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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED
_____________
OR
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
TRANSITION PERIOD FROM JANUARY 1, 2000 TO SEPTEMBER 30,
2000.
COMMISSION FILE NUMBER 0-23111
CABLE LINK, INC. (DBA A NOVO BROADBAND, 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.)
3011 GREEN STREET, HOLLYWOOD, FLORIDA 33020
(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number, including area code: (954) 922-8776
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: COMMON STOCK,
NO PAR VALUE
(Title of Class)
Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or such shorter period that the issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [ ] No [X]
Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B contained in this Form 10K-SB and such disclosure will not be
contained, to the best of the issuer's knowledge, in definitive proxy or
information statements incorporated by reference in Part I or Part II of this
Form 10-KSB or any amendment to this Form 10-KSB. [ ]
The issuer's revenue for the 12 months ended September 30, 2000 was
$10,865,748.
The aggregate market value of the voting and non-voting common equity
(which consists solely of shares of Common Stock) held by non-affiliates of the
issuer as of November 30, 2000, computed by reference to the closing sales price
of the issuer's Common Stock on the Nasdaq Bulletin Board on that date, was
approximately $6,887,943.
The number of shares of the issuer's Common Stock outstanding as of
November 30, 2000 was 4,749,602.
Transitional Small Business Disclosure Format. Yes [X] No [ ]
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the issuer's Proxy Statement for its Annual Meeting of
Shareholders to be held on February 14, 2001 are incorporated by reference into
Parts I and II hereof.
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PART I
ALTERNATIVE 2
ITEMS 6-11 OF MODEL B OF FORM 1-A
Certain statements in this report are forward-looking statements regarding
future events or our future financial performance. These statements are subject
to a number of risks and other factors which could cause actual results to
differ materially from those anticipated by the forward-looking statements.
Among such factors are industry development (including the rate at which digital
broadband services are introduced in our markets), competition (including direct
competition by equipment suppliers and broadband system operators), customer
acceptance of and demand for our services, technological developments which may
render our services obsolete or unnecessary, availability of financing and our
ability to expand our facilities and manage growth and change, general business
and economic conditions, and our likely increasing dependence on new information
systems. Forward-looking statements are necessarily dependent upon assumptions,
estimates and data that are uncertain. No assurance can be given that the
anticipated results will be achieved, and future results may in fact differ
materially from those anticipated.
ITEM 6. DESCRIPTION OF BUSINESS
INTRODUCTION: Cable Link, Inc. ("we" or the "Company") now operates
under the name "A Novo Broadband, Inc." Our decision to make this change
reflects a fundamental change in our business plan. We are now adapting and
expanding our operations to enable us to offer a range of equipment repair and
maintenance services to manufacturers of decoders, linegear, cable modems and
other equipment used in the delivery of broadband signals and to the operators
of the systems in North America that employ this equipment. We are taking this
step in anticipation of a dramatic shift of broadband services from analog to
digital format which has already begun in the United States and Canada and which
has been underway in Europe for nearly four years.
OUR NEW STRATEGY AND RELATIONSHIP: Our name change and the related
change in our business plan are the direct result of a recently established
strategic relationship with A Novo S.A. ("AN France"), now our parent, which is
a European market leader in the enhanced services on which our business plan now
focuses. AN France, based near Paris, controls a group of companies that
distribute and service cable, satellite and other electronic and
telecommunications equipment on an industrial scale in Europe and North and
South America. Its shares are listed on the Paris Stock Exchange "Nouveau
Marche." Our association with AN France began in August 2000, when we
raised $12 million in new capital in a private sale of our shares to a newly
formed investment vehicle which AN France controls.
We anticipate a rapidly expanding North American market for our
enhanced services, and we believe we are uniquely well positioned to achieve
primacy in this market. Our plans for success are based on new high volume
processing techniques and proprietary information management software that have
been implemented successfully in Europe and are available to us in our markets
through our new relationship with AN France. We believe that these tools, in
combination with our expanded capital, existing skilled labor force, technical
knowledge base and industry relationships, will enable us to become the primary
equipment service provider to the expanded broadband industry.
We have already begun to use the capital and marketing opportunities
provided by the new relationship to undertake a significant relocation and
expansion of our facilities and business base. We intend to continue to expand
and adapt our facilities consistent with the new business plan. Our capital
budget for the fiscal year ending September 30, 2001 contemplates an investment
of $2.5 to $3 million to modify our plant layouts and acquire new capital
equipment as necessary to utilize AN France's established processing techniques
and related software.
We plan to continue also to function as a distributor and marketer of
new and refurbished broadband equipment, primarily in secondary and overseas
markets, and we expect to derive a significant portion of our revenues from
these activities. The equipment we now deal in and service for manufacturers and
system operators includes analog and digital decoders, cable modems, linegear,
headends, power generators and power supplies, and test equipment. Our
capacities to deal with used equipment should help to foster relationships with
many of the large system operators we will continue to target as customers. Over
the next several years, we anticipate that our relatively low-margin equipment
sales activities will represent a decreasing portion of our total revenues as
our volume in repair and related services increases and these functions become
the core of our business.
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THE DIGITAL SERVICES MARKET OPPORTUNITY: We have adopted our new
business plan to take advantage of a significant market opportunity in North
America. Based on our plan, we believe we can seize a significant early share of
a market for services that we estimate will grow to more than $1 billion
annually in the U.S. alone over the next five years.
This market opportunity stems from current and projected changes in the
nature of broadband services and the related equipment and software. The changes
appear to mandate the shift from analog to digital format for signal delivery.
The move to system digitalization requires, among other things, the manufacture,
distribution and on-site installation of millions of new digital decoders. The
cost of new digital decoders alone represents a significant element of the huge
capital investment operators must make to provide expanded broadband services.
The cost per unit is substantially greater than the cost for the analog
decoder/converters now generally in service. System operators have an obvious
motivation to maximize the time these costly new units are available for use and
to extend their useful lives by periodically maintaining and upgrading them.
Based on historic "churn" rates, up to 25% of all installed converters
are annually subject to removal and reinstallation (due to tenant relocation and
other factors), requiring basic refurbishment, quality control and sometimes
sophisticated repair services. Furthermore, the new generation of digital
equipment relies on hardware and software components that are much more costly
and complex than prior generations of equipment used in providing analog
services, and these new components are potentially subject to much more frequent
servicing for upgrade and improvement.
Many manufacturers and operators are not physically situated or
technically staffed to meet the increased service requirements either quickly or
cost-effectively. But, from the perspective of the system operators who are the
manufacturers' principal customers, rapid and efficient turnaround is necessary
to avoid losing their own customers to competing systems, as well as to maximize
their revenues and the return on their huge capital investments. Due to a
combination of these and other factors, a number of domestic and foreign
manufacturers have already made the business decision to outsource their
warranty and other servicing requirements.
OUR ENHANCED CAPACITIES: To keep pace with these developments and deal
with anticipated larger volumes of quality control and warranty requirements, we
are establishing a network of speedy and efficient warranty service centers to
serve the broadband industry. The locations of these centers are being chosen to
be conveniently near to the system operators we serve, as needed to expedite
response and delivery times and take advantage of labor markets that are
relatively stable and provide cost savings over traditional local service
providers. Since August 2000, we have acquired two new facilities, and we are in
the process of relocating our two older facilities to larger spaces where we can
service the anticipated increased volumes and house the technical equipment,
information systems and other installations necessary to service our targeted
customers.
WARRANTY AUTHORIZATIONS: As a significant element of our plan, we are
seeking designation as an authorized service provider for a number of the
principal manufacturers of digital broadband equipment. Such a designation is
critical not only for purposes of customer relationships but also to provide
access to the technical information necessary to provide the needed services. We
believe that obtaining this designation depends on our ability to offer credible
assurances of continuing capacity to provide warranty and related services in
high volume. To be successful, we must demonstrate superior systems, processing
and other resources. We believe that the established systems and proven
processes of our European affiliates can be easily adapted to our facilities and
afford us an extra measure of credibility in North American markets. Here, our
competitors are chiefly, but not exclusively, relatively small, local businesses
servicing relatively unsophisticated analog equipment for local system
operators. We believe that most of them lack the resources to meet the
developing regional and national high-tech demands of our target customers, who
are the global manufacturers of broadband equipment and the operators of
satellite and other large-scale broadband systems throughout North America.
CORE SERVICES: To capture digital warranty service authorizations, we
plan to create comprehensive servicing arrangements with both manufacturers and
operators. These arrangements are to be based upon a core of services consisting
of:
- screening, testing and profiling new equipment on behalf of
manufacturers prior to initial installation; and
- calibrating, repairing, upgrading and maintaining the
equipment as an authorized warranty servicer on behalf of
manufacturers and under post-warranty arrangements on behalf
of system operators.
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In conjunction with these core services, we expect to offer a variety of asset
management functions, including tracking of customer inventory (by monitoring
the warranty and upgrade status of individual units of equipment on a real time
basis), and receiving, storing, packing and shipping new and used customer
assets to multiple locations.
HISTORY
The Company was formed as an Ohio corporation in 1987 and has built its
business and reputation chiefly by selling new, used and refurbished cable TV
equipment domestically and in certain foreign markets and, to a lesser extent,
by repairing equipment for cable companies within the United States. In 1998,
the Company purchased 100% of the stock of PC & Parts, Inc., dba Auro Computer
Services, which assembled and distributed personal computers. Early in 2000, we
discontinued the operations of Auro.
In a private transaction completed on August 7, 2000, we sold $12
million of our Common Stock to a subsidiary of AN France, which thereby acquired
control of the Company. The shares issued in that transaction currently
represent approximately 64% of our outstanding Common Stock.
In August and September 2000, we applied a portion of the proceeds of
the stock sale to purchase the assets of Lavender Industries Inc. (now operated
as A Novo Broadband Southwest, Inc.), based in the Los Angeles area, as a
foothold for expanded operations in the Southwest, and Les Telecommunications
Valsysteme Inc. (now A Novo Canada), with facilities in Montreal, to be used as
a base for further development of our operations in the Northeastern United
States and Eastern Canada.
To emphasize the new focus of our business, and to realize the benefit
of our parent's relationships around the globe, in November 2000, we began to do
business under the name A Novo Broadband, Inc. We anticipate seeking stockholder
approval to formally change our corporate name at the next annual meeting of
stockholders. The actual name change will likely result in a change in the
trading symbol of our Common Stock (currently CBLK) on the NASDAQ Bulletin
Board.
THE BROADBAND EQUIPMENT MARKET
Until recently, the dominant broadband system operators (principally
satellite and cable television providers) in North America were focused on
delivering multiple channels of television to subscribers who pay a monthly fee
for the service they receive. To provide this service they invested heavily in
network infrastructure which frequently had extensive broadband capabilities but
which was typically limited at the subscriber installation by one-way analog
technology. A cable television system consists of four principal components (all
of which have to be significantly modified or replaced to switch from analog to
digital technology):
- The "up-link" where the programmer's signal is first scrambled
and addressed and is then transmitted to a C-band satellite.
- The cable system "headend" facility, which receives television
signals from satellites and other sources. The headend
facility organizes and retransmits those signals through the
distribution network to the subscriber.
- The distribution network, which consists of fiber optic and
coaxial cables and associated electronic equipment (linegear),
which originate at the headend. These monitor and maintain the
picture quality throughout the transmission over the network
up to customers' premises.
- The subscriber equipment, which comprises (1) a "dropwire"
extending from the distribution network to the subscriber's
viewing location and (2) the subscriber's television set or a
decoder box and/or cable modem to which the dropwire connects.
