U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Year Ended December 31, 1999
Commission File No. 1-11282
PRIMELINK SYSTEMS, INC.
---------------------------------------------------------------
(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
- --------------------------------------- -------------------
(Address of Principal Executive Offices) (Zip Code)
(504) 796-5806
------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Each Class on Which Registered
Common Stock ($.001 par value) OTC Bulletin Board
- -------------------------------- ----------------------
Securities registered under Section 12(g) of the Exchange Act: None
(Title of Class)
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
--- ---
This report contains a total of 42 pages.
The Exhibit Index appears on page 26.
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of issuer's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year. $1,915,681.
State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the stock was sold,
or the average bid and asked prices of such stock, as of a specified date within
the past 60 days.
Common Stock, par value $.001 per share ("Common
Stock"), was the only class of voting stock of the Registrant
outstanding on April 12, 2000. Based on the closing bid price
of the Common Stock on the OTC Bulletin Board as reported on
April 12, 2000 ($5.88), the aggregate market value of the
3,130,085 shares of Common Stock held by persons other than
officers, directors and persons known to the Registrant to be
the beneficial owner (as that term is defined under the rules
of the Securities and Exchange Commission) of more than five
percent of the Common Stock on that date was approximately
$18,404,900. By the foregoing statements, the Registrant does
not intend to imply that any of these officers, directors or
beneficial owners are affiliates of the Registrant or that the
aggregate market value, as computed pursuant to rules of the
Securities and Exchange Commission, is in any way indicative
of the amount which could be obtained for such shares of
Common Stock.
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ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PAST FIVE YEARS
Check whether the issuer has 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 REGISTRANTS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
4,530,487 shares of Common Stock, $.001 par value, as of December
31, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Document Part of Report
-------- --------------
Registration Statement on Form S-18, as IV
Amended, (Registration No. 33-49228-FW)
declared effective on December 15, 1992
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
-----------------------
Introduction
- ------------
PrimeLink Systems, Inc. (the "Company") is an infrastructure service
provider. The Company's primary business is the installation and maintenance of
telecommunications (telecom) networks, which today means almost exclusively
fiber optic cable systems. The Company has been exclusively engaged in telecom
services since October, 1998.
The Company effected its name change to PrimeLink Systems, Inc. on
February 14, 2000, to better reflect the Company's focus on telecom services.
Prior to October, 1998, the Company had been engaged in the ostrich business.
The Company was originally incorporated on February 4, 1992 and executed a Plan
and Agreement of Merger with Pacesetter Ostrich Farms, Inc., a Louisiana
corporation, on February 14, 1992. The predecessor corporation was organized in
Louisiana on February 22, 1989 under the name Ostrich Breeders of North America,
Inc., and unless the context provides otherwise, all references to the Company,
PrimeLink Systems, Inc., include Pacesetter Ostrich Farm, Inc., the predecessor
corporation and the operations previously undertaken by such predecessor
corporation.
During 1998 the Company liquidated all of its ostrich assets and
discontinued such operations. The Company had experienced substantial net
operating losses prior to such liquidation, and accordingly maintains net
operating loss carryforward deductions in excess of $4.1 million for tax
reporting purposes which may be utilized against profits from its telecom
services business. During the fourth quarter of 1998 the company began
operations in the telecom services industry with an emphasis on placement of
underground fiber optic systems.
Industry Economics
- ------------------
It is generally estimated that the market for telecom infrastructure
services exceeded $15 billion in 1998. Due to the current substantial demand for
high-
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speed broadband communications infrastructure, the majority of work completed to
date relates to completion of fiber optic trunk lines. Currently, much of such
infrastructure is concentrated in metropolitan areas with greater population
densities. Consequently, most of the above ground copper lines in the United
States are being systematically replaced with underground fiber optic cable.
Such infrastructure is underway to facilitate the high-speed broadband type
communications that have come into demand along with the proliferation of
multi-media computers and other high speed electronic communication devices.
Management believes that this industry presents substantial growth opportunities
for companies that efficiently provide comprehensive technical capabilities, and
responsive quality service. To date, growth in telecom construction has been
driven by the following trends:
TELECOM DEREGULATION. The Telecommunications Act of 1996 substantially revised
prior law by preempting state and local government control over access to the
telecom market and eliminating certain regulatory barriers to competition.
Management believes the elimination of these entry barriers has and will
continue to increase competition among telecom providers. In addition, many
state regulatory commissions eliminated pricing regulations for telecom
providers, thus requiring such providers to be price competitive and thereby
become efficient in installing and maintaining their telecom infrastructure. As
a result, telecom providers are entering new markets, offering services that
once were reserved for incumbent telecom providers, and expanding and improving
their existing networks.
GROWTH IN BANDWIDTH DEMAND. Growth in demand for telecommunications voice
traffic, electronic commerce, delivery of information and entertainment
services, and the growth, use and reliance on personal computers has created an
increased need for greater bandwidth. Bandwidth controls both the speed and
breadth of voice, video and data communications and is limited by the size of
the cable or other facilities through which communications flow. Because of the
physical limitations of existing network facilities, telecom providers are
upgrading facilities with new and innovative technology, expanding and, in many
cases, replacing existing telecom infrastructure to allow for increased
bandwidth in order to offer faster and greater volume of communications flow.
Because of the physical limitations of existing network facilities, telecom
providers are upgrading facilities with new and innovative technology, expanding
and, in many cases, replacing existing telecom infrastructure to allow for
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increased bandwidth in order to offer faster and greater volume of
communications flow.
INCREASED OUTSOURCING. The need to upgrade and expand telecom infrastructure as
a result of deregulation and the growth in demand for enhanced telecom services
and bandwidth are expected to continue to increase the current level of
outsourcing to telecom infrastructure service providers. The outsourcing trend
has largely been driven by the efforts of telecom providers to expedite the
expansion, maintenance, replacement and enhancement of their infrastructure, to
reduce costs and to focus on their core competencies. Companies that specialize
in providing telecom infrastructure services are able to provide these services
on an effective and low cost basis.
Growth Strategy
The Company's strategy is to facilitate continued internal growth in
telecom services complemented by selective acquisitions which are accretive to
current earnings. The Company also plans to expand its presence within the
industry by developing certain niche services designed to support national
carriers in the timely completion of existing and future infrastructure systems.
Management's goal is to focus on generating internal growth by
(1)increasing the volume of services provided to existing customers in their
current markets, (2) expanding the scope of services provided to existing
customers, (3) broadening the customer base, and (4) geographically expanding
the service area.
Marketing and Sales
- -------------------
The Company uses a variety of methods to obtain new business including
trade publications, word-of-mouth referrals, and through repeat business based
on past performance. Upon entering this business, the Company retained the
services of several key personnel which, through existing professional
relationships, have accelerated initial growth within the telecom construction
operations of the Company.
