ITEM 1. BUSINESS
Pinnacle Banc Group, Inc. (the "Corporation") is a multi-bank holding company registered under the Bank Holding Company Act and is engaged in the business of banking through the ownership of subsidiary banks. At December 31, 1995 the Corporation had total consolidated assets of $818,697,000, total loans of $309,600,000, total deposits of $712,805,000, and total stockholders' equity of $78,961,000. The Corporation's principal office is 2215 York Road, Suite 208, Oak Brook, Illinois 60521. The Corporation has twelve banking locations in the metropolitan areas of Chicago and Quad-Cities, Illinois and Iowa.
The Corporation, formerly First Cicero Banc Corporation ("FCBC"), was organized under the laws of the State of Illinois on August 24, 1979 for the purpose of acquiring the First National Bank of Cicero (the "Cicero Bank"). On April 30, 1988, the Corporation merged (the "Merger") with First Harvey Banc Corporation ("FHBC"), parent company of First National Bank in Harvey (the "Harvey Bank"), and LaGrange Park Banc Corporation ("LPBC"), parent company of Bank of LaGrange Park (the "LaGrange Park Bank"). FHBC and LPBC were affiliated with FCBC through common ownership. In connection with the Merger, the name of the Corporation was changed to Pinnacle Banc Group, Inc.
Since the date of the merger, SBH Corp., parent company of Bank of Silvis (the "Silvis Bank"), was merged into the Corporation on September 29, 1989. The Berwyn National Bank (the "Berwyn Bank") was purchased on February 1, 1992. The Henry County Bank was purchased on March 27, 1992. Batavia Financial Corporation, parent company of Batavia Savings Bank, F.S.B. ("Batavia Savings"), was merged into Pinnacle on December 31, 1992.
On December 7, 1992, the Silvis Bank merged with the Henry County Bank with the resultant bank named Pinnacle Bank of the Quad-Cities ("Quad-Cities Bank"). On July 9, 1993, the Cicero Bank, Harvey Bank and Berwyn Bank were merged with and into the LaGrange Park Bank with the resultant bank named the Pinnacle Bank. On January 6, 1995, Acorn Financial Corp ("AFC") and its subsidiary bank, Suburban Trust & Savings Bank ("STSB") were purchased. AFC was liquidated into the Corporation and concurrent with the liquidation, STSB was merged into Pinnacle Bank.
The Corporation owns 100% of the common stock of Pinnacle Bank, Quad-Cities Bank and Batavia Savings.
The Corporation is a legal entity separate and distinct from its subsidiary banks. The major source of the Corporation's revenues is dividends from its subsidiary banks.
SUBSIDIARY BANKS
Pinnacle Bank and Quad-Cities Bank are full service commercial banks encompassing most of the usual functions of commercial and savings banking including commercial, consumer, and real estate lending; installment credit lending; collections; safe deposit operations; and other services tailored for individual customer needs. The banks also offer a full range of deposit services to individuals and businesses which include demand, savings and time deposits, as well as providing trust services to the customers. Pinnacle Bank provides nondeposit-based products, including mutual funds and annuities through affiliation with an independent broker.
Batavia Savings is a federally-chartered savings bank which is principally engaged in the business of attracting savings and other funds from the general public and investing these funds, principally by originating residential mortgage loans and investing in investment grade securities. In addition to residential mortgage loans, Batavia Savings makes commercial, consumer and installment loans. The bank offers a full range of deposit services including demand, savings and time deposits.
The Pinnacle Bank, a state banking corporation organized under the laws of Illinois, was formed on July 9, 1993 through the merger of the Cicero Bank, Harvey Bank and Berwyn Bank with and into the LaGrange Park Bank. The Cicero Bank was originally organized in 1921, the Harvey Bank in 1937, the Berwyn Bank in 1937 and the LaGrange Park Bank in 1962. The Bank's main office is located in Cicero, Illinois, with full service branches in Harvey, Berwyn, Oak Park, LaGrange Park and Westmont and limited service facilities in Cicero and North Riverside. At December 31, 1995, the Bank had total assets of $624 million.
The Quad-Cities Bank was organized as a state banking corporation with the name Bank of Silvis under the laws of the State of Illinois in 1950. On December 7, 1992, The Henry County Bank, organized as a state banking corporation under the laws of the State of Illinois in 1968, was merged with and into Bank of Silvis and the name of the merged entity was changed to Pinnacle Bank of the Quad- Cities. The Bank's main office is located in Silvis, Illinois, with a full service branch located in Green Rock, Illinois. Each community is part of the Quad-Cities area of Illinois and Iowa. As of December 31, 1995, the Bank had total assets of $106 million.
Batavia Savings was originally organized as an Illinois state chartered savings and loan association in 1909. The Bank converted to a federal mutual charter in 1983. The Bank amended its charter in August, 1990 in connection with the conversion from a mutual thrift to a federal stock savings bank and changed its name to Batavia Savings Bank, F.S.B. from Batavia Savings and Loan. The Bank's main office is located in Batavia, Illinois with a full service branch located in Elburn. Currently, Batavia Savings is leasing its previously owned branch in Elburn. A new Elburn branch, presently under construction, will open in the second or third quarter of 1996. As of December 31, 1995, the Bank had total assets of $67 million.
COMPETITION
Intense competition exists in all aspects of business in which the Corporation and its subsidiary banks are presently engaged, not only with other commercial banks and trust companies but also with thrifts, finance companies, personal loan companies, credit unions, leasing companies, money market mutual funds, investment firms, mortgage bankers, and other financial institutions serving the metropolitan areas of Chicago and the Quad-Cities.
Commercial and savings banks compete on the basis of price, including interest rates paid on deposits and charged on loans, convenience and quality of service. This competition includes banks which are many times larger than a banking subsidiary, including banks in the primary marketing areas of each subsidiary bank which have recently become affiliated through parent holding companies owning significantly larger banking institutions. Each subsidiary bank is encountering increased competition from non-bank financial institutions. Thrift deposits constitute a substantial portion of all financial institutions' deposits in Illinois. Thrifts are able to compete aggressively with commercial banks in the important area of consumer lending. Credit unions and small loan companies each are significant factors in the consumer loan market. Insurance companies, investment firms and retailers are all significant competitors for various types of business.
EMPLOYEES
At December 31, 1995, the Corporation and its subsidiary banks employed 337 persons on a full-time equivalent basis.
SUPERVISION AND REGULATION
GENERAL. At the present time, various bills have been introduced in the United States Congress and the Illinois state legislature which could result in additional regulation of the business of the Corporation and any banks which are now or hereafter become affiliated with the Corporation. Future bills could also be introduced which could significantly affect the banking industry. It cannot be
predicted whether any such legislation will be adopted or how such adoption would affect the business of the Corporation or any banks so affiliated.
