SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
Commission File No. 0-22919
PRIME COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 52-2031531
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
155 MONTGOMERY STREET 94104 (Zip Code)
SAN FRANCISCO CALIFORNIA
(Address of principal executive offices)
Registrant's telephone number, including Area Code: (415) 398-4242
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act: Common Stock
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 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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-B is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB Yes No X
Aggregate market value of voting stock held by non-affiliates of the
registrant at MARCH 1, 1998:
Currently there is no public market for these securities.
Number of shares of common stock outstanding at December 31, 1997:
Common Stock - 3,843,123
Documents incorporated by reference:
Company's Notice and Proxy Statement for its annual meeting of stockholders to
be held on Monday, March 23, 1998 filed as an exhibit hereto and incorporated
in Part III hereof.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
The Company operates as an irregular route, truckload carrier transporting a
range of commodities, including refrigerated food products, manufactured goods,
retail store merchandise, paper products, beverages and paints and chemicals,
between the western and northeastern United States and the provinces of Ontario
and Quebec, Canada. The Company transports various types of freight (except
certain types of explosives, household goods, hazardous materials and
commodities in bulk) from generally any point in the continental United
States to any other point in another state. The Company also operates a
growing logistics business that organizes transportation services for a
Fortune 500 corporation, and is developing new customer accounts.
In 1996, the Company acquired a small trucking company that was incorporated on
August 29, 1994 but inactive until 1996 when it acquired two tractors and
trailers, and initiated operations on a very small scale. The Company
later acquired the business of an established trucking company, and
management has successfully assumed control of this 33 year old trucking
operation. The Company's management has successfully integrated the
operations of two trucking companies to form a single fleet that provides
reliable service to existing and new customers. The Company's trucking
operation has gained a reputation for excellent service and expanded the
existing business of the acquired trucking company. Since January 1, 1997
the Company also initiated logistics operations in 1997, in order to provide
a broader range of transportation services. By offering logistics services,
the Company serves a greater share of companies in need of transportation
services and provides freight hauling without incurring the overhead
associated with owning or leasing a diversified fleet of tractors, trailers
and flatbeds. Additionally, the logistics and trucking operations complement
each other and create financial and operating synergies. Since the
inception of its logistics operations, the Company has consistently
increased its logistics-based monthly revenues. The logistics operation
partially serves as the marketing arm of the Company's trucking operation,
while also diversifying the Company's operations within the transportation
industry.
MARKETING AND CUSTOMERS
The Company operates in the non-local segment of the trucking industry, which
segment had estimated revenues of $330 billion in 1995. The trucking
industry can be further segmented into an estimated $55 billion for-hire
truckload segment and an estimated $110 billion private fleet segment, in
which companies transport goods for their own account. Truckload carriers
typically transport full trailer loads directly from origin to destination
without en route handling.
The truckload industry is highly fragmented, with the ten largest for-hire
truckload carriers accounting for less than 18% of total for-hire truckload
revenues in 1995. A variety of niches have developed within the truckload
industry based upon equipment type, length of haul, geographic region and
service criteria. The truckload transportation industry is currently
undergoing changes that affect both shippers and carriers. An increasing
number of shippers are focusing their capital resources on their primary
business and are outsourcing their transportation requirements to independent
carriers. Furthermore, many shippers are seeking to reduce the time and cost
of bringing finished products to the market quickly through the use of
just-in-time inventory management and regional assembly/distribution
methods, all of which make on-time pickup and delivery requirements more
important to shippers. Shippers also are seeking to reduce the number of
authorized carriers they use and to establish service-based, long-term
relationships with a small group of preferred or "core carriers." This helps
to ensure higher quality and more consistent service for the shipper, while
providing the carrier the opportunity for higher equipment utilization and more
predictable revenue streams. In this environment, shippers selectively choose
carriers that are financially stable and, based on measurable attributes, can
meet their distribution and service requirements. For example, carriers must
deliver shipments on a timely basis and possess reliable, quality equipment
and offer specialized services to customers. This trend toward the use of
"core carriers" offers significant growth opportunities for carriers that
possess financial stability and critical mass to support high equipment
utilization, a commitment to quality service and technological capabilities.
Carriers that do not possess these capabilities or that are less efficient
have begun to exit the truckload industry through liquidation or from
continued industry consolidation. The Company believes that this
consolidation trend in the industry will continue and that the trend toward
consolidation will provide growth opportunities for efficient, well-run
carriers.
Many carriers have focused on regional growth strategies, as over 66% of the
truckload market are in shorter length (less than 500 miles) markets. A regional
focus provides a carrier the opportunity to haul loads from origin to
destination, without any need for intermediate sorting, and increases the
opportunities for providing higher service levels to customers. Furthermore,
a shortage of qualified drivers continues to constrain the truckload market,
and truckload carriers are constantly seeking methods, such as increased
driver compensation and other techniques, to attract and retain drivers.
Carriers with a regional focus participating in the short to medium-haul
market generally have had more success in attracting and retaining drivers
because drivers may return home with more regularity.
In the trucking industry, revenues generally show a seasonal pattern as some
customers reduce shipments during and after the winter holiday season. The
Company's operating expenses have historically been higher in the winter months
due primarily to decreased fuel efficiency and increased maintenance costs
of revenue equipment in colder weather. However, the Company attempts to
minimize the impact of seasonality through its marketing program, which
seeks additional freight from certain customers during traditionally slower
shipping periods. Revenue can also be affected by bad weather and holidays,
since revenue is directly related to available working days of shippers.
During the fiscal years ended December 31, 1997, National Grocers Company
accounted for 27.8%, and Vertex accounted for 19.6%, of operating revenue.
The 1997 fiscal year was the Company's first year where its principal revenues
were generated from business operations. As such, no accurate and comprehensive
comparison between the Company's 1997 and 1996 operating results is available.
The Company does not have long-term contracts with its customers, and,
accordingly, there is no assurance that the current volume of business from
these major customers will continue. Management believes that the sudden
loss of a significant customer could have a material adverse effect on
revenue, equipment utilization and operating efficiencies.
OPERATIONS
The Company's customers are located throughout the 48 contiguous states of
the U.S. and provinces of Quebec and Ontario, Canada. The Company hauls a
variety of products, but a substantial portion of its services are devoted to
hauling produce and other temperature sensitive goods. During 1997, the
Company's largest 5 freight hauling services customers comprised
approximately 62% of revenues. The Company's trucking operation currently
serves over 200 customers, the majority of which have been attracted during
1997. The Company also continues to serve customers served by its
predecessor/acquired company and has expanded its services to those customers.
The Company has an arrangement with one of its major customers whereby it will
provide drivers to drive the customers' tractors and trailers in order to
haul the customers' goods. This provides a source of revenue with little
overhead and allows the Company to serve more customers, since more of its
equipment is available for other deliveries.
The Company's logistics operation currently serves a major national corporation
and is expanding its services. Logistics provides services to customers
requiring truckload (TL) and Less-than-truckload (LTL) deliveries. Mid-Cal
Express Logistics provides freight hauling broker services. Logistics
companies, such as Mid-Cal Express Logistics, allow a shipper to place a
single call to arrange truckload services anywhere in the United States and
certain areas of Canada, without having to contact numerous individual
carriers who may or may not have a truck available for a particular shipment
to a particular destination.
Mid-Cal Express Logistics maintains a network of truckload carriers to serve
its customers. Upon receiving a call from a customer, a Mid-Cal Express
Logistics representative contacts various truckload carriers until locating one
that has the time and the proper equipment to transfer the freight. The
representative will make all of the arrangements to have the freight picked
up and delivered. Mid-Cal Express Logistics also tracks the vehicles and
monitors the shipment from pickup through delivery enabling customers to
contact it rather than the individual carrier to get information on their
shipment. Mid-Cal Express Logistics' customers are sent a single invoice for
all shipments and payments for those shipments it arranges, covering the
shipping and broker fees. Mid-Cal Express Logistics then pays the hired
carrier, and retains a portion of the total fee paid by the customer. Thus,
customers avoid having to pay multiple invoices from carriers and brokers.
Mid-Cal Express Logistics first attempts to assign its customers' routes to
Mid-Cal Express. This reduces search costs related to finding an appropriate
carrier to serve a customer's needs. Mid-Cal Express Logistics' customers have
priority access to Mid-Cal Express service, as Mid-Cal Express Logistics serves
as the primary broker for the trucking subsidiary. Mid-Cal Express Logistics
also retains a database of carriers to assign to routes in the event Mid-Cal
Express cannot meet the needs of the broker's customer. The needs of the
customer dictate the carrier Mid-Cal Express Logistics will assign.
