August 14, 2000
MANAGEMENT'S DISCUSSION AND ANAYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
OVERVIEW
The Company was organized to create and realize value by identifying and making opportunistic real estate investments
through the direct acquisition, rehabilitation, development, financing and management of real properties and/or
participation in these activities through the purchase of debt instruments or equity interests of entities engaged
in such real estate business. The Company's business strategy is to maximize shareholder value, focusing on three
priorities: growth, profitability and liquidity through both domestic and international real estate investments.
The Company's primary source of equity financing has been through private placement of its securities, including
short-term corporate notes ("Notes"). As of April 30, 2000, the Company placed $11,664,984 pursuant to
private placement offerings of its Notes, which are all now due. The Company intends to repay the principal and
interest with cash flow generated from operations, property specific mortgages and the sale of its Series B Convertible
Debentures.
To continue its business strategy, the Company intends to fund its next round of acquisitions, development and
general working capital by issuing a Private Placement of $30,000,000 Fully-Amortized, 10.75% Series B Convertible
Debentures ("Debentures"). The Debentures are collateralized by U.S. Treasury Bonds and a First Mortgage
on roughly 1,000 residential lots.
In addition to the Debentures, the Company is seeking property specific mortgage financing, as well as joint venture
partners to finance projects.
Following the completion of the sale of the Debentures, the Company believes it will have sufficient funds to complete
development of several of its current projects, which will produce increased revenues to the Company. Once the
projects including condominium sales at Youngtown Gardens, residential lot sales at Vinas de Bajamar, monthly rental
income from Portal Del Mar and monthly lease payments from Plaza Rosarito begin producing an income, the Company
can move away from financing its operations through the sale of securities. However, there is no assurance that
the Company will be able to do so.
RESULTS OF OPERATIONS
YEAR ENDED APRIL 30, 2000 COMPARED TO YEAR ENDED APRIL 30, 1999. During the year ended April 30, 2000, the Company
had a net income of $532,629 or $.015 per share, as compared to a net loss of $(2,906,671) or $(0.113) per share
for the same period ended April 30, 1999. This change is primarily attributable to an extraordinary gain on the
Company's convertible debentures. Operating expenses for the year end April 30, 2000 was $6,186,738, an increase
from $5,889,020 for the year ending April 30, 1999. This increase is attributable to an increase in legal and accounting
fees in relation to the Company's offering of it short-term promissory notes, and the resulting increase in corporate
note expense to $2,271,959 for the year ended April 30, 2000, compared to $1,863,942 for the year ended April 30,
1999. For the year ended April 30, 2000, the Company had total revenues of $194,579 compared with $611,861 in total
revenues for the preceding fiscal year end.
The Company's general and administrative expense for the year ended April 30, 2000 increased to $1,571,391 from
$1,532,684 for the same period ending April 30, 1999. This slight increase is attributable to
primarily to the aforementioned increases in legal and accounting fees, the increased corporate note expense resulting
from the offering of the Company's short-term promissory Notes, and a decrease in consulting fees to $317,875 from
$926,640 in 1999.
LIQUIDITY AND CAPITAL RESERVES
Net change in cash during the fiscal year ended April 30, 2000 was $4,747,150, compared to a net change in cash
of $241,542 for the fiscal year ended April 30, 1999. Net cash used by operating activities totaled $(3,359,784)
for the year ended April 30, 2000, an increase of $505,967 from $(2,853,817) for the year ended April 30, 1999.
This difference is attributable primarily to an increase in interest paid on corporate Notes during the fiscal
year ended April 30, 2000 as compared to the same period in 1999.
Net cash used by investing activities totaled $(17,667,833) during the year ended April 30, 2000, compared to $(2,194,540)
provided during the year ended April 30, 1999. This difference is primarily attributable to an increase in expenditures
for the acquisition and
Net cash provided by financing activities totaled $25,774,767 for the year ended April 30, 2000, an increase of
$20,484,868 from $5,289,899 in financing activities for the year ended April 30, 1999. The increase primarily attributable
to construction financing and mortgages for the acquisition and development of the Company's properties, including
Alpine Gardens East, Youngtown Gardens, Temecula Gardens, Carlsbad and San Marcos, California properties, the Hills
of Bajamar, Plaza Rosarito and Portal Del Mar.
At April 30, 2000, the Company's cash, which includes cash reserves and cash available for investment, was $5,208,173,
up from $461,023 at the preceding fiscal year end. The increase primarily attributable to construction financing
and mortgages for the acquisition and development of the Company's properties, including Alpine Gardens East, Youngtown
Gardens, Temecula Gardens, Carlsbad and San Marcos, California properties, the Hills of Bajamar, Plaza Rosarito
and Portal Del Mar.
PLAN OF OPERATION
To date, the Company has obtained funds for the acquisition of its properties from the sale of common stock and
9-month promissory notes ("Notes"). Recently, state and federal securities regulators have begun to target
nine-month note programs, primarily being offered by sham and/or start-up companies. The Company has agreed to
voluntarily cease sales of its Notes, although management feels that the program met the requirements of federal
and state exemptions from registration for sales of commercial paper. Due to the cessation of its Note sales, the
Company has experienced an immediate need for alternative funding both to service the existing Notes and for the
completion of development on its current projects. Although the Company hopes to pay off the Notes with proceeds
generated from operations and proceeds generated from the $30 Million Series B Convertible Debentures Offering.
Additional funding may be required for acquisition of additional properties and completion of development of existing
properties. The Company believes that completion of development will result in an immediate, long-term and consistent
increase in the Company's revenues, and that revenues generated from existing properties can be used to acquire
new properties and to build up and diversify the Company's real estate investment portfolio.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
TRI-NATIONAL DEVELOPMENT CORP.
