UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE PERIOD ENDED September 30, 2005 OR [] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD From to ------------------------ -------------------- Commission File Number 333-88480 PRIME RESOURCE, INC. -------------------- (Exact name of registrant as specified in its charter) Utah 04-3648721 ----- ----------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1245 East Brickyard Road, Suite 590 Salt Lake City, Utah 84106 (801) 433-2000 ---------------------------- -------------- (Address of principal executive officers) (Registrant's telephone number, including area code) None (Former name, former address and former fiscal year, if changed since last report) Securities registered pursuant to Section 12(b) of the Act: None Indicate by check mark whether the Registrant (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 has required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [] No Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 126-2 of the Exchange Act). [] Yes [X] No APPLICABLE ONLY TO CORPORATE ISSUERS Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. Common Stock: 2,955,990 shares issued and outstanding as of September 30, 2005, No Par Value. Authorized - 50,000,000 common voting shares. INDEX Prime Resource, Inc. For The Quarter Ending September 30, 2005 Part I. Financial Information Item 1. Financial Statements Consolidated Balance Sheets - Septembe 30, 2005 (Unaudited) and December 31, 2004. Consolidated Statements of Operations (Unaudited) - For the three months ended September 30, 2005, and for the three months ended September 30, 2004; and for the comparable nine month periods ending September 30, 2005 and September 30, 2004. Consolidated Statements of Shareholders' Equity as of December 31, 2004 through September 30, 2005 Consolidated Statements of Cash Flows (Unaudited) - For the nine months ended September 30, 2005, and for the nine months ended September 30, 2004. Notes to Condensed Financial Statements (Unaudited) - September 30, 2005 Item 2. Management's Discussion and Analysis o Financial Condition or Plan of Operation. Controls and Procedures Part II. Other Information Item 5. Other Matters Item 6. Exhibits and Reports on Form 8-K Signatures Certifications Part I - Financial Information Item 1. Financial Statements Prime Resource, Inc. Consolidated Balance Sheet (Unaudited) September 30, ASSETS 2005 --------------------- Current Assets: Cash $ 570,795 Accounts receivable 545,498 Interest receivable 62,333 Investments in marketable securities 330,854 Notes receivable, current 350,000 --------------------- Total Current Assets 1,859,480 --------------------- PROPERTY AND EQUIPMENT, NET 158,826 --------------------- Notes receivable 40,000 Deferred tax assets 37,233 Other assets 15,298 --------------------- Total assets $ 2,110,837 ===================== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 33,868 Accrued compensation, commissions and benefits 513,796 Income taxes payable 2,559 Deferred taxes payable 119,315 Notes payable, current portion 29,820 --------------------- Total Current Liabilities 699,358 --------------------- Long-term Liabilities: Notes payable, net of current portion 34,661 --------------------- Total Long-Term Liabilities 34,661 --------------------- Total Liabilities 734,019 --------------------- Common stock, no par value, 50,000,000 shares authorized, 2,983,850 shares issued and 2,955,290 outstanding 0 Additional Paid-In Capital 964,802 Treasury Stock (83,553) Retained earnings 495,569 --------------------- Stockholders' Equity 1,376,818 --------------------- Total Liabilities and Stockholders' Equity $ 2,110,837 ===================== Prime Resource, Inc. Consolidated Statements of Income (Unaudited)
For the Three For the Nine Months Months Ended Ended September 30, September 30, -------------------------------------------- ------------------------------------------ 2005 2004 2005 2004 -------------------- -------------------- ------------------- ------------------- REVENUES Commissions $ 1,690,409 $ 1,212,050 $ 4,862,975 $ 3,557,284 Investment and business advisory fees 164,942 155,314 502,915 480,249 Interest and dividends 43,552 3,951 64,578 11,687 Other income 0 0 0 0 -------------------- -------------------- ------------------- ------------------- Total Revenues 1,898,903 1,371,315 5,430,468 4,049,220 -------------------- -------------------- ------------------- ------------------- EXPENSES Commissions 1,267,202 788,398 3,577,322 2,299,183 Compensation and benefits 381,312 317,692 1,163,811 951,358 General and administrative 115,496 101,354 382,840 305,836 Occupancy expense 32,022 34,855 97,596 98,970 Depreciation expense 15,888 12,768 45,897 36,711 Interest expense 1,206 961 3,120 2,719 -------------------- -------------------- ------------------- ------------------- Total Expenses 1,813,126 1,256,028 5,270,586 3,694,777 -------------------- -------------------- ------------------- ------------------- Net operating income 85,777 115,287 159,882 354,443 -------------------- -------------------- ------------------- ------------------- GAINS AND LOSSES Realized gains on trading securities 0 505 (111) 1,368 Unrealized gains on trading securities 23,192 3,402 5,797 3,402 -------------------- -------------------- ------------------- ------------------- Total Gains (Losses) 23,192 3,907 5,686 4,770 -------------------- -------------------- ------------------- ------------------- Net income before income taxes 108,969 119,194 165,568 359,213 Income tax expense 25,536 69,564 49,178 151,612 -------------------- -------------------- ------------------- ------------------- Net income $ 83,433 $ 49,630 $ 116,390 $ 207,601 ==================== ==================== =================== =================== BASIC AND FULLY DILUTED NET INCOME PER SHARE $ 0.03 $ 0.02 $ 0.04 $ 0.07 ==================== ==================== =================== =================== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 2,945,475 2,934,000 2,937,825 2,934,000 ==================== ==================== =================== ===================
