U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-QSB
(Mark One)
[X} QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
Commission file number 0 - 26013
MULTI-LINK TELECOMMUNICATIONS, INC.
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(Exact name of small business issuer as specified in its charter)
Colorado 84-1334687
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
4704 Harlan St, Suite 420, Denver, Colorado, 80212
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(Address of principal executive offices)
(303) 831 1977
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(Issuer's telephone number)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of
equity, as of the latest practicable date:
Class Outstanding May 12, 2000
- -------------------------- ------------------------
Common Stock, No par value 3,937,508 shares
Transitional Small Business Disclosure format: Yes [ ] No [X]
<PAGE>
INDEX
MULTI-LINK TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) PAGE
Consolidated Balance Sheet, March 31, 2000 3
Consolidated Statements of Operations and Comprehensive Income - 4
Three Months Ended March 31, 2000 and 1999 and Six Months
ended March 31, 2000 and 1999
Consolidated Statement of Cash Flows - Six Months ended March 31, 5
2000 and 1999
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. 14
Item 2. Changes in Securities and Use of Proceeds 14
Item 3. Defaults upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K. 16
2
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Part I. FINANCIAL INFORMATION
Item I. Financial Statements
<TABLE>
<CAPTION>
Multi-Link Telecommunications, Inc.
Consolidated Balance Sheet
March 31,
2000
--------
<S> <C>
ASSETS
Current Assets
Cash & Cash Equivalents .................................................................. $ 408,906
Marketable Securities, current ........................................................... 254,003
Accounts Receivable, net of allowance for doubtful accounts of $233,780 .................. 1,034,807
Note Receivable .......................................................................... 313,327
Inventory ................................................................................ 27,287
Prepaid Expenses ......................................................................... 178,669
------------
Total Current Assets ........................................................... 2,216,999
Marketable Securities .............................................................................. 329,025
Property & Equipment Net ........................................................................... 4,227,010
Other Assets
Deferred Financing Costs and Other Assets ................................................ 233,508
Intangible Assets, net of amortization of $765,540 ...................................... 7,296,003
------------
TOTAL ASSETS ....................................................................................... $ 14,302,545
============
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable ........................................................................ $ 584,561
Accrued Expenses ........................................................................ 489,412
Customer Deposits ....................................................................... 130,916
Deferred Revenue ........................................................................ 253,041
Notes Payable and Current Portion of Long -Term Debt .................................... 423,323
------------
Total Current Liabilities ..................................................... 1,881,253
Long-Term Debt, Net of Current Portion ............................................................. 3,170,278
STOCKHOLDERS' EQUITY
Preferred Stock, $.01 par value: 5,000,000 shares authorized: none issued ............... 0
Common Stock no par value: 20,000,000 shares authorized, 3,925,508
shares issued and outstanding ........................................................... 10,726,560
Loss on Investments available for sale .................................................. (15,201)
Accumulated Deficit ..................................................................... (1,460,345)
------------
Total Stockholders' Equity .................................................... 9,251,014
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ......................................................... $ 14,302,545
============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE>
<TABLE>
<CAPTION>
Multi-Link Telecommunications, Inc.
