SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                   FORM 10-KSB


                            (Filed on April 15, 2002)




(  X  )  ANNUAL  REPORT  UNDER  SECTION  13  OR 15(d) OF THE SECURITIES EXCHANGE
         ACT  OF  1934

         FOR  THE  FISCAL   YEAR  ENDED   DECEMBER   31,  2001

                           Commission File No. 0-22919

                              PRIME COMPANIES, INC.
                 ----------------------------------------------
                 (Name of small business issuer in its charter)

         Delaware                                                 52-2031531
         --------                                                 ----------
(State  or  other  jurisdiction  of                           (I.R.S.  Employer
incorporation  or  organization)                            Identification  No.)


  409  Center  Street,  Yuba  City,  CA.                            95991
----------------------------------------------                   -----------
(Address  of  principal  executive  offices)                     (Zip  Code)


Issuer's  telephone  number:   (530)  755-3580
                               ---------------


Securities  Registered  Pursuant  to  Section  12(b)  of  the  Act:

  None

Securities  Registered  Pursuant  to  Section  12(g)  of  the  Act:


                                                       NAME  OF  EACH  EXCHANGE
TITLE  OF  EACH  CLASS                                   ON  WHICH  REGISTERED
----------------------                                   ---------------------
Common  Stock,  $.0001                                           NASD
                                                          OTC  Bulletin  Board

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days. Yes X No

Check if disclosure  of delinquent  filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure  will be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB Yes No X

State  issuer's revenues  for  the  most  recent  fiscal  year.........$ 455,202

As of March 31, 2002 there were 31,984,384  shares of the Company's Common Stock
outstanding.  The aggregate market value of voting stock held by  non-affiliates
of the registrant on March 31, 2002 was $2,568,369.

Documents  incorporated  by  reference:

None
<PAGE>
                                     PART I

ITEM  1.   DESCRIPTION  OF  BUSINESS

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
--------------------------------------------------------------------------------

Certain  statements  made herein or  elsewhere  by, or on behalf of, the Company
that are not  historical  facts are  intended to be  forward-looking  statements
within the  meaning of the safe  harbor  provisions  of the  Private  Securities
Litigation  Reform  Act  of  1995.   Forward-looking  statements  are  based  on
assumptions about future events and are therefore inherently uncertain.

The Company cautions readers that the following important factors, among others,
could affect the Company's consolidated results:

1     Whether  acquired  businesses  perform at levels used by management in the
      valuation process and whether,  and the rate at which,  management is able
      to increase the profitability of acquired businesses.

2.    The ability of the  Company to manage its growth in terms of  implementing
      internal  controls and  information  gathering  systems,  and retaining or
      attracting key personnel, among other things.

3.    The  amount  and  rate  of  growth in the Company's corporate general and
      administrative  expenses.

4.    Changes  in interest rates, which can increase or decrease the amount the
      Company  pays  on  borrowings.

5.    Changes  in  government  regulation,  including tax rates and structures.

6.    Changes  in  accounting  policies  and  practices  adopted voluntarily or
      required  to  be  adopted  by  accounting  principles generally accepted
      in the United States of America.

The Company cautions readers that it assumes no obligation to update or publicly
release any  revisions to  forward-looking  statements  made herein or any other
forward-looking statements made by, or on behalf of, the Company.


                        BUSINESS HISTORY, AND DEVELOPMENT

                                   BACKGROUND
                                   ----------

Prior to February 1999,  Prime's business was operated as a sole  proprietorship
owned by Norbert J. Lima, the Company's CEO. The business'  operations  began in
the early 1980's as a business telephone interconnect company.  Worldnet Tel.com
Inc.  was formed in  Delaware  in January  1999 when four  founders  and another
individual  funded  Worldnet.  In February 1999 management  formed WNTC Holdings
Inc. in Delaware as a wholly  owned  subsidiary  of Worldnet.  In February  1999
management also formed  NACC-Tel Corp. in Delaware as a wholly owned  subsidiary
of WNTC. At that time the sole proprietorship  business operated by Mr. Lima was
contributed  to  NACC-Tel.  Worldnet  was  merged  into  Prime  through a merger
effective August 11, 1999. This gave the company immediate access to the capital
markets, and the ability to facilitate the  initial  and second stage funding of
the build out of the local multipoint distribution service infrastructure. Prior
to the merger, Prime  had  6,507,742  shares of common  stock  outstanding  held
by  various individuals. WorldNet was issued 14,500,000 shares of  Prime  common
stock, and as  a  result  of  the stock  exchange,  the former  shareholders  of
WorldNet  then  held  69%  of  the  outstanding  common  stock of Prime.  On the
effective  date  of the  merger,  the  officers and directors of WorldNet became
the officers and directors of Prime.

LMDS Communications Inc. (LMDS), a Delaware corporation,  was formed in February
1999 as a wholly owned subsidiary of WNTC. LMDS is a telecommunications  company
with interests in the fixed broadband wireless sector.  LMDS Communications Inc.
obtained  local  multipoint  distribution  service  licenses at the 1999 Federal
Communications  Commission auction and is now deploying broadband fixed wireless
services.  In 2000  LMDS  Communications  obtained  competitive  local  exchange
carrier status in the States of Pennsylvania and New York. The competitive local
exchange  carrier  status  enables  LMDS  Communications  Inc. to connect to the
public switched  telephone network and negotiate  wholesale rates with incumbent
local exchange  carriers.  LMDS  participated in an auction conducted by the FCC
between  April 27, 1999 and May 12, 1999 for 161 local  multipoint  distribution
service  licenses.  Prime  secured  8 basic  trading  areas at the  auction  for
$591,800  (a 45%  discount  from the gross price of  $1,076,010).  The price per
population averages out to approximately $0.56. This compares to a high of $5.53
per  population  and an average  net bid of $1.35 per  population  for the 121 A
Block  licenses  auctioned in 1999.

Prepaid Tel.com Inc. (Prepaid),  a Delaware corporation,  was formed in February
1999 as a wholly  owned  subsidiary  of WNTC.  Prepaid  is a  Competitive  Local
Exchange Carrier ("CLEC") certified by the California Public Utility Commission.

Zenith  Technologies,  Inc.  (Zenith),  a  Delaware  Corporation,  was formed in
December 1998 as a wholly owned subsidiary of Prime  Companies, Inc.  Operations
began   in   June 2001,   providing   one   plus   long   distance  services  to
residential  and  commercial customers.  In July, 2001 the Board of Directors of
Prime  declared  a stock dividend to the shareholders by spinning off 10% of the
ownership of Zenith to the Prime shareholders.

In September 1999, Prime acquired Olive Tree Image  Engineers,  a small internet
service  provider  located in  Sacramento,  California.  In October 1999,  Prime
completed the acquisition of Marathon Telecommunications, a commercial telephone
interconnect  business  based in  Sacramento,  California.

Both Marathon and Olivetree operate under fictitious business names of NACC-Tel;
for legal and accounting purposes they have been fully integrated into NACC-Tel.

In April 2000 the Company  acquired the internet domain name  NTCOMM.com,  which
had been  operating  as a buyer and  seller of used  telephone  equipment.  This
business is now part of NACC-Tel.

Prior to December 30, 1998 Prime operated as a long-haul  temperature-controlled
truckload  carrier through its wholly-owned  subsidiary,  Mid-Cal Express,  Inc.
Prime also provided logistics  operations  through its wholly-owned  subsidiary,
Mid-Cal Express  Logistics,  Inc.  Effective December 30, 1998, Prime terminated
the operations of these  subsidiaries  through the sale of substantially  all of
the operating assets of Mid-Cal Express,  Inc. to Gulf Northern Transport,  Inc.
in exchange for 400,000  shares of US Trucking, Inc., the parent company of Gulf
Northern. The transaction closed on April 14,  1999,  and on April 30,  1999 the
Company  entered  into an  agreement  with the Credit  Managers  Association  of
Southern  California   for  the  orderly   liquidation   and   payment   of  the
Outstanding liabilities  of Mid-Cal  Express Inc. These  liabilities  were to be
paid by the collection of Mid-Cal Express, Inc.'s accounts receivable and by the
liquidation of up to 400,000  shares of US Trucking  (previously  traded on  the
OTC Bulletin Board symbol USTK), which were placed in escrow for the benefit  of
the creditors of Mid-Cal Express, until the stock is sold on the open market. US
Trucking has filed  bankruptcy  and its stock price has declined so the value of
these shares on March 29, 2001 was less than $10,000.  On March 29, 2001 Mid-Cal
Express, Inc. filed for  protection  and  liquidation  under  Chapter 7  of  the
United  States Bankruptcy Act.

In  November 2001  Prime  entered  into  an  agreement  with  the  Virginia Tech
Foundation to commercially develop the Foundation's LMDS license in the Roanoke,
Virginia area.

<PAGE>











                               Organization Chart

                                [OBJECT OMITTED]

Prime Companies, Inc.
---------------------
WNTC Holdings Inc
     LMDS Communications Inc.
     Prepaid Tel.com Inc.
     NACC-Tel Corp.
Zenith Technologies Inc.



                                  THE BUSINESS
                                  ------------

Prime's   mission  is  to   provide  a  single   source  for  a  wide  range  of
telecommunications  services to both the consumer and commercial markets.  Prime
will  derive the  majority of its  revenues  from sales  generated  by its three
specialized  subsidiary  corporations.  Prime operates as a holding  company and
conducts all of its operations through its wholly owned subsidiaries.

Prime's principals comprise an experienced management team with over 50 years of
experience in the telecommunications  industry. It is this unusually broad scope
of skills and  experience  which will enable  Prime to  establish a balanced and
efficient  organization,  and to forge strong supplier  relationships with major
industry manufacturers,  such as Alcatel, Ericsson, Pacific Telephone,  Samsung,
and Texas Instruments,  as well as established distributors who intend to market
Prime's services.  Thus, Prime is well positioned to offer its clients the depth
of knowledge and experience  necessary to reach their personal and/or  corporate
needs and to execute each transaction efficiently and successfully.


LMDS  COMMUNICATIONS,   INC.  This  subsidiary  has  the  FCC  local  multipoint
distribution  service  licenses.  The  licenses  encompass  an area  of  western
Pennsylvania  and  southwestern  New York  State,  and include a  population  of
approximately  1,050,000  persons and 39,000  businesses.  This  subsidiary  was
incorporated  in Delaware in 1999 and is licensed and regulated by the states of
Pennsylvania and New York as a competitive local exchange  carrier.  The Federal
Communications  Commission,  an agency of the  United  States  government,  also
regulates this  subsidiary.  LMDS  Communications,  Inc. is funded by its parent
company,  Prime Companies,  Inc. This subsidiary's financial results in 2000 and
2001  were  not  material  to the overall operations of Prime.  Revenues for the
years  ending  December  31,  2001  and  2000  amounted   to  $46,422  and  $400
respectively.  We have constructed LMDS systems in  three  of our eight licensed
areas and anticipate building out additional systems in 2002 and 2003, utilizing
pending long term financing from the Rural  Utilities  Service,  which  is  part
of  the  U.S.  Department  of  Agriculture.  LMDS  is expected  to generate more
revenues in 2002.  We expect this segment of our business to  grow dramatically,
as   our  local multipoint  distribution systems are constructed and our service
offerings  are launched within all of our licensed territories.

Prime  intends to  capitalize on the  broadband  fixed  wireless  communications
revolution by providing local multipoint distribution system services to various
markets in which it has purchased  exclusive  spectrum licenses from the Federal
Communications   Commission.   Local  multipoint  distribution  service  is  the
broadband wireless technology used to deliver voice, data,  internet,  and video
services.  Each license  permits us to use  multiple  radio  frequency  channels
ranging  from 27.5 GHz to 31.225 GHz.  We intend to use these radio  channels to
build,  install, and implement the  telecommunication  systems and offer some or
all of the following one and two-way broadband services:


   -      High-speed  internet  access
   -      Video  teleconferencing
   -      Wireless  local  loop  telephony
   -      Alternative  cable  television  service
   -      High-speed  data  transmission

The flexibility  offered by a local multi-point  distribution  system will allow
Prime to offer a turnkey  package  of  services,  including  internet  and video
teleconferencing, which is what US customers desire: one-stop shopping for their
telecommunications needs.

A local  multi-point  distribution  system is capable of offering  subscribers a
variety  of one  and  two-way  broadband  services,  such as  video  programming
distribution;  video  teleconferencing;   wireless  local  loop  telephony;  and
high-speed data transmission, i.e. internet access. Because of its multi-purpose
applications,  local  multi-point  distribution  systems  have the  potential to
become major competitors to local exchange and cable television services.

Local  multi-point  distribution  service  systems may consist of multiple  cell
systems with return-path  capability  within the assigned  spectrum.  Generally,
each cell will contain a centrally located transmitter (hub), multiple receivers
or transceivers  and  point-to-point  links connecting the cell with the central
processing  center  and/or other cells.  Licenses are issued for a ten-year term
from  the  initial  license  grant  date.  At the  end of the  ten-year  period,
licensees  are  required  to  submit  an  acceptable   showing  to  the  Federal
Communications  Commission  demonstrating  that they are  providing  substantial
service to their service area.  Licensees  failing to demonstrate  that they are
providing substantial service will be subject to forfeiture of their licenses.

Our customers  pay a fixed monthly  charge for the unlimited use of our service.
We can customize the service for each customer.  We have a rate schedule and the
monthly charge is based upon the data transmission  speed each customer signs up
for.  We do not  currently  charge any fees based upon the  customers'  specific
usage of the service.  As we are the licensed carrier  providing  service to the
end  users,  our cost of  revenues  is  primarily  depreciation  on our  capital
infrastructure  equipment,  and utility connection costs that we pay for  access
to the public switched telephone network, and our bandwidth providers who enable
us to connect to the internet.

Advantages to the use of LMDS services is that the licensed markets have limited
access  to  high  speed  connectivity  (broadband  services).  LMDS  provides  a
quick-to-market  availability.  This allows the underserved  communities to have
equal  access  to the  internet.  Today  the  disadvantage  would  be  that  the
infrastructure  required to deploy to an individual  business  customer is still
somewhat  expensive.  As volume  purchases  take place and  alternate  equipment
vendors come to the market we expect  infrastructure  costs to reduce and in the
long term eliminate the disadvantages

LMDS Communications,  Inc. has received  certificates from both Pennsylvania and
New York State to operate  as a  facilities  based  competitive  local  exchange
carrier.

Field  trials of local  multipoint  distribution  service  technology  have been
successfully  conducted and the service has been deployed in New Castle, PA. The
second system became  operational on December 20, 2000 and the first customer in
Oil City, PA went  online  on  December 21, 2000.  Additionally,  during 2001 we
launched  commercial  service  in  our  third   Pennsylvania  market, Meadville,
Pennsylvania.  The  Company   partnered   with  Alcatel  for  local   multipoint
distribution  service  equipment.  Alcatel   has   more   than   100   broadband
wireless  customers  and over  2500 base station sectors with the same  type  of
service deployed worldwide. Alcatel builds next generation  networks  delivering
integrated  end-to-end  voice   and   data  solutions  to  carriers,  as well as
enterprises  and  consumers   worldwide.  Alcatel  operates  in  more  than  130
countries.  The cost  to  build and install an LMDS system is dependent upon the
specific configuration ordered for a specific  location;  the range for the cost
of a single  system  is from approximately  $50,000 to  approximately  $300,000.
We  are continuously speaking with and reviewing the  additional  infrastructure
alternative  suppliers.  A critical element  for this service and our  selection
of  an  equipment  provider  is  the  ability  to  acquire the  customer premise
equipment  at  a  capital cost that the investment makes a viable business case.
These systems will be funded from our pending long term debt financing  facility
from the Rural Utilities  Service.  Additional  funding  may  come  from  up  to
$6,000,000  in   proceeds  from  the  sale  of  the shares to  Swartz,  and  the
exercise  of  warrants  by  Swartz,  if  the  Swartz  financing   is  completed.


NACC-TEL CORP.  NACC-Tel markets,  installs,  and maintains  business  telephone
communications  systems  Additionally,  NACC-Tel  provides  paging and voicemail
services.  NACC-Tel also maintains  these systems under service  agreements with
its commercial and municipal  customers.  This  subsidiary was  incorporated  in
Delaware in 1999 and is the successor to a  proprietorship  previously  owned by
Norbert Lima, CEO of Prime.  The business is based in Yuba City,  California and
also  operates  from a  branch  office  in New  Castle,  Pennsylvania.  The core
services  of this  subsidiary  will be  offered  to the  customers  of the  LMDS
Communications,  Inc.  subsidiary.  Prime's personnel who sell and service local
multipoint  distribution  services will also offer the NACC-Tel core services to
our customers.  The NACC-Tel operation generates sufficient cash flow to sustain
its core business. NACC-Tel also offers wireless digital subscriber line service
in Yuba City,  California  using  unlicensed  spectrum.  It plans to expand this
offering to other communities in California, which are unable  to  obtain  high-
speed  access to the internet  through the  incumbent  local  exchange  carrier.
Funding for the build out of these systems and the marketing of  these  services
may  come  from the  parent  corporation,  Prime Companies,  Inc., and also from
partnering relationships with some  of our equipment suppliers.   NACC-Tel  does
not require a license to offer these services,  as  it uses unlicensed spectrum.
The Federal Communications  Commission issues rules and regulations for  the use
and operation of equipment on these frequencies. The wireless digital subscriber
line application has been deployed by  NACC-Tel  Corp  and  the local multipoint
distribution service application has been deployed by LMDS Communications,  Inc.

The  operations  of  NACC-Tel  during  2000  and 2001  were the core of  Prime's
business.   We  anticipate  the  wireless  service  offering  by  NACC-Tel  will
experience  substantial  growth  over the coming  years.  The core  business  of
telephone interconnect, voicemail, and paging services is expected to experience
only  moderate growth,  as  Prime's  local  multipoint  distribution  system and
wireless  digital  subscriber  line  service  offerings  come  online   in  more
communities.

