SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SBA
Amendment No. 1
GENERAL FORM FOR REGISTRATION OF SECURITIES
Small Business Issuers
Under Section 12(b) or 12(g) of the Securities Exchange
Act of 1934
PINECREST INVESTMENT GROUP, INC. f/k/a
SYNTHETIC FLOWERS OF AMERICA, INC.
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(Name of Small Business Issuer in its Charter)
Florida 59-3467929
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(State or other jurisdiction of incorporation or IRS Employer Identification
organization) Number)
1211 Tech Blvd., Suite 101, Tampa, FL 33619
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(813) 620-0044
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(Issuer's Telephone Number)
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class to be registered: Name of each exchange on which
each class is to be registered:
N/A N/A
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Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock
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PART I
Item 1. DESCRIPTION OF BUSINESS.
INTRODUCTION
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Pinecrest Investment Group, Inc. ("Pinecrest" or the "Company") has acquired new
techniques in hydroponic (soil-free) farming for growing gourmet produce and
medicinal quality plants. Through the use of its newly acquired hydroponic
growing system, Pinecrest will build Hydroponic Food Production Facilities to
produce herbs, lettuces, edible flowers, gourmet vegetables and medicinal herbs.
This growing system combines over 80 micronutrients and vitamins needed to
produce quality plants and a system whereby each plant is fed on exact time
intervals and with the proper volume dosages needed for each plant to reach its
optimum growth.
HISTORICAL BACKGROUND
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The Company was incorporated on September 9, 1997, in the State of Florida under
the name of Synthetic Flowers of America, Inc. ("Synthetic Flowers") for the
purpose of producing and selling silk flowers. In connection with its original
organization, 4,000,000 shares of common stock of Synthetic Flowers was issued
to Sheila Langley, the original President of the Company, for services provided
and reimbursement of organizational costs and stock offering costs incurred by
the Company, but paid for by Langley.
On January 15, 1999, a Stock Purchase Agreement was entered into between
Synthetic Flowers, Sheila Langley ("the Selling Shareholder") and David Howe
("the Buyer") wherein the Selling Shareholder agreed to sell up to a total of
3,680,000 of her 4,000,000 restricted shares to the Buyer and several
independent investors for $150,000 cash. At the time of the transaction,
Synthetic Flowers was a non-reporting public company listed on the OTC Bulletin
Board under the trading symbol "SYFA." In conjunction therewith, the following
actions took place: (i) the name of the Company was changed to Pinecrest
Investment Group, Inc., (ii) new officers and directors were elected, (iii) the
corporate office location and registered agent were changed, and (iv) and the
Articles of Incorporation were amended to provide that the aggregate number of
shares of common stock that the Corporation is authorized to have outstanding at
any one time be increased from 50,000,000 to 100,000,000 at $.001 par value per
share, and that 25,000,000 shares of preferred stock be authorized to be
outstanding at $.001 par value per share.
On March 2, 1999, Pinecrest reacquired 2,185,000 shares of restricted common
stock from its President, David B. Howe and several independent investors for
$90,000 (the cost to David B. Howe) payable as follows: $30,000 cash and a note
in the principal amount of $60,000 bearing 10% simple interest, due September 2,
2000. These shares were originally acquired by Mr. Howe and the investors in
connection with the purchase of control of the Company.
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Also, on March 2, 1999, the Company entered into agreements with Michael
Foundation, Limited, a West Indies corporation, and Tillman & Associates, Inc.,
a Florida corporation, for the purchase of certain hydroponics information and
technology at a total purchase price of $3,437,500. The purchase price with
Michael Foundation, Limited, consisted of 2,185,000 shares of restricted common
stock with a market value at that time of $1.50 per share. The purchase price
with Tillman & Associates, Inc. consisted of 50,000 shares of restricted common
stock with a market value at that time of $1.50 per share plus a promissory note
in the amount of $85,000. The hydroponics information and technology purchase
included proprietary hydroponic growth solution formulas, trade secrets,
equipment and greenhouse specifications and crop and equipment maintenance plans
and programs.
The technology was developed over a three and one-half year period beginning in
late 1995. Initially, Michael Foundation, Limited, prompted by reports of
restaurant industry dissatisfaction with adequate supplies of high quality
produce and herbs funded the development of the technology. Subsequent to
satisfactory confirmation that opportunities did exist, Michael Foundation,
Limited began funding the scientific development of hydroponic growing
techniques ("technology"). The initial facility for the utilization of the
technology was near Tampa, Florida and consisted of several simply designed
screened greenhouses with a primary product focus of herbs. In developing the
technology, numerous varieties of herbs were grown using variations in shading
and temperature, various nutrient growth formulas, manipulations of the various
nutrient growth formulas between harvests, various hydroponic growing methods
and the manipulation of those methods to develop proprietary techniques and
trade secrets designed to produce the maximum volume of production while
maintaining an extremely high quality product.
During the early stages of the use of the technology, many of the products were
sold to the farmers market in Tampa and even as far away as Chicago, Illinois.
In addition, products were sold through brokers and a few marketing entities to
several Walt Disney World restaurants, some Marriott restaurants, and numerous
other four and five star restaurants and resorts throughout central Florida and
in the Atlanta, Georgia area.
In the fall of 1997, Tillman & Associates, Inc. ("TAI"), a financial and
management consulting firm owned and operated by Thomas M. Tillman in Tampa,
Florida, was hired by the Michael Foundation, Limited to prepare a business plan
from which a business model could be developed for the eventual implementation
of the growing technology. Tillman realized that while the technology was sound
and complete, a wider product line and a more advanced facility design was
needed. Through exhaustive efforts through the Internet, discussions with
numerous long-time farmers, university professors, agricultural extension agents
and potential customers, TAI played a primary role in expanding the product line
to include various lettuce crops and to oversee testing and further development
of the technology. In addition, with information and guidance from a number of
chemical, mechanical and electrical engineers and several manufacturers of
greenhouses, cooling pads, lighting and shade systems, TAI designed a greenhouse
that will enable Pinecrest Farms, Inc. to maximize the use of the technology.
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In November, 1999, Thomas M. Tillman, the President of TAI was hired as the
President of Pinecrest Farms, Inc.
In August, 1998, Mr. Tillman enlisted the advice and consultation of Joseph A.
Harris, a farmer with over 26 years of experience in conventional dirt farming.
Mr. Harris had previously experimented with an irrigation technique known as
"fertigation". Fertigation involves mixing liquid fertilizer directly with the
water supply. Mr. Harris was one of the first farmers in the central Florida
area to implement fertigation as a primary method of irrigation and
fertilization in a large scale farming operation. Since 1994, Mr. Harris has
served as an agricultural and business consultant to farmers specializing in the
analysis of available market demand for various products and techniques used to
increase product yields.
More recently, Mr. Harris has experimented with hydroponics farming as a means
to control pest, disease and fungi problems while increasing yields and quality
in a controlled environment.
The primary purpose of consulting with Mr. Harris was to evaluate the
operational feasibility of a large-scale operation using the technology and
evaluating the maximum potential of the technology relative to production
volume. Mr. Harris confirmed that actual production volume of crops produced
using the Company's technology could produce more than 39 harvests per year for
most herb and lettuce crops. In March, 2000, Mr. Harris joined Pinecrest Farms,
Inc. as Director of Farming Operations.
An independent expert analysis opinion, dated January 22, 1999, was performed by
Jerry Pruitt, an agricultural consultant from Marbury, Maryland. His tests
included the validity of the hydroponics growing system and the salability of
the retail/wholesale products derived from the process. Mr. Pruitt valued the
hydroponics growing system purchased by the Company at $3.2 million based on man
hours and research and development costs and marketability of the technology
systems.
In March 1999, the Company entered into a revolving line of credit arrangement
with Perfect Produce, Inc. which called for a maximum credit line of $100,000.
Interest on the credit line was at 8% per annum with the entire principal and
interest due in full on or before October 1, 1999. From the inception of this
loan through August 12, 1999, a total of $83,052.74 was borrowed against this
line of credit and a total of $38,825.68 was repaid. On August 12, 1999, the
principal balance due of $44,227.06 plus accrued interest of $1,002.37 was paid
in full in connection with a convertible line of credit arrangement with Michael
Foundation, Limited.
In March 1999, the Company entered into a convertible line of credit arrangement
with Michael Foundation, Limited, a major stockholder of the Company. This
credit arrangement called for Michael Foundation, Limited to provide working
capital for the Company while it was arranging for acceptable long-term funding
for its Phase I construction and working capital needs until the Company
attained positive cash flow. This line of credit was for a total of $900,000,
which amount could be converted into restricted shares of common stock of the
Company at a price of $6.00 per share. During the month of March 1999, the
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Company's stock averaged a closing bid price of $3.70. By the end of November,
1999, the Company had borrowed approximately $300,000 against the Michael
Foundation, Limited line of credit. In December, 1999, the line of credit
arrangement with Michael Foundation, Limited, was modified to call for the
absolute purchase of 150,000 shares of restricted common stock by Michael
Foundation, Limited at a price of $6.00 per share for a total of $900,000.
During the month of December 1999, the Company's stock averaged a closing bid
price of $9.64 per share. As of the date hereof the shares have been delivered
to Michael Foundation, Limited and the Subscription Receivable paid.
On April 8, 1999, Articles of Incorporation were filed for Pinecrest Farms,
Inc., ("Pinecrest Farms") a Florida corporation which is a wholly owned
subsidiary of Pinecrest Investment Group, Inc. This entity was formed for the
purpose of owning and operating the produce farms. The growing technology and
the land for the farms are owned by the Company.
On April 9, 1999, the Company purchased approximately 40 acres of land located
in Lithia, Florida, approximately 20 miles southeast of its Tampa, Florida
corporate offices from Hopewell Land Partners. The land will be the site of the
Company's first Hydroponic Food Production Facility and will be comprised of 19
greenhouse ranges, a 10,000 square foot packing and distribution building and
temporary administrative offices for its farming operations. Each greenhouse
range will contain 30,000 square feet of harvestable production area.
Phase I calls for the construction of the first two ranges (60,000 square feet
of harvestable production area) to be in operation in August, 2000, as well as
obtaining building permits for Phases II and III. The initial 60,000 square feet
of harvestable production area will produce weekly harvests within 45 days after
completion, generating revenues by August, 2000. More specifically, the first
range in Phase I was completed in June 2000 and product sales began in July
2000. The second range is nearing completion and will be fully operational in
August 2000.
Phase II, which is expected to overlap with Phase I, will be comprised of five
more ranges and will increase the harvestable production area by an additional
150,000 square feet. It is anticipated that materials will be ordered in July,
2000 for Phase II. Phase II is anticipated to be completed and operational by
December, 2000.
Phase III encompasses the remaining 12 greenhouse ranges and 360,000 square
feet. Phase III is expected to be completed by December 2001.
On January 10, 2000, the Company's Board of Directors approved a 5 for 4 stock
split for shareholders of record on December 31, 1999, with any fractional
shares being rounded up to the next whole share. After giving effect to this
transaction, the total common shares outstanding as of March 31, 2000 were
7,533,804.
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On January 26, 2000, the Company amended its Articles of Incorporation to
authorize a class of preferred shares consisting of 10,000,000 shares with no
par value per share. (See details under "Information Statement" under Part II,
Item 2, Market Price of and Dividends on the Registrant's Common Equity and
Other Shareholder Matters.)
In April 2000, the Company entered into a convertible line of credit arrangement
with Michael Foundation, Limited, a major stockholder of the Company. This
credit arrangement called for Michael Foundation, Limited to provide working
capital for the Company while it was arranging for acceptable long-term funding
for its Phase I construction and working capital needs until the Company
attained positive cash flow. This line of credit was for a total of $1,500,000,
which amount could be converted into restricted common stock of the Company at a
price of $6.00 per share. During the month of April 2000, the Company's stock
averaged a closing bid price of $9.14. By the end of June 2000, the Company had
borrowed approximately $735,766 against the Michael Foundation, Limited line of
credit. In June 2000, Michael Foundation, Limited exercised its right to convert
the outstanding balance as of June 30, 2000, plus interest of approximately
$8,991 for a total of approximately $744,758 into 124,127 shares of restricted
common stock at a price of $6.00 per share. During the month of June 2000, the
Company's stock averaged a closing bid price of $9.58 per share. Although the
balance due was converted to restricted common shares as of the year ended June
30, 2000, the shares were not physically issued until July.
The Company has previously announced that it was considering joint ventures with
several entities as technology partners in various geographical locations. At
this time, the Company has determined that it is not in the best interest of the
Company to pursue and/or consummate any joint ventures.
There have been no bankruptcies, receiverships or similar proceedings in this
company.
INDUSTRY OVERVIEW
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Hydroponics is the method of growing plants without soil and is a more efficient
way to provide water and nutrients to plants. Instead of using soil where a
plant must first grow a large root system to find food and water, hydroponics
uses a wet growing medium and specially prepared nutrient solutions that go
directly to the roots of the plant. This enables the plant to spend more energy
growing above the surface, producing more vegetation and larger flowers and
vegetables. Because root systems are compact in size in the hydroponic growing
environment, plants may be grown closer together, yielding greater crops per
square foot, as well as growing up to twice as fast due to the high levels of
oxygen in the root system.
Other advantages of a hydroponic growing system are (i) because there is no
soil, there will be no weeds or soil-borne pests and disease, and (ii) plants
will maintain optimum nutrient and moisture levels which produces healthier
plants, faster growing plants and plants that will be more disease resistant as
they are not stressed by drought. Because of these advantages, hydroponic
produce has a longer shelf life than soil-grown produce.
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BUSINESS OVERVIEW
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Pinecrest's proprietory growing system centers around the design of high-tech
greenhouses and specific nutrient feeding formula and feeding schedules.
Pinecrest's greenhouses differ from traditional greenhouses. Whereas traditional
greenhouses have a screening and translucent cover, Pinecrest's design has a
microscreen to keep out virtually all insects and a special roof to allow
sunlight in without the damaging ultraviolet rays that can burn leaves and cause
a waxy buildup on the plants, both of which deplete the plant of its essential
oils that provide flavor and nutrition. Pinecrest's feeding system is designed
to precisely monitor correct dosages of specific nutrients for delivery to
plants based on their individual needs.
Pinecrest's proprietory growing system is a closed environment without polluted
water, airborne pesticides or mechanically induced non-organic chemicals. Due to
the closed environment, Pinecrest's methods provides: (i) the elimination of
damage control of infestation by the addition of insects that are natural
predators to plant-eating insects, (ii) limited organic pesticides, and (iii)
the inclusion of barrier plants which are not only discouraging to insects but
are harvestable as well; such as rosemary as a shrub line and marigolds and
dandelions as edible flowers.
The Company's farming system encompasses greenhouse design, nutritional
supplements, feeding cycles and dosages and environmental effects. A three and a
half year study of this new hydroponic growing system was conducted in Florida
with experts from the University of Florida, Disney World's Land Pavilion,
Florida Southern College and the University of Utah, as well as several
experienced farmers who contributed their time to review and analyze the
theories and the system. Other research contributors included individuals from
the fields of mechanical, electrical and chemical engineering, finance and
accounting, nutrition, organic fertilization and pest control, and hydroponic
and greenhouse equipment manufacturers. These individuals performed detailed
analyses of the technical, structural, fiscal and nutritional aspects of the
technology and the greenhouse design. The contributions of these participants
was to evaluate the technology and system that was developed through the efforts
financed by Michael Foundation, Limited, and subsequently sold to Pinecrest. No
actual development was obtained from these individuals, and any and all rights
to the acquired technology belonged to Michael Foundation and, subsequently to
Pinecrest. There are no publications of any part of the information and
knowledge that comprise the technology as it is considered highly valuable trade
secrets.
