-----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, JPE3grCLLHEGcGUVyivWTTyqwnDSLsTXqY4Bf6GDR3BAMbunnXbTr/nkTULq/HDm Xjkvo81Lufm+CjffsZ1T7Q== 0000950152-99-009102.txt : 19991117 0000950152-99-009102.hdr.sgml : 19991117 ACCESSION NUMBER: 0000950152-99-009102 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 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: 99752680 BUSINESS ADDRESS: STREET 1: 280 COZZINS ST CITY: COLUMBUS STATE: OH ZIP: 43215 BUSINESS PHONE: 6142213131 10QSB 1 CABLE LINK, INC. 10-QSB 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 September 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 October 31, 1999 Transitional Small Business Disclosure Format (check one): Yes X No ----- ----- 2 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. CABLE LINK, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
3 Months Ending September 30 9 Months Ending September 30 1999 1998 1999 1998 ----------- ----------- ----------- ---------- Net Sales $ 4,978,111 $ 7,580,466 $17,111,750 $14,624,097 Cost of goods sold 3,573,765 6,041,123 13,161,938 11,138,868 Operating expenses 1,458,846 1,243,811 4,248,073 2,704,781 ----------- ----------- ----------- ---------- Total expenses 5,032,611 7,284,934 17,410,011 13,843,649 ----------- ----------- ----------- ---------- Income (loss) from operations ( 54,500) 295,532 ( 298,261) 780,448 Interest expense ( 48,340) ( 41,981) ( 161,659) ( 76,954) Other income 113,655 3,832 113,851 5,169 ----------- ----------- ----------- ---------- Income (loss) before taxes 10,815 257,383 ( 346,069) 708,663 Provision for taxes 6,002 54,251 11,576 142,753 ----------- ----------- ----------- ---------- Net income (loss) before cumulative effect of change in accounting principle 4,813 203,132 ( 357,645) 565,910 Cumulative effect of change in accounting principle, net of tax - - ( 42,246) - ----------- ----------- ----------- ---------- Net income (loss) $ 4,813 $ 203,132 $ (399,891) $ 565,910 =========== =========== ============ ========== Basic earnings (loss) per share for net income (loss) before cumulative effect of change in accounting principle $ 0.00 $ 0.12 $ (0.21) $ 0.34 Weighted average shares outstanding 1,695,076 1,681,516 1,694,814 1,676,478 Basic (loss) per share for cumulative effect of change in accounting principle - - $ (0.03) - Weighted average shares outstanding 1,695,076 1,681,516 1,694,814 1,676,478 Basic earnings (loss) per share for net income (loss) after cumulative effect of change in accounting principle $ 0.00 $ 0.12 $ (0.24) $ 0.34 Weighted average shares outstanding 1,695,076 1,681,516 1,694,814 1,676,478 Diluted earnings (loss) per share for net income (loss) $ 0.00 $ 0.11 $ (0.23) $ 0.29 Weighted average shares outstanding 1,723,489 1,908,964 1,726,316 1,958,465
2 3 CABLE LINK, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
1999 1998 SEPTEMBER 30 December 31 (UNAUDITED) (Audited) ------------ ----------- ASSETS Current Assets Cash $ 130,572 $ 61,418 Accounts receivable, net 2,633,651 3,228,285 Income tax receivable 113,875 389,023 Inventories 1,543,098 2,368,694 Prepaid expenses 174,054 84,044 Deferred income taxes 144,000 198,000 Covenants not to compete 87,289 182,498 ------------ ----------- Total current assets 4,826,539 6,511,962 ------------ ----------- Property and Equipment Property and equipment, at cost 2,012,029 2,043,867 Accumulated depreciation and amortization ( 1,199,275) ( 1,108,912) ------------ ----------- Net Property and Equipment 812,754 934,955 ------------ ----------- Other Assets Covenants not to Compete - 45,116 Goodwill, net 486,913 530,857 Deferred tax asset 109,000 55,000 Organization cost - 42,246 Deposits 43,097 44,123 ------------ ----------- Total other assets 639,010 717,342 ------------ ----------- TOTAL ASSETS $ 6,278,303 $ 8,164,259 ============ ===========
3 4 CABLE LINK, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
