U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
PRIMEHOLDINGS.COM, INC.
(Name of Small Business Issuer in its charter)
Delaware 87-0481402
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
6955 Union Park Center, Suite 390, Midvale, UT 84047
(Address of Principal Executive Offices) (Zip Code)
(801) 562-1444
(Registrant's Telephone Number)
Securities to be registered under Section 12(b) of the Act:
Name of Each Exchange on Which Each
Title of Each Class To Be So Registered Class Is To Be Registered
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None None
Securities to be registered under Section 12(g) of the Act:
Common Stock, par value $.0666 per share
(Title of class)
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PRIMEHOLDINGS.COM, INC.
TABLE OF CONTENTS TO FORM 10-SB
PART I........................................................................1
ITEM 1. DESCRIPTION OF BUSINESS............................................1
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.........11
ITEM 3. DESCRIPTION OF PROPERTY...........................................14
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT....15
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS......16
ITEM 6. EXECUTIVE COMPENSATION............................................17
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....................19
ITEM 8. DESCRIPTION OF SECURITIES.........................................19
PART II......................................................................23
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND OTHER SHAREHOLDER MATTERS............................23
ITEM 2. LEGAL PROCEEDINGS.................................................24
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.....................24
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES...........................25
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.........................31
PART F/S.....................................................................33
PART III.....................................................................33
ITEM 1. INDEX TO EXHIBITS.................................................33
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PART I
Item 1. Description of Business
Forward-Looking Statements
Certain statements in this Form 10-SB constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act"), and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and the Private Securities Litigation
Reform Act of 1995. These provisions do not apply to initial public offerings.
Such forward-looking statements involve known and unknown risks, uncertainties
and other important factors that could cause the actual results, performance or
achievements of the Company to differ materially from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such risks, uncertainties and other important factors include, among
others: dependence on proprietary technology; technological changes and costs of
technology; industry trends; competition; ability to develop markets and market
acceptance; product demand; changes in business strategy or development plans;
availability, terms and deployment of capital; availability of qualified
personnel; changes in government regulation; general economic and business
conditions; and other factors. Such forward-looking statements speak only as of
the date of this Form 10-SB. The Company's actual results for future periods
could differ materially from those anticipated or projected.
Business Development
PrimeHoldings.com, Inc. is primarily engaged in the development and
commercialization of technologies relating to the capturing and exchange of
electronic business information. The Company is seeking to exploit certain
computing and wireless technologies focused on capturing, managing, and
distributing key business data. The Company currently has four subsidiaries:
o bCard, Inc.
o Navilor, Inc.
o GolfAgent USA, Inc.
o UniQuest Communications, Inc.
Management does not consider GolfAgent USA, Inc. or UniQuest Communications,
Inc. material to its operations.
As used herein, the term "Company" means PrimeHoldings.com, Inc.
("PrimeHoldings") and its subsidiaries, bCard, Inc. ("bCard"), Navilor, Inc.
("Navilor"), GolfAgentUSA, Inc. ("GolfAgent USA"), UniQuest Communications, Inc.
("UniQuest"), and on a consolidated basis, unless the context clearly indicates
otherwise.
PrimeHoldings was originally incorporated as Analyst Express, Inc.
under the laws of the State of Delaware on June 16, 1988. The Company's name was
changed to "Market Lead International Corporation" effective December 12, 1990,
to "PrimeSource Communications Holdings, Inc.," effective June 30, 1998 and to
"PrimeHoldings.com, Inc., effective July 20, 1999. On June 8, 1998, the Company
effectuated a 1 for 1.333 reverse stock split of its outstanding shares
resulting in the Company having approximately 656,157 shares of common stock
outstanding immediately after the reverse stock split.
Effective June 30, 1998, PrimeSource Communications Holdings, Inc.
entered into a share exchange agreement and plan of reorganization with
PrimeSource Solutions, Inc. Under the agreement, Prime Source Communications
Holdings, Inc. acquired all of the issued and outstanding common stock of
PrimeSource Solutions, Inc. in exchange 5,577,275 shares of PrimeHoldings'
common stock. The Company accounted for the transaction as a recapitalization.
All assets and liabilities were carried at historical cost. PrimeSource
Communications, Inc. (a Utah corporation) was organized in March 1996 and
changed its name to "PrimeSource Solutions, Inc.," effective July 16, 1998, to
"PrimeSourceNet, Inc.," effective Feb. 1, 1999 and to "Navilor, Inc.," effective
August 4, 1999. Its operating activities since inception have related primarily
to the acquisition and development of computing
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technologies (including neural networks and other forms of artificial
intelligence to provide character recognition systems and software). As of the
date of this report, PrimeHoldings owns all of Navilor's outstanding common
stock.
In July of 1999, the Company acquired an option to purchase certain
business assets and to assume certain leases and customer contracts from
Automated Solutions, Inc., dba Intelisys. The Company exercised its option to
purchase those business assets and assume the leases and customer contract
obligations in that same month. The certain business assets, which included
furniture, equipment, non-proprietary commercially available software and
leasehold improvements, were acquired for $250,000 cash. As part of the
transaction, the Company acquired a fully paid non-exclusive, non-assignable,
perpetual license to use Automated Solutions, Inc. source code for data
extraction software known as the "Neural Cube(TM)" and the "ADEPT System(TM)."
The total consideration for the source code was $150,000 cash. In addition to
the source code, Automated Solutions, Inc. assigned to the Company its customer
contracts. One of the leases the Company assumed was a real property lease where
Automated Solutions, Inc. was then conducting business. The lease included an
option to acquire the real property, building and improvements. The Company
exercised this option by purchasing the building in October 2000. Navilor uses
the source code and other assets acquired in its character recognition systems
and software business.
Effective December 31, 1998, PrimeHoldings acquired UniQuest through
its acquisition of all the outstanding common stock of UniQuest (the "UniQuest
Acquisition"). As consideration for the UniQuest Acquisition, PrimeHoldings
issued to the stockholders of UniQuest 1,000 shares of PrimeHoldings' common
stock. Management believes the 1,000 PrimeHoldings shares had a total value of
approximately $2,700 on the date of the UniQuest Acquisition which value was
believed to be substantially equal to the value of the all of outstanding
UniQuest common stock on said date. UniQuest (a Utah corporation) was organized
in April 1995. Its operating activities have related primarily to the marketing
of telecommunications services as an agent of Lightyear Communications, Inc.,
formerly Unidial, Inc. UniQuest is a wholly owned subsidiary of PrimeHoldings.
Effective March 5, 1999, PrimeHoldings acquired bCard through its
acquisition of 80% of the outstanding common stock of bCard (the "bCard
Acquisition"). As consideration for the bCard Acquisition, PrimeHoldings agreed
to pay bCard $100,000 cash, $400,000 in the form of a promissory note and to
issue 500,000 shares of PrimeHoldings common stock to the founders of bCard.
Management believes the 500,000 PrimeHoldings shares had a value of
approximately $562,500 on the date of the bCard Acquisition and the value of the
bCard shares acquired was believed to be approximately $1,062,500 on said date.
bCard (a Utah corporation) was organized in January 1999. Its operating
activities since inception have related primarily to selling and providing trade
show and event registration services, lead retrieval services and related
membership based incentive point programs. As of the date of this report,
PrimeHoldings owned 80% of bCard's outstanding common stock.
Effective October 12, 1999, PrimeHoldings acquired GolfAgent USA
through its acquisition of all of the issued and outstanding common stock of
GolfAgent USA (the "GolfAgent USA Acquisition"). As consideration for the
GolfAgent USA Acquisition, PrimeHoldings issued to the stockholders of GolfAgent
USA 250,000 shares of PrimeHoldings' common stock and issued an additional
250,000 shares of PrimeHoldings' common stock that were to vest upon achievement
of certain milestones. Due to inactivity, the additional 250,000 shares have not
vested. Management believes the 250,000 PrimeHoldings shares had a value of
approximately $312,500 on the date of the GolfAgent USA Acquisition which value
was believed to be substantially equal to value of the all of the outstanding
GolfAgent USA common stock on said date. GolfAgent USA (a Nevada corporation)
was organized in June 1995 as Camelot Holdings, Inc. and changed its name to
"Pelican Hill Holding Company," effective September 16, 1999, and to "GolfAgent
USA, Inc., effective April 17, 2000. GolfAgent USA had no material operations
prior to the GolfAgent USA Acquisition. Its operating activities since the
GolfAgent USA Acquisition have related to market research and determination of
the viability of the GolfAgent USA licensed software application. During the
current year GolfAgent USA allowed its licensed software application to return
to the licensor. GolfAgent USA is a wholly owned subsidiary of PrimeHoldings.
The Company's principal executive offices are located at 6955 Union
Park Center, Suite 390, Midvale, Utah 84047. Its telephone number is (801)
562-1444.
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Products and Services
PrimeHoldings conducts its business through its subsidiaries. The
products and services of the Company are as follows:
The bCard Technology
Through bCard, the Company focuses on the development and application
of an Internet-based business-to-business information exchange. bCard's primary
objective is to create a new way to manage "business card" information that Web-
based technology can automate in the information exchange process. Management
believes the rapid development of the Internet as an essential business tool is
redefining how corporate and product information is shared.
bCard's principal business product is a universal electronic business
card that was developed based on smart card technology. Smart card technology
allows the storage of data on a card that is similar in size and feel to an
ordinary credit card. The storage is accomplished by an integrated
microprocessor or memory chip located within the body of the card. Smart card
technology is not a proprietary product of bCard, but is widely available and
employed by many companies in a broad variety of applications. A bCard,
employing this Smart card technology, can store large amounts of digital
information that can be shared to aid in communication between business
professionals and in commerce by business entities. The bCard can be used to
provide registration to events, exhibitors and attendees. Typically, an event
provider hires bCard to provide event registration services. Upon registration,
attendees are issued a bCard with information specific to each attendee stored
on the bCard. Attendees are not charged an additional fee for the bCard, rather
the cost of this service is included in the fee received by bCard from the event
provider. Exhibitors then rent bCard readers from the Company to process
information from attendees' bCards. As attendees visit exhibitors, attendees may
give the vendor information about attendee that is stored on the bCard for
marketing purposes or for the purposes of forwarding information regarding a
vendor's products or services. Vendors may also purchase points on a bCard
incentive program that are redeemable for miles on frequent flyer programs
(other benefits are expected to be offered in the future). Currently, bCard
points are redeemable for miles on United Airlines, American Airlines and Delta
Airlines. Attendees who give bCard information to vendors offering points can
then redeem their points through a bCard.net account at the Company operated web
site www.bCard.net. The bCard.net account is automatically set up in the
attendee's name when the bCard is issued. Since inception bCard has distributed
over 450,000 bCards.
In February 2000, bCard signed a three-year contract with American Show
Management, Inc., a producer of Information Technology events, to provide
registration and information management services for an estimated 56 events in
2000. The Company has also agreed to provide registration and information
management services to Imark Communications for an estimated 15 events in 2000
and expects to provide registration and information management services to 13
additional providers in 2000. To date, in the year 2000, bCard has provided
these services for the majority of the events anticipated and to the additional
providers and is on target to complete its contract objectives for this year.
During 1999, bCard provided registration and information management services at
46 American Show Management, Inc. produced events and at 11 Imark Communications
produced events.
The Company anticipates that its future success will be highly
dependent on its arrangements with American Show Management, Inc. now Imark
Communications East and West. The Company anticipates that the revenue generated
from the American Show Management, Inc. (now Imark Communications East and West)
agreement will comprise a significant portion of the Company's revenues in the
future. The number of shows projected during 2000 is forward looking information
and is subject to many risks and uncertainties, including the fact that the
American Show Management, Inc. agreement does not guarantee a minimum number of
shows. There can be no assurance that bCard will provide services to the number
of shows projected during 2001, that these arrangements will result in
substantial revenue or that bCard services will be performed profitably.
bCard is striving to establish a global electronic business card
technology that will create a new Internet-based communications environment for
business-to-business transactions. www.bCard.net, the registered web address,
may then become a global business-to-business communications portal. bCard. has
been established as a recognized smart card, web-based e-market technology and
service provider to the tradeshow, meeting and seminar industry. Since
establishment, bCard. has managed nearly 100 events, issuing over 450,000 smart
cards and has run marketing applications for more than 7,000 tradeshow
exhibitors. bCard.net has also entered into several strategic
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alliances with service providers in the trade show industry to provide software
under OEM agreements. These are currently identified as Compu Systems, NewLeads,
Bartazan and Rippleware, with more expected to follow in the months to come.
Electronic Data Extraction
Through Navilor, the Company utilizes licensed and proprietary
computing technologies to capture, manage and distribute key business data from
forms and other business documents. The Company's data extraction technology
converts information on paper documents to electronic images through high-speed
scanning and image capture capabilities. Electronic data is then extracted,
processed, and stored online for future retrieval.
Navilor has provided data extraction services to Covenant Transport,
Inc., Pepsi Cola Company and Interim Services, Inc. These services were provided
under non-binding arrangements with these companies. These arrangements did not
require a minimum volume of documents and could be terminated without penalty.
Navilor recently suspended its data extraction services in a restructuring which
involved acquisition of the building in which Navilor is housed.
In October 2000, the Company exercised its option to buy the one-story
concrete building formerly occupied by Intelisys and now home to Navilor. This
facility is a "secure" data center with executive offices, computer labs,
warehouse, and general IT provisioning throughout. Much of the infrastructure
and hardware are current technologies. Some of the building's features are dated
but in good condition. The Company believes the building has multiple possible
uses including the possible use of the building as a state-of-the-art
co-location facility. The Company took a first and second mortgage to finance
the purchase of the building located in Roy, Utah in the amounts of $600,000 and
$570,000, respectively.
Navilor's target customers are businesses that currently utilize highly
paper-intensive processes to capture, manage and disseminate data. These
companies may benefit from Navilor's proprietary and licensed technologies and
computing mechanisms, which may assist customers in managing business data
efficiently and cost effectively in an electronic service bureau environment
which features:
o Availability of global accessibility through the Internet.
o Data security through the use of encryption, electronic
authentication and firewalls.
o Custom programming to support input from, or output to many
data sources.
o A proprietary neural network-based engine that provides high
recognition accuracy rates of hand-written or
machine-generated characters.
Navilor currently relies on word-of-mouth advertising and existing
customers to generate business. Navilor seeks to offer each customer a
customized solution for their forms processing needs.
Online Tee Time Reservation System
In October of 1999, through the acquisition of GolfAgent USA, the
Company acquired the right to operate under a license of Baron Systems, plc, a
United Kingdom organization. The license allowed GolfAgent USA to employ certain
proprietary software to support a computerized, Internet-based, real time,
tee-time management solution to public and private daily fee golf courses
offering an automated method of booking tee times.
GolfAgent USA, Inc. has not generated any material revenue since its
acquisition in October 1999. In examining subsequent developments in the market
for tee-time solution products, including heightened competition in that market
segment, Management considered and rejected further development of the GolfAgent
USA license in favor of pursuing acquisition of other similarly configured, but
more suitable products. Consequently, the Company let the license rights return
to Baron Systems under agreement with that organization.
Management continues to pursue opportunities in this market segment and
other wireless vertical market niches. No material agreements have been reached
with other solution providers, and there can be no guarantee that the Company
will be successful in securing a license for solution-based software and
applications in this market segment, which will be profitable.
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Telecommunications Services Marketing
UniQuest markets certain telecommunications services as an independent
agent of Lightyear Communications, Inc. ("Lightyear"), formerly UniDial, Inc., a
telecommunications services company. Lightyear, in conjunction with its vendor
partners, offers an integrated suite of telecom services primarily to small and
medium-sized business customers. Products and services range from data, long
distance and local voice, to global communications and the Internet. Under an
Agent's Agreement, UniQuest markets various telecommunications services for
Lightyear, as its agent. UniQuest has no power to contract for or on behalf of
Lightyear, Inc. The Company does not consider UniQuest a material part of its
operation and does not expect UniQuest to generate material revenues in the
future.
Government Regulation
The Company's businesses are subject to federal and state regulation
applicable to businesses generally. There are relatively few laws specifically
directed towards electronic, Internet and telecommunications services marketing
which the Company provides. Other than these general laws, applicable to most
businesses or Internet-based companies, the Company knows of no state or federal
agency, which directly regulates the activities of the Company. The Company is
not presently required to provide regulatory reports to any state or federal
agency.
There are now pending in the U.S. Congress a number of legislative
proposals dealing with issues pertaining to commerce on the Internet. Some of
these proposals, if passed, would place restraints on the ability of companies
engaging in Internet commerce. Of the regulatory components contained in these
proposals, those pertaining to the use of personal data of customers and
taxation on sales would have some impact on the Company's operations.
Proposals restricting the use of personal information of customers (a
practice known as "data mining") generally would prohibit the Company from
vending or using the personal data of customers without first disclosing the
data's intended use to customers and providing the customer the opportunity to
prohibit the use of the information or "opt-out." The enactment of such
legislation may have the effect of curbing the ability of the Company to utilize
a customer's data without that customer's permission. Management believes that
such legislation will likely become law in the near future. However, the revenue
models of the Company do not presently plan on customer data as becoming a
significant revenue source to the Company and management believes that of the
pending legislation, none proposes a provision, which would materially interfere
with the Company's current operations.
Management is aware of efforts among the various states to levy taxes
on Internet sales. There have been legislative hearings on proposals to
implement laws designed to create an enforceable system of state taxation on
Internet commerce. Management is not able to determine whether such proposals
will result in the implementation of new tax laws regarding Internet commerce,
but of the proposals presently under discussion, none appears to present a
potential material impact to operations of the company were these proposals
enacted into law.
There have been high-level, policy discussions concerning the
refinement of U.S. Patent laws to examine possible areas of potential
modification suggested by the methods by which companies have obtained U.S.
Patents on processes related to the Internet. However, these discussions do not
appear to present a material possibility of the enactment of legislation
effecting the Company's business methodology or it's use of licensed
technologies.
While other changes in the regulatory environment relating to the
Internet or the Company's services could have a material and adverse effect on
the Company and its business, at this time, management is not aware of any
proposals which would present the possibility of adverse effect and believes
that such changes are unlikely in the near or foreseeable future.
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Business Strategy
To reach its target markets, the Company plans to use a multiple
channel marketing approach utilizing telesales, direct territory representative
marketing, print media advertising, Internet banner advertising, and leveraging
from existing business relationships.
The Company currently markets its bCard technologies and services
through direct sales and marketing. The Company maintains a separate sales and
marketing staff for bCard, enabling the sales personnel to develop customer
relationships and expertise in bCard's business. The Company believes that an
experienced sales staff is critical to initiating and maintaining bCard's
customer relationships and businesses. They are currently looking for third
party, web based registration companies to further roll this plan out.
The Company currently does not maintain marketing or sales personnel,
GolfAgent USA or UniQuest. The Company currently relies on word of mouth
advertising and existing customers to generate additional business for Navilor.
The Company is not actively seeking additional business in UniQuest.
There can be no assurance that these sales forces, marketing techniques
or business strategy of the Company will be successful in initiating and
maintaining customer relationships.
Competition
The markets for the technologies and services being pursued by the
Company are intensely competitive, highly fragmented and characterized by
rapidly changing technology, evolving industry standards, price competition and
frequent new product introductions. Although the Company believes that the
diverse market segments will provide opportunities for more than one supplier of
technologies and services similar to those of the Company, it is possible that a
single supplier may dominate one or more market segments. The Company believes
the principal competitive factors in these markets are name recognition,
performance, ease of use, variety of value-added services, functionality and
features and quality of support.
For example, with over 450,000 bCards distributed, bCard is rapidly
becoming a major name, recognized in association with the conference
registration industry. bCard affords the conference registration process both
speed and accuracy in the performance of registration tasks and in providing
conference exhibitors an efficient means to track prospects. The use of the
bCard is simple and convenient and bCard's frequent flyer program and other
value added programs establish the bCard as an attractive option in the
conference registration market. Furthermore, conference registrants may re-use
the bCard, and the repeat usage fortifies the bCard brand name recognition with
the conference registrant, the conference exhibitors and conference organizers.
Navilor's chief advantages are found in the speed and accuracy of its
technology in scanning and storing data from pre-printed forms. Navilor's
customers generally are looking for high-capacity, low-error data scanning and
processing, which Navilor's technology can accomplish at a competitive price.
Management believes that the current and prospective competitors for (i) bCard
includes ExpoExchange (Galaxy), Convention Data Services, Registration Control
Systems, Expo International and others; (ii) Navilor includes JetForms, Inc.,
Cardiff Software Inc. and others; and (iii) GolfAgent USA includes
GolfGateway.com, EZ LinksGolf.com, Book4golf.com, eTeeTimes.com, LinksTime.com
and others.
