UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: March 31, 2005
Commission File Number: 0-26013
MULTI-LINK TELECOMMUNICATIONS, INC.
(Exact name of small business issuer as specified in its charter)
Colorado 84-1334687
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
936A Beachland Boulevard, Suite 13, Vero Beach, FL 32963
(Address of principal executive offices)
(772) 231-7544
(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
|_|.
As of April 29, 2005, 19,886,935 shares of the registrant's common stock
were outstanding.
Transitional Small Business Disclosure Format (Check One):
Yes|_| No |X|
TABLE OF CONTENTS
Page
PART I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets 1
Consolidated Statements of Operations and Accumulated Deficit 2
Consolidated Statements of Cash Flows 3
Notes to Consolidated Financial Statements 4-5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6-15
Item 3. Controls and Procedures 16
PART II Other Information
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other information 17
Item 6. Exhibits and Reports on Form 8-K 17-18
PART I
ITEM 1. FINANCIAL STATEMENTS
Multi-Link Telecommunications, Inc.
CONSOLIDATED BALANCE SHEETS
As of March 31, 2005 and September 30, 2004
(Unaudited) (Audited)
March 31, September 30,
2005 2004
------------ -------------
ASSETS
CURRENT ASSETS
Cash $ 3,017 $ 74
Prepaid expense 645 2,091
------------ -------------
Total current assets 3,662 2,165
------------ -------------
TOTAL ASSETS $ 3,662 $ 2,165
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ -- $ 4,907
Accrued expenses -- 5,691
Note Payable - Stockholder 147,153 58,910
------------ -------------
Total current liabilities 147,153 69,508
STOCKHOLDERS' DEFICIT
Preferred stock, $0.01 par value, 5,000,000 shares
authorized; no shares issued or outstanding as of
March 31, 2005 and September 30, 2004, respectively -- --
Common stock, no par value, 20,000,000 shares
authorized; 19,886,935 and 19,886,935 issued and
outstanding as of March 31, 2005 and September 30,
2004, respectively 12,585,500 12,585,500
Accumulated deficit (12,728,991) (12,652,843)
------------ -------------
Total stockholders' deficit (143,491) (67,343)
------------ -------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 3,662 $ 2,165
============ =============
The accompanying notes are an integral part of the financial statements
1
Multi-Link Telecommunications, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
For the Three and Six Months Ended March 31, 2005 and 2004
(Unaudited)
Three months ended Six months ended
March 31, March 31,
---------------------------- ----------------------------
2005 2004 2005 2004
------------ ------------ ------------ ------------
Revenue $ -- $ -- $ -- $ --
General and Administrative Expenses 59,559 4,637 76,116 17,595
------------ ------------ ------------ ------------
Operating Loss (59,559) (4,637) (76,116) (17,595)
Interest expense 18 -- 32 --
------------ ------------ ------------ ------------
Loss before income taxes and
extraordinary item (59,577) (4,637) (76,148) (17,595)
Provision for income taxes -- -- -- --
------------ ------------ ------------ ------------
Loss before extraordinary item (59,577) (4,637) (76,148) (17,595)
Extraordinary item, net of tax -- 5,542 -- 5,542
------------ ------------ ------------ ------------
Net income (loss) (59,577) 905 (76,148) (12,053)
Accumulated deficit, beginning of
period (12,669,414) (12,646,722) (12,652,843) (12,633,764)
------------ ------------ ------------ ------------
Accumulated deficit, end of
period (12,728,991) (12,645,817) (12,728,991) (12,645,817)
============ ============ ============ ============
Net income (loss) per common share
Loss before extraordinary item $ -- $ -- $ -- $ --
Extraordinary item, net of tax -- -- -- --
------------ ------------ ------------ ------------
Net income (loss) $ -- $ -- -- --
============ ============ ============ ============
Weighted average number of common
shares outstanding 19,886,935 19,886,935 19,886,935 17,502,336
============ ============ ============ ============
The accompanying notes are an integral part of the financial statements
2
Multi-Link Telecommunications, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended March 31, 2005 and 2004
(Unaudited)
Six months ended March 31,
2005 2004
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(76,148) $(12,053)
Adjustments to reconcile net loss to net
cash provided (used) by operating
activities:
Decrease in prepaid expenses 1,446 --
Decrease in accounts payable (4,907) (4,278)
Decrease in accrued expenses (5,691) --
Decrease in liabilities from discontinued operations -- (9,506)
Extraordinary gain on repayment of account payable -- (5,542)
-------- --------
NET CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES (85,300) (31,379)
CASH FLOWS FROM INVESTING ACTIVITIES -- --
-------- --------
NET CASH FLOWS USED BY INVESTING ACTIVITIES -- --
CASH FLOWS FROM FINANCING ACTIVITIES
Note payable - shareholder 88,243 --
Advances under notes payable -- 609
Proceeds from issuance of capital stock -- 18,312
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 88,243 18,921
-------- --------
NET INCREASE (DECREASE) IN CASH 2,943 (12,458)
CASH, BEGINNING OF PERIOD 74 13,436
-------- --------
CASH, END OF PERIOD $ 3,017 $ 977
======== ========
Supplemental disclosures:
Interest paid $ 32 $ --
======== ========
Taxes paid $ -- $ --
======== ========
The accompanying notes are an integral part of the financial statements
3
MULTI-LINK TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005 AND 2004
1. BASIS OF PRESENTATION
The financial statements as of March 31, 2005 included herein have been prepared
without audit pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with United States
generally accepted accounting principles have been condensed or omitted pursuant
to such rules and regulations. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. It is suggested that these financial statements
be read in conjunction with the September 30, 2004 audited financial statements
and notes thereto.
