<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 1, 2000
REGISTRATION NO.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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MULTI-LINK TELECOMMUNICATIONS, INC.
(Name of small business issuer in its charter)
<TABLE>
<S> <C> <C>
COLORADO 7389 84-1334687
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
Incorporation or organization) Classification Code Number)
</TABLE>
<TABLE>
<S> <C>
4704 HARLAN STREET, SUITE 420 NIGEL V. ALEXANDER
DENVER, COLORADO 80212 4704 HARLAN STREET, SUITE 420
(303) 831-1977 DENVER, COLORADO 80212
(Address and telephone number of principal executive (303) 831-1977
offices and address of principal place of business) (Name, address and telephone number
of agent for service)
</TABLE>
With Copies to:
<TABLE>
<S> <C>
BLAIR L. LOCKWOOD, ESQ. HERBERT H. DAVIS III, ESQ.
JEFFREY A. SHERMAN, ESQ. KEVIN M. KELLY, ESQ.
FAEGRE & BENSON LLP ROTHGERBER JOHNSON & LYONS LLP
2500 REPUBLIC PLAZA SUITE 3000, ONE TABOR CENTER
370 17TH STREET 1200 17TH STREET
DENVER, COLORADO 80202 DENVER, COLORADO 80202
(303) 592-9000 (303) 623-9000
</TABLE>
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APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
following the date on which the Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED MAXIMUM AMOUNT OF
AMOUNT TO BE PROPOSED MAXIMUM AGGREGATE OFFERING REGISTRATION
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED REGISTERED OFFERING PRICE (1) PRICE(1) FEE
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<S> <C> <C> <C> <C>
UNDERWRITTEN OFFERING
Units Consisting of............................... 1,850,000 Units $ 9.00 $16,650,000 $4,396.00
(a) One Share of Common Stock................... 1,850,000 Shares
(b) One-half of one Series D Warrant............ 925,000 Warrants
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Over-allotment Option
Units Consisting of............................. 277,500 Units $ 9.00 $ 2,497,500 $ 660.00
(a) One Share of Common Stock................... 277,500 Shares
(b) One-half of one Series D Warrant............ 138,750 Warrants
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Common Stock(2)................................... 531,875 Shares $ 9.00 $ 4,786,875 $1,264.00
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Warrants(3)....................................... 80,000 Warrants -- $ 100 $ 1.00
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Common Stock(4)................................... 40,000 Shares $ 9.00 $ 360,000 $ 96.00
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CONCURRENT OFFERING
Common Stock(5)................................. 690,000 Shares $ 9.00 $ 6,210,000 $1,640.00
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Common Stock(6)................................. 120,000 Shares $ 7.68 $ 921,600 $ 244.00
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Common Stock(6)................................. 60,000 Shares $11.52 $ 691,200 $ 183.00
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Common Stock(7)................................. 75,000 Shares $ 4.17 $ 312,750 $ 83.00
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TOTAL.................................... -- -- $32,430,025 $8,567.00
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</TABLE>
(1) Calculated pursuant to Rule 457(o) under the Securities Act of 1933, as
amended, solely for the purpose of calculating the registration fee.
(2) Issuable upon exercise of the Series D warrants.
(3) Issuable to underwriters.
(4) Issuable upon exercise of underwriters' warrants.
(5) Issuable upon exercise of warrants issued in IPO.
(6) Issuable upon exercise of underwriters' warrants issued in IPO.
(7) Issuable upon exercise of warrants held by registering shareholders.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
[The following text appears in a two page gate fold with graphic art and
pictures]
Multi-Link Telecommunications, Inc.
Providing Advanced Messaging Services
Solving These Problems
I have voice mailboxes for my office, mobile phone,
pager and at home. I really wish all my messages
could be left in the same mailbox so I have only
one place to check for all messages.
People trying to reach me have to try so many
different numbers...the office, mobile phone,
pager, or my home.
It would be so much easier if they only had to call
one number to reach me, no matter where I was. It
would be even better if I could screen those calls
to find out which were important and which were
not.
Let's see. I have voice messages, faxes and e-mail.
People leave these messages in different ways and I
have to retrieve them from different devices.
What a wonderful world it would be if all these
types of messages could be stored in the same place
and I could retrieve them from a telephone or
computer, no matter where I was.
KEEPING YOU IN TOUCH
Multi-Link maintains a web site on the World Wide Web at www.multilinkcom.com.
The information on Multi-Link's web site is not a part of this prospectus.
Going Beyond Traditional
Voice Mail and Voice
Messaging
Voice Mail................. A single mailbox for all calls to the office
All calls to the office that are not answered are
transferred to a single mailbox.
Voice Messaging............ A directory and personal mailbox for each employee
Callers may reach personal mailboxes through an
automated directory, by calling mailboxes directly,
and by receptionist transfers.
Consolidated Messaging..... Only one mailbox to check for messages
No matter where a caller tries to reach you, home,
office, mobile,... if you can't take the call, they
are transferred to the same mailbox.
One Number Service......... Callers only ever need to dial one number to speak
to you
Callers who reach your mailbox can leave a message
or use the Constant Touch service to locate you.
When activated, the service dials all your chosen
devices and tells you who is calling. You decide
whether to connect with them, return them to voice
mail, or disconnect immediately.
Unified Messaging.......... Voice, fax, and e-mail messages are stored in the
same mailbox
Voice, fax, and e-mail messages are stored in the
same mailbox. You can retrieve these messages from
a telephone, personal computer or fax machine.
E-mail integration available in early 2001.
Multi-Link Telecommunications -- Providing Advanced Messaging Services
i
<PAGE> 3
EXPLANATORY NOTE
This registration statement contains two prospectuses. One prospectus
relates to the offering of 1,600,000 shares of common stock and 925,000 Series D
warrants by us and 250,000 shares of common stock by selling shareholders. The
other prospectus relates to the registration of the sale of 870,000 shares by us
to holders of warrants issued to the public and to the underwriters in our
initial public offering and the resale by warrant holders of 75,000 shares of
common stock. Certain substitute pages follow the main prospectus and contain
alternate front outside and back outside cover pages, an alternate "The
Offering" section of the "Prospectus Summary," and sections entitled "Concurrent
Offering," and "Plan of Distribution." Each of such alternate pages is labeled
"Alternate Page." All other sections of the prospectus, other than
"Underwriting" and "Concurrent Offering," are to be used in the alternate
prospectus. We will adjust cross-references in the prospectus to refer to the
appropriate sections.
<PAGE> 4
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with
the Securities and Exchange Commission is effective. This prospectus is not
an offer to sell these securities and it is not soliciting an offer to buy
these securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED SEPTEMBER 1, 2000
1,850,000 UNITS
MULTI-LINK TELECOMMUNICATIONS, INC.
"KEEPING YOU IN TOUCH"
[MULTI-LINK LOGO]
1,850,000 SHARES OF COMMON STOCK
AND
925,000 WARRANTS
This is a public offering of units of Multi-Link Telecommunications, Inc.
Each unit consists of one share of common stock and one-half of one Series D
warrant. Two Series D warrants are exercisable to purchase one share of common
stock at a price of $ per share.
We are selling:
- 1,600,000 shares
- 925,000 Series D warrants
Selling shareholders are selling:
- 250,000 shares
If the underwriters' overallotment option is fully exercised:
We will sell:
- 138,750 additional Series D warrants
Selling shareholders will sell:
- 277,500 additional shares
The common stock is listed under the symbol "MLNK" on the Nasdaq SmallCap
Market and traded at $8.438 as of close of trading on August 30, 2000. Our
outstanding public warrants are listed under the symbol "MLNKW" on the Nasdaq
SmallCap Market and traded at $1.125 as of close of trading on August 30, 2000.
We have applied to have our common stock and currently outstanding public
warrants listed on the Nasdaq National Market under the same symbols and the
Series D warrants being sold in this offering under the symbol "MLNK__" and
anticipate that approval will occur concurrently with this offering.
THESE ARE SPECULATIVE SECURITIES. INVESTING IN THE SECURITIES INVOLVES
CERTAIN RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 8.
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<TABLE>
<CAPTION>
PER ONE-HALF OF ONE
PER SHARE SERIES D WARRANT TOTAL
--------- ------------------- -----
<S> <C> <C> <C>
Public Offering Price................................... $ $ $
Underwriting Discounts.................................. $ $ $
Proceeds to Us.......................................... $ $ $
Proceeds to Selling Shareholders........................ $ $ $
</TABLE>
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
STIFEL, NICOLAUS & COMPANY, INCORPORATED
Prospectus dated , 2000
<PAGE> 5
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified
in its entirety by, the more detailed information and financial statements and
the notes thereto appearing elsewhere in this prospectus.
OUR COMPANY
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
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 SERVICES AND PRODUCTS
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.
2
<PAGE> 6
OUR MARKETS AND CUSTOMERS
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.
OUR INTERNAL REVENUE GROWTH STRATEGY
We plan to grow our revenues by selling our services to new and existing
customers through our internal sales forces. We believe that our rate of
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.
OUR STRATEGY FOR ENTERING NEW CITIES
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.
OUR MESSAGING EQUIPMENT PARTNER
We use Glenayre messaging equipment. 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. In June 2000, Glenayre
purchased approximately 6.5% of our outstanding common stock. Our agreement with
Glenayre requires us to purchase $2.5 million of equipment, software, training
and services before the end of June 2003.
Our principal executive offices are located at 4704 Harlan Street, Suite
420, Denver, Colorado 80212. Our telephone number is (303) 831-1977 and our
facsimile number is (303) 831-1988. We maintain a site on the World Wide Web at
www.multilinkcom.com. We do not intend that our website be a part of this
prospectus.
3
<PAGE> 7
THE OFFERING
Securities offered.................. 1,850,000 units, each unit consisting
of one share of common stock and
one-half of one Series D warrant
Series D warrant attributes......... Two Series D warrants are exercisable
to purchase one share of common stock
at an exercise price of $ per share
until , subject to our
redemption rights
Common stock offered by us.......... 1,600,000 shares
Common stock offered by selling
shareholders...................... 250,000 shares
Series D warrants offered by us..... 925,000 Series D warrants exercisable
to purchase 462,500 shares
Common stock offered by selling
shareholders in the over-allotment
option............................ 277,500 shares
Series D warrants offered by us in
the over-allotment option......... 138,750 Series D warrants exercisable
to purchase 69,375 shares
Shares of common stock to be
outstanding after the offering.... 5,881,450 shares
Nasdaq SmallCap Market symbol for
shares (and proposed symbol for
Nasdaq National Market)........... MLNK
Proposed Nasdaq National Market
symbol for Series D warrants sold
in this offering.................. MLNK__
The number of shares of common stock to be outstanding after this offering
is based on 4,084,290 shares outstanding on August 30, 2000, plus 1,600,000
shares that we will issue in connection with this offering and 197,160 shares
that we will issue upon the exercise of warrants concurrently with the closing
of this offering, but excluding:
- 462,500 shares of common stock issuable upon exercise of the Series D
warrants;
- 40,000 shares of common stock issuable upon exercise of the underwriters'
warrants;
- 483,247 shares of common stock issuable upon exercise of options
outstanding as of August 30, 2000;
- 225,870 shares of common stock reserved for future grants under our
amended and restated stock option plan; and
- 1,045,000 shares of common stock issuable upon exercise of other warrants
outstanding as of the closing of this offering.
Unless the context indicates otherwise, use of the terms "Multi-Link," "we"
or "our" in this prospectus includes our various wholly owned subsidiaries.
Unless otherwise stated, all information in this prospectus assumes no
exercise of the over-allotment option by the underwriters.
4
<PAGE> 8
FORWARD-LOOKING STATEMENTS
Some of the statements contained in this prospectus under "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" are forward-looking. They
include statements that involve risks and uncertainties that might adversely
affect our operating results in the future in a material way. Such risks and
uncertainties include:
- the availability and cost of future acquisitions;
- the availability of connections to public telephone networks;
- our ability to add our charges to our customers' local Bell telephone
bills;
- the effects of regional economic and market conditions on our employee
salaries and benefits;
- the effects of regional economic and market conditions on our ability to
secure and keep customers;
- increases in marketing and sales costs;
- intensity of competition for customers;
- changes in and cost of technologies; and
- the availability of financing.
Most of these risks are beyond our control. Actual results may differ
materially from those suggested by the forward-looking statements for various
reasons, including those discussed under "Risk Factors."
5
<PAGE> 9
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table summarizes the financial data of our business. You
should refer to the consolidated financial statements included elsewhere in this
prospectus for a more complete description of our financial condition. To gain
an accurate understanding of our growth you should understand the sequence of
acquisitions that we have made. These are listed under the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30, NINE MONTHS ENDED JUNE 30,
----------------------- ---------------------------
1998 1999 1999 2000
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS) DATA:
Net revenues................................. $4,165,936 $4,588,749 $3,354,536 $8,262,473
Cost of services and products................ 825,746 785,502 595,990 1,747,237
Gross margin................................. 3,340,190 3,803,247 2,758,546 6,515,236
Sales and advertising expenses............... 522,541 401,638 271,830 998,708
General and administrative expenses.......... 1,962,679 2,187,650 1,497,432 4,044,684
Non-recurring pooling expenses............... 0 0 0 101,091
Non-recurring moving expenses................ 0 0 0 122,179
Depreciation................................. 159,926 139,714 105,634 295,788
Amortization................................. 81,674 231,024 155,458 697,608
Income from operations....................... 613,370 843,221 728,192 255,178
Interest income (expense), net............... (726,339) (274,846) (291,210) (200,220)
Net income (loss)............................ (127,177) 501,071 363,104 43,706
Net income (loss) per common share
Basic...................................... (0.07) 0.19 0.16 0.01
Diluted.................................... (0.07) 0.18 0.14 0.01
Weighted average common shares outstanding
Basic...................................... 1,903,393 2,610,480 2,320,732 3,824,375
Diluted.................................... 1,903,393 2,806,563 2,534,677 4,011,660
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 2000
SEPTEMBER 30, ---------------------------------------
1999 ACTUAL PRO FORMA AS ADJUSTED
------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash & marketable securities............. $3,969,262 $ 910,420 $ 1,737,580 $13,285,830
Working capital.......................... 3,825,727 951,345 1,779,045 13,327,295
Total assets............................. 7,435,702 16,084,646 16,912,346 28,460,596
Long-term liabilities.................... 716,165 3,783,693 3,783,693 2,223,693
Total stockholders' equity............... 5,983,159 10,237,994 11,065,694 24,173,944
</TABLE>
The "Pro Forma" column in this table reflects the exercise of 197,160
outstanding warrants and the receipt of $827,700 in net proceeds upon closing of
the offering. The "As Adjusted" column in this table reflects the sale of
1,600,000 shares of common stock and 925,000 Series D warrants by us at an
assumed offering price of $9.00 per unit, comprised of $8.50 per share and $0.50
per one-half of one Series D warrant, net of estimated offering costs totaling
$1,416,750 and the application of the net proceeds upon closing of the offering.
6
<PAGE> 10
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, NINE MONTHS ENDED JUNE 30,
------------------------- --------------------------
1998 1999 1999 2000
---------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF CASH FLOWS AND
OTHER DATA:
Net cash provided by (used in) operating
activities................................ $ 54,018 $ 679,410 $ 448,663 $ (635,389)
Net cash used in investing activities....... (390,442) (5,139,888) (671,796) (1,867,253)
Net cash provided by financing activities... 858,782 4,406,520 4,505,712 2,544,982
EBITDA...................................... 854,970 1,213,959 989,284 1,248,574
</TABLE>
The row entitled "EBITDA" reflects net income or loss plus depreciation,
amortization, net 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.
7
<PAGE> 11
RISK FACTORS
You should carefully consider the following factors and other information
in this prospectus before deciding to invest in us.
WE HAVE ONLY RECENTLY ACHIEVED PROFITABILITY SO OUR LONG-TERM SUCCESS IS NOT
ASSURED.
We generated net income of $501,000 in the fiscal year ended September 30,
1999, and net income of $44,000 for the nine months ended June 30, 2000. We
incurred a net loss in fiscal 1998. Although our revenues have grown in recent
periods, 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.
8
<PAGE> 12
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.
YOU WILL BE UNABLE TO REVIEW INFORMATION ABOUT MOST PROPOSED ACQUISITIONS OR TO
VOTE ON ACQUISITIONS.
We have determined the criteria that we will most likely use in considering
potential acquisitions. Except in the case of a very large transaction, you will
not have the opportunity to review the financial statements or any other
information regarding any business we may propose to acquire, and you will not
be able to vote on these acquisitions.
We have designated most of the net proceeds of this offering to complete
acquisitions that we have not yet identified. Therefore, we have not designated
any specific use for such net proceeds and could reallocate such proceeds when
and if market conditions or unexpected changes in operating conditions or
results of operations occur. Our management will have significant discretion in
applying the net proceeds of this offering. You will not have the opportunity to
evaluate the economic, financial or other information on which we base our
decisions on how to use these proceeds.
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;
9
<PAGE> 13
- 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.
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.
BECAUSE OUR SECURITIES ARE THINLY TRADED, THE MARKET PRICE MAY BE VOLATILE.
Prior to this offering, there has been a limited public trading market for
our common stock and outstanding public warrants. The common stock and
outstanding public warrants have traded in limited volumes on the Nasdaq
SmallCap Market. We have applied to list the shares, outstanding public warrants
and Series D warrants on the Nasdaq National Market and anticipate listing on
such market concurrently with the closing of this offering. However, there can
be no assurance that a regular trading market for the common stock, outstanding
public warrants or Series D warrants will develop after this offering or that,
if developed, it will be sustained. The market price for our securities
following this offering may be highly volatile as has been the case with the
securities of other small companies. Factors such as our financial results and
introduction of new services by us or our competitors, and various factors
affecting the telecommunications industry generally may have a significant
impact on the market price of our securities. Additionally, in recent years, the
stock market has experienced a high level of price and volume volatility and
market prices for the stock of many companies, particularly of small companies,
have experienced wide price fluctuations that have not necessarily been related
to the operating performance of these companies.
THE OFFERING WILL BENEFIT OUR CURRENT OFFICERS, DIRECTORS AND SHAREHOLDERS.
If the underwriters exercise their over-allotment option, our current
officers, directors and principal shareholders will sell some of the common
stock sold as part of this offering. These selling shareholders will directly
benefit from the sale of their shares of common stock.
10
<PAGE> 14
CONCURRENT REGISTRATION
The registration statement of which this prospectus forms a part also
includes a prospectus with respect to the registration of the sale of 870,000
shares of common stock by us to holders of warrants issued to the public and to
the underwriters in our initial public offering and the resale by the
registering shareholders of 75,000 shares of common stock that are issuable upon
the exercise of warrants issued in private placements, all of which may be sold
in the open market, in privately negotiated transactions or otherwise, directly
by the registering shareholders. The registering shareholders have agreed with
the underwriters not to sell any such shares from the date of this prospectus
for a period of six months without the prior written consent of the
underwriters. We will not receive any proceeds from the sale of the shares by
the registering shareholders, although we will receive proceeds from the
exercise of the warrants. We will pay expenses of the concurrent offering, other
than fees and expenses of counsel to the registering shareholders and selling
commissions. Sales of the securities held by the registering shareholders or the
potential for these sales may have an adverse effect on the market price of the
shares and Series D warrants.
ADDITIONAL INFORMATION
We are subject to the reporting requirements of the Securities Exchange Act
of 1934, as amended, and as a result we file annual, quarterly and special
reports, proxy statements and information statements, and other information with
the SEC. You may read and copy any report or document we file at the public
reference facilities maintained by the SEC at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549 and at the SEC's regional offices located at Seven World
Trade Center, Suite 1300, New York, New York 10048, and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Please call the SEC at 1-800-SEC-0330 for
more information about the public reference rooms. Our SEC filings are also
available from the SEC's web site located at http://www.sec.gov.
We have filed a registration statement with the SEC under the Securities
Act of 1933 with respect to the securities offered. This prospectus, filed as
part of the registration statement, does not contain certain information
contained in the registration statement required by the rules and regulations of
the SEC. For further information, please see the registration statement and its
exhibits, which may be inspected without charge at the offices of the SEC listed
above or viewed at the SEC web site. Copies of the material contained in the
registration statement and its exhibits may be obtained from the SEC upon
payment of applicable copying charges. Statements contained in this prospectus
as to the contents of any contract or other document are not necessarily
complete, and in each instance you should refer to the copy of such contract or
other document filed as an exhibit to the registration statement.
USE OF PROCEEDS
Based on an assumed offering price of $9.00 per unit, comprised of $8.50
per share of common stock and $0.50 per one-half of one Series D warrant, the
net proceeds from the sale of the common stock and warrants by us are estimated
to be approximately $13,108,250 ($13,237,288 if the over-allotment option is
fully exercised). We intend to allocate the net proceeds as follows:
<TABLE>
<CAPTION>
USE PROCEEDS PERCENT
--- ----------- -------
<S> <C> <C>
Purchase of messaging equipment............................. $ 1,700,000 13.0%
Repayment of debt........................................... 1,560,000 11.9
Purchase of customer management and billing software........ 500,000 3.8
Acquisition of businesses and working capital............... 9,348,250 71.3
----------- -----
Total............................................. $13,108,250 100.0%
=========== =====
</TABLE>
In June 2000, we entered into an agreement with Glenayre under which we
agreed to purchase not less than $2.5 million of messaging equipment from them
over the next three years. In June 2000 we deposited
11
<PAGE> 15
$800,000 in our account with them and have allocated $1.7 million of the
proceeds of this offering towards meeting this obligation.
We intend to repay the loan from Westburg Media Capital, L.P. with the
proceeds of this offering. That loan was for $1,560,000, bears interest at the
prime rate plus 3% per annum and is due on October 31, 2003. The line of credit
will remain available for additional advances.
We intend to purchase new customer management and billing software with
approximately $500,000 of the proceeds of the offering. We believe that new
software will be necessary as we increase the number of cities in which we
provide service and increase the overall number of customers using our service.
