<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
FORM 10-KSB/A
Amendment No. 1
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
SECURITIES EXCHANGE ACT OF 1934.
For the fiscal year ended December 31, 1997
---------------------------------------------------
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT
OF 1934.
For the transition period from ______ to ______
Commission file number 0-23111
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
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(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- ---------------------
None
- --------------------------------- ----------------------------------------
- --------------------------------- ----------------------------------------
Securities registered under Section 12(g) of the Exchange Act:
Common Stock
- --------------------------------------------------------------------------------
(Title of Class)
- --------------------------------------------------------------------------------
(Title of Class)
This Amendment is being filed to amend Part I, Item 6, Part F/S Financial
Statements, and Part II, Items 1 and 3.
<PAGE> 2
PART I
ALTERNATIVE 2
ITEMS 6-11 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 brokerage 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 (22% in 1995, 9% in 1996 and 11% in 1997).
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. This amount was subsequently increased to $850,000.
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, 1997, no customer accounted for more than 10% of the
Company's accounts receivable balance. 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 is also not dependent on any
one supplier.
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 of the Company 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. New and used inventory items are separately identified as items of
inventory. The weighted average cost is calculated per item of inventory.
Impairment and changes in market value are evaluated on a per item basis. 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 December 31, 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.
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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 quarter during its past two fiscal years is as follows:
<TABLE>
<CAPTION>
Year Quarter High Low
---- ------- ---- ---
<S> <C> <C> <C>
1997 4th 4.13 2.88
3rd 3.29 2.44
2nd 3.16 1.74
1st 4.63 1.37
1996 4th 1.15 .33
3rd 2.13 .63
2nd 2.88 1.32
1st 2.29 .33
</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 100 record holders of the common shares of the
Registrant. All amounts shown herein have been adjusted for prior stock splits
and stock dividends.
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 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. Groner, Boyle & Quillin LLP was engaged as the
Registrant's principal accountants on October 23, 1996.
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PART F/S
FINANCIAL STATEMENTS
* * * * * *
DECEMBER 31, 1997 AND 1996
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C O N T E N T S
Page
INDEPENDENT AUDITORS' REPORT 10
BALANCE SHEETS 11
STATEMENTS OF INCOME 13
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY 14
STATEMENTS OF CASH FLOWS 15
NOTES TO FINANCIAL STATEMENTS 17
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GRONER, BOYLE & QUILLIN, LLP
Certified Public Accountants and Consultants
500 South Front Street
P.O. Box 182108
Columbus, Ohio 43218-2108
Telephone (614) 221-1120
FAX (614) 227-6999
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, 1997 and 1996, and the related statements of income, stockholders'
equity, and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Cable Link, Inc. as of
December 31, 1997 and 1996 and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
/s/ GRONER, BOYLE & QUILLIN, LLP
Columbus, Ohio
January 29, 1998
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<PAGE> 11
CABLE LINK, INC.
BALANCE SHEETS
December 31, 1997 and 1996
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ASSETS
1997 1996
----------- -----------
CURRENT ASSETS
Cash $ 204,990 $ 115,796
Accounts receivable, net 1,135,607 736,563
Income taxes receivable - 102,422
Inventories 1,332,619 1,176,309
Prepaid consulting 72,955 45,755
Prepaid and other assets 88,489 41,814
Deferred income taxes 36,500 -
----------- -----------
Total current assets 2,871,160 2,218,659
----------- -----------
PROPERTY AND EQUIPMENT, at cost
Furniture and fixtures 585,740 510,587
Equipment 683,767 622,988
Leasehold improvements 175,425 175,425
Construction in progress 21,832 14,440
----------- -----------
1,466,764 1,323,440
Less accumulated depreciation (774,125) (604,311)
----------- -----------
Net property and equipment 692,639 719,129
----------- -----------
COVENANT NOT TO COMPETE AND
OTHER ASSETS, net 34,130 42,040
----------- -----------
TOTAL ASSETS $ 3,597,929 $ 2,979,828
=========== ===========
The accompanying notes are an integral part of the financial statements.