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Competition and Price Uncertainty
- ---------------------------------
The telecom construction industry is highly competitive and is served
by numerous small, owner-operated private companies, a few public companies and
several large regional companies. There are no substantial barriers to entry in
the industry and competition may intensify in the future. As a result, an
organization that has adequate financial resources, access to technical
expertise, and provides quality service may become highly successful in the
industry. Competition in the industry depends on a number of factors, including
price, quality of service, and the ability to complete projects in a timely
manner. Management believes it currently delivers a quality service at
competitive cost structures within specified time parameters.
Business Regulations and Insurance
- ----------------------------------
The Company is subject to various federal, state, and local regulations
with regard to its telecom services business. Among these are safety/OSHA,
traffic control, building code specifications, utility notifications, and
certain contractor licensing (where applicable) laws and/or regulations. The
Company maintains general liability, automobile, workers' compensation, and
other relevant coverages under a master insurance policy designed specifically
for the underground construction industry.
Trademarks and Copyrights
- -------------------------
On October 30, 1998, the Company registered the trade name "Pacesetter
Communications" with the Louisiana Secretary of State for a term of ten years.
Such trade name facilitated business until such time as the company was able to
complete the requirements for a formal name change of the corporation to
PrimeLink Systems, Inc. on February 14, 2000.
Employees
- ---------
As of December 31, 1999, the Company employed a total of 17 full time
employees including three executive officers, thirteen service managers and
operators, and three clerical persons.
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ITEM 2. DESCRIPTION OF PROPERTIES
-------------------------
The Company's headquarters in Folsom, Louisiana, are located on 65
acres of improved facilities approximately 60 miles north of New Orleans. These
facilities consist of a 1,500 square foot storage facility, approximately 500
square foot of portable buildings, two service barns comprising approximately
5,000 square feet, and office facilities.
ITEM 3. LEGAL PROCEEDINGS
-----------------
As of the date of this filing, the Company had no legal proceedings.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
--------------------------------------------------------
(a) The Company's Common Stock is traded on OTC Bulletin Board under
the symbol "PMLK". Prior to February 14, 2000, the Company's common stock traded
under the symbol "POFM", which was changed to reflect the Company's name change
to PrimeLink Systems, Inc. Prior to December 15, 1992, there was no market for
the Company's securities. The following table sets forth the high and low bid
quotations for the Common Stock for the periods indicated. These quotations
reflect prices between dealers, do not include retail mark-ups, markdowns or
commission and may not necessarily represent actual transactions.
High Low
---- ---
January 1 - March 31, 1999 $0.75 $0.125
April 1 - June 30, 1999 $0.75 $0.125
July 1 - September 30, 1999 $0.88 $0.125
October 1 - December 31, 1999 $1.00 $0.625
January 1 - March 31, 2000 $8.00 $1.00
On April 12, 2000, the closing bid price for the Common Stock was $5.88.
(b) On March 28, 2000, the number of holders of the Company's Common
Stock was in excess of 500.
(c) The Company has never paid cash dividends on its Common Stock. The
Company presently intends to retain future earnings, if any, to finance the
expansion of its business and does not anticipate that any cash dividends will
be paid in the foreseeable future. Future dividend policy will depend on the
Company's earnings, capital requirements, expansion plans, financial condition
and other relevant factors.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
---------------------------------------------------------
The Company was incorporated on February 4, 1992 and effected its name
change to PrimeLink Systems, Inc. on February 14, 2000. The Company's financial
statements reflect the operating results for the Company's fiscal years ended
December 31, 1999 and 1998. The Company became exclusively engaged in the
telecom services business in October 1998. Accordingly, all of its 1999
operations relate to telecom services, but only the fourth calendar quarter of
its 1998 operations relate to telecom services. Consequently, the comparative
data for the year ended 1998 has little correlation to 1999 and should not be
relied on heavily as an analysis tool to evaluate current operations.
The Company is engaged in the telecommunications (telecom) services
industry, and accordingly, is subject to the risks associated with such
business. The Company maintains substantial insurance coverages including
general liability, automobile, workers' compensation, rented equipment,
pollution, and other relevant coverages under a master insurance policy
specifically designed for the telecom services industry.
Results of Operations
For the years ended December 31, 1999 and 1998, sales were $1,915,681
and $186,132 respectively. The substantial increase in sales reflects the
Company's new focus on the telecom service business which began in October 1998.
Consequently, prior year revenues only reflect one calendar quarter of telecom
service revenues compared to a full year of such operations for 1999.
Cost of sales as a percentage of sales was 63% for the year ended
December 31, 1999, compared to 145% for the year ended December 31, 1998. The
decrease in cost of sales as a percentage of sales for the year ended December
31, 1999 was attributable to more typical margins in 1999 compared to the prior
year figures which represent the start-up of the Company's telecom services
business. The Company's gross profit increased from a loss of $83,772 for the
year ended
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December 31, 1998 to a profit of $703,570 for the year ended December 31, 1999,
representing an increase of $787,342 as a result of a full year in the telecom
services business in the current year, compared to only one quarter in the prior
year.
Operating expenses increased from $269,904 for the year ended December
31, 1998 to $1,212,111 for the year ended December 31, 1999 representing an
increase of $942,207 due primarily to the increase in the volume of operations
during 1999 compared to the prior year. General and administrative expenses
increased from $263,457 for the year ended December 31, 1998 to $540,411 for the
year ended December 31, 1999, also due to the overall increase in business in
1999 compared to the prior year.
At December 31, 1999, the Company had for tax reporting purposes, net
operating loss carryforwards of approximately $4.1 million which expire in 2007
through 2015. The Company had incurred operating losses for several years in its
prior business, and has only completed its first full year of profitable
operations in its new telecom services business. Therefore, for financial
reporting purposes, the Company has provided a valuation allowance for the
entire amount of the net deferred tax asset resulting from these tax loss
carryforwards, as detailed in Note E of the financial statements.
The Company produced a net profit of $412,834 or $0.10 per share for
the year ended December 31, 1999 compared to a net loss of $617,787 or $0.17 per
share for the year ended December 31, 1998. The substantial net loss for 1998
reflects the final results from the Company's prior ostrich business and related
costs of liquidating the Company's Arizona facility and substantially all of its
live ostriches during the second half of 1998. The Company's 1999 profits
reflect the results of its first full year engaged exclusively in the telecom
services business.
Liquidity and Capital Resources
The Company had incurred substantial losses for several years and
experienced cash flow difficulties which have caused it not to meet some of its
obligations as they have come due. However, as of the date of this filing the
Company has achieved net positive cash flow from its underground construction
business and produced profitable results for the 1999 calendar year. As of the
date of this filing
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the Company's operations have remained profitable and management expects such
profitability to continue throughout calendar year 2000 and the foreseeable
future. The Company believes that these ongoing operations will be sufficient
for the Company to meet its continued obligations and to complete the
liquidation of the remainder of its past due obligations over the next six
months. As of the date of this filing the Company has already extinguished all
of its 1998 private placement debt and all but approximately $50,000 of its 1992
private placement debt.
