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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2000.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 0-26013
MULTI-LINK TELECOMMUNICATIONS, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
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COLORADO 84-1334687
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
4704 HARLAN STREET, SUITE 420,
DENVER, COLORADO 80212
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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(720) 855-0440
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK AND WARRANTS TO PURCHASE COMMON STOCK
(TITLE OF CLASSES)
Check whether the 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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-B is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
The Registrant's revenues for its most recent fiscal year were $11,284,016.
The aggregate market value of the voting common equity held by
non-affiliates of the Registrant on December 21, 2000, was approximately
$17,870,000 based upon the reported closing sale price of such shares on the
Nasdaq SmallCap Market for that date. As of December 21, 2000, there were
4,084,650 shares outstanding of which 2,973,510 shares were held by
non-affiliates.
Documents Incorporated by Reference: None.
Transitional Small Business Disclosure Format. Yes [ ] No [X]
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MULTI-LINK TELECOMMUNICATIONS, INC.
2000 ANNUAL REPORT ON FORM 10-KSB
TABLE OF CONTENTS
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ITEM DESCRIPTION PAGE
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Item 1. Description of Business..................................... 1
Item 2. Description of Property..................................... 12
Item 3. Legal Proceedings........................................... 12
Item 4. Submission of Matters to a Vote of Security Holders......... 12
Item 5. Market for Common Equity and Related Stockholder Matters.... 12
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 12
Item 7. Financial Statements........................................ 21
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 21
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange
Act......................................................... 21
Item 10. Executive Compensation...................................... 23
Item 11. Security Ownership of Certain Beneficial Owners and
Management.................................................. 26
Item 12. Certain Relationships and Related Transactions.............. 27
Item 13. Exhibits and Reports on Form 8-K............................ 27
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FORWARD-LOOKING STATEMENTS
In addition to historical information, this document contains
forward-looking statements that are subject to risks and uncertainties that
could cause actual results to differ materially from those anticipated,
including but not limited to, the inability to raise additional capital, the
availability of future acquisitions, the effects of general or regional economic
and market conditions, increases in marketing and sales costs, intensity of
competition, cost of technology, the availability of financing and our ability
to manage our growth. Cautionary statements regarding the risks, uncertainties
and other factors associated with these forward-looking statements are discussed
under "Risk Factors" in this Form 10-KSB. You are urged to carefully consider
these factors, as well as other information contained in this Form 10-KSB and in
our other periodic reports and documents filed with the SEC.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
INTRODUCTION
We formed in 1996 as a Colorado corporation and are headquartered in
Denver, Colorado. We provide basic voice mail, call routing, advanced integrated
voice and fax messaging, and live answering services to small businesses in
several major urban markets. These services enable businesses to improve the
handling of incoming calls and facilitate more efficient communication between
employees, customers, suppliers and other key relationships. We also provide
basic voice mail and paging services to consumers.
Our objective is to become a leading provider of broad-based messaging and
call routing services to small businesses and consumers in urban markets in the
United States. The opportunity for us to realize this objective is created, in
large part, by the anticipated technological obsolescence of existing automated
voice messaging equipment installed in local telephone companies and businesses
as unified messaging replaces basic voice mail. We plan to achieve our objective
by acquiring voice messaging companies, improving their operations and upgrading
customers to higher-priced unified messaging services as market demand for these
services increases over the next few years.
Our strategy is to offer a total messaging solution that is custom designed
to meet the specific needs of each customer. Our customers can begin with basic
voice mail services, and then upgrade to more advanced services as their needs
change, or as they become willing to consider more advanced and higher-priced
messaging solutions. These messaging services comprise approximately 95% of our
revenue and include:
- basic automated voice mail services;
- call routing services;
- live operator answering services; and
- automated messaging services that integrate voice and fax messages.
Beyond these core messaging services, we expect to expand our product line
in 2001 with voice activated service access and unified messaging. "Unified
messaging" is an electronic mailbox that can gather and store messages from
home, office, and mobile devices. It can store voice messages, fax messages and
Internet based e-mail messages. The mailbox can then replay these stored
messages to different electronic devices including land line telephones, mobile
phones and other mobile devices, computers and fax machines.
In addition to messaging services, we also sell other services and products
that link into our messaging services. In some cases, we act as agents for other
telecommunications companies and receive sales commissions, and in other cases
we purchase services and resell them to our customers. These products and
services account for approximately 5% of our revenues. These services include:
- pagers and paging services;
- mobile telephones and mobile telephone services;
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- local dial tone services;
- long distance telephone service; and
- telephone systems.
We currently provide a broad range of messaging and other related services
to small businesses and consumers in the following markets:
- Denver, CO
- Detroit, MI
- Raleigh, NC
- Ft. Lauderdale, FL
- Indianapolis, IN
- Chicago, IL
- Atlanta, GA
We currently have approximately 10,000 business customers with
approximately 44,000 individual users and approximately 35,000 residential
customers.
We plan to grow our revenues by selling our services to new and existing
customers through our internal sales forces, by appointing third party agents to
sell our services, and by developing distribution partnerships with other
telecommunications companies. We believe that our rate of internal customer
growth will accelerate when we offer unified messaging. Unified messaging both
expands the market and improves our competitive position over the local Bell
telephone companies who dominate the voice mail market today. In addition, we
expect to increase our revenues by selling higher-priced unified messaging
services to our current customers. We believe that our revenues will increase as
these services gain broader market acceptance.
We plan to enter new cities the same way we have in the past -- by
acquiring an existing voice mail company with a substantial customer base and
then installing a state-of-the-art messaging system manufactured by Glenayre
Technologies, Inc. We used a portion of the funds raised in our initial public
offering to acquire several companies in six different markets, where we have
profitably executed this strategy. We believe there are approximately 4,200
voice mail companies around the country that are potential acquisition targets.
We intend to use most of the proceeds of this offering for further acquisitions.
THE MESSAGING INDUSTRY
We estimate that the U.S. messaging industry generates in excess of $5
billion in revenues each year. These revenues are divided among these
categories:
- automated voice mail service provided by the local Bell telephone
companies and other competitive local exchange carriers;
- automated voice mail service provided by local, independent service
bureaus;
- sale of basic voice mail equipment that connects to a customer's phone
system;
- live answering service provided by local independent service bureaus; and
- automated unified messaging services.
There is an established market for live operator answering services and
automated voice mail for businesses. The market for unified messaging today is
modest, but is growing rapidly. At the present time most small businesses have
basic message-taking capability by subscribing to a service from their local
Bell telephone company, or through the purchase of a voice mail machine that
connects to their telephone system.
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Many people now take messages at home by using an answering machine or
through a voice mail service provided by the local Bell telephone company. Voice
mail has a significant advantage over answering machines because it works when
the telephone line is in use, as well as when nobody answers the phone, which
answering machines cannot do. We believe that the home voice mail market is
currently experiencing high growth because of the increasing number of people
now using the internet, which ties up the telephone line for long periods of
time and makes voice mail a very useful service.
In the future, we believe that unified messaging will be a significant
market opportunity for specialist messaging service bureaus like us because we
believe that:
- eventually, more people will use unified messaging than use basic voice
mail today and, as a result, overall market revenues will grow;
- people will pay more for a unified messaging service than a basic voice
mail service and, as a result, overall market revenues will grow as
people upgrade from basic voice mail to unified messaging;
- due to the complexity of unified messaging, the local telephone companies
may be unwilling or unable to effectively deliver these services and, as
a result, they will lose market share to specialist messaging companies
like us;
- unified messaging equipment will be more expensive to buy and more costly
and time consuming to maintain than basic voice mail equipment, and as a
result, businesses may prefer a service bureau solution;
- it will be more economical for small businesses to use a service bureau
than to install their own unified messaging equipment because unified
messaging requires many more telephone lines and a permanent Internet
connection to operate effectively; and
- there is a widespread trend today for small businesses to outsource
complex software applications to service bureaus instead of purchasing
applications and employing staff with the necessary expertise to run and
maintain complex applications such as unified messaging.
As with the introduction of any new telecommunications service, it is
difficult to predict exactly how long it will take for unified messaging
services to gain broad market acceptance, if ever.
OVERVIEW OF OUR CURRENT AND FUTURE SERVICES
We believe that broad market acceptance and adoption of some of the new
messaging services described below will take several years. Because of this we
consider it essential to offer basic automated voice messaging services that the
mass market is already using until understanding of the value of the new
services becomes widespread. Our business strategy is to acquire basic voice
mail subscribers and then to offer these customers increasingly complex and
higher-priced unified messaging services. We believe that customers will prefer
to upgrade services from voice mail to unified messaging with their current
provider rather than change their service provider entirely.
Current Services Provided on Our Glenayre Messaging Equipment.
Single Voice Mailbox for Small Business and Home. We provide single voice
mailboxes to residences and small businesses for telephone answering. Using
automated call-forwarding features programmed on the phone lines, incoming calls
are transferred to a single mailbox when the line is busy or when it is not
answered. Our standard mailbox has many useful features that currently are not
available from the local Bell telephone companies or are provided by them as
additional cost options. These features include:
- several different outgoing greetings which play automatically according
to the time of day;
- the option for a caller to press the zero key to be transferred to
another number; and
- the option to have new messages notified to a pager or a mobile
telephone.
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Multiple Box Business Voice Messaging Networks. We provide comprehensive
voice messaging networks for small businesses. Every network is designed
individually to meet each specific customer's needs. There are several ways
callers can access the voice messaging system:
- using automated call-forwarding features programmed on the customer's
phone lines, incoming calls are transferred to a general company mailbox
when the line is busy or is not answered. Callers then have the option to
leave a message or to reach the mailbox of a specific individual through
a directory;
- incoming calls during normal business hours can be answered by a
receptionist and then transferred to an individual voice mailbox if the
person sought is not available; and
- callers who wish to leave a message without interrupting the subscriber
can dial the voicemail box directly without speaking with anyone.
Each mailbox within the overall network can be individually programmed to
send notification of new messages to a wide variety of pagers and mobile
telephones, to forward callers to different numbers when the zero key is
pressed, and to take advantage of the consolidated messaging, fax messaging and
one number services described below.
Consolidated Messaging Service. We offer a consolidated messaging service.
A subscriber buys a voice mailbox from us. Call-forwarding is then established
from all of the subscriber's phone lines -- home, business and mobile -- to the
same voice mailbox. In this way, all voice messages are channeled automatically
into one voice mailbox. This saves time, is more efficient and often saves
money -- one mailbox instead of three.
One Number "Find Me" Service. We offer one number service called "Constant
Touch Service(R)." Callers who reach a subscriber's mailbox are given two
options in the greeting. If immediate contact with the subscriber is not
required, they are requested to leave a voice mail message. However, if they
wish to speak to the subscriber immediately, they are instructed to press keys
to activate the Constant Touch Service. Upon activation, the service requires
the caller to state his or her name, which is recorded in the mailbox and the
caller is placed on hold. Our messaging system immediately dials all of the
subscriber's designated numbers simultaneously to try to reach the subscriber.
Typically the system will dial a mobile phone number, a pager number, a home
telephone number and an office direct line. If the subscriber is reached, the
messaging system plays the name of the caller on hold and awaits instructions.
The subscriber may elect to connect immediately with the caller, request that
the caller leave a voice mail message, or terminate the call without offering
the caller an opportunity to leave a message. By using Constant Touch Service,
subscribers make it very simple for callers to reach them, yet maintain complete
control over incoming calls. If the subscriber is not reached, the messaging
system will request the caller to leave a voice mail message after an
appropriate amount of time has elapsed.
Over the next few years, we expect that this "find me" technology will
revolutionize the way people communicate. It will no longer be necessary for
callers to make multiple calls to reach someone. The work of finding the
subscriber will be undertaken by the messaging system. In time, as
communications practices change, we believe subscribers will give out their
constant touch number as their primary contact number and all callers will leave
messages or use the one number technology. The use of the messaging system as a
primary contact point will also eliminate the interruption of non-urgent calls
and may increase productivity.
Unified Fax Messaging Service. We currently provide fax-messaging service.
This enables subscribers to receive faxes into their unified mailbox which are
stored as fax messages. The subscriber can download those faxes to any fax
machine or personal computer, anywhere within the U.S.
Automated Attendant Call Routing Service. We offer automated call routing
services. Our system answers all incoming calls for a business and acts as a
virtual receptionist. By pressing keys in response to a series of progressive
menus, callers reach the person or department they require. The service provides
fully automated call handling and often allows businesses to reduce or eliminate
the cost of receptionist personnel. We believe that the service is particularly
valuable to businesses with multiple locations in the same local calling area
since all those businesses can now be linked through one central access
telephone number. In the future we expect speech recognition technology to play
a significant role in this type of service.
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Calling Card Functionality/Call Origination Capability. Subscribers can
make local or long distance calls from within their voice mailbox. When they
terminate a call, they are returned to the mailbox and may continue listening to
other messages or make further calls.
Live Operator Telephone Answering Services. In Indianapolis we offer a
24/7 "live operator" answering service. There are many situations in which live
answering is considered superior to automated message taking. Live answering is
often used in situations where human judgment is required -- for example, a late
night doctor's answering service. We intend to expand the Indianapolis live
answering service to serve our other geographic markets so that we can offer a
total messaging solution to our customers in all markets.
"Adtracker" Advertising Analysis Tool. With each Adtracker service
package, a business customer is provided with a block of five local telephone
numbers. Each different advertisement placed by the business lists a separate
contact telephone number, which is not the advertiser's main office telephone
number. When callers dial any of the numbers in response to the advertising, the
call passes momentarily through our system and is immediately transferred to the
advertiser's main office telephone number and handled in the normal way. The
transit of the call through our equipment generates a call record that is
printed through our billing system in the form of a monthly call log. The log
gives time and date information for every call passing through the system. By
comparing the call logs to the advertising, our customers can identify patterns
in the responses and determine how best to buy advertising in the future.
Current Services Sold by Us But Provided by Other Telecommunications Service
Providers.
Local and Nationwide Toll Free Access to all Services. All subscribers
receive a local telephone number to access their messaging system from within
their local calling area. Subscribers who travel outside their local calling
area may purchase a dedicated "888" number to facilitate easy message retrieval.
We bill the toll charges on their monthly bill.
Paging Services. We are an authorized reseller of alphanumeric and numeric
paging services of several national carriers including Paging Network, Inc.,
Mobilcomm, Arch Communications and Contact Communications. Pagers are used
extensively for notification of new messages and to advise of Constant Touch
callers awaiting attention.
Mobile Telephone Services. We are an authorized agent for the sale of
mobile telephone service and handsets for several national airtime providers
including Verizon Wireless, Nextel Communications and Voicestream Wireless. We
seek to sell these products to our customers in connection with our voice
messaging service, which integrates extensively with mobile telephone service.
Telephone Systems. We are an authorized sales agent for Vodavi
Communications telephone systems and seek to provide sales and service to our
business customers as a method of generating incremental revenues and
strengthening our customer relationships.
Long Distance Service. We are an authorized agent for several long
distance carriers including Qwest Communications and Frontier Communications.
Local Dial Tone Service. We are an authorized agent for Access Integrated
Networks, a provider of local telephone services.
Planned Future Services and Features to be Provided on Our Glenayre Messaging
Equipment.
Voice Activated Commands to Control our Automated Messaging Service. At
the present time, almost all voice-messaging systems respond to tones created by
key presses on the Dial Tone Modulated Frequency or "DTMF" keypad. The exclusive
use of the DTMF keypad has significant disadvantages to the mobile user who may
often wish to use the messaging system when driving or performing other complex
tasks. The use of speech recognition technology will allow subscribers to simply
speak commands to the messaging system rather than using key presses. In
addition to the benefits to mobile users, the use of speech recognition will
facilitate faster navigation through complex menus and offer more intuitive
access to less frequently used functions of the
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messaging system. We believe that speech recognition technology is one of the
most exciting developments in the messaging industry. We expect to offer
services using speech recognition technology in early 2001.
Unified Messaging Service for Voice Messages, Fax Messages and Internet
Based E-Mail. Glenayre is developing a unified messaging service that will
store Internet e-mail messages alongside existing voice and fax messages in one
mailbox. The service will allow our subscribers to retrieve e-mail messages over
the telephone, through a fax machine, or through their personal computer. Fax
messages can be downloaded to a fax machine or a personal computer, anywhere in
the U.S. Voice messages can be played over the telephone or through a personal
computer via the Internet. Messages of all types can be downloaded to a laptop
computer, responses formulated, and then the responses uploaded to the messaging
system for distribution to other parties as required. We expect to begin
offering unified e-mail messaging in early 2001.
DISTRIBUTION METHODS AND INSTALLATION OF NEW SERVICE ORDERS
Business Services. Some of our business customers buy service from our
small base of independent sales agents. However, we sell most of our business
products and services through our local internal sales representatives using the
following methodology:
- We introduce ourselves by telemarketing carefully targeted business
demographics from our central business telemarketing center in
Indianapolis. We schedule face-to-face appointments for our local sales
representatives to visit potential customers to determine if our services
can be usefully deployed.
- Our trained sales people attend these appointments and analyze how each
business uses local phone lines, pagers, mobile phones and the Internet
to communicate with their employees, customers, suppliers and others. Our
sales personnel then custom design messaging and call routing services
that can improve the way that business communicates. Virtually every
customer has different requirements and we find that we can help most
businesses in some way.
- Our contracts have an initial term of twelve months and become
month-to-month at expiration of the initial term. Once a contract is
signed, installation commences.
- Our customer service department programs our messaging equipment to
achieve the messaging and call routing model designed by the sales
person.
