U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2000
Commission File No. 1-11282
PRIMELINK SYSTEMS, INC.
-----------------------------------------------
(Name of Small Business Issuer in Its Charter)
Delaware 72-1186845
- ----------------------------------- -------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
10135 Hereford Road, Folsom, Louisiana 70437
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(504) 796-5806
- --------------------------------------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
- --------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Check whether the issuer (1) has 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 issuer was required to file such reports, and (2)
has been subject to such filing requirements for the past 90 days.
Yes __X___ No _____
APPLICABLE ONLY TO USERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the issuer filed all documents and reports required to be
filed by section 12, 13, or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes _____ No ____
1
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 5,650,030 shares of Common
Stock at August 11, 2000.
2
PRIMELINK SYSTEMS, INC.
INDEX
-----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Balance Sheets - June 30, 2000 and December 31, 1999
Statement of Operations - Three Months Ended June 30, 2000, and Three Months
Ended Jume 30, 1999; Six Months Ended June 30, 2000, and Six Months Ended Jume
30, 1999.
Statements of Cash Flows - Six Months Ended June 30, 2000 and Six Months Ended
June 30, 1999.
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
3
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
PRIMELINK SYSTEMS, INC.
BALANCE SHEETS
ASSETS
------
June 30, December 31,
2000 1999
---- ----
(unaudited)
CURRENT ASSETS:
Cash and short term investments $ 960,432 $ 9,794
Accounts receivable (net of allowance of $109,417 at
June 30, 2000 and $60,668 at December 31, 1999) 867,546 657,769
Unbilled Receivables 25,000 61,392
Advances to Shareholders 154,052 38,075
Work In Progress - Propriety System 660,242 --
Prepaid Expenses 15,203 15,203
-------------- -----------
Total current assets 2,682,475 782,233
PROPERTY, PLANT, AND EQUIPMENT, net 610,934 565,095
NOTE RECEIVABLE FROM STOCKHOLDER 42,500 42,500
OTHER ASSETS (net of $25,930 of accumulated amortization at
June 30, 2000) 242,068 3,173
-------------- -----------
$ 3,577,977 $ 1,393,001
============== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 1,007,899 $ 341,844
Notes payable 472,256 612,943
Advances from stockholders --- ---
-------------- -----------
Total current liabilities 1,480,155 954,787
LONG-TERM LIABILITIES:
Notes payable 206,276 245,699
-------------- -----------
Total Liabilities 1,686,431 1,200,486
-------------- -----------
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, 10,000,000 shares authorized,
5,650,030 and 4,530,487 issued and outstanding as of June 30, 2000
and December 31, 1999, respectively 5,651 4,530
Additional paid-in-capital 5,087,351 4,124,601
Treasury Stock (3,000)
Retained earnings (deficit) (3,198,456) (3,936,616)
-------------- -----------
1,891,546 192,515
-------------- -----------
$ 3,577,977 $ 1,393,001
============== ===========
The accompanying notes are an integral part of these
financial statements.
4
PRIMELINK SYSTEMS, INC.
STATEMENT OF OPERATIONS
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
SALES $ 1,186,839 $ 319,126 $ 4,059,200 $ 462,693
COST OF SALES 620,613 116,414 2,759,397 240,752
------------- ------------ ------------- -----------
Gross profit 566,226 202,712 1,299,803 221,941
OPERATING EXPENSES:
Operating 138,499 40,917 222,522 88,744
General and administrative 151,644 14,151 398,600 60,392
------------- ------------ ------------- -----------
Operating Income (loss) 276,083 147,644 678,681 72,805
OTHER INCOME (EXPENSES):
Gain on Sale of Property and Equipment -- -- -- --
Interest (14,161) (28,298) (35,802) (48,204)
Other -- -- -- --
------------- ------------ ------------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 261,922 119,346 647,759 24,601
INCOME TAX PROVISION -- -- -- --
------------- ------------ ------------- -----------
INCOME (LOSS) FROM CONTINUING
OPERATIONS 261,922 119,346 647,759 24,601
EXTRAORINARY ITEM :
Gain on Extinguishment of Debt 81,500 -- 90,399 --
NET INCOME (LOSS) 343,422 119,346 738,158 24,601
NET INCOME PER SHARE :
Income from Continuing Operations .05 .03 .13 .01
Extraordinary Item .02 -- .02 --
Net Income (Loss) $ .07 $ .03 $ .15 $ .01
============== =========== ============= ============
AVERAGE COMMON SHARES OUTSTANDING 5,299,030 3,950,224 5,152,425 3,950,224
============== =========== ============= ============
The accompanying notes are an integral part of these
financial statements.
