<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------------------------------
FORM 10-QSB
Quarter Report Pursuant To Section 13 or 15(d)
of the Securities Exchange Act of 1934
------------------------------------------------------------
For Quarter Ended March 31, 1999 Commission File Number 0-22919
PRIME COMPANIES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Delaware 52-2031531
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
155 Montgomery Street, Suite 406, San Francisco, California 94104
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(415) 398-4242
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(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes No X
--- ---
The number of shares of common stock outstanding as of May 31, 1999 was
5,807,552.
1
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PRIME COMPANIES, INC.
AND CONSOLIDATED SUBSIDIARY COMPANIES
INDEX
<TABLE>
<CAPTION>
Part I - Financial Information Page
- ------------------------------ ----
<S> <C>
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets--March 31, 1999
and December 31, 1998 3
Condensed Consolidated Statements of Operations--Three
Months Ended March 31, 1999 and 1998 5
Condensed Consolidated Statements of Cash Flows--Three
Months Ended March 31, 1999 and 1998 7
Notes to Condensed Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 12
<CAPTION>
Part II - Other Information
- ---------------------------
<S> <C>
Item 1. Legal Information 14
Item 5. Other Information 14
Signatures 15
</TABLE>
2
<PAGE>
PRIME COMPANIES, INC.
AND CONSOLIDATED SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998*
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 40,638 8,828
Investments held in escrow 1,800,000 1,800,000
Deposits and other current assets 1,018 10,618
Property held for sale 853,324 853,324
Net assets of discontinued operations 391,638 1,372,463
----------- -----------
TOTAL ASSETS $ 3,086,618 $ 4,045,233
----------- -----------
----------- -----------
</TABLE>
* Condensed from audited financial statements.
Continued
3
<PAGE>
PRIME COMPANIES, INC.
AND CONSOLIDATED SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998*
----------- ------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 41,306 290,269
Note payable to related party 731,306 731,306
Accounts payable and accrued liabilities 1,522,547 2,069,222
----------- -----------
TOTAL CURRENT LIABILITIES 2,295,159 3,090,797
Note Payable to Related Parties 915,695 957,000
----------- -----------
TOTAL LIABILITIES 3,210,854 4,047,797
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $.0001 par value, 10,000,000 shares authorized,
None issued and outstanding
Common stock, shares authorized 50,000,000, par value$.0001,
5,807,552 shares were issued and outstanding at
March 31,1999 and December 31, 1998, respectively 581 581
Additional paid-in capital 7,945,116 7,945,116
Retained deficit (8,069,933) (7,946,261)
----------- -----------
Total stockholders' equity (deficit) (124,236) (2,564)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 3,086,618 $ 4,045,233
----------- -----------
----------- -----------
</TABLE>
* Condensed from audited financial statements.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
PRIME COMPANIES, INC.
AND CONSOLIDATED SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------------------
1999 1998
------------------ ------------------
<S> <C> <C>
GENERAL AND ADMINISTRATIVE EXPENSE $ 120,642 $ 121,057
------------------ ------------------
OTHER INCOME (EXPENSE):
Investment income -- 630,153
Interest income -- 4,300
Rental income 28,800 28,800
Other income -- 3,068
Interest expense (28,625) --
Other expense -- --
------------------ ------------------
NET INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE PROVISION FOR
INCOME TAXES (120,467) 545,264
PROVISION FOR INCOME TAX 1,205 --
------------------ ------------------
NET INCOME (LOSS) FROM CONTINUING OPERATIONS (121,672) 545,264
LOSS FROM DISCONTINUED OPERATIONS:
Loss from operations of transportation segment, net
Of applicable income taxes of $0 and $2,187 for the
three months ended March 31, 1999 and 1998 respectively -- (604,357)
------------------ ------------------
NET (LOSS) $ (121,672) $ (59,093)
------------------ ------------------
------------------ ------------------
</TABLE>
Continued
5
<PAGE>
PRIME COMPANIES, INC.
AND CONSOLIDATED SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------------------
1999 1998
----------------- -----------------
<S> <C> <C>
BASIC AND DILUTED PER SHARE INFORMATION:
Income (loss) from continuing operations $ (.02) $ 0.14
Loss from discontinued operations -- (.16)
----------------- -----------------
Net (loss) $ (.02) $ (0.02)
----------------- -----------------
----------------- -----------------
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 5,807,552 3,843,124
----------------- -----------------
----------------- -----------------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
<PAGE>
PRIME COMPANIES, INC.
