UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
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[Third Amended]
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Prime Resource, Inc.
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(Name of small business issuer in its charter)
(Previously Prime Resource, LLC)
Utah 6411
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(State of jurisdiction of (Primary Standard Industrial
incorporation or organization) Classification Code Number)
04-3648721
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(I.R.S. Employer
Identification No.)
1245 E. Brickyard Road, Suite 590, Salt Lake City, Utah 84106 (801) 433-2000
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(Address and telephone number of principal executive offices)
1245 E. Brickyard Road, Suite 590, Salt Lake City, Utah 84106 (801) 433-2000
Address of principal place of business
or intended principal place of business)
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(
Mr. Terry Deru, 1245 E. Brickyard Road, Suite 590,
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Salt Lake City, Utah 84106 (801) 433-2000
(Name, address and telephone number of agent for service)
Approximate date of proposed sale to the public: As soon as possible after the
effective date of this Registration.
If this Form is filed to register additional securities for an offering pursuant
to rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering.[ ] Not currently applicable.
If this Form is a post-effective amendment filed pursuant to Rule 4629(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] Not currently applicable.
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] Not currently applicable.
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box [ ] Not currently applicable.
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Title of each class of Dollar amount to be Proposed maximum Proposed maximum Amount of
securities to be registered offering price per aggregate offering.(1) registration fee
registered to maximum share (Rounded)
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Common voting stock, Max: $750,000 $5.00/share $750,000 $198.00
150,000 (1) to be
registered, no par
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(1) Determined pursuant to Rule 457(c) under the Securities Act of 1933,
as amended, on the basis of no market price, but upon the basis of the current
Offering price ($5.00/share), for the maximum number of shares to be sold for
cash.
SUBJECT TO COMPLETION. INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR
AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD
NOR MAY OFFERS BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
AN AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES
ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH
DATE AS THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION"), ACTING
PURSUANT TO SECTION 8(a), MAY DETERMINE.
2
PROSPECTUS
PRIME RESOURCE, INC.
A UTAH CORPORATION
1245 E. Brickyard Road, Suite 590
SALT LAKE CITY, UTAH 84106
(801) 433-2000
150,000 SHARES OF COMMON STOCK OFFERED
Prime is registering for public sale a maximum of 150,000 common shares at
$5.00/share ($750,000) or a minimum of 100,000 shares ($500,000), fifty million
shares authorized, no par. No shares of the existing shareholders (2,800,000
shares) are being registered. The offering will remain open for up to six months
from the effective date of the prospectus, being the date appearing below; the
"offering term". This is a self-underwriting by the Issuer. No commissions are
intended. The minimum offering of 100,000 shares ($500,000) must be sold within
the offering term for the offering to close. The maximum offering will be
150,000 shares ($750,000). Proceeds will be placed in a segregated offering
account until the minimum offering is sold or the offering is terminated and
subscription funds returned.
Our common stock is not currently listed on any national securities exchange or
any over-the-counter stock market.
Management is under no obligation to purchase shares to close this offering as a
minimum or otherwise, and has no present intent to participate in this offering.
If shares are purchased by management, they will purchase for investment
purposes only and not with the intent to resell.
INVESTORS IN THE COMMON STOCK MAY LOSE THEIR ENTIRE INVESTMENT SINCE AN
INVESTMENT IN THE COMMON STOCK IS SPECULATIVE AND SUBJECT TO MANY RISKS. SEE
RISK FACTORS BEGINNING AT PAGE 8. ---
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
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GROSS PROCEEDS COMMISSIONS NET PROCEEDS1
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Maximum Offering $750,000 $0.00 $750,000
Per Share $ 5.00 $0.00 $ 5.00
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Minimum Offering $500,000 $0.00 $500,000
Per Share $ 5.00 $0.00 $ 5.00
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1Does not include estimated offering costs of approximately $45,000 to be paid
or reimbursed from proceeds, if closed.
Date of this Prospectus: December , 2002
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TABLE OF CONTENTS
ITEM PAGE
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Part I - Prospectus Information
1. Front Cover Page of Prospectus........................................................................3
2. Inside Front and Outside Back Cover Pages of Prospectus............................................2
3. Summary Information and Risk Factors...............................................................5
4. Use of Proceeds...................................................................................14
5. Determination of Offering Price...................................................................20
6. Dilution..........................................................................................20
7. Plan of Distribution..............................................................................21
8. Legal Proceedings....................................................................................25
9. Directors, Executive Officers, Promoters, and Control Persons........................................25
10. Security Ownership of Certain Beneficial Owners and Management.......................................29
11. Description of Securities............................................................................30
12. Interest of Experts and Counsel......................................................................31
13. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities.....................................................................32
15. Description of Business..............................................................................32
16. Management's Discussion and Analysis.................................................................42
17. Description of Property..............................................................................50
18. Certain Relationships and Related Transactions.......................................................51
19. Market for Common Equity and Related Stockholder Matters.............................................52
20. Executive Compensation...............................................................................52
21. Financial Statements.................................................................................54
22. Changes In and Disagreement With Accountants.........................................................75
Part II - Information Not Required in Prospectus
23. Indemnification of Directors and Officers............................................................77
24. Other Expenses of Issuance and Distribution..........................................................77
25. Recent Sales of Unregistered Securities..............................................................77
26. Exhibit List.........................................................................................78
27. Undertakings.........................................................................................79
28. Signatures...........................................................................................81
(Part II Table will not appear in Prospectus only copy; and page numbering may
be modified)
4
SUMMARY OF THE OFFERING
The Company: Prime Resource, Inc. ("Prime") was incorporated in Utah on
March 29, 2002. Prime Resource, Inc. is a successor entity to a
Utah limited liability company known as Prime Resource, LLC,
("Prime LLC"). The principals of Prime remain the same as those
in Prime LLC. Prime LLC was organized in June, 1996, but
remained inactive until October, 1998 when it became a parent
company for its two operating subsidiaries, Belsen Getty, LLC
("Belsen Getty") and Fringe Benefit Analysts, LLC ("Fringe
Benefits"). These subsidiaries, in turn, are both Utah limited
liability companies. Belsen Getty since 1990 has been engaged
in corporate and personal financial consulting, business
planning and related business and investment advisory services.
Fringe Benefit Analysts since 1984 has been primarily a
benefits consultant and a broker of group insurance products.
The nature of these types of businesses and entities are
further explained in the following paragraph. Prime, at the
conclusion of this offering, would intend to operate the same
business as its predecessor Prime LLC by acting as the parent
and manager of its subsidiaries, Belsen Getty and Fringe
Benefit Analysts, as a public entity. The purposes of this
offering will be to sell up to 150,000 common shares to raise
additional capital to expand and, hopefully, increase the
revenues and profitability of the existing business operations
as more particularly described in this offering. In the event
of the maximum offering, the public shareholders purchasing in
this offering would acquire approximately 5% of the to be
issued and outstanding shares, or approximately 3.5% in the
event of the minimum offering. In either event, the public
shareholders acquiring through this offering will be
substantial minority shareholders and will most likely never be
in a position to exert any influence over the direction or
control of Prime. Prime is presently a small operating company
through its two subsidiaries. We anticipate maintaining our
principal operations in Salt Lake City, Utah and will primarily
provide our services in the Intermountain area of the United
States.
Nature and As briefly noted above, Prime, which is the successor to Prime
Operation of Resource, LLC, will not directly engage in any business
Subsidiaries: activities with third parties, but will act only as a parent
and management corporation to its two operating subsidiaries,
Belsen Getty, LLC and Fringe Benefit Analysts, LLC. The "LLC"
designation stands for Limited Liability Company. You should
understand, as a prospective investor in this offering, that an
LLC is a relatively new form of business entity created by
statute in Utah and other jurisdictions whereby the company
operates very much in the nature of a partnership with
decisions being collectively made by its members (owners) and
with day-to-day operations usually handled by a manager. There
is limited liability to the members and the manager arising out
of legitimate business activities. The earnings, if any, for
this type of entity are not charged or taxed at the LLC level,
but pass through to the owners known as members. In this case,
5
the only owner is Prime, which will receive all net profits, if
any, generated by Belsen Getty and Fringe Benefit Analysts. It
should also be noted that limited liability companies, unlike
the parent corporation, are not perpetual entities but have a
fixed term. In this case, the existence of the operating
entities, Belsen Getty and Fringe Benefit , will terminate not
later than December 31, 2021. If Prime is still successfully
operating at the time of the expiration date of these entities,
it would be intended that the assets and operations of such
entities would be rolled over into a new LLC or other form of
business entity. This contingency should not have a significant
impact on the economic welfare of Prime. You should also
understand, however, that you are not acquiring a direct
interest in the operating subsidiaries but only in the parent
company. Prime will direct and control the ownership and
operation of the subsidiaries for and on behalf of the
shareholders as the sole owner. By way of brief description,
Belsen Getty is a business consulting and financial management
company which provides investment management, financial
planning, pension and retirement planning for various
individual and business clients. In these capacities, it often
provides investment advice. Belsen Getty has been in operation
since 1990. Its revenues are primarily fee based. Since 1984
Fringe Benefit Analysts has been primarily a business insurance
broker of health, life, dental and disability insurance
coverages. Both entities were originally organized as
corporations and converted to the LLC form in 1998. Both
concentrate their business activities in the state of Utah,
though they have various clients throughout the western United
States. The managers for the entities are Mr. Terry Deru for
Belsen Getty and Mr. Scott Deru for Fringe Benefit .
The Offering: Prime is attempting to sell a very limited number of its shares
to the public as a self underwriting, without commissions. Up
to 5% of the to be issued and outstanding shares in the company
may be sold at an offering price of $5.00/share. The maximum
offering would be $750,000 from the sale of 150,000 shares and
the minimum offering would be the sale of 100,000 shares at
$5.00/share for $500,000. We, Prime Management, will place the
offering proceeds into a segregated subscription account for a
period up to 180 days from the effective date of the offering
(the date appearing on the prospectus cover). If the minimum
offering is not fully subscribed by the end of that offering
period, investors will be promptly returned their subscription
without deduction or interest. Prime may elect to close the
offering at any time after the minimum is sold within the
offering term up to the maximum offering. There is no assurance
or warranty that the company will be successful in the sale of
its public shares.
Trading To date Prime has not obtained any trading symbol, nor have its
Market shares been approved or registered for trading. It is intended
Symbol: that we will, concurrently with this registration, apply
through one or more broker/dealers for listing on the
Electronic Bulletin Board, but can give no assurance or
warranty that the shares will be qualified for trading on any
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over-the-counter market. In all events, there may be a very
limited or non-existent public trading market for Prime's
shares.
Summary The following summary financial data should be read in
Financial Data: conjunction with, and is subject to, the complete Financial
Statements, and notes, included elsewhere in this Prospectus.
The operating data and the balance sheet data was derived from
Prime's predecessor entity, Prime LLC's Financial Statements,
included elsewhere in this Prospectus. These results do not
necessarily indicate the results to be expected for any future
period. THE COMPLETE FINANCIAL STATEMENTS, AS ATTACHED, INCLUDE
PRO FORMA MATERIAL RELATED TO CERTAIN REORGANIZATION AND
COMPENSATION EVENTS, AS WELL AS OPERATING IN THE CURRENT
CORPORATE FORM.
CONSOLIDATED BALANCE SHEET DATA: (Predecessor Entity,
Prime, LLC.) December 31st (Audited)
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Sept. 30, 2002
2001 2000 (Unaudited)
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Assets $580,128 $660,615 $591,819
Liabilities $360,805 $162,416 $377,886
Members' and Stockholders' Equity $220,338 $498,199 $213,933
Accumulated Other Comprehensive Loss $ (1,015) ---------- $ (0)
Total Liabilities, Members' and Stockholders' Equity, and
Accumulated Other Comprehensive Loss $580,128 $660,615 $591,819
7
STATEMENT OF CONSOLIDATED OPERATIONS DATA:
(Includes Predecessor Entity--Prime LLC to 3/29/2002)
Nine Months
Years Ended December 31st Ended Sept. 30th
(Audited) (Unaudited)
2001 2000 2002 2001
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Revenues:
Commissions $1,557,246 $1,498,016 $1,313,407 $1,148,591
Investment Advisory Fees 449,031 707,537 397,397 417,399
Interest and Dividends
15,204 7,716 8,315 10,220
2,021,481 2,213,269 1,719,119 1,576,210
Expenses:
Operating 2,057,452 1,957,107 1,207,537 920,733
Interest
674 662 1,793 505
2,058,126 1,957,769 1,824,303 1,457,888
Income (loss) before income tax
expense
(36,645) 255,500 (105,184) 118,322
Income tax expense ------- ------- 14,221 -------
Net income (loss) (36,645) 255,500 (119,405) 118,322
Comprehensive Income (Loss) $ (37,660) $ 255,500 $ (119,405) $ 118,322
8
PRO FORMA DATA FOR SUBSEQUENT EVENTS
Nine Months
Years Ended December 31st Ended Sept. 30th
(Audited) Unaudited)
2001 2000 2002 2001
-------- -------- ------- --------
PRO FORMA COMPENSATION
& BENEFITS, assuming
the reorganization and new
compensation agreements described
in Note 9 to the accompanying financial
statements, occurred on January 1, 2001 $1,025,983 $----------- $320,414 $-----------
PRO FORMA INCOME TAX BENEFIT, assuming
the reorganization described in Note 9
to the accompanying financial statements. 16,606 $----------- 5,580 $-----------
PRO FORMA NET LOSS, assuming the
reorganization described in Note 9 in the
accompanying financial statements
occurred on January 1, 2001. (132,290) $----------- (11,910) $-----------
PRO FORMA BASIC AND DILUTED
INCOME PER SHARE, assuming
the reorganization
described in Note 9 to the
accompanying financial
statements occurred on January
1, 2001. (.050) $----------- (0.004) $-----------
9
RISK FACTORS
The following constitutes what we believe to be the most significant
risk factors in this offering. No particular significance should be attached to
the order in which the risk factors are listed. Certain forward-looking
statements are based on our current expectations and are susceptible to a number
of risks, uncertainties and other factors, and our actual results, performance
and achievements may different materially from any future results, performance
or achievements expressed or implied by such forward-looking statements. Such
factors include the factors discussed in this section entitled "Risk Factors",
as well as the following: development and operating costs, changing trends in
customer tastes and demographic patterns, changes in business strategy or
development plans, general economic, business and political conditions in the
countries and territories in which we may operate, changes in, or failure to
comply with, government regulations, including accounting standards,
environmental laws and taxation requirements, costs and other effects of legal
and administrative proceedings, impact of general economic conditions on
consumer spending, and other risks and uncertainties referred to in this
prospectus and in our other current and periodic filings with the Securities and
Exchange Commission, all of which are difficult or impossible to predict
accurately and many of which are beyond our control.
1. EVEN IF THE MAXIMUM OFFERING IS SOLD, THE EXISTING SHAREHOLDERS WILL
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CONTINUE TO CONTROL THIS CORPORATION FOR THE FORESEEABLE FUTURE AND AND THEREBY
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CONTROL MANAGEMENT AND BE IN A POSITION TO ULTIMATELY DIRECT ALL CORPORATE
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DECISIONS.
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Even if the maximum offering is sold to the public, the present shareholders
will continue to own approximately 95% of the shares; and, thereby, be in a
position to make all corporate decisions. We have determined that Prime can
adequately go forward with expanding its business by only offering a limited
number of securities to the public. The offering range which has been prescribed
by management is between 100,000 shares at $5.00/share, for a minimum offering
of $500,000, to 150,000 shares for a maximum offering of $750,000. If the
company is successful in selling all shares in the maximum offering, the public
would only own approximately 5% of the issued and outstanding shares and 3.5% in
the event only the minimum offering is sold. As a result, it is not likely that
investors in this offering will ever exercise any significant influence or
control over the direction or operation of Prime as shareholders.
2. FUTURE MAJORITY SHAREHOLDER STOCK TRANSACTIONS WILL MOST LIKELY
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CAUSE A DECREASE IN THE TRADING PRICE OF YOUR STOCK IN THE FUTURE THROUGH
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ANTICIPATED PUBLIC OR PRIVATE SALES.
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The existing shareholders have and will continue to own the vast majority of the
outstanding shares, and any market transaction by them may have a significant
adverse impact on any future market price of your shares by potentially
depressing any market price as these large holdings are liquidated. The majority
shareholders will continue, for the foreseeable future, to own almost all of the
issued and outstanding shares, whether or not such shares are currently
registered for sale. Each investor in this offering should understand that the
majority shareholders, either pursuant to registration or the application of an
exemption from registration in the future, will eventually be in a position to
sell their shares if a public market is developed for the shares. In the event
of such public market and subsequent transaction by the majority shareholders,
the majority may significantly influence the price of the stock by selling even
a small portion of their shares. This ability to adversely affect future stock
prices by a small group of initial shareholders creates a significant market
risk to anyone investing in this offering.
3. LIMITED CAPITAL PLACES PRIME AT RISK OF NOT MEETING INTENTED
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BUSINESS OBJECTIVES OR MAXIMIZING OPERATIONS.
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Prime will be marginally capitalized if this offering is closed; there also
remains a question of whether there is sufficient capital being raised in this
offering to finance the activities intended by Prime. If not, Prime may not meet
its financial or growth objectives, or develop any value for its shares. There
is a very limited amount of capital being generated, even if this offering is
successful. As a result, even if closed, this offering may not generate
sufficient revenues to Prime to allow it to adequately fund its intended
activities. Moreover, alternative funding may not be available. Prime believes
that the limited amount of capital being raised by this offering, $500,000 to
$750,000 in gross proceeds, will help it expand the marketing and implementation
of its current business activities through its two subsidiary entities. However,
each prospective investor must understand that $500,000 to $750,000 in gross
proceeds is a relatively limited amount of capital to make any significant
expansion or realize the subsidiaries' activities and the expected or
10
anticipated results by management. Further, there is no assurance that Prime
will be able to raise future capital to fund anticipated growth. A limited
capital base may not only cause the company to miss certain business
opportunities, but may place the company at a competitive disadvantage to better
capitalized companies.
4. THERE IS NO PRESENT PUBLIC MARKET OR ANY ASSURANCE OF A PUBLIC
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MARKET FOR OUR SHARES; THE LACK OF A PUBLIC MARKET MAY LIMIT YOUR CAPACITY TO
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SUBSEQUENTLY Sell Your Stock.
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At the present time there is no public market for our shares and there is no
assurance that any public market will be developed for these shares, which means
you may have difficulty selling your shares in the future. Without a viable
public market, shareholders may not be able to sell their shares in the future.
The company does not have any trading markets for its shares and the mere
completion or sale of shares pursuant to this Registration Statement will not
insure that a public market will or can be developed for the trading of the
company's shares. If we are not able to obtain an Electronic Bulletin Board
Listing and develop a resulting public trading market for our shares, there may
be limited liquidity of the shares, investors may be forced to hold such shares
for an indefinite period of time and rely upon the uncertain prospects of
private sales of their securities in order to have some type of exit strategy or
liquidity. Even if a public market develops, there is no reasonable projection
that can be made as to the price at which the shares may trade.
5. DILUTION MEANS YOUR SHARES WILL BE WORTH LESS THAN WHAT YOU PAY FOR
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THEM. THERE WILL BE SUBSTANTIAL DILUTION IN THIS OFFERING.
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Dilution is a concept which attempts to measure the difference between what a
prospective shareholder will pay for the Prime shares as contrasted to the value
of those shares measured by the net worth of the company at the time of
purchase. Substantial dilution risk is anticipated to purchasers of Prime
shares. Dilution constitutes a risk of investment because the shares purchased
may immediately be worth substantially less on a net worth basis than what was
paid for them. This dilution means that the actual value of your shares, based
upon the net worth of the company, will likely be substantially lower than the
$5.00 share price you will pay to acquire these shares in this offering.
6. BECAUSE MANAGEMENT IS HIGHLY CONCENTRATED IN A FEW INDIVIDUALS, ANY
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CHANGE IN MANAGEMENT MAY CAUSE THE COMPANY TO LOSE REVENUES OR PROFITS OR TO
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OPERATE INEFFICIENTLY OR AT A LOSS.