Consolidated Statements of Operations and Comprehensive Income
Three Months Ended Six Months Ended
--------------------------- ---------------------------
March 31, March 31, March 31, March 31,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET REVENUES ........................................... $ 3,055,855 $ 1,113,745 $ 5,148,835 $ 2,200,955
COST OF SERVICES AND PRODUCTS .......................... 621,620 209,498 1,059,522 398,734
----------- ----------- ----------- -----------
GROSS MARGIN ........................................... 2,434,235 904,247 4,089,313 1,802,221
EXPENSES
Sales & Advertising Expenses ....................... 405,404 85,284 630,168 186,968
General & Administrative Expenses .................. 1,527,895 464,015 2,513,521 953,839
Depreciation ....................................... 106,407 35,529 166,653 68,791
Amortization ....................................... 270,594 50,193 407,233 87,588
----------- ----------- ----------- -----------
Total Expenses .............................. 2,310,300 635,021 3,717,575 1,297,186
INCOME FROM OPERATIONS ................................. 123,935 269,226 371,738 505,035
INTEREST INCOME (EXPENSE) NET AND OTHER ................ (86,291) (92,494) (109,786) (210,321)
----------- ----------- ----------- -----------
INCOME BEFORE TAXATION ................................. 37,644 176,732 261,952 294,714
PROVISION FOR INCOME ................................... (1,273) (36,991) (4,716) (49,704)
TAXES
----------- ----------- ----------- -----------
NET INCOME ............................................. $ 36,371 $ 139,741 $ 257,236 $ 245,010
UNREALIZED LOSS ON INVESTMENTS ......................... (8,200) 0 (3,889) 0
AVAILABLE FOR SALE
----------- ----------- ----------- -----------
COMPREHENSIVE INCOME ................................... $ 28,171 $ 139,741 $ 253,347 $ 245,010
=========== =========== =========== ===========
NET INCOME PER COMMON SHARE
Basic ............................................. $ 0.01 $ 0.07 $ 0.07 $ 0.12
Diluted ........................................... $ 0.01 $ 0.06 $ 0.06 $ 0.11
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING
Basic ............................................. 3,914,663 2,098,030 3,758,412 2,068,096
Diluted ........................................... 4,290,579 2,297,926 4,039,339 2,259,176
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
<PAGE>
<TABLE>
<CAPTION>
Multi-Link Telecommunications, Inc.
Consolidated Statements of Cash Flows
Six Months Ended
-----------------------------
March 31 March 31
2000 1999
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<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
NET INCOME (LOSS) ............................................................... $ 257,236 $ 245,010
ADJUSTMENTS to reconcile net profit to net
cash generated from (used in) operating activities
Depreciation and Amortization .......................................... 573,886 156,379
Amortization of Debt Discount and Issuance Costs ....................... 14,584 14,350
Bad Debt Expense ....................................................... 217,153 2,739
CHANGES IN OPERATING ASSETS & LIABILITIES
(Increase)/Decrease in Accounts Receivable ............................. (727,333) (52,493)
(Increase)/Decrease in Inventory ....................................... (3,115) 513
(Increase)/Decrease in Prepayments ..................................... (27,363) 11,525
Increase/(Decrease) in Accounts Payable ................................ 289,127 (22,217)
Increase/(Decrease) in Accrued Expenses and Deferred Revenue ........... (1,056,033) (108,070)
----------- -----------
NET CASH (Used in)/Provided by Operating Activities ........... (461,858) 247,736
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of Subscriber Accounts ........................................ (249,152) (321,345)
Purchase of Fixed Assets ............................................... (1,052,040) (50,723)
Advance on Note Receivable ............................................. (313,327) 0
Sale of Marketable Securities .......................................... 3,200,331 0
Unrealized loss on investments ......................................... (3,889)
Deferred Financing Costs ............................................... (131,406) (76,423)
Purchase of Cashtel .................................................... (224,000) 0
Purchase of Hellyer Communications' Business and Assets ................ (1,454,256) 0
Purchase of One Touch Communications' Business and Assets .............. (1,152,060) 0
----------- -----------
Total Cash Flow (used in) Investing Activities ................ (1,379,799) (448,491)
CASH FLOW FROM FINANCING ACTIVITIES
Payment of Related Party Notes Payable ................................. (17,569) (710,657)
Advances Under Related Party Notes Payable ............................. 0 80,000
Advances under Notes Payable ........................................... 2,626,000 300,000
Payments of Notes Payable .............................................. (1,071,770) (126,206)
Repurchase of Outstanding Shares ....................................... 0 (5,721)
Proceeds from Issuance of Common Stock ................................. 0 590,000
Customer Deposits ...................................................... 130,916 0
Net effect of pooling VoicLink ......................................... 10,726 0
Offering Costs ......................................................... 0 (326,590)
----------- -----------
Total Cash Flow (used in) provided by Financing Activities .... 1,678,303 (199,174)
INCREASE/(DECREASE) IN CASH & CASH EQUIVALENTS .................................. (163,354) (399,929)
Cash and Cash Equivalents at the end of the period .............................. 408,906 626,218
----------- -----------
Cash and Cash Equivalents at the beginning of the period ........................ $ 572,260 $ 226,289
=========== ===========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash Paid for Interest .......................................................... $ 86,291 $ 185,037
----------- -----------
Conversion of Note Payable to Equity ............................................ $ 0 $ 35,000
----------- -----------
Consultancy and non_compete agreements acquired for equity ...................... $ 956,624 $ 0
----------- -----------
Business and assets of One Touch acquired for equity ............................ $ 2,020,000 $ 0
----------- -----------
Fixed assets purchased through debt ............................................. $ 1,105,472 $ 0
----------- -----------
Net liabilities assumed in business combination accounted for as a purchase ..... $ 829,021 $ 0
----------- -----------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
5
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Note 1 Basis of Presentation
The accompanying unaudited financial statements of Multi-Link
Telecommunications, Inc. have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In our opinion
the financial statements include all adjustments (consisting of normal recurring
accruals) necessary in order to make the financial statements not misleading.
