and its affiliates completed Phase II
clinical trials in Thailand where REMUNE was used as a sole treatment for
individuals infected with HIV.
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, where an estimated
1-2 million people are infected with HIV. 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 Trinity USA and
Trinity Medical Group, Ltd.
Trinity USA is obligated to purchase 333,333 shares of common stock of
The Immune Response Corporation at $15 per share within 30 days of receiving
commercial approval from the Thai FDA, which we believe will occur during 2001.
In addition, Trinity USA will incur approximately $500,000 of additional
research and development costs during the fourth quarter of 2000 related to the
regulatory and development process in Thailand. We have incurred losses since
our inception in 1998 through September 30, 2000 of $2,197,634. While we believe
that only a few thousand unit sales are necessary to bring us to profitability,
our product, REMUNE, has not yet been approved for commercialization any where
in the world and we have not undertaken extensive
2
<PAGE>
marketing steps nor contracted for a large number of units to date. Our product
research and development, sales, and competitive strategies must be considered
as unproven to date.
THE OFFERING.
Shares offered by Trinity USA 2,000,000
Shares offered by selling security holders 2,214,388
Shares outstanding after the offering 13,947,388
Use of proceeds Trinity USA intends to use the
net proceeds from the offering
for:
(i) stock purchase commitments
with our licensor (ii) research
and development expenses (iii)
selling, general and
administrative expenses (iv)
securing of land lease and
construction of distribution
facility in Thailand and (v)
research and development of
REMUNE as a preventative
vaccine. See "Use of Proceeds."
We intend to promptly commence the sale of the shares offered by us,
which offering may continue for a period beyond 30 days from the date of
effectiveness of the registration statement.
RISK FACTORS
In evaluating an investment in Trinity USA and its business, potential
investors should carefully consider the following risk factors as well as other
information set forth elsewhere in this registration statement which pertain to
Trinity USA.
RISKS RELATING TO DISEASE TREATMENT
IF OUR SUPPLIER IS UNABLE TO PROVIDE REMUNE, WE WILL LOSE OUR SOLE SOURCE OF
PRODUCT AND REVENUE.
Trinity USA will lose its only source of revenue if for any reason The
Immune Response Corporation, the exclusive supplier and manufacturer of REMUNE,
cannot manufacture REMUNE at all or at the capacity required for us to sustain
profitable operations.
The Immune Response Corporation's manufacturing facility has no history
of volume production. Trinity USA cannot predict with absolute certainty that a
consistent supply volume can be expected. Further, The Immune Response
Corporation relies on a third party for the final step of the manufacturing
process. If the existing manufacturing operations prove inadequate, there can be
no assurance that any arrangement with a third party can be established on a
timely basis, or that we or The Immune Response Corporation can establish other
manufacturing capacity on a timely basis.
The U.S. Food and Drug Administration may impose severe restrictions on
the manufacture of REMUNE in the U.S., making The Immune Response Corporation
incapable of supplying the product to Trinity USA for distribution in Thailand.
Further, The Immune Response Corporation could not easily replace its
manufacturing capacity if it were unable to use its manufacturing facilities due
to fire, natural disaster (including earthquake), equipment failure or other
difficulty, or if the facility is not deemed to be in compliance with the U.S.
FDA's Good Manufacturing Practice standards.
3
<PAGE>
OUR SUCCESS IS DEPENDENT ON APPROVAL OF REMUNE BY THE THAI MINISTRY OF PUBLIC
HEALTH OR FOOD AND DRUG ADMINISTRATION.
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 REMUNE, REMUNE
cannot be marketed, sold or manufactured in Thailand. Without Thai Food and Drug
Administration approval, we will be unable to generate any revenue in Thailand.
Trinity USA or its affiliate, Trinity Assets Company Limited, has not
yet submitted an application for an approval from the Thai Food and Drug
Administration to market, distribute and manufacture REMUNE.
WE CANNOT SELL OR DISTRIBUTE REMUNE IN ANY OTHER COUNTRY IN OUR LICENSED
TERRITORY UNLESS WE HAVE RECEIVED REQUIRED MARKETING APPROVAL FROM THE GOVERNING
HEALTH AUTHORITY OF THAILAND.
We have agreed that we cannot sell or distribute REMUNE to any country
in the licensed territory, with the exception of Thailand, unless we have
previously received the required marketing approval for REMUNE from the
governing health authority of Thailand and we have diligently commenced
marketing REMUNE in Thailand. If we do not obtain the required marketing
approval, we will be unable to generate any revenues in our licensed territory.
THE PRODUCT, REMUNE, MAY BECOME OBSOLETE DUE TO HIV'S ABILITY TO MUTATE.
Our success depends on the ability of the product to benefit users.
Because of the ability of this virus to mutate, and thereby defeat many forms of
treatment, it is not unreasonable that the product may become obsolete.
OUR BUSINESS IS DEPENDENT ON REMUNE CONTINUING TO BENEFIT PATIENTS THAT USE IT.
Our success will depend, in large part, upon the product continuing to
show wide safety margins and a low incidence of adverse side effects.
Unacceptable toxicities or side effects may occur at any time in the course of
clinical trials or, if any products are successfully developed and approved for
marketing, during commercial use of our products. The appearance of any
unacceptable toxicities or side effects could interrupt, limit, delay or abort
the development of any of our products or, if previously approved, necessitate
their withdrawal from the market.
THE IMMUNE RESPONSE CORPORATION, REMUNE'S DEVELOPER, HAS NOT COMPLETED THE
DEVELOPMENT OF REMUNE.
The Immune Response Corporation has not completed the development of
REMUNE and there can be no assurance that the development and commercialization
of REMUNE by The Immune Response Corporation will be successfully completed. The
Immune Response Corporation will need significant additional research and
development efforts in order to continue developing the therapy. The
discontinuation of a Phase 3 trial of REMUNE due to lack of statistical
difference between test and control groups, conducted in the United States, had
a material adverse effect on The Immune Response Corporation.
IF THE IMMUNE RESPONSE CORPORATION TERMINATES ITS COLLABORATION WITH AGOURON,
THE IMMUNE RESPONSE CORPORATION MAY HAVE TO ABANDON REMUNE.
If The Immune Response Corporation's primary marketing partner, Agouron
Pharmaceuticals, Inc. (or Agouron, a Pfizer Inc. Company) does not successfully
complete the current pivotal trial of REMUNE, The Immune Response Corporation
may have to abandon REMUNE or seek additional funding.
TECHNOLOGICAL CHANGE AND COMPETITION MAY RENDER OUR POTENTIAL PRODUCTS OBSOLETE.
Although Trinity USA believes that there is a significant future market
for therapeutics to treat HIV, Trinity USA anticipates that REMUNE will face
intense and increased competition in the future. There can be no assurance that
existing products or new products for the treatment of HIV developed by
competitors will not be more effective or more effectively marketed and sold
than REMUNE. The biotechnology industry continues to undergo rapid
4
<PAGE>
change, and competition is intense and is expected to increase. Competitors may
succeed in developing technologies and products that are more effective or
affordable than any which are being developed by our supplier, The Immune
Response Corporation.
RISKS RELATING TO OUR HISTORY AND FINANCING NEEDS
TRINITY USA HAS ASSIGNED A SIGNIFICANT PORTION OF ITS REVENUE RIGHTS TO TRINITY
ASSETS COMPANY LIMITED.
Since Trinity USA has assigned a significant portion of its revenue
rights to Trinity Assets Company Limited, an affiliate, Trinity Assets Company
Limited may exercise a disportionate amount of control over future revenues or
profits from the sale of REMUNE in Thailand. Specific terms of Trinity USA's
future royalty rights or share of profits from the sale of REMUNE in its
licensed territories other than Thailand have not been negotiated to date.
Because both entities are owned by members of the Churdboonchart family, the
future negotiation of profit or royalty arrangements may involve conflicts of
interest which could result in limited royalties or profits to Trinity USA.
WE FACE RISKS FROM DOING THE MAJORITY OF OUR BUSINESS OUTSIDE OF THE UNITED
STATES.
We may be subject to direct regulation by several governmental agencies
in Thailand in addition to regulations applicable to the development and
marketing of pharmaceutical products. The application of new laws and
regulations as well as political and economic events beyond our control may
limit our ability to manufacture, sell and distribute the product in Thailand.
Present Thai law requires domestic pharmaceutical manufacturing and some aspects
of sales and distribution be conducted by a majority owned Thai company.
OUR LACK OF OPERATING EXPERIENCE MAY PREVENT US FROM SUCCESSFULLY GENERATING
REVENUES.
We have minimal operations, nominal assets and no revenues from
operations. As a start-up business, we are subject to all the substantial risks
inherent in the commencement of a new business enterprise with new management.
There can be no assurance that we will be able to successfully generate
revenues, operate profitably, or make any distributions to the holders of our
securities. We have only approximately one year of business history for you to
analyze or to aid you in making an informed judgment as to the merits of an
investment in our securities.
WE CURRENTLY HAVE LITTLE WORKING CAPITAL AND REQUIRE SUBSTANTIAL CAPITAL IN THE
NEXT 12 MONTHS.
Trinity USA requires substantial capital to pursue its operating
strategy and currently has limited cash for operations. 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. We currently
anticipate that the net proceeds from our sale of our shares of common stock
covered by this prospectus, together with our available funds, will be
sufficient to meet our anticipated needs for working capital and capital
expenditures through at least the next 12 months. However, we may need to raise
additional funds prior to the expiration of this period. Until we can obtain
revenues sufficient to fund working capital needs, Trinity USA will be dependent
upon external sources of financing.
WE CURRENTLY HAVE LIMITED SOURCES OF LIQUIDITY.
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. Moreover, there
is no assurance that our estimate of our liquidity needs is accurate or that new
business development or other unforeseen events will not occur, resulting in the
need to raise additional funds. If we raise additional funds through the
issuance of equity, equity-related or convertible debt securities, these
securities may have rights, preferences or privileges senior to those of the
rights of Trinity USA's common stock. The failure to raise any needed additional
funds will make it difficult for Trinity USA to sustain or commence its primary
business operations.
5
<PAGE>
WE WILL NOT GENERATE ANY INTERNAL CASH FLOW UNTIL THE FIRST QUARTER OF 2001.
We do not currently have any revenues and our estimates indicate that
we will not generate internal cash flows until at least the first quarter of
2001. Because we will not generate internal cash flows until at least the first
quarter of 2001, 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 until the end of the first quarter of 2001 may compromise
our ability to achieve our projected revenues. Furthermore, if we are required
to raise additional funding, there is no assurance that we would be successful,
the failure of which would make it difficult to successfully implement our
business strategy.
OUR MANAGEMENT HAS BROAD DISCRETION OVER USE OF THE PROCEEDS OF OUR SALE OF OUR
SHARES OF COMMON STOCK COVERED BY THIS PROSPECTUS.
All of the net proceeds from our sale of shares of our common stock
will be available to fund development and commercialization of REMUNE and for
general corporate purposes. As of the date of this registration statement, we
cannot specify with certainty the particular uses for the net proceeds to be
received other than that they will be used as working capital and for
construction of handling and storage facilities and to meet potential
obligations under the stock purchase agreement with The Immune Response
Corporation. Accordingly, our management will have broad discretion in the
application of the net proceeds. The failure of management to apply such funds
effectively could result in not having sufficient capital to fund development
and commercialization of REMUNE.
AS A START-UP COMPANY, OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE.
Based on our business and industry and as a start-up, we expect to
experience significant fluctuations in the future quarterly operating results
due to a variety of factors, many of which are outside of our control. Factors
that may adversely affect the quarterly operating results include:
o government approvals and regulations that impede our ability to
transport, sell and administer product;
o our ability to operate at favorable gross margins;
o payment of invoices by our overseas partner(s) or affiliates as they
relate to unforeseen expenses that our affiliates may pay for which we
are legally obligated to reimburse them;
o supply of product by the manufacturer is not fulfilled as expected;
o the amount and timing of operating costs and capital expenditures
relating to expansion of our business, operations and infrastructures;
o costs and delays in introducing REMUNE;
o government regulations related to the shipment of drugs overseas;
o general economic conditions, as well as those specific to Thailand and
related industries.
As a result of our limited operating history, it is difficult to
accurately forecast our revenue and we may be unable to adjust our spending in a
timely manner to compensate for any unexpected revenue shortfall.
WE ARE CURRENTLY CONTROLLED BY OUR PRINCIPAL STOCKHOLDERS, OFFICERS AND
DIRECTORS.
The directors and executive officers beneficially own approximately 79%
of the outstanding common stock of Trinity USA. As a result, the directors and
executive officers could exercise control over all matters requiring stockholder
approval, including the election of directors and approval of significant
corporate transactions. This concentration of ownership may have the effect of
delaying or preventing a change in control of Trinity USA.
6
<PAGE>
WE LACK DISINTERESTED, INDEPENDENT DIRECTORS.
Our directors have a direct financial interest in Trinity USA. While
our management believes that the current directors will be able to exercise
their fiduciary duties as directors, there may exist inherent conflicts of
interest in the execution of their duties.
ALL MARKETING WILL BE DONE IN-HOUSE.
We currently plan to market and promote our products in-house or
through related parties or affiliates. While our officers and directors have
prior promotional and marketing experience, there can be no assurances that our
marketing strategies will be effectively instituted, or that these arrangements
will result in sufficient revenues to produce net income.
OUR CURRENT STOCKHOLDERS WILL CONTINUE TO CONTROL TRINITY USA.
Our current stockholders have the voting power to elect all of the
members of the Board of Directors and control substantially all corporate
actions and decisions for an indefinite period of time. Accordingly, investors
may have no right or power to take part in the management or control of the
business of Trinity USA, or the election of its officers or directors.
Accordingly, no person should invest in Trinity USA unless he is willing to
entrust all aspects of control to Trinity USA's current management and to rely
upon their abilities.
THERE IS A LIMITED MARKET FOR OUR SECURITIES.
There is currently a limited market for our securities on the Pink
Sheet Service and there can be no assurance that a broader market will ever
develop. Accordingly, purchasers of our securities will be required to bear the
economic consequences of holding such securities for an indefinite period of
time. While there are not blanket exemptions for re-sales of unregistered
securities of privately held companies, the SEC has promulgated Rule 144 that is
generally applicable to the holders of restricted securities of companies whose
securities are traded on a public market. However, there is currently a limited
public market for our securities and there is no assurance that our securities
will be traded on a broader public market.
In general, Rule 144 provides, if certain conditions are met, that a
person who has held restricted securities for at least one year may sell in
brokerage transactions, during each three-month period thereafter, an amount
equal to the greater of the average weekly trading volume of the common stock
during the four calendar weeks immediately proceeding the sale, or 1% of our
outstanding common stock, whichever is greater. Certain provisions of Rule 144
permit holders of restricted securities who have held their shares for more than
two years to sell all their shares without regard to the volume limitations
described above. Investors should not assume that they will be able to sell
their company securities in brokerage transactions, if at all.