- Once complete, a trainer visits the customer at its location and teaches
its employees how to use the service to best effect, and assists with the
recording of appropriate greetings and outgoing messages.
- Once training is completed, we place call-forwarding orders with the
local telephone company on behalf of the customer to begin transferring
calls to our messaging equipment in accordance with the routing model.
- Once call-forwarding is established, we carefully check that all service
linkages are working correctly and confirm the successful installation
with the customer. Once this is done, our installation is complete. The
whole sales cycle and installation process can be completed in as little
as one week.
Consumer Services. Consumer messaging services are less complicated than
business service and can be sold over the telephone without a face-to-face
meeting with a sales agent. Therefore, we can sell residential messaging and
paging services anywhere in the country from our telesales operation in
Indianapolis, Indiana. Our call center has the physical infrastructure to
accommodate 82 sales agents. Currently, we have approximately 40 sales agents.
We call homes between the hours of 12:00 p.m. and 8:00 p.m. to invite them
to buy our voice mail service. We are extremely careful not to pressure people
unduly, and not to accept orders from unauthorized persons or minors. For
verification purposes we make a recording of new customers who accept our
service. We have a zero tolerance policy for "cramming," which is the practice
of adding unauthorized charges to customers' telephone bills.
Once a residential customer purchases service, we send a "welcome pack,"
which includes an operating manual and precise instructions on how to set up the
mailbox, which are very simple and easy to follow. We
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immediately place a call-forwarding order with the local Bell telephone company
and service is established within two to three days. Approximately one week
after the sale, we telephone the customer to check proper function of the system
and to confirm complete satisfaction. During that follow-up call we also offer
the opportunity to purchase a digital pager for prompt notification of new
messages within the local area.
Our cost of selling and installing services for new customers in the
residential voice mail market is lower than the business market because
everything is done over the telephone and through the mail, with no personal
visit.
CUSTOMER BASE
Our business customer base consists primarily of small businesses that have
between one and 50 employees. This customer base includes many diverse business
types. We have approximately 10,000 business customers with approximately 44,000
users. No single customer accounts for more than 0.1% of our total monthly
revenues. Our typical business customer has five to ten employees. In addition,
we have approximately 35,000 residential customers.
We track customers who cancel our services so that we may take appropriate
action to correct any perceived deficiencies in our service or respond to
competitive threats. We find that we rarely lose customers to other service
providers. The customers generally cancel service because they are either moving
out of our service area, going out of business, or have grown to a size where
they have decided to purchase a voice mail system of their own.
Unlike some other telecommunications services such as paging and mobile
telephones, all of our networks are custom designed and vary in price from
system to system. As a consequence, we have found that measuring customer
attrition in terms of number of subscribers is not useful. To calculate our
attrition rate or "churn," as it is sometimes called in our industry, we
continually calculate movements in our overall subscriber revenue base after
removing the effects of new sales. In fiscal 1998, we calculated a churn rate of
1.21% per month, which would give a projected customer life of approximately 83
months. In fiscal 1999, we improved our overall churn rate to 0.35% per month,
giving a projected average customer life of almost 24 years. We have not yet
established these tracking systems in the companies we acquired since our fiscal
1999 year-end. We intend to introduce these systems and monitor churn carefully
in all our markets and business areas in the future.
KEY SUPPLIERS, TECHNOLOGY AND MANAGEMENT INFORMATION SYSTEMS
Equipment. Glenayre manufactures our voice messaging systems. Currently,
we have nine Glenayre Modular Voice Processing systems, which are reliable,
relatively easy to maintain and have historically experienced minimal downtime.
We employ technicians who provide support for the Glenayre systems. In addition,
Glenayre provides technical support via a direct modem link when necessary and
provides periodic software upgrades to insure that we continue to offer updated
services. There are several other manufacturers of voice messaging equipment
that could supply our equipment needs if Glenayre were unable or unwilling to do
so for any reason. We make no expenditures on research and development of any
kind.
On June 30, 2000, we entered into a volume purchase agreement with
Glenayre. The volume purchase agreement provides that we must purchase $2.5
million of voice messaging equipment from Glenayre by June 30, 2003. We have
deposited $800,000 with Glenayre for these purchases. The volume purchase
agreement is exclusive, however, we are permitted to purchase equipment from
other vendors if Glenayre does not manufacture equipment that satisfies a
particular application or if Glenayre fails to manufacture unified messaging
equipment in compliance with standards set forth in the agreement. As of
December 21, 2000, we had purchased or committed to purchase $636,000 of
equipment towards satisfying this obligation. Glenayre owns approximately 6.5%
of our outstanding common stock.
Interconnection with Public Switched Networks. Our voice messaging systems
are linked to the public switched telephone network using digital two-way direct
inward dial telephone lines. Several telecommunications carriers provide these
interconnection services, including: Qwest Communications, Ameritech, BellSouth,
Frontier Communications and BTI. Due to the deregulation of the
telecommunications industry in 1996, we
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believe that we will experience an increasing number of potential alternative
suppliers for our interconnection needs and our interconnection costs may
decrease over the coming years.
Management Information Systems. We use an internally developed proprietary
software package called "Encore" to maintain inventories of telephone numbers
and to bill our customers each month. Encore was specifically developed to
interface with the Glenayre MVP Messaging System to interpret call detail
records and to generate usage-based charges for certain services.
COMPETITION
Current Competition. The local Bell telephone companies have the largest
share of the voice messaging services market and therefore constitute our
primary competitors today. We obtain most of our small business customers by
offering traditional voice messaging services that compare favorably with those
provided by the local telephone companies in the following ways:
- We offer live answering service, consolidated messaging service, one
number service and other applications and features that are not currently
offered by the local Bell telephone companies.
- Our sales agents conduct a comprehensive analysis of every prospective
customer's needs and custom design a voice messaging service to meet
those specific needs. Generally, the local Bell telephone companies do
not offer this type of individual analysis.
- Our voice messaging service includes more standard features than the
local Bell telephone companies.
- We send customer trainers to teach new subscribers how to best use our
messaging services. The local Bell telephone companies offer only
telephone-based support.
- We maintain a well-trained customer service staff that specializes in
providing messaging services. By comparison, the local Bell telephone
companies' customer service staff generally deals with a wide range of
telephone line issues and, therefore, is not as knowledgeable as our
specialist representatives.
- We provide free help in reorganizing service configurations, adding users
to, or deleting users from a network or simply helping customers
understand the best way to use the voice messaging services. The local
Bell telephone companies charge their customers whenever any service
adjustment is required.
- In some market areas we charge less than the local Bell telephone
companies for what we believe is a superior service.
Future Competition. We believe that the technological changes taking place
in the messaging industry will change the competitive landscape and enable
specialist messaging service providers like us to capture a larger market share
than we have today. The new services described above require the provider of the
messaging services to maintain complex messaging networks that interact with a
broad range of other telecommunications services supplied by many different
service providers. We believe that the provision and maintenance of the new
services involves a level of complexity that is unattractive to the local Bell
telephone companies and that they may be unable to compete successfully in this
service category.
In the future we expect to experience more active competition for unified
messaging customers from wireless service providers and Internet service
providers than from the local Bell telephone companies. We believe that we can
compete effectively against these two groups because:
- to operate an effective company messaging system requires every person in
the company to have a mailbox -- including staff who never leave the
office. Its far less expensive for a small company to purchase a
messaging service for everyone than to subscribe to a wireless service
for personnel who have no use for mobile communications;
- wireless providers typically offer messaging services aimed at maximizing
airtime consumption. Therefore, they do not support off-network traffic
as well as our service offerings do; and
- Internet service providers typically have minimal experience with the
complex messaging systems commonly associated with a public switched
telephone network, which is essential to establish and
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maintain an effective messaging system. We believe that they may not
consider the size of this market to be worth the significant effort and
expense necessary to gain this expertise.
BILLING OF SERVICES
Business Services. We offer our business customers a variety of flexible
billing options including monthly invoices, credit card, direct charge to bank
account, annual prepay and, in some areas, billing on the local telephone bill.
Most services provided to our business customers are billed directly by us on a
monthly basis and we undertake all accounts receivable and collections activity
internally. Some business customers in the Atlanta area are billed on their
BellSouth telephone bill. As we continue with our acquisition plan, we believe
that significant efficiencies and economies of scale can be obtained in the area
of billing and collections by centralizing all billing, accounts receivable and
collections activities at our Denver operations center.
Consumer Services. Monthly charges for most of our consumer messaging
customers are added to their local telephone service bill through an arrangement
with Integretel Inc., a "consolidator" of third party telephone charges. Through
this arrangement we are able to cost effectively bill and receive payment for
small charges that average approximately $6.00 per household. In areas where we
do not have a consolidator for consumer billing, we offer billing arrangements
similar to those provided to businesses.
GEOGRAPHIC GROWTH THROUGH ACQUISITION OF BASIC VOICE MAIL SERVICE PROVIDERS
Our business model depends on having locally situated voice mail systems in
each market we serve so that subscribers can check messages without incurring
long distance charges.
In each market we need employees who are experienced in the provision of
local voice mail services and in the differences that exist in the local
telephone, paging and mobile services infrastructure. We believe it is most
efficient for us to gain this knowledge and experience by acquiring one or more
existing voice mail companies in each new market that we wish to serve.
We believe that there are over 4,200 voice mail companies around the
country that are potential acquisition targets. We believe that the opportunity
for these business owners to combine their businesses with ours can be
attractive to them for several reasons:
- Over the next few years they will have to make substantial expenditures
on unified messaging equipment to avoid becoming obsolete. Many small
companies have inadequate financial resources to make such an investment.
- They will likely cause their customers inconvenience as they require them
to move from older voice mail systems to new systems capable of unified
messaging. This transition can be made more acceptable to customers in
the context of a change of ownership.
- They will receive a capital sum for their business. However, we generally
require management to continue their employment with us for at least one
year after the acquisition to facilitate integration.
To date, we have completed five acquisitions. We currently provide
messaging services in Denver, Indianapolis, Chicago, Detroit, Raleigh, Atlanta
and Fort Lauderdale.
<TABLE>
<CAPTION>
COMPANY NAME LOCATIONS SERVED ACQUISITION DATE
------------ ---------------- ----------------
<S> <C> <C>
Voice Services, Inc. ................ Denver February 1996
Hellyer Communications, Inc. ........ Indianapolis, Detroit, and Chicago November 1999
One Touch Communications, Inc........ Raleigh January 2000
VoiceLink, Inc. ..................... Atlanta March 2000
VoiceLink of Florida, Inc. .......... Ft. Lauderdale May 2000
</TABLE>
In the long term, it is our intention to provide service using Glenayre
messaging equipment exclusively. When we purchase a company using other
technology, we intend to replace it with a Glenayre system and offer its
customers the more advanced services of which the Glenayre system is capable.
Although transitioning customers from one messaging system to another is not
without risks and expense, our experience in transitioning
9
<PAGE> 12
customers from old systems to new Glenayre based services has been positive. In
some cases, we can achieve significant increases in revenue when we upgrade
basic voice mail customers to higher-priced advanced services.
It is our intention to change the name and corporate identity of each
acquired business to Multi-Link Communications, Inc. to be consistent throughout
the United States.
We intend to use most of the proceeds from this offering to acquire other
voice messaging companies around the country. We anticipate that we will
continue to use a mixture of cash, assumed debt, vendor financing, and the
issuance of common stock to complete future acquisitions.
LOCAL GROWTH THROUGH ACQUISITION OF BASIC VOICE MAIL SUBSCRIBER BASES
Once we have established a presence in any local market, we plan to make
further acquisitions of voice messaging subscriber bases. In most cases, we will
transfer the acquired customers to our Glenayre messaging systems and close the
offices of the acquired business.
Often, we will be able to serve the new customers on our existing network
infrastructure without incurring additional costs. In situations where we
purchase customer bases that have historically used nothing more than basic
voice mail, we believe we can sell additional services and generate more revenue
from the customer base than it has historically achieved.
The price we pay to acquire their subscribers is based upon the historic
operating cash flow of the business and not the increased net cash flow once we
have moved the customers to our network and eliminated their costs. Thus, the
purchase price for acquisitions of subscriber bases has a lower effective
multiple of cash flows than for acquisitions of operating businesses where the
expenses remain after the acquisition.
To date, we have completed three acquisitions of this type. These
acquisitions are made in the ordinary course of business and are not considered
material.
<TABLE>
<CAPTION>
COMPANY NAME LOCATIONS SERVED ACQUISITION DATE
------------ ---------------- ----------------
<S> <C> <C>
Bolder Voice Inc. .................................... Denver June 1999
BFG of Illinois, Inc. d/b/a Cashtel, Inc. ............ Chicago November 1999
Amerivoice, Inc. ..................................... Chicago November 2000
</TABLE>
CENTRALIZATION OF KEY OPERATING FUNCTIONS
We believe that we can gain operating efficiencies from the centralization
of certain functions of acquired voice mail providers.
Indianapolis, Indiana. Indianapolis is the headquarters for the following
activities:
- marketing department supporting both business and residential services in
all geographic locations;
- business-to-business telemarketing department making initial contact with
small businesses and setting face-to-face sales appointments for our
direct sales forces in all geographic locations;
- business-to-business telesales department selling single mailbox
messaging services to businesses with one to three employees;
- business-to-business live answering service operating 24 hours a day, 365
days a year currently servicing Indianapolis, and which may serve all
geographic areas in the future;
- residential telesales department selling home messaging services in all
geographic areas; and
- residential customer service department servicing home messaging
customers in all geographic areas.
Business customer service will continue to be handled locally in each
market. We believe that the local expertise regarding the complex interactions
between messaging services and other telecommunications services will continue
to be our key competitive advantage over the local Bell telephone companies, and
that this cannot be effectively delivered on a centralized basis.
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<PAGE> 13
Denver, Colorado. Denver is the headquarters for all our administrative
activities. We plan to centralize billing, accounts receivable, collections and
accounting in Denver by the end of calendar year 2001.
STRATEGIC RELATIONSHIPS
We believe that our short operating history and lack of substantial capital
resources have prevented us from establishing strategic relationships with other
telecommunications service providers in the past.
Sales Relationships. We intend to explore the possibility of partnering
with larger telecommunications companies to offer our advanced messaging
services to their business and residential customers. We believe it may be
attractive to competitive local telephone companies and Internet service
providers to partner with us to bring these complicated services to their
customers, rather than to develop their own expertise and capabilities in this
area.
Interconnection Relationships. We intend to explore strategic partnerships
with one or more competitive local telephone companies who might offer us lower
cost arrangements for interconnection with the public switched telephone network
than we currently have.
Equipment Provider Relationship. We believe that our partnership with
Glenayre insures that we remain on the forefront of messaging technology, and
that it may lead to broader business opportunities. Glenayre, the provider of
our voice messaging equipment, owns approximately 6.5% of our outstanding common
stock and we have entered into a volume purchase agreement to purchase $2.5
million worth of Glenayre equipment through 2003.
INTELLECTUAL PROPERTY
We hold no patents or patent applications. We have received a trademark
registration from the U.S. Patent and Trademark Office for our Multi-Link logo.
GOVERNMENT REGULATION
We are not regulated by any governmental authority in the provision of our
services, which are classified as "deregulated services" under the terms of the
Telecommunications Act of 1996. We believe that the government is decreasing its
level of regulation over the telecommunications industry and that additional
legislation or regulation affecting our business is unlikely.
We hold a Radio Common Carrier license at our VoiceLink subsidiary
operating in Atlanta, Georgia. This license entitles us to lower our public
switched telephone network interconnection costs. We may seek such licenses in
other cities where we provide service in the future.
We have incurred no costs of any kind in complying with environmental laws
and regulations imposed by any local, state or federal governmental body.
EMPLOYEES
As of December 21, 2000, we had 162 full-time and 5 part-time employees. We have
no union or collective bargaining agreements with our employees and we consider
employee relations to be excellent.
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<PAGE> 14
ITEM 2. DESCRIPTION OF PROPERTIES
Our corporate office and principal operating facility is presently located
at 4704 Harlan Street, Suite 420, Denver, Colorado 80212. Currently, we lease
the following facilities, containing, in the aggregate, approximately 42,507
square feet.
<TABLE>
<CAPTION>
PROPERTY YEAR LEASED SQUARE FEET EXPIRATION DATE RENT/MONTH
-------- ----------- ----------- --------------- ----------
<S> <C> <C> <C> <C>
Denver................................. 1999 6,059 February 13, 2006 $ 8,695
Indianapolis........................... 2000 27,500 April 21, 2005 35,969
Raleigh................................ 1997 3,182 June 28, 2001 4,100
Atlanta................................ 1997 4,864 May 14, 2002 4,053
Fort Lauderdale........................ 2000 902 September 30, 2005 902
</TABLE>
We believe that our facilities are satisfactory for our purposes and in
good condition.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to any legal proceedings of any kind.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted by us to a vote of our security holders during
the fourth quarter of our fiscal year ended September 30, 2000.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock trades on the Nasdaq SmallCap Market under the symbol
"MLNK." Our currently outstanding public warrants trade on the Nasdaq SmallCap
Market under the symbol "MLNKW." The table below sets forth for the quarters
indicated the high and low per sale share price of common stock and warrants
since we listed the common stock and warrants on the Nasdaq SmallCap Market on
May 14, 1999.