Operating results for the three and six month periods ended March 31, 2000 are
not necessarily indicative of the results that may be expected for the year
ended September 30, 2000. These statements should be read in conjunction with
the financial statements and related notes contained in our latest Form 10-KSB
which includes audited financial statements for the years ended September 30,
1998 and 1999.
Note 2 Basis of Consolidation
On November 19, 1999 Multi-Link Telecommunications, Inc., through its newly
formed subsidiary, Hellyer Communications Services, Inc., acquired the business
and substantially all the assets of Hellyer Communications, Inc. 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 over 40,000 subscribers in Indianapolis, Chicago and
Detroit. The transaction was accounted for using the purchase method of
accounting and resulted in $2.57 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 in cash and the assumption of approximately $2.1 million
in liabilities. $956,000 in restricted common stock was issued with a two-year
vesting schedule with respect to non-compete and consulting agreements with
Jerry L. Hellyer, the sole shareholder of Hellyer. The results of the Hellyer
Communications business have been consolidated with those of Multi-Link
Telecommunications, Inc. effective November 17, 1999.
On November 29, 1999 Hellyer Communications Services, Inc., acquired 9,416
residential voice-messaging accounts from B.F.G. of Illinois Inc., doing
business as Cashtel, Inc., in Chicago. The purchase price was $255,760 in cash
and $18,832 in common stock. The revenues and expenses of these accounts have
been consolidated with those of Multi-Link Telecommunications, Inc. effective
November 29, 1999.
On January 6, 2000, Multi-Link Telecommunications, Inc., through its newly
formed subsidiary, One Touch Communications, Inc., acquired the business and
substantially all the assets of One Touch Communications, Inc., a provider of
advanced voice messaging services to businesses in Raleigh, North Carolina. The
transaction was accounted for using the purchase method of accounting and
resulted in $2.84 million of goodwill representing the excess of the purchase
price over the fair market value of net assets acquired. The purchase price was
$3.12 million, $1.1 million in cash and $2.02 million in restricted common
stock. 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 Multi-Link Telecommunications, Inc. effective January
6, 2000.
On March 31, 2000, Multi-Link Telecommunications, Inc., acquired 100% of
the outstanding capital stock of VoiceLink Inc., a provider of advanced voice
messaging services to businesses in Atlanta, Georgia. The purchase price was
$4.88 million paid through the issue of 406,488 restricted common shares at a
price of $12.00 per share. The acquisition was accounted for as a pooling of
interests, and the results of the VoiceLink business have been consolidated with
those of Multi-Link Telecommunications, as if the two businesses had been merged
throughout the periods presented. Included in net income for the three months
and six months ended March 31, 2000 was net income from VoiceLink, Inc. of
$92,000 and $82,000, respectively. Included in net income for the three months
and six months ended March 31, 1999 was net income of $60,000 and $80,000,
respectively
6
<PAGE>
Note 3 Notes Payable
During the six months ended March 31, 2000 Multi-Link Telecommunications,
Inc. drew down $1.2 million under its five-year term loan with Westburg Media
Capital and $400,000 under its margin facility with PaineWebber, Inc. to repay
existing lease and loan facilities and provide additional working capital.