-----------------------------------
There is a substantial risk to Prime and its shareholders if any member of
present management does not continue their affiliation, as future principals may
not have the particular knowledge and contacts to maintain or expand the present
business activities or to run the company profitably or efficiently. You should
understand that because the intended products and services are very unique and
keyed to a relatively narrow market group, there are few individuals with
interests, contacts or expertise who can take over and operate the present
activities of the Prime subsidiaries. Should any member of management decide not
to continue his affiliation, or be released by the company, Prime and its
shareholders may be subject to diminished or lost revenues or profits. Further,
there is only a three year employment contract between each member of management
and Prime; and Prime is allowed to terminate any employee without cause or
minimal notice.
7. THE PROBABILITY THAT OUR SHARES MAY BE DESIGNATED AS A PENNY STOCK
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MAY CAUSE YOU ADDITIONAL COSTS OF TRADING, LOWER THE PRICE OF YOUR STOCK OR
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LIMIT THE POTENTIAL MARKET FOR YOUR STOCK.
--------------------------------------------
As a condition to any subsequent listing for sale by a broker/dealer or if a
trading market is established, and if Prime is initially listed or trades below
11
$5.00/share, it may become a penny stock which poses the risk of reduced
tradeability to you as an investor and may lower the market price of your
shares. The stock of Prime, if it is subsequently listed for trading or during
any subsequent trading, may be defined as a "penny stock", if traded below
$5.00/share. As a result, the shares of Prime may be subject to special
regulations by the SEC and certain states known as "penny stock rules" which
require additional screening and limitations on trading by individuals buying or
selling certain defined speculative low price shares through a broker/dealer.
These restrictions may lower the price or reduce the tradeability or your
shares.
8. YOUR MANAGEMENT'S LACK OF EXPERIENCE MAY CAUSE THE COMPANY TO BE
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LESS SUCCESSFUL IN REALIZING PROFIT OR GROWTH POTENTIAL.
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Your management will have very little experience in the operation of a public
company with a resulting risk they may not be able to comply with public
reporting requirements or operate the company profitably or efficiently, without
the hiring of outside experts. There is a risk in Prime arising from the fact
that management is inexperienced in operating a public company and may have
problems complying with the complex regulations for a public company or waste
valuable resources in attempting to comply directly, or through the need to rely
extensively on third parties. If these problems develop they could cause
suspensions in trading, decreases in the stock price, or diminished or lost
potential profits. You will be relying upon us to be able to manage a public
company, complete the complex reporting requirements and to learn and discharge
other responsibilities incident to the operation of a publicly held reporting
company if this Offering is successfully closed. Your management believes that
its limited inexperience should be considered as a potential risk factor.
9. AS THE PREDECESSOR ENTITIES TO THE REGISTRANT HAD LIMITED REVENUE
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GROWTH AND NET LOSSES, YOU MAY CONSIDER THIS FACT AN INDICATOR THAT YOUR
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ANTICIPATED RETURN ON INVESTMENT MAY BE LIMITED OR NON-EXISTENT.
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There is an inherent risk factor in this offering to the extent that Prime has
only had very limited revenue growth from the time of its initial business
conception in 1985 to the present and experienced a net loss in calendar year
2001 and the first quarter of 2002. The risk is that if a company does not
ultimately create earnings growth, there is little likelihood that its shares
will maintain any market value. Each prospective investor in this offering
should understand that one of the anticipated objectives of participating in a
public company is to participate in a company which has significant future
potential for revenue growth and resulting net earnings. In this particular
offering, the historical record has shown a very modest amount of revenue growth
by Prime from its inception and even less significant growth in net profits,
with a loss in 2001 and 2002 to date. There remains a question of whether
investment return can be maximized to investors in this offering unless the
limited amount of proceeds being raised by this offering significantly
contribute to an increase in revenues and net income which assumption must
remain an open question until actual proceeds are expended and operating results
are computed.
10. BECAUSE PRIME IS ANTICIPATED TO OPERATE THROUGH ITS SUBSIDIARIES IN
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HIGHLY REGULATED FIELDS, GOVERNMENT REGULATION AND POLICIES MAY LIMIT OR
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ELIMINATE FUTURE POTENTIAL PROFITS.
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Each of the areas of financial services in which Prime participates is subject
to significant governmental regulation and policy control. As a small company,
government regulation may pose a burden of operating profitably or efficiently.
For instance, the area of insurance sales is subject to greater than average
government regulation of terms, pricing and persons who may engage in insurance
sales. In like manner, the providing of investment advice by Belsen Getty
12
requires particular licensing and reporting requirements. Each investor in this
offering should be aware that the areas of financial and business planning,
health and business insurance and other facets of the services in which Prime
participates through its two operating subsidiaries are significantly controlled
by government regulation and policy. For instance, the sale of insurance and
insurance agents are regulated by an insurance commission or other governmental
agency on the state level. Additionally, the providing of investment advice and
services is regulated on the federal and state level as investment advisory
services. The change or modification of government regulation and policy in any
of these or other related areas in which the company operates or the failure of
any principal to maintain his status as a licensed professional may cause a
future loss of earnings or earnings potential.
11. THE PERSONAL CONTACTS USUALLY REQUIRED IN PRIME'S TYPE OF BUSINESS
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MAY LIMIT THE GROWTH OF PRIME AS A PUBLIC COMPANY.
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There is a special risk factor in this offering in that the nature of the
business products and services provided by Prime, through its operating
subsidiaries, has historically been associated with personal contacts and
relationships which may limit potential future growth of the company. A business
upon which personal contacts and relationships are paramount may be limited in
growth potential to the time available to those necessary to maintain such
contacts. Moreover, a business based on personal expertise and contacts is
always at great risk if key persons maintaining those contacts leave the
business. Each investor in this offering should understand that much of the
limited success of Prime to date revolves around and has arisen out of the
personal expertise and contacts of its principal management personnel in meeting
with and personally providing the services which the company extends to other
business entities and individuals. There is no certainty that even with
additional capital raised with this or any subsequent funding activities, Prime
will be able to create significant growth in this type of industry due to the
requirement of the personal nature of such contacts and efforts to increase
business activities. This consideration should remain as a significant risk
factor to prospective investors.
12. LARGE INSTITUTIONAL COMPETITORS MAY CAUSE PRIME NOT TO REALIZE
------------------------------------------------------------------
FUTURE REVENUE TARGETS OR POTENTIAL PROFITS.
------------------------------------------------
Prime may come under price and marketing pressure from large institutional
service companies providing essentially the same or related types of services or
financial products at a lower cost due to economies of scale. Large competitors
pose a special risk to a small company like Prime in a similar industry in that
the larger competitor may offer and supply services or product at less expense
and attract away necessary customers or engage in larger and more effective
marketing. There appears to be a growing trend in financial and insurance
services where large institutional companies such as national CPA firms,
insurance companies, banks and brokerage firms provide various forms of
financial planning and insurance services. There appears to be a significant
risk factor in this offering to you that Prime, in the future, may not be able
to compete effectively with such large institutional service companies who may
provide financial and business planning and other related business planning or
insurance on a lower cost basis than the company can afford to provide due to
economies of scale and worldwide marketing abilities.
13. THERE IS A RISK THAT A FUTURE CONTROLLING SHAREHOLDER MAY BE
------------------------------------------------------------------
SUBJECT TO EXTENSIVE REGULATION AS A CONTROL PERSON OF AN INVESTMENT ADVISORY
--------------------------------------------------------------------------------
FIRM.
-----
Belsen Getty, LLC, as a subsidiary of Prime, currently conducts business, in
part, as an investment advisory firm. There is a risk that if in the future some
new shareholder becomes a controlling shareholder of Prime, they may be required
13
to license and be regulated under state and/or federal law as the controlling
person of an investment advisory firm. A controlling shareholder would be a
shareholder who exercises actual control over Prime, or may be deemed to
exercise such control because of stock ownership (usually of 10% or more) or by
being a principal officer or director. Registration as an investment advisor
would entail substantial regulation and filing requirements as a highly
regulated profession. In addition, there may arise significant limitations on
anyone required to be licensed as an investment advisor in their ability to hold
and trade public securities.
USE OF PROCEEDS
In this offering, Prime will receive gross offering proceeds, if the
offering is closed, of either $500,000 in the event of the minimum offering, or
a maximum of $750,000. The company reserves the right to close the offering
during the offering term at any point between the minimum offering and the
maximum offering. In the event the offering is closed as a minimum offering
there would only be $20,000 in working capital reserves allocated to Prime. All
amounts raised over the minimum offering will be allocated to the working
capital reserves of Prime. From the gross proceeds, the company will also deduct
the estimated offering cost of approximately $45,000 which are estimated to be
allocated between audit and accounting work, legal services and for printing,
filing fees & miscellaneous costs of the offering as estimated below.
In the minimum offering, as contrasted to the maximum, it is
anticipated the working capital reserve to Prime would be reduced from $270,000
to $20,000 and there would be no acquisition fund. All additional investment
proceeds received over the minimum offering will be applied to an increase in
the working capital reserve fund of Prime. The primary purpose of the Prime
working capital reserves are presently intended to create an acquisition fund
for insurance agencies or their book of business to be acquired through Fringe
Benefit.
From the anticipated net offering proceeds, Prime would employ the
proceeds in three specific applications. In the event of the maximum offering,
approximately $370,000 would be used by Prime directly for additional management
personnel, general administrative costs and working capital and acquisition
reserves. Approximately $250,000 of the working capital reserve allocated to
Prime would be available for anticipated acquisitions by Fringe Benefit.
Alternatively, some of these proceeds may be used to retain new agents, though
there is no specific plan to so employ these funds. The balance of the proceeds
would be allocated approximately $220,000 to Fringe Benefit Analysts and
$115,000 to Belsen Getty to be specifically applied as set-out in the following
estimated net proceed charts.
14
EACH PROSPECTIVE INVESTOR SHOULD UNDERSTAND THAT THE FOLLOWING TABLE
CONSTITUTES OUR BEST PRESENT ESTIMATE OF THE USE OF PROCEEDS, BUT THAT WE MAY
VARY FROM THIS OUTLINE IN BOTH TYPE AND AMOUNT OF EXPENDITURE IN THE EXERCISE OF
SOUND BUSINESS JUDGMENT IF WARRANTED BY A MATERIAL CHANGE OF FUTURE
CIRCUMSTANCES OR EVENTS. SUCH POTENTIAL CIRCUMSTANCES MAY INCLUDE THE INABILITY
OF FRINGE BENEFITS TO FIND SUITABLE ACQUISITION CANDIDATES OR INSURANCE CUSTOMER
LISTS ("BOOK OF BUSINESS'). THERE MAY ALSO BE POTENTIAL CHANGES IN THE INSURANCE
OR FINANCIAL PLANNING INDUSTRIES REQUIRING THE COMPANY TO PUT MORE EMPHASIS ON
MARKETING, OR TO ALLOCATE MORE FUNDING TO ONE OR THE OTHER ASPECTS OF ITS
BUSINESS.
SPECIFICALLY, FUNDS HELD FOR ACQUISITION MAY BE USED IN DIFFERENT
AREAS IF SUITABLE ACQUISITION OPPORTUNITIES ARE NOT FOUND WITHIN A REASONABLE
PERIOD OF TIME. PRIME UNDERTAKES FOR THE PURPOSES OF THIS OFFERING TO EMPLOY
SUCH RESERVES FOR ACQUISITION WITHIN EIGHTEEN MONTHS FROM THE CLOSE OF THE
OFFERING. IF NOT USED FOR ACQUISITION WITHIN SUCH PERIOD, THE FUNDS WILL BE USED
PRIMARILY TO ENHANCE MARKETING AND OPERATIONS, INCLUDING ANTICIPATED COMMISSION
DRAWS TO NEW AGENTS, RECRUITING AND TRAINING OF NEW AGENTS, ADDITIONAL EMPLOYEES
AS NEEDED AND SIMILAR PURPOSES; WITH A REASONABLE AMOUNT TO BE MAINTAINED AS A
WORKING CAPITAL RESERVE. NO PROCEEDS WILL BE USED TO COMPENSATE EXISTING
OFFICERS OR DIRECTORS IN ANY MANNER.
IT IS NOT POSSIBLE FOR THE COMPANY TO MORE SPECIFICALLY DETERMINE IN
ADVANCE, THROUGH THE EXERCISE OF REASONABLE BUSINESS DISCRETION, THE EXACT
ALTERNATIVE USE OF SUCH FUNDS IN A FUTURE BUSINESS ENVIRONMENT. CHANGING
BUSINESS CONDITIONS COULD REQUIRE SOME UNFORESEEN AND UNRELATED USE OF THESE
PROCEEDS, IF RAISED.
HOWEVER, THE COMPANY UNDERTAKES TO SUBMIT ANY MATERIAL CHANGE IN
BUSINESS PURPOSE TO A SUBSEQUENT VOTE OF SHAREHOLDERS.
15
MAXIMUM OFFERING: $750,000
GENERAL DESCRIPTION OF INTENDED EXPENDITURE DOLLAR AMOUNT PERCENTAGE OF
OFFERING(ROUNDED)
1. Estimated offering costs: $ 45,000 6.0%
--------- ---------
a. Legal fees $ 20,000 2.7%
b. Audit and accounting review expense $ 20,000 2.7%
c. Printing, mailing and distribution $ 2,500 .33%
d. State Filing and Edgar processing fees $ 2,500 .33%
2. Estimated allocation to Prime Resource: $370,000 49.3%
--------- ---------
a. Salaries to new administrative staff members1 $ 20,000 2.7%
b. Management fees2 $ 30,000 4.0%
c. General and administrative costs
1. Ongoing legal $ 10,000 1.3%
2. Ongoing accounting $ 10,000 1.3%
3. Ongoing employee training $ 5,000 .67%
4. Employee training supplies $ 1,500 .20%
5. Additional financial modeling software $ 2,000 .27%
6. Website development and enhancement $ 20,000 2.67%
7. Financial public relations $ 1,500 .20%
d. Working capital reserves
1. Recruitment expense (employees) $ 10,000 1.3%
2. Entertainment budget (insurance agents) $ 10,000 1.3%
3. Acquisition of insurance companies or business3 $250,0003 33.3%
3. Fringe Benefit Analysts $220,000 29.3%
--------- ---------
a. Advertising
1. Radio $ 5,000 .67%
2. Direct Mail $ 12,000 1.6%
3. Telemarketers $ 5,000 .67%
4. Online promotion $ 3,000 .40%
b. Recruiting new agents
1. Entertainment $ 15,000 2.0%
2. Recruiting services (headhunter) $ 10,000 1.3%
3. Seminars $ 20,000 2.67%
4. Travel expenses $ 10,000 1.3%
5. Lap top and presentation software $ 10,000 1.3%
6. Legal due diligence expense $ 10,000 1.3%
(Continued on following page)
16
PERCENTAGE OF
GENERAL DESCRIPTION OF EXPENDITURE DOLLAR AMOUNT OFFERING (ROUNDED)
c. Trade Show
1. Location deposits $ 3,000 .40%
2. Booth preparation $ 5,000 .67%
3. Travel Expenses $ 2,000 .27%
d. Marketing Fringe Benefit Advantage program
1. Mailing lists purchase $ 15,000 2.0%
2. Telemarketing follow-up $ 10,000 1.3%
3. Brochure layout and design $ 2,500 .33%
4. Printing brochure $ 10,000 1.3%
5. Travel expense $ 10,000 1.3%
6. Mailing expense $ 2,500 .33%
e. Additional sales materials
1. Design of new product brochures $ 2,500 .33%
2. Printing expense $ 7,500 1.0%
f. New service personnel
1. Recruit and train $ 2,500 .33%
2. Salary and benefits $ 47,500 6.3%
4. Belsen Getty $ 115,000 15.3%
-----
a. Marketing budget
1. Mailing development $ 5,000 .67%
2. List purchase ongoing $ 10,000 1.3%
3. Printing and mailing $ 20,000 2.67%
4. Telemarketing follow-up $ 15,000 2.0%
b. Relocation budget
1. Moving personnel $ 2,500 .33%
2. Moving supplies $ 5,000 .67%
3. Reconfigure Telecom and network $ 2,500 .33%
c. New equipment and software
1. New server and Lan $ 10,000 1.3%
d. New service personnel
1. Recruit and train $ 2,500 .33%
2. Salary $ 27,500 3.67%
e. Consulting service personnel (part-time) $ 15,000
2.0%
TOTAL $ 750,000 100%
(1)No proceeds of the offering will be employed to pay salaries or benefits
to any current officer or employee; however, in the event the offering is
closed, Prime will most likely hire some new employees.
(2)Management fees will not be used to compensate or augment amounts paid
officers or directors, but may be used to create incentive payments for
employees or insurance agents and to expand the number of employees as
necessary.
(3)Prime is maintaining a large working/acquisition capital reserve in the
maximum offering in anticipation that Fringe Benefit Analysts will request to
draw upon this reserve to fund its intended efforts to acquire other insurance
brokerage companies or their book of business.
17
MINIMUM OFFERING: $500,000
PERCENTAGE OF OFFERING
GENERAL DESCRIPTION OF INTENDED EXPENDITURE DOLLAR AMOUNT (ROUNDED)
1. Estimated offering costs: $ 45,000 9.0%
-----------
a. Legal fees $ 20,000 4.0%
b. Audit and accounting review expense $ 20,000 4.0%
c. Printing, mailing and distribution $ 2,500 .50%
d. State filing and Edgar processing fees $ 2,500 .50%
2. Estimated allocation to Prime Resource $ 120,000 24.0%
---------- -----
a. Salaries to new administrative staff members $ 20,000 4.0%
b. Management fees $ 30,000 6.0%
c. General and administrative costs
1. Ongoing legal $ 10,000 2.0%
2. Ongoing accounting $ 10,000 2.0%
3. Ongoing employee training $ 5,000 1.0%
4. Employee training supplies $ 1,500 .30%
5. Additional financial modeling software $ 2,000 .40%
6. Website development and enhancement $ 20,000 4.0%
7. Financial public relations $ 1,500 .30%
d. Working capital reserves $ 20,000 4.0%
3. Fringe Benefit Analysts $ 220,000 44.0%
---------- -----
a. Advertising
1. Radio $ 5,000 1.0%
2. Direct mail $ 12,000 2.4%
3. Telemarketers $ 5,000 1.0%
4. Online promotion $ 3,000 .60%
b. Recruiting new agents
1. Entertainment $ 15,000 3.0%
2. Recruiting Services (headhunter) $ 10,000 2.0%
3. Seminars $ 20,000 4.0%
4. Travel expenses $ 10,000 2.0%
5. Lap top and presentation software $ 10,000 2.0%
6. Legal due diligence $ 10,000 2.0%
(Continued on following page)
18
PERCENTAGE OF OFFERING
GENERAL DESCRIPTION OF INTENDED EXPENDITURE DOLLAR AMOUNT (ROUNDED)
c. Trade show related expenses
1. Location deposits $ 3,000 .60%
2. Booth preparation $ 5,000 1.0%
3. Travel expenses $ 2,000 .40%
d. Marketing Fringe Benefit Advantage program
1. Mailing lists purchase $ 15,000 3.0%
2. Telemarketing follow-up $ 10,000 2.0%
3. Brochure layout and design $ 2,500 .50%
4. Printing brochure $ 10,000 2.0%
5. Travel expense $ 10,000 2.0%
6. Mailing expense $ 2,500 50%
e. Additional sales materials
1. Design of new product brochures $ 2,500 .50%
2. Printing expense $ 7,500 1.5%
f. New service personnel (2)
1. Recruit and train $ 2,500 .50%
2. Salary and benefits $ 47,500 9.5%
4. Belsen Getty $ 115,000 23.0%
---------- -----
a. Marketing budget
1. Mailing development $ 5,000 1.0%
2. List purchase ongoing $ 10,000 2.0%
3. Printing and mailing $ 20,000 4.0%
4. Telemarketing follow-up $ 15,000 3.0%
b. Relocation budget
1. Moving personnel $ 2,500 .50%
2. Moving supplies $ 5,000 1.0%
3. Reconfigure Telecom and network $ 2,500 .50%
c. New equipment and software
1. New serever and Lan $ 10,000 2.0%
d. New service personnel
1. Recruit and train $ 2,500 .50%
2. Salary $ 27,500 5.5%
e. Consulting service personnel (part-time) $ 15,000 3.0%
TOTAL $ 500,000 100%
See also "Plan of Operations" under Description of Business for a more
detailed description of intended business activities and expenditures over the
next year.
