<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
AMENDMENT NO. 3 TO
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(b)
OR 12(g) OF THE SECURITIES ACT OF 1934
CABLE LINK, INC.
- --------------------------------------------------------------------------------
(Name of Small Business Issuer in Its Charter)
Ohio 31-1239657
- ------------------------------- ---------------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
280 Cozzins Street, Columbus, Ohio 43215
- ---------------------------------------- ---------------------------------
(Address of Principal Executive Offices) (Zip Code)
(614) 221-3131
- --------------------------------------------------------------------------------
(Issuer's Telephone Number)
Securities to be registered under Section 12(g) of the Act:
Common Stock
- --------------------------------------------------------------------------------
(Title of Class)
<PAGE> 2
PART I
ALTERNATIVE 2
ITEMS 6-12 OF MODEL B OF FORM 1-A
ITEM 6. DESCRIPTION OF BUSINESS
THE COMPANY
The core business of Cable Link, Inc. (the "Company" or "Registrant")
is the refurbishment, repair and sale of previously owned cable television
("CATV") equipment. The Company purchases the equipment from cable operators who
have surplus due to either an upgrade in their system or an overstock in their
warehouse. This equipment is sold both "as is" and refurbished to CATV operators
throughout North America, South America, Mexico and the Pacific Rim. The Company
supplies virtually any type of electronic equipment a cable operator would use,
from the headend (receiving and transmitting site) to the converter box at the
customer's home. The Company distributes new equipment and acts as a consignment
agent for new equipment, on behalf of equipment manufacturers. The Company has
been recognized by Scientific-Atlanta as an Authorized Parts Distributor and a
New Products Distributor. The Company entered into a Distribution Agreement with
Scientific-Atlanta, Inc. ("SA") effective as of March 1, 1997, whereby the
Company was appointed as a non-exclusive distributor to purchase products of SA
for its own account and to resell to customers within the United States. Unless
terminated earlier as provided in the Agreement, the term will expire on
December 31, 1998. The Agreement provides that the Company will meet quarterly
purchase quotas established by SA and presented in writing to the Company prior
to the beginning of each quarter. This Agreement is designed to enhance the
Company's previous agreement with SA for the sale and distribution of
refurbished equipment. SA is the second largest manufacturer of cable television
equipment in the world. Historically, revenues of the Company break down to be
approximately 64% attributable to sales of refurbished equipment, 10% from the
repair of cable equipment, 16% from the sale of used products which the Company
does not repair or refurbish, 1% from the sale of new and used parts and
approximately 9% from the sale of new equipment, including equipment sold on
consignment basis. The Company anticipates that its revenues, as a percentage of
the total, will grow in the areas of repair and sales of new equipment.
The Company has historically received a portion of its revenue from
sales in the international market (17% in 1994, 22% in 1995 and 9% in 1996).
Because CATV penetration is low in many foreign countries, management of the
Company believes that the international market presents an additional
opportunity for the sale of the Company's products and equipment. The Company
currently conducts business in South America, Mexico, China and the Pacific
Rim. The Company's foreign operations are subject to the usual risk inherent in
situating operations abroad, including risks with respect to economic and
political destabilization, currency fluctuations, restrictive actions by
foreign governments, nationalization, the law and policies of the United States
affecting trade, foreign investments and loans and foreign tax laws.
The Company has been issued a small business credit insurance policy
from the United States Export Import Bank ("EX-IM Bank"). The EX-IM Bank is a
United States government agency established to promote export growth. This
policy will allow the Company to extend credit terms to qualified international
customers and have guaranteed payment. The EX-IM Bank will insure the
receivable against 100% political risk and 95% commercial risk for terms up to
one year. EX-IM Bank also provides special capital goods project financing for
terms of one to ten years which will allow the Company to provide long term
financing for CATV capital equipment and participate in large projects.
The Company issued a Promissory Note to The Provident Bank on April 30,
1997 in the original amount of $750,000 under a Loan and Security Agreement
dated November 17, 1996. Interest is payable monthly beginning May 30, 1997 at
the rate of 1% over the Bank's prime rate. Principal is due and payable on
demand or no later than April 30, 1998. The proceeds of the loan were used for
working capital and operating expenses. Loan financing will be considered on
large purchases when it is necessary to secure the purchase. Currently, the
Company utilizes the bank line of credit when required. There would be a risk of
default under loan financing if the income of the Company was insufficient to
service debt.
The Company believes that there are significant opportunities for CATV
equipment sales both domestically and internationally. In the United States,
the CATV industry is experiencing an increase in capital spending as compared
to the previous two years which increase is likely attributable to, among other
things, less uncertainty concerning federal regulation of the CATV industry and
the continued development and emergence of new technology in the industry,
including fiber optics and digital compression. CATV operators are offering an
expanded menu of services to their subscribers and can increase rates along
with the service enhancements. The ability to increase rates to subscribers
provides the necessary incentive to CATV operators to upgrade channel capacity
and create additional tiers of programming. The Company sells and develops
equipment to allow CATV operators to increase channel capacity and better
manage subscriber services and rates. Further, CATV operators and suppliers,
including the Company, are demonstrating that system upgrades with currently
available equipment and system architectures can be used as a basis to provide
advanced subscriber services. Management of the Company believes that, for the
most part, the international CATV industry and market is a few steps behind the
United States market and that there will continue
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to be an increase of system upgrades and capital spending to develop more
advanced CATV systems abroad and the Company is well-positioned to participate
in the development of the CATV industry abroad.
The Company was incorporated under the laws of the State of Ohio on
December 28, 1987. The Company operates both its administrative and
manufacturing operations from a single, leased facility at 280 Cozzins Street,
Columbus, Ohio 43215. Its telephone number is (614) 221-3131.
STRATEGY
The basic strategy of the Company is to: (a) maintain and expand its
current customer base in the United States for the sale of refurbished CATV
equipment while focusing on expanding the repair side of the United States
market, (b) continue to develop new markets offshore in South America, Mexico,
China, Russia and the Pacific Rim, and (c) increase the Company's new product
distribution.
The Company has a wide range of capabilities including the
manufacturing and sale of a variety of products designed to receive or transmit
satellite channels and local broadcast channels. The technical expertise of the
Company's engineering staff coupled with state-of-the-art test equipment enable
the Company to offer a wide range of refurbished CATV equipment, including
receivers, processors and modulators that handle the signals for delivery to
the cable subscriber. Other remanufactured products include amplifiers, line
extenders and converters. The engineering team continually researches upgrades
of line gear and converters to higher channel capabilities for domestic markets
and to formats necessary for sale in international markets.
The Company believes that the CATV industry is going through a
metamorphosis, from an entertainment service in the home to being the focal
point of a converging telecommunications marketplace serving both homes and
businesses. Technological innovation is hurdling the political and legal
obstacles which have prevented earlier convergence. As these obstacles are
removed, the Company believes that there will be a greater demand for services
such as those which the Company provides. Management believes the Company is
well-positioned to thrive and prosper in this industry.
INDUSTRY AND MARKET BACKGROUND
CATV is a service that delivers multiple channels of television to
subscribers who pay a monthly fee for the services they receive. A CATV system
consists of four principal components. The first is the "up-link," where the
programmer's signal is first scrambled and addressed, and is then transmitted
to a C-band satellite. The second, known as a cable system "headend" facility,
receives television signals from satellites and other sources. The headend
facility organizes and retransmits those signals through the third component,
the distribution network, to the subscriber. The third principal component is
the distribution network which consists of fiber optic and coaxial cables and
associated electronic equipment which originate at the headend and extend
throughout the CATV system. The fourth component of the CATV system, the
subscriber equipment, is comprised of a "dropwire" which extends from the
distribution network to the subscriber's home and connects either directly to
the subscriber's television set or to a converter box. An addressable converter
box is a home terminate device which permits the efficient delivery of premium
CATV services, including pay-per-view programming, by enabling the CATV
operator to control CATV subscriber services from a central headend computer.
CATV operators generally offer to subscribers a basic service package
and, for additional charges, additional tiers of services, including premium
services. Basic service programming typically includes broadcast network local
affiliates, independent television stations and other locally originated
programs. Additional tiers of service may consist of different
satellite-delivered services and premium services, such as HBO and Showtime,
that typically are offered to subscribers as a package for a separate monthly
fee. Successive tiers of programming include additional services for additional
monthly fees. In addition, movies and special entertainment events, such as
boxing matches and Olympic Games can be offered to subscribers with addressable
converters on a selective, pay-per-view basis. CATV operators
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are also introducing digital cable audio services which consist of multiple
channels of commercial-free, compact disc quality music.
CAPITAL EXPENDITURES IN THE CATV INDUSTRY
Construction, maintenance, expansion and upgrade of CATV systems
require significant capital expenditures by CATV operators for system
components, including coaxial and fiber optic cable, traditional radio
frequency ("RF") amplifiers and fiber optic electronics, and addressable system
controllers and converters.
A major trend in the cable and satellite television industry has been
the continuing expansion of channel capacity in response to CATV operators'
desire to provide subscribers with more programming selections, including
pay-per-view and additional premium programming services.
The Company expects that CATV operators will continue to spend to
upgrade the technological capabilities of their systems and increase channel
capacity in order to meet subscriber demand for more programming services, such
as expanded pay-per-view, premium services and digital cable audio, which, in
turn, provides opportunities for increased revenues for the CATV operators. In
addition, new technologies can improve a CATV operator's margins and customer
services by increasing the CATV system's reliability, picture quality and the
"user friendliness" of the converter. The Company also expects CATV operators
to increase spending to meet governmental requirements for renewing franchises
and to position themselves to enter new and potential markets such as telephone
and personal communications networks.
With the passage of the Telecommunications Act of 1996, there will be
additional opportunities for the Company. The Act immediately deregulates rates
for some small operators while providing for deregulation to the large
operators over the next several years as cable competition comes into the
marketplace. This expands the opportunities for the Company as cable operators
are gearing up their rebuilds to remain competitive and creating new start-up
operations from which the Company can generate both sales and repair business.
