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, 2004
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 - $0.001 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, 2005, the aggregate market value of the common voting stock held
by non-affiliates of the Registrant, would be approximately $1,482,250. The
company has a very limited trading market on the OTCBB.
State issuer's revenues for its most recent fiscal year: $5,242,880
As of March 1, 2005, the Registrant had outstanding 2,960,900 shares of common
stock ($0.001 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....................................12
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 ...............................13
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
IITEM 8A CONTROLS & PROCEDURES......................................17
ITEM 8B OTHER INFORMATION..........................................18
PART III
ITEM 9 DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT.............19
ITEM 10 EXECUTIVE COMPENSATION.....................................23
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.............................................24
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............25
PART IV
ITEM 13 EXHIBITS...................................................26
ITEM 14 PRINCIPAL ACCOUNTANT FEES & SERVICES.......................26
SIGNATURES.................................................27
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. Some of the statements contained in this 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 which 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 June 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.
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. It was jointly owned by
Scott Deru and Terry Deru from
3
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 36 1/2% interest in Prime and Mr. Campbell
a 23% interest in Prime.
In order to take advantage of some economies of scale and to work more
cohesively in cross-selling to the respective client base of Belsen Getty, Inc.
and Fringe Benefit, 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, LLC. 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% interest in Prime, Inc.
4
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 for and to Prime. The other
stockholders are Mr. Terry Deru, 1,000,000 shares; Mr. Scott Deru, 1,000,000
shares; and Mr. Don Deru, 50,000 shares. Fringe Benefit and Belsen Getty
continued under their existing LLC 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 a consultant. Mr. Terry Deru
will act as the manager for Prime Ret., LLC.
Over the past three years, Belsen Getty has contributed approximately
14 % of the present revenues to Prime and Fringe Benefit has contributed the
remaining 86% of net revenue to Prime.
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.
5
Initial Public Offering (IPO):
The company completed its initial public offering in July, 2003
pursuant to all SEC, SB-2 registration in which it raised $750,000 in gross
proceeds and $709,664 in net proceeds. It has only expended, as of March 1,
2005, approximately $304,854 or approximately 43 % of net proceeds. The
expenditure of offering proceeds is more particularly treated under the Rule 463
disclosures of Management's Plan of Operation.
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 as previously described in the Company
history. 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 advertising.
In November of 2002, Belsen Getty received 684,000 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 Prime Resource, Inc., the parent entity to Belsen Getty, by
6
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 limited public trading by
NBI. The operations of NBI are in the early development stage and management has
estimated the value of the shares at 15% of the comparable free-trading shares.
Any gains realized by Prime from the disposition of NBI shares will be
recognized at the time of sale or disposition. Gains actually realized upon
disposal of the shares through sales could vary from a loss of $10,000 to a gain
of $1.3 Million based on a non discounted share value.
Belsen Getty is currently managed by Mr. Terry Deru and has seven
full-time and one part-time employee.
Fringe Benefit Analysts Business
Fringe Benefit 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 currently has thirteen full-time employees, two
part-time employee and over fifty-two sub-agents who act as independent
contractors in various insurance lines. Part of the proceeds raised in the IPO
are intended to 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.
Fringe Benefit is currently managed by Mr. Scott Deru, has fifteen
employees and approximately 52 agents.
Prime Retirement Services Business:
Prime Retirement Services intends to provide daily update services for
qualified plans and the creation of software related to such plans. 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, Prime Retirement has no independent employees.
7
PRODUCTS AND MARKETS
I. Prime Resource, Inc.
As the parent management entity for its subsidiaries, Prime does not
have any significant independent income and derives its income from its
subsidiary operations as defined and described previously and 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.
For the calendar year ending 2004 Belsen Getty would estimate that
approximately $621,864 or 12% of Prime's revenues were derived from Belsen Getty
activities. Of these amounts approximately $357,980 or 57 % of its revenues were
derived from direct financial advisory services, approximately $263,467 or 43%
were derived from pension retirement consulting services. Belsen Getty also
contributed approximately $267,801 in realized and unrealized gains to Prime, of
which approximately $261,832 are unrealized gains, these gains are from equity
positions received from business consulting and capital formation services and
certain investments made by Belsen Getty. Approximately 15 % of the business
performed by Belsen Getty is 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 2004 that its total
contribution to the revenues of Prime was approximately $4,788,355 or 88%.
Approximately 27 % of the services performed by Fringe Benefit Analysts 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 may engage in daily accounting and reporting services for pension
and related plans and the
8
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.
V. Red Rock, LLC
Red Rock, LLC is a holding entity owned by Prime that captures certain
commissions generated through referrals to property & casualty insurance agents.