INFORMATION REGARDING FORWARD LOOKING STATEMENTS
This prospectus contains forward looking statements that involve risks
and uncertainties. These statements relate to our future plans, objectives,
expectations and intentions, and the assumptions underlying or relating to any
of these statements. These statements may be identified by the use of words such
as "expect," "anticipate," "intend" and "plan." Our actual results, performance
or achievements could differ materially from those expressed or implied in these
forward-looking statements. Factors that could contribute to these differences
include, but are not limited to, those discussed in "Risk Factors" and elsewhere
in this prospectus.
7
<PAGE>
USE OF PROCEEDS
We will not receive any proceeds from the sale of shares of our common
stock being offered by any of the selling security holders. We anticipate
receiving the net proceeds from the sale of the shares of common stock offered
by us. Assuming all of the shares are purchased, we would use the net proceeds
for general corporate purposes, including working capital, our stock purchase
commitment with The Immune Response Corporation upon product approval and upon
Trinity Assets Company Limited receiving the required factory establishment
license or approval from the governing health authority of Thailand to
manufacture the drug therapy REMUNE, and expenses related to clinical trials. We
also 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 estimated cost of the
facility is $12 million and will require six months to one year to construct.
Specifically, the use of proceeds from the sale of the shares of common stock
offered by us and the priority of their use if all of the securities are not
sold or are not sold at sufficient amounts will be in the following order:
<TABLE>
<CAPTION>
<S> <C>
1. Payment of research and development liabilities to affiliates
and additional clinical expenses prior to commercialization of REMUNE $1 million
2. The stock purchase commitment with The Immune Response
Corporation upon commercial approval of REMUNE in Thailand $5 million
3. Selling general and administrative expenses $.7 million
4 Securing a land lease in Thailand for handling and storage facility $3 million
5. Construction of handling and storage facility for REMUNE in Thailand $12 million
6. Application for regulatory approvals of REMUNE
in other Trinity USA licensed territories $1 million
7. The stock purchase commitment with The Immune Response
Corporation upon approval by Thai government to
manufacture REMUNE in Thailand $5 million
8. Research and Development of REMUNE as a preventative
vaccine $3 million
</TABLE>
DETERMINATION OF OFFERING PRICE
The offering price of the 2,000,000 shares of common stock being
offered by us has been determined primarily by our capital requirements and has
no relationship to any established criteria of value, such as book value or
earnings per share. Additionally, because we have no significant operating
history and have not generated any revenues to date, the price of the shares of
common stock is not based on past earnings, nor is the price of the shares
indicative of current market value for the assets owned by us.
The offering price of the 2,214,388 shares being offered by the selling
security holders has no relationship to any established criteria of value, such
as book value or earnings per share. Additionally, because we have no
significant operating history and have not generated any revenues to date, the
price of our common stock is not based on past earnings, nor is the price of the
shares of our common stock indicative of current market value for the assets
owned by us. No valuation or appraisal has been prepared for our business and
potential business expansion.
8
<PAGE>
SELLING SECURITY HOLDERS
The following table sets forth the number of shares of common stock
which may be offered for sale from time to time by the selling security holders.
The shares offered for sale constitute all of the shares known to us to be
beneficially owned by the selling security holders. None of the selling security
holders has held any position or office with us, except as specified in the
following table. Other than the relationships described below, none of the
selling security holders had or have any material relationship with us.
<TABLE>
<CAPTION>
Beneficial Ownership Prior to the Beneficial Ownership Following
--------------------------------- ------------------------------
Offering the Offering
-------- ------------
Number of Percent Owned* Number of Percent Owned
Selling Security Holders Shares -------------- Shares -------------
------------------------ ------ ------
SERVICE PROVIDERS' SHARES
OF COMMON STOCK
<S> <C> <C> <C> <C>
Baldwin Family Trust 50,000 0.48 0 0.00
Ron Macdonald 40,000 0.39 0 0.00
Steve Devanney (1) 20,000 0.19 0 0.00
Coleman Abbe 22,500 0.22 0 0.00
Bob Rubin 5,000 0.05 0 0.00
Atlas Equity 5,500 0.05 0 0.00
Eastern Frontier Trust (2) 175,000 1.69 0 0.00
Black Hills Investment Corp. (3) 175,000 1.69 0 0.00
-------
Subtotal 493,000
-------
FIRST PRIVATE PLACEMENT--
CONVERTIBLE NOTES, INCLUDES STOCK
ISSUED RELATED TO ACCRUED INTEREST AND
COMMISSIONS
Alan Cornell 52,181 0.50 0 0.00
Patrick H. and Lee M. Miller 104,436 1.01 0 0.00
Ken Leiner 26,126 0.25 0 0.00
Meir Morag 25,989 0.25 0 0.00
Gary Coover 25,986 0.25 0 0.00
Marcaud Cook & CIE, SA 104,745 1.01 0 0.00
Robert Gibson 12,997 0.13 0 0.00
Grant Bettingen 12,979 0.12 0 0.00
Wasson Family Trust 83,474 0.80 0 0.00
Fred Buelow 15,564 0.15 0 0.00
John Colwell (4) 32,383 0.31 0 0.00
Andre Pringo 5,213 0.05 0 0.00
Steve Shannon 26,066 0.25 0 0.00
Phillip Mirabelli 5,199 0.05 0 0.00
Coleman Abbe 26,178 0.25 0 0.00
Nancy Abbe Trust 52,356 0.50 0 0.00
Rubin Family Stock Trust 26,178 0.25 0 0.00
John Ogle 41,809 0.40 0 0.00
Eric Weiss Charitable Remainder
Unitrust 52,186 0.50 0 0.00
Anthony Spaulding (5) 5,141 0.05 0 0.00
John D. Shulman 36,492 0.35 0 0.00
Martin Vulliez 5,188 0.05 0 0.00
Jim Palmersheim 25,948 0.25 0 0.00
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
HR Granger 12,974 0.12 0 0.00
Eastern Frontier Trust 54,000 0.52 0 0.00
Black Hills Investment Corp. 6,750 0.07 0 0.00
Subtotal 878,538
-------
SECOND PRIVATE PLACEMENT--COMMON STOCK
UNITS, INCLUDES STOCK ISSUABLE RELATED
TO COMMISSION WARRANTS
Larry Berman 34,000 0.33 0 0.00
Karl Bratin 6,000 0.06 0 0.00
Milan Bratin 50,000 0.48 0 0.00
Robert Brooks 8,000 0.08 0 0.00
Bella Claravall 10,000 0.10 0 0.00
Gractia Chieffe 4,000 0.04 0 0.00
Edgar Orquiola 4,000 0.04 0 0.00
Michael Pallin 16,000 0.15 0 0.00
Ganija Pjetrovic 6,000 0.06 0 0.00
Ruzdija Pjetrovic 6,000 0.06 0 0.00
Donald Swartz 14,000 0.13 0 0.00
Charles H. Roeske 6,000 0.06 0 0.00
Torunn Curtis 4,000 0.04 0 0.00
James Garnett 20,000 0.19 0 0.00
John Gross 10,000 0.10 0 0.00
Anthony Spaulding 8,000 0.08 0 0.00
Hilary Spaulding 2,000 0.02 0 0.00
Glen Anthony 2,000 0.02 0 0.00
Cameron Harper 2,000 0.02 0 0.00
Steve Koppenjan 5,000 0.05 0 0.00
Kellie Mowdy 2,000 0.02 0 0.00
Jens Pechbrenner 4,000 0.04 0 0.00
Richard Vane 2,000 0.02 0 0.00
Christopher Garife 2,000 0.02 0 0.00
David Carroll 6,000 0.06 0 0.00
Scot Cohen (2) 50,000 0.48 0 0.00
Douglas Wasson 12,000 0.12 0 0.00
Thomas Wasson 8,000 0.08 0 0.00
Donald L. Barr 4,000 0.04 0 0.00
Gaylord LLC 8,000 0.08 0 0.00
Michael J. Gallagher 2,000 0.04 0 0.00
Salomon Grey 8,200 0.08 0 0.00
Eastern Frontier 2,500 0.02 0 0.00
Black Hills Investment Corp. 3,150 0.03 0 0.00
John Colwell 2,000 0.02 0 0.00
-----
Subtotal 332,850
-------
THIRD PRIVATE PLACEMENT--
CONVERTIBLE PROMISSORY NOTE
RoyCap Inc. (6) 450,000 4.33 0 0.00
-------
NON-STATUTORY STOCK OPTIONS
Gary E. Wilson (7) 60,000 .58 0 0.00
------
Total 2,214,388
=========
</TABLE>
10
<PAGE>
* Percentage is based upon the amount of outstanding shares of Trinity USA's
common stock, par value $.001, as of November 30, 2000, which is equal to
10,384,500 shares.
(1) Steve Devanney provides investor relations services to Trinity USA for
approximately $3,000 per month.
(2) Eastern Frontier Trust is also listed as a selling security holder in the
first and second private placement and Scot Cohen, a selling security
holder in the second private placement, is the beneficiary of Eastern
Frontier Trust. The total number of shares beneficially owned and the
percentage of total shares held by Eastern Frontier Trust and Scot Cohen
before and after the offering is 281,500 and 2.71% and 0 and 0.00%,
respectively. Trinity USA issued 175,000 shares of common stock to Eastern
Frontier Trust in exchange for services provided during 1999 related to the
formation of Trinity USA and merger with August Project III Corp.
(3) Black Hills Investment Corp. is also listed as a selling security holder in
the first and second private placement. The total number of shares
beneficially owned and the percentage of total shares held by Black Hills
Investment Corp. before and after the offering is 184,900 and 1.78% and 0
and 0.00%, respectively. Trinity USA issued 175,000 shares of common stock
to Black Hills Investment Corp. in exchange for services provided during
1999 related to the formation of Trinity USA and merger with August Project
III Corp.
(4) John Colwell is also listed as a selling security holder in the second
private placement. The total number of shares beneficially owned and the
percentage of total shares held by John Colwell before and after the
offering is 34,383 and 0.33% and 0 and 0.00%, respectively.
(5) Anthony Spaulding is also listed as a selling security holder in the second
private placement. The total number of shares beneficially owned and the
percentage of total shares held by Anthony Spaulding before and after the
offering is 13,141 and 0.13% and 0 and 0.00%, respectively.
(6) Amount of shares issuable upon conversion is an estimate based upon a
discounted, average historical share price prior to and subsequent to the
note agreement date of October 19, 2000.
(7) Chief Financial Officer, Executive Vice President - Finance, Treasurer.
PLAN OF DISTRIBUTION
We are registering 2,000,000 shares of our common stock in
contemplation of offering unrestricted common stock to the public. We are
registering an additional 2,214,388 shares which may be sold by the selling
security holders. Trinity USA will not receive any proceeds from the sale of the
2,214,388 shares attributed to the private placements or option grants.
GENERAL.
We may sell up to 2,000,000 shares of our common stock through
underwriters or dealers, through agents or directly to one or more purchasers.
We may distribute the securities from time to time in one or more transactions
at a fixed price or prices (which may be changed from time to time), at market
prices prevailing at the time of sale, at prices related to these prevailing
market prices or at negotiated prices.
The applicable prospectus supplement will describe the terms of the
offering of the securities, including:
o the name or names of any underwriters, if any;
o the purchase price of our common stock and the proceeds we will
receive from the sale;
o any underwriting discounts and other items constituting underwriters'
compensation;
o any discounts or concessions allowed or reallowed or paid to dealers;
and
11
<PAGE>
o any securities exchange or market on which our common stock may be
listed.
Only underwriters named in the prospectus supplement, if any, are
underwriters of our common stock offered with the prospectus supplement.
USE OF UNDERWRITERS AND AGENTS.
If underwriters are used in the sale, they will acquire our common
stock for their own account and may resell them from time to time in one or more
transactions at a fixed public offering price or at varying prices determined at
the time of sale. We may offer our common stock to the public through
underwriting syndicates represented by managing underwriters or by underwriters
without a syndicate. Subject to certain conditions, the underwriters will be
obligated to purchase all of our common stock of the series offered by the
prospectus supplement. Any public offering price and any discounts or
concessions allowed or reallowed or paid to dealers may change from time to
time.
We may sell our common stock directly or through agents we designate
from time to time. We will name any agent involved in the offering and sale of
our common stock and we will describe any commissions we will pay the agent in
the prospectus supplement. Unless the prospectus supplement states otherwise our
agent will act on a best-efforts basis for the period of its appointment.
We may authorize agents or underwriters to solicit offers by certain
types of institutional investors to purchase our common stock from us at the
public offering price set forth in the prospectus supplement pursuant to delayed
delivery contracts providing for payment and delivery on a specified date in the
future. We will describe the conditions to these contracts and the commissions
we must pay for solicitation of these contracts in the prospectus supplement.
SALE DIRECTLY TO PURCHASERS.
We may enter into agreements directly with one or more purchasers.
Those agreements may provide for the sale of our common stock at a fixed price,
based on the market price of the common stock or otherwise. Alternatively, those
agreements may provide for the sale of common stock over a period of time by
means of draw downs at our election which the purchaser would be obligated to
accept under specified conditions. Under this form of agreement, we may sell
common stock at a per share price which is discounted from the market price.
Those agreements may also provide for sales of common stock based on
combinations of or variations from these methods.
12
<PAGE>
DEMAND UNDERWRITERS.
In connection with the sale of the securities offered with this
prospectus, underwriters, dealers or agents may receive compensation from us or
from purchasers of our common stock for whom they may act as agents, in the form
of discounts, concessions or commissions. The underwriters, dealers or agents
which participate in the distribution of the securities may be deemed to be
underwriters under the Securities Act and any discounts or commissions received
by them and any profit on the resale of the securities received by them may be
deemed to be underwriting discounts and commissions under the Securities Act.
Anyone deemed to be an underwriter under the Securities Act may be subject to
statutory liabilities, including Sections 11, 12 and 17 of the Securities Act
and Rule 10b-5 under the Exchange Act.
INDEMNIFICATION AND OTHER RELATIONSHIPS.
We may provide agents and underwriters with indemnification against
certain civil liabilities, including liabilities under the Securities Act, or
contribution with respect to payments that the agents or underwriters may make
with respect to those liabilities. Agents and underwriters may engage in
transactions with, or perform services for, us in the ordinary course of
business.
DISTRIBUTION BY SELLING SECURITIES HOLDERS.
The selling security holders may sell our common stock in the
over-the-counter market, or on any securities exchange on which our common stock
is or becomes listed or traded, in negotiated transactions or otherwise. The
selling security holders may sell our common stock at prices then prevailing or
related to the then current market price or at negotiated prices. The shares
will not be sold in an underwritten public offering.
USE OF BROKERS AND DEALERS.
The shares may be sold directly or through brokers or dealers. The
methods by which the shares may be sold include:
o purchases by a broker or dealer as principal and resale by the broker
or dealer for its account;
o ordinary brokerage transactions and transactions in which the broker;
o solicits purchasers; and
o privately negotiated transactions.