With respect to technology, CATV operators and suppliers, including
the Company, are demonstrating that system upgrades with currently available
equipment and system architectures can be used as a basis to provide advanced
subscriber services.
Moreover, the growing use of United States broadband system designs
and equipment in international markets, where CATV penetration is low, presents
another opportunity for sales of the Company's systems and equipment.
SALES AND MARKETING
The majority of the Company's sales activity is generated through
personal relationships developed by its sales personnel and executives,
telemarketing and direct mail to cable operators both in the United States and
abroad. The Company has developed contacts with the major CATV operators in the
United States and is constantly in touch with these operators regarding plans
for upgrading or expansion and their needs to either purchase or sell
equipment. The Company employs a bilingual individual in the sales department
for the international market and several other sales persons to service the
United States. The Company purchases a large amount of its inventory from cable
operators who have upgraded, or are in the process of upgrading their system.
The sales and purchasing functions operate under the same umbrella using a
computerized buy/sell board to coordinate the activity between the two. In
addition, the Company has very close relationships with major manufacturers of
CATV equipment and purchases a large amount of such equipment from these
original equipment manufacturers. Daily meetings of the sales and purchasing
functions keep both aware of what is available to be purchased and what is
needed to fill sales orders.
The Purchasing Department buys previously used CATV equipment
throughout North America. As a result of competition in the communications
industry, cable operators are aggressively upgrading their system with newer,
technologically advanced equipment. This provides the Company's purchasing
department opportunities to buy equipment which were not normally available to
the Company in the past. This competitive CATV market enables the
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Company to acquire additional inventory for sale to cable operators who are
expanding with new subscribers or who are upgrading their system with the
newer, more expensive technology. The Company employs three purchasing agents.
As of December 31, 1996, Scientific Atlanta represented 14% of the
accounts receivable balance; however, the Company had also purchased equipment
from Scientific-Atlanta and the Company had an accounts payable balance owed to
Scientific Atlanta at that time, thus reducing exposure. The Company is not
dependent on one or a few customers to support its business. There are
approximately 6,000 cable television systems within the United States, each of
which is a potential customer. The international market continues to expand
which creates additional potential customers for the Company.
The Company entered into a two-year agreement with Fanch
Communications Inc. on September 15, 1997 whereby the Company agreed to assist
Fanch Communications in the transfer and repair of Fanch's converters, headend,
test equipment and amplification equipment. Fanch communications is the 20th
largest multi-system operator in the country with 500,000 customers in its
cable systems.
ENGINEERING
The Company's engineers aggressively seek to implement existing
technological developments as they strive to meet the needs of the Company's
customers.
Recent advances in technology and new federal regulations have
prompted competitive upgrade activity among cable systems operators. The
Company's engineering department is well-equipped to handle the needs of
systems operators. The Address Reader for the Oak RTC-56 and the Addressable
Prom Programmer for the Jerrold DRZ are two replacement products redesigned and
built by the engineering department to help meet customers' upgrading needs.
The engineering department strives to ensure the Company's on-going
commitment to quality and service is upheld by continually upgrading linegear
and converters to higher channel capabilities for United States markets and to
formats necessary for international markets. The department has the ability to
perform required FCC systems tests, both in-house and on-site, and maintains a
staff that is experienced in analog video, digital, and radio frequency (RF).
COMPETITION
There are a number of businesses similar to the Company throughout the
United States engaged in buying and selling used CATV equipment. The two major
competitors are Contec Limited Partnership in the repair area and VueScan, Inc.
in the sales area.
The CATV industry is highly competitive and is characterized by
numerous companies competing in various segments of the market. Many of the
Company's competitors have greater name recognition, more extensive
engineering, production and marketing capabilities and greater financial,
technological and personnel resources than the Company. In addition, certain
companies in the CATV industry have expanded their product lines in recent
years as a result of acquisitions. The two major competitors of the Company are
Contec Limited Partnership in the repair area and VueScan, Inc. in the sales
area. There can be no assurance that the Company will be able to compete
successfully in the future with existing or new competitors.
EMPLOYEES AND TRAINING
As of June 30, 1997, the Company had 80 full time employees, 52 of
which work on the repair and refurbishment of converters and other cable TV
equipment. There are 10 employees in shipping and receiving, 10 employees in
the sales and purchasing department, and the remaining eight are in finance and
general administration. New production employees are placed on a six week
training program during which they are paired with an experienced technician.
None of the Company's employees is covered by a collective bargaining agreement
and management believes that the Company's relationship with its employees is
good. Key employees may be eligible to participate in the Company's stock
option plan.
CONTROL AND INFORMATION SYSTEMS
The Company uses a personal computer based network system to control
customer orders, sales orders, shipments, accounts receivable, inventory,
general ledger and accounts payable. All payrolls are prepared by an outside
service. The current configuration of hardware and software meets the present
needs of the Company, and is flexible enough to allow for expansion in the
future. The Company completed implementation of its computer information system
in 1996.
PRODUCTS
The majority of the Company's business is the sale of used CATV
equipment. The Company purchases the equipment from cable operators and
equipment manufacturers who have surplus inventory due to either an upgrade in
their system, an overstock in their warehouse, or due to overruns or
cancellations of orders or trade-ins or upgrades. This equipment is sold both
"as is" and refurbished to CATV operators throughout North America, South
America, Mexico and the Pacific Rim. The Company supplies virtually any type of
electronic equipment a cable operator would use, from the headend (receiving
and transmitting site) to the converter box in the customer's home. In addition
to the refurbished products, the Company also distributes some new products and
repairs converters, linegear and headend equipment.
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Following is a list of the products sold by the Company with a brief
description of the application of each product line:
Converters. Converters come in many different forms (addressable,
descrambling and non-descrambling or "plain-Jane") and bandwidths from 300 MHz
(36 channels) to 750 MHz (115 channels). The majority of cable operators in the
world use some type of converter in their system. The Company specializes in
sales and repair of the Jerrold, Scientific Atlanta, Zenith, Hamlin, Pioneer
and Oak lines of converters and also sells and repairs most other
manufacturers' products.
Linegear. Linegear encompasses all products which are actually placed
on the cable line. This includes active electronics, trunk stations and line
extenders, which amplify and distribute the cable signal, and passive equipment
such as taps, splitters and directional couplers, which simply pass the signal
through for delivery to additional lines and the customer's home. The Company
sells and repairs all manufacturers' linegear products.
Headend. The headend is perhaps the most important part of the cable
system since this is where the signal is received, processed and transmitted to
the customer's home. For that reason, this particular product requires the most
technical expertise. This product line includes satellite receivers,
modulators, processors, encoders and videociphers, all of which are used to
provide cable delivered signal. If the cable operator's headend equipment is
not calibrated and maintained properly, the customer will receive poor picture
quality. The Company specializes in refurbishing and repairing various
manufacturer's lines of headend products as well as modifying these for use in
different video formats.
CONSIGNMENT INVENTORY PROGRAM
In addition to the Company's own inventory assets, it also has
recently achieved access to CATV equipment through a consignment program which
does not require payment for the equipment until 30 days after the sale. This
is done through both stocking of consignment inventory at the Company's
warehouse as well as having access to excess inventory at a vendor's location.
Consignment programs have been established with Tele Communications, Inc.,
Scientific Atlanta, Inc., Continental Cablevision and Time-Warner, Inc.
REASONS FOR FILING THIS FORM 10-SB
The Company filed this Form 10-SB on a voluntary basis so that the
Company's Common Shares registered thereunder may be traded on the secondary
markets without qualification under individual state blue sky laws pursuant to
Section 18 of the Securities Act.
ITEM 7. DESCRIPTION OF PROPERTY
PLANT AND FACILITY
The Company operates out of approximately 60,000 square feet of space
at 280 Cozzins Street, Columbus, Ohio. The Company leases its production and
office space from a former director of the Company under an operating lease
expiring in October 1998 with a three-year renewal option. During 1995,
modifications were made to the lease that increased the Company's occupancy
area and monthly rent. At June 30, 1997, monthly payments of $11,000 are
required, subject to increases in real estate taxes and rent increases each
November.
<TABLE>
<CAPTION>
Minimum lease payments:
<S> <C>
1997 114,504
1998 97,320
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$ 211,824
=========
</TABLE>
Rent expense was $135,449 and $108,566 for the years ended December
31, 1996 and 1995, respectively.
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ITEM 8. DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
All directors are elected for one year terms at the Company's annual
shareholders' meeting in April or May.
<TABLE>
<CAPTION>
NAME AND ADDRESS AGE POSITION(S)
- ---------------- --- -----------
<S> <C> <C>
Bob Binsky 57 Chairman of the Board, Chief Executive Officer and Director
Brenda L. Thompson 35 President, Chief Financial Officer and Director
Richard Rozic 56 Executive Vice President, Chief Operating Officer and Director
Eric S. Newman 31 Director
Sherry J. Rothfield 56 Director
Michael Tsao 47 Director
Richard Baker 41 Vice President of Production
</TABLE>
BOB BINSKY has served as Chairman of the Board of the Company since
July 31, 1995 and has served as a director of the Company since 1992. Mr.
Binsky first joined the Company as a consultant and Executive Vice President on
October 1, 1992. On October 18, 1994, Mr. Binsky assumed the duties of the
Company's Chief Executive Officer. Prior to joining the Company, Mr. Binsky
served as Chairman and Chief Executive Officer of Decor Corporation, a chain of
135 publicly traded art and gift stores located in most of the upscale malls in
the Eastern United States. In December 1989, Decor was sold to Claires Stores,
Inc., a New York Stock Exchange listed company. Mr. Binsky serves on the board
of PH Group Inc. of Columbus and Kahiki Foods of Columbus and on the advisory
board of Regional Reps of Cleveland.