PAGE
----
Report of Ludlow & Harrison, Independent Auditors. . . . . . . . . . 24 Consolidated Balance Sheets as of April
30, 2000 and 1999. . . . . . 25 Consolidated Statements of Operations for year ended April 30, 2000. . . . . .
. . . . . . . . . . . . . . . . . . . . . 26 Consolidated Statements of Cash Flows for year ended April 30, 2000.
. . . . . . . . . . . . . . . . . . . . . . . . . . 27 Notes to Consolidated Financial Statements . . . . . . .
. . . . . . 28
LUDLOW & HARRISON
a CPA Corporation
3545 Camino Del Rio South Suite D (619) 283-3333 San Diego, CA 92108 Fax: (619) 283-7977
Independent Auditor's Report
----------------------------
We have audited the accompanying balance sheets of Tri-National Development Corp. as of April 30, 1999 and 2000,
and the related statements of income, retained earnings and cash flows for the years then ended. 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 audits.
We conducted our audits in accordance with generally accepted auditing standards. 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 audits
provide 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 Tri-National Development Corporation as of April 30, 1999 and 2000, and the results of its operations
and its cash flows for the years then ended in conformity with generally accepted accounting principles.
/s/ Ludlow & Harrison Ludlow & Harrison A CPA Corporation
August 10, 2000
TRI-NATIONAL DEVELOPMENT CORP.
CONSOLIDATED BALANCE SHEETS
April 30, 00 April 30, 99
ASSETS: ------------ ------------
-------
Current assets:
----------------
Cash in banks $ 81,294 $ 461,023
Cash in banks - Restricted (Note 2) 5,126,879 -
Accounts receivable, net 1,715,844 445,096
Assisted living-Youngtown (Note 3) 16,999,119 -
Citizens Business Bank Judgment Receivable (Note 4) 6,092,065 5,605,341
------------ ------------
Total current assets 30,015,201 6,511,460
------------ ------------
Investments:
------------
NetRom, Inc. convertible preferred stock (Note 5) 1,292,794 -
NetRom, Inc. common stock (Note 6) - 3,000,000
Taig convertible preferred stock (Note 7) 3,000,000 3,000,000
MRI medical diagnostics, Inc. (Note 8) 18,185 24,638
Hills of bajamar (Note 9) 4,219,577 4,191,109
Plaza resort timeshares (Note 10) 14,645,085 13,354,544
Bajamar las perlas condominiums (Note 11) - 6,000,000
Assisted living-Other Locations in process (Note 12) 2,450,516 104,500
Plaza rosarito (Note 13) 11,883,398 1,076,738
Portal del mar condominiums (Note 14) 1,484,232 100,000
Hall of fame fitness center (Note 15) 50,708 50,558
Bajamar Airport 22,766 -
Alpine Gardens East (16) 4,295,270 4,272,800
International health network (Note 17) 17,334 18,500
------------ ------------
Total investments 43,379,866 35,193,387
------------ ------------
Other assets:
-------------
Capitalized equipment lease 408,264 478,840
Property, furniture, and equipment, net 3,169 158,795
Other Assets 11,888 -
------------ ------------
Total other assets 423,320 637,635
------------ ------------
Total Assets $ 73,818,387 $ 42,342,482
============ ============
Liabilities and stockholders' equity:
-------------------------------------
Current liabilities:
--------------------
Accounts payable and accrued liabilities $ 2,300,319 $ 600,813
Citizens Business Bank Judgment expenses (Note 4) 3,171,838 1,961,870
Loans payable-short term-1 year or less (Note 18) 33,686,763 1,519,572
------------ ------------
Total current liabilities 39,158,920 4,082,255
Deferred revenue - (Note 4) 4,502,035 3,643,471
Notes payable-net of current portion (Note 19) 20,796,075 20,828,199
------------ ------------
Total Liabilities 64,457,030 28,553,925
------------ ------------
Stockholders' equity: -
Common stock 13,814,089 10,747,059
Paid in Capital 1,431,142 -
Convertible preferred stock - 9,458,000
Accumulated deficit (5,883,874) (6,416,502)
------------ ------------
Total stockholders' equity 9,361,357 13,788,557
------------ ------------
Total Liabilities and Stockholders' Equity $ 73,818,387 $ 42,342,482
============ ============
See accompanying notes.
TRI-NATIONAL DEVELOPMENT CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND CHANGES IN RETAINED EARNINGS
Year Ended
--------------------------------
April 30, 00 April 30, 99
------------ ------------
Revenues:
---------
Revenues $ 194,579 $ 611,861
------------ ------------
Operating Expenses: -
Corporate note expense (Excluding interest) 2,271,959 1,863,942
Consulting fees 317,875 926,640
Sales and marketing 478,011 448,944
Legal, accounting and insurance 248,696 336,801
Interest expense 1,298,806 780,009
General and administrative 1,571,391 1,532,684
------------ ------------
Total operating expenses 6,186,738 5,889,020
------------ ------------
Loss from Operations (5,992,159) (5,277,159)
Other Expenses and Losses -
Write-down of investments (112,252) (191,909)
Gain on sale of assets - 2,562,397
Loss on sale of securities (1,251,978) -
------------ ------------
Loss before taxes (7,356,388) (2,906,671)
less:income tax (Note 20) - -
Extraordinary items - net of tax (Note 21) 7,889,017 -
------------ ------------
Net income (loss) 532,629 (2,906,671)
Retained earnings, beginning (6,416,502) (3,509,831)
------------ ------------
Retained earnings, ending $ (5,883,874) $ (6,416,502)
============ ============
Earnings per share-fully diluted $ 0.015 $ (0.113)
Earnings per share-fully diluted
(Extraordinary item) $ 0.23 $ -
See accompanying notes.