Concentrations of credit risk with respect to trade accounts receivable are
limited due to the large number of entities comprising the Company's customer
bases and their dispersion across many different industries. The Company
performs ongoing credit evaluations and generally does not require collateral
from its customers. The Company's customers consist mostly of major national
corporations.
The Company does not engage in research and development, as the Company is
strictly involved in providing services and does not develop products and does
not plan to do so in the future. As part of operations, management performs
research of markets for the services provided by the Company. The Company's
management has identified possible new markets based on the following criteria:
market size, cost of entry, potential long-term profitability and synergy with
the Company's existing business. It was decided that Mid-Cal Express would
enter into the regional short-haul market. Regional short-haul consists of
dry-van freight with a shorter length of haul, generally around a major
metropolitan area or areas. Currently, the Company is largely involved in
temperature-controlled hauling of produce between the East and West coasts.
The Company also has a growing demand for its short-haul services along the
East Coast.
The Company's logistics service offerings build upon the existing strengths of
the Company's trucking operation while expanding the overall market in which
the Company serves the transportation needs of customers and aiding in the
growth of the Company's trucking operation. Currently, the Company's logistics
operation provides services to customers primarily located along the East
Coast, but is increasingly seeking to develop customers on the West coast.
The Company plans to expand this business to provide freight brokering and
management services to customers located throughout the United States.
The Company is currently researching the feasibility of acquiring small
logistics companies in desirable regions, as a method of accomplishing this
expansion.
The Company currently provides logistics services in connection with truck
freight hauling, but will research the possibility of expanding its service
offerings to include freight management in connection with other methods of
cargo transportation.
DRIVER AND OTHER EMPLOYEES
As of December 31, 1997, the Company employed 127 personnel; of these 93 were
employee drivers, 5 were in maintenance, 2 were in sales and marketing, and
the balance were in administration and management and two were logistics
representatives.
The Company also contracted with independent contractors (owner/operators)
throughout the year to provide equipment and human resources. None of the
Company's employees are represented by a labor union.
The recruitment, training and retention of qualified drivers are essential to
support the Company's continued growth and to meet the service requirements of
the Company's customers. Drivers are selected in accordance with Company-
specific quality guidelines relating primarily to safety history, driving
experience, road test evaluations and other personal evaluations, including
physical examinations and mandatory drug and alcohol testing. Drivers are
trained in all phases of the Company's policies and procedures, including
customer service requirements, general operations, fuel conservation and
equipment maintenance, operation and safety. Express' long-haul drivers
typically operate as teams, enabling faster delivery, greater equipment
utilization and more desirable trip-hours for the drivers.
The Company's drivers are compensated on the basis of miles driven and length
of haul. Drivers are also compensated for additional flexible services
provided to the Company's customers, as well as through bonuses for safety,
fuel efficiency, mileage and driver recruitment.The Company believes its
relationship with its employees is good.
INDEPENDENT CONTRACTORS (Owner/Operators)
The independent contractors utilized by the Company are owner/operators
who provide their own tractors, thus providing the Company's trucking
operation with an alternative method of obtaining additional revenue
producing equipment. The Company intends to continue to increase its use
of owner/operators. During 1997, the Company utilized an average of 65
independent contractors a week. Each owner/operator enters into a contract
with the Company pursuant to which it is required to furnish a tractor and a
driver or team of drivers exclusively to transport, load and unload goods
carried by the Company. Owner/operators are paid a fixed level of
compensation based on a fee per mile. Owner/operators are obligated to
maintain their own equipment and pay for their own fuel. The Company provides
trailers for each owner/operator. Since beginning operations in June 1996,
the Company has utilized the services of owner/operators to handle (on average)
approximately 45% of its hauling services.
FUEL
The Company, and the motor carrier industry as a whole, is dependent upon the
availability and cost of diesel fuel. Both the availability and the cost of
diesel fuel are influenced by economic and political events not within the
Company's control. The Company does not presently participate in any program
to insure price stability. Fuel costs during fiscal 1997 declined compared to
fiscal year 1996. Historically, most increases have not been passed through to
the Company's customers, through increased rates. Future shortages or
significant increased costs which could not be passed through to its
customers could have a material adverse impact on the Company's profitability.
GOVERNMENTAL REGULATION
The Company is a motor common and contract carrier previously regulated by both
the Interstate Commerce Commission ("ICC") and various state agencies. Although
the "ICC Termination Act of 1995" effectively eliminated the ICC as of January
1, 1996, most functions of the ICC were transferred to the Department of
Transportation ("DOT"). These regulatory authorities have broad powers
generally governing matters such as authority to engage in motor carrier
operations, rates and charges, accounting systems, certain mergers,
consolidations and acquisitions and periodic financial reporting. In
addition, the Company's Canadian business activities are subject to similar
requirements imposed by provincial and Canadian regulations.
The Company, like other motor carriers, is subject to certain safety
requirements governing interstate operations prescribed by the United States
Department of Transportation ("DOT") and by Canadian provincial authorities.
In addition, vehicle weight and dimensions are subject to federal, state, and
provincial regulations. Management believes that the Company is in compliance
in all material respects with applicable regulatory requirements relating to
its operations. The failure of the Company to comply with regulations of
the DOT, state or provincial agencies could result in substantial fines or
revocation of operating authorities. Federal, state and local environmental
laws and regulations impose requirements relating to, among other things,
contingency planning for spills of petroleum products, disposal of waste oil
and maintenance and testing of underground storage tanks. Management believes
that future compliance with such laws and regulations will not have a
material effect upon the Company's capital expenditures, earnings, or
competitive position.
COMPETITION
The truckload transportation industry is heavily fragmented and intensely
competitive. The Company has numerous competitors that vary in size, ranging
from small operators who can compete on certain lane segments due to lower
overhead, to significantly larger companies with greater financial resources,
more equipment, and larger volume capacities than the Company. The main
competitive factors in the truckload industry are service, pricing, and
availability of equipment. The Company competes primarily with other
long-haul truckload carriers of produce. To a lesser degree, the Company
competes with regional truckload carriers of produce as well as other goods.
Railroads, less-than-truckload carriers and private carriers also provide
competition, but to a minor degree.
Competition for the freight transported by Express is based primarily on
service and efficiency and, to some degree, on freight rates alone. Many other
truckload carriers have greater financial resources, own more equipment or
carry a larger volume of freight than Express. Express provides 24 hour
dispatch and sales service, which many smaller carriers do not provide.
Within the logistics services industry, key competitive factors include
information technology and carrier relationships. There are a number of other
companies in the logistics services business that have greater intangible
resources, more employees and a greater number of branch offices than the
Company.
SEASONALITY
In the trucking industry generally, results of operations show a seasonal
pattern because customers reduce shipments during the winter. The
Company's operating efficiency historically decreases during the winter
months due to increased maintenance costs, reduced fuel efficiency, detours
and delays for weather.
SAFETY AND INSURANCE
The Company is committed to ensuring that it has safe drivers and owner/
operators. The Company regularly communicates with drivers to promote safety
and to instill safe work habits through Company media and safety review
sessions. These programs reinforce the importance of driving safely,
abiding by all laws and regulations, regarding such matters as speed and
maximum driving hours, and performing equipment inspections. The Company
conducts quarterly safety training meetings for its drivers and owner/
operators. In addition, the Company has a recognition program for driver
safety performance.
The Company's Safety Director reviews all accidents, takes appropriate action
related to drivers, and examines trends and implements changes in procedures or
communications to address any safety issues. Management's emphasis on safety
also is demonstrated through its equipment specifications, maintenance programs
and payment of bonuses based on safety record.
The Company requires prospective drivers to meet or exceed the qualification
standards required by the U.S. Department of Transportation ("DOT"). The DOT
requires the Company's drivers and independent contractors to obtain national
commercial driver's licenses pursuant to regulations promulgated by the DOT. The
DOT also requires that the Company implement a drug testing program in
accordance with DOT regulations. The Company's program includes pre-
employment, random, post-accident and post-injury drug testing.
The principal claims arising in the Company's business consist of cargo loss
and damage, workers' compensation, and auto liability (personal injury and
property damage). The Company's insurance policies provide for general
liability coverage up to $1,000,000 per occurrence, automobile liability
coverage up to $1,000,000 per occurrence, and cargo insurance coverage up to
$1,000,000 per occurrence. An additional umbrella policy raises the Company's
base coverage up to $10,000,000. The Company carefully monitors claims and
participates actively in claims estimates and adjustment. The Company
believes that any exposure for claims in Express' operations is reduced due
to the fact that no physical handling, loading or unloading of freight or
equipment occurs at the Company's facility.
ITEM 2. DESCRIPTION OF PROPERTY
The Company maintains its offices at 155 Montgomery Street, Suite 406 San
Francisco, California. The office space, which is 680 square feet, is leased
under a one-year lease expiring in November 1998. Prior to December 1, 1997,
offices were located at 155 Montgomery Street, Suite 411 in San Francisco,
California.