In 2004, collections in Red Rock were $2,049 and have been included in Fringe
Benefit Analysts revenues. There are no separate employees for Red Rock.
PLAN OF OPERATION
Prime intends generally to attempt 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 may
also employ a substantial portion of the net proceeds from its recent IPO. The
company currently has approximately $373,471 of its initial net offering
proceeds of $709,664.00 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. These
intended allocations may be affected by current merger or acquisition proposals
being considered by the company, but concerning which there is no definitive
agreement as of the date of filing of this report. See following Section 8B for
further discussion and information on alternative business possibilities.
To date, Prime has not expended the majority of its offering proceeds
in making acquisitions as intended due to the softness of the insurance market.
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.
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
It should 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
9
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 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 affect 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 &
McClellen 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.
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 incentive 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"). UBA is a
national affiliation of independent health insurance providers. It is hoped that
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 21
full-time personnel, 3 part-time personnel and approximately 52 insurance agents
as of the date of this report. These numbers also include officers of the
corporation employed on a full-time basis.
10
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 or special reports filed by the company with the SEC.
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.
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
investment advisor and has 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").
11
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 $709,664.00. As
of March 1, 2005, the company has expended approximately $336,193 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 $ 373,471. 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.
As previously noted, the company in 2004 and the first quarter of 2005
did not employ any substantial offering proceeds for the acquisition of new
insurance companies or "books of business" due to the generally weak insurance
market and opportunities which management thought were unattractive. The company
is further deferring expenditures of offering proceeds pending the outcome of
current merger or acquisition discussions.
Item 2. DESCRIPTION OF PROPERTY
Prime presently maintains a leasehold estate 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
$4,928 month.
In addition to the foregoing leasehold estate, Prime owns various
office furnishings and equipment which would value at approximately $162 903.
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.
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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 until June of 2004. In its June 2004 Shareholder Meeting,
Prime shareholders elected the current Board and ratified the continuation of
the current auditors to the company. Any interested party may review the minutes
of that meeting and obtain a copy by contacting the company.
Part II
Item 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
After substantial delay by the NASD, Prime commenced trading on the
over the counter Electronic Bulletin Board (OTCBB) on May 28, 2004. Its trading
symbol is PRRO. Following is a table of the trading ranges for its shares in
calendar year 2004:
High Low
Q2 $6.00 $5.50
- ----------------- ------------------ ------------------
Q3 $6.90 $5.50
- ----------------- ------------------ ------------------
Q4 $6.25 $5.90
- ----------------- ------------------ ------------------
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, 2004 Prime had assets of $1,826,977. At December 31,
2004, the company's current assets totaled $1,573,737 compared to current
liabilities of $585,849. Working capital at December 31, 2004 totaled $987,888,
an increase of 39% compared to
13
$710,536 at December 31, 2003. The company had a current ratio at December 31,
2004 of approximately 2.7. The long-term debt of the company as of December 31,
2004 was $32,277 and the retained earnings were $379,179. As of December 31,
2004, its approximate market valuation was $ 16,284,950 based upon limited
trading.
At December 31, 2004, 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, subject to the
prior discussion and notice of ongoing merger and acquisition negotiations.
Prime, should it continue in its existing business, intending 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 2005 to the growth of other aspects of its business. 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 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 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 were 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 2004 totaled $5,248,880, an increase of $1,396,386 from
calendar year 2003. There was also $267,682 in realized and unrealized gains in
trading securities, approximately $261,832 of which are unrealized. Net income
for 2004 totaled $285,028 compared to $ 101,851 in 2003. 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 sectors. The individual sector revenue
and profit breakdowns for these subsidiaries are set-out as follows:
14
CALENDAR YEAR REVENUES PRE-TAX % OF PRIME
2004 INCOME TOTAL REVENUES
(LOSS)
- ----------------------------------------- --------------------- --------------------- -----------------
Fringe Benefit Analysts 4,788,355 553,600 88 %
- ----------------------------------------- --------------------- --------------------- -----------------
Belsen Getty 621,864 92,515 12%
- ----------------------------------------- --------------------- --------------------- -----------------
Prime Resource, Inc 16,245 (191,449) 0%
- ----------------------------------------- --------------------- --------------------- -----------------
CALENDAR YEAR REVENUES PRE-TAX % OF PRIME
2003 INCOME TOTAL REVENUES
(LOSS)
- ----------------------------------------- --------------------- --------------------- -----------------
Fringe Benefit Analysts 3,329,844 566,913 87%
- ----------------------------------------- --------------------- --------------------- -----------------
Belsen Getty 485,320 (245,948) 13%
- ----------------------------------------- --------------------- --------------------- -----------------
Prime Resource, Inc 31,330 (214,360) 0%
- ----------------------------------------- --------------------- --------------------- -----------------
15
The net operating profit margin for Prime was approximately 3.2% in
2004 with Belsen Getty having a negative net operation profit margin of
approximately (3.4)%, Fringe Benefit Analysts margin being approximately 10.2%
and Prime Resource's net operating profit margin being (3.6%).
