UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-SB/A
AMENDMENT NUMBER 1
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(B) OR (G) OF THE
SECURITIES EXCHANGE ACT OF 1934
PINNACLE BUSINESS MANAGEMENT, INC.
(Name of small business issuer in its charter)
NEVADA 91-1871963
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
2963 Gulf to Bay Boulevard, Suite 265
Clearwater, Florida 33759
(727) 669-7781
(Address and telephone number of principal executive offices)
Securities to be registered pursuant to Section 12(g) of the Act
300,000,000 shares of common stock
50,000,000 shares of preferred stock
Copies to:
Lee Walthall
Schroeder Walthall Neville L.L.P.
1100 Louisiana, Suite 4850
Houston, Texas 77002-5222
(713) 654-9100
<PAGE>
ITEM 1. DESCRIPTION OF BUSINESS
Pinnacle Business Management, Inc., a Nevada corporation chartered on May
7, 1997, is an integrated consumer finance and E-commerce technology developer.
Pinnacle is a holding company of two subsidiaries that are engaged in consumer
lending and deferred deposit services.
Originally, Pinnacle was a wholly owned subsidiary of 300365 BC, Ltd.
d/b/a Peakers Resources Company (the "Predecessor"). The Predecessor was
incorporated on November 13, 1985 in the Province of British Columbia, Canada.
The Predecessor was organized to conduct mining operations, but remained
inactive due to the severe economic depression in the 1980's and lack of working
capital.
On May 7, 1997, the Predecessor incorporated Pinnacle Business Management,
Inc. (the "Company"), as a wholly owned subsidiary in the State of Nevada.
On May 15, 1997, the shareholders of the Predecessor exchanged all the
shares of the outstanding stock of the Predecessor for the stock of the Company
on a share-for-share basis. The Predecessor became inactive and its business was
wound up. The majority of the Company's shares are now owned by United States
residents.
On October 27, 1997, the Company formed JTBH Corporation, a wholly owned
subsidiary without assets, and acquired Fast Title Loans, Inc.("Fast Title"), a
Florida corporation chartered in April 1996, on a share for share basis. The
cost to the Company was $122,500. The shares of Fast Title were converted into
common stock $.001 per share of the Company and Fast Title became the wholly
owned subsidiary of the Company.
Fast Title is a consumer lender company that operates short term cash
loans, using the free and clear title of a borrower's automobile as a
collateral. The loan allows the consumer to retain possession and use of their
motor vehicle.
On December 29, 1997, the Company incorporated Summit Property, Inc. in the
State of Nevada, as a wholly owned subsidiary. Summit Property is inactive.
On February 9, 1998, the Company incorporated Fast PayCheck Advance, Inc.
in the State of Florida, also as a wholly owned subsidiary. Fast PayCheck
provides short term paycheck advances to consumer.
On March 3, 2000, the Company acquired MAS Acquisition XIX, Inc., an
Indiana inactive reporting shell company chartered on January 6, 1999. The
Company acquired MAS with the intent to succeed to the reporting requirements of
MAS under Rule 12(g)-3 of the Securities Act of 1933, as amended.
At that time, the Company was trading on the OTC BB and had been assigned
the modifier "e". On March 1, 2000, in order to comply with the newly enacted
reporting requirements, the Company filed its first Form 10SB. However, the
thirty day period for the "e" designation ran until March 9, 2000, while the
registration under Form 10-SB would not become effective until several weeks
later. The Company's primary concern was to protect the shareholders' value by
protecting its trading status. As a result, the Company decided to acquire an
inactive, reporting shell company. On March 3, 2000, Pinnacle closed on a stock
acquisition of MAS Acquisition XIX, Inc., thereby succeeding to the reporting
requirements of MAS under Rule 12(g)-3, and withdrew its Form 10-SB.
The Company acquired 96.8% of the issued and outstanding stock of MAS
Acquisition XIX, Inc. via a stock Exchange Agreement with MRC Legal Services
Corporation ("MRC"). Pursuant to the Exchange Agreement, 1,500,000 shares of
common stock of the Company were exchanged for 8,250,000 shares of MAS, and MAS
became the wholly owned subsidiary of the Company.
MRC had acquired the 96.8% of the issued and outstanding shares of MAS via
a Stock Acquisition and Stock Purchase Agreement between MRC, the acquiring
shareholder, MAS Capital, Inc., the controlling shareholder of MAS, and MAS on
March 3, 2000. Subsequent to the acquisition of 96.8% of MAS stock by MRC on
March 3, 2000, MRC transferred funds ($1000) to MAS Capital, Inc., for
distribution to the minority shareholders of MAS. The remaining outstanding
shares were cashed out and retired. As a result, the Company now holds all
issued and outstanding stock of MAS, or 100% of MAS.
However, the Company was unable to determine whether the Company acquired
only 96.8% of MAS issued and outstanding shares or all of its shares until
several months after the Company's acquisition of MAS. It was determined that
the Company should enter the disclosure system separately under its own CIK
code, and on July 27, 2000, filed its Form 10-SB, which is now being amended by
this Form 10-SB/A.
MAS Capital, Inc., the former controlling shareholder of MAS, has since
confirmed that the remaining shares were cashed out and retired. As a result,
the Company now holds 100% of issued and outstanding shares of MAS, and is
eligible to succeed to the reporting requirements of MAS.
However, because the Company has already filed the Form 10-SB registration,
it now must respond to the Securities Exchange Commission's comments to its Form
10-SB and file this amended Form 10-SB/A.
With respect to the Company's acquisition of MAS, prior to the acquisition
MAS had 8,519,800 shares of common stock outstanding of which 8,250,000 were
exchanged for 1,500,000 shares of common stock of the Company. The remaining
shares were retired.
The Company issued an additional 1,525,000 shares to the consultants of MRC
Legal Services Corporation for consulting services related to the negotiations
and completion of a stock exchange between the Company and the majority
shareholder of MAS.
On March 6, 2000, the company filed a Form 8-K, under the CIK codes for
MAS, to disclose the acquisition of MAS. An amended Form 8-K, which included
audited financial statements of the Company, was filed on May 3, 2000.
The shares issued to the consultants of MRC were registered on March 16,
2000 in the Company's Form S-8.
MAS continues to be an inactive registrant with no tangible assets. At
present, the Company has no plans to sell MAS.
Business of the Issuer
-------------------------
Pinnacle is a company in transition. In the past, Fast Title, its consumer
lending subsidiary, has generated all of its revenues. Fast Title lended money
short-term, secured by the borrower's vehicle title. Certain local ordinances
recently enacted create a hostile environment and has had a negative impact on
the title loan business. As a result, the company has discontinued its efforts
to expand the Fast Title business. It plans, instead, to concentrate on the
Fast PayCheck business and its potential for growth.
The negative impact on operations relates only to the state of Florida due
to the fact that the current laws reduce the maximum annual percentage rate
allowable on title loans to 18% (eighteen percent) annual percentage rate. This
effectively puts the title loan business out of business in the state of
Florida. The company has made plans to shift from the title loan business to
the payday loan industry.
New operations encompass two areas: (1) the expansions of revenues through
the traditional pay day lending and (2) revenue from processing payday loans for
competitors. The MBE expansion described below provides the opportunity for
growth over the next three years. Management believes that significant revenue
will start in the fourth quarter of 2000 and continue growth through 2001 and
2002. Management estimates the processing revenue at $10,000 income per store
processed per year. The company currently processes loans originated by 40
stores in Florida and intends to expand to 80 additional locations by the
year-end.
If the company is unsuccessful in expanding through the MBE retail centers,
however, new operations may not generate the revenues necessary to continue its
business.
The company is in negotiations to reduce the debt held by shareholders by
converting debt into equity. Pinnacle has identified several financial
institutions and is working to negotiate an agreement with at least one and to
solidify as many relationships as possible to carry the company financially
until the revenues increase.
If management is unable to secure a financial relationship, it will
severely limit the company's ability to move forward with its current business
objectives. Currently, the cessation of business in Fast Title has reduced the
income available to the company to pay its existing obligations as they become
due. This creates doubt as to the company's ability to continue in business.
While management believes they will be successful in achieving an appropriate
banking relationship, there is no assurance that they will be successful in
doing so.
<PAGE>
Fast PayCheck, incorporated February 9, 1998, offers payday deferred
deposit services to individuals. The maximum amount of a deferred deposit is
$500. On September 24, 1999, the company signed an agreement to offer Fast
PayCheck services through Mail Boxes Etc. USA, Inc. stores ("MBE Agreement").
Management is very optimistic about the potential for growth in this business
endeavor. Operations are expected to render a yield to the company, which should
grow conservatively for several years into the future. Mail Boxes Etc. USA, Inc.
("MBE") has over 3000 locations in the United States. Locating in even a
fraction of these stores could greatly expand the business of Fast PayCheck.
Illustrated below is an estimate of the percentage of total revenue
contributed to Pinnacle by Fast Title operations compared to Fast PayCheck
operations:
1997 Fast Title = 100% Fast PayCheck = 0%
1998 Fast Title = 99% Fast PayCheck = 1%
1999 Fast Title = 95% Fast PayCheck = 5%
In July 2000, the company has spent approximately $100,000 on new
Proprietary software to process its payday deferred deposit operations. This
system also services the title loan business; it accepts and processes all
information necessary for Pinnacle's bookkeeping system.
These costs are incurred at the same time the cash flow from Fast Title is
decreasing. Management believes that any negative impact on revenues will be
temporary. The negative impact on revenues relates only to the State of Florida
due to the fact that the current laws reduce the maximum annual percentage rate
allowable on title loans to 18% (eighteen percent) annual percentage rate. Net
income should increase as the new operations begin generating revenues.
Fast Title Loans, Inc.
---------------------
Until recently, Fast Title loaned money on motor vehicle titles.
Discussion of its business is included to provide information regarding the
source of revenues historically. Business in Fast Title has ceased, however.
Fast Title loaned money on motor vehicles. It marketed to individuals and
businesses with poor or non-existent credit. It attempted to provide fast
access to short-term cash loans. Borrowers pledged their vehicles as
collateral. The company would not accept a vehicle as collateral unless there
were no other outstanding liens on the vehicle. The company did not, however,
require credit checks on the individual. The individual retained the use of his
vehicle during the loan period unless he defaulted on the loan.
Loan amounts were generally less than 40% of the blue book value of the
collateral. The maximum interest rate was 22% per month, which was the maximum
amount permitted by Florida law. The average net yield to the company was 12%.
With the new minimum interest rate of 18%, the yield is too low to justify
continuation of the business.
The average loan term of a loan is four months, but the term may extend to
a year. In Florida, the law provides that a creditor may keep any surplus
realized from the possession and the sale of the vehicle. Fast Title, however,
does not repossess vehicles on a regular basis. It is the policy of the company
to repossess only if there is no activity on the account for 60 days, and only
after efforts are made to secure repayment of the loan. In 1999, Fast Title
netted approximately $1,200 from the sale of repossessed vehicles.
<PAGE>
Fast Title Competition
------------------------
Fast Title is no longer conducting business. As a result, the discussion
of competition should be read for the benefit of historical information only.
Fast Title's primary competitor has been Florida Title Loans, Inc.("Florida
Title"). Florida Title has 300 locations in the Southeast and has a long
operating history. Florida Title has a loan to value ratio of 33% of the
wholesale value of the collateral. Fast Title has a loan to value ratio of up
to 50% of the wholesale value of the collateral. Fast Title therefore competes
with the larger distribution base by attracting a wider market.
Fast Title's second major competitor has been Speedy Cash. Speedy Cash is
located in the states of Florida, Georgia, Mississippi, South Carolina and North
Carolina. Speedy Cash has approximately 200 locations, a longer operating
history and a larger distribution base. Management believes, however, that it
effectively competes with Speedy Cash. These companies advertise heavily. This
publicity educates consumers about the title loan method of borrowing cash, and
may, in fact, be favorable for Fast Title.
Fast PayCheck Advance, Inc.
--------------------------
Fast PayCheck offers deferred deposit services to individuals with poor or
non-existent credit or who need short-term financing. Fast PayCheck provides
fast access to short-term cash. Customers complete an application. If
accepted, the customer writes a post-dated personal check to Fast PayCheck.
Fast PayCheck then issues the customer a debit card. A per transaction fee
exists for consumers using the debit card. Pinnacle holds the personal check
until the customer's payday, and then electronically debits the individual's
bank account. The transaction is considered an exchange of a payment instrument
for a payment instrument. As a result, Fast PayCheck is not considered a
paycheck lender, but a money transmitter. No credit checks on the individual
are required.
As a money transmitter, Fast PayCheck's financial risk (the amount of
uncollected debt) is much lower than that of a money lender. Fast PayCheck does
not loan its own funds to the customer; it only advances funds that are due to
the customer from a third party (i.e. the customer's employer). Because these
transactions are relatively safe or "good credit risks", no credit checks on the
individual are required. The maximum amount of a loan is $500. The average loan
is $200. The maximum term of a loan is two weeks. Fast PayCheck charges the
customer a fee of 10% of the check amount and a $5 transaction fee and receives
an average return of 25% per month on these transactions.
Pinnacle has a contract with Comdata Network, Inc. d/b/a Comdata
Corporation ("Comdata"), a Maryland corporation. Comdata has developed, offers
and operates a funds distribution service, which may be used by companies and
employers to distribute wages, salaries or expense reimbursement funds to
employees or persons entitled to such funds, by means of Comcheck eCash Card
(MasterCard), provided the companies are approved for Comdata's service.
Comdata provides the company with debit cards that have access to the CIRRUS ATM
Network and the MAESTRO POS Debit Network. The debit cards are issued by First
American National Bank, who is CIRRUS and MAESTRO member. (MAESTRO is the
distribution arm of the MasterCard system.)
The debit cards are used to advance funds to the customers. Instead of
disbursing cash and requiring cash to be on hand in locations throughout the
country, Pinnacle provides a debit card that is accepted at 1,000,000 plus
locations. The debit card is placed on the MAESTRO system by Comdata.
Comdata contract expires on November 11, 2000. Pinnacle has currently
entered into a contract with Lynk Systems, Inc., by and through its CashLynk
Master-Client Agreement signed on September 12, 2000. Both Lynk System, Inc.
and Comdata provide debit cards to the company. Lynk System, Inc. provides
the same services as Comdata, but it also provides additional services that
customers can utilize with the debit card, such as ATM services, Fund Transfer
Services, Long Distance Telephone Services that allow the cardholder to make
local and long distance telephone calls through a designated telecommunications
service provider, and POS Services that allow the cardholder to purchase goods
and services at any retail or other establishment that displays the network logo
that also appears on the back of the card. (ATMs are Automated Teller
Machines and POS are Point-of-Service locations. Please refer to the CashLynk
Master Client Agreement attached to the company's Form 10-SB/A as Exhibit 10.5
for more detail.)
The Lynk System debit cards also are switched through additional switches,
such as Star, Plus, Mac, Pulse, Interlink, and NYCE.
Pinnacle keeps a bank account by agreement with MasterCard. This account
generally keeps a balance of up to $50,000. Purchases made by a customer's use
of the debit card are deducted from Pinnacle's Master Card cash account. If
Pinnacle does not keep sufficient cash in the account, Master Card will not
honor debit card purchases.
Management believes that the use of debit cards is comparatively fast,
reliable, convenient, and secure. It has the added advantage that it greatly
reduces the security costs associated with cash transactions by eliminating
the need for each store to carry large amounts of cash.
In any money transactions, security is an issue and concern. Fast PayCheck
eliminated the security issue by contracting only with those cash fund
distribution service centers that use debit cards instead of cash.
The company also has a "Referral Agreement" with Comdata, attached to the
company's Form 10-SB as Exhibit 10.2 . The agreement, signed by the company and
Comdata's Payment Services Division on November 11, 1999, allows Pinnacle to
refer prospective customers to Comdata. Pinnacle refers prospective customers
to Comdata using card applications which have an identification number assigned
to Pinnacle by Comdata. When the prospective customers sends in the filled
application, the ID number in the application identifies to Comdata the source
of referral for the purpose of determining if the company is entitled to
referral fees. At present time, Pinnacle's income from the Comdata's Referral
Agreement is insignificant. The company has just started remarketing their
services. The agreement with Unistar, attached to the company's Form 10-SB/A as
Exhibit 10.6, is the company's first remarketing contract that is expected to
materialize income from debit card processing. As we have disclosed in Form
10-SB, the company receives $5.00 per transaction fee generated by the
consumer's use of the debit card.
<PAGE>
In third quarter 1999, on September 24, 1999, Fast PayCheck and Pinnacle
signed a three year contract with MBE to offer Fast PayCheck services in MBE
locations throughout the United States. MBE is a franchisor of retail outlets
("MBE Centers") which provide a variety of postal, business and communication
services to businesses and the general public. Through this Agreement, Fast
PayCheck may offer its services in any participating MBE Centers. The decision
to open a Fast paycheck service in an existing MBE center is made by the
Pinnacle's management. To participate, an individual franchisee must agree to
offer Fast PayCheck services in their MBE Center. The MBE Agreement is
exclusive for 18 months of the three-year term after commencement of business in
each state. Each state is activated during the three year period. Consequently,
Pinnacle could open a state in the 35th month of the contract and have an
exclusive for an additional 18 months, of which 17 months are longer than the
contract. The contract also carries an option to renew upon terms agreed to by
MBE, Pinnacle and Fast PayCheck.
Under the terms of the MBE Agreement, customers complete the application
and provide it to MBE personnel. MBE Centers fax the documents to Pinnacle's
call center and distribute a card to the borrower at the MBE location. MBE is
paid $3.50 per transaction. Management intends the call center to receive the
fax application from the MBE centers, qualify the application, enter the
customers information into the computer, re-fax the approval or denial and
activate the debit card for the customer.
