<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (Fee required) For
X the fiscal year ended June 30, 2000
or
Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (No fee required)
For the Transition Period from _________ to _________
Commission File Number 0-27513
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PRIME RATE INCOME & DIVIDEND ENTERPRISES, INC.
---------------------------------------------------------
(Name of Small business Issuer as Specified in its charter)
N/A
---------------------------
(Previous name of Registrant)
Colorado 84-1308436
------------------------------- -----------------------
(State or other jurisdiction of
incorporation or organization) (IRS Employer ID Number)
2525 Fifteenth Street, Suite 3H, Denver, Colorado 80211
------------------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (303) 480-5037
-------------------
Securities to be registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock Name of each exchange on which registered
-----------------------------------------
N/A
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(b) of the Securities Exchange Act of 1934 during the past
12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject of such filing requirements for
the past 90 days.
YES X NO
------- -------
Check if there is no 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. ( X )
The Issuer's revenues for its most recent year ended June 30, 2000 were
$1,201,448.
The Issuer is unable to calculate the aggregate market value of the
common stock of the Registrant held by nonaffiliates because there is a
limited market for the common stock.
As of June 30, 2000, 1,304,984 shares of common stock were outstanding.
Documents incorporated by reference: None.
Transitional Small Business Disclosure Format
(Check One):
Yes No X
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Prime Rate Income & Dividend Enterprises, Inc. (PRIDE) is a
corporation which was formed under the laws of the State of
Colorado on May 1, 1995. The Articles of Incorporation of the
Company authorize it to issue 200,000,000 shares of common stock
with $1.00 per share par value and 1,000,000 shares of preferred
stock with a par value of $10.00 per share.
PRIDE has approximately 459 shareholders.
The PRIDE common stock is traded on the OTC Bulletin Board under
the symbol PIDV.
The principal executive offices of the Company are located at 2525
Fifteenth Street, Suite 3H, Denver, Colorado 80211, and the
Company's telephone number is (303) 480-5037.
The Company has selected June 30 as its fiscal year end.
RECENT DEVELOPMENTS
None
DESCRIPTION OF BUSINESS
PRIDE is in the real estate investment business. This business
includes investing in foreclosure sale real estate certificates of
purchase in the Denver Metropolitan area. PRIDE acquires the
certificates of purchase by bidding at foreclosure sales. Under
Colorado statutes, there is generally a minimum redemption period
of seventy-five (75) days whereby the property owner can redeem the
foreclosed property by paying the certificate of purchase balance
bid price plus interest at the rate specified on the mortgage note,
plus reimbursement of certain costs and expenses incurred by the
holder of the certificate of purchase during the redemption period.
If the former property owner fails to redeem the property, then
junior lienholders have a right to redeem. If the property is not
redeemed, the holder of the certificate of purchase will be granted
title to the property. It is PRIDE's investment policy to invest
in certificates of purchase that have sufficient equity such that
it is likely that the property will be redeemed.
As of June 30, 2000 the Company had $757,689 invested in mortgage
notes receivable and $318,649 in a note receivable. The Company's
investments in mortgage loans are collateralized principally by
deeds of trust on real estate located primarily in Colorado,
California and Arkansas. As of June 30, 2000, the Company had 17
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mortgage loans receivable from a non-affiliated individual totaling
approximately $541,479. The individual's loans as a percentage of
value of the real estate collateral were approximately 100% at the
time of sale but, as additional collateral for the loans receivable
from this individual, the Company has a junior lien on another
property owned by this individual. These mortgage loans are a
material concentration of credit risk.
PRIDE is also in the business of providing consulting services to
businesses that are considering having their securities publicly
traded. Beginning April, 1, 2000, the Company shifted its new
business emphasis to principally providing consulting services,
since management believed that the real estate foreclosure business
was not currently as profitable due to economic conditions in the
real estate market. As of June 30, 2000, the majority of the
Company's non-cash investments were related to real estate, real
estate mortgages and other interest bearing investments.
THE MARKET OPPORTUNITY
The market opportunity for investments in foreclosure real estate
certificates of purchase varies depending upon such factors as
interest rates, general economic conditions and real estate
construction costs. The Company markets its real estate generally
through listings with real estate brokers. The market opportunity
for Company's consulting services varies depending upon stock
market conditions.
COMPETITION
PRIDE's real estate business is highly competitive. There are
thousands of real estate investors in the United States of America
that are investing in similar rental properties. The level of
competition in the acquisition, sale and renting of real estate
properties is effected by economic conditions in the area as well
as interest rates available to borrowers. PRIDE's business of
investing in certificates of purchase is also highly competitive
since there is open bidding allowed on all real estate
foreclosures. Typically at the foreclosure sales, there will be
between five and twenty individuals in attendance and between three
and seven actual bidders in addition to the foreclosing lenders
bidding on the properties collateralizing their loans. The
Company's consulting services business is also highly competitive
since there are hundreds of other individuals and entities
providing consulting services to businesses attempting to have
their securities publicly traded.
EMPLOYEES
The Company has no full time employees. Mr. Michael L. Schumacher,
the Company's President and Mr. George A. Powell, the Company's
Vice President devote approximately 50% and 10%, respectively, of
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their time to the Company's business. The Company uses independent
property management companies as necessary to manage its real
estate properties.
Item 2. Description of Property
(a) PRIDE currently owns two commercial/residential condominium
units in Denver, Colorado. These units are used principally for
the Company's office and as temporary living accommodations for
Company personnel and independent contractors that perform services
for the Company. The Company paid $311,105 for these units and has
a total mortgage note payable in the amount of $196,932 on these
properties at June 30, 2000. In addition to using the properties
as described above, PRIDE acquired these units as investments,
believing future appreciation was possible. No assurance can be
made that the value of the properties will appreciate and no
assurance can be made that the properties won't depreciation in
value.