During this testing phase, the produce was used by Walt Disney World,
Renaissance Vinoy Hotel, Hyatt Regency, Marriott World Center and Carrabba's
Italian Grills. All participants indicated their satisfaction with the quality
of the products, but expressed a desire for a more stable supply of products.
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OPERATIONAL OVERVIEW
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Pinecrest's business operations will be categorized into the following areas:
Hydroponic Food Production Facilities (HFPF), Product Mix and Cost of
Production, Nutrient Mix and Feeding Schedules, Greenhouse Design, Method of
Irrigation, Product Distribution and Delivery, Marketing and Personnel and
Administration.
The Company anticipates that a typical HFPF location will be built on a 40 to 50
acre tract of land. These tracts would contain up to approximately 750,000
square feet of harvestable hydroponic growing area, as well as approximately
40,000 square feet of administrative and processing buildings. Roughly one-half
of each site is dedicated to hydroponic facilities. Depending on local building
codes and ordinances, the remainder of the site will be needed for parking,
storm water retention and office facilities.
The Company anticipates its product mix to include herbs, gourmet lettuces,
herbal medicinals, edible flowers and plants for medicinal derivatives. Product
mix during the first six months of production will be limited to herbs and
lettuces with approximately 80% of production concentrated in lettuces and
spinach. It is anticipated that the basic crop mix for the lettuce crops will be
60% spring mix/mesclun mix, 30% romaine lettuce and 10% spinach.
INITIAL FACILITIY
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The location for Pinecrest's initial hydroponic herb and lettuce production
facility is on Country Road 640 approximately one mile east of State Road 39 in
the community of Lithia, in southeastern Hillsborough County, Florida. This
40-acre tract of land was purchased in April 1999 for $360,000. Pinecrest
provided $72,000 as a down payment and the seller, Hopewell Land Partners,
Limited, provided purchase money mortgage financing for the balance of $288,000.
The terms of the purchase money mortgage are interest only at 12% per annum,
payable monthly, for one year at which time the balance is due and payable in
full. Hopewell Land Partners, Limited extended the balance due until August 9,
2000. The Company is pursuing mortgage financing through the use of a U.S. Rural
Development Act loan as discussed in the Cash Requirements section of Item 2
below. In addition, discussions with interested private lenders and individuals
indicate that refinancing of the first mortgage is possible, if needed.
Pinecrest received building and development permits from Hillsborough County
with respect to the Lithia property in March 2000. The permits allow for a total
of 19 greenhouse ranges (10 greenhouse hoops per range) and a 40,000 square feet
processing/distribution facility including offices. Construction on the first
two greenhouse ranges began immediately after permitting and should be complete
in mid-August 2000. More specifically, the first range in Phase I was completed
in June 2000 and product sales began in July 2000. The second range is nearing
completion and will be fully operational in August 2000. Several phases of
construction are planned with the complete build-out scheduled for December
2001. Approximately 10 greenhouse ranges are targeted for construction by the
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end of December 2000 bringing the total harvestable area at that time to
approximately 300,000 square feet. Initial planting of the first range began in
June 2000 and the first harvests and delivery of product began in July 2000.
GREENHOUSE DESIGN
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The typical greenhouse structure consists of 10 hoop-style greenhouse buildings
("hoops"). Each hoop is 30 feet in width, 120 feet in length with 10-foot high
side walls and 20 foot gable peaks to keep hot air off of the crops. When
gutter-connected together, these 10 buildings make up a "range." The dimensions
of each range is 120 feet wide by 300 feet long. The interior area of each range
is approximately 36,000 square feet with harvestable area of approximately
30,000 square feet.
In addition, each range has a 300-foot long by 12-foot wide screened lean-to
that serves as an intake chamber for air going through the cooling pads. The
cooling pads help keep temperatures down during the hot, Florida summer months.
The roof of the buildings are made of a double layer of polyvinyl sheeting that
is inflated to provide a small degree of insulation without significantly
reducing beneficial solar rays. The side walls are similarly constructed using
polyvinyl sheeting permanently attached. The end walls are made of corrugated
polycarbonate panels. The polyvinyl sheeting for the roof and side walls has a
useful life of approximately 5 years and will cost approximately $6,000,
including labor, to replace. The corrugated polycarbonate panels used on the end
walls should last in excess of 15 years and would cost approximately $14,000 to
replace at today's costs.
Air circulation is provided by greenhouse exhaust fans in each greenhouse range
(3 fans per greenhouse hoop). These fans draw air into the lean-to intake
chamber and through the cooling pads. As the air passes through the cooling
pads, water from the cooling pads is absorbed and carried into the greenhouse
growing area. As the water evaporates in the greenhouse, the greenhouse is
cooled. The water-depleted air is then pulled out of the greenhouse by the
exhaust fans. The air inside the greenhouses is completely exchanged for fresh
air approximately every 53 seconds. This system, when used in conjunction with
an automatic shade system that closes when the temperature inside the greenhouse
reaches certain levels and cuts out approximately 55% of the sunlight, enables
us to maintain temperatures inside the greenhouses of less than 90 degrees
Fahrenheit at the plant level. The humidity levels vary greatly. The air inside
of the greenhouses tends to be more humid than the air outside the greenhouse
since the air entering the greenhouse is absorbing water as it passes through
the cooling pads. However, extra humidity inside of the greenhouse does not in
itself create a significant problem as long as the temperatures inside of the
greenhouse are maintained at desired levels. In addition, circulating fans are
located throughout each greenhouse range to keep air constantly moving within
the greenhouse growing area.
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FEEDING SYSTEM
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The actual mix of nutritional supplements and feeding schedules needed for
optimum growth varies with the following criteria: (i) the daily, weekly and
seasonal climate, (ii) daily analysis of the water supply at the farm location,
(iii) the desired weight and density of the product at harvest, and (iv) plant
absorption rates. Using a hydroponic framework, Pinecrest's research, testing
and experimentation has resulted in an 80+ mineral supplement containing
growth-optimizing nutrients not found in most soils or current commercial
fertilizing products. Most commercial fertilizing products contain 4 basic
components: nitrogen, phosphate, potassium and magnesium. Additional secondary
ingredients include sulfur and calcium. In many instances, depending upon the
desired result of a particular fertilizer and the coil and/or water composition,
iron, zinc, boron, manganese and molybdenum are used. By using Pinecrest's new
supplement mixture, maximum growth is achieved. In the same square footage where
an ordinary soil-based farmer may plant three harvestable crops in one year, a
total of 36 harvests is achieved using the Pinecrest technology.
Over-farming has depleted soil-grown produce of the micronutrients and trace
minerals that are needed for proper human health. Pinecrest's growing process
schedules the delivery of these micronutrients so that the produce harvested
from each greenhouse is a consistently reliable source of micronutrients for the
consumer. All micronutrients used are plant derived and non-toxic.
Several methods of feeding were considered. After considerable experimentation
and analysis, it was determined that a feed/starve flood/drain system design was
the best all-around system. A brief discussion of the reasoning follows.
Many early hydroponic systems used a constant drip method of irrigation or a
pool that remained present at all times. One of the problems with these
irrigation methods was that beds were constantly wet and it promoted pest and
fungi growth. The feed/starve concept of irrigation is based on the idea that if
the plants are only fed at certain intervals rather than a constant drip feed,
the plants will be heartier and when harvested will survive for a longer period
of time before wilting occurs. This will provide a longer shelf life for the
crops. In addition, since water/nutrient mix is only present for short periods
of time and these periods are few and far between, a significant reduction in
pest and fungi problems related to stagnant moisture will be experienced.
Another benefit of this irrigation method is a significant reduction in the
amount of water and fertilizer needed during the growing process.
A primary variable to be dealt with on a location by location basis is the water
supply. The Lithia location currently has a 4" well on site that is
approximately 100 feet deep and has a current water table at approximately 58
feet deep. In addition, the Lithia location has received permits to drill three
additional 4" wells approximately 300 feet deep. The drilling of these wells
began the week of April 3, 2000 and should be completed by September, 2000. The
total cost of drilling these wells, installing 5 horsepower submersible pumps
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and installing a single 2000 gallon water tank will be approximately $30,000. An
analysis of the water will be necessary to determine the natural level of sulfur
and iron in the water along with the unmodified pH content of the water. The
water from the well currently on the Lithia site is ideal for our operation and
based upon water from deep wells in close proximity to the site, that water is
also expected to be very suitable for our purposes.
The major components in the basic design of the technology is similar to an Ebb
and Flow hydroponics system consisting of a Flood and Drain grow bed, non-soil
growing medium, plant pots or plug trays and a nutrient reservoir. The nutrient
reservoir is used to mix the nutrient fertilizer concentrate into water. A pump
is submerged into the nutrient reservoir and connected to a timer. The timer
regulates when the nutrient solution flows to the grow beds and to the plants.
The pots or plug trays are filled with the non-soil growing medium, the pots or
plug trays are then planted with the desired seeds and placed onto the grow bed.
A PVC fill pipe leads from the nutrient reservoir to the bottom of the grow bed.
When the submerged pump in the nutrient reservoir is activated, the grow bed
fills with water to a point where approximately the bottom 1/2 inch of the pots
or plug trays are submerged into the nutrient solution. The growing medium then
soaks up the nutrient solution like a sponge and provides it directly to the
plant roots. It is imperative that the Ebb and Flow tray is always level. The
PVC fill pipe can also be used to drain the unused nutrient solution back into
the nutrient reservoir. Temperature and humidity, size and type of the plants
and type of growing medium used factor in on how many times a day it comes on.
In addition, specific levels of certain nutrients will be increased or decreased
on a daily basis regardless of the makeup of the basic formula for that
particular crop in order to thicken the leaves, increase oil content in the
plants and increase stamina or shelf life immediately prior to harvesting.
Increased oil content means more flavor and a higher quality product. Thicker
leaves and increased oil content increases the weight of the produce, which is
sold by the pound.
PINECREST PRODUCTS
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The product mix of each Pinecrest farm will initially be limited to two
categories; herbs and lettuces. Pinecrest anticipates that lettuces and spinach
will comprise approximately 80% of overall production. It is anticipated that
the basic crop mix for the lettuce crops will be: 60% spring mix/mesclun mix;
30% romaine lettuce and 10% spinach.
In addition, gourmet herb crops carrying high markup will also be produced.
Although the anticipated herb crops will only account for approximately 20% of
overall production, approximately one-third of total projected revenues and 40%
of total gross profits will be derived from these crops. The initial anticipated
crop mix for herbs will be approximately: 26% basil, 20% chives, 20% rosemary,
13% thyme, 8% cilantro, 7.5% mint, 2% sage, 1.5% tarragon, 1.5% dill, .5%
chervil and arugula. However, this crop mix may vary somewhat based on customer
base and market trends.
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The costs of production for each type of crop will vary due to crop life,
germination periods, and frequency of harvest and growth rates. The average
production cost of the lettuce and herb crops should approximate 33% of
revenues.
PRODUCT DELIVERY
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One of the Company's primary concerns is with the prompt delivery of fresh, high
quality produce. The Company intends that products will be delivered to its
customers within 24 hours of the time it was harvested. The Company has designed
an inventory management system for its larger customers which requires delivery
personnel to constantly monitor the customer's product usage and shelf life and
replenish as needed while supplementing with additional specific orders. Local
delivery will be accomplished using a 20' - 24' refrigerated box truck with
regional, bulk deliveries being accomplished by refrigerated semi-truck. The
Company plans to lease the box trucks and to contract for the semi-trucks.
TARGET MARKETS
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Based upon 1997 production estimates reported by the USDA Agricultural Statistic
Board in January 1999, the total market for products suitable for production by
the Company could exceed $30 billion. Accordingly, if Pinecrest were to capture
only 1/1000th of the market, sales would top $30,000,000 annually. Pinecrest's
goal is to service 5% of the culinary herb and gourmet salad market within the
next 5 years. These markets include lettuce, herbs, cucumbers, peppers,
zucchini, squash, tomatoes and strawberries.
Pinecrest has defined its primary market as four and five-star hotels and
resorts. Historically, these establishments use large volumes of herbs, lettuces
and gourmet vegetables and usually employ master chefs who concentrate on
quality rather than price. An added attraction is that the hydroponics
technology allows the crops to grow in a completely soil-free environment which
virtually eliminates need for repeated washing.
Secondary markets are cruise ship lines, smaller restaurants, caterers and
retail consumers. These markets are typically more cost conscious and, in some
cases, may have lower consumption levels. The Company believes that
establishments having lower consumption levels but a reputation for higher
quality foods will be attracted to the variety of gourmet lettuce mixes grown by
Pinecrest. By offering high volume crops such as spring mix, mesclun mix,
romaine lettuce and spinach, it will be affordable for the Company to deliver to
smaller volume restaurants because the gourmet herbs and vegetables carry larger
profit margins.
The Company will also continue its research and development of producing high
potency medicinal herbs and plants.
<PAGE>
13
MARKETING STRATEGY
------------------
Pinecrest's primary marketing strategy is to target executive chefs at four and
five star resorts and restaurants through distribution of samples and
promotional account servicing. We targeted an initial customer base in central
Florida comprised of several large, high profile restaurants and resorts during
the research and development phase. Contact has been maintained and the Company
has received strong indication of their business. In fact, in some instances,
the potential customers have asked the Company to explore an expanded product
line with comparable or potentially higher profit margins. Based on indications,
this potential customer base should purchase most of our production for the year
2000. Based upon our experience during the research and development phase,
management does not feel that sales will be a primary concern.
As business increases, a significant number of customers will be acquired within
a central geographic area prior to having enough volume to justify another farm
location. In this situation, a refrigerated semi-truck will transport the
products in bulk to a central distribution facility. This facility could be
similar to a florist shop in design with a large area in the back portion of the
facility to allow for repackaging of the products for delivery to local
customers. The front of the facility would provide a small area for retail and
walk-in traffic for small customers such as caterers. When volume reaches a
level that it can support another farm facility, we will determine a centralized
location and construct a new facility.
We also plan to use Internet marketing to reach customers in remote locations.
Public relations articles written on the quality of the products are expected to
interest many restaurants.
COMPETITION
-----------
The hydroponic produce industry is competitive but fragmented. The Company could
face significant competition. The Company's competitors differ depending on
product type and geographic market with the primary volume of competition coming
from California, Florida, Israel, Central America and Mexico. Several of the
Company's competitors are well established and may have greater assets and
financial resources than the Company, and larger marketing and research and
development budgets.
However, competition in the fresh produce industry is influenced not as much by
price, as by the consistent supply of high-quality produce. In many cases,
competitor products are delivered from another state, across the U.S. or in some
instances from another country. Generally, the produce is not delivered until
over a week after it is harvested. Pinecrest Farms expects to be able to deliver
its products within 24 hours of the time it is harvested and in many instances
within 12 hours.
The Company believes that it can successfully compete in its chosen target
markets due to its advanced hydroponic growing techniques that can produce the
highest quality produce available, efficient, timely delivery and the ability to
meet customers' product demands and price points.
<PAGE>
14
WORLD WIDE WEB
--------------
The Company has a World Wide Web home page at http://www.pncr.net. This web page
contains basic information about the Company, its latest news, technology,
products, investor information and frequently asked questions, as well as how to
contact the Company.
TRADEMARKS AND PATENTS
----------------------
At this time, the Company has no patents or trademarks, however the Company's
intellectual property attorneys are reviewing the possibilities of a patent on
the nutritional formula used in its growing process.
