<PAGE>2
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: December 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE EXCHANGE ACT
For the transition period from: to:
Commission file number: 0-22965
PINNACLE RESOURCES, INC.
(Exact name of Small Business Issuer in its charter)
WYOMING 84-1414869
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
7345 E. Peakview Avenue, Englewood, Colorado 80111
(Address of principal executive offices) (Zip Code)
Issuer's Telephone number, including area code:
(303) 771-8100
Check mark whether the Issuer (1) has filed all reports required by
Section
13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the Registrant was required to file such reports),
and (2) has been subject to the filing requirements for at least the past
90 days. YES: X NO:
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PREVIOUS FIVE YEARS
Check whether the registrant filed all documents and reports required to
be filed by Section 12, 13, or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by the court.
YES: NO:
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common stock, as of the last practicable date: 4,250,000
Transitional Small Business Disclosure Format. YES: NO: X
<PAGE>3
Pinnacle Resources, Inc.
Index
PART I FINANCIAL INFORMATION
Balance Sheet
December 31 1999 4
Statements of Operations
Six Months
Ended December 31, 1999 and 1998 5
Statements of Cash Flows
Six Months Ended
December 31, 1999 6
Unaudited Consolidated Statement
of Comprehensive Loss 7
Notes to Unaudited Consolidated
Financial Statements 8
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11
PART II
Other Information 14
Signatures 15
Financial Data Schedule 16
<PAGE>4
Pinnacle Resources, Inc.
(A Development Stage Company)
Consolidated Balance Sheet
<TABLE>
<CAPTION>
Unaudited Audited
December June
31, 1999 30, 1999
<S> <C> <C>
ASSETS
Current Assets:
Cash $55,842 $145
Accounts Receivable - Other 1,258 $0
Note Receivable and Related Accrued Interest 34,916 32,286
(Less Allownacxe for Uncollectible Amounts of $48,776)
0 0
Total Current Assets 92,016 32,431
-------- -------
Equipment 2,383 0
-------- -------
Other Assets:
Goodwill 518,514 0
Accumulated Amortization (34,568) 0
-------- -------
Total Other Assets 483,946 0
-------- -------
Long-term Portion of Note Receivable
and Related Accrued Interest 0 100,000
-------- --------
TOTAL ASSETS $578,345 $132,431
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Current Liabilities
Current Portion Of Note Payable $100,000 $100,000
Accounts Payable 4,410 15,800
Accrued Interest 8,925 6,425
--------- -------
Total Current Liabilities 113,335 122,225
Long-Term Portion Of Note Payable 183,153 0
--------- -------
TOTAL LIABILITIES 296,488 122,225
--------- -------
SHAREHOLDERS' EQUITY
Preferred Stock , $.01 Par Value
Authorized 2,000,000 Shares; Issued
And Outstanding -0- Shares 0 0
Common Stock, $.00001 Par Value
Authorized 500,000,000 Shares;
Issued and Outstanding 5,835,000 Shares Unaudited,
Issued and Outstanding 4,250,000 Shares Audited 58 43
Capital Paid In Excess Of
Par Value Of Common Stock 573,942 151,457
Currency Transalation (Loss) (563)
Retained Earnings (Deficit) Accumulated During The
Development Stage (291,580) (141,294)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 281,857 10,206
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $578,345 $132,431
========= =========
The Accompanying Notes Are An Integral Part Of
These Unaudited Financial Statements.
<PAGE>5
Pinnacle Resources, Inc.
(A Development Stage Company)
Unaudited Consolidated Statement Of Operations
</TABLE>
<TABLE>
<CAPTION>
Inception
Unaudited Unaudited January 6,
6 Month 6 Month 1995
Period Ended Period Ended Through
December December December
31, 1999 31, 1998 31, 1999
<S> <C> <C> <C>
Revenue $0 $0 $0
Expenses:
Amortization 34,568 0 34,568
General & Administrative 77,549 2,175 91,850
Legal & Accounting 20,753 4,972 42,643
Professional Fees 0 0 41,400
Salaries 4,800 4,800 24,000
Travel 11,584 2,449 36,949
-------- ------- --------
Total 149,254 14,396 271,410
-------- ------- --------
(Loss) Before Other Income (149,254) (14,396) (271,410)
-------- ------- --------
Other Income (Expense)
Write Down of Notes Receivable and
Related Accrued Interest 0 0 (48,776)
Loss on Foreign Currency Translation (1,489) 0 (1,489)
Interest Income 2,957 15,098 39,020
Interest (Expense) (2,500) (2,500) (8,925)
-------- ------- --------
Total (1,032) 12,598 (20,170)
-------- ------- --------
Net (Loss) ($150,286) ($1,798) ($291,580)
======== ======= ========
Basic (Loss) Per Common Share ($0.03) ($0.00)
===== =====
Weighted Average Common Shares
Outstanding 5,561,667 4,150,000
========= =========
</TABLE>
The Accompanying Notes Are An Integral Part Of
These Unaudited Financial Statements.
