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 March 31, 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 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
--------------
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 March 31, 2000, 31,617,540 shares of Common Stock, $.0001 par value, were
outstanding.
<PAGE>
INDEX
-----
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheet
as of March 31, 2000 3
Condensed Consolidated Statements of Operations for the
Three Months ended March 31, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows for the
Three Months ended March 31, 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
Item 1. Legal Proceedings 10
Item 2. Changes in Securities and use of proceeds 10
Item 3. Defaults upon Senior Securities 10
Item 4. Submission of Matters to Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
---------------------
<TABLE>
<CAPTION>
Prime Companies, Inc. and Subsidiaries
Condensed Consolidated Balance Sheet
March 31, 2000
--------------
(unaudited)
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents. . . . . . . . . . . . . . $ 2,033,717
Accounts receivable. . . . . . . . . . . . . . . . . 52,499
Subscriptions receivable . . . . . . . . . . . . . . 85,500
Inventory. . . . . . . . . . . . . . . . . . . . . . 18,350
Prepaid expenses and other current assets. . . . . . 56,701
Net assets held for sale . . . . . . . . . . . . . . 261,899
----------------
Total Current Assets . . . . . . . . . . . 2,508,666
Property and Equipment, net of accumulated depreciation
of $36,585 . . . . . . . . . . . . . . . . . . . . . . . . . 98,681
Licenses, net of accumulated amortization of $46,161 . . . . . 569,311
Goodwill, net of accumulated amortization of $20,034 . . . . . 180,301
----------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,356,959
================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable. . . . . . . . . . . . . . . . . . . . $ 252,500
Note payable - related party . . . . . . . . . . . . 25,500
Accounts payable . . . . . . . . . . . . . . . . . . 114,124
Other current liabilities. . . . . . . . . . . . . . 106,715
----------------
Total Current Liabilities . . . . . . . . 498,839
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
31,427,540 issued and outstanding. . . . 3,142
Additional paid-in capital . . . . . . . . . . . . . 4,432,053
Common stock subscribed. . . . . . . . . . . . . . . 85,500
Unrealized loss on available-for-sale securities . . (275,000)
Accumulated deficit. . . . . . . . . . . . . . . . . (1,387,575)
----------------
Total Stockholders' Equity . . . . . . . 2,858,120
----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . . . . . . . . . . $ 3,356,959
================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-3-
<PAGE>
<TABLE>
<CAPTION>
Prime Companies, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
Three months ended Three months ended
March 31, 2000 March 31, 1999
-------------------- --------------------
(unaudited) (unaudited)
<S> <C> <C>
Sales Revenues . . . . . . . . . . . . . . . . $ 112,749 $ 86,843
Cost of Sales. . . . . . . . . . . . . . . . . 40,679 38,207
-------------------- --------------------
Gross Profit . . . . . . . . . . . . . . . . . 72,070 48,636
Selling, General & Administrative Expenses . . 593,892 83,233
-------------------- --------------------
Loss from Operations . . . . . . . . . . . . . (521,822) (34,597)
Interest Expense . . . . . . . . . . . . . . . 28,523 7,511
-------------------- -------------------
Loss before taxes. . . . . . . . . . . . . . . (550,345) (42,108)
Income Taxes . . . . . . . . . . . . . . . . . 6,600 -
-------------------- --------------------
Net Loss . . . . . . . . . . . . . . . . . . . (556,945) (42,108)
-------------------- --------------------
Other comprehensive loss:
Unrealized loss on available-for-sale. .
securities . . . . . . . . . . . . . . (400,000) -
-------------------- --------------------
Comprehensive loss . . . . . . . . . . . . . . $ (956,945) $ (42,108)
==================== ====================
Basic & Diluted Loss per Share . . . . . . . . $ (0.02) $ *
==================== ====================
Weighted Average Shares. . . . . . . . . . . . 23,764,847 14,500,000
==================== ====================
* Less than $0.01 per share.
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-4-
<PAGE>
<TABLE>
<CAPTION>
Prime Companies, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Three months ended Three months ended
March 31, 2000 March 31, 1999
-------------------- --------------------
(unaudited) (unaudited)
<S> <C> <C>
Cash Flows from Operating Activities:
Net Loss. . . . . . . . . . . . . . . . . . . . . . . . $ (556,945) $ (42,108)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization. . . . . . . . . . 31,732 3,532
Compensation recognized on issuance of
stock and options. . . . . . . . . . . . . . . . 267,216 24,840
Changes in operating assets and liabilities:
Current assets. . . . . . . . . . . . . (53,791) (4,942)
Current liabilities . . . . . . . . . . 39,499 19,724
-------------------- --------------------
Net cash provided by (used in)
operating activities. . (272,289) 1,046
-------------------- --------------------
Cash Flows from Investing Activities:
Purchases of property and equipment. . . . . . . . . . (287) (162)
-------------------- --------------------
Net cash used in investing
activities. . . (287) (162)
-------------------- --------------------
Cash Flows from Financing Activities:
Proceeds from sale of stock . . . . . . . . . . . . . . 2,323,890 -
Payments on notes payable . . . . . . . . . . . . . . . (255,000) -
-------------------- --------------------
Net Cash provided by financing
activities. . 2,068,890 -
-------------------- --------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS. . . . . . . . . . . . 1,796,314 884
CASH AND CASH EQUIVALENTS, beginning of period . . . . . . . . . 237,403 3,479
-------------------- --------------------
CASH AND CASH EQUIVALENTS, end of period . . . . . . . . . . . . $ 2,033,717 $ 4,363
=================== ====================
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING & FINANCING ACTIVITIES:
Conversion of notes payable and accrued interest
to common stock . . . . . . . . . . . . . . . . . . . $ 1,559,687 $ -
=================== ====================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-5-
<PAGE>
Prime Companies, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
The condensed consolidated balance sheet as of March 31, 2000, the related
condensed consolidated statements of operations for the three months ended March
31, 2000 and 1999, and cash flows for the three months ended March 31, 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
March 31, 2000, the results of their operations and their cash flows for the
three months ended March 31, 2000 and 1999. The results of operations for the
three months ended March 31, 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 March 31, 2000:
Assets:
Cash in escrow $ 7,089
Investments 1,025,000
----------
Total assets 1,032,089
Unsecured creditors 770,190
--------
Net assets held for sale $ 261,899
=========
3. COMMON STOCK
-------------
In March 2000, the Company sold 6,569,444 shares of its common stock in private
placement offerings, raising $2.4 million. At March 31, 2000, the Company had
subscriptions receivable of $85,500 from this private placement. All
subscriptions receivable were collected in April 2000.