Effective May 20, 2002, the Board of Directors voted to sell all of Multi-Link
Telecommunications, Inc.'s operating businesses and assets in order to repay its
debts. Accordingly, effective May 20, 2002, the financial results of the Denver
(Multi-Link Communications, Inc.), Indianapolis (Multi-Link Communications,
LLC), Raleigh (One Touch Communications, Inc.), Atlanta (VoiceLink, Inc.) and
Florida (VoiceLink of Florida, Inc.) operating businesses have been accounted
for as discontinued operations under the provisions of the Statements of
Financial Accounting Standards Nos. 144 and 146 and Emerging Issues Task Force
Issue No. 87-24 and the financial results of prior periods restated accordingly.
On March 16, 2005, the majority shareholder, David J. Cutler, ("Cutler") entered
into a Securities Purchase Agreement (the "Purchase Agreement") with KI Equity
Partners I, LLC ("KI Equity") under which KI Equity agreed to purchase and
Cutler agreed to sell an aggregate of 13,074,204 shares ("Shares") of common
stock of Multi-Link Telecommunications, Inc. ("Company"), representing
approximately 65.7% of the Company's outstanding shares of common stock, at a
price of $252,846.75. KI Equity also agreed to acquire from Cutler a convertible
promissory note issued by the Company in the principal amount of $147,153.25
("Note").
On March 17, 2005, the Company and Cutler entered an Assumption Agreement (the
"Assumption Agreement"). Under the Assumption Agreement, the Company transferred
all of its rights in any capital stock or membership interests of any of its
current subsidiaries to Cutler. Each of these subsidiaries was inactive and had
no assets at the time of transfer. In exchange, Cutler agreed to assume all of
the Company's obligations of any kind (other than the Note) and indemnify the
Company against any of these liabilities existing as of the Closing. Cutler also
agreed to release the Company from any and all obligations and claims (other
than the Note).
The transactions under the Purchase Agreement were closed and completed on March
18, 2005 ("Closing.").
2. CONVERTIBLE PROMISSORY NOTE
The Note in the principal amount of $147,153 was issued by the Company to Cutler
on March 15, 2005. The Note was issued to evidence obligations owed to him by
the Company for prior unpaid compensation, advances, and expense reimbursements
totaling $65,061 and prior accrued interest of $6,972. Further, in connection
with the Closing, Cutler advanced the Company an additional $72,120 to pay off
all outstanding accounts payable and $3,000 for working capital, which advances
were included in the principal amount of the Note. The Note was sold by Cutler
to KI Equity in connection with the closing of the transactions under the
Purchase Agreement.
At March 31, 2005, the outstanding principal balance under the Note was
$147,153. The Note, plus accrued interest thereon, is payable on December 31,
2005 ("the Maturity Date"). The Note bears interest, commencing on June 1, 2005,
at the rate of six percent (6%) per annum on the outstanding principal balance.
If the principal and interest under this Note are not paid when due, the
outstanding principal amount shall thereafter accrue interest at the rate of
twelve percent (12%) per annum, until the Note is paid in full.
The principal amount of the Note is convertible, at the Holder's election, into
6,628,978 shares of common stock of Multi-Link Telecommunications, Inc. at any
time before the close of business on the Maturity Date. The number of conversion
shares shall be adjusted for stock splits, stock dividends, reorganizations and
reclassifications. Upon the amendment of its articles of incorporation to
increase the number of its authorized shares of common stock, Multi-Link is
obligated to reserve out of its authorized but unissued common stock or its
common stock held in treasury enough shares of common stock to permit the
conversion of the Note.
4
MULTI-LINK TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005 AND 2004
3. Going Concern
The Company's financial statements have been presented on the basis that it is a
going concern, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business.
The Company has suffered significant losses, has a working capital deficit as of
March 31, 2005 and no ongoing source of income. The Company hopes to seek a
business which might be acquired, at which time there may be a necessity to seek
and obtain funding, via loans or private placements of stock to pay off debt and
provide working capital. Management has no current plan to seek capital in the
form of loans or stock private placements at this time because it has no
business upon which to base any capital raising plan.