<TABLE>
<CAPTION>
COMMON STOCK WARRANTS
---------------- -----------------
HIGH LOW HIGH LOW
------- ------ -------- ------
<S> <C> <C> <C> <C>
Fiscal 1999 ended September 30, 1999:
Third Fiscal Quarter (from May 14, 1999)............... $ 9.750 $6.250 $1.094 $0.563
Fourth Fiscal Quarter.................................. 7.375 6.063 0.906 0.500
Fiscal 2000 ending September 30, 2000:
First Fiscal Quarter................................... 7.969 6.000 0.750 0.438
Second Fiscal Quarter.................................. 14.250 7.875 2.813 0.625
Third Fiscal Quarter................................... 13.875 9.000 2.375 0.906
Fourth Fiscal Quarter.................................. 10.250 7.125 1.516 0.531
</TABLE>
Last Reported Price. On December 21, 2000, the last reported bid price of
the common stock and warrants reported on the Nasdaq SmallCap Market was $4.375
per share and $0.125 per warrant, respectively.
Holders. As of December 21, 2000, there were 47 holders of record of the
common stock and 4 holders of record of the warrants. We believe that we have in
excess of 850 beneficial owners of our common stock.
Dividends. We have not paid or declared cash distributions or dividends on
our common stock and do not intend to pay cash dividends in the foreseeable
future. Future cash dividends will be determined by our board of directors based
upon our earnings, financial condition, capital requirements and other relevant
factors.
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<PAGE> 15
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto and the other financial
information included elsewhere in this report. This discussion contains forward-
looking statements that involve risks and uncertainties. Our actual results
could differ materially from those anticipated in these forward looking
statements as a result of any number of factors, including those set forth under
"Risk Factors" and elsewhere in this prospectus.
OVERVIEW
We provide basic voice mail, call routing, advanced integrated voice and
fax messaging, and live answering services to small businesses in several major
urban markets. These services enable businesses to improve the handling of
incoming calls and facilitate more efficient communication between employees,
customers, suppliers and other key relationships. We also provide basic voice
mail and paging services to consumers.
Our strategy is to offer a total messaging solution that is custom designed
to meet the specific needs of each customer. Our customers can begin with basic
voice mail services, and then upgrade to more advanced services as their needs
change, or as they become willing to consider more advanced and higher-priced
messaging solutions. These messaging services comprise approximately 95% of our
revenue and include:
- basic automated voice mail services;
- call routing services;
- live operator answering services; and
- automated messaging services that integrate voice and fax messages.
Beyond these core messaging services, we expect to expand our product line
in 2001 with voice activated service access and unified messaging. "Unified
messaging" is an electronic mailbox that can gather and store messages from
home, office, and mobile devices. It can store voice messages, fax messages and
Internet based e-mail messages. The mailbox can then replay these stored
messages to different electronic devices including land line telephones, mobile
phones and other mobile devices, computers and fax machines.
In addition to messaging services, we also sell other services and products
that link into our messaging services. In some cases, we act as agents for other
telecommunications companies and receive sales commissions, and in other cases
we purchase services and resell them to our customers. These products and
services account for approximately 5% of our revenues. These services include:
- pagers and paging services;
- mobile telephones and mobile telephone services;
- local dial tone services;
- long distance telephone service; and
- telephone systems.
Our revenues are primarily derived from receiving fixed monthly service
fees for voice mail and sales of ancillary telecommunications services such as
paging. We recognize revenues as we deliver services. Annual prepayments by
subscribers are recognized over the period covered by the prepayment on a
straight-line basis.
Our primary costs of delivering our voice messaging services to our
subscribers are our voice messaging systems, maintenance costs and the costs of
interconnection to the public switched telephone network. Most of our general
and administrative expenses are incurred in the processing and servicing of new
subscriber accounts.
We currently sell a small portion of our services through independent sales
agents and the majority through our internal sales force. All salaries and
commissions associated with our in-house sales force are expensed as incurred.
All commissions paid to independent sales agents for procuring subscribers are
capitalized and
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<PAGE> 16
amortized. We amortize these subscriber account acquisition costs over the
estimated economic life of subscriber accounts or 36 months, whichever is less.
We plan to continue to increase revenues by increasing the number of sales
agents and our internal sales force that offer our voice messaging services, by
increasing the range of telecommunications services we offer to our customers,
and by acquiring companies in the voice messaging industry. After completing an
acquisition, we plan to convert the operations of the acquired company to
conform to our current business model, where economically feasible.
From inception through September 1998, we financed our operations and net
losses through factoring of customer contracts and working capital loans
provided by CS Capital Corp. at implied interest rates of up to 52% per annum.
In September 1998, we refinanced most of our indebtedness to CS Capital Corp.
with a five-year term loan from Westburg Media Capital LP. The Westburg loan has
an interest rate of 3% over prime rate per annum. In May 1999, we repaid all but
$10,000 of the Westburg loan from the proceeds of our initial public offering
and, as a result, experienced significantly lower net interest expense in fiscal
1999 than in prior years. Subsequently we have drawn down a further $1.56
million under this facility to finance our program of acquisitions and for
working capital.
ACQUISITIONS
On November 17, 1999, we acquired substantially all of the business and
assets and certain liabilities of Hellyer Communications, Inc., a provider of
basic voice messaging services in Indianapolis, Detroit and Chicago. The
acquisition was accounted for as a purchase and as a result, our financial
statements include the revenues and expenses of Hellyer from the date of
acquisition through September 30, 2000.
On January 6, 2000, we acquired substantially all of the business and
assets and certain liabilities of One Touch Communications, Inc., a provider of
voice messaging services in Raleigh, North Carolina. The acquisition was
accounted for as a purchase and as a result, our financial statements include
the revenues and expenses of One Touch from the date of acquisition through
September 30, 2000.
On March 31, 2000, we acquired all of the outstanding capital stock of
VoiceLink, Inc., a provider of advanced voice messaging services to businesses
in Atlanta, Georgia. The acquisition was accounted for as a pooling of interests
and as a result, the results of the VoiceLink business have been consolidated
with ours, as if the two businesses had been merged throughout the periods
presented. One of the assets of VoiceLink was 50% of the outstanding capital
stock of VoiceLink of Florida, Inc.
On May 1, 2000, we acquired the remaining 50% of the outstanding capital
stock of VoiceLink of Florida, Inc., a provider of advanced voice messaging
services to businesses in Ft. Lauderdale, Florida. The equity income (loss) of
VoiceLink of Florida, Inc. was not significant to us and has been included in
interest income (expense), net within the consolidated statements of operation
and comprehensive income. The acquisition of the remaining 50% of the capital
stock of VoiceLink of Florida, Inc. was accounted for as a purchase and as a
result, the results of VoiceLink of Florida, Inc. have been included with ours,
effective May 1, 2000.
Once we have established a presence in any local market, we plan to make
further acquisitions of basic voice messaging subscriber bases. In all cases, we
will transfer the acquired customers to our Glenayre messaging systems and close
the offices of the acquired business. To date we have completed three of these
acquisitions.
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<PAGE> 17
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationship to net revenues of certain items in our consolidated statements of
operations and comprehensive income (loss).
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
---------------
1999 2000
------ ------
<S> <C> <C>
Net revenues................................................ 100.00% 100.00%
Cost of services and products............................... 17.12 20.94
------ ------
Gross margin................................................ 82.88 79.06
------ ------
Sales and advertising expense............................... 8.75 13.12
General and administrative expense.......................... 47.67 49.06
Pooling expenses............................................ -- 1.07
Moving expenses............................................. -- 1.08
Depreciation expense........................................ 3.04 4.01
Amortization expense........................................ 5.03 8.85
------ ------
Total operating expenses.......................... 64.51 77.21
------ ------
Income (loss) from operations............................... 18.38 1.85
Interest income (expense)................................... (5.99) (2.89)
------ ------
Income (loss) before income taxes........................... 12.39 (1.05)
Provision for income taxes.................................. (1.47) (0.10)
Net income (loss)........................................... 10.92 (1.15)
------ ------
EBITDA...................................................... 26.46% 14.71%
------ ------
</TABLE>
The row entitled "EBITDA" reflects net income or loss before depreciation,
amortization and interest expense, income taxes and other non-cash charges.
EBITDA is a measure used by analysts and investors as an indicator of operating
cash flow because it excludes the impact of movements in working capital items,
non-cash charges and financing costs. However, EBITDA is not a measure of
financial performance under generally accepted accounting principles and should
not be considered a substitute for other financial measures of performance.
FISCAL YEAR ENDED SEPTEMBER 30, 2000 COMPARED TO YEAR ENDED SEPTEMBER 30,
1999.
From inception through September 30, 1999 we operated in Denver only. On
March 31, 2000, we completed the acquisition of VoiceLink, Inc. in Atlanta and
this acquisition was accounted for as a pooling of interests. In accordance with
accounting rules we have restated all historic financial statements to include
VoiceLink as if the two companies had been merged since inception. References in
this analysis to "existing business" therefore include VoiceLink. References to
acquisitions made during the fiscal 2000 year include the acquisitions of
Hellyer Communications, One Touch Communications and VoiceLink of Florida.
Net Revenues. Net revenues for the year ended September 30, 2000, were
$11,284,000 compared to $4,589,000 for the fiscal year ended September 30, 1999,
an increase of $6,695,000 or 146%. $6,342,000 of this increase came from
acquisitions completed during the year and $353,000 came from the steady
internal net growth in the base of customers at our existing businesses.
Cost of Services and Products. Cost of services and products for the
fiscal year ended September 30, 2000 was $2,363,000 compared to $786,000 for the
fiscal year ended September 30, 1999, an increase of $1,577,000 or 201%.
$1,684,000 of this increase came from acquisitions completed during the year and
a decrease of $107,000 was attributable to lower costs of connecting our voice
messaging equipment to the public switched telephone network.
Gross Margin. Gross margin for the fiscal year ended September 30, 2000
was $8,921,000 compared to $3,803,000 for the fiscal year ended September 30,
1999, an increase of $5,118,000 or 135%. The overall gross profit margin as a
percentage of net revenues decreased from 83% to 79%. The decrease in gross
margin resulted
15
<PAGE> 18
from the acquisition of Hellyer Communications, Inc. completed during the year.
Hellyer has a large residential service component to its business, which
operates at lower gross margins than the exclusively business customers we have
served in prior periods. The gross margin on the existing businesses increased
to 86% in 2000 compared to 83% in 1999. The increase was attributable to lower
costs of connecting our voice messaging equipment to the public switched
telephone network.
Sales and Advertising Expenses. Sales and advertising expenses for the
fiscal year ended September 30, 2000 were $1,482,000 compared to $402,000 for
the fiscal year ended September 30, 1999, an increase of $1,080,000 or 269%.
$936,000 of this increase came from acquisitions completed during the year and
$144,000 came from increases in sales and advertising expenditures within the
existing businesses due to increased numbers of employed sales representatives.
General and Administrative Expenses. General and administrative expenses
for the fiscal year ended September 30, 2000 were $5,536,000 compared to
$2,188,000 for the fiscal year ended September 30, 1999, an increase of
$3,348,000 or 153%. $2,946,000 of this increase came from acquisitions completed
during the year. The remaining $402,000 came from increases in professional fees
and management remuneration in the existing businesses largely arising from the
fact that fiscal 2000 was the first full year that we were a publicly traded
company with the inevitable increases in professional fees and administrative
costs relating to legal, regulatory and accounting issues.
Pooling Expenses. During the year ended September 30, 2000 we incurred
professional fees in connection with the acquisition of VoiceLink, Inc. of
$121,000. Because the acquisition was accounted for as a pooling of interests
all the costs of the acquisition were expensed rather than capitalized. No such
expenses were incurred in the year ended September 30, 1999. The expenses of the
VoiceLink pooling will not recur in the future.
Moving Expenses. During the year ended September 30, 2000 we relocated the
offices of Hellyer. The costs incurred in respect of this relocation totalled
$122,000. No such expenses were incurred in the year ended September 30, 1999.
The expenses of the moving of the Hellyer offices are not anticipated to recur
in the future.
EBITDA -- Earnings Before Interest, Tax, Depreciation, and
Amortization. EBITDA for the fiscal year ended September 30, 2000 was
$1,660,000 compared to $1,214,000 for the fiscal year ended September 30, 1999,
an increase of $446,000 or 37%. Acquisitions completed during the year added
$909,000 offsetting a decrease of $463,000 within the existing businesses. The
causes of the decrease within the existing businesses are described above.
Depreciation Expense. Depreciation expense in the fiscal year ended
September 30, 2000 was $453,000 compared to $140,000 for the fiscal year ended
September 30, 1999, an increase of $313,000 or 224%. $234,000 of this increase
came from acquisitions completed during the year and $79,000 came from increases
due to increased spending on capital equipment during the year.
Amortization Expense. Amortization of subscriber accounts, non-compete
agreements, consulting agreements and goodwill was $998,000 for the fiscal year
ended September 30, 2000 compared to $231,000 for the fiscal year ended
September 30, 1999, an increase of $767,000 or 332%. $583,000 of this increase
was due to the increased amortization of goodwill, non-compete agreements and
consulting agreements relating to acquisitions completed during the year, and
$184,000 was due to increases in amortization of subscriber account acquisition
costs within the existing businesses.
Income from Operations. Income from operations was $208,000 for the fiscal
year ended September 30, 2000 compared to $843,000 for the fiscal year ended
September 30, 1999, a decrease of $635,000, or 75%, due to the factors discussed
above.
Interest Income (Expense), Net. Net interest income (expense) for the
fiscal year ended September 30, 2000 was $(326,000) compared to $(275,000) for
the fiscal year ended September 30, 1999, an increase of $51,000 or 19%. The
increase was attributable to higher levels of borrowing during the year
resulting from expenditures on acquisitions and messaging equipment.
Provision for Income Taxes. The provision for income taxes for the fiscal
year ended September 30, 2000 was $11,000 compared to $67,000 for the fiscal
year ended September 30, 1999, a decrease of $56,000 or 84%.
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<PAGE> 19
In 1999 our VoiceLink subsidiary paid taxes as an independent company, whereas
in fiscal 2000 our net operating losses from elsewhere within the group
significantly sheltered its earnings. This resulted in a lower overall group tax
charge. As of September 30, 2000 we had approximately $2,310,000 of net
operating losses that are available for offset against future net profits. These
losses, unless utilized, expire between 2011 and 2019 and certain of the loss
carryforwards are subject to restrictions following the completion of the public
offering.
Net Income (Loss) and Comprehensive Income (Loss). We reported a net loss
of $(129,000) for the fiscal year ended September 30, 2000, compared to a net
profit of $501,000 for the fiscal year ended September 30, 1999, a decrease of
$630,000, or 126%, due to the factors outlined above. The comprehensive loss for
2000 was $(119,000), $10,000 less than the net loss of $(129,000). The net
profit in 1999 was $501,000 compared to a comprehensive net profit of $490,000.
The difference of $10,000 in 2000 and $11,000 in 1999 relates to unrealized
losses on our portfolio of marketable securities, which are held as available
for sale investments.
CASH FLOW INFORMATION
For the twelve months ended September 30, 2000, net cash used in operations
was $(140,000) compared to cash provided by operations of $679,000 for the
twelve months ended September 30, 1999. The decrease of $819,000 was primarily
due to (a) an increase of $1,311,000 of cash tied up in operating assets and
liabilities, offset by (b) increased cash flow from operating activities of
$492,000. The increase in funds tied up in operating assets and liabilities
arose from (i) a $601,000 increase in accounts receivable due to the use of a
third party billing company used to invoice our residential customers, which
results in a three to four month delay in receiving payment in respect of these
services, (ii) a $270,000 decrease in deferred revenue from the discontinuance
of a prepayment program ay Hellyer Communications, (iii) an increase of $265,000
in prepaid expenses relating mainly to costs of the planned equity offering, and
(iv) a decrease of $128,000 in accounts payable and accrued expenses. The
$492,000 increase in cash from operating activities arose largely due to the
$630,000 reduction in net income, offset by increased depreciation and
amortization charges of $1,096,000 and $26,000 of other non-cash items.
Net cash used in investing activities was $2,838,000 in the year ended
September 30, 2000, $2,302,000 less than the $5,140,000 used in investing
activities in the prior year. In fiscal 2000 we spent $3,030,000 on the
acquisition of businesses and subscriber accounts and $2,270,000 on the purchase
of fixed assets, compared to $665,000 and $610,000 respectively in the prior
year. In 2000 we partially funded these acquisitions through the sale of
$2,999,000 of marketable securities, whereas in the prior year we had purchased
$3,795,000 of available for sale marketable securities with the proceeds of our
initial public offering.
Cash flow from investing activities was $3,068,000 for the twelve months
ended September 30, 2000 compared to $4,407,000 in the prior year. In 1999 a net
total of $7,235,000 was generated from equity raising, primarily from our
initial public offering, with $2,828,000 used to repay borrowings. In 2000, we
raised $178,000 in cash through equity raising, with the balance of $2,890,000
coming primarily from increased borrowings.
LIQUIDITY AND CAPITAL RESOURCES
We continue to meet our capital requirements through cash provided from
continuing operations, the $1 million equity investment from Glenayre, a $2.1
million line of credit provided by Westburg and various long-term
equipment-leasing facilities.
As of September 30, 2000 we were current on our obligations to all lenders
and in compliance with all debt covenants. As of September 30, 2000 we had
available cash of $662,000, marketable investments, net of the related margin
facility, of $277,000, and available undrawn loan facilities of $590,000. In
addition, at September 30, 2000 we had $806,000 on deposit with Glenayre to be
used as partial payment for the future equipment purchase obligations described
below.
On June 30, 2000, we entered into a volume purchase agreement with
Glenayre. The volume purchase agreement provides that we must purchase $2.5
million of voice messaging equipment from Glenayre by June 30, 2003. As of
December 22, 2000 we had purchased $636,000 of equipment towards satisfying this
obligation.