(b) PRIDE and its subsidiaries invest in real estate and real
estate mortgages primarily for rental and interest income. By
investing in real estate that provides current income plus the
opportunity of long-term capital gains, the Company is attempting
to realize reasonable current operating income plus a potential
hedge against long-term inflation. Historically residential real
estate values have appreciated at least equal to the inflation
rate, but there can be no assurance of future appreciation. The
Company has no limitations or policies on the percentage of assets
which may be invested in any one investment, or type of investment.
(1) The Company may invest in any type of real estate but
currently principally has investments in residential property.
The Company also owns thirteen residential lots. The Company
engages independent property management companies to manage
the rental properties. The property management companies find
tenants, collect the rent and pay certain expenses on the
Company's behalf and remit net rent monthly to the Company.
The Company has in the past, principally financed its real
estate acquisitions with its own capital plus assumption of
existing loans on properties or owner carry back loans on
properties. The Company has no limitation policy on the
number or amount of mortgages which may be placed on any one
piece of property. Appropriateness of real estate investments
and related financing decisions are determined by the officers
of the Company.
(2) The Company's investments in mortgage loans are
principally loans carried back on properties sold. Management
has no current plans to actively invest in mortgage loans
other than those related to properties sold by the Company.
The Company has and may continue to provide carry back loans
on properties equal to 100% of the sales price of properties
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if adequate additional collateral is provided.
(3) The Company currently has no investments and no plans to
invest in securities of or interests in persons primarily
engaged in real estate activities.
(c) As of June 30, 2000, the Company had no individual investments
in real estate which amounted to ten percent or more of the total
assets of the Company.
The Company has approximately $241,000 invested in other real
estate. Generally summarized as follows:
Description
Three acres of land with a rental home on the property
located in Oakhurst, California, near Yosemite National
Park. This property is zoned for multiple family housing. $ 160,000
Thirteen residential lots located in Nebraska, Arkansas,
Florida and North Dakota 81,000
------------
$ 241,000
============
All of the properties listed in this paragraph (c) are free and
clear of encumbrances. The rental house has an annual lease.
There are no options or contracts related to the sale of any of the
properties owned by the Company. There are no plans for
renovation, improvement or development of any of the properties
owned. The Company intends to hold the residential rental property
for its current income production and also for the possibility of
long-term capital gains. Management believes that all properties
have adequate insurance coverage. The residential rental property
has had vacancies of less than 5% during the last two years.
ITEM 3. LEGAL PROCEEDINGS
PRIDE is not party to any material legal proceeding, nor is the
Company's property the subject of any material legal proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None during the year ended June 30, 2000.
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER
MATTERS
(a) Market Information. The Company's stock began trading in
July, 2000 on the OTC Bulletin Board under the symbol "PIDV."
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(b) Holders. PRIDE has approximately 1,304,984 shares of
common stock issued and outstanding as of June 30, 2000, which
are held by approximately 459 shareholders. Of such shares,
approximately 300,000 shares, held by approximately 440
shareholders are eligible for free trading. The remaining
shares are restricted shares under Rule 144. The Company
presently has existing stock options as described in Part III,
Item 10, but no other outstanding options, warrants or
securities convertible into common stock.
(c) Dividend Policy. PRIDE has never paid a dividend on its
common stock. The Company does not anticipate paying any
dividends on its common stock in the foreseeable future.
Management anticipates that earnings, if any, will be retained
to fund the Company's working capital needs and the expansion
of its business. The payment of any dividends is at the
discretion of the Board of Directors.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
PLAN OF OPERATIONS
GENERAL
RESULTS OF OPERATIONS
Year Ended June 30, 1999
Revenue for the year ended June 30, 1999 was approximately $210,000
as compared to revenue of approximately $320,000 for the year ended
June 30, 1998. The average per month for the year ended June 30,
1999 was approximately $17,500 as compared to approximately $27,000
per month for the year ended June 30, 1998. This decrease resulted
in part from less rental income and less management fee income
during the period ended June 30, 1999 since various properties were
sold near the end of the period ended June 30, 1998. The Company's
interest income decreased principally due to the payoff of several
mortgages on properties sold. During the year ended June 30, 1999
and the year ended June 30, 1998 the Company had gains from the
sale of real estate of approximately $44,000 and $97,000
respectively. Past gains may not necessarily be indicative of
future results.
Operating expenses were approximately $59,000 during the year ended
June 30, 1999, and approximately $182,000 during the year ended
June 30, 1998. The average per month for the period ended June 30,
1999 was approximately $5,000 as compared to approximately $15,000
per month for the year ended June 30, 1998. The decreases relate
principally to the decrease in operating and interest expenses on
properties previously owned.
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Net income after the provision for income taxes increased from
approximately $100,000 during the year ended June 30, 1998 to
approximately $110,000 during the year ended June 30, 1999, an
increase of approximately $800 per month.
Year Ended June 30, 2000
------------------------
Revenue for the year ended June 30, 2000 was approximately
$1,201,000 as compared to revenue of approximately $210,000 for the
year ended June 30, 1999. The average per month for the year ended
June 30, 2000 was approximately $100,000 as compared to
approximately $17,500 per month for the year ended June 30, 1999.
This increase resulted in part from more consulting fee income
during the period ended June 30, 2000. The Company's interest
income decreased principally due to the payoff of several mortgages
on properties sold. During the year ended June 30, 2000, the
Company had gains from the sale of stock of approximately $77,000.
During the year ended June 30, 1999 the Company had gains from the
sale of real estate of approximately $44,000. Past gains may not
necessarily be indicative of future results.
Operating expenses were approximately $177,000 during the year
ended June 30, 2000, and approximately $59,000 during the year
ended June 30, 1999. The average per month for the period ended
June 30, 2000 was approximately $15,000 as compared to
approximately $5,000 per month for the year ended June 30, 1999.
The increases relate principally to stock issued for services of
approximately $73,000 and officer's compensation of approximately
$28,000.
