<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 01-14271
FIRSTLINK COMMUNICATIONS, INC.
------------------------------------------------------
(Exact name of Registrant as Specified in its Charter)
OREGON 93-1197477
- --------------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
190 SW HARRISON STREET, PORTLAND, OREGON 97201
------------------------------------------------------
(Address of principal executive offices)(Zip Code)
(503) 306-4444
------------------
(Registrant's telephone number, including area code)
N/A
------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 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 [ ] No [X]
As of November 13, 1998, the Registrant had 3,593,496 shares of its no par
value Common Stock outstanding.
<PAGE>
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements 3
Condensed Balance Sheets as of September 30, 1998
(unaudited) and December 31, 1997 3
Condensed Statements of Operations for the Three and
Nine Months ended September 30, 1998 and 1997 (unaudited) 4
Condensed Statements of Cash Flows for the Nine Months
ended September 30, 1998 and 1997 (unaudited) 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Forward-Looking Statements 7
General 7
Overview 7
Three months ended September 30, 1998 compared to
three months ended September 30, 1997 7
Nine months ended September 30, 1998 compared to
the nine months ended September 30, 1997 7
Liquidity and Capital Resources 7
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 8
Item 2. Changes in Securities 8
Item 6. Exhibits and Reports on Form 8-K 8
<PAGE>
<PAGE>
FIRSTLINK COMMUNICATIONS, INC.
CONDENSED BALANCE SHEETS
September 30, 1998 (unaudited) and December 31, 1997
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents $ 5,866,200 $ 389,415
Accounts receivable, net of allowance for
doubtful accounts of $11,913 and $8,716
at September 30, 1998 and December 31,
1997, respectively 36,351 19,617
Prepaid and other current assets 77,876 59,227
------------- -------------
Total current assets 5,980,427 468,259
PROPERTY AND EQUIPMENT, NET 722,906 543,053
OTHER ASSETS 147,934 49,509
------------- -------------
Total assets $ 6,851,267 $ 1,060,821
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 137,602 $ 142,130
Accrued liabilities 129,422 99,580
Current portion of capital lease obligations 31,411 40,897
Other current liabilities - 126,188
------------- -------------
Total current liabilities 298,435 408,795
LONG-TERM DEBT:
Capital lease obligations 221,814 166,350
Convertible notes payable - 221,667
------------- -------------
Total long-term debt 221,814 388,017
------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, no par value; 1,000,000
shares authorized, no shares issued
or outstanding - -
Common stock, no par value; 20,000,000
shares authorized; 3,593,496 and
1,786,708 shares issued and outstanding
at September 30, 1998 and
December 31, 1997, respectively 8,410,495 1,240,102
Retained deficit (2,079,477) (976,093)
------------- -------------
Total stockholders' equity 6,331,018 264,009
------------- -------------
Total liabilities and stockholders'
equity $ 6,851,267 $ 1,060,821
============= =============
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
<PAGE>
FIRSTLINK COMMUNICATIONS, INC.
CONDENSED STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended
September 30, 1998 and 1997 (unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------ -----------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
[S] [C] [C] [C] [C]
REVENUE $ 326,409 $ 255,139 $ 925,893 $ 614,755
----------- ----------- ----------- -----------
EXPENSES:
Operating 240,792 159,018 705,287 411,733
Selling, general and
administrative 453,846 181,489 1,132,824 440,904
Depreciation and
amortization 27,914 18,874 71,652 52,210
----------- ----------- ----------- -----------
Total expenses 722,552 359,381 1,909,763 904,847
----------- ----------- ----------- -----------
Operating loss (396,143) (104,242) (983,870) (290,092)
----------- ----------- ----------- -----------
OTHER (INCOME) EXPENSE:
Interest, net (40,451) 12,698 8,958 75,920
Other (166) 4,371 110,556 5,335
----------- ----------- ----------- -----------
(40,617) 17,069 119,514 81,255
Net Loss $ (355,526) $ (121,311) $(1,103,384) $ (371,347)
============ =========== =========== ===========
PER SHARE AMOUNTS:
Basic and diluted loss
per common share $ (.11) $ (.10) $ (.46) $ (.36)
= =========== =========== =========== ===========
Basic and diluted
weighted average
common shares 3,166,466 1,224,293 2,421,372 1,030,575
============ =========== =========== ===========
[/TABLE]
See accompanying notes to condensed financial statements.
