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 March 31, 2006
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
----------------------------
(Address of principal executive officers)
(801) 433-2000 (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: 2,955,490 shares issued and outstanding as of March 31,2006, No
Par Value. Authorized - 50,000,000 common voting shares.
INDEX
Prime Resource, Inc.
For The Quarter Ending March 31, 2006
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited - March 31, 2006;
Consolidated Statements of Operations (Unaudited) - For the three months
ended March 31, 2006, and for the three months ended March 31, 2005;
Consolidated Statements of Shareholders' Equity (Unaudited) for the period
from January 1, 2005 through March 31, 2006;
Consolidated Statements of Cash Flows (Unaudited) - For the three months
ended March 31, 2006, and for the three months ended March 31, 2005;
Notes to Condensed Financial Statements (Unaudited) - March 31, 2006.
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. and Subsidiaries
Consolidated Balance Sheet (Unaudited)
March 31, 2006
ASSETS
Current assets:
Cash $ 694,211
Accounts receivable 452,931
Interest receivable 45,844
Investments in marketable securities 1,485
---------------------
Total current assets 1,194,471
Property and equipment, net 132,953
Notes receivable 390,000
Investments in non-trading securities 60,000
Deferred tax assets 27,902
Other assets 13,104
---------------------
Total assets $ 1,818,430
=====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 35,259
Income taxes payable 27,015
Accrued compensation, commissions and benefits 469,909
Notes payable, current portion 34,855
Deferred tax liabilities 7,245
---------------------
Total current liabilities 574,283
Notes payable, net of current portion 20,132
Commitments and contingencies -
STOCKHOLDERS' EQUITY
Common stock, no par value, 50,000,000 authorized
shares; 2,972,950 shares issued and 2,955,490
shares outstanding 964,802
Treasury Stock (86,178)
Retained earnings 345,391
---------------------
Total stockholders' equity 1,224,015
---------------------
Total liabilities and stockholders' equity $ 1,818,430
=====================
3
Prime Resource, Inc. and Subsidiaries
Consolidated Statements of Operations (Unaudited)
For the Three Months
Ended March 31,
2006 2005
-------------------- ---------------------
Revenues
Commissions $ 1,705,900 $ 1,450,591
Investment and business advisory fees 177,762 149,178
Interest and dividends 13,620 5,306
-------------------- ---------------------
1,897,282 1,605,075
Expenses
Commissions 1,305,749 1,067,339
Compensation and benefits 347,803 349,103
General and administrative 114,902 122,999
Occupancy expense 30,986 10,023
Depreciation expense 14,275 37,138
Interest expense 829 1,319
-------------------- ---------------------
1,814,544 1,587,921
-------------------- ---------------------
Net operating income 82,738 17,154
Gains and (losses)
Realized gains on trading securities - 1,051
Unrealized gains (losses) on trading securities (1,012) (3,135)
-------------------- ---------------------
Net gains and (losses) (1,012) (2,084)
-------------------- ---------------------
Net income before income taxes (benefits) 81,726 15,070
Income tax expense (benefit) 37,460 4,322
-------------------- ---------------------
NET INCOME $ 44,266 $ 10,748
==================== =====================
Weighted average shares outstanding 2,955,490 2,934,000
Basic and fully diluted net income per share $ .02 $ 0.00
4
Prime Resource, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity (Unaudited)
Common Treasury Retained
Shares Amount Stock Earnings Total
------------ ---------- ------------- ---------- -------------
Balance at December 31, 2004 2,934,000 $ 907,427 $ (77,755) $ 225,263 $ 1,054,935
Common stock issued for
compensation 22,950 57,375 - - 57,375
Purchase of treasury stock (1,460) - (8,423) - (8,423)
Net income - - - 75,862 75,862
------------ ---------- ------------- ---------- -------------
Balance at December 31, 2005 2,955,490 964,802 (86,178) 301,125 1,179,749
Net income - - - 44,266 44,266
------------ ---------- ------------- ---------- -------------
Balance at March 31, 2006 2,955,490 $ 964,802 $ (86,178) $ 345,391 $ 1,224,015
============ ========== ============= ========== =============
