FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
MARK ONE
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE OF
1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003
or
TRANSITION REPORT pursuant to section 13 or 15(d) of the securities
exchange act of 1934
FOR THE TRANSITION PERIOD FROM N/A TO N/A
COMMISSION FILE NUMBER: 333-88480
PRIME RESOURCE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
UTAH 84106
(STATE OF INCORPORATION) ZIP CODE
1245 E. Brickyard Road, Suite 590
Salt Lake City, Utah
ADDRESS OF PRINCIPAL EXECUTIVE OFFICES
(801) 433-2000 04-3648721 Registrant's telephone number, I.R.S. Employer
Identification Number including area code
Securities registered pursuant to Section 12(b) of the Act:
_ 150,000 Shares
Name of each exchange on
Title of each class which registered
Common - No Par Value None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registration (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO Check if there is no
disclosure of delinquent filers in response to Item 405 of Regulation S-B is not
contained in this form, and no disclosure will be contained, to the best of
registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X] As of March 1, 2004, the aggregate market value of the
common voting stock held by non-affiliates of the Registrant, computed by
reference to the net worth of the company would be $900,000. The company has no
current trading market.
State issuer's revenues for its most recent fiscal year. $3,846,494
As of March 1, 2004, the Registrant had outstanding 2,934,000 shares of common
stock (No par value); 50,000,000 common shares authorized.
TABLE OF CONTENTS
PART I
Page
ITEM 1 DESCRIPTION OF BUSINESS 3
ITEM 2 DESCRIPTION OF PROPERTY 11
ITEM 3 LEGAL PROCEEDINGS 12
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 12
PART II
ITEM 5 MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS 12
ITEM 6 PLAN OF OPERATION 13
ITEM 7 FINANCIAL STATEMENTS 16
ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURES 17
ITEM 8A CONTROLS & PROCEDURES 17
PART III
ITEM 9 DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT 18
ITEM 10 EXECUTIVE COMPENSATION 21
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT 22
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 23
PART IV
ITEM 13 PRINCIPAL ACCOUNTANT FEES & SERVICES 24
ITEM 14 EXHIBITS AND REPORTS ON FORM 8-K 24
SIGNATURES 26
2
PART I
Item 1. DESCRIPTION OF BUSINESS
Our discussion and analysis of the Business and subsequent discussion of
Financial Conditions may contain forward-looking statements that involve risks
and uncertainties. The statements contained in the Report are not purely
historical but are forward-looking statements including, without limitations,
statements regarding Prime Resource, Inc. ("Prime's") expectations, beliefs,
estimates, intentions, anticipations and strategies about its future and future
financial performance and those of its subsidiaries. Words such as,
"anticipates," "expects," "intends," "plans," "believes, "seeks," "estimates,"
or variations of such words and similar expressions, are intended to identify
such forward-looking statements, but their absence does not mean the statement
is not forward-looking. These statements are not guarantees of future
performance and are subject to certain risks, uncertainties, and assumptions
that are difficult to predict; therefore, actual results may differ materially
from those expressed or forecasted in any such forward-looking statements as a
result of various factors. Specifically, and not in limitation of these factors,
Prime may alter its plans, strategies, objectives or business. This disclaimer
is made in reliance upon the safe harbor provisions of the Private Securities
Reform act of 1995.
GENERAL AND HISTORICAL
Prime Resource, Inc. ("Prime"), as a corporate entity, was filed in
Utah on March 29, 2002; however, essentially the same business purposes were
engaged in by its predecessor entity, Prime Resource, LLC, a Utah limited
liability company, as organized in 1996, but was not active until the 1998
acquisition of its present subsidiaries: Belsen Getty, LLC ("Belsen Getty") and
Fringe Benefit Analysts, LLC ("Fringe Benefit"). Mr. Scott Deru acted as the
manager for Prime LLC. From 1990 to 1998, Belsen Getty and Fringe Benefit
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. Prime
Retirement Services, LLC ("Prime Ret.") was formed on July 3, 2003 after the
initial public offering by Prime, which offering became effective on April 16,
2003. Prime Ret. was formed with expectation to provide daily valuation services
to qualified retirement plans and related software, but is not yet active.
As part of the 1998 reorganization of Prime, LLC, Mr. Scott Deru and Mr.
Terry Deru each contributed their 50% ownership interest in Fringe Benefit to
Prime. Mr. Terry Deru and Mr. William Campbell each contributed their 50%
ownership interest in Belsen Getty to Prime 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. in anticipation of a public
offering of its shares.
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Fringe Benefit 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. The Utah corporation was
jointly owned by Scott Deru and Terry Deru from inception. It was converted to a
Limited Liability Corporation in 1988. Fringe Benefit 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.
From 1998 forward, Fringe Benefit started collaborating closely with
Belsen Getty LLC, which was also formed in 1998 to primarily engage in
investment advisory services, business consulting and financial planning. Belsen
Getty was initially formed in 1990 as a corporation. Belsen Getty, which was and
is engaged as an investment advisor to individuals and firms and pension and
related plans, frequently referred clients to Fringe Benefit when insurance
funding was required. In like manner, Fringe Benefit would frequently refer
insurance clients needing business planning and investment advisory services 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 Utah 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 361/2% 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, the foregoing reorganization occurred in 1998. Prime
Resource, LLC (an 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. These subsidiary entities were formed on October
2, 1998 and became the successor firms for Belsen Getty, Inc. and Fringe
Benefit, 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 all of 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 (26%) 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 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 Terry Deru, held a 4% interest in Prime LLC since inception and
exchanged his interest in Prime LLC for a 1.8% shareholder interest in Prime,
4
Inc. In March 2002, Prime LLC decided to incorporate in Utah in anticipation of
its initial public 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 and for his Prime LLC ownership contribution.
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. Fringe Benefit 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 Fringe Benefit.
As limited liability companies, the historical revenues of Belsen Getty,
LLC and Fringe Benefit, 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 the
form of compensation and revenue transfer described by the prior paragraph 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 under the Executive
Compensation Section. In their respective capacities, management will be paid a
fixed salary.
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 and such other time as
necessary as a corporate officer of Prime. It is anticipated that Mr. Terry Deru
will then assume most of the day-to-day management responsibilities for Prime.
Mr. Limpert will coordinate most governmental filings and reporting duties for
Prime, as well as continuing with Belsen Getty as an employee. Mr. Terry Deru
will act as the manager for Prime Ret., LLC.
Over the past three years, Belsen Getty has contributed approximately 18%
of the present revenues to Prime Resource, Inc. and Fringe Benefit has
contributed the remaining 82% 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 have been and will be paid directly by Prime.
The future contribution to revenues by Prime Retirement, as a start-up entity,
has not yet been determined.
Initial Public Offering (IPO):
The company completed its initial public offering in June 2003 in which
it raised $750,000 in gross proceeds and $709,664 in net proceeds. It has only
expended, to date, approximately $97,867 or approximately 14% of net proceeds.
The expenditure of offering proceeds is more particularly treated under the Rule
463 disclosures of Management's Plan of Operation.
5
Belsen Getty Business
Belsen Getty is a Utah financial management company offering investment
advisory services, 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 was originally formed as a Nevada
corporation in 1990. Belsen Getty remained active until 1996, was a lapsed
corporation continuing to conduct business from 1996 to 1998 when it was
reorganized as a Utah limited liability company. Belsen Getty has continued to
date as a Utah limited liability company. 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 its services 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.
In November of 2002, Belsen Getty received 684,000 shares of restricted
common stock in an inactive public company known as Mortgage Professionals Lead
Source, Inc. (MPLS) incident to consulting and advisory services provided to
MPLS by Andrew Limpert. MPLS became known as Neuro Bioscience, Inc. (NBI)
pursuant to an acquisition of this private company. The shares were issued and
held in the name of Belsen Getty, by informal assignment from Andrew Limpert who
performed the consulting services as an employee of Belsen Getty. While Limpert
acted to locate the acquired company, NBI, neither he nor Belsen Getty had a
contractual duty to locate or provide such entity as part of his consulting
services or entitlement to earn the shares for consulting services to MPLS. At
present there is no active public trading by NBI. No value has been assigned to
these shares in the accounting records, as there is no readily ascertainable
value for these shares.
Belsen Getty is currently managed by Mr. Terry Deru and has nine
full-time employees.
6
Fringe Benefit Analysts Business
Fringe Benefit 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 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 is currently managed by Mr. Scott Deru and has nine
full-time employees, one part-time employee and over twenty sub-agents who act
as independent contractors in various insurance lines. Part of the proceeds
raised in the IPO 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. Fringe Benefit 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.
