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 JUNE 30, 2001
_________________
(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 [X] NO [ ]
As of June 30, 2001 the Registrant had outstanding 635,707,064 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. DEFAULT UPON SENIOR SECURITIES
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PINNACLE BUSINESS MANAGEMENT, INC.
AND SUBSIDIARIES
FINANCIAL STATEMENTS
FOR THE QUARTERLY PERIODS
JUNE 30, 2001 AND 2000
[GRAPHIC OMITED]
PINNACLE BUSINESS MANAGEMENT, INC.
AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS:
BALANCE SHEETS AS OF JUNE 30, 2001 AND 2000
(UNAUDITED)
STATEMENTS OF OPERATIONS FOR THE SIX MONTHS
ENDED JUNE 30, 2001 AND 2000 (UNAUDITED)
STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS
ENDED JUNE 30, 2001 AND 2000 (UNAUDITED)
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS
PINNACLE BUSINESS MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
ASSETS
------
JUNE 30,
2001 2000
------------ -----------
CURRENT ASSETS
Cash and cash equivalents $ 31,253 $ 54,450
Accounts receivable, net of allowance for doubtful accounts 2,688,212 243,339
Mortgage loans receivable and other 46,000 423,000
Inventory 1,079,624 -
Other current assets 102,278 37,500
------------ -----------
TOTAL CURRENT ASSETS 3,947,367 758,289
------------ -----------
PROPERTY AND EQUIPMENT 3,660,047 169,731
Less: accumulated depreciation (372,551) (83,650)
------------ -----------
TOTAL NET PROPERTY AND EQUIPMENT 3,287,496 86,081
------------ -----------
OTHER ASSETS
Investments 558,000 135,000
Unamortized goodwill 5,677,632 235,498
Security deposits 7,938 8,958
Loan costs, less amortization 4,795 172,088
------------ -----------
TOTAL OTHER ASSETS 6,248,365 551,544
------------ -----------
TOTAL ASSETS $13,483,228 $1,395,914
============ ===========
See accompanying notes to consolidated condensed financial statements.
PINNACLE BUSINESS MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
JUNE 30,
2001 2000
------------ ------------
CURRENT LIABILITIES
Demand note - shareholders $ 1,260,000 $ -
Current portion of mortgage payable 1,154,546 -
Current portion of notes payable 1,689,697 1,545,928
Accounts payable and accrued expenses 520,386 446,341
Deferred revenue 15,115 -
------------ ------------
TOTAL CURRENT LIABILITIES 4,639,744 1,992,269
------------ ------------
LONG-TERM LINE OF CREDIT - 1,068,000
NOTES PAYABLE - OFFICERS - 280,623
LONG-TERM DEBT, LESS CURRENT PORTION 7,507,313 1,013,636
------------ ------------
TOTAL LONG-TERM LIABILITIES 7,507,313 2,362,259
------------ ------------
TOTAL LIABILITIES 12,147,057 4,354,528
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, par value of $.001; authorized
50,000,000 and 50,000,000 shares in June 30,
and 2000; issued and outstanding none - -
Common stock, par value of $.001; authorized
700,000,000 and 300,000,000 shares of common stock
and 635,707,064 and 152,209,622 shares of common stock
stock issued and outstanding 635,707 152,210
Additional paid-in capital 9,402,338 2,233,630
Deficit (8,701,874) (5,344,454)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 1,336,171 (2,958,614)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $13,483,228 $ 1,395,914
============ ============
See accompanying notes to consolidated condensed financial statements.