5
Prime Resource, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
For the Three Months
Ended March 31,
2006 2005
------------------- ------------------
Cash Flows From Operating Activities:
Net income $ 44,266 $ 10,748
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 14,275 37,138
Unrealized losses on trading securities 1,012 3,135
Realized gains on trading securities - (1,051)
Changes in assets and liabilities:
Accounts receivable 9,400 (37,933)
Income taxes receivable 19,158 9,770
Interest receivable (8,000) (1,000)
Other assets - 4,103
Deferred tax assets (8,713) (9,205)
Accounts payable (7,517) 8,649
Income taxes payable 27,015 17,827
Accrued compensation 24,893 74,705
Deferred tax liabilities - (9,018)
------------------- ------------------
Net cash provided by operating activities 115,789 107,868
Cash Flows From Investing Activities:
Purchase of trading securities - (50,606)
Purchase of equipment (2,950) (40,212)
Proceeds from sales of trading securities - 2,566
------------------- ------------------
Net cash used in investing activities (2,950) (88,252)
Cash Flows From Financing Activities:
Payments on notes payable (4,775) (4,238)
Purchase of treasury stock - (1,258)
------------------- ------------------
Net cash used in financing activities (4,775) (5,496)
------------------- ------------------
Net increase in cash and cash equivalents 108,064 14,120
Cash and cash equivalents at beginning of period 586,147 827,404
------------------- ------------------
Cash and cash equivalents at end of period $ 694,211 $ 841,524
=================== ==================
Supplemental Cash Flow Information:
Cash paid for interest $ 829 $ 1,319
Cash paid for taxes - -
6
Prime Resource, Inc. and Subsidiaries
Notes to Financial Statements (Unaudited)
March 31, 2006
1. Presentation
The financial statements as of March 31, 2006 and for the three ended March 31,
2006 and 2005, 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 report
on Form 10-KSB which included audited financial statements for the year ended
December 31, 2005. 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. 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:
1st Quarter 2006 gross revenues $ 1,705,900
Losses and expenses $ 1,569,649
Net income (loss) before taxes $ 136,251
Income taxes $ (62,452)
Net Income $ 73,799
1st Quarter 2005 gross revenues $ 1,450,591
Losses and expenses $ 1,318,680
Net income before income taxes $ 131,911
Income taxes $ (37,831)
Net Income $ 94,080
Belsen Getty:
1st Quarter 2006 gross revenues $ 177,762
Losses and expenses $ 226,787
Net loss before income taxes $ (49,025)
7
Prime Resource, Inc. and Subsidiaries
Notes to Financial Statements (Unaudited)
March 31, 2006
3. Segment information (continued)
Income taxes $ 22,471
Net loss $ (26,554)
1st Quarter 2005 gross revenues $ 149,178
Losses and expenses $ 184,395
Net loss before income taxes $ (35,217)
Income taxes $ 10,100
Net Loss $ (25,117)
Prime and Other:
1st Quarter 2006 gross revenues $ 13,620
Losses and expenses $ 19,120
Net loss before income taxes $ (5,500)
Income taxes $ 2,521
Net Loss $ (2,979)
2nd Quarter 2005 gross revenues $ 5,306
Losses and expenses $ 86,930
Net income before income taxes $ (81,624)
Income taxes $ 23,406
Net Loss $ (58,215)
Totals:
1st Quarter 2006 gross revenues $ 1,897,282
Losses and expenses $ 1,815,556
Net income before income taxes $ 81,726
Income taxes $ (37,460)
Net Income $ 44,266
1st Quarter 2005 gross revenues $ 1,605,075
Losses and expenses $ 1,590,005
Net income before income taxes $ 15,070
Income taxes $ (4,322)
Net Income $ 10,748
4. Subsequent events
In April, 2006, the Company adopted a proposed plan to distribute out all of its
existing business assets, liabilities and operations, as presently described, to
its principal shareholders to be operated by them in a separate private business
Company. In return, the principal shareholders agreed to cancel a certain amount
of their shares in the Company and return these shares as Treasury Shares. This
return would reduce their existing holdings by 55% or approximately 1,491,867
total shares. The principal shareholders would continue to hold approximately
83% of the issued shares or 1,209,533 shares of a total issued and outstanding
1,454,090 shares as of May 1, 2006.