The Company's ability to continue as a going concern is dependent upon its
ability to develop additional sources of capital or locate a merger candidate
and ultimately, achieve profitable operations. The accompanying financial
statements do not include any adjustments that might result from the outcome of
these uncertainties. Management is seeking new capital and opportunities to
revitalize the Company.
4. Subsequent Events
The Company filed a proxy statement with the SEC on April 18, 2005 and mailed
the same to stockholders on April 20, 2005. Pursuant to the proxy materials, the
Company has called a special meeting of stockholders for May 23, 2005 to vote on
a proposal to amend the Company's articles of incorporation to increase the
number of authorized shares of common stock from 20,000,00 to 150,000,000. The
board of director has approved this action and has recommended to stockholders
to vote in favor of the proposal. A majority of the voting shares of common
stock entitled to vote of the matter have indicated their intention to approve
this increase in the Company's authorized common stock
5
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS STATEMENTS
Forward-Looking Statements
Statements made in this Form 10-QSB (the "Quarterly Report") that are not
historical or current facts are "forward-looking statements" made pursuant to
the safe harbor provisions of Section 27A of the Securities Act of 1933, as
amended (the "Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The Company intends that such forward-looking
statements be subject to the safe harbors for such statements. The Company
wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. Any
forward-looking statements represent management's best judgment as to what may
occur in the future. These forward-looking statements include the plans and
objectives of management for future growth of the Company, including plans and
objectives related to the consummation of acquisitions and future private and
public issuances of the Company's equity and debt securities. The
forward-looking statements included herein are based on current expectations
that involve numerous risks and uncertainties. Assumptions relating to the
foregoing involve judgments with respect to, among other things, future
economic, competitive and market conditions and future business decisions, all
of which are difficult or impossible to predict accurately and many of which are
beyond the control of the Company. Although the Company believes that the
assumptions underlying the forward-looking statements are reasonable, any of the
assumptions could be inaccurate and, therefore, there can be no assurance that
the forward-looking statements included in this Form 10-QSB will prove to be
accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives and plans of the Company will be achieved. The Company
disclaims any obligation subsequently to revise any forward-looking statements
to reflect events or circumstances after the date of such statement or to
reflect the occurrence of anticipated or unanticipated events.
The words "we," "us," "our," the "Company," and "Multi-Link" refer to
Multi-Link Telecommunications, Inc. The words or phrases "may," "will,"
"expect," "believe," "anticipate," "estimate," "approximate," or "continue,"
"would be," "will allow," "intends to," "will likely result," "are expected to,"
"will continue," "is anticipated," "estimate," "project," or similar
expressions, or the negative thereof, are intended to identify "forward-looking
statements." Actual results could differ materially from those projected in the
forward looking statements as a result of a number of risks and uncertainties,
including but not limited to: (a) limited amount of resources devoted to
achieving our business plan; (b) our failure to implement our business plan
within the time period we originally planned to accomplish; (c) because we are
seeking to merge with an operating business which has not yet been identified,
you will be unable to determine whether we will ever become profitable; and (d)
other risks that are discussed in this Form 10-QSB or included in our previous
filings with the Securities and Exchange Commission ("SEC").
Summary and Recent Developments
Prior to May 20, 2002, we provided basic voice mail, call routing and
advanced integrated voice and fax messaging to small businesses in several major
urban markets. These services enabled businesses to improve the handling of
incoming calls and facilitate more efficient communication between employees,
customers, suppliers and other key relationships. We also provided basic voice
mail and paging services to consumers.
During fiscal 2002 we were unable to make the majority of scheduled
payments on our equipment leases and loans and effective May 20, 2002 our Board
of Directors voted to sell all of our operating businesses and assets to repay
our debts and effective that date we accounted for all of our operating
businesses as discontinued operations.
Following the sale of our Denver, Atlanta and Raleigh operating businesses
in bank foreclosure at public auction on October 30, 2002 and the filing by our
Indianapolis operating business for protection under Chapter 11 on November 20,
2002, we continued to be the guarantor or co-borrower on $1.3 of million
operating leases and $1.7 million of debt of the discontinued businesses of our
subsidiary companies.
6
Effective November 20, 2002 all our operating businesses had been sold
leaving shortfalls to certain creditors guaranteed by us or were being operated
under Chapter 11 protection. As part of the reorganization of our Indianapolis
business operating under Chapter 11 protection, we entered into an agreement
with creditors that in consideration of a waiver of all claims against us, we
would waive all claims to equity and ownership in Indianapolis business. We
agreed to this because the scheduled claims and expenses exceeded realizable
value to us.
Without any remaining operating businesses or income, during fiscal 2003
and 2004 we have subsequently been able to negotiate settlement of all of our
shortfalls to creditors with our remaining resources but we are now dependent on
raising additional equity or debt to fund our ongoing operating expenses.
