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, 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
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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
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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: 6,375,619 shares of Common
Stock at August 10, 2001.
PRIMELINK SYSTEMS, INC.
INDEX
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Balance Sheets - June 30, 2001, and December 31, 2000
Statement of Operations - Three Months Ended June 30, 2001 and Three Months
Ended June 30, 2000; Six Months Ended June 30, 2001, and Six Months Ended June
30, 2000
Statements of Cash Flows - Six Months Ended June 30, 2001, and Six Months Ended
June 30, 2000
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
PART II. OTHER INFORMATION
2
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
PRIMELINK SYSTEMS, INC.
BALANCE SHEETS
ASSETS
------
June 30, December 31,
2001 2000
----------- -----------
(unaudited)
CURRENT ASSETS:
Cash and short term investments $ 79,646 6,713
Accounts receivable (net of allowance of $109,417 at
March 31, 2001, and December 31, 2000) 3,682,710 1,182,771
Costs and Estimated Earnings in Excess of
Billings on Uncompleted Contracts 1,154,421 1,071,122
Work In Progress 8,178,504 7,588,369
Advances to Shareholders 23,822
37,584
Deferred Tax Asset 375,874 375,874
Prepaid Expenses 20,883 25,550
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Total Current Assets 13,529,622 10,274,221
PROPERTY, PLANT, AND EQUIPMENT, net 808,764 932,649
NOTES RECEIVABLE FROM STOCKHOLDER 42,500 42,500
OTHER ASSETS (net of accumulated amortization of
$86,693 at June 30, 2001 and $56,095 at December 31,2000) 150,065 205,663
----------- -----------
$14,530,951 $11,455,033
=========== ===========
The accompanying notes are an integral part of these financial statements.
3
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 10,052,298 $ 7,721,390
Notes payable 1,315,162 540,606
Due to Affiliates 109,886 209,886
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Total current liabilities 11,477,346 8,471,882
LONG-TERM LIABILITIES:
Notes payable 200,732 299,465
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Total Liabilities 11,678,078 8,771,347
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STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, 10,000,000 shares authorized,
6,081,223 and 6,025,723 issued and outstanding as of
June 30, 2001, and December 31, 2000 respectively 6,081 6,025
Additional paid-in-capital 5,518,473 5,376,341
Retained earnings (deficit) (2,668,681) (2,695,680)
Less: Cost of Treasury Shares (2,000) (3,000) (3,000)
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2,852,873 2,683,686
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$ 14,530,951 $ 11,455,033
============ ============
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,
2001 2000 2001 2000
----------- ----------- ----------- -----------
SALES $ 1,615,661 $ 1,186,839 $ 3,683,802 $ 4,059,200
COST OF SALES 1,286,669 620,613 2,820,507 2,759,397
----------- ----------- ----------- -----------
Gross profit 328,992 566,226 863,295 1,299,803
OPERATING EXPENSES:
Operating 101,404 138,499 220,523 222,522
Selling, General and administrative 304,998 151,644 544,724 398,600
----------- ----------- ----------- -----------
Operating Income (loss) (77,410) 276,083 98,048 678,681
OTHER INCOME (EXPENSES):
Gain on Sale of Property and Equipment (4,032) -- (4,032) 4,880
Other Income -- --
Interest Expense (39,664) (14,161) (67,019) (35,802)
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (121,106) 261,922 26,997 647,759
INCOME TAX PROVISION -- -- -- --
----------- ----------- ----------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS (121,106) 261,922 26,997 647,759
EXTRAORDINARY ITEM:
Gain on Extinguishment of Debt (Net of Income Tax of $0) -- 81,500 -- 90,399
NET INCOME (LOSS) $ (121,106) $ 343,422 $ 26,997 $ 738,158
=========== =========== =========== ===========
NET INCOME (LOSS) PER SHARE:
Income from Continuing Operations (0.02) 0.05 .01 .13
Extraordinary Item 0.00 0.02 .00 .02
Net Income (Loss) $ (0.02) $ 0.07 $ .01 $ .15
=========== =========== =========== ===========
AVERAGE COMMON SHARES OUTSTANDING 6,075,619 5,299,030 6,054,613 5,152,425
=========== =========== =========== ===========
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,
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 26,997 $ 738,158
Adjustments to reconcile net income to
net cash provided (used) by operating activities:
Depreciation and Amortization 120,827 83,427
Increase in Accounts Receivable, Net (2,515,365) (209,777)
Decrease in Unbilled Receivables 15,428 36,392
Increase in Costs and Estimated Earnings in Excess of Billings (83,300) --
Increase in Work In Progress (562,947) (660,242)
(Gain) Loss on Sale of Property and Equipment 4,031 (4,880)
Gain on Converting Long-Term Debt to Equity -- (90,399)
Increase in Accounts Payable and Accrued Liabilities 2,330,910 1,223,435
Increase in Advances to Stockholders (13,762) (115,977)
Decrease in Prepaid Expenses 4,667 --
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Net cash provided (used) by operating activities (672,514) 1,000,137
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant, and equipment (17,225) (61,920)
Proceeds from Sale of Property 46,849 4,880
Decrease (Increase) in Deposits 25,000 (75,000)
Increase in Other Assets -- (6,239)
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Net cash provided/(used) by investing activities 54,624 (138,279)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of Common Stock 15,000 143,557
Acquisitions of Treasury Stock -- (3,000)
Proceeds from Issuance of Long-Term Debt 1,040,000 102,522
Repayment of Notes Payable (364,177) (154,299)
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Net cash provided (used) by financing activities 690,823 88,780
Net increase in cash 72,933 950,638
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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 $ 79,646 $ 960,432
=========== ===========
INTEREST PAID $ 67,019 $ 35,801
=========== ===========
The accompanying notes are an integral part of these financial statements.