TRI-NATIONAL DEVELOPMENT CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended
--------------------------------
April 30, 00 April 30, 99
------------ ------------
Cash from Operating activities
------------------------------
Net cash loss from operations $ (3,449,062) $ (2,963,224)
Accounts receivable-Trade 111,875 (136,943)
Accounts Payable-Trade (22,597) 246,350
------------ ------------
Net Cash from Operating activities (3,359,784) (2,853,817)
------------ ------------
Cash used in Investments
Furniture and Equipment 25,687 385,787
Alpine Gardens East (5,669) (270,500)
MRI Medical Diagnostics 6,453 (4,588)
Assisted Living-Youngtown (4,862,054) (434,300)
Assisted Living-Other Projects (1,933,095) (72,000)
NetRom Convertible Preferred Stock 455,228 -
Hills of Bajamar (51,234) (459,765)
Plaza Rosarito (8,546,694) (1,076,738)
Portal Del Mar (1,384,232) (100,000)
Hall of Fame Fitness Center Building (150) (50,558)
International Health Network 1,166 (18,500)
Capitalized equipment lease (70,810) (17,889)
Bajamar Las Perlas Condominiums - (75,489)
Plaza Resort Timeshares (1,290,541) -
Other Assets (11,888) -
------------ ------------
Net Cash used in Investments (17,667,833) (2,194,540)
------------ ------------
Cash provided by Financing
Notes and Loans Payable 25,682,124 6,458,541
Common Stock Private Placements & Warrants 92,643 (1,168,642)
------------ ------------
Net Cash provided by financing activities 25,774,767 5,289,899
------------ ------------
Net change in cash and equivalents 4,747,150 241,542
Cash and equivalents, beginning of period 461,023 219,481
------------ ------------
Cash and equivalents, end of period $ 5,208,173 $ 461,023
============ ============
See accompanying notes.
TRI-NATIONAL DEVELOPMENT CORP.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS ACTIVITY
Tri-National Development Corp. ("TND" or the "Company") is a multi-faceted international real
estate development, sales and management company,publicly traded under the symbol "TNAV" on the NASDAQ
OTC BB and under the symbol "TND" on the Hamburg Stock Exchange and the Frankfurt Stock Exchange. The
Company's development efforts are focused in four major areas: residential development, resort properties, commercial
development and senior andassisted living facilities.
The Company was incorporated on July 31, 1979 as Rocket Energy Resources Ltd. under the laws of the Province of
British Columbia, Canada by registration of its Memorandum and Articles. The Company changed its name to MRI Medical
Technologies, Inc. in April of 1989. On December 7, 1992, the Company changed its name to Tri-National Development
Corp. and recapitalized on the basis of five (5) common shares of MRI MedicalTechnologies, Inc. for one (1) common
share of Tri-National Development Corp. In January of 1997, the Shareholders approved a special resolution to change
the corporate domicile from Vancouver, B.C. to the state of Wyoming. On February 24, 1997, the Company's Articles
of Continuation were accepted by the state of Wyoming and it is now incorporated in good standing under the laws
of the State of Wyoming. The Company maintains its executive offices in San Diego, California at 480 Camino Del
Rio S. in Suite 140 and its telephone number is 619-718-6370.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Greater San Diego Imaging Center, a 100% owned subsidiary,
Tri-National Holdings, SA de CV, a 100% owned subsidiary, Planificacion Desarrollos de Jayay, SA de CV, a 100%
owned subsidiary, Inmobilaria Plaza Baja California, S.A. and Alpine Gardens East, Inc., a 51% owned subsidiary.
All material intercompany accounts and transactions have been eliminated in the consolidation.
EARNINGS PER SHARE
Primary earnings per share have been computed based on the weighted average number of shares and equivalent shares
outstanding during each period. The dilutive effect of stock options and warrants has been considered in the computation
of equivalent shares and is included from the respective dates of issuance.
The fully diluted computation is based on the number of shares for the twelve months ended April 30, 2000 and 1999.
The computation contemplates the dilutive effects of common stock equivalent shares as well as conversion of the
convertible preferred stock.
Since the date of issuance of the warrants and options, both primary and fully diluted earnings per share computations
limit the assumption of the repurchase of treasury shares to a maximum of 20% of the outstanding shares of the
Company.
In prior quarters, the Company had inadvertently included common stock issued as collateral for loans in the total
issued and outstanding. In the current quarter and year end, the Company has made the proper calculations and deducted
a total of 8,292,000 common shares issued as collateral from the total issued and outstanding.
FURNITURE AND EQUIPMENT
Furniture and equipment are stated at cost and depreciated over the estimated useful lives of the assets (three
to five years) using the straight line method.
NOTE 2. CASH IN BANKS - RESTRICTED
The cash in the bank consists of $5,126,879.16 reserved for the construction of 126 units at the Company's Youngtown
Gardens Senior Housing Project in Youngtown, Arizona.
NOTE 3. ASSISTED LIVING - YOUNGTOWN
In January of 1998, TND, through its majority owned subsidiary, Alpine Gardens East, finalized negotiations and
executed agreements to purchase its first assisted living facility to be built and delivered, for a combination
of $110,000 in cash, 864,500 shares of the Company Class B Series B Convertible Preferred Stock, which was converted
to 864,500 common shares and a new mortgage. Tri-National, through Alpine Gardens East, intends to own and operate
this 126-bed assisted living facility in Youngtown, Arizona. This facility is planned to include 40 two-bedroom
units, 50 one-bedroom units and 36 units reserved for Alzheimer and Dementia residents. In June of 1998, the Company
closed on this property. In July of 1999, a formal ground breaking took place with the Mayor of Youngtown and the
Company for the recently finished construction on two models. The Company has received $10,500,000 in construction
financing from Del Mar Mortgage for the buildout of the rest of the project, which is roughly 95% finished with
a target completion date of August 2000. In February of 2000, the Company named Morgan Stanley Dean Witter the
preferred lender for the individual mortgages on the units.