Expenses for the company primarily involved executive salaries,
commissions and operation of the business offices, including general salaries
and overhead. These expenses for 2004 can be set-out and compared with 2003 in
the following table:
% CHANGE
BETWEEN
2004 2003 2003 & 2004
- -------------------------------------- ----------- ----------- -------------
Officers' salaries and compensation 827,526 690,000 20%
- -------------------------------------- ----------- ----------- -------------
Commissions 3,218,717 1,972,966 63%
- -------------------------------------- ----------- ----------- -------------
General operating expenses 507,511 444,421 14%
- -------------------------------------- ----------- ----------- -------------
TOTALS 4,553,754 3,107,387 47%
- -------------------------------------- ----------- ----------- -------------
Prime does not segregate or maintain its expenses on a subsidiary
division basis, but would acknowledge that the principal expenditure for
commissions are almost entirely paid to Fringe Benefit Analysts. The company
believes that the pro rata portion for the other expenses for each of the
operating entities would be roughly proportional to the revenues for those
entities.
RECENT ACCOUNTING PRONOUNCEMENTS
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.
16
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The primary risk faced by the Prime 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.
Secondly, 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.
Thirdly, Prime is experiencing a limitation on its growth potential to
the extent present management is not finding suitable growth opportunities by
expanding its insurance base through acquisitions paid from net offering
proceeds.
Item 7. FINANCIAL STATEMENTS
Following are the Financial Statements prepared for Prime by its
independent auditors and passed upon by management of the company. 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.
17
Prime Resource, Inc. and Subsidiaries
Consolidated Financial Statements
with
Independent Auditors' Report Thereon
Years Ended December 31, 2004 and 2003
Prime Resource, Inc. and Subsidiaries
Consolidated Financial Statements
December 31, 2004
Contents
Report of Independent Registered Public Accounting Firm......................F-1
Consolidated Financial Statements:
Consolidated Balance Sheet...........................................F-2
Consolidated Statements of Operations................................F-3
Consolidated Statements of Stockholders' Equity......................F-4
Consolidated Statements of Cash Flows................................F-5
Notes to Consolidated Financial Statements ..................................F-7
Report of Independent Registered Public Accounting Firm
To the Board of Directors
Prime Resource, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Prime Resource,
Inc. and Subsidiaries as of December 31, 2004, and the related consolidated
statements of operations, stockholders' equity and cash flows for the years
ended December 31, 2004 and 2003. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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, 2004, and the results of its operations and
its cash flows for the years ended December 31, 2004 and 2003, in conformity
with accounting principles generally accepted in the United States of America.
Child, Sullivan & Company
Kaysville, Utah
March 23, 2005
F-1
Prime Resource, Inc. and Subsidiaries
Consolidated Balance Sheet
December 31, 2004
ASSETS
Current assets:
Cash and cash equivalents $ 827,404
Accounts receivable 434,214
Interest receivable 11,333
Trading securities (Note 2) 291,016
Income taxes receivable (Note 11) 9,770
Other current assets -
-----------
Total current assets 1,573,737
Leasehold improvements and equipment, net of accumulated
depreciation and amortization of $150,322 (Note 3) 162,903
Notes receivable 40,000
Deferred tax assets (Note 11) 37,233
Other assets 13,104
-----------
Total assets $ 1,826,977
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 40,691
Accrued compensation, commissions and benefits 386,329
Deferred tax liabilities (Note 11) 112,914
Current portion of notes payable, including line of credit (Note 4) 45,915
-----------
Total current liabilities 585,849
Notes payable, excluding current portion (Note 4) 32,277
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 379,179
-----------
Total stockholders' equity 1,208,851
-----------
Total liabilities and stockholders' equity $ 1,826,977
===========
See notes to consolidate financial statements.