The following references to applicable statutes and regulations are brief summaries thereof which do not purport to be complete and which are qualified in their entirety by reference to such statutes and regulations.
BANK HOLDING COMPANY. As a bank holding company, the Corporation is subject to the supervision of the Federal Reserve Board under the Bank Holding Company Act of 1956, as amended (the "BHC Act"). Bank holding companies are required to file with the Federal Reserve Board an annual report and such additional information as the Federal Reserve Board may require. The Federal Reserve Board also makes periodic examinations of bank holding companies and their subsidiaries. As a result of the Corporation's acquisition of Batavia Savings, the Corporation is also considered a diversified savings and loan holding company subject to regulatory oversight by the Office of Thrift Supervision ("OTS"). As such, the Corporation is subject to regulation and examination by the OTS. The Corporation is required to obtain the prior approval of the Federal Reserve Board before it could acquire all or substantially all of the assets of any bank, or acquire ownership or control of any voting shares of any bank other than a subsidiary bank of the Corporation, if, after such acquisition, it would own or control more than 5% of the voting shares of such bank. The BHC Act does not permit the Federal Reserve Board to approve the acquisition by the Holding Company of any voting shares of, or all or substantially all of the assets of, any bank located outside of the State of Illinois, unless such acquisition is specifically authorized by the laws of the state in which such bank is located.
The BHC Act limits the activities which may be engaged in by any bank holding company and its subsidiaries to certain specified activities, including those activities which the Federal Reserve Board may find by order or regulation, to be so closely related to banking or managing or controlling banks as to be a proper incident thereto.
Subsidiary banks of a bank holding company (such as the bank subsidiaries of the Corporation) are subject to certain restrictions imposed by the Federal Reserve Act on any extensions of credit to the bank holding company or any of its subsidiaries, on investments in the stock or other securities thereof, and on the taking of such stock or securities as collateral for loans to any borrower. Further, under the BHC Act and regulations of the Federal Reserve Board, a bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit, lease or sale of property or furnishing of services.
BANKS. The operations of Pinnacle Bank and Quad-Cities Bank are subject to federal and state statutes and regulations applicable to banks chartered under the banking laws of the State of Illinois and to regulation by the Federal Deposit Insurance Corporation ("FDIC"). The operations of Batavia Savings are subject to federal statutes and regulations applicable to thrifts chartered under the Banking laws of the United States and to regulation by the OTS. Batavia Savings is a member of the Federal Home Loan Bank of Chicago.
The Federal Reserve System, the FDIC, the OTS and the State of Illinois Commissioner of Banks and Trust Companies regularly examine, where applicable, such areas as reserves, loans, investments, management practices and other aspects of the banks' operations. These examinations are designed for the protection of the banks' depositors and not for its stockholders. In addition to these regular examinations, the banks must furnish periodic reports to the regulatory authorities containing a full and accurate statement of its affairs. As members of the FDIC, the banks' deposits are insured as provided by law. Effective January 1, 1993, a risk-based deposit insurance assessment program was placed into effect by the FDIC. Insurance premiums are to be determined based on the level of a bank's capital and supervisory evaluation. As of the current date, each of the Corporation's subsidiary banks were in the lowest premium assessment category.
Federal and state banking laws and regulations govern or restrict, among other things, the scope of a bank's business, the investments a bank may make, the reserves against deposits a bank must maintain, the loans a bank makes and the collateral it takes, the activities of a bank with respect to mergers and consolidations, and the establishment of branches. Each banking regulatory authority has the authority to prevent a bank from engaging in an unsafe or an unsound practice in conducting its business. The payment of dividends, depending upon the financial condition of a bank, could be deemed such a practice.
As subsidiary banks of a bank holding company, the subsidiary banks are subject to certain restrictions imposed by the Federal Reserve Act on any extensions of credit to the Corporation or any of its other subsidiaries, on investments in the stock or other securities of the Corporation or any of its subsidiaries, and on taking such stock or securities as collateral for loans. Federal statutes and Federal Reserve Board regulations also place certain limitations and reporting requirements on extensions of credit by a bank to principal stockholders of its parent holding company and to related interests of such principal stockholders. In addition, such legislation and regulations may affect the terms upon which any person becoming a principal stockholder of a holding company may obtain credit from banks with which the subsidiary bank maintains a correspondent relationship.
Furthermore, Federal statutes prohibit acquisition of "control" of a bank or bank holding company without prior notice to certain Federal bank regulators. "Control" is defined in certain cases as acquisition of as little as 5% of the outstanding shares. From time to time, various types of federal and state legislation have been proposed that could result in additional regulation of, and expansions or restrictions on, the business of the banks. It cannot be predicted whether any such legislation will be adopted or how such legislation would affect the business of the banks.
In 1991, the Federal Deposit Insurance Corporation Improvement Act ("FDICIA") was enacted into law. FDICIA provides for, among other things, the recapitalization of the FDIC Insurance Fund; enhanced federal supervision of depository institutions, including greater authority for the appointment of a conservator or receiver for undercapitalized institutions; the adoption of safety and soundness standards by the Federal banking regulators, on matters such as loan underwriting and documentation, interest rate risk exposure and compensation and other employee benefits; the establishment of risk-based deposit insurance premiums; liberalization of the qualified thrift lender test; greater restrictions on transactions with affiliates; mandated consumer protection disclosures with respect to deposit accounts; and expanded audit requirements including statements by management regarding internal controls and regulatory compliance.
GOVERNMENT MONETARY POLICIES
The earnings of banks and bank holding companies are affected by the policies of regulatory authorities including the Federal Reserve Board which regulates the money supply. Among the methods employed by the Federal Reserve Board are open market operations in U. S. Government securities, changes in the discount rate on member bank borrowings, and changes in reserve requirements against member bank deposits. These methods are used in varying combinations to influence overall growth and distribution of bank loans, investments and deposits, and their use may also affect interest rates charged on loans or paid on deposits. The monetary policies of the Federal Reserve Board have had a significant effect on the operating results of commercial and savings banks in the past and are expected to continue to do so in the future.
FINANCIAL INFORMATION
For financial information regarding the Corporation, see ITEM 8, FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA, and ITEM 14, EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
ITEM 2.

ITEM 2. PROPERTIES
The corporate offices of the Corporation are located at 2215 York Road, Suite 208, Oak Brook, Illinois 60521. These offices, consisting of approximately 2,000 square feet, have been leased by the Corporation since January 1, 1989. Approximately two years remain on the term of the lease.