An addressable decoder box is a home terminal device which
permits the delivery of authorized premium cable television
services, including pay-per-view programming, by enabling the
system operator to control subscriber services from a central
headend computer. A cable modem is an interface between the
cable network and the subscriber's personal computer which
allows high speed Internet access.
Major changes in broadband offerings are now changing the cable
television model. Among these changes is the introduction of the Internet
Protocol (IP) which allows delivery of integrated voice, video and data on a
single delivery system. From the perspective of system operators, the emerging
market for more, faster and cheaper
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information and communications capabilities requires two-way network
capabilities which, in turn, require new digital subscriber equipment.
Maximizing market opportunities requires greater exploitation of the installed
broadband capacities of the operators' distribution networks, but these
capacities are limited by the analog capabilities of the previous generations of
subscriber equipment. Digitalization, which multiplies the speed and quality of
information transfer on a system, is seemingly inevitable and, with it, the
substitution of digital subscriber equipment for the widely-installed base of
analog equipment.
In fact, we believe the demand for new digital equipment is already
straining the resources of equipment manufacturers, as system operators vie to
expand their networks with broadband services. Competition for market share
between cable and satellite operators is intense and tends to drive the demand
for new equipment. For economic reasons, most of the principal manufacturing
facilities are located outside the North American markets. For competitive
reasons, and because of the relatively high unit cost of new digital subscriber
equipment, the manufacturers are offering three to five-year warranties,
significantly longer than the warranties they provided with earlier generation
analog equipment. Because of their remote plant locations and staffing, however,
they are frequently not positioned to provide the rapid warranty service
required by their system operator's customers.
It is widely understood that the forces already at work in the
broadband market will tend to create more technology upgrades, new
functionalities, and more and more complex products and services. The
introduction of high tech equipment with more components and functions and the
introduction of more generations of these products in service concurrently in
the field will inevitably generate more screening and testing, calibration,
repair, upgrade, and maintenance work. More products and diversity and more
complexity will compound needs for more developed asset management systems and
services.
OUR MARKET OPPORTUNITY
We believe that these fundamental changes in the broadband equipment
market will create lasting revenue growth opportunities for us. The limited
functionality and relatively low technology of previous generations of analog
equipment have not generated comparable market conditions or, in our view,
comparable service opportunities.
The combination of a number of factors connected to changes in the
broadband equipment market have predisposed equipment manufacturers and system
operators to outsource maintenance and logistics services in order to focus on
their core businesses. The trend is well established in Europe and is clearly
discernible in North America. We are already witnessing significant market
interest in contracting for our capabilities. We believe this interest and the
need for our services will continue to be fueled by these factors:
EXPANDING SYSTEM CAPABILITIES: Broadband systems have to be upgraded
and updated to meet digital demand, using more fiber, reducing hub size,
expanding channel capacity and requiring linegear changes and headend upgrades.
An independent source estimates over 65% of cable plants have been upgraded to
750MHz or higher capacity to support digital decoders and cable and
voice-over-IP modems.
DIGITAL DECODERS: The same source estimates that there will be 10
million digital decoders in cable television subscribers' sites and 13 million
in direct broadcasting satellite subscribers' sites by the end of the year 2000
and that these figures will increase to 50 million and 25 million by 2010.
INTRODUCTION OF HIGH SPEED MODEMS: It is estimated that by the end of
2000, there will be 4.2 million cable modems and 1.4 million DSL modems in
service in U.S. homes. The forecasts for 2004 are 14 million cable modems and 10
million DSL modems.
DELIVERY OF VOICE OVER IP: The introduction of voice over IP routers
and modems to deliver local voice services on broadband networks is underway. An
independent source forecasts that by the end of 2005, there will be 14 million
residential cable telephone subscribers.
The following table illustrates forecasted growth in the quantities of
installed broadband subscriber equipment in the U.S. market:
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[GRAPH]
1999 2000 2001 2002 2003 2004 2004
Digital Cable Subscribers
Digital Satellite Subscribers
Cable Modems
DSL Modems
Voice over IP Modems
MORE COMPLEX TECHNOLOGY: Improvements in the functionality of cable
equipment require more complex and sophisticated technology. Compared to digital
equipment, analog equipment is relatively simple and inexpensive, and it has not
historically been subject to significant or repeated performance enhancements.
It is an axiom that the more complex things become, the more likely they are to
need service. We expect the increased volume of digital equipment in the field
and the greater complexity of both hardware and software will create increasing
needs for more sophisticated asset tracking, maintenance and management systems.
In particular, we foresee a need for the establishment and maintenance of huge
databases as generations of digital equipment overlap and are variably upgraded
and as large systems operators intermix equipment produced by different
manufacturers. Faced with these problems, our European affiliates have already
developed processes and software to deal with them and have agreed to make these
resources available to us. We are in the process of transferring these resources
to our own installations in North America, and we expect to have the transfer
implemented in all of our facilities by the end of our next fiscal year.
URGENCY OF CURRENT DEMAND: Manufacturers currently are under pressure
to deliver equipment immediately in order to allow their broadband system
operator customers to retain or increase market share. When pay television
services were introduced on cable television networks, the operators had local
monopolies, and late delivery of pay television decoders resulted only in
somewhat slower revenue growth, which had no enduring market consequences. In
the more competitive current market, late delivery of digital decoders entails a
potential loss of customers to competing direct broadcast satellite service.
Equipment manufacturers are under extreme pressure to produce and deliver
decoders, a circumstance that tends to impact quality control and increase
failure rates, with corresponding increases in service opportunities. The same
circumstance tends to favor outsourcing of rework, repair and maintenance work
which tends to impair plant efficiency when performed internally.
INDUSTRY CONSOLIDATION: Consolidation among cable system operators is a
continuing trend caused at least in part by increased capital requirements to
meet expanding demands for equipment and service. Competition in local markets
has forced operators in these markets to consolidate to achieve the scope and
size required to fund capital needs and attract and develop necessary skills and
systems. This tends to eliminate smaller system operators, who utilize smaller
local service providers, and favors consolidation of services in larger scale
and more efficient regional centers. The capital and other resources provided to
us by our European affiliates and our establishment of regional service centers
position us to respond to the needs of the national and regional system
operators spawned by the trend to consolidation.
MARKET DISPARITIES: The current process of digitalization in major U.S.
markets generates obsolescence of analog equipment which nevertheless may have
considerable utility in other smaller or less-developed markets.
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This kind of disparity has existed with regard to several generations of analog
equipment, and it affords us a continuing opportunity to acquire, refurbish and
resell new and used equipment.
STRATEGY
Our goal is to be the largest and most successful service provider to
the broadband market in North America.
Our strategy to achieve this goal is based upon building successful
full-service relationships with equipment manufacturers and broadband system
operators who elect to outsource these functions. We expect to be able to
demonstrate the economies and efficiencies they can achieve through outsourcing.
We believe that this mission is already partly accomplished by decisions taken
internally at some of the major manufacturers based on the stresses of meeting
current demand and the remote and decentralized locations of their manufacturing
plants (which are often automated assembly lines dealing with runs of huge
quantities of a single product rather than high-tech engineering facilities with
diagnostic and repair capabilities for short runs of different versions and
brands of products). A critical component of our strategy is to achieve
authorization as a provider of in-warranty services for the principal
manufacturers of broadband equipment. This requires, among other things, that we
have a network of regional service centers, which is already partly in place and
which we plan to expand by acquiring or opening new facilities in appropriate
locations.
To initiate this process, we are relying on our own industry
relationships and those already established in Europe and other markets by AN
France. In Europe, AN France has been providing in-warranty and out-of-warranty
digital equipment screening and testing, calibration, repair, upgrade and
maintenance for more than three and a half years. As a result, AN France has
working relationships with a number of broadband equipment manufacturers that
are significant suppliers to the North American markets, including Nokia
Multimedia, Pace Micro Technology, Phillips, Pioneer, Sony, and Thomson
Multimedia.
We intend to afford our customers:
- a single relationship for all digital equipment services
requirements including screening and testing, calibration,
repair, upgrade and maintenance;
- delivery of top quality technical support and reliable
maintenance and related services, using AN France's
established proprietary production processes and tracking and
quality control systems;
- through strong regional operations, maintain close
relationships with customers, an appreciation and ability to
respond quickly to their needs and provide fast turn-around on
equipment delivered to us;
- a full Internet-based tracking system to monitor location of
their assets in our possession and the progress of these
assets through any process we manage; and
- asset management, logistics, warehousing and resale services.
COMPETITION
Currently, our actual and potential direct competition in North America
is fragmented and, we believe, consists chiefly of small repair facilities
operating in local markets. Typically, each of these facilities is privately
owned and serves one or more local system operators by repairing and
refurbishing analog subscriber equipment. Financial information about these
facilities and their owners is not generally publicly available. We believe that
there are currently two other substantial service providers operating in North
America that are authorized to provide warranty service for digital broadband
equipment or have the relatively large capacities and technical and other
resources that are necessary to obtain such authorization.
We believe that warranty authorization from each significant broadband
equipment manufacturer represents a material threshold barrier to servicing that
manufacturer's equipment and is essential to enable us to compete effectively
for that business. We do not believe it is likely, although it is possible, that
any single manufacturer will authorize more than two or three third-party
service providers in North America. For this reason, we believe it is essential
to our competitive position to obtain and maintain such authorizations from as
many manufacturers as possible.
We expect that our principal longer term competitors may be the
manufacturers and systems operators themselves, virtually all of which are
potentially capable of performing for their own account all of the services we
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plan to offer. Attracting and retaining their business will depend, among other
things, upon our ability to convince them of the economies and efficiencies
afforded to them by outsourcing these services and our actual continuing
cost-effective performance of these services on a timely basis.
CUSTOMERS
Our customers consist principally of (1) equipment manufacturers, for
whom we typically do "in-warranty maintenance" and plan to provide logistics and
distribution services, and (2) broadband system operators for whom we typically
do "out-of-warranty maintenance" and plan to provide asset management,
logistics, warehousing and recycling and redistribution services (including
acting as a dealer for purposes of acquiring, refurbishing and disposing of
their used equipment through matching sales in other markets).
Currently those of our customers who operate broadband systems do so
via cable television. We expect shortly to offer services to direct broadcast
satellite (DBS) providers and more gradually to introduce service offerings to
digital broadcasters and wireline telecommunications operators using digital
subscriber link (DSL) technology.
IN-WARRANTY: We are currently approved as an "In-Warranty Service
Center" and parts distributor by Scientific Atlanta in Canada and the United
States for advanced analog decoders, analog converters, and remote controls. We
are approved as an "In-Warranty Service Center" by Motorola for analog decoders,
analog converters, remote controls, linegear and headend equipment in Canada, by
Lindsay and ANTEC for linegear in Canada, by Blonder Tongue for headend in
Canada, by Alpha Technologies for power supplies in the United States, by
Powerguard for power supplies in Canada and by Sadelco for test equipment.
We currently distribute certain power supply and other products for
Alpha Technologies, ADC, Aegis and Times Fiber to customers outside the United
States.
OUT-OF-WARRANTY/BROADBAND OPERATORS: Our principal customers among
broadband system operators currently include Adelphia, AT&T Broadband,
Ameritech, New Media, Cablevision, Charter, Comcast, Insight Communications,
Time Warner and Videotron.
We are not currently dependent on any one customer to support our
business. During the 12 months ended September 30, 2000, our three largest
customers accounted for approximately 20% of our total revenues.
SALES AND MARKETING
Our service and sales activities are generated by our employees through
relationships developed by executives at our corporate and divisional levels,
and by our sales personnel. We have established contacts and developed
relationships with major equipment manufacturers and major broadband system
operators in the United States, Canada, Mexico, Central America and Latin
America.
