SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A #1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act
December 30, 1997
Date of Report
(Date of Earliest Event Reported)
PRIME COMPANIES, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 0-22919 52-2031531
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
155 Montgomery Street
Suite 406
San Francisco, California 94104
(Address of principal executive offices)
415/398-4242
Registrant's telephone number
Corcoran Technologies Corporation
1504 R Street, N.W.
Washington, D.C. 20009
Former name and former address
ITEM 1. CHANGES IN CONTROL OF REGISTRANT
(a) Pursuant to an Agreement and Plan of Merger (the "Agreement")
between Prime Management, Inc., a California corporation, and the
Registrant, Prime Management, Inc. ("PMI") was merged with and into
the Registrant (hereinafter referred to either the "Registrant" or the
"Company") effected with the State of Delaware on December 30, 1997
(the "Merger"). The Agreement was adopted by the unanimous consent of
the Board of Directors of the Registrant and approved by the unanimous
consent of the shareholders of the Registrant on December 23, 1997.
Prior to the merger, the Registrant had 5,000,000 shares of common
stock outstanding held by Pierce Mill Associates, Inc. Pursuant to the
Agreement, the Registrant redeemed and retired 4,750,000 shares of the
outstanding shares of common stock and issued 2,763,123 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 3,013,123 shares outstanding of the
Registrant's common stock.
As a result of the stock exchange, the former shareholders of PMI
hold 91.7% of the outstanding shares of common stock of the Registrant.
The sole source of consideration used by the shareholders of PMI to
acquire their respective interest in the Registrant was the exchange of
100% 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 2,578,541 shares of common stock of the Registrant.
Pursuant to the Agreement, on the effective date of the Merger, the
officers and directors of PMI became the officers and directors of the
Registrant. See "Management" below. The by-laws of PMI were adopted
as the by-laws of the Registrant.
Effective as of the date of the Merger, the Registrant changed its name
to "Prime Companies, Inc."
A copy of the Agreement was filed as an exhibit to the Form 8-K and
is incorporated in its entirety herein. The foregoing description is
modified by such reference.
(b) The following table contains information regarding the
shareholdings of the Registrant's current directors and executive officers
and those persons or entities who beneficially own more than 5% of the
Registrant's common stock:
Amount of Percent
stock Beneficially of
Name Owned (1) Class
Irving Pfeffer
Chief Executive Officer 2,211,498 (2) 55.6%
Director
155 Montgomery Street
San Francisco, CA 94104
David Lefkowitz
President, Director 535,667 (3) 15.1%
155 Montgomery Street
Suite 406
San Francisco, CA 94104
Marshall Raines 5,000 (4) *
Director
155 Montgomery Street
Suite 406
San Francisco, CA 94104
Nicole B. Mason
Secretary 5,000 (5) *
155 Montgomery Street
Suite 406
San Francisco, CA 94104
David Shaw 1,333,333 (6) 39.8%
120 West 45th Street
New York, New York 10026
Pierce Mill 500,000 (7) 15.3%
Associates, Inc.
1504 R Street, N.W.
Washington, D.C. 20009
All directors and 2,757,165 61.1%
executive officers as
a group (4 persons)
_______
* Less than 1%
(1) Based upon 3,013,123 outstanding shares of common stock.
(2) The total number of shares beneficially owned includes 711,123
outstanding shares, options to purchase 787,041 shares,
immediately exercisable at an exercise price of $3.00 per share
expiring on December 31, 2000 and 535,000 outstanding shares
and options to purchase 178,334 shares with voting rights but no
dispositive power.
(3) The total number of shares beneficially owned includes 8,001
shares and options to purchase 527,667 shares, immediately
exercisable at an exercise price of $3.00 per share expiring on
December 31, 2000.
(4) The total number of shares beneficially owned includes options to
purchase 5,000 shares, immediately exercisable at an exercise price
of $3.00 per share expiring on December 31, 2000.
(5) The total number of shares beneficially owned includes options to
purchase 5,000 shares, immediately exercisable at an exercise price
of $3.00 per share expiring on December 31, 2000.
(6) The total number of shares beneficially owned includes 1,000,000
shares and options to purchase 333,333 shares, immediately
exercisable at an exercise price of $3.00 per share expiring on
December 31, 2000.