We have no present commitments, agreements or understandings with respect
to any acquisitions. Generally, we will consider acquiring voice messaging
businesses that:
- are established in larger North American markets;
- provide service to several thousand business or residential subscribers;
- are owned by an individual interested in continuing management
responsibilities and receiving stock as partial consideration for the
purchase; and
- have office facilities that can support expansion.
The above description represents our best estimate of the uses of the net
proceeds to be received in this offering, based on current planning and business
conditions. However, we reserve the right to change such uses when and if market
conditions or unexpected changes in operating conditions or results of
operations occur. The amounts actually expended for each use may vary
significantly depending upon a number of factors including, but not limited to,
future acquisitions and the amount of cash generated by our operations. We
believe that our existing capital resources and the net proceeds of this
offering will be sufficient to maintain our current and planned operations for a
period of at least 12 months from the date of this prospectus. Net proceeds not
immediately required for the purposes described above will be invested
principally in investment grade, interest-bearing securities.
PRICE RANGE OF COMMON STOCK AND WARRANTS
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, the date of
initial public offering)................................ $ 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 (through August 30, 2000)........... 10.375 8.313 1.516 0.875
</TABLE>
The last sale price for the common stock on the Nasdaq SmallCap Market on
August 30, 2000, was $8.438. The last sale price for the warrants on the Nasdaq
SmallCap Market on August 30, 2000, was $1.125. As of August 30, 2000, there
were approximately 39 holders of record of common stock and approximately
12
<PAGE> 16
6 holders of record of our outstanding public warrants. We believe that as of
such date there were approximately 850 beneficial holders of common stock.
We have applied to have the common stock and currently outstanding public
warrants listed on the Nasdaq National Market under the same symbols, and the
Series D warrants being sold in this offering under the symbol "MLNK__," and
anticipate that approval will occur concurrently with this offering.
DIVIDEND POLICY
We have never declared or paid any dividends or distributions on our common
stock. Our loan agreement with Westburg Media Capital, LP, our primary lender,
limits the amount of cash dividends we may pay without its consent. We
anticipate that for the foreseeable future all earnings will be retained for use
in our business and no cash dividends will be paid to shareholders. Any payment
of cash dividends in the future on the common stock will depend on our financial
condition, results of operations, current and anticipated cash requirements,
plans for expansion, restrictions, if any, under debt obligations, as well as
other factors that the board of directors deems relevant.
13
<PAGE> 17
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 2000, as
adjusted for the sale of the 1,600,000 shares and 925,000 Series D warrants
offered by us at an assumed offering price of $9.00 per unit, comprised of $8.50
per share and $0.50 per one-half of one Series D warrant (after deducting
underwriting discounts and estimated offering expenses), and excludes shares of
common stock issuable on exercise of options and warrants.
<TABLE>
<CAPTION>
JUNE 30, 2000
-----------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
----------- ------------- -----------
<S> <C> <C> <C>
Long-term debt (net of current portion)....... $ 3,783,693 $ 3,783,693 $ 2,223,693
Stockholders' equity:
Preferred stock, par value $.01 per share;
5,000,000 shares authorized; no shares
issued or outstanding....................... 0 0 0
Common stock, no par value; 20,000,000 shares
authorized; 4,084,290 shares issued and
outstanding, 4,281,450 shares issued and
outstanding, pro forma, and 5,881,450 shares
issued and outstanding, as adjusted......... 11,921,548 12,749,248 25,857,498
Accumulated deficit........................... (1,673,875) (1,673,875) (1,673,875)
----------- ----------- -----------
Total stockholders' equity.................... $10,237,994 $11,065,694 $24,173,944
=========== =========== ===========
</TABLE>
The "Pro Forma" column in this table reflects the exercise of 197,160
outstanding warrants and the receipt of approximately $827,700 in net proceeds
upon closing of the offering. The "As Adjusted" column in this table reflects
the sale of 1,600,000 shares of common stock and 925,000 Series D warrants by us
at an assumed offering price of $9.00 per unit, comprised of $8.50 per share and
$0.50 per one-half of one Series D warrant, net of estimated offering costs
totaling $1,416,750, and the application of the net proceeds upon closing of the
offering.
14
<PAGE> 18
SELECTED CONSOLIDATED FINANCIAL DATA
The data for the nine months ended June 30, 2000, includes, in the opinion
of management, all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of our financial position at that date and
results of operations for that period. The results of operations for the nine
months ended June 30, 2000, are not necessarily indicative of the results to be
expected for the full year or future periods.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
SEPTEMBER 30, JUNE 30,
----------------------- -----------------------
1998 1999 1999 2000
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS) DATA:
Net revenues................................. $4,165,936 $4,588,749 $3,354,536 $8,262,473
Cost of services and products................ 825,746 785,502 595,990 1,747,237
Gross margin................................. 3,340,190 3,803,247 2,758,546 6,515,236
Sales and advertising expenses............... 522,541 401,638 271,830 998,708
General and administrative expenses.......... 1,962,679 2,187,650 1,497,432 4,044,684
Non-recurring pooling expenses............... 0 0 0 101,091
Non-recurring moving expenses................ 0 0 0 122,179
Depreciation................................. 159,926 139,714 105,634 295,788
Amortization................................. 81,674 231,024 155,458 697,608
Income from operations....................... 613,370 843,221 728,192 255,178
Interest income (expense), net............... (726,339) (274,846) (291,210) (200,220)
Net income (loss)............................ (127,177) 501,071 363,104 43,706
Net income (loss) per common share
Basic...................................... (0.07) 0.19 0.16 0.01
Diluted.................................... (0.07) 0.18 0.14 0.01
Weighted average common shares outstanding
Basic...................................... 1,903,393 2,610,480 2,320,732 3,824,375
Diluted.................................... 1,903,393 2,806,563 2,534,677 4,011,660
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 2000
SEPTEMBER 30, ---------------------------------------
1999 ACTUAL PRO FORMA AS ADJUSTED
------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash & marketable securities............. $3,969,262 $ 910,420 $ 1,737,580 $13,285,830
Working capital.......................... 3,825,727 951,345 1,779,045 13,327,295
Total assets............................. 7,435,702 16,084,646 16,912,346 28,460,596
Long-term liabilities.................... 716,165 3,783,693 3,783,693 2,223,693
Total stockholders' equity............... 5,983,159 10,237,994 11,065,694 24,173,944
</TABLE>
The "Pro Forma" column in this table reflects the exercise of 197,160
outstanding warrants and the receipt of $827,700 in net proceeds upon closing of
the offering. The "As Adjusted" column in this table reflects the sale of
1,600,000 shares of common stock and 925,000 Series D warrants by us at an
assumed offering price of $9.00 per unit, comprised of $8.50 per share and $0.50
per one-half of one Series D warrant, net of estimated offering costs totaling
$1,416,750 and the application of the net proceeds upon closing of the offering.
15
<PAGE> 19
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED JUNE 30,
------------------------- ------------------------
1998 1999 1999 2000
---------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF CASH FLOWS AND OTHER
DATA:
Net cash provided by (used in) operating
activities.................................... $ 54,018 $ 679,410 $ 448,663 $ (635,389)
Net cash used in investing activities........... (390,442) (5,139,888) (671,796) (1,867,253)
Net cash provided by financing activities....... 858,782 4,406,520 4,505,712 2,544,982
EBITDA.......................................... 854,970 1,213,959 989,284 1,248,574
</TABLE>
The row entitled "EBITDA" reflects net income or loss plus depreciation,
amortization, net 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.
16
<PAGE> 20
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 prospectus. 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, installation and set-up charges 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.
17
<PAGE> 21
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 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% per annum over prime rate. 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 June 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 June
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 consolidated 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 two of these
acquisitions and one acquisition of subscriber accounts is pending.
18
<PAGE> 22
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationship to net revenues of selected items in our consolidated statements of
operations and comprehensive income (loss).
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
SEPTEMBER 30, JUNE 30,
---------------- ------------------
1998 1999 1999 2000
------ ------ ------- -------
<S> <C> <C> <C> <C>
Net revenues............................................ 100.00% 100.00% 100.00% 100.00%
Cost of services and products........................... 19.82% 17.12% 17.77% 21.15%
Gross margin............................................ 80.18% 82.88% 82.23% 78.85%
Sales and advertising expense........................... 12.54% 8.75% 8.10% 12.09%
General and administrative expense...................... 47.11% 47.67% 44.64% 48.95%
Depreciation expense.................................... 3.84% 3.04% 3.15% 3.58%
Amortization expense.................................... 1.96% 5.03% 4.63% 8.44%
Total operating expenses................................ 65.46% 64.50% 60.53% 75.76%
Income from operations.................................. 14.72% 18.38% 21.71% 3.09%
Interest income (expense), net.......................... (17.44)% (5.99)% (8.68)% (2.42)%
Net income (loss)....................................... (3.05)% 10.92% 10.82% .53%
EBITDA.................................................. 20.52% 26.46% 29.79% 15.11%
</TABLE>
The row entitled "EBITDA" reflects net income or loss plus depreciation,
amortization, net 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.
Nine months ended June 30, 2000 compared to nine months ended June 30, 1999.
Net Revenues. Net revenues for the nine months ended June 30, 2000 were
$8,262,000 compared to $3,355,000 for the nine months ended June 30, 1999, an
increase of 146%. The inclusion of revenues from the various acquisitions
described above accounted for $4,530,000 of the increase. The remaining increase
of $377,000 was the result of continuing internal revenue growth and new sales
for Denver and Atlanta.
Cost of Services and Products. Cost of services and products for the nine
months ended June 30, 2000 was $1,747,000 compared to $596,000 for the nine
months ended June 30, 1999, an increase of 193%. The increase was primarily the
result of the various acquisitions described above.
Gross Margin. Gross margin for the nine months ended June 30, 2000 was
$6,515,000 compared to $2,759,000 for the nine months ended June 30, 1999, an
increase of 136% due to the factors described above. Gross margin as a
percentage of net revenues declined from 82% for the nine months ended June 30,
1999 to 79% for the nine months ended June 30, 2000. The decline comes from the
change in our business mix as a result of the various acquisitions described
above. Our gross profit margin on automated business messaging services, which
represented 100% of our business during the nine months ended June 30, 1999, is
higher than the gross margin on business live answering and residential
automated messaging services which became a part of our business in the nine
months ended June 30, 2000 through the acquisitions described above.
Sales and Advertising Expenses. Sales and advertising expenses for the nine
months ended June 30, 2000 were $999,000 compared to $272,000 for the nine
months ended June 30, 1999, an increase of 267%. This increase resulted from the
inclusion of sales and advertising expenses from the various acquisitions
described above and the cost of operating our new residential telesales center
at a cost of $281,000.
General and Administrative Expenses. General and administrative expenses
for the nine months ended June 30, 2000 were $4,045,000 compared to $1,497,000
for the nine months ended June 30, 1999, an increase of 170%. The inclusion of
general and administrative expenses from the various acquisitions
19
<PAGE> 23
described above were responsible for $2,173,000 of the increase. The costs
associated with being a public company, including investor relations expenses,
transfer agent fees, legal fees, accounting fees, other professional expenses
and increases in management salaries were responsible for $375,000 of the
increase.
Pooling Expenses. During the nine months ended June 30, 2000 we incurred
professional fees in connection with the acquisition of VoiceLink, Inc. of
$101,000. 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 nine months ended June 30, 1999. The expenses of
the VoiceLink pooling will not recur in the future.
Moving Expenses. During the nine months ended June 30, 2000 we relocated
the offices of Hellyer. The costs incurred in respect of this relocation totaled
$122,000. No such expenses were incurred in the nine months ended June 30, 1999.
The expenses of the moving of the Hellyer offices will not recur in the future.
EBITDA -- Earnings Before Interest, Tax, Depreciation, and Amortization.
EBITDA for the nine months ended June 30, 2000 was $1,249,000 compared to
$989,000 for the nine months ended June 30, 1999, an increase of 26%. The
increase is the result of the inclusion of the various acquisitions described
above. EBITDA for the nine months ended June 30, 2000, excluding the
non-recurring charges for pooling expenses ($101,000) and moving expenses
($122,000), was $1,472,000, an increase of 49% over the nine months ended June
30, 1999. This is the result of the inclusion of the various acquisitions
described above.
Depreciation Expense. Depreciation expense for the nine months ended June
30, 2000 was $296,000 compared to $106,000 for the nine months ended June 30,
1999, an increase of 179%. This increase was due to additional purchases of
equipment and the inclusion of the various acquisitions described above.
Amortization Expense. Amortization expense was $698,000 for the nine months
ended June 30, 2000 compared to $155,000 for the nine months ended June 30,
1999, an increase of 350%. Continued customer account purchases from our base of
independent sales agents in the Denver area resulted in $146,000 of the
increase. Amortization of goodwill on the various acquisitions described above
resulted in $176,000 of the increase. The amortization of the non-compete
agreement and consulting agreement with Jerry L. Hellyer relating to the Hellyer
acquisition resulted in $159,000 of the increase. The remainder of the increase
resulted from amortization of customer account purchases at Hellyer and the
amortization of goodwill at our Denver operation.
Income from Operations. Income from operations was $255,000 for the nine
months ended June 30, 2000 compared to $728,000 for the nine months ended June
30, 1999, a decrease of 65% due to the factors outlined above.
Interest Income (Expense), Net. Net interest income (expense) for the nine
months ended June 30, 2000 was $(200,000) compared to $(291,000) for the nine
months ended June 30, 1999, a decrease of 31%. The decrease was attributable to
the significantly lower levels of debt after our initial public offering in May
1999.
Provision for Income Taxes. The provision for income taxes for the nine
months ended June 30, 2000 was $11,000 compared to $74,000 for the nine months
ended June 30, 1999, a decrease of 85%. This decrease was due to the
availability of net operating losses in Multi-Link Telecommunications, Inc. to
offset taxable profits arising in VoiceLink, Inc. after the date of acquisition.
Net Income (Loss) and Comprehensive Income (Loss). We achieved a net income
of $44,000 for the nine months ended June 30, 2000, compared to a net income of
$363,000 for the nine months ended June 30, 1999, a decrease of 88% due to the
factors outlined above. The comprehensive income for the nine months ended June
30, 2000 was $45,000, $1,000 more than the net income of $44,000. The difference
of $1,000 relates to a decrease in the level of unrealized losses on our
portfolio of marketable securities, which are held as available for sale
investments. The comprehensive income for the nine months ended June 30, 1999
was $357,000, $6,000 less than the net income of $363,000. The difference of
$6,000 relates to unrealized losses on our portfolio of marketable securities,
which are held as available for sale investments.
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Fiscal year ended September 30, 1999 compared to fiscal year ended September 30,
1998.
From inception through September 30, 1999 we operated in Denver only. We
completed several acquisitions after the end of fiscal 1999. On March 30, 2000,
we completed the acquisition of VoiceLink, Inc. and this acquisition was
accounted for as a pooling of interests. In accordance with accounting rules we
have restated our 1998 and 1999 fiscal years to include VoiceLink as if the two
companies had been merged since inception.
Net Revenues. Net revenues for the year ended September 30, 1999, were
$4,589,000 compared to $4,166,000 for the fiscal year ended September 30, 1998,
an increase of 10%. Excluding the effects of pooling and measuring Denver
operations only, revenues grew by 19%. Most of this increase reflects the steady
net growth in our base of customers, although we did increase prices for certain
messaging services on July 1, 1999, affecting revenues in the fourth fiscal
quarter of 1999. The price increase contributed approximately $75,000 or 2% of
the revenue increase for the fiscal year.
Cost of Services and Products. Cost of services and products for the fiscal
year ended September 30, 1999 was $786,000 compared to $825,000 for the fiscal
year ended September 30, 1998, a decrease of 5%. The decrease in cost of
services and products 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, 1999 was
$3,803,000 compared to $3,340,000 for the fiscal year ended September 30, 1998,
an increase of 14%. The gross profit margin as a percentage of net revenues
increased from 80% to 83%. The increase in gross margin resulted from achieving
higher revenues with lower cost of sales.
Sales and Advertising Expenses. Sales and advertising expenses for the
fiscal year ended September 30, 1999 were $402,000 compared to $523,000 for the
fiscal year ended September 30, 1998, a decrease of 23%. This decrease resulted
from the closure of our in-house sales and telemarketing operations in Denver on
December 31, 1997, when we began procuring subscriber accounts from independent
sales agencies and capitalizing the cost of acquiring such subscriber accounts.
General and Administrative Expenses. General and administrative expenses
for the fiscal year ended September 30, 1999 were $2,188,000 compared to
$1,963,000 for the fiscal year ended September 30, 1998, an increase of 11%.
This increase was due to increased staff numbers, costs of billing higher
revenues, and the costs associated with being a public company, including
transfer agent fees, legal fees, accounting fees and other professional
expenses.
EBITDA -- Earnings Before Interest, Tax, Depreciation, and Amortization.
EBITDA for the fiscal year ended September 30, 1999 was $1,214,000 compared to
$855,000 for the fiscal year ended September 30, 1998, an increase of 42%. This
increase was partly attributable to the increased revenues and gross profits,
and partly due to the closure of our Denver in-house sales and telemarketing
operations.
Depreciation Expense. Depreciation expense in the fiscal year ended
September 30, 1999 was $140,000 compared to $160,000 for the fiscal year ended
September 30, 1998, a decrease of 13%. This decrease was due to the disposal of
fixed assets with an original cost of $96,000 and a written down value of
$21,000 by VoiceLink, Inc. at the end of 1998. As a result there were lower
fixed assets to be depreciated in fiscal 1999.
Amortization Expense. Amortization of subscriber accounts and goodwill was
$231,000 for the fiscal year ended September 30, 1999 compared to $82,000 for
the fiscal year ended September 30, 1998, an increase of 182%. This increase was
due to the continuation of customer account purchases from our base of
independent sales agents in Denver.
Income from Operations. Income from operations was $843,000 for the fiscal
year ended September 30, 1999 compared to $613,000 for the fiscal year ended
September 30, 1998, an increase of 38% due to the factors discussed above.
Interest Income (Expense), Net. Net interest income (expense) for the
fiscal year ended September 30, 1999 was $(275,000) compared to $(726,000) for
the fiscal year ended September 30, 1998, a decrease of
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62%. The decrease was attributable to the significantly lower interest costs of
the Westburg loan from the beginning of the fiscal year through May 14, 1999,
and the net interest income in the fourth fiscal quarter of 1999 from the cash
on deposit following our initial public offering.
Provision for Income Taxes. The provision for income taxes for the fiscal
year ended September 30, 1999 was $67,000 compared to $14,000 for the fiscal
year ended September 30, 1998, an increase of 376%. This increase was due to
greater taxable earnings in 1999.
Net Income (Loss) and Comprehensive Income (Loss). We achieved a net income
of $501,000 for the fiscal year ended September 30, 1999, compared to a net loss
of $(127,000) for the fiscal year ended September 30, 1998, due to the factors
outlined above. The comprehensive profit for 1999 was $490,000, $12,000 less
than the net profit of $501,000. The difference of $12,000 relates to unrealized
losses on our portfolio of marketable securities, which are held as available
for sale investments. The net loss and comprehensive loss were the same in
fiscal 1998.
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 June 30, 2000 we were current on our obligations to all lenders and
in compliance with all debt covenants. As of June 30, 2000 we had available cash
of $614,000, marketable investments, net of the related margin facility, of
$179,000, subscriptions receivable from Glenayre of $1,000,000 ($800,000 of
which is restricted for the purchase of Glenayre messaging equipment) and
available undrawn loan facilities of $940,000. The subscription receivable from
Glenayre was paid to us on July 3, 2000.
For the nine months ended June 30, 2000, net cash used in operations was
approximately $635,000 compared to net cash provided by operations of $449,000
for the nine months ended June 30, 1999. The majority of this $1,084,000
variance arises from a one-time increase in accounts receivable at Hellyer on
the introduction of a third party billing agent for residential customers that
results in a four month delay in receiving payment from Ameritech. Net cash used
in investing activities for the nine months ended June 30, 2000 relating to the
purchase of the Hellyer and One Touch businesses, subscriber accounts (including
those acquired from B.F.G. of Illinois, Inc.) and fixed assets, less the
proceeds realized from the sale of marketable securities, was $1,867,000
compared to $672,000 for the nine months ended June 30, 1999. During the nine
months ended June 30, 2000, financing activities generated $2,545,000 of net
cash, the majority of which ($2,300,000) arose from a net increase in long term
debt. This compares to $4,506,000 generated from financing activities in the
nine months ended June 30, 1999 which arose from $7,200,000 million of net
equity raised through a private placement and the initial public offering, less
repayment of net debt of $2.7 million.
For the twelve months ended September 30, 1999, net cash provided by
operations was $679,000 compared to $54,000 for the twelve months ended
September 30, 1998. The increase of $625,000 was primarily due to the $628,000
increase in net income between the two years for the reasons described above.
Net cash used in investing activities was $5,140,000 in the year ended September
30, 1999, $4,749,000 more than the $390,000 used in investing activities in the
prior year. Of the increase, $3,795,000 resulted from our purchase of marketable
securities, $502,000 from the purchase of fixed assets, $399,000 from the
purchase of subscriber accounts and $53,000 on other items. Cash flow from
investing activities was $4,407,000 for the twelve months ended September 30,
1999 compared to $859,000 in the prior year. This increase of $3,548,000
resulted from generating net proceeds of $7,230,000 from our initial public
offering and other equity transactions, less a net repayment of $2,823,000 in
debt.
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 in respect of such purchases and allocated $1.7
million of the proceeds of the offering toward meeting this obligation. The
volume purchase agreement
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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.
We anticipate that the proceeds of this offering, our existing cash
balances, marketable securities and subscription receivable from Glenayre, which
has been paid to us, 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. It is likely that we will seek additional debt and equity financing to
support our acquisition programs in the future.
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.
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 August 30, 2000, we borrowed $300,000 from First Capital Group, Inc. in
connection with a 48-month equipment lease at an interest rate of 10.77% per
year.
It is anticipated that we will issue 197,160 shares for an aggregate
exercise price of $827,700 upon the exercise of warrants on the date of this
prospectus.