The plan also provided for the distribution of restricted shares of a separate
entity owned by the Company at the time of reorganization to the non-principal
and non-employee shareholders (principal
8
Prime Resource, Inc. and Subsidiaries
Notes to Financial Statements (Unaudited)
March 31, 2006
4. Subsequent events (continued)
shareholders being defined as those holding 10% or more or serving as officers
and directors of the Company and being the three individual principal owners).
These 179,200 shares are to be distributed to approximately 105 public
shareholders.
Finally, the plan provided that all common shareholders of the Company (both
principal and public) would receive, pro rata, an additional distribution of
restricted common shares of an unrelated entity if and when the Company elects
to convert its existing promissory note receivable to shares. It is anticipated
these shares will be registered subject to conversion later in 2006, though no
warranty or promise of this fact can be made.
The foregoing proposals and Plan were noticed and presented before a special
shareholders meeting held in April, 2006 and approved by a majority shareholder
vote at such meeting. Because the distribution of the Company's assets in
exchange for stock was not reached through an arms-length bargaining procedure,
but was essentially formulated by the principal shareholders of the Company, the
management of the Company deemed that the proposal would only be accepted if
approved by a majority vote of the disinterested or public shareholders. As
these proposals for reorganization and distribution of the assets were approved
by a majority of the disinterested shareholders, the principal shareholders then
voted their shares in favor of this position creating an absolute majority vote.
In essential terms, the shareholder meeting in April, 2006, constituted a
reorganization of the Company as a public Company without any operating assets
or business, but without liabilities or obligations. Present management will
continue in its positions, but with a lesser commitment of time and effort due
to a lack of any ongoing business activity within the Company. Management has,
however, made a commitment to continue to actively search for merger or
acquisition candidates and believes, but cannot warrant, that such acquisitions
may be more readily attainable based upon their prior experience without the
former assets and business in the Company. Moreover, it was the judgment of
management that the Company's assets had come to a point where they were
essentially creating a break-even business endeavor without the realistic
prospects of growth and enhancement to the Company.
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.
PRIME DISCLOSES, AS A MATERIAL SUBSEQUENT EVENT, THAT ALL ASSETS(OTHER THAN
$30,000 OF CASH FOR ONGOING REPORTING FEES AND OPERATING EXPENSES), LIABILITIES
AND BUSINESS INTEREST OF PRIME HAVE BEEN TRANSFERRED TO A PRIVATE BUSINESS
ENTITY CONTROLLED BY THE PRIME PRINCIPAL SHAREHOLDERS FOR A REDUCTION OF THEIR
PRIME SHARES BY 55% AND OTHER CONSIDERATION PURSUANT TO A MAJORITY SHAREHOLDER
VOTE. THIS DISCLOSURE MAY RENDER MOOT MUCH OF THE IMPORTANCE OF THE FOLLOWING
DISCUSSION AND IS MORE PARTICULARLY DISCUSSED IN THIS REPORT UNDER THE SECTION
ON MATERIAL SUBSEQUENT EVENTS.
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 and the entity has been
subsequently dissolved. Unless otherwise specifically described in this report,
the reference to Prime shall collectively mean both Prime and its two current
operating subsidiaries.
10
Item 2. Management's Discussion and Analysis of Financial Condition or Plan of
Operation (continued)
Historically, the principal business activity of Prime has been 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. As
mentioned above, the principal business activity of Prime will change as a
result of a subsequent shareholder vote taken at the Company's recent
shareholder meeting held April 27, 2006. At the shareholder meeting a proposed
reorganization plan was approved by majority disinterested shareholder vote.
There were 139,245 shares voting for the reorganization and 0 shares against and
0 shares abstaining and 9,533 dissenting which were bought out by the Company
for the offered $2.50 per share. The voting results and proxy solicitation
materials have been filed as an 8-K with the SEC on May 1 2006. In summary, the
reorganization calls for a removal of the operating assets from Prime to be
retained by its three principal shareholders for a 55% reduction in their
collective sharehold interest in Prime, a dividend of two of the holdings of
Prime to it's shareholders and an offer to dissenting shareholders to purchase
their shares at $2.50 per share. The plan for Prime going forward is to secure
through acquisition or asset purchase new operating assets that may or may not
be related to the financial services industry.
The insurance activities of Prime have been primarily conducted through FBA. FBA
is licensed as an insurance provider. 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 intended to be a potential start-up consulting entity, but did
not commence operations.
