SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
( X ) ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
Commission File No. 0-22919
PRIME COMPANIES, INC.
(Name of small business issuer in its charter)
Delaware 52-2031531
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
409 Center Street, Yuba City, CA. 95991
- ---------------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (530) 755-3580
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- ---------------------- ---------------------
Common Stock, $.0001 NASD
OTC Bulletin Board
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 No X
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB Yes No X
State issuers revenues for the most recent fiscal year. . .. . .$547,466
As of May 16, 2000 there were 31,030,429 shares of the Company's Common Stock
outstanding. The aggregate market value of voting stock held by non-affiliates
of the registrant on May 16, 2000 was $20,500,701.
Documents incorporated by reference:
None
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
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 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.
BUSINESS HISTORY, AND DEVELOPMENT
BACKGROUND
----------
Prior to February 1999, the Company operated as a sole proprietorship operated
by Norbert J. Lima, the Company's CEO. The Company began operations in February
1998 when it acquired certain assets of Pagers Plus, Inc. (an entity for which
the Company's current CEO served as an officer) in exchange for assumption of
specified liabilities. In February 1999, management formed Woldnet Tel.com Inc.
(Worldnet), a Delaware corporation, and WNTC Holdings, Inc. (WNTC), a Delaware
corporation and a wholly-owned subsidiary of Worldnet, and NACC-Tel Corp.
(NACC-Tel), a Delaware corporation and a wholly-owned subsidiary of WNTC. At
that time the operations of the Company were contributed to NACC-Tel.
Prepaid Tel.com Inc. (Prepaid), a Delaware corporation, was formed in February
1999 as a wholly-owned subsidiary of WNTC. Prepaid is a Competitive Local
Exchange Carrier ("CLEC") certified by the California Public Utility Commission.
Prepaid had no substantial operations during 1999.
1
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LMDS Communications Inc. (LMDS), a Delaware corporation, was formed in February
1999 as a wholly-owned subsidiary of WNTC. LMDS is a telecommunications company
with interests in the fixed broadband wireless sector. LMDS had no substantial
operations during 1999.
Pursuant to a Stock Purchase Agreement (the "Agreement") between Prime
Companies, Inc. (Prime), a Delaware Corporation, a nonoperating public shell,
and Worldnet, Worldnet was merged into Prime through a merger effective August
11, 1999. Prior to the merger, Prime had 6,507,742 shares of common stock
outstanding held by various individuals. Pursuant to the agreement, Worldnet
was issued 14,500,000 shares of Prime common stock. As a result of the stock
exchange, the former shareholders of Worldnet hold 69% of the outstanding shares
of common stock of Prime. Pursuant to the Agreement, on the effective date of
the merger, the officers and directors of Worldnet became the officers and
directors of Prime.
Prior to December 30, 1998 Prime operated as a long-haul temperature-controlled
truckload carrier through its wholly-owned subsidiary, Mid-Cal Express, Inc.
Prime also provided logistics operations through its wholly-owned subsidiary,
Mid-Cal Express Logistics, Inc. Effective December 30, 1998, Prime terminated
the operations of these subsidiaries through the sale of substantially all of
the operating assets of Mid-Cal Express, Inc. to Gulf Northern Transport, Inc.
for 400,000 shares of US Trucking, Inc., the parent company of Gulf Northern.
The transaction closed on April 14, 1999, and on April 30, 1999 the Company
entered into an agreement with Credit Managers Association of California for the
orderly liquidation and payment of the outstanding liabilities of the
subsidiaries. These liabilities are to be paid by the collection of Mid-Cal
Express, Inc.'s accounts receivable and by the liquidation of up to 400,000
shares of US Trucking (traded on the OTC Bulletin Board symbol USTK), which have
been placed in escrow for the benefit of the creditors of Mid-Cal Express, until
the stock is sold on the open market.
Zenith Technologies Inc. (Zenith), a Delaware Corporation, was formed in
December 1998 as a wholly-owned subsidiary of Prime Companies, Inc. To date, it
has had no operations.
In October 1999, the Company acquired Olive Tree Image Engineers, a small
Internet Service Provider located in Sacramento, California. In December 1999
the Company completed the acquisition of Marathon Telecommunications, a
commercial telephone interconnect business based in Sacramento, California. The
Company is currently reviewing several telecommunications acquisition
opportunities that have come to its attention.
THE BUSINESS
------------
The Corporation's mission is to provide a single source for a wide range of
telecommunications services to both the consumer and commercial markets.
The Corporation's principals comprise an experienced management team with over
50 years of experience in the telecommunications industry. It is this unusually
broad scope of skills and experience which will enable the Corporation to
establish a balanced and efficient organization, and to forge strong supplier
relationships with major industry manufacturers, such as Ericsson, Pacific
Telephone, Samsung, and Texas Instruments, as well as established distributors
who intend to market the Corporation's services. Thus, the Corporation is well
positioned to offer its clients the depth of knowledge and experience necessary
to reach their personal and/or corporate needs and to execute each transaction
efficiently and successfully.
The Corporation will derive the majority of its revenues from sales generated by
its 3 specialized subsidiary corporations.
Prepaid Tel.com Inc. currently operates as a "reseller" of "prepaid" services,
- ---------------------
including prepaid wireline (residential local telephone and long distance)
services, in the State of California.
2
<PAGE>
The customer base for prepaid telecommunications services is large and diverse,
including: credit-impaired customers, who generally cannot meet the initial
deposit requirements for telecommunications services; individuals who prefer to
pay in cash; and individuals who want to re-establish credit.
LMDS Communications, Inc. The Corporation intends to capitalize on the
- ---------------------------
broadband fixed wireless communications revolution by providing LMDS (Local
Multipoint Distribution Systems) services to various markets in which it has
purchased exclusive spectrum licenses from the Federal Communications
Commission. LMDS is the broadband wireless technology used to deliver voice,
data, Internet, and video services in the 28 to 31 GHz spectrum. The
Corporation intends to build, install, and implement the telecommunication
systems and offer some or all of the following one and two-way broadband
services:
- - High-speed Internet access
- - Video teleconferencing
- - Wireless local loop telephony
- - Alternative cable television service
- - High-speed data transmission (i.e. ATM)
The flexibility offered by LMDS will allow the Corporation to offer a turnkey
package of services, including Internet and video teleconferencing, which is
what US customers desire: "one-stop shopping" for their telecommunications
needs.
NACC-Tel Corp. The Company sells, installs, and services business communications
- --------------
systems and provides paging and voicemail services. The Company also maintains
these systems under service agreements with its commercial and municipal
customers.
COMPETITION
-----------
Small- and medium-sized businesses currently face a limited choice of
alternatives for high-speed Internet access. Over the last few years, digital
subscriber line technologies, cable modems, T-1-based solutions and
fixed-wireless connections have emerged as alternative technologies for
high-speed, always-on service in our country's major metropolitan areas.
However, these technologies have not yet reached the country's secondary and
tertiary markets; this fact reinforces the viability of the company's strategy
to initially target businesses in the markets where we have LMDS licenses.