Currently, Fast PayCheck offers its services in Fast Title and Florida MBE
Center locations. Pinnacle intends to expand into a multi-state operation in
the year 2000 offering services in MBE Centers. At present, approximately 125
of the MBE Centers are participating. By the end of 2001, Management plans to
expand into every MBE location in states with laws favorable to the provisions
of Fast PayCheck services. Several states have usury laws, for example, that
would prohibit Fast PayCheck practices. Management estimates that as many as
2800 MBE stores are located in favorable states. At this time, Pinnacle has
applied for the appropriate licenses in Idaho, Missouri, Utah and Indiana.
The management of the company has not engaged legal counsel to determine
how many states currently have usury laws and the likelihood that other states
will pass usury laws in the future. This determination is done at the time
management considers expansion into a another state. To date, the management has
determined that approximately 2800 stores are located in states that have
favorable regulatory environment for Fast PayCheck's services. (The number of
locations is an estimate made and provided to the company by MBE.) The company
has applied for the appropriate licenses in Idaho, Missouri, Utah and Indiana.
Processing each license takes approximately 6 - 8 months.
Fast PayCheck holds a license from the State of Florida Department of
Banking and Finance pursuant to Chapter 560 of Florida Statutes. Chapter 560
specifically controls the business of Money Transmitters and provides, in part,
that no person may engage in or in any manner advertise the business of cashing
payment instruments without first registering with the Florida Department of
Banking and Finance.
Fast PayCheck Competition
---------------------------
Fast PayCheck competes with paycheck lenders and check cashers. Its
largest competitor is Ace Check Cashing ("Ace"). Ace has approximately 1,800
locations throughout the United States. However, Ace cashes checks. Fast
PayCheck can offer a customer the use of funds before the paycheck is actually
deposited. Therefore, Ace's competitive effect is minimal.
Several companies offer payday advance loans. These companies are
considered lenders and must comply with consumer lending laws to a greater
extent than Fast PayCheck. These companies have received a great deal of
negative press because they often refinance the loaned amount into a loan with a
longer term, and require additional fees for refinancing the original loan.
Many customers borrow against their future earnings, have their loans
refinanced, and eventually find themselves having to borrow against their
paycheck every pay period. Fast PayCheck will not refinance or "roll forward"
any amounts. Fast PayCheck will not credit the debit card unless all prior
amounts have been paid through the electronic debit. This is also the
fundamental difference between traditional paycheck advance lenders and money
transmitters, such as Fast PayCheck.
<PAGE>
Fast PayCheck's payday advance business has not operated for a full fiscal
year. Presently, Management does not know whether Fast PayCheck's business will
be seasonal in nature. Management anticipates a small increase in business
during the Christmas season as individuals need cash to meet holiday expenses.
Employees
Pinnacle has four full time employees. Fast Title employs 11 people. Of
the Fast Title employees, eight manage the stores and three are administrators
in the corporate office.
Fast PayCheck currently employs 15 people. Currently, ten employees
operate the call center. Management is currently hiring more employees to man
the call center. More people will be added as additional business is added from
the MBE Agreement. At this time, it is not possible to estimate the amount of
business the MBE Agreement will generate or the resulting number of employees
needed by Fast PayCheck.
Both Michael Bruce Hall and Jeff Turino have employment agreements with the
company.
Regulations
-----------
GENERAL. The company is, or expects to be, subject to regulation in
several jurisdictions in which it operates, including jurisdictions that
regulate check cashing fees, or require the registration of check cashing
companies or money transmission agents. The company is also subject to
regulation in jurisdictions where it offers title loans. In addition, Pinnacle
is subject to federal and state regulation relating to the reporting and
recording of certain currency transactions.
STATE REGULATIONS. Florida law requires licensing and regulates check
cashing fees. The ceiling on fees is in excess or equal to the fees charged by
the company.
As the company's operations expand, check cashing fee ceilings in
additional jurisdictions could have an adverse effect on the company's business.
Existing fee ceilings could restrict the ability of the company to expand its
operations into certain states.
The company must be licensed as a check casher in all jurisdictions in
which it offers payday deferred deposit services and must comply with the
regulations governing those services. In addition, in some jurisdictions, check
cashing companies or money transmission agents are required to meet minimum
bonding or capital requirements and are subject to record-keeping requirements.
FEDERAL REGULATIONS. The Money Laundering Suppression Act of 1994 added a
section to the Bank Secrecy Act requiring the registration of businesses, like
the company, that engage in check cashing, currency exchange, money
transmission, or the issuance or redemption of money orders, traveler's checks,
and similar instruments. The purpose of the registration is to enable
governmental authorities to better enforce laws prohibiting money laundering and
other illegal activities. The registration requirement was suspended pending
the adoption of regulations implementing the statute, and in May 1997, the
Financial Crimes Enforcement Network of the Treasury Department ("FinCEN")
proposed regulations for comment. In August 1999, FinCEN announced the adoption
of final implementing regulations, effective September 20, 1999. The
regulations require "money services businesses" to register with the Treasury
Department by filing a form to be adopted by FinCEN by December 31, 2001, and to
re-register at least every two years thereafter. The regulations also require
that a money services business maintain a list of names and addresses of, and
other information about, its agents and that the list be made available to any
requesting law enforcement agency (through FinCEN). That agent list must first
be maintained by January 1, 2002, and must be updated at least annually. Though
FinCEN must adopt further regulations and procedures to more fully implement
these requirements, based on the newly adopted regulations, management of the
company does not believe that compliance with these requirements will have any
material impact on the company's operations.
<PAGE>
In November 1999, the Federal Reserve Board proposed new regulations that
would include "payday loans" as credit for purposes of the federal Truth in
Lending Act. The company's lending activities may be subject to the new
regulations, if the company's activities are included in the definition of
payday lending. The proposed regulations require that payday lenders clearly
disclose the interest rate of the loan, calculated on an annual basis, to
consumers applying for credit. The company expects that the effect of the
proposed regulations on the company will be minimal because Florida law already
requires such disclosures, and the company complies. The regulations, if
adopted, would become effective October 1, 2000. Compliance with the proposed
regulations is optional until that date.
To the extent that use of the debit card falls within the Electronic Funds
Transfer Act, Federal Reserve Board Regulation E will apply to Fast PayCheck
transactions. These govern electronic funds transfers ("EFT") between customer
accounts. Primarily, the Act and regulation 1) require EFT merchants to provide
customers with certain disclosures, 2 detail the circumstances under which an
EFT merchant may issue a card, 3) limit a customer's liability for a lost or
stolen card, and 4) require EFT merchants to follow certain dispute resolution
procedures.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's discussion is based on an analysis of the audited year end
financial statements for 1998 and 1999 and the unaudited interim financial
statements for the six months ended June 30, 2000.
Past and Future Financial Condition
-----------------------------------
Pinnacle is a company in transition. As discussed before, Pinnacle shifted
its business operations dramatically in 1999. Before 1999, Pinnacle's major
revenue producing subsidiary was Fast Title. Due to a hostile regulatory
environment, Pinnacle discontinued its efforts to expand Fast Title and the
company's focus shifted to Fast PayCheck.
This transition period has caused a slight decrease in total assets, and
unfortunately, a sharp increase in total liabilities. The increase in total
liabilities is due to an increase in long-term debt. It has been necessary for
the company to incur the long-term debt in order to effectuate the transition of
business focus.
The company's operating revenues have been significantly less than the
total operating expenses for the same period. The company's operating revenues
decreased from $633,478 in 1998 to $214,538 in 1999. For the three months ended
March 31, 2000, the company had operating revenues of $62,681. For the six
months ended June 30, 2000, the company had operating revenues of $69,683. The
company's operating expenses increased from $1,122,036 in 1998 to $1,744,578 in
1999. For the three months ended March 31, 2000, the company had operating
expenses of $540,712. For the six months ended June 30, 2000, the company had
operating expenses of $990,750.
<PAGE>
Management nevertheless expects revenues to increase through the expansion
of Fast PayCheck. Pursuant to a contract with MBE, Fast PayCheck offers
services through participating MBE retail outlets. Any increase will be
affected by the length of time it takes to complete the licensure process in
each state, and the agreement of each of the franchisees to start servicing Fast
PayCheck customers. The number of customers who participate at each location
will also affect any increase.
To meet the expenses of the company over the next twelve months, Management
is pursuing a reduction of company debt. The company is negotiating with
investors to either extend the existing obligations or convert the debt to
equity. Management is also seeking an alliance partner or banking institution
that could offer long-term debt to carry the expense of the company until
revenues are increased.
Pinnacle is licensed or holds a Certificate of Authority to conduct
business in the following states: Listed under each state are MBE locations
available for debit card processing.
Florida- Licenses. There are 249 locations.
Louisiana- Certificate of Authority. There are 17 locations.
Missouri- Certificate of Authority. There are 64 locations.
North Carolina- Certificate of Authority. There are 100 locations.
Kentucky- Certificate of Authority. There are 28 locations.
Utah- Certificate of Authority. There are 20 locations.
Indiana- Certificate of Authority. There are 54 locations.
Idaho- Certificate of Authority. There are 21 locations.
California- Certificate of Authority. There are 521 stores.
Pinnacle has pending applications for licenses in the following states:
Tennessee- Applications pending. There are 51 locations.
Delaware- Applications pending. There are 10 locations.
Illinois- Applications pending. There are 122 locations.
South Dakota- Applications pending. There are 3 locations.
New Mexico- Applications pending. There are 27 locations.
Oregon- Applications pending. There are 46 locations.
New Hampshire- Applications pending. There are 14 locations.
Washington- Applications pending. There are 13 locations.
Arkansas- Applications pending. There are 17 locations.
Nevada- Applications pending. There are 52 locations.
Oklahoma- Applications pending. There are 38 locations.
Minnesota- Applications pending. There are 55 locations.
Kansas- Applications pending. There are 24 locations.
Hawaii- Applications pending. There are 9 locations.
Montana- Applications pending. There are 20 locations.
Nebraska- Applications pending. There are 8 locations.
Iowa- Applications pending. There are 14 locations.
Wyoming- Applications pending. There are 12 locations.
Ohio- Applications pending. There are 121 locations.
Colorado- Applications pending. There are 89 locations.
The remaining states have not yet adopted laws permitting a payment
instrument for payment instrument transmissions (laws regulating money
transmitters.)
Processing each application takes approximately 6-8 months.
The average number of customers who participate at each location varies
depending on the size of MBE and its geographic location. It is expected that
MBEs located in larger cities may generate a greater number of customers than
MBEs located in small towns and rural areas. However, it is difficult to
estimate the number of customers at each location because the program is so new
that reliable data is not yet available.
Each MBE franchise that services Fast Pay Check customers is covered under
the Master Agreement between Pinnacle and MBE.
Results of Operations
-----------------------
TOTAL ASSETS. Total assets increased $210,462, or 11.5%, from 1998 to
1999. The company capitalized loan costs of $295,000 in 1999. Total assets of
the company are $1,816,584 for 1999 and $1,606,122 for 1998. Total assets of
the company are $1,977,409 for the three months ended March 31, 2000. Total
assets of the company are $1,901,474 for the six months ended June 30, 2000.
TOTAL LIABILITIES. Total liabilities increased $1,233,906, or 60%, from
1998 to 1999. Total liabilities of the company are $3,267,865 for 1999 and
$2,033,959 for 1998. Total liabilities are $3,737,004 for the three months
ended March 31, 2000. Total liabilities are $4,354,528 for the six months ended
June 30, 2000. The increase between 1998 and 2000 is due to the increase of
long-term debt necessary to effectuate the transition of business focus from
Fast Title to FastPayCheck. Also, operating expenses continued to increase over
the same time period.
REVENUES. Operating revenues decreased $418,940, or 66%, from 1998 to 1999
due to the cessation of Fast Title business. The decrease in revenues was
anticipated due to the new legislative climate in the State. Operating revenues
are $214,538 for 1999 and $633,478 for 1998.
Operating revenues are $62,681 for the three months ended March 31, 2000
and $69,683 for June 30, 2000. However, management expects revenues to sharply
increase as additional MBE retail centers begin offering Fast PayCheck services.
There is no assurances that management's expectations are correct or that the
company will be successful in contracting MBE retail centers.
OPERATING EXPENSES. Operating expenses increased $622,542, or 55%, from
1998 to 1999. Operating expenses are $1,744,578 for 1999 and $1,122,036 for
1998. Operating expenses for the company are approximately $540,712 for the
three months ended March 31, 2000. Operating expenses for the company are
approximately $990,750 for the six months ended June 30, 2000. The amount of
expenses is reasonable considering the expansion and litigation expenses the
company has borne. As a result, Management believes that the financial
condition of the company will improve substantially by 2002. There is no
assurance that management's beliefs are correct, however.
The company has a $100,000 note payable with an investor that expired May
14, 1999. In addition, the company has a $538,276 note payable with a lender
that expired February 28, 2000. This note is the subject of a lawsuit with
First American Reliance, Inc.
There is also a $514,055 note payable with an investor that expired on
March 1, 2000. This debt is currently in the process of being converted into
equity.
The company has approximately $417,287 in debt that will mature between
December 2000 and December 31, 2002.
<PAGE>
At this time, it is unlikely that the company will have adequate capital
available to repay the debts as they mature. If the loans are called, the
company's financial condition will be further negatively impacted.
The company is defending various lawsuits, which, if lost, would negatively
impact the company. Even if the outcome is positive, the cost to the company in
legal fees and employees' time is substantial.
Operating expenses increased 55% in 1999 due to several unusual events or
transactions that materially affected the amount of reported income form
continuing operations:
First, the legislature in Florida made significant changes in the laws
permitting personal loans to be secured by automobile title. This change in
legislature materially effected the company's income and reduced the volume of
title loans possible, effectively putting the company out of business. The
company decided to diversify their operations and focus on Fast Paycheck Loan
business instead.
Second, in order to process Fast Paycheck's deferred deposit operations and
title loan business effectively, in the company had usually high expenses
connected with the installation of proprietary software and hired additional
personnel for Fast paycheck's call center. These expenses were made in addition
to the $100,000 paid for the software itself in July, 2000, which will
be capitalized in the third quarter 2000.
Third, in 1998, the company engaged a broker-dealer to underwrite a Rule
504 offering of the Company's stock. The principal of the broker-dealer died
before remitting funds to the Company and without keeping accurate records as to
the purchasers of the stock. The litigation that ensued is described in the
Form 10 in detail. The legal expenses incurred by the Company are approximately
$50,000 in 1999. This is in addition to the expenses of the company incurred
sending officers to the location of the litigation and the expenses incurred
from the absence of those officers during the litigation process.
These events, particularly the change in legislative climate, are
infrequent economic changes that significantly effected the company's revenues.
The company at the end of December 31, 1999 discontinued to write loans in
the title loan business because they knew the legislative climate was
unfavorable. They wrote letters to customers and demanded payment. After a
detailed analysis of customer loans showed that collection procedures would be
necessary, the company made the allowance referred to above. The company made
many loans that were not credit worthy because they could charge 22% interest
per month on good payers so they took chances. The company reserved bad debt as
a conservative approach because it appeared once customers knew the laws were
changing, collections slowed immediately.
The company has put the customer accounts that have been allowed for with
two collection agencies for collection.
NET LOSS. The company's net loss increased $1,913,580 from 1998 to 1999.
Net loss was $2,495,952 for 1999 and $582,372 for 1998. The net loss was
$580,564 for the three months ended March 31, 2000. The net loss was $1,174,026
for the six months ended June 30, 2000. The increase in net loss has been
attributed to the increased operating expenses and total liabilities and
decreased operating revenues.
CAPITAL EXPENDITURES. The company is engaged in consumer finance and
electronic technology development. As a result, capital expenditures are not
substantial. The facilities are leased. Property and equipment gross costs are
$156,831 for 1999 and $144,839 for 1998. Property and equipment gross costs are
$166,005 for the three months ended March 31, 2000. Property and equipment
gross costs are $169,731 for the six months ended June 30, 2000. Substantially
all of the value of the company is not in physical assets but in the ongoing
operations of the company. Should the company be liquidated, there are few
assets to distribute to creditors or shareholders.
Non-cancelable lease commitments run until 2002. The total amount due
under the lease terms for 2000 is $60,372. Rent under operating leases amounts
to $138,259 for 1999 and $110,923 for 1998. Rent under operating leases amounts
to $38,482 for the three months ended March 31, 2000, and $72,258 for the six
months ended June 30, 2000. The company is operating various locations on a
month to month basis.
Liquidity
---------
Maintaining sufficient liquidity is a material challenge to Management at
the present time. The company has net customer loans receivable of $274,974 for
1999 and $743,877 for 1998. Customer loans receivable are $277,477 for the
three months ended March 31, 2000, and 243,339 for the six months ended June
30, 2000.
Further, the company owns a note receivable dated December 29, 1997 for
$25,000 with 18% per annum interest. The principal balance and accrued interest
is due and payable on the earlier of 1) a private placement being completed in
whole or part including but not limited to, any escrow disbursements of any
funds to the maker, or 2) March 27, 2000. No payments have been received as of
the date of this filing. The company has made an allowance for doubtful
receivable for the entire loan.
The company also owns a demand loan receivable for $422,000 at December 31,
1999 which increases to $423,000 at June 30, 2000. This loan is non-interest
bearing. The company is performing consulting services to the borrower in
exchange for the demand loan. This loan is in the process of being converted
into equity.
In August 1999, the company secured a national contract with Comdata. This
contract allowed the distribution of the Fast PayCheck debit card at the point
of sale locations. As a result, the company negotiated with its competitors to
allow them to use the debit card system. This may generate revenue on a broader
basis and increase company value.
