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 March 31, 2001
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 Identification No.)
Incorporation or Organization)
10135 Hereford Road, Folsom, Louisiana 70437
(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
--- ---
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: 6,066,223 shares of Common
Stock at May 10, 2001.
PRIMELINK SYSTEMS, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Balance Sheets - March 31, 2001, and December 31, 2000
Statement of Operations - Three Months Ended March 31, 2001, and Three Months
Ended March 31, 2000
Statements of Cash Flows - Three Months Ended March 31, 2001, and Three Months
Ended March 31, 2000
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
PRIMELINK SYSTEMS, INC.
BALANCE SHEETS
ASSETS
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March 31, December 31,
2001 2000
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(unaudited)
CURRENT ASSETS:
Cash and short term investments $ 56,672 6,713
Accounts receivable (net of allowance of $109,417 at
March 31, 2001, and December 31, 2000) 2,582,609 1,182,771
Costs and Estimated Earnings in Excess of
Billings on Uncompleted Contracts 1,137,285 1,071,122
Work In Progress 8,057,101 7,588,369
Advances to Shareholders 23,822
29,524
Deferred Tax Asset 375,874 375,874
Prepaid Expenses 21,717 25,550
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Total Current Assets 12,260,782 10,274,221
PROPERTY, PLANT, AND EQUIPMENT, net 902,930 932,649
NOTES RECEIVABLE FROM STOCKHOLDER 42,500 42,500
OTHER ASSETS (net of accumulated amortization of
$71,394 at March 31, 2001 and $56,095 at December 31,2000) 190,364 205,663
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$13,396,576 $11,455,033
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The accompanying notes are an integral part of these financial statements.
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 8,826,538 $ 7,721,390
Notes payable 1,241,767 540,606
Due to Affiliates 109,886 209,886
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Total current liabilities 10,178,191 8,471,882
LONG-TERM LIABILITIES:
Notes payable 259,406 299,465
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Total Liabilities 10,437,597 8,771,347
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STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, 10,000,000 shares authorized,
6,066,223 and 6,025,723 issued and outstanding as of
March 31, 2001, and December 31, 2000 respectively 6,066 6,025
Additional paid-in-capital 5,503,488 5,376,341
Retained earnings (deficit) (2,547,575) (2,695,680)
Less: Cost of Treasury Shares (2,000) (3,000) (3,000)
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2,958,979 2,683,686
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$ 13,396,576 $ 11,455,033
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The accompanying notes are an integral part of these financial statements.
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PRIMELINK SYSTEMS, INC.
STATEMENT OF OPERATIONS
(unaudited)
Three Months Ended
March 31,
2001 2000
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SALES $ 2,068,141 $ 2,872,361
COST OF SALES 1,533,838 2,138,785
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Gross profit 534,303 733,576
OPERATING EXPENSES:
Operating 142,724 85,549
Selling, General and administrative 216,121 245,930
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Operating Income (loss) 175,458 402,097
OTHER INCOME (EXPENSES):
Gain on Sale of Property and Equipment -- 4,880
Other Income
Interest Expense (27,354) (21,639)
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INCOME BEFORE INCOME TAXES 148,104 385,338
INCOME TAX PROVISION -- --
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INCOME FROM CONTINUING OPERATIONS 148,104 385,338
EXTRAORDINARY ITEM:
Gain on Extinguishment of Debt (Net of Income Tax of $0) -- 8,899
NET INCOME $ 148,104 $ 394,237
=========== ===========
NET INCOME PER SHARE:
Income from Continuing Operations .02 .08
Extraordinary Item .00 .00
Net Income $ .02 $ .08
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AVERAGE COMMON SHARES OUTSTANDING 6,033,373 5,004,162
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The accompanying notes are an integral part of these financial statements.
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PRIMELINK SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended
March 31,
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 148,104 $ 394,237
Adjustments to reconcile net income to
net cash provided (used) by operating activities:
Depreciation and Amortization 60,585 37,945
Increase in Accounts Receivable, Net (1,415,266) (1,088,719)
(Increase) Decrease in Unbilled Receivables 15,428 (374,179)
Increase in Costs and Estimated Earnings in Excess of Billings (66,163) --
Increase in Work In Progress (441,544) --
Gain on Sale of Property and Equipment -- (8,899)
Gain on Converting Long-Term Debt to Equity -- (4,880)
Increase in Accounts Payable and Accrued Liabilities 1,105,149 1,373,531
Increase in Advances to Stockholders (5,702) (24,975)
Decrease in Prepaid Expenses 3,833 --
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Net cash provided (used) by operating activities (595,576) 304,061
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant, and equipment (15,567) (3,813)
Proceeds from Sale of Property -- 4,880
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Net cash provided/(used) by investing activities (15,567) 1,067
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of Common Stock -- 24,875
Acquisitions of Treasury Stock -- (3,000)
Proceeds from Issuance of Long-Term Debt 1,045,000 75,000
Repayment of Notes Payable (383,898) (120,941)
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Net cash provided (used) by financing activities 661,102 (24,066)
Net increase in cash 49,959 281,062
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CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF PERIOD 6,713 9,794
CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 56,672 $ 290,856
=========== ===========
INTEREST PAID $ 27,354 $ 21,639
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The accompanying notes are an integral part of these financial statements.