Prime Retirement Services Business:
Prime Retirement Services intends to provide services for qualified
plans that are yet to be determined. In this capacity, it would have a
synergistic relationship with Belsen Getty, who frequently acts as an investment
advisor for the various pension or retirement plans which may be set up by Prime
Retirement Services and with Fringe Benefit Analysts who provide a substantial
amount of any of the insurance products tailored to the plans and programs
created by Belsen Getty. Prime Retirement was formed in July of 2003, but does
not yet have revenues, nor can it competently report what percentage of total
revenues, if any, it will generate for the parent entity, Prime. This entity is
a development stage company conducting initial research of the intended business
activities and software related to qualified plans. At the present, it has no
independent employees.
PRODUCTS AND MARKETS
I. Prime Resource, Inc.
As the parent management entity for its subsidiaries, Prime does not
have any significant independent income. Prime derives the majority of its
income from its subsidiary operations as described below. Prime does not
independently market any service or product, but acts solely and exclusively
through its operating subsidiaries as more specifically described under the
following paragraphs. Prime is generally responsible for the payment from
subsidiary income of all general operating expenses of the consolidated
companies.
II. Belsen Getty, LLC
Belsen Getty is a Utah financial advisory company offering investment
advice, financial planning as well as pension and retirement planning and
general business consulting. Belsen Getty acts both for individuals and firms
who may participate to the extent they deem appropriate in any of these
financial products and services.
7
For the calendar year ending 2003, Belsen Getty generated $485,320 or
13% of Prime's revenues. Of these amounts approximately $302,500 or 62% of its
revenues were derived from direct financial advisory services and approximately
$182,900 or 38% were derived from other pension retirement and general business
consulting services. Approximately 1% of the business services performed by
Belsen Getty in 2003 are a direct result of referrals by the other Prime
subsidiaries, Fringe Benefit Analysts and Prime Retirement Services, LLC.
III. Fringe Benefit Analysts, LLC
Fringe Benefit Analysts has become the primary insurance arm for the Prime
companies. It has a synergistic relationship in that it provides insurance
coverage to various pension and retirement plans developed by Prime Retirement
Services and to a lesser extent, by Belsen Getty.
Fringe Benefit estimates that for calendar year 2003 that its total
contribution to the revenues of Prime was approximately $3,329,844 or 87%.
Approximately 2% of the services performed by Fringe Benefit Analysts in 2003
are a direct result of referrals by Belsen Getty.
IV. Prime Retirement Services, LLC
Prime Retirement Services, LLC is a start-up subsidiary corporation of
Prime, which intends to engage in daily accounting and reporting services for
pension and related plans and the development of related software, which it
hopes to independently sell as an additional revenue source.
Prime Retirement Services has not generated any revenues from its
start-up in the summer of 2003 to date; and, therefore, cannot report its
percentage of earnings as a percentage of the whole of revenues to the parent
company, Prime, Inc. at the present time.
PLAN OF OPERATION
Prime intends generally to continue to grow and expand each phase of its
related business practices by internal growth through the application of
retained earnings to expand services and acquire new clients. In addition to the
standard growth anticipated through retained earnings, Prime also intends to
employ a substantial portion of the net proceeds from its recent IPO. The
company currently has approximately $611,797 of its initial net offering
proceeds of $709,664 left for business expansion and operations. As more
specifically outlined in the Use of Proceeds section of its IPO, it presently
intends to use a substantial portion of these net proceeds, as market conditions
allow, to acquire compatible insurance companies or individual agents who have
an existing book of business and to expand its existing marketing efforts.
To date, Prime has not primarily concentrated in acquisitions due to the
softness of the insurance market, but believes that during the third and fourth
quarter of the current 2004 calendar year it will be able to increase its
efforts at acquiring suitable insurance business lines. If the company is
successful in this proposed business activity, it would necessarily mean that
the greatest increase in the company's size and revenue base would most likely
occur in the Fringe Benefit Analysts subsidiary.
8
To a lesser extent, the company believes that it may be able to further
grow and expand its business through retained earnings. It would project, at
this time and without being able to assure or warrant, that it may realize
approximately $265,000 of potential retained earnings in calendar year 2004 to
apply to further business expansion and growth.
Secondary to the direct acquisition of the insurance businesses and
lines will be the further training and enhancement of independent insurance
agents and other employees for which a significant portion of the proceeds of
the offering have been reserved.
SPECIFIC BUSINESS PLAN AND PROJECTIONS
At the present time, Prime is projecting an 11 % growth in revenue
during calendar year 2004 in the Fringe Benefit Analysts division of the company
primarily related to providing insurance services with revenues from such
division reasonably projected to be $3,700,000 for 2004.
It is anticipated, though not warranted, that the Belsen Getty
subsidiary, which is primarily engaged in financial advisory and consulting
services, projects a 39% growth in revenue during 2004 to $675,000.
It should also be emphasized that the anticipated and projected growth
of each of the divisions would occur both through internal financing from
anticipated retained earnings and from proceeds of the offering as more
particularly set-out in the Proceeds Section of the company's initial public
offering which may be reviewed online as an SEC filing at www.sec.gov/edgar or a
copy of the Prospectus for the earlier registration may be obtained directly
from the company by any interested party or shareholder. It needs to be further
emphasized that projected growth of each of the entities is deemed to be
symbiotic and that growth in one division should have, because of referral
services, a positive growth effect on other divisions, though no warranty or
assurance of this relationship can be made.
Finally with regard to Fringe Benefit Analysts, its growth is dependent
upon four principal insurance underwriters or providers for the insurance
policies written by this subsidiary. These include: Altius Insurance, United
Health Care, Intermountain Health Care and Regence Blue Cross.
COMPETITIVE FACTORS
All of the business areas in which the company operates (Belsen Getty in
financial advisory services and planning; Prime Retirement Services in planning
and implementing retirement and pension plans for various business entities; and
Fringe Benefit Analysts which is primarily engaged in insurance programs related
to business and retirement planning) are highly competitive industry segments.
In each of these business segments, the company is faced with competition from
larger and better capitalized companies such as Marsh & McLellen and AON
Corporation in the applicable insurance lines offered by the company; Merrill
Lynch & Co. and Smith Barney in the financial advisory and consulting areas. In
the business of pension planning services competition arises from many large
public accounting firms and law firms.
9
Each of these competitive and related competitive entities may pose a
significant competitive risk to the company in that they may be able, because of
size and scale, to provide additional services, as well as providing the same
services at a lower per unit cost to various customers of the client.
Prime believes that it may remain competitive in these industries due to
some unique programs which it employs, but can give no assurance or warranty
that it will ultimately be successful in competing in any of the given areas in
which it has elected to provide business services.
Fringe Benefit joined United Benefit Advisors ("UBA") in November 2003.
UBA is a national affiliation of independent health insurance providers. This
affiliation may bring national programs and insurance carriers to the markets
Fringe Benefit serves that were not previously available and may create
discounts on software and other insurance industry related services. Fringe
Benefit hopes that this affiliation may enhance its competitive position in the
relevant market.
NUMBER OF PERSONS EMPLOYED
As listed above Prime has attempted to break out under the general
description of each business subsidiary the number of persons employed by each
business subsidiary. In the aggregate, the Prime organizations employ 18
full-time personnel, one part-time personnel and approximately 20 insurance
agents as of the date of this report. These numbers also include officers of the
corporation employed on a full-time basis.
No projection of future employees or agents which may be required, in
addition to those described above, can be determined until the nature and extent
of the acquisition and other business expansion which is projected for the
company has been determined. Changes in employment are reported by Prime as part
of its annual 10-KSB Report and may be included where deemed significant in the
various quarterly reports filed by the company.
ENVIRONMENTAL COMPLIANCE
Prime does not regard itself as operating primarily in industries with a
high degree of environmental risk exposure or environmental regulation by
various governmental entities. However, the Board of Directors has reviewed with
legal counsel and determined, at the present time, there is no known
environmental compliance regulations to which the company in its present lines
of business would be subject other than customary safety standards in the
workplace discussed below. The company maintains a policy of reviewing
periodically with various legal counsel any potential environmental disclosures,
filings or other regulatory requirements which may arise with regard to the
company. The company's office workers are subject to various state and local
regulations on employment conditions, as well as common standards for the office
environment place which may be imposed by the Occupation and Safety and Health
Administration ("OSHA") and the United States Environmental Protection Agency
("EPA"). To the best of the knowledge of the company's present management, the
company is fully in compliance with all safety, health and OSHA standards for
its office workers and insurance sales agents.