A point of sale is the location where a transaction is completed. It may
be either an MBE location or one of Pinnacle's own stores. The software system
and the debit card system Pinnacle uses are unique in the industry. The company
has obtained the necessary regulatory approvals to have the company's debit
cards readily available at each point of sale location. This allows instant
access to the cash requested by the customer on each debit card without having
to stock cash at each location.
Pinnacle's competitors do not have either the software system or the
ability to offer a debit card to their customers. Existing competitors may have
a larger, broader-based store base in more states than FastPaycheck, but lack
the technical expertise to process, distribute, and collect debts in the same,
more efficient manner. They also lack the infrastructure to process payment
instruments for payment instruments.
The company presently processes fewer transactions than it is capable of
processing. As a result, it can generate additional fee income by offering its
processing capabilities to competitors. Pinnacle would offer only its excess
processing capabilities to competitors. At some point in the future, the company
hopes to expand to utilize all of its processing capacity.
Pinnacle is in the process of securing institutional credit lines to
provide long term growth capital and a banking relationship to cover short-term
cash needs. With the current availability of credit and the expected increase
in revenues from processing "payment instruments for payment instruments
transactions", the company will have sufficient liquidity over the short and
long term. Should the company not be able to secure a banking relationship, it
will not be able to meet its short term cash needs. This may affect its ability
to continue in business.
ITEM 3. DESCRIPTION OF PROPERTY
The company leases certain office space and store front facilities. It has
made no investments in real estate, real estate mortgages, or securities or
interest in persons primarily engaged in real estate activities. There is no
plan to do so in the future.
<PAGE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents each class of equity securities of beneficial
owners holding 5% or more of Pinnacle and all directors and officers of Pinnacle
as a group, as of June 30, 2000.
Title of Class
Name and Address of Beneficial Owner
Amount and Nature of Beneficial Ownership
Percent of Class
Common Stock
Michael Bruce Hall
2600 State Street
Dallas, TX 75204
39,502,000 shares held by the Michael Bruce Hall Family Partnership
25.16%
Common Stock
Jeffrey Turino
2963 Gulf to Bay Boulevard, Suite 265
Clearwater, Florida 33759
39,502,000 shares held by the Katherine Burney Family Limited Partnership
25.16%
Common Stock
Officers and Directors as a Group
79,004,000 shares
50.32%
Common Stock
<PAGE>
The stock ownership information presented in the chart includes 55,000,000
shares issued to the officers, Jeff Turino and Bruce Hall, as consideration for
an Agreement and Release signed February 28, 2000 by the company. The Agreement
and Release releases any claims to back compensation, bonus amounts and stock
options arising before January 1, 2000 under the terms of the employment
agreements signed in 1997.
The company's board of directors has entered into an agreement in principle
with Michael Bruce Hall, the company's chief executive officer, and Jeffrey
Turino, the company's president, whereby these officers will exchange 70,000,00
of shares owned individually by them and by their affiliates for options to buy
shares. Their existing shares will be retired. These exchanges will take place
over the next six months. The parties have not yet agreed to the terms of the
options.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Name of Officer or Director
Position
Age
Term of Office
Michael Bruce Hall
President
Director
45
Since October 1997
Jeffrey G. Turino
Chief Executive Officer
Director
43
Since October 1997
MICHAEL BRUCE HALL: President since 1997. Mr. Hall has a BSBA from the
University of Richmond.
Mr. Hall started Landmark Custom Homes in the early 1980s and built 200
custom homes in Pinellas and Hillsborough Counties in Florida. In 1983, he
started and still owns Market Place Travel, which is one of the top five
independent producing agencies in Pinellas County. In the late 1980s, he worked
as a financial planner for E.F. Hutton. He returned to the construction and
design field in the early 1990s and worked for Zuma Engineering, Inc., a local
recycling company, as an electrical design specialist until 1997. He served as
the Chairman for the Legislative Committee for the Southern Association of Title
Lenders in 1996.
Mr. Hall oversees and manages all facets of the corporation including, but
not limited to, marketing, collections, customer service and expansion. He also
plans, develops and establishes policies and objectives of Pinnacle. He
approves all financial obligations.
JEFFREY G. TURINO: Chief Executive Officer since 1997. Mr. Turino has a
management degree from the University of Florida. From 1986 to 1997, Mr.
Turino served as corporate secretary for Zuma Engineering, Inc.
Mr. Turino coordinates and implements all policies and procedures directed
by the board of directors.
<PAGE>
Suits Against Directors
In 1986, Michael Hall was a party to an arbitration proceeding convened by
the National Association of Securities Dealers, Inc.("NASD"). The proceeding
was the result of a complaint by a client of Shearson Lehman stemming in part
from Mr. Hall's activities as a broker for such client. The arbitration
resulted in an award for the client in the amount of $250,000.
In 1995, Jeffrey Turino entered into a Stipulation and Consent Agreement
with the Florida Department of Banking and Finance Division of Financial
Investigation. Mr. Turino consented to a finding that, as corporate secretary
of Zuma Engineering, Inc., he failed to prevent corporate agents of Zuma to
offer for sale and sell unregistered securities in the State of Florida. He
agreed to pay a $10,000 fine and to refrain from future violations of Florida's
securities laws.
ITEM 6. EXECUTIVE COMPENSATION
The company issued 27,500,000 shares of common stock each to Jeff
Turino, chief executive officer of the company, and Michael B. Hall, director
and president of the company in the first quarter of 2000. This issuance of
shares was pursuant to an Agreement and Release releasing all claims by
Turino and Hall pursuant to the company's inability to perform under
the Employment Agreements entered into by the company and Turino
and Hall in 1997. These Employment Agreements required the company to pay
certain compensation to Turino and Hall for services rendered. The company
failed to pay Turino and Hall the agreed compensation for performed services.
The original employment agreements each have an initial term ending in 2002
and automatically renew for one-year terms thereafter. Under the terms of the
agreement, each would receive an annual base salary of $104,000 with additional
increases, at least annually, as deemed necessary by the board of directors.
The contracts provide that if the company fails to meet the executive's
compensation, the executive may either defer the compensation and accrue the
salary or take the difference in common stock at the rate of one share for each
dollar not received in the first year. In years two through five, the executive
could take stock at a rate equal to the shares purchased by the dollar
difference of the paid versus unpaid salary at an average price of the last
thirty days in the trading year of the stock.
The employment agreements provide that each executive may take in the form
of stock or cash compensation earned up to $104,000 per year but not paid, and
bonus amounts of $52,000 each in 1998. The officer can defer the acquisition of
earned stock and take the stock at any time in their sole discretion. The
employment agreements also provide two stock option plans, "A" and "B." Option
"A" allows for 500,000 shares of common stock, having an exercise price of $.50
per share, in 1998. Option "B" allows for 500,000 shares of common stock,
having an exercise price of $1.00 per share, from 1999 through 2002.
The following chart presents the compensation that the company actually
paid the officers between 1997 and 1999. It does not include the 27,500,000
shares of stock paid to each officer as consideration for entering into the
Agreement and Release:
Name and Principal Position
Year
Salary
Bonus
Other Annual Compensation
All Other Compensation
Michael Hall
<PAGE>
1999
1998
1997
$ 55,000
$ 65,464
$ 61,728
$-0-
- -0-
- -0-
Jeffrey Turino
1999
1998
1997
$ 55,000
$ 65,464
$ 61,728
$-0-
- -0-
- -0-
The Agreement and Release deletes all provisions in the employment
agreements creating stock options and the promise of the company to adopt an
incentive stock option as part of the employment agreement. Turino and Hall
will continue employment under the terms of the Employment Agreements until 2002
as if no breach in either of the officer's Employment Agreements occurred.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In June 1999, Jeff Turino and Bruce Hall signed an agreement with Primex
Capital pledging 7,500,000 shares of Pinnacle stock to secure personal loans.
Messrs. Turino and Hall then loaned the proceeds to Pinnacle in the amount of
$348,000 apiece. The company repaid Messrs. Hall and Turino $439,157 the same
year.
ITEM 8. DESCRIPTION OF SECURITIES
Common and Preferred Stock
The authorized capital stock of the company consists of 300,000,000 shares
of common stock, par value $.001 per share and 50,000,000 shares of preferred
stock, par value $.001 per share. As of June 30,2000, there are 152,209,622
shares of common stock outstanding. None of the preferred shares have been
issued. The common stock is currently traded on the Over The Counter Bulletin
Board. The company's trading symbol is PCBM. There are approximately 150
current shareholders of record. At year end 1999, 85,952,686 shares were
outstanding.
<PAGE>
All shares of common stock have equal voting, liquidation, dividend and
other rights. Shareholders are entitled to one vote for each share of common
stock at any shareholders' meeting. Holders of shares of common stock are
entitled to receive such dividends as may be declared by the board of directors.
In the event of liquidation, shareholders are entitled to participate pro rata
in a distribution. There are no conversion, preemptive, or other subscription
rights or privileges with respect to the common shares. The common stock of the
company does not have cumulative voting rights. The holders of more than fifty
percent (50%) of the shares voting in an election of directors may elect all of
the directors if they choose to do so. In such event, the holders of the
remaining shares aggregating less than fifty percent (50%) would not be able to
elect any directors.
Stock Options
--------------
At year end 1999, the following stock options were outstanding:
1. Gordon & Associates Strategic Investments, Inc. A consulting agreement
entered into with Gordon & Associates grants options with the following
attributes:
Expiry Date Exercise Price Number of Shares
Termination of the The lesser of $.25 per share or Up to 35,322,578
Agreement 30% of the average closing bid
for trading.
Pinnacle issued the stock options in lieu of giving cash payment for
consulting services performed by G & A to Pinnacle. G & A assigned the receipt
of the options to its associates. They exercised options for 35,322,578 shares
under this agreement. The recipients opted to pay 30% of the average closing
bid for trading as consideration for the stock.
The G & A Associates expressed their intent to exercise some of the options
on March 27, 2000; they did not render payment, however. They noticed the
company of their intent to exercise the remainder of the options during the
second quarter of 2000. The form of payment was never agreed upon and payment
was never received, however. As a result, the shares representing the options
were issued, but not delivered pending agreement on the form of payment. The
form of payment was never agreed upon. Upon the alternative agreement of the
parties, the shares were retired. As a result, only 5,050,000 shares issued to
the associates of G&A were successfully delivered and are outstanding.
Pinnacle filed two Form S-8 registration statements to register the stock
issued to G & A associates, dated April 14, 2000 and June 8, 2000. The company
filed the Form S-8 registrations under the CIK code for MAS. Thereafter, the
Securities and Exchange Commission informed the company that this stock must be
registered under the new CIK code for Pinnacle.
The company did not deliver all the shares issued pursuant to the options
pending total payment. Before settlement of the issue, a dispute arose
concerning certain territory covered by the MBE agreement. As a result, the G&A
associates agreed to "return" approximately 33,000,000 shares to the company, to
be retired, in release of the company's claims against G&A Consequently,
the company may not re-file both Forms S-8 registering the shares originally
issued to G&A and its associates. G&A executed a promissory note in favor of the
company as consideration for the shares.
2. The company issued 8% Convertible Debentures dated March 19, 1999, in the
amount of $260,000 all of which has been converted and 2,054,480 shares issued.
On March 31, 1999, the company granted an option to buy 33,000 shares at a
purchase price of $.319 per share to the attorney and underwriter for the 8%
Notes.
3. The company's board of directors has entered into an agreement in principle
with Michael Bruce Hall, the company's chief executive officer, and Jeffrey
Turino, the company's president, whereby these officers will exchange 70,000,00
of shares owned individually by them and by their affiliates for options to buy
shares. Their existing shares will be retired. These exchanges will take place
over the next six months. The parties have not yet agreed to the terms of the
options. The retirement of the shares belonging to the G&A associates and
Messrs. Hall and Turino will reduce the number of issued and outstanding
shares by approximately 105,000,000.
<PAGE>
Warrants
--------
The company has entered into an agreement with M.H. Meyerson & Co., Inc.
for the provision of investment banking services. As consideration, the company
has granted five year Warrants to purchase, at a price of $.125 per share, a
total of 5,580,000 shares of the common stock of Pinnacle. These warrants may
be exercised until August 18, 2004. At the present time, none have been
exercised.
Dividends
The company has not declared dividends in the past and does not have the
current capital necessary to declare a dividend in the foreseeable future.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCK MATTERS
Pinnacle is traded on the Over the Counter Bulletin Board, symbol PCBM.
The high and low bid information for the stock during each full quarterly period
for the last two years and for the first quarter of 2000 are as follows:
Quarter
High
Low
2Q 2000
.2031
.0781
1Q 2000
.2467
.1417
4Q 1999
.275
.09
3Q 1999
.60
.095
2Q 1999
.51
.029
1Q 1999
.84375
.0625
4Q 1998
.625
.125
3Q 1998
1.75
.50
2Q 1998
4.00
1.50
1Q 1998
4.00
3.50
<PAGE>
The OTC BB market quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not necessarily represent actual
transactions.
As of the date of this filing there are 150 holders of common stock.
Management believes that most of the stock is held in nominee name, and as a
result, there may be as many as 2,000 individuals who own Pinnacle stock. As of
the date of this filing, there are no holders of preferred stock.
ITEM 2. LEGAL PROCEEDINGS
Tyler Jay & Company, L.L.C. and First American Reliance, Inc.
----------------------------------------------------------------------
The Trustee in bankruptcy of First American Reliance, Inc. (the "Debtor")
brought an adversary proceeding on June 29, 1999, in the United States
Bankruptcy Court, Western District, New York, BK Case No. 98-23906, AP No. 99-
2186, entitled Douglas J. Lustig, as Trustee v. Pinnacle Business Management,
----------------------------------------------------------------
Inc. ("PBM"), and Fast Title Loans, Inc. ("FTL"). The Plaintiff-Trustee
-------------------------------------------------------
amended the complaint to assert claims against M.B. Hall and J.C. Turino as
guarantors of the alleged debt. The Trustee is seeking to recover purported
loans from the Debtor to Fast Title Loans, Inc. and/or Pinnacle, in the sum of
approximately $800,000 plus 9% interest, for amounts loaned and advanced by
First American Reliance, Inc. The checks produced by the Trustee reflect checks
to FTL totaling $494,202.37 and checks to PBM of $195,000.00. The rest of the
claim consists of interest, disputed fees and charges. An answer to the
adversary proceeding has been filed and the parties are currently in the
discovery process. The Defendants asserted a defense and setoff alleging monies
due to Pinnacle from stock subscriptions in 1993 sold by American Freedom
Securities, Inc. ("AFS") an affiliate of Debtor. The Defendants claim each of
Debtor, AFS and Samuel Yacono, their principal, were instrumentalities of each
other and were used by Yacono to perpetrate frauds on those doing business with
them and/or affiliated companies. FTL further asserts that the loan agreement
was modified when Debtor was unable to lend funds in the amounts promised to
omit certain charges claimed by Debtor. In addition, Pinnacle asserts that it
did not assume any of the obligations sought to be enforced by the Trustee and
that all checks made payable to it were deposited in FTL accounts.
Management of PBM and FTL have agreed to determine the actual amount of the
Trustee's claim by deducting proceeds of a private placement allegedly diverted
by Yacono and/or AFS. Management believes that this setoff will equal or exceed
the amounts claimed and documented by checks transferred to Pinnacle and will
also create a setoff in respect to at least a portion of the sums advanced to
Fast Title. The Trustee now claims that the stock sold was not Pinnacle's
unissued stock, but that Yacono, who personally owned Pinnacle stock, actually
had AFS sell his personally owned Pinnacle stock, not Pinnacle's unissued stock
pursuant to the private offering documents drafted by AFS's counsel. Defendants
dispute that AFS engaged in such an egregious breach of faith. PBM and FTL are
currently in the process of settlement negotiations in this case.
<PAGE>
In a second proceeding, Pinnacle and FTL are defendants in a pending civil
action instituted in 1999, in Supreme Court, Erie County, New York, entitled
Tyler Jay & Company, L.L.C. ("Tyler Jay") v. Fast Title Loans, Inc. and
--------------------------------------------------------------------------------
Pinnacle Business Management, Inc., Index No. I-1999/5697. In this suit, Tyler
--------------------------------------------
Jay asserts a claim for fees and commissions arising from loans made by Debtor
in the previously described adversary proceeding and sums lost by Tyler Jay
allegedly because Tyler Jay was not permitted to conduct the private placement
discussed above. Tyler Jay claims that it is owed certain monies and stock
options, and alleges that these damages exceed $500,000. Pinnacle claims it has
no agreement with Tyler Jay and is not a successor to FTL or otherwise
responsible to Tyler Jay. Both Pinnacle and FTL claim that the option agreement
to purchase stock in FTL asserted by Tyler Jay was not signed by either FTL or
Pinnacle and was not even in existence when the Engagement Letter with Tyler Jay
was signed by FTL. Both Pinnacle and FTL claim that Tyler Jay did not have
required licenses to perform at least some of the services it agreed to perform
for FTL and thus cannot recover. Pinnacle and FTL have also asserted that Tyler
Jay is not entitled to recovery since not all the agreed upon services were
provided. FTL and Pinnacle have filed a counterclaim seeking $34,000, the sum
paid to Tyler Jay, on the basis that Tyler Jay's fraudulent representations and
breach of fiduciary duty damaged them. This suit is currently in the discovery
phase. Management of PBM and FTL intends to vigorously defend this claim.
Pinnacle and its subsidiaries accrued a liability for $538,276 in 1998 and
$355,755 in 1997, respectively, as a result of these claims.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES; USE OF PROCEEDS FROM
REGISTERED SECURITIES
The company offered a private placement under Rule 504 of Regulation D
635,000 shares of common stock for $1.50 per share on February 2, 1998. It
resulted in net capital contributed to the company of $423,049 to the company.