5
PRIMELINK SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended
June 30,
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $ 738,158 $ 24,601
Adjustments to reconcile net income to
Net cash peovided (used) by operating activities
Depreciation 57,497 29,706
Amortization 25,930 --
Gain on Long-Term Debt Conversion to Equity (90,399) --
Gain (Loss) on sale of assets (4,880) --
Decrease (increase) in :
Accounts receivable, net (209,777) (46,545)
Unbilled Receivables 36,392 --
Advances to Shareholders (115,977) --
Prepaid assets -- 22,759
Work in Progress (660,242) --
Increase (decrease) in -
Accounts payable and accrued liabilities 1,223,435 (11,216)
Borrowings from stockholders -- 1,680
------------ ------------
Net cash provided (used) by operating activities 1,000,137 20,985
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant, and equipment (61,920) (204,456)
Acquisition of stock (3,000)
Proceeds from sale of property 4,880 --
Increase in Deposits (75,000) --
Increase in Other Assets (6,239) --
-------------- ------------
Net cash provided (used) by investing activities (141,279) (204,456)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of Common Stock 143,557 --
Net Proceeds from Issuance of Long-Term Debt 102,522 270,000
Repayment of notes payable (154,299) (55,891)
------------- ------------
Net cash provided (used) by financing activities 91,780 214,109
Net increase (decrease) in cash 950,638 30,638
CASH AND SHORT-TERM ------------- ------------
INVESTMENT AT BEGINNING OF PERIOD $ 960,432 53,787
CASH AND SHORT-TERM ============= ============
INTEREST PAID $ 35,801 $ 28,298
============= ============
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES:
Notes Payable and accrued interest for common stock and additional paid-in capital 160,998 --
Common stock and additional paid-in capital exchanged for property, equipment, and
other assets 225,000 --
Accounts Payable exchanged for common stock and additional paid-in capital 524,715 --
The accompanying notes are an integral part of these financial statements
6
PRIMELINK SYSTEMS, Inc.
Notes To Financial Statements
(unaudited)
1. Basis of Presentation:
---------------------
The financial information included herein reflects all adjustments
which are in the opinion of management, necessary for a fair statement
of results for the periods. All such adjustments, in the opinion of
management, are of normal recurring nature.
The results of operations for the six months ended June 30, 2000, are
not necessarily indicative of the results to be expected for the full
year.
2. Property, Plant, and Equipment:
------------------------------
Property, plant, and equipment consist primarily of assets used for the
underground construction business. The balance of property, plant, and
equipment, stated at cost less accumulated depreciation, is as follows:
Estimated Years June 30, 2000 December 31, 1999
(Lives)
Land -- $ 27,000 $ 27,000
Buildings and Improvements 10 to 30 18,370 18,370
Equipment 5 to 7 611,257 632,964
Vehicles 5 209,636 84,593
--------- ---------
$ 866,263 $ 762,927
Accumulated Depreciation
---------- ----------
$ 610,934 $ 565,095
========== ==========
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
---------------------------------------------------------
The following is management's discussion and analysis of certain
significant factors which have affected the Company's financial position and
operating results during the periods included in the accompanying condensed
financial statements.
Introduction
During 1998 the Company discontinued its prior operations (under the name
Pacesetter Ostrich Farm, Inc.) and simultaneously began operations in the
underground construction business. The Company temporarily operated under the
registered trade name Pacesetter Communications. On February 14, 2000, the
Company completed its official corporation name change to PrimeLink Systems,
Inc. The Company to date has been exclusively engaged in underground placement
of telecommunications systems. Although most of its business relates to
placement of fiber optic cable, the Company has placed other types of
communications cable such as television cable. The Company has continually
attracted and obtained the services of experienced personnel recognized within
the industry in developing its management team. Management believes this has
been a major factor in facilitating the substantial growth in the Company's
operating results for 1999 and 2000.
Results of Operations
For the calendar quarter ended June 30, 2000, sales increased by $867,713
from $319,126 for the quarter ended June 30, 1999 to $1,186,839 for the quarter
ended June 30, 2000. Sales increased from $462,693 for the six months ended June
30, 1999, to $4,059,200 for the six months ended June 30, 2000. The revenues
during the current period represent the results in the current period of the
Company's operations mostly as a general contractor compared to the prior year
figure which reflected the Company's operations which were based completely on
sub-contractor work.