On March 16, 2005, our majority shareholder, David J. Cutler, ("Cutler")
entered into a Securities Purchase Agreement (the "Purchase Agreement") with KI
Equity Partners I, LLC ("KI Equity") under which KI Equity agreed to purchase
and Cutler agreed to sell an aggregate of 13,074,204 shares ("Shares") of common
stock of Multi-Link Telecommunications, Inc. ("Company", "we", "us", or "our"),
representing approximately 65.7% of our outstanding shares of common stock, at a
price of $252,846.75. KI Equity also agreed to acquire from Cutler a convertible
promissory note issued by the Company in the principal amount of $147,153.25
("Note").
On March 17, 2005, the Company and Cutler entered an Assumption Agreement
(the "Assumption Agreement"). Under the Assumption Agreement, the Company
transferred all of its rights in any capital stock or membership interests of
any of its current subsidiaries to Cutler. Each of these subsidiaries is
currently inactive and has no assets. In exchange, Cutler has agreed to assume
all of our obligations of any kind (other than the Note) and indemnify the
Company against any of these liabilities existing as of the Closing. Cutler also
agreed to release the Company from any and all obligations and claims (other
than the Note).
The transactions under the Purchase Agreement were closed and completed on
March 18, 2005 ("Closing.").
The Note acquired by KI Equity, plus accrued interest thereon, is payable
on December 31, 2005 ("the Maturity Date"). The Note bears interest, commencing
on June 1, 2005, at the rate of six percent (6%) per annum on the outstanding
principal balance. If the principal and interest under this Note are not paid
when due, the outstanding principal amount shall thereafter accrue interest at
the rate of twelve percent (12%) per annum, until the Note is paid in full.
The principal amount of the Note is convertible, at the holder's election,
into 6,628,978 shares of common stock of Multi-Link Telecommunications, Inc. at
any time before the close of business on the Maturity Date. The number of
conversion shares shall be adjusted for stock splits, stock dividends,
reorganizations and reclassifications. Upon the amendment of its articles of
incorporation to increase the number of its authorized shares of common stock,
Multi-Link is obligated to reserve out of its authorized but unissued common
stock or its common stock held in treasury enough shares of common stock to
permit the conversion of the Note.
Results of Operations
For the three months ended March 31, 2005, the Company had no activities
that produced revenues from operations. For the three months ending March 31,
2005, the Company had a net loss of $(59,577), as compared with net income of
$905 for the corresponding period of 2004. In the three month period ended March
31, 2004, the Company renegotiated certain liabilities resulting in an
extraordinary gain from debt settlement. Accordingly, our respective loss from
continuing operations, extraordinary item, and net income (loss) for the three
months ended March 31, 2005 and 2004 are as follows:
3 Months Ended 3 Months Ended
March 31, 2005 March 31, 2004
-------------- --------------
Loss before extraordinary item $ (59,577) $ (4,637)
Extraordinary item, net of tax -- 5,542
Net Income (Loss) $ (59,577) $ 905
7
Liquidity and Capital Resources
The Company's total assets as March 31, 2005 are $3,662, which is
comprised of cash and prepaid amounts. The Company's current liabilities are
$147,153, which consists of a convertible promissory note. The former majority
stockholder held this note evidencing unpaid compensation, advances, expense
reimbursements and accrued interest owe to him. During the three month ended
March 31, 2005, this stockholder made additional advances to pay trade accounts
payable and to provide working capital. Total stockholders' deficit as of March
31, 2005 is $(143,491.) The Company proposes to increase the authorized shares
of common stock to allow for the conversion of this note.
The following is a summary of the Company's cash flows from operating,
investing, and financing activities:
3 Months Ended 3 Months Ended
March 31, 2005 March 31, 2004
-------------- --------------
Cash Flows from Operating Activities $ (85,300) $ (31,379)
Cash Flows from Investing Activities -- --
Cash Flows from Financing Activities 88,243 18,921
Net Change in Cash $ 2,943 $ (12,458)
Management considers it possible that additional funds may need to be
raised, either through loans or via private placements of common stock, to
sustain the Company's liquidity in the near term.
8
Going Concern
The Company has sustained recurring operating losses, currently has no
source of operating revenue, and has only limited working capital with which to
pursue its business plan, which contemplates the completion of a business
combination with an operating company. The amount of capital required to sustain
operations until the successful completion of a business combination is subject
to future events and uncertainties. It may be necessary for the Company to
secure additional working capital through loans or sales of common stock, and
there can be no assurance that such funding will be available in the future.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern.
Critical Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities as of
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Deferred Taxes
We recognize deferred tax assets and liabilities based on the differences
between the financial statement carrying amounts and the tax bases of assets and
liabilities. Management regularly reviews the Company's deferred tax assets for
recoverability and establishes a valuation allowance based on historical taxable
income, projected future taxable income, and the expected timing of the
reversals of existing temporary differences. Management has recorded a valuation
allowance to reduce deferred tax assets including those associated with net
operating losses. The assessment realization of deferred tax provisions is
dependent upon future taxable income, and based on historical evidence, it is
more likely than not that such provision will not be utilized. Further, in the
case of an acquisition of a new business by the Company, the ability of the
post-acquisition business to utilize the Company's net operating losses may be
significantly impaired or eliminated. As of March 31, 2005, the Company has
established a valuation allowance equal to the net deferred tax asset, since
management is unable to determine that the Company will generate sufficient
future taxable income to allow it to realize the deferred tax asset.