PINNACLE BUSINESS MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS AND THREE MONTHS ENDED
(UNAUDITED)
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
2001 2000 2001 2000
------------- ------------- ------------- -------------
REVENUE
Vehicle sales $ 4,110,138 $ - $ 1,780,104 $ -
Business telephone systems and
wireless telephones 386,779 - 240,384 -
Consulting and miscellaneous 722,007 - 260,591 -
Payday advance 27,305 69,683 16,715 7,002
------------- ------------- ------------- -------------
5,246,229 69,683 2,297,794 7,002
COST OF SALES (3,525,734) - (1,462,587) -
------------- ------------- ------------- -------------
GROSS PROFIT 1,720,495 69,683 835,207 7,002
OPERATING EXPENSES
Salaries, employee leasing and related 971,186 354,160 488,258 199,166
Advertising 123,401 17,621 66,817 10,235
Commissions and consulting 1,911,405 28,692 3,732 15,692
Office and general 72,039 30,531 37,726 19,755
Professional fees 177,276 284,015 67,465 73,406
Repairs and maintenance 1,215 2,629 30 1,386
Rent 141,496 72,258 62,009 33,776
Repossession costs - 13,667 - 4,933
Telephone and utilities 105,929 55,617 49,588 27,921
Travel 50,468 44,996 28,997 12,596
Other operating 82,252 86,564 23,851 51,172
------------- ------------- ------------- -------------
TOTAL OPERATING EXPENSES 3,636,667 990,750 828,473 450,038
------------- ------------- ------------- -------------
(LOSS) FROM OPERATIONS (1,916,172) (921,067) 6,734 (443,036)
------------- ------------- ------------- -------------
OTHER INCOME (EXPENSES)
Interest income 126,309 - 67,648 -
Interest expense (382,715) (174,948) (230,266) (103,998)
Depreciation and Amortization expense (139,380) (66,326) (70,101) (34,743)
Bad debt (20,600) (11,685) (20,600) (11,685)
------------- ------------- ------------- -------------
TOTAL OTHER INCOME (EXPENSE) (416,386) (252,959) (253,319) (150,426)
------------- ------------- ------------- -------------
NET LOSS APPLICABLE TO COMMON SHARES $ (2,332,558) $ (1,174,026) $ (246,585) $(593,462)
============= ============= ============= =============
NET LOSS PER BASIC AND DILUTED SHARES $ (0.005) $ (0.010) $ (0.0003) $ (0.006)
============= ============= ============= =============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 443,285,687 117,056,154 635,707,064 102,004,420
============= ============= ============= =============
See accompanying notes to consolidated condensed financial statements.
PINNACLE BUSINESS MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(UNAUDITED)
2001 2000
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $(2,332,558) $(1,174,026)
------------ ------------
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
USED IN OPERATING ACTIVITIES:
Depreciation and amortization 139,382 66,326
Stock issued for Consulting Services 1,905,000 137,250
Provision for doubtful accounts - 11,685
CHANGES IN ASSETS AND LIABILITIES:
(Increase) Decrease in customer and vehicle loans receivable - net (791,383) 19,950
Decrese in mortgage loans receivable (29,745) -
(Increase) Decrease in deposits and other 112,370 9,937
Decrease in inventory 498,575 -
Increase (Decrease) in accounts payable and accrued expenses (413,206) 127,577
Increase in deferred revenue (5,493) -
------------ ------------
TOTAL ADJUSTMENTS 1,415,500 372,725
------------ ------------
NET CASH (USED IN) OPERATING ACTIVITIES (917,058) (801,301)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (45,111) (12,900)
------------ ------------
NET CASH (USED IN) INVESTING ACTIVITIES (45,111) (12,900)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds and payments of long-term debt and line of credit - net 669,487 845,363
Increase in officers' loans - net 262,000 13,562
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 931,487 858,925
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (30,682) 44,724
CASH AND CASH EQUIVALENTS-BEGINNING OF PERIOD 61,935 9,726
------------ ------------
CASH AND CASH EQUIVALENTS-END OF PERIOD $ 31,253 $ 54,450
============ ============
See accompanying notes to consolidated condensed financial statements.
PINNACLE BUSINESS MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(UNAUDITED)
2001 2000
------------ ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
CASH PAID DURING THE YEAR FOR:
Interest Expense $ 355,715 $ 46,828
============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH
FINANCING ACTIVITIES:
Issuance of Common Stock for Consulting Services $ 1,905,000 $ 137,250
============ ============
Issuance of common stock for MAS-Investment $ - $ 135,000
============ ============
Issuance of common stock officer loan repayment $ 298,817 $ -
============ ============
Issuance of common stock debt repayment $ 213,106 $ -
============ ============
ACQUISITION OF LO CASTRO AND ASSOCIATES, INC.
AND ARNONI PARTNERSHIP
Purchase price $ 7,942,965
------------
Goodwill 5,749,500
Equity assumed (assets over liabilities) 793,465
Stepup in building value from purchase 1,400,000
------------
$ 7,942,965
============
ASSETS OVER LIABILITIES PURCHASED
ASSETS
Cash $ 59,947
Accounts receivable 1,881,209
Mortgage loans receivable 158,370
Inventory 1,578,199
Other assets 42,533
Property, plant and equipment - net 1,751,142
Loan origination costs - net 5,005
------------
$ 5,476,405
------------
LIABILITIES
Shareholders payable - net $ 998,000
Notes and mortgages payable 2,952,695
Deferred revenue 20,608
Accounts payable 711,637
------------
4,682,940
------------
NET EQUITY PURCHASED $ 793,465
============
See accompanying notes to consolidated condensed financial statements.