Cost of sales increased from $116,414 for the quarter ended June 30, 1999,
to $620,613 for the quarter ended June 30, 2000. For the six months ended June
30, 1999 and 2000, cost of sales increased from $240,752 to $2,759,397
respectively resulting from the substantial increase in the volume of business
in the current quarter as previously described.
The Company's gross profit increased from $202,712 for the quarter ended
June 30, 1999 to $566,226 for the quarter ended June 30, 2000, representing an
increase of $363,514. For the six months ended June 30, 1999 and 2000, gross
profit increased from $221,941 to $1,299,803 respectively resulting from the
substantial increase in the volume of business in the current quarter as
previously described. Additionally, the Company was
8
still engaged in staffing and training in the prior year's quarter and did not
generate a significant amount of construction revenue as a result of such
activities associated with a new line of business.
Operating expenses increased from $40,917 for the quarter ended June 30,
1999, to $138,499 for the quarter ended June 30, 2000, representing an increase
of $97,582. Operating expenses increased from $88,744 for the six months ended
June 30, 1999, to $222,522 for the six months ended June 30, 2000, representing
a increase of $133,778. Such differences represent the substantial increase in
the volume of the Company's operations as a general contractor in the current
period compared to the same quarter a year ago when the Company was just gaining
recognition in the industry but was only operating as a sub-contractor. General
and administrative expenses increased from $14,151 for the quarter ended June
30, 1999 to $151,644 for the quarter ended June 30, 2000, representing an
increase of $137,493. General and administrative expenses also increased from
$60,392 for the six months ended June 30, 1999, to $398,600 for the six months
ended June 30, 2000, representing an increase of $338,208. These increases again
reflect the substantial increase in volume of business previously described.
However, with respect to general and administrative expenses, the Company's
officers had maintained reduced salaries during 1999 as the Company began a new
line of business. During 2000, these officers have restored portions of their
salaries as well as expanded the administrative staff in accordance with
increases in sales and cash flows.
The Company incurred a net profit from continuing operations of $261,922,
or $0.05 per share, for the quarter ended June 30, 2000, compared to $119,346 or
$0.03 per share, for the same quarter a year ago. The Company recorded an
extraordinary gain of $81,500, or $0.02 per share, resulting from the
extinguishment of the remaining $55,000 of its 1998 private placement debt and
accrued interest in exchange for 55,000 shares of restricted common stock. The
Company incurred an overall net profit of $738,158, or $0.15 per share, for the
six months ended June 30, 2000, compared to 24,601 or $0.01 for the six months
ended June 30, 1999. During the quarter ended June 30, 1999, the Company was
still developing its operations staff, obtaining new licenses and business
qualifications, and becoming known within a new industry. At that time, the
Company was exclusively engaged in sub-contract work. Since that time the
Company has continually increased its sales and improved its results of
operations. Currently, the Company is engaged almost exclusively in general
contractor work based mostly on work awarded through competitive bids. However,
the Company is negotiating projects and expects to further improve its volume of
business and therefore its results of operations as it increases the portion of
its business which is negotiated.
9
Liquidity and Capital Resources
The Company incurred substantial losses from its prior operations (see 1998
and 1999 10-KSB) for several years. Since entering the telecom services business
in 1998, the Company has continually improved its cash flows and has now
satisfied all of its prior obligations. In accordance with its prior year
losses, the Company has for tax reporting purposes net operating loss
carryforwards of approximately $4.1 million which expire in 2007 through 2015.
At this time the Company has not recorded a net tax benefit from these loss
carryforwards. However, the tax loss carryforwards are available for use against
the Company's profits from its telecom services business, subject to certain
potential limitations. At this time no such limitations have impacted the
Company such that a provision for income taxes would be deducted from current
earnings.
Net cash provided by operating activities was $1,000,137 for the quarter
ended June 30, 2000 compared to cash provided of $20,985 for the quarter ended
June 30, 1999, mostly as a result of the increase in net income in the current
quarter compared to a year ago. Cash used by investing activities decreased from
$204,456 to $141,279 reflecting the decrease in equipment acquisitions related
to the construction business from the prior period. Net cash provided by
financing activities decreased from cash provided of $214,109 for the quarter
ended June 30, 1999 to cash provided of $91,780 for the quarter ended June 30,
2000, reflecting both proceeds from and repayments of notes payable related to
the expansion of the Company's newly created construction business. Cash and
short term investments for the Company increased from $53,787 at June 30, 1999
to $960,432 at June 30, 2000, reflecting the differences described above.
