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 June 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 June 30, 1998 was
3,893,674
<PAGE>
PRIME COMPANIES, INC.
and Consolidated Subsidiary Companies
INDEX
Part I - Financial Information
Page
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets--June 30, 1998
and December 31, 1997 3
Condensed Consolidated Statements of Operations--Three
Months and Six Months Ended June 30, 1998 and 1997 5
Condensed Consolidated Statements of Cash Flows--Six
Months Ended June 30, 1998 and 1997 7
Notes to Condensed Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
Part II - Other Information
Item 1. Legal Information 14
Item 5. Other Information 14
Item 14. Exhibits and Reports on Form 8-K 14
Signatures 15
<PAGE>
PRIME COMPANIES, INC.
and Consolidated Subsidiary Companies
Condensed Consolidated Balance Sheets
(In Thousands)
June 30, December 31,
1998 1997*
ASSETS (Unaudited)
Current assets:
Cash $ 135 201
Accounts receivable, net 1,196 1,402
Accounts receivable -
miscellaneous 153 114
Investment accounts -- 436
Driver advances 151 78
Notes receivable - current portion 34 388
Deferred income taxes 21 21
Inventories 14 19
Prepaid expenses 547 601
Total current assets 2,251 3,260
Property and equipment, net 5,221 5,280
Other assets:
Investments, unlisted securities 390 101
Deferred income taxes 380 380
Deposits 257 245
Note receivable,
less current portion 233 36
Asset held for resale -- 23
Total other assets 1,260 785
Total assets $ 8,732 $ 9,325
* Condensed from audited financial statements.
<PAGE>
PRIME COMPANIES, INC.
and Consolidated Subsidiary Companies
Condensed Consolidated Balance Sheets
(In Thousands)
June 30, December 31,
1998 1997*
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current portion of
long-term debt $ 1,233 727
Deferred expense credit 18 38
Loan payable 41 150
Margin account payable -- 308
Accounts payable and accrued liabilities 1,988 1,604
Security Deposit 10 10
Total current liabilities 3,290 2,837
Long-term liabilities:
Long-term debt, less current portion 3,511 2,683
Deferred income -- 605
Total long-term liabilities 3,511 3,288
Total liabilities 6,801 6,125
Stockholders' equity:
Common stock, shares authorized 50,000,000, par value $.0001,
3,893,674 and 3,843,123 shares were issued and outstanding
at June 30,1998 and December 31, 1997, respectively
1 1
Additional paid-in capital 3,863 4,289
Accumulated deficit (1,933) (1,090)
Total stockholders' equity 1,931 3,200
Total liabilities and
stockholders' equity $ 8,732 $ 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 Six Months Ended
June 30, June 30,
1998 1997 1998 1997
Transportation revenue $ 4,518 $ 4,321 $ 8,655 $ 7,727
Operating costs and expenses:
Purchased transportation 1,822 1,463 3,419 2,862
Salaries and related expenses 1,458 1,180 2,838 2,070
General supplies and expenses 499 331 906 587
Operating expenses 867 881 1,750 1,534
Revenue equipment rentals 367 227 631 439
Depreciation and amortization 207 147 409 264
Total operating costs and
expenses 5,220 4,229 9,953 7,756
Operating income (loss) (702) 92 (1,298) (29)
Other income (expense):
Interest expense (133) (74) (263) (144)
Interest income 11 9 17 14
Rental income 29 5 58 5
Investment income -- -- 630 --
Other income -- 4 6 22
Gain (loss) on disposition of
assets 12 -- 10 --
Total other income (expense) (81) (56) 458 (103)
Net income (loss) from operations before
provision for income taxes (783) 36 (840) (132)
Provision for Income tax 1 -- 3 2
Net income (loss) $ (784) $ 36 $ (843) $ (134)
<PAGE>
PRIME COMPANIES, INC.
and Consolidated Subsidiary Companies
Condensed Consolidated Statements of Operations
(Unaudited)
(In Thousands, except Per Share Data)
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
Earnings per share:
Income (loss) per
common share $ (0.20) 0.01 $ (0.22) $ (0.05)
Weighted average number of shares:
Weighted average number of
shares outstanding 3,859,788 3,205,977 3,851,788 2,778,113
<PAGE>
PRIME COMPANIES, INC.