<PAGE>
<PAGE>
FIRSTLINK COMMUNICATIONS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
For the Nine Months Ended
September 30, 1998 and 1997 (unaudited)
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,103,384) $ (371,347)
Adjustments to reconcile net loss to
net cash used in operating activities:
Non-cash charge for debt conversion
to equity 105,000 -
Depreciation and amortization 93,449 92,988
Provision for losses on accounts receivable 30,292 30,816
Changes in assets and liabilities:
Accounts receivable (47,026) (13,592)
Prepaid and other assets (12,921) (17,475)
Accounts payable and accrued liabilities 25,314 46,311
Other current liabilities (126,188) (40,181)
------------- -------------
Net cash used in operating activities (1,035,464) (272,480)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (169,865) (63,229)
Equipment Deposits (137,934) -
------------- -------------
(307,799) (63,229)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 6,855,710 658,399
Proceeds from notes payable - 281,951
Repayments of notes payable - (5,000)
Principal payments under capital leases (35,662) (21,959)
Capitalized offering costs - (25,900)
------------- -------------
Net cash provided by financing
activities 6,820,048 887,491
------------- -------------
Net increase (decrease) in cash and
cash equivalents 5,476,785 551,782
CASH AND CASH EQUIVALENTS, beginning of period 389,415 15,119
CASH AND CASH EQUIVALENTS, end of period $ 5,866,200 $ 566,901
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid for interest $ 61,452 $ 27,367
Cash paid for income taxes - -
Assets acquired under capital leases 81,640 53,996
Conversion of Promissory Notes to equity 199,552 245,000
Other 33,781 15,024
</TABLE>
See accompanying notes to condensed financial statements
<PAGE>
<PAGE>
FIRSTLINK COMMUNICATIONS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(Unaudited)
(1) UNAUDITED CONDENSED FINANCIAL STATEMENTS
The financial statements included herein have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures included
herein are adequate to make the information presented not misleading. A
description of the Company's accounting policies and other financial
information is included in the audited financial statements as filed with the
Securities and Exchange Commission in the Company's Registration Statement on
Form SB-2.
The financial statements and related notes as of September 30, 1998, and
for the three and nine months ended September 30, 1998 and 1997 are unaudited
but, in the opinion of management, include all adjustments, consisting only of
normal recurring adjustments, which are necessary for a fair presentation of
the financial condition, results of operations and cash flows of the Company.
The operating results for the three and nine months ended September 30, 1998
are not necessarily indicative of the results that may be expected for the
year ended December 31, 1998.
(2) INITIAL PUBLIC OFFERING
On July 27, 1998, the Company completed its initial public offering
("IPO") of its common stock to the public. The Company sold 1,400,000 units
(the "Units") , with each Unit consisting of one detachable share of common
stock and one detachable common stock purchase warrant (the "Warrants"). Two
Warrants entitle the holder to purchase one share of the Company's common
stock at a price of $8.10 per share during the three year period commencing
July 27, 1998. As a result of the IPO, the Company received net proceeds of
approximately $6,364,000 and expects to use the monies for the purchase or
financing of telephone switching equipment, billing and MIS system
enhancements and working capital. The Company's common stock and Warrants
are registered on the Nasdaq SmallCap Market under the symbols "FLCI" and
"FLCIW" and on the Boston Stock Exchange under the symbols "FSL" and "FSLW."
In connection with the initial public offering, the Company's board of
directors authorized a 1 for 1.5 reverse stock split, effective July 27, 1998.
All share and per share amounts in the financial statements reflect the
reverse split as if it had occurred on January 1, 1997.
(3) LOSS PER COMMON SHARE
Basic and diluted loss per common share is calculated by dividing the net
loss by the weighted average number of shares outstanding. The calculation of
basic and diluted loss per common share does not assume conversion, exercise
or contingent issuance of securities that would have an anti-dilutive effect
on earnings per share.
(4) STRATEGIC MARKETING AGREEMENTS
Web Service Company
-------------------
On August 26, 1998, the Company signed a definitive agreement (the
"Agreement") with Web Service Company, Inc. ("WEB"), one of the largest
operators of coin operated laundry equipment and other services in apartment
and condominium complexes in the United States. Based on information provided
by WEB, the Company believes that WEB provides ancillary services to
approximately 44,000 apartment complexes located in 26 states.