BRENDA L. THOMPSON has served as a director and President of the
Company since October 1994. Ms. Thompson joined the Company as its Chief
Financial Officer in June, 1993. From 1990 to 1993, Ms. Thompson served as
Director of Operations for Zee Medical Services. She holds an A.A. in
Accounting and Business Management from Belmont Technical College and graduated
from Wheeling Jesuit College in 1987 with a B.A. in Accounting.
RICHARD ROZIC was elected as Executive Vice President and Chief
Operating Officer and a director of the Company on December 16, 1996. From 1965
to 1996, Mr. Rozic was General Manager of National Sales, Builder's Division,
for Frigidaire Company, a manufacturer and distributor of major appliances. Mr.
Rozic graduated from the University of Maryland in 1962.
ERIC S. NEWMAN has served as a director of the Company since April
1994. Mr. Newman is Vice President of World Wide Communications, Inc. He
graduated from the University of Michigan in 1988, and Northwestern University
School of Law in 1991. From September 1991 to March 1993, he was employed as an
associate at the law firm of Jenner & Block in Chicago. From March 1993 to
October 1993, he was employed as an associate at the law firm of Altheimer &
Gray in Chicago.
SHERRY J. ROTHFIELD has served as a director of the Company since
November 1995. Mrs. Rothfield is an instructor in the Miami, Florida Advocate
Program, a structured probation and deferred prosecution agency, and also works
as a certified mediator in private practice. She graduated from State
University of New York in 1962, earned a certificate in accounting from the
University of Miami in 1981 and became a Certified Public Accountant in the
State of Florida in 1983.
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MICHAEL TSAO has served as a director of the Company since November
1995. Mr. Tsao is President and a member of the Board of Directors of Kahiki
Foods of Columbus. Mr. Tsao graduated from Pasadena City College in 1971 with
an A.A. in Business Administration.
RICHARD BAKER has been with the Company since 1984 and has served as
Vice President of Production since 1994. He served as Production Manager for
the Company from 1987 to 1994. Mr. Baker attended The Ohio State University
from 1974 to 1976.
ITEM 9. RENUMERATION OF DIRECTORS AND OFFICERS COMPENSATION OF MANAGEMENT
SUMMARY COMPENSATION TABLE
The following table sets forth certain information concerning the 1996
aggregate remuneration of the three highest paid executive officers of the
Company.
<TABLE>
<CAPTION>
1996 Aggregate
Name Principal Position Renumeration
- ----- ------------------ --------------
<S> <C> <C>
Bob Binsky Chairman of the Board $100,000 (1)
Chief Executive Officer
Brenda Thompson President $ 81,571
Anthony Matteo (2) Vice Chairman $ 74,585
Chief Operating Officer
All directors and executive officers
as a group (7 persons) $448,927
</TABLE>
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(1) Mr. Binsky received $100,000 pursuant to a consulting agreement with
the Company. See "The Binsky Consulting Agreement." On August 1, 1997,
Mr. Binsky became an employee of the Company.
(2) Mr. Matteo resigned in June of 1996.
COMPENSATION OF DIRECTORS
Each non-employee director of the Company receives $500 per Board of
Directors meeting attended as compensation for his or her services. Pursuant to
a letter agreement approved by the Board of Directors in 1994, Eric S. Newman
is compensated $1,500 per month for legal and financial services he performs on
behalf of the Company. The letter agreement is terminable upon 30 days' written
notice by either party. Each of the directors of the Company is also eligible
to receive stock options under the 1995 Stock Option Plan (the "1995 Plan").
Only non-incentive options may be granted under the 1995 Plan. The 1995 Plan
provides that options on a total of 1,000 shares shall be granted to each
director who is elected as a director at the Annual Meeting of Shareholders. On
October 17, 1995, an amendment to the 1995 Plan was approved by the Board of
Directors which provides for the grant of stock appreciation rights in
connection with the grant of options under the 1995 Plan.
STOCK OPTIONS OF DIRECTORS
Directors of the Company have been issued options for the purchase of
5,940 common shares at $1.33 per share, 77,220 common shares at $1.51 per
share, 11,880 common shares at $3.50 per share and 7,700 common shares at $2.73
per share for 1994, 1995, 1996 and 1997, respectively. Additional options may
be granted pending the achievement of certain financial standards.
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STOCK OPTION PLAN
The Company has adopted a stock option plan for, and has issued options
to, certain key employees. The following chart summarizes warrant and option
activity for 1996 and 1997.
<TABLE>
<CAPTION>
Warrants Options
------------------------------ -------------------------------------
Average Exercise Average Exercise
Price Per Share Price Per Share
---------------- -----------------
<S> <C> <C> <C> <C>
Balance 1/1/96 19,800 $ .93 669,438 $ 1.58
Issued -- -- 189,090 1.29
Canceled -- -- (126,918) 1.05
Exercised -- -- (17,028) 1.77
Balance 1/1/97 19,800 .93 714,582 1.60
Issued 165,000(1) 1.82 11,000 2.89
Canceled -- -- (87,120) 1.69
Exercised -- -- -- --
Balance 6/30/97 184,800 $ 1.73 638,462 $ 1.61
- ----------------------------------
</TABLE>
(1) In July 1997, 82,500 of these warrants were exercised at an average
price of $1.51 per share.
With regard to director stock options issued under the 1995 Plan, (a) each
option vests and becomes immediately exercisable on the date of grant; and (b)
each option lapses and ceases to be exercisable upon the earliest of: (i) the
expiration of ten years from the date of grant, (ii) nine months after the
grantee ceases to be a director because of his death or disability, (iii)
immediately upon resignation by the grantee as a director, or (iv) 30 days
after the grantee ceases to be a director for any reason other than his death,
disability or resignation.
With regard to employee and consultant stock options issued under the 1995
Plan, subject to the rule set forth in the next sentence, the Board of
Directors determines the term during which an option is exercisable at the time
that it is granted. No option is exercisable after the expiration of ten years
from the date of grant. If no express determination of the times when options
are exercisable is made by the Board of Directors: (a) each option vests and
becomes immediately exercisable on the date of grant; and (b) each option
lapses and ceases to be exercisable upon the earliest of: (i) the expiration of
ten years from the date of grant, (ii) nine months after the grantee ceases to
be a consultant or employee because of his death or disability, (iii)
immediately upon resignation by the grantee as a consultant or employee or upon
the termination of the grantee for cause, or (iv) 30 days after the grantee
ceases to be a consultant or employee for any reason other than his death,
disability, resignation or termination.
THE BINSKY CONSULTING AGREEMENT
The 1996 Consulting Agreement. Effective October 1, 1996, in a Consulting
Agreement between the Company and Bob Binsky (the "1996 Consulting Agreement"),
Bob Binsky, a director and Chairman of the Board of the Company, agreed to
provide consulting services for the Company. Mr. Binsky was required to provide
consulting services up to 200 days (approximately 1,600 hours) for the one-year
term of the agreement and to serve as a director and Chairman of the Board. The
Company was obligated to pay Mr. Binsky $100,000 in equal monthly installments
for the consulting services. Mr. Binsky was granted an option to purchase 33,000
common shares of the Company for $.72 per share. Compensation expense was not
recorded since the exercise price of the warrants was equal to the market value
of the stock on the date of grant of the options to Mr. Binsky. Mr. Binsky can
exercise the option at any time before October 1, 2006. The 1996 Consulting
Agreement provides that Mr. Binsky can assign his obligations under the
agreement to an affiliate; this provision was negotiated by Mr. Binsky for tax
purposes. On August 1, 1997, the 1996 Consulting Agreement was terminated and
Mr. Binsky became an employee of the Company.
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ITEM 10. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITY HOLDERS
The following table sets forth, as of June 30, 1997, certain
information with respect to the beneficial ownership of shares of common stock
of the Company by (i) each person known to the Company to be the beneficial
owner of more than 10% of the outstanding shares of common stock, (ii) each of
the three highest paid officers of the Company, and (iii) the Company's
directors and executive officers as a group.
<TABLE>
<CAPTION>
Number of Common Shares
Shareholder Beneficially Owned Percent of Class
----------- ----------------------- ----------------
<S> <C> <C>
BOB BINSKY 239,109(a) 15.4%
20185 E. Country Club Drive
Apt. #206
North Miami Beach,
Florida 33180
E. JACK DAVIS 147,440 9.0%
6927 Rivers Edge St. Circle
Bradenton, FL 34202
BRENDA L. THOMPSON 11,508(b) ---
458 Alton & Darby Creek Road
Galloway, Ohio 43119
ERIC S. NEWMAN 3,834(b) ---
1765 West Altgeld, Unit D
Chicago, Illinois 60614
RICHARD ROZIC 11,550(b) ---
5137 Chaffinch Court
Dublin, Ohio 43017
SHERRY J. ROTHFIELD ---(c) ---
1021 North Venetian Drive
Miami, Florida 33139
MICHAEL TSAO 1,980(b) ---
3583 East Broad Street
Columbus, Ohio 43213
AXXESS INTERNATIONAL GROUP, INC. 165,000(d) 10.0%
P.O. Box 27740
Las Vegas, NV 89126-1740
All directors and executive officers
as a group (7 persons) 415,421(a)(b)(c) 26.8%
</TABLE>
- ----------
(a) Includes 3,960 shares owned by TR Sport, Inc., a distributor of
maternity undergarments to the retail trade. Excludes 422,180 shares
subject to outstanding and exercisable options and warrants held by Bob
Binsky.
(b) Excludes 28,820 shares subject to outstanding and exercisable options
held by Mr. Newman; for Ms. Thompson, 51,590 shares; for Mr. Tsao,
3,080 shares; for Mr. Rozic, 1,100 shares; and for all directors and
executive officers as a group, 490,050 shares.
(c) Excludes 19,180 shares owned by Mrs. Rothfield's husband. Mrs.
Rothfield disclaims beneficial ownership of all of the shares owned by
her husband. Excludes 3,080 shares subject to stock options outstanding
and exercisable as of June 30, 1997.
