UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
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[Sixth Amended - Supplemental]
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 04-3648721
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(State of jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) 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
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(Address of principal place of business or intended principal place of business)
Mr. Terry Deru, 1245 E. Brickyard Road, Suite 590,
Salt Lake City, Utah 84106 (801) 433-2000
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(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 Dollar amount to be Proposed maximum Proposed maximum Amount of
of securities to be registered offering price aggregate offering.(1) registration fee
registered to maximum per 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.
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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. 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.
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.
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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(1)Does not include estimated offering costs of approximately $45,000 to be paid
or reimbursed from proceeds, if closed.
Date of this Prospectus: April 16, 2003
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TABLE OF CONTENTS
ITEM PAGE
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...................................................................................15
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........................................26
10. Security Ownership of Certain Beneficial Owners and Management.......................................29
11. Description of Securities............................................................................30
12. Interest of Experts and Counsel......................................................................32
13. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities.....................................................................32
14. Organization Within Last Five Years..................................................................33
15. Description of Business..............................................................................33
16. Management's Discussion and Analysis.................................................................43
17. Description of Property..............................................................................49
18. Certain Relationships and Related Transactions.......................................................50
19. Market for Common Equity and Related Stockholder Matters.............................................51
20. Executive Compensation...............................................................................51
21. Financial Statements.................................................................................53
22. Changes In and Disagreement With Accountants.........................................................71
Part II - Information Not Required in Prospectus
23. Indemnification of Directors and Officers............................................................73
24. Other Expenses of Issuance and Distribution..........................................................73
25. Recent Sales of Unregistered Securities..............................................................73
26. Exhibit List.........................................................................................74
27. Undertakings.........................................................................................75
28. Signatures...........................................................................................77
(Part II Table will not appear in Prospectus only copy;
and page numbering may be modified)
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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
Benefit"). 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 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, 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.
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 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, 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.
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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, 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
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
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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.
No shares of the existing shareholders (2,800,000 shares) are
being registered.
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.
Each officer, director or other affiliate may purchase, but it
not obligated to purchase, shares in this offering at the
offering price without other restrictions.
Trading Market To date Prime has not obtained any trading symbol, nor have
Symbol its shares been Symbol: approved or registered for trading. It
is intended 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
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.
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CONSOLIDATED BALANCE SHEET DATA:
(Predecessor Entity, Prime Resource, LLC.)
December 31st (Audited)
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2002 2001
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Assets $ 551,971 $ 580,128
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Liabilities $ 361,908 $ 360,805
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Members' and Stockholders' Equity $ 190,063 $ 220,338
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Accumulated Other Comprehensive Loss -- ($ 1,015)
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Total Liabilities, Members' and Stockholders' Equity,
and Accumulated Other Comprehensive Loss $ 551,971 $ 580,128
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STATEMENT OF CONSOLIDATED OPERATIONS DATA:
(Includes Predecessor Entity--Prime LLC to 12/31/2002)
Years Ended Deeember 31st
(Audited)
2002 2001
---- ----
Revenues:
Commissions $ 1,773,981 $ 1,557,246
Investment Advisory Fees 512,580 449,031
Interest and Dividends 12,694 15,204
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2,299,255 2,021,481
Expenses:
Operating 2,437,701 2,057,452
Interest 6,900 674
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2,444,601 2,058,126
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Loss before income tax benefit (145,346) (36,645)
Income tax benefit (2,071) --
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Net Loss ($ 143,275) ($ 36,645)
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Comprehensive Loss ($ 143,275) ($ 37,660)
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BASIC AND DILUTED LOSS PER SHARE, for the
period April 5, 2002 (date of incorporation)
through December 31, 2002 $ (.003) --
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WEIGHTED AVERAGE SHARES OUTSTANDING,
for the period April 5, 2002
through December 31, 2002 2,800,000 --
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PRO FORMA DATA FOR SUBSEQUENT EVENTS
Years Ended December 31st (Audited)
2002 2001
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PRO FORMA COMPENSATION & BENEFITS, assuming the
reorganization and new compensation agreements described
in Note 1 to the accompanying financial statements,
occurred on January 1, 2001 $ 1,264,621 $ 1,222,418
PRO FORMA INCOME TAX BENEFIT, assuming the reorganization
described in Note 1 to the accompanying financial statements 58,138 51,458
PRO FORMA NET LOSS, assuming the reorganization described in
Note 1 in the accompanying financial statements occurred
on January 1, 2001 [87,208] (77,187)
PRO FORMA BASIC AND DILUTED INCOME PER SHARE, assuming the
reorganization described in Note 1 to the accompanying financial
statements occurred on January 1, 2001 [.031] (.028)
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
Continue to Control this Corporation for the Foreseeable Future and Thereby
Control Management and be in a Position to Ultimately Direct All Corporate
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.
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2. Future Majority Shareholder Stock Transactions Will Most Likely
Cause a Decrease in the Trading Price of Your Stock in the Future Through
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 Intended
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
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
Market for our Shares; the Lack of a Public Market May Limit Your Capacity to
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
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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
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
Change in Management May Cause the Company to Lose Revenues or Profits or to
Operate Inefficiently or at a Loss.
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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
May Cause You Additional Costs of Trading, Lower the Price of Your Stock or
Limit the Potential Market For Your Stock.
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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 $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
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
12
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
Growth and Net Losses, You May Consider This Fact an Indicator That Your
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 years 2001 and 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
calendar years 2001 and 2002. 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
Highly Regulated Fields, Government Regulation and Policies May Limit or
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 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.
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11. The Personal Contacts Usually Required in Prime's Type of Business
May Limit the Growth of Prime as a Public Company.
--------------------------------------------------------------------------------
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 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. At the present time, Mr. Terry Deru and Mr. Andrew
Limpert, as principals of Belsen Getty, LLC, are subject to licensing and
regulation as investment advisors.
14
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 and $115,000 to
Belsen Getty to be specifically applied as set-out in the following estimated
net proceed charts.
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.
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 members(1) $ 20,000 2.7%
b. Management fees(2) $ 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 business(3) $ 250,000(3) 33.3%
3. Fringe Benefit $ 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
(Continued from previous page)
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) $ 5,000
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, directly or indirectly, be used to create
incentive payments for employees or insurance agents and to expand the number of
employees as necessary.
17
(3) Prime is maintaining a large working/acquisition capital reserve in
the maximum offering in anticipation that Fringe Benefit will request to draw
upon this reserve to fund its intended efforts to acquire other insurance
brokerage companies or their book of business.
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 $ 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
(Continued from previous page)
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 December 31, 2002, was $190,063 and is estimated to be
$0.07/share in the present corporate form.
