SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - QSB
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2000
------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---- ----
Commission File Number 0-22919
-------
PRIME COMPANIES, INC.
----------------------------------------------------------------
(exact name of small business issuer as specified in its charter)
Delaware 52-2031531
-------- --------------
(State or other jurisdiction (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
--------------
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
--- ---
As of September 30, 2000, 26,717,296 shares of Common Stock, $.0001 par value,
were outstanding
<PAGE>
<TABLE>
<CAPTION>
INDEX
Page
Number
<S> <C>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements:
Condensed Consolidated Balance Sheet - September 30, 2000 (unaudited) 3
Condensed Consolidated Statements of Operations for the
Three and Nine Months ended September 30, 2000 and 1999 (unaudited) 4
Condensed Consolidated Statements of Cash Flows for the
Nine Months ended September 30, 2000 and 1999 (unaudited) 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 on Form 8-K 10
Signatures 11
</TABLE>
<PAGE>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
----------------------------
<TABLE>
<CAPTION>
Condensed Consolidated Balance Sheet
Prime Companies, Inc. and Subsidiaries
ASSETS September 30, 2000
(unaudited)
<S> <C>
Current Assets
Cash and cash equivalents $ 1,073,819
Accounts receivable, net 72,891
Inventory 37,589
Prepaid expenses and other current assets 3,031
-------------------------
Total Current Assets 1,187,330
Property and Equipment, net of accumulated depreciation of $57,104 278,212
Licenses, net of accumulated amortization of $58,954 412,681
Other 2,000
-------------------------
TOTAL ASSETS $ 1,880,223
=========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 84,382
Other current liabilities 117,868
Net assets held for sale 626,739
-------------------------
Total Current Liabilities 828,989
-------------------------
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
26,717,296 issued and outstanding 2,672
Paid in surplus 6,383,471
Accumulated deficit (5,334,909)
-------------------------
Total Stockholders' Equity 1,051,234
-------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,880,223
=========================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Condensed Consolidated Statements of Operations
Prime Companies, Inc. and Subsidiaries
Three months Three months Nine months Nine months
-------------- -------------- -------------- --------------
ended ended ended ended
----- ------ ------ -----
Sept. 30, 2000 Sept. 30, 1999 Sept. 30, 2000 Sept. 30, 1999
-------------- -------------- -------------- --------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Sales revenues $ 130,262 $ 46,176 $ 373,563 $ 199,860
Cost of sales 22,063 35,009 98,922 85,359
-------------- -------------- -------------- --------------
Gross profit 108,199 11,167 274,641 114,501
Selling, general & administrative expenses 443,925 51,198 1,430,762 185,726
-------------- -------------- -------------- --------------
Income (Loss) from operations (335,726) (40,031) (1,156,121) (71,225)
Other Income (Expense)
Interest income 15,199 37,610
Interest expense (41,847) (22,986) (73,091) (31,858)
Loss on investment (1,156,000) (1,156,000)
-------------- -------------- -------------- --------------
Net Other Income (Expense) (1,182,648) (22,986) (1,191,481) (31,858)
-------------- -------------- -------------- --------------
Loss before extraordinary item (1,518,374) (63,017) (2,347,602) (103,083)
Extraordinary loss on extinguishment of debt 1,852,595
-------------- -------------- -------------- --------------
Net loss $ (1,518,374) $ (63,017) $ (4,200,197) $ (103,083)
============== ============== ============== ==============
Basic & diluted per share information:
Loss before extraordinary item $ (0.05) $ * $ (0.08) $ *
Extraordinary loss on extinguishment of debt 0.00 (0.06)
Net loss $ (0.05) $ * $ (0.14) $ *
============== ============== ============== ==============
Weighted Average Shares 31,391,747 14,500,000 29,112,248 14,500,000
============== ============== ============== ==============
* Less than $0.01 per share.
