-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VcpFFH9t7Oz+ZBal6mtfsXp8Imr/a33ay3eiqPeeI3F7NKCXk/91U1r2s73Wsboo OEVKWqsczTpyiAtwMaO59g== 0000950152-99-006767.txt : 19990816 0000950152-99-006767.hdr.sgml : 19990816 ACCESSION NUMBER: 0000950152-99-006767 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CABLE LINK INC CENTRAL INDEX KEY: 0000893139 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] IRS NUMBER: 311239657 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-23111 FILM NUMBER: 99686907 BUSINESS ADDRESS: STREET 1: 280 COZZINS ST CITY: COLUMBUS STATE: OH ZIP: 43215 BUSINESS PHONE: 6142213131 10QSB 1 CABLE LINK, INC. FORM 10QSB 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-QSB (Mark One) |X| Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly period ended June 30, 1999. |_| Transition report under Section 13 or 15(d) of the Exchange Act For the transition period from __________ to ___________ Commission File Number 0-23111 Cable Link, Inc. - -------------------------------------------------------------------------------- (Exact Name of Small Business Issuer as Specified in its Charter Ohio 31-1239657 - ------------------------------- ------------------- (State or Other Jurisdiction of (IRS Employer Incorporation or Organization) Identification No.) 280 Cozzins Street, Columbus, Ohio - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (614) 221-3131 - -------------------------------------------------------------------------------- (Issuer's Telephone Number, Including Area Code) - -------------------------------------------------------------------------------- (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) Check whether the issuer: (1) 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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 1,695,076 shares of Common Stock as of July 31, 1999 Transitional Small Business Disclosure Format (check one): Yes X No ----- ----- 1 2 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. CABLE LINK, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
3 Months Ending June 30 6 Months Ending June 30 1999 1998 1999 1998 ---------- ----------- ----------- ---------- Net Sales $6,198,988 $4,331,464 $12,133,639 $7,043,631 Cost of goods sold 4,952,468 3,268,808 9,588,173 5,097,745 Operating expenses 1,401,405 797,738 2,789,227 1,476,248 ---------- ---------- ----------- ---------- Total expenses 6,353,873 4,066,546 12,377,400 6,573,993 ---------- ---------- ----------- ---------- Income (loss) from operations (154,885) 264,918 (243,761) 469,638 Interest expense (50,300) (13,626) (113,319) (22,472) Other income 4,802 1,010 196 1,337 ---------- ---------- ----------- ---------- Income (loss) before taxes (200,383) 252,302 (356,884) 448,503 Provision for taxes 3,422 54,251 5,574 88,502 ---------- ---------- ----------- ---------- Net Income (loss) before cumulative effect of change in accounting principle (203,805) 198,051 (362,458) 360,001 Cumulative effect of change in accounting principle -- -- (42,246) -- ---------- ---------- ----------- ---------- Net income (loss) $ (203,805) $ 198,051 $ (404,704) $ 360,001 ========== ========== =========== ========== Basic earnings (loss) per share for net income (loss) before cumulative effect of change in accounting principle $ (0.12) $ 0.12 $ (0.21) $ 0.21 Weighted average shares outstanding 1,695,076 1,675,386 1,694,680 1,674,647 Basic (loss) per share for cumulative effect of change in accounting principle -- -- $ (0.03) -- Weighted average shares outstanding 1,695,076 1,675,386 1,694,680 1,674,647 Basic earnings (loss) per share for net income (loss) after cumulative effect of change in accounting principle $ (0.12) $ 0.12 $ (0.24) $ 0.21 Weighted average shares outstanding 1,695,076 1,675,386 1,694,680 1,674,647 Diluted earnings (loss) per share for net income (loss) $ (0.12) $ 0.10 $ (0.24) $ 0.18 Weighted average shares outstanding 1,695,076 1,987,038 1,694,680 2,006,090
2 3 CABLE LINK, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
1999 1998 JUNE 30 December 31 (UNAUDITED) (Audited) ----------- ----------- ASSETS Current Assets Cash $ 69,838 $ 61,418 Accounts receivable, net 3,244,443 3,228,285 Income tax receivable 126,417 389,023 Inventories 1,801,290 2,368,694 Prepaid expenses 111,080 84,044 Deferred income taxes 198,000 198,000 Covenant not to compete 91,248 182,498 ----------- ----------- Total current assets $ 5,642,316 $ 6,511,962 ----------- ----------- Property and Equipment Property and equipment, at cost 1,948,584 2,043,867 Accumulated Depreciation (1,140,199) (1,108,912) ----------- ----------- Total Property and Equipment 808,385 934,955 ----------- ----------- Other Assets Covenants not to Compete 42,724 45,116 Goodwill 501,560 530,857 Deferred tax asset 55,000 55,000 Organization cost -- 42,246 Deposits 39,599 44,123 ----------- ----------- Total other assets 638,883 717,342 ----------- ----------- TOTAL ASSETS $ 7,089,584 $ 8,164,259 =========== ===========
3 4 CABLE LINK, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
