<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
JUNE 30, 2000
Date of Report (Date of earliest event reported)
----------------------
PINNACLE GLOBAL GROUP, INC.
(Exact name of registrant as specified in its charter)
TEXAS 0-30066 76-0583569
(State or other jurisdiction (Commission File No.) (I.R.S. Employer
of incorporation) Identification No.)
5599 SAN FELIPE, SUITE 555
HOUSTON, TEXAS 77056
(Address of principal executive office) (Zip Code)
(713) 993-4610
(Registrant's telephone number, including area code)
================================================================================
<PAGE>
Pinnacle Global Group, Inc., hereby amends the following items, financial
statements, exhibits or other portions of its Current Report on Form 8-K
dated July 14, 2000:
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial statements of business acquired.
See index on page 2.
(b) Pro forma financial information
See index on page 2.
1
<PAGE>
Item 7. Financial Statements
The following financial statements and proforma financial information are
filed as part of this report.
<TABLE>
<CAPTION>
Page
----
<S> <C>
AUDITED FINANCIAL STATEMENTS OF BLACKFORD SECURITIES CORPORATION
Independent Auditor's Report.................................................................... 3
Statement of Financial Condition as of September 30, 1999....................................... 4
Statement of Income for the Year Ended September 30, 1999....................................... 5
Statement of Cash Flows for the Year Ended September 30, 1999................................... 6
Statement of Changes in Shareholders' Equity for the Year Ended September 30, 1999.............. 7
Notes to Financial Statements................................................................... 9
Independent Auditor's Report.................................................................... 11
Statement of Financial Condition as of September 30, 1998....................................... 12
Statement of Income for the Year Ended September 30, 1998....................................... 13
Statement of Cash Flows for the Year Ended September 30, 1998................................... 14
Statement of Changes in Shareholders' Equity for the Year Ended September 30, 1998.............. 15
Notes to Financial Statements................................................................... 17
Independent Auditor's Report.................................................................... 20
Statement of Financial Condition as of September 30, 1997....................................... 21
Statement of Income for the Year Ended September 30, 1997....................................... 22
Statement of Cash Flows for the Year Ended September 30, 1997................................... 23
Statement of Changes in Shareholders' Equity for the Year Ended September 30, 1997.............. 24
Notes to Financial Statements................................................................... 25
UNAUDITED PRO FORMA FINANCIAL INFORMATION
Pro Forma Combined Statement of Operations for the Year Ended December 31, 1999................. 29
Pro Forma Combined Statement of Operations for the Six Months Ended June 30, 2000............... 30
Notes to Pro Forma Combined Financial Statements................................................ 31
SIGNATURES........................................................................................... 33
</TABLE>
2
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Blackford Securities Corporation
1010 Franklin Avenue
Garden City, New York 11530
We have audited the accompanying statement of financial condition of
Blackford Securities Corporation as of September 30, 1999, and the related
statements of income, cash flows, changes in shareholders' equity and changes
in liabilities subordinated to claims of general creditors for the year 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 audit.
We conducted our audit 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Blackford Securities
Corporation as of September 30, 1999, and the results of its operations and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ Demasco, Sena & Jahelka
Massapequa, New York
November 1, 1999
3
<PAGE>
BLACKFORD SECURITIES CORPORATION
STATEMENT OF FINANCIAL CONDITION
AS OF SEPTEMBER 30, 1999
<TABLE>
<S> <C>
ASSETS
Current assets
Cash and cash equivalents $ 1,895,576
Accounts receivable 14,037
Current portion of notes receivable - Note 7 16,672
Prepaid expenses 48,623
---------
Total current assets 1,974,908
Furniture, equipment and leasehold
improvements, at cost, less
accumulated depreciation of $670,025 485,074
Other assets
Deposits 186,704
Notes receivable, less current portion - Note 7 103,280
Investment in limited partnership 113,134
---------
Total other assets 403,118
---------
Total assets $ 2,863,100
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 447,834
Commissions payable 192,609
Floor brokerage expense payable 28,115
---------
Total current liabilities 668,558
Commitments - Note 5 -
Shareholders' equity
Capital stock:
Class A common voting stock, $1 par value;
authorized 5,000 shares;
issued and outstanding 631 shares 631
Class B common non-voting stock, $1 par value;
authorized 5,000 shares;
issued and outstanding 95 shares 95
---------
726
Additional paid in capital 737,607
Retained earnings 1,456,209
---------
Total shareholders' equity 2,194,542
---------
Total liabilities and shareholders' equity $ 2,863,100
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
BLACKFORD SECURITIES CORPORATION
STATEMENT OF INCOME
FOR THE YEAR ENDED SEPTEMBER 30, 1999
<TABLE>
<S> <C> <C>
Revenues
Commissions $ 9,301,882