If the maximum offering is sold, the net tangible book value would
increase from approximately $0.07/share to $0.30/share or a $0.23 per share
increase as to existing shareholders as a result of this offering. In the
minimum offering, the increase for existing shareholders would be from
$0.07/share to $0.22/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 $0.30 per share.
Therefore, each investor in this offering will suffer an immediate estimated
dilution to his investment of $4.70 per share or approximately 94 % in the
maximum offering; and $4.78 per share or approximately 96 % in the minimum
offering. The computation of net worth per share after the offering is based on
the equity as of December 31, 2002 before the offering, adding the proceeds of
the offering (less estimated offering costs of $45,000), and dividing this sum
by the total number of shares after the 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 of share
$5.00/share offering $5.00/share after offering
100% $0.30/share 100% $ 0.22/share
(Rounded) (Rounded)
Dilution 96%
Dilution 94% $4.78/Share
$4.70/Share
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.
20
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 file a post-effective amendment to this
registration and prospectus to reflect any such commission arrangements and to
only continue with the offering in accordance with all other terms and
provisions approved after effectiveness of the post-effective amendment to the
registration materials. In the unforeseen and unanticipated event that Prime
determines it must employ an underwriter to complete this offering, such change
would require the filing and review of a post effective amendment with the SEC
and applicable state securities regulatory agencies prior to continuing selling
efforts.
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. Any
change in the issuer/agent would require a post effective amendment to the
registration prior to continuing selling efforts. 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 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. 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 prior to the offering
continuing. 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:
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;
21
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
22
be subject to restrictions on resales, and must be purchased for investment
purposes requiring a holding period.
Sales to Prime Clients
Prime undertakes and represents that no shares to be sold in this
offering will be offered or sold to any of the securities clients of Prime, as
principally acquired and/or serviced through its subsidiary, Belsen Getty.
Minimum Purchase
There is no minimum individual 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 promptly returned without deduction for costs or addition of any interest.
Prime will obtain an address from each subscriber and will return all proceeds
promptly upon 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
23
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
At the time this registration becomes effective, the offering will only
be qualified for sale to citizens of the State of Utah, based upon a
corrdination 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 subsequently qualified or registered by
coordination, or similar rule or process. 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. In the event Prime decided to
register or qualify this offering in any other jurisdiction for sale, it would
only do so if such registration could be achieved by coordination or similar
registration 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. At present, Prime does not have any
intent to sell the securities other than in the State of Utah.
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.
24
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
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.
25
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.
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
26
SEC and Utah since 1984. Mr. Deru is a Certified Financial Planner and a
Registered Financial Consultant. Mr. Deru has been with Belsen Getty or its
predecessor since 1985. Since affiliation with Belsen Getty, he has served as a
consultant and director from 1985 to 1998 and as a consultant from 1998 to the
present. He has been the manager of Belsen Getty since July, 2000. Mr. Deru will
continue his part-time affiliation with Belsen Getty while also acting as the
part-time officer of Prime. The estimated allocation of services 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. Since 1998 he has been the manager and principal
officer of Fringe Benefit, one of the current subsidiary operating companies of
Prime. In this capacity, he has primarily been engaged in creating and selling
life, health and other insurance products for business clients of Prime, 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
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
27
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:
--------------------------------------- ------------------- ------------------ ---------------
FRINGE
NAME PRIME BELSEN 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
either of its subsidiaries. As previously indicated, Prime, LLC had as its
wholly owned subsidiaries Belsen Getty, LLC and Fringe Benefit. Subsequently,
Belsen Getty and Fringe Benefit became subsidiaries of Prime, Inc. the successor
28
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 to owners. Alternatively, each of the principal officers,
named above, served 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 was increased to $210,000 annually
on October 1, 2002, effective in calendar year 2003. 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. This, and related compensation information, is
set-out in tabular format at page 52 under Executive Compensation.
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.
29
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.
--------------------------------------------------------------------------------------------------------------------
Title of Class Name and Address of Owner Current Shares Owned Current
Percentage of Percent of Total Common
Outstanding in the event Max. Off.
(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 2,750,000 99% 94%
Stock a Group2
--------------------------------------------------------------------------------------------------------------------
(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.
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
30
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 the date of this prospectus, there were 2,800,000
restricted shares issued and outstanding to four shareholders. 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.
31
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.
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,
32
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 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. Mr. Scott Deru acted as the
manager for Prime LLC. From 1990 to 1998, Belsen Getty and Fringe Benefit
collaborated as independent corporations. In 1998 Prime LLC became the parent
and coordinating entity and the two operating companies also became wholly owned
limited liability companies of Prime, LLC and changed their business structure
from corporations to limited liability companies owned by Prime LLC.
As part of the 1998 reorganization, Mr. Scott Deru and Mr. Terry Deru
each contributed their 50% ownership interest in Fringe Benefit 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 36 1/2% each; Mr. William Campbell at 23% and
Mr. Don Deru 4%. Prime, LLC was later dissolved of record in April, 2002 after
transferring all assets to Prime, Inc.
33
>
Fringe Benefit was formed and licensed in November, 1984 in Utah as a
general insurance agency. The company initially was formed and operated as a
Utah corporation with Mr. Scott Deru as its president. It was jointly owned by
Scott Deru and Terry Deru from 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.
From 1998 on Fringe Benefit Analysts started collaborating closely with
Belsen Getty LLC, which was formed in 1998, to primarily engage in business
consulting and financial planning. Belsen Getty was initially formed in 1990 as
a corporation. Belsen Getty, which was and is engaged in advising firms in the
formation of employee health , pension, stock option and related plans,
frequently referred clients to Fringe Benefit Analysts when insurance funding
was required. In like manner, Fringe Benefit Analysts 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 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. These subsidiary entities were formed on October
2, 1998 and became the successor firms for Belsen Getty, Inc. and Fringe
Benefit, respectively, each being wholly owned by Prime Resource, LLC.
Mr. William Campbell became associated with Prime Resource LLC in 1998
resulting from a minimal cash contribution and his fifty per cent interest in
Belsen Getty. He received a 23% interest in Prime LLC.
In January, 2002 Prime LLC purchased 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
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
34
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 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 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 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 have been and will be paid directly by Prime.
35
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, was a lapsed corporation continuing to conduct
business from 1996 too 1998 when it was reorganized as a Utah limited liability
company. Belsen 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.