PINNACLE BUSINESS MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 2001 AND 2000
NOTE 1- ORGANIZATION AND BASIS OF PRESENTATION
--------------------------------------
The consolidated condensed unaudited interim financial statements
included herein have been prepared, without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
rules and regulations, although the Company believes that the
disclosures are adequate to make the information presented not
misleading. Results of operations for the interim periods are not
indicative of annual results.
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. operates a wholly owned subsidiary
Lo Castro and Associates, Inc. a licensed new vehicle dealership that
sells Daewoo motor vehicles pursuant to a franchise agreement. In
addition, the company sells used cars, communication systems, wireless
telephones, and provides consulting services to other dealers.
The company's other operating wholly owned, subsidiary Fast Paycheck
Advance of Florida, Inc.provides short-term paycheck advances to
customers.
The company in the year 2000 discontinued its only other operating
subsidiary Fast Title Loans, Inc. due to poor legislative climate.
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.
PINNACLE BUSINESS MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
JUNE 30, 2001 AND 2000
NOTE 1- ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
--------------------------------------------------
In the first quarter 2001 the Company spun off an inactive wholly
owned subsidiary, Summit Property Group, Inc. and Pinnacle Business
Management Inc's shareholders received a non cash dividend of 1 share
of Summit Property Group, Inc. for each 100 shares of Pinnacle
Business Management, Inc. Summit Property Group, Inc. subsequently
changed its name to Corbel Holdings, Inc.
The accompanying financial statements reflect the unaudited
consolidated operations of the above.
NOTE 2- BUSINESS ACQUISITION
--------------------
Pinnacle Business Management, Inc. ("the Company") on January 19, 2001
acquired the net assets of Lo Castro and Associates, Inc. a
Pennsylvania "S" corporation ("Lo Castro"). The Company also acquired
the net assets of Arnoni, Lo Castro and Associates, a Pennsylvania
general partnership ("Arnoni"). Lo Castro and Arnoni are related
entities under common ownership.
The Company acquired Lo Castro and Arnoni for 83,300,000 shares of the
Company's common stock plus a promissory note in the amount of
$6,693,465 due in quarterly installments commencing April 1, 2002
through and including January 1, 2007. The purchase price approximated
$7,942,965.
The summarized unaudited pro forma results of operations set forth
below for the six months ended June 30, 2001 and 2000 assume the
acquisition was completed January 1, 2000 and include applicable
expenses.
Six Months Ended
June 30,
(Unaudited)
--------------------------
2001 2000
------------ ------------
Revenue $ 5,246,229 $ 3,924,950
Operating expenses (7,162,401) (4,758,602)
------------ ------------
Loss from operations (1,916,172) (833,652)
Other income (expenses) (416,386) (99,184)
------------ ------------
Proforma net income (loss) $(2,332,558) $ (932,836)
============ ============
Proforma net income (loss) per
Common stock $ (.005) $ (.007)
============ ============
PINNACLE BUSINESS MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
JUNE 30, 2001 AND 2000
NOTE 3- 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. Diluted earnings
per share (EPS) includes additional dilution from common stock
equivalents, such as stock issuable pursuant to the exercise of stock
options and warrants. Common stock equivalents were not included in
the computation of diluted earnings per share when the company
reported a loss because to do so would have been antidilutive for
periods presented.
The following is a reconciliation of the computation for basic and
diluted EPS:
June 30,
--------------------------
2001 2000
------------ ------------
Net Loss (2,332,558) $(1,174,026)
Weighted average common shares
outstanding (basic) 443,285,687 117,056,154
Weighted-average common stock
equivalents:
Stock options: --- ---
Warrants: --- ---
__________________________
Weighted-average common shares
outstanding (diluted) 443,285,687 117,056,154
============ ============
Options and warrants outstanding to purchase stock were not included
in the computation of diluted EPS because inclusion would have been
antidilutive.
PINNACLE BUSINESS MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
JUNE 30, 2001 AND 2000
NOTE 4- GOING CONCERN
-------------
As shown in the accompanying financial statements, the Company
incurred net losses for the six months ended June 30, 2001 and 2000.
Additionally in the year 2001, a mortgagor, has made a demand for the
mortgage payable which is secured by the land and the building on
which Lo Castro and Associates, Inc. operates. Furthermore, Lo Castro
was informed by Promistar Bank to seek other alternative financing for
their floor plan liability of new Daewoo vehicles.
Management is seeking alternatives to meet their obligations stated
above. However, the Company's financial condition will be further
negatively impacted if the banks requirements are not met.
Pinnacle Business Management,Inc.has a $100,000 note payable with an
investor that expired May 14, 1999. The Company has accrued interest
at June 30, 2001 of $100,500 that is due.