(7) The total number of shares owned includes 250,000 shares and
options to purchase 250,000 shares. James M. Cassidy is the
President and sole shareholder of Pierce Mill Associates, Inc.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
(a) The consideration exchanged pursuant to the Agreement was
negotiated at "arms length" between the Registrant and PMI. Prior to the
Merger, no relationship existed between any officer or director of the
Registrant or any officer, director or shareholder of PMI. The former
sole director and shareholder of the Registrant had no direct or indirect
interest in PMI. In evaluating PMI as a candidate for such merger, the
Registrant used criteria such as value of the assets of the Registrant and
value of the assets of PMI, the business operations of PMI, the business
potential of PMI and the benefit to the Registrant of such Merger. The
Registrant determined in good faith that the consideration for the exchange
was reasonable.
(b) The Registrant intends to continue the business operations
formerly conducted by PMI.
BUSINESS
BACKGROUND. PMI was a transportation company incorporated on
December 29, 1970 in the State of California. The Company has two
wholly-owned subsidiaries, Mid-Cal Express, a truck hauling company of
shipments of general commodities, including temperature-sensitive goods,
in both intrastate and interstate commerce and Mid-Cal Logistics, a freight
brokerage company.
On, December 31, 1996, PMI acquired Mid-Cal Express, Inc., a
dormant trucking company, through a stock and asset purchase. Mid-Cal
Express subsequently acquired an operating trucking company,
Countrywide Truck Services, Inc. through a cash purchase of its assets
and assumption of certain liabilities. The major lessors of trucks and
trailers to Countrywide Truck Services, Inc. sublease the equipment to
Mid-Cal Express.
During 1997, Mid-Cal Express rapidly developed as a long-haul
truckload carrier, with a fleet of more than 100 tractors and more than 145
refrigerated trailers. On July 22, 1997, Mid-Cal Logistics was
incorporated in California, as a subsidiary of PMI to operate as a freight
broker and logistics management company. Mid-Cal Logistics has an
office in Maryland.
MID-CAL EXPRESS. Mid-Cal Express was incorporated August 29,
1994 but was inactive until 1996 when it acquired two trailers and initiated
operations on a small scale. In December, 1996, it acquired the
operations and assets of Countrywide Truck Service, Inc., a California
corporation and formerly the wholly owned subsidiary of Countrywide
Transport Service, Inc., an over-the-counter public company.
Countrywide Truck Service, Inc. had been operating for 33 years and, as
a result of two major uninsured losses, was forced into an assignment for
benefit of creditors as an alternative to a bankruptcy filing. Since January
1, 1997, Mid-Cal Express has combined its operations and management
and assumed control of the acquired business.
Mid-Cal Express is an irregular route, truckload carrier transporting a
range of commodities, including refrigerated food products, manufactured
goods, retail store merchandise, paper products, beverages, paints and
chemicals, between the western and northeastern United States and the
provinces of Ontario and Quebec, Canada. Mid-Cal Express may
transport any type of freight (except certain types of explosives, household
goods, hazardous materials and commodities in bulk) from any point in the
continental United States to any other point in another state or souther
Canadian over any route selected by it.
Mid-Cal Express is establishing itself as a preferred or "core carrier"
for shippers who have time sensitive, high volume or high weight
requirements. Its services include multiple pick-ups and deliveries, pick-
ups within narrow time frames, specialized training of drivers, and other
services tailored to customer needs. Mid-Cal Express utilizes employee
drivers as well as owner/operator (independent contractor) drivers to
increase the size of its fleet.
Mid-Cal Express maintains Qualcomm satellite communication devices
in its truck fleet. This technology serves as an instantaneous and accurate
communication link between the driver and the Company, provides
automatic load tracking and monitors the driver's and tractor's
performance. Shipment information is available to the driver via a
computer terminal within the cab. Comprehensive messages sent by
satellite, special delivery instructions, recommended travel routes, weather
reports, and logistics-directed pick-up and delivery information can be
delivered to drivers in route. In addition, such satellite communications
allow the Company to pinpoint the location of each tractor throughout the
United States and southern Canada. Positions are received from each
truck at least every hour showing latitude and longitude.