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<PAGE> 20
We anticipate that our existing cash balances, marketable securities and
funds on deposit with Glenayre, together with internally generated funds from
operations and the Westburg revolving term loan will be sufficient to meet our
presently projected operating requirements for the next 12 months.
We plan to continue to acquire more companies involved in the messaging
industry. We intend to seek additional debt and equity financing to support our
acquisition programs in the future. On September 1, 2000 we filed a registration
statement on Form SB-2 with the Securities and Exchange Commission for an
underwritten follow-on public offering intended to result in gross proceeds of
$16,650,000. Due to adverse market conditions and a significant decline in the
price of our common stock since filing the registration statement the offering
has not been completed. We intend to amend the filing in early 2001 with the
objective of completing a smaller offering in the first quarter of 2001. Due to
continuing difficult conditions in the equity markets we do not expect this
offering to be completed until market conditions improve. There can be no
assurance that market conditions will improve adequately to enable the proposed
offering to be successfully completed.
ACCOUNTING PRONOUNCEMENTS
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
was issued in June 1998. This statement establishes accounting and reporting
standards for derivative instruments and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
This statement is effective for our financial statement for the fiscal year
ended September 30, 2001, and the adoption of this standard is not expected to
have a material effect on our financial statements.
In December 1999, the Securities and Exchange Commission (SEC) released
Staff Accounting Bulletin (SAB) 101, Revenue Recognition in Financial
Statements. SAB 101 establishes guidelines in applying generally accepted
accounting principles to the recognition of revenue in financial statements
based on the following four criteria; pervasive evidence of an arrangement
exists, delivery has occurred or services have been rendered, the seller's price
to the buyer is fixed or determinable, and collectibility is reasonably assured.
SAB 101, as amended by SAB 101B, is effective no later than the fourth quarter
of the Company's fiscal year ending September 30, 2001. The Company does not
believe that the adoption of SAB 101 will have a material effect on its
financial position or result of operations.
EFFECTS OF INFLATION
Although we cannot accurately anticipate the effect of inflation on our
operations, we do not believe that inflation has had, or is likely in the future
to have, a material effect on our operating results or financial condition.
SUBSEQUENT EVENTS
On October 15 we entered into a 60-month office lease in Fort Lauderdale,
Florida with total future rental payments of $57,457.
On November 14, 2000, Jerry L. Hellyer, to whom we loaned $300,000 in
November 1999 in connection with the acquisition of Hellyer Communications,
Inc., filed for Chapter 11 bankruptcy protection. We do not believe that his
action will affect our ability to collect this debt, which is secured by 150,000
Multi-Link shares of our common stock, with a value at December 21, 2000 of
approximately $600,000.
On November 20, 2000, we borrowed $565,000 in connection with a 48-month
equipment lease at an interest rate of 10.15% per year.
The deterioration in the financial markets has prevented us from raising
additional capital to pursue our acquisition strategy. As a result we began to
refocus our efforts towards generating significant levels of internal growth in
September 2000. Between August 30, 2000 and December 31, 2000 we have increased
the number of employees involved in sales and marketing activities from 53 in
August to 77 in December. The costs associated with these employees and other
expenses associated with achieving higher rates of internal customer growth will
significantly reduce our EBITDA profitability in the first quarter of fiscal
2000 ending December 31, 2000, and in subsequent quarters. We believe that the
focus on significant internal growth will build a more valuable company than our
focus on acquisition growth alone.
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<PAGE> 21
RISK FACTORS
You should be aware that there are various risks associated with our
business, and us, including the ones discussed below. You should carefully
consider these risk factors, as well as the other information contained in this
Form 10-KSB, in evaluating us and our business.
WE HAVE ONLY RECENTLY ACHIEVED POSITIVE CASH FLOW SO OUR LONG-TERM SUCCESS IS
NOT ASSURED.
We generated Earnings before Interest, Tax, Depreciation and Amortization
("EBITDA") of $1,660,000 in the fiscal year ended September 30, 2000, and EBITDA
of $1,214,000 for the year ended September 30, 1999. Although our revenues and
EBITDA have grown in recent years, they may not continue to grow or even
continue at their current level. Because we began voice-messaging operations in
February 1996, we have a limited operating history upon which you may evaluate
us. This limited operating history makes predicting our future operating results
difficult. Our expenses may increase in future periods due to:
- amortization of goodwill and other charges resulting from future
acquisitions, including acquisitions of subscriber accounts;
- increased depreciation on additional equipment purchases;
- increases in sales and marketing activities;
- expenditures for customer management and billing software; and
- general economic conditions.
If increased revenues do not accompany increases in any of these expenses,
our operating results will be adversely affected. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
BECAUSE WE FACE INTENSE COMPETITION FROM LARGER TELECOMMUNICATIONS COMPANIES, WE
MAY BE UNABLE TO COMPETE SUCCESSFULLY, WHICH COULD REDUCE OUR REVENUES.
We compete primarily with the local Bell companies, and expect to compete
with other national, regional and local telecommunications companies as we
expand. Most of our competitors have greater name recognition and greater
financial, marketing and other resources than we have. This may place us at a
disadvantage in responding to our competitors' pricing strategies, technological
advances, advertising campaigns and other initiatives. If we are unable to
compete successfully against our competitors, we will lose customers and our
business, financial condition and operating results will be adversely affected.
WE MAY LOSE CUSTOMERS AND REVENUES IF OUR VOICE MESSAGING EQUIPMENT FAILS.
We depend on the efficient and uninterrupted operation of our voice
messaging equipment to deliver service to our customers. Any sustained service
interruption would cause some customers to cancel service. This could adversely
affect our business, financial condition and operating results. Our business
interruption insurance may not provide sufficient coverage for these events and
our operating results could suffer if losses exceed our coverage.
LOSS OF THE CONNECTION TO THE PUBLIC TELEPHONE NETWORKS COULD DISRUPT OUR
SERVICE CAUSING US TO LOSE CUSTOMERS.
We rely on several telecommunications companies for connection to the
public telephone network. The protracted failure of a connection would interrupt
service, causing some customers to cancel service. If this happens we might have
to establish a new connection to the public telephone network, which could take
several weeks. We would lose subscribers if such a disruption occurred. This
could adversely affect our business, financial condition and operating results.
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<PAGE> 22
WE MAY BE UNABLE TO KEEP UP WITH THE RAPID TECHNOLOGICAL CHANGE IN OUR INDUSTRY.
Our success depends on our ability to remain competitive in cost and
services provided. There can be no assurance that we can acquire leading
technologies as needed. If we are unable to successfully respond to
technological developments or acquire technologies in a cost effective way, our
business, financial condition and operating results will be adversely affected.
To be successful, we must:
- continually improve our services on a cost-effective basis;
- develop and offer new features and services to meet customer needs; and
- offer Internet-based messaging and other advanced technologies that may
achieve widespread acceptance in the future.
Our success will depend in part on our ability to purchase or license
leading technologies necessary to remain competitive. Licensing these
technologies may require us to pay royalties, maintenance and other fees that
may reduce operating margins.
WE ARE DEPENDENT ON GLENAYRE FOR OUR MESSAGING EQUIPMENT.
Glenayre manufactures and services our messaging equipment. Our ability to
provide messaging services and implement our expansion strategy depends on our
ability to obtain an adequate uninterrupted supply of messaging equipment,
service and spare parts. Even if adequate alternative sources were available,
any interruption in the supply because of a failure of Glenayre could have a
material adverse effect on our business and results of operations.
IF NIGEL V. ALEXANDER OR SHAWN B. STICKLE DOES NOT CONTINUE IN HIS PRESENT
POSITION OUR BUSINESS MAY BE ADVERSELY AFFECTED.
We believe that our ability to successfully implement our business strategy
and to operate profitably depends on Nigel V. Alexander and Shawn B. Stickle,
both directors and executive officers, continuing to render their services to
us. If Mr. Alexander or Mr. Stickle becomes unable or unwilling to continue in
his present position, our growth, business and financial results could be
materially adversely affected. We have an employment agreement with Mr. Stickle
and a consulting agreement with Mr. Alexander's company, Octagon Strategies,
Inc., both of which expire on December 31, 2001. We have key person life
insurance policies in the face amounts of $1,000,000 each on both Mr. Alexander
and Mr. Stickle.
OUR ACQUISITION STRATEGY MAY BE UNSUCCESSFUL FOR SEVERAL REASONS.
Our acquisition strategy is subject to the following risks and
uncertainties:
- we may be unable to enter into purchase agreements with voice messaging
businesses, especially if we offer them partial consideration in common
stock, which we intend to do;
- a decrease in the market value of our common stock may limit our ability
to use our common stock to acquire businesses;
- we may be unsuccessful in retaining the customers of businesses we buy,
especially if we ask them to switch to new messaging services as we
change equipment and upgrade services;
- we may be unable to successfully integrate new personnel into our
operations; and
- we may incur non-cash charges to our earnings for goodwill amortization,
which will adversely affect our operating results.
THE FINANCE CHARGES ASSOCIATED WITH FUTURE EQUIPMENT PURCHASES AND LEASES MAY
ADVERSELY AFFECT OUR PROFITABILITY.
We expect to purchase or lease additional messaging equipment in the
future. The financing charges for these purchases or lease payments may reduce
our future profitability and adversely affect our financial condition.
20
<PAGE> 23
LOSS OF OUR ABILITY TO BILL OUR MESSAGING AND PAGING SERVICES ON THE AMERITECH
AND BELLSOUTH PHONE BILLS COULD ADVERSELY AFFECT OUR BUSINESS.
We add some of our charges for messaging and paging services to our
customers' Ameritech and BellSouth telephone bills. If we were to lose these
billing arrangements we believe it would be expensive and inefficient for us to
bill our smaller customers directly and our business, financial condition and
operating results would be adversely affected.
ITEM 7. FINANCIAL STATEMENTS
Our financial statements are included herein commencing on page 30.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 9.DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
DIRECTORS AND EXECUTIVE OFFICERS
Our directors and executive officers are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Nigel V. Alexander.................... 39 Chief Executive Officer, Treasurer,
Secretary and Director
Shawn B. Stickle...................... 35 President, Chief Operating Officer and
Director
David J. Cutler....................... 45 Chief Financial Officer
Keith R. Holder....................... 55 Director
R. Brad Stillahn...................... 46 Director
</TABLE>
Messrs. Holder and Stillahn are members of the Audit and Compensation
Committees.
The board of directors is separated into three staggered classes with each
class standing for re-election every third year. Each director holds office
until the expiration of the director's term, until the director's successor has
been duly elected and qualified or until the earlier of their resignation,
removal or death. All of our officers devote full-time to our business and
affairs.
Nigel V. Alexander -- Chief Executive Officer, Secretary, Treasurer and
Director. Mr. Alexander co-founded Multi-Link in 1996. Mr. Alexander has served
since that time as a Managing Director and now as Chief Executive Officer with
responsibility for financing, strategic planning and mergers and acquisitions.
Mr. Alexander's term as a director ends in 2001. Since January 1996, Mr.
Alexander has been the sole owner of Octagon Strategies, Inc., a consultant to
us. From September 1994 until founding Multi-Link, Mr. Alexander conducted
research into the telecommunications industry to identify the business
opportunity we are now pursuing. Mr. Alexander is an Associate of the British
Chartered Institute of Bankers. He has over 15 years experience in merchant
banking, mergers and acquisitions and corporate finance, including ten years as
a merchant banker in London, England and Geneva, Switzerland with Henry
Ansbacher & Co. and the Paribas Group.
Shawn B. Stickle -- President, Chief Operating Officer and Director. Mr.
Stickle co-founded Multi-Link in 1996. Mr. Stickle has served since that time as
a Managing Director and now as our President and Chief Operating Officer with
direct responsibility for all of Multi-Link's operations. Mr. Stickle's term as
a director ends in 2002. From February 1995 until January 1996, Mr. Stickle was
employed as Executive Vice President of Voice Service, Inc. From 1987 to March
1994, Mr. Stickle was Sales and Marketing Manager for T.A. Pelsue
21
<PAGE> 24
Company, a manufacturer of telecommunications products. Mr. Stickle attended the
University of Colorado with an emphasis in Business Administration and
Marketing, and is a certified ISO 9000 Quality Assurance Advisor.
David J. Cutler -- Chief Financial Officer. Mr. Cutler joined us in March
1998 and has served as our Chief Financial Officer since that time. From March
1993 until joining us, Mr. Cutler was a self-employed consultant providing
accounting and financial advice to small and medium-sized companies in the
United Kingdom and the United States. Mr. Cutler has more than 20 years of
experience in international finance, accounting and business administration. He
held senior positions with multi-national companies such as Reuters Group Plc
and the Schlumberger Ltd. and has served as a director for two British
previously publicly quoted companies -- Charterhall Plc and Reliant Group Plc.
Mr. Cutler has a masters degree from St. Catherine College in Cambridge, England
and qualified as a British Chartered Accountant and as an Associate of the
Institute of Taxation with Arthur Andersen & Co. in London. He was subsequently
admitted as a Fellow of the UK Institute of Chartered Accountants. In early
1998, he passed the CPA examination in the United States and is now a member of
the American Institute of Certified Public Accountants.
Keith R. Holder -- Director. Mr. Holder became one of our directors in
February 1999. Mr. Holder's term as a director ends in 2003. Since January 1998,
Mr. Holder has been the Chief Executive Officer of Recovery Specialists Inc., a
regional environmental company. From March 1990 to January 1998, Mr. Holder was
the founder, Chief Executive Officer and Director of Triumph Fuels Corporation,
a gasoline refining, distribution and retailing company. Mr. Holder received his
Bachelor of Science degree in Geology from the University of London in 1969.
R. Brad Stillahn -- Director. Mr. Stillahn became one of our directors in
February 1999. Mr. Stillahn's term as a director ends in 2003. Since January
1991, Mr. Stillahn has been the owner, Chairman and Chief Executive Officer of
West Tape & Label, Inc., a national custom label printer. From 1987 to 1991, Mr.
Stillahn was the Director of Corporate Marketing for Menasha Corporation, a
diversified holding company. Mr. Stillahn received his Masters of Business
Administration from Washington University in 1976 and in 1974 received a
Bachelor of Arts degree in Economics from the University of Missouri.
OTHER KEY EMPLOYEES
L. Van Page -- Executive Vice President -- Sales and Marketing. Mr. Page
founded VoiceLink, Inc. in 1992 and served as its president since that time.
Prior to founding VoiceLink, Mr. Page served as regional President for Tie
Systems, Inc., overseeing the southeastern sales and operations for this
telephone interconnect company. In 1989, Tie Systems acquired Advanced Business
Communications, Inc. (also a telephone interconnect), which Mr. Page had founded
in 1983. Mr. Page graduated from the Georgia Institute of Technology in 1976
with a degree in Industrial Management.
Christina M. Neher -- Executive Vice President -- National Call
Center. Ms. Neher joined Hellyer Communications, Inc. in 1989 and served as
Hellyer's Vice President of Operations since 1995. Ms. Neher is responsible for
all of our Indianapolis call center operations. From 1984 to 1988, Ms. Neher was
employed by St. Mary's College and held the position of telecommunications
coordinator. Ms. Neher holds an associates degree in business from Indiana
Wesleyan University. Ms. Neher has 15 years of experience in the
telecommunications industry.
Mark W. Boyden -- Director of Marketing. Mr. Boyden has served as our
Director of Marketing since inception in 1996. Mr. Boyden has 15 years of
experience in strategic, tactical and operational marketing. From 1985 to 1991
he worked for Merck & Co Inc, (UK). From 1989 to 1991 he served as group product
manager with responsibility for brand portfolios with annual sales of around
$40M. Prior to joining Multi-Link, Mr. Boyden worked in England as a marketing
consultant to several private companies. Mr. Boyden holds an MBA from Oxford
Brooks University School of Business in Oxford, England and a B.Sc. in Applied
Biology from Sunderland University, England. He is a Member of the Chartered
Institute of Marketing.
William N. Paston -- Vice President of Capital Markets. Mr. Paston joined
us in December 1999 with the primary responsibility for managing our Investor
Relations program. Prior to joining us Mr. Paston was Vice President of ALPS
Mutual Funds Services, Inc., a NASD member firm that provides administration and
22
<PAGE> 25
distribution services for mutual fund complexes. While at ALPS, Mr. Paston's
primary responsibility was new business development. Mr. Paston began his
financial services career in 1983 as a registered representative with Blythe,
Eastman, Dillon. Mr. Paston received his Bachelor of Arts degree from Lake
Forest College in 1977.
COMMITTEES OF THE BOARD OF DIRECTORS
The board of directors maintains a compensation committee and an audit
committee. The compensation committee is composed of Keith R. Holder and R. Brad
Stillahn, both non-employee directors. The audit committee is also composed of
Keith R. Holder and R. Brad Stillahn. The primary function of the compensation
committee is to review and make recommendations to the board of directors with
respect to the compensation, including bonuses, of our officers and to
administer the grants under our stock option plan. The functions of the audit
committee are to review the scope of the audit procedures employed by our
independent auditors, to review with the independent auditors our accounting
practices and policies and recommend to whom reports should be submitted, to
review with the independent auditors their final audit reports, to review with
our internal and independent auditors our overall accounting and financial
controls, to be available to the independent auditors during the year for
consultation, to approve the audit fee charged by the independent auditors, to
report to the board of directors with respect to such matters and to recommend
the selection of the independent auditors.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act requires our Officers and
Directors, and persons who own more than 10% of a registered class of our equity
securities, to file reports of ownership and changes in ownership with the SEC.