Net cash used by operating activities was $130,945 for the year ended
December 31, 1999 compared to $430,499 for the year ended December 31, 1998
primarily as a result of the large net operating loss of $(617,787) for 1998,
compared to the net profit of $412,834 for 1999. In addition, the Company had a
substantial increase in accounts receivable for 1999 compared to the prior year
figure. For calendar year 2000, the company expects to meet cash flow needs from
continued revenue generated by its telecom services business. On March 16, 2000,
the Company announced that its year-to-date sales had already exceeded all of
prior year 1999 sales at approximately equivalent margins of 11%. The ratio of
current assets to current liabilities increased from 0.22:1 at December 31, 1998
to 0.82:1 at December 31, 1999 reflecting the substantial increases in accounts
receivables generated during the fourth quarter of 1999 from telecom services
compared to the prior year receivables which represented the Company's first
three months in the telecom services business. Additionally, the Company has
experienced overall reductions in its current liabilities as it has begun
eliminating its past due obligations which are included in the current portion
of notes payable.
Net cash used in investing activities was $240,116 for 1999 compared to
cash provided of $194,277 for 1998, reflecting cash received from the sale in
1998 of the Willcox, Arizona property and inventory. In addition, the Company
had significant acquisitions of property and equipment during 1999 as it
continued to expand its telecom service operations. Cash provided from financing
activities increased from $259,371 for 1998 to $357,706 reflecting substantial
proceeds in both years from the issuance of long-term debt in conjunction with
the continued expansion of the telecom services operations.
Between December 1991 and February 1992, the Company issued an
aggregate of $450,000 principal amount of its unsecured 10% promissory notes and
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499,983 shares of its Common Stock for a cash investment of $450,000 by a group
of private investors. Interest on the notes is payable semiannually beginning
July 1, 1992. The notes were due on December 1, 1995, but the Company did not
have sufficient cash to meet such obligations at that time. At December 31,
1997, the Company had reduced the principal amount of these notes from $450,000
to $384,263. By December 1998, following the sale of the Arizona property, this
debt had been reduced to $211,833. By December 1999 this balance was $160,583.
Most of the remaining holders of these notes represent significant stockholders
of the Company and subsequent to December 1999 most of the remaining debt under
these notes has been eliminated by the holders accepting additional Company
stock in lieu of cash payment. The Company expects to have all outstanding
private placement obligations eliminated by June 30, 2000.
As of December 31, 1999, a total of 144,500 shares of options had been
issued under the Company's 1992 Incentive Stock Options plan. Additionally, the
Company has issued 1,767,000 of non-qualified options to several of its key
officers. As of the date of this filing none of either type of such options have
been exercised.
Inflation
Inflation has not had a material effect on the operations of the
Company in the past and is not anticipated to in the foreseeable future.
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Cautionary Statement
This report includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. All statements other than statements of historical fact
included in this report, including, without limitation, the statements under the
headings "Managements Discussion and Analysis or Plan of Operation" regarding
the Company's results of operations, liquidity and capital resources, future
development and production levels, business strategies, and other plans and
objectives of management of the Company for future operations and activities,
are forward-looking statements. Although management of the Company believes that
the expectations reflected in such forward-looking statements are reasonable, it
can give no assurance that such expectations will prove to be correct. These
statements are based on certain assumptions and analyses made by the Company in
light of its experience and its perception of historical trends, current
conditions, expected future developments and other factors it believes are
appropriate under the circumstances. Such statements are subject to a number of
assumptions, risks and uncertainties, including the risk factors discussed
below, the Company's other filings with the Securities and Exchange Commission,
general economic and business conditions, business opportunities that may be
presented to and pursued by the Company, changes in law or regulations, and
other factors, many of which are beyond the control of the Company. Readers are
cautioned that any such statements are not guarantees of future performance and
the actual results or developments may differ materially from those projected in
the forward-looking statements. All subsequent written and oral forward-looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by these cautionary statements. Important
factors that could cause actual results to differ materially include, among
others:
o Fluctuations in the market price and/or availability of underground
construction work.
o Shortages in the 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 economic and political conditions.
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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.
o Unanticipated regulatory problems associated with the telecommunications
and/or construction industry.
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.
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
------------------------------------------------------------------------
UNDER SECTION 16(a) OF THE EXCHANGE ACT
---------------------------------------
The following persons are the Directors and the officers of the
Company. All Directors are elected annually by the stockholders to serve until
the next annual meeting of stockholders and until their successors are duly
elected and qualified. Officers are elected annually by the Board of Directors
to serve at the pleasure of the Board.
Name Age Position
---- --- --------
John R. Wade 48 Chairman of the Board, President
and Chief Executive Officer
Bob Clemons 58 Executive Vice President,
Secretary and Director
Reid Green 41 Treasurer, Chief Financial
Officer and Director
JOHN R. WADE, D.V.M. has served as Chairman of the Board and a Director
of the Company since its organization in February 1989 and President since
February 1991. Dr. Wade graduated from the School of Veterinary Medicine at
Louisiana State University in June 1980. Since that time he has owned and
managed several profitable veterinary hospitals and other private businesses.
Dr. Wade currently devotes substantially all of his business time to the
activities of the Company.
BOB CLEMONS has served as Executive Vice President, Secretary and a
Director of the Company since its organization in February 1989. Between 1982
and 1989, Mr. Clemons owned and was the principal in Hitch-n-Tow, Mandeville,
Louisiana, which was engaged in trailer sales and services, U-Haul rentals and
custom hitches. Prior thereto between 1970 and 1982, Mr. Clemons was involved in
various executive capacities and ultimately as President of U-Haul Co. of
Southern LA, New Orleans, Louisiana, which was also engaged in various trailer
sales, services and U-Haul
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rentals. At the present time, Mr. Clemons devotes all of his business time to
the activities of the Company.
WALTER REID GREEN, JR. was elected Treasurer and Chief Financial
Officer on January 29, 1993 of the Company as part of the planned expansion of
staff following the Company's initial public offering in December 1992. Mr.
Green received a Bachelor of Science degree in Accounting from Southeastern
Louisiana University in December 1983 and successfully completed the uniform
Certified Public Accountants examination in July 1986. Mr. Green had
approximately nine years of previous experience in the field of accounting and
taxation before joining the Company in 1993. His experience includes
approximately two years in public accounting, four years as an income tax
auditor for the Louisiana Department of Revenue and Taxation, and three years as
a tax accountant for The Louisiana Land and Exploration Company. Mr. Green and
Dr. Wade are first cousins. Mr. Green currently devotes all of his business time
to the activities of the Company.
It is not anticipated that any Directors will receive an annual fee or
other compensation for serving as Directors for the immediately foreseeable
future. Directors, however, will be reimbursed for reasonable expenses incurred
in connection with their attendance at meetings.
ITEM 10. EXECUTIVE COMPENSATION
----------------------
(a) Cash Compensation
Total cash compensation paid to all executive officers as a group for
services provided to the Company in all capacities during the fiscal year ended
December 31, 1999 aggregated to $159,750. Set forth below is summary
compensation table in the tabular format specified in the applicable rules of
the Securities and Exchange Commission. As indicated, no officer of the Company
or any of its subsidiaries received total salary and bonus which exceeded
$100,000 during the periods reflected.