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GOVERNMENTAL COMPLIANCE
Each of the areas in which the company presently operates is subject to
some specific governmental regulation. For instance, to provide investment
advisory services, Belsen Getty must maintain a licensure within the state of
Utah and the Securities and Exchange Commission ("SEC") as a registered and
licensed investment advisor and have maintained that status incident to the
services provided.
Fringe Benefit Analysts, as an insurance provider, is subject to
licensing and regulation by various state insurance departments where it
conducts business and has maintained in a current status its licensing
requirements as a general insurance agency.
Prime Retirement Services is not now known to be presently subject to
any specific licensing or regulatory requirements, but confers periodically with
legal counsel to make sure it is not engaging in any type of business practice
which would constitute an illegal practice of law or engage in any violations of
regulatory statutes for business and pension planning by an independent business
entity. Prime, as a collective entity, is a public company subject to various
reporting and regulatory requirements of the Securities and Exchange Commission
("SEC").
REPORT ON INITIAL PUBLIC FINANCING
As generally described above, the company completed its initial public
offering in July, 2003 in which it raised gross proceeds of $750,000 resulting
in net proceeds to the company after offering related costs of $709,664. To
date, the company has expended approximately $97,865 of net offering proceeds in
accordance with its use of proceeds guidelines contained in the initial public
offering and has available for future expenditure the remaining balance of
approximately $611,797 reported as a portion of its cash and marketable
securities in its December 31, 2003 financial statements. This report of the
current expenditure and application of offering proceeds is made in accordance
with SEC Rule 463. Any interested shareholder or other qualified party wishing
to review a more specific breakdown and application of the proceeds of the
offering by the company to date may obtain a copy on request from management of
the company at the address indicated on the cover page of this annual report.
Item 2. DESCRIPTION OF PROPERTY
Prime and Belsen Getty presently maintain a lease in business suites
located at 1245 East Brickyard Road, Suite 590, Salt Lake City, Utah. Prime
leases approximately 3,239 square feet of lease space with a remaining 3.5-year
term on its present lease in an office tower at this location. Within this
office space it has approximately four separate offices, together with two
conference rooms and secretarial and support staff areas. The monthly lease
payment is currently $4,724 per month.
Fringe Benefit Analysts presently maintains a lease in an office
building located at 393 West Gordon Avenue, Suite #1A, Layton, Utah 84040.
Fringe Benefit Analysts leases approximately 3280 square feet of lease space on
a month-to-month basis. Within this office space is two conference rooms, 7
11
offices and secretarial and support staff areas. Fringe Benefits pays $4,394 per
month for this space.
In addition to the foregoing leasehold estate, Prime owns various office
and furnishings and equipment which have a net book value of approximately
$134,967.
Prime does not have any other place of business nor does it anticipate
moving its principal place of business at any time in the foreseeable future.
Item 3. LEGAL PROCEEDINGS
Prime does not have any legal actions or claims in which the company is
presently engaged.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Since its incorporation in March, 2002, Prime has not held a general
shareholder meeting, but intends to hold a standard shareholder meeting at some
later date in 2004 for the election of directors, confirmation of an auditor and
such other business as may properly come before the company. Prime does not
anticipate any special or other shareholder meetings in the foreseeable future.
Part II
Item 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Prime has not yet obtained a current public market for its shares which
were registered as of July 2003.
The company has consistently and vigorously pursued listing through a
local broker/dealer with the National Association of Securities Dealers ("NASD")
on its Electronic Bulletin Board from the date of the effectiveness of its
registration statement. Prime has not anticipated the difficulties which it has
encountered with the NASD in obtaining an authorization for trading on the
Electronic Bulletin Board and a trading symbol. While Prime believes that it has
promptly and fully complied with any requirements communicated back to it
through the broker/dealer from the NASD, it has apparently not been able to
satisfy the NASD to date sufficiently to acquire the right to be traded publicly
or to obtain a symbol. Prime takes exception to the position of the NASD with
regard to this denial and will continue to vigorously pursue listing of its
registered shares for the benefit of its shareholders.
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THE ABSENCE OF BEING ABLE TO COMPLETE A LISTING AND TRADING ON THE
ELECTRONIC BULLETIN BOARD TO DATE CONSTITUTES A SIGNIFICANT RISK FACTOR TO
INVESTMENT IN THIS OFFERING.
As a result of the foregoing, Prime is unable to supply any listing of
public markets for its stock or any price quotations. Currently, Prime has
2,934,000 issued and outstanding shares held by 97 shareholders of which three
are affiliates of the company. Of the issued shares, approximately 150,000 are
free trading and approximately 2,784,000 are restricted.
Item 6. PLAN OF OPERATION
This Form 10-KSB includes "forward-looking" statements about future
financial results, future business changes and other events that have not yet
occurred. For example, statements like we "expect," we "anticipate" or we
"believe" are forward-looking statements. Investors should be aware that actual
results may differ materially from our expressed expectations because of risks
and uncertainties about the future. We will not necessarily update the
information in this Form10-KSB in any forward-looking statement later turns out
to be inaccurate. Details about risks affecting various aspects of our business
are discussed throughout this Form 10-KSB. Investors should read all of these
risks carefully.
LIQUIDITY AND CONTINUED OPERATIONS
On December 31, 2003, Prime had assets of $1,299,313. At December 31,
2003, the company's current assets totaled $1,073,209 compared to current
liabilities of $362,673. Working capital at December 31, 2003 totaled $710,536
an increase of $837,280 compared to $(126,744) at December 31, 2002. The company
had a current ratio at December 31, 2003 of approximately 3. Because of the
problem with obtaining a market listing, as described above, Prime is unable to
value its market securities as of December 31, 2003. The long-term debt of the
company as of December 31, 2003 was $12,817 and the retained earnings are
$94,151.
At December 31, 2003, there were no significant commitments for capital
expenditures, though the company intends to continue with expenditure of its net
proceeds from its public offering in accordance with the general description
contained previously in this Annual Report and more specifically in accordance
with the Use of Proceeds sections of the registration statement.
Prime fully intends to primarily grow its insurance company portion of
its business through the net proceeds of the public offering and to apply other
estimated net earnings for calendar year 2004 to the growth of other aspects of
its business. Net retained earnings for 2004 are estimated to be approximately $
280,000. The company will attempt to allocate net earnings to different aspects
of its business growth, as it shall determine in accordance with its independent
business discretion.
At present, Prime has no major financing commitments or other
significant long-term debt. The company believes it can continue to operate with
modest growth based upon its employment of the offering proceeds and retained
earnings as described by the preceding paragraph. The company has no present
13
intent to engage in any further borrowing or capital formation activities for
the foreseeable future. The company further has no standing line of credit or
other credit facility.
CAPITAL RESOURCES
If the company was required in the future to raise additional capital,
it would have to either attempt to engage in another sale of its capital stock
through a registered offering, seek private placement financing or seek to
obtain one or more lines of credit for debt financing. As noted previously, the
company has no plans to engage in any type of capital or debt creation for the
foreseeable future.
RESULTS OF OPERATIONS
Revenues for 2003 totaled $3,846,494, an increase of $1,547,239 from
calendar year 2002. Net income for 2003 totaled $101,851 compared to $(143,275)
in 2002. The increase in revenues and net earnings was due primarily to growth
of the business activities of the company and particularly the writing of more
insurance policies with higher average profit margins. Prime realized more
modest growth in its Belsen Getty financial consulting and planning. The
individual sector revenue and profit breakdowns for these subsidiaries are
setout as follows:
NET PROFITS % OF PRIME
CALENDAR YEAR GROSS (LOSSES) TOTAL
2003 REVENUES (Pre-tax) REVENUES
Fringe Benefit Analysts $3,329,844 $ 566,913 87%
Belsen Getty $ 485,320 $(245,948) 13%
NET PROFITS % OF PRIME
CALENDAR YEAR GROSS (LOSSES) TOTAL
2002 REVENUES (Pre-tax) REVENUES
Fringe Benefit Analysts $1,773,981 $ 515,312 77%
Belsen Getty $ 512,580 $(450,056) 22%
The profit margin for Prime was approximately 3% in 2003 with Belsen
Getty having a loss margin of approximately (51)%, Fringe Benefit Analysts
margin being approximately 17%.
Expenses for the company primarily involved executive salaries,
commissions and operation of the business offices, including general salaries
14
and overhead. These expenses for 2003 can be set-out and compared with 2002 in
the following table:
% CHANGE
BETWEEN 2002
2003 2002 & 2003
Officers' salaries and compensation $587,076 $562,963 4%
Commissions 1,972,966 585,501 229%
General operating expenses 1,174,597 1,296,137 (9)%
TOTALS $3,734,639 $2,444,601 53%
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure-an amendment of SFAS No.