The Company's trucking operations are based at 21496 Main Street in Grand
Terrace, California, as of December 31, 1997. This property includes 6,200
square feet of office space and a 2,400 square foot storage facility on 5.31
acres of industrial zoned land. This property is subject to a capital lease,
the term of which is two years, ending December 31, 1999. The Company
currently plans to exercise its option to purchase this property for
$550,000 at the end of the lease period, with rent payments (in full)
applied toward this purchase price. The Lessor will finance the unpaid portion
of the purchase price ($442,000) at an interest rate of 9% per annum. The
note will amortize over 30 years, ballooning at the end of three years. Prior
to December 1997, the trucking operation was headquartered at 325 North Cota
Street, Corona, California 91720 on a month to month basis at $6,000 a month,
since May 1997. The Corona headquarters was assumed by the Company from its
predecessor (Country Wide). The facilities in Corona included a 20,000
square foot building on 5.38 acres of industrial zoned land.
The Company's logistics operation maintains its office at 1003 Old Philadelphia
Road, Aberdeen, Maryland 21001. These offices are rented under a one-year
lease, ending August 1, 1998, with rental payments of $250.00 per month for
300 square feet. The Company has an option to renew the lease.
EQUIPMENT AND TECHNOLOGY
Most of the Company's equipment is utilized in connection with the trucking
business. As of December 31, 1997, the Company operated a total of 102 company-
owned or leased tractors and used an average of 65 owner-operators that
provided one or more pieces of operating equipment. As of the same date, the
Company operated a modern fleet, with the average age of tractors being less
than three years and more than 50% of the tractors manufactured by Freightliner.
The tractors were operated in the service divisions as follows: 100%
temperature sensitive long hauls. The driving is roughly divided as follows:
30% single drivers and 70% driving teams. The Company leases its tractors
from large national leasing companies or through the leasing programs of the
manufacturer. This leasing strategy gives the Company the availability of
nationwide maintenance facilities to ensure minimal down time in case of
mechanical failure, as well as a nationwide system for the performance of
scheduled preventative maintenance, no matter where the individual unit is
located. These tractors are covered by manufacturer warranties during most
of their lease term, which yields savings in maintenance costs.
The current trailer fleet contains all modern 48 and 53-feet long, high cubic
capacity refrigerated units. The average age of the trailer fleet is less than
three years. As of December 31, 1997, the Company operated a fleet of 150
trailers. The use of newer equipment minimizes maintenance costs. The
Company adheres to a comprehensive maintenance program for both tractors and
trailers. Owner-operator tractors are inspected prior to acceptance by the
Company for compliance with operational and safety requirements of the Company
and the Department of Transportation. These tractors are then periodically
inspected, similar to Company-owned tractors, to monitor continued compliance.
The Company has invested heavily in modern computer and communications
technology. The modern tractor fleet operated by Mid-Cal Express (and most of
the equipment operated by companies utilized by Mid-Cal Express Logistics)
utilizes onboard computers with satellite communications capabilities. In the
case of the Mid-Cal Express fleet, approximately 40 tractors are equipped with
a QUALCOMM satellite communications system. QUALCOMM allows the dispatchers to
follow the progress of a vehicle's speed, fuel consumption, and most
importantly, its adherence to schedule, while allowing the timely and
efficient communication of operating data, such as pickup and delivery
instructions, directions to customer facilities, loading instructions, routing,
fuel, taxes, mileage, payroll, safety, weather advisories, and traffic and
maintenance information to the drivers. The Company plans to equip the balance
of its tractors with QUALCOMM in the next twelve months. The satellite tracking
of the movement of the vehicles, including schedule, speed, and fuel
consumption, together with the availability of two-way communication, has
allowed the Company to fine tune its operation and deliver its customers
consistent on-time service. Additionally, the Company utilizes EDI
(Electronic Data Interchange) for billing and order communications with its
customers that also use EDI. This system automates purchasing and billing,
enabling time and cost efficiencies to be realized. Logistics also utilizes
the satellite equipment and software whenever possible and practical.
In order to maintain the highest level of quality control and meet its
customers' strict performance standards, the Company's central dispatching/
customer service unit operates 24 hours a day, seven days a week. If any
problem should develop, managers and supervisors are either on hand or readily
available to the dispatch center.
AGE OF EQUIPMENT
The following table shows the type and average age of equipment operated by the
Company at December 31, 1997:
OVER-the-ROAD 48-FOOT 53-FOOT
TRACTORS TRAILERS TRAILERS
Company Owned 49 (AVG AGE-3YRS) - 35 (AVG
AGE-3YRS)
Company Leased 16 (AVG AGE-1YR) 114 (AVG AGE-2 YRS) -
Owner/Operator 35 (AVG AGE-3YRS) - -
Total 100 114 35
ITEM 3. LEGAL PROCEEDINGS
The Company is exposed to routine litigation incidental to its business,
primarily involving claims for personal injuries and property damage
incurred in the transportation of freight.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company has reserved the trading symbol PRMC for such time as its shares
become traded publicly. As of December 31, 1997, there was no public market for
the Company's shares.
DIVIDEND POLICY
The Company has never paid a cash dividend on its Common Stock. It is the
current intention of the Company's Board of Directors to continue to retain
earnings to finance the growth of the Company's business rather than to pay
dividends. Future payment of cash dividends will depend upon the financial
condition , results of operations and capital commitments of the Company as
well as other factors deemed relevant by the Board of Directors.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
The following table provides a summary of selected financial data for
Prime Companies, Inc.
FISCAL YEAR ENDED DECEMBER 31,
1997 1996
(in thousands except per share data)
Operating Revenue $15,958 $ 0
Net Income (Loss) (695) 26
Earnings per share: $ (.28) $ (.02)
Total assets $ 8,495 $ 1,341
Long term debt,
less current portion $ 3,298 $ 19
The following table sets forth the percentage relationship of certain
revenue and expense items for the fiscal years indicated.
Percentages of
Operating Revenue
Year Ended December 31,
1997 1996
Operating revenue 100.0% 100.0%
Operating expenses and costs:
Salaries, wages and fringe benefits 27.8% 0.0%
Operating supplies and expenses 17.7 0.0
Operating taxes and licenses 2.7 0.0
Insurance and claims 3.8 0.0
Depreciation and amortization 4.1 0.0
Rents and purchased transportation 38.5 0.0
Other 10.8 2.8
Total operating expenses 105.4 2.8
Operating income (loss) (5.4) (2.8)
Other income (expense):
Interest and dividend income 0.88 100.00
Gain on marketable securities 0.0 0.0
Interest expense (2.3) 0.0
Income (loss) before income taxes (6.82) 97.20
Income taxes 2.45 0.0
Net income (loss) (4.40) 97.20
RESULTS OF OPERATIONS:
Fiscal year ended December 31, 1997 compared to Fiscal year ended December 31,
1996:
The 1997 fiscal year was the Company's first year where its principal revenues
were generated from business operations. As such, no accurate and
comprehensive comparison between the Company's 1997 and 1996 operating results
is available.
INFLATION
Inflation continues to have a minimal impact on operations.
SEASONALITY
In the trucking industry generally, results of operations show a seasonal
pattern because customers reduce shipments during the winter. The
Company's operating efficiency historically decreases during the winter
months due to increased maintenance costs, reduced fuel efficiency, detours
and delays for weather.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of Prime Companies, Inc.,
and Subsidiaries are included in Item 7:
Independent Accountants' Report
Consolidated Balance Sheets as of December 31, 1997 and 1996.
Consolidated Statements of Income for the years ended December 31, 1997,
and 1996.
Consolidated Statements of Changes in Stockholders' Equity for the
years ended December 31, 1997, and 1996.
Consolidated Statements of Cash Flows for the years ended December 31,
1997, and 1996.
Notes to Consolidated Financial Statements ! December 31, 1997.
Independent Accountants' Report
Gilbert & Company
Certified Public Accountant
1 Maritime Plaza, Suite 1300
San Francisco, California 94111
415/576-1300 FAX 415/491-4141
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Prime Companies, Inc.
We have audited the accompanying consolidated balance sheets of
Prime Companies, Inc. (a Delaware corporation) and subsidiaries as of
December 313, 1997 and 1996, and the related consolidated statements of
operations, changes in stockholders' equity, and cash flows for the years
then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated
financial statements are free of materials misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all materials respects, the financial position of
Prime Companies, Inc. and subsidiaries as of December 31, 1997 and
1996, and the results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles.
As discussed in Note 18 to the financial statements, an error
resulting in an understatement of previsouly reported assets and related
stockholders' equity as of December 31, 1997, was discovered by management of
the Company during the current year. Accordingly an adjustment has been made
to fixed assets and stockholders' equity.