1999 1998 JUNE 30 December 31 (UNAUDITED) (Audited) ----------- ----------- LIABILITIES Current Liabilities Current portion long-term obligation $ 12,813 $ 45,186 Bank revolving credit line 1,740,912 2,776,607 Accounts payable 2,377,685 2,180,117 Acquisition bonus -- 30,000 Accrued expenses 421,029 448,457 Accrued warranty 197,230 245,258 Covenants not to compete 34,998 152,498 ---------- ---------- Total current liabilities 4,784,667 5,878,123 ---------- ---------- Long-term liabilities Covenant not to compete 29,166 29,166 Acquisition bonus 120,000 120,000 Note payable-bank 400,000 -- Long-term obligations 41,579 27,063 ---------- ---------- Total long-term liabilities 590,745 176,229 ---------- ---------- Total Liabilities $5,375,412 $6,054,352 ---------- ---------- STOCKHOLDERS' EQUITY Current Stockholders' Equity Common stock 1,472,357 1,463,387 Additional paid-in capital 136,136 136,136 Retained earnings 105,679 510,384 ---------- ---------- Total Stockholders' Equity 1,714,172 2,109,907 ---------- ---------- TOTAL LIABILITIES AND EQUITY $7,089,584 $8,164,259 ========== ==========
4 5 CABLE LINK, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) Six Months Ended June 30, 1999 and the year ended December 31, 1998
Shares of Issued Additional and Outstanding Common Paid-In Retained Common Stock Stock Capital Earnings Total -------------- ---------- ---------- --------- ---------- BALANCE AT DECEMBER 31, 1997 1,673,802 $1,449,706 $136,136 $ 303,355 $1,889,197 Exercise of options and warrants 15,334 $ 13,681 -- -- $ 13,681 Net Income -- -- -- $ 207,029 $ 207,029 --------- ---------- -------- --------- ---------- BALANCE AT DECEMBER 31, 1998 1,689,136 $1,463,387 $136,136 $ 510,384 $2,109,907 Exercise of options and warrants 5,940 $ 8,970 -- -- $ 8,970 Net Income (loss) -- -- -- $(404,704) $ (404,704) --------- ---------- -------- --------- ---------- BALANCE AT JUNE 30, 1999 1,695,076 $1,472,357 $136,136 $ 105,679 $1,714,172 ========= ========== ======== ========= ==========
5 6 CABLE LINK, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED) Six Months Ending June 30
1999 1998 ---------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ (404,704) $ 360,001 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 272,854 128,577 Loss on sale of equipment 15,368 -- Cumulative effect of change in accounting principle 42,246 -- (Increase) decrease in operating assets: Accounts receivable (16,158) (176,776) Income tax receivable 262,606 -- Inventories 567,404 84,665 Prepaid and other assets (22,512) (39,649) Increase (decrease) in operating liabilities Accounts payable 197,568 (250,723) Accrued warranty (48,028) -- Acquisition bonus (30,000) -- Accrued expenses (27,428) (269,120) ---------- --------- Total adjustments 1,213,920 (523,026) ---------- --------- Net cash provided by (used in) operating activities 809,216 (163,025) ---------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of stock of PC & Parts, Inc -- (700,000) Cash acquired from PC & Parts, Inc -- 50,359 Purchase of property and equipment (102,610) (24,565) Proceeds from sales of equipment 63,897 -- ---------- --------- Net cash used in investing activities (38,713) (674,206) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from sales of common stock 8,970 2,801 Payments on covenant not to compete liability (117,500) -- Net increase (decrease) in line of credit (619,028) 372,483 Issuance of long-term debt 14,515 -- Proceeds from issuance of long-term debt -- 254,035 Principal payments on debt (49,040) (54,414) Sale of stock of subsidiary -- 100,000 ---------- --------- Net cash provided by (used in) financing activities (762,082) 674,905 --------- Net increase (decrease) in cash 8,420 (162,326) Cash - beginning of period 61,418 204,990 ---------- --------- Cash - end of period $ 69,838 $ 42,664 ========== ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for interest $ 113,319 $ 22,472 Cash paid for income taxes during the period $ (243,532) $ 192,993
6 7 CABLE LINK, INC AND SUBSIDIARY NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NATURE AND SCOPE On May 18, 1998 the Company purchased 85.1% of the common stock of PC & Parts, Inc d.b.a. Auro Computer System for $370,000 in cash. On December 28, 1998 the Company purchased the remaining minority interest for $100,000 in cash. The interim consolidated financial statements have been prepared by the Company without an audit and, in the opinion of management, reflect all adjustments of a normal recurring nature necessary for a fair statement of the consolidated financial position of the Company as of June 30, 1999, the consolidated results of operations for the six months ended June 30, 1999 and consolidated cash flow for the six months ended June 30, 1999. Interim results are not necessarily indicative of results for a full year. The balance sheets as of December 31, 1998 have been derived from the financial statements that have been audited by the Company's independent public accountants. The financial statements and notes are condensed as permitted by Form 10-QSB and do not contain certain information included in the annual financial statements and notes of the Company. The financial statements and notes included herein should be read in conjunction with the financial statements and notes included in the Company's annual report, Form 10-KSB and the audited statements of the Subsidiary filed with Form 8-K/A on November 6, 1998. BASIS OF PRESENTATION The acquisition has been accounted for under the purchase method of accounting based on the Subsidiary's balance sheet as of May 5, 1998, the agreed upon closing date. The consolidated financial statements are on the accrual basis of accounting and include the financial statements of its wholly owned Subsidiary after the acquisition closing date of May 5, 1998. All significant inter-company balances and transactions have been eliminated in consolidation. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting periods. Actual amounts could differ from these estimates. AMORTIZATION OF GOODWILL Purchased goodwill is amortized using the straight-line method over 15 years. NOTE PAYABLE - BANK As part of the acquisition, the Company borrowed $500,000, which bears interest at the prime interest rate plus 1%. This matured on April 30, 1999. As of May 1, 1999 this note was converted to a one-year note and amortized on an equal monthly payment of principal based on a five-year schedule ($8,333.33/monthly) plus interest. The interest rate is prime plus 1%. ACQUISITION BONUS In 1998, the Company Board of Directors approved a $180,000 bonus payable to the Chief Executive Officer of Cable Link related to the acquisition of the Subsidiary. The bonus is payable in equal monthly installments of $5,000. The payments, which commenced in the first twelve months beginning July 6, 1998, are without conditions. The remaining payments in the second and third twelve-month periods are subject to the conditions that the percentage of earnings of the Subsidiary is equal to or greater than 15% of the capital invested in the Subsidiary by the Company. 7 8 COVENANTS NOT TO COMPETE Under the terms of the purchase agreement, the Company will pay the sellers $150,000 in monthly installment over two years. Accordingly, a short-term and long-term liability has been recognized. The Company has allocated $200,000 of the purchase price to the covenant to be amortized using the straight-line method over the same two year period. Additionally, the Company has a non-compete agreement with the Subsidiary's former president through December 31, 1999. The amount of $82,500 has been paid over six months ending June 30, 1999. Accordingly, a short-term asset and liability have been recorded and will be amortized using the straight-line method during 1999. REPORTABLE SEGMENTS The Company implemented Financial Accounting Standards Board Statement No. 131 "Disclosures About Segment of an Enterprise and Related Information." Comparative segment information for the three and six months ending June 30 ,1998 include the subsidiary from May 5, 1998 since the acquisition of PC & Parts d.b.a. Auro Computer Systems date was not consummated until May 5, 1998 Management has elected to identify the Company's reportable segments based on operating units: Cable Link, Inc and PC & Parts d.b.a. Auro Computer Systems. Information related to the Company's second quarter 1999 and 1998 reportable segments is as follow:
Cable Link, Inc Auro Computer System Total Company 3 months 3 months 3 months 3 months 3 months 3 months ending ending ending ending ending ending June 30, 1998 June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998 June 30, 1999 ------------- ------------- ------------- ------------- ------------- ------------- Revenues $2,686,308 $2,043,754 $3,512,680 $2,287,710 $6,198,988 $4,331,464 Cost of sales 1,764,966 1,213,334 3,187,502 2,055,474 4,952,468 3,268,808 ---------- ---------- ---------- ---------- ---------- ---------- Gross margin 921,342 830,420 325,178 232,236 1,246,520 1,062,656 Operating expenses 757,356 606,271 629,401 178,924 1,386,757 785,195 ---------- ---------- ---------- ---------- ---------- ---------- Operating income (loss) 163,986 224,149 (304,223) 53,312 (140,237) 277,461 Interest expenses (14,432) (16,055) (35,868) 2,429 (50,300) (13,626) Other income (expenses) 1,224 384 3,578 626 4,802 1,010 ---------- ---------- ---------- ---------- ---------- ---------- Operating income (loss) $ 150,778 $ 208,478 $ (336,513) $ 56,367 $ (185,735) $ 264,845 Cumulative effect of change in accounting principle, net -- -- -- -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- Operating income (loss) after change in accounting principle, net $ 150,778 $ 208,478 $ (336,513) 56,367 $ (185,735) $ 264,845 ========== ========== ========== ========== ========== ==========
8 9