The  advantage to a customer  using  NACC-Tel is that we are a  distributor  for
Samsung's business  communication  systems.  One of the requirements  defined by
Samsung  is  that  each  of  their  distributors  must  have  factory  certified
technicians.  This  requirement  provides the customer with a higher  quality of
service  because  only  certified  technicians  will  work on their  product.  A
disadvantage from the customer point of view is that once they have selected the
Samsung product, they would have a limited choice of servicing companies.

NACC-Tel's costs of revenues are the  traditional  material  costs for the phone
systems it sells, and the labor to install and maintain the systems.

In October 1999, Prime completed the acquisition of Marathon Telecommunications,
a commercial telephone  interconnect  business based in Sacramento,  California.
Marathon operates under the fictitious business name of NACC-Tel;  for legal and
accounting purposes it has been fully integrated into NACC-Tel.


PREPAID TEL.COM INC.  Prepaid  Tel.com Inc.  provides  residential  consumers an
alternative  source for local telephone and long distance  services in the State
of  California,  These  consumers  pay for the  service  prior  to  usage.  When
customers buy our residential  telephone service, they pay us a setup charge and
a monthly charge. These charges are in accord with the tariff we have filed with
the  California  Public  Utility  Commission.  When  customers buy long distance
telephone  service,  or phone  cards,  they pay us in advance of their using the
service.  When the amount they have  prepaid is used up, they are unable to make
any more long  distance  calls  until they prepay for more long  distance  phone
service.  Our customers in general have either not established  credit,  or have
poor credit precluding them from traditional  phone service access.  Most of our
customers pay for our service by cash or money orders.  We do,  however,  accept
checks from our established customers. The disadvantage to the customer who uses
our service is that Prepaid Tel.com  purchases its services from the traditional
telephone  companies,  and this  creates  a higher  cost to the  consumer.  This
subsidiary  was  incorporated  in  Delaware  in  1999  and  is  licensed  by the
California Public Utility Commission as a competitive local exchange carrier.

The customer base for prepaid telecommunications  services is large and diverse,
including:  credit-impaired  customers,  who  generally  cannot meet the initial
deposit requirements for telecommunications services;  individuals who prefer to
pay in cash;  and  individuals  who want to  re-establish  credit.  The  company
markets its service through selected retailers, who act as agents to sign up our
customers and collect their periodic payments. The operations of this subsidiary
in  2000  were  not  material  to  the  overall operation  of Prime.  In 2001 it
accounted  for  approximately  12%  of total corporate revenues.  We expect this
subsidiary's  operations  to become a more important  component and  contributor
to  our  growth  as  we  increase  our   marketing  effort   to  sign  on   more
distributors.


EMPLOYEES

Prime had  20  full-time  employees  and  one part-time employee at December 31,
2000.  On December 31, 2001 Prime had 12 full-time employees.


ITEM  2.  DESCRIPTION  OF  PROPERTIES

Prime leases and rents the following facilities as general office,  engineering,
and  retail  space per the terms of the leases or on a  month-to-month  basis as
applicable:

Location                          Type                 Size          Annual Rent
--------------------------------------------------------------------------------
Yuba City, Ca*              Office, Engineering,      2,240 sq. ft.    $ 20,160
                                 ISP, NOC,
                             Equipment Refurbishing,
                                  Retail

Concord, California               Office                700 sq. ft.  $  9,180(a)

Yuba City, California             Storage               200 sq. ft.  $    900

Yuba City, California             Storage               150 sq. ft.  $    660

New Castle, Pennsylvania          Office                950 sq. ft.  $ 12,000

New Castle, Pennsylvania   80 sq. ft & rooftop rights    80 sq. ft.  $  9,000

Oil City, Pennsylvania    100 sq. ft & tower space      100 sq. ft.  $  8,400

Meadville, Pennsylvania   225 sq. ft. & rooftop rights  225 sq. ft.  $  3,600

*An officer and director of Prime is the landlord of this property.

(a) The Concord office lease was mutually terminated in March 2002.

ITEM  3.  LEGAL  PROCEEDINGS

On September 21, 2000,  Prime reached a settlement in two lawsuits with a former
officer and director claiming payment of $32,000 due for advances made on behalf
of the Company.  Prime had filed a cross-complaint  seeking to recover 4,500,000
shares of its common stock held by the plaintiff, and to be reimbursed for legal
fees arising from this action.  The settlement was an agreement  with the former
officer/director litigant and another former officer/director,  and provided for
Prime to receive  5,500,000  common shares back from the two former officers for
cancellation.  Prime  agreed  to  disaggregate  three  of its  local  multipoint
distribution service licenses and assign one-half of each of the three licenses,
with a total net book value of $125,857 (net of accumulated amortization), to an
entity to be designated by the former officers.

Prime  was  a  defendant  in  a lawsuit brought by a creditor of Mid-Cal Express
Inc., a wholly owned  subsidiary  of  Prime,  seeking  payment of  approximately
$70,000  owed  to it by Mid-Cal.  During the discovery phase of the lawsuit, the
plaintiff  advised  us  that  it  would dismiss us from this lawsuit if we could
document that  certain  funds had been paid to US Trucking in 1998. We were able
to comply with the plaintiff's request, and a dismissal was filed with the court
on March 27, 2001.


In  November  2000  we  received  notice from a creditor of Mid-Cal Express Inc.
that the creditor intended to pursue a matter wherein it is alleged that in 1998
Prime  guaranteed certain obligations of Mid-Cal Express Inc., that were secured
by  rolling  stock  assets  sold  to  US Trucking.  The  amount  in  dispute  is
approximately $227,000. The obligations  were guaranteed by several  individuals
and  other  parties  formerly  related to  US  Trucking.  We  investigated   the
background  surrounding the alleged guaranty, and requested  documentation  from
the  creditor in January 2001 in  order  to  verify  the validity of the alleged
guaranty. They have not yet responded to our request. In the opinion of  counsel
representing us in this matter, we may not be liable for this claim.


In  December  2001  a leasing company,  as  successor  to the  original  leasing
company, filed a lawsuit against Prime for non-payment of lease payments  due on
a lease for equipment that is materially defective and unusable.  Prior  to  the
suit, we were negotiating with the creditor to return  the  defective  equipment
for  full  credit  on  the  amount  outstanding on the lease.  We have  answered
the  lawsuit  with a general denial and the matter is in the discovery stage. In
the opinion of counsel, we may not be liable for this claim.

There are no other current pending lawsuits involving Prime.

Prime is exposed to  routine  litigation  incidental  to its  operations  in the
telecommunications  industry.  Prime is also  peripherally  exposed  to  routine
litigation  incidental  to its former  trucking  business,  primarily  involving
claims for personal injuries and property damage incurred in the  transportation
of freight.  Prime has turned these  matters over to its  insurance  carrier and
management  believes  these matters will not have a material  adverse  effect on
Prime's financial position or results of operations.

Pfeffer & Williams,  PC, 155 Montgomery  Street,  Suite 609, San  Francisco,  CA
94104 has passed upon the legality of the  securities  offered in a Registration
Statement filed with the Securities and Exchange Commission in November 2000, as
amended by filings in January and February 2001.


ITEM  4.  SUBMISSION  OF  MATTERS  TO  A  VOTE  OF  SECURITY  HOLDERS

In December  2000 the  shareholders  approved an  amendment  to the  Articles of
Incorporation, increasing the number of authorized common shares from 50,000,000
to 100,000,000,  and increasing the number of authorized  preferred  shares from
10,000,000 to 50,000,000.

In December  2000 the  shareholders  also  approved an  amendment to the By-Laws
increasing the number of Directors from five to seven.

In May 2001 the management, the audit committee, and the Board of Directors  all
agreed to engage Stonefield Josephson, Inc.  to  perform  the  services  as  the
Company's auditor for the fiscal years ending December 31, 2001 and 2000.



<PAGE>






















                                     PART II

ITEM  5.  MARKET  FOR  COMMON  EQUITY  AND  RELATED  STOCKHOLDER MATTERS

                                     MARKET
                                     ------

The Company's Common stock has traded on the NASDAQ OTC Bulletin Board under the
symbol PRMC since May 17, 1998. The following table presents high and low prices
for the Company's common stock published by the National Quotation Service, Inc.
The quotations represent prices in the  over-the-counter-market  between dealers
in securities and do not include retail markup,  markdown or commissions  and do
not necessarily represent actual transactions.


         QUARTER  ENDING         HIGH       LOW
         ----------------------------------------
         June  30,  1998         3.00      3.00
         September  30, 1998     3.25      0.31
         December  31,  1998     3.50      1.00
         March  31,  1999        2.50      0.125
         June  30,  1999         0.56      0.125
         September  30,  1999    0.50      0.22
         December  31,  1999     0.50      0.25
         March  31,  2000        4.31      0.30
         June  30,  2000         2.625     1.00
         September 30, 2000      1.25      0.3125
         December 31, 2000       0.625     0.16
         March  31,  2001        0.50      0.156
         June  30,  2001         0.344     0.05
         September 30, 2001      0.11      0.02
         December 31, 2001       0.06      0.021

                                  SHAREHOLDERS
                                  ------------

As of March 31,  2002 the  number  of  shareholders  of record of common  stock,
excluding the number of objecting beneficial owners whose securities are held in
street  name,  was  approximately   1280.  The   number  of  shareholders  whose
securities  were held in their  name was  approximately  270 on that  date.  The
number of non-objecting  beneficial  owners whose securities were held in street
name on that date was approximately 1010.


                                 DIVIDEND POLICY
                                 ---------------

The Company has not paid  dividends on its common  stock.  The Company  plans to
retain future  earnings,  if any, for use in its business and,  accordingly  the
Company  does  not  anticipate  paying  dividends  on  its  common  stock in the
foreseeable future.  Any earnings are expected to be reserved for the  operation
and  expansion of the Company's business.  Payment of  dividends  is within  the
discretion  of the  Company's  Board of Directors  and will depend,  among other
factors,  upon   the   Company's  earnings,  financial  condition,  and  capital
requirements.

In the first quarter of 2002 the Company completed  a  Private  Placement  under
an  exemption provided by  Securities and Exchange Commission  Regulation D. The
offering was for  the  Company's Series "A" 7% Convertible Preferred Stock. Each
share  of  the Series "A"  Preferred  is  convertible  into  100 shares  of  the
Company's  common stock.  The  Series "A" Preferred Stock  is  callable  by  the
Company at  par  at  any time that the common stock trades at or above $1.00 per
share for a five day period prior to the announcement of the call.








ITEM  6.  MANAGEMENT'S  DISCUSSION  AND  ANALYSIS  OF  FINANCIAL  CONDITION  AND
          RESULTS  OF  OPERATION

Results  of  Operations
-----------------------

The financial statements for the year ended December 31, 2000 have been restated
to  account  for  the acquisition of Marathon Telecommunications in October 1999
under  the  purchase  method  of   accounting,  instead  of  accounting  for the
transaction  as a reorganization of related party entities under common control,
as was previously reported in our  financial  statements.  The  effect  of  this
restatement on the Balance Sheet as of December 31, 2000 is that Goodwill in the
amount of  $200,335 (prior to amortization) and $1,050 of Marathon equipment are
now included in our assets, $50,085 accumulated amortization of goodwill offsets
that amount of goodwill, and our shareholders' equity has increased by $151,301.
The  effect  of  this  restatement  to  the Income Statement for the year  ended
December  31, 2000  increases  the non-cash amortization of goodwill by $40,068,
thereby increasing the loss for that year by $40,068.

During  the  year  ended  December  31,  2001,  sales  revenue  from  continuing
operations  decreased to $455,202 from $492,035 for the corresponding  period of
the prior year. The decrease in revenue is attributed to the general slowdown in
our economy,  and  the  resulting postponement  of  the  replacement  of  legacy
telecommunications equipment by both our for-profit and non-profit customers.

The gross  margin as a percent of revenues  decreased  to 14% for the year ended
December 31, 2001 from 49% in the  corresponding  period of the prior year.  The
reduction  in  the  gross  margin  is  due  to the new  bandwidth  and transport
charges for our LMDS systems incurred in 2001 from the minimal expenses incurred
in 2000.  In November  2001 we were able to negotiate the provisioning of  these
services from a different provider at a cost savings of over  75%  from  what we
had  been paying.  The  new  service  was  provisioned in  January 2002, so  the
savings in our cost of providing services to our customers will be reflected  in
2002.

Prime's selling, general and administrative expenses for the year ended December
31, 2001 decreased to $1,527,224 from  $1,931,823 for the  corresponding  period
of the prior year. $124,464 of the decrease is  attributed  to non-cash  charges
for employee and outside director stock option  programs, $120,484 is attributed
to reduced legal expenses, $34,110 is attributed to reduced accounting expenses,
and  $125,541 is attributed  to the reduction of our selling and  administrative
payroll in 2001 from the level of 2000.

Interest  expense for the year ended December 31, 2001 decreased to $8,211  from
$79,497  for  the  corresponding  period  of the prior  year.  The  decrease  is
attributed  to the fact that most of our  liabilities  were  settled  during the
first quarter of 2000.

The provision for taxes for the year ended December 31, 2001 decreased to $2,800
from $6,880 for the corresponding period of the prior year.

The non-cash  expense  of  Deferred  Offering  Costs  in  the amount of $882,911
related to the Swartz agreement was  fully  expensed  during  2001.   No similar
expense was recorded in 2000.

A loss on investment was recorded during the year ended December 31, 2000 in the
amount of  $1,224,000.  This reflected  what was  believed  to  be  a  permanent
decline in the value of the shares of U.S.  Trucking, which had been pledged  as
collateral to assure the payment of the liabilities of Mid-Cal Express, Inc.  In
March 2001 Mid-Cal Express, Inc. filed a bankruptcy petition and that investment
became worthless to Prime.  However,  the bankruptcy  of  Mid-Cal Express,  Inc.
effectively  reduced  the amount  of  our loss on investment in Mid-Cal Express,
Inc. by $699,340, which is reported as an extraordinary gain on debt forgiveness
during 2001.

An  extraordinary non-cash loss on the conversion of notes payable was  recorded
during  the  year  ended  December 31, 2000 in the amount of $1,852,595. This is
related to  the  conversion by creditors holding  $1,240,216  (balance due as of
February 28, 2000) of notes  payable,  plus  accrued  interest of  $66,971, into
2,904,860  restricted  common  shares  of  the  Company. The market price of the
common stock at the time of conversion  was $.75, and the exchange ratio of debt
to common stock was $.45 per share.  In March  2000 another  creditor  converted
$143,720 of short-term  debt,  plus accrued  interest of $107,884,  into 561,111
restricted  common  shares of the Company.  The market price of the common stock
at the time  of  conversion  was $2.625 and the exchange ratio of debt to common
stock was $.45 per share.  No  similar  loss  was  recorded in the corresponding
period of 2001.

During the year ended December 31, 2001,  NACC-Tel sales revenue from continuing
operations  decreased to $355,873 from $476,416 for the corresponding  period of
the prior year.  The decrease in revenue is  attributed  to the general slowdown
in economic conditions experienced  by  virtually all  sectors  of  our  economy
in 2001.  Continuing into the future,  increased marketing efforts and a greater
geographical  presence  should show growth in this sector of our  business.  The
larger geographical  presence will be directly related to the deployment of LMDS
services in the  aforementioned  LMDS markets.

The NACC-Tel gross margin as a percent of revenues increased to 64% for the year
ended December 31, 2001 from 51% in the corresponding  period of the prior year.
The  improvement  in the gross margin is due to additional  discounts for volume
purchases provided to Prime by its telephone  vendors,  and the  utilization  of
inventory, which had been acquired at reduced pricing.

NACC-Tel's  selling,  general  and  administrative  expenses  for the year ended
December 31, 2001  decreased  to $272,892 from  $310,591  for the  corresponding
period of the prior year.  The  decrease  is  attributed  to  our  reduction  of
administrative staff and sales personnel as a result  of  the  general  economic
slowdown experienced in 2001.

During the year ended  December 31, 2001,  sales revenue from Prepaid  Tel.com's
continuing  operations  increased  to $52,672 from $15,219 for the corresponding
period of the prior year. The increase in revenue is attributed to our marketing
effort to add  a number of productive retail agents to represent us and sell our
service to the public.

Prepaid's gross margin as a percent of revenues increased to  57% for  the  year
ended December 31, 2001 from 42% in the corresponding period of the prior  year.
The improvement  in  the  gross  margin  is  due to our being able, starting  in
November 2000,  to eliminate certain direct expenses that we were unable to  get
reimbursed  for  from our customers.  This  was  because  our  service  provider
previously permitted our  customers  to complete certain operator assisted calls
that they were not supposed to be able to make.

Prepaid's  selling,  general  and  administrative  expenses  for the year  ended
December 31,  2001  increased  to  $83,260  from  $68,028  for the corresponding
period of the prior year.  The increase  is  attributed  to additional marketing
expenses for this  segment  of our  business.

During the year ended December 31, 2001, sales revenue from LMDS Communications'
continuing  operations increased to  $46,422  from  $400  for the  corresponding
period of the prior year.  The increase in revenue is attributed  to the startup
of the business.  LMDS  Communications,  Inc. had begun commercial operations in
the third quarter of 2000.

LMDS' selling,  general and administrative  expenses for the year ended December
30, 2001 increased to $297,824 from $157,288 for the corresponding period of the
prior year. The  increase is  attributed  to startup marketing,  administrative,
and technical engineering expenses for this segment of  our  business,  and  the
intercompany   allocation  of  certain  corporate administrative functions  that
are performed by Prime.


