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 September 30, 2000
Commission File No. 1-11282
PRIMELINK SYSTEMS, INC.
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(Name of Small Business Issuer in Its Charter)
Delaware 72-1186845
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
10135 Hereford Road, Folsom, Louisiana 70437
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(Address of Principal Executive Offices) (Zip Code)
(504) 796-5806
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(Issuer's Telephone Number, Including Area Code)
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(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
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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 ____
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: 5,650,882 shares of Common
Stock at November 10, 2000.
PRIMELINK SYSTEMS, INC.
INDEX
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Balance Sheets - September 30, 2000 and December 31, 1999
Statement of Income - Three Months Ended September 30, 2000, and Three Months
Ended September 30, 1999; Nine Months Ended September 30, 2000, and Nine Months
Ended September 30, 1999
Statements of Cash Flows - Nine Months Ended September 30, 2000 and Nine Months
Ended September 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 6. Exhibits and Reports on Form 8-K:
(a) The following exhibit is filed herewith:
Exhibit No. Description
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27 Financial Data Schedule
2
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
PRIMELINK SYSTEMS, INC.
BALANCE SHEETS
ASSETS
September 30, December 31,
2000 1999
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unaudited)
CURRENT ASSETS:
Cash and short term investments $ 2,660 $ 9,794
Accounts receivable (net of allowance of $109,417 at
September 30, 2000 and $60,668 at December 31, 1999) 619,459 657,769
Unbilled Receivables 348,764 61,392
Advances to Shareholders 153,437 38,075
Work In Progress - Proprietary System 1,254,682 --
Prepaid Expenses 18,203 15,203
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Total current assets 2,397,205 782,233
PROPERTY, PLANT, AND EQUIPMENT, net 632,293 565,095
NOTE RECEIVABLE FROM STOCKHOLDER 42,500 42,500
OTHER ASSETS (net of $41,857 of accumulated amortization at
September 30, 2000) 279,646 3,173
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$ 3,351,644 $ 1,393,001
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 737,050 $ 341,844
Notes payable 374,558 612,943
Advances from stockholders -- --
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Total current liabilities 1,111,608 954,787
LONG-TERM LIABILITIES:
Notes payable 168,230 245,699
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Total Liabilities 1,279,838 1,200,486
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STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, 10,000,000 shares authorized,
5,650,882 and 4,530,487 issued and outstanding as of September 30,
2000 and December 31, 1999, respectively 5,651 4,530
Additional paid-in-capital 5,087,351 4,124,601
Treasury Stock (3,000)
Retained earnings (deficit) (3,018,196) (3,936,616)
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2,071,806 192,515
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$ 3,351,644 $ 1,393,001
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The accompanying notes are an integral part of these financial statements
3
PRIMELINK SYSTEMS, INC.
STATEMENT OF INCOME
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
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SALES $ 1,060,775 $ 718,778 $ 5,119,975 $ 1,181,471
COST OF SALES 479,492 339,865 3,238,890 580,618
----------- ----------- ----------- -----------
Gross profit 581,283 378,913 1,881,085 600,853
OPERATING EXPENSES:
Operating 92,126 63,560 314,627 160,927
General and administrative 297,466 97,958 696,087 158,569
----------- ----------- ----------- -----------
Operating Income 191,691 217,395 870,371 281,357
OTHER INCOME (EXPENSES):
Gain on Sale of property and Equipment -- -- 4,880 --
Interest (11,430) (25,327) (47,231) (73,531)
Other -- -- -- --
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INCOME BEFORE INCOME TAXES 180,261 192,068 828,020 207,826
INCOME TAX PROVISION -- -- -- --
----------- ----------- ----------- -----------
INCOME FROM CONTINUING
OPERATIONS 180,261 192,068 828,020 207,826
EXTRAORDINARY ITEM:
Gain on Extinguishment of Debt -- -- 90,399 --
NET INCOME 180,261 192,068 918,419 207,826
NET INCOME PER SHARE:
Income from Continuing Operations .03 .05 .15 .05
Extraordinary Item -- -- .02 --
Net Income $ .03 $ .05 $ .17 $ .05
=========== =========== =========== ===========
AVERAGE COMMON SHARES OUTSTANDING 5,650,882 3,952,988 5,320,325 3,951,145
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
4
PRIMELINK SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended
September 30,
2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $ 918,419 $ 207,826
Adjustments to reconcile Net Income to
Net cash provided (used) by operating activities:
Depreciation 90,718 61,310
Amortization 41,857 --