Net income after the provision for income taxes increased from
approximately $110,000 during the year ended June 30, 1999 to
approximately $639,000 during the year ended June 30, 2000, an
increase of approximately $44,000 per month.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
At June 30, 1999 the Company had an unrestricted cash balance of
approximately $445,000. The Company's current assets were
approximately $1,166,000 at June 30, 1999 and its current
liabilities totaled approximately $87,000, resulting in net working
capital of approximately $1,079,000, a current ratio of
approximately 13.4 to one.
At June 30, 2000 the Company had an unrestricted cash balance of
approximately $414,000. The Company's current assets were
approximately $1,846,000 at June 30, 1999 and its current
liabilities totaled approximately $497,000, resulting in net
working capital of approximately $1,349,000, a current ratio of
approximately 3.71 to one. Working capital increased by
approximately $270,000 from June 30, 1999 to June 30, 2000.
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FINANCIAL POSITION
------------------
Stockholders' equity totaled approximately $2,604,000 at June 30,
2000 as compared to approximately $2,072,000 at June 30, 1999, an
increase of approximately $532,000. This increase resulted from a
net income of approximately $639,000, less depreciation of
marketable securities of approximately $319,000 plus additional
stock issued in the approximate amount of $211,600.
Management has not made any commitments which will require any
material financial resources in excess of resources now available
to the Company.
SUBSEQUENT EVENTS
None
FORWARD-LOOKING STATEMENTS
Certain statements concerning the Company's plans and intentions
included herein constitute forward-looking statements for purposes
of the Securities Litigation Reform Act of 1995 for which the
Company claims a safe harbor under that Act.
There are a number of factors that may affect the future results of
the Company, including, but not limited to, (a) interest rates, (b)
general economic conditions and (c) specific economic conditions
within the areas where the Company operates.
This annual report contains both historical facts and forward-
looking statements. Any forward-looking statements involve risks
and uncertainties, including, but not limited to, those mentioned
above. Moreover, future revenue and margin trends cannot be
reliably predicted.
ITEM 7. FINANCIAL STATEMENTS
Please see pages F-1 through F-15.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no disagreements between the Company and its
independent accountants on any matter of accounting principles or
practices or financial statement disclosure. There have been no
changes in the Company's independent accountants.
8
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, AND CONTROL PERSONS
The directors and officers of PRIDE are as follows:
NAME AGE POSITION(S) TENURE
---- --- ----------- ------
Michael L. Schumacher 51 President and Director May 1, 1995 to present
George A. Powell 73 Vice President and May 1, 1995 to present
Director
Michael L. Schumacher has been a director and president of PRIDE
since May 1, 1995. He also has been president and director of the
Company's wholly-owned subsidiaries: Birch Branch, Inc. since 1996,
TakeItPublicNow.com, Inc., formerly GAP Enterprises, Inc., since
1997. Mr. Schumacher is also vice president and director of
Vacation Ownership Marketing, Inc., an approximate 61% owned
subsidiary of the Company. Mr. Schumacher was previously, until
September 23, 1999, a director and president of Rocky Mountain
Power Co., which was a public company and formerly the 100% parent
company of PRIDE. Mr. Schumacher was previously, until 1995, a
director and president of Universal Capital Corporation and High
Hopes, Inc., both public reporting companies. Universal Capital
Corporation was an inactive public shell and High Hopes, Inc. was
a real estate investment company while Mr. Schumacher was serving
as president and director. Mr. Schumacher is the director and
President of Schumacher & Associates, Inc., a certified public
accounting firm located in Denver, Colorado that provides audit
services, principally to public companies on a national basis
throughout the U.S.A. Mr. Schumacher is a Certified Public
Accountant, Certified Management Accountant and an Accredited
Financial Planning Specialist. Mr. Schumacher has a bachelors
degree in Business Administration with a major in accounting from
the University of Nebraska at Kearney and a Masters in Business
Administration from the University of Colorado.
George A. Powell has been a director and vice president of PRIDE
since May 1, 1995. He also has been secretary and director of the
Company's wholly-owned subsidiaries: Birch Branch, Inc. since 1996,
and TakeItPublicNow.com, Inc. since 1997. Mr. Powell is also
secretary and director of Vacation Ownership Marketing, Inc., an
approximate 61% owned subsidiary of the Company. He also was a
director and vice president of Rocky Mountain Power Co. until
September 23, 1999. Mr. Powell was previously a director and
president of Continental Investors Life, Inc., a public reporting
insurance company. Since Mr. Powell's retirement from the
insurance business in 1988, he has been self-employed as a business
consultant.
ITEM 10. EXECUTIVE COMPENSATION
Mr. Schumacher's compensation for the year ended June 30, 2000, was
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$28,288. Mr. Schumacher was also granted an option to acquire
400,000 shares of the Company's common stock at $2.50 per share
exercisable at any time through June 30, 2002. There was no other
compensation paid to any officer of PRIDE.
BOARD OF DIRECTOR MEETINGS AND COMMITTEES
The Board of Directors held no meetings during the year ended June
30, 2000, but entered into various consent resolutions in lieu of
meetings.
The Company's Board of Directors has not established an Audit
Committee, but intends to do so in the near future. The function
of the Audit Committee will be to review the results and scope of
the audit and other services provided by the Company's independent
auditors, review and evaluate the Company's internal audit and
control functions and monitor transactions between the Company and
its employees, officers and directors.
SUMMARY COMPENSATION TABLE
The following table sets forth the aggregate cash compensation paid
by the Company for services rendered during the last three years to
the Company by its Chief Executive Officer and to each of the
Company's other executive officers whose annual salary, bonus and
other compensation exceeded $100,000 in 2000.
Annual Compensation Long-Term Compensation
------------------- ----------------------
Awards Payouts
------ -------
Other
Annual Restricted
Year Compen- Stock Options/ LTIP
Name & Ended sation Award(s) SARs Payouts
Principal Position June 30 Salary($) Bonus($) (%) (#) ($)
Michael L.