Gilbert & Company
May 7, 1998
<PAGE>
PRIME COMPANIES, INC.
Consolidted Financial Statements
CONSOLIDATED BALANCE SHEETS
As of December 31, 1997 and 1996
Assets
December 31,
1997 1996
CURRENT ASSETS
Cash (Note 3) $ 200,570 $ 264,274
Accounts receivable, net of allowance for
doubtful accounts of $23,000 in 1997
and $-0- in 1996 (Note 5) 1,277,222 0
Accrued receivables (Note 5) 124,322 0
Other receivables 97,310 0
Fuel tax receivable (Note 3) 16,451 0
Investment accounts (Note 6) 436,510 1,017,115
Inventories (Note 3) 19,238 0
Driver advances (Note 3) 78,290 0
Notes receivable, current portion 387,232 13,271
Deferred income taxes (Note 12) 21,440 0
Prepaid expenses 601,298 0
__________ _________
Total Current Assets 3,259,883 1,294,660
FIXED ASSETS (Notes 3 and 8)
Land 600,000 0
Fixed assets 4,876,544 0
Improvements 463,074 0
Accumulated depreciation
and amortization -659,448 0
Net Fixed Assets 5,280,170 0
OTHER ASSETS
Investments, unlisted securities (Note 6) 101,394 0
Deferred income taxes (Note 12) 379,500 0
Deposits 244,935 0
Note receivable, less current
portion (Note 7) 36,489 46,729
Asset held for resale 23,000 0
Total Other Assets 785,318 46,729
TOTAL ASSETS $9,325,371 $1,341,389
The accompanying notes are an integral part of these financial statements.
<PAGE>
PRIME COMPANIES, INC.
Consolidated Financial Statements
CONSOLIDATED BALANCE SHEETS (CONTINUED)
As of December 31, 1997 and 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31,
CURRENT LIABILITIES 1997 1996
Accounts payable (Note 9) $ 418,918 $ 0
Accrued liabilities (Note 9) 1,109,126 0
Accrued loss reserve (Note 16) 72,520 0
Current portion of long-term debt 726,570 0
Margin account payable (Note 6) 308,103 247,294
Deferred expense credit 37,500 0
Loan payable 150,000 0
Income and franchise
taxes payable (Note 12) 4,100 0
Total Current Liabilities 2,826,837 247,294
LONG-TERM LIABILITIES
Long-term debt, less current
portion (Note 10) 2,682,977 0
Deferred income 605,370 19,429
Security deposit 9,600 0
Total Long-Term Liabilities 3,297,947 19,429
Total Liabilities 6,124,7842 66,723
Commitments and Contingencies
(Note 16) -- --
STOCKHOLDERS' EQUITY (Notes 2 and 4)
Common stock, shares authorized 50,000,000,
par value $.0001, 3,013,123 and
1,255,123 were issued and outstanding
at par, respectively 359 126
Additional paid-in capital 4,289,751 1,254,998
Retained earnings -1,089,523 -180,458
Total Stockholders' Equity 3,200,587 1,074,666
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $9,325,371 $1,341,389
The accompanying notes are an integral part of these financial statements.
<PAGE>
PRIME COMPANIES, INC.
Consolidated Financial Statements
CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS'EQUITY
For the Years Ended December 31, 1997 and 1996
Total
Common Stock Additional Stockholders'
Shares Par Paid-In Retained Equity
Value Capital Earnings (deficit)
Balance at
January 1, 1996 986,123 $99 $986,025 $(206,175) $ 779,449
Sale of
Common Shares 269,000 27 268,973 -- 269,000
Net Income--
December 31, 1996 -- -- -- 25,717 25,717
Balance at
December 31, 1996 1,255,123 $126 $1,254,998 $ (180,458) $1,074,666
Sale of
Common Shares 2,338,000 233 2,941,778 -- 2,942,011
Preferred Stock
Dividends -- -- -- (93,000) (93,000)
Acquisition of Mid-Cal
Express, Inc. -- -- 93,000 -- 93,000
Shares Issued in
Merger
Transaction 250,000 -- (25) -- (25)
Net Loss--December
31, 1997 -- -- -- (695,064) (695,064)
Balance at
December 31, 1997 3,843,123 $359 $4,289,751 $(1,089,523) $3,200,587
The accompanying notes are an integral part of these financial statements.
<PAGE>
PRIME COMPANIES, INC.
Consolidated Financial Statements
CONSOLIDATED STATEMENT OF OPERATIONS
For the Years Ended December 31, 1997, and 1996
December 31,
REVENUE 1997 1996
Transportation revenue $ 14,776,294 $ 0
Logistics revenue 1,181,305 0
Total Revenue 15,958,229 0
COST OF GOODS SOLD
Purchased transportation 5,534,505 0
Brokerage purchased transportation 614,148 0
Total Cost of Goods Sold 6,148,653 0
GROSS PROFIT 9,809,576 0
OPERATING COSTS AND EXPENSES
Salaries and related expenses 4,442,038 0
Operating expenses and maintenance 2,832,136 726
Operating taxes and licenses 428,151 14
Insurance 614,329 0
Revenue equipment rentals 909,017 0
General supplies and expenses 726,192 0
Local delivery 17,946 0
Professional and consulting fees 58,250 0
Depreciation and amortization 659,448 0
Total Operating Costs and Expenses 10,687,507 740
Net (Loss) From Operations (877,931) (740)
OTHER INCOME (EXPENSE)
Interest income 4,116 26,456
Interest expense (362,688) 0
Rental income 63,900 0
Investment income 79,042 0
Consulting fees 10,000 0
Director fees (8,000) 0
Other income 4,887 0
Total Other Income (Expense) (208,743) 26,456
Net Income (Loss) after Other Expenses (1,086,674) 25,716
PROVISION FOR INCOME TAX (EXPENSE) BENEFIT
Current (9,330) 0
Deferred 400,940 0
Net Provision for Income Tax 391,610 0
Net Income (Loss) (695,064) 25,716
The accompanying notes are an integral part of these financial statements.
<PAGE>
PRIME COMPANIES, INC.
Consolidated Financial Statements
CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
For the Years Ended December 31, 1997, and 1996
EARNINGS PER SHARE:
INCOME (LOSS) PER COMMON SHARE $ (0.25) $ 0.03
INCOME (LOSS) PER COMMON SHARE --
FULLY DILUTED $ (0.25) $ 0.03
WEIGHTED AVERAGE NUMBER OF SHARES:
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 2,784,783 785,484
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING - FULLY DILUTED 2,792,561 785,484
The accompanying notes are an integral part of these financial statements.
<PAGE>
PRIME COMPANIES, INC.
Consolidated Financial Statements
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Years Ended December 31, 1997, and 1996
December 31,
1997 1996
CASH FLOW FROM
OPERATING ACTIVITIES:
Reconciliation of net income (loss) to net
cash (used) by operating activities:
Net Income (Loss) $(695,064) $ 25,717
Adjustments to reconcile net income
(loss) to net cash (used) by
operating activities:
Depreciation and amortization 659,448 0
Provision for bad debts 23,000 0
Net current and deferred tax benefit (391,610) 0
(Increase) decrease in:
Accounts, notes, fuel tax and
other receivables (1,799,409) (149,171)
Inventories (19,238) 0
Investments 479,2111 32,785
Prepaids, driver advances and deposits (924,523) 0
Asset held for resale (23,000) 0
Increase (decrease) in:
Accounts payable and accrued liabilities 1,528,044 0
Accrued loss reserve 75,520 0
Deferred income 585,941 (174,669)
Deferred expense credit 37,500 0
Income and franchise tax payable 4,100 0
Net cash (used) by operating activities (463,080) (165,338)
CASH FLOW FROM
INVESTMENT ACTIVITIES:
Additions to property, equipment and improvements (1,497,580) 0
Collections on notes receivable 21,083 0
Net cash provided (used) by investment
activities (1,476,497) 0
CASH FLOW FROM
FINANCING ACTIVITIES:
Net proceeds from current and long term debt 174,771 0
Margin account payable 60,809 153,542
Proceeds from the sale of stock 2,338,000 269,000
Principal payments on long-term debt (707,307) 0
Long term deposit 9,600 0
Net cash provided by financing activities 1,875,873 422,542
INCREASE (DECREASE) IN CASH (63,704) 257,204
CASH AT BEGINNING OF YEAR 264,274 7,070
CASH AT END OF YEAR $200,570 $264,274
The accompanying notes are an integral part of these financial statements.
<PAGE>
PRIME COMPANIES, INC.