Risk Factors
Since the sale of our operating subsidiaries in 2002, we have no material
assets, liabilities or ongoing operations. Nevertheless, we believe that we may
be able to recover some value for our shareholders by the adoption and
implementation of a plan to seek, investigate and, if the results of the
investigation warrant, effectuate a business combination with a suitable
privately-held company that has both business history and operating assets. Our
potential success will be primarily dependent on the efforts and abilities of
our new management team, who will have virtually unlimited discretion in
searching for, negotiating and entering into a business combination transaction.
Accordingly, an investment in our common stock involves investment risks
and the possibility of the loss of an investor's entire investment. A
prospective investor should evaluate all information about us and the risk
factors discussed below in relation to his financial circumstances before
investing in us.
1. No Current Operating Business. We currently have no relevant operating
business, revenues from operations or assets. Our business plan is to seek a
merger or business combination with an operating business. We face all of the
risks inherent in the investigation, acquisition, or involvement in a new
business opportunity. An investor's purchase of any of our securities must be
regarded as placing funds at a high risk in a new or "start-up" venture with all
of the unforeseen costs, expenses, problems, and difficulties to which such
ventures are subject.
9
2. No Assurance of Success or Profitability. There is no assurance that we
will acquire a suitable and favorable business opportunity in a reverse merger
transaction. In addition, even if we become involved in a business opportunity,
there is no assurance that the business we acquire will generate revenues or
profits, or that the value of our common stock will increase as a result of the
acquired business opportunity.
3. Possible Business - Not Identified and Highly Risky. We have not
identified and have no commitments to enter into or acquire a specific business
opportunity and therefore we can disclose the risks and hazards of a business or
opportunity that we acquire only in a general manner, and cannot disclose the
risks and hazards of any specific business or other opportunity that we may
enter into. An investor can expect a potential business opportunity to be quite
risky. Our acquisition of or participation in a business opportunity could
result in a total loss to our investors and stockholders if the target business
is unsuccessful. Further, any investment in us may continue to be highly
illiquid.
4. Type of Business Acquired. The type of business that may be acquired is
not identified. Therefore, our investors and stockholders have to rely on our
management to determine which target business to pursue. There are no
controlling parameters of the business to be acquired. Thus, ultimately an
investment will depend on the target business and therefore investors in us will
be subject to all the risks that would be associated with that selected
business. Our management may have the right to approve and authorize a reverse
merger transaction with a target company without obtaining the vote of the
majority of our stockholders.
5. Impracticability of Exhaustive Investigation. We have limited funds and
lack full-time management which will likely make it impracticable to conduct a
complete and exhaustive investigation and analysis of a business opportunity
before we commit our limited capital and other resources to acquire a target
business. Management decisions, therefore, likely will be made without detailed
feasibility studies, independent analysis, market surveys, and the like which,
if we had more funds available to us, would be desirable. We will be
particularly dependent in making decisions upon information provided by the
promoter, owner, sponsor, or others associated with the business opportunity
seeking to be acquired by us.
6. Lack of Diversification. Because of our limited financial resources, it
is unlikely that we will be able to diversify our acquisitions or operations.
The inability to diversify our activities into more than one area will subject
our investors and stockholders to economic fluctuations within a particular
business or industry and therefore increase the risks associated with the
investment. We only intend to acquire a single business opportunity and thus
your investment will lack diversification.
7. Possible Reliance upon Unaudited Financial Statements. We will require
audited financial statements from target companies that we propose to acquire.
No assurance can be given, however, that audited financials will be available at
the closing of the reverse merger transaction. In cases where audited financials
are unavailable, we will have to rely upon unaudited information received from
target companies' management that has not been verified by outside auditors. We,
at the time of acquisition, will be subject to the reporting provisions of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and thus will
be required to furnish certain information about significant acquisitions,
including audited financial statements for any business that the shell company
acquires. Consequently, acquisition prospects that do not have or are unable to
obtain the required audited statements may not be appropriate for acquisition so
long as the reporting requirements of the Exchange Act are applicable. But, in
cases where we have completed a reverse merger transaction in reliance on
unaudited financial statements and audited statements cannot subsequently be
obtained, the continued ability of the post-transaction company to remain a
reporting company and publicly trading will be in jeopardy and may significantly
reduce the value of your investment.