Gain on Long-Term Debt Conversion to Equity (90,399)
(Gain) Loss on sale of assets (4,880) --
Decrease (increase) in :
Accounts Receivable, net 38,311 (377,616)
Unbilled Receivables (287,373) --
Advances to Shareholders (115,362)
Prepaid Assets (3,000) 14,817
Work in Progress (1,254,682) --
Increase (decrease) in -
Accounts Payable and Accrued Liabilities 956,417 37,025
Borrowings from stockholders -- 3,480
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Net cash provided (used) by operating activities 290,027 (53,158)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Property, Plant, and Equipment (116,501) (220,912)
Proceeds from sale of property 4,880 --
Increase in Deposits (125,000) --
Increase in Other Assets (9,745) --
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Net cash provided (used) by investing activities (246,366) (220,912)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of Common Stock 143,557 248,792
Acquisition of Treasury Stock (3,000)
Net Proceeds from Issuance of Long-Term Debt 277,522 766,092
Repayment of Notes Payable (468,874) (692,455)
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Net cash provided (used) by financing activities (50,795) 322,429
Net increase (decrease) in cash (7,134) 48,359
CASH AND SHORT-TERM -- --
INVESTMENTS AT BEGINNING OF PERIOD 9,794 23,149
CASH AND SHORT-TERM
INVESTMENTS AT END OF PERIOD $ 2,660 $ 71,508
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INTEREST PAID $ 47,231 $ 73,531
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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
5
PRIMELINK SYSTEMS, Inc.
Notes To Financial Statements
(unaudited)
1. Basis of Presentation:
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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 nine months ended September 30, 2000, are not
necessarily indicative of the results to be expected for the full year.
2. Property, Plant, and Equipment:
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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 September 30, December 31,
(Lives) 2000 1999
Land -- $ 27,000 $ 27,000
Buildings and Improvements 10 to 30 20,093 18,370
Equipment 5 to 7 644,615 632,964
Vehicles 5 229,136 84,593
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$ 920,844 $ 762,927
Accumulated Depreciation
(288,551) (197,832)
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$ 632,293 $ 565,095
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6
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 September 30, 2000, sales increased by
$341,997, or 47.5%, from $718,778 for the quarter ended September 30, 1999 to
$1,060,775 for the quarter ended September 30, 2000. Sales increased by
$3,938,504 from $1,181,471 for the nine months ended September 30, 1999, to
$5,119,975 for the nine months ended September 30, 2000 representing an increase
of 333%. The revenues during the current period and current year to date
represent the results from the Company's operations consisting mostly as a
general contractor compared to the prior year figure which reflected the
Company's operations which were based mostly on sub-contractor work. Sequential
quarterly revenues did not substantially increase from the second to third
quarter while the Company began construction of its first proprietary network.
With this project, which is over 50% complete, management expects revenue growth
to resume in the fourth quarter. Additionally, the Company's Network Division
expects to begin recognizing sales in either the fourth quarter of 2000 or first
quarter of 2001.
The Company's proprietary network systems represent multi-duct systems
which are being constructed for multiple customers. In this manner, the Company
has pro-rated the fixed costs of excavation, engineering, and permitting over a
greater number of individual ducts than each customer would construct
separately. Because of this, the Company is able to share the cost savings with
the customer in the form of a purchase price that is lower than what the
customer could construct a system for , while at the same time improving its own
profit margins. The Company's first proprietary system, approximately 225 miles
long stretching between Shreveport and Lafayette, LA along Interstate 49, was
started during the prior quarter and is expected to be complete near year end.
The Company plans to begin recognition of revenues from the system immediately
upon completion. At this time management estimates it will begin to recognize
network sales from this system between the fourth calendar quarter of 2000 and
the first calendar quarter of 2001.
7
Cost of sales increased from $339,865, or 47.3% of sales, for the
quarter ended September 30, 1999, to $479,492, or 45.2% of sales, for the
quarter ended September 30, 2000. For the nine months ended September 30, 1999
and 2000, cost of sales increased from $580,618, or 49.1% of sales, to
$3,238,890, or 63.3% of sales, respectively resulting from the substantial
increase in the volume of business in the current quarter, which necessitated
the utilization of sub-contractors and the hiring of skilled personnel in
advance of anticipated growth.