Multi-Link Telecommunications, Inc., through its wholly owned subsidiary
Hellyer Communications Services, Inc., also entered into two 48-month equipment
financing facilities at an interest rate of 9.25% per annum for a total of
$950,000 and one ten year property loan for $76,000 at an interest rate of
10.25% per annum. These funds were used to finance the purchase of additional
voice messaging equipment.
Note 4 Subsequent Events
In April 2000, Multi-Link Telecommunications, Inc., through its wholly
owned subsidiaries Hellyer Communications Services, Inc. and One Touch
Communications, Inc., entered into three 48- month equipment financing
facilities for a total of $920,000 at interest rates between 9.5% and 10.5% per
annum. These funds were used to repay existing finance leases and to finance the
purchase of new voice-messaging equipment.
Effective May 1, 2000 Multi-Link Telecommunications, Inc., acquired 50% of
the outstanding capital stock of VoiceLink of Florida, Inc., a provider of
advanced voice messaging services to businesses in Ft. Lauderdale, Florida.
VoiceLink, Inc., a wholly owned subsidiary of Multi-Link Telecommunications,
Inc., 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 Multi-Link Telecommunications, Inc. and has been
included in interest income (expense) net and other within the consolidated
statements of operation and comprehensive income. The purchase price for the
remaining 50% of VoiceLink of Florida, Inc. was $132,000 paid through the
issuance of 12,000 restricted common shares of Multi-Link Telecommunications,
Inc. at a market price of $11.00 per common share. The acquisition was accounted
for as a purchase, and, as a result, the results of VoiceLink of Florida, Inc.
will be consolidated with those of Multi-Link Telecommunications, Inc.,
effective May 1, 2000.
ITEM 2. 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 included in this report. This discussion
contains forward-looking statements that involve risks and uncertainties. Our
actual results could differ materially from those anticipated in these forward
looking statements as a result of any number of factors, including but not
limited to, intensity of competition, customer attrition, disruption of local
telephone networks, technological obsolescence, cost of technology, the
availability of third party billing solutions, the availability of financing,
our ability to manage our growth, the availability and success of future
acquisitions, the effects of regional economic and market conditions and
increases in marketing and sales costs.
7
<PAGE>
OVERVIEW
Our long-term goal is to become a significant force within the U.S. unified
messaging service industry, which is predicted by analysts to be an important
market over the next few years. At present we provide advanced voice messaging
services to businesses and homes. We plan to achieve this market position by
acquiring voice messaging subscribers through a national industry consolidation
plan, and then transitioning our customers to unified messaging services as
market demand for this service increases.
We currently provide advanced integrated voice and fax messaging services
for residences and small and medium sized businesses. These services enable
businesses to improve the handling of incoming calls and facilitate more
efficient communication between employees, customers, suppliers and other key
relationships of the subscriber company.
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 platforms, maintenance costs and the costs
of interconnection to the public switched telephone network. Most of our general
and administrative expenses are incurred in the processing and servicing of new
subscriber accounts.
We currently sell a small portion of our services through independent sales
agents and the majority through our in-house sales force. However, for the past
two years, the majority of our sales were made through independent sales agents.
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.
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.
We plan to continue to increase revenues by increasing the number of sales
agents 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.
Acquisitions
On January 6, 2000, One Touch Communications, Inc., our wholly owned
subsidiary, completed the acquisition of all of the business, assets and certain
liabilities of One Touch Communications, Inc., a provider of voice messaging
services in Raleigh, North Carolina. As a result, our financial statements
include the revenues and expenses of One Touch from the date of acquisition
through March 31, 2000.
8
<PAGE>
On March 31, 2000, we acquired 100% of the outstanding share capital 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 those of Multi-Link Telecommunications, as if the two businesses had been
merged throughout the periods presented.
Results of Operations
Quarter ended March 31, 2000 compared to quarter ended March 31, 1999.
The results for the quarter ended March 31, 2000 include the results for
all the acquisitions described above for the whole quarter. The results for the
quarter ended March 31, 1999 have been restated to include the results of
VoiceLink Inc., the acquisition of which has been accounted for as a pooling of
interests.