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<TABLE>
<CAPTION>
Summary Compensation Table
Name and Restricted
Principal Annual Stock Options/ LTIP Other
Position Year Salary Bonus Compensation Awards SARs(#) Payouts Compensation
- -------- ---- ------ ----- ------------ ------- -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John R. Wade 1999 $53,250 -- -- -- 115,000 -- --
Chairman, 1998 -- -- -- -- -- -- --
And CEO 1997 -- -- -- -- 282,000 -- --
</TABLE>
(b)(1) Compensation Pursuant to Plans
------------------------------
See Employment Agreements below.
(b)(2) Employment Agreements
---------------------
Dr. John Wade and Mr. Bob Clemons were parties to employment agreements
with the Company which expired on December 31, 1994 and which provided for
annual salaries of $50,000. In consideration of the Company's financial
position, Dr. Wade, Mr. Clemons, and Mr. Green have continued to work full-time
for the Company, without any employment agreements, at substantially reduced
levels of compensation. For the year ended December 31, 1999, no cash bonuses
were issued to any officers.
(b)(3) Option Exercises and Values at Year End
<TABLE>
<CAPTION>
AGGREGATED OPTION/SASR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
Number of Value of
Unexercised Unexercised
Option/SARs In-the-Money
at FY-End (#) Option/SARs
at FY-End
Shares
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized Unexercisable Unexercisable
---- ------------ -------- ------------- -------------
<S> <C> <C> <C> <C>
John R. Wade -- -- 417,000 --
</TABLE>
On February 7, 1992, the Company adopted the 1992 Incentive Stock
Option Plan (the "Plan") under which 200,000 shares of Common Stock have been
reserved for issuance to employees of the Company upon exercise of options
designated as "Incentive Stock Options" within
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the meaning of Section 422A of the Internal Revenue Code of 1986. The primary
purpose of the Plan is to attract and retain capable executives and employees by
offering certain officers and employees a greater personal interest in the
Company's business by encouraging stock ownership. Unless and until an executive
committee of the Company's Board of Directors is appointed, the Plan will be
administered by the Company's Board of Directors which will determine, among
other things, the persons to be granted options, the number of shares subject to
each option and the option price. The exercise price of any stock option granted
under the Plan to an eligible employee must be equal to the fair market value of
the shares on the date of grant, and with respect to persons owning more than
10% of the outstanding Common Stock, the exercise price may not be less than
110% of the fair market value of the shares underlying such option on the date
of grant. The Board will determine the term of each option and the manner in
which it may be exercised provided that no option may be exercisable more than
ten years after the date of grant except for optionees who own more than 10% of
the Company's Common Stock, in which case the option may not be for more than
five years. Further, a director of the Company will not be eligible to receive
benefits unless such director is also an employee of the Company. From the date
of grant until three months prior to the exercise, the optionee must be an
employee of the Company in order to exercise any options. Options are not
transferable except upon the death of the optionee. The Board of Directors has
the power to impose additional limitations, conditions and restrictions in
connection with the grant of any option.
In 1994, the Company issued a total of 39,000 of such options to 13 of
its key employees, of which 34,000 of such options have not expired. In 1995,
the Company issued an additional 75,500 of such options to eight of its key
employees, of which 75,500 of such options have not expired. During 1997, the
Company issued a total of 21,000 of such options to two key employees of which
none have expired. During 1999, the Company issued a total of 14,000 of such
options. As of December 31, 1999, the 1992 Incentive Stock Option Plan had a
total of 144,500 options issued and unexercised.
In addition to the incentive stock options under the Company's 1992
Incentive Stock Option Plan, the Company issued non-qualified options to several
of its key personnel in lieu of compensation. During 1997, the Company issued a
total of 1,150,000 of such options to a total of 4 of its key personnel. During
1998, the Company issued a total of 100,000 additional options. During 1999, the
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Company issued a total of 517,000 options. At December 31, 1999, there were a
total of 1,767,000 of these options issued and unexercised.
The Company may adopt additional compensation programs at a later date
suitable for its executive personnel. The Company is unable to predict at this
time the format or manner of compensation to be included in any such program.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
(a) and (b) Security Ownership
------------------
The following table sets forth certain information regarding the
Company's Common Stock beneficially owned on December 31, 1999 (i) by each
person who is known by the Company to own beneficially or exercise voting or
dispositive control over 5% or more of the Company's Common Stock, (ii) by each
of the Company's Directors, and (iii) by all executive officers and directors as
a group. In general, a person is deemed to be a "beneficial owner" of a security
if that person has or shares the power to vote or direct the voting of such
security, or the power to dispose or to direct the disposition of such security.
A person is also deemed to be a beneficial owner of any securities of which the
person has the right to acquire beneficial ownership within sixty (60) days. At
December 31, 1999, there were 4,530,487 shares of Common Stock outstanding.
20
<PAGE>
Percentage of
Name and Address or
Beneficial No. of Shares of
Identity of Group Common Stock
Ownership(1) Beneficially Owned
- ------------------------- ------------------
John R. Wade(2) 881,897 22.3%
10135 Hereford Road
Folsom, LA 70437
Bobbie R. Clemons(3) 518,505 13.1%
10135 Hereford Road
Folsom, LA 70437
Walter Reid Green, Jr.(4) -- --
10135 Hereford Road
Folsom, LA 70437
All Officers and
Directors as a
Group (3 Persons) 1,400,402 35.4%
(1) Does not include (i) up to 100,000 shares of Common Stock issuable upon the
exercise of the underwriters' warrants or (ii) up to 200,000 shares of
Common Stock reserved for issuance upon exercise of options under the
Company's Incentive Stock Option Plan.
(2) Dr. Wade is the Chairman of the Board, President and Chief Executive
Officer of the Company.
(3) Mr. Clemons is Executive Vice President, Secretary and a Director of the
Company.
(4) Mr. Green is Chief Financial Officer, Treasurer, and a Director of the
Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
(a) Transactions with Management and Others
The Company was incorporated in Delaware on February 4, 1992 and on
February 14, 1992 executed a Plan and Agreement of Merger with Pacesetter
Ostrich Farm, Inc., a Louisiana corporation, and the Company's parent
corporation and predecessor. In connection with
21
<PAGE>
this merger, the Company exchanged 1,162,622 shares, 518,505 shares and 207,780
shares of Common Stock, respectively, to Dr. John Wade, Mr. Bob Clemons and Mr.
Bob Wade (retired in 1993) in exchange for their shares in the predecessor
corporation. In addition, the Company issued an aggregate of 499,983 shares of
its Common Stock to the participants in its private placements of units of its
securities completed between December 1991 and February 1992.
During 1992, Dr. Wade and Mr. Clemons made periodic advances of funds
to the Company for working capital purposes. The highest principal amount of
such advances amounted to approximately $15,000 in respect to Dr. Wade. All of
such advances were non-interest bearing and at December 31, 1994 aggregated to
$56,421. In July 1993, the company entered into a note receivable for $42,500
with Mr. Clemons bearing 8% per annum with no specified maturity date.