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<PAGE> 12
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LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1997 1996
---------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long-term obligations $ 82,354 $ 101,703
Revolving credit line 290,957 607,090
Accounts payable 765,269 1,313,344
Income taxes payable 138,742 -
Accrued expenses
Payroll and related taxes 299,857 149,060
Other 30,141 36,043
---------- -----------
Total current liabilities 1,607,320 2,207,240
LONG-TERM OBLIGATIONS 53,412 106,762
DEFERRED INCOME TAXES 48,000 -
---------- -----------
Total liabilities 1,708,732 2,314,002
---------- -----------
STOCKHOLDERS' EQUITY
Common stock, no par value 1,449,706 1,093,662
Additional paid-in capital 136,136 136,136
Retained earnings (deficit) 303,355 (563,972)
---------- -----------
Total stockholders' equity 1,889,197 665,826
---------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $3,597,929 $ 2,979,828
========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
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<PAGE> 13
CABLE LINK, INC.
STATEMENTS OF INCOME
Years Ended December 31, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
Revenues $ 10,094,178 $ 8,248,814
Cost of revenues 6,277,709 5,612,731
------------ -----------
Gross profit 3,816,469 2,636,083
Selling, general and administrative expenses 2,746,073 2,649,568
------------ -----------
Income (loss) from operations 1,070,396 (13,485)
------------ -----------
Other income (expense)
Interest expense (60,541) (84,112)
Gain on sale of assets -- 3,007
Reconciliation with vendors 112,197 93,518
Other 2,824 1,658
------------ -----------
Total other income (expense) 54,480 14,071
------------ -----------
Income before income taxes 1,124,876 586
Provision (benefit) for income taxes
Current 246,049 (17,628)
Deferred 11,500 -
------------ -----------
Total provision (benefit) for income taxes 257,549 (17,628)
------------ -----------
Net income $ 867,327 $ 18,214
============ ===========
Basic earnings per share $ 0.54 0.01
============ ===========
Weighted average shares outstanding used
to compute basic earnings per share 1,591,976 1,370,860
============ ===========
Diluted earnings per share $ 0.45 $ 0.01
============ ===========
Weighted average shares outstanding used
to compute diluted earnings per share 1,913,958 1,411,748
============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
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CABLE LINK, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares of Issued Additional
And Outstanding Common Paid-In Retained
Common Stock Stock Capital Earnings Total
------------ ----- ------- -------- -----
<S> <C> <C> <C> <C> <C>
BALANCE - DECEMBER 31,
1995 1,349,804 $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 1,384,652 1,093,662 136,136 (563,972) 665,826
Issuance of common stock, net of
issuance cost of $50,893 165,000 149,107 - - 149,107
Exercise of options and warrants 124,150 206,937 - - 206,937
Net income - - - 867,327 867,327
--------- ---------- -------- --------- ----------
BALANCE - DECEMBER 31,
1997 1,673,802 $1,449,706 $136,136 $ 303,355 $1,889,197
========= ========== ======== ========= ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
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CABLE LINK, INC.
