UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
[Second Amended]
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Prime Resource, Inc.
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(Name of small business issuer in its charter)
(Previously Prime Resource, LLC)
Utah 6411 04-3648721
(State of jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
1245 E. Brickyard Road, Suite 590, Salt Lake City, Utah 84106 (801) 433-2000
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(Address and telephone number of principal executive offices)
1245 E. Brickyard Road, Suite 590, Salt Lake City, Utah 84106 (801) 433-2000
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(Address of principal place of business or intended principal place of business)
Mr. Julian D. Jensen, Attorney at Law, 311 S. State, Suite 380,
Salt Lake City, Utah 84111
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(801) 531-6600
(Name, address and telephone number of agent for service)
Approximate date of proposed sale to the public: As soon as possible after the
effective date of this Registration.
If this Form is filed to register additional securities for an offering pursuant
to rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] Not currently applicable.
If this Form is a post-effective amendment filed pursuant to Rule 4629(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] Not currently applicable.
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] Not currently applicable.
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box [ ] Not currently applicable.
Title of each class Dollar amount to be Proposed maximum Proposed maximum Amount of
of securities to be registered offering price per aggregate offering.1 registration
registered to maximum share fee (Rounded)
- ------------------- ------------------- ------------------ -------------------- -------------
Common voting Max: $750,000 $5.00/share $750,000 $198.00
stock, 150,0001 to
be registered, no
par
1 Determined pursuant to Rule 457(c) under the Securities Act of 1933, as
amended, on the basis of no market price, but upon the basis of the current
Offering price ($5.00/share), for the maximum number of shares to be sold for
cash.
SUBJECT TO COMPLETION. INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR
AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD
NOR MAY OFFERS BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
AN AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES
ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH
DATE AS THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION"), ACTING
PURSUANT TO SECTION 8(a), MAY DETERMINE.
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PROSPECTUS
PRIME RESOURCE, INC.
A UTAH CORPORATION
1245 E. Brickyard Road, Suite 590
SALT LAKE CITY, UTAH 84106
(801) 433-2000
150,000 SHARES OF COMMON STOCK OFFERED
Prime is registering for public sale a maximum of 150,000 common shares at
$5.00/share ($750,000) or a minimum of 100,000 shares ($500,000), fifty million
shares authorized, no par. No shares of the existing shareholders (2,800,000
shares) are being registered. The offering will remain open for up to six months
from the effective date of the prospectus, being the date appearing below; the
"offering term". This is a self-underwriting by the Issuer. No commissions are
intended. The minimum offering of 100,000 shares ($500,000) must be sold within
the offering term for the offering to close. The maximum offering will be
150,000 shares ($750,000). Proceeds will be placed in a segregated offering
account until the minimum offering is sold or the offering is terminated and
subscription funds returned.
Our common stock is not currently listed on any national securities exchange or
any over-the- counter stock market.
Management is under no obligation to purchase shares to close this offering as a
minimum or otherwise, and has no present intent to participate in this offering.
If shares are purchased by management, they will purchase for investment
purposes only and not with the intent to resell.
INVESTORS IN THE COMMON STOCK MAY LOSE THEIR ENTIRE INVESTMENT SINCE AN
INVESTMENT IN THE COMMON STOCK IS SPECULATIVE AND SUBJECT TO MANY RISKS. See
Risk Factors beginning at page 8.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
GROSS PROCEEDS COMMISSIONS NET PROCEEDS(1)
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Maximum Offering $750,000 $0.00 $750,000
Per Share $5.00 $0.00 $5.00
- ---------------------------- ---------------------------- ----------------------- ----------------------------
Minimum Offering $500,000 $0.00 $500,000
Per Share $5.00 $0.00 $5.00
(1)Does not include estimated offering costs of approximately $45,000 to be paid
or reimbursed from proceeds, if closed.
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Date of this Prospectus: October , 2002
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TABLE OF CONTENTS
ITEM PAGE
Part I - Prospectus Information
1. Front Cover Page of Prospectus.......................................3
2. Inside Front and Outside Back Cover Pages of Prospectus..............2
3. Summary Information and Risk Factors.................................5
4. Use of Proceeds.....................................................13
5. Determination of Offering Price.....................................19
6. Dilution............................................................19
7. Selling Security Holders............................................20
8. Plan of Distribution................................................20
9. Legal Proceedings...................................................24
10. Directors, Executive Officers, Promoters, and Control Persons.......25
11. Security Ownership of Certain Beneficial Owners and Management......28
12. Description of Securities...........................................29
13. Interest of Experts and Counsel.....................................30
14. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities......................................31
15. Organization Within Last Five Years.................................31
16. Description of Business.............................................31
17. Management's Discussion and Analysis................................41
18. Description of Property.............................................49
19. Certain Relationships and Related Transactions......................49
20. Market for Common Equity and Related Stockholder Matters............50
21. Executive Compensation..............................................51
22. Financial Statements............................................ 53-72
23. Changes In and Disagreement With Accountants........................72
Part II - Information Not Required in Prospectus
24. Indemnification of Directors and Officers...........................74
25. Other Expenses of Issuance and Distribution.........................74
26. Recent Sales of Unregistered Securities.............................74
27. Exhibit List........................................................75
28. Undertakings........................................................76
29. Signatures..........................................................77
(Part II Table will not appear in Prospectus only copy; and page
numbering will be modified)
4
SUMMARY OF THE OFFERING
The Company: Prime Resource, Inc. ("Prime") was incorporated in Utah
on March 29, 2002. Prime Resource, Inc. is a successor
entity to a Utah limited liability company known as
Prime Resource, LLC, ("Prime LLC"). The principals of
Prime remain the same as those in Prime LLC. Prime LLC
was organized in June, 1996, but remained inactive
until October, 1998 when it became a parent company for
its two operating subsidiaries, Belsen Getty, LLC and
Fringe Benefit Analysts, LLC. These subsidiaries, in
turn, are both Utah limited liability companies. Belsen
Getty since 1990 has been engaged in corporate and
personal financial consulting, business planning and
related business and investment advisory services.
Fringe Benefit Analysts since 1984 has been primarily a
benefits consultant and a broker of group insurance
products. The nature of these types of businesses and
entities are further explained in the following
paragraph. Prime, at the conclusion of this offering,
would intend to operate the same business as its
predecessor Prime LLC by acting as the parent and
manager of its subsidiaries, Belsen Getty and Fringe
Benefit Analysts, as a public entity. The purposes of
this offering will be to sell up to 150,000 common
shares to raise additional capital to expand and,
hopefully, increase the revenues and profitability of
the existing business operations as more particularly
described in this offering. In the event of the maximum
offering, the public shareholders purchasing in this
offering would acquire approximately 5% of the to be
issued and outstanding shares, or approximately 3.5% in
the event of the minimum offering. In either event, the
public shareholders acquiring through this offering
will be substantial minority shareholders and will most
likely never be in a position to exert any influence
over the direction or control of Prime. Prime is
presently a small operating company through its two
subsidiaries. We anticipate maintaining our principal
operations in Salt Lake City, Utah and will primarily
provide our services in the Intermountain area of the
United States.
Nature and As briefly noted above, Prime, which is the successor
Operation of to Prime Resource, LLC, will not directly engage in any
Subsidiaries business activities with third parties, but will act
only as a parent and management corporation to its two
operating subsidiaries, Belsen Getty, LLC and Fringe
Benefit Analysts, LLC. The "LLC" designation stands for
Limited Liability Company. You should understand, as a
prospective investor in this offering, that an LLC is a
relatively new form of business entity created by
statute in Utah and other jurisdictions whereby the
company operates very much in the nature of a
partnership with decisions being collectively made by
its members (owners) and with day-to-day operations
usually handled by a manager. There is limited
liability to the members and the manager arising out of
legitimate business activities. The earnings, if any,
for this type of entity are not charged or taxed at the
LLC level, but pass through to the owners known as
members. In this case, the only owner is Prime, which
will receive all net profits, if any, generated by
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Belsen Getty and Fringe Benefit Analysts. It should
also be noted that limited liability companies, unlike
the parent corporation, are not perpetual entities but
have a fixed term. In this case, the existence of the
operating entities, Belsen Getty and FBA, will
terminate not later than December 31, 2021. If Prime is
still successfully operating at the time of the
expiration date of these entities, it would be intended
that the assets and operations of such entities would
be rolled over into a new LLC or other form of business
entity. This contingency should not have a significant
impact on the economic welfare of Prime. You should
also understand, however, that you are not acquiring a
direct interest in the operating subsidiaries but only
in the parent company. Prime will direct and control
the ownership and operation of the subsidiaries for and
on behalf of the shareholders as the sole owner. By way
of brief description, Belsen Getty is a business
consulting and financial management company which
provides investment management, financial planning,
pension and retirement planning for various individual
and business clients. In these capacities, it often
provides investment advice. Belsen Getty has been in
operation since 1990. Its revenues are primarily fee
based. Since 1984 Fringe Benefit Analysts has been
primarily a business insurance provider of health,
life, dental and disability insurance coverages. Both
entities were originally organized as corporations and
converted to the LLC form in 1998. Both concentrate
their business activities in the state of Utah, though
they have various clients throughout the western United
States. The managers for the entities are Mr. Terry
Deru for Belsen Getty and Mr. Scott Deru for FBA.
The Offering: Prime is attempting to sell a very limited number of
its shares to the public as a self underwriting,
without commissions. Up to 5% of the to be issued and
outstanding shares in the company may be sold at an
offering price of $5.00/share. The maximum offering
would be $750,000 from the sale of 150,000 shares and
the minimum offering would be the sale of 100,000
shares at $5.00/share for $500,000. We, Prime
Management, will place the offering proceeds into a
segregated subscription account for a period up to 180
days from the effective date of the offering (the date
appearing on the prospectus cover). If the minimum
offering is not fully subscribed by the end of that
offering period, investors will be promptly returned
their subscription without deduction or interest. Prime
may elect to close the offering at any time after the
minimum is sold within the offering term up to the
maximum offering. There is no assurance or warranty
that the company will be successful in the sale of its
public shares.
Trading Market To date Prime has not obtained any trading symbol, nor
Symbol have its shares been approved or registered for
trading. It is intended that we will, concurrently with
this registration, apply through one or more
broker/dealers for listing on the Electronic Bulletin
Board, but can give no assurance or warranty that the
shares will be qualified for trading on any
over-the-counter market. In all events, there may be a
very limited or non-existent public trading market for
Prime's shares.
6
Summary The following summary financial data should be read in
Financial Data: conjunction with, and is subject to, the complete
Financial Statements, and notes, included elsewhere in
this Prospectus. The operating data and the balance
sheet data was derived from Prime's predecessor entity,
Prime LLC's Financial Statements, included elsewhere in
this Prospectus. These results do not necessarily
indicate the results to be expected for any future
period. THE COMPLETE FINANCIAL STATEMENTS, AS ATTACHED,
INCLUDE PRO FORMA MATERIAL RELATED TO CERTAIN
REORGANIZATION AND COMPENSATION EVENTS, AS WELL AS
OPERATING IN THE CURRENT CORPORATE FORM.
CONSOLIDATED BALANCE SHEET DATA: June 30, 2002
(Predecessor Entity, December 31st (Audited) (Unaudited)
Prime, LLC.) ----------------------- -----------
2001 2000
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Assets $580,128 $660,615 $511,962
Liabilities $360,805 $162,416 $286,119
Members' and Stockholders' Equity $220,338 $498,199 $225,843
Accumulated Other Comprehensive Loss ($ 1,015) ---------- ($ 0 )
Total Liabilities, Members' and Stockholders'
Equity, and Accumulated Other $580,128 $660,615 $511,962
Comprehensive Loss
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STATEMENT OF CONSOLIDATED OPERATIONS DATA:
(Includes Predecessor Entity--Prime LLC to 3/29/2002)
Six Months
Years Ended December 31st Ended June 30th
(Audited) (Unaudited)
------------------------------------- -----------------------------------
2001 2000 2002 2001
------------------------------ ------------------------------
Revenues:
Commissions $1,557,246 $1,498,016 $864,225 $814,491
--------- --------- --------- ---------
Investment Advisory Fees 449,031 707,537 249,966 301,839
--------- --------- --------- ---------
Interest and Dividends 15,204 7,716 7,398 7,198
--------- --------- --------- ---------
2,021,481 2,213,269 1,121,589 1,123,528
--------- --------- --------- ---------
Expenses:
Operating 2,057,452 1,957,107 1,207,537 920,733
--------- --------- --------- ---------
Interest 674 662 1,746 336
--------- --------- --------- ---------
2,058,126 1,957,769 1,209,283 921,069
--------- --------- --------- ---------
Income (loss) before income
tax expense (36,645) 255,500 (87,694) 202,459
--------- --------- --------- ---------
Income tax expense -- -- 19,801 --
Net income (loss) (36,645) 255,500 (107,495) 202,459
--------- --------- --------- ---------
Comprehensive Income
(Loss) ($37,660) $255,500 ($107,495) $202,459
--------- --------- --------- ---------
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RISK FACTORS
------------
The following constitutes what we believe to be the most significant
risk factors in this offering. No particular significance should be attached to
the order in which the risk factors are listed: Certain forward-looking
statements are based on our current expectations and are susceptible to a number
of risks, uncertainties and other factors, and our actual results, performance
and achievements may different materially from any future results, performance
or achievements expressed or implied by such forward-looking statements. Such
factors include the factors discussed in this section entitled "Risk Factors",
as well as the following: development and operating costs, changing trends in
customer tastes and demographic patterns, changes in business strategy or
development plans, general economic, business and political conditions in the
countries and territories in which we may operate, changes in, or failure to
comply with, government regulations, including accounting standards,
environmental laws and taxation requirements, costs and other effects of legal
and administrative proceedings, impact of general economic conditions on
consumer spending, and other risks and uncertainties referred to in this
prospectus and in our other current and periodic filings with the Securities and
Exchange Commission, all of which are difficult or impossible to predict
accurately and many of which are beyond our control.
1. EVEN IF THE MAXIMUM OFFERING IS SOLD, THE EXISTING SHAREHOLDERS WILL
CONTINUE TO CONTROL THIS CORPORATION FOR THE FORESEEABLE FUTURE AND THEREBY
CONTROL MANAGEMENT AND BE IN A POSITION TO ULTIMATELY DIRECT ALL PRINCIPAL
DECISIONS. Even if the maximum offering is sold to the public, the present
shareholders will continue to own approximately 95% of the shares; and, thereby,
be in a position to make all corporate decisions. We have determined that Prime
can adequately go forward with expanding its business by only offering a limited
number of securities to the public. The offering range which has been prescribed
by management is between 100,000 shares at $5.00/share, for a minimum offering
of $500,000, to 150,000 shares for a maximum offering of $750,000. If the
company is successful in selling all shares in the maximum offering, the public
would only own approximately 5% of the issued and outstanding shares and 3.5% in
the event only the minimum offering is sold. As a result, it is not likely that
investors in this offering will ever exercise any significant influence or
control over the direction or operation of Prime as shareholders.
2. MAJORITY SHAREHOLDER TRANSACTIONS MAY ADVERSELY AFFECT THE PRICE OF
YOUR STOCK IN THE FUTURE THROUGH PUBLIC OR PRIVATE SALES OF THEIR STOCK. The
existing shareholders have and will continue to own the vast majority of the
outstanding shares, as any recent market transaction by them may have a
significant adverse impact on any future market price of your shares by
potentially depressing any market price as these large holdings are liquidated.
The majority shareholders will continue, for the foreseeable future, to own
almost all of the issued and outstanding shares, whether or not such shares are
currently registered for sale. Each investor in this offering should understand
that the majority shareholders, either pursuant to registration or the
application of an exemption from registration in the future, will eventually be
in a position to sell their shares if a public market is developed for the
shares. In the event of such public market and subsequent transaction by the
majority shareholders, the majority may significantly influence the price of the
stock by selling even a small portion of their shares. This ability to adversely
affect future stock prices by a small group of initial shareholders creates a
significant market risk to anyone investing in this offering.
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3. LIMITED CAPITAL PLACES PRIME AT RISK OF NOT MEETING INTENDED FUTURE
BUSINESS OBJECTIVES OR OPERATIONS. Prime will be marginally capitalized if this
offering is closed; there remains a question of whether there is sufficient
capital being raised in this offering to finance the activities intended by
Prime. If not, Prime may not meet its financial objectives or develop any value
for its shares. There is a very limited amount of capital being generated, even
if this offering is successful. As a result, even if closed, this offering may
not generate sufficient revenues to Prime to allow it to adequately fund its
intended activities. Moreover, alternative funding may not be available. Prime
believes that the limited amount of capital being raised by this offering,
$500,000 to $750,000 in gross proceeds, will help it expand the marketing and
implementation of its current business activities through its two subsidiary
entities. However, each prospective investor must understand that $500,000 to
$750,000 in gross proceeds is a relatively limited amount of capital to make any
significant expansion or realize the subsidiaries' activities and the expected
or anticipated results by management.
4. THERE IS NO PRESENT PUBLIC MARKET OR ANY ASSURANCE OF A PUBLIC
MARKET FOR OUR SHARES; THE LACK OF A PUBLIC MARKET MAY LIMIT YOUR CAPACITY TO
SUBSEQUENTLY SELL YOUR STOCK. At the present time there is no public market for
our shares and there is no assurance that any public market will be developed
for these shares, which means you may have difficulty selling your shares in the
future. Without a viable public market, shareholders may not be able to sell
their shares in the future. The company does not have any trading markets for
its shares and the mere completion or sale of shares pursuant to this
Registration Statement will not insure that a public market will or can be
developed for the trading of the company's shares. If we are not able to obtain
an Electronic Bulletin Board Listing and develop a resulting public trading
market for our shares, there may be limited liquidity of the shares, investors
may be forced to hold such shares for an indefinite period of time and rely upon
the uncertain prospects of private sales of their securities in order to have
some type of exit strategy or liquidity. Even if a public market develops, there
is no reasonable projection that can be made as to the price at which the shares
may trade.
5. DILUTION MEANS YOUR SHARES MAY BE WORTH LESS THAN WHAT YOU PAY FOR
THEM. THERE WILL BE SUBSTANTIAL DILUTION IN THIS OFFERING. Dilution is a concept
which attempts to measure the difference between what a prospective shareholder
will pay for the Prime shares as contrasted to the value of those shares
measured by the net worth of the company at the time of purchase. Substantial
dilution risk is anticipated to purchasers of Prime shares. Dilution constitutes
a risk of investment because the shares purchased may immediately be worth
substantially less on a net worth basis than what was paid for them. This
probable dilution means that the actual value of your shares, based upon the net
worth of the company, will likely be substantially lower than any arbitrary
price which you may pay for acquiring these shares at the time of purchase.
