SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| For the Quarter Ended September 30, 2002 |
Commission File Number 1-13332 |
CABLETEL COMMUNICATIONS CORP.
(Exact name of registrant as specified in its charter)
| Ontario, Canada (State or other jurisdiction of incorporation or organization) |
8647 8526 (Canadian Federal Tax Account No.) |
230 Travail Rd.
Markham, Ontario, Canada L3S 3J1
(Address of principal executive offices)
Registrant’s telephone number, including area code: (905) 475-1030
Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the Registrant’s classes of common stock as of the latest practicable date:
| Class Common Stock, no par value |
Outstanding as at November 11, 2002 7,167,612 |
1
CABLETEL COMMUNICATIONS CORP.
FORM 10-Q
FOR THE QUARTER ENDED
SEPTEMBER 30, 2002
INDEX
| Page No. | |||||||||
| Part I. | Financial Information |
||||||||
| Item 1. | Financial Statements |
||||||||
Balance Sheet as at
September 30, 2002 and December 31, 2001 |
3 | ||||||||
Statement of Operations and Deficit
for the 3 and 9 month periods ended September 30, 2002 and 2001 |
4 | ||||||||
Statement of Cash Flows
for the 3 and 9 month periods ended September 30, 2002 and 2001 |
5 | ||||||||
Notes to Financial Statements |
6-21 | ||||||||
| Item 2. | Management’s Discussion and Analysis of Financial
Condition and Results of Operations |
22-28 | |||||||
| Item 3. | Quantitative and Qualitative Disclosures of Market Risk |
29 | |||||||
| Item 4. | Controls and Procedures |
32 | |||||||
| Part II. | Other Information |
33 | |||||||
| Item 1. | Legal Proceedings |
33 | |||||||
| Item 6. | Exhibits and Reports on Form 8-K |
33 | |||||||
The Company is a “Foreign Private Issuer” as defined in Rule 3b-4 under the Securities Exchange Act of 1994, as amended. Although as a Foreign Private Issuer the Company is eligible to file reports on Form 6-K, the Company has voluntarily elected to file quarterly reports on Form 10-Q.
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CABLETEL COMMUNICATIONS CORP.
CONSOLIDATED BALANCE
SHEETS
(Canadian Funds)
Unaudited
ASSETS
| Audited | ||||||||||||||
| September 30, | December 31, | |||||||||||||
| 2002 | 2001 | |||||||||||||
| (Unaudited) | ||||||||||||||
CURRENT |
||||||||||||||
Cash |
$ | 10,850 | $ | 12,292 | ||||||||||
Accounts receivable
(net of allowance of $285,508; 2001 - $847,194) |
18,824,630 | 14,155,425 | ||||||||||||
Inventory (Note 2) |
9,942,000 | 10,629,957 | ||||||||||||
Income taxes recoverable |
200,192 | 120,000 | ||||||||||||
Prepaid expenses and deposits |
1,062,788 | 761,843 | ||||||||||||
| 30,040,460 | 25,679,517 | |||||||||||||
PROPERTY, PLANT AND EQUIPMENT (Note 3) |
2,106,322 | 2,297,821 | ||||||||||||
DEFERRED REFINANCING FEES (Note 8) |
700,000 | — | ||||||||||||
OTHER ASSETS (Note 9i) |
231,999 | 826,720 | ||||||||||||
PRODUCT DEVELOPMENT COSTS
(net of amortization of $94,891; 2001 - $69,011) |
40,257 | 66,137 | ||||||||||||
| $ | 33,119,038 | $ | 28,870,195 | |||||||||||
LIABILITIES |
||||||||||||||
CURRENT |
||||||||||||||
Bank indebtedness (Note 4) |
$ | 14,845,506 | $ | 11,308,972 | ||||||||||
Accounts payable |
6,669,125 | 8,757,675 | ||||||||||||
Accrued liabilities |
2,531,035 | 1,848,091 | ||||||||||||
Current portion of long-term debt (Note 5) |
1,763,622 | 171,385 | ||||||||||||
| 25,809,288 | 22,086,123 | |||||||||||||
LONG-TERM DEBT (Note 5) |
1,802,030 | 713,737 | ||||||||||||
| 27,611,318 | 22,799,860 | |||||||||||||
COMMITMENTS AND CONTINGENCIES (Note 10) |
||||||||||||||
SHAREHOLDERS’ EQUITY |
||||||||||||||
CAPITAL STOCK (Note 6) |
||||||||||||||
AUTHORIZED |
||||||||||||||
Unlimited First preferred shares, issuable in series |
||||||||||||||
Unlimited Common shares |
||||||||||||||
ISSUED |
||||||||||||||
7,167,612 Common shares (2001 - 7,167,612) |
16,136,761 | 16,136,761 | ||||||||||||
Paid in Capital – Warrant |
164,000 | — | ||||||||||||
DEFICIT |
(10,793,041 | ) | (10,066,426 | ) | ||||||||||
| 5,507,720 | 6,070,335 | |||||||||||||
| $ | 33,119,038 | $ | 28,870,195 | |||||||||||
See accompanying notes to financial statements.