AND CONSOLIDATED SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------------------
1999 1998
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) from continuing operations $ (121,672) $ 545,164
Adjustments to reconcile net income (loss) from
continuing operations to net cash provided by
operating activities from continuing operations:
Deferred income -- (604,300)
Changes in operating assets and liabilities:
Trading securities 144,465
Other current assets 9,600 (1,370)
Accounts payable and accrued liabilities 44,177 2,832
------------------ ------------------
Net cash provided by (used in ) operating activities
from continuing operations (67,895) 86,791
------------------- ------------------
Loss from operations of discontinued transportation segment -- (604,357)
Adjustments to reconcile loss from operations of
discontinued transportation segment to net cash
used in operating activities of discontinued segment:
Depreciation -- 202,465
Gain (loss) on disposition of assets 300 2,100
Provision for bad debts 60,800 7,300
(Increase) decrease in operating assets:
Accounts receivable 753,902 (74,869)
Deposits -- (418)
Driver advance (60,519) (28,860)
Inventories -- 7,444
Prepaid expenses 115,204 235,238
Increase (decrease) in:
Accounts payable and accrued liabilities (591,714) (77,459)
Deferred expense credit -- (9,375)
------------------ ------------------
Net cash provided by (used in) operating activities of
discontinued segment 277,973 (340,791)
------------------ -------------------
</TABLE>
Continued
7
<PAGE>
PRIME COMPANIES, INC.
AND CONSOLIDATED SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------------------
1999 1998
------------------ ------------------
<S> <C> <C>
Cash flows from investing activities:
Purchases of property and equipment $ -- $ (24,600)
Proceeds from assets held for sale 3,070 --
Collections on notes receivable -- 421,723
------------------ ------------------
Net cash (used in) investing activities 3,070 397,123
------------------ ------------------
Cash flows from financing activities:
Proceeds from short-term debt $ -- $ 400,000
Principal payments on long-term debt -- (220,537)
Principal payments on loan payable (181,338) 59,000
Margin account payable -- (308,700)
------------------ -------------------
Net cash provided by financing activities (181,338) (188,237)
------------------- ------------------
Increase (decrease) in cash and cash equivalents 31,810 (45,114)
Cash and cash equivalents, beginning of period 8,828 201,569
------------------ ------------------
Cash and cash equivalents, end of period $ 40,638 $ 156,455
------------------ ------------------
------------------ ------------------
Supplemental disclosure of non-cash transactions:
Cash paid for:
Interest $ 28,625 $ 128,200
------------------ ------------------
------------------ ------------------
Income Taxes $ 3,265 $ 5,280
------------------ ------------------
------------------ ------------------
Non-cash investing and financing transactions:
Purchase of property and equipment with debt $ -- $ 27,300
------------------ ------------------
------------------ ------------------
Decrease in asset held for sale with reduction in debt $ 108,930 $ --
------------------ ------------------
------------------ ------------------
Increase in note receivable in exchange for debt $ -- $ 196,271
------------------ ------------------
------------------ ------------------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
8
<PAGE>
PRIME COMPANIES, INC.
AND CONSOLIDATED SUBSIDIARY COMPANIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies followed by the Company are set forth in Note 1 to
the Company's consolidated financial statements included in the Company's
Annual Report to Stockholders for the year ended December 31, 1997.
2. STATEMENT OF INFORMATION FURNISHED
The condensed consolidated balance sheet as of March 31, 1999 and the
related condensed consolidated statements of operations and cash flows for
the three months ended March 31, 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 only
of normal recurring accruals, necessary to present fairly the financial
position of Prime Companies, Inc., and their cash flows for the three
months ended March 31, 1999 and 1998. The results of operations for the
three months ended March 31, 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.
Certain reclassifications have been made to the prior year's condensed
consolidated financial statements to conform with the current presentation.
Such reclassifications had no effect on net loss.
PRIOR PERIOD ADJUSTMENT
The Company has restated its prior year financial statements to record a
valuation allowance against deferred tax assets, to correct the
classification of equity between paid-in capital and retained earnings, and
to correct the valuation of investments. The effect on results of
operations for the year ended December 31, 1997 was to decrease income from
continuing operations by $43,299 ($0.01 per share), increase the provision
for taxes applicable to loss from operations of Mid-Cal Express by
$400,390, and increase net loss by $443,689 ($0.13 per share).