6. BECAUSE MANAGEMENT IS HIGHLY CONCENTRATED, ANY CHANGE IN MANAGEMENT
MAY CAUSE THE COMPANY TO LOSE REVENUES OR PROFITS OR OPERATE INEFFICIENTLY.
There is a substantial risk to Prime and its shareholders if any present
management does not continue their affiliation, as future principals may not
have the particular knowledge and contacts to maintain or expand the present
business activities or to run the company profitably or efficiently. You
10
should understand that because the intended products and services are very
unique and keyed to a relatively narrow market group, there are few individuals
with interests, contacts or expertise who can take over and operate the present
activities of the Prime subsidiaries. Should any member of management decide not
to continue his affiliation, or be released by the company, Prime and its
shareholders may be substantially and immediately adversely affected. Further,
there is only a three year employment contract between each member of management
and Prime. Further, Prime is allowed to terminate any employee without cause or
minimal notice.
7. THE HIGH PROBABILITY THAT OUR SHARES MAY BE DESIGNATED AS A PENNY
STOCK MAY CAUSE ADDITIONAL COSTS OF TRADING OR LIMIT THE POTENTIAL MARKET FOR
YOUR STOCK. If a trading market is established and if Prime trades below
$5.00/share, it may become a penny stock which poses the risk of reduced
tradeability to you as an investor and may adversely affect the market price of
your shares. The stock of Prime, if it successfully trades, may not initially be
defined as a "penny stock", but could become such if traded below $5.00/share.
As a result, the shares of Prime may be subject to special regulations by the
SEC and certain states known as "penny stock rules" which require additional
screening and limitations on trading by individuals buying or selling certain
defined speculative low price shares through a broker/dealer. These restrictions
may adversely effect the tradeability or price of the shares. See "Plan of
Distribution".
8. YOUR MANAGEMENT'S LACK OF EXPERIENCE MAY ADVERSELY IMPACT THE
COMPANY MEETING ITS FINANCIAL OR BUSINESS OBJECTIVES. Your management will have
very little experience in the operation of a public company with a resulting
risk it may not be able to comply with public reporting requirements or operate
the company profitably or efficiently. There is a risk in Prime arising from the
fact that management is inexperienced in operating a public company and may have
problems complying with the complex regulations for a public company or waste
valuable resources in attempting to comply. If these problems develop they could
cause suspensions in trading or decreases in the stock price. You will be
relying upon us to be able to manage a public company, complete the complex
reporting requirements and to learn and discharge other responsibilities
incident to the operation of a publicly held reporting company if this Offering
is successfully closed. Your management believes that its limited inexperience
should be considered as a potential risk factor.
9. AS THE PREDECESSOR ENTITIES TO THE REGISTRANT HAD LIMITED REVENUE
GROWTH AND NET LOSSES, YOU MAY CONSIDER THIS FACT AN INDICATOR THAT YOUR
ANTICIPATED RETURN ON INVESTMENT MAY BE LIMITED OR NON-EXISTENT. There is an
inherent risk factor in this offering to the extent that Prime has only had very
limited revenue growth from the time of its initial business conception in 1985
to the present and experienced a net loss in calendar year 2001 and the first
quarter of 2002. The risk is that if a company does not ultimately create
earnings growth, there is little likelihood that its shares will maintain any
market value. Each prospective investor in this offering should understand that
one of the anticipated objectives of participating in a public company is to
participate in a company which has significant future potential for revenue
growth and resulting net earnings. In this particular offering, the historical
record has shown a very modest amount of revenue growth by Prime from its
inception and even less significant growth in net profits, with a loss in 2001
and 2002 to date. There remains a question of whether investment return can be
maximized to investors in this offering unless the limited amount of proceeds
being raised by this offering significantly contribute to an increase in
revenues and net income which assumption must remain an open question until
actual proceeds are expended and operating results are computed.
11
10. BECAUSE PRIME IS ANTICIPATED TO OPERATE THROUGH ITS SUBSIDIARIES IN
HIGHLY REGULATED FIELDS, GOVERNMENT REGULATION AND POLICIES MAY IMPAIR THE
ABILITY OF PRIME TO OPERATE PROFITABLY. Each of the areas of financial services
in which Prime participates is subject to significant governmental regulation
and policy control. As a small company, government regulation may pose a burden
of operating profitably or efficiently. For instance, the area of insurance
sales is subject to greater than average government regulation of terms, pricing
and persons who may engage in insurance sales. In like manner, the providing of
investment advice by Belsen Getty requires particular licensing and reporting
requirements. Each investor in this offering should be aware that the areas of
financial and business planning, health and business insurance and other facets
of the services in which Prime participates through its two operating
subsidiaries are significantly controlled by government regulation and policy.
For instance, the sale of insurance and insurance agents are regulated by an
insurance commission or other governmental agency on the state level.
Additionally, the providing of investment advice and services is regulated on
the federal and state level as investment advisory services. The change or
modification of government regulation and policy in any of these or other
related areas in which the company operates or the failure of any principal to
maintain his status as a licensed professional may have a significant adverse
impact on its future earnings or earnings potential.
11. THE PERSONAL CONTACTS USUALLY REQUIRED IN PRIME'S TYPE OF BUSINESS
MAY LIMIT THE GROWTH OF PRIME AS A PUBLIC COMPANY. There is a special risk
factor in this offering in that the nature of the business products and services
provided by Prime, through its operating subsidiaries, has historically been
associated with personal contacts and relationships which may limit potential
future growth of the company. A business upon which personal contacts and
relationships are paramount may be limited in growth potential to the time
available to those necessary to maintain such contacts. Moreover, a business
based on personal expertise and contacts is always at great risk if key persons
maintaining those contacts leave the business. Each investor in this offering
should understand that much of the limited success of Prime to date revolves
around and has arisen out of the personal expertise and contacts of its
principal management personnel in meeting with and personally providing the
services which the company extends to other business entities and individuals.
There is no certainty that even with additional capital raised with this or any
subsequent funding activities, Prime will be able to create significant growth
in this type of industry due to the requirement of the personal nature of such
contacts and efforts to increase business activities. This consideration should
remain as a significant risk factor to prospective investors.
12. ANTICIPATED FUTURE CAPITAL NEEDS AND THE LACK OF ANY PRESENT
FUNDING SOURCES MAY IMPAIR PRIME'S ABILITY TO MEET FINANCIAL OBLIGATIONS OR BE
PROFITABLE. Prime may need future capital to maintain or increase business
activities in the future and no assurance can be given that such future capital
can be obtained. There is a reasonable likelihood that a growing business may
need future capital. There is a risk in this offering to the extent Prime has no
assurance that additional or future funds will be available. You will be subject
to a risk in this offering in that Prime may, in the future, require substantial
additional capital either to maintain its existing operations or to attempt to
further grow and expand operations to reach a level of significant
profitability. In such event, there is no assurance that Prime will be able to
raise significant future capital either through borrowing, private placement
sales or a subsequent public offering.
12
13. LARGE INSTITUTIONAL COMPETITORS TO PRIME MAY ADVERSELY AFFECT
FUTURE REVENUES OR POTENTIAL PROFITS OF PRIME. Prime may come under price and
marketing pressure from large institutional service companies providing
essentially the same or related types of services or financial products at a
lower cost due to economies of scale. Large competitors pose a special risk to a
small company like Prime in a similar industry in that the larger competitor may
offer and supply services or product at less expense and attract away necessary
customers or engage in larger and more effective marketing. There appears to be
a growing trend in financial and insurance services where large institutional
companies such as national CPA firms, insurance companies, banks and brokerage
firms provide various forms of financial planning and insurance services. There
appears to be a significant risk factor in this offering to you that Prime, in
the future, may not be able to compete effectively with such large institutional
service companies who may provide financial and business planning and other
related business planning or insurance on a lower cost basis than the company
can afford to provide due to economies of scale and worldwide marketing
abilities.
14. THERE IS A RISK THAT A FUTURE CONTROLLING SHAREHOLDER MAY BE
SUBJECT TO EXTENSIVE REGULATION AS A CONTROL PERSON OF AN INVESTMENT ADVISORY
FIRM. Belsen Getty, LLC as a subsidiary of Prime currently conducts business, in
part, as an investment advisory firm. There is a risk that if in the future some
new shareholder becomes the majority shareholder of Prime, they may be required
to license and be regulated under state and/or federal law as the controlling
person of an investment advisory firm. Registration as an investment advisor
would entail substantial regulation and filing requirements as a highly
regulated profession. In addition, there may arise significant limitations on
anyone required to be licensed as an investment advisor in their ability to hold
and trade public securities.
USE OF PROCEEDS
- ---------------
In this offering, Prime will receive gross offering proceeds, if the
offering is closed, of either $500,000 in the event of the minimum offering, or
a maximum of $750,000. The company reserves the right to close the offering
during the offering term at any point between the minimum offering and the
maximum offering. In the event the offering is closed as a minimum offering
there would only be $20,000 in working capital reserves allocated to Prime. All
amounts raised over the minimum offering will be allocated to the working
capital reserves of Prime. From the gross proceeds, the company will also deduct
the estimated offering cost of approximately $45,000 which are estimated to be
allocated between audit and accounting work, legal services and for printing,
filing fees & miscellaneous costs of the offering as estimated below.
In the minimum offering, as contrasted to the maximum, it is
anticipated the working capital reserve to Prime would be reduced from $270,000
to $20,000 and there would be no acquisition fund. All additional investment
proceeds received over the minimum offering will be applied to an increase in
the working capital reserve fund of Prime. The primary purpose of the Prime
working capital reserves are presently intended to create an acquisition fund
for insurance agencies or their book of business to be acquired through FBA.
13
From the anticipated net offering proceeds, Prime would employ the
proceeds in three specific applications. In the event of the maximum offering,
approximately $370,000 would be used by Prime directly for additional management
personnel, general administrative costs and working capital and acquisition
reserves. Approximately $250,000 of the working capital reserve allocated to
Prime would be available for anticipated acquisitions by FBA. Alternatively,
some of these proceeds may be used to retain new agents, though there is no
specific plan to so employ these funds. The balance of the proceeds would be
allocated approximately $220,000 to Fringe Benefit Analysts and $115,000 to
Belsen Getty to be specifically applied as set-out in the following estimated
net proceed charts.
EACH PROSPECTIVE INVESTOR SHOULD UNDERSTAND THAT THE FOLLOWING TABLE
CONSTITUTES OUR BEST PRESENT ESTIMATE OF THE USE OF PROCEEDS, BUT THAT WE MAY
VARY FROM THIS OUTLINE IN BOTH TYPE AND AMOUNT OF EXPENDITURE IN THE EXERCISE OF
SOUND BUSINESS JUDGMENT. MOREOVER, FUNDS HELD FOR ACQUISITION MAY BE USED IN
DIFFERENT AREAS IF SUITABLE ACQUISITION OPPORTUNITIES ARE NOT FOUND WITHIN A
REASONABLE PERIOD OF TIME. PRIME UNDERTAKES FOR THE PURPOSES OF THIS OFFERING TO
EMPLOY SUCH RESERVES FOR ACQUISITION WITHIN EIGHTEEN MONTHS FROM THE CLOSE OF
THE OFFERING. IF NOT USED FOR ACQUISITION WITHIN SUCH PERIOD, THE FUNDS WILL BE
USED PRIMARILY TO ENHANCE MARKETING AND OPERATIONS, INCLUDING ANTICIPATED
COMMISSION DRAWS TO NEW AGENTS, RECRUITING AND TRAINING OF NEW AGENTS,
ADDITIONAL EMPLOYEES AS NEEDED AND SIMILAR PURPOSES; WITH A REASONABLE AMOUNT TO
BE MAINTAINED AS A WORKING CAPITAL RESERVE. IT IS NOT POSSIBLE FOR THE COMPANY
TO DETERMINE IN ADVANCE, IN THE EXERCISE OF REASONABLE BUSINESS DISCRETION, THE
EXACT USE OF SUCH FUNDS IN A FUTURE BUSINESS ENVIRONMENT AND THE FOREGOING
CONSTITUTES ONLY A REASONABLE ESTIMATE OR PROGNOSIS. CHANGING BUSINESS
CONDITIONS COULD REQUIRE SOME UNFORESEEN AND UNRELATED USE OF THESE PROCEEDS, IF
RAISED.
14
MAXIMUM OFFERING: $750,000
GENERAL DESCRIPTION OF INTENDED EXPENDITURE DOLLAR AMOUNT PERCENTAGE
OF
OFFERING
(ROUNDED)
1. Estimated offering costs: $ 45,000 6.0%
--------- --------
a. Legal fees $ 20,000 2.7%
b. Audit and accounting review expense $ 20,000 2.7%
c. Printing, mailing and distribution $ 2,500 .33%
d. State Filing and Edgar processing fees $ 2,500 .33%
2. Estimated allocation to Prime Resource: $ 370,000 49.3%
--------- --------
a. Salaries to new administrative staff members(1) $ 20,000 2.7%
b. Management fees(2) $ 30,000 4.0%
c. General and administrative costs
1. Ongoing legal $ 10,000 1.3%
2. Ongoing accounting $ 10,000 1.3%
3. Ongoing employee training $ 5,000 .67%
4. Employee training supplies $ 1,500 .20%
5. Additional financial modeling software $ 2,000 .27%
6. Website development and enhancement $ 20,000 2.67%
7. Financial public relations $ 1,500 .20%
d. Working capital reserves
1. Recruitment expense (employees) $ 10,000 1.3%
2. Entertainment budget (insurance agents) $ 10,000 1.3%
3. Acquisition of insurance companies or business(3) $ 250,000(3) 33.3%
3. Fringe Benefit Analysts $ 220,000 29.3%
--------- --------
a. Advertising
1. Radio $ 5,000 .67%
2. Direct Mail $ 12,000 1.6%
3. Telemarketers $ 5,000 .67%
4. Online promotion $ 3,000 .40%
b. Recruiting new agents
1. Entertainment $ 15,000 2.0%
2. Recruiting services (headhunter) $ 10,000 1.3%
3. Seminars $ 20,000 2.67%
4. Travel expenses $ 10,000 1.3%
5. Lap top and presentation software $ 10,000 1.3%
6. Legal due diligence expense $ 10,000 1.3%
(Continued on following page)
15
GENERAL DESCRIPTION OF INTENDED EXPENDITURE DOLLAR AMOUNT PERCENTAGE
OF
OFFERING
(ROUNDED)
c. Trade Show
1. Location deposits $ 3,000 .40%
2. Booth preparation $ 5,000 .67%
3. Travel Expenses $ 2,000 .27
d. Marketing FBA Advantage program
1. Mailing lists purchase $ 15,000 2.0%
2. Telemarketing follow-up $ 10,000 1.3%
3. Brochure layout and design $ 2,500 .33%
4. Printing brochure $ 10,000 1.3%
5. Travel expense $ 10,000 1.3%
6. Mailing expense $ 2,500 .33%
e. Additional sales materials
1. Design of new product brochures $ 2,500 .33%
2. Printing expense $ 7,500 1.0%
f. New service personnel
1. Recruit and train $ 2,500 .33%
2. Salary and benefits $ 47,500 6.3%
4. Belsen Getty $ 115,000 15.3%
----------
a. Marketing budget
1. Mailing development $ 5,000 .67%
2. List purchase ongoing $ 10,000 1.3%
3. Printing and mailing $ 20,000 2.67%
4. Telemarketing follow-up $ 15,000 2.0%
b. Relocation budget
1. Moving personnel $ 2,500 .33%
2. Moving supplies $ 5,000 .67%
3. Reconfigure Telecom and network $ 2,500 .33%
c. New equipment and software
1. New server and Lan $ 10,000 1.3%
d. New service personnel
1. Recruit and train $ 2,500 .33%
2. Salary $ 27,500 3.67%
e. Consulting service personnel (part-time) $ 15,000 2.0%
TOTAL $ 750,000 100%
(1)No proceeds of the offering will be employed to pay salaries or
benefits to any current officer or employee; in the event the offering is
closed, Prime will most likely hire some new employees.
(2)Management fees are not intended to compensate or augment amounts
paid current officers or directors, but may be used to create incentive payments
for employees or insurance agents and to expand the number of employees as
necessary.
(3)Prime is maintaining a large working/acquisition capital reserve in
the maximum offering in anticipation that Fringe Benefit Analysts will request
to draw upon this reserve to fund its intended efforts to acquire other
insurance brokerage companies or their book of business.
16
MINIMUM OFFERING: $500,000
GENERAL DESCRIPTION OF INTENDED EXPENDITURE DOLLAR AMOUNT PERCENTAGE
OF
OFFERING
(ROUNDED)
1. Estimated offering costs: $ 45,000 9.0%
-----------
a. Legal fees $ 20,000 4.0%
b. Audit and accounting review expense $ 20,000 4.0%
c. Printing, mailing and distribution $ 2,500 .50%
d. State filing and Edgar processing fees $ 2,500 .50%
2. Estimated allocation to Prime Resource $ 120,000 24.0%
---------- --------
a. Salaries to new administrative staff members $ 20,000 4.0%
b. Management fees $ 30,000 6.0%
c. General and administrative costs
1. Ongoing legal $ 10,000 2.0%
2. Ongoing accounting $ 10,000 2.0%
3. Ongoing employee training $ 5,000 1.0%
4. Employee training supplies $ 1,500 .30%
5. Additional financial modeling software $ 2,000 .40%
6. Website development and enhancement $ 20,000 4.0%
7. Financial public relations $ 1,500 .30%
d. Working capital reserves $ 20,000 4.0%
3. Fringe Benefit Analysts $ 220,000 44.0%
---------- --------
a. Advertising
1. Radio $ 5,000 1.0%
2. Direct mail $ 12,000 2.4%
3. Telemarketers $ 5,000 1.0%
4. Online promotion $ 3,000 .60%
b. Recruiting new agents
1. Entertainment $ 15,000 3.0%
2. Recruiting Services (headhunter) $ 10,000 2.0%
3. Seminars $ 20,000 4.0%
4. Travel expenses $ 10,000 2.0%
5. Lap top and presentation software $ 10,000 2.0%
6. Legal due diligence $ 10,000 2.0%
(Continued on following page)
17
GENERAL DESCRIPTION OF INTENDED EXPENDITURE DOLLAR AMOUNT PERCENTAGE
OF
OFFERING
(ROUNDED)
c. Trade show related expenses
1. Location deposits $ 3,000 .60%
2. Booth preparation $ 5,000 1.0%
3. Travel expenses $ 2,000 .40%
d. Marketing FBA Advantage program
1. Mailing lists purchase $ 15,000 3.0%
2. Telemarketing follow-up $ 10,000 2.0%
3. Brochure layout and design $ 2,500 .50%
4. Printing brochure $ 10,000 2.0%
5. Travel expense $ 10,000 2.0%
6. Mailing expense $ 2,500 .50%
e. Additional sales materials
1. Design of new product brochures $ 2,500 .50%
2. Printing expense $ 7,500 1.5%
f. New service personnel (2)
1. Recruit and train $ 2,500 .50%
2. Salary and benefits $ 47,500 9.5%
4. Belsen Getty $ 115,000 23.0%
---------- --------
a. Marketing budget
1. Mailing development $ 5,000 1.0%
2. List purchase ongoing $ 10,000 2.0%
3. Printing and mailing $ 20,000 4.0%
4. Telemarketing follow-up $ 15,000 3.0%
b. Relocation budget
1. Moving personnel $ 2,500 .50%
2. Moving supplies $ 5,000 1.0%
3. Reconfigure Telecom and network $ 2,500 .50%
c. New equipment and software
1. New serever and Lan $ 10,000 2.0%
d. New service personnel
1. Recruit and train $ 2,500 .50%
2. Salary $ 27,500 5.5%
e. Consulting service personnel (part-time) $ 15,000 3.0%
TOTAL $ 500,000 100%
See also "Plan of Operations" under Description of Business for a more
detailed description of intended business activities and expenditures over the
next year.