These factors raise substantial doubt about the Company's ability to
continue as a going concern.
There is no guarantee whether the Company will be able to generate
enough revenue and/or raise enough capital to support the operations.
If the Company is unsuccessful in its efforts, it may be necessary to
preserve asset value. The financial statements do not include any
adjustments that may result from the outcome of those uncertainties.
NOTE 5- LITIGATION
----------
The Company is defending a lawsuit commenced by Tyler Jay & Co.,
L.L.C.asserting a claim for fees and commissions arising from loans
made to the Company. The sums demanded exceed $500,000 in the
aggregate. The Company has asserted claims that are still in the
process of being evaluated by their attorneys. It is not possible to
determine whether there will be a loss; or, if there is a loss, the
extent of the loss.
PINNACLE BUSINESS MANAGEMENT, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
JUNE 30, 2001 AND 2000
NOTE 5- LITIGATION (CONTINUED)
----------------------
Lo Castro & Associates, Inc. has been named as a co-defendant in law
suits filed in the United States District Court for the Northern
District of Ohio, Western Division. The suits, filed in 2001, surround
an automobile accident in May, 2000 involving a former employee who
was not on Company business at the time of the accident. Because of
the complex nature of this action, it may be a number of years before
this matter is ultimately resolved. After consultation with legal
counsel, management believes that the aggregate liability, if any
after insurance proceeds, resulting from such pending action will not
have a material adverse effect on the Company's financial condition.
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 six months ended June 30, 2001 and the three months ended June 30, 2001. The
figures are then compared to the same periods in 2000. This discussion should be
read in conjunction with the company's audited financial statements for 2000 and
1999 which are set forth in the company's Form 10- KSB filed on April 17, 2001.
PAST AND FUTURE FINANCIAL CONDITION
Pinnacle is a holding company of Fast Paycheck Advance Inc., a Florida
corporation ("Fast Paycheck") and Lo Castro & Associates, Inc., a Pennsylvania
corporation, ("Lo Castro") , acquired on January 19, 2001. In addition, Pinnacle
acquired Arnoni, Lo Castro & Associates, a Pennsylvania general partnership
("Arnoni"). Lo Castro and Arnoni are related entities under common control. The
company's other wholly owned subsidiary, Fast Title Loans, Inc.,a Florida
corporation ("Fast Title") became inactive in September 2000.
In March 2001, Pinnacle spun-off Summit Property Group, Inc., ("Summit"), a
Nevada corporation and a wholly-owned subsidiary of Pinnacle. This subsidiary
remained inactive and had no assets since its incorporation on December 27,
1997.
Management is optimistic that the company can recover from recent financial
difficulties and continue the data processing services and payday advance
services to individuals, as well as to grow the Lo Castro businesses to expand
cash flow.
The company's new operations encompass three areas: (1) revenues through the
traditional pay day lending; (2) revenue from processing payday loans for
competitors and (3) continuation and expansion of the Lo Castro business.
First Component of Operations
- -----------------------------
The first component of operations consists of revenues generated through the pay
day lending from the company's former Fast Title locations in Florida. In
November 1999, the company entered into a contract with Comdata Network, Inc.
d/b/a Comdata Corporation {"Comdata"), a Maryland corporation. Comdata has
developed, offers and operates a funds distribution service, which may be used
by companies and employers to distribute wages, salaries or expense
reimbursement funds to employees or persons entitled to such funds, by means of
Comcheck eCash Card {MasterCard), provided the companies are approved for
Comdata's service.
The Comdata agreement, entered into on November 11, 1999, was for the term of
one year. Pinnacle has continued to renew the agreement on a month-to-month
basis.
Under the agreement, Comdata provides Pinnacle with the ComCheck debit card that
has access to the CIRRUS ATM Network and the MAESTRO POS Debit Network. The
debit cards are issued by First American National Bank, who is a CIRRUS and
MAESTRO member. MAESTRO is a distribution division of the MasterCard system.
Comdata also provides the company's employees with initial training in the funds
distribution by the means of the debit card, as well as with promotional
material.
The debit cards provided by Comdata are used to advance funds to the customers.
Instead of disbursing cash and requiring cash to be on hand in locations
throughout the country, Pinnacle provides a debit card to its customers that is
accepted at 1,000,000 plus locations. The debit card is placed on the MAESTRO
system by Comdata.
The Comdata contract expired on November 11, 2000, but continues month-to-month.
Before its expiration, Pinnacle entered into a contract with Lynk Systems, Inc.