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 867,327 $ 18,214
--------- ---------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 174,599 156,717
Bad debts 29,450 11,059
Deferred income taxes 11,500 -
Gain on sale of assets - (3,007)
(Increase) decrease in operating assets:
Accounts receivable (428,494) 294,779
Income tax receivable 102,422 (33,518)
Inventories (156,310) (27,073)
Prepaid and other assets (70,750) (30,097)
Increase (decrease) in operating liabilities:
Accounts payable (548,075) 164,925
Income tax payable 138,742 -
Accrued expenses 144,895 (221,916)
--------- ---------
Total adjustments (602,021) 311,869
--------- ---------
Net cash provided by operating activities 265,306 330,083
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (107,685) (213,086)
Proceeds from sale of assets - 10,575
--------- ---------
Net cash used in investing activities (107,685) (202,511)
--------- ---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
-15-
<PAGE> 16
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock and exercise of
stock options and warrants 356,044 61,600
Repayments on line of credit, net (316,133) (142,892)
Payments to former stockholder (8,000) (8,002)
Principal payments on debt (28,345) (20,163)
Payments on capital lease obligations (71,993) (52,102)
--------- ---------
Net cash used in financing activities (68,427) (161,559)
--------- ---------
Net decrease in cash 89,194 (33,987)
Cash - beginning of year 115,796 149,783
--------- ---------
Cash - end of year $ 204,990 $ 115,796
--------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 60,541 $ 88,097
Income taxes 5,836 10,000
SUPPLEMENTAL DISCLOSURE OF NONCASH PROPERTY
AND EQUIPMENT ACTIVITIES:
Capital lease obligations incurred for equipment $ 35,640 $ 41,258
Purchase of property and equipment with
seller-financing - 85,275
</TABLE>
The accompanying notes are an integral part of the financial statements.
-16-
<PAGE> 17
CABLE LINK, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
- --------------------------------------------------------------------------------
NATURE AND SCOPE OF BUSINESS
The Company sells new, used and refurbished cable TV equipment
in addition to repairing equipment for cable companies within
the United States and various international markets. The Company
operates both its administrative and manufacturing operations
from a single, leased facility in Columbus, Ohio.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported 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
$20,360 and $40,360 for the years ended December 31, 1997 and 1996,
respectively. Bad debt expense was $29,450 and $11,059 for the years ended
December 31, 1997 and 1996, 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. New
and used inventory items are separately identified as items of
inventory. The weighted average cost is calculated per item of
inventory. Impairment and changes in market value are evaluated on
a per item basis.
If the cost of the inventory exceeds the market value evaluation
based on total inventory, 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.
(Continued)
-17-
<PAGE> 18
CABLE LINK, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
- --------------------------------------------------------------------------------
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
PROPERTY AND EQUIPMENT (continued)
The Company leases certain equipment under capital lease
agreements with a cost and accumulated amortization of $254,156
and $94,665 respectively, at December 31, 1997, and $218,516 and
$54,182, respectively at December 31, 1996. Depreciation
expense, which includes the amortization of assets held under
capital leases, was $169,815 and $151,933 for 1997 and 1996,
respectively.
REVENUES
Revenues are recognized when the related products are completed
and 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
During 1997, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 128 "Earnings Per Share." The
new standard simplifies the standards for computing earnings per
share and requires presentation of two new amounts, basic and
diluted earnings per share. The Company was required to
retroactively adopt this standard for both years presented.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
-------------------------------------------------------------------------
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------------------------- ------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ----------------------- -----------------------------------
BASIC EPS
<S> <C> <C> <C> <C> <C> <C>
Income available to
common stockholders $867,327 1,591,976 $ 0.54 $18,214 1,370,860 $ 0.01
Effect of Dilutive
Securities, Warrants and
Options - 321,982 .09 - 40,888 -
-------- --------- -------- ------- --------- --------
DILUTED EPS
Income available to
common stockholders $867,327 1,913,958 $ 0.45 $18,214 1,411,748 $ 0.01
======== ========= ======== ======= ========= ========
</TABLE>
Options to purchase 11,880 and 649,022 shares for the years
ended December 31, 1997 and 1996, respectively were not included
in the computation of diluted EPS because the options exercise
price was greater than the average market price of common
shares. In August, 1997, options to purchase 38,500 shares were
issued contingent on certain earnings levels, and these options were
not included in the computation of diluted EPS.
Earnings per share is 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 a three for two stock split and
an eleven-for-ten stock dividend, that was effective January 31, 1997 and
August 11, 1997 for stockholders of record as of January 21, 1997 and August
1, 1997, respectively.
(Continued)
-18-
<PAGE> 19
CABLE LINK, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
- --------------------------------------------------------------------------------
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
ADVERTISING
The Company expenses advertising costs as incurred. Advertising
expenses were $33,926 and $41,980 for the years ended December
31, 1997 and 1996, 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 1996 financial
statements to conform with the 1997 presentation.