The underwriter, American Freedom Securities, Inc. received 500,000 shares of
the company's stock as a commission. This offering was never successfully
closed. The principal broker died before remitting funds to the company, and the
records he kept were inaccurate. A substantial, unknown amount of the proceeds
was never forwarded to the company. It is believed that this offering was fully
subscribed and in fact, oversubscribed. Management believes that all shares sold
under the offering have been accounted for, although the missing proceeds may
never be available to the company.
In March, 1998, the Company issued stock for goods and services of
intangible and often un-invoiced amounts. Common stock of 72,500 shares were
issued and are booked at one penny per share. Originally, the company booked
this issue at book value. Management has revalued the stock at a penny per
share.
The value of one penny per share is an arbitrary value, assigned in
recognition that the stock and services had some intangible value to the
company. All of the stock is issued in performance of a private contract and
was restricted. The stock is issued in reliance of its exemption as a private
placement under section 4(2) of the Securities Act of 1933.
The company issued 8% Convertible Debentures dated March 19, 1999. These
were underwritten by Corporate Capital Management, L.L.C., in the amount of
$260,000 with a maturity of 360 days ("8% Notes"). The Conversion Price was the
lesser of 77.5% of the lowest closing bid price of the common shares for five
trading days ending on the day prior to conversion ("Variable Conversion Price")
or 100% of the lowest closing bid price for the common shares for the five
trading days ending on the day prior to closing ("Fixed Conversion Price").
By April 15, 1999, all of the 8% Notes were converted and 2,054,480 shares
issued. On March 31, 1999, the company granted an option to buy 33,000 shares
at a purchase price of $.319 per share to the attorney and underwriter for the
8% Notes. The securities were issued in reliance on an exemption as a private
placement as defined by section 4(2) of the Securities Act of 1933. The
investors approached the company unsolicited, through a relationship with a
prior employee of the company. The transaction was negotiated privately with
each of 26 or less individuals.
In April, 1999 the company issued 15,097,000 restricted shares to Bruce
Hall and Jeff Turino in consideration of their contributions to the company
outside of the employment agreements. Such contributions included the use by the
company of artwork, furniture and equipment owned by the principals, personal
guarantees of company debt, and personal payments made to third parties for the
benefit of the company without seeking reimbursement. The company booked the
restricted stock at book value. The company believed the value to the company to
be immeasurable. The only benefit to the principals was that of ownership; the
stock was restricted and could not be transferred. Booking the stock at book
value, therefore, reflected the true value of that ownership interest.
During the period beginning March 1999 and ending July 1999, the company
issued stock to a lender to induce the lender to make a loan to the company. The
company issued 29,500,000 shares in the aggregate. The principal amounts of the
debts remained unchanged, and interest continued to accrue. The company
originally booked the stock issued at book value, unable to ascertain a certain
value for the restricted stock. Management has revalued the stock at one cent
per share, solely to indicate a value on the financial records of the company.
Book value approximates zero. The company recognizes that the stock had an
intrinsic value in delaying foreclosure; as a result, the stock has been booked
at a penny per share. The shares were contracted for issue by the company in
privately negotiated agreements and therefore were issued in an exemption from
registration as a private placement under section 4(2) of the Securities Act of
1933. The shares were restricted upon resale.
During 1999, the company booked receipt of $614,508 for the issue of
18,757,004 shares to certain investors who each approached the company and
negotiated private placements of restricted stock under exemptions from
registration in section 4(2) of the Securities Act of 1933. These investors
include:
Name Shares Consideration
Tim Rice 4,166,666 $ 125,000
*El Notre Trust 4,500,000 $ 135,000
Jeff Applebaum 700,000 $ 70,000
*Hawk Group 4,050,000 $ 121,500
Hi Tel 1,200,000 $ 60,000
LNB 2,000,000 $ 70,000
*The sale of the 18,757,004 shares was recorded on the company's books in the
aggregate even though each was a separately negotiated transaction. As a
result, certain investors are known to be included in the group, the purchase
price paid by these has been averaged at $.03 per share, the average price of
shares sold in this group of transactions.
On or about February 29, 2000, the company issued 55,000,000 shares
of restricted stock to Jeff Turino and Bruce Hall. The company issued the shares
as consideration for an Agreement and Release in which the officers and the
company released mutual claims against each other arising from operation of the
employment agreements before January 1, 2000. The Agreement and Release also
amended the employment agreements, and the officers agree to perform under the
amended terms until expiration of the agreements. The shares were contracted
for issue by the company in a privately negotiated agreement and therefore were
issued in an exemption from registration as a private placement under section
4(2) of the Securities Act of 1933. The shares were restricted upon resale.
On March 3, 2000, the company issued 1,525,000 shares of restricted common
stock to MRC Legal Services Corporation ("MRC") as consideration for the
purchase of 96.8% of the shares of MAS. The number of shares issued were as
follows: 828,750 to M. Richard Cutler, 255,000 to Brian A. Lebrecht, 191,250 to
James Stubler, and 150,000 to Samuel Eisenburg. The shares were contracted for
issue by the company in a privately negotiated agreement and therefore were
issued in an exemption from registration as a private placement under section
4(2) of the Securities Act of 1933. The shares were restricted upon resale.
These shares were the subject of the Form S-8 registration filed by the Company
on March 16, 2000.
During the first two quarters of 2000, the company issued 36,302,519
restricted shares of stock to G & A pursuant to a Stock Option Agreement, dated
May 19,1999. Pinnacle signed the stock option agreement as part of a Consulting
Services Agreement, also dated May 19, 1999, for services performed by G & A to
Pinnacle.
The Stock Option Agreement granted G & A the right to purchase 36,302,519
shares at either $.25 per share or 30% of the average closing bid price of the
last thirty trading days. G & A opted to purchase the aforementioned 36,302,519
shares at 30% of the closing bid price. G & A signed a promissory note to the
company for the purchase price of the options. The form of the note was
unacceptable to the company, however.
The company therefore issued to G & A a total of 40,372,578 shares of stock
as consideration for its services to the company. The company delivered
5,050,000 shares, and issued the remaining shares pursuant to the exercise of
options. The remaining shares were not delivered, however, pending receipt of
acceptable form of payment. Of the total shares, associates of G & A registered
36,302,519 shares in the two Form S-8 filings by the company on April 14, 2000
and July 8, 2000.
On April 7, 2000, the parties signed an amendment to the Consulting
Services Agreement and Stock Option Agreement, entitled Amendment to Agreement
Between Gordon & Associates Strategic Investments, Inc. & Pinnacle Business
Management, Inc. The amendment required Pinnacle to abate the premiums due on
all shares acquired or to be acquired until all 40,372,578 shares are fully
registered. The terms of the promissory note continued to be negotiated
however.
After the filing of the Form S-8 on June 8, 2000, the parties agreed that
they could not agree on a form of payment. As a result, the shares that had been
issued, but not yet delivered, were not delivered. The note was cancelled. The
shares were retired by the company. As a result, the financial statements of the
company reflect neither the issue of the shares from options, nor the promissory
note executed in payment.
At the present time, the Board of Directors and the officers agree that
reducing the number of shares outstanding without reducing the float would
benefit the existing shareholders. The officers have agreed, therefore, to
permit the company to redeem their shares at a low value for options that can be
exercised only at a higher value. This will result in an immediate benefit to
shareholders and contingent deferred benefit to the officers, should the company
succeed in business. Nevertheless, the Board of Directors and the officers have
not yet agreed on the terms of the redemption. The parties have only agreed in
principle that the transaction will, in some form, at some time, occur.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
There are currently no provisions in either the Articles or the Bylaws of
the company which indemnify the Officers or Directors.
<PAGE>
FINANCIAL STATEMENTS
PINNACLE BUSINESS MANAGEMENT, INC.
AND SUBSIDIARIES
FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
PINNACLE BUSINESS MANAGEMENT, INC.
AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
PAGE
----
CONSOLIDATED FINANCIAL STATEMENTS:
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
BALANCE SHEETS AS OF DECEMBER 31, 1999 AND 1998 2-3
STATEMENTS OF OPERATIONS FOR THE YEARS ENDED
DECEMBER 31, 1999 AND 1998 4
STATEMENTS OF STOCKHOLDERS' DEFICIT FOR THE
YEARS ENDED DECEMBER 31, 1999 AND 1998 5
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED 6
DECEMBER 31, 1999 AND 1998
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7-16
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
-------------------------------------------------------
Pinnacle Business Management, Inc.
Clearwater, Florida
We have audited the accompanying consolidated balance sheets of Pinnacle
Business Management, Inc. and Subsidiaries as of December 31, 1999 and 1998, and
the related consolidated statements of operations, stockholders' deficit, 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.
The accompanying financial statements for December 31, 1999 and 1998 have
been prepared assuming that the company will continue as a going concern. As
discussed in Notes 9 and 11 to the financial statements, the company has
suffered recurring losses from operations, has a net capital deficiency, and
certain litigation pending that raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Notes 9 and 11. The financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Pinnacle
Business Management, Inc. and Subsidiaries as of December 31, 1999 and 1998, and
the results of their operations and their cash flows for the years ended
December 31, 1999 and 1998, in conformity with generally accepted accounting
principles.
As discussed in Note 14 to the financial statements, the Company's
management has restated certain equity, capital and expense transactions in
December 31, 1999 and 1998. The aggregate of management's adjustment reduced the
Stockholders's Deficit by $221,254 and $0 in 1999 and 1998 respectively.
/S/ BAGELL, JOSEPHS & CO., L.L.C.
-----------------------------------------------------------
BAGELL, JOSEPHS & CO., L.L.C
Certified Public Accountants
Gibbsboro, New Jersey
April 26, 2000, except for Note 14, as to which the date is November 1, 2000.
Page 1
<PAGE>
PINNACLE BUSINESS MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
------
DECEMBER 31,
------------------------
1999 1998
----------- -----------
CURRENT ASSETS
----------------
Cash and cash equivalents $ 9,726 $ 2,984
Customer loans receivable, net 274,974 743,877
Loans Receivable - Other 422,000 -0-
Prepaid Expenses 45,000 -0-
----------- -----------
751,700 746,861
----------- -----------
PROPERTY AND EQUIPMENT 156,831 144,839
Less accumulated depreciation (69,654) (48,078)
----------- -----------
87,177 96,761
OTHER ASSETS
--------------
Unamortized goodwill 238,498 244,944
Deferred tax asset 505,560 505,560
Security deposits 12,395 11,996
Loan costs, less amortization 221,254 -0-
----------- -----------
977,707 762,500
----------- -----------
TOTAL ASSETS 1,816,584 $1,606,122
------------------------------------------- =========== ===========
See Accompanying Notes to Consolidated Financial Statements
Page 2
<PAGE>
PINNACLE BUSINESS MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' DEFICIT
----------------------------------------
DECEMBER 31,
------------------------
1999 1998
----------- -----------
CURRENT LIABILITIES
--------------------
Accounts payable and accrued expenses $ 318,764 $ 79,783
Current portion of long-term debt 1,401,753 600,000
----------- ------------
Total current liabilities 1,720,517 679,783
---------------------------
----------- ------------
LONG TERM LINE OF CREDIT 863,000 -0-
NOTES PAYABLE - OFFICERS' 267,061 9,900
LONG-TERM DEBT, LESS CURRENT PORTION 417,287 1,344,276
----------- ------------
Total long-term liabilities 1,547,348 1,354,176
-----------------------------
----------- ------------
TOTAL LIABILITIES 3,267,865 2,033,959
----------- ------------
COMMITMENTS AND CONTINGENCIES
-------------------------------
STOCKHOLDERS' DEFICIT
----------------------
Preferred stock, par value of $.001;
authorized 50,000,000 and 10,000,000 shares
in 1999 and 1998; issued and outstanding none -0- -0-
Common stock, par value of $.001; authorized
100,000,000 and 20,000,000 shares in 1999 and
1998; issued and outstanding 86,952,686 and
16,494,202 in 1999 and 1998 86,952 16,494
Additional paid-in capital 1,973,490 571,440
Deficit (3,511,723) (1,015,771)
------------- ------------
Total stockholders' deficit (1,451,281) (427,837)
-----------------------------
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIT $ 1,816,584 $ 1,606,122
------------------------------------------- ============= ============
See Accompanying Notes to Consolidated Financial Statements
Page 3
<PAGE>
PINNACLE BUSINESS MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
DECEMBER 31,
-------------------------
1999 1998
------------ -----------
OPERATING REVENUE
------------------
Revenue $ 214,538 $ 633,478
------------ -----------
OPERATING EXPENSES
-------------------
Salaries, employee leasing and related 510,627 444,352
Advertising 51,157 106,183
Commissions and consulting compensation 478,448 55,568
Insurance 50,869 25,252
Office and general 61,322 56,746
Professional fees 166,190 55,676
Repairs and maintenance 10,042 5,562
Rent 138,259 110,923
Repossession costs 34,707 53,310
Telephone and utilities 109,157 81,260
Travel 73,468 59,749
Other operating 60,332 67,455
------------ -----------
Total operating expenses 1,744,578 1,122,036
--------------------------
----------------------------------------------------- ------------ -----------
OPERATING INCOME (LOSS) (1,530,040) (488,558)
------------ -----------
OTHER EXPENSES
---------------
Interest expense (516,447) (278,050)
Depreciation and Amortization expense (101,768) (31,009)
Bad debt (347,697) (60,831)
Loan payment deferrals -0- (8,750)
------------ -----------
Total other expenses (965,912) (378,640)
---------------------- ------------ -----------
NET LOSS
Before Federal Income Tax Benefit (2,495,452) (867,198)
--------------------------------- ------------ -----------
PROVISION FOR INCOME TAX BENEFIT -0- 284,826
------------ -----------
NET LOSS APPLICABLE TO COMMON SHARES $(2,495,952) $ (582,372)
============ ===========
NET LOSS PER BASIC AND DILUTED SHARES $ (0.05) $ (0.04)
============ ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 50,964,740 14,976,794
============ ===========
See Accompanying Notes to Consolidated Financial Statements
Page 4
<PAGE>
<TABLE>
<CAPTION>
PINNACLE BUSINESS MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
COMMON STOCK
$.001 PAR VALUE ADDITIONAL TOTAL
--------------------- PAID-IN STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT DEFICIT
------------- ------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance
January 1, 1998 13,418,027 $ 13,418 $ 121,992 $ (433,399) $ (297,989)
Issuance of
Common Stock- 1,628,675 1,629 421,420 - 423,049
Private Placement
Issuance of
Common Stock
Net Commission
Compensation-
Private Placement 500,000 500 19,500 - 20,000
Issuance of
Common Stock-
Loan Payment
Deferral 875,000 875 7,875 - 8,750
Issuance of
Common Stock-
Goods and Services 72,500 72 653 725
Net Loss - - - (582,372) (582,372)
------------- ------- ----------- ------------ -------------
Balance
December 31,
1998 16,494,202 16,494 571,440 (1,015,771) (427,837)
Issuance of
Common Stock-
Convertible
Notes - Net 2,054,480 2,054 257,946 - 260,000
Issuance of
Common Stock-
Consulting
Compensation 5,050,000 5,050 297,950 - 303,000
Issuance of
Common Stock-
Principals'
Consideration 15,097,000 15,097 (15,097)
Issuance of
Common Stock-
Loan Costs 29,500,000 29,500 265,500 - 295,000
Issuance of
Common Stock-
Private Placement 18,757,004 18,757 595,751 614,508
Net Loss (2,495,952) (2,495,952)
------------ -------- ----------- ------------ -------------
Balance
December 31,
1999 86,952,686 $ 86,952 $1,973,490 $(3,511,723) $ (1,451,281)
============ ======== =========== ============ =============
See Accompanying Notes to Consolidated Financial Statements
Page 5
<PAGE>
PINNACLE BUSINESS MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
DECEMBER 31,
--------------------------
1999 1998
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
----------------------------------------
Net Loss $(2,495,952) $ (582,372)
------------ ------------
Adjustments to reconcile net loss to net cash
used in operating activities:
------------------------------------------------
Depreciation and Amortization 101,768 31,009
Provision for doubtful accounts 367,076 60,831
Deferred Income Tax Benefit - (284,826)
Non cash transactions associated
with com.stock issuance 303,000 29,475
Changes in assets and liabilities:
(Increase)Decrease in customer loans
receivable - net 101,827 49,257
(Increase) in loans other and
prepaid expenses (467,000) -
(Increase)in deposits and other (399) -
Increase in accounts
payable and accrued expenses 238,981 4,041
------------ ------------
Total adjustments 645,253 (110,213)
------------------ ------------ ------------
Net cash(used in)operating activities (1,850,699) (692,585)
----------------------------------------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
----------------------------------------
Capital expenditures (11,992) (58,422)
------------ ------------
Net cash (used in) investing activities (11,992) (58,422)
----------------------------------------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
------------------------------------
Proceeds from issuance of long-term debt 1,280,287 583,952
Proceeds from issuance of common stock and
paid in capital 874,508 423,049
Principle payments on long-term debt (542,523) (168,431)
Increase (decrease) in officer's loans - net 257,161 (90,100)
------------ ------------
Net cash provided by financing activities 1,869,433 748,470
------------------------------------------
-------------------------------------------- ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 6,742 (2,537)
--------------- ------------ ------------
CASH AND CASH EQUIVALENTS-BEGINNING OF PERIOD 2,984 5,521
--------------------------------------------- ------------ ------------
CASH AND CASH EQUIVALENTS-END OF PERIOD $ 9,726 $ 2,984
----------------------------------------- ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
CASH PAID DURING THE YEAR FOR:
Interest Expense $ 432,369 270,250
============ ============
See Accompanying Notes to Consolidated Financial Statements
Page 6
<PAGE>
PINNACLE BUSINESS MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
DECEMBER 31,
---------------------
1999 1998
----------- --------
SUPPLEMENTAL SCHEDULE OF NON CASH
FINANCING ACTIVITIES
Issuance of common stock - loan costs $ 295,000 $ -0-
Issuance of common stock for commissions and
consulting expenses 303,000 20,000
Issuance of common stock for loan payment deferral -0- 8,750
Issuance of common stock for goods and services -0- 725
---------- ---------
$ 598,000 29,475
========== =========
See Accompanying Notes to Consolidated Financial Statements
Page 7
<PAGE>
PINNACLE BUSINESS MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
------------------------------------------------------
Pinnacle Business Management, Inc. is an integrated consumer finance and E-
commerce technology developer. The company operates title loan and paycheck
advance locations. Fast Title Loans, Inc. (FTL)is a wholly owned subsidiary
of Pinnacle Business Management, Inc. Fast Title Loans, Inc. is a consumer
loan company that operates title loan offices in central Florida. The title
loan is an immediate short term cash loan, using the free and clear title
of a person's car or truck as collateral. The loan allows the customer to
retain possession and use of their motor vehicle. Fast Paycheck Advance,
Inc. is a wholly owned subsidiary of Pinnacle Business Management, Inc.
that provides short-term paycheck advances to consumers. The accompanying
financial statements reflect the consolidated operations of the above.