Brokers and dealers engaged by selling security holders may arrange for
other brokers or dealers to participate. Brokers or dealers may receive
commissions or discounts from selling security holders (or, if any such
broker-dealer acts as agent for the purchaser of the shares, from the purchaser)
in amounts to be negotiated. Broker-dealers may agree with the selling security
holders to sell a specified number of the shares at a stipulated price per
share, and, to the extent the broker-dealer is unable to do so acting as agent
for a selling security holder, to purchase as principal any unsold shares at the
price required to fulfill the broker-dealer commitment to the selling security
holder. Broker-dealers who acquire shares as principal may resell those shares
from time to time in the over-the-counter market or otherwise at prices and on
terms then prevailing or then related to the then-current market price or in
negotiated transactions and, in connection with the resales, may receive or pay
commissions.
DEEMED UNDERWRITERS.
The selling security holders and any broker-dealers participating in
the distributions of the shares may be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act of 1933. Any profit on the sale
of shares by the selling security holders and any commissions or discounts given
to any the broker-dealer may be deemed to be underwriting commissions or
discounts. The shares may also be sold pursuant to Rule 144 under the Securities
Act of 1933 beginning one year after the shares were issued.
13
<PAGE>
TIMING OF SALE BY SELLING SECURITY HOLDERS.
We have filed this registration statement, of which this prospectus
forms a part, with respect to the sale of the shares by the selling security
holders. There can be no assurance that the selling security holders will sell
any or all of the offered shares.
Under the Securities Exchange Act of 1934 and the regulations
thereunder, any person engaged in a distribution of the shares of our common
stock offered by this prospectus may not simultaneously engage in market making
activities with respect to our common stock during the applicable "cooling off"
periods prior to the commencement of the distribution. Also, the selling
security holders are subject to applicable provisions which limit the timing of
purchases and sales of our common stock by the selling security holders.
REGULATION M.
We have informed the selling security holders that, during the time
that they may be engaged in a distribution of any of the shares we are
registering by this registration statement, they are required to comply with
Regulation M. In general, Regulation M precludes any selling security holder,
any affiliated purchasers and any broker-dealer or other person who participates
in a distribution from bidding for or purchasing, or attempting to induce any
person to bid for or purchase, any security which is the subject of the
distribution until the entire distribution is complete. Regulation M defines a
"distribution" as an offering of securities that is distinguished from ordinary
trading activities by the magnitude of the offering and the presence of special
selling efforts and selling methods. Regulation M also defines a "distribution
participant" as an underwriter, prospective underwriter, broker, dealer, or
other person who has agreed to participate or who is participating in a
distribution.
Regulation M prohibits any bids or purchases made in order to stabilize
the price of a security in connection with the distribution of that security,
except as specifically permitted by Rule 104 of Regulation M. These stabilizing
transactions may cause the price of our common stock to be more than it would
otherwise be in the absence of these transactions. We have informed the selling
security holders that stabilizing transactions permitted by Regulation M allow
bids to purchase our common stock if the stabilizing bids do not exceed a
specified maximum. Regulation M specifically prohibits stabilizing that is the
result of fraudulent, manipulative, or deceptive practices. Selling security
holders and distribution participants are required to consult with their own
legal counsel to ensure compliance with Regulation M.
LEGAL PROCEEDINGS
There are no legal actions pending against us nor are any legal actions
contemplated.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Following are Directors and Officers:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C>
Arun Churdboonchart 59 Chairman of the Board of Directors
Dr. Vina Churdboonchart 55 President and Director
Inthanom John Churdboonchart 33 Director
Orranart Victoria Churdboonchart 30 Director
Dr. James S. Namnath 43 Chief Executive Officer and Director
Gary E. Wilson 34 Chief Financial Officer, Executive
Vice President - Finance, Treasurer
Elizabeth Namnath 49 Corporate Secretary
</TABLE>
14
<PAGE>
MR. ARUN CHURDBOONCHART, age 59, joined Trinity USA as a Director in
December 1999 and is one of Thailand's most distinguished and recognized
businessmen. He is a former member of the Thai National Senate (1996 to 1999)
and a co-chairman of Trinity Group (1975 to present): a diversified Thai
corporation that owns extensive real estate, hotels, retail stores, and a
Bangkok radio station. Prior to founding the Trinity Group companies, Mr.
Churdboonchart established AC Machinery, which started as a small supplier of
engines and under his management became Bangkok's largest distributor of marine
engine spare parts. He is the chairman of AC Machinery to the present date.
Mr. Churdboonchart received a B.S. degree in Business Administration
from California State University, Long Beach in 1970. Mr. Arun Churdboonchart is
married to Dr. Vina Churdboonchart.
DR. VINA CHURDBOONCHART, age 55, joined Trinity USA as President and a
Director in December 1999 and is among the most recognized female scientists and
business persons in Thailand today. She is also a former member of the Thai
Legislature (1991 to 1992) and a former Thai Senate member (1992 to 1996). She
is a founder of Trinity Medical Group, Ltd. (1995 to present), a Bangkok based
privately held company which focuses on treating HIV and AIDS. Since 1971, she
has been a member of the Faculty of Science, Mahidol University, which has two
medical schools (Siriraj and Ramathibodi) with two university-affiliated
hospitals. At Mahidol University, she has been the principal investigator of
dengue hemorrhagic fever. Her research efforts have been supported and well
recognized by the World Health Organization. She has many published studies,
including breakthrough findings accepted in the Journal of AIDS and Vaccine
Journal.
Dr. Churdboonchart received her doctorate in Pathobiology in 1984. She
received her bachelors degree from California State University, Long Beach in
1970. Dr. Vina Churdboonchart is married to Mr. Arun Churdboonchart. Dr. Vina
Churdboonchart is the sister of Dr. James Namnath, Chief Executive Officer, and
Elizabeth Namnath, Corporate Secretary.
MR. INTHANOM JOHN CHURDBOONCHART, age 33, graduated from Gonzaga
University in 1992 with a B.S. in Computer Aid Design. Mr. Churdboonchart also
received a Mini Masters of Business Administration in Factory Management from
Chulalongkorn University in 1996. Mr. Churdboonchart began his professional
career assisting the Managing Director of Kaew Kanch Industry and Mining in
1994. He established AV Studio Company, Ltd. in 1995 and at present is the
managing director of AV Studio. During 2000, Mr. Inthanom launched Discazine
Company, Ltd., which is a promotional magazine for the music industry. Mr.
Churdboonchart has been Managing Director of Trinity Assets Company Limited
since 1990 and joined Trinity USA as a Director in December 1999. Inthanom John
Churdboonchart is the son of Arun and Vina Churdboonchart and the nephew of Dr.
James Namnath, Chief Executive Officer, and Elizabeth Namnath, Corporate
Secretary.
MS. ORRANART VICTORIA CHURDBOONCHART, age 30, graduated from
Chulalongkorn University in 1991 with a B.A. Ms. Churdboonchart also received a
Masters of Business Administration from Pepperdine University in 1995. She began
her career in 1996 assisting the Vice President of The Trinity Complex and has
been the Chief Financial Officer of Trinity Medical Group, Ltd. since 1996. In
1998, Ms. Churdboonchart established Learning Home International Kindergarten,
which has recently expanded to a second branch. Ms. Orranart is the managing
director of Learning Home International Kindergarten. Ms. Churdboonchart joined
Trinity USA as a Director in December 1999. Orranart Victoria Churdboonchart is
the daughter of Arun and Vina Churdboonchart and the niece of Dr. James Namnath,
Chief Executive Officer, and Elizabeth Namnath, Corporate Secretary.
DR. JAMES S. NAMNATH, age 43, joined Trinity USA as Chief Executive
Officer and a Director in September 1998 and is an experienced senior executive
of high technology and life sciences companies. He has managed the U.S.
portfolio of assets and operations for Trinity Medical Group, Ltd. since its
inception. Dr. Namnath is the founder, Chairman of the Board, and Chief
Financial Officer of JennerNet Software Company, an Internet focused provider of
information systems to the personnel industry. Prior to starting his own
corporate ventures in March of 1994, Dr. Namnath was a Senior Manager at
Monsanto Company from June of 1992 to March of 1994 and Chevron Corporation from
December of 1989 to June of 1992. For over nine years he was the Principal
Scientist and Manager of Product Chemistry for the Ortho and Roundup homeowner
brands: products which have extensive government regulatory guidelines. He
started his professional career with Lever Brothers and Cheeseborough-Ponds in
December of 1986: leading consumer product companies where his patented
breakthroughs formed the basis for major corporate ventures. It is estimated
that his product inventions are a key part of products with annual retail
15
<PAGE>
sales of $3 billion. Dr. Namnath is an experienced computer programmer with over
25 years of experience and certifications in business and accounting systems.
Dr. Namnath received his doctorate in Physical Chemistry in 1983 from
the University of Southern California. He earned two bachelor degrees from the
University of California, Santa Barbara in 1978. Dr. James Namnath is the
brother of Dr. Vina Churdboonchart, President and Elizabeth Namnath, Corporate
Secretary.
MR. GARY E. WILSON, CPA, age 34, graduated from the University of
Michigan in 1991 with a B.A. in Economics, Business Administration and
Accounting. Prior to joining Trinity USA in September 2000, Mr. Wilson was a
Senior Assurance Services Manager with Grant Thornton LLP where he served as an
auditor and professional business advisor to publicly-held and privately-owned
Manufacturing/Distribution, Life Sciences and High Technology companies. As a
Senior Assurance Services Manager, he regularly advised senior management and
various boards of directors on Best Business Practices, Inventory Management,
Strategic Planning, Stock Option Plans, Financing Options and Solutions, Capital
Market Transactions, Internal Controls and Accounting and Auditing matters.
MS. ELIZABETH NAMNATH, age 49, joined Trinity USA as Corporate
Secretary in April 2000 and is an experienced senior manager of international
companies. She started and managed Maginet Corporation (1994 to 1998), a
pay-per-view movie provider, in Singapore and Thailand. She served as regional
manager from 1997 to 1998, establishing operations in four cities throughout
Southeast Asia. Her management and leadership skills have made Maginet
Corporation become the largest "On Command" movie provider. Prior to Maginet,
she worked as General Manager for Trinity Hotel in Bangkok, Thailand (1990 to
1994). During her time as manager, Trinity Hotel was recognized by Frommer
Travel Guide as one of the best three-star hotels in Bangkok.
Elizabeth received her B.A. degree in Communication with a Business
Administration minor from California State University, Long Beach in 1974.
Elizabeth Namnath is the sister of Dr. Vina Churdboonchart, President and Dr.
James Namnath, Chief Executive Officer.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of our common stock as of November 30, 2000 by:
o each person or entity known by us to be the beneficial owner of more
than 5% of the outstanding shares of common stock;
o each of our directors and named executive officers; and
o each of our directors and executive officers as a group.
16
<PAGE>
<TABLE>
<CAPTION>
Number of Shares of Common
Stock Percentage of Address of Beneficial
Name of Beneficial Owners Beneficially Owned Ownership Owners
------------------------- ------------------ --------- ------
<S> <C> <C> <C>
Churdboonchart Trinity Trust 7,200,000 69.3% 425 Silom Road, Phipat
Account (1) #7, Bangkok, Thailand
10500
Trinity Partners Trust (2) 400,000 3.9 304 Mountain View,
San Rafael, CA 94901
Dr. Vina Churdboonchart (3) 450,000 4.3 425 Silom Road, Phipat
#7, Bangkok, Thailand
10500
Elizabeth Namnath (4) 50,000 0.5 17 Linda Ave
San Rafael, CA 94903
Gary E. Wilson (5)(6) 60,000 0.6 31842 Camino Del Cielo,
Trabuco Canyon CA, 92679
Directors and Executive Officers as a
Group 8,160,000 78.6
</TABLE>
(1) Beneficiaries are Chairman Arun Churdboonchart and President Dr. Vina
Churdboonchart (husband and wife) and Director's Inthanom John
Churdboonchart and Orranart Victoria Churdboonchart (son and daughter of
Mr. Arun Churdboonchart and Dr. Vina Churdboonchart). Each of the
aforementioned persons are 25% beneficiaries in the Churdboonchart Trinity
Trust Account. All of the beneficiaries of the Churdboonchart Trinity Trust
Account live at the address listed above.
(2) Beneficiary is Dr. James Namnath, CEO. Dr. James Namnath is the brother of
Dr. Vina Churdboonchart and Elizabeth Namnath. Dr. James Namnath is the
uncle of Director's Inthanom John Churdboonchart and Orranart Victoria
Churdboonchart.
(3) President and Director
(4) Corporate Secretary. Elizabeth Namnath is the sister of Dr. James Namnath
and Dr. Vina Churdboonchart. Elizabeth Namnath is the aunt of Director's
Inthanom John Churdboonchart and Orranart Victoria Churdboonchart.
(5) Chief Financial Officer, Executive Vice President - Finance, Treasurer
(6) The 60,000 shares beneficially owned represent those shares issuable under
stock options. Mr. Wilson has the right to acquire a total of 30,000 shares
of common stock through the exercise of these options through January 29,
2001 based upon a contractual vesting schedule. The vesting of the
remaining options, however, may be accelerated during that time frame if
Trinity USA's stock trades at or greater than $16.00 for 10 consecutive
days or Trinity USA signs a letter of intent to merge with or be acquired
by another company or sells substantially all of its assets.
17
<PAGE>
DESCRIPTION OF SECURITIES
We are authorized to issue 50,000,000 shares of $.001 par value common
stock. Each share of common stock has equal rights and preferences, including
voting privileges. As of November 30, 2000, there were 10,384,500 shares of our
common stock issued and outstanding.
Each shareholder of our common stock is entitled to a pro rata share of
cash distributions made to shareholders, including dividend payments. The
holders of our common stock are entitled to one vote for each share of record on
all matters to be voted on by shareholders. There is no cumulative voting with
respect to the election of our directors or any other matter. Therefore, the
holders of more than 50% of the shares voted for the election of those directors
can elect all of the directors. The holders of our common stock are entitled to
receive dividends when, and if, declared by our Board of Directors from funds
legally available therefor. Cash dividends are at the sole discretion of our
Board of Directors. In the event of our liquidation, dissolution or winding up,
the owners of common stock are entitled to share ratably in all assets remaining
available for distribution to them after payment of our liabilities and after a
provision has been made for each class of stock, if any, having any preference
in relation to our common stock. Holders of shares of our common stock have no
conversion, preemptive, or other subscription rights, and there are no
redemption provisions applicable to our common stock.
Special meetings of the shareholders may be held within and without the
State of Florida. These meetings may be called at any time by the Board of
Directors or by the President, and may be called by the President or the
Secretary at the written request of the holders of not less than ten percent
(10%) (this percentage may be raised up to 50% if provided for in the Articles
of Incorporation of the Corporation), of the shares then outstanding and
entitled to vote. The holders of a majority of Trinity USA shares can take
action by written consent without prior notice and without a meeting. The
directors and executive officers of Trinity USA beneficially own more than 78%
of the outstanding common stock of the Company. As a result, the directors and
executive officers may exercise control over all matters regarding stockholder
approval, including the election of directors and approval of significant
corporate transactions.