We believe that our solution will receive wide acceptance by our target
customers because our network will provide:
- - consistent speed and quality of signal;
- - rapid, relatively uncomplicated provisioning of new customers that is not
dependent on another provider of local connectivity;
- - symmetrical broadband capacity that will allow us to offer enhanced
business communication services such as full motion video conferencing;
- - scaleable, competitive pricing schemes which are based on the number of
desktops connected to the network; and
- - substantially higher speeds and an easy path to increased bandwidth.
3
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MARKETING AND CUSTOMERS
-----------------------
The growth of the Internet is leading to a global society where every business
must obtain access to the Internet, or World Wide Web, and utilize "online"
functionality in order to fulfill its information needs. The Company will
capitalize on this need by providing these services in its markets.
LMDS now provides vital communications services to regions that heretofore did
not justify wireline services, typically because the inherent costs outweighed
the potential revenues. With the old method, it was difficult to actually lay
the wire and install these systems. With LMDS, the wireless technology enables
easy implementation at any business, requiring installation at the business'
building only.
LMDS offers the ability to provide various, vital telecommunications services
via one, efficient, cost-effective medium. Through the Company's licenses in
its various territories, it will deliver a better "package" for these businesses
and thus provide them with greater value, as opposed to the need to sign up with
several different suppliers. The company's Nacc-Tel subsidiary will readily
support and provide business telephone interconnect services, voicemail, and
paging services to our LMDS customers. In some markets we may also provide ISP
services such as Internet web site hosting for our LMDS customers.
EMPLOYEES
---------
The Company had nine full-time employees and one part-time employee at December
31, 1999
ITEM 2. DESCRIPTION OF PROPERTIES
The Company rents the following facilities as general office, engineering, and
retail space on a month-to-month basis:
<TABLE>
<CAPTION>
Location Type Size Annual
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Yuba City, California* Office, Engineering, Retail 1,100 sq. ft. $11,058
Concord, California Office 700 sq. ft. $ 8,400
Sacramento, California Office 1,200 sq. ft. $ 6,205
Sacramento, California Storage 200 sq. ft. $ 900
Sacramento, California Office 250 sq. ft. $ 3,600
*An officer and director of the Company is the landlord of this property.
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
The Company is the defendant in a lawsuit with a former officer and director
claiming payment of $32,000 due for advances made on behalf of the Company. The
Company has filed a cross-complaint seeking to recover 4,500,000 shares of its
common stock held by the plaintiff, and to be reimbursed for legal fees arising
from this action. Management believes the outcome of this matter will not have a
material adverse effect on the Company's financial position or results of
operations.
The Company is exposed to routine litigation incidental to it's operations in
the telecommunications industry. The Company is also peripherally exposed to
routine litigation incidental to its former trucking business, primarily
involving claims for personal injuries and property damage incurred in the
transportation of freight. The Company has turned these matters over to its
insurance carrier and management believes these matters will not have a material
adverse effect on the Company's financial position or results of operations.
4
<PAGE>
In January 2000 the Company purchased Directors and Officers Liability Insurance
with coverage that the Company's Board of Directors deems sufficient to attract
and retain talented and experienced personnel.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
MARKET
------
The Company's Common stock has traded on the NASDAQ OTC Bulletin Board under the
symbol PRMC since May 17,1998. The following table presents high and low prices
for the Company's common stock published by the National Quotation Service, Inc.
The quotations represent prices in the over-the-counter-market between dealers
in securities and do not include retail markup, markdown or commissions and do
not necessarily represent actual transactions. Quarterly market price
information for the Company's shares of common stock is as follows:
QUARTER ENDING HIGH LOW
- ---------------- ------ ------
June 30, 1998 3.00 3.00
September 30, 1998 3.25 0.31
December 31, 1998 3.50 1.00
March 31, 1999 2.50 0.125
June 30, 1999 0.56 0.125
September 30, 1999 0.50 0.22
December 31, 1999 0.50 0.25
March 31, 2000 4.31 0.30
SHAREHOLDERS
------------
As of April 30, 2000 the number of shareholders of record of common stock,
excluding the number of beneficial owners whose securities are held in street
name was approximately 575.
DIVIDEND POLICY
---------------
The Company had not paid dividends on its common stock. The Company plans to
retain future earnings, if any, for use in its business and, accordingly the
Company does not anticipate paying dividends in the foreseeable future. Any
earnings are expected to be reserved for the operation and expansion of the
Company's business. Payment of dividends is within the discretion of the
Company's Board of Directors and will depend, among other factors, upon the
Company's earnings, financial condition and capital requirements.
5
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
Results of Operations
- -----------------------
During the year ended December 31, 1999, sales revenue from continuing
operations increased to $547,466 from $209,823 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 continued to upgrade systems to be
Y2K compliant.
The gross margin as a percent of revenues increased to 63% for the year December
31, 1999 from 43% 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 year ended
December 31, 1999 increased to $472,537 from $143,002 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.
As a result of the reverse merger in August 1999, the Company recorded a
one-time charge of $428,194 for the cost of the merger, representing Prime's net
liabilities in excess of assets immediately prior to the merger.
Interest expense for the year ended December 31, 1999 increased to $199,089 from
$14,796 for the corresponding period of the prior year. The increase is
attributed to the increased debt assumed in the merger with Prime.
Liquidity and Capital Resources
- ----------------------------------
At December 31, 1999, the Company had cash of $237,403 and a working capital
deficit of $60,750. The primary cause of the deficit position resulted from the
assumption of net liabilities in the merger with Prime.
Cash used in operations was $132,920 for the year ended December 31, 1999
compared to $24,986 in 1998. The cash used in operations was primarily
attributed to the net loss offset by noncash charges for depreciation, the
one-time, noncash charge related to the merger, and an increase in accrued
interest.
Cash provided by investing activities, consisting primarily of proceeds from the
sale of property held for sale, was $1,068,161 for the year ended December 31,
1999. Cash used in investing activities, consisting of purchases of property and
equipment, was $7,635 for the period ended December 31, 1998.
Cash used in financing activities was $701,317 for the year ended December 31,
1999 and consisted of $740,565 paid on notes payable (with the proceeds from the
sale of property held for sale) offset by $39,248 of proceeds from notes payable
(used for operating expenses). Cash provided by financing activities was
$36,100 for 1998 and consisted of capital contributions.
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. Subsequent to December 31, 1999, the Company sold 6,569,444
shares of its common stock in private placement offerings, raising $2.4 million.
Additionally, in February 2000 creditors holding $1,307,187 (balance due as of
February 28, 2000) of notes payable accepted the Company's offer to converted
their debt into 2,904,860 common shares of the Company. In March 2000 another
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<PAGE>
creditor converted $252,500 of short term debt into 561,111 common shares of the
Company. Management believes the actions taken to convert outstanding debt and
raise additional capital will be sufficient to sustain operations for at least
the next twelve months.