F-2
Prime Resource, Inc. and Subsidiaries
Consolidated Statements of Operations
Years ended December 31,
2004 2003
------------- -------------
Revenues
Commissions $ 4,780,855 $ 3,329,844
Investment and business advisory fees 628,948 485,320
Interest and dividends 16,661 25,284
Other income - 6,046
------------- -------------
5,426,464 3,846,494
Expenses
Commissions 3,218,717 1,972,966
Compensation and benefits 1,317,606 1,122,312
General and administrative 507,511 444,421
Occupancy and related expenses 145,499 132,733
Interest 3,679 14,015
Depreciation and amortization 49,868 48,192
------------- -------------
5,242,880 3,734,639
------------- -------------
Net operating income 183,584 111,855
Gains and (losses)
Realized gains on trading securities 5,848 -
Unrealized gains on trading securities 261,832 1,927
Net gains from disposal of fixed assets 3,402 (7,177)
------------- -------------
Net gains (losses) 271,082 (5,250)
------------- -------------
Net income before income tax expense 454,666 106,605
Income tax expense 169,638 4,754
------------- -------------
Net Income $ 285,028 $ 101,851
============= =============
Weighted average shares outstanding 2,934,000 2,875,000
Basic and fully diluted net income per share $.15 $.04
See notes to consolidated financial statements.
F-3
Prime Resource, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
Retained
Common Stock Treasury Earnings
Shares Amount Stock (Deficit) Total
------------ ------------ ------------ ------------- ------------
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
Shaes 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
Net income - - - 285,028 285,028
------------ ------------ ------------ ------------- ------------
Balance at December 31, 2004 2,934,000 $ 907,427 $ (77,755) $ 379,179 $ 1,208,851
============ ============ ============ ============= ============
See notes to consolidated financial statements.
F-5
Prime Resource, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Years ended December 31,
2004 2003
-------------- ----------------
Cash Flows From Operating Activities:
Net income $ 285,028 $ 101,851
Adjustments to reconcile net income to cash used in operating activities:
Depreciation and amortization 49,868 48,192
Bad debt expense - 7,721
Non-cash compensation - 10,086
Receipt of client stock for services rendered - (6,003)
(Gain) loss on disposal of assets (3,402) 7,177
Unrealized gain on trading securities (261,832) (1,927)
Realized gain on sale of trading securities (5,848) -
Interest income on loans to related parties - (11,247)
Changes in operating assets and liabilities:
Trade and other accounts receivable (96,271) (208,649)
Other current assets 10,000 (1,054)
Income taxes receivable 23,584 (32,498)
Deferred tax assets 800 (12,422)
Accounts payable 32,367 (64,028)
Accrued liabilities and compensation 104,772 138,817
Deferred tax liabilities 88,386 93
-------------- ----------------
Net cash provided by (used in) operating activities 227,452 (23,891)
-------------- ----------------
Cash Flows From Investing Activities:
Purchases of equipment and leasehold improvements (43,581) (18,508)
Proceeds from sale of trading securities 354,443 -
Purchases and reinvestments of trading securities (96,603) (273,246)
-------------- ----------------
Net cash provided by (used in) investing activities 214,259 (291,754)
-------------- ----------------
Cash Flows From Financing Activities:
Payments on notes payable to related parties - (72,149)
Payments on note payable (3,795) (1,728)
Net proceeds from stock offering - 709,664
Net (payments) borrowings on line of credit (9,915) (5,474)
-------------- ----------------
Net cash provided by (used in) financing activities (13,710) 630,313
-------------- ----------------
Net increase in cash and cash equivalents 428,001 314,668
Cash and cash equivalents at beginning of year 399,403 84,735
-------------- ----------------
Cash and cash equivalents at end of year $ 827,404 $ 399,403
============== ================
Continued
See notes to consolidated financial statements.
F-5
Prime Resource, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (continued)
Years ended December 31,
2004 2003
-------------- ----------------
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $ 3,679 $ 13,109
============== ================
Cash paid for taxes $ 56,868 $ 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
============= ================
Company vehicle purchased and financed through a
trade-in $6,500 and a note payable $30,821 $ 37,321 $ -
============= ================
See notes to consolidated financial statements.
F-6
Prime Resource, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
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
On April 4, 2002, the Company was reorganized from a limited liability company
to a corporation. The Company was authorized to issue 50,000,000 shares of a
single class of common stock with no par value. The Company issued 2,800,000 of
such shares to existing members representing the entire ownership interest of
the Company at the time of incorporation. As there was no change in control of
the organization, the value of the stock, issued in the reorganization, was
based on the 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. Significant estimates that may change dramatically in the near term
are estimates of unrealized gains and losses on trading securities and resulting
deferred tax assets and liabilities, as well as the value of shares received for
services. Gains actually realized upon the eventual disposal of these
investments could vary from a loss of $10,000 to a gain of $1.3 million based on
non-discounted share values.
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, 2004 and 2003 cash and cash equivalents of
$335,861 and $308,336, respectively, were either not covered by federal
insurance or exceeded those limits.
F-7
Prime Resource, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
1. Significant Accounting Policies (continued)
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.