Officers, directors and greater than 10% shareholders are required by SEC
regulation to furnish us with copies of all Section 16(a) forms they file. Based
solely on our review of copies of such reports received, and representations
from certain reporting persons, we believe that, during the last fiscal year,
all Section 16(a) filing requirements applicable to our officers, directors and
greater than 10% beneficial owners were filed in compliance with all applicable
requirements.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by us for services
rendered during the fiscal years ended September 30, 2000, 1999, and 1998, to
Nigel V. Alexander and Shawn B. Stickle. No other executive officer earned or
was paid compensation of more than $100,000 for the years ended September 30,
1999, 1998 and 1997.
We pay consulting fees to Octagon Strategies, Inc. for consulting services
rendered by Nigel V. Alexander to us. Octagon is a company wholly owned by Nigel
V. Alexander. All amounts reflected in the salary column in the following table
paid to Mr. Alexander are consulting fees paid to Octagon for Mr. Alexander's
benefit.
<TABLE>
<CAPTION>
FISCAL YEAR ANNUAL COMPENSATION
ENDED -------------------
NAME AND PRINCIPAL POSITION SEPTEMBER 30, SALARY BONUS
--------------------------- ------------- --------- -------
<S> <C> <C> <C>
Nigel V. Alexander................................... 2000 $103,000 11,222
Chief Executive Officer, Secretary and Treasurer 1999 $ 45,551 --
1998 $ 40,000 --
Shawn B. Stickle..................................... 2000 $ 91,664 10,000
President and Chief Operating Officer 1999 $ 41,000 --
1998 $ 36,000 --
</TABLE>
The foregoing compensation tables do not include certain fringe benefits
made available on a nondiscriminatory basis to all of our employees such as
group health insurance, long-term disability insurance, vacation and sick leave.
EMPLOYMENT AND CONSULTING AGREEMENTS
Effective January 1, 1999, we entered into three-year agreements with
Octagon and Shawn B. Stickle. The agreements require that Messrs. Alexander and
Stickle devote their full business time to us, may only be
23
<PAGE> 26
terminated by us for "cause," as defined in the agreements, and may be
terminated with or without cause by Octagon or Mr. Stickle. If we terminate the
agreements without cause, Octagon and Mr. Stickle are entitled to receive lump
sum payments equal to the greater of the compensation payable pursuant to the
agreements for the remaining terms thereof or one year's annual payments. The
agreements also contain confidentiality and non-compete provisions. The
contracts provide for annual salary and consulting payments that are subject to
periodic increases from time to time at the sole discretion of the compensation
committee of the Board of Directors. In addition, both are eligible to receive
bonuses based upon our profitability, growth, share price and other factors
determined and adjusted periodically by the compensation committee.
Effective April 1, 2000, we entered into a three-year agreement with L. Van
Page. The agreement requires Mr. Page to devote his full business time to our
business, may only be terminated by us for "cause," as defined in the agreement,
and may be terminated with or without cause by Mr. Page. If the agreement is
terminated by us without cause, Mr. Page is entitled to receive a lump sum
payment equal to six months salary. The agreement also contains confidentiality
and non-compete provisions. The contract provides for an annual base salary of
$144,000 subject to periodic review at the sole discretion of the compensation
committee of the Board of Directors.
KEY PERSON LIFE INSURANCE POLICIES
We have key person life insurance policies in the amount of $1,000,000 each
on both Nigel V. Alexander and Shawn B. Stickle.
DIRECTOR COMPENSATION
Our employee directors do not receive any compensation for their services
as directors. Non-employee directors presently receive compensation of $250.00
per meeting and are entitled to reimbursement of travel and other expenses.
STOCK OPTION PLAN
We first adopted our stock option plan in 1997 and adopted an amended and
restated stock option plan at our annual shareholder's meeting on March 22,
2000. We currently have 800,000 shares of common stock reserved for issuance
under the plan. We grant stock options to any persons who have been employed by
us, or a company that we acquire, for more than six months to give them a sense
of ownership and to increase their level of commitment to our business.
The stock option plan provides for the granting of incentive stock options
within the meaning of Section 422 of the Internal Revenue Code and non-qualified
stock options, reload options and stock appreciation rights. The stock option
plan is currently administered by the compensation committee of the board of
directors, which determines the terms and conditions of the options granted
under the stock option plan, including the exercise price, the number of shares
subject to a particular option and the period over which options vest.
The exercise price of all incentive stock options granted under the stock
option plan must be at least equal to the fair market value of our common stock
on the date of grant and must be 110% of fair market value when granted to a 10%
or more stockholder. Under the stock option plan, the exercise price of all
non-qualified stock options granted under the stock option plan may be less than
the fair market value of the common stock on the date of grant. The term of all
options granted under the stock option plan may not exceed ten years, except the
term of incentive stock options granted to a 10% or more stockholder may not
exceed five years. The stock option plan may be amended or terminated by the
board of directors, but no such action may impair the rights of a participant
under a previously granted option.
The stock option plan provides the board of directors or the compensation
committee with the discretion to determine when options granted under the stock
option plan shall become exercisable and the vesting period of such options.
At September 30, 2000 we had issued options to purchase 595,580 shares of
common stock under our stock option plan. The options have exercise prices
ranging from $0.02 per share to $12.00 per share, with an average exercise price
of $6.83 per share. The options expire on various dates between March 30, 2005,
and March 30,
24
<PAGE> 27
2010. Of the issued options, 91,243 had been exercised and 38,450 had been
cancelled, which means that 465,887 options are currently issued and
outstanding.
No reload options or stock appreciation rights have been granted pursuant
to the stock option plan.
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<PAGE> 28
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of Multi-Link's common stock, as of December 22, 2000, by:
- each person who is known by Multi-Link to own beneficially more than 5%
of Multi-Link's outstanding common stock,
- each of Multi-Link's named executive officers and directors, and
- all executive officers and directors as a group.
Shares of common stock not outstanding but deemed beneficially owned by
virtue of the right of an individual to acquire the shares of common stock
within 60 days are treated as outstanding only when determining the amount and
percentage of common stock owned by such individual. Except as noted below the
table, each person has sole voting and investment power with respect to the
shares of common stock shown. Unless otherwise shown, the address of each person
is 4704 Harlan Street, Suite 420, Denver, Colorado 80212.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES OUTSTANDING
------------------------------------ --------- -----------
<S> <C> <C>
Executive Officers and Directors
Nigel V. Alexander.......................................... 552,250 13.5%
Shawn B. Stickle............................................ 552,250 13.5%
David J. Cutler............................................. 20,833 0.5%
Keith R. Holder............................................. 36,640 0.9%
107 Country Club Park Drive, Grand Junction, CO 81503
R. Brad Stillahn............................................ 10,000 0.1%
3845 Forest, Denver, CO 80207
All executive officers and directors as a group (5
persons).................................................. 1,171,973 28.3%
Other Beneficial Owners
Kennedy Capital Management.................................. 246,328 6.0%
10829 Olive Blvd, St. Louis, MO 63141-7739
Glenayre Technologies, Inc.................................. 364,439 8.7%
11360 Lakefield Drive, Duluth, GA 30097
</TABLE>
In the foregoing table the common stock beneficially owned by:
- Nigel V. Alexander and Shawn B. Stickle includes an aggregate of
200,000 shares of common stock held in escrow. As a condition to the
initial public offering, Nigel V. Alexander and Shawn B. Stickle were each
required to deposit 100,000 shares of common stock in an escrow account
pursuant to an agreement with Computershare Trust Company, Inc. and
Schneider Securities, Inc., the lead IPO underwriter. The common stock
deposited in the escrow account will be released on the earlier to occur of
(a) Multi-Link achieving basic net income of at least $0.75 per share and
the common stock having a bid price of at least $15.00 per share for the
year ended and as of September 30, 2000, or (b) Multi-Link achieving basic
net income of at least $1.25 per share and a bid price of at least $25.00
per share for the year ended and as of September 30, 2001, or (c) a
property exchange, or sale of all or substantially all of the assets or
stock of Multi-Link if any such transaction is approved by the holders of a
majority of the outstanding shares of common stock (excluding the shares in
escrow), and (d) May 14, 2006. For purposes of determining the release from
escrow, net income will include the effects of any extraordinary items and
will be based on basic net income per share and on the audited financial
statements of Multi-Link for the respective periods. The shares of common
stock held in escrow are not transferable or assignable, although the
stockholders may vote them. The earnings levels and per share prices set
forth above were determined by negotiation between Multi-Link and Schneider
Securities, Inc., and should not be construed to imply or predict any
future earnings by Multi-Link or the market price of the common stock.
- Nigel V. Alexander and Shawn B. Stickle includes 10,000 shares
underlying options held by each person that are exercisable within the next
60 days.
- Keith R. Holder includes 26,640 shares beneficially owned by Harbour
Settlement, a Jersey Channel Islands Trust established for the benefit of
Mr. Holder's children. The table does not include 10,000 shares
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<PAGE> 29
underlying options that were granted to Mr. Holder personally, and which
are not exercisable for the next 60 days, and includes 10,000 shares
underlying options, which are exercisable within the next 60 days.
- R. Brad Stillahn does not include 10,000 shares underlying options
that are not exercisable for the next 60 days and includes 10,000 shares
underlying options, which are exercisable within the next 60 days.
- All of the executive officers and directors as a group, includes
60,833 shares of common stock underlying presently exercisable options but
does not include 76,667 shares underlying options that are not exercisable
within the next 60 days.
- Glenayre Technologies includes 100,000 shares underlying warrants
that are exercisable within the next 60 days.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
All of the following related party transactions were made on terms no less
favorable to us than those available from unaffiliated parties. In addition, all
future related party transactions will be made on terms no less favorable than
those available from unaffiliated parties and such related party transactions
will be approved by a majority of the independent, disinterested members of the
board of directors who had access, at our expense, to our counsel or independent
legal counsel.
On June 30, 2000, Glenayre purchased 104,439 restricted shares of our
common stock and a warrant to purchase 100,000 shares of our common stock at an
exercise price of $14.3625 per share for a total purchase price of $1,000,000.
In addition, we contracted to purchase at least $2.5 million of voice messaging
equipment from Glenayre over three years at standard list price.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION AND METHOD OF FILING
------- --------------------------------
<C> <S>
1.1 -- Form of Underwriting Agreement.(1)
1.2 -- Form of Selected Dealers Agreement.(1)
3.1 -- Restated Articles of Incorporation filed on May 18,
1998.(1)
3.2 -- Amendments to Restated Articles of Incorporation filed on
February 2, 1999.(1)
Associates Commercial Corporation.(1)
4.4 -- Form of Warrant Agreement between the Registrant and
American Securities Transfer & Trust, Inc.(1)
4.5 -- Form of Escrow Agreement.(1)
4.6 -- Forms of Lock-Up Agreements.(1)
4.7 -- Form of Representative's Option for the Purchase of
Units.(1)
4.8 -- Form of Warrant Exercise Fee Agreement between Schneider
Securities, Inc., American Securities Transfer & Trust,
Inc. and the Registrant.(1)
4.9 -- Amendment to Borrowing Agreement dated April 15, 1999
between Westburg Media Capital L.P., the Registrant and
Multi-Link Communications, Inc.(1)
4.10 -- Registration Rights Agreement dated April 15, 1999
between Westburg Media Capital L.P. and the
Registrant.(1)
4.11 -- Common Stock Purchase Warrant entitling Glenayre
Technologies, Inc. to purchase 100,000 shares of
Multi-Link Common Stock.(5)
4.12 -- Registration Rights Agreement dated as of June 30, 2000
between the Registrant and Glenayre Technologies, Inc.(5)
9.1 -- Form of Exercise Fee Agreement.(2)
10.1 -- Stock Option Plan.(1)
</TABLE>
27
<PAGE> 30
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION AND METHOD OF FILING
------- --------------------------------
<C> <S>
10.2 -- First Amendment to Stock Option Plan.(1)
10.3 -- Agreement dated January 1, 1999, between the Registrant
and Telecom Sales Associates, Inc. as amended on February
3, 1999.(1)
10.5 -- US West Communications Digital Switched Service Rate
Stability Plan Agreements.(1)
10.6 -- Consulting Agreement between the Registrant and Octagon
Strategies, Inc.(1)
10.7 -- Employment Agreement between the Registrant and Shawn B.
Stickle.(1)
10.8 -- Lease Agreement dated March 29, 1999 between the
Registrant and Lakeside Holdings, L.L.C., as amended.(1)
10.9 -- Promissory Note dated September 30, 1998 from Registrant
to Octagon Strategies, Inc.(1)
10.10 -- Promissory Note dated September 30, 1998 from Registrant
to Shawn B. Stickle.(1)
10.11 -- Promissory Note dated April 14, 1999 from Registrant to
Westburg Media Capital, L.P.(1)
10.12 -- Agreement for Sale and Purchase of Assets and Exhibits A
and B dated September 17, 1999 by and among Hellyer
Communications, Inc., Jerry L. Hellyer, Sr., Multi-Link
Telecommunications, Inc., and HC Acquisition Corp.(3)
10.13 -- Consulting Agreement dated September 17, 1999 by and
among Hellyer Communications, Inc. and HC Acquisition
Corp.(3)
10.14 -- Amended and Restated Asset Purchase Agreement dated
November 17, 1999 by and among Hellyer Communications,
Inc., Jerry L. Hellyer, Sr., Multi-Link
Telecommunications, Inc. and Hellyer Communications
Services, Inc. (without exhibits).(4)
10.15 -- Loan Agreement dated November 17, 1999 by and between
Multi-Link Telecommunications, Inc. and Jerry L. Hellyer,
Sr.(4)
10.16 -- Promissory Note dated November 17, 1999 by and between
Multi-Link Telecommunications, Inc. and Jerry L. Hellyer,
Sr.(4)
10.17 -- Pledge and Security Agreement by and between Multi-Link
Telecommunications, Inc. and Jerry L. Hellyer, Sr.(4)
10.18 -- Purchase Agreement dated November 22, 1999 by and between
B.F.G of Illinois, Inc., Multi-Link Telecommunications,
Inc. and Hellyer Communications Services, Inc.(8)
10.19 -- Asset Purchase Agreement dated December 22, 1999 by and
among One Touch Communications, Inc., David G. Webster,
Eric C. Beguelin, Multi-Link Telecommunications, Inc. and
One Touch Communications, Inc.(8)
10.20 -- Stock Purchase Agreement dated March 25, 2000 by and
among Multi-Link Telecommunications, Inc., VoiceLink,
Inc., L. Van Page and Larry Mays (without exhibits).(5)
10.21 -- Registration Rights Agreement dated March 31, 2000 by and
among L. Van Page, Larry Mays, Nigel V. Alexander, Shawn
B. Stickle and Multi-Link Telecommunications, Inc.(5)
10.22 -- Letter of Intent by and between Multi-Link
Telecommunications, Inc. and Glenayre Technologies, Inc.
dated as of May 17, 2000.(6)
10.23 -- Securities Purchase Agreement dated as of June 30, 2000
between Multi-Link Telecommunications, Inc. and Glenayre
Technologies, Inc.(7)
10.24 -- Volume Purchase Agreement dated as of June 30, 2000
between Multi-Link Telecommunications, Inc. and Glenayre
Electronics, Inc.(7)
</TABLE>
28
<PAGE> 31
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION AND METHOD OF FILING
------- --------------------------------
<C> <S>
16 -- Letter from James E. Scheifley & Associates, PC
confirming the circumstances pursuant to which James E.
Scheifley & Associates, PC resigned as Registrant's
principal independent accountants.(1)
21 -- Subsidiaries of the Registrant.(9)
23.1 -- Consent of HEIN + ASSOCIATES LLP.
27 -- Financial Data Schedule.
</TABLE>
---------------
(1) Incorporated by reference to the exhibits contained in the Registrant's
Registration Statement on Form SB-2 (No. 333-72889).
(2) Incorporated by reference to the exhibits contained in the Registrant's
Quarterly Report on Form 10-QSB filed on June 25, 1999.
(3) Incorporated by reference to the exhibits contained in the Registrant's
Current Report on Form 8-K filed on September 24, 1999.
(4) Incorporated by reference to the exhibits contained in the Registrant's
Current Report on Form 8-K filed on December 3, 1999.
(5) Incorporated by reference to the exhibits contained in the Registrant's
Current Report on Form 8-K filed on April 14, 2000.
(6) Incorporated by reference to the exhibits contained in the Registrant's
Current Report on Form 8-K filed on May 30, 2000.
(7) Incorporated by reference to the exhibits contained in the Registrant's
Current Report on Form 8-K filed on July 14, 2000.
(8) Incorporated by reference to the exhibits contained in the Registrant's
Annual Report on Form 10-KSB filed on January 11, 2000.
(9) Incorporated by reference to the exhibits contained in the Registrant's
Annual Report on Form 10-KSB filed on January 11, 2000.
(b) Reports on Form 8-K
None.
29
<PAGE> 32
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITOR'S REPORT................................ 31
CONSOLIDATED BALANCE SHEET -- September 30, 2000............ 32
CONSOLIDATED STATEMENTS OF OPERATIONS -- For the Years Ended
September 30, 1999 and 2000............................... 33
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY -- For the Years Ended September 30, 1999 and
2000...................................................... 34
CONSOLIDATED STATEMENTS OF CASH FLOWS -- For the Years Ended
September 30, 1999 and 2000............................... 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.................. 37
</TABLE>
30
<PAGE> 33
INDEPENDENT AUDITOR'S REPORT
Shareholders and Board of Directors
Multi-Link Telecommunications, Inc. and Subsidiaries
Denver, Colorado
We have audited the accompanying consolidated balance sheet of Multi-Link
Telecommunications, Inc. and subsidiaries as of September 30, 2000 and the
related consolidated statements of operations, changes in stockholders' equity,
and cash flows for the years ended September 30, 1999 and 2000. 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 consolidated financial position of
Multi-Link Telecommunications, Inc. and subsidiaries as of September 30, 2000
and the results of their operations and their cash flows for the years ended
September 30, 1999 and 2000, in conformity with generally accepted accounting
principles.