1999 1998 SEPTEMBER 30 December 31 (UNAUDITED) (Audited) ------------ ----------- LIABILITIES Current Liabilities Current portion long-term obligation $ 65,088 $ 45,186 Bank revolving credit line 1,797,935 2,776,607 Accounts payable 1,601,537 2,180,117 Acquisition bonus -- 30,000 Accrued expenses 430,073 448,457 Accrued warranty 173,498 245,258 Covenants not to compete 46,664 152,498 Total current liabilities 4,114,795 5,878,123 --------------- ------------- Long-term liabilities Covenants not to compete - 29,166 Acquisition bonus - 120,000 Note payable-bank 400,000 - Long-term obligations 44,522 27,063 Total long-term liabilities 444,522 176,229 --------------- ------------- Total Liabilities 4,559,317 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 110,493 510,384 --------------- ------------- Total Stockholders' Equity 1,718,986 2,109,907 --------------- ------------- TOTAL LIABILITIES AND EQUITY $ 6,278,303 $ 8,164,259 =============== =============
4 5 CABLE LINK, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) Nine Months Ended September 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) - - - ( 399,891) ( 399,891) --------- ----------- ----------- ----------- ----------- BALANCE AT SEPTEMBER 30, 1999 1,695,076 $ 1,472,357 $ 136,136 $ 110,493 $ 1,718,986 ========= =========== =========== =========== ===========
5 6 CABLE LINK, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED) Nine Months Ending September 30
1999 1998 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $(399,891) $ 565,910 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 412,738 221,312 Bonus reversal (120,000) -- Loss on sale of equipment 20,974 -- Cumulative effect of change in accounting principle 42,246 -- (Increase) decrease in operating assets: Accounts receivable 594,634 (1,093,729) Income tax receivable 275,148 -- Inventories 825,596 ( 915,178) Prepaid and other assets ( 88,984) ( 98,367) Increase (decrease) in operating liabilities: Accounts payable (578,580) 1,833,342 Accrued warranty ( 71,760) -- Acquisition bonus ( 30,000) -- Accrued expenses ( 18,384) ( 540,625) --------- ----------- Total adjustments 1,263,628 ( 593,245) Net cash provided by (used in) operating activities 863,737 ( 27,335) --------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of stock of PC & Parts, Inc -- ( 470,000) Cash acquired from PC & Parts, Inc -- 50,359 Purchase of property and equipment (191,139) ( 166,371) Proceeds from sales of equipment 63,897 -- --------- ----------- Net cash used in investing activities (127,242) ( 586,012) --------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from sales of common stock 8,970 13,681 Payments on covenant not to compete liability (135,000) -- Net increase (decrease) in line of credit (478,672) 905,324 Issuance of long-term debt 17,459 -- Principal payments on debt ( 80,098) ( 364,565) Minority interest -- 100,000 --------- ----------- Net cash provided by (used in) financing activities (667,341) 654,440 --------- ----------- Net increase in cash 69,154 41,093 Cash - beginning of period 61,418 204,990 --------- ----------- Cash - end of period $ 130,572 $ 246,083 ========= =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for interest $ 161,659 $ 40,721 Cash (received from) paid for income taxes $(255,132) $ 348,183
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 Systems 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 September 30, 1999, the consolidated results of operations for the nine months ended September 30, 1999 and consolidated cash flow for the nine months ended September 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. On September 23, 1999 the Chief Executive Officer signed a waiver to the rights and interest of the remaining $120,000. The bonus reversal was included in other income on the accompanying consolidated statement of income as of September 30, 1999. 7 8 COVENANTS NOT TO COMPETE Under the terms of the purchase agreement, the Company will pay the sellers $150,000 in monthly installments over two years. Accordingly, a short-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 was paid in full as of June 30, 1999. Accordingly, a short-term asset has been recorded and is being 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 nine months ending September 30, 1998 include the Subsidiary's activity from the acquisition date of May 5, 1998 of PC & Parts, Inc. d.b.a. Auro Computers Systems. 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 third quarter 1999 and 1998 reportable segments is as follow:
Cable Link, Inc Auro Computer Systems Total Company 3 months 3 months 3 months 3 months 3 months 3 months ending ending ending ending ending ending Sept 30, 1999 Sept 30, 1998 Sept 30, 1999 Sept 30, 1998 Sept 30, 1999 Sept 30, 1998 ------------- ------------- ------------- ------------- ------------- ------------- Revenues $ 2,496,639 $ 2,720,530 $ 2,481,472 $ 4,859,936 $ 4,978,111 $ 7,580,466 Cost of sales 1,519,243 1,756,593 2,054,522 4,284,530 3,573,765 6,041,123 ------------ ------------ ------------ ----------- ----------- ----------- Gross margin 977,396 963,937 426,950 575,406 1,404,346 1,539,343 Operating expenses 734,946 778,580 709,252 450,583 1,444,198 1,229,163 ------------ ------------ ------------ ----------- ----------- ----------- Operating income (loss) 242,450 185,357 ( 282,302) 124,823 ( 39,852) 310,180 Interest income (expenses) 7,349 ( 26,217) ( 55,689) ( 15,764) ( 48,340) ( 41,981) Other income (expenses) ( 6,716) 1,339 120,371 2,493 113,655 3,832 ------------ ------------ ------------ ----------- ----------- ----------- Net income (loss) before changes in accounting principle 243,083 160,479 ( 217,620) 111,552 25,463 272,031 Cumulative effect of change in accounting principle, net - - - - - - ------------ ------------ ------------ ----------- ----------- ----------- Net income (loss) after change in accounting principle $ 243,083 $ 160,479 $( 217,620) $ 111,552 $ 25,463 $ 272,031 ============ =========== ============ ============ ============ ==========
8 9
Cable Link, Inc Auro Computer Systems Total Company 3 months 3 months 3 months 3 months 3 months 3 months ending ending ending ending ending ending Sept 30, 1999 Sept 30, 1998 Sept 30, 1999 Sept 30, 1998 Sept 30, 1999 Sept 30, 1998 ------------- ------------- ------------- ------------- ------------- ------------- Revenues $ 8,346,022 $ 7,476,451 $ 8,765,728 $ 7,147,646 $17,111,750 $ 14,624,097 Cost of sales 5,358,055 4,798,864 7,803,883 6,340,004 13,161,938 11,138,868 ------------ ------------ ------------ ----------- ----------- ----------- Gross margin 2,987,967 2,677,587 961,845 807,642 3,949,812 3,485,229 Operating expenses 2,276,316 2,063,361 1,927,813 617,006 4,204,129 2,680,367 ------------ ------------ ------------ ----------- ----------- ----------- Operating income (loss) 711,651 614,226 ( 965,968) 190,636 ( 254,317) 804,862 Interest income (expenses) ( 38,420) ( 51,118) ( 123,239) ( 25,836) ( 161,659) ( 76,954) Other income (expenses) ( 15,703) 2,050 129,554 3,119 113,851 5,169 ------------ ------------ ------------ ----------- ----------- ----------- Net income (loss) before changes in accounting principle 657,528 565,158 ( 959,653) 167,919 ( 302,125) 733,077 Cumulative effect of change in accounting principle, net ( 42,246) - - - ( 42,246) - ------------ ------------ ------------ ----------- ----------- ----------- Net income (loss) after change in accounting principle $ 615,282 $ 565,158 $( 959,653) $ 167,919 $( 344,371) $ 733,077 ============ =========== ============ =========== =========== =========== Total assets $ 4,867,965 $ 5,551,972 $ 2,100,356 $ 3,719,519 $ 6,968,321 $ 9,271,491 Depreciation and amortization expenses $ 149,260 $ 139,290 $ 219,534 $ 57,608 $ 368,794 $ 196,898
A reconciliation of the segments net income (loss) to the consolidated net loss is a follows:
Nine months Nine months ending ending Sept 30, 1999 Sept 30, 1998 ------------- ------------- Segments net income (loss) $( 344,371) $ 733,077 Less: Income tax expense 11,576 142,753 Goodwill amortization 43,944 24,414 ----------- --------- Consolidated net (loss) income $( 399,891) $ 565,910
A reconciliation of the segments total assets to the consolidated total assets is as follows:
Nine months Nine months ending ending Sept 30, 1999 Sept 30, 1998 ------------- ------------- Segments total assets $ 6,968,321 9,271,491 Plus: Goodwill, net 486,913 854,494 Less: Investment in subsidiary at cost ( 470,000) ( 470,000) Intercompany receivables ( 706,931) ( 405,726) ------------ ----------- Consolidated total assets $ 6,278,303 $ 9,250,259
9 10 A reconciliation of the segments total depreciation and amortization to the consolidated total depreciation and amortization is as follows:
Nine months Nine months ending ending Sept 30, 1999 Sept 30, 1998 ------------- ------------- Segments total depreciation and amortization $ 368,794 $ 196,898 Amortization of goodwill 43,944 24,414 ------------ ----------- Consolidated total depreciation and amortization $ 412,738 $ 221,312 ============ ===========
