UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
_________
(Commission file number)
PINNACLE BUSINESS MANAGEMENT, INC.
(Name of Small Business Issuer in its charter)
Nevada 91-1871963
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization Identification Number)
2963 Gulf to Bay Boulevard, Suite 265
Clearwater, FL 33759
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code:
(727) 669-7781
Securities registered under Section 12(b) of the Act:
None
(Title or class)
Securities registered under Section 12(g) of the Act:
None
(Title or class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [ ] NO [X]
PAGE 1
As of September 30, 2000 the Registrant had outstanding 219,400,000 shares of
common stock.
Transitional Small Business Disclosure Format. Yes [ ] No[X]
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
PAGE 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PINNACLE BUSINESS MANAGEMENT, INC.
AND SUBSIDIARIES
FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
INDEX TO FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS
BALANCE SHEETS AS OF SEPTEMBER 30, 2000 AND 1999 (UNAUDITED) 1-2
STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2000 AND 1999 (UNAUDITED) AND THE THREE
MONTHS ENDED SEPTEMBER 30,2000 AND 1999 (UNAUDITED) 3
STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2000 AND 1999 (UNAUDITED) 4
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 5-13
PINNACLE BUSINESS MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
------
SEPTEMBER 30,
------------------------
2000 1999
--------- ---------
CURRENT ASSETS
- ----------------
Cash and cash equivalents $ 23,310 $ 25,358
Customer loans receivable, net 241,678 478,831
Loans Receivable - Other 423,000 322,000
Prepaid Expenses 33,750 33,750
--------- ---------
Total Current Assets 721,738 859,939
--------------------------------- --------- ---------
PROPERTY AND EQUIPMENT 273,562 169,281
Less accumulated depreciation (90,654) (64,260)
--------------------------------- --------- ---------
Total net property and equipment 182,908 105,021
OTHER ASSETS
- --------------
Investment 135,000 -
Unamortized goodwill 233,664 240,110
Deferred tax asset 505,560 505,560
Security deposits 7,938 7,260
Loan costs- net of amortization 147,505 258,127
Total Other Assets ----------- -----------
1,029,667 1,011,057
----------- -----------
TOTAL ASSETS $ 1,934,313 $ 1,976,017
- ---------------------------------- =========== ===========
See Accompanying Notes to Consolidated Financial Statements
Page 1
PINNACLE BUSINESS MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
SEPTEMBER 30,
------------------------
2000 1999
----------- -----------
CURRENT LIABILITIES
- ----------------------------------------
Accounts payable and accrued expenses $ 274,985 $ 143,275
Current portion of long-term debt 638,276 1,163,156
----------- ------------
Total current liabilities 913,261 1,306,431
- ---------------------------------------- ----------- ------------
LONG-TERM LINE OF CREDIT - 768,000
NOTES PAYABLE - OFFICERS' 383,623 261,989
LONG-TERM DEBT, LESS CURRENT PORTION 2,598,141 488,650
----------- ------------
Total long-term liabilities 2,981,764 1,518,639
- ---------------------------------------- ----------- ------------
TOTAL LIABILITIES 3,895,025 2,825,070
- ---------------------------------------- ----------- ------------
COMMITMENTS AND CONTINGENCIES
- ----------------------------------------
STOCKHOLDERS' DEFICIT
- ----------------------------------------
Preferred stock, par value of $.001; authorized
50,000,000 and 50,000,000 shares, respectively
in September 30, 2000 and 1999;
issued and outstanding none $ - $ -
Common stock; par value of $.001; authorized
300,000,000 and 100,000,000 shares
of common stock authorized and
184,400,000 and 87,476,986 shares
of common stock issued and outstanding $ 184,400 $ 87,476
Additional paid-in capital 3,047,944 1,659,429
Deficit (5,193,056) (2,595,958)
------------ ------------
Total stockholders' deficit (1,960,712) (849,053)
- ---------------------------------------- ------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIT $ 1,934,313 $ 1,976,017
- ---------------------------------------- ============= ============
See Accompanying Notes to Consolidated Financial Statements
Page 2
PINNACLE BUSINESS MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
--------------------------- ---------------------------
OPERATING REVENUE
- ----------------------------
Revenue $ 107,399 $ 207,553 $ 37,716 $ 56,847
------------- ------------ ------------- ------------
OPERATING EXPENSES
- ----------------------------
Salaries, employee leasing
and related 529,973 361,965 175,813 138,967
Advertising 48,099 23,988 30,478 5,180
Commissions and
consulting expense 54,175 189,503 25,483 61,953
Office and general 36,129 41,379 5,598 14,636
Professional fees 365,913 115,273 81,898 38,802