18
DETERMINATION OF OFFERING PRICE
-------------------------------
The price at which the shares are to be sold in this offering have been
arbitrarily set by the Board of Directors of Prime and does not attempt to
reflect any valuation or evaluation of the company's net worth or future trading
price, if any.
DILUTION
--------
Dilution is a term which normally defines the reduction in value per
share based upon book value which occurs to the investor in certain offerings
compared to the purchase price of those shares. The net tangible book value of
Prime Resource, Inc. (formerly Prime Resource, LLC) interest as of the attached
Balance Sheet dated June 30, 2002 was $225,843 and is estimated to be
$0.08/share in the present corporate form.
By way of specific illustration, an investor in this offering is paying
$5.00 per share. It is estimated that the net worth per share after the
completion of the maximum offering will only be approximately $0.31 per share.
Therefore, each investor in this offering will suffer an immediate estimated
dilution to his investment of $4.69 per share or 94 % in the maximum offering;
and $4.77 per share or 95 % in the minimum offering. Dilution would generally be
pro rated between the minimum and maximum offering if closed between those
extremes. These dilution ranges are illustrated in the following graphical
representations:
Maximum offering Minimum Offering
[Bar chart illustrating the following:)
Value Subscription Value share after Value Subscription Value share after
$5.00/share offering $5.00/share offering
100% $0.31/share 100% $ 0.23/share
(Rounded) (Rounded)
Dilution 95%
Dilution 94% $4.77/Share
$4.69/Share
In this offering dilution primarily arises because the original
founders, who organized the corporation and the predecessor limited liability
company, received shares or other ownership interests for intangible
19
contributions to Prime which are difficult to value. As a result, there will not
be a significant net worth per share prior to this offering and your cash
subscription will, as a result, be "diluted" in value.
SELLING SECURITY HOLDERS
------------------------
In this offering none of the existing security holders are registering
their shares, nor do any intend to sell shares pursuant to this registration
statement. The current principal shareholders of the company hold 2,800,000
shares. If this offering is fully subscribed there will be an additional 150,000
registered shares issued. At some future date, one or more of the initial
security holders may elect to attempt to sell their shares pursuant to a
subsequent registration or a claimed exemption from registration. At present,
the company has no plans to engage in any further registration beyond this
current registration. Further, the existing shareholders holding unregistered
securities would have to avail themselves of an exemption from registration to
sell in the future, which exemption would, in most cases, not be available
unless this registration is completed and a trading market is established for
the shares so that the current principal shareholders could avail themselves of
Rule 144, or similar exemption provisions, to engage in a future sale of their
shares after a required holding period. See Risk Factors and Plan of
Distribution as to the implications of potential future sales by affiliates.
PLAN OF DISTRIBUTION
--------------------
General
Prime does not intend to employ the services of any underwriter or
other broker/dealer to place or sell its securities. Prime believes it can place
the limited amount of securities being offered by this registration through the
efforts of a member of its own management group, Mr. Andrew Limpert, who will
not be paid any consideration, commission or other compensation for his selling
and placement efforts. Consequently, no provisions for commissions have been
provided for in this prospectus. Should management determine, at any time, that
it is necessary to sell this offering through the use of commissions to an
underwriter, management will reserve the right to amend this registration and
prospectus to reflect any such commission arrangements and to continue with the
offering in accordance with all other terms and provisions.
Issuer/Agent
It is presently anticipated that Mr. Andrew Limpert will be exclusively
responsible for the efforts to sell the Prime shares in this offering to various
business contacts and acquaintances through delivery of this prospectus. Mr.
Limpert is currently acting as the Treasurer and a member of the Board of
Directors. We cannot promise the offering will be sold, as Mr. Limpert,
Secretary and CFO, will only engage in these efforts on a part-time basis.
Obviously, there is an indirect benefit to management, as principal
shareholders, if the shares are sold in this offering as the management
shareholders would most likely realize an increase in the value of their shares
after this offering and potentially an active market for their shares. Should
any other member of management be qualified to act and in fact engages in
selling efforts for Prime such fact will be supplementally disclosed to any
20
prospective investor. There is no present intent or expectation that any other
issuer/agent will be employed.
Mr. Limpert as an issuer agent is relying upon the exclusion from being
required to qualify and license as a broker/dealer in his anticipated selling
efforts, pursuant to SEC Rule 3(a) 4-1 under the Securities and Exchange Act of
1934. In essential terms, Prime and Mr. Limpert believe he satisfies the
following tests of the Rule:
1) Mr. Limpert is not subject to a statutory disqualification to
act as an issuer agent as such term is defined under Section
3(a) 4-1 of the Securities Act of 1934;
2) Mr. Limpert will not be compensated for his selling efforts in
any manner, though he may be reimbursed direct selling costs
paid out-of-pocket;
3) Mr. Limpert is not now and will not be at the time of his
selling effort an associated person with any broker/dealer;
4) Mr. Limpert will meet each of the following conditions:
(i) Mr. Limpert will continue to perform substantial
duties for the issuer at the date of the offering;
(ii) Mr. Limpert was not a broker or dealer within the
preceding 12 months;
(iii) Mr. Limpert has not and will not engage in selling
efforts for any issuer more than once every 12
months.
Mr. Limpert has been licensed on one prior occasion in Utah to act as
an issuer/agent and will seek such designation in this offering. It is believed
Mr. Limpert, or any subsequently designated management sales agent, in the
intended selling efforts of the Prime shares being registered will fully meet
the safe harbor requirement of a non-broker issuer agent pursuant to Rule 3(a)
4-1 as set-out above. It is not anticipated that Prime will employ an
issuer/agent other than Mr. Limpert. Any prospective investor wishing a copy of
this rule or further explanation of the company's determination of compliance
will be provided a copy and explanation prior to investing upon request to
Prime.
In the unanticipated event that Prime determines it is necessary to
hire and pay one or more independent broker/dealers to attempt to sell this
offering, Prime will amend this registration statement and prospectus by a
post-effective amendment to disclose all such underwriting terms. No
broker/dealer will be allowed to engage in sales or solicitations until any such
post-effective amendment becomes effective. Each prospective investor is also
advised that prior to any involvement of any broker/dealer in the offering any
broker/dealer would be required to clear the underwriting terms and compensation
with the National Association of Securities Dealers, Corporate Finance
Department.
21
Sales to Officers and Affiliates
Each officer, director or affiliated persons may purchase shares in
this offering for cash at the offering price without restriction. There is no
limitation on the number of securities which may be purchased by these
affiliated persons. In like manner, there is no obligation or commitment by any
officer, director or affiliate to purchase any shares in this offering. All
securities purchased by any officer, director, or person able to direct or
influence the company as a control person will not be freely tradeable, but will
be subject to restrictions on resales, and must be purchased for investment
purposes requiring a holding period.
Minimum Purchase
There is no minimum subscription requirement.
Estimated Costs of Offering
The costs of this offering are estimated at $45,000, and include legal,
accounting, filing or permit fees, printing and related distribution costs.
These amounts are estimates but are believed reasonably accurate for the
intended size of this offering. Funds paid for offering costs will limit the
amount of net proceeds available for actual business purposes. See also Use of
Proceeds Section.
Subscription Account
Proceeds of the offering, up to the minimum amount, will be placed in a
segregated subscription account under control of Prime and will not be employed
for any business purposes of the company until or unless the minimum offering is
sold within the offering term of 180 days from the date appearing on the face of
this prospectus. If the minimum offering is not fully sold and collected within
such offering period, then the offering will be terminated and all proceeds will
be returned without deduction for costs or addition of any interest. Prime will
obtain an address from each subscriber and will return all proceeds within ten
days of the termination of the offering to that address. Any interest earned on
the subscription account will be employed by Prime to pay for anticipated
offering costs and return of subscription proceeds to investors.
In the event of the close of the minimum offering, Prime will employ
any additional proceeds of this offering upon receipt without further utilizing
the subscription account.
Closing Offering
Prime reserves the right to close the offering at any time within the
offering term of 180 days whenever the minimum offering proceeds have been
received in the subscription account, even if less than the maximum offering has
been sold. Factors which may influence Prime's decision to close the offering
would be the effort required to continue sales and the rate at which
subscriptions were obtained up to the minimum offering. In all events, the
company will not sell more than the maximum offering and will close the offering
at any time that the maximum amount has been sold. The Use of Proceeds Section
reflects Prime's best present estimate of the use of proceeds in the event of
either the minimum or maximum offering amount being received. The offering will
most likely be closed at some point between the minimum and maximum. Proceeds
available for working capital reserves to Prime will be increased by each dollar
raised over the minimum offering.
22
Initial Sales Jurisdiction
We intend this offering will be sold primarily to citizens of the State
of Utah, based upon a coordination filing in that jurisdiction. Should Prime
deem it appropriate, it may attempt to place its securities in one or more
additional jurisdictions where the offered shares may be qualified or registered
by coordination or similar rule or process. That is, Prime will be deemed to be
qualified as a registered offering in those jurisdictions upon clearance of this
registration with the SEC and a notice type filing in the appropriate state. If
the offering is offered or sold in other jurisdictions, the offering must be
registered or qualified under the applicable state law of that jurisdiction.
Prime does not intend to register or qualify this offering in any other
jurisdiction for sale unless such registration can primarily be achieved by
coordination without the necessity of merit review or substantial additional
disclosure requirements. However, should Prime elect to sell in any jurisdiction
that imposes any additional disclosure requirements, they will be included in
this offering as a supplemental disclosure.
No Trading Market
Prime has not secured a commitment to list or trade the securities
being registered through any broker/dealer and there is no present assurance
that a public market will exist for the securities, even in the event of a
successful completion of this offering. Each prospective investor should
consider the potential lack of a public market developing as a significant risk
factor. Management will work to obtain the listing of the securities after or
concurrently with this offering by one or more broker/dealers, but can give no
warranty or assurance that they will be successful in such efforts.
No Registration Commitment
No shares of current management or original shareholders are being
registered pursuant to this offering and no intent or obligation exists by Prime
to currently register existing issued shares in any manner.
Penny Stock Limitations
Broker/dealer transactions in shares trading under $5.00/share are
generally subject to certain specific disclosure requirements and limitations on
trading known commonly as the "Penny Stock Rules". While the penny stock rules
are not believed applicable to the initial issuance of the shares subject to
this issuer/agent registration and sale, there is a high probability such rule
would apply to subsequent sales of Prime stock. The application of the penny
stock rules may impair the tradeability or price at which your shares may
subsequently be resold.
The following purports to be a general summary of the penny stock
rules. However, any prospective investor may obtain a complete copy of the
applicable rules from Prime upon request or from the SEC online, (Rules 15g-2
through 15g-6 of the Exchange Act).
The penny stock rules require a broker/dealer prior to a transaction in
a penny stock, not otherwise exempt from the rules, to deliver a standardized
risk disclosure document that provides information about penny stocks and the
risks in the penny stock market. The broker/dealer also must provide the
customer with current bid and offer quotations for the penny stock, the
compensation of the broker/dealer and its salesperson in the transaction, as
well as monthly account statements showing the market value of each penny stock
held in the customer's account. In addition, the penny stock rules generally
23
require that prior to a transaction in a penny stock, the broker/dealer make a
special written determination that the penny stock is a suitable investment for
the purchaser and receive the purchaser's written agreement to the transaction.
These disclosure requirements may have the effect of reducing the level
of trading activity in the secondary market for a stock that becomes subject to
the penny stock rules. Our shares may someday be subject to such penny stock
rules and our shareholders may find it more difficult to sell their securities
because of such rules.
LEGAL PROCEEDINGS
-----------------
We are not aware of any pending or threatened legal proceedings or
claims in which we are involved.
24
DIRECTORS, EXECUTIVE OFFICERS, OR CONTROL PERSONS
-------------------------------------------------
NAME POSITION CURRENT TERM OF
OFFICE
- --------------------------------------- -------------------------------------- --------------------------------------
Mr. Terry Deru* Director, CEO/ President/ Appointed Director in
Chairman of the Board Organizational Minutes-April,
2002. Will serve as a Director
until first annual meeting, not
yet set. Will serve as an
officer pursuant to leave of the
Board of Directors.
- --------------------------------------- -------------------------------------- --------------------------------------
Mr. Scott Deru* Director/V.P. Operations Appointed Director in
Organizational Minutes -
April, 2002. Will serve as
Director until first annual
meeting, not yet set. Will
serve as an officer pursuant to
leave of the Board of
Directors.
- --------------------------------------- -------------------------------------- --------------------------------------
Mr. Andrew Limpert* Director/Treasurer/Secretary/ Appointed Director in
CFO Organizational Minutes -
April, 2002. Will serve as
Director until first annual
meeting, not yet set. Will
serve as an officer pursuant to
leave of the Board of
Directors.
- --------------------------------------- -------------------------------------- --------------------------------------
* Mr. Scott Deru and Mr. Terry Deru are brothers. Mr. Limpert was not an owner
of Prime LLC, but acted as an advisor to Prime LLC and has become a shareholder
of Prime Resource, Inc.
MR. TERRY DERU - DIRECTOR , CEO/PRESIDENT, CHAIRMAN OF THE BOARD
Age:48
Mr. Deru is currently a consultant and manager with Belsen Getty LLC
and an officer/director in Prime as outlined above. He also served Belsen Getty
as an officer/director when operating as a predecessor corporation. Belsen Getty
is a Salt Lake City, Utah based financial and retirement planning firm. The
firm, or its predecessor, has been a licensed investment advisory firm with the
SEC and Utah since 1984. Mr. Deru is a Certified Financial Planner and a
Registered Financial Consultant. Mr. Deru has been with Belsen Getty since 1985.
Since affiliation with Belsen Getty, he has served as a consultant and director
from 1985 to 1998 and as a consultant from 1998 to the present. He has been the
manager of Belsen Getty since January, 2002. Mr. Deru will continue his
part-time affiliation with Belsen Getty while also acting as the part-time
officer of Prime. Mr. Deru also acts as a part-time CEO for Kinship Systems,
Inc., a small public company which is not presently active. Mr. Deru obtained a
B.A. degree from the University of Utah in Salt Lake City, Utah, in finance in
1977 and an M.B.A. degree from that institution in 1979.
25
MR. SCOTT DERU - DIRECTOR, VICE-PRESIDENT OPERATIONS
Age: 42
Mr. Scott Deru has been employed full-time since 1982 as a principal
officer of Fringe Benefit Analysts. Since 1998 he has been the manager and
principal officer of Fringe Benefit Analysts, LLC, one of the current subsidiary
operating companies of Prime. In this capacity, he has primarily been engaged in
creating and selling life, health and other insurance products for business
clients of Prime, LLC, now known as Prime, Inc. In addition to his full-time
services to Fringe Benefit Analysts, LLC he worked as a director of insurance
for Care of Utah, Inc., developing insurance programs, primarily for the health
care industry from October, 1994 to July, 2000. Mr. Deru is a 1984 graduate of
the University of Utah with a B.S. degree in finance from that institution. He
is also a Registered Health Underwriter and a Registered Employee Benefit
Consultant. He presently is also a licensed insurance consultant and agent
within the state of Utah, and by reciprocity in other western states.
MR. ANDREW LIMPERT - DIRECTOR/SECRETARY/TREASURER/CFO
Age: 33
Mr. Limpert has been a financial and retirement planner associated with
the Salt Lake based firm of Belsen Getty, LLC since 1998. He is a Registered
Investment Advisor, but he is not a Certified Financial Planner. As a licensed
Investment Advisor, Mr. Limpert has completed licensing requirements and testing
prescribed by the State of Utah. Mr. Limpert plans to continue his full-time
employment with Belsen Getty. He will also serve as a director, treasurer, CFO
and secretary for Prime. Prior to the foregoing positions, he worked with
Prosource Software of Park City, Utah as a software sales agent from 1993 to
1998. Mr. Limpert is assisting Prime on a limited as needed basis. In 1998 Mr.
Limpert served briefly as an interim outside director in a small public company,
then known as Mt. Olympus Resources, Inc. Mr. Limpert resigned as part of a
reorganization of Olympus in November, 1998. Mr. Limpert is also presently
affiliated on a part-time as-needed basis with a small presently inactive
company known as Kinship Systems, Inc. as a director and its treasurer/secretary
and CFO/accounting officer. Due to the company's present inactivity, his time
commitment and services to Kinship have been minimal. Mr. Limpert was appointed
to these positions in February, 2000 as part of the initial organization. Mr.
Limpert also acts as a business and financial consultant to various small public
and private companies. Mr. Limpert holds a B.S. degree in finance from the
University of Utah in Salt Lake City, Utah in 1995 and an M.B.A. from
Westminster College of Salt Lake City, Utah in 1998.
Remuneration of Directors & Officers
- ------------------------------------
Directors
- ---------
No director will be provided remuneration for service in that capacity,
but may be paid a stipend for attending meetings as future revenues may permit.
It is anticipated Directors will receive $500 per Board Meeting.
Officers
- --------
Historically, the present officers in Prime, except for Mr. Limpert,
acted as working members of Prime, LLC from its inception in 1996. Mr. Limpert
became a member in January, 2002. Prime LLC also had associated as a founding
member Mr. William Campbell, whose interest in Prime LLC was bought out by Prime
LLC in December, 2001 and transferred to Andrew Limpert in January, 2002 prior
to the organization of Prime, Inc., as more particularly described under
26
"Description of Business". Mr. Campbell has no further interest or affiliation
with Prime or either of its subsidiaries. As previously indicated, Prime, LLC
has as its wholly owned subsidiaries Belsen Getty, LLC and Fringe Benefit
Analysts, LLC. These subsidiaries, in turn, passed through, as limited liability
companies, all of their net earnings or losses to Prime, LLC, which then
distributes or attributes earnings or losses pro rata to the ownership interest.
