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, 2000
Commission File No. 1-11282
PRIMELINK SYSTEMS, INC.
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(Name of Small Business Issuer in Its Charter)
Delaware 72-1186845
- ----------------------------------- -------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
10135 Hereford Road, Folsom, Louisiana 70437
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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: 5,264,930 shares of Common
Stock at May 10, 2000.
<PAGE>
PRIMELINK SYSTEMS, INC.
<TABLE>
<CAPTION>
INDEX
PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Balance Sheets - March 31, 2000, and December 31, 1999 3
Statement of Operations - Three Months Ended March 31, 2000, and Three Months
Ended mARCH 31, 1999 4
Statements of Cash Flows - Three Months Ended March 31, 2000, and Three Months
Ended March 31, 1999 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and 7
Results of Operations
PART II. OTHER INFORMATION
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2
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
PRIMELINK SYSTEMS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
2000 1999
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(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and short term investments $ 290,856 9,794
Accounts receivable (net of allowance of $109,418 at
March 31, 2000, and $60,668 at December 31, 1999) 1,746,488 657,769
Unbilled Receivables 435,571 61,392
Advances to Shareholders 63,050 38,075
Prepaid Expenses 15,203 15,203
----------- -----------
Total Current Assets 2,551,168 782,233
PROPERTY, PLANT, AND EQUIPMENT, net 582,577 565,095
NOTES RECEIVABLE FROM STOCKHOLDER 42,500 42,500
OTHER ASSETS (net of $10,199 of accumulated amortization) 176,559 3,173
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$ 3,352,804 $ 1,393,001
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 1,687,710 341,844
Notes payable 357,250 612,943
Advances from stockholders -- --
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Total current liabilities 2,044,960 954,787
LONG-TERM LIABILITIES:
Notes payable 377,116 245,699
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Total Liabilities 2,422,076 1,200,486
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STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, 10,000,000 shares authorized, 5,264,930
issued and outstanding as of March 31, 2000, and 4,530,487 as of
December 31, 1999 5,265 4,530
Additional paid-in-capital 4,467,841 4,124,601
Retained earnings (deficit) (3,542,378) (3,936,616)
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930,728 192,515
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$ 3,352,804 $ 1,393,001
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</TABLE>
The accompanying notes are an integral part of these
financial statements.
3
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PRIMELINK SYSTEMS, INC.
STATEMENT OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
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<S> <C> <C>
SALES $ 2,872,361 $ 143,567
COST OF SALES 2,138,785 124,339
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Gross profit 733,576 19,228
OPERATING EXPENSES:
Operating 85,549 48,193
Selling, General and administrative 245,930 45,874
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Operating Income (loss) 402,097 (74,839)
OTHER INCOME (EXPENSES):
Gain on Sale of Property and Equipment 4,880 --
Other Income
Interest Expense (21,639) (19,906)
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INCOME (LOSS) BEFORE INCOME TAXES 385,338 (94,745)
INCOME TAX PROVISION -- --
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INCOME (LOSS) FROM CONTINUING OPERATIONS 385,338 (94,745)
EXTRAORDINARY ITEM:
Gain on Extinguishment of Debt (Net of Income Tax of $0) 8,899 --
NET INCOME (LOSS) $ 394,237 (94,745)
=========== ===========
NET INCOME PER SHARE:
Income from Continuing Operations .08 (.02)
Extraordinary Item .00 --
Net Income (Loss) $ .08 $ (.02)
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AVERAGE COMMON SHARES OUTSTANDING 5,004,162 3,950,224
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</TABLE>
The accompanying notes are an integral part of these
financial statements.