Repairs and maintenance 2,629 4,478 - 798
Rent 101,981 102,678 29,723 33,307
Repossession costs 22,607 21,446 8,940 7,206
Telephone and utilities 86,286 83,160 30,669 30,826
Travel 52,865 54,127 7,869 19,000
Other operating 122,422 135,370 35,858 51,337
------------- ------------ ------------- ------------
Total operating expenses 1,423,079 1,133,367 432,329 402,012
- ------------------------------ ------------- ------------ ------------- ------------
OPERATING (LOSS) (1,315,680) (925,814) (394,613) (345,165)
- ------------------------------ ------------- ------------- ------------- ------------
OTHER EXPENSES
- ------------------------------
Interest expense (254,620) (343,984) (79,672) (171,694)
Depreciation and
Amortization expense (99,583) (57,889) (33,257) (16,084)
Bad debt / Income (11,450) (252,500) 235 (100,000)
- ------------------------------ ------------- ------------ ------------- ------------
Total other expenses (365,653) (654,373) (112,694) (287,778)
- ------------------------------ ------------- ------------ ------------- ------------
NET LOSS
Before Federal Income
Tax Benefit (1,681,333) (1,580,187) (507,307) (632,943)
- ------------------------------ ------------- ------------ ------------- ------------
PROVISION FOR INCOME
TAX BENEFIT - - - -
------------- ------------ ------------- ------------
NET LOSS APPLICABLE
TO COMMON SHARES $ (1,681,333) (1,580,187) (507,307) (632,943)
============= ============ ============= ============
NET LOSS PER BASIC AND
DILUTED SHARES $ (.011) (.024) (.003) (.007)
============= ============ ============= ============
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING $145,206,224 65,712,450 185,804,811 85,962,993
- ------------------------------ ============= ============ ============= ============
See Accompanying Notes to Consolidated Financial Statements
Page 3
PINNACLE BUSINESS MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
2000 1999
------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES
- ------------------------------------------------
Net Loss $ (1,681,333) $(1,580,187)
------------- ------------
Adjustments to reconcile net loss to net cash
used in operating activities:
- ------------------------------------------------
Depreciation and amortization 99,583 57,889
Provision for doubtful accounts 11,450 252,500
Stock issued for consulting services 137,250 -
Stock issued for interest expense 70,000 -
Changes in assets and liabilities:
(Increase)Decrease in customer loans
receivable - net 21,846 12,546
(Increase)in loans other (1,000) (322,000)
(Increase)in deposits and other prepaids 15,707 (29,014)
Increase in accounts
payable and accrued expenses (43,779) 63,492
------------- ------------
Total adjustments 311,057 35,413
- ------------------------------------------------ ------------- ------------
Net cash provided by (used in)
operating activities (1,370,276) (1,544,774)
- ------------------------------------------------ ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (116,731) (24,442)
------------- ------------
Net cash (used in) investing activities (116,731) (24,442)
- ------------------------------------------------ ------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt and
line of credit 2,462,854 957,393
Increase from issuance of common stock and
paid in capital - 863,971
Principle payments on long-term debt (1,078,825) (481,863)
Increase decrease)in officer's loans - net 116,562 252,089
------------- ------------
Net cash provided by financing activities 1,500,591 1,591,590
- ------------------------------------------------ ------------- ------------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 13,584 22,347
- ------------------------------------------------ ------------- ------------
CASH AND CASH EQUIVALENTS-BEGINNING OF PERIOD 9,726 2,984
- ------------------------------------------------ ------------- ------------
CASH AND CASH EQUIVALENTS-END OF PERIOD 23,310 25,358
- ------------------------------------------------ ============= ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW NFORMATION
CASH PAID DURING THE YEAR FOR:
Interest Expense $ 247,698 $ 210,142
============= ============
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING
AND OPERATING ACTIVITIES
Issuance of common stock - loan costs - 295,000
Issuance of common stock - professional
fees consulting services 137,250 -
Issuance of common stock - investment 135,000 -
Issuance of common stock - debt and interest payment 977,652
See Accompanying Notes to Consolidated Financial Statements
Page 4
PINNACLE BUSINESS MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 and 1999
(UNAUDITED)
NOTE 1- ORGANIZATION AND BASIS OF PRESENTATION
- ----------------------------------------------------
The consolidated unaudited financial statements included herein have been
prepared, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented not misleading.