<PAGE>6
Pinnacle Resources, Inc.
(A Development Stage Company)
Unaudited Consolidated Statement Of Cash Flows
<TABLE>
<CAPTION>
Inception
Unaudited Unaudited January 6,
6 Month 6 Month 1995
Period Ended Period Ended Through
December December December
31, 1999 31, 1998 31, 1999
<S> <C> <C> <C>
Net (Loss) ($150,286) ($1,798) ($291,580)
Adjustments To Reconcile Net Loss To Net Cash
Used In Operating Activities:
Amortization & Depreciation 34,620 0 34,620
Stock Issued For Services 0 0 1,500
Changes In Operating Assets And Liabilities:
(Increase) in Accounts Receivable 39,258 0 39,258
(Net of Acquisition Amount)
(Increase) Note and Interest Receivable (2,630) (15,097) (38,692)
Increase In Note Receivable Allowance 0 0 48,776
Increase (Decrease) In Accounts Payable (13,150) 7,275 2,866
(Net of Acquisition Amount)
Increase In Accrued Interest Payable 672 2,500 6,881
Net Flows From Operations (91,516) (7,120) (196,371)
--------- -------- ---------
Cash Flows From Investing Activities:
Cash Received in Acquisition 1,151 0 1,151
Payments from Related Entity 100,000 0 100,000
Purchase of Equipment (1,438) 0 (1,438)
Advances Made To Related Entity 0 0 (145,000)
Net Cash Flows From Investing 99,713 0 (45,287)
--------- ------ ---------
Cash Flows From Financing Activities:
Stock Issued For Cash 47,500 0 197,500
Monies Received From Loans 0 0 100,000
--------- ------ --------
Cash Flows From Financing 47,500 0 297,500
--------- ------ --------
Net (Decrease) In Cash 55,697 (7,120) 55,842
Cash At Beginning Of Period 145 18,998 0
--------- ------ --------
Cash At End Of Period $55,842 $11,878 $55,842
========= ======= ========
Summary Of Non-Cash Investing And Financing Activities:
Stock Issued For Services $0 $0 $1,500
======== ==== ========
Stock Issued for Acquisition of Subsidiary $375,000 $0 $375,000
======== ==== ========
</TABLE>
The Accompanying Notes Are An Integral
Part Of These Unaudited Financial Statements.
<PAGE>7
Pinnacle Resources, Inc.
(A Development Stage Company)
Unaudited Consolidated Statement Of Comprehensive Loss
<TABLE>
<CAPTION>
Unaudited Unaudited
6 Month 6 Month
Period Ended Period Ended
December December
31, 1999 31, 1998
<S> <C> <C>
Net (Loss) ($150,286) ($1,798)
Other comprehensive income net of income tax:
Foreign Currency Translation (563) 0
-------- -------
Comprehensive (Loss) ($150,849) ($1,798)
======== =======
</TABLE>
The Accompanying Notes Are An Integral Part Of
These Unaudited Financial Statements.
<PAGE>8
Pinnacle Resources, Inc.
Notes To Unaudited Consolidated Financial Statements
For The Six Month Period Ended December 31, 1999
Note 1 - Unaudited Financial Information
The unaudited financial information included for the three month and six
month interim period ended December 31, 1999 were taken from the books and
records without audit. However, such information reflects all adjustments
(consisting only of normal recurring adjustments, which are of the opinion
of management, necessary to reflect properly the results of interim
periods presented). The results of operations for the six month period
ended December 31, 1999 are not necessarily indicative of the results
expected for the fiscal year ended June 30, 2000.
Note 2 - Financial Statements
Management has elected to omit substantially all footnotes relating to the
condensed financial statements of the Company included in the report. For
a complete set of footnotes, reference is made to the Company's Annual
Report on Form 10-KSB for the year ended June 30, 1999 as filed with the
Securities and Exchange Commission and the audited financial statements
included therein.