Prime Resource, Inc. Consolidated Statement of Stockholders' Equity (Unaudited) For the nine months ended September 30, 2005
Additional Retained Common Paid-in Treasury Earnings Total Stock --------------------------- Shares Amount Capital Stock (Deficit) Equity ------------ -------------- ------------- ------------- ------------- -------------- Balance, December 31, 2004 2,934,000 $ 0 $ 907,427 $ (77,755) $ 379,179 $ 1,208,851 Common stock issued for services 22,950 0 57,375 0 0 57,375 Treasury stock (960) 0 0 (5,798) 0 (5,798) Net income 0 0 0 0 116,390 116,390 ------------ -------------- ------------- ------------- ------------- -------------- Balance, September 30, 2005 2,955,990 $ 0 $ 964,802 $ (83,553) $ 495,569 $ 1,376,818 ============ ============== ============= ============= ============= ==============
Prime Resource, Inc. Consolidated Statements of Cash Flows (Unaudited)
For the nine months ended September 30, 2005 2004 ------------------ ----------------- Cash Flows From Operating Activities: Net income $ 116,390 $ 207,601 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 45,897 36,711 Change in deferred taxes 6,401 36,386 Issuance of shares for services 57,375 0 Realized loss on trading securities 111 0 Unrealized gains on trading securities (5,796) (1,368) Changes in assets and liabilities: Accounts receivable (111,284) (98,255) Interest receivable (51,000) (3,000) Income taxes receivable 9,770 33,354 Other assets (2,194) 9,000 Accounts payable (6,823) 36,166 Accrued expenses 127,467 56,191 Income tax payable 2,559 24,745 ------------------ ----------------- Net Cash Provided By Operating Activities 188,873 337,531 ------------------ ----------------- Cash Flows From Investing Activities: Notes receivable (350,000) 0 Treasury stock (5,798) 0 Purchase of trading securities (53,876) (105,215) Proceeds from sales of trading securities 19,723 3,376 Purchase of equipment (41,820) (27,889) ------------------ ----------------- Net Cash Used In Investing Activities (431,771) (129,728) ------------------ ----------------- Cash Flows From Financing Activities Payments on notes payable (13,711) (9,610) ------------------ ----------------- Net Cash Used In Financing Activities (13,711) (9,610) ------------------ ----------------- Net Increase (Decrease) In Cash And Cash (256,609) 198,193 Equivalents Cash And Cash Equivalents At Beginning Of Year 827,404 399,403 ------------------ ----------------- Cash And Cash Equivalents At End Of Period $ $ 570,795 $ 597,596 ================== ================= Supplemental Cash Flow Information: Cash paid for interest $ 3,120 $ 2,719 Cash paid for taxes $ 35,500 $ 83,000 NONCASH ACTIVITIES: Purchase of equipment with long term note payable $ 0 $ 30,822
Item 2. Management's Discussion and Analysis of Financial Condition or Plan of Operation Forward-Looking Information Certain statements in this Section and elsewhere in this report are forward-looking in nature and relate to trends and events that may affect the Company's future financial position and operating results. Forward Looking Statements are defined within the meaning of Section 27-A of the Securities Act of 1933 and Section 21-E of the Securities Act of 1934. The terms "expect,""anticipate,""intend," and "project" and similar words or expressions are intended to identify forward-looking statements. These statements speak only as of the date of this report. The statements are based on current expectations, are inherently uncertain, are subject to risks, and should be viewed with caution. Actual results from experience may differ materially from the forward-looking statements as a result of many factors, including changes in economic conditions in the markets served by the company, increasing competition, fluctuations in prices and demand, and other unanticipated events and conditions. It is not possible to foresee or identify all such factors. The company makes no commitment to update any forward-looking statement or to disclose any facts, events, or circumstances after the date hereof that may affect the accuracy of any forward-looking statement. Plan of Operation Prime Resource, Inc. ("Prime") is a Utah Corporation which was organized and filed of record on March 29, 2002 as a successor entity to Prime, LLC, (a Utah limited liability company). Prime is an integrated business entity that conducts all of its actual business activities through its wholly owned subsidiaries: Belsen Getty, LLC ("Belsen Getty") and Fringe Benefit Analysts, LLC ("FBA"). Prime Retirement Services, LLC, ("Prime Retirement") had previously been organized to potentially assume some of the core businesses or similar services of Prime, but it will not be organized or funded. Unless otherwise specifically described in this report, the reference to Prime shall collectively mean both Prime and its two current operating subsidiaries. The principal business activity of Prime has been, and will continue to be for the immediate future, providing insurance and related insurance products principally in the health, life, dental and disability areas, as well as implementing and managing various employee related benefit programs and plans, such