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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;
- 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
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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. We believe that our rate of
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. 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.
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;
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- 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.
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.
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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 ServiceH." 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.
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
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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 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.
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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 21 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 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.
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<PAGE> 33
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.
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. 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 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. It is our
intention to use a part of the proceeds of
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<PAGE> 34
this offering to purchase new customer management and billing software to enable
us to deal with all aspects of the customer relationship in one software
package.
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 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.
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<PAGE> 35
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 customers from old
systems to new Glenayre based services has been positive. In
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<PAGE> 36
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 two acquisitions of this type and have one
further acquisition pending. 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 Pending
</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
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<PAGE> 37
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.
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 2000.
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. We believe that the successful
completion of this offering will increase our stature within the
telecommunications industry, and may lead to significant growth opportunities
for us.
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.
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<PAGE> 38
FACILITIES
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.
EMPLOYEES
As of August 31, 2000, we had 144 full-time and 4 part-time employees. We
have no union or collective bargaining agreements with our employees and we
consider employee relations to be excellent.
LEGAL PROCEEDINGS
We currently are not a party to any legal proceedings of any kind.
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<PAGE> 39
MANAGEMENT
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 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
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<PAGE> 40
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.
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 -- Call Center -- Hellyer
Communications Services, L.L.C. 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
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.
MANAGEMENT STRATEGY OVERVIEW
Nigel V. Alexander, our Chief Executive Officer, is responsible for mergers
and acquisitions, strategic planning and financing.
Shawn B. Stickle, our President and Chief Operating Officer, is responsible
for the integration of newly acquired companies and all other company
operations. We currently have a presence in seven U.S. cities. Each city
operates as an independent business unit with local decision-making and profit
responsibility. Each local general manager reports directly to Mr. Stickle.
David J. Cutler, our Chief Financial Officer, is responsible for
accounting, financial planning and internal controls.
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<PAGE> 41
We strive to acquire companies with strong operating management teams in
place in order to preserve quality, operational consistency and operational
control. We believe that the function of the head office operations group is to
assist the local general managers to be more successful in the most important
areas of their business. The areas we particularly focus on are sales,
marketing, customer retention, new product development, technology management,
management information systems and human resources planning.
Upon completion of this offering we intend to recruit additional senior
managers in the areas of human resources, mergers and acquisitions and
management information systems.
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.
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.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by us for services
rendered during the fiscal years ended September 30, 1999, 1998, and 1997 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>
ANNUAL
FISCAL YEAR COMPENSATION
ENDED ---------------
NAME AND PRINCIPAL POSITION SEPTEMBER 30, SALARY BONUS
--------------------------- ------------- ------- -----
<S> <C> <C> <C>
Nigel V. Alexander.......................................... 1999 $45,551 --
Chief Executive Officer, Secretary and Treasurer.......... 1998 $40,000 --
1997 $39,960 --
Shawn B. Stickle............................................ 1999 $41,000 --
President and Chief Operating Officer..................... 1998 $36,000 --
1997 $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.
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<PAGE> 42
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 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. Effective February 1, 2000, the compensation committee of the board
of directors set Mr. Stickle's fiscal 2000 base compensation at $94,330 and
Octagon's fiscal 2000 base consulting payments at $94,000. 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 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.
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.
39
<PAGE> 43
At the date of this prospectus, we have 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 $8.01 per share. The options expire on various dates between
March 30, 2005, and March 30, 2010. Of the issued options, 90,883 had been
exercised and 21,450 had been cancelled, which means that 483,247 options are
currently issued and outstanding.
No reload options or stock appreciation rights have been granted pursuant
to the stock option plan.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Pursuant to the provisions of the Colorado Business Corporation Act, we
have adopted provisions in our restated articles of incorporation which provide
that our directors shall not be personally liable for monetary damages to us or
our shareholders for a breach of fiduciary duty as a director, except for
liability as a result of:
- a breach of the director's duty of loyalty to us or our shareholders;
- acts or omissions not in good faith or which involve intentional
misconduct or knowing violation of law;
- voting for or assenting to a distribution, which, after giving effect to
the distribution, would result in our inability to pay our debts as they
become due, or our total assets being less than the sum of our total
liabilities plus amounts needed to satisfy preferential rights upon our
dissolution of us, but only if it is established that the director did
not perform his duties in good faith, with the care of an ordinary
prudent person in a like position under similar circumstances, and in a
manner the director believed to be in our best interest of us, provided
that the personal liability of a director in this circumstance is limited
to the amount of the distribution which exceeds that which could have
been distributed without violation of this paragraph; or
- any transaction from which the director directly or indirectly derives an
improper personal benefit.
Our restated articles of incorporation state that we shall indemnify, to
the maximum extent permitted by law, any person who is or was a director or
officer of us, and may indemnify any other person, against any claim, liability
or expense arising against or incurred by such person made party to a proceeding
because the person is or was a director, officer, agent, fiduciary, or employee
of us or because the person is or was serving another entity as a director,
officer, partner, trustee, employee, fiduciary or agent at our request. The
restated articles of incorporation also permit us to purchase and maintain
insurance providing such indemnification, advance expenses to persons
indemnified by us, and provide indemnification to any person by general or
specific action of the board of directors under our bylaws by contract or
otherwise.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to our directors, officers and control persons pursuant
to the foregoing provisions, or otherwise, we have been advised that in the
opinion of the SEC, such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable.
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<PAGE> 44
CERTAIN 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.
In September 1998, Westburg loaned us $2,100,000 to repay debt and deferred
executive compensation, and to fund expenses of our initial public offering. The
loan bears interest at a rate of 3% over prime rate. The loan is payable
interest only until September 25, 2001, and thereafter the outstanding principal
balance and interest will be payable monthly and amortized over ten years with
final payment in full on October 31, 2003. The loan is secured by all of our
assets. In connection with the loan, we issued Westburg a warrant to purchase
150,000 shares of common stock at an exercise price of $4.17 per share. The
detailed terms of the loan were amended in April 1999 and again in November
1999. We repaid all but $10,000 of the loan after the public offering and
Westburg converted the term loan into a revolving loan. We are permitted to make
further draws on this loan, which has a current balance of $1,560,000.
In September 1998, Octagon Strategies, Inc. agreed to loan us $100,000 to
fund working capital. The loan was unsecured, had an interest rate of 10% and
was due on demand. This loan has been repaid in full.
In September 1998, Shawn B. Stickle loaned $77,244 to us to fund working
capital. The loan was unsecured, had an interest rate of 10% and was due on
demand. This loan has been repaid in full.
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.
41
<PAGE> 45
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the common stock, as of the date of this prospectus, and as
adjusted to reflect the sale of the common shares offered by this prospectus by:
- each of our named executive officers and directors;
- all executive officers and directors as a group;
- each person we know to own beneficially more than 5% of our outstanding
common stock; and
- the other selling shareholders.
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 under stock option plans or warrants 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>
PERCENTAGE PERCENTAGE
OWNED AFTER OWNED AFTER
SHARES BENEFICIALLY OFFERING OFFERING
OWNED PRIOR TO SHARES ASSUMING NO ASSUMING
OFFERING BEING SHARES BEING EXERCISE OF EXERCISE OF
NAME AND ADDRESS ------------------- OFFERED IN OFFERED IN OVER-ALLOTMENT OVER-ALLOTMENT
OF BENEFICIAL OWNER NUMBER PERCENT OFFERING OVER-ALLOTMENT OPTION OPTION
------------------- --------- ------- ---------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Nigel V. Alexander............... 542,250 12.7% -- 73,209 9.2% 8.0%
Shawn B. Stickle................. 542,250 12.7 -- 73,209 9.2 8.0
David J. Cutler.................. 20,833 * -- -- * *
Keith R. Holder.................. 31,640 * -- * *
107 Country Club Park Drive,
Grand Junction, CO 81503
R. Brad Stillahn................. 5,000 * -- -- * *
3845 Forest
Denver, CO 80207
All executive officers and
directors as a group (5
persons)....................... 1,141,973 25.3 -- 146,418 19.3 16.8
OTHER 5% BENEFICIAL OWNERS
Kennedy Capital Management....... 265,000 6.2 -- -- 4.5 4.5
10829 Olive Blvd
St. Louis, MO 63141-7739
Glenayre Technologies, Inc. ..... 364,439 8.3 -- -- 6.1 6.1
11360 Lakefield Drive
Duluth, GA 30097
OTHER SELLING SHAREHOLDERS
L. Van Page...................... 230,216 5.4 -- 31,082 3.9 3.4
6045 Carlisle Lane
Alpharetta, GA 30022
Jerry L. Hellyer................. 150,000 3.5 34,348 40,652 2.0 1.3
10710 Compass Court
Indianapolis, IN 46256
E&D, Inc. ....................... 246,718 5.8 -- 59,348 4.2 3.2
6120 St. Giles St., Suite 240
Raleigh, NC 27612
</TABLE>
42
<PAGE> 46
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
OWNED AFTER OWNED AFTER
SHARES BENEFICIALLY OFFERING OFFERING
OWNED PRIOR TO SHARES ASSUMING NO ASSUMING
OFFERING BEING SHARES BEING EXERCISE OF EXERCISE OF
NAME AND ADDRESS ------------------- OFFERED IN OFFERED IN OVER-ALLOTMENT OVER-ALLOTMENT
OF BENEFICIAL OWNER NUMBER PERCENT OFFERING OVER-ALLOTMENT OPTION OPTION
------------------- --------- ------- ---------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Westburg Media Capital LP........ 150,000 3.4 75,000 -- 1.3 1.3
200 First Ave. W., Suite 400
Seattle, WA 98119
BFG of Illinois d/b/a Cashtel,
Inc. .......................... 2,220 * 2,220 -- * *
155 N. Michigan Ave., Ste 410
Chicago, IL 60601
Larry Mays....................... 16,272 * 16,272 -- * *
3120 Medlock Bridge Road
Suite F100
Norcross, GA 30071
Spencer Edwards, Inc. ........... 7,812 * 7,812 -- * *
6120 Greenwood Plaza Blvd
Englewood, CO 80111
Jan Curtis....................... 1,116 * 1,116 -- * *
6120 Greenwood Plaza Blvd
Englewood, CO 80111
Spencer Marcum................... 1,116 * 1,116 -- * *
6120 Greenwood Plaza Blvd
Englewood, CO 80111
Edward C. Larkin................. 5,316 * 5,316 -- * *
54 Deerwood Drive
Littleton, CO 80127
First Trust IRA TTEE FBO Carylyn
Bell........................... 3,000 * 3,000 -- * *
P.O. Box 173301
Denver, CO 80217-3301
Wedbush Morgan Securities........ 3,000 * 3,000 -- * *
P.O. Box 30014
Los Angeles CA 90030
Kari Marie Johnson............... 1,800 * 1,800 -- * *
12503 San Bruno Cove
San Diego, CA 92130-2287
Alva and Suzanne Staples, Joint
Tenants........................ 3,000 * 3,000 -- * *
6705 E. Dorado Place
Greenwood Village, CO 80111
Staples Family Partnership....... 1,500 * 1,500 -- * *
6705 E. Dorado Place
Greenwood Village, CO 80111
Delaware Charter IRA FBO Alva
Terry Staples.................. 1,500 * 1,500 -- * *
6705 E. Dorado Place
Greenwood Village, CO 80111
Michael Murphy................... 3,000 * 3,000 -- * *
1125 17th Street, Suite 2400
Denver, CO 80202
</TABLE>
43
<PAGE> 47
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
OWNED AFTER OWNED AFTER
SHARES BENEFICIALLY OFFERING OFFERING
OWNED PRIOR TO SHARES ASSUMING NO ASSUMING
OFFERING BEING SHARES BEING EXERCISE OF EXERCISE OF
NAME AND ADDRESS ------------------- OFFERED IN OFFERED IN OVER-ALLOTMENT OVER-ALLOTMENT
OF BENEFICIAL OWNER NUMBER PERCENT OFFERING OVER-ALLOTMENT OPTION OPTION
------------------- --------- ------- ---------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
David Michael Munch.............. 3,000 * 3,000 -- * *
5797 South Galena
Englewood, CO 80111-3723
Mark S. Rosenberg................ 3,000 * 3,000 -- * *
1105 North Circle Drive
Colorado Springs, CO 80909
Barry L. Lindenbaum.............. 4,200 * 4,200 -- * *
527 Clayton Street
Denver, CO 80206
HNC Associates, LLC.............. 6,000 * 6,000 -- * *
1825 Lawrence, Suite 444
Denver, CO 80202
William L. Kjelland, TTEE William
L and Rubye L. Kjelland
Revocable Trust dated
7-30-86........................ 3,000 * 3,000 -- * *
2711 Dadema Drive
Sacramento, CA 95864
Lee Roy Tautz.................... 6,000 * 6,000 -- * *
10592 Mossrock Run
Littleton, CO 80125-9051
James H. Everest................. 6,000 * 6,000 -- * *
6301 North Western, #240
Oklahoma City, OK 73118
Lawrence J. Nasella.............. 3,000 * 3,000 -- * *
4660 La Jolla Village Drive,
#125
San Diego, CA 92122
Theodore Pomeroy Jr. ............ 1,800 * 1,800 -- * *
8085 S. Chester Street, Ste 236
Englewood, CO 80112
Bruce A. Armstrong............... 3,000 * 3,000 -- * *
34 Hickory Hill Road
Wilton, CT 06897
George W. Klug and Mary C. Klug,
Joint Tenants.................. 35,000 * 3,000 -- * *
3948 High Pine Road
Jacksonville, FL 32225
Floyd Murray & Co................ 6,000 * 6,000 -- * *
3020 Caraway Drive
Sun City West, AZ 85375
Elsa Patricia McCulloh........... 6,000 * 6,000 -- * *
5255 Sky Trail
Littleton, CO 80123
Fastcar LLC...................... 36,000 * 36,000 -- * *
6320 S. Gibralter Circle
Aurora, CO 80016
------- -------
Total Shares Being Offered................... 250,000 277,500
======= =======
</TABLE>
---------------
* Less than one percent
44
<PAGE> 48
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 do not include 10,000 shares
underlying options held by each person that are not 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 15,000 shares
underlying options that were granted to Mr. Holder personally, and which
are not exercisable for the next 60 days, and includes 5,000 shares
underlying options, which are exercisable within the next 60 days.
- R. Brad Stillahn does not include 15,000 shares underlying options that
are not exercisable for the next 60 days and includes 5,000 shares
underlying options, which are exercisable within the next 60 days.
- All of the executive officers and directors as a group, includes 30,833
shares of common stock underlying presently exercisable options but does
not include 106,667 shares underlying options that are not exercisable
within the next 60 days.
- L. Van Page does not include 10,000 shares underlying options that are
not exercisable within the next 60 days.
- Westburg Media Capital LP includes 150,000 shares underlying warrants
that are exercisable within the next 60 days. David Westburg is President
and owns 37.5% of Westburg. John Weller is Chief Financial Officer and
owns 37.5% of Westburg. John Hanson is a Director and owns 25% of
Westburg.
- Glenayre Technologies includes 100,000 shares underlying warrants that
are exercisable within the next 60 days. Glenayre is a publicly traded
company listed on the Nasdaq National Market. Eric L. Doggett is
president and chairman of Glenayre.
The president of Kennedy Capital Management is Charles Schweizer.
The beneficial owners of the shares held by E&D, Inc. are David Webster and
Eric Beguelin.
45
<PAGE> 49
DESCRIPTION OF SECURITIES
The following summary description of the securities is not complete and is
qualified in its entirety by reference to our restated articles of incorporation
and bylaws.
Our authorized capital stock consists of 20,000,000 shares of no par value
common stock and 5,000,000 shares of $0.01 par value preferred stock, which we
may issue in one or more series as determined by our board of directors. As of
August 30, 2000, there were 4,084,290 shares of common stock issued and
outstanding that were held of record by 39 shareholders. We believe that as of
such date there were approximately 850 beneficial holders of common stock.
UNITS
Each unit being offered consists of one share of common stock and one-half
of one Series D warrant. The common stock and warrants are separately
transferable, however Series D warrants are only transferable as whole warrants.
COMMON STOCK
Each holder of record of common stock is entitled to one vote for each
share held on all matters properly submitted to the shareholder for their vote.
The restated articles of incorporation do not authorize cumulative voting in the
election of directors.
Holders of outstanding shares of common stock are entitled to those
dividends declared by the board of directors out of legally available funds and,
in the event of liquidation, dissolution or winding up of our affairs, holders
are entitled to receive, pro rata, our net assets available to the shareholders.
Holders of outstanding common stock have no preemptive, conversion or redemption
rights. All of the issued and outstanding shares of common stock are, and all
unissued shares of common stock, when offered and sold will be duly authorized,
validly issued, fully paid and nonassessable. To the extent that additional
shares of common stock may be issued in the future, the relative interests of
the then existing stockholders may be diluted.
PREFERRED STOCK
Our board of directors is authorized to issue from time to time, without
shareholder authorization, in one or more designated series, any or all of the
authorized but unissued shares of preferred stock with such dividend,
redemption, conversion, and exchange provisions as may be provided by the board
of directors with regard to such particular series. Any series of preferred
stock may possess voting, dividend, liquidation, and redemption rights superior
to those of the common stock. The rights of the holders of common stock will be
subject to and may be adversely affected by the rights of the holders of any
preferred stock that may be issued in the future. Issuance of a new series of
preferred stock could make it more difficult for a third party to acquire, or
discourage a third party from acquiring, the outstanding shares of common stock
and make removal of the board of directors more difficult. No shares of
preferred stock are currently issued and outstanding, and we have no present
plans to issue any shares of preferred stock.
SERIES D WARRANTS
Two Series D warrants will entitle the holder to purchase one share of
common stock at an exercise price of $9.00 per share until ,
, subject to our redemption rights described below. The warrants will
be issued pursuant to the terms of a warrant agreement between us and the
"warrant agent," Computershare Trust Company, Inc. The Series D warrants will
trade under the symbol "MLNK__." Only whole Series D warrants may be traded. We
have authorized and reserved for issuance the shares of common stock issuable on
exercise of the Series D warrants. The Series D warrants are exercisable to
purchase a total of 462,500 shares of our common stock unless the over-allotment
option is exercised, in which case the Series D warrants are exercisable to
purchase a total of 531,875 shares of common stock.
46
<PAGE> 50
The Series D warrant exercise price and the number of shares of common
stock purchasable upon exercise of the Series D warrants are subject to
adjustment in the event of, among other events, a stock dividend on, or a
subdivision, recapitalization or reorganization of, the common stock, or our
merger or consolidation with or into another corporation or business entity.
Until the expiration of the Series D warrants, we may redeem outstanding
Series D warrants, in whole but not in part, upon not less than 30 days' notice,
at a price of $0.05 per Series D warrant, provided that the closing bid price of
the common stock equals or exceeds $11.25 for 20 consecutive trading days. The
redemption notice must be provided not more than five business days after
conclusion of the 20 consecutive trading days in which the closing bid price of
the common stock equals or exceeds $11.25. In the event we exercise our right to
redeem the Series D warrants, the Series D warrants will be exercisable until
the close of business on the date fixed for redemption in such notice. If any
Series D warrant called for redemption is not exercised by such time, it will
cease to be exercisable and the holder thereof will be entitled only to the
redemption price.
We must have on file a current registration statement with the SEC
pertaining to the common stock underlying the Series D warrants in order for a
holder to exercise the Series D warrants or in order for us to redeem the Series
D warrants. The shares of common stock underlying the Series D warrants must
also be registered or qualified for sale under the securities laws of the states
in which the Series D warrant holders reside. We intend to use our best efforts
to keep the registration statement incorporating this prospectus current, but
there can be no assurance that such registration statement, or any other
registration statement we file covering shares of common stock underlying the
warrants, can be kept current. In the event the registration statement covering
the underlying common stock is not kept current, or if the common stock
underlying the Series D warrants is not registered or qualified for sale in the
state in which a Series D warrant holder resides, the Series D warrants may be
deprived of any value.
We are not required to issue any fractional shares of common stock upon the
exercise of Series D warrants or upon the occurrence of adjustments pursuant to
anti-dilution provisions. We will pay to holders of fractional interests an
amount equal to the cash value of such fractional interests based upon the
then-current market price of a share of common stock.
The Series D warrants may be exercised upon surrender of the certificate
representing such Series D warrants on or prior to the expiration date or
earlier redemption date of such Series D warrants at the offices of the warrant
agent with the form of "Election to Purchase" on the reverse side of the warrant
certificate completed and executed as indicated, accompanied by payment of the
full exercise price by check payable to the order of Multi-Link for the number
of Series D warrants being exercised. Shares of common stock issued upon
exercise of Series D warrants for which payment has been received in accordance
with the terms of the Series D warrants will be fully paid and nonassessable.
The Series D warrants do not confer upon the Series D warrant holder any
voting or other rights of a shareholder of Multi-Link. Upon notice to the Series
D warrant holders, we have the right to reduce the exercise price or extend the
expiration date of the Series D warrants. Although this right is intended to
benefit Series D warrant holders, to the extent we exercise this right when the
Series D warrants would otherwise be exercisable at a price higher than the
prevailing market price of the common stock, the likelihood of exercise, and the
resultant increase in the number of shares outstanding, may impede or make more
costly a change in control of Multi-Link.
OTHER WARRANTS OUTSTANDING AFTER OFFERING
In addition to the Series D warrants and warrants to be issued to the
underwriters of this offering, the following warrants will be outstanding after
completion of the offering:
Westburg Media holds a warrant to purchase 75,000 shares of common stock
with the exercise price of $4.17 per share. The expiration date of the warrant
is October 21, 2003. Westburg has agreed with the underwriter of this offering
not to sell the shares underlying the warrants for a period of six months from
the date of this offering.
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<PAGE> 51
In our 1999 initial public offering we issued 1,380,000 warrants to
purchase a total of 690,000 shares of common stock at an exercise price of $9.00
per share. The warrants currently trade on the Nasdaq SmallCap Market under the
symbol "MLNKW." The warrants expire May 13, 2002.