Management fees 158,303
Interest 381,425 $ 9,841,610
-----------
Expenses
Employee compensation, benefits and payroll taxes 4,972,897
Floor brokerage, clearance and related fees and expenses 1,559,433
Occupancy costs 293,575
Professional fees 23,935
Market data, communications and other fees 1,002,727
Interest 17,316
Other operating expenses 294,640 8,164,523
----------- ---------
Income before taxes 1,677,087
Income taxes - Note 8 22,784
---------
Net income $ 1,654,303
=========
Weighted average shares outstanding 726
=========
Basic and diluted earnings per share $ 2,279
=========
Pro Forma - Note 8
Historical income before taxes $ 1,677,087
Pro forma taxes on income 670,835
---------
Pro forma net income $ 1,006,252
=========
Weighted average shares outstanding 726
=========
Pro forma earnings per share $ 1,386
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
BLACKFORD SECURITIES CORPORATION
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED SEPTEMBER 30, 1999
<TABLE>
<S> <C> <C>
Operating activities
Net income $ 1,654,303
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization $ 143,949
Decrease in firm investments 7,707
Change in assets and liabilities
affecting operating activities:
Decrease in accounts receivable 35,834
Increase in prepaid expenses (15,484)
Decrease in accounts payable and
accrued expenses (160,569)
Decrease in commissions payable (407,422)
Decrease in floor brokerage expense
payable (26,167)
Increase in deposits (33,575) (455,727)
---------- ----------
Total operating activities 1,198,576
Investing activities
Increase in investment in limited
partnership (25,864)
Purchase of furniture and equipment (116,390)
Decrease in notes receivable 45,045 (97,209)
----------
Financing activities
Dividends paid (1,540,000)
----------
Net decrease in cash and cash equivalents (438,633)
Cash and cash equivalents, September 30, 1998 2,334,209
----------
Cash and cash equivalents, September 30, 1999 $ 1,895,576
==========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 17,316
Historical income taxes - Note 8 49,764
The accompanying notes are an integral part of these financial statements.
</TABLE>
6
<PAGE>
BLACKFORD SECURITIES CORPORATION
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Additional
Capital Paid in Retained
Stock Capital Earnings Total
--------------- ------------- ---------------- --------------
<S> <C> <C> <C> <C>
Balance,
September 30, 1998 $ 726 $ 737,607 $ 1,341,906 $ 2,080,239
Net income - - 1, 654,303 1, 654,303
Dividends paid to
shareholders - - (1,540,000) (1,540,000)
------ --------- ------------ -----------
Balance,
September 30, 1999 $ 726 $ 737,607 $ 1,456,209 $ 2,194,542
====== ========= ============ ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
7
<PAGE>
BLACKFORD SECURITIES CORPORATION
STATEMENT OF CHANGES IN LIABILITIES SUBORDINATED
TO CLAIMS OF GENERAL CREDITORS
FOR THE YEAR ENDED SEPTEMBER 30, 1999
<TABLE>
<S> <C>
Balance, September 30, 1998 $ -
Changes during the year -
-----------
Balance, September 30, 1999 $ -
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
BLACKFORD SECURITIES CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Blackford Securities
Corporation (the Company) is presented to assist in understanding the
Company's financial statements.
A. NATURE OF BUSINESS
The Company, which was established in 1988, is primarily a
broker/dealer. The Company recognizes commission income for
services performed and related expenses such as floor
brokerage and clearance fees on a settlement date basis.
B. 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 amounts
reported in the financial statements and accompanying
disclosures. Although these estimates are based on
management's best knowledge of current events and actions the
Company may undertake in the future, actual results ultimately
may differ from the estimates.
C. CASH AND CASH EQUIVALENTS
The Company defines cash and cash equivalents as all funds
that are directly accessible and controlled by the Company and
which can be readily convertible into known amounts of cash.
Any cash time deposit investment qualifies as a cash
equivalent only if the original maturity of the Company's
investment is for a period of three months or less.
D. DEPRECIATION OF FIXED ASSETS
Fixed assets have been recorded at cost and are being
depreciated over the useful lives of the related assets.
Depreciation expense is computed using the straight line
method and totaled $143,949 for the year. The estimated useful
lives of the assets are as follows:
<TABLE>
<S> <C>
Office equipment 5-7 years
Furniture and fixtures 7 years
Leasehold improvements Term of lease
</TABLE>
2. NET CAPITAL REQUIREMENT
The Company is subject to the Securities and Exchange Commission
Uniform Net Capital Rule. At September 30, 1999, the Company had net
capital, as defined, of $1,241,055 which was $1,141,055 in excess of
its required net capital of $100,000.
3. RESERVE REQUIREMENT
The Company does not hold funds or securities for, nor owe money or
securities to customers. Therefore, the Company is exempt from the
reserve requirements as defined by the Securities and Exchange
Commission under Rule 15c3-3.
9
<PAGE>
BLACKFORD SECURITIES CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED SEPTEMBER 30, 1999
4. RELATED PARTY TRANSACTIONS
For the year ended September 30, 1999, the Company earned gross
commissions of approximately $985,000 from related party transactions.
Of this amount, $595,000 was received from a customer which is 50%
owned by certain shareholders of the Company and the balance of
$390,000 was received from another customer which is controlled by a
non-voting shareholder of the Company.
