SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - QSB
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2000
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-22919
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PRIME COMPANIES, INC.
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(exact name of small business issuer as specified in its charter)
Delaware 52-2031531
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(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
409 Center Street, Yuba City, CA 95991
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (530) 755-3580
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Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes _X_ No___
As of June 30, 2000, 31,904,796 shares of Common Stock, $.0001 par value, were
outstanding
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<CAPTION>
INDEX
Page
Number
<S> <C>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements:
Condensed Consolidated Balance Sheet - June 30, 2000 3
Condensed Consolidated Statements of Operations for the
Three and Six Months ended June 30, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows for the
Six Months ended June 30, 2000 and 1999 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis
of Financial Condition and Results of Operations 7
PART II OTHER INFORMATION
Exhibits and Reports of Form 8-K 10
Signatures 11
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PART I FINANCIAL INFORMATION
Item 1 Financial Statements
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<TABLE>
<CAPTION>
Condensed Consolidated Balance Sheet
Prime Companies, Inc. and Subsidiaries
ASSETS June 30, 2000
(unaudited)
<S> <C>
Current Assets
Cash and cash equivalents $ 1,535,541
Accounts receivable, net 37,725
Inventory 29,239
Prepaid expenses and other current assets 28,075
Net assets held for sale 152,877
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Total Current Assets 1,783,457
Property and Equipment, net of accumulated depreciation of $45,633 139,091
Licenses, net of accumulated amortization of $61,798 553,674
Other 2,000
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TOTAL ASSETS $ 2,478,222
=========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable $ 100,000
Accounts payable 68,609
Other current liabilities 50,342
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Total Current Liabilities 218,951
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Stockholders' Equity
Preferred Stock $.0001 par value, 10,000,000 shares authorized
none issued and outstanding
Common Stock, $.0001 par value, 50,000,000 authorized
31,904,796 issued and outstanding 3,191
Paid in surplus 6,336,187
Unrealized loss on investment (375,200)
Accumulated deficit (3,704,907)
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Total Stockholders' Equity 2,259,271
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,478,222
=========================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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3
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<TABLE>
<CAPTION>
Condensed Consolidated Statements of Operations
Prime Companies, Inc. and Subsidiaries
Three months Three months Six months Six months
-------------- -------------- -------------- --------------
ended ended ended ended
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June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
-------------- -------------- -------------- --------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Sales revenues $ 130,551 $ 68,469 $ 243,301 $ 153,684
Cost of sales 36,179 12,180 76,859 50,350
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Gross profit 94,372 56,289 166,442 103,334
Selling, general & administrative expenses 363,933 52,669 957,825 134,528
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Income (Loss) from operations (269,561) 3,620 (791,383) (31,194)
Interest expense 2,721 1,360 31,244 8,872
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Income (loss) before income taxes and extraordinary
item (272,282) 2,260 (822,627) (40,066)
Income taxes 6,600
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Income (loss) before extraordinary item (272,282) 2,260 (829,227) (40,066)
Extraordinary loss on extinguishment of debt 1,852,595
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Net income (Loss) (272,282) 2,260 (2,681,822) (40,066)
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Other comprehensive loss:
Unrealized loss on available-for-sale
securities (100,200) (500,200)
-------------- -------------- -------------- --------------
Comprehensive income (loss) $ (372,482) $ 2,260 $ (3,182,022) $ (40,066)
============== ============== ============== ==============
Basic & diluted per share information:
Income (Loss) before extraordinary item (0.01) * (0.03) *
Extraordinary loss on extinguishment of debt 0.00 (0.07)
Net loss $ (0.01) * $ (0.10) *
============== ============== ============== ==============
Weighted Average Shares 31,617,540 14,500,000 27,957,156 14,500,000
============== ============== ============== ==============
* Less than $0.01 per share.
The accompanying notes are an integral part of these condensed
consolidated financial statements.