{"Lynk Systems"), by and through its CashLynk Master-Client Agreement signed on
September 12, 2000. Both Lynk System and Comdata provide debit cards to the
company. Lynk System contract is for the term of two years. Lynk System provides
the same services as Comdata,
but it also provides additional services that customers can utilize with the
debit card, such as ATM services, Fund Transfer Services, Long Distance
Telephone Services, and POS Services that allow the cardholder to purchase goods
and services at any retail or other establishment that displays the network logo
that also appears on the back of the card. POS are Point-of-Service locations.
The debit card issued by Lynk Systems is supported by the Star, Plus, Mac,
Pulse, Interlink and NYCE network. These networks act exactly like the MAESTRO
and CIRRUS networks that support the Comdata debit cards. The major advantage of
the Lynk System is the increased swipe fee revenue from Lynk Systems. A swipe
fee is a fee generated each time the debit card is used in an ATM or at a POS
location. Pinnacle has the option to pick up additional services for its
clients, but has not implemented any such programs. Pinnacle has plans to
implement additional services as they become available from the Lynk System in
the next 9 months.
Second Component of Operations
- ------------------------------
The second component of operational revenues consists of processing revenues
generated from processing Pay Day advance loans for the company's competitors.
On September 24, 1999, the company signed an agreement to offer Fast PayCheck
services through Mail Boxes Etc. USA, Inc. ("MBE") stores. MBE is a franchiser
of retail outlets which provide a variety of postal, business and communication
services to businesses and the general public. The contract allows Fast PayCheck
to offer services through participating MBE retail outlets. MBE has over 3000
locations in the United States.
Through the MBE agreement, Fast PayCheck may offer its services in any
participating MBE Centers. The decision to open a Fast PayCheck service in an
existing MBE center is made by Pinnacle's management. Under the agreement,
Pinnacle may commence business in any state, in which Pinnacle is licensed to
conduct business, within the three year period. Pinnacle has to negotiate with
each franchisee separately, and the franchisee must agree to offer Fast PayCheck
services in their MBE Center.
The MBE contract carries an option to renew upon terms agreed to by MBE,
Pinnacle and Fast PayCheck. However, MBE, a subsidiary of Office Products of
America, Inc., has recently been sold to United Parcel Service. The
reorganization of MBE's corporate structure does not affect or modify the terms
of MBE's agreement with Pinnacle. The future of the MBE agreement, however, is
uncertain at this time due to the fact that the new management of MBE may not
include Pay Check services in their business model and may not renew the
agreement before its expiration in September 2002.
Currently, Fast PayCheck services are offered in four corporate locations
(former Fast Title stores) in the state of Florida and throughout 125 MBE
locations in the state of Florida.
The company has been licensed in Florida, Louisiana, Utah, Missouri, North
Carolina, Kentucky, Indiana, Idaho, and California, and has pending applications
for licenses in 20 (twenty) additional states, as set forth in more detail in
the company's Form 10-KSB, filed on April 17, 2001, and incorporated herein by
reference.
Third Component of Operations
- -----------------------------
The third component of operations is the recently acquired Lo Castro businesss.
Pinnacle intends to continue Lo Castro's diversified operations conducted
through Lo Castro's three divisions, All Pro Auto Mall, All Pro Daewoo, and All
Pro Communications.
All Pro Auto Mall
- -----------------
All Pro Auto Mall sells used passenger cars and light trucks in the Western
Pennsylvania area out of its Auto Mall store in McMurray, Pennsylvania. The Auto
Mall store, located on Route 19 South in Peters Township, has a showroom that
accommodates up to seven vehicles. The Company has focused its marketing efforts
on the sub-prime customer through its UUAC affiliation program. In a typical
transaction, the subprime customer purchases a used vehicle that sells for less
than $9,000. The customer is required to make a down payment, ranging from $500
to $2,000, and finances the balance with funding available through UUAC.
Interest rates range in the area of 21%.
All Pro Auto Mall also offers a wide range of traditional third party financing
and leasing options for customers not considered sub-prime. Occasionally, the
Auto Mall also offers a limited selection of classic cars, sports cars, exotic
cars, and motorcycles. These vehicles are financed through traditional financing
arrangements with other lending institutions.
During the second quarter, Lo Castro and Associates, Inc. entered into a
servicing agreement with Universal Underwriters Acceptance Corporation to carry
sub prime paper in addition to existing financing arrangements.
All Pro Daewoo
- --------------
All Pro Daewoo is an authorized dealer of Daewoo Motor America, Inc., and it
sells new and used Daewoo motor vehicles. Daewoo Motor America, Inc. currently
manufactures three Daewoo models for sale in the United States, all of which are
available at All Pro Daewoo. The Daewoo models consist of the sub-compact Lanos,
the mid-size Nubira, and the full-size Leganza. Daewoo motor vehicles are a
high-value, low price-point vehicle with Manufacturer's Suggested Retail Prices
ranging from $9,199 to $19,199, excluding taxes, title, and destination charges.