19
DETERMINATION OF OFFERING PRICE
-------------------------------
The price at which the shares are to be sold in this offering have been
arbitrarily set by the Board of Directors of Prime and does not attempt to
reflect any valuation or evaluation of the company's net worth or future trading
price, if any.
DILUTION
--------
Dilution is a term which normally defines the reduction in value per
share based upon book value which occurs to the investor in certain offerings
compared to the purchase price of those shares. The net tangible book value of
Prime Resource, Inc. (formerly Prime Resource, LLC) interest as of the attached
Balance Sheet, dated September 30, 2002, was $213,933 and is estimated to be
$0.08/share in the present corporate form.
If the maximum offering is sold, the net tangible book value would
increase from approximately $0.08/share to $0.31/share or a $0.23 per share
increase. In the minimum offering, the increase would be from $0.08/share to
$0.23/share or $0.15 per share increase.
By way of specific illustration, an investor in this offering is
paying $5.00 per share. It is estimated that the net worth per share after the
completion of the maximum offering will only be approximately $0.31 per share.
Therefore, each investor in this offering will suffer an immediate estimated
dilution to his investment of $4.69 per share or 94 % in the maximum offering;
and $4.77 per share or 95 % in the minimum offering. Dilution would generally be
pro rated between the minimum and maximum offering if closed between those
extremes. These dilution ranges are illustrated in the following graphical
representations:
Maximum offering Minimum Offering
Value Subscription Value share after Value Subscription Value share
$5.00/share offering $5.00/share after offering
100% $0.31/share 100% $ 0.23/share
(Rounded)1 (Rounded) 1
Dilution 95%
Dilution 94% $4.77/Share
$4.69/Share
20
In this offering dilution primarily arises because the original
founders, who organized the corporation and the predecessor limited liability
company, received shares or other ownership interests for intangible
contributions to Prime which are difficult to value. As a result, there will not
be a significant net worth per share prior to this offering and your cash
subscription will, as a result, be "diluted" in value.
1The computation of value share after offering is based on offering proceeds,
net of estimated offering costs.
PLAN OF DISTRIBUTION
--------------------
General
Prime does not intend to employ the services of any underwriter or
other broker/dealer to place or sell its securities. Prime believes it can place
the limited amount of securities being offered by this registration through the
efforts of a member of its own management group, Mr. Andrew Limpert, who will
not be paid any consideration, commission or other compensation for his selling
and placement efforts. Consequently, no provisions for commissions have been
provided for in this prospectus. Should management determine, at any time, that
it is necessary to sell this offering through the use of commissions to an
underwriter, management will reserve the right to amend this registration and
prospectus to reflect any such commission arrangements and to continue with the
offering in accordance with all other terms and provisions. Any employment of an
underwriter would require the filing and review of a post effective amendment
with the SEC and applicable state securities regulatory agencies.
Issuer/Agent
It is presently anticipated that Mr. Andrew Limpert will be exclusively
responsible for the efforts to sell the Prime shares in this offering to various
business contacts and acquaintances through delivery of this prospectus. Mr.
Limpert is currently acting as the Treasurer and a member of the Board of
Directors. We cannot promise the offering will be sold, as Mr. Limpert,
Secretary and CFO, will only engage in these efforts on a part-time basis.
Obviously, there is an indirect benefit to management, as principal
shareholders, if the shares are sold in this offering as the management
shareholders would most likely realize an increase in the value of their shares
after this offering and potentially an active market for their shares. Should
any other member of management be qualified to act and in fact engages in
selling efforts for Prime such fact will be supplementally disclosed to any
prospective investor. In addition, any additional selling party for the issuer
would require the filing and review of a post effective amendment with the SEC
and corresponding state securities regulatory agency. There is no present intent
or expectation that any other issuer/agent will be employed.
Mr. Limpert as an issuer agent is relying upon the exclusion from being
required to qualify and license as a broker/dealer in his anticipated selling
efforts, pursuant to SEC Rule 3(a) 4-1 under the Securities and Exchange Act of
1934. In essential terms, Prime and Mr. Limpert believe he satisfies the
following tests of the Rule:
21
1) Mr. Limpert is not subject to a statutory disqualification
to act as an issuer agent as such term is defined under
Section 3(a) 4-1 of the Securities Act of 1934;
2) Mr. Limpert will not be compensated for his selling
efforts in any manner, though he may be reimbursed direct
selling costs paid out-of-pocket;
3) Mr. Limpert is not now and will not be at the time of his
selling effort an associated person with any broker/dealer.
Mr. Limpert has not been associated with a broker/dealer
within the past 9 years.
4) Mr. Limpert will meet each of the following conditions:
(i) Mr. Limpert will continue to perform
substantial duties for the issuer at the date of the
offering;
(ii) Mr. Limpert has not acted as a selling
agent within the preceding 12 months;
(iii) Mr. Limpert has not and will not
engage in selling efforts for any issuer more than
once every 12 months.
Mr. Limpert has been licensed on one prior occasion in Utah to act as
an issuer/agent and will seek such designation in this offering. It is believed
Mr. Limpert, or any subsequently designated management sales agent, in the
intended selling efforts of the Prime shares being registered will fully meet
the safe harbor requirement of a non-broker issuer agent pursuant to Rule 3(a)
4-1 as set-out above. It is not anticipated that Prime will employ an
issuer/agent other than Mr. Limpert. Any prospective investor wishing a copy of
this rule or further explanation of the company's determination of compliance
will be provided a copy and explanation prior to investing upon request to
Prime.
In the unanticipated event that Prime determines it is necessary to
hire and pay one or more independent broker/dealers to attempt to sell this
offering, Prime will amend this registration statement and prospectus by a
post-effective amendment to disclose all such underwriting terms. No
broker/dealer will be allowed to engage in sales or solicitations until any such
post-effective amendment becomes effective. Each prospective investor is also
advised that prior to any involvement of any broker/dealer in the offering any
broker/dealer would be required to clear the underwriting terms and compensation
with the National Association of Securities Dealers, Corporate Finance
Department.
Sales to Officers and Affiliates
Each officer, director or affiliated persons may purchase shares in
this offering for cash at the offering price without restriction. There is no
limitation on the number of securities which may be purchased by these
affiliated persons. In like manner, there is no obligation or commitment by any
officer, director or affiliate to purchase any shares in this offering. All
securities purchased by any officer, director, or person able to direct or
influence the company as a control person will not be freely tradeable, but will
be subject to restrictions on resales, and must be purchased for investment
purposes requiring a holding period.
22
Minimum Purchase
There is no minimum subscription requirement.
Estimated Costs of Offering
The costs of this offering are estimated at $45,000, and include legal,
accounting, filing or permit fees, printing and related distribution costs.
These amounts are estimates but are believed reasonably accurate for the
intended size of this offering. Funds paid for offering costs will limit the
amount of net proceeds available for actual business purposes. See also Use of
Proceeds Section.
Subscription Account
Proceeds of the offering, up to the minimum amount, will be placed in a
segregated subscription account under control of Prime and will not be employed
for any business purposes of the company until or unless the minimum offering is
sold within the offering term of 180 days from the date appearing on the face of
this prospectus. If the minimum offering is not fully sold and collected within
such offering period, then the offering will be terminated and all proceeds will
be returned without deduction for costs or addition of any interest. Prime will
obtain an address from each subscriber and will return all proceeds within ten
days of the termination of the offering to that address. Any interest earned on
the subscription account will be employed by Prime to pay for anticipated
offering costs and return of subscription proceeds to investors.
In the event of the close of the minimum offering, Prime will employ
any additional proceeds of this offering upon receipt without further utilizing
the subscription account.
Closing Offering
Prime reserves the right to close the offering at any time within the
offering term of 180 days whenever the minimum offering proceeds have been
received in the subscription account, even if less than the maximum offering has
been sold. Factors which may influence Prime's decision to close the offering
would be the effort required to continue sales and the rate at which
subscriptions were obtained up to the minimum offering. In all events, the
company will not sell more than the maximum offering and will close the offering
at any time that the maximum amount has been sold. The Use of Proceeds Section
reflects Prime's best present estimate of the use of proceeds in the event of
either the minimum or maximum offering amount being received. The offering will
most likely be closed at some point between the minimum and maximum. Proceeds
available for working capital reserves to Prime will be increased by each dollar
raised over the minimum offering.
Initial Sales Jurisdiction
We intend this offering will be sold primarily to citizens of the
State of Utah, based upon a coordination filing in that jurisdiction. Should
Prime deem it appropriate, it may attempt to place its securities in one or more
additional jurisdictions where the offered shares may be qualified or registered
by coordination or similar rule or process. That is, Prime will be deemed to be
qualified as a registered offering in those jurisdictions upon clearance of this
23
registration with the SEC and a notice type filing in the appropriate state. If
the offering is offered or sold in other jurisdictions, the offering must be
registered or qualified under the applicable state law of that jurisdiction.
Prime does not intend to register or qualify this offering in any other
jurisdiction for sale unless such registration can primarily be achieved by
coordination without the necessity of merit review or substantial additional
disclosure requirements. However, should Prime elect to sell in any jurisdiction
that imposes any additional disclosure requirements, they will be included in
this offering as a supplemental disclosure.
No Trading Market
Prime has not secured a commitment to list or trade the securities
being registered through any broker/dealer and there is no present assurance
that a public market will exist for the securities, even in the event of a
successful completion of this offering. Each prospective investor should
consider the potential lack of a public market developing as a significant risk
factor. Management will work to obtain the listing of the securities after or
concurrently with this offering by one or more broker/dealers, but can give no
warranty or assurance that they will be successful in such efforts.
No Registration Commitment
No shares of current management or original shareholders are being
registered pursuant to this offering and no intent or obligation exists by Prime
to currently register existing issued shares in any manner.
Penny Stock Limitations
Broker/dealer transactions in shares trading under $5.00/share are
generally subject to certain specific disclosure requirements and limitations on
trading known commonly as the "Penny Stock Rules". While the penny stock rules
are not believed applicable to the initial issuance of the shares subject to
this issuer/agent registration and sale, there is a high probability such rule
would apply to subsequent sales of Prime stock. The application of the penny
stock rules may impair the tradeability or price at which your shares may
subsequently be resold.
The following purports to be a general summary of the penny stock
rules. However, any prospective investor may obtain a complete copy of the
applicable rules from Prime upon request or from the SEC online, (Rules 15g-2
through 15g-6 of the Exchange Act).
The penny stock rules require a broker/dealer prior to a transaction in
a penny stock, not otherwise exempt from the rules, to deliver a standardized
risk disclosure document that provides information about penny stocks and the
risks in the penny stock market. The broker/dealer also must provide the
customer with current bid and offer quotations for the penny stock, the
compensation of the broker/dealer and its salesperson in the transaction, as
well as monthly account statements showing the market value of each penny stock
held in the customer's account. In addition, the penny stock rules generally
require that prior to a transaction in a penny stock, the broker/dealer make a
special written determination that the penny stock is a suitable investment for
the purchaser and receive the purchaser's written agreement to the transaction.
These disclosure requirements may have the effect of reducing the level
of trading activity in the secondary market for a stock that becomes subject to
24
the penny stock rules. Our shares may someday be subject to such penny stock
rules and our shareholders may find it more difficult to sell their securities
because of such rules.
LEGAL PROCEEDINGS
-----------------
We are not aware of any pending or threatened legal proceedings or
claims in which we are involved.
DIRECTORS, EXECUTIVE OFFICERS, OR CONTROL PERSONS
-------------------------------------------------
---------------------------------------- ------------------------------------- -------------------------------------
NAME POSITION CURRENT TERM OF OFFICE
---------------------------------------- ------------------------------------- -------------------------------------
Mr. Terry Deru* Director, CEO/ President/ Appointed Director in
Organizational Minutes-April, 2002.
Will serve as a Director until
first annual meeting, not yet set.
Will serve as an officer pursuant
Chairman of the Board to leave of the Board of Directors.
---------------------------------------- ------------------------------------- -------------------------------------
Mr. Scott Deru* Director/V.P. Operations Appointed Director in
Organizational Minutes - April,
2002. Will serve as Director until
first annual meeting, not yet set.
Will serve as an officer pursuant
to leave of the Board of Directors.
---------------------------------------- ------------------------------------- -------------------------------------
Mr. Andrew Limpert* Director/Treasurer/Secretary/ CFO Appointed Director in
Organizational Minutes - April,
2002. Will serve as Director until
first annual meeting, not yet set.
Will serve as an officer pursuant
to leave of the Board of Directors.
---------------------------------------- ------------------------------------- -------------------------------------
* Mr. Scott Deru and Mr. Terry Deru are brothers. Mr. Limpert was not an owner
of Prime LLC, but acted as an advisor to Prime LLC and has become a shareholder
of Prime Resource, Inc., the successor entity to Prime LLC.
25
MR. TERRY DERU - DIRECTOR , CEO/PRESIDENT, CHAIRMAN OF THE BOARD
Age:48
Mr. Deru is currently a consultant and manager with Belsen Getty LLC
and an officer/director in Prime as outlined above. He also served Belsen Getty
as an officer/director when operating as a predecessor corporation. Belsen Getty
is a Salt Lake City, Utah based financial and retirement planning firm. The
firm, or its predecessor, has been a licensed investment advisory firm with the
SEC and Utah since 1984. Mr. Deru is a Certified Financial Planner and a
Registered Financial Consultant. Mr. Deru has been with Belsen Getty since 1985.
Since affiliation with Belsen Getty, he has served as a consultant and director
from 1985 to 1998 and as a consultant from 1998 to the present. He has been the
manager of Belsen Getty since July, 2000. Mr. Deru will continue his part-time
affiliation with Belsen Getty while also acting as the part-time officer of
Prime. The estimated allocation of services is set-out in the following table.
Mr. Deru also acted as a part-time CEO for Kinship Systems, Inc., a small public
company which is not presently active. Kinship abandoned its original marketing
efforts of attempting to sell licensed accident reconstruction software in early
2002 and has subsequently acquired a resort management company as its wholly
owned operating subsidiary. Mr. Deru resigned as an officer and director
pursuant to this reorganization on November 14, 2002, and he is no longer
affiliated with that company. The company continues under a new name of
Caribbean Clubs International, Inc. (CCI). Mr. Deru obtained a B.A. degree from
the University of Utah in Salt Lake City, Utah, in finance in 1977 and an M.B.A.
degree from that institution in 1979.
MR. SCOTT DERU - DIRECTOR, VICE-PRESIDENT OPERATIONS
Age: 42
Mr. Scott Deru has been employed full-time since 1982 as a principal
officer of Fringe Benefit Analysts. Since 1998 he has been the manager and
principal officer of Fringe Benefit Analysts, LLC, one of the current subsidiary
operating companies of Prime. In this capacity, he has primarily been engaged in
creating and selling life, health and other insurance products for business
clients of Prime, LLC, now known as Prime, Inc. In addition to his full-time
services to Fringe Benefit Analysts, LLC he worked as a director of insurance
for Care of Utah, Inc., developing insurance programs, primarily for the health
care industry from October, 1994 to July, 2000. Mr. Deru is a 1984 graduate of
the University of Utah with a B.S. degree in finance from that institution. He
is also a Registered Health Underwriter and a Registered Employee Benefit
Consultant. He presently is also a licensed insurance consultant and agent
within the state of Utah, and by reciprocity in other western states.
MR. ANDREW LIMPERT - DIRECTOR/SECRETARY/TREASURER/CFO
Age: 33
Mr. Limpert has been a financial and retirement planner associated with
the Salt Lake based firm of Belsen Getty, LLC since 1998. He is licensed as a
Registered Investment Advisor Representative, but he is not a Certified
Financial Planner. As a licensed Investment Advisor, Mr. Limpert has completed
licensing requirements and testing prescribed by the State of Utah. Mr. Limpert
plans to continue his full-time employment with Belsen Getty. He will also serve
26
as a director, treasurer, CFO and secretary for Prime. Prior to the foregoing
positions, he worked with Prosource Software of Park City, Utah as a software
sales agent from 1993 to 1998. Mr. Limpert is assisting Prime on a limited as
needed basis. In 1998 Mr. Limpert served briefly as an interim outside director
in a small public company, then known as Mt. Olympus Resources, Inc. Mr. Limpert
resigned as part of a reorganization of Olympus in November, 1998. Mr. Limpert
was also affiliated on a part-time as-needed basis with a small presently
inactive company known as Kinship Systems, Inc. as a director and its
treasurer/secretary and CFO/accounting officer. Due to the company's present
inactivity, his time commitment and services to Kinship had been minimal. Mr.
Limpert was appointed to these positions in February, 2000 as part of the
initial organization. As noted above, Kinship acquired a new operating
subsidiary and Mr. Limpert resigned as an officer and director effective
November 14, 2002. He has no continuing affiliation with Kinship/CCI. Mr.
Limpert also acts as a business and financial consultant to various small public
and private companies. Mr. Limpert holds a B.S. degree in finance from the
University of Utah in Salt Lake City, Utah in 1995 and an M.B.A. from
Westminster College of Salt Lake City, Utah in 1998.
Estimated Allocation of Time and Services
The following table attempts to set-out the present estimated
allocation of time to be devoted by the foregoing officers for Prime and each of
the Prime related entities:
--------------------------------------- ------------------- ------------------ ---------------
BELSEN FRINGE
NAME PRIME GETTY BENEFIT
--------------------------------------- ------------------- ------------------ ---------------
Mr. Terry Deru 20% 80% 0%
--------------------------------------- ------------------- ------------------ ---------------
Mr. Scott Deru 10% 0% 90%
--------------------------------------- ------------------- ------------------ ---------------
Mr. Andrew Limpert 20% 80% 0%
--------------------------------------- ------------------- ------------------ ---------------
Remuneration of Directors & Officers
------------------------------------
Directors
---------
No director will be provided remuneration for service in that capacity,
but may be paid a stipend for attending meetings as future revenues may permit.
It is anticipated Directors will receive $500 per Board Meeting.
Officers
--------
Historically, the present officers in Prime, except for Mr. Limpert, acted as
working members of Prime, LLC from its inception in 1996. Mr. Limpert became a
member in January, 2002. Prime LLC also had associated as a founding member Mr.
William Campbell, whose interest in Prime LLC was bought out by Prime LLC in
December, 2001 and transferred to Andrew Limpert in January, 2002 prior to the
organization of Prime, Inc., as more particularly described under "Description
of Business". Mr. Campbell has no further interest or affiliation with Prime or
27
either of its subsidiaries. As previously indicated, Prime, LLC had as its
wholly owned subsidiaries Belsen Getty, LLC and Fringe Benefit Analysts, LLC.
Subsequently, Belsen Getty and Fringe Benefits became subsidiaries of Prime,
Inc. the successor entity. These subsidiaries, while subsidiaries of Prime, LLC,
passed through, as limited liability companies, all of their net earnings or
losses to Prime, LLC, which then distributes or attributes earnings or losses
pro rata to the ownership interest. Prime will continue to receive these "pass
throughs" and will pay salaries for all officers and employees of its
subsidiaries, as well as general operating costs.
Under the present organization of the company, it will not be possible
for Prime corporation to simply pass through earnings derived from its operating
subsidiaries. Alternatively, each of the principal officers, named above, will
agree to serve the company for the following annual base salary in 2002: Mr.
Terry Deru $240,000, Mr. Scott Deru $240,000 and Mr. Andrew Limpert $165,000.