Under terms of the Agreement, WEB will exclusively market the Company's
services to properties with which WEB has an existing relationship that have
more than 150 units in Dallas, Denver, Seattle and the San Francisco Bay Area
(the "Exclusive Territories"). Based on information provided by WEB, the
Company believes that WEB provides ancillary services to approximately 590
apartment complexes of that size passing approximately 150,000 units in the
Exclusive Territories. As compensation for WEB's sales of the Company's
services, the Company has granted WEB a warrant to purchase 2,000,000 shares
of its common stock, subject to vesting requirements requiring WEB to deliver
one customer for each 25 shares. In other words, in order to earn the
2,000,000 warrants, WEB must, by May 22, 2004, deliver 80,000 phone and cable
customers who subscribe to the Company's services. If WEB is unable to
deliver a certain number of subscribers each year (which number increases over
the life of the contract), a portion of the unvested warrants expire. The
maximum number of vested shares that can be exercised by WEB cannot exceed
20% of the issued and outstanding common stock of the Company regardless of
the number of shares vested. The warrants are exercisable at $5.40 per share
for five years after they are issued, but no later than May 22, 2012. As of
September 30, 1998, no warrants have vested under the Agreement. The Company
may record marketing expense to the extent that value is associated with the
warrants as determined under the Black-Scholes method as prescribed under FASB
123.
The Company will also pay WEB a commission of 1.75% on collected revenues
for WEB customers (2.25% for customers in any property in which the Company
has achieved a penetration rate in excess of 60%). The commission is paid for
the life of the Company's contract with the property.
Additionally, the Company sold WEB 25,000 shares of common stock at $4.00
per share prior to the public offering; and WEB purchased an additional 25,000
Units in the public offering at the public offering price.
Foundation Limited
------------------
On October 12, 1998, the Company signed a letter of intent with
Foundation Limited ("Foundation"), a New York based merchant bank to market
the Company's services to major owners and managers of apartments,
specifically targeting REITs.
Under terms of the letter of intent, Foundation will receive five year
warrants to purchase 50,000 shares of the Company's common stock at $6.00 per
share. Additionally, upon delivering contracts for 50,000 units, Foundation
will receive five year warrants to purchase an additional 150,000 shares of
the Company's common stock exercisable at $6.00 per share. Further,
Foundation will receive a five year warrant to purchase an additional one
million shares (the "Earnout Warrant"). The Earnout Warrant will vest at the
rate of 20 shares for each delivered customer subject to minimum vesting
requirements which increase over the five year period of the proposed
agreement. However, the maximum number of shares which can be owned by
Foundation shall not exceed 15% of the outstanding common stock of the
Company. The Company expects to sign a definitive agreement prior to year
end. The Company may record marketing expense to the extent that value is
associated with the warrants as determined under the Black-Scholes method as
prescribed under FASB 123.
(5) STOCK OPTION PLAN
On August 21, 1998, the Company's Board of Directors established the
FirstLink Communications, Inc., 1998/1999 Combined Incentive Stock and Non-
Qualified Stock Option Plan (the 1998 Plan). Options issued under the 1998
Plan shall not be priced at less than fair market value and expire no later
than ten years from the date of grant. The vesting periods are at the
discretion of the Company's Board of Directors, The 1998 Plan is subject to
ratification by the majority vote of the holders of the Company's common stock
within one year from the effective date of adoption for any incentive options
granted under the 1998 Plan. The Company has made available 500,000 shares
for grant under the 1998 Plan. During the third quarter of 1998, the Company
issued options to purchase 200,000 shares of common stock under the 1998 Plan
at a price of $2.56 per share with vesting terms of 33% on each anniversary
date, commencing one year from the date of grant.
<PAGE>
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTE OF OPERATIONS
FORWARD-LOOKING STATEMENTS
- --------------------------
The Statements contained in this Form 10-QSB ("Quarterly Report") of
FirstLink Communications, Inc. (the "Company") which are not historical in
nature are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These forward-looking statements
include statements in this Item 2.,"Managements Discussion and Analysis of
Financial Condition and Results of Operations," regarding intent, belief or
current expectations of the Company or its officers with respect to the
development or acquisition of new business.
Such forward-looking statements involve certain risks and uncertainties
that could cause actual results to differ materially from anticipated results.
These risks and uncertainties include regulatory constraints, the ability of
the Company to obtain bulk video contracts from the local cable provider in
the Company's markets at economical terms and conditions, the risk of
insufficient cable and phone penetrations, the ability of the Company to
effectively manage growth, the ability of WEB to market the Company's products
and services, general and local market conditions including the presence of
competing companies, as well as the risk factors set forth in the "Risk
Factors" on Form SB-2 (as filed with the Securities and Exchange Commission on
July 27, 1998) and other factors as may be identified from time to time in the
Company's filings with the Securities and Exchange Commission or in the
Company's press releases.