The Company expects additional price and product competition as other
established and emerging companies enter these markets and new technologies and
services are introduced. Increased competition may result in price reductions,
reduced gross margins and loss of market share, any of which could have a
material adverse effect on the Company's business, operating results, cash flows
and financial condition. The relative importance of each of these factors
depends upon the specific customer involved. Though the Company and each of its
subsidiaries strives to maintain its competitive position in each of its diverse
markets, the Company cannot guarantee that technological advances by competitors
or methods of operation employed by the Company's competitors will not outpace
or outperform the technologies or business operations of the Company.
Accordingly, there can be no assurance that the Company will be able to compete
successfully against current and future competitors, or that competitive factors
faced by the Company will not have a material adverse effect on the Company's
business, operating results, cash flows and financial condition.
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Proprietary Rights
Management believes that the Company's success is somewhat dependent on
the maintenance of confidentiality regarding certain of its proprietary
information. The Company attempts to protect its proprietary information through
contractual arrangements and restricting access to certain proprietary
information. The Company does not have confidentiality agreements in place with
its employees. There can be no assurance that these measures will be sufficient
to protect the Company's proprietary information.
Navilor has agreements with Automated Solutions, Inc., the originator
of the patented, neural cube technology, which Navilor utilizes in its documents
processing applications. The agreement grants Navilor exclusive rights to
utilize Automated Solutions' proprietary technology in Navilor's current data
extraction business. "Current data" under the agreement is data entered on paper
no more than 180 days prior to submission for data extraction.
bCard employs smart card technology in its convention registration
business. Smart card hardware technology is broadly available. However, bCard
has created software applications in connection with bCard's registration
systems and other bCard related applications, which are not patented. The
Company has not attempted to obtain patents on its software systems, but the
Company attempts to protect these software applications through the use of
Non-Disclosure Agreements in each instance where bCard grants a vendor access to
use the software or associated codes the Company has developed.
Management believes that because of the rapid pace of technological
change in its markets, legal protection of its proprietary information is less
significant to the Company's competitive position than factors such as
continuing product innovation in response to evolving industry standards,
technical expertise, effective product marketing strategies and customer
service. Without legal protection, however, it is possible for third parties to
exploit commercially the proprietary aspects of the Company's products and
services, which could have a material and adverse effect on the Company and its
operating results.
Employees
As of November 15, 2000, the Company employed 23 people on a full-time
basis and 2 people on a part-time basis. The Company anticipates adding
additional employees as necessary, in accordance with increased operating
demands as they arise. The Company believes its future success will depend, in
part, on its continued ability to attract and retain highly qualified personnel
in a competitive market for experienced and talented software and hardware
employees, systems designers and operators, and sales and marketing personnel.
The Company's employees are not represented by a labor union nor are they
subject to a collective bargaining agreement. The Company believes that its
relations with its employees are good.
Risk Factors
An investment in the Company is speculative in nature, involves a high
degree of risk and should only be made by an investor who can afford the loss of
his entire investment. In addition to the other information in this filing, the
following factors should be considered carefully in evaluating an investment in
the Company.
History of Losses/Profitability Uncertain.
The Company has reported losses each year since inception. At September
30, 2000, it had an accumulated deficit (unaudited) of $5,713,651 and a working
capital deficit of $1,959,318. The Company's auditors have noted that the
condition of accumulated deficits and reported losses raises substantial doubt
about the Company's status as a going concern. The Company's ability to achieve
profitability depends on many factors, including increasing sales, consumer
awareness and technology acceptance. Investors should be aware that the
Company's technologies and/or services may never achieve commercial viability.
If the Company's technologies and/or services fail to achieve commercial
viability then the Company will not likely achieve profitability. In addition,
prospects for the
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Company's profitability will be affected by expenses, operational difficulties
and other factors frequently encountered in the development of a business
enterprise in a competitive environment, many of which factors may be unforeseen
and beyond the Company's control.
Limited Capital/Need for Additional Capital/ Current Notes in Default.
The Company believes that existing funds and funds generated from sales
will not support the Company's operations in the immediate future. To date, in
the current year, in private transactions, the Company raised $870,225. The
Company estimates that it will need to raise at least $5,000,000 in additional
capital in the next 12 months to fully execute its business plan which includes
acquisition of capital equipment, support of marketing efforts and other general
corporate purposes. The Company has no material current contractual arrangements
with respect to additional financing. Though the Company is actively seeking
additional capital, there can be no assurance that the Company will succeed in
attracting additional capital. The Company's auditors have raised doubts about
the Company's ability to continue as a going concern. Any inability to obtain
additional financing will have a material adverse effect on the Company,
including possibly requiring the Company to significantly curtail or cease its
operations.
Additionally, the Company may not be able to raise additional capital
on favorable terms. Consequently, the Company may have to offer shares at a
price below that paid by previous shareholders for their shares. If the Company
offers shares for a price less than the price paid by previous purchasers, the
transaction may result in a dilution of the equity position of existing
shareholders. If the Company's need for capital is urgent and market conditions
are not favorable, the dilution to existing shareholders would be materially
substantial.
The Company has notes outstanding with two lenders that are currently
in default. In June and August 2000, the Company received demands to bring these
notes current. The amount of the demands at that time were approximately
$360,000 and have continued to accrue interest since the demands were made. The
Company is attempting to negotiate alternative terms with the note holders and
is actively seeking alternative financing or capital funding to discharge the
obligations of the notes. However, there can be no assurance that the Company
will be successful in its efforts to repay these notes or negotiate alternative
terms. Continued default on these notes may result in legal action which will
have an material adverse effect on the Company, including possibly requiring the
Company to significantly curtail or cease its operations. See "Liquidity and
Capital Resources."
Effect of Possible Failure to Comply with Securities Laws.
In 1999 and 1998, the Company received $2,635,650 and $544,464 in net
proceeds from financing activities. In 2000 the Company has received $393,725
from the sale of common stock. The proceeds from securities sales occurred in a
number of separate transactions. See "Recent Sales of Unregistered Securities."
At the time of the sales the Company believed the transactions were exempt from
the registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"). The Company relied on several different exemptions from
Securities Act registration in completing the transactions. It now appears
possible that all or some of these transactions could be integrated or
considered part of a single financing. In the event that these transactions were
integrated, it may be that no exemption from Securities Act registration was
available for those transactions that are deemed to be part of the same
financing. If the Company is found to have violated the Securities Act or any
other applicable securities regulation, it is possible that an investor may have
the right to rescind his or her purchase of the securities and the Company and
its controlling persons may be subject to significant civil and criminal
penalties. If any substantial number of purchasers or any purchaser having paid
a substantial amount of cash for the shares were to successfully seek rescission
or civil or criminal penalties were imposed, the Company could face severe
financial demands that could adversely affect the Company and result in the
Company ceasing or significantly curtailing operations.
Effect of Writedown of Goodwill.
In connection with its October 1999 acquisition of GolfAgentUSA, Inc.,
the Company recognized goodwill of $312,000. This goodwill was determined to be
impaired as of December 31, 1999 and an allowance was established for the
$312,000 as of that date. In connection with its acquisition of bCard, Inc., the
Company
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recognized goodwill of $562,500, which, after accumulated amortization of
$168,750, has a net book value of $393,750 as of September 30, 2000. The
goodwill related to bCard is being amortized over five years and is recorded as
a non-cash charge against operating results of $28,125 for each fiscal quarter.
While it is currently not anticipated by the Company that the bCard goodwill
will become impaired, in the event that it became impaired, a write-down of all
or part of this goodwill would have a material adverse effect on the Company's
net worth.
Possible Defective Issuance of Preferred Shares.
Between October 1998 and August 1999 the Company sold Preferred A
Shares, Preferred B Shares and Series C Preferred Stock to investors. Under
Delaware General Corporation Law a corporation's certificate of incorporation,
or an amendment thereto, must set forth powers, designations, preferences and
other rights of each class or series of stock a corporation intends to issue.
The Company's certificate of incorporation provided for the issuance of up to 5
million shares of preferred stock, but did not provide for the Company to issue
any class of preferred stock at the time the preferred shares were issued. The
Company inadvertently omitted the filing of a certificate of designation
necessary to amend its certificate of incorporation for the issuance of the A,
B, and C shares. However, the Company has since filed the certificates of
designation to amend its certificate of incorporation to authorize the issuance
of the preferred stock sold and has filed a certificate of correction as well.
Though the Company is reasonably certain its action has cured the defect, there
can be no assurance that the issuance of the shares will not be legally
challenged and such a challenge could lead to significant liability and expose
the Company to a possible rescission offer and other civil or administrative
penalties.
Regulation and Legal Uncertainties.
The Company's businesses are subject to federal and state regulation
applicable to businesses generally. See "Government Regulation." Changes in the
regulatory environment relating to the services and products of the Company
could have a material and adverse effect on the Company and its business.
Additionally, legislative proposals from international, federal and state
governmental bodies in the areas of content regulation, intellectual property,
privacy rights, online contracts, advertising and tax issues, could impose
additional regulations and obligations upon all online service and electronic
data gathering, which effect may be materially adverse to the interests of the
Company and its business. Moreover, the applicability of intellectual property
ownership and personal privacy laws is at times uncertain with respect to
persons engaged in electronic and Internet commerce and these areas may be
subject to future regulation which may be materially adverse to the interest of
the Company and its business. The Company cannot predict the likelihood that any
such legislation will pass, nor the financial impact, if any, the resulting
regulation may have on it.
Reliance on Key Personnel.
The success of the Company depends in part upon the performance of its
executive officers and other key employees. The loss of the services of one or
more of its key personnel could have a material adverse effect on the Company.
With the exception the Company's CEO, CFO and two bCard officers, the Company
has no employment agreements in place with its key personnel. Competition for
such personnel is intense. The Company may not be successful in attracting and
retaining such personnel. The Company's success is materially dependent on its
continued ability to attract and retain highly skilled and qualified personnel.
Competition.
The markets for the technologies and services being pursued by the
Company are intensely competitive, highly fragmented and characterized by
rapidly changing technology, evolving industry standards, price competition and
frequent new product introductions. See "Competition." Although the Company
believes that the diverse market segments will provide opportunities for more
than one supplier of technologies and services similar to those of the Company,
it is possible that a single supplier may dominate one or more market segments.
The Company expects additional price and product competition as other
established and emerging companies enter these markets and new technologies and
services are introduced. Increased competition may result in price reductions,
reduced gross margins and loss of market share, any of which could have a
material adverse
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effect on the Company's business, operating results, cash flows and financial
condition. The relative importance of each of these factors depends upon the
specific customer involved. The Company may not be able to compete successfully
against current and future competitors. The Company may face competitive factors
which could have a material adverse effect on the Company's business, operating
results, cash flows and financial condition.
New Technology Development, Rapid Technological Change and
Obsolescence; Lack of Intellectual Property Protection.
Broad acceptance of the Company's technologies and services by
customers is critical to the Company's future success, as is the Company's
ability to design, develop, test and support enhancements on a timely basis that
meet changing customer needs and respond to technological developments and
emerging industry standards. The Company may not be successful in developing and
marketing new enhancements that meet changing customer needs and respond to such
technological changes or evolving industry standards. Most of the Company's
current products and services are designed around certain standards, including
current and future sales of the Company's technologies and services, which will
be dependent, in part, on industry acceptance of such standards.
The industries in which the Company operates, have been characterized
by rapid technological advances, resulting in short product life cycles, rapid
price reductions, significant price/performance improvements and frequent
product introductions. Accordingly one or more of the Company's technologies
and/or services may be rendered uncompetitive or obsolete by technological
advances or changing customer preferences. These factors may also limit the
Company's ability to recover its investment in its products and/or services. The
Company did not fund research and development during 1999 or to date in 2000.
The Company does not possess any patent or other intellectual property rights
that would limit competition against it and there are few barriers to entry into
the market for the Company's products or services. The Company's competitors,
many of whom have far greater resources than the Company, may independently
develop technologies that are substantially equivalent or superior to the
Company's technology. If the Company's competitors develop superior technologies
or technologies more attractive to the Company's customers, the result would be
a material adverse impact on the Company's operations, operating results, cash
flows and financial condition.
Anti-Takeover Provisions.
The Articles of Incorporation of the Company contain certain
provisions, which could be an impediment to a non-negotiated change in control
of the Company, namely an ability, without stockholder approval, to issue up to
5,000,000 shares of preferred stock with rights and preferences determined by
the Board. These provisions could impede a non-negotiated change in control and
thereby prevent stockholders from obtaining a premium for their common stock.
No Dividends.
The Company is required to pay annual dividends on the Preferred A
Shares, Preferred B Shares and Series C Preferred Stock before the Company can
declare and pay dividends to the common stockholders. See "Description of
Securities--Preferred Stock." The Company does not anticipate or contemplate
paying dividends on its common stock in the foreseeable future. At present, the
Company will follow a policy of retaining all available earnings, if any, to
finance the development and expansion of its business.
Limited Liability of Management.
The Company's Certificate of Incorporation limits the liability of its
Officers and Directors and there are provisions in its Certificate of
Incorporation, By-laws and Indemnification Agreements, which provide for
indemnification by the Company of its Officers and Directors. The Company's
Certificate of Incorporation generally provides that its directors and officers
shall have no personal liability to the Company or its stockholders for monetary
damages for breaches of their fiduciary duties as directors, except for breaches
of their duties of loyalty, acts or omissions not in good faith or which involve
intentional misconduct or knowing violation of law, acts involving unlawful
payment of dividends or unlawful stock purchases or redemptions, or any
transaction from which a director derives an improper personal benefit. Such
provisions substantially limit the stockholders' ability to hold directors
liable for breaches of fiduciary duty.
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No Control Over Market Making.
Market making involves the buying and selling of securities for others
or for one's own account to facilitate and attempt to profit from market
activity in a particular security. Market making does not in and of itself
support or restrict the price of the security. No person or broker-dealer is
under any obligation to make a market in the Company's common stock and any
person or broker-dealer making a market in the common stock may discontinue
market-making activities at any time without notice. If the market-making
activities in the common stock of the company were to discontinue, there would
be a material adverse impact on the price at which the Company's common stock is
traded and liquidity of the Company's common shares would be limited. The lack
of market-making activities in the Company's common stock would also adversely
impact the ability of the Company's ongoing financing efforts.
Volatility of Stock Prices.
Market prices for the Company's common stock will be influenced by many
factors and will be subject to significant fluctuations in response to
variations in operating results of the Company and other factors such as
investor perceptions of the Company, supply and demand, interest rates, general
economic conditions and those specific to the industry, developments with regard
to the Company's activities, future financial condition and management.
Consequently, the Company expects volatility in the market price at which the
Company's shares are traded.
Applicability of Penny Stock Risk Disclosure Requirements.
The common stock of the Company may be considered a penny stock under
rules promulgated under the Securities Exchange Act of 1934. Under these rules,
broker-dealers participating in transactions in penny stock must first deliver a
risk disclosure document which describes the risks associated with such stocks,
the broker-dealer's duties, the customer's rights and remedies, and certain
market and other information, and make a suitability determination approving the
customer for low priced stock transactions based on the customer's financial
situation, investment experience and objectives. Broker-dealers must also
disclose these restrictions in writing to the customer, obtain specific written
consent of the customer, and provide monthly account statements to the customer.
With these restrictions, the likely effect of designation of the Company's
securities as penny stocks will be to decrease the willingness of broker-dealers
to make a market for the stock, to decrease the liquidity of the stock and to
increase the transaction cost of sales and purchases of such stock compared to
other securities.
Possible Effect of Current Litigation Concerning bCard.
The Company's bCard subsidiary and several of its officers and/or
employees have become defendants in a civil suit brought by a group of
competitors, alleging various claims for relief and asking for compensatory and
punitive damages and injunctive relief. Though the company is vigorously
defending the action and management believes the allegations against bCard are
unfounded, there can be no assurance that the Company will succeed ultimately in
defending the action or that a protracted litigation will not adversely affect
ongoing operations of the Company. See "Legal Proceedings."
Item 2. Management's Discussion and Analysis or Plan of Operation
The following discussion and analysis provides information which
management believes is relevant to an assessment and understanding of the
Company's consolidated results of operations and financial condition. The
discussion should be read in conjunction with the consolidated financial
statements and notes thereto.
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Overview
The Company had $86,657 in cash and a working capital deficit of
$607,042 as of December 31, 1999 and had $65,754 in cash and a working capital
deficit of $1,959,318, as of September 30, 2000 (unaudited). From its inception,
the Company has incurred losses from operations. The Company had net losses of
$2,068,576 and $921,597 in 1999 and 1998, respectively and had a net loss from
operations of $1,874,075 for the nine-month period ending September 30, 2000
(unaudited). To date, the Company's principal focus has been on providing trade
show and event registration services, providing data extraction and processing
services, preparing to provide online tee-time reservation system and marketing
telecommunications services.
The independent auditors' report contains an explanatory paragraph
stating that the Company has a deficit in working capital and has incurred
recurring losses and that these conditions raise substantial doubt about the
Company's ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
Years Ended December 31, 1999 and 1998
The Company had revenues of $1,295,188 and a net loss of $2,068,576
during the year ended December 31, 1999, compared with revenues of $169,298 and
a net loss of $921,597 during the prior year. Of the 1999 revenues, $1,024,184
was generated from the bCard technology, $178,937 was generated from electronic
data extraction, $92,067 was generated from commissions for marketing
telecommunications services and no revenues were generated by GolfAgent USA.
Substantially all of the Company's 1998 revenues were generated from commissions
for marketing telecommunications services. The Company will be looking primarily
to bCard and Navilor for short-term revenue growth. There can be no assurance,
however, that either bCard or Navilor will generate significant revenues in the
future.
Operating expenses were $2,859,363 for the year ended December 31,
1999, compared to $945,859 during the prior year. The increase resulted mainly
from (i) increased operating expenses as a result of the acquisition and
operation of bCard during 1999; (ii) increased operating expenses as a result of
the Asset Acquisition whereby certain operating assets were acquired for use by
and in Navilor's data extraction business; (iii) the write-off of goodwill
relating to the GolfAgent USA Acquisition; and (iv) increased amortization and
depreciation expenses. Management expects selling, general and administrative
expenses to increase during 2000 as the Company expands its operations.
Net other income was ($63,739) for the year ended December 31, 1999
compared with ($69,235) for year ended December 31, 1998. These losses are
attributable to interest expense related to borrowing which losses were
partially offset by other income.
Nine Months Ended September 30, 2000 and 1999
The Company had revenues of $1,393,592 and a net loss of $1,874,075
during the three quarters ended September 30, 2000 (unaudited), compared with
revenues of $645,037 and a net loss of $1,214,572 during the three quarters
ended September 30, 1999. Of the revenues earned during the nine months ended
September 30, 2000 (unaudited) and 1999 respectively approximately, $1,186,128
and $489,281 were generated from the bCard technology, approximately $168,458
and $81,016 were generated from electronic data extraction and approximately
$39,006 and $74,740 were generated from commissions for marketing
telecommunications services and no revenues were generated by GolfAgent USA.
Operating expenses were $2,404,954 for the nine months ended September
30, 2000 (unaudited), compared to $1,522,257 during the prior comparable period.
The increase resulted mainly from (i) increased operating expenses related to
revenue growth at of bCard during 1999; (ii) increased operating expenses as a
result of the Asset Acquisition whereby certain operating assets were acquired
for use by and in Navilor's data extraction business; and (iv) increased
amortization and depreciation expenses. Management expects selling, general and
administrative expenses to continue to increase during 2000 and 2001 as the
Company expands its operations.
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Net other income was ($221,846) for the nine months ended September 30,
2000 (unaudited) compared with ($72,958) for the nine months ended September 30,
1999. These losses are attributable to interest expense related to borrowing,
which expenses were partially offset by other miscellaneous income.
Liquidity and Capital Resources
To date, the Company has financed its operations principally through
placements of equity securities and debt and revenues from operations. The
Company generated $764,115 and $2,635,650 in net proceeds through financing
activities during the nine months ended September 30, 2000 (unaudited) and the
year ended December 31, 1999 respectively. The Company used net cash for
operating activities of $640,585 and $1,673,996 during the nine months ended
September 30, 2000 (unaudited) and the year ended December 31, 1999
respectively. The Company used net cash of $144,433 and $874,997 in investing
activities relating to the purchase of equipment and software for the nine
months ended September 30, 2000 (unaudited) and the year ended December 31, 1999
respectively. The Company's liabilities totaled $2,218,451 and $899,674 as of
September 30, 2000 (unaudited) and December 31, 2000 respectively. All of the
Company's liabilities are current liabilities. The Company had $65,754 and
$86,657 in cash and a working capital deficit of $1,959,318 and $607,042 as of
September 30, 2000 (unaudited) and December 31, 1999 respectively.