5. COMMITMENTS
The Company conducts its operations from a facility that is leased
until April 14, 2007. The Company also sublets office space in New York
and Wilmington, Vermont on a month to month basis. During the fiscal
year ended September 30, 1999 rent expense totaled $233,616.
The following is a schedule of future minimum rental payments required
through the expiration date of these operating leases:
<TABLE>
<CAPTION>
Year ending
September 30
------------
<S> <C>
2000 $ 283,309
2001 291,075
2002 299,074
2003 307,313
2004 315,799
Thereafter 841,436
------------
$ 2,338,006
============
</TABLE>
6. PROFIT SHARING PLAN
The Company has in effect both a discretionary defined contribution
profit sharing plan and a money purchase plan covering management and
administrative employees. It is the Company's policy to currently fund
all profit sharing costs. For the year ended September 30, 1999, profit
sharing expense was $190,701, of which $40,701 had not been paid at
September 30, 1999.
7. NOTES RECEIVABLE
On May 7, 1997 the Company sold its 79 percent interest in Blackford
Capital Management, Inc. The sale price of $200,000 was evidenced by a
series of promissory notes which bear interest at the rate of 7 percent
per annum and are payable in 32 quarterly installments. The balance
remaining at September 30, 1999 is $119,952.
8. PRO FORMA FINANCIAL INFORMATION
Since its inception, the Company has been treated as an S Corporation
pursuant to the Internal Revenue Code. The objective of the pro forma
financial information is to show the significant effect this election
has had on the historical financial results of the Company.
10
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Blackford Securities Corporation
1010 Franklin Avenue
Garden City, New York 11530
We have audited the accompanying statement of financial condition of Blackford
Securities Corporation as of September 30, 1998, and the related statements of
income, cash flows, changes in shareholders' equity and changes in liabilities
subordinated to claims of general creditors for the year 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Blackford Securities
Corporation as of September 30, 1998, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ Demasco, Sena & Jahelka
Massapequa, New York
November 11, 1998
11
<PAGE>
BLACKFORD SECURITIES CORPORATION
STATEMENT OF FINANCIAL CONDITION
AS OF SEPTEMBER 30, 1998
ASSETS
<TABLE>
<S> <C>
Current assets
Cash and cash equivalents $ 2,334,209
Commissions receivable 50,554
Current portion of notes receivable - Note 7 15,548
Prepaid expenses 33,139
---------
Total current assets 2,433,450
Furniture, equipment and leasehold
improvements, at cost, less
accumulated depreciation of $526,759 511,950
Other assets
Deposits 153,129
Notes receivable, less current portion - Note 7 119,952
Investment in limited partnership 94,977
---------
Total other assets 368,058
---------
Total assets $ 3,313,458
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 608,403
Commissions payable 600,031
Floor brokerage expense payable 54,282
---------
Total current liabilities 1,262,716
Commitments - Note 5 -
Shareholders' equity
Capital stock:
Class A common voting stock, $1 par value;
authorized 5,000 shares;
issued and outstanding 631 shares 631
Class B common non-voting stock, $1 par value;
authorized 5,000 shares;
issued and outstanding 95 shares 95
---------
726
Additional paid in capital 737,607
Receivable for shares issued - Note 7 (29,497)
Retained earnings 1,341,906
---------
Total shareholders' equity 2,050,742
---------
Total liabilities and shareholders' equity $ 3,313,458
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE>
BLACKFORD SECURITIES CORPORATION
STATEMENT OF INCOME
FOR THE YEAR ENDED SEPTEMBER 30, 1998
<TABLE>
<S> <C> <C>
Revenues
Commissions $ 8,876,624
Management fees 115,666
Interest 521,902 9,514,192
--------
Expenses
Employee compensation, benefits
and payroll taxes 4,405,555
Floor brokerage, clearance and
related fees and expenses 1,467,171
Occupancy cost 242,106
Consulting and professional fees 64,820
Market data, communications and
other fees 1,149,194
Interest 17,875
Other operating expenses 312,969 7,659,690
---------- ---------
Income before taxes 1,854,502
Income taxes - Note 8 26,200
----------
Net income $ 1,828,302
==========
Weighted average shares outstanding 726
==========
Basic and diluted earnings per share $ 2,518
==========
PRO FORMA - Note 8
Historical income before taxes $ 1,854,502
Pro forma taxes on income 648,000
----------
Pro forma net income $ 1,206,502
==========
Weighted average shares outstanding 726
==========
Pro forma earnings per share $ 1,662
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
BLACKFORD SECURITIES CORPORATION
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED SEPTEMBER 30, 1998
<TABLE>
<S> <C> <C>
Operating activities
Net income $ 1,828,302
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization $ 116,985
Decrease in firm investments 5,022
Change in assets and liabilities
affecting operating activities:
Decrease in commissions receivable 519,889
Decrease in prepaid expenses 10,574
Increase in accounts payable and
accrued expenses 82,739
Increase in commissions payable 449,155
Decrease in floor brokerage expense