GENERAL
- -------
The following discussion of the results of operations and financial
condition of the Company should be read in conjunction with the Condensed
Financial Statements and the Notes thereto of the Company included elsewhere
in this Quarterly Report.
OVERVIEW
- --------
The Company provides integrated telecommunications and entertainment
services to residents of multi-family apartment and condominium complexes.
Services consist of local and long distance telephone, cable television and
high speed Internet access, in a single package at below market rates, on a
single invoice for the resident. The Company's first property went on-line in
September 1994. As of September 30, 1998, the Company passed 2,611 units in
11 properties, all in Portland, Oregon, numbering 1,594 cable and 1,172
telephone subscribers, respectively.
The Company has traditionally provided video signal to its customers by
purchasing video product in bulk from the incumbent cable MSO, and reselling
it as part of the Company's service package. In Portland, Oregon, and in the
Company's target markets (Dallas, Denver, Seattle and San Francisco), the
dominant cable provider is Tele-Communications, Inc. ("TCI"). The Company has
historically had good relations with TCI in Portland.
The Company has recently been informed by TCI that TCI is uncertain
whether it can enter into similar arrangements with the Company in the future.
The Company will continue to pursue this alternative with TCI, but there is no
assurance that the Company will be successful in negotiating future agreements
with TCI. As a result, the Company is uncertain as to how it will provide a
video product to future properties.
Furthermore, the Company had been pursuing reselling switched dialtone
from Teleport Communications Group now known as AT&T Local Services (AT&T) as
a way to provide local telephone service to "garden" or "campus" style
apartments. The Company has been informed by AT&T that it may no longer offer
wholesale residential dialtone to non affiliated entities.
On November 3, 1998, the Company's Board of Directors and management
agreed to develop an alternative business plan that does not contemplate
reselling TCI or AT&T services. Additionally, the Board and management agreed
to conserve the Company's capital until such time that a new plan can be
approved by the Board. While management is currently negotiating with
alternative providers for video and wholesale dialtone, there can be no
assurance that the Company will develop a satisfactory business plan.
As a result of these uncertainties, the Company, with WEB's consent, has
decided to put on hold its planned market expansions until such time that a
new business plan can be developed and approved.
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1997
- ------------------------------------------------------------------------------
The Company reported a net loss of $355,526 for the three months ended
September 30, 1998, compared to a net loss of $121,311 for the same period of
the prior year. The increase in net loss is primarily attributable to
increased personnel and other selling, general and administrative expenses
during 1998 associated with managing the Company's planned market launches.
Revenue increased by $71,270 or 28% for the three months ended September
30, 1998, compared to the same period of the prior year. The increase in
revenue is attributable to the Company passing 2,611 units during the third
quarter of 1998 compared to passing 1,643 during the same period of the prior
year. The increase in revenue is not proportional to the increase in
properties due to the timing of when properties were brought on line and the
fact that the three properties brought on line during 1998 have not achieved
the same penetration rates that the Company's properties have traditionally
developed. Management attributes the lower penetrations to the demographics
of these properties.
Operating expenses increased by $81,774 or 51% for the three months ended
September 30, 1998, compared to the same period of the prior year. The
increase in operating expenses was due to the increase in properties between
periods. Operating expenses were 74% of revenue for the three month period
ended September 30, 1998 compared to 62% for the same period of the prior
year.
Selling, general and administrative expenses increased by $272,357 or
150% for the three months ended September 30, 1998, compared to the same
period of the prior year. The increase between periods resulted from
increases in payroll and related costs, travel expenses, advertising and
promotion expenses, employee recruiting fees, and legal and regulatory costs
associated with the Company's planned market expansion. At September 30, 1998
the Company had 20 full time employees compared to seven at September 30,
1997. Selling, general and administrative expenses were 139% of revenue for
the three months ended September 30, 1998 compared to 71% for the same period
of the prior year.
Depreciation and amortization expenses increased by $9,040 or 48% for
the three months ended September 30, 1998, compared to the same period of the
prior year. Depreciation and amortization expense was 9% of revenue for the
three months ended September 30, 1998 compared to 7% for the same period of
the prior year.
