Form 10QSB
May 15, 2002
PINNACLE RESOURCES INC (PNRR.OB)
Quarterly Report (SEC form 10QSB)
Item 2. Management's Discussion and Analysis or Plan of Operations
In January 2002, Pinnacle created a Nevada Corporation by the name of Titan Intellectual Ltd which was set up as a wholly owned subsidiary. Titan Intellectual then contracted with Dr. Jan Becker of Pretoria, South Africa to acquire and hold all of Dr. Becker's know- how, capability, process expertise and the patentability of certain designs and methodologies for the treatment and purification of vanadium, titanium, and tantalum ores and concentrates.
In February 2002 Titan Intellectual then licensed the Becker technology and technique to Titan Processors (Pty) Ltd, a South African corporation with the expectation that Titan Processors would erect a processing facility for concentrates of tantalite in order to refine the tantalite ore into highly purified tantalum oxide. The Licensing Agreement was let to Titan based upon a royalty of
Five (5%) of the gross plus a Fifteen (15%) Percent participation in the net profits of Titan after payback of its loan for start-up capital of the refinery.
Also in February, Pinnacle Resources agreed to issue 100,000 shares of stock from its treasury to Dr. Becker for consulting to erect and oversee construction of the tantalite refinery; and then another 100,000 shares upon the completion of the refinery; and additional 100,000 share blocks of common stock based upon million dollar increments of profitability of Titan Processors (Pty) Ltd until Dr. Becker has realized a total of One Million shares. Pinnacle also agreed to exclusively retain Dr. Becker at a salary of US$4,000 per month the obligation of which will be paid by Titan Processors. Additionally, Pinnacle holds the sole option to acquire up to 85% of Titan Processors but has elected to hold off on this acquisition until an issue of environmental liability has been clarified. Titan Processors refinery installation is being placed upon the milling and processing campus of Rappa Holdings, LLC utilizing Rappa's hazardous materials license and for this concession Rappa earned an option to acquire the remaining 15% of Titan Processors one year after the refinery starts cash flow.
Pinnacle sought to achieve financing for Titan Processors and therefore retained the services of a legal financial specialist, Greg Bartko, who operates under the name of Capstone Capital. Capstone proceeded to arrange for Titan Intellectual to issue Convertible Debentures in tranches of $200,000 under a Rule 504 Private Placement Subscription. Upon completion of the initial tranche of $200,000, of which Barkto, etals deducted $44,000 in fees, Capstone then orchestrated the merger of Titan Intellectual into Pinnacle Resources such that Pinnacle was then responsible to issue its shares for the convertible debentures when a conversion notice was presented. The net result was that the investors tried to convert when the stock price of Pinnacle was depressed. Company management objected and settlement was achieved in lieu of litigation. The net result was that an additional three million shares of Pinnacle common stock was issued. Net monies derived from this transaction have been used in part ($56,000) for operational expense reimbursement to Pinnacle and the balance ($100,000) has been committed toward a loan to Titan Processors in order to fund the tantalum refinery in South Africa. Loan terms to Titan Processors call for interest to be set at South Africa's prime rate plus two percent (16%) with an amortization schedule of three years commencing six months after the refinery is operational; however, management may accelerate the payback if feasible.
Capital Resources and Source of Liquidity.
For the nine months ended March 31, 2002, Pinnacle purchased equipment of $1,201 and made advances to related parties as notes receivable of $55,000. As a result, Pinnacle had net cash used in investing activities of $56,201 for the nine months ended March 31, 2002.
For the nine months ended March 31, 2001, the Company had cash received in acquisition of $1,151. The Company purchased equipment for $3,034. As a result, the Company had net cash flows from investing activities of $3,034 for the nine months ended March 31, 2001.
For the nine months ended March 31, 2002, the Company received advances from officer/shareholder of $250,000, net proceeds from loans and line of credit of $46,520. Pinnacle made principle payments on capital lease of $1,236 and received proceeds from the issuance of debenture, net of offering costs of $156,000. As a result, Pinnacle had net cash provided by financing activities of $451,284 for the nine months ended March 31, 2002.
For the nine months ended March 31, 2001, Pinnacle received advances from officer/shareholder of $90,560, proceeds from loans and line of credit of $49,984 and proceeds from the sale of common stock of $33,000. As a result, Pinacle had net cash provided by financing activities of $173,544 for the nine months ended March 31, 2001.
Results of Operations. Pinnacle expects to earn consulting fees, commissions, brokerage points and equity participation for having acted as an arranger and go-between from having effectuated a financing package on behalf of a client and a funding source. To date, Pinnacle has not yet commenced operations or received any revenues.
Pinnacle had a net loss for the nine months ended March 31, 2002 of $486,523. Pinnacle incurred prospecting costs of $42,869, general and administrative expenses of $159,135, legal and accounting fees of $63,919, travel of $44,346, depreciation and amortization of $3,945 for the nine months ended March 31, 2000. Pinnacle had operating losses of its subsidiary disposed during the year of $172,281 and a foreign currency transaction loss of $28.
Pinnacle had a net loss for the nine months ended March 31, 2001 of $199,205. Pinnacle incurred prospecting costs of $492,279, stock- based compensation of $1,630,601, general and administrative expenses of $166,716, legal and
accounting fees of $27,445, travel of $26,523, depreciation and amortization of $65,162 for the nine months ended March 31, 2000.
Plan of Operation. Pinnacle is not delinquent on any of its obligations even though Pinnacle has not yet begun to generate revenue. Pinnacle will identify and subsequently qualify prospective clients. Current operations require minimal cash infusions. Pinnacle may borrow funds or obtain equity financing from affiliated persons or entities to continue operations, if necessary. Pinnacle intends to market its services utilizing cash made available from the recent private sale of its common shares. Pinnacle is of the opinion that revenues from its services along with proceeds of the private sale of its securities will be sufficient to pay its expenses until receipt of revenues at a level to sustain operations.