Daewoo vehicles are sold for cash or financed through traditional third party
sources and are not typically eligible for the sub prime program.
The All Pro Daewoo dealership has a full service parts department with eleven
service bays and a customer service department. It has the ability to service
any vehicle. It is also a fully licensed Safety Inspection and Emission Station
for the Commonwealth of Pennsylvania, making servicing any vehicle convenient
for the customer.
All Pro Communications
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All Pro Communications is a full service Telecommunications company engaged in
sales, the installation, and service of the following systems:
1. Digital Business Telephone Systems
2. Digital Voice Mail Systems
3. Automated Attendant Systems
4. Nurse Call Systems
5. Emergency Call Systems
6. Closed Circuit Television (CCTV) Surveillance Systems
7. Fire and Security Systems
8. Structured Cabling (voice, data, video, fiber optics)
9. Telephone Entry Systems
On May 24, 2000, All Pro entered into an agreement with NEC America, Inc.
("NECAM"), a New York corporation with a principal place of business located in
Irving, Texas, to sell and distribute telecommunications products and to provide
installation, repair, maintenance, training and related services in the
territory designated in the agreement. The NECAM agreement and Product
Appendices are incorporated by reference to the Company's Form 8-K filed with
the Commission on February 5, 2001.
All Pro, as NECAM's Associate under the agreement with NEC America, Inc., has
installed business telephone systems within the port configurations offered by
NECAM. During the current calendar year, All Pro provided installation and
service to the commercial industry, private business, government agencies,
health care facilities and educational institutions throughout the Western
Pennsylvania region.
All Pro Communications is led by a group of experienced telecommunication
professionals specializing in the sales, design, installation and service of
Business Communication Systems. All Pro employees include communications
consultants, certified technicians, customer service representatives and
administrative personnel. Senior management of All Pro will be comprised of the
same team that has directed the growth of Lo Castro since its incorporation in
1997 and includes Vincent A. Lo Castro, Mark D. Jackson, and Frank J. Lo Castro.
The current management brings to All Pro many years of combined experience in
business management and telecommunications.
As a wireless agent, All Pro offers a wide range of products, including the
latest digital multi-network and internet-ready wireless telephones manufactured
by Nokia, Ericsson, and Motorola. The Company also assists the customer in
selecting the best calling plan on which to activate service based on a review
of their calling patterns (minutes used per month, long distance and roaming
activity).
All Pro Communications is an authorized agent of AT&T Wireless Services in the
Pittsburgh Metropolitan Statistical Area.
In April 2001, All Pro Communications entered into a one year Nonexclusive
Dealer Agreement with Cricket Communication, Inc. d/b/a Cricket Wireless, Inc.
("Cricket"). Under this Agreement, All Pro Communications is permitted to act as
a sales agent for the solicitation of wireless telephone service in the
Pittsburgh and Butler, Pennsylvania, markets.
In May, 2001, All Pro Communications entered into a three-year Sales Agency
Agreement with MCI WorldCom Wireless, Inc. ("MCIW"). Under this Agreement, All
Pro Communications is permitted to act as a sales agent for the solicitation of
wireless telephone service in the territory in which MCIW has legal and
regulatory authority, which includes most major markets in the United States.
All three divisions operate out of the same facility, a three story building
located at 3644 Washington Road, McMurray, Pennsylvania, 15317. The property is
owned by Arnoni, Lo Castro & Associates ("Arnoni"), a Pennsylvania general
partnership, which was acquired by Pinnacle in the Lo Castro Acquisition. Prior
to the Lo Castro Acquisition, each of the selling shareholders assigned their
respective interest in Arnoni to Lo Castro & Associates, Inc. The Assignment of
Partnership Agreement has been filed with the Commission as Exhibit 17 to the
company's Form 8-K/A filed on April 4, 2001, and incorporated herein by
reference.
RESULTS OF OPERATIONS
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TOTAL ASSETS. Total assets at June 30, 2001 are $13,483,228, compared to March
31, 2001 assets of $13,697,343, and compared to June 30,2000 assets of
$1,395,914. The increase in the first two quarters of 2001 primarily represents
the net assets of Lo Castro and Arnoni.
TOTAL LIABILITIES. Total liabilities are $12,147,057 at June 30, 2001, compared
to $12,114,586 at March 31, 2001, and compared to $4,354,528 as of June 30,
2000. Total liabilities include accounts payable and accrued expenses, current
portion of mortgage payable, the current portion of the long term debt, and
demand note payable shareholders. Accounts payable decreased from $981,533 at
March 31, 2001 to $520,386 at June 30, 2001. Accounts payable at June 30, 2000
were $ 446,341.