Liquidity  and  Capital  Resources
----------------------------------

At December 31, 2001, Prime had cash of $1,702 and a working capital  deficit of
$765,982.  The  primary  cause  of  the  deficit position was the buildup of our
accounts payable and accrued liabilities, coupled with our  inability  to  raise
more than minimal capital investments in 2001.

Cash  used  in  operations  was  $205,234  for the year ended  December 31, 2001
compared to  $1,741,258  in 2000. The cash used in operations  during  2001  was
primarily attributed to the net loss offset  by noncash charges of $211,883  for
depreciation and amortization, a noncash charge of $204,518  for  services  paid
through the issuance of stock, an inventory increase of $50,216, and an increase
of $33,087 in our prepaid expenses.

Cash used in  investing  activities,  consisting  of  purchases  of property and
equipment, was $104,030  for the period ended December 31, 2001.  Cash  used  in
investing  activities,  consisting  of   purchases  of  property and  equipment,
was $208,442 for the period ended December 31, 2000.

Cash  provided  by  financing activities was $46,873 for the year ended December
31, 2001.  Cash  provided  by  financing  activities was $1,976,390 for the year
ended December 31, 2000. The cash provided in 2000 resulted  from the completion
of the  Company's Private  Placement  Offering of common stock during the  first
quarter of 2000 in the amount of $2,409,390, offset by payments on notes payable
in the amount of $433,000.

In April 2001 each of the five Directors  exercised  100,000 options to  acquire
Common stock, raising $21,873. In May the Company sold  500,000 of its shares in
a private placement offering, raising $25,000.

In March 2000, the Company sold 6,569,444  shares of its common stock in private
placement  offerings,  raising  $2.4  million.  Additionally,  in February  2000
creditors  holding  $1,240,216  (balance  due as of February  28, 2000) of notes
payable,  plus accrued interest of $66,971,  converted their debt into 2,904,860
restricted common shares of the Company. The market price of the common stock at
the time of conversion  was $.75, and the exchange ratio of debt to common stock
was $.45 per  share.  In March  2000  another  creditor  converted  $143,720  of
short-term  debt,  plus accrued  interest of $107,884,  into 561,111  restricted
common  shares of the Company.  The market price of the common stock at the time
of conversion was $2.625 and the exchange ratio of debt to common stock was $.45
per share.  Each dollar of debt was converted into 2.22222 common shares.  These
notes  were  converted  into  common  shares at the same  price  offered  to the
investors who purchased common shares through the private  placement that closed
March 31,  2000.  The  offering  price was below the  market  price at the time,
causing a non-cash  loss on  the conversion of notes payable  in  the  amount of
$1,852,595 during the three  months ended March 31,  2000.  In  September  2000,
a creditor  converted  $100,000  of  short-term  debt, plus accrued  interest of
$9,778,  into 312,500 restricted common shares of the Company.  The market price
of the common stock at the time of conversion was $.719 and the  exchange  ratio
of debt to common stock,  per the terms of the note,  was $.32 per  share  based
upon the  $100,000 principal only. The conversion ratio was each dollar of debt,
including accrued interest, was converted into 2.84655 common shares.


On  January  31,  2001 a letter of credit for the  benefit of an LMDS  equipment
supplier  expired,  and  $170,772   of  cash  restricted  for  use as collateral
securing the letter of credit was released to us in February 2001.

In February 2001 we received an approval  from a leasing  company for a lease in
the amount of $33,612 for equipment to be used in the  development  of the fixed
broadband wireless business. This lease is for 36 months and was funded in March
2001.

In March 2001 we received an approval from another  leasing  company for a lease
in the amount of $33,167  for  equipment  to be used in the  development  of the
fixed broadband wireless business. This lease is for 60 months and was funded in
March 2001.

On March 15, 2001 we entered into an amended and restated  agreement with Swartz
wherein  we  granted  Swartz  an  additional  152,100  commitment  warrants  and
eliminated  the  requirement  to issue  Swartz any  additional  warrants  in the
future; the agreement  previously  provided for us to issue Swartz 1 warrant for
every 10 common  shares we sell them in the future.  We cannot obtain funds from
this agreement until a registration  statement covering the shares to be sold is
declared effective by the Securities and Exchange Commission.

On March 29, 2001 our wholly owned  subsidiary, Mid-Cal  Express,  Inc., filed a
Chapter VII  bankruptcy  petition to liquidate the company.  This is the company
that previously was in the trucking  business,  and whose operating  assets were
sold at the end of 1998.  This event  will created a  non-recurring  gain in the
approximate amount of $700,000 for Prime's consolidated statements of operations
for the  year  ended  December  31,  2001.  Approximately  $700,000  of  Mid-Cal
liabilities  was  eliminated  from  our  consolidated  balance  sheet,  and  our
working  capital  and  stockholders'  equity   was  increased  by  approximately
$700,000.

On  January  26, 2002 we  received  written approval from  the  Rural  Utilities
Service,  part of the U.S. Department of Agriculture,  that  our request for low
interest rate 10 year debt  financing  was approved in the amount of $5,012,000.
The funds from the loan will be used to construct  55  fixed broadband  wireless
systems in 24 communities in Pennsylvania and  New  York  State.  On  April  12,
2002 the  Secretary  of  Agriculture  signed  the  loan documents, and they were
delivered to us on that day for execution.

On January 30, 2002 we sold 6,500 shares of our Series "A" Convertible Preferred
stock for $65,000,  to our communications attorneys,  in payment  of  that  same
amount which had been owed  to them.  These  shares  are  convertible  into  our
common stock at a conversion price of ten cents per share.  The closing price of
our common shares that day was $0.035.

In February 2002 we submitted  two  applications  for  grants  to  the  Virginia
Tobacco Commission under their program to encourage the development of broadband
telecommunications services in certain areas of Virginia.  If  the  applications
are approved, we will construct and operate fixed broadband wireless systems  in
two communities in southern Virginia. We are negotiating with the Virginia  Tech
Foundation  to  enter  into  an  agreement, similar to the one we have  for  the
Roanoke, VA. market, for the commercialization of the LMDS licenses it  owns  in
these two markets.  The  two  grant  applications  total  $1,025,000.

As of December 31, 2001 $140,134  is included  in  the balance on  our  accounts
payable schedule for  disputed  billing  from  Hein + Associates LLC, our former
auditor.  Management and  the  Board of  Directors determined that it was in the
best  interests   of   the  Company  to   have   our   new  auditor,  Stonefield
Josephson, Inc.  audit  2000  in  addition to the current requirement to have an
audit performed for the year ended December 31, 2001.  This  decision  was  made
based upon a number of factors including the year  2000  restatement  and  costs
involved in the re-audit.

Management believes the actions taken to lease equipment,  secure long term debt
financing,  raise  additional  cash  through the private  placement of preferred
shares,  and the  consummation of the $30 million equity line will be sufficient
to sustain operations for at least the next twelve months.



Risk Factors Associated with Owning our Securities
--------------------------------------------------


Our independent  auditor has issued an opinion raising  doubt about our  ability
to continue as a going concern.  Reference is made to  their footnote  number  3
discussing  the   losses   sustained   by   the   Company  in   2001  and  2000.
Management  believes the steps taken to develop revenue paying  customers on the
fixed broadband wireless systems, to raise additional operating capital, and the
liquidation of the former trucking  business  mitigate this risk; and management
believes the Company will survive.

Prime has a Limited  Operating  History.  If Prime does not successfully  build,
install,  and implement its  telecommunication  systems, it will incur continued
losses,  and may not be able to  remain  in  business.  Prime  has  generated  a
cumulative  net loss of  $7,268,182  for the period from its  inception  through
December  31,  2001.  The ultimate  success of Prime will,  among other  things,
depend on its ability to build,  install  and  implement  the  telecommunication
systems  necessary  to  provide  high  speed  telecommunications  services.  The
likelihood  of the success of Prime must be considered in light of the problems,
expenses,  difficulties,  complications  and delays  frequently  encountered  in
connection  with the development of a new business  enterprise,  the competitive
environment in which Prime operates,  and the frequently  encountered  delays in
the delivery of infrastructure equipment by telecom equipment manufacturers.  In


2000,  Prime   experienced  late  delivery  of  ordered   equipment,   and  also
non-delivery of key components due to the lack of coordinated  customer  service
and support by a vendor. If any required key component is not received by Prime,
a telecommunications system cannot be commercially launched.

Prime's  revenues  will  be  derived  primarily  from  customer  fees  that  are
contingent upon certain transactions (i.e. financings, system build-outs, sales,
acquisitions, etc.) being successfully consummated by Prime.

The  Telecommunications  Industry is Highly  Competitive.  Prime  competes  with
several  entities,  some  of  which have more financial resources and experience
than  Prime,  which  enable  them  to  better  withstand  the  impact  of  risks
associated   with  a  highly   competitive   industry.

Prime has Limited Working  Capital.  Prime may seek additional  financing in the
future from outside sources, either through additional equity offerings in Prime
or by borrowing.  There is no assurance that such financing will be available to
Prime in the future,  and if available,  that it will be at terms  acceptable to
Prime.  Such  financing  may be sought to  complete  the  build-out  of  Prime's
telecommunications  systems,  expand upon the newly built and operating systems,
or for the  marketing  of the  telecommunications  services  provided by Prime's
systems.  Moreover,  Prime  may have to  forfeit  some  interest  in its  future
revenues or dilute the equity  interest of its  shareholders  in order to obtain
any such additional financing.  If such additional financing is required but not
available,  Prime may lose its market share of customers in the  territories  in
which it has built  its  systems.  The  ability  of Prime to  obtain  additional
financing  may be dependent on factors over which Prime has no control,  such as
the general condition of the financial markets,  and the financial  condition of
the  larger  telecommunications  companies  at the time that Prime may seek such
additional   financing.

Prime is Dependent on Key Personnel. The loss of any of Prime's key personnel or
the failure to attract and retain  necessary new employees could have an adverse
effect on Prime's business operations.  Prime's success is highly dependent upon
the  skills  of a  limited  number  of key  management  personnel.  To reach its
business  objectives,  Prime will need to hire and retain qualified personnel in
the areas of  installation  and  maintenance of  telecommunications  systems and
marketing.  Prime  may not be able to hire or  retain  such  personnel.  Another
factor is that the secondary and tertiary markets in which Prime is building its
telecommunications  systems are  generally,  in the  opinion of the  technically
educated  and  experienced  pool  of  potential  employees,   not  as  desirable
communities in which to reside as the primary markets and the high tech areas of
the United States.

Prime is  dependent  on its  vendors to  deliver  infrastructure  equipment  and
services   at  agreed  upon   delivery   dates.   Telecommunications   equipment
manufacturers   sometimes  announce  the  availability  of  commercially  tested
equipment, even though the equipment may not have been actually field-tested. It
is reasonably  foreseeable that a vendor may deliver  equipment to Prime that is
not sufficiently  reliable for Prime to permit its customers to use the services
anticipated  to be  provided  by the  equipment.  If a vendor  does not  deliver
commercially  proven equipment to Prime after accepting Prime's purchase orders,
Prime  cannot  construct  its  telecommunications   systems  and  meet  its  new
customers'  expected  activation  dates.  This in  turn  would  create  negative
feelings toward Prime within the local  community.  Prime is also subject to the
risk that a larger  and/or  better-financed  purchaser  may exert  pressure on a
vendor to give its  equipment  orders a higher  priority for delivery  than that
afforded to Prime.  If this should happen,  Prime's  rollout  schedule for fixed
wireless broadband services will be delayed.

Prime has a History of Losses and a Limited Operating History. If Prime does not
successfully  build its  telecommunication  systems  and market its  services to
customers,  it will  incur  continued  losses,  and may not be able to remain in
business. Prime has generated a cumulative net loss of $7,268,182 for the period
from its inception  through December 31, 2001. In order to establish  profitable
operations, Prime must successfully market its systems and keep its expenditures
in line with moderate revenues.  Prime is subject to a number of risks including
its ability to  successfully  market,  distribute and sell its product,  intense
competition,  and  its  reliance  on a set of  FCC  licenses  authorizing  local
multipoint distribution services within licensed service areas.

The market price of Prime's common stock has been highly  volatile and is likely
to continue to be so. The stock  market has  experienced  significant  price and
volume  fluctuations  unrelated  to  the  operating  performance  of  particular
companies  Prime's float  (shares  available for trading by the public) has been
very thin,  and the lack of  substantial  trading  volume  tends to increase the
volatility of Prime's stock price.  Factors such as Prime's  ability to increase
revenues,  variations in Prime's  financial  results,  and its ability to obtain
needed financing,  announcements of technological innovations or new products by
Prime or its competition,  comments by securities  analysts,  adverse regulatory
actions or decisions, any loss of key management,  results of Prime's operations
or those of its competition,  and changing  governmental  regulations may have a
significant impact on the market price of Prime's common stock.

Limited Public Market for Prime Shares.  Investors should be aware that there is
a limited  market for our common  shares.  Accordingly,  it may be  difficult to
resell the shares.

In the event that Prime  elects to issue  additional  shares of common  stock or
other  securities  in connection  with any future  financings,  investors  could
experience dilution of their ownership interest in Prime.  Prime's expansion and
growth strategy may involve acquisitions of companies whereby some or all of the
consideration  may  be  Common  Stock  or  other  equity  securities  of  Prime.
Accordingly,  in the event Prime engages in an aggressive  acquisition  strategy
involving  a  significant   number  of  companies,   investors  will  experience
significant dilution of their ownership interest in Prime.


Dividend Policy
---------------
Prime does Not Intend to Cash Declare Dividends. The payment of future dividends
on the common stock and the rate of such  dividends,  if any, will be determined
by our Board of Directors in light of our earnings, financial condition, capital
requirements  and other  factors.  Investors  risk not receiving any current nor
future return on their investment.  We have not paid any dividends on our common
stock  during the past two years.  We expect to continue to retain all  earnings
generated by our operations for the development and growth of our business,  and
do  not  anticipate  paying  any  cash  dividends  to  our  shareholders  in the
foreseeable future.


Penny Stock Rules
-----------------
Our Stock is  Subject  to the Penny  Stock  Rules.  Investors  in our stock risk
having  less  liquidity  than they may have in a stock not  subject to the Penny
Stock Rules.   Pursuant to the  Securities  and Exchange Act of 1934, the Common
Stock of Prime is classified as a penny stock, which means that it is subject to
restrictions  with  respect to its  marketability.  SEC rule  15G-9  establishes
certain sales practice requirements for such stock and, in particular,  prior to
a transaction:

         The  broker  or dealer  must have  approved  a  prospective  customer's
account for  transactions in penny stocks in accordance with the procedure under
the SEC rules and the broker or dealer must have  received  from the  customer a
written agreement to the transaction  setting forth the identity and quantity of
the designated security to be purchased.  In order to approve a person's account
for  transactions  in penny  stocks,  the broker or dealer  must obtain from the
person  information  concerning  the person's  financial  situation,  investment
experience,  and  investment  objectives.  The broker or dealer must  reasonably
determine that transactions in designated securities are suitable for the person
and that the person or the person's  independent  advisor in these  transactions
has  sufficient  knowledge  and  experience  in financial  matters such that the
person or the person's independent advisor in theses transactions reasonably may
be expected to be capable of evaluating the risks of  transactions in designated
securities.

         The broker or dealer  must  deliver  to the person a written  statement
setting  forth the basis on which the  broker or dealer  made the  determination
required by the rules  stating in a  highlighted  format that it is unlawful for
the broker or dealer to effect a transaction in a designated security unless the
broker or dealer has received, prior to the transaction,  a written agreement to
a transaction  from the person and stating in a highlighted  format  immediately
preceding  the  customer's  signature  line  that:  (a) the  broker or dealer is
required by this section to provide the person with a written statement; and (b)
the person  should not sign and return the  written  statement  to the broker or
dealer if it does not  accurately  reflect  the  person's  financial  situation,
investment experience,  or investment  objectives;  and obtain from the person a
manually signed and dated copy of the written statement required by the rules.

         As a practical  matter,  the only customers  eligible to purchase penny
stocks are persons  for whom the broker or dealer  carries an account and who in
such account have effected a securities  transaction  or made a deposit of funds
or securities  more than one year  previously;  or have made three  purchases of
penny stocks that occurred on separate days and involved different issuers.


Industry Risk Factors
---------------------
Dependence  On  Network   Infrastructure;   Establishment   and  Maintenance  of
Relationships; Capacity; Risk of System Failure; Requisite Agreements may not be
able to be Obtained on Satisfactory  Terms and Conditions.  Prime's success will
depend  upon its  ability to  implement  and  subsequently  continue to expand a
network  infrastructure  and  support  services  in order to  supply  sufficient
geographic reach, capacity,  reliability and security at an acceptable cost. The
development  and  expansion  of Prime's  network will require that it enter into
agreements,  on acceptable terms and conditions,  with the various  providers of
infrastructure  capacity and equipment and support services.  These are referred
to as peering relationships.

The expansion and adaptation of Prime's network infrastructure will also require
substantial  financial  operational and managerial  resources.  Prime may not be
able to expand or adapt the network infrastructure it intends to develop to meet
the industry's evolving standards or its customers' growing demands and changing
requirements  on a timely basis, at a commercially  reasonable  cost, or at all.
Prime may not be able to deploy  successfully  any expanded and adapted  network
infrastructure. Failure to maintain peering relationships or establish new ones,
if necessary, would cause Prime to incur additional operating expenditures which
would have a material adverse effect on Prime's  business,  financial  condition
and results of operations.

Prime is Dependent on Telecommunications  Carriers and Other Suppliers.  Prime's
suppliers  and  telecommunications  carriers  also  sell or lease  services  and
products to Prime's  competitors,  and some of these  carriers  are,  and in the
future  others  may  become,   competitors  of  Prime.   Prime's  suppliers  and
telecommunications  carriers may enter into exclusive  arrangements with Prime's
competitors  or otherwise  stop selling or leasing their services or products to
Prime,  which could have a material adverse effect on Prime.  Prime is currently
the largest customer of Alcatel for their local multipoint  distribution service
equipment in the United  States.  In January  2001,  Prime entered into a supply
agreement   with  Adaptive   Broadband   Corporation   for  wireless   broadband
infrastructure equipment for the year 2001.