Schumacher 1998 $ - $ - $ - - $ -
Michael L.
Schumacher 1999 $ - $ - $ - - $ -
Michael L.
Schumacher 2000 $28,288 $ - $ - 400,000 $ -
<FN1>
<FN1> Mr. Schumacher was granted an option to acquire 400,000 shares of the
Company's common stock at $2.50 per share
at any time through June 30, 2002.
COMPENSATION OF DIRECTORS
There was no other compensation paid to any director of PRIDE for
the years ended June 30, 1998, 1999 and 2000.
EMPLOYMENT AGREEMENTS
None
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LONG-TERM INCENTIVE PLAN
None
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth, all individuals known to
beneficially own 5% or more of the Company's common stock, and all
officers and directors of the registrant, with the amount and
percentage of stock beneficially owned, as of June 30, 2000:
Name and Address Amount and Nature of Beneficial Ownership
of Beneficial Holder Shares Options Total Percent
-------------------- ------ ------- ----- -------
Michael L. Schumacher<FN1> 625,505 400,000 1,025,505 48.718%
2525 Fifteenth Street,
Suite 3H
Denver, CO 80211
Terry and Susan R. Seipelt 127,618 - 127,618 6.063%
631 N. High Street
Hillsboro, OH 45133
Harold L. Morris <FN2> 424,792 200,000 624,792 29.682%
4 Harbor Pointe
Corona del Mar, CA 92625
Ben and Percy Trujillo 132,390 - 132,390 6.289%
6124 S. Filbert Court
Littleton, CO 80121
George A. Powell 1,763 - 1,763 0.084%
Vice President and Director
7333 S. Fillmore Circle
Littleton, CO 80122
Peter and Ann Porath 47,402 200,000 247,402 11.753%
12773 Forest Hill Blvd.
#209
Wellington, FL 33414
Officers and directors 627,268 400,000 1,027,268 48.802%
as a group <FN1>
Percentages have been computed assuming the exercise of all
outstanding options.
<FN1> Michael L. Schumacher owns 3,250 shares individually. In
addition, Mr. Schumacher, President and Director of PRIDE is the
sole beneficiary of the Schumacher & Associates, Inc. Money
Purchase Plan & Trust (Schumacher Plan) which owns 464,427 shares
of PRIDE. Shares owned by the Schumacher Plan are considered to be
beneficially owned by Mr. Schumacher. Mr. Schumacher's beneficial
ownership also includes the following shares owned by certain
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relatives of Mr. Schumacher:
Owner Relationship Number of Shares
----- ------------ ----------------
Jada Schumacher Daughter 1,024
Spencer Schumacher Son 1,024
Quinn Schumacher Son 1,024
Ralph and Alma Schumacher Parents 366
Roberta and Timothy Weiss Sister and her spouse 328
Constance and Gary Novak Sister and her spouse 328
Cynthia and Greg Becker Sister and her spouse 328
-----
Total 4,422
=====
Mr. Schumacher disclaims beneficial ownership of an additional
153,406 shares held by the Plan as collateral for promissory notes
totaling approximately $385,000 including accrued interest at June
30, 2000. The promissory notes are nonrecourse, bear interest at
8% per annum and are totally due January 6, 2002. Failure to
collect the note balances and accrued interest at that time would
result in the Schumacher Plan obtaining ownership of the 153,406
additional shares. Therefore, the beneficial schedule above
includes these shares.
<FN2> Harold L. Morris individually owns 128,798 shares of PRIDE. In
addition, Harold L. Morris and his spouse, Connie Morris are the
sole beneficiaries of the Harold L. Morris Profit Sharing Plan
which owns 93,208 shares of PRIDE. Applegates Landing I, a Harold
L. Morris family partnership owns 48,598 shares. Professional
Investors, a Utah Limited Partnership, of which Mr. Morris is a
partner, owns 3,358 shares. Mr. Morris' beneficial ownership also
includes the following shares owned by certain relatives:
Owner Relationship Number of Shares
----- ------------ ----------------
Debra L. Morris Daughter 9,592
Gary A. Morris Brother 4,794
------
Total 14,386
======
Mr. Morris disclaims beneficial ownership of an additional 136,444
shares held by Mr. Morris, or entities controlled by him, as
collateral for promissory notes, totaling approximately $345,000
including accrued interest at June 30, 2000. The promissory notes
are nonrecourse, bear interest at 8% per annum and are totally due
January 6, 2002. Failure to collect the note balances and accrued
interest would result in Mr. Morris, or entities controlled by him,
obtaining ownership of the additional 136,444 shares. Therefore,
the beneficial schedule above includes these shares.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
To the best knowledge of the Company, all beneficial ownership
reports of officers, directors and holders of 10% of the Company's
common stock have been filed on timely reports.
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ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None during the year ended June 30, 2000.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
None
SIGNATURES
In accordance with Section 13 of 15(d) of the Securities Exchange Act of
1934, the Company has duly caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized.
(Registrant) PRIME RATE INCOME & DIVIDEND
ENTERPRISES, INC.
BY(Signature) By /s/ Michael L. Schumacher
(Date) October 11, 2000
(Name and Title) Michael L. Schumacher
President, Chief Executive Officer and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated:
Signature Capacity Date
/s/ Michael L. Schumacher President, October 11, 2000
-------------------------- Chief Executive Officer
Michael L. Schumacher and Chief Financial Officer
/s/ George A. Powell Vice President October 11, 2000
--------------------- and Director
George A. Powell
14
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INDEX TO FINANCIAL STATEMENTS
PRIME RATE INCOME & DIVIDEND ENTERPRISES, INC.