As of December 31, 1999, under the Company's 1992 Incentive Stock Option
Plan, a total of 144,500 options were issued and unexcercised. Additionally, as
of December 31, 1999, a total of 1,767,000 nonqualified options were issued and
outstanding. During the quarter ended March 31, 2000, a total of 20,500 options
from the 1992 Plan and 100,000 of the additional options were exercised by
employees of the Company. During the quarter ended June 30, 2000, a total of
232,000 shares of options were exercised by three key employees of the Company
of which 82,000 shares were from the Company's 1992 Incentive Stock Option Plan
with the remaining 150,000 shares representing non-qualifying options.
Inflation
Inflation has not had a material effect on the operations of the Company in
the past. At the present time there is a substantial doubt that such conditions
will adversely effect the Company for the foreseeable future.
10
Cautionary Statement
This report includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. All statements other than statements of historical fact
included in this report, including, without limitation, the statements under the
headings Managements Discussion and Analysis or Plan of Operation regarding the
Company's results of operations, liquidity and capital resources, future
development and production levels, business strategies, and other plans and
objectives of management of the Company for future operations and activities,
are forward-looking statements. Although management of the Company believes that
the expectations reflected in such forward-looking statements are reasonable, it
can give no assurance that such expectations will prove to be correct. These
statements are based on certain assumptions and analyses made by the Compnay in
light of its experience and its perception of historical trends, current
conditions, expected future developments and other factors it believes are
appropriate under the circumstances. Such statements are subject to a number of
assumptions, risks and uncertainties, including the risk factors discussed
below, the Company's other filings with the Securities and Exchange Commission,
general economic and business conditions, business opportunities that may be
presented to and pursued by the Company, changes in law or regulations, and
other factors, many of which are beyond the control of the Company. Readers are
cautioned that any such statements are not guarantees of future performance and
the actual results or developments may differ materially from those projected in
the forward-looking statements. All subsequent writtten and oral forward-looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by these cautionary statements. Important
factors that could cause actual results to differ materially include, among
others:
o Fluctuations in the market price and/or availability of underground
construction work.
o Shortages in availability of qualified personnel.
o Legal and financial implications of an unexpected catastrophic event
which may be associated with the Company's underground construction
operation.
o General domestic and international economic and political conditions.
o Unexpected weather conditions including but not limited to droughts,
flooding, or other extreme acts of nature where the company conducts
its business and/or operations.
ITEM 7. FINANCIAL STATEMENTS
--------------------
The financial statements and supplementary data are included under Item
13(a)(1) and (2) of this Report.
11
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None.
12
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
The Company completed its annual shareholder meeting on June 20, 2000, at
2:00 local time in Covington, Louisiana for the purpose of electing the Board of
Directors and ratifying the Company's independent accountant. Based on a total
of 4,614,403 common shares as of the record date, the results of this meeting
are as follows:
Elect Directors: For Against Abstain Not Cast
- --------------------------------------- ------------------------- -------------------------- -------------------- ---------------
John R. Wade 2,535,291 0 0 2,079,112
- --------------------------------------- ------------------------- -------------------------- -------------------- ---------------
Bobbie R. Clemons 2,535,291 0 0 2,079,112
- --------------------------------------- ------------------------- -------------------------- -------------------- ---------------
Walter R. Green, Jr. 2,535,291 0 0 2,079,112
- --------------------------------------- ------------------------- -------------------------- -------------------- ---------------
Walter J. Ostteen 2,535,291 0 0 2,079,112
- --------------------------------------- ------------------------- -------------------------- -------------------- ---------------
Danny J. Majors 2,535,291 0 0 2,079,112
- --------------------------------------- ------------------------- -------------------------- -------------------- ---------------
- --------------------------------------- ------------------------- -------------------------- -------------------- ---------------
Ratify Independent Accountants 2,534,291 0 2,400 2,077,712
- --------------------------------------- ------------------------- -------------------------- -------------------- ---------------
13
SIGNATURE
---------
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized on this 14th day of August, 2000.
PRIMELINK SYSTEMS, INC.
By:S/S Walter Reid Green, Jr.
----------------------
Walter Reid Green, Jr.
Financial and Accounting
Officer
14