CASH
As of December 31, 1997, the Company had deposits in a bank
which exceeded the federally insured limits.
INVENTORIES
Inventories at December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
PARTS:
USED 0 0
NEW 242,956 359,234
CONVERTERS:
USED 449,550 218,800
NEW 21,350 164,900
LINEGEAR:
USED 313,702 327,980
NEW 317,030 46,640
HEAD-END:
USED 55,931 106,121
NEW 2,400 2,930
TOTAL:
USED 819,183 652,901
NEW 583,736 573,704
RESERVES (70,300) (50,296)
NET INVENTORY 1,332,619 1,176,309
</TABLE>
The Company reserves and periodically writes down slow moving
inventory by category such as converters, linegear, parts, and
headend.
(Continued)
-19-
<PAGE> 20
CABLE LINK, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
- --------------------------------------------------------------------------------
REVOLVING CREDIT LINE
The Company has a revolving credit line with a bank for the
lesser of $850,000 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
matures on April 30, 1998, and interest is charged at prime plus
1%.
LONG-TERM OBLIGATIONS
Long-term obligations at December 31, 1997 and 1996 consists of the
following:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Amounts due under capital leases, net of $12,123
and $19,453 representing interest at December 31,
1997 and 1996, respectively $ 88,889 $ 125,242
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, 1997 and
1996 was $3,417 and $9,009, respectively. The
note is secured by the related equipment 45,575 72,647
Amount payable to stockholder 1,302 9,302
Notes payable to a bank relating to motor vehicle purchases
due in monthly installments of $342 with interest at
8.75% were paid in full in 1997. The notes were secured
by the motor vehicles. - 1,274
--------- ---------
Total 135,766 208,465
Less: Current maturities (82,354) (101,703)
--------- ---------
Long-term obligations $ 53,412 $ 106,762
========= =========
</TABLE>
(Continued)
-20-
<PAGE> 21
CABLE LINK, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
- --------------------------------------------------------------------------------
LONG-TERM OBLIGATIONS (continued)
Maturities of long-term obligations are as follows:
<TABLE>
<CAPTION>
Long-term Capital Lease
Obligations Obligations
----------- -----------
<S> <C> <C>
1998 $29,684 $58,792
1999 17,193 25,007
2000 - 16,815
2001 - 398
2002 - -
------- -------
101,012
Less amount representing interest - 12,123
------- -------
Total $46,877 $88,889
======= =======
</TABLE>
RETIREMENT PLANS
The Company began a 401(K) retirement plan for the benefit of its employees
during 1997. The employees must have attained age 21 and completed at least
one year of service to be eligible. The Company's contribution is
discretionary and was $5,000 in 1997. The total employee contributions for
1997 were $42,687.
INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Current (benefit) expense
Federal $210,000 $ (7,826)
State and local 36,049 (9,802)
-------- --------
Income tax (benefit) expense $246,049 $(17,628)
======== ========
</TABLE>
(Continued)
-21-
<PAGE> 22
CABLE LINK, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
- --------------------------------------------------------------------------------
INCOME TAXES (continued)
The components of the net deferred tax asset (liability) are as follows:
<TABLE>
<CAPTION>
1997 1996
-------- ---------
Assets:
<S> <C> <C>
Accounts receivable $ 7,737 $ 15,337
Inventories 49,983 46,660
Accrued franchise tax 6,460 -
Net operating loss - 174,133
Other 4,659 3,811
-------- ---------
Gross deferred tax assets 68,839 239,941
-------- ---------
Liability:
Property and equipment 52,616 35,603
Prepaid asset 27,723 17,387
-------- ---------
Gross deferred tax liabilities 80,339 52,990
-------- ---------
Net deferred tax asset (liability) (11,500) 186,951
Less: Valuation allowance - (186,951)
-------- ---------
$(11,500) $ -
======== =========
</TABLE>
A reconciliation of the Company's effective tax values is as follows:
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
Income tax at statutory rates $ 382,458 $ 200
State and local taxes, net of federal benefit 43,431 (6,469)
Surtax and other rate differences 2,214 5,298
Permanent differences 15,591 6,092
Change in valuation allowance (186,951) (22,749)
State tax credits earned 3,257 -
Refunds from prior years state returns, net of
federal tax (2,451) -
--------- --------
$ 257,549 $(17,628)
========= ========
</TABLE>
The net deferred tax assets were fully reserved for the year ended December
31, 1996, as it was not known if the benefit would have been realized by the
Company. The reserve was reversed in 1997.