GOVERNMENT APPROVALS
--------------------
Other than local business licenses and building permits, the Company is not
required to obtain any governmental approval for any of its products or
services. The Company does not know of any existing or probable governmental or
environmental regulations that would have an effect on its business.
SERVICE AND SUPPORT
-------------------
The primary concern of the market to be serviced is the prompt delivery of
fresh, high quality produce. Generally, the products will be delivered to the
customers within 24 hours of the time they are harvested. In addition, the use
of an inventory management system for larger customers is anticipated. This
system requires the Company's delivery personnel to constantly monitor the
customer's product usage volume and shelf life similar to bread truck delivery
personnel. Many customers prefer this service because it guarantees the freshest
produce and saves time.
Fresh produce must be stored and transported at certain constant temperatures.
Most herbs and lettuces must be stored at approximately 37 degrees Fahrenheit.
However, basil must be stored at approximately 54 degrees Fahrenheit. In many
instances, produce from competitors may be unrefrigerated for several hours
after harvest before it is received at a warehouse where all produce is stored
in one area, regardless of the specific refrigeration requirements of particular
varieties of produce in order to maintain optimum freshness. In addition,
temperature variances within the warehouse can be dramatic. The Company will
typically deliver in 20'-24' refrigerated box trucks partitioned for zoned
cooling to maintain temperatures at desired levels.
Sales and delivery personnel will discuss product and service concerns of
customers on a frequent and regular basis in an effort to avoid product quality
problems, service issues and to address changing product needs of customers.
<PAGE>
15
SEASONALITY
-----------
The Company's product diversification and its ability to grow products year
round is such that it does not expect to experience seasonal up or down turns.
SOURCES AND AVAILABILITY OF RAW MATERIALS
-----------------------------------------
The Company's regular operations relies on the availability of seeds, growing
media, and nutrient growing solution ingredients in order to grow its products.
None of these materials are proprietary, it is how and when they are used that
is unique. All of these ingredients are readily available from a wide variety of
vendors, none of which are deemed to be a critical single source supplier.
Materials used to build the greenhouse ranges are also readily available from
numerous vendors across the U.S.
WORKFORCE
---------
The Company currently utilizes the services of Total Employment Company ("TEC"),
a Professional Employer Organization based in Tampa, Florida to administer its
human resources responsibilities.
A Professional Employer Organization (PEO) is defined as an organization that
provides an integrated and cost effective approach to the management and
administration of the human resources and employer risk of its clients, by
contractually assuming substantial employer rights, responsibilities, and risk,
through the establishment and maintenance of an employer relationship with the
workers assigned to its clients.
More specifically, a PEO establishes a contractual relationship with its clients
whereby the PEO:
o assigns workers to client locations, and thereby assumes
responsibility as an employer for specified purposes of the workers
assigned to the client locations;
o reserves a right of direction and control of the employees and may
share such responsibility with the client, consistent with the
client's responsibility for its product or service;
o pays wages and employment taxes of the employee out of its own
accounts;
o reports, collects, and deposits employment taxes with state and
federal authorities;
o establishes and maintains an employment relationship with its
employees which is intended to be long term and not temporary; and
o retains a right to hire, reassign, and fire the employees.
Businesses today need help managing increasingly complex employee related
matters such as personnel management, health benefits, workers' compensation
claims, payroll, payroll tax compliance, and unemployment insurance claims.
Pinecrest has contracted with a PEO to assume these responsibilities, which then
allows more concentration on the revenue-producing side of its operations.
<PAGE>
16
Through this relationship with TEC, the Company currently employs 2
administrative individuals in Pinecrest Investment Group, Inc., the parent
entity. Pinecrest Farms, Inc., the subsidiary, currently employs 38 employees
including the President of the subsidiary. Once construction is complete and
production begins, the Company expects to employ additional individuals in areas
of production, sales and marketing and administration. By the end of December
2000, the Company expects to hire five additional employees for administration
and plans to lease approximately 100 individuals in the following functional
areas: 80 Production individuals for quality control, distribution, production
and greenhouse supervisors, harvesting, packing and shipping and delivery; 7
individuals in Sales & Marketing; and 13 individuals in Administration. The
Company does not currently have nor does it expect to have a collective
bargaining agreement with its employees.
All production personnel attend orientation classes describing the practices and
procedures designed and used by Pinecrest Farms. Specific product training takes
place both in the classroom and in the greenhouses to educate personnel in the
following areas: product inspection, product care, product safety, product
handling, product testing, product growth rates, product classifications and
product harvesting, nutrient systems, pest control management, monitoring
techniques, safety issues, water conservation, temperature control systems,
lighting and company policy.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Introduction
------------
This discussion summarizes the significant factors affecting the operating
results, financial condition and liquidity/cash flow of the Company during the
period from Inception (September 5, 1997) to June 30, 1999 and the nine months
ended March 31, 2000. This should be read in conjunction with the financial
statements and notes thereto included. Meaningful quarterly results are
unavailable for the period from Inception (September 5, 1997) to March 31, 2000
because of the development stage nature of the Company and the fact that it had
no revenue generating operations during that period. However, a financial audit
was performed for the period from Inception to June 30, 1998 and also for the
period from July 1, 1998 to June 30, 1999. In addition, reviewed interim
financial statements are provided for the six months ended December 31, 1999 and
compiled interim financial statements are provided for the nine months ended
March 31, 2000. The following comments will discuss the Company's development
stage operating results on a standalone basis as opposed to a comparative basis.
Cash Requirements Analysis
--------------------------
Due to the Company being in a development stage, operations and capital
expenditures have been completely financed through the use of short-term and
long-term credit arrangements as well as the sale and/or exchange of the
Company's common stock. Cash generated over the past 12 month period from
<PAGE>
17
January 1999 through December 1999 from the Company's financing activities
totaled approximately $558,000 (inclusive of the funds raised through Michael
Foundation, Limited, plus a subscription receivable due of $437,000). For the
three-month period from January 2000 through March 2000, the only funds received
were from payment of the subscription receivable of approximately $395,000. For
the three month period from April 2000 through June 2000, the balance of the
subscription receivable of $42,000 was received plus approximately $735,766
received from Michael Foundation, Limited pursuant to a subsequent line of
credit arrangement. Arrangements have been made for the availability of
approximately $764,234 in additional cash from financing. This should provide
adequate funding to carry the Company until Phase I of the Lithia Food
Production Facility is complete and operational by mid-August 2000. At that
point the Company believes that cash generated from the sale of its products
will be sufficient to maintain operations.
Once in operation, it is anticipated that Phase I, containing 2 greenhouse
ranges, will produce monthly gross revenues of approximately $200,000 and
monthly net income of approximately $75,000 ($37,500 per range).
The Company is pursuing a Federal Rural Development Act Loan or other comparable
financing to finance Phase II of the Lithia facility. While the Company has
already received significant interest and expects to complete such a transaction
within the next few months, it is possible the Company could be unsuccessful in
obtaining such financing. In this event, the rate of build-out of Phase II, and
resulting revenues and profits would be slower than projected since construction
would then be financed out of profits. However, the Company would still be able
to maintain a positive cash flow position and positive net profits from
operations.
Once Phase II, containing 5 greenhouse ranges, is completed and in operation,
total monthly revenues from Phase I and Phase II facilities (a total of 7
greenhouse ranges) are anticipated to be in excess of $700,000 and monthly net
income to be in excess of $300,000 ($42,857 per range).
Based on our cash flow projections, Phase III is to be financed out of profits
and, therefore, no financing is anticipated at this time.
Product Research & Development
------------------------------
The Company will continue to research new product lines on a project by project
basis to which it can apply its technology. The general budget for these
expenditures will be allocated based on a percentage of profits that will vary
as the Company expands. Although the specific projects change regularly, it is
not anticipated that additional funding beyond this allocation will be
necessary. Some of the projects that will be tested are cucumbers, various
varieties of peppers, squash and zucchini. Future products to be tested include
tomatoes and strawberries. One of the methods of production being tested using
the technology is a gravity fed hydroponic tree. However, since these projects
are investigative in nature, it cannot be determined at this time, how long the
research and testing will take nor when, if or which projects will ever produce
revenues.
<PAGE>
18
Significant Capital Expenditures
--------------------------------
The Company spent approximately $175,000 on engineers, permitting, materials and
equipment to be incorporated into the Phase I Lithia facility and approximately
$10,000 on research and development in November and December of 1999. We
anticipate that the additional costs to complete Phase I of the Lithia facility
and necessary overhead expenditures will total approximately $800,000.
Phase II costs for greenhouses and equipment will total approximately $400,000
per greenhouse range. Phase II will consist of 5 greenhouse ranges for a total
of $2,000,000.
Phase I and II costs are all expected to be expended in the year 2000.
Phase III costs are anticipated to be expended beginning at the end of 2000 and
continuing into 2001. The rate of completion of Phase III will depend greatly
upon the timing of the build-out of Phase II. Phase III construction costs will
also be approximately $400,000 per greenhouse range. A total of 12 greenhouse
ranges will be built in Phase III at a total cost of $4,800,000.
Changes in Personnel
--------------------
The Company currently has 2 employees that are employed by the parent
corporation, Pinecrest Investment Group, Inc. and 38 employees of the subsidiary
corporation, Pinecrest Farms, Inc.
It is anticipated that the parent corporation will hire approximately five
employees over the next twelve months. Pinecrest Farms, Inc. is anticipated to
increase to approximately 100 employees over the next twelve months with the
majority of them being provided through a Professional Employer Organization
(PEO).
Impact of Year 2000 Issues
--------------------------
Due to the method of storing date information in computers using two digits to
indicate the year instead of four digits (for example "99 instead of "1999")
some computer systems may not accept input of, store, manipulate or output dates
in the years 2000 or thereafter without error or interruption. This is known as
the Year 2000 or Y2K problem. It is possible that the Company's software
products and internal information systems and the business systems of its
suppliers or customers will be negatively impacted by Year 2000 problems.
Pinecrest has conducted a review of its business systems in an attempt to
identify ways in which its systems could be affected by Year 2000 problems.
Based on this review, the Company believes that its internal information systems
are Year 2000 compliant and the Company does not expect the Year 2000 issue to
have a material adverse affect on its systems.
All internal information systems of the Company were purchased in 1998 or later,
well after software vendors stated that their products were Year 2000 compliant.
The Company believes that the risk of Year 2000 issues and the costs associated
with Year 2000 issues are minimal.
<PAGE>
19
The Company has backed up all corporate information systems and all systems are
properly functioning.
Item 3. PROPERTIES.
The Company's principal office is located at 1211 Tech Blvd., Suite 101, Tampa,
Florida 33619, where it leases approximately 1,200 square feet on a month to
month basis.
The Company also owns approximately 40 acres in eastern Hillsborough County,
Florida located at 9107 Lithia-Pinecrest Road approximately one and 1/2 mile
east of Highway 39 on Highway 640 where it is building its first hydroponic
farming facility.
<PAGE>
20
Item 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of June 30, 2000, information concerning
ownership of the Company's securities by (i) each Director, (ii) each executive
officer, (iii) all Directors and executive officers as a group; and (iv) each
person known to the Company to be the beneficial owner of more than five percent
of each class:
<TABLE>
<CAPTION>
Name and Address Amount Percent
Title of Class of Beneficial Owner (1) Owned of Class(2)
-------------- ----------------------- ----- -----------
<S> <C> <C> <C>
Common David B. Howe, Chairman, President
and Chief Executive Officer
1211 Tech Blvd., Suite 101
Tampa, FL 33619 512,500 6.803%
Common Sheryl B. Salvadore, Secretary,
Treasurer and Director
1211 Tech Blvd., Suite 101
Tampa, FL 33619 12,500 0.165%
Common Thomas M. Tillman(3)
President of Pinecrest Farms, Inc.
1211 Tech Blvd., Suite 101
Tampa, FL 33619 79,168 1.051%
Common Robert Goldberg
PO Box 17663
Clearwater, FL 33762 450,000 5.973%
Common Walter W. Knitter
PO Box 22023
Tampa, FL 33622 635,500 8.435%
Common Michael Foundation, Limited(4)
c/o First Nevisian Corporate Serv.
Henville Building, Prince Charles St.
Charleston, Nevis
West Indies 3,804,589 50.500%
All Executive Officers and Directors
as a group (3 persons) 604,168 8.019%
----------------------------------------------------------------------------------------
</TABLE>
<PAGE>
21
(1) Beneficial ownership has been determined in accordance with Rule 13d-3
under the Exchange Act and unless otherwise indicated, represents
securities for which the beneficial owner has sole voting and investment
power.
(2) Based upon 7,533,804 shares currently outstanding.
(3) All shares issued to Tillman & Associates, Inc., a corporation controlled
by Thomas M. Tillman.
(4) Michael Foundation, Ltd. is controlled by Simon Shaw.
Incentive Stock Option Plan
---------------------------
On January 10, 2000, the Board of Directors of the Company adopted the Pinecrest
Investment Group, Inc. Incentive Stock Option Plan December 1999 (the "Plan")
which was subsequently approved by a majority of the shareholders on January 10,
2000. The Plan will be administered by the Executive Committee of the Board of
Directors of the Company and authorizes the Committee to grant or award to
eligible executive and employees of the Company and its subsidiaries, until
January 10, 2010, incentive stock options for up to 1,200,000 shares of
restricted common stock of the Company.
The following is a general description of certain features of the Plan that is
annexed in this filing as an exhibit.
Participation. Participants will be selected by the Committee from time to
time among the executives and key employees of the Corporation or of any
subsidiary of the Corporation. Directors who are employees of the
Corporation or of any subsidiary of the Corporation will be eligible for
inclusion. Participation in the Plan will be on an individual basis and the
Committee shall have complete discretion in selecting those persons, if
any, who may participate.
Number of Shares. The total number of shares of common stock for which
options may be granted pursuant to this Plan shall not exceed 1,200,000
shares except that, if options as to any shares lapse without being
exercised, such shares may be re-optioned. Within the limits herein
contained, the number of shares for which options will be granted from time
to time and the periods for which the options will be outstanding will be
determined by the Committee.
No participant may be granted an option pursuant to this Plan in any one
calendar year to purchase more than $100,000 of common stock of the
Corporation, valued at the time of the grant, provided, however, that
one-half of any unused portion of such amount may be carried over or
granted in any of the three succeeding calendar years, and as such shall be
added to the otherwise applicable dollar limitation for such succeeding
years.
<PAGE>
22
Option Price. The Option price of options granted pursuant to this Plan
shall be (a) one hundred percent (100%) or (b) in the case of an individual
who owns stock possessing more than 10 percent of the total combined voting
power of all classes of stock of the Corporation or of any subsidiary of
the Corporation one hundred ten percent (110%), of the fair market value of
the shares of common stock at the date on which the options are granted,
which date shall be the date on which the letters to the grantees setting
forth the terms of the option are executed by the Corporation.
Term of the Option. No option granted pursuant to this Plan shall be
exercisable after the expiration of ten years from the date the option is
granted. Within these limits, the Committee will determine the expiration
date of the options.
Time of Exercise. An option granted pursuant to this Plan may be exercised
in whole or in part at any time after one year from the date of grant until
the expiration of the term of the option. No option granted pursuant to
this Plan shall be exercised by the grantee while there is outstanding any
Incentive Stock Option previously granted to him to purchase stock in the
Corporation or any corporation which at the time of granting the option is
a parent or a subsidiary of the Corporation or a predecessor corporation of
any such corporation.