Additionally, in February creditors holding $1,307,187 (balance due as of
February 28, 2000) of notes payable converted their debt into 2,904,860 common
shares of the Company. In March 2000 another creditor converted $252,500 of
short term debt into 561,111 common shares of the Company.
-6-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations
-------------------------
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
--------------------------------------------------------------------------------
Certain statements made herein or elsewhere by, or on behalf of, the Company
that are not historical facts are intended to be forward-looking statements
within the meaning of the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements are based on
assumptions about future events and are therefore inherently uncertain.
The Company cautions readers that the following important factors, among others,
could affect the Company's consolidated results:
1 Whether acquired businesses perform at pro forma levels used by management
in the valuation process and whether, and the rate at which, management is
able to increase the profitability of acquired businesses.
2. The ability of the Company to manage its growth in terms of implementing
internal controls and information gathering systems, and retaining or
attracting key personnel, among other things.
3. The amount and rate of growth in the Company's corporate general and
administrative expenses.
4. Changes in interest rates, which can increase or decrease the amount the
Company pays on borrowings.
5. Changes in government regulation, including tax rates and structures.
6. Changes in accounting policies and practices adopted voluntarily or
required to be adopted by generally accepted accounting principles.
The Company cautions readers that it assumes no obligation to update or publicly
release any revisions to forward-looking statements made herein or any other
forward-looking statements made by, or on behalf of, the Company.
Background
----------
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 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.
-7-
<PAGE>
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.
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.
Results of Operations
-----------------------
During the three month period ended March 31, 2000, sales revenue increased to
$112,749 from $86,843 for the corresponding period of the prior year. The 30%
increase 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 increased to 64% for the three months
ended March 31, 2000 from 56% 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 March 31, 2000 increased to $593,892 from $83,233 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.
-8-
<PAGE>
Interest expense for the three month period ended March 31, 2000 increased to
$28,523 from $7,511 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 second 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 month period ended March 31, 2000.
Income taxes for the three month period ended March 31, 2000 increased to $6,600
from $ - 0 - and were primarily state franchise taxes for Prime and its various
subsidiaries.
Liquidity and Capital Resources
----------------------------------
At March 31, 2000, the Company had cash of $2,033,717 and working capital of
$2,009,827. The increase during the three months ended March 31, 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.
Cash used in operations was $272,289 for the three months ended March 31, 2000
compared to cash provided by operations of $1,046 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 provided by financing activities was $2,068,890 for the three months ended
March 31, 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 $1,307,187 (balance due as of February 28, 2000) of notes
payable converted their debt into 2,904,860 common shares of the Company. In
March 2000 another creditor converted $252,500 of short term debt into 561,111
common shares of the Company.
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.
-9-
<PAGE>
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 3 months ended March 31, 2000 the Company completed the private
placement of common stock and sold 6,569,444 shares for net proceeds of
$2,409,390. The Company also settled long term debt and accrued interest in the
amount of $1,307,187 through the issuance of 2,904,860 shares of its common
stock. The Company also settled short term debt in the amount of $252,500
through the issuance of 561,111 shares of its common stock.
Item 3. Defaults Upon Senior Securities
----------------------------------
None
Item 4. Submission of Matters to Vote of Security Holders
--------------------------------------------------------
a) The Annual Meeting of Stockholders was held on January 11, 2000. There
were shareholders present in person or by proxy representing 22,357,557 shares
of the 25,082,125 shares outstanding on that date.
b) At the meeting the shareholders elected Eric Bergmann, Michael Gilbert,
Stephen Goodman, Norbert Lima, and Jeff Pinkston as directors. No other
director's term of office continued after the meeting. Also nominated was Fred
Fazio. The following is a tabulation of the votes for each of the nominees:
Eric Bergmann 13,357,557
Fred Fazio 9,000,000
Michael Gilbert 13,357,557
Stephen Goodman 13,357,557
Norbert Lima 13,357,557
Jeff Pinkston 13,357,557
c) The shareholders also approved Hein + Associates LLP as the Company's
Auditor. The votes cast in favor were 13,357,557. There were no votes against,
withheld, abstentions, nor broker non-votes.
Item 5. Other Information
------------------
None
Item 6. Exhibits and Reports on Form 8-K
-------------------------------------
a) Exhibits
27 - Financial Data Schedule
-10-
<PAGE>
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: June 5, 2000 By: /S/Norbert J. Lima
--------------------
Norbert J. Lima
Chief Executive Officer
Date: June 5, 2000 By: /S/Stephen Goodman
-------------------
Stephen Goodman
Chief Financial Officer
-11-