(d) Excludes 165,000 shares subject to outstanding and exercisable warrants
held by Axxess International Group, Inc.
Each person has sole investment power and sole voting power over the
shares disclosed as being owned by such person.
10
<PAGE> 11
ITEM 11. INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
THE SEPARATION AGREEMENT
On October 18, 1994, the Company and the Company's former president and
then largest shareholder, E. Jack Davis, entered into a Separation Agreement and
General Release (the "Separation Agreement"). The Separation Agreement required
the Company to pay Mr. Davis $100,000 in exchange for a release of claims or
charges of discrimination.
THE SHARE PURCHASE AGREEMENT
On October 18, 1994, Bob Binsky entered into a Share Purchase Agreement
with E. Jack Davis which provided for the sale of substantially all of the
common shares of the Company owned by Mr. Davis. Under the Share Purchase
Agreement, Mr. Binsky agreed to pay $1.176 million for 581,636 common shares of
the Company owned by Mr. Davis. Upon execution of the Share Purchase Agreement,
Mr. Binsky acquired 49,500 common shares of the Company from Mr. Davis for
$100,000. An additional $176,000 was to be paid, without interest, on or before
March 23, 1995, and another $100,000, without interest, on or before April 12,
1995. The balance of the purchase price, $800,000, was payable in 48 monthly
payments each consisting of $16,666.66 of principal plus accrued interest, with
the first such payment due on June 1, 1995. If Mr. Binsky paid $675,000 of the
$800,000 portion of the purchase price on or before October 17, 1995, the
purchase price was to be deemed satisfied in full.
On March 23, 1995, Mr. Binsky and Mr. Davis entered into a First
Amendment Agreement to Share Purchase Agreement (the "First Amendment
Agreement"). The Share Purchase Agreement was amended to provide that if Mr.
Binsky paid an aggregate of $600,000 of the $800,000 portion of the purchase
price (excluding any interest with respect to the $800,000) and all other
portions of the purchase price (including the payment of $176,000 to be paid on
or before March 23, 1995 and $100,000 to be paid on or before April 12, 1995) on
or before June 1, 1995, then Mr. Binsky's obligation to pay $800,000 would be
deemed satisfied in full.
On June 1, 1995, Mr. Binsky and Mr. Davis executed the Second Amendment
Agreement to Share Purchase Agreement (the "Second Amendment Agreement"). The
Second Amendment Agreement amended the Share Purchase Agreement to provide that
the final payment of $800,000 to Mr. Davis was payable in 48 monthly payments
each consisting of $16,666.66 of principal plus accrued interest, with the first
such payment due on January 1, 1996 and the next 47 payments due on the first
day of each month thereafter. As consideration for the execution of the Second
Amendment Agreement, outstanding interest on the $800,000 through May 30, 1995
in the amount of $38,914.19 was paid upon execution of the Second Amendment
Agreement. The Second Amendment Agreement further provided that if Mr. Binsky
paid an aggregate of $600,000 of the $800,000 portion of the purchase price on
or before December 31, 1995, then Mr. Binsky's obligation to pay the purchase
price would be deemed satisfied in full.
On November 16, 1995, Mr. Binsky and Mr. Davis executed the Third
Amendment Agreement to Share Purchase Agreement (the "Third Amendment
Agreement"). The Third Amendment Agreement provided that if Mr. Binsky made a
lump sum payment of $300,000 of the $800,000 balance of the purchase price to
Mr. Davis subsequent to December 31, 1995 and on or before January 2, 1996, and
shall not be otherwise in default under the terms of the Share Purchase
Agreement, then (a) Mr. Binsky's obligation to pay the purchase price (except
for the portion of the purchase price due for 198,000 shares) would be deemed
satisfied in full; (b) Mr. Binsky's obligation to acquire the remaining 198,000
shares would be terminated and released; (c) Mr. Davis would retain ownership of
the remaining 198,000 shares; and (d) the escrow agent holding the shares would
terminate the obligation of all of the parties under the Share Purchase
Agreement. Under the Third Amendment Agreement, Mr. Binsky also agreed to vote
the shares that he controlled to cause the election of Mr. Davis to the Board of
Directors of the Company.
On December 29, 1995, Mr. Binsky paid $300,000 to Mr. Davis. Pursuant
to the Third Amendment Agreement, the escrow agent transferred 383,637 shares to
Mr. Binsky and 198,000 shares to Mr. Davis, and the obligations of Mr. Binsky
and Mr. Davis under the Share Purchase Agreement were terminated.
11
<PAGE> 12
THE DAVIS CONSULTING AGREEMENT
In conjunction with E. Jack Davis' resignation from the Company in
October 1994, Mr. Davis and the Company entered into a Non-Competition and
Consulting Agreement dated October 18, 1994 (the "Consulting Agreement"). The
Consulting Agreement provided that Mr. Davis would serve as a consultant to the
Company from October 18, 1994 through December 31, 1998. Mr. Davis agreed that
he would not compete with the Company from the effective date of the Consulting
Agreement through December 31, 1998. As payment for Mr. Davis' covenant not to
compete with the Company, he was to receive $25,000, with an initial installment
of $4,861.08 payable on October 18, 1995, and the remainder payable in 29 equal
monthly installments. As payment for Mr. Davis' consulting services, he was to
receive $350,000 from the Company, with an initial installment of $68,055.54
payable on October 18, 1995, and the remainder payable in 29 equal monthly
installments. In addition, Mr. Davis was to receive payment for his reasonable
out-of-pocket expenses which were authorized by the Company and incurred by him
in the performance of his duties as a consultant.
On June 1, 1995, the Company and Mr. Davis executed the First Amendment
Agreement to Non-Competition and Consulting Agreement (the "First Amended
Consulting Agreement"). The original Consulting Agreement was amended to provide
that the Company would pay $25,000 to Mr. Davis in consideration of Mr. Davis'
covenant not to compete with the Company, payable in 12 monthly installments of
$1,099.53 and 17 monthly installments of $694.53. In consideration of the
consulting services of Mr. Davis, the Consulting Agreement was amended to
provide that the Company would pay $350,000 to Mr. Davis, payable in 11 monthly
installments of $15,393.51, one monthly installment of $15,393.57 and 17 monthly
installments of $9,722.22. The Consulting Agreement was further amended to
provide that at any time during the pendency of a default by the Company in the
payment of three monthly payments pursuant to the Consulting Agreement, or any
default by Mr. Binsky of any payment under a Share Purchase Agreement entered
into between Mr. Binsky and Mr. Davis in October 1992 which default has
continued uncured for a period of 10 days after notice thereof to the Company by
Mr. Davis, then Mr. Davis may elect to accelerate the balance due under the
Consulting Agreement, as amended, and upon the Company's failure to pay the
amount then due, including interest thereon at 10% per annum, within 10 days of
notice of acceleration, Mr. Davis may either pursue collection of such sum or
may declare the Consulting Agreement null and void by giving written notice of
such election to the Company. The First Amended Consulting Agreement was
ratified by the Board of Directors on June 20, 1995.
On November 16, 1995, the Company and Mr. Davis executed the Second
Amendment to Non-Competition and Consulting Agreement (the "Second Amended
Consulting Agreement"). Under the Second Amended Consulting Agreement, Mr.
Davis' responsibilities were altered to provide that (a) Mr. Davis would not be
required to provide consulting services for more than 40 hours during each
calendar month, (b) Mr. Davis would not be required to be present in the Company
offices more than six times per year, (c) the Company would pay all of Mr.
Davis' reasonable travel expenses from Florida to Columbus when his presence is
required at the Company (as well as Mr. Davis' reasonable living expenses in
Columbus), (d) each day that Mr. Davis is required to spend at the offices would
be considered to be equal to 10 hours of consulting service time for the
purposes of calculating Mr. Davis' number of consulting hours to be performed
under the terms of the Second Amended Consulting Agreement, and (e) all requests
for the performance of consulting services would be delivered to Mr. Davis in
written form. In addition, the Second Amended Consulting Agreement provided that
the Company would cause Mr. Davis to be elected as a director of the Company at
the next meeting of the Board of Directors for a term which would expire at the
next annual meeting of the Company, and would cause Mr. Davis to be nominated
for re-election at such meeting. The payment obligations of the Company were
also amended to provide that in consideration of Mr. Davis' covenant not to
compete with the Company, the Company would pay $25,000 to Mr. Davis payable in
seven monthly installments of $1,099.53, 25 monthly installments of $666.67 and
a final installment of $635.54. In consideration of the consulting services of
Mr. Davis, the Company must pay $350,000 to Mr. Davis, payable in seven monthly
installments of $15,393.51, 25 monthly installments of $9,333.33 and a final
installment of $8,912.18. Furthermore, Mr. Davis received $3,500 upon the
completion of the report on competitive intelligence. The Company also agreed to
provide partial reimbursement of the premium cost for medical and
hospitalization coverage for Mr. Davis.
12
<PAGE> 13
THE PARTICIPATION AGREEMENT
Although Mr. Binsky was the sole purchaser under the Share Purchase
Agreement, on January 24, 1995, Mr. Binsky entered into a Participation
Agreement whereby specified individuals were permitted to participate in the
acquisition of Mr. Davis' shares. The individuals are Eugene C. Hanchett, Marvin
A. Katz, Eric S. Newman, Brenda L. Thompson, Benton C. Rothfield and Kenneth J.
Warren (the "Participants"). The first four individuals are or were directors of
the Company, the last is counsel to the Company, and Mr. Rothfield is the spouse
of a director and a relative of counsel to the Company. The Participation
Agreement provided that 25% of the shares being acquired from Mr. Davis would be
purchased by the Participants with each Participant purchasing a specified
proportionate number of those shares. The Purchase price to be paid by the
Participants was the proportional amount of the total purchase price paid by Mr.