As of December 31, 1996, the Company had approximately $458,000 of tax net
operating loss carry forwards remaining to be utilized. The Company utilized
the entire net operating loss in 1997.
(Continued)
-22-
<PAGE> 23
CABLE LINK, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
- --------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
At December 31, 1997 and 1996, the Company had authorized common shares, no
par value, of 10,000,000 and 1,800,000, respectively, and authorized
preferred shares, no par value, of 200,000. No preferred stock is issued or
outstanding at December 31, 1997 or 1996.
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. The vesting period
of the options granted range from immediately exercisable to four years.
Accordingly, no compensation cost has been recognized in the accompanying
financial statements for options or SARs issued under the plan since the
exercise price of the options and SARs was equal to the market value of the
shares at the date of grant. 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>
1997 1996
-------- -------
<S> <C> <C>
Net income (loss):
As reported $867,327 $ 18,214
Pro forma 825,136 (21,524)
Basic earnings (loss) per share:
As reported $ 0.54 $ 0.01
Pro forma 0.52 (0.02)
Diluted earnings (loss) per share:
As reported $ 0.45 $ 0.01
Pro forma $ 0.43 $ (0.02)
</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 1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
-------------------------- ---------------------------
<S> <C> <C>
Dividend yield 0 0
Expected volatility 112% 574%
Risk-free interest rates 5.89%, 5.92%, 5.96% & 6.25% 5.72%, 5.82%, 6.32% & 6.58%
Expected lives 5, 4 and 1 years 5, 4 and 1 years
</TABLE>
(Continued)
-23-
<PAGE> 24
CABLE LINK, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
- --------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY (continued)
A summary of the status of the Company's employee stock option plan as of
December 31, 1997 and 1996 and changes for the years then ended is presented
below:
<TABLE>
<CAPTION>
1997 1996
---------------------------- -------------------------------------
Weighted- Weighted-
Average Average
Shares Exercise Price Shares Exercise Price
------ -------------- ------ --------------
<S> <C> <C> <C> <C>
January 1 210,342 $1.53 217,998 $1.37
Granted 53,350 2.53 138,270 1.40
Exercised - - (17,028) 1.77
Canceled (27,390) 1.66 (126,918) 1.05
-------- --------
December 31 236,302 1.82 212,322 1.53
======== ========
Options exercisable
at year-end 130,276 94,644
Weighted-average
fair value of options
granted during the
year $ 1.93 $ 1.33
</TABLE>
The following table summarizes information about employee stock options at
December 31, 1997
<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 1997 ( In Years ) Price 1996 Price
- --------------- ------------------ -------------- ------------ ------------- ---------
<S> <C> <C> <C> <C> <C>
$0.79 - $3.50 236,302 6.87 $1.80 130,276 $1.72
</TABLE>
Prior to 1997, the Company had 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 issued options to purchase 33,000
shares at $0.72 per share in 1996. The warrants and options include
provisions allowing the director to require the Company to repurchase the
warrants and options for the difference between the exercise price and the
fair market value at the date the director notifies the Company. No
compensation expense was recorded since the exercise price of the warrants
was equal to the market price of the shares at the date of grant. On
December 13, 1995, the Board amended the consulting agreement to extend the
expiration date until May 31, 2004. No compensation expense was recorded
since the exercise price of the warrant and options was in excess of the
market price of the shares at the date of the extension. In 1997, the
director became an employee of the Company.