In November of 2002, Belsen Getty received 684,000 shares of restricted
common stock in an inactive public company known as Mortgage Professional Lead
Source, Inc. (MPLS) incident to consulting and advisory services provided to
MPLS by Andrew Limpert. MPLS became known as Neuro Bioscience, Inc. (NBI)
pursuant to an acquisition of this private company. The shares were issued and
held in the name of Prime Resource, Inc., the parent entity to Belsen Getty, by
informal assignment from Andrew Limpert who performed the consulting services as
an employee of Belsen Getty. While Limpert acted to locate the acquired company,
NBI, neither he nor Belsen Getty had a contractual duty to locate or provide
such entity as part of his consulting services or entitlement to earn the shares
for consulting services to MPLS. At present there is very limited public trading
by NBI.
As a result, Belsen Getty does not deem that it acted in the capacity
of a finder or broker/dealer in this transaction, but only as a financial
consultant. However, any shareholder or prospective shareholder should
understand there remains a risk that various individuals or governmental
agencies may challenge the actions of Belsen Getty as acting as an unlicensed
broker/dealer by participating in this transaction. In all events, the
tranactions constitutes an isolated transaction and Belsen Getty has not engaged
in any similar or related transaction and will not provide any similar services
in the future to avoid any assertion or appearance of acting as a broker/dealer
or underwriter for which services it is not licensed. Belsen Getty does not
intend to license for or otherwise provide consulting services related to
securities offerings.
Belsen Getty is currently managed by Mr. Terry Deru and has six
full-time and one part-time employee.
Fringe Benefit Business
-----------------------
Fringe Benefit is primarily a diversified independent insurance broker
which provides various lines of insurance, such as health, life, dental,
disability, etc., as needed by its clients to fund various business, as well as
employee related programs and plans. Fringe Benefit also intends in the future
to engage in recruiting independent agents, rolling up and acquiring existing
health care insurance agencies and/or their book of business.
Fringe Benefit currently has 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
36
acquisitions will come from the anticipated acquisition reserves to be held by
Prime. There are no present acquisition agreements, candidates, proposals or
negotiations. Fringe Benefit has not historically, nor does it presently intend
to engage in any acquisition of an insurance or other business from any related
or affiliated party. 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 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 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. 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 administrative fees for various programs are waived if multiple programs
are purchased through Fringe Benefit.
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 are the sale and
management of health and life insurance products to small and medium sized
businesses. Fringe Benefit sells insurance programs and policies primarily
37
offered by four major carriers: Altius Insurance (previously Pacific 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.
The insurance policy providers require Prime to maintain in force a
standard liability policy for errors and omissions for professional services.
Prime is in compliance with this requirement and intends to remain current.
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 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.
38
(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
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. Fringe Benefit receives no fee or other direct benefit from
providing this service, but engages in the program for marketing purposes.
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
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.
39
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.
Fringe Benefit 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
40
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
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 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 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 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 and will devote almost all of his time to
its operations.
All salaries and other expenditures in both Belsen Getty and Fringe
Benefit 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. 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.
41
>
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
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. 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. 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
42
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
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
43
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, 2002, 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. The subsidiary operating
entities, Belsen Getty and Fringe Benefit, remain as wholly owned limited
liability companies.
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 - Certain headquarters functions and income on company-wide
savings and investments are included in "other".
Results of Operations
---------------------
Year ended December 31, 2002 compared to the years ended December 31, 2001 and
2000
44
Revenues
--------
Prime's revenues, by reportable segment were as follows:
Segment
-------
Year Ended December 31st:
---------------------------
2002 2001
---- ----
Insurance Products(Commissions) $1,773,974 $1,557,246
Asset Management (Advisory Fees) $ 512,587 $ 449,031
Interest and Dividends $ 12,964 $ 15,204
Total $2,299,255 $2,021,481
Asset management revenues in 2002 increased $63,556, or 14.2 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 years 2001 and 2002. The increase from year 2001 to 2002 was largely
attributed to an expanded customer base and one-time general business consulting
fees, offset by a modest decrease in the average fair value of assets under
management.
Insurance product revenues from calendar year 2001 to 2002 increased
$216,728 or 13.9 percent due primarily to the addition of new agents with
established customer bases. Revenues also increased due to insurance premium
increases and the resultant commission increases.
Interest and dividends on a Company-wide basis was slightly lower in
2002 due to slightly smaller amounts invested in marketable securities and cash
equivalents in 2002, as compared to 2001.
45
Operating Expenses
------------------
Prime's operating expenses by reportable segment are as follows:
Segment
-------
Year ended December 31st
---------------------------
2002 2001
---- ----
Insurance Products (Commissions) $1,258,662 $1,186.614
Asset Management (Advisory Fees) 962,643 816,310
Other 223,296 55,202
Total $2,444,601 $2,058,126
Insurance Product's operating expenses for the year 2002 increased
$72,048 or 6.1 percent, compared to the prior year due to increases in
commissions paid and compensation and benefits totaling approximately $47,000
and $4,800, respectively. Commission expense increased in 2002 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.
Asset Management operating expenses for the year 2002 compared to 2001
increased by $146,337 or 17.9 percent due to increases in compensation to an
employee resulting from the issuance of a 26 percent ownership interest in Prime
(valued at $113,000), and an increase in the based salary of such employee for
advisory and organization services rendered in connection with Prime's
reorganization and registration with the SEC.
The Other Segment is comprised of certain headquarters functions, not
directly related to the operations of Belsen Getty or Fringe Benefit. It also
includes income on company-wide savings and investments. Other costs increased
by $168,094 or 305 percent due to higher legal and accounting costs incurred by
Prime in connection with its reorganization and registration with the SEC, and
for allocations of upper management salaries related to time spent on the
reorganization.
Income Tax Benefit
------------------
Prime became subject to taxation for the first time in 2002 due to its
conversion from a limited liability company to a taxable corporation, effective
April 4, 2002. The income tax benefit included in the accompanying financial
statements is based on the Company's loss before income taxes for the period
from April 5, 2002 through December 31, 2002.
Net Income Loss
---------------
The year ended December 31, 2002 resulted in a net loss of $143,275
compared to net loss of $36,645 for 2001. The increase in the net loss in 2002
was primarily due to increased management salaries and other compensation and
administrative cost as described above.
Liquidity and Capital Resources
-------------------------------
Historically, Prime's primary source of capital has been cash provided from
operations. However, in 2002 operating activities used cash totaling $56,559
while operating activities for 2001 generated $146,653 in cash. Although both
years resulted in net losses, the loss in 2002 exceeded 2001 by $106,630.
Furthermore, 2001 was positively impacted by collections on receivables of
$47,283 and the accrual of unpaid expenses of $97,321. The net collection and
payment of receivables and payables negatively impacted cash from operations in
2002 by $71,474.