Cable Link, Inc Auro Computer System Total Company 6 months 6 months 6 months 6 months 6 months 6 months ending ending ending ending ending ending June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998 ------------- ------------- ------------- ------------- ------------- ------------- Revenues $5,849,383 $4,755,921 $6,284,256 $2,287,710 $12,133,639 $7,043,631 Cost of sales 3,838,812 3,042,271 5,749,361 2,055,474 9,588,173 5,097,745 ---------- ---------- ---------- ---------- ----------- ---------- Gross margin 2,010,571 1,713,650 534,895 232,236 2,545,466 1,945,886 Operating expenses 1,541,370 1,284,781 1,218,561 178,924 2,759,931 1,463,705 ---------- ---------- ---------- ---------- ----------- ---------- Operating income (loss) 469,201 428,869 (683,666) 53,312 (214,465) 482,181 Interest expenses (45,769) (24,901) (67,550) 2,429 (113,319) (22,472) Other income (expenses) (8,987) 711 9,183 626 196 1,337 ---------- ---------- ---------- ---------- ----------- ---------- Operating income (loss) $ 414,445 $ 404,679 $ (742,033) $ 56,367 $ (327,588) $ 461,046 Cumulative effect of change in accounting principle, net (42,246) -- -- -- (42,246) -- ---------- ---------- ---------- ---------- ----------- ---------- Operating income (loss) after change in accounting principle, net $ 372,199 $ 404,679 $ (742,033) $ 56,367 $ (369,834) $ 461,046 ========== ========== ========== ========== =========== ========== Total assets $4,925,778 $4,387,720 $2,939,730 $2,913,055 $ 7,865,508 $7,300,775 Depreciation and amortization expenses $ 126,060 $ 113,610 $ 146,794 $ 14,967 $ 272,854 $ 128,577
A reconciliation of the segments' operating income to the consolidated net loss is a follows:
Six months Six months ending ending June 30, 1999 June 30, 1998 ------------- ------------- Segments operating income $(369,834) $461,046 Less: Income tax expense 5,574 88,502 Goodwill amortization 29,296 12,543 --------- -------- Consolidated net (loss) income $(404,704) $360,001
A reconciliation of the segments' total assets to the consolidated total assets is as follows:
Six months Six months ending ending June 30, 1999 June 30, 1998 ------------- ------------- Segments total assets $7,865,508 7,300,775 Plus: Goodwill 501,560 1,116,365 Less: Investment in subsidiary at cost (470,000) (720,000) Intercompany receivables (807,484) (391,573) ---------- ---------- Consolidated total assets $7,089,584 $7,305,567
9 10 A reconciliation of the segments' total depreciation and amortization to the consolidated total depreciation and amortization is as follows:
Six months Six months ending ending June 30, 1999 June 30, 1998 ------------- ------------- Segments total depreciation and Amortization $243,558 $116,034 Amortization of goodwill 29,296 12,543 -------- -------- Consolidated total depreciation And amortization $272,854 $128,577
PROFORMA OPERATIONS The following unaudited proforma consolidated results of operations of the Company for the six-month ended June 30, 1998 assumes that the acquisition of the Subsidiary occurred on January 1, 1998 instead of May 5, 1998. These proforma results are not necessary indicative of the actual results of operations that would have been achieved nor are they necessary indicative of future results of operations. Net revenues $10,064,084 Net income 214,253 Basic net income per share .13 Diluted net income per share .11
NEW ACCOUNTING PRONOUNCEMENT On January 1, 1999, the Company adopted Statement of Position (SOP) 98-5 "Reporting of Start-up Activities," which requires all start-up costs previously capitalized by the Company to be expensed. The cumulative effect of the change in accounting principles is reflected in the statement of operations net of tax effects. All start-up costs incurred after adoption of the SOP will be expensed as incurred. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 requires companies to recognize all derivative contracts as either assets or liabilities in the balance sheet and to measure them at fair value. If certain conditions are met, a derivative may be specifically designated as a hedge, the object of which is to match the timing of gain or loss recognition on the hedging derivative with the recognition of (I) the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk or (II) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized in income in the period of change. SFAS 133 is effective (as deferred by SFAS 137) for all fiscal quarters of fiscal years beginning after June 15, 2000. Historically, the Company has not entered into derivative contracts either to hedge existing risks or for speculative purposes. Accordingly, the Company does not expect adoption of the new standard to affect its financial statements. 10 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION. The following discussion should be read in conjunction with the financial statements and footnotes appearing elsewhere herein. Fluctuations in annual operating results may occur as a result of certain factors such as the size and timing of customers' orders and competition. Due to such fluctuations, historical results and percentage relationships are not necessarily indicative of the results for any future period. Statements which are not historical facts contained in this report are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from projected results and are made pursuant to the "safe harbor provisions of the Private Securities Litigation Act of 1995". Factors that could cause actual results to differ materially include, but are not limited to, the following: the ability to obtain new contracts at attractive prices; the size and timing of customers orders; fluctuations in customer demand; competitive factors; the timely completion of contracts; and general economic conditions, both domestically and abroad. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date hereof. The Company undertakes no obligation to publicly release the results of any revision to these forward-looking statements, which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. GENERAL Cable Link, Inc. (Cable Link) sells new, used and refurbished cable TV equipment in addition to repairing equipment for cable companies within the United States and various international markets. The Company operates both its administrative and manufacturing operations from a single, leased facility in Columbus, Ohio. In 1998 the Company purchased 100% of the stock of PC & Parts, Inc. d.b.a. Auro Computer Systems (the "Subsidiary"). The Subsidiary is located in a suburb of Columbus and resells computer hardware and assembles computer hardware components into personal computers. The Subsidiary also sells personal computer software and provides both Wide Area Network (WAN) and Local Area Network (LAN), year 2000 testing and solutions, and many other services and support needs throughout Central Ohio and the surrounding areas. RESULTS OF OPERATIONS NET SALES Net sales for the Company for the second quarter ending June 30, 1999 were $6,198,988 compared to $4,331,464 for the second quarter ending June 30, 1998, an increase of $1,867,524. This represents an increase of 43.1% over the previous year for the same period. Sales for the six months ending June 30, 1999 were $12,133,639 as compared to $7,043,631 over the same six-month period in 1998, an increase of $5,090,008 or 72.3%. The increase in sales is primarily attributable to the inclusion of sales of the Subsidiary. COST OF GOODS SOLD The cost of goods sold for the Company for the second quarter ending June 30, 1999 was $4,952,468 and $9,588,173 for the six months ending June 30,1999, an increase of $1,683,660 and $4,490,428 over the same periods in 1998 respectively. The majority of the increase is attributable to the inclusion of the Subsidiary's cost of goods sold. Hardware and software sales for the Subsidiary carry substantially higher cost of goods sold as compared to those products sold by Cable Link. The Subsidiary is focusing efforts on the service side of the business, which could contribute, to higher gross margins in the future. Cable Link's cost of goods sold increased slightly due to the increase in sales and the sale of new products, which carry a lower gross margin than its refurbished equipment sales and repairs. OPERATING EXPENSES Operating Expenses increased to $1,401,405 for the three-month period ending June 30, 1999 as compared to $797,738 for the same period ending in 1998. The operating expenses for the six-month period ending June 30, 1999 were $2,789,227 as 11 12 compared to $1,476,248 for the 1998 comparable period. The increase in the operating expenses is primarily attributable to the inclusion of the Subsidiary's operating expenses. Cable Link and the Subsidiary continue to implement procedures and review the Company's organizational structure in an attempt to increase efficiencies and further reduce costs. INCOME (LOSS) FROM OPERATIONS The loss from operations for the second quarter ending June 30, 1999 was $154,885 as compared to the income of $264,918 for the same period in 1998, a decrease of $419,803. The loss from operations for the six-months ending June 30, 1999 was $243,761 as compared to income of $469,638 for the six-months ending June 30, 1998. The decrease in income from operations is a result of the Company's increase in cost of goods sold and an increase in operating expenses. The increase in hardware, software, and new products sales resulted in an increase in the cost of goods sold for the Company. These product sales carry a higher product cost than the service, repair, and refurbishing sales. In the second quarter of 1999, the Subsidiary hired a new president in an effort to increase the Subsidiary's service sales. The increase in the sales force for the six-months ending June 1999 and costs otherwise associated with this change of focus contributed to the Subsidiary's loss from operations. TAXES The provision for taxes for the second quarter ending June 30, 1999 was $3,422 compared to $54,251 for the second quarter ending June 30, 1998. This decrease is due to the tax operating loss incurred by the Subsidiary which offset taxable income incurred by Cable Link. The full tax benefit of these losses has not been accrued because the realization of these benefits is not more likely than not at this time. The following are management's discussion and analysis of material changes in financial position during the second quarter ending June 30, 1999. INVENTORIES Inventory decreased 24% or $567,404 from December 31, 1998 as compared to June 30, 1999. The decrease is primarily due to Cable Link's sales of existing inventory for the six months ending June 30, 1999. COVENANTS NOT TO COMPETE Under the terms of Amendment No. 1 of the Stock Purchase and Non-Compete Agreement included as exhibit 2.3 of the Form 8-K/A filed on November 6, 1998, the Company will pay the sellers of the Subsidiary $150,000 in monthly installments over two years and the sellers agreed to not compete with the Subsidiary for two years. A short-term and a long-term liability