Net Revenues. Our revenues for the quarter ended March 31, 2000 were
$3,056,000 compared to $1,114,000 for the fiscal quarter ended March 31, 1999,
an increase of 174%. The increase was the combined result of (a) continuing
internal growth in our base of customers at Multi-Link in Denver, and an
increase in the price charged by us for certain messaging services at our Denver
operation in July 1999 that generated 26% internal growth-$131,000, and (b) the
inclusion of revenues from the various acquisitions described above-$1,811,000.
Cost of Services and Products. Cost of services and products for the fiscal
quarter ended March 31, 2000 was $622,000, compared to $209,000 for the fiscal
quarter ended March 31, 1999, an increase of 197%. The increase was the result
of the various acquisitions described above.
Gross Profit Margin. Gross margin for the fiscal quarter ended March 31,
2000 was $2,434,000 compared to $904,000 for the fiscal quarter ended March 31,
1999, an increase of 169% due to the factors described above.
Gross Profit Margin Percentage. The overall gross profit margin declined
from 81% for the three months ended March 31, 1999 to 80% for the three months
ended March 31, 2000. The slight decline results from the change in our business
mix as a result of the various acquisitions detailed above. Our gross profit
margin on automated business messaging services is higher than the gross profit
margin on business live answering and residential automated messaging services.
Sales and Advertising Expense. Sales and advertising expenses for the
fiscal quarter ended March 31, 2000 were $405,000 compared to $85,000 for the
fiscal quarter ended March 31, 1999, an increase of 376%. This increase resulted
from the inclusion of sales and advertising expenses from the various
acquisitions described above and the opening of our new residential telesales
center at a cost of $92,000.
General and Administrative Expenses. General and administrative expenses
for the fiscal quarter ended March 31, 2000 were $1,528,000 compared to $464,000
for the fiscal quarter ended March 31, 1999. This increase of 229% was due to
(a) the costs associated with our becoming a public company, including investor
relations expenses, transfer agent fees, legal fees, accounting fees, other
professional expenses, and increases in management salaries-$148,000 and (b) the
inclusion of general and administrative expenses from the various acquisitions
described above, including a broad based reorganization at Hellyer
Communications Services, Inc.-$721,00.
9
<PAGE>
EBITDA - Earnings Before Interest, Tax, Depreciation, and Amortization.
EBITDA for the fiscal quarter ended March 31, 2000 was $501,000 compared to
$355,000 for the fiscal quarter ended March 31, 1999, an increase of 41%. The
increase is the result of the inclusion of the various acquisitions detailed
above. "EBITDA" reflects net income or loss plus depreciation, amortization and
interest expense, income taxes and other non-cash charges. EBITDA is a measure
used by analysts and investors as an indicator of operating cash flow because it
excludes the impact of movements in working capital items, non-cash charges and
financing costs. However, EBITDA is not a measure of financial performance under
generally accepted accounting principles and should not be considered a
substitute for other financial measures of performance.
Depreciation of Equipment. Depreciation expense in the fiscal quarter ended
March 31, 2000 was $106,000 compared to $36,000 for the fiscal quarter ended
March 31, 1999. This increase of 194% was due to increased purchases of
equipment and the inclusion of the various acquisitions described above.
Amortization. Amortization was $271,000 for the fiscal quarter ended March
31, 2000 compared to $50,000 for the fiscal quarter ended March 31, 1999. This
increase of 442% was due to (a) continued customer account purchases from our
base of independent sales agents in the Denver area, (b) amortization of
goodwill on the various acquisitions described above and (c) the amortization of
the non compete agreement and consulting agreement with Jerry L. Hellyer
relating to the Hellyer acquisition.
Income (Loss) from Operations. Income from operations was $124,000 for the
fiscal quarter ended March 31, 2000 compared to $269,000 for the fiscal quarter
ended March 31, 1999, a decrease of 54% due to the factors described above.
Net Interest Income (Expense). Net interest income (expense) for the fiscal
quarter ended March 31, 2000 was $(86,000) compared to $(92,000) for the fiscal
quarter ended March 31, 1999, a decrease of 7%.