Additionally, Mr. Limpert's salary increased incrementally to $210,000 on
October 1, 2002, but the Derus will remain the same in 2002. The terms of this
compensation are more fully set- out in a set of Board Minutes and concurrently
executed three year employment agreements. Mr. Terry Deru and Mr. Scott Deru
will also primarily serve Prime by continuing to act as the managers of the
subsidiaries. Mr. Andrew Limpert will devote most of his time commitment to
responsibilities of Belsen Getty and be in charge of most day-to-day affairs of
Prime. It is anticipated Mr. Scott Deru and Mr. Terry Deru will serve full-time
in their responsibilities with the subsidiaries and discharge responsibilities
to Prime on an as-needed basis.
Each of the three principal officers serves Prime pursuant to a written
employment agreement which is essentially identical in terms for each officer,
except for the compensation provisions outlined above. The essential terms of
the employment agreements provide as follows:
(1) Each employment contract runs for three years from April 5, 2002;
(2) There are no currently adopted benefits or stock rights, except 18
days of paid leave per year for each officer;
(3) Prime may terminate the employment with or without cause. If
termination is without cause, the employee is to receive a severance
equal to three months pay. Otherwise, the employee is paid through the
month the notice of termination is given. The employee has no right to
terminate the agreement without cause.
(4) The employment contract has standard provisions protecting
proprietary rights and property of the company from being used by the
employee or appropriated;
(5) The employment agreement provides for the exclusive full-time
service by each officer to Prime or one or more of its subsidiaries.
Each prospective investor may view a copy of the employment agreements
prior to investing by viewing this registration statement online at the SEC
filing site (www.sec.gov.edgar), or by requesting a copy from Prime.
28
Shares Held By Management and Certain Security Holders
------------------------------------------------------
The following tables set forth the ownership, as of the date of this
prospectus, of our common stock by each person known by us to be the beneficial
owner of 5% or more of our outstanding common stock; by each of our directors;
and by all executive officers and our directors as a group. To the best of our
knowledge, all persons named below have sole voting and investment power with
respect to such shares.
--------------------------------------------------------------------------------------------------------------------
Current
Percentage of Percent of Total Common
Outstanding in the event Max. Off.
Title of Class Name and Address of Owner Current Shares Owned (Rounded) Sold (Rounded)1
--------------------------------------------------------------------------------------------------------------------
Common Stock Terry Deru
99 Cove Lane
Layton, Utah 84040 1,000,000 36% 34%
--------------------------------------------------------------------------------------------------------------------
Common Stock Scott Deru
6855 N. Frontier Drive
Mountain Green, Utah 84050 1,000,000 36% 34%
--------------------------------------------------------------------------------------------------------------------
Common Stock Andrew Limpert
8395 S. Parkhurst Circle
Sandy, Utah 84094 750,000 27% 26%
--------------------------------------------------------------------------------------------------------------------
Common Officers and Directors as
Stock a Group2 2,750,000 99% 94%
--------------------------------------------------------------------------------------------------------------------
(1)The difference in each officer's percentage of the total outstanding
in the event of the maximum or minimum offering is a de minimus amount less than
1%. As such, the maximum percentages are employed. Officers will have a slightly
greater fractional percentage of outstanding shares in the event of the minimum
versus the maximum offering.
(2)Mr. Don Deru, the natural father of Terry and Scott Deru, owns
50,000 shares, or about 1.8% of the currently outstanding shares. There are no
shareholders prior to this offering other than as listed above and Mr. Don Deru.
There are currently no arrangements which would result in a change in
our control. Prime has no warrants, options or other stock rights presently
authorized.
29
DESCRIPTION OF SECURITIES
-------------------------
The following description is a summary and is qualified in its
entirety by the provisions of our Articles of Incorporation and Bylaws, copies
of which have been filed as exhibits to the registration statement of which this
prospectus is a part.
General
-------
We are authorized to issue 50,000,000 shares of common stock with no
par value per share. As of April 5, 2002, there were 2,800,000 restricted shares
issued and outstanding. The company has only one class of shares, being its
common shares. Counsel for Prime has provided an opinion that all shares of
common stock outstanding are validly issued, fully paid and non-assessable. All
currently issued shares of Prime were issued pursuant to an Organizational
Meeting on April 5, 2002.
Voting Rights
-------------
Each share of common stock entitles the holder to one vote, either in
person or by proxy, at meetings of the shareholders. The holders are not
permitted to vote their shares cumulatively. Accordingly, the holders of common
stock holding, in the aggregate, more than fifty percent of the total voting
rights can elect all of our directors and, in such event, the holders of the
remaining minority shares will not be able to elect any of such directors. The
vote of the holders of a majority of the issued and outstanding shares of common
stock entitled to vote thereon is sufficient to authorize, affirm, ratify or
consent to any corporate act or action, except as otherwise provided by law.
Dividend Policy
---------------
All shares of common stock will participate proportionally in
dividends if our Board of Directors declares them out of the funds legally
available. These dividends may be paid in cash, property or additional shares of
common stock. We have not paid any dividends since our inception and presently
anticipate that all earnings, if any, will be retained for development of our
business. Any future dividends will be at the discretion of our Board of
Directors and will depend upon, among other things, our future earnings,
operating and financial condition, capital requirements, and other factors.
There can be no assurance that any dividends on the common stock will be paid in
the future.
Miscellaneous Rights and Provisions
-----------------------------------
Holders of common stock have no preemptive or other subscription
rights, conversion rights, redemption or sinking fund provisions. In the event
of our dissolution, whether voluntary or involuntary, each share of common stock
is entitled to share proportionally in any assets available for distribution to
holders of our equity after satisfaction of all liabilities and payment of the
applicable liquidation preference and preference of any outstanding shares of
preferred stock as may be created.
30
Shares Eligible For Future Sale
-----------------------------------
The 150,000 maximum shares of common stock to be registered by this
offering will be freely tradable without restrictions under the Securities Act
of 1933, except for any shares held by our "affiliates", which may be limited by
the resale provisions of Rule 144 under the Securities Act of 1933.
Currently, all of the 2,800,000 issued and outstanding shares were
issued on April 5, 2002 and would not be eligible for sale under Rule 144 as
restricted stock until April 6, 2003, assuming the other requirements of Rule
144 are satisfied as generally described below.
In general under Rule 144, as currently in effect, any of our
affiliates or other restricted shareholders after a one year holding period may
be entitled to sell in the open market within any three-month period a number of
shares of common stock that does not exceed the greater of (i) 1% of the then
outstanding shares of our common stock, or (ii) the average weekly trading
volume in the common stock during the four calendar weeks preceding such sale.
Sales under Rule 144 are also affected by limitations on manner of sale, notice
requirements, and availability of current public information about us.
Nonaffiliates who have held their restricted shares for one year may
also be able to sell under the foregoing conditions. Nonaffiliates who have held
their restricted shares for two years may be entitled to sell their shares under
Rule 144 without regard to any of the above limitations, provided they have not
been affiliates for the three months preceding such sale. There are currently no
nonaffiliated shareholders.
........
Further, Rule 144A as currently in effect, in general, permits
unlimited resales of restricted securities of any issuer provided that the
purchaser is an institution that owns and invests on a discretionary basis at
least $100 million in securities or is a registered broker-dealer that owns and
invests $10 million in securities. Rule 144A would allow our existing
stockholders to sell their shares of common stock to such institutions and
registered broker-dealers without regard to any volume or other restrictions.
Unlike under Rule 144, restricted securities sold under Rule 144A to
non-affiliates do not lose their status as restricted securities. It is not
anticipated Rule 144A will have any application to this offering.
INTEREST OF EXPERTS AND COUNSEL
-------------------------------
Our counsel, Julian D. Jensen, PC, has passed upon the legal status of
the company and our capacity to engage in this Registration. The firm has no
interest in Prime. Our auditors, Carver Hovey & Co. of Layton, Utah have opined
upon the attached and incorporated audited financial statements. This firm has
no interest in Prime and there are no material conflicts with the auditors.
31
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT VIOLATIONS
---------------------------------------------
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to our directors, officers and controlling persons,
we have been advised that in the opinion of the SEC, such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities, other than the payment by us of expenses incurred or paid by
our directors, officers or controlling persons in the successful defense of any
action, suit or proceedings, is asserted by such director, officer, or
controlling person in connection with any securities being registered, we may,
unless in the opinion of our counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by us is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issues.
ORGANIZATION OF THE COMPANY IN LAST FIVE YEARS
----------------------------------------------
As previously noted, Prime Resource LLC was formed in 1996 and remained
inactive until 1998 when it became the parent entity for Belsen Getty LLC and
Fringe Benefit Analysts LLC. Prime continued to March 29, 2002 as a Utah limited
liability company and operated exclusively through its two wholly owned
subsidiary limited liability companies, Belsen Getty, LLC and Fringe Benefit
Analysts, LLC. Prime converted to a corporate form of business on March 29th of
2002, largely in anticipation of the present public offering. Also, in 1998
Belsen Getty and Fringe Benefit Analysts converted from a corporate form to
their present LLC form. As otherwise discussed in this Prospectus, the
management of Prime Resource, Inc. will remain the same as its predecessor,
Prime Resource, LLC, though differently designated. The two operating
subsidiaries will continue with their existing business activities and
management as described in this Prospectus.
DESCRIPTION OF BUSINESS
-----------------------
General and Historical
----------------------
Prime Resource, as a corporate entity, was filed in Utah on March 29,
2002; however, essentially the same business purpose were engaged in by its
predecessor entity, Prime Resource, LLC, a Utah limited liability company as
organized in 1996, but not active until the 1998 acquisition of its present
subsidiaries; Belsen Getty and Fringe Benefit Analysts, LLC. Mr. Scott Deru
acted as the manager for Prime LLC. From 1990 to 1998, Belsen Getty and Fringe
Benefit Analysts collaborated as independent corporations. In 1998 Prime LLC
became the parent and coordinating entity and the two operating companies also
became wholly owned limited liability companies of Prime, LLC and changed their
business structure from corporations to limited liability companies owned by
Prime LLC.
32
As part of the 1998 reorganization, Mr. Scott Deru and Mr. Terry Deru
each contributed their 50% ownership interest in Fringe Benefit Analysts to
Prime, LLC. Mr. Terry Deru and Mr. William Campbell each contributed their 50%
ownership interest in Belsen Getty to Prime, LLC and Mr. Don Deru, the father of
Scott and Terry Deru, contributed capital. The resulting ownership percentages
in Prime, LLC. were Scott and Terry Deru at 361/2% each; Mr. William Campbell at
23% and Mr. Don Deru 4%. Prime, LLC was later dissolved of record in April, 2002
after transferring all assets to Prime, Inc.
Fringe Benefit Analysts was formed and licensed in November, 1984 in
Utah as a general insurance agency. The company initially was formed and
operated as a Utah corporation with Mr. Scott Deru as its president. It was
jointly owned by Scott Deru and Terry Deru from inception. Fringe Benefit
concentrated upon developing software to analyze employee benefits and writing
insurance for business related purposes, such as key man life policies, group
health plans and related insurance. Mr. Scott Deru and Mr. Terry Deru remained
joint owners from 1984 to 1998 when their ownership was acquired by Prime, LLC.
In 1985 Fringe Benefit started collaborating closely with Belsen Getty
LLC, which was primarily engaged in business consulting and financial planning.
Belsen Getty, which was initially formed in 1990. Belsen Getty, which was
engaged in advising firms in the formation of employee health , pension, stock
option and related plans, frequently referred clients to Fringe Benefit when
insurance funding was required. In like manner, Fringe Benefit would frequently
refer insurance clients needing business planning to Belsen Getty. However,
neither firm operates upon an exclusive basis as to these referrals.
Belsen Getty, Inc. was formed on November 9, 1990 by Mr. William
Campbell and Mr. Terry Deru as a successor to a Nevada corporation. Mr. Terry
Deru joined the firm in the summer of 1985 and purchased a 50% interest in
Belsen Getty, Inc. of Nevada from Mr. Campbell. All interest in Belsen Getty,
Inc. was transferred to Belsen Getty LLC in 1998 which was then exclusively
owned by Prime LLC. Mr. Terry Deru received a 36 1/2% interest in Prime and Mr.
Campbell a 23% interest in Prime.
In order to take advantage of some economies of scale and to work more
cohesively in cross-selling to the respective client base of Belsen Getty, Inc.
and Fringe Benefit Analysts, Inc. the foregoing reorganization occurred in 1998.
Prime Resource, LLC (a LLC organized on June 27, 1996, but having no real
business activity) was used as a holding company for the newly formed entities
of Belsen Getty, LLC and Fringe Benefit Analysts, LLC. These subsidiary entities
were formed on October 2, 1998 and became the successor firms for Belsen Getty,
Inc. and Fringe Benefit Analysts, Inc., respectively, each being wholly owned by
Prime Resource, LLC.
Mr. William Campbell became associated with Prime Resource LLC in 1998
resulting from a minimal cash contribution and his fifty per cent interest in
Belsen Getty. He received a 23% interest in Prime LLC.
In January, 2002 Prime LLC purchased Mr. Campbell's interest in Prime
for $100,000. The prior Campbell interest was assigned to Andrew Limpert on
January 10, 2002 in consideration for the acknowledgment of Limpert's advisory
and organizational services which were valued at $113,000. The 26 percent
membership share of the Company issued to Mr. Limpert was accounted for as
33
compensation expense and is included in "compensation and benefits" in the
statement of operations for the quarter ended March 31, 2002. The value of the
share of the Company issued to Mr. Limpert was based on what the Company was
required to pay a former member, Mr. William Campbell, for his 23 percent share
of the Company, in connection with the Company's termination and buy-out of Mr.
Campbell effective January 1, 2002. Mr. Don Deru, the father of Scott and Tery
Deru, held a 4% interest in Prime LLC since inception and exchanged his interest
in Prime LLC for a 1.8% sharehold interest in Prime, Inc.
In March, 2002, Prime LLC decided to incorporate in Utah in
anticipation of this offering and issued in April, 2002 to Mr. Limpert 750,000
shares of its common stock, (26% of the issued and outstanding) for his prior
and continuing consulting services for and to Prime. The other stockholders are
Mr. Terry Deru, 1,000,000 shares; Mr. Scott Deru, 1,000,000 shares; and Mr. Don
Deru, 50,000 shares. Fringe Benefit and Belsen Getty continued under their
existing structure as wholly owned subsidiaries of Prime, Inc. with Mr. Terry
Deru continuing as the manager of Belsen Getty and Mr. Scott Deru for Fringe
Benefit.
As limited liability companies, the historical revenues of Belsen
Getty, LLC and Fringe Benefit Analysts, LLC have flowed through to its member
and sole owner, Prime Resource, LLC. Within Prime the revenues, after payment of
all operating costs and wages and allowance for working capital reserves, were
divided between Mr. Scott Deru, Mr. Terry Deru and Mr. William Campbell, in
accordance with their limited liability ownership percentage, through December
31, 2001.
It was determined, upon incorporation of Prime Resource, Inc., that
this form of compensation and revenue transfer will no longer be feasible and
that the corporation will need to retain and report its income, if any, after
salaries, overhead and other expenses as retained earnings. Further, Prime, Inc.
has now entered into an employment contract with its three principal officers,
as generally described earlier under the outline of compensation and
subsequently described under the Executive Compensation Section. In their
respective capacities, management will be paid a fixed salary. Prime, Inc. would
then retain any net earnings for further business and expansion purposes.
Mr. Terry Deru, in addition to acting for Prime as its President and
Chief Executive Officer, will also continue to act as the Manager and principal
operator of Belsen Getty . Mr. Scott Deru will also devote a substantial
majority of his time to the business affairs of Fringe Benefit Analysts and such
other time as necessary as a corporate officer of Prime. It is anticipated that
Mr. Terry Deru will then assume most of the day-to-day management
responsibilities for Prime. Mr. Limpert will coordinate most governmental
filings and reporting duties for Prime, as well as continuing with Belsen Getty
as a consultant.
Over the past three years, Belsen Getty has contributed approximately
27% of the present revenues to Prime, LLC and Fringe Benefit Analysts has
contributed the remaining 73% of net revenue to Prime, LLC. As noted above,
Prime, LLC was dissolved in April, 2002 upon the transfer of assets to Prime,
Inc. Prime, Inc., like its predecessor, Prime LLC, is not anticipated to
generate any independent sources of revenue or income. All salaries and benefits
in Belsen Getty and Fringe Benefit Analysts have been and will be paid directly
by Prime.
34
Belsen Getty Business
---------------------
Belsen Getty is a Utah financial management company offering investment
advice, financial planning, pension and retirement planning and general business
consulting and planning for firms or individuals who may participate to the
extent they deem appropriate in any of these financial products and services.
Belsen Getty was originally formed as a Nevada corporation in 1990. Belsen Getty
remained active until 1996 and was a lapsed corporation continuing to conduct
business from 1996 to 1998 when it was reorganized as a Utah limited liability
company. Belson Getty has continued to date as a Utah limited liability company.
Belsen Getty manages assets primarily under a fee-based management system.
Belsen Getty uses sophisticated modeling software to complete its investment
advisory aspects of its services to clients who wish it to manage their funds
for various pension and retirement or other offered plans. In this capacity,
Belsen Getty also acts as an investment advisory firm.
Belsen Getty also has expertise in providing consulting services for
retirement planning, pension and general business financing and planning.
Belsen Getty offers to individuals retirement accounts, trust accounts,
as well as creating 401(k) plans and other pension plans for corporate clients.
These services may range from simple cash management to complex custom growth
portfolio planning for wealthy individuals or businesses.
Belsen Getty markets through several mediums. First, the firm has a
sophisticated database for tracking services to clients, prospects and business
associates. This tracking assures each client and prospect are contacted monthly
by mail and at least quarterly by phone or in person. Second, prospects that go
into this tracking system are located in several ways, such as referrals from
existing clients, referrals from other business associates and referrals from
Fringe Benefit Analysts, as well as direct mailing and educational seminars. To
a limited extent, the firm currently engages in prospect mailings and may
explore other media type advertising, depending upon the availability of
proceeds from this offering.
Belsen Getty is currently managed by Mr. Terry Deru and has six
full-time and one part-time employee.
Fringe Benefit Analysts Business
--------------------------------
Fringe Benefit Analysts is primarily a diversified independent
insurance broker which provides various lines of insurance, such as health,
life, dental, disability, etc., as needed by its clients to fund various
business, as well as employee related programs and plans. Fringe Benefit
Analysts also intends in the future to engage in recruiting independent agents,
rolling up and acquiring existing health care insurance agencies and/or their
book of business.
Fringe Benefit Analysts currently has seven full-time employees, one
part-time employee and over twenty sub-agents who act as independent contractors
in various insurance lines. Part of the proceeds being raised in this offering
will be used to retain and recruit additional agents. Funding for anticipated
future acquisitions will come from the anticipated acquisition reserves to be
held by Prime. There are no present acquisition agreements, candidates,
proposals or negotiations. Fringe Benefit has not historically, nor does it
35
presently intend to engage in any acquisition of an insurance or other business
from any related or affiliated party. Proceeds of this offering used for
acquisitions will not be with any entity or person related to or affiliated with
Prime or any member of its management.
Fringe Benefit Analysts is currently managed by Mr. Scott Deru, has 8
employees and approximately 20 agents.
Plan of Operation
-----------------
o Acquisitions. In the event of the maximum offering, a substantial
portion of net proceeds of the offering ( approximately $250,000 or 33%) would
be available for acquisition by Fringe Benefit Analysts to acquire other
insurance providers, or their policies and book of business. Those funds may
also be employed, alternatively, for recruitment of existing agents, though
there is no present intent or plan to employ these funds for recruitment.