As of September 30, 2000 the Company had committed to spend future
minimum rental payments of approximately, $51,243 for physical facilities leases
during the fourth quarter of 2000 and $228,791, $113,239, $78,431 and $4,141 in
minimum lease payments for the years 2001 through 2004, respectively. As of
September 30, 2000, the Company did not have material commitments for capital
expenditures. In October 2000 the Company took a first and second mortgage in
the amounts of $600,000 and $570,000 respectively to finance the purchase of its
facility in Roy, Utah. The first mortgage will be amortized over a 15 year
period beginning October 1, 2001. Interest only payments will be made during the
first twelve months of the loan through October 1, 2001. The second mortgage is
a short-term interest-bearing note requiring monthly payments of $8,550
beginning November 1, 2000 and must be paid in full at March 1, 2001. The
purchase of this facility will reduce the Company's future minimum rental
payments by approximately $77,000 per year. At September 30, 2000, the Company
also had short term loan obligations in the aggregate principal amount of
$699,747 (unaudited). These loans bear interest at various rates between zero
percent per annum and ninety-six percent per annum. Of these loans, $163,633 is
secured by UniQuest assets and a pledge of UniQuest stock.
During March, April and June of 2000, the Company borrowed a total of
$320,000 from two entities. (This amount is included in the short-term loan
obligations above and is secured by 3,000,000 shares of the Company's common
stock). Although the Company has been unable to make timely payments on these
notes and has received notices of default from the lenders, the Company
considers its relationship with these lenders to be favorable. No further
collection action has been taken by these entities against the Company and the
Company believes it will be successful in bringing its obligations current with
the lenders
The Company projects that current funds and funds generated from
anticipated operating revenues will not be sufficient to support the Company's
operations in the immediate future. The Company estimates that it will need at
least $5,000,000 in additional funding through December 31, 2001 to execute its
business plan. The Company anticipates that it will generate such funding
through debt or equity financings. The Company has no material current
contractual arrangements with respect to additional financing. Though the
Company is actively seeking additional capital, there can be no assurance that
the Company will succeed in attracting additional capital. Any inability to
obtain additional funding in the immediate future will have a material adverse
effect on the Company, including possibly requiring the Company to significantly
curtail or cease its operations.
At September 30, 2000, the Company had 2,040,000 warrants (the
"Warrants") outstanding which are exercisable for the same number of shares of
common stock of the Company at between $0.25 and $1.50 per share. The Warrants
expire between October 2001 and July 2005. The exercise of all the Warrants
would result in an equity infusion to the Company of approximately $2,810,000.
There can be no assurance that any warrants will ever be exercised.
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As of September 30, 2000, the Company had granted stock options to
acquire 3,666,000 outstanding shares of common stock, of which options to
acquire 3,394,000 shares of common stock were outstanding as of September 30,
2000. Options to acquire 869,250 shares of common stock were exercisable as of
September 30, 2000. The stock options are exercisable at $.78125 per share. The
exercise of all of the currently exercisable stock options would result in an
equity infusion to the Company of approximately $679,102. There can be no
assurance that any of the stock options will be exercised.
Seasonality
The trade show businesses tends to be most active in the spring and the
fall. As a result, the Company anticipates that revenues generated by bCard
would tend to be strongest in the spring and fall. Substantially all of the
GolfAgent USA revenues, if and when they commence and of which there can be no
assurance, are expected to be generated during the spring, summer and fall
seasons. The Company's other businesses generally do not fluctuate on a seasonal
basis.
Inflation
The Company does not expect the impact of inflation on operations to be
significant.
Year 2000
Since entering the Year 2000, the Company has not experienced any major
Year 2000 related disruptions to its business nor is it aware of any significant
Year 2000-related disruptions impacting its customers and suppliers.
Furthermore, the Company did not experience any material impact on business at
calendar year end. The Company will continue to monitor its critical systems
over the next several months but does not anticipate any significant impacts due
to Year 2000 exposures from its internal systems as well as from the activities
of its suppliers and customers.
Forward-Looking Statements
Certain statements in this Form 10-SB constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act"), and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and the Private Securities Litigation
Reform Act of 1995. These provisions do not apply to initial public offerings.
Such forward-looking statements involve known and unknown risks, uncertainties
and other important factors that could cause the actual results, performance or
achievements of the Company to differ materially from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such risks, uncertainties and other important factors include, among
others: dependence on proprietary technology; technological changes and costs of
technology; industry trends; competition; ability to develop markets and market
acceptance; product demand; changes in business strategy or development plans;
availability, terms and deployment of capital; availability of qualified
personnel; changes in government regulation; general economic and business
conditions; and other factors. Such forward-looking statements speak only as of
the date of this Form 10-SB. The Company's actual results for future periods
could differ materially from those anticipated or projected.
Item 3. Description of Property
PrimeHoldings' principal offices are located at 6955 Union Park Center,
Suite 390, Midvale, Utah, under terms of a lease with an unaffiliated lessor,
which expires on November 30, 2003. The offices comprise approximately 2,340
square feet of space. In addition to the foregoing, subsidiaries of
PrimeHoldings lease office space in Utah, Maryland and Toronto, Canada. The
Company believes that its current office space will be adequate to meet the
needs of current and expected growth for the foreseeable future. The Company
also owns a one story concrete facility located at 1890 West 4000 South in Roy,
Utah. The approximately 13,800 square foot facility was built in 1990 and
underwent a substantial renovation in 1996 to retrofit the building with
technological improvements to allow it to be used as a data center.
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Item 4. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information with respect to the
beneficial ownership of the common stock of the Company as of October 31, 2000,
for: (i) each person who is known by the Company to beneficially own more than 5
percent of the Company's common stock, (ii) each of the Company's directors,
(iii) the Chief Executive Officer and all other executive officers with annual
compensation in excess of $100,000 (determined for the year ended December 31,
1999) (the "Named Executive Officers"), and (iv) all directors and executive
officers as a group. As of October 31, 2000, the Company had 15,910,400 shares
of common stock outstanding, Preferred A Shares that were convertible into
473,333 shares of common stock, Preferred B Shares that were convertible into
500,000 shares of common stock and Series C Preferred shares that were
convertible into 1,350,000 shares of common stock. The table assumes the
conversion of all outstanding preferred stock.
Shares Percentage
Name and Address Beneficially of Shares Title of
Of Beneficial Owner (1) Owned (2) Beneficially Owned Class
----------------------- --------- ------------------ ----------
Thomas E. Aliprandi (3), 2,997,078 16.1% Common Stock
Chairman of the Board of
Directors and CEO
Michaeljohn Kudlik (4), 387,500 2.1% Common Stock
Director
David E. Shepardson III (5), 660,300 3.6% Common Stock
Vice President, Secretary,
Treasurer & CFO
Matthew R. White (6), 77,500 * Common Stock
Director
Executive Officers and Directors 4,122,378 21.8% Common Stock
as a Group (four persons)
A-Business Funding Corp. (7) 1,000,000 5.5% Common Stock
6975 Union Park Ctr. 8-600
SLC, UT 84047
Hampton-Porter Inv. Bankers (8) 1,000,000 5. 2% Common Stock
600 W. Broadway, 14th Floor
San Diego, CA 92101
Stephan Herold (9) 2,545,992 13.4% Common Stock
6018 North 62nd Place
Paradise Valley, AZ 85253
MSF Properties, L.C. (10) 1,000,000 5.5% Common Stock
5326 S. Northwood Road
Salt Lake City, UT 84117
Time Holdings L.L.C. (11) 1,500,000 8.2% Common Stock
600 W. Broadway, 14th Floor
San Diego, CA 92101
------------------------------
* Less than 1%
-------------------------
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(1) Except where otherwise indicated, the address of the beneficial owner is
deemed to be the same address as the Company.
(2) Beneficial ownership is determined in accordance with SEC rules and
generally includes holding voting and investment power with respect to the
securities. Shares of common stock subject to options or warrants currently
exercisable, or exercisable within 60 days, are deemed outstanding for
computing the percentage of the total number of shares beneficially owned
by the designated person, but are not deemed outstanding for computing the
percentage for any other person.
(3) Includes 197,078 common shares owned by Mr. Aliprandi and 2,400,000 shares
of common stock owned by an entity with which Mr. Aliprandi is affiliated.
Also includes stock options currently exercisable for 400,000 shares of
common stock. Does not include stock options exercisable for 1,200,000
shares of common stock that vest in three equal annual installments
beginning in July 2001.
(4) Includes 300,000 shares of common stock. Also includes stock options
exercisable for 87,500 shares of common stock. Does not include stock
options exercisable for 262,500 shares that vest in three equal annual
installments beginning in July 2001.
(5) Includes 535,300 shares of common stock. Also includes stock options
currently exercisable for 125,000 shares of common stock. Does not include
stock options exercisable for 375,000 shares of common stock that vest in
three equal annual installments beginning in July 2001.
(6) Includes 40,000 shares of common stock. Also includes stock options
currently exercisable for 37,500 shares of common stock. Does not include
stock options exercisable for 112,500 shares of common stock that vest in
three equal annual installments beginning in July 2001.
(7) Includes 1,000,000 shares of common stock. The principal beneficial owner
of A-Business Funding Corp. is Jeanette Mower.
(8) Includes warrants currently exercisable for 1,000,000 shares of common
stock. The principal beneficial owner of Hampton-Porter Investment Bankers
is Gregory D. Walker.
(9) Includes 1,000,000 shares of common stock. Also includes preferred stock
convertible into 772,996 shares of common stock and warrants currently
exercisable for 772,996 shares of common stock.
(10) Includes 1,000,000 shares of common stock. The principal beneficial owners
of MSF Properties, L.C. are Marc Jensen and Stori Jensen.
(11) Includes 500,000 shares of common stock and preferred stock convertible
into 1,000,000 shares of common stock. The principal beneficial owner of
Time Holdings, L.L.C. is Gregory D. Walker.
The Company is not aware of any arrangements which may result in a change in
control of the Company.
Item 5. Directors, Executive Officers, Promoters and Control Persons
Identify Directors and Executive Officers
Set forth below is certain information concerning each of the directors
and executive officers of the Company as of October 31, 2000:
With Company
Name Age Position Since
---- --- -------- -----
Thomas E. Aliprandi 37 Chairman of the Board of 1994
Directors and CEO
Michaeljohn Kudlik 51 Director 1998
Jack Nieporte 50 Acting President 2000
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David E. Shepardson III 37 Vice President, Secretary, 1994
Treasurer & CFO
Matthew R. White 53 Director 1995
Thomas E. Aliprandi. Mr. Aliprandi has been with the Company since
1994. He is the Chairman of the Board and CEO of the Company. Prior to his
employment with the Company, Mr. Aliprandi served as a director of international
marketing for Wolf Systems Technology Corporation from August 1988 to October
1989. Mr. Aliprandi holds no other directorships in reporting companies.
Michaeljohn Kudlik. Mr. Kudlik has been with the Company since 1998. He
is a director of the Company. Mr. Kudlik's principal occupation during 1998 and
1999 was as the Pacific Regional Director for the Deutsche Bank, managing the
marketing of managed assets in 11 western states and his principal occupation
from 1995 through 1997 was acting as a Regional Director for the Ing Group in 5
western states. Mr. Kudlik has worked in the securities industry for 30 years,
including a position in Floor Operations on the floor of the New York Stock
Exchange. He also headed the Houston chapter of the International Association of
Financial Planners for four years, and contributed as an adjunct faculty member
of the College of Financial Planning for three years. Mr. Kudlik holds no other
directorships in reporting companies.
Jack Nieporte. Mr. Nieporte has been with the company since October
2000. He has owned and operated his own consulting company since 1986, Jack
Nieporte and Associates, serving various clients in a broad spectrum of
industries, focusing lately on high-tech companies in the areas of the Internet
and wireless bandwidth providers. He was the president and chairman of a
Utah-based, real estate development company from 1978 to 1986.
David E. Shepardson III. Mr. Shepardson has been with the Company since
1994. He is Vice President, Secretary, Treasurer and CFO of the Company. Prior
to employment with the Company, Mr. Shepardson worked in various financial
positions at Novell, Inc. from 1984 to 1989 and at The McGraw-Hill Companies as
a Business Manager from 1989 to 1991. Mr. Shepardson holds no directorships in
reporting companies.
Matthew R. White. Mr. White has been with the Company since 1995. He is
a director of the Company. His principal occupation for the last five years has
been in real estate investment and development and business consulting. He is
experienced as a registered representative, wholesale securities trader and an
investment banker specializing in early stage (pre-IPO) companies. Mr. White
holds no other directorships in reporting companies.
All directors are elected annually at the shareholders meeting.
Involvement in Certain Legal Proceedings
The executive officers and directors of the Company have not been
involved in any material legal proceedings which occurred within the last five
years of any type as described in Regulation S-B.
Item 6. Executive Compensation
The tables below set forth certain information concerning compensation
paid by the Company to its Named Executive Officers. The tables include
information related to stock options granted to the Named Executive Officers.
Summary Compensation Table. The following table provides certain
information regarding compensation paid by the Company to the Named Executive
Officers.
17
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<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation Awards
------------------- -----------------------------
Securities
Restricted Underlying All Other
Name and Other Annual Stock Options/ LTIP Compensation
Principal Position Year Salary ($) Bonus ($) Compensation ($) Awards ($) SAR(#) Payouts ($) ($)
------------------ ---- ---------- --------- ---------------- ---------- ------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Thomas E. Aliprandi 1997 -- 120,000(1) -- -- -- --
Chairman, CEO and 1998 60,000 -- 60,000(1) -- -- -- --
President 1999 120,000 -- -- -- -- -- --
---------------
</TABLE>
(1) Amounts paid to Mr. Aliprandi under consulting arrangement prior to his
fulltime employment with the company, beginning July 1, 1998.
Compensation of Directors
No cash fees or other consideration were paid to directors of the
Company by the Company for service on the Board during 1999 and no cash fees or
other consideration have been paid, or are expected to be paid to employee
directors for service on the Board during 2000. During 2000, the Company has
compensated non-employee directors by granting options to purchase 500,000
shares of the Company's common stock that vest in equal annual installments
beginning in July 2000. The Company has made no other agreements regarding
compensation of non-employee directors. However, Mr. Kudlik is the principal of
a consulting company which has a contract with the Company. See, "Item 7 Certain
Relationships and Related Transactions." All directors are entitled to
reimbursement for reasonable expenses incurred in the performance of their
duties as Board members.
Employment Agreements
The Company has entered into a three-year employment agreement Mr.
Aliprandi. Mr. Aliprandi's employment agreement provides that (i) Mr. Aliprandi
receive a salary of $120,000 per year beginning January 1, 2000; (ii) an
automobile allowance of $1,000 per month; (iii) Mr. Aliprandi is entitled to
four weeks vacation per year and health and disability insurance not less
favorable than that which is provided to other employees; and (iv) if the
employment of Mr. Aliprandi is terminated by the Company for any reason then he
is entitled to salary at the then current level for 6 months if employed more
than one year prior to termination, 1 year if employed more than two years prior
to termination, two years if employed more than three years prior to termination
and three years if employed more than four years prior to termination. The
Company also entered into an employment agreement with Mr. Shepardson effective
January 1, 2000 on substantially the same terms, except that Mr. Shepardson's
annual salary is $100,000 and his automobile allowance is $600 per month.
bCard has employment agreements in place with Ivan Lazarev, bCard's
president, and Neil Pickard, bCard's vice-president and secretary (collectively,
the "bCard Officers"). The bCard Officers' employment agreements provide for (i)
Messrs. Lazarev and Pickard to receive a salaries of $180,000 during 2000 and
thereafter their salaries will be based on bCard's performance; and (ii)
reasonable health, accident and dental insurance.
Stock Options
In January 2000, the Board approved the adoption of the
PrimeHoldings.com, Inc. 2000 Stock Option Plan (the "Option Plan"). Subject to
stockholder approval, the Option Plan will permit the Company to grant
"non-qualified stock options" and "incentive stock options" to acquire the
Company's Common Stock. The total number of shares authorized for the Option
Plan may be allocated by the Board between the non-qualified stock options and
the incentive stock options from time to time, subject to certain requirements
of the Internal Revenue Code of 1986, as amended. The option exercise price per
share under the Option Plan may not be less than the fair market value of a
share of Common Stock on the date on which the option is granted. A total of
5,000,000 shares are allocated to the Option Plan. As of September 30, 2000,
options to acquire an aggregate of 3,666,000 shares of Common Stock at an
exercise price of $.78125 per share had been granted and options to acquire
3,394,000 shares of common stock were outstanding under the Option Plan stock
options exercisable for 869,250 shares of Company common stock were exercisable
as of that date. 1,600,000 of these options were granted to Mr. Aliprandi.
18
<PAGE>
Indemnification for Securities Act Liabilities
Delaware law authorizes, and the Company's Certificate of Incorporation
and the Company's By-laws and Indemnification Agreements provide for,
indemnification of the Company's directors and officers against claims,
liabilities, amounts paid in settlement and expenses in a variety of
circumstances. Indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted for directors, officers and controlling
persons of the Company pursuant to the foregoing or otherwise. However, the
Company has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable.
Compensation Committee Interlocks and Insider Participation
The Company does not have a Compensation Committee. No executive
officers of the Company serve on the Compensation Committee (or in a like
capacity) for any other entity.
Item 7. Certain Relationships and Related Transactions
Michaeljohn Kudlik, a director of the Company, is the principal of
Financial Service Group. Financial Service Group has a consulting contract with
the Company to provide financial relations services. The contract period dates
from May 1, 2000. The agreement provides for monthly compensation in the form of
$8,000 in cash and $2,000 value in the form of equity shares or warrants for
equity shares.
Item 8. Description of Securities
The Company's authorized capital stock currently consists of 50,000,000
shares of common stock, $.0666 par value per share; and 5,000,000 shares of
preferred stock, $.001 par value per share. Of the authorized preferred stock,
500,000 shares have been designated as Preferred A Shares, 500,000 shares have
been designated as Preferred B Shares and 1,000,000 have been designated as
Series C Preferred Stock.
Common Stock
At October 31, 2000, the Company had 15,910,400 shares of fully paid,
non-assessable common stock outstanding. Holders of common stock are entitled to
one vote for each share held of record on all matters submitted to a vote of
stockholders. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Subject to preferential dividend rights with respect to
any outstanding preferred stock, holders of common stock are entitled to receive
ratably such dividends, if any, as may be declared by the Board out of funds
legally available therefore. Upon liquidation, dissolution or winding up of the
Company, holders of common stock are entitled to share ratably in the assets of
the Company legally available, subject to any prior rights of any outstanding
preferred stock or other rights including any preemptive, subscription,
redemption or conversion rights. Holders of common stock have no cumulative
voting rights and no preemptive, subscription, redemption or conversion rights.
The rights, preferences and privileges of holders of common stock are subject
to, and may be adversely affected by, the rights of the holders of shares of the
three series of preferred stock that the Company has designated and such series
of preferred stock as the Company may designate in the future.
Preferred Stock
The Company's Board is empowered, without further action by
stockholders, to issue from time to time one or more series of preferred stock,
with such designations, rights, preferences and limitations as the Board may
determine by resolution. The rights, preferences and limitations of separate
series of preferred stock may differ with respect to such matters among such
series as may be determined by the Board, including, without limitation, the
rate of dividends, method and nature of payment of dividends, terms of
redemption, amounts payable on liquidation, sinking fund provisions (if any),
conversion rights (if any) and voting rights. Certain issuances of preferred
stock may have the effect of delaying or preventing a change in control of the
Company that some stockholders may believe is in their interest.
Preferred A Shares. At October 31, 2000, the Company had 473,333 shares
of fully paid non-assessable Preferred A Shares outstanding. The holders of the
Preferred A Shares have no preemptive rights with respect to any
19
<PAGE>
shares of capital stock of the Company or any other securities of the Company
convertible into or carrying rights or options to purchase any such shares. The
Preferred A Shares are not subject to any sinking fund or other obligations of
the Company to redeem or retire the Preferred A Shares. Unless converted, the
Preferred A Shares are perpetual. There are certain piggyback registration
rights associated with the Preferred A Shares, obligating the company to notify
Preferred A Shareholders 30 days in advance of the Company's filing of a
registration statement seeking to register transactions in other securities of
the Company and allowing the Preferred A Shareholder the opportunity to elect to
have some or all of his or her restricted shares included in the registration
statement. These piggyback rights are subject to several limitations, including
underwriter approval and a prohibition on inclusion in a registration within a
period of 90 days following the effective date of any registration filed by the
company. The holder of the each Preferred A Share is entitled to the number of
votes equal to the number of shares of common stock into which such Preferred A
Shares could be converted and have voting rights and powers equal to the voting
rights and powers of the common stock (except as otherwise expressly provided
herein or as required by law, voting together with the common stock as a single
class) and are entitled to notice of any stockholder's meeting in accordance
with the By-laws of the Company. Except as otherwise required by applicable law,
all voting rights of the common stockholders and Preferred A stockholders are
vested in and exercised by the holders of the common and Preferred A Shares, as
a single voting group, with each share of common stock being entitled to one
vote and each share of Preferred A being entitled to one vote.