payable (12,812)
Decrease in deposits 82,087 1,253,639
----------- ---------
Total operating activities 3,081,941
Investing activities
Purchase of furniture and equipment (226,940)
Decrease in notes receivable 129,322 (97,618)
-------------
Financing activities
Dividends paid (1,660,000)
Issuance of capital stock 46,632 (1,613,368)
------------- -----------
Net increase in cash and cash equivalents 1,370,955
Cash and cash equivalents, September 30, 1997 963,254
----------
Cash and cash equivalents, September 30, 1998 $ 2,334,209
==========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 17,875
Historical income taxes - Note 8 15,759
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE>
BLACKFORD SECURITIES CORPORATION
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Additional
Capital Paid in Retained
Stock Capital Earnings Total
--------------- ------------- ---------------- --------------
<S> <C> <C> <C> <C>
Balance,
September 30, 1997 $ 690 $ 691,011 $ 1,173,604 $ 1,865,305
Net income - - 1, 828,302 1,828,302
Issuance of common stock 36 46,596 - 46,632
Dividends paid to
shareholders - - (1,660,000) (1,660,000)
------ --------- ----------- ----------
Balance,
September 30, 1998 $ 726 $ 737,607 $ 1,341,906 $ 2,080,239
===== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE>
BLACKFORD SECURITIES CORPORATION
STATEMENT OF CHANGES IN LIABILITIES SUBORDINATED
TO CLAIMS OF GENERAL CREDITORS
FOR THE YEAR ENDED SEPTEMBER 30, 1998
<TABLE>
<S> <C>
Balance, September 30, 1997 $ -
Changes during the year -
-----------
Balance, September 30, 1998 $ -
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
BLACKFORD SECURITIES CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Blackford Securities
Corporation (the Company) is presented to assist in understanding the
Company's financial statements.
A. NATURE OF BUSINESS
The Company, which was established in 1988, is primarily a
broker/dealer. The Company recognizes commission income for
services performed and related expenses such as floor
brokerage and clearance fees on a settlement date basis.
B. 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 amounts
reported in the financial statements and accompanying
disclosures. Although these estimates are based on
management's best knowledge of current events and actions the
Company may undertake in the future, actual results ultimately
may differ from the estimates.
C. CASH AND CASH EQUIVALENTS
The Company defines cash and cash equivalents as all funds
that are directly accessible and controlled by the Company and
which can be readily convertible into known amounts of cash.
Any cash time deposit investment qualifies as a cash
equivalent only if the original maturity of the Company's
investment is for a period of three months or less.
D. DEPRECIATION OF FIXED ASSETS
Fixed assets have been recorded at cost and are being
depreciated over the useful lives of the related assets.
Depreciation expense is computed using the straight line
method and totaled $116,985 for the year. The estimated useful
lives of the assets are as follows:
<TABLE>
<S> <C>
Office equipment 5-7 years
Furniture and fixtures 7 years
Leasehold improvements Term of lease
</TABLE>
2. NET CAPITAL REQUIREMENT
The Company is subject to the Securities and Exchange Commission
Uniform Net Capital Rule. At September 30, 1998, the Company had net
capital, as defined, of $1,122,047 which was $1,022,047 in excess of
its required net capital of $100,000.
3. RESERVE REQUIREMENT
The Company does not hold funds or securities for, nor owe money or
securities to customers. Therefore, the Company is exempt from the
reserve requirements as defined by the Securities and Exchange
Commission under Rule 15c3-3.
17
<PAGE>
BLACKFORD SECURITIES CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED SEPTEMBER 30, 1998
4. RELATED PARTY TRANSACTIONS
For the year ended September 30, 1998, the Company earned gross
commissions of approximately $494,000 from related party transactions.
Of this amount, $314,000 was received from a customer which is 50%
owned by certain shareholders of the Company, and the balance of
$180,000 was received from another customer which is controlled by a
non-voting shareholder of the Company.
5. COMMITMENTS
The Company conducts its operations from a facility that is leased
until April 14, 2007. The Company also sublets office space in New York
and Wilmington, Vermont under separate sublet agreements which expire
June 30, 1999. During the fiscal year ended September 30, 1998 rent
expense totaled $239,488.
The following is a schedule of future minimum rental payments required
through the expiration dates of these operating leases:
<TABLE>
<CAPTION>
Year ending
September 30
------------
<S> <C>
1999 $ 282,519
2000 283,309
2001 291,075
2002 299,074
2003 307,313
Thereafter 1,157,234
------------
$ 2,620,524
============
</TABLE>
6. PROFIT SHARING PLAN
The Company has in effect both a discretionary defined contribution
profit sharing plan and a money purchase plan covering management and
administrative employees. It is the Company's policy to currently fund
all profit sharing costs. For the year ended September 30, 1998, profit
sharing expense was $181,868, of which $115,346 had not been paid at
September 30, 1998.
