UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
(Amendment No.1)
(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: 2,955,900 shares issued and outstanding as of September 30, 2005,
No Par Value. Authorized - 50,000,000 common voting shares.
1
INDEX
Prime Resource, Inc.
For The Quarter Ending September 30, 2005
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - September 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
2
Part I - Financial Information
Item 1. Financial Statements
Prime Resource, Inc.
Consolidated Balance Sheet (Unaudited)
September 30, 2005
(Restated - note 5)
ASSETS
Current Assets:
Cash $ 570,795
Accounts receivable 545,498
Interest receivable 29,844
Investments in trading securities 3,629
Income taxes receivable 6,837
Notes receivable, current 350,000
---------------
Total Current Assets 1,506,603
Property and equipment, net 158,826
Notes receivable 40,000
Deferred tax assets 37,233
Other assets 15,298
Investment in non-trading securities 60,000
---------------
Total assets $ 1,817,960
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 33,868
Accrued compensation, commissions and benefits 513,796
Deferred taxes payable 9,767
Notes payable, current portion 29,820
---------------
Total Current Liabilities 587,251
Long-term Liabilities:
Notes payable, net of current portion 34,661
---------------
Total Long-Term Liabilities 34,661
Total Liabilities 621,912
Common stock, no par value, 50,000,000 shares
authorized, 2,983,850 shares issued and
2,955,290 outstanding 964,802
Treasury Stock (83,553)
Retained earnings 314,799
---------------
Stockholders' Equity 1,196,048
---------------
Total Liabilities and Stockholders' Equity $ 1,817,960
===============
See notes to financial statements.
3
Prime Resource, Inc.
Consolidated Statements of Income (Unaudited)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2005 2004 2005 2004
-------------- -------------- -------------- --------------
(Restated (Restated
- note 5) - note 5)
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 11,063 3,951 32,089 11,687
Other income - - - -
-------------- -------------- -------------- --------------
Total Revenues 1,866,414 1,371,315 5,397,979 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 97,592 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 5,270,584 3,694,777
-------------- -------------- -------------- --------------
Net operating income 53,288 115,287 127,395 354,443
-------------- -------------- -------------- --------------
GAINS AND LOSSES
Realized gains on trading securities - 505 (111) 1,368
Unrealized gains (losses) on
trading securities (4,347) 3,402 (8,336) 3,402
-------------- -------------- -------------- --------------
Total Gains (Losses) (4,347) 3,907 (8,447) 4,770
-------------- -------------- -------------- --------------
Net income before income taxes 48,641 119,194 118,948 359,213
Income tax expense 5,124 69,564 29,412 151,612
-------------- -------------- -------------- --------------
Net income $ 43,517 $ 49,630 $ 89,536 $ 207,601
============== ============== ============== ==============
BASIC AND FULLY DILUTED
NET INCOME PER SHARE $ 0.01 $ 0.02 $ 0.03 $ 0.07
============== ============== ============== ==============
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING 2,945,475 2,934,000 2,937,825 2,934,000
============== ============== ============== ==============
See notes to financial statements.
4
Prime Resource, Inc.
Consolidated Statement of Stockholders' Equity (Unaudited)
For the nine months ended September 30, 2005
Common Stock Treasury Retained
Earnings Total
Shares Amount Stock (Deficit) Equity
------------- -------------- ------------- ------------ -------------
Balance, December 31, 2004 2,934,000 $ 907,427 $ (77,755) $ 225,263 $ 1,054,935
Common stock issued for services 22,950 57,375 - - 57,375
Treasury stock (960) - (5,798) - (5,798)
Net income - - - 89,536 89,536
------------- -------------- ------------- ------------ -------------
Balance, September 30, 2005
(Restated - note 5) 2,955,990 $ 964,802 $ (83,553) $ 314,799 $ 1,196,048
============= ============== ============= ============ =============
See notes to financial statements.
5
Prime Resource, Inc.