HEIN + ASSOCIATES LLP
Denver, Colorado
November 17, 2000
31
<PAGE> 34
MULTI-LINK TELECOMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30,
2000
-------------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................... $ 661,713
Marketable securities....................................... 795,095
Accounts receivable -- trade, net of allowance for doubtful
accounts of $150,474...................................... 1,226,092
Inventory................................................... 52,005
Prepaid expenses............................................ 389,685
-----------
Total current assets................................... 3,124,590
PROPERTY AND EQUIPMENT, net................................. 4,980,619
OTHER ASSETS:
Note receivable............................................. 331,607
Prepaid equipment........................................... 806,262
Deferred costs and other.................................... 291,926
Intangible assets, less amortization of $1,354,003.......... 7,207,155
-----------
TOTAL ASSETS...................................... $16,742,159
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................ $ 779,679
Accrued expenses............................................ 774,782
Customer deposits........................................... 112,533
Deferred revenue............................................ 106,087
Notes payable and current portion of long-term debt......... 1,204,888
-----------
Total current liabilities.............................. 2,977,969
LONG-TERM DEBT, less current portion........................ 3,754,415
COMMITMENTS (Note 8)
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value; 5,000,000 shares
authorized; none issued................................... --
Common stock, no par value; 20,000,000 shares authorized,
4,084,650 shares issued and outstanding................... 11,857,232
Accumulated deficit......................................... (1,846,788)
Unrealized loss on marketable securities.................... (669)
-----------
Total stockholders' equity............................. 10,009,775
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $16,742,159
===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
32
<PAGE> 35
MULTI-LINK TELECOMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
SEPTEMBER 30,
------------------------
1999 2000
---------- -----------
<S> <C> <C>
NET REVENUES................................................ $4,588,749 $11,284,016
COST OF SERVICES AND PRODUCTS............................... 785,502 2,362,887
---------- -----------
GROSS MARGIN................................................ 3,803,247 8,921,129
OPERATING EXPENSES:
Sales and advertising....................................... 401,638 1,481,944
General and administrative.................................. 2,187,650 5,536,477
Pooling expenses............................................ -- 121,028
Moving expenses............................................. -- 122,179
Depreciation................................................ 139,714 452,729
Amortization................................................ 231,024 998,366
---------- -----------
Total operating expenses............................... 2,960,026 8,712,723
---------- -----------
INCOME FROM OPERATIONS...................................... 843,221 208,406
Interest income (expense), net.............................. (274,846) (326,360)
---------- -----------
INCOME (LOSS) BEFORE INCOME TAXES........................... 568,375 (117,954)
Provision for income tax.................................... (67,304) (11,252)
---------- -----------
NET INCOME (LOSS)................................. $ 501,071 $ (129,206)
========== ===========
NET INCOME (LOSS) PER COMMON SHARE
Basic..................................................... $ 0.19 $ (0.03)
========== ===========
Diluted................................................... $ 0.18 $ (0.03)
========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic..................................................... 2,610,480 3,889,378
========== ===========
Diluted................................................... 2,806,563 3,889,378
========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
33
<PAGE> 36
MULTI-LINK TELECOMMUNICATIONS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1999 AND 2000
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK OTHER
----------------------- ACCUMULATED COMPREHENSIVE COMPREHENSIVE
SHARES AMOUNT DEFICIT INCOME (LOSS) INCOME (LOSS) TOTAL
--------- ----------- ----------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, OCTOBER 1, 1998....... 1,976,640 $ 442,591 $(2,229,378) $ -- $(1,786,787)
Comprehensive income:
Net income.................... -- -- 501,071 -- $ 501,071 501,071
Unrealized loss on marketable
securities.................. -- -- -- (11,312) (11,312) (11,312)
---------
Comprehensive income........ $ 489,759
=========
Common stock issued for private
placement..................... 141,600 350,901 -- -- 350,901
Common stock issued in exchange
for debt...................... 8,400 35,000 -- -- 35,000
Shares repurchased.............. (28,610) (5,721) -- -- (5,721)
Common stock issued in initial
public offering............... 1,380,000 6,859,392 -- -- 6,859,392
Options issued for services..... -- 15,675 -- -- 15,675
Exercise of options............. 50,760 24,940 -- -- 24,940
--------- ----------- ----------- -------- -----------
BALANCES, SEPTEMBER 30, 1999.... 3,528,790 7,722,778 (1,728,307) (11,312) 5,983,159
Comprehensive income:
Net loss...................... -- -- (129,206) -- $(129,206) (129,206)
Unrealized gain on marketable
securities.................. -- -- -- 10,643 10,643 10,643
---------
Comprehensive loss.......... $(118,563)
=========
Common stock issued for
consulting and non-compete
agreements.................... 150,000 965,625 -- -- 965,625
Options issued for services..... -- 18,154 -- -- 18,154
Common stock issued in
acquisition of One Touch
Communications................ 246,718 2,020,003 -- -- 2,020,003
Pooling adjustment.............. -- -- 10,725 -- 10,725
Common stock issued in
acquisition of VoiceLink
Florida....................... 12,000 132,000 -- -- 132,000
Common stock issued in
acquisition of Cashtel
subscriber base............... 2,220 20,535 -- -- 20,535
Common stock issued in private
placement, net of costs....... 104,439 872,902 -- -- 872,902
Exercise of options............. 40,483 105,235 -- -- 105,235
--------- ----------- ----------- -------- -----------
BALANCES, SEPTEMBER 30, 2000.... 4,084,650 $11,857,232 $(1,846,788) $ (669) $10,009,775
========= =========== =========== ======== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
34
<PAGE> 37
MULTI-LINK TELECOMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
SEPTEMBER 30,
-------------------------
1999 2000
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................... $ 501,071 $ (129,206)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization............................. 370,738 1,466,936
Amortization of debt discount and issuance costs.......... 29,862 29,929
Loss (profit) from associated company..................... 15,063 --
Common stock and options issued for services and loans.... 15,675 --
Bad debt expense.......................................... 35,064 92,259
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable.................................... (163,206) (764,097)
Other receivables...................................... 13,174 --
Inventory.............................................. -- (29,616)
Prepaid expenses....................................... (2,073) (266,526)
Increase (decrease) in:
Accounts payable....................................... 9,278 (399,641)
Accrued expenses....................................... (147,896) 132,843
Deferred revenue....................................... 2,660 (272,991)
----------- -----------
Net cash provided by (used in) operating activities.... 679,410 (140,110)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of marketable securities................. -- 2,998,908
Purchase of marketable securities........................... (3,794,671) --
Investment in equity investee............................... (20,000) --
Purchase of subscriber accounts............................. (664,693) (341,284)
Advance on note receivable.................................. -- (331,607)
Purchase of fixed assets.................................... (609,780) (2,270,322)
Prepaid equipment costs..................................... -- (6,262)
Deferred costs.............................................. (42,744) (207,092)
Purchase of Cashtel subscriber base......................... -- (262,908)
Purchase of business and assets of Hellyer Communications... -- (1,257,305)
Purchase of business and assets of One Touch
Communications............................................ -- (1,168,124)
Cash acquired in acquisition................................ -- 7,589
Purchase of minority interest in subsidiary................. (8,000) --
----------- -----------
Net cash used in investing activities....................... (5,139,888) (2,838,407)
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt issue costs............................................ $ (2,000) $ --
Customer deposits........................................... -- (43,423)
Net effect of pooling of interest........................... -- 10,725
Payment of related party notes payable...................... (731,471) (17,569)
Advances under related party notes payable.................. 80,066 --
Advances under notes payable................................ 350,000 4,459,289
Payment of notes payable.................................... (2,519,587) (1,519,188)
Repurchase of outstanding shares............................ (5,721) --
Proceeds from issuance of common stock...................... 8,870,000 200,000
Offering costs.............................................. (1,659,707) (127,099)
Proceeds from the exercise of stock options................. 24,940 105,235
----------- -----------
Net cash provided by financing activities............ 4,406,520 3,067,970
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ (53,958) 89,453
CASH AND CASH EQUIVALENTS, at beginning of period........... 626,218 572,260
----------- -----------
CASH AND CASH EQUIVALENTS, at end of period................. $ 572,260 $ 661,713
=========== ===========
</TABLE>
35
<PAGE> 38
MULTI-LINK TELECOMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
SEPTEMBER 30,
-------------------------
1999 2000
----------- -----------
<S> <C> <C>
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Cash paid for interest...................................... $ 325,332 $ 356,287
=========== ===========
Cash paid for taxes......................................... $ 9,792 $ 30,544
=========== ===========
Unrealized gain (loss) on available-for-sale securities..... $ (11,312) $ 10,644
=========== ===========
Equipment acquired through debt............................. $ -- $ 1,105,472
=========== ===========
Conversion of notes payable to equity....................... $ 35,000 $ --
=========== ===========
Write-off of non-compete agreement through note payable
reduction................................................. $ 25,000 $ --
=========== ===========
Common stock\options issued for subscriber accounts......... $ 15,675 $ 38,690
=========== ===========
Consulting and non-compete agreements acquired for equity... $ -- $ 965,625
=========== ===========
Business and assets of One Touch acquired for equity........ $ -- $ 2,020,003
=========== ===========
Net liabilities assumed in business combinations accounted
for as a purchase......................................... $ -- $ 1,239,988
=========== ===========
Capital stock of VoiceLink of Florida, Inc. acquired for
equity.................................................... $ -- $ 132,000
=========== ===========
Capital stock issued as prepayment for the purchase of
messaging equipment....................................... $ -- $ 800,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
36
<PAGE> 39
MULTI-LINK TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES:
Nature of Operations -- Multi-Link Telecommunications, Inc.
(Telecommunications) was incorporated in the state of Colorado in January 1996
under the name Multi-Link Holdings, Inc. Multi-Link Holdings, Inc. was renamed
Multi-Link Telecommunications, Inc. in May 1998. On February 15, 1996,
Telecommunications acquired 97.5% of the issued common stock of Voice Services,
Inc., a Colorado corporation. Voice Services Inc. was renamed Multi-Link
Communications, Inc. (Communications) in April 1996. In May 1996, Communications
purchased a Glenayre Modular Voice Processor and launched a new range of custom
designed voice and fax messaging products targeted at business users in the
Denver and Boulder local calling areas. Telecommunications acquired the
remaining 2.5% of Communications in August 1999. During fiscal 2000, the Company
acquired a number of businesses, entities and customer bases and merged with
another entity, all of which have similar product lines. As a result of these
acquisitions, the Company is now doing business in Denver, Colorado;
Indianapolis, Indiana; Chicago, Illinois; Detroit, Michigan; Raleigh, North
Carolina; Atlanta, Georgia; and Ft. Lauderdale, Florida.
Principles of Consolidation -- The consolidated financial statements
include the accounts of Telecommunications and its subsidiaries (collectively
the "Company"). All significant intercompany transactions and accounts have been
eliminated.
Pooling of Interests -- On March 31, 2000, Telecommunications acquired 100%
of the common stock of VoiceLink, Inc. (VoiceLink), a provider of voice and fax
messaging products and paging services in the Atlanta local calling area.
Shareholders of VoiceLink exchanged their shares in VoiceLink for shares in
Telecommunications in a business combination that has been accounted for as a
pooling of interests. The consolidated financial statements and the accompanying
notes reflect Telecommunications' financial position and the results of
operations as if VoiceLink was a wholly-owned subsidiary of Telecommunications
since inception. Prior to the acquisition, VoiceLink had a fiscal year end of
December 31. The adjustment for the change in the year end is reflected in the
current period statement of stockholders' equity (see Note 2).
Cash and Cash Equivalents -- Cash and cash equivalents consist of cash and
highly liquid debt instruments with original maturities of less than three
months.
Marketable Securities -- The Company's investments comprise FDIC guaranteed
Certificates of Deposit and investment grade corporate bonds. The investments
are held in the Company's name and held at a major financial institution. All
the Company's investments were classified as available-for-sale and are carried
at fair value as current assets. Unrealized gains and losses on these
investments are included as a separate component of stockholders' equity, net of
any related tax effect.
Property and Equipment -- Property and equipment acquired on the purchase
of Communications, Hellyer Communications and One Touch Communications (see Note
2) have been stated at fair value. Otherwise, property and equipment are stated
at cost. Depreciation of property and equipment is calculated using the
straight -- line method over the estimated useful lives of the assets. The
estimated useful lives are as follows:
<TABLE>
<S> <C>
Motor vehicles....................................... 3-5 years
Plant and equipment.................................. 3-5 years
Computer equipment................................... 3-5 years
Furniture and fixtures............................... 7 years
Voice messaging equipment............................ 15 years
Leasehold improvements............................... Term of Lease
Real estate.......................................... 30 years
</TABLE>
Intangible Assets -- Direct and incremental external costs associated with
the acquisition of subscriber accounts are capitalized. The Company's personnel
and related support costs incurred in support of acquiring and transitioning
subscriber accounts are expensed as incurred. Costs related to the sales and
marketing for subscriber accounts internally generated are expensed as incurred.
Through December 1997, all subscriber accounts were
37
<PAGE> 40
MULTI-LINK TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
internally generated and, accordingly, sales and marketing costs were expensed
as incurred. Beginning January 1998 and for the remainder of fiscal 1998 and all
of fiscal 1999, the Company acquired a significant number of subscriber accounts
through independent, third-party sales organizations and, accordingly, these
direct and incremental costs have been capitalized. Following the acquisition of
VoiceLink, Hellyer Communications and One Touch Communications (see Note 2) in
fiscal 2000, the Company now acquires its subscriber accounts primarily through
its own internal sales resources. The costs of capitalized subscriber accounts
acquired are amortized on a straight-line basis over the lesser of 3 years or
the estimated economic life of the subscriber account.
Goodwill represents the excess of the purchase price over the value of net
assets/liabilities acquired in business acquisitions accounted for as a
purchase. Goodwill is amortized over 5-15 years on a straight-line basis.
Consulting and non-compete agreements are amortized on a straight-line
basis over the lives of the agreements.
Deferred Costs and Other -- Costs incurred with respect to the Company's
debt financing have been capitalized and are amortized over the respective lives
of associated debt using the straight-line method, which approximates the
interest rate method.
External costs incurred with respect to the Company's acquisitions,
accounted for using the purchase method of accounting, are initially deferred
and ultimately capitalized as a cost of the acquisition if successful or
expensed if the acquisition is unsuccessful.
Offering costs with respect to issue of common stock, warrants or options
by the Company are initially deferred and ultimately offset against the proceeds
from these equity transactions if successful or expensed if the proposed equity
transaction is unsuccessful. The offering costs have been offset against the
proceeds of private and public offerings completed during fiscal 1999 and 2000.
Other costs include security deposits and prepaid property leases.
Impairment of Long-Lived and Intangible Assets -- In the event that facts
and circumstances indicate that the cost of long-lived and intangible assets may
be impaired, an evaluation of recoverability would be performed. If an
evaluation is required, the estimated future undiscounted cash flows associated
with the asset would be compared to the asset's carrying amount to determine if
a write-down to market value or discounted cash flow value is required.
Concentration of Credit Risk and Significant Vendors -- The nature of the
Company's business is such that no single customer represents more than 2% of
net accounts receivable. The Company does not require collateral or other
security to support customer's receivables but conducts periodic reviews of
customer payment practices to minimize collection risk on trade accounts
receivable. Allowances are maintained for potential credit losses and such
losses have been within management's expectations.
In certain areas of the country, the Company bills its customers on the
local telecommunications providers' bill either directly or indirectly through a
third-party billing consolidator. This results in a concentration of credit risk
to the local telecommunications providers (in one case $586,219 and in another,
$93,512, as of September 30, 2000) and to the third-party billing consolidator
($878,669 as of September 30, 2000). Management does not believe that this
concentration presents a material risk to the Company.
As of September 30, 2000, the Company was owed $331,607 on a note
receivable (see Note 3) by a previous owner of a business acquired by the
Company. The note receivable is secured by 150,000 common shares in the Company
with a market value of $1.2 million at September 30, 2000. Consequently
management does not believe this concentration presents a material risk to the
Company.
38
<PAGE> 41
MULTI-LINK TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
As of September 30, 2000, the Company had a balance of prepaid equipment
costs of $806,262 (see Note 4) with Glenayre Technologies, Inc. Management does
not believe that this concentration presents a material risk to the Company.
The Company uses services provided by several telecommunications providers
for interconnection to the public telephone network. There are other local
telephone companies which could provide the Company with a similar
interconnection. However, in the event that any of these companies were to
experience difficulties in providing the Company with interconnection in its
present configuration, it could materially adversely affect the Company's
business in the short-term. A period of time would be required to enable the
Company to establish a new interconnection to the public telephone network.
Financial Instruments -- The estimated fair values for financial
instruments are determined at discrete points in time based on relevant market
information. These estimates involve uncertainties and cannot be determined with
precision. The carrying amounts of the note receivable, accounts receivable,
accounts payable and accrued liabilities approximate fair value because of the
short-term maturities of these instruments. The fair value of notes payable
approximates their carrying value as generally their interest rates reflect the
Company's current effective annual borrowing rate.