</TABLE>
4
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<TABLE>
<CAPTION>
Condensed Consolidated Statements of Cash Flows
Prime Companies, Inc. and Subsidiaries
Six months ended Six months ended
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June 30, 2000 June 30, 1999
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(unaudited) (unaudited)
<S> <C> <C>
Cash Flows from Operating Activities
Net Loss $ (2,681,822) $ (40,066)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities
Depreciation and Amortization 46,399 7,078
Extraordinary loss on extinguishment of debt 1,852,595 -
Compensation recognized on issuance of stock and options 231,303 24,840
Changes in operating assets and liabilities:
Current assets (12,459) (5,315)
Current liabilities (63,473) 29,461
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Net Cash provided by (used in) operating activities (627,457) 15,998
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Cash Flows from Investing Activities
Purchases of Property and Equipment (50,795) (162)
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Net Cash (used in) investing activities (50,795) (162)
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Cash Flows from Financing Activities
Proceeds from sale of stock 2,409,390
Payments on notes payable (433,000)
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Net Cash provided by financing activities 1,976,390
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NET INCREASE IN CASH AND CASH EQUIVALENTS 1,298,138 15,836
CASH AND CASH EQUIVALENTS, beginning of period $ 237,403 $ 3,479
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CASH AND CASH EQUIVALENTS, end of period $ 1,535,541 $ 19,315
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SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING & FINANCING ACTIVITIES
Contributions by stockholder $ $ 40,091
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Conversion of Note Payable and Accrued Interest to Common Stock $ 1,559,688 $ -
================== ==================
Issuance of common stock for other asset $ 2,000 $ -
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5
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Prime Companies, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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The condensed consolidated balance sheet as of June 30, 2000, the related
condensed consolidated statements of operations for the three and six months
ended June 30, 2000 and 1999, and cash flows for the six months ended June 30,
2000 and 1999 have been prepared by the Company without audit. In the opinion of
management, the condensed consolidated financial statements contain all
adjustments, consisting of normal recurring accruals, necessary to present
fairly the financial position of Prime Companies, Inc. and subsidiaries as of
June 30, 2000, the results of their operations for the three and six months
ended June 30, 2000 and 1999 and cash flows for six months ended June 30, 2000
and 1999.
The results of operations for the three and six months ended June 30, 2000 are
not necessarily indicative of the results to be expected for the entire fiscal
year ending December 31, 2000.
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 annual report
on Form 10-KSB for the year ended December 31, 1999.
2. NET ASSETS HELD FOR SALE
-----------------------------------
The Company's wholly owned subsidiary, 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 June 30, 2000:
Assets:
Cash in escrow $ 6,892
Investments 924,800
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Total assets 931,692
Unsecured creditors 778,815
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Net assets held for sale $ 152,877
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3. COMMON STOCK
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In April 2000, the Company issued 1,000 shares of common stock at a price of
$2.00 per share for an internet domain name.
6
<PAGE>
In June 2000 the Company issued 12,829 shares of common stock, at market value
on the date of issuance, to a consultant for services rendered related to market
research conducted in its LMDS markets.
In June 2000 the Company issued 273,427 shares of common stock, at market value
on the date of issuance, for services rendered related to the private placement
that closed on March 31, 2000.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
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of Operations
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Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
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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.
7
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Background
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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 Cellular (an entity for
which the Company's current CEO served as an officer) in exchange for assumption
of specified liabilities. In January 1999, management formed Woldnet Tel.com
Inc. (Worldnet), a Delaware corporation. In February 1999, management formed
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 or 2000.
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 or 2000.
Pursuant to a Stock Purchase Agreement (the "Agreement") between Prime
Companies, Inc. (Prime), a Delaware Corporation, a non operating public shell,
and Worldnet, Worldnet was acquired by Prime effective August 11, 1999. Prior to
the acquisition, 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 acquisition, the
officers and directors of Worldnet became the officers and directors of Prime.
Although Prime is the legal acquirer, for financial statement purposes this
transaction has been treated as an acquisition of Prime by Worldnet. The
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 acquisition.
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.
8
<PAGE>
In October 1999, the Company acquired Olive Tree Image Engineers, a small
Internet Service Provider located in Sacramento, California. In October 1999 the
Company completed the acquisition of Marathon Telecommunications, a commercial
telephone interconnect business based in Sacramento, California.
Results of Operations
-----------------------
During the three month period ended June 30, 2000, sales revenue increased to
$130,551 from $68,469 for the corresponding period of the prior year. During the
six month period ended June 30, 2000, sales revenue increased to $243,301 from
$153,684 for the corresponding period of the prior year. The increase in revenue
is attributed to the integration of Marathon Telecom into Nacc-Tel Corp. and to
our being awarded a high percentage of the contract proposals we had bid on.
The gross margin as a percent of revenues decreased to 72% for the three months
ended June 30, 2000 from 82% in the corresponding period of the prior year. The
decrease in the gross margin is due to a change in the mix of sales from
predominantly service calls in the second quarter of 1999 to service calls and
new installations in the second quarter of 2000. The gross margin as a percent
of revenues increased to 68% for the six months ended June 30, 2000 from 67% in
the corresponding period of the prior year. The increase in the gross margin is
due to additional discounts for volume purchases provided to the Company by its
telephone vendors.