AND CONSOLIDATED SUBSIDIARIES
FINANCIAL STATEMENTS
June 30, 2000 and 1999
Report of Independent Certified Public Accountants F-2
Consolidated Financial Statements:
Consolidated Balance Sheets F-3
Consolidated Statements of Income F-4
Consolidated Statement of Changes in F-5
Stockholders' Equity
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7
F-1
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Prime Rate Income & Dividend Enterprises, Inc.
Denver, CO 80211
We have audited the accompanying consolidated balance sheets of
Prime Rate Income & Dividend Enterprises, Inc. and Consolidated
Subsidiaries as of June 30, 2000 and 1999, and the related
consolidated statements of income, changes in stockholders' equity
and cash flows for the years ended June 30, 2000 and June 30, 1999.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
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 audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the 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 Rate Income & Dividend Enterprises, Inc. and
Consolidated Subsidiaries as of June 30, 2000 and June 30, 1999,
and the results of its operations, changes in stockholders' equity
and its cash flows for the years ended June 30, 2000 and June 30,
1999, in conformity with generally accepted accounting principles.
Miller and McCollom
Certified Public Accountants
7400 W. 14th Avenue
Lakewood, Colorado 80215
September 29, 2000
F-2
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PRIME RATE INCOME & DIVIDEND ENTERPRISES, INC.
AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
June 30, June 30,
2000 1999
-------- ---------
<S> <C> <C>
Current Assets:
Cash $ 414,390 $ 445,158
Certificates of purchase, real estate
foreclosures (Note 3) - 197,247
Mortgage notes receivable, current portion
(Note 3) 148,743 111,108
Mortgage note receivable, related party
(Note 3) - 139,079
Note receivable, current portion 9,284 -
Sale proceeds receivable (Note 7) - 246,500
Deferred tax 187,374 -
Investment in marketable securities 1,078,628 -
Other 7,833 26,831
--------- ---------
Total Current Assets 1,846,252 1,165,923
Real estate, net of accumulated deprec-
iation of $11,714 at June 30, 2000 and
$5,500 at June 30, 1999 (Note 3) 539,708 234,817
Equipment, net of accumulated depreciation
of $480 at June 30, 2000 4,320 -
Transportation equipment, net of accumulated
depreciation of $9,125 at June 30, 2000
and $6,125 at June 30, 1999 5,875 8,875
Mortgage notes receivable, net of
current portion (Note 3) 608,946 -
Note receivable, net of current portion 309,365 795,356
----------- -----------
TOTAL ASSETS $ 3,314,466 $ 2,204,971
=========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities:
Accounts payable $ 44,395 $ 8,158
Notes payable, current portion (Note 2) 19,382 10,005
Income taxes payable (Note 5) 117,951 41,689
Deferred taxes payable, current portion
(Note 5) 279,029 2,104
Accrued expenses and other 36,438 24,598
----------- -----------
Total Current Liabilities 497,195 86,554
Deferred taxes payable, long term (Note 5) 17,833 27,595
Notes payable, net of current portion
(Note 2) 195,654 18,872
----------- -----------
TOTAL LIABILITIES 710,682 133,021
----------- -----------
Stockholders' Equity:
Preferred stock, $10.00 par value,
10,000,000 shares authorized, none issued
& outstanding - -
Common stock, $1.00 par value, 200,000,000
shares authorized, 1,304,984 shares
issued and outstanding 1,304,984 611,290
Additional paid-in capital 493,346 975,408
Depreciation of marketable securities (319,043) -
Retained earnings 1,124,497 485,252
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 2,603,784 2,071,950
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,314,466 $ 2,204,971
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
PRIME RATE INCOME & DIVIDEND ENTERPRISES, INC.
AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, June 30,
2000 1999
--------- ---------
<S> <C> <C>
Revenue:
Consulting income $ 994,689 $ -
Rent income 6,600 7,960
Interest income 110,979 150,261
Dividend income 10,532 -
Gain on sale of stock 76,730 -
Gain on sale of assets - 43,570
Other income 1,918 7,293
--------- -------
1,201,448 209,084
--------- -------
Expenses:
Depreciation 9,693 4,500
Interest 11,100 3,163
Officer's compensation 28,288 -
Professional fees 8,070 8,349
Audit and accounting 12,540 19,770
Stock issued for services 73,750 -
Other 33,126 22,968
------- ------
176,567 58,750
------- ------
Net income before provision
for income taxes 1,024,881 150,334
--------- -------
Provision for income taxes (Note 5):
Current 117,951 41,686
Deferred 267,685 (1,436)
------- -------
385,636 40,250
------- ------
Net income $ 639,245 $ 110,084
========== ===========
Per Share $ .51 $ .09
========== ===========
Weighted Average Shares
Outstanding 1,243,182 1,222,580
========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
Note: No dilution of earnings per share resulting from the options described
in Note (15) since the market value of the shares is lower than the option
prices.
F-4
<PAGE>
PRIME RATE INCOME & DIVIDEND ENTERPRISES, INC.
AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
From July 1, 1998 through June 30, 2000
<TABLE>
<CAPTION>
Other
Compre-
Additional hensive
Common Paid-in Income Retained
No./Shares Stock Amount Capital (Loss) Earnings Total
---------- ------------ ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance at
June 1,222,580 $1,222,580 $356,962 $ - $375,168 $1,954,710
30, 1998
Paid-in
capital - - 7,156 - - 7,156
Net income
for
the year
ended
June 30,
1999 - - - - 110,084 110,084
--------- --------- ------- --------- ------- ---------
Balance at
June 1,222,580 1,222,580 364,118 - 485,252 2,071,950
30, 1999
Additional - - 8,102 - - 8,102
paid-in
capital
Stock
issued for
services
at 1,160 1,160 830 - - 1,990
$1.72 per
share
Stock
issued for
cash at
$1.72 2,000 2,000 1,430 - - 3,430
per share
Stock
issued for
services at 28,000 28,000 42,000 - - 70,000
$2.50 per
share
Stock
issued for
investment
at 51,244 51,244 76,866 - - 128,110
$2.50
per share
Depreciation
of marketable
securities - - - (319,043) - (319,043)
Net income
for the year
ended - - - 639,245 639,245
June 30,
2000
--------- ---------- -------- ---------- ---------- ----------
Balance
at June 1,304,984 $1,304,984 $493,346 $(319,043) $1,124,497 $2,603,784
30, 2000
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
PRIME RATE INCOME & DIVIDEND ENTERPRISES, INC.
AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended Year ended
June 30, June 30,
2000 1999
----------- ----------
<S> <C> <C>
Cash Flows Operating Activities:
Net income $ 639,245 $ 110,084
Depreciation 9,693 4,500
Increase in income taxes payable 76,262 2,158
Increase (Decrease) in deferred income
taxes payable 267,163 (4,172)
Increase in accounts payable, accrued
expenses and other 48,077 7,082
(Increase) in deferred tax asset (187,374) -
Stock issued for services 73,750 -
Loss on sale of assets 3,334 -
Other 19,028 -
----------- ----------
Net Cash Provided by Operating Activities 949,178 119,652
----------- ----------
Cash Flows from Investing Activities:
(Investment)in marketable securities (1,397,671) -
(Investment) in equipment (4,800) -
(Investment) in property (311,105) -
(Increase) decrease in sales proceeds receivable 246,500 (246,500)
Collection of certificates of purchase 197,247 602,554
Collection of notes receivable 287,854 485,666
(Investment) in mortgage notes receivable - (276,546)
(Investment) in note receivable (318,649) -
Disposition of real estate - 8,000
Other 989 (146)
----------- ---------
Net Cash Provided by (Used in) Investing
Activities (1,299,635) 573,028
----------- --------
Cash Flows from Financing Activities:
Stock issued and additional paid-in capital 133,530 -
(Repayment) of notes payable (10,773) (7,851)
Loan proceeds from bank 200,000 2,565,004
(Repayment) of loan from bank (3,068) (2,774,904)
(Repayment) of loan from related party - (100,000)
----------- -----------
Net Cash Provided by (Used in) Financing
Activities 319,689 (317,751)
----------- -----------
Increase (decrease) in Cash (30,768) 374,929
Cash, Beginning of Period 445,158 70,229
----------- -----------
Cash, End of Period $ 414,390 $ 445,158
=========== ===========
Interest Paid $ 11,100 $ 3,163
=========== ===========
Income Taxes Paid $ 32,020 $ 42,846
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
PRIME RATE INCOME & DIVIDEND ENTERPRISES, INC.
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999
(1) Summary of Accounting Policies
------------------------------
This summary of significant accounting policies of Prime Rate
Income & Dividend Enterprises, Inc. (PRIDE) and its wholly-owned
subsidiaries, Birch Branch, Inc., TakeItPublicNow.com, Inc.,
formerly GAP Enterprises, Inc., and 61% majority owned Vacation
Ownership Marketing, Inc. is presented to assist in
understanding the Company's financial statements. The financial
statements and notes are representations of the Company's
management who is responsible for their integrity and
objectivity. These accounting policies conform to generally
accepted accounting principles and have been consistently
applied in the preparation of the financial statements.
(a) Organization and Principles of Consolidation
--------------------------------------------
The consolidated financial statements include the accounts
of the companies listed above for the two years ended June
30, 2000 or since the date of acquisition. The Company is
principally in the consulting business, but also is in the
real estate ownership and rental business. The Company
also invests in mortgage notes receivable and certificates
of purchase related to real estate foreclosures. During the
year ended June 30, 2000, the Company expanded its business
to include providing consulting services to companies
interested in becoming publicly traded. All intercompany
account balances have been eliminated in the consolidation.
The Company has selected June 30 as its year end.
(b) Per Share Information
---------------------
Per share information is based upon the weighted average
number of shares outstanding during the period.
(c) Investment in Real Estate and Related Depreciation
--------------------------------------------------
The Company's investments in rental real estate are carried
at cost, net of accumulated depreciation. Depreciation on
rental real estate is being computed using the straight-
line method over estimated useful lives of 40 years. Major
renovations are capitalized. Repairs and maintenance costs
are expensed as incurred.
(d) Use of Estimates in the Preparation of Financial Statements
-----------------------------------------------------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of
revenue and
F-7
<PAGE>
PRIME RATE INCOME & DIVIDEND ENTERPRISES, INC.
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999
(1) Summary of Accounting Policies, Continued
-----------------------------------------
(d) Use of Estimates in the Preparation of Financial Statements
-----------------------------------------------------------
expenses during the reporting period. Actual results could
differ from those estimates.
(e) Investment in Mortgage Loans and Certificates of Purchase
---------------------------------------------------------
The Company's investment in mortgage loans consist
principally of carry-back mortgages on real estate sold and
are carried at the amortized principal balance. Management
believes there is no impairment in value of the mortgage
loans and therefore has provided no allowance for
uncollectible notes. Management's policy with respect to
impairment determination is to review the carry values
periodically, and at least quarterly to determine if there is
any impairment. The Company requires a downpayment of at
least 10% or additional collateral of at least 10% to sell a
property with a carry-back mortgage note receivable.
Management believes that the underlying collateral on all
mortgage notes receivable are sufficient to facilitate
collection of the mortgage notes receivables. See note 3.
The Company carries its investments in certificates of
purchase on foreclosures issued by public trustees at the
lower of cost plus accrued interest, or the value of the
underlying foreclosed property. See Note 3.
(f) Geographic Area of Operations and Interest Rates
------------------------------------------------
The Company owns properties principally in California,
Colorado, Nebraska, North Dakota, Florida and Arkansas. The
potential for severe financial impact can result from
negative effects of economic conditions within the market or
geographic area. Since the Company's business is principally
in four areas, this concentration of operations results in an
associated risk and uncertainty.