NOTE 4. CITIZENS BUSINESS BANK JUDGMENT RECEIVABLE
In March 1992, the Company advanced $383,064 to MRI Medical Diagnostics, Inc. for a joint venture interest in its
subsidiary, MRI Grand Terrace, Inc., a California corporation, to enable it to acquire a retirement hotel located
in Grand Terrace, California. In addition to the joint venture interest, the loan was evidenced by a 15% note receivable
from MRI Medical Diagnostics, Inc. and a second trust deed and an assignment of rents from MRI Grand Terrace, Inc..
On March 22, 1993, MRI Grand Terrace, Inc. filed a complaint against Chino Valley Bank, now known as Citizens Business
Bank (AMEX:CVB), as a result of the purchase of the residential retirement hotel in Grand Terrace from the Chino
Valley Bank. MRI Grand Terrace, Inc. claimed that the sellers of the property (Chino Valley Bank) had failed to
disclose that the property's parking lot encroached on the property of the adjacent parcel of land. Contrary to
the bank's representations, the Conditional Use Permit (CUP) under which the hotel was operating was in violation,
which restricted the ability of TND and MRI Grand Terrace, Inc. to operate, refinance or sell the facility. MRI
Grand Terrace, Inc. stopped making mortgage payments to the mortgage holder (the same Chino Valley Bank), which
then filed a Notice of Default as an initial step to foreclosure on the property. MRI Grand Terrace, Inc. then
sought Bankruptcy protection in July of 1993, and was ultimately dismissed from Bankruptcy in May of 1995. The
Chino Valley Bank subsequently sold the property in foreclosure to itself. TND filed it's own action against the
Chino Valley Bank in early 1995, claiming that it was defrauded and misrepresented when it advanced the $383,064
for the closing in 1992. The Company purchased the stock of MRI Grand Terrace, Inc., as described in Note 4 to
these financial statements, in an effort to control both lawsuits. As a result of the uncertainty of the final
results of the lawsuits, the Company previously wrote off the investment. In May of 1998, TND and MRI Grand errace,
Inc. received judgments in their favor for fraud, intentional misrepresentation and deceit/negligent misrepresentation
in the Superior Court of San Bernardino, California. TND and MRI Grand Terrace, Inc. received judgments totaling
almost $5 million dollars, including punitive and compensatory damages, plus pre-trial interest. Beginning May
7th, 1998 the $5 million judgment began accruing, post judgment interest of 10% or $1,400 per day until the full
award is paid. A 35% portion of the award is due to the Company's attorney. The attorneys, however, filed for recovery
of those fees as an additional award that was heard and approved September 25, 1998. On December 3, 1998, the court
awarded the Company an additional $185,000 in legal fees.
The bank has filed its appeal on June 16, 1999. This gave Tri-National the right to cross appeal on the basis of
the additional damages we believed we could show. However, we decided not to exercise this right and possibly open
the door for the Appellate Court to return us to court to evaluate those damages. Instead, we filed our answer
to their appeal September 16, 1999 and will now let the Appellate Court proceed. Oral argument has now been set
for September 6, 2000.
The deferred income from this judgment receivable is $2,920,227.05.
NOTE 5. NETROM, INC. CONVERTIBLE PREFERRED STOCK
In January of 1998, the Company, on behalf of its wholly-owned Mexican subsidiary, Planificacion y Desarrollo Regional
Jatay, S.A. de C.V., sold 50 acres of its Hills of Bajamar property to NetRom, Inc., a California publicly traded
corporation for $60,000 per acre, for a total purchase price of $3,000,000, plus construction and management contracts
on said 50 acres.
NetRom, Inc. delivered to Tri-National Development Corp. at closing, 1,000,000 shares of its Preferred Convertible
stock at a value of $3.00 per share for a total value of $3,000,000. The preferred stock accumulated interest at
a rate of 15% per annum and was to be convertible into common stock at $3.00 per share or market price for the
10 day average prior to the date of conversion, whichever is less, but in no event less than $1.50 per share. The
conversion date was at the option of Tri-National Development Corp., however, no sooner than 12 months from the
date of closing and in no case later than 15 days after the common stock of NetRom, Inc. trades at or above $4.00
per share for a period of thirty consecutive days.
Additionally, NetRom, Inc. provided TND warrants to purchase 1,000,000 common shares at a price of $1.25 per share,
presumed that NetRom, Inc. would achieve its stated projection of $.31 per share in earnings for the year ending
December 31, 1998. In the event that NetRom, Inc. fell below the $.31 per share earnings projection, but no lower
than $.21 in earnings for that period, then the warrant price would fall to $1.00 per share. Further, if the earnings
fell to between $.11 and $.21, then the option price would be reduced to $.75 per share and in the event the earnings
fell below $.11 per share, the option price would be reduced to $.50 per share. The price and terms for the property
were based on arms length negotiations between the parties and was approved by the Board of Directors of TND and
the shareholders of NetRom, Inc. at their Annual Meeting of Shareholders, held on January 19, 1998.
In April of 1999, the Company converted the 1,000,000 shares of Netrom, Inc. preferred shares to 2,320,345 shares
of restricted common shares and released for sale shares within the volume limitations pursuant to Rule 144. As
of April 30, 2000, the Company had sold 1,320,345 shares at an average price of approximately $.40.
NOTE 6. NETROM, INC. COMMON STOCK
In June of 1998, NetRom, Inc. exercised an option to acquire an additional 200 acres of the Company's Hills of
Bajamar property for $4.2 million. The $4.2 million was paid with 4.2 million restricted shares of NetRom, Inc.
common stock. By exercising its option to acquire the 200 acres, NetRom, Inc. would increase its total holdings
to 250 acres. The combined parcel would be utilized via a joint venture arrangement with Tri-National to develop
an extreme sports destination resort on a 500-acre total parcel. This investment of 4.2 million common shares of
NetRom, Inc. represented approximately 30% of the total shares outstanding of NetRom, Inc.