Impact of Recently Issued Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (FASB133), "Accounting for Derivative
Instruments and Hedging Activities." This statement requires that an entity
recognize all derivatives as assets or liabilities in the statement of financial
position and measure those instruments at fair value. This statement was amended
by FASB 137, issued in June 1999, such that it is effective for the Company's
financial statements for the year ending December 31, 2001. The Company does
not believe the adoption of FASB133 will have a material impact on assets,
liabilities or equity.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, entitled "Revenue Recognition in Financial Statements." SAB
101A was issued by the SEC on March 24, 2000 and delays the required
implementation date of SAB 101 until the second quarter of 2000. SAB 101
provides guidance on the recognition, presentation and disclosure of revenue in
the financial statements of public companies. The Company does not believe that
the adoption of SAB 101 will have a material effect on its financial position or
results of operations.
Seasonality and Inflation
Management does not believe the Company's operations are significantly affected
by seasonality or inflation.
Year 2000 Compliance
The Company has experienced no disruption in its operations that management can
attribute to Year 2000 issues. In addition, the Company has seen no Year 2000-
related problems itself or received any reports of such problems from entities
with which it transacts business.
ITEM 7. FINANCIAL STATEMENTS
The Company's consolidated financial statements are attached as pages F-1
through F-14.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Certain information about directors and executive officers of the Company is set
forth below:
OFFICERS AND DIRECTORS
----------------------
The following table sets forth the names, ages and positions with the Company as
of December 31, 1999 of all of the officers and directors (the "Named Executive
Officers") of the Company. Also set forth below is information as to the
principal occupation and background for each person in the table.
a) Directors and Executive Officers of the Company
NAME AGE DIRECTOR SINCE POSITION
- --------------- --- -------------- ---------------------------------
Norbert Lima 54 1999 Chief Executive Officer, Director
Stephen Goodman 56 1999 Chief Financial Officer,
Corporate Secretary, Director
Adrian Lima 29 Vice President - Engineering
Eric Bergmann 46 2000 Director
Michael Gilbert 45 2000 Director
William Turley 62 2000 Director
7
<PAGE>
The following is a brief description of the business background of the executive
officers and directors of the Company.
Norbert Lima has been President and CEO and Director for the Company since
August 1999. Mr. Lima has over thirty years of telecommunications experience,
and will be responsible for implementing the Company's operational systems
across multiple markets. Mr. Lima founded and operated NACC-Tel, a California
interconnect company, from 1984-1994, where he served as Sales Manager,
Technical Services Engineer, and Installation Manager. NACC-Tel merged with
Pagers Plus Cellular in 1994, whereby Mr. Lima served as Vice President of
Engineering, responsible for RF engineering and construction of 220 MHz systems
throughout the US. Under Mr. Lima's direction, Pagers Plus successfully
constructed 150 five-channel 220 MHz systems throughout various states. In
early 1998, Mr. Lima re-purchased NACC-Tel, along with certain assets of Pagers
Plus Cellular, which was subsequently acquired by the Company in 1999, and will
remain in operation as its wholly-owned subsidiary.
Mr. Lima worked in various positions for Pacific Telephone for nineteen years,
most recently as Engineering Manager from 1981-1983. From 1979-1981, Mr. Lima
was District Manager of Construction, where he was responsible for five
construction divisions with 275 subordinates and an operating budget of
approximately US$16,000,000 per annum. Mr. Lima's career has taken him through
multiple levels of the large telecom company, as he also spent eight years as
Outside Plant Engineer, where he had responsibilities of planning and designing
pole lines, conduit structures, and underground/building cables. Mr. Lima's
success enabled his promotion to Engineering Manager, where he became a
supervisor for several Outside Plant Engineers, and then Staff Manager from
1978-1979, where he was responsible for conducting Outside Plant Engineering
Reviews throughout the states of California and Nevada. Mr. Lima received his
BS in Industrial Technology-Electronics and his BA in Public Administration from
Fresno State University in 1970.
Stephen Goodman has been Chief Financial Officer, Treasurer, and Director for
the Company since August 1999. Mr. Goodman has worked in the telecommunications
industry for over eight years, serving as President for both Secure Cellular,
Inc. and Pagers Plus Cellular, of San Francisco, from 1992-1999. Mr. Goodman
had been responsible for the strategic direction of the companies, and led the
company to be named the 25th fastest-growing company in the San Francisco Bay
area in 1996. Mr. Goodman developed, structured, and negotiated the majority of
the business for the company, which provides prepaid cellular telephone
services, prepaid wireless services, and telephone systems to both consumer and
corporate customers throughout California.
Mr. Goodman is skilled in banking and finance, having accumulated over thirty
years working for various organizations. Mr. Goodman was President of Contra
Costa Financial Services, Inc. from 1989-1992, where he owned and managed this
commercial and residential mortgage brokerage/banking firm. Mr. Goodman was
involved with the FCC while at CCFS, applying to participate in the lottery for
a new spectrum of Specialized Mobile Radio licenses. From 1985-1989, Mr.
Goodman worked for various savings & loan companies, and from 1977-1985 he
served as President of Bay Capital Corporation & House of Money. Mr. Goodman
worked in financial public relations on Wall Street from 1969-1970 and as a
stockbroker for Loeb, Rhoades & Company from 1965-1966. Mr. Goodman served as
Lieutenant Junior Grade in the US Coast Guard from 1966-1969. Mr. Goodman
received his JD from William Howard Taft University in 1995, passing the
California Baby Bar in 1992. Mr. Goodman received his BS in Economics from the
University of Pennsylvania-Wharton School in 1965, and received his MBA with
distinction in Finance from New York University in 1969.
Eric Bergman was elected a director at the annual shareholder's meeting held in
January 2000. He has been involved in qualitative and quantitative marketing
research and project administration for over 20 years. Since 1988 he has been
president of California Agri-Marketing Research Associates. He graduated Kent
State University with his BA degree in 1975. He is a member of the Company's
audit committee.
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<PAGE>
Michael Gilbert is the Managing Partner/Owner of Gilbert & Co., a San Francisco
based Certified Public Accounting firm. He was the CPA for Prime Companies, Inc.
prior to the time Prime became a publicly owned company. He has an extensive
client base ranging from revenues of $1 million to $35 million annually, and has
experience in litigation support, mediation and arbitration services, and
business valuation analysis. He is the Chairman of the Company's Audit
Committee. He obtained his MBA degree with honors from Wilkes University in 1977
and his BA in Economics from Wilkes University in 1976. He is licensed as a
Certified Public Accountant in California, Colorado, and Pennsylvania.
William Turley is President of Communications Engineering Inc. (CEI), a well
established provider of telecommunications products and services including
turnkey Voice and Data Solutions. He has extensive experience in construction,
operations, and engineering in the telephone industry dating from 1952 both in
the private and public sectors. He holds a Class A & C-7 California Contractor's
License and is a member in good standing of the Building Industrial Consulting
Society International (BICSI). Prior to establishing his business in 1977, he
was a science educator at Cal State University, San Diego City College, and at
Kirchenpaur Gymnasium in Hamburg, Germany. He obtained his M.A. degree in
Physical Science in 1971 and his B.S. degree in Physics in 1969, from California
State University in San Diego.