The Company considers the liquidity and volume of publicly traded securities and
discounts those securities from 0 to 100 percent accordingly. Non-publicly
traded securities are valued at subsequent financing round prices less a
liquidity discount of 50 to 85 percent. Management has adopted these policies
and modifies them periodically based on historical experience.
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 5-7
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 any
impairment is recognized.
Notes Receivable
Notes receivable consisted of one note for $40,000 at December 31, 2004 and
2003. This note has a stated interest rate of 10% per year on outstanding
principle resulting in $11,333 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
collectability of any or all portions of
F-8
Prime Resource, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
1. Significant Accounting Policies (continued)
Notes Receivable (continued)
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 charged 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 is 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 agency agreements as commission revenue and the portion paid
to its licensed agents as commission expense.
F-9
Prime Resource, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
1. Significant Accounting Policies (continued)
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 4% of its revenues.
The Company's largest insurance carriers that pay the commissions on insurance
sales generate 34%, 29%, and 11% of its annual insurance commissions revenues.
Investment advisory fees make up approximately 11% of the Company's total
revenues and no one individual or customer accounts for more than approximately
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, 2004 and 2003.
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 and 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
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
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, 2004. The cost basis of trading securities at December 31, 2004
totaled $29,184. Unrealized gains on such securities for the year ended December
31, 2004 and 2003 totaled $261,832 and $1,927, respectively. Realized gains for
the year ended December 31, 2004 totaled $5,848. Dividends realized and
reinvested in 2004 and 2003 totaled $10,714 and $3,023, 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, 2004 and 2003; 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 has estimated the value
at 15% of the value of comparable free-trading shares. Any gains realized by
Prime from the disposition of MPLS shares will be recognized at the time of sale
or disposition.
F-11
Prime Resource, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
3. Leasehold Improvements and Equipment
Leasehold improvements and equipment and related accumulated depreciation and
amortization at December 31 consists of the following:
2004 2003
-------------- ---------------
Leasehold improvements $ 35,182 $ 31,980
Furniture and equipment 134,779 118,373
Computer equipment and software 78,390 54,419
Vehicles 64,874 44,451
-------------- ---------------
313,225 249,223
Accumulated depreciation and amortization (150,322) (114,256)
-------------- ---------------
$ 162,903 $ 134,967
============== ===============
4. Notes Payable
The Company had notes payable outstanding to three financial institutions as of
December 31, 2004:
Note payable, bearing interest at 2.9% per annum,
principle and interest payments of $552 due on the 2nd
of each month, maturing September 2, 2009. The note
is collateralized by a company vehicle with a net book
value of $34,212. $28,903
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 $18,830. 12,817
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, 2005. 36,472
----------
Total notes payable 78,192
Less current portion (45,915)
---------
Total long-term notes payable $ 32,277
=========
F- 12
Prime Resource, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
4. Notes Payable (continued)
Schedule of notes payable principal maturities:
Year ended
December 31,
- -------------------------
2005 $ 45,915
2006 9,685
2007 9,934
2008 8,286
2009 4,372
Thereafter -
---------
$ 78,192
=========
Management expects to refinance the bank line of credit that matures on March 5,
2005 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.
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. 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 $29,276 and $30,273 for 2004 and 2003,
respectively.
F-13
Prime Resource, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
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,
2004 2003 2004 2003
---------------- ----------------- ----------------- ----------------
Revenues $ 621,864 $ 485,320 $ 4,788,355 $ 3,329,844
Expenses 797,150 733,195 4,234,755 2,755,754
---------------- ----------------- ----------------- ----------------
Operating profit (loss) (175,286) (247,875) 553,600 574,090
Other gains (losses),
including unrealized gains 267,801 1,927 - (7,177)
---------------- ----------------- ----------------- ----------------
Income (loss) before tax 92,515 (245,948) 553,600 566,913
Income tax expense (benefit) 34,523 (10,969) 206,508 25,284
---------------- ----------------- ----------------- ----------------
Net income (loss) $ 57,992 $ (234,979) $ 347,092 $ 541,629
================ ================= ================= ================
Other Consolidated
----------------------------------- -----------------------------------
Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31,
2004 2003 2004 2003
---------------- ----------------- ----------------- ----------------
Revenues $ 16,245 $ 31,330 $ 5,426,464 $ 3,846,494
Expenses 210,975 245,690 5,242,880 3,734,639
---------------- ----------------- ----------------- ----------------
Operating profit (loss) (194,730) (214,360) 183,584 111,855
Other gains (losses),
Including unrealized gains 3,281 - 271,082 (5,250)
---------------- ----------------- ----------------- ----------------
Income (loss) before tax (191,449) (214,360) 454,666 106,605
Income tax expense (benefit) (71,393) (9,561) 169,638 4,754
---------------- ----------------- ----------------- ----------------
Net income (loss) $ (120,056) $ (204,799) $ 285,028 $ 101,851
================ ================= ================= ================
F-14
Prime Resource, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
7. Segment Information (continued)
Depreciation expense for the year ended December 31, 2004 was $24,666, $23,898,
and $1,304 at the asset management, insurance products and other segments,
respectively.