Payment of Shares. Upon the exercise of an option granted pursuant to this
Plan, payment may be made at Employee's option, in cash or by check.
Sale of Option Shares. The participant must represent and warrant to the
Corporation as condition of the granting of an Option hereunder, and for
the continued validity thereof, that the participant will not sell or offer
for sale any shares of stock obtained hereunder in the absence of an
effective registration statement as to such stock under the Securities Act
of 1933, as amended, unless the Corporation shall have received opinion of
counsel satisfactory that such registration is not required, and that no
stock will be sold or offered for sale in violation of any applicable state
securities legislation. The Corporation may legend any shares issued on
exercise of an Option to reflect this provision.
Amendment to the Plan. The Plan may be amended at any time by the Board of
Directors, provided that no amendment shall be made without the approval of
the stockholders which shall increase the total number of shares covered by
the Plan, change the description of the class of employees eligible to
receive options, or reduce the option price.
No stock options have yet been granted under the Plan.
<PAGE>
23
Item 5. DIRECTORS AND EXECUTIVE OFFICERS.
The following table sets forth certain information concerning each of the
Company's directors and executive officers:
Name Age Position
---- --- --------
David B. Howe 47 Chairman of the Board, President, Chief
Executive Officer
Sheryl B. Salvadore 43 Secretary, Treasurer, Director
Thomas M. Tillman 42 President, Pinecrest Farms, Inc.
David B. Howe - Chairman of the Board, President, and Chief Executive Officer-
Mr. Howe has served as Chairman of the Board, President and Chief Executive
Officer of the Company since founding the Company in January 1999. From 1988 to
the present, Mr. Howe has served as President of Blackhawk Financial Group,
Inc., a privately held Florida corporation formerly specializing in mergers and
acquisitions. Blackhawk, a company controlled by Mr. Howe, has not been active
since 1996 and no activities are planned for the future. From 1991 to 1998, Mr.
Howe consulted for Baylor Medical Products, Ltd., Baylor BioTechnologies Co.,
Ltd. and Beijing Regene Latex Products Co., Ltd. Mr. Howe earned a BA in
business finance at the State University of New York at Fredonia where he has
just completed a 12-year term as a member of its Foundation Board.
Sheryl B. Salvadore - Secretary, Treasurer and Director - Ms. Salvadore has
served as Secretary, Treasurer and Director of the Company since January 1999.
From 1995 to the present, Ms. Salvadore has served as Secretary of Blackhawk
Financial Group, Inc., a privately held Florida corporation specializing in
mergers and acquisitions. Her duties included administrative assistance to Mr.
Howe. Blackhawk has not been active since 1996 and no activities are planned for
the future. From 1981 to 1995, Ms. Salvadore served in various positions with
Brandon State Bank, her last position being Vice President from 1993 to 1995.
Thomas M. Tillman - President of Pinecrest Farms, Inc. - Mr. Tillman has served
as President of Pinecrest Farms, Inc. since November, 1999. From 1997 to the
present, he has served as President of Tillman & Associates, Inc., a privately
held Florida corporation specializing in financial and management consulting.
Tillman & Associates, Inc. ("TA") is a sub-chapter S corporation organized under
the laws of the State of Florida in 1997 that is owned 100% by Thomas M.
Tillman. Most of the consulting services rendered by TA involved tax planning,
employee relations, efficiency analysis, computerized accounting systems and
employee leasing enterprise management and profitability. TA typically
<PAGE>
24
maintained 5 or 6 clients at any one time. In 1999, TA generated revenues over
$100,000, of which approximately 70% were generated from Pinecrest Investment
Group, Inc. Income tax services comprised approximately 5% of revenues.
From 1996 to 1997, Mr. Tillman served as Vice President and Chief Financial
Officer of Employers 1st Trust Corp., an employee leasing company. In October
1992, Mr. Tillman filed for protection under Chapter 7 of the United States
Bankruptcy Code with the action being discharged as of January 1993. From 1993
to 1997, Mr. Tillman served as President of ATR Financial Group, Inc., a
privately held Florida corporation providing accounting and financial consulting
services. ATR Financial Group, Inc. ("ATR") was a sub-chapter S corporation
organized under the laws of the State of Florida in 1993 that was owned 100% by
Thomas M. Tillman and his wife, Phyllis M. Tillman. ATR was a management
consulting firm that revolved around tax planning, computerized accounting
systems and employee leasing company start-ups. The financial, tax and business
management portion of the business accounted for approximately 20% of revenues.
At its largest, ATR had approximately 30 accounting clients, 25 tax clients and
5 consulting clients that generated annual gross revenues of approximately
$100,000. ATR was sold to Michael Fitzgerald, P.A. in June of 1996. Mr. Tillman
earned a Bachelor of Arts degree from the University of Florida majoring in
Pre-law and Accounting.
Key Employees
-------------
Joseph A. Harris - Director of Farming Operations - Mr. Harris is a farmer with
over 26 years of experience in conventional dirt farming. He began farming in
1973 when he joined his father's successful 40-year old farming operation. From
1973 to 1983, Mr. Harris and his father grew primarily leafy vegetables
distributing product to numerous food brokerage houses located throughout the
U.S. including Florida, New York, Georgia, Alabama and South Carolina. In 1984,
at his father's retirement, Mr. Harris began contract farming for a conglomerate
of Far East businessmen growing high quality specialty herbs and vegetables
including basil, cilantro, broccoli, spinach and kale, as well as certain
specialty Chinese vegetables such as bok choy, Chinese cabbage and Chinese
celery. This operation primarily delivered product directly to restaurants and
resorts. During this time, Mr. Harris began experimenting with an irrigation
technique known as "fertigation." Fertigation involves mixing liquid fertilizer
directly with the water supply. Mr. Harris was one of the first farmers in the
central Florida area to implement fertigation as a primary method of irrigation
and fertilization in a large scale farming operation. Since 1994, Mr. Harris has
served as an agricultural and business consultant to farmers specializing in the
analysis of available market demand for various product and techniques used to
increase product yields. More recently, Mr. Harris has experimented with
hydroponics farming as a means to control pest, disease and fungi problems while
increasing yields and quality in a controlled environment. In August 1998, Mr.
Harris began consulting with the Company and in March 2000, Mr. Harris joined
Pinecrest Farms, Inc. as Director of Farming Operations.
<PAGE>
25
Item 6. EXECUTIVE COMPENSATION.
The Summary Compensation Table below details all plan and non-plan compensation
awarded to, earned by, or paid to the named executive officers in 1998 and in
1999.
SUMMARY COMPENSATION TABLE
Annual Compensation
Name
and Principal Position Year Salary ($)
---------------------- ---- ----------
(a) (b) (c)
David B. Howe (1) 1999 0
Chairman, President, CEO 1998 0
Sheryl B. Salvadore (2) 1999 0
Secretary, Treasurer, Director 1998 0
Thomas M. Tillman (3) 1998 0
President of Pinecrest Farms, Inc. 1999 $13,846
--------------------------
(1) Mr. Howe entered into an employment agreement with the Company at an annual
salary of $156,000 beginning in January, 2000.
(2) Ms. Salvadore will receive annual compensation of $39,000 beginning in
January, 2000. During 1999, Ms. Salvadore received a stock grant of 10,000
shares of restricted common stock of the Company valued at $1.50 per share.
(3) Mr. Tillman entered into an employment agreement with the Company at an
annual salary of $120,000 beginning in November 1999 of which $13,846 was
paid through December 31, 1999. Mr. Tillman was also paid car and gasoline
allowances in 1999 totaling $1,038. In 1999, Mr. Tillman also received
compensation in the amount of $71,500 in exchange for consulting services
paid to Tillman & Associates, Inc.
In 1998 and in 1999 there were no Bonuses or Other Annual Compensation awarded,
earned or paid.
In 1998 and in 1999 there was no Long Term Compensation and no Other
Compensation awarded, earned or paid. Pinecrest's directors are not compensated
and the Company has no compensation plan for its directors. The Company's
directors are elected by the shareholders at an annual meeting.
Item 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On March 2, 1999, the Company reacquired 2,185,000 shares of restricted common
stock from President, David B. Howe and independent investors for $90,000 (Mr.
Howe's cost) payable as follows: $30,000 cash and a note in the principal amount
of $60,000 bearing 10% simple interest, due September 2, 2000. These shares were
acquired by Mr. Howe and the investors in connection with his purchase of the
<PAGE>
26
Company. These shares were then simultaneously exchanged as part of the purchase
price for the hydroponics technology from Michael Foundation, Limited, and
Tillman & Associates, Inc., that is necessary in the overall operation of the
hydroponic growing system. On December 6, 1999, the $60,000 promissory note to
Mr. Howe was converted into restricted common shares of the Company at a rate of
$6.00 per share for a total of 10,000 shares. The interest due on the note of
$3,027.13 was paid in cash.
On December 6, 1999, the remaining balance of $80,000 due to Tillman &
Associates, Inc. on the promissory note given in exchange for technology, was
converted into restricted common stock of the Company at a rate of $6.00 per
share for a total of 13,334 shares. The interest due on the note of $6,525.19
was paid in cash. Mr. Tillman is President of Tillman & Associates, Inc. and is
President of Pinecrest Farms, Inc.
In March, 1999, the Company entered into a convertible line of credit
arrangement with Michael Foundation, Limited, a major stockholder of the
Company. This credit arrangement called for Michael Foundation, Limited to
provide working capital for the Company while it was arranging for acceptable
long-term funding for its Phase I construction and working capital needs until
the Company attained positive cash flow. This line of credit was for a total of
$900,000, which amount could be converted into restricted shares of common stock
of the Company at a price of $6.00 per share. During the month of March 1999,
the Company's stock averaged a closing bid price of $3.70. By the end of
November, 1999, the Company had borrowed approximately $300,000 against the
Michael Foundation, Limited line of credit. In December, 1999, the line of
credit arrangement with Michael Foundation, Limited, was modified to call for
the absolute purchase of 150,000 shares of restricted common stock by Michael
Foundation, Limited at a price of $6.00 per share for a total of $900,000.
During the month of December 1999, the Company's stock averaged a closing bid
price of $9.64 per share. As of the date hereof, the shares have been delivered
to Michael Foundation, Limited and the Subscription Receivable paid.
In April 2000, the Company entered into a convertible line of credit arrangement
with Michael Foundation, Limited, a major stockholder of the Company. This
credit arrangement called for Michael Foundation, Limited to provide working
capital for the Company while it was arranging for acceptable long-term funding
for its Phase I construction and working capital needs until the Company
attained positive cash flow. This line of credit was for a total of $1,500,000,
which amount could be converted into restricted common stock of the Company at a
price of $6.00 per share. During the month of April 2000, the Company's stock
averaged a closing bid price of $9.14. By the end of June 2000, the Company had
borrowed approximately $735,766 against the Michael Foundation, Limited line of
credit. In June 2000, Michael Foundation, Limited exercised its right to convert
the outstanding balance as of June 30, 2000, plus interest of approximately
$8,991 for a total of approximately $744,758 into 124,127 shares of restricted
common stock at a price of $6.00 per share. During the month of June 2000, the
Company's stock averaged a closing bid price of $9.58 per share. Although the
<PAGE>
27
balance due was converted to restricted common shares as of the year ended June
30, 2000, the shares were not physically issued until July.
Item 8. DESCRIPTION OF SECURITIES.
Common Stock
------------
The Company is authorized to issue 100,000,000 shares of common stock, .001 par
value per share. The holders of each share are entitled to one vote for each
share held and are entitled to dividends when and as declared by the Board of
Directors. At December 31, 1999, common shares issued and outstanding totaled
6,027,134. At March 31, 2000, common shares issued and outstanding totaled
7,533,804, not including the 124,127 shares issued to Michael Foundation,
Limited at the end of the fiscal year pursuant to conversion of the line of
credit extended to the Company.
Preferred Stock
---------------
The Company is authorized to issue 10,000,000 shares of preferred stock, no par
value, which may be issued in classes or series with various rights and
designations to be determined by the Board of Directors. Each share of preferred
stock is entitled to dividends when and if declared by the Board of Directors.
To date, no preferred shares have been issued.
PART II
Item 1. LEGAL PROCEEDINGS.
The Company is not a party to any material litigation.
Item 2. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY
AND OTHER SHAREHOLDER MATTERS.
The Company's common stock is listed on the Electronic Pink Sheets under the
trading symbol "PNCR." The Company's common stock began trading on the OTC
Bulletin Board on February 25, 1999, the date the trading symbol changed from
"SYSA". Currently, the following brokerage firms are making a market in the
Company's common stock: Wien Securities, Herzog & Co., Mayer Schweitzer, Inc.,
GVR Company, Hill Thompson Magid & Co., Knight Securities, Sharpe Capital, Inc.,
Brockington Securities, Inc., NAIB Trading Corp., Lloyd Wade Securities, Inc.,
Paragon Capital Corp., Sierra Brokerage Services, Inc., Fleet Bank, Inc., and
Paradise Securities, Inc.
<PAGE>
28
The following table sets forth for the period indicated, the range of high and
low closing bid quotations per share. These quotations represent inter-dealer
prices, without retail markups, markdowns or commissions and may not necessarily
represent actual transactions.
Price per Share
---------------
Period Ended High Low
------------ ---- ---
Third Quarter 1999 (ending 03/31/00) $21.00 $ 11.95
Second Quarter 1999 (ending 12/31/99) $20.00 $ 5.00
First Quarter 1999 (ending 09/30/99) $ 6.38 $ 3.00
Fourth Quarter 1998 (ending 06/30/99) $10.38 $ 2.00
The Company has approximately 248 shareholders of record. The Company has not
paid, nor does it anticipate paying dividends in the foreseeable future.
Although the Company announced in June, 1999 that it was finalizing arrangements
to be listed on the American Stock Exchange, these arrangements had not been
finalized as of the filing of this document.
The common shares of the Company are subject to the "Penny Stock Rules" of Rule
15(g) of the Securities Exchange Act of 1934. These rules impose additional
sales requirements on broker dealers selling securities to persons other than
established customers and accredited investors as defined in the Securities Act
of 1933. Brokerage transactions falling within these rules require brokers to
make a special suitability determination for the purchaser and to obtain the
purchaser's written consent to make the trade before making the sale.
Accordingly, these Penny Stock Rules may adversely affect the ability of the
purchasers to resell these securities.
Information Statement
---------------------
On or about January 10, 2000, the Company mailed to shareholders of record as of
close of business on December 31, 1999, an Information Statement in which
proxies were not requested or required. The Information Statement was mailed to
the Company shareholders in connection with a proposed action by written consent
to authorize and approve the following actions:
(a) an Amendment to the Company's Articles of Incorporation to authorize a
class of Preferred Stock, consisting of 10,000,000 authorized shares,
no par value and to authorize the Board of Directors to issue such
Preferred Stock in one or more series, without further approval of
stockholders of the Company and to permit the Board of Directors to
establish the attributes of any series of Preferred Stock prior to the
issuance of any such series.
<PAGE>
29
(b) A forward stock split of 5 shares for each 4 shares of common stock
issued and outstanding on the record date of December 31, 1999. Any
fractional share will be rounded up to the nearest full share. The end
result will be the addition of approximately 1,506,770 shares of
common stock.
(c) A tender offer by the Company to purchase shares of common stock from
its shareholders for $12 per share with the purchase price to be paid
in the form of a debenture with 12% interest to be paid quarterly. The
Company shareholders will have until February 29, 2000 to tender the
shares and can call for payment anytime after August 31, 2000 and the
Company can redeem the debentures at any time. At the time of this
filing, no shares had been tendered.