OPERATIONS
Our operations are conducted at our own regional production facilities
in the Midwest (Columbus, Ohio), Southeast (Hollywood, Florida), Northeast
(Montreal) and Southwest (Los Angeles) and through the use of facilities of a
single repair and processing subcontractor in Montreal.
Each of these facilities is equipped to provide a variety of technical
services on broadband equipment delivered to us by manufacturers and system
operators. Test equipment and spare parts inventories are maintained at each
location as appropriate to provide these services. Each facility is staffed with
engineers and technicians who are continually trained in procedures to process
equipment in accordance with applicable warranty requirements. We offer service
in or out of warranty on equipment produced by most major manufacturers. We
typically provide our customers with our own six-month warranty that equipment
we process is operating according to manufacturers' specifications. Our internal
reporting structure provides information regarding the work performed on each
unit processed. This information is also provided to the operator and
manufacturer for evaluation.
Specific functions we perform are as follows:
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SCREENING AND TESTING - We offer screening, testing and profiling of
new equipment for market introduction (including, for example, setting the
channel menu for the locality in which the equipment will be operated). This
service is designed to verify that new equipment is working properly to
manufacturers' specifications prior to shipping to the system operator. The
manufacturer or the operator specifies the requirements for the screening,
testing and profiling.
CALIBRATION, REPAIR, UPGRADE AND MAINTENANCE - We provide calibration,
repair, upgrade and maintenance of a variety of broadband system components. Our
shops are equipped to handle analog and digital decoders, cable and DSL modems,
linegear, headend, power generator and power supplies and test equipment. Our
upgrade services are currently offered to enhance older analog equipment to
resemble later versions of the same equipment by providing increased bandwidth
needed for additional channels and services.
ASSET MANAGEMENT SERVICES - Our asset management services are offered
to national and regional broadband system operators to optimize the management
and deployment of their equipment within their systems. The services include
warehousing and inventorying of various types of equipment. The assets typically
become available and are delivered to us due to the upgrade of a specific system
to newer technology and/or overstocking of specific items not needed within the
system. We list each operator's assets in a detailed inventory on our e-commerce
site for viewing and selection by the operator's managers for deployment in
other systems. The operator designates the delivery locations and schedules.
Based on these requirements, we process the equipment and ship it to the
designated locations for future use.
LOGISTICS AND WAREHOUSING SERVICES - Our logistics and warehousing
services are offered to manufacturers and operators to provide efficient
distribution and storage of their new and used equipment. Our warehousing
services provide secure areas in a variety of locations for storage of equipment
pending allocation and delivery to designated systems. The regionalization of
our facilities in Ohio, California, Canada, and Florida allows us to expedite
local delivery. We employ our company fleet, including a freight truck and
commercial vans, as well as air, rail, ocean and intermodal carriers and freight
services to provide efficient and expedited delivery throughout North America.
RESALE SERVICES - We actively purchase and resell surplus, unused
broadband equipment which we acquire from system operators. An operator desiring
to take advantage of this service informs us of the availability of specific
equipment, and our staff then identifies a buyer, typically another system
operator. Upon obtaining a purchase order from the buyer, we acquire the offered
equipment for our own account based on the terms of the purchase order and, in
most cases, ship it directly to the buyer without further processing.
INTERNATIONAL DISTRIBUTION - On behalf of certain manufacturers, we act
as a licensed distributor of certain broadband equipment to system operators
outside the United States, primarily in South and Central America. The equipment
we distribute includes power supplies, fiber, cable, connectors, passives and
taps.
EMPLOYEES
As of September 30, 2000, we employed an estimated 94 people, including
62 in production, 11 in sales and marketing, and 21 in management and
administration. Currently none of our employees is represented by a labor union
or is subject to a collective bargaining agreement, although we have been
notified that certain of our employees in Montreal have elected to be
represented by a labor union. We believe that our relations with our employees
are good.
RESEARCH AND DEVELOPMENT
Since our services are based on the use of technology developed and
supplied by others, we do not expend material resources for purposes of research
and development.
GOVERNMENT REGULATION
Our operations are not subject to direct regulation or licensing under
federal, state, or local laws or regulations. While the operation of broadband
systems in the United States and Canada is subject to extensive regulation, such
regulation has only an indirect effect on our business.
9
<PAGE> 10
ITEM 7. DESCRIPTION OF PROPERTY
We occupy buildings that contain approximately 128,500 square feet of
office, plant and warehouse space at four locations in the United States and
Canada. All of this space is leased under agreements that expire at various
dates through 2006. Our principal facilities are as follows:
APPROXIMATE
LOCATION SQUARE FEET DESCRIPTION
-------- ----------- -----------
Hollywood, Florida 22,500 Offices, plant and warehouse
Columbus, Ohio 70,000 Offices, plant and warehouse
Los Angeles, California 24,000 Offices, plant and warehouse
Montreal, Canada 12,000 Offices, plant and warehouse
We consider these facilities adequate for our current needs. We believe
that suitable additional space will be available, as needed, to accommodate
further physical expansion of our operations, including additional sales,
storage and service facilities to meet demand in other regions of North America.
We anticipate seeking additional space at other appropriate locations within the
next 12 months.
For space in Hollywood, Florida (near Miami), in November 2000, we
signed a new lease for a term expiring February 28, 2006, covering a 22,500
square foot facility which will replace the adjacent 5,500 square feet currently
leased as a sales office and service facility. We expect to occupy the new space
about February 1, 2001. The new facility will house our corporate headquarters
and an expanded service and storage operation and will also function as the
center for our Southeastern and international operations.
In the Midwest, during the first half of 2001, we plan to move from our
existing 70,000 square foot facility in Columbus, Ohio to a nearby more modern
and efficient facility of similar size.
In the Northeast, in addition to our own offices in Montreal, we have
access to 88,000 square feet of nearby plant and warehouse space leased by our
subcontractor.
10
<PAGE> 11
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS DATA: NINE MONTHS Year Ended Year Ended
------------------------------------------------------------ ENDED 9/30/00 9/30/00 9/30/99
------------- ------------ ------------
<S> <C> <C> <C>
Revenues ................................................... $ 8,606,535 $ 10,865,748 $ 11,188,046
Cost of sales .............................................. 5,825,506 6,952,832 7,096,935
------------ ------------ ------------
Gross profit ............................................ 2,780,029 3,912,916 4,091,111
Selling, general and administrative expenses ............... 2,779,687 3,482,951 3,059,289
------------ ------------ ------------
Income from operations .................................. 342 429,965 1,031,822
Total other expense ....................................... 448,117 484,644 70,167
------------ ------------ ------------
Income (loss) before income taxes .......................... (447,775) (54,679) 961,655
Benefit (provision) for income taxes
Current ................................................. (25,543) (240,072) (342,923)
Deferred ................................................ 190,000 34,000 27,500
------------ ------------ ------------
Total benefit (provision) for income taxes .......... 164,457 (206,072) (315,423)
------------ ------------ ------------
Income (loss) from continuing operations ................... (283,318) (260,751) 646,232
Discontinued operations
Loss from operations of discontinued division, net of tax
benefit of $0, $19,000 and $421,000 respectively .... -- (68,773) (1,262,758)
Gain (loss) on disposal of division, net of tax (expense)
benefit of ($113,000), $266,000, and $0 respectively. 184,906 (797,204) --
------------ ------------ ------------
Loss before cumulative effect of change in accounting
principle ........................................... (98,412) (1,126,728) (616,526)
Cumulative effect of change in accounting principle, net of
tax benefit of $16,000 .............................. -- -- (26,246)
------------ ------------ ------------
Net loss ................................................... $ (98,412) $ (1,126,728) $ (642,772)
============ ============ ============
Net loss per share - basic ............................. $ (0.04) $ (0.52) $ (0.38)
============ ============ ============
Weighted average shares outstanding .................... 2,339,840 2,177,324 1,693,367
============ ============ ============
Net loss per share - diluted ........................... $ (0.04) $ (0.52) $ (0.37)
============ ============ ============
Weighted average shares outstanding .................... 2,339,840 2,177,324 1,731,694
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA: SEPTEMBER 30, December 31, September 30,
------------------------------------------------------------ 2000 1999 1999
------------ ------------ ------------
<S> <C> <C> <C>
Working capital ............................................ $ 8,136,392 $ (217,614) $ 431,441
Total assets ............................................... 16,240,737 5,279,519 6,394,303
Long-term debt, including current portion and line of
credit ..................................................... 1,296,732 2,261,041 2,307,545
Shareholders' equity ....................................... 12,707,915 806,670 1,834,986
</TABLE>
11
<PAGE> 12
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following commentary should be read in conjunction with the
Consolidated Financial Statements and Notes thereto included in Part F/S below.
OVERVIEW
A Novo Broadband, Inc. provides a range of equipment repair and
maintenance services to manufacturers of decoders, linegear, cable modems, and
other equipment used in the delivery of broadband signals and to the operators
of the systems in North America that employ this equipment. This range of
services is offered to capture the demand that will be caused by the shift of
broadband services from analog to digital format that is occurring currently in
the U.S. and Canada.
Our company was formed in 1987 as Cable Link, Inc. Our concentration
for many years was to repair analog converters, to arrange equipment resales
between cable operators, and to refurbish used equipment for resale to cable
operators. In 1998, we bought Auro Computer Services whose primary business was
to assemble and sell personal computers. Auro lost money and proved to be a
distraction from our cable-related business. As a result, we discontinued Auro's
operations in February 2000, in order to focus exclusively on the cable or
"broadband" market. Shortly thereafter, we entered into discussions with a
subsidiary of A Novo S.A. ("AN France"). These discussions culminated in a $12
million private placement of our stock in August 2000, as a result of which AN
France acquired control of 64% of our outstanding Common Stock. This investment
was the basis of the formation of our new business plan.
AN France is based in France and controls a group of companies in
Europe and South America that distribute and service cable, satellite and other
electronic and telecommunications equipment on an industrial scale. The equity
infusion of $12 million not only provided financial resources with which to
expand our business, but also allowed us to utilize the management information
systems and processes developed by AN France for high-volume equipment-related
activities in Europe. With these assets and strategies in place, we purchased
two businesses near the close of our fiscal year. These two businesses provide
us strategic locations in the Southwest and Northeast, being located in Los
Angeles and Montreal, respectively. We have also taken steps to move to new
facilities in Hollywood, Florida, and Columbus, Ohio. During our fiscal year
ending September 30, 2001 (fiscal 2001), we plan to improve our repair
capabilities at all four of our facilities by adding machinery designed
specifically for work on digital equipment.
While we implement our business plan to become a leader in the service
of digital equipment in North America, we will continue to realize a substantial
portion of our revenue from the resale and distribution of equipment. These
business sectors do not provide the level of gross margin that we hope to
achieve in the repair and service sectors, and we do not expect them to grow as
rapidly as our repair and service sectors. We anticipate that our distribution
and resale efforts will continue to be important to certain of our customers and
will allow us to create and enhance relationships that will result in service
and repair business.
CHANGE IN FISCAL YEAR
As of September 30, 2000, we changed our fiscal year for reporting
purposes to September 30 from December 31. We made this change to conform our
fiscal year to the fiscal year of AN France. As a result of the change, the
presentation of financial and other information in this report on Form 10-KSB
includes information for the 12-month periods ended September 30, 2000 (fiscal
2000), and September 30, 1999 (fiscal 1999). Such presentation is not directly
comparable to the presentation in our most recent previous annual report on Form
10-KSB which included information for years ended December 31, 1999 and December
31, 1998.
References in this discussion to 2000 and 1999 are to fiscal 2000 and
fiscal 1999, unless otherwise indicated.