and Consolidated Subsidiary Companies
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In Thousands)
Six Months Ended
June 30,
1998 1997
Cash flows from operating activities:
Net (loss) from operations $ (843) $ (134)
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 409 264
(Gain) loss on disposition of assets (10) --
General services used in exchange
for common stock 51 --
Provision for uncollectible accounts
receivable 16 11
(Increase) decrease in
Accounts receivable 193 (1,662)
Accounts receivable - miscellaneous (39) (50)
Driver advance (73) (146)
Inventories 5 (23)
Investments 147 182
Prepaid expenses 54 (234)
Deposits (12) (148)
Asset held for resale 23 --
Increase (decrease) in:
Accounts payable and accrued liabilities 380 1,215
Deferred income (605) 340
Deferred expense credit (20) (15)
Net cash (used in) operating activities (324) (400)
Cash flows from investing activities:
Additions to property and equipment (54) (1,139)
Proceeds from sale of equipment 114 --
Collections on notes receivable 424 8
Issuance of note receivable (10) --
Net cash provided by (used in)
investing activities 474 (1,131)
<PAGE>
PRIME COMPANIES, INC.
and Consolidated Subsidiary Companies
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In Thousands)
Six Months Ended
June 30,
1998 1997
Cash flows from financing activities:
Proceeds from short-term debt $ 200 $ --
Proceeds from long-term debt 560 --
Principal payments on long term debt (559) (283)
Principal payments on loan payable (109) --
Margin account payable (308) (247)
Proceeds from sale of stock -- 2,155
Net cash provided by (used in)
financing activities (216) 1,625
Increase (decrease) in cash (66) 94
Cash, beginning of period 201 264
Cash, end of period $ 135 358
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $ 261 $ 184
Income Taxes $ 7 $ --
Noncash investing and financing transactions:
Purchase of property and equipment with debt $ 716 $ 3,960
Purchase of note receivable for deferred credit $ -- $ 150
Prepaid expenses financed with debt $ -- $ 107
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 $ --
<PAGE>
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 June 30, 1998, the results of
operations for the six months ended June 30, 1997 and
1998 and the cash flows for the six months ended June
30, 1998 and 1997. The results of operations for the
three months and six months periods ended June 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):
June 30, December 31, Estimated
1998 1997 Useful Lives
Land $ 600 $ 600
Buildings and improvements 270 579 31 years
Communications equipment 141 132 5 years
Revenue equipment 5,075 4,469 4 to 7 years
Service cars 14 14 5 years
Furniture and office
equipment 113 100 3 to 5 years
Leasehold improvements 34 33 life of lease
Machinery and equipment 12 12 3 years
6,259 5,939
Less accumulated depreciation
and amortization (1,038) (659)
$ 5,221 $ 5,280
<PAGE>
4. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consisted of
the following (000 omitted):
June 30, December 31,
1998 1997
Accounts payable $ 1,140 430
Accrued compensation and related 277 200
Accrued purchased transportation 407 663
Other accrued expenses 164 311
$ 1,988 $ 1,604
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net loss for the quarter and six months ended June 30, 1998
amounted to $784,000 and $843,000, respectively, compared
to net income of $36,000 and net loss of $134,000 for the
comparable prior year periods. The increased losses were
primarily attributable to a combination of higher costs for
purchased transportation, a significant pricing decrease
during the second quarter as compared to the prior year
quarter, and idle company tractors due to a driver
shortage. Net operating loss was $689,000 and $1,285,000
for the quarter and six months ended June 30, 1998 as
compared to net operating income of $92,000 and net loss of
$29,000 for the comparable prior year period.
Second quarter operating revenue increased 4.5% or $197,000
to $4,518,000 from $4,321,000 for the second quarter of
1997. The sales increase reflects the addition of the
Company's Mid-Cal Express Logistics subsidiary that had
operating revenue of $173,000 for the quarter. An increase
in the Company's tractor fleet from 93 units at June 30,
1997 to 127 units at June 30, 1998 produced an increase in
loaded miles from 3,626,000 to 3,820,000 for the period.
The relatively small increase in the number of loaded miles
reflects the Company's increase in the number of idle
tractors due to the driver shortage. Pricing for the
second quarter decreased 4.2% or $.05 per mile as compared
to the prior year second 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. Year
round rates will have a positive effect in the fall season
when produce market rates are expected to be lower than
the Company's year round rates. The increase in the number
of units reflects the Company's efforts to expand
operations by continually increasing the size of the fleet.
Mid-Cal Express Logistics, Inc. was formed in July 1997 and
provides its customers with full-service logistics
capabilities in transportation services, including
truckload and less than truckload distribution.