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.
Total assets by segment:
2004 2003
---------------- -----------------
Asset Management $ 401,078 $ 181,560
Insurance Products 398,031 369,180
Other 1,027,868 748,573
---------------- -----------------
$ 1,826,977 $ 1,299,313
================ =================
Expenditures for long-lived assets by segment during the year ended December 31,
2004 were as follows: Asset management $39,081 Insurance products $41,822 and
other $0.
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, 2004 and 2003 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.
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
F-15
Prime Resource, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
9. Related Party Transactions (continued)
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.
Notes Payable
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, 2004 and 2003, Prime made royalty payments
totaling $196,000 and $96,000, respectively, to two partnerships, which are
related to controlling shareholders and officers of the Company. 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 net
rent paid for this location was approximately $32,474 and $32,886 in 2004 and
2003, respectively. The initial lease term ended in March of 2004 and is
currently month to month. 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. Net rent expense, under
these leases, totaled $ 90,537 and $90,999 for the years ended December 31, 2004
and 2003, respectively.
The Company has also entered into license agreements on software and web-based
access for the Company's clients to review, research and analyze their insurance
coverage plan(s). The terms of these agreements are cancelable with written
notice generally required from 30-90 days prior to cancellation.
F-16
Prime Resource, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
10. Commitments and Contingencies (continued)
Future minimum payments required under the non-cancellable lease agreement as of
December 31, 2004 are as follows:
Year Ended
December 31,
2005 $ 59,142
2006 59,142
2007 24,643
---------------
Total $ 142,927
===============
11. Income Taxes
Income tax expense (benefit) comprises 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
============== ============== =============
Income tax expense (benefit) comprises the following for the year ended December
31, 2004:
Current Deferred Total
------------- ------------- -------------
U.S. Federal $ 68,631 $ 78,038 $ 146,669
State 11,821 11,148 22,969
------------- ------------- -------------
$ 80,452 $ 89,186 $ 169,638
============= ============= =============
Total income tax expense differs from the amounts computed by applying the U.S.
federal tax income rate of 35 percent to pretax income as a result of the
following:
Year Ended December 31,
2004 2003
------------- -------------
Federal income tax expense
(benefit) at statutory rate $ 159,133 $ 37,312
Benefit of graduated rates (14,114) 8,246
Redetermination of prior year taxes - (36,984)
Other non-deductible and non-includable items 1,650 (70)
State taxes, net of federal benefit 22,969 (3,750)
------------- -------------
Total $ 169,638 $ 4,754
============= =============
F-17
Prime Resource, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2004 and 2003
11. Income Taxes (continued)
The tax effects of temporary differences that give rise to significant portions
of deferred tax assets and liabilities at December 31, 2004 and 2003 are as
follows:
2004 2003
------------- -------------
Current deferred tax assets (liability):
Accounts receivable $ (178,219) $ (139,710)
Accounts payable 16,277 3,330
Accrued liabilities 154,532 112,623
Unrealized gains (105,504) (771)
------------- -------------
Net current deferred tax asset (liability) $ (112,914) $ (24,528)
============= =============
Long-term deferred tax assets (liability):
Depreciation differences $ (14,278) $ (13,478)
Deferred income-stock compensation 51,511 51,511
------------- -------------
Net long-term deferred tax asset (liability) $ 37,233 $ 38,033
============= =============
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.
Income taxes receivable arise when estimated pre-payments exceeds the Company's
current tax liability.
F-18
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 appear 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.
(c) Should the company subsequently seek a listing on an exchange or any full
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.
18
Item 8B. OTHER INFORMATION
Prime has elected to use this Section of the 10-KSB report to include
various additional information and potential risks which the company deems to be
significant to the present operation of Prime, even if such specific matters
would not have been required to be disclosed as part of an 8-K Disclosure
package or otherwise in the Company's current public information.
Prime believes the most significant factor for shareholders, potential
shareholders and other interested parties to understand is that the company is
in a transitional period. The Company has not utilized the balance of its public
offering proceeds for acquisitions of additional insurance entities or "books of
business" due to the generally soft nature of the market and the determination
by management that potential business acquisitions are not reasonably valued.
The company is still actively reviewing and seeking potential acquisition
opportunities of existing insurance businesses or books of business of insurance
and will utilize offering proceeds for that purpose when and if suitable
business opportunities are determined. The company has no way of projecting or
affirming how long the period may extend before suitable opportunities are
discovered.