Net Income (Loss) and Comprehensive Income (Loss). We achieved a net income
of $36,000 for the three months ended March 31, 2000, compared to a net income
of $140,000 for the three months ended March 31, 1999, a decrease of 74%, due to
the factors outlined above. The comprehensive income for the three months ended
March 31, 2000 was $28,000, $8,000 less than the net income of $36,000. The
difference of $8,000 relates to an increase in the level of unrealized losses on
our portfolio of marketable securities, which are held as available for sale
investments. The net income and comprehensive income were the same in the three
months ended March 31, 1999.
Six Months ended March 31, 2000 compared to Six Months ended March 31, 1999.
The results for the six months ended March 31, 2000 include the results for
the acquisitions described above for the periods stated. The results for the six
months ended March 31, 1999 have been restated to include the results of
VoiceLink Inc., the acquisition of which has been accounted for as a pooling of
interests.
Net Revenues. Our revenues for the six months ended March 31, 2000 were
$5,149,000 compared to $2,201,000 for the six months ended March 31, 1999, an
increase of 134%. The increase was the combined result of (a) continuing
internal growth in our base of customers at Multi-Link in Denver, and an
increase in the price charged by us for certain messaging services at our Denver
operation in July 1999 that generated 27% internal growth-$276,000, and (b) the
inclusion of revenues from the various acquisitions described above-$2,672,000.
Cost of Services and Products. Cost of services and products for the six
months ended March 31, 2000 was $1,060,000, compared to $399,000 for the six
months ended March 31, 1999, an increase of 166%. The increase was the result of
the various acquisitions described above.
10
<PAGE>
Gross Profit Margin. Gross margin for the six months ended March 31, 2000
was $4,089,000 compared to $1,802,000 for the six months ended March 31, 1999,
an increase of 127% due to the factors described above.
Gross Profit Margin Percentage. The overall gross profit margin declined
from 82% for the six months ended March 31, 1999 to 79% for the six months ended
March 31, 2000. The decline comes from the change in our business mix as a
result of the various acquisitions detailed above. Our gross profit margin on
automated business messaging services is higher than the gross profit margin on
business live answering and residential automated messaging services.
Sales and Advertising Expense. Sales and advertising expenses for the six
months ended March 31, 2000 were $630,000 compared to $187,000 for the six
months ended March 31, 1999, an increase of 237%. This increase resulted from
the inclusion of sales and advertising expenses from the various acquisitions
described above and the opening of our new residentail relesales center at a
cost of $178,000.
General and Administrative Expenses. General and administrative expenses
for the six months ended March 31, 2000 were $2,514,000 compared to $954,000 for
the six months ended March 31, 1999. This increase of 164% was due to (a) the
costs associated with our becoming a public company, including investor
relations expenses, transfer agent fees, legal fees, accounting fees, other
professional expenses and increases in management salaries-$241,000, and (b) the
inclusion of general and administrative expenses from the various acquisitions
described above, including a broad based reorganization at Hellyer
Communications Services, Inc.-$1,226,000.
EBITDA - Earnings Before Interest, Tax, Depreciation, and Amortization.
EBITDA for the six months ended March 31, 2000 was $946,000 compared to $661,000
for the six months ended March 31, 1999, an increase of 43%. The increase is the
result of the inclusion of the various acquisitions detailed above. "EBITDA"
reflects net income or loss plus depreciation, amortization and interest
expense, income taxes and other non-cash charges. EBITDA is a measure used by
analysts and investors as an indicator of operating cash flow because it
excludes the impact of movements in working capital items, non-cash charges and
financing costs. However, EBITDA is not a measure of financial performance under
generally accepted accounting principles and should not be considered a
substitute for other financial measures of performance.
Depreciation of Equipment. Depreciation expense in the six months ended
March 31, 2000 was $167,000 compared to $69,000 for the six months ended March
31, 1999. This increase of 142% was due to increased purchases of equipment and
the inclusion of the various acquisitions described above.
Amortization. Amortization was $407,000 for the six months ended March 31,
2000 compared to $88,000 for the six months ended March 31, 1999. This increase
of 363% was due to (a) continued customer account purchases from our base of
independent sales agents in the Denver area, (b) amortization of goodwill on the
various acquisitions described above and (c) the amortization of the non compete
agreement and consulting agreement with Jerry L. Hellyer relating to the Hellyer
acquisition.