as 401(k) retirement accounts. See description of probable reorganization below. The insurance activities of Prime are primarily conducted through FBA. FBA is licensed as an insurance broker. Belsen Getty supplies collateral services related primarily to formation and funding of pension and investment management programs, as well as retirement planning and general business and financial consulting. Belsen Getty is a registered investment advisory firm. Prime Retirement was a potential start-up consulting entity which has not commenced operations. The sector breakdown of revenues and profits by the two operating entities for comparative quarters is generally summarized below: FBA Analysts: 3rd Quarter 2005 Gross Revenues $1,712,185 Net Profits $322,274 3rd Quarter 2004 Gross Revenues $1,215,436 Net Profits $174,785 Belsen Getty: 3rd Quarter 2005 Gross Revenues $186,718 Net Profits $(205,884) 3rd Quarter 2004 Gross Revenues $155,879 Net Profits $(10,276) Historically, management intended to attempt to grow the company primarily through the acquisition of other insurance agencies into the FBA entity and by developing new client relationships. Concurrently, Belsen Getty attempted to expand its financial and business consulting and pension planning services principally by creating a more extensive investment advisory role. Prime Retirement Services has been abandoned. During the first and second quarters of 2005, it became increasingly clear to management that there were a paucity of suitable insurance agency acquisition opportunities that would meet the criteria of materially growing the revenue base of the company. As a result, the management has made a conscious decision to shift emphasis to explore potential merger or acquisition possibilities in unrelated areas as more fully discussed below. FBA continues currently negotiating potential marketing plans to expand its "Advantage Program" whereby it provides plan administration services along with selling insurance products. Further, FBA is allowing access to the Advantage Program for competitors for a negotiated percentage of their gross revenues. The company completed an initial public offering of its shares on June 16, 2003 in which it raised $750,000 in gross proceeds and $709,664 in net proceeds. Its stated intention was to employ the majority of these funds for acquisitions to grow its core insurance services and products as generally discussed above. During the third quarter of 2005, Prime has determined that these funds may be better employed enhancing current operations by upgrading programs, systems and equipment with the balance reserved for funding a more broad based pursuit of merger or acquisition possibilities. No proceeds of the offering are employed to pay for costs of day-to-day operations. To the date of this report, the company has expended approximately $709,664 of offering proceeds and has $0 remaining which is more particularly reported under Item 5 of this report pursuant to SEC Rule 463. To date, the company's long term growth and potential to realize profits was substantially dependent upon the ability of management of the company to successfully employ the proceeds of the public offering in a manner which will generate additional revenues and potential net income to Prime. No assurance or warranty of the success of Prime, in this regard, can be made or implied at this time. The company experienced a profit of $285,028 in calendar year 2004. For the third quarter of 2005 the company realized an after tax profit of $83,433 compared to a profit $49,630 in the comparable period of 2004. The current quarter net income of $ 83,433 on gross revenues of $ 1,898,903 was primarily attributable to the company's executive efforts to negotiate a reorganization and alternative business direction. The comparable revenues for the third quarter of 2004 were $1,371,315 and $49,630 in net income. We attribute the revenue growth primarily to the increased marketing of our services and products to new clients and the expanded operation of our "Advantage Program". Also, Prime has increased its client base and commissions through expanding it's affiliated agent base. Each person reviewing this report should understand that the company has only had periodic profits since 2003. The failure of the company to have a long history of profits and determination to seek other business activities should be considered as potential risk factors to any person acquiring securities of the company in that it does not have a proven or sustained profit history. Prime, including all subsidiaries, currently has 18 full-time employees, 1 part-time employee and 49 affiliated commission based insurance or other agents. As of September 30, 2005, the outstanding current liabilities of the company were $699,358 which is an increase of $ 113,509 over the year end of 2004. Liabilities increased slightly due to greater agent commissions and substantial costs related to reorganization activities. The company has an accumulated retained earnings from its inception as a corporate entity to September 30, 2005 of $495,569. Products and Markets As generally described above, the revenue sources to Prime are primarily divided into two categories. The first being the sale of a broad line of insurance products and services through FBA with a primary emphasis on group health, disability, dental and life policies. The second being the related investment and planning services of Belsen Getty. The insurance activities of Prime are primarily offered within the eleven western United States. Prime acts as a general agent through FBA for various companies in supplying