Adrian Lima has been Vice President of Engineering for the Company since its
merger in 1999. Adrian Lima is the son of Norbert Lima, the Company's CEO and
Chairman of the Board of Directors. Mr. Lima has accumulated over ten years of
technical skills and experience while working for NACC-Tel, installing hundreds
of telecommunications systems manufactured by several different companies. Mr.
Lima is adept at each aspect of interconnect installation, including wire
running, termination, hardware programming, troubleshooting, and training. Upon
NACC-Tel's merger with Pagers Plus Cellular in 1994, Mr. Lima obtained
experience in wireless technologies, enabling him to spearhead the installation
of some 750 channels of two-way 220 MHz radio systems. Mr. Lima's technical
experience will be instrumental in implementing the Company's expansion plans in
the future.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the aggregate cash compensation paid to all
officers of the Company. The officers received no other compensation from the
Company:
<TABLE>
<CAPTION>
Name and Principal Position . . . . . . Year Salary
- --------------------------------------- ---- -------
<S> <C> <C>
Norbert Lima, CEO . . . . . . . . . . . 1999 $28,850
1998 6,752
Stephen Goodman, CFO. . . . . . . . . . 1999 5,500
Adrian Lima, Vice President-Engineering 1999 54,347
1998 37,642
</TABLE>
EMPLOYMENT AGREEMENTS
---------------------
In accordance with the Commission Rules, the following is a list of all
Compensatory Plans or Arrangements of the Company:
Prime Companies 401(k)
Prime Companies, Inc. Incentive Stock Option Plan
On January 14, 2000, the Company approved compensation for its CEO and CFO each
at the rate of $8,333 per month for the year 2000. In April 2000 the Company
approved compensation for its Vice-President - Engineering at the rate of $6,000
per month. Employment of officers may be terminated by the Company at any time.
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STOCK OPTIONS
-------------
There are outstanding options on 2,555,209 shares to various individuals. Each
option provides the right to purchase one share of common stock at either $1.00
per share or $3.00 per share or $6.00 per share. All of these options expire
December 31, 2000. There are no other warrants, rights, conversion, privileges,
or other rights pursuant to which Mr. Goodman, Mr. Adrian Lima or Mr. Norbert
Lima or any other current Officer or Director has the right to acquire further
Shares in the Corporation.
There were no stock options granted in 1999.
In March 2000 the Board of Directors approved an employee stock option program
for all employees on staff as of Jan 31, 2000, whereby each employee is granted
the right to purchase the number of shares equal to 1999 gross earnings (at
Prime or any of its subsidiaries) at $1.00 per share; options to expire December
31, 2002, and are immediately exercisable.
In March 2000 the Board of Directors also approved an employee stock option
program for all employees employed by Prime in 2000, whereby each employee is
granted the right to purchase the number of shares equal to 2000 gross earnings
(at Prime or any of its subsidiaries) at $1.50 per share; options to expire
December 31, 2003, and do not vest until December 31, 2000.
In March 2000 the Board of Directors also approved a stock option program
whereby each outside director was granted an option for the year 2000, to expire
December 31, 2002, on 20,000 shares at $1.00 per share. The options vest on
January 1, 2001 to each current outside director who is still a director on that
date.
DIRECTOR COMPENSATION
---------------------
The Company's directors will be reimbursed for any out-of-pocket expenses
incurred by them for attendance at meetings of the Board of Directors or
committees thereof. The Company compensates directors $500 for each meeting of
the Board attended by such director.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information about the ownership of the
Company's Common Stock as of April 30, 2000, by (i) those persons known by the
Company to be the beneficial owners of more than 5 percent of the total number
of outstanding shares of any class entitled to vote; (ii) each director and
officer; and (iii) all directors and officers of the Company as a group. The
table includes Common Stock issuable upon the exercise of Options that are
exercisable within 60 days. Except as indicated in the footnotes to the table,
the named persons have sole voting and investment power with respect to all
shares of the Company Common Stock shown as beneficially owned by them, subject
to community property laws where applicable. The ownership figures in the table
are based on the books and records of the Company.
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<PAGE>
<TABLE>
<CAPTION>
Name of Amount and
Title of Class Beneficial Owner Nature of Interest Percentages Address
- ------------------ ------------------- ------------------ ------------ -----------------------
<S> <C> <C> <C> <C>
Common Stock - 109 Harrison Lane,
Par Value $0.0001. Ron Gallagher 4,500,000 14% Bethlehem, CT 06751
Common Stock - 2975 Treat Blvd #C8,
Par Value $0.0001. Stephen Goodman 4,518,900 14% Concord, CA 94518
Common Stock - 409 Center Street, Yuba
Par Value $0.0001 Adrian Lima 1,072,413 3% City, CA 95991
Common Stock - 409 Center Street, Yuba
Par Value $0.0001 Norbert Lima 3,600,000 11% City, CA 95991
Common Stock - 155 Montgomery Street,
Par Value $0.0001. Irving Pfeffer (a) 3,866,602 12% San Francisco, CA 94105
Common Stock - 120 W 45 Street, New
Par Value $0.0001. David Shaw (b) 2,711,227 8% York, NY 10036
Common Stock - . . All Directors and
Par Value $0.0001. Officers as a Group 9,416,313 30%
- ------------------ ------------------- ------------------ ------------ -----------------------
<FN>
(a) Includes options to purchase 563,708 common shares, which are currently exercisable.
(b) Includes options to purchase 33,333 common shares, which are currently exercisable.
</TABLE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Norbert Lima, a Director and the Company's CEO, owns the real estate in which
the Company's headquarters is located. The Company paid rent of $11,000 in 1999
and 1998 on its headquarters. There is no long term lease arrangement between
the Company and Mr. Lima.
ITEM 13. EXHIBITS, REPORTS ON FORM 8-K AND SUPPLEMENTAL
INFORMATION
(a) INDEX TO EXHIBITS
4.1 1999 Proxy
4.2* Summary of 401(K) plan
4.3* Sample Stock certificate
27 Financial Data Schedule
* Previously filed
(b) No reports on Form 8-K were filed during the last quarter of the year
covered by this report.
SHAREHOLDER INFORMATION
-----------------------
Form 10-KSB Availability:
A copy of the 1999 Form 10-KSB filed with the Securities and Exchange Commission
will be forwarded preferably by email, upon request, to any shareholder.
Requests should be directed to:
Norbert Lima, CEO
Prime Companies, Inc.
409 Center Street
Yuba City, CA 95991
Or by email to [email protected]
Transfer Agent and Registrar:
Continental Stock Transfer and Trust Company
2 Broadway, 19th Floor
New York, New York 10004
Independent Auditors:
Hein + Associates LLP
333 City Blvd. West, Suite 2100
Orange, CA 92868
Corporate Offices: Prime Companies, Inc.
Mailing Address: 409 Center Street, Yuba City, CA 95991
Telephone: (530) 755-3580
11
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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. Dated this
22nd day of May, 2000.