(Continued)
-24-
<PAGE> 25
CABLE LINK, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
- --------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY (continued)
Following is a summary of the director's options, substantially all of which
are fully vested:
<TABLE>
<CAPTION>
Weighted Average
Shares Exercise Price
------ --------------
<S> <C> <C>
January 1, 1996 366,300 $ 1.71
Granted during 1996 34,980 0.88
--------
December 31, 1996 401,280 $ 1.64
========
</TABLE>
The stock options and SARs expire at various dates through 2006. No new
options were granted under these agreements in 1997.
At December 31, 1997 and 1996, the director held warrants to purchase 19,800
shares of stock for $0.93 per share. The warrants expire in 2004.
At December 31, 1997 and 1996, outside Board of Directors members held
options to purchase 40,040 and 100,980 shares of common stock, respectively,
with exercise prices ranging from $0.79 to $3.50. At December 31, 1997 and
1996, 40,040 and 97,020 of the options are vested and the options expire at
various dates through 2007.
OPERATING LEASE OBLIGATIONS
The Company leases 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 1997 and 1996, modifications were made to the lease
which increased the Company's occupancy area and monthly rent. At December
31, 1997, monthly payments of $11,827 were required, subject to increases in
real estate taxes and rent increases each November. Minimum lease payments
due in 1998 are $118,265.
Rent expense was $139,295 and $135,449 for the years ended December 31, 1997
and 1996, respectively. The Company leases a vehicle and various office
equipment. The lease expense was $26,593 and $17,564 for the years ended
December 31, 1997 and 1996, respectively.
RECONCILIATION WITH VENDORS
During 1997 and 1996, the Company reconciled amounts owed to various
vendors. These reconciliations resulted in a reduction of expenses of
$112,197 and $93,518 in 1997 and 1996, respectively.
(Continued)
-25-
<PAGE> 26
CABLE LINK, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
- --------------------------------------------------------------------------------
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, 1996, the share purchase transaction
was completed.
Under terms of the agreement, the Company entered into a separation,
noncompetition 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 $16,765 and $11,981 for 1997 and 1996,
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 1997 and 1996.
The annual payment due under these agreements is $19,547 for 1998.
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 $1,135,483 and $1,071,250 and the corresponding accounts
receivable were $28,636 and $106,223 at December 31, 1997 and 1996,
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.
At December 31, 1996, approximately 14% of the accounts receivable balance
was due from one customer. At December 31, 1997 there were no balances due
from any one customer over 10%.
-26-
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS
Result of Operations
Net sales
Net sales for 1997 were $10,094,178 compared to $8,248,814 for 1996. This
represents an increase of 22% or $1,845,364 over the previous year. Sales to
customers outside the United States increased 6% during 1997. The total increase
in sales is primarily due to an expanded customer base and an increase in the
Company's repair and refurbishing business.
Cost of goods sold
The cost of goods sold decreased to 62.2% of sales in 1997 compared to 68.0% for
1996. The majority of the reduction in cost of goods sold is production labor
expenses. The production labor costs declined in 1997 as a percent of sales to
13.9% from 20.1% in comparison to 1996. This decrease in labor cost is primarily
the result of a reduction in labor force as well as increased efficiencies and
new procedures that have led to improved productivity of employees.
General and Administration expenses
The general and administration expenses decreased to 27.2% of sales in 1997 from
32.1% for 1996. The decrease was due to a reduction in administrative personnel.
Job procedures were implemented which increased the efficiencies and reduced
costs.
Income from operations
Income from operations increased to $1,070,396 or 10.6% of sales in 1997
compared to $(13,485) or (0.1%) of sales for 1996. The Company's increased
profitability in 1997 has exhausted all net operating loss carryforward that was
generated from prior years. For 1997 the Company has expensed $246,049 for
federal, state and local taxes. As a result of a 22% increase in sales and
improved gross profit margin, as well as reduced costs, the Company has
generated net income of $867,327 or 8.6% of sales in 1997 as compared to $18,214
or 0.2% of sales for 1996. The basic earnings per share in 1997 was $0.54
compared to $0.01 for 1996.