123." SFAS No. 148 amends SFAS No. 123 to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, this statement amends the
disclosure requirements of SFAS No. 123 to require disclosures in both annual
and interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on the reported results.
SFAS No. 148 was effective for the company's year ended December 31, 2002 and
for interim financial statements commencing in 2003. The adoption of this
pronouncement did not have a present impact on the company's financial condition
or results of operation as Prime does not presently have any stock based
compensation.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133
on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under FASB Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 149 is generally effective for
contracts entered into or modified after June 30, 2003 and for hedging
relationships designated after June 30, 2003. The adoption of this pronouncement
did not have a present impact on the company's financial condition or results of
operations.
In May, 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." SFAS
No. 150 establishes standards for how an issuer measures certain financial
instruments with characteristics of both liabilities and equity and requires
that an issuer classify a financial instrument within its scope as a liability
(or asset in some circumstances). SFAS No. 150 was effective for financial
instruments entered into or modified after May 31, 2003 and otherwise was
effective and adopted by the company on July 1, 2003. As the company has no such
instruments, the adoption of this statement did not have a present impact on the
company's financial condition or results of operations.
15
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The principal market risk which the company presently faces, as outlined
above, is that it has been unable to date to obtain public trading in its
securities. The failure to obtain public trading means that the securities of
its shareholders may have limited or diminished value due to the inability to be
able to freely transfer such shares in a public market. The company is working
vigorously to remedy the situation, but cannot, at the present time, promise any
date or terms of resolution of this issue.
Secondarily, the next primary risk faced by the company is the market
risks from larger and better capitalized companies engaging in the same services
which the company provides at a lower price or other competitive advantage to
the company.
Thirdly, Prime faces some risk arising out of operating within tightly
regulated areas of industry which may be subject to limitations and controls by
various governmental regulatory authorities.
Item 7. FINANCIAL STATEMENTS
The consolidated financial statements and independent auditors' report
appear on pages F-1 through F-19 and are incorporated into this Item 7 by
reference. These financial statements constitute the formal presentation of
financial information by the company, such that all other financial information
contained in this 10-KSB report should be read and reviewed in light of the
following Financial Statements and notes thereto. Should there exist any
conflict between information appearing elsewhere in this Report and the
following Financial Statements, the Financial Statements should be given primary
definition and control. The notes attached to the Financial Statements
constitute an integral part of the financial disclosure and should be read and
reviewed in connection with the Financial Statements.
16
Prime Resource, Inc. and Subsidiaries
(Formerly Prime Resource, LLC and Subsidiaries)
Consolidated Financial Statements
with
Independent Auditors' Report Thereon
Years Ended December 31, 2003 and 2002
Prime Resource, Inc. and Subsidiaries
Consolidated Financial Statements
December 31, 2003
Contents
Independent Auditors' Report F-1
Consolidated Financial Statements:
Consolidated Balance Sheet F-2
Consolidated Statements of Operations F-3
Consolidated Statements of Members' and Stockholders' Equity F-4
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-7
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 sheet of Prime Resource,
Inc. and Subsidiaries as of December 31, 2003, and the related consolidated
statements of operations, members' and stockholders' equity and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit. The
consolidated financial statements of Prime Resource, Inc. and subsidiaries as of
and for the year ended December 31, 2002 were audited by other auditors whose
report, dated February 7, 2003, expressed an unqualified opinion on those
statements.
We conducted our audit 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 audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Prime Resource, Inc.
and Subsidiaries as of December 31, 2003, and the results of its operations and
its cash flows for the years ended December 31, 2003, in conformity with
accounting principles generally accepted in the United States of America.
Child, Sullivan & Company
Kaysville, Utah
March 24, 2004
F-1
Prime Resource, Inc. and Subsidiaries
(Formerly Prime Resource, LLC and Subsidiaries)
Consolidated Balance Sheet
December 31, 2003
ASSETS
Current assets:
Cash and cash equivalents $ 399,403
Accounts receivable 341,943
Interest receivable 7,333
Trading securities (Note 2) 281,176
Income taxes receivable (Note 11) 33,354
Other current assets 10,000
-----------
Total current assets 1,073,209
Leasehold improvements and equipment, net of accumulated
depreciation and amortization of $114,256 (Note 3) 134,967
Notes receivable 40,000
Other assets 13,104
Deferred tax assets (Note 11) 38,033
-----------
Total assets $ 1,299,313
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 8,324
Accrued compensation, commissions and benefits 281,557
Current portion of notes payable, including line of credit (Note 4) 48,264
Deferred tax liabilities (Note 11) 24,528
Total current liabilities 362,673
Notes payable, excluding current portion (Note 4) 12,817
-----------
12,817
Commitments and contingencies (Note 10) -
STOCKHOLDERS' EQUITY (Note 5)
Common stock, no par value; 50,000,000 authorized
shares; 2,934,000 shares issued and outstanding 907,427
Treasury stock (77,755)
Retained earnings 94,151
-----------
Total stockholders' equity 923,823
-----------
Total liabilities and stockholders' equity $ 1,299,313
===========
See notes to financial statements.
F-2
Prime Resource, Inc. and Subsidiaries
(Formerly Prime Resource, LLC and Subsidiaries)
Consolidated Statements of Operations
Years ended December 31,
2003 2002
--------------- ----------------
Revenues
Commissions $ 3,329,844 $ 1,773,981
Investment and business advisory fees 485,320 512,580
Interest and dividends 25,284 12,694
Other income 6,046 -
--------------- ----------------
3,846,494 2,299,255
Expenses
Commissions 1,972,966 585,501
Compensation and benefits 1,122,312 1,264,621
General and administrative 444,421 429,329
Occupancy and related expenses 132,733 111,014
Interest 14,015 6,900
Depreciation and amortization 48,192 47,236
--------------- ----------------
3,734,639 2,444,601
Net operating income (loss) 111,855 (145,346)
Gains and losses
Unrealized gains on trading securities 1,927 -
Net gains (losses) from disposals of fixed assets (7,177) -
--------------- ----------------
Net losses (5,250) -
Net income (loss) before income tax expense (benefit) 106,605 (145,346)
Income tax expense (benefit) 4,754 (2,071)
--------------- ----------------
NET INCOME (LOSS) $ 101,851 $ (143,275)
=============== ================
Weighted average shares outstanding 2,875,000 2,800,000
Basic and fully diluted net income (loss) per share $ .04 $ (.05)
See notes to financial statements.
F-3
Prime Resource, Inc. and Subsidiaries
(Formerly Prime Resources, LLC and Subsidiaries)
Consolidated Statements of Members' and Stockholders' Equity
Retained
Members' Common Stock Treasury Earnings
Equity Shares Amount Stock (Deficit) Total
----------- ---------- ---------- ---------- ---------- ----------
Balance at January 1, 2002 $ 220,338 - $ - $ - $ - $ -
Net loss through date of
Incorporation
(April 4, 2002) (135,575) - - - - -
Member contributions 113,000 - - - - -
April 4, 2002 reorganization
from a limited liability
company to a corporation (197,763) 2,800,000 197,763 - - 197,763
Net loss from April 4, 2002
through December 31, 2002 - - - - (7,700) (7,700)
----------- ---------- ---------- ---------- ---------- ----------
Balance at January 1, 2003 - 2,800,000 197,763 - (7,700) 190,063
Net proceeds from common
stock offering - 150,000 709,664 - - 709,664
Shares exchanged to settle note
receivable obligation - (16,000) - (77,755) - (77,755)
Net income - - - - 101,851 101,851
----------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 2003 $ - 2,934,000 $ 907,427 $ (77,755) $ 94,151 $ 923,823
=========== ========== ========== ========== ========== ==========
See notes to financial statements.