Schneider Securities, Inc., the underwriter of our initial public offering,
holds a warrant to purchase 120,000 units at an exercise price of $7.68 per
unit. Each unit consists of one share and one warrant, for a total of 120,000
shares and 120,000 warrants. Two of the warrants may be exercised to purchase
one share of common stock at an exercise price of $11.52 per share. Schneider
has agreed with the underwriter of this offering not to sell the shares
underlying the warrants for a period of six months from the date of this
offering.
Glenayre holds a warrant to purchase 100,000 shares of our common stock at
$14.3725 per share. The warrant expires June 30, 2005. Glenayre has agreed with
the underwriter of this offering not to sell the shares underlying the warrants
for a period of six months from the date of this offering.
REGISTRATION RIGHTS OUTSTANDING AFTER OFFERING
We have the obligation to maintain a current registration statement for the
shares underlying the warrants issued in our initial public offering and to
Schneider Securities, the underwriter of our initial public offering. In
addition, Schneider has the right, until May 2004, to demand that we register
the shares underlying the warrants, and the right, until May 2006, to include
the shares underlying their warrant in any registration statement we file.
Schneider has waived these registration rights for six months from the date of
this offering, and has agreed with the underwriters of this offering not to sell
the shares underlying the warrants for a period of six months from the date of
this offering.
Westburg has the right until December 31, 2003 to include the shares
underlying their warrants in any registration statement we file. Westburg has
waived these registration rights for six months from the date of this offering,
and has agreed with the underwriters of this offering not to sell the shares
underlying the warrants for a period of six months from the date of this
offering.
Glenayre has the right to demand that we register any of their shares of
common stock and the shares underlying their warrant to purchase 100,000 shares
of common stock. The demand rights begin after September 30, 2000 but Glenayre
may not demand registration during the period beginning with the effective date
of a registration statement and ending with the later of (i) 90 days thereafter,
or (ii) the expiration of a 180 day lock-up period imposed by the underwriter.
Glenayre may also require that we include their shares and the shares underlying
their warrant in any registration statement we file on or after September 30,
2000. Glenayre has waived these "piggyback" registration rights for six months
from the date of this offering and has agreed with the underwriters of this
offering not to sell the shares underlying the warrants for a period of six
months from the date of this offering.
L. Van Page has the right at any time on or after April 1, 2001 to demand
that we register his shares. He also has the right to include his shares of
common stock on any registration statement we file. These "piggyback" rights are
limited to his pro rata portion of any shares offered by Nigel V. Alexander or
Shawn B. Stickle in a registered offering. He has agreed with the underwriter of
this offering not to sell the shares for 90 days from the date of this offering
or a period of 180 days if the underwriters' over-allotment is fully exercised.
ANTI-TAKEOVER PROVISIONS
Our restated articles of incorporation and bylaws contain provisions that
may make it more difficult for a third party to acquire or may discourage
acquisition bids for the company. Our board of directors is authorized, without
action of its shareholders, to issue authorized but unissued common stock and
preferred stock. The existence of undesignated preferred stock and authorized
but unissued common stock enables us to
48
<PAGE> 52
discourage or to make it more difficult to obtain control of us by means of a
merger, tender offer, proxy contest or otherwise. The restated articles of
incorporation and bylaws provide further that:
- the board of directors is separated into three staggered classes with
each class standing for election every third year;
- the affirmative vote of the holders of not less than two-thirds of the
votes entitled to be cast by the holders of all stock entitled to vote in
the election of directors is required to alter or repeal the staggered
board provision or other measures in the restated articles of
incorporation and bylaws; and
- the unanimous vote of the board of directors or the affirmative vote of
the holders of not less than two-thirds of the votes entitled to be cast
by the holders of all stock entitled to vote in the election of directors
is required to change the size of the board of directors.
TRANSFER AGENT, WARRANT AGENT AND REGISTRAR
Computershare Trust Company, Inc., Denver, Colorado, is the transfer agent
and registrar for the common stock and warrant agent for the warrants.
49
<PAGE> 53
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, who are represented by Stifel, Nicolaus & Company,
Incorporated, have agreed to purchase from us the number of units set forth
opposite their names, and will purchase the units at the price offered to the
public less the underwriting discount set forth on the cover page of this
prospectus:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF UNITS
----------- ---------
<S> <C>
Stifel, Nicolaus & Company, Incorporated....................
[others]....................................................
---------
Total............................................. 1,850,000
=========
</TABLE>
The underwriters propose to offer the units to the public at the offering
price on the cover page of this prospectus and to certain dealers at that price
less a concession of not more than $ per unit, of which $ may be
reallowed to other dealers. After the public offering, the underwriters may
reduce the public offering price, concession, and reallowance to dealers. No
such reduction shall change the amount of proceeds to be received by us as
listed on the cover page of the prospectus.
The following table shows the fees to be paid to the underwriters by us
and, if the over-allotment option is exercised, the selling shareholders in
connection with this offering. These amounts are shown assuming both no exercise
and full exercise of the underwriters' option to purchase additional units:
<TABLE>
<CAPTION>
PER UNIT NO EXERCISE FULL EXERCISE
-------- ----------- -------------
<S> <C> <C> <C>
Payable by Multi-Link............................... $ $ $
Payable by the selling shareholders................. $ $ $
</TABLE>
We have agreed to pay to the representative of the underwriters a
non-accountable expense allowance of $75,000 of which $20,000 has been paid as
of the date of this prospectus. We have also agreed to pay all expenses in
connection with qualifying the shares and warrants for sale under the laws of
such states as the underwriters may designate, including expenses of counsel
retained for such purpose by the underwriters.
The underwriting agreement provides that the obligations of the
underwriters to purchase and accept delivery of the units included in this
offering are subject to approval of legal matters by their counsel and to
customary conditions, including the effectiveness of the registration
statements, the continuing correctness of our representations, the receipt of a
"comfort letter" from our accountants, the continued listing of the common stock
and warrants for quotation on the Nasdaq SmallCap or National Market, and no
occurrence of an event that would have a material adverse effect on us. The
underwriters are obligated to purchase and accept delivery of all the units,
other than those covered by the over-allotment option described below, if they
purchase any of the units.
The underwriters have an option, expiring at the close of business on the
45th day after the effective date of this offering, to purchase up to 277,500
additional shares of common stock from the selling shareholders and 138,750
additional Series D warrants from us at the public offering price, less the
underwriting discounts, all as set forth on the cover page of this prospectus.
To the extent that the underwriters exercise such option, each of the
underwriters will have a firm commitment to purchase shares and Series D
warrants in approximately the same proportion as set forth in the table above.
To the extent the underwriters exercise such option, the selling shareholders
will be obligated, pursuant to the option, to sell the additional shares and we
will be obligated, pursuant to the option, to sell the additional Series D
warrants to
50
<PAGE> 54
the underwriters. The underwriters may exercise such option only to cover
over-allotments made in connection with the sale of the units in this offering.
The underwriting agreement contains covenants of indemnity between the
underwriters and us against civil liabilities, including liabilities under the
Securities Act and liabilities arising from breaches of representations and
warranties contained in the underwriting agreement.
The underwriters for the offering have entered into an agreement in which
they have agreed to restrictions on where and to whom they and any dealer
purchasing from them may offer shares as a part of the distribution of the
shares. The underwriters have also agreed that they may sell shares among each
of the underwriting groups.
In connection with the offerings, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offerings. "Covered"
short sales are sales made in an amount not greater than the underwriters'
options to purchase additional shares from certain selling shareholders in the
offerings. The underwriters may close out any covered short position by either
exercising their options to purchase additional shares or purchasing shares in
the open market. In determining the source of shares to close out the covered
short position, the underwriters will consider, among other things, the price of
shares available for purchase in the open market as compared to the price at
which they may purchase shares through the overallotment options. "Naked" short
sales are any sales in excess of the purchase options. The underwriters must
close out any naked short position by purchasing shares in the open market. A
naked short position is more likely to be created if the underwriters are
concerned that there may be downward pressure on the price of the common stock
in the open market after pricing that could adversely affect investors who
purchase in the offerings. Stabilizing transactions consist of various bids for
or purchases of common stock made by the underwriters in the open market prior
to the completion of the offerings.
The underwriters may also impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such underwriter in stabilizing or short covering
transactions.
Purchases to cover a short position and stabilizing transactions may have
the effect of preventing or retarding a decline in the market price of the
common stock, and together with the imposition of the penalty bid, may
stabilize, maintain or otherwise affect the market price of the common stock. As
a result, the price of the common stock may be higher than the price that
otherwise might exist in the open market. If these activities are commenced,
they may be discontinued at any time. These transactions may be effected on the
Nasdaq SmallCap Market, Nasdaq National Market, in the over-the-counter market
or otherwise.
The underwriters may not confirm sales to discretionary accounts without
the prior specific written approval of the customer.
One or more of the underwriters have in the past provided, and may in the
future from time to time provide, investment banking and general financing and
banking services to us for which they have in the past received, and may in the
future receive, customary fees.
For an aggregate price of $100, we have agreed to sell to the underwriters
and their designees 80,000 warrants to purchase up to 40,000 shares of common
stock at a purchase price of $9.00 per share. The underwriter's warrants may not
be sold or transferred for one year from the date of this prospectus, except to
the officers and partners of the underwriters and members of the selling group,
and are exercisable during the four-year period beginning one year after the
date of this prospectus. During the warrant exercise term, the holders of the
underwriters' warrants are given, at nominal cost, the opportunity to profit
from a rise in the market price of common stock. To the extent that the
underwriters' warrants are exercised, dilution to the interests of our
shareholders will occur. Further, the terms upon which we will be able to obtain
additional equity capital may be adversely affected because the holders of the
underwriter's warrants can be expected to exercise them at a time when we would,
in all likelihood, be able to obtain any needed capital on terms more favorable
to us than those provided in the underwriters' warrants. Any profit realized by
the underwriter on the sale of the underwriters' warrants or the underlying
shares of common stock may be deemed additional underwriting compensation.
Subject to certain limitations and exclusions, we have agreed, at the request of
51
<PAGE> 55
the holders of a majority of the underwriters' warrants, at our expense, to
register the underwriters' warrants and the shares of common stock issuable upon
exercise of the underwriters' warrants under the Securities Act on one occasion
during the warrant exercise term and to include the underwriters' warrants and
all such underlying securities in any appropriate registration statement which
is filed by us during the two years following the date of this prospectus.
We have agreed with the underwriters that for a period of one year after
the date of this prospectus we will not issue any debt or equity securities
without the consent of the representative of the underwriters, which consent may
not be unreasonably withheld, except for issuances in connection with
acquisitions or upon exercise of outstanding options and warrants.
All of our officers, directors, L. Van Page, and E&D, Inc. have agreed that
they will not sell any shares of our common stock for a period of 90 days after
the date of this prospectus or a period of 180 days after the date of this
prospectus if the overallotment option is fully exercised without the prior
written consent of the underwriters. Glenayre has agreed that it will not sell
its shares for a period of 180 days after the date of this prospectus without
the prior written consent of the underwriters.
The registering shareholders in our concurrent offering have agreed that
they will not sell their shares for a period of 180 days after the date of this
prospectus without the prior written consent of the underwriters.
LEGAL MATTERS
Faegre & Benson LLP, Denver, Colorado will pass upon the validity of the
common stock and warrants offered in this prospectus. Rothgerber Johnson & Lyons
LLP, Denver, Colorado will pass upon certain matters for the underwriters.
EXPERTS
Our consolidated balance sheet as of September 30, 1999 and the
consolidated statements of operations, stockholders' equity and cash flows for
the year ended September 30, 1998 and 1999 included in this prospectus have been
included herein in reliance on the report of HEIN + ASSOCIATES LLP, independent
certified public accountants, given on the authority of that firm as experts in
auditing and accounting.
On December 16, 1998, we engaged HEIN + ASSOCIATES LLP as our principal
independent accountant in place of James E. Scheifley & Associates, PC. On
December 16, 1998, we requested and received the resignation of James E.
Scheifley & Associates, PC. There were no disagreements between us and James E.
Scheifley & Associates, PC on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure which, if not
resolved to the satisfaction of James E. Scheifley & Associates, PC, would have
caused James E. Scheifley & Associates, PC to make reference in its reports to
the subject matter of such disagreements. The opinion of James E. Scheifley &
Associates, PC on our consolidated financial statements for the fiscal year
ended September 30, 1997, and for the period from January 22, 1996 to September
30, 1996 contained no adverse opinion or disclaimer of opinion, nor was such
opinion qualified as to uncertainty, audit scope or accounting principles. The
decision to change accountants was approved by our board of directors.
The balance sheets of One Touch Communications, Inc. at December 31, 1998
and 1999 and the related statements of income, changes in stockholders' equity,
and cash flows for years then ended included in this prospectus have been
included herein in reliance on the report of Gifford Hillegass & Ingwersen,
P.C., independent certified public accountants, given on the authority of that
firm as experts in auditing and accounting.
The balance sheets of Hellyer Communications, Inc. as of October 31, 1998
and 1999 and the related statements of operations, changes in stockholders'
equity (deficit) and cash flows for the years ended October 31, 1999 and 1998
included in this prospectus have been included herein in reliance on the report
of Robert C. Teipen P.C., independent certified public accountants, given on the
authority of that firm as experts in auditing and accounting.
52
<PAGE> 56
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
MULTI-LINK TELECOMMUNICATIONS, INC.
Independent Auditors' Report................................ F-2
Consolidated Balance Sheet -- September 30, 1999 and June
30, 2000 (Unaudited)...................................... F-3
Consolidated Statements of Operations -- For the Years Ended
September 30, 1998 and 1999 and the Nine Months Ended June
30, 1999 and 2000 (Unaudited)............................. F-4
Consolidated Statements of Changes in Stockholders'
Equity -- For the Years Ended September 30, 1998 and 1999
and the Nine Months Ended June 30, 1999 and 2000
(Unaudited)............................................... F-5
Consolidated Statements of Cash Flows -- For the Years Ended
September 30, 1998 and 1999 and the Nine Months Ended June
30, 1999 and 2000 (Unaudited)............................. F-6
Notes to Consolidated Financial Statements.................. F-8
HELLYER COMMUNICATIONS, INC.
Independent Auditor's Report................................ F-20
Balance Sheets -- October 31, 1998 and 1999................. F-21
Statements of Operations -- For the Years Ended October 31,
1998 and 1999............................................. F-22
Statements of Changes in Stockholders' Equity
(Deficit) -- For the Years Ended October 31, 1998 and
1999...................................................... F-23
Statements of Cash Flows -- For the Years Ended October 31,
1998 and 1999............................................. F-24
Notes to Financial Statements............................... F-25
Schedules of Selling, General and Administrative
Expenses -- For the Years Ended October 31, 1998 and
1999...................................................... F-30
ONE TOUCH COMMUNICATIONS, INC.
Independent Auditor's Report................................ F-31
Balance Sheets -- December 31, 1998 and 1999................ F-32
Statements of Income -- For the Years Ended December 31,
1998 and 1999............................................. F-33
Statements of Changes in Stockholders' Equity -- For the
Years Ended December 31, 1998 and 1999.................... F-34
Statements of Cash Flows -- For the Years Ended December 31,
1998 and 1999............................................. F-35
Notes to Financial Statements............................... F-36
PRO FORMA COMBINING CONDENSED FINANCIAL INFORMATION
Introduction................................................ F-39
Combining, Condensed Statement of Operations -- For the
Twelve Months Ended September 30, 1999.................... F-40
Notes to Combining, Condensed Financial Information......... F-41
</TABLE>
F-1
<PAGE> 57
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, 1999 and the
related consolidated statements of operations, changes in stockholders' equity,
and cash flows for the years ended September 30, 1998 and 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Multi-Link Telecommunications, Inc. and subsidiaries as of September 30, 1999
and of the results of their operations and their cash flows for the years ended
September 30, 1998 and 1999, in conformity with generally accepted accounting
principles.
HEIN + ASSOCIATES LLP
Denver, Colorado
May 5, 2000
F-2
<PAGE> 58
MULTI-LINK TELECOMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1999 2000
------------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 572,260 $ 614,600
Marketable securities, current............................ 3,397,002 295,820
Accounts receivable -- trade, net of allowance for
doubtful accounts of $58,215 and $207,310 (unaudited),
respectively........................................... 439,754 1,211,862
Note receivable........................................... -- 322,118
Subscriptions receivable.................................. -- 200,000
Inventory................................................. -- 32,407
Prepaid expenses and other................................ 153,089 337,497
----------- -----------
Total current assets.............................. 4,562,105 3,014,304
SUBSCRIPTION RECEIVABLE..................................... -- 800,000
MARKETABLE SECURITIES....................................... 386,357 292,273
PROPERTY AND EQUIPMENT, net................................. 1,572,435 4,639,268
OTHER ASSETS:
Deferred financing and other assets....................... 140,225 93,773
Intangible assets, less amortization of $663,517 and
$1,361,125
(unaudited), respectively.............................. 774,580 7,245,028
----------- -----------
TOTAL ASSETS...................................... $ 7,435,702 $16,084,646
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 186,994 $ 613,432
Accrued expenses.......................................... 134,395 540,448
Subscriber deposits....................................... -- 128,635
Deferred revenue.......................................... 164,091 142,685
Notes payable -- related parties, current portion......... 17,569 --
Notes payable and current portion of long-term debt....... 233,329 637,759
----------- -----------
Total current liabilities......................... 736,378 2,062,959
LONG-TERM DEBT, less current portion........................ 716,165 3,783,693
COMMITMENTS (Note 6)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 5,000,000 shares
authorized; none issued................................ -- --
Common stock, no par value; 20,000,000 shares authorized,
3,528,790 and 4,084,290 (unaudited) shares issued and
outstanding, respectively.............................. 7,722,778 11,921,548
Accumulated deficit....................................... (1,728,307) (1,673,875)
Unrealized loss on marketable securities.................. (11,312) (9,679)
----------- -----------
Total stockholders' equity........................ 5,983,159 10,237,994
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $ 7,435,702 $16,084,646
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 59
MULTI-LINK TELECOMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, JUNE 30,
----------------------- -------------------------
1998 1999 1999 2000
---------- ---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
NET REVENUES................................. $4,165,936 $4,588,749 $3,354,536 $8,262,473
COST OF SERVICES AND PRODUCTS................ 825,746 785,502 595,990 1,747,237
---------- ---------- ---------- ----------
GROSS MARGIN................................. 3,340,190 3,803,247 2,758,546 6,515,236
OPERATING EXPENSES:
Sales and advertising...................... 522,541 401,638 271,830 998,708
General and administrative................. 1,962,679 2,187,650 1,497,432 4,044,684
Non-recurring pooling expenses............. -- -- -- 101,091
Non-recurring moving expenses.............. -- -- -- 122,179
Depreciation............................... 159,926 139,714 105,634 295,788
Amortization............................... 81,674 231,024 155,458 697,608
---------- ---------- ---------- ----------
Total operating expenses........... 2,726,820 2,960,026 2,030,354 6,260,058
---------- ---------- ---------- ----------
INCOME FROM OPERATIONS....................... 613,370 843,221 728,192 255,178
Interest income (expense), net............. (726,339) (274,846) (291,210) (200,220)
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES................... (112,969) 568,375 436,982 54,958
Provision for income taxes................. (14,208) (67,304) (73,878) (11,252)
---------- ---------- ---------- ----------
NET INCOME (LOSS)............................ $ (127,177) $ 501,071 $ 363,104 $ 43,706
========== ========== ========== ==========
NET INCOME (LOSS) PER COMMON SHARE:
Basic...................................... $ (0.07) $ 0.19 $ 0.16 $ 0.01
========== ========== ========== ==========
Diluted.................................... $ (0.07) $ 0.18 $ 0.14 $ 0.01
========== ========== ========== ==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic...................................... 1,903,393 2,610,480 2,320,732 3,824,375
========== ========== ========== ==========
Diluted.................................... 1,903,393 2,806,563 2,534,677 4,011,660
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 60
MULTI-LINK TELECOMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1999
AND THE NINE MONTHS ENDED JUNE 30, 2000 (UNAUDITED)
<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, 1997................... 1,897,186 $ 49,151 $(2,102,201) $ -- -- $(2,053,050)
Net loss and comprehensive loss........... -- -- (127,177) -- $(127,177) (127,177)
=========
Warrants issued for loans................. -- 73,440 -- -- 73,440
Common stock issued in exchange for
debt.................................... 79,454 320,000 -- -- 320,000
--------- ----------- ----------- -------- -----------
BALANCES, September 30, 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 income (unaudited).................. -- -- 43,706 -- $ 43,706 43,706
Unrealized loss on marketable
Securities............................ -- -- -- 1,633 1,633 1,633
---------
Comprehensive income (unaudited).......... $ 45,339
=========
Common stock issued for consulting and
non-compete agreements (unaudited)...... 150,000 965,625 -- -- 965,625
Options for services (unaudited).......... -- 18,154 -- -- 18,154
Common stock issued in acquisition of One
Touch Communications (unaudited)........ 246,718 2,020,003 -- -- 2,020,003
Common stock issued in acquisition of
VoiceLink Florida (unaudited)........... 12,000 132,000 132,000
Common stock issued in acquisition of
Cashtel subscriber base (unaudited)..... 2,220 20,535 20,535
Exercise of options (unaudited)........... 40,123 105,172 105,172
Common stock issued in private placement,
net of costs (unaudited)................ 104,439 937,281 937,281
Pooling adjustment (unaudited)............ -- -- 10,726 -- 10,726
--------- ----------- ----------- -------- -----------
BALANCES, June 30, 2000 (Unaudited)......... 4,084,290 $11,921,548 $(1,673,875) $ (9,679) $10,237,994
========= =========== =========== ======== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 61
MULTI-LINK TELECOMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, JUNE 30,
------------------------- -------------------------
1998 1999 1999 2000
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)...................... $ (127,177) $ 501,071 $ 363,104 $ 43,706
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating
activities:
Depreciation and amortization....... 241,600 370,738 261,092 993,396
Amortization of debt discount and
issuance costs.................... -- 29,862 21,525 21,876
Loss (profit) from associated
company........................... 16,995 15,063 -- --
Common stock and options issued for
services and loans................ -- 15,673 -- --
Bad debt expense.................... 95,299 35,064 28,415 190,683
Changes in operating assets and
liabilities:
(Increase) decrease in:
Accounts receivable............... (91,176) (163,206) (129,698) (877,918)
Inventory......................... -- -- 11,479 (8,235)
Prepayments....................... 149,140 (2,073) 71,572 (186,191)
Other receivables................. 33,940 13,176 -- --
Increase (decrease) in:
Accounts payable.................. (114,395) 9,278 (46,587) 317,998
Accrued expenses.................. (205,790) (147,896) (132,239) (1,130,704)
Deferred revenue.................. 55,582 2,660 -- --
----------- ----------- ----------- -----------
Net cash provided by (used in)
operating activities.............. 54,018 679,410 448,663 (635,389)
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in equity investee.......... (16,500) (20,000) (35,484) --
Purchase of subscriber accounts........ (265,834) (664,693) (507,428) (334,674)
Purchase of fixed assets............... (108,108) (609,780) (128,884) (1,578,082)
Purchase of marketable securities...... -- (3,794,671) -- --
Advance on note receivable............. -- -- -- (322,118)
Sale of marketable securities.......... -- -- -- 3,195,266
Unrealized loss on investments......... -- -- -- 1,633
Deferred acquisition cost.............. -- (42,744) -- --
Deferred financing costs............... -- -- -- 1,038
Purchase of minority interest in
subsidiary.......................... -- (8,000) -- --
Purchase of Cashtel subscriber base.... -- -- -- (258,320)
Purchase of Hellyer Communications
business and assets................. -- -- -- (1,419,936)
Purchase of One Touch Communications
business and assets................. -- -- -- (1,152,060)
----------- ----------- ----------- -----------
Net cash used in investing
activities........................ (390,442) (5,139,888) (671,796) (1,867,253)
</TABLE>
F-6
<PAGE> 62
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, JUNE 30,
------------------------- -------------------------
1998 1999 1999 2000
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt issue costs....................... $ (70,154) $ (2,000) $ -- $ --
Payment of related party notes
payable............................. (1,546,938) (731,471) (718,191) (17,569)
Advances under related party notes
payable............................. 1,673,641 80,066 80,000 --
Advances under notes payable........... 1,197,215 350,000 350,000 3,591,863
Payment of notes payable............... (303,767) (2,519,587) (2,439,946) (1,211,126)
Repurchase of outstanding shares....... -- (5,721) (5,721) --
Proceeds from issuance of common
stock............................... -- 8,870,000 8,870,000 105,172
Offering costs......................... (91,215) (1,659,707) (1,630,430) (62,719)
Proceeds from the exercise of stock
options............................. -- 24,940 -- --
Subscriber deposits.................... -- -- -- 128,635
Net effect of pooling VoiceLink........ -- -- -- 10,726
----------- ----------- ----------- -----------
Net cash provided by financing
activities........................ 858,782 4,406,520 4,505,712 2,544,982
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................ 522,358 (53,958) 4,282,579 42,340
CASH AND CASH EQUIVALENTS, at beginning
of period.............................. 103,860 626,218 626,218 572,260
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, at end of
period................................. $ 626,218 $ 572,260 $ 4,908,797 $ 614,600
=========== =========== =========== ===========
SUPPLEMENTAL SCHEDULE OF CASH FLOW
INFORMATION:
Cash paid for interest................. $ 727,916 $ 325,332 $ 272,698 $ 200,937
=========== =========== =========== ===========
Cash paid for taxes.................... $ 3,460 $ 9,792 $ 9,792 $ --
=========== =========== =========== ===========
Unrealized gain (loss) on
available-for-sale securities....... $ -- $ (11,312) $ (5,821) $ 1,633
=========== =========== =========== ===========
Equipment acquired through debt........ $ 139,098 $ -- $ -- $ 1,105,472
=========== =========== =========== ===========
Conversion of notes payable to
equity.............................. $ 320,000 $ 35,000 $ 35,000 $ --
=========== =========== =========== ===========
Fair value of warrants granted for
loans............................... $ 73,440 $ -- $ -- $ --
=========== =========== =========== ===========
Common stock/options issued for
subscriber accounts................. $ -- $ 15,675 $ -- $ 20,535
=========== =========== =========== ===========
Consulting and non-compete agreements
acquired for equity................. $ -- $ -- $ -- $ 956,624
=========== =========== =========== ===========
Business and assets of One Touch
acquired for equity................. $ -- $ -- $ -- $ 2,020,003
=========== =========== =========== ===========
Net liabilities assumed in business
combined accounted for as
purchase............................ $ -- $ -- $ -- $ 769,022
=========== =========== =========== ===========
Capital stock of VoiceLink of Florida,
Inc. acquired for equity............ $ -- $ -- $ -- $ 132,000
=========== =========== =========== ===========
Capital stock issued on June 30, 2000,
proceeds received after June 30,
2000................................ $ -- $ -- $ -- $ 1,000,000
=========== =========== =========== ===========
Write-off of non-compete agreement
through note payable reduction...... $ -- $ 25,000 $ -- $ --
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 63
MULTI-LINK TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 IS UNAUDITED)
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.