The  Telecommunications  Industry  Experiences Rapid  Technological  Change. Any
failure on the part of Prime to use new technologies effectively, to develop its
technical expertise and new services or to enhance existing services on a timely
basis, either internally or through arrangements with third parties,  could have
a  material  adverse  effect  on Prime.  The  market  for  Prime's  services  is
characterized  by rapidly  changing  technology,  evolving  industry  standards,
changes in customer  needs and frequent  new service and product  introductions.
Prime's  future  success  will  depend,  in part,  on its ability to use leading
technologies  effectively,  to continue to develop its technical  expertise,  to
enhance its existing  services and to develop new  services  that meet  changing
customer  needs  on  a  timely  and  cost-effective   basis  and  obtain  market
acceptance.

Market and Financial Forecasts.  Prime has prepared certain forecasts for use by
management.  The  conclusions  contained in the forecasts may not be attained in
the  actual  operation  of  Prime.  Actual  results  of  operations  may  differ
significantly  based on certain  assumptions  concerning  facts and events  over
which Prime may have no control,  including  the ability  through  marketing and
management  to obtain the  projected  revenue  levels.  Therefore  the operating
results forecast may not be achieved, and the assumptions on which the forecasts
are based may not be realized.

The risks  highlighted  herein  should not be assumed to be the only things that
could affect future performance of Prime.


Impact of Recently Issued Standards
-----------------------------------

In January 2001, the FASB Emerging Issues Task Force issued EITF 00-27 effective
for  convertible  debt  instruments  issued  after   November  16,  2000.   This
pronouncement requires the use of the intrinsic value method for recognition  of
the detachable and imbedded  equity features  included  with  indebtedness,  and
requires  amortization of the amount associated with the convertibility  feature
over  the  life  of  the  debt  instrument rather than the period for which  the
instrument first  becomes  convertible.  Inasmuch as all debt  instruments  were
entered into prior to November 16, 2000 and all of the debt discount relating to
the  beneficial  conversion  feature  was  previously  recognized  as expense in
accordance with  EITF 98-5,  there  is  no impact on these financial statements.
This  EITF 00-27,  could impact future financial statements,  should the Company
enter into such agreements.

In July 2001, the FASB issued SFAS No. 141 "Business Combinations." SFAS No. 141
Supersedes  Accounting Principles Boards  ("APB") No. 16  and  requires that any
business combinations  initiated  after June 30, 2001  be  accounted  for  as  a
purchase, therefore, eliminating the pooling-of-interest method defined  in  APB
16.  The statement  is  effective  for  any business combination initiated after
June 30, 2001, and applies to all business combinations  accounted  for  by  the
purchase method for which the date of acquisition is July 1, 2001 or later.  The
adoption did not have a material impact on the  Company's financial  position or
results  of  operations   since  the  Company  has   not  participated  in  such
activities covered under this pronouncement.

In July 2001,  the  FASB  issued SFAS No. 142, "Goodwill and Other Intangibles."
SFAS No. 142 addresses the initial recognition, measurement and amortization  of
intangible assets acquired individually or with a group of other assets (but not
those acquired in  a  business  combination),  and  addresses  the  amortization
provisions for excess cost over fair value of net assets acquired or intangibles
acquired in a business combination.  The statement is effective for fiscal years
beginning  after  December 15,  2001,  and  is  effective July 1,  2001  for any
intangibles acquired in a business combination initiated  after  June 30,  2001.
The  Company  does  not  expect  the  adoption  to have a material impact on the
Company's financial position or results of operations.

In   October  2001,  the FASB   issued  SFAS  No. 143,  "Accounting   for  Asset
Retirement Obligations,"  which requires companies to record the fair value of a
liability for asset retirement  obligations  in  the  period  in  which they are
incurred.  The statement applies to a  company's  legal  obligations  associated
with the  retirement  of  a  tangible long-lived asset  that  results  from  the
acquisition, construction,  and development or through the normal operation of a
long-lived asset.  When a  liability  is  initially  recorded, the company would
capitalize the  cost,  thereby  increasing  the  carrying  amount of the related
asset.  The  capitalized  asset  retirement cost is depreciated over the life of
the respective asset while the liability is accreted to its present value.  Upon
settlement of the liability, the obligation is settled at its recorded amount or
the company incurs a gain or loss.  The statement is effective for fiscal  years
beginning after June 30, 2002.  The Company does not expect the adoption to have
a material impact to the Company's financial position or results of operations.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of  Long-Lived Assets."  Statement  144  addresses  the  accounting and
reporting  for  the  impairment  or disposal of long-lived assets. The statement
provides a single accounting model for long-lived assets to be disposed of.  New
criteria must be met to classify  the  asset  as  an  asset  held-for-sale. This
statement also focuses on reporting the effects of a disposal  of a segment of a
business.  This statement is effective for fiscal years beginning after December
15, 2001.  The Company does not expect the adoption to have a material impact to
the Company's financial position or results of operations.



Seasonality and Inflation
-------------------------

Management does not believe the Company's operations are significantly  affected
by seasonality or inflation.



ITEM  7.  FINANCIAL  STATEMENTS

The  Company's  consolidated  financial  statements  are  attached  as pages F-1
through F-26.


ITEM  8.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING AND
          FINANCIAL  DISCLOSURE

None

                                    PART III

ITEM  9.  DIRECTORS,  EXECUTIVE  OFFICERS,  PROMOTERS  AND  CONTROL  PERSONS;
          COMPLIANCE  WITH  SECTION  16(A)  OF  THE  EXCHANGE  ACT

Certain information about directors and executive officers of the Company is set
forth below:

                             OFFICERS AND DIRECTORS
                             ----------------------

The following table sets forth the names, ages and positions with the Company as
of December 31, 2001 of all of the officers and directors (the "Named  Executive
Officers")  of the  Company.  Also  set  forth  below is  information  as to the
principal occupation and background for each person in the table.

 a)  Directors  and  Executive  Officers  of  the  Company



NAME             AGE  DIRECTOR SINCE              POSITION
---------------  ---  --------------  ---------------------------------
Norbert Lima      56       1999       Chief Executive Officer, Director

Stephen Goodman   58       1999       Chief Financial Officer,
                                      Corporate Secretary, Director

Adrian Lima       31                  Vice President - Engineering

William Turley    64       2000       Director, Member of Audit Committee

Dennis Hinz       48       2000       Director, Chairman of Audit Committee



The following is a brief description of the business background of the executive
officers and directors of the Company.


Norbert  Lima has been  President  and CEO and  Director  for the Company  since
August 1999.  Mr. Lima has over thirty years of  telecommunications  experience,
and will be  responsible  for  implementing  the Company's  operational  systems
across multiple markets.  Mr. Lima founded and operated  NACC-Tel,  a California
interconnect  company,  from  1984-1994,  where  he  served  as  Sales  Manager,
Technical  Services  Engineer,  and Installation  Manager.  NACC-Tel merged with
Pagers Plus  Cellular in 1994,  whereby  Mr.  Lima served as Vice  President  of
Engineering,  responsible for RF engineering and construction of 220 MHz systems
throughout  the  US.  Under  Mr.  Lima's  direction,  Pagers  Plus  successfully
constructed 150 five-channel 220 MHz systems throughout various states. In early
1998, Mr. Lima re-purchased  NACC-Tel,  along with certain assets of Pagers Plus
Cellular,  which was subsequently  acquired by Prime in 1999, and will remain in
operation as its wholly owned subsidiary.

Mr. Lima worked in various  positions for Pacific  Telephone for nineteen years,
most recently as Engineering  Manager from 1981-1983.  From 1979-1981,  Mr. Lima
was  District  Manager  of  Construction,  where  he was  responsible  for  five
construction  divisions  with  275  subordinates  and  an  operating  budget  of
approximately  US$16,000,000  per annum. Mr. Lima's career has taken him through
multiple  levels of the large telecom  company,  as he also spent eight years as
Outside Plant Engineer,  where he had responsibilities of planning and designing
pole lines,  conduit  structures,  and  underground/building  cables. Mr. Lima's
success  enabled  his  promotion  to  Engineering  Manager,  where  he  became a
supervisor  for several  Outside  Plant  Engineers,  and then Staff Manager from
1978-1979,  where he was  responsible for conducting  Outside Plant  Engineering
Reviews throughout the states of California and Nevada. Mr. Lima received his BS
in Industrial  Technology-Electronics  and his BA in Public  Administration from
Fresno State University in 1970.


Stephen Goodman has been Chief Financial  Officer,  Treasurer,  and Director for
the Company since August 1999. Mr. Goodman has worked in the  telecommunications
industry for over eight years,  serving as President  for both Secure  Cellular,
Inc. and Pagers Plus Cellular, of San Francisco, from 1992-1999. Mr. Goodman had
been responsible for the strategic direction of both of the  companies,  and led
Pagers Plus to be named the 25th fastest-growing  company  in the  San Francisco
Bay area in 1996. Mr. Goodman developed, structured, and negotiated the majority
of the business for  Pagers Plus,  which  provides  prepaid  cellular  telephone
services,  prepaid wireless services, and telephone systems to both consumer and
corporate customers throughout California.


Mr. Goodman is skilled in banking and finance,  having  accumulated  over thirty
years of experience working for various organizations. Mr. Goodman was President
of Contra Costa  Financial  Services,  Inc. from  1989-1992,  where he owned and
managed this commercial and  residential  mortgage  brokerage/banking  firm. Mr.
Goodman was  involved  with the FCC while at Contra  Costa  Financial  Services,
Inc.,  applying to  participate in the lottery for a new spectrum of Specialized
Mobile Radio licenses. From 1985-1989,  Mr. Goodman worked for various savings &
loan  companies,  and from  1977-1985  he served  as  President  of Bay  Capital
Corporation & House of Money.  Mr. Goodman worked in financial  public relations
on Wall Street from 1969-1970 and as a stockbroker  for Loeb,  Rhoades & Company
from  1965-1966.  Mr. Goodman served as Lieutenant  Junior Grade in the US Coast
Guard from  1966-1969.  Mr.  Goodman  received his JD from  William  Howard Taft
University  in 1995,  passing  the  California  Baby Bar in  1992.  Mr.  Goodman
received his BS in Economics from the University of Pennsylvania-Wharton  School
in  1965,  and  received  his MBA  with  distinction  in  Finance  from New York
University in 1969. He is currently in the process of joining the faculty of the
University of Phoenix and may teach undergraduate and graduate online courses in
finance and management.




Adrian Lima has been Vice President of  Engineering  for the Company since 1999.
Adrian Lima is the son of Norbert  Lima,  the  Company's CEO and Chairman of the
Board of  Directors.  Mr. Lima has  accumulated,  while working for the NACC-Tel
proprietorship during the ten years prior to his employment by Prime,  technical
skills and experience through the installation of hundreds of telecommunications
systems manufactured by several different  companies.  Mr. Lima is adept at each
aspect  of  interconnect  installation,  including  wire  running,  termination,
hardware programming, troubleshooting, and training. Upon NACC-Tel's merger with
Pagers  Plus  Cellular  in  1994,  Mr.  Lima  obtained  experience  in  wireless
technologies, enabling him to spearhead the installation of some 750 channels of
two-way  220  MHz  radio  systems.  Mr.  Lima's  technical  experience  will  be
instrumental in implementing the Company's expansion plans in the future.


William   Turley  is   President   of   Communications   Engineering   Inc.,   a
well-established provider of telecommunications  products and services including
turnkey  voice and data  solutions;  he  founded  the  company  in 1977.  He has
extensive  experience  in  construction,  operations,  and  engineering  in  the
telephone  industry dating from 1952 both in the private and public sectors.  He
holds a Class A & C-7  California  Contractor's  License and is a member in good
standing of the Building Industrial  Consulting Society  International  (BICSI).
Prior to  establishing  his business in 1977,  he was a science  educator at Cal
State  University,  San Diego City  College,  and at  Kirchenpaur  Gymnasium  in
Hamburg,  Germany.  He obtained his M.A. degree in Physical  Science in 1971 and
his B.S.  degree in Physics in 1969,  from  California  State  University in San
Diego. He is a member of Prime's Audit Committee.


Dennis  Hinz  is a  shareholder  in  Ten  Haken,  Hinz  and  Carlos  Accountancy
Corporation.  He is a Certified  Public  Accountant  and a  Certified  Valuation
Analyst. He has been employed in the accounting profession since graduation from
California  State  University,  Chico,  in 1976,  where he obtained  his B.S. in
Business Administration with a concentration in accounting.  In 1986 he became a
partner of Marta,  Matli, & Thomas CPA's and its successor  firms  including Ten
Haken,  Hinz &  Carlos  CPA's.  He is a  member  of the  American  Institute  of
Certified  Public  Accountants,  the  California  Society  of  Certified  Public
Accountants,  and the National  Association of Certified Valuation Analysts.  He
serves as  Treasurer  of the  Kiwanis  Club of Yuba City,  and he is Chairman of
Prime's Audit Committee.


On March 29, 2001 our wholly owned  Mid-Cal  Express,  Inc.  subsidiary  filed a
Chapter VII  bankruptcy  petition to liquidate the company.  This is the company
that previously was in the trucking  business,  and whose operating  assets were
sold  at  the end of 1998.  This event  created  a  non-recurring  gain  in  the
approximate amount of $700,000 for Prime's consolidated statements of operations
for  the  year  ended  December 31,  2001.  Approximately  $700,000  of  Mid-Cal
liabilities  were  eliminated  from  our  consolidated  balance sheet,  and  our
working  capital and  stockholders'  equity  was  increased   by   approximately
$700,000.  Mr.  Norbert Lima is the CEO of Mid-Cal and Mr. Goodman is the CFO of
Mid-Cal.



ITEM  10.  EXECUTIVE  COMPENSATION

The following table sets forth the aggregate cash and options  compensation paid
to all  officers of Prime.  The  officers  received no other  compensation  from
Prime:
<TABLE>
<CAPTION>


----------------- ------------------ ----- -------- ------- -------------- ------------ ----------
      Name            Principal      Year  Salary   Options   Exercise     Exercisable  Expiration
                      Position                                  Price
----------------- ------------------ ----- -------- ------- -------------- ------------ ----------
<S>                <C>               <C>    <C>     <C>      <C>            <C>         <C>
  Norbert Lima           CEO         2000  $ 95,833  95,833     $.21875      12/31/00    12/31/03
----------------- ------------------ ----- -------- ------- -------------- ------------ ----------
                                     2001  $100,000  47,917     $.32813      12/31/01    12/31/04
                                                     47,917      .32813      12/31/02    12/31/04
----------------- ------------------ ----- -------- ------- -------------- ------------ ----------
  Stephen Goodman        CFO         2000  $ 95,833  95,833     $.21875      12/31/00    12/31/03
----------------- ------------------ ----- -------- ------- -------------- ------------ ----------
                                     2001  $100,000  47,917     $.32813      01/31/01    12/31/04
                                                     47,917      .32813      12/31/02    12/31/04
----------------- ------------------ ----- -------- ------- -------------- ------------ ----------
  Adrian Lima      VP-Engineering    2000  $ 68,971  68,971     $.21875      12/31/00    12/31/03
----------------- ------------------ ----- -------- ------- -------------- ------------ ----------
                                     2001  $ 72,000  34,486     $.32813      01/31/01    12/31/04
                                                     34,486      .32813      12/31/02    12/31/04
----------------- ------------------ ----- -------- ------- -------------- ------------ ----------

</TABLE>

                              EMPLOYMENT AGREEMENTS
                              ---------------------

In accordance  with the  Commission  Rules,  the following are the  Compensatory
Plans and Arrangements of the Company:

Prime  Companies  401(k)
Prime Companies,  Inc. Incentive Stock Option Plans

On September 7, 2000, the  Company approved employment agreements with  its  CEO
and CFO, each providing for compensation at the rate of $8,333 per month for the
three years ending December 31, 2002.  On  April 13, 2000  the Company  approved
compensation for its Vice-President - Engineering  at  the  rate  of  $6,000 per
month.

                                  STOCK OPTIONS
                                  -------------

On  December 31,  2001 there were  outstanding  options on 1,058,123  shares  to
various individuals. Each option  provides  the right to  purchase  one share of
common stock. 105,711 of these options  expire  December 31,  2002,  476,102  of
these options  expire  December  31, 2003, and 476,320 expire December 31, 2004.
All of the options expiring in 2002 are exercisable at $1.00 per share.  All  of
the options  expiring in 2003 are exercisable  at  $.21875. The options expiring
in 2004 are exercisable at various prices from $.10 to $.5625  and  the  average
exercise price is $.30.  Mr. Goodman, Mr. Adrian Lima, and Mr. Norbert Lima have
rights under the Year 2001, Year 2000, and the Year 1999 Employee  Stock  Option
Programs. Messrs.  Turley and Hinz each have 20,000  options under the Year 2001
Outside   Director  Stock  Option   Program.   These   options   are   currently
exercisable and expire December 31, 2004.  There are no other warrants,  rights,
conversion,  privileges,  or other  rights  pursuant to which Mr.  Goodman,  Mr.
Adrian Lima or Mr. Norbert Lima or any other current Officer or Director has the
right to acquire further shares in the Corporation.

In March 2000, the Board of Directors  approved an employee stock option program
for all  employees  on staff as of January 31, 2000,  whereby  each  employee is
granted the right to purchase the number of shares equal to 1999 gross  earnings
(at Prime or any of its  subsidiaries)  at $1.00 per  share;  the  options  vest
immediately and expire December 31, 2002. The Company granted 105,711 options to
purchase  common  stock  and  recorded   compensation  expense  of  $109,014  in
connection  with the 1999 Employee  Stock Option  Program during the year  ended
December 31, 2000.