PROFORMA OPERATIONS The following unaudited proforma consolidated results of operations of the Company for the nine-months ended September 30, 1998 assumes that the acquisition of the Subsidiary occurred on January 1, 1998 instead of May 5, 1998. These proforma results are not necessarily indicative of the actual results of operations that would have been achieved nor are they necessarily indicative of future results of operations.
Net revenues $ 18,878,217 Net income 308,134 Basic net income per share .18 Diluted net income per share .16
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 third quarter ending September 30, 1999 were $4,978,111 compared to $7,580,466 for the third quarter ending September 30, 1998, a decrease of $2,602,355. This represents a decrease of 34.3% over the previous year for the same period. Sales for the nine months ending September 30, 1999 were $17,111,750 as compared to $14,624,097 over the same nine-month period in 1998, an increase of $2,487,653 or 17.0%. The decrease in sales for the third quarter 1999 is primarily attributable to the decrease in the Subsidiary sales. Sales for the third quarter of 1998 of the Subsidiary included a single customer's purchase that had a substantial effect on the income. The increase in sales for the nine months ending September 30, 1999 as compared to 1998 is primarily attributable to having nine months of Subsidiary's sales in 1999 as compared to only 5 months in 1998. Sales for Cable Link for the three month period ending September 30, 1999 decline slightly from sales for the same period ending 1998. Cable Link's sales for the nine months period ending September 30, 1999 as compared to the same period ending 1998 have increased due to additional product lines being carried and an increase in International business. COST OF GOODS SOLD The cost of goods sold for the Company for the third quarter ending September 30, 1999 was $3,573,765 and $13,161,938 for the nine months ending September 30,1999, a decrease of $2,467,358 for the third quarter ending September 30 and an increase of $2,023,070 for the nine months ending over the same periods in 1998 respectively. 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 now focusing it's efforts on the service side of the business, which contribute to higher gross margins. The decrease in the cost of goods sold for the third quarter ending September 30, 1999 is primarily attributable to the change in 11 12 the hardware and service mix for the Subsidiary compare to the same period in 1998. The increase in the cost of goods sold for the nine months ending September 30, 1999 as compared to 1998 is primarily due to the increase in sales for the same period. OPERATING EXPENSES Operating expenses increased to $1,458,846 for the three-month period ending September 30, 1999 as compared to $1,243,811 for the same period ending in 1998, an increase of $215,035 or 17.3%. The operating expenses for the nine-months period ending September 30, 1999 were $ 4,248,073 as compared to $ 2,704,781 for the 1998 comparable period, an increase of $1,543,292 or 57.1%. The increase in the operating expenses for the nine months ending September 30, 1999 is primarily attributable to the inclusion of the Subsidiary's operating expenses. Operating expenses increased for the Subsidiary as a result of new management and sales executive hiring in order to support the changes in the focus and strategy of the Subsidiary. Cable Link's operating expenses remained relatively unchanged as a percentage of sales for the three month period ending September 30, 1999. 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 third quarter ending September 30, 1999 was $54,500 as compared to the income of $295,532 for the same period in 1998, a decrease of $350,032. The loss from operations for the nine-months ending September 30, 1999 was $298,261 as compared to income of $780,448 for the nine-months ending September 30, 1998. The decrease in income from operations is a result of the Subsidiary's increase in operating expenses. In the second quarter of 1999, the Subsidiary hired a new president in an effort to increase the Subsidiary's service sales. The Subsidiary is aggressively looking at options to further reduce operating expenses without interrupting the focus and strategy of the business. TAXES The provision for taxes for the nine months ending September 30, 1999 