The sector breakdown of revenues and profits by the two operating entities for
comparative quarters is generally summarized below:
FBA Analysts:
1st Quarter 2006 gross revenues $ 1,705,900
Losses and expenses $ 1,569,649
Net income (loss) before taxes $ 136,251
Income taxes $ (62,452)
Net Income $ 73,799
1st Quarter 2005 gross revenues $ 1,450,591
Losses and expenses $ 1,318,680
Net income before income taxes $ 131,911
Income taxes $ (37,831)
Net Income $ 94,080
11
Item 2. Management's Discussion and Analysis of Financial Condition or Plan of
Operation (continued)
Belsen Getty:
1st Quarter 2006 gross revenues $ 177,762
Losses and expenses $ 226,787
Net loss before income taxes $ (49,025)
Income taxes $ 22,471
Net loss $ (26,554)
1st Quarter 2005 gross revenues $ 149,178
Losses and expenses $ 184,395
Net loss before income taxes $ (35,217)
Income taxes $ 10,100
Net Loss $ (25,117)
Prime and Other:
1st Quarter 2006 gross revenues $ 13,620
Losses and expenses $ 19,120
Net loss before income taxes $ (5,500)
Income taxes $ 2,521
Net Loss $ (2,979)
2nd Quarter 2005 gross revenues $ 5,306
Losses and expenses $ 86,930
Net income before income taxes $ (81,624)
Income taxes $ 23,406
Net Loss $ (58,215)
Totals:
1st Quarter 2006 gross revenues $ 1,897,282
Losses and expenses $ 1,815,556
Net income before income taxes $ 81,726
Income taxes $ (37,460)
Net Income $ 44,266
1st Quarter 2005 gross revenues $ 1,605,075
Losses and expenses $ 1,590,005
Net income before income taxes $ 15,070
Income taxes $ (4,322)
Net Income $ 10,748
Historically, management intended to grow the Company primarily through the
acquisition of other insurance providers 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.
12
Item 2. Management's Discussion and Analysis of Financial Condition or Plan of
Operation (continued)
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 brokerage acquisition
opportunities that would meet the criteria of materially growing the revenue
base of the Company. As a result, management made a conscious decision to shift
emphasis to explore potential merger or acquisition possibilities in unrelated
areas to maximize shareholder value as more fully discussed below.
Prime's Board of Directors then decided upon a Reorganization Plan in late 2005,
subject to shareholder approval, to dispose of Prime's assets, liabilities and
business to make the Company potentially more attractive as a merger or
acquisition candidate. This plan was more fully described in the Company's most
recent 10-KSB report for the year ending December 31, 2005 and in subsequent
detailed proxy materials sent to all shareholders of record, as well as the Form
8-K disclosure statement filed on May 1, 2006. The plan is further described
below under Material Subsequent Events incident to the April 2006 shareholder
meeting and vote on the Plan.
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 approximately the third quarter of 2004, Prime ultimately 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 were employed to pay for costs of day-to-day operations.
As of September 2005, Prime expended the last of such offering proceeds. These
expenditures were periodically reported pursuant to SEC Rule 463, with the final
report being contained in Prime's 10-KSB annual report for the period ending
December 31, 2005.
The Company experienced a profit of $131,112 in calendar year 2004. For the year
ending 2005 the Company realized an after tax net profit of $75,862. The
quarterly after tax profits for the three months ending March 31, 2005 and 2006
respectively were $10,748 and $44,266.
The current quarter profits were earned on gross revenues of $1,897,282. The
comparable revenues for the first quarter of 2005 were $ 1,605,075.
Prime, including all subsidiaries, had as of this report date 19 full-time
employees, 2 part-time employees and 52 affiliated commission based insurance
agents. However, the Company will have no employees and reduced management
services as of approximately May 1, 2006 as more fully explained under Material
Subsequent Events.
As of March 31, 2006, the outstanding current liabilities of the Company were
$574,283 which
13
Item 2. Management's Discussion and Analysis of Financial Condition or Plan of
Operation (continued)
is a slight increase of $42,518 from the year end of 2005. Liabilities increased
slightly due to greater agent commissions and substantial costs related to
reorganization activities. The Company has accumulated retained earnings from
its inception as a corporate entity to March 31, 2006 of $345,391. As discussed
below all liabilities will be assumed by the new private Prime Company.
