SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarter Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended September 30, 1998 Commission File
Number 0-22919
PRIME COMPANIES, INC.
(Exact name of registrant as specified in charter)
Delaware 52-2031531
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
155 Montgomery Street, Suite 406,
San Francisco, California 94104
(Address of principal executive offices) (Zip Code)
(415) 398-4242
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requires for
the past 90 days.
Yes X No ___
The number of shares of common stock outstanding as of September 30,
1998 was 4,544,824.
PRIME COMPANIES, INC.
and Consolidated Subsidiary Companies
INDEX
Part I - Financial Information Page
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets--September 30, 1998
and December 31, 1997 2
Condensed Consolidated Statements of Operations--Nine
Months Ended September 30, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows--Nine
Months Ended September 30, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
Part II - Other Information
Item 1. Legal Information 11
Item 5. Other Information 11
Item 14.Exhibits and Reports on Form 8-K 11
Signatures 12
PRIME COMPANIES, INC.
and Consolidated Subsidiary Companies
Condensed Consolidated Balance Sheets
(In Thousands)
September 30, December 31,
1998 1997*
(Unaudited)
ASSETS
Current assets:
Cash $ 234 201
Accounts receivable, net 1,180 1,402
Accounts receivable - miscellaneous 96 114
Investment accounts -- 436
Driver advances 147 78
Notes receivable - current portion 41 388
Deferred income taxes 21 21
Inventories 17 19
Prepaid expenses 507 601
Total current assets 2,243 3,260
Property and equipment, net 5,020 5,280
Other assets:
Investments, unlisted securities 390 101
Deferred income taxes 380 380
Deposits 267 245
Note receivable, less current portion 227 36
Asset held for resale -- 23
Total other assets 1,264 785
Total assets $ 8,527 $ 9,325
* Condensed from audited financial statements.
PRIME COMPANIES, INC.
and Consolidated Subsidiary Companies
Condensed Consolidated Balance Sheets
(In Thousands)
September 30, December 31,
1998 1997*
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of long-term debt $1,091 $ 727
Deferred expense credit 9 38
Loan payable 24 150
Margin account payable -- 308
Accounts payable and accrued liabilities 1,886 1,604
Security Deposit 10 10
Total current liabilities 3,020 2,837
Long-term liabilities:
Long-term debt, less current portion 4,166 2,683
Deferred income -- 605
Total long-term liabilities 4,166 3,288
Total liabilities 7,186 6,125
Stockholders' equity:
Common stock, shares authorized 50,000,000, par
value $.0001, 4,544,824 and 3,843,124 shares
were issued and outstanding at September 30,1998
and December 31, 1997, respectively 1 1
Additional paid-in capital 4,138 4,289
Accumulated deficit (2,798) (1,090)
Total stockholders' equity 1,341 3,200
Total liabilities and stockholders' equity $ 8,527 $ 9,325
* Condensed from audited financial statements.
PRIME COMPANIES, INC.
and Consolidated Subsidiary Companies
Condensed Consolidated Statements of Operations
(Unaudited)
(In Thousands, except Per Share Data)
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
Transportation revenue $ 5,249 $ 4,065 $13,904 $11,792
Operating costs and expenses:
Purchased transportation 1,927 1,617 5,345 4,479
Salaries and related expenses 1,797 1,103 4,636 3,173
General supplies and expenses 495 414 1,400 1,002
Operating expenses 965 833 2,715 2,366
Revenue equipment rentals 390 266 1,021 705
Depreciation and amortization 227 176 636 440
Total operating costs and expenses 5,801 4,409 15,753 12,165
Operating (loss) (552) (344) (1,849) (373)
Other income (expense):
Interest expense (174) (108) (437) (252)
Interest income 6 11 24 25
Rental income 29 29 87 34
Investment income -- 98 630 98
Other income 9 -- 15 22
Consulting services (171) -- (171) --
Gain (loss) on disposition of assets (7) -- 2 --
Total other income (expense) (308) 30 150 73)
Net (loss) from operations before
provision for income taxes (860) (314) (1,699) (446)
Provision for Income tax 5 2 7 4
Net (loss) $ (865) $ (316) $(1,706) $ (450)
PRIME COMPANIES, INC.