(d) An Agreement and Plan of Reorganization to acquire 100% of the issued
and outstanding common stock of ISBRE or an aggregate of 7,600,000
shares of common stock of the Company. The acquisition is expected to
close on or about January 31, 2000. Pursuant to the Agreement, the
Company will issue an aggregate of 7,600,000 shares of the Company's
common stock to the ISBRE shareholders and retire certain shares owned
by the current shareholders of ISBRE. Accordingly, the new combined
entity will have approximately 15,200,000 shares issued and
outstanding with the ISBRE shareholders owning approximately 50% of
the outstanding common stock of the Company.
Subsequent to the mailing of the Information Statement to the Company's
shareholders, (i) the Articles of Amendment to the Articles of Incorporation
were filed to provide for the authorization of 10,000,000 preferred shares at no
par value; (ii) 1,506,770 common shares were issued by the Company's transfer
agent in connection with the 5 for 4 stock split and the certificates were
mailed to the shareholders on February 4, 2000; (iii) based on the advice of
legal counsel, the Company notified its shareholders on February 4, 2000 that
the stock tender offer had been abandoned; and (iv) due to protracted due
diligence on the potential merger with ISBRE, the Company notified its
shareholders on February 4, 2000 that the Company had abandoned its plans to
pursue this merger.
Item 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
None.
<PAGE>
30
Item 4. RECENT SALES OF UNREGISTERED SECURITIES.
The following securities were sold in reliance upon Regulation D, Rule 504 of
the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder. The company kept 100% of the proceeds from the sale of
securities and no underwriters were used and no commissions or discounts were
paid.
ISSUE NO. OF
DATE TITLE SHARES SHARES ISSUED TO CONSID. AMOUNT
---- ----- ------ ---------------- ------- ------
02/11/99 Common 380,000 Michael Foundation Services $ 3,800
02/11/99 Common 380,000 Maple Hill Trust Services 3,800
02/11/99 Common 280,000 Daisy Schapheer Cash 2,800
02/11/99 Common 360,000 Robert Goldberg Cash 3,600
02/11/99 Common 200,000 Walter W. Knitter Cash 2,000
02/24/99 Common 150,000 Ralph Loveday Cash 4,500
12/15/99 Common 150,000 Michael Foundation Cash 900,000
Item 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Articles of Incorporation provide that the Company shall
indemnify, to the fullest extent permitted under Florida law, its directors and
officers against certain liabilities incurred with their service in such
capacities. In addition, the Articles provide that the personal liability of the
officers to the Company and its stockholders for monetary damages will be
limited.
ADDITIONAL INFORMATION
----------------------
The Exchange Act Registration Statement and the exhibits and schedules thereto
filed by Pinecrest may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 5th Street NW,
Washington, D.C. 20549. Information may be obtained on the operation of the
Public Reference Room by calling the Commission at 1-800-SEC-0330. The
Commission maintains an Internet site that contains reports, proxy and
information statements, and other information regarding issuers that file
electronically (http://www.sec.gov.) The Internet address for the Company is
http://www.pncr.net.
<PAGE>
31
PINECREST INVESTMENT GROUP, INC.
( A DEVELOPMENT STAGE COMPANY )
FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 1999
<PAGE>
PINECREST INVESTMENT GROUP, INC.
( A DEVELOPMENT STAGE COMPANY )
FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 1999
INDEX
Auditor's Report F-1
Balance Sheet F-2
Statement of Operations F-3
Statement of Cash Flows F-4
Statement of Changes in Stockholders' Equity F-5
Notes to Financial Statements F-6 to F-10
Supplemental Statements F-11 to F-14
<PAGE>
DRAKEFORD
&
DRAKEFORD
A LIMITED LIABILITY CORPORATION
ACCOUNTANTS & CONSULTANTS
John A. Della-Donna, CPA Atlanta Regional Office Telephone 770-291-2137
Georgia #3424 3235 Satellite Boulevard Facsimile 770-739-7822
Building 400, Suite 300
Duluth, Georgia 30096
INDEPENDENT AUDIT REPORT
To Shareholders of:
PINECREST INVESTMENT GROUP, INC.
TAMPA, FLORIDA
We have audited the accompanying balance sheet of PINECREST INVESTMENT GROUP,
INC.(A Development Stage Company) as of June 30, 1999, and the related
statements of operations, stockholders' equity and cash flows 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 accompanying financial statements referred to above present
fairly, in all material respects, the financial position of PINECREST INVESTMENT
GROUP, INC. as of June 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/ Drakeford & Drakeford, L.L.C.
DRAKEFORD & DRAKEFORD, L.L.C.
August 4, 1999
F1
<PAGE>
PINECREST INVESTMENT GROUP, INC.
( A DEVELOPMENT STAGE COMPANY )
BALANCE SHEET
JUNE 30, 1999
ASSETS
Current Assets
Cash $ 1,882
-----------
Total Current Assets 1,882
Property, Plant, and Equipment
Office Furniture 5,835
Land 366,263
Less Accumulated Depreciation (5,835)
-----------
Total Property, Plant, and Equipment 366,263
Other Assets
Hydroponic Technology 3,446,715
Organizational Cost 123
Less: accumulated amortization (43)
-----------
Total Other Assets 3,446,795
-----------
TOTAL ASSETS $ 3,814,940
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
Accounts Payable $ 2,305
Accrued Interest Payable 6,205
Notes Payable-Current 129,464
Mortgage Payable-Current 288,000
-----------
Total Current Liabilities 425,974
Long-Term Liabilities
Notes Payable, Officer 60,000
-----------
Total Long-Term Liabilities 60,000
Stockholder's Equity
Common Stock, $.001 par value,
100,000,000 authorized, 5,841,200 issued
and outstanding 5,841
Additional Paid-in Capital 3,401,992
Less: Investment in Subsidiary (70)
Retained Earnings (Deficit) (78,797)
-----------
Total Stockholders' Equity 3,328,966
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,814,940
===========
The accompanying notes are an integral part of the financial statements.
F2
================================================================================
<PAGE>
PINECREST INVESTMENT GROUP, INC.
( A DEVELOPMENT STAGE COMPANY )
STATEMEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1999
Income (Development Stage)
Operating Expenses
Bank Charges $ 115
Dues and Subscriptions 160
Consulting Fees 26,760
Amortization Expense 18
Insurance 430
Legal and Professional 8,500
Postage and freight 875
Marketing Expense 679
Rent 1,000
Office Supplies and Expense 569
Telephone 2,337
Stock Transfer Fees 2,198
Public Stock and Administrative Fees 5,000
Miscellaneous Expense 844
Depreciation Expense 5,835
-----------
Total Operating Expenses 55,320
-----------
Other Expenses
Interest Expense 13,256
-----------
NET LOSS ($ 68,576)
===========
Earnings Per Share (Loss) Basic and Diluted ($ .014)
Weighted Average Shares Outstanding 4,806,132
The accompanying notes are an integral part of the financial statements.
F3
<PAGE>
PINECREST INVESTMENT GROUP, INC.
( A DEVELOPMENT STAGE COMPANY )
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 1999
Net Loss ($ 68,576)
Adjustments to reconcile net loss to
net cash provided by operating act-
ivities:
Amortization expense 18
Depreciation Expense 5,835
Accounts payable 2,305
Accrued interest 6,205
---------
Net Cash Provided (Used by Operating Activities) ( 54,163)
---------
Cash Flows From (Used In) Investing Activities:
Land ( 72,000)
---------
Net Cash Used By Investing Activities ( 72,000)
---------
Cash Flows From (Used In) Financing Activities:
Notes & mortgages 84,306
Common Stock Sold for Cash 43,660
---------
Net Cash From Financing Activities 127,966
---------
Increase in cash $ 1,778
Cash and cash equivalents,
beginning of period 104
---------
Cash and cash equivalents,
end of period $ 1,882
=========
The accompanying notes are an integral part of the financial statements
F4
<PAGE>
<TABLE>
<CAPTION>
PINECREST INVESTMENT GROUP, INC.
( A DEVELOPMENT STAGE COMPANY )
STATEMENT OF CHANGES IN STOCKHOLDERS" EQUITY
FOR THE YEAR ENDED JUNE 30, 1999
Common Shares Preferred Shares Capital Amount Retained Earnings
------------- ---------------- -------------- -----------------
<S> <C> <C> <C> <C>
Balance, June 30, 1998 4,041,200 6,382 ($ 10,221)
Common Shares Issued under
Rule 504 1,750,000 13,660
----------
Activity Pursuant to Technology
Purchase:
Common Shares Retired (2,185,000) ( 90,000)
Common Shares Issued 2,235,000 3,473,750
Net Loss "Year Ended June 30, 1999 ( 68,576)
----------
Balance, June 30, 1999 5,841,200 3,407,833 ($ 78,797)
========== ========= ==========
The accompanying notes are an integral part of the financial statements.
F5
</TABLE>
<PAGE>
PINECREST INVESTMENT GROUP, INC.
( A DEVELOPMENT STAGE COMPANY )
NOTES TO FINANCIAL STATEMENTS
NOTE A- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
The Company was incorporated on September 9, 1997, in the State of Florida under
the name of Synthetic Flowers of America, Inc. On January 15, 1999, a stock
purchase agreement was signed between Synthetic Flowers of America, Inc. and
David B. Howe, and the corporate name was changed to Pinecrest Investment Group,
Inc. (See Note B-Stockholders' Equity)
Year End
The Company has elected June 30th as its fiscal year end.
Cash, Equivalents and Fair Value of Financial Instruments
All highly liquid investments with maturaties of three months or less when
purchased are cash equivalents. Cash equivalents are carried at the lower of
cost or market. Financial instruments that potentially subject the Company to a
concentration of credit risk consist principally of cash. During the period
presented the Company did not maintain cash deposits at financial institutions
in excess of the $100,000 limit covered by the Federal Deposit Insurance
Corporation. The Company does not hold or issue financial instruments for
trading purposes nor does it hold or issue interest rate or leveraged derivative
financial instruments.
Net Loss Per Share
In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 128, "Earnings Per Share." SFAS No. 128 supersedes and simplifies the
existing computational guidelines under Accounting Principles Board ("APB")
Opinion No. 15, "Earnings Per Share."
The statement is effective for financial statements issued for periods ending
after December 15, 1997. Among other changes, SFAS No. 128 eliminates the
presentation of primary earnings per share and replaces it with basic earnings
per share for which common stock equivalents are not considered in the
computation. It also revises the computation of diluted earnings per share. The
Company has adopted SFAS No. 128 and there is no material impact to the
Company's earnings per share, financial condition, or results of operations. The
Company's earnings per share have been restated for all periods presented to be
consistent with SFAS No. 128.
The basic loss per share is computed by dividing the net loss for the period by
the weighted average number of common shares outstanding for the period. When
present, common stock equivalents are excluded from the computation if their
effect would be anti-dilutive. Shares issued at inception are considered to be
outstanding for the entire period presented. Options and grants of 160,000
shares outstanding at June 30, 1999 have been included in the calculation of
loss per share and have no affect at June 30, 1999.
F6
<PAGE>
PINECREST INVESTMENT GROUP, INC.
( A DEVELOPMENT STAGE COMPANY )
NOTES TO FINANCIAL STATEMENTS
NOTE A- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-(Continued)
Income Taxes
Deferred income taxes may arise from temporary differences resulting from income
and expense items reported for financial accounting and tax purposes in
different periods. Deferred taxes are classified as current or non-current,
depending on the classifications of the assets and liabilities to which they
relate. Deferred taxes arising from temporary differences that are not related
to an asset or liability are classified as current or non-current depending on
the periods in which the temporary differences are expected to reverse. The
deferred tax asset related to the operating loss carryforward has been fully
reserved. The Company has not provided current or deferred income taxes for the
period presented due to a loss from operations.
The Company currently has a net operating loss carryforward which expires in
2013. The tax benefit of the loss has been fully reserved as its realization in
future periods is not assured.
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Depreciation of furniture and
fixtures, equipment, and other fixed assets are provided on the straight-line
method over the estimated useful life of the asset. Expenditures for maintenance
and repairs are charges against operations.
NOTE B-STOCKHOLDERS' EQUITY
On September 5, 1997, in connection with the original organization of the
Company, 4,000,000 shares of common stock was issued to Sheila Langley, the
original President of the Company, for services provided and reimbursement of
organizational costs and stock offering costs incurred by the Company but paid
for by Langley. Fair value used for this transaction of $.0025 per share is
based upon the fair value to the Company of the services provided and billings
from the Company's attorney.
Subsequently, on January 15, 1999, David B. Howe executed a stock purchase
agreement on behalf of himself and several independent investors to purchase
3,680,000 of the 4,000,000 shares owned by Langley for $150,000 cash. On March
2, 1999, the Company repurchased 2,185,000 shares of the 3,680,000 purchased by
Howe and the investors, for the purchase of the hydroponics technology from
Michael Foundation, Ltd. (See Note-E- Related Party Transactions); of the
remaining 1,495,000 shares, 400,000 shares were issued to Howe and the balance
between the investors.
On January 16, 1999, the Articles of Incorporation were amended to provide that
the aggregate number of shares of capital stock that the Corporation shall be
authorized to have outstanding at any one time shall be one hundred million
shares of common stock at $.001 par value per share and twenty-five million
shares of preferred at $.001 par value per share.
F7
<PAGE>
PINECREST INVESTMENT GROUP, INC.
( A DEVELOPMENT STAGE COMPANY )
NOTES TO FINANCIAL STATEMENTS
NOTE C-OTHER ASSET-HYDROPONICS TECHNOLOGY
On March 2, 1999, the Company entered into agreements with Michael Foundation,
Ltd., a West Indies corporation, and Tillman & Associates, Inc., a Florida
corporation, for the purchase of certain hydroponics technology at a total
purchase price of $3,437,500. The purchase price in the agreement with Michael
Foundation, Ltd., consisted of 2,185,000 shares of restricted common stock with
a current market value of $1.50 per share. The purchase price in the agreement
with Tillman & Associates, Inc., consisted of 50,000 shares of restricted common
stock with a current market value of $1.50 per share plus a note in the amount
of $85,000.
The aforementioned information and technology includes, but is not limited to,
hydroponic growth solution formulas, trade secrets, equipment and greenhouse
specifications, crop and equipment maintenance plans and programs.
An independent expert analysis opinion, dated January 22, 1999, was performed by
Jerry Pruitt, an agricultural consultant from Marbury, MD. His test included the
validity of the Hydroponics Growing System and the salability of the
retail/wholesale products derived from the process. Mr. Pruitt valued the
Hydroponics Growing System purchased by the Company at $3.2 million dollars
based on man hours and research and development costs and marketability of the
technology systems.
The Company intends to grow several varieties of leaf lettuce, romaine lettuce,
spinach and a wide assortment of culinary herbs that it sell and distibute
directly to 4 and 5 star restaurants and resorts such as Disney World and
Marriott.
F8
<PAGE>
PINECREST INVESTMENT GROUP, INC.
( A DEVELOPMENT STAGE COMPANY )
NOTES TO FINANCIAL STATEMENTS
NOTE D-CURRENT AND NON-CURRENT DEBT
Current and non-current debt consists of the following notes and mortgages
payable:
Current Non-Current Total
------- ----------- -----
Perfect Produce, Inc.-Line of Credit
Dated March 9, 1999, $100,000 Limit
Rate of interest- 8% per annum. Due
October 1, 1999 $ 44,464 -0- $ 44,464
Tillman & Associates, Inc.
