<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
-------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-22919
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PRIME COMPANIES, INC.
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(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
DELAWARE 52-2031531
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2975 TREAT BLVD., #C8, CONCORD, CA 92008
---------------------------------- -----
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
ISSUER'S TELEPHONE NUMBER (925) 687-9669
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(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT) 155 MONTGOMERY STREET, SUITE 406, SAN FRANCISCO, CA 94104
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CHECK WHETHER THE ISSUER (1) FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION
13 OR 15(d) OF THE EXCHANGE ACT DURING THE PAST 12 MONTHS (OR FOR SUCH SHORTER
PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS),
AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
--- ---
AS OF SEPTEMBER 30, 1999, 25,007,742 SHARES OF COMMON STOCK, $.001 PAR VALUE,
WERE OUTSTANDING.
<PAGE>
INDEX
<TABLE>
<CAPTION>
Page
Number
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PART I FINANCIAL INFORMATION
<S> <C>
Item 1 Financial Statements:
Condensed Consolidated Balance Sheet
as of September 30, 1999 3
Condensed Consolidated Statements of Operations for the
Three and Nine Months ended September 30, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows for the
Nine Months ended September 30, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis
of Financial Condition and Results of Operations 7
PART II OTHER INFORMATION
Exhibits and Reports of Form 8-K 10
Signatures 11
</TABLE>
2
<PAGE>
PART I FINANCIAL INFORMATION
Item 1 FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEET
Prime Companies, Inc. and Subsidiaries
<TABLE>
<CAPTION>
ASSETS SEPTEMBER 30, 1999
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(UNAUDITED)
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 55,670
Investments held in escrow 1,800,000
Accounts receivable, net 11,210
Inventory 18,550
Prepaid expenses and other current assets 24,597
Assets held for sale 1,399,838
------------
TOTAL CURRENT ASSETS 3,309,865
PROPERTY AND EQUIPMENT, net 76,775
LICENSES, NET 1,077,913
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TOTAL ASSETS $ 4,464,553
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------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Notes Payable $ 1,045,640
Notes payable - related parties 782,612
Accounts Payable and accrued liabilities 1,653,483
Deferred income 25,000
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TOTAL CURRENT LIABILITIES 3,506,735
NOTES PAYABLE - RELATED PARTIES 932,194
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TOTAL LIABILITIES 4,438,929
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STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $.0001 par value, 10,000,000 shares authorized,
none issued and outstanding -
Common stock, $.001 par value, 50,000,000 shares authorized,
25,007,742 issued and outstanding 2,501
Accumulated Deficit (476,877)
Unrealized gain on investments 500,000
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TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 25,624
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 4,464,553
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</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
3
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Prime Companies, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Three months ended Nine months ended
-------------------------------- -------------------------------
SEPTEMBER 30, September 30, SEPTEMBER 30, September 30,
------------- ------------- ------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
(UNAUDITED) (Unaudited) (UNAUDITED) (Unaudited)
<S> <C> <C> <C> <C>
SALES REVENUES $ 127,393 $ 84,520 $ 281,279 $ 206,526
COSTS AND EXPENSES
Cost of Sales 39,322 33,172 99,355 73,697
Selling, General & Administrative 101,644 42,102 218,005 98,998
---------- --------- ---------- ----------
Total costs and expenses 140,966 75,274 317,360 172,695
---------- --------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS (13,573) 9,246 (36,081) 33,831
INTEREST EXPENSE 22,986 4,932 37,458 9,864
---------- --------- ---------- ----------
NET INCOME (LOSS) $ (36,559) $ 4,314 $ (73,539) $ 23,967
---------- --------- ---------- ----------
---------- --------- ---------- ----------
BASIC & DILUTED INCOME (LOSS) PER SHARE $ * ) $ * $ * $ *
---------- --------- ---------- ----------
---------- --------- ---------- ----------
Weighted Average Shares 21,808,555 18,000,000 19,283,469 18,000,000
---------- --------- ---------- ----------
---------- --------- ---------- ----------
</TABLE>
* LESS THAN $0.01 PER SHARE
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