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 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,; United
Health Care; Intermountain Health Care(now called Select Health) and Regence
Blue Cross. Commissions for the placement of these products range from
approximately 2-20%.
The Company had, as of March 31, 2006, approximately 526 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 is 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. As of March 31, 2006, FBA has approximately 526 customers and
Belsen Getty has 539 clients.
14
Item 2. Management's Discussion and Analysis of Financial Condition or Plan of
Operation (continued)
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 primarily 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.
While the Company was able to continue during most of 2005 and the first quarter
of 2006 at an essential "break-even" level, a tactical decision was made, after
the expenditure of the remaining offering proceeds in September 2005, that it
was not feasible to attempt to continue to grow the present business of the
Company by internal financing.
The Company has no present plans for any additional offering of its securities
or other capital formation activities for the foreseeable future.
Further, the Company has not significantly relied on lines of credit or other
bank loans for its past operations and has total outstanding debt obligations,
as of March 31, 2006, of approximately $54,987, while maintaining a net worth of
approximately $1,224,015.
Material Subsequent Events
As noted in the Company's annual report filed for the period ending December 31,
2005, Prime adopted in the fourth quarter of 2005 a proposed plan to distribute
out all of its existing business assets, liabilities and operations, as
presently described, to its principal shareholders to be operated by them in a
separate private business. .In return and exchange, the principal shareholders
agreed to reduce their Prime shares by cancellation and returning these shares
to the Company as Treasury Shares. This return would reduce their holding by 55%
or approximately 1,491,867 total shares. The principal shareholders are Mr.
Terry Deru, Mr. Scott Deru and Mr. Andrew Limpert. The principal shareholders
would continue to hold approximately 83 % of the issued shares or 1,209,533
shares of a total issued and outstanding 1,454,090 shares as of May 1, 2006.
The plan also provided for the distribution of restricted Bioaccelerate shares
to the non-principal and non employee grant shareholders (principal shareholders
being defined as those holding 10% or more or serving as officers and directors
of the Company and being the three individual principal owners). These 179,200
Bioaccelerate shares are to be distributed to approximately 105 public
shareholders.
Finally, the plan provided that all common shareholders of the Company (both
principal and public) would receive, pro rata, a subsequent distribution of the
LightSpace shares when and if received from the conversion of the LightSpace
convertible debentures held by the Company. It
15
Item 2. Management's Discussion and Analysis of Financial Condition or Plan of
Operation (continued)
is anticipated these shares will be registered subject to conversion later in
2006, though no warranty or promise of this fact can be made.
The foregoing proposals and Plan were noticed and presented before a special
shareholders meeting held on April 27, 2006 and approved by a majority
shareholder vote at such meeting. Because the distribution of the Company's
assets in exchange for stock was not reached through an arms-length bargaining
procedure, but was essentially formulated by the principal shareholders of the
Company, the management of the Company deemed that the proposal would only be
accepted if approved by a majority vote of the disinterested or public
shareholders. As these proposals for reorganization and distribution of the
assets were approved by a majority of the disinterested shareholders, the
principal shareholders then voted their shares in favor of this position
creating an absolute majority vote.
In essential terms, the shareholder meeting on April 27th constituted a
reorganization of the Company as a public Company without any assets or
operating business, but without liabilities or obligations. Present management
will continue in their positions, but with a lesser commitment of time and
effort due to a lack of any ongoing business activity within Prime. Management
has, however, made a commitment to continue to actively search for merger or
acquisition candidates and believes, but cannot warrant, that such acquisitions
may be more readily attainable based upon their prior experience without the
former Prime assets and business being in the Company. Moreover, it was the
judgment of management that the Prime assets had come to a point where they were
essentially creating a break-even business endeavor without the
realistic prospects of growth and enhancement to the Company.
In essential terms, then, the results of the reorganization approved by the
shareholders of the Company, including various collateral items, are summarized
as follows:
1. The shareholders ratified the proposed plan to transfer all
existing assets(except for $30,000 in working capital) liabilities and
business of Prime to a new separate, private Utah limited liability
company to be known as Prime Advisors, LLC and to be operated and
controlled by the existing management of the Prime public corporation.