Prime Companies, Inc.
By: /s/ Norbert J. Lima
-------------------------------
Norbert J. Lima
Chief Executive Officer
(Principal Executive Officer)
Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on the above date on behalf of
the registrant and in the capacities indicated.
By: /s/ Stephen Goodman
-----------------------------------
Stephen Goodman
Director, Chief Financial Officer
By: /s/ Eric Bergmann
------------------------------------
Eric Bergmann
Director
By: /s/ Michael Gilbert
-------------------------------
Michael Gilbert
Director
By: /s/ William Turley
-------------------------------
William Turley
Director
12
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
INDEPENDENT AUDITOR'S REPORT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
CONSOLIDATED BALANCE SHEET - December 31, 1999. . . . . . . . . . . . . . . . . . . . . . . F-3
CONSOLIDATED STATEMENTS OF OPERATIONS - For the year ended December 31, 1999 and the period
from inception (February 20, 1998) to December 31, 1998. . . . . . . . . . . . . . . . . . F-4
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) - For the period from inception
(February 20, 1998) to December 31, 1999. . . . . . . . . . . . . . . . . . . . . . . . . . F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS - For the year ended December 31, 1999, and
the period from inception (February 20, 1998) to December 31, 1998. . . . . . . . . . . . . F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Prime Companies, Inc.
Yuba City, California
We have audited the accompanying consolidated balance sheet of Prime Companies,
Inc. (a Delaware corporation) and subsidiaries as of December 31, 1999, and the
related consolidated statements of operations, stockholders' equity (deficit),
and cash flows for the year ended December 31, 1999 and the period from
inception (February 20, 1998) to December 31, 1998. 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 material 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 material respects, the financial position of Prime Companies,
Inc. and subsidiaries at December 31, 1999, and the results of their operations
and their cash flows for the year ended December 31, 1999 and the period from
inception (February 20, 1998) to December 31, 1998 in conformity with generally
accepted accounting principles.
/s/Hein + Associates LLP
Hein + Associates LLP
Certified Public Accountants
Orange, California
April 20, 2000
F-2
<PAGE>
PRIME COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
<TABLE>
<CAPTION>
<S> <C>
ASSETS
-----------
CURRENT ASSETS:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 237,403
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,405
Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,850
Deposits and other current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,700
Net assets held for sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 661,702
-----------
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 973,060
PROPERTY AND EQUIPMENT, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104,722
LICENSES, net of accumulated amortization of $30,774 . . . . . . . . . . . . . . . . . . . . . . 584,698
EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED, net of accumulated amortization of $10,017. . 190,318
-----------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,852,798
===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
-------------------------------------------------
CURRENT LIABILITIES:
Current portion of notes payable to related parties. . . . . . . . . . . . . . . . . . . . . . $ 180,500
Convertible notes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 496,220
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159,717
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167,110
Other accrued expenses and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,263
-----------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,033,810
NOTES PAYABLE TO RELATED PARTIES, less current portion . . . . . . . . . . . . . . . . . . . . . 1,240,216
-----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,274,026
COMMITMENTS AND CONTINGENCIES (Notes 3 and 12)
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $.0001 par value, 10,000,000 shares authorized, none issued and outstanding . -
Common stock, $.0001 par value, 50,000,000 shares authorized, 21,582,125 issued and outstanding. 2,158
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 282,244
Unrealized gain on available-for-sale securities . . . . . . . . . . . . . . . . . . . . . . . . 125,000
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (830,630)
-----------
Total stockholders' equity (deficit) . . . . . . . . . . . . . . . . . . . . . . . . . . (421,228)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) . . . . . . . . . . . . . . . . . . . . . . $1,852,798
===========
</TABLE>
SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE>
PRIME COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION
FOR THE YEAR ENDED (FEBRUARY 20, 1998) TO
DECEMBER 31, DECEMBER 31,
1999 1998
-------------------- -------------------
<S> <C> <C>
SALES REVENUES $ 547,466 $ 209,823
-------------------- -------------------
COSTS AND EXPENSES:
Cost of sales 203,835 121,166
Selling, general, and administrative expenses 472,537 143,002
Expense recognized for net liabilities assumed in reverse merger 428,194 -
-------------------- -------------------
Total costs and expenses 1,104,566 264,168
-------------------- -------------------
OPERATING LOSS (557,100) (54,345)
-------------------- -------------------
OTHER EXPENSE:
Interest expense (199,089) (14,796)
-------------------- -------------------
LOSS BEFORE TAXES (756,189) (69,141)
Provision for taxes 5,300 -
-------------------- -------------------
NET LOSS $ (761,489) $ (69,141)
==================== ===================
BASIC AND DILUTED LOSS PER SHARE $ (0.05) $ (0.02)
==================== ===================
WEIGHTED AVERAGE SHARES OUTSTANDING 16,680,764 4,500,000
==================== ===================
</TABLE>
SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE>
PRIME COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM INCEPTION (FEBRUARY 20, 1998) TO
DECEMBER 31, 1999
<TABLE>
<CAPTION>
UNREALIZED
GAIN ON TOTAL
COMMON STOCK ADDITIONAL AVAILABLE-FOR STOCKHOLDERS'
------------------------ PAID-IN -SALE ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL SECURITIES DEFICIT (DEFICIT)
----------- ----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, February 20, 1998. . . . . . . . . . . - $ - $ - $ - $ - $ -
Capital contributions. . . . . . . . . . . . . 4,500,000 450 35,650 - - 36,100
Net loss . . . . . . . . . . . . . . . . . . . - - - - (69,141) (69,141)
----------- ----------- ----------- ----------- ---------- ----------
BALANCES, December 31, 1998. . . . . . . . . . . 4,500,000 450 35,650 - (69,141) (33,041)
Stock issued for services. . . . . . . . . . . 10,000,000 1,000 23,840 - - 24,840
Stock issued in merger transaction . . . . . . 6,507,742 651 (651) - - -
Stock issued in acquisitions . . . . . . . . . 574,383 57 223,405 - - 223,462
Comprehensive loss:
Net Loss. . . . . . . . . . . . . . . . . . - - - - (761,489)
Unrealized gain on available-for-
sale securities - - - 125,000 -
Total comprehensive loss (636,489)
----------- ----------- ----------- ----------- ---------- ----------
BALANCES, December 31, 1999. . . . . . . . . . . 21,582,125 $2,158 $282,244 $125,000 $ (830,630) $(421,228)
=========== =========== =========== =========== ========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
PRIME COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATE STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FROM INCEPTION
YEAR ENDED (FEBRUARY 20, 1998)
DECEMBER 31, TO DECEMBER 31,
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $ (761,489) $ (69,141)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 59,522 11,526
Stock issued for services 24,840 -
Noncash expense recognized upon reverse merger 428,194 -
Changes in operating assets and liabilities:
Accounts receivable (17,247) (10,158)
Inventory 4,880 12,779
Deposits and other current assets (22,878) (350)
Accounts payable (36,246) 30,358
Accrued liabilities 187,504 -
----------- -----------
Net cash used in operating activities (132,920) (24,986)
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchases of property and equipment (6,794) (7,635)
Sale of property held for sale 1,074,955 -
----------- -----------
Net cash provided by (used in) investing
activities 1,068,161 (7,635)
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Capital contributions - 36,100
Proceeds from notes payable 39,248 -
Principal payments on notes payable (740,565) -
----------- -----------
Net cash provided by (used in) financing
activities (701,317) 36,100
-------------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS 233,934 3,479
CASH AND CASH EQUIVALENTS, beginning of year 3,479 -
----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 237,403 $ 3,479
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments for:
Interest $ 31,979 $ 14,796
============ ============
Income taxes $ - $ -
============ ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:
Assets acquired for assumption of debt $ - $ 94,573
============ ============
Notes payable issued to acquire licenses $ 615,472 $ -
============ ============
Note payable issued to acquire property
and equipment $ 10,076 $ -
============ ============
Net assets acquired in exchange for stock $ 223,462 $ -
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE>
PRIME COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Nature of Operations:
-----------------------------------------
The consolidated financial statements include the accounts of Prime Companies,
Inc. and its wholly owned subsidiaries (collectively, "the Company"). The
Company operates in one segment and began operations on February 20, 1998 as
NACC-Tel, a sole proprietorship operated by Bert Lima (the Company's CEO), when
it acquired certain assets of Pagers Plus, Inc. (an entity for which Mr. Lima
served as an officer) in exchange for assumption of specified liabilities.