In April of 1999, this transaction was mutually annulled. Neither company was best served by maintaining the inventory
of either the stock or the land. Consequently, the sale was annulled resulting in the cancellation of the 4,200,000
restricted common shares of Netrom, Inc. and return of the 200 acres of the Company's Hills of Bajamar.
NOTE 7. TAIG VENTURES, INC. PREFERRED CONVERTIBLE STOCK
In June of 1998, the Company, on behalf of its wholly-owned Mexican subsidiary, Planificacion y Desarrollo Regional
Jatay, S.A. de C.V., a Mexican corporation, sold 50 acres of its Hills of Bajamar property to Taig Ventures, Inc.,
a Utah telecommunications corporation for $60,000 per acre, for a total purchase price of $3,000,000, plus construction
and management contracts on said 50 acres.
Taig Ventures, Inc. delivered to Tri-National Development Corp. at closing, 3,000,000 shares of its Convertible
Preferred Non-Voting Class B shares at a value of $1.00 per share for a total value of $3,000,000. The preferred
stock accumulates interest at a rate of 15% per annum and will be convertible into common stock at $1.00 per share
or market price for the 10 day average prior to the date of conversion, whichever is less, but in no event less
than $.75 per share. The conversion date is at the option of Tri-National Development Corp., however, no sooner
than 12 months from the date of closing and in no case later than 15 days after the common stock of Taig Ventures,
Inc. trades at or above $2.00 per share for a period of thirty consecutive days.
Additionally, Taig Ventures, Inc. provided TND warrants to purchase 1,000,000 common shares at a price of $3.00
per share, presuming that Taig's common shares are trading at $4.00 or higher; $2.00 per shares if Taig's common
shares are trading between $3.00 and $4.00 per share; $1.25 per share if Taig's common shares are trading between
$2.00 and $3.00; and in no event less than $.75. The price and terms for the property are based on arms length
negotiations between the parties and was approved by the Board of Directors of TND and the shareholders of Taig
Ventures, Inc. at their Annual Meeting of Shareholders, held on April 30, 1999.
NOTE 8. INVESTMENT IN MRI MEDICAL DIAGNOSTICS, INC., A COLORADO
CORPORATION
In 1992 the Company sold its wholly owned subsidiary, MRI Medical Diagnostics Inc., a California corporation to
Petro-Global, Inc., a Colorado publicly traded corporation. In return, the Company received 6,000,000 restricted
common shares of the purchaser, Petro-Global, Inc., plus certain mineral properties and leases. In 1992, the mineral
properties were written down to a nil value in the records and the name was changed from Petro-Global, Inc. to
MRI Medical Diagnostics, Inc.(MRI-Med). MRI-Med filed for Chapter 11 bankruptcy protection in July 1993 in conjunction
with the Chino Valley Bank action (see Note 2). After dividends in kind totaling 2,000,000 shares in 1992 and 1993
to TND shareholders, and due to uncertainty in the underlying value of the remaining 4,000,000 MRI-Med shares held
by the Company, the carrying cost of these shares was written-off in 1994. Tri-National Development Corp. filed
a reorganization plan on behalf of MRI-Med in August 1995 and, in settlement of the litigation described in Note
(2), the Company received 5,900,000 shares of MRI-Med at a deemed value of $0.50 per share, ordered by the U.S.
Federal Bankruptcy Court, plus 1,400,000 shares for reimbursement of current expenses. In July of 1997, MRI-Med
recapitalized on a 1 for 5 basis. The investment is recorded in the books at a cost of $496,994. The Company declared
and paid a stock dividend of 750,000 shares of MRI-Med to TND shareholders of record August 31, 1997 and declared
a second stock dividend of an additional 750,000 to TND shareholders of record January 27, 1998. After the stock
dividends paid to TND shareholders in 1992, 1993, 1997 and 1998, and shares sold to finance the reorganization,
the Company retains approximately 415,000 post-split shares of MRI-Med. MRI-Med is currently traded on the Over
the Counter Bulletin Board under the symbol "MMDI" and trades in the $.15 to $.40 range.
NOTE 9. REAL ESTATE DEVELOPMENT PROPERTY: HILLS OF BAJAMAR
The Hills of Bajamar property is a 2,500-acre parcel located in the Municipality of Ensenada, on the Pacific Ocean
side of Baja California, Mexico, roughly 50 miles south of San Diego, California. The purchase contract completed
in 1992 through the Company's wholly-owned Mexican subsidiary, Planificacion Desarollos de Jatay, S.A. de C.V.
("Planificacion"), provides for an overall purchase price of $6,000,000 for the 2,500 acres ($2,400 per
acre or $.60 per sq. meter). The property is being purchased on a gradual basis in 247-acre increments at $600,000
apiece. In September 1998, the Company, in accordance with its contract, had taken title to an additional 247 acres.
In September 2000, in accordance with its contract, the Company is scheduled to make additional $600,000 payment.
The Company recently received a financing
commitment for $2,000,000 to make this scheduled payment and complete the engineering for Vinas de Bajamar (See
below). This will give the Company title to a total of approximately 750 acres and places the balance of roughly
1,750 acres in trust with Banco Ixe. Title to additional acres will be released to the Company as annual payments
are made to the seller. In the event the Company is unable to make its scheduled annual payments, the trust is
subject to cancellation and the property will be subject to refinancing under which the Company may be required
to pay a significantly higher price per acre. Balance owing on the remaining 2,000 acres is $4,800,000 at $600,000
annually with no interest until 2003.