Note 3 - Acquisition
Plateau Resources Ltd.
All currency is stated on US Dollars.
On August 30, 1999 the Company purchased all of the outstanding common
stock of Plateau Resources Ltd.(a South African Corporation) (Plateau) in
exchange for 1,500,000 shares of the Company's common stock valued at
$375,000. The common stock was valued at the bid on the day of the
closing. Plateau was acquired from an independent and unafilliated third
party. Net assets of Plateau as of the date of acquisition was a negative
$143,514. The excess of the purchase price over the fair value of the
assets, in the amount of $518,514 has been allocated to Goodwill and is
being amortized over a 60 month period. Amortization expense of $34,568
has been recorded in the accompanying consolidated financial statements
for the six month interim period ended December 31, 1999.
The Company has recorded the transaction as a purchase in accordance with
Accounting Principles Board Opinion No. 16. The accompanying consolidated
financial statements include the results of operations of Plateau from the
date of acquisition, August 30, 1999 through December 31, 1999.
The following pro forma condensed consolidated statement of operations
gives effect to the acquisition of Plateau as if it occurred at the
beginning of the period presented. The pro forma financial information
should be read in conjunction with the separate audited financial
statements and notes thereto of each of the companies included in the pro
forma.
The pro forma condensed consolidated statement of operations are not
necessarily indicative of results of operations had the acquisition
occurred at the beginning of the periods presented nor the results to be
expected in the future.
Pro forma Adjustments
Pro Forma Condensed Consolidated Statement of Operations
For the six month interim period ended December 31, 1999
<TABLE>
<CAPTION>
Pro Forma
Pinnacle Plateau Adjustments Consolidated
<S> <C> <C> <C> <C>
Revenues $ 0 $ 0 $ 0 $ 0
Operating Expenses 93,296 29,621 51,852 174,769
(Loss) From Operations ( 93,296 (29,621) (51,852) (174,769)
Interest Expense ( 2,500) 0 0 (2,500)
Interest Income 2,957 0 0 2,967
Net (Loss) $ (92,839) $(29,621) (51,852) $ (174,302)
<PAGE>9
Pinnacle Resources, Inc.
Notes To Unaudited Consolidated Financial Statements
For The Six Month Period Ended December 31 , 1999
Net (Loss) per share
Basic & diluted $ ( .02) $ (7.41) $ (.03)
Basic & Diluted
Shares O/S 5,561,667 4,000 5,561,667
</TABLE>
Pro Forma Condensed Consolidated Statement of Operations
For the three month interim period ended September 30, 1998
<TABLE>
<CAPTION>
Pro Forma
Pinnacle Plateau Adjustments Consolidated
<S> <C> <C> <C> <C>
Revenues $ 0 $ 0 $ 0 $ 0
Operating Expenses 14,396 28,875 51,852 95,123
(Loss) From Operations ( 14,396) (28,875) (51,852) (95,123)
Interest Expense ( 2,500) 0 0 (2,500)
Interest Income 15,098 71 0 15,169
Net (Loss) $ ( 1,798) $(28,804) (51,852) $ (82,454)
Net (Loss) per share
Basic & diluted $ ( Nil ) $ (7.20) $ (.01)
Basic & Diluted
Shares O/S 5,561,667 4,000 5,561,667
</TABLE>
Six month interim period ended December 31, 1999:
The consolidated financial statements of Pinnacle Resources, Inc.
Include the results of operations for Plateau for the period August 30,
1999 through December 31, 1999. The financial statements of Plateau
presented in the pro forma statement are the results of operations of
Plateau for the six month interim period ended December 31, 1999.
Therefore the adjustments reduce the pro forma consolidated information
for the duplication of the period August 30, 1999 through September 30,
1999 by the following:
Operating expenses: $23,409, Loss from operations and net loss $22,282
. The adjustments include the increased amortization expense resulting
from the Goodwill as if it was amortized for a full six month period.
Six month interim period ended December 31, 1998:
The adjustments include the amortization expense resulting from
Goodwill as if the Goodwill was amortized for the three month interim
period of $51,852 and the 1,500,000 shares increased to weighted
average shares outstanding to give effect of the shares issued in the
acquisition.