Binsky under the Share Purchase Agreement. Upon payment of the purchase price to
Mr. Binsky, each Participant was entitled to the proportionate amount of gains
or losses attributable to the acquisition and ownership of the shares by such
Participant. On December 29, 1995, Mr. Binsky made the final payment resulting
in the release of 383,637 shares from Mr. Davis' escrow agent. Accordingly,
certificates were delivered to each Participant representing the number of
shares corresponding to their interest in the shares acquired by Mr. Binsky, and
the parties' obligations under the Participation Agreement were terminated.
THE OPTION AGREEMENT
The Share Purchase Agreement was entered into by Mr. Binsky at the
request of and for the benefit of the Company. In order to give Mr. Binsky
flexibility in financing the purchase of shares under the Share Purchase
Agreement, the Board of Directors authorized the Company to enter into an Option
Agreement with him which provided Mr. Binsky with an option to require the
Company to purchase any and all of the shares he purchased from Mr. Davis. The
Option Agreement was executed on January 24, 1995 and expired (unexercised) upon
termination of the Share Purchase Agreement on December 29, 1995.
LEASE FROM FORMER DIRECTOR
The Company leases production and office space from Marvin A. Katz, a
former director of the Company, under an operating lease expiring in October
1998 with a three year renewal option. Rental payments for 1997 are $114,504,
subject to increases in real estate taxes and rent increases each November.
ITEM 12. SECURITIES BEING OFFERED
The Company's Articles of Incorporation authorize 10,000,000 common
shares, without par value, and 200,000 preferred shares, without par value. At
the date of this registration statement, the Company had issued and outstanding
1,632,302 common shares. No preferred shares are outstanding.
REPORTS TO SHAREHOLDERS
If the Company's obligation to file reports with the Commission is
suspended, the Company will no longer file such reports but the Company would
continue to furnish Company shareholders with quarterly financial reports
containing unaudited financial statements and annual reports containing audited
financial statements.
COMMON SHARES
Holders of common shares of the Company have no redemption or
conversion rights, participate ratably in any distribution of assets to
shareholders in liquidation and have no preemptive or other subscription rights.
Holders of common shares are entitled to receive such dividends as may be
declared by the Board of Directors. Holders of common shares are entitled to one
vote for each share held on all matters on which shareholders are entitled to
vote and are entitled upon compliance with certain procedural formalities, to
vote cumulatively for the election of directors.
The Company may issue stock for such consideration and to such persons
as the Board of Directors from time to time determines. Such persons may include
management, promoters or their affiliates or associates, subject to the
fiduciary duty of the Board to ensure that the transactions are fair to the
Company.
PREFERRED SHARES
The Company's Articles of Incorporation authorize the issuance of
"blank check" preferred shares in one or more classes or series with such
designations, rights, preferences and restrictions as may be determined from
time to time by the Board of Directors. As of the date hereof, there are no
preferred shares outstanding. The Board of Directors may, without prior
shareholder approval, issue preferred shares with dividend, liquidation,
conversion, voting or other
13
<PAGE> 14
rights which could adversely affect the relative voting power or other rights of
the holders of common shares. Preferred shares could be used, under certain
circumstances, as a method of discouraging, delaying, or preventing a change in
control of the Company. Although the Company has no present intention of issuing
any preferred shares, there can be no assurance that it will not do so in the
future. If the Company issues preferred shares, such issuance may have a
dilutive effect upon the common shareholders.
REPORTS TO SHAREHOLDERS
The Company furnishes its shareholders with quarterly financial reports
which are not audited and annual reports containing audited financial
statements.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
The principal market where the Registrant's equity is traded is the
Nasdaq Bulletin Board. The range of high and low bids for the Registrant's
equity for each of the past ten quarters is as follows:
<TABLE>
<CAPTION>
Year Quarter High Low
---- ------- ---- ---
<S> <C> <C> <C>
1997 2nd 3 3/4 2 1/16
1st 5 1/2 1 5/8
1996 4th 2 1/4 0 3/4
3rd 4 1/4 1 1/4
2nd 7 1/16 3 1/4
1st 5 5/8 0 13/16
1995 4th 1 7/8 0 7/16
3rd 1 11/16 0 5/16
2nd 2 1/2 0 1/2
1st 3 1/8 1 7/8
</TABLE>
The above quotations reflect inter-dealer prices, without retail
mark-up, mark down or commission and may not represent actual transactions.
There are approximately 245 holders of the common shares of the Registrant.
DIVIDEND POLICY The Registrant has not declared or paid any cash dividends on
its common shares since its inception, and the Board of Directors presently
intends to retain all earnings for use in the business for the foreseeable
future.
ITEM 2. LEGAL PROCEEDINGS.
The Registrant is not a party to any material legal proceedings.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
On September 23, 1996, the Registrant's former principal accountants
resigned. No reports or financial statements issued by the former accountants
contained an adverse opinion or disclaimer of opinion or was modified as to
uncertainty, audit scope or accounting principles. There were no disagreements
with the former accountants. The former accountants have declined to reissue
their report. Groner, Boyle & Quillin, LLP was engaged as the Registrant's
principal accountants on October 23, 1996.
14
<PAGE> 15
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
On January 10, 1997, the Registrant sold one Unit comprised of 165,000
common shares and warrants to purchase 165,000 common shares at various exercise
prices. No underwriters were used or commissions paid. The Unit was
sold to Axxess International Group, Inc. for $200,000, all of which was received
by the Registrant. The offering and sale was made in accordance with Rule 504 of
Regulation D promulgated under the Securities Act of 1933. A Form D was filed
on January 8, 1997.
It is the Company's belief that Axxess International Group, Inc. was
formed by a syndicate of investors for the purpose of making the investment in
the Company. There was no prior affiliation between Axxess or any officer,
director or principal shareholder.
On or about November 4, 1994, the Registrant sold 23,760 common shares
at a purchase price of $2.525 per share to Raymond Hoch. No underwriters were
used or commissions paid. The offering and sale was made in accordance with
Section 4 (2) of the Securities Act of 1933.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Provisions governing the liability of the controlling persons,
directors and officers of the Registrant include Ohio Revised Code Section
1701.59 and Article Five of the Registrant's Code of Regulations (see Exhibit
2.2 attached hereto) which provides for indemnification if such person acted in
good faith and in a manner reasonably believed to be in or not opposed to the
best interests of the Registrant.
PART F/S
FINANCIAL STATEMENTS
In the opinion of management, all adjustments necessary for a fair
statement of results for the income statements for the period January 1, 1997
through June 30, 1997 have been included therein.
15
<PAGE> 16
CABLE LINK, INC.
FINANCIAL STATEMENTS
* * * * * *
DECEMBER 31, 1996 AND 1995
AND SIX MONTHS
ENDED JUNE 30, 1997
16
<PAGE> 17
CABLE LINK, INC.
COMPARATIVE STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
3 MONTHS ENDING JUNE 30 6 MONTHS ENDING JUNE 30
-------------------------------- ---------------------------
1997 1996 1997 1996
<S> <C> <C> <C> <C>
NET SALES $2,642,018 $2,223,413 $4,853,535 $4,942,623
Cost of Goods Sold 1,762,148 1,388,990 3,233,906 3,091,980
Operating Expenses 674,515 752,728 1,271,262 1,518,366
TOTAL EXPENSES $2,436,663 $2,141,718 $4,505,168 $4,610,346
INCOME FROM OPERATIONS $ 205,355 $ 81,695 $ 348,367 $ 332,277
Interest Expense (17,247) (23,502) (35,393) (42,062)
Other Income (Expenses) 873 550 2,059 15,341
INCOME (LOSS) BEFORE TAXES $ 188,981 $ 58,743 $ 315,033 $ 305,556
Provision For Taxes 0 (625) 0 44,900
NET INCOME (LOSS) $ 188,981 $ 59,368 $ 315,033 $ 260,656
SHARES OUTSTANDING 1,549,802 1,376,635 1,542,532 1,363,987
NET EARNINGS (LOSS) PER SHARE $ 0.12 $ 0.04 $ 0.20 $ 0.19
</TABLE>
NOTE: NET EARNINGS AND NUMBER OF SHARES ARE RESTATED TO REFLECT A 3 FOR 2
STOCK SPLIT EFFECTIVE JANUARY 21, 1997 AND A 10% STOCK DIVIDEND EFFECTIVE
AUGUST 1, 1997. THE SHARES ALSO REFLECT THE PURCHASE OF 165,000
(POST JANUARY SPLIT) SHARES BY AXXESS INTERNATIONAL GROUP.
17
<PAGE> 18
CABLE LINK, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
1997 1996
JUNE 30 June 30
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets
Cash $ 41,316 $ --
Accounts Receivable 1,165,916 1,329,428
Inventories 987,918 1,180,036
Prepaid Expenses 154,336 120,416
------------- -------------
TOTAL CURRENT ASSETS 2,349,486 2,629,880
------------- -------------
Property & Equipment
Cost 1,396,449 1,200,265
Accumulated Depreciation (687,291) (514,116)
------------- -------------
Net Property & Equipment 709,158 686,149
------------- -------------
TOTAL ASSETS $ 3,058,644 $ 3,316,029
============= =============
LIABILITIES
Current Liabilities
Accounts Payable, Trade $1,228,658 $ 1,070,376
Current Portion Notes Payable 49,325 50,358
Bank Revolving Credit Line 326,592 711,452
Accrued Expenses 186,949 366,756
------------- -------------
TOTAL CURRENT LIABILITIES 1,791,524 2,198,942
LONG TERM DEBT 106,762 208,820
------------- -------------
TOTAL LIABILITIES 1,898,286 2,407,762
------------- -------------
STOCKHOLDER'S EQUITY
Current Stockholder's Equity
Common Stock 1,409,298 1,229,798
Deficit (248,940) (321,531)
------------- -------------
TOTAL STOCKHOLDER'S EQUITY 1,160,358 908,267
------------- -------------
TOTAL LIABILITIES & EQUITY $3,058,644 $ 3,316,029
============= =============
</TABLE>
18
<PAGE> 19
CABLE LINK, INC.