F-4
Prime Resource, Inc. and Subsidiaries
(Formerly Prime Resource, LLC and Subsidiaries)
Consolidated Statements of Cash Flows
Years ended December 31,
2003 2002
--------------- ----------------
Cash Flows From Operating Activities:
Net income (loss) $ 101,851 $ (143,275)
Adjustments to reconcile net income (loss) to cash
used in operating activities:
Depreciation and amortization 48,192 47,236
Bad debt expense 7,721 -
Non-cash compensation 10,086 121,384
Receipt of client stock for services rendered (6,003) -
Loss on disposal of assets 7,177 297
Unrealized gain on sale of trading securities (1,927) -
Loss on sale of trading securities - 1,400
Interest expense on borrowings from member - 3,157
Interest income on loans to related parties (11,247) (8,625)
Changes in operating assets and liabilities:
Trade and other accounts receivable (208,649) (41,340)
Other current assets (1,054) (4,588)
Income taxes receivable (32,498) -
Deferred tax assets (12,422) -
Accounts payable (64,028) 55,694
Accrued liabilities and compensation 138,817 (85,828)
Income taxes payable - 24,435
Deferred tax liabilities 93 (26,506)
--------------- ----------------
Net cash used in operating activities (23,891) (56,559)
--------------- ----------------
Cash Flows From Investing Activities:
Purchases of equipment and leasehold improvements (18,508) (84,253)
Employee advances - (7,050)
Collections on loans to related parties - 147,110
Proceeds from sale of trading securities - 49,740
Purchases and reinvestments of trading securities (273,246) -
--------------- ----------------
Net cash provided by (used in) investing activities (291,754) 105,547
--------------- ----------------
Cash Flows From Financing Activities:
Payments on notes payable to related parties (72,149) 53,645
Payments on note payable (1,728) -
Net proceeds from stock offering 709,664 -
Member buy-out - (100,000)
Net (payments) borrowings on line of credit (5,474) 50,000
--------------- ----------------
Net cash provided by financing activities 630,313 3,645
--------------- ----------------
Net increase in cash and cash equivalents 314,668 52,633
Cash and cash equivalents at beginning of year 84,735 32,102
--------------- ----------------
Cash and cash equivalents at end of year $ 399,403 $ 84,735
=============== ================
See notes to financial statements.
F-5
Prime Resource, Inc. and Subsidiaries
(Formerly Prime Resource, LLC and Subsidiaries)
Consolidated Statements of Cash Flows (continued)
Years ended December 31,
2003 2002
--------------- ----------------
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $ 13,109 $ -
=============== ================
Cash paid for taxes $ 48,623 $ -
=============== ================
Non-cash Investing and Financing Activities:
Company vehicle purchased and financed through a
trade-in $9,500 and note payable $18,051 $ 27,551 $ -
=============== ================
Principal and interest on related party note receivable
in exchange for 16,000 shares of Company stock,
net of interest of $11,247 $ 66,508 $ -
=============== ================
See notes to financial statements.
F-6
Prime Resource, Inc. and Subsidiaries
(Formerly Prime Resource, LLC and Subsidiaries)
Notes to Consolidated Financial Statements
December 31, 2003 and 2002
1. Summary of Significant Accounting Policies
Organization and Business Activity
Prime Resources, Inc. (the Company), is a 100 percent owner of Belsen Getty,
LLC, (Belsen 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
In January of 2002, the Company and its members granted a 26 percent membership
interest to an officer and current shareholder 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 the
officer and current shareholder was accounted for as compensation expense and is
included in "compensation and benefits" in the statement of operations for the
year ended December 31, 2002. The value of the share of the Company issued to
the officer and current shareholder was based on the amount the Company was
required to pay a former member for its 23 percent share of the Company, in
connection with the Company's termination and buy-out of the member, effective
January 1, 2002.
On April 4, 2002, the Company was reorganized from a limited liability company
to 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 net book value of the predecessor organization of approximately
$197,763, as of March 31, 2002. Accordingly, there was no change in the recorded
book values of Company assets or liabilities due to the reorganization.
Basis of Financial Presentation
The accompanying consolidated financial statements include the accounts of Prime
Resource, Inc., and its wholly owned subsidiaries, Belsen Getty, LLC and Fringe
Benefits Analysts, LLC. All significant intercompany balances and transactions
have been eliminated in consolidation.
Uses of Estimates
The consolidated financial statements have been prepared in accordance 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.
F-7
Prime Resource, Inc. and Subsidiaries
(Formerly Prime Resource, LLC and Subsidiaries)
Notes to Consolidated Financial Statements
December 31, 2003 and 2002
1. Significant Accounting Policies (continued)
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. As of December 31, 2003 cash and cash equivalents of $308,336 were
either not covered by federal insurance or exceeded those limits.
Trade Receivables
Trade receivables are estimates of commissions and fees due to the Company for
insurance sales and investment advice earned but not yet received. No allowance
for bad debts has been established for any of these amounts as the process for
recording receivables is based on reviews and analysis of actual historical cash
receipts. This cash receipt analysis takes into account both bad debt and
potential charge backs on premium cancellations and excludes them from
receivables balances when recording revenues and trade receivables. Management
estimates that bad debts and charge backs do not change significantly from
period to period. Accordingly, an additional reserve at any point in time is not
considered necessary.
Trading Securities
Trading securities are recorded at fair value. Unrealized holding gains or
losses on trading securities are reported on the statement of operations. 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.
Leasehold Improvements and Equipment
Leasehold improvements 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
Management reviews its leasehold improvements and equipment for impairment on an
annual basis and records any related loss on impairments at the time such an
impairment is recognized.
F-8
Prime Resource, Inc. and Subsidiaries
(Formerly Prime Resource, LLC and Subsidiaries)
Notes to Consolidated Financial Statements
December 31, 2003 and 2002
1. Significant Accounting Policies (continued)
Notes Receivable
Notes receivable consisted of one note for $40,000 at December 31, 2003. This
note has a stated interest rate of 10% per year on outstanding principle
recorded at $7,233 in interest receivable on the balance sheet. The note
requires no payments of principal or interest and is due with all outstanding
principal and accrued interest on March 1, 2007. Interest is accrued on notes
receivable according to the terms of the note. Management evaluates each note on
an annual basis or sooner if necessary to determine the financial status of the
note holder. Upon a determination that there is doubt as to the collectibility
of any or all portions of principal and interest due, the Company will write off
of the applicable accrued interest and an allowance is established against the
principal amount determined uncollectible as estimated by management. The
Company wrote-off notes receivable during the year ended December 31, 2003 in
the amount of $7,721.
Income Taxes
The Company became subject to income taxation effective April 4, 2002 when it
was converted from a limited liability company to a corporation. Prior to the
Company's reorganization, the income tax liability was the responsibility of the
individual members.
The Company uses the asset and liability method of accounting for income taxes.
Under this method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be settled or recovered. The effect
on deferred tax assets and liabilities of a change in tax rates in recognized in
the period that includes the enactment date.
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.
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
F-9
Prime Resource, Inc. and Subsidiaries
(Formerly Prime Resource, LLC and Subsidiaries)
Notes to Consolidated Financial Statements
December 31, 2003 and 2002
1. Significant Accounting Policies (continued)
Revenue Recognition (continued)
agency agreements as commission revenue and the portion paid to its licensed
agents as commission expense.
Credit Risks and Concentrations
The Company's primary customers are individuals and small to medium sized
businesses that may be affected by changes in economic conditions. The Company
believes that approximately 99% of its customers are geographically based in
Utah. The Company has no client that accounts for more than 2% of its revenues.
The Company's largest insurance carriers that pay the commissions on insurance
sales generate 37%, 24%, and 10% of its annual insurance commissions revenues.
Investment advisory fees make up approximately 13% of the Company's total
revenues and no one individual or customer accounts for more than 7% of that
revenue.
Earnings Per Share
The Company adopted Statement of Financial Accounting Standard No. 128 (SFAS No.
128), "Earnings per Share", which is effective for annual periods ending after
December 15, 1997. Earnings per share (EPS) are computed based on the weighted
average number of shares actually outstanding. Basic earnings per share and
fully diluted earnings per share are the same as there are no dilutive or
anti-dilitive shares as of December 31, 2003 and 2002.
New Accounting Pronouncements
In December of 2002, the FASB issued SFAS 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - An Amendment of FASB Statement No.
123." FAS 148 provides alternative methods of transition for a voluntary change
to the fair value based method of accounting for stock-based employee
compensation. In addition, the statement amends the disclosure requirement of
Statement No. 123 to require prominent disclosures in both annual an interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results.
In April, 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under FASB Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 149 is generally effective for
contracts entered into or modified after June 30, 2003 and for hedging
relationships designated after June 30, 2003.
F-10
Prime Resource, Inc. and Subsidiaries
(Formerly Prime Resource, LLC and Subsidiaries)
Notes to Consolidated Financial Statements
December 31, 2003 and 2002
1. Significant Accounting Policies (continued)
New Accounting Pronouncements (continued)
In May, 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150
establishes standards for how an issuer measures certain financial instruments
with characteristics of both liabilities and equity and requires that an issuer
classify a financial instrument within its scope as a liability (or asset in
some circumstances). SFAS No. 150 was effective for financial statements entered
into or modified after May 31, 2003 and otherwise was effective and adopted by
the Company in 2003.
None of the above new pronouncements have current application to Prime, but may
be applicable to Prime's future financial reporting.