In the interim, Prime has begun to engage in preliminary discussions
with various unrelated third parties about potential acquisitions of assets or
merger of the company which may mean a change of management and business
purposes if a proposal is subsequently adopted by the Board and approved by the
requisite shareholder vote. The company is not in a position to disclose any
details of these preliminary discussions as no affirmative letter of intent has
been entered. The company does believe it is significant, however, that
shareholders understand the company is actively pursuing such discussions at
this time due to the previously discussed inabilities to grow the company
through acquisitions as initially intended and as discussed above. The company
makes no projections or representations as to when or if such merger, and/or
acquisition, discussions will be fruitful, but each shareholder is advised that
upon any successful completion of a letter of intent or similar type of
commitment will require the company to post a notice as a press release and 8-K
filing report. Upon approval by the Board of Directors of a plan of material
acquisition or merger, the company would then, in most instances where
shareholder vote is required, notify the shareholders of the actions to be taken
and schedule a meeting for shareholder vote on the proposal. The company is
committed to keeping shareholders apprised of developments as to prospective
negotiations as they may be affirmatively entered, but is prohibited from
discussing these matters as long as they remain preliminary negotiations.
If Prime is not successful in finding a suitable merger or acquisition
procedure, then the company may also have to consider modifying the remaining
use of net proceeds if alternative insurance opportunities are not currently
available to the company. The company believes that it can alter and modify the
remaining use of proceeds without formal shareholder approval pursuant to the
general business discretion granted to the Board of Directors to employ company
proceeds for productive business purposes. It is, however, the intent of the
company to keep advising shareholders of any significant developments which
would alter or amend the use of proceeds by the company in the future.
19
The company does not believe that it is presently engaged in any
activities which would raise new or other significant risk factors to the
company's present operations, but will include any new or significant changes in
business structure or activities which would raise the risk factors as part of
its periodic filing requirements.
PART III
Item 9. DIRECTORS, 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 CURRENT TERM OF OFFICE
- ----------------------------------- ------------------------------------- --------------------------------------------
Mr. Terry Deru* Director, CEO/President/ Appointed Director in Organizational
Chairman of the Board Minutes-April, 2002, elected in 2004.
Will serve as a Director until next election,
2005 annual meeting not yet set. Will serve
as an officer pursuant to leave of the Board
of Directors.
- ----------------------------------- ------------------------------------- --------------------------------------------
Mr. Scott Deru* Director/V.P. Operations Appointed Director in Organizational
Minutes-April, 2002, elected 2004.
Will serve as Director until next
election, 2005annual meeting not yet
set. Will serve as an officer pursuant
to leave of the Board of Directors.
- ----------------------------------- ------------------------------------- --------------------------------------------
Mr. Andrew Limpert* Director/Treasurer/Secretary/ Appointed Director in Organizational
CFO Minutes-April, 2002, elected 2004..
Will serve as Director until next election,
2005 annual meeting not yet set. Will
serve as an officer pursuant to leave of
the Board of Directors.
- ----------------------------------- ------------------------------------- --------------------------------------------
*Mr. Scott Deru and Mr. Terry Deru are brothers. Mr. Limpert was not an owner of
Prime, LLC, but acted as an advisor to Prime, LLC and has become a shareholder
of Prime Resource, Inc., the successor entity to Prime, LLC.
20
BIOGRAPHICALS
TERRY M. DERU - PRESIDENT
Age: 50
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 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 set-out 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: 44
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.
21
MR. ANDREW W. LIMPERT - CHIEF FINANCIAL OFFICER Age : 35
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
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:
BELSEN FRINGE PRIME 1 PRINCIPAL
NAME PRIME GETTY BENEFIT RETIREMENT 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
- ------------------------- ------------- --------------- ----------------- --------------------- ------------------------
1On an incidental basis, Mr. Terry Deru is engaged in informal research on the
intended services and software for this entity on his own time.
22
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:
Item 10. EXECUTIVE COMPENSATION
Name and Principal Year Salary(1) Bonus Other Annual Restricted Securities LTIP Other
Position Compensation Stock Underlying Payouts (Loans)
Awards(s) Options
- ----------------------------- --------- ------------- ---------- ----------------- ------------- ------------ ---------- --------
2004 $191,741 $98,000* __ __ __
Mr. Terry Deru, 2003 $240,000 __ __ __ __ __ 0
President 2002 $240,000 __ __ __ __ __
2001 $262,000 __ __ __ __ __
- ----------------------------- --------- ------------- ---------- ----------------- ------------- ------------ ---------- --------
2004 $213,405 $22,000 $98,000* __ __ __
Mr. Scott Deru,, Secretary 2003 $240,000 __ __ __ __ __ 0
2002 $240,000 __ __ __ __ __
2001 $240,000 __ __ __ __ __
- ----------------------------- --------- ------------- ---------- ----------------- ------------- ------------ ---------- --------
2004 $204,380 __ __ __ __ __
Mr. Andrew Limpert, 2003 $210,000 __ __ __ __ __ 0
Treasurer 2002 $165,000 __ __ __ __ __
2001 $118,000 __ __ __ __ __
- ----------------------------- --------- ------------- ---------- ----------------- ------------- ------------ ---------- --------
* Per previous royalty agreement for contribution of proprietary benefits
products.