4
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Prime Companies, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Nine months ended
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SEPTEMBER 30, SEPTEMBER 30,
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1999 1998
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(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ (73,539) $ 23,967
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and Amortization 12,403 11,306
Changes in operating assets and liabilities:
Current assets (33,501) (20,332)
Current liabilities 43,863 27,030
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (50,774) 41,971
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (5,162) (9,935)
Purchases of licenses (1,032,440) -
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NET CASH USED IN INVESTING ACTIVITIES (1,037,602) (9,935)
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CASH FLOWS FROM FINANCING ACTIVITIES
Capital contributions 53,092 -
Capital distribution - (31,711)
Payments on notes payable - related parties (25,000) (19,250)
Proceeds from notes payable - related parties 10,000 -
Proceeds from notes payable 1,045,640 -
Cash received from reverse merger 60,314 -
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 1,144,046 (50,961)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 55,670 (18,925)
CASH AND CASH EQUIVALENTS, beginning of period - 18,925
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CASH AND CASH EQUIVALENTS, end of period $ 55,670 $ -
----------- -----------
----------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 37,458 $ 9,864
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----------- -----------
Taxes paid $ - $ -
----------- -----------
----------- -----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
5
<PAGE>
PRIME COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheet as of September 30, 1999, the
related condensed consolidated statements of operations for the three
and nine months ended September 30, 1999 and 1998, and cash flows for
the nine months ended September 30, 1999 and 1998 have been prepared by
the Company without audit. In the opinion of management, the condensed
consolidated financial statements contain all adjustments, consisting
of normal recurring accruals, necessary to present fairly the financial
position of Prime Companies, Inc. and subsidiaries as of September 30,
1999, the results of their operations for the three and nine months
ended September 30, 1999 and 1998 and cash flows for the nine months
ended September 30, 1999 and 1998. The results of operations for the
three and nine months ended September 30, 1999 are not necessarily
indicative of the results to be expected for the entire fiscal year
ending December 31, 1999.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested
that these condensed consolidated financial statements be read in
conjunction with the consolidated financial statements and notes
thereto included in the Company's report on Form 10-KSB for the year
ended December 31, 1998.
2. ORGANIZATION AND NATURE OF OPERATIONS
Pursuant to an Agreement and Plan of Merger (the "Agreement") between
Prime Companies, Inc. ("Prime"), a Delaware Corporation, a nonoperating
public shell, and Worldnet Tel.com, Inc. (Worldnet), Worldnet was
merged into Prime through a merger effective August 11, 1999.
For financial statement purposes, Worldnet was considered the acquiring
company, and this transaction has been treated as a purchase of Prime
by Worldnet. For legal purposes, however, Prime remained the surviving
entity. Therefore, the combined entity retained Prime's capital
structure. Prior to the merger, Prime had 7,007,742 shares of common
stock outstanding held by various individuals. Pursuant to the
agreement, Worldnet was issued 18,000,000 shares of Prime common stock.
The accompanying financial statements reflect the operations of
Worldnet and consolidate the operations of Prime commencing on the date
of the merger.
6
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements made herein or elsewhere by, or on behalf of, the Company
that are not historical facts are intended to be forward-looking statements
within the meaning of the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements are based on
assumptions about future events and are therefore inherently uncertain.
The Company cautions readers that the following important factors, among others,
could affect the Company's consolidated results:
1 Whether acquired businesses perform at pro forma levels used by
management in the valuation process and whether, and the rate at which,
management is able to increase the profitability of acquired businesses.
2. The ability of the Company to manage its growth in terms of implementing
internal controls and information gathering systems, and retaining or
attracting key personnel, among other things.