2. Trading Securities
Trading securities comprise investments in mutual funds and common stocks as of
December 31, 2003. The cost of trading securities at December 31, 2003 totaled
$276,226. Unrealized gains on such securities at December 31, 2003 and 2002
totaled $1,927 and $0, respectively. Dividends realized and reinvested in 2003
and 2002 totaled $3,023 and $194, respectively.
In November of 2002, Belson Getty received 684,000 restricted common shares of
Mortgage Professionals Lead Source, Inc. (MPLS), a shell corporation. The shares
were received in exchange for providing consulting services with no readily
ascertainable value in connection with MPLS's merger with Neuro Bioscience, Inc.
(NBI), a development-stage privately held company. Prime possessed all 684,000
MPLS shares as of December 31, 2003 and 2002; however, no value has been
ascribed to the shares due to major uncertainties involving recoverability of
any value ascribed to such shares. The MPLS shares are listed on the
over-the-counter market; however, trading activity has been very limited. The
operations of NBI are in the early development stage and management is unable to
estimate the value of the shares, if any, received from MPLS. Any gains realized
by Prime from the disposition of MPLS shares will be recognized at the time of
sale or disposition.
3. Leasehold Improvements and Equipment
Leasehold improvements and equipment and related accumulated depreciation and
amortization at December 31 consists of the following:
2003 2002
---------- -----------
Leasehold improvements $ 31,980 $ 31,597
Furniture and equipment 118,373 118,644
Computer equipment and software 54,419 60,454
Vehicles 44,451 92,540
---------- -----------
249,223 303,235
Accumulated depreciation and amortization (114,256) (139,372)
---------- -----------
$ 134,967 $ 163,863
========== ===========
F-11
Prime Resource, Inc. and Subsidiaries
(Formerly Prime Resource, LLC and Subsidiaries)
Notes to Consolidated Financial Statements
December 31, 2003 and 2002
4. Notes Payable
The Company had notes payable outstanding to two financial institutions as of
December 31, 2003:
Note payable, bearing interest at 1.9% per annum, principle and interest
payments of $316 due on the 14th of each month, maturing June 14, 2008. The note
is collateralized by a Company vehicle with a net book value of $24,337. $ 16,323
Bank line of credit, bearing interest at prime plus 2% per annum, interest only
payments due the 5th of each month, maturing on March 5, 2004. 44,758
---------
Total notes payable 61,081
Less current portion (48,264)
Total long-term notes payable $ 12,817
=========
Schedule of notes payable principal maturities:
Year ended
December 31,
2004 $ 48,264
2005 3,574
2006 3,644
2007 3,715
2008 1,884
Thereafter -
-------
$ 61,081
========
Management expects to refinance the bank line of credit that matures on March 5,
2004 under similar terms as currently exist.
5. Stockholders' Equity
On April 4, 2002, the Company was reorganized from a limited liability company
to 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
$197,763, as of March 31, 2002. Accordingly, there was no change in the recorded
book values of Company assets or liabilities due to the reorganization.
F-12
Prime Resource, Inc. and Subsidiaries
(Formerly Prime Resource, LLC and Subsidiaries)
Notes to Consolidated Financial Statements
December 31, 2003 and 2002
5. Stockholders' Equity (continued)
In April of 2003, the Company registered its common stock with the Securities
and Exchange Commission and was successful in offering 150,000 shares for
$750,000. Net proceeds to the Company were $709,664.
6. 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 up to the applicable
federal limits, of at $14,000 or $12,000 depending on age. 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
$30,273 and $18,311, for 2003 and 2002, respectively.
7. 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
Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31,
2003 2002 2003 2002
------------ ------------ ------------ -----------
Revenues $ 485,320 $ 512,587 $ 3,329,844 $ 1,773,974
Expenses 731,268 962,643 2,762,931 1,258,662
Income (loss) before tax (245,948) (450,056) 566,913 515,312
Income tax expense (benefit) (10,969) (6,413) 25,284 7,343
------------ ------------ ------------ -----------
Net income (loss) $ (234,979) $ (443,643) $ 541,629 $ 507,969
============ ============ ============ ===========
F-13
Prime Resource, Inc. and Subsidiaries
(Formerly Prime Resource, LLC and Subsidiaries)
Notes to Consolidated Financial Statements
December 31, 2003 and 2002
7. Segment Information (continued)
Other Consolidated
Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31,
2003 2002 2003 2002
------------ ------------ ------------ -----------
Revenues $ 31,330 $ 12,694 $ 3,846,494 $ 2,299,255
Expenses 245,690 223,296 3,739,889 2,444,601
Income (loss) before tax (214,360) (210,602) 106,605 (145,346)
Income tax expense (benefit) (9,561) (3,001) 4,754 (2,071)
------------ ------------ ------------ -----------
Net income (loss) $ (204,799) $ (207,601) $ 101,851 $ (143,275)
============ ============ ============ ===========
Depreciation expense for the year ended December 31, 2003 was $22,932, $22,780,
and $2,480 at the asset management, insurance products and other segments,
respectively.
2003 2002
----------- -----------
Asset Management $ 181,560 $ 231,472
Insurance Products 369,180 218,148
Other 748,573 102,351
----------- -----------
$ 1,299,313 $ 551,971
=========== ===========
Expenditures for long-lived assets by segment during the year ended December 31,
2003 were as follows: Asset management $13,030, Insurance products $33,029 and
other $0.
8. 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 and notes payable also approximate fair market value due to the
short-term maturity of the notes or floating interest rates that approximate
current market rates.
Trading securities at December 31, 2003 and 2002 are set forth in Note 2.
9. Related Party Transactions
Notes Receivable
The Company had notes receivable from members totaling $74,074 as of December
31, 2002.
Amounts due from 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 $11,247 in 2003 and $8,833 in 2002.
F-14
Prime Resource, Inc. and Subsidiaries
(Formerly Prime Resource, LLC and Subsidiaries)
Notes to Consolidated Financial Statements
December 31, 2003 and 2002
9. Related Party Transactions (continued)
Notes Receivable (continued)
In December of 2003, the Company's management agreed to accept 16,000 shares of
Company stock from one of its shareholders and officers as complete and full
consideration for advances and accrued interest previously made to its
shareholder and officer. The total obligation was $77,755 including principal
and accrued interest. The note receivable and accrued interest have been removed
from the balance sheet with the 16,000 shares recorded as treasury stock in the
amount of $77,755. Management deemed the exchange to be fair consideration as
these shares will be unrestricted and free trading in April of 2004 and shares
issued during the offering were issued at $5 per share. No premium or discount
was recorded with this transaction. This transaction was recorded at the holding
company level.
Notes Payable
The Company was indebted to shareholders and officers (previously members),
under notes payable, in the amounts of $122,381, as of December 31, 2002, The
notes bore interest at 4.5 percent and were due on demand.
In March of 2002, the Company was paid approximately $144,000 toward amounts due
from members as of December 31, 2001 and was 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.
During the year ended December 31, 2003, the Company paid in full its
outstanding notes payable to shareholders and officers including accrued
interest of $77,101.
Royalty Expense
During the year ended December 31, 2003 and 2002, Prime made royalty payments
totaling $96,000 and $76,495, respectively, to two partnerships, which are
related to controlling shareholders and officers of Prime. The royalties were
paid in connection with the use of certain intellectual rights to the "FBA
Advantage Program" held by the related partnerships.
Rent Expense
The Company leases office space for two locations. One leased location has some
common ownership to that of the Company's shareholders and officers. The rent
paid for this location was approximately $55,000 in 2003. The initial lease term
ends in March of 2004. Management intends to negotiate new lease rates at
estimated fair market prices.
10. Commitments and Contingencies
The Company leases certain office space under agreements classified as operating
leases. The space was leased from two entities, one that had certain common
owners to those of the Company, as previously discussed. Rent expense, under
these leases, totaled $113,113 and $81,807 for the years ended December 31, 2003
and 2002, respectively.
F-15
Prime Resource, Inc. and Subsidiaries
(Formerly Prime Resource, LLC and Subsidiaries)
Notes to Consolidated Financial Statements
December 31, 2003 and 2002
10. Commitments and Contingencies (continued)
The Company has also entered into two binding license agreements to provided web
based access for the Company's clients to review, research and analyze their
insurance coverage plan(s). The terms of these agreements for a one and a two
year period.
Future minimum payments required under these noncancellable agreements as of
December 31, 2003 are as follows:
Year Ended
December 31,
2004 $ 99,589
2005 89,922
2006 61,541
2007 20,512
2008 -
Thereafter -
--------------
Total $ 271,564
==============
11. Income Taxes
Prime became subject to taxation for the first time effective April 4, 2002 when
the Company was reorganized from a limited liability company to a corporation.