was $11,576 compared to $142,753 for the nine months ending September 30, 1998. This decrease is due to the loss incurred by the Subsidiary which offsets the 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 third quarter ending September 30, 1999. INVENTORIES Inventory decreased 35% or $825,596 as of September 30, 1999 as compared to December 31, 1998. The decrease is primarily due to Cable Link's sales of existing inventory for the nine months ending September 30, 1999 and the focus by the Subsidiary to move towards just-in time inventory. ACCOUNTS RECEIVABLE Accounts Receivable decreased $594,634 or 18.4% as of September 30, 1999 as compared to December 31, 1998 balance of $3,228,285. This decrease is due to a decrease in sales by the Company as compared to an increase in Cable Link's sales end of 1998. 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 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 12 13 the Subsidiary's former president through December 31, 1999. The amount of $82,500 was paid in full as of June 30, 1999. Accordingly, a short-term asset has been recorded and is being amortized using the straight-line method during 1999. ACCOUNTS PAYABLE Accounts payable decreased 26.5% or $578,580 as of September 30, 1999 as compared to December 31, 1998. This decrease is due to the decrease in the amount of inventories purchased by the Subsidiary. 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 is being amortized on equal monthly payments on a five-year schedule ($8,333.33). As of May 1, 1999 $400,000 has been classified as a long-term note. The bank line of credit decreased by $478,672 as of September 31, 1999 as compared to December 31, 1998. This decrease is due to improved cash flows generated by higher sales by Cable Link for the nine months ending September 30, 1999 and reduced cost of inventory. It is also due to the decrease in accounts receivable and the increase of non-cash expenses. 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 $71,760 from December 31, 1998 to September 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 $478,672 in the third quarter ending September 30,1999 compared to December 31, 1998. Accounts receivable decreased $594,634 as of September 30, 1999 as compared to December 31, 1998. Inventory decreased $825,596 as of September 31, 1999 as compared to December 31, 1998 or 35%. Accounts payable decreased $578,580 as of September 30, 1999 as compared to December 31, 1998 or 26.5%. 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. 13 14 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. 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 14 15 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 in and out of warranty repair facility. On September 1, 1999 the Company began operating a single leased facility in Hollywood, Florida. This facility services Cable Link's international customers for sales and repair of CATV equipment, as well as the South East United State. 15 16 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. 16 17 See Exhibit 6.5. Second Amendment Agreement to Non-Competition and Consulting Agreement dated November 16, 1995. 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. There were no report on Form 8-K filed during the quarter for which this report is filed. (10) Consents. The consent of Groner, Boyle & Quillin, LLP 17 18 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 November 4, 1999 By s/ Bob Binsky ---------------------------- ---------------------------------- Bob Binsky, Chairman of the Board (principal executive officer) 18 19 EXHIBIT INDEX
PAGE IN SEQUENTIALLY NUMBERED COPY EXHIBIT 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
19 20
(incorporated by reference to Exhibit 2.1 to the Form 8-K of Registrant filed May 29, 1998, Registration No. 0-23111) * 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 20 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 September 30, 1999 and is qualified in its entirety by reference to such financial statements. 3-MOS DEC-31-1999 JUL-01-1999 SEP-30-1999 130,572 0 2,765,124 131,473 1,543,098 4,826,539 2,012,029 1,199,275 6,278,303 4,114,795 0 0 0 1,472,357 246,629 6,278,303 4,978,111 4,978,111 3,573,765 5,032,611 0 0 48,340 10,815 6,002 4,813 0 0 0 4,813 .00 .00
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