Mid-Cal Express currently serves approximately 166 customers which
include over 50 major national companies including Eastman Kodak,
Sherwin Williams, Sunkist Growers, Vertex Systems and National
Growers. Mid-Cal Express offers long-haul trucking of fruits and
vegetables from California to all points in the continental United States
and short and medium haul trucking of dry goods, retail store
merchandise, paints, chemicals, paper goods and frozen items.
MID-CAL LOGISTICS. Mid-Cal Logistics provides freight hauling
broker services. Logistics companies, like Mid-Cal 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 Logistics maintains a network of truckload carriers to serve
its customers. Upon receiving a call from a customer, a Mid-Cal
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 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 Logistic's customers are sent a single invoice for all shipments
and payments for those shipments it arranges, covering the shipping and
broker fees. Mid-Cal 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 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 Logistic's customers have
priority access to Mid-Cal Express service, as Mid-Cal Logistics serves as
the primary broker for the trucking subsidiary. Mid-Cal 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 Logistics will assign.
EQUIPMENT AND TECHNOLOGY
All of the Company's equipment is utilized by Mid-Cal Express. As
of December 31, 1997, Mid-Cal Express operated approximately 107
company-owned or leased tractors and used 65 owner/operators that
provided one or more pieces of operating equipment. The Company's
fleet consists primarily of 48 foot long and 53 foot long , 102 inch wide,
high cube trailers all 143 of which are refrigerated. The average age of
tractors is less than three years. The current trailer fleet has many units
equipped with roller systems to facilitate cargo loading and unloading. 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 efficiency and flexibility provided by its fleet configurations
permit the Company to handle both high volume and high weight
shipments. Mid-Cal Express intends to maintain its new and efficient
equipment fleet by following a regimen of tractor replacement on a three
year cycle and trailer replacement on a five to seven year cycle. Mid-Cal
Express targets a trailer/tractor ratio of 1.5 to 1. Management believes
that this ratio promotes efficiency and allows it to serve a large variety of
customers' needs, without significantly changing or modifying equipment.
Mid-Cal Express' fleet configuration also allows the Company to move
freight on a "drop-and-hook" basis, increasing asset utilization and
providing better service to customers.
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 Logistics) utilize onboard computers with satellite
communications capabilities. In the case of the Mid-Cal Express fleet,
approximately 50 tractors are equipped with a Qualcomm satellite
communications system, which allows the dispatchers to follow the
progress of a vehicle, its 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. Mid-Cal Express plans to equip the balance of its tractors
with Qualcomm in the next twelve months. The satellite tracking of the
movement of the vehicles, the constant monitoring of schedule, speed, and
fuel consumption, and the availability of two-way communication has
allowed the Company to deliver to its customers a high level of on-time
service.
The Company's central dispatching/customer service unit operates 24
hours a day, 365 days a year. If any problem should develop, managers
and supervisors are either on hand or readily available to the dispatch
center.
Mid-Cal Express 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.
DRIVERS AND EMPLOYEES
As of December 1, 1997, Mid-Cal Express employed 125 personnel of
whom 93 were employee drivers, five in maintenance, two in sales and
marketing, and the remainder in administration and management. Mid-Cal
Express contracted with independent contractors (owner/operators)
throughout the year to provide tractors. None of the Company's employees
is represented by a labor union.
The recruitment, training and retention of qualified drivers is 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 an 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. Mid-Cal Express' long-haul drivers typically operate as teams,
enabling faster delivery, greater equipment utilization and more desirable
"trip-hours" for the drivers.
Mid-Cal Express 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.
INDEPENDENT CONTRACTORS
The independent contractors utilized by the Company are
"owner/operators" who provide their own tractors, thus providing the
Company an alternative method of obtaining additional revenue producing
equipment. During December, 1997, the Company utilized an average of
65 owner/operators. The Company intends to increase its use of such
owner/operators.
Each independent contractor 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 January, 1997, Mid-
Cal Express has utilized the services of owner/operators to handle
approximately 40% of its hauling services.