These statements reflect all adjustments, consisting of normal recurring
adjustments which, in the opinion of management, are necessary for fair
presentation of the information contained therein.
Pinnacle Business Management, Inc. is an integrated consumer finance and E-
commerce technology developer. The company operates paycheck advance
locations, and until September 2000, the company also operated title loan
offices in central Florida through its wholly owned subsidiary, Fast Title
Loans, Inc.(FTL). Fast Title Loans, Inc. is a consumer loan company that
makes title loans. The title loan is an immediate short term cash loan,
using the free and clear title of a person's car or truck as collateral.
The loan allows the customer to retain possession and use of thei r motor
vehicle. However, due to recent legislative changes in Florida, the company
ceased its title loan operations and concentrates on developing paycheck
advance business instead. Fast Paycheck Advance, Inc. is a wholly owned
subsidiary of Pinnacle Business Management, Inc. that provides short-term
paycheck advances to consumers. The accompanying financial statements
reflect the consolidated operations of the above.
On May 9, 1997, Pinnacle Business Management, Inc. (The "Company") was
incorporated as a wholly owned subsidiary of 300365 BC, Ltd., D/B/A Peaker
Resource Company, a company which was incorporated in British Columbia,
Canada on November 13, 1985. 300365 BC, Ltd. had been inactive for years
due to the lack of working capital. On May 15, 1997, the stockholders of
300365 BC, Ltd. exchanged all of the company's outstanding stock of 300365
BC, Ltd. for the stock of Pinnacle Business Management, Inc. This exchange
was made on a share for share basis. The excess of par value of the common
stock issued over the assets acquired upon the acquisition of the parent
was $1,933. After the exchange of stock, the parent became the wholly owned
subsidiary and it was liquidated and the $1,933 was written off as an
extraordinary loss upon the dissolution of 300365 BC, Ltd.
Page 5
PINNACLE BUSINESS MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000 and 1999
(UNAUDITED)
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
- -----------------------------------------------------------
On October 27, 1997, JTBH Corporation, a wholly owned subsidiary of the
"Company", with no assets, merged with Fast Title Loans, Inc. (FTL) a
Florida corporation. On that date Fast Title Loans, Inc. became the wholly
owned subsidiary of Pinnacle Business Management, Inc. The shares of (FTL)
were converted into common stock $.001 per share, of Pinnacle Business
Management, Inc.
The merger of (FTL) into Pinnacle Business Management, Inc. on October 27,
1997 resulted in the company's (FTL) having effective operating control of
the combined company. This transaction was a reverse merger and the costs
associated with were treated as a recapitilization. On February 9, 1998,
the company incorporated Fast Paycheck Advance, Inc., a Florida
corporation, as a wholly owned subsidiary. Also, on December 29, 1997, the
Company incorporated Summit Property, Inc. This subsidiary has remained
inactive, however.
On March 3, 2000, the Company acquired 100% of the issued and outstanding
common stock of MAS Acquisition XIX Corp., an inactive registrant,
reporting company. Pinnacle became the parent corporation of MAS
Acquisition XIX Corp. when it exchanged 1,500,000 shares of common stock
for 8,250,000 shares of MAS. An investment of $135,000 was recorded.
NOTE 2 - SUMMARY OF SIGNIFCANT ACCOUNTING POLICIES
- --------------------------------------------------
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of the company
and all of its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statement and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Page 6
PINNACLE BUSINESS MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000 and 1999
(UNAUDITED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- --------------------------------------------------------------
Property and Equipment:
-----------------------
Property and equipment are stated at cost. Depreciation is computed
primarily using the straight-line method over the following estimated
useful lives: Years: Improvements: 10-40 Furniture and equipment: 5-7
Leasehold improvements are amortized over their estimated useful lives or
the lives of the related leases, whichever is shorter.
Revenue Recognition:
--------------------
Substantially most of the revenues are derived from interest charged on
consumer financing, title loans and advance paychecks.