Effective as of March 31, 1992, Mr. Bob Clemons quit claimed and sold
the land and facilities consisting of Pacesetter Ostrich Farm to the Company in
consideration for the issuance by the Company of its promissory note in the
principal amount of $310,000 payable in sixty monthly installments of interest
only in the amount of $2,066 and a final payment of the entire principal balance
of $310,000 on March 31, 1997. Simultaneously therewith, the Company and Mr.
Clemons entered in a lease for the use of the residential portions of such
facilities by Mr. Clemons and providing for rental payments of $1,400 per month
through March 31, 1997. Mr. Clemons also received a second mortgage on such
property which is currently subject to a primary mortgage with the Federal Land
Bank in the aggregate amount of approximately $55,000 and which involves monthly
payments of $1,210 which Mr. Clemons will continue to pay. The property is also
subject to certain additional liens totaling approximately $23,000 previously
filed against Mr. Clemons. If the Company is required to make payments under
such prior mortgage or liens, the amount payable to Mr. Clemons will be reduced
by a corresponding amount, and the amount of the installments of interest to be
payable on a monthly basis will be correspondingly reduced. The Company believes
that it is unlikely that it will be called upon or be required to satisfy such
prior mortgage or liens. While the Company believes that the transaction with
Mr. Clemons represents a beneficial transaction from the standpoint of
satisfying the Company's interests, there can be no assurance that the Company
and Mr. Clemons would have consummated the acquisition on the same terms if Mr.
Clemons had not been affiliated with the Company and
22
<PAGE>
the transaction had been conducted on an arms-length basis. In March 1992, the
Company received an appraisal on such land and facilities from Scoggin, McClure
& Associates, Inc., an independent appraiser, which estimated the Value In Use
of such land and related facilities to be $435,000. "Value In Use" refers to the
value of properties with special purpose uses which is filling an economic
demand for the service it provides or which it houses, and due consideration is
given to the property's functional utility in best serving the purpose for which
it was constructed. Mr. Clemons acquired Pacesetter Ostrich Farm in 1972, and
thereafter Mr. Clemons and the Company constructed various of the facilities and
housing that comprise Pacesetter Ostrich Farm. Mr. Clemons' adjusted basis in
Pacesetter Ostrich Farm was $258,478 at the time of the transaction. Adjustments
to the purchase price were made to give effect to improvements to the facilities
that were attributable to the Company. On May 16, 1994, the Company transferred
the property, consisting of $144,682 of buildings (net of $12,344 of accumulated
depreciation) and $101,422 of land back to Mr. Clemons in consideration of
cancellation of the $310,000 note payable.
(b) Certain Business Relationships
None.
(c) Indebtedness of Management
None.
(d) Transactions with Promoters
Not applicable.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
--------------------------------------
(a)(1) and (2) Financial Statements and Schedules
The financial statements listed on the index to financial statements on
page F-1 are filed as part of this Form 10-KSB.
(b) Reports on Form 8-K
-------------------
None.
(c) Exhibits
--------
23
<PAGE>
Exhibits Description of Document
-------- -----------------------
1(a) Form of Underwriting Agreement(1)
2 Plan and Agreement of Merger(1)
3(a) Certificate of Incorporation(1)
3(b) By-Laws(1)
4(a) Specimen Certificate of Common Stock(1)
4(b) Form of Warrant Agreement and Warrant to be
sold to Greenway Capital Corporation(1)
4(c) Form of 10% Promissory Note(1)
10(a) Employment Agreement with John Wade(1)
10(b) Employment Agreement with Robert Clemons(1)
10(c) Incentive Stock Option Plan(1)
10(d) Sale with Mortgage, Lease and Appraisal Summary(1)
10(e) Financial Consulting Agreement with Greenway
Capital Corporation(1)
10(f) Lease Agreement with Poderco Limited
Partnership and LBR Trust(1)
(1) Filed as the same enumerated exhibit to the Registrant's Registration
Statement (File No. 33-49228-FW) previously filed.
24
<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 12th day of April 2000.
PACESETTER OSTRICH FARM, INC.
By: /s/ John R. Wade
-------------------------------
President and Chief Executive Officer
In accordance with the Exchange, this Report has been signed below by
the following person on behalf of the Registrant, and in the capacities and on
the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Chairman of the Board,
President, and Chief
By: /s/ John R. Wade Executive Officer April 12, 1999
------------------------------
Executive Vice President,
By: /s/ Bobbie R. Clemons Secretary and Director April 12, 1999
------------------------------
Treasurer, Director, and Chief
By: /s/ Walter R. Green, Jr. Financial and Accounting Officer April 12, 1999
------------------------------
</TABLE>
25
<PAGE>
C O N T E N T S
PAGES
-----
Independent Auditor's Report F-1
Balance Sheets F-2, F-3
Statements of Operations F-4
Statements of Stockholders' Equity (Deficit) F-5
Statements of Cash Flows F-6
Notes to Financial Statements F-7-F14
<PAGE>
To the Stockholders of
PrimeLink Systems, Inc.
(Formerly Pacesetter Ostrich Farm, Inc.)
Independent Auditor's Report
----------------------------
We have audited the accompanying balance sheets of PrimeLink Systems,
Inc. (formerly Pacesetter Ostrich Farm, Inc.) (a Delaware corporation) as of
December 31, 1999 and 1998, and the related statements of operations,
stockholders' equity (deficit) and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of PrimeLink Systems,
Inc. (formerly Pacesetter Ostrich Farm, Inc.) as of December 31, 1999 and 1998,
and the results of its operations and its cash flows for the years then ended,
in conformity with generally accepted accounting principles.
LaPorte, Sehrt, Romig and Hand
A Professional Accounting Corporation
Metairie, LA
March 3, 2000
F-1
<PAGE>
PrimeLink Systems, Inc.
(Formerly Pacesetter Ostrich Farm, Inc.)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
--------------------------
1999 1998
-------- --------
CURRENT ASSETS:
<S> <C> <C>
Cash and Cash Equivalents $ 9,794 $ 23,149
Accounts Receivable (Net of Allowance for Doubtful
Accounts of $60,668 for 1999 and $50,898 for 1998) 657,769 169,534
Unbilled Receivables 61,392 -
Advances to Shareholders 38,075 -
Prepaid Expenses 15,203 34,138
----------- ---------
Total Current Assets 782,233 226,821
PROPERTY AND EQUIPMENT, Net 565,095 399,767
NOTES RECEIVABLE FROM STOCKHOLDER 42,500 42,500
OTHER ASSETS:
Other 3,173 3,173
----------- ---------
3,173 3,173
=========== =========
$ 1,393,001 $ 672,261
=========== =========
</TABLE>
F-2
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
December 31,
--------------------------
1999 1998
-------- --------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts Payable and Other Accrued Liabilities $ 341,844 $ 257,730
Notes Payable 612,943 600,303
Advances from Stockholders -- 179,829
----------- -----------
Total Current Liabilities 954,787 1,037,862
COMMITMENTS AND CONTINGENCIES -- --
LONG-TERM LIABILITIES:
Notes Payable 245,699 200,682
----------- -----------
Total Liabilities 1,200,486 1,238,544
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT)
Common Stock, $.001 Par Value, 10,000,000 Shares
Authorized, 4,530,487 Issued and Outstanding December 31,
1999; 3,950,224 Issued and Outstanding December 31, 1998 4,530 3,950
Additional Paid-in Capital 4,124,601 3,779,217
Accumulated Deficit (3,936,616) (4,349,450)
----------- -----------
Total Stockholders' Equity (Deficit) 192,515 (566,283)
----------- -----------
b
1,393,001 $ 672,261
=========== =========
</TABLE>
F-3
<PAGE>
PrimeLink Systems, Inc.