and Consolidated Subsidiary Companies
Condensed Consolidated Statements of Operations
(Unaudited)
(In Thousands, except Per Share Data)
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
Earnings per share:
(Loss)per common share $(.21) $(.10) $(.44) $(.15)
Weighted average number of shares:
Weighted average number of shares
Outstanding 4,054,194 3,416,593 3,922,201 2,991,722
PRIME COMPANIES, INC.
and Consolidated Subsidiary Companies
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In Thousands)
Nine Months Ended
September 30,
1998 1997
Cash flows from operating activities:
Net (loss) from operations $ (1,706) $ (450)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 636 440
(Gain) loss on disposition of assets (2) --
Stock issued for general services 51 --
Stock issued for employee benefit program 171 --
Stock issued for employee services 105 --
Provision for uncollectible accounts receivable 18 17
(Increase) decrease in:
Accounts receivable 204 (1,736)
Accounts receivable - miscellaneous 18 (77)
Driver advance (69) (119)
Inventories 2 (19)
Investments 147 37
Prepaid expenses 94 (323)
Deposits (22) (194)
Asset held for resale 21 --
Increase (decrease) in:
Accounts payable and accrued liabilities 274 1,338
Deferred income (605) 284
Deferred expense credit (29) (23)
Net cash (used in) operating activities (692) (825)
Cash flows from investing activities:
Additions to property and equipment (93) (1,192)
Proceeds from sale of equipment 134 --
Collections on notes receivable 424 33
Issuance of note receivable (10) --
Net cash provided by (used in) investing activities 455 (1,159)
PRIME COMPANIES, INC.
and Consolidated Subsidiary Companies
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In Thousands)
Nine Months Ended
September 30,
1998 1997
Cash flows from financing activities:
Proceeds from short-term debt $ 123 $ --
Proceeds from long-term debt 1,439 --
Principal payments on long term debt (858) (490)
Principal payments loan payable (126) --
Margin account payable (308) 191
Proceeds from sale of stock -- 2,633
Net cash provided by (used in) financing activities 270 2,334
Increase in cash 33 350
Cash, beginning of period 201 264
Cash, end of period $ 234 $ 614
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $ 448 $ 274
Income Taxes $ 12 $ --
Noncash investing and financing transactions:
Purchase of property and equipment with debt $ 726 $3,923
Purchase of note receivable for deferred credit $ -- $ 150
Prepaid expenses financed with debt $ -- $ 152
Purchase of note receivable for reduction
in equipment $ -- $ 35
Decrease of property and equipment with reduction
in additional paid-in capital $ 308 $ --
Increase in note receivable in exchange for debt $ 257 $ --
PRIME COMPANIES, INC.
and Consolidated Subsidiary Companies
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Summary of Significant Accounting Policies
The accounting policies followed by the Company are set forth
in Note 1 to the Company's consolidated financial statements
included in the Company's Annual Report to Stockholders for the year
ended December 31, 1997.
2. Statement of Information Furnished
The accompanying unaudited consolidated financial statements
have been prepared in accordance with Form 10-Q instructions and in
the opinion of management contain all adjustments (consisting of
only normal recurring accruals) necessary to present fairly the
financial position as of September 30, 1998, the results of
operations for the nine months ended September 30, 1997 and 1998 and
the cash flows for the nine months ended September 30, 1998 and
1997. The results of operations for the three month and nine month
periods ended September 30, 1998 and 1997 are not necessarily
indicative of the results to be expected for the full year. These
results have been determined on the basis of generally accepted
accounting principles and practices applied consistently with those
used in the preparation of the Company's 1997 Annual Report.
Certain information and footnote disclosures normally included
in financial statements presented in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to the rules and regulations of the Securities and Exchange
Commission.
3.Property and Equipment
Property and equipment consisted of the following (000 omitted):
September 30, December 31,
1998 1997 Estimated
Useful
Lives
Land 600$ 600
Buildings and improvements 270 579 31 years
Communications equipment 164 132 5 years
Revenue equipment 5,043 4,469 4 to 7 years
Service cars 34 14 5 years
Furniture and office equipment 122 100 3 to 5 years
Leasehold improvements 35 33 life of lease
Machinery and equipment 12 12 3 years
6,280 5,939
Less accumulated depreciation
and amortization (1,260) (659)
$ 5,020 $ 5,280
4. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consisted of the following
(000 omitted):
September 30, December 31,
1998 1997
Accounts payable $ 841 430
Accrued compensation and related 385 200
Accrued purchased transportation 444 663
Other accrued expenses 216 311
$ 1,866 $ 1,604
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net losses for the quarter and nine months ended September 30, 1998
amounted to $865,000 and $1,706,000, respectively, as compared to
net losses of $316,000 and $450,000 for the comparable prior year
periods. The increased losses were primarily attributable to a
combination of higher costs for purchased transportation, higher
driver wages, maintenance costs, interest expense, and insurance
costs during the nine month period as compared to the comparable
prior year period. Net operating loss was $532,000 and $1,849,000
for the quarter and nine months ended September 30, 1998, as
compared to net operating loss of $344,000 and $373,000 for the
comparable prior year periods.