On March 30, 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
Telecommunication's 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 changes in stockholders' equity (see Note 2).
Principles of Consolidation -- The consolidated financial statements
include the accounts of Telecommunications and its 100% owned subsidiaries,
Communications and VoiceLink (collectively the "Company"). All significant
intercompany transactions and accounts have been eliminated.
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. Investments with
original maturities at date of purchase beyond 3 months and less than 12 months
are classified as short-term investments. Investments with original maturities
beyond one year are classified as long-term investments. 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. 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 years
Plant and equipment................................... 3 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
F-8
<PAGE> 64
MULTI-LINK TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 IS UNAUDITED)
subscriber accounts internally generated are expensed as incurred. Through
December 1997, all subscriber accounts were internally generated and,
accordingly, sales and marketing costs were expensed as incurred. Beginning
January 1998, 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.
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 Acquisition, Deferred Financing, and Offering Costs -- 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 are
initially deferred and ultimately capitalized as a cost of the acquisition if
successful or expensed if the acquisition is unsuccessful.
Offering costs have been offset against the proceeds of a private and
public offering completed during fiscal 1999 and the nine months ended June 30,
2000.
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 -- Concentration of
credit risk is limited to trade accounts receivable. 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.
As of June 30, 2000 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 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.
F-9
<PAGE> 65
MULTI-LINK TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 IS UNAUDITED)
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
revenues primarily represent subscriber prepayments which are recognized as
income 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. The Company's
comprehensive income (loss) was equal to its net income (loss) for the year
ended September 30, 1998. During 1999, the Company purchased 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. Basic and diluted EPS were the same
for fiscal 1998 as the Company had losses from operations and, therefore, the
effect of all additional potential common stock was antidilutive. Potential
dilutive securities include options and warrants for the purchase of 340,665
shares of common stock as of September 30, 1998. 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. In connection with the Company's public offering (see Note
7), 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 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 -- In fiscal 1997, the Company adopted SFAS No.
123, Accounting for Stock-Based Compensation. SFAS No. 123 encourages, but does
not require, companies to recognize compensation expense for grants of stock,
stock options, and other equity instruments to employees based on fair value.
Companies that do not adopt the fair value accounting rules must disclose the
impact of adopting the new method in the notes to the financial statements.
Transactions in equity instruments with non-employees for goods or services must
be accounted for on the fair value method. The Company has elected not to adopt
the fair value accounting prescribed by SFAS No. 123 for employees, and is
subject only to the disclosure requirements prescribed by SFAS No. 123.
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 deferred tax
F-10
<PAGE> 66
MULTI-LINK TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 IS UNAUDITED)
asset and goodwill and their related lives. Due to uncertainties inherent in the
estimation process, it is at least reasonably 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.
Unaudited Information -- The balance sheet as of June 30, 2000 and the
statements of operations for the nine-month periods ended June 30, 1999 and 2000
were taken from the Company's books and records without audit. However, in the
opinion of management, such information includes all adjustments (consisting
only of normal recurring accruals) which are necessary to properly reflect the
financial position of the Company as of June 30, 2000 and the results of
operations for the nine months ended June 30, 1999 and 2000.
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 $4.2 million. Hellyer has been a provider of business messaging services
since 1969, and has subscribers in Indianapolis, Chicago and Detroit. The
transaction was accounted for using the purchase method of accounting and
resulted in $2.61 million of goodwill representing the excess of the purchase
price over the fair value of net assets acquired. The purchase price was $1.1
million cash and the assumption of $2.1 million in liabilities. 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 non-compete
and consulting agreements.
On November 29, 1999, Hellyer Communications Services, Inc., acquired 9,416
(unaudited) residential voice messaging accounts from B.F.G. of Illinois Inc.,
doing business as Cashtel, Inc., in Chicago. The purchase price was $278,855,
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 $2.88 million of
goodwill representing the excess of the purchase price over the fair market
value of net assets acquired. The purchase price was $3.12 million, consisting
of $1.1 million in cash and $2.02 million in restricted common stock (246,718
shares). The sellers have agreed to hold the common stock for up to two years
from the date of closing. 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 406,488 common shares. 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
F-11
<PAGE> 67
MULTI-LINK TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 IS UNAUDITED)
been combined throughout the periods presented. During 2000, the Company
recorded a charge to operations of approximately $100,000 for
acquisition-related costs. These costs consisted of investment banking fees,
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 years ended December 31, 1998 and
1999 have been combined with the Company's statements of operations for the
fiscal years ended September 30, 1998 and 1999, respectively. In order to
conform VoiceLink's calendar year-end to the Company's year-end, the
consolidated statement of changes in stockholders' equity was adjusted for the
operating results of VoiceLink for the period from October 1, 1999 and December
31, 1999, which is included in the consolidated results of operations in both
the nine months ended June 30, 2000 and the year ended December 31, 1999
periods. The following is a summary of operating results for that period:
<TABLE>
<S> <C>
Revenue................................................... $588,979
Expenses.................................................. 599,705
--------
Net loss........................................ $(10,726)
========
</TABLE>
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 (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 purchase price for the remaining
50% of outstanding share capital of VoiceLink of Florida, Inc. was $132,000
which was paid through the issuance of 12,000 restricted common shares of the
Company's common stock. 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.
The following unaudited pro forma results of operations are for the Company
(including VoiceLink on a pooling of interest basis) Hellyer and One Touch
Communications as if the acquisitions had taken place on
F-12
<PAGE> 68
MULTI-LINK TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 IS UNAUDITED)
October 1, 1998. VoiceLink of Florida has been excluded from the pro forma
results of operations as result of insignificant operations.
<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>
3. PROPERTY AND EQUIPMENT:
Property and equipment comprise the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1999 2000
------------- ----------
<S> <C> <C>
Motor vehicles.............................................. $ 55,560 $ 106,163
Plant and equipment......................................... 45,709 47,809
Computer equipment.......................................... 190,903 1,113,151
Furniture and fixtures...................................... 57,160 317,666
Real estate................................................. -- 104,729
Leasehold improvements...................................... -- 117,826
Voice messaging equipment................................... 1,595,022 3,448,614
---------- ----------
1,944,354 5,255,958
Accumulated depreciation.................................... (371,919) (616,690)
---------- ----------
$1,572,435 $4,639,268
========== ==========
</TABLE>
Depreciation expense for the years ended September 30, 1998 and 1999 and
for the nine months ended June 30, 1999 and 2000 was $159,926, $139,714,
$105,634 and $295,788, respectively.
4. INTANGIBLE ASSETS:
Intangible assets comprise the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1999 2000
------------- -----------
<S> <C> <C>
Goodwill................................................... $ 332,570 $ 5,923,066
Subscriber accounts........................................ 930,527 1,499,602
Non-compete agreement...................................... 175,000 864,733
Consulting agreement....................................... -- 275,892
Other...................................................... -- 42,860
---------- -----------
1,438,097 8,606,153
Amortization............................................... (663,517) (1,361,125)
---------- -----------
$ 774,580 $ 7,245,028
========== ===========
</TABLE>
Amortization expense for the years ended September 30, 1998 and 1999 and
for the nine months ended June 30, 1999 and 2000 was $81,674, $231,024, $155,458
and $697,608, respectively.
F-13
<PAGE> 69
MULTI-LINK TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 IS UNAUDITED)
5. NOTES PAYABLE AND LONG-TERM DEBT:
Notes payable and long-term debt consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1999 2000
------------- --------
<S> <C> <C>
RELATED PARTIES:
Notes payable to a stockholder/director of the Company, with
10% interest, payable on demand. This note is
unsecured................................................. $17,569 $ --
======= =====
</TABLE>
Total interest expense to related parties for the years ended September 30,
1998 and 1999 was $23,381 and $376,344, respectively.
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1999 2000
------------- ----------
<S> <C> <C>
OTHER
Communications has entered into various loan agreements to
purchase motor vehicles, computer and voice messaging
equipment. The loans require varying monthly payments and
mature through June 2003. Interest is charged at rates
between 12.5% and 13.9%. The loans are collateralized by the
underlying assets and are personally guaranteed by certain
officers/directors/stockholders of the Company.............. $ 491,435 $ --
Line-of-credit to a commercial lender (the Westburg Loan)
for $2,150,000. Interest charged at 3% above prime (11.25%
as of September 30, 1999) 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......................... 10,000 1,210,000
A 10-year SBA guaranteed, variable rate promissory note
repayable in monthly installments maturing April 2005
bearing interest at prime plus 2%, collateralized by
equipment................................................... 366,940 --
A 5-year equipment lease to purchase voice messaging
equipment repayable in monthly installments maturing
December 2002 bearing interest at 11.25%, collateralized by
equipment................................................... 81,119 --
11 leasing and loan arrangements to finance the purchase of
equipment. The term of these facilities are from 36 to 60
months at interest rates of between 9.25% and 10.5%
collateralized by the underlying assets..................... -- 2,726,059
A margin facility of $430,000 collateralized by the
Company's investments. Interest is charged at 8.75% and the
facility has no specified term.............................. -- 409,079
A 20-year real estate loan, repayable in March 2020, at an
interest rate of 9.77% collateralized by the underlying
asset....................................................... -- 76,314
--------- ----------
949,494 4,421,452
Less current portion........................................ (233,329) (637,759)
--------- ----------
$ 716,165 $3,783,693
========= ==========
</TABLE>
In August 2000, the Company entered into a $300,000 48 month lease, with an
effective interest rate of 10.77%, to refinance certain equipment.
F-14
<PAGE> 70
MULTI-LINK TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 IS UNAUDITED)
Principal payments on the above obligations at September 30, 1999 are due
as follows:
<TABLE>
<CAPTION>
RELATED
SEPTEMBER 30, PARTIES OTHER
------------- ------- --------
<S> <C> <C>
2000............................................. $17,569 $233,329
2001............................................. -- 262,000
2002............................................. -- 220,514
2003............................................. -- 101,825
2004............................................. -- 89,964
Thereafter....................................... -- 41,862
------- --------
$17,569 $949,494
======= ========
</TABLE>
Principal payments on the above obligations at June 30, 2000 are due as
follows:
<TABLE>
<CAPTION>
JUNE 30,
--------
<S> <C>
2001..................................................... $ 637,759
2002..................................................... 1,102,915
2003..................................................... 748,571
2004..................................................... 1,752,972
2005..................................................... 111,170
Thereafter............................................... 68,065
----------
$4,421,452
==========
</TABLE>
6. COMMITMENTS:
As of September 30, 1999, the Company leased certain equipment under lease
agreements classified as operating leases. Minimum future equipment and office
rental payments are as follows:
<TABLE>
<S> <C>
2000...................................................... $132,449
2001...................................................... 166,870
2002...................................................... 124,535
2003...................................................... 106,285
2004...................................................... 107,547
Thereafter................................................ 161,321
--------
$799,007
========
</TABLE>
As described in Note 2, the Company acquired several entities subsequent to
September 30, 1999. Facility leases associated with these acquisitions are as
follows:
<TABLE>
<CAPTION>
PROPERTY EXPIRATION DATE ANNUAL RENT
-------- --------------- -----------
<S> <C> <C>
Indianapolis............................................. April 2005 $431,628
Raleigh.................................................. June 2001 49,200
Atlanta.................................................. May 2002 48,636
Fort Lauderdale.......................................... September 2005 10,824
--------
$540,288
========
</TABLE>
Rent expense for the period for the years ended September 30, 1998 and 1999
and for the nine months ended June 30, 1999 and 2000 was $69,348, $82,475,
$48,595, and $308,758, respectively.
F-15
<PAGE> 71
MULTI-LINK TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 IS UNAUDITED)
7. 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 -- During 1997, the Company declared a 200 for 1 stock split.
The Company also 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 these splits.
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 the purchase of 690,000 shares of common stock
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 nine months ended June 30, 2000, the
Company issued common stock in connection with four acquisitions.
On May 15, 2000, 40,123 shares of common stock were issued for $105,172
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 Technologies, Inc. (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 is
retained in an escrow account. The proceeds of the stock issue were received
subsequent to June 30, 2000. Accordingly, the proceeds have been recorded in the
balance sheet of June 30, 2000 as subscription receivable.
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 5). 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 15,000 and 7,500
shares of common stock, respectively, at $5.00 and $4.17 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 warrants to purchase a total of 11,340 shares of common stock.
F-16
<PAGE> 72
MULTI-LINK TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 IS UNAUDITED)
In connection with the initial public offering in May 1999, the Company
issued 1,380,000 "C" warrants. Two 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 warrants for the
units are exercised.
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 become
exercisable immediately upon the successful completion of an offering. The
expiration date of the warrants is March 20, 2002. In the event that an offering
is not successfully completed before September 20, 2000, the Company may cancel
the warrants. The entity was not responsible for identifying the underwriter
(see note 9) and has agreed that the warrants will be cancelled on September 20,
2000.
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 authorized the issuance of up to 300,000 shares of common stock.
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 September 30,
1999, the Company had granted options under the Plan to purchase 277,830 shares,
of which 50,760 options have been exercised and 16,440 have been forfeited or
canceled.
The following is a table of activity under the Plan:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL 1998 FISCAL 1999 JUNE 30, 2000
-------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE NUMBER EXERCISE
OF SHARES PRICE OF SHARES PRICE OF SHARES PRICE
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year........... 101,355 $0.105 154,665 $1.384 210,630 $ 4.207
Granted:
Employees and others................ 25,200 2.450 30,335 6.00 20,000 6.625
Employees and others................ 35,490 4.167 83,200 6.50 151,000 8.50
Employees........................... -- -- -- -- 20,000 9.35
Employees........................... -- -- -- -- 126,750 12.00
Employees........................... -- -- -- -- -- --
Exercised.............................. -- -- (50,760) 0.492 (40,123) 2.62
Forfeited/Canceled..................... (7,380) 0.943 (6,810) 3.703 (5,010) 6.85
------- ------- -------
Outstanding, end of period............... 154,665 $1.384 210,630 $4.207 483,247 $ 8.01
======= ======= =======
</TABLE>
F-17
<PAGE> 73
MULTI-LINK TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 IS UNAUDITED)
For all options granted during fiscal 1998 and 1999, and the nine months
ended June 30, 2000, 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 $6.50 to $14.25.
The weighted average contractual life for all options as of September 30,
1999 was approximately 8 years, with the exercise prices ranging from $.017 to
$6.50. At September 30, 1999, options for 17,670 shares were exercisable and
options for the remaining shares become exercisable pro rata through fiscal
2002. If not previously exercised, options outstanding at September 30, 1999,
will expire as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER EXERCISE
FISCAL YEAR OF SHARES PRICE
----------- --------- --------
<S> <C> <C>
2004........................................................ 20,000 $6.000
2007........................................................ 49,425 0.040
2008........................................................ 47,670 3.384
2009........................................................ 93,535 6.445
-------
210,630 $4.207
=======
</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 fair 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 Company's
net income (loss) and earnings (loss) per share would have been reduced to the
pro forma amount indicated below.
<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
--------------------
1998 1999
--------- --------
<S> <C> <C>
Net income (loss) applicable to common shareholders:
As reported............................................... $(127,177) $501,071
Pro forma................................................. (143,593) 427,812
Net income (loss) per common share
As reported............................................... $ (0.07) $ 0.19
Pro forma................................................. (0.08) 0.16
</TABLE>
For purposes of this disclosure, the weighted average fair value of the
options granted was $1.12 and $1.64 in fiscal 1998 and 1999, respectively. The
fair value of each employee option granted in fiscal year
F-18
<PAGE> 74
MULTI-LINK TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 IS UNAUDITED)
1998 and 1999, was estimated on the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions:
<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
-------------
1998 1999
----- -----
<S> <C> <C>
Expected volatility..................................... 0% 34.8%
Risk-Free interest rate................................. 5.6% 5.0%
Expected dividends...................................... -- --
Expected terms (in years)............................... 4 2
</TABLE>
8. INCOME TAXES:
The Company's actual effective tax rate differs from U.S. Federal corporate
income tax rate of 34% as follows:
<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
-------------
1998 1999
----- -----
<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% (49.3)%
----- -----
(12)% (12)%
===== =====
</TABLE>
The components of the net deferred tax asset recognized as of September 30
are as follows:
<TABLE>
<CAPTION>
1998 1999
--------- -----------
<S> <C> <C>
Long-term deferred tax assets (liabilities):
Net operating loss carryforwards.......................... $ 756,000 $ 862,000
Goodwill.................................................. 96,000 115,000
Capitalized subscriber accounts........................... (86,000) 261,000
Other..................................................... (45,000) 36,000
Valuation allowance....................................... (721,000) (1,274,000)
--------- -----------
Net long-term deferred tax asset.................. $ -- $ --
========= ===========
</TABLE>
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 2018. Certain of the loss carryforwards are subject to restrictions as a
result of the completion of the initial public offering in May 1999 (see Note
7).