Other income increased by $57,686 for the three months ended September
30, 1998 compared to the same period of the prior year. The increase between
years resulted primarily from interest income on the proceeds from the
Company's IPO offset by interest on capital leases. Other income was 12% of
revenue for the three months ended September 30, 1998 compared to other
expense of 7% in the same period of the prior year.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1997
- -----------------------------------------------------------------------
The Company reported a net loss of $1,103,384 for the nine months ended
September 30, 1998, compared to a net loss of $371,347 for the same period of
the prior year. The increase in net loss is primarily attributable to
increased personnel and other selling, general and administrative expenses, as
well as a one-time non cash charge of $105,000 to other expense during 1998.
Revenue increased by $311,138 or 51% for the nine months ended September
30, 1998 compared to the same period of the prior year. The increase in
revenue is attributable to the Company passing 2,611 units for the majority of
1998 compared to an average of 1,356 during the nine months ended September
30, 1997. The increase in revenue is not proportional to the increase in
units passed due to the timing of when properties were brought on line.
Operating expenses increased by $293,554 or 71% for the nine months ended
September 30, 1998, compared to the same period of the prior year. The
increase in operating expenses was due to the increase in properties between
years. Operating expenses were 76% of revenue for the nine month period ended
September 30, 1998 compared to 67% for the same period of the prior year.
Selling, general and administrative expenses increased by $691,920 or
157% for the nine months ended September 30, 1998 compared to the same period
of the prior year. The increase between periods resulted from increases in
payroll and related costs, travel expenses, advertising and promotion
expenses, employee recruiting fees, and legal and regulatory costs associated
with the Company's planned market expansion.
Depreciation and amortization expense increased by $19,442 or 37% for the
nine months ended September 30, 1998 compared to the same period of the prior
year. The increase between periods is due to an increase in property and
equipment resulting from the increased number of properties on line between
years. Depreciation and amortization expense was 8% of revenue for both nine
month periods.
Other expense increased by $38,259 or 47% for the nine months ended
September 30, 1998, compared to the same period of the prior year. The
increase between periods resulted from a $105,000 one-time non- cash charge to
other expense related to the induced conversion of certain convertible notes
during the first quarter of 1998, partially offset by an increase in interest
income due to the Company's IPO. Other expense was 13% of revenue for both
nine months periods.
NEW ACCOUNTING PRONOUNCEMENTS
- -----------------------------
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of
an Enterprise and Related Information." SFAS No. 131 requires public
companies to report certain information about their operating segments in a
complete set of financial statements to shareholders. It also requires
reporting of certain enterprise-wide information about the Company's products
and services, its activities in different geographic areas, and its reliance
on major customers. The basis for determining the Company's operating
segments is the manner in which management operates the business. SFAS No.
131 is effective for fiscal years beginning after December 15, 1997. The
Company does not expect implementation to have a significant impact on its
financial statements.
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on
the Costs of Start-Up Activities" ("SOP 98-5"), which is effective for
financial statements for fiscal years beginning after December 15, 1998. SOP-
98-5 broadly defines start-up activities and requires costs of start-up
activities and organization costs to be expensed as incurred. The Company
does not expect implementation to have a significant impact on its financial
statements.
In June 1998, the FASB issues SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value.
SFAS No. 133 also requires that changes in the derivative's fair value be
recognized currently in results of operations unless specific hedge accounting
criteria are met. SFAS No. 133 is effective for fiscal years beginning after
June 15, 1999. The Company does not expect SFAS No. 133 to have a significant
impact on its financial statements.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At September 30, 1998, the Company had cash and cash equivalents of
$5,866,200 compared to $389,415 at December 31, 1997. The increase in the
Company's cash position is due to the proceeds received from the Company's
initial public offering. Net cash of $1,035,464 was used in operating
activities during the nine months ended September 30, 1998 which resulted from
the Company's net loss offset by a non cash charge related to the induced
conversion of certain convertible notes.
Net cash of $307,799 was used in investing activities during the nine
months ended September 30, 1998, which was comprised entirely of capital
expenditures. Such capital expenditures consisted of down payments related to
switches and furniture, computers for new employees and the new billing
system. At September 30, 1998, the Company had $2,000,000 of lease financing
available for future capital expenditures, $500,000 of which is available
immediately and $1,500,000 available January 1, 1999 subject to performance
requirements. While management believes that the available lease line is
sufficient to fund short-term capital requirements, additional lease financing
may be required to fund the Company's long-term plans. The Company's future
capital requirements will depend greatly upon the Company's ability to
purchase from a CLEC(s) wholesale residential dialtone and enhanced calling
features that could be resold by the Company. By utilizing the existing
telephony infrastructure of others, the Company can avoid the associated
capital costs of acquiring switches as well as the ongoing costs of operating
and maintaining them. However, there is no certainty that the Company will be
able to successfully negotiate arrangements that are profitable to the
Company.