The Preferred A Shares rank, with respect to right on liquidation,
senior to all classes of common stock and on parity with all future series of
preferred stock established on or after the date hereof by the board of
directors which future classes of preferred stock do not expressly provide that
it ranks senior to or junior to the Preferred A Shares as to rights on
liquidations, winding-up and dissolution. The Preferred A Shares are preferred
as to both earnings and assets, and in the event of liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary, the holders of the
Preferred A Shares are entitled, before any assets of the Company are
distributed among or paid over to the holders of the common stock, to be paid in
full the face value of $0.75 per share of Preferred A stock, along with all
accumulated interest and/or dividends, if any. After payment in full of the
above preferential rights of the holders of the Preferred A Shares, the holders
of the Preferred A Shares are not entitled to any further participation in any
distribution of assets by the Company. Neither the sale or transfer of all or
substantially all the assets of the Company, nor the merger or consolidation of
the Company into or with any other corporation or a merger of any other
corporation with or into the Company, will be deemed to be a liquidation,
dissolution or winding up of the Company.
If the assets distributable on such liquidation, dissolution or winding
up (whether voluntary or involuntary), are insufficient to permit the payment to
the holders of Preferred A Shares and other preferred shares that are in parity
the Preferred A Shares, then such assets or the proceeds thereof shall be
distributed among the holders of Preferred A Shares and other preferred shares
that are in parity with the Preferred A Shares ratably in proportion to the
respective amounts the holders of such shares of stock would be entitled to
receive if they were paid the full preferential amounts aforesaid.
The Company has agreed to pay to each holder of Preferred A Shares
simple interest at a rate of ten percent (10%) per annum on the aggregate
purchase price of the Preferred A Shares purchased by each such holder. The
interest is payable within sixty (60) days of the end of the prior fiscal year.
If the Company fails to make any interest payment when such payment is due, the
unpaid interest payment shall bear interest at a rate of ten percent (10%) per
annum from the date of the end of the fiscal year in which the interest accrued
until the payment is made.
Upon fourteen (14) days written notice, each Preferred A Share may be
converted into one (1) share of the Company's common stock at the written
request of a holder of such Preferred A Shares. Holders of shares of Preferred A
Shares may convert all or any number of his or her Preferred A Shares from time
to time at the sole discretion of the holder.
The Company may, in its discretion, call for the conversion of the
Preferred A Shares into common stock on a mandatory one for one basis if and
when, and only if and when, the closing bid price of the Company's common stock
in the over the counter securities markets or other publicly traded securities
medium is equal to or greater than $2.50 per share for five (5) consecutive
trading days. In the event the Company exercises this mandatory call conversion
feature, holders of Preferred A Shares will be given notice and their shares
will automatically become, by operation of law, common stock at the expiration
of the notice.
20
<PAGE>
In the event the Company declares or pays any dividend on the common
stock payable in common stock or in any right to acquire common stock, or shall
effect a subdivision of the outstanding shares of common stock into a greater
number of shares of common stock (by stock split, reclassification or otherwise
than by payment of a dividend in common stock or in any right to acquire common
stock), or in the event the outstanding shares of common stock shall be combined
or consolidated, by reclassification or otherwise, into a lesser number of
shares of common stock, then the conversion ratio in effect immediately prior to
such event will, concurrently with the effectiveness of such event, be
proportionately decreased or increased, as appropriate.
The common stock issuable upon conversion of the Preferred A Shares
shall be changed into the same or a different number of shares of any other
class or classes of stock, whether by capital reorganization, reclassification
or otherwise (other than a subdivision or combination as described in the prior
paragraph), the conversion ratio then in effect shall, concurrently with the
effectiveness of such reorganization or reclassification, be proportionately
adjusted so that the Preferred A Shares are convertible into, in lieu of the
number of shares of common stock which the holders would otherwise have been
entitled to receive, a number of shares of such other class or classes of stock
equivalent to the number of shares of common stock that would have been subject
to receipt by the holders upon conversion of the Preferred A Shares immediately
before that change.
Preferred B Shares. At October 31, 2000, the Company had 500,000 shares
of fully paid non-assessable Preferred B Shares outstanding. The Preferred B
Shares rank, with respect to right on liquidation, in parity with the Preferred
A Shares. The Preferred B Shares are otherwise substantially similar to the
Preferred A Shares except that in the event of liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary, the holders of the
Preferred B Shares are entitled, before any assets of the Company shall be
distributed among or paid over to the holders of the common stock, to be paid in
full the face value of $1.00 per share of the Preferred B Shares, along with all
accumulated interest and/or dividends, if any. There are also certain piggyback
registration rights associated with the Preferred B Shares which are not
materially different from those associated with the Preferred A Shares.
Series C Preferred Stock. At October 31, 2000, the Company had 705,000
shares of fully paid non-assessable Series C Preferred Stock outstanding. The
voting rights of the Series C Preferred Stockholders are substantially similar
to the voting rights of the Preferred A and B Shares. There are also certain
piggyback registration rights associated with the Series C Preferred Stock which
are not materially different from those associated with the Preferred A Shares.
The Series C Preferred Stock is preferred as to both earning and
assets, and in the event of liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, the holders of the Series C Preferred
Stock are entitled, before any assets of the Company are distributed among or
paid over to the holders of the common stock, to be paid in full the face value
of $1.00 per share of Series C Preferred Stock. After payment in full of the
above preferential rights to the holders of the Series C Preferred Stock, the
holders of the Series C Preferred Stock and common stock shall participate
equally in the division of the remaining assets of the Company, so that from the
remaining assets the amount per share of Series C Preferred Stock distributed to
the holders of the Series C Preferred Stock shall equal the amount per share of
common stock distributed to the holders of the common stock.
The holders of Series C Preferred Stock are entitled to receive
dividends at the rate of $0.12 per share per year payable at such intervals as
the board of directors may from time to time determine. These dividends shall
accrue from the date of issuance of the Series C Preferred Stock whether or not
earned or declared. The specified dividends on the Series C Preferred Stock are
payable before any dividends may be declared, paid, or set apart for the common
shares. The specified dividends on Series C Preferred Stock are cumulative. If
in any year, or years, dividends on the outstanding Series C Preferred Stock at
the rate specified is not paid or set apart for that purpose, the amount of the
deficiency shall be fully paid or declared and set apart for payment, without
interest, before any distribution, by way of dividend or otherwise, is declared,
paid or set apart for the common shares. After all cumulative dividends on
preferred shares are paid, declared or set apart for payment to the holders of
the thereof, if the board of directors elects to make further distribution of
dividends, the additional dividends shall be made equally to the common Series C
Preferred stockholders.
Each share of Series C Preferred Stock is convertible into three and
one-third shares of common stock voluntarily upon written request of a holder of
such shares of Series C Preferred Stock. Holders of shares of Series C Preferred
Stock may convert all or any number of his or her shares of Series C Preferred
Stock from time to time at the sole discretion of the holder. Additionally, upon
conversion, each holder of Series C Preferred Stock is entitled to receive one
share of common stock for every $0.33 cents of unpaid accumulated dividends.
21
<PAGE>
In the event the Company declares or pays any dividend on the common
stock payable in common stock or in any right to acquire common stock, or shall
effect a subdivision of the outstanding shares of common stock into a greater
number of shares of common stock (by stock split, reclassification or otherwise
than by payment of a dividend in common stock or in any right to acquire common
stock), or in the event the outstanding shares of common stock shall be combined
or consolidated, by reclassification or otherwise, into a lesser number of
shares of common stock, then the conversion ratio in effect immediately prior to
such event will, concurrently with the effectiveness of such event, be
proportionately decreased or increased, as appropriate.
The common stock issuable upon conversion of the Series C Preferred
Stock shall be changed into the same or a different number of shares of any
other class or classes of stock, whether by capital reorganization,
reclassification or otherwise (other than a subdivision or combination as
described in the prior paragraph), the conversion ratio then in effect shall,
concurrently with the effectiveness of such reorganization or reclassification,
be proportionately adjusted so that the Series C Preferred Stock shall be
convertible into, in lieu of the number of shares of common stock which the
holders would otherwise have been entitled to receive, a number of shares of
such other class or classes of stock equivalent to the number of shares of
common stock that would have been subject to receipt by the holders upon
conversion of the Series C Preferred Stock immediately before that change.
No dividends have been paid on the preferred stock.
Warrants and Stock Options
Warrants
At September 30, 2000, the Company had 2,040,000 Warrants outstanding
in three groups as follows:
(1) The Preferred "A" and "B" shares carry a warrant to
purchase one common share for each preferred share held for the
purchase price of $1.50, as adjusted. The Warrants may be exercised in
whole or in part during any time during the three years following their
issuance. Any call or conversion of the preferred shares will not
affect the warrants. The Company has a thirty-day option in which to
call the warrants which will require the holders to either exercise the
warrants or return the warrants to the company for redemption at the
nominal price of $0.05 per warrant. The call may be issued by the
company if the bid price for the Company's shares in the public markets
is $2.50 for any five (5) consecutive trading day period. Shares issued
upon exercise of the warrants will be restricted shares, according to
Rule 144 under the Securities Act of 1933. There remain 1,000,000 of
these warrants outstanding, which expire at various dates, ending June
17, 2002.
(2) The Company has issued an outstanding warrant to
Hampton-Porter Investment Bankers. This warrant is for the purchase of
shares of the Company's common stock for the purchase price of $1.30
per share, as adjusted. The Warrant may be exercised in whole or in
part. Shares issued upon exercise of the warrants will be restricted
shares, according to Rule 144 under the Securities Act of 1933. The
shares purchased pursuant to the warrant have piggyback registration
rights, in that the holder of the shares may make a secondary or public
offering of the shares if they are included in any registration
statement the Company files under the Securities Act of 1933, seeking
to register transactions in other securities of the Company. The holder
must request the registration of the shares in writing, and the
Company's obligation is to use its best efforts to include the shares
in the registration, subject to any underwriter approval. The warrant
is for the purchase of up to 1,000,000 shares, and it expires December
11, 2001.
(3) The Company has issued an outstanding warrant to MSF
Properties, L.C. This warrant is for the purchase of shares of the
Company's common stock for the purchase price of $0.25 per share, as
adjusted. The Warrant may be exercised in whole or in part at any time
prior to expiration. Shares issued upon exercise of the warrants will
be restricted shares, according to Rule 144 under the Securities Act of
1933. The shares purchased pursuant to the warrant have piggyback
registration rights, in that the holder of the shares may make a
secondary or public offering of the shares if they are included in any
registration statement the Company files under the Securities Act of
1933, seeking to register transactions in other
22
<PAGE>
securities of the Company. The holder must request the registration of
the shares in writing, and the Company's obligation is to use its best
efforts to include the shares in the registration, subject to any
underwriter approval. The warrant is for the purchase of up to 40,000
shares, and it expires July 1, 2005.
The exercise of all the Warrants would result in an equity
infusion to the Company of approximately $2,810,000. There can be no
assurance that any warrants will ever be exercised.
Options
As of September 30, 2000, the Company had granted stock options to
acquire 3,666,000 shares of common stock of which options to acquire 3,394,000
shares of common stock were outstanding as of that date. Options to acquire
869,250 shares of common stock were exercisable as of September 30, 2000. The
stock options are exercisable at $.78125 per share. The exercise of all of the
currently exercisable stock options would result in an equity infusion to the
Company of approximately $679,102. There can be no assurance that any of the
stock options will be exercised.
Transfer Agent and Registrar
The stock transfer agent and registrar for the Company's common stock is
Interwest Transfer Company, Inc., 1981 East Murray-Holladay Road, Holladay,
Utah, 84117. The Company acts as its own registrar with respect to its other
outstanding securities.
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Other Shareholder Matters
Market Information
The Company's common stock is traded in the over-the-counter market
since July 13, 1998. The common stock is currently quoted in the National Daily
Quotation Sheets, commonly referred to as the "pink sheets," under the trading
symbol PRIM. The following table sets forth the high and low bid information of
the common stock for the periods indicated. The price information contained in
the table was obtained from OTC Bulletin Board and Financial Web. Note that such
over-the-counter market quotations reflect inter-dealer prices, without retail
mark-up, markdown or commission and the quotations may not necessarily represent
actual transactions in the common stock.
Quarter Ended High Low
------------- ---- ---
1998
----
September 30 $3.00 $ .375
December 31 $2.25 $ .50
1999
March 31 $2.375 $ .75
June 30 $4.75 $1.375
September 30 $2.3125 $ .75
December 31 $2.21875 $ .6875
2000
----
March 31 $1.625 $ .51
June 30 $1.35 $ .20
September 30 $ .40 $ .10
23
<PAGE>
Holders
At October 31, 2000, there were approximately 187 holders of record of
the Company's common stock.
Dividends
The Company has not declared any cash dividends within the past two
years on its common stock. The Company is required to pay annual dividends on
the preferred stock before the Company can declare and pay dividends to the
common stockholders. See "Description of Securities--Preferred Stock." The
Company does not anticipate or contemplate paying dividends on its common stock
in the foreseeable future. It is the present intention of management to utilize
available funds, if any, for the development of the Company's business.
Item 2. Legal Proceedings
In October 1999, Electronic Exposition, Information Technologies, Inc.
("eExpo"), Lumin Technologies, Inc., Registration Control Systems, Inc., Iris
Registration, Inc. Capitol Registration, Inc. filed a lawsuit against bCard,
Neil Pickard, Ivan Lazarev, Christopher McLeod and Daniel Blair in the United
States District Court for the District of Utah. On April 4, 2000, the lawsuit
was dismissed from Federal Court, but a similar lawsuit was filed May 3, 2000 in
the Third Judicial District Court, Salt Lake County, State of Utah.
The Plaintiffs are all related entities, apparently owned and
controlled by one individual, Edgar Bolton. Defendants Neil Pickard and Ivan
Lazarev are former employees of Lumin Technologies, Inc., and Registration
Control Systems, Inc., respectively. Messrs. Pickard and Lazarev left the
employment of their respective employers and founded bCard in early 1999.
Messrs. McLeod and Blair also are former employees of one of the Plaintiff
companies and either were subsequently employed by bCard (Mr. Blair) or
consulted with bCard (Mr. McLeod).
Several months after Messrs. Pickard and Lazarev established bCard,
Plaintiff eExpo became the exclusive licensee of a patent owned by IC One, Inc.
In the Federal litigation, eExpo alleged that Messrs. Pickard and Lazarev and
bCard infringed the IC One patent. The patent infringement claim against bCard
appears to be the basis for Plaintiffs asserting certain pendent state law
claims against bCard which have now become part of the state action.
The lawsuit alleges alternative causes of action against one or more of
the defendants including, breach of fiduciary duty, misappropriation of trade
secrets, civil conspiracy, intentional interference with prospective economic
relations, business disparagement, fraud, unfair competition, unjust enrichment,
breach of contract against one, several or all of the defendants. The plaintiffs
request unspecified compensatory and punitive damages and injunctive relief.
This litigation is in the early stages and subject to all of the risks
and uncertainties of litigation and the outcome cannot presently be predicted.
Specifically, there is no assurance that the Company will be fully successful in
defending this lawsuit or that the lawsuit will be resolved on acceptable terms,
and the Company may incur significant costs in asserting its claims and
defenses. The Company is not engaged in any other legal proceedings.
Item 3. Changes in and Disagreements with Accountants
Tanner + Co. ("T+C") acted as the Company's independent auditor from
1998 until they were dismissed in December 1999. In January 2000, the Company
retained Jones Jensen & Company ("JJC") as its independent auditor.
24
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Except for a going concern qualification, the report of T+C on the
financial statements of the Company for the fiscal years ended December 31, 1998
and 1997, did not contain any adverse opinion or disclaimer of opinion and were
not qualified or modified as to uncertainty, audit scope or accounting
principles.
During the Company's two most recent fiscal years and all subsequent
interim periods preceding such change in auditors, there were no disagreements
with T+C on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved to the satisfaction of the former accountant, would have caused it
to make a reference to the subject matter of the disagreements in connection
with its report; nor has T+C ever presented a written report, or otherwise
communicated in writing to the Company or the Board the existence of any
"disagreement" or "reportable event" within the meaning of Item 304 of
Regulation S-B.
The Company authorized T+C to respond fully to the inquiries of JJC.
T+C has provided the Company with a letter addressed to the SEC, as required by
Item 304(a)(3) of Regulation S-B, regarding this disclosure which letter is
filed as an Exhibit hereto.
Item 4. Recent Sales of Unregistered Securities
a. PrimeSource Communications Acquisition
In June 1998, the Company issued 5,577,275 shares of common stock to
the PrimeSource Communications, Inc., shareholders in exchange for all of the
issued and outstanding common stock of PrimeSource Communications, Inc., in
order to affect the PrimeSource Communications Acquisition. There were
approximately 17 PrimeSource Communications, Inc., shareholders of record who
received shares of Company Common Stock in the transaction. The PrimeSource
Communications Acquisition was affected as a means to combine the Company, which
was a publicly held shell at the time, with the operating entity of PrimeSource
Communications, Inc. The transaction was consummated June 30th 1998.
The securities issued in the PrimeSource Communications Acquisition
were issued without registration under the Securities Act of 1933 (the
"Securities Act") in reliance on the exemption provided in Section 4(2) thereof
as a transaction "not involving a public offering." The transaction was
completed on the terms of the Share Exchange Agreement and Plan of
Reorganization dated May 8th, 1998, which was approved, ratified and executed by
each shareholder of PrimeSource Communications, Inc., and by the shareholders of
the Company at a duly held meeting of the shareholders. The Share Exchange
Agreement and Plan of Reorganization, and separate letters of consent executed
by the shareholders of PrimeSource Communications, Inc., set forth the agreement
and acknowledgement of such shareholders that the shares issued in the
transaction were "restricted securities," as defined in rule 144 under the
Securities Act; and that such shares were being acquired for investment and
could not be transferred without registration under the Securities Act or an
available exemption.
In connection with this transaction, the Company paid a finder's fee in
the form of 328,075 shares of Company Common Stock to Shell Seekers, Inc., an
entity owned principally by K. Bruce Jones, and Matthew White, who were also
directors of the Company at the time. Matthew White continues to be a director
of the Company. Shell Seekers, Inc., was an entity engaged in the business of
identifying publicly held shell companies and compatible operating companies to
combine in order to provide a vehicle for creating a publicly held operating
company. The number of shares issued to Shell Seekers, Inc., was equal to
approximately 5.0% of the number of shares of Common Stock of the Company
outstanding immediately following the PrimeSource Communications Acquisition.
These shares were issued without registration in reliance on the exemption
provided in Section 4(2) and Rule 506 promulgated hereunder. The owners of Shell
Seekers, Inc., were deemed "accredited investors" under the Securities Act
pursuant to Rule 501(a)(4).
25
<PAGE>
b. Consulting Agreement
On September 25, 1998, the Company issued an aggregate of 25,000 shares
of Company Common Stock to Gregory J. Newell, a consultant, for consulting
services. The Company believes that the transaction was exempt from registration
pursuant to Rule 701 promulgated under the Securities Act inasmuch as (i) the
Company was not subject to the reporting requirements of sections 13 or 15(d) of
the Securities Exchange Act of 1934 (the "Exchange Act"), (ii) the Company was
not an investment company; (iii) the consultant is a natural person who provided
bona fide services to the Company and its subsidiaries not in connection with a
capital raising or market making transaction; and (iv) the shares were issued
under a written compensation contract with the consultant. The Company did not
use an underwriter in connection this transaction.
c. Short-Term Indebtedness
On November 16, 1998, K. Bruce Jones, an individual shareholder and
former officer and director of the Company, provided a short-term loan to the
Company in the principal amount of $50,000. In consideration of such loan, the
Company issued the lender a promissory note in the principal amount of $50,000
together with 20,000 shares of Common Stock. The Company believes that the
promissory note is an exempted security under the Securities Act pursuant to
Section 3(a)(3) thereof as the promissory note's maturity was less than nine
months. The Company believes this transaction was exempt from registration under
Section 4(2) of the Securities Act. The lender, as a former officer and director
of the Company and principal of Shell Seekers, Inc., had access to all material
information concerning the Company and had the opportunity to conduct a due
diligence investigation of the Company and its operating condition.
On December 11, 1998, an individual made a short-term loan to the
Company in the principal amount of $10,000. The Company issued the lender a
promissory note in the principal amount of $10,000 together with 2,500 shares of
Common Stock. In connection with this transaction, the Company also issued 500
shares as a finder's fee to the brother of the lender, who was an accredited
investor engaged as a consultant to the Company. The Company believes that the
promissory note is an exempted security under the Securities Act pursuant to
Section 3(a)(3) thereof as the promissory note's maturity was less than nine
months. The Company further believes these transactions were exempt from
registration under Section 4(2) of the Securities Act and Rule 506 as
promulgated under the Securities Act. The lender, together with his brother (an
accredited investor), had such knowledge and experience in financial and
business matters that he was capable of evaluating the merits and risks of the
prospective investment.
d. Preferred Stock Offerings
In October 1998 through June 1999, the Company issued an aggregate of
500,000 shares of Series A Preferred Stock at $0.75 per share and 500,000 shares
of Series B Preferred Stock at $1.00 per share. The shares of Series A Preferred
Stock were sold on various dates between October 1998 and June 1999 to an
aggregate of twelve separate purchasers. The dates of the individual
transactions and the number of shares sold in each transaction are as follows:
Purchaser Date Shares
1 10/27/98 10,000
2 10/27/98 10,000
3 11/9/98 66,667
4 3/9/99 27,000
5 3/17/99 20,000
6* 4/30/99 266,667
6/17/99 6,329
7 6/1/99 2,667
8 6/1/99 10,668
9 6/1/99 13,334
10 6/1/99 6,667
11 6/1/99 6,667
12 6/1/99 53,334
*All 500,000 shares of Series B Preferred were purchased by this same investor
on May 13, 1999.