3. The amount and rate of growth in the Company's corporate general and
administrative expenses.
4. Changes in interest rates, which can increase or decrease the amount the
Company pays on borrowings.
5. Changes in government regulation, including tax rates and structures.
6. Changes in accounting policies and practices adopted voluntarily or
required to be adopted by generally accepted accounting principles.
The Company cautions readers that it assumes no obligation to update or publicly
release any revisions to forward-looking statements made herein or any other
forward-looking statements made by, or on behalf of, the Company.
BACKGROUND
Effective August 11, 1999, the Company completed a reverse merger with Worldnet
Tel.com, Inc., a telecommunications company with interests in the fixed
broadband wireless sector, a commercial telephone interconnect and paging
business, and a Competitive Local Exchange Carrier ("CLEC") certified by the
California Public Utility Commission. The company's CLEC activity launched its
service offering in October 1999.
The financial statements for the period ending September 30, 1999 are presented
in the format required to reflect the reverse merger with Worldnet Tel.com, Inc.
7
<PAGE>
Subsequent to September 30, 1999, the Company acquired Olive Tree Image
Engineers, a small Internet Service Provider located in Sacramento, California.
The Company is currently reviewing several telecommunciations acquisition
opportunities that have come to its attention.
The Company's new management is completing a review of its contract rights to
the exclusive marketing distribution of a patent for an antenna which may be
used commercially to receive signals from satellites for video distribution to
consumers in their homes.
RESULTS OF OPERATIONS
During the three month period ended September 30, 1999, sales revenue increased
to $127,393 from $84,520 for the corresponding period of the prior year. During
the nine month period ended September 30, 1999, sales revenue increased to
$281,279 from $206,526 for the corresponding period of the prior year. The
increase in revenue is attributed to increased marketing by the Company and
greater demand as customers continue to upgrade systems to be Y2K compliant.
The gross margin as a percent of revenues increased to 69% for the three months
ended September 30, 1999 from 61% in the corresponding period of the prior year.
Gross margin as a percent of revenues increased to 65% for the nine months ended
September 30, 1999 from 64% in the corresponding period of the prior year. The
improvement in the gross margin is due to additional discounts for volume
purchases provided to the Company by its telephone vendors.
The Company's selling, general and administrative expenses for the three month
period ended September 30, 1999 increased to $101,644 from $42,102 for the
corresponding period of the prior year. Selling, general and administrative
expenses for the nine month period ended September 30, 1999 increased to
$218,005 from $98,998 for the corresponding period of the prior year. The
increase is attributed to increased marketing efforts and additional corporate
overhead costs associated with the merger with Prime.
Interest expense for the three month period ended September 30, 1999 increased
to $22,986 from $4,932 for the corresponding period of the prior year. Interest
expense for the nine month period ended September 30, 1999 increased to $37,458
from $9,864 for the corresponding period of the prior year. The increase is
attributed to the increased debt assumed in the merger with Prime.
The Company's ability to develop its Local Multipoint Distribution Service
business is dependent upon its ability to obtain additional financing for the
infrastructure equipment and working capital to develop the market
opportunities.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, the Company had cash of $55,670 and a working capital
deficit of $196,870. The primary cause of the deficit positions resulted from
the assumption of net liabilities in the merger with Prime. Management is
reviewing the accounts payable assumed from Prime in detail and, through
negotiation with the creditors of the discontinued trucking business, expects
these liabilities to be reduced.
8
<PAGE>
Subsequent to September 30, 1999, the Company disposed of certain property held
for sale which provided additional cash of $320,000 after repayment of the
underlying debt. Management believes this cash will be sufficient to sustain its
operations for at least the next 12 months.
Cash used in operations was $50,774 for the nine months ended September 30, 1999
compared to cash provided by operations of $41,971 for the corresponding period
in the prior year. The cash used in operations was primarily attributed to the
increased interest and other overhead costs associated with the merger with
Prime.