NACC-Tel provides paging services and installation and servicing of interconnect
and business communication systems.
In February 1999, Mr. Lima, along with three other principals, formed Worldnet
Tel.com, Inc. (Worldnet), a Delaware corporation, to form the legal structure
for the Company's further development. Mr. Lima, subsequently contributed the
operations of NACC-Tel to Worldnet, with interests in the Company assigned to
the other three principals in exchange for services to be provided for the
further development of the Company's operations. Worldnet contributed the
operations of NACC-Tel to NACC-Tel Corp., a Delaware corporation formed as a
wholly-owned subsidiary of WNTC Holdings, Inc., which was formed as a
wholly-owned holding company subsidiary of Worldnet. For financial statement
purposes, the operations of NACC-Tel are considered the business of Worldnet and
the financial statements reflect the historical financial position and results
of operations and cash flows of NACC-Tel.
Pursuant to a Stock Purchase Agreement (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 an acquisition 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 6,507,742 shares of common stock outstanding held by various
individuals. Pursuant to the agreement, Worldnet was issued 14,500,000 shares
of Prime common stock. As a result of the stock exchange, the former
shareholders of Worldnet hold 69% of the outstanding shares of common stock of
Prime. At the time of the merger, Prime had liabilities in excess of net assets
of $428,194. This amount has been charged to operations on the date of the
merger as a cost of the reorganization.
The accompanying financial statements of the Company reflect the operations of
Worldnet and its subsidiaries and consolidate the operations of Prime and its
subsidiaries commencing on the date of the merger.
The Company's other wholly-owned subsidiaries are as described below:
Prepaid Tel.com Inc. (Prepaid), a Delaware corporation, was formed in February
1999 as a wholly-owned subsidiary of WNTC. Prepaid is a Competitive Local
Exchange Carrier ("CLEC") certified by the California Public Utility Commission.
Prepaid had no substantial operations during 1999.
F-7
<PAGE>
LMDS Communications Inc. (LMDS), a Delaware corporation, was formed in February
1999 as a wholly-owned subsidiary of WNTC. LMDS is a telecommunications company
with interests in the fixed broadband wireless sector. LMDS had no substantial
operations during 1999.
Mid-Cal Express, Inc. and Mid-Cal Express Logistics, Inc. (collectively,
Mid-Cal) are wholly-owned subsidiaries of Prime. Mid-Cal ceased operations in
December 1998 (prior to the acquisition by Worldnet) and is in the process of
liquidating its assets and settling outstanding liabilities.
Zenith Technologies Inc. (Zenith), a Delaware Corporation, was formed in
December 1998 as a wholly-owned subsidiary of Prime Companies, Inc. To date, it
has had no operations.
2. Summary of Significant Accounting Policies:
----------------------------------------------
Principles of Consolidation - The consolidated financial statements include the
- ----------------------------
accounts of Prime Companies, Inc. and its wholly owned subsidiaries
(collectively, "the Company"). All significant intercompany balances and
transactions have been eliminated in consolidation.
Cash and Cash Equivalents - For purposes of the statements of cash flows, the
- ----------------------------
Company considers all highly liquid debt instruments purchased with an original
maturity of three months or less to be cash equivalents.
Inventories - Inventories of installation equipment and materials are stated at
- -----------
the lower of cost (first-in, first-out method) or market.
Property and Equipment - Property and equipment are stated at cost.
- ------------------------
Depreciation of property and equipment is calculated using the straight-line
method over the estimated useful lives (ranging from 5 to 7 years) of the
respective assets. The cost of normal maintenance and repairs is charged to
operating expenses as incurred. Material expenditures which increase the life
of an asset are capitalized and depreciated over the estimated remaining useful
life of the asset. The cost of properties sold, or otherwise disposed of, and
the related accumulated depreciation or amortization are removed from the
accounts, and any gains or losses are reflected in current operations.
Intangibles - Intangibles include the amounts paid to the FCC to purchase
- -----------
licenses for Local Multipoint Distribution Services in certain markets. The
licenses are being amortized on a straight-line basis over the initial term of
the license, which is ten years.
Excess of purchase price over net assets acquired represents the excess of the
cost of acquiring Marathon Telecom (see Note 4) over the net tangible and
identifiable intangible assets of the acquired business. This amount is being
amortized on a straight-line basis, over the future periods to be benefited,
estimated to be five years.
Impairment of Long-Lived and Intangible Assets - In the event that facts and
- --------------------------------------------------
circumstances indicate that the cost of long lived assets may be impaired, an
evaluation of recoverability would be performed. If an evaluation is required,
the estimated future undiscounted cash flows associated with the asset would be
compared to the asset's carrying amount to determine if a write-down to market
value or discounted cash flow value is required.
Revenue Recognition- Revenue is generated from installation of business phone
- --------------------
systems and is recognized as installations are completed.
F-8
<PAGE>
PRIME COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income Taxes - The Company accounts for income taxes under the liability method
- -------------
which 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 basis of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse.
Net Assets Held for Sale - Net assets held for sale include 400,000 shares of
- -----------------------------
common stock of US Trucking, Inc., and cash of Mid-Cal Express, Inc. (the
Company's inactive trucking subsidiary) net of payables to unsecured creditors
of Mid-Cal Express Inc. The assets are pledged as security for the unsecured
creditors and are being held in escrow pending final settlement of the claims.
Earnings Per Share - Basic earnings per share excludes dilution and is computed
- -------------------
by dividing income available to common stockholders by the weighted average
number of common shares outstanding for the period. Diluted earnings per share
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings of the
entity. Common stock equivalents as of December 31, 1999 were anti-dilutive and
excluded from the earnings per share computation.