Prime will continue to receive these "pass throughs" and will pay salaries for
all officers and employees of its subsidiaries, as well as general operating
costs.
Under the present organization of the company, it will not be possible
for Prime corporation to simply pass through earnings derived from its operating
subsidiaries. Alternatively, each of the principal officers, named above, will
agree to serve the company for the following annual base salary in 2002: Mr.
Terry Deru $240,000, Mr. Scott Deru $240,000 and Mr. Andrew Limpert $165,000.
Additionally, Mr. Limpert's salary will increase to $210,000 in 2003 and the
Derus will remain the same. The terms of this compensation are more fully set-
out in a set of Board Minutes and concurrently executed three year employment
agreements. Mr. Terry Deru and Mr. Scott Deru will also primarily serve Prime by
continuing to act as the managers of the subsidiaries. Mr. Andrew Limpert will
devote most of his time commitment to executive responsibilities of Prime. It is
anticipated Mr. Scott Deru and Mr. Terry Deru will serve full-time in their
responsibilities with the subsidiaries and discharge responsibilities to Prime
on an as- needed basis.
Each of the three principal officers serves Prime pursuant to a written
employment agreement which is essentially identical in terms for each officer,
except for the compensation provisions outlined above. The essential terms of
the employment agreements provide as follows:
(1) Each employment contract runs for three years from April 5,
2002;
(2) There are no currently adopted benefits or stock rights,
except 18 days of paid leave per year for each officer;
(3) Prime may terminate the employment with or without cause. If
termination is without cause, the employee is to receive a
severance equal to three months pay. Otherwise, the employee
is paid through the month the notice of termination is given.
The employee has no right to terminate the agreement without
cause.
(4) The employment contract has standard provisions protecting
proprietary rights and property of the company from being used
by the employee or appropriated;
(5) The employment agreement provides for the exclusive full-time
service by each officer to Prime or one or more of its
subsidiaries.
Each prospective investor may view a copy of the employment agreement
prior to investing by viewing this registration statement online at the SEC
filing site (www.sec.gov.edgar) or by requesting a copy from Prime.
27
Shares Held By Management and Certain Security Holders
- ------------------------------------------------------
The following tables set forth the ownership, as of the date of this
prospectus, of our common stock by each person known by us to be the beneficial
owner of 5% or more of our outstanding common stock; by each of our directors;
and by all executive officers and our directors as a group. To the best of our
knowledge, all persons named below have sole voting and investment power with
respect to such shares.
Title of Name and Address of Current Shares Current Percent of Total
Class Owner Owned Percentage of Common in the
Outstanding event Max. or
(Rounded) Min. Off. Sold
(Rounded)(1)
Common Terry Deru
Stock 99 Cove Lane 1,000,000 36% 34%
Layton, Utah 84040
- ---------------- -------------------------------- ----------------------- ------------------- ------------------------
Common Scott Deru
Stock 6855 N. Frontier Drive
Mountain Green, Utah 1,000,000 36% 34%
84050
- ---------------- -------------------------------- ----------------------- ------------------- ------------------------
Common Andrew Limpert
Stock 8395 S. Parkhurst Circle
Sandy, Utah 84094 750,000 27% 26%
- ---------------- -------------------------------- ----------------------- ------------------- ------------------------
Common Officers and Directors as 2,750,000 99% 94%
Stock a Group(2)
- ---------------- -------------------------------- ----------------------- ------------------- ------------------------
(1)The difference in each officer's percentage of the total outstanding
in the event of the maximum or minimum offering is a de minimus amount less than
1%. As such, the maximum percentages are employed. Officers will have a slightly
greater fractional percentage of outstanding shares in the event of the minimum
versus the maximum offering.
(2)Mr. Don Deru, the natural father of Terry and Scott Deru, owns
50,000 shares, or about 1.8% of the currently outstanding shares. There are no
shareholders prior to this offering other than as listed above and Mr. Don Deru.
There are currently no arrangements which would result in a change in
our control. Prime has no warrants, options or other stock rights presently
authorized.
28
DESCRIPTION OF SECURITIES
-------------------------
The following description is a summary and is qualified in its entirety
by the provisions of our Articles of Incorporation and Bylaws, copies of which
have been filed as exhibits to the registration statement of which this
prospectus is a part.
General
- -------
We are authorized to issue 50,000,000 shares of common stock with no
par value per share. As of April 5, 2002, there were 2,800,000 restricted shares
issued and outstanding. The company has only one class of shares, being its
common shares. Counsel for Prime has provided an opinion that all shares of
common stock outstanding are validly issued, fully paid and non-assessable. All
currently issued shares of Prime were issued pursuant to an Organizational
Meeting on April 5, 2002.
Voting Rights
- -------------
Each share of common stock entitles the holder to one vote, either in
person or by proxy, at meetings of the shareholders. The holders are not
permitted to vote their shares cumulatively. Accordingly, the holders of common
stock holding, in the aggregate, more than fifty percent of the total voting
rights can elect all of our directors and, in such event, the holders of the
remaining minority shares will not be able to elect any of such directors. The
vote of the holders of a majority of the issued and outstanding shares of common
stock entitled to vote thereon is sufficient to authorize, affirm, ratify or
consent to any corporate act or action, except as otherwise provided by law.
Dividend Policy
- ---------------
All shares of common stock will participate proportionally in dividends
if our Board of Directors declares them out of the funds legally available.
These dividends may be paid in cash, property or additional shares of common
stock. We have not paid any dividends since our inception and presently
anticipate that all earnings, if any, will be retained for development of our
business. Any future dividends will be at the discretion of our Board of
Directors and will depend upon, among other things, our future earnings,
operating and financial condition, capital requirements, and other factors.
There can be no assurance that any dividends on the common stock will be paid in
the future.
Miscellaneous Rights and Provisions
Holders of common stock have no preemptive or other subscription
rights, conversion rights, redemption or sinking fund provisions. In the event
of our dissolution, whether voluntary or involuntary, each share of common stock
is entitled to share proportionally in any assets available for distribution to
holders of our equity after satisfaction of all liabilities and payment of the
applicable liquidation preference and preference of any outstanding shares of
preferred stock as may be created.
29
Shares Eligible For Future Sale
- -------------------------------
The 150,000 maximum shares of common stock to be registered by this
offering will be freely tradable without restrictions under the Securities Act
of 1933, except for any shares held by our "affiliates", which may be limited by
the resale provisions of Rule 144 under the Securities Act of 1933.
Currently, all of the 2,800,000 issued and outstanding shares were
issued on April 5, 2002 and would not be eligible for sale under Rule 144 as
restricted stock until April 6, 2003, assuming the other requirements of Rule
144 are satisfied as generally described below.
In general under Rule 144, as currently in effect, any of our
affiliates or other restricted shareholders after a one year holding period may
be entitled to sell in the open market within any three-month period a number of
shares of common stock that does not exceed the greater of (i) 1% of the then
outstanding shares of our common stock, or (ii) the average weekly trading
volume in the common stock during the four calendar weeks preceding such sale.
Sales under Rule 144 are also affected by limitations on manner of sale, notice
requirements, and availability of current public information about us.
Nonaffiliates who have held their restricted shares for one year may
also be able to sell under the foregoing conditions. Nonaffiliates who have held
their restricted shares for two years may be entitled to sell their shares under
Rule 144 without regard to any of the above limitations, provided they have not
been affiliates for the three months preceding such sale. There are currently no
nonaffiliated shareholders.
Further, Rule 144A as currently in effect, in general, permits
unlimited resales of restricted securities of any issuer provided that the
purchaser is an institution that owns and invests on a discretionary basis at
least $100 million in securities or is a registered broker-dealer that owns and
invests $10 million in securities. Rule 144A would allow our existing
stockholders to sell their shares of common stock to such institutions and
registered broker-dealers without regard to any volume or other restrictions.
Unlike under Rule 144, restricted securities sold under Rule 144A to
non-affiliates do not lose their status as restricted securities. It is not
anticipated Rule 144A will have any application to this offering.
INTEREST OF EXPERTS AND COUNSEL
-------------------------------
Our counsel, Julian D. Jensen, PC, has passed upon the legal status of
the company and our capacity to engage in this Registration. The firm has no
interest in Prime. Our auditors, Carver Hovey & Co. of Layton, Utah have opined
upon the attached and incorporated audited financial statements. This firm has
no interest in Prime and there are no material conflicts with the auditors.
30
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT VIOLATIONS
---------------------------------------------
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to our directors, officers and controlling persons,
we have been advised that in the opinion of the SEC, such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities, other than the payment by us of expenses incurred or paid by
our directors, officers or controlling persons in the successful defense of any
action, suit or proceedings, is asserted by such director, officer, or
controlling person in connection with any securities being registered, we may,
unless in the opinion of our counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by us is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issues.
ORGANIZATION OF THE COMPANY IN LAST FIVE YEARS
----------------------------------------------
As previously noted, Prime Resource LLC was formed in 1996 and remained
inactive until 1998 when it became the parent entity for Belsen Getty LLC and
Fringe Benefit Analysts LLC. Prime continued to March 29, 2002 as a Utah limited
liability company and operated exclusively through its two wholly owned
subsidiary limited liability companies, Belsen Getty, LLC and Fringe Benefit
Analysts, LLC. Prime converted to a corporate form of business on March 29th of
2002, largely in anticipation of the present public offering. Also, in 1998
Belsen Getty and Fringe Benefit Analysts converted from a corporate form to
their present LLC form. As otherwise discussed in this Prospectus, the
management of Prime Resource, Inc. will remain the same as its predecessor,
Prime Resource, LLC, though differently designated. The two operating
subsidiaries will continue with their existing business activities and
management as described in this Prospectus.
DESCRIPTION OF BUSINESS
-----------------------
General and Historical
- ----------------------
Prime Resource, as a corporate entity, was filed in Utah on March 29,
2002; however, essentially the same business purpose were engaged in by its
predecessor entity, Prime Resource, LLC, a Utah limited liability company as
organized in 1996, but not active until the 1998 acquisition of its present
subsidiaries. Mr. Scott Deru acted as the manager for Prime LLC. From 1990 to
1998, Belsen Getty and Fringe Benefit Analysts collaborated as independent
corporations. In 1998 Prime LLC became the parent and coordinating entity and
the two operating companies also became wholly owned limited liability companies
of Prime, LLC and changed their business structure from corporations to limited
liability companies owned by Prime LLC.
31
As part of the 1998 reorganization, Mr. Scott Deru and Mr. Terry Deru
each contributed their 50% ownership interest in Fringe Benefit Analysts to
Prime, LLC. Mr. Terry Deru and Mr. William Campbell each contributed their 50%
ownership interest in Belsen Getty to Prime, LLC and Mr. Don Deru, the father of
Scott and Terry Deru, contributed capital. The resulting ownership percentages
in Prime, LLC were Scott and Terry Deru at 36 1/2% each; Mr. William Campbell at
23% and Mr. Don Deru 4%. Prime, LLC was later dissolved of record in April, 2002
after transferring all assets to Prime, Inc.
Fringe Benefit Analysts was formed and licensed in November, 1984 in
Utah as a general insurance agency. The company initially was formed and
operated as a Utah corporation with Mr. Scott Deru as its president. It was
jointly owned by Scott Deru and Terry Deru from inception. FBA concentrated upon
developing software to analyze employee benefits and writing insurance for
business related purposes, such as key man life policies, group health plans and
related insurance. Mr. Scott Deru and Mr. Terry Deru remained joint owners from
1984 to 1998 when their ownership was acquired by Prime, LLC.
In 1985 FBA started collaborating closely with Belsen Getty LLC, which
was primarily engaged in business consulting and financial planning. Belsen
Getty, which was initially formed in 1990. Belsen Getty, which was engaged in
advising firms in the formation of employee health , pension, stock option and
related plans, frequently referred clients to FBA when insurance funding was
required. In like manner, FBA would frequently refer insurance clients needing
business planning to Belsen Getty. However, neither firm operates upon an
exclusive basis as to these referrals.
Belsen Getty, Inc. was formed on November 9, 1990 by Mr. William
Campbell and Mr. Terry Deru as a successor to a Nevada corporation. Mr. Terry
Deru joined the firm in the summer of 1985 and purchased a 50% interest in
Belsen Getty, Inc. of Nevada from Mr. Campbell. All interest in Belsen Getty
Inc. was transferred to Belsen Getty LLC in 1998 which was then exclusively
owned by Prime LLC. Mr. Terry Deru received a 36 1/2% interest in Prime and Mr.
Campbell a 23% interest in Prime.
In order to take advantage of some economies of scale and to work more
cohesively in cross-selling to the respective client base of Belsen Getty, Inc.
and Fringe Benefit Analysts, Inc. the foregoing reorganization occurred in 1998.
Prime Resource, LLC (a LLC organized on June 27, 1996, but having no real
business activity) was used as a holding company for the newly formed entities
of Belsen Getty, LLC and Fringe Benefit Analysts, LLC. These subsidiary entities
were formed on October 2, 1998 and became the successor firms for Belsen Getty,
Inc. and Fringe Benefit Analysts, Inc., respectively, each being wholly owned by
Prime Resource, LLC.
Mr. William Campbell became associated with Prime Resource LLC in 1998
resulting from a minimal cash contribution and his fifty per cent interest in
Belsen Getty. He received a 23% interest in Prime LLC.
In January, 2002 Prime LLC purchased Mr. Campbell's interest in Prime
for $100,000. The prior Campbell interest was assigned to Andrew Limpert on
January 10, 2002 in consideration for the acknowledgment of Limpert's advisory
and organizational services which were valued at $113,000. The 26 percent
membership share of the Company issued to Mr. Limpert was
32
accounted for as compensation expense and is included in "compensation and
benefits" in the statement of operations for the quarter ended March 31, 2002.
The value of the share of the Company issued to Mr. Limpert was based on what
the Company was required to pay a former member, Mr. William Campbell, for his
23 percent share of the Company, in connection with the Company's termination
and buy-out of Mr. Campbell effective January 1, 2002. Mr. Don Deru, the father
of Scott and Tery Deru, held a 4% interest in Prime LLC since inception and
exchanged his interest in Prime LLC for a 1.8% sharehold interest in Prime, Inc.
In March, 2002, Prime LLC decided to incorporate in Utah in
anticipation of this offering and issued in April, 2002 to Mr. Limpert 750,000
shares of its common stock, (26% of the issued and outstanding) for his prior
and continuing consulting services for and to Prime. The other stockholders are
Mr. Terry Deru, 1,000,000 shares; Mr. Scott Deru, 1,000,000 shares; and Mr. Don
Deru, 50,000 shares. FBA and Belsen Getty continued under their existing
structure as wholly owned subsidiaries of Prime, Inc. with Mr. Terry Deru
continuing as the manager of Belsen Getty and Mr. Scott Deru for FBA.
As limited liability companies, the historical revenues of Belsen
Getty, LLC and Fringe Benefit Analysts, LLC have flowed through to its member
and sole owner, Prime Resource, LLC. Within Prime the revenues, after payment of
all operating costs and wages and allowance for working capital reserves, were
divided between Mr. Scott Deru, Mr. Terry Deru and Mr. William Campbell, in
accordance with their limited liability ownership percentage, through December
31, 2001.
It was determined, upon incorporation of Prime Resource, Inc., that
this form of compensation and revenue transfer will no longer be feasible and
that the corporation will need to retain and report its income, if any, after
salaries, overhead and other expenses as retained earnings. Further, Prime, Inc.
has now entered into an employment contract with its three principal officers,
as generally described earlier under the outline of compensation and
subsequently described under the Executive Compensation Section. In their
respective capacities, management will be paid a fixed salary. Prime, Inc. would
then retain any net earnings for further business and expansion purposes.
Mr. Terry Deru, in addition to acting for Prime as its President and
Chief Executive Officer, will also continue to act as the Manager and principal
operator of Belsen Getty . Mr. Scott Deru will also devote a substantial
majority of his time to the business affairs of Fringe Benefit Analysts and such
other time as necessary as a corporate officer of Prime. It is anticipated that
Mr. Limpert will then assume most of the day-to-day management responsibilities
for Prime, as well as continuing with Belsen Getty as a consultant.
Over the past three years, Belsen Getty has contributed approximately
27% of the present revenues to Prime, LLC and Fringe Benefit Analysts has
contributed the remaining 73% of net revenue to Prime, LLC. As noted above,
Prime, LLC was dissolved in April, 2002 upon the transfer of assets to Prime,
Inc. Prime, Inc., like its predecessor, Prime LLC, is not anticipated to
generate any independent sources of revenue or income. All salaries and benefits
in Belsen Getty and Fringe Benefit Analysts have been and will be paid directly
by Prime.
33
Belsen Getty Business
- ---------------------
Belsen Getty is a Utah financial management company offering investment
advice, financial planning, pension and retirement planning and general business
consulting and planning for firms or individuals who may participate to the
extent they deem appropriate in any of these financial products and services.
Belsen Getty manages assets primarily under a fee based management system.
Belsen Getty uses sophisticated modeling software to complete its investment
advisory aspects of its services to clients who wish it to manage their funds
for various pension and retirement or other offered plans. In this capacity,
Belsen Getty also acts as an investment advisory firm.
Belsen Getty also has expertise in providing consulting services for
retirement planning, pension and general business financing and planning.
Belsen Getty offers to individuals retirement accounts, trust accounts,
as well as creating 401(k) plans and other pension plans for corporate clients.
These services may range from simple cash management to complex custom growth
portfolio planning for wealthy individuals or businesses.
Belsen Getty markets through several mediums. First, the firm has a
sophisticated database for tracking services to clients, prospects and business
associates. This tracking assures each client and prospect are contacted monthly
by mail and at least quarterly by phone or in person. Second, prospects that go
into this tracking system are located in several ways, such as referrals from
existing clients, referrals from other business associates and referrals from
Fringe Benefit Analysts, as well as direct mailing and educational seminars. To
a limited extent, the firm currently engages in prospect mailings and may
explore other media type advertising, depending upon the availability of
proceeds from this offering.
Belsen Getty is currently managed by Mr. Terry Deru and has seven
full-time and one part- time employee.
Fringe Benefit Analysts Business
- --------------------------------
Fringe Benefit Analysts is primarily a diversified independent
insurance broker which provides various lines of insurance, such as health,
life, dental, disability, etc., as needed by its clients to fund various
business, as well as employee related programs and plans. Fringe Benefit
Analysts also intends in the future to engage in recruiting independent agents,
rolling up and acquiring existing health care insurance agencies and/or their
book of business.