have been recognized. The Company allocated $200,000 of the purchase price to the covenant to not compete to be amortized using the straight-line method over the same two year period. The Company has a non-compete agreement with the Subsidiary's former president through December 31, 1999. The amount of $82,500 has been paid over six months ending June 30, 1999. Accordingly, a short-term asset and liability have been recorded and will be amortized using the straight-line method during 1999. SHORT TERM OBLIGATIONS The short-term obligations ending December 1998 included a term note of $500,000. This note was converted on May 1, 1999 and will now be amortized on equal monthly payment on a five-year schedule ($8,333.33). As of June 30, 1999 $400,000 has been classified as a long-term note. The bank line of credit decreased by $619,028 from December 31, 1998 as compared to June 30, 1999. This decrease is due to improved cash flows generated by higher sales by Cable Link and improvement in accounts being received within terms. 12 13 ACCRUED WARRANTY EXPENSE The Subsidiary provides a three year on-site parts and labor warranty on hardware sold. Replacement components are generally provided by the original equipment manufacturer. The Subsidiary is responsible for installing the replacement parts. The Subsidiary has estimated the future labor costs to install replacement parts for the systems that remain under this warranty as of December 31, 1998. Based on past experience the majority of warranty calls are made during the first few months of ownership, and therefore the entire liability is classified as short term. In August 1998, the Subsidiary revised its warranty policy to provide for on-site parts and labor service for thirty days. After thirty days, the customer will be charged for all travel time, unless an extended warranty is purchased. Based on the new policy the accrued warranty expense has decreased $48,028 from December 31, 1998 to June 30, 1999. LIQUIDITY AND CAPITAL RESOURCES On May 18, 1998, the Company purchased 85.1% of the common stock of the Subsidiary. Based on the unadjusted purchase price, the Company used net cash of approximately $700,000 to purchase this common stock. The cash came from an issuance of long-term debt of $500,000. In September, 1998 the Company signed Amendment No.1 to the Stock Purchase and Non-Compete Agreement to resolve differences in the original purchase price. The Amendment provided for a $350,000 reduction in the original purchase price of $820,000. The $350,000 overpayment was refunded as follows: 1) a cash refund of $80,000, 2) cancellation of the notes payable to former stockholders of $120,000 3) repayment to the Company of $100,000 previously held in escrow and 4) a pro rata reduction of $50,000 in non-compete agreements. On December 18, 1998 the Company purchased the remaining minority interest for $100,000. The Company finances its operations primarily through internally generated funds and bank lines of credit totaling $3,300,000. Bank borrowings decreased by $619,028 in the second quarter ending June 30,1999 compared to December 31, 1998. Accounts receivable increased $16,158 from December 31, 1998 as compared to June 30, 1999. Inventory decreased $567,404 from December 31, 1998 to June 30, 1999 or 24%. Accounts Payable increased $197,568 from December 31, 1998 as compared to June 30, 1999. As the need for additional capital arises from the increase in business, the company has made arrangements with the lender through the existing bank credit facility to meet its needs. The external sources of cash include the bank line of credit and the $500,000 term note. The Company anticipates no material capital expenditures at this time. The Company believes that its available financial resources including the line of credit facility and operating cash flow will be adequate to meet its foreseeable working capital, debt service and capital expenditures requirements. YEAR 2000 Cable Link and its Subsidiary ("the Company") have in place detailed programs to address Year 2000 readiness in its internal control systems and with its key customers and suppliers. The Year 2000 issue is a result of computer logic that was written using two digits rather than four to define the applicable year. Any computer logic that processes date-sensitive information may recognize the date using "00" as the year 1900 rather than the year 2000, which could result in miscalculations or system failures. Pursuant to the Company's readiness programs, all major categories of information technology systems and non-information technology systems (i.e., equipment with embedded microprocessors such as heating and cooling systems) in use by both Cable Link and the Subsidiary, including accounting, repair equipment, service orders and sales order processing have been addressed. In addition the plans developed by the Company for information technology systems and non-information technology systems have been implemented and the required systems have been modified or replaced. The Company has taken the following actions regarding its critical areas: Accounting - The Company purchased and installed new accounting system software and hardware or upgrades from outside vendors that are Year 2000 compliant. These upgrades and new systems were required to implement reporting enhancements and were not purchased solely to become year 2000 compliant. 