COMPARATIVE CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30,
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 315,033 $ 260,656
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 85,371 53,906
(Increase) decrease in operating assets:
Accounts receivable (429,353) (287,027)
Inventories 188,391 (30,800)
Prepaid expenses 75,303 50,392
Increase (decrease) in operating liabilities:
Accounts payable (84,686) (78,043)
Accrued expenses 1,846 (40,263)
---------- ----------
Net cash provided by (used in) operating activities 151,905 (71,179)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (73,009) (198,653)
---------- ----------
Net cash used in investing activities (73,009) (198,653)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sales of common stock 179,500 61,600
Repayments on line of credit, net (280,498) (38,530)
Issuance of long-term debt - 106,420
Principal payments on debt (52,378) (9,441)
---------- ----------
Net cash provided by (used in)
financing activities (153,376) 120,049
---------- ----------
Net decrease in cash (74,480) (149,783)
Cash - beginning of period 115,796 149,783
---------- ----------
Cash - end of period $ 41,316 $ -
========== ==========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the period for interest $ 35,393 $ 42,062
</TABLE>
19
<PAGE> 20
C O N T E N T S
<TABLE>
<CAPTION>
Page
----
<S> <C>
INDEPENDENT AUDITORS' REPORT................................................................................. 21
BALANCE SHEETS............................................................................................... 22
STATEMENTS OF INCOME......................................................................................... 24
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY................................................................ 25
STATEMENTS OF CASH FLOWS..................................................................................... 26
NOTES TO FINANCIAL STATEMENTS................................................................................ 28
</TABLE>
20
<PAGE> 21
To the Board of Directors and Stockholders
Cable Link, Inc.
Columbus, Ohio
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheet of Cable Link, Inc. as
of December 31, 1996, and the related statements of income, stockholders'
equity, and cash flows for the year 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 audit.
We conducted our audit 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 audit provides 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 Cable Link, Inc. as
of December 31, 1996 and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
Groner, Boyle & Quillin, LLP
Columbus, Ohio
February 5, 1997
21
<PAGE> 22
CABLE LINK, INC.
BALANCE SHEETS
December 31, 1996 and 1995
ASSETS
<TABLE>
<CAPTION>
1995
1996 (Unaudited)
------------- --------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 115,796 $ 149,783
Accounts receivable, net 736,563 1,042,401
Income taxes receivable 102,422 68,904
Inventories 1,176,309 1,149,236
Prepaid consulting 45,755 16,955
Prepaid and other assets 41,814 44,316
------------- -------------
Total current assets 2,218,659 2,471,595
------------- -------------
PROPERTY AND EQUIPMENT, at cost
Furniture and fixtures 510,587 401,601
Equipment 622,988 432,064
Leasehold improvements 175,425 167,947
Construction in progress 14,440 -
------------- -------------
1,323,440 1,001,612
Less accumulated depreciation (604,311) (462,601)
------------- -------------
Net property and equipment 719,129 539,011
------------- -------------
COVENANT NOT TO COMPETE AND
OTHER ASSETS, net 42,040 43,025
------------- -------------
TOTAL ASSETS $ 2,979,828 $ 3,053,631
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
22
<PAGE> 23
CABLE LINK, INC.
LIABILITIES AND STOCKHOLDERS' EQUITY
Years Ended December 31, 1996 and 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1995
1996 (Unaudited)
---------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long-term obligations $ 101,703 $ 59,799
Revolving credit line 607,090 749,982
Accounts payable 1,313,344 1,148,419
Accrued expenses
Payroll and related taxes 149,060 231,228
Pension -- 81,637
Other 36,043 94,154
Total current liabilities 2,207,240 2,365,219
----------- -----------
LONG-TERM OBLIGATIONS 106,762 102,400
----------- -----------
Total liabilities 2,314,002 2,467,619
----------- -----------
STOCKHOLDERS' EQUITY
Common stock, no par value 1,093,662 1,032,062
Additional paid-in capital 136,136 136,136
Deficit (563,972) (582,186)
----------- -----------
Total stockholders' equity 665,826 586,012
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 2,979,828 $ 3,053,631
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
23
<PAGE> 24
CABLE LINK, INC.
STATEMENTS OF INCOME
Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1995
1996 (Unaudited)
----------- -------------
<S> <C> <C>
Sales $ 8,248,814 $ 7,650,356
Cost of sales 5,612,731 5,106,947
----------- -----------
Gross profit 2,636,083 2,543,409
Selling, general and administrative expenses 2,649,568 2,899,941
----------- -----------
Income (loss) from operations (13,485) (356,532)
----------- -----------
Other income (expense)
Interest expense (84,112) (74,228)
Gain (loss) on sale of assets 3,007 (2,506)
Reconciliation with vendors 93,518 18,772
Other 1,658 1,412
----------- -----------
Total other income (expense) 14,071 6,450
----------- -----------
Income (loss) before income taxes 586 (360,082)
Provision (benefit) for income taxes (17,628) (68,904)
----------- -----------
Net income (loss) $ 18,214 $ (291,178)
----------- -----------
Net income (loss) per share $ 0.01 $ (0.22)
=========== ===========
Shares used in per share computations 1,414,545 1,349,977
</TABLE>
NOTE: Net earnings and numbers of shares are restated to reflect a 3 for 2
stock split effective January 21, 1997 and a 10% stock dividend effective
August 1, 1997.
The accompanying notes are an integral part of the financial statements.
24
<PAGE> 25
CABLE LINK, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Shares of Issued Additional
And Outstanding Common Paid-In
Common Stock Stock Capital Deficit Total
---------------- ---------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE - DECEMBER 31,
1994 (Unaudited) 1,349,977 $1,032,062 $136,136 $(291,008) $ 877,190
Net loss - - - (291,178) (291,178)
--------- ---------- -------- ---------- ---------
BALANCE - DECEMBER 31,
1995 (Unaudited) 1,349,977 1,032,062 136,136 (582,186) 586,012
Exercise of options and warrants 34,848 61,600 - - 61,600
Net income - - - 18,214 18,214
--------- ---------- -------- ---------- ---------
BALANCE - DECEMBER 31,
1996 1,384,825 $1,093,662 $136,136 $(563,972) $ 665,826
--------- ---------- -------- ---------- ---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
25
<PAGE> 26
CABLE LINK, INC.
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1995
1996 (Unaudited)
-------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 18,214 $(291,178)
-------- ---------
Adjustments to reconcile net income(loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 156,717 95,338
(Gain) loss on sale of assets (3,007) 12,506
(Increase) decrease in operating assets:
Accounts receivable 305,838 286,341
Income tax receivable (33,518) (68,904)
Inventories (27,073) (347,424)
Prepaid and other assets (30,097) (8,520)
Increase (decrease) in operating liabilities:
Accounts payable 164,925 159,627
Accrued expenses (221,916) 88,609
--------- ---------
Total adjustments 311,869 217,573
--------- ---------
Net cash provided by (used in) operating activities 330,083 (73,605)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (213,086) (101,544)
Proceeds from sale of assets 10,575 2,500
--------- ---------
Net cash used in investing activities (202,511) ( 99,044)
--------- ---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
26
<PAGE> 27
CABLE LINK, INC.
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1995
1996 (Unaudited)
---------- -----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock and exercise of
stock options and warrants 61,600 -
Issuance of debt - 548,982
Repayments on line of credit, net (142,892) -
Payments to former stockholder (8,002) (124,496)
Principal payments on debt (20,163) (116,396)
Payments on capital lease obligations (52,102) (12,707)
---------- ----------
Net cash provided by (used in) financing activities (161,559) 295,383
---------- ----------
Net increase (decrease) in cash (33,987) 122,734
Cash - beginning of year 149,783 27,049
---------- ----------
Cash - end of year $ 115,796 $ 149,783
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 88,097 $ 71,215
Income taxes 10,000 14,816
SUPPLEMENTAL DISCLOSURE OF NONCASH PROPERTY
AND EQUIPMENT ACTIVITIES:
Capital lease obligations incurred for equipment $ 41,258 $ 148,793
Purchase of property and equipment with seller-financing 85,275 -
</TABLE>
The accompanying notes are an integral part of the financial statements.
27
<PAGE> 28
CABLE LINK, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1995 (Unaudited)
NATURE AND SCOPE OF BUSINESS
The Company sells new 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.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USES 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
amounts of revenues and expenses during the reporting periods. Actual results
could differ from these estimates.
ACCOUNTS RECEIVABLE
The Company utilizes the allowance method of accounting for accounts receivable
and has provided for possible uncollectible amounts in the accompanying
financial statements. The allowance for doubtful accounts was $40,360 and
$81,221 for the years ended December 31, 1996 and 1995, respectively. Bad debt
expense was $11,059 and $93,362 for the years ended December 31, 1996 and 1995,
respectively.
INVENTORIES
Inventories consist of new and used cable TV equipment and parts used to
refurbish and repair cable TV equipment. Inventory is valued at the lower of
cost or market, using the average-cost method. The weighted average cost is
calculated per item of inventory (new and used). Impairment and changes in
market value are evaluated on a per item basis.
If the cost of the inventory exceeds their market value evaluation based on
individual inventory items, provisions are made for the difference between the
cost and the market value. Provision for potential obsolete or slow moving
inventory is made based on analysis of inventory levels, changes in technology
and future sales forecasts.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost, less accumulated depreciation
computed using the straight-line method over the estimated useful lives of the
related assets. Furniture, fixtures, and equipment are depreciated over lives
ranging from three to seven years, and leasehold improvements are depreciated
over the shorter of the lease term or useful life of the improvement, generally
six to seven years. Major renewals and betterments are capitalized and
depreciated; maintenance and repairs which neither improve nor extend the life
of the respective assets are charged to expense as incurred. Upon disposal of
assets, the cost and related accumulated depreciation are removed from the
accounts and any gain or loss is included in income.