Consolidated Statements of Cash Flows (Unaudited)
For the nine months ended
September 30,
2005 2004
------------- -------------
(Restated
- note 5)
Cash Flows From Operating Activities:
Net income $ 89,536 $ 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 749 36,386
Issuance of shares for services 57,375 -
Realized loss on trading securities 111 -
Unrealized (gains) losses on trading securities 8,336 (1,368)
Changes in assets and liabilities:
Accounts receivable (111,284) (98,255)
Interest receivable (18,511) (3,000)
Income taxes receivable 2,933 33,354
Other assets (2,194) 9,000
Accounts payable (6,823) 36,166
Accrued expenses 127,467 56,191
Income tax payable - 24,745
------------- -------------
Net Cash Provided By Operating Activities 193,592 337,531
Cash Flows From Investing Activities:
Notes receivable (350,000) -
Treasury stock (5,798) -
Purchase of non-trading securities (35,000) -
Purchase of trading securities (23,595) (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 (436,490) (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 Equivalents (256,609) 198,193
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 $ - $ 30,822
See notes to financial statements.
6
Prime Resource, Inc. and Subsidiaries
Notes to Financial Statements (Unaudited)
September 30, 2005
1. Presentation
The financial statements as of September 30, 2005 and 2004 and for the three and
nine months ended September 30, 2005 and 2004, were prepared by the Company
without audit pursuant to the rules and regulations of the Securities and
Exchange Commission (SEC). Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted pursuant to such rules and regulations. In the opinion of
management, all necessary adjustments, which consist primarily of normal
recurring adjustments, to the financial statements have been made to present
fairly the financial position and results of operations and cash flows. The
results of operations for the respective periods presented are not necessarily
indicative of the results for the respective complete years. The Company has
previously filed with the SEC an annual reports on Form 10-KSB which included
audited financial statements for the two years ended December 31, 2004. It is
suggested that the financial statements contained in this filing be read in
conjunction with the statements and notes thereto contained in the Company's
10-KSB filing.
2. Net income per common share
Net income per common share is computed based on the weighted-average number of
common shares and, as appropriate, dilutive common stock equivalents outstanding
during the period. Stock options and warrants are considered to be common stock
equivalents.
Basic net income per common share is the amount of net income for the period
available to each share of common stock outstanding during the reporting period.
Diluted net income per common share is the amount of net income for the period
available to each share of common stock outstanding during the reporting period
and to each share that would have been outstanding assuming the issuance of
common shares for all dilutive potential common shares outstanding during the
period.
No changes in the computation of diluted earnings per share amounts are
presented since no potentially dilutive securities have been granted or issued.
3. Short-term Note receivable
The Company entered into a promissory note receivable by lending money to an
unrelated entity in anticipation of a contemplated merger with that entity. The
note is convertible into shares of that entity if the merger takes place. The
note receivable bears interest at 8% and is due on demand on or after ninety
days from the date of the agreement. Management anticipates the note is
collectible and believes the fair value to be substantially equal to its
carrying value based on the terms of repayment. If certain due diligence and
performance factors are met then Prime may pursue an acquisition of the entity.
In that instance the loan would be satisfied as then the loan would be with
Prime itself. In the event that these factors are not met and the loan would be
called there is certain intellectual property and guarantees from two founding
shareholders of the private company beyond all other corporate assets to repay
the loan. Prime may also consider conversion of the loan to equity in the
private entity as a possible solution if a default occurs. In either event Prime
feels it has sufficient liquid resources to properly finance its core business
and provide for growth outside of the capital committed to this note. The
Company expanded its previous $250,000 promissory note receivable by lending an
additional $100,000 to the unrelated entity during the 3rd quarter in
anticipation of a contemplated merger with that entity and extended the term of