13 14 Repair equipment - All repair equipment has been tested and the required modification or upgrades have been completed. Sales and service order system - All modifications to software have been made to be year 2000 compliant. These modifications have been tested. The Company is also communicating with its major customers, suppliers and financial institutions to assess the potential impact on the Company's operations if those third parties fail to become Year 2000 compliant in a timely manner. While this process is not complete, based on responses to date, it appears that many of those customers and suppliers have only indicated that they have in place Year 2000 readiness programs, without specifically confirming that they will be Year 2000 compliant in a timely manner. Risk assessment, readiness evaluation, and contingency plans are expected to be completed by December 31, 1999. The Company's key financial institutions have been surveyed and it is the Company's understanding that they are or will be Year 2000 compliant on or before December 31, 1999. The Subsidiary does not take responsibility for any software purchased from the Subsidiary that does not allow for the year 2000 rollover. The Subsidiary is providing all major customers with information to assist them in evaluating processing systems. The costs incurred to date related to its Year 2000 activities have not been material to the Company and based upon estimates, the Company does not believe that the total cost of its Year 2000 readiness programs will have a material adverse impact on the Company's results of operations or financial condition. Based on the Company's current assessment of its information and non-informational technology systems, it does not believe it is necessary to develop extensive contingency plans for those systems. There can be no assurance, however, that any of the Company's plans will be sufficient to handle all problems or issues that may arise. The Company believes that it is taking reasonable steps to identify and address those matters that could cause serious interruptions in its business and operations due to Year 2000 issues. However, delays in the implementation of new systems, a failure to fully identify all Year 2000 deficiencies in the Company's systems and in the systems of its suppliers, customers and financial institutions, a failure of such third parties to adequately address their respective Year 2000 issues, or a failure of any plan could have a material adverse effect on the Company's business, financial conditions and results of operations. For example, the Company would experience a material adverse impact on its business if significant suppliers' systems fail to timely provide the Company with necessary inventories or services due to Year 2000 system failures. The statements set forth herein concerning Year 2000 issues which are not historical facts are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. In particular, the costs associated with the Company's Year 2000 programs and the time frame in which the Company plan to complete Year 2000 modifications are based upon management's best estimates. These estimates were derived from internal assessments and assumptions of future events. These estimates may be adversely affected by the continued availability of personnel and system resources, and by the failure of significant third parties to properly address Year 2000 issues. Therefore, there can be no guarantee that any estimates, or other forward-looking statements will be achieved, and actual results could differ significantly from those contemplated. OTHER On June 21, 1999 the Company signed an agreement with Scientific-Atlanta which authorizes and approves Cable Link Inc as an out of warranty repair facility. On September 1, 1999 the Company will begin operating a single leased facility in Hollywood, Florida. This facility will be to service Cable Link's international customers for sales and repair of CATV equipment as well as establish a Florida market for computer services and hardware sales that the Subsidiary offers. 14 15 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. None. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. ITEM 5. OTHER INFORMATION. None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits. (2) Charter and Bylaws. The Articles of Incorporation and Code of Regulations of the Issuer as presently in effect. (3) Instruments Defining the Rights of Security Holders. (a) See Exhibit 2.1 - Articles of Incorporation; Articles IV, V and VI. See Exhibit 2.2 - Code of Regulations; Articles I, IV and VII (b) The registrant agrees to provide to the Commission upon request instruments defining the rights of holders of long-term debt of the registrant and all of its subsidiaries for which consolidated financial statements are required to be filed. (5) Voting Trust Agreement. None. (6) Material Contracts. See Exhibit 6.1 - 1995 Stock Option Plan dated October 17, 1995. See Exhibit 6.2. - Warrant Agreement for Axxess International Group, Inc. dated January 8, 1997. See Exhibit 6.3. Non-Competition and Consulting Agreement dated October 18, 1994. See Exhibit 6.4. First Amendment Agreement to Non-Competition and Consulting Agreement dated June 1, 1995. See Exhibit 6.5. Second Amendment Agreement to Non-Competition and Consulting Agreement dated November 16, 1995. 