On May 9, 1997, Pinnacle Business Management, Inc. (The "Company") was
incorporated as a wholly owned subsidiary of 300365 BC, Ltd., D/B/A Peaker
Resource Company, a company which was incorporated in British Columbia,
Canada on November 13, 1985. 300365 BC, Ltd. had been inactive for years
due to the lack of working capital. On May 15, 1997, the stockholders of
300365 BC, Ltd. exchanged all of the company's outstanding stock of 300365
BC, Ltd. for the stock of Pinnacle Business Management, Inc. This exchange
was made on a share for share basis. There were no tangible assets of
300365 BC, Ltd. The excess of par value of the common stock issued over the
assets acquired upon the acquisition of the parent was $1,933. After the
exchange of stock, the parent became the wholly owned subsidiary and it was
liquidated and the $1,933 was written off as an extraordinary loss upon the
dissolution of 300365 BC, Ltd.
On October 27, 1997, JTBH Corporation, a wholly owned subsidiary of the
"Company", with no assets, merged with Fast Title Loans, Inc. (FTL) a
Florida corporation. On that date Fast Title Loans, Inc. became the wholly
owned subsidiary of Pinnacle Business Management, Inc. The shares of (FTL)
were converted into common stock $.001 per share, of Pinnacle Business
Management, Inc.
The merger of (FTL) the private company into the public shell company
Pinnacle Business Management, Inc. on October 27, 1997 gave rise to the
private company having effective operating control of the combined company
after the transaction. This was a reverse merger and the costs
associated with were treated as a recapitilization. In 1998, the company
incorporated Fast Paycheck Advance, Inc. as a wholly owned subsidiary.
Also, on December 29, 1997 the Company incorporated Summit Property, Inc.,
a Nevada corporation. This subsidiary has remained inactive, however.
Page 8
<PAGE>
PINNACLE BUSINESS MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------
Principles of Consolidation:
------------------------------
The consolidated financial statements include the accounts of the Company
and all of its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Use of Estimates:
-------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Property and Equipment:
-------------------------
Property and equipment are stated at cost. Depreciation is computed
primarily using the straight-line method over the following estimated
useful lives:
YEARS
-----
Improvements 10-40
Furniture and Equipment 5-7
Leasehold Improvements are amortized over their estimated useful lives or
the lives of the related leases, whichever is shorter.
Revenue Recognition:
---------------------
Substantially most of the revenues are derived from interest charged on
consumer financing, title loans and advance paychecks. In 1999 and 1998
the amount of revenues derived from consumer interest on title loans was
$210,424 and $629,346 respectively. The amount of revenues derived from
advance paychecks was $4,114 and $4,132 respectively.
Income Taxes:
--------------
The income tax benefit is computed on the pretax loss based on the current
tax law. Deferred income taxes are recognized for the tax consequences in
future years of differences between the tax basis of assets and liabilities
and their financial reporting amounts at each year-end based on enacted tax
laws and statutory tax rates.
Page 9
<PAGE>
PINNACLE BUSINESS MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
-----------------------------------------------------------------------
Nature of Business and Credit Risk:
----------------------------------------
The company operates in mainly one business segment and primarily earns
interest income on consumer title loans and advanced paychecks. Financial
instruments which potentially subject the company to concentrations of
credit risk are primarily customer loans receivable.
Fair Value of Financial Instruments:
----------------------------------------
The carrying amounts reported in the consolidated balance sheets for cash
and cash equivalents, customer loan receivables, accounts payable and
accrued expenses and other liabilities approximate fair value because of
the immediate or short-term maturity of these financial instruments. The
carrying amount reported for long-term debt approximates fair value
because, in general, the interest on the underlying instruments fluctuates
with market rates.
Earnings (Loss) Per Share of Common Stock:
------------------------------------------------
Historical net income (loss) per common share is computed using the
weighted average number of common shares outstanding.
Statements of Cash Flows:
----------------------------
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid debt instruments and other short-term
investments with an initial maturity of three months or less to be cash
equivalents.
Advertising and Promotional Costs
------------------------------------
Costs of advertising and promotional costs are expensed as incurred.
Advertising costs were $51,157 and $106,183 in 1999 and 1998, respectively.
Goodwill
--------
Goodwill is amortized over 40 years. Amortization charged to expense was
$6,446 and $6,446 in 1999 and 1998 respectively.
Loan Costs
-----------
Loan costs are being amortized over 36 months. Amortization expense charged
to operations was $73,746 and $0 in 1999 and 1998 respectively.
Reclassification
----------------
Certain amounts in 1998 were reclassified to conform to the 1999
presentation.
Page 10
<PAGE>
PINNACLE BUSINESS MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
NOTE 3 - CUSTOMER LOANS RECEIVABLE - NET
-----------------------------------------------
Customer loans receivable, net consists of the following:
December 31,
----------------------
1999 1998
---------- ----------
Customer loans receivable $ 702,881 $ 804,708
Less: Allowance for doubtful accounts 427,907) (60,831)
---------- ----------
Customer loans receivable - Net 274,974 $ 743,877
========== ==========
Customer loans receivable include accrued interest amounts. However,
the Company, due to an unfavorable legislative climate regarding the title
loan industry, reserved an additional $367,076 in bad debt allowance to
account for the write down of accrued interest and loans that they may
not collect.
NOTE 4 - LOANS RECEIVABLE - OTHER
---------------------------------------
Loans receivable dated December 29, 1997 to a company for $25,000
together with interest thereon at the rate of 18% per annum. The principal
balance and accrued interest is due and payable on the earlier of a
private placement being completed in whole or part including but not
limited to any escrow disbursements of any funds to the maker, or March
27, 2000. There were no payments received in 1999 or 1998. The company
has made an allowance for doubtful receivable for the entire loan. The
company has not accrued any interest on this loan for 1999 or 1998.
Demand loan receivable a company for $422,000. Matrix Technology, Inc. is
a holding company for companies that provide advertising and computer
consulting services. This loan is non-interest bearing. Pinnacle management
believes that this will be a profitable investment for the company in the
future. It is anticipated that this loan receivable will be converted into
stock during the year 2000.
NOTE 5 - PROPERTY AND EQUIPMENT, NET
------------------------------------------
Property and equipment, net consists of the following:
1999 1998
---------- ----------
Furniture and Equipment $ 121,914 $ 109,922
Improvements 34,917 34,917
---------- ----------
156,831 144,839
Less: Accumulated depreciation (69,654) (48,078)
---------- ----------
Property and Equipment, Net $ 87,177 $ 96,761
========== ==========
Page 11
<PAGE>
PINNACLE BUSINESS MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
NOTE 6 - LINE OF CREDIT
----------------------------
In March 1999, the Company obtained a line of credit with a capital
company to receive up to $1,500,000 of advances. The interest is
payable at 17% per annum. Principal and interest on advances are due
March 1, 2001, with the company having an option to extend the note an
additional one year. At December 31, 1999, the company had $ 863,000
outstanding on the line. The line of credit is collateralized by
7,500,000 shares of the common stock of the company.
NOTE 7 - LONG-TERM DEBT
---------------------------
Long-term debt consists of the following:
DECEMBER 31,
-------------------------
1999 1998
------------ -----------
Note payable lending institution with monthly
interest payable at 14% per annum expiring
February 28, 2000 (see Note 8). $ 538,276 $ 538,276
Note payable investor with monthly interest
payable at 4.5% per month. This note
expires May 14, 1999. This note is
reflected in the balance sheet as a current
liability. 100,000 100,000
Note payable investor with monthly interest
payable at rates varying between 16-36% per
annum, expiring March 1, 2000. 524,880 606,000
Renegotiated note payable investors with
monthly interest payable at rates varying
between 1.5%-6% per month. This loan
expires in December, 2000. 238,597 450,000
Note payable investor with monthly interest
payable at 4%, expiring May 17, 1999. -0- 150,000
Notes payable investor with interest payable
at 18% per annum, expiring February and
March, 1999. -0- 100,000
Note payable investor with interest only
payable at 12% per annum. This note has a
balloon and expires December 31, 2002. 417,287 -0-
------------ -----------
1,819,040 1,944,276
Less: Current Portion (1,401,753) (600,000)
------------ -----------
Net Long-Term Debt 417,287 $1,344,276
============ ===========
Page 12
<PAGE>
PINNACLE BUSINESS MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
NOTE 7 - LONG-TERM DEBT (CONTINUED)
----------------------------------------
The non-current portion of long-term debt matures as follows:
2000 $1,401,753
2001 -0-
2002 417,287
----------
1,819,040
==========
The company has negotiated with certain investors to convert long-term debt
to common stock at various negotiated prices predicated on market
value. Long-term debt is substantially collateralized with motor vehicle
titles and the personal guarantees of the officers and the assets
of the company.
NOTE 8 - STOCKHOLDERS' DEFICIT
----------------------------------
The authorized capital stock of the company in 1998 consists of
20,000,000 shares of common stock with par value of $.001. As of December
31, 1998, there were 16,494,202 shares outstanding.
The authorized preferred stock of the company in 1999 and 1998
consists of 50,000,000 and 10,000,000 shares, respectively, with a par
value of $.001 with rights and privileges to be set by the board of
directors. As of December 31, 1999 and 1998, there were no shares issued or
outstanding.
In 1999, the corporation authorized an additional 80,000,000 shares of
common stock with a par value of $.001. As of December 31, 1999, there
were 100,000,000 shares authorized, and 86,952,686 issued and outstanding.
At December 31, 1999 the company had up to 35,322,578 shares (options)
outstanding with a consulting company. Shares may be exercisable at $.25
per share or 30% of the closing bid price, whichever is less. This was for
compensation in arranging the Mail Boxes Etc. account.
Additionally there are 5 year warrants outstanding for investment banking
services rendered to purchase 5,580,000 shares of common stock at $.125
per share. The warrants become due August 18, 2004.
Page 13
<PAGE>
PINNACLE BUSINESS MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
NOTE 9 - COMMITMENTS AND CONTINGENCIES
-------------------------------------------
(A) Leases:
-------
The company operates its facilities under certain operating leases. Future
minimum lease commitments under non-cancelable operating leases are as
follows:
2000 $60,372
2001 25,101
-------
85,473
=======
Rent and related expenses under operating leases amounted to $163,299 and
$110,923 for the years ended December 31, 1999 and 1998 respectively.
The company is operating various locations on a month to month basis.
(B) Litigation:
-----------
The company is a defendant involving a claim made in bankruptcy by First
American Reliance, Inc. (FAR) against the company for $800,000, including
9% interest, for amounts loaned and advanced by FAR to the company which
were not repaid. The company has asserted a defense and set off
alleging that monies due to Pinnacle from stock subscriptions in 1998
delivered to FAR were not turned over to the company. It is further alleged
that the claims of the company exceed the sum that FAR claims it is owed by
the company. The company has not accrued any interest on this note for 1999
and 1998 because of the offsets of monies due the company alleged in the
litigation. The lawyers have stated that documentation to fully evaluate
the claims is not presently available. However, the company is contesting
the case vigorously. The company has accrued a liability for $538,276 in
1999 and 1998, respectively.
Secondly, Tyler Jay & Company, L.L.C. commenced an action against the
company asserting a claim for fees and commissions arising from loans made
by FAR described in the previous paragraph. This also includes sums lost by
Tyler Jay allegedly because Tyler Jay was not permitted to complete the
private placement noted above. The sums demanded exceed $500,000 in the
aggregate. Management is vigorously contesting the claim. The company has
asserted claims and defenses that are still in the process of being
evaluated by the attorneys. It is not possible to determine whether there
will be a loss; or, if there is a loss, the extent of the loss.
Page 14
<PAGE>
PINNACLE BUSINESS MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
NOTE 10 - RELATED PARTY TRANSACTIONS
-----------------------------------------
The executive officers of the company pledged as collateral 7,500,000
shares of Pinnacle stock to secure personal loans and loaned $696,000 to
the company in 1999. The company in 1999 repaid the officers $439,157.
The officers received under an employment agreement approximately $55,000
and $65,464 each, respectively in 1999 and 1998.
The officers owned 24,102,000 and 9,005,000 common stock shares in 1999
and 1998 respectively.
NOTE 11 - GOING CONCERN
---------------------------
As shown in the accompanying financial statements, the company
incurred substantial net losses for the years ended December 31, 1999 and
1998. Additionally, the company has a $100,000 note payable with an
investor that expired May 14, 1999.
The investor has not called this loan and it is shown as a current
liability. Moreover, the company has debt that will be coming due between
March 1, 2000 and December 31, 2000 without adequate capital available to
repay the debt. The company is negotiating with the investors to either
extend these obligations or convert the debt to equity. However, if these
loans are called, the company's financial condition will be further
negatively impacted. Finally, the company is defending various lawsuit
claims that, if the outcome is unfavorable, would negatively impact the
company. These factors raise substantial doubt about the company's ability
to continue as a going concern.
Additionally, the company, due to an unfavorable legislative climate, plans
to discontinue its title loan business by June 30, 2000; and concentrate on
its payday advance business. There is no guarantee whether the company will
be able to generate enough revenue and or raise capital to support those
operations.
Management is working with the certain investors to rework the debt that is
coming due. Additionally, management is vigorously contesting the lawsuits
that have been filed against the company. The company feels that they have
certain offsets against the claims in litigation and does not expect to pay
more than what is reflected on the balance sheet at this time (see note 9).
However, there can be no assurance that the company will be successful in
its efforts to not have the payment of debt accelerated. If the company is
unsuccessful in its efforts, it may be necessary to undertake such other
actions as may be necessary to preserve asset value. The financial
statements do not include any adjustments, other than the current
classification of long-term debt in default, that might result from the
outcome of those uncertainties.
Page 15
<PAGE>
PINNACLE BUSINESS MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
NOTE 12 - INCOME TAX BENEFIT
---------------------------------
The benefit for income taxes is as follows:
1999 1998
-------- ---------
Deferred income tax benefit
(Federal only) -0- $ 284,826
======== =========
At December 31, 1999 and 1998, the company had net operating loss carry
forwards for U. S. Federal tax purposes available to offset future taxable
income of approximately $3,081,823 and $986,296 which expire through
2014. The company has concluded that, based on expected future results and
future reversals of existing temporary differences, it is more likely
than not that the deferred tax assets will be realized. However, for 1999
no tax benefit was booked as a conservative measure.
The net deferred tax assets in the accompanying balance sheets
include the following components:
1999 1998
--------- ---------
Deferred tax assets $ 505,560 $ 505,560
Deferred tax valuation allowance -0- -0-
--------- ---------
Net deferred tax assets $ 505,560 $ 505,560
========= =========
NOTE 13- SUBSEQUENT EVENTS
------------------
On February 28,2000, the company, Jeff Turino and Bruce Hall entered into
an agreement and release concerning claims arising from operation of those
officers' employment agreements with the company between 1997 and 2000.
Turino and Hall released the Company from certain performance obligations,
including the waiver of back compensation and bonus amounts. In exchange,
each received 27,500,000 shares of restricted common stock of the Company.
Turino and Hall agreed to perform the remainder of the employment agreement
in accordance with its terms. The company released any claims arising from
the officer's performance of the agreements prior to January 1, 2000.
Due to certain local legislative climate, the company is making efforts in
2000 to discontinue operating the title loan business. With the
implementation of payday advance debit card program, a three year contract
with Mailboxes Etc., and a possible banking alliance, the company is
anticipating expanding its payday advances on a national level.
Page 16
<PAGE>
PINNACLE BUSINESS MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999 AND 1998
NOTE 13- SUBSEQUENT EVENTS (Continued)
-------------------------------
Additionally, the company secured a national contract with Comdata through
their banking affiliates. This contract allows the distribution of debit
cards at the point of sale location. Subsequently, the company is in
negotiation with its competitors to allow them to use the debit card
system. This transforms the competitors into vendors and allows revenue on
a broader basis. Management anticipates putting forth its efforts to expand
the payday advance basis through physical locations and the Internet on a
national basis to increase company value.
On March 3, 2000 the company entered into a consulting agreement with
certain professionals and completed an acquisition via a stock exchange
agreement with MAS Acquisition XIX Corporation, a publicly held reporting
entity. MAS Acquisition XIX Corporation is inactive at this time. After the
stock exchange Pinnacle owns 100% of MAS Acquisition XIX Corp.
NOTE 14- RESTATEMENT OF EQUITY, CAPITAL AND EXPENSES
------------------------------------------------
The company issued common stock in 1999 and 1998 for the payment of
consulting compensation, commission expenses, loan costs, loan deferral
payments and goods and services. Management has restated those certain
items to recognize the intrinsic and intangible value of that stock issued.