18
<PAGE>
BLACKFORD SECURITIES CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED SEPTEMBER 30, 1998
7. NOTES RECEIVABLE
On May 7, 1997 the Company sold its 79 percent interest in Blackford
Capital Management, Inc. The sale price of $200,000 is evidenced by a
series of promissory notes which bear interest at the rate of 7 percent
per annum and are payable in 32 quarterly installments.
On October 1, 1997, the Company issued 36 shares of common stock in
exchange for a 7 percent interest bearing note which will be repaid by
November 30, 1998.
The following is a summary of notes receivable:
<TABLE>
<S> <C>
Sale of subsidiary $ 135,500
Issuance of common stock 29,497
--------
164,997
Less:
Current portion (15,548)
Equity contra reduction (29,497)
--------
Non current notes receivable $ 119,952
========
</TABLE>
8. PRO FORMA FINANCIAL INFORMATION
Since its inception, the Company has been treated as an S Corporation
pursuant to the Internal Revenue Code. The objective of the pro forma
financial information is to show the significant effect this election
has had on the historical financial results of the Company.
19
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Blackford Securities Corporation
1010 Franklin Avenue
Garden City, New York 11530
We have audited the accompanying statements of income, cash flows, changes in
shareholders' equity and changes in liabilities subordinated to claims of
general creditors of Blackford Securities Corporation for the year ended
September 30, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of its operations and the cash flows of
Blackford Securities Corporation for the year ended September 30, 1997 in
conformity with generally accepted accounting principles.
/s/ Demasco, Sena & Jahelka
Massapequa, New York
November 7, 1997
20
<PAGE>
BLACKFORD SECURITIES CORPORATION
STATEMENT OF INCOME
FOR THE YEAR ENDED SEPTEMBER 30, 1997
<TABLE>
<S> <C> <C>
Revenues
Commissions $ 7,355,886
Management fees 82,522
Interest 365,401 7,803,809
-----------
Expenses
Employee compensation, benefits
and payroll taxes 3,353,114
Floor brokerage, clearance and
related fees and expenses 1,595,228
Occupancy cost 234,251
Consulting and professional fees 85,709
Market data, communications and
other fees 821,965
Net trading losses 24,430
Loss on sale of equipment 2,438
Interest 8,077
Other operating expenses 383,178 6,508,390
---------- ---------
Income before taxes 1,295,419
Income taxes - Note 9 24,051
---------
Income from continuing operations 1,271,368
Discontinued operations - Note 7
Income from operations of subsidiary
sold during year less applicable
income taxes 107,052
Gain on sale of subsidiary 160,458 267,510
---------- ---------
Net income $ 1,538,878
=========
Weighted average shares outstanding 716
=========
Basic and diluted earnings per share $ 2,149
=========
PRO FORMA - Note 9
Historical income before taxes $ 1,562,929
Pro forma taxes on income 556,000
---------
Pro forma net income $ 1,006,929
=========
Weighted average shares outstanding 716
=========
Pro forma earnings per share $ 1,406
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
BLACKFORD SECURITIES CORPORATION
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED SEPTEMBER 30, 1997
<TABLE>
<S> <C> <C>
Operating activities
Net income $ 1,538,878
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization $ 101,973
Gain on sale of subsidiary (160,458)
Loss on sale of equipment 2,438
Change in assets and liabilities
affecting operating activities:
Increase in commissions receivable (17,565)
Decrease in other accounts receivable 45,919
Increase in prepaid expenses (20,072)
Increase in accounts payable and
accrued expenses 147,698
Decrease in commissions payable (140,631)
Increase in floor brokerage expense
payable 9,235
Increase in security deposits (122,642) (154,105)
-------------- ----------
Total operating activities 1,384,773
Investing activities
Purchase of furniture and equipment (351,961)
Increase in notes receivable (351,839)
Collection of notes receivable 57,520
Sale of subsidiary 150,000
Sale of equipment 7,500 (488,780)
--------------
Financing activities
Dividends paid (1,250,000)
Issuance of common stock 151,839
Retirement of common stock (5,680) (1,103,841)
-------------- -----------
Net decrease in cash and cash equivalents (207,848)
Cash and cash equivalents, September 30, 1996 1,171,102
-----------
Cash and cash equivalents, September 30, 1997 $ 963,254
============
Supplemental disclosure of cash flow information: Cash paid during the year for:
Interest $ 8, 077
Historical income taxes - Note 9 39,318
</TABLE>
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
BLACKFORD SECURITIES CORPORATION
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Additional
Capital Paid in Retained
Stock Capital Earnings Total
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Balance,
September 30, 1996 $ 545 $ 567,648 $ 862,075 $ 1,430,268
Net income - - 1,538,878 1,538,878
Issuance of common stock 190 151,649 - 151,839
Retirement of common
stock (45) (28,286) 22,651 (5,680)
Dividends paid to
shareholders - - (1,250,000) (1,250,000)
----------- ----------- ----------- -----------
Balance,
September 30, 1997 $ 690 $ 691,011 $ 1,173,604 $ 1,865,305
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
23
<PAGE>
BLACKFORD SECURITIES CORPORATION
STATEMENT OF CHANGES IN LIABILITIES SUBORDINATED
TO CLAIMS OF GENERAL CREDITORS
FOR THE YEAR ENDED SEPTEMBER 30, 1997
<TABLE>
<S> <C>
Balance, September 30, 1996 $ -
Changes during the year -
-----------
Balance, September 30, 1997 $ -
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE>
BLACKFORD SECURITIES CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Blackford Securities
Corporation (the Company) is presented to assist in understanding the
Company's financial statements.