Income Taxes -- The Company currently accounts for income taxes under the
liability method, which requires recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method, deferred
tax assets and liabilities are determined based on the difference between the
financial statements and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
Deferred Revenue and Revenue Recognition -- Revenues are recognized at the
time services are performed or products are delivered, net of refunds. Deferred
revenue primarily represent customer prepayments which are recognized as revenue
when earned.
Comprehensive Income (Loss) -- Comprehensive income is defined as all
changes in stockholders' equity (deficit), exclusive of transactions with
owners, such as capital investments. Comprehensive income includes net income or
loss, changes in certain assets and liabilities that are reported directly in
equity such as translation adjustments on investments in foreign subsidiaries
and unrealized gains (losses) on available-for-sale securities. During fiscal
1999 and 2000, the Company held available-for-sale securities, and the
unrealized loss on these securities has been recognized as a component of
comprehensive income in the consolidated statements of stockholders' equity.
Income (Loss) Per Share -- The income (loss) per share is presented in
accordance with the provisions of Statement of Financial Accounting Standards
(SFAS) No. 128, Earnings Per Share. SFAS No. 128 replaced the presentation of
primary and fully diluted earnings (loss) per share (EPS) with a presentation of
basic EPS and diluted EPS. Basic EPS is calculated by dividing the income or
loss available to common stockholders by the weighted average number of common
stock outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock. For the year ended September 30, 1999,
included in diluted EPS are common equivalent shares outstanding totaling
196,083 determined using the treasury stock method consisting of stock options
and warrants. Basic and diluted EPS were the same for fiscal 2000 as the Company
had losses from operations and, therefore, the effect of all additional
potential common stock was antidilutive. Potential dilutive securities, not
included in diluted earnings per share, include options and warrants for the
purchase of 1,588,047 shares of common stock as of September 30, 2000. In
connection with the Company's public offering in May 1999 (see Note 9), the
representative of the underwriters required certain of the Company's significant
stockholders to place 200,000 shares of common stock in escrow pursuant to an
escrow agreement. These shares will be released from escrow based on achieving
certain net income and share price levels in the future or the sale of all or
substantially all the assets or stock of the Company. However, the shares will
be released from escrow seven years from the
39
<PAGE> 42
MULTI-LINK TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
date of the public offering, if not previously released and, therefore, are
included in the basic and diluted earnings (loss) per share calculations. The
escrowed shares retain voting rights.
Stock-Based Compensation -- As permitted under the SFAS No. 123, Accounting
for Stock-Based Compensation, the Company accounts for its stock-based
compensation in accordance with the provisions of Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock Issued to Employees. As such,
compensation expense is recorded on the date of grant if the current market
price of the underlying stock exceeds the exercise price. Certain pro forma net
income and EPS disclosures for employee stock option grants are also included in
the notes to the financial statements as if the fair value method as defined in
SFAS No. 123 had been applied. Transactions in equity instruments with
non-employees for goods or services are accounted for by the fair value method.
Use of Estimates -- The preparation of the Company's consolidated financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts reported in
these financial statements and accompanying notes. Actual results could differ
from those estimates. The Company makes significant estimates concerning the
valuation of its goodwill and subscriber accounts and their related lives. Due
to uncertainties inherent in the estimation process, it is possible that these
estimates could be materially revised within the next year.
Recently Issued Accounting Pronouncements -- SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, was issued in June 1998. This
statement establishes accounting and reporting standards for derivative
instruments and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. This statement is
effective for the Company's financial statements for the year ended September
30, 2001 and the adoption of this standard is not expected to have a material
effect on the Company's financial statements.
In December 1999, the Securities and Exchange Commission (SEC) released
Staff Accounting Bulletin (SAB) 101, Revenue Recognition in Financial
Statements. SAB 101 establishes guidelines in applying generally accepted
accounting principles to the recognition of revenue in financial statements
based on the following four criteria; persuasive evidence of an arrangement
exists, delivery has occurred or services have been rendered, the seller's price
to the buyer is fixed or determinable, and collectibility is reasonably assured.
SAB 101, as amended by SAB 101B, is effective no later than the fourth fiscal
quarter of the Company's fiscal year ending September 30, 2001. The Company does
not believe that the adoption of SAB 101 will have a material effect on its
financial position or result of operations.
Business Segments -- In June 1997, the Financial Accounting Standards Board
issued SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information" ("SFAS No. 131"). SFAS No. 131 changes the way public companies
report segment information in annual financial statements and also requires
those companies to report selected segment information in interim financial
reports to stockholders. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers. Management
believes the Company's operations comprise only one segment and as such,
adoption of SFAS No. 131 does not impact the disclosures made in the Company's
financial statements.
2. ACQUISITIONS:
On November 17, 1999, Telecommunications, through its newly formed
subsidiary, Hellyer Communications Services, Inc., acquired the business and
substantially all the assets of Hellyer Communications, Inc. (Hellyer) for a
combination of cash, assumption of certain liabilities and common stock valued
at $4.7 million. Hellyer has been a provider of business messaging services
since 1969, and has over 40,000 subscribers in Indianapolis, Chicago and
Detroit. The transaction was accounted for using the purchase method of
accounting and resulted in $2.8 million of goodwill representing the excess of
the purchase price over the fair value of net liabilities acquired. The purchase
price was $1.1 million cash and the assumption of $2.9 million in liabilities.
40
<PAGE> 43
MULTI-LINK TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Restricted common stock (150,000 shares) with a market value at the date of
issuance of $956,000 was issued with a two-year vesting schedule with respect to
a five-year non-compete and a two-year consulting agreement. Prior to the end of
the fiscal year, the Hellyer business was transferred into a newly formed
limited liability company, Hellyer Communications Services, LLC, which was
subsequently renamed Multi-Link Communications, LLC.
On November 29,1999 Hellyer Communications Services, Inc., acquired 9,416
voice messaging accounts from B.F.G. of Illinois Inc., doing business as
Cashtel, Inc., in Chicago. The purchase price was $278,855 (unaudited)
consisting of $258,320 in cash and common stock (2,220 shares) with a market
value at the date of issuance of $20,535. The revenues and expenses of these
accounts have been consolidated with those of Telecommunications effective
November 29, 1999.
On January 6, 2000, Telecommunications through its newly formed subsidiary,
One Touch Communications, Inc. acquired the business and substantially all the
assets of One Touch Communications, Inc., a provider of advanced voice messaging
services to businesses in Raleigh, North Carolina. The transaction was accounted
for using the purchase method of accounting and resulted in $2.84 million of
goodwill representing the excess of the purchase price over the fair market
value of net assets acquired. The purchase price was $3.19 million, of which
$1.17 million was in cash and restricted common stock (246,718 shares) with a
market value at date of issuance of $2.02 million. The sellers agreed to hold
the common stock for up to two years from the date of closing, although 201,250
shares were subsequently sold through private placement. The results of the One
Touch business have been consolidated with those of Telecommunications effective
January 6, 2000.
On March 31, 2000, Telecommunications acquired 100% of the outstanding
capital stock of VoiceLink, Inc. a provider of advanced voice messaging services
to businesses in Atlanta, Georgia for restricted common stock (406,488) with a
market value at the date of issuance of $4.88 million. The acquisition was
accounted for as a pooling of interests, and the results of the VoiceLink
business have been consolidated with those of Telecommunications, as if the two
businesses had been merged throughout the periods presented. During 2000, the
Company recorded a charge of $121,000 for acquisition-related costs. These costs
consisted of legal and accounting fees, and certain other expenses directly
related to the acquisition.
VoiceLink had a December 31 fiscal year-end and, accordingly, the VoiceLink
statements of operations for the year ended December 31, 1999 have been combined
with the Company's statements of operations for the fiscal year ended September
30, 1999. In order to conform VoiceLink's calendar year-end to the Company's
September 30 year-end, the consolidated statement of stockholders' equity was
adjusted for the operating results of VoiceLink for the period from October 1,
1999 to December 31, 1999, which are included in the consolidated statements of
operations in both the years ended September 30, 1999 and 2000. The following is
a summary of VoiceLink's operating results for that period:
<TABLE>
<S> <C>
Revenue.................................................. $588,979
Expenses................................................. 599,704
--------
Net loss................................................. $(10,725)
========
</TABLE>
41
<PAGE> 44
MULTI-LINK TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Separate revenues, net income, and related per share amounts of the Company
and VoiceLink are presented in the following table.
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
REVENUE:
Multi-Link.................................................. $2,217,468 $1,859,276
VoiceLink................................................... 2,371,281 2,306,660
---------- ----------
Revenue, as reported........................................ $4,588,749 $4,165,936
========== ==========
NET INCOME (LOSS):
Multi-Link.................................................. $ 391,259 $ (167,617)
VoiceLink................................................... 109,812 40,440
---------- ----------
Net income (loss), as reported.............................. $ 501,071 $ (127,177)
========== ==========
</TABLE>
Effective May 1, 2000, the Company acquired the remaining outstanding
capital stock of VoiceLink of Florida, Inc., a provider of advanced voice
messaging services to businesses in Ft. Lauderdale, Florida. VoiceLink had
previously owned 50% of the outstanding share capital of VoiceLink of Florida,
Inc. and VoiceLink of Florida, Inc. had been accounted for under the equity
method of accounting. The equity income (loss) of VoiceLink of Florida, Inc. was
not significant to the Company. The remaining 50% of outstanding share capital
of VoiceLink of Florida, Inc. was acquired for restricted common stock (12,000)
with a market value at date of issuance of $132,000. The acquisition was
accounted for as a purchase, and, as a result, the results of VoiceLink of
Florida, Inc. have been consolidated with those of the Company effective May 1,
2000.
On July 31, 2000, the Company entered into an agreement to acquire the
Chicago base of residential voicemail customers of Amerivoice, Inc. As no
subscribers had been transferred by Amerivoice to the Company before September
30, 2000, this acquisition had no impact on the results for fiscal 2000. Total
acquisition costs are not expected to exceed $100,000.
The following unaudited pro forma results of operations are for the
Company, including VoiceLink on a pooling of interests basis, Hellyer and One
Touch Communications as if the acquisitions had taken place on October 1, 1998.
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
1999
-------------
<S> <C>
Revenues............................................... $14,675,754
===========
Net (loss)............................................. $(3,854,562)
===========
Loss per share......................................... $ (1.28)
===========
Weighted average shares outstanding.................... 3,007,198
===========
</TABLE>
The above pro forma amount is not necessarily indicative of results of
operations of future periods had the combination occurred in October, 1998.
3. NOTE RECEIVABLE:
As part of Telecommunications' acquisition of Hellyer (see Note 2),
Telecommunications advanced $300,000 on a note receivable to the former owner of
Hellyer. The loan accrues interest at a prime rate plus 3%, is repayable in
full, interest and principal, on or before December 31, 2000 and is secured by
150,000 common shares of the Company. The market value of this security as of
September 30, 2000 was approximately $1.2 million.
42
<PAGE> 45
MULTI-LINK TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On November 14, 2000, the debtor under the note receivable filed for
bankruptcy under Chapter 11, which is an event of default under the note
receivable. Management does not believe that this affects the Company's ability
to realize the debt, which is collateralized by shares in the Company with a
market value substantially in excess of the fair amount of the note at the date
of bankruptcy, and that its security interest is not compromised by the
bankruptcy. Due to the unpredictability of the timing of the collection from the
bankruptcy estate, the note has been classified as long-term, however, there is
a possibility that the note may be collected within one year of the date of the
financial statements.
4. PREPAID EQUIPMENT:
As part of the private placement of shares to Glenayre Technologies, Inc.
(Glenayre) (see Note 9) the Company contracted to purchase not less than $2.5
million of messaging equipment from Glenayre over the next three years at
standard list price. To fund part of these contracted purchases, $800,000 of the
proceeds from the issuance of the stock to Glenayre was retained by Glenayre in
an escrow account.
Subsequent to the end of fiscal 2000, the Company has purchased or
committed to purchase $636,000 of equipment from Glenayre. This amount has or
will be offset against the balance of prepaid equipment costs.
5. PROPERTY AND EQUIPMENT:
Property and equipment comprise the following as of September 30, 2000:
<TABLE>
<S> <C>
Motor vehicles.......................................... $ 138,405
Plant and equipment..................................... 85,932
Computer equipment...................................... 1,273,062
Furniture and fixtures.................................. 335,899
Real estate and leasehold improvements.................. 321,673
Voice messaging equipment............................... 3,636,565
----------
5,791,536
Accumulated depreciation................................ (810,917)
----------
$4,980,619
==========
</TABLE>
Depreciation expense for the years ended September 30, 1999 and 2000 was
$139,714 and $452,729, respectively. Computer equipment includes software and
hardware developed or purchased from others.
6. INTANGIBLE ASSETS:
Intangible assets comprise the following as of September 30, 2000:
<TABLE>
<S> <C>
Goodwill............................................... $ 5,855,435
Subscriber accounts.................................... 1,565,097
Non-compete agreement.................................. 864,733
Consulting agreement................................... 275,893
-----------
8,561,158
Amortization........................................... (1,354,003)
-----------
$ 7,207,155
===========
</TABLE>
Amortization expense for the years ended September 30, 1999 and 2000 was
$231,014 and $998,366, respectively.
43
<PAGE> 46
MULTI-LINK TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. NOTES PAYABLE AND LONG-TERM DEBT:
Notes payable and long-term debt consist of the following as of September
30, 2000:
<TABLE>
<S> <C>
Line-of-credit to a commercial lender (the Westburg Loan)
for $2,150,000. Interest charged at 3% above prime (12.5%
per annum as of September 30, 2000) with monthly payments of
interest only through October 2001 after which date monthly
principal and interest payments are to be made on the basis
of a 10-year amortization with all unpaid principal and
accrued interest due October 2003. This note is
collateralized by all the assets of the Company. Under the
terms of the Westburg Loan, the Company is required to
maintain certain financial ratios and has certain other
restrictions including limits on total indebtedness, payment
of dividends, and capital expenditures. As of September 30,
2000, the Company was in compliance with these covenants.... $ 1,560,000
The Company has entered 12 leasing and loan arrangements to
finance or refinance the purchase of fixed assets. The term
of the financing is from 36 to 60 months at interest rates
of between 9.25% and 11% per annum collateralized by the
underlying assets........................................... 2,847,947
A margin facility collateralized by the Company's
investments Interest is charged at 8.75% per annum and the
facility has no specified term.............................. 475,352
The Company entered into a 20-year real estate loan,
repayable in March 2020, with a variable interest rate of
3.17% over the Fed rate (currently 9.77%), collateralized by
the underlying asset........................................ 76,004
-----------
4,959,303
Less current portion........................................ (1,204,888)
-----------
$ 3,754,415
===========
</TABLE>
Principal payments on the above obligations at September 30, 2000 are due
as follows:
<TABLE>
<S> <C>
2001.................................................... $1,204,888
2002.................................................... 903,184
2003.................................................... 2,218,083
2004.................................................... 517,346
2005.................................................... 48,247
Thereafter.............................................. 67,555
----------
$4,959,303
==========
</TABLE>
On November 20, 2000, the Company entered into a $565,000, 48-month loan at
an interest rate of 10.15% secured by fixed assets.
Total interest expense paid to stockholders for the years ended September
30, 1999 and 2000 was $376,344 and $462 respectively. There is no related party
debt outstanding as of September 30, 2000.
44
<PAGE> 47
MULTI-LINK TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. COMMITMENTS:
The Company leases certain equipment under lease agreements classified as
operating leases. Minimum future equipment and office rental payments are as
follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
---------- ----------
<S> <C> <C>
2001........................................................ $ 548,180 $ 559,130
2002........................................................ 573,404 558,850
2003........................................................ 587,404 532,659
2004........................................................ 584,908 352,169
2005........................................................ 394,398 42,615
Thereafter.................................................. 8,963 --
---------- ----------
$2,697,257 $2,045,423
==========
Less imputed interest....................................... (362,711)
----------
Capital lease principal included in Note 7.................. $1,682,712
==========
</TABLE>
On October 15, 2000, the Company entered into a new 60-month office lease
in Ft. Lauderdale, Florida with total rental payments of $57,457. This lease
obligation is included in the above table.
Rent expense for the years ended September 30, 1999 and 2000 was $74,799
and $351,589, respectively.
9. STOCKHOLDERS' EQUITY:
Preferred Stock -- The Company has the authority to issue 5,000,000 shares
of preferred stock. The Board of Directors has the authority to issue such
preferred stock in series and determine the rights and preferences of the
shares.
Common Stock -- The Company declared a 3 for 5 reverse stock split
effective in February 1999. Accordingly, all amounts for common stock reflected
in the financial statements and accompanying notes reflect the effect of this
split.
In November 1998, the Company completed a private placement of 150,000
shares and 75,000 warrants for gross proceeds of $590,000 cash and $35,000 debt
conversion. Net proceeds of the private placement and debt conversion were
$385,901.
In May 1999, the Company completed an initial public offering of 1,380,000
shares and 1,380,000 warrants for gross proceeds of $8,280,000. Net proceeds of
the initial public offering were $6,859,392.
As described in Note 2, during the year ended September 30, 2000, the
Company issued common stock in connection with four acquisitions and related
consulting and non-compete agreements.
During fiscal 2000, 40,483 shares of common stock were issued for $105,235
under the terms of the Company's approved stock option plan.