The accompanying notes are an integral part of these condensed
consolidated financial statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Condensed Consolidated Statement of Cash Flows
Prime Companies, Inc. and Subsidiaries
Nine months ended Nine months ended
------------------ ------------------
September 30, 2000 September 30, 1999
------------------ ------------------
(unaudited) (unaudited)
<S> <C> <C>
Cash Flows from Operating Activities
Net Loss before extraordinary item $ (2,347,602) $ (103,083)
Adjustments to reconcile net loss to net cash
Provided by (used in) operating activities
Depreciation and amortization 73,007 11,222
Bad debt 6,233
Impairment loss on investment 1,156,000
Interest related to beneficial conversion features of notes
payable 40,625
Compensation recognized on issuance of stock and options 124,464
Common stock issued for services 17,432
Noncash expenses recognized upon reverse merger 219,383
Changes in operating assets and liabilities:
Accounts receivable (50,719) 1,591
Inventory (23,739) (12,320)
Change in assets for sale 7,441
Prepaid and other expenses 30,321 (3,447)
Accounts payable (75,334) 12,225
Due to / from owner (33,783)
Other current liabilities 104,937 25,000
------------------ ------------------
Net Cash provided by (used in) operating activities before
extraordinary item (936,934) 116,788
------------------ ------------------
Cash Flows from Investing Activities
Purchases of Property and Equipment (203,040) (17,324)
------------------ ------------------
Net Cash (used in) investing activities (203,040) (17,324)
------------------ ------------------
Cash Flows from Financing Activities
Principal payments on notes payable (433,000) (57,273)
Principal borrowings on notes payable 10,000
Proceeds from private placement 2,409,390
------------------ ------------------
Net Cash provided by (used in) financing activities 1,976,390 (47,273)
------------------ ------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 836,416 52,191
CASH AND CASH EQUIVALENTS, beginning of period $ 237,403 $ 3,479
------------------ ------------------
CASH AND CASH EQUIVALENTS, end of period $ 1,073,819 $ 55,670
================== ==================
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING & FINANCING ACTIVITIES
Contributions by stockholder $ $ 40,091
================== ==================
Conversion of Note Payable and Accrued Interest to Common Stock $ 1,669,466 $
================== ==================
Issuance of common stock for other asset $ 2,000 $
================== ==================
Settlement of lawsuit - Common stock returned in exchange for licenses $ 125,827 $
================== ==================
</TABLE>
5
<PAGE>
Prime Companies, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------------------
The condensed consolidated balance sheet as of September 30, 2000, the related
condensed consolidated statements of operations for the three and nine months
ended September 30, 2000 and 1999, and cash flows for the nine months ended
September 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 September 30, 2000, the results of their operations for the three and nine
months ended September 30, 2000 and 1999 and cash flows for nine months ended
September 30, 2000 and 1999. The results of operations for the three and nine
months ended September 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.
Assets:
Cash in escrow $ 6,892
Accounts receivable 6,999
Investments 144,000
----------
Total assets 157,891
Unsecured creditors 784,630
----------
Net Liabilities 626,739
Allowance account $ (626,739)
----------
$ -
==========
3. COMMON STOCK
--------------------
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, the Company sold 6,569,444 shares of its common stock in private
placement offerings, raising $2.4 million. Additionally, 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.
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.
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.
In September 2000 the creditor of a $100,000 convertible note due October 1,
2000 converted the balance then due of $109,778 (including accrued interest of
$9,778) into 312,500 shares of the Company's common stock, which have been
issued in full satisfaction of the note. The Company incurred additional
interest expense of $40,625 due to a beneficial conversion feature of the note.
In September 2000 the Company entered into an agreement with two former
officers, directors, and shareholders to settle two lawsuits between the
parties. As part of the settlement, the Company will receive 5,500,000 common
shares back from the two former officers for cancellation. The Company will
disaggregate three of its LMDS licenses and assign one-half of each of the three
licenses, with a total net book value of $125,857 (net of accumulated
amortization), to an entity to be designated by the former officers. Due to the
related party nature of the transaction, the Company recorded the settlement
based on its historical cost because recording the transaction at the fair
market value of the shares would have resulted in a material gain between
related parties.
In March 2000, the Board of Directors approved an employee stock option program
for all employees on staff as of January 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; the options are to
expire December 31, 2002, and are immediately exercisable. The Company has
recorded compensation expense of $109,014 in connection with the 1999 Employee
Stock Option Program during the nine months ended September 30, 2000.
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; the options are to
expire December 31, 2003, and do not vest until December 31, 2000. The Company
has not incurred additional compensation expenses for the nine months ended
September 30, 2000 in connection with the 2000 Employee Stock Option Program.
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. As of September 30, 3000, the Company incurred additional consulting
expense of $15,450 for this stock option program.
4. SUBSEQUENT EVENTS
------------------------
On October 3, 2000 the Company entered into an Investment Agreement with an
institutional investor, providing the Company with a $30 million put on its
common stock, over a 36 month period beginning on the date a registration
statement to be filed with the Securities and Exchange Commission is declared
effective by the SEC. The terms of the Agreement limit the number of shares the
Company may sell each month to the lesser of 1.5 million shares, $2,000,000, or
15% of the volume of its shares traded during the month. The Company issued the
investor a Commitment Warrant to purchase 1,521,000 shares at $0.531 as
consideration for the $30 million Investment Agreement. None of the Warrants
were exercisable on or before September 30, 2000.