Pinnacle Bank owns its main banking office located at 6000 West Cermak Road, Cicero, Illinois 60650. The main office consists of approximately 41,500 square feet and was extensively remodeled in 1989.
Pinnacle Bank has five other full service banking offices. The Harvey Banking Center is located at 174 East 154th Street, Harvey, Illinois 60426 with an adjacent drive-in facility and parking lot. The main building consists of approximately 33,000 square feet. The Berwyn Banking Center is located at 7112 West Cermak Road, Berwyn, Illinois 60402. The building consists of approximately 15,000 square feet and was extensively remodeled in 1991. The Oak Park Banking Center, containing approximately 21,000 square feet, is located at 840 South Oak Park Avenue, Oak Park, Illinois 60304. The Westmont Banking Center contains approximately 23,000 square feet and is located at 640 Pasquinelli Drive, Westmont, Illinois 60559. All aforementioned buildings are owned by Pinnacle Bank. The LaGrange Park Banking Center is located in a leased office at Oak and Sherwood Streets, LaGrange Park, Illinois 60525. Eight years remain on the term of the lease. The office consists of approximately 11,500 square feet.
Pinnacle Bank has two limited service banking facilities. An owned facility containing approximately 2,500 square feet is located at 2500 South Cicero Avenue, Cicero, Illinois 60650. This facility, with certain expanded services, was constructed in 1995. A leased facility containing approximately 2,000 square feet is located at 7373 West 25th Street, North Riverside, Illinois 60546. Twelve years remain on the term of the lease.
The Quad-Cities Bank owns its main banking office located at Eleventh Street and First Avenue, Silvis, Illinois 61282. The banking office consists of approximately 10,600 square feet. The Quad-Cities Bank owns a branch banking office located at 107 First Street, Green Rock, Illinois 61241. The banking office consists of approximately 4,000 square feet.
Batavia Savings owns its main banking office located at 165 West Wilson Street, Batavia, Illinois 60510. The banking office consists of 8,640 square feet. Batavia Savings currently leases a formerly owned branch banking office at 100 South Main Street, Elburn, Illinois 60119. This banking office consists of 2,300 square feet. A new banking office of approximately 2,400 square feet is presently being built in Elburn.
Each of the subsidiary banks has sufficient space for current banking needs as well as any foreseeable expansion.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
On February 17, 1994, a judgment in the amount of $2.3 million was entered in the U.S. Bankruptcy Court against Pinnacle Bank, a wholly owned subsidiary of the Corporation. The judgment is the result of a suit filed against the Bank by a trustee of a debtor in bankruptcy. The trustee claimed that the Bank honored overdrafts in the debtor's bank account without obtaining prior court approval. The Bank denied any liability on the basis that no court authorization is required for debtors who obtain unsecured credit in the ordinary course of business. The amount of the judgment represents the cumulative amount of all payments received by the Bank from the debtor to cover overdrafts. The largest outstanding overdraft as of the close of business on any day was $260,000. The judgment provides that the Bank will have an allowed claim in the bankruptcy proceeding upon its payment of the judgment. While the Bank appealed the decision in 1994, management, upon advice of legal counsel, settled the case for $1,275,000 on December 8, 1995.
The Corporation and the subsidiary banks are subject to other pending and threatened legal actions which arise in the normal course of business. In the opinion of management, based upon the consultation of legal counsel, the disposition of all outstanding matters will not have a material adverse effect on the consolidated financial statements.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock of the Corporation is traded in the over-the-counter market and is quoted on the National Association of Securities Dealers Automated Quotation System (NASDAQ) under the Small-Cap issues with the ticker symbol "PINN".
The following table sets forth the high and low sales prices of the Corporation's common stock by quarter as reported by NASDAQ.
In 1995, the Corporation purchased 45,755 shares of its common stock at market prices in privately negotiated and market transactions as part of its announced stock repurchase program. In 1994, the Corporation purchased 88,838 shares of its common stock at market prices in privately negotiated and market transactions.
NUMBER OF SHAREHOLDERS
As of March 19, 1996, the Corporation had approximately 335 shareholders of record. In addition, the Corporation believes that it has approximately 450 additional beneficial shareholders who hold shares in street name.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA
Selected financial data of the Corporation is incorporated herein by reference to the 1995 Annual Report to Stockholders included as Exhibit 2. The information required is contained on page 22 of Exhibit 2, under the title "Selected Financial Data."
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Management's Discussion and Analysis of Financial Condition and Results of Operations is incorporated herein by reference to the 1995 Annual Report to Stockholders included as Exhibit 2. The information is contained on pages 23 through 36 of Exhibit 2.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements and Supplementary Data are incorporated herein by reference to the 1995 Annual Report to Stockholders included as Exhibit 2. The information is contained as follows:
ITEM 9.

ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None.
PART III
ITEM 10.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required pursuant to this item is contained on pages 1 through 3 of the Definitive Proxy Statement for the Annual Meeting to be held on April 16, 1996, under the title "Election of Directors", this portion which is expressly incorporated herein by reference.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
Information required pursuant to this item is contained on pages 5 through 7 of the Definitive Proxy Statement for the Annual Meeting to be held on April 16, 1996, under the title "Executive Compensation", this portion which is expressly incorporated herein by reference.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required pursuant to this item is contained on pages 3 through 5 of the Definitive Proxy Statement for the Annual Meeting to be held on April 16, 1996, under the title "Security Ownership of Certain Beneficial Owners and Management", this portion which is expressly incorporated herein by reference.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required pursuant to this item is contained on pages 8 and 9 of the Definitive Proxy Statement for the Annual Meeting to be held on April 16, 1996 under the title "Certain Relationships, Related Transactions and Other Information Regarding Management", this portion which is expressly incorporated herein by reference.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The following exhibits are filed as part of this Form 10-K.
FINANCIAL STATEMENT SCHEDULES
Financial Statement Schedules not included in ITEM 8, FINANCIAL DATA AND SUPPLEMENTARY DATA are included on the following pages as part of this item in accordance with Guide 3, Statistical Disclosure by Bank Holding Companies.
REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Corporation during the fourth quarter of 1995.
STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES
I. DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY; INTEREST RATES AND INTEREST DIFFERENTIAL
ANALYSIS OF NET INTEREST INCOME
Information required in this table, including the daily average balance outstanding for the major categories of interest bearing assets and interest bearing liabilities, and the average interest rate earned or paid thereon, is incorporated herein by reference to the 1995 Annual Report to Stockholders included as Exhibit 2. The information required is contained in Table 1, "Analysis of Net Interest Income" on page 25 of Exhibit 2, within the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations."