3
CABLETEL COMMUNICATIONS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(Canadian Funds)
(Unaudited)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,
| For the Three Month | For the Nine Month | ||||||||||||||||
| Period Ended September 30, | Period Ended September 30, | ||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | ||||||||||||||
SALES |
$ | 13,650,216 | $ | 15,041,835 | $ | 41,794,281 | $ | 43,344,711 | |||||||||
COST OF SALES |
10,463,565 | 13,276,649 | 33,496,624 | 36,506,769 | |||||||||||||
GROSS PROFIT |
3,186,651 | 1,765,186 | 8,297,657 | 6,837,942 | |||||||||||||
EXPENSES |
|||||||||||||||||
Selling, general and administrative |
2,878,464 | 3,021,723 | 7,274,515 | 8,052,779 | |||||||||||||
Special charge (Note 11) |
— | 607,446 | — | 607,446 | |||||||||||||
Amortization |
72,311 | 57,598 | 192,616 | 178,647 | |||||||||||||
Interest – bank indebtedness |
227,877 | 186,097 | 554,662 | 635,059 | |||||||||||||
Interest – long-term debt |
101,370 | 21,398 | 195,629 | 68,966 | |||||||||||||
| 3,280,022 | 3,894,262 | 8,217,422 | 9,542,897 | ||||||||||||||
INCOME (LOSS) BEFORE THE FOLLOWING |
(93,371 | ) | (2,129,076 | ) | 80,235 | (2,704,955 | ) | ||||||||||
Write off of other assets (Note 10 b) |
11,041 | — | 615,850 | — | |||||||||||||
Loss on settlement of debt (Note 5iii) |
— | — | 164,000 | — | |||||||||||||
| 11,041 | — | 779,850 | — | ||||||||||||||
LOSS BEFORE INCOME TAXES |
(104,412 | ) | (2,129,076 | ) | (699,615 | ) | (2,704,955 | ) | |||||||||
Income taxes |
9,000 | 687,866 | 27,000 | 418,807 | |||||||||||||
NET LOSS FOR THE PERIOD |
$ | (113,412 | ) | $ | (2,816,942 | ) | $ | (726,615 | ) | $ | (3,123,762 | ) | |||||
DEFICIT, beginning of period |
$ | (10,679,629 | ) | $ | (7,467,128 | ) | $ | (10,066,426 | ) | $ | (7,160,308 | ) | |||||
DEFICIT, end of period |
$ | (10,793,041 | ) | $ | (10,284,070 | ) | $ | (10,793,041 | ) | $ | (10,284,070 | ) | |||||
Earnings (loss) per share (Note 7) |
|||||||||||||||||
Basic |
($0.02 | ) | ($0.39 | ) | ($0.10 | ) | ($0.44 | ) | |||||||||
Fully diluted |
($0.02 | ) | ($0.39 | ) | ($0.10 | ) | ($0.44 | ) | |||||||||
See accompanying notes to financial statements.