A. NATURE OF BUSINESS
The Company, which was established in 1988, is primarily a
broker/dealer. The Company recognizes commission income for
services performed and related expenses such as floor
brokerage and clearance fees on a settlement date basis.
B. COMPONENTS OF FINANCIAL STATEMENTS
The financial statements include the accounts of the Company
and its 79 percent owned subsidiary Blackford Capital
Management, Inc. through May 7, 1997, the date of its sale.
See notes 7 and 8. The subsidiary was engaged primarily in
providing investment advisory services. All material
intercompany balances and transactions have been eliminated in
consolidation.
C. 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 amounts
reported in the financial statements and accompanying
disclosures. Although these estimates are based on
management's best knowledge of current events and actions the
Company may undertake in the future, actual results ultimately
may differ from the estimates.
D. CASH AND CASH EQUIVALENTS
The Company defines cash and cash equivalents as all funds
that are directly accessible and controlled by the Company and
which can be readily convertible into known amounts of cash.
Any cash time deposit investment qualifies as a cash
equivalent only if the original maturity of the Company's
investment is for a period of three months or less.
E. DEPRECIATION OF FIXED ASSETS
Fixed assets have been recorded at cost and are being
depreciated over the useful lives of the related assets.
Depreciation expense is computed using the straight line
method and totaled $101,973 for the year. The estimated useful
lives of the assets are as follows:
<TABLE>
<S> <C>
Office equipment 5-7 years
Furniture and fixtures 7 years
Leasehold improvements Term of lease
</TABLE>
2. NET CAPITAL REQUIREMENT
The Company is subject to the Securities and Exchange Commission
Uniform Net Capital Rule. At September 30, 1997, the Company had net
capital, as defined, of $874,129, which was $774,129 in excess of its
required net capital of $100,000.
25
<PAGE>
BLACKFORD SECURITIES CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED SEPTEMBER 30, 1997
3. RESERVE REQUIREMENT
The Company does not hold funds or securities for, nor owe money or
securities to customers. Therefore, the Company is exempt from the
reserve requirements as defined by the Securities and Exchange
Commission under Rule 15c3-3.
4. RELATED PARTY TRANSACTIONS
For the year ended September 30, 1997, the Company earned gross
commissions of approximately $394,000 from a customer which is
controlled by a non-voting shareholder of the Company.
5. COMMITMENTS
The Company conducts its operations from a facility that is leased
until April 14, 2007. The Company also sublets office space in
Southampton, New York and Wilmington, Vermont. These sublet agreements
expire on May 31, 1998 and June 30, 1998 respectively. During the
fiscal year ended September 30, 1997 rent expense totaled $212,321.
The following is a schedule of future minimum rental payments required
through the expiration dates of these operating leases:
<TABLE>
<CAPTION>
Year ending
September 30
------------
<S> <C>
1998 $ 237,260
1999 276,769
2000 283,309
2001 291,075
2002 299,074
Thereafter 1,464,547
----------
$ 2,852,034
==========
</TABLE>
6. PROFIT SHARING PLAN
The company has in effect both a discretionary defined contribution
profit sharing plan and a money purchase plan covering management and
administrative employees. It is the Company's policy to currently fund
all profit sharing costs. For the year ended September 30, 1997, profit
sharing expense was $132,140, of which $40,000 had not been paid at
September 30, 1997.
7. DISCONTINUED OPERATIONS
On May 7, 1997 the Company sold its 79 percent interest in Blackford
Capital Management, Inc. The sale price of $200,000 is evidenced by a
series of promissory notes as described in Note 8. Income from
discontinued operations of $107,052 represents the Company's percentage
of the subsidiary's operations through the date of sale. Gross revenues
related to the income were $574,677.
26
<PAGE>
BLACKFORD SECURITIES CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED SEPTEMBER 30, 1997
8. NOTES RECEIVABLE
Two of the promissory notes (totaling $150,000) received in connection
with the sale of Blackford Capital Management, Inc. bear interest at
the rate of 7 percent per annum and are payable in 32 quarterly
installments. A third note for $50,000 (representing the return of the
Company's original investment) is non-interest bearing and is due and
payable on November 15, 1997.
On October 1, 1996, the Company issued 190 shares of common stock in
exchange for a four year, 7 percent interest bearing note. The
remaining balance of $94,319 will be repaid in three lump-sum payments
of approximately $35,000.
9. PRO FORMA FINANCIAL INFORMATION
Since its inception, the Company has been treated as an S Corporation
pursuant to the Internal Revenue code. The objective of the pro forma
financial information is to show the significant effect this election
has had on the historical financial results of the Company.