12
<PAGE> 13
RESULTS OF OPERATIONS
SALES
Sales for 2000 decreased slightly to $10,865,748, as compared to
$11,188,046 for 1999. This translates to an overall decrease of 2.8%. Our
revenue results are indicative of the changes in the emphasis of our business
that occurred during 2000. As 2000 began, we were operating two completely
different businesses, serving both the cable and computer markets. As a result,
our cable sales for the first two quarters of 2000 were well below 1999 results.
After closing Auro in February 2000, we realized improved sales in the cable
market during our third fiscal quarter, and in our fourth quarter we recorded
37% of our revenues for the year. However, the substantial increase in revenues
during the second half of the year was from distribution and resale sources. Our
sales for repair and refurbishment remained below the previous year.
COST OF GOODS SOLD
The cost of goods sold was 64% of sales in 2000, the same as for 1999.
Because of our greater concentration of distribution and resale revenues, which
have an associated cost that is higher than our cost of sales of repair or
refurbished items, we did realize some increases in our cost of goods sold.
However, we also realized saving in our costs associated with repair and
refurbishment due to a reduction in production labor expense that offset the
increase. This reduction in costs was a result of increased efficiencies and new
procedures that have led to improved productivity of employees. We began a
review of the operations of AN France early in our 2001 fiscal year, in order to
adapt for our use processes developed by AN France's experience over the last
three and one-half years in the service and repair of digital equipment. It is
our intent to leverage AN France's experience and the related processes and
software in the North American market to the greatest extent possible, thereby
increasing our efficiencies and gross margins.
OPERATING EXPENSES
Operating expenses for 2000 increased $423,000 over the previous year,
an increase of 14%. We opened our international distribution office near Miami
during the year, and we increased our sales force in our Columbus office during
the year. We also incurred legal costs associated with the private placement of
our stock, and we incurred non-recurring expenses relating to the employment of
our new chief executive officer and chief financial officers. Other operating
expenses remained relatively constant as compared to the preceding year.
OTHER EXPENSES
In August of 2000, immediately prior to the private placement, we
entered into a five-year employment agreement with our former chief executive
officer, now our chief development officer, under which he received a $400,000
bonus upon the completion of the private placement.
INCOME TAX PROVISION
The effective tax rate on continuing operations was 36.7% for the nine
months ended September 30, 2000. This is comparable to the effective tax rate of
32.8% for fiscal 1999. However, due to the timing of events and the recording of
deferred tax assets at the close on December 31, 1999, the effective tax rate
for fiscal 2000 was 480%. This was an anomaly caused by the change in fiscal
years and will not be recurring. We have not recorded any valuation allowance
against our deferred tax assets, because it is management's belief that we will
realize profits in the near term that will fully utilize our net operating loss
carryforwards.
DISCONTINUED OPERATIONS
In February 2000, we decided to close our subsidiary, Auro, and the
operations of Auro were discontinued on February 21, 2000. We recorded a charge
for the expected loss on disposition of Auro's assets, net of tax effects. The
assets were written down to their estimated net realizable values. We do not
anticipate any further impact to our results of operations as a result of the
discontinuance. In October 2000, pursuant to our guarantee of Auro's
13
<PAGE> 14
indebtedness to a commercial bank, which is reflected as a liability in our
balance sheet as of September 30, 2000, we satisfied that indebtedness.
LIQUIDITY AND CAPITAL RESOURCES
For 1999 and 2000, we satisfied our operating cash requirements through
cash flow from operations and borrowings under a credit line from a commercial
bank. In 2000, we generated $128,000 in cash from our operations. We used $3.65
million in cash for investing activities. We spent $300,000 for property and
equipment and $3 million for the purchase of two new businesses. We also loaned
an officer of the Company $400,000. We generated $10.6 million from financing
activities as a result of the issuance of 3,040,666 shares of our Common Stock
to a subsidiary of AN France for $12 million and used $1.4 million of the
proceeds of the stock sale to retire bank debt.
We currently have a $1.5 million revolving line of credit with our
commercial bank under an arrangement that expires on September 30, 2001. The
line of credit provides for interest at the bank's prime rate plus 2%. At
September 30, 2000, there was a balance $937,000 owed to a financial
institution, of which $784,000 represented advances to Auro which were
guaranteed by the Company. We paid this entire balance during October 2000.
Overall, our liquidity improved significantly from the end of fiscal
1999 to the end of fiscal 2000, primarily as a result of the $12 million private
placement. Working capital and stockholders' equity have also dramatically
increased for this reason, and debt has been virtually eliminated after
repayment of our bank debt in October 2000.
We believe that cash flow from operations, our existing cash resources,
and funds available under our line of credit will be adequate to meet our
working capital and capital expenditure needs for the 2001 fiscal year. We
expect to spend at least $2.4 million on capital expenditures during this fiscal
year, primarily to improve our equipment capabilities for servicing digital
broadband equipment and to provide furniture and fixtures and computer equipment
for our expanded facilities in Florida, Los Angeles, and Montreal and the
anticipated move in Columbus.
An important element of our business strategy has been, and continues
to be, the acquisition of similar business and the integration of such
businesses into our existing operations. Such future acquisitions, if they
occur, may require that we obtain additional funds. We would expect to seek such
funds through private or public sales of additional equity securities or debt
instruments.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2000, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101B, which delayed the implementations of SAB
No. 101 "Revenue Recognition in Financial Statements" until the fourth quarter
of fiscal years beginning after December 15, 1999. We do not expect the adoption
of SAB No. 101 to have an impact on our financial conditions or results of
operations.
In June 2000, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard ("SFAS") No. 138 "Accounting for Certain
Derivative Instruments and Certain Hedging Activities - an Amendment of SFAS
133." We do not expect the adoption of SFAS No. 138 or 133 to have an impact on
our financial conditions or results of operations.
In September 2000, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard ("SFAS") No. 140 "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities -
a Replacement of FASB Statement No. 125." We do not expect the adoption of SFAS
No. 140 to have an impact on our financial conditions or results of operations.
In October 2000, the Securities and Exchange Commission adopted the
rule "Selective Disclosure and Insider Trading." These new rules were adopted to
address three issues: the selective disclosure by issuers of material nonpublic
information; when insider-trading liability arises in connection with a trader's
"use" or "knowing possession" of material nonpublic information; and when the
breach of a family or other non-business relationship may give rise to liability
under the misappropriation theory of insider trading. The rules are designed to
promote the full and fair disclosure of information by issuers, and to clarify
and enhance existing prohibitions against insider
14
<PAGE> 15
trading. We maintain the Company is in compliance with these rules will not have
an impact on our financial conditions or results of operations.
ITEMS 8-11 The information required by these items is set forth in the Proxy
Statement for our Annual Meeting of Shareholders scheduled to be held on
February 14, 2001 and is incorporated herein by this reference.
15
<PAGE> 16
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE ISSUER'S COMMON EQUITY AND OTHER
SHAREHOLDER MATTERS
Our Common Stock is traded on the NASDAQ Bulletin Board. The range of
high and low bids for the Common Stock for each quarter during the two years
ended September 30, 2000, is as follows:
YEAR ENDED SEPTEMBER 30, 1999 HIGH LOW
---------------------------------------------------- ------ -------
Quarter Ended December 31, 1998..................... $ 2.56 $ 1.25
Quarter Ended March 31, 1999........................ 2.75 1.06
Quarter Ended June 30, 1999......................... 1.25 0.88
Quarter Ended September 30, 1999.................... 1.13 0.75
FISCAL 2000
Quarter Ended December 31, 1999..................... $ 1.19 $ 0.69
Quarter Ended March 31, 2000........................ 6.50 0.73
Quarter Ended June 30, 2000......................... 4.00 1.69
Quarter Ended September 30, 2000.................... 4.94 1.94
These amounts reflect inter-dealer quotations, without retail mark-up,
mark down or commission, and may not represent actual transactions. There were
approximately 680 beneficial holders of our Common Stock of record on November
30, 2000. All amounts shown have been adjusted for prior stock splits and stock
dividends.
DIVIDEND POLICY
We have not declared or paid cash dividends on our Common Stock since
our inception. The Board of Directors presently intends that for the foreseeable
future any earnings we may achieve will be retained for use in our business and
will not be paid as dividends on our Common Stock.
ITEM 2. LEGAL PROCEEDINGS
None
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. COMPLIANCE WITH SECTION 16 (a) OF THE EXCHANGE ACT.
The information required by this item is set forth in the Proxy
Statement for our Annual Meeting of Shareholders scheduled to be held on
February 14, 2001 and is incorporated herein by this reference.
ITEM 6. REPORTS ON FORM 8-K.
On September 25, 2000, we filed a current report on Form 8-K in
connection with the purchase by A Novo Canada of substantially all the assets of
Les Telecommunications Valsysteme Inc.
16
<PAGE> 17
PART F/S
CABLE LINK, INC.
DBA A NOVO BROADBAND, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
* * * * * *
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2000 AND
FOR THE YEARS ENDED
SEPTEMBER 30, 2000 AND 1999
C O N T E N T S
Page
INDEPENDENT AUDITORS' REPORT F-2
CONSOLIDATED BALANCE SHEETS F-3
CONSOLIDATED STATEMENTS OF OPERATIONS F-5
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-9
<PAGE> 18
To the Board of Directors and Stockholders
Cable Link, Inc. dba A Novo Broadband, Inc.
Columbus, Ohio
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheets of Cable
Link, Inc. dba A Novo Broadband, Inc. and Subsidiaries (the Company) as of
September 30, 2000, December 31, 1999 and September 30, 1999, and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for the nine months and year ended September 30, 2000 and for the year
ended September 30, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Cable Link,
Inc. dba A Novo Broadband, Inc. and Subsidiaries as of September 30, 2000,
December 31, 1999 and September 30, 1999, and the results of their operations
and their cash flows for the nine months and year ended September 30, 2000 and
year ended September 30, 1999 in conformity with generally accepted accounting
principles.