the note to complete additional due diligence
7
4. Segment information
The sector breakdown of revenues and profits by the two operating entities as
well as the parent holding company for comparative quarters is generally
summarized below:
FBA Analysts:
3rd Quarter 2005 Gross Revenues $ 1,690,409
4. Segment information (continued)
Net income before income taxes $ 370,749
Income taxes $ (39,056)
Net Income $ 331,693
3rd Quarter 2004 Gross Revenues $ 1,212,050
Net income before income taxes $ 291,308
Income taxes $ (116,523)
Net Income $ 174,785
Belsen Getty:
3rd Quarter 2005 Gross Revenues $ 164,942
Net loss before income taxes $ (306,082)
Income taxes $ 32,244
Net Loss $ (273,838)
3rd Quarter 2004 Gross Revenues $ 155,314
Net loss before income taxes $ (17,127)
Income taxes $ 6,851
Net Loss $ (10,276)
Prime:
3rd Quarter 2005 Gross Revenues $ 11,063
Net loss before income taxes $ (16,026)
Income taxes $ 1,688
Net Loss $ (14,338)
3rd Quarter 2004 Gross Revenues $ 3,951
Net income before income taxes $ (191,465)
Income taxes $ 76,586
Net Loss $ (114,879)
Totals:
3rd Quarter 2005 Gross Revenues $ 1,866,414
Net income before income taxes $ 48,641
Income taxes $ (5,124)
Net Income $ 43,517
3rd Quarter 2004 Gross Revenues $ 1,371,315
Net income before income taxes $ 119,194
Income taxes $ 69,564
Net Income $ 49,630
5. Restatement
Subsequent to the issuance of its previous interim financial statements as of
and for the period(s) ended September 30, 2005, the Company reevaluated its
portfolio of investments and concluded that certain securities previously
classified as trading securities did not quality as such, and accordingly,
restated its statements of operations to adjust unrealized gain or loss on
trading securities. The restatement resulted in a year to date reduction in
unrealized gains on trading securities from $5,797 to unrealized losses of
$8,336 and a corresponding decrease in income tax expense of $10,370, resulting
in after tax decrease in net income of $3,761. The restatement also resulted in
a reduction in trading securities (at fair value) on the balance sheet from
$330,854 to $3,629, an increase in Investments in non-
8
5. Restatement (continued)
trading securities (recorded at cost) of $60,000, and a reduction of deferred
tax liabilities of $109,548 from $119,315 to $9,767 and a reduction in retained
earnings of $157,677. The financial statements for the calendar year ended
December 31, 2004 were also restated for the same adjustment. In addition, the
Company discovered interest income for the quarter and nine-months ended
September 30, 2005 was improperly computed and thus overstated by $32,489,
resulting in a decrease in pre-tax income and interest receivable of $32,489 and
a corresponding decrease in income tax expense of $9,396, reducing income taxes
payable to $0 and increasing income taxes receivable by $6,837. The cumulative
impact of the two adjustments on pre-tax income was a decrease of $46,622, a
decrease of income tax expense of $19,766, and a decrease in after tax net
income of $26,854, resulting in a decrease in earnings per share of $.01.
9
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 as
well as the parent holding company for comparative quarters is generally
summarized below:
FBA Analysts:
3rd Quarter 2005 Gross Revenues $ 1,690,409
Net income before income taxes $ 370,749
10
Item 2. Management's Discussion and Analysis of Financial Condition or Plan of
Operation (continued)
Income taxes $ (39,056)
Net Income $ 331,693
3rd Quarter 2004 Gross Revenues $ 1,212,050
Net income before income taxes $ 291,308
Income taxes $ (116,523)
Net Income $ 174,785
Belsen Getty:
3rd Quarter 2005 Gross Revenues $ 164,942
Net loss before income taxes $ (306,082)
Income taxes $ 32,244
Net Income $ (273,838)
3rd Quarter 2004 Gross Revenues $ 155,314
Net loss before income taxes $ (17,127)
Income taxes $ 6,851
Net Loss $ (10,276)
Prime:
3rd Quarter 2005 Gross Revenues $ 11,063
Net loss before income taxes $ (16,026)
Income taxes $ 1,688
Net Loss $ (14,338)
3rd Quarter 2004 Gross Revenues $ 3,951
Net income before income taxes $ (191,465)
Income taxes $ 76,586
Net Loss $ (114,879)
Totals:
3rd Quarter 2005 Gross Revenues $ 1,866,414
Net income before income taxes $ 48,641
Income taxes $ (5,124)
Net Income $ 43,517
3rd Quarter 2004 Gross Revenues $ 1,371,315
Net income before income taxes $ 119,194
Income taxes $ 69,564
Net Income $ 49,630
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.
The company's large revenue accruals tend to be fairly accurate due to their
short term nature. The actual payments are primarily received before the end of
the reporting period and remaining accruals are generally received shortly
thereafter thus removing questions regarding how much to accrue at period end.