At whatever level the offering is closed, the following programs
intended to create revenue and income growth will be funded and implemented:
o Enhancement of commission revenues. Management, primarily through the
use of the Fringe Benefits Advantage Program, will attempt to encourage current
subagents to write all their insurance through Fringe Benefit Analysts. Proceeds
of the offering will be used to contact existing agents with relationship to
explaining and demonstrating this program.
o Growth of Core Business. Revenues will be expended to advertise and
promote core business activities, including attracting new clients, soliciting
more agents to employ the advantages of the Fringe Benefit Advantage Program
whereby management fees for various programs are waived if multiple programs are
purchased through Fringe Benefit Analysts.
o Agent Recruiting. Management will use anticipated proceeds to recruit
full-time agents and promote various advantages and economies which can be
realized by agents being a full-time participant within a larger organization.
o Complementary Business Practices. Prime will attempt to advertise and
promote the "complete package" approach of comprehensive business and employee
plan planning coupled with affiliated competitive insurance funding by proposing
a one stop approach to such services.
Principal Products
------------------
Fringe Benefit Analysts
The principal service products of Fringe Benefit Analysts are the sale
and management of health and life insurance products to small and medium sized
businesses. Fringe Benefit Analysts sells insurance programs and policies
primarily offered by four major carriers: Altius Insurance (previously Pacific
36
Health Care), United Health Care, Intermountain Health Care and Regence Blue
Cross. Additionally, dental, long term care and disability insurance coverages
are offered on a group basis. The fees are standard commissions as set by the
providers themselves. A typical range for commissions in form of percentages
would be 2%-20%. Copies of our contracts with these providers have been filed as
exhibits to this registration.
Each of the four principal supplier contracts essentially provide for
Fringe Benefit to place prescribed health and other policies as group plans for
a specified fee payable to the insurance policy supplier. Of this prescribed
amount, Fringe Benefit is paid by the carriers a commission ranging from 2% to
20% depending on the policy placed. Each contract has an open termination date,
except for cause. The United Healthcare contract provides for a 60 day
termination notice without cause. The Altius Insurance contract (formerly
Pacific Healthcare) provides for a 30 day notice period and the Intermountain
Health Care provides for a one year notice period. Regence Blue Cross has a 90
day termination notice provision. The company reasonably believes, from its
current operating experience, that the providers will continue on an indefinite
basis to provide insurance policies under the contracts. No notice of
termination has been received.
The primary markets for each of the above listed products are for small
to medium sized companies located in the intermountain west. The size may vary
from as few as 2 employees to companies with an employee base as large as 300 or
more. The typical client will have between 10 to 100 employees. This is the
primary niche that Fringe Benefit has focused upon.
Fringe Benefit Analysts Advantage Program
-----------------------------------------
The Fringe Benefit Analysts Advantage Program (FBAA) has been recently
developed to aid employers in their administration of fringe benefits. Fringe
Benefit has exclusive rights to use the program in client retention and
marketing by each of its principal product suppliers. FBAA allows an employer to
electronically submit payroll data to a single administrator subcontracted by
Fringe Benefit. That administrator then provides the following services:
(1) 125(c) administration including plan documents, complete ongoing
accounting for each participant, forms, reimbursement to participants
and tax form 5500, if necessary.
(2) COBRA administration for those employees COBRA eligible. Services
include the mailing of all required notifications and the collection
and disbursement of any premiums paid by COBRA eligible participants.
(3) HIPAA and State Continuation Notices are available via a website
for employers requiring these notices to remain in compliance of the
applicable laws.
(4) Qualified Plan Administration including plan documents, participant
statements, record keeping, discrimination testing and tax form 5500.
These services simplify the administration process because the employer
deals with a single source for these services and everything is web-based,
allowing participants direct access to information, thus relieving the employer
37
of the burden to act as an intermediary for forms and information. Generally
these bundled services are provided at no cost to the employer under the
program. Fringe Benefit pays for the services on behalf of the employer at a
discounted rate due to the large volume of business directed to the
administrator. While yet unproven, preliminary indications point to the FBAA
program's success in attracting new clients to the firm.
Belsen Getty
------------
The principal products for the Belsen Getty subsidiary of Prime is that
of Investment Advisory Services. The advisory services include the construction
and management of financial portfolios for clients. Clients consist of pension
and 401(k) plans for approximately 50 small to medium companies and
approximately 300 individual clients. Financial planning and retirement modeling
services are also offered as well as general financial management counseling for
individuals and emerging companies.
The compensation for advisory services are derived on a fee basis. The
fee ranges from 50 basis points to 125 basis points per year depending on the
size of the portfolio being managed and the services provided. There are no
commissions paid on investment products and the assets are held by third party
custodians.
Belsen Getty is not associated with any broker/dealer and does not
share brokerage commissions. On isolated occasions, Belsen Getty may earn
insurance commissions, but these would be less than 3% per year of total
revenues.
The markets Belsen Getty operates in are similar in scope to the niche
discussed in the Fringe Benefit product section. Typically, pension and 401(k)
plans for companies with employees of 10 to 200 are targeted. On the individual
portion of the business families or persons having investable assets in excess
of $250,000 are the primary market for portfolio and financial management.
Competition
-----------
Fringe Benefit Analysts
Fringe Benefit is exposed to competition to the same degree and manner
as most small independent insurance agencies in the relevant market writing
primarily group health and related disability insurance and some "key man" life
policies. Fringe Benefit perceives that it may receive some benefit from its
referral relationship to Belsen Getty, but otherwise has no unique competitive
advantage.
It appears to Fringe Benefit that there is a significant competitive
advantage to larger insurance companies arising from apparent economies of scale
which often allows them to provide similar products and services at lower costs
or offer collateral advisory and planning services which Fringe Benefit cannot
directly match. This competition from large insurance carriers should be
considered a material risk factor.
38
Fringe Benefit Analysts is currently licensed as an insurance broker
for its product lines in: Arizona, California, Colorado, Idaho, Nevada, Utah and
Wyoming.
Belsen Getty
Belsen Getty does not believe there is any unique or particular
competitive risks to the services it provides. Various large insurance and
brokerage companies, accounting and law firms provide related planning and
consulting services to individuals and businesses related to health, pension and
profit sharing programs, as well as capital funding alternatives. There is
perceived by Belsen Getty some competitive advantage to large competitors which,
because of economies of scale, may be able to provide these care services at
lower cost or provide free collateral services or products. Belsen Getty regards
the planning and consulting divisions of major financial institutions such as
Merrill Lynch, Morgan Stanley Dean Witter & Co. and other major broker/dealers
providing financial planning services to be its primary competitors. There is
also a growing trend for banks to also provide these services and products.
Major Customers or Providers
----------------------------
Fringe Benefit Analysts
Fringe Benefit does not have any customer accounting for over 4% of its
revenues and is not believed to be dependent on any major client. It should be
noted, however, that there are essentially four companies in the current
operating area who supply almost all the insurance products as sold by Fringe
Benefit. These companies are Intermountain Health Care through which Fringe
Benefit derives approximately 38% of its insurance revenues by value, Regence
Blue Cross accounts for approximately 20%, Altius Insurance Company (formerly
Pacific Health Care) accounts for approximately 11% and United Health Care
accounts for approximately 11% of the Prime revenues by value.
Belsen Getty
Belsen Getty regards its client base as quite broad and diversified and
does not believe it is unduly dependent or at risk in the reliance upon any
major client or client group.
Number of Persons Employed By Prime
-----------------------------------
Prime currently has no full-time employees. Mr. Limpert acts as an
advisor and Mr. Terry Deru as a part-time manager. The principal officers have
made a projected allocation of their time to be devoted to Prime and the
subsidiaries. It is intended that Mr. Terry Deru will primarily discharge the
day-to-day affairs, and Mr. Andrew Limpert handle coordinating reporting
requirements required by Prime, such as maintaining current on filings required
under the Securities and Exchange Act of 1934, tax and other governmental
filings, and other management responsibilities related to the operation of its
two subsidiary companies.
Belsen Getty currently has six full-time employees and one part-time
employee. Approximately four of these employees are engaged in general office
management and supervisory roles while the remainder of the employees are
39
primarily engaged in marketing, implementation and servicing of the various
financial and business planning services and administration provided for
individuals, corporations, and 401(k) and other pension plans by the company.
Mr. Terry Deru acts as the General Manager for this limited liability company
and also is the principal officer in charge of the supervision and operation of
the investment advisory services provided by Belsen Getty. It is anticipated
both Mr. Limpert and Mr. Terry Deru will devote the majority of their time and
efforts to the Belsen Getty operations.
Fringe Benefit Analysts currently has seven full-time employees and one
part-time employee and twenty sub-agents who act as independent insurance
contractors and agents. Of these individuals, approximately four are primarily
devoted to day-to-day management of the operations of Fringe Benefit Analysts
and the balance of the employees are primarily engaged in providing the actual
placement, supervision and administration of insurance policies and claims. Mr.
Scott Deru acts as the General Manager for the limited liability company and is
primarily in charge of the approval and issuance of policies, coordination with
Belsen Getty and other general administrative services. Mr. Scott Deru acts as
an assistant in these principal executive areas as an Assistant Manager. In the
event of the successful completion of this offering, either as a minimum or
maximum offering, Fringe Benefit Analysts would intend to expand the
administrative staff by approximately one person and would intend to acquire an
undetermined number of additional insurance sales agents. Mr. Scott Deru will be
the principal officer in charge of Fringe Benefit Analysts and will devote
almost all of his time to its operations.
All salaries and other expenditures in both Belsen Getty and Fringe
Benefit Analysts entities are accrued and paid by Prime.
Government Regulation of Business and Approval of Products
----------------------------------------------------------
The insurance products sold by Fringe Benefit are primarily subject to
government regulation on a state level and to a lesser extent by federal
regulation. In particular, Fringe Benefit must be licensed within the state of
Utah as a licensed insurance company and its agents must be licensed as
insurance sales persons. This licensure requires annual filings and reports to
the state of Utah by Fringe Benefit Analysts. There are additional federal
regulations on the sale and placement of insurance policies, but which are not
believed to have direct application on the day-to-day business of Fringe Benefit
in the sale of insurance policies and other related insurance products. The
agents for Fringe Benefit are also required to participate in continuing
professional education and to pay an annual license fee to continue to be
licensed as registered insurance sales agents within the state of Utah. Fringe
Benefit has been able to sell insurance products in surrounding jurisdictions by
provisions allowing the sale of insurance products by agents licensed in the
state of Utah in adjacent jurisdictions who can license in surrounding states by
reciprocity.
As part of the services provided by Belsen Getty, Mr. Terry Deru, is a
Certified Financial Planner and a Registered Financial Consultant. These
designations are not licensed, but there are continuing professional educational
requirements. Mr. Andrew Limpert is a registered investment advisor within the
state of Utah and is required to pay an annual fee and file reports related to
this profession. Mr. Limpert is also a Registered Financial Consultant.
Other than the foregoing, particular licensing and registration
requirements, Prime Resource, Inc. will be required to continue to file an
annual corporate filing with the state of Utah to remain in good standing and
40
may be required to make separate applications in various jurisdictions where it
may do business in the future to be qualified as a foreign corporation. In the
event of the successful completion of this registration statement, Prime
Resource will also be required to file periodic reports with the Securities and
Exchange Commission as to its accounting and business activities which are more
particularly described below.
It is not generally believed that the foregoing regulations will have a
substantial adverse affect upon the viability or potential financial success of
the company.
Shared Employees
----------------
Ms. Brenda Rogers acts as the Human Resource Director for both Belsen
Getty and Fringe Benefit Analysts. She allocates her time approximately equally
between the two entities. She is paid directly by Prime. Child Sullivan & Co.,
CPA's act as a Controller entity for both Belsen Getty and Fringe Benefit
Analysts. They allocate approximately one-half of their services to each entity.
They are paid directly by Prime.
Environmental Compliance
------------------------
Prime and its operating subsidiaries are not deemed to be engaged in
business endeavors which have significant environmental impacts or implications.
To the extent necessary, Prime and its subsidiaries will comply with any
necessary and required environmental regulations, but are not presently aware of
any environmental regulations which have directly impacted their business or
require direct regulatory compliance.
Special Characteristics and Risk Factors
----------------------------------------
As briefly noted under the Risk Factors Section, Prime will continue in
the event of the close of this offering to be substantially owned by its
existing management group. As a result of this ownership, those purchasing
shares in the offering should not have any reasonable expectation that they will
be in a position to influence the election of directors, direction of the
company or implement policy decisions through their share position and voting
power.
Further, the nature of financial planning and the collateral insurance
services provided has historically been a direct contact business built
substantially upon personal reputation and contacts. As a result, there will
remain a risk that if the present management of the company does not continue
their association with the company, that the company may not be able to continue
to properly engage in its present business activities. Further, there remains a
significant risk that even with the anticipated additional capital from this
offering, this type of business may not be able to be expanded significantly
through the infusion of capital due to the highly personal nature of the
contacts required and the services to be provided.
Reports to Security Holders
---------------------------
In the event of the successful completion of this offering, Prime
believes that it will become a limited reporting company under the Securities
and Exchange Act of 1934 (34' Act) and be required to register under the 34' Act
41
as a 15(d) company. In this capacity, it will be required to file an annual
report on Form 10-KSB discussing all of its management, business and accounting
activities on an annual basis. The company currently functions on a calendar
year basis. In addition to the annual report, Prime will also be required to
file quarterly reports at the end of each quarter other than the final quarter
of the year in which the annual report will be substituted for a quarterly
report. These reports will be filed on form 10-QSB and discuss generally the
unaudited accounting information for the company for the quarter and any
material events or changes in business activities or management.
Because Prime is not believed to be required to become a 12(g) full
reporting company for the foreseeable future, it will not be under an obligation
to mail annual reports to shareholders; however, the present intended policy of
the company is to disseminate such annual report related to any shareholder
meeting. It should also be noted the company is not believed to be subject to
the filing of formal proxy materials with the SEC as a 15(d) company. In the
future, the company, whether or not it meets the requirements to require filing
as a 12(g) full reporting company, may elect to become a full reporting company
to complete various registrations on NASD sponsored over-the-counter markets,
but which filings are not presently anticipated.
Any person may read and copy reports filed with the SEC at the SEC's
public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. The
public may obtain further information by calling the public reference room at
1-800-SEC-0330. The company also intends to continue its electronic file and
each of the public reports filed by the company would be further available
online at www.sec.gov.edgar. These reports will also be available from the
company by shareholder request at any time as filed.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
--------------------------------------------------------------------------------
Overview
Prime Resource, LLC, ("Prime") was dissolved in April 2002 and its
assets transferred to Prime Resource, Inc. Prime LLC, historically, operated as
a Utah limited Liability Company and was the owner of Belsen Getty, LLC, (Belsen
Getty), and Fringe Benefit Analysts, LLC, (Fringe Benefit). Prime, Inc. now
continues in this same capacity. Belsen Getty provided investment management,
financial planning and pension and retirement planning for various individual
and business clients. Fringe Benefit primarily acts as an insurance broker of
health, life, dental and disability insurance coverages. Belsen Getty and Fringe
Benefit concentrate their business activities within the state of Utah, although
both have a limited number of clients throughout the Western United States.
During the two year period ended December 31, 2001, Prime did not engage in any
other direct business activities in addition to those conducted through its two
wholly owned subsidiaries.
On April 5, 2002 when Prime was substantially reorganized as a Utah
corporation, each prior member exchanged membership interest in Prime for an
agreed upon sharehold interest in the corporation. All of the attached and
referenced annual accounting predates this reorganization. The subsidiary
operating entities, Belsen Getty and Fringe Benefit, remain as wholly owned
limited liability companies.
42
Consistent with its historical and ongoing legal structure, Prime's
operating segments have been and will continue to be aligned based on the nature
of the products and services offered through the operating subsidiaries. These
segments include:
* Asset Management - Belsen Getty
* Insurance Products - Fringe Benefit
* Other - Belsen Getty & Fringe Benefit
Results of Operations
---------------------
Year ended December 31, 2001 compared to the year ended December 31, 2000
-------------------------------------------------------------------------
Revenues
--------
Prime's revenues, by reportable segment were as follows:
Year Ended December 31st:
---------------------------
Segment 2001 2000
----------- ----------- ----------
Insurance Products(Commissions) $ 1,557,246 $ 1,498,016
Asset Management (Advisory Fees) $ 449,031 $ 707,537
Interest and Dividends $ 15,204 $ 7,716
----------- ----------
$ 2,021,481 $2,213,269
--------------------------------------------------------------------------------
Asset management revenues in 2001 decreased $258,500, or 36.5 percent,
compared to the prior year. The Company's revenues in the Asset Management
segment are earned based on an agreed-upon percentage of the fair market value
of investments under management and are calculated on a monthly basis. The
average fee percentage on assets under management remained relatively consistent
between the two years. Total financial advisory fees dropped in 2001 due to a
substantial decrease in the average fair value of assets under management in the
year 2001 versus 2000, caused by a general downturn in the value of marketable
securities throughout the stock market. In addition, a former member of Prime's
and manager in Belsen Getty was terminated near the end of December of 2000.
Certain Belsen Getty clients serviced by the former manager followed him to his
new firm resulting in a decrease of fee revenues in 2001 of approximately
$150,000.
43
Insurance product sales increased $59,200 or 4.0 percent due primarily
to insurance premium increases and the resultant commission increase.
Interest and dividends on a Company-wide basis was higher in 2001 due
to larger amounts invested in marketable securities and cash equivalents in
2001, as compared to 2000.
Operating Expenses
------------------
Total operating expenses increased $100,400 or 5.1 percent in 2001, compared to
the prior year. The net increase was primarily due to increases in commission
paid and compensation and benefits totaling $57,900 and $50,600, respectively,
offset by an approximate $26,000 decrease in general and administrative expense.
Compensation and benefits increased due to a one-time $100,000 compensation
settlement paid to a former member in the first quarter of 2002, but accrued as
of December 31, 2001. Commissions expense increased in 2001 compared to the
prior year due to premium inflation and the resultant commission increases, as
well as the addition of new clients by outside agents.
Net Income Loss
---------------
As a result of the foregoing factors Prime realized a net loss of
$36,645 in 2001 as contrasted to net income of $255,000 in 2000.
Nine-month period ended September 30, 2002 compared to the nine-month period
ended September 30, 2001
Revenues
Prime's revenues by reportable segment were as follows:
Nine-months ended Sept. 30th Percentage
Segment 2002 2001 Change
---------- ---------- ----------- -----------
Insurance Products (Commissions) $ 1,313,407 $ 1,148,591 +14.3%
Asset Management (Advisory Fees) 397,397 417,399 -4.8%
Interest and Dividends 8,315 10,220 -18.6%
$1,719,119 $ 1,576,210
---------- ----------- -----------
Insurance product sales for the nine-months ended September 30, 2002 increased
from the prior comparable period due to higher volumes in 2002.
Asset management revenues for the nine-months ended June 30, 2002 decreased
marginally from the comparable prior nine-month period due to a one-time
commission earned in the first quarter of 2001 in connection with transferring
44
management of a large pension account to an outside financial institution. Asset
management fees were also negatively effected by a general decrease in the value
of the stock market.
Operating Expenses
------------------
Total operating expenses increased $366,415 or 25.1 percent, as compared to the
prior nine-month period. The increase is due to increases in compensation and
benefits of $241,592 or 31.5 percent, and general and administrative expense of
$82,809 or 55 percent from the prior comparable nine-month period.
The increase in compensation and benefits expense resulted from the
issuance of a 26 percent membership interest in Prime (valued at $92,218) to an
employee for advisory and organizational services rendered in connection with
Prime's reorganization and registration with the SEC, and an increase in the
base salary of such employee, partially offset by lower management salaries,
resulting from the termination of a former member of Prime.
The increase in general and administrative expense was due to legal and
accounting fees incurred in connection with Prime's reorganization and
registration with the SEC.
Income Tax Expense
------------------
Although Prime realized a loss of $105,184 for the nine-months ended
September 30, 2002, Prime recognized income tax expense for the period resulting
from pretax income for the six-months ended September 30, 2002, in connection
with its conversion from a limited liability company to a taxable corporation
effective April 4, 2002.
Net Income
----------
The nine-month period ended September 30, 2002 resulted in a net loss
of ($119,405) compared to net income of 118,322 for comparable prior period. The
loss in 2002 was primarily due to increased management salaries and other
compensation and administrative costs related to the reorganization as described
above. Further, the nine-month period ended September 30, 2001 was positively
impacted by one-time fees generated from transfers of customer pension accounts
to other outside financial institutions.