Investing activities generated $105,547 in cash in 2002, while using
$205,656 of cash in 2001. The primary difference between the two periods stemmed
from lending activity with related parties and the timing of advances and
collection of funds. Loans of approximately $156,000 were made in 2001 that were
subsequently collected in 2002. Investing activities in 2002 also generated
$47,740 from the sale of marketable securities.
Financing activities generated $3,645 in cash in 2002, but used
$134,216 of cash in 2001. Cash was used in both periods in connection with owner
distributions; however, the distribution in 2002 was offset by cash received in
connection with loans to related parties of $53,645 and bank borrowings of
$50,000.
46
Balance Sheet Data
The following summarizes Prime's assets, liabilities, and members'
equity as of December 31, 2002 and December 31, 2001:
---------------------------------------------------- -------------------------------- ---------------------------------
Assets December 31, 2002 December 31, 2001
---------------------------------------------------- -------------------------------- ---------------------------------
Current assets $235,164 $185,277
---------------------------------------------------- -------------------------------- ---------------------------------
Property and equipment, net 163,863 131,283
---------------------------------------------------- -------------------------------- ---------------------------------
Other 152,944 263,568
---------------------------------------------------- -------------------------------- ---------------------------------
Total assets 551,971 580,128
---------------------------------------------------- -------------------------------- ---------------------------------
Liabilities & Members' & Shareholders' Equity December 31, 2002 December 31, 2001
---------------------------------------------------- -------------------------------- ---------------------------------
Current liabilities 361,908 345,226
---------------------------------------------------- -------------------------------- ---------------------------------
Other liabilities -- 15,579
---------------------------------------------------- -------------------------------- ---------------------------------
Members' & stockholders' equity 190,063 219,323
---------------------------------------------------- -------------------------------- ---------------------------------
Total liabilities, members' &
shareholders' equity $551,971 $580,128
---------------------------------------------------- -------------------------------- ---------------------------------
Current assets as of December 31, 2002 increased by $49,887 or 26.9
percent from the balance at December 31, 2001. This increase was due to
increases in accounts receivable from a larger customer base in the Insurance
Products segment.
Net leasehold improvements and equipment increased between December 31,
2002 and 2001 by $32,580 or 24.8 percent due to investments in additional
leasehold improvements resulting from Prime's move to a new office building in
2002.
Other assets decreased between December 31, 2002 and 2001 by $110,624
or 41.9 percent due to reductions from collections of advances and notes
receivable from shareholders.
Current liabilities increased between December 31, 2002 and 2001 by
$16,682 or 4.9 percent due to routine increases in accounts payable in 2002,
advances from shareholders in 2002 (classified as current) totaling$122,381 and
the recognition of income taxes for the first time in 2002; partially offset by
current obligations as of December 31, 2001 stemming from the termination of a
former owner of Prime.
Other liabilities were reduced to zero in 2002 as obligations to
shareholders as of December 31, 2001 were satisfied or classified as current
during 2002.
47
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 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 April of 2002, the Financial Accounting Standards Board (FASB)
issued Statement No. 145 (FAS 145), Rescission of FASB Statements No. 4, 44, and
64, Amendment of FASB Statement No. 13, and Technical Corrections.
48
Under FASB Statements No. 4 and 64, most gains and losses from debt
extinguishments were aggregated and classified as extraordinary items in the
statement of operations. By rescinding Statements No. 4 and 64, FAS 145 requires
the provision of APB No. 30, Reporting the Results of Operations-Reporting the
Effects of Disposal of a Segment of a Business and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions, to be followed in determining
the classification of gains and losses from debt extinguishments. FAS 145
rescinded Statement No. 44 because it was originally issued to address the
effects of certain Motor Carrier laws, which are no longer in effect. In
amending Statement No. 13, FAS 145 requires sale-leaseback accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback accounting. In June of 2002, the FASB issued Statement No. 146
(FAS 146), Accounting for Costs Associated with Exit or Disposal Activities. FAS
145 addresses financial accounting and reporting for costs associated with exit
or disposal activities and nullifies in the guidance in Emerging Issues Task
Force (EITF) Issue No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and other Costs to Exit an Activity (Including Certain
Costs Incurred in a Restructuring). FAS 146 requires that a liability for a cost
associated with an exist or disposal activity be recognized when the liability
is incurred. Under Issue 94-3, a liability for an exit cost (as defined by Issue
94-3) was recognized at the date of an entity's commitment to an exit plan.
In December of 2002, the FASB issued Statement No. 148 (FAS 148),
Accounting for Stock-Based Compensation-Transition and Disclosure-An Amendment
of FASB Statement No. 123. FAS 148 provides alternative methods of transition
for a voluntary change to the fair value based method of accounting for
stock-based employee compensation. In addition, the statement amends the
disclosure requirement of Statement No. 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results.
None of the above new pronouncements have current application to Prime,
but may be applicable to Prime's future financial reporting.
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.
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.
49
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. During the past
two calendar years (2001-2002), the company has loaned the aggregate amount
of $70,000 to Mr. Terry Deru, $70,000 to Mr. Scott Deru and $15,000 to Mr.
Andrew Limpert. As of December 31, 2002 the amount which each of the Derus
still owed on these loans, without set-off, accrued interest or adjustment
was $70,000 both for Mr. Terry Deru and Mr. Scott Deru. The amount owing by
Mr. Limpert as of December 31, 2002 was $74,074, which reflects accrued
intrest and advances prior to 2001. During this same period (2001-2002) both
Mr. Terry Deru and Mr. Scott Deru each loaned the sum of $100,000 to Prime.
As of December 31, 2002 there remained owing on these loans, without
set-off, accrued interest or adjustment, the sum of $100,000 each to Mr.
Terry Deru and Mr. Scott Deru. The advances to the Derus and loans from the
Derus to Prime have been adjusted and off-set for financial accounting
purposes in the enclosed financial statements. Under the provisions of the
recent Sarbanes-Oxley Act, Prime has discontinued, as a prospective public
company, any further loans or advances to officers, directors or employees.
It is anticipated, though not warranted, that all these note obligations
will be substantially or fully 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.
50
o Messrs. Terry Deru, Scott Deru and Andrew Limpert would be considered
founders and promoters of the current Prime Resource, Inc. As such, Scott
Deru contributed his interest in the prior Prime LLC for his approximate 36%
stock interest in Prime; Terry Deru has contributed his interest in Prime
LLC for an approximate 36% stock interest; and Mr. Limpert has contributed
his interest in Prime LLC for an approximate 27% stock interest in Prime.
None of these transfers by the promoters can be considered independent or
arms-length transactions.
o The company is not aware of any further transactions which would
require disclosure under this section by the company and any affiliated
party.