The long-term debt at June 30, 2001 is $7,507,313, a decrease from $7,839,783 at
March 31, 2001. Long-term debt at June 30, 2000 is $1,013,636. The increase of
long-term debt in 2001 reflects a promissory note in the amount of $6,693,465
payable to Vincent A. and Kim Lo Castro for the acquisition of the net assets of
Lo Castro. The note is payable in quarterly installments commencing April 1,
2002 through and including January 1, 2007.
The company has a $100,000 note payable with an investor that expired May 14,
1999. The company has accrued interest at June 30, 2001 of $114,000 that is due.
REVENUES. Operating revenues have decreased in the second quarter over the first
three months of operation in 2001. The decrease is from two sources. First there
was a decrease in Consulting Revenues, which should completely disappear in
future quarters. The second reason is the decreased automobile selling prices in
the quarter, due to the transformation of the marketing and sales efforts from
late model pre-owned business to less expensive models in the sub-prime (UUAC)
business.
Revenues, however, are greatly increased for the first six months of 2001,
compared to the same period 2000. At March 31, 2001 operating revenues were
$2,948,435. At June 30, 2001 revenues for the three month period are $2,297,794.
This compares to revenues for the three month period ending June 30,2000 of
$7,002. Pinnacle realized revenues for the six month period ending June 30, 2001
of $5,246,229 compared to $69,683 for the same period 2000. Operating revenues
are expected to remain constant or increase as a result of the Lo Castro
acquisition.
COST OF SALES: Cost of sales for the six months ended June 30, 2001 is
$3,525,734. There was no meaningful cost of sales during 2000. Cost of sales for
the three month period ended June 30, 2001, however, is $1,462,587. The costs of
sales are expected to increase in proportion to the operating revenues.
OPERATING EXPENSES. Operating expenses for the six months period ending June 30,
2001 are $3,636,667 compared to operating expenses of $990,750 for the same
period 2000. Operating expenses are $828,473 for the three months ended June 30,
2001 compared to $450,038 for same period 2000. Operating expenses are
$2,808,194 for the first quarter of 2001, ending March 31, 2001. Pinnacle's
operating expenses continue to increase proportionately with increases in sales.
The expenses include salaries, advertising, commissions and consulting fees
relating to the Lo Castro acquisition. Management believes that the financial
condition of the company will improve substantially by 2002.
NET LOSS. The company incurred net losses for the six months ending June 30,
2001 of $2,332,558, compared to a loss of $1,174,026 for the same period 2000.
The company incurred net losses for the three months ended June 30, 2001 of
$246,585 compared to a net loss for the same period 2000 of $593,462.
The company had a net loss of $2,085,973 for the three months ended March 31,
2001. Management expects the company to continue to improve with net operating
income for the balance of the current year slightly better than the second
quarter. It is worth noting that the company had a net operating profit of
$6,734 for the three months ended June 30, 2001 as compared to a net operating
loss of $443,036 for the three month period ended June 30, 2000.
CAPITAL EXPENDITURES. There was no material capital expenditures during the
period reported.
Non-cancelable lease commitments run until 2003. The total amount due under the
lease terms for 2001 is $34,212. The company is operating various Fast
PayCheck's locations in Florida on a month to month basis.
The company has a mortgage payable note secured by the land and the building
from which Lo Castro operates. The total amount due under the mortgage note is
$1,154,546 at June 30, 2001. The Lender has called the Mortgage, but is
currently accepting payments according to the original terms of the loan and it
is paid current both as to principal and interest.
LIQUIDITY
Maintaining sufficient liquidity is a material challenge to management at the
present time. As the financial statements reflect, the company incurred net
losses for the six months ended June 30,2001 and 2000. In addition, a mortgagee
has made a demand for the mortgage payable which is secured by the land and the
building from which Lo Castro operates. Furthermore, Lo Castro was informed by
Promistar Bank to seek other alternative financing for its floor plan financing
of new Daewoo vehicles. Management is negotiating and seeking alternatives to
meet their obligations.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
First American Reliance, Inc., BK Case No.98-23906
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The lawsuit brought by First American Reliance against Pinnacle, described in
the Quarterly report ending March 31, 2001, has been settled. Pinnacle currently
has a remaining balance of $50,000 to pay under the settlement terms.