6
PRIMELINK SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended
June 30,
2001 2000
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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
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 $524,715
The accompanying notes are an integral part of these financial statements.
7
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 the results for the periods. All such adjustments, in the opinion of
management, are of a normal recurring nature.
The results of operations for the six months ended June 30, 2001, 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 in the
underground construction business. The balance of property, plant, and
equipment, stated at cost less accumulated depreciation, is as follows:
Estimated Lives June 30, 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 7 951,957 966,111
Vehicles 5 202,384 245,346
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$ 1,206,534 $ 1,258,550
Accumulated Depreciation
(397,770) (325,901)
----------- -----------
$ 808,764 $ 932,649
=========== ===========
3. Income Taxes
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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 June 30, 2001, sales increased by
$428,822 from $1,186,839 for the quarter ended June 30, 2000 to $1,615,661 for
the quarter ended June 30, 2001. For the six months ended June 30, 2001, sales
decreased by $375,398 from $4,059,200 for the six months ended June 30, 2000 to
$3,683,802 for the six months ended June 30, 2001, or approximately 9%. 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 quarter ended June 30, 2001
decreased by $237,234 from $566,226 for the quarter ended June 30, 2000 to
$328,992 for the quarter ended June 30, 2001 or approximately 42%. Gross profit
for the six months ended June 30, 2001, was $863,295, compared to $1,299,803 for
the six months ended June 30, 2000, representing a decrease of $436,508, or
approximately 34%. Gross profits as a percentage of sales decreased from 32% for
the six months ended June 30, 2000 to 23% for the six months ended June 30,
2001, further illustrating the effects that the delays previously described had
on the Company's operations.
9
For the quarter ended June 30, 2001, operating expenses decreased
$37,095 from $138,499 for the quarter ended June 30, 2000 to $101,404 for the
quarter ended June 30, 2001, or approximately 27%. Operating expenses decreased
from $222,522 for the six months ended June 30, 2000 to $220,523 for the quarter
ended June 30, 2001, representing an decrease of $1,999, or approximately 1%.
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 for the quarter ended June 30,
2001 increased $153,354 from $151,644 for the quarter ended June 30, 2000 to
$304,998 for the quarter ended June 30, 2001, or approximately 101%. General and
administrative expenses increased by $146,124, or 37%, from $398,600 for the six
months ended June 30, 2000 to $544,724 for the six months ended June 30, 2001.
These increases 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 loss for the quarter ended June 30, 2001 of
$121,106 or $0.02 per share, compared with a net profit of $343,422 or $0.07 per
share for the quarter ended June 30, 2000. The quarter ended June 30, 2000
included a gain of $81,500 or $0.02 per share for the extinguishment of the
remaining 1998 private placement debt. The Company incurred a net profit of
$26,997 or $0.01 per share for the six months ended June 30, 2001, compared to a
net profit of $738,158 or $0.15 per share for the six months ended June 30,
2000. The reductions in net profits for the six months ended June 30, 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.
10
Net cash used by operating activities was $672,514 for the period ended
June 30, 2001, compared to cash provided of $1,000,137 for the period ended June
30, 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 increased to cash provided of $54,624 from cash used of $138,279
reflecting decreases in deposits and equipment acquisitions in the current
period as compared to the prior period. Net cash provided by financing
activities increased from $88,780 for the period ended June 30, 2000 to $690,823
for the period ended June 30, 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 $960,432 at June 30, 2000 to $79,646 at June 30,
2001, reflecting the differences described above.
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.
11
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.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None.
12
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 20th day of August, 2001.
PRIMELINK SYSTEMS, INC.
By: S/S Walter Reid Green, Jr.
--------------------------
Walter Reid Green, Jr.
Financial and Accounting Officer
13