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, or the successor BBX listing,
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 this offering date there are 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.
51
EXECUTIVE COMPENSATION
----------------------
HOURLY COMPENSATION, LONG TERM COMPENSATION
Securities LTIP Other(3)
Name and Principal Position Year Salary(1) Bonus(2) Other Annual Restricted Underlying Payouts (Loans)
Compensation Stock Awards(s) Options
------------------------------ -------- --------- --------- ---------------- -------------- ------------ -------- -----------------
2002 $240,000 -- -- -- -- -- $27,851-owed
Mr. Terry Deru, 2001 $262,000 -- $65,000 -- -- -- --
President 2000 $208,341 -- -- -- -- -- --
1999 $122,236 -- -- -- -- -- --
------------------------------ -------- --------- --------- ---------------- -------------- ------------ -------- -----------------
2002 $240,000 -- -- -- -- -- $27,851-owed
Mr. Scott Deru,, Secretary 2001 $240,000 -- $65,000 -- -- -- --
2000 $212,000 -- -- -- -- -- --
1999 $165,242 -- -- -- -- -- --
------------------------------ -------- --------- --------- ---------------- -------------- ------------ -------- -----------------
Mr. Andrew Limpert, 2002 $165,000 -- -- -- -- -- $69,658-payable
Treasurer 2001 $118,000 -- -- -- -- -- --
2000 $60,479 -- -- -- -- -- --
1999 $65,613 -- -- -- -- -- --
------------------------------ -------- --------- --------- ---------------- -------------- ------------ -------- -----------------
To date, directors have not been paid any compensation for attendance
at Board of Directors meetings. It is anticipated that as soon as revenues would
justify such expenditure, Directors will be paid a per diem payment of $500 for
attending each Board of Directors meetings.
(1)Historically, the principals of Prime Resource LLC have taken draws
equal to a salary compensation of $240,000 per year in the case of Mr. Scott
Deru, and $240,000 for Mr. Terry Deru. Mr. Terry Deru received a salary of
$262,000 in 2001, and received $240,000 in 2002. He will also receive this
salary in 2003. Mr. Limpert was paid compensation of $118,000 in 2001, $165,000
in 2002 and will be paid $210,000 in 2003. 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 4, 2005. The interest on these notes owing to the Derus is 5%
APR. As of December 31, 2002, Prime owed M r. Terry Deru and Mr. Scott Deru
$27,851 each. Mr. Limpert has also borrowed $69,658.28 from Prime in 2002
payable on demand at 4.86% APR. As of December 31, 2002, with principal and
interest, Mr. Limpert owed Prime $74,074.12. It is anticipated, though not
warranted, that these obligations will be fully or substantially paid in 2003.
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.
52
FINANCIAL STATEMENTS
--------------------
PRIME RESOURCE, INC. AND SUBSIDIARIES
(Formerly Prime Resource, LLC and Subsidiaries)
FINANCIAL STATEMENTS
with
INDEPENDENT AUDITORS' REPORT THEREON
Years Ended December 31, 2002 and 2001
53
CONTENTS
Page
----
Independent Auditors' Report 54
Financial Statements:
Consolidated Balance Sheets 55
Consolidated Statements of Operations 56
Consolidated Statements of Operations and Comprehensive Loss 57
Consolidated Statements of Members' and Stockholders' Equity 58
Consolidated Statements of Cash Flows 59
Notes to Consolidated Financial Statements 60-69
54
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,
Inc. and subsidiaries as of December 31, 2002 and 2001, and the related
consolidated statements of operations, consolidated statements of operations and
comprehensive loss, members' and stockholders' equity, 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, Inc.
and subsidiaries as of December 31, 2002 and 2001, 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.
Layton, Utah
February 7, 2003
55
6
PRIME RESOURCE, INC. AND SUBSIDIARIES
(Formerly Prime Resource, LLC and Subsidiaries)
CONSOLIDATED BALANCE SHEETS
December 31, 2002 and 2001
2002 2001
--------- ---------
ASSETS
Current Assets:
Cash and cash equivalents $ 84,735 $ 32,102
Accounts receivable 140,627 99,287
Available-for-sale securities -- 50,125
Current portion of notes receivable, related parties 8,907 3,763
Deferred income taxes 895 --
--------- ---------
235,164 185,277
Leasehold improvements and equipment, net of accumulated
depreciation and amortization of $139,372 and $100,211 at
December 31, 2002 and 2001, respectively 163,863 131,283
Advances and notes receivable from related parties,
excluding current portion 114,229 255,052
Other assets 13,104 8,516
Deferred income taxes 25,611 --
--------- ---------
$ 551,971 $ 580,128
========= =========
LIABILITIES, MEMBERS' AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable $ 72,352 $ 16,659
Accrued compensation, commissions and benefits 142,740 228,567
Current portion of notes payable, related parties 122,381 --
Income taxes payable 24,435 --
Member distribution payable -- 100,000
--------- ---------
361,908 345,226
Notes payable to related parties, excluding current portion -- 15,579
--------- ---------
361,908 360,805
--------- ---------
MEMBERS' EQUITY
Members' equity -- 220,338
Accumulated other comprehensive loss -- (1,015)
--------- ---------
-- 219,323
--------- ---------
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 deficit (7,700) --
--------- ---------
190,063 --
--------- ---------
$ 551,971 $ 580,128
========= =========
See accompanying notes to financial statements
56
PRIME RESOURCE, INC. AND SUBSIDIARIES
(Formerly Prime Resource, LLC and Subsidiaries)
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 2002 and 2001
2002 2001
------------ ------------
REVENUES
Commissions $ 1,773,981 $ 1,557,246
Investment and business advisory fees 512,580 449,031
Interest and dividends 12,694 15,204
------------ ------------
2,299,255 2,021,481
------------ ------------
EXPENSES
Commissions 585,501 538,510
Compensation and benefits 1,264,621 1,130,418
General and administrative 429,329 230,205
Occupancy and equipment 111,014 115,575
Interest 6,900 674
Depreciation and amortization 47,236 42,744
------------ ------------
2,444,601 2,058,126
------------ ------------
Loss before income tax benefit (145,346) (36,645)
Income tax benefit (2,071) --
------------- ------------
NET LOSS $ (143,275) $ (36,645)
============ ============
BASIC AND DILUTED LOSS PER SHARE, for the period April 5, 2002 (date of
incorporation) through December 31,
2002 $ (.003) $ --
WEIGHTED AVERAGE SHARES OUTSTANDING, for the
period April 5, 2002 through December 31, 2002 2,800,000 --
PROFORMA COMPENSATION AND BENEFITS for the years ended
December 31, 2002 and 2001, assuming the
reorganization and new compensation agreements
described in Note 1 occurred on January 1, 2001 $ 1,264,621 $ 1,222,418
PROFORMA INCOME TAX BENEFIT, for the years ended December 31, 2002 and 2001,
assuming the reorganization described in Note 1 occurred on January 1,
2001 $ 58,138 $ 51,458
PROFORMA NET LOSS, for the years ended December 31, 2002 and 2001, assuming
the reorganization described in Note 1 occurred on January 1, 2001 $ (87,208) $ (77,187)