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. 1-1999/5697. This case involves a breach of contract
claim made against the company and Fast Title by Tyler Jay and Company ("Tyler
Jay") for their failure to pay certain compensation allegedly owing Tyler Jay
for services that it purportedly performed. Tyler Jay claims that it is owed
certain monies and stock options, which damages are allegedly in excess of
$600,000. The company and Fast Title have asserted that Tyler Jay is not
entitled to recovery since the agreed-upon services were not provided. Moreover,
the company and Fast Title have filed a counterclaim seeking $34,000, the sum
paid to Tyler Jay, on the basis that they were damaged by Tyler Jay's fraudulent
representation and breach of fiduciary duty. The parties in the case are
currently conducting discovery. Management intends to vigorously defend this
claim.
In the third proceeding, a Pinnacle subsidiary, Lo Castro & Associates, Inc. has
been named as co-defendant in a three related complaints filed in the United
States District Court for the Northern District of Ohio, Western Division. The
complaints arise from an automobile accident in May, 2000 involving a former
employee who was not on Company business at the time of the accident. Because of
the complex nature of this action, it may be a number of years before this
matter is ultimately resolved. After consultation with legal counsel, management
believes that the aggregate liability, if any after insurance proceeds,
resulting from such pending action will not have a material adverse effect on
the Company's financial condition.
This action has given rise to three related complaints. Damages plead in each
exceeds the minimum for jurisdiction of the Court.
The first related complaint was filed March 12, 2001(Case No. 3:01CV7113) by
Anita Carrion, as Administratrix of the Estate of Robert Perez, Jr. against Lo
Castro & Associates, Inc. d/b/a All Pro Communications, George Tenney, Sr,
Administrator of the Estate of George Tenney, Jr., American Manufacturers Mutual
Insurance Company, and State Farm Mutual Automobile Insurance Company.
The second related complaint was filed by persons injured during the accident.
The complaint was filed June 5, 2001 (Case No. 3:01CV7281) by Donald M. Smoke,
Debra A. Smoke, Marlon N. Chubb, and Bonnie F. Chubb against Lo Castro &
Associates, Inc. d/b/a All Pro Communications, and George Tenney, Sr.,
Administrator of the Estate of George Tenney, Jr.
The third related complaint is a declaratory judgement action filed by Lo
Castro's Insurance Company. The complaint was filed July 11, 2001 (Case
No.3:01CV7354) by Prime Insurance Syndicate, Inc. against Lo Castro &
Associates, Inc. d/b/a All Pro Communications, All Pro Daewoo, and All Pro Auto
Mall, et al., George Tenney, Sr., Administrator of the Estate of George Tenney,
Jr., Anita Carrion, as Administratrix of the Estate of Robert Perez, Jr., Donald
M Smoke, Debra A. Smoke, Marlon N. Chubb, and Bonnie F. Chubb.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
There were no instruments defining rights of the holders of any class of
registered securities modified during the period reported and there were no
restricted securities issued.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The company has a $100,000 note payable with an investor that expired May 14,
1999. The company has accrued interest at June 30, 2001 of $114,000 that is due.
The company has a mortgage payable note secured by the land and the building
from which Lo Castro operates. In the year 2001, the mortgagee made a demand for
the mortgage. The total amount due under the mortgage note is $1,154,546.
Replacement financing has not been secured; the Mortgagee is accepting payments
according to the original terms of the loan and it is paid current both as to
principal and interest.
In addition, Lo Castro has been informed by Promistar Bank to seek other
alternative financing for their floor plan liability of new Daewoo vehicles. The
company is seeking alternatives to rectify these two demands.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to the vote of securities holders
ITEM 6. EXHIBITS
Exhibit Number Exhibit
3(i) Articles of Incorporation, incorporated herein by reference from
Form 10-SB/A, filed with the Commission on December 8, 2000.
3(ii) Certificate of Amendment to the Articles of Incorporation filed
with the Secretary of State of the State of Nevada on March 14,
2001, incorporated herein by reference from Form 10-QSB, filed
with the Commission on May 18, 2001
3(iii) Bylaws, Incorporated by reference from Form 10-SB/A, filed with
the Commission on December 8, 2000.
10 (i) Sales Agency Agreement with MCIW dated May 5, 2001
10 (ii) Servicing Agreement between Lo Castro and Associates, Inc.
and Universal Underwriters Acceptance Corporation, effective June
6, 2001.
10 (iii) Nonexclusive Dealer Agreement between Lo Castro and Associates,
Inc. and Cricket Communications, Inc., d/b/a/ Cricket Wireless,
effective April 30, 2001.
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: August 16, 2001
By: /S/ Jeffrey G. Turino
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Jeffrey G. Turino, Chief Executive Officer
By: /S/ Michael B. Hall
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Michael B. Hall, President and Director