2. In exchange for the completion of the reorganization, the
Prime principal shareholders contributed to the Company, as treasury
shares, 55% of their outstanding shares constituting 1,491,867 shares.
The principal shareholders now hold 1,209,533 shares or 83% and the
public shareholders, as a group, hold approximately 244,557 shares or
17 %.
3. As part of the proposal, as approved, the public shareholders
will receive in the near future a distribution of a concentrated
portion of the Bioaccelerate shares presently held by the Company
which total 339,500 shares. As a result there will be distributed
179,200 shares of Bioaccelerate stock to approximately 105 Prime
public shareholders.
16
Item 2. Management's Discussion and Analysis of Financial Condition or Plan of
Operation (continued)
4. The meeting also authorized the distribution of future
LightSpace shares which will be held by the Company upon the
completion of LightSpace's currently pending public registration,
after which the Company can convert the debentures held by it to
common LightSpace shares and distribute those shares. It is
anticipated there will be, upon conversion, approximately 465,000
LightSpace shares distributed to 109 shareholders, which includes the
three principal shareholders.
5. The current Board of Directors was re-elected to serve for
another annual term at the special meeting. As noted above, the
directors and officers will devote substantially less time to daily
operations. As Prime is now a non- operating Company, the officers
will continue to devote only such time as they deem necessary to
finding suitable merger or acquisition candidates for Prime. The only
salaried officer of Prime, on a part-time basis, would be Mr. Andrew
Limpert, who will continue to receive a salary of $833.33 per month.
6. The shareholders also ratified the appointment of Child,
VanWagoner & Bradshaw, PLLC to act as the independent auditors for the
Company for the year ending December 31, 2006.
Risk Factors
Prime has employed this section to further discuss certain significant risk
factors which may exist to its shareholders, after the reorganization, in
continuing to hold or acquire its shares:
* The Company has no active ongoing business and will be required to
find a suitable merger or acquisition candidate to continue as an
ongoing enterprise.
* Management would devote substantially less time to management of Prime
as an inactive public Company seeking a suitable merger or acquisition
candidate.
* It is doubtful if the present shareholders will realize any value in
their shares absent a subsequent successful merger or acquisition. No
assurance or warranty can be given that such a merger or acquisition
can be completed.
* The LightSpace notes may or may not be converted to common stock
unless a successful registration is completed by LightSpace; at which
point a market may not automatically exist, but would be anticipated.
Prime has no control over these contingencies.
* The Bioaccelerate shares to b distributed pursuant to the proposed
reorganization are not registered and are thinly traded. Shareholders
will be required to determine appropriate exemptions for future
trading.
17
Item 3. Controls and Procedures
(a) Prime has maintained 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 complying with an SEC request to restate
its financials and revise controls in the third quarter of 2005. 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) Prime 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) Auditors. Child, VanWagoner & Bradshaw, LLC of Kaysville, Utah will
continue, subject to Board discretion, as the Company's new independent
auditors. The auditors were appointed in August, 2003 and have been reappointed
to serve through 2006. The Company has no differences of opinion with its prior
or current auditors.
(2) 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 first quarter of 2006
the trading range of the Company's stock was as follows:
High Low
------ ---------
$ 1.50 $ 1.15
(4) Annual Meeting. The Company held its last general 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 shareholder meetings were held in 2005. The Company reports
as a subsequent event, a special meeting of shareholders in April, 2006 as
described above under Material Subsequent Events.
(5) Special Meeting. The Company held a special meeting subsequent to
the reporting period of this report on April 27, 2006, wherein the nominated
directors were re-elected and the choice of independent auditors was ratified by
majority shareholder vote. As stated above, the plan of reorganization was also
approved by majority vote. No meeting date in 2007 has presently been set.
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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. However a
subsequent Form 8-K was filed to report on the voting of the special meeting and
is incorporated by reference.
(c) Other Exhibits - Copy of Proxy Solicitation for Special Meeting held April
27, 2006 - filed as part of material subsequent events. This document is
incorporated by reference.
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: May 9, 2006 By: /s/ Terry M. Deru
-----------------------------------
Mr. Terry M. Deru President,
Director
Date: May 9, 2006 By: /s/ Andrew W. Limpert
-----------------------------------
Mr. Andrew W. Limpert
Director, Treasurer/CFO
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