Income (Loss) from Operations. Income from operations was $372,000 for the
six months ended March 31, 2000 compared to $505,000 for the six months ended
March 31, 1999, a decrease of 26% due to the factors outlined above.
11
<PAGE>
Net Interest Income (Expense). Net interest income (expense) for the six
months ended March 31, 2000 was $(110,000), compared to $(210,000) for the six
months ended March 31, 1999, a decrease of 48%. The decrease was attributable to
the significantly lower levels of debt after our initial public offering in May
1999.
Net Income (Loss) and Comprehensive Income (Loss). We achieved a net income
of $257,000 for the six months ended March 31, 2000, compared to a net income of
$245,000 for the six months ended March 31, 1999, an increase of 5% due to the
factors outlined above. The comprehensive income for the six months ended March
31, 2000 was $253,000, $4,000 less than the net income of $257,000. The
difference of $4,000 relates to an increase in the level of unrealized losses on
our portfolio of marketable securities, which are held as available for sale
investments. The net income and comprehensive income were the same in the fiscal
six months ended March 31, 1999.
Liquidity and Capital Resources
We continue to meet our capital requirements through (a) cash provided from
operations, (b) funds provided from our May 1999 initial public offering, (c) a
$2.1 million line of credit provided by Westburg Media Capital, and (d) various
long term equipment leasing facilities.
As of March 31, 2000 we were current on our obligations to all lenders and
in compliance with all debt covenants. As of March 31, 2000, we had available
cash of $409,000, marketable investments of $653,000, and available undrawn loan
facilities of $940,000.
For the six months ended March 31, 2000 net cash used in operations was
approximately $(462,000) compared to net cash provided by operations of $248,000
for the six months ended March 31, 2000. The majority of this $710,000 variance
arises from a one time increase in accounts receivable at Hellyer Communications
Services, Inc. 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 in the six months ended
March 31, 2000 for the purchase of the Hellyer Communications and One Touch
Communications 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 $(1,380,000) compared to $(448,000) for the
six months ended March 31, 1999. During the six months ended March 31, 2000,
financing activities generated $1,257,000 of net cash from the draw down of
$1,200,000 from the Westburg Media Capital loan facility, $400,000 from the
PaineWebber margin facility and $1,026,000 from new asset financing facilities,
less the repayment of $1,072,000 of existing leasing facilities, compared to the
six months ended March 31, 1999 where financing activities used $199,000 of net
cash in largely in the repayment of outstanding notes payable.
We anticipate that our existing cash balances and marketable securities
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 our industry consolidation plan and 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 over
the next twelve months.
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.
12
<PAGE>
Year 2000 Issue
We did not experience any year 2000 problems with any of our operating
software or voice messaging equipment. To the best of our knowledge, none of our
suppliers have experienced any year 2000 problems in providing us with the goods
and services that we require from them. We did not incur any material costs in
preparing for year 2000 compliance.
13
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is not a party to any legal proceedings.
Item 2. Changes in Securities.
Recent Sales of Unregistered Securities
On January 6, 2000 One Touch Communications, Inc., our wholly
owned subsidiary, completed the acquisition of all of the business,
assets and certain liabilities of One Touch Communications, Inc. and
we agreed to issue 246,718 shares of our common stock to One Touch as
partial consideration for the acquisition. The issuance was exempt
from registration under the Securities Act pursuant to Section 4(2) of
the Securities Act and/or Rule 506 under the Securities Act. One Touch
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.
In March 2000, we issued warrants to purchase 150,000 shares of
our common stock at various 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 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,
we may cancel the warrants. We issued the warrants in reliance upon
the exemption from registration provided by Section 4(2) of the
Securities Act. No underwriters were engaged in connection with such
issuances.
On March 30, 2000, we issued 390,216 shares of our common stock
to Mr. L. Van Page, and 16,272 shares to Mr. Larry Mays upon our
acquisition of 100% of the outstanding common shares of VoiceLink Inc.
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. Both stockholders represented that they were
"accredited investors" as that term is defined in Rule 501 under the
Securities Act. No underwriters were engaged in connection with such
issuances.