NOTE 10. PLAZAS RESORT TIMESHARES AND COMMERCIAL PROPERTY
In December of 1996, the Company entered into an acquisition agreement with Valcas Internacional, S.A., to acquire
100% of the stock of Inmobilaria Plaza Baja California, S.A., a Mexican corporation, including its existing assets,
which include 16+ developed acres of ocean front land within the Bajamar resort with plans for 328 vacation ownership
(timeshare) units, plus a 26,000 square-foot adjacent commercial building under construction for $13,079,055, payable
with notes for $9,079,055 and 1,000,000 Class B Series B Convertible Preferred shares with a value of $4.00 per
share. See details for Notes Payable. During the Company's second quarter, the Company paid $200,000 additional
as it modified the original contract.
NOTE 11. LA PERLA CONDOMINIUMS
In January of 1999, the Company entered into an acquisition agreement with Valcas Internacional, S.A. to acquire
2+ developed acres of ocean front land within the Bajamar resort, with plans for a 32-unit condominium complex
for $6,000,000. The Company paid $1,000,000 in accordance with the new contract for the 32-unit La Perla condominiums
to be built and signed notes for an additional $5,000,000, pursuant to a construction contract executed simultaneously.
It was subsequently determined that these units could not be developed as timeshares and consequently not economically
feasible. The $1,000,000 the Company invested in La Perla was credited to the original Plaza Resort timeshare and
efforts for La Perla concluded, with the notes payable cancelled.
NOTE 12. ASSISTED LIVING - OTHER LOCATIONS IN PROCESS
In October of 1998, the Company entered into a purchase agreement to acquire 3.66 acres of undeveloped property
overlooking the Pacific Ocean in Carlsbad, California for $2,900,000, with a $125,000 down payment. The Company,
through its majority owned subsidiary, Alpine Gardens East, plans to develop and operate this 180-bed assisted
living facility, with an Alzheimer's care component. As of April 30, 2000, the Company had paid a total of $125,000
in connection with this acquisition.
In November of 1999, the Company closed and completed escrow to acquire a fully-zoned 22-acre parcel of real property
with plans, located in Temecula, California for $4,300,000 for a combination of cash and notes. The Company plans
to develop a fully-inclusive senior community that will offer medical facilities, Alzheimer's and dementia care,
independent and assisted living and senior single family housing. The Company has named the project, Temecula Gardens,
Inc. and plans to start construction in late 2000.
In April of 1999, the Company acquired 2.39 acres of undeveloped land in San Marcos, California for $800,000 (See
"BUSINESS"). The Company plans to develop a 60-unit Alzheimer's care facility.
NOTE 13. PLAZA ROSARITO
On November 20, 1998, Tri-National Holdings, S.A. de C.V., a wholly owned Mexican subsidiary, purchased the Plaza
San Fernando from Banco Bital with a $1 million cash down payment. In July of 1999, Capital Trust, Inc. of New
York, the Company Investment Banker, provided the remaining $8 million necessary to close and complete the escrow
and will maintain a participation in the project. Pursuant to current agreements, the loan is due and payable November
21, 2000. The Company currently has a financing commitment for this property in excess of $14 million to payoff
Capital Trust, Inc. prior to November 21, 2000 and provide adequate construction financing to complete the project.
Plaza San Fernando's appraised value is in excess of $33 million. Fonatur, the tourism arm of the Mexican government,
has approved a $38 million
loan for the construction of a hotel and convention center on a portion of the property. The Company intends to
joint venture this component with a major U.S. hotel operator.
The Company has renamed this property, Plaza Rosarito. It is located in the heart of Rosarito Beach in Baja California,
Mexico, minutes from the 20th Century fox film studio where "Titanic" was filmed and down the street
from the famous Rosarito Beach Hotel. Plaza Rosarito includes 15 acres of undeveloped oceanfront land zoned for
the 450-room hotel and convention center, 18 acres of developed land, including 187,500 square feet of existing
steel, concrete and marble commercial space, 42 developed residential lots and a 80% complete 36-unit condominium
complex. The Company plans to sell the 30 condominiums at $100,000 each with a 20% down payment and the balance
at 11% over 10 years. The Company's initial plans are to sell the 42 residential lots at approximately $30,000
each with a 20% down payment and the balance at 11% over 10 years. The Company has initial plans and will start
to execute multi-year, triple- net leases from established preliminary commitments for approximately 100,000 square
feet of the existing commercial property at up to $2.00 per square foot per month from U.S. and Mexican retail
operations, consistent with comparable lease rates in the area, which upon full lease up should generate in excess
of $4 million annually and become one of the most significant shopping centers in Baja California. The Company
has already pre-leased roughly 60% of the 187,500 square foot shopping center. Additionally, the Company received
approval to sell the commercial space as condominiums at up to $200 per square foot, with a 30% down payment and
the balance at 14% over 5 years. This allows the Company an additional exit vehicle if desired and an alternative
to leasing. The down payments would be deposited into an escrow account, until the Company completes approximately
$1,500,000 in improvements, of which approximately $800,000 has already been completed. Upon full sell out, the
projected gross revenues generated from the property could be in excess of $35 million, with down payments over
$11 million and annual mortgage payments of roughly $5 million.
The deferred income from the sale of commercial at the shopping center is $1,581,808.
NOTE 14. PORTAL DEL MAR CONDOMINIUMS
In February of 1999, the Company , through a wholly owned Mexican subsidiary, signed purchase agreements and provided
the $500,000 down payment to acquire Portal Del Mar for $1,250,000. Portal Del Mar is a 123-unit, 2 and 3-bedroom
condominium development on 6 acres overlooking the Pacific Ocean in Baja California, Mexico, just south of Rosarito
Beach. The 126 ocean view condominiums are in various stages of completion, with approximately 46 completed. The
Company recently received a financing commitment for $7.5 million to complete the remaining 80 units, add a clubhouse,
3 tennis courts, 2 pools and a spa with beach access and palapas. Each condo completed is intended to include an
oversize terrace with ocean views. Comparable condominiums located across the road are selling in the $250,000
range. The Company arranged financing for the remaining $750,000 of acquisition cost and closed escrow on this
property in June of 1999 and intends to initially operate this property as a hotel and eventually begin timeshare
sales in late 2001. The Company expects to start timeshare sales at $5,000 per week with a $1,500 down payment
and the balance at 12% over 7 years. Upon full sell out of the 6,222 weeks at an average price of $5,000, the projected
gross revenues would exceed $31 million with down payments of $9 million and annual mortgage payments of approximately
$2.5 million.