ANALYSIS OF CHANGE IN INTEREST DIFFERENTIAL
Information required in this table is incorporated herein by reference to the 1995 Annual Report to Stockholders included as Exhibit 2. The information required is contained in Table 2, "Analysis of Volume/Rate Variance" on page 26 of Exhibit 2, within the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations."
ANALYSIS OF INTEREST RATE SENSITIVITY
Information regarding the interest rate sensitivity position of Pinnacle is incorporated herein by reference to the 1995 Annual Report to Stockholders included as Exhibit 2. This information is contained in Table 6, "Interest Rate Sensitivity Position" on page 35 and discussed on page 36 of Exhibit 2, within the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations."
II. INVESTMENT PORTFOLIO
The following table presents the book value of securities in thousands at the dates indicated:
(1) Held for investment in 1993.
The following table shows the maturities of securities in thousands at December 31, 1995 and weighted average fully taxable equivalent yields:
Securities included in the category of no fixed maturity are mortgage-backed securities and floating rate collateralized mortgage obligations, due to their ability to prepay, as well as equity securities.
The average tax-equivalent yield by maturity includes the weighted average yields on tax-exempt obligations which have been computed on a fully taxable equivalent basis assuming a tax rate of 34% for December 31, 1995.
III. LOAN PORTFOLIO
The following table sets forth the outstanding loans, in thousands, at the following dates:
The following table sets forth the maturity distribution of the following categories of loans at December 31, 1995 in thousands.
Of the loans listed in the maturity schedule above, a total of $193,448 are due after one year; $174,498 of these loans have predetermined interest rates and $18,950 of these loans have floating interest rates.
COLLATERAL AND APPRAISAL GUIDELINES
Subsidiary banks of the Corporation make loans which are collateralized by different types of assets. A collateral guideline manual is maintained by each bank which details collateral requirements for any collateralized loan which a bank may make. The loan operations area has responsibility for monitoring all compliance with collateral requirements. Collateral requirements for the most commonly funded loans include an 85% - 95% (depending on maturity) loan-to-value ratio for loans secured by U. S. Government securities, 70% for NYSE traded stock, 65% for AMEX and 50% for all other common stocks, with the exception of control stocks which are not acceptable as collateral. Commercial loans for working capital can have a maximum loan-to-value ratio of 80% against eligible accounts if secured by receivables, a maximum of 50% if secured by inventory and a maximum of 80% if secured by equipment. Real estate loans can have a maximum loan-to-value ratio of 80% unless private mortgage insurance is provided for advances over 80%. Commercial real estate loans typically are funded at a lower loan-to value ratio and require the personal guarantee of the borrower(s). Home equity loans require a loan-to-value ratio of 80% of the appraised value less any debt.
Loans made by subsidiary banks of the Corporation which are collateralized by real estate require an appraisal prior to funding of the loan. These loans are reappraised when management believes that the financial condition or resources of the borrower have deteriorated or when the collectibility of the loan is in question. Loans collateralized by real estate are not necessarily reappraised on an annual or quarterly basis by policy; however, all loans secured by real estate, with immaterial exceptions, are made in the local market area served by Pinnacle subsidiaries and each of these areas is closely monitored by management for economic changes. A new appraisal is required for any loan which undergoes foreclosure or is transferred into other real estate owned. Updated appraisals on other real estate owned are completed as required by regulatory authorities, or if management believes a material change in the value of a property has taken place.
The current loan policies in effect for collateral and appraisals are similar and consistent with the policies in place in prior years.
RISK ELEMENTS
NONACCRUAL, PAST DUE, AND RESTRUCTURED LOANS. The following table represents information regarding the aggregate amount of nonaccrual, past due, and restructured loans in thousands:
A discussion regarding the nonperforming assets listed above is contained within the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" under the subsection "Provision for Loan Losses" on pages 26 through 28 of the Corporation's 1995 Annual Report to Stockholders included as Exhibit 2.
LOAN CONCENTRATIONS. Loan concentrations are defined as amounts loaned to a multiple number of borrowers engaged in similar activities, which would cause them to be similarly impacted by economic or other conditions. Although the Corporation has a diversified loan portfolio, a substantial natural geographic concentration of credit risk exists within the Corporation's defined customer market areas. These geographic market areas include the Chicago metropolitan area and the Quad-Cities metropolitan area of Illinois and Iowa.
ADOPTION OF STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS "SFAS" NOS. 114 AND 118. Effective January 1, 1995, the Corporation adopted SFAS No. 114, "Accounting by Creditors for Impairment of a Loan", and its amendment No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosure". There was no effect on the financial position and results of operations of the Corporation as a result of adopting these statements. No changes were required to the Corporation's accounting policies to loans, charge-offs, and interest income as a result of adopting these statements. Loans considered impaired under these statements include nonaccrual loans, restructured loans, and loans classified as at least doubtful under the Corporation's credit risk classification system. All of the Corporation's impaired loans are included in the nonperforming category.
NONACCRUAL LOAN POLICY. The Corporation follows banking regulatory guidelines with respect to classifying loans on a nonaccrual basis. Loans are placed on nonaccrual when the loan becomes past due over 90 days with no intervening activity or when the collection in full of interest and principal is doubtful. Thereafter, no interest is taken into income unless received in cash or until such time as the borrower demonstrates the ability to pay interest and principal.
IV. SUMMARY OF LOAN LOSS EXPERIENCE
Information required in this table is incorporated herein by reference to the 1995 Annual Report to Stockholders included as Exhibit 2. The information required is contained in Table 3, "Analysis of the Allowance for Loan Losses" on page 27 of Exhibit 2, within the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations".
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
The Corporation's subsidiary banks do not allocate the allowance for loan losses by specific loan categories. However, bank disclosure guidelines issued by the Securities and Exchange Commission request management to allocate the total allowance for loan losses into certain categories. Accordingly, management has allocated the allowance for loan losses by loan category based on historical charge-off experience and management's evaluation of potential losses in the loan portfolio. The specific allocations are not intended to be indicative of future charge-offs. The unallocated portion of the
allowance for loan losses represents that portion of the allowance which has not been specifically allocated by the analysis performed. The percent of loans in each category to total loans and the allocation of the allowance for loan losses at December 31 of each year, in thousands, is as follows:
Management believes that the portfolio is well diversified and, to a large extent, secured without undue concentrations in any specific risk area. Control of loan quality is continually monitored by management. Management's system of review of the loan portfolio and the attendant determination of the adequacy of the allowance for loan losses is made up of a number of factors. The most significant part of the system is the independent credit review system which reviews all commercial credits in excess of $100,000 and all commercial real estate credits in excess of $250,000 on an annual basis at a minimum, with problem credits reviewed more often as necessary. An informed, judgmental determination is made of the risk associated with loans which have received low grades under the credit review system. This estimated risk is taken into account in determining the allowance for loan losses. In addition, the allowance includes a substantial reserve for coverage of unidentified risks.