The accompanying notes are an integral part of these condensed consolidated
financial statements.
9
<PAGE>
DISCONTINUED OPERATIONS
Having experienced significant losses in the operations of its trucking and
logistics subsidiaries, the company's Board of Directors decided to discontinue
the operation of these subsidiaries through an orderly liquidation. The Company
ceased operations effective December 30, 1998. In connection with the
discontinuance, the Company sold the operating assets of its trucking and
logistics operations to UST in exchange for 400,000 shares of UST common stock,
UST's assumption of $3,351,359 of underlying debt, and UST's assumption of
certain operating leases. All other leases were terminated effective December
31, 1998. All assumed debt and operating lease payments aggregating
approximately $2,547,000 are guaranteed by the Company. These obligations expire
in varying amounts through June 2003. UST's stock was valued at $4.50 per share
based on the average quoted market price of the stock for a period of three days
prior and after the transaction was agreed to. Operating assets not acquired by
UST have been reduced to their estimated realizable value. The sale resulted in
a net gain of $1,135,536..
The net assets of discontinued operations consisted of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---------------------- ----------------------
<S> <C> <C>
Accounts receivable, net $ 267,750 $ 929,529
Prepaid expenses -- 207,046
Equipment -- 112,000
Deposits 123,888 123,888
---------------------- ----------------------
Net assets of discontinued operations $ 391,638 $ 1,372,463
---------------------- ----------------------
---------------------- ----------------------
</TABLE>
The trucking and logistics operations generated revenues of $4,136,000 for
the three months ended March 31, 1998. Loss from operations of
transportation segment included interest expense of $129,551 for the three
months ended March 31, 1998.
COMMITMENTS AND CONTINGENCIES
LEASES
The Company has operating lease commitments for its office space, which
expire over the next two 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 March 31, 1999:
<TABLE>
<CAPTION>
March 31,
----------------------------
<S> <C>
2000 $ 39,000
2001 27,000
</TABLE>
LITIGATION AND OTHER CLAIMS
The Company is a defendant in a wrongful death suit relating to an
accident involving one of its drivers. The claim was turned over to the
Company's insurance carriers and was settled within coverage limits.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
10
<PAGE>
The Company 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
$68,402 as of December 31, 1998 were recorded to cover these potential
claims.
SUBSEQUENT EVENTS
On May 24, 1999, the Company issued to its CEO and President/COO
200,000 shares of common stock each (in lieu of cash compensation) for
services to be provided through December 31, 2000.
In the first quarter of 1999, Mid-Cal Express, Inc. granted Credit
Managers Association of California (CMA), trustee for all creditors of
Mid-Cal Express, Inc., a security interest in all assets of
discontinued operations and the investments held in escrow. CMA will
represent the creditors in a voluntary work-out plan for the
satisfaction of the debts of Mid-Cal Express, Inc.
3. PROPERTY HELD FOR SALE
Property held for sale consists of the following at December 31, 1998
and March 31, 1999:
<TABLE>
<S> <C>
Land $ 520,162
Building and improvements 349,985
--------------------
870,147
Less accumulated depreciation (16,823)
--------------------
$ 853,324
--------------------
--------------------
</TABLE>
The property was leased to a third party under a non-cancelable operating
lease, which expired in June 1999. The lease provided for monthly rentals
of $9,600. Rental revenue for the three months ended March 31, 1999 and
1998 was approximately $29,000, respectively. At March 31, 1999, future
minimum lease payments of $28,800 were due in 1999.
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------------ ------------------
<S> <C> <C>
Accounts payable $ 1,123,673 $ 1,042,914
Accrued compensation and related 49,780 257,468
Accrued purchased transportation 87,549 274,083
Accrued interest 57,560 139,668
Accrued insurance -- 120,856
Claims loss reserve 32,912 68,402
Other accrued expenses 171,073 165,831
------------------ ------------------
Total $ 1,522,547 $ 2,069,222
------------------ ------------------
------------------ ------------------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MANAGEMENT'S PLAN OF OPERATION
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.
PLAN OF OPERATION
The following discussion provides information of the Company's plan of
operations for the next twelve months. The discussion should be read in
conjunction with the Company's un-audited financial statements included
elsewhere herein.
Effective December 30, 1998 the Company discontinued its transportation
services segment, which operated its "Express" and "Logistics" subsidiaries.