Groner, Boyle & Quillin LLP
Columbus, Ohio
November 17, 2000
F-2
<PAGE> 19
CABLE LINK, INC. DBA A NOVO BROADBAND, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, December 31, September 30,
2000 1999 1999
----------- ----------- -----------
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents ............... $ 7,104,915 $ 213,113 $ 130,572
Accounts receivable, net ................ 2,508,590 2,060,469 2,633,651
Inventories ............................. 1,481,718 1,557,257 1,543,098
Notes receivable, related parties ....... 200,000 -- --
Prepaid and other assets ................ 160,324 199,541 287,929
Covenants not to compete ................ -- -- 87,289
Deferred income taxes ................... 47,000 150,000 280,000
Property and equipment available for sale -- 50,000 --
----------- ----------- -----------
Total current assets .................. 11,502,547 4,230,380 4,962,539
----------- ----------- -----------
PROPERTY AND EQUIPMENT, at cost
Furniture and fixtures .................. 644,705 540,307 673,964
Equipment ............................... 862,253 619,812 1,062,269
Leasehold improvements .................. 210,241 169,811 225,091
Construction in progress ................ -- 96,437 50,705
----------- ----------- -----------
Less: Accumulated depreciation .......... 1,015,459 865,466 1,199,275
----------- ----------- -----------
Net property and equipment ............ 701,740 560,901 812,754
----------- ----------- -----------
OTHER ASSETS
Notes receivable, related parties ....... 200,000 -- --
Goodwill ................................ 3,167,411 -- 486,913
Deferred income taxes ................... 641,000 461,000 89,000
Other assets ............................ 28,039 27,238 43,097
----------- ----------- -----------
Total other assets .................... 756,316 488,238 619,010
----------- ----------- -----------
TOTAL ASSETS ............................... $16,240,737 $ 5,279,519 $ 6,394,303
=========== =========== ===========
</TABLE>
See accompanying notes
F-3
<PAGE> 20
CABLE LINK, INC. DBA A NOVO BROADBAND, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SEPTEMBER 30, December 31, September 30,
2000 1999 1999
------------ ------------ ------------
<S> <C> <C> <C>
CURRENT LIABILITIES
Current portion of long-term obligations .......... $ 192,496 $ 19,968 $ 23,058
Notes payable - bank .............................. 937,569 2,216,218 2,256,268
Accounts payable .................................. 1,911,285 1,251,975 1,601,538
Covenants not to compete .......................... -- 29,164 46,664
Accrued expenses
Payroll and related taxes ....................... 223,577 384,083 363,801
Accrued warranty ................................ -- -- 175,396
Other ........................................... 101,228 113,148 64,374
Accrued loss on disposal of discontinued operations -- 433,448 --
------------ ------------ ------------
Total current liabilities ....................... 3,366,155 4,447,994 4,561,098
------------ ------------ ------------
LONG-TERM LIABILITIES
Long-term obligations ............................. 166,667 7,106 10,759
Other ............................................. -- 17,749 17,460
------------ ------------ ------------
Total long-term liabilities ..................... 166,667 24,855 28,219
------------ ------------ ------------
Total liabilities ............................... 3,532,822 4,472,849 4,559,317
------------ ------------ ------------
STOCKHOLDERS' EQUITY
Common stock, no par value ........................ 13,449,014 1,472,357 1,472,357
Additional paid-in-capital ........................ 159,136 136,136 136,136
Retained (deficit) earnings ....................... (900,235) (801,823) 226,493
------------ ------------ ------------
Total stockholders; equity ...................... 12,707,915 806,670 1,834,986
------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........... $ 16,240,737 $ 5,279,519 $ 6,394,303
============ ============ ============
</TABLE>
See accompanying notes
F-4
<PAGE> 21
CABLE LINK, INC. DBA A NOVO BROADBAND, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Nine Months Ended September 30, 2000 and the Years Ended September
30, 2000 and 1999
<TABLE>
<CAPTION>
Nine Months Year Ended Year Ended
Ended 9/30/00 9/30/00 9/30/99
------------ ------------ ------------
<S> <C> <C> <C>
Revenues .................................................. $ 8,605,535 $ 10,865,748 $ 11,188,046
Cost of sales ............................................. 5,825,506 6,952,832 7,096,935
------------ ------------ ------------
Gross profit ........................................... 2,780,029 3,912,916 4,091,111
Selling, general and administrative expenses .............. 2,779,687 3,482,951 3,059,289
------------ ------------ ------------
Income from operations ................................. 342 429,965 1,031,822
Other expenses
Acquisition bonus ...................................... 400,000 400,000 --
Interest expense ....................................... 48,117 84,644 70,167
------------ ------------ ------------
Total other expense ................................ 448,117 484,644 70,167
------------ ------------ ------------
Income (loss) before income taxes ......................... (447,775) (54,679) 961,655
Benefit (provision) for income taxes
Current ................................................ (25,543) (240,072) (342,923)
Deferred ............................................... 190,000 34,000 27,500
------------ ------------ ------------
Total benefit (provision) for income taxes ......... 164,457 (206,072) (315,423)
------------ ------------ ------------
Income (loss) from continuing operations .................. (283,318) (260,751) 646,232
Discontinued operations
Loss from operations of discontinued division, net of
tax benefit of $0, $19,000 and $421,000 respectively -- (68,773) (1,262,758)
Gain (loss) on disposal of division, net of tax
(expense) benefit of ($113,000), $266,000, and $0
respectively ....................................... 184,906 (797,204) --
------------ ------------ ------------
Loss before cumulative effect of change in accounting
principle .......................................... (98,412) (1,126,728) (616,526)
Cumulative effect of change in accounting principle, net of
tax benefit of $16,000 ............................. -- -- (26,246)
------------ ------------ ------------
Net loss .................................................. $ (98,412) $ (1,126,728) $ (642,772)
============ ============ ============
Basic Earnings Per Share
Income (loss) from continuing operations .............. $ (0.12) $ (0.12) $ 0.38
Gain (loss) on discontinued operations ................ 0.08 (0.40) (0.75)
Cumulative effect of change in accounting principle ... -- -- (0.01)
------------ ------------ ------------
Net loss per share .................................... $ (0.04) $ (0.52) $ (0.38)
============ ============ ============
Weighted average shares outstanding ................... 2,339,840 2,177,324 1,693,367
============ ============ ============
Diluted Earnings Per Share
Income (loss) from continuing operations .............. $ (0.12) $ (0.12) $ 0.37
Gain (loss) on discontinued operations ................ 0.08 (0.40) (0.73)
Cumulative effect of change in accounting principle ... -- -- (0.01)
------------ ------------ ------------
Net loss per share .................................... $ (0.04) $ (0.52) $ (0.37)
============ ============ ============
Weighted average shares outstanding ................... 2,339,840 2,177,324 1,731,694
============ ============ ============
</TABLE>
See accompanying notes.
F-5
<PAGE> 22
CABLE LINK, INC. DBA A NOVO BROADBAND, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the periods ended September 30, 2000, 1999, 1998 and December 31, 1999
and 1998
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------- ADDITIONAL TOTAL
NUMBER OF PAID-IN RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1998 1,689,136 $ 1,463,387 $ 136,136 $ 869,265 $ 2,468,788
Net loss -- -- -- (358,881) (358,881)
------------ ------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 1998 1,689,136 1,463,387 136,136 510,384 2,109,907
Exercise of options and warrants 5,940 8,970 -- -- 8,970
Net loss -- -- -- (283,891) (283,891)
------------ ------------ ------------ ------------ ------------
BALANCE AT SEPTEMBER 30, 1999 1,695,076 1,472,357 136,136 226,493 1,834,986
Net loss -- -- -- (1,028,316) (1,028,316)
------------ ------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 1999 1,695,076 1,472,357 136,136 (801,823) 806,670
Exercise of options and warrants 13,860 24,507 -- -- 24,507
Common shares issued 3,040,666 11,952,150 -- -- 11,952,150
Remittance of proceeds from restricted -- -- 23,000 -- 23,000
stock sale
Net loss -- -- -- (98,412) (98,412)
------------ ------------ ------------ ------------ ------------
BALANCE AT SEPTEMBER 30, 2000 4,749,602 $ 13,449,014 $ 159,136 $ (900,235) $ 12,707,915
============ ============ ============ ============ ============
</TABLE>
See accompanying notes.
F-6
<PAGE> 23
CABLE LINK, INC. DBA A NOVO BROADBAND, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2000 and the Years Ended
September 30, 2000 and 1999
<TABLE>
<CAPTION>
NINE MONTHS Year Ended Year Ended
ENDED 9/30/00 9/30/00 9/30/99
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ....................................................... $ (98,412) $ (1,126,728) $ (642,772)
Adjustments to reconcile net loss to net cash provided by (used
in) operating activities:
Depreciation and amortization ............................... 188,630 350,095 613,083
Loss on disposal of property and equipment .................. -- 9,399 21,620
Provision (credit) for losses on receivables ................ -- (67,242) 110,396
Acquisition bonus ........................................... -- -- (120,000)
Deferred income taxes ....................................... (190,000) (34,000) (27,500)
Cumulative effect of change in accounting principle ......... -- -- 42,246
Loss (gain) on disposal of division ......................... (184,906) 797,204 --
(Increase) decrease in operating assets:
Accounts receivable ..................................... (462,715) (55,991) 1,020,497
Inventories ............................................. 151,388 24,042 1,143,290
Prepaid and other assets ................................ (23,057) 85,818 111,890
Increase (decrease) in operating assets:
Accounts payable ........................................ 599,885 250,323 (2,143,317)
Accrued expenses ........................................ (138,366) (104,913) (306,682)
------------ ------------ ------------
Total adjustments ................................... (13,027) 1,254,735 465,523
------------ ------------ ------------
Net cash provided by (used in) operating activities ............ (111,439) 128,007 (177,249)
------------ ------------ ------------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of property and equipment ............................. (202,496) (296,098) (333,639)
Proceeds from disposal of property and equipment ............... 900 28,894 70,769
Acquisition of stock of Auro Computer Services ................. -- -- (100,000)
Acquisition of assets of Lavender .............................. (200,000) (200,000) --
Acquisition of assets of Valsysteme ............................ (2,756,484) (2,756,484) --
Loan to former Chief Executive Officer ......................... (400,000) (400,000) --
------------ ------------ ------------
Net cash used in investing activities .......................... (3,558,080) (3,650,682) (362,870)
------------ ------------ ------------
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from sale of common stock and exercise of stock options
and warrants ............................................ 11,976,657 11,976,657 8,970
Increase in APIC ............................................... 23,000 23,000 --
Net borrowings (payments) on notes payable - bank .............. (845,316) (860,366) 1,059,987
Principal payments on long-term obligations .................... (539,280) (564,280) (523,600)
Payments on covenants not to compete ........................... (29,164) (46,664) (82,500)
Payments on capital lease obligations .......................... (24,576) (31,329) (38,249)
------------ ------------ ------------
Net cash provided by financing activities ...................... 10,561,321 10,497,018 424,608
Net increase (decrease) in cash and cash equivalents ........... 6,891,802 6,974,343 (115,511)
Cash and cash equivalents at beginning of period ............... 213,113 130,572 246,083
------------ ------------ ------------
Cash and cash equivalents at end of period ..................... $ 7,104,915 $ 7,104,915 $ 130,572
============ ============ ============
</TABLE>
See accompanying notes.
F-7
<PAGE> 24
CABLE LINK, INC. DBA A NOVO BROADBAND, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the Nine Months Ended September 30, 2000 and the Years Ended September
30, 2000 and 1999
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
NINE MONTHS Year Ended Year Ended
ENDED 9/30/00 9/30/00 9/30/99
------------- ---------- ----------
<S> <C> <C> <C>
CASH PAID DURING THE PERIOD FOR:
Interest................................................... 51,179 84,643 70,167
Income taxes............................................... -- -- 59,197
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
The Company recorded a non-compete asset and liability, each in the amount of
$82,500, in 1998, representing an agreement with the former president of Auro.
During 2000, the Company purchased two companies. In conjunction with those
acquisitions, the assets acquired and liabilities assumed are as follows:
LAVENDER INDUSTRIES, INC.
Current assets $ 181,733
Net property and equipment 97,920
Goodwill 459,721
Current liabilities (76,752)
Long-term debt assumed (212,622)
Note to seller (250,000)
-------------------
$ 200,000
===================
LES TELECOMMUNICATIONS VALSYSTEME, INC.
Current assets $ 25,410
Net property and equipment 16,780
Goodwill 2,714,294
-------------------
$2,756,484
===================
See accompanying notes.
F-8
<PAGE> 25
CABLE LINK, INC. DBA A NOVO BROADBAND, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000, December 31, 1999 and September 30, 1999
================================================================================
NATURE AND SCOPE OF BUSINESS
Cable Link, Inc. dba A Novo Broadband, Inc. (the Company) is a
majority-owned (64%) subsidiary of A Novo Americas, LLC. The Company
provides repair, calibration, upgrade and maintenance of analog and
digital decoders, cable and DSL modems, linegear, headend, power generator
and power supplies for equipment manufacturers and broadband network
operators. The Company also provides screening, testing and profiling for
new equipment for market introduction; asset management services;
logistics systems and services; equipment resale services; and
international distribution services. The Company has offices in Columbus,
Ohio; Los Angeles, California; Hollywood, Florida; and Montreal, Canada.