Use of Proceeds from Registered Securities
On May 14, 1999, the registration statement filed by us relating
to our initial public offering was declared effective by the SEC (File
No. 333-72889). Pursuant to the registration statement, we registered
the sale of 1,380,000 units, each comprised of one share of common
stock and one warrant. We received total gross proceeds of $8,280,000.
We paid underwriting discounts and commissions and expenses to the
underwriters of $1,076,400. In addition, we paid other expenses of the
offering of approximately $344,200. The total net proceeds minus
expenses were $6,859,400.
Since completion of the offering through December 31, 1999, we
have paid: $2,140,000 to Westburg Media Capital L.P. to pay down the
outstanding balance of the revolving loan; $1,057,000 as partial
consideration for the acquisition of Hellyer Communications, Inc;
$698,000 to repay a portion of Hellyer's liabilities that we assumed,
and to pay other costs associated with the transaction; $304,000 as an
advance under a note receivable from Jerry L. Hellyer; $224,000 as
14
<PAGE>
partial consideration for the acquisition of the subscribers of B.F.G.
of Illinois, Inc., $1,100,000 as partial consideration for the
acquisition of the business and assets of One Touch Communications,
Inc. and approximately $1,500,000 for capital expenditures and general
corporate purposes.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Submission of Matters to Vote of Security Holders.
On March 22, 2000 we held our Annual Meeting of Shareholders. Our
shareholders (i) elected Keith R. Holder and R. Brad Stillahn to serve as
directors until 2003, (ii) approved an amended and restated stock option plan,
(iii) approved an amendment to our articles of incorporation, and (iv) ratified
the appointment of Hein + Associates LLP as our independent auditors.
1. Election of Directors
VOTES AGAINST BROKER
NAME VOTES FOR OR WITHHELD NON-VOTES
- --------------------------------------------------------------------------------
Keith R. Holder . . . . . . 3,306,662 840 0
R. Brad Stillahn . . . . . . 3,306,662 840 0
2. Approval of Amended and Restate Stock Option Plan
VOTES AGAINST BROKER
VOTES FOR OR WITHHELD ABSTENTIONS NON-VOTES
- ------------------------------------------------------------------------------
2,603,033 6,340 15,750 682,379
3. Approval of Amendment to the Restated Articles of Incorporation
VOTES AGAINST BROKER
VOTES FOR OR WITHHELD ABSTENTIONS NON-VOTES
- ------------------------------------------------------------------------------
2,607,833 4,240 13,050 682,379
4. Ratification of Appointment of Hein + Associates LLP
VOTES AGAINST BROKER
VOTES FOR OR WITHHELD ABSTENTIONS NON-VOTES
- ------------------------------------------------------------------------------
3,304,266 1,236 2,000 0
Item 5. Other Information.
None.
15
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits.
27.1 Financial Data Schedule
b. Reports on Form 8-K.
On January 20, 2000 we filed a Form 8-K under Item 2 to report
the acquisition of the assets of One Touch Communications, Inc.
by our wholly owned subsidiary.
On February 1, 2000 we filed a Form 8-K/A amending and
supplementing Item 7 of our filing on Form 8-K dated November 19,
1999 reporting the acquisition of the assets of Hellyer
Communications, Inc. by our wholly owned subsidiary.
On March 20, 2000 we filed a Form 8-K/A amending and
supplementing Item 7 of our filing on Form 8-K dated January 20,
2000 reporting the acquisition of the assets of One Touch
Communications, Inc. by our wholly owned subsidiary.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MULTI-LINK TELECOMMUNICATIONS, INC,
(Registrant)
Date: May 15, 2000 /s/ Nigel V. Alexander
- ------------------ --------------------------------------
Nigel V. Alexander,
Chief Executive Officer.
Date: May 15, 2000 /s/ Shawn B. Stickle
- ------------------ --------------------------------------
Shawn B. Stickle,
President and Chief Operating Officer.
Date: May 15, 2000 /s/ David J. C. Cutler
- ------------------ --------------------------------------
David J.C. Cutler,
Chief Financial Officer.
16
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<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1999
<PERIOD-END> MAR-31-2000
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