Income Taxes:
-------------
The income tax benefit is computed on the pretax loss based on the current
tax law. Deferred income taxes are recognized for the tax consequences in
future years of differences between the tax basis of assets and liabilities
and their financing reporting amounts at each year-end based on enacted tax
laws and statutory tax rates.
Nature of Business and Credit Risk:
-----------------------------------
The company operates in mainly one business segment and primarily earns
interest income on consumer title loans and advanced paychecks. Financial
instruments which potentially subject the company to concentrations of
credit risk are primarily customer loans receivable.
Fair Value of Financial Instruments:
------------------------------------
The carrying amounts reported in the consolidated balance sheets for cash
and cash equivalents, customer loans receivables, accounts payable and
accrued expenses and other liabilities approximate fair value because of
the immediate or short-term maturity of these financial instruments. The
carrying amount reported for long-term debt approximates fair value
because, in general, the interest on the underlying instruments fluctuates
with market rates.
Page 7
PINNACLE BUSINESS MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000 and 1999
(UNAUDITED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- ----------------------------------------------------------------
Earnings (Loss) per Share of Common Stock:
------------------------------------------
Historical net income (loss) per common share is computed using the
weighted average number of common shares outstanding.
Statement of Cash Flow:
-----------------------
For purposes of the consolidated statement of cash flows, the company
considers all highly liquid debt instruments and other short-term
investments with an initial maturity of three months or less to be cash
equivalents.
Advertising and Promotional Cost:
---------------------------------
Costs of advertising and promotional costs are expensed as incurred.
Advertising costs were $48,099 and $23,988 in 2000 and 1999, respectively.
Goodwill:
---------
Goodwill is amortized over 40 years. Amortization charged to expense was
$4,834 and $4,834 in 2000 and 1999 respectively.
Loan costs:
----------
Loan costs are being amortized over 36 months. Amortization expense charged
to operations September 30, 2000 and 1999 was $73,749 and $36,873
respectively.
NOTE 3 - CUSTOMER LOAN RECEIVABLE - NET
- ---------------------------------------
Customer loan receivable, net of the following:
SEPTEMBER 30,
2000 1999
----------------------
Customer loans receivable: $ 252,058 $ 764,662
Less: Allowance for doubtful accounts (10,380) (285,831)
---------- ----------
Customer loans receivable - Net $ 241,678 $ 478,831
The company, due to an unfavorable legislative climate regarding the title
loan industry, reserved in aggregate $10,380 and $285,831 in bad debt
allowance to account for the write down of loans that are doubtful in 2000
and 1999 respectively. The inactive loan portfolio has been outsourced
to two collection agencies to expedite the collection process.
Page 8
PINNACLE BUSINESS MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000 and 1999
(UNAUDITED)
NOTE 4 - LOANS RECEIVABLE - OTHER
- ---------------------------------
Loan receivable dated December 29, 1997 to a company for $25,000 together
with interest thereon at the rate of 18% per annum. The principal balance
and accrued interest is due and payable on the earlier of a private
placement being completed in whole or in part including but not limited to
any escrow disbursements of any funds to the maker, on March 27, 2000.
There were no payments received in 2000 or 1999. The company has made an
allowance for doubtful receivable for the entire loan. The company has not
accrued any interest on this loan for 2000 or 1999.
Demand loan receivable to a company for $433,000 and $322,000 in 2000 and
1999. This loan in non-interest bearing. The company is performing outside
consulting for a start up company. It is anticipated that this loan
receivable will be converted into stock during the calendar year 2000. The
anticipated stock terms are one share of stock for each dollar loaned to
the start-up company.
NOTE 5 - PROPERTY AND EQUIPMENT, NET
- ------------------------------------
Property and equipment, net consists of the following:
SEPTEMBER 30,
2000 1999
--------------------
Furniture and Equipment $238,645 $134,364
Improvements 34,917 34,917
--------- ---------
$273,562 169,281
Less: Accumulated depreciation (90,654) (64,260)
Property, Equipment & Software, Net $182,908 $105,021
NOTE 6 - LINE OF CREDIT
- -----------------------
In March, 1999, the company obtained a line of credit with a capital
company to receive up top $1,500,000 of advances. Interest is payable at
17% per annum. Principal and interest on advances are due March 1, 2001
with the company having an option to extend the note an additional one
year. At September 30, 2000 and 1999 the company had $ -0- and $768,000
outstanding on the line, respectively. The line of credit is collaterized
by 7,500,000 shares of the common stock of the company.