The pro forma condensed consolidated financial information do not show
any adjustments for a change in income tax benefit as the total pro
forma consolidated benefit for income taxes would be offset by any
valuation allowance due to any deferred tax asset derived from net
operating losses. The valuation allowance offsets the net deferred tax
asset for which there is no assurance of recovery.
Note 4 - Principles of Consolidation
The consolidated financial statements include all significant
subsidiaries. On August 30, 1999 the Company entered into a business
combination with Plateau Resources, Ltd. The combined Company accounts
owned 100% by the Company accounts for its investment in Plateau under
the equity method.. The business combination impacts the Company's
December 31, 1999 results to other periods because Plateau included in
the Company's results of operations for only 31 days in this interim
period.
Note 5 - Foreign Currency Translation
The financial statements of the Company's subsidiary is translated into
United States dollars using current rates of exchange, with gains and
losses included in the cumulative translation adjustment account in the
<PAGE>10
Pinnacle Resources, Inc.
Notes To Unaudited Consolidated Financial Statements
For The Six Month Period Ended December 31, 1999
shareholders equity statement of the consolidated balance sheets. These
adjustments, along with gains and losses on currency transactions are
reflected in the consolidated statement of operations.
<PAGE>11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Trends and Uncertainties. The financial statements have been
prepared assuming that the Company will continue as a going concern.
The Company is in the development stage and had no operations as of its
latest fiscal year end June 30, 1999. The deficiency in working
capital as of December 31, 1999 raises substantial doubt about its
ability to continue as a going concern. In the course of its
development activities the Company has sustained continuing losses and
expects such losses to continue for the foreseeable future. The
Company's management plans on advancing funds on an as needed basis and
in the longer term to revenues from the operations of which there is no
assurance. The Company's ability to continue as a going concern is
dependent on these additional management advances, and, ultimately,
upon achieving profitable operations.
Until revenues commence, the Company shall raise funds through equity
financing which may or not be successful. The Company has tried to
limit its general and administrative expenses. The Company has
little or no control as to the demand for its services and, as a
result, inflation and changing prices could have a material effect on
the future profitability of the Company.
The Company will focus its financing and capital arrangement activities
on emerging growth companies, which plan to raise capital in the public
markets within a reasonable short period of time, i.e., one to two
years. Although the Company will initially target small mining
companies due to its contacts in that industry, management has not
identified any particular industry within which the Company will focus
its efforts. Rather, management intends to identify any number of
candidates, which may be brought to its attention through present
associations or by word-of-mouth. Initially the Company intends to
arrange sources of funding and finance for its prospective clients
through established sources for such funds by acting as a finder or
broker to the lender and as an arranger or financial consultant to the
borrowing party.
In the emerging markets of South Africa and South America,
opportunities exist where small mining companies seek funding from
outside sources for capitalization because it is not available locally.
Management has over 70 years of combined business experience involving
a variety of situations where financing and/or funding has been
required in order to effectuate a mining opportunity. Individually,
management personnel has directly funded, underwritten or brokered
financing for a number of mining prospects over the years, both in the
domestic market as well as South Africa and South America.
Management believes that the Company will be able to successfully seek
out potential candidates who are interested in obtaining loans from the
Company in the immediate future. This belief is based upon the
perceived difficulty of many development and growth stage companies who
require additional financing, but are unable to obtain the same from
established sources, such as banking institutions and venture
capitalists. As interest rates begin to rise, management anticipates
that those types of entities earmarked by the Company as possible
clients will continue to seek out the Company as a lending source, as
management views a potential borrower's borrowing base in a different
light than banks. For loans made by regulated commercial lenders,
there is normally a structured review and evaluation of a prospective
borrower's loan application by the lender, including an in-depth review
of such application by a loan committee. The loan committee will then
approve or reject each application as it is submitted. The evaluation
and approval of loans depends on subjective factors and judgments, as
well as objective criteria, such as loan to value ratios and
independent appraisals, when appropriate or available. The Company's
loan committee consists of substantially fewer persons than a
commercial lender and uses a less formal procedure than more
traditional lenders. It is possible that any such subjective factors
and judgments may prove to be incorrect with a resulting loss of part
or all of the Company's investment in any particular loan. However,
as part of the consideration provided to the Company for issuance of
its loans, the Company receives its interest and attempts to also
obtain additional consideration in the form of equity or options or
warrants in the borrower. In the event the borrower's business plan
proves successful, the Company may receive substantial returns as a
result of this equity enhancement.