Under the By-laws of Trinity USA, a quorum is present with the holders
of a majority of the shares entitled to vote on that matter or represented at
the meeting in person or by proxy unless the Articles of Incorporation provide
for a different amount. Since the Articles of Incorporation state that the
quorum is present if the holders of one-third of the shares entitled to vote at
a meeting of the shareholders is present, one-third of the votes is sufficient
for a quorum.
DIVIDEND POLICY.
We have never declared or paid a cash dividend on our common stock. We
do not expect to pay cash dividends on our common stock in the near future. We
currently intend to retain our earnings, if any, for use in our business. Any
dividends declared in the future will be at the discretion of our Board of
Directors and subject to any restrictions that may be imposed by our future
lenders, if any.
FIRST PRIVATE PLACEMENT.
In connection with a December 1999 private placement, Trinity USA
issued 154.5 notes. The notes were sold in units. Each unit cost $5,000 and
consisted of a $5,000, 10% per annum note of Trinity USA due August 31, 2001
convertible into 5,000 shares of Trinity USA's common stock, $0.001 par value.
Interest accrued on each unit was convertible, at Trinity USA's option, to
common stock at the fair value of Trinity USA's common stock at the date of
conversion. The aggregate offering price was $772,500 and Trinity USA received
net proceeds of approximately $756,000. On December 11, 2000, the Company
converted the total principal balance of these notes and the related accrued
interest and commissions into 878,538 shares of its common stock. The total
amount of liabilities converted to equity in this transaction was $929,219.
18
<PAGE>
SECOND PRIVATE PLACEMENT.
In connection with a June 2000 private placement, we sold 158.5 units
of our common stock. Each unit consisted of one thousand shares of Trinity USA's
common stock, par value $.001, and a non-callable common stock purchase 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 July 24, 2000. Trinity USA received net proceeds of
approximately $571,000 under this private placement offering. Trinity USA issued
158,500 shares of common stock to these investors on November 20, 2000.
THIRD PRIVATE PLACEMENT.
On October 19, 2000, in connection with a Section 4(2) exempt offering,
Trinity USA issued a $500,000 convertible promissory note. 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 this registration statement 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,
Trinity USA shall also issue to the holder a warrant to purchase the number of
shares of Trinity USA'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
Trinity USA, in cash or in accordance with the aforementioned conversion terms
of the note.
The covenants of the note prevent Trinity USA from pledging any of its
assets, including licenses, to any third party or incurring any indebtedness
senior to the note. The note agreement contains a representation that Trinity
USA has no indebtedness for borrowed money, as the only non-trade debts that
Trinity USA had prior to this note were the convertible notes payable and
related accrued interest, which were since converted to equity.
The covenants of the note also require Trinity USA to use its
reasonable best efforts to cause this registration statement to be declared
effective by the Securities and Exchange Commission (SEC) within 90 days of the
issuance of the note and to respond to the SEC's review comments within 5
business days. If this registration statement is not declared effective within
120 days of the issuance of the note, Trinity USA must pay as liquidated damages
2% of the purchase price of the note for each 30-day period until the statement
is effective. Trinity USA also granted piggyback registration rights with
respect to the warrant shares. If this registration statement is not declared
effective within 120 days of the issuance of the note, Trinity USA must pay as
liquidated damages 2% of the purchase price of the note for each 30-day period
until the statement is effective. Therefore, the total liquidated damages that
may need to be paid if this registration statement is not declared effective
within 120 days of the issuance of the note is 4% of the purchase price of the
note for each 30-day period until the statement is effective.
EXPERTS
The financial statements of Trinity USA as of December 31, 1999 and for
the period from inception (September 28, 1998) to December 31, 1999 included in
this prospectus have been so included in reliance on the report of Grant
Thornton LLP, independent certified public accountants, given on the authority
of said firm as experts in auditing and accounting.
19
<PAGE>
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES
ACT LIABILITIES
Article X of our Certificate of Incorporation provides, among other
things, that our officers shall not be personally liable to us or our
shareholders for monetary damages for breach of fiduciary duty as a director,
except for liability:
o for any breach of the directors duty of loyalty to us or our security
holders;
o for acts or omissions not in good faith or which involve intentional
misconduct or knowing violation of law;
o liability for unlawful payments of dividends or unlawful purchase or
redemption by us; or
o for any transaction from which the director derived any improper
personal benefit.
Accordingly, our directors may have no liability to our shareholders
for any mistakes or errors of judgment or for any act or omission, unless the
act or omission involves intentional misconduct, fraud, or a knowing violation
of law or results in unlawful distributions to our shareholders.
Article VI, Section 1 of our By-laws also provides that we will
indemnify executive officers and directors for all expenses and liabilities
incurred by the executive officers and directors in connection with any criminal
or civil action brought or threatened against the executive officers and
directors by reason of such person being or having been an officer or director
or employee, or having served any other corporation or other enterprise in any
capacity.
Article VI, Section 6 of our By-laws provides that any indemnification
of expenses granted to any person will survive the amendment, alteration or
repeal of the provision in the By-laws. Accordingly, any person entitled to
indemnification under Section 6 will retain the protection even if the
indemnification provision of the By-laws has been amended, altered or repealed
to no longer provide the protection.
Since the members of the Churdboonchart family are officers and
directors of Trinity USA, they will have the benefits of the indemnification
provisions set forth in the By-laws of Trinity USA in their capacity as officers
and directors of affiliated business entities.
INDEMNIFICATION AGREEMENTS.
We will enter into indemnification agreements with each of our
executive officers and directors. We will agree to indemnify each executive
officer and director for all expenses and liabilities, including criminal
monetary judgments, penalties and fines, incurred by the executive officers and
directors in connection with any criminal or civil action brought or threatened
against the executive officers and directors by reason of such person being or
having been our officer or director or employee. In order to be entitled to
indemnification by us, the executive officers and directors must have acted in
good faith and in a manner such person believed to be in our best interest. With
respect to criminal actions, the executive officers and directors must have had
no reasonable cause to believe his or her conduct was unlawful.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to our directors, officers and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission that the indemnification
is against public policy as expressed in that Act and is, therefore,
unenforceable.
20
<PAGE>
ORGANIZATION WITHIN LAST FIVE YEARS
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. Following an Agreement for
the Exchange of Common Stock between Trinity USA and August Project III Corp., a
Florida corporation, on December 31, 1999, August Project issued to Trinity
USA's shareholders 5,226,000 shares of its Common Stock in exchange for 100% of
the outstanding shares of Trinity USA. In addition, shareholders of August
Project sold 4,867,000 shares to the shareholders of Trinity USA 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.
Trinity USA desired to become a publicly-held company. In October of
1999, the Chief Executive Officer of Trinity USA commissioned a search for a
publicly-held company that had been in existence for at least two years and had
an established list of shareholders. The preferred company would have
substantially no operating history, liabilities, and assets. After review of
nearly a dozen target companies, August Project III Corp. was identified in
early December 1999. By purchasing or merging with August Project III, Trinity
USA believed that it would have greater and faster access to capital to initiate
its business and execute its business plan. The acquisition price of $175,000
was agreed to based on an estimated discount of the legal and accounting costs
to do an initial public offering and through comparison of similar companies
offered for sale at the time. No fairness opinion for the transaction was
sought. The negotiations were conducted on an "arms-length" basis in that
neither party had any relations before or after the transaction. We acquired no
assets or liabilities as a result of the transaction.
August Project III Corp. was formed on July 10, 1997. Although August
Project III Corp. was formed and incorporated as a Florida corporation on July
10, 1997, they had no capital transactions or operating activities of any
significance between July 10, 1997 and December 31, 1999, the date of our merger
with August Project III Corp.
DESCRIPTION OF BUSINESS
OUR LICENSED TECHNOLOGY.
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. Trinity USA is an
affiliate of Trinity Medical Group, Ltd., a Thailand company. We are a late
development stage company with rights to market an HIV-Immunogen also known as
REMUNE, 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 vaccine technology.
CURRENT AND HISTORICAL INFORMATION REGARDING OUR LICENSED TECHNOLOGY AND OUR
LICENSOR.
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, for a period of 15 years commencing
on the date of the first commercial sale of REMUNE in each licensed country.
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.
21
<PAGE>
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 Trinity USA as a result of the collaboration and
supply agreement and the assignment agreement between Trinity USA and Trinity
Medical Group, Ltd.
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. In addition, the license and collaboration agreement
provides for termination by The Immune Response Corporation or Trinity USA if
Trinity USA fails to purchase The Immune Response Corporation's common stock as
required by the stock purchase agreement within 30 days of the event requiring
purchase of the common stock. The license granted to Trinity USA for the entire
territory shall revert to The Immune Response Corporation if Trinity USA delays
or suspends development of REMUNE in Thailand for more than 18 months or the
license will revert to The Immune Response Corporation for a specific country if
at any time Trinity USA elects not to develop or commercialize REMUNE in that
country.
The license and collaboration agreement fixes the price that The Immune
Response Corporation will charge Trinity USA for REMUNE for a period of three
years after the date of the first commercial sale of REMUNE in Thailand, but
provides for renegotiation of mutually acceptable pricing if The Immune Response
Corporation's manufacturing cost materially increases during that time. Trinity
USA also has three years from the date of the first commercial sale of REMUNE in
Thailand to exercise its option to obtain an exclusive license to manufacture
REMUNE in Thailand solely for the sale, distribution and use in Trinity USA's
licensed territory.
REMUNE is produced by The Immune Response Corporation at its facility
located in King of Prussia, Pennsylvania and also in small quantities at its
Carlsbad California pilot plant. The product requires a final production step of
nuclear irradiation which is conducted by a third party at another location.
Currently, Trinity USA is unfamiliar with the source of each component used to
make REMUNE. The King of Prussia facility requires certification by the U.S. FDA
for compliance to Good Manufacturing Practice standards.
The Immune Response Corporation had a net loss of $11,313,000 for the
nine months ended September 30, 2000 and has an accumulated deficit of
$197,843,000 as of September 30, 2000. The Immune Response Corporation also has
working capital of $31,841,000, total assets of $49,944,000 and total
liabilities of $6,059,000 as of September 30, 2000. These factors should be
considered in making an investment in us, as The Immune Response Corporation is
the sole supplier of REMUNE and, as discussed in the "Risk Factors" section of
this prospectus, we will be adversely affected if for any reason the
manufacturing facility experiences down time or The Immune Response Corporation
does not fulfill its contractual obligations to provide us with REMUNE or at
amounts sufficient to sustain profitable operations. Since the facility has no
history of volume production, we cannot predict with absolute certainty that a
consistent supply volume can be expected.
Trinity USA, Trinity Assets Company Limited, and Trinity Medical Group,
Ltd. do not possess any relevant patents or trademarks relating to REMUNE in the
ten countries that we have rights to sell REMUNE, except for a non-exclusive
right to use The Immune Response Corporation's trademark REMUNE(TM) solely for
the purpose of marketing and selling REMUNE in our licensed territory. All
patents and trademarks are owned by The Immune Response Corporation and we are
not certain as to the number and status of patents relating to REMUNE in all ten
countries. Trinity USA owns the rights to REMUNE in these ten countries through
our license and collaboration agreement with The Immune Response Corporation,
dated September 15, 1995. Trinity Assets Company Limited has an exclusive right
to market, sell and distribute REMUNE in Thailand only under a sublicense and
supply agreement dated August 4, 2000. As of November 10, 2000, Trinity Medical
Group, Ltd. no longer has REMUNE rights anywhere.
22
<PAGE>
Trinity USA has an obligation to purchase up to an additional 666,666
shares of common stock of The Immune Response Corporation. Trinity USA must
purchase 333,333 shares within 30 days of receiving approval to commercialize
REMUNE in Thailand and an additional 333,333 shares within 30 days of receiving
the required factory establishment license or approval from the governing health
authority of Thailand to manufacture REMUNE. Our ownership percentage of The
Immune Response Corporation's outstanding common stock after the purchase of
these shares would be 2.2%, assuming the total issued and outstanding common
stock of The Immune Response Corporation as of September 30, 2000. The total
cash requirement for this purchase of stock is $10 million. Trinity USA
believes, however, that the purchase of The Immune Response Corporations' common
stock at $15 per share, which is significantly above the current market price of
their common stock, is much more than simply an investment in The Immune
Response Corporation. We believe the greater value of the payments is related to
the permanent fulfillment of our REMUNE license and access to REMUNE technology
from The Immune Response Corporation. The common stock of The Immune Response
Corporation held by Trinity USA after the required stock purchases would not be
relied upon for income from potential appreciation or dividends. The shares of
The Immune Response Corporation received in addition to our acquired license for
REMUNE is viewed as an additional asset which we may or may not retain. Under
present market conditions, where the price of The Immune Response Corporation's
common stock is significantly below $15 a share, the payments to The Immune
Response Corporation for the stock purchase would be accounted for primarily as
an intangible asset (license technology). Since the signing of the stock
purchase agreement over 5 years ago, The Immune Response Corporation's share
price has closed above $15 on several occasions, and it is plausible that
considerable shareholder interest in The Immune Response Corporation would
result from Trinity USA's success in gaining approval for REMUNE in Thailand and
the ultimate payment of the $10 million.
STATUS OF REMUNE'S DEVELOPMENT AND REGULATORY APPROVAL.
REMUNE product development has been completed by The Immune Response
Corporation with the remaining issues being certification of The Immune Response
Corporation's manufacturing facility by the U.S. FDA and the need to obtain a
U.S. Customs export license. It is expected that certification of the
manufacturing facility and export license can be provided to the Thailand FDA by
March 31, 2001, which we believe will result in subsequent commercial approval
of REMUNE in Thailand. Such approval would allow us to begin selling REMUNE in
Thailand through Trinity Assets Company Limited and potentially other
distributors.
In November 2000, the Thailand government approved the use of REMUNE
for up to 10,000 people in a program known as M903. The M903 program will result
in more precise recommendations for treatment of individuals depending on their
clinical test results. M903 is not required by the Thai FDA for full marketing
approval.
Independent of M903 is the application to the Thailand FDA for the full
commercial approval of REMUNE, which is being compiled by Trinity Assets Company
Limited and its consultant and is expected to be submitted in January 2001. The
required scientific data confirming REMUNE's effectiveness for the full approval
has already been collected. We will need approval from the Thailand Customs
Department for importation, but do not expect any delays or significant cost
since clinical samples have cleared customs in the past. It is possible that
Customs may post a duty on the product, but this is unlikely since it is not a
luxury item nor can it be made in Thailand at this time. If Customs were to
impose a duty, it could reduce our market potential.
Trinity USA expects to reimburse Trinity Assets Company Limited for
services and consultants used to complete the application process; these charges
are expected to be approximately $500,000 and are expected to be incurred in the
fourth quarter of 2000. Until full approval is received in Thailand and product
sales begin or we gain sufficient capital from sale of our common stock, we will
not have sufficient capital to expand our efforts in other licensed countries.
We believe that the M903 program could result in revenues through research
grants which we are currently seeking in Thailand. In addition, there are
charitable foundations and government programs outside of Thailand to fight HIV
and AIDS and we will apply to these agencies for support. Only after approval of
REMUNE in Thailand occurs and revenue from sales are realized, would we
undertake the approval process in the other countries. At this time we have not
applied for use in any country other than Thailand.