Hydroponic technology purchase,
dated March 2, 1999. Rate of
interest- 10% per annum. Due
December 31, 1999 85,000 -0- 85,000
Hopewell Land Partners. Ltd.
Secured by 40 acres,Lithia, Fl
Dated April 9, 1999. Rate of
interest- 12%, simple interest
Interest only, balance April 9, 2000 288,000 -0- 288,000
David Howe,Officer
Stock purchase dated March 2, 1999.
Rate of interest- 10% per annum
Due September 2, 2000 (See Note E) -0- 60,000 60,000
-------- ------ --------
TOTALS $417,464 60,000 $477,464
======== ====== ========
F9
<PAGE>
PINECREST INVESTMENT GROUP, INC.
( A DEVELOPMENT STAGE COMPANY )
NOTES TO FINANCIAL STATEMENTS
NOTE E- RELATED PARTY TRANSACTIONS
On March 2, 1999, the Company reacquired 2,185,000 shares of restricted common
stock from President, David B. Howe and independent investors for $90,000
(Howe"s cost) payable as follows: $30,000 cash and a note in the principal
amount of $60,000 bearing 10% simple interest, due September 2, 2000. These
shares were acquired by Howe and the investors in connection with the purchase
of control of the Company. (See Note-B-Stockholders' Equity).
These shares were then simultaneously exchanged as part of the purchase price
for the hydroponics technology from Michael Foundation, Ltd., and Tillman &
Associates, Inc., that is necessary in the overall operation of the hydroponic
herb and lettuce farm.
On March 2, 1999, Sheryl Salvadore, the Company's Corporate Secretary, was
issued a grant of 10,000 restricted common shares as a bonus at a value of $1.50
per share. As of the date of this audit the shares had not been issued.
F10
<PAGE>
PINECREST INVESTMENT GROUP, INC.
( A DEVELOPMENT STAGE COMPANY)
SUPPLEMENTAL STATEMENTS
Statement of Operations
For the period from September 9, 1997 (date of inception)
through June 30, 1999
Statement of Cash Flows
For the year ended June 30, 1999
For the period from September 9, 1997 (date of inception)
through June 30, 1999
Statement of Operations and Cash Flows
For the six months ended December 31, 1998, Unaudited
<PAGE>
PINECREST INVESTMENT GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (SEPTEMBER 9, 1997)
TO JUNE 30, 1999
Income (Development Stage)
Operating Expense
Bank Charges $ 115
Dues and Subscriptions 160
Consulting Fees 26,760
Amortization Expense 43
Insurance 430
Legal and Professional 8,500
Postage and freight 875
Marketing Expense 679
Rent 1,000
Office Supplies and Expense 569
Telephone 2,337
Stock Transfer Fees 2,198
Public Stock and Administrative Fees 5,000
Other Operating Expenses 10,221
Miscellaneous Expense 844
Depreciation Expense 5,835
-----------
Total Operating Expenses 65,566
-----------
Other Expenses
Interest Expense 13,256
-----------
NET LOSS ($ 78,822)
===========
Earnings Per Share (Loss) ($ .016)
Weighted Average Shares Outstanding 4,806,132
F11
<PAGE>
PINECREST INVESTMENT GROUP, INC.
( A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 1999
Supplement Cash Flow Information:
Cash Paid For Interest $ 13,256
Cash Paid For Income Taxes $ 0
Non-Cash Investing and Financing Activities:
Mortgage Payable on Purchase of Land $ 288,000
Issuance of 2,235,000 shares of Common
Stock in Exchange for Hydroponic
Technology $ 3,437,500
F12
<PAGE>
PINECREST INVESTMENT GROUP, INC.
( A DEVELOPMENT STAGE COMPANY )
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (SEPTEMBER 9, 1997)
TO JUNE 30, 1999
Net Loss ($ 78,797)
Adjustments to reconcile net loss to
net cash provided by operating act-
ivities:
Amortization expense 43
Depreciation expense 5,835
Accounts payable 2,305
Accrued interest 6,205
---------
Net Cash Provided (Used by Operating Activities) ( 64,409)
---------
Cash Flows From (Used In) Investing Activities:
Land ( 72,000)
---------
Net Cash Used By Investing Activities ( 72,000)
---------
Cash Flows From (Used In) Financing Activities:
Notes & mortgages 84,306
Common Stock Sold for Cash 53,960
---------
Net Cash From Financing Activities 138,266
---------
Increase in cash $ 1,882
Cash and cash equivalents,
beginning of period 0
---------
Cash and cash equivalents,
end of period $ 1,882
=========
F13
<PAGE>
SYNTHETIC FLOWERS OF AMERICA, INC.
( A DEVELOPMENT STAGE COMPANY )
STATEMENT OF OPERATIONS AND CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1998
UNAUDITED
OPERATIONS:
Income (Development Stage)
Bank Charges $ 45
----
Net Loss ($ 45)
====
CASH FLOW
Net Loss ($ 45)
----
Net Cash Used In Operating Activities ($ 45)
Decrease in Cash ($ 45)
Cash, Beginning 104
---
Cash, Ending $ 59
====
F14
<PAGE>
PINECREST INVESTMENT GROUP, INC.
( A DEVELOPMENT STAGE COMPANY )
REVIEWED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999
<PAGE>
PINECREST INVESTMENT GROUP, INC.
( A DEVELOPMENT STAGE COMPANY )
REVIEWED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999
INDEX
-----
Accountant's Report F-15
Balance Sheet F-16
Statement of Operations F-17
Statement of Cash Flows F-18
Statement of Changes in Stockholders' Equity F-19
Notes to Financial Statements F-20 to F-25
Supplemental Statements F-26 to F-29
<PAGE>
DRAKEFORD
&
DRAKEFORD
A LIMITED LIABILITY CORPORATION
ACCOUNTANTS & CONSULTANTS
John A. Della-Donna, CPA Atlanta Regional Office Telephone 770-291-2137
Georgia #3424 3235 Satellite Boulevard Facsimile 770-739-7822
Building 400, Suite 300
Duluth, Georgia 30096
INDEPENDENT ACCOUNTANTS' REPORT
To Shareholders of:
PINECREST INVESTMENT GROUP, INC.
TAMPA, FLORIDA
We have reviewed the accompanying balance sheet of PINECREST INVESTMENT GROUP,
INC. ( A Development Stage Company ) as of December 31, 1999, and the related
statements of operations, stockholders' equity and cash flows for the six months
then ended, in accordance with Statements on 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
PINECREST INVESTMENT GROUP, INC.
A review consists principally of inquiries of management 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 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 financial statements in order for them to be in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared solely from the
accounts of PINECREST INVESTMENT GROUP, INC.
s/Drakeford & Drakeford, L.L.C.
DRAKEFORD & DRAKEFORD, L.L.C.
February 1, 2000
<PAGE>
PINECREST INVESTMENT GROUP, INC.
( A DEVELOPMENT STAGE COMPANY )
BALANCE SHEET
DECEMBER 31, 1999
REVIEWED
ASSETS
Current Assets
Cash $ 57,301
----------
Total Current Assets 57,301
Property, Plant, and Equipment
Greenhouses, Equipment, and Stock 164,627
Office Equipment 12,964
Land 382,358
Less: Accumulated Depreciation 5,835
----------
Total Property, Plant, and Equipment 554,114
Other Assets
Hydroponic Technology 3,446,715
Organizational Cost 123
----------
3,446,838
Less: Accumulated Amort. (43)
----------
Total Other Assets 3,446,795
----------
TOTAL ASSETS $4,058,210
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
Mortgage Payable-Current $ 288,000
----------
Total Current Liabilities 288,000
Stockholders' Equity
Common Stock, $.001 par value,
100,000,000 authorized, 7,531,300 issued
and outstanding 7,531
Additional Paid-in Capital 4,455,302
Less: Stock Subscriptions Receivable ( 437,219)
Investment in Subsidiary ( 39,245)
Retained Earnings (Deficit) ( 216,159)
----------
Total Stockholders' Equity 3,770,210
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $4,058,210
==========
The accompanying notes are an integral part of the financial statements.
F16
================================================================================
<PAGE>
PINECREST INVESTMENT GROUP, INC.
( A DEVELOPMENT STAGE COMPANY )
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999
REVIEWED
Income (Development Stage)
Operating Expenses
Executive Bonuses $ 15,000
Advertising 311
Automotive Expense 3,072
Bank Charges 199
Travel and Entertainment 2,204
Consulting Fees 48,756
Insurance 1,608
Repairs and Maintenance 331
Taxes and Licenses 550
Postage and freight 1,225
Marketing Expense 25,023
Rent 6,311
Office Supplies and Expense 2,290
Telephone 6,658
Stock Transfer Fees 1,119
Public Stock and Administrative Fees 6,339
Miscellaneous Expense 627
---------
Total Operating Expenses 121,623
---------
Other Expenses
Interest Expense 15,739
---------
NET LOSS ($ 137,362)
=========
Earnings Per Share (Loss) ($ .023)
Weighted Average Shares Outstanding 5,866,327
The accompanying notes are an integral part of the financial statements.
F17
<PAGE>
PINECREST INVESTMENT GROUP, INC.
( A DEVELOPMENT STAGE COMPANY )
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999
REVIEWED
Net Loss ( $216,159)
Adjustments to Reconcile Net Income to Net
Cash Provided from Operating Activities:
Executive Bonuses in exchange for stock 15,000
Accounts payable ( 2,305)
Accrued interest ( 6,205)
Notes Payable ( 49,464)
---------
Net Cash Provided (Used by Operating Activities) ( 259,133)
---------
Cash Flows From (Used In) Investing Activities:
Land ( 88,095)
Greenhouses and Equipment ( 171,756)
Other Investments ( 24,762)
---------
Net Cash Used By Investing Activities ( 284,613)
---------
Cash Flows From (Used In) Financing Activities:
Common Stock Sold For Cash 516,741
Notes and Mortgages 84,306
---------
Net Cash From Financing Activities 601,047
---------
Increase in cash $ 57,301
Cash and cash equivalents,
beginning of period 0
Cash and cash equivalents,
end of period $ 57,301
=========
The accompanying notes are an integral part of the financial statements
F18
--------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
PINECREST INVESTMENT GROUP, INC.
( A DEVELOPMENT STAGE COMPANY )
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999
REVIEWED
Common Shares Preferred Shares Capital Amount Retained Earnings
------------- ---------------- -------------- ------------------
<S> <C> <C> <C> <C>
Balance, June 30, 1999 5,841,200 3,401,992 (78,797)
Common Shares Issued
Under rule 504 150,000 900,000
Common Shares Issued
To Discharge Debt 23,334 140,000
Common Shares Issued
As Executive Bonus 10,000 15,000
5 for 4 Stock Split Approved
January 10, 2000 for
Stockholders' on Record
as of December 31, 1999 1,506,770
Net Loss for the six
months ended December 31,
1999 (137,362)
---------- ---------- ---------- ----------
Balance, December 31, 1999 7,531,300 -- 4,462,833 (216,159)
========== ========== ========== ==========
The accompanying notes are an intergral part of the financial statements
F19
</TABLE>
<PAGE>
PINECREST INVESTMENT GROUP, INC.
( A DEVELOPMENT STAGE COMPANY )
NOTES TO FINANCIAL STATEMENTS
NOTE A- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
The Company was incorporated on September 9, 1997, in the State of Florida under
the name of Synthetic Flowers of America, Inc. On January 15, 1999, a stock
purchase agreement was signed between Synthetic Flowers of America, Inc. and
David B. Howe, and the corporate name was changed to Pinecrest Investment Group,
Inc. (See Note B-Stockholders' Equity)
Year End
The Company has elected June 30th as its fiscal year end.
Cash, Equivalents and Fair Value of Financial Instruments
All highly liquid investments with maturaties of three months or less when
purchased are cash equivalents. Cash equivalents are carried at the lower of
cost or market. Financial instruments that potentially subject the Company to a
concentration of credit risk consist principally of cash. During the period
presented the Company did not maintain cash deposits at financial institutions
in excess of the $100,000 limit covered by the Federal Deposit Insurance
Corporation. The Company does not hold or issue financial instruments for
trading purposes nor does it hold or issue interest rate or leveraged derivative
financial instruments.
Net Loss Per Share
In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 128, "Earnings Per Share." SFAS No. 128 supersedes and simplifies the
existing computational guidelines under Accounting Principles Board ("APB")
Opinion No. 15, "Earnings Per Share." The statement is effective for financial
statements issued for periods ending after December 15, 1997. Among other
changes, SFAS No. 128 eliminates the presentation of primary earnings per share
and replaces it with basic earnings per share for which common stock equivalents
are not considered in the computation. It also revises the computation of
diluted earnings per share. The Company has adopted SFAS No. 128 and there is no
material impact to the Company's earnings per share, financial condition, or
results of operations. The Company's earnings per share have been restated for
all periods presented to be consistent with SFAS No. 128.
The basic loss per share is computed by dividing the net loss for the period by
the weighted average number of common shares outstanding for the period. When
present, common stock equivalents are excluded from the computation if their
effect would be anti-dilutive. Shares issued at inception are considered to be
outstanding for the entire period presented.
F20
<PAGE>
PINECREST INVESTMENT GROUP, INC.
( A DEVELOPMENT STAGE COMPANY )
NOTES TO FINANCIAL STATEMENTS
NOTE A- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-(Continued)
Income Taxes
Deferred income taxes may arise from temporary differences resulting from income
and expense items reported for financial accounting and tax purposes in
different periods. Deferred taxes are classified as current or non-current,
depending on the classifications of the assets and liabilities to which they
relate. Deferred taxes arising from temporary differences that are not related
to an asset or liability are classified as current or non-current depending on
the periods in which the temporary differences are expected to reverse. The
deferred tax asset related to the operating loss carryforward has been fully
reserved. The Company has not provided current or deferred income taxes for the
period presented due to a loss from operations. The Company currently has a net
operating loss carryforward which expires in 2013. The tax benefit of the loss
has been fully reserved as its realization in future periods is not assured.
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Depreciation of furniture and
fixtures, equipment, and other fixed assets are provided on the straight-line
method over the estimated useful life of the asset. Expenditures for maintenance
and repairs are charges against operations.
NOTE B-STOCKHOLDERS' EQUITY
On September 5, 1997, in connection with the original organization of the
Company, 4,000,000 shares of common stock was issued to Sheila Langley, the
original President of the Company, for services provided and reimbursement of
organizational costs and stock offering costs incurred by the Company but paid
for by Langley. Fair value used for this transaction of $.0025 per share is
based upon the fair value to the Company of the services provided and billings
from the Company's attorney.
Subsequently, on January 15, 1999, David B. Howe executed a stock purchase
agreement on behalf of himself and several independent investors to purchase
3,680,000 of the 4,000,000 shares owned by Langley for $150,000 cash. On March
2, 1999, the Company repurchased 2,185,000 shares of the 3,680,000 purchased by
Howe and the investors, for the purchase of the hydroponics technology from
Michael Foundation, Ltd. (See Note-E- Related Party Transactions); of the
remaining 1,495,000 shares, 400,000 shares were issued to Howe and the balance
between the investors.
On January 16, 1999, the Articles of Incorporation were amended to provide that
the aggregate number of shares of capital stock that the Corporation shall be
authorized to have outstanding at any one time shall be one hundred million
shares of common stock at $.001 par value per share and twenty-five million
shares of preferred at $.001 par value per share.
F21
<PAGE>
PINECREST INVESTMENT GROUP, INC.