27
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
On June 30, 2000, Pinnacle Global Group, Inc. ("PGG") acquired Blackford
Securities Corporation, ("Blackford"). In connection with the acquisition,
Blackford was merged into a wholly owned subsidiary of PGG. PGG's most recently
filed Form 10-Q for the quarterly period ended June 30, 2000 includes the
acquired assets and liabilities of Blackford and reflects the pro forma
adjustments to the condensed consolidated balance sheet as of June 30, 2000. As
a result, the proforma condensed combined balance sheet has not been included in
this Form 8-K/A. The following unaudited pro forma condensed combined statements
of operations for the six months ended June 30, 2000 and for the year ended
December 31, 1999 give effect to the merger as if it occurred on January 1,
1999. The unaudited pro forma condensed combined financial statements have been
derived from and should be read in connection with the unaudited financial
statements of PGG and Blackford for the six months ended June 30, 2000 and the
audited historical financial statements of PGG for the year ended December 31,
1999 and Blackford for the year ended September 30, 1999. The audited historical
financial statements for the year ended December 31, 1999 of PGG have been
reclassified to give effect to the discontinuance of its Spires subsidiary.
The pro forma adjustments and the resulting unaudited pro forma condensed
combined financial statements were based on available information and certain
assumptions and estimates described in the notes to the unaudited pro forma
condensed combined financial statements. A final determination of required
purchase accounting adjustments, including the allocation of the purchase price
to the assets acquired and liabilities assumed, has not been made, and the
allocation reflected in the unaudited pro forma condensed combined financial
statements should be considered preliminary. However, in the opinion of our
management, the final allocation will not have a material impact on the
unaudited condensed combined pro forma financial statements.
The unaudited pro forma condensed combined financial statements do not
purport to represent what our financial positions or results of operations would
have been had the merger occurred on the dates indicated or to project our
financial position or results of operations for any future period. Furthermore,
the unaudited pro forma condensed combined financial statements do not reflect
changes that may occur as the result of activities after the merger closes.
28
<PAGE>
PINNACLE GLOBAL GROUP, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(unaudited)
<TABLE>
<CAPTION>
PINNACLE
GLOBAL BLACKFORD
GROUP, INC. SECURITIES PRO FORMA
(reclassified) CORPORATION -----------------------------------
(Note 1) (Note 1) ADJUSTMENTS COMBINED
--------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Commissions $ 2,945,870 $ 9,301,882 $ - $12,247,752
Principal transactions 249,898 - - 249,898
Investment banking 1,608,993 - - 1,608,993
Fiduciary, custodial and advisory fees 2,026,938 158,303 - 2,185,241
Interest and dividends 987,631 381,425 (330,801) (c) 1,038,255
Other income 610,835 - - 610,835
--------------- ---------------- --------------- ---------------
Total revenues 8,430,165 9,841,610 (330,801) 17,940,974
--------------- ---------------- --------------- ---------------
Expenses:
Employee compensation and benefits 5,870,483 4,972,897 (300,000) (b) 10,543,380
Floor brokerage, exchange and
clearance fees 449,463 1,559,433 - 2,008,896
Communications and data processing 367,788 1,002,727 - 1,370,515
Interest 5,644 17,316 - 22,960
Occupancy 682,233 293,575 - 975,808
Amortization of intangible assets 528,771 - 356,899 (a) 885,670
Other general and administrative 1,704,413 318,575 2,022,988
--------------- ---------------- --------------- ---------------
Total expenses 9,608,795 8,164,523 56,899 17,830,217
--------------- ---------------- --------------- ---------------
Income (loss) from continuing operations before
income taxes and minority interests (1,178,630) 1,677,087 (387,700) 110,757
Provision (benefit) for income taxes 2,571,897 22,784 (12,320)(d) 3,253,196
670,835 (e)
--------------- ---------------- --------------- ---------------
Income (loss) from continuing operations $ (3,750,527) $ 1,654,303 $ (1,046,215) $ (3,142,439)
=============== ================ =============== ===============
Earnings (loss) per share from continuing
operations $ (0.55) $ (0.40)
=============== ===============
Weighted average shares outstanding 6,828,378 7,828,378
=============== ===============
The accompanying notes are an integral part of the pro forma condensed combined financial statements.