Three-month period ended September 30, 2002 compared to the three-month period
ended September 30, 2001
Revenues
--------
Prime's revenues by reportable segment were as follows:
45
Percentage
Three-months ended Sept. 30th Change
Segment 2002 2001
---------- ----------- -----------
Insurance Products (Commissions) $ 449,182 $ 334,100 34.9%
---------- ----------- -----------
Asset Management (Advisory Fees) 147,430 115,559 27.6%
---------- ----------- -----------
Interest and Dividends 918 3,023 -69.6%
---------- ----------- -----------
$ 597,530 $ 452,682
---------- -----------
Insurance product sales for the three-months ended September 30,
2002 increased from the prior comparable period due to higher volumes in 2002.
Asset management fees for the three-months ended September 30, 2002
increased from the prior comparable period due to increased brokerage fees
resulting from placing new and existing customer accounts with an outside
financial institution, offset in part by lower ongoing fees in connection with a
general reduction in the value of the stock market.
Operating Expenses
------------------
Total operating expenses increased $78,201 or 14.6 percent, as
compared to the prior comparable quarter. The increase was due to increases in
compensation and benefits of $32,814 or 11.4 percent. The increase in
compensation and benefits expense resulted from increase in the base salary of a
key employee and shareholder of Prime.
Income Tax Expense
------------------
Prime recognized an income tax benefit for the third quarter of
2002, due to the pre-tax loss of $17,490 recognized during the quarter.
Net Income
----------
In the quarter ended September 30, 2002 Prime realized a net loss of
$11,910 compared to a net loss of $84,137 for the same quarter in 2001. The 2002
net loss was lower due to increased revenues from both insurance product sales
and asset management fees, as partially off-set by compensation and benefits
expenses along with the first-time recognition of income tax expense.
46
Liquidity and Capital Resources
-------------------------------
Historically, Prime's primary source of capital has been cash
provided from operating activities. Net cash provided from operating activities
totaled $146,653 and $238,977 for the years ended December 31, 2001 and 2000,
respectively. Although Prime recognized a net loss in 2001, the net loss
included noncash depreciation charges of $42,744 and other noncash charges
totaling $4,100. Cash flows from operations in 2001 were further enhanced by
changes in other operating assets and liabilities, including receivables
collected related to prior year revenues of approximately $47,000, and net
expenditures of $97,300 accrued in 2001, yet paid in a subsequent period. Cash
flows from operations in 2001 were also adjusted downward for noncash interest
income on notes receivable from related parties totaling $8,113.
Cash flows from operations for the year ended December 31, 2000
started with net income of $255,500 but was increased by noncash depreciation of
$39,536, and decreased by $88,300, primarily due to paying liabilities in fiscal
2000 for expenditures incurred in 1999.
Cash used in investing activities totaled $205,656 and $63,168 for
the years ended December 31, 2001 and 2000, respectively. The increase in 2001,
compared to 2000, related to loans to members totaling $140,000, and investments
in marketable securities totaling $51,141. Cash was used in both 2001 ($18,865)
and 2000 ($46,741) for the purchase of equipment and vehicles.
Cash used in financing activities totaled $134,215 and $199,332 in
fiscal years 2001 and 2000, respectively. Cash used in financing activities was
comprised primarily of member distributions, but also included $17,600 in
payments on a note payable to a member during fiscal year 2000.
Nine-month period ended September 30, 2002 compared to the nine-month period
ended September 30, 2001
--------------------------------------------------------------------------------
Prime used ($25,290) and generated $184,280 in cash from operations
during the nine-month periods ended September 30, 2002 and 2001, respectively.
Prime realized net income of $188,322 for the first nine months of 2001 versus a
net loss of ($119,405) in the first nine months of 2002. Furthermore, cash used
in operations during the first nine-months of 2002 was negatively impacted by
the settlement of wages paid to a former member in the amount of $100,000.
Investing activities for the first nine months of 2002 generated
$138,164 in cash. However, investing activities for the first nine months of
2001 used ($187,596) in cash. Sources of cash in 2002 included repayments on
receivables from members totaling $146,647 and proceeds from the sale of
marketable securities in the amount of $51,140. In addition, during 2001, Prime
advanced $140,000 to members. This use of cash in 2001 was partially offset by a
$20,000 repayment on a loan from a related party.
47
Prime generated $3,647 in cash in financing activities during the
first nine months of 2002, resulting from a one-time $100,000 buy out of a
former member, partially offset by repayments of loans to members totaling
$53,647 and bank borrowings totaling $50,000.
Prime used $107,216 in cash in financing activities in the first
nine months of 2001 resulting from member distributions.
Balance Sheet Data
------------------
The following summarizes Prime's assets, liabilities, and members'
equity as of September 30, 2002, December 31, 2001 and December 31, 2000:
--------------------------------------------- -------------------- -------------------------- -------------------------
Sept. 30, 2002
Assets (Unaudited) December 31, 2001 December 31, 2000
--------------------------------------------- -------------------- -------------------------- -------------------------
Current assets $309,926 $185,277 $391,891
--------------------------------------------- -------------------- -------------------------- -------------------------
Property and equipment, net 151,178 131,283 167,216
--------------------------------------------- -------------------- -------------------------- -------------------------
Other 130,715 263,568 101,508
--------------------------------------------- -------------------- -------------------------- -------------------------
Total assets 591,819 580,128 660,615
--------------------------------------------- -------------------- -------------------------- -------------------------
Liabilities and Members Equity Sept. 30, 2002
(Unaudited) December 31, 2001 December 31, 2000
--------------------------------------------- -------------------- -------------------------- -------------------------
Current liabilities 239,555 345,226 147,512
--------------------------------------------- -------------------- -------------------------- -------------------------
Other liabilities 138,331 15,579 14,905
--------------------------------------------- -------------------- -------------------------- -------------------------
Members'& stockholders' equity 213,933 219,323 498,199
--------------------------------------------- -------------------- -------------------------- -------------------------
Total liabilities, members' & shareholders'
equity $591,819 $580,128 $660,615
--------------------------------------------- -------------------- -------------------------- -------------------------
Current assets as of December 31, 2001 decreased by $206,700 or 52.7
percent from the balance at December 31, 2000. The decrease was primarily due to
a reduction in cash of $193,200 to pay for operations, settlement of a wage
claim with a prior employee and advances to members of $140,000; a decrease in
accounts receivable of $47,300 due to a change in the Company's billing process
for investment advisory services, whereby such services were billed in arrears
during 2000, versus in advance as in 2001; partially offset by an increase in
marketable securities in 2001 totaling $50,100.
Current assets increased between September 30, 2002 and December 31,
2001 by $124,649 or 67.3 percent. The increase in current assets was primarily
due to an increase in cash of $116,521 resulting from collections on receivables
from members.
Net property and equipment decreased primarily due to routine
depreciation and disposals, offset by purchases of equipment.
48
Other assets increased between December 31, 2001 and 2000 by $162,100
or 160 percent due to advances to members in 2001. The decrease between
September 30, 2002 and December 31, 2001 resulted from repayments of such
advances during the first quarter of 2002.
Current liabilities increased between December 31, 2001 and 2000 by
$197,714 or 134 percent due to obligations stemming from a settlement with a
former member in connection with Prime's buy-out of the former member's share of
the Company. Such liabilities subsequently decreased between September 30, 2002
and December 31, 2001 as Prime paid the obligations during the first quarter of
2002.
The Offering
------------
Prime does not believe it would need to complete this public offering
to continue to meet its liquidity needs, based on the historical level of
operations of Prime. However, management does not believe there is sufficient
net revenues to fund meaningful growth in Prime. If successful with the offering
of stock in connection with this registration statement, Prime intends to use
the proceeds of the offering for the expansion of its business facilities and
short-term marketing efforts as generally outlined in this offering. See Use of
Proceeds.
It is possible that the anticipated proceeds of this offering will
not be sufficient to support any significant increase in revenues or income to
Prime, in which event, future valuation of shares purchased by investors in this
offering may not be enhanced. Each prospective investor should consider the
possibility that revenues may not be significantly increased by the capital from
this offering. See discussion of Risk Factors and Use of Proceeds.
Market Risks and Management Policies
------------------------------------
Management is not aware of any particular market risk factors related
to the Company's products and services, such as any specific environmental risks
or other governmental regulation. Further, at the present time, Prime does not
have any foreign market or currency exposure. Fringe Benefit Analysts is subject
to continuing regulations as an insurance agency where it operates and certain
principals of Belsen Getty are subject to regulation as investment advisors and
licensed financial planners.
Prime has historically had a policy of lending funds to owners and
employees which may have a future adverse impact on capital or liquidity to the
extent it may lower funds available for working capital, or a loss of capital in
the event of default. To date no related party loan has defaulted and the
company has earned what it believes to be reasonable market interest on all such
loans. Loans to management will now be prohibited under the Sarbanes-Oxley Act
in public companies. See "Related Party Transactions".
New Accounting Pronouncements
-----------------------------
In June, 2001, the Financial Accounting Standards Board (FASB) issued
Statement No. 141 (FAS 141), Business Combinations, and Statement No. 142 (FAS
142), Goodwill and Other Intangible Assets.
49
FAS 141, effective June 30, 2001, required that all business
combinations initiated after June 30, 2001 be accounted for under the purchase
method of accounting; the use of the pooling-of-interests method of accounting
is eliminated. FAS 141 also establishes how the purchase method is applied for
business combinations completed after June 30, 2001. This guidance is similar to
previous generally accepted accounting principles (GAAP); however, FAS 141
establishes additional disclosure requirements for transactions occurring after
the effective date.
FAS 142 eliminates amortization of goodwill associated with business
combinations completed after June 30, 2001. During the transition period from
July 1, 2001 through December 31, 2001, goodwill associated with business
combinations completed prior to July 1, 2001 continued to be amortized through
the income statement. Effective January 1, 2002, goodwill amortization expense
ceased and goodwill will be assessed for impairment at least annually at the
reporting unit level by applying a fair-value-based test. FAS 142 also provides
additional guidance on acquired intangibles that should be separately recognized
and amortized, which could result in the recognition of additional intangible
assets, as compared with previous GAAP.
Primehas no business combinations prior to the issuance of FAS 141 or
FAS 142, which resulted in the recognition of goodwill, accordingly, neither of
these statements will have an effect on the current financial statements of the
Company.
There are other new accounting standards (such as FAS 143 on
Accounting For Asset Retirement Obligations; and FAS 144 on Account for
Impairment or Disposal of Long Lived Assets) which do not have present
applications, but may be important to the Company's future operations and
accounting.
DESCRIPTION OF PROPERTY
-----------------------
Prime and its operating subsidiaries previously leased commercial space
for their operations at 22 East First South, 4th Floor, Salt Lake City, Utah
from Brownstone Associates LLC to August, 2002. Scott Deru and Terry Deru were
prior owners in Brownstone Associates through December 31, 2001 along with Mr.
William Campbell, who was a prior owner in Prime LLC. This lease was terminated
by mutual agreement in August, 2002 as part of the buy-out of Mr. Campbell's
interest in Belsen Getty without any penalty or continuing obligation by Prime
or any affiliated party. Prime simply paid rent through the month of
termination. Prime now considers its current lease, described below, to be with
a fully unrelated party. Mr. Campbell continues as the principal owner of
Brownstone, but has no ownership or affiliation with Prime.
Prime, or its subsidiaries, leased approximately 2,800 square feet in
the Brownstone until August, 2002. The prior gross monthly lease payment was
$3,976 per month. The lease was terminated by notice without penalty, effective
August 16, 2002.
Commencing August 16, 2002 Prime and its subsidiaries leased space in
the Brickyard Tower in Salt Lake City, Utah. The exact address is 1245 East
Brickyard Road, Suite 590, Salt Lake City, Utah 84106. This is a five year lease
with a base rental amount of $4,588.58 per month. The company will occupy
approximately 3,239 square feet.
50
Belsen Getty's current office space in the Brickyard Tower consists of
two conference rooms, a reception area, four individual offices, a large area
with six cubicles, a workroom, file room and kitchen area.
Total current monthly direct costs of operating the present physical
facilities, which includes rent, utilities and other overhead expenses, is
approximately $4,588.58 per month.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
o To date none of the management has had any independent determination
of the reasonableness or amounts of compensation or benefits, such as shares
issued to management or salaries, and it is not likely there will be any
independent review of such matters in the future as the management, the Board
and the principal owners are substantially the same persons.
o The Company has historically made and received loans and advances
from owners and employees without independent Board review. As of the date of
this Prospectus, there is approximately $54,658.28 owed to Prime by Andrew
Limpert under a demand note at 4.86% APR. Mr. Scott Deru and Mr. Terry Deru
have, as of this date, outstanding loans owing to Prime of $70,000 each due
March 30, 2004 with interest at 4.86%; but these loans are off-set by two loans
made to Prime by the Derus each for $100,000, due March 4, 2005 at 5% APR,
totaling $200,000. The net effect, as reflected in the accounting records, is an
outstanding loan balance of $26,500 each owed to Scott Deru and Terry Deru,
after adjustment for interest by Prime. The notes payable to the Derus are due
March 4, 2005, bear simple annual interest (APR) of 5%. Under the provisions of
the recent Sarbanes-Oxley Act, Prime has discontinued, as a prospective public
company, any further loans to officers, directors or employees. It is
anticipated, though not warranted, that these note obligations will be
substantially discharged in 2003.
o The prior lease arrangement which terminated August, 2002 was entered
by Prime with a previously affiliated party, Mr. William Campbell, as well as
Mr. Terry Deru and Mr. Scott Deru and could not thereby be considered arms
length. The terms of this lease are discussed commencing at page 50 of this
Prospectus under Description of Property. There remains no obligation under such
lease.
o Each of the principal officers of Prime have received shares and
interest in Prime based primarily upon the contribution of their prior
intangible business interest in Prime LLC and other intangible assets which are
not capable of exact evaluation. As a result, each of the present principal
owners of Prime may be deemed to hold shares and interest in the company which
were not determined through any arm's length transaction or independent
determination of value.
o Messrs. Terry Deru, Scott Deru and Andrew Limpert would be considered
founders and promoters of the current Prime Resource, Inc. As such, Scott Deru
contributed his interest in the prior Prime LLC for his approximate 36% stock
interest in Prime; Terry Deru has contributed his interest in Prime LLC for an
approximate 36% stock interest; and Mr. Limpert has contributed his interest in
Prime LLC for an approximate 27% stock interest in Prime. None of these
transfers by the promoters can be considered independent or arms-length
transactions.
51
o The company is not aware of any further transactions which would
require disclosure under this section by the company and any affiliated party.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
--------------------------------------------------------
Market Information
------------------
Our common stock is not traded on any exchange. We plan to seek a
listing on the Electronic Bulletin Board, OTCBB, once our registration statement
has become effective. We cannot guarantee that we will obtain a listing. There
is no trading activity in our securities, and there can be no assurance that a
regular trading market for our common stock will ever be developed.
Current Shareholders
--------------------
As of November 1, 2002, there were four holders of record of our
common stock as described in the management section. No additional shareholders
are anticipated in the foreseeable future, unless this offering is sold.
Dividends
---------
We have not declared any cash dividends on our common stock since our
inception and do not anticipate paying such dividends in the foreseeable future.
We plan to retain any future earnings for use in our business. Any decisions as
to future payment of dividends will depend on our earnings and financial
position and such other factors, as the Board of Directors deems relevant.
EXECUTIVE COMPENSATION
HOURLY COMPENSATION, LONG TERM COMPENSATION
------------------------------ -------- ------------ --------- ---------------- -------------- -------------- --------- -----------
Name and Principal Position Year Salary(1)
Bonus(2) Other Annual Restricted Securities LTIP Other3
Compensation Stock Underlying Payouts (Loans)
Awards(s) Options
------------------------------ -------- ------------ --------- ---------------- -------------- -------------- --------- -----------
Mr. Terry Deru, 2001 $262,000 --- $65,000 --- --- --- $70,000
President 2000 208,341 --- --- --- --- --- ---
1999 122,236 --- --- --- --- --- ---
------------------------------ -------- ------------ --------- ---------------- -------------- -------------- --------- -----------
Mr. Scott Deru,, Secretary 2001 $240,000 --- $65,000 --- --- --- $70,000
2000 $212,000 --- --- --- --- --- ---
1999 $165,242 --- --- --- --- --- ---
------------------------------ -------- ------------ --------- ---------------- -------------- -------------- --------- -----------
Mr. Andrew Limpert,
Treasurer 2001 $118,000 --- --- --- --- --- $50,000
2000 60,479 --- --- --- --- --- ---
1999 65,613 --- --- --- --- --- ---
------------------------------ -------- ------------ --------- ---------------- -------------- -------------- --------- -----------
52
To date, directors have not been paid any compensation for attendance
at Board of Directors meetings. It is anticipated that as soon as revenues would
justify such expenditure, Directors will be paid a per diem payment of $500 for
attending each Board of Directors meetings.
1 Historically, the principals of Prime Resource LLC have taken draws
equal to a salary compensation of $240,000 per year in the case of Mr. Scott
Deru, and $240,000 for Mr. Terry Deru. Mr. Terry Deru received $262,000 in 2001,
but will receive $240,000 in 2002. Mr. Limpert was paid compensation of $118,000
in 2001, which will increase to $210,000 this year. The officers have decided
under the new corporate structure of Prime Resource to fix their salaries at
these levels as evidenced by an employment contract, earlier discussed under
"Remuneration of Officers and Directors". The most essential term of such
contract is that the company may terminate the employment agreement, without
cause, at anytime upon notice. If Prime is successful in completing this
offering, the company may consider executive stock options or other incentive
plans.
2 In addition to the foregoing salaries, Mr. Scott Deru and Mr. Terry
Deru received a cash bonus distribution of $65,000 each in 2001.
3 In 2001 Mr. Terry Deru and Mr. Scott Deru each borrowed $70,000 from
Prime due March 30, 2004 at 4.86% APR. These amounts remain outstanding, but are
off-set by $100,000 notes each owed by Prime to Mr. Scott Deru and Mr. Terry
Deru due March 5, 2005. The interest on these notes owing to the Derus is 5%
APR. Mr. Limpert has also borrowed $54,658.28 from Prime payable on demand at
4.86% APR. It is anticipated, though not warranted, that these obligations will
be fully or substantially paid in 2003. The notes are attached as Exhibits to
the Registration.
The company presently does not have any stock option or other warrant or stock
option plan, but would deem it may adopt such a plan subsequent and in the event
of the successful completion of this offering.
53
PRIME RESOURCE, INC. AND SUBSIDIARIES
(Formerly Prime Resource, LLC and Subsidiaries)
FINANCIAL STATEMENTS
with
INDEPENDENT AUDITORS' REPORT THEREON
Years Ended December 31, 2001 and 2000
and
COMPANY'S UNAUDITED FINANCIALS
to
September 30, 2002
54
CONTENTS
Independent Auditors' Report 56
Financial Statements:
Consolidated Balance Sheets 57
Consolidated Statements of Operations
Years Ended December 31, 2001 and 2000 58
Consolidated Statements of Operations and Comprehensive Income (Loss)
Years Ended December 31, 2001 and 2000 59
Consolidated Statements of Operations
Three-Months Ended September 30, 2002 and 2001 (Unaudited) 60
Consolidated Statements of Operations
Nine-Months Ended September 30, 2002 and 2001 (Unaudited) 61
Consolidated Statements of Cash Flows 62
Consolidated Statements of Members' and Stockholders' Equity 63
Notes to Consolidated Financial Statements 64 - 74
55
INDEPENDENT AUDITORS' REPORT
----------------------------
To The Board of Directors
Prime Resource, Inc. and subsidiaries (formerly Prime Resource, LLC and
subsidiaries)
We have audited the accompanying consolidated balance sheets of Prime Resource,
LLC and subsidiaries as of December 31, 2001 and 2000, and the related
consolidated statements of operations and members' equity, consolidated
operations and comprehensive income (loss), and consolidated cash flows for the
years then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Prime Resource, LLC
and subsidiaries as of December 31, 2001 and 2000, and the results of its
operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.