15 16 See Exhibit 6.6. Consulting Agreement dated October 1, 1996. See Exhibit 6.7. Eric S. Newman Independent Consulting Letter Agreement dated August 1, 1994. See Exhibit 6.8. Loan and Security Agreement dated November 27, 1996. See Exhibit 6.9. Promissory Note dated April 30, 1997. See Exhibit 6.10. Lease dated November 4, 1992 and Lease Modification Agreement dated October 26, 1995 for Suite 201, 280 Cozzins, Columbus, Ohio. (7) Material Foreign Patents. None. (8) Plan of Acqusition, Reorganization, etc. See Exhibit 8.1. Stock Purchase and Non-Compete Agreement among PC & Parts, Inc., its Shareholders, Brian Berger and Cable Link, Inc. dated May 18, 1998. See Exhibit 8.2. Stock Agreement among Cable Link, Inc., PC & Parts, Inc. and Brian Berger dated May 18, 1998. (b) Reports on Form 8-K. A report on Form 8-K was filed on May 29, 1998 reporting the acquisition of PC & Parts, Inc. and an amendment thereto was filed on July 30, 1998 containing financial statements required pursuant to Item 7 of the Form 8-K. (10) Consents. The consent of Groner, Boyle & Quillin, LLP 16 17 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CABLE LINK, INC. Dated August 12, 1999 By s/ Bob Binsky ------------------- ---------------------------------- Bob Binsky, Chairman of the Board (principal executive officer) By s/ Zaida Wahlberg ---------------------------------- Zaida Wahlberg, Treasurer (principal accounting officer) 17 18 EXHIBIT INDEX
PAGE IN SEQUENTIALLY NUMBERED EXHIBIT COPY 2.1. Articles of Incorporation of Cable Link, Inc., as amended (incorporated by reference to Exhibit 2.1 of Form 10-SB, as amended, filed December 23, 1997 (the "Form 10-SB"); Commission File No. 0-23111). * 2.2. Code of Regulations of Cable Link, Inc., as amended (incorporated by reference to Exhibit 2.2 to the Form 10-SB). * 3.1. See Articles IV, V and VI of the Articles of Incorporation of the Registrant (see Exhibit 2.1). 3.2. See Articles I, IV and VII of the Code of Regulations of the Registrant (see Exhibit 2.2). 6.1. 1995 Stock Option Plan dated October 17, 1995 (incorporated by reference to Exhibit 6.1 to the Form 10-SB). * 6. 2. Warrant Agreement for Axxess International Group, Inc. dated January 8, 1997 (incorporated by reference to Exhibit 6.2 to the Form 10-SB). * 6. 3. Non-Competition and Consulting Agreement dated October 18, 1994 (incorporated by reference to Exhibit 6.3 to the Form 10-SB). * 6. 4. First Amendment Agreement to Non-Competition and Consulting Agreement dated June 1, 1995 (incorporated by reference to Exhibit 6.4 to the Form 10-SB). * 6.5. Second Amendment Agreement to Non-Competition and Consulting Agreement dated November 16, 1995 (incorporated by reference to Exhibit 6.5 to the Form 10-SB). * 6.6. Consulting Agreement dated October 1, 1996 (incorporated by reference to Exhibit 6.6 to the Form 10-SB). * 6.7. Eric S. Newman Independent Consulting Letter Agreement dated August 1, 1994 (incorporated by reference to Exhibit 6.7 to the Form 10-SB). * 6.8. Loan and Security Agreement dated November 27, 1996 (incorporated by reference to Exhibit 6.8 to the Form 10-SB). * 6.9. Promissory Note dated April 30, 1997 (incorporated by reference to Exhibit 6.9 to the Form 10-SB). * 6.10. Lease dated November 4, 1992 and Lease Modification Agreement dated October 26, 1995 for Suite 201, 280 Cozzins, Columbus, Ohio (incorporated by reference to Exhibit 6.10 to the Form 10-SB/A of Registrant, Registration No. 0-23111)). * 8.1 Stock Purchase and Non-Compete Agreement among PC & Parts, Inc., its Shareholders, Brian Berger and Cable Link, Inc. dated May 18, 1998 (incorporated by reference to Exhibit 2.1 to the Form 8-K of Registrant filed May 29, 1998, Registration No. 0-23111) *
18 19 8.2 Stock Agreement among Cable Link, Inc., PC & Parts, Inc. and Brian Berger dated May 18, 1998 (incorporated by reference to Exhibit 2.2 to the Form 8-K of Registrant filed May 29, 1998, Registration No. 0-23111) * Consent of Groner, Boyle & Quillin, LLP (incorporated by reference to Exhibit 10.1 to the Form 10-KSB40 of Registrant filed March 31, 1999, Registration No. 0-23111) 27. Financial Data Schedule (submitted electronically for SEC purposes only)
*Incorporated by reference 19 EX-27 2 EXHIBIT 27
5 The schedule contains summary financial information extracted from the Registrant's unaudited financial statements for the three months ended June 30, 1999 and is qualified in its entirety by reference to such financial statements. 3-MOS DEC-31-1999 APR-01-1999 JUN-30-1999 69,838 0 3,478,882 108,022 1,801,290 5,642,319 1,948,584 1,140,199 7,089,584 4,784,667 0 0 0 1,472,357 241,815 7,089,584 6,198,988 6,198,988 4,952,468 6,353,873 0 0 50,300 (200,383) 3,422 (203,805) 0 0 0 (203,805) (.12) (.12)
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