On October 27, 2000 the Company entered into a Binding Letter of Intent to
acquire New Wave Networks LLC ("NWN"). NWN's sole assets are five LMDS licenses
in Missouri. The letter of intent stipulates that a Definitive Agreement will be
concluded no later than December 31, 2000, and the transaction will close no
later than April 20, 2001. The transaction is contingent upon a definitive
agreement and the Company having access to funds from the above described
Investment Agreement. The Company has reserved 1,500,000 common shares for
issuance at the closing of this proposed transaction.
On November 2, 2000 the Company entered into a Letter of Intent with License
Technologies Inc. ("LTI"), wherein LTI will merge with the Company's wholly
owned Zenith Technologies Inc. subsidiary. This transaction is contingent upon
the completion of a definitive agreement. No issuance of the Company's common
shares is required to consummate this transaction.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-------------------------------------------------------------------------------
of Operations
-------------
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
--------------------------------------------------------------------------------
Certain statements made herein or elsewhere by, or on behalf of, the Company
that are not historical facts are intended to be forward-looking statements
within the meaning of the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements are based on
assumptions about future events and are therefore inherently uncertain.
The Company cautions readers that the following important factors, among others,
could affect the Company's consolidated results:
1 Whether acquired businesses perform at pro forma levels used by management
in the valuation process and whether, and the rate at which, management is
able to increase the profitability of acquired businesses.
2. The ability of the Company to manage its growth in terms of implementing
internal controls and information gathering systems, and retaining or
attracting key personnel, among other things.
3. The amount and rate of growth in the Company's corporate general and
administrative expenses.
4. Changes in interest rates, which can increase or decrease the amount the
Company pays on borrowings.
5. Changes in government regulation, including tax rates and structures.
6. Changes in accounting policies and practices adopted voluntarily or
required to be adopted by generally accepted accounting principles.
The Company cautions readers that it assumes no obligation to update or publicly
release any revisions to forward-looking statements made herein or any other
forward-looking statements made by, or on behalf of, the Company.
7
<PAGE>
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 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 has 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 has 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 then held 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 September 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 September 30, 2000, sales revenue increased
to $130,262 from $46,176 for the corresponding period of the prior year. During
the nine month period ended September 30, 2000, sales revenue increased to
$373,563 from $199,860 for the corresponding period of the prior year. The
increase in revenue is attributed to the integration of Marathon Telecom into
Nacc-Tel Corp., increased marketing efforts, and to our being awarded a high
percentage of the contract proposals we had bid on.
The gross margin as a percent of revenues increased to 83% for the three months
ended September 30, 2000 from 24% in the corresponding period of the prior year.
The increase in the gross margin is due to a change in the mix of sales from
predominantly service calls in the third quarter of 1999 to service calls and
new installations in the third quarter of 2000. The gross margin as a percent of
revenues increased to 74% for the nine months ended September 30, 2000 from 57%
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, as well as the factors listed above for the three months
ended September 30, 2000.
The Company's selling, general and administrative expenses for the three month
period ended September 30, 2000 increased to $443,925 from $51,198 for the
corresponding period of the prior year. The Company's selling, general and
administrative expenses for the nine month period ended September 30, 2000
increased to $1,430,762 from $185,726 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.
A loss on investment was recorded during the three month period ended September
30, 2000 in the amount of $1,156,000. This has reflected what is believed to be
a permanent decline in the value of U.S. Trucking. No similar loss was recorded
in the corresponding three month period of the prior year. The loss on
investment during the nine month period ended September 30, 2000 was $1,156,000.
No similar loss was recorded in the corresponding nine month period of the prior
year.
Interest expense for the three month period ended September 30, 2000 increased
to $41,847 from $22,986 for the corresponding period of the prior year. The
increase is attributed to the beneficial conversion feature of notes that were
converted to common stock, offset by the fact that most of the Company's
liabilities were paid off during the first quarter of 2000. Interest expense for
the nine month period ended September 30, 2000 increased to $73,091 from $31,858
for the corresponding period of the prior year. The increase is attributed to
the increased debt assumed in the merger with Prime, and the beneficial
conversion feature of notes that were converted to common stock, offset by the
payoff of most of the Company's liabilities during the first quarter of 2000.
Interest expense during the fourth quarter of 2000 should be minimal, as most of
the Company's liabilities were settled during the three month period ended March
31, 2000.
In February 2000, creditors holding $1,308,084 (principal balance of $1,240,216
and accrued interest of $67,868) of notes payable converted their debt into
2,904,860 common shares of the Company. In March 2000 the Company settled notes
in the principal amount of $396,220 and accrued interest of $108,750 with cash
payments of $152,500 during the quarter ended March 30, 2000 and $100,000 in
April 2000, and the issuance of 561,111 shares of the Company's common stock.