PROFORMA BASIC AND DILUTED LOSS PER SHARE, for the years ended December 31,
2002 and 2001, assuming the reorganization described in Note 1 occurred on
January 1, 2001 $ (.031) $ (.028)
See accompanying notes to financial statements
57
PRIME RESOURCE, INC. AND SUBSIDIARIES
(Formerly Prime Resource, LLC and Subsidiaries)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
Years Ended December 31, 2002 and 2001
2002 2001
------------- -------------
REVENUES
Commissions $ 1,773,981 $ 1,557,246
Investment and business advisory fees 512,580 449,031
Interest and dividends 12,694 15,204
------------- -------------
2,299,255 2,021,481
------------- -------------
EXPENSES
Commissions 585,501 538,510
Compensation and benefits 1,264,621 1,130,418
General and administrative 429,329 230,205
Occupancy and equipment 111,014 115,575
Interest 6,900 674
Depreciation and amortization 47,236 42,744
------------- -------------
2,444,601 2,058,126
------------- -------------
Loss before income tax benefit (145,346) (36,645)
Income tax benefit (2,071) --
------------- -------------
NET LOSS (143,275) (36,645)
OTHER COMPREHENSIVE INCOME -
Net unrealized loss on securities available for sale -- 1,015
------------- -------------
TOTAL COMPREHENSIVE LOSS $ (143,275) $ (37,660)
============= =============
See accompanying notes to financial statements
58
PRIME RESOURCE, INC. AND SUBSIDIARIES
(Formerly Prime Resource, LLC and Subsidiaries)
CONSOLIDATED STATEMENTS OF MEMBERS' AND STOCKHOLDERS' EQUITY
January 1, 2000 to December 31, 2002
Additional
Members' Common Stock Paid in Retained
Equity Shares Amount Capital Deficit
----------- --------------- --------- ----------- -----------
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) (135,575) -- -- -- --
Member contribution 113,000 -- -- -- --
April 4, 2002 reorganization
from a limited liability
company to a corporation (197,763) 2,800,000 -- 197,763 --
Net loss from April 5, 2002
through December 31, 2002 -- -- -- -- (7,700)
----------------------------------------------- ----------- --------------- --------- ----------- -----------
$ -- 2,800,000 $ -- $ 197,763 $ (7,700)
=========== =============== ========= =========== ===========
See accompanying notes to financial statements
59
PRIME RESOURCE, INC. AND SUBSIDIARIES
(Formerly Prime Resource, LLC and Subsidiaries)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2002 and 2001
2002 2001
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(143,275) $ (36,645)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization 47,236 42,744
Noncash compensation 121,384 2,409
Loss on disposal of assets 297 980
Loss on sale of marketable securities 1,400 --
Interest expense on borrowings from member 3,157 674
Interest income on loans to related parties (8,625) (8,113)
Changes in operating assets and liabilities:
Trade and other accounts receivable (41,340) 47,283
Other assets (4,588) --
Accounts payable 55,694 10,559
Accrued liabilities and compensation (85,828) 86,762
Income taxes payable 24,435 --
Deferred income taxes (26,506) --
--------- ---------
Net cash provided by (used in) operating activities (56,559) 146,653
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and leasehold improvements (84,253) (18,865)
Loans to related parties -- (155,650)
Employee advances (7,050) --
Collections on loans to related parties 147,110 20,000
Proceeds from sale of marketable securities 49,740 --
Investment in securities available for sale -- (51,141)
--------- ---------
Net cash provided by (used in) investing activities 105,547 (205,656)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable to related parties 53,645 --
Distributions to members -- (134,216)
Member buy-out (100,000) --
Bank borrowings 50,000 --
--------- ---------
Net cash provided by (used in) financing activities 3,645 (134,216)
--------- ---------
NET INCREASE (DECREASE) IN CASH 52,633 (193,219)
CASH AT BEGINNING OF YEAR 32,102 225,321
--------- ---------
CASH AT END OF YEAR $ 84,735 $ 32,102
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash paid for taxes and interest $ -- $ --
========= =========
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 loss on securities available for sale -- 1,015
See accompanying notes to financial statements
60
PRIME RESOURCE, INC. AND SUBSIDIARIES
(Formerly Prime Resource, LLC and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002 and 2001
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------
Organization and Business Activity
Prime Resource, Inc. ("Prime" or "the Company"), is a 100 percent owner of
Belsen Getty, LLC, (Belsen Getty), and Fringe Benefits Analysts, LLC, (FBA),
with offices in Salt Lake City and Layton, Utah, respectively. Belsen Getty is a
fee-only financial management firm, providing investment advice to high-wealth
individuals and employee groups in connection with company retirement plans. FBA
sells group and employee benefit products, primarily health insurance, to
employers and individuals throughout Utah.
Reorganization
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.
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 was accounted for as compensation
expense and is included in "compensation and benefits" in the statement of
operations for the year ended December 31, 2002. The value of the share of the
Company issued to the employee 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.
On April 4, 2002, the Company was reorganized from a limited liability company
to a corporation. The Company was authorized to issue 50,000,000 shares of a
single class of common stock with no par value. The Company issued 2,800,000 of
such shares to existing members representing the entire ownership interest of
the Company at the time of incorporation. As there was no change in control of
the organization, the value of the stock, issued in the reorganization, was
based on the 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.
61
PRIME RESOURCE, INC. AND SUBSIDIARIES
(Formerly Prime Resource, LLC and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002 and 2001
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
---------------------------------------------------------------
Basis of Financial Presentation
The accompanying consolidated financial statements include the accounts of Prime
Resource, Inc., and its wholly owned subsidiaries, Belsen Getty, LLC and Fringe
Benefits Analysts, LLC. All significant intercompany balances and transactions
have been eliminated in consolidation.
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.
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
62
>
PRIME RESOURCE, INC. AND SUBSIDIARIES
(Formerly Prime Resource, LLC and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002 and 2001
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
---------------------------------------------------------------
Income taxes
The Company became subject to income taxation effective April 4, 2002 when it
was converted from a limited liability company to a corporation. Prior to the
Company's reorganization, the income tax liability was the responsibility of the
individual members.