Accounting Estimates - The preparation of financial statements in conformity
- ---------------------
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and the accompanying notes. The actual results could differ from
those estimates.
The Company's financial statements are based upon a number of significant
estimates including the allowance for doubtful accounts, the estimated lives of
property and equipment, licenses, and intangibles, and the realizability of
deferred tax assets. Due to the uncertainties inherent in the estimation
process, it is at least reasonably possible that these estimates will be further
revised in the near term and such revisions could be material.
Investments - The U.S. Trucking stock included in net assets held for sale is
- -----------
considered available for sale. These securities are carried at fair value with
unrealized gains or losses, net of tax, reported as a separate component of
stockholders' equity.
Stock-Based Compensation - The Company has elected to follow Accounting
- -------------------------
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
(APB25) and related interpretations in accounting for its employee stock
options. In accordance with FASB Statement No. 123 "Accounting For Stock-Based
Compensation" (FASB123), the Company will disclose the impact of adopting the
fair value accounting of employee stock options. Transactions in equity
instruments with non-employees for goods or services have been accounted for
using the fair value method prescribed by FASB123.
F-9
<PAGE>
PRIME COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Concentrations of Credit Risk - Credit risk represents the accounting loss that
- ------------------------------
would be recognized at the reporting date if counterparties failed to perform as
contracted. Concentrations of credit risk (whether on or off balance sheet) that
arise from financial instruments exist for groups of customers or groups of
counterparties when they have similar economic characteristics that would cause
their ability to meet contractual obligations to be similarly effected by
changes in economic or other conditions. In accordance with FASB Statement No.
105, "Disclosure of Information about Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments Concentrations of Credit Risk,"
financial instruments that subject the Company to credit risk are primarily
accounts receivable. The credit risk amounts shown do not take into account the
value of any collateral or security.
The customers of the Company's 1999 operations are located primarily in
California. At December 31, 1999 approximately $13,800 representing 48% of trade
receivables was due from two customers. No other customers accounted for more
than 10% of the Company's trade receivables at December 31, 1999.
Fair Value of Financial Instruments - The estimated fair values for financial
- --------------------------------------
instruments under FASB Statement No. 107, "Disclosures about Fair Value of
Financial Instruments," are determined at discrete points in time based on
relevant market information. These estimates involve uncertainties and cannot be
determined with precision.
The following methods and assumptions were used in estimating the indicated fair
values of the Company's financial instruments:
Cash and cash equivalents: The carrying amount approximates fair value
because of the short maturity of those instruments.
Investments: Investments included in net assets held for sale are
Considered available-for-sale and are carried at market value based
on quoted market prices.
Long-term and other debt: The fair value of the Company's debt is
Estimated based on current rates offered to the Company for debt with
similar terms and maturities and approximates carrying value.
Impact of Recently Issued Standards - In June 1998, the Financial Accounting
- ---------------------------------------
Standards Board issued Statement of Financial Accounting Standards No. 133
(FASB133), "Accounting for Derivative Instruments and Hedging Activities." This
statement requires that an entity recognize all derivatives as assets or
liabilities in the statement of financial position and measure those instruments
at fair value. This statement was amended by FASB 137, issued in June 1999, such
that it is effective for the Company's financial statements for the year ending
December 31, 2001. The Company does not believe the adoption of FASB133 will
have a material impact on assets, liabilities or equity.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, entitled "Revenue Recognition in Financial Statements."
SAB 101A was issued by the SEC on March 24, 2000 and delays the required
implementation date of SAB 101 until the second quarter of 2000. SAB 101
provides guidance on the recognition, presentation and disclosure of revenue in
the financial statements of public companies. The Company does not believe that
the adoption of SAB 101 will have a material effect on its financial position or
results of operations.
3. Basis of Presentation:
------------------------
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
F-10
<PAGE>
PRIME COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
liabilities in the normal course of business. As shown in the accompanying
consolidated financial statements, the Company has recorded losses for the
periods ended December 31, 1999 and 1998, resulting in an accumulated deficit of
$830,630 as of December 31, 1999. Cash used in operations during 1999 and 1998
was $132,920 and $24,986, respectively.
Management expects to achieve profitable operations as its CLEC and internet
subsidiaries begin operations during 2000. Until profitable operations can be
achieved, management had taken steps to obtain additional working capital for
the Company. Subsequent to December 31, 1999, the Company converted
approximately $1.6 million of debt and accrued interest to common stock and
completed a private placement of an additional 6,569,444 shares of common stock
for net proceeds of $2.4 million (see note 13). Management believes, based on
its current and planned level of operations it has sufficient resources to
continue as a going concern for at least the next twelve months.
4. Acquisitions
------------
In September 1999, the Company acquired all of the assets of Olive Tree Image
Engineers (a sole proprietorship) (Olive Tree) in exchange for 57,142 shares of
the Company's common stock. This stock issuance was valued at the average of the
closing bid and ask prices for three days before and after the acquisition was
agreed to by the Company and Olive Tree. The transaction was accounted for as a
purchase and the resulting purchase price of $26,910 was assigned to property
and equipment acquired. Olive Tree had no substantial operations prior to the
acquisition by the Company.
In October 1999, the Company acquired all of the assets of Marathon Telecom (a
sole proprietorship operated by Adrian Lima the son of the Company's CEO), in
exchange for 517,241 shares of the Company's Common Stock plus assumption of
$25,283 in liabilities. This stock issuance was valued at the average of the
closing bid and ask prices for three days before and after the acquisition was
agreed to by the Company and Marathon Telecom. The transaction was accounted
for as a purchase and accordingly, the inclusion of the operations of Marathon
Telecom in the consolidated operations commenced on the acquisition date. The
resulting purchase price was $221,835 which resulted in $200,335 being allocated
to excess of purchase price over net assets acquired. The excess of purchase
price over net assets acquired will be amortized over a period of 60 months
beginning October 1999. Adrian Lima acquired the operations of Marathon Telecom
in February 1999 from an unrelated individual. Financial information related to
Marathon Telecom prior to February 1999 is not available. From February 1999 to
October 1999 (the date of acquisition by the Company), Marathon had revenues of
approximately $64,000 (unaudited) and operating income (and net income) of
approximately $30,000 (unaudited).