10
8. Investment Company Regulation. We do not intend to become classified as
an "investment company" under the Investment Company Act of 1940 (the
"Investment Act"). We believe that we will not become subject to regulation
under the Investment Act because (i) we will not be engaged in the business of
investing or trading in securities, and (ii) any acquisition undertaken will
result in the target company obtaining a majority interest in us. Should there
be a requirement to register as an investment company, it would cause
significant registration and compliance costs. Any violation of the Investment
Act will subject us to materially adverse consequences. Should the SEC find that
we are subject to the Investment Act, and order registration under the
Investment Act, we would resist such finding and take steps to avoid such
registration. Irrespective of whether the SEC or we were to prevail in such
dispute about whether or not we are an investment company, however, the damages
and delays would be costly.
9. Other Regulation. Any acquisition made by us may be of a business that
is subject to regulation or licensing by federal, state, or local authorities.
Foreign companies may also be considered, and be subject to similar business
regulations as are applicable in the United States and also may be subject to
limitations on ownership by foreign persons and entities. Compliance with such
regulations and licensing can be expected to be a time-consuming, expensive
process and may limit our other investment opportunities. We intend to pursue
potential business opportunities in foreign countries, including China, and as
such, such opportunities will be subject to foreign country laws and regulations
affecting foreign investment, business operations, currency exchange,
repatriation of profits, and taxation, which will increase the risk of your
investment.
10. Dependence upon Management. We will be heavily dependent upon the
skills, talents, and abilities of our management to implement our business plan.
Our management may devote limited time to our affairs, which may be inadequate
for our business, and may delay the acquisition of any business opportunity
considered. Furthermore, management has little experience in seeking,
investigating, and acquiring businesses and will depend upon its limited
business knowledge in making decisions regarding our acquisition of a business
opportunity. Because investors will not be able to evaluate the merits of
possible business acquisitions by us, they should critically assess the
information concerning the management.
11. Dependence upon Outside Advisors. To supplement the business
experience of management, we may be required to employ accountants, technical
experts, appraisers, attorneys, or other consultants or advisors. Some of these
outside advisors may be our affiliates or their affiliated entities. The
selection of any such advisors will be made by our management without any input
from stockholders.
12. Conflicts of Interest. Our management has other business interests to
which they will devote primary attention. As a result, conflicts of interest may
arise that can be resolved only through the exercise by them of their judgment
as may be consistent with their fiduciary duties. Our management will try to
resolve conflicts to the best advantage of all concerned, but there may be times
when an acquisition opportunity is given to another entity to the disadvantage
of our stockholders and for which there will be no recourse. It is also expected
that we will engage Keating Securities, LLC, an affiliate of Keating
Investments, LLC, the managing member of our controlling stockholder, to act as
a financial advisor in connection with the reverse merger transaction for which
it may earn a cash and/or equity fee.
13. Need for Additional Financing. In all likelihood we will need
additional funds to take advantage of any available acquisition business
opportunity. Even if we were to obtain sufficient funds to acquire an interest
in a business opportunity, we may not have sufficient capital to fully exploit
the opportunity. Our ultimate success will depend upon our ability to raise
additional capital at the time of the acquisition and thereafter. When
additional capital may be needed, there can be no assurance that funds will be
available from any source or, if available, that they can be obtained on
acceptable terms.
14. Borrowing Transactions. There is a possibility that any acquisition of
a business opportunity by us will require borrowing against the assets of the
business opportunity to be acquired, or against the projected future revenues or
profits of the business opportunity. This leverage could increase our exposure
to larger losses. There is no assurance that any business opportunity acquired
through borrowing and leverage will generate sufficient revenues to cover the
related debt and expenses.
11
15. No Foreseeable Dividends. We do not intend to pay any dividends. We do
not foresee making any cash distributions in the manner of a dividend or
otherwise.
16. Loss of Control by Present Management and Stockholders. It is likely
that any acquisition of an operating company will result in a change in control
of the then current directors, officers and the stockholders. Therefore, our
management prior to the acquisition will be changed to those of the target
company and its stockholders, who will then control the combined company. At
that time, our stockholders will be at investment risk for the decisions about
the business by persons that they may not know or have any ability to influence
through a board seat or by the voting mechanism of stockholders.
17. Dilutive Effects of Issuing Additional Common Stock. In any reverse
merger transaction, for tax reasons and management reasons, the owners of the
target company will be issued a large number of shares of common stock which
will dilute the ownership interest of our current stockholders. In addition, at
the time of the reverse merger, it will be likely that there will be additional
authorized but unissued shares that may be later issued by the then new
management for any purpose without the consent or vote of the stockholders. The
acquisition issuance and additional issuances that may occur will dilute the
interests of our stockholders after the reverse merger transaction.
18. Thinly-traded Public Market. Our securities may be very thinly traded,
and the price if traded may not reflect the value of the company. Moreover,
there may be a reverse split of the shares which may not reflect the value of
the company either. There can be no assurance that there will be an active
market for our shares either now or after we complete the reverse merger. The
market liquidity will be dependant on the perception of the operating business
and any steps that its management might take to bring the company to the
awareness of investors. There can be no assurance given that there will be any
awareness generated. Consequently, investors may not be able to liquidate their
investment or liquidate it at a price that reflects the value of the business.