Having experienced significant losses in the Company's transportation operations
through June 30, 1998 management began a review of the entire transportation
group. Continued losses in the "Express" subsidiary without improvement led
management and the Board of Directors in December 1998 to decide to discontinue
long-haul transportation services. Faced with equipment licensing costs at the
end of December 1998, the Company entered into an Asset Buy-Sell Agreement with
Gulf Northern Transport, Inc., effective December 30, 1998, which effectively
discontinued operations in the long-haul transportation segment.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
12
<PAGE>
During the year ended December 31, 1998 and 1997 the Company's
transportation segment generated revenues of $18,633,000 and $15,958,000,
respectively and losses of approximately $3,282,000 and $1,159,000,
respectively, exclusive of a gain on the sale of the "Express" subsidiary of
approximately $1,240,000 during the year ended December 31, 1998.
The Company is currently pursuing investments in technology-based
business activities that management believes will have future profit potential.
If the Company is successful in obtaining such technology, it will require
substantial additional capital to commercialize and market the technology. There
can be no assurance that the Company will be successful in any of these efforts.
Management estimates that the Company will need at least $200,000 in
cash to cover its overhead expenses during the next twelve months. Proceeds from
the sale of its Fontana real estate is expected to yield at least $300,000 net
of commissions after repayment of the related mortgage note payable. Additional
financing is expected to be available in the form of short-term credit provided
by affiliates.
The Company's ability to sustain operations in the future is dependent
upon its ability to obtain additional financing for working capital and to
acquire new business, its ability to develop and market a product as the
technology is acquired, if any, and ultimately, the attainment of profitable
operations. There can be no assurance that the Company will be successful in any
of these efforts.
YEAR 2000
The company is dependent on computer systems and system applications for
conducting its ongoing business functions. The issue involves the ability of
computer systems that have time sensitive programs to recognize properly the
Year 2000. The inability to do so could result in major failures or
miscalculations that would disrupt the Company's ability to meet its customer
and other obligations on a timely basis. The company has achieved substantial
compliance with respect to its business critical systems.
The total pre-tax cost associated with the required modifications and
conversions was nominal. The Company also has third party customers, financial
institutions, vendors and others with which it conducts business and has
confirmed their plans to address and resolve Year 2000 issues on a timely basis.
While it is likely that these efforts by third party vendors and customers will
be successful, it is possible that a series of failures by third parties could
have an adverse effect on the Company's results of operations in future periods.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
13
<PAGE>
PRIME COMPANIES, INC.
AND CONSOLIDATED SUBSIDIARY COMPANIES
Part II. Other Information
ITEM 1. Legal Information
During the quarter ended March 31, 1988, one of the Company
tractors was involved in an accident, which resulted in
numerous personal injuries. Claims resulting from this
incident were very substantial, and were settled within policy
limits. Management's opinion is that there was adequate
insurance coverage for these claims.
ITEM 5. OTHER INFORMATION
Market for Registrant's Common Equity and Related Stockholder Matters.
The Company traded its stock on the Over the Counter Bulletin
Board Exchange under the trading symbol of PRMC. As of March
31, 1998, the Company's shares were trading at $.25 per share.
DIVIDEND POLICY.
The Company has never paid a cash dividend on its common
stock. It is the current intention of the Company's Board of
Directors to continue to retain earnings to finance the growth
of the Company's business rather than to pay dividends. Future
payment of cash dividends will depend upon the financial
condition, results of operations and capital commitments of
the Company, as well as other factors deemed relevant by the
Board of Directors.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRIME COMPANIES, INC.
-------------------------------
Registrant
DATED: July 6, 1999 /s/ Irving Pfeffer
-------------------------------
Irving Pfeffer
Chairman/CEO
DATED: July 6, 1999 /s/ David Lefkowitz
-------------------------------
David Lefkowitz
President and COO
The accompanying notes are an integral part of these condensed consolidated
financial statements.
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 40638
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3086618
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 3086618
<CURRENT-LIABILITIES> 2295159
<BONDS> 0
0
0
<COMMON> 581
<OTHER-SE> (124236)
<TOTAL-LIABILITY-AND-EQUITY> 3086618
<SALES> 0
<TOTAL-REVENUES> 28800
<CGS> 0
<TOTAL-COSTS> 120642
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28625
<INCOME-PRETAX> (120647)
<INCOME-TAX> 1205
<INCOME-CONTINUING> (121672)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (121672)
<EPS-BASIC> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