In  March  2000,  the  Board  of  Directors   approved an employee  stock option
program for all employees employed by Prime in 2000 and on staff at December 31,
2000,  whereby  each  employee is granted  the right to  purchase  the number of
shares  equal to 2000 gross  earnings (at Prime or any of its  subsidiaries)  at
$1.50 per share;  the options are to expire  December 31, 2003,  and  vested  on
December  31,  2000.  On  December  13,  2000  the  Board of Directors  repriced
the exercise  price of these options to the closing price of the common stock on
the last business day of 2000, December 29, 2000, which was $.21875. On December
31, 2000 516,102  options were  automatically  granted and vested under the 2000
Employee Stock Option Program.

In  March  2000,  the  Board of  Directors   approved  a  stock  option  program
whereby each outside  director was granted  20,000 options for the year 2000, to
expire  December  31, 2002,  at $1.00 per share.  The options vested  on January
1, 2001 to each outside  director  as  of  the  date  of  grant  who was still a
director  on  December  31,  2000.  As of  December  31,  2000,  Prime  incurred
additional  consulting expense of $15,450  for this  stock  option  program.  On
December  13,  2000 the Board of  Directors repriced the exercise price of these
options to the closing price of the common  stock  on  the  last business day of
2000, December 29, 2000, which was $.21875. On  December  13, 2000  the Board of
Directors  amended the plan to include each  current  outside  director  who  is
still a director on  December  31, 2000.  On January 1, 2001 60,000 options were
automatically  granted and vested under the  2000 Outside Directors Stock Option
Program.

In January 2001 the Board of Directors approved an employee stock option program
for all employees  employed by Prime in 2001,  whereby each employee employed on
the date of adoption of the program is granted  options equal to their year 2000
gross earnings (at Prime or any of its  subsidiaries) at $.328125 per share; the
options are to expire  December 31, 2004,  and vest 50% on December 31, 2001 and
50% on December 31, 2002.  Each employee  employed during 2001 after the date of
adoption of the program will receive options, equal to their prorated annualized
2001 income, with the same terms and rights, but an exercise price equal to 150%
of the closing price of the shares on their first day of employment.

In  June  2001,  the  Board  of  Directors   approved  a  stock  option  program
whereby each outside  director was granted  20,000 options for the year 2001, to
expire  December  31, 2004, at $.10 per share.  The options vest on December 31,
2001 to each current  outside  director who is still a director on that date.


                              DIRECTOR COMPENSATION
                              ---------------------

The   Company's   directors   are  reimbursed  for  any  out-of-pocket  expenses
incurred  by them for  attendance  at  meetings  of the  Board of  Directors  or
committees thereof.  The Company compensates  directors $500 for each meeting of
the  Board  personally  attended  by such  director,  and $250 for each  meeting
attended telephonically.

In August   2000, the Board of Directors  authorized  compensation to members of
the Audit Committee at the rate of $500.00 per meeting.


ITEM  11.  SECURITY  OWNERSHIP  OF  CERTAIN  BENEFICIAL  OWNERS  AND MANAGEMENT

The  following  table sets forth  certain  information  about the  ownership  of
Prime's  Common  Stock as of December 31, 2001,  by (i) those  persons  known by
Prime to be the beneficial  owners of more than 5 percent of the total number of
outstanding  shares of any  class  entitled  to vote;  (ii)  each  director  and
officer;  and (iii) all  directors  and officers of Prime as a group.  The table
includes Common Stock issuable upon the exercise of options that are exercisable
within 60 days.  Except as  indicated in the  footnotes to the table,  the named
persons  have sole  voting and  investment  power with  respect to all shares of
Prime common  stock shown as  beneficially  owned by them,  subject to community
property laws where applicable.  The ownership figures in the table are based on
the books and records of Prime.

               Name of         Amount and
Title of       Beneficial      Nature of
Class          Owner           Interest    Percentages      Address
---------------------------------------------------------------------------
Common Stock                                          409 Center Street
Par Value                                             Yuba City, CA 95991
$0.0001        Stephen Goodman(a)5,921,513    19%

Common Stock                                          409 Center Street
Par Value                                             Yuba City, CA 95991
$0.0001        Adrian Lima    (b)1,175,870     4%

Common Stock                                          409 Center Street
Par Value                                             Yuba City, CA 95991
$0.0001        Norbert Lima   (c)5,236,774    16%

Common Stock                                         155 Montgomery Street, #609
Par Value                                            San Francisco, CA 94104
$0.0001        Irving Pfeffer    2,792,187     9%

Common Stock                                          120 W 45 Street
Par Value                                             New York, NY 10036
$0.0001        David Shaw        2,030,744      6%

Common Stock                                         300 Colonial Center Parkway
Par Value      Swartz Private                        Roswell, GA 30076
$0.0001          Equity LLC   (d)1,673,100     5%

Common Stock  All Directors
Par Value         and
$0.0001        Officers as
                 a Group     (e)12,624,157    39%
--------------------------------------------------------------------------------



a)   Includes options to purchase 129,250 common shares, which are currently
     exercisable.
b)   Includes options to purchase 103,457 common shares, which are currently
     exercisable.
c)   Includes options to purchase 123,750 common shares, which are currently
     exercisable.
d)   Includes 1,673,100 warrants, all of which are currently exercisable.
e)   Includes options to purchase 396,457 shares, which are currently
     exercisable.


ITEM  12.  CERTAIN  RELATIONSHIPS  AND  RELATED  TRANSACTIONS


Norbert  Lima, a Director and the  Company's  CEO, owns the real estate in which
the Company's  headquarters is located. The Company paid rent of $20,160 in 2001
and  $16,367  in 2000 on its  headquarters.  A three year  lease  agreement  was
authorized  by the  Board of  Directors  in June 2000 and was  entered  into and
executed that month.

Dennis  Hinz is a Director  of the  Company.  The  accounting  firm that he is a
partner in, Ten, Haken, Hinz, and Carlos,  prepared the Company's 1999 and  2000
state and federal tax  returns.  The  agreed  upon fee to be charged by his firm
for this service was $2,500.  Mr. Hinz  has  been  appointed  by  the  Board  of
Directors as the Chairman of the Company's audit  committee.


ITEM  13.  EXHIBITS,  REPORTS  ON  FORM  8-K  AND  SUPPLEMENTAL INFORMATION

(a)   INDEX  TO  EXHIBITS

4.2*     Summary  of  401(K)  plan
4.3*     Sample  Stock  certificate

*  Previously  filed

(b) No  reports  on Form 8-K were  filed  during  the last  quarter  of the year
covered by this report.

                             SHAREHOLDER INFORMATION
                             -----------------------

Form  10-KSB  Availability:
A copy of the 2001 Form 10-KSB filed with the Securities and Exchange Commission
will be  forwarded  preferably  by  email,  upon  request,  to any  shareholder.
Requests should be directed to:

Norbert  Lima,  CEO
Prime  Companies,  Inc.
409  Center  Street
Yuba  City,  CA  95991
Or  by  email  to  adminpri@primecompanies.com


Transfer  Agent  and  Registrar:

Mountain Share Transfer
1625 Abilene Drive
Broomfield, CO 80020
Telephone: (303) 460-1149
Fax: (303) 438-9243
Email: beth@mountainsharetransfer.com

Independent  Auditors:

Stonefield Josephson, Inc.
1620 26th Street




Suite 400 South
Santa Monica, CA 90404-4041

Corporate  Offices:  Prime  Companies,  Inc.
Mailing  Address:  409  Center  Street,  Yuba  City,  CA  95991
Telephone:  (530)  755-3580


                                   SIGNATURES
                                   ----------



Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf by the  undersigned,  thereunto duly  authorized.  Dated this 15th day of
April, 2002.



                                        Prime  Companies,  Inc.

                                   By:  /s/  Norbert  J.  Lima
                                        -------------------------------
                                        Norbert  J.  Lima
                                        Chief  Executive  Officer
                                       (Principal  Executive  Officer)
                                        Director

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed  below by the  following  persons on the above date on behalf of
the registrant and in the capacities indicated.

By:      /s/  Stephen  Goodman
         -----------------------------------
         Stephen  Goodman
         Director,  Chief  Financial  Officer


By:      /s/  William  Turley
         -------------------------------
         William  Turley
         Director


By:      /s/  Dennis Hinz
         -------------------------------
         Dennis Hinz
         Director



<PAGE>





<TABLE>
<CAPTION>









































                                                                                                PAGE

<S>                                                                                            <C>
Independent Auditors' Report.....................................................................F-2

Consolidated Balance Sheets - December 31, 2001 and 2000 (Restated)..............................F-3

Consolidated Statements of Operations - For the Years Ended December 31, 2001 and 2000 (Restated)F-4

Consolidated Statements of Stockholders' Equity - For the Years Ended
     December 31, 2001 and 2000 (Restated).......................................................F-5

Consolidated Statements of Cash Flows - For the years ended December 31, 2001 and 2000 (Restated)F-6

Notes to Consolidated Financial Statements.......................................................F-7
</TABLE>




<PAGE>










































                          INDEPENDENT AUDITORS' REPORT




To the Board of Directors and Stockholders
Prime Companies, Inc.
Yuba City, California



We  have  audited  the  accompanying  consolidated  balance   sheets   of  Prime
Companies, Inc. and subsidiaries as of  December 31,  2001  and 2000 (restated),
and the related  consolidated statements of  operations,   stockholders' equity,
and 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
consolidated  financial  statements are free of material  misstatement. An audit
includes  examining,  on  a  test  basis,  evidence  supporting  the amounts and
disclosures in the  consolidated  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 Companies,
Inc. and  subsidiaries at December 31, 2001 and 2000 (restated), and the results
of their operations and their cash flows  for the years then ended in conformity
with accounting principles  generally  accepted in the United States of America.

The accompanying  consolidated  financial statements have been prepared assuming
the Company  will  continue as a going  concern.  As  discussed in Note 3 to the
consolidated  financial  statements,   the  Company  has  suffered  losses  from
operations  in each of the past two years and has an  accumulated  deficit as of
December 31, 2001 of $7,268,182, which raise substantial doubt about its ability
to continue as a going concern. Management's plan in regard to these matters are
also  described  in  Note 3.  These  financial  statements  do not  include  any
adjustments  relating to the recoverability and classification of reported asset
amounts or the amounts and classifications of liabilities that might result from
the outcome of this uncertainty.


/s/ STONEFIELD JOSEPHSON, INC.

STONEFIELD JOSEPHSON, INC.
Certified Public Accountants

Santa Monica, California
April 4, 2002


                                      F-2
<PAGE>
<TABLE>


                    PRIME COMPANIES, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS


                                                                     December        December
                                                                     31, 2001        31, 2000
                                                                                    (Restated)
                                                                   -----------     -----------
                                     ASSETS
                                     ------
<S>                                                                <C>             <C>
CURRENT ASSETS:
     Cash and cash equivalents                                     $     1,702     $   264,093
     Restricted cash                                                      --           400,000
     Accounts receivable                                                31,535          27,821
     Inventory                                                          88,742          38,525
     Prepaid expenses and other current assets                          58,988           8,153
                                                                   -----------     -----------
         Total current assets                                          180,967         738,592

PROPERTY AND EQUIPMENT, net of Accumulated Depreciation
        of $213,693 for 2001 and $89,041 for 2000                      463,442         482,063
LICENSES, net of Accumulated Amortization
        of $117,909 for 2001 and $70,745 for 2000                      353,726         402,890
INTANGIBLES, net of Accumulated Amortization
        of $90,153 for 2001 and $50,085 for 2000                       112,182         152,250
OTHER LONG TERM ASSETS                                                    --            17,748
                                                                   -----------     -----------
TOTAL ASSETS                                                       $ 1,110,317     $ 1,793,543
                                                                   ===========     ===========

                      LIABILITIES AND STOCKHOLDERS' EQUITY
                      ------------------------------------

CURRENT LIABILITIES:
     Accounts payable                                              $   721,930         358,876
     Liabilities in excess of assets of subsidiary                        --           699,340
     Current portion of capital lease obligations                        1,652           9,070
     Deferred revenues                                                   9,242            --
     Accrued payroll and other current liabilities                     214,125          86,066
                                                                   -----------     -----------
              Total current liabilities                                946,949       1,153,352
                                                                   -----------     -----------

CAPITAL LEASE OBLIGATIONS, net of current portion                       17,580            --

STOCKHOLDERS' EQUITY:
     Preferred stock, $.0001 par value, 50,000,000 shares
         authorized, none issued and outstanding                          --              --
     Common stock, $.0001 par value, 100,000,000 shares
         authorized, 31,984,384, issued and outstanding                  3,198           2,672
     Additional paid-in capital                                      7,410,772       7,133,001
     Deferred offering costs                                              --          (856,005)
     Accumulated deficit                                            (7,268,182)     (5,639,477)
                                                                   -----------      ----------
              Total stockholders' equity                               145,788         640,191
                                                                   -----------      ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                         $ 1,110,317      $1,793,543
                                                                   ===========      ==========



       See accompanying notes to these consolidated financial statements.

                                      F-3
</TABLE>
<PAGE>

<TABLE>
<CAPTION>

                             PRIME COMPANIES, INC. AND SUBSIDIARIES
                              CONSOLIDATED STATEMENTS OF OPERATIONS


                                                                        FOR THE YEARS ENDED
                                                                           DECEMBER  31,
                                                              ---------------------------------------
                                                                     2001                  2000
                                                                                        (Restated)
                                                              ---------------       -----------------


<S>                                                           <C>                   <C>
REVENUES                                                      $       455,202       $        492,035
                                                              ----------------      -----------------

COSTS AND EXPENSES:
     Cost of revenues                                                 389,595                251,355
     Selling, general, and administrative expenses                  1,527,224              1,931,823
                                                              ----------------      -----------------
         Total costs and expenses                                   1,916,819              2,183,178
                                                              ----------------      -----------------

LOSS FROM OPERATIONS                                               (1,461,617)            (1,691,143)
                                                              ----------------      -----------------

OTHER INCOME (EXPENSE):
     Interest income                                                    2,774                 44,662
     Interest expense                                                  (8,211)               (79,497)
     Other income, net                                                 24,720                  1,693
     Loss on securities available for sale                               --               (1,224,000)
     Write off of deferred offering costs                            (882,911)                  --
                                                              ----------------      -----------------
         Net other expense                                           (863,628)            (1,257,142)

NET LOSS BEFORE TAXES AND EXTRAORDINARY ITEM                       (2,325,245)            (2,948,285)
     Provision for taxes                                                2,800                  6,880
                                                              ----------------      -----------------

NET LOSS BEFORE EXTRAORDINARY ITEM                                 (1,445,134)            (2,955,165)
EXTRAORDINARY GAIN ON DEBT FORGIVENESS                                699,340                   --
EXTRAORDINARY LOSS ON CONVERSION OF NOTES PAYABLE                        --               (1,852,595)
                                                              ----------------      -----------------
NET LOSS                                                      $    (1,628,705)      $     (4,807,760)
                                                              ================      =================

BASIC & DILUTED PER SHARE INFORMATION:

    Loss before extraordinary item                            $         (0.08)       $         (0.10)
    Extraordinary gain on debt forgiveness                               0.02                   --
    Extraordinary loss on conversion of notes payable                    --                    (0.07)
                                                              ----------------      -----------------
    Net loss                                                  $         (0.06)       $         (0.17)
                                                              ================      =================

WEIGHTED AVERAGE SHARES OUTSTANDING                                28,684,916              28,265,246
                                                              ================      =================

                   See accompanying notes to these consolidated financial statements.




                                                  F-4

</TABLE>


<PAGE>
<TABLE>
<CAPTION>









                                                       PRIME COMPANIES, INC. AND SUBSIDIARIES

                                                   CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
                                             FOR THE YEARS ENDED DECEMBER 31, 2001 and 2000 (Restated)


                                                                                OTHER                                       TOTAL
                                            COMMON STOCK        ADDITIONAL   COMPREHENSIVE   DEFERRED                  STOCKHOLDERS'
                                     -----------------------     PAID-IN        INCOME       OFFERING     ACCUMULATED       EQUITY
                                        SHARES       AMOUNT      CAPITAL        (LOSS)        COSTS        (DEFICIT)     (DEFICIT)
                                     -----------    --------   -----------    -----------    ---------     -----------   -----------


<S>                                    <C>          <C>        <C>            <C>            <C>          <C>            <C>
BALANCES, January 1, 2000 (Restated)  21,582,125    $  2,158   $   282,244    $   125,000   $    --      $   (831,717)  $  (422,315)

 Stock returned per settlement        (5,500,000)   $   (550)  $  (125,307)          --          --              --        (125,857)
 Issuance of common stock in
   connection with conversion
   of debt                             3,778,471         379     3,562,308           --          --              --       3,562,687
 Issuance of common stock, net of
   offering costs                      6,842,871         684     2,408,706           --          --              --       2,409,390
 Compensation expense recognized
   upon issuance of stock options           --           --        129,614           --          --              --         129,614
 Stock issued for purchase of other
   assets                                  1,000         --          2,000           --          --              --           2,000
 Stock issued for services                12,829           1        17,431           --          --              --          17,432
 Warrants issued in connection with
   equity line                              --           --        856,005           --      (856,005)           --            --
 Net Loss                                   --           --           --             --          --        (4,807,760)   (4,807,760)
 Adjustment on available
   for-sale securities                      --           --           --         (125,000)       --              --        (125,000)
                                     -----------    --------   -----------    -----------   ---------     -----------    -----------
BALANCES December 31, 2000 (Restated) 26,717,296    $  2,672   $ 7,133,001    $      --     $(856,005)    $(5,639,477)   $  640,191
                                     -----------    --------   -----------    -----------   ---------     -----------    -----------
 Issuance of common stock, net of
   offering costs                      3,476,387          50        24,948           --          --              --          24,998
 Exercise of options                     100,000          10        21,865           --          --              --          21,875
 Stock issued for services             1,690,701         466       204,052           --          --              --         204,518
 Warrants issued in connection
   with equity line                         --           --         26,906           --       (26,906)           --            --
 Elimination of Deferred Offering Costs     --           --           --             --       882,911            --         882,911
 Net Loss                                   --           --           --             --          --        (1,628,705)   (1,628,705)
                                     -----------    --------   -----------    -----------   ---------     -----------    -----------
BALANCES, December 31, 2001           31,984,384    $  3,198   $ 7,410,772           --     $    --       $(7,268,182)   $  145,788
                                     ===========    ========   ===========    ===========   =========     ===========    ===========

                   See accompanying notes to these consolidated financial statements.