5. Net Assets Held For Sale:
-----------------------------
Mid-Cal Express, Inc. ceased operations in December 1998 and its assets have
been pledged as security for the settlement of claims by its unsecured
creditors. The assets are held by the Credit Managers Association of Southern
California who is in the process of liquidating the assets and making final
distribution to the creditors. The net assets held for sale consisted of the
following at December 31, 1999:
Assets:
Cash in escrow $ 83,079
Investments 1,425,000
-----------
Total Assets 1,508,079
Unsecured Creditors 846,377
-----------
Net Assets of Discontinued Operations $ 661,702
==========
F-11
<PAGE>
PRIME COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Property and Equipment
------------------------
Property and equipment at December 31, 1999, consisted of:
Estimated
Useful Lives
------------
Offices furniture and equipment $ 46,745 3 years
Vehicles. . . . . . . . . . . . 16,470 3 years
Paging terminals. . . . . . . . 71,764 7 years
----------
Total Property and equipment. 134,979
Less accumulated depreciation . (30,257)
----------
$104,722
==========
7. Notes Payable to Related Parties:
------------------------------------
In connection with the merger between Prime and Worldnet, the Company assumed
notes payable to related parties. At December 31, 1999, the Company had the
following notes payable outstanding to related parties:
Unsecured notes payable to shareholders; interest at 10%
accruing through January 15, 2000, thereafter interest
payments due monthly beginning January 15, 2000; principal
due July 31, 2001 . . . . . . . . . . . . . . . . . . . . . . . $1,240,216
Unsecured notes payable to a shareholder, former officer and
director; interest at 10%; principal and interest due at various
dates throughout 2000 . . . . . . . . . . . . . . . . . . . . . 155,000
Note payable to relative of the Chief Executive Officer; non-
interest bearing; due April 15, 2000. . . . . . . . . . . . . . . 25,500
----------
1,420,716
Current Portion . . . . . . . . . . . . . . . . . . . . . . . . . (180,500)
----------
Long Term Portion . . . . . . . . . . . . . . . . . . . . . . . . $1,240,216
===========
Accrued interest on notes payable to related parties was $55,830 at December 31,
1999. Interest expense on these notes was $60,954 in 1999.
In February 2000, notes in the principal amount of $1,240,216, plus accrued
interest of $47,197 and interest accrued subsequent to year end of $19,774 were
settled by the issuance of 2,904,860 shares of the Company's common stock.
F-12
<PAGE>
PRIME COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Convertible Notes Payable:
---------------------------
During 1999, the Company issued unsecured notes payable to an individual for
cash and licenses. At December 31, 1999, principal of $496,220 and accrued
interest of $111,280 were due on these notes. In March 2000, the Company
settled notes in the principal amount of $396,220 and accrued interest in the
amount of $108,750 with cash payments of $252,500 and issuance of 561,111 shares
of the Company's common stock. The remaining principal balance of $100,000
accrues interest at 10% and is due October 1, 2000. The note is convertible to
312,500 shares of the Company's common stock on October 1, 2000.
9. Stock Options:
---------------
At the time of the merger, Prime had outstanding options to acquire 2,555,209
shares of common stock. At December 31, 1999, options to purchase 1,396,375
shares were exercisable at the price of $1.00, options to purchase 1,038,834
shares were exercisable at the price of $3.00, and options to purchase 120,000
shares were exercisable at the price of $6.00 per share, and all were
exercisable through December 31, 2000. No options were granted or exercised in
1999 or 1998.
10. Income Taxes:
--------------
The provision for taxes for 1999 consists of state franchise taxes. The actual
income tax expense differs from the "expected" tax expense computed by applying
the U.S. federal corporate income tax rate of 34% because of the state taxes and
changes in the valuation allowance of deferred tax assets.
The components of the net deferred tax assets are as follows at December 31,
1999:
Noncurrent deferred tax assets:
Depreciation $ 3,000
Net operating loss carryforward 3,210,000
------------
3,213,000
Valuation allowance (3,213,000)
------------
Net noncurrent deferred tax assets $ -
============
As of December 31, 1999, the Company has available net operating loss
carryforwards for income tax purposes of $8,338,000 which expire through 2019.
The Company has state net operating loss carryforwards of $4,033,000 which
expire through 2004. Due to the change in control of Prime, the benefit of the
net operating losses generated by Prime prior to the acquisition by Worldnet
will be limited by certain consolidated return filing regulations and
limitations under Section 382. This limitation would prevent the use of
pre-acquisition net operating losses against the activities of Worldnet
Tel.com, Inc. or any of its subsidiaries.
11. Employee Defined Contribution Plan:
-------------------------------------
Effective January 1, 1998, the Company adopted a 401K Profit Sharing Plan (the
"Plan") covering all employees. To be eligible to participate in the Plan,
employees must be age 21 and must complete at least 83.33 hours of service per
month for at least 6 months. Contributions to the Plan are invested at the
direction of the participant. The Company made no matching contributions to the
Plan during the years ended December 31, 1999 or 1998.
F-13
<PAGE>
PRIME COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Commitments and Contingencies:
-------------------------------
Leases
- ------
The Company's headquarters is located on property owned by the Company's CEO.
The Company paid rent of $11,000 during 1999 and 1998 to the Company's CEO for
use of this space.
All of the Company's office space was rented on a month-to-month basis. During
2000, the Company intends to enter into lease agreements for a term of one or
more years with its various landlords.
Litigation and other claims
- ------------------------------
The Company is the defendant in a lawsuit with a former officer and director
seeking payment of $32,000 due for advances made on behalf of the Company. The
Company has filed a cross-complaint claiming the advances were capital
contributions and is seeking to recover 4,500,000 shares of its common stock
held by the plaintiff and to be reimbursed for legal fees arising from this
action. The Company believes the outcome of this matter will not have a material
adverse effect on the Company's financial position or results of operations.
13. Subsequent Events
------------------
In March 2000 the Company completed a private placement offering of its common
stock and sold 6,569,444 shares for $2.4 million (net of commissions of
approximately $547,000).
In March 2000 the Board of Directors approved an employee stock option program
for all employees on staff as of Jan 31, 2000, whereby each employee is granted
the right to purchase the number of shares equal to 1999 gross earnings (at
Prime or any of its subsidiaries) at $1.00 per share; options to expire December
31, 2002, and are immediately exercisable..
In March 2000 the Board of Directors also approved an employee stock option
program for all employees employed by Prime in 2000, whereby each employee is
granted the right to purchase the number of shares equal to 2000 gross earnings
(at Prime or any of its subsidiaries) at $1.50 per share; options to expire
December 31, 2003, and do not vest until December 31, 2000.
In March 2000 the Board of Directors also approved a stock option program
whereby each outside director was granted an option for the year 2000, to expire
December 31, 2002, on 20,000 shares at $1.00 per share. The options vest on
January 1, 2001 to each current outside director who is still a director on that
date.
F-14
<PAGE>
Exhibit 4.1
PROXY
I, ___________________________ a shareholder of Prime Companies, Inc., a
Delaware corporation ("Corporation"), do hereby appoint Norbert Lima and Stephen
Goodman to be my proxy agents, with full power of substitution, and to vote all
of my shares in the Corporation with respect to matters submitted to the
shareholders at all meetings of the shareholders, or any adjournments thereof,
and in all consents to any actions taken without a meeting. This appointment
shall continue from this date until January 31, 2000 and during said period,
Norbert Lima and Stephen Goodman shall have all the power that I would possess
with respect to the voting of my shares and granting my consent.
1, hereby revoke all proxies previously given by me with respect to all my
shares in the Corporation.
IN WITNESS WHEREOF, I have executed this proxy.
Date: ________________
_______________________________
Shareholder
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