/s/ Carver Hovey & Co.
----------------------
Carver Hovey & Co.
Layton, Utah
March 29, 2002, except for Note 9,
as to which the date is April 5, 2002
56
PRIME RESOURCE, INC. AND SUBSIDIARIES
(Formerly Prime Resource, LLC and Subsidiaries)
CONSOLIDATED BALANCE SHEETS
September 30,
ASSETS December 31, December 31, 2002
2001 2000 (unaudited)
------------ ------------ ------------
Current Assets:
Cash and cash equivalents $ 32,102 $ 225,321 $ 148,623
Accounts receivable 99,287 146,570 143,991
Available-for-sale securities 50,125 -- --
Current portion of notes receivable, related parties 3,763 20,000 3,763
Deferred income taxes -- -- 13,549
------------ ------------ ------------
185,277 391,891 309,926
Property and equipment, net of accumulated depreciation
of $133,578, $100,211 and $68,058 at September 30,
2002, December 31, 2001 and 2000, respectively 131,283 167,216 151,178
Other assets 8,516 8,516 13,104
Advances and notes receivable from related parties,
excluding current portion 255,052 92,992 117,611
------------ ------------ ------------
$ 580,128 $ 660,615 $ 591,819
------------ ------------ ------------
LIABILITIES, MEMBERS' AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable $ 16,659 $ 5,706 $ 87,074
Accrued compensation, commissions and benefits 228,567 141,806 142,081
Income taxes payable -- -- 10,400
Member distribution payable 100,000 -- --
------------ ------------ ------------
345,226 147,512 239,555
Notes payable -- -- 50,000
Notes payable to related parties 15,579 14,905 70,961
Deferred income taxes -- -- 17,370
------------ ------------ ------------
360,805 162,416 377,886
------------ ------------ ------------
MEMBERS' EQUITY
Members' equity 220,338 498,199 --
Accumulated other comprehensive loss (1,015) -- --
------------ ------------ ------------
219,323 498,199 --
------------ ------------ ------------
STOCKHOLDERS' EQUITY
Common stock - no par value; authorized
50,000,000 shares; issued and outstanding
2,800,000 shares in 2002 -- -- --
Additional paid-in capital -- -- 197,763
Retained earnings -- -- 16,170
------------ ------------ ------------
-- -- 213,933
------------ ------------ ------------
$ 580,128 $ 660,615 $ 591,819
============ ============ ============
See accompanying notes to financial statements
57
PRIME RESOURCE, INC. AND SUBSIDIARIES
(Formerly Prime Resource, LLC and Subsidiaries)
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 2001 and 2000
2001 2000
--------- ---------
REVENUES
Commissions $ 1,557,246 $ 1,498,016
Investment advisory fees 449,031 707,537
Interest and dividends 15,204 7,716
----------- -----------
2,021,481 2,213,269
EXPENSES
Commissions 538,510 480,565
Compensation and benefits 1,130,418 1,079,865
General and administrative 230,205 256,405
Occupancy and equipment 115,575 100,122
Interest 674 662
Depreciation 42,744 40,150
2,058,126 1,957,769
----------- -----------
NET INCOME (LOSS) $ (36,645) $ 255,500
=========== ===========
PROFORMA COMPENSATION AND BENEFITS, assuming the reorganization and new
compensation agreements described in Note 9 occurred on January 1, 2001 $
1,222,418 $ --
PROFORMA INCOME TAX BENEFIT, assuming the
reorganization described in Note 9 occurred
on January 1, 2001 51,458 --
PROFORMA NET LOSS, assuming the reorganization
described in Note 9 occurred on January 1,
2001 (77,187)
-
PROFORMA BASIC AND DILUTED LOSS PER SHARE,
assuming the reorganization described in
Note 9 occurred on January 1, 2001 (.028)
-
See accompanying notes to financial statements
58
PRIME RESOURCE, INC. AND SUBSIDIARIES
(Formerly Prime Resource, LLC and Subsidiaries)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
Years Ended December 31, 2001 and 2000
2001 2000
----------- -----------
REVENUES
Commissions $ 1,557,246 $ 1,498,016
Investment advisory fees 449,031 707,537
Interest and dividends 15,204 7,716
2,021,481 2,213,269
EXPENSES
Commissions 538,510 480,565
Compensation and benefits 1,130,418 1,079,865
General and administrative 230,205 256,405
Occupancy and equipment 115,575 100,122
Interest 674 662
Depreciation 42,744 40,150
----------- -----------
2,058,126 1,957,769
----------- -----------
NET INCOME (LOSS) (36,645) 255,500
OTHER COMPREHENSIVE INCOME -
Net unrealized loss on securities available for sale 1,015 --
----------- -----------
TOTAL COMPREHENSIVE INCOME (LOSS) $ (37,660) $ 255,500
=========== ===========
See accompanying notes to financial statements
59
PRIME RESOURCE, INC. AND SUBSIDIARIES
(Formerly Prime Resource, LLC and Subsidiaries)
CONSOLIDATED STATEMENTS OF OPERATIONS
Three-Months Ended September 30, 2002 and 2001
(Unaudited)
2002 2001
--------- ---------
REVENUES
Commissions $ 449,182 $ 334,100
Investment advisory fees 147,430 115,559
Interest and dividends 918 3,023
--------- ---------
597,530 452,682
EXPENSES
Commissions 168,491 138,385
Compensation and benefits 320,414 287,610
General and administrative 81,949 72,540
Occupancy and equipment 33,534 27,502
Interest 47 168
Depreciation 10,585 10,614
--------- ---------
615,020 536,819
Loss before income tax benefit (17,490) (84,137)
Income tax benefit 5,580 --
--------- ---------
NET LOSS $ (11,910) $ (84,137)
========= =========
PROFORMA COMPENSATION & BENEFITS, assuming the
reorganization and new compensation
agreements described in Note 9 occurred on
January 1, 2001
$ 320,414 $ --
PROFORMA INCOME TAX BENEFIT, assuming the
reorganization described in Note 9 occurred
on January 1, 2001 5,580 --
PROFORMA NET INCOME, assuming the
reorganization described in Note 9 occurred
on January 1, 2001 (11,910) --
PROFORMA BASIC AND DILUTED INCOME PER SHARE,
assuming the reorganization described in Note
9 occurred on January 1, 2001 (0.004) --
See accompanying notes to financial statements
60
PRIME RESOURCE, INC. AND SUBSIDIARIES
(Formerly Prime Resource, LLC and Subsidiaries)
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine-Months Ended September 30, 2002 and 2001
(Unaudited)
2002 2001
----------- -----------
REVENUES
Commissions $ 1,313,407 $ 1,148,591
Investment advisory fees 397,397 417,399
Interest and dividends 8,315 10,220
----------- -----------
1,719,119 1,576,210
EXPENSES
Commissions 434,753 399,606
Compensation and benefits 1,008,483 766,891
General and administrative 259,778 167,560
Occupancy and equipment 85,739 91,502
Interest 1,793 505
Depreciation 33,757 31,824
----------- -----------
1,824,303 1,457,888
Income (loss) before income tax expense (105,184) 118,322
Income tax expense 14,221 --
----------- -----------
NET INCOME (LOSS) $ (119,405) $ 118,322
=========== ===========
PROFORMA COMPENSATION & BENEFITS, assuming the
reorganization and new compensation
agreements described in Note 9 occurred on
January 1, 2001
$ 1,025,983 $ --
PROFORMA INCOME TAX EXPENSE, assuming the
reorganization described in Note 9 occurred
on January 1, 2001 16,606 --
PROFORMA NET LOSS, assuming the reorganization
described in Note 9 occurred on January 1,
2001 (139,290) --
PROFORMA BASIC AND DILUTED INCOME PER SHARE,
assuming the reorganization described in Note
9 occurred on January 1, 2001 (.050) --
See accompanying notes to financial statements
61
PRIME RESOURCE, INC. AND SUBSIDIARIES
(Formerly Prime Resource, LLC and Subsidiaries)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine-Months Nine-Months
Ended Ended
Year Ended Year Ended September 30, September 30,
December 31, December 31, 2002 2001
2001 2000 (unaudited) (unaudited)
--------- --------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (36,645) $ 255,500 $(119,405) $ 118,322
Adjustments to reconcile net income (loss) to
net cash provided by operations:
Depreciation 42,744 39,536 33,694 32,117
Noncash compensation 2,409 -- 115,805 --
Loss on disposal of assets 980 -- 297 980
Interest expense on borrowings from member 674 -- 1,735 505
Interest income on loans to related parties (8,113) (759) (6,217) (2,347)
Changes in operating assets and liabilities:
Trade and other accounts receivable 47,283 25,324 (44,704) 34,250
Other assets -- -- (4,588) --
Accounts payable 10,559 (22,788) 70,358 8,587
Accrued liabilities and compensation 86,762 (57,836) (86,486) (8,134)
Income taxes payable -- -- 10,400 --
Deferred income taxes -- -- 3,821 --
Net cash provided by (used in) operating activities 146,653 238,977 (25,290)
184,280
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment (18,865) (46,741) (54,123) (18,706)
Loans to related parties (155,650) (36,427) (5,500) (140,000)
Principal payments from related party notes receivable -- -- 146,647 --
Collections on loans to related parties 20,000 20,000 -- 20,000
Proceeds from securities available for sale -- -- 51,140 --
Investment in securities available for sale (51,141) -- -- (48,890)
Net cash provided by (used in) investing activities (205,656) (63,168) 138,164
(187,596)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on note payable to a member -- (17,567) -- --
Bank borrowings -- -- 50,000 --
Notes payable to members -- -- 53,647 --
Member buy-out -- -- (100,000) --
Distributions to members (134,215) (181,765) -- (101,216)
Net cash used in financing activities (134,215) (199,332) 3,647 (101,216)
NET INCREASE (DECREASE) IN CASH (193,219) (23,523) 116,521 (104,532)
CASH AT BEGINNING OF PERIOD 225,321 248,844 32,102 225,321
CASH AT END OF PERIOD $ 32,102 $ 225,321 $ 148,623 $ 120,789
========= ========= ========= =========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Cash paid for interest $ -- $ 1,337 $ -- $ --
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITY
Accrual of distribution payable to a former member $ 100,000 $ -- $ -- $ --
Distribution of a portion of a note receivable from a
related entity to members 7,000 -- -- --
Unrealized (gain) loss on securities available for sale 1,015 -- -- (937)
See accompanying notes to financial statements
62
PRIME RESOURCE, INC. AND SUBSIDIARIES
(Formerly Prime Resource, LLC and Subsidiaries)
CONSOLIDATED STATEMENTS OF MEMBERS' AND STOCKHOLDERS' EQUITY
January 1, 2000 to September 30, 2002
Additional
Members' Common Stock Paid in Retained
Equity Shares Amount Capital Earnings
----------- ----------- ----------- ----------- ---------
Balance at January 1, 2000 $ 424,465 -- $ -- $ -- $ --
Net income 255,500 -- -- -- --
Member distribution (181,766) -- -- -- --
----------- ----------- ----------- ----------- ---------
Balance at December 31, 2000 498,199 -- -- -- --
Net loss (36,645) -- -- -- --
Member distribution (241,216) -- -- -- --
----------- ----------- ----------- ----------- ---------
Balance at December 31, 2001 220,338 -- -- -- --
Net loss through date of
incorporation (April 4, 2002)
(unaudited) (135,575) -- -- -- --
Member contribution (unaudited) 113,000 -- -- -- --
April 4, 2002 reorganization
from a limited liability
company to a corporation
(unaudited) (197,763) 2,800,000 -- 197,763 --
Net income from April 4, 2002
through September 30, 2002
(unaudited)
-- -- -- -- 16,170
----------- ----------- ----------- ----------- ---------
$ -- 2,800,000 $ -- $ 197,763 $ 16,170
=========== ============ =========== =========== =========
See accompanying notes to financial statements
63
PRIME RESOURCE, INC. AND SUBSIDIARIES
(Formerly Prime Resource, LLC and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------
Organization and Business Activity
Prime Resource, LLC, (The Company) is a Limited Liability Company and 100
percent owner of Belsen Getty, LLC, (Belson Getty), and Fringe Benefits
Analysts, LLC, (FBA), with offices in Salt Lake City and Layton, Utah,
respectively. Belsen Getty is a fee-only financial management firm, providing
investment advice to high-wealth individuals and employee groups in connection
with company retirement plans. FBA sells group and employee benefit products,
primarily health insurance, to employers and individuals throughout Utah.
Reorganization
Effective December 31, 2001, the Company entered into a settlement agreement
involving the transfer of the membership interest from a former member to
current and remaining members of the Company. The agreement required the Company
to acquire the former owner's membership share in the Company in exchange for
$100,000. The agreement further required the Company to pay compensation to the
former member in 2001, also in the amount of $100,000. Such compensation expense
is reflected in salaries and wages in the accompanying statement of operations
for the year ended December 31, 2001. A total obligation of $200,000 for amounts
payable to the former member in connection with the reorganization is reflected
in the accompanying consolidated balance sheet as of December 31, 2001. The
acquisition of the former member's share had no other effect on the recorded
assets and liabilities of the Company.
Basis of Financial Presentation
The accompanying consolidated financial statements include the accounts of Prime
Resource, LLC, and its wholly owned subsidiaries, Belsen Getty, LLC and Fringe
Benefits Analysts, LLC. All significant intercompany balances and transactions
have been eliminated in consolidation.
Use of Estimates
The consolidated financial statements have been prepared in conformity with
Generally Accepted Accounting Principles of the United States of America. In
preparing the consolidated financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets,
liabilities and disclosures as of the date of the balance sheet and revenues and
expenses for the period. Actual results could significantly differ from those
estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of checking and money market accounts. For
purposes of the statement of cash flows, the Company considers all highly liquid
instruments with original maturities of three months or less to be cash
equivalents.
64
PRIME RESOURCE, INC. AND SUBSIDIARIES
(Formerly Prime Resource, LLC and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
---------------------------------------------------------------
Available for Sale Securities
Available for sale securities are recorded at fair value. Unrealized holding
gains or losses on available for sale securities are reported as a separate
component of member's equity until realized. A decline in the market value of
the securities below cost that is deemed other than temporary is charged to
earnings resulting in the establishment of a new cost basis for the security.
Reinvested dividends increase the basis of the related investments.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is calculated on the
straight-line method over the estimated useful lives of depreciable assets as
follows:
Years
-----
Automobiles 5
Furniture & equipment 7
Computer software & equipment 3-5
Income taxes
The Company is taxed similar to a partnership. Accordingly, the accompanying
consolidated statements of operations do not reflect provisions for income
taxes, inasmuch as such income tax liability is the responsibility of the
individual members.
Revenue Recognition
The Company generates revenues from two primary sources, commissions on the sale
of insurance and fees on the provision of investment advice.
Fees from the provision of investment advice are billed and earned based on an
agreed upon percentage of the fair value of investment portfolios under
management. Such fees are typically one percent per year, and are calculated and
billed on a monthly basis at one twelfth of one percent of the fair value of
investments under management as of the beginning of each calendar month, and are
recognized as revenue in the month billed.
65
PRIME RESOURCE, INC. AND SUBSIDIARIES
(Formerly Prime Resource, LLC and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
---------------------------------------------------------------
New Accounting Pronouncements
Revenues, in the form of commissions, are earned on brokered sales of group and
individual health insurance products under agency marketing agreements with
applicable health insurance providers. Commissions are generally collected on a
monthly basis and are recognized as revenue in the month for which the related
insurance premiums apply. Commissions earned by the Company are split, at
management's discretion, between the Company and its licensed agents, on a
case-by-case basis. The Company recognizes the full amount of commissions
received under its agency agreements as commission revenue and the portion paid
to its licensed agents as commission expense.
In June, 2001, the Financial Accounting Standards Board (FASB) issued Statement
No. 141 (FAS 141), Business Combinations, and Statement No. 142 (FAS 142),
Goodwill and Other Intangible Assets.
FAS 141, effective June 30, 2001, required that all business combinations
initiated after June 30, 2001 be accounted for under the purchase method of
accounting; the use of the pooling-of-interest method of accounting is
eliminated. FAS 141 also establishes how the purchase method is applied for
business combinations completed after June 30, 2001. This guidance is similar to
previous generally accepted accounting principles (GAAP); however, FAS 141
establishes additional disclosure requirements for transactions occurring after
the effective date.
FAS 142 eliminates amortization of goodwill associated with business
combinations completed after June 30, 2001. During the transition period from
July 1, 2001 through December 31, 2001, goodwill associated with business
combinations completed prior to July 1, 2001 continued to be amortized through
the income statement. Effective January 1, 2002, goodwill amortization expense
ceased and goodwill will be assessed for impairment at least annually at the
reporting unit level by applying a fair-value-based test. FAS 142 also provides
additional guidance on acquired intangibles that should be separately recognized
and amortized, which could result in the recognition of additional intangible
assets, as compared with previous GAAP.
Prime has no business combinations prior to the issuance of FAS 141 or FAS 142,
which resulted in the recognition of goodwill. Accordingly, neither of these
statements will have an effect on the current financial statements of the
Company.
There are other new accounting standards (such as FAS 143 on Accounting for
Asset Retirement Obligations; and FAS 144 on Account for Impairment or Disposal
of Long-Lived Assets) which do not have present applications, but may be
important to Prime's future operations and accounting.
Interim Financial Information
The accompanying unaudited interim consolidated financial statements have been
prepared by the Company in accordance with the rules and regulations of the
Securities and Exchange Commission for Form 10-QSB, and accordingly, do not
66
PRIME RESOURCE, INC. AND SUBSIDIARIES
(Formerly Prime Resource, LLC and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
---------------------------------------------------------------
include all of the information and footnotes required by Generally accepted
accounting principles. In the opinion of management, these unaudited
consolidated financial statements reflect all adjustments, which consist only of
normal recurring adjustments, which are necessary to present fairly the
Company's financial position, results of operations, and cash flows as of
September 30, 2002, and for the three-month and nine-month periods ended
September 30, 2002 and 2001. These unaudited consolidated financial statements
should be read in conjunction with the consolidated financial statements, and
notes thereto, for the year ended December 31, 2001.
The preparation of the interim consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported amounts of revenue and expense for the period being reported. Actual
results could differ from those estimates. The results of operations for the
three-months and nine-months ended September 30, 2002 are not necessarily
indicative of the results that may be expected for the remainder of the year
ending December 31, 2002 or future annual periods.
NOTE 2 - SECURITIES AVAILABLE FOR SALE
--------------------------------------
Securities available for sale are comprised of investments in mutual funds. The
amortized cost of securities available for sale and the gross unrealized loss on
such securities at December 31, 2001, totaled $51,140 and $1,015, respectively.
Dividends realized and reinvested in 2001 totaled $1,140. There were no
investments in marketable securities, other than cash equivalents, during the
year ended December 31, 2000.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment and related accumulated depreciation at December 31
consists of the following:
2001 2000
----------- ----------
Furniture and equipment $ 87,893 $ 77,672
Computer equipment and software 39,290 30,702
Vehicles 104,368 127,353
----------- ----------
231,551 235,727
Accumulated Depreciation (100,211) (68,059)
----------- ----------
$ 131,340 $ 167,668
=========== ==========
67
PRIME RESOURCE, INC. AND SUBSIDIARIES
(Formerly Prime Resource, LLC and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
NOTE 4 - EMPLOYEE BENEFIT PLAN
---------------------------------
The Company has a defined contribution 401(K) plan and profit sharing plan. All
employees who meet certain minimum requirements are eligible to participate in
the plan. Employees may make contributions to the plan limited to the lesser of
15 percent of compensation or $7,000. Company contributions under both the
401(K) and profit sharing provisions of the plan are also discretionary. The
Company's expense from contributions to the plan totaled $23,425 and $19,490,
for 2001 and 2000, respectively.