the insurance policies and services. However, four companies account, collectively, for almost all of the policies provided by Prime. These four principal suppliers of policies to Prime are Altius Insurance, (previously Pacific Health Care); United Health Care; Intermountain Health Care and Regence Blue Cross. Commissions for the placement of these products range from approximately 2-20%. The company currently has, as of September 30, 2005, approximately 502 customers who are receiving ongoing insurance coverage and related services from FBA. FBA also has what it believes to be a unique program related to its insurance activities in which it acts as a plan developer and facilitator for various insurance programs such as COBRA, HIPAA and State continuation plans and other insurance related plans that require ongoing filing and consulting/management services. These services have previously been described as the "Advantage Program". FBA believes it has been successful in growing its business through supplying the advantage services at no additional cost to the insurance client. The company also believes it has been successful in maintaining a profit, while providing these services without additional cost to the client, by obtaining discounts from service providers who provide these ongoing management services. Belsen Getty supplies investment advisory and pension management services to various clients of Prime. Some, but not all, of these clients are referred by FBA incident to completion of insurance funded products sold to various individuals and entities which then require pension fund management. The compensation for these valuable services are derived on a fee basis. The fees range from 25 basis points to 125 basis points per year depending upon the size of the portfolio or program managed. There are no commissions paid on investment products and the assets are held by third party custodians, such as various brokerage firms. It is anticipated that the Belsen Getty portion of the business will grow concurrently with the growth of the FBA business, but for the foreseeable future will generate revenues substantially less than the FBA component of the business. As of September 30, 2005, FBA has approximately 502 customers and Belsen Getty has 490 clients. Liquidity and Sources of Capital As previously noted, the parent entity, Prime Resource, Inc., completed a public offering as of April 16, 2003 resulting in net proceeds to the company of $709,664. It was believed and anticipated that these proceeds would be sufficient to implement the general growth plan of the company, as generally described above, and which included acquisition of other insurance brokers, as well as the recruitment and training of insurance agents with existing books of business, clients, and established insurance markets. No warranty or assurance of the success of this proposed plan of operation can be made, but it is believed that there is sufficient existing capital in the company to implement this plan from the proceeds of the offering. Prime is presently in a position where it believes that its general revenues can sustain other business operations, including salaries, rent, utilities and other overhead costs, without the employment of offering proceeds for those general operating purposes. Since the first quarter of 2005 the company has decided to use the net proceeds on an as needed basis only to enhance existing business equipment or procedures and as may become necessary to pursue and analyze subsequent business opportunities. As of September 30, 2005 there remained $ 0 of net proceeds. The company has no present plans for any additional offering of its securities or other capital formation activities for the foreseeable future, other than generally described in the event of the share exchange discussed below. Further, the company does not significantly rely on lines of credit or other bank loans for its present operations and has total outstanding debt obligations, as of September 30, 2005, of approximately $64,481, while maintaining a net worth of approximately $1,376,818. Recent Developments The Company believes it is in the final negotiation stages of an anticipated reorganization with a private technology company. Prime believes it would be improper and potentially illegal to disclose or discuss any details of this potential reorganization until a final definitive agreement is reached and approved by the board. However, because the negotiation appear to be in a final stage with a high probability of the conclusion of a proposed reorganization to be presented shortly to shareholders, management has elected to outline the probable general terms of any such reorganization with the caveat that the final definitive terms are not presently agreed upon and will be presented to shareholders only through a proxy solicitation and publicly announced 8-K filing when and if a definitive agreement is reached. Within the limitations of this caveat, Prime indicates that it appears shareholders will be presented with a share exchange and resulting reorganization incorporating the following primary terms: 1. Prime would issue and exchange a preponderate majority of its shares to the private company shareholders to acquire the private technology company as a wholly owned subsidiary. 2 The existing Prime Principal shareholders would exchange back a majority of their shares for the existing assets and businesses of Prime; 3. Current shareholders would incur a dilution and decreased percentage of ownership in the reorganized company; 4. There would be a 2.5:1 forward stock split; 5. A private placement offering of its shares and share warrants in the approximate amount of 3 million dollars as part of the share exchange together with the creation of various stock rights. 