Notes to the Consolidated Financial Statements
December 31, 1997 and 1996
1. ORGANIZATION:
THE BUSINESSES:
Prime Companies, Inc. ("PCI") (the "Corporation"), was
formed on December 30, 1997, as a result of the merger between
Prime Management, Inc., a California corporation, and Corcoran
Technologies Corporation, a Delaware corporation (see Note 4).
The Company has two wholly-owned subsidiaries as discussed
below.
MID-CAL EXPRESS, INC.
Mid-Cal Express, Inc. (the "Company") was incorporated
under the laws of the State of California in August, 1994.
The Company's core business consists of truck transportation
of temperature-controlled products throughout the United
States and Canada. The Company's strategy is to provide a
high level of service to customers requiring temperature-
controlled transportation and other specialized transportation
services. The Company uses team drivers in approximately
forty percent of its trips in order to provide safe and
reliable on-time delivery for long haul shipments.
An individual who is a present officer of the
Corporation owned all of the Company's common shares of stock
from 1994 through December 1996. The Company presently is a
wholly owned subsidiary of the Corporation which became a
publicly traded company on December 30, 1997, and as such the
Company's financial statements are incorporated in this
consolidated presentation of the Corporation's financial
statements. From inception to December 31, 1996, the Company
operated using a limited number of tractors. Beginning in
December 1996 through September 1997, the Company issued
shares of preferred and common stock to capitalize an
expansion of its tractor fleet and customer base. Effective
January 1, 1997, the Company purchased forty two tractors and
approximately one hundred thirty refrigerated trailers and the
rights to the business name Country Wide Truck Service for all
the outstanding debt owed on the equipment. The debt amounted
to approximately $2,700,000 of notes payable as well as
operating leases with future minimum payments of approximately
$4,000,000. The acquisition greatly increased the size of the
Company's tractor and trailer fleet. The resulting increase
in the customer base also increased sales dramatically.
In May 1997, the Company's parent Corporation purchased
a terminal cross-dock facility located in Fontana, California.
Effective June 30, 1997, the Company purchased this property
in exchange for 1,100,000 shares of common stock. At the
present time, the Company plans to operate this facility as
rental income property (see Note 11).
During the next year the Company plans to increase its
tractor fleet from approximately 100 tractors to 200 tractors
through a combination of business acquisitions, purchase
contracts and independent owner operations. Financing for
this growth is expected to be obtained by the Company's parent
Corporation through a series of stock offerings and
alternative financing. The Company expects that the
additional revenue generated by this increased fleet size will
be sufficient to restore profitability by the end of the year.
MID-CAL EXPRESS LOGISTICS, INC.
Mid-Cal Express Logistics, Inc. (the "Company") was
incorporated under the laws of the State of California in July
1997. The Company is a third party transportation logistics
provider. The Company provides its customers with full-
service logistics capabilities in less than truckload (LTL)
and truckload services.
The Company was incorporated as a wholly owned
subsidiary of Prime Management, Inc. (see Note 4) which became
a publicly traded company on December 30, 1997, and as such
the Company's financial statements are incorporated in this
consolidated presentation of the Corporation's financial
statements. The Company was formed to complement its sister
company, Mid-Cal Express, Inc., which, as noted above, is a
truck transportation provider. the Company utilizes the
trucks of Mid-Cal Express, Inc. as well as other carriers to
service the transportation needs for a subsidiary of a Fortune
500 company.
At the present time, the Company services one large
customer. During the next year, the Company plans to expand
its customer base by securing new customers utilizing the
close relationship with Mid-Cal Express, Inc. and other
carriers to provide the needed truck transportation.
2. STOCKHOLDERS' EQUITY:
The Corporation has authorized 10,000,000 shares of
preferred stock with a $.0001 par value. At December 31,
1997, none of the authorized preferred shares were issued and
outstanding.
The Corporation has authorized 50,000,000 shares of
common stock with a $.0001 par value. At December 31, 1997,
3,843,123 shares of such common stock were issued and
outstanding.
See Note 4 for a discussion of the stock transactions
prior to and as a result of the merger as addressed in Note 4.
The Corporation has not paid any ordinary and operating
cash dividends on its common or preferred stock and has no
plans to do so. Any payment of cash dividends in the future
will be at the discretion of the Corporation's Board of
Directors and will depend upon the financial condition,
capital requirements, and earnings, of the Corporation, as
well as other factors which the Board of Directors may deem
relevant.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The most significant accounting policies followed by the
Company are summarized as follows:
BASIS OF PRESENTATION
The financial statements are presented on the accrual
basis, which is the accounting method the corporation uses to
file its federal tax returns. Under this basis of accounting,
revenue and related assets are recognized when earned and
expenses and related liabilities are recognized when the
obligations are incurred.
NET INCOME (LOSS) PER COMMON SHARE
The net income (loss) per common share is computed using
a weighted average number of shares outstanding during the
period as follows:
Period Average No.
Ending of Shares
12/96 785,484
12/97 2,784,738
The above weighted average shares are based upon the
cumulative common stock outstanding.
The dilutive net income (loss) per common share is
computed using a weighted average number of shares outstanding
during the period as follows:
Period Average No.
Ending of Shares
12/96 785,484
12/97 2,792,561
The above weighted average shares are based upon the
cumulative common stock outstanding and incorporating the
above noted 2,855,208 options issued and outstanding as of
December 31, 1997, assuming that all such options were
exercised.
MERGER AND RELATED EFFECTS
See Note 4.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company
considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories for the trucking operations (Mid-Cal
Express, Inc.) consist primarily of spare parts and tires for
revenue equipment and are stated at the lower of cost or
market. Cost is determined using the first-in, first-out
(FIFO) method.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
INCOME TAXES
At December 31, 1997, the Corporation had an estimated
tax loss carryforward of approximately $1.1 million dollars,
which "may" be available to offset future taxable income, if
any, through the tax years ending between 2012 and 2013. The
net operating loss carryforward for tax purposes may be
severely limited with respect to its availability based on
certain consolidation tax return rules.
The Corporation and each of its wholly owned
subsidiaries follows the provisions of Statement of Financial
Accounting Standards ("SFAS") #109 - Accounting for Income
Taxes, which states the criteria for measuring the provision
for income taxes and recognizing deferred tax assets and
liabilities in the accompanying financial statements. SFAS
109 requires recognition of deferred tax assets and
liabilities for the expected future tax consequences of events
that have been included in the financial statements or tax
returns. Under this method, deferred tax assets and
liabilities are determined, based on the difference between
the financial statements and tax bases of assets and
liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse.
FIXED ASSETS
Land, property and equipment are stated at cost.
Provision for depreciation and amortization on property and
equipment is calculated using the straight-line method over
the estimated useful lives of the assets. Salvage values of
10 to 15 percent are used in the calculation of depreciation
for transportation revenue equipment. When assets are retired
or otherwise disposed of, the cost and accumulated
depreciation are removed from the accounts, and any resulting
gain or loss is recognized in income for the period.
Details of fixed assets are as follows (see Note 8 for
depreciation periods):
Land $ 600,000
Buildings and Improvements 612,161
Accumulated Depreciation 3,315
Net Buildings and Improvements 608,846
Revenue Equipment 4,469,219
Accumulated Depreciation 615,898
Net Revenue Equipment 3,853,321
Service Vehicles 14,000
Accumulated Depreciation 2,800
Net Service Vehicles 11,200
Furniture and Office Equipment 100,055
Accumulated Depreciation 16,797
Net Furniture and Office Equipment 83,258
Communications Equipment 132,229
Accumulated Depreciation 17,151
Net Communication Equipment 115,078
Shop Equipment 11,954
Accumulated Depreciation 3,487
Net Shop Equipment 8,467
Total Fixed Assets $5,939,618
Total Accumulated Depreciation $ 659,448
Net Fixed Assets $5,280,170
ACCOUNTING FOR LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets". The
Corporation and each of its wholly owned subsidiaries have
adopted SFAS No. 121 which requires each such entity to
compare the net carrying value of long-lived assets to the
related estimates of future cash flows, and other criteria, to
determine if impairment has occurred. If it is determined
that the net carrying value is overstated, then impairment is
recognized to reduce the carrying value to the estimated fair
value.
ACCRUED INSURANCE AND LOSS RESERVES
Mid-Cal Express, Inc. retains a portion of the risk
under vehicle liability, cargo loss, physical damage and other
insurance programs. Reserves have been recorded which reflect
estimated liabilities including claims incurred but not
reported.
REVENUE RECOGNITION
Transportation revenues and related expenses are
recognized using a method which approximates recognition of
both revenue and direct costs on the date the freight is
received for shipment. Brokerage revenues and related costs
and expenses are recognized upon the completion of the
shipments. Unbilled shipments are accrued, pending proof of
shipment and delivery.