The Company leases certain equipment under capital lease agreements with a cost
and accumulated amortization of $218,516 and $54,314, respectively, at December
31, 1996, and $176,808 and $15,124, respectively at December 31, 1995.
Depreciation expense, which includes the amortization of assets held under
capital leases, was $151,933 and $89,338 for 1996 and 1995, respectively.
REVENUES
Revenues for all products are recognized when the related products are
shipped. Warranties are extended on new and repaired and refurbished products
for periods up to one year. The Company's expense for such warranties is not
significant. Warranties are not extended for used equipment.
EARNINGS PER SHARE
Earnings per share are computed on the weighted average number of common shares
outstanding including any dilutive options and warrants. Per share amounts have
been restated for the effects of the 20% stock dividend, that was effective May
16, 1996 for stockholders of record as of May 6, 1996.
28
<PAGE> 29
CABLE LINK, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1995 (Unaudited)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
ADVERTISING
The Company expenses advertising costs as incurred. Advertising expenses were
$41,980 and $60,121 for the years ended December 31, 1996 and 1995,
respectively.
STATEMENTS OF CASH FLOWS
For the purpose of reporting cash flows, cash includes cash on hand and demand
deposits held by banks.
INCOME TAXES
Deferred income taxes are recognized for the tax consequences in future years of
differences between the financial reporting and tax bases of assets and
liabilities at each year-end based on enacted tax laws and statutory tax rates.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expense represents the
taxes currently payable and the net change during the period in deferred tax
assets and liabilities.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1995 financial statements to
conform with the 1996 presentation.
CASH
As of December 31, 1996, the Company had deposits in a bank which exceeded the
federally insured limits.
INVENTORIES
Inventories at December 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Parts (used for repair/refurbish) 359,234 272,405
Converters 383,700 336,619
Linegear 374,620 459,149
Headend 109,051 124,252
---------- ----------
Gross Inventory 1,226,605 1,192,425
Reserves (50,296) (43,189)
---------- ----------
Net Inventory 1,176,309 1,149,236
</TABLE>
The Company reserves and periodically writes down slow moving inventory by
category such as converters, linegear, parts, and headend.
REVOLVING CREDIT LINE
The Company has a revolving credit line with a bank for the lesser of $750,000
or an amount based on eligible inventory and accounts receivable. The credit
line is secured by substantially all assets of the Company and is payable on
demand. The line, which was renewed in 1996, matures on May 30, 1997, and
interest is charged at prime plus 1%.
29
<PAGE> 30
CABLE LINK, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1995 (Unaudited)
REVOLVING CREDIT LINE (continued)
In connection with the participation agreement discussed in the stockholder
transactions, the Company acted as guarantor of personal loans for various Board
members and stockholders. No guarantees were outstanding at December 31, 1996.
The total amount guaranteed at December 31, 1995 was $98,000.
LONG-TERM OBLIGATIONS
Long-term obligations at December 31, 1996 and 1995 consists of the following:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Notes payable to a bank relating to motor
vehicle purchases due in monthly installments
of $342 with interest at 8.75% thru April
1997. The notes are secured by the
motor vehicles. $ 1,274 $ 8,809
Amount payable to stockholder 9,302 17,304
Amounts due under capital leases, net of $19,453
and $27,118 representing interest at December 31,
1996 and 1995, respectively. 125,242 136,086
Non-interest bearing note payable to an entity
relating to an equipment purchase due in
monthly installments of $2,722 through June,
1999. The face amount of the note is $97,985,
and the effective interest rate is 9.25%. The
unamortized discount at December 31, 1996
is $12,710. The note is secured by the related
equipment. 72,647 -
---------- ----------
Total 208,465 162,199
Less: Current maturities 101,703 59,799
---------- ----------
Long-term obligations $ 106,762 $ 102,400
========== ==========
</TABLE>
30
<PAGE> 31
CABLE LINK, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1995 (Unaudited)
LONG-TERM OBLIGATIONS (continued)
Maturities of long-term obligations are as follows:
<TABLE>
<CAPTION>
Long-term Capital Lease
Obligations Obligations
----------- -------------
<S> <C> <C>
1997 $ 36,345 $ 77,480
1998 30,986 44,553
1999 15,892 10,667
2000 - 10,667
2001 - 1,328
----------- -------------
144,695
Less amount representing interest - 19,453
----------- -------------
Total $83,223 $ 125,242
=========== =============
</TABLE>
RETIREMENT PLANS
The Company had a defined benefit pension plan, that was frozen effective
December 31, 1990, and a qualified defined contribution profit sharing plan. The
plans were terminated effective August 1, 1995 and no contributions were made to
either plan during 1995. Approval of the plan terminations and disbursement of
plan assets was granted by the IRS during 1996. The remaining unfunded liability
of $68,583 was paid during 1996. At December 31, 1996, the Company has no
further liability for either plan.
INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1996 1995
---------- --------
<S> <C> <C>
Current (benefit) expense
Federal $ (7,826) $(68,904)
State and local (9,802) -
---------- --------
Income tax (benefit) expense $ (17,628) $(68,904)
========= ========
</TABLE>
31
<PAGE> 32
CABLE LINK, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1995 (Unaudited)
INCOME TAXES (continued)
The components of the net deferred tax asset (liability) are as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Assets:
Accounts receivable $ 15,337 $ 30,900
Inventories 46,660 90,700
Pension - 31,000
Net operating loss 174,133 66,900
Accrued liabilities - 19,400
Other 3,811 10,600
---------- ----------
Gross deferred tax assets 239,941 249,500
---------- ----------
Liability:
Property and equipment 35,603 33,400
Prepaid asset 17,387 6,400
----------- ----------
Gross deferred tax liabilities 52,990 39,800
----------- ----------
Net deferred tax asset 186,951 209,700
Less: Valuation allowance (186,951) (209,700)
----------- ----------
$ 0 $ 0
=========== ==========
</TABLE>
A reconciliation of the Company's effective tax values is as follows:
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
Income tax at statutory rates $ 200 $(122,428)
State and local taxes, net of federal benefit (6,469) -
Surtax and other rate differences 5,298 (10,082)
Meals and entertainment/officer's life
insurance 6,092 9,362
Change in valuation allowance (22,749) 54,244
------------ ---------
$ (17,628) $(68,904)
============ =========
</TABLE>
Net deferred tax assets have been fully reserved, as it is not known if the
benefit will be realized by the Company.
As of December 31, 1996, the Company has approximately $458,000 of tax net
operating loss carryforwards remaining to be utilized. The tax net loss
carryforwards begin to expire in the year 2007.
32
<PAGE> 33
CABLE LINK, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1995 (Unaudited)
STOCKHOLDERS' EQUITY
At December 31, 1996 and 1995, the Company had authorized common shares, no par
value, of 1,800,000 and authorized preferred shares, no par value, of 200,000.
No preferred stock is issued or outstanding at December 31, 1996 or 1995.
The Company adopted the 1995 Stock Option Plan ("1995 Plan") effective October
17, 1995. The 1995 Plan authorizes the Company to grant options ("Options") to
purchase shares of the Company's common stock to directors, employees and
consultants of the Company. The 1995 Plan also authorizes the Company to grant
stock appreciation rights ("SARS") to employees of the Company. The maximum
number of common shares that may be issued under the 1995 Plan is 395,010. An
SAR may be issued, at the discretion of the board of directors, either in tandem
or not in tandem with an Option. The holder of an SAR tandem to an Option is
entitled to receive, upon exercise of the SAR, payment of an amount determined
by multiplying the excess of fair market value of a common share on the date the
SAR is exercised over the exercise price of the related Option by the number of
shares as to which the SAR has been exercised. The board of directors shall
determine the exercise price of each SAR that is not in tandem with an Option at
the time of granting the SAR, but in no event shall the exercise price be less
than the fair market value of a common share on the date such SAR is granted.
The exercise of an SAR tandem to an Option shall cancel the related Option with
respect to the number of shares as to which such SAR is exercised. The exercise
of an Option granted in tandem with an SAR shall cancel the related SAR with
respect to the number of shares as to which such Option is exercised. At the
discretion of the board of directors, payment upon the exercise of an SAR may be
made in cash, shares of the Company's common stock or any combination thereof.
All options granted during 1996 and 1995 were granted in tandem with SARS for an
identical number of common shares.
The Company applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its stock option plan. Accordingly, no
compensation cost has been recognized in the accompanying financial statements
for options issued under the plan. Had compensation cost for the Company's stock
option plan been determined based on the fair value at the grant dates for
awards under the plan consistent with the methodology of Financial Accounting
Standards Board Statement No. 123 "Accounting for Stock-Based Compensation," the
Company's net income (loss) and net income (loss) per share would change as
indicated below:
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
Net income (loss):
As reported $ 18,214 $ (291,178)
Pro forma (21,524) (305,041)
Net income (loss) per share:
As reported $ 0.01 $ (0.22)
Pro forma (0.02) (0.23)
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
----------------------------- -----------------
<S> <C> <C>
Dividend yield 0 0
Expected volatility 574% 574%
Risk-free interest rates 5.72%, 5.82%, 6.32% and 6.58% 7.55% and 6.80%
Expected lives 5, 4 and 1 years 5 and 1 years
</TABLE>
33
<PAGE> 34
CABLE LINK, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1995 (Unaudited)
STOCKHOLDERS' EQUITY (continued)
A summary of the status of the Company's employee stock option plan as of
December 31, 1996 and 1995 and changes for the years then ended is presented
below:
<TABLE>
<CAPTION>
1996 1995
--------------------------------- -----------------------------
Weighted- Weighted-
Average Average
Shares Exercise Price Shares Exercise Price
--------- -------------- --------- --------------
<S> <C> <C> <C> <C>
January 1 217,998 $1.37 153,648 $1.87
Granted 138,270 1.40 123,750 1.06
Exercised (17,028) 1.77 - -
Canceled (126,918) 1.05 (59,400) 2.03
------- --------
December 31 212,322 1.53 217,998 1.51
======= ========
Options exercisable
at year-end
101,574 94,644
Weighted-average
fair value of options
granted during the
year $ 1.33 $ 1.50
</TABLE>
The following table summarizes information about employee stock options at
December 31, 1996:
<TABLE>
<CAPTION>
Weighted
Average
Number Remaining Weighted- Number Weighted-
Outstanding Contractual Average Exercisable Average
Range of December 31, Life Exercise December 31, Exercise
Exercise Prices 1996 (In Years) Price 1996 Price
--------------- ------------- ----------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C>
$1.33 - $2.27 200,442 7.3 $ 1.35 99,594 $ 1.69
2.99 - 3.52 11,880 7.9 3.08 1,980 3.52
------- -------
Total
212,322 101,574
======= =======
</TABLE>
The Company has entered into agreements to issue warrants to purchase common
stock and stock options to a director of the Company in exchange for consulting
services. In connection with these agreements, the Company paid consulting fees
of $100,000 in 1996 and 1995, and issued options to purchase 33,000 shares at
$0.72 per share and 39,600 shares at $.41 per share in 1996 and 1995,
respectively and a warrant to purchase 19,800 shares at $.93 per share. No
compensation expense was recorded since the exercise price of the warrants and
options was equal to the market price of the shares at the date of grant.