Management originally booked those transactions at book value which
approximates zero.
Additionally, the company in 1999 recognized $28,500 in additional
compensation expense associated with raising capital.
The effect of the restated items reduced the company's aggregate
stockholders' deficit by $221,254 and $0 in 1999 and 1998 respectively. The
net loss for 1999 and 1998 increased $405,246 and $29,475 respectively.
Page 17
<PAGE>
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 hereunto duly authorized.
PINNACLE BUSINESS MANAGEMENT INC.
/S/ Jeffrey G. Turino
-------------------------------------------------------
Jeffrey G. Turino, Chief Executive Officer and Director
/S/ Michael B. Hall
-------------------------------------------------------
Michael B. Hall, President and Director
<PAGE>
PINNACLE BUSINESS MANAGEMENT, INC.
AND SUBSIDIARIES
FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
INDEX TO FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS:
ACCOUNTANT'S REVIEW REPORT 1
BALANCE SHEETS AS OF MARCH 31, 2000 AND 1999 2-3
STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED
MARCH 31, 2000 AND 1999 4
STATEMENTS OF STOCKHOLDERS' DEFICIT FOR THE THREE MONTHS
ENDED MARCH 31, 2000 AND 1999 5
STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED
MARCH 31, 2000 AND 1999 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7-16
<PAGE>
ACCOUNTANT'S REVIEW REPORT
--------------------------
Pinnacle Business Management, Inc.
Clearwater, Florida
We have reviewed the accompanying consolidated balance sheets of Pinnacle
Business Management, Inc. and Subsidiaries as of March 31, 2000 and 1999, and
the related consolidated statements of operations, stockholders' deficit, and
cash flows for the three months then ended, in accordance with Standards for
Accounting and Review Services issued by the American Institute of Certified
Public Accountants. All information included in these financial statements is
the representation of the management of Pinnacle Business Management, Inc.
A review consists principally of inquiries of Company personnel and
analytical procedures applied to financial data. It is substantially less in
scope than an audit in accordance with generally accepted auditing standards,
the objective of which is the expression of an opinion regarding the
consolidated financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying consolidated financial statements in order
for them to be in conformity with generally accepted accounting principles.
As discussed in Note 9 and 11, certain conditions indicate that the company
may be unable to continue as a going concern. The accompanying consolidated
financial statements do not include any adjustments to the financial statements
that might be necessary should the company be unable to continue as a going
concern.
As discussed in Note 14 to the financial statements, the company's March
31, 2000 professional fees was previously reported as $73,359 and should have
been $210,609. This discovery was made subsequent to the issuance of the
financial statements. The financial statements have been restated to reflect
this correction. As discussed in Note 15, the company made certain changes to
its beginning stockholder's deficit at January 1, 2000 and 1999 to account for
prior period adjustments.
/s/ BAGELL, JOSEPHS & CO., L.L.C.
-----------------------------------------------------
BAGELL, JOSEPHS & CO., L.L.C
Certified Public Accountants
Gibbsboro, New Jersey
May 10, 2000, except for Note 14, as to which the date is August 10,2000 and
Note 15, as to which the date is November 1, 2000.
Page 1
<PAGE>
PINNACLE BUSINESS MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
------
MARCH 31,
------------------------
2000 1999
------------ -----------
CURRENT ASSETS
----------------
Cash and cash equivalents $ 56,944 $ 67,776
Customer loans receivable, net 277,477 704,109
Loans Receivable - Other 423,000 -
Prepaid Expenses 41,250 -
------------ -----------
Total Current Assets 798,671 771,885
------------ -----------
PROPERTY AND EQUIPMENT 166,005 152,568
Less accumulated depreciation (74,654) (48,467)
------------ -----------
Total net property and equipment 91,351 104,101
OTHER ASSETS
-------------
Investment 135,000 -
Unamortized goodwill 236,498 243,333
Deferred tax asset 505,560 505,560
Security deposits 13,658 7,424
Officer loan receivable - 35,426
Loan costs, less amortization 196,671 -
Total Other Assets ------------ -----------
1,087,387 791,743
------------ -----------
TOTAL ASSETS $1,977,409 $1,667,729
------------- =========== ===========
See Accompanying Notes and Accountants' Report
Page 2
<PAGE>
PINNACLE BUSINESS MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' DEFICIT
----------------------------------------
MARCH 31,
------------------------
2000 1999
----------- -----------
CURRENT LIABILITIES
--------------------
Accounts payable and accrued expenses $ 430,429 $ 152,377
Current portion of long-term debt 1,390,928 1,204,526
-------------- -----------
Total current liabilities 1,821,357 1,356,903
-------------- -----------
LONG-TERM LINE OF CREDIT 1,068,000 150,000
NOTES PAYABLE - OFFICERS' 300,360 -
LONG-TERM DEBT, LESS CURRENT PORTION 547,287 700,000
-------------- -----------
Total long-term liabilities 1,915,647 850,000
-------------- -----------
TOTAL LIABILITIES 3,737,004 2,206,903
-------------- -----------
COMMITMENTS AND CONTINGENCIES
-------------------------------
STOCKHOLDERS' DEFICIT
----------------------
Preferred stock, par value of $.001;
authorized 50,000,000 and 50,000,000 in
March 31, 2000 and 1999; issued and
outstanding none $ - $ -
Common stock, par value of $.001;
authorized 200,000,000 and 100,000,000
shares of common stock and 157,262,589
and 74,429,610 shares of common stock
issued and outstanding $ 157,262 74,429
Additional paid-in capital 2,175,430 671,505
Deficit (4,092,287) (1,285,108)
-------------- -----------
Total stockholders' deficit (1,759,595) (539,174)
-------------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIT $ 1,977,409 $1,667,729
============== ===========
See Accompanying Notes and Accountants' Report
Page 3
<PAGE>
PINNACLE BUSINESS MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
MARCH 31,
-------------------------
2000 1999
------------ -----------
OPERATING REVENUE
------------------
Revenue $ 62,681 $ 110,931
------------ -----------
OPERATING EXPENSES
-------------------
Salaries, employee leasing and related 154,994 99,794
Advertising 7,386 8,070
Commissions 13,000 16,906
Office and general 10,776 13,433
Professional fees 210,609 17,849
Repairs and maintenance 1,243 2,914
Rent 38,482 44,314
Repossession costs 8,734 10,344
Telephone and utilities 27,696 33,043
Travel 32,400 26,623
Other operating 35,392 22,941
------------ -----------
Total operating expenses 540,712 296,231
----------------------------------------------------- ------------ -----------
OPERATING (LOSS) (478,031) (185,300)
----------------------------------------------------- ------------ -----------
OTHER EXPENSES
-----------------------------------------------------
Interest expense ( 70,950) ( 77,032)
Depreciation and Amortization expense (31,583) ( 7,005)
Bad debt - -
------------ -----------
TOTAL OTHER EXPENSES (102,533) (84,037)
----------------------------------------------------- ------------ -----------
NET LOSS
Before Federal Income Tax Benefit ( 580,564) (269,337)
----------------------------------------------------- ------------ -----------
PROVISION FOR INCOME TAX BENEFIT - -
------------ -----------
NET LOSS APPLICABLE TO COMMON SHARES $( 580,564) $ (269,337)
============ ===========
NET LOSS PER BASIC AND DILUTED SHARES $ (0.007) $ (0.008)
============ ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 86,952,686 32,970,767
----------------------------------------------------- ============ ===========
</TABLE>
See Accompanying Notes and Accountants' Report
Page 4
<PAGE>
<TABLE>
<CAPTION>
PINNACLE BUSINESS MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
COMMON STOCK
$.001 PAR VALUE ADDITIONAL TOTAL
-------------------- PAID-IN STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT DEFICIT
----------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
1999
----
Balance
January 1, 1999 16,494,206 $ 16,494 $ 571,440 $(1,015,771) $ (427,837)
Issuance of
Common Stock-
Private Placement 57,935,408 57,935 100,065 - 158,000
Net Loss - - - (269,337) (269,337)
----------- -------- ----------- ------------ ------------
Balance
March 31,
1999 74,429,610 74,429 $ 671,505 $(1,285,108) $ (539,174)
=========== ======== =========== ============ ============
2000
----
Balance
January 1,
2000 86,952,686 $ 86,952 $1,973,490 $(3,511,723) $(1,451,281)
Issuance of
Common Stock
for legal and
consulting services
at $.09 per share 1,525,000 1,525 135,725 - 137,250
Issuance of
Common Stock
in lieu of
officer's settlement
at book value 55,000,000 55,000 (55,000) - -
Issuance of
Common Stock
for MAS Acquisition
XIX, Corp. 1,500,000 1,500 133,500 - 135,000
Issuance of
Common Stock
cancelled for
non-payment
of options 12,284,903 12,285 (12,285) - -
Net Loss - - - (580,564) (580,564)
----------- -------- ----------- ------------ ------------
Balance
March 31,
2000 157,262,589 $157,262 $2,175,430 $(4,092,287) $(1,759,595)
=========== ======== =========== ============ ============
See Accompanying Notes and Accountants' Report
Page 5
<PAGE>
PINNACLE BUSINESS MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
MARCH 31,
2000 1999
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
----------------------------------------------------
Net Loss $ (580,564) $ (269,337)
----------- -----------
Adjustments to reconcile net loss to net cash
used in operating activities:
----------------------------------------------------
Depreciation and Amortization 31,583 7,005
Provision for doubtful accounts - 24,774
Deferred Income Tax Benefit - -
Stock issued for consulting services 137,250
CHANGES IN ASSETS AND LIABILITIES:
(Increase)Decrease in customer loans
receivable - net (2,503) 14,994
(Increase) in loans other and
prepaid expenses 2,750 -
(Increase)in deposits and other (1,263) (433)
Increase in accounts
payable and accrued expenses 111,665 72,594
----------- -----------
Total adjustments 279,482 118,934
--------------------------------------------------- ----------- -----------
Net cash provided by (used in) operating activities (301,082) (150,403)
--------------------------------------------------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
---------------------------------------------------
Capital expenditures (9,174) (7,729)
----------- -----------
Net cash (used in) investing activities (9,174) (7,729)
--------------------------------------------------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
---------------------------------------------------
Proceeds from issuance of long-term debt and
line of credit 335,000 150,000
Proceeds from issuance of common stock and
paid in capital - 158,000
Principle payments on long-term debt (10,825) (39,750)
Increase (decrease) in officer's loans - net 33,299 (45,326)
----------- -----------
Net cash provided by financing activities 357,474 222,924
--------------------------------------------------- ----------- -----------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 47,218 64,792
--------------------------------------------------- ----------- -----------
CASH AND CASH EQUIVALENTS-BEGINNING OF PERIOD 9,726 2,984
--------------------------------------------------- ----------- -----------
CASH AND CASH EQUIVALENTS-END OF PERIOD 56,944 67,776
--------------------------------------------------- =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
CASH PAID DURING THE YEAR FOR:
Interest Expense $ 3,700 $ 26,000
=========== ==========
SUPPLEMENTAL SCHEDULE OF NONCASH
FINANCING ACTIVITIES
Issuance of Common Stock for
Consulting Services $ 137,250 $ -
Issuance of Common Stock for =========== ==========
Investment $ 135,000 $ -
=========== ==========
</TABLE>
See Accompanying Notes and Accountants' Report
Page 6
<PAGE>
PINNACLE BUSINESS MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 and 1999
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
------------------------------------------------------
The consolidated reviewed interim financial statements included herein have
been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented not misleading.
These statements reflect all adjustments, consisting of normal recurring
adjustments which, in the opinion of management, are necessary for fair
presentation of the information contained therein.
Pinnacle Business Management, Inc. is an integrated consumer finance and E-
commerce technology developer. The company operates title loan and paycheck
advance locations. Fast Title Loans, Inc.(FTL) is a wholly owned subsidiary
of Pinnacle Business Management, Inc. Fast Title Loans, Inc. is a consumer
loan company that operates title loan offices in central Florida. The title
loan is an immediate short term cash loan, using the free and clear title
of a person's car or truck as collateral. The loan allows the customer to
retain possession and use of their motor vehicle. Fast Paycheck Advance,
Inc. is a wholly owned subsidiary of Pinnacle Business Management, Inc.
that provides short-term paycheck advances to consumers. The accompanying
financial statements reflect the consolidated operations of the above.
On May 9, 1997, Pinnacle Business Management, Inc. (The "Company") was
incorporated as a wholly owned subsidiary of 300365 BC, Ltd., D/B/A Peaker
Resource Company, a company which was incorporated in British Columbia,
Canada on November 13, 1985. 300365 BC, Ltd. had been inactive for years
due to the lack of working capital. On May 15, 1997, the stockholders of
300365 BC, Ltd. exchanged all of the company's outstanding stock of 300365
BC, Ltd. for the stock of Pinnacle Business Management, Inc. This exchange
was made on a share for share basis. There were no tangible assets of
300365 BC, Ltd. The excess of par value of the common stock issued over the
assets acquired upon the acquisition of the parent was $1,933. After the
exchange of stock, the parent became the wholly owned subsidiary and it was
liquidated and the $1,933 was written off as an extraordinary loss upon the
dissolution of 300365 BC, Ltd.
Page 7
<PAGE>
PINNACLE BUSINESS MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000 and 1999
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
-------------------------------------------------------------------
On October 27, 1997, JTBH Corporation, a wholly owned subsidiary of the
"Company", with no assets, merged with Fast Title Loans, Inc. (FTL) a
Florida corporation. On that date Fast Title Loans, Inc. became the wholly
owned subsidiary of Pinnacle Business Management, Inc. The shares of (FTL)
were converted into common stock $.001 per share, of Pinnacle Business
Management, Inc.
The merger of (FTL) the private company into the public shell company
Pinnacle Business Management, Inc. on October 27, 1997 gave rise to the
private company having effective operating control of the combined company
after the transaction. This was a reverse merger and the costs
associated with were treated as a recapitilization. On February 9, 1998,
the company incorporated Fast Paycheck Advance, Inc., a Florida corporation
as a wholly owned subsidiary. Also, on December 29, 1997 the Company
incorporated Summit Property, Inc., a Nevada corporation. This subsidiary
has remained inactive, however.
On March 3, 2000, the Company acquired 100% of the issued and outstanding
common stock of MAS Acquisition XIX Corp., an inactive registrant,
reporting company. Pinnacle became the parent corporation of MAS
Acquisition XIX Corp. when it exchanged 1,500,000 shares of its common
stock for 8,250,000 shares of MAS Acquisition XIX Corp. An investment of
$135,000 was recorded.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
----------------------------------------------------------
Principles of Consolidation:
----------------------------
The consolidated financial statements include the accounts of the Company
and all of its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Use of Estimates:
-------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Page 8
<PAGE>
PINNACLE BUSINESS MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000 AND 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
-----------------------------------------------------------------------
Property and Equipment:
-------------------------
Property and equipment are stated at cost. Depreciation is computed
primarily using the straight-line method over the following estimated
useful lives:
YEARS
-----
Improvements 10-40
Furniture and Equipment 5-7
Leasehold Improvements are amortized over their estimated useful lives or
the lives of the related leases, whichever is shorter.
Revenue Recognition:
---------------------
Substantially most of the revenues are derived from interest charged on
consumer financing, title loans and advance paychecks.
Income Taxes:
--------------
The income tax benefit is computed on the pretax loss based on the current
tax law. Deferred income taxes are recognized for the tax consequences in
future years of differences between the tax basis of assets and liabilities
and their financial reporting amounts at each year-end based on enacted tax
laws and statutory tax rates.
Nature of Business and Credit Risk:
----------------------------------------
The company operates in mainly one business segment and primarily earns
interest income on consumer title loans and advanced paychecks. Financial
instruments which potentially subject the company to concentrations of
credit risk are primarily customer loans receivable.
Fair Value of Financial Instruments:
----------------------------------------
The carrying amounts reported in the consolidated balance sheets for cash
and cash equivalents, customer loan receivables, accounts payable and
accrued expenses and other liabilities approximate fair value because of
the immediate or short-term maturity of these financial instruments. The
carrying amount reported for long-term debt approximates fair value
because, in general, the interest on the underlying instruments fluctuates
with market rates.
Page 9
<PAGE>
PINNACLE BUSINESS MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000 AND 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
---------------------------------------------------------------
Earnings (Loss) Per Share of Common Stock:
------------------------------------------------
Historical net income (loss) per common share is computed using the
weighted average number of common shares outstanding.
Statements of Cash Flows:
----------------------------
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid debt instruments and other short-term
investments with an initial maturity of three months or less to be cash
equivalents.
Advertising and Promotional Costs
------------------------------------
Costs of advertising and promotional costs are expensed as incurred.
Advertising costs were $7,386 and $8,070 in 2000 and 1999, respectively.
Goodwill
--------
Goodwill is amortized over 40 years. Amortization charged to expense was
$1,612 and $1,612 in 2000 and 1999 respectively.
Loan Costs
-----------
Loan costs are being amortized over 36 months. Amortization expense
charged to operations in March 31, 2000 and 1999 was $24,583 and $0
respectively.
Reclassification
----------------
Certain items in March, 1999 were reclassified to conform to the March,
2000 presentation.
NOTE 3 - CUSTOMER LOANS RECEIVABLE - NET
-----------------------------------------------
Customer loans receivable, net consists of the following:
MARCH 31,
------------
2000 1999
---------- ----------
Customer loans receivable $ 705,384 $ 789,717
Less: Allowance for doubtful accounts (427,907) (85,608)
---------- ----------
Customer loans receivable - Net 277,477 $ 704,109
========== ==========
Customer loans receivable include accrued interest amounts. However,
the Company, due to an unfavorable legislative climate regarding the title
loan industry, reserved in aggregate $427,907 in bad debt allowance to
account for the write down of accrued interest and loans that are
doubtful.