( A DEVELOPMENT STAGE COMPANY )
NOTES TO FINANCIAL STATEMENTS
NOTE C-OTHER ASSET-HYDROPONICS TECHNOLOGY
On March 2, 1999, the Company entered into agreements with Michael Foundation,
Ltd., a West Indies corporation, and Tillman & Associates, Inc., a Florida
corporation, for the purchase of certain hydroponics technology at a total
purchase price of $3,437,500. The purchase price in the agreement with Michael
Foundation, Ltd., consisted of 2,185,000 shares of restricted common stock with
a current market value of $1.50 per share. The purchase price in the agreement
with Tillman & Associates, Inc., consisted of 50,000 shares of restricted common
stock with a current market value of $1.50 per share plus a note in the amount
of $85,000.
The aforementioned information and technology purchase includes, but may not
necessarily be limited to, proprietary hydroponic growth solution formulas,
trade secrets, equipment and greenhouse specifications and crop and equipment
maintenance plans and programs.
An independent expert analysis opinion, dated January 22, 1999, was performed by
Jerry Pruitt, an agricultural consultant from Marbury, MD. His test included the
validity of the Hydroponics Growing System and the salability of the
retail/wholesale products derived from the process. Mr. Pruitt valued the
Hydroponics Growing System purchased by the Company at $3.2 million dollars
based on man hours and research and development costs and marketability of the
technology systems.
The Company intends to grow several varieties of leaf lettuce, romaine lettuce,
spinach and a wide assortment of culinary herbs that it sell and distribute
directly to 4 and 5 star restaurants and resorts such as Disney World and
Marriott.
F22
<PAGE>
PINECREST INVESTMENT GROUP, INC.
( A DEVELOPMENT STAGE COMPANY )
NOTES TO FINANCIAL STATEMENTS
NOTE D-MORTGAGE PAYABLE
Current debt consists of the following mortgage payable:
Current Non-Current Total
------- ----------- -----
Hopewell Land Partners, Ltd.
Secured by 40 acres,Lithia, Fl
Dated April 9, 1999. Rate of
interest- 12%, simple interest
Interest only, balance April 9, 2000 $288,000 -0- $288,000
-------- ----------- --------
TOTALS $288,000 -0- $288,000
======== =========== ========
On April 9, 1999 the Company purchased a 40-acre tract of land in Lithia, Fl.,
approximately 20 miles southeast of its Tampa, Fl. Corporate offices, for
$360,000. The Company provided $72,000 as a down payment and the seller,
Hopewell Land Partners, Limited, provided purchase money mortgage financing
for the balance of $288,000. The terms of the purchase money mortgage are
interest only at 12% per annum, payable monthly for one year, at which time,
April 9, 2000, the balance is due and payable in full. The Company is pursuing
mortgage financing via a U.S. Rural Development Act Loan. However, discussions
with interested private lenders and individuals indicate that, should the need
arise, refinancing the first mortgage would not be a problem since the value of
the property along with the improvements to be built over the next couple of
months would indicate a loan-to-value ratio of less than 50 percent.
F23
<PAGE>
PINECREST INVESTMENT GROUP, INC.
( A DEVELOPMENT STAGE COMPANY )
NOTES TO FINANCIAL STATEMENTS
NOTE E- RELATED PARTY TRANSACTIONS
On March 2, 1999, the Company reacquired 2,185,000 shares of restricted common
stock from President, David B. Howe and affiliated investors for $90,000 (Howe's
cost) payable as follows: $30,000 cash and a note in the principal amount of
$60,000 bearing 10% simple interest, due September 2, 2000. These shares were
acquired by Howe and the investors in connection with the purchase of control of
the Company. (See Note-B-Stockholders' Equity). As of December 6, 1999, this
debt was converted to 13,334 shares of restricted stock.
These shares were then simultaneously exchanged as part of the purchase price
for the hydroponics technology from Michael Foundation, Ltd., and Tillman &
Associates, Inc., that is necessary in the overall operation of the hydroponic
herb and lettuce farm.
On December 6, 1999, the remaining balance of $80,000 due Tillman & Associares,
Inc. on the promissory note given in exchange for technology, was converted into
restricted common stock of the Company at a rate of $6.00 per share for a total
of 13,334 shares. The interest due on the note of $6,525.19 was paid in cash.
Mr. Tillman is President of Tillman & Associates, Inc. and is President of
Pinecrest Farms, Inc.
In December 1999, 10,000 restricted shares of common stock were issued to Sheryl
Salvadore, the Company's Corporate Secretary, pursuant to a grant to her as a
bonus on March 2, 1999 at a value of $1.50 per share.
In March 1999, the Company entered into a convertible line of credit with
Michael Foundation, Limited, a major stockholder of the Company. This credit
arrangement called for Michael Foundation, Limited, to provide working capital
for the Company while it was arranging for acceptable long-term funding for its
Phase I construction and working capital needs until the Company attained
positive cash flow. This line of credit was for a total of $900,000, which
amount could be converted into restricted common stock of the Company at a price
of $6.00 per share. By the end of November 1999, the Company had borrowed
approximately $300,000 against the Michael Foundation, Limited line of credit.
In December 1999, the line of credit arrangement with Michael Foundation,
Limited, was modified to call for the absolute purchase of 150,000 shares of
restricted common stock by Michael Foundation, Limited at a price of $6.00 per
share for a total of $900,000. As of December 31, 1999, the shares had been
issued to Michael Foundation, Limited and were being held in escrow by legal
counsel for Pinecrest, the Company had received a total of $463,000 cash and
carried a Subscription Receivable of approximately $437,000. This receivable was
paid in full after the balance sheet date.
F24
<PAGE>
PINECREST INVESTMENT GROUP, INC.
( A DEVELOPMENT STAGE COMPANY )
NOTES TO FINANCIAL STATEMENTS
NOTE F- INVESTMENT IN SUBSIDIARY
On April 8, 1999, Articles of Incorporation were filed for Pinecrest Farms,
Inc., a Florida corporation which is a wholly-owned subsidiary of Pinecrest
Investment Group, Inc. This entity was formed for the purpose of owning and
operating the produce farms. The growing technology and the land for the farms
are owned by the Company.
As of December 31, 1999, substantially all expenditures were comprised of
deposits on greenhouse materials, engineering and subcontractor retainers,
permitting costs and Thomas Tillman's salary. The balance sheet of Pinecrest
Investment Group, Inc. and Pinecrest Farms, Inc. are consolidated for these
financial statements.
NOTE G- SUBSEQUENT EVENTS
On January 10, 2000 the Company's Board of Directors' approved a 5 for 4 stock
split for shareholders of record on December 31, 1999, for a total of 1,506,770
additional shares. Also, the Board adopted the Pinecrest Investment Group, Inc.
Incentive Stock Option Plan December 1999, which was approved by a majority of
the shareholders. The Plan will be administered by the Executive Committee of
the Board of Directors of the Company and authorizes the Committee to grant or
award to eligible executives and employees of the Company and its subsidiaries,
until January 10, 2010, incentive stock options for up to 1,200,000 shares of
restricted common stock of the Company.
On January 26, 2000 the Company amended its Articles of Incorporation to
authorize a class of preferred shares consisting of 10,000,000 shares with no
par value per share.
F25
<PAGE>
PINECREST INVESTMENT GROUP, INC.
( A DEVELOPMENT STAGE COMPANY )
SUPPLEMENTAL STATEMENTS
Statement of Operations
For the period from September 9, 1997 (date of inception)
through December 31, 1999
Statement of Cash Flows
For the six-months ended December 31, 1999
For the period from September 9, 1997 (date of inception)
through December 31, 1999
F26
<PAGE>
PINECREST INVESTMENT GROUP, INC.
( A DEVELOPMENT STAGE COMPANY )
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (SEPTEMBER 9, 1997)
TO DECEMBER 31, 1999
Income (Development Stage)
Operating Expenses
Executive Bonuses $ 15,000
Advertising 311
Automotive Expense 3,072
Bank Charges 314
Dues and Subscriptions 160
Consulting Fees 75,516
Amortization Expense 43
Insurance 2,038
Legal and Professional 8,500
Postage and freight 2,100
Marketing Expense 25,702
Rent 7,311
Repairs and Maintenance 331
Office Supplies and Expense 2,859
Taxes and Licenses 550
Telephone 8,995
Travel and Entertainment 2,204
Stock Transfer Fees 3,317
Public Stock and Administrative Fees 11,339
Other Operating Expenses 10,221
Miscellaneous Expense 1,471
Depreciation Expense 5,835
-----------
Total Operating Expenses 187,164
-----------
Other Expenses
Interest Expense 28,995
-----------
NET LOSS ($ 216,159)
===========
Earnings Per Share (Loss) ($ .037)
Weighted Average Shares Outstanding 5,866,327
F27
<PAGE>
PINECREST INVESTMENT GROUP, INC.
( A DEVELOPMENT STAGE COMPANY )
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999
REVIEWED
Supplemental Cash Flow Information:
Cash paid for interest $ 0
Cash paid for income taxes $ 0
Non-cash Investing and Financing Activities:
Conversion of Notes Payable To Restricted Stock $ 140,000
Stock Subscriptions Receivable $ 437,219
F28
<PAGE>
PINECREST INVESTMENT GROUP, INC.
( A DEVELOPMENT STAGE COMPANY )
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (SEPTEMBER 9, 1997)
TO DECEMBER 31, 1999
Net Loss ($ 78,797)
Adjustments to reconcile net loss to
net cash provided by operating act-
ivities:
Amortization expense 43
Depreciation expense 5,835
Accounts payable 2,305
Accrued interest 6,205
---------
Net Cash Provided (Used by Operating Activities) ( 64,359)
---------
Cash Flows From (Used In) Investing Activities:
Land ( 72,000)
---------
Net Cash Used By Investing Activities ( 72,000)
---------
Cash Flows From (Used In) Financing Activities:
Notes & mortgages 84,306
Common Stock Sold for Cash 53,960
---------
Net Cash From Financing Activities 138,266
---------
Increase in cash $ 1,882
Cash and cash equivalents,
beginning of period 0
---------
Cash and cash equivalents,
end of period $ 1,882
=========
The accompanying notes are an integral part of the financial statements
F29
<PAGE>
PINECREST INVESTMENT GROUP, INC.
( A DEVELOPMENT STAGE COMPANY )
COMPILED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
<PAGE>
PINECREST INVESTMENT GROUP, INC.
( A DEVELOPMENT STAGE COMPANY )
COMPILED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 2000
INDEX
-----
Accountant's Report F-30
Balance Sheet F-31
Statement of Operations F-32
Statement of Cash Flows F-33
Statement of Changes in Stockholders' Equity F-34
Notes to Financial Statements F-35 to F-40
Supplemental Statements F-41
<PAGE>
DRAKEFORD
&
DRAKEFORD
A LIMITED LIABILITY CORPORATION
ACCOUNTANTS & CONSULTANTS
John A. Della-Donna, CPA Atlanta Regional Office Telephone 770-291-2137
Georgia #3424 3235 Satellite Boulevard Facsimile 770-739-7822
Building 400, Suite 300
Duluth, Georgia 30096
INDEPENDENT ACCOUNTANTS' REPORT
April 24, 2000
Board of Directors
Pinecrest Investment Group, Inc.
(A Development Stage Company)
We have compiled the accompanying balance sheet of PINECREST INVESTMENT GROUP,
INC., as of March 31, 2000, and the related statements of operations, changes in
stockholders' equity, and cash flows for the nine months ended March 31, 2000,
in accordance with Statements on Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements,
information that is the representation of management. We have not audited or
reviewed the accompanying financial statements and, accordingly, do not express
an opinion or any other form of assurance on them.
/s/ Drakeford & Drakeford, L.L.C.
DRAKEFORD & DRAKEFORD, L.L.C.
F30
<PAGE>
PINECREST INVESTMENT GROUP, INC.
( A DEVELOPMENT STAGE COMPANY )
COMPILED BALANCE SHEET
MARCH 31, 2000
ASSETS
Current Assets
Cash $ 62,924
----------
Total Current Assets 62,924
Property, Plant, and Equipment
Greenhouses, Equipment, and Stock 359,585
Office Equipment 21,003
Land and Improvements 398,023
----------
778,611
Less: Accumulated Depreciation ( 9,114)
----------
Total Property, Plant, and Equipment 769,497
Other Assets
Hydroponic Technology 3,446,715
Organizational Cost 123
Deposits 10
----------
3,446,848
Less: Accumulated Amort ( 43)
---------
Total Other Assets 3,446,805
----------
TOTAL ASSETS $4,279,226
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Mortgage Payable-Current $ 288,000
---------
Total Current Liabilities 288,000
Stockholders' Equity
Common Stock, $.001 par value,
100,000,000 authorized, 7,531,300 issued
and outstanding 7,531
Additional Paid-in Capital 4,455,303
Less: Stock Subscriptions Receivable ( 42,005)
Investment in Subsidiary ( 127,035)
Retained Earnings (Deficit) ( 302,567)
----------
Total Stockholders' Equity 3,991,226
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $4,279,226
==========
The accompanying notes are an integral part of the financial statements.
UNAUDITED
F31
<PAGE>
PINECREST INVESTMENT GROUP, INC.
( A DEVELOPMENT STAGE COMPANY )
COMPILED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 31, 2000
Income (Development Stage)
Operating Expenses
Executive Bonuses $ 15,000
Officer's Salary 55,911
Admin. Leased Employees Salaries 50,705
Advertising 311
Automotive Expense 3,870
Bank Charges 431
Travel and Entertainment 4,227
Farm Operation Expenses 12,708
Consulting Fees 88,756
Insurance 1,608
Depreciation 3,279
Legal and Professional 5,043
Repairs and Maintenance 626
Taxes and Licenses 5,721
Postage and freight 3,762
Marketing Expense 25,827
Permitting Fees 8,372
Rent 9,589
Office Supplies and Expense 6,282
Telephone 10,188
Stock Transfer Fees 3,532
Public Stock and Administrative Fees 6,548
Miscellaneous Expense 4,060
-----------
Total Operating Expenses 326,356
-----------
Other Expenses
Interest Expense 24,379
-----------
NET LOSS ($ 350,735)
===========
Earnings Per Share (Loss) ($ .059)
Weighted Average Shares Outstanding 5,866,327
The accompanying notes are an integral part of the financial statements.
UNAUDITED
F32
<PAGE>
PINECREST INVESTMENT GROUP, INC.
( A DEVELOPMENT STAGE COMPANY )
COMPILED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 2000
Net Loss ($350,735)
Adjustments to Reconcile Net Income to Net
Cash Provided from Operating Activities:
Depreciation & Amortization 3,279
Executive Bonuses in exchange for stock 15,000
Accounts payable ( 2,305)
Accrued interest ( 6,205)
Notes Payable ( 49,464)
---------
Net Cash Provided (Used by Operating Activities) ( 390,430)
---------
Cash Flows From (Used In ) Investing Activities:
Land ( 88,095)
Greenhouses and Equipment ( 374,753)
Other Investments ( 80,059)
---------
Net Cash Used By Investing Activities ( 542,907)
---------
Cash Flows From (Used In) Financing Activities:
Common Stock Sold For Cash 911,955
Notes and Mortgages 84,306
---------
Net Cash From Financing Activities 996,261
---------
Increase in cash $ 62,924
Cash and cash equivalents,
beginning of period 0
Cash and cash equivalents,
end of period $ 62,924
=========
The accompanying notes are an integral part of the financial statements
UNAUDITED
F33
--------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
PINECREST INVESTMENT GROUP, INC.