In addition to the credit review system, on a quarterly basis an internal report provides an analysis of the adequacy of the allowance for management and the Board of Directors. This analysis focuses on allocations based on loan review ratings and historical charge-off and recovery data. Management also reviews the status of all watch list credits on a monthly basis. The process and the amount of the allowance and of the provision have also been subject to the review of external auditors and banking regulatory authorities, and management believes that it has an effective system of credit review assessment demonstrated by the fact that the Corporation has not recorded a significant loss that had not been previously identified as a watch list credit by the loan review process.
V. DEPOSITS
Reference is made to (I.) Distribution of Assets, Liabilities and Stockholders' Equity for data regarding average daily deposits and rates paid thereon for the years ended December 31, 1995, 1994 and 1993. The aggregate amount of certificates of deposit, in denominations of $100,000 or more, by maturity, as of December 31, 1995 are shown below, in thousands.
VI. RETURN ON EQUITY AND ASSETS
The following table shows consolidated operating and capital ratios for years ended December 31, 1995, 1994 and 1993. The return on average assets and the return on average stockholders' equity is calculated by dividing net income for the period by average assets or average stockholders' equity, respectively. The dividend payout ratio is calculated by dividing total dividends paid by net income.
VII. SHORT-TERM BORROWINGS
The following table shows the distribution of short-term borrowings and the weighted average interest rates thereon for the years ended December 31, 1995, 1994 and 1993. Also provided is the maximum amount of short-term borrowings as well as weighted average interest rates for the same periods. Dollars are in thousands.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on March 19, 1996.
PINNACLE BANC GROUP, INC.
By: /s/ John J. Gleason By: /s/ William P. Gleason ------------------------- --------------------------- John J. Gleason William P. Gleason Chairman President
By: /s/ John J. Gleason, Jr. By: /s/ Sara J. Mikuta ------------------------- --------------------------- John J. Gleason, Jr. Sara J. Mikuta Vice Chairman and Principal Financial and Chief Executive Officer Principal Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following Directors on behalf of the registrant on March 19, 1996.
/s/ James L. Green ______________________________ ______________________________ Richard W. Burke James L. Greene
/s/ Mark P. Burns /s/ Donald G. King ______________________________ ______________________________ Mark P. Burns Donald G. King
/s/ William J. Finn, Jr. /s/ James A. Maddock ______________________________ ______________________________ William J. Finn, Jr. James A. Maddock
/s/ James J. McDonough ______________________________ ______________________________ Samuel M. Gilman James J. McDonough
______________________________ ______________________________ Albert Giusfredi William C. Nickels
/s/ John J. Gleason /s/ John E. O'Neill ______________________________ ______________________________ John J. Gleason John E. O'Neill
/s/ John J. Gleason, Jr. /s/ James R. Phillip, Jr. ______________________________ ______________________________ John J. Gleason, Jr. James R. Phillip, Jr.
/s/ William P. Gleason /s/ Kenneth C. Whitener. Jr. ______________________________ ______________________________ William P. Gleason Kenneth C. Whitener, Jr.


ITEM 1. BUSINESS
The Registrant, MRI Medical Diagnostics, Inc., a Colorado corporation (the "Company"), was incorporated on November 12, 1971 as Sierra Resources, Inc. The Company changed its name to Petro-Global, Inc. on May 27, 1987, and to MRI Medical Diagnostics, Inc. on February 12, 1992 when, pursuant to a change of control, the Company redirected its business purposes to medical diagnostic imaging services. In July 1993, the Company and its wholly owned subsidiaries each filed for bankruptcy in the Central District Court of California. On November 7, 1995, the Court approved and declared effective a reorganization plan for the Company, which went into effect on January 2, 1996.
Pursuant to the Reorganization Plan, Tri-National Development Corporation, a Wyoming corporation, obtained all of the stock of MRI Grand Terrace, Inc., the Company's wholly owned subsidiary, in partial exchange of which the bankruptcy estate is to receive 30% of the net proceeds on that portion of any resulting judgment issued to MRI Grand Terrace, Inc. out of litigation between Tri-National Development Corporation and MRI Grand Terrace, Inc. against Citizens Business Bank, then Chino Valley Bank. On June 3, 1998, the California Superior Court of San Bernardino County entered a gross judgment in favor of Tri-National Development Corporation and MRI Grand Terrace, Inc. in the approximate amount of $5,000,000. Approximately $4,411,911 of the gross judgment was awarded to MRI Grand Terrace, Inc. The judgment is currently under appeal and, due to the risk of reversal, the Company is unable to estimate the amount of proceeds, if any, that the bankruptcy estate may receive. See, "LEGAL PROCEEDINGS" below. In the event of recovery on the judgment, the amount received by the Company will be less the amounts due the claimants in the bankruptcy proceedings and fees paid to the bankruptcy trustee. The Company is unable to determine the extent of such claims and fees at this time.
On July 15, 1997, the Company approved the Agreement and Plan of Reorganization with Alpine Herbs & Nutrition International, Inc., a Nevada Corporation ("Alpine"). The Agreement provided for the acquisition of 100% of the common stock of Alpine for 4,000,000 post-split shares of the common stock of the Company. The Agreement was later rescinded by mutual agreement of the parties and the share certificates for 3,900,000 shares issued were canceled on the Company's books with the understanding that the original certificates would be returned to the Company.
Current management has become aware that certificates for approximately 2,500,000 of the shares issued as part of the rescinded transaction with Alpine have not been submitted to the Company for cancellation. Management is in the process of trying to obtain these share certificates for cancellation. The Company has issued stop transfer instruction to its transfer agent to prohibit transfer of these shares. However, recent revisions to the Colorado Uniform Commercial Code may result in these instructions being treated as an adverse, third party claim, and the Company may be forced to obtain an injunction to prevent transfer of the shares. Should such an action be necessary, the holders of the certificates may be held liable to the Company for their bad faith retention of the certificates.
The Company has no current operations, and has retained the services of Intermountain Capital Corporation to seek possible merger candidates for the Company and to accomplish the sale, merger, exchange, capital investment, loan, joint venture or such other transaction as is deemed advisable subject to the approval of the Company's Board of Directors and shareholders.