The difference between the market value of the stock issued and the carrying
amount of the debt converted was $1,852,595 which has been recorded as a loss on
extinguishment of debt.
At September 30, 2000 approximately $22,889 representing 31% of trade
receivables was due from 2 customers. For the three month period ended September
30, 2000 none of our customers accounted for more than 10% of sales. For the
nine month period ended September 30, 2000 none of our customers accounted for
more than 10% of sales.
Liquidity and Capital Resources
----------------------------------
At September 30, 2000, the Company had cash of $1,073,819 and working capital of
$358,341. The increase during the nine months ended September 30, 2000 was due
primarily to the completion of the Company's Private Placement Offering during
the first quarter of 2000.
Cash used in operations was $936,934 for the nine months ended September 30,
2000 compared to cash provided by operations of $116,788 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 $203,040 for the nine months
ended September 30, 2000 compared to cash used of $17,324 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, and
our wireless DSL service.
Cash provided by financing activities was $1,976,390 for the nine months ended
September 30, 2000, compared to cash used of $47,273 for the corresponding
period in the prior year. 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.
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. In September, 2000 a creditor converted $100,000 of short term
debt, plus accrued interest of $9,778, into 312,500 restricted common shares of
the Company.
On October 3, 2000 the Company entered into an Investment Agreement with an
institutional investor, enabling the Company to sell up to $30 million of its
common stock, over a 36 month period beginning on the date a registration
statement to be filed with the Securities and Exchange Commission is declared
effective by the SEC. The terms of the Agreement limit the number of shares the
Company may sell each month to the lesser of 1.5 million shares, $2,000,000, or
15% of the volume of its shares traded during the month. The Company is not
obligated to sell any shares to the investor, but the investor's commitment to
purchase shares is irrevocable. The Investment Agreement provides for a
non-usage fee to be paid by the Company to the investor, up to the amount of
$100,000 during each 6 calendar month period, in the event that the Company has
not sold at least $1,000,000 of shares to the investor during the 6 month
period. However, the Company will not be required to pay a non-usage fee for any
six month period during which it has sold to the investor the maximum number of
shares, based upon the above limitations, allowable under the Agreement. In the
event the Company terminates the Agreement, a termination fee of up to $200,000
will be due to the investor. The Company issued the investor a Commitment
Warrant to purchase 1,521,000 shares at $0.531 as consideration for the $30
million Investment Agreement. None of the Warrants were exercisable on or before
September 30, 2000. The warrant is exercisable as to 1,014,000 shares as of
October 3, 2000. The warrant is exercisable as to the remaining 507,000 shares
covered by the Commitment Warrant on the earlier of March 8, 2001, or the date
the Registration Statement is declared effective by the Securities and Exchange
Commission. The Company is subject to various covenants contained in the
agreement. The Company's ability to fully develop its Local Multipoint
Distribution Service business is dependent upon its ability to obtain financing
for the infrastructure equipment and working capital to develop the market
opportunities. Management believes the cash on hand plus the anticipated
proceeds from the $30 million equity line will be sufficient to sustain its
operations for at least the next 36 months.
PART II. OTHER INFORMATION
----------------------------
Item 1. Legal Proceedings
------------------------------
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
-----------------------------------------------------------
During the 9 months ended September 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.
In September 2000 a creditor converted $100,000 of short term debt, plus accrued
interest of $9,778, into 312,500 restricted common shares of the Company. The
Company incurred additional interest expense of $40,625 due to a beneficial
conversion feature of the note. (The note was converted at a price per share
less than the market price.) The additional expense was offset against Paid in
Surplus.
10
<PAGE>
Item 3. Defaults Upon Senior Securities
---------------------------------------------------
None
Item 4. Submission of Matters to Vote of Security Holders
--------------------------------------------------------------------
None
Item 5. Commitments and Contingencies
---------------------------------------------------
In September 2000 the Company entered into a three year Employment Agreement
with its Chief Executive Officer, Norbert Lima, providing for compensation at
the rate of $100,000 annually, effective January 1, 2000.
In September 2000 the Company entered into a three year Employment Agreement
with its Chief Financial Officer, Stephen Goodman, providing for compensation at
the rate of $100,000 annually, effective January 1, 2000.
Item 6. Other Information
-----------------------------------
None
Item 7. Exhibits and Reports on Form 8-K
---------------------------------------------------
a) Exhibits
None
Signatures
----------
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PRIME COMPANIES, INC.
---------------------------
(Registrant)
Date: November 14, 2000 By: /S/Norbert J. Lima
-------------------------
Norbert J. Lima
Chief Executive Officer
Date: November 14, 2000 By: /S/Stephen Goodman
-------------------------
Stephen Goodman
Chief Financial Officer
11