                                                  F-5

</TABLE>

<PAGE>
<TABLE>
<CAPTION>


































                              PRIME COMPANIES, INC. AND SUBSIDIARIES
                               CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                     FOR THE YEARS ENDED
                                                                          DECEMBER 31,
                                                           ---------------------------------------
                                                                      2001                2000
                                                                                       (Restated)
                                                           ------------------  -------------------
<S>                                                        <C>                 <C>

CASH FLOW FROM OPERATING ACTIVITIES:
     Net loss                                              $      (1,628,705)  $      (4,807,760)
     Adjustments to reconcile net loss to net cash
       used in operating activities:
     Depreciation of property and equipment                          124,652              58,784
     Amortization of licenses and goodwill                            87,231              98,018
     Impairment on investment                                           --             1,224,000
     Write off of Deferred Offering Costs                            882,911                --
     Extraordinary gain on debt forgiveness                         (699,340)               --
     Interest related to beneficial conversion feature
       of note payable/convertible debenture                            --                40,625
     Compensation recognized upon issuance of stock
       and stock options                                                --               129,614
     Stock issued for services                                       204,518              17,432
     Extraordinary loss on conversion of notes payable                  --             1,852,595
     Changes in operating assets and liabilities:
     Restricted cash                                                 400,000            (400,000)
     Accounts receivable                                              (3,714)                542
     Inventory                                                       (50,216)            (24,675)
     Prepaid expenses and deposits                                   (33,087)              5,801
     Change in liabilities in excess of assets held for sale            --                12,042
     Accounts payable                                                363,053              16,785
     Deferred revenues                                                (2,505)             13,788
     Accrued payroll and other current liabilities                   149,969              21,151
                                                           ------------------  -----------------
         Net cash used in operating activities                      (205,234)         (1,741,258)
                                                           ------------------  -----------------

CASH FLOW FROM INVESTING ACTIVITIES:
     Purchases of property and equipment                            (104,030)           (208,442)
                                                           -----------------   -----------------
         Net cash used in investing activities                      (104,030)           (208,442)
                                                           ------------------  -----------------

CASH FLOW FROM FINANCING ACTIVITIES:
     Proceeds from sale of stock                                      46,873           2,409,390
     Principal payments on notes payable and
       long-term debt                                                   --              (433,000)
                                                           ------------------  -----------------
         Net cash provided by financing activities                    46,873           1,976,390
                                                           -----------------   -----------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                (262,391)             26,690

CASH AND CASH EQUIVALENTS, beginning of year                         264,093             237,404
                                                           -----------------   -----------------

CASH AND CASH EQUIVALENTS, end of year                     $           1,702   $         264,093
                                                           =================   =================

SUPPLEMENTAL CASH FLOW INFORMATION:
     Cash payments for:
         Interest                                          $           5,605   $          38,872
                                                           =================   =================
         Income taxes                                      $            --     $           6,880
                                                           =================   =================


SUPPLEMENTAL DISCLOSURE OF NON-CASH
    TRANSACTIONS:
     Conversion of note payable and accrued interest
         to common stock                                   $            --     $       1,669,466
                                                           =================   =================
     Issuance of common stock for intangible asset         $            --     $           2,000
                                                           =================   =================
     Return of 5,500,000 shares of common stock
         per settlement agreement                          $            --     $         125,857
                                                           =================   =================
     Warrants issued in connection with Swartz
         Equity Agreement                                  $          26,906   $         856,005
                                                           =================   =================
     Write off of Deferred Offering Costs                  $         882,911   $            --
                                                           =================   =================
     Issuance of stock in exchange for services            $         204,518   $            --
                                                           =================   =================


                See accompanying notes to these consolidated financial statements.

                                                  F-6
</TABLE>


<PAGE>


















































                     PRIME COMPANIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1.       ORGANIZATION AND NATURE OF OPERATIONS:
         --------------------------------------

         The  consolidated  financial  statements  include the accounts of Prime
         Companies, Inc. and its wholly owned subsidiaries  (collectively,  "the
         Company").

         In January 1999 four founders and another  individual  funded  Worldnet
         Tel.com,  Inc. (Worldnet),  a Delaware  corporation,  to form the legal
         structure for the Company's further development.  In February 1999, the
         four founders of NACC-Tel  contributed  their  respective  interests in
         NACC-Tel,  a privately  held  company,  to  Worldnet  in  exchange  for
         Worldnet common stock.

         Pursuant to a Stock Purchase Agreement (the "Agreement")  between Prime
         Companies,  Inc.  ("Prime"),  a Delaware  Corporation,  a  nonoperating
         public shell,  and  Worldnet,  Worldnet was merged into Prime through a
         merger  effective  August 11, 1999. For financial  statement  purposes,
         Worldnet was considered the acquiring company, and Worldnet has treated
         this  transaction  as an  acquisition  of Prime.  For  legal  purposes,
         however, Prime remained the surviving entity.  Therefore,  the combined
         entity retained Prime's capital structure.  Prior to the merger,  Prime
         had  6,507,742  shares  of common  stock  outstanding  held by  various
         individuals.  Pursuant to the  agreement,  Worldnet  stockholders  were
         issued  14,500,000  shares of Prime  common  stock.  As a result of the
         stock  exchange,  the former  shareholders  of Worldnet held 69% of the
         outstanding shares of common stock of Prime. At the time of the merger,
         Prime had liabilities in excess of net assets of $428,193.  This amount
         was  charged to  operations  on the date of the merger as a cost of the
         reorganization.  Subsequently, in  September  2000, Prime  acquired and
         retired 5,500,000 shares of Prime common stock from two of the founders
         of Nacc-Tel, in exchange for a one-half interest in three of  the  LMDS
         licenses acquired at the FCC auction in 1999. The net book value of the
         one-half   interest  in  the  three  licenses  was   $125,857,  net  of
         accumulated amortization.

         The  accompanying  financial  statements  of the  Company  reflect  and
         consolidate  the operations of Prime and its subsidiaries.

                                      F-7
<PAGE>


















                     PRIME COMPANIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

          The Company's wholly-owned subsidiaries are described below:

          Prepaid Tel.com Inc. (Prepaid), a Delaware corporation,  was formed in
          February 1999 as a wholly-owned  subsidiary.  Prepaid is a Competitive
          Local Exchange  Carrier  ("CLEC")  certified by the California  Public
          Utility Commission.  During 2001 and 2000, Prepaid recognized revenues
          of approximately $53,000 and $15,000 from  the sale of  prepaid  phone
          service,  prepaid telephone  cards, and related services such as voice
          mail and long distance, respectively.

          LMDS Communications Inc. (LMDS), a Delaware corporation, was formed in
          February   1999   as   a   wholly-owned   subsidiary.    LMDS   is   a
          telecommunications  company  with  interests  in the  fixed  broadband
          wireless  sector.  During 2001 and 2000 LMDS  recognized  revenues  of
          approximately  $46,000  and  $400 from the sale of high speed internet
          access services, respectively.

          Mid-Cal   Express,   Inc.  was  a wholly-owned  subsidiary  of  Prime.
          Mid-Cal ceased  operations in December 1998 (prior to the  acquisition
          by  Worldnet).  It filed a Chapter Seven Bankruptcy Petition in March,
          2001 and has been liquidated. (See Note 15).

          Zenith Technologies Inc. (Zenith), a Delaware Corporation,  was formed
          in December 1998 as a wholly-owned subsidiary of Prime Companies, Inc.
          In  June  2001  it  commenced  operations  to  provide  long  distance
          telephone service.  In  July  2001  Prime  declared  a dividend to the
          shareholders by distributing one share of Zenith for every ten  shares
          of Prime held by the stockholders.  In August 2001 Zenith  filed  Form
          10SB12G with the  Securities and Exchange  Commission  to  voluntarily
          become a fully reporting company. In October 2001 an NASD member  firm
          filed form 15C211 with the NASD so that  Zenith's common shares  could
          be quoted for trading on the OTC Bulletin Board.


2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
         -------------------------------------------

         Principles of  Consolidation - The  consolidated  financial  statements
         include the  accounts of Prime  Companies,  Inc.  and its wholly  owned
         subsidiaries    (collectively,    "the   Company").   All   significant
         intercompany   balances  and  transactions   have  been  eliminated  in
         consolidation.

         Cash and Cash  Equivalents  - For  purposes of the  statements  of cash
         flows,  the  Company  considers  all  highly  liquid  debt  instruments
         purchased with an original  maturity of three months or less to be cash
         equivalents.

         Restricted Cash - The Company's  restricted cash balance as of December
         31, 2000 supported a letter of credit for capital equipment purchases.

         Inventory - Inventory  of  installation  equipment  and  materials  are
         stated at the lower of cost (first-in, first-out method) or market.

         Property  and  Equipment - Property and  equipment  are stated at cost.
         Depreciation  and  amortization of property and equipment is calculated
         using the straight-line method over the estimated useful lives (ranging
         from 2 to 7  years)  of the  respective  assets.  The  cost  of  normal
         maintenance  and repairs is charged to operating  expenses as incurred.
         Material   expenditures  which  increase  the  life  of  an  asset  are
         capitalized and depreciated over the estimated remaining useful life of
         the  asset.  The cost of  property  or  equipment  sold,  or  otherwise
         disposed of, and the related  accumulated  depreciation or amortization
         are removed from the accounts, and any gains or losses are reflected in
         current operations.

                                      F-8

<PAGE>
                     PRIME COMPANIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


         Licenses  -  Licenses  include   the   amounts   paid   to  the  FCC to
         purchase licenses for Local Multipoint Distribution Services in certain
         markets. The licenses are being amortized on a straight-line basis over
         the  initial  term of the  license,  which is ten  years.  The  Company
         recognized  amortization  expense for the years ended December 31, 2001
         and 2000 of $47,164 and $57,951, respectively.

         Intangibles -  Goodwill has been recorded in the amount of $200,335 for
         the Marathon transaction  and  $2,000  for   the   NTCOMM  transaction.
         Goodwill is being amortized over 5 years and $90,153 has been amortized
         through December 31, 2001.  An analysis of the  value of  the  goodwill
         was  performed in December  2001,  and it  was  determined  that  there
         has been no impairment to the carrying value of the goodwill.

         Impairment  of  Long-Lived  and  Intangible  Assets - In the event that
         facts and circumstances indicate that the cost of long-lived assets may
         be impaired, an evaluation of recoverability would be performed.  If an
         evaluation is required,  the estimated future  undiscounted  cash flows
         associated  with the asset would be  compared  to the asset's  carrying
         amount to determine if a write-down to market value or discounted  cash
         flow value is required.

         Revenue  Recognition - Revenue is generated  from the  installation  of
         phone  systems,  paging  services,  DSL line service,  service calls to
         businesses and individuals,  prepaid local telephone  service,  prepaid
         long distance and LMDS service. Revenue generated from the installation
         of telephone systems and service calls is recognized upon completion.

         Revenue for paging services and prepaid phone services is recognized on
         a monthly basis.  Customers on the various  services the Company offers
         may  obtain  service  on a monthly,  quarterly,  semi-annual  or annual
         basis.  The  Company  records  unearned  revenue  as  a  liability  and
         recognizes the earned portion on a monthly basis.

         Set-up fees received by customers to commence  prepaid  phone  services
         are amortized over the expected service period, generally one year.

         Income  Taxes  - The  Company  accounts  for  income  taxes  under  the
         liability method which requires  recognition of deferred tax assets and
         liabilities  for the expected  future tax  consequences  of events that
         have been  included in the financial  statements or tax returns.  Under
         this method, deferred tax assets and liabilities are determined,  based
         on the  difference  between the financial  statements  and tax basis of
         assets and liabilities,  using enacted tax rates in effect for the year
         in which the differences are expected to reverse.

         Liabilities  in  excess  of  assets  of  terminated  subsidiary include
         400,000  shares  of  common  stock  of  US Trucking, Inc.,  and cash of
         Mid-Cal Express, Inc.  (the  Company's  inactive  trucking  subsidiary)
         net  of  payables  to  unsecured  creditors of Mid-Cal Express Inc. The
         assets were pledged as security for the  unsecured  creditors  and were
         held  in escrow pending final settlement of the claims.  As of December
         31, 2000, the liabilities of Mid-Cal Express,  Inc. exceeded the assets
         by $699,340.  (See Notes 5 and 15). In March 2001 Mid-Cal Express, Inc.
         filed for protection under Chapter 7 of the U.S.  Bankruptcy  Code  and
         has been liquidated, and the Company recorded an extraordinary gain  in
         the first quarter of 2001.



                                      F-9
<PAGE>


                     PRIME COMPANIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         Earnings Per Share - Basic earnings per share  is  computed by dividing
         income  available to common stockholders by the weighted average number
         of common shares  outstanding for the year.  Diluted earnings per share
         reflects the potential dilution that could occur if securities or other
         contracts to issue common stock were exercised or converted into common
         stock or resulted in the issuance of  common  stock that then shared in
         the  earnings  of the entity.  All common stock equivalents  have  been
         excluded as their effect is anti-dilutive.

         Accounting  Estimates - The  preparation  of  financial  statements  in
         conformity  with accounting principles generally accepted in the United
         States of America requires management to make estimates and assumptions
         that affect the amounts   reported in the financial  statements and the
         accompanying   notes.  The  actual  results  could  differ  from  those
         estimates.

         Investments  -  The  U.S.   Trucking   stock  included  in  liabilities
         in  excess   of  assets   of  terminated   subsidiary  was   considered
         available for sale.  These  securities were  carried at fair value with
         unrealized  gains or  losses,  net  of  tax,  reported  as  a  separate
         component of stockholders'   equity.   The   change   in   unrecognized
         gain   on    available-for-sale   securities   during   2000   includes
         reclassification   adjustments  for $1,224,000 of losses  recognized in
         operations  from a   permanent  impairment taken against the investment
         due to a significant decrease in the market value of the shares.

         Deferred  Offering Costs - The amount  represents the fair market value
         of warrants  issued to secure equity  financing  that was in process at
         December  31,  2001 and  2000.  This  amount,  totaling  $882,911   was
         written off entirely in  2001.  Any funds raised  under  the  financing
         agreement in the future  will  not  need  to  be  offset  by the amount
         that has been written off.

         Stock-Based Compensation - The Company has elected to follow Accounting
         Principles  Board  Opinion  No.  25,  "Accounting  for Stock  Issued to
         Employees" (APB25) and related interpretations, including the Financial
         Accounting  Standards Board  Interpretation 44, "Accounting for Certain
         Transactions  involving Stock Compensation" which was effective July 1,
         2000, in accounting for its employee stock options.  In accordance with
         FASB  Statement  No.  123  "Accounting  For  Stock-Based  Compensation"
         (FASB123),  the Company  will  disclose the impact of adopting the fair
         value  accounting of employee  stock  options.  Transactions  in equity
         instruments  with   non-employees  for  goods  or  services  have  been
         accounted for using the fair value method prescribed by FASB123.




                                       F-10

<PAGE>

















                     PRIME COMPANIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         Concentrations  of Credit Risk - Credit risk  represents the accounting
         loss that would be recognized at the reporting  date if  counterparties
         failed to perform as contracted. Concentrations of credit risk (whether
         on or off balance  sheet) that arise from financial  instruments  exist
         for  groups of  customers  or groups of  counterparties  when they have
         similar economic characteristics that would cause their ability to meet
         contractual obligations to be similarly effected by changes in economic
         or other  conditions.  In  accordance  with  FASB  Statement  No.  105,
         "Disclosure   of   Information   about   Financial   Instruments   with
         Off-Balance-Sheet Risk and Financial Instruments with Concentrations of
         Credit Risk," financial  instruments that subject the Company to credit
         risk are primarily accounts  receivable.  The credit risk amounts shown
         do not take into account the value of any collateral or security.

         The  customers  of  the  Company's  operations  are  located  primarily
         in  California  and  Pennsylvania.   At  December  31, 2001  and  2000,
         approximately $25,659 and $27,863  representing  70%  and  69% of trade
         receivables was due from four and two customers, respectively. No other
         customers   accounted  for  more   than  10%  of  the  Company's  trade
         receivables at December 31, 2001 and 2000.


          Fair Value of Financial  Instruments - The  estimated  fair values for
          financial instruments under FASB Statement No. 107, "Disclosures about
          Fair Value of  Financial  Instruments,"  are  determined  at  discrete
          points in time based on relevant market  information.  These estimates
          involve  uncertainties  and cannot be determined with  precision.  The
          estimated fair value of cash, cash  equivalents,  accounts  receivable
          and accounts payable approximate their carrying  value  due  to  their
          short-term   nature.  The  estimated  fair  value  of  long-term  debt
          approximates  its carrying  value  because it carries  interest  rates
          which approximates current market rates.