The Company's selling, general and administrative expenses for the three month
period ended June 30, 2000 increased to $363,933 from $52,669 for the
corresponding period of the prior year. The Company's selling, general and
administrative expenses for the six month period ended June 30, 2000 increased
to $957,825 from $134,528 for the corresponding period of the prior year. The
increase is attributed to increased marketing efforts, additional corporate
overhead costs associated with the merger with Prime, employee and outside
director stock option programs, and expenses related to the launching of our
LMDS systems.
Interest expense for the three month period ended June 30, 2000 increased to
$2,721 from $1,360 for the corresponding period of the prior year. The increase
is attributed to the increased debt assumed in the merger with Prime. Interest
expense for the six month period ended June 30, 2000 increased to $31,244 from
$8,872 for the corresponding period of the prior year. The increase is
attributed to the increased debt assumed in the merger with Prime. Interest
expense during the third quarter of 2000, and for the balance of the year 2000
should be minimal, as most of the Company's liabilities were settled during the
three months period ended March 31, 2000.
Income taxes for the three month period ended June 30, 2000 were $-0-, the same
as for the comparable three month period in 1999. Income taxes for the six month
period ended June 30, 2000 increased to $6,600 from $ - 0 - for the comparable
six month period for 1999. The increase is primarily state franchise taxes for
Prime and its various subsidiaries.
Liquidity and Capital Resources
----------------------------------
At June 30, 2000, the Company had cash of $1,535,541 and working capital of
$1,564,506. The increase during the six months ended June 30, 2000 was due
primarily to the completion of the Company's Private Placement Offering during
the first quarter of 2000. Management believes this cash will be sufficient to
sustain its operations for at least the next 12 months.
9
<PAGE>
Cash used in operations was $627,457 for the six months ended June 30, 2000
compared to cash provided by operations of $15,998 for the corresponding period
in the prior year. The cash used in operations was primarily attributed to the
overhead costs associated with the merger with Prime and the development and
launching of our LMDS systems.
Cash used in investing activities increased to $50,795 for the six months ended
June 30, 2000 compared to cash used of $162 for the corresponding period in the
prior year. The increase is attributed to the purchase of equipment associated
with the development and launching of our LMDS systems.
Cash provided by financing activities was $1,976,390 for the six months ended
June 30, 2000. The cash provided resulted from the completion of the Company's
Private Placement Offering of common stock during the first quarter of 2000,
offset by payments on notes payable. There were no financing activities in the
corresponding period of 1999.
In March 2000, 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 $1,240,216 (balance due as of February 28, 2000) of notes
payable, plus accrued interest of $67,868, converted their debt into 2,904,860
restricted common shares of the Company. In March 2000 another creditor
converted $143,720 of short term debt, plus accrued interest of $107,884 into
561,111 restricted common shares of the Company. These notes were converted into
common shares at the same price offered to the investors who purchased common
shares through the private placement that closed March 31, 2000. The offering
price was below the market price at the time, causing a non-cash loss on
extinguishment of debt in the amount of $1,852,595 during the three months ended
March 31, 2000.
The Company's ability to fully 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.
PART II. OTHER INFORMATION
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Item 1. Legal Proceedings
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See the Company's annual report on Form 10KSB for the year ended December
31, 1999.
Item 2. Changes in Securities and Use of Proceeds
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During the 6 months ended June 30, 2000 the Company completed the private
placement of common stock and sold 6,569,444 shares for net proceeds of
$2,409,390. In February 2000 creditors holding $1,240,216 (balance due as of
February 28, 2000) of notes payable, plus accrued interest of $67,868, converted
their debt into 2,904,860 restricted common shares of the Company. In March 2000
another creditor converted $143,720 of short term debt, plus accrued interest of
$107,884 into 561,111 restricted common shares of the Company. These notes were
converted into common shares at the same price offered to the investors who
purchased common shares through the private placement that closed March 31,
2000. The offering price was below the market price at the time, causing a
non-cash loss on extinguishment of debt in the amount of $1,852,595 during the
three months ended March 31, 2000.
10
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Item 3. Defaults Upon Senior Securities
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None
Item 4. Submission of Matters to Vote of Security Holders
None
Item 5. Other Information
-----------------------------------
None
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
27 - Financial Data Schedule
Signatures
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In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PRIME COMPANIES, INC.
(Registrant)
Date: August 14, 2000 By: /S/Norbert J. Lima
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Norbert J. Lima
Chief Executive Officer
Date: August 14, 2000 By: /S/Stephen Goodman
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Stephen Goodman
Chief Financial Officer
11