Third quarter operating revenue increased 29% or $1,184,000 to
$5,249,000 from $4,065,000 for the third quarter of 1997. The sales
increase reflects an increase in the Company's tractor fleet from
105 units at September 30, 1997 to 128 units at September 30, 1998
which produced an increase in loaded miles from 3,207,000 to
4,388,000 for the period. The Company's long haul trucking
subsidiary, Mid-Cal Express, Inc.(Express) pricing for the third
quarter increased 1.7% or $.02 per mile as compared to the prior
year third quarter. The pricing decrease is substantially due to
the Company's decision to convert several produce customers to year
round rates as opposed to market rates. Market rates are
traditionally higher for produce in the summer season and lower in
the fall. The Company's logistics subsidiary, Mid-Cal Express
Logistics, Inc. (Logistics) operating revenue decreased 64% to
$239,00 from $373,000 for the third quarter of 1997. The decrease
is the result of a major customer's decision to move its logistics
operation in-house. The increase in the Company's Express
subsidiary's number of units reflects the Company's efforts to
expand operations by continually increasing the size of the fleet.
During the nine month period ended September 30, 1998, operating
revenue increased 17.9% or $2,112,000 to $13,904,000 from
$11,792,000 for the nine month period ending September 30, 1997.
$318,000 or 15% of the increase was derived from the Logistics,
which was not in operation during the six month period ended June
30, 1997. Loaded miles for Express increased 16% or 1,602,000 miles
to 11,605,000 from 10,003,000 for the nine month period. Pricing
remained relatively stable for the nine month period ended September
30, 1998 as compared to the comparable prior year period.
Operating costs for the three month and nine month periods ending
September 30, 1998 increased by $1,392,000 and $3,483,000 from the
prior year periods, respectively. As a percentage of sales,
operating costs for the three and nine month periods ending
September 30, 1998 increased 2% and 10%, respectively, as compared
to the prior year period. This is primarily attributable to an
increase in purchased transportation costs, salaries and wage
expense, as well as higher insurance costs, revenue equipment
rentals and increased general supplies expense over the comparable
prior year periods. The Company's "Logistics" subsidiary had a net
loss of $28,000 for the three month period ended September 30,1998
and a net loss of $7,000 for the comparable prior year period. For
the nine month period ending September 30, 1998, Logistics had a net
loss of $32,000 with no comparable prior year results.
Salaries and related expenses for the three and nine month periods
ending September 30, 1998 increased $694,000 and $1,463,000, or 5%
and 5.6%, respectively, as compared to the prior year periods. The
primary cause for the increase was a higher proportion of
company-owned tractors to the total fleet size. The resulting
increase in total company miles, plus an approximately $.03 per mile
pay increase for drivers, a decrease in utilization of lower cost
per mile team drivers over single drivers, and a slight increase in
empty miles percentage contributed to higher driver wage costs. The
Company increased the driver wages to be more competitive with other
transportation companies in an attempt to lower personnel turnover.
General and administrative wages increased as the Company switched
to more full time personnel, as compared to part time personnel used
during the second quarter of 1997 when the company was beginning to
increase operations.
Purchased transportation costs, exclusive of Logistics, increased
$.02 for the three and nine month periods ending September 30, 1998,
respectively, as compared to the prior year periods. The primary
reason for the increased costs was an average of $.05 per mile
increase in bonus pay for tractors that travel over certain mileage
limits. The Company raised the rate of pay for owner operators in
an attempt to be competitive with other transportation companies,
and to attract new owner operators to the tractor fleet.
Interest expense increased $66,000 and $185,000 for the three and
nine month periods ending September 30, 1998, respectively, as
compared to the prior year periods. The increase is due to an
increased debt service for the addition of new trailers and tractors
as well as an accounts receivable borrowing base for working capital
requirements.