         Recent Accounting Pronouncements:

          In January 2001, the FASB Emerging Issues Task Force issued EITF 00-27
          effective for  convertible  debt  instruments  issued  after  November
          16,  2000.  This pronouncement requires the use of the intrinsic value
          method for recognition of the detachable and imbedded  equity features
          included  with  indebtedness,  and requires amortization of the amount
          associated with the convertibility  feature over the life of the  debt
          instrument  rather  than  the period for which  the  instrument  first
          becomes  convertible.  Inasmuch as all debt  instruments  were entered
          into  prior to November 16, 2000 and all of the debt discount relating
          to the beneficial conversion  feature  was  previously  recognized  as
          expense in  accordance with  EITF 98-5,  there  is  no impact on these
          financial statements. This  EITF 00-27,  could impact future financial
          statements,  should the Company enter into such agreements.

          In  July  2001,  the FASB issued SFAS No. 141 "Business Combinations."
          SFAS No. 141 which supercedes Accounting Principles Boards ("APB") No.
          16  and  requires that any business combinations  initiated after June
          30,  2001 be accounted for as a  purchase,  therefore, eliminating the
          pooling-of-interest  method  defined  in   APB 16.   The statement was
          effective for  any business combination initiated after June 30, 2001,
          and  applies  to  all  business  combinations  accounted  for  by  the
          purchase  method  for which the date of acquisition is July 1, 2001 or
          later.  Adoption did not have any  impact  on  the Company's financial
          position  or   results   of  operations  since  the  Company  has  not
          participated in  such activities covered under this pronouncement.



                                      F-11
<PAGE>



                    PRIME COMPANIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


          In July 2001,  the  FASB  issued  SFAS No. 142,  "Goodwill  and  Other
          Intangibles."  SFAS  No.  142  addresses   the   initial  recognition,
          measurement   and   amortization   of   intangible   assets   acquired
          individually or with a group of other  assets  (but not those acquired
          in  a   business  combination),   and   addresses   the   amortization
          provisions  for  excess cost over fair value of net assets acquired or
          intangibles  acquired  in  a  business  combination.  The statement is
          effective for fiscal years  beginning  after  December 15,  2001,  and
          is effective July 1,  2001  for any intangibles acquired in a business
          combination initiated  after  June 30,  2001.  The  Company  does  not
          expect   the   adoption  to  have  a  material impact on the Company's
          financial position or results of operations.

          In  October  2001,  the FASB  issued  SFAS  No. 143,  "Accounting  for
          Asset  Retirement  Obligations,"  which  requires  companies to record
          the fair value of a liability for asset retirement obligations in  the
          period  in  which  they  are  incurred.  The  statement  applies  to a
          company's  legal  obligations  associated with  the  retirement  of  a
          tangible  long-lived  asset  that  results   from   the   acquisition,
          construction,  and  development  or through  the normal operation of a
          long-lived asset.  When  a  liability  is   initially   recorded,  the
          company would capitalize the  cost, thereby  increasing  the  carrying
          amount of the related asset.  The  capitalized  asset  retirement cost
          is  depreciated  over  the life of  the  respective  asset  while  the
          liability is accreted to its present value.  Upon  settlement  of  the
          liability, the obligation is settled at  its recorded  amount  or  the
          company incurs a gain or loss.  The statement is effective for  fiscal
          years  beginning after June 30, 2002.  The Company does not expect the
          adoption to have a material impact to the Company's financial position
          or results of operations.

          In October 2001, the FASB issued  SFAS  No.  144,  "Accounting for the
          Impairment or Disposal of Long-Lived Assets."  Statement 144 addresses
          the  accounting  and  reporting  for  the  impairment  or disposal  of
          long-lived assets. The statement provides  a single  accounting  model
          for long-lived assets to be disposed of.  New criteria must be met  to
          classify  the  asset as  an  asset  held-for-sale. This statement also
          focuses on reporting the effects of  a  disposal  of  a  segment  of a
          business. This statement is effective for fiscal years beginning after
          December 15, 2001.  The Company does not expect the adoption to have a
          material impact to the Company's  financial  position  or  results  of
          operations.


         Restatements  -  The accompanying financial  statements  for  2000 have
         been restated to reflect a change in the method of accounting  for  the
         acquisition of Marathon from a reorganization of related entities under
         common  control  to  the  purchase  method  of  accounting.  Additional
         information  regarding  the restatement  is included in note 4  to  the
         financial statements.

         Reclassifications  -  Certain  reclassifications  have been made to the
         prior year statements to conform to the presentation as of December 31,
         2001. Such  reclassifications  had no effect on the previously reported
         net loss.







                                       F-12

<PAGE>

                     PRIME COMPANIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3.       BASIS OF PRESENTATION:
         ---------------------

         As shown in the  accompanying  financial  statements,  the  Company has
         reported  significant  net losses for the years ended December 31, 2001
         and 2000 of $1,628,705 and  $4,807,760,  respectively  resulting  in an
         accumulated  deficit of  $7,268,182  as of  December  31,  2001.  These
         factors, among others, raise substantial doubt about the ability of the
         Company to continue as a going concern.


         During  the  later  part of 2000,  the  Company  took  steps to  obtain
         financing   including   signing  an   agreement   as  amended  with  an
         institutional  investor for up to $30 million in equity  funding.  (See
         Note 10).  During 2001, the Company  signed  additional agreements with
         financial  advisors  to obtain  funding  (See Note 16).  The  Company's
         ability to  continue  as a going  concern  is  dependent  on  obtaining
         additional  financing  to  fund  current  operations  and,  ultimately,
         generating  sufficient  revenues to obtain  profitable  operations.  No
         assurance  can be given  that the  Company  will be  successful  in its
         financing  efforts.   The  financial  statements  do  not  include  any
         adjustments  relating  to the  recoverability  and  classifications  of
         reported   asset  amounts  or  the  amounts  and   classifications   of
         liabilities that might result from the outcome of this uncertainty.

4.       ACQUISITIONS:
         -------------

         On March  19,  1999,  Bert  Lima,  as an  individual  and  co-owner  of
         NACC-Tel,  a privately  held  company,  acquired the assets of Marathon
         Telecom  ("Marathon")  from an  unrelated  party  in  exchange  for the
         assumption of certain liabilities  totaling  approximately  $40,000 and
         consideration paid to the seller of $5,500. On April 1, 1999, Bert Lima
         assigned to his son,  Adrian Lima who was an employee of NACC-Tel,  his
         100% ownership of Marathon for no consideration.

         On October 15, 1999,  the Company  acquired the assets of Marathon from
         Adrian Lima, a sole  proprietor,  in exchange for 517,241 shares of the
         Company's  common stock.  This stock issuance was valued at the average
         of the  closing bid and ask prices for three days before and after date
         the  acquisition  was  agreed  to by  the  Company  and  Marathon.  The
         transaction  was accounted for as a  reorganization  of entities  under
         common control due to the family  relationship  between Bert and Adrian
         Lima,  their collective  ownership of approximately  25% of the Company
         and  their   positions  as  officers  and  directors  of  the  Company.
         Accordingly,  the  inclusion  of  the  operations  of  Marathon  in the
         consolidated   operations   commenced  on  the  acquisition  date.  The
         resulting  purchase  price was $196,552  which  consists of $188,602 of
         stock based  compensation for the 517,241 shares of common stock issued
         to Adrian Lima and $7,950 in fixed assets.

         In   prior  years, the  acquisition  of  Marathon had  been  originally
         treated  under the purchase method of accounting.  The former  auditors
         re-reviewed  the  transaction   and  incorrectly  determined  that  the
         "method"  to  account  for  the  transaction  should  have  been  as  a
         reorganization  of   related party entities under  common  control.  An
         amended  Form 10KSB  for  the  year  ended  December 31, 1999 was filed
         in October 2000, to restate the financials for that year based upon the
         Marathon transaction then  being  treated  as  a  reorganization.  Upon
         review by the SEC of the Company's filing in November 2000 of Form SB2,
         it  was  concluded   that the acquisition should be accounted for under
         the purchase method.  The  financial  statements  for  the  year  ended
         December  31, 2000  are  accordingly  restated and incorporated in this
         document.
                                   F-13
<PAGE>


                     PRIME COMPANIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         The original  change  in  the method of  accounting  for  the  Marathon
         acquisition to a reorganization of related parties under common control
         had the  following  effect  on  the  1999  financials:  (1) elimination
         of goodwill in the amount of $200,335, (2) elimination of  amortization
         of $10,017, (3) reduction  of  PP&E by  $1,050, (4) increase in cost of
         sales by $12,783, and (5) increase in  GS&A  expenses  by $178,585, all
         resulting in an increase of $181,351 to the consolidated net loss.  The
         purchase price for Marathon now recorded in the  accounts is based upon
         the fair value of the PRMC shares issued to Adrian Lima in  the  amount
         of $196,552; $7,950 is Equipment and $188,602 ($10,017 amortization and
         $178,585 GS&A) was expensed in 1999 as stock based compensation.

         Accounting for the  transaction under  the purchase  method, the effect
         on the December 31, 1999 balance sheet was an  increase  in  net assets
         of  $191,368  and  a  reduction of the net loss by $181,351.  The  year
         2000 financials have  been amended to account for $40,068  amortization
         of  goodwill.  The net balance for the goodwill account as of  December
         31, 2001 is now    $110,182,  and  the  goodwill is now being amortized
         over a  five  year period.


5.       LIABILITIES IN EXCESS OF ASSETS OF SUBSIDIARY/EXTRAORDINARY GAIN:
         -----------------------------------------------------------------

         Mid-Cal  Express,  Inc.,  ceased  operations  in December  1998 and its
         assets had  been  pledged as security for the  settlement  of claims by
         its unsecured  creditors.  The assets were held by the Credit  Managers
         Association   of  Southern   California  who  was  in  the  process  of
         liquidating  the assets and making final distribution to the creditors.
         The liabilities in excess of assets of  subsidiary which was liquidated
         in  March 2001 upon filing  of  a voluntary petition under Chapter 7 of
         the  U.S. Bankruptcy Code,  resulting  in   an  extraordinary  gain  of
         $699,340, consisted  of  the following at December 31, 2000:


               Assets:
                   Cash in escrow                           $          1,199
                   Investments                                        76,000
                                                            ----------------
                        Total Assets                                  77,199
               Unsecured Creditors                                  (776,539)
                                                            -----------------
               Net Liabilities in Excess of Assets          $       (699,340)
                                                            =================


                                      F-14
<PAGE>




















                     PRIME COMPANIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



6.       PROPERTY AND EQUIPMENT:
         -----------------------
<TABLE>
         Property and equipment at December 31, 2001 and 2000 consisted of the following:

<CAPTION>

                                                 2001          2000            ESTIMATED
                                                             Restated         USEFUL LIVES
                                               ---------    ---------        ---------------

           <S>                                <C>          <C>              <C>
           Office furniture and equipment      $  69,652    $  65,325        5 years
           Vehicles                               65,215       48,360        4 years
           Paging terminals                       71,764       71,764        7 years
           Site Improvements                      20,791       18,651        5 years
           DSL Equipment                          20,428       20,428        3 years
           LMDS Equipment                        370,024      347,526        7 years
           Fixed Broadband Wireless Equipment     59,261                     7 years
                                               ---------    ---------
                 Total Property and equipment    677,135      572,054
           Less accumulated depreciation        (213,693)     (90,091)
                                               ---------    ---------
                                               $ 463,442    $ 481,963
                                               =========    =========
</TABLE>

         Depreciation expense for the years ended December 31,  2001 and 2000,
         was $124,652 and  $58,784, respectively.


7.       NOTES PAYABLE TO RELATED PARTIES:
         ---------------------------------

         Interest  expense to related  parties  was  $750  and $24,546 for the
         years ended December 31, 2001 and 2000, respectively.







                                      F-15
<PAGE>





















                     PRIME COMPANIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



8.       CONVERTIBLE NOTES PAYABLE:
         --------------------------

         In March 2000 an extraordinary non-cash loss on the conversion of notes
         payable was recorded in the amount of $1,852,595.  This  is  related to
         the conversion  by creditors holding  $1,240,216  (balance  due  as  of
         February 28, 2000) of notes payable,  plus accrued interest of $66,971,
         into  2,904,860  restricted  common shares of the Company.  The  market
         price of the common stock at the time of conversion was  $.75,  and the
         exchange ratio of  debt  to  common  stock  was  $.45  per share, which
         resulted in a $1,053,012 loss on conversion.  In  March  2000   another
         creditor  converted   $143,720  of   short-term   debt,   plus  accrued
         interest of $107,884,  into 561,111  restricted common  shares   of the
         Company. The market price of the common stock at the time of conversion
         was  $2.625  and  the  exchange ratio of debt to common stock  was $.45
         per share, which resulted in a $799,583 loss on conversion.


9.       Obligations Under Capital Lease:
         --------------------------------

         The Company leases certain property and equipment under  capital  lease
         and has capitalized property and equipment of $27,825 with  accumulated
         depreciation of $18,551 as of December 31, 2001.

         Minimum  future  lease  payments under capital lease as of December 31,
         2001 and for the next four years and in the aggregate are as follows:

         Year ending December 31,
                    2002                            $  4,361
                    2003                               4,361
                    2004                               4,361
                    2005                              13,625
                                                    --------
         Net minimum lease payments                   26,708
         Less amount representing interest            (7,476)
                                                    --------
         Present value of minimum lease payments      19,232
         Less current maturities                      (1,652)
                                                    --------
                                                    $ 17,580
                                                    ========



                                    F-16
<PAGE>

















                     PRIME COMPANIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


10.      STOCKHOLDERS EQUITY:
         --------------------

         During  the year  ended  December  31,  2000,  the  Board of  Directors
         approved  increasing the authorized  common and preferred  stock to 100
         million  and 50  million,  respectively.  The  increase  in common  and
         approved  stock was approved and ratified at the Annual  Meeting of the
         Shareholders held on December 13, 2000.

         Common Stock - In March 2000, the Company completed a private placement
         offering of its common stock and sold 6,569,444 shares for $2.4 million
         (net of commissions of approximately  $547,000). In connection with the
         private  placement,   the  Company  issued  273,427  common  shares  as
         commission.

         In April 2000, the Company  issued 1,000 shares in connection  with the
         purchase of the domain name, NTCOMM.

         In June 2000, the Company issued 12,829 shares for consulting  services
         at $1.359 per share (the market  closing  price on June  30,2000).  The
         total expense recorded by the Company for this transaction was $17,432.

         In  April 2001 each of the Directors exercised options to each  acquire
         20,000 shares of common stock at $0.21875 per share.

         In May 2001 the Company issued 900,000 shares for  consulting  services
         at $0.10 per share.  These  services  have  been and are being provided
         over a period of twelve months. During 2001 $56,250  was  expensed  and
         there  was  a balance of Prepaid Expenses of $33,750 as of December 31,
         2001.

         In May 2001 the Company issued 500,000 shares for $25,000 in a  private
         placement at $0.05 per share.

         In June 2001 the Company issued 476,387 shares in a  private  placement
         for services rendered by two Officers valued at $23,819, or  $0.05  per
         share.

         In September  2001  the  Company  issued  2,500,000 shares in a private
         placement for services rendered by two Officers valued at  $50,000,  or
         $0.02 per share.

         In November 2001 the  Company  issued  499,034  shares  for  consulting
         services at $0.0465 per share.

         In December 2001 the  Company  issued  291,667  shares  for  consulting
         services at $0.06 per share.  None  of  these  services  were  provided
         prior to December 31, 2001  and  therefore  $17,500  is  reflected as a
         prepaid expense as of December 31, 2001.









                                        F-17
<PAGE>







                     PRIME COMPANIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         Warrants - On October 3, 2000,  the Company  entered into an investment
         agreement  with Swartz  Private  Equity,  LLC (Swartz).  Subject to the
         fulfillment of certain  conditions,  the agreements provide the Company
         with an equity financing facility through which the Company may sell up
         to a total of  $30,000,000  worth of shares of common  stock,  at their
         option,  periodically over a 36 month period.  The Company's ability to
         request a put advance  under the  facility is subject to the  continued
         effectiveness  of  a  resale  registration  statement  filed  with  the
         Securities  and Exchange  Commission  to cover the shares to be issued.
         The number of shares the Company may sell to Swartz varies depending on
         certain factors, including the market price of the common stock and the
         then current ownership  interest of Swartz.  The amount of common stock
         to be sold at each put will not be more than  $2,000,000  or 15,000,000
         million  shares at the  market  price for such put,  minus  $0.075  per
         share,  or  91%  of  the  market  price  for a put  advance  less  than
         $1,000,000.  Since  the  Swartz  agreement  was  contingent  upon   the
         Company's  filing of a registration statement Form SB2,  which  did not
         occur  during  2001,  management  decided  not  to go forward with this
         agreement.

         On September 9, 2000, the Company  granted Swartz  warrants to purchase
         1,521,000  shares of common stock with an initial  exercise price equal
         to $.687.  The  warrants  vest in 3 stages:  507,000  at the end of the
         document review period (which occurred on October 3, 2000), the signing
         of the  Investment  Agreement  on  October  3, 2000 and  507,000 on the
         earlier of an effective  registration  statement as declared by the SEC
         or  March  8,  2001.  The  exercise   price  of  the  warrants   resets
         periodically.  The original  exercise  price for the warrants  reset to
         $0.531  (the  lowest  closing  price  for the five days  preceding  the
         signing of the Investment Agreement on October 3, 2000). If the date of
         exercise  by the  Investor  is more  than 6  months  after  the date of
         issuance,  the  exercise  price  will be reset to the lesser of (1) the
         exercise  price in effect at the date of  exercise,  or (2) the  lowest
         reset price  determined on any 6-month  anniversary  date. The warrants
         expire 5 years  from the date of the  Investment  Agreement  in October
         2005.   On  March 15, 2001  the Company  entered  into  an  Amended and
         Restated  Investment  Agreement  with  Swartz  and  issued   Swartz  an
         additional 152,100 warrants.