( A DEVELOPMENT STAGE COMPANY )
COMPILED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED MARCH 31, 2000
Common Shares Preferred Shares Capital Amount Retained Earnings
------------- ---------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Balance, June 30, 1999 5,841,200 3,407,834 (78,797)
Common Shares Issued
Under rule 504 150,000 900,000
Common Shares Issued
To Discharge Debt 23,334 140,000
Common Shares Issued
As Executive Bonus 10,000 15,000
5 for 4 Stock Split Approved
January 10, 2000 for
Stockholders' on Record
as of December 31, 1999 1,506,770
Net Loss for the nine
months ended March 31, 2000 (350,735)
--------- ---------- ---------- ----------
Balance, March 31, 2000 7,531,300 -- 4,462,834 (429,532)
========== ========== ========== ==========
The accompanying notes are an integral part of the financial statements.
UNAUDITED
F34
</TABLE>
<PAGE>
PINECREST INVESTMENT GROUP, INC.
( A DEVELOPMENT STAGE COMPANY )
NOTES TO FINANCIAL STATEMENTS
NOTE A- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
The Company was incorporated on September 9, 1997, in the State of Florida under
the name of Synthetic Flowers of America, Inc. On January 15, 1999, a stock
purchase agreement was signed between Synthetic Flowers of America, Inc. and
David B. Howe, and the corporate name was changed to Pinecrest Investment Group,
Inc. (See Note B-Stockholders' Equity)
Year End
The Company has elected June 30th as its fiscal year end.
Cash, Equivalents and Fair Value of Financial Instruments
All highly liquid investments with maturaties of three months or less when
purchased are cash equivalents. Cash equivalents are carried at the lower of
cost or market. Financial instruments that potentially subject the Company to a
concentration of credit risk consist principally of cash. During the period
presented the Company did not maintain cash deposits at financial institutions
in excess of the $100,000 limit covered by the Federal Deposit Insurance
Corporation. The Company does not hold or issue financial instruments for
trading purposes nor does it hold or issue interest rate or leveraged derivative
financial instruments.
Net Loss Per Share
In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 128, "Earnings Per Share." SFAS No. 128 supersedes and simplifies the
existing computational guidelines under Accounting Principles Board ("APB")
Opinion No. 15, "Earnings Per Share." The statement is effective for financial
statements issued for periods ending after December 15, 1997. Among other
changes, SFAS No. 128 eliminates the presentation of primary earnings per share
and replaces it with basic earnings per share for which common stock equivalents
are not considered in the computation. It also revises the computation of
diluted earnings per share. The Company has adopted SFAS No. 128 and there is no
material impact to the Company's earnings per share, financial condition, or
results of operations. The Company's earnings per share have been restated for
all periods presented to be consistent with SFAS No. 128.
The basic loss per share is computed by dividing the net loss for the period by
the weighted average number of common shares outstanding for the period. When
present, common stock equivalents are excluded from the computation if their
effect would be anti-dilutive. Shares issued at inception are considered to be
outstanding for the entire period presented.
F35
<PAGE>
PINECREST INVESTMENT GROUP, INC.
( A DEVELOPMENT STAGE COMPANY )
NOTES TO FINANCIAL STATEMENTS
NOTE A- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-(Continued)
Income Taxes
Deferred income taxes may arise from temporary differences resulting from income
and expense items reported for financial accounting and tax purposes in
different periods. Deferred taxes are classified as current or non-current,
depending on the classifications of the assets and liabilities to which they
relate. Deferred taxes arising from temporary differences that are not related
to an asset or liability are classified as current or non-current depending on
the periods in which the temporary differences are expected to reverse. The
deferred tax asset related to the operating loss carryforward has been fully
reserved. The Company has not provided current or deferred income taxes for the
period presented due to a loss from operations.
The Company currently has a net operating loss carryforward which expires in
2013. The tax benefit of the loss has been fully reserved as its realization in
future periods is not assured.
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Depreciation of furniture and
fixtures, equipment, and other fixed assets are provided on the straight-line
method over the estimated useful life of the asset. Expenditures for maintenance
and repairs are charges against operations.
The technology purchased from Michael Foundation and Tillman & Associates, Inc.
will be amortized on a unit of production basis. The rate of amortization will
be $0.015 per pound of product produced and will begin once the Company begins
production. Revenue generating operations are anticipated to begin in June 2000.
It is anticipated that the technology will be fully amortized over seven years.
Organizational expenses are being amortized over a five year period.
NOTE B-STOCKHOLDERS' EQUITY
On September 5, 1997, in connection with the original organization of the
Company, 4,000,000 shares of common stock was issued to Sheila Langley, the
original President of the Company, for services provided and reimbursement of
organizational costs and stock offering costs incurred by the Company but paid
for by Langley. Fair value used for this transaction of $.0025 per share is
based upon the fair value to the Company of the services provided and billings
from the Company's attorney.
Subsequently, on January 15, 1999, David B. Howe executed a stock purchase
agreement on behalf of himself and several independent investors to purchase
3,680,000 of the 4,000,000 shares owned by Langley for $150,000 cash. On March
2, 1999, the Company repurchased 2,185,000 shares of the 3,680,000 purchased by
Howe and the investors, for the purchase of the hydroponics technology from
Michael Foundation, Ltd. (See Note-E- Related Party Transactions); of the
remaining 1,495,000 shares, 400,000 shares were issued to Howe and the balance
between the investors.
On January 16, 1999, the Articles of Incorporation were amended to provide that
the aggregate number of shares of capital stock that the Corporation shall be
authorized to have outstanding at any one time shall be one hundred million
shares of common stock at $.001 par value per share and twenty-five million
shares of preferred at $.001 par value per share.
F36
<PAGE>
PINECREST INVESTMENT GROUP, INC.
( A DEVELOPMENT STAGE COMPANY )
NOTES TO FINANCIAL STATEMENTS
NOTE B-STOCKHOLDERS' EQUITY-(Continued)
On January 10, 2000 the Company's Board of Directors' approved a 5 for 4 stock
split for shareholders of record on December 31, 1999, for a total of 1,506,770
additional shares. Also, the Board adopted the Pinecrest Investment Group, Inc.
Incentive Stock Option Plan December 1999, which was app- roved by a majority of
the shareholders. The Plan will be administered by the Executive Committee of
the Board of Directors of the Company and authorizes the Committee to grant or
award to eligible executives and employees of the Company and its subsidiaries,
until January 10, 2010, incentive stock options for up to 1,200,000 shares of
restricted common stock of the Company.
On January 26, 2000 the Company amended its Articles of Incorporation to
authorize a class of preferred shares consisting of 10,000,000 shares with no
par value per share.
NOTE C-OTHER ASSET-HYDROPONICS TECHNOLOGY
On March 2, 1999, the Company entered into agreements with Michael Foundation,
Ltd., a West Indies corporation, and Tillman & Associates, Inc., a Florida
corporation, for the purchase of certain hydroponics technology at a total
purchase price of $3,437,500. The purchase price in the agreement with Michael
Foundation, Ltd., consisted of 2,185,000 shares of restricted common stock with
a current market value of $1.50 per share. The purchase price in the agreement
with Tillman & Associates, Inc., consisted of 50,000 shares of restricted common
stock with a current market value of $1.50 per share plus a note in the amount
of $85,000.
The aforementioned information and technology purchase includes, but may not
necessarily be limited to, proprietary hydroponic growth solution formulas,
trade secrets, equipment and greenhouse specifications and crop and equipment
maintenance plans and programs.
An independent expert analysis opinion, dated January 22, 1999, was performed by
Jerry Pruitt, an agricultural consultant from Marbury, MD. His test included the
validity of the Hydroponics Growing System and the salability of the
retail/wholesale products derived from the process. Mr. Pruitt valued the
Hydroponics Growing System purchased by the Company at $3.2 million dollars
based on man hours and research and development costs and marketability of the
technology systems.
The Company intends to grow several varieties of leaf lettuce, romaine lettuce,
spinach and a wide assortment of culinary herbs that it sell and distribute
directly to 4 and 5 star restaurants and resorts such as Disney World and
Marriott.
F37
<PAGE>
PINECREST INVESTMENT GROUP, INC.
( A DEVELOPMENT STAGE COMPANY )
NOTES TO FINANCIAL STATEMENTS
NOTE D-MORTGAGE PAYABLE
Current debt consists of the following mortgage payable:
Current Non-Current Total
------- ----------- -----
Hopewell Land Partners, Ltd.
Secured by 40 acres,Lithia, Fl.
Dated April 9, 1999. Rate of
interest- 12%, simple interest.
Interest only, balance July 9, 2000 $ 288,000 -0- $288,000
---------- ----------- ---------
TOTALS $ 288,000 -0- $288,000
========== =========== =========
On April 9, 1999 the Company purchased a 40-acre tract of land in Lithia, Fl.,
approximately 20 miles southeast of its Tampa, Fl. Corporate offices, for
$360,000. The Company provided $72,000 as a down payment and the seller,
Hopewell Land Partners, Limited, provided purchase money mortgage financing
for the balance of $288,000. The terms of the purchase money mortgage are
interest only at 12% per annum, payable monthly for one year, at which time,
July 9, 2000, the balance is due and payable in full. The Company is pursuing
mortgage financing via a U.S. Rural Development Act Loan. However, discussions
with interested private lenders and individuals indicate that, should the need
arise, refinancing the first mortgage would not be a problem since the value of
the property along with the improvements currently being built indicate a loan
to value ratio of less than 50 percent. In addition, the mortgagee has granted
the Company an addition of ninety days on the payoff of this mortgage to July 9,
2000.
F38
<PAGE>
PINECREST INVESTMENT GROUP, INC.
( A DEVELOPMENT STAGE COMPANY )
NOTES TO FINANCIAL STATEMENTS
NOTE E- RELATED PARTY TRANSACTIONS
On March 2, 1999, the Company reacquired 2,185,000 shares of restricted common
stock from President, David B. Howe and affiliated investors for $90,000 (Howe's
cost) payable as follows: $30,000 cash and a note in the principal amount of
$60,000 bearing 10% simple interest, due September 2, 2000. These shares were
acquired by Howe and the investors in connection with the purchase of control of
the Company. (See Note-B-Stockholders' Equity). As of December 6, 1999, this
debt was converted to 13,334 shares of restricted stock.
These shares were then simultaneously exchanged as part of the purchase price
for the hydroponics technology from Michael Foundation, Ltd., and Tillman &
Associates, Inc., that is necessary in the overall operation of the hydroponic
herb and lettuce farm.
On December 6, 1999, the remaining balance of $80,000 due Tillman & Associares,
Inc. on the promissory note given in exchange for technology, was converted into
restricted common stock of the Company at a rate of $6.00 per share for a total
of 13,334 shares. The interest due on the note of $6,525.19 was paid in cash.
Mr. Tillman is President of Tillman & Associates, Inc. and is President of
Pinecrest Farms, Inc.
In December 1999, 10,000 restricted shares of common stock were issued to Sheryl
Salvadore, the Company's Corporate Secretary, pursuant to a grant to her as a
bonus on March 2, 1999 at a value of $1.50 per share.
In March 1999, the Company entered into a convertible line of credit with
Michael Foundation, Limited, a major stockholder of the Company. This credit
arrangement called for Michael Foundation, Limited, to provide working capital
for the Company while it was arranging for acceptable long-term funding for its
Phase I construction and working capital needs until the Company attained
positive cash flow. This line of credit was for a total of $900,000, which
amount could be converted into restricted common stock of the Company at a price
of $6.00 per share. By the end of November 1999, the Company had borrowed
approximately $300,000 against the Michael Foundation, Limited line of credit.
In December 1999, the line of credit arrangement with Michael Foundation,
Limited, was modified to call for the absolute purchase of 150,000 shares of
restricted common stock by Michael Foundation, Limited at a price of $6.00 per
share for a total of $900,000. As of December 31, 1999, the shares had been
issued to Michael Foundation, Limited and were being held in escrow by legal
counsel for Pinecrest, the Company had received a total of $463,000 cash and
carried a Subscription Receivable of approximately $437,000. This receivable was
paid in full after the balance sheet date.
F39
<PAGE>
PINECREST INVESTMENT GROUP, INC.
( A DEVELOPMENT STAGE COMPANY )
NOTES TO FINANCIAL STATEMENTS
NOTE F- INVESTMENT IN SUBSIDIARY
On April 8, 1999, Articles of Incorporation were filed for Pinecrest Farms,
Inc., a Florida corporation which is wholly-owned subsidiary of Pinecrest
Investment Group, Inc. This entity was formed for the purpose of owning and
operating the produce farms. The growing technology and the land for the farms
are owned by the Company.
As of December 31, 1999, substantially all expenditures were comprised of
deposits on greenhouse materials, engineering and subcontractor retainers,
permitting costs and Thomas Tillman's salary. The balance sheet of Pinecrest
Investment Group, Inc. and Pinecrest Farms, Inc. are consolidated for these
financial statements.
F40
<PAGE>
SUPPLEMENTAL STATEMENT
PINECREST INVESTMENT GROUP, INC.
( A DEVELOPMENT STAGE COMPANY )
COMPILED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 2000
Supplemental Cash Flow Information:
Cash paid for interest $ 0
Cash paid for income taxes $ 0
Non-cash Investing and Financing Activities:
Conversion of Notes Payable
To Restricted Stock $ 140,000
Stock Subscriptions Receivable $ 42,005
The accompanying notes are an integral part of the financial statements
UNAUDITED
F41
<PAGE>
PART III
Item 1. INDEX TO EXHIBITS.
Exhibit Description of Document
------- -----------------------
3(i) Articles of Incorporation for Synthetic Flowers of America, Inc. (now
known as Pinecrest Investment Group, Inc. ) filed September 5, 1997.*
3(ii) Articles of Amendment to Articles of Incorporation of Synthetic
Flowers of America, Inc., (name change) filed February 15, 1999.*
3(iii) Articles of Amendment to Articles of Incorporation of Pinecrest
Investment Group, Inc. (to authorize preferred shares) filed January
25, 2000.*
3(iv) Bylaws.*
10.0 Stock Purchase Agreement between Synthetic Flowers of America, Inc.,
Sheila Langley and David B. Howe and assigns, dated January 15, 1999.*
10.1 Stock Purchase Agreement between Pinecrest Investment Group and David
B. Howe, dated March 2, 1999.*
10.2 Agreement for Sale and Purchase of Business Assets between Tillman &
Associates, Inc. and Pinecrest Investment Group, Inc., dated March 2,
1999.*
10.3 Agreement for Sale and Purchase of Business Assets between Michael
Foundation, Limited and Pinecrest Investment Group, Inc. dated March
2, 1999.*
10.4 Mortgage and accompanying Promissory Note on purchase of 40 acre land
tract.*
10.5 Employment Agreement between Pinecrest Investment Group, Inc. and
Thomas M. Tillman, dated November 22, 1999.*
10.6 Employment Agreement between Pinecrest Investment Group, Inc. and
David B. Howe, dated January 1, 2000.*
10.7 Letters of agreement between Pinecrest Investment Group, Inc. and
Michael Foundation, Limited regarding lines of credit.
21.0 Subsidiaries of Pinecrest Investment Group, Inc.*
<PAGE>
33
27.0 Financial Data Schedule.
99.0 Form of Stock Certificate.*
99.1 Pinecrest Investment Group, Inc. Incentive Stock Option Plan December
1999.*
*Previously submitted.
Item 2. DESCRIPTION OF EXHIBITS.
The required exhibits are attached hereto, as noted in Item 1 above.
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, thereunto duly authorized.
PINECREST INVESTMENT GROUP, INC.
Date: July 27, 2000 By: /s/David B. Howe
------------- ------------------------------
David B. Howe, President