CREDIT RISK
Financial instruments which potentially subject Mid-Cal
Express, Inc. to concentrations of credit risk include trade
accounts receivable and the assigned receivable reserve. With
respect to the concentration of credit risk in trade accounts
receivable, the five largest transportation revenue customers
of Mid-Cal Express, Inc. comprised 34 percent of the
outstanding accounts receivable, after reduction by proceeds
received by assigning receivables, as of December 31, 1997
(see Note 5).
With respect to Mid-Cal Express Logistics, Inc.,
financial instruments which potentially subject Mid-Cal
Express Logistics, Inc. to concentrations of credit risk
include trade accounts receivable. With respect to the
concentration of credit risk in trade accounts receivable,
Mid-Cal Express Logistics, Inc. has one customer, which is a
Fortune 500 company listed on the New York Stock Exchange.
USE OF ESTIMATES
The preparation of financial statements in conformity
with generally accepted accounting principals may require
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
such estimates.
4. BUSINESS MERGER:
Pursuant to an Agreement and Plan of Merger (the
"Agreement") between Prime Management, Inc. ("PMI), a
California Corporation, and Corcoran Technologies Corporation
("CTC"), PMI was merged with and into CTC effected with the
State of Delaware on December 30, 1997. The Agreement was
adopted by the unanimous consent of the Board of Directors of
CTC and PMI and approved by the unanimous consent of the
shareholders of CTC and PMI on December 23, 1997.
Prior to the merger, CTC had 5,000,000 shares of common
stock outstanding held by Pierce Mill Associates, Inc.
Pursuant to the Agreement, CTC redeemed and retired 4,750,000
shares of the outstanding shares of common stock and issued
3,593,123 new shares of its common stock, subject to
adjustments for fractional and dissenting shares, to the
holders of all the outstanding common stock of PMI on a pro
rata basis resulting in a total of 3,843,123 shares
outstanding of CTC's common stock.
As a result of the stock exchange, the former
shareholders of PMI hold 93.5 percent of the outstanding
shares of common stock of CTC. The sole source of
consideration used by the shareholders of PMI to acquire their
respective interest in CTC was the exchange of 100 percent of
the outstanding common stock of PMI.
The outstanding warrants of PMI and other outstanding
rights to purchase shares of common stock of PMI are adjusted
according to the terms contained in such warrants or other
rights for conversion to warrants or rights to purchase
2,855,208 shares of common stock of CTC.
Pursuant to the Agreement, on the effective date of the
merger, the officers and directors of PMI became the officers
and directors of CTC. The by-laws of PMI were adopted as the
by-laws of CTC.
Effective as of the date of the merger, CTC changed its
name to "Prime Companies, Inc".
5. ACCOUNTS AND ACCRUED RECEIVABLES:
MID-CAL EXPRESS, INC.
Mid-Cal Express, Inc. entered into an agreement on
November 14, 1997, with KBK Financial ("KBK") which provides
for the assignment of its trade receivables for an immediate
advance of 80 percent of the assigned amount. the remaining
20 percent of the assigned amount is held in reserve until the
receivable is collected. The assignment is made with
recourse, which is limited to the aggregate reserve amount.
KBK charges a fixed amount of 25/100 of a percent on the
assigned amount and interest on the advances at the prime rate
plus 2.00 percent. In addition, the assigned receivables are
secured by all intangible assets of Mid-Cal Express, Inc. The
assigned receivable reserve consisted of the following as of
December 31, 1997:
Invoices assigned to KBK $ 1,363,801
Less: Amounts advanced to
Mid-Cal Express, Inc. (1,189,030)
Assigned receivable reserve $ 174,771
Accounts receivable of Mid-Cal Express, Inc. consisted
of the following at December 31, 1997:
Receivables retained by Mid-Cal Express, Inc $ 772,688
Less: Reserve for doubtful accounts (23,000)
Assigned receivable reserve. 174,771
Accounts receivable, net $ 924,459
Mid-Cal Express, Inc. performs periodic credit
evaluations of its customers' financial condition and
generally does not require collateral. Mid-Cal Express, Inc.
has recorded an allowance of $23,000 as of December 31, 1997,
which has been netted against the related amounts receivable.
MID-CAL EXPRESS LOGISTICS, INC.
Mid-Cal Express Logistics, Inc. has one customer as of
December 31, 1997. No provision for doubtful accounts has
been made because the customer has a satisfactory payment
history and is financially strong. The account receivable
balance was $368,153.
Receivables are accrued for unbilled revenue that has
been earned by the performance and delivery of the shipment.
The related costs of the revenue are included in accrued
expenses ($124,322).
6. INVESTMENTS AND MARGIN ACCOUNTS:
The parent Corporation maintains certain investment
accounts in order to realize the optimum return on monies
which are available for such short term purposes. Since
certain investments include listed (as well as non-listed)
securities, the Corporation also uses its margin rights in
order to borrow against the related securities in order to
avoid liquidating such securities which may not be beneficial
to the Corporation.
7. NOTES RECEIVABLE:
Mid-Cal Express, Inc. had notes receivable consisting of
the following:
Note receivable, due in monthly installments of $2,200
including interest at 8 percent through November 1999,
collateralized by transportation equipment. The details of
such note receivable is as follows:
December 31, 1997 - total $ 50,469
December 31, 1997 - current portion (13,980)
December 31, 1997 - net $ 36,489
December 31, 1996 - total $ 60,000
December 31, 1996 - current portion (13,271)
December 31, 1996 - net $ 46,729
8. FIXED ASSETS
As of December 31, 1997, the estimated useful lives for
the fixed asset categories as presented in Note 3, are as
follows:
Land N/A
Buildings and Improvements 31 years
Revenue Equipment 4 to 7 years
Service Vehicles 5 years
Furniture and Office equipment 3 to 5 years
Communications Equipment 5 years
Shop Equipment 3 years
The land, building and improvements are on an operating
lease (see Note 11).
All fixed assets, with the exception of $1,535 of office
equipment and $213 of related depreciation owned by Mid-Cal
Express Logistics, Inc. at December 31, 1997, are owned by
Mid-Cal Express, Inc.
9. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities related to Mid-
Cal Express, Inc. consisted of the following at December 31,
1997:
Accounts payable $ 410,623
Accrued compensation-related
liabilities 200,021
Accrued purchased transportation 278,416
Other accrued expenses 245,778
Total $1,134,838
Accounts payable and accrued liabilities related to Mid-
Cal Express Logistics, Inc. consisted of the following at
December 31, 1997:
Accounts payable $ 18,884
Accrued expenses 384,911
Total $ 403,795
Accounts payable related to the Parent Corporation
consisted of $4,801 of accounts payable at December 31, 1997:
10. NOTES PAYABLE AND LONG-TERM DEBT:
Mid-Cal Express, Inc. notes payable and long-term debt at
December 31, 1997, consisted of the following:
Notes payable, payable in aggregate monthly installments of $1,645
including interest ranging from 9.7 percent to 10.6 percent, maturing
at various dates through March 2000, collateralized by certain
computer equipment and software $ 39,532
Notes payable, payable in aggregate monthly installments of $68,559
including interest ranging from 8.5 percent to 10.99 percent, maturing
at various dates through May 2001, collateralized by certain
tractor equipment $2,474,230
Notes payable, payable in aggregate monthly installments of $30,666
including interest ranging from 10.0 percent to 10.3 percent, maturing
at various dates through May 2001, collateralized by certain
trailer equipment 1,055,902
Total $3,569,664
Less current portion (886,687)
Net $2,682,977
Scheduled maturities of notes payable and long-term debt are as follows:
December 31, 1998 $ 886,687
December 31, 1999 981,731
December 31, 2000 1,545,718
December 31, 2001 155,528
December 31, 2002 0
Total $3,569,664
11. PROPERTY ON OPERATING LEASE:
Mid-Cal Express, Inc. leases out a terminal facility
located in Fontana, California under a noncancelable net
operating lease which expires in June, 1999. The lease
provides for monthly rentals of $9,600, and $62,400 was earned
and collected during 1997.
Minimum future rentals on noncancelable operating lease
as of December 31, 1997, are as follows:
December 31, 1998 $ 115,200
December 31, 1999 57,600
Total $ 172,800
12. INCOME TAXES:
MID-CAL EXPRESS, INC.
The provision for income taxes consists of the following
components for 1997:
Current taxes $ 3,300
Deferred taxes 44,750
Tax benefit of net operating
loss carryforward (444,900)
Net $(396,850)
The components of the deferred tax assets as of December
31, 1997, are as follows:
CURRENT DEFERRED TAX ASSETS
Vacation accrual reserve $ 12,600
Bad debt service 8,050
Total $ 20,650
LONG-TERM DEFERRED TAX ASSETS
Depreciation $(65,400)
Net operating loss carryforward 444,900
Total $379,500
Management believes the deferred tax assets will be
recoverable from future taxable income, as a result, a
valuation allowance is not required.