(Formerly Pacesetter Ostrich Farm, Inc.)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For The Years Ended
December 31,
---------------------------
1999 1998
----------- --------
<S> <C> <C>
REVENUES:
Directional Boring Revenue $ 1,885,456 $ 186,132
Other Revenue 30,225 --
----------- ----------
1,915,681 186,132
COSTS AND EXPENSES:
Cost of Sales - Directional Boring 1,212,111 269,904
Selling, General and Administrative Expenses 540,411 263,457
----------- ----------
1,752,522 533,361
OPERATING INCOME (LOSS) 163,159 (347,229)
OTHER INCOME (EXPENSES):
Gain on Sale of Property and Equipment 13,689 -
Other Income 7,916 -
Loss on Sale of Investments -- (14,030)
----------- ----------
21,605 (14,030)
----------- ----------
INCOME (LOSS) BEFORE INCOME TAXES 184,764 (361,259)
INCOME TAX PROVISION -- --
----------- ----------
INCOME (LOSS) FROM CONTINUING OPERATIONS 184,764 (361,259)
DISCONTINUED OPERATIONS:
Loss from Operations of Ostrich Segment Disposed of
September 30, 1998 (Net of Income Taxes of $-0-) -- (278,374)
----------- ----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 184,764 (639,633)
EXTRAORDINARY ITEM:
Gain on Extinguishment of Debt (Net of Income Tax of $-0-) 228,070 21,846
----------- ----------
NET INCOME (LOSS) $ 412,834 $ (617,787)
========== ==========
NET LOSS PER SHARE:
Income (Loss) from Continuing Operations $ 0.04 $ (0.10)
Loss from Discontinued Operations -- (0.08)
----------- ----------
Income (Loss) Before Extraordinary Item 0.04 (0.18)
Extraordinary Item 0.06 0.01
----------- ----------
Net Income (Loss) $ 0.10 $ (0.17)
========== ==========
AVERAGE COMMON SHARES OUTSTANDING 4,083,673 3,720,991
========== ==========
</TABLE>
F-4
<PAGE>
PrimeLink Systems, Inc.
(Formerly Pacesetter Ostrich Farm, Inc.)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Additional
Common Paid-in Accumulated
Stock Capital Deficit Total
------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1997 $ 3,665 $ 3,779,217 $(3,731,663) $ 51,219
Issuance of 285,000 Shares 285 -- - 285
Net Loss -- -- (617,787) (617,787)
------- ----------- ----------- ----------
BALANCE, December 31, 1998 3,950 3,779,217 (4,349,450) (566,283)
Issuance of 580,263 Shares 580 345,384 -- 345,964
Net Income -- -- 412,834 412,834
------- ----------- ----------- ----------
BALANCE, December 31, 1999 $ 4,530 $ 4,124,601 $(3,936,616) $ 192,515
======= =========== =========== ==========
</TABLE>
F-5
<PAGE>
PrimeLink Systems, Inc.
(Formerly Pacesetter Ostrich Farm, Inc.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For The Years Ended
December 31,
-------------------------
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 412,834 $(617,787)
Adjustments to Reconcile Net Income (Loss) to Net Cash
Used in Operating Activities:
Depreciation 88,478 25,534
Increase in Accounts Receivable, Net (549,627) (91,753)
Decrease in Livestock Inventory -- 227,267
Gain on Sale of Property and Equipment (13,689) --
Gain on Converting Long-Term Debt to Equity (184,339) --
(Increase) Decrease in Prepaid Expenses 18,935 (34,138)
Acquisition of Trading Securities -- (14,030)
Loss on the Expiration of Trading Securities -- 14,030
Increase in Accounts Payable and Accrued Liabilities 125,447 56,514
Increase (Decrease) in Borrowings from Stockholders (28,984) 3,864
--------- ---------
Net Cash Used in Operating Activities (130,945) (430,499)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Property and Equipment (253,805) (374,677)
Proceeds from Sale of Property 13,689 568,954
--------- ---------
Net Cash Provided by (Used in) Investing Activities (240,116) 194,277
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of Common Stock 50 285
Proceeds from Issuance of Long-Term Debt 520,135 617,411
Repayment of Notes Payable (162,479) (358,325)
--------- ---------
Net Cash Provided by Financing Activities 357,706 259,371
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (13,355) 23,149
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 23,149 --
--------- ---------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 9,794 $ 23,149
========= =========
SUPPLEMENTAL DISCLOSURES:
Interest Paid $ 58,707 $ 43,499
========= =========
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES:
Notes Payable transferred to common stock and additional paid-in capital $ 341,333 $ --
Advances from shareholders transferred to common stock and paid-in capital $ 188,920 $ --
</TABLE>
<PAGE>
F-6
<PAGE>
PrimeLink Systems, Inc.
(Formerly Pacesetter Ostrich Farm, Inc.)
Notes to Financial Statements
NOTES A
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
The Company was incorporated on February 4, 1992 and executed
a Plan and Agreement of Merger with Pacesetter Ostrich Farm, Inc., a
Louisiana corporation, on February 14, 1992. The predecessor
corporation was organized in Louisiana on February 22, 1989 under the
name Ostrich Breeders of North America, Inc. All references to the
Company include Pacesetter Ostrich Farm, Inc., the predecessor
corporation and the operations undertaken by such predecessor
corporation.
The accompanying financial statements of the Company reflect
the combination of the Company, Pacesetter Ostrich Farm, Inc., (the
Louisiana corporation) and Ostrich Breeders of North America, Inc. The
reorganization has been accounted for as a reorganization of entries
under common control in a manner similar to a pooling of interests.
The Company was formerly a breeder of ostriches. During 1997,
this business segment was discontinued and the sale of the ostrich
inventory and related property and equipment was completed in 1998 (see
Note J).
Currently, the Company is in the business of directional
boring for creating underground conduits under its new name PrimeLink
Systems, Inc., and as such, grants credit to its customers, who are
located in the Southern United States.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased
with a maturity of three months or less to be cash equivalents.
DEPRECIATION
Depreciation is computed using the straight-line method for
financial reporting purposes over the estimated useful lives of the
respective assets, which range from five to seven years. Depreciation
charged to operations for the years ended December 31, 1999 and 1998
amounted to $88,478 and $25,534, respectively.