34
<PAGE> 35
CABLE LINK, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1995 (Unaudited)
STOCKHOLDERS' EQUITY (continued)
Following is a summary of the director's options, substantially all of which are
fully vested:
<TABLE>
<CAPTION>
1996 1995
-------------------------------- ---------------------------------
Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price
------- ---------------- ------- ----------------
<S> <C> <C> <C> <C>
January 1 366,300 $1.71 297,000 $1.90
Granted 34,980 0.88 69,300 0.88
-------- -------
December 31 401,280 $1.64 366,300 $1.71
======= =======
</TABLE>
The stock options expire at various dates through 2006.
At December 31, 1996 and 1995, the director held warrants to purchase 19,800
shares of stock for $0.93 per share. The warrants expire in 2004.
At December 31, 1996 and 1995, outside Board of Directors members held options
to purchase 100,980 and 85,140 shares of common stock, respectively, with
exercise prices ranging from $1.52 to $3.52. At December 31, 1996 and 1995,
97,020 and 85,140 of the options are vested. At December 31, 1996, 13,860 of
these options have no expiration date, and the remaining options expire at
various dates through 2006.
OPERATING LEASE OBLIGATIONS
The Company leases production and office space from a director of the Company
under an operating lease expiring in October, 1998 with a three-year renewal
option. During 1996 and 1995, modifications were made to the lease which
increased the Company's occupancy area and monthly rent. At December 31, 1996,
monthly payments of $9,504 were required, subject to increases in real estate
taxes and rent increases each November. Minimum lease payments:
<TABLE>
<S> <C>
1997 $114,504
1998 97,320
--------
$211,824
========
</TABLE>
Rent expense was $135,449 and $108,566 for the years ended December 31, 1996 and
1995, respectively.
RECONCILIATION WITH VENDORS
During 1996 and 1995, the Company reconciled amounts owed to various vendors.
These reconciliations resulted in a reduction of expenses of $93,518 and $81,772
in 1996 and 1995, respectively. At December 31, 1995, there was a contingency
accrual of $63,893 included in accounts payable related to unresolved amounts.
No such contingency exists at December 31, 1996.
35
<PAGE> 36
CABLE LINK, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1995 (Unaudited)
STOCKHOLDER TRANSACTIONS
On October 18, 1994, the Company's former president and largest stockholder
entered into an agreement, with a director, whereby the director would purchase
from the former president 581,636 common shares. The disinterested stockholders
of the Company approved the transaction on December 28, 1994. In addition, the
director entered into a participation agreement whereby directors and third
parties will acquire 25% of shares purchased pursuant to the Agreement.
Effective December 31, 1995, the share purchase transaction was completed.
Under terms of the agreement, the Company entered into a separation,
Non-competition and consulting agreement with the former president. The
Separation Agreement requires the Company to pay the former president $100,000.
Consulting services are to be provided by the former president through December
31, 1998, for total consideration of $350,000 payable in seven monthly
installments of approximately $15,394; 25 monthly installments of approximately
$9,333; and a final installment of $8,917. The former president also agreed not
to compete with the Company through December 31, 1998, for total consideration
of $25,000 payable in seven monthly installments of approximately $1,100; 25
monthly installments of approximately $667; and a final installment of $625. The
covenant not to compete and the related obligation are reflected in the
accompanying balance sheets, and the covenant is being amortized on the
straight-line method over the term of the covenant. Total accumulated
amortization in relation to the covenant not-to-compete was $11,981 and $7,197
for 1996 and 1995, respectively. The consulting services are being expensed over
the term of the Agreement as services are rendered. Under this agreement, the
Company recognized expenses of $84,000 per year in 1996 and 1995.
The following are the annual payments due under these agreements:
<TABLE>
<S> <C>
1997 $120,000
1998 19,547
</TABLE>
CONCENTRATIONS OF CREDIT RISK
The Company grants credit to cable operations in the United States, Central and
South America, Europe and the Pacific Rim. Sales are denominated principally in
U. S. dollars and, therefore, the Company does not have significant foreign
exchange rate risk. Sales to customers outside the United States were $745,897
and $1,713,518 and the corresponding accounts receivable were $93,450 and
$92,393 at December 31, 1996 and 1995, respectively. In most cases, sales of
product in international markets are cash in advance or cash on delivery.
Additionally, the Company carries insurance on all significant international
accounts receivable.
As of December 31, 1996, approximately 14% of the accounts receivable balance
was due from a single customer. At December 31, 1995, approximately 15% of the
accounts receivable balance was due from a different customer.
36
<PAGE> 37
CABLE LINK, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1995 (Unaudited)
SUBSEQUENT EVENTS
On January 8, 1997 the Company entered into an agreement with another entity
(the Buyer) to purchase 165,000 shares of common stock of the Company and
165,000 warrants to purchase an additional 165,000 shares for $200,000. The
warrants are fully vested and may be exercised in increments of 1,000 shares.
The warrants have been separated into four groups of 41,250 shares each, with
exercise prices of $1.36 for one group, $1.67 for one group, $1.97 for one group
and $2.27 for one group. The expiration dates for these four warrant groups are
six months, six months, nine months, and nine months, after January 8, 1997, the
effective date of the offering. The warrants issued are transferable by the
Buyer under any manner that is in compliance with all applicable security laws.
On January 21, 1997, the Company declared a 3 for 2 stock dividend for
stockholders of record as of January 21, 1997, payable on January 31, 1997. Net
income (loss) per share at December 31, 1996 and 1995 would be $ .01 and $
(.22), respectively, after consideration of this above-mentioned issuance of
common stock, warrants and stock split.
37
<PAGE> 38
PART III
EXHIBITS
ITEM 2. DESCRIPTION OF EXHIBITS.
The following documents are filed as exhibits to the registration statement.
(2) Charter and By-Laws. 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 issuer agrees to provide to the Commission upon
request instruments defining the rights of holders of
long-term debt of the issuer and all of its
subsidiaries for which consolidated financial
statements are required to be filed.
(4) None.
(5) 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.
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.
See Exhibit 10.1 - Consent of Groner, Boyle & Quillin, LLP
See Exhibit 16.1 - Acknowledgment by Coopers & Lybrand L.L.P.
(7) None.
(10) Consents. The consent of Groner, Boyle & Quillin, LLP.
(16) Acknowledgment by Coopers & Lybrand L.L.P. as to
information in Part II, Item 3.
38
<PAGE> 39
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant has duly caused this amendment to registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Columbus, State of Ohio, on May 28, 1998.
CABLELINK, INC.
By: /s/ Bob Binsky
------------------------------------------------
Bob Binsky, Chairman and Chief Executive Officer
39
<PAGE> 40
INDEX TO EXHIBITS.
<TABLE>
<CAPTION>
Exhibits Instrument
- -------- ----------
<S> <C> <C>
2.1 Articles of Incorporation *
2.2 Code of Regulations *
3.1 Articles IV, V and VI of the Articles of Incorporation
(see Exhibit 2.1 above) *
3.2 Articles I, IV and VII of the Code of Regulations
(see Exhibit 2.2 above) *
6.1 1995 Stock Option Plan dated October 17, 1995 *
6.2 Warrant Agreement for Axxess International Group, Inc.
dated January 8, 1997 *
6.3 Non-Competition and Consulting Agreement dated
October 18, 1994 *
6.4 First Amendment Agreement to Non-Competition and
Consulting Agreement dated June 1, 1995 *
6.5 Second Amendment Agreement to Non-Competition and
Consulting Agreement dated November 16, 1995 *
6.6 Consulting Agreement dated October 1, 1996 *
6.7 Eric S. Newman Independent Consulting Letter Agreement
dated August 1, 1994 *
6.8 Loan and Security Agreement dated November 27, 1996 *
6.9 Promissory Note dated April 30, 1997 *
6.10 Lease dated November 4, 1992 and Lease Modification
Agreement dated October 26, 1995 for Suite 201,
280 Cozzins, Columbus,Ohio *
10.1 Consent of Groner, Boyle & Quillin,LLP 41
16.1 Acknowledgment by Coopers & Lybrand L.L.P. *
</TABLE>
- ------------------
* Previously filed
40
<PAGE> 1
EXHIBIT 10.1
We hereby consent to the use in the Offering Circular constituting part of this
Form 10-SB Registration Statement of our report dated February 5, 1997 relating
to the financial statements of Cable Link, Inc., which appears in such Offering
Circular.
Groner, Boyle & Quillin, LLP
May 27, 1998