On June 1, 2000, the Company received a Letter of Intent from a Delaware corporation, the terms of which would provide for the reverse acquisition of the Company through the acquisition of a majority interest in its common stock. The Letter of Intent has been signed on behalf of the Company; however, there can be no assurance as to if and when the contemplated transaction will be consummated. The parties are still in the due diligence phase of negotiations.
ITEM 2.

ITEM 2. PROPERTIES
Not Applicable.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
The Bankruptcy Trustee continues to monitor application of the Company's reorganization plan, specifically with respect to the collection of the judgment rendered in favor of MRI Grand Terrace, Inc. and Tri-National Development Corporation against Citizens Business Bank. Pursuant to the Settlement Agreement approved by the Bankruptcy Court, the bankruptcy estate is entitled to recover 30% of the net proceeds of any judgment received by MRI Grand Terrace, Inc. rendered in the litigation. On August 17, 1998, Citizens Business Bank posted a $7.5 million bond and filed its appeal on June 16, 1999 with the California Court of Appeals, San Bernardino County. Due to the risk of reversal on appeal, the Company is unable to estimate the proceeds, if any, that the bankruptcy estate may recover on the judgment. Any amount recoverable by the bankruptcy estate will be less attorney fees and any fees paid to the trustee.
Current management has become aware that certificates for approximately 2,500,000 of the shares issued as part of the rescinded transaction with Alpine have not been submitted to the Company for cancellation. Management is in the process of trying to obtain these share certificates for cancellation. The Company has issued stop transfer instruction to its transfer agent to prohibit transfer of these shares. However, recent revisions to the Colorado Uniform Commercial Code may result in these instructions being treated as an adverse, third party claim, and the Company may be forced to obtain an injunction to prevent transfer of the shares. Should such an action be necessary, the holders of the certificates may be held liable to the Company for their bad faith retention of the certificates.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fiscal year ended March 31, 2000.
PART II
ITEM 5.

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock is currently traded on the Over-the-Counter Bulletin Board under the symbol "MMDI." Following is a statement of the high and low bid information for each full quarter since the Company's stock began trading on the OTC in September 1997, including the incomplete period ending June 6, 2000.
QUARTER HIGH LOW CLOSE 09/30/97 1/2 3/32 13/64 12/31/97 5/16 1/8 5/32 03/31/98 11/64 3/64 3/64 06/30/98 5/64 3/64 3/64 09/30/98 3/32 3/64 3/64 12/31/98 3/64 1/32 1/32 03/31/99 1/16 1/32 3/64 06/30/98 3/32 1/32 1/32 09/30/98 1/16 1/64 1/64 12/31/99 3/64 1/64 1/32 03/31/00 29/64 1/32 1/4 06/30/00 21/64 1/8 11/64
As of May 31, 2000, there were approximately 2,425 holders of record of the Common Stock.
The Company has not declared any cash dividends on its Common Stock since the Company's formation in November 1971.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA
The following selected historical financial data set forth below have been derived from, and are qualified by reference to (i) the audited Consolidated Financial Statements of the Company for the fiscal year ended March 31, 2000 as compared to the fiscal year ended March 31, 1999. The audited financial statements referred to above are included elsewhere herein. The selected financial data set forth below should be read in conjunction with, and are qualified by reference to, Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Financial Statements and accompanying notes included elsewhere herein.
FISCAL YEAR ENDED MARCH 31 1999 2000 ---- ---- Income Statement Data: Operating revenue (1) . . . . . . . . . . . $ 0 $ 0 Expenses. . . . . . . . . . . . . . . . . . Net Income. . . . . . . . . . . . . . . . . $ 0 $ 0 Accumulated deficit, beginning. . . . . . . $(1,563,343) $(1,582,079) Accumulated deficit, ending . . . . . . . . $(1,563,343) $(1,582,079) ----------- -----------
Earnings per share. . . . . . . . . $ 0 $ 0
Balance Sheet Data (at end of period): Total assets. . . . . . . . . . . . . . . . $ 0 $ 0 Total debt. . . . . . . . . . . . . . . . . $ 3,413 $ 22,149 Total Stockholders equity . . . . . . . . . $ (3,413) $ (22,149)
Other Financial Data: Cash flows. . . . . . . . . . . . . . . . . $ 0 $ (18,736)
(1) Currently, the Company has no operations and is evaluating its options in the acquisition by or merger with another Company.
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
YEAR ENDED MARCH 31, 1999 COMPARED TO YEAR ENDED MARCH 31, 2000
The Company had no operation during the fiscal years ended March 31, 1999 and 2000.
LIQUIDITY AND CAPITAL RESOURCES
Pursuant to the Reorganization Plan, Tri-National Development Corporation, a Wyoming corporation, obtained all of the stock of MRI Grand Terrace, Inc., the Company's wholly owned subsidiary, in partial exchange of which the bankruptcy estate is to receive 30% of the net proceeds of litigation between MRI Grand Terrace, Inc., Tri-National Development Corporation and Citizens Business Bank to which MRI Grand Terrace, Inc. would be entitled, pending in the California Superior Court, San Bernardino County. On June 3, 1998, the Superior Court entered judgment in favor of MRI Grand Terrace, Inc. and Tri-National Development Corporation in the approximate amount of $5,000,000. The judgment is currently under appeal. See, "LEGAL PROCEEDINGS" above. The Company continues to monitor the appeal, and hopes to use any resulting proceeds in its efforts to locate a potential purchaser or merger candidate. The Company has retained the services of Intermountain Capital Corporation to seek such possible merger candidates for the Company and to accomplish the sale, merger, exchange, capital investment, loan, joint venture or such other transaction as is deemed advisable subject to the approval of the Company's Board of Directors and shareholders.
YEAR 2000
The Company has not experienced any negative effects as a result of the Year 2000 problem, and, because there are no current operations, does not anticipate related difficulties over the next few months. There is no assurance that any of the possible merger candidates that the Company has or will approach will be Year 2000 compliant or that such candidates will not experience Year 2000-related "glitches" over the next six months. As part of its due diligence in locating potential candidates, the Company will determine the Year 2000 compliance of each such candidate.
FORWARD-LOOKING STATEMENTS
Except for the historical statements and discussions contained herein, statements contained in this report constitute "forward-looking statements" as defined in the Securities Act of 1933 and the Securities Exchange Act of 1934, as amended. These forward-looking statements rely on a number of assumptions concerning future events, and are subject to a number of risks and uncertainties and other factors, many of which are outside the control of the Company, that could cause actual results to differ materially from such statements.