Fringe Benefit Analysts currently has seven full-time employees, one
part-time employee and over twenty sub-agents who act as independent contractors
in various insurance lines. Part ofthe proceeds being raised in this offering
will be used to retain and recruit additional agents. Funding for anticipated
future acquisitions will come from the anticipated acquisition reserves to be
held by Prime. There are no present acquisition agreements, candidates,
proposals or negotiations. FBA has not historically, nor does it presently
intend, to engage in any acquisition of an insurance or other business from any
related or affiliated party. Proceeds of this offering used for acquisitions
will not be with any entity or person related to or affiliated with Prime or any
member of its management.
34
Fringe Benefit Analysts is currently managed by Mr. Scott Deru, has 8
employees and approximately 20 agents.
Plan of Operation
- -----------------
o Acquisitions. In the event of the maximum offering, a substantial
portion of net proceeds of the offering (approximately $250,000 or 33%) would be
available for acquisition by Fringe Benefit Analysts to acquire other insurance
providers, or their policies and book of business. Those funds may also be
employed, alternatively, for recruitment of existing agents, though there is no
present intent or plan to employ these funds for recruitment.
At whatever level the offering is closed, the following programs
intended to create revenue and income growth, will be funded and implemented:
o Enhancement of commission revenues. Management, primarily through
the use of the FBA Advantage Program, will attempt to encourage current
subagents to write all their insurance through Fringe Benefit Analysts. Proceeds
of the offering will be used to contact existing agents with relationship to
explaining and demonstrating this program.
o Growth of Core Business. Revenues will be expended to advertise and
promote core business activities, including attracting new clients, soliciting
more agents to employ the advantages of the FBA Advantage Program whereby
management fees for various programs are waived if multiple programs are
purchased through Fringe Benefit Analysts.
o Agent Recruiting. Management will use anticipated proceeds to
recruit full-time agents and promote various advantages and economies which can
be realized by agents being a full-time participant within a larger
organization.
o Complementary Business Practices. Prime will attempt to advertise
and promote the "complete package" approach of comprehensive business and
employee plan planning coupled with affiliated competitive insurance funding by
proposing a one stop approach to such services.
35
Principal Products
- ------------------
Fringe Benefit Analysts
- -----------------------
The principal products for Fringe Benefit Analysts are the sale and
management of health and life insurance products to small and medium sized
businesses. Fringe Benefit Analysts sells insurance programs and policies
primarily offered by four major carriers: Altius Insurance, United Health Care,
Intermountain Health Care and Regence Blue Cross. Additionally, dental, long
term care and disability insurance coverages are offered on a group basis. The
fees are standard commissions as set by the providers themselves. A typical
range for commissions in form of percentages would be 2-12%. Copies of our
contracts with these providers have been filed as exhibits to this registration.
The primary markets for each of the above listed products are for small
to medium sized companies located in the intermountain west. The size may vary
from as few as 2 employees to companies with an employee base as large as 300 or
more. The typical client will have between 10 to 100 employees. This is the
primary niche that FBA has focused upon.
Belsen Getty
- ------------
The principal products for the Belsen Getty subsidiary of Prime is that
of Investment Advisory Services. The advisory services include the construction
and management of financial portfolios for clients. Clients consist of pension
and 401(k) plans for approximately 50 small to medium companies and
approximately 300 individual clients. Financial planning and retirement modeling
services are also offered as well as general financial management counseling for
individuals and emerging companies.
The compensation for advisory services are derived on a fee basis. The
fee ranges from 50 basis points to 125 basis points per year depending on the
size of the portfolio being managed and the services provided. There are no
commissions paid on investment products and the assets are held by third party
custodians.
Belsen Getty is not associated with any broker/dealer and does not
share brokerage commissions. On isolated occasions, Belsen Getty may earn
insurance commissions, but these would be less than 3% per year of total
revenues.
The markets Belsen Getty operates in are similar in scope to the niche
discussed in the FBA product section. Typically, pension and 401(k) plans for
companies with employees of 10 to 200 are targeted. On the individual portion of
the business families or persons having investable assets in excess of $250,000
are the primary market for portfolio and financial management.
36
Competition
- -----------
Fringe Benefit Analysts
- -----------------------
FBA is exposed to competition to the same degree and manner as most
small independent insurance agencies in the relevant market writing primarily
group health and related disability insurance and some "key man" life policies.
FBA perceives that it may receive some benefit from its referral relationship to
Belsen Getty, but otherwise has no unique competitive advantage.
It appears to FBA that there is a significant competitive advantage to
larger insurance companies arising from apparent economies of scale which often
allows them to provide similar products and services at lower costs or offer
collateral advisory and planning services which FBA cannot directly match. This
competition from large insurance carriers should be considered a material risk
factor.
Belsen Getty
- ------------
Belsen Getty does not believe there is any unique or particular
competitive risks to the services it provides. Various large insurance and
brokerage companies, accounting and law firms provide related planning and
consulting services to individuals and businesses related to health, pension and
profit sharing programs, as well as capital funding alternatives. There is
perceived by Belsen Getty some competitive advantage to large competitors which,
because of economies of scale, may be able to provide these care services at
lower cost or provide free collateral services or products. Belsen Getty regards
the planning and consulting divisions of major financial institutions such as
Merrill Lynch, Morgan Stanley & Co. and other major broker/dealers providing
financial planning services to be its primary competitors. There is also a
growing trend for banks to also provide these services and products.
Major Customers or Providers
- ----------------------------
Fringe Benefit Analysts
- -----------------------
FBA does not have any customer accounting for over 4% of its revenues
and is not believed to be dependent on any major client. It should be noted,
however, that there are essentially four companies in the current operating area
who supply almost all the insurance products as sold by FBA. These companies are
Intermountain Health Care through which FBA derives approximately 38% of its
insurance revenues by value, Regence Blue Cross accounts for approximately 20%,
Altius Insurance Company accounts for approximately 11% and United Health Care
accounts for approximately 11% of the Prime revenues by value.
Belsen Getty
- ------------
Belsen Getty regards its client base as quite broad and diversified and
does not believe it is unduly dependent or at risk in the reliance upon any
major client or client group.
37
Number of Persons Employed By Prime
- -----------------------------------
Prime currently has no full-time employees. Mr. Limpert acts as an
advisor and Mr. Terry Deru as a part-time manager. As noted earlier, Mr. Scott
Deru and Mr. Terry Deru will only devote so much of their time as they deem
necessary and adequate to the discharge of general corporate affairs, but intend
to devote most of their time to the day-to-day operations of the subsidiary
income producing entities. It is intended that Mr. Andrew Limpert will primarily
discharge the day-to-day affairs and reporting requirements required by Prime,
such as maintaining current on filings required under the Securities and
Exchange Act of 1934, tax and other governmental filings, and other management
responsibilities related to the operation of its two subsidiary companies.
Belsen Getty currently has seven full-time employees and one part-time
employee. Approximately four of these employees are engaged in general office
management and supervisory roles while the remainder of the employees are
primarily engaged in marketing, implementation and servicing of the various
financial and business planning services and administration provided for
individuals, corporations, and 401(k) and other pension plans by the company.
Mr. Terry Deru acts as the General Manager for this limited liability company
and also is the principal officer in charge of the supervision and operation of
the investment advisory services provided by Belsen Getty.
Fringe Benefit Analysts currently has seven full-time employees and one
part-time employee and twenty sub-agents who act as independent insurance
contractors and agents. Of these individuals, approximately four are primarily
devoted to day-to-day management of the operations of Fringe Benefit Analysts
and the balance of the employees are primarily engaged in providing the actual
placement, supervision and administration of insurance policies and claims. Mr.
Scott Deru acts as the General Manager for the limited liability company and is
primarily in charge of the approval and issuance of policies, coordination with
Belsen Getty and other general administrative services. Mr. Scott Deru acts as
an assistant in these principal executive areas as an Assistant Manager. In the
event of the successful completion of this offering, either as a minimum or
maximum offering, Fringe Benefit Analysts would intend to expand the
administrative staff by approximately one person and would intend to acquire an
undetermined number of additional insurance sales agents.
All salaries and other expenditures in both Belsen Getty and Fringe
Benefit Analysts entities are accrued and paid by Prime.
Government Regulation of Business and Approval of Products
- ----------------------------------------------------------
The insurance products sold by FBA are primarily subject to government
regulation on a state level and to a lesser extent by federal regulation. In
particular, FBA must be licensed within the state of Utah as a licensed
insurance company and its agents must be licensed as insurance sales persons.
This licensure requires annual filings and reports to the state of Utah by
Fringe Benefit Analysts. There are additional federal regulations on the sale
and placement of insurance policies, but which are not believed to have direct
application on the day-to-day business of FBA in the sale of insurance policies
and other related insurance products. The agents for FBA are also required to
participate in continuing professional education and to pay an annual license
fee to continue to be licensed as registered insurance sales agents within the
state of Utah. FBA has been able to sell insurance products in surrounding
jurisdictions by provisions allowing the sale of insurance products by agents
licensed in the state of Utah in adjacent jurisdictions who can license in
surrounding states by reciprocity.
As part of the services provided by Belsen Getty, Mr. Terry Deru, is a
Certified Financial Planner and a Registered Financial Consultant. These
designations are not licensed, but there are continuing professional educational
requirements. Mr. Andrew Limpert is a registered investment advisor within the
state of Utah and is required to pay an annual fee and file reports related to
this profession. Mr. Limpert is also a Registered Financial Consultant.
38
Other than the foregoing, particular licensing and registration
requirements, Prime Resource, Inc. will be required to continue to file an
annual corporate filing with the state of Utah to remain in good standing and
may be required to make separate applications in various jurisdictions where it
may do business in the future to be qualified as a foreign corporation. In the
event of the successful completion of this registration statement, Prime
Resource will also be required to file periodic reports with the Securities and
Exchange Commission as to its accounting and business activities which are more
particularly described below.
It is not generally believed that the foregoing regulations will have a
substantial adverse affect upon the viability or potential financial success of
the company.
FBA Advantage Program
- ---------------------
One particular aspect of the business of Fringe Benefit Analysts is the
application of what is termed the "FBA Advantage" Program. The FBA Advantage
program is a tool for employees and Human Resource Directors of small and medium
size firms to obtain administration of employee benefit programs such as: 125(c)
(Cafeteria) plans, COBRA administration, HIPAA administration, and Qualified
Retirement Plan administration at a perceived cost savings. Implementation began
in May 2002 and several components of the program are in the development stage.
Shared Employees
- ----------------
Ms. Brenda Rogers acts as the Human Resource Director for both Belsen
Getty and Fringe Benefit Analysts. She allocates her time approximately equally
between the two entities. She is paid directly by Prime. Mr. Dale Harrell also
acts as a Controller for both Belsen Getty and Fringe Benefit Analysts. He
allocates approximately one-half of his full-time employment to each entity. He
is also paid directly by Prime.
Environmental Compliance
- ------------------------
Prime and its operating subsidiaries are not deemed to be engaged in
business endeavors which have significant environmental impacts or implications.
To the extent necessary, Prime and its subsidiaries will comply with any
necessary and required environmental regulations, but are not presently aware of
any environmental regulations which have directly impacted their business or
require direct regulatory compliance.
Special Characteristics and Risk Factors
- ----------------------------------------
As briefly noted under the Risk Factors Section, Prime will continue in
the event of the close of this offering to be substantially owned by its
existing management group. As a result of this ownership, those purchasing
shares in the offering should not have any reasonable expectation that they will
be in a position to influence the election of directors, direction of the
company or implement policy decisions through their share position and voting
power.
Further, the nature of financial planning and the collateral insurance
services provided has historically been a direct contact business built
substantially upon personal reputation and contacts. As a result, there will
39
remain a risk that if the present management of the company does not continue
their association with the company, that the company may not be able to continue
to properly engage in its present business activities. Further, there remains a
significant risk that even with the anticipated additional capital from this
offering, this type of business may not be able to be expanded significantly
through the infusion of capital due to the highly personal nature of the
contacts required and the services to be provided.
Reports to Security Holders
- ---------------------------
In the event of the successful completion of this offering, Prime
believes that it will become a limited reporting company under the Securities
and Exchange Act of 1934 (34' Act) and be required to register under the 34' Act
as a 15(d) company. In this capacity, it will be required to file an annual
report on Form 10-KSB discussing all of its management, business and accounting
activities on an annual basis. The company currently functions on a calendar
year basis. In addition to the annual report, Prime will also be required to
file quarterly reports at the end of each quarter other than the final quarter
of the year in which the annual report will be substituted for a quarterly
report. These reports will be filed on form 10-QSB and discuss generally the
unaudited accounting information for the company for the quarter and any
material events or changes in business activities or management.
Because Prime is not believed to be required to become a 12(g) full
reporting company for the foreseeable future, it will not be under an obligation
to mail annual reports to shareholders; however, the present intended policy of
the company is to disseminate such annual report related to any shareholder
meeting. It should also be noted the company is not believed to be subject to
the filing of formal proxy materials with the SEC as a 15(d) company. In the
future, the company, whether or not it meets the requirements to require filing
as a 12(g) full reporting company, may elect to become a full reporting company
to complete various registrations on NASD sponsored over-the-counter markets,
but which filings are not presently anticipated.
Any person may read and copy reports filed with the SEC at the SEC's
public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. The
public may obtain further information by calling the public reference room at
1-800-SEC-0330. The company also intends to continue its electronic file and
each of the public reports filed by the company would be further available
online at www.sec.gov.edgar. These reports will also be available from the
company by shareholder request at any time as filed.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
-----------------------------------------------------------
Overview
- --------
Prime Resource, LLC, ("Prime") was dissolved in April 2002 and its
assets transferred to Prime Resource, Inc. Prime LLC, historically, operated as
a Utah limited Liability Company and was the owner of Belsen Getty, LLC, (Belsen
Getty), and Fringe Benefit Analysts, LLC, (FBA). Prime, Inc. now continues in
this same capacity. Belsen Getty provided investment management, financial
planning and pension and retirement planning for various individual and business
clients. FBA primarily acts as an insurance broker of health, life, dental and
disability insurance coverages. Belsen Getty and FBA concentrate their business
40
activities within the state of Utah, although both have a limited number of
clients throughout the Western United States. During the two year period ended
December 31, 2001, Prime did not engage in any other direct business activities
in addition to those conducted through its two wholly owned subsidiaries.
On April 5, 2002 when Prime was substantially reorganized as a Utah
corporation, each prior member exchanged membership interest in Prime for an
agreed upon sharehold interest in the corporation. All of the attached and
referenced annual accounting predates this reorganization. The subsidiary
operating entities, Belsen Getty and FBA, remain as wholly owned limited
liability companies.
Consistent with its historical and ongoing legal structure, Prime's
operating segments have been and will continue to be aligned based on the nature
of the products and services offered through the operating subsidiaries. These
segments include:
* Asset Management - Belsen Getty
* Insurance Products - FBA
* Other - Belsen Getty & FBA
Results of Operations
Year ended December 31, 2001 compared to the year ended December 31, 2000
- -------------------------------------------------------------------------
Revenues
Prime's revenues, by reportable segment were as follows:
Year Ended December 31st
------------------------
Segment 2001 2000
------- ---- ----
Insurance Products(Commissions) $1,557,246 $1,498,016
Asset Management (Advisory Fees) $ 449,031 $ 707,537
Interest and Dividends $ 15,204 $ 7,716
-------------- --------------
$2,021,481 $2,213,269
41
Asset management revenues in 2001 decreased $258,500, or 36.5 percent,
compared to the prior year. The Company's revenues in the Asset Management
segment are earned based on an agreed-upon percentage of the fair market value
of investments under management and are calculated on a monthly basis. The
average fee percentage on assets under management remained relatively consistent
between the two years. Total financial advisory fees dropped in 2001 due to a
substantial decrease in the average fair value of assets under management in the
year 2001 versus 2000, caused by a general downturn in the value of marketable
securities throughout the stock market. In addition, a former member of Prime's
and manager in Belsen Getty was terminated near the end of December of 2000.
Certain Belsen Getty clients serviced by the former manager followed him to his
new firm resulting in a decrease of fee revenues in 2001 of approximately
$150,000.
Insurance product sales increased $59,200 or 4.0 percent due primarily
to insurance premium increases and the resultant commission increase.
Interest and dividends on a Company-wide basis was higher in 2001 due
to larger amounts invested in marketable securities and cash equivalents in
2001, as compared to 2000.
Operating Expenses
- ------------------
Total operating expenses increased $100,400 or 5.1 percent in 2001,
compared to the prior year. The net increase was primarily due to increases in
commission paid and compensation and benefits totaling $57,900 and $50,600,
respectively, offset by an approximate $26,000 decrease in general and
administrative expense. Compensation and benefits increased due to a one-time
$100,000 compensation settlement paid to a former member in the first quarter of
2002, but accrued as of December 31, 2001. Commissions expense increased in 2001
compared to the prior year due to premium inflation and the resultant commission
increases, as well as the addition of new clients by outside agents.
Net Income Loss
As a result of the foregoing factors Prime realized a net loss of
$36,645 in 2001 as contrasted to net income of $255,000 in 2000.
42
Six-month period ended June 30, 2002 compared to the six-month period ended June
30, 2001
- --------------------------------------------------------------------------------
Revenues
- --------
Prime's revenues by reportable segment were as follows:
Percentage
Change
Three-months ended June 30th (Rounded)
Segment 2002 2001
------- ---- ----
Insurance Products (Commissions) $ 864,225 $ 814,491 6%
Asset Management (Advisory Fees) 249,966 301,839 -17%
Interest and Dividends 7,398 7,198 3%
-------------- ---------------
$ 1,121,589 $ 1,123,528
Insurance product sales for the six-months ended June 30, 2002
increased from the prior comparable period due to higher volumes in 2002.
Asset management revenues for the six-months ended June 30, 2002
decreased marginally from the comparable prior six-month period due to a
one-time commission earned in the first quarter of 2001 in connection with
transferring management of a large pension account to an outside financial
institution. Asset management fees were also negatively effected by a general
decrease in the value of the stock market.
Operating Expenses
- ------------------
Total operating expenses increased $288,214 or 31.3 percent, as
compared to the prior six- month period. The increase is due to increases in
compensation and benefits of $208,788 or 43.6 percent, and general and
administrative expense of $82,809 or 87.2 percent from the prior comparable
six-month period.
The increase in compensation and benefits expense resulted from the
issuance of a 26 percent membership interest in Prime (valued at $113,000) to an
employee for advisory and organizational services rendered in connection with
Prime's reorganization and registration with the SEC, and an increase in the
base salary of such employee, partially offset by lower management salaries,
resulting from the termination of a former member of Prime.
The increase in general and administrative expense was due to legal and
accounting fees incurred in connection with Prime's reorganization and
registration with the SEC.