The Company uses the asset and liability method of accounting for income taxes.
Under this method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be settled or recovered. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
the period that includes the enactment date.
Revenue Recognition
The Company generates revenues from two primary sources, commissions on the sale
of insurance and fees on the provision of investment advice.
Fees from the provision of investment advice are billed and earned based on an
agreed upon percentage of the fair value of investment portfolios under
management. Such fees are typically one percent per year, and are calculated and
billed on a monthly basis at one twelfth of one percent of the fair value of
investments under management as of the beginning of each calendar month, and are
recognized as revenue in the month billed.
Revenues, in the form of commissions, are earned on brokered sales of group and
individual health insurance products under agency marketing agreements with
applicable health insurance providers. Commissions are generally collected on a
monthly basis and are recognized as revenue in the month for which the related
insurance premiums apply. Commissions earned by the Company are split, at
management's discretion, between the Company and its licensed agents, on a
case-by-case basis. The Company recognizes the full amount of commissions
received under its agency agreements as commission revenue and the portion paid
to its licensed agents as commission expense.
Loss Per Common Share
Basic loss per common share is calculated by dividing the net loss by the
weighted average number of common shares outstanding, for the period from April
5, 2002 through December 31, 2002, during which time the Company was organized
as a corporation. Diluted loss per share is the same as basic loss per share as
there were no outstanding stock options or other common stock equivalents during
the period.
63
PRIME RESOURCE, INC. AND SUBSIDIARIES
(Formerly Prime Resource, LLC and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002 and 2001
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
---------------------------------------------------------------
New Accounting Pronouncements
In April of 2002, the Financial Accounting Standards Board (FASB) issued
Statement No. 145 (FAS 145), Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical Corrections.
Under FASB Statements No. 4 and 64, most gains and losses from debt
extinguishments were aggregated and classified as extraordinary items in the
statement of operations. By rescinding Statements No. 4, and 64, FAS 145
requires the provision of APB No. 30, Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions, to be followed in
determining the classification of gains and losses from debt extinguishments.
FAS 145 rescinded Statement No. 44, because it was originally issued to address
the effects of certain Motor Carrier laws, which are no longer in effect. In
amending Statement No. 13, FAS 145 requires sale-leaseback accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback accounting.
In June of 2002, the FASB issued Statement No. 146 (FAS 146), Accounting for
Costs Associated with Exit or Disposal Activities. FAS 145 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies the previous guidance in Emerging Issues Task Force (EITF) Issue
No. 94-3, Liability Recognition for Certain Employee Termination Benefits and
other Costs to Exit an Activity (Including Certain Costs Incurred in a
Restructuring). FAS 146 requires that a liability for a cost associated with an
exit or disposal activity be recognized when the liability is incurred. Under
Issue 94-3, a liability for an exit cost (as defined by EITF Issue 94-3) was
recognized at the date of an entity's commitment to an exit plan.
In December of 2002, the FASB issued Statement No. 148 (FAS 148), Accounting for
Stock-Based Compensation - Transition and Disclosure - An Amendment of FASB
Statement No. 123. FAS 148 provides alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, the statement amends the disclosure
requirement of Statement No. 123 to require prominent disclosures in both annual
and interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results.
None of the above new pronouncements have current application to Prime, but may
be applicable to Prime's future financial reporting.
64
PRIME RESOURCE, INC. AND SUBSIDIARIES
(Formerly Prime Resource, LLC and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002 and 2001
NOTE 2 - SECURITIES AVAILABLE FOR SALE
--------------------------------------
Securities available for sale are comprised of investments in mutual funds in
2001 and restricted common stock as of December 31, 2002. The amortized cost of
securities available for sale at December 31, 2002 and 2001 totaled $0 and
$51,140, respectively. Gross unrealized losses on such securities at December
31, 2002 and 2001 totaled $0 and $1,015, respectively. Dividends realized and
reinvested in 2002 and 2001 totaled $194 and $1,140, respectively.
In November of 2002, Belsen Getty received 684,000 restricted common shares of
Mortgage Professionals Lead Source, Inc. (MPLS), a shell corporation. The shares
were received in exchange for providing consulting services in connection with
MPLS's merger with Neuro Bioscience, Inc. (NBI), a development-stage privately
held company. Prime possessed all 684,000 MPLS shares as of December 31, 2002;
however, no value has been ascribed to the shares due to major uncertainties
involving recoverability of any value ascribed to such shares. The MPLS shares
are listed on the over-the-counter market; however, trading activity has been
very limited. The operations of NBI are in the early development stage and
management is unable to estimate the value of the shares received from MPLS, if
any. Any gains realized by Prime from the disposition of MPLS shares will be
recognized at the time of sale or disposition.
NOTE 3 - LEASEHOLD IMPROVEMENTS AND EQUIPMENT
---------------------------------------------
Leasehold improvements and equipment and related accumulated depreciation and
amortization at December 31 consist of the following:
2002 2001
--------- ---------
Leasehold improvements $ 31,597 $ --
Furniture and equipment 118,644 87,893
Computer equipment and software 60,454 39,290
Vehicles 92,540 104,368
--------- ---------
303,235 231,551
Accumulated depreciation and amortization (139,372) (100,268)
--------- ---------
$ 168,863 $ 131,283
========= =========
65
PRIME RESOURCE, INC. AND SUBSIDIARIES
(Formerly Prime Resource, LLC and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002 and 2001
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 the maximum contributions allowable by law to the
plan. Company contributions under the profit-sharing provisions of the plan are
discretionary. The Company's expense from contributions to the plan totaled
$18,311 and $23,425, for 2002 and 2001, 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 Belsen 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,
2002 2001 2002 2001
----------------------------------- ---------------------------------------
Revenues $ 512,587 $ 449,031 $ 1,773,974 $ 1,557,246
Expenses 962,643 816,310 1,258,662 1,186,614
----------------------------------- ---------------------------------------
Income (loss) before tax (450,056) (367,279) 515,312 370,632
Income tax expense (benefit) (6,413) -- 7,343 --
----------------------------------- ---------------------------------------
Net income (loss) $ (443,643) $ (367,279) $ 507,969 $ 370,632
=================================== =======================================
Other Consolidated
----------------------------------- ---------------------------------------
Year ended Year ended Year ended Year ended
December 31, December 31, December 31, December 31,
2002 2001 2002 2001
----------------------------------- ---------------------------------------
Revenues $ 12,694 $ 15,204 $ 2,299,255 $ 2,021,481
Expenses 223,296 55,202 2,444,601 2,058,126
----------------------------------- ---------------------------------------
Income (loss) before tax (210,602) (39,998) (145,346) (36,645)
Income tax expense (benefit) (3,001) -- (2,071) --
----------------------------------- ---------------------------------------
Net income (loss) $ (207,601) $ (39,998) $ (143,275) $ (36,645)
=================================== =======================================
66
PRIME RESOURCE, INC. AND SUBSIDIARIES
(Formerly Prime Resource, LLC and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002 and 2001
NOTE 5 - SEGMENT INFORMATION (CONTINUED)
-----------------------------------------
The Insurance Products segment does not have any customer accounting for over 5
percent of its revenues and is not believed to be dependent on any major client.