INCOME TAXES
For income tax reporting, the Company uses accounting methods
that recognize depreciation on an accelerated basis for property and
equipment. As a result, the basis for property and equipment for
financial reporting exceeds its tax basis by the cumulative amount that
accelerated depreciation exceeds straight-line depreciation. These and
other temporary differences have been accounted for under the
provisions of Statement of Financial Accounting Standards No. 109.
F-7
<PAGE>
PrimeLink Systems, Inc.
(Formerly Pacesetter Ostrich Farm, Inc.)
Notes to Financial Statements
NOTES A
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
ACCOUNTS RECEIVABLE
Accounts receivable are recorded at their estimated net
realizable value. Provision for bad debts totaled $9,770 and $4,245
during 1999 and 1998, respectively.
EARNINGS PER SHARE
The earnings per share calculations are based on the weighted
average number of shares of common stock outstanding and common stock
equivalents, unless their effect would be anti-dilutive.
NON-DIRECT RESPONSE ADVERTISING
The Company expenses advertising costs as incurred.
Advertising expense charged to operations totaled $4,264 and $1,203 for
the years ended December 31, 1999 and 1998, respectively.
NOTE B
DISCONTINUED OPERATIONS
During 1998, the Company completed the sale of all of the
assets of its ostrich breeding segment. These assets consisted
primarily of property and equipment and livestock inventory. Sale of
property and equipment netted $568,953 in 1998, resulting in no gain or
loss, as the assets had been written down to their net realizable value
in a prior year.
Revenue generated from livestock sales totaled $-0- and
$237,920 for the years ending December 31, 1999 and 1998, respectively.
NOTE C
PROPERTY AND EQUIPMENT
A summary of property and equipment is as follows:
1999 1998
---------- ----------
Land $ 27,000 $ 27,000
Buildings and Improvements 18,370 18,370
Furniture and Equipment 632,964 379,159
Vehicles 84,593 84,593
---------- ----------
Total 762,927 509,122
Less: Accumulated Depreciation 197,832 109,355
---------- ----------
Property and Equipment, Net $ 565,095 $ 399,767
========== ==========
F-8
<PAGE>
PrimeLink Systems, Inc.
(Formerly Pacesetter Ostrich Farm, Inc.)
Notes to Financial Statements
NOTE D
NOTES PAYABLE
A summary of outstanding notes payable at December 31, 1999 and
1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Private Placement Notes Payable
(See Description Below). $ 160,583 $ 211,833
Line of Credit - Bank; Interest at 9%; Interest payable
monthly; Due March 30, 1999; Secured by second mortgage
from a major shareholder
and guaranteed by two major shareholders. -- 20,450
Line of Credit - Bank; Interest at 9.5%; Interest payable
monthly; Due March 30, 2000; Secured by second mortgage
from a major shareholder
and guaranteed by two major shareholders 290,050 --
Note Payable Bank: Interest at 10%; Monthly
Payments of $1,688; Maturing September 13,
2002; Secured by two trucks and guarantee of
two major shareholders. 48,480 --
Note Payable Bank; Interest at 9.25%; Monthly payments of
$493; Maturing March 25, 2002 Secured by a truck and
guarantee of two major shareholders. 11,372 16,536
Note Payable Bank; Interest at 9.25%; Monthly payments of
$621; Maturing September 25, 2003; Secured by a truck and
guarantee of two major shareholders. 24,145 28,549
Note Payable Bank; Interest at 9.5%; Monthly payments of
$1,029; Maturing October 21, 2001; Secured by equipment and
guarantee of two major shareholders. 21,764 30,445
Note Payable for equipment purchase; Interest at 10.5%;
Monthly payments of $5,074; Maturing September 28, 2002;
Secured by equipment purchased. 148,453 187,874
Note Payable for equipment purchase; Interest at
10.5%; Monthly payments of $3,017; Maturing
April 20,2003; Secured by equipment purchased. 103,795 --
</TABLE>
F-9
<PAGE>
PrimeLink Systems, Inc.
(Formerly Pacesetter Ostrich Farm, Inc.)
Notes to Financial Statements
NOTE D
NOTES PAYABLE (Continued)
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Note Payable - Insurance premium financing;
Interest at 10.43%; Monthly payments of
$3,741. -- 25,298
1998 Private Placement Notes Payable
(See Description Below). 50,000 280,000
------------ ------------
$ 858,642 $ 800,985
============ ============
</TABLE>
In late 1991, the Company commenced a private placement to
accredited investors, which offered to sell up to 80 units at $5,000
per unit. In early 1992, an additional private placement of 10 units
was offered to one of the investors in the previous private placement
on terms identical to the previous private placement. The Company
received total subscriptions for 90 units ($450,000) upon completion of
these offers. Each unit consisted of 5,555 shares of common stock and a
promissory note for $5,000 with interest thereon at 10% per annum
commencing at the closing. Interest is payable semi-annually.
The principal portion of the notes was due upon the earlier of
December 1, 1995 or receipt of sufficient proceeds by the Company under
contracts for the sale of ostrich livestock anticipated to be fulfilled
commencing July 1, 1992 (such determination to be made in the
reasonable judgment of the Company's Board of Directors). As of
December 31, 1999, principal of $160,583 was still outstanding.
During 1998, the Company commenced a private placement notes
payable for terms similar to the previous private placement, maturing
September 30, 1999. The Company received total subscriptions for 28
units ($280,000) upon completion of this offer. Each unit consisted of
10,000 shares of common stock and a promissory note for $10,000 with
interest thereon at 10% per annum commencing at the closing.
During 1999, $341,333 in private placement debt plus accrued
interest was converted to common stock. See Note J. As of December 31,
1999, principal of $160,583 was outstanding on the original
subscription and $50,000 was outstanding on the 1998 subscription. As a
result, the Company is in default on these notes.
F-10
<PAGE>
PrimeLink Systems, Inc.
(Formerly Pacesetter Ostrich Farm, Inc.)
Notes to Financial Statements
NOTE D
NOTES PAYABLE (Continued)
Following are maturities of long-term debt:
December 31,
------------
2000 $ 612,943
2001 123,230
2002 102,322
2003 20,147
--------------
$ 858,642
NOTE E
INCOME TAXES
The reconciliation of the Federal statutory tax rate to the
effective tax rate is as follows:
1999 1998
---- ----
Statutory Tax Rate 34% 34%
State Taxes 3 3
Benefit from NOL Carryforward (37) (37)
----- -----
Effective Tax Rate 0% 0%
===== =====
Cumulative deferred taxes consist of the following temporary
differences at an estimated effective Federal and state tax rate of
37%.
<TABLE>
<CAPTION>
1999 1998
------------ ---------
<S> <C> <C>
Deferred Tax Liabilities:
Property and Equipment $ 29,327 $ 13,558
------------ ------------
Deferred Tax Assets:
Net Operating Loss Carryforward 1,540,597 1,592,529
Accounts Receivable Allowance 22,447 18,832
Less: Valuation Allowance (1,533,717) (1,597,803)
------------ ------------
Deferred Tax Assets 29,327 13,558
------------ ------------
Total Deferred Taxes $ -- $ --
============ ============
</TABLE>
At December 31, 1999, the Company had, for tax reporting
purposes, operating loss carryforwards of approximately $4,163,776,
which expire in 2007 through 2015.