NOTE 5 - SEGMENT INFORMATION
-----------------------------
Information as to the operations of the Company's different business segments is
set forth below. Segments are identified based on the nature of the products and
services offered. The Company's reportable segments are asset management,
insurance products and other. The asset management segment includes investment
portfolio management services provided by Belson Getty. The insurance products
segment includes employee health insurance brokerage services provided by FBA.
Certain headquarters functions are included in the "other" segment. Income on
Company-wide savings and investments is also included in "other".
The Company's segments use the same policies as those described in the "Summary
of Significant Accounting Policies". The Company has no intersegment revenues or
expenses and the intercompany accounts were eliminated.
Asset Management Insurance Products
-------------------------- -------------------------------
Year ended Year ended Year ended Year ended
December 31, December 31, December 31, December 31,
2001 2000 2001 2000
-------------------------- -------------------------------
Revenues $ 449,031 $ 707,537 $ 1,557,246 $ 1,498,016
Expenses 816,310 836,449 1,186,614 1,092,935
-------------------------- -------------------------------
Net Income (Loss) $ (367,279) $(128,912) $ 370,632 $ 405,081
========================== ===============================
Other Consolidated
-------------------------- -------------------------------
Year ended Year ended Year ended Year ended
December 31, December 31, December 31, December 31,
2001 2000 2001 2000
-------------------------- -------------------------------
Revenues $ 15,204 $ 7,716 $ 2,021,481 $ 2,213,269
Expenses 55,202 28,385 2,058,126 1,957,769
-------------------------- -------------------------------
Net Income (Loss) $ (39,998) $ (20,669) $ (36,645) $ 255,500
========================== ===============================
68
PRIME RESOURCE, INC. AND SUBSIDIARIES
(Formerly Prime Resource, LLC and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
NOTE 5 - SEGMENT INFORMATION (CONTINUED)
-----------------------------------------
Asset Management Insurance Products
---------------------------------------- -------------------------------------
Three-months Three-months Three-months Three-months
ended ended ended ended
September 30, 2002 September 30, 2001 September 30, 2002 September 30, 2001
(unaudited) (unaudited) (unaudited) (unaudited)
----------------------------------------- -------------------------------------
Revenues $ 147,430 $ 115,559 $ 449,182 $ 334,100
Expenses 220,425 193,451 343,784 305,916
----------------------------------- -------------------------------------
Income (loss) before tax (72,995) (77,892) 105,398 28,184
Income tax expense (benefit) (24,166) -- 35,294 --
----------------------------------- -------------------------------------
Net Income (Loss) $ (48,829) $ (77,892) $ 70,104 $ 28,184
=================================== =====================================
Other Consolidated
----------------------------------------- -------------------------------------
Three-months Three-months Three-months Three-months
ended ended ended ended
September 30, 2002 September 30, 2001 September 30, 2002 September 30, 2001
(unaudited) (unaudited) (unaudited) (unaudited)
----------------------------------------- -------------------------------------
Revenues $ 918 $ 3,023 $ 597,530 $ 452,682
Expenses 50,811 37,452 615,020 536,819
----------------------------------------- -------------------------------------
Income (loss) before tax (49,893) (34,429) (17,490) (84,137)
Income tax expense (benefit) (16,708) -- (5,580) --
----------------------------------------- -------------------------------------
Net Income (Loss) $ (33,185) $ (34,429) $ (11,910) $ (84,137)
======================================== ======================================
69
PRIME RESOURCE, INC. AND SUBSIDIARIES
(Formerly Prime Resource, LLC and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
NOTE 5 - SEGMENT INFORMATION (CONTINUED)
-----------------------------------------
Asset Management Insurance Products
------------------------------------------- ------------------------------------------
Nine-months Nine-months Nine-months Nine-months
ended ended ended ended
September 30, 2002 September 30, 2001 September 30, 2002 September 30, 2001
(unaudited) (unaudited) (unaudited) (unaudited)
------------------------------------------- ------------------------------------------
Revenues $ 397,397 $ 417,399 $ 1,313,407 $ 1,148,591
Expenses 633,625 513,068 792,839 824,031
------------------------------------------- ------------------------------------------
Income (loss) before tax) (236,228) (95,669) 520,568 324,560
Income tax expense (benefit) (37,717) -- 87,242 --
------------------------------------------- ------------------------------------------
Net Income (Loss) $(198,511) $ (95,669) $ 433,326 $ 324,560
=========================================== ==========================================
Other Consolidated
------------------------------------------- ------------------------------------------
Nine-months Nine-months Nine-months Nine-months
ended ended ended ended
September 30, 2002 September 30, 2001 September 30, 2002 September 30, 2001
(unaudited) (unaudited) (unaudited) (unaudited)
------------------------------------------- ------------------------------------------
Revenues $ 8,315 $ 10,220 $ 1,719,119 $ 1,576,210
Expenses 397,839 120,789 1,824,303 1,457,888
------------------------------------------- ------------------------------------------
Income (loss) before tax) (389,524) (110,569) (105,184) 118,322
Income tax expense (benefit) (35,304) -- 14,221 --
------------------------------------------- ------------------------------------------
Net Income (Loss) $(354,220) $ (110,569) $ (119,405) $ 118,322
=========================================== ==========================================
The Insurance Products segment does not have any customer accounting for over 4
percent of its revenues and is not believed to be dependent on any major client.
However, there are essentially only four companies supplying health coverage in
the current operating area which within the Company has agency marketing
agreements.
Expenditures for long-lived assets were $21,777 and $46,740 for the years ended
December 31, 2001 and 2000, respectively. All company assets are held in the
United States of America. Assets held by each segment as of September 30, 2002,
December 31, 2001, and December 31, 2000 are as follows:
70
PRIME RESOURCE, INC. AND SUBSIDIARIES
(Formerly Prime Resource, LLC and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
NOTE 5 - SEGMENT INFORMATION (CONTINUED)
[OBJECT OMITTED]
NOTE 6 - FAIR VALUE OF FINANCIAL INSTRUMENTS
--------------------------------------------
The carrying amount of certain financial instruments in the accompanying
consolidated financial statements including: cash and cash equivalents, trade
receivables, accounts payable, and accrued liabilities, approximate fair value
due to the short-term nature of the instruments. The carrying value of notes
receivable also approximate fair market value due to the short-term maturity of
the notes or floating interest rates that approximate current market rates.
Securities available for sale at December 31, 2001 and 2000 are set forth in
Note 2.
NOTE 7 - RELATED PARTY TRANSACTIONS
-----------------------------------
Notes receivable
The Company had notes receivable from employees and members totaling $258,815
and $112,992 as of December 31, 2001 and 2000, respectively. The accompanying
consolidated statements of cash flows provide further information regarding
investing activities with related parties.
Amounts due from employees and members were subject to the accrual of interest
income at rates ranging from 4.5 to 4.9 percent. Interest income on amounts due
from related parties totaled $8,113 in 2001 and $759 in 2000.
Note payable
The Company was indebted to a member, under a note payable, in the amounts of
$15,579 and $14,905, as of December 31, 2001 and 2000, respectively. The note
bears interest at 4.5 percent and is due on demand.
71
PRIME RESOURCE, INC. AND SUBSIDIARIES
(Formerly Prime Resource, LLC and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
NOTE 8 - LEASE COMMITMENTS
The Company leases certain office space under agreements classified as operating
leases. The space is leased from two entities that had certain common owners to
those of the Company. Rent expense, under such leases, totaled $110,935 and
$96,260 for the years ended December 31, 2001 and 2000, respectively.
In connection with the settlement agreement discussed in Note 1, effective
December 31, 2001, the remaining members of the Company divested themselves of
their ownership interest in Brownstone Associates, L.L.C., one of the two
related entities the Company leased office space from during 2001 and 2000.
Future minimum payments required under all noncancellable lease agreements as of
December 31, 2001 are as follows:
Year ended
December 31,
------------
2002 $ 102,294
2003 72,765
2004 12,734
Total $ 187,793
=========
---------
NOTE 9 - SUBSEQUENT EVENTS
--------------------------
In January of 2002, the Company and its members granted a 26 percent membership
interest to an employee of the Company valued at $113,000, as an inducement to
remain with the Company and for services to be rendered in connection with a
planned reorganization, registration and offering of company stock. The 26
percent membership share of the Company issued to Mr. Limpert was accounted for
as compensation expense and is included in "compensation and benefits" in the
statement of operations for the quarter ended March 31, 2002. The value of the
share of the Company issued to Mr. Limpert was based on the amount the Company
was required to pay a former member for his 23 percent share of the Company, in
connection with the Company's termination and buy-out of the member, effective
January 1, 2002.
In March of 2002, the Company was paid approximately $144,000 in amounts due
from members as of December 31, 2001 and advanced an additional $56,000 from
those same members. The proceeds were used to satisfy a $200,000 obligation to a
former member, which arose in connection with such member's termination.
72
PRIME RESOURCE, INC. AND SUBSIDIARIES
(Formerly Prime Resource, LLC and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
NOTE 9 - SUBSEQUENT EVENTS (CONTINUED)
--------------------------------------
On April 5, 2002, the Company was reorganized from a limited liability company
to a corporation. The Company was authorized to issue 50,000,000 shares of a
single class of common stock with no par value. The Company issued 2,800,000 of
such shares to existing members representing the entire ownership interest of
the Company at the time of incorporation. As there was no change in control of
the organization, the value of the stock, issued in the reorganization, was
based on the book value of the predecessor organization of approximately
$192,000, as of March 31, 2002. Accordingly, there was no change in the recorded
book values of Company assets or liabilities due to the reorganization.
Also, in connection with the reorganization, the Company entered into three-year
employment agreements with three of its executive officers.
NOTE 10 - INCOME TAXES (UNAUDITED)
Income tax expense is comprised of the following for the three-month period
ended September 30, 2002:
Current Deferred Total
--------- ---------- ----------
U.S. Federal $ 7,722 $ 3,821 $ 11,543
State 2,678 - 2,678
--------- ---------- ----------
$ 10,400 $ 3,821 $ 14,221
========= ========== ==========
Total income tax expense (benefit) for the three-month period ended September
30, 2002 differs from the amounts computed by applying the U.S. federal tax
income rate of 34 percent to pretax income as a result of the following:
Federal income taxes (benefit) at statutory rate $ (35,482)
State income taxes net of federal benefit 1,186
Deferred taxes relating to change in tax status 10,391
Current taxes relating to pre-charge income 47,511
Benefit of graduated rates (9,580)
Other non-deductible items 195
---------
Total $ 14,221
=========
73
PRIME RESOURCE, INC. AND SUBSIDIARIES
(Formerly Prime Resource, LLC and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
NOTE 10 - INCOME TAXES (UNAUDITED) (CONTINUED)
----------------------------------------------
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at September 30, 2002
are as follows:
Deferred tax assets:
Accounts receivable $ (53,491)
Accrued wages 41,842
Accounts payable 25,198
-------------
Total deferred tax assets $ 13,549
-------------
Deferred tax liability - primarily due to
differences in depreciation and amortization -
noncurrent $ (17,370)
=============
Realization of the deferred tax assets depends on the Company's ability to
generate sufficient future taxable income. Management believes that the Company
will generate such future earnings and, accordingly, realize the benefit of the
gross deferred tax assets. Therefore, management has not provided any valuation
allowance.
The entity also changes tax status during the year, resulting in the deferred
tax assets and liabilities being recorded in the continuing operations for the
current period.
74
CHANGE IN ACCOUNTANTS AND ANY DISAGREEMENTS
-------------------------------------------
Your management has not changed its independent auditors since
inception. Further, Prime has no conflict or disagreement with its current
auditors concerning any accounting policies.
75
[OUTSIDE COVER OF PROSPECTUS]
-----------------------------
This is a self underwriting not involving any broker/dealer. Each
person contacted to invest in this offering will concurrently be given a copy of
this prospectus. Unless otherwise advised, the prospectus will expire and should
not be relied upon at anytime greater than six months after the effective date
appearing on the cover page.
76
PART II
-------
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Officers & Directors. Prime indicates that
it has normal and customary indemnification provisions under its By-laws and
Articles of Incorporation, as well as those generally provided by Utah law. It
is believed these provisions would indemnify all officers and directors from any
good faith mistake or omission in the performance of his or her duties including
cost of defense. Such indemnity would not extend to intentionally wrongful acts
including fraud, appropriation, self dealing or patent conflicts of interest.
The Articles and By-Laws were being filed as Exhibit items.
Item 25. Other Expenses of Issuance & Distribution. Prime does not know
of any accrued or to be accrued expenses of issuance and distribution other than
as outlined in the foregoing prospectus. The present estimates of offering
expenses are incorporated as costs for registration, including: fees, legal,
accounting, printing and miscellaneous in the aggregate amount of $45,000 are to
be paid by the company ultimately from offering proceeds and are outlined below:
----------------------------------------------------------------------------------
ESTIMATED OFFERING COSTS
---------------------------------------------- -----------------------------------
ITEM ESTIMATED COST
---------------------------------------------- -----------------------------------
1. Attorney Fees $ 20,000
---------------------------------------------- -----------------------------------
2. Auditing $ 20,000
---------------------------------------------- -----------------------------------
3. Printing and Distribution $ 2,500
---------------------------------------------- -----------------------------------
4. State Filing and Edgar Fees $ 2,500
---------------------------------------------- -----------------------------------
TOTAL COSTS $ 45,000
---------------------------------------------- -----------------------------------
Item 26. Recent Sales of Unregistered Securities. Prime believes that
in the body of this prospectus it has described all shares issued from the date
of inception of Prime. In summary of that disclosure, Prime represents the only
shares originally issued were to its founders and principals, Mr. Terry Deru,
Mr.Scott Deru and Mr. Andrew Limpert. Mr. Don Deru, the father of Terry and
Scott Deru, also received a limited number of shares. Subsequently all shares
issued to them are the same shares set forth in the chart showing securities
held by management and are deemed exempted transactions under section 4(2) of
the Securities Act of 1933 as initial capital contributions. The first table
summarized these transactions; the second table summarizes historical
significant contributions to the prior Prime, LLC entity in 1998. The original
Prime, LLC was formed in 1996 with minimum capitalization:
77
---------------------------------------------------------------------------------------------------------------------
SUMMARY OF ALL SHARES ISSUED IN PRIME, INC.
---------------------------------- ---------------- -------------------- ---------------- ---------------------------
Name/ Number of Price per
Shareholder Shares Acquisition Date Share Consideration
---------------------------------- ---------------- -------------------- ---------------- ---------------------------
Mr. Terry Deru Interest in Prime LLC,
(Founder) carry over value of LLC
1 M 4/5/2002 $.07* $70,000
---------------------------------- ---------------- -------------------- ---------------- ---------------------------
Mr. Scott Deru Interest in Prime LLC,
(Founder) carry over value of LLC
1 M 4/5/2002 $.07* $70,000
---------------------------------- ---------------- -------------------- ---------------- ---------------------------
Mr. Andrew Limpert Interest in Prime LLC and
(Founder) offering services valued
750 K 4/5/2002 $.15* at $113,000
---------------------------------- ---------------- -------------------- ---------------- ---------------------------
Mr. Don Deru Predecessor LLC interest
50 K 4/5/2002 $.07* valued at $10,125
---------------------------------- ---------------- -------------------- ---------------- ---------------------------
*Shares valued at approximate net worth per share at time of organization based
on March 31, 2002 Financial Statements (Unaudited), except for Mr. Limpert whose
share valuation contained a premium for continuing organizational services.
HISTORICAL SUMMARY OF LLC/INTEREST IN PREDECESSOR PRIME LLC
AS OF 19981
------------------------------------ ----------------- ----------------- --------------- -----------------------------
Name of Shareholder LLC Interest Acquisition Value
Date of Interest Consideration
------------------------------------ ----------------- ----------------- --------------- -----------------------------
1. Mr. Scott Deru 36 1/2% 10/98 Unknown 50% F.B.A., Inc.
------------------------------------ ----------------- ----------------- --------------- -----------------------------
50% B.G., Inc.
2. Mr. Terry Deru 36 1/2% 10/98 Unknown 50% F.B.A., Inc.
------------------------------------ ----------------- ----------------- --------------- -----------------------------
Cancellation
3. Mr. Don Deru 4% 10/98 $150,000 $150,000 Note
------------------------------------ ----------------- ----------------- --------------- -----------------------------
4. Mr. William Campbell 23% 10/98 Unknown 50% B.G., Inc.
------------------------------------ ----------------- ----------------- --------------- -----------------------------
(1) The original Prime LLC formed in 1996 was minimally capitalized and remained
inactive until 1998.
Item 27. Index of Exhibits:
Exhibit Item 3 - Articles of Incorporation and By-Laws - Previously
Filed
Exhibit Item 4 - Stock Certificate - Previously Filed
78
Exhibit Item 5 - Attorney Letter in re Legality - Amended Filed
Exhibit Item 10 - (A) Employment Contracts of Principal Employees -
Previously Filed
10.2 Mr. Andrew Limpert
10.3 Mr. Scott Deru
10.4 Mr. Terry Deru
(B) Assignment of LLC Interest to Limpert -
Previously Filed
(C) Contracts with Principal Insurers - Updated
Filed
10.9 Regence Blue Cross/Blue Shield Contract
10.10 Altius Healthplans, Inc. Contract
10.11 United Healthcare Contract
(D) Management Promissory Notes
10.12 Note of Terry Deru to Prime (3/30/2001;
$70,000)
10.13 Note of Scott Deru to Prime (3/30/2001;
$70,000)
10.14 Note of Andrew Limpert to Prime
(9/30/2001; $54,658.28)
10.15 Note of Prime to Terry Deru (3,4,2002;
$100,000)
10.16 Note of Prime to Scott Deru (3/4/2002;
$100,000)
Exhibit Item 21 - Subsidiary List - Previously Filed
Exhibit Item 23.1 - Consent of Experts - Carver Hovey & Co. CPA's -
Supplementally Filed
23.2 - Julian D. Jensen, P.C. Attorney at Law -
Previously Filed
Item 28. Undertakings. The undersigned registrant hereby undertakes:
To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933. This includes:
a. For determining liability under the Securities Act,
the issuer will treat each post-effective amendment
as a new registration statement of the securities
offered, and the offering of the securities at that
time to be the initial bona fide offering.
b. The issuer will file a post-effective amendment to
remove from registration any of the securities that
remain unsold at the end of the offering.
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change
in the information in the registration statement.
Notwithstanding the foregoing, any increase or decrease
79
in volume of securities offered (if the total dollar
value of securities offered would not exceed that which
was registered) and any deviation from the low or high
end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) (ss.230.424(b) if, in
the aggregate, the changes in volume and price represent
no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement.
(iv) To the extent this issuer requests acceleration of the
effective date of the registration statement under Rule
461 under the Securities Act, it will include the
following in the appropriate portion of the prospectus:
Insofar as indemnification for liabilities arising under
the Securities Act of 1933 (the "Act") may be permitted
to directors, officers and controlling persons of the
small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has
been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore,
unenforceable.
In the event that a claim for indemnification against
such liabilities (other than the payment by the small
business issuer of expenses incurred or paid by a
director, officer or controlling person of the small
business issuer in the successful defense of any action,
suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities
being registered, the small business issuer will, unless
in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as
expressed in the Securities Act and will be governed by
the final adjudication of such issue.
80
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Salt
Lake, State of Utah on December 16, 2002.
(Registrant) Prime Resource, Inc.
/s/ Terry Deru
-----------------------------
By: Terry Deru, Its President
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated:
BY: MR. TERRY DERU
(Signature) /s/ Terry Deru
------------------------------
Terry Deru
(Title) Director, CEO, President
(Date) 12/16/2002
BY: MR. SCOTT DERU
(Signature) /s/ Scott Deru
------------------------------------------
Scott Deru
(Title) Director, Vice-President, Treasurer
(Date) 12/16/2002
BY: MR.ANDREW LIMPERT
(Signature) /s/ Andrew Limpert
------------------------------------------------------
Andrew Limpert
(Title) Director, CFO, Secretary, Vice-President
(Date) 12/16/2002
81