However, there are only four major companies supplying health coverage in the
current operating area for which the Company has agency marketing agreements.
Expenditures for long-lived assets were $84,253 and $21,777 for the years ended
December 31, 2002 and 2001, respectively. All company assets are held in the
United States of America. Assets held by each segment for the years ended
December 31, 2002 and 2001 are as follows:
2002 2001
---------------- ----------------
Asset Management $ 231,472 $ 157,471
Insurance Products 218,148 150,405
Other 102,351 272,252
---------------- ----------------
$ 551,971 $ 580,128
================ ================
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, approximates 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, 2002 and 2001 are set forth in
Note 2.
67
PRIME RESOURCE, INC. AND SUBSIDIARIES
(Formerly Prime Resource, LLC and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002 and 2001
NOTE 7 - RELATED PARTY TRANSACTIONS
-----------------------------------
Notes receivable
The Company had notes receivable from employees and members totaling $74,074 and
$258,815 as of December 31, 2002 and 2001, 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 $8,833 in 2002 and $8,113 in 2001.
Notes payable
The Company was indebted to shareholders (previously members), under notes
payable, in the amounts of $122,381 and $15,579, as of December 31, 2002 and
2001, respectively. The notes bear interest at 4.5 percent and are due on
demand.
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 withdrawal.
Royalty expense
During the year ended December 31, 2002, Prime made royalty payments totaling
$76,495 to two partnerships, which are related to controlling shareholders of
Prime. The royalties were paid in connection with the use of certain
intellectual rights to the "FBA Advantage Program" held by the related
partnerships.
NOTE 8 - LEASE COMMITMENTS
The Company leases certain office space under agreements classified as operating
leases. The space was leased from two entities that had certain common owners to
those of the Company. Rent expense, under such leases, totaled $81,807 and
$110,935 for the years ended December 31, 2002 and 2001, 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.
68
PRIME RESOURCE, INC. AND SUBSIDIARIES
(Formerly Prime Resource, LLC and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002 and 2001
NOTE 8 - LEASE COMMITMENTS (CONTINUED)
--------------------------------------
Future minimum payments required under all noncancellable lease agreements as of
December 31, 2002 are as follows:
Year ended
December 31,
------------
2003 $ 110,814
2004 73,967
2005 59,106
2006 60,726
2007 30,768
Thereafter --
NOTE 9 - INCOME TAXES
---------------------
Prime became subject to taxation for the first time effective April 4, 2002 when
the Company was reorganized from a limited liability company to a corporation.
Taxes on income prior to that date were the responsibility of the individual
members. Accordingly, income tax benefit for the year ended December 31, 2002,
is based on the Company's loss before income taxes for the period from April 4,
2002 through December 31, 2002. Income tax expense (benefit) is comprised of the
following for the year ended December 31, 2002:
Current Deferred Total
------- -------- -----
U.S. Federal $ 19,584 $ (26,506) $ (6,992)
State 4,851 -- 4,851
------------- -------------- -------------
$ 24,435 $ (26,506) $ (2,071)
============= ============== =============
Total income tax expense (benefit) for the year ended December 31, 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 tax benefit at statutory rate $ (49,420)
Deferred taxes relating to change in tax status 10,391
Current taxes relating to pre-charge income 47,511
Benefit of graduated rates (11,750)
Other non-deductible items 1,197
-------------
Total $ (2,071)
=============
69
PRIME RESOURCE, INC. AND SUBSIDIARIES
(Formerly Prime Resource, LLC and Subsidiaries)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002 and 2001
NOTE 9 - INCOME TAXES (CONTINUED)
---------------------------------
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities at December 31, 2002 are as follows:
Current deferred tax assets (liability):
Accounts receivable $ (52,454)
Accrued wages 39,027
Accounts payable 14,322
-------------
Net current deferred tax asset $ 895
=============
Long-term deferred tax assets (liability):
Depreciation differences
$ (22,424)
Deferred income - stock compensation 48,035
-------------
Net long-term deferred tax asset $ 25,611
=============
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 changed tax status during the year, resulting in the deferred
tax assets and liabilities being recorded in the continuing operations for the
current period.
70
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.
71
[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.
72
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:
73
---------------------------------------------------------------------------------------------------------------------
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
74
Item 27. Index of Exhibits, continued
Exhibit Item 5 - Attorney Letter in re Legality - Amended Filed
Exhibit Item 10 - (A) Employment Contracts of Principal Employees - Previously Filed
(i) Mr. Andrew Limpert
(ii) Mr. Terry Deru
(iii) Mr. Scott Deru
(B) Assignment of LLC Interest to Limpert Previously Filed
(C) Contracts with Principal Insurers - Previously Filed
(i) Regence Blue Cross/Blue Shield Contract
(ii) Altius Healthplans, Inc. Contract
(iii) United Healthcare Contract
(iv) IHC Healthcare Contract
(D) Management Promissory Notes - Previously Filed
(i) Note of Terry Deru to Prime (3/30/2001; $70,000)
(ii) Note of Scott Deru to Prime (3/30/2001; $70,000)
(iii) Note of Andrew Limpert to Prime (9/30/2001; $54,658.28)
(iv) Note of Prime to Terry Deru (3/4/2002; $100,000)
(v) Note of Prime to Scott Deru (3/4/2002; $100,000)
Exhibit Item 21 - Subsidiary List - Previously Filed
Exhibit Item 23 - (A) Consent of Experts - Carver Hovey & Co. CPA's - Supplementally Filed
(B) 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.
75
(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
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.
76
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 March 21, 2003.
(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
------------------------------------
(Title) Director, CEO, President
(Date) 3/21/03
BY: MR. SCOTT DERU
------------------------------------
(Signature) /s/ Scott Deru
(Title) Director, Vice-President, Treasurer
(Date) 3/21/03
BY: MR.ANDREW LIMPERT
(Signature) /s/ Andrew Limpert
------------------------------------
(Title) Director, CFO, Secretary, Vice-President
(Date) 3/21/03
77