REGULATION
The Company currently has authority to carry freight on an intrastate
basis in 48 states. The Federal Aviation Administration Authorization Act
of 1994 (the FAAA Act) amended sections of the Interstate Commerce Act
to prevent states from regulating routes rates or service of motor carriers
after January 1, 1995. The FAAA Act did not address state oversight of
motor carrier safety and financial responsibility or state taxation of
transportation. If a carrier wishes to operate in a state where it did not
previously have intrastate authority, it must, in most cases, still apply for
authority.
The Company's motor carrier operations are also subject to federal
and state environmental laws and regulations, including laws and
regulations dealing with the transportation of hazardous materials and
other environmental matters. Specifically, the United States Environmental
Protection Agency ("EPA") requires motor carrier operators to obtain a
Certificate of Registration in order to transport hazardous materials . The
Company has initiated programs to comply with all applicable
environmental regulations. The Company requires each of its drivers to
participate in training regarding the handling of hazardous materials,
including tests given to the drivers after such training to ensure that the
basic skills have been achieved. As part of its safety and risk management
program, the Company periodically performs an internal environmental
review to assist in environmental compliance and avoid environmental
risk. In the event the Company should fail to comply with applicable
regulations, the Company could be subject to substantial fines or penalties
and to civil or criminal liability (which are determined on a case-by-case
basis).
The Company believes it is currently in material compliance with
applicable laws and regulations and that the cost of compliance has not
materially affected results of operations.
PROPERTY
The Company maintains its offices at 155 Montgomery Street, Suite
406, San Francisco, California. The Company leases 680 square feet
under a one year lease expiring in November, 1998.
Mid-Cal Express' headquarters are located at 21496 Main Street,
Grand Terrace, California. 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. The Grand Terrace/Colton area of Southern
California is a major transportation center, with easy interstate access and
proximity to the crop harvests of the California agricultural industry. This
property is subject to a two-year lease, ending December 31, 1999. Mid-
Cal Express currently intends to exercise its option to purchase this
property for $550,000 at the end of the lease period. Prior to December
1997, Mid-Cal Express was headquartered at 325 North Cota Street,
Corona, California 91720 on a month to month basis. Mid-Cal Logistics
maintains its offices at 1003 Old Philadelphia Road, Aberdeen, Maryland
21001. These offices are rented pursuant to a one year lease, ending
August 1, 1998, with rental payments of $250.00 a month for 300 square
feet. Mid-Cal Logistics has an option to renew the lease.
MANAGEMENT
Term of
Name Age Office Title
Irving Pfeffer 73 1970 Chairman
Chief Executive Officer
David Lefkowitz 48 1997 President
Chief Operating Officer
Marshall Raines 71 1998 Director
Nicole Mason, JD 26 Corporate Secretary
Emilio Guglielmelli 41 President, Mid-
Cal Express
and Mid-Cal Logistics
David Gosling 48 Vice President
Finance,
Mid-Cal Express
and Mid-Cal Logistics
Irving Pfeffer serves as Chief Executive Officer and a director of the
Company. Mr. 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 holds a Bachelor of Arts degree in Economics
and Political Science from McGill University, Canada (1949); a Doctorate
in Economics from the Wharton School of Business, University of
Pennsylvania (1954) and a law degree from LaSalle Extension University
(1974).
David Lefkowitz serves as President, Chief Operating Officer and a
Director of the Company. Mr. Lefkowitz has been Chief Operating
Officer and President since January 1997. Between 1988 and December
1996, Mr. Lefkowitz owned, operated and worked for Lefkowitz &
Company, a Certified Public Accounting firm, where he specialized in
management consulting of growing companies, preparing such companies
for eventual sale and/or mergers and acquisitions. Mr. Lefkowitz has
been a Certified Public Accountant since 1977 and sold his accounting
practice to certified public accounting firm of Check Tan & Co. in
December 1996. Mr. Lefkowitz earned his BS in Business and
Accounting from University of Central Florida, Orlando, Florida in 1974.
Marshall L. Raines has been a Director of the Company since
January, 1998. Since 1980, Mr. Raines has been a Professor of
Advertising, teaching a number of courses, at San Jose State University.
At San Jose State University, Mr. Raines also coordinates the advertising
degree program, which is the largest such accredited program in northern
California. Mr. Raines has served as a consultant to advertising agencies
and is on the Marketing Advisory Board for the United States Postal
Service, and has published a number of books on the subject of
advertising. He earned a Bachelor or Science degree in Marketing from
New York University in 1949 and a Masters of Business Administration
from New York University in 1953.