26
<PAGE>
Each purchaser of preferred stock also received one warrant for each
share of preferred stock purchased, exercisable for a period of three years, to
purchase one share of Company Common Stock at an exercise price of $1.50 per
share. In October 1999 and March 2000, 6,667 and 20,000 shares of Series A
Preferred Stock, respectively, were converted into an aggregate of 26,667 shares
of common stock.
The Company believes that the issuances of the Series A and Series B
Preferred Stock and related warrants were exempt from registration under Section
4(2) of the Securities Act and Rule 506 as promulgated under the Act. Each
purchaser executed a subscription agreement setting forth such individual's
representation that such purchaser was an "accredited investor," as defined
under Rule 501 promulgated under the Securities Act. Each purchaser acknowledged
that the shares being purchased were "restricted securities," as defined in rule
144 under the Securities Act; were being acquired for investment and could not
be transferred without registration under the Securities Act or an available
exemption. The securities were offered pursuant to a Private Placement
Memorandum dated September 30, 1998, as supplemented January 25, 1999,
containing disclosure and risk factors concerning an investment in the Company.
The Company did not use an underwriter in connection these
transactions. However, in connection with certain of the sales, the Company paid
a finder's fee in the form of $77,475 and warrants to acquire 100,000 shares of
common stock at an exercise price of $1.50 for a period of one year to the
Mercer Group in connection with the transaction. These warrants have now
expired. The Mercer Group is an entity based in San Diego, California, engaged
in the business of assisting companies in finding financing. The Mercer Group
assisted in the placement of some of the shares of preferred stock by
identifying accredited investors potentially interested in making an investment
in the Company from their exiting clients. The Company believes that the
issuance of the warrants was exempt from registration under Section 4(2) of the
Securities Act.
e. Issuance of Indebtedness and Conversion of Indebtedness into Common
Stock
In addition to the other indebtedness and the Series A and Series B
convertible promissory notes described below, as part of the PrimeSource
Communications Acquisition, the Company assumed indebtedness aggregating
approximately $96,000 represented by promissory notes held by an aggregate of
six people, five of whom were related to an associate of the Company. These
securities were not issued by the Company.
In March through July 1998, the Company issued Series A convertible
promissory notes in the aggregate principal amount of approximately $195,500 to
approximately 36 individuals (four of whom represented they were accredited
investors). From May 1998 through July 1998, the Company issued Series B
convertible promissory notes in the aggregate principal amount of $295,000 to
sixteen investors, each of whom were accredited investors. The foregoing amounts
include $229,500 in principal amount of promissory notes that were issued by the
Company's predecessor prior to the PrimeSource Communications Acquisition.
The Company believes that the issuances of the promissory notes by
PrimeSource Communications, Inc., and by the Company in the foregoing
transactions were exempt from registration under Section 4(2) the Act as
promulgated under the Securities Act inasmuch as the note offerings were not a
public offering and were made only to individuals with an existing relationship
of the Company, PrimeSource Communications, Inc., or their principals and who
were familiar with the business and operations of such entities. The Series B
convertible promissory notes were offered in reliance on Rule 506 promulgated
under the Securities Act since all purchasers were accredited investors.
Between December 1998 and April 1999, $495,758 in principal and
interest owing under the above referenced and other notes was converted into an
aggregate of 495,758 shares of common stock and warrants to acquire common
stock. For each Series A convertible promissory note converted, the holder
received 1/2 warrant exercisable at $2.00 per share (97,750 total warrants were
issued). For each Series B convertible promissory note converted, the holder
received 1 warrant exercisable at $1.00 per share (295,000 total). The Company
believes that the foregoing conversions were exempt from registration under
Section 4(2) and Rule 504 (pre-1999 amendment) as
27
<PAGE>
promulgated under the Securities Act. The Company believes Rule 504 was
available because at the time of the conversions the Company was not (i) subject
to the reporting requirements of sections 13 or 15(d) of the Exchange Act; (ii)
an investment company; or (iii) a development stage company with no specific
business plan or purpose and the aggregate offering price of securities sold
under Rule 504 did not exceed $1,000,000 (offset by certain amounts mandated by
Rule 504). In connection with the conversion, each note holder was provided a
copy of the Company's Offering Memorandum dated October 8, 1998, which contained
disclosure and risk factors concerning an investment in the Company.
Investors who chose not to convert their indebtedness into Company
Common Stock were repaid the amounts owed to them. The Company did not use an
underwriter in connection with these transactions.
f. Private Placement of Common Stock
On December 10, 1998, the Company issued an aggregate of 350,000 shares
of common stock to Janda & Garrington, an investment-banking firm in San Diego,
California, to retain the entity as a financial advisor to the Company. The
Company believes that the transaction was exempt from registration under Rule
504 as promulgated under the Securities Act because the Company was not (i)
subject to the reporting requirements of sections 13 or 15(d) of the Exchange
Act; (ii) an investment company; or (iii) a development stage company with no
specific business plan or purpose and the aggregate offering price of securities
sold under Rule 504 did not exceed $1,000,000 (offset by certain amounts
mandated by Rule 504). The shares were issued under California state law (where
Janda & Garrington resides) in reliance upon section 25102(f) of the California
Corporations Code. The shares were offered pursuant to the terms of an
Investment Banking Agreement dated December 11, 1998, at an agreed value of
$175,000.
In January 1999 and April 1999, the Company issued an aggregate of
306,350 shares of common stock to 13 accredited investors at $0.75 per share for
an aggregate of $229,762.50. The Company believes that the transactions were
exempt from registration under Rule 504 as promulgated under the Securities Act
because the Company was not (i) subject to the reporting requirements of
sections 13 or 15(d) of the Exchange Act; (ii) an investment company; or (iii) a
development stage company with no specific business plan or purpose and the
aggregate offering price of securities sold under Rule 504 did not exceed
$1,000,000 (offset by certain amounts mandated by Rule 504). Each purchaser
executed a subscription agreement setting forth such individual's representation
that such purchaser was an "accredited investor," as defined under Rule 501
promulgated under the Securities Act. The shares were offered through Janda &
Garrnington pursuant to the terms of a private placement memorandum dated
November 30, 1998. The Company paid Janda & Garrington a commission of
$20,812.50 in connection these transactions.
g. UniQuest Acquisition
On December 31, 1998, the Company acquired all of the outstanding
shares of UniQuest in consideration of the issuance of 1,000 shares of common
stock to the UniQuest shareholders immediately prior to the UniQuest
Acquisition. At the time of the acquisition, UniQuest had seven shareholders,
including two principals of the Company and over 90% of the stock was held by
individuals that were accredited investors. All UniQuest shareholders were also
shareholders of the Company. The transaction was completed on the terms of the
Stock Purchase Agreement dated December 31, 1998, which was approved, ratified
and executed by each shareholder of UniQuest. The agreement set forth the
acknowledgement of such shareholders that the shares issued in the transaction
were "restricted securities," as defined in rule 144 under the Securities Act;
and that such shares were being acquired for investment and could not be
transferred without registration under the Securities Act or an available
exemption. The Company believes that the transaction was exempt from
registration under Section 4(2) of the Securities Act because it did not involve
a public offering. The Company did not use an underwriter in connection with the
transaction.
28
<PAGE>
h. Short-Term Indebtedness
On March 11, 1999, the Company issued a convertible promissory note to
an individual accredited investor in the principal amount of $100,000 In June
1999 the investor elected to convert $20,000 of the amount owing into common
stock and the Company repaid the remaining principal and interest owing
hereunder. The Company believes that the transaction was exempt from
registration under Section 4(2) of the Act and Rule 506 as promulgated under the
Act inasmuch as the investor was an accredited investor. The Company did not use
an underwriter in connection with the transaction.
i. Warrant; Exercise of Warrant
On March 12, 1999, in consideration of the payment of $100,000 the
Company issued warrants to Zephyr Holdings LLC, a company affiliated with an
existing shareholder. Zephyr was an accredited investor and purchased warrants
exercisable to purchase an aggregate of 500,000 shares of Company Common Stock.
On June 30, 1999, the warrants were exercised in consideration for payment of
the $150,000 exercise price. The shares were sold at discount from market
because of the size of the transaction and the restricted nature of the shares.
The Company believes that the transactions were exempt from registration under
Section 4(2) of the Act and Rule 506 as promulgated under the Act inasmuch as
Zephyr is an accredited investor. The Company did not use an underwriter in
connection these transactions.
j. bCard Acquisition
On March 15, 1999, in addition to $500,000, the Company issued 500,000
shares of Company Common Stock to the two bCard shareholders immediately prior
to the bCard Acquisition in exchange for 80% of the outstanding stock of bCard.
The Company believes that the transaction was exempt from registration under
Section 4(2) of the Act because it was not a public offering but an offering of
shares to two individuals in relation to a specific transaction. The shares of
bCard were held by two individuals who are now employees of the Company. The
Company owns 80% of the outstanding capital stock of bCard. The Company did not
use an underwriter in connection with these transactions.
k. Cash Investments
In April 1999, the Company issued an aggregate of 1,075,000 shares of
common stock to an investor in consideration for $400,000. The Company believes
that with respect to 1,000,000 shares the transaction was exempt from
registration under Rule 504 as promulgated under the Act and the transaction was
exempt with respect to 75,000 shares under Section 4(2) of the Act and Rule 506
as promulgated under the Act. The Company believes Rule 504 was available
because at the time of the issuance the Company was not (i) subject to the
reporting requirements of sections 13 or 15(d) of the Exchange Act; (ii) an
investment company; or (iii) a development stage company with no specific
business plan or purpose and the aggregate offering price of securities sold
under Rule 504 did not exceed $1,000,000 (offset by certain amounts mandated by
Rule 504). The Company did not use an underwriter in connection with these
transactions.
l. Series C Preferred Stock
In July and August 1999, the Company issued an aggregate of 705,000
shares of Series C Preferred Shares to three accredited investors, each of which
were already shareholders of the Company, in consideration for $705,000. The
Company believes that the transactions were exempt from registration under
Section 4(2) of the Act and Rule 506 as promulgated under the Act inasmuch as
each of the three purchasers were accredited investors under Rule 501
promulgated under the Securities Act. The Company paid a finder's fee to the
Mercer Group in connection with one of the sales. The finder's fee was $37,500
plus warrants to acquire 25,000 shares of Common Stock at a exercise price of
$1.75 for a period of one year. The warrants have now expired.
m. Security for Lease Obligations
On July 27, 1999, August 27, 1999, September 13 1999, and April 18,
2000, the Company issued an aggregate of 80,000 shares of Common Stock into
escrow in connection with the License and Option Agreement, dated July 1, 1999.
The shares are being held in escrow as security for the payment of certain lease
obligations
29
<PAGE>
assumed in connection with the License and Option Agreement. The Company
believes that the transaction was exempt from registration under Section 4(2) of
the Act because the shares were issued for the benefit of one entity in
connection with a specific transaction and not in connection with a public
offering. The shares would only have been released from escrow if the Company
defaulted on the lease obligation. Since the Company has performed under the
obligation and has since purchased the building, which was the subject of the
lease, the shares will be recalled from the escrow and cancelled. The Company
did not use an underwriter in connection this transaction.
n. Collateral for Loan
In October 1999, the Company issued an aggregate of 1,500,000 shares of
Common Stock into escrow for the benefit of a single creditor as collateral for
a loan in the principal amount of $150,000. The loan was paid off in December
1999 and the shares were cancelled. On January 11, 2000, the Company borrowed
amounts from the same entity and pledged 1,000,000 shares of Common Stock, which
were canceled on February 25, 2000, when amounts due were paid off. On each of
March 21, 2000 and April 10, 2000, the Company issued 1,000,000 shares of Common
Stock as collateral for indebtedness owed to the same lender. On June 30, 2000,
the Company issued 1,000,000 shares as collateral for indebtedness from another
lender, together with five-year options to purchase 40,000 shares of Common
Stock at an exercise price of $0.25 per share. The Company is in default on the
indebtedness underlying these transactions and the debtors could foreclose these
shares and release them from escrow. The Company is working with the lender to
reach an accommodation with regard to these transactions. The Company believes
that the transactions were exempt from registration under the Act under Section
4(2) of the Act as promulgated under the Act. The Company did not use an
underwriter in connection with these transactions.
o. GolfAgent USA Acquisition
In October 1999, the Company issued 500,000 shares of common stock to
the four shareholders of Camelot Holdings (GolfAgent USA) immediately prior to
the GolfAgent USA Acquisition. One-half of these shares are being held in escrow
and will be delivered to the former GolfAgent USA shareholders only if certain
performance milestones are satisfied (which now seems unlikely). If the
milestones are not satisfied the shares will be returned to the Company for
cancellation. The Company believes that the transaction was exempt from
registration under Section 4(2) of the Act and Rule 506 as promulgated under the
Act. The Company did not use an underwriter in connection with these
transactions.
p. Sales of Stock for Cash
In November 1999 through February 2000, the Company issued an aggregate
of 1,713,142 shares of Common Stock to accredited investors in consideration for
$953,500. The transactions occurred on the following dates in the following
amounts:
11-17-99 500,000 shares at $0.40 per share
12-17-99 263,737 shares at $0.56875 per share.
12-30-99 338,625 shares at $0.590625 per share.
1-13-00 338,624 shares at $0.590625 per share.
2-17-00 100,000 shares at $0.6058 per share.
2-22-00 52,000 shares at $0.5625 per share.
2-23-00 147,126 shares at $0.679698 per share.
The Company believes that the transactions were exempt from registration under
Section 4(2) of the Securities Act and Rule 504 as promulgated under the
Securities Act. The shares were offered and sold to Colorado persons and
entities pursuant to Section 11-51-308(1)(p) and Rule 51-3.13.B of the Colorado
Securities Act. The Company received a legal opinion of its outside counsel that
the transactions could be completed under Rule 504 promulgated under the
Securities Act.
The Company paid a finder's fee in the form of $37,500 to Paul Enright in
connection with the transactions.
30
<PAGE>
q. Stock Option Plan
In February 2000 the Company granted stock options to acquire an
aggregate of 3,666,000 shares of Common Stock at an exercise price of $.78125
per share to officers, directors, employees and a consultant under its 2000
stock Option Plan. As of September 30, 2000 stock options exercisable for
272,000 had been canceled and stock options exercisable for 869,250 shares of
Company common stock were exercisable. The Company believes that the transaction
was exempt from registration under Section 4(2) of the Act and Rule 701 as
promulgated under the Act inasmuch as (i) the Company was not subject to the
reporting requirements of sections 13 or 15(d) of the Securities Exchange Act of
1934 (the "Exchange Act"), (ii) the Company was not an investment company; (iii)
the consultant is a natural person who provided bona fide services to the
Company and its subsidiaries not in connection with a capital raising or market
making transaction; and (iv) the shares were issued under a written compensation
contract with the consultant. The Company did not use an underwriter in
connection with these transactions.
At the time of the above referenced sales of securities, the Company
believed the transactions were exempt from the registration requirements of the
Securities Act. The Company relied on several different exemptions from
Securities Act registration in completing the transactions. It now appears
possible that all or some of these transactions could be integrated or
considered part of a single financing. In that event, it may be that no
exemption from Securities Act registration was available for those transactions
that are deemed to be part of the same financing. There can be no assurance that
the Company's fundraising activities did not violate the Securities Act. If the
Securities Act or any other applicable securities regulation was violated, it is
possible that an investor may have the right to rescind his or her purchase of
the securities and the Company and its controlling persons may be subject to
significant civil and criminal penalties. If any purchasers were to successfully
seek rescission or civil or criminal penalties were imposed, the Company could
face severe financial demands that could adversely affect the Company and result
in the Company ceasing or significantly curtailing operations.
From October 1998 through August 1999 the Company sold Preferred A
Shares, Preferred B Shares and Series C Preferred Stock to investors. Under
Delaware General Corporation Law a corporation's certificate of incorporation,
or an amendment thereto, must set forth powers, designations, preferences and
other rights of each class or series of stock a corporation intends to issue.
The Company's certificate of incorporation did not provide for the Company to
issue any class of preferred stock at the time the Preferred A Shares, Preferred
B Shares and Series C Preferred Stock were issued. The Company has amended its
certificate of incorporation to authorize the issuance of the preferred stock
that was sold and has filed a certificate of correction. Though management
believes that the remedial steps of filing an amendment to the certificate of
incorporation and a certificate of correction will cure the defect, there can be
no assurance that the Company's failure to properly authorize the preferred
shares before issuance will not lead to significant liability in the form of
possible rescission of the transactions in which the preferred shares were
issued.
Item 5. Indemnification of Directors and Officers
The Company's Certificate of Incorporation generally provide that its
directors and officers shall have no personal liability to the Company or its
stockholders for monetary damages for breaches of their fiduciary duties as
directors, except for breaches of their duties of loyalty, acts or omissions not
in good faith or which involve intentional misconduct or knowing violation of
law, acts involving unlawful payment of dividends or unlawful stock purchases or
redemptions, or any transaction from which a director derives an improper
personal benefit. Such provisions substantially limit the stockholders' ability
to hold directors liable for breaches of fiduciary duty. The Company's
Certificate of Incorporation and By-laws provide for indemnification by the
Company of its Officers and Directors.
31
<PAGE>
The Company has entered into indemnity agreements (the "Indemnity
Agreements") with each of its executive officers and directors pursuant to which
the Company has agreed to indemnify the officers and directors to the fullest
extent permitted by law for any event or occurrence related to the service of
the indemnitee as an officer or director of the Company that takes place prior
to or after the execution of the Indemnity Agreement. The Indemnity Agreements
obligate the Company to reimburse or advance expenses relating to any proceeding
arising out of an indemnifiable event. Under the Indemnity Agreements, the
officers and directors of the Company are presumed to have met the relevant
standards of conduct required by Delaware law for indemnification. Should the
Indemnity Agreements be held to be unenforceable, indemnification of these
officers and directors may be provided by the Company, in certain cases, at its
discretion. The Company also maintains director and officer insurance that would
cover certain acts or omissions of its directors or officers.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
32
<PAGE>
PART F/S
See page F-1 hereto.
PART III
Item 1. Index to Exhibits.
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
3(i).1 Certificate of Incorporation of the Company
3(i).2 Certificate of Amendment to the Certificate of Incorporation,
dated December 11, 1990
3(i).3 Certificate of Amendment to the Certificate of Incorporation,
dated June 8, 1998
3(i).4 Certificate of Amendment to the Certificate of Incorporation,
dated July 14, 1999
3(i).5 Certificate of Designation for Preferred A Shares
3(i).6 Correction to Certificate of Designation for Preferred A
Shares
3(i).7 Certificate of Designation for Preferred B Shares
3(i).8 Correction to Certificate of Designation for Preferred B
Shares
3(i).9 Certificate of Designation for Series C Preferred Stock
3(ii).1 Bylaws of the Company
4.1 Form of Common Stock Certificate
10.1 Agreement between the Company and American Show Management,
Inc.
10.2 Employment Agreement between PrimeHoldings and Tom Aliprandi.
10.3 Advisory Agreement between PrimeHoldings and Financial Service
Group
10.4 Employment Agreement between bCard and Neil Pickard.
10.5 Employment Agreement between bCard and Ivan Lazarev.
10.6 Form of Indemnification Agreement between the Company and its
executive officers and directors.
10.7 PrimeHoldings.com, Inc. 2000 Stock Option Plan
10.8 Loan Agreement between UniQuest and UniDial Incorporated
10.9 First Amendment to Loan Agreement between UniQuest and UniDial
Incorporated
10.10 Revolving Credit Note between UniQuest and UniDial
Incorporated.
10.11 First Amended Revolving Credit Note between UniQuest and
UniDial Incorporated.
10.12 Second Amended Revolving Credit Note between UniQuest and
UniDial Incorporated.
10.13 Third Amended Revolving Credit Note between UniQuest and
UniDial Incorporated.
10.14 Fourth Amended Revolving Credit Note between UniQuest and
UniDial Incorporated.
10.15 Security Agreement between UniQuest and UniDial Incorporated.
10.16 First Amended Security Agreement between UniQuest and UniDial
Incorporated.
10.17 Stock Pledge Agreement between stockholders and UniDial
Incorporated.
10.18 First Amended Stock Pledge Agreement between stockholders and
UniDial Incorporated.
10.19 License and Option Agreement between Navilor and Automated
Solutions, Inc.
33
<PAGE>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
10.20 First Amendment to License and Option Agreement between
Navilor and Automated Solutions, Inc.