As of December 31, 1997, there existed net operating losses to
be carried forward for federal income tax purposes of
$1,271,162 which expire in the year 2012.
MID-CAL EXPRESS LOGISTICS, INC.
The provision for income taxes consists of the following
components for 1997:
Current taxes $ 800
Tax benefit of net operating
loss carryforward (790)
Net $ 10
MID-CAL EXPRESS LOGISTICS, INC. (CONTINUED)
The component of the current deferred tax assets as of
December 31, 1997, is a net operating loss carryforward
benefit in the amount of $790. As of December 31, 1997, there
existed net operating losses to be carried forward for federal
income tax purposes of $5,200 which expire in the year 2012.
13. RELATED PARTY TRANSACTIONS:
Mid-Cal Express, Inc. has a credit facility with the
majority stockholder. The credit facility is due on demand
and pays interest at 10 percent, payable monthly. The balance
of the credit facility was $831,000 as of December 31, 1997.
During 1997, Mid-Cal Express, Inc. paid $66,456 in interest
payments to the majority stockholder, and had accrued interest
in the amount of $4,440 as of December 31, 1997.
Related party transactions also occurred between Mid-Cal
Express, Inc. and Mid-Cal Express Logistics, Inc. Mid-Cal
Express, Inc. has advanced money to Mid-Cal Express Logistics,
Inc., on an as needed and non-interest bearing basis. The
amount of the loan receivable from Mid-Cal Express Logistics,
Inc. is $160,117 as of December 31, 1997. Mid-Cal Express,
Inc. also had sales of $408,441 with Mid-Cal Express Logistics, Inc.
during 1997, and as of December 31, 1997, had accounts
receivable of $177,071. Additionally, shared expenses such as
for wages and related general and administrative expenses in
the amount of $97,563 were charged to Mid-Cal Express
Logistics, Inc. by Mid-Cal Express, Inc. Mid-Cal Express
Logistics, Inc. also had $15,390 of accounts payable due to
Mid-Cal Express, Inc. at December 31, 1997.
All related party transactions have been eliminated
during the consolidation process with the Parent Corporation.
14. EMPLOYEE DEFINED CONTRIBUTION PLAN
Effective February 1, 1997, Mid-Cal Express, Inc.
adopted a Deferred Compensation Simple IRA Plan (the "Plan")
covering all full-time employees. To be eligible to
participate in the Plan, employees must be expected to earn at
least $5,000 annually. Employees involved in the Plan may
contribute up to $6,000 of their compensation, on a pre-tax
basis, subject to statutory and Internal Revenue Service
guidelines. Contributions to the Plan are invested at the
direction of the participant. Mid-Cal Express, Inc. made
matching contributions of $11,163 to the Plan during the year
ended December 31, 1997.
15. MAJOR CUSTOMERS
Mid-Cal Express, Inc. has approximately 200 customers
and the five largest customers, all unaffiliated, comprised
total transportation revenue of $9,424,864, or approximately
62 percent of their total transportation revenue.
16. COMMITMENTS AND CONTINGENCIES
MID-CAL EXPRESS, INC.
LEASES
Mid-Cal Express, Inc. has operating lease commitments
for revenue equipment and office and terminal property, which
expire over the next five years. The following is a schedule
of future minimum lease payments for operating leases (with
initial or remaining terms in excess of one year) as of
December 31, 1997:
December 31, 1998 $1,146,671
December 31, 1999 1,146,659
December 31, 2000 997,830
December 31, 2001 461,962
December 31, 2002 97,632
Total $3,850,754
Rental expense for all operating leases of the
transportation segment consisted of the following as of
December 31, 1997:
Revenue equipment rentals $ 912,295
Terminal, warehouse, and office rentals 124,792
Other equipment rentals 10,258
Total $1,047,345
Mid-Cal Express, Inc. is obligated under its liability
and property damage insurance policies for losses up to the
specific policy deductibles as a result of accidents and
claims incurred. Accrued loss reserves of $72,520 as of
December 31, 1997 were recorded to cover these potential
claims.
MID-CAL EXPRESS LOGISTICS, INC.
Mid-Cal Express Logistics, Inc. has an operating lease
commitment for office property, which expires in July, 1998.
PARENT CORPORATION
The Parent Corporation (Prime Companies, Inc.) maintains
its offices at 155 Montgomery Street, Suite 406, San
Francisco, California, 94104. The Parent Corporation leases
680 square feet under a one year lease expiring in November,
1998.
17. OTHER EVENTS:
On December 31, 1997, the President of Mid-Cal Express,
Inc. resigned to pursue other interests, and was replaced by
the Vice-President of Operations. The former president has
been retained until March 31, 1998 as a consultant to Mid-Cal
Express, Inc.
18. CORRECTION OF AN ERROR:
In April of 1998, management determined that investors directly
financed fixed assets and contributed real estate to the Company outside of
the Parent Company's books. This adjustment required an increase to the
amount allocated to land (basis) of $400,000, an increase to the amount
allocated to improvements (basis) of $430,000, and an increase in stockholders'
equity of $830,000.
Quarterly Results of Operations (Unaudited)
Fiscal 1997
March 31 June 30 September 30 December 31
Operating revenue $3,399,000 $4,321,000 $4,066,000 $4,172,000
Operating expenses
and costs 3,521,000 4,237,000 4,375,000 4,703,000
Operating income <122,000> 84,000 309,000 <531,000>
Other income, net 14,000 17,000 39,000 84,000
Interest expense 88,000 97,000 103,000 75,000
Income (loss) before
income taxes <196,000> 4,000 <373,000> <522,000>
Income taxes (benefit) <70,000> 1,000 <134,000> <189,000>
Net income $<126,000> $3,000 $<239,000> $ <333,000>
Net income per share $<0.06> $0.00 $0.10 $0.13
Average shares and
share equivalents
outstanding 1,986,128 1,986,128 2,486,128 2,486,128
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Certain information about directors and executive officers of the Company
is set forth below:
OFFICERS AND DIRECTORS
The following table sets forth the names, ages and positions with the Company
as of the date of this Prospectus of all of the officers and directors (the
"Named Executive Officers") of the Company. Also set forth below is
information as to the principal occupation and background for each person in
the table.
a) Directors and Executive Officers of the Company
Name Age Director Since Position
Irving Pfeffer 73 1970 (1) Chairman, CEO
David Lefkowitz CPA 48 1996 President, COO
Marshall Raines 71 1998 Director
Alon Adani 31 1998 Director
Nicole Mason, JD 26 Corporate
Secretary
Emilio Guglielmelli 42 1996 President, Mid-Cal
Express and
Mid-Cal Express
Logistics/
COO Express
(1) As director of Prime Management, Inc. since its inception.
b) Key Personnel
David Gosling 48 1997 VP Finance, Mid-Cal
Express and Mid-
Cal Express
Logistics
The following is a summary of background information about the officers and
directors:
IRVING PFEFFER has practiced law at Pfeffer & Williams P.C. (formerly Law
Offices of Irving Pfeffer) since 1975. He specializes primarily in business
litigation and general corporate law and has assisted a number of "start-up"
companies with securities and other business related legal matters. In
the course of his corporate legal work, Mr. Pfeffer has assisted companies
to raise venture capital and develop their business plans. Mr. Pfeffer has
written and published extensively on the topics of capital markets, business
financing and insurance. He is also a Chartered Life and Property and
Casualty Underwriter. Mr. Pfeffer holds a BA degree in Economics and Political
Science from McGill University, Canada (1949); a Ph.D. In Economics from the
Wharton School of Business, University of Pennsylvania (1954) and a law
degree from LaSalle Extension University (1974).
Contact at: 155 Montgomery Street, Suite 406, San Francisco, CA 94104 (415)
398-4242
DAVID LEFKOWITZ is President and COO of Prime Companies. Mr. Lefkowitz has
been COO and President since January 1998. Between 1988 and December 1996, Mr.
Lefkowitz operated and worked for Lefkowitz & Company, A Certified Public
Accounting Firm. There, he specialized in management consulting of growing
companies, preparing them for eventual sale and/or mergers and acquisitions.
Mr. Lefkowitz has been a CPA since 1977 and sold his accounting practice in
December 1996 in order to consult full-time. Mr. Lefkowitz earned his BS in
Business and Accounting from University of Central Florida, Orlando, Florida
in 1974.
Contact at: 155 Montgomery Street, Suite 406 San Francisco, CA 94104 (415)
398-4242
MARSHALL L. RAINES: has been a Director of the Company since January 1998.