Nicole Mason serves as Secretary to the Company. Ms. Mason is
licensed to practice law in California and since July, 1997, has practiced
as a corporate/securities associate at Pfeffer & Williams P.C., San
Francisco, California. From February to June, 1997, Ms. Mason worked
as a litigation associate at McMahon Law Offices in San Jose. From
September, 1996 to January, 1997, Ms. Mason provided litigation support
services to a large full service San Francisco law firm and the United
States government, with respect to class action litigation matters. Ms.
Mason has 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 Bachelor of Arts degree in Political
Science and Psychology in 1993. She earned her law degree at the
University of Illinois (Champaign-Urbana) in 1996.
Emilio Guglielmelli has been the President of Mid-Cal Logistics since
its inception in July, 1997. From January, 1997 to December, 1997, Mr.
Guglielmelli was the Executive Vice-President of Marketing and
Operations for Mid-Cal Express. Mr. Guglielmelli became President of
Mid-Cal Express in January, 1998. While serving in these capacities, Mr.
Guglielmelli created strong relationships with customers and developed a
network of contacts throughout the trucking industry, which provided the
foundation for Mid-Cal 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.
RISK FACTORS
FINANCIAL RESULTS. The Company's financial results for 1997
reflect revenues of $15,958,229 with a loss of $1,086,674. The Company
believes this loss to be attributable to start-up cost plus the expansion of its
customer base. The Company intends to curb such losses through direct
purchases of rolling stock and acquisition of compatible operating
companies, providing sufficient increased revenues to generate operating
profits. There is no assurance that the Company will not continue to
experience losses from its operations.
FREIGHT RATES. The Registrant maintains freight rates competitive
with the market price for similar types of shipments and distances.
However, lower fuel costs or increased market competition may lead to
lower freight rates. Lower freight rates not offset by lower operating
costs or increased volume would have an adverse impact on the
Registrant's operations.
FUEL COSTS. The Registrant has little or no control over fuel costs
which comprises a substantial portion of its operating expenses. In
addition to the price of fuel charged by providers, the cost of fuel may
increase from an increase in federal or state taxes imposed on the sale of
fuel. Significant increases in these costs would have an adverse impact on
the profitability of the Registrant.
COMPETITION. The truckload transportation industry is highly
fragmented and includes numerous regional, inter-regional and national
carriers. In addition, the Registrant faces competition from other freight
broker companies as well as railroads and, to a lesser degree, air and sea
transportation companies. Many of these competitors have substantially
greater financial and marketing resources than the Registrant and may be
better able to attract and maintain customers.
AVAILABILITY OF DRIVERS. The Registrant utilizes the services
of employee drivers and independent contractor (owner/operator drivers).
Competition for employee drivers and independent contractors is intense
within the trucking industry. From time to time, there have been industry-
wide shortages of qualified drivers and independent contractors and there
can be no assurance that the Registrant will not be affected by a shortage
of qualified drivers or independent contractors in the future. Prolonged
difficulty in attracting or retaining qualified drivers or independent
contractors could have a material adverse effect on the Registrant.
SEASONALITY. A portion of the Registrant's truckload operations
are in the transport of fruits and vegetables from California to intrastate
and interstate destinations. The Registrant experiences the greatest
demand for its services during the summer and fall when there is a
demand for transport of such fruits and vegetables. The Registrant may
experience reduced demand for its services with a corresponding reduction
in revenues without any corresponding reduction in overhead. In addition,
the demand for the Registrant's services may be diminished if the amount
of produce required to be shipped by growers is reduced by inclement
weather or other factors.
CAPITAL REQUIREMENTS. The trucking industry is capital
intensive and the Registrant depends on operating leases and debt financing
in order to expand and maintain a modern operating fleet. If the
Registrant were unable in the future to enter into acceptable operating
lease arrangements, raise additional equity or borrow sufficient funds,
when needed, it would be forced to limit its growth or operate its fleet for
longer periods, which could adversely affect the Registrant. Use of older
equipment involves higher maintenance costs and greater safety
precautions. Reduced expansion efforts could result in costly operating
inefficiencies.