If a more active market should develop, the price may be highly volatile.
Because there may be a low price for our securities, many brokerage firms may
not be willing to effect transactions in the securities. Even if an investor
finds a broker willing to effect a transaction in the securities, the
combination of brokerage commissions, transfer fees, taxes, if any, and any
other selling costs may exceed the selling price. Further, many lending
institutions will not permit the use of such securities as collateral for any
loans.
19. Possible Rule 144 Sales. The majority of our shares currently
outstanding are "restricted securities" within the meaning of Rule 144 under the
Securities Act of 1933, as amended (the "Act"). As restricted shares, these
shares may be resold only pursuant to an effective registration statement or
under the requirements of Rule 144 or other applicable exemption from
registration under the Act and as required under applicable state securities
laws. Rule 144 provides in essence that a person who has held restricted
securities for a period of one year may, under certain conditions, sell every
three months, in brokerage transactions, a number of shares that does not exceed
the greater of 1.0% of a company's outstanding common stock or the average
weekly trading volume during the four calendar weeks prior to the sale. There is
no limit on the amount of restricted securities that may be sold by a
non-affiliate after the restricted securities have been held by the owner for a
period of two years. Current stockholders who own 10% or more of our shares will
likely be deemed an affiliate until 90 days after a reverse merger is completed
with a target company. After such 90-day period, and assuming said shares have
been held for more than two years, these stockholders may be able to sell their
shares without volume restrictions. A sale under Rule 144 or under any other
exemption from the Act, if available, or pursuant to subsequent registrations of
our shares, may have a depressive effect upon the price of our shares in any
market that may develop.
12
Plan of Operations
General Business Plan
Our plan of operation is to seek a target company with which to merge or
to complete a business combination. In any transaction, we will be the surviving
entity, and our stockholders will retain a percentage ownership interest in the
post-transaction company. The amount of the retained equity ownership by our
stockholders will be negotiated by our management and the target company. We may
also be required to pay cash and/or equity fees to third parties that advise us
in connection with the merger or business combination, commonly refereed to as a
reverse merger. These third party advisors may include certain affiliates of
ours and their affiliated entities.
Typically in connection with the reverse merger transaction involving us
and the target company, there will be a capital funding event for the target
business on a combined basis either at the time of the reverse merger or shortly
thereafter. This may be a private placement by either us or the target company,
if the funding event is contingent on the closing of the reverse merger. If the
funding event is after the reverse merger, it will likely be a public offering
or private placement of our securities. It will often be the case that the
liquidity opportunity for our existing stockholders will be tied to the ability
of the old and new investors of the target enterprise to have liquidity in the
market for their financial investment. Therefore, our stockholders may have to
continue to hold their investment or may face competition in being able to sell
their shares in the post-transaction business in the public market, which may
depress the price for such a volume of securities.
We will not restrict our search to any specific business, industry or
geographic location, and we may participate in a business venture of virtually
any kind or nature. This discussion of our plan for acquiring an operating
business is purposefully general, and it is not meant to be restrictive of the
virtually unlimited discretion to search for and enter into potential business
opportunities. We anticipate that we will be able to participate in only one
potential business venture because of our nominal assets and limited financial
resources.
We may seek a business opportunity with entities which have recently
commenced operations, or that desire to utilize the public marketplace in order
to raise additional capital in order to expand into new products or markets, to
develop a new product or service, or for other corporate purposes. We may
acquire assets and establish wholly owned subsidiaries in various businesses or
acquire existing businesses as subsidiaries.
We expect that the selection of a business opportunity will be complex and
risky. Due to general economic conditions, rapid technological advances being
made in some industries and shortages of available capital, we believe that
there are numerous potential targets with either sound business ideas or
operations seeking the benefits of a shell company that has complied with the
federal reporting requirements for public companies and is publicly trading.
Such benefits may include facilitating or improving the terms on which
additional equity financing may be sought, providing liquidity for incentive
stock options or similar benefits to key employees, providing liquidity (subject
to restrictions of applicable statutes) for all stockholders and other factors.
Potentially, available business opportunities may occur in many different
industries and at various stages of development, all of which will make the task
of comparative investigation and analysis of such business opportunities
extremely difficult and complex. We have, and will continue to have, limited
capital with which to provide the owners of business opportunities with any
significant cash or other assets. We will, however, be able to offer owners of
target candidates the opportunity to acquire a controlling ownership interest in
an issuer who has complied with the reporting requirements under federal
securities laws without incurring the cost and time required to conduct an
initial public offering.