NOTE 15. HALL OF FAME FITNESS CENTER
In February of 1999, Tri-National Tijuana, S.A. de C.V., a newly formed, wholly-owned Mexican subsidiary, signed
purchase agreements and provided the $25,000 down payment to acquire the former Banco Atlantico building for $950,000.
Banco Atlantico is a 20,000 square foot, 2-story commercial building in the heart of the banking district in Tijuana,
Mexico. The Company has signed a letter of intent to lease this building to Hall of Fame Fitness, Inc. Nevada corporation,
for the buildout of a fitness center. Additionally, Tri-National would have management and participation agreements.
NOTE 16. ALPINE GARDENS EAST
Alpine Gardens East is a Nevada corporation formed to own and operate senior and assisted living facilities in
the southwest United States. As of April 30, 2000, the Company has paid $280,500 in cash and the issuance of 864,500
shares of Class B Series B preferred stock, which was converted during year end April 30, 1999 to 864,500 common
shares.
NOTE 17. INTERNATIONAL HEALTH NETWORKS, INC.
International Health Networks ("IHN"), a Nevada corporation, is headed up by three prominent physicians,
all of whom are also shareholders of the Company, including Dr. Jerry Parker, who is a director and officer of
the Company. IHN is a multitude of U.S. medical services designed for Mexico that the Company has envisioned for
the past several years as the magnet for attracting the retiree market to Baja California, Mexico.
The primary focus for IHN is a planned medical campus, to be built on Hills of Bajamar property. The medical campus
was originally outlined by IHN in 1997 in an agreement that called for 150 acres at the south end of the property
at a price of $25,000 per acre with an option for an additional 100 acres at $60,000 per acre for 3 years. The
Company retained the construction rights to build all required facilities on the combined 250 acres and maintain
a property management contract. The campus is to include an acute care hospital associated with an recognized U.S.
medical provider, a medical school complete with dormitories, class rooms and auditorium, medical exhibition center,
R & D facilities for pharmaceutical industry and facilities for long-term care combined with anti-aging and
wellness programs. This campus is important not only to the region, but to the Company's desire to create a retirement
mecca on its properties. The original contract is being revised at this date.
In May of 1999, the Company received the approvals from the Mexican government for the development of a medical
school and a four-year university. The Company had originally planned to build this facility on it's Hills of Bajamar
property, however it has redesigned it's concept plans to build the school on the north end of Bajamar, upon closing
of escrow if that can occur in the near future.
NOTE 18. LOANS PAYABLE SHORT-TERM
To implement its business strategy, the Company initially funded acquisitions, development and general working
capital by issuing a Private Placement of nine-month Corporate Notes at 10% interest per annum. The investors principal
and interest are guaranteed by the Company and further bonded by New England International Surety Co., for up to
$15 million. The Company collateralized the $15 million in bonding from New England International Surety Co. with
a portion of its Hills of Bajamar property and paid over $1,000,000 in bonding fees. As of April 30, 2000 the Company
had placed $11,664,984 in Corporate Notes, of which all are due. The Company intends to repay the principal and
interest with cash flow generated from operations, property specific mortgages and the sale of its Series B Convertible
Debentures. New England International Surety Co. has not performed and the matter has been turned over to legal
counsel to pursue the recovery of the bonding fees through litigation.
The Company made the private offering of its nine-month corporate notes ("Notes") in reliance on exemptions
from the registration requirements of the Securities Act of 1933 and applicable state securities laws. Recently,
the Company became the subject of a cease and desist order issued by the Wisconsin Securities Division, based on
sales of its Notes to Wisconsin residents. The nine- month promissory note program was brought to the Company by
the investment banking firm, Johnson, Richards & Company, Inc., and the Company relied on representations made
by that firm that a federal exemption was available under the right terms and conditions. With the proceeds being
used for specific projects etc., the Notes were considered commercial paper and exempt from securities registration.
Although the Company believes it properly met the criteria for exemption, because it used the proceeds to acquire
real estate and is arguing that the sales met the requirements of the Wisconsin private offering exemption, it
has paid off all of the Notes due in Wisconsin. The Company has also agreed to a voluntary cease and desist order
in California with respect to sales of those same Notes in that state. The California Department of Corporations
required
the Company to offer rescission to California investors in that offering and all California investors accepted
the rescission. This requires the Company to repay all California investors their principal only, which the Company
has already started paying. The California order does not prohibit future exempt or qualified sales of the Company's
securities in California.
Additionally, the Louisiana Commissioner of Securities is currently examining the sales of the Notes to Louisiana
residents. In the event that it is found that the sales did not meet the requirements of applicable exemptions
from registration in Louisiana, it is the position of the State of Louisiana that the Company must refund all investments
in the Notes to Louisiana purchasers. The Company issued approximately $1,500,000 in Notes to Louisiana investors.
The Company has already started to pay off Notes due in Louisiana and intends to meet the balance of the refund
obligation with a combination of revenues generated by Plaza Rosarito, equity and/or debt financing and the leveraging
of portions of its real estate portfolio. There can be no absolute assurance, however, that the violations will
in fact be cured in this manner and therefore it is possible that further remedial action may be required.
Because the Company has relied on federal and state exemptions for placement of its Notes, it is possible that
other states may find that the Company did not comply with the various blue sky exemptions. The consequences of
any such violations may vary from state to state, but could include the requirement that the Company rescind some
or all of the sales in such states at the request of the affected subscribers and prepare formal registration statements
and/or other documentation at the request of the securities regulators. Additionally, the Company and/or its officers
may be subject to civil and/or criminal fines or penalties including, but not limited to, a sanction with regard
to the Company's ability to make any public offering in the future. It is believed that the Company can continue
its operations through its development of cash and revenues from its ongoing operations despite the rescission
offer in California and potential refund to Louisiana investors.