F-11
<PAGE>
PrimeLink Systems, Inc.
(Formerly Pacesetter Ostrich Farm, Inc.)
Notes to Financial Statements
NOTE E
INCOME TAXES (Continued)
The Company has generated losses from operations in 1992
through 1998. As a result, the Company does not believe it is more
likely than not, it will be able to realize the NOL carryforwards
through generation of future taxable income. Therefore, the Company has
provided a valuation allowance for the entire amount of the deferred
tax assets.
NOTE F
INCENTIVE STOCK OPTION PLANS
During February, 1992, the Company adopted the 1992 Incentive
Stock Option Plan (the "Plan") under which 200,000 shares of common
stock have been reserved for issuance to employees of the Company. The
exercise price of any stock option granted under the Plan to an
eligible employee will be equal to the fair market value of the shares
on the date of grant and with respect to persons owning more than 10%
of the outstanding common stock, the exercise price will not be less
than 110% of the fair market value of the shares. On January 16, 1995,
the Company granted a total of 40,000 options to persons owning more
than 10% of the outstanding stock for $0.75 per share. These options
expire in January 2000, but will be renewed for an additional five
years. The remaining 104,500 options expire between May 2004 and
October 2009.
In addition, the Company periodically issues stock options to
key employees under terms similar to the 1992 Plan. These non-qualified
options, totaling 1,911,500 at December 31, 1999, expire between March
2007 and October 2009.
A summary of the status of the plans as of December 31, 1999
and 1998 and changes during the years ending on those dates is
presented below:
<TABLE>
<CAPTION>
1999 1998
-------------------------- ------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------ ----- ------ -----
<S> <C> <C> <C> <C>
Outstanding at Beginning of Year 1,380,500 $ 0.21 1,285,500 $ 0.22
Granted 531,000 0.34 100,000 0.15
Exercised -- -- -- --
Forfeited -- -- (5,000) 0.22
---------- -------- ---------- --------
Outstanding at End of Year 1,911,500 $ 0.25 1,380,500 $ 0.21
========== ======== ========== ========
Options Exercisable at Year End 1,911,500 $ 0.25 1,380,500 $ 0.21
========== ======== ========== ========
Weighted Average Fair Value of
Options Granted During the Year $ 0.59 $ 0.15
========== ==========
</TABLE>
F-12
<PAGE>
PrimeLink Systems, Inc.
(Formerly Pacesetter Ostrich Farm, Inc.)
Notes to Financial Statements
NOTE F
INCENTIVE STOCK OPTION PLANS (Continued)
The Company applies APB Opinion 25 in accounting of its plans.
Accordingly, no compensation cost has been recognized for the plans.
Had compensation cost for the plans been determined based on the fair
value at the grant dates for awards under the plans consistent with the
method of SFAS No. 123, the Company's net income and earnings per share
would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998
------------ ---------
<S> <C> <C>
Net Income (Loss) as Reported Pro Forma $ 389,036 $ (636,494)
============ ==============
Income (Loss) Per Share as Reported Pro Forma $ .10 $ (.17)
============ =============
</TABLE>
For purposes of the above computation, compensation cost was
estimated using the Black-Scholes model with the following assumptions:
no dividend yield; on expected life of 5 to 10 years; expected
volatility of 235.95 percent; and risk-free interest rate of 5.58
percent.
NOTE G
STOCKHOLDER'S EQUITY
In 1999, the Company issued 530,263 shares of stock in full
settlement of private placement debt and amounts due to shareholders
totaling $530,263. In 1998, the Company issued 25,000 shares of stock
for partial settlement of private placement debt (see Note J).
NOTE H
COMMITMENTS AND CONTINGENCIES
The Company is subject to the possibility of litigation in the
ordinary course of business. The Company is not aware of any matters,
which would have a significant impact on its financial condition or
results of its operations.
NOTE I
TRANSACTIONS WITH RELATED PARTIES
In July 1993, the Company entered into a note receivable for
$42,400 with a significant stockholder. The note bears interest at 8%
per annum, and has no specified maturity date.
The Company leases certain property in Folsom, Louisiana, on a
month to month basis, from a major stockholder, on which a portion of
the Company's operations is located. Total rent paid on this lease for
December 31, 1999 and 1998 was $8,400, respectively.
Advances to or from stockholders are non-interest bearing with
no specified maturity date.
F-13
<PAGE>
PrimeLink Systems, Inc.
(Formerly Pacesetter Ostrich Farm, Inc.)
Notes to Financial Statements
NOTE J
TROUBLED DEBT RESTRUCTURING
During 1999, the Company retired $530,253 in private placement
debt and amounts due to shareholders in exchange for 530,263 shares of
the Company's $.001 par value stock. The market price on the conversion
dates ranged from $.62 to $.81 per share, resulting in an extraordinary
gain of $184,339. In addition, the Company recognized $43,731 in
extraordinary gains as the result of debt forgiveness by a shareholder
and settlement of accounts payable at a discount. These transactions
resulted in total extraordinary gains of $228,070 ($.06 per share), net
of income tax of $-0- in 1999.
During 1998, the Company retired, at a discount, $34,500 in
private placement debt for $16,000 plus 25,000 shares of the Company's
$.001 par value stock. In addition, the Company exchanged equipment,
pledged as collateral on $7,636 of notes payable, in full settlement of
the debt. These transactions resulted in an extraordinary gain of
$21,846 ($.01 per share), net of income tax of $-0- in 1998.
NOTE K
SUBSEQUENT EVENTS
Effective February 2, 2000, the Company changed its name to
PrimeLink Systems, Inc. and its trading symbol to PMLK.
On January 7, 2000, the Company issued 78,454 shares of common
stock in exchange for $86,999 in debt, resulting in an extraordinary
gain in the year ended December 31, 2000 of $8,545, net of income taxes
of $-0-.
On January 24, 2000, the Company entered into an employment
agreement with a key employee. This commitment, totaling $80,000 per
year, expires January 23, 2003.
During January, 2000, the Company issued 543,000 shares of its
stock in exchange for $225,000 of assets.
F-14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 9,794
<SECURITIES> 0
<RECEIVABLES> 657,769
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 782,233
<PP&E> 565,095
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,393,001
<CURRENT-LIABILITIES> 954,787
<BONDS> 0
0
0
<COMMON> 4,530
<OTHER-SE> 187,985
<TOTAL-LIABILITY-AND-EQUITY> 1,393,001
<SALES> 1,915,681
<TOTAL-REVENUES> 0
<CGS> 1,212,111
<TOTAL-COSTS> 1,752,522
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 184,764
<INCOME-TAX> 0
<INCOME-CONTINUING> 184,764
<DISCONTINUED> 0
<EXTRAORDINARY> 228,070
<CHANGES> 0
<NET-INCOME> 412,834
<EPS-BASIC> .10
<EPS-DILUTED> .10
</TABLE>