4
<PAGE>
PRIMELINK SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $ 394,237 $ (94,745)
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating activities:
Depreciation 27,746 14,853
Amortization 10,199 --
Gain on Long-Term Debt Conversion to Equity (4,880)
Gain on sale of assets (8,899)
Decrease (increase) in :
Accounts receivable, net (1,088,719) 99,306
Unbilled Receivables (374,179) --
Deposit -- --
Prepaid expenses -- 11,379
Increase (decrease) in -
Accounts payable and accrued liabilities 1,373,531 (27,429)
Borrowings from stockholders -- 1,680
Advances to stockholders (24,975) --
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Net cash provided (used) by operating activities 304,061 5,044
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant, and equipment (3,813) (89,413)
Acquisition of stock (3,000)
Proceeds from Sale of Property 4,880
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Net cash used by investing activities (1,933) (89,413)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of Common Stock 24,875 --
Proceeds from Issuance of Long-Term Debt 75,000 150,000
Repayment of notes payable (120,941) (24,365)
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Net cash provided (used) by financing activities (21,066) 125,635
Net increase (decrease) in cash 281,062 41,266
CASH AND SHORT-TERM
INVESTMENTS AT BEGINNING OF PERIOD 9,794 23,149
CASH AND SHORT-TERM
INVESTMENTS AT END OF PERIOD $ 290,856 $ 64,415
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INTEREST PAID $ 21,639 $ 19,906
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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
</TABLE>
5
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, 2000,
are not necessarily indicative of the results to be expected for the
full year.
2. Property, Plant, and Equipment:
------------------------------
Property, plant, and equipment consist primarily of assets used in the
underground construction business. The balance of property, plant, and
equipment, stated at cost less accumulated depreciation, is as follows:
<TABLE>
<CAPTION>
Estimated Lives March 31, December 31,
(yrs) 2000 1999
<S> <C> <C> <C>
Land -- $ 27,000 $ 27,000
Buildings and Improvements 10 to 30 18,370 18,370
Furniture and Equipment 5 to 7 678,192 632,964
Vehicles 5 84,593 84,593
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$ 808,155 $ 762,927
Accumulated Depreciation (225,578) (197,832)
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$ 582,577 $ 565,095
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</TABLE>
3. Income Taxes
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For tax reporting purposes the Company had, at December 31, 1999, net
operating loss carryforwards of approximately $4.1 million which expire
in 2007 through 2015.
6
<PAGE>
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.
Results of Operations
For the calendar quarter ended March 31, 2000, sales increased by
$2,728,794 from $143,567 for the quarter ended March 31, 1999 to $2,872,361 for
the quarter ended March 31, 2000. The revenues during the current period
represent the results in the current period of the Company's operations mostly
as a general contractor compared to the prior year figure which reflected the
Company's first full quarter of operations which were based completely on
sub-contractor work. The Company's gross profit for the quarter ended March 31,
2000, was $733,576, compared to $19,228 for the quarter ended March 31, 1999,
resulting from the substantial increase in the volume of business in the current
quarter as previously described. Additionally, the Company was still engaged in
staffing and training in the prior quarter and did not generate a significant
amount of construction revenue as a result of such activities associated with a
new line of business.
Operating expenses increased from $48,193 for the quarter ended March
31, 1999 to $85,549 for the quarter ended March 31, 2000, representing an
increase of $37,356. Such differences represent the substantial increase in the
volume of the Company's operations as a general contractor in the current period
7
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compared to the same quarter a year ago when the Company was just gaining
recognition in the industry but was only operating as a sub-contractor. General
and administrative expenses increased from $45,874 for the quarter ended March
31, 1999 to $245,930 for the quarter ended March 31, 2000. These increases again
reflect the substantial increase in volume of business previously described.
However, with respect to general and administrative expenses, the Company's
officers had maintained reduced salaries during 1999 as the Company began a new
line of business. During 2000, these officers have restored portions of their
salaries as well as expanded the administrative staff in accordance with
increases in sales and cash flows.
The Company incurred a net profit of $394,237 or $0.08 per share for
the quarter ended March 31, 2000, compared to a net loss of $94,745 or $0.02 per
share for the quarter ended March 31, 1999. The net loss for 1999 was mostly due
to the initial stages of developing the Company's telecom services business.