(g) Provision for Deferred Income Taxes
-----------------------------------
Timing differences exist related to recognition of gains on
sale of real estate for income tax purposes and financial
reporting purposes. Income tax regulations allow deferral of
income received in the form of stock and also allow the use
of the installment method for reporting sales of assets. The
Company has provided a deferred income tax provision for
these timing differences.
F-8
<PAGE>
PRIME RATE INCOME & DIVIDEND ENTERPRISES, INC.
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999
(1) Summary of Accounting Policies, Continued
-----------------------------------------
(h) Revenue Recognition Policy
--------------------------
The Company's revenue was principally generated from various
phases of one revenue producing stream from various real
estate transactions. The Company acquires certificates of
purchase from public trustees related to foreclosures of real
estate. During the redemption period, interest is earned on
a daily pro-rata basis and either collected at the redemption
date or added to the cost basis of the property when title is
obtained. The Company repairs the properties and sells them,
principally for cash, but under certain situations the
Company will provide the mortgage financing on the property.
The gains or losses are recorded at the time of sale.
Management's policy with respect to long-lived assets is to
review them periodically, and at least quarterly, to
determine if there is any impairment. At June 30, 2000,
management believes there is no impairment in the value of
any long-lived assets. The Company recognizes interest
income from mortgage notes receivable on a daily pro-rata
basis. From time to time, the Company will acquire real
estate to be held for longer term investment purposes. If
the property is an improved property, the Company rents the
property under short-term leases and recognizes rental income
on a daily pro-rata basis. The Company also has acquired
certain residential lots, with the total approximate carrying
value of $81,000, with the intention of holding these lots
for future appreciation. Consulting income is recognized as
earned when the services are performed.
(i) Recent Accounting Pronouncements
--------------------------------
In June of 1998, the FASB issued Statement of Accounting
Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes
accounting and reporting standards for derivative
instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. It
requires that an entity recognize all derivatives as either
assets or liabilities on the balance sheet at their value.
This statement, as amended by SFAS 137, is effective for
financial statements for all fiscal quarters to all fiscal
years beginning after June 15, 2000. The Company does not
expect the adoption of this standard to have a material
impact on its results of operation, financial position, or
cash flows as the Company currently does not engage in any
derivative or hedging activities.
F-9
<PAGE>
PRIME RATE INCOME & DIVIDEND ENTERPRISES, INC.
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999
(2) Notes Payable
-------------
As of June 30, 2000 the Company had outstanding $18,104 on a
note payable bearing interest at 15%. In addition, the Company
had outstanding $196,932 on a note payable to a bank bearing
interest at one percent over prime. Maturities of these notes
payable are summarized as follows:
Year ending June 30,
2001 $ 19,382
2002 12,642
2003 7,258
2004 7,800
Thereafter 167,954
----------
Total $ 215,036
==========
The $18,104 note is due in monthly installments of $1,129 through
December, 2002. This note is not collateralized by any assets of
the Company. The $196,932 note is payable in monthly
installments of $2,043 through January 2005 to a bank and is
collateralized by property located in Denver, Colorado. During
the year ended June 30, 1999, the Company repaid a note payable
to a bank that was collateralized by certain notes receivable
and certificates of deposit. In addition, the Company had a
$100,000 note payable to a shareholder which was
uncollateralized and was paid in full during the year ended June
30, 1999.
(3) Concentration of Credit Risk
----------------------------
The Company's material concentration of credit risk consists
principally of investments in mortgage loans and certificates of
purchase. The Company's investments in mortgage loans are
collateralized principally by first or second deeds of trust on
real estate located primarily in Colorado, Arizona and
California. At June 30, 2000, the Company had seventeen
mortgage loans receivable from one individual totaling
approximately $541,479. The individual's loans as a percentage
of value were approximately 100% at the time of sale but, as
additional collateral for the loans receivable from this
individual, the Company has a junior lien on another property
owned by this individual. The weighted average interest rate
on mortgagee notes receivable is approximately 8% per annum with
monthly repayment terms being amortized over periods up to
twenty years.
The Company had one investment in a foreclosure certificate of
purchase totaling $197,247 as of June 30, 1999. This certificate
of purchase entitled the Company to receive interest at the original
foreclosed mortgage loan rate over the redemption period, which is
generally 75 days, or title to the property if
F-10
<PAGE>
PRIME RATE INCOME & DIVIDEND ENTERPRISES, INC.
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999
(3) Concentration of Credit Risk, Continued
---------------------------------------
not redeemed within the redemption period. The interest rate on
the Company's investment in certificate of purchase was 30%.
During the year ended June 30, 2000, the Company obtained title
to and sold the property that was subject to the certificate of
purchase.
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of temporary
cash investments. The Company places its temporary cash
investments with financial institutions. As of June 30, 2000,
the Company had a concentration of credit risk since it had
temporary cash investments in bank accounts totaling $167,946 in
excess of the FDIC insured amounts.
(4) Fair Value Financial Instruments
--------------------------------
As of June 30, 2000, the Company had various investments in long
term mortgage notes receivable and was obligated under various
mortgage notes payable. Management believes that the fair value
of these financial instruments does not materially differ from the
carrying value of these notes based upon discounting at current
market rates of interest.
(5) Income Taxes
------------
A reconciliation between the expected income tax provision computed
at a federal statutory rate of 37% and the actual income tax
provision follows:
Year Year
Ended Ended
June 30, June 30,
2000 1999
----------- -----------
Expected income tax $ 379,206 $ 58,630
Graduated tax brackets (16,750) (16,750)
State tax net of federal benefit 32,284 4,584
Other, net (9,104) (6,214)
------------ ------------
$ 385,636 $ 40,250
=========== ============
The tax effects of temporary differences that give rise to the
deferred tax liability at June 30, 2000 follow:
Deferred consulting income $ 277,194
Installment sale reporting 19,668
---------
Subtotal 296,862
Less current portion (279,029)
----------
Long-term portion $ 17,833
==========
F-11
<PAGE>
PRIME RATE INCOME & DIVIDEND ENTERPRISES, INC.