During the six month period ended June 30, 1998 operating
revenue increased 12% to $8,655,00 from $7,727,000 for the
six month period ending June 30, 1997. $557,000 or 7.2% of
the increase was derived from the Company's Mid-Cal
Express, Inc. subsidiary which was not in operation during
the six month period ended June 30, 1997. Loaded miles
increased 477,000 miles to 7,273,000 from 6,796,000 for the
six month period. Pricing decreased 2.1% or $.024 per mile
for the six month period ended June 30,1998 as compared to
the comparable prior year period.
Operating costs, exclusive of Mid-Cal Logistics, Inc., for
the three month and six month periods ending June 30, 1998
increased by $694,000 and $1,393,000 from the prior year
periods, respectively. As a percentage of sales, operating
costs for the three month and six month periods ending June
30, 1998 increased 15.4% and 12.8% as compared to the prior
year periods. 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 Mid-
Cal Express Logistics, Inc. subsidiary had net income of
$3,000 for the three month period ended June 30,1998 and a
net loss of $3,000 for the six month period ending June
30, 1998, with no comparable prior year results.
Salaries and related expenses, exclusive of Mid-Cal Express
Logistics, Inc, for the three and six month periods ending
June 30, 1998 increased $267,000 and $722,000, or 6.7% and
7.7%, 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 $.04 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 first quarter of 1997 when the company was beginning to
increase operations.
General supplies and expenses, exclusive of Mid-Cal Express
Logistics, Inc., for the three and six month periods ending
June 30, 1998 increased $117,000 and $237,000 or 2.5% and
2.6% respectively, expressed as a percentage of sales, as
compared to the prior year periods. An increase in the
number of personnel was the primary reason for the
increase.
Purchased transportation costs, exclusive of Mid-Cal
Express Logistics, Inc., increased $225,000 and $882,000
for the three and six month periods ending June 30, 1998,
respectively, as compared to the prior year periods. The
primary reason for the increase costs was a $.05 per mile
loaded mile pay increase and an average of $.03 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 $59,000 and $119,000 for the
three and six month periods ending June 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 increased
borrowing bases for working capital requirements.
The Company increased investment income by $630,000 during
the six month period ending June 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.
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. In July 1998, the Company also
reduced its administrative staff by four personnel in an
effort to reduce labor costs. A new Vice-President of
Operations was employed in August 1998 to increase
efficiency in the Operations Department, which is expected
to reduce driver turnover and also reduce costs.
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 .25% 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 June 30, 1998, the Company had total debt of $6,801,000.
The Company's ratio of current assets to current
liabilities and its debt to equity were 0.68:1 and 3.5:1,
respectively, as compared to 1.2:1 and 1.9:1, respectively
at December 31, 1997.
At June 30, 1998 the Company had a commitment from a
revenue equipment manufacturer for the purchase of 10 new
company tractors and is seeking financing for additional
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 June 30, 1998 period with $135,000 of
cash and negative working capital of $1,039,000. Based
upon the Company's expected cash flow from operations, and
a planned mortgage loan of the Company's rental property,
management believes that the Company's capital resources
are sufficient to meet its presently anticipated operating
needs and capital expenditure requirements. The Company
also plans to seek additional financing through capital
investment during the third quarter of 1998.
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.
<PAGE>
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 2 3/4 - 3 1/4.
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
<PAGE>
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: August 7, 1998 /s/ Irving Pfeffer
Irving Pfeffer
Chairman/CEO
DATED: August 7, 1998 /s/ David Lefkowitz
David Lefkowitz
President/COO
GILBERT & COMPANY
1 Maritime Plaza
San Francisco, California 94111
415/576-1300
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in this Form 10-Q filing of
our report dated May 7, 1998, on the financial statements of Prime
Companies, Inc.
/s/ Gilbert & Company
San Francisco, California
August 10, 1998
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<PERIOD-END> JUN-30-1998
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<SECURITIES> 390000
<RECEIVABLES> 1196000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2251000
<PP&E> 5221000
<DEPRECIATION> 0
<TOTAL-ASSETS> 8732000
<CURRENT-LIABILITIES> 3290000
<BONDS> 0
0
0
<COMMON> 3893674
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 8732000
<SALES> 4518000
<TOTAL-REVENUES> 4518000
<CGS> 5220000
<TOTAL-COSTS> 5220000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (133000)
<INCOME-PRETAX> (783000)
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