The Company increased investment income by $532,000 during the nine
month period ending September 30, 1998 as compared to the prior year
period. The Company converted several long and short-term
investments, resulting in recognition of prior deferred income.
The Company incurred a $171,000 consulting services expense for the
three month period ended September 30, 1998. The Company issued
common shares in payment for these services.
In July 1998, the Company employed a new driver recruiter in an
effort to decrease the number of idle tractors and to increase the
number of tractors with team drivers as opposed to single drivers.
This strategy has been successful to date with a 50% decrease in the
number of idle trucks and an increase in the number of more
productive team drivers. The Company is continuing its efforts to
increase its tractor fleet size by the addition of both Company
owned tractors and owner operators. The Company feels it has in
place qualified personnel and adequate revenue sources to increase
its tractor fleet to 170 units. At this size fleet, the Company
feels it can reach the break-even point.
LIQUIDITY AND CAPITAL RESOURCES
Pursuant to an account transfer and purchase agreement dated
November 14, 1997, the Company's truck transportation operation
utilizes an accounts receivable factoring arrangement which provides
for maximum gross purchases of $1,500,000. The agreement allows the
Company to sell accounts receivable of certain approved customers at
a fixed discount of .5% and a variable rate equal to 2% over the
purchaser's base rate. The Company, the Company's Logistics
operation, plus the personal guarantee of a senior member of
management all secure the agreement.
At September 30, 1998, the Company had total debt of $7,186,000. The
Company's ratio of current assets to current liabilities and its
debt to equity were .7:1 and 5.4:1 respectively, as compared to
1.2:1and 1.9:1 respectively, at December 31, 1997.
At September 30, 1998 the Company was seeking financing for
additional tractors and trailers. The Company expects that it will
acquire a significant portion of this equipment through operating
leases when leasing is a favorable alternative. The Company ended
the September 30, 1998 period with $234,000 of cash and negative
working capital of $777,000. Based upon the Company's expected cash
flow from operations and a planned private placement memorandum to
obtain additional capital investment, management believes that the
Company's capital resources are sufficient to meet its presently
anticipated operating needs and capital expenditure requirements.
SEASONALITY
In the transportation industry generally, results of operations show
a seasonal pattern because customers reduce shipments during and
after the winter holiday season and also because of weather
variations during the winter months. The Company's operating
expenses have historically been higher in the winter months,
primarily due to decreased fuel efficiency and increased maintenance
costs in colder weather. Extreme prolonged periods of rain in the
western United States can result in adverse effects on revenue due
to the reduced availability of produce freight.
PRIME COMPANIES, INC.
and Consolidated Subsidiary Companies
Part II. Other Information
Item 1. Legal Information
During the quarter ended March 31, 1998, one of the Company tractors
was involved in an accident, which resulted in numerous personal
injuries. Claims resulting from this incident are likely to be
substantial. Management's opinion is that there will be adequate
insurance coverage for these claims.
Item 5. Other Information
Market for Registrant's Common Equity and Related Stockholder Matters.
The Company's common stock began trading under the symbol BB: PRMC
on May 17, 1998. Share price ranged from 1/2 - 3 1/8 during the 3
months ended September 30, 1998.
On September 11, 1998, the Company issued an aggregate of 547,050
shares of common stock to four persons pursuant to Forms S-8 filed
with the Securities and Exchange Commission. Subsequent to the
filing of those Forms S-8, the Company became aware that the
transactions were not eligible for use of the Forms S-8.
Consequently, the Company is taking steps to deregister the shares.
It is possible that not all the shares will be recovered and
restricted, and some shares may be sold into the market. If sold
into the market, it is impossible to predict at what price such
shares may be sold. Such possible sales may have a depressive
effect on the market price of the Company's common stock.
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. Exhibits and Reports on Form 8-K
Form 8K-A #1 was filed on March 12, 1998, which included the audited
financial statements for the company for the years ended December
31, 1997 and 1996.
Signatures
Pursuant to the requirements 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.
PRIME COMPANIES, INC.
Registrant
DATED: November 2, 1998 /s/ Irving Pfeffer
Irving Pfeffer
Chairman/CEO
DATED: November 2, 1998 /s/ David Lefkowitz
David Lefkowitz
President/COO
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