REGULATION. The Registrant's operations are subject to various
federal, state and local laws, regulations and taxes. For example, federal
regulatory authorities (including the Surface Transportation Board and the
Department of Transportation) have broad authority and power to regulate
motor carrier operations (including equipment specifications and
commodities transported); approve rates, charges and accounting systems;
and prescribe certain safety requirements. Such matters as weight and
dimension of equipment are also subject to federal and state regulation.
Although compliance with these laws and regulations has not had a
material effect on the Registrant's operations or financial condition, there
is no assurance that additions or changes to such current laws or
regulations will not have a material effect on the Registrant.
POTENTIAL LIABILITY; UNINSURED LOSSES. The Registrant's
business, by its nature, is subject to risk of liability resulting from the
movement of freight. Furthermore, as the Registrant expands its
operation, an additional risk of liability may occur. Currently, the
Registrant carries commercial liability insurance in amounts believed to be
adequate to cover any losses. No assurance can be given that such
insurance coverage will be sufficient to fully protect the business and
assets of the Registrant from all claims or that the Registrant will be able
to obtain additional insurance at commercially reasonable rates. To the
extent losses or claims are beyond the limits or scope of the Registrant's
insurance coverage, the Registrant's business and assets could be
materially adversely affected.
ISSUANCE OF FUTURE SHARES MAY DILUTE INVESTORS
SHARE VALUE. The Certificate of Incorporation of the Registrant
authorizes the issuance of a maximum of 50,000,000 shares of common
stock and 10,000,000 shares of preferred stock. The future issuance of all
or part of the remaining authorized common stock may result in substantial
dilution in the percentage of the Registrant's common stock held by the
Registrant's then existing shareholders. Moreover, any common stock
issued in the future may be valued on an arbitrary basis by the Registrant.
The issuance of the Registrant's shares for future services or acquisitions
or other corporate actions may have the effect of diluting the value of the
shares held by investors, and might have an adverse effect on any trading
market, should a trading market develop for the Registrant's common
stock.
POTENTIAL ADVERSE EFFECTS OF AUTHORIZATION OF
PREFERRED STOCK. The Registrant may, without further action or
vote by shareholders of the Registrant, designate and issue shares of
preferred stock. The terms of any series of preferred stock, which may
include priority claims to assets and dividends and special voting rights,
could adversely affect the rights of holders of the common stock and
thereby reduce the value of the common stock. The designation and
issuance of preferred stock favorable to current management or
shareholders could make the possible takeover of the Registrant or the
removal of management of the Registrant more difficult and discourage
hostile bids for control of the Registrant which bids might have provided
shareholders with premiums for their shares.
NO CURRENT TRADING MARKET FOR THE REGISTRANT'S
SECURITIES. There is currently no established public trading market for
the securities of the Registrant. No assurance can be given that an active
trading market in the Registrant's securities will develop or, if developed,
that it will be sustained. The Registrant intends to apply for admission to
quotation of its securities on the NASD OTC Bulletin Board and, if and
when qualified, it intends to apply for admission to quotation on the
Nasdaq SmallCap Market. There can be no assurance that a regular
trading market for the common stock will develop or that, if developed, it
will be sustained. Various factors, such as the Registrant's operating
results, changes in laws, rules or regulations, general market fluctuations,
changes in financial estimates by securities analysts and other factors may
have a significant impact on the market price of the Registrant's securities.
The market price for the securities of public companies often experience
wide fluctuations which are not necessarily related to the operating
performance of such public companies such as high interest rates or impact
of overseas markets.
PENNY STOCK REGULATION. Penny stocks generally are equity
securities with a price of less than $5.00 per share other than securities
registered on certain national securities exchanges or quoted on the Nasdaq
Stock Market, provided that current price and volume information with
respect to transactions in such securities is provided by the exchange or
system. The Registrant's securities may be subject to "penny stock" rules
that impose additional sales practice requirements on broker-dealers who
sell such securities to persons other than established customers and
accredited investors (generally those with assets in excess of $1,000,000
or annual income exceeding $200,000 or $300,000 together with their
spouse). For transactions covered by these rules, the broker-dealer must
make a special suitability determination for the purchase of such securities
and have received the purchaser's written consent to the transaction prior
to the purchase. Additionally, for any transaction involving a penny
stock, unless exempt, the rules require the delivery, prior to the
transaction, of a disclosure schedule prescribed by the Commission
relating to the penny stock market. The broker-dealer also must disclose
the commissions payable to both the broker-dealer and the registered
representative and current quotations for the securities. Finally, monthly
statements must be sent disclosing recent price information on the limited
market in penny stocks. Consequently, the "penny stock" rules may
restrict the ability of broker-dealers to sell the Registrant's securities.