6. Shareholders would be asked to allow the Compan to change its name, business purpose and elect new management as nominated by the private company being acquired. During the past quarter the company has made bridge loans to the private technology company of approximately $350,000, which will be converted to equity if the share exchange is closed. If not, the loans will constitute a short term obligation owing to Prime. Risk Factors There are significant new risk factors to shareholders if the company transitions from attempting to expand its core insurance/consulting services to potential merger and acquisition efforts with unknown entities. Any such future reorganization would most likely result in a change of management, business, and the relative share ownership of current shareholders. Item 3. Controls and Procedures (a) Prime 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 prescribed by the Securities and Exchange Commission. Based upon their evaluation of those controls and procedures performed within 90 days of the filing date of this report, the chief executive officer and the principal financial officer of the Company concluded that the Company's disclosure controls and procedures were adequate for its present activities. The Company knows of no fraudulent activities within the Company or any material accounting irregularities. The Company does not have an independent audit committee and does not believe it is required to have any audit committee at this time. (b) Changes in internal controls. The Company made no significant changes in its internal controls since completing its public offering. The company as of the first quarter of 2004 obtained a listing of its stock on the National Association of Securities Dealers ("NASD") sponsored Electronic Bulletin Board, but does not view such listing as requiring a change in its accounting or auditing practices at the present time. (c) 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. The company does not have any audit committee as it does not believe the act requires a separate committee for companies that are reporting companies, but not registered under the Securities and Exchange Act of 1934 [15(d) companies] and whose shares trade only on the Electronic Bulletin Board. Part II - Other Information Item 5. Other Matters (1) Public Offering & Use of Proceeds. As generally noted above, Prime completed its initial public offering of 150,000 shares to 17 new shareholders as of June 16, 2003. Pursuant to SEC Rule 463, the use or employment of the proceeds are periodically disclosed as part of this report. We have elected to set-out such information in a tabular format: 1. Offering Effective Date 4/16/2003 2. Offering Closed $750,000 $709,664 6/16/2003 Gross Proceeds Net Proceeds 3. Costs of offering including $40,336 N/A legal, accounting, filing fees, consulting and miscellaneous (No commissions were paid) 4. No direct payments were made to any 0 0 officer, director or affiliated person. The offering was a self-underwriting with no commissions. Of the net proceeds, the following principal expenditures have been made during this third Quarter: (i) Software/computer upgrades $ (ii) Database work & website costs $ (iii) Legal-primarily NASD listing $ (iv) Working Capital $330,591 (v) Office equipment $ (vi) Marketing $ (vii) New Employees $ (viii) New Marketing Coordinator $ (ix) Client gifts and costs $ --------------------------- $330,591 =========================== Prior Offering Proceeds Expenditures $379,073.11 (Previously Reported) Remaining Net Proceeds $0 (2) Auditors. Child, Van Wagoner & Associates, PLLC of Kaysville, Utah will continue, subject to Board discretion, as the Company's new independent auditors. The auditors were appointed in August, 2003. The company has no differences of opinion with its prior or current auditors. (3) Trading. The company trades on the Electronic Bulletin Board under the symbol "PRRO". The Electronic Bulletin Board is essentially an informal trading mechanism managed by the National Association of Securities Dealers, but does not constitute a regular NASDAQ exchange or listing. It is, essentially, an electronic intra-dealer quotation system for small public companies not meeting the requirements for regular NASDAQ listing. During the third quarter of 2005 the trading range of the company's stock was as follows: High Low $5.75 $1.10 (4) Annual Meeting. The company held its last annual meeting of shareholders on the 5th of June, 2004, wherein the nominated directors were re-elected and the choice of independent auditors was ratified by majority shareholder vote. No meeting date in 2005 has presently been set, but a meeting of shareholders will be required shortly if the company successfully completes the contemplated share exchange. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 31.1 Certification under Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification under Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification under Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. SECTION 1350) (b) Reports on Form 8-K No reports on Form 8-K were filed during the reporting period. (c) Other Exhibits-None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: October 20, 2005 By: /s/ Terry M. Deru ----------------------------------- Mr. Terry M. Deru President, Director Date: October 20, 2005 By: /s/ Andrew W. Limpert ----------------------------------- Mr. Andrew W. Limpert Director, Treasurer/CFO