Page 9
PINNACLE BUSINESS MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000 and 1999
(UNAUDITED)
NOTE 7 - LONG-TERM DEBT
- ----------------------- SEPTEMBER 30,
Long-term debt consists of the following: 2000 1999
----------- -----------
Note payable lending institution with monthly
interest payable at 14% per annum expiring
February 28,2000 (see Note 9) $ 538,276 $ 538,276
----------- ------------
Note payable investor with monthly interest
payable at 4.5% per month. This note
expires May 14, 1999. 100,000 100,000
Note payable investor with monthly interest
payable at rates varying between 16-36%
per annum, expiring March 1, 2000. -0- 524,880
Renegotiated note payable investors with
monthly interest payable at rates varying
between 1.5%-6% per month. This loan
expires in December 2000. -0- 299,257
Note payable investor with interest only
payable at 12% per annum. This note has
a balloon and expires December 31, 2002. $2,598,141 189,393
----------- ------------
3,236,417 1,651,806
Less: Current portion: (638,276) (1,163,156)
----------- ------------
Net Long-Term Debt $2,598,141 $ 488,650
=========== ============
The non-current portion of long-term debt
matures as follows:
SEPTEMBER 30,
-------------
2000 $ 638,276
2001 -0-
2002 2,598,141
-------------
$ 3,236,417
=============
The company is negotiating with certain investors to convert long-term debt
to common stock at various negotiated prices predicated on market value.
Page 10
PINNACLE BUSINESS MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000 and 1999
(UNAUDITED)
NOTE 8 - STOCKHOLDERS DEFICIT
- -----------------------------
The authorized preferred stock of the company in 2000 and 1999 consists of
50,000,000 and 50,000,000 shares, respectively, with a par value of $.001
with rights and privileges to be set by the board of directors. As of
September 30, 2000 and 1999 there were no shares issued or outstanding.
As of September 30, 2000 and September 30, 1999 there were 300,000,000 and
100,000,000 shares of common stock authorized and 184,400,000 and
87,476,986 shares of common stock issued and outstanding.
Additionally, there are 5 year warranty outstanding for investment banking
services rendered to purchase 5,580,000 shares of common stock at $.125 per
share. The warrants become due August 18, 2004.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
- --------------------------------------
(A) Litigation:
The company is a defendant involving a claim made in bankruptcy by First
American Reliance, Inc. (FAR) against the company for $800,000, including
9% interest, for amounts loaned and advanced by FAR to the company which
were not repaid. The company has asserted a defense and set off alleging
that monies due to Pinnacle from stock subscriptions in 1998 delivered to
FAR were not turned over to the company. It is further alleged that the
claims of the company exceeded the sum that FAR claims it is owed by the
company. The company has not accrued any interest on this note for 1999 and
1998 because of the offsets of monies due the company alleged in the
litigation. The lawyers have stated that documentation to fully evaluate
the claims is not presently available. However, the company is contesting
the case vigorously. The company has accrued a liability for $538,276 in
2000 and 1999, respectively.
Secondly, Tyler Jay & Company, L.L.C. commenced an action against the
company asserting a claim for fees and commissions arising from loans made
by FAR described in the previous paragraph. This also includes sums lost by
Tyler Jay allegedly because Tyler Jay was not permitted to complete the
private placement noted above. The sums demanded exceed $500,000 in the
aggregate. Management is vigorously contesting the claim. The company has
asserted claims and defenses that are still in the process of being
evaluated by the attorneys. It is not possible to determine whether there
will be a loss, or, if there is a loss, the extent of the loss.
Page 11
PINNACLE BUSINESS MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000 and 1999
(UNAUDITED)
NOTE 10 - GOING CONCERN
- -----------------------
As shown in the accompanying financial statements, the company incurred net
losses for the three months ended March 31, 2000 and 1999. Additionally,
the company has a $100,000 note payable with an investor that expired May
14, 1999.
The investor has not called this loan and it is shown as a current
liability. Moreover, the company has debt that will be coming due between
September 30, 2000 and December 31, 2001 without adequate capital available
to repay the debt. The company is negotiating with the investor to either
extend these obligations or convert the debt to equity. However, if these
loans are called, the company's financial condition will be further
negatively impacted. Finally, the company is defending various lawsuit
claims that, if the outcome is unfavorable, would negatively impact the
company. Thes e factors raise substantial doubt about the company's ability
to continue as a going concern.