Net cash of $6,820,048 was generated from financing activities during the
nine months ended September 30, 1998. This was primarily the result of the
Company completing the initial public offering of its common stock, selling
1,400,000 shares of stock and raising $6,364,000 of net cash proceeds. See
Note 2 to the Condensed Financial Statements. Management believes that the
Company's cash on hand and amounts available through lease financing
arrangements will provide sufficient funds necessary for the Company to expand
its business as currently planned and fund its operating deficits for at least
the next twelve months.
The Company has agreements with certain cable operators to purchase bulk
cable signals at the Company's properties. As of September 30, 1998, the
Company's commitment was $27,224 per month for such services. At September
30, 1998, there were commitments for capital expenditures approximating
$634,000 related to acquisition of telephone switches for use in Portland,
Denver and Seattle, the implementation of the Company's new billing system,
and leasehold improvements for the Company's new office. As part of the
Company's direction to conserve capital, management has put on hold the
acquisition of the telephone switches and the move to a new office. The
Company anticipates financing the switches using existing lease facilities.
The Company intends to pay for the billing system and leasehold improvements
using existing cash on hand.
The Company is performing a comprehensive review of its information and
support systems to determine whether such systems will properly function in
the year 2000 and thereafter. Systems under review principally include the
Company's switches and network operations systems, billing and financial
systems, and the Company's internal communications systems. Although the
Company relies primarily on systems developed with current technology that
were designed to be year 2000 compliant, the Company may have to replace,
upgrade or reprogram certain systems or equipment. The Company's due
diligence also includes an evaluation of vendor-provided technology and the
implementation of new policies to require vendors to confirm that they have
disclosed and will correct any year 2000 compliance issues.
The Company's year 2000 evaluation process is expected to be complete
during 1998 and is also being monitored by the Company's board of directors.
Certain minor conversions and upgrades are already under way and the Company
plans to have all identified compliance issues resolved by the end of 1998.
The costs associated with resolving year 2000 issues are expensed as incurred
and, in the aggregate, are not expected to have a material impact on the
Company's financial condition or results of operations. While the Company
believes that its software applications will be year 2000 compliant, there can
be no assurance until the year 2000 occurs that all systems will then function
adequately. Further, if the software applications of local exchange carriers,
long distance carriers, cable providers or others on whose services the
Company depends are not year 2000 compliant, it could have a material adverse
effect on the Company's financial condition and results of operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
From time to time, the Company is subject to litigation incidental
to its business. The Company has been named as a defendant in a lawsuit
alleging that the Company is responsible for the debt of a company from which
some of the Company's assets were acquired. The lawsuit seeks $48,000 plus
interest and attorney fees. The Company believes it has no liability in the
matter and that the outcome will not have a material adverse impact on its
liquidity or results of operations.
Item 2. Changes in Securities
---------------------
During July 1998 the Company competed its initial public offering as
more fully described in Note 2 to the Financial Statements.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
Exhibits:
Exhibit 27 - Financial Data Schedule
Reports on Form 8-K:
Form 8-K filed September 10, 1998.
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FIRSTLINK COMMUNICATIONS, INC.
Dated: November 13, 1998 By: /s/ A. Roger Pease
----------------- --------------------------------
A. Roger Pease, President
Dated: November 13, 1998 By: /s/ Jeffrey S. Sperber
----------------- --------------------------------
Jeffrey S. Sperber,
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENT OF OPERATIONS FOUND ON
PAGES 3 AND 4 OF THE COMPANY'S FORM 10-QSB FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1998
<CASH> 5,866,200
<SECURITIES> 0
<RECEIVABLES> 48,264
<ALLOWANCES> 11,913
<INVENTORY> 0
<CURRENT-ASSETS> 5,980,427
<PP&E> 902,392
<DEPRECIATION> 179,486
<TOTAL-ASSETS> 6,851,267
<CURRENT-LIABILITIES> 298,435
<BONDS> 0
0
0
<COMMON> 8,410,495
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,331,018
<SALES> 925,893
<TOTAL-REVENUES> 925,893
<CGS> 705,287
<TOTAL-COSTS> 705,287
<OTHER-EXPENSES> 1,204,476
<LOSS-PROVISION> 30,292
<INTEREST-EXPENSE> 119,514
<INCOME-PRETAX> (1,103,384)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,103,384)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,103,384)
<EPS-PRIMARY> (.46)
<EPS-DILUTED> (.46)
</TABLE>