Prior to December 31, 1999, the Company resold computer hardware and
assembled computer hardware components into personal computers through a
wholly owned subsidiary, PC & Parts, Inc., dba Auro Computer Services
(Auro). The Company has discontinued the operations of Auro.
The Company formed a foreign sales corporation (FSC) subsidiary during
1998 in order to realize the tax benefits attributable to its foreign
sales.
The Company has changed its year end to September 30 from December 31,
effective September 30, 2000.
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.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements are on the accrual basis of
accounting and include the financial statements of the Company, Auro, and
the FSC for the nine months and year ended September 30, 2000 and the year
ended September 30, 1999, in entirety, and include the financial
statements of A Novo Canada after the acquisition closing date of
September 12, 2000. All material intercompany balances and transactions
are eliminated in consolidation.
CHANGE IN ACCOUNTING PRINCIPLE
On January 1, 1999, the Company adopted Statement of Position (SOP) 98-5
"Reporting of Start-up Activities," which requires all start-up costs
previously capitalized by the Company to be expensed. The cumulative
effect of the change in accounting principle is reflected in the
consolidated statement of income net of its tax effect. All start-up costs
incurred after adoption of the SOP will be expensed as incurred.
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
$6,118, $48,708, and $131,084 as of September 30, 2000, December 31, 1999,
and September 30, 1999, respectively.
F-9
<PAGE> 26
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
INVENTORIES
The Company's 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 weighted 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.
Auro's inventories consisted of purchased computer systems, peripherals,
software and components used for assembly and resale and were stated at
the lower of cost or market, using the average-cost method. Assembly in
process was not significant and was not recorded as work in progress
inventory.
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 is carried at cost, less accumulated depreciation,
computed using the straight-line method over the estimated useful lives of
the related assets. Furniture and fixtures, equipment, and rental
equipment are depreciated over lives ranging from three to seven years.
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 that 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 $245,656 and $196,018, respectively,
at September 30, 2000, $303,526 and $198,836, respectively, at December
31, 1999, and $320,800 and $185,764, respectively, at September 30, 1999.
Depreciation expense, which includes the amortization of assets held under
capital leases, for the nine months ended September 30, 2000 and the years
ended September 30, 2000 and 1999 was $175,457, $289,116 and $380,176,
respectively.
GOODWILL
Goodwill was recorded to reflect the amount paid in August and September
2000 by the Company and A Novo Canada, respectively, to acquire certain
assets from unrelated companies in California and Montreal, Canada, in
excess of the fair market value of the assets acquired and the liabilities
assumed. Goodwill is shown net of accumulated amortization of $6,604 as of
September 30, 2000.
Goodwill was recorded to reflect the amount paid for the Company's
acquisition of the common stock of Auro, less fair market value of assets
acquired and liabilities assumed during 1998. Goodwill is shown net of
accumulated amortization of $75,989 and $83,007, as of December 31, 1999
and September 30, 1999, respectively, which is calculated using the
straight-line method over 15 years. The Company decided to discontinue the
operations of Auro during February 2000. The unamortized balance of
goodwill, $493,931, was written off in connection with the discontinuance
of these operations.
F-10
<PAGE> 27
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
COVENANTS NOT TO COMPETE
Under the terms of the purchase agreement, Auro was paying its sellers
$150,000 in monthly installments over two years for a covenant not to
compete. Accordingly, a short-term and long-term liability has been
recognized. The Company allocated $200,000 of the purchase price to the
covenant to be amortized using the straight-line method over the same
two-year period. Additionally, Auro had a non-competition agreement with
its former president through December 31, 1999. A total of $82,500 was
paid over six months. Accordingly, a short-term asset and liability were
recorded and amortized using the straight-line method during 1999. The
asset and liability were removed upon expiration of the agreement during
1999. The amount of amortization expense for these covenants was $45,625
and $161,877 for the years ended September 30, 2000 and 1999,
respectively. Accumulated amortization amounted to $158,336 for December
31, 1999 and $112,711 for September 30, 1999. The unamortized balance of
the covenants not to compete, $41,664, was written off in connection with
the discontinuance of these operations.
REVENUE RECOGNITION
Revenues are recognized when the related products are completed and
delivered or services are performed. Revenues from service contracts are
recognized over the terms of the contract as services are provided.
WARRANTY
Warranties are extended on new, repaired and refurbished cable products
for periods of up to one year. The company's expense for cable product
warranties is not material. Warranties are not extended for used cable
equipment. Auro's estimated future warranty obligations related to certain
products, primarily computer hardware and systems, are provided by charges
to operations in the period in which the related revenue is recognized.
EARNINGS PER SHARE (EPS)
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
NINE MONTHS Year Ended Year Ended
ENDED 9/30/00 9/30/00 9/30/99
------------- --------- -----------
<S> <C> <C> <C>
Numerator:
Income (loss) from continuing operations and before
the cumulative effect of the change in accounting
principle, available to common stockholders ..... $ (283,318) $(260,751) $ 646,232
=========== ========= ===========
Denominator:
Denominator for basic earnings per share -
Weighted-average shares outstanding ............ 2,339,840 2,177,324 1,693,397
Effect of dilutive securities:
Employee stock options and stock warrants ...... 38,307
----------- --------- -----------
Denominator for diluted earnings per share ........ 2,339,840 2,177,324 1,731,694
=========== ========= ===========
Basic income (loss) per share ......................... $ (0.12) $ (0.12) $ 0.38
=========== ========= ===========
Diluted income (loss) per share ....................... $(0.12) $(0.12) $0.37
=========== ========= ===========
</TABLE>
F-11
<PAGE> 28
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Options to purchase 1,014,584 shares were not included in the compilation
of diluted EPS for the nine months and the year ended September 30, 2000
because the Company had a loss from continuing operations. Options to
purchase 705,118 shares were not included in the computation of diluted
EPS for the year ended September 30, 1999 because the options exercise
price was greater than the average market price of the common shares.
During the nine months and year ended September 30, 2000, options to
purchase 100,000 shares were issued contingent on certain Company stock
performance levels. During the year ended September 30, 1999, options to
purchase 125,000 shares were issued contingent on certain Company stock
performance levels.
During the nine months and year ended September 30, 1999, 17,970 options
were cancelled and 8,250 became vested. The total contingent options at
September 30, 2000 and 1999 were 230,500 and 194,280, respectively.
Earnings per share is computed on the weighted average number of common
shares outstanding including any dilutive options and warrants.
ADVERTISING
The Company expenses advertising costs as incurred. Advertising expenses
were $66,186, $123,507, and $76,517 for the nine months ended September
30, 2000 and the years ended September 30, 2000 and 1999, respectively.
INCOME TAXES
The Company and its U.S. subsidiaries file a consolidated federal income
tax return. Income taxes are allocated to each company based on the
earnings of each company.
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.
STATEMENTS OF CASH FLOWS
For the purpose of reporting cash flows, cash includes cash on hand and
demand deposits held by banks.
F-12
<PAGE> 29
INVENTORIES
Inventories at September 30, 2000, December 31, 1999, and September 30,
1999 were as follows:
<TABLE>
<CAPTION>
New Used Total
---------- ---------- ----------
<S> <C> <C> <C>
SEPTEMBER 30, 2000
Parts ..................................... 463,172 -- 463,172
Converters ................................ 110,123 302,867 413,010
Linegear .................................. 220,678 415,108 635,786
Head-ends ................................. 2,606 30,143 32,749
Computer hardware, software and peripherals -- -- --
---------- ---------- ----------
Total ................................... 796,579 748,138 1,544,717
========== ==========
Reserve for inventory obsolescence ........ (62,999)
----------
Net inventory ........................... 1,481,718
==========
DECEMBER 31, 1999
Parts ..................................... 249,070 -- 249,070
Converters ................................ 283,679 271,291 554,970
Linegear .................................. 106,456 550,415 656,871
Head-ends ................................. 7,130 38,267 45,397
Computer hardware, software and peripherals 126,270 -- 126,270
---------- ---------- ----------
Total ................................... 772,605 859,973 1,632,578
========== ==========
Reserve for inventory obsolescence ........ (75,321)
----------
Net inventory ........................... 1,557,257
==========
SEPTEMBER 30, 1999
Parts ..................................... 275,045 -- 275,045
Converters ................................ 313,261 299,582 612,842
Linegear .................................. 117,557 607,813 725,370
Head-ends ................................. 7,873 42,258 50,131
Computer hardware, software and peripherals 139,437 -- 139,437
---------- ---------- ----------
Total ................................... 653,173 949,553 1,802,826
========== ==========
Reserve for inventory obsolescence ........ (259,728)
----------
Net inventory ........................... 1,543,098
==========
</TABLE>
NOTES PAYABLE
The Company has a revolving credit line with a bank for $1.5 million. The
credit line is secured by substantially all assets of the Company and is
payable on demand. The line matures on September 30, 2001, and interest is
charged at prime plus 2% (10.50% and 8.75% at September 30, 2000 and 1999,
respectively). Outstanding borrowings at September 30, 2000, December 31,
1999, and September 30, 1999 were $937,569, $1,782,885, and $1,797,935,
respectively. The agreement provides for certain covenants and
restrictions including maintenance of certain minimum financial
requirements.
The Company had a note payable to a bank relating to the acquisition of
Auro. The face amount of the note was $500,000 and interest was due
monthly at prime plus 1%. The principal balances were $0, $433,333 and
$458,333 at September 30, 2000, December 31, 1999 and September 30, 1999,
respectively. The note was repaid in full during 2000.
F-13
<PAGE> 30
LONG-TERM OBLIGATIONS
Long-term obligations at September 30, 2000, December 31, 1999 and
September 30, 1999 consist of the following:
<TABLE>
<CAPTION>
9/30/00 12/31/99 9/30/99
--------- --------- ---------
<S> <C> <C> <C>
Note payable to the former owner of a business, payable in 12
consecutive quarterly installments of $22,500, including interest
at 4.58%. The note is unsecured. $ 250,000 -- --
Note payable to the former owner of a business with an annual
interest rate of 6% and payable at a rate of 50% of the earnings
before income tax of acquired division, beginning the fiscal year
ended September 30, 2001. The note is unsecured. 106,075 -- --
Amounts due under capital leases, net of interest between 10.6% and
13.9%. The capital leases include purchase options upon
expiration. The capital leases are secured by the equipment. $ 2,488 $ 27,064 $ 33,817
--------- --------- ---------
Total 359,163 27,064 33,817
Less current maturities (192,496) (19,958) (23,058)
--------- --------- ---------
Long-term obligations $ 166,667 $ 7,106 $ 10,759
========= ========= =========
Maturities of long-term obligations are as follows:
2001 $193,564
2002 90,000
2003 76,667
------------
360,231
Less amount representing interest (1,068)
------------
Total $359,163
============
</TABLE>
RETIREMENT PLAN
The Company has a qualified salary deferral 401(k) retirement plan for the
benefit of its U.S. employees. The employees must have attained age 21 and
completed at least one year of service to be eligible to participate in
the plan. The Company's contribution is discretionary, and the Company has
elected not to make a contribution for the nine months ended September 30,
2000 and the years ended December 31, 1999 and September 30, 1999.