Additionally, due to an unfavorable legislative climate in Florida, the
company ceased its title loan business in September 2000, and plans to
concentrate on its payday advance business instead. There is no guarantee
whether the company will be able to generate enough revenue and/or raise
capital to support those operations.
Management is working with the certain investors to rework the debt that is
coming due. Additionally, management is vigorously contesting the lawsuits
that have been filed against the company. The company feels that they have
certain offsets against the claims in litigation and does not expect to pay
more that what is reflected on the balance sheet at this time (see note 9).
However, there can be no assurance that he company will be successful in
its efforts to not have the payment of debt accelerated. If the company is
unsuccessful in its efforts, it may be necessary to undertake such other
actions as may be necessary to preserve asset value. The financial
statements do not include any adjustments, other than the current
classification of long-term debt in default, that might result from the
outcome of those uncertainties.
Page 12
PINNACLE BUSINESS MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000 and 1999
(UNAUDITED)
NOTE 12 - INCOME TAX BENEFIT
- ----------------------------
There was no income tax benefit recognized at September 30, 2000 or 1999.
The net deferred tax assets in the accompanying balance sheets include the
following components:
2000 1999
--------- ---------
Deferred tax assets $ 505,560 $ 505,560
Deferred tax valuation allowance -0- -0-
--------- ---------
Net deferred tax assets $ 505,560 $ 505,560
========= =========
The company conservatively will not accrue any further income tax benefit
pending the monitoring of the profitability of its future operations.
Page 13
PINNACLE BUSINESS MANAGEMENT, INC.
AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Management's discussion is based on an analysis of the financial statements
for the three months ended September 30, 2000, and the nine months ended
September 30, 2000. The figures are then compared to the same period 1999. This
discussion should be read in conjunction with the company's audited financial
statements for 1999 and 1998 which are set forth in the company's Form 10-SB/A
filed on November 13, 2000.
PAST AND FUTURE FINANCIAL CONDITION
Pinnacle is a company in transition. Its wholly owned subsidiary, and its main
source of revenues, Fast Title Loans, Inc., has ceased doing business due to
unfavorable legislative changes in Florida. As a result, the company revenues
have suffered, as its financial statements indicate.
Management has developed new lines of business, primarily through Fast Paycheck,
and shifted its business operations dramatically in 1999. Management is
optimistic that the company will recover and continues not only to develop the
data processing services and payday deferred deposits to individuals, but also
to explore additional opportunities to expand cash flow.
Management expects revenues to increase through the expansion of Fast PayCheck.
The company has a contract with Mailboxes Etc., U.S.A., Inc., ("MBE"), which
allows Fast PayCheck to offer services through participating MBE retail outlets.
At present, the company is licensed to conduct advance paycheck business in 9
(nine) states, and has pending applications for licenses in 20 (twenty)
additional states, as set forth in more detail in the company's Form 10-SB/A,
filed on November 13, 2000, and incorporated herein by reference.
Management is also seeking an alliance partner or banking institution that
could offer long-term debt to carry the expense of the company until revenues
are increased.
RESULTS OF OPERATIONS
TOTAL ASSETS. Total assets at September 30, 1999 were $1,976,017 compared to
September 30, 2000 total assets of $1,934,313. The second quarter at June 30,
2000 indicated approximately $33,000 less, $1,901,474. The increase in the third
quarter primarily represents fee income from data processing services performed
for other financial services companies.
TOTAL LIABILITIES. Total liabilities include accounts payable, the current
portion of the long term debt, notes payable officers, and non-current portion
of the long term debt. Accounts payable decreased from $446,341 at June 30,
2000, to $274,985 at September 30, 2000. The decrease in accounts payable should
be read as an indication of expansion in PayCheck business in the evaluation of
the company as a going concern.
The long-term debt increased from $1,013,636 at June 30, 2000 to $2,598,141 at
September 30, 2000. The increase of long-term debt has been necessary to
effectuate the transition of business focus from Fast Title to Fast PayCheck.
Pinnacle suffered a net loss before federal income taxes in 1999 of $2,090,706.
The company needed the additional funding to provide liquidity to pay current
obligations. It was successful in obtaining an additional loan of $1,013,636.