During the quarter ended March 31, 1999, the Company was still developing its
operations staff, obtaining new licenses and business qualifications, and
becoming known within a new industry. At that time, the Company was exclusively
engaged in sub-contract work. Since that time the Company has continually
increased its sales and improved its results of operations. Currently, the
Company is engaged almost exclusively in general contractor work based mostly on
work awarded through competitive bids. However, during the quarter ended March
31, 2000, the Company began 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
now satisfied all of its prior obligations. In accordance with its prior year
losses, the Company has for tax reporting purposes net operating loss
carryforwards of approximately $4.1 million which expire in 2007 through 2015.
At this time the Company has not recorded a net tax benefit from these loss
carryforwards. However, the tax loss carryforwards are available for use against
the Company's profits from its telecom services business, subject to certain
potential limitations. At this time no such limitations have impacted the
Company such that a provision for income taxes would be deducted from current
earnings.
Net cash provided by operating activities was $304,061 for the quarter
ended March 31, 2000 compared to cash provided of $5,044 for the quarter ended
March 31, 1999, mostly as a result of the increase in net income in the current
quarter compared to
8
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a year ago. Cash used by investing activities decreased from $89,413 to $1,933
reflecting the decrease in equipment acquisitions related to the construction
business from the prior period. Net cash provided by financing activities
decreased from cash provided of $125,635 for the quarter ended March 31, 1999 to
cash used of $21,066 for the quarter ended March 31, 2000, reflecting both
proceeds from and repayments of notes payable related to the expansion of the
Company's newly created construction business. Cash and short term investments
for the Company increased from $64,415 at March 31, 1999 to $290,856 at March
31, 2000, reflecting the differences described above.
As of December 31, 1999, under the Company's 1992 Incentive Stock
Option Plan, a total of 144,500 options were issued and unexcercised.
Additionally, as of December 31, 1999, a total of 1,767,000 nonqualified options
were issued and outstanding. During the quarter ended March 31, 2000, a total of
20,500 options from the 1992 Plan and 100,000 of the additional options were
exercised by employees of the Company.
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
9
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Company, changes in law or regulations, and other factors, many of which are
beyond the control of the Company. Readers are cautioned that any such
statements are not guarantees of future performance and the actual results or
developments may differ materially from those projected in the forward-looking
statements. All subsequent writtten and oral forward-looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by these cautionary statements. Important factors
that could cause actual results to differ materially include, among others:
o Fluctuations in the market price and/or availability of underground
construction work.
o Shortages in availability of qualified personnel.
o Legal and financial implications of an unexpected catastrophic event
which may be associated with the Company's underground construction
operation.
o General domestic and international economic and political conditions.
o Unexpected weather conditions including but not limited to droughts,
flooding, or other extreme acts of nature where the company conducts
its business and/or operations.
ITEM 7. FINANCIAL STATEMENTS
----------------------
The financial statements and supplementary data are included under Item
13(a)(1) and (2) of this Report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
----------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None.
10
<PAGE>
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, 2000.
PRIMELINK SYSTEMS, INC.
By: /s/ Walter Reid Green, Jr.
---------------------------------
Walter Reid Green, Jr.
Financial and
Accounting Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 290,856
<SECURITIES> 0
<RECEIVABLES> 2,182,059
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,551,168
<PP&E> 582,577
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,352,804
<CURRENT-LIABILITIES> 2,044,960
<BONDS> 0
0
0
<COMMON> 5,265
<OTHER-SE> 925,463
<TOTAL-LIABILITY-AND-EQUITY> 3,352,804
<SALES> 2,872,361
<TOTAL-REVENUES> 0
<CGS> 2,138,785
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 331,479
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,639
<INCOME-PRETAX> 385,338
<INCOME-TAX> 0
<INCOME-CONTINUING> 385,338
<DISCONTINUED> 0
<EXTRAORDINARY> 8,899
<CHANGES> 0
<NET-INCOME> 394,237
<EPS-BASIC> .08
<EPS-DILUTED> .08
</TABLE>