Mr. Raines is a Professor of Advertising, teaching a number of different
courses, at San Jose State University, since 1980. There he also coordinates
the advertising degree program, which is the largest such accredited program
in northern California. Mr. Raines has more than 22 years experience as a
senior marketing/advertising executive with major US corporations. He is on
the Marketing Advisory Board for the United States Postal Service. He earned
his BS in Marketing from New York University in 1949 and his MBA from the same
university in 1953.
Contact at: 155 Montgomery Street, Suite 406 San Francisco, CA 94104 (415)
398-4242
ALON ADANI has been a Director of the Company since January 1998. Mr. Adani is
an investment strategist and financial analyst for Ourinvest International
Corp. in Miami, Florida, since 1996. During 1994 and 1995, Mr Adani was
involved in the investment banking activities of Firma Praktika in Moscow,
Russia, where he handled transportation matters and contracts. Between 1992
and 1993, Mr. Adani was an exporter/importer for Sanscow Corporation in San
Francisco, California. Mr. Adani earned his B.S. in Finance and his M.B.A. at
the University of Miami.
Contact at: 155 Montgomery Street, Suite 406 San Francisco, CA 94104 (415)
398-4242
EMILIO GUGLIELMELLI has been President of Mid-Cal Express Logistics since its
inception in June of 1997 and became President of Mid-Cal Express in January
1998. Prior to the formation of Mid-Cal Express Logistics, Mr. Guglielmelli was
the Director of Marketing and Operations between September 1996 and June 1997.
While serving in that capacity, Mr. Guglielmelli created strong relationships
with customers and developed a network of contacts throughout the trucking
industry, which provided the foundation for Mid-Cal Express Logistics. Mr.
Guglielmelli has worked in the trucking transportation industry for 16 years
and is knowledgeable in all aspects of the business. Between 1992 and September
1996, he worked for D.E.F. Express in the Marketing and Operations
department, gaining a reputation for increasing sales of trucking
services.
Contact at: 21496 Main Street, Grand Terrace CA 92313 (909) 779-1800
NICOLE MASON is licensed to practice law in California and has practiced as a
corporate/securities associate at Pfeffer & Williams P.C. in San Francisco,
since July 1997. Ms. Mason has been corporate secretary of Prime Companies
since January 1998. Prior to joining Pfeffer & Williams, she worked as a
litigation associate at McMahon Law Offices in San Jose, from February to June
1997. From September 1996 !January 1997, Ms. Mason provided litigation
support services to a large full service law firm in San Francisco and the U.S.
government, with respect to class action litigation matters. While
attending law school, Ms. Mason worked at Kelso & Associates (May-December,
1994) and Auler Law Offices (January 1995-June 1996) in Champaign, Illinois.
She has also worked for the New York Supreme Court as a judicial clerk
(May-June 1995) and at Lincoln Financial Services in Tacoma, Washington
(July-August 1995) as a securities/investment advisor compliance consultant.
Ms. Mason attended the State University of New York at Albany and graduated
with BA's in Political Science and Psychology in 1993. She earned her law
degree at the University of Illinois (Champaign-Urbana) in 1996.
Contact at: 155 Montgomery Street, Suite 401 San Francisco, CA 94104 (415)
296-7272
KEY EMPLOYEES
DAVID GOSLING is currently Vice-President of Finance of Mid-Cal Express and Mid-
Cal Express Logistics. He has been the Controller of Logistics since its
inception in June 1997 and was previously the full time Controller of Mid-Cal
Express (and formerly Country Wide Truck Service, Inc.) since February 1993,
with a promotion to Deputy CFO of parent Country Wide Transport Services in
September 1995 and another promotion to VP of Finance for Mid-Cal Express in
August 1997. He is a California CPA since November 1991 and earned his BS
degree in Accounting from California State University Long Beach in 1984.
Contact at: 21496 Main Street, Grand Terrace CA 92313 (909) 779-1800
The Company's directors will be reimbursed for any out-of-pocket expenses
incurred by them for attendance at meetings of the Board of Directors or
committees thereof. The Board of Directors also intends to compensate non-
employee directors $500 for each meeting of the Board attended by such
director.
COMPENSATION
The Company has employment agreements with its CEO and President/COO, as of
January 1, 1998. No other employees or key personnel are subject to employment
agreements. Under the employment agreements, both the President/COO and CEO
agreed to provide services for three years at $10,000 a month plus 500,000
options each.
STOCK OPTION PLAN
The following table sets forth information concerning each grant of stock
options to each of the Named Executive Officers during the year ended December
31, 1997.
Individual Grants
Name/Position Number of Exercise Expiration
Securities Price (1) Date
Underlying Options/
Options/SAR's
SARs granted Granted during 1997
Chairman/CEO 50,000 $3.00 12/31/2000
Chairman/CEO 500,000 $3.00 12/31/2000
President, Express 100,000 $3.00 12/31/2000
President, Express 50,000 $6.00 12/31/2000
Controller, Express/
Logistics 5,000 $6.00 12/31/2000
President/COO 25,000 $3.00 12/31/2000
President/COO 500,000 $3.00 12/31/2000
President, Logistics/
COO, Express 100,000 $3.00 12/31/2000
President, Logistics/
COO, Express 50,000 $6.00 12/31/2000
Corporate Secretary 5,000 $3.00 12/31/2000
(1) Options were granted at prices determined by the Board.
ITEM 10. EXECUTIVE COMPENSATION
This item is incorporated by reference from the Company's Notice and Proxy
Statement for its annual meeting of stockholders to be held on Monday,
March 23, 1998.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
This item is incorporated by reference from the Company's Notice and Proxy
Statement for its annual meeting of stockholders to be held on Monday,
March 23, 1998.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This item is incorporated by reference from the Company's Notice and Proxy
Statement for its annual meeting of stockholders to be held on Monday,
March 23, 1998.
PART IV
ITEM 13. EXHIBITS, REPORTS ON FORM 8-K AND SUPPLEMENTAL
INFORMATION
(a) INDEX TO EXHIBITS
4.1* 1998 Proxy
4.2* Summary of 401(K) plan
4.3* Sample Stock certificate
10 * Employment Agreements
27 Financial Data Schedule
* Previously filed
In accordance with the Commission Rules, the following is a list of all
Compensatory Plans or Arrangements of the Company:
Prime Companies 401(k)
Prime Companies, Inc. Incentive Stock Option Plan
(b) No reports on Form 8-K were filed during the last quarter of the year
covered by this report.
FORWARD-LOOKING STATEMENTS
Certain statements made herein or elsewhere by, or on behalf of, the Company
that are not historical facts are intended to be forward-looking statements
within the meaning of the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements are based on
assumptions about future events and are therefore inherently uncertain.
The Company cautions readers that the following important factors, among
others, could affect the Company's consolidated results:
(1) Whether acquired businesses perform at pro forma levels used by management
in the valuation process and whether, and the rate at which, management is able
to increase the profitability of acquired businesses.
(2) The ability of the Company to manage its growth in terms of implementing
internal controls and information gathering systems, and retaining or
attracting key personnel, among other things.
(3) The amount and rate of growth in the Company's corporate general and
administrative expenses.
(4) Changes in interest rates, which can increase or decrease the amount the
Company pays on borrowings.
(5) Changes in government regulation, including tax rates and structures.
(6) Changes in accounting policies and practices adopted voluntarily or
required to be adopted by generally accepted accounting principles.
The Company cautions readers that it assumes no obligation to update or publicly
release any revisions to forward-looking statements made herein or any other
forward-looking statements made by, or on behalf of, the Company.
SHAREHOLDER INFORMATION
Form 10-KSB/A Availability. A copy of the 1997 Form 10-KSB/A filed with the
Securities and Exchange Commission will be forwarded, upon request, to any
shareholder. Requests should be directed to:
David Lefkowitz, President
Prime Companies, Inc.
155 Montgomery Street, Suite 406
San Francisco CA 94104-4109
Transfer Agent and Registrar
Continental Stock Transfer
and Trust Company
2 Broadway, 19th Floor
New York, New York 10004
Independent Auditors
Gilbert & Company
Communications Directory
Corporate Offices: Prime Companies, Inc.
Mailing Address: 155 Montgomery Street, Suite 406, San Francisco CA 94104-4109
Telephone: (415) 398-4242
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this amended report to be
signed on its behalf by the undersigned, thereunto duly authorized. Dated
this 10th day of May, 1998.
Prime Companies, Inc.
By: /s/ Irving Pfeffer
Irving Pfeffer
Chairman, Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: /s/ David L. Lefkowitz By: /s/ Nicole B. Mason
David L. Lefkowitz Nicole B. Mason, Secretary
Director, President/COO and Chief
Financial Officer
By: /s/Emelio Guglielmelli By: /s/ Marshall L. Raines
Emelio Guglielmelli Marshall L. Raines
Director Director
By: /s/ Alon Adani
Alon Adani
Director
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