         The Company used the Black  Scholes  valuation  model to determine  the
         fair value of the  warrants,  including  the fair value of the exercise
         price reset feature, at December 31, 2000 using a volatility of 165.5%,
         a three  year  period  of  expiration,  and a risk free  interest  rate
         ranging  from  5.06%  to  5.95%.  The  Company  recorded   $856,005  in
         connection  with the  warrants issued in 2000, which  was   capitalized
         as a  deferred offering  cost in 2000.  The Company recorded $26,906 in
         connection with the warrants issued in 2001, which was capitalized as a
         deferred  offering  cost  in 2001.  The   deferred   offering  cost  is
         classified  as  a  contra-equity account as this  amount  represents  a
         non-cash  equity  transaction. These costs were entirely written off to
         expense  in  the fourth quarter of 2001, upon management's decision not
         to go forward.


                                      F-18
<PAGE>









                     PRIME COMPANIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11.      STOCK OPTIONS PLANS:
         --------------------

         In March 2000, the Company  adopted the 1999 Employee Stock Option Plan
         (the 1999 Plan). Under the 1999 Plan,  employees on the Company payroll
         as of January 31, 2000 are  granted  options to purchase  the number of
         shares of common stock equal to their  respective  1999 gross  earnings
         (at Prime or any of its  subsidiaries)  at an  exercise  price equal to
         $1.00 per share.  The options vest  immediately and expire December 31,
         2002.  On March 16,  2000,  under the 1999 Plan,  the  Company  granted
         105,711 options to purchase  common stock to all employees  employed by
         the  Company  on January  31,  2000.  The  options  were  granted at an
         exercise  price of $1.00  which was less than the  market  value of the
         stock on the  date of grant  and the  Company  recognized  compensation
         expense $109,014 in accordance with APB25 for services provided.

         Also in March 2000, the Company  adopted the 2000 Employee Stock Option
         Plan  (the  2000  Plan).  Under the 2000  Plan,  employees  on staff on
         December  31,  2000 are  entitled to receive  options to  purchase  the
         number of shares  equal to their  respective  2000 gross  earnings  (at
         Prime or any of its  subsidiaries)  at an exercise price equal to $0.22
         per share. On December 29, 2000, the Company issued options to purchase
         516,102  shares of common  stock with an  exercise  price  equal to the
         market  price on the date of grant.  The options vest  immediately  and
         expire December 31, 2003.

         In March 2000, the Company granted 20,000 shares to each of its outside
         Directors for services on the Board of Directors  during the year ended
         December  31, 2000.  The options  were  granted with an exercise  price
         equal to $1.00 which was less than the market value of the stock on the
         date of grant. The Company  recognized as compensation  expense $20,600
         for these  services.  The options vest on January 1, 2001 and expire in
         2002.  In December  2000,  the Board of Directors  reduced the exercise
         price of the options granted to outside  Directors from $1.00 per share
         to $0.22 per share which equaled the market price on December 29, 2000.
         As the  Company  has  adopted  FIN 44,  as  disclosed  in Note 2,  this
         reduction of the exercise price of the stock options granted to outside
         Directors in March 2000,  results in the  accounting for the options as
         variable from the date of the  modification to the date the options are
         exercised,  forfeited, or expire unexercised.  The Company will measure
         compensation  at various  dates until the options have been  exercised,
         forfeited, or expire unexercised.

         In December  2000, the Board of Directors  granted  options to purchase
         20,000 shares of common stock with an exercise  price of $.22 per share
         to each of two  Directors  accepted to the Board.  The options  have an
         exercise price equal to the market price on the date of grant,  vest on
         January 1, 2001 and expire in December 2002.

         In January 2001 the  Company   adopted  the 2001  Employee Stock Option
         Plan  (the  2001  Plan).  Under the 2001  Plan,  employees  on staff on
         January 17,   2001  are  entitled to receive  options to  purchase  the
         number of shares  equal to their  respective  2000 gross  earnings  (at
         Prime  or any of its  subsidiaries)  at  an  exercise  price  equal  to
         $0.328125 per share.  New employees receive options on  their  date  of
         employment  equal  to  the  estimated  amount of their anticipated 2001
         earnings, and the exercise  price  on  their  options  is  150%  of the
         closing  price  of  the  shares  on their first day of employment.  The
         options  vest  50%  on  December 31, 2001 and 50% on December 31, 2002.
         The options expire on December 31, 2004.


                                      F-19
<PAGE>


                     PRIME COMPANIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         The  following  table sets forth the activity  for all option  activity
         during the years ended  December  31,  2001 and 2000.

                                     NUMBER OF SHARES        AVERAGE EXERCISE
                                                              PRICE PER SHARE
                                     ------------------    --------------------

         Balance, January 1, 2000          2,555,209       $              2.05

         Granted                             721,813                       .33
         Expired                          (2,555,209)                     2.05
         Canceled/Forfeited                  (40,000)                      .22
                                     ----------------      -------------------

         Balance, December 31, 2000          681,813       $               .34

         Granted                             651,159                       .33
         Expired                                -                          -
         Exercised                          (100,000)                      .22
         Canceled/Forfeited                 (174,849)                      .39
                                     ----------------      -------------------

         Balance, December 31, 2001        1,058,123       $               .33
                                     ================      ===================

         At December  31,  2000,  the  Company  had options to purchase  105,711
         shares of common stock exercisable at the price of $1.00 and options to
         purchase  516,102  shares of common stock  exercisable  at the price of
         $.22. The remaining options became exercisable in 2001.

         At December 31, 2001   the Company had  options  to  purchase   105,711
         shares of common stock exercisable at $1.00, options for 427,190 shares
         at $0.32813, options for 476,102 shares at $0.21875, options for  9,120
         shares at $0.1125, and options for 40,000 shares at $0.10 per share.

         If not previously  exercised,  canceled or forfeited,  the  outstanding
         options will expire as follows:


                                          NUMBER OF SHARES   AVERAGE EXERCISE
            PERIOD ENDED DECEMBER 31,                         PRICE PER SHARE

                                         ----------------    ----------------
            2002                                  105,711    $           1.00
            2003                                  476,102                 .22
            2004                                  476,310                 .30
                                         ----------------    ----------------

         Balance, December 31, 2001             1,058,123    $            .33
                                         ================    ================


         As  noted  in Note 2,  the  Company  has not  adopted  the  fair  value
         accounting  prescribed by FASB123 for employees.  Had compensation cost
         for stock options issued to employees been determined based on the fair
         value at grant date for  options  awarded in 2001  consistent  with the
         provisions  for FASB123,  the Company's net loss and net loss per share
         would have been adjusted to the proforma amounts indicated below:



                                     F-20
<PAGE>





                     PRIME COMPANIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                                             YEAR ENDED
                                                         DECEMBER 31, 2001
                                                         -----------------


         Net Loss                                        $     (1,670,900)
                                                         =================

         Basic and diluted net loss per common share     $       (.06)
                                                         =================

         The fair value of each option was  estimated on the date of grant using
         the Black-Scholes option-pricing model using the following assumptions:
         a risk-free  interest rates ranging from 4.03% to 4.81%,  expected life
         of three years, dividend yield of 0%, and expected volatility of  281%.
         The weighted-average  fair value of the options granted during the year
         ended December 31, 2001 was $0.24.



12.      INCOME TAXES:
         -------------

         Income  tax  expense  for the  indicated  periods is  comprised  of the
         following:
                                            For the Years Ended
                                               December 31,
                                         2001                  2000
                                 ---------------------  ----------------

        Current
                  Federal        $        -             $        -
                  State                  2,800                  6,880
                                 ----------------       ----------------
                                 $       2,800          $       6,880
                                 ================       ================

        Deferred
                  Federal                 -                      -
                  State                   -                      -
                                 ----------------       ----------------
                                 $        -             $        -
                                 ================       ================

         The actual  income tax expense  differs  from the  expected tax expense
         (benefit)as  computed by applying the U.S. Federal corporate income tax
         rate of 34% for each period as follows:






                                          F-21

<PAGE>







<TABLE>
<CAPTION>

                     PRIME COMPANIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                                            For the years ended
                                                               December 31,
                                                         2001                  2000
                                                 ----------------       ----------------
       <S>                                       <C>                    <C>
       Amount of expected tax benefit            $       (552,900)      $     (1,618,740)
       Non-deductible expenses                            311,300                645,928
       State taxes, net                                     1,800                  4,541
       Change in valuation allowance                      242,000                975,151
       Other                                                  600                   --
                                                 ----------------       ----------------
                                                 $          2,800       $          6,880
                                                 ================       ================
</TABLE>

          The components of the net deferred tax asset and liability  recognized
          are as follows:
<TABLE>
                                                                DECEMBER 31,        DECEMBER 31,
                                                                    2001                2000
                                                              ----------------    ----------------
<S>                                                           <C>                 <C>
       Current deferred tax assets (liabilities)
          Accrued expenses                                    $        39,000     $          6,500
          APB 25 compensation expense                                  55,500               51,400
          Deferred revenue                                               -                   5,500
          Other accrued liabilities                                     1,300                4,800
                                                              ---------------     ----------------
          Total current deferred tax assets (liabilities)              95,800               68,200
          Valuation allowance                                         (95,800)             (68,200)
                                                              ---------------     ----------------
       Net current deferred tax assets (liabilities)          $          -        $           -
                                                              ===============     ================

       Long-term deferred tax assets (liabilities):
          Unrealized loss on investment                       $          -        $        485,700
          Intangible asset                                             25,700               14,100
          Depreciation                                                 46,800               72,600
          Net operating loss carry-forwards                         3,445,500            2,739,800
                                                              ---------------     ----------------
          Total long-term deferred tax assets (liabilities)         3,518,000            3,312,200
       Valuation allowance                                         (3,518,000)          (3,312,200)
                                                              ---------------     ----------------
       Net long-term deferred tax asset (liability)           $          -        $           -
                                                              ===============     ================
</TABLE>
                                      F-22
<PAGE>
















                     PRIME COMPANIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


         The Company will continue to assess the  realizability  of the deferred
         tax assets in future  periods.  The  valuation  allowance  increased by
         $233,600  and  $175,000 during the years ended  December  31, 2001  and
         2000 respectively.

         As of  December  31,  2001,  the  Company  has  available  federal  net
         operating  loss carry  forwards for income tax purposes of  $8,300,000,
         which expire on various dates through 2021.  The Company has state  net
         operating loss carry  forwards of  $7,880,000,  which expire on various
         dates through 2011.  Due to the change in control of Prime, the benefit
         of the net operating losses generated by Prime prior to the acquisition
         by Worldnet will  be  significantly  limited  by  certain  consolidated
         return  filing regulations and limitations under  Section 382.


13.      EMPLOYEE DEFINED CONTRIBUTION PLAN:
         -----------------------------------

         Effective  January 1, 1998,  the Company  adopted a 401K Profit Sharing
         Plan (the "Plan") covering all employees. To be eligible to participate
         in the Plan,  employees must be age 21 and must complete at least 83.33
         hours of service per month for at least 6 months.  Contributions to the
         Plan are invested at the direction of the participant. The Company made
         matching  contributions  in the amount of $8,319 to the Plan during the
         year ended  December 31, 2000. No  contributions  were made to the plan
         during the year ended December 31, 2001.

14.      COMMITMENTS AND CONTINGENCIES:
         ------------------------------

         Leases: - The Company leases  operating  facilities and equipment under
         operating  leases which expire at various  dates  through  December 31,
         2006.  Facility  leases  provide  for  payment  of real  estate  taxes,
         insurance,  and maintenance  expenses by the Company. In addition,  the
         Yuba City facility lease is held by Mr. Bert Lima, President and CEO of
         the Company.  The rent paid to Mr. Lima was $20,160 and $16,367 for the
         years ended December 31, 2001 and 2000 respectively.

                 Year ending December 31,
                          2002                                   85,116
                          2003                                   63,461
                          2004                                   36,971
                          2005                                   27,753
                          2006                                    3,308
                                                       ----------------
                                                       $        216,609
                                                       ================

         Rent   expense   totaled   $62,340   and  $49,246  for  2001  and  2000
         respectively.


         Employment Contracts
         --------------------

         In September 2000, the Company executed employment agreements with both
         the President/CEO and CFO. The contracts are effective retroactively to
         January 1, 2000 for a period of three  years  with an annual  salary of
         $100,000 for each officer.  The contracts extend on an annual basis and
         may be cancelled by either party with 3 months written  notice.  A nine
         month salary severance  package is included in the contracts should the
         officers be terminated.

                                   F-23
<PAGE>




                     PRIME COMPANIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


         Purchase commitments:
         ---------------------

         In May 2000, the Company  signed an agreement with Alcatel,  a supplier
         for LMDS. As part of the  agreement,  the Company opened a bank account
         supporting  a letter of credit with  Alcatel.  The  agreement  mandates
         terms such as shipping,  payment transfers and vendor support policies.
         There  are no  requirements  for the  Company  obligating  them to make
         future purchases. Prior to December 31, 2001 the agreement had expired.


         Litigation and other claims
         ---------------------------

         During  the  year  ended  December  31,  2000,  the  Company   received
         correspondence   from  two  unrelated  parties   concerning   potential
         guarantees  by Prime for leases  entered into by Mid Cal Express,  Inc.
         and Country Wide Truck Service.  The amounts involved are approximately
         $227,873 and $38,000,  respectively.  Attorneys for the Company  expect
         that the resolution of these issues will be favorable to the Company.

         In September  2000,  the Company  reached a settlement  in two lawsuits
         with former  officers and directors  seeking payment of $32,000 due for
         advances  made on  behalf  of the  Company.  The  Company  had  filed a
         cross-complaint  claiming the advances were capital  contributions  and
         was seeking to recover 4,500,000 shares of its common stock held by the
         plaintiff,  and to be  reimbursed  for  legal  fees  arising  from this
         action.  The settlement with the former officers and directors provides
         for the Company to receive  5,500,000  common  shares back from the two
         former   officers   for   cancellation.   In   addition,   the  Company
         disaggregated three of its eight LMDS  licenses  and assigned  half  of
         three  licenses,  with a total  net  book  value  of  $125,857  (net of
         accumulated amortization),  to an entity to be designated by the former
         officers.  Due to the  related  party  nature of the  transaction,  the
         Company  recorded the settlement  based on its historical  cost because
         recording the  transaction at the fair market value of the shares would
         have resulted in a material gain between related parties.



                                      F-24

<PAGE>



















                     PRIME COMPANIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



15.      SEGMENT REPORTING:
         ------------------

         The Company  has  identified  its  segments  based upon its  geographic
         operations.  These  segments are  represented  by each of the Company's
         individual  legal  entities:  Prime  Companies,   Inc.(Prime),  Prepaid
         Tel.com    Inc.(Prepaid),    Nacc-Tel    Corp.(Nacc-Tel),    and   LMDS
         Communications,  Inc.(LMDS). Segment operations are measured consistent
         with  accounting   policies  used  in  these   consolidated   financial
         statements. Segment information is as follows:


<TABLE>
<CAPTION>


                                              December 31, 2001
                                              -----------------

                                Prime          Prepaid      Nacc-Tel        LMDS
                            ------------    ------------  ------------  ------------

<S>                         <C>             <C>           <C>           <C>
 Revenues                   $        235    $     52,672  $    355,873  $     46,422
                            ============    ============  ============  ============
 Gross Margin                        14%             57%           64%        -
                            ============    ============  ============  ============
 Selling, G&A Expense       $    873,248    $     83,260  $    272,892  $    297,824
                            ============    ============  ============  ============
 Interest Income            $      1,829    $        171  $        647  $        127
                            ============    ============  ============  ============
 Interest Expense           $      7,040    $     -       $      1,171  $     -
                            ============    ============  ============  ============
 Other Income               $      6,938    $     -       $     17,782  $     -
                            ============    ============  ============  ============
 W/O Deferred Offering Cost $    882,911    $     -       $       -     $     -
                            ============    ============  ============  ============
 Extraordinary Gain         $    699,340    $     -       $       -     $     -
                            ============    ============  ============  ============




</TABLE>
</CAPTION>
                                         F-25
<PAGE>
<TABLE>
<CAPTION>






















                     PRIME COMPANIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                              December 31, 2000
                                              -----------------

                                Prime          Prepaid      Nacc-Tel        LMDS
                            ------------    ------------  ------------  ------------

<S>                         <C>             <C>           <C>           <C>
 Revenues                   $      -        $     15,219  $    476,416  $        400
                            ============    ============  ============  ============
 Gross Margin                      -                 42%           51%        -
                            ============    ============  ============  ============
 Selling, G&A Expense       $  1,395,916    $     68,028  $    310,591  $    157,288
                            ============    ============  ============  ============
 Interest Income            $     38,696    $      3,605  $      2,345  $         16
                            ============    ============  ============  ============
 Interest Expense           $     73,091    $     -       $      6,406  $     -
                            ============    ============  ============  ============
 Other Income (Expense)     $       (134)   $     -       $      1,827  $     -
                            ============    ============  ============  ===========
 Extraordinary Loss         $  1,852,595    $     -       $       -     $     -
                            ============    ============  ============  ============

</TABLE>



16.     SUBSEQUENT EVENTS:
         -----------------

         In January 2002 the  Company conveyed 6,500  shares  of  its  Series  A
         Convertible preferred shares  to the  principals  of its communications
         law firm in satisfaction of $65,000 owed to the law  firm for  services
         rendered in 1999, 2000, and 2001. These shares are convertible into the
         Company's common shares at a conversion price of $0.10 per share.

         In February  2001,  the Company  submitted an application to the United
         States  Department of Agriculture  Rural  Utilities  Service for  a  $5
         million  broadband loan.  The  loan application was approved in January
         2002, and the Company received the loan documents on April 12, 2002 for
         its execution.

         In February 2002 the Company submitted two applications for grants from
         the Virginia Tobacco Commission for the development of fixed  broadband
         wireless services in two rural communities in  Virginia.  If  approved,
         the Company will receive over  $1  million  from  these  two grants.










                                      F-26