9. PUBLIC OFFERING:
Letter of Intent for a Public Offering -- The Company is preparing for a
public offering to provide gross proceeds to the Company of approximately
$15,000,000. The Company will also sell to the representative of the
underwriters at the close of the public offering, at a total purchase price of
$100, 80,000 warrants to purchase 40,000 shares of common stock. The
underwriters' warrants will be exercisable for four years beginning one year
after the effective date of the registration statement. The letter of intent is
subject to change and cancellation by either party.
F-19
<PAGE> 75
INDEPENDENT AUDITOR'S REPORT
To: The Board of Directors of the
Hellyer Communications Services, Inc.
Indianapolis, Indiana
We have audited the accompanying balance sheets of Hellyer Communications,
Inc. as of October 31, 1998 and 1999, and the related statements of operations,
changes in stockholders' equity (deficit) and cash flows for years ended October
31, 1998 and 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Hellyer Communications, Inc.
as of October 31, 1998 and 1999, and the results of its operations and its cash
flows for years then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 7 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raises substantial doubt about its ability
to continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Our audits were conducted for the purpose of forming an opinion on the
basic financial statements taken as a whole. The Schedules of Selling, General
and Administrative Expenses are presented for purposes of additional analysis
and are not a required part of the basic financial statements. Such information
has been subjected to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
/s/ ROBERT C. TEIPEN
Robert C. Teipen, PC.
Certified Public Accountants
January 12, 2000
F-20
<PAGE> 76
HELLYER COMMUNICATIONS, INC.
INDIANAPOLIS, INDIANA
BALANCE SHEETS
OCTOBER 31, 1998 AND 1999
(SEE INDEPENDENT AUDITOR'S REPORT)
<TABLE>
<CAPTION>
1998 1999
---------- -----------
<S> <C> <C>
ASSETS
Current assets
Cash and Cash Equivalents................................. $ 153,783 $ 26,698
Accounts Receivable -- Trade.............................. 643,894 63,960
Inventory................................................. 160,492 22,389
Note Receivable -- Shareholder............................ 194,141 0
Prepaid Expenses.......................................... 200 0
Advances to Employees..................................... 370 0
---------- -----------
Total current assets.............................. 1,152,880 113,047
---------- -----------
Property and equipment
Office Equipment.......................................... 642,381 661,923
Automobiles............................................... 62,164 13,877
Answering Service Equipment............................... 182,887 182,887
Computer Equipment........................................ 1,840,622 2,389,056
---------- -----------
2,728,054 3,247,743
Less: Accumulated Depreciation............................ 1,041,616 1,561,607
---------- -----------
Total property and equipment -- net............... 1,686,438 1,686,136
---------- -----------
Other assets
Subscribers List.......................................... 991,587 0
Escrow Deposit............................................ 15,000 0
Non-Compete Agreement..................................... 2,000 0
Trade Name................................................ 5,000 0
---------- -----------
1,013,587 0
Less: Accumulated Amortization............................ 291,136 0
---------- -----------
Total other assets -- net......................... 722,451 0
---------- -----------
Total assets...................................... $3,561,769 $ 1,799,133
========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
Current liabilities
Accounts Payable -- Trade................................. $ 263,787 $ 1,250,662
Accounts Payable -- Related Parties....................... 0 325,997
Accrued Expenses.......................................... 91,832 887,657
Accrued Taxes............................................. 48,479 356,813
Customer Deposits......................................... 170,858 155,956
Current Portion of Capital Leases......................... 288,280 417,232
Current Portion of Long Term Debt......................... 552,845 877,423
Current Portion of Long Term Debt -- Related Party........ 0 58,500
---------- -----------
Total current liabilities......................... 1,416,081 4,330,240
---------- -----------
Commitments (Notes 3 and 4)
Long term liabilities
Long Term Capital Leases, Less Current Portion............ 1,038,462 1,479,503
---------- -----------
Total long term liabilities....................... 1,038,462 1,479,503
---------- -----------
Total liabilities................................. 2,454,543 5,809,743
---------- -----------
Shareholder's equity (Deficit)
Common Stock, No Par Value, 2,000 Shares Authorized, 1,100
Shares Issued and Outstanding.......................... 1,100 1,100
Retained Earnings -- (Accumulated Deficit)................ 1,106,126 (4,011,660)
---------- -----------
Total shareholder's equity (Deficit).............. 1,107,226 (4,010,560)
---------- -----------
Total liabilities and shareholder's equity
(Deficit)....................................... $3,561,769 $ 1,799,183
========== ===========
</TABLE>
See Accompanying Notes to Financial Statements
F-21
<PAGE> 77
HELLYER COMMUNICATIONS, INC.
INDIANAPOLIS, INDIANA
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED OCTOBER 31, 1998 AND 1999
(SEE INDEPENDENT AUDITOR'S REPORT)
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Revenue
Services.................................................. $ 8,611,364 $ 7,181,663
Paging Equipment Sales.................................... 1,566,049 1,718,959
----------- -----------
Total revenue..................................... 10,177,413 8,900,622
----------- -----------
Cost of goods sold
Cost of Services.......................................... 2,125,847 2,598,328
Cost of Paging Equipment.................................. 477,436 583,548
----------- -----------
Total cost of goods sold.......................... 2,603,283 3,181,876
----------- -----------
Gross margin.............................................. 7,574,130 5,718,746
Selling, general and administrative expenses -- Schedule
B-1....................................................... 7,077,752 10,064,884
----------- -----------
Operating income (Loss)................................... 496,378 (4,346,138)
----------- -----------
Other Income (Expense)
Interest Income........................................... 31,833 8,458
Interest Expense.......................................... (151,746) (219,056)
----------- -----------
Total other income (Expense)...................... (119,913) (210,598)
----------- -----------
Net income (Loss)........................................... $ 376,465 $(4,556,736)
=========== ===========
</TABLE>
See Accompanying Notes to Financial Statements
F-22
<PAGE> 78
HELLYER COMMUNICATIONS, INC.
INDIANAPOLIS, INDIANA
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
OCTOBER 31, 1998 AND 1999
(SEE INDEPENDENT AUDITOR'S REPORT)
<TABLE>
<CAPTION>
RETAINED
EARNINGS
COMMON (ACCUMULATED
STOCK DEFICIT)
------ ------------
<S> <C> <C>
Balances at November 1, 1997................................ 1,100 $ 1,435,730
Net Income.................................................. 0 376,465
Distributions to Shareholder................................ 0 (706,069)
----- -----------
Balances at October 31, 1998................................ 1,100 1,106,126
Net Income (Loss)........................................... 0 (4,556,736)
Distributions to Shareholder................................ 0 (561,052)
----- -----------
Balances at October 31, 1999................................ 1,100 $(4,011,662)
===== ===========
</TABLE>
See Accompanying Notes to Financial Statements
F-23
<PAGE> 79
HELLYER COMMUNICATIONS, INC.
INDIANAPOLIS, INDIANA
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED OCTOBER 31, 1998 AND 1999
(SEE INDEPENDENT AUDITOR'S REPORT)
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Cash Received from Customers.............................. $10,110,675 $ 9,480,556
Cash Paid to Suppliers and Others......................... (8,551,891) (9,667,912)
Interest Received......................................... 31,833 8,458
Other Operating Receipts.................................. 9,264 0
Interest Paid............................................. (151,746) (73,836)
----------- -----------
Net cash provided by (used in) operating
activities...................................... 1,448,135 (252,734)
----------- -----------
Cash flows from investing activities
Payments for Purchases of Equipment....................... (1,679,111) (639,445)
Proceeds from Repayment of Shareholder Note............... 77,648 194,141
----------- -----------
Net cash provided by (used in) investing
activities...................................... (1,601,463) (445,304)
----------- -----------
Cash flows from financing activities
Proceeds from Issuance of Long Term Debt.................. 1,062,689 345,616
Proceeds from Issuance of Capital Leases.................. 0 921,684
Principal Payments on Long Term Debt...................... (219,214) 0
Principal Payments on Capital Leases...................... 0 (135,297)
Distributions to Shareholder.............................. (706,069) (561,052)
----------- -----------
Net cash provided by financing activities......... 137,406 570,951
----------- -----------
(Decrease) in cash and cash equivalents..................... (15,922) (127,087)
Cash and cash equivalents -- beginning of year.............. 169,705 153,783
----------- -----------
Cash and cash equivalents -- end of year.................... $ 153,783 $ 26,696
=========== ===========
Reconciliation of net income (loss) to net cash provided by
(used in) operating activities
Net Income (Loss)......................................... $ 376,465 $(4,556,734)
----------- -----------
Adjustments to Reconcile Net Income (Loss) to Net Cash
Provided by (Used in) Operating Activities
Depreciation and Amortization.......................... 370,612 434,869
Loss on Impairment of Assets........................... 304,296 733,397
(Increase) Decrease in:
Accounts Receivable -- Trade......................... (378,494) 579,934
Accounts Receivable -- Related Parties............... 311,760 0
Inventory............................................ 202,237 138,103
Prepaid Expenses..................................... 26,380 15,200
Advances to Employees................................ (229) 370
Increase (Decrease) in:
Accounts Payable -- Trade............................ 197,850 986,875
Accounts Payable -- Related Parties.................. 0 325,997
Accrued Taxes and Expenses........................... 27,994 1,104,159
Customer Deposits.................................... 9,264 (14,902)
----------- -----------
Total Adjustments................................. 1,071,670 4,304,002
----------- -----------
Net cash provided by (used in) operating
activities...................................... $ 1,448,135 $ (252,732)
=========== ===========
</TABLE>
See Accompanying Notes to Financial Statements
F-24
<PAGE> 80
HELLYER COMMUNICATIONS, INC.
INDIANAPOLIS, INDIANA
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1999 AND 1998
(SEE INDEPENDENT AUDITOR'S REPORT)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General -- The Company's business lines currently include telephone
answering services, leasing and servicing of paging equipment and commercial and
residential voice mail services in Central Indiana, Northern Illinois, and
Southern Michigan.
Cash and Cash Equivalents -- The Company considers all temporary
investments which are readily convertible to cash, such as certificates of
deposit, commercial paper and treasury bills with original maturities of less
than three months to be cash equivalents.
Accounts Receivable -- Trade -- The allowance method is used to account for
the Company's losses in the collection of accounts receivable. An allowance for
bad debts, as valued by management, at October 31, 1998 and 1999 is as follows:
<TABLE>
<CAPTION>
1998 1999
-------- ----------
<S> <C> <C>
Allowance for Bad Debts -- See Note 7....................... $ 19,779 $1,271,341
======== ==========
Bad Debt Expense -- See Note 7.............................. $943,320 $2,710,786
======== ==========
</TABLE>
Inventory -- Inventory is recorded at the lower of cost (first-in,
first-out method) or market. Due to the cancellation of the Ameritech contract
(see Note 7), the value of the inventory at October 31, 1999, has been reduced
to market value. Inventory is detailed as follows:
<TABLE>
<CAPTION>
1998 1999
-------- -------
<S> <C> <C>
Pagers...................................................... $160,492 $22,389
-------- -------
Total Inventory................................... $160,492 $22,389
======== =======
</TABLE>
Property and Equipment -- Property and Equipment are stated at cost.
Provisions for depreciation are made using the straight-line method over the
estimated useful lives of the assets. The major components are:
<TABLE>
<S> <C>
Office Equipment............................................ 3-8 Years
Automobiles................................................. 5 Years
Answering Service Equipment................................. 5-8 Years
Paging Equipment............................................ 5 Years
Computer Equipment.......................................... 3-8 Years
Leasehold Improvements...................................... 10 Years
</TABLE>
Expenditures for maintenance, repairs and betterments which do not
materially extend the useful lives of the assets or increase the operating
efficiency are charged to expense as incurred.
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Depreciation Expense........................................ $300,290 $434,869
======== ========
</TABLE>
Other Assets -- Intangible assets are amortized by the straight-line method
over their estimated useful lives of 5 to 15 Years.
<TABLE>
<CAPTION>
1998 1999
------- ----
<S> <C> <C>
Amortization Expense........................................ $70,322 $0
======= ==
</TABLE>
F-25
<PAGE> 81
HELLYER COMMUNICATIONS, INC.
INDIANAPOLIS, INDIANA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Impairment of Assets -- The impaired assets consist of a subscriber list,
trade name, and non-compete agreement that the Company no longer plans to
utilize. The Statements of Operations includes a $722,452 loss from Discontinued
Operations relating to the disposal of these assets.
Leases -- The Company accounts for non-cancelable leases that meet
specified criteria similar to an installment sale as capital leases. All other
leases are accounted for as operating leases.
Income Taxes -- The Company, with the consent of the shareholder, has
elected under the Internal Revenue Code to be taxed as an S Corporation. In lieu
of corporation income taxes, the shareholder of an S Corporation is taxed on the
Company's taxable income. Therefore, no provision or liability for income taxes
has been included in the financial statements.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Consideration of Credit Risk -- The Company maintains their cash in bank
deposit accounts at high credit quality financial institutions. The balances, at
times, may exceed federally insured limits.
NOTE 2 -- RELATED PARTY TRANSACTIONS
The Company is related, by reason of common ownership, to Hellyer Real
Estate, LLC and to Hellyer Construction, Inc.; both Companies are located in
Indianapolis, Indiana. These Companies have not been included in these financial
statements.
Loan Guarantees -- Hellyer Real Estate, LLC has guaranteed certain debt of
the Company to Fifth Third Bank of Central Indiana. See Note 4 for details.
Note Receivable -- Shareholder -- Hellyer Communications, Inc. has a note
receivable from the president and sole shareholder. The principal amount with
accrued interest at 9% is due December 29, 2000. The note balance and the
portion of interest income from the shareholder at October 31, 1998 and 1999 is:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Note Receivable from Shareholder............................ $194,141 $ 0
======== ========
Accounts Payable from Hellyer Real Estate, LLC.............. $ 0 $325,997
======== ========
Note from Hellyer Real Estate, LLC.......................... $ 0 $ 58,500
======== ========
Interest Income from Shareholder............................ $ 25,580 $ 21,310
======== ========
</TABLE>
F-26
<PAGE> 82
HELLYER COMMUNICATIONS, INC.
INDIANAPOLIS, INDIANA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- LEASES
Operating Leases -- Hellyer Communications, Inc. leases its facilities
under a non-cancelable operating lease through Hellyer Real Estate, LLC, a
related party. The payments to Hellyer Real Estate, LLC, are to be equal monthly
installments equal to minimum annual rents. Future minimum lease payments for
the next five years are as follows:
<TABLE>
<S> <C>
Years Ending October 31, 2000............................... $ 605,423
2001........................................................ 651,994
2002........................................................ 651,994
2003........................................................ 651,994
2004........................................................ 651,994
----------
$3,213,399
==========
</TABLE>
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Rent Expense................................................ $723,834 $716,396
======== ========
</TABLE>
Capital Leases -- The following is an analysis of property under capital
lease by major classes at cost value:
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Office Equipment............................................ $ 5,772 $ 5,722
Voice Mail Computers........................................ 1,572,131 2,323,397
---------- ----------
Total Equipment Under Capital Lease............... $1,577,853 $2,329,119
========== ==========
</TABLE>
Future capital lease payments at October 31, 1999, are as follows:
<TABLE>
<S> <C>
Years Ending October 31, 2000............................... $ 417,232
2001........................................................ 413,162
2002........................................................ 445,059
2003........................................................ 404,765
2004........................................................ 216,516
2005 and Thereafter......................................... 0
----------
$1,896,734
==========
</TABLE>
F-27
<PAGE> 83
HELLYER COMMUNICATIONS, INC.
INDIANAPOLIS, INDIANA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- LONG TERM DEBT
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Long Term Debt consists of the following:
Note Payable -- Fifth Third Bank of Central Indiana, line of
credit, collateralized by the Company's assets and funds on
deposit, interest at prime plus 3% (11.00% at October 31,
1999), monthly principal payments of $12,500 plus accrued
interest, due November 1999, and personally guaranteed by
Jerry L. Hellyer, Sr. The note is currently in default due
to violation of the following covenants:
1. Debt Service Coverage greater than 1.2-1.0
2. Total Liabilities to Tangible Net Worth exceeds 2.2-1.0
3. Minimum Tangible Net Worth less than $800,000.......... $552,845 $769,239
Note Payable -- Hellyer Real Estate, LLC, see Note 2 Related
Parties, due on demand...................................... 0 58,500
Note Payable -- Fifth Third Bank of Central Indiana, line of
credit, secured by the Company's assets and funds on
deposit, interest at 8.25%, due November 1999, and
personally guaranteed by Jerry L. Hellyer, Sr. ............. 0 108,184
-------- --------
552,845 935,923
Less: Current Maturities.................................... 552,845 935,923
-------- --------
Total Long Term Debt.............................. $ 0 $ 0
======== ========
</TABLE>
NOTE 5 -- PERMANENT IMPAIRMENTS
In December 1998, the company abandoned the use of the name of a company
whose assets it had purchased five years earlier. Those assets consisted of
intangible assets such as subscriber lists and trade name. These amortizable
assets were considered to be worthless when the company discontinued using the
acquired name in marketing the services.
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Impairment of Assets........................................ $304,296 $733,397
======== ========
</TABLE>
NOTE 6 -- DISPOSAL OF PROPERTY & EQUIPMENT
The Company moved its operations at the close of October, 1998, to its new
headquarters. The Company disposed of furniture, computer equipment, and
leasehold improvements, replacing those with new products.
NOTE 7 -- GOING CONCERN
The Company has operated for a number of years under a contract with
Ameritech. This contract called for Ameritech to bill Hellyer customers for
services, and remit collected funds to Hellyer after withholding a fee for this
service. Ameritech abruptly cancelled this service in 1999. Ameritech claimed
that they had overpaid Hellyer over time and charged Hellyer back for those
overpayments. Due to significant Ameritech chargebacks and the resulting
inability of Hellyer to invoice customers directly in a timely manner caused the
Company to lose a substantial amount of money.
On November 17, 1999, the assets of Hellyer Communications, Inc. were
purchased by Multi-Link Telecommunications, Inc. The company ceased operation as
of that date. Creditors accepted a plan whereby they received a substantially
discounted payment in full settlement of their liabilities to Hellyer.
F-28
<PAGE> 84
HELLYER COMMUNICATIONS, INC.
INDIANAPOLIS, INDIANA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- RECLASSIFICATION
Certain accounts relating to the prior year have been restated to conform
to current year's presentation. This reclassification is due to the sale of
assets of Hellyer Communications, Inc. and the new owners disposing of various
intangible assets (see Notes 5 and 7). These assets were reclassed in prior
years as if they had been expensed when they were acquired.
F-29
<PAGE> 85
SCHEDULE B-1
HELLYER COMMUNICATIONS, INC.
INDIANAPOLIS, INDIANA
SCHEDULES OF SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES
FOR THE YEARS ENDED OCTOBER 31, 1998 AND 1999
(SEE INDEPENDENT AUDITOR'S REPORT)
<TABLE>
<CAPTION>
1998 1999
---------- -----------
<S> <C> <C>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Wages and Taxes............................................. $3,061,950 $ 2,713,705
Bad Debt.................................................... 943,320 2,710,786
Rent and Utilities.......................................... 723,834 716,396
Telephone................................................... 759,126 636,898
Depreciation and Amortization............................... 370,612 434,869
Impairment of Assets........................................ 304,296 733,397
Advertising................................................. 63,644 91,076
Repairs and Maintenance..................................... 70,485 183,352
Auto Expense................................................ 9,273 4,788
Travel and Entertainment.................................... 53,588 30,464
Office Expense.............................................. 229,448 600,299
Printing Expense............................................ 46,198 37,433
Postage..................................................... 117,903 97,525
Insurance -- Casualty....................................... 20,136 7,239
Insurance -- Group.......................................... 152,263 392,893
Insurance -- Life........................................... 3,428 2,006
Legal and Accounting........................................ 50,708 421,237
Pension Plan................................................ (13,649) 9,582
Property Taxes.............................................. 21,780 140,256
Employee Recruitment........................................ 87,959 45,909
Penalties................................................... 0 53,850
Other....................................................... 1,450 924
---------- -----------
Total selling, general and administrative
expenses........................................ $7,077,752 $10,064,884
========== ===========
</TABLE>
See Accompanying Notes to Financial Statements
F-30
<PAGE> 86
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
One Touch Communications, Inc.
We have audited the accompanying balance sheets of One Touch
Communications, Inc. (an S Corporation) at December 31, 1998 and 1999, and the
related statements of income, changes in stockholders' equity, and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of One Touch Communications,
Inc. as of December 31, 1998 and 1999, and the results of its operations and
cash flows for the years then ended in conformity with generally accepted
accounting principles.
GIFFORD, HILLEGASS & INGWERSEN, P.C.
Atlanta, Georgia
February 22, 2000
F-31
<PAGE> 87
ONE TOUCH COMMUNICATIONS, INC,
BALANCE SHEETS
DECEMBER 31, 1998 AND 1999
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
ASSETS
Current assets
Cash...................................................... $ 5,125 $ 6,735
Accounts receivable....................................... 45,960 40,651
Advances to shareholder................................... 20,773 --
Other current assets...................................... 16,877 3,625
-------- --------
Total current assets.............................. 88,735 51,011
Property and equipment, net (Notes C, D and F).............. 279,133 173,693
Other assets
Lease deposits............................................ 4,237 14,164
-------- --------
Total assets...................................... $372,105 $238,868
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses..................... $ 12,100 $ 2,929
Notes payable (Note D).................................... 29,750 --
Current portion of capital lease obligations (Note F)..... 42,900 44,117
-------- --------
Total current liabilities......................... 84,750 47,046
Capital lease obligations, less current portion (Note F).... 95,163 62,203
Stockholders' equity
Class A common stock, voting, $1 par value
10,000 shares authorized, 9,000 shares issued
and outstanding........................................ 9,000 9,000
Class B common stock, nonvoting, $1 par value
10,000 shares authorized, 1,000 shares issued.......... 1,000 1,000
Additional paid-in capital................................ 7,200 7,200
Retained earnings......................................... 175,192 112,619
Treasury stock, 1,000 shares Class B, at cost............. (200) (200)
-------- --------
Total stockholders' equity........................ 192,192 129,619
-------- --------
Total liabilities and stockholders' equity........ $372,105 $238,868
======== ========
</TABLE>
See accompanying notes.