<PAGE>12
Most venture capitalists take an aggressive equity position far in
excess of that of the Company and in many instances, takes an active
role in the management of their clients. Management believes that
this makes venture capitalists unattractive to those types of entities
with whom the Company does business.
The Company's ability to become a significant lender is impaired
primarily by its own lack of capital with which to make loans. While
management would welcome the opportunity to make more loans for larger
amounts, management finds itself in the same predicament as that of its
prospective clients. That is, the lack of capital with which to fully
implement the Company's business plan. Management hopes that as the
Company begins to make successful loans, its track record will allow
the Company to attract either private investors seeking to invest in
the business of the Company on a private basis, or that the Company
will be able to attract an investment banker willing to underwrite a
secondary offering of the Company's securities to generate additional
capital. There are no assurances that the Company will be able to
attract either of the aforesaid entities to increase the Company's
working capital. If the Company is unable to obtain additional
working capital, it is unlikely that the Company will generate any
substantial growth in the near future.
Capital Resources and Source of Liquidity. The Company currently has
no material commitments for capital expenditures. As of July 1997,
the Company pays $300 rent per month for its current office space.
An increase in lease payments could have negative effect on the cash
flow and liquidity of the Company.
For the six months ended December 31, 1999, the Company had cash
received in its recent acquisition of $1,151. The Company received
payments from a related entity of $100,000 and purchased equipment of
$1,438. As a result, the Company had in net cash from investing
activities of $99,713 for the six months ended December 31, 1999.
For the six months ended December 31, 1998, the Company had no
investing activities.
For the six months ended December 31, 1999, the Company issued stock
for cash of $47,500 resulting in cash flows from financing activities
of $47,500.
For the six months ended December 31, 1998, the Company had no
financing activities.
Results of Operations. The Company expects to earn consulting fees,
commissions, brokerage points and equity participation for having acted
as an arranger and go-between from having effectuated a financing
package on behalf of a client and a funding source. To date, the
Company has not yet commenced operations or received any revenues.
The Company had a net loss for the six months ended December 31, 1999
of $(150,286). The Company had an increase of $2,630 in note and
interest receivable for the six months ended December 31, 1999, a
decrease in accounts payable of $13,150 and an increase in accrued
interest payable of $672. For the six months ended December 31, 1999,
the Company had a decrease in accounts receivable of $39,258. As a
result, the Company had net cash flows from operations of $(91,516) for
the six months ended December 31, 1999.
The Company incurred legal and accounting costs of $17,131, general and
administrative costs of $72,013, amortization of $25,926, salaries of
$2,400 and travel of $8,836 for the six months ended December 31, 1999.
The Company incurred legal and accounting costs of $2,767, salaries of
$2,400, general and administrative costs of $1,275 and travel expenses
of $2,449 for the six months ended December 31, 1999
Plan of Operation. The Company is not delinquent on any of its
obligations even though the Company has not yet begun to generate
revenue. The Company will identify and subsequently qualify
prospective clients. Current operations require minimal cash
infusions. The Company may borrow funds or obtain equity financing
from affiliated persons or entities to continue operations, if
necessary. The Company intends to market its services utilizing cash
made available from the recent private sale of its Common Shares. The
<PAGE>13
Company is of the opinion that revenues from its services along
with proceeds of the private sale of its securities will be sufficient
to pay its expenses until receipt of revenues at a level to sustain
operations.
<PAGE>14
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Not applicable.
(b). None
<PAGE>15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Pinnacle Resources, Inc.
(Registrant)
Dated: February 4, 2000
By: /s/ Glen R. Gamble
----------------------------
Glen R. Gamble, President
<PAGE>16
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 55,842
<SECURITIES> 0
<RECEIVABLES> 36,174
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 92,015
<PP&E> 2,383
<DEPRECIATION> 0
<TOTAL-ASSETS> 578,345
<CURRENT-LIABILITIES> 113,335
<BONDS> 0
<COMMON> 58
0
0
<OTHER-SE> 281,799
<TOTAL-LIABILITY-AND-EQUITY> 578,345
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 149,254
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2,500)
<INCOME-PRETAX> (150,286)
<INCOME-TAX> 0
<INCOME-CONTINUING> (150,286)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (150,286)
<EPS-BASIC> (.03)
<EPS-DILUTED> (.03)
</TABLE>