Short-term notes payable at April 30, 2000, consisted of the following:
Corporate Notes payable 9-month notes, interest at 10%,
currently due $11,456,686
Note payable to Capital Trust Guaranteed by 3 officers and Directors and a first trust deed on Plaza Rosarito,
interest at 12%
due November 21, 2000 8,000,000
Notes payable, short term
interest at 10%, due January 31, 2001 1,420,458
Note payable to Palomar Investments
interest at 10%, due October 1, 2000 19,898
Note payable to Norman Lizt
complete purchase of San Marcos land 429,721
Note payable to Del Mar Mortgage
Construction loan for Youngtown Gardens
interest at 14.5%, due February, 2001 10,600,000
Note payable to Del Mar Mortgage Complete purchase of Temecula land
Interest at 14.5%, due June 2001 1,760,000
-----------
TOTAL $33,686,763
===========
NOTE 19. LONG-TERM NOTES PAYABLE
Long-term notes payable at April 30, 2000, consisted of the following:
Note payable to Palomar Investments
Payment 12% due April 30, 2001 $ 300,693
Note payable for capital lease to
Commercial Money Center, Inc. 436,998
(See "LEGAL PROCEEDINGS")
Note payable and cash payable to DUBSCA upon closing of vacation
ownership (timeshare) project 9,079,055
Note Payable to Sovereign Capital
Convertible Debenture, 8% interest 297,331
Note payable to North County Bank Guaranteed by a stockholder and equipment, due in monthly installments of $860,
with
interest at 10.5%, through October, 2001 13,526
Note Payable to Del Mar Mortgage Construction loan for Youngtown Gardens
9,874,953
Note Payable to Solymar, Inc.
Due 793,520
-----------
TOTAL $20,796,075
===========
NOTE 20. INCOME TAX
While the corporation has a net income of $532,629 for the year end April 30, 2000, it has a net operating loss
carry forward from prior years that completely absorbs this amount, leaving no federal income taxes to be paid.
A minimum tax of $800 is paid to the State of California, but this is included in operating expenses.
NOTE 21. EXTRAORDINARY GAIN-DEBENTURES
The Company over the last several years achieved a number of acquisitions with the use of Convertible Preferred
Stock and cash. The contractual agreements underlying the Convertible Preferred Stock called for the Company to
achieve a trading value of $3.00 per share within a 24 month period or by January 31, 2000, whichever came first.
The agreements further allowed for the sellers to petition the Company to convert these Convertible Preferred Shares
to interest bearing Convertible Debenture instruments in the event the Company was not able to meet the $3.00 qualification.
The majority of the sellers in fact did request and were satisfied with the receipt of the appropriate instruments
in February and March of 2000. Subsequently, over the next few months, the note holders elected to convert these
Convertible Debentures into common stock as per their right under the terms and contained therein. The net effect
of this for the year ending April 30, 2000 is an extraordinary gain in the amount of $7,889,017.
NOTE 22. PROPERTY, FURNITURE AND EQUIPMENT
Furniture and equipment consists of the following:
April 30, 2000 April 30, 1999
-------------- --------------
Furniture and equipment $ 496,673 $ 657,072
Less accumulated depreciation (85,240) (19,437)
---------- ----------
$ 411,433 $ 637,635
========== ==========
NOTE 23. LEASES
The Company leases one office facility in San Diego, California and one in Ensenada, Baja California under operating
leases which expire in 2000 and the year 2001, respectively. The leases generally require the Company to pay all
maintenance, insurance and property taxes and are subject to certain minimum escalation provisions. The Company
also leases autos, equipment and computers.
Future minimum operating lease payments as of April 30, 2000 are as follows:
2000 $210,700
2001 252,840
--------
$463,540
========
NOTE 24. GREATER SAN DIEGO IMAGING CENTER
This facility has provided magnetic resonance imaging (MRI) services in the San Diego area since 1990. On June
4, 1996 the Company entered into an Asset Purchase Agreement with Greater San Diego Imaging Center (GSDIC) with
an effective date of November 1, 1996. The Company agreed to purchase the fixed assets, certain trade accounts
receivable, certain assignable contracts, leases and agreements, prepaid expenses and the goodwill of the business.
The purchase price was $599,999 for the fixed assets and $1.00 for other assets and is payable as follows:
(a) by payment of $325,000, of which $25,000 U.S. was paid upon execution of the agreement (partially paid from
deposit on letter agreement); and (b) by the issuance of 857,142 common shares of TND based upon a value of $0.35
U.S. per share for total share consideration having a value of $300,000 U.S.; and (c) on December 30, 1996, the
Company entered into an agreement with First Colonial Ventures, Ltd., Nevada publicly traded company, to sell it
1/3 of GSDIC for $350,000 cash, payable over twelve months. As of April 30, 1998, First Colonial had paid a total
of $112,367, with unpaid principal, interest and penalties of $357,748. The Company declared First Colonial in
default and retained the 1/3 interest as liquidated damages.
This facility, with tenant improvements, was originally financed for $2.5 million. The equipment had an appraisal
of $1.2 million and tenant improvements valued at $241,000. A $75,000 "open unit" upgrade was completed
for claustrophobic and large patients.
Effective August 31, 1999, the space lease expired and the landlord insisted on a new 5-year lease at an increase
that would have brought the monthly rental to almost $9,000 per month. Additionally, parent company and personal
guarantees for the full amount of $540,000 were required. It was determined that the business could not support
the expenses required to justify a large financial commitment. Consequently, the center was closed effective August
31, 1999.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.