The Company's gross profit increased from $378,913, or 52.7% of sales,
for the quarter ended September 30, 1999 to $581,283, or 54.8% of sales, for the
quarter ended September 30, 2000, representing an increase of $202,370. For the
nine months ended September 30, 1999 and 2000, gross profit increased from
$600,853, or 50.9% of sales, to $1,881,085, or 36.7% of sales, respectively
resulting from the substantial increase in the volume of business in the current
quarter as previously described.
Operating expenses increased from $63,560 for the quarter ended
September 30, 1999, to $92,126 for the quarter ended September 30, 2000,
representing an increase of $28,566, or 44.9%. Although expenses increased,
operating expenses stated as a percentage of sales remained nearly constant at
8.8% and 8.7% for the quarters ended September 30, 1999 and September 30, 2000
respectively. Operating expenses increased from $160,927 for the nine months
ended September 30, 1999, to $314,627 for the nine months ended September 30,
2000, representing an increase of $153,700, or 95.5%. 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. Additionally, a non-cash provision of $30,000 was made for
projected increases in insurance costs associated with the increased activity of
the Construction Division. General and administrative expenses increased from
$97,958, or 13.6% of sales, for the quarter ended September 30, 1999 to
$297,466, or 28.0% of sales, for the quarter ended September 30, 2000,
representing an increase of $199,508.
General and administrative expenses also increased from $158,569, or
13.4% of sales, for the nine months ended September 30, 1999, to $696,087, or
13.6% of sales, for the nine months ended September 30, 2000, representing an
increase of $537,518. 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.
Additionally, a non-cash provision of $60,000 was made for accrued employee
bonuses which account for 30% of the increase in general and administrative
expenses compared to the quarter ended September 30, 1999.
8
The Company incurred a net profit from continuing operations of
$180,261, or $0.03 per share, for the quarter ended September 30, 2000, compared
to $192,068 or $0.05 per share, for the same quarter a year ago. The Company
incurred an overall net profit of $918,419, or $0.17 per share, for the nine
months ended September 30, 2000, compared to $207,826 or $0.05 for the nine
months ended September 30, 1999. During the quarter ended September 30, 1999,
the Company was still developing its operations staff, obtaining new licenses
and business qualifications, and becoming known within the 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.
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
satisfied substantially 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. The Company does expect to begin accruing tax in the year 2001.
Net cash provided by operating activities was $290,027 for the quarter
ended September 30, 2000 compared to cash used of $53,158 for the quarter ended
September 30, 1999, mostly as a result of the increase in net income in the
current quarter compared to a year ago, offset however by the increase in Work
in Progress resulting from the construction of the Company's first proprietary
network. Cash used by investing activities increased from $220,912 to $246,366
reflecting the deposits for equipment and other assets associated with the
Company's continuing expansion of operations. Net cash provided by financing
activities decreased from cash provided of $322,429 for the quarter ended
September 30, 1999 to cash used of $50,795 for the quarter ended September 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 decreased from $71,508 at September 30,
1999 to $2,660 at September 30, 2000, reflecting the differences described
above.
9
The Company operates at this time on a combination of its existing cash
and its accounts receivable. It utilizes various short-term credit facilities
based on its contracts and accounts receivable to finance its current and
continual business. Additionally, the Company has financed the entire
construction cost of its first network system with its prime contractor for the
system. Such financing is collateralized solely by the system and calls for
pro-rata payments as sales of individual ducts occur. This has allowed
management to begin its first proprietary network system prior to establishing
an additional credit facility for its Network Division. The Company expects that
the completion of the System and the substantial sales it will generate will
allow future network systems to be constructed under more traditional credit
facilities, and replace the contractor financing utilized on the first system.
As of December 31, 1999, under the Company's 1992 Incentive Stock
Option Plan, a total of 144,500 options were issued and unexercised.
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. For the quarter ended September 30, 2000 the Company had outstanding
2,304,500 options to a total of 11 of its key employees.
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 affect the Company for the foreseeable future.
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 Company 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 written 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:
10
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
that 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
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The financial statements and supplementary data are included
under Item 13(a)(1) and (2) of this Report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
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FINANCIAL DISCLOSURE
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None.
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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Exhibit No. Description
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27 Financial Data Schedule
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 13th day of November, 2000.
PRIMELINK SYSTEMS, INC.
By: S/S Walter Reid Green, Jr.
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Walter Reid Green, Jr.
Financial and Accounting Officer