16.1 Letter from Tanner + Co., regarding change in certified
accountants.
21.1 Schedule of subsidiaries of PrimeHoldings.
23.1 Consent of Independent Auditors' from HJ & Associates, LLC
(formerly Jones, Jenson & Company)
23.2 Consent of Independent Auditors' from Tanner + Co.
27.1 Financial Data Schedule
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
PRIMEHOLDINGS.COM, INC
(Registrant)
Date: November 30, 2000 By /s/ Thomas E. Aliprandi
-----------------------
Thomas E. Aliprandi
Chief Executive Officer and Chairman
34
<PAGE>
PRIMEHOLDINGS.COM, INC.
(Formerly PrimeSource Communications
Holdings, Inc. and Subsidiaries)
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and December 31, 1999
F-1
<PAGE>
<TABLE>
<CAPTION>
PRIMEHOLDINGS.COM, INC.
(Formerly PrimeSource Communications Holdings, Inc. and Subsidiaries)
Consolidated Balance Sheets
ASSETS
September 30, December 31,
2000 1999
------------------ -----------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 65,754 $ 86,657
Receivables, net of allowance for doubtful accounts
of $8,000 and $5,832, respectively (Note 2) 48,914 104,743
Advances to related party (Note 8) 6,499 26,074
Prepaid expenses 115,423 75,158
Inventory 22,543 -
------------------ -----------------
Total Current Assets 259,133 292,632
------------------ -----------------
PROPERTY AND EQUIPMENT (NET) (Note 3) 589,423 599,217
------------------ -----------------
OTHER ASSETS
Other assets, net of accumulated amortization of
$122,577 (Note 2) 564,200 671,459
Deposits 10,584 21,605
------------------ -----------------
Total Other Assets 574,784 693,064
------------------ -----------------
TOTAL ASSETS $ 1,423,340 $ 1,584,913
================== =================
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
PRIMEHOLDINGS.COM, INC.
(Formerly PrimeSource Communications Holdings, Inc. and Subsidiaries)
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
September 30, December 31,
2000 1999
------------------ -----------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 625,651 $ 214,563
Accrued expenses 723,791 355,754
Unearned revenue 169,262 -
Notes payable - current portion (Note 4) 498,633 168,949
Notes payable - related party (Note 4) 201,114 160,408
------------------ -----------------
Total Current Liabilities 2,218,451 899,674
------------------ -----------------
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY
Preferred stock: $0.001 par value, 5,000,000 shares
authorized, 1,378,333 and 1,698,333 shares issued
and outstanding, respectively 1,378 1,698
Common stock, $0.0666 par value, 50,000,000
shares authorized, 15,830,400 shares issued with
12,830,400 and 11,168,674 shares outstanding,
respectively 454,121 343,701
Additional paid-in capital 4,463,041 4,179,416
Accumulated deficit (5,713,651) (3,839,576)
------------------ -----------------
Total Stockholders' Equity (795,111) 685,239
------------------ -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,423,340 $ 1,584,913
================== =================
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
PRIMEHOLDINGS.COM, INC.
(Formerly PrimeSource Communications Holdings, Inc. and Subsidiaries)
Consolidated Statements of Operations
For the Nine Months Ended
September 30,
-------------------------------------
2000 1999
------------------ -----------------
(Unaudited)
<S> <C> <C>
REVENUES $ 1,393,592 $ 645,037
COST OF REVENUES 640,867 264,394
------------------ -----------------
GROSS MARGIN 752,725 380,643
------------------ -----------------
OPERATING EXPENSES
Amortization and depreciation 261,492 132,166
Selling, general and administrative expenses 2,143,462 1,390,091
------------------ -----------------
Total Operating Expenses 2,404,954 1,522,257
------------------ -----------------
LOSS FROM OPERATIONS (1,652,229) (1,141,614)
------------------ -----------------
OTHER INCOME (EXPENSES)
Interest expense (244,325) (82,205)
Other income 22,479 9,247
------------------ -----------------
Total Other Income (221,846) (72,958)
------------------ -----------------
LOSS BEFORE INCOME TAXES (1,874,075) (1,214,572)
------------------ -----------------
INCOME TAXES - -
------------------ -----------------
NET LOSS (1,874,075) (1,214,572)
------------------ -----------------
OTHER COMPREHENSIVE INCOME (LOSS)
Dividends on convertible preferred stock; unpaid (63,450) (14,903)
------------------ -----------------
Total Other Comprehensive Income (Loss) $ (1,937,525) $ (1,229,475)
================== =================
BASIC LOSS PER SHARE $ (0.13) $ (0.17)
================== =================
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
PRIMEHOLDINGS.COM, INC.
(Formerly PrimeSource Communications Holdings, Inc. and Subsidiaries)
Consolidated Statements of Stockholders' Equity (Deficit)
Preferred Stock Common Stock Additional Total
-------------------------- -------------------------- Paid-In Accumulated Stockholders'
Shares Amount Shares Amount Capital Deficit Deficit
------------ ------------ ------------ ------------ ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 - $ - 5,578,275 $ 14,150 $ - $ (849,403) $ (835,253)
Acquisition of Market Lead
International Corporation - - 656,157 930 - - 930
Issuance of preferred stock
for cash 86,667 87 - - 64,913 - 65,000
Issuance of common stock
for services - - 726,075 48,357 192,931 - 241,288
Note conversions and payment
of accrued interest - - 411,772 27,424 384,348 - 411,772
Common stock retired due
to payment of debt - - (150,000) (9,990) 9,990 - -
Net loss for the year ended
December 31, 1998 - - - - - (921,597) (921,597)
------------ ------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1998 86,667 $ 87 7,222,279 $ 80,871 $ 652,182 $(1,771,000) $(1,037,860)
------------ ------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
PRIMEHOLDINGS.COM, INC.
(Formerly PrimeSource Communications Holdings, Inc. and Subsidiaries)
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
Preferred Stock Common Stock Additional Total
-------------------------- -------------------------- Paid-In Accumulated Stockholders'
Shares Amount Shares Amount Capital Deficit Deficit
------------ ------------ ------------ ------------ ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 86,667 $ 87 7,222,279 $ 80,871 $ 652,182 $(1,771,000) $ (1,037,860)
Issuance of common stock for
cash - - 2,956,742 196,919 1,058,271 - 1,255,190
Issuance of common stock for
debt - - 103,986 6,926 97,061 - 103,987
Issuance of preferred shares
for cash at an average of $0.88
per share 1,618,333 1,618 - - 1,513,380 - 1,514,998
Preferred shares converted to
common shares (6,667) (7) 6,667 444 (437) - -
Common stock issued to acquire
subsidiary (bCard) - - 500,000 33,300 529,200 - 562,500
Common stock issued to acquire
subsidiary (Golf Agent USA, Inc.) - - 500,000 33,300 278,700 - 312,000
Exercise of warrants at $2.00
per share - - 9,000 599 17,401 - 18,000
Contribution of capital - - - - 25,000 - 25,000
Retirement of shares - - (130,000) (8,658) 8,658 - -
Net loss for the year ended
December 31, 1999 - - - - - (2,068,576) (2,068,576)
------------ ------------ ------------ ------------ ------------ ----------- ------------
Balance, December 31, 1999 1,698,333 $ 1,698 11,168,674 $ 343,701 $ 4,179,416 $(3,839,576) $ 685,239
------------ ------------ ------------ ------------ ------------ ----------- ------------
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
PRIMEHOLDINGS.COM, INC.
(Formerly PrimeSource Communications Holdings, Inc. and Subsidiaries)
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
Preferred Stock Common Stock Additional Total
-------------------------- -------------------------- Paid-In Accumulated Stockholders'
Shares Amount Shares Amount Capital Deficit Deficit
------------ ------------ ------------ ------------ ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1999 1,698,333 $ 1,698 11,168,674 $ 343,701 $ 4,179,416 $(3,839,576) $ 685,239
Issuance of common stock for
cash at $0.59 per share
(unaudited) - - 338,624 22,552 177,448 - 200,000
Issuance of common stock for
cash at $0.72 per share
(unaudited) - - 100,000 6,670 65,330 - 72,000
Issuance of common stock for
cash at $0.56 per share
(unaudited) - - 52,000 3,463 28,037 - 31,500
Issuance of common stock for
cash at $0.68 per share
(unaudited) - - 147,126 9,799 90,201 - 100,000
Issuance of common stock into
escrow to secure notes payable
(unaudited) - - 3,000,000 - - - -
Conversion of preferred stock
for common stock (unaudited) (320,000) (320) 1,020,000 67,932 (67,612) - -
Issuance of common stock to
cover obligation (unaudited) - - 3,976 4 791 - 795
Cost of capital (unaudited) - - - - (10,570) - (10,570)
Net loss for the period ended
September 30, 2000 (unaudited) - - - - - (1,874,075) (1,874,075)
------------ ------------ ------------ ------------ ------------ ----------- ------------
Balance, September 30, 2000
(unaudited) 1,378,333 $ 1,378 15,830,400 $ 454,121 $ 4,463,041 $(5,713,651) $ (795,111)
============ ============ ============ ============ ============ =========== ============
</TABLE>
F-7
<PAGE>
<TABLE>
<CAPTION>
PRIMEHOLDINGS.COM, INC.
(Formerly PrimeSource Communications Holdings, Inc. and Subsidiaries)
Consolidated Statements of Cash Flows
For the Nine Months Ended
September 30,
---------------------------------------
2000 1999
----------------- -----------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,874,075) $ (1,214,572)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization expense 261,492 67,196
Bad debt expense (recoveries) 8,000 (584)
Change in Assets and Liabilities:
(Increase) decrease in accounts receivable 47,831 (98,252)
(Increase) decrease in prepaid expenses (18,590) (126,220)
(Increase) decrease in advances to related party (2,101) -
(Increase) decrease in other assets 11,021 -
Increase (decrease) in cash overdraft - (15,162)
Increase in accounts payable 411,082 (14,374)
Increase in accrued expenses/unearned revenue 537,299 134,926
(Increase) decrease in inventory (22,544) -
----------------- -----------------
Net Cash Used in Operating Activities (640,585) (1,267,042)
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment and software (144,433) (781,161)
----------------- -----------------
Net Cash Used in Investing Activities (144,433) (781,161)
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable 476,500 418,085
Payments on notes payable (106,110) (646,000)
Proceeds from issuance of stock 393,725 2,292,888
----------------- -----------------
Net Cash Provided by Financing Activities 764,115 2,064,973
----------------- -----------------
NET INCREASE (DECREASE) IN CASH (20,903) 16,770
CASH, BEGINNING OF YEAR 86,657 -
----------------- -----------------
CASH, END OF PERIOD $ 65,754 $ 16,770
================= =================
</TABLE>
F-8
<PAGE>
<TABLE>
<CAPTION>
PRIMEHOLDINGS.COM, INC.
(Formerly PrimeSource Communications Holdings, Inc. and Subsidiaries)
Consolidated Statements of Cash Flows (Continued)
For the Nine Months Ended
September 30,
---------------------------------------
2000 1999
----------------- -----------------
(Unaudited)
Supplemental disclosures of cash flow information:
<S> <C> <C>
Interest $ 28,201 $ 34,584
Income taxes $ - $ -
During 1999, the Company paid debt of $100,066 and associated accrued interest
of $3,921 by issuing 103,986 shares of common stock.
During 1999, the Company purchased two subsidiaries for 1,000,000 shares of
common stock for a combined value of $874,500.
During 1999, a shareholder of the Company transferred some of his shares of
stock to satisfy a debt of the Company in the amount of $25,000. This amount has
been contributed to capital.
During the nine months ended September 30, 2000, the Company issued 3,976 shares
of common stock to settle an obligation to an individual and recognized an
expense of $795.
</TABLE>
F-9
<PAGE>
PRIMEHOLDINGS.COM, INC.
(Formerly PrimeSource Communications Holdings, Inc. and Subsidiaries)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 1 - ORGANIZATION AND PRESENTATION
On July 8, 1999, the Board of Directors approved changing the
Company's name from PrimeSource Communications Holdings, Inc. to
PrimeHoldings.com, Inc.
On March 5, 1999, the Company acquired 80% of the outstanding
stock of bCard, Inc., (a Utah corporation with a wholly-owned
Canadian subsidiary) in exchange for $100,000 cash, a $400,000
promissory note and 500,000 shares of restricted common stock.
bCard, Inc. was incorporated in January 1999. All financial
information of bCard, Inc. has been included in the consolidated
financial statement of the Company. The acquisition was accounted
for as a purchase with goodwill being recognized of $562,500.
bCard, Inc. did not have any operations or assets prior to the
acquisition and the minority shareholders did not have any basis
in bCard, Inc. Therefore, no minority interest or proforma
financial information is presented.
In July 1999, the Company acquired assets and associated
liabilities from a Utah company for $400,000 cash. The assets were
recorded in the Company's subsidiary Navilor, Inc. (formerly
PrimeSource Net, Inc.) The assets were office equipment and
furniture for $250,000 and software licensing rights for $150,000.
On October 12, 1999, the Company acquired all issued and
outstanding stock of Camelot Holdings, Inc. (a Nevada corporation)
in exchange for 500,000 shares of the Company's restricted common
stock. Camelot Holdings, Inc. is engaged in developing an online
tee time reservation system and had no significant operations
prior to 1999. The acquisition was accounted for as a purchase.
Camelot Holdings, Inc. later changed its name to Golf Agent USA,
Inc. The acquisition was accounted for as a purchase with goodwill
being recognized of $312,000. The goodwill was determined to be
impaired as of December 31, 1999 because of a significant decrease
in market value due to insufficient cash flows and an allowance
was established for the $312,000. CamelotHoldings, Inc. did not
have any financial operations before the acquisition, therefore,
no proforma financial information is being presented.
On June 30, 1998, PrimeSource Communications Holdings, Inc. (the
Company), formerly Market Lead International Corporation, entered
into a share exchange agreement and plan of reorganization with
PrimeSource Solutions, Inc. (formerly PrimeSource Communications,
Inc.) whereby the Company acquired all of the issued and
outstanding common stock of PrimeSource Solutions, Inc. in
exchange for 5,577,275 shares of the Company's common stock. The
business combination has been accounted for as a recapitalization,
therefore, all assets and liabilities have been reflected at
historical cost.
On December 31, 1998, PrimeSource Communications Holdings, Inc.
(the Company) entered into a stock purchase agreement accounted
for as a pooling with UniQuest Communications, Inc. whereby the
Company acquired all of the issued and outstanding common shares
of UniQuest Communications, Inc., in exchange for 1,000 shares of
the Company's common stock.
F-10
<PAGE>
PRIMEHOLDINGS.COM, INC.
(Formerly PrimeSource Communications Holdings, Inc. and Subsidiaries)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 1 - ORGANIZATION AND PRESENTATION (Continued)
The consolidated financial statements at December 31, 1998 assume
the acquisition of PrimeSource Solutions, Inc. and UniQuest
Communications, Inc. (the subsidiaries) by the Company, as of
January 1, 1997. Because the shares issued in the acquisition of
PrimeSource Solutions, Inc. represent control of the total shares
of the Company's common stock issued and outstanding immediately
following the acquisition, PrimeSource Solutions, Inc. is deemed
for financial reporting purposes to have acquired the Company in a
reverse acquisition. The business combination has been accounted
for as a recapitalization of PrimeSource Solutions, Inc. giving
effect to the acquisition of 100% of the outstanding common shares
of PrimeSource Solutions, Inc.
At December 31, 1998, the financial statements reflect the assets
and liabilities of PrimeSource Communications Holdings, Inc.,
PrimeSource Solutions, Inc., and UniQuest Communications, Inc. at
their historical book value and the historical operations of the
Company are those of the Company and its subsidiaries. At December
31, 1998, the issued common stock was that of the Company and the
accumulated deficit was that of the subsidiaries.
During 2000 and 1999, PrimeHoldings.com, Inc. and Subsidiaries
were engaged primarily in telecommunications services, event
registration services and electronic data extraction services.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
a. Going Concern
At September 30, 2000, the Company had a deficit in working
capital and has incurred losses since inception. These conditions
raise substantial doubt about the ability of the Company to
continue as a going concern. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
The Company's ability to continue as a going concern is subject to
the attainment of profitable operations and/or obtaining necessary
funding from outside sources. The Company plans to increase sales
from its new electronic processing services division and to expand
sales in its electronic business card distribution business. The
Company is also currently seeking additional capital through both
private and public sources.
b. Estimates in 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 revenues and expenses during the reporting
period. Actual results could differ from those estimates.
F-11
<PAGE>
PRIMEHOLDINGS.COM, INC.
(Formerly PrimeSource Communications Holdings, Inc. and Subsidiaries)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
(Continued)
c. Principles of Consolidation
The consolidated financial statements include the accounts of the
Company, and its subsidiaries Navilor, Inc., Uniquest
Communications, Inc., bCard, Inc., and GolfAgent USA, Inc. All
significant intercompany balances and transactions have been
eliminated.
d. Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentration of credit risk consist primarily of trade
receivables. In the normal course of business, the Company
provides credit terms to its customers. Accordingly, the Company
performs ongoing credit evaluations of its customers and maintains
allowances for possible losses which, when realized, have been
within the range of management's expectations.
The Company maintains its cash in bank deposit accounts which, at
times, may exceed federally insured limits. The Company has not
experienced any losses in such accounts and believes it is not
exposed to any significant credit risk on cash and cash
equivalents.
e. Cash and Cash Equivalents
For purposes of the consolidated statement of cash flows, the
Company considers all highly liquid debt instruments with a
maturity of three months or less to be cash equivalents.
f. Property and Equipment
Property and equipment are stated at cost. Depreciation on
furniture, equipment and leasehold improvements is calculated on
the straight-line method over the estimated useful lives of the
assets, primarily from three to ten years.
g. Income Taxes
Deferred income taxes are provided in amounts sufficient to give
effect to temporary differences between financial and tax
reporting.
F-12
<PAGE>
PRIMEHOLDINGS.COM, INC.
(Formerly PrimeSource Communications Holdings, Inc. and Subsidiaries)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
(Continued)
h. Basic Loss Per Share
The basic loss per share is calculated using basic and fully
diluted weighted average common shares of 14,039,052 and 7,023,000
for 2000 and 1999, respectively. Common stock equivalents are not
included in diluted earnings per share when their effect is
antidilutive.
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30, 2000
-------------------------------------------------------------------
Loss Shares Per Share
(Numerator) (Denominator) Amount
<S> <C> <C> <C>
Net loss $ (1,874,075) 14,039,052 $ (0.13)
================== ================= =================
For the Nine Months Ended
September 30, 1999
-------------------------------------------------------------------
Loss Shares Per Share
(Numerator) (Denominator) Amount
Net loss $ (1,214,572) 7,023,000 $ (0.17)
================== ================= =================
</TABLE>
i. Advertising
The Company follows the policy of charging the costs of
advertising to expense as incurred.
j. Revenue Recognition Policy
The Company recognizes revenue from electronic data extraction
when services are provided and recognizes revenue from its event
registration services upon the completion of each trade show.
Revenue is recognized from the data extraction segment as paper
documents are converted into electronic images.
Revenue is recognized from the telecommunication services as
commissions are earned from billings associated with internet
services.
k. Other Assets
<TABLE>
<CAPTION>
Net
Accumulated Book Value
Term Cost Amortization 9/30/00
--------------- ------------------ --------------- ---------------
<S> <C> <C> <C> <C>
Goodwill 5 years $ 562,500 $ 168,750 $ 393,750
Software 3 years 81,536 48,586 32,950
License 15 years 150,000 12,500 137,500
------------------ --------------- ---------------
$ 794,036 $ 229,836 $ 564,200
================== =============== ===============
</TABLE>
F-13
<PAGE>
PRIMEHOLDINGS.COM, INC.
(Formerly PrimeSource Communications Holdings, Inc. and Subsidiaries)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
(Continued)
The amortization expense for the nine months ended September 30,
2000 and 1999 was $107,259 and $10,074, respectively.
The license is the exclusive right to the data extraction
software. The Company projects that the future benefit of
extracting paper data on to electronic storage will continue for
many years. Therefore, the Company had determined a 15-year life
to be the approximate life of this license.
All long lived assets are evaluated for impairment per SFAS 121
whenever events or circumstances indicate. Any impairment in value
is recognized as an expense in the period when the impairment
occurs.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
September 30, December 31,
2000 1999
------------ ------------
Furniture $ 70,208 $ 50,395
Equipment 633,126 509,869
Leasehold improvements 163,837 162,660
------------ ------------
867,171 722,924
Less: accumulated depreciation (277,748) (123,707)
------------ ------------
$ 589,423 $ 599,217
============ ============
The depreciation expense for the nine months ended September 30,
2000 and 1999 was $154,233 and $57,122, respectively.