This number was reflected by the increase in long term debt from year end 1999
to June 30, 2000. Long term debt was $417,287 at December 31, 1999; $547,287 at
March 31, 2000 and $1,013,636 at June 30, 2000.
Management hopes to address the remaining shortfall through cash flow, and by
arranging the conversion of existing debt into equity, to reduce the company's
interest expense.
REVENUES. Operating revenues have decreased over the first nine months of
operation in 2000. At December 31, 1999, operating revenues were $214,538,
compared to $62,681 at March 31, 2000 and $69,683 for the six months at June 30,
2000, and $107,399 for the nine months ended September 30, 2000. Operating
revenues are expected to remain low until the Fast Paycheck business expands and
other sources of revenue are discovered.
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OPERATING EXPENSES. Operating expenses remain fairly consistant, $1,423,079 for
the nine months ended September 30, 2000. This compares to $1,413,078 for year
end December 31, 1999 and $960,750 for the six months ended June 30, 2000. Such
expenses include the costs of expansion and litigation expenses the company has
borne. As a result, Management believes that the financial condition of the
company will improve substantially by 2002.
The company has a $100,000 note payable with an investor that
expired May 14, 1999. This note is the subject of the lawsuit with Tyler Jay &
Company, L.L.C.
In addition, the company is also defending various lawsuit claims, which,
if lost, would negatively impact the company. Even if the outcome is
positive, the cost to the company in legal fees and employees' time is
substantial.
NET LOSS. The company's net loss is $507,307 for the three months ended
September 30, 2000 and $1,681,333 for the six months ended September 30, 2000.
This compares to a net loss of $555,981 for the three months ended March 31,
2000 and $1,124,860 for the six months ended June 30, 2000.
CAPITAL EXPENDITURES. The company is engaged in consumer finance and
electronic technology development. As a result, capital expenditures are
not substantial and management does not foresee a substantial difference from
quarter to quarter. The facilities are leased. Property and equipment net
costs consistantly approximate $150,000 per quarter. Substantially all of the
value of the company is not in physical assets but in the ongoing
operations of the company. Should the company be liquidated, there are few
assets to distribute to creditors or shareholders.
Non-cancelable lease commitments run until 2002. The total amount due under
the lease terms for 2000 is $60,372. The company is operating various
locations on a month to month basis.
LIQUIDITY
Maintaining sufficient liquidity is a material challenge to Management at
the present time. The company owns a note receivable dated December 29, 1997
for $25,000 with 18% per annum interest. The principal balance and accrued
interest is due and payable on the earlier of 1) a private placement being
completed in whole or part including but not limited to, any escrow
disbursements of any funds to the maker, or 2) March 27, 2000. There are no
payments received as of March 31, 2000. The company has made an allowance for
doubtful receivable for the entire loan.
The company also owns a demand loan receivable for $423,000. This loan is
non-interest bearing. The company is performing consulting services to the
borrower in exchange for the demand loan. It is anticipated that this loan
receivable will be converted into equity during the calendar year 2000.
The company has signed a non-binding letter of intent to purchase an ongoing
business entity. The acquisition may be structured using stock for stock,
resulting in the entity becoming a subsidiary of the company. The company could
benefit from the revenues produced by the entity's business. The transaction,
however, is only in the due diligence phase at the present time. Management will
make a decision on the proposal once due diligence is complete. Regardless
whether Management accepts or declines this transaction, it is still exploring
other business opportunities for Pinnacle.
In August 1999, the Company secured a national contract with Comdata. This
contract allows the distribution of the Fast PayCheck debit card at the point of
sale locations. The Comdata contract expires in November, 2000.
In September 2000, the company contracted with Lynk Systems, Inc. to replace
Comdata. Both Lynk Systems, Inc. and Comdata provide debit cards to the company.
The debit cards are used to fund the company loans. Lynk System, Inc. provides
the same services as Comdata, but it also provides additional services, as
disclosed in more detail in the company's Form 10-SB/A filed on November 13,
2000.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
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Tyler Jay & Company, L.L.C. and First American Reliance, Inc.
- --------------------------------------------------------------------------------
The first proceeding regarding Tyler Jay is an adversary proceeding brought by
the trustee in bankruptcy of First American Reliance, Inc.("the Debtor"), on
June 29, 1999, in the United States Bankruptcy Court, Western District,
New York, BK Case No. 98-23906, AP No. 99-2186, entitled Douglas J.