F-14
<PAGE> 31
INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
NINEMONTHS Year Year
ENDED Ended Ended
9/30/00 9/30/00 9/30/99
--------- --------- ---------
<S> <C> <C> <C>
Current (expense) benefit
Federal $ (40,563) $(188,997) $(266,320)
State and local 15,020 (51,075) (76,603)
--------- --------- ---------
Income tax (expense) benefit $ (25,543) $(240,072) $(342,923)
========= ========= =========
The components of the net deferred tax asset are as follows:
9/30/00 12/31/99 9/30/99
--------- --------- ---------
Assets:
Accounts receivable $ 3,000 $ 19,000 $ 50,000
Inventories 45,000 55,000 142,000
Net operating loss 576,000 399,000 81,000
Covenants not-to-compete 80,000 88,000 80,000
Accrued warranty and prepaid service contracts - 83,000 94,000
--------- --------- ---------
Gross deferred tax assets 704,000 644,000 447,000
Liabilities:
Property and equipment 16,000 1,000 38,000
--------- --------- ---------
Net deferred tax asset 688,000 643,000 409,000
Less valuation allowance - (32,000) (40,000)
--------- --------- ---------
Total net deferred tax asset $ 688,000 $ 611,000 $ 369,000
========= ========= =========
</TABLE>
A reconciliation of the Company's effective tax benefit is as follows:
<TABLE>
<CAPTION>
NINE MONTHS Year Year
ENDED Ended Ended
9/30/00 9/30/00 9/30/99
--------- --------- ---------
<S> <C> <C> <C>
Income tax at statutory rates $ 50,955 $ 409,923 $ 245,515
State and local taxes, net of federal benefit 9,913 (33,710) 50,558
Surtax and other rate differences (5,339) (2,315) 3,957
Permanent differences (38,467) (337,365) (182,217)
Change in valuation allowance 32,000 40,000 (13,000)
State tax credits earned 2,395 2,395 2,400
--------- --------- ---------
Total benefit $ 51,457 $ 78,928 $ 121,577
========= ========= =========
</TABLE>
As of September 30, 2000, the Company had approximately $1,500,000 of tax
net operating loss carry forwards remaining to be utilized. The carry
forwards begin to expire in 2017.
F-15
<PAGE> 32
WARRANTY LIABILITY
For certain products, Auro provided a three-year on-site parts and labor
warranty on hardware sold. Replacement hardware components were generally
provided by the original equipment manufacturer. The estimated future
warranty costs have not been accrued as it has been determined that Auro,
as a result of closing, will not be able to fulfill this obligation.
STOCKHOLDERS' EQUITY AND STOCK OPTIONS
At September 30, 2000 and 1999, the Company had 10,000,000 authorized
shares of common stock, no par value, and 200,000 authorized shares of
preferred stock, no par value. There were 4,749,602 and 1,695,076 shares
of common stock outstanding at September 30, 2000 and 1999, respectively.
No preferred stock is issued or outstanding at September 30, 2000,
December 31, 1999, or September 30, 1999.
On August 7, 2000, the company sold 3,040,666 shares of common stock to A
Novo Americas, LLC in a private placement for $11,952,150 in cash. The
share price for this transaction was determined by reference to the market
price of the Company's common stock.
The Company adopted the 1995 Stock Option Plan (1995 Plan) effective
October 1995. In August 2000, the Company adopted the 2000 Stock Option
Plan (2000 Plan). Both plans authorize the Company to grant options to
directors, employees and consultants of the Company to purchase shares of
the Company's common stock. The maximum number of shares that may be
issued under the 1995 Plan was increased in June 2000 from 395,010 to
700,000. The maximum number of shares that may be issued under the 2000
Plan is 238, 105. The 1995 Plan authorizes the Company to grant stock
appreciation rights (SARs) to employees of the Company. 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 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
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 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. No
options granted during 2000 and 1999 were granted in tandem with SAR's.
As of September 30, 2000, the Company's former Chief Executive Officer had
401,280 weighted average options outstanding which were issued to him
prior to his employment by the Company. The stock options and SAR's expire
at various dates through 2006 and have an average exercise price of $1.64.
He has been granted additional options that are included in the employee
stock option table. At September 30, 2000 and 1999, the former Chief
Executive Officer held warrants to purchase 19,800 shares of common stock
for $0.93 per share.
At September 30, 2000, December 31, 1999, and September 30, 1999, former
non-employee directors of the Company held options to purchase 53,040,
48,040, and 48,040 shares of common stock, respectively, with exercise
prices ranging from $0.84 to $3.50. At September 30, 2000, December 31,
1999, and September 30, 1999, all of the options were vested and the
options expire at various dates through 2009.
During 1999, a consultant was granted options to purchase 10,000 shares at
$4.50 per share. The options expire in 2001.
F-16
<PAGE> 33
STOCKHOLDERS' EQUITY (continued)
The Company applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its stock option plans. 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 SAR's issued under the
plan since the exercise price of the options and SAR's was equal to the
market value of the shares at the date of grant. Had compensation cost for
the Company's stock option plans 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 loss and net
loss per share would change as indicated below.
<TABLE>
<CAPTION>
NINE MONTHS YEAR Year
ENDED ENDED Ended
9/30/00 9/30/00 9/30/99
----------- ------------- -----------
<S> <C> <C> <C>
Net loss:
As reported $ (98,411) $ (1,126,727) $ (642,772)
Pro forma $ (351,214) $ (1,379,530) $ (704,141)
Basic loss per share:
As reported $ (0.04) $ (0.52) $ (0.38)
Pro forma $ (0.15) $ (0.63) $ (0.42)
Diluted loss per share:
As reported $ (0.04) $ (0.52) $ (0.37)
Pro forma $ (0.15) $ (0.63) $ (0.41)
</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 2000 and 1999.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
9/30/00 Year Ended 9/30/00 Year Ended 9/30/99
-------------------------- ---------------------- ----------------------
<S> <C> <C> <C>
Dividend yield 0% 0% 0%
Expected volatility 126% 120% 113%
Risk-free interest rates 6.16%, 6.29%, 6.30%, AND 5.41%, 6.16%, 6.29%, 5.70%, 4.88%, 4.97%
6.38% and 6.38% and 5.16%
Expected lives 5 YEARS 5 years 3 to 5 years
</TABLE>
F-17
<PAGE> 34
STOCKHOLDERS' EQUITY (continued)
A summary of the status of the Company's employee stock option plans as of
September 30, 2000 and 1999 and changes for the nine months and years then
ended are presented below:
<TABLE>
<CAPTION>
2000 1999
---------------------------------- ----------------------------------
WEIGHTED Weighted
AVERAGE Average
EXERCISE Exercise
SHARES PRICE Shares Price
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
January 1 352,004 $ 1.55 319,548 $ 2.27
Granted 321,000 3.37 170,000 0.97
Exercised (13,860) 1.26 (5,940) 1.51
Canceled (108,880) 1.96 (131,604) 2.54
--------------- --------------- --------------- ---------------
September 30 550,264 $ 2.52 352,004 $ 1.55
=============== =============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
2000 1999
---------------- ------------------
<S> <C> <C>
Options exercisable at year-end 155,389 100,914
================ ==================
Weighted-average fair value of options
Granted during the year $2.46 $0.39
================ ==================
</TABLE>
The following table summarizes information about employee stock
options at September 30, 2000:
<TABLE>
<CAPTION>
Weighted
Number Average Weighted Number Weighted
Outstanding Remaining Average Exercisable Average
Range of Exercise September 30, Contractual Exercise September 30, Exercise
Prices 2000 Life (In Years) Price 1999 Price
---------------------- ----------------- ----------------- -------------- ------------------ --------------
<S> <C> <C> <C> <C> <C>
$0.8125 - $4.00 550,264 8.13 $2.52 100,914 $1.55
</TABLE>
ACQUISITIONS AND ACQUISITION BONUS
On August 31, 2000, the Company entered into an asset purchase agreement
with Lavender Industries, Inc. (Seller), pursuant to which the Company
agreed to purchase substantially all of the assets of the Seller. The
purchase of the assets was consummated on August 31, 2000, for a purchase
price of $450,000. The Seller was engaged primarily in the business of
selling new and refurbished cable television equipment. The acquisition
was accounted for under the purchase method of accounting. Results of
operations are included in the consolidated statements of operations from
the date of purchase through September 30, 2000.
On August 2, 2000, the Company entered into an Employment Agreement with
its then Chief Executive Officer providing for a cash signing bonus in the
amount of $400,000. This bonus was paid after the completion of the
private placement with A Novo Americas, LLC. In addition to the bonus, a
loan of $400,000 was made to the former Chief Executive Officer, which is
to be repaid in quarterly installments over two years along with interest
at 6.4%.
On September 12, 2000, the Company's subsidiary, A Novo Canada entered
into an asset purchase agreement with Les Telecommunications Valsysteme,
Inc. (Seller) pursuant to which A Novo Canada agreed to purchase
substantially all of the assets of the Seller. The purchase of the assets
was consummated on September 14, 2000, for a price of $2,756,484.
F-18
<PAGE> 35
ACQUISITIONS AND ACQUISITION BONUS (continued)
The Seller was engaged primarily in the business of the maintenance and
repair of cable television and radio broadcasting equipment. The
acquisition was accounted for under the purchase method of accounting.
Results of operation are included in the consolidated statements of
operations from the date of purchase through September 30, 2000.
In 1998, the Company's Board of Directors approved a $180,000 bonus
payable to the Company's Chief Executive Officer related to the
acquisition of Auro. The bonus was payable in equal monthly installments
of $5,000. The payments for the twelve months beginning July 6, 1998, were
without conditions. The remaining payments were subject to the conditions
that the percentage of earnings of Auro was equal to or greater than 15%
of the capital invested in Auro by the Company. During 1999, the Company's
Chief Executive Officer relinquished his rights to the remaining $120,000
of the acquisition bonus. The bonus reversal was included in the loss from
operations of the discontinued division.
OPERATING LEASE OBLIGATIONS
The Company leases production and office space in Columbus, Ohio, Los
Angeles, California, Hollywood, Florida, and Montreal, Canada. Auro leased
office space from its former owners. Rent expense was $174,497, $364,414
and $323,163 for the nine months ended September 30, 2000 and the years
ended September 30, 2000 and 1999, respectively. Future minimum lease
payments are as follows: 2001 - $455,625; 2002 - $423,559, 2003 -
$407,193; 2004 - $355,928; 2005 - $361,938; thereafter - $242,576.
STOCKHOLDER TRANSACTIONS
In October 1994, the Company entered into a separation, non-competition
and consulting agreement with a former president. The Separation Agreement
required the Company to pay the former president $100,000. Consulting
services were 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 $1,110; 25 monthly installments of
approximately $667; and a final installment of $625. The covenant not to
compete expired during 1999. The covenant not to compete became fully
amortized and was removed from the balance sheet as of December 31, 1999.
The related obligation was paid in full during 1999. The consulting
services were expensed over the term of the Agreement. Under this
agreement, the Company recognized expenses of $28,205 for the year ended
September 30, 1999.
F-19
<PAGE> 36
REPORTABLE SEGMENTS
Management has elected to identify the Company's reportable segments based
on the nature of the products and services: cable operations and computer
operations. However, the computer segment has been discontinued.
Therefore, the segment information provided herein for computer operations
has been included in the statement of operations in the line items, "Loss
from operations of discontinued division," and "Gain (loss) on disposal of
division." Accordingly, the segment information provided herein for cable
operations is the information that is reported in the primary presentation
of the statement of operations.