4
CABLETEL COMMUNICATIONS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Canadian Funds)
(Unaudited)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,
| For the Three Month | For the Nine Month | ||||||||||||||||
| Period Ended September 30, | Period Ended September 30, | ||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | ||||||||||||||
OPERATING ACTIVITIES |
|||||||||||||||||
Loss for the period |
$ | (113,412 | ) | $ | (2,816,942 | ) | $ | (726,615 | ) | $ | (3,123,762 | ) | |||||
Imputed interest |
(3,999 | ) | (4,000 | ) | (11,999 | ) | (12,000 | ) | |||||||||
Write off of other assets |
11,041 | — | 615,850 | — | |||||||||||||
Loss on settlement of debt |
— | — | 164,000 | — | |||||||||||||
Future income taxes |
— | 678,866 | — | 391,807 | |||||||||||||
Amortization |
89,660 | 95,786 | 240,519 | 410,754 | |||||||||||||
Amortization of prepaid
refinancing fees |
100,000 | — | 100,000 | — | |||||||||||||
Change in accounts receivable |
(1,300,360 | ) | (3,102,727 | ) | (4,669,205 | ) | 3,493,143 | ||||||||||
Change in inventory |
141,930 | 2,150,940 | 687,957 | 341,284 | |||||||||||||
Change in prepaid expenses,
deposits and other |
(114,885 | ) | 890,470 | (1,110,076 | ) | 340,287 | |||||||||||
Change in accounts payable
and accrued liabilities |
(309,915 | ) | 1,769,834 | 1,663,059 | (927,314 | ) | |||||||||||
Change in income taxes recoverable |
— | — | (80,192 | ) | — | ||||||||||||
| (1,499,940 | ) | (337,773 | ) | (3,100,822 | ) | 1,770,488 | |||||||||||
FINANCING ACTIVITIES |
|||||||||||||||||
Bank indebtedness incurred (repayment) |
1,621,983 | 262,622 | 3,536,534 | (1,552,841 | ) | ||||||||||||
Issuance of common shares |
— | 74,186 | — | 150,623 | |||||||||||||
Repayment of long-term debt |
(128,814 | ) | (42,234 | ) | (388,134 | ) | (126,196 | ) | |||||||||
| 1,493,169 | 294,574 | 3,148,400 | (1,528,414 | ) | |||||||||||||
INVESTING ACTIVITIES |
|||||||||||||||||
Purchase of equipment |
(23,460 | ) | (18,416 | ) | (49,020 | ) | (262,239 | ) | |||||||||
| (23,460 | ) | (18,416 | ) | (49,020 | ) | (262,239 | ) | ||||||||||
CHANGE IN CASH |
(30,231 | ) | (61,615 | ) | (1,442 | ) | (20,165 | ) | |||||||||
CASH, beginning of period |
41,081 | 79,669 | 12,292 | 38,219 | |||||||||||||
CASH, end of period |
$ | 10,850 | $ | 18,054 | $ | 10,850 | $ | 18,054 | |||||||||
SUPPLEMENTARY CASH FLOW INFORMATION |
|||||||||||||||||
Interest paid |
$ | 333,246 | $ | 211,495 | $ | 762,290 | $ | 704,025 | |||||||||
Income taxes paid |
$ | — | $ | — | $ | — | $ | — | |||||||||
See accompanying notes to financial statements.
5
CABLETEL COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Canadian Funds)
(Unaudited)
SEPTEMBER 30, 2002
| 1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |
| These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Canada, which, except as described in Note 13, conform, in all material respects, with the accounting principles generally accepted in the United States. |
| (a) | General | ||
| In the opinion of management, the accompanying unaudited financial statements contain all adjustments (consisting of only normal recurring adjustments) which are necessary to present fairly the consolidated financial position as at September 30, 2002 and the consolidated results of operations and the consolidated cash flows for the three and nine months ended September 30, 2002 and 2001. | |||
| While management believes that the disclosures presented are adequate to make the information not misleading, it is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and the notes included in the Company’s latest annual report on Form 10-K. | |||
| The interim financial statements follow the same accounting policies and methods of their application as the most recent annual financial statements. However, the interim financial statements do not include all disclosures necessary to conform in all respects to the requirements of Canadian generally accepted accounting principles for annual financial statements. | |||
| (b) | Consolidation | ||
| The consolidated financial statements include the accounts of the wholly-owned subsidiaries, Stirling (Israel) Ltd., and Stirling Connectors, U.S.A., Inc. | |||
| The consolidated financial statements include the accounts of the Company after eliminations of inter-company transactions. | |||
| (c) | Revenue Recognition | ||
| Sales are recognized when legal title to the goods has been passed to the customer, which generally occurs when products are shipped from the Company’s plant or warehouses, and collection is reasonably assured. | |||
| (d) | Deferred Refinancing Fees | ||
| Deferred refinancing fees are amortized over three years being the life of the loan. |
6
CABLETEL COMMUNICATIONS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Canadian Funds)
(Unaudited)
SEPTEMBER 30, 2002
| 2. | INVENTORY | |
| Inventory is valued at the lower of cost (first-in, first-out) and net realizable value. Cost includes appropriate elements of duty, freight, material, labour and overhead. |