F-32
<PAGE> 88
ONE TOUCH COMMUNICATIONS, INC.
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1998 AND 1999
<TABLE>
<CAPTION>
1998 1999
-------- ----------
<S> <C> <C>
Revenue..................................................... $914,682 $1,186,383
Cost of services............................................ 218,950 266,606
-------- ----------
Gross profit.............................................. 695,732 919,777
Operating expenses
Salaries and benefits..................................... 292,623 341,031
General and administrative................................ 156,085 170,402
Rent expense.............................................. 51,335 49,770
Selling and marketing..................................... 14,694 13,840
-------- ----------
Total operating expenses.......................... 514,737 575,043
-------- ----------
Net income from operations........................ 180,995 344,734
Other income (expense)
Interest expense.......................................... (25,267) (15,268)
Other income.............................................. 25,979 34,918
-------- ----------
Net other income.................................. 712 19,650
-------- ----------
Net income.................................................. $181,707 $ 364,384
======== ==========
</TABLE>
See accompanying notes.
F-33
<PAGE> 89
ONE TOUCH COMMUNICATIONS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1999
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
----------------- PAID-IN RETAINED TREASURY
CLASS A CLASS B CAPITAL EARNINGS STOCK TOTAL
------- ------- ---------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997........ $9,000 $1,000 $7,200 $ 203,485 $(200) $ 220,485
Net income...................... -- -- -- 181,707 -- 181,707
Distributions................... -- -- -- (210,000) -- (210,000)
------ ------ ------ --------- ----- ---------
Balance, December 31, 1998........ 9,000 1,000 7,200 175,192 (200) 192,192
Net income...................... -- -- -- 364,384 -- 364,384
Distributions................... -- -- -- (426,957) -- (426,957)
------ ------ ------ --------- ----- ---------
Balance, December 31, 1999........ $9,000 $1,000 $7,200 $ 112,619 $(200) $ 129,619
====== ====== ====== ========= ===== =========
</TABLE>
See accompanying notes.
F-34
<PAGE> 90
ONE TOUCH COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1999
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $181,707 $364,384
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation and amortization.......................... 93,615 92,377
Gain on disposal of assets............................. (4,323) (13,061)
Decrease (increase) in accounts receivable............. (4,755) 5,309
Decrease (increase) in other current assets............ 5,820 13,252
Increase in deposits................................... (547) (9,927)
Increase (decrease) in accounts payable................ 5,206 (9,171)
-------- --------
Net cash provided by operating activities......... 276,723 443,163
-------- --------
Cash flows from investing activities:
Additions to property and equipment....................... (110,817) (12,790)
Proceeds from disposal of assets.......................... 67,710 47,410
-------- --------
Net cash provided (required) by investing
activities....................................... (43,107) 34,620
-------- --------
Cash flows from financing activities:
Repayment of capital lease obligations.................... (34,252) (40,239)
Increase (decrease) in due from officer................... (12,023) 20,773
Principal payments on long-term debt...................... (18,494) (29,750)
Distributions to shareholders............................. (210,000) (426,957)
-------- --------
Net cash required by financing activities......... (274,769) (476,173)
-------- --------
Net increase (decrease) in cash................... (41,153) 1,610
Cash, beginning of year..................................... 46,278 5,125
-------- --------
Cash, end of year........................................... $ 5,125 $ 6,735
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest.................... $ 25,267 $ 15,268
======== ========
Noncash investing and financing activities:
Equipment purchased under capital lease obligations.... $ 24,000 $ 8,496
======== ========
</TABLE>
See accompanying notes.
F-35
<PAGE> 91
ONE TOUCH COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1999
NOTE A -- NATURE OF BUSINESS
The Company was incorporated in the state of Georgia on November 25, 1995.
The Company operates a telecommunication business in Raleigh, North Carolina.
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Management Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturity dates of
three months or less to be cash equivalents.
Receivables
The Company uses the allowance method to provide for recognition of bad
debt. As of December 31, 1998 and 1999, the allowance for doubtful accounts
amounted to $15,000.
Property and Equipment
Property and equipment are stated at cost. Maintenance and repairs are
charged to expense as incurred, and renewals and betterments are capitalized.
Provisions for depreciation are charged to income over the estimated useful
lives of the assets using the straight-line method of depreciation. The
estimated useful lives are as follows:
<TABLE>
<S> <C>
Computer equipment and pagers.............................. 3 years
Equipment and vehicles..................................... 5 years
Furniture and fixtures..................................... 7 years
</TABLE>
Revenue
Revenue from sales and service is recognized when the service is delivered.
Advertising Costs
The Company expenses advertising costs as they are incurred.
Income Taxes
The Company has elected to be taxed as an S Corporation; therefore, the
income tax obligations and benefits are passed through to the individual
shareholders.
Fair Value of Financial Instruments
The carrying amounts of cash, receivables, and payables approximate fair
value because of the short maturity of these instruments.
F-36
<PAGE> 92
ONE TOUCH COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE C -- PROPERTY AND EQUIPMENT
At December 31, 1998 and 1999, property and equipment consisted of:
<TABLE>
<CAPTION>
1998 1999
--------- ---------
<S> <C> <C>
Equipment................................................... $ 246,449 $ 246,449
Pagers...................................................... 68,291 75,744
Computer equipment.......................................... 20,603 31,812
Vehicles.................................................... 81,168 28,000
Furniture and fixtures...................................... 13,448 13,448
--------- ---------
429,959 395,453
Less accumulated depreciation............................... (150,826) (221,760)
--------- ---------
$ 279,133 $ 173,693
========= =========
</TABLE>
At December 31, 1998 and 1999 equipment includes equipment under capital
leases amounting to $205,370 and $213,866 with accumulated amortization of
$76,165 and $118,655, respectively.
NOTE D -- NOTES PAYABLE
At December 31, 1998, the Company had an 8.5% note payable to a financial
institution with $26,238 outstanding balance. The note was collateralized by a
vehicle. In addition, the Company had an 8% note payable to a vendor with a
remaining balance of $3,512. Both notes were paid in their entirety during 1999.
NOTE E -- RELATED PARTY TRANSACTIONS
As of December 31, 1998 the Company had outstanding advances of $20,773 due
from a shareholder. This amount was repaid during 1999.
During 1999 the Company sold a vehicle to a shareholder for its net book
value of $3,691.
NOTE F -- LEASE OBLIGATIONS
The following is a schedule of future minimum rentals of equipment under
capital leases, together with the present value of the net minimum lease
payments as of December 31, 1999:
<TABLE>
<S> <C>
Year ending
2000.................................................... $ 64,119
2001.................................................... 40,956
2002.................................................... 11,785
2003.................................................... 5,531
2004.................................................... 188
--------
Total minimum lease payments............................ $122,579
Less amount representing interest....................... (16,259)
--------
Present value of minimum lease payments................. $106,320
========
</TABLE>
The Company leases office space under a non-cancelable operating lease
which expires in May 2001. The lease provides for a three year renewal option.
Minimum rents due under this agreement are as follows:
<TABLE>
<S> <C>
Year ending
2000..................................................... $50,061
2001..................................................... 21,115
</TABLE>
F-37
<PAGE> 93
ONE TOUCH COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company subleases a portion of its office space on a month to month
basis. Rent income for 1998 and 1999 amounted to $20,892 and $21,405,
respectively.
NOTE G -- SEGMENT INFORMATION
The Company's activities are conducted in one operating segment with all
activities relating to providing telecommunication services in the Raleigh,
North Carolina area.
NOTE H -- SUBSEQUENT EVENTS
Effective January 5, 2000 the Company sold substantially all of its assets
and operations to Multi-Link Telecommunications, Inc. One Touch Communications,
Inc. then changed its name to E&D, Inc. Current plans are to liquidate E&D, Inc.
by December 2000.
NOTE I -- PENDING ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. As amended by SFAS
No. 137, the effective date is for all fiscal quarters of all fiscal years
beginning after June 15, 2000. This Statement establishes accounting and
reporting standards for derivative instruments and hedging activities.
Management does not believe that the adoption of this statement will be material
to the financial statements.
F-38
<PAGE> 94
MULTI-LINK TELECOMMUNICATIONS, INC.
HELLYER COMMUNICATIONS, INC.
AND
ONE TOUCH COMMUNICATIONS, INC.
INTRODUCTION
The accompanying unaudited pro forma combining, condensed statement of
operations combine the operations of Multi-Link Telecommunications, Inc. and
subsidiaries (the Company) for the year ended September 30, 1999, the operations
of Hellyer Communications, Inc. (Hellyer) (acquired on November 17, 1999) for
the year ended October 31, 1999 and the operations of One Touch Communications,
Inc. (One Touch) (acquired on January 6, 2000) for the year ended December 31,
1999, as if the acquisitions had been completed at the beginning of the period
presented. Hellyer and One Touch were accounted for under the purchase method of
accounting. Therefore, their operations from the date of acquisition are
included in the Company's historical financial statements excluded elsewhere.
The pro forma combining, condensed financial information has been prepared on
the basis of the assumptions included in the notes to the pro forma combining,
condensed financial information.
These statements are not necessarily indicative of future operations or the
actual results that would have occurred had the merger been consummated at the
beginning of the period indicated.
The unaudited pro forma combined, condensed financial statements should be
read in conjunction with the historical financial statements and notes thereto,
included elsewhere in the document.
F-39
<PAGE> 95
MULTI-LINK TELECOMMUNICATIONS, INC. (INCLUDING VOICELINK, INC.),
HELLYER COMMUNICATIONS, INC. AND ONE TOUCH COMMUNICATIONS, INC.
PRO FORMA, COMBINING, CONDENSED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
MULTI-LINK HELLYER ONE TOUCH
TELECOMMUNICATIONS, COMMUNICATIONS, COMMUNICATIONS, PRO FORMA PRO FORMA
INC. INC. INC. ADJUSTMENTS COMBINED
------------------- --------------- --------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Net revenues............ $4,588,749 $ 8,900,622 $1,186,383 $ -- $14,675,754
Cost of services and
products.............. 785,502 3,181,876 266,606 -- 4,233,984
---------- ----------- ---------- ------------ -----------
Gross margin............ 3,803,247 5,718,746 919,777 -- 10,441,770
Operating expenses...... 2,960,026 10,064,884 540,125 413,035(a) 13,978,070
---------- ----------- ---------- ------------ -----------
Operating income
(loss)................ 843,221 (4,346,138) 379,652 (413,035) (3,536,300)
Interest expense........ (274,846) (210,598) (15,268) 182,450(b) (318,262)
---------- ----------- ---------- ------------ -----------
Net income (loss) before
tax................... 568,375 (4,556,736) 364,384 (230,585) (3,854,562)
Provision for income
taxes................. (67,304) -- -- 67,304(c) --
---------- ----------- ---------- ------------ -----------
Net income (loss)....... $ 501,071 $(4,556,736) $ 364,384 $ (163,281) $(3,854,562)
========== =========== ========== ============ ===========
Net income (loss) per
common share:
Basic................. $ 0.19 N/A N/A N/A $ (1.28)
Diluted............... $ 0.18 N/A N/A N/A $ (1.28)
Weighted average number
of shares:
Basic................. 2,610,480 N/A N/A 396,718(d) 3,007,198
Diluted............... 2,806,563 N/A N/A 396,718(d) 3,007,198
(196,083)(e)
</TABLE>
F-40
<PAGE> 96
MULTI-LINK TELECOMMUNICATIONS, INC.
HELLYER COMMUNICATIONS, INC.
AND
ONE TOUCH COMMUNICATIONS, INC.
NOTES TO COMBINING, CONDENSED FINANCIAL INFORMATION
(UNAUDITED)
(a) To reflect the amortization expense related to a consultancy agreement (2
years), a non-compete agreement (5 years) and goodwill (15 years) incurred
in the acquisitions and the removal of excess compensation paid to a
previous owner as follows:
<TABLE>
<CAPTION>
DESCRIPTION PRO FORMA EXPENSE
----------- -----------------
<S> <C>
Consulting.................................................. $ 137,947
Non-compete................................................. 137,946
Goodwill.................................................... 311,628
Excess compensation......................................... (174,486)
---------
$ 413,035
=========
</TABLE>
Excess compensation is based upon the elimination of compensation to
previous owner who is no longer employed and who was not replaced after the
acquisition.
(b) To reflect the reduction in interest expense arising from negotiated
settlement and paydown of notes payable at the time of acquisitions.
(c) To reflect the tax expense based on combined operations.
(d) To reflect the issuance of 396,718 shares for the acquisition of One Touch
and consultancy and non-compete agreements related to Hellyer.
(e) To reflect the elimination of the Company's dilutive securities as a result
of the antidilutive effect of the pro forma combined net loss.
F-41
<PAGE> 97
------------------------------------------------------
------------------------------------------------------
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE ANY
INFORMATION OR REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST NOT
RELY ON ANY UNAUTHORIZED INFORMATION. THIS PROSPECTUS DOES NOT OFFER TO SELL OR
BUY ANY UNITS IN ANY JURISDICTION WHERE IT IS UNLAWFUL. THE INFORMATION IN THIS
PROSPECTUS IS CURRENT ONLY AS OF ITS DATE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
------- ----
<S> <C>
PROSPECTUS SUMMARY.................... 2
RISK FACTORS.......................... 8
ADDITIONAL INFORMATION................ 11
USE OF PROCEEDS....................... 11
PRICE RANGE OF COMMON STOCK........... 12
DIVIDEND POLICY....................... 13
CAPITALIZATION........................ 14
SELECTED CONSOLIDATED FINANCIAL
DATA................................ 15
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 17
BUSINESS.............................. 24
MANAGEMENT............................ 36
CERTAIN TRANSACTIONS.................. 41
PRINCIPAL AND SELLING SHAREHOLDERS.... 42
DESCRIPTION OF SECURITIES............. 46
UNDERWRITING.......................... 50
LEGAL MATTERS......................... 52
EXPERTS............................... 52
INDEX TO FINANCIAL STATEMENTS......... F-1
</TABLE>
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
MULTI-LINK
TELECOMMUNICATIONS, INC.
"KEEPING YOU IN TOUCH"
[MULTI-LINK LOGO]
1,850,000 UNITS CONSISTING OF
1,850,000 SHARES OF COMMON STOCK
AND 925,000 WARRANTS
---------------------
PROSPECTUS
---------------------
STIFEL, NICOLAUS & COMPANY, INCORPORATED
---------------------
, 2000
------------------------------------------------------
------------------------------------------------------
<PAGE> 98
[ALTERNATE PAGE]
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE
OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED SEPTEMBER 1, 2000
MULTI-LINK TELECOMMUNICATIONS, INC.
"KEEPING YOU IN TOUCH"
[MULTI-LINK LOGO]
945,000 SHARES OF COMMON STOCK
Of the 945,000 shares of common stock offered by this prospectus, we are
offering the sale of 870,000 shares of common stock to holders of warrants
issued to the public and to the underwriters in our initial public offering and
our registering shareholders are offering the resale of 75,000 shares of common
stock issuable upon the exercise of warrants held by such registering
shareholders.
The common stock is listed under the symbol "MLNK" on the Nasdaq SmallCap
Market and traded at $8.438, as of close of trading on August 30, 2000. We have
applied to have our common stock listed on the Nasdaq National Market under the
same symbol and anticipate that approval will occur concurrently with this
offering.
We will not receive any of the proceeds from the sale of the shares of the
common stock by the registering shareholders, although we will receive proceeds
from the exercise of warrants relating to the shares. On the date of this
Prospectus, the SEC declared effective a registration statement for an
underwritten public offering of 1,850,000 shares of common stock and 925,000
warrants and up to an additional 277,500 shares and 138,750 warrants to cover
overallotments, if any.
THESE ARE SPECULATIVE SECURITIES. INVESTING IN THE SECURITIES INVOLVES
CERTAIN RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 7.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated , 2000
A-1
<PAGE> 99
[ALTERNATE PAGE]
THE OFFERING
Shares offered...................... 945,000 shares of common stock
Common stock outstanding after this
offering.......................... 5,881,450 shares
Use of proceeds..................... We intend to use the proceeds from the
future exercise of the warrants, if
any, for working capital and general
corporate purposes.
Risk Factors........................ The common stock offered hereby involve
a high degree of risk. See "Risk
Factors."
Nasdaq Small Cap Market symbol (and
proposed symbol for Nasdaq
National Market).................. MLNK
- The shares offered consist of 870,000 shares offered by us that are
issuable to the holders of warrants issued to the public and the
underwriters of our initial public offering and 75,000 shares of common
stock issuable upon exercise of warrants issued in a private placement.
Of the shares underlying the warrants, 690,000 shares may be purchased at
$9.00 per share, 120,000 may be purchased at $7.68 per share, 60,000 may
be purchased at $11.52 per share, and 75,000 may be purchased at $4.17
per share.
The number of shares of common stock to be outstanding after this offering
is based on 4,084,290 shares outstanding on August 30, 2000, and assumes the
issuance of 1,600,000 shares in connection with a concurrent underwritten public
offering by us and 197,160 shares upon the exercise of warrants concurrently
with the closing of the underwritten offering, but excluding:
- 462,500 shares of common stock issuable upon exercise of the Series D
warrants;
- 40,000 shares of common stock issuable upon exercise of the underwriters'
warrants;
- 483,247 shares of common stock issuable upon exercise of options
outstanding as of August 30, 2000;
- 225,870 shares of common stock reserved for future grants under our
amended and restated stock option plan; and
- 1,045,000 shares of common stock issuable upon exercise of other warrants
outstanding as of August 30, the date of this prospectus.
Unless the context indicates otherwise, use of the terms "Multi-Link,"
"we," or "our" in this prospectus includes our various wholly owned
subsidiaries.
Unless otherwise stated, all information in this prospectus assumes no
exercise of the over-allotment option by the underwriters.
A-2
<PAGE> 100
[ALTERNATE PAGE]
CONCURRENT OFFERING
On the date of this prospectus, the SEC declared effective a registration
statement for an underwritten public offering by us and selling shareholders of
1,850,000 shares of common stock and 925,000 Series D warrants. Based on our
assumed offering price of $9.00 per unit, comprised of $8.50 per share and $0.50
per one-half of a Series D warrant, we will receive net proceeds of
approximately $13,108,250 from the sale of the shares and Series D warrants
included in the underwritten public offering, and will receive approximately
$129,038 in additional net proceeds if the over-allotment option is exercised in
full after payment of underwriting discounts and commissions and estimated
expenses of the underwritten public offering.
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<PAGE> 101
[ALTERNATE PAGE]
REGISTERING SHAREHOLDERS AND PLAN OF DISTRIBUTION
We are offering 870,000 shares of common stock issuable upon exercise of
warrants issued in our initial public offering. In addition, up to 75,000 shares
of common stock owned by registering shareholders, consisting of 75,000 shares
underlying warrants issued in a private placement, may be offered and resold
pursuant to this prospectus by the registering shareholders. We have agreed to
register the public offering of the registering shareholders' shares under the
Securities Act concurrently with our underwritten public offering and to pay all
expenses of the public offering of the registering shareholders' shares. Except
as set forth below, none of the registering shareholders nor their affiliates
have ever held any position or office with us or had any other material
relationship with us. We will not receive any of the proceeds from the sale of
the selling shareholders' shares by the registering shareholders. The following
table sets forth certain information with respect to the registering
shareholders:
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY OWNED
PRIOR TO OFFERING SHARES BEING PERCENTAGE
NAME AND ADDRESS ------------------- REGISTERED OWNED
OF BENEFICIAL OWNER NUMBER PERCENT IN OFFERING AFTER OFFERING
------------------- -------- -------- ------------ --------------
<S> <C> <C> <C> <C>
Westburg Media Capital, L.P............... 150,000 3.4% 75,000 *
200 First Avenue W., Suite 400
Seattle, WA 98119
</TABLE>
---------------
* less than one percent
- The shares may not be sold prior to six months after the date of this
prospectus pursuant to an agreement with the underwriters of our
concurrent offering.
- The shares include shares issuable upon exercise of warrants.
- David Westburg is President and owns 37.5% of Westburg. John Weller is
Chief Financial Officer and owns 37.5% of Westburg. John Hanson is a
Director and owns 25% of Westburg.
- An additional 75,000 shares are being sold by Westburg in the concurrent
underwritten offering.
The registering shareholders may from time to time sell all or a portion of
the shares offered hereby in one or more transactions, on any exchange on which
the common stock may then be listed, in negotiated transactions or otherwise, or
a combination of such methods of sale, at market, prices prevailing at the time
of sale or prices related to such prevailing market prices or at negotiated
prices. The registering shareholders may effect such transactions by registering
their shares of common stock to or through broker-dealers, and such
broker-dealers may receive compensation in the form of underwriting discounts,
concessions or commissions from the registering shareholder and/or purchaser of
the shares for whom they may act as agent (which compensation may be in excess
of customary commissions). In connection with such sales, the registering
shareholders and any broker-dealers or agents participating in such sales may be
deemed to be underwriters as that term is defined under the Securities Act.
Neither we nor the registering shareholders can presently estimate the amount of
commissions or discounts, if any, that will be paid by the registering
shareholders on account of their sales of the shares from time to time. The
shares are subject to an agreement between the registering shareholders and the
underwriters of our concurrent offering restricting the sale of the shares
within six months from the date of this prospectus without prior written consent
of the underwriters.
Under the securities laws of certain states, the shares may be sold in such
states only through registered or licensed broker-dealers or pursuant to
available exemptions from such requirements. In addition, the shares may not be
sold in certain states unless the shares have been registered or qualified for
sale in such state or an exemption from such requirement is available and
satisfied.
We will pay certain expenses in connection with this offering and the
concurrent offering, estimated to be approximately $400,000, but will not pay
for any underwriting commissions and discounts, if any, or counsel fees or
expenses of the registering shareholders. We have agreed to indemnify the
registering
A-4
<PAGE> 102
[ALTERNATE PAGE]
shareholders, and their directors, officers, agents and representatives, and any
underwriters, against certain liabilities, including certain liabilities under
the Securities Act.