Page 10
<PAGE>
PINNACLE BUSINESS MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000 AND 1999
NOTE 4 - LOANS RECEIVABLE - OTHER
---------------------------------------
Loan receivable dated December 29, 1997 to a company for $25,000
together with interest thereon at the rate of 18% per annum. The principal
balance and accrued interest is due and payable on the earlier of a
private placement being completed in whole or part including but not
limited to any escrow disbursements of any funds to the maker, or March
27, 2000. There were no payments received in 2000 or 1999. The company
has made an allowance for doubtful receivable for the entire loan. The
company has not accrued any interest on this loan for 2000 or 1999.
Demand loan receivable a company for $423,000. This loan is non-interest
bearing. The company is performing outside consulting for a start up
company. It is anticipated that this loan receivable will be converted
into equity during the calendar year 2000.
NOTE 5 - PROPERTY AND EQUIPMENT, NET
------------------------------------------
Property and equipment, net consists of the following:
MARCH 31,
2000 1999
---------- -----------
Furniture and Equipment $ 131,088 $ 117,651
Improvements 34,917 34,917
---------- -----------
166,005 152,568
Less: Accumulated depreciation (75,654) ( 48,467)
---------- -----------
Property and Equipment, Net $ 91,351 $ 104,101
========== ===========
NOTE 6 - LINE OF CREDIT
----------------------------
In March 1999, the company obtained a line of credit with a capital
company to receive up to $1,500,000 of advances. The interest is
payable at 17% per annum. Principal and interest on advances are due
March 1, 2001, with the company having an option to extend the note an
additional one year. At March 31, 2000 and 1999, the company had
$1,068,000 and $150,000 outstanding on the line, respectively. The line
of credit is collateralized by 7,500,000 shares of the common stock of the
company.
Page 11
<PAGE>
PINNACLE BUSINESS MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000 and 1999
NOTE 7 - LONG-TERM DEBT
---------------------------
Long-term debt consists of the following:
MARCH 31,
2000 1999
------------ ------------
Note payable lending institution with monthly
interest payable at 14% per annum expiring
February 28, 2000 (see Note 8). $ 538,276 $ 538,276
Note payable investor with monthly interest
payable at 4.5% per month. This note
expires May 14, 1999. 100,000 100,000
Note payable investor with monthly interest
payable at rates varying between 16-36% per
annum, expiring March 1, 2000. 514,055 566,250
Renegotiated note payable investors with
monthly interest payable at rates varying
between 1.5%-6% per month. This loan
expires in December, 2000. 238,597 450,000
Note payable investor with monthly interest
payable at 4%, expiring May 17, 1999. -0- 150,000
Notes payable investor with interest payable
at 18% per annum, expiring February and
March, 1999. -0- 100,000
Note payable investor with interest only
payable at 12% per annum. This note has a
balloon and expires December 31, 2002. 547,287 -0-
------------ ------------
$ 1,938,215 $ 1,904,526
Less: Current Portion (1,390,928) (1,204,526)
------------ ------------
Net Long-Term Debt $ 547,287 $ 700,000
============ ============
The non-current portion of long-term debt
matures as follows:
March 31,
-----------
2000 $1,390,928
2001 -0-
2002 547,287
----------
$1,938,215
==========
The company is negotiating with certain investors to convert long-term debt
to common stock at various negotiated prices predicated on market
value. Long-term debt is substantially collateralized with motor vehicle
titles and the personal guarantees of the officers and the assets
of the company.
Page 12
<PAGE>
PINNACLE BUSINESS MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000 AND 1999
NOTE 8 - STOCKHOLDERS' DEFICIT
---------------------------------
The authorized preferred stock of the company in 2000 and 1999 consists of
50,000,000 and 50,000,000 shares, respectively, with par value of $.001
with rights and privileges set by the board of directors. As of March 31,
2000 and 1999 there were no shares outstanding.
As of March 31, 2000 and March 31, 1999 there were 200,000,000 and
100,000,000 shares of common stock authorized and 157,262,589 and
74,429,610 shares of common stock issued and outstanding.
At March 31, 2000, the company had up to 35,322,578 shares (options)
outstanding with a consulting company. Shares may be exercisable at $.25
per share or 30% of the closing bid price, whichever is less.
Additionally there are 5 year warrants outstanding for investment banking
services rendered to purchase 5,580,000 shares of common stock at $.125
per share. The warrants become due August 18, 2004.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
-------------------------------------------
(A) Leases:
-------
The company operates its facilities under certain operating leases. Future
minimum lease commitments under non-cancelable operating leases are as
follows:
2000 $60,372
2001 25,101
-------
$85,473
=======
Rent and related expenses under operating leases amounted to $38,482 and
$44,314 for the years ended March 31, 2000 and 1999 respectively.
The company is operating various locations on a month to month basis.
Page 13
<PAGE>
PINNACLE BUSINESS MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000 AND 1999
NOTE 9 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
--------------------------------------------------------
(B) Litigation:
-----------
The company is a defendant involving a claim made in bankruptcy by First
American Reliance, Inc. (FAR) against the company for $800,000, including
9% interest, for amounts loaned and advanced by FAR to the company which
were not repaid. The company has asserted a defense and set off
alleging that moneys due to Pinnacle from stock subscriptions in 1998
delivered to FAR were not turned over to the company. It is further alleged
that the claims of the company exceed the sum that FAR claims it is owed by
the company. The company has not accrued any interest on this note for 1999
and 1998 because of the offsets of moneys due the company alleged in the
litigation. The lawyers have stated that documentation to fully evaluate
the claims is not presently available. However, the company is contesting
the case vigorously. The company has accrued a liability for $538,276 in
2000 and 1999, respectively.
Secondly, Tyler Jay & Company, L.L.C. commenced an action against the
company asserting a claim for fees and commissions arising from loans made
by FAR described in the previous paragraph. This also includes sums lost by
Tyler Jay allegedly because Tyler Jay was not permitted to complete the
private placement noted above. The sums demanded exceed $500,000 in the
aggregate. Management is vigorously contesting the claim. The company has
asserted claims and defenses that are still in the process of being
evaluated by the attorneys. It is not possible to determine whether there
will be a loss; or, if there is a loss, the extent of the loss.
NOTE 10 - RELATED PARTY TRANSACTIONS
-----------------------------------------
February 28, 2000, the Company, Jeff Turino, and Bruce Hall entered into an
Agreement and Release concerning claims arising from operation of those
Officers' employment agreements with the Company between 1997 and 2000.
Turino and Hall released the Company from certain performance obligations,
including the waiver of back compensation and bonus amounts. In exchange,
each received 27,500,000 shares of restricted common stock of the Company.
Turino and Hall agreed to perform the remainder of the employment agreement
in accordance with its terms. The Company released any claims arising from
the Officers' performance of the agreements prior to January 1, 2000.
The Officers as of March 31, 2000, had a note payable due them from the
Company of $300,360. As of March 31, 1999 the officers owed $35,426 to the
Company; this was subsequently repaid.
Page 14
<PAGE>
PINNACLE BUSINESS MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000 AND 1999
NOTE 11 - GOING CONCERN
---------------------------
As shown in the accompanying financial statements, the company incurred net
losses for the three months ended March 31, 2000 and 1999. Additionally,
the company has a $100,000 note payable with an investor that expired May
14, 1999.
The investor has not called this loan and it is shown as a current
liability. Moreover, the company has debt that will be coming due between
March 1, 2000 and December 31, 2000 without adequate capital available to
repay the debt. The company is negotiating with the investors to either
extend these obligations or convert the debt to equity. However, if these
loans are called, the company's financial condition will be further
negatively impacted. Finally, the company is defending various lawsuit
claims that, if the outcome is unfavorable, would negatively impact the
company. These factors raise substantial doubt about the company's ability
to continue as a going concern.
Additionally, due to an unfavorable legislative climate, the company plans
to close down its title loan business and concentrate on its payday advance
business. There is no guarantee whether the company will be able to
generate enough revenue and/or raise capital to support those operations.
Management is working with the certain investors to rework the debt that is
coming due. Additionally, management is vigorously contesting the lawsuits
that have been filed against the company. The company feels that they have
certain offsets against the claims in litigation and does not expect to pay
more than what is reflected on the balance sheet at this time (see note 9).
However, there can be no assurance that the company will be successful in
its efforts to not have the payment of debt accelerated. If the company is
unsuccessful in its efforts, it may be necessary to undertake such other
actions as may be necessary to preserve asset value. The financial
statements do not include any adjustments, other than the current
classification of long-term debt in default, that might result from the
outcome of those uncertainties.
Page 15
<PAGE>
PINNACLE BUSINESS MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000 AND 1999
NOTE 12 - INCOME TAX BENEFIT
---------------------------------
There was no income tax benefit recognized at March 31, 2000 or 1999.
The net deferred tax assets in the accompanying balance sheets include the
following components:
2000 1999
-------- ---------
Deferred tax assets $505,560 $505,560
Deferred tax
valuation allowance -0- -0-
--------- ---------
Net deferred
tax assets $505,560 $505,560
========= =========
NOTE 13 - SUBSEQUENT EVENTS
-------------------------------
Due to certain local legislative climate, the company is making efforts in
2000 to discontinue operating in the title loan business. With the
implementation of payday advance debit card programs and a three year
contract with Mailboxes, Etc., the company is anticipating on expanding its
payday advances on a national level.
NOTE 14 - PROFESSIONAL FEES
-------------------------------
The company has restated their professional fees at March 31, 2000 to
include $137,250 for legal and consulting services paid in Pinnacle stock
to MRC Legal Services Corporation, in connection with the acquisition of
MAS Acquisition XIX Corp. Both Pinnacle and MRC Legal Services Corporation
agreed that the value of the 1,525,000 shares of stock issued to MRC Legal
Services Corporation would be a discounted market value of 9 cents per
share at that time.
NOTE 15 - PRIOR PERIOD ADJUSTMENT AND RESTATEMENT
--------------------------------------------------------
The company restated the January 1, 2000 and 1999 stockholder's deficit to
account for certain equity, capital and expense items adjusted for in prior
years. These adjustments were substantially made to revalue certain
transactions recorded at book value which approximates zero. Additionally,
amortization of loan costs was charged in March 31, 2000 of $24,583.
Page 16
<PAGE>
PINNACLE BUSINESS MANAGEMENT, INC.
AND SUBSIDIARIES
FINANCIAL STATEMENTS
FOR THE QUARTERLY PERIOD
JUNE 30, 2000
INDEX TO FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL INFORMATION
BALANCE SHEETS AS OF JUNE 30, 2000 AND 1999
(UNAUDITED)
STATEMENT OF OPERATIONS FOR THE SIX MONTHS
ENDED JUNE 30, 2000 AND 1999 (UNAUDITED) AND
THREE MONTHS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED)
STATEMENTS OF CASH FLOW FOR THE SIX MONTHS
ENDED JUNE 30, 2000 AND 1999 (UNAUDITED)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
PINNACLE BUSINESS MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
------
JUNE 30,
-------------------------
2000 1999
----------- ------------
CURRENT ASSETS
---------------
Cash and cash equivalents $ 54,450 $ 3,060
Customer loans receivable, net 243,339 557,224
Loans Receivable - Other 423,000 85,000
Prepaid Expenses 37,500 30,881
----------- ------------
Total Current Assets 758,289 676,165
----------- ------------
PROPERTY AND EQUIPMENT 169,731 153,572
Less accumulated depreciation (83,650) (55,467)
----------- ------------
Total net property and equipment 86,081 98,105
OTHER ASSETS
-------------
Investment 135,000 -
Unamortized goodwill 235,498 241,722
Deferred tax asset 505,560 505,560
Security deposits 8,958 7,424
Officer loan receivable - 49,564
Loan costs, less amortization 172,088 270,417
Total Other Assets ----------- ------------
1,057,104 1,074,687
----------- ------------
TOTAL ASSETS $1,901,474 $1,848,957
------------- =========== ===========
See Accompanying Notes to Consolidated Financial Statements
Page 1
<PAGE>
PINNACLE BUSINESS MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' DEFICIT
----------------------------------------
JUNE 30,
--------------------------
2000 1999
------------ ------------
CURRENT LIABILITIES
--------------------
Accounts payable and accrued expenses $ 446,341 $ 122,218
Current portion of long-term debt 1,545,928 1,162,401
------------ ------------
Total current liabilities 1,992,269 1,284,619
------------ ------------
LONG-TERM LINE OF CREDIT 1,068,000 518,000
NOTES PAYABLE - OFFICERS' 280,623 -
LONG-TERM DEBT, LESS CURRENT PORTION 1,013,636 450,000
------------ ------------
Total long-term liabilities 2,362,259 968,000
------------ ------------
TOTAL LIABILITIES 4,354,528 2,252,619
------------ ------------
COMMITMENTS AND CONTINGENCIES
-------------------------------
STOCKHOLDERS' DEFICIT
----------------------
Preferred stock, par value of $.001;
authorized 50,000,000 and 50,000,000 in
June 30, 2000 and 1999; issued and
outstanding none $ - $ -
Common stock, par value of $.001;
authorized 300,000,000 and 100,000,000
shares of common stock; 152,209,622
and 84,449,000 shares of common stock
issued and outstanding $ 152,210 84,449
Additional paid-in capital 2,080,485 1,474,904
Deficit (4,685,749) (1,963,015)
------------ ------------
Total stockholders' deficit (2,453,054) (403,662)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIT $ 1,901,474 $ 1,848,957
============ ============
See Accompanying Notes to Consolidated Financial Statements
Page 2
<PAGE>
<TABLE>
<CAPTION>
PINNACLE BUSINESS MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ---------------------------
2000 1999 2000 1999
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
OPERATING REVENUE
------------------
Revenue $ 69,683 $ 150,706 $ 7,002 $ 39,775
------------- ------------ ------------- ------------
OPERATING EXPENSES
-------------------
Salaries, employee leasing
and related 354,160 222,998 199,166 123,204
Advertising 17,621 18,808 10,235 10,738
Commissions 28,692 127,550 15,692 110,644
Office and general 30,531 26,743 19,755 13,310
Professional fees 284,015 76,471 73,406 58,622
Repairs and maintenance 2,629 3,680 1,386 768
Rent 72,258 69,371 33,776 25,055
Repossession costs 13,567 14,240 4,933 3,896
Telephone and utilities 55,617 52,334 27,921 19,291
Travel 44,996 35,127 12,596 8,504
Other operating 86,564 84,033 51,172 61,092
------------- ------------ ------------- ------------
Total operating expenses 990,750 731,355 450,038 435,124
------------- ------------ ------------- ------------
OPERATING (LOSS) (921,067) (580,649) (443,036) (395,349)
-------------------------------- ------------- ------------ ------------- ------------
OTHER EXPENSES
--------------------------------
Interest expense (174,948) (172,290) (103,998) (95,258)
Depreciation and
Amorizitation expense (66,326) (41,805) ( 34,743) (34,800)
Bad debt (11,685) (152,500) ( 11,685) (152,500)
------------- ------------ ------------- ------------
Total other expenses ( 252,959) (366,596) (150,426) (282,558)
--------------------------------- ------------- ------------ ------------- ------------
NET LOSS
Before Federal Income Tax Benefit (1,174,026) (947,244) (593,462) (677,907)
--------------------------------- ------------- ------------ ------------- ------------
PROVISION FOR INCOME TAX BENEFIT - - - -
------------- ------------ ------------- ------------
NET LOSS APPLICABLE TO COMMON SHARES $ (1,174,026) $ (947,244) (593,462) (677,907)
============= ============ ============= ============
NET LOSS PER BASIC AND DILUTED SHARES $ (.010) $ (.016) $ (.006) $ (.015)
============= ============ ============= ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 117,056,154 58,709,884 102,004,420 45,840,320
--------------------------------- ============= ============ ============= ============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
Page 3
<PAGE>
<TABLE>
<CAPTION>
PINNACLE BUSINESS MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
JUNE 30,
-------------------------
2000 1999
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
----------------------------------------------------
Net Loss $(1,174,026) $ (947,244)
------------ -----------
Adjustments to reconcile net loss to net cash
used in operating activities:
----------------------------------------------------
Depreciation and Amortization 66,326 41,805
Provision for doubtful accounts 11,685 152,500
Stock issued for consulting services 137,250 -0-
Changes in assets and liabilities:
(Increse)Decrease in customer loans
receivable - net 19,950 34,153
(Increase) in loans other ( 1,000) (85,000)
(Increase)in deposits and other prepaids 10,937 (26,309)
Increase in accounts payable and
accrued expenses 127,577 42,435
------------ -----------
Total adjustments 372,725 159,584
--------------------------------------------------- ------------ -----------
Net cash provided by (used in) operating activities (801,301) (787,660)
--------------------------------------------------- ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
---------------------------------------------------
Capital expenditures (12,900) (8,733)
------------ -----------
Net cash (used in) investing activities (12,900) (8,733)
--------------------------------------------------- ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES
---------------------------------------------------
Proceeds from issuance of long-term debt and
line of credit 856,188 518,000
Proceeds from issuance of common stock and
paid in capital -0- 669,808
Principle payments on long-term debt (10,825) (331,875)
Increase (decrease)in officer's loans - net 13,562 (59,464)
------------ -----------
Net cash provided by financing activities 858,925 796,469
--------------------------------------------------- ------------ -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 44,724 76
--------------------------------------------------- ------------ -----------
CASH AND CASH EQUIVALENTS-BEGINNING OF PERIOD 9,726 2,984
--------------------------------------------------- ------------ -----------
CASH AND CASH EQUIVALENTS-END OF PERIOD 54,450 3,060
--------------------------------------------------- ============ ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
CASH PAID DURING THE YEAR FOR:
Interest Expense $ 46,828 $ 96,058
============ ===========
SUPPLEMENTAL SCHEDULE OF NONCASH
FINANCING ACTIVITIES
Issuance of common stock - loan costs $ - 295,000
============ ===========
Issuance of common stock - professional fees
consulting services $ 137,250
============ ===========
Issuance of common stock - investment $ 135,000
============ ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
Page 4
<PAGE>
PINNACLE BUSINESS MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 and 1999
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
------------------------------------------------------
The consolidated interim financial statements included herein have been
prepared, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented not misleading.