23
<PAGE>
EFFECT OF CURRENT AND FUTURE GOVERNMENTAL REGULATIONS.
The market for REMUNE is profoundly affected by current and future
governmental regulations. A variety of agencies may interfere with the course of
our business at any time. The safety and efficacy of the product could be
scrutinized by agencies and independent researchers. The greatest threat would
occur if unforeseen adverse side effects appear and patients either become even
more ill or die. To reduce that possibility, we will undertake significant care
in product handling and storage. Our first technical department will be a
Quality Assurance team that will be charged with product stewardship. In order
to anticipate and comply more rapidly to government regulations, we will create
a Regulatory Affairs Department, composed of either full-time or consulting
professionals that would follow all of the regulatory agencies in all countries
involved. To meet these regulatory and product quality assurance requirements,
it is projected that a staff of three full-time employees plus consultants would
require a budget of between $500,000 and $1 million per year.
Trinity USA will incur minor costs for compliance with environmental
regulations. The costs will be for record keeping and creation of material
descriptions and labeling required for transportation and export of REMUNE from
the United States. Most of these documents are available from our supplier and
one time conversion to our format will be needed. These requirements will likely
equate to the cost of one part-time clerical person and the related purchase of
minimal office equipment.
COMPETITIVE BUSINESS ENVIRONMENT.
We are not aware of another immune based therapy against HIV that is
in human clinical trials. If there are any, we believe it would take five to 10
years to develop, test, and gain approvals. There are antiviral treatments for
HIV which are widely used in the Western world and are known as Highly Active
Anti-retroviral Therapy (HAART). HAART products include AZT, ddi, Viracept, and
Sustiva. HAART is openly available in Thailand but used by less than 1% of the
infected population. The reason HAART is not widely used is due to the high cost
of these drugs. The normal price for HAART treatment is between $10,000 and
$20,000 per year per person. The average income of Thai's infected with HIV is
around $2,000 per year. Patients who use HAART are often maligned with side
effects, may not be able to work while treated and may have to remain
hospitalized. We believe REMUNE will be competitive due to a significantly lower
annual treatment price of less than $2,000 per year per person and it being a
simple quarterly injection which has no adverse side effects. Programs of the
Thai government and private charities make HAART available to a small number of
the approximately 1 million infected in Thailand. For example, Glaxo sells AZT
at a 90% discount in Thailand so that treatment is available for about $1 a day.
However, AZT can be used alone for only a few months (due to viral mutation) and
the only practical use is for pregnant mothers so that their newborns are not
infected. Other HAART drugs are expensive to produce and demand in western
countries at list prices already exceeds supply. In the future if the price of
HAART does comes down to the level of REMUNE, we believe they would be used when
needed in conjunction with REMUNE and not as a competitive treatment.
Other possible competitors include VaxGen Company, who is testing
AidsVax in Thailand as a preventative vaccine. If VaxGen is successful with
AidsVax, the number of infected individuals may decrease and lower our market
potential. VaxGen believes they are three to 5 years from first use of AidsVax
if current studies prove successful. Over the next three years, the number of
HIV infected will likely continue to grow and be above 2 million. Alternative
treatments such as holistic and traditional herbal products are widely used for
currently infected people in Southeast Asia because nothing else is available at
affordable amounts to most of the infected population in this region of the
world. Our business plan does not require that we reach a majority of those
infected with HIV in order to be successful. Over the next three years, we
believe we will have enough product to treat only 10% of the total infected in
Thailand. Thus, we do feel competitive pressure, even if present, will not
significantly alter our business plan.
CONTRACTS AND AGREEMENTS WITH AFFILIATED COMPANIES.
Trinity USA entered into a collaboration and supply agreement with
Trinity Medical Group, Ltd., dated December 1, 1999. Under the terms of the
collaboration and supply agreement, Trinity USA will pay Trinity Medical Group,
Ltd. for research personnel at contractual rates, travel, laboratory, facility
and publication costs
24
<PAGE>
associated with clinical trials of REMUNE until full regulatory approval in
Thailand is granted. Since inception through October 31, 2000, Trinity Medical
Group, Ltd. has billed Trinity USA approximately $1,078,000 for costs incurred
related to the research and development of the drug REMUNE. Since inception
through October 31, 2000, Trinity USA has paid Trinity Medical Group, Ltd.
approximately $669,000 for amounts previously billed. Trinity USA anticipates
that Trinity Medical Group, Ltd. or Trinity Assets Company Limited will incur
approximately $400,000 of additional research and development costs during the
fourth quarter of 2000 related to the drug REMUNE. Trinity USA will pay either
of these companies for the costs incurred as required by the applicable
collaboration and supply agreement or sublicense and supply agreement. Trinity
USA has policies and procedures in place to ensure that amounts charged to it by
either of these companies are in accordance with contractual terms and for the
purposes allowable in the respective agreements.
The collaboration and supply agreement also provided that Trinity USA
make its best efforts to capitalize itself with at least $4,000,000 through sale
or subscription of shares of common stock not to exceed 1 million shares. The
requirement for Trinity USA not to exceed 1 million shares in its attempt to
capitalize itself was subsequently waived. Trinity USA agreed to prepare and
complete all necessary documentation required for registration of Trinity USA
with the Securities and Exchange Commission as a reporting company, which it has
done by filing a Form 10-SB on May 12, 2000. In exchange for Trinity USA being
capitalized and a reporting company, Trinity Medical Group, Ltd. agreed to
transfer its license and collaboration agreement and stock purchase agreement
between it and The Immune Response Corporation, dated September 15, 1995, to
Trinity USA no later than the first sale of the product after full regulatory
approval in Thailand has been granted.
Trinity USA and Trinity Medical Group, Ltd. 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 Trinity USA. There was no accounting
recognition by Trinity USA as a result of the transfer of the license and
collaboration agreement and the related stock purchase agreement.
Trinity USA intends to capitalize future payments required under the
stock purchase agreement to an intangible asset (license technology) and to
marketable securities, as appropriate. The Immune Response Corporation consented
to the assignment of the rights, title, and interests in the license and
collaboration agreement and stock purchase agreement by Trinity Medical Group
Ltd. to Trinity USA on August 3, 2000. On November 10, 2000, Trinity USA and
Trinity Medical Group, Ltd. terminated the collaboration and supply agreement,
dated December 1, 1999. As discussed below, Trinity Assets Company Limited will
prospectively perform the research and development of REMUNE and will invoice
Trinity USA in accordance with agreed upon terms.
On August 4, 2000, we 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 Trinity USA 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. The sublicense and supply agreement provides that
Trinity USA 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 parties that if and when Trinity Assets Company
Limited begins to manufacture REMUNE, Trinity USA 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. Because we expected it to be at least three years before
Trinity Assets Company Limited will be able to manufacture REMUNE in Thailand
and before Trinity USA obtains the necessary government approvals to begin
selling REMUNE in licensed countries other than Thailand, specific terms of the
resale gross profit or royalties have not been negotiated by the parties at this
time. It is expected that subsequent negotiation of these terms, likely to occur
during the next year, will be conducted by Dr. James Namnath, Chief Executive
Officer, and Gary E. Wilson, Executive Vice President - Finance representing
Trinity USA and Inthanom John Churdboonchart and Orranart Victoria
Churdboonchart representing Trinity Assets Company Limited. We have selected the
above Trinity USA employees based upon their qualifications to represent Trinity
USA in these instances and to minimize potential conflicts of interest that
might arise between the parties as a result of the affiliated and family
relationships.
25
<PAGE>
Trinity USA 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, Trinity USA will pay Trinity Assets Company
Limited for research personnel, travel, laboratory, facility and publication
costs associated with clinical trials of REMUNE until full regulatory approval
in Thailand is granted.
Prior to full regulatory approval, Trinity USA is responsible for
funding the clinical studies and requirements of the regulatory approval process
for REMUNE in Thailand, which Trinity Assets Company Limited directs and
executes in Thailand. As necessary during this time frame, Trinity Assets
Company Limited is the entity that primarily interacts with The Immune Response
Corporation to gather the paperwork requirements of the regulatory approval
process and to exchange relevant scientific data. After REMUNE commercial
approval occurs in Thailand, Trinity USA will interact with The Immune Response
Corporation to establish demand forecasts for REMUNE purchasing, issue purchase
orders for REMUNE, arrange for shipment of product, process payments for REMUNE,
negotiate future changes to product pricing as may be necessary, and to
negotiate terms of REMUNE manufacturing technology transfer. After commercial
approval for REMUNE occurs in Thailand, Trinity USA will interact with Trinity
Assets Company Limited to develop sales forecasts for REMUNE, process and track
shipment of product, obtain payments for REMUNE, and jointly design and
construct REMUNE handling and packaging facilities.
Trinity Assets Company Limited was reorganized to specifically manage
REMUNE development, perform the local regulatory requirements and future
marketing, sales and distribution efforts in Thailand. Trinity USA management
believes it can simplify its organization structure and deliver higher
profitability by delegating these business and operational requirements to
organizations that exist and have familiarity in that particular economic
region, rather than attempting to manage the daily affairs and operations which
are 14 time zones removed. Our use of Trinity Assets Company Limited as our
current distributor in Thailand was also done to address Thai law which, in
certain instances, requires entities who manufacture or distribute
pharmaceuticals in Thailand to be majority Thai owned.
Trinity USA is located within 50 miles of The Immune Response
Corporation, the licensor and supplier of REMUNE. We believe that this will
facilitate the efficiency and effectiveness of our operations and assist in
forming a strong partnering relationship with our supplier. The direct purchases
of REMUNE by us are also simplified in that there will be no currency
translation and expected financing for these purchases will occur within U.S.
financial institutions. The sublicense and supply agreement between Trinity USA
and Trinity Assets Company Limited directs the majority of profits from REMUNE
sales to Trinity USA. Trinity Assets Company plans to derive most of its revenue
from ancillary services and products necessary for the treatment of infected
patients in its licensed country of Thailand.
CLINICAL TRIALS OF REMUNE AND OTHER REMUNE PROGRAMS.
In 1999, Dr. Vina Churdboonchart, principal investigator at Mahidol
University, with the collaboration of researchers from five leading Thai
universities, completed a Phase II double blind placebo controlled clinical
trial of REMUNE in Thailand, the results of which were submitted to the Thailand
National Committee on AIDS for review in March, 2000. In the clinical trial
above, REMUNE was found to increase mean CD4+ cell counts, with increases in
both cellular and humoral immune responses and stable viral load. A follow up
study through eighty-eight (88) weeks showed a significant decrease of viral
load in 30% of the subjects.
On December 24, 1999, Mahidol University in Thailand applied for
expanded testing of REMUNE with the Ministry of Public Health in Thailand. The
extended program (designated M903) 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 program of REMUNE
is not connected to the request for full commercial approval to be presented to
the Thai Food and Drug Administration. The M903 program was approved for the
purpose of clearly identifying the regimen of treatment for infected
individuals. The HIV infected population has varying degrees of virus present
and
26
<PAGE>
state of their immune system. The patients' chances of successful treatment
appear to depend upon the number of REMUNE doses and could be assisted further
with other supportive treatments, including brief treatment with HAART. The open
ended program has the potential to gather the most extensive body of data
available on the effect of REMUNE used as the only anti-viral therapy and used
in combination with other drugs. The ultimate goal of the program is to identify
the most beneficial and cost-effective regimen of REMUNE as a treatment for HIV.
M903 would be used by us as a means to accelerate successful treatment when full
commercialization occurs.
The results of the Phase II controlled trial were presented at the XIII
International AIDS Conference in Durban, South Africa by Dr. Vina
Churdboonchart, as the principal investigator at Mahidol University with the
collaboration of researchers from five leading Thai universities. The results of
the Phase II clinical trials in Thailand and other clinical trials using REMUNE
as a treatment for slowing HIV-related disease progression are encouraging. The
global burden of disease and death related to HIV is increasing at a rate
unmatched by any other pathogen. At present, the most effective treatment for
slowing HIV-related disease progression, antiretroviral medication requiring a
daily multi-pill regime, is complicated to administer, requires close medical
monitoring, is extremely costly, and can cause significant adverse effects. The
study conditions of the clinical trials in Thailand allowed REMUNE to be
assessed as a "mono-therapy", that is, without any other anti-viral drugs.
REMUNE requires a minimum of a once a quarter (or more if needed) injection. As
a result, REMUNE is both more economical and practical for populations similar
to those in Thailand. As released by the Ministry of Public Health of Thailand,
the official number of HIV infected people in Thailand is 1 million people. The
estimate for Southeast Asia is approximately 9 million HIV-1 infected people.
REMUNE is potentially a very cost effective therapy for the treatment of HIV
among Thailand's poorest people.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
PLAN OF OPERATION
GENERAL OVERVIEW.
We have minimal operations, nominal assets and no revenues from
operations. We have only approximately one year of business history. Our
estimates indicate that we will not generate internal cash flows until at least
the first quarter of 2001. Because we will not generate internal cash flows
until at least the first quarter of 2001, 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 expected source of internal cash flow during the first quarter of 2001 is
from grant income related to the M903 program; specifically, that these funds
will come from a Thai based AIDS research foundation to which our affiliates
have applied for funding.
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.
DISTRIBUTION AND REVENUE GOALS.
The Trinity USA business plan includes the establishment of revenue
over the first three years primarily from sale of REMUNE. Other possible sources
of revenue or income in the first three years include license fees for the
development of REMUNE in one of the other countries in Trinity USA's territory
and research grants from public and private sources. Trinity USA would focus its
workforce on developing expertise in REMUNE, international trade logistics and
tax management, foreign currency and cash management, effective product demand
forecasting, and ensuring product integrity. In the first year that we receive
commercial approval for REMUNE, we would establish an engineering team to
oversee the development of a handling, storage, and manufacturing plant in
27
<PAGE>
Thailand. After establishing reliable and steady revenue from REMUNE in
Thailand, Trinity USA plans to create its own research and development
capability in the United States and elsewhere to develop new and improved
products. Trinity USA plans to acquire related technology as discovered by an
internal business unit dedicated to that goal or through strategic acquisitions.
For the first three to five years, Trinity USA plans to derive almost all of its
revenue from sale of REMUNE to distributors in our licensed countries.
Trinity USA does not plan to directly sell REMUNE to patients, doctors,
clinics, or hospitals. Trinity USA would fund further studies of REMUNE to
expand its market potential with formula improvements and more use patterns; for
example, we believe REMUNE should be studied as a preventative vaccine for HIV.
In the five to fifteen year time frame, Trinity USA hopes to have developed or
acquired products for markets around the world.
We plan to demonstrate shareholder value by maintaining a significant
gross profit margin while minimizing our selling, general and administrative
expenses. Without a large burden for past research and development, the
outsourcing of our sales function to distributors in our licensed territories,
and a business plan mindful of expense management and operating cash flow, we
believe it is possible to have selling general and administrative costs of less
than $3 million per year in the first three years while gross profit potential
could rise to $35 million or higher. We base our third year gross profit
projection on a minimum gross profit of $75 per dose of REMUNE sold, as provided
by our existing agreement with Trinity Assets Company Limited, and a sales
volume of 500,000 REMUNE injections sold; that number of injections represents
about 125,000 patients - the estimated total number of people infected with HIV
in Thailand alone is between 1 and 2 million.