Taxes on income prior to that date were the responsibility of the individual
members. Accordingly, income tax benefit for the year ended December 31, 2002,
is based on the Company's loss before income taxes for the period from April 4,
2002 through December 31, 2002.
Income tax expense (benefit) is comprised of the following for the year ended
December 31, 2002:
Current Deferred Total
----------- ---------- ------------
U.S. Federal $ 19,584 $ (26,506) $ (6,922)
State 4,851 - 4,851
----------- ---------- ------------
$ 24,435 $ (26,506) $ (2,071)
=========== ========== ============
Income tax expense (benefit) is comprised of the following for the year ended
December 31, 2003:
Current Deferred Total
----------- ---------- ------------
U.S. Federal $ (6,185) $ 14,689 $ 8,504
State (2,062) (1,688) (3,750)
----------- ---------- ------------
$ (8,247) $ 13,001 $ 4,754
=========== ========== ============
F-16
Prime Resource, Inc. and Subsidiaries
(Formerly Prime Resource, LLC and Subsidiaries)
Notes to Consolidated Financial Statements
December 31, 2003 and 2002
11. Income Taxes (continued)
Total income tax expense (benefit) differs from the amounts computed by applying
the U.S. federal tax income rate of 35 percent (34 percent in 2002) to pretax
income as a result of the following:
Year Ended December 31,
2003 2002
--------- ---------
Federal income tax expense (benefit) at statutory rate $ 37,312 $ (49,420)
Deferred taxes relating to change in tax status - 10,391
Current taxes relating to pre-charge income - 47,511
Benefit of graduated rates 8,246 (11,750)
Redetermination of prior year taxes (36,984) -
Other non-deductible and non-includable items (70) 1,197
State taxes, net of federal benefit (3,750) -
--------- ---------
Total $ 4,754 $ (2,071)
========= =========
The tax effects of temporary differences that give rise to significant portions
of deferred tax assets and liabilities at December 31, 2003 and 2002 are as
follows:
2003 2002
--------- ---------
Current deferred tax assets (liability):
Accounts receivable $(139,710) $ (52,454)
Accrued liabilities 3,330 39,027
Accounts payable 112,623 14,322
Unrealized gains (771) -
--------- ---------
Net current deferred tax asset (liability) $ (24,528) $ 895
========= =========
Long-term deferred tax assets (liability):
Depreciation differences $ (13,478) $ (22,424)
Deferred income-stock compensation 51,511 48,035
--------- ---------
Net long-term deferred tax asset (liability) $ 38,033 $ 25,611
========= =========
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 for any
valuation allowance.
F-17
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Prime has no disagreements with its prior or current independent
auditors. In May 2003 Prime changed its independent auditors.
Item 8A. CONTROLS AND PROCEDURES
(a) Prime's Board maintains controls and procedures designed to ensure
that information required to be disclosed in the reports that the Company files
or submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the rules and forms
of the Securities and Exchange Commission. Based upon their evaluation of those
controls and procedures performed within 90 days of the filing date of this
report, the chief executive officer and the principal financial officer of the
Company concluded that the Company's disclosure controls and procedures were
adequate for its present activities. The Company knows of no fraudulent
activities within the Company or any material accounting irregularities. The
Company currently does not have an independent audit committee. The Company is
advised that an independent audit committee is not required for Electronic
Bulletin Board Listings, but will further review the advisability and
feasibility of establishing such a committee in the future.
(b) Changes in internal controls. The Company made no significant changes
in its internal controls since completing its public offering. The company is
presently seeking a listing of its stock on the National Association of
Securities Dealers ("NASD") sponsored Electronic Bulletin Board, but does not
view such listing as requiring a change in its accounting or auditing practices
at the present time. The Company is presently experiencing unanticipated delays
in obtaining this listing which is presently preventing its shares from trading
publicly.
(c) Should the company subsequently seek a listing on an exchange or any
established NASD listing, such as the NASDAQ small cap markets, it is aware that
other accounting/auditing standards, such as the establishment of an independent
audit committee, may be required.
(d) The company is aware of the general standards and requirements of the
recent Sarbanes-Oxley Act of 2002 and has implemented procedures and rules to
comply, so far as applicable, such as a prohibition on company loans to
management and affiliates.
17
PART III
Item 9. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
Following this table is a brief biographical description for each of the
management principals with a brief description of their business experience and
present relationship to Prime, together with all required relevant disclosures
for the past five years.
Following the biographical information for the directors and officers
is a remuneration table showing current compensation and following this table is
a security ownership table showing security ownership of the principal officers
and directors, as well as those holding 5% or more of the issued and outstanding
stock.
NAME POSITION
Mr. Terry Deru* Director, CEO/President/
Chairman of the Board
CURRENT TERM OF OFFICE
Appointed Director in 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.
NAME POSITION
Mr. Scott Deru* Director/V.P.
CURRENT TERM OF OFFICE
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.
NAME POSITION
Mr. Andrew Limpert* Director/Treasurer/Secretary/ CFO CURRENT TERM OF OFFICE
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. Scott Deru and Mr. Terry Deru are brothers. Mr. Limpert was an owner of
Prime, LLC and acted as an advisor to Prime, LLC and has become a shareholder of
Prime Resource, Inc., the successor entity to Prime, LLC.
BIOGRAPHICALS
TERRY M. DERU - PRESIDENT
Age: 49
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 advisory and retirement planning firm. The
firm, or its predecessor, has been a licensed investment advisory firm with the
18
State of Utah since 1984. Mr. Deru is a Certified Financial Planner and a
Registered Financial Consultant. Mr. Deru has been with Belsen Getty or its
predecessor 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 July 2000. Mr. Deru will
continue his part-time affiliation with Belsen Getty while also acting as the
part-time officer of Prime. The estimated allocation of services to each entity
is setout in the following table. Mr. Deru also acted as a part-time CEO for
Kinship Systems, Inc., a small public company, which is not presently active.
Kinship abandoned its original marketing efforts of attempting to sell licensed
accident reconstruction software in early 2002 and has subsequently acquired a
resort management company as its wholly owned operating subsidiary. Mr. Deru
resigned as an officer and director pursuant to this reorganization on November
14, 2002, and he is no longer affiliated with that company. The company
continues under a new name of Caribbean Club Group, Inc. (CCI). 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.
MR. SCOTT DERU - DIRECTOR, VICE-PRESIDENT OPERATIONS Age: 43
Mr. Scott Deru has been employed full-time since 1982 as a principal
officer of Fringe Benefit Analysts, LLC. Since 1998 he has been the manager and
principal officer of Fringe Benefit, 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. In addition to his full-time services to Fringe Benefit Analysts, 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 W. LIMPERT - CHIEF FINANCIAL OFFICER Age: 34
Mr. Limpert has been a financial and retirement planner associated with
the Salt Lake based firm of Belsen Getty, LLC since 1998. He is licensed as a
Registered Investment Advisor Representative, 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
was also 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 Kinship's change of
control he is no longer affiliated with that firm. Mr. Limpert was appointed to
19
these positions in February 2000 as part of the initial organization. As noted
above, Kinship acquired a new operating subsidiary and Mr. Limpert resigned as
an officer and director effective November 14, 2002. He has no continuing
affiliation with Kinship/CCI. 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.
ESTIMATED ALLOCATION OF TIME AND SERVICES
The following table attempts to set-out the present estimated allocation
of time to be devoted by the foregoing officers for Prime and each of the Prime
related entities:
NAME PRIME BELSEN GETTY FRINGE BENEFIT PRIME (1) RETIREMENT PRINCIPAL OFFICER OF:
Mr. Terry Deru 20% 80% 0% 0% Belsen Getty
Prime Retirement
Mr. Scott Deru 20% 0% 80% 0% Fringe Benefit
Mr. Andrew Limpert 40% 60% 0% 0% N/A
(1)On an incidental basis, Mr. Deru is engaged in informal research on the
intended services and software for this entity on his own time.