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PRIMELINK SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended
March 31,
2001 2000
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES:
Notes Payable and accrued interest for common stock and additional paid-in capital $ -- $105,998
Common stock and additional paid-in capital exchanged for
property, equipment, and other assets $ -- $225,000
Advances from affiliates exchanged for common stock and paid-in-capital $100,000 $ --
Accounts Payable exchanged for common stock and paid-in-capital $ 27,188 $ --
The accompanying notes are an integral part of these financial statements.
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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 three months ended March 31, 2001,
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 in the
underground construction business. The balance of property, plant, and
equipment, stated at cost less accumulated depreciation, is as follows:
Estimated Lives March 31, December 31,
(yrs) 2001 2000
Land -- $ 27,000 $ 27,000
Buildings and Improvements 10 to 30 25,193 20,093
Furniture and Equipment 5 to 7 976,579 966,111
Vehicles 5 245,346 245,346
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$ 1,274,118 $ 1,258,550
Accumulated Depreciation
(371,188) (325,901)
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$ 902,930 $ 932,649
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3. Income Taxes
------------
For tax reporting purposes the Company had, at December 31, 2000, net
operating loss carryforwards of approximately $3.04 million which
expire in 2007 through 2016.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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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.
During 2000, the Company began developing its own underground fiber
optic conduit systems (proprietary networks) in addition to building
such systems for customers as a telecommunications contractor.
Management's intention is to market the Company's proprietary networks
to many of the same customers for which it performs contracted
services. The Company's goal is to take advantage of the economies of
scale which exist in the construction of multiple conduit fiber
systems, and to pass a portion of these benefits on to its customers
while improving margins for the Company as well.
Results of Operations
For the calendar quarter ended March 31, 2001, sales decreased
by $804,220 from $2,872,361 for the quarter ended March 31, 2000 to
$2,068,141 for the quarter ended March 31, 2001, or approximately 28%.
Such decreases in revenues represent delays experienced in both
starting and completing work in the current quarter related to
inclimant weather, delays in the customers' receipt of certain building
permits, and delays caused by engineering reroutes. The Company's gross
profit for the quarter ended March 31, 2001, was $534,303, compared to
$733,576 for the quarter ended March 31, 2000, representing a decrease
of $199,273, or approximately 27%. Gross profits as a percentage of
sales remained consistent at approximately 25% of sales for both the
current quarter ended March 31, 2001, and the same quarter in the prior
year, further illustrating the effects that the delays previously
described had on the Company's operations.
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Operating expenses increased from $85,549 for the quarter
ended March 31, 2000 to $142,724 for the quarter ended March 31, 2001,
representing an increase of $57,175, or approximately 67%. Such
differences represent the overall increase in the Company's operations
in the current period as management has continually increased its
operations capacity in preparation for continued increases in the
volume of business it conducts. General and administrative expenses
decreased by $29,809, or 12%, from $245,930 for the quarter ended March
31, 2000 to $216,121 for the quarter ended March 31, 2001. These
decreases reflect certain administrative costs which occurred during
the prior quarter related to establishing the Company's ability to
perform work as a telecommunications contractor in numerous states (the
Company has become qualified in 43 states since a year ago) which were
not as substantial in the current quarter.
The Company incurred a net profit of $148,104 or $0.02 per
share for the quarter ended March 31, 2001, compared to a net profit of
$394,237 or $0.08 per share for the quarter ended March 31, 2000. The
reductions in net profits for the quarter ended March 31, 2001, were
mostly attributable to certain operational delays caused by external
factors as previously described. Such delays resulted in the Company
recognizing similar gross profit margins on a lower volume of business
in its current operations as compared to the same quarter in the prior
year. Since the Company had prepared to complete a greater volume of
work in the quarter, it also incurred higher operating costs than in
the prior period due to the delays described.
Liquidity and Capital Resources
Since entering the telecommunications service business in
1998, the Company has continually improved its cash flows based on its
results of operations. As of December 31, 2000, the Company had for tax
reporting purposes net operating loss carryforwards of approximately
$3.04 million which expire in 2007 through 2016. Such tax loss
carryforwards were produced in conjunction with its pre-1998 business
which was not related to any of its telecommunications business. At
this time the Company has only recorded a deferred tax asset for a
portion of the 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 used by operating activities was $595,576 for the
quarter ended March 31, 2001, compared to cash provided of $304,061 for
the quarter ended March 31, 2000, mostly as a result of the increase in
accounts receivable and work in progress in the current quarter, as
well as reductions in net income, compared to the same period in the
prior year. Cash (used)/provided by investing activities decreased from
cash provided of $1,067 to cash used of $(15,567) reflecting increases
in equipment acquisitions in the current quarter in excess of such
acquisitions in the prior period. Net cash provided/(used) by financing
activities increased from cash used of $(24,066) for the quarter ended
March 31, 2000 to cash provided of $661,102 for the quarter ended March
31, 2001, reflecting substantial increases in proceeds from notes
payable related to the expansion of the Company's working capital lines
of credit during the current quarter. Cash and short term investments
for the Company decreased from $290,856 at March 31, 2000 to $56,672 at
March 31, 2001, reflecting the differences described above.
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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.
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.
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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 FINANCIAL DISCLOSURE
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None.
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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 15th day of May, 2001.
PRIMELINK SYSTEMS, INC.
By: S/S Walter Reid Green, Jr.
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Walter Reid Green, Jr. Financial and
Accounting Officer
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