Income Tax Expense
Although Prime realized a loss of $87,694 for the six-months ended June
30, 2002, Prime recognized income tax expense for the period resulting from
43
pretax income for the three-months ended June 30, 2002, in connection with its
conversion from a limited liability company to a taxable corporation effective
April 4, 2002.
Net Income
- ----------
The six-month period ended June 30, 2002 resulted in a net loss of
($107,495) compared to net income of $202,459 for comparable prior period. The
loss in 2002 was primarily due to increased management salaries and other
compensation and administrative costs related to the reorganization as described
above. Further, the six-month period ended June 30, 2001 was positively impacted
by one-time fees generated from transfers of customer pension accounts to other
outside financial institutions.
Three-month period ended June 30, 2002 compared to the three-month period ended
June 30, 2001
- --------------------------------------------------------------------------------
Revenues
Prime's revenues by reportable segment were as follows:
Percentage
Change
Three-months ended June 30th (Rounded)
Segment 2002 2001
------- ---- ----
Insurance Products (Commissions) $ 429,373 $ 395,913 8%
Asset Management (Advisory Fees) 159,320 145,642 9%
Interest and Dividends 5,453 4,174 31%
-------------- ---------------
$ 594,146 $ 545,729
Insurance product sales for the three-months ended June 30, 2002
increased from the prior comparable period due to higher volumes in 2002.
Asset management fees for the three-months ended June 30, 2002
increased from the prior comparable period due to increased brokerage fees
resulting from placing new and existing customer accounts with an outside
financial institution, offset in part by lower ongoing fees in connection with a
general reduction in the value of the stock market.
Operating Expenses
- ------------------
Total operating expenses increased $118,583 or 28.0 percent, as
compared to the prior comparable quarter. The increase was due to increases in
compensation and benefits of $104,932 or 52.5 percent. The increase in
compensation and benefits expense resulted from increase in the base salary of a
key employee and shareholder of Prime.
44
Income Tax Expense
- ------------------
Prime recognized income tax expense for the first time in the second
quarter of 2002, due to its conversion from a limited liability company to a
taxable corporation, effective April 4, 2002.
Net Income
In the quarter ended June 30, 2002 Prime realized net income of $32,244
compared to net income of $122,211 for the same quarter in 2001. Net income in
2002 was lower due to increased compensation and benefits expense along with the
first-time recognition of income tax expense, partially offset by increased
revenues from both insurance product sales and asset management fees.
Liquidity and Capital Resources
- -------------------------------
Historically, Prime's primary source of capital has been cash provided
from operating activities. Net cash provided from operating activities totaled
$146,700 and $239,000 for the years ended December 31, 2001 and 2000,
respectively. Although Prime recognized a net loss in 2001, the net loss
included noncash depreciation charges of $42,744 and other noncash charges
totaling $4,100. Cash flows from operations in 2001 were further enhanced by
changes in other operating assets and liabilities, including receivables
collected related to prior year revenues of approximately $47,000, and net
expenditures of $97,300 accrued in 2001, yet paid in a subsequent period. Cash
flows from operations in 2001 were also adjusted downward for noncash interest
income on notes receivable from related parties totaling $8,100.
Cash flows from operations for the year ended December 31, 2000 started
with net income of $255,500 but was increased by noncash depreciation of
$39,600, and decreased by $88,300, primarily due to paying liabilities in fiscal
2000 for expenditures incurred in 1999.
Cash used in investing activities totaled $205,700 and $63,200 for the
years ended December 31, 2001 and 2000, respectively. The increase in 2001,
compared to 2000, related to loans to members totaling $140,000, and investments
in marketable securities totaling $51,100. Cash was used in both 2001 ($18,900)
and 2000 ($46,800) for the purchase of equipment and vehicles.
Cash used in financing activities totaled $134,200 and $199,300 in
fiscal years 2001 and 2000, respectively. Cash used in financing activities was
comprised primarily of member distributions, but also included $17,600 in
payments on a note payable to a member during fiscal year 2000.
Six-month period ended June 30, 2002 compared to the six-month period ended June
30, 2001
- --------------------------------------------------------------------------------
Prime used ($39,709) and generated $171,125 in cash from operations
during the six-month periods ended June 30, 2002 and 2001, respectively. Prime
realized net income of $202,459 for the first half of 2001 versus a net loss of
($107,495) in the first half of 2002. Furthermore, cash used in operations
during the first six-months of 2002 was negatively impacted by the settlement of
wages paid to a former member in the amount of $100,000.
45
Investing activities for the first six months of 2002 generated
$180,962 in cash. However, investing activities for the first six months of 2001
used $192,442 in cash. Sources of cash in 2002 included repayments on
receivables from members totaling $144,799 and proceeds from the sale of
marketable securities in the amount of $51,140. In addition, during 2001, Prime
advanced $147,000 to members. This use of cash in 2001 was partially offset by a
$20,000 repayment on a loan from a related party.
Prime used $48,000 in cash in financing activities during the first six
months of 2002, resulting from a one-time buy out of a former member, partially
offset by proceeds from repayments of loans to members totaling $52,000.
Balance Sheet Data
- ------------------
The following summarizes Prime's assets, liabilities, and members'
equity as of June 30, 2002, December 31, 2001 and December 31, 2000:
June 30, 2002
Assets (Unaudited) December 31, 2001 December 31, 2000
------ ----------- ----------------- -----------------
Current assets ............... $263,912 $185,200 $391,900
Property and equipment, net .. 119,493 131,300 167,200
Other ........................ 128,557 263,600 101,500
-------- -------- --------
Total assets ................. 511,962 580,100 660,600
Liabilities and members equity
--------
Current liabilities .......... 202,244 345,200 147,500
Other liabilities ............ 83,875 15,600 14,900
Members'& stockholders' equity 225,843 219,300 498,200
-------- --------
Total liabilities, members' &
shareholders' equity ......... $511,962 $580,100 $660,600
Current assets as of December 31, 2001 decreased by $206,700 or 52.7
percent from the balance at December 31, 2000. The decrease was primarily due to
a reduction in cash of $193,200 to pay for operations, settlement of a wage
claim with a prior employee and advances to members of $140,000; a decrease in
accounts receivable of $47,300 due to a change in the Company's billing process
for investment advisory services, whereby such services were billed in arrears
during 2000, versus in advance as in 2001; partially offset by an increase in
marketable securities in 2001 totaling $50,100.
Current assets increased between June 30, 2002 and December 31, 2001 by
$78,635 or 42.5 percent. The increase in current assets was primarily due to an
increase in cash of $93,253 resulting primarily from collections on receivables
from members.
46
Net property and equipment decreased primarily due to routine
depreciation and disposals, offset by purchases of equipment.
Other assets increased between December 31, 2001 and 2000 by $162,100
or 160 percent due to advances to members in 2001. The decrease between June 30,
2002 and December 31, 2001 resulted from repayments of such advances during the
first quarter of 2002.
Current liabilities increased between December 31, 2001 and 2000 by
$197,700 or 134 percent due to obligations stemming from a settlement with a
former member in connection with Prime's buy-out of the former member's share of
the Company. Such liabilities subsequently decreased between June 30, 2002 and
December 31, 2001 as Prime paid the obligations during the first quarter of
2002.
The Offering
- ------------
Prime does not believe it would need to complete this public offering
to continue to meet its liquidity needs, based on the historical level of
operations of Prime. However, management does not believe there is sufficient
net revenues to fund meaningful growth in Prime. If successful with the offering
of stock in connection with this registration statement, Prime intends to use
the proceeds of the offering for the expansion of its business facilities and
short-term marketing efforts as generally outlined in this offering. See Use of
Proceeds.
It is possible that the anticipated proceeds of this offering will not
be sufficient to support any significant increase in revenues or income to
Prime, in which event, future valuation of shares purchased by investors in this
offering may not be enhanced. Each prospective investor should consider the
possibility that revenues may not be significantly increased by the capital from
this offering. See discussion of Risk Factors and Use of Proceeds.
Market Risks and Management Policies
- ------------------------------------
Management is not aware of any particular market risk factors related
to the Company's products and services, such as any specific environmental risks
or other governmental regulation. Further, at the present time, Prime does not
have any foreign market or currency exposure. Fringe Benefit Analysts is subject
to continuing regulations as an insurance agency where it operates and certain
principals of Belsen Getty are subject to regulation as investment advisors and
licensed financial planners.
Prime has historically had a policy of lending funds to owners and
employees which may have a future adverse impact on capital or liquidity to the
extent it may lower funds available for working capital, or a loss of capital in
the event of default. To date no related party loan has defaulted and the
company has earned what it believes to be reasonable market interest on all such
loans. Loans to management will now be prohibited under the Sarbanes-Oxley Act
in public companies. See "Related Party Transactions".
47
New Accounting Pronouncements
- -----------------------------
In June, 2001, the Financial Accounting Standards Board (FASB) issued
Statement No. 141 (FAS 141), Business Combinations, and Statement No. 142 (FAS
142), Goodwill and Other Intangible Assets.
FAS 141, effective June 30, 2001, required that all business
combinations initiated after June 30, 2001 be accounted for under the purchase
method of accounting; the use of the pooling-of- interests method of accounting
is eliminated. FAS 141 also establishes how the purchase method is applied for
business combinations completed after June 30, 2001. This guidance is similar to
previous generally accepted accounting principles (GAAP); however, FAS 141
establishes additional disclosure requirements for transactions occurring after
the effective date.
FAS 142 eliminates amortization of goodwill associated with business
combinations completed after June 30, 2001. During the transition period from
July 1, 2001 through December 31, 2001, goodwill associated with business
combinations completed prior to July 1, 2001 continued to be amortized through
the income statement. Effective January 1, 2002, goodwill amortization expense
ceased and goodwill will be assessed for impairment at least annually at the
reporting unit level by applying a fair-value-based test. FAS 142 also provides
additional guidance on acquired intangibles that should be separately recognized
and amortized, which could result in the recognition of additional intangible
assets, as compared with previous GAAP.
Prime has no business combinations prior to the issuance of FAS 141 or
FAS 142, which resulted in the recognition of goodwill, accordingly, neither of
these statements will have an effect on the current financial statements of the
Company.
There are other new accounting standards (such as FAS 143 on Accounting
For Asset Retirement Obligations; and FAS 144 on Account for Impairment or
Disposal of Long Lived Assets) which do not have present applications, but may
be important to the Company's future operations and accounting.
DESCRIPTION OF PROPERTY
-----------------------
Prime and its operating subsidiaries previously leased commercial space
for their operations at 22 East First South, 4th Floor, Salt Lake City, Utah
from Brownstone Associates LLC. Scott Deru and Terry Deru were prior owners in
Brownstone Associates through December 31, 2001 along with Mr. William Campbell,
who was a prior owner in Prime LLC. Prime now considers its current lease,
described below, to be with a fully unrelated party. Mr. Campbell continues as
the principal owner of Brownstone, but has no ownership or affiliation with
Prime. Prime leased approximately 2,800 square feet in the Brownstone until
August, 2002. The prior gross monthly lease payment was $3,976 per month. The
lease was terminated by notice without penalty effective August 16, 2002.
48
Commencing August 16, 2002 Prime and its subsidiaries lease space in
the Brickyard Tower in Salt Lake City, Utah. The exact address is 1245 East
Brickyard Road, Suite 590, Salt Lake City, Utah 84106. This is a five year lease
with a base rental amount of $4,588.58 per month. The company will occupy
approximately 3,239 square feet.
Belsen Getty's current office space in the Brickyard Tower consists of
two conference rooms, a reception area, four individual offices, a large area
with six cubicles, a workroom, file room and kitchen area.
Total current monthly direct costs of operating the present physical
facilities, which includes rent, utilities and other overhead expenses, is
approximately $4,588.58 per month.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
o To date none of the management has had any independent determination
of the reasonableness or amounts of compensation or benefits, such as shares
issued to management or salaries, and it is not likely there will be any
independent review of such matters in the future as the management, the Board
and the principal owners are substantially the same persons.
o The Company has historically made and received loans and advances
from owners and employees without independent Board review. As of December 31,
2001, there was approximately $50,000 owed to Prime by Andrew Limpert; Mr. Scott
Deru and Mr. Terry Deru had outstanding loans owing of $70,000 each, but which
are off-set by two loans to Prime by the Derus each for $100,000, totaling
$200,000. The notes payable to the company are demand notes, bear single annual
interest (APR) of 4 1/2% and the note receivable also has an APR of 4 1/2% and
is a demand note. Under the provisions of the recent Sarbanes-Oxley Act, Prime
will discontinue immediately, as a prospective public company, any loans to
officers, directors or employees.
o The current lease arrangement which terminated August, 2002 was
entered by Prime with a previously affiliated party, Mr. William Campbell, and
could not thereby be considered arms length. The terms of this lease are
discussed at page 49 of this Prospectus under Description of Property.
o Each of the principal officers of Prime have received shares and
interest in Prime based primarily upon the contribution of their prior
intangible business interest in Prime LLC and other intangible assets which are
not capable of exact evaluation. As a result, each of the present principal
owners of Prime may be deemed to hold shares and interest in the company which
were not determined through any arm's length transaction or independent
determination of value.
o Messrs. Terry Deru, Scott Deru and Andrew Limpert would be
considered founders and promoters of the current Prime Resource, Inc. As such,
Scott Deru contributed his interest in the prior Prime LLC for his approximate
36% stock interest in Prime; Terry Deru has contributed his interest in Prime
LLC for an approximate 36% stock interest; and Mr. Limpert has contributed his
interest in Prime LLC for an approximate 27% stock interest in Prime. None of
these transfers by the promoters can be considered independent or arms-length
transactions.
49
o The company is not aware of any further transactions which would
require disclosure under this section by the company and any affiliated party.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
--------------------------------------------------------
Market Information
- ------------------
Our common stock is not traded on any exchange. We plan to seek a
listing on the Electronic Bulletin Board, OTCBB, once our registration statement
has become effective. We cannot guarantee that we will obtain a listing. There
is no trading activity in our securities, and there can be no assurance that a
regular trading market for our common stock will ever be developed.
Current Shareholders
- --------------------
As of April 5, 2002, there were four holders of record of our common
stock as described in the management section.
Dividends
- ---------
We have not declared any cash dividends on our common stock since our
inception and do not anticipate paying such dividends in the foreseeable future.
We plan to retain any future earnings for use in our business. Any decisions as
to future payment of dividends will depend on our earnings and financial
position and such other factors, as the Board of Directors deems relevant.
50
EXECUTIVE COMPENSATION
----------------------
HOURLY COMPENSATION, LONG TERM COMPENSATION
Name and Principal Year Salary(1) Bonus(2) Other Annual Restricted Securities LTIP Other3
Position Compensation Stock Underlying Payouts (Loans)
Awards(s) Options
Mr. Terry Deru, 2001 $262,000 -- $65,000 -- -- -- $70,000
President 2000 208,341 -- -- -- -- -- --
1999 122,236 -- -- -- -- -- ---
Mr. Scott Deru,, 2001 $240,000 -- $65,000 -- -- -- $70,000
Secretary 2000 $212,000 -- -- -- -- -- --
1999 $165,242 -- -- -- -- -- ---
Mr. Andrew Limpert, 2001 $118,000 -- -- -- -- -- $50,000
Treasurer 2000 60,479 -- -- -- -- -- --
1999 65,613 -- -- -- -- -- --
51
To date, directors have not been paid any compensation for attendance
at Board of Directors meetings. It is anticipated that as soon as revenues would
justify such expenditure, Directors will be paid a per diem payment of $500 for
attending each Board of Directors meetings.
(1) Historically, the principals of Prime Resource LLC have taken draws
equal to a salary compensation of $240,000 per year in the case of Mr. Scott
Deru, and $240,000 for Mr. Terry Deru. Mr. Terry Deru received $262,000 in 2001,
but will receive $240,000 in 2002. Mr. Limpert was paid compensation of $118,000
in 2001, which will increase to $165,000 this year and $210,000 in 2003. The
officers have decided under the new corporate structure of Prime Resource to fix
their salaries at these levels as evidenced by an employment contract, earlier
discussed under "Remuneration of Officers and Directors". The most essential
term of such contract is that the company may terminate the employment
agreement, without cause, at anytime upon notice. If Prime is successful in
completing this offering, the company may consider executive stock options or
other incentive plans.
(2) In addition to the foregoing salaries, Mr. Scott Deru and Mr. Terry
Deru received a cash bonus distribution of $65,000 each in 2001.
(3) In 2001 Mr. Terry Deru and Mr. Scott Deru each borrowed $70,000
from Prime on a demand note basis. These amounts remain outstanding, but are
off-set by $100,000 demand notes each owed by Prime to Mr. Scott Deru and Mr.
Terry Deru. The interest on these notes is 4.5% APR. Mr. Limpert has borrowed
$50,000. This loan is a demand note with interest payable at the time of demand
at 4.5% APR.
The company presently does not have any stock option or other warrant or stock
option plan, but would deem it may adopt such a plan subsequent and in the event
of the successful completion of this offering.
52
FINANCIAL STATEMENTS
PRIME RESOURCE, INC. AND SUBSIDIARIES
(Formerly Prime Resource, LLC and Subsidiaries)
FINANCIAL STATEMENTS
with
INDEPENDENT AUDITORS' REPORT THEREON
Years Ended December 31, 2001 and 2000
and Interim Period to June 30, 2002 (unaudited)
53
CONTENTS
Independent Auditors' Report 55
Financial Statements:
Consolidated Balance Sheets 56
Consolidated Statements of Operations
Years Ended December 31, 2001 and 2000 57
Consolidated Statements of Operations and Comprehensive Income (Loss)
Years Ended December 31, 2001 and 2000 58
Consolidated Statements of Operations
Three-Months Ended June 30, 2002 and 2001 (Unaudited) 59
Consolidated Statements of Operations
Six-Months Ended June 30, 2002 and 2001 (Unaudited) 60
Consolidated Statements of Cash Flows 61
Consolidated Statements of Members' and Stockholders' Equity 62
Notes to Consolidated Financial Statements 63-72
54
INDEPENDENT AUDITORS' REPORT
To The Board of Directors
Prime Resource, Inc. and subsidiaries
(formerly Prime Resource, LLC and subsidiaries)
We have audited the accompanying consolidated balance sheets of Prime Resource,
LLC and subsidiaries as of December 31, 2001 and 2000, and the related
consolidated statements of operations and members' equity, consolidated
operations and comprehensive income (loss), and consolidated cash flows for the
years 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 audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Prime Resource, LLC
and subsidiaries as of December 31, 2001 and 2000, and the results of its
operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.
Carver Hovey & Co.