The foregoing required penny stock restrictions will not apply to the
Registrant's securities if such securities maintain a market price of $5.00
or greater. There can be no assurance that the price of the Registrant's
securities will be reached or maintained at such a level.
ITEM 3. BANKRUPTCY OR RECEIVERSHIP
Not applicable
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING
ACCOUNTANT
As a result of the Merger and as of the date thereof, December 30,
1997, the accountant to the Registrant was dismissed and replaced with the
accountant for PMI. The financial statements for the Registrant since
inception have not contained any adverse opinion or disclaimer or were
modified as to any uncertainty, audit scope or accounting principles and
there were not any disagreements or "reportable events" with such former
accountant. The board of directors of the Registrant subsequent to the
Merger approved the auditors of PMI, Gilbert & Company, to continue as
auditors of the Registrant.
ITEM 5. OTHER EVENTS
Not applicable.
ITEM 6. RESIGNATIONS OF DIRECTORS AND EXECUTIVE
OFFICERS
Pursuant to the Agreement, upon effectiveness of the Merger, James
M. Cassidy resigned as the sole director and officer of the Registrant and
the officers and directors of PMI were designated to serve in their same
capacities for the Registrant until the next annual meeting of stockholders
and until their respective successors are elected and qualified or until their
prior resignation or termination.
ITEM 7. FINANCIAL STATEMENTS
The audited financial statements for the year ended December 31,
1998 prepared for the Company by Gilbert & Company, certified public
accountants, are included herein.
<PAGE>
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.
Gilbert & Company
February 12, 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 200,000 0
Fixed assets 4,876,544 0
Improvements 33,074 0
Accumulated depreciation
and amortization -659,448 0
Net Fixed Assets 4,450,170 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 $8,495,371 $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 276 126
Additional paid-in capital 3,459,834 1,254,998
Retained earnings -1,089,523 -180,458
Total Stockholders' Equity 2,370,587 1,074,666
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $8,495,371 $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 1,508,000 151 2,111,860 -- 2,112,011
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 3,013,123 $276 $3,459,834 $(1,089,523) $2,370,587
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 $ (0.28) $ 0.02
INCOME (LOSS) PER COMMON SHARE --
FULLY DILUTED $ (0.28) $ 0.02
WEIGHTED AVERAGE NUMBER OF SHARES:
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 2,479,064 1,097,973
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING - FULLY DILUTED 2,486,128 1,097,973
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 (667,580) 0
Collections on notes receivable 21,083 0
Net cash provided (used) by investment
activities (646,497) 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 1,508,000 269,000
Principal payments on long-term debt (707,307) 0
Long term deposit 9,600 0
Net cash provided by financing activities 1,045,873 0
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,
3,013,123 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 1,097,973
12/97 2,479,064
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 1,097,973
12/97 2,486,128
The above weighted average shares are based upon the
cumulative common stock outstanding and incorporating the
above noted 2,578,541 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 $ 200,000
Buildings and Improvements 182,161
Accumulated Depreciation 3,315
Net Buildings and Improvements 178,017
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 $5,109,618
Total Accumulated Depreciation $ 659,448
Net Fixed Assets $4,450,170
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
2,763,123 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 3,013,123 shares
outstanding of CTC's common stock.
As a result of the stock exchange, the former
shareholders of PMI hold 91.7 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
2,578,541 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 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 then 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.
ITEM 8. CHANGE IN FISCAL YEAR
Not applicable.
ITEM 9. SALES OF EQUITY SECURITIES PURSUANT TO REGULATION S
Not applicable.
EXHIBITS
None
<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 hereunto duly
authorized.
PRIME COMPANIES, INC.
By /s/ Irving Pfeffer
Chief Executive Officer
March 11, 1998