Lustig, as Trustee v. Pinnacle Business Management, Inc., and Fast Title Loans,
Inc. The trustee is seeking to recover purported loans from the Debtor to Fast
Title and/or Pinnacle, in a sum of approximately $800,000, including 9%
interest, for amounts loaned and advanced by First American Reliance,
IncAn answer to the suit has been filed and the parties are currently in the
discovery process. The company had asserted a defense and set off alleging
moneys due to Pinnacle from stock subscriptions in 1998, which were never
turned over to the company. Pinnacle accrued a liability for $538,276 in 1998
and $355,755 in 1997, respectively. Management has agreed to determine the
actual amount of the loans against proceeds of a private placement diverted by
the Debtor's principal using a separate corporation. Management believes that
the setoff for funds diverted during the private placement will equal or exceed
the amounts claimed and documented by checks as transferred to Pinnacle and
will also create a setoff in respect to at least a portion of the sums advanced
to Fast Title. Management is investigating whether the funds advanced by
Debtor, in part, included funds diverted by the Debtor, and, therefore, were not
loans at all, but a return of Pinnacle's property. The company is currently in
the process of settlement negotiations in this case.
In the second proceeding, Pinnacle and Fast Title Loans are defendants in a
pending civil action instituted in 1999, in Erie County, New York, entitled
Tyler Jay & Company, L.L.C. v. Fast Title Loans, Inc. and Pinnacle Business
Management, Inc., Index No. I-1999/5697. Plaintiff asserts a claim for fees
and commissions arising from loans made by the Debtor in the previously
described adversary proceeding and sums lost by Tyler Jay allegedly because
Tyler Jay was not permitted to conduct the private placement noted above. Tyler
Jay claims that it is owed certain moneys and stock options, which damages are
allegedly in excess of $500,000. Fast Title and Pinnacle have filed a motion to
dismiss the case alleging that the New York courts do not have jurisdiction over
them in this matter. They have also asserted that Tyler Jay is not entitled to
recovery since the agreed-upon services were not provided. Moreover, Fast Title
and Pinnacle have filed a counterclaim seeking $34,000, the sum paid to Tyler
Jay, on the basis that Tyler Jay's fraudulent representations and breach of
fiduciary duty damaged them. Discovery is in process. Management intends to
vigorously defend this claim.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In September 2000, the company exchanged $977,652 of debt accrued from the title
loan business (in potential default) for shares in series of transactions in the
third quarter. 16,738,000 shares were exchanged for $514,000 in debt by Mr.
Mattingly and 15,451,381 were exchanged for $463,597 by Europroducts.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The company has a $100,000 note payable with an investor that expired May
14, 1999. This note is the subject of the lawsuit with Tyler Jay & Company,
L.L.C. The company has a $538,276 note payable with investors that expired
February 28, 2000. The company is in the process of renegotiating a new payoff
date for this loan. The company was not able to make payment under the
obligations of this note. The start-up expenses of Fast Paycheck exceeded the
revenues of the company, as indicated by the Company's current financial
statements. There is a $514,055 note payable with investors that expired on
March 1, 2000. The company satisfied this loan obligation by converting the
debt to equity in the second quarter of 2000.
ITEM 6. Exhibits and Reports on Form 8-K
Page 16
Exhibit Number Exhibit Description
______________________________________________________________________________
3.1 Articles of Incorporation, Incorporated by reference from Form 10-SB/A,
dated November 13, 2000
3.2 Bylaws, Incorporated by reference from Form 10-SB/A, dated November 13,
2000
10.1 Processing Agreement with Unistar Insurance and Financial Services,
incorporated by reference from Form 10-SB/A, dated November 13, 2000.
10.2 Cash Lynk Master Client Agreement, incorporated by reference from Form
10-SB/A, dated November 13, 2000
No Form 8-K was filed, and none was required to be filed, inthe period ended
September 30, 2000.
Page 17
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PINNACLE BUSINESS MANAGEMENT, INC.
Date: November 20, 2000 By: /s/ Jeffrey G. Turino
------------------------------------------
Jeffrey G. Turino, Chief Executive Officer
/s/ Michael B. Hall
------------------------------------------
Michael B. Hall, President and Director
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