Layton, Utah
March 29, 2002, except for Note 9,
as to which the date is April 5, 2002
55
PRIME RESOURCE, INC. AND SUBSIDIARIES
(Formerly Prime Resource, LLC and Subsidiaries)
CONSOLIDATED BALANCE SHEETS
June 30,
ASSETS December 31, December 31, 2002
2001 2000 (unaudited)
----------- ----------- -----------
Current Assets:
Cash and cash equivalents $ 32,102 $ 225,321 $ 125,355
Accounts receivable 99,287 146,570 126,105
Available-for-sale securities 50,125 -- --
Current portion of notes receivable, related parties 3,763 20,000 3,763
Deferred income taxes -- -- 8,689
--------- --------- ---------
185,277 391,891 263,912
Property and equipment, net of accumulated depreciation
of $123,440, $100,211 and $68,058 at June 30, 2002,
December 31, 2001 and 2000, respectively 131,283 167,216 119,493
Other assets 8,516 8,516 13,104
Advances and notes receivable from related parties,
excluding current portion 255,052 92,992 115,453
--------- --------- ---------
$ 580,128 $ 660,615 $ 511,962
========= ========= =========
LIABILITIES, MEMBERS' AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable $ 16,659 $ 5,706 $ 51,245
Accrued compensation, commissions and benefits 228,567 141,806 138,456
Income taxes payable -- -- 12,543
Member distribution payable 100,000 -- --
--------- --------- ---------
345,226 147,512 202,244
Notes payable to related parties 15,579 14,905 67,928
Deferred income taxes -- -- 15,947
--------- --------- ---------
360,805 162,416 286,119
--------- --------- ---------
MEMBERS' EQUITY
Members' equity 220,338 498,199 --
Accumulated other comprehensive loss (1,015) -- --
--------- --------- ---------
219,323 498,199 --
--------- --------- ---------
STOCKHOLDERS' EQUITY
Common stock - no par value; authorized 50,000,000 shares;
issued and outstanding 2,800,000 shares in 2002 -- -- --
Additional paid-in capital -- -- 197,763
Retained earnings -- -- 28,080
--------- --------- ---------
-- -- 225,843
--------- --------- ---------
$ 580,128 $ 660,615 $ 511,962
========= ========= =========
See accompanying notes to financial statements
56
PRIME RESOURCE, INC. AND SUBSIDIARIES
(Formerly Prime Resource, LLC and Subsidiaries)
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 2001 and 2000
2001 2000
----------- -----------
REVENUES
Commissions $ 1,557,246 $ 1,498,016
Investment advisory fees 449,031 707,537
Interest and dividends 15,204 7,716
----------- -----------
2,021,481 2,213,269
EXPENSES
Commissions 538,510 480,565
Compensation and benefits 1,130,418 1,079,865
General and administrative 230,205 256,405
Occupancy and equipment 115,575 100,122
Interest 674 662
Depreciation 42,744 40,150
----------- -----------
2,058,126 1,957,769
----------- -----------
NET INCOME (LOSS) $ (36,645) $ 255,500
=========== ===========
PROFORMA COMPENSATION AND BENEFITS, assuming the reorganization and new
compensation agreements described in Note 9 occurred on January 1, 2001 $
1,222,418 $ -
PROFORMA INCOME TAX BENEFIT, assuming the reorganization described
in Note 9 occurred on January 1, 2001 51,458 --
PROFORMA NET LOSS, assuming the reorganization described in Note 9
occurred on January 1, 2001 (77,187) --
PROFORMA BASIC AND DILUTED LOSS PER SHARE, assuming the
reorganization described in Note 9 occurred on January 1, 2001 (.028) --
See accompanying notes to financial statements
57
PRIME RESOURCE, INC. AND SUBSIDIARIES
(Formerly Prime Resource, LLC and Subsidiaries)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
Years Ended December 31, 2001 and 2000
2001 2000
------------- -------------
REVENUES
Commissions $ 1,557,246 $ 1,498,016
Investment advisory fees 449,031 707,537
Interest and dividends 15,204 7,716
------------- -------------
2,021,481 2,213,269
EXPENSES
Commissions 538,510 480,565
Compensation and benefits 1,130,418 1,079,865
General and administrative 230,205 256,405
Occupancy and equipment 115,575 100,122
Interest 674 662
Depreciation 42,744 40,150
------------- -------------
2,058,126 1,957,769
------------- -------------
NET INCOME (LOSS) (36,645) 255,500
OTHER COMPREHENSIVE INCOME -
Net unrealized loss on securities available for sale 1,015 --
------------- -------------
TOTAL COMPREHENSIVE INCOME (LOSS) $ (37,660) $ 255,500
============= =============
See accompanying notes to financial statements
58
PRIME RESOURCE, INC. AND SUBSIDIARIES
(Formerly Prime Resource, LLC and Subsidiaries)
CONSOLIDATED STATEMENTS OF OPERATIONS
Three-Months Ended June 30, 2002 and 2001
(Unaudited)
2002 2001
------------- -------------
REVENUES
Commissions $ 429,373 $ 395,913
Investment advisory fees 159,320 145,642
Interest and dividends 5,453 4,174
------------- -------------
594,146 545,729
EXPENSES
Commissions 141,070 133,118
Compensation and benefits 304,629 199,697
General and administrative 57,071 45,491
Occupancy and equipment 26,579 31,776
Interest 1,745 337
Depreciation 11,007 13,099
------------- -------------
542,101 423,518
Income before income tax expense 52,045 122,211
Income tax expense 19,801 --
------------- -------------
NET INCOME $ 32,244 $ 122,211
============= =============
PROFORMA COMPENSATION & BENEFITS, assuming the reorganization and new
compensation agreements described in Note 9 occurred on January 1, 2001 $ 314,129 $ --
PROFORMA INCOME TAX EXPENSE, assuming the reorganization described
in Note 9 occurred on January 1, 2001 16,187 --
PROFORMA NET INCOME, assuming the reorganization described in Note 9
occurred on January 1, 2001 26,358 --
PROFORMA BASIC AND DILUTED INCOME PER SHARE, assuming the
reorganization described in Note 9 occurred on January 1, 2001 .009 --
See accompanying notes to financial statements
59
PRIME RESOURCE, INC. AND SUBSIDIARIES
(Formerly Prime Resource, LLC and Subsidiaries)
CONSOLIDATED STATEMENTS OF OPERATIONS
Six-Months Ended June 30, 2002 and 2001
(Unaudited)
2002 2001
------------- -------------
REVENUES
Commissions $ 864,225 $ 814,491
Investment advisory fees 249,966 301,839
Interest and dividends 7,398 7,198
------------- -------------
1,121,589 1,123,528
EXPENSES
Commissions 266,262 261,222
Compensation and benefits 688,069 479,281
General and administrative 177,829 95,020
Occupancy and equipment 52,205 64,000
Interest 1,746 336
Depreciation 23,172 21,210
------------- -------------
1,209,283 921,069
Income before income tax expense (87,694) 202,459
Income tax expense 19,801 --
------------- -------------
NET INCOME $ (107,495) $ 202,459
============== =============
PROFORMA COMPENSATION & BENEFITS, assuming the reorganization and new
compensation agreements described in Note 9 occurred on January 1, 2001 $
711,069 $ -
PROFORMA INCOME TAX EXPENSE, assuming the reorganization described
in Note 9 occurred on January 1, 2001 42,064
PROFORMA NET LOSS, assuming the reorganization described in Note 9
occurred on January 1, 2001 (68,630)
PROFORMA BASIC AND DILUTED INCOME PER SHARE, assuming the
reorganization described in Note 9 occurred on January 1, 2001 (.025)
See accompanying notes to financial statements
60
PRIME RESOURCE, INC. AND SUBSIDIARIES
(Formerly Prime Resource, LLC and Subsidiaries)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six-Months Six-Months
Year Ended Year Ended Ended Ended
December 31, December 31, June 30, 2002 June 30, 2001
2001 2000 (unaudited) (unaudited)
------------ ------------ ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (36,645) $ 255,500 $(107,495) $ 202,459
Adjustments to reconcile net income (loss) to
net cash provided by operations:
Depreciation 42,744 39,536 23,172 21,210
Noncash compensation 2,409 -- 114,859 --
Loss on disposal of assets 980 -- -- 980
Interest expense on borrowings from member 674 -- 349 337
Interest income on loans to related parties (8,113) (759) (3,991) (2,627)
Changes in operating assets and liabilities:
Trade and other accounts receivable 47,283 25,324 (26,234) (11,545)
Other assets -- -- (4,588) --
Accounts payable 10,559 (22,788) 34,529 18,790
Accrued liabilities and compensation 86,762 (57,836) (90,111) (58,479)
Income taxes payable -- -- 12,543 --
Deferred income taxes -- -- 7,258 --
--------- --------- --------- ---------
Net cash provided by (used in) operating activities 146,653 238,977 (39,709) 171,125
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment (18,865) (46,741) (11,325) (15,864)
Loans to related parties (155,650) (36,427) (5,500) (147,688)
Principal payments from related party notes receivable -- -- 146,647 --
Collections on loans to related parties 20,000 20,000 -- 20,000
Proceeds from securities available for sale -- -- 51,140 --
Investment in securities available for sale (51,141) -- -- (48,890)
--------- --------- --------- ---------
Net cash provided by (used in) investing activities (205,656) (63,168) 180,962 (192,442)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on note payable to a member -- (17,567) -- --
Notes payable to members -- -- 52,000 --
Member buy-out -- -- (100,000) --
Distributions to members (134,215) (181,765) -- (90,643)
--------- --------- --------- ---------
Net cash used in financing activities (134,215) (199,332) (48,000) (90,643)
--------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH (193,219) (23,523) 93,253 (111,960)
CASH AT BEGINNING OF PERIOD 225,321 248,844 32,102 225,321
CASH AT END OF PERIOD $ 32,102 $ 225,321 $ 125,355 $ 113,361
========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Cash paid for interest $ -- $ 1,337 $ -- $ --
========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITY
Accrual of distribution payable to a former member $ 100,000 $ -- $ -- $ --
Distribution of a portion of a note receivable from a
related entity to members 7,000 -- -- --
Unrealized loss on securities available for sale 1,015 -- -- --
See accompanying notes to financial statements
61
PRIME RESOURCE, INC. AND SUBSIDIARIES
(Formerly Prime Resource, LLC and Subsidiaries)
CONSOLIDATED STATEMENTS OF MEMBERS' AND STOCKHOLDERS' EQUITY
January 1, 2000 to June 30, 2002
Additional
Members' Common Stock Paid in Retained
Equity Shares Amount Capital Earnings
--------- ----------------------------- ------------ ------------
Balance at January 1, 2000 $ 424,465 -- $ -- $ -- $ --
Net income 255,500 -- -- -- --
Member distribution (181,766) -- -- -- --
----------- ----------- ----------- ----------- -----------
Balance at December 31, 2000 498,199 -- -- -- --
Net loss (36,645) -- -- -- --
Member distribution (241,216) -- -- -- --
----------- ----------- ----------- ----------- -----------
Balance at December 31, 2001 220,338 -- -- -- --
Net loss through date of incorporation
(April 4, 2002)(unaudited) (135,575) -- -- -- --
Member contribution (unaudited) 113,000 -- -- -- --
April 4, 2002 reorganization from
a limited liability company to
a corporation (unaudited) (197,763) 2,800,000 -- 197,763 --
Net income from April 4, 2002 through
June 30, 2002 (unaudited) -- -- -- -- 28,080
----------- ----------- ----------- ----------- -----------
$ -- 2,800,000 $ -- $ 197,763 $ 28,080
=========== =========== =========== =========== ===========
See accompanying notes to financial statements
62
PRIME RESOURCE, INC. AND SUBSIDIARIES
(Formerly Prime Resource, LLC and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business Activity
Prime Resource, LLC, (The Company) is a Limited Liability Company and 100
percent owner of Belsen Getty, LLC, (Belson Getty), and Fringe Benefits
Analysts, LLC, (FBA), with offices in Salt Lake City and Layton, Utah,
respectively. Belsen Getty is a fee-only financial management firm, providing
investment advice to high-wealth individuals and employee groups in connection
with company retirement plans. FBA sells group and employee benefit products,
primarily health insurance, to employers and individuals throughout Utah.
Reorganization
Effective December 31, 2001, the Company entered into a settlement agreement
involving the transfer of the membership interest from a former member to
current and remaining members of the Company. The agreement required the Company
to acquire the former owner's membership share in the Company in exchange for
$100,000. The agreement further required the Company to pay compensation to the
former member in 2001, also in the amount of $100,000. Such compensation expense
is reflected in salaries and wages in the accompanying statement of operations
for the year ended December 31, 2001. A total obligation of $200,000 for amounts
payable to the former member in connection with the reorganization is reflected
in the accompanying consolidated balance sheet as of December 31, 2001. The
acquisition of the former member's share had no other effect on the recorded
assets and liabilities of the Company. Basis of Financial Presentation
The accompanying consolidated financial statements include the accounts of Prime
Resource, LLC, and its wholly owned subsidiaries, Belsen Getty, LLC and Fringe
Benefits Analysts, LLC. All significant intercompany balances and transactions
have been eliminated in consolidation.
Use of Estimates
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles of the United States of America. In
preparing the consolidated financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets,
liabilities and disclosures as of the date of the balance sheet and revenues and
expenses for the period. Actual results could significantly differ from those
estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of checking and money market accounts. For
purposes of the statement of cash flows, the Company considers all highly liquid
instruments with original maturities of three months or less to be cash
equivalents.
63
PRIME RESOURCE, INC. AND SUBSIDIARIES
(Formerly Prime Resource, LLC and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Available for Sale Securities
Available for sale securities are recorded at fair value. Unrealized holding
gains or losses on available for sale securities are reported as a separate
component of member's equity until realized. A decline in the market value of
the securities below cost that is deemed other than temporary is charged to
earnings resulting in the establishment of a new cost basis for the security.
Reinvested dividends increase the basis of the related investments.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is calculated on the
straight-line method over the estimated useful lives of depreciable assets as
follows:
Years
-----
Automobiles 5
Furniture & equipment 7
Computer software & equipment 3-5
Income taxes
The Company is taxed similar to a partnership. Accordingly, the accompanying
consolidated statements of operations do not reflect provisions for income
taxes, inasmuch as such income tax liability is the responsibility of the
individual members.
Revenue Recognition
The Company generates revenues from two primary sources, commissions on the sale
of insurance and fees on the provision of investment advice.
Fees from the provision of investment advice are billed and earned based on an
agreed upon percentage of the fair value of investment portfolios under
management. Such fees are typically one percent per year, and are calculated and
billed on a monthly basis at one twelfth of one percent of the fair value of
investments under management as of the beginning of each calendar month, and are
recognized as revenue in the month billed.
PRIME RESOURCE, INC. AND SUBSIDIARIES
(Formerly Prime Resource, LLC and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
New Accounting Pronouncements
Revenues, in the form of commissions, are earned on brokered sales of group and
individual health insurance products under agency marketing agreements with
applicable health insurance providers. Commissions are generally collected on a
monthly basis and are recognized as revenue in the month for which the related
insurance premiums apply. Commissions earned by the Company are split, at
management's discretion, between the Company and its licensed agents, on a
case-by-case basis. The Company recognizes the full amount of commissions
received under its agency agreements as commission revenue and the portion paid
to its licensed agents as commission expense.
In June, 2001, the Financial Accounting Standards Board (FASB) issued Statement
No. 141 (FAS 141), Business Combinations, and Statement No. 142 (FAS 142),
Goodwill and Other Intangible Assets.
FAS 141, effective June 30, 2001, required that all business combinations
initiated after June 30, 2001 be accounted for under the purchase method of
accounting; the use of the pooling-of-interest method of accounting is
eliminated. FAS 141 also establishes how the purchase method is applied for
business combinations completed after June 30, 2001. This guidance is similar to
previous generally accepted accounting principles (GAAP); however, FAS 141
establishes additional disclosure requirements for transactions occurring after
the effective date.
FAS 142 eliminates amortization of goodwill associated with business
combinations completed after June 30, 2001. During the transition period from
July 1, 2001 through December 31, 2001, goodwill associated with business
combinations completed prior to July 1, 2001 continued to be amortized through
the income statement. Effective January 1, 2002, goodwill amortization expense
ceased and goodwill will be assessed for impairment at least annually at the
reporting unit level by applying a fair-value-based test. FAS 142 also provides
additional guidance on acquired intangibles that should be separately recognized
and amortized, which could result in the recognition of additional intangible
assets, as compared with previous GAAP.
Prime has no business combinations prior to the issuance of FAS 141 or FAS 142,
which resulted in the recognition of goodwill. Accordingly, neither of these
statements will have an effect on the current financial statements of the
Company.
There are other new accounting standards (such as FAS 143 on Accounting for
Asset Retirement Obligations; and FAS 144 on Account for Impairment or Disposal
of Long-Lived Assets) which do not have present applications, but may be
important to Prime's future operations and accounting.
Interim Financial Information
The accompanying unaudited interim consolidated financial statements have been
prepared by the Company in accordance with the rules and regulations of the
Securities and Exchange Commission for Form 10-QSB, and accordingly, do not
include all of the information and footnotes required by
64
PRIME RESOURCE, INC. AND SUBSIDIARIES
(Formerly Prime Resource, LLC and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- ---------------------------------------------------------------
Generally accepted accounting principles. In the opinion of management, these
unaudited consolidated financial statements reflect all adjustments, which
consist only of normal recurring adjustments, which are necessary to present
fairly the Company's financial position, results of operations, and cash flows
as of June 30, 2002, and for the three-month and six-month periods ended June
30, 2002 and 2001. These unaudited consolidated financial statements should be
read in conjunction with the consolidated financial statements, and notes
thereto, for the year ended December 31, 2001.
The preparation of the interim consolidated 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, the disclosure of contingent assets and liabilities, and the
reported amounts of revenue and expense for the period being reported. Actual
results could differ from those estimates. The results of operations for the
three-months and six-months ended June 30, 2002 are not necessarily indicative
of the results that may be expected for the remainder of the year ending
December 31, 2002 or future annual periods.
NOTE 2 - SECURITIES AVAILABLE FOR SALE
- --------------------------------------
Securities available for sale are comprised of investments in mutual funds. The
amortized cost of securities available for sale and the gross unrealized loss on
such securities at December 31, 2001, totaled $51,140 and $1,015, respectively.
Dividends realized and reinvested in 2001 totaled $1,140. There were no
investments in marketable securities, other than cash equivalents, during the
year ended December 31, 2000.