On June 30, 2000, 104,439 shares of common stock, together with a five-year
warrant to purchase 100,000 shares of the Company's common stock at an exercise
price of $14.3625, were issued to Glenayre for a total purchase price of $1
million. As part of this transaction, the Company contracted to purchase not
less than $2.5 million of messaging equipment from Glenayre over the next three
years at standard list price. To fund part of these contracted purchases,
$800,000 of the $1 million stock purchase consideration was retained by Glenayre
in an escrow account (see Note 4).
The Company is currently undertaking a public offering to provide gross
proceeds of approximately $15 million. At the close of the public offering, the
Company will sell to the representative of the underwriters for $100, 80,000
warrants to purchase 40,000 shares of common stock, at an exercise price amount
to be determined
45
<PAGE> 48
MULTI-LINK TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
based on this offering. The underwriter's warrants will be exercisable for four
years beginning one year after the effective date of the registration statement.
Warrants -- During fiscal 1998, the Company issued "A" warrants for the
purchase of 36,000 shares of common stock to an entity in consideration for
converting part of its debt with the Company into 72,000 shares of common stock.
These warrants expire May 2001 and are exercisable at $4.17 per share.
The Company also issued a warrant for the purchase of 150,000 shares of
common stock to the lender in consideration for advancing the Westburg Loan (see
Note 7). The expiration date of the warrant will be earlier of (i) the date all
amounts are repaid under the Westburg Loan, (ii) the date of the sale of the
Company or substantially all of its assets, (iii) the effective date of a
registration statement filed under the Securities Act in connection with a
$5,000,000 or greater firm commitment underwriting for common stock of the
Company at a price greater than $8.17 per share, or (iv) October 21, 2003. The
warrant is exercisable at $4.17 per share.
In connection with the private placement and debt conversion in November
1998, the Company issued "A" warrants to purchase 75,000 shares of common stock.
These warrants are currently exercisable at $4.17 per share. The warrants expire
in May 2001 and are redeemable under certain circumstances by the Company.
In November 1998, the placement agent of the private placement and its
nominees were issued "A" warrants and "B" warrants to purchase 7,500 and 15,000
shares of common stock at $4.17 and $5.00 per share. The warrants are
exercisable under the same terms as the warrants issued in the private
placement. The placement agent options are exercisable after November 1999 and
expire in November 2003. In May 1999, two of the placement agent's nominees
agreed to cancel 3,780 "A" warrants and 7,560 "B" warrants.
In connection with the initial public offering in May 1999, the Company
issued 1,380,000 "C" warrants. Two "C" warrants are exercisable to purchase one
share of common stock for an exercise price of $9.00 per share during the three
years ended May 14, 2002, subject to the Company's redemption rights.
In May 1999, the underwriter to the initial public offering was issued
warrants to subscribe for 120,000 units at $7.68 per unit. Each unit comprises
one common share and one warrant. Two of the warrants within the units are
exercisable to purchase one share of common stock for an exercise price of
$11.52. Warrants within the units only become issued when the unit warrants are
exercised. These warrants are exercisable through May 2004.
In February 2000, warrants to purchase 150,000 shares of common stock at
exercise prices between $14.00 and $25.00 per share were issued to an entity in
connection with advisory services to be provided in connection with the
identification of an underwriter for a public offering. The warrants would have
become exercisable immediately upon the successful completion of an offering.
The expiration date of the warrants was March 20, 2002. In the event that an
offering was not successfully completed before September 20, 2000, the Company
had the right to cancel the warrants. As no offering was successfully completed
by September 20, 2000, these warrants were cancelled effective at that date.
On June 30, 2000, the Company issued warrants to purchase 100,000 shares of
common stock at an exercise price of $14.3625 to Glenayre as part of the
transaction described above. The warrants expire in June 2005.
Stock Options -- In 1997, the Company adopted a stock option plan (the
"Plan") that authorizes the issuance of up to 300,000 shares of common stock.
During fiscal 2000, the number of shares of common stock within the plan was
subsequently increased to 800,000. Pursuant to the Plan, the Company may grant
"incentive stock options" (intended to qualify under Section 422 of the Internal
Revenue Code of 1986, as amended) or "nonqualified stock options."
Incentive and nonqualified stock options shall be granted at fair market
value, to be determined by the Board of Directors, at the date of grant (except
for holders of more than 10% of common stock, in which case the exercise price
must be at least 110% of the fair market value at the date of grant for
incentive stock options). The term of the options shall not exceed ten years and
the vesting date is determined by the Board of Directors. As of
46
<PAGE> 49
MULTI-LINK TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2000, the Company had granted options under the Plan to purchase
595,580 shares, of which 91,243 options have been exercised and 38,450 have been
forfeited or canceled.
The following is a table of activity under the Plan:
<TABLE>
<CAPTION>
1999 2000
-------------------- --------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE
OF SHARES PRICE OF SHARES PRICE
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Outstanding, beginning of year................. 154,665 $1.384 210,630 $4.207
Granted:
Employees and others......................... 30,335 6.00 20,000 6.625
Employees and others......................... 83,200 6.50 151,000 8.50
Employees.................................... -- -- 20,000 9.35
Employees.................................... -- -- 126,750 12.00
Exercised...................................... (50,760) 0.492 (40,483) 2.60
Forfeited/Canceled............................. (6,810) 3.703 (22,010) 9.08
------- -------
Outstanding, end of year....................... 210,630 $4.207 465,887 $ 7.95
======= =======
</TABLE>
The weighted average fair value of options granted during fiscal 1999 and
2000 was $1.64 and $2.41 per share, respectively. For all options granted, the
weighted average market price of the Company's common stock on the grant date
was approximately equal to the weighted average exercise price. Because the
shares were not registered and publicly traded during 1998 and part of 1999, for
the purpose of pricing the grants, the fair market value of the Company's common
stock was determined by the Company's management and the Board of Directors. In
May 1999, the Company's shares were registered and became publicly traded. The
market prices of the Company's shares underlying the options granted subsequent
to that time ranged from $4.625 to $14.1875.
The weighted average contractual life for all options as of September 30,
2000 was approximately 8 years 10 months, with the exercise prices ranging from
$0.017 to $12.00. At September 30, 2000, options for 111,292 shares were
exercisable and options for the remaining shares become exercisable pro rata
through December 2003. If not previously exercised, options outstanding at
September 30, 2000, will expire as follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE
OF EXERCISE
FISCAL YEAR SHARES PRICE
----------- --------- --------
<S> <C> <C>
2004........................................................ 20,000 $6.00
2007........................................................ 40,765 0.03
2008........................................................ 18,720 3.96
2009........................................................ 86,652 6.46
2010........................................................ 299,750 9.84
-------
465,887 $7.95
=======
</TABLE>
Pro Forma Stock-Based Compensation Disclosures -- The Company applies APB
Opinion 25 and related interpretations in accounting for its stock options which
are granted to employees. Accordingly, no compensation cost has been recognized
for grants of options to employees since the exercise prices were not less than
the quoted value of the Company's common stock on the grant dates. Had
compensation cost been determined based on the fair value at the grant dates for
awards under the Plan consistent with the method of SFAS No. 123, the
47
<PAGE> 50
MULTI-LINK TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Company's net income (loss) and earnings (loss) per share would have been
reduced (increased) to the pro forma amount indicated below.
<TABLE>
<CAPTION>
1999 2000
-------- ---------
<S> <C> <C>
Net income (loss) applicable to common shareholders:
As reported................................................. $501,071 $(129,206)
Pro forma................................................... 427,812 (759,359)
Net income (loss) per common share:
As reported................................................. $ 0.19 $ (0.03)
Pro forma................................................... 0.16 (0.19)
</TABLE>
For purposes of this disclosure, the weighted average fair value of the
employee options granted was $1.64 and $2.45 in fiscal 1999 and 2000,
respectively.
The fair value of each employee and non-employee option granted in fiscal
year 1999 and 2000, was estimated on the date of grant using the Black-Scholes
option pricing model with the following weighted average assumptions:
<TABLE>
<CAPTION>
1999 2000
---- ---------
<S> <C> <C>
Expected volatility......................................... 34.8% 38.7-50.9%
Risk-Free interest rate..................................... 5.0% 6.5%
Expected dividends.......................................... 0% 0%
Expected terms (in years)................................... 2 1-3
</TABLE>
10. INCOME TAXES:
The Company's actual effective tax rate differs from U.S. Federal corporate
income tax rate of 34% as follows:
<TABLE>
<CAPTION>
1999 2000
----- -----
<S> <C> <C>
Statutory rate.............................................. 34.0% (34.0)%
State income taxes, net of Federal income tax benefit....... 3.3% (3.3)%
Increase (reduction) in valuation allowance related To net
operating loss carryforwards and change in temporary
differences............................................... (25.3)% 47.3%
----- -----
12% 10%
===== =====
</TABLE>
The components of the net deferred tax asset recognized as of September 30
are as follows:
<TABLE>
<CAPTION>
1999 2000
----------- ----------
<S> <C> <C>
Current deferred tax asset (liabilities):
Prepaid expense........................................... $ -- $ (158,000)
Allowance for doubtful account............................ 12,000 56,000
Other..................................................... (3,000) 9,000
----------- ----------
9,000 (93,000)
Valuation allowance....................................... (9,000) --
----------- ----------
Net current deferred tax liability................ -- (93,000)
----------- ----------
Long-term deferred tax assets (liabilities):
Net operating loss carryforwards.......................... 862,000 1,080,000
Goodwill.................................................. 115,000 118,000
Pooling expenses.......................................... -- 45,143
Capitalized subscriber accounts........................... 261,000 (251,000)
Other..................................................... 27,000 23,000
Valuation allowance....................................... (1,265,000) (922,143)
----------- ----------
Net long-term deferred tax asset.................. -- 93,000
----------- ----------
Total deferred tax assets (liabilities)........... $ -- $ --
=========== ==========
</TABLE>
48
<PAGE> 51
MULTI-LINK TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company currently has a net operating loss carryforward for Federal tax
purposes of approximately $2,310,000, which, unless utilized, expires from 2011
through 2019. Certain of the loss carryforwards will be subject to restrictions
after completion of the public offering (see Note 9).
49
<PAGE> 52
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MULTI-LINK TELECOMMUNICATIONS, INC.
Date: December 27, 2000 By: /s/ NIGEL V. ALEXANDER
------------------------------------
Nigel V. Alexander
Chief Executive Officer,
Treasurer and Secretary
In accordance with the Securities Exchange Act of 1924, this report has
been signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ NIGEL V. ALEXANDER Chief Executive Officer December 27, 2000
----------------------------------------------------- Treasurer and Secretary
Nigel V. Alexander (Principal Executive
Officer)
/s/ SHAWN B. STICKLE President, Chief Operating December 27, 2000
----------------------------------------------------- Officer and Director
Shawn B. Stickle
/s/ DAVID J. CUTLER Chief Financial Officer December 27, 2000
----------------------------------------------------- (Principal Financial and
David J. Cutler Accounting Officer)
/s/ KEITH R. HOLDER Director December 27, 2000
-----------------------------------------------------
Keith R. Holder
Director December 27, 2000
-----------------------------------------------------
R. Brad Stillahn
</TABLE>
50
<PAGE> 53
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION AND METHOD OF FILING
------- --------------------------------
<C> <S>
1.1 -- Form of Underwriting Agreement.(1)
1.2 -- Form of Selected Dealers Agreement.(1)
3.1 -- Restated Articles of Incorporation filed on May 18,
1998.(1)
3.2 -- Amendments to Restated Articles of Incorporation filed on
February 2, 1999.(1)
Associates Commercial Corporation.(1)
4.4 -- Form of Warrant Agreement between the Registrant and
American Securities Transfer & Trust, Inc.(1)
4.5 -- Form of Escrow Agreement.(1)
4.6 -- Forms of Lock-Up Agreements.(1)
4.7 -- Form of Representative's Option for the Purchase of
Units.(1)
4.8 -- Form of Warrant Exercise Fee Agreement between Schneider
Securities, Inc., American Securities Transfer & Trust,
Inc. and the Registrant.(1)
4.9 -- Amendment to Borrowing Agreement dated April 15, 1999
between Westburg Media Capital L.P., the Registrant and
Multi-Link Communications, Inc.(1)
4.10 -- Registration Rights Agreement dated April 15, 1999
between Westburg Media Capital L.P. and the
Registrant.(1)
4.11 -- Common Stock Purchase Warrant entitling Glenayre
Technologies, Inc. to purchase 100,000 shares of
Multi-Link Common Stock.(5)
4.12 -- Registration Rights Agreement dated as of June 30, 2000
between the Registrant and Glenayre Technologies, Inc.(5)
9.1 -- Form of Exercise Fee Agreement.(2)
10.1 -- Stock Option Plan.(1)
10.2 -- First Amendment to Stock Option Plan.(1)
10.3 -- Agreement dated January 1, 1999, between the Registrant
and Telecom Sales Associates, Inc. as amended on February
3, 1999.(1)
10.5 -- US West Communications Digital Switched Service Rate
Stability Plan Agreements.(1)
10.6 -- Consulting Agreement between the Registrant and Octagon
Strategies, Inc.(1)
10.7 -- Employment Agreement between the Registrant and Shawn B.
Stickle.(1)
10.8 -- Lease Agreement dated March 29, 1999 between the
Registrant and Lakeside Holdings, L.L.C., as amended.(1)
10.9 -- Promissory Note dated September 30, 1998 from Registrant
to Octagon Strategies, Inc.(1)
10.10 -- Promissory Note dated September 30, 1998 from Registrant
to Shawn B. Stickle.(1)
10.11 -- Promissory Note dated April 14, 1999 from Registrant to
Westburg Media Capital, L.P.(1)
10.12 -- Agreement for Sale and Purchase of Assets and Exhibits A
and B dated September 17, 1999 by and among Hellyer
Communications, Inc., Jerry L. Hellyer, Sr., Multi-Link
Telecommunications, Inc., and HC Acquisition Corp.(3)
10.13 -- Consulting Agreement dated September 17, 1999 by and
among Hellyer Communications, Inc. and HC Acquisition
Corp.(3)
</TABLE>
<PAGE> 54
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION AND METHOD OF FILING
------- --------------------------------
<C> <S>
10.14 -- Amended and Restated Asset Purchase Agreement dated
November 17, 1999 by and among Hellyer Communications,
Inc., Jerry L. Hellyer, Sr., Multi-Link
Telecommunications, Inc. and Hellyer Communications
Services, Inc. (without exhibits).(4)
10.15 -- Loan Agreement dated November 17, 1999 by and between
Multi-Link Telecommunications, Inc. and Jerry L. Hellyer,
Sr.(4)
10.16 -- Promissory Note dated November 17, 1999 by and between
Multi-Link Telecommunications, Inc. and Jerry L. Hellyer,
Sr.(4)
10.17 -- Pledge and Security Agreement by and between Multi-Link
Telecommunications, Inc. and Jerry L. Hellyer, Sr.(4)
10.18 -- Purchase Agreement dated November 22, 1999 by and between
B.F.G of Illinois, Inc., Multi-Link Telecommunications,
Inc. and Hellyer Communications Services, Inc.(8)
10.19 -- Asset Purchase Agreement dated December 22, 1999 by and
among One Touch Communications, Inc., David G. Webster,
Eric C. Beguelin, Multi-Link Telecommunications, Inc. and
One Touch Communications, Inc.(8)
10.20 -- Stock Purchase Agreement dated March 25, 2000 by and
among Multi-Link Telecommunications, Inc., VoiceLink,
Inc., L. Van Page and Larry Mays (without exhibits).(5)
10.21 -- Registration Rights Agreement dated March 31, 2000 by and
among L. Van Page, Larry Mays, Nigel V. Alexander, Shawn
B. Stickle and Multi-Link Telecommunications, Inc.(5)
10.22 -- Letter of Intent by and between Multi-Link
Telecommunications, Inc. and Glenayre Technologies, Inc.
dated as of May 17, 2000.(6)
10.23 -- Securities Purchase Agreement dated as of June 30, 2000
between Multi-Link Telecommunications, Inc. and Glenayre
Technologies, Inc.(7)
10.24 -- Volume Purchase Agreement dated as of June 30, 2000
between Multi-Link Telecommunications, Inc. and Glenayre
Electronics, Inc.(7)
16 -- Letter from James E. Scheifley & Associates, PC
confirming the circumstances pursuant to which James E.
Scheifley & Associates, PC resigned as Registrant's
principal independent accountants.(1)
21 -- Subsidiaries of the Registrant.(9)
23.1 -- Consent of HEIN + ASSOCIATES LLP.
27 -- Financial Data Schedule.
</TABLE>
---------------
(1) Incorporated by reference to the exhibits contained in the Registrant's
Registration Statement on Form SB-2 (No. 333-72889).
(2) Incorporated by reference to the exhibits contained in the Registrant's
Quarterly Report on Form 10-QSB filed on June 25, 1999.
(3) Incorporated by reference to the exhibits contained in the Registrant's
Current Report on Form 8-K filed on September 24, 1999.
(4) Incorporated by reference to the exhibits contained in the Registrant's
Current Report on Form 8-K filed on December 3, 1999.
(5) Incorporated by reference to the exhibits contained in the Registrant's
Current Report on Form 8-K filed on April 14, 2000.
(6) Incorporated by reference to the exhibits contained in the Registrant's
Current Report on Form 8-K filed on May 30, 2000.
<PAGE> 55
(7) Incorporated by reference to the exhibits contained in the Registrant's
Current Report on Form 8-K filed on July 14, 2000.
(8) Incorporated by reference to the exhibits contained in the Registrant's
Annual Report on Form 10-KSB filed on January 11, 2000.
(9) Incorporated by reference to the exhibits contained in the Registrant's
Annual Report on Form 10-KSB filed on January 11, 2000.