Other income and expense increased by .5% of sales in 1997 from .2% of sales in
1996 due to an increase in other income as a result of reconciliation with
vendors. This reflects adjustments for inventory items that were later found to
be defective, undelivered or otherwise unacceptable and the related interest on
over-due accounts. This adjustment is non-recurring and no such adjustment is
anticipated in 1998.
-27-
<PAGE> 28
Liquidity and Capital Resources
The Company finances its operations primarily through internally generated funds
and the bank line of credit. Bank borrowings decreased which resulted in lower
interest expense of $23,571 between 1997 and 1996. As a result of strong fourth
quarter sales, accounts receivable increased $399,044 (54%) over the December
31, 1996 balance. As a result of improved cash flow, accounts payable decreased
$548,075. Accrued expenses increased $150,797 due to income taxes and bonuses.
Property and equipment purchases decreased in 1997 compared to 1996. The
increase in accounts receivable and decrease in accounts payable caused net cash
from operating activities to decrease by $64,777.
The Company declared a three for two stock split effective January 31, 1997 and
an eleven for ten stock dividend on August 11, 1997.
On January 8, 1997, the Company entered into an agreement with another entity
(the Buyer) to purchase 165,000 shares of common stock and warrants to purchase
additional 165,000 shares of common stock for $200,000. During 1997 the Company
has sold 165,000 shares and warrants to purchase 122,000 shares were exercised
for a total net proceed of $356,044.
The Company began a 401(K)-retirement plan for the benefit of its employees
during 1997. The Company contribution is discretionary, and was $5,000 in 1997.
The company believes that its available financial resources are adequate to meet
its foreseeable working capital, debt service and capital expenditure
requirements.
Addressing Year 2000 Issues
The Company is in the process of addressing the "Year 2000" issue. An upgraded
version of Macola (accounting software) has been purchased. The upgrade to
Macola was purchased in December 1997 as an enhancement to the existing software
that was installed in March of 1996. This version is Year 2000 compliant. The
Company is currently contacting major vendors regarding their Year 2000
capabilities. Management is currently evaluating the test equipment for any Year
2000 concerns.
New Accounting Pronouncements
In 1998, the Company will adopt Statement of Financial Accounting Standard
(SFAS) No. 130 "Reporting Comprehensive Income" by reporting and displaying
comprehensive income and its components within its financial statements. In
1998, the Company will determine if the Company meets the conditions for
adoption of SFAS No. 131 "Disclosures about Segments of an Enterprise and
Related Information". SFAS No. 131 requires that a public business enterprise
report financial and descriptive information about its reportable operating
segments. Currently, the Company does not believe it meets the criteria to
require additional disclosure.
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<PAGE> 29
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant has duly caused this amended report to be signed on its
behalf by the undersigned thereunto duly authorized.
Dated: December 9, 1998
CABLELINK, INC.
(the "Registrant")
By: /s/ Bob Binsky
---------------------------------
Bob Binsky, Chairman of the Board
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the 9th day of December, 1998.
SIGNATURE TITLE
/s/ Bob Binsky
- -------------------- Director, Chairman of the Board,
Bob Binsky Chief Executive Officer
(principal executive officer)
Zaida Wahlberg* Treasurer (principal accounting
- -------------------- officer)
Zaida Wahlberg
Brenda L. Thompson* President and Director
- --------------------
Brenda L. Thompson
Eric S. Newman* Director
- --------------------
Eric S. Newman
Sherry J. Rothfield* Director
- --------------------
Sherry J. Rothfield
Michael Tsao* Director
- --------------------
Michael Tsao
*By: /s/ Bob Binsky
----------------------------
Bob Binsky, Attorney-in-fact
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