NOTE 4 - NOTES PAYABLE
The Company had the following notes payable at September 30:
2000
---------
Line-of-credit agreement with an independent
company, which allows the Company to borrow a
maximum of $300,000, which was reduced to
$168,000 in January 2000. The line-of credit
bears interest at prime plus 3% (11.5% at
December 31, 1999). The line-of-credit matures on
January 31, 2001, and is secured by accounts
receivable. $ 163,633
Notes payable to stockholders of the Company,
unsecured, amounts ranging from $10,000 to
$50,000. The notes bear interest ranging from 0%
to 23%, and are due on demand. 201,114
Notes payable to two independent companies, secured
by 3,000,000 shares of common stock. These notes
are past due and are classified as current. The
interest rates range from 25% to 96%. 320,000
Unsecured note payable to an investor. This note is
past due with an interest rate of 18%. 15,000
---------
Total notes payable 699,747
Less current portion (699,747)
---------
Long-term portion $ -
=========
F-14
<PAGE>
PRIMEHOLDINGS.COM, INC.
(Formerly PrimeSource Communications Holdings, Inc. and Subsidiaries)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 4 - NOTES PAYABLE (Continued)
Maturities of notes payable are as follows:
Years Ending
December 31,
2000 $ 699,747
2001 -
2002 -
2003 -
2004 -
-------------------
$ 699,747
===================
NOTE 5 - CAPITAL STOCK
Common Shares
Holders of outstanding common shares are entitled to receive
dividends out of assets legally available at such times and in
such amounts as the Board of Directors may from time to time
determine. Upon liquidation, dissolution or winding up of the
Company, the assets legally available for distribution to the
shareholders will be distributable ratably among the common
shareholders at the time. Any preferred shares outstanding will be
entitled to preferential payments described below before any
distribution to common shareholders.
Preferred Shares
The Board of Directors is authorized to designate series of
preferred shares and to determine and fix the relative rights and
preferences governing those shares.
As of December 31, 1999, Preferred shares issued and outstanding
consisted of Preferred "A" and Preferred "B" shares and Series "C"
Preferred shares. The following describes the rights and
preferences of the "A", "B" and "C" shares.
Series "C" Preferred shares are entitled to receive dividends at
the rate of $0.12 per share per year payable at such intervals as
the board of directors may from time to time determine. The
specified dividends are cumulative.
Series "C" Preferred shares may be converted into three and
one-third (3.33) shares of common stock upon the request of the
holder. Additionally, upon conversion, each holder shall be
entitled to receive one share of common stock for every $0.33 of
unpaid accumulated dividends.
The Company issued Series "C" Preferred shares before the Company
updated its articles of incorporation. Such issuances may be in
violation of applicable laws. Subsequently, the Company has
amended its Articles to authorize the preferred shares. The
Company is not aware of any asserted or unasserted claims for any
individuals or federal and state authorities regarding this issue.
F-15
<PAGE>
PRIMEHOLDINGS.COM, INC.
(Formerly PrimeSource Communications Holdings, Inc. and Subsidiaries)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 5 - CAPITAL STOCK (Continued)
Preferred "A" and Preferred "B" Shares bear simple interest at 10%
per annum payable annually within 60 days after the end of the
prior fiscal year. In the event the Company does not pay the
interest when due, it will accumulate and bear interest at the
same rate from the end of the last fiscal period for which
interest is due.
Preferred "A" and Preferred "B" Shares have identical voting
rights as the outstanding common shares of the Company. Preferred
Shares will have preferential rights to the assets of the Company
before the common shares in the event of dissolution or
liquidation.
Preferred "A" and Preferred "B" Shares bear an optional conversion
privilege. If at any time a holder, in their sole discretion,
desires to convert all or part of their preferred shares to common
shares, the holder may do so upon fourteen (14) days written
notice to the Company. The conversion rate into common shares is
one for one.
Preferred "A" and Preferred "B" Shares bear a call provision on
behalf of the Company. The Company may, in its discretion, call
for the conversion of the preferred into common on a mandatory one
for one basis if and when, and only if and when, the public market
price in the over-the-counter securities markets or other publicly
traded securities medium is at $2.50 on the bid for (5)
consecutive trading periods. In the event the Company exercises
this mandatory call conversion feature, preferred shareholders
will be given notice and their shares will automatically become,
by operation of law, common shares at the expiration of the
notice.
Preferred "A" and Preferred "B" Shares carry a warrant to purchase
one common share for each preferred share held. The purchase price
is $1.50 per common share and may be exercised in whole or in part
at the discretion of the holder during a three year period. Any
conversion or call of the preferred shares will not affect the
warrants. The Company will have a thirty (30) day option in which
to call the warrants which will require the holders to either
exercise the warrants or return the warrants to the Company for
redemption at the nominal price of $0.05 per warrant. The call may
be issued by the Company if the bid price for the Company's shares
in public markets is $2.50 for any five (5) consecutive trading
day period. Shares issued upon exercise of the warrants will be
"restricted" pursuant to applicable securities laws and
regulations, primarily Rule 144 under the Securities act of 1933.
This means that those shares will have to be held by the
shareholders at least one (1) year before being eligible for sale
under that Rule.
During 2000 and 1999, the Company issued stock offerings and sale
of securities under Regulation D. The issuance of this stock may
have deviated from the limitation noted under Regulation D. The
Company feels if there was a deviation from the terms that it made
a good faith and reasonable attempt to comply with all applicable
terms and conditions and such deviation would be considered
insignificant.
F-16
<PAGE>
PRIMEHOLDINGS.COM, INC.
(Formerly PrimeSource Communications Holdings, Inc. and Subsidiaries)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 6 - STOCK SPLIT
As part of the reverse acquisition described under note 1,
PrimeSource Communications Holdings, Inc. had a reverse stock
split exchange of one share received for every 1.33 shares owned.
The financial statements have been adjusted to reflect the stock
split on a retroactive basis.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
The Company leases an office building under a noncancellable
operating lease agreement which expires in 2003. Future minimum
rental payments for this lease are approximately as follows:
2000 $ 51,243
2001 228,791
2002 113,239
2003 78,431
2004 4,141
------------------------
$ 475,845
========================
Rental expense on operating leases for the nine months ended
September 30, 2000 and 1999 was approximately $172,737 and
$94,652, respectively.
The Company has signed employment contracts with two key
employees. The contracts are three year contracts from January 1,
2000. The beginning annual compensation will be $120,000 and
$100,000 each. If employment is terminated by the Company, each
employee is entitled to termination compensation at the then
current annual salary based on the following schedule:
Years of Termination
Employment Compensation
---------- ------------
1 year 6 months salary
2 years 12 months salary
3 years 24 months salary
4 years 36 months salary
NOTE 8 - RELATED PARTY TRANSACTIONS
The following related party transactions and balances exist in
addition to those identified in other notes to the financial
statements:
Accrued expenses as of September 30, 2000 include consulting fees
payale by the Company for several months services to a company
controlled by a member of its board of directors in the amount of
$62,500. The associated expense recorded for the nine months ended
September 30, 2000 was approximately $80,000.
F-17
<PAGE>
PRIMEHOLDINGS.COM, INC.
(Formerly PrimeSource Communications Holdings, Inc. and Subsidiaries)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 8 - RELATED PARTY TRANSACTIONS (Continued)
In May 2000, the Company issued a promissory note in the amount of
$30,000 to a member of its board of directors. The note does note
bear interest and is due on demand.
Interest expense recognized in 2000 and 1999 related to notes
payable to stockholders was approximately $82,975 and $59,000,
respectively.
Advances to related party as of September 30, 2000 and December
31, 1999 represent the net amount of advances to
officers/stockholders of the Company. Advances to related parties
consist of travel and payroll advances totaling $6,499 and
$26,074, as of these dates, respectively.
NOTE 9 - STOCK WARRANTS AND OPTIONS
The following table summarizes information about stock warrants
issued during 1999 and outstanding at September 30, 2000. Warrants
were issued in connection with conversions of notes payable and
sales of preferred stock during 1998.
<TABLE>
<CAPTION>
Warrants Outstanding Warrants Exercisable
------------------------------------------------- ------------------------------------------------
Weighted
Average
Number Remaining Weighted Number Weighted
Range of Outstanding Contractual Average Exercisable Average
Exercise at Life Exercise at Exercise
Prices 9/30/00 (Years) Price 12/31/99 Price
-------------- ---------------- --------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
$ 0.25 to 1.50 2,040,000 1.45 $ 1.38 2,040,000 $ 1.38
============== ================ =============== =============== =============== ==============
At September 30, 2000, the Company had authorized the following
options pursuant to the 2000 Stock Option Plan:
<CAPTION>
Exercise Number Number Number
Price Authorized Exercised Outstanding
----- ---------- --------- -----------
<S> <C> <C> <C>
$ 0.78125 3,666,000 - 3,394,000
================= ================== ================== ==================
</TABLE>
F-18
<PAGE>
PRIMEHOLDINGS.COM, INC.
(Formerly PrimeSource Communications Holdings, Inc. and Subsidiaries)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 10 - SIGNIFICANT SOURCES OF REVENUES
During 2000 and 1999, the Company received revenues and/or
commissions from the sale of event registration services and
commissions from the marketing of telecommunications services from
two unrelated companies, which accounted for a significant portion
of revenues.
Approximate revenues from these companies were as follows:
September 30,
---------------------------------------
2000 1999
----------------- -----------------
Company 1 $ 1,186,128 $ 501,737
Company 2 39,006 74,740
----------------- -----------------
$ 1,225,134 $ 576,477
NOTE 11 - SEGMENT INFORMATION
The Company's reportable segments are strategic business units
that offer different products and services. They are managed
separately because each business requires different technology and
marketing strategies.
There are three reportable segments: event registration services
including distribution of electronic business cards, electronic
data extraction services and telecommunications services
marketing. The event registration services segment consists of
electronic data cards (" smart cards") used as a medium to manage
information on attendees at trade sows and other events and the
rental of devices used to read the cards. The electronic data
extraction segment consists of software and hardware technology to
electronically extract and manage handwritten data from paper
documents. The telecommunications services marketing segment sells
a variety of long distance, Internet access and related services
provided by an unrelated company.
The accounting policies applied to determine the segment
information are the same as those described in the summary of
significant accounting policies.
Financial information with respect to the reportable segments for
the nine months ended September 30, 2000 follows:
<TABLE>
<CAPTION>
Electronic
Event Data Telecom-
Registration Extracting munications Total
------------ ---------- ----------- -----
<S> <C> <C> <C> <C>
Revenue from external customer $ 1,186,128 $ 168,458 $ 39,006 $ 1,393,592
Depreciation and amortization 199,757 55,116 6,619 261,492
Segment loss (1,324,719) (485,636) (63,720) (1,874,075)
</TABLE>
F-19
<PAGE>
PRIMEHOLDINGS.COM, INC.
(Formerly PrimeSource Communications Holdings, Inc. and Subsidiaries)
Notes to the Consolidated Financial Statements
September 30, 2000 and December 31, 1999
NOTE 12 - SUBSEQUENT EVENT
In October 2000, the Company purchased the building which it had
been leasing.
F-20
<PAGE>
PRIMEHOLDINGS.COM, INC.
(Formerly PrimeSource Communications
Holdings, Inc. and Subsidiaries)
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
F-21
<PAGE>
C O N T E N T S
Independent Auditors' Report - Jones, Jensen & Company......................F-23
Independent Auditors' Report - Tanner + Co. ................................F-24
Consolidated Balance Sheet..................................................F-25
Consolidated Statements of Operations.......................................F-27
Consolidated Statements of Stockholders' Equity ............................F-28
Consolidated Statements of Cash Flows.......................................F-31
Notes to Consolidated Financial Statements................................. F-32
F-22
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of PrimeHoldings.com, Inc.
(Formerly PrimeSource Communications Holdings, Inc.)
We have audited the accompanying consolidated balance sheet of
PrimeHoldings.com, Inc. (formerly PrimeSource Communications Holdings, Inc.) and
Subsidiaries as of December 31, 1999 and the related consolidated statements of
operations, stockholders' equity, and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides 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 PrimeHoldings.com,
Inc. (formerly PrimeSource Communications Holdings, Inc.) and Subsidiaries, as
of December 31, 1999, and the result of their operations and their cash flows
for the year then ended, in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has a deficit in working capital,
and has incurred recurring losses. These conditions raise substantial doubt
about its ability to continue as a going concern. Management's plans regarding
those matters are also described in Note 2. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ Jones, Jensen & Company
Jones, Jensen & Company
Salt Lake City, Utah
April 5, 2000
F-23
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
and Stockholders of
PrimeHoldings.com, Inc.
(Formerly PrimeSource Communications Holdings, Inc.
and Subsidiaries)
We have audited the accompanying consolidated statements of operations,
stockholders' deficit, and cash flows for the year ended December 31, 1998, of
PrimeHoldings.com, Inc. (Formerly PrimeSource Communications Holdings, Inc. and
Subsidiaries). These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
PrimeHoldings.com, Inc. (Formerly PrimeSource Communications Holdings, Inc. and
Subsidiaries), for the year ended December 31, 1998, in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has an accumulated stockholders'
deficit, has a deficit in working capital, and has incurred recurring losses.
These conditions raise substantial doubt about its ability to continue as a
going concern. Management's plans regarding those matters are also described in
Note 2. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ TANNER + CO.
TANNER + CO.
Salt Lake City, Utah
May 19, 1999
F-24
<PAGE>
<TABLE>
<CAPTION>
PRIMEHOLDINGS.COM, INC.
(Formerly PrimeSource Communications Holdings, Inc. and Subsidiaries)
Consolidated Balance Sheet
ASSETS
December 31,
1999
-----------------
<S> <C>
CURRENT ASSETS
Cash $ 86,657
Receivables, net of allowance for doubtful accounts
of $5,832 (Note 2) 104,743
Advances to related party (Note 9) 26,074
Prepaid expenses 75,158
-----------------
Total Current Assets 292,632
-----------------
PROPERTY AND EQUIPMENT (NET) (Note 3) 599,217
-----------------
OTHER ASSETS
Other assets, net of accumulated amortization of
$122,577 (Note 2) 671,459
Deposits 21,605
-----------------
Total Other Assets 693,064
-----------------
TOTAL ASSETS $ 1,584,913
=================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-25
<PAGE>
<TABLE>
<CAPTION>
PRIMEHOLDINGS.COM, INC.
(Formerly PrimeSource Communications Holdings, Inc. and Subsidiaries)
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
December 31,
1999
-----------------
<S> <C>
CURRENT LIABILITIES
Accounts payable $ 214,563
Accrued expenses 355,754
Notes payable - current portion (Note 4) 168,949
Notes payable - related party (Note 4) 160,408
-----------------
Total Current Liabilities 899,674
-----------------
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' EQUITY
Preferred stock: $0.001 par value, 5,000,000 shares authorized,
1,698,333 shares issued and outstanding 1,698
Common stock, $0.0666 par value, 50,000,000
shares authorized, 11,168,674 shares issued and outstanding 343,701
Additional paid-in capital 4,179,416
Accumulated deficit (3,839,576)
-----------------
Total Stockholders' Equity 685,239
-----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,584,913
=================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-26
<PAGE>
<TABLE>
<CAPTION>
PRIMEHOLDINGS.COM, INC.
(Formerly PrimeSource Communications Holdings, Inc. and Subsidiaries)
Consolidated Statements of Operations
For the Years Ended
December 31,
-------------------------------------
1999 1998
------------------ -----------------
<S> <C> <C>
REVENUES $ 1,295,188 $ 169,298
COST OF REVENUES 440,662 75,801
------------------ -----------------
GROSS MARGIN 854,526 93,497
------------------ -----------------
OPERATING EXPENSES
Amortization and depreciation 210,509 14,555
Impairment of an asset 312,000 -
Selling, general and administrative expenses 2,336,854 931,304
------------------ -----------------
Total Operating Expenses 2,859,363 945,859
------------------ -----------------
LOSS FROM OPERATIONS (2,004,837) (852,362)
------------------ -----------------
OTHER INCOME (EXPENSES)
Interest expense (147,217) (89,033)
Other income 83,478 19,798
------------------ -----------------
Total Other Income (63,739) (69,235)
------------------ -----------------
LOSS BEFORE INCOME TAXES (2,068,576) (921,597)
------------------ -----------------
INCOME TAXES - -
------------------ -----------------
NET LOSS APPLICABLE TO COMMON STOCK (2,068,576) (921,597)
------------------ -----------------
Dividends on convertible preferred stock; unpaid (36,227) -
------------------ -----------------
NET LOSS $ (2,104,803) $ (921,597)
================== =================
BASIC LOSS PER SHARE $ (0.22) $ (0.14)
================== =================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-27
<PAGE>
<TABLE>
<CAPTION>
PRIMEHOLDINGS.COM, INC.
(Formerly PrimeSource Communications Holdings, Inc. and Subsidiaries)
Consolidated Statements of Stockholders' Equity (Deficit)
Preferred Stock Common Stock Additional Total
--------------------- --------------------- Paid-In Accumulated Stockholders'
Shares Amount Shares Amount Capital Deficit Deficit
------ ------ ------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 - $ - 5,578,275 $ 14,150 $ - $ (849,403) $ (835,253)
Acquisition of Market Lead
International Corporation - - 656,157 930 - - 930
Issuance of preferred stock
for cash 86,667 87 - - 64,913 - 65,000
Issuance of common stock
for services - - 726,075 48,357 192,931 - 241,288
Note conversions and payment
of accrued interest - - 411,772 27,424 384,348 - 411,772
Common stock retired due
to payment of debt - - (150,000) (9,990) 9,990 - -
Net loss for the year ended
December 31, 1998 - - - - - (921,597) (921,597)
--------- ------- ---------- --------- ---------- ------------ -----------
Balance, December 31, 1998 86,667 $ 87 7,222,279 $ 80,871 $ 652,182 $ (1,771,000) $(1,037,860)
========= ======= ========== ========= ========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-28
<PAGE>
<TABLE>
<CAPTION>
PRIMEHOLDINGS.COM, INC.
(Formerly PrimeSource Communications Holdings, Inc. and Subsidiaries)
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
Preferred Stock Common Stock Additional Total
--------------------- --------------------- Paid-In Accumulated Stockholders'
Shares Amount Shares Amount Capital Deficit Deficit
------ ------ ------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 86,667 $ 87 7,222,279 $ 80,871 $ 652,182 $ (1,771,000) $(1,037,860)
Issuance of common stock for
cash - - 2,956,742 196,919 1,058,271 - 1,255,190
Issuance of common stock for
debt - - 103,986 6,926 97,061 - 103,987
Issuance of preferred shares
for cash at an average of $0.88
per share 1,618,333 1,618 - - 1,513,380 - 1,514,998
Preferred shares converted to
common shares (6,667) (7) 6,667 444 (437) - -
Common stock issued to acquire
subsidiary (bCard) - - 500,000 33,300 529,200 - 562,500
Common stock issued to acquire
subsidiary (Golf Agent USA, Inc.) - - 500,000 33,300 278,700 - 312,000
Exercise of warrants at $2.00
per share - - 9,000 599 17,401 - 18,000
Contribution of capital - - - - 25,000 - 25,000
Retirement of shares - - (130,000) (8,658) 8,658 - -
Net loss for the year ended
December 31, 1999 - - - - - (2,068,576) (2,068,576)
--------- ------- ---------- --------- ---------- ------------ -----------
Balance, December 31, 1999 1,698,333 $ 1,698 11,168,674 $ 343,701 $4,179,416 $ (3,839,576) $ 685,239
========= ======= ========== ========= ========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-29
<PAGE>
<TABLE>
<CAPTION>
PRIMEHOLDINGS.COM, INC.
(Formerly PrimeSource Communications Holdings, Inc. and Subsidiaries)
Consolidated Statements of Cash Flows
For the Years Ended
December 31,
---------------------------------------
1999 1998
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (2,068,576) $ (921,597)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization expense 210,509 14,555
Bad debt expense (recoveries) - (7,888)
Stock issued for services - 241,288
Impairment of asset 312,000 -
Change in Assets and Liabilities:
(Increase) decrease in accounts receivable (98,243) 32,707
(Increase) decrease in prepaid expenses (50,496) (24,662)
(Increase) decrease in advances to related party (26,074) 2,600
(Increase) decrease in other assets (21,605) (2,249)
Increase (decrease) in cash overdraft (36,286) 35,789
Increase in accounts payable 34,001 52,683
Increase in accrued liabilities 70,774 61,796
----------------- -----------------
Net Cash Used in Operating Activities (1,673,996) (514,978)
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment and software (874,997) (29,486)
----------------- -----------------
Net Cash Used in Investing Activities (874,997) (29,486)
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable 315,707 585,500
Payments on notes payable (468,246) (106,966)
Proceeds from issuance of stock 2,788,189 65,930
----------------- -----------------
Net Cash Provided by Financing Activities 2,635,650 544,464
----------------- -----------------
NET INCREASE IN CASH 86,657 -
CASH, BEGINNING OF YEAR - -
----------------- -----------------
CASH, END OF YEAR $ 86,657 $ -
================= =================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-30
<PAGE>
<TABLE>
<CAPTION>
PRIMEHOLDINGS.COM, INC.