We believe distribution of REMUNE would be to only Thailand for
approximately three years, or until approval is received in each governing body
of our nine other licensed countries. Trinity USA plans to distribute the REMUNE
to Trinity Assets Company Limited which would sell direct to patients and to
other drug distributors. Trinity USA will forecast demand and receive orders for
REMUNE and arrange for the shipment of product by air from the manufacturer in
the United States.
Initially, the product would be made by The Immune Response Corporation
in its King of Prussia plant. The product may be shipped in bulk and is very
compact; one liter of product can produce 1,000 doses. If we are able to sell
50,000 doses per month, the shipping volume would be 50 liters, or about 13
gallons. When product arrives in Thailand, it will be kept at a Trinity USA or
Trinity Assets Company Limited owned or leased facility with high security,
controlled climate warehouse, and independent power supply. The cost of
shipping, including special refrigeration and security, would be minimal and
product would be in transit less than 24 hours. The sale of REMUNE to other
countries will occur after a willing party(s) is found that will pay for
licensing rights and guide the local regulatory approvals needed for
commercialization. Other countries would be supplied out of the Thailand
warehouse. Packaging and labeling will eventually occur in Thailand. Trinity
Assets Company Limited is responsible for local distribution and has to our
knowledge, obtained agreement from all five of the study centers used in
clinical trials to remain as access points for the product. More treatment
centers will be added as needed.
In addition, Trinity USA plans to distribute REMUNE throughout our
licensed countries in Southeast Asia using normal channels of distribution for
pharmaceuticals, probably with distributors that have experience with syringe
delivery products. There are a number of pharmaceutical distributors in each of
these countries and it is normal for drug manufacturers to rely upon them
instead of trying to do direct sales. In Thailand there will be a multiple
distribution system - through Trinity Assets Company Limited, existing
pharmaceutical distributors, and possibly through the Thailand government. As
discussed above, Trinity Assets Company Limited has established a delivery
network of clinics and hospitals that were involved in previous and current
clinical trials and can administer REMUNE presently. The Trinity Assets Company
Limited distribution network today has five government and University hospitals
and will add more as a result of the M903 program. Trinity Assets Company
Limited expects to have at least 10 treatment centers identified in the next six
months. Each center is expected to handle a minimum of 100 patients per day,
which would total 365,000 injections per year. By the third year of operations,
the Thailand distributors are projected to be able to administer one million
injections per year. We believe one million injections per year is the maximum
number of doses available for the first three years. One million injections will
treat about 250,000 patients or 12 - 25% of the total reportedly infected in
Thailand.
28
<PAGE>
CAPITAL REQUIREMENTS, CASH FLOW AND OTHER OPERATING CONSIDERATIONS.
Trinity USA 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, Trinity USA 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 ten months ended October 31, 2000, we have used
approximately $809,000 of cash in our operations. This cash was provided by
financing activities which included the sale or subscription of convertible
notes payable, common stock units and a convertible promissory note. 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 $75,000 which
amount will increase if and as we expand our operations. This estimate excludes
our average monthly research and development expenses to date of approximately
$125,000. Approximately $55,000 of the total $75,000 monthly operating overhead
relates to officer salaries and director expenses. When we hire the seven
additional employees mentioned in more detail below, we expect it will add
approximately $45,000 per month to our operating overhead. 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. We currently anticipate that the net proceeds from our sale of our
shares of common stock covered by this prospectus, together with our available
funds, will be sufficient to meet our anticipated needs for working capital and
capital expenditures through at least the next 12 months. However, we may need
to raise additional funds prior to the expiration of this period. Moreover,
there is no assurance that our estimate of our liquidity needs is accurate or
that new business development or other unforeseen events will not occur,
resulting in the need to raise additional funds.
During the next 12 months, Trinity USA expects to pay $10 million to
The Immune Response Corporation for milestone payments when REMUNE is approved
in Thailand and upon receiving the required factory establishment license or
approval from the governing health authority of Thailand to manufacture REMUNE.
The amount that Trinity USA expects to reimburse Trinity Asset Company Limited
or Trinity Medical Group, Ltd. for clinical studies and the regulatory
requirements during 2000 could be between $1-$1.5 million, of which
approximately $669,000 has been paid through October 31, 2000. Trinity USA
expects to underwrite additional clinical studies in 2001 to determine if REMUNE
is a preventative vaccine against HIV and that may cost up to $3 million.
Trinity USA may also incur significant expenses, from $0.5 to $1 million in the
application of regulatory approvals in other countries. Upon sufficient
capitalization, we also 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, accounting
staff, and additional directors during the first quarter of 2001. From our
present level of 3 full-time employees, we estimate having about 10 employees
and/or contract consultants by the end of the first quarter of 2001. We expect
that of the seven additional employees or consultants, 3 will be part-time
employees (accounting, logistics, and sales) and 4 will be full-time employees
or contract consultants (Engineering, Public Relations, Regulatory Affairs, and
Research and Development).
29
<PAGE>
DESCRIPTION OF PROPERTY
We own no real property. We currently lease executive and
administrative offices at 3753 Howard Hughes Parkway, Las Vegas, NV 89109 until
December 31, 2000. Trinity USA does not intend to renew this lease. We currently
lease those facilities from Vantas Corp. We also lease executive and
administrative offices at 30021 Tomas, Suite 300, Rancho Santa Margarita, CA
92688. We will lease those facilities from American Office Centers, L.L.C. for a
period of one year. The size of this property is approximately 500 square feet
and consists of two adjoining executive offices. This facility will serve as
Trinity USA's accounting and administrative offices. The monthly rent expense
for this facility is approximately $2,100. We believe that this space will be
sufficient for our business purpose for the next twelve months because our
research and development and distribution activities will be primarily performed
by our affiliate, Trinity Assets Company Limited, during that time. In the
opinion of management, all of our properties and equipment are adequately
covered by insurance.
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. We also estimate that the cost of securing
an associated land lease in Thailand is $3 million.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Churdboonchart Trinity Trust owns approximately 69% of Trinity
USA's common stock. The beneficiaries of The Churdboonchart Trinity Trust are
also the majority owners of Trinity Medical Group, Ltd. and Trinity Assets
Company Limited.
The beneficiaries of The Churdboonchart Trinity Trust and the owners of
Trinity Medical Group, Ltd. and Trinity Assets Company Limited are as follows:
<TABLE>
<CAPTION>
------------------------------- ----------------------- ------------------ -------------------- ----------------------
Beneficiary
Percentage in Ownership
The Percentage in Ownership Percentage
Position/Tile with Churdboonchart Trinity Medical in Trinity Assets
Named Beneficiary/Owner Trinity USA Trinity Trust Group, Ltd. Company Limited
------------------------------- ----------------------- ------------------ -------------------- ----------------------
<S> <C> <C> <C>
------------------------------- ----------------------- ------------------ -------------------- ----------------------
Dr. Vina Churdboonchart Director & President 25% 25% 0%
------------------------------- ----------------------- ------------------ -------------------- ----------------------
------------------------------- ----------------------- ------------------ -------------------- ----------------------
Arun Churdboonchart Director 25% 25% 0%
------------------------------- ----------------------- ------------------ -------------------- ----------------------
------------------------------- ----------------------- ------------------ -------------------- ----------------------
Inthanom Churdboonchart Director 25% 25% 49%
------------------------------- ----------------------- ------------------ -------------------- ----------------------
------------------------------- ----------------------- ------------------ -------------------- ----------------------
Orranart Churdboonchart Director 25% 25% 49%
------------------------------- ----------------------- ------------------ -------------------- ----------------------
------------------------------- ----------------------- ------------------ -------------------- ----------------------
</TABLE>
Since inception through October 31, 2000, Trinity Medical Group, Ltd.
has billed Trinity USA approximately $1,078,000 for costs incurred related to
the research and development of the drug REMUNE. Since inception through October
31, 2000, Trinity USA has paid Trinity Medical Group, Ltd. approximately
$669,000 for amounts previously billed. Trinity USA anticipates that Trinity
Medical Group, Ltd. or Trinity Assets Company Limited will incur approximately
$400,000 of additional research and development costs during the fourth quarter
of 2000 related to the drug REMUNE.
On August 4, 2000 Trinity USA entered into a sublicense and supply
agreement with Trinity Assets Company Limited, which assigned the sales,
distribution, potential manufacturing and marketing rights of
30
<PAGE>
REMUNE in Thailand to Trinity Assets Company Limited. Please see the section of
this prospectus entitled "Description of Business" where the terms and
conditions of this agreement are more fully presented.
Since inception through October 31, 2000, Trinity Assets Company
Limited has not billed any amount to Trinity USA for services under the
sublicense and supply agreement and no amount is due to Trinity Assets Company
Limited as of that date. Since Trinity USA's inception through October 31, 2000,
no amounts have been paid or loaned to Trinity Assets Company Limited.
Trinity USA entered into a collaboration and supply agreement with
Trinity Medical Group, Ltd., dated December 1, 1999. Please see the section of
this prospectus entitled "Description of Business" where the terms and
conditions of this agreement are more fully presented.
Trinity USA and Trinity Medical Group, Ltd. 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
obligations under the stock purchase agreement with The Immune Response
Corporation were assigned to Trinity USA.
On November 10, 2000, Trinity USA and Trinity Medical Group, Ltd.
terminated the collaboration and supply agreement, dated December 1, 1999. As
discussed in the section entitled, "Description of Business", Trinity Assets
Company Limited will prospectively perform the research and development of
REMUNE and will invoice Trinity USA in accordance with agreed upon contractual
terms.
Article XII of the Articles of Incorporation of Trinity USA state that
no contract or transaction between Trinity USA and any person, firm or
corporation will be affected by the fact that one of our officers or directors
has a direct interest in the contract or the third party. As a result of this
provision, Trinity USA's affiliates and members of the Churdboonchart family may
enter into contracts or transactions with Trinity USA without being affected by
the fact that members of the Churdboonchart family are officers or directors of
Trinity USA. However, Trinity USA has implemented procedures for negotiation of
terms between Trinity USA and its affiliates to avoid conflict of interest as
described under the subheading entitled "Contracts and agreements with
affiliated companies" under the section entitled "Description of Business."
The promoters of Trinity USA were Black Hills Investment Corp., Eastern
Frontier Trust, Baldwin Family Trust, Steve Devanney, Atlas Equity, Bob Rubin,
Ron MacDonald, and Coleman Abbe. These promoters received 493,000 shares of
Trinity USA's common stock in exchange for providing consulting services related
to assisting Trinity USA in becoming a public company and providing advice
regarding raising capital in the public markets. Trinity USA did not acquire any
assets from the promoters. Please see the subheading entitled "Service
Providers' Shares of Common Stock" under the section entitled "Selling Security
Holders" for a listing of the shareholdings of the promoters.
The promoters of August Project III Corp. were Eric Littman and Dennis
Sturm who owned 3,867,000 and 1,000,000 shares of August Project III Corp.,
respectively, prior to the merger with Trinity USA. Eric Littman and Dennis
Sturm retained a total of 100,000 shares of Trinity USA's common stock after the
completion of the merger.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The principal United States market in which our common stock is and has
been traded is the Pink Sheet Service. Our common stock began trading in July
2000 under the symbol TMGU. Firms making a market in Trinity USA 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 this
registration statement becomes effective. Further, we intend to apply for
listing on the NASDAQ Small Cap or National Market when we meet the necessary
listing requirements.
31
<PAGE>
The range of high and low bid information for our common stock for each
quarter from the date we became a reporting company and began trading through
the Pink Sheet Service (July 12, 2000) through November 30, 2000 is as follows:
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C> <C> <C>
The third quarter ended September 30, 2000 $8.00 $3.00
From October 1, 2000 through November 30, 2000 $5.00 $2.00
</TABLE>
The source of the above information is www.smallcapcenter.com. The
quotations reflect inter-dealer prices, without retail mark-up, mark-down, or
commission and may not represent actual transactions.
On November 30, 2000, there were approximately 50 holders of record of
our common stock. This number does not include any adjustment for stockholders
owning Trinity USA common stock in street name. The stock transfer records of
the corporation indicate that, as of November 30, 2000, there were 10,384,500
common shares outstanding. We have never paid dividends, and we do not
anticipate paying any dividends in the near future; instead, we intend to retain
earnings, if any, to provide funds for general corporate purposes and the
expansion of business. As well as being regulated at the federal level by the
Securities Exchange Act of 1934, the sale and resale of our common stock is
regulated at the state level through the Blue Sky laws.
Our common stock is listed on Pink Sheet Service under the trading
symbol TMGU, but the common stock still might not be salable by the resident of
a state in which we have not met the applicable Blue Sky requirements. Various
methods are available to brokers who want to fill buy or sell orders for a
resident of such a state, but the willingness to do this depends heavily on the
particular state or states involved and on the aggregate value of the
transaction. It also depends on the brokers involved. The compliance departments
of some brokerage firms routinely disallow trading in certain stocks -
especially "penny stocks" and others with inadequate levels of public
disclosure, low or suspiciously volatile prices, or market makers of less than
sterling reputation. There are federal regulations that can also influence a
broker's willingness or ability to be involved in sales of certain low-priced
stocks like Trinity USA's. The Securities and Exchange Commission has adopted
rules that regulate broker-dealer practices in connection with transactions in
these "penny stocks". Generally speaking, "penny stocks" are equity securities
with a price of less than $5 per share, other than securities listed on certain
national exchanges, or quoted on the National Association of Securities Dealers
Automated Quotation system, provided that current price and volume information
with respect to transactions in penny stocks is provided by such exchange or
system. If our common stock meets the definition of a "penny stock", before
executing a transaction not otherwise exempt, a broker-dealer must do the
following:
o Deliver a standardized risk disclosure document prepared by the
Securities and Exchange Commission that provides information about
penny stocks and the nature and level of risks in the penny stock
market.
o Provide the customer with bid and offer quotations for our common
stock, the compensation of the broker-dealer and the salesperson in the
transaction, and monthly account statements showing the market value of
each penny stock held in the customer's account.
o Make a special, written determination that our common stock is a
suitable investment for the purchaser and receive the purchaser's
written agreement to the transaction. These disclosure requirements may
have the effect of reducing the level of trading activity in the
secondary market for our common stock if it is or becomes subject to
the penny stock rules. If our common stock is or becomes subject to the
penny stock rules, shareholders may find it more difficult to sell
their the stock in their units because of the regulatory and paperwork
burden a broker has to deal with. Considering that it is unlikely that
a broker will make much money off penny stock transactions, a
shareholder might find it hard to get a broker to execute trades of our
common stock.