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 $240,000 in 2002. He also received this salary 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 after the restructuring
of Prime Resource to fix their salaries at these levels as evidenced by an
23
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.
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 stoc 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.
24
Title of Class Name and Address of Owner Current Shares Current Percentage of
Owned Outstanding
(Rounded)
- ------------------------- ------------------------------------------- --------------------- --------------------------
Common Stock Terry Deru
99 Cove Lane 974,000 33%
Layton, Utah 84040
- ------------------------- ------------------------------------------- --------------------- --------------------------
Common Stock Scott Deru
6855 N. Frontier Drive 999,500 34%
Mountain Green, Utah 84050
- ------------------------- ------------------------------------------- --------------------- --------------------------
Common Stock Andrew Limpert
8395 S. Parkhurst Circle 717,900 24%
Sandy, Utah 84094
- ------------------------- ------------------------------------------- --------------------- --------------------------
Common Stock Officers and Directors as 2,691,400 91%
a Group2
- ------------------------- ------------------------------------------- --------------------- --------------------------
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.
25
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 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.
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 in June, 2004, the Board of Directors decided to
affirm the continuance of Child, Sullivan & Company of 1284 West Flint Meadow
Drive, Suite D, Kaysville, Utah 84037 as the independent auditors. This action
was ratified by shareholder vote in June, 2004.
For the calendar year 2004, the accounting firm of Child, Sullivan &
Co. charged the company a total of $29,024.50 for independent accounting and
auditing fees. As noted above, the company has no material disagreements with
its auditing firm as to the financial statements contained in this annual
report.
26
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 2004
(a) Exhibit Index:
Exhibit No.
(3.1)Articles of Incorporation of Registrant. Earlier filed and
incorporated as part of SB-2 Registration Statement. (4/2003)
(3.2)By-Laws of Registrant. Earlier filed and incorporated as part of SB-2
Registration Statement.
(10) Material contracts. Earlier filed and incorporated as part of SB-2
Registration Statement.
(23) Consent of Experts and Counsel. Attached.
(31 & 32) Certifications. Attached.
27
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.
Dated: March 31, 2005 By: /s/ Terry Deru
-----------------
Terry Deru, President
Chief Executive Officer
Dated: March 31, 2005 By: /s/ Andrew Limpert
Andrew Limpert
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
the following persons on behalf of the Registrant and in the capacities and on
the date indicated have signed this report below:
Dated: March 31, 2005 By: /s/ Terry Deru
Terry Deru, Chairman
Dated: March 31, 2005 By: /s/ Scott Deru
Scott Deru, Director
Dated: March 31, 2005 By: /s/ Andrew Limpert
Andrew Limpert, Director
28
CERTIFICATION PURSUANT 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 annual report.
(4) The Registrant's other certifying officers 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 have:
(a) designed such disclosure controls and procedure 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 and the audit
committee of Registrant's board of directors:
(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
29
report financial data and have identified for the Registrant's
auditors any material weaknesses in internal controls; and
(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.
Dated: March 31, 2005
By: /s/ Terry M. Deru
Terry M. Deru, Chief Executive Officer
30
CERTIFICATION PURSUANT 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 annual report.
(4) The Registrant's other certifying officers 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 have:
(a) designed such disclosure controls and procedure 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 and the audit
committee of Registrant's board of directors:
(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
31
report financial data and have identified for the Registrant's
auditors any material weaknesses in internal controls; and
(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.
Dated: March 31, 2005
By: /s/ Andrew Limpert
Andrew Limpert, Chief Financial Officer
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, 2004, as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), Mr. Terry
M. Deru, Chief Executive Officer of the Company, certify, 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, 2005 BY: /s/ Terry Deru
---------------------------------------------
Terry Deru, Chief Executive Officer
33
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, 2004, as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), Mr. Terry
M. Deru, Chief Executive Officer of the Company, certify, 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, 2005 BY: /s/s Andrew Limpert
--------------------------------------------
Andrew Limpert, Chief Financial Officer
34