NOTE 3 - PROPERTY AND EQUIPMENT
- -------------------------------
Property and equipment and related accumulated depreciation at December 31
consists of the following:
2001 2002
----------- -----------
Furniture and equipment $ 87,893 $ 77,672
Computer equipment and software 39,290 30,702
Vehicles 104,368 127,353
----------- -----------
231,551 235,727
Accumulated Depreciation (100,211) (68,059)
----------- -----------
$ 131,340 $ 167,668
=========== ===========
65
PRIME RESOURCE, INC. AND SUBSIDIARIES
(Formerly Prime Resource, LLC and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
NOTE 4 - EMPLOYEE BENEFIT PLAN
- ---------------------------------
The Company has a defined contribution 401(K) plan and profit sharing plan. All
employees who meet certain minimum requirements are eligible to participate in
the plan. Employees may make contributions to the plan limited to the lesser of
15 percent of compensation or $7,000. Company contributions under both the
401(K) and profit sharing provisions of the plan are also discretionary. The
Company's expense from contributions to the plan totaled $23,425 and $19,490,
for 2001 and 2000, respectively.
NOTE 5 - SEGMENT INFORMATION
- -----------------------------
Information as to the operations of the Company's different business segments is
set forth below. Segments are identified based on the nature of the products and
services offered. The Company's reportable segments are asset management,
insurance products and other. The asset management segment includes investment
portfolio management services provided by Belson Getty. The insurance products
segment includes employee health insurance brokerage services provided by FBA.
Certain headquarters functions are included in the "other" segment. Income on
Company-wide savings and investments is also included in "other".
The Company's segments use the same policies as those described in the "Summary
of Significant Accounting Policies". The Company has no intersegment revenues or
expenses and the intercompany accounts were eliminated.
Asset Management Insurance Products
------------------------------- ------------------------------
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2001 2000 2001 2000
------------------------------- ------------------------------
Revenues $ 449,031 $707,537 $ 1,557,246 $ 1,498,016
Expenses 816,310 836,449 1,186,614 1,092,935
------------------------------- ------------------------------
Net Income (Loss) $ (367,279) $(128,912) $ 370,632 $ 405,081
=============================== ==============================
Other Consolidated
------------------------------- ------------------------------
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2001 2000 2001 2000
------------------------------- ------------------------------
Revenues $ 12,707 $ 7,716 $ 2,018,984 $ 2,213,269
Expenses 52,705 28,385 2,055,629 1,957,769
------------------------------- ------------------------------
Net Income (Loss) $(39,998) $(20,669) $ (36,645) $ 255,500
=============================== ==============================
66
PRIME RESOURCE, INC. AND SUBSIDIARIES
(Formerly Prime Resource, LLC and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
NOTE 5 - SEGMENT INFORMATION (CONTINUED)
- ----------------------------------------
Asset Management Insurance Products
------------------------------- ------------------------------
Three Months Ended Three Months Ended
June 30, June 30, June 30, June 30,
2001 2000 2001 2000
(unaudited) (unaudited) (unaudited) (unaudited)
------------------------------- ------------------------------
Revenues $ 159,320 $145,642 $ 429,373 $ 395,913
Expenses 194,934 152,662 292,833 264,468
------------------------------- ------------------------------
Income (Loss) before tax $ ( 35,614) $( 7,020) $ 136,540 $ 131,445
Income tax expense (benefit) ( 13,550) -- 51,948 --
------------------------------- ------------------------------
Net Income (Loss) (22,064) $( 7,020) 84,592 $ 131,445
=============================== ==============================
Other Consolidated
------------------------------- ------------------------------
Three Months Ended Three Months Ended
June 30, June 30, June 30, June 30,
2001 2000 2001 2000
(unaudited) (unaudited) (unaudited) (unaudited)
------------------------------- ------------------------------
Revenues $ 5,453 $ 4,174 $ 594,146 $ 545,729
Expenses 54,334 6,338 542,101 423,518
------------------------------- ------------------------------
Income (Loss) before tax $ ( 48,881) $( 2,214 $ 52,045 $ 122,211
Income tax expense (benefit) ( 18,597) -- 19,801 --
------------------------------- ------------------------------
Net Income (Loss) (30,284) $( 2,214) $ 32,244 $ 122,211
=============================== ==============================
67
PRIME RESOURCE, INC. AND SUBSIDIARIES
(Formerly Prime Resource, LLC and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
NOTE 5 - SEGMENT INFORMATION (CONTINUED)
- -----------------------------------------
Asset Management Insurance Products
------------------------------- ------------------------------
Six Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2001 2000 2001 2000
(unaudited) (unaudited) (unaudited) (unaudited)
------------------------------- ------------------------------
Revenues $ 249,996 $301,889 $ 864,225 $ 814,491
Expenses 414,682 319,325 450,275 518,115
------------------------------- ------------------------------
Income (Loss) before tax $ (164,716) $( 17,486) $ 413,950 $ 296,376
Income tax expense (benefit) ( 13,550) -- 51,948 --
------------------------------- ------------------------------
Net Income (Loss) (151,166) $( 17,486) $ 362,002 $ 296,376
=============================== ==============================
Other Consolidated
------------------------------- ------------------------------
Six Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2001 2000 2001 2000
(unaudited) (unaudited) (unaudited) (unaudited)
------------------------------- ------------------------------
Revenues $ 7,398 $ 7,198 $ 1,121,589 $ 1,123,528
Expenses 344,326 83,629 1,209,283 921,069
------------------------------- ------------------------------
Income (Loss) before tax $ (336,928) $( 76,431) $( 87,694) $ 202,459
Income tax expense (benefit) ( 18,597) -- 19,801 --
------------------------------- ------------------------------
Net Income (Loss) $ (318,331) $( 76,431) $( 107,495) $ 202,459
=============================== ==============================
The Insurance Products segment does not have any customer accounting for over 4
percent of its revenues and is not believed to be dependent on any major client.
However, there are essentially only four companies supplying health coverage in
the current operating area which within the Company has agency marketing
agreements.
Expenditures for long-lived assets were $21,777 and $46,740 for the years ended
December 31, 2001 and 2000, respectively. All company assets are held in the
United States of America. Assets held by each segment as of June 30, 2002,
December 31, 2001, and December 31, 2000 are as follows:
68
PRIME RESOURCE, INC. AND SUBSIDIARIES
(Formerly Prime Resource, LLC and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
NOTE 5 - SEGMENT INFORMATION (CONTINUED)
- -----------------------------------------
June 30,
2002 December 31, December 31,
(unaudited) 2001 2000
----------- ----------- -----------
Asset Management $ 39,365 $ 32,026 $ 65,537
Insurance Products 161,655 42,553 11,908
Other 41,913 159,941 158,281
----------- ----------- -----------
$ 242,933 $ 234,520 $ 235,726
=========== =========== ===========
NOTE 6 - FAIR VALUE OF FINANCIAL INSTRUMENTS
- --------------------------------------------
The carrying amount of certain financial instruments in the accompanying
consolidated financial statements including: cash and cash equivalents, trade
receivables, accounts payable, and accrued liabilities, approximate fair value
due to the short-term nature of the instruments. The carrying value of notes
receivable also approximate fair market value due to the short-term maturity of
the notes or floating interest rates that approximate current market rates.
Securities available for sale at December 31, 2001 and 2000 are set forth in
Note 2.
NOTE 7 - RELATED PARTY TRANSACTIONS
- -----------------------------------
Notes receivable
The Company had notes receivable from employees and members totaling $258,815
and $112,992 as of December 31, 2001 and 2000, respectively. The accompanying
consolidated statements of cash flows provide further information regarding
investing activities with related parties.
Amounts due from employees and members were subject to the accrual of interest
income at rates ranging from 4.5 to 4.9 percent. Interest income on amounts due
from related parties totaled $8,113 in 2001 and $759 in 2000.
Note payable
The Company was indebted to a member, under a note payable, in the amounts of
$15,579 and $14,905, as of December 31, 2001 and 2000, respectively. The note
bears interest at 4.5 percent and is due on demand.
69
PRIME RESOURCE, INC. AND SUBSIDIARIES
(Formerly Prime Resource, LLC and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
NOTE 8 - LEASE COMMITMENTS
- --------------------------
The Company leases certain office space under agreements classified as operating
leases. The space is leased from two entities that had certain common owners to
those of the Company. Rent expense, under such leases, totaled $110,935 and
$96,260 for the years ended December 31, 2001 and 2000, respectively.
In connection with the settlement agreement discussed in Note 1, effective
December 31, 2001, the remaining members of the Company divested themselves of
their ownership interest in Brownstone Associates, L.L.C., one of the two
related entities the Company leased office space from during 2001 and 2000.
Future minimum payments required under all noncancellable lease agreements as of
December 31, 2001 are as follows:
Year ended
December 31,
------------
2002 $ 102,294
2003 72,765
2004 12,734
-----------
Total $ 187,793
===========
NOTE 9 - SUBSEQUENT EVENTS
- --------------------------
In January of 2002, the Company and its members granted a 26 percent membership
interest to an employee of the Company valued at $113,000, as an inducement to
remain with the Company and for services to be rendered in connection with a
planned reorganization, registration and offering of company stock. The 26
percent membership share of the Company issued to Mr. Limpert was accounted for
as compensation expense and is included in "compensation and benefits" in the
statement of operations for the quarter ended March 31, 2002. The value of the
share of the Company issued to Mr. Limpert was based on the amount the Company
was required to pay a former member for his 23 percent share of the Company, in
connection with the Company's termination and buy-out of the member, effective
January 1, 2002.
In March of 2002, the Company was paid approximately $144,000 in amounts due
from members as of December 31, 2001 and advanced an additional $56,000 from
those same members. The proceeds were used to satisfy a $200,000 obligation to a
former member, which arose in connection with such member's termination.
70
PRIME RESOURCE, INC. AND SUBSIDIARIES
(Formerly Prime Resource, LLC and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
NOTE 9 - SUBSEQUENT EVENTS (CONTINUED)
- --------------------------------------
On April 5, 2002, the Company was reorganized from a limited liability company
to a corporation. The Company was authorized to issue 50,000,000 shares of a
single class of common stock with no par value. The Company issued 2,800,000 of
such shares to existing members representing the entire ownership interest of
the Company at the time of incorporation. As there was no change in control of
the organization, the value of the stock, issued in the reorganization, was
based on the book value of the predecessor organization of approximately
$192,000, as of March 31, 2002. Accordingly, there was no change in the recorded
book values of Company assets or liabilities due to the reorganization.
Also, in connection with the reorganization, the Company entered into three-year
employment agreements with three of its executive officers.
NOTE 10 - INCOME TAXES (UNAUDITED)
Income tax expense is comprised of the following for the three-month period
ended June 30, 2002:
Current Deferred Total
------------- -------------- -------------
U.S. Federal $ 9,492 $ 7,258 $ $16,751
State 3,051 - 3,051
------------- -------------- -------------
$ 12,543 $ 7,258 $ 19,801
============= ============== =============
Total income tax expense (benefit) for the three-month period ended June 30,
2002 differs from the amounts computed by applying the U.S. federal tax income
rate of 34 percent to pretax income as a result of the following:
Federal income taxes at statutory rate $ 17,697
State income taxes net of federal benefit 1,737
Deferred taxes relating to change in tax status 10,391
Benefit of graduated rates (10,217)
Other non-deductible items 194
-------------
Total $ 19,801
=============
71
PRIME RESOURCE, INC. AND SUBSIDIARIES
(Formerly Prime Resource, LLC and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
NOTE 10 - INCOME TAXES (UNAUDITED) (CONTINUED)
- ----------------------------------------------
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at June 30, 2002 are as
follows:
Deferred tax assets:
Accounts receivable $ (46,819)
Accrued wages 36,396
Accounts payable 19,112
-------------
Total deferred tax assets $ 8,689
=============
Deferred tax liability - primarily due
to differences in depreciation
and amortization - noncurrent $ (15,947)
=============
Realization of the deferred tax assets depends on the Company's ability to
generate sufficient future taxable income. Management believes that the Company
will generate such future earnings and, accordingly, realize the benefit of the
gross deferred tax assets. Therefore, management has not provided any valuation
allowance.
The entity also changes tax status during the year, resulting in the deferred
tax assets and liabilities being recorded in the continuing operations for the
current period.
CHANGE IN ACCOUNTANTS AND ANY DISAGREEMENTS
-------------------------------------------
Your management has not changed its independent auditors since
inception. Further, Prime has no conflict or disagreement with its current
auditors concerning any accounting policies.
72
{OUTSIDE COVER OF PROSPECTUS}
---------------------------
This is a self underwriting not involving any broker/dealer. Each
person contacted to invest in this offering will concurrently be given a copy of
this prospectus. Unless otherwise advised, the prospectus will expire and should
not be relied upon at anytime greater than six months after the effective date
appearing on the cover page.
73
PART II
-------
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Officers & Directors. Prime indicates that
it has normal and customary indemnification provisions under its By-laws and
Articles of Incorporation, as well as those generally provided by Utah law. It
is believed these provisions would indemnify all officers and directors from any
good faith mistake or omission in the performance of his or her duties including
cost of defense. Such indemnity would not extend to intentionally wrongful acts
including fraud, appropriation, self dealing or patent conflicts of interest.
The Articles and By- Laws were being filed as Exhibit items.
Item 25. Other Expenses of Issuance & Distribution. Prime does not know
of any accrued or to be accrued expenses of issuance and distribution other than
as outlined in the foregoing prospectus. The present estimates of offering
expenses are incorporated as costs for registration, including: fees, legal,
accounting, printing and miscellaneous in the aggregate amount of $45,000 are to
be paid by the company ultimately from offering proceeds and are outlined below:
ESTIMATED OFFERING COSTS
ITEM ESTIMATED COST
1. Attorney Fees $ 20,000
2. Auditing $ 20,000
3. Printing and Distribution $ 2,500
4. State Filing and Edgar Fees $ 2,500
TOTAL COSTS $ 45,000
Item 26. Recent Sales of Unregistered Securities. Prime believes that
in the body of this prospectus it has described all shares issued from the date
of inception of Prime. In summary of that disclosure, Prime represents the only
shares originally issued were to its founders and principals, Mr. Terry Deru,
Mr.Scott Deru and Mr. Andrew Limpert. Mr. Don Deru, the father of Terry and
Scott Deru, also received a limited number of shares. Subsequently all shares
issued to them are the same shares set forth in the chart showing securities
held by management and are deemed exempted transactions under section 4(2) of
the Securities Act of 1933 as initial capital contributions. The first table
summarized these transactions; the second table summarizes historical
significant contributions to the prior Prime, LLC entity in 1998. The original
Prime, LLC was formed in 1996 with minimum capitalization:
SUMMARY OF ALL SHARES ISSUED IN PRIME, INC.
Name/ Number of Acquisition Price per
Shareholder Shares Date Share Consideration
----------- --------- ----------- --------- --------------
Mr. Terry Deru 1 M 4/5/2002 $.07* Interest in Prime LLC,
(Founder) carry over value of
LLC $70,000
Mr. Scott Deru 1 M 4/5/2002 $.07* Interest in Prime LLC,
(Founder) carry over value of
LLC $70,000
Mr. Andrew Limpert 750 K 4/5/2002 $.15* Interest in Prime LLC
(Founder) and offering services
valued at $113,000
Mr. Don Deru 50 K 4/5/2002 $.07* Predecessor LLC
interest valued at
$10,125
Mr. William Campbell 1/2002 23% of shares in B.G.,
Inc.-repurchase by
Limpert.
*Shares valued at approximate net worth per share at time of organization based
on March 31, 2002 Financial Statements (Unaudited), except for Mr. Limpert whose
share valuation contained a premium for continuing organizational services.
74
HISTORICAL SUMMARY OF LLC/INTEREST IN PREDECESSOR PRIME LLC
AS OF 19981
Name of Shareholder LLC Interest Acquisition Value
Date of Interest Consideration
1. Mr. Scott Deru 36 1/2% 10/98 Unknown 50% F.B.A., Inc.
2. Mr. Terry Deru 36 1/2% 10/98 Unknown 50% B.G., Inc.
50% F.B.A., Inc.
3. Mr. Don Deru 4% 10/98 $150,000 Cancellation
$150,000 Note
4. Mr. William Campbell 23% 10/98 Unknown 50% B.G., Inc.
1The original Prime LLC formed in 1996 was minimally capitalized and remained
inactive until 1998.
Item 27. Index of Exhibits:
Exhibit Item 3 - Articles of Incorporation and By-Laws - Previously Filed
Exhibit Item 4 - Stock Certificate - Previously Filed
Exhibit Item 5 - Attorney Letter in re Legality - Amended Filed
Exhibit Item 10.1 - Assignment of LLC Interest to Limpert - Previously Filed
10.2 - Employment Contract of Principal Employee - Previously Filed
10.3 - Employment Contract of Principal Employee - Previously Filed
10.4 - Employment Contract of Principal Employee - Previously Filed
10.5 - IHC Insurance Agency, LLC Agency Agreement
10.6 - Producer Agreement with PacifiCare
10.7 - Regence Life and Health Insurance Company Broker/Agent Agreement
10.8 - Agent Marketing Agreement with United Healthcare of Utah,
United Health and Life Insurance Company
Exhibit Item 21 - Subsidiary List - Previously Filed
Exhibit Item 23.1 - Julian D. Jensen, P.C. Attorney at Law - Previously Filed
Exhibit Item 23.2 - Consent of Experts - Carver Hovey & Co. CPA's - Amended Filed
75
Item 28. Undertakings. The undersigned registrant hereby undertakes: To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933. This includes:
a. For determining liability under the Securities Act,
the issuer will treat each post-effective amendment
as a new registration statement of the securities
offered, and the offering of the securities at that
time to be the initial bona fide offering.
b. The issuer will file a post-effective amendment to
remove from registration any of the securities that
remain unsold at the end of the offering.
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was
registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in
the form of prospectus filed with the Commission pursuant
to Rule 424(b) (ss.230.424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the
effective registration statement.
(iii)To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement.
(iv) To the extent this issuer requests acceleration of the
effective date of the registration statement under Rule 461
under the Securities Act, it will include the following in
the appropriate portion of the prospectus:
Insofar as indemnification for liabilities arising under
the Securities Act of 1933 (the "Act") may be permitted to
directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that
in the opinion of the Securities and Exchange Commission
76
such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such
liabilities (other than the payment by the small business
issuer of expenses incurred or paid by a director, officer
or controlling person of the small business issuer in the
successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the small
business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy
as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
SIGNATURES
----------
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Salt
Lake, State of Utah on October 11, 2002.
(Registrant) Prime Resource, Inc.
/s/ Terry Deru
--------------------------------------------
By: Terry Deru, Its President
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated:
77
BY: MR. TERRY DERU
(Signature) /s/
--------------------------------------------
(Title) Director, CEO, President
(Date) 10/11/2002
BY: MR. SCOTT DERU
(Signature) /s/
--------------------------------------------
(Title) Director, Vice-President, Treasurer
(Date) 10/11/2002
BY: MR.ANDREW LIMPERT
(Signature) /s/
--------------------------------------------
(Title) Director, CFO, Secretary, Vice-President
(Date) 10/11/2002
78