Cash used in investing activities was $1,037,602 for the nine months ended
September 30, 1999 compared to $9,935 in the prior year. The increase was
primarily the acquisition of licenses which management expects to enable the
Company to increase its revenues.
Cash used in financing activities was $1,144,046 for the nine months ended
September 30, 1999 compared to cash used of $50,961 in the prior year. The
increase was primarily from proceeds from notes payable which were used to
acquire the licenses.
YEAR 2000
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's, or
its suppliers' and customers' computer programs that have date-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in system failures or miscalculations causing
disruptions of operations including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.
The Company has developed plans to address issues related to the impact on its
computer systems of the year 2000. Financial and operational systems have been
assessed and plans have been developed to address systems modification
requirements. The financial impact of making the required systems changes is not
expected to be material to the Company's consolidated financial position,
liquidity or results of operations.
Neither the Company nor its subsidiaries has initiated formal communications
with significant suppliers and large customers to determine the extent to which
those third parties' failure to remedy their own Year 2000 Issues would
materially effect the Company and its subsidiaries. The Company has not received
any indications from its suppliers and large customers that the Year 2000 Issue
may materially effect their ability to conduct business and the Company has no
current plans to formally undertake such an assessment.
9
<PAGE>
PART II. OTHER INFORMATION
ITEM 1 Legal Proceedings: None
ITEM 2 Changes in Securities and use of proceeds None
Pursuant to an Agreement and Plan of Merger (the "Agreement")
between Prime Companies, Inc. ("Prime"), a Delaware Corporation, a
nonoperating public shell, and Worldnet Tel.com, Inc. (Worldnet),
Worldnet was merged into Prime through a merger effective August
11, 1999.
For financial statement purposes, Worldnet was considered the
acquiring company, and this transaction has been treated as a
purchase by Worldnet of Prime. For legal purposes, however, Prime
remained the surviving entity. Therefore, the combined entity
retained Prime's capital structure. Prior to the merger, Prime had
7,007,742 shares of common stock outstanding held by various
individuals. Pursuant to the agreement, Worldnet was issued
18,000,000 shares of Prime common stock.
ITEM 3 Defaults Upon Senior Securities None
ITEM 4 Submission of Matters to Vote of Security Holders None
ITEM 5 Other Information None
ITEM 6 Exhibits and Reports on Form 8-K
a) Exhibits
27 - Financial Data Schedule
b) Reports on Form 8-K
On August 11, 1999, the Company reported on Form 8-K the change
in control of the registrant through a reverse merger with
Worldnet Tel.com, Inc.
10
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PRIME COMPANIES, INC.
----------------------------------
(Registrant)
Date: November 22, 1999 By: /S/Norbert J. Lima
-------------------------------
Norbert J. Lima
Chief Executive Officer
Date: November 22, 1999 By: /S/Stephen Goodman
-------------------------------
Stephen Goodman
Chief Financial Officer
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 55,670
<SECURITIES> 1,800,000
<RECEIVABLES> 11,210
<ALLOWANCES> 0
<INVENTORY> 18,550
<CURRENT-ASSETS> 3,309,865
<PP&E> 99,523
<DEPRECIATION> 22,748
<TOTAL-ASSETS> 4,464,553
<CURRENT-LIABILITIES> 3,506,735
<BONDS> 1,045,640
0
0
<COMMON> 2,501
<OTHER-SE> 23,123
<TOTAL-LIABILITY-AND-EQUITY> 4,464,553
<SALES> 281,279
<TOTAL-REVENUES> 281,279
<CGS> 99,355
<TOTAL-COSTS> 99,355
<OTHER-EXPENSES> 218,005
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37,458
<INCOME-PRETAX> (73,539)
<INCOME-TAX> 0
<INCOME-CONTINUING> (73,539)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (73,539)
<EPS-BASIC> .004
<EPS-DILUTED> .004
</TABLE>