The registering shareholders have also agreed to indemnify us, our
directors, officers, agents and representatives against certain liabilities,
including liabilities under the Securities Act. The registering shareholders and
other persons participating in the distribution of the shares offered hereby are
subject to the applicable requirements of Regulation M promulgated under the
Exchange Act in connection with sales of the shares.
A-5
<PAGE> 103
[ALTERNATE PAGE]
------------------------------------------------------
------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
------- ----
<S> <C>
PROSPECTUS SUMMARY.................... 2
RISK FACTORS.......................... 7
ADDITIONAL INFORMATION................ 10
USE OF PROCEEDS....................... 10
PRICE RANGE OF COMMON STOCK........... 11
DIVIDEND POLICY....................... 12
CAPITALIZATION........................ 13
SELECTED CONSOLIDATED FINANCIAL
DATA................................ 14
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF
OPERATIONS.......................... 16
BUSINESS.............................. 23
MANAGEMENT............................ 34
CERTAIN TRANSACTIONS.................. 40
PRINCIPAL SHAREHOLDERS................ 40
DESCRIPTION OF SECURITIES............. 45
REGISTERING SHAREHOLDERS AND PLAN OF
DISTRIBUTION........................ 48
LEGAL MATTERS......................... 50
EXPERTS............................... 50
INDEX TO FINANCIAL STATEMENTS......... F-1
</TABLE>
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
MULTI-LINK
TELECOMMUNICATIONS, INC.
"KEEPING YOU IN TOUCH"
[MULTI-LINK LOGO]
945,000 SHARES OF COMMON STOCK
---------------------
PROSPECTUS
---------------------
, 2000
------------------------------------------------------
------------------------------------------------------
<PAGE> 104
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 7-109-102 of the Colorado Business Corporation Act permits a
Colorado corporation to indemnify any director against liability if such person
acted in good faith and, in the case of conduct in an official capacity with the
corporation, that the director's conduct was in the corporation's best interests
and, in all other cases, that the director's conduct was at least not opposed to
the best interests of the corporation or, with regard to criminal proceedings,
the director had no reasonable cause to believe the director's conduct was
unlawful.
Section 7-109-102 of the Colorado Business Corporation Act provides that,
unless limited by its articles of incorporation, a Colorado corporation shall
indemnify a person who was wholly successful, on the merits or otherwise, in the
defense of any proceeding to which the person was a party because the person is
or was a director, against reasonable expenses incurred by him or her in
connection with the proceeding.
Article V.A. of Multi-Link's Restated Articles of Incorporation,
incorporated by reference as Exhibit 3.1, hereto, provides that Multi-Link shall
indemnify, to the maximum extent permitted by law, any person who is or was a
director or officer of Multi-Link, and may indemnify any other person, against
any claim, liability or expense arising against or incurred by such person made
party to a proceeding because he is or was serving another entity as a director,
officer, partner, trustee, employee, fiduciary or agent at Multi-Link's request.
Multi-Link shall further have the authority, to the maximum extent permitted by
law, to purchase and maintain insurance providing such indemnification, advance
expenses to persons indemnified by Multi-Link, and provide indemnification to
any person by general or specific action of the board of directors, the bylaws
of Multi-Link, contract or otherwise.
Article V.B. of Multi-Link's Restated Articles of Incorporation,
incorporated by reference as Exhibit 3.1, hereto, provides that no director of
Multi-Link shall have any personal liability to Multi-Link or its shareholders
for monetary damages for breach of his fiduciary duty as a director, except that
this provision shall not eliminate or limit the personal liability of a director
to Multi-Link or to its shareholders for monetary damages for: (i) any breach of
the director's duty of loyalty to Multi-Link or to its shareholders; (ii) acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (iii) voting for or assenting to a distribution which,
after giving effect to the distribution, would result in (a) Multi-Link not
being able to pay its debts as they become due, or (b) Multi-Link's total assets
being less than the sum of its total liabilities plus amounts needed to satisfy
preferential rights upon dissolution of Multi-Link, but only if it is
established that the director did not perform his duties in good faith, with the
care of an ordinary prudent person in a like position under similar
circumstances, and in a manner he believed to be in the best interests of
Multi-Link, provided that the personal liability of a director in this
circumstance shall be limited to the amount of the distribution which exceeds
what could have been distributed without violation of this paragraph; or (iv)
any transaction from which the director directly or indirectly derives an
improper personal benefit. Article V.B. also provides that if the Colorado
Business Corporation Act is amended or superseded and such amendment or
superseding statute eliminates or limits further, or allows Multi-Link to
eliminate or limit further, the liability of a director, then in addition to the
elimination and limitation of liability provided by the preceding sentence, the
liability of each director shall be eliminated or limited to the fullest extent
permitted by the Colorado Business Corporation Act, as so amended, or such
superseding statute. Nothing contained in Article V.B. is to be construed to
deprive any director of his right to all defenses ordinarily available to a
director nor will anything herein be construed to deprive any director of any
right he may have for contribution from any other director or other person.
Section 9(2) of the form of underwriting agreement filed as Exhibit 1.1
hereto provides that the underwriter agrees to indemnify and hold harmless
Multi-Link, each director of Multi-Link, each officer of Multi-Link who has
signed the registration statement, each other person, if any, who controls
Multi-Link within the meaning of Section 15 of the Securities Act of 1933 or
Section 20(a) of the Securities Exchange Act of 1934 with respect to statements
or omissions, if any, made in any preliminary prospectus, the
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<PAGE> 105
registration statement or the prospectus, or any amendment or supplement
thereto, or in any application, in reliance upon and in conformity with written
information furnished to Multi-Link with respect to the underwriters, by or on
behalf of the underwriters expressly for inclusion in any such document. Section
9(4) provides for contribution in circumstances where the indemnity provisions
are unavailable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Expenses payable by us in connection with the issuance and distribution of
the securities being registered hereby are as follows:
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 8,567
NASD Filing Fee............................................. 3,743
Nasdaq National Market Filing Fee........................... 61,875
Accounting Fees and Expenses................................ 50,000*
Legal Fees and Expenses..................................... 75,000*
Representative's Non-Accountable Expense Allowance.......... 75,000
Printing, Freight and Engraving............................. 75,000*
Miscellaneous............................................... 50,815*
--------
Total............................................. $400,000
========
</TABLE>
---------------
* Estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The following is information as to all securities of Multi-Link sold by
Multi-Link within the past three years that were not registered under the
Securities Act of 1933, as amended ("1933 Act").
(a) In January 1998, Multi-Link issued 7,454 shares of its common
stock to Robert and Lynne Williams on conversion of a $20,000 loan.
Multi-Link issued the shares in reliance upon the exemption from
registration provided by Section 4(2) of the 1933 Act. Such persons
represented to Multi-Link that they acquired the shares for their own
account and not with a view to distribution and that they had available to
them all material information concerning Multi-Link. The certificates
evidencing the shares bear a restrictive legend under the 1933 Act. No
underwriter was involved in the transaction.
(b) In September 1998, Multi-Link issued 36,000 Series A Warrants and
72,000 shares of common stock to CS Capital Corp. in consideration for
conversion of outstanding debt. The warrants are exercisable at $4.17 per
share. Multi-Link issued the shares and warrants in reliance upon the
exemption from registration provided by Section 4(2) of the 1933 Act. CS
Capital Corp. had available to it all material information concerning
Multi-Link. The certificate evidencing the warrants bears a restrictive
legend under the 1933 Act. No underwriter was involved in the transaction.
(c) In September 1998, Multi-Link issued warrants to purchase 150,000
shares of its common stock at an exercise price of $4.17 per share to
Westburg Media Capital LLP in connection with a $2,100,000 term credit
facility furnished by Westburg to Multi-Link. The expiration date of the
warrants is the earlier of: (i) the date all amounts are repaid under the
Westburg loan, (ii) the date of the sale of Multi-Link or substantially all
of its assets, (iii) the effective date of a registration statement filed
under the 1933 Act in connection with a firm commitment underwriting for
common stock of Multi-Link seeking to raise gross proceeds of at least
$5,000,000 at a price of not less than $8.33 per share or (iv) October 21,
2003. Multi-Link issued the warrants in reliance upon the exemption from
registration provided by Section 4(2) of the 1933 Act. Westburg had
available to it all material information concerning Multi-Link. The
certificate evidencing the warrants bears a restrictive legend under the
1933 Act. No underwriter was involved in the transaction.
(d) In November 1998, Multi-Link issued 150,000 shares of its common
stock and 75,000 Series A Common Stock purchase warrants to various
investors in a private placement that raised a total of
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<PAGE> 106
$625,000 before issue expenses. The warrants are exercisable at $4.17 per
share. Multi-Link issued the shares and warrants in reliance upon the
exemption from registration provided by Section 4(2) of the 1933 Act. Each
purchaser represented to Multi-Link that they had acquired the shares and
warrants for their own account and not with a view to distribution and that
they had available to them all material information concerning Multi-Link.
The certificates evidencing the shares and warrants bear a restrictive
legend under the 1933 Act. No underwriter was involved in the transaction.
Spencer Edwards Investments Inc. acted as placement agent and received
warrants to purchase 11,160 shares of common stock.
(e) In November 1999, Multi-Link issued 150,000 shares of its common
stock to Jerry L. Hellyer in connection with consulting and non-compete
agreements entered into by Mr. Hellyer at the time Multi-Link acquired the
business and assets of Hellyer Communications, Inc. Multi-Link issued the
shares in reliance upon the exemption from registration provided by Section
4(2) of the 1933 Act. Mr. Hellyer represented to Multi-Link that he
acquired the shares for his own account and not with a view to distribution
and that he had available to him all material information concerning
Multi-Link. Mr. Hellyer also represented that he was a sophisticated
investor with the ability to determine the suitability of an investment in
the common stock. The certificate evidencing the shares bears a restrictive
legend under the 1933 Act. No underwriter was involved in the transaction.
(f) In January 2000, Multi-Link issued 246,718 shares of its common
stock to One Touch Communications, Inc. upon acquisition of its assets by
Multi-Link. Multi-Link issued the shares in reliance upon the exemption
from registration provided by Section 4(2) of the 1933 Act. One Touch
represented to Multi-Link that it acquired the shares for its own account
and not with a view to distribution and that it had received all material
information concerning Multi-Link. One Touch also represented that it was a
sophisticated investor with the ability to determine the suitability of an
investment. The certificate evidencing the shares bears a restrictive
legend under the 1933 Act. No underwriter was involved in the transaction.
(g) In February 2000, Multi-Link issued warrants to purchase 150,000
of its shares of common stock at exercise prices between $14.00 and $25.00
per share to Genesis Select, Inc. in connection with advisory services to
be provided in connection with the identification of an underwriter for a
secondary offering. Multi-Link issued the warrants in reliance upon the
exemption from registration provided by Section 4(2) of the 1933 Act.
Genesis had available to it all material information concerning Multi-Link.
The certificate evidencing the warrants bears a restrictive legend under
the 1933 Act. No underwriter was involved in the transaction. The warrant
will be cancelled on September 20, 2000 in accordance with our agreement
with Genesis.
(h) In March 2000, Multi-Link issued 390,216 shares of its common
stock to Mr. L. Van Page, and 16,272 to Mr. Larry Mays upon acquisition of
all of the outstanding common stock of VoiceLink Inc. by Multi-Link.
Multi-Link issued the shares in reliance upon the exemption from
registration provided by Section 4(2) of the 1933 Act. Such persons
represented to Multi-Link that they acquired the shares for their own
account and not with a view to distribution and that they had available to
them all material information concerning Multi-Link. Such persons also
represented that they were sophisticated investors with the ability to
determine the suitability of an investment in the common stock. The
certificates evidencing the shares bear a restrictive legend under the 1933
Act. No underwriter was involved in the transaction.
(i) On May 26, 2000, Multi-Link issued 12,000 shares of its common
stock to Mr. Robert Thomas upon acquisition of his 50% equity interest in
VoiceLink of Florida, Inc. by Multi-Link. Multi-Link issued the shares in
reliance upon the exemption from registration provided by Section 4(2) of
the 1933 Act and/or Regulation D thereunder. Mr. Thomas represented to
Multi-Link that he acquired the shares for his own account and not with a
view to distribution and that he had received all material information
concerning Multi-Link. Mr. Thomas also represented that he was a
sophisticated investors with the ability to determine the suitability of an
investment in the common stock. The certificate
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<PAGE> 107
evidencing the shares bears a restrictive legend under the 1933 Act. No
underwriter was involved in the transaction.
(j) On May 26, 2000, Multi-Link issued 2,220 shares of its common
stock to B.F.G. of Illinois Inc. as partial consideration for the
acquisition by Multi-Link of its residential customer base in November
1999. Multi-Link issued the shares in reliance upon the exemption from
registration provided by Section 4(2) of the 1933 Act and/or Regulation D
thereunder. B.F.G. of Illinois Inc. represented to Multi-Link that it
acquired the shares for its own account and not with a view to distribution
and that it had available all material information concerning Multi-Link.
B.F.G. also represented that they were sophisticated investors with the
ability to determine the suitability of an investment in the common stock.
The certificate evidencing the shares bears a restrictive legend under the
1933 Act. No underwriter was involved in the transaction.
(k) On June 30, 2000, Multi-Link issued 104,439 shares of its common
stock and warrants to purchase 100,000 shares of common stock at an
exercise price of $14.3625 to Glenayre Technologies, Inc. for a total
purchase price of $1,000,000. The issuance was exempt from registration
under the Securities Act pursuant to Section 4(2) of the Securities Act
and/or Rule 506 under Securities Act. Glenayre represented that it was an
"accredited investor" as that term is defined in Rule 501 under the
Securities Act. No underwriters were engaged in connection with such
issuances.
ITEM 27. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 -- Form of Underwriting Agreement.
1.2 -- Form of Selected Dealers Agreement.(*)
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)
3.3 -- Bylaws as amended.(1)
4.1 -- Borrowing Agreement dated September 25, 1998, between
Westburg Media Capital LP, the Registrant, Multi-Link
Telecommunications, Inc., Nigel V. Alexander, Shawn B.
Stickle and The Blackhawk Trust.(1)
4.2 -- Form of Commercial Installment Contract between the
Registrant and Associates Commercial Corporation.(1)
4.3 -- Form of Security Agreement between the Registrant and
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.(8)
</TABLE>
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<PAGE> 108
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4.12 -- Registration rights agreement dated as of June 30, 2000
between Multi-Link Telecommunications, Inc. and Glenayre
Technologies, Inc.(8)
4.13 -- Form of Warrant Agreement between the Registrant and
Computershare Trust Company, Inc.
5.1 -- Legal opinion of Faegre & Benson LLP.
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)
10.7 -- 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.(5)
10.19 -- Asset Purchase Agreement dated March 22, 1999, by and
among One Touch Communications, Inc., David G. Webster,
Eric C. Beguelin, Multi-Link Telecommunications, Inc. and
One Touch Communications, Inc.(5)
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).(6)
</TABLE>
II-5
<PAGE> 109
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
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.(6)
10.22 -- Letter of Intent by and between Multi-Link
Telecommunications, Inc. and Glenayre Technologies, Inc.
dated as of May 17, 2000.(7)
10.23 -- Securities Purchase Agreement dated as of June 30, 2000
between Multi-Link Telecommunications, Inc. and Glenayre
Technologies, Inc.(8)
10.24 -- Volume Purchase Agreement dated as of June 30, 2000
between Multi-Link Telecommunications, Inc. and Glenayre
Electronics, Inc.(8)
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.(5)
23.1 -- Consent of HEIN & ASSOCIATES LLP.
23.2 -- Consent of Faegre & Benson LLP (included as Exhibit 5.1).
23.3 -- Consent of Gifford, Hillegass & Ingwersen, P.C.
23.4 -- Consent of Robert C. Teipen P.C.
27 -- Financial Data Schedule.
</TABLE>
---------------
(1) Incorporated by reference to the exhibits contained in the Registrant's
Registration Statement on Form SB-2 dated February 24, 1999 (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 March 3, 1999.
(5) Incorporated by reference to the exhibits contained in the Registrant's
Annual Report Form on 10-KSB filed on January 11, 2000.
(6) Incorporated by reference to the exhibits contained in the Registrant's
Current Report on Form 8-K filed on April 14, 2000.
(7) Incorporated by reference to the exhibits contained in the Registrant's
Current Report on Form 8-K filed on May 30, 2000.
(8) Incorporated by reference to the exhibits contained in the Registrant's
Current Report on Form 8-K filed on July 14, 2000.
(*) To be filed by amendment.
ITEM 28. UNDERTAKINGS.
(a) The Registrant hereby undertakes that is will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement. Notwithstanding the
foregoing,
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<PAGE> 110
any increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(e) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers, and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer, or controlling person of the small business issuer
in the successful defense of any action, suit, or proceeding) is asserted by
such director, officer, or controlling person in connection with the securities
being registered, the small business issuer will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(f) Rule 430A.
The Registrant hereby undertakes that it will:
(i) For determining any liability under the Securities Act, treat
the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in
a form of Prospectus filed by the small business issuer under Rule
424(b)(1) or (4) or 497(h) under the Securities Act as part of this
Registration Statement as of the time the Commission declared it
effective.
(ii) For determining any liability under the Securities Act, treat
each post-effective amendment that contains a form of Prospectus as a
new registration statement for the securities offered in the
registration statement, and that offering of the securities at that time
as the initial bona fide offering of those securities.
II-7
<PAGE> 111
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City and County
of Denver, State of Colorado on August 31, 2000.
MULTI-LINK TELECOMMUNICATIONS, INC.
By: /s/ NIGEL V. ALEXANDER
----------------------------------
Nigel V. Alexander,
Chief Executive Officer
(Principal Executive Officer)
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated. Each person whose signature appears below
does hereby make, constitute and appoint Nigel V. Alexander as such person's
true and lawful attorney-in-fact and agent, with full power of substitution,
resubstitution and revocation to execute, deliver and file with the Securities
and Exchange Commission, for and on such person's behalf, and in any and all
capacities, a Registration Statement on Form SB-2, any and all amendments
(including post-effective amendments) thereto and any abbreviated registration
statement in connection with this Registration Statement pursuant to Rule 462(b)
under the Securities Act of 1933, with all exhibits thereto and other documents
in connection therewith, granting unto said attorneys-in-fact and agents full
power and authority to do and perform each and every act and thing requisite and
necessary to be done as fully to all intents and purposes as such person might
or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or such person's substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ NIGEL V. ALEXANDER Chief Executive Officer and August 31, 2000
----------------------------------------------------- Director
Nigel V. Alexander
/s/ DAVID J. CUTLER Chief Financial Officer and August 31, 2000
----------------------------------------------------- Principal Accounting Officer
David J. Cutler
/s/ KEITH R. HOLDER Director August 31, 2000
-----------------------------------------------------
Keith R. Holder
/s/ R. BRAD STILLAHN Director August 31, 2000
-----------------------------------------------------
R. Brad Stillahn
</TABLE>
II-8
<PAGE> 112
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION AND METHOD OF FILING
------- --------------------------------
<C> <S>
1.1 -- Form of Underwriting Agreement.
1.2 -- Form of Selected Dealers Agreement.(*)
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)
3.3 -- Bylaws as amended.(1)
4.1 -- Borrowing Agreement dated September 25, 1998, between
Westburg Media Capital LP, the Registrant, Multi-Link
Telecommunications, Inc., Nigel V. Alexander, Shawn B.
Stickle and The Blackhawk Trust.(1)
4.2 -- Form of Commercial Installment Contract between the
Registrant and Associates Commercial Corporation.(1)
4.3 -- Form of Security Agreement between the Registrant and
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.(8)
4.12 -- Registration rights agreement dated as of June 30, 2000
between Multi-Link Telecommunications, Inc. and Glenayre
Technologies, Inc.(8)
4.13 -- Form of Warrant Agreement between the Registrant and
Computershare Trust Company, Inc.
5.1 -- Legal opinion of Faegre & Benson LLP.
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)
10.7 -- 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)
</TABLE>
<PAGE> 113
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION AND METHOD OF FILING
------- --------------------------------
<C> <S>
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.(5)
10.19 -- Asset Purchase Agreement dated March 22, 1999, by and
among One Touch Communications, Inc., David G. Webster,
Eric C. Beguelin, Multi-Link Telecommunications, Inc. and
One Touch Communications, Inc.(5)
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).(6)
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.(6)
10.22 -- Letter of Intent by and between Multi-Link
Telecommunications, Inc. and Glenayre Technologies, Inc.
dated as of May 17, 2000.(7)
10.23 -- Securities Purchase Agreement dated as of June 30, 2000
between Multi-Link Telecommunications, Inc. and Glenayre
Technologies, Inc.(8)
10.24 -- Volume Purchase Agreement dated as of June 30, 2000
between Multi-Link Telecommunications, Inc. and Glenayre
Electronics, Inc.(8)
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.(5)
23.1 -- Consent of HEIN & ASSOCIATES LLP.
23.2 -- Consent of Faegre & Benson LLP (included as Exhibit 5.1).
</TABLE>
<PAGE> 114
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION AND METHOD OF FILING
------- --------------------------------
<C> <S>
23.3 -- Consent of Gifford, Hillegass & Ingwersen, P.C.
23.4 -- Consent of Robert C. Teipen P.C.
27 -- Financial Data Schedule.
</TABLE>
---------------
(1) Incorporated by reference to the exhibits contained in the Registrant's
Registration Statement on Form SB-2 dated February 24, 1999 (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 March 3, 1999.
(5) Incorporated by reference to the exhibits contained in the Registrant's
Annual Report Form on 10-KSB filed on January 11, 2000.
(6) Incorporated by reference to the exhibits contained in the Registrant's
Current Report on Form 8-K filed on April 14, 2000.
(7) Incorporated by reference to the exhibits contained in the Registrant's
Current Report on Form 8-K filed on May 30, 2000.
(8) Incorporated by reference to the exhibits contained in the Registrant's
Current Report on Form 8-K filed on July 14, 2000.
(*) To be filed by amendment.