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999
(5) Income Taxes, Continued
-----------------------
The change in the deferred tax liability during the year ended
June 30, 2000 was $267,163.
(6) Line of Credit
--------------
As of June 30, 1999, the Company had a line of credit from a
bank of $1,500,000. At June 30, 2000, the Company repaid the
line of credit in full and did not renew the line of credit with
the bank.
(7) Sale Proceeds Receivable
------------------------
Effective June 30, 1999, the Company sold a real estate property
resulting in a receivable of $246,500. During July, 1999 the
Company received the $246,500 in cash.
(8) Consulting Income
-----------------
During the year ended June 30, 2000, the Company earned $994,689
in consulting fee income related to providing consulting
services to companies interested in being able to trade their
stock publicly. The Company records consulting fee income equal
to the closing trading price on the date of receipt of free
trading securities and 90% of the trading price for restricted
securities.
(9) Marketable Equity Securities
----------------------------
In accordance with the Statement of Financial Accounting
Standards number 115, investments in securities may be
classified in these categories:
A) Held-to-maturity are investments in debt securities in
which the Company has the positive intent and ability to
hold the security to maturity. These investments are
reported at amortized cost.
B) Trading securities are securities which are bought and held
principally for the purpose of selling them in the near
term. These securities are valued at market with unrealized
gains or losses recorded in operations.
C) Available for sale securities are securities not classified
as held-to-maturity or trading. These securities are valued
at market with unrealized gains or losses recorded in
stockholder's equity.
F-12
<PAGE>
PRIME RATE INCOME & DIVIDEND ENTERPRISES, INC.
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999
(9) Marketable Equity Securities, Continued
At June 30, 2000, the Company had available for sale security
investments in the following companies:
Name Exchange
---- --------
Pilgrim Prime Rate Trust (PPR) NY Stock Exchange
EmedSoft.com, Inc. (MED) AMEX
Odyssey Marine Exploration (OMEX) OTCBB
GoOnline Networks Corporation OTCBB
MPEG Super Site, Inc. (MPSS) OTCBB
Kelly's Coffee Group, Inc.(KLYS) OTCBB
Total Total
Total Market Value Unrealized
Recorded Cost June 30, 2000 Depreciation
------------- ------------- ------------
$ 1,585,045 $ 1,078,628 $ (506,417)
Provision for Deferred Income Taxes 187,374
------------
Unrealized depreciation, net of
Deferred income taxes $ (319,043)
============
(10) Comprehensive Income
--------------------
The components of comprehensive income, net of related tax for
the years ended June 30, 2000 and 1999 are as follows:
Years Ended June 30
2000 1999
Net income $ 639,245 $ 110,084
Unrealized (loss) on available-
for-sale securities, net (319,043) -
---------- ---------
Comprehensive Income $ 320,202 $ 110,084
========== =========
(11) Management Agreement
--------------------
On March 31, 2000, the Company's Board of Directors agreed to
enter into a management agreement whereby the Company's
President through an entity owned by him would be compensated
for services in an amount equal to 25% of the Company's net
income before income taxes commencing April 1, 2000 on net
income earned after March 31, 2000. As of June 30, 2000,
$28,288 has been accrued as a payable for these services. This
agreement may be terminated at any time without notice by any
officer of the Company.
F-13
<PAGE>
PRIME RATE INCOME & DIVIDEND ENTERPRISES, INC.
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999
(12) Transient Investment Company
----------------------------
The Company, during the year ended June 30, 2000, temporarily
owned securities and/or cash exceeding 50% of the Company's
total assets. The Company may be deemed a transient investment
company as defined in Rule 3a-2 under the Investment Company Act
of 1940.
(13) Stock Splits
------------
During September, 1999, the Company effected a 2.4324 for one
forward stock split increasing the outstanding common stock of
the Company from 251,311 shares to 611,290 shares. All
references to common stock in the financial statements have been
retroactively given effect for this split.
During May, 2000, the Company effected a two for one forward
stock split increasing the outstanding common stock of the
Company from 652,492 shares to 1,304,984 shares. All references
to common stock in the financial statements have been
retroactively given effect for this split.
(14) Stock Issued for Services
-------------------------
On March 31, 2000, the Company issued 28,000 shares of its
common stock for services valued at $2.50 per share. Such
services included consulting services, management advisory
services, investment planning and accounting. In addition,
1,160 shares were issued for services in January 2000 at $1.72
per share, for accounting services. None of the shares were
issued to officers or directors of the Company. The Company
intends to register the shares through an S-8 registration.
(15) Stock Options
-------------
On March 31, 2000, the Company granted options to acquire
400,000 shares to its President, and 200,000 shares each to two
non-officer stockholders of the Company. The options are
exercisable at any time through June 30, 2002 at $2.50 per
share. The Company intends to register such options and the
underlying shares through an S-8 registration.
(16) Related Party Transactions
--------------------------
On March 31, 2000, the Company issued 51,244 of its restricted
common stock to certain shareholders in exchange for various
marketable securities. The Company's common stock was recorded
at $2.50 per share, the book value per share at that date and
the marketable securities were recorded at the closing price of
the securities on that date.
F-14
<PAGE>
PRIME RATE INCOME & DIVIDEND ENTERPRISES, INC.
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999
(16) Related Party Transactions, continued
-------------------------------------
On January 31, 2000, the Company's President exchanged his
interest in two loft residential/commercial condominium units in
Denver, Colorado as partial repayment of amounts owed to the
Company. The President acquired these units on January 28, 2000
and exchanged the units at his cost at $311,105 with a mortgage
assumed of approximately $200,000, resulting in a debt repayment
of $110,901 to the Company.
Also on January 31, 2000, the Company's President and another
shareholder exchanged certain marketable securities for debt
repayment to the Company totaling $518,438.
F-15