(Formerly PrimeSource Communications Holdings, Inc. and Subsidiaries)
Consolidated Statements of Cash Flows (Continued)
For the Years Ended
December 31,
---------------------------------------
1999 1998
----------------- -----------------
Supplemental disclosures of cash flow information:
<S> <C> <C>
Interest $ 31,812 $ 33,613
Income taxes $ - $ -
During 1998, the Company paid debt of $386,000 and associated accrued interest
of $25,772 by issuing 411,772 shares of common stock.
During 1998, the Company converted accounts payable of $100,592 to a note
payable.
During 1999, the Company paid debt of $100,066 and associated accrued interest
of $3,921 by issuing 103,986 shares of common stock.
During 1999, the Company purchased two subsidiaries for 1,000,000 shares of
common stock for a combined value of $874,500.
During 1999, a shareholder of the Company transferred some of his shares of
stock to satisfy a debt of the Company in the amount of $25,000. This amount has
been contributed to capital.
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-31
<PAGE>
PRIMEHOLDINGS.COM, INC.
(Formerly PrimeSource Communications Holdings, Inc. and Subsidiaries)
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 1 - ORGANIZATION AND PRESENTATION
On July 8, 1999, the Board of Directors approved changing the
Company's name from PrimeSource Communications Holdings, Inc. to
PrimeHoldings.com, Inc.
On March 5, 1999, the Company acquired 80% of the outstanding
stock of bCard, Inc., (a Utah corporation with a wholly-owned
Canadian subsidiary) in exchange for $100,000 cash, a $400,000
promissory note and 500,000 shares of restricted common stock.
bCard, Inc. was incorporated in January 1999. All financial
information of bCard, Inc. has been included in the consolidated
financial statement of the Company. The acquisition was accounted
for as a purchase with goodwill being recognized of $562,500.
bCard, Inc. did not have any operations or assets prior to the
acquisition and the minority shareholders did not have any basis
in bCard, Inc. Therefore, no minority interest or proforma
financial information is presented.
In July 1999, the Company acquired assets and associated
liabilities from a Utah company for $400,000 cash. The assets were
recorded in the Company's subsidiary Navilor, Inc. (formerly
PrimeSource Net, Inc.) The assets were office equipment and
furniture for $250,000 and the software licensing rights for
$150,000.
On October 12, 1999, the Company acquired all issued and
outstanding stock of Camelot Holdings, Inc. (a Nevada corporation)
in exchange for 500,000 shares of the Company's restricted common
stock. Camelot Holdings, Inc. is engaged in developing an online
tee time reservation system and had no significant operations
prior to 1999. The acquisition was accounted for as a purchase.
Camelot Holdings, Inc. later changed its name to Golf Agent USA,
Inc. The acquisition was accounted for as a purchase with goodwill
being recognized of $312,000. The goodwill was determined to be
impaired as of December 31, 1999 because of a significant decrease
in market value due to insufficient cash flows and an allowance
was established for the $312,000. CamelotHoldings, Inc. did not
have any financial operations before the acquisition, therefore,
no proforma financial information is being presented.
On June 30, 1998, PrimeSource Communications Holdings, Inc. (the
Company), formerly Market Lead International Corporation, entered
into a share exchange agreement and plan of reorganization with
PrimeSource Solutions, Inc. (formerly PrimeSource Communications,
Inc.) whereby the Company acquired all of the issued and
outstanding common stock of PrimeSource Solutions, Inc. in
exchange for 5,577,275 shares of the Company's common stock. The
business combination has been accounted for as a recapitalization,
therefore, all assets and liabilities have been reflected at
historical cost.
On December 31, 1998, PrimeSource Communications Holdings, Inc.
(the Company) entered into a stock purchase agreement accounted
for as a pooling with UniQuest Communications, Inc. whereby the
Company acquired all of the issued and outstanding common shares
of UniQuest Communications, Inc., in exchange for 1,000 shares of
the Company's common stock.
F-32
<PAGE>
PRIMEHOLDINGS.COM, INC.
(Formerly PrimeSource Communications Holdings, Inc. and Subsidiaries)
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 1 - ORGANIZATION AND PRESENTATION (Continued)
The consolidated financial statements at December 31, 1998 assume
the acquisition of PrimeSource Solutions, Inc. and UniQuest
Communications, Inc. (the subsidiaries) by the Company, as of
January 1, 1997. Because the shares issued in the acquisition of
PrimeSource Solutions, Inc. represent control of the total shares
of the Company's common stock issued and outstanding immediately
following the acquisition, PrimeSource Solutions, Inc. is deemed
for financial reporting purposes to have acquired the Company in a
reverse acquisition. The business combination has been accounted
for as a recapitalization of PrimeSource Solutions, Inc. giving
effect to the acquisition of 100% of the outstanding common shares
of PrimeSource Solutions, Inc.
At December 31, 1998, the financial statements reflect the assets
and liabilities of PrimeSource Communications Holdings, Inc.,
PrimeSource Solutions, Inc., and UniQuest Communications, Inc. at
their historical book value and the historical operations of the
Company are those of the Company and its subsidiaries. At December
31, 1998, the issued common stock was that of the Company and the
accumulated deficit was that of the subsidiaries.
During 1999 and 1998, PrimeHoldings.com, Inc. and Subsidiaries
were engaged primarily in telecommunications services, event
registration services and electronic data extraction services.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
a. Going Concern
At December 31, 1999, the Company had a deficit in working capital
and has incurred losses since inception. These conditions raise
substantial doubt about the ability of the Company to continue as
a going concern. The financial statements do not include any
adjustments that might result from the outcome of this
uncertainty.
The Company's ability to continue as a going concern is subject to
the attainment of profitable operations and/or obtaining necessary
funding from outside sources. The Company plans to increase sales
from its new electronic processing services division and to expand
sales in its electronic business card distribution business. The
Company is also currently seeking additional capital through both
private and public sources.
b. Estimates in 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 revenues and expenses during the reporting
period. Actual results could differ from those estimates.
F-33
<PAGE>
PRIMEHOLDINGS.COM, INC.
(Formerly PrimeSource Communications Holdings, Inc. and Subsidiaries)
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
(Continued)
c. Principles of Consolidation
The consolidated financial statements include the accounts of the
Company, and its subsidiaries Navilor, Inc., Uniquest
Communications, Inc., bCard, Inc., and GolfAgent USA, Inc. All
significant intercompany balances and transactions have been
eliminated.
d. Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentration of credit risk consist primarily of trade
receivables. In the normal course of business, the Company
provides credit terms to its customers. Accordingly, the Company
performs ongoing credit evaluations of its customers and maintains
allowances for possible losses which, when realized, have been
within the range of management's expectations.
The Company maintains its cash in bank deposit accounts which, at
times, may exceed federally insured limits. The Company has not
experienced any losses in such accounts and believes it is not
exposed to any significant credit risk on cash and cash
equivalents.
e. Cash and Cash Equivalents
For purposes of the consolidated statement of cash flows, the
Company considers all highly liquid debt instruments with a
maturity of three months or less to be cash equivalents.
f. Property and Equipment
Property and equipment are stated at cost. Depreciation on
furniture, equipment and leasehold improvements is calculated on
the straight-line method over the estimated useful lives of the
assets, primarily from three to ten years.
g. Income Taxes
Deferred income taxes are provided in amounts sufficient to give
effect to temporary differences between financial and tax
reporting.
F-34
<PAGE>
PRIMEHOLDINGS.COM, INC.
(Formerly PrimeSource Communications Holdings, Inc. and Subsidiaries)
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
(Continued)
h. Basic Loss Per Share
The basic loss per share is calculated using basic and fully
diluted weighted average common shares of 9,364,000 and 6,452,000
for 1999 and 1998, respectively. Common stock equivalents are not
included in diluted earnings per share when their effect is
antidilutive.
<TABLE>
<CAPTION>
For the Year Ended
December 31, 1999
-------------------------------------------------------------
Loss Shares Per Share
(Numerator) (Denominator) Amount
<S> <C> <C> <C>
Net loss $ (2,068,576) 9,364,000 $ (0.22)
================== ================= =================
For the Year Ended
December 31, 1998
-------------------------------------------------------------
Loss Shares Per Share
(Numerator) (Denominator) Amount
Net loss $ (921,597) 6,452,000 $ (0.14)
================== ================= =================
</TABLE>
i. Advertising
The Company follows the policy of charging the costs of
advertising to expense as incurred.
j. Revenue Recognition Policy
The Company recognizes revenues from event registration services
after each event or trade show. The services provided are for the
exhibitors of the trade shows and services are concluded at the
end of the trade show.
Revenue is recognized from the data extraction segment as paper
documents are converted into electronic images.
Revenue is recognized from the telecommunication services as
commissions are earned from billings associated with internet
services.
F-35
<PAGE>
PRIMEHOLDINGS.COM, INC.
(Formerly PrimeSource Communications Holdings, Inc. and Subsidiaries)
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
(Continued)
k. Other Assets
Net
Accumulated Book Value
Term Cost Amortization 1999
---------- ---------- ------------ -----------
Goodwill 5 years $ 562,500 $ 84,375 $ 478,125
Software 3 years 81,536 33,202 48,334
License 15 years 150,000 5,000 145,000
---------- --------- -----------
$ 794,036 $ 122,577 $ 671,459
========== ========= ===========
The amortization expense for December 31, 1999 and 1998 was
$104,577 and $4,000, respectively.
The license is the exclusive right to the data extraction
software. The Company projects that the future benefit of
extracting paper data on to electronic storage will continue for
many years. Therefore, the Company has determined a 15-year life
to be the approximate life of this license.
All long lived assets are evaluated for impairment per SFAS 121
whenever events or circumstances indicate. Any impairment in value
is recognized as an expense in the period when the impairment
occurs.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
December 31,
1999
-----------------
Furniture $ 50,395
Equipment 509,869
Leasehold improvements 162,660
-----------------
722,924
Less: accumulated depreciation (123,707)
-----------------
$ 599,217
=================
The depreciation expense for December 31, 1999 and 1998 was
$105,932 and $10,555, respectively.
F-36
<PAGE>
PRIMEHOLDINGS.COM, INC.
(Formerly PrimeSource Communications Holdings, Inc. and Subsidiaries)
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 4 - NOTES PAYABLE
The Company had the following notes payable at December 31,:
1999
---------
Line-of-credit agreement with an independent
company, which allows the Company to borrow a
maximum of $300,000, which was reduced to
$168,000 in January 2000. The line-of credit
bears interest at prime plus 3% (11.5% at
December 31, 1999). The line-of-credit matures on
January 31, 2001, and is secured by accounts
receivable. $ 168,949
Notes payable to stockholders of the Company,
unsecured, amounts ranging from $10,000 to
$50,000. The notes bear interest ranging from 10%
to 13%, and are due on demand. 110,000
Unsecured notes payable to stockholders and/or
investors. Due in 1999 with interest ranging from
17% to 32%. 50,408
---------
Total notes payable 329,357
Less current portion (329,357)
---------
Long-term portion $ -
=========
Maturities of notes payable are as follows:
Years Ending
December 31,
2000 $ 329,357
2001 -
2002 -
2003 -
2004 -
---------
$ 329,357
=========
NOTE 5 - CAPITAL STOCK
Common Shares
Holders of outstanding common shares are entitled to receive
dividends out of assets legally available at such times and in
such amounts as the Board of Directors may from time to time
determine. Upon liquidation, dissolution or winding up of the
Company, the assets legally available for distribution to the
shareholders will be distributable ratably among the common
shareholders at the time. Any preferred shares outstanding will be
entitled to preferential payments described below before any
distribution to common shareholders.
F-37
<PAGE>
PRIMEHOLDINGS.COM, INC.
(Formerly PrimeSource Communications Holdings, Inc. and Subsidiaries)
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 5 - CAPITAL STOCK (Continued)
Preferred Shares
The Board of Directors is authorized to designate series of
preferred shares and to determine and fix the relative rights and
preferences governing those shares.
As of December 31, 1999, Preferred shares issued and outstanding
consisted of Preferred "A" and Preferred "B" shares and Series "C"
Preferred shares. The following describes the rights and
preferences of the "A", "B" and "C" shares.
Series "C" Preferred shares are entitled to receive dividends at
the rate of $0.12 per share per year payable at such intervals as
the board of directors may from time to time determine. The
specified dividends are cumulative.
Series "C" Preferred shares may be converted into three and
one-third (3.33) shares of common stock upon the request of the
holder. Additionally, upon conversion, each holder shall be
entitled to receive one share of common stock for every $0.33 of
unpaid accumulated dividends.
The Company issued Series "C" Preferred shares before the Company
updated its articles of incorporation. Such issuances may be in
violation of applicable laws. Subsequently, the Company has
amended its Articles to authorize the preferred shares. The
Company is not aware of any asserted or unasserted claims from any
individuals or federal and state authorities regarding this issue.
Preferred "A" and Preferred "B" Shares bear simple interest at 10%
per annum payable annually within 60 days after the end of the
prior fiscal year. In the event the Company does not pay the
interest when due, it will accumulate and bear interest at the
same rate from the end of the last fiscal period for which
interest is due.
Preferred "A" and Preferred "B" Shares have identical voting
rights as the outstanding common shares of the Company. Preferred
Shares will have preferential rights to the assets of the Company
before the common shares in the event of dissolution or
liquidation.
Preferred "A" and Preferred "B" Shares bear an optional conversion
privilege. If at any time a holder, in their sole discretion,
desires to convert all or part of their preferred shares to common
shares, the holder may do so upon fourteen (14) days written
notice to the Company. The conversion rate into common shares is
one for one.
F-38
<PAGE>
PRIMEHOLDINGS.COM, INC.
(Formerly PrimeSource Communications Holdings, Inc. and Subsidiaries)
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 5 - CAPITAL STOCK (Continued)
Preferred "A" and Preferred "B" Shares bear a call provision on
behalf of the Company. The Company may, in its discretion, call
for the conversion of the preferred into common on a mandatory one
for one basis if and when, and only if and when, the public market
price in the over-the-counter securities markets or other publicly
traded securities medium is at $2.50 on the bid for (5)
consecutive trading periods. In the event the Company exercises
this mandatory call conversion feature, preferred shareholders
will be given notice and their shares will automatically become,
by operation of law, common shares at the expiration of the
notice.
Preferred "A" and Preferred "B" Shares carry a warrant to purchase
one common share for each preferred share held. The purchase price
is $1.50 per common share and may be exercised in whole or in part
at the discretion of the holder during a three year period. Any
conversion or call of the preferred shares will not affect the
warrants. The Company will have a thirty (30) day option in which
to call the warrants which will require the holders to either
exercise the warrants or return the warrants to the Company for
redemption at the nominal price of $0.05 per warrant. The call may
be issued by the Company if the bid price for the Company's shares
in public markets is $2.50 for any five (5) consecutive trading
day period. Shares issued upon exercise of the warrants will be
"restricted" pursuant to applicable securities laws and
regulations, primarily Rule 144 under the Securities act of 1933.
This means that those shares will have to be held by the
shareholders at least one (1) year before being eligible for sale
under that Rule.
During 1999, the Company issued stock offerings and sale of
securities under Regulation D. The issuance of this stock may have
deviated from the limitation noted under Regulation D. The Company
feels if there was a deviation from the terms that it made a good
faith and reasonable attempt to comply with all applicable terms
and conditions and such deviation would be considered
insignificant.
NOTE 6 - STOCK SPLIT
As part of the reverse acquisition described under note 1,
PrimeSource Communications Holdings, Inc. had a reverse stock
split exchange of one share received for every 1.33 shares owned.
The financial statements have been adjusted to reflect the stock
split on a retroactive basis.
F-39
<PAGE>
PRIMEHOLDINGS.COM, INC.
(Formerly PrimeSource Communications Holdings, Inc. and Subsidiaries)
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 7 - INCOME TAXES
At December 31, 1999 and 1998, the Company has net operating loss
carryforwards available for income tax purposes. As shown in the
table below, no amounts have been recognized in the financial
statements for the benefit of these losses due to the uncertainty
as to whether they will ultimately be realized. The amount and
utilization of the net operating losses for income tax purposes
may be substantially limited due to changes in ownership when the
subsidiaries were acquired. The net operating loss carryforward
available for tax purposes as of December 31, 1999 is
approximately $3,560,000, which begins to expire in 2010.
Deferred taxes consist of future assets attributable to the
following at December 31:
1999 1998
------------ -----------
Net operating loss carryforward $ 1,790,000 $ 602,000
------------ -----------
Total deferred tax asset 1,790,000 602,000
Less valuation allowance (1,790,000) (602,000)
------------ -----------
Net deferred tax asset $ - $ -
============ ===========
NOTE 8 - COMMITMENTS AND CONTINGENCIES
The Company leases an office building under a noncancellable
operating lease agreement which expires in 2003. Future minimum
rental payments for this lease are approximately as follows:
2000 $ 227,820
2001 228,791
2002 113,239
2003 78,431
2004 4,141
----------------------
$ 652,422
======================
Rental expense on operating leases for the years ended December
31, 1999 and 1998 was approximately $153,320 and $31,000,
respectively.
The Company's subsidiary, bCard, Inc., is a defendant in a
lawsuit, all in the ordinary course of business. Subsequent to
year end, the plaintiffs voluntarilly dismissed the action.
Outside counsel for the Company believes that the plaintiffs will
file a similar lawsuit in state court and at this stage, cannot
offer an opinion as to the probable outcome.
F-40
<PAGE>
PRIMEHOLDINGS.COM, INC.
(Formerly PrimeSource Communications Holdings, Inc. and Subsidiaries)
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 9 - RELATED PARTY TRANSACTIONS
The following related party transactions and balances exist in
addition to those identified in other notes to the financial
statements:
Accrued expenses as of December 31, 1998 includes consulting fees
payable for several months services to Company stockholders of
approximately $89,000. The associated expenses recorded for 1998
was approximately $102,000.
Interest expense recognized in 1999 and 1998 related to notes
payable to stockholders was approximately$59,000 and $22,000,
respectively.
In 1998, the Company issued convertible debt to relatives of
management in the amount of $18,000. The debt was converted to
common stock during 1998.
Advances to related party as of December 31, 1999 represents the
net amount of advances to officers/stockholders of the Company.
Advances to related parties consist of travel and payroll advances
totaling $26,074.
During 1998, the Company paid consulting fees in connection with
the reverse acquisition to a company controlled by a member of its
board of directors through issuing 328,075 shares of common stock
valued at $21,850.
NOTE 10 - STOCK WARRANTS
The following table summarizes information about stock warrants
issued during 1999 and outstanding at December 31, 1999. Warrants
were issued in connection with conversions of notes payable and
sales of preferred stock during 1998.
<TABLE>
<CAPTION>
Warrants Outstanding Warrants Exercisable
----------------------------------------- ---------------------------------------
Weighted
Average
Number Remaining Weighted Number Weighted
Range of Outstanding Contractual Average Exercisable Average
Exercise at Life Exercise at Exercise
Prices 12/31/99 (Years) Price 12/31/99 Price
-------- ----------- ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 1.30 to 1.75 2,125,000 2.0 $ 1.41 2,125,000 $ 1.41
============== ========= === ======= ========= =======
</TABLE>
F-41
<PAGE>
PRIMEHOLDINGS.COM, INC.
(Formerly PrimeSource Communications Holdings, Inc. and Subsidiaries)
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 11 - SIGNIFICANT SOURCES OF REVENUES
During 1999 and 1998, the Company received revenues and/or
commissions from the sale of event registration services and
electronic data extraction from two unrelated companies, which
accounted for a significant portion of revenues.
Approximate revenues from these companies were as follows:
1999 1998
----------- -------------
Company 1 $ 92,067 $ 162,000
Company 2 260,000 -
----------- -------------
$ 352,067 $ 162,000
=========== =============
NOTE 12 - SEGMENT INFORMATION
The Company's reportable segments are strategic business units
that offer different products and services. They are managed
separately because each business requires different technology and
marketing strategies.
There are three reportable segments: event registration services
including distribution of electronic business cards, electronic
data extraction services and telecommunications services
marketing. The event registration services segment consists of
electronic data cards (" smart cards") used as a medium to manage
information on attendees at trade sows and other events and the
rental of devices used to read the cards. The electronic data
extraction segment consists of software and hardware technology to
electronically extract and manage handwritten data from paper
documents. The telecommunications services marketing segment sells
a variety of long distance, Internet access and related services
provided by an unrelated company.
The accounting policies applied to determine the segment
information are the same as those described in the summary of
significant accounting policies.
Financial information with respect to the reportable segments
follows:
<TABLE>
<CAPTION>
Electronic
Event Data Telecom-
Registration Extracting munications Total
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Revenue from external customer $ 1,024,184 $ 178,937 $ 92,067 $ 1,295,188
Depreciation and amortization 173,471 27,805 9,233 210,509
Segment loss (1,349,016) (557,337) (162,223) (2,068,576)
</TABLE>
F-42