These statements reflect all adjustments, consisting of normal recurring
adjustments which, in the opinion of management, are necessary for fair
presentation of the information contained therein.
Pinnacle Business Management, Inc. is an integrated consumer finance and E-
commerce technology developer. The company operates title loan and paycheck
advance locations. Fast Title Loans, Inc.(FTL) is a wholly owned subsidiary
of Pinnacle Business Management, Inc. Fast Title Loans, Inc. is a consumer
loan company that operates title loan offices in central Florida. The title
loan is an immediate short term cash loan, using the free and clear title
of a person's car or truck as collateral. The loan allows the customer to
retain possession and use of their motor vehicle. Fast Paycheck Advance,
Inc. is a wholly owned subsidiary of Pinnacle Business Management, Inc.
that provides short-term paycheck advances to consumers. The accompanying
financial statements reflect the consolidated operations of the above.
On May 9, 1997, Pinnacle Business Management, Inc. (The "Company") was
incorporated as a wholly owned subsidiary of 300365 BC, Ltd., D/B/A Peaker
Resource Company, a company which was incorporated in British Columbia,
Canada on November 13, 1985. 300365 BC, Ltd. had been inactive for years
due to the lack of working capital. On May 15, 1997, the stockholders of
300365 BC, Ltd. exchanged all of the company's outstanding stock of 300365
BC, Ltd. for the stock of Pinnacle Business Management, Inc. This exchange
was made on a share for share basis. There were no tangible assets of
300365 BC, Ltd. The excess of par value of the common stock issued over the
assets acquired upon the acquisition of the parent was $1,933. After the
exchange of stock, the parent became the wholly owned subsidiary and it was
liquidated and the $1,933 was written off as an extraordinary loss upon the
dissolution of 300365 BC, Ltd.
Page 5
<PAGE>
PINNACLE BUSINESS MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED)
JUNE 30, 2000 and 1999
(UNAUDITED)
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
-------------------------------------------------------------------
On October 27, 1997, JTBH Corporation, a wholly owned subsidiary of the
"Company", with no assets, merged with Fast Title Loans, Inc. (FTL) a
Florida corporation. On that date Fast Title Loans, Inc. became the wholly
owned subsidiary of Pinnacle Business Management, Inc. The shares of (FTL)
were converted into common stock $.001 per share, of Pinnacle Business
Management, Inc.
The merger of (FTL) the private company into the public shell company
-------------
Pinnacle Business Management, Inc. on October 27, 1997 gave rise to the
private company having effective operating control of the combined company
after the transaction. This was a reverse merger and the costs
associated with were treated as a recapitilization. On February 9, 1998,
the company incorporated Fast Paycheck Advance, Inc., a Florida corporation
as a wholly owned subsidiary. Also, on December 29, 1997, the Company
incorporated Summit Property, Inc., a Nevada corporation. This
subsidiary has remained inactive, however.
On March 3, 2000, the Company acquired 100% of the issued and outstanding
common stock of MAS Acquisition XIX Corp., an inactive registrant,
reporting company. Pinnacle became the parent corporation of MAS
Acquisition XIX Corp. when it exchanged 1,500,000 shares of its common
stock for 8,250,000 shares of MAS Acquisition XIX Corp. An investment of
$135,000 was recorded.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
----------------------------------------------------------
Principles of Consolidation:
-----------------------------
The consolidated financial statements include the accounts of the Company
and all of its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Use of Estimates:
-------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Page 6
<PAGE>
PINNACLE BUSINESS MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000 AND 1999
(UNAUDITED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
-----------------------------------------------------------------------
Property and Equipment:
-------------------------
Property and equipment are stated at cost. Depreciation is computed
primarily using the straight-line method over the following estimated
useful lives:
YEARS
-----
Improvements 10-40
Furniture and Equipment 5-7
Leasehold Improvements are amortized over their estimated useful lives or
the lives of the related leases, whichever is shorter.
Revenue Recognition:
---------------------
Substantially most of the revenues are derived from interest charged on
consumer financing, title loans and advance paychecks.
Income Taxes:
--------------
The income tax benefit is computed on the pretax loss based on the current
tax law. Deferred income taxes are recognized for the tax consequences in
future years of differences between the tax basis of assets and liabilities
and their financial reporting amounts at each year-end based on enacted tax
laws and statutory tax rates.
Nature of Business and Credit Risk:
----------------------------------------
The company operates in mainly one business segment and primarily earns
interest income on consumer title loans and advanced paychecks. Financial
instruments which potentially subject the company to concentrations of
credit risk are primarily customer loans receivable.
Fair Value of Financial Instruments:
----------------------------------------
The carrying amounts reported in the consolidated balance sheets for cash
and cash equivalents, customer loan receivables, accounts payable and
accrued expenses and other liabilities approximate fair value because of
the immediate or short-term maturity of these financial instruments. The
carrying amount reported for long-term debt approximates fair value
because, in general, the interest on the underlying instruments fluctuates
with market rates.
Page 7
<PAGE>
PINNACLE BUSINESS MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000 AND 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
-----------------------------------------------------------------------
Earnings (Loss) Per Share of Common Stock:
------------------------------------------------
Historical net income (loss) per common share is computed using the
weighted average number of common shares outstanding.
Statements of Cash Flows:
----------------------------
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid debt instruments and other short-term
investments with an initial maturity of three months or less to be cash
equivalents.
Advertising and Promotional Costs
------------------------------------
Costs of advertising and promotional costs are expensed as incurred.
Advertising costs were $17,621 and $18,808 in 2000 and 1999, respectively.
Goodwill
--------
Goodwill is amortized over 40 years. Amortization charged to expense was
$3,224 and $3,224 in 2000 and 1999 respectively.
Loan Costs
-----------
Loan costs are being amortized over 36 months. Amortization expense
charged to operations in June 30, 2000 and 1999 was $49,166 and $24,583
respectively.
Reclassification
----------------
Certain items in June, 1999 were reclassified to conform to the June,
2000 presentation.
NOTE 3 - CUSTOMER LOANS RECEIVABLE - NET
-----------------------------------------------
Customer loans receivable, net consists of the following:
JUNE 30,
------------
2000 1999
---------- ----------
Customer loans receivable $ 253,669 $ 768,055
Less: Allowance for doubtful accounts (10,330) (210,831)
---------- ----------
Customer loans receivable - Net 243,339 $ 557,224
========== ==========
Page 8
<PAGE>
PINNACLE BUSINESS MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000 AND 1999
(UNAUDITED)
NOTE 3 - CUSTOMER LOANS RECEIVABLE - NET (CONTINUED)
------------------------------------------------------------
Customer loans receivable include accrued interest amounts. However,
the Company, due to an unfavorable legislative climate regarding the title
loan industry, reserved in aggregate $10,330 and $210,831 in bad debt
allowance to account for the write down of accrued interest and loans
that are doubtful in 2000 and 1999 respectively. The inactive loan
portfolio has been outsourced to two collection agencies to expedite the
collection process.
NOTE 4 - LOANS RECEIVABLE - OTHER
---------------------------------------
Loan receivable dated December 29, 1997 to a company for $25,000
together with interest thereon at the rate of 18% per annum. The principal
balance and accrued interest is due and payable on the earlier of a
private placement being completed in whole or part including but not
limited to any escrow disbursements of any funds to the maker, or March
27, 2000. There were no payments received in 2000 or 1999. The company
has made an allowance for doubtful receivable for the entire loan. The
company has not accrued any interest on this loan for 2000 or 1999.
Demand loan receivable a company for $423,000 and $85,000 in 2000 and
1999. This loan is non-interest bearing. The company is performing
outside consulting for a start up company. It is anticipated that this
loan receivable will be converted into stock during the calendar year
2000. The anticipated stock terms are one share of stock for each dollar
loaned to the start up company.
NOTE 5 - PROPERTY AND EQUIPMENT, NET
------------------------------------------
Property and equipment, net consists of the following:
JUNE 30,
2000 1999
---------- -----------
Furniture and Equipment $ 134,814 $ 118,655
Improvements 34,917 34,917
---------- -----------
169,731 153,572
Less: Accumulated depreciation (83,650) ( 55,467)
---------- -----------
Property and Equipment, Net $ 86,081 $ 98,105
========== ===========
NOTE 6 - LINE OF CREDIT
----------------------------
In March 1999, the company obtained a line of credit with a capital
company to receive up to $1,500,000 of advances. The interest is
payable at 17% per annum. Principal and interest on advances are due
March 1, 2001, with the company having an option to extend the note an
additional one year. At June 30, 2000 and 1999, the company had
$1,068,000 and $518,000 outstanding on the line, respectively. The line
of credit is collateralized by 7,500,000 shares of the common stock of the
company.
Page 9
<PAGE>
<TABLE>
<CAPTION>
PINNACLE BUSINESS MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000 and 1999
NOTE 7 - LONG-TERM DEBT
---------------------------
Long-term debt consists of the following:
JUNE 30,
--------------------------
2000 1999
------------- ------------
<S> <C> <C>
Note payable lending institution with monthly
interest payable at 14% per annum expiring
February 28, 2000 (see Note 9). $ 538,276 $ 538,276
Note payable investor with monthly interest
payable at 4.5% per month. This note
expires May 14, 1999. 100,000 100,000
Note payable investor with monthly interest
payable at rates varying between 16-36% per
annum, expiring March 1, 2000. 514,055 524,125
Renegotiated note payable investors with
monthly interest payable at rates varying
between 1.5%-6% per month. This loan
expires in December, 2000. 393,597 450,000
Note payable investor with interest only
payable at 12% per annum. This note has a
balloon and expires December 31, 2002. 1,013,636 -0-
------------- ------------
$ 2,559,564 $ 1,612,401
Less: Current Portion (1,545,928) (1,162,401)
------------- ------------
Net Long-Term Debt $ 1 ,013,636 $ 450,000
============= ============
</TABLE>
The non-current portion of long-term debt
matures as follows:
JUNE 30,
-----------
2000 $1,545,928
2001 -0-
2002 1,013,636
----------
$2,559,564
==========
The company is negotiating with certain investors to convert long-term debt
to common stock at various negotiated prices predicated on market
value.
Page 10
<PAGE>
PINNACLE BUSINESS MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000 AND 1999
(UNAUDITED)
NOTE 8 - STOCKHOLDERS' DEFICIT
----------------------------------
The authorized preferred stock of the company in 2000 and 1999 consists of
50,000,000 and 50,000,000 shares, respectively, with par value of $.001
with rights and privileges set by the board of directors. As of June 30,
2000 and 1999 there were no shares outstanding.
As of June 30, 2000 and June 30, 1999 there were 300,000,000 and
100,000,000 shares of common stock authorized and 152,209,622 and
84,449,000 shares of common stock issued and outstanding.
Additionally, there are 5 year warrants outstanding for investment banking
services rendered to purchase 5,580,000 shares of common stock at $.125
per share. The warrants become due August 18, 2004.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
-------------------------------------------
(A) Leases:
-------
The company operates its facilities under certain operating leases. Future
minimum lease commitments under non-cancelable operating leases are as
follows:
JUNE 30,
---------
2000 $60,372
2001 25,101
-------
$85,473
=======
Rent and related expenses under operating leases amounted to $72,258 and
$69,371 for the years ended June 30, 2000 and 1999 respectively.
The company is operating various locations on a month to month basis.
Page 11
<PAGE>
PINNACLE BUSINESS MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000 AND 1999
NOTE 9 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
--------------------------------------------------------
(B) Litigation:
-----------
The company is a defendant involving a claim made in bankruptcy by First
American Reliance, Inc. (FAR) against the company for $800,000, including
9% interest, for amounts loaned and advanced by FAR to the company which
were not repaid. The company has asserted a defense and set off
alleging that moneys due to Pinnacle from stock subscriptions in 1998
delivered to FAR were not turned over to the company. It is further alleged
that the claims of the company exceed the sum that FAR claims it is owed by
the company. The company has not accrued any interest on this note for 1999
and 1998 because of the offsets of moneys due the company alleged in the
litigation. The lawyers have stated that documentation to fully evaluate
the claims is not presently available. However, the company is contesting
the case vigorously. The company has accrued a liability for $538,276 in
2000 and 1999, respectively.
Secondly, Tyler Jay & Company, L.L.C. commenced an action against the
company asserting a claim for fees and commissions arising from loans made
by FAR described in the previous paragraph. This also includes sums lost by
Tyler Jay allegedly because Tyler Jay was not permitted to complete the
private placement noted above. The sums demanded exceed $500,000 in the
aggregate. Management is vigorously contesting the claim. The company has
asserted claims and defenses that are still in the process of being
evaluated by the attorneys. It is not possible to determine whether there
will be a loss; or, if there is a loss, the extent of the loss.
NOTE 10 - RELATED PARTY TRANSACTIONS
-----------------------------------------
The officers as of June 30, 2000, had a note payable due them from the
Company of $280,623. As of June 30, 1999 the officers owed $49,565 to the
Company; this was subsequently repaid.
Page 12
<PAGE>
PINNACLE BUSINESS MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000 AND 1999
(UNAUDITED)
NOTE 11 - GOING CONCERN
---------------------------
As shown in the accompanying financial statements, the company incurred net
losses for the six months ended June 30, 2000 and 1999. Additionally, the
company has a $100,000 note payable with an investor that expired May 14,
1999.
The investor has not called this loan and it is shown as a current
liability. Moreover, the company has debt that will be coming due between
March 1, 2000 and December 31, 2000 without adequate capital available to
repay the debt. The company is negotiating with the investors to either
extend these obligations or convert the debt to equity. However, if these
loans are called, the company's financial condition will be further
negatively impacted. Finally, the company is defending various lawsuit
claims that, if the outcome is unfavorable, would negatively impact the
company. These factors raise substantial doubt about the company's ability
to continue as a going concern.
Additionally, due to an unfavorable legislative climate, the company plans
to close down its title loan business and concentrate on its payday advance
business. There is no guarantee whether the company will be able to
generate enough revenue and/or raise capital to support those operations.
Management is working with the certain investors to rework the debt that is
coming due. Additionally, management is vigorously contesting the lawsuits
that have been filed against the company. The company feels that they have
certain offsets against the claims in litigation and does not expect to pay
more than what is reflected on the balance sheet at this time (see note 9).
However, there can be no assurance that the company will be successful in
its efforts to not have the payment of debt accelerated. If the company is
unsuccessful in its efforts, it may be necessary to undertake such other
actions as may be necessary to preserve asset value. The financial
statements do not include any adjustments, other than the current
classification of long-term debt in default, that might result from the
outcome of those uncertainties.
Page 13
<PAGE>
PINNACLE BUSINESS MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2000 AND 1999
(UNAUDITED)
NOTE 12 - INCOME TAX BENEFIT
---------------------------------
There was no income tax benefit recognized at June 30, 2000 or 1999.
The net deferred tax assets in the accompanying balance sheets include the
following components:
2000 1999
-------- ---------
Deferred tax assets $505,560 $505,560
Deferred tax
valuation allowance -0- -0-
--------- ---------
Net deferred
tax assets $505,560 $505,560
========= =========
The company conservatively will not accrue any further income tax Benefit
pending the monitoring of the profitability of its future operations.
NOTE 13 - SUBSEQUENT EVENT
------------------------------
In August 2000, the company cancelled 35,322,578 options shares outstanding
with a consulting company. Hence, the outstanding shares of common stock
have been reduced at June 30, 2000 to 152,209,622.
NOTE 14 - RESTATEMENT OF EQUITY, CAPITAL AND EXPENSES
-------------------------------------------------------------
The company's management has restated certain equity, capital and expense
transactions in December 31, 1999 and 1998. The aggregate of management's
adjustments reduced stockholders' deficit by $221,254 and $0 in 1999 and
1998 respectively.
Additionally, the company, for the period ended June 30, 2000 and 1999,
recorded additional amortization of loan costs of $49,166 and $24,583
respectively.
Page 14
<PAGE>
EXHIBITS
Number Exhibits
3.1 Articles of Incorporation
3.1.1 Amendments to Articles of Incorporation
3.1.2 Amendments to Articles of Incorporation
3.1.3 Amendments to Articles of Incorporation
3.1.4 Articles of Amendment
3.1.5 Certificate of Amendment
3.2 By-laws
10.1 Mail Boxes Etc. USA, Inc. Contract
10.2 Comdata Referral Agreement
10.3 Comdata Payment Services Express Cash Statement of Services
10.4 Comdata Payment Services Funds Distribution Agreement
10.5 CashLynk Master Client Agreement
10.6 Processing Agreement with Unistar Insurance & Financial Services
10.7 Amendment to Agreement with Gordon & Associates
10.8 Addendum to Consulting Services Agreement with Gordon & Associates
10.9 Mastercard Agreement
10.10 M.H. Meyerson & Co., Inc.
10.11 Hall Employment Agreement
10.12 Turino Employment Agreement
10.13 Agreement and Release
21 Subsidiaries of the Registrant
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereto duly authorized.
Pinnacle Business Management Inc.
November 13, 2000
Date
/s/ Jeffrey G. Turino
------------------------------------------
Jeffrey G. Turino, Chief Executive Officer and Director
/s/ Michael B. Hall
------------------------------------------
Michael B. Hall, President and Director
<PAGE>