32
<PAGE>
The amount of common equity that is subject to outstanding options or
warrants to purchase, or securities convertible into common equity of Trinity
USA is as follows:
Stock options 60,000
Common stock purchase warrants 399,350*
Convertible notes payable and related
accrued interest and commissions 878,538
Convertible promissory note 225,000*
* Amounts include an estimate for the common stock purchase warrant (225,000
warrant shares) and common stock issuable upon conversion of the note (225,000
common shares) that is based upon a discounted, average historical share price
prior to and subsequent to the note agreement date of October 19, 2000.
The amount of common equity that could be sold pursuant to Rule 144
under the Securities Act or that Trinity USA has agreed to register under the
Securities Act for sale by security holders is 1,755,038 shares of common stock.
This amount excludes the estimated 399,350 estimated warrant shares and the
60,000 stock options. The total number of common shares outstanding as of
November 30, 2000 for which Rule 144 would not be available is 10,093,000
shares. Rule 144 is not available based upon the Securities and Exchange
Commission's position regarding business combinations with blank check
companies, such as Trinity USA's merger with August Project III Corp. on
December 31, 1999. The 10,093,000 shares of common stock can only be resold
through a registered offering, of which 493,000 of these shares are included in
this registration statement. See the section of this prospectus entitled,
"Selling Security Holders".
The amount of common equity that is being or has been proposed to be
publicly offered by Trinity USA is 2,000,000 shares of common stock.
<TABLE>
<CAPTION>
EXECUTIVE COMPENSATION
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- ----------------------
Other Restricted Securities LTIP All Other
Annual Stock Underlying Options/SARs Payouts Compensation
Year Salary($) Bonus ($) Compensation($) Award(s) ($) (#) ($) ($)
<S> <C> <C> <C>
Dr. James S. Namnath 1999 $45,000 $0 - - - - -
CEO
</TABLE>
Trinity USA has an employment agreement with Dr. James S. Namnath
(shareholder, CEO and Director), whereby he will serve as Trinity USA's Chief
Executive Officer. The agreement expires on December 31, 2000. The agreement
specifies that Dr. Namnath's employment would be conducted under contract
services with his present employer, NotesETC, Inc. until Trinity USA begins sale
of REMUNE, its shares of common stock have been approved for trading in the
equity markets or Trinity USA becomes a reporting company under U.S. securities
laws. At that time, he would be directly employed by Trinity USA on a full time
basis.
Because Trinity USA has become a reporting company, Dr. Namnath has now
become employed, as CEO, on a full time basis. In August of 2000, the terms of
this employment agreement were modified to provide for a monthly salary amount
of $25,000 as opposed to $35,000 per month.
Trinity USA had no other employees who received compensation as of the
end of its most recently completed fiscal year, December 31, 1999.
33
<PAGE>
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We file reports relating to Trinity USA with the Securities and
Exchange Commission. You can read and copy any document we file at the
Securities and Exchange Commission's public reference rooms in Washington, DC,
New York, NY, and Chicago, IL. Please call the Securities and Exchange
Commission at 1-800-SEC-0330 for further information on the public reference
rooms. Our Securities and Exchange Commission filings are also available to the
public from the Securities and Exchange Commission's website at
"http://www.sec.gov."
34
<PAGE>
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS AS
OF DECEMBER 31, 1999 AND FOR THE PERIOD FROM INCEPTION (SEPTEMBER 28, 1998) TO
DECEMBER 31, 1999.
INDEX TO FINANCIAL STATEMENTS
Page
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS......................F-2
FINANCIAL STATEMENTS
BALANCE SHEET.........................................F-3
STATEMENT OF OPERATIONS...............................F-4
STATEMENT OF STOCKHOLDERS' DEFICIT....................F-5
STATEMENT OF CASH FLOWS...............................F-6
NOTES TO FINANCIAL STATEMENTS.........................F-7
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Trinity Medical Group USA, Inc.
We have audited the accompanying balance sheet of Trinity Medical Group USA,
Inc. (a company in the development stage) as of December 31, 1999, and the
related statements of operations, stockholders' deficit and cash flows for the
period from inception (September 28, 1998) to December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Trinity Medical Group USA, Inc.
as of December 31, 1999 and the results of its operations and its cash flows for
the period from inception (September 28, 1998) to December 31, 1999, in
conformity with accounting principles generally accepted in the United States of
America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company is not yet generating
revenues and, as shown in the financial statements, has incurred losses in its
development stage. Also, as discussed in Note D, the Company has incurred
substantial obligations and will need to raise additional capital to complete
its development activities. These factors, among others as discussed in Note D,
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans are also discussed in Note D. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/S/ GRANT THORNTON LLP
Irvine, California
February 11, 2000
F-2
<PAGE>
TRINITY MEDICAL GROUP USA, INC.
(a company in the development stage)
BALANCE SHEET
December 31, 1999
ASSETS
<TABLE>
<CAPTION>
Current Assets
<S> <C>
Cash and cash equivalents $ 171,485
Subscription receivable from founding shareholders 9,600
Income tax refund receivable 18,951
--------------------
Total assets $ 200,036
====================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable $ 10,343
Accrued liabilities 84,595
--------------------
Total current liabilities 94,938
Convertible notes payable 732,500
Commitments and Contingencies _
Stockholders' deficit:
Common Stock, $0.001 par value, 50,000,000 shares authorized,
10,226,000 shares issued and outstanding 10,226
Additional paid-in capital 228,574
Deficit accumulated during the development stage (866,202)
--------------------
Total stockholders' deficit (627,402)
--------------------
Total liabilities and stockholders' deficit $ 200,036
====================
</TABLE>
The accompanying notes are an integral part of this statement.
F-3
<PAGE>
<TABLE>
<CAPTION>
TRINITY MEDICAL GROUP USA, INC.
(a company in the development stage)
STATEMENT OF OPERATIONS
Period From Inception (September 28, 1998) to December 31, 1999
Operating expenses:
<S> <C>
Research and development $ (294,000)
General and administrative
Acquisition costs (404,200)
Administrative costs (71,990)
Marketing costs (78,250)
--------------------
Total operating expenses (848,440)
--------------------
Other income (expense):
Interest income 2,028
Interest expense (11,345)
Loss on sale of investments (8,445)
--------------------
(17,762)
--------------------
Net Loss $ (866,202)
====================
Basic and diluted loss per common share $ (0.08)
====================
Basic and diluted weighted average common shares outstanding 10,226,000
====================
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE>
TRINITY MEDICAL GROUP USA, INC.
(a company in the development stage)
STATEMENT OF STOCKHOLDERS' DEFICIT
Period From Inception (September 28, 1998) to December 31, 1999
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Common Stock Paid-in Development
Shares Amount Capital Stage Total
--------------- ---------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Balance at inception -- $ -- $ -- $ -- $ --
Common stock issued to founding
shareholders 9,600,000 9,600 -- -- 9,600
Common stock issued for services 493,000 493 228,707 -- 229,200
Common stock issued to various
shareholders in connection with
August Project III merger 133,000 133 (133) -- --
Net Loss -- -- -- (866,202) (866,202)
--------------- ---------------- --------------- ---------------- ---------------
Balance, December 31, 1999 10,226,000 $ 10,226 $ 228,574 $ (866,202) $ (627,402)
=============== ================ =============== ================ ===============
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
TRINITY MEDICAL GROUP USA, INC.
(a company in the development stage)
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS
Period From Inception (September 28, 1998) to December 31, 1999
Cash flows from operating activities:
<S> <C>
Net loss $ (866,202)
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 (18,951)
Accounts payable 10,343
Accrued liabilities 84,595
-----------------
Net cash used in operating activities (552,570)
-----------------
Cash flows from investing activities:
Purchases of investments (69,330)
Proceeds from sale of investments 60,885
-----------------
Net cash used in investing activities (8,445)
-----------------
Cash flows provided by financing activities:
Issuance of convertible notes payable 732,500
-----------------
Net increase in cash and cash equivalents 171,485
Cash and cash equivalents - at inception --
-----------------
Cash and cash equivalents - December 31, 1999 $ 171,485
=================
Non-cash investing and financing activities:
Issuance of common stock to founding shareholders in exchange for
subscription receivable $ 9,600
=================
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE>
TRINITY MEDICAL GROUP USA, INC.
(a company in the development stage)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and cash equivalents
The Company considers all money market funds and demand deposits with original
maturities of ninety days or less to be cash equivalents.
Cash equivalents consist of money market folds whose fair value approximates
cost and are readily redeemable.
Income Taxes
Deferred tax assets and liabilities arc recorded for differences between the
financial statement and tax basis of the assets and liabilities that will result
in taxable or deductible amounts in the future based on enacted tax laws and
rates applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. Income tax expense is
recorded for the amount of income tax payable or refundable for the period
increased or decreased by the change in deferred tax assets and liabilities
during the period.
Research and Development Costs
The Company incurred costs in the research and development of a drug therapy,
REMUNE. These costs were incurred for Phase I and II clinical trials of REMUNE
in Thailand. Such costs are charged to expense as incurred. See Note I.
Stock-Based Compensation
Stock-based compensation issued to non-employees is recorded based on the fair
value of the consideration received or the fair value of the equity instruments
issued, whichever is more reliably measurable.
Fair Value of Financial Instruments
The Company is required to estimate the fair value of all financial instruments
included on its balance sheet at December 31,1999. The Company's financial
instruments at December 31,1999 consist of cash and cash equivalents, accounts
payable, accrued liabilities and convertible notes payable. These financial
instruments approximate their fair value due to the relatively short period of
time between origination of the instruments and their expected realization, or,
with respect to the convertible notes payable, based on current rates available
to the Company.
Earnings per share
Basic net loss per share is computed by dividing the net loss available to
common stockholders for the period by the weighted average number of common
shares outstanding during the period. Incremental common shares issuable upon
the conversion of notes payable and exercise of stock options and warrants, are
included in the computation of diluted net loss per share to the extent such
shares are dilutive.
The Company has excluded 732,500 potentially dilutive shares from the
calculation of diluted loss per common share, as the effect would be
antidilutive.
F-7
<PAGE>
TRINITY MEDICAL GROUP USA, INC.
(a company in the development stage)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999
Use of Estimates
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Accordingly, actual results could differ from those estimates and assumptions.
NOTE B - COMPANY BACKGROUND
Trinity Medical Group USA, Inc. (the "Company" or "TMGUSA") was incorporated in
the State of Delaware in September 1998. TMGUSA reincorporated in Nevada in
November of 1999. In December 1999, as the result of a reorganization (see Note
C), the Company became a Florida corporation. Although the Company was formed
and incorporated as a Delaware Corporation on September 28, 1998, the Company
had no capital transactions or operating activities of any significance between
September 28,1998 and December 31,1998. Accordingly, separate financial
statements as of December 31,1998 were not considered necessary.
TMGUSA is a development stage company with potential rights to market a drug
treatment, "REMUNE", designed for people infected with the Human
Immunodeficiency Virus (HIV) and afflicted with Acquired Immunodeficiency
Syndrome (AIDS). The Company is an affiliate of Trinity Medical Group, Ltd.
("TMG"), which is based in Bangkok, Thailand and is owned by the majority
shareholders of the Company. As further explained below, TMG currently owns the
rights to produce and sell REMUNE in Thailand, Philippines, Malaysia, Indonesia,
Singapore, Cambodia, Sri Lanka, Vietnam, Burma and Laos upon approval by the
governments of these countries. The Company has an option to acquire all of TMG
rights to develop and commercialize REMUNE in the aforementioned Asian
countries. See Note D.
On September 15, 1995, TMG obtained the rights to produce and sell REMUNE in ten
Asian countries via a License and Collaboration Agreement with The Immune
Response Corporation (NASDAQ:IMNR). On the same day, TMG entered into a Stock
Purchase Agreement with The Immune Response Corporation. Per the agreement, TMG
purchased 333,334 shares of The Immune Response Corporations stock at $15 per
share on April 30, 1996. TMG is further obligated to purchase an additional
333,333 shares of The Immune Response Corporation's stock at $15 per share upon
receiving the required marketing approval from the governing health authority of
Thailand for the drug therapy REMUNE. TMG is further obligated to purchase
another 333,333 shares of The Immune Response Corporation's stock 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.
If TMG does not receive the required marketing approval from the governing
health authority of Thailand by December 31, 2000, The Immune Response
Corporation may terminate the aforementioned agreements.
NOTE C - REORGANIZATION
In December 1999, TMGUSA entered into a merger agreement to acquire all of the
outstanding common stock of August Project III Corporation, a Florida
corporation, in a transaction described as a "reverse merger". The merger became
effective on December 31, 1999. August Project III Corporation was the surviving
legal entity after the merger but TMGUSA remains the accounting acquirer. The
merger was accounted for as a recapitalization of TMGUSA. In January 2000,
F-8
<PAGE>
TRINITY MEDICAL GROUP USA, INC.
(a company in the development stage)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999
August Project III Corporation changed its name to Trinity Medical Group USA,
Inc.
As part of the reorganization and merger agreement, August Project III
Corporation issued 5,226,000 common shares to the shareholders of TMGUSA in
exchange for all of the outstanding common shares of TMGUSA. TMGUSA common
shares were subsequently cancelled. Following the merger, certain original
shareholders of August Project III Corporation sold 4,867,000 common shares to
the Company in exchange for $175,000. The Company has recorded the acquisition
cost of $175,000 as an expense in 1999. Following the merger, the original
shareholders of TMGUSA own a total of 10,093,000 shares of August Project III
Corporation or 98.69% of the total 10,226,000 outstanding shares.
NOTE D - 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. The Company is in the development
stage, has not generated any revenues and, at December 31,1999, has accumulated
losses during the development stage amounting to $866,202 and, in 1999, used
$552,570 of cash in its operations. As mentioned in Note B, the drug therapy
REMUNE, which the Company has potential rights to market, must under go several
phases of trial testing before approval of the drug by the Thailand government
can be obtained and significant commercialization of the drug can occur. This
additional testing will require significant additional financing.
Upon becoming a reporting company under United States securities laws, the
Company intends to acquire, in the near term, the rights to REMUNE and assume
the related obligations specified under the Stock Purchase Agreement from TMG
(see also Note I). 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. The Company
intends to finance the aforementioned activities through a secondary offering
for between $15,000,000 and $20,000,000. The Company's initial efforts have
focused on the research and development of REMUNE (through TMG) 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 manufacturing 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 E - CONCENTRATION OF CREDIT RISK
The Company has cash deposits at U. S. banks and financial institutions which
exceed federally insured limits at December 31, 1999. The Company is exposed to
credit loss for amounts in excess of insured limits in the event of
non-performance by the institution; however, the Company does not anticipate
such non-performance.
NOTE F - COMMITMENTS AND CONTINGENCIES
In January 2000, the Company entered into a non-cancelable operating lease
expiring in January 2001 for office facilities and general administrative
services. There was no rent expense for the period from inception (September 28,
1998) to December 31, 1999. Future minimum lease payments are $14,820 for the
year ending December 31, 2000.
The Company has an employment agreement with Dr. James S. Namnath (shareholder),
F-9
<PAGE>
TRINITY MEDICAL GROUP USA, INC.