Readers are cautioned not to put undue reliance on such forward-looking statements, each of which speaks only as of the date hereof. Factors and uncertainties that could affect the outcome of such forward-looking statements include, among others, market and industry conditions, increased competition, changes in governmental regulations, general economic conditions, pricing pressures, and the Company's ability to continue its growth and expand successfully into new markets and services. The Company disclaims any intention or obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the Financial Statements contained in Part IV hereof.
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors of the Company are elected annually by its shareholders to serve during the ensuing year or until a successor is duly elected and qualified. Executive officers of the Company are duly elected by its Board of Directors to serve until their respective successors are elected and qualified. The following table sets forth certain information with respect to the directors and executive officers of the Company.
NAME AGE POSITION OR OFFICE
Jacob J. Parker, M.D. 62 Director and Vice-President
William J. Piggott, M.D. 55 Director and Secretary
Javaid I. Sheikh 46 Director, President and Treasurer
JACOB J. PARKER, M.D. (62), Director and Vice-President of the Company since June 20, 2000. He held the office of President for the Company from March 4, 1998 until that date. Dr. Parker also serves as Vice-President of Medical Development for Tri-National Development Corporation, a reporting company, and has held that position he has held since 1996. Dr. Parker is currently Medical Director and Director of Radiology for several MRI centers and breast imaging centers in Northern California. He was previously Chief of Radiology and Nuclear Medicine at Ross General Hospital, Clinical Professor of Radiology at the University of California, Irvine, and Instructor of Radiology at the University of Southern California Medical Center from 1970 to 1988. Dr. Parker received his M.D. from the University of Manitoba, Canada in 1962.
WILLIAM J. PIGGOTT, M.D. (55), Director and Secretary of the Company since March 24, 1998. Dr. Piggott currently operates an international medical technology consulting firm, I.M.T.E.C., as a sole proprietorship. In the past, he has served with or been a member of the American Society of anesthesiologists, the California Society of Anesthesiologists, the California Medical Association and the San Diego County Medical Association. Dr. Piggott obtained his M.D. from the University of California at San Diego in 1972.
JAVAID IQBAL SHEIKH, M.D. (46), Director, President and Treasurer of the Company since June 20, 2000. He held the office of Vice-President from March 4, 1998 until appointed President on June 20, 2000. Dr. Sheikh is an associate professor of psychiatry at the Stanford University School of Medicine, a position he has held since 1993. At the University, Dr. Sheikh's research focuses on studying phenomenology, vulnerability factors, and psychiatric and medical comorbidity of panic disorder in old age, as well as treatment responses to medication in elders with panic disorder. Dr. Sheikh obtained his M.D. from King Edward Medical College in 1978.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
None of the executive officers listed in Item 10 received compensation for their services during the Company's fiscal year ended March 31, 2000. The Company is not bound by any employment agreement with past or present employees of the Company, and has no current employees other than the officers listed above.
DIRECTOR COMPENSATION
None of the directors listed in Item 10 above have received any compensation for their services as directors of the Company for the Company's fiscal year ended March 31, 2000.
OPTION PLANS
The Company does not currently maintain a stock option plan, employee stock purchase plan or any other employment compensation plan. Currently, there are no outstanding options to purchase MRI stock.
COMMITTEES
The Company does not currently have an executive compensation committee.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number and percentage of shares of each class of the Company's capital stock beneficially owned as of May, 2000, by (i) each person known to the Company to be the beneficial owner of more than 5% of any class of the Company's equity securities, (ii) each of the Company's directors and nominees, and (iii) all directors and executive officers of the Company as a group.
TITLE NAME AND ADDRESS AMOUNT AND NATURE PERCENTAGE OF CLASS OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP OF CLASS
No Par Value Jacob J. Parker 243,317 shares(2)(5) 0.178% Common Stock Director and Vice-President 333 Locust Ave. San Rafael, CA 94901
No Par Value William J. Piggott 151,785 shares(2) 0.1% Common Stock Director and Secretary 7833 Lower River Road Grants Pass, OR 97526
No Par Value Javaid I. Sheikh 160,068 shares(2) 0.12% Common Stock Director, President and Treasurer 988 St Joseph Ave, Los Altos, CA 94024
No Par Value Michael A. Sunstein 1,351,488 shares(1)(2) 9.86% Common Stock 480 Camino del Rio South Suite 140 San Diego, CA 92108
No Par Value Ronald C. Hibbard 1,720,000 shares(3)(4) 12.56% Common Stock 72-751 Jamie Way Rancho Mirage, CA 92270
No Par Value Jeanne M. Hibbard 1,560,000 shares(3)(4) 11.38% Common Stock 72-751 Jamie Way Rancho Mirage, CA 92270
No Par Value Rod Jones 1,000,000 shares(4) 7.3% 75-560 Mary Lane Indian Wells, CA 92210
No Par Value All directors and 555,170 shares 0.41% Common Stock officers as a group
(1) Includes 15,616 shares held indirectly for Post Kirby Noonan & Sweat, LLP, 401,948 shares held by Tri-National Development Corporation, a company in which Mr. Sunstein is an officer, director and majority shareholder, and 140,000 issued on February 17, 2000 as repayment of a loan to the Company.
(2) During its 1999 calendar year, the Company borrowed $7,000 each from Jacob J. Parker, William J. Piggott, Javaid J. Sheikh and Michael A. Suntein to pay expenses. Each of the lenders agreed that the Company could pay back the loans in shares of restricted common stock of the Company. On February 17, 2000, the Company issued 140,000 shares each to these persons as repayment of their loans to the Company. (3) Includes 1,520,000 shares held jointly by Ronald C. Hibbard and Jeanne M. Hibbard and 40,000 shares held in trusts for which Mrs. Hibbard acts as trustee. Mr. Hibbard is deceased and 200,000 of the 1,720,00 shares attributable to him are apparently being held by his estate. (4) These shares were issued pursuant to the Agreement and Plan of Reorganization with Alpine Herbs & Nutrition International, Inc., a Nevada Corporation ("Alpine") on July 15, 1997. Of the 4 million shares issued pursuant to this Plan, 3.9 million shares were cancelled and returned to treasury pursuant to the subsequent recission of the Plan. (5) Includes 85,067 shares held by Ross Radiology Medical Group, Inc., Dr. Parker's pension trust.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During its fiscal year ended March 31, 1999 and the nine-month interim period ended December 31, 1999, the Company borrowed funds from each of its officers and directors in an amount of $7,000 each, to be repaid with restricted shares of the Company's common stock. On February 17, 2000, the Company issued 140,000 shares each to its officers and directors in full payment of these loans. These funds, along with $14,000 borrowed from Michael A. Sunstein and Delanorte Investments, Inc., were borrowed in order to pay expenses incurred by the Company, including amounts due to the Company's transfer agent. In February 2000, the Company issued 140,000 shares to each of Palomar Investment, Inc., a company in which Michael A. Suntein, as community property with his spouse, maintains a majority ownership interest, and Delanorte Investments, Inc. in repayment of these loans.