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
11
Item 2. Management's Discussion and Analysis of Financial Condition or Plan of
Operation (continued)
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 $131,112 in calendar year 2004. For the
third quarter of 2005 the company realized an after tax profit of $43,517
compared to a profit $49,630 in the comparable period of 2004.
The current quarter net income of $43,517 on gross revenues of $1,866,414 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. We will continue to attempt to
partner with insurance agencies that may enhance our product mix or revenue
potential and offer a symbiotic relationship. The size of the agencies that
affiliate with FBA will have an impact on profit margins. Larger agencies
receive a larger percentage of gross commissions they produce, thus lowering
FBA's margins as a percentage of gross revenues. As a result expenses for the
period increased in total and as a percentage of revenue in part due to the
hiring of additional support staff but more directly due to increased commission
payments to staff members and affiliated agents whose compensation is somewhat
tied to revenue. As we continue to grow our revenue through partnering and
alliances our overall margins will be impacted by the size and volume of those
partners added subsequently as the expenses associated with such partnerships
are a function of the joint revenue realized. It is also our intent to expand
the investment advisory business as well.
Further there has been an inflationary pressure on health care insurance
premiums as set by the health care providers. This inflation of health care
costs directly impacts our revenues and has been positive for our revenue. The
general trend of health insurance premiums will have an impact on our revenue
and we cannot project what the future may hold as far as this trend.
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 $587,251 which is an increase of $105,298 over the year end of 2004.
Liabilities increased slightly due to greater agent commissions and substantial
12
Item 2. Management's Discussion and Analysis of Financial Condition or Plan of
Operation (continued)
costs related to reorganization activities. The company has accumulated retained
earnings from its inception as a corporate entity to September 30, 2005 of
$314,799.
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.
13
Item 2. Management's Discussion and Analysis of Financial Condition or Plan of
Operation (continued)
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 $1,196,048.
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 Company 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's Board maintains controls and procedures designed to
provide reasonable assurance 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 as of the end of the period
covered by the report in conforming with SEC Item 307 of
Regulation S-B, the chief executive officer and the principal
financial officer of the Company concluded that the Company's
disclosure controls and procedures are not effective at a
reasonable assurance level for its present activities under
the
14
Item 3. Controls and Procedures (continued)
foregoing rule in consideration of the restatement of
certain financial statements by Prime for the year ending 2004
in our 10-KSB/A Report and for the first three quarterly
reports for the calendar year 2005. The Company identified the
following material weakness: 1)the lack of sufficient
knowledge and experience among the internal accounting
personnel regarding the application of US GAAP and SEC
requirements; 2) insufficient written policies and procedures
for accounting and financial reporting with respect to the
current requirements and application of US GAAP and SEC
disclosure requirements. The particular enhanced review
standards in response to these insufficiencies are more fully
discussed below in sub paragraph b. 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 specific
or significant changes in its internal controls during the
quarter ended September 30, 2005. In October 2005 Prime was
made aware of certain accounting irregularities pursuant to an
SEC notice and comment pertaining to its earlier filed
periodic reports for the year ending in 2004 and the first two
quarters of 2005. We now report retroactively and generally
that the within report contains requested changes and restates
certain financial information, as well as the included changes
in management's discussion and analysis. In particular, this
section pertaining to controls and procedures describes action
taken to ensure more accurate and effective accounting
controls and procedures. In response to the foregoing the
company has implemented the following enhanced financial
review standards. (1) The company has provided a longer review
period of time and more rigorous internal review of accounting
data prior to formal review by our independent auditors. (2)
During November 2005, the Company has engaged the services of
an outside accounting professional which has significant
expertise in the application of US GAAP and SEC reporting
requirements to advise the Company in the preparation of their
financial statements. (3) The Company plans to further
implement written policy and procedures for accounting and
financial statement preparation in accordance with current and
future requirements of SEC Item 307 of Regulation S-B and SOX
404. The Company has not currently estimated the cost of
implementing these changes in controls and procedures.
(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
15
Item 5. Other Matters (continued)
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, Sullivan and Company, 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.
16
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: January 5, 2006 By: /s/ Terry M. Deru
-----------------------------------
Mr. Terry M. Deru President, Director
Date: January 5, 2006 By: /s/ Andrew W. Limpert
-----------------------------------
Mr. Andrew W. Limpert Director, Treasurer/CFO
17