(a company in the development stage)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999
whereby he will serve as the Company's Chief Executive Officer. The agreement
expires on December 31, 2000. Dr. Namnath's employment will be conducted under
contract services with his present employer, NotesETC, Inc. until such time
("Milestone") that the Company either begins sale of REMUNE product or is
approved for public trading of its common shares in the United States equity
market as a reporting company; after this time, he will be directly employed by
the Company on a full time basis.
Until Milestone, his compensation will be at a rate of $250 per hour but not to
exceed 60 hours per month ($15,000). After Milestone, his salary will be $35,000
per month. In August of 2000, the terms of this employment agreement were
modified to provide for a monthly salary amount of $25,000 as opposed to $35,000
per month. The employment may be terminated at any time by the Company. Total
amounts paid to Dr. Namnath during 1999 were $45,000.
NOTE G - CONVERTIBLE NOTES PAYABLE
During fiscal 1999, the Company sold 146.5 units at a price of $5,000 per unit
to accredited investors in a private offering. Each unit consisted of a $5,000,
10% per annum note of the Company, due August 31, 2001 and convertible into
5,000 shares of the Company's common stock, $0.001 par value. Each unit was
convertible at the election of the holder between October 15, 1999 and December
31, 1999 or by election of the Company after December 31, 1999. Interest accrued
on each unit is convertible to common stock at the fair value of the Company's
common stock at the date of conversion. As of December 31, 1999, no units had
been converted to common stock. Subsequent to December 31, 1999, an additional
eight units were sold.
NOTE H - STOCK ISSUED FOR SERVICES
During 1999, the Company issued 493,000 shares of common stock in exchange for
legal and consulting services provided. The expense related to such services,
$229,200, was determined based upon the fair value of the services received.
NOTE I - RELATED PARTY TRANSACTIONS
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 TMG.
The Company entered into a Collaboration and Supply Agreement (the "Agreement")
with TMG, dated December 1,1999. Under the terms of the Agreement, the Company
will pay TMG 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 1999, the Company paid TMG
$294,000 for costs incurred under the Agreement related to the research and
development of REMUNE.
The Agreement also provides that the Company make its best efforts to capitalize
itself with at least $4,000,000 through sale or subscription of common class
shares not to exceed 1 million shares. The requirement for the Company not to
exceed 1 million shares in its attempt to capitalize itself was subsequently
waived. The Company agrees to prepare and complete all necessary documentation
required for registration of the Company with the U.S. Securities and Exchange
Commission as a reporting company.
In exchange for the aforementioned conditions, TMG agrees to transfer its
License and Collaboration Agreement and Stock Purchase Agreement between it and
F-10
<PAGE>
TRINITY MEDICAL GROUP USA, INC.
(a company in the development stage)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 1999
The Immune Response Corporation, dated September 15, 1995, to the Company no
later than the first sale of product after full regulatory approval in Thailand
has been granted.
NOTE J - INCOME TAXES
No provision for federal and state income taxes has been recorded as the Company
has incurred net operating losses through December 31, 1999. At December 31,
1999, the Company has net operating loss carryforwards available to future
taxable income for federal tax purposes of approximately $900,000; such
carryforwards expire in various years through 2019. Deferred tax assets include
these net operating loss carryforwards as well as certain expenses that are
reported for book and tax purposes in different periods. The Company has
provided a valuation allowance to offset all deferred assets due to the
uncertainty of realization.
F-11
<PAGE>
INTERIM FINANCIAL STATEMENTS FOR THE PERIOD ENDED SEPTEMBER 30, 2000
INDEX TO INTERIM FINANCIAL STATEMENTS
Page
----
BALANCE SHEETS..........................................F-13
STATEMENTS OF OPERATIONS................................F-14
STATEMENTS OF CASH FLOWS................................F-15
NOTES TO FINANCIAL STATEMENTS...........................F-16
F-12
<PAGE>
TRINITY MEDICAL GROUP USA, INC.
(a company in the development stage)
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
September 30, December 31,
2000 1999
-------------------- --------------------
(unaudited)
Current Assets:
<S> <C> <C>
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.
F-13
<PAGE>
TRINITY MEDICAL GROUP USA, INC.
(a company in the development stage)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Cumulative Three Months Nine Months
from inception Ended Ended
to September 30, September 30,
September 30, 2000 2000 2000
-------------------------- ------------------- -------------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
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.
F-14
<PAGE>
TRINITY MEDICAL GROUP USA, INC.
(a company in the development stage)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Cumulative
from inception Nine months
to Ended
September 30, 2000 September 30, 2000
--------------------- ------------------
(unaudited) (unaudited)
Cash flows from operating activities:
<S> <C> <C>
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.
F-15
<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 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.
F-16
<PAGE>
TRINITY MEDICAL GROUP USA, INC.
(a company in the development stage)
NOTES TO FINANCIAL STATEMENTS
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 878,538 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.
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.
F-17
<PAGE>
TRINITY MEDICAL GROUP USA, INC.
(a company in the development stage)
NOTES TO 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 consisted of a $5,000, 10% note due
August 30, 2001. Each unit was convertible into 5,000 shares of the Company's
common stock at the election of the Company. Interest accrued on each unit was
convertible to common stock at the fair value of the Company's common stock at
the date of conversion.
On December 11, 2000, the Company converted the total principal balance of these
notes, which were issued during 1999 and 2000, and the related accrued interest
and commissions, into 878,538 shares of its common stock. The total amount of
liabilities converted to equity in this transaction was $929,219.
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 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. The Company issued the
related 158,500 shares of common stock on November 20, 2000. 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
F-18
<PAGE>
TRINITY MEDICAL GROUP USA, INC.
(a company in the development stage)
NOTES TO FINANCIAL STATEMENTS
Thailand will be shared equally. It is the intent of the 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 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 Company
recorded a charge to interest expense of $146,552 in connection with the
issuance of this note. The charge represents the entire intrinsic value of the
beneficial conversion feature as calculated at the date of issuance. 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.
F-19
<PAGE>
TRINITY MEDICAL GROUP USA, INC.
(a company in the development stage)
NOTES TO FINANCIAL STATEMENTS
The covenants of the note prevent the Company from pledging any of its assets,
including licenses, to any third party or incurring any indebtedness senior to
the note. The covenants of the note also require Trinity USA to use its
reasonable best efforts to cause this registration statement to be declared
effective by the Securities and Exchange Commission (SEC) within 90 days of the
issuance of the note and to respond to the SEC's review comments within 5
business days. If this registration statement is not declared effective within
120 days of the issuance of the note, Trinity USA must pay as liquidated damages
2% of the purchase price of the note for each 30-day period until the statement
is effective. Trinity USA also granted piggyback registration rights with
respect to the warrant shares. If this registration statement is not declared
effective within 120 days of the issuance of the note, Trinity USA must pay as
liquidated damages 2% of the purchase price of the note for each 30-day period
until the statement is effective. Therefore, the total liquidated damages that
may need to be paid if this registration statement is not declared effective
within 120 days of the issuance of the note is 4% of the purchase price of the
note for each 30-day period until the statement is effective.
On November 10, 2000, the Company and Trinity Medical Group, Ltd. terminated the
Collaboration and Supply Agreement, dated December 1, 1999. As discussed in Note
I, Trinity Assets Company Limited will prospectively perform the research and
development of REMUNE and will invoice Trinity USA in connection with the terms
and conditions of the Sublicense and Supply Agreement between the two parties.
F-20
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 607.0850 of the Florida Business Corporation Act permits
indemnification of officers and directors of the Registrant under certain
conditions and subject to certain limitations. Section 607.0850 of the Florida
Business Corporation Act also provides that a corporation has the power to
purchase and maintain insurance on behalf of its officers, directors, employees,
and agents against any liability asserted against those person and incurred by
him or her in such capacity, or arising out of his or her status as such,
whether or not the corporation would have the power to indemnify him or her
against such liability under the provisions of Section 607.0850 of the Florida
Business Corporation Act.
Article VII of the Bylaws of the Registrant provides that the
Registrant shall indemnify its officers, directors and employees. The rights to
indemnity thereunder continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors, and administrators of the person. In addition, expenses incurred by a
officer, director, employee or agent in defending any action, suit or proceeding
by reason of the fact that he or she is or was a officer, director, employee or
agent of the Registrant shall be paid by the Registrant if he or she is
successful in defending the suit, whether on the merits or otherwise, and those
expenses may be paid by the Registrant in other situations unless such officer,
director, employee or agent is adjudged liable for negligence or misconduct in
the performance of his or her duties.
Article X of the Registrant's Certificate of Incorporation provides
that the Registrant shall indemnify all persons whom it may indemnify pursuant
to Section 607.0850 of the Florida Business Corporation Act to the full extent
permitted by such Section 607.0850 of the Florida Business Corporation Act.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table shows the estimated expenses in connection with the
issuance and distribution of the common stock being registered:
SEC registration fees...............................$ 4,729
Legal fees and expenses.............................$80,000
Accounting fees and expenses........................$20,000
Miscellaneous.......................................$ 5,000
-------
TOTAL: $109,729
========
RECENT SALES OF UNREGISTERED SECURITIES.
On December 31, 1999, Trinity USA and August Project III Corp. entered
into an Agreement for the Exchange of Common Stock. August Project III Corp.
issued to Trinity USA's shareholders 5,226,000 shares of its common stock in
exchange for 100% of the outstanding shares of Trinity USA. In addition,
shareholders of August Project III Corp. sold 4,867,000 shares to the
shareholders of Trinity USA 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 III Corp. August
Project III Corp. was the surviving corporation after the merger. On January 5,
2000, August Project III Corp. changed its name to Trinity Medical Group USA,
Inc.
In connection with a December 1999 private placement Trinity USA 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 Trinity USA due August
31, 2001 convertible into 5,000 shares of Trinity USA's common stock, $0.001 par
value, per share. The aggregate offering price was $772,500 and Trinity USA
received net proceeds of approximately $756,000. On December 11, 2000, the
Company converted the total principal balance of
II-1
<PAGE>
these notes and the related accrued interest and commissions into 878,538 shares
of its common stock. Trinity USA 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
Trinity USA's initial developmental business expenses.
In connection with a June 2000 private placement, Trinity USA initially
issued 158.5 preferred stock units at $4,000 per unit. Because Trinity USA 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
Trinity USA's common stock, par value $.001, and a non-callable common stock
purchase warrant. Each of the warrants entitles the registered holder to
purchase up to one thousand shares of Trinity USA's 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 an earlier date as Trinity USA may determine. Trinity USA received
net proceeds of approximately $571,000 under this private placement offering.
The proceeds from this private placement will be used to meet Trinity USA'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,
Trinity USA 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 Trinity USA provided that this registration
statement has been effective for ninety (90) consecutive days and Trinity USA'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, Trinity USA shall also issue to the holder a
warrant to purchase the number of shares of Trinity USA'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 Trinity USA, in cash or in accordance with
the aforementioned conversion terms of the note.
The covenants of the note prevent Trinity USA from pledging any of its
assets, including licenses, to any third party or incurring any indebtedness
senior to the note. The covenants of the note also require Trinity USA to use
its reasonable best efforts to cause this registration statement to be declared
effective by the Securities and Exchange Commission (SEC) within 90 days of the
issuance of the note and to respond to the SEC's review comments within 5
business days. If this registration statement is not declared effective within
120 days of the issuance of the note, Trinity USA must pay as liquidated damages
2% of the purchase price of the note for each 30-day period until the statement
is effective. Trinity USA also granted piggyback registration rights with
respect to the warrant shares. If this registration statement is not declared
effective within 120 days of the issuance of the note, Trinity USA must pay as
liquidated damages 2% of the purchase price of the note for each 30-day period
until the statement is effective. Therefore, the total liquidated damages that
may need to be paid if this registration statement is not declared effective
within 120 days of the issuance of the note is 4% of the purchase price of the
note for each 30-day period until the statement is effective.
EXHIBITS.
(A) EXHIBITS
EXHIBIT DESCRIPTION
2.1 Agreement for the Exchange of Common Stock by and among
August Project III Corp.
II-2
<PAGE>
3.1 State of Florida Articles of Incorporation of August
Project III dated July 1997
3.2 State of Florida Certificate of Amendment of the
Certificate of Incorporation of Trinity USA dated
January 2000
3.3 By-Laws of Trinity USA
4.1 Registration Rights Agreement
4.2 Promissory Note
4.3 Registration Rights Agreement
4.4 Form of Common Stock Purchase Warrant
4.5 Subscription Agreement
4.6 Convertible Promissory Note
4.7 Common Stock Unit Acknowledgement Letter
5.1 Legal Opinion of Parker Chapin LLP
10.1 Sublicense and Supply Agreement between Trinity USA and
Trinity Medical Group, Ltd. dated as of August 4, 2000
10.2 Supplement to Sublicense and Supply Agreement between
Trinity USA and Trinity Assets Company Limited dated
August 5, 2000
10.3 Amendment No. 1 to the License and Collaboration
Agreement dated September 29, 2000
10.4 Assignment Agreement between Trinity Medical Group, Ltd.
and Trinity USA dated August 3, 2000
10.5 Gary E. Wilson's Employment Agreement
10.6 Dr. James S. Namnath's Employment Contract
10.7 License and Collaboration Agreement between Trinity
Medical Group, Ltd. and The Immune Response Corporation
dated September 15, 1995+
10.8 Stock Purchase Agreement between Trinity Medical Group,
Ltd. and The Immune Response Corporation dated September
15, 1995
23.1 Consent of Parker Chapin LLP (included in Exhibit 5.1)
23.2 Consent of Independent Certified Public Accountants
----------------------------
+ Confidential treatment has been requested with respect
to certain portions of this agreement.
II-3
<PAGE>
UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement to include any
material information with respect to the plan of distribution not previously
disclosed in this Registration Statement or any material change to such
information in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(4) File, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3)
of the Securities Act of 1993;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental
change in the information in the registration
statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered
(if the total dollar value of securities offered
would not exceed that which was registered) and any
deviation from the low or high end of the estimated
maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change
in the aggregate offering price set forth in the
"Calculation of Registration Fee" table in the
effective registration statement.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to deliver or cause to be
delivered with the Prospectus, to each person to whom the Prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the Prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the Prospectus, to deliver, or
cause to be delivered to each person to whom the Prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the Prospectus to provide such interim financial information.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, Section 607.0850 of the Florida
Business Corporation Act or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered hereunder, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Rancho
Santa Margarita, State of California on, December 22, 2000.
<TABLE>
<CAPTION>
TRINITY MEDICAL GROUP USA, INC.
<S> <C>
By: /s/ James S. Namnath
-------------------------------
Name: James S. Namnath
Title: Chief Executive Officer and Director
SIGNATURE TITLE
/s/ Dr. Vina Churdboonchart President and Director December 22, 2000
--------------------------------
Dr. Vina Churdboonchart
/s/ Inthanom John Churdboonchart Director December 22, 2000
--------------------------------
Inthanom John Churdboonchart
/s/ Gary E. Wilson Executive V.P. - Finance,
-------------------------------- Chief Financial Officer,
Gary E. Wilson Treasurer December 22, 2000
</TABLE>
II-5