ADVISORY SERVICES AGREEMENT
The Company has retained the services of Intermountain Capital Corporation to seek possible merger candidates for the Company and to accomplish the sale, merger, exchange, capital investment, loan, joint venture or such other transaction as is deemed advisable subject to the approval of the Company's Board of Directors and shareholders. Pursuant to the agreement, the Company issued 500,000 shares of its common stock to Intermountain in February 2000.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements. The following financial information for the Company for the fiscal years ended March 31, 1999 and 2000 is filed as part of this report.
MRI Medical Diagnostics and Independent Auditors' Report. . . . . . . . . . . . . . . . . . . .F-1 Balance Sheets at March 31, 1999 and 2000 . . . . . . . . . . . . .F-2 Statements of Income & Retained Earnings for March 31, 1999 and 2000 . . . . . . . . . . . . . . . . . . . . . .F-3 Statements of Cash Flows for March 31, 1999 and 2000. . . . . . . .F-4 Notes to Financial Statements . . . . . . . . . . . . . . . . . . .F-5
2. Financial Statement Schedules.
Not Applicable.
3. Exhibits
Exhibit No. - ------------ * 3.1 Articles of Incorporation of Registrant. * 3.2 By-Laws of Registrant. * 10.1 MRI/Colorado agreement to acquire MRI/California. * 10.2 MRI/Colorado agreement to acquire Grand Terrace retirement hotel. * 10.3 MRI/Colorado agreement to acquire Sierra Cardiac. ** 10.4 Agreement and Plan of Reorganization dated June 20, 1997 between Registrant and Alpine Herbs & Nutrition International, Inc. *** 10.5 Advisory Agreement between the Registrant and Intermountain Capital Corporation dated February 19, 1999. 27.1 Financial Data Schedule *** 99.1 Order Approving Application to Compromise Controversy entered on August 31, 1995 by Federal Bankruptcy Court.
- ---------------- * Previously filed with Amended Form 10-K filed June 21, 1993.
** Previously filed with Form 8-K filed July 15, 1997.
*** Previously filed with Form 10-K filed February 4, 2000.
(b) Reports on Form 8-K
During the fiscal year ended March 31, 1999, no reports were filed on Form 8-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
MRI MEDICAL DIAGNOSTICS, INC.
Dated: July 12, 2000 /s/ JACOB J. PARKER -------------------------------------- Jacob J. Parker, M.D. Executive Vice-President
Dated: July 12, 2000 /s/ WILLIAM J. PIGGOTT -------------------------------------- William J. Piggott, M.D. Secretary
Dated: July 12, 2000 /s/ JAVAID I. SHEIKH -------------------------------------- Javaid I. Sheikh, M.D. President
MRI Medical Diagnostics and Independent Auditors' Report. . . . . . . . . . . . . . . . . . . .F-1 Balance Sheets at March 31, 1999 and 2000 . . . . . . . . . . . . .F-2 Statements of Income & Retained Earnings for March 31, 1999 and 2000. . . . . . . . . . . . . . . . . . . . . .F-3 Statements of Cash Flows for March 31, 1999 and 2000. . . . . . . .F-4 Notes to Financial Statements . . . . . . . . . . . . . . . . . . .F-5
LUDLOW & HARRISON a CPA corporation
3545 Camino Del Rio South, Suite D (619) 283-3333 San Diego, CA 92108 Fax: (619) 2837997
INDEPENDENT AUDITOR'S REPORT ----------------------------
We have audited the accompanying balance sheets of MRI Medical Diagnostics, Inc. as of March 31, 1999 and 2000, and the related statements of income, retained earnings, cash flows and stockholders' equity for the years ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit on accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance that the financial statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as assessing the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of MRI Medical Diagnostics, Inc. as of March 31, 1999 and 2000, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles.
/s/ LUDLOW & HARRISON
Ludlow & Harrison A CPA Corporation
June 19, 2000
MRI MEDICAL DIAGNOSTICS, INC. Balance Sheets March 31,
2000 1999 ---- ----
Total Assets $ - $ - =========== ===========
Accounts Payable $ 22,149 $ 3,413 ----------- ----------- Total Current Liabilities 22,149 3,413 ----------- -----------
Stockholders' Equity Capital Stock Common, no par value Authorized 50,000,000 shares, outstanding 8,600,657 shares
Preferred, no par value Authorized 10,000,000 shares, no shares issued 1,599,930 1,599,930
Accumulated Deficit (1,582,079) (1,563,343) ----------- -----------
Total Stockholders' Equity ( 22,149) ( 3,413) ----------- -----------
Total Liabilities and Stockholders' Equity $ - $ - =========== ===========
See accountant's report and notes to financial statements.
MRI MEDICAL DIAGNOSTICS, INC. Statements of Income and Retained Earnings March 31,
2000 1999 ---- ----
Revenues $ - $ -
Expenses 18,736 - ----------- -----------
Net Income ( 18,736) -
Accumulated deficit, beginning (1,563,343) (1,563,343) ----------- -----------
Accumulated deficit, ending $(1,563,343) $(1,563,343) ----------- -----------
Earnings per share $( .0022) $ - =========== ===========
See accountant's report and notes to financial statements.
MRI MEDICAL DIAGNOSTICS, INC. Statements of Cash Flows March 31,
2000 1999 ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES Net Loss $( 18,736) $ - Adjustments to reconcile net loss to net cash provided by operating activities: Increase in accounts payable 18,736 - ----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES - -
CASH AT BEGINNING OF YEAR - - ----------- -----------
CASH AT OF YEAR $ - $ - =========== ===========
See accountant's report and notes to financial statements.
MRI MEDICAL DIAGNOSTICS, INC. NOTES TO FINANCIAL STATEMENTS MARCH 31, 1999 AND 2000
Note A - Significant Accounting Policies
Nature of Business - ------------------
The business of the Company in the past has consisted of the acquisition, development and operation of outpatient medical diagnostic imaging facilities. Currently, the Company is not operating and is evaluating its options in the acquisition or merger with another company.
Taxes - -----
The Company owes taxes to the Franchise Tax Board of the State of California. The minimum tax in the State of California for the privilege of doing business within the State of California is $800 per year.