Information related to the Company's reportable segments for the nine
months ended September 30, 2000 is as follows:
<TABLE>
<CAPTION>
Cable Computer
Operations Operations Total
------------ ------------ ------------
<S> <C> <C> <C>
Revenues $ 8,605,535 $ 1,004,926 $ 9,610,461
Cost of revenues 5,825,506 919,215 6,744,721
------------ ------------ ------------
Gross profit 2,780,029 85,711 2,865,740
S, G & A expenses 2,779,687 21,141 2,800,828
------------ ------------ ------------
Income from operations 342 64,570 64,912
Acquisition bonus 400,000 - (400,000)
Interest expense (48,117) (86,272) (134,388)
Other income - 326,177 326,177
------------ ------------ ------------
Income (loss) (447,775) 304,475 (143,300)
Income tax (expense) benefit 164,457 (113,000) 51,457
Goodwill amortization - (6,569) (6,569)
------------ ------------ ------------
Loss from continuing operations $ (283,318)
============
Gain from discontinued operations $ 184,906
============
Consolidated net income (loss) $ (98,412)
============
AS OF SEPTEMBER 30, 2000:
Total assets $ 19,521,991 $ 262,705 $ 19,784,696
Investment in subsidiary at cost (676,590) - (676,590)
Intercompany receivables (2,867,369) - (2,867,369)
------------ ------------ ------------
Consolidated total assets $ 15,978,032 $ 262,705 $ 16,240,737
============ ============ ============
Depreciation and amortization expense $ 182,061 $ 6,569 $ 188,380
============ ============ ============
</TABLE>
A reconciliation of the segments' total depreciation and amortization to the
consolidated total depreciation and amortization is as follows:
Segments' total depreciation and amortization $ 182,061
Amortization of goodwill 6,569
----------------
Consolidated total depreciation and amortization $ 188,630
================
F-20
<PAGE> 37
REPORTABLE SEGMENTS (continued)
Information related to the Company's reportable segments for the year ended
September 30, 2000 is as follows:
<TABLE>
<CAPTION>
Cable Computer
Operations Operations Total
------------ ------------ ------------
<S> <C> <C> <C>
Revenues $ 10,865,748 $ 3,258,987 $ 14,124,735
Cost of revenues 6,952,832 2,766,969 9,729,801
------------ ------------ ------------
Gross profit 3,912,916 482,018 4,394,934
S, G & A expenses 3,482,951 742,719 4,225,670
------------ ------------ ------------
Income (loss) from operations 429,965 (260,701) 169,264
Acquisition bonus 400,000 - 400,000
Interest expense (84,644) (144,499) (229,143)
Other income - 326,177 326,177
------------ ------------ ------------
Loss (54,679) (79,023) (133,702)
Income tax expense (benefit) (206,072) 285,000 78,928
Goodwill amortization (8,750) (8,750)
Loss on disposal of division - (1,063,204) (1,063,204)
------------ ------------ ------------
Loss from continuing operations $ (260,751)
============
Loss on discontinued operations $ (865,977)
============
Consolidated net income (loss) $ (1,126,728)
============
Depreciation and amortization expense $ 234,261 $ 107,084 $ 341,345
============ ============ ============
</TABLE>
A reconciliation of the segments' total depreciation and amortization to
the consolidated total depreciation and amortization is as follows:
Segments' total depreciation and amortization $ 341,345
Amortization of goodwill 8,750
-----------
Consolidated total depreciation and amortization $ 350,095
===========
Information related to the Company's reportable segments as of December
31, 1999 is as follows:
<TABLE>
<S> <C> <C> <C>
Total assets $ 4,729,350 $ 1,708,105 $ 6,437,455
Goodwill 493,931 493,931
Investment in subsidiary at cost (470,000) - (470,000)
Intercompany receivables (458,671) (23,028) (481,699)
Discontinued operations 367,000 (1,067,168) (700,168)
----------- ----------- -----------
Consolidated total assets $ 4,167,679 $ 1,111,840 $ 5,279,519
=========== =========== ===========
</TABLE>
F-21
<PAGE> 38
Information related to the Company's reportable segments for the year
ended September 30, 1999 is as follows:
<TABLE>
<CAPTION>
Cable Computer
Operations Operations Total
------------ ------------ ------------
<S> <C> <C> <C>
Revenues $ 11,188,046 $ 11,866,856 $ 23,054,902
Cost of revenues 7,096,935 10,870,735 17,967,670
------------ ------------ ------------
Gross profit 4,091,111 996,121 5,087,232
S, G & A expenses 3,059,289 2,602,977 5,662,266
------------ ------------ ------------
Income (loss) from operations 1,031,822 (1,606,856) (575,034)
Interest expense (70,167) (154,077) (224,244)
Other income - 120,000 120,000
------------ ------------ ------------
Income (loss) 961,655 (1,640,933) (679,278)
Income tax (expense) benefit (315,423) 421,000 105,577
Goodwill amortization - (42,825) (42,825)
Cumulative effect of change in accounting
principle, net of tax benefit (26,246) - (26,246)
------------ ------------ ------------
Income from continuing operations $ 619,986
============
Loss from discontinued operations $ (1,262,758)
============
Net income (loss) $ (642,772)
============
AS OF SEPTEMBER 30, 1999:
Total assets $ 4,867,965 $ 2,100,356 $ 6,968,321
Goodwill - 503,185 503,185
Investment in subsidiary at cost (470,000) - (470,000)
Intercompany receivables (607,203) - (607,203)
------------ ------------ ------------
Consolidated total assets $ 3,790,762 $ 2,603,541 $ 6,394,303
============ ============ ============
Depreciation and amortization expense $ 196,331 $ 373,927 $ 570,258
============ ============ ============
</TABLE>
A reconciliation of the segments' total depreciation and amortization to
the consolidated total depreciation and amortization is as follows:
Segments' total depreciation and amortization $ 570,258
Amortization of goodwill 42,825
--------------
Consolidated total depreciation and amortization $ 613,083
==============
CONCENTRATIONS OF CREDIT RISK
The Company grants credit to customers in the United States, Canada and
Central America. In most cases, sales terms for products sold in
international markets other than Canada are cash in advance or cash on
delivery. Additionally, the Company carries insurance on all significant
international accounts receivable. Sales are denominated principally in
U.S. dollars and, therefore, the Company does not have a significant
foreign exchange rate risk. Sales to customers outside the United States
were $2,134,980 for the nine months ended September 30, 2000, and
$2,396,463 and $1,557,111 for the years ended September 30, 2000, and 1999
respectively. Accounts receivable related to customers outside the United
States was $650,623, $22,055 and $213,652 as of September 30, 2000,
December 31, 1999, and September 30, 1999, respectively.
F-22
<PAGE> 39
MAJOR CUSTOMERS AND SUPPLIERS
As of September 30, 2000, 12% of the Company's accounts receivable was due
from one customer. For the year ended September 30, 1999, approximately
21% of the Company's total revenues were from one of Auro's customers and
approximately 38% of total purchases were from two of Auro's vendors.
FOREIGN OPERATIONS
A Novo Canada began operations in Montreal, Canada on September 12, 2000.
As of September 30, 2000, the subsidiary had total assets of $2,937,754,
of which $2,707,690 represented goodwill which is eliminated upon
consolidation. A Novo Canada had $27,754 in revenues for the nine months
ended September 30, 2000.
DISCONTINUED OPERATIONS
Subsequent to December 31, 1999, the Company decided to close and
liquidate Auro. Auro ceased operations on February 21, 2000, and its
remaining assets were liquidated during the nine months ended September
30, 2000. As a result of this action, the Company has reflected Auro's
results from operations as discontinued in the accompanying consolidated
statements of operations. Interest on the bank debt related to Auro's
acquisition is recorded as an expense in determining the loss on
discontinued operations.
The Company also recorded a charge for the loss on discontinuance of Auro
operations, net of tax. Included in this loss is $819,262 for the
write-down of assets to their estimated net realizable value upon
collection and liquidation; $139,505 from the release of recorded warranty
that Auro will not be able to fulfill; $162,448 in costs to liquidate and
$221,000 operating losses prior to the discontinuance of operations.
The remaining assets as of September 30, 2000 consist of accounts
receivable yet to be collected and a deferred tax asset. The net
realizable value of these remaining assets is estimated at $260,000,
including the deferred tax asset of $254,000. Pursuant to a guarantee, the
Company satisfied Auro's bank debt of $784,045.81 subsequent to the year
ended September 30, 2000. The liability was recorded in the consolidated
balance sheet as of September 30, 2000.
F-23
<PAGE> 40
PART III
ITEMS 1 AND 2. INDEX TO EXHIBITS; DESCRIPTION OF EXHIBITS.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
Number Exhibit Page Number
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
2.1 (1) Articles of Incorporation of the Company. --
--------------------------------------------------------------------------------------------------------------------
2.3 (1) Code of Regulations of the Company. --
--------------------------------------------------------------------------------------------------------------------
3.1 (1) 1995 Stock Option Plan of the Company dated October 17, 1995. --
--------------------------------------------------------------------------------------------------------------------
3.3 (3) 2000 Stock Option Plan of the Company dated August 7, 2000. --
--------------------------------------------------------------------------------------------------------------------
6.1 (1) Consulting Agreement by and between the Company and Bob Binsky dated October 1, 1996. --
--------------------------------------------------------------------------------------------------------------------
6.2 (1) Lease dated November 4, 1992 and Lease Modification Agreement dated October 26, 1995 --
for Suite 201, 280 Cozzins Street Columbus, Ohio
--------------------------------------------------------------------------------------------------------------------
6.3 (4) Shareholders Agreement by and among Bob Binsky, A Novo Americas, LLC and the Company --
dated August 4, 2000.
--------------------------------------------------------------------------------------------------------------------
6.4 (4) Employment Agreement, between the Company and Bob Binsky dated August 4, 2000. --
--------------------------------------------------------------------------------------------------------------------
8.1 (4) Investment Agreement by and between A Novo Americas LLC and the Company dated August --
4, 2000.
--------------------------------------------------------------------------------------------------------------------
8.2 (5) Asset Purchase Agreement between A Novo Canada Enterprises Inc. and Les --
Telecommunications Valsysteme Inc. and 9038-2847 Quebec Inc. and Jacques Franco dated
September 12, 2000.
--------------------------------------------------------------------------------------------------------------------
10 (2) Consent of Experts S -2
--------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Filed with the Securities and Exchange Commission as an exhibit to the
issuer's registration statement on Form 10-SB (file no. 0-2311).
(2) Filed herewith.
(3) To be filed with the Securities and Exchange Commission as an exhibit to
the issuer's proxy statement for its annual meeting of shareholders
scheduled to be held on February 14, 2001.
(4) Filed with the Securities and Exchange Commission as an exhibit to the
issuer's quarterly report on Form 10-Q for the fiscal period ended June
30, 2000.
(5) Filed with the Securities and Exchange Commission as an exhibit to the
issuer's interim report on Form 8-K dated September 25, 2000.
E-1
<PAGE> 41
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the issuer has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Dated: December 27, 2000
CABLE LINK, INC.
By: /s/ Louis Brunel
---------------------------------------------------
Louis Brunel, Chief Executive Officer and President
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the issuer in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------------------------------------------- ------------------------------------------------ -----------------
<S> <C> <C>
/s/ Daniel Auzan Chairman of the Board and Director December 27, 2000
---------------------------------------------
Daniel Auzan
/s/ Louis Brunel President, Chief Executive Officer, and Director December 27, 2000
--------------------------------------------- (Principal Executive Officer)
Louis Brunel
/s/ David E. Chisum Chief Financial Officer December 27, 2000
--------------------------------------------- (Principal Financial and Accounting Officer)
David E. Chisum
/s/ Henri Triebel Director December 27, 2000
---------------------------------------------
Henri Triebel
/s/ Pierre Brodeur Director December 27, 2000
---------------------------------------------
Pierre Brodeur
Director December , 2000
---------------------------------------------
Andre Kudelski
Director December , 2000
---------------------------------------------
Bob Binsky
Director December , 2000
---------------------------------------------
John C. Wilson
</TABLE>
S-1