</TABLE>
29
<PAGE>
PINNACLE GLOBAL GROUP, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(unaudited)
<TABLE>
<CAPTION>
PINNACLE BLACKFORD PRO FORMA
GLOBAL SECURITIES ------------------------------------
GROUP, INC. CORPORATION ADJUSTMENTS COMBINED
--------------- ----------------- --------------- ----------------
<S> <C> <C> <C> <C>
Revenues:
Commissions $ 6,780,046 $ 5,129,769 $ - $ 11,909,815
Principal transactions 2,210,815 - - 2,210,815
Investment banking 6,716,973 - - 6,716,973
Fiduciary, custodial and advisory fees 2,476,127 104,890 - 2,581,017
Interest and dividends 1,033,284 241,403 (165,400)(c) 1,109,287
Other income 983,307 - - 983,307
--------------- ----------------- --------------- ----------------
Total revenues 20,200,552 5,476,062 (165,400) 25,511,214
--------------- ----------------- --------------- ----------------
Expenses:
Employee compensation and benefits 11,106,495 2,689,420 (150,000)(b) 13,645,915
Floor brokerage, exchange and clearance fees 1,143,820 764,553 - 1,908,373
Communications and data processing 1,091,178 403,621 - 1,494,799
Interest 1,558 11,704 - 13,262
Occupancy 1,041,313 180,673 - 1,221,986
Amortization of intangible assets 658,632 - 178,449 (a) 837,081
Other general and administrative 2,215,583 366,586 - 2,582,169
--------------- ----------------- --------------- ----------------
Total expenses 17,258,579 4,416,557 28,449 21,703,585
--------------- ----------------- --------------- ----------------
Income (loss) from continuing operations before 2,941,973 1,059,505 (193,849) 3,807,629
income taxes and minority interests
Provision (benefit) for income taxes 1,430,547 - (6,160)(d) 1,848,189
423,802 (e)
Minority interests in loss of consolidated
companies 163,993 - - 163,993
--------------- ----------------- --------------- ----------------
Income (loss) from continuing operations $ 1,675,419 $ 1,059,505 $ (611,491) $ 2,123,433
=============== ================= =============== ================
Earnings (loss) per share from continuing
operations $ 0.13 $ 0.15
=============== ================
Weighted average shares outstanding 12,877,569 13,877,569
=============== ================
The accompanying notes are an integral part of the pro forma condensed combined financial statements.
</TABLE>
30
<PAGE>
PINNACLE GLOBAL GROUP, INC.
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENT
(unaudited)
1. BASIS OF PRESENTATION
The pro forma combined statement of operations assumes that the
acquisition occurred on January 1, 1999.
The pro forma combined statements of operations for the year ended
December 31, 1999 and the six months ended June 30, 2000, include the
results of Blackford Securities Corporation ("Blackford") for its
fiscal year ended September 30, 1999 and the six months ended June 30,
2000, respectively.
Certain reclassifications have been made to PGG's statement of
operations for the year ended December 31, 1999, to reflect the
discontinued operations of its Spires Financial, L.P. subsidiary.
PGG's most recently filed Form 10-Q for its quarterly period ended June
30, 2000, includes the acquired assets and liabilities of Blackford and
reflects the pro forma adjustments to the condensed combined balance
sheet as of June 30, 2000, as such, a proforma condensed combined
balance sheet as of June 30, 2000 has not been presented.
2. PRO FORMA ADJUSTMENTS
PGG purchased Blackford on June 30, 2000 for 1 million shares of PGG
common stock valued at $3,760,000 or $3.76 per share, plus $5,513,342
in cash. Acquisition costs were $75,000. The total purchase price was
$9,348,342, the net identifiable assets were $2,210,372, and the excess
cost of $7,137,970 was recorded as goodwill.
The following pro forma adjustments are reflected in the pro forma
combined statements of operations.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1999 2000
---------------- ----------------
<S> <C> <C>
(a). Amortization of excess cost over net assets
acquired utilizing a life of 20 years
Goodwill $ 7,137,970 $ 7,137,970
Amortization period 20 20
---------------- ----------------
Annual amortization expense $ 356,899 $ 356,899
================ 50%
----------------
$ 178,449
================
(b). Decrease in management compensation
according to provisions of employment
agreements executed in connection with
the purchase of Blackford $ (300,000) $ (150,000)
(c). Decrease in interest income on funds used
to purchase Blackford at the PGG weighted
average rate of 6% $ (5,513,342) $ (5,513,342)
---------------- ----------------
0.06 0.06
---------------- ----------------
$ (330,801) $ (330,801)
================
50%
----------------
$ (165,400)
================
</TABLE>
31
<PAGE>
PINNACLE GLOBAL GROUP, INC.
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENT(CONTINUED)
(unaudited)
<TABLE>
<S> <C> <C>
(d). Reduction in tax expense resulting from:
Decrease in interest income - item (c) $ (330,801) $ (165,400)
Add reduction in compensation expense -
item (b) 300,000 150,000
---------------- ----------------
Net reduction in income $ (30,801) $ (15,400)
Tax rate 40% 40%
---------------- ----------------
Reduction in income tax expense $ (12,320) $ (6,160)
================ ================
(e). Increase in tax expense to reflect the conversion
of Blackford from Subchapter "S" to a "C"
corporation $ 1,677,087 $ 1,059,505
Tax rate 40% 40%
---------------- ----------------
Increase in tax expense $ 670,835 $ 423,802
================ ================
</TABLE>
32
<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 GLOBAL GROUP, INC.
Date: September 12, 2000 By: /s/ Robert E. Garrison II
----------------------------------
Robert E. Garrison II
President and Chief Executive Officer
33