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
As previously noted, each officer in the corporation is paid directly by
Prime regardless of where his services may be allocated among the various
subsidiaries. Accordingly, the following table sets forth all compensation
received by any officer in connection with these services to Prime, including
any and all of the subsidiaries:
20
Item 10. EXECUTIVE COMPENSATION
Securities
Other Annual Restricted Underlying Other(3)
Name and Principal Position Year Salary(1) Bonus(2) Compensation (4) Stock Awards(s) Operations LTIP Payouts (Loans)
Mr. Terry Deru, President 2003 $192,000 - $48,000 - - -
2002 $201,193 - $38,248 - - - 0
2001 $262,000 $65,000 - - - -
2000 $208,341 - - - - -
Mr. Scott Deru, Secretary 2003 $192,000 - $48,000 - - -
2002 $201,611 - $38,247 - - - 0
2001 $240,000 $65,000 - - - -
2000 $212,000 - - - - -
Mr. Andrew Limpert, Treasurer 2003 $210,000 - - - - -
2002 $165,000 - - - - - 0
2001 $118,000 - - - - -
2000 $ 60,479 - - - - -
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 a salary of
$262,000 in 2001, and received $201,193 in 2002. He received a salary of
$192,000 in 2003. Mr. Scott Deru received a salary of $262,000 in 2001, and
received $201,611 in 2002. He received a salary of $192,000 in 2003. Mr. Limpert
was paid compensation of $118,000 in 2001, $165,000 in 2002 and was paid
$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 due March 30, 2004 at 4.86% APR, which have been paid. Mr. Limpert has
also borrowed $69,658.28 from Prime payable on demand at 4.86% APR. As of
December 31, 2003, this note was paid. There are presently no loans and will be
none in the future under current corporate policies.
(4) Prime licenses certain intellectual property from two separate
partnerships controlled by Terry Deru and Scott Deru who are officers and
21
directors of the company. These partnerships are paid royalties based on the
usage of said property on a monthly basis.
Prime 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.
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 shareholder or other interested person may view a copy of the
employment agreements attached to the earlier SB-2 Registration Statement by
viewing this registration statement online at the SEC filing site
(www.sec.gov/edgar), or by requesting a copy from Prime.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
SHARES OWNED 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.
22
Title of Class Name and Address of Owner Current Shares Owned Current Percentage of Outstanding
(Rounded)
Common Stock Terry Deru 974,000 33%
99 Cove Lane
Layton, Utah 84040
Common Stock Scott Deru 999,500 34%
6855 N. Frontier Drive
Mountain Green, Utah 84050
Common Stock Andrew Limpert 717,900 24%
8395 S. Parkhurst Circle
Sandy, Utah 84094
Common Stock Officers and Directors as 2,691,400 91%
a Group
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.
Changes in Control. There are currently no arrangements which would result
in a change in our control.
Item 12. 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 shareholders are substantially the same persons.
o The Company has historically made and received loans and advances from
owners and employees without independent Board review. These historical loans
are generally described in the preceding section and are now paid. Under the
provisions of the recent Sarbanes-Oxley Act, Prime has discontinued, as a public
company, any further loans or advances to officers, directors or employees.
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.
23
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.
o The company is not aware of any further transactions which would
require disclosure under this section by the company and any affiliated party.
Part IV
Item 13. PRINCIPAL ACCOUNTANT FEES AND SERVICES
In a board meeting on May 8, 2003, the Board of Directors decided to
change the principal and independent auditors for the company from the initial
firm of Carver Hovey & Company to Child, Sullivan & Co. of 1284 West Flint
Meadow Drive, Suite D, Kaysville, Utah 84037. This change was affected by board
resolution, but has not yet been voted upon by shareholders pending the next
annual meeting.
For the calendar year 2003, the prior accounting firm of Carver Hovey
charged the company a total of $38,540 for independent accounting and auditing
fees. For the calendar year 2003, the newly appointed auditors have charged the
firm a total of $8,980 for independent auditing and accounting services. It is
anticipated that most of the billing for this December 31, 2003 audited
financials will be charged by the new auditors in calendar year 2004. As noted
above, the company has no material disagreements with its auditing firm as to
the financial statements contained in this annual report.
Item 14. EXHIBITS AND REPORTS ON FORM 8-K
Under the following exhibit index are all of the relevant exhibits and
reports required to be filed or referenced by the 10-KSB.
There was no 8-K Report filed in calendar year 2003.
24
(a) Exhibit Index:
3.1 Articles of Incorporation of Registrant. Earlier filed and
incorporated as part of SB-2 Registration Statement.
3.2 By-Laws of Registrant. Earlier filed and incorporated as part of SB-2
Registration Statement.
23.0 Consents.
31.0 Certification - Certifying Officers
32.0 Certifications Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant
to Section 906 of The Sarbanes-Oxley Act of 2002
25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
behalf by the undersigned, thereunto duly authorized.
REGISTRANT:
PRIME RESOURCE, INC.
Date: March 31, 2004 By: /s/ Terry M. Deru
Mr. Terry M. Deru,
President, Chief Executive Officer
Dated: March 31, 2004 By: /s/ Andrew Limpert
Andrew Limpert
Chief Fiancial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
Date: March 31, 2004 By: /s/ Terry M. Deru
Mr. Terry M. Deru
Chairmant
Date: March 31, 2004 By: /s/ Scott Deru
Scott Deru
Director
Date: March 31, 2004 By: /s/ Andrew W. Limpert
Mr. Andrew W. Limpert
Director
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Exhibit 23
Child, Sullivan & Company
A Professional Corporation of CERTIFIED PUBLIC ACCOUNTANTS
1284 W. Flint Meadow Dr., Suite D, Kaysville, UT 84037
PHONE: (801) 927-1337 FAX: (801) 927-1344
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this annual report on Form 10-KSB (File No.
333-88480) of our report dated March 24, 2004 on our audit of the financial
statements of Prime Resource, Inc. and Subsidiaries, as of December 31, 2003 and
for the year ended December 31, 2003.
/s/ Child, Sullivan & Company
Child, Sullivan & Company
Kaysville, Utah
March 31, 2004
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Exhibit 23
To the Board of Directors
Prime Resource, Inc. and Subsidiaries
We consent to the reference in the annual report on Form 10-KSB (File No.
333-88480) to our independent auditors' report dated February 7, 2003 on our
audits of the financial statements of Prime Resource, Inc. and Subsidiaries, as
of December 31, 2002 and 2001.
/s/ Carver, Hovey & Florek
Layton, Utah
March 31, 2004
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Exhibit 31
CERTIFICATION PUSUANT TO SECURITIES EXCHANGE
ACT OF 1934: RULES 13a-14, 13a-15, 15d-14, AND 15d-15
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Terry Deru, certify that:
(1) I have reviewed this annual report on Form 10-KSB of Prime Resource,
Inc;
(2) Based on my knowledge, this annual report does not contain any untrue
statement of a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this annual report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this annual report fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report.
(4) The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant
and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this Annual Report
is being prepared;
(b) evaluated the effectiveness of the Registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this Annual Report (the "Evaluation Date"); and
(c) presented in this Annual Report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
(5) The Registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the Registrant's auditors an the
audit committee of Registrant's board of directors (or persons
performing the equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have
identified for the Registrant's auditors any material weaknesses in
internal controls; and
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(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls; and
(6) The Registrant's other certifying officer and I have indicated in this
Annual Report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
DATE: March 31, 2004
/s/ Terry M. Deru
----------------------------------
Terry M. Deru
Chief Executive Officer
30
Exhibit 31
CERTIFICATION PUSUANT TO SECURITIES EXCHANGE
ACT OF 1934: RULES 13a-14, 13a-15, 15d-14, AND 15d-15
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Andrew Limpert, certify that:
(1) I have reviewed this annual report on Form 10-KSB of Prime Resource,
Inc;
(2) Based on my knowledge, this annual report does not contain any untrue
statement of a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this annual report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this annual report fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report.
(4) The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant
and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this Annual Report
is being prepared;
(b) evaluated the effectiveness of the Registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this Annual Report (the "Evaluation Date"); and
(c) presented in this Annual Report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
(5) The Registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the Registrant's auditors an the
audit committee of Registrant's board of directors (or persons
performing the equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have
identified for the Registrant's auditors any material weaknesses in
internal controls; and
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(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls; and
(6) The Registrant's other certifying officer and I have indicated in this
Annual Report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
DATE: March 31, 2004
/s/ Andrew Limpert
----------------------------------
Andrew Limpert
Chief Financial Officer
32
Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Prime Resource, Inc. (the "Company") on
Form 10-KSB for the period ending December 31, 2003, as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), Mr. Terry
M. Deru, President of the Company, certifies to the best of his knowledge,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The report fully complies with the requirements of section 13 (a) or 15
(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
Date: March 31, 2004 /s/ Terry M. Deru
Terry M. Deru
Chief Executive Officer
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Exhibit 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Prime Resource, Inc. (the "Company") on
Form 10-KSB for the period ending December 31, 2003, as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), Mr. Terry
M. Deru, President of the Company, certifies to the best of his knowledge,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The report fully complies with the requirements of section 13 (a) or 15
(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
Date: March 31, 2004 /s/ Andrew Limpert
Andrew Limpert
Chief Financial Officer
34