13
The analysis of new business opportunities will be undertaken by, or under
the supervision of, our management who will likely engage outside advisors to
assist us in this analysis. Some of these outside advisors may be affiliates of
ours or their affiliated entities. We intend to concentrate on identifying
preliminary prospective business opportunities which may be brought to our
attention through present associations of our officers and directors, or by our
advisors. In analyzing prospective business opportunities, we will consider such
matters as (i) available technical, financial and managerial resources; (ii)
working capital and other financial requirements; (iii) history of operations,
if any and prospects for the future; (iv) nature of present and expected
competition; (v) quality, experience and depth of management services; (vi)
potential for further research, development or exploration; (vii) specific risk
factors not now foreseeable but that may be anticipated to impact the proposed
activities of the company; (viii) potential for growth or expansion; (ix)
potential for profit; (x) public recognition and acceptance of products,
services or trades; (xi) name identification; and (xii) other factors that we
consider relevant. As part of our investigation of the business opportunity, we
or our advisors expect to meet personally with or interview management and key
personnel.
We may also have to compensate certain advisors, finders and investment
banking firms for services rendered in connection with the identification of
target operating companies and the negotiation and completion of the
transaction. Due to our limited resources, it is expected that all or a portion
of this compensation will be in the form of our common stock or from cash
provided by the target company or the funding event. Additional issuance of our
common stock will have a further dilutive effect on the percentage of shares
held by our stockholders. Keating Securities, LLC, an affiliate of Keating
Investments, LLC, the managing member of our controlling stockholder, will also
act as a financial advisor in connection with the reverse merger transaction and
will be paid a cash and/or equity fee upon the successful closing of the reverse
merger.
We will not acquire or merge with any company for which audited financial
statements cannot be obtained within a reasonable period of time after closing
of the proposed transaction.
Acquisition Opportunities
In implementing a structure for a particular business acquisition, we may
become a party to a merger, consolidation, reorganization, joint venture, or
licensing agreement with another company or entity. We may also acquire stock or
assets of an existing business. Our management may have the right to approve and
authorize a reverse merger transaction with a target company without obtaining
the vote of the majority of our stockholders. Further, upon consummation of a
reverse merger transaction, it is probable that our present management and
stockholders will no longer be in control of us. In addition, our management, as
part of the terms of the reverse merger transaction, may resign and may be
replaced by new directors without a vote of our stockholders. Any and all sales
of shares of our common stock may only be made in compliance with the securities
laws of the United States and any applicable state.
It is anticipated that certain securities issued by us in connection with
the reverse merger would be issued in reliance upon exemptions from registration
under application of federal and state securities laws. In some circumstances,
as a negotiated element of the reverse merger transaction, we will be asked to
agree to register all or a part of such securities immediately after the
transaction is consummated or at specified times thereafter. In such a case, we
will attempt to negotiate the registration of some or all of our current
outstanding shares which are restricted, but there is no guarantee that this
will be accomplished or, if accomplished, that the registration rights will be
identical. If such registration occurs, it will be undertaken by the surviving
entity after it has successfully consummated a reverse merger and is no longer
considered an inactive company. The issuance of substantial additional
securities by us in connection with the reverse merger and their potential sale
into any trading market which may develop in our securities may have a
depressive effect on the value of our securities in the future. There is no
assurance that such a trading market will develop.
14
While the actual terms of a reverse merger transaction cannot be
predicted, it is expected that the parties to any business transaction will find
it desirable to avoid the creation of a taxable event and thereby structure the
business transaction in a so-called "tax-free" reorganization under Sections
368(a)(1) or 351 of the Internal Revenue Code (the "Code"). In order to obtain
tax-free treatment under the Code, it may be necessary for the owners of the
acquired business to own 80 percent or more of the voting stock of the surviving
entity. In such event, the equity interest retained by our current stockholders
would be less than 20 percent of the issued and outstanding shares of the
surviving entity. This would result in significant dilution in the equity
interests of our stockholders.
In addition to the tax considerations discussed above, it is likely that
in any reverse merger, and depending upon, among other things, the target
company's assets and liabilities, the equity interests of our stockholders after
the transaction will be a small percentage of the post-transaction company. The
percentage ownership may be subject to significant reduction in the event we
acquire a target company with significant assets and expectations of growth.
We will participate in a business opportunity only after the negotiation
and execution of appropriate written agreements. Although the terms of the
acquisition agreements cannot be predicted, generally such agreements will (i)
require specific representations and warranties by all of the parties; (ii)
specify certain events of default and remedies therefore; (iii) detail the terms
of closing and the conditions which must be satisfied by each of the parties
prior to and after closing; (iv) outline the manner of bearing costs, including
costs associated with our attorneys and accountants; (v) set forth
indemnification provisions; and (vi) include miscellaneous other terms.
As stated above, we will not acquire or merge with any entity which cannot
provide independent audited financial statements within a reasonable period of
time after closing of the proposed transaction. Included in these requirements
is the affirmative duty to file independent audited financial statements as part
of a Current Report on Form 8-K, required to be filed with the SEC upon
consummation of a merger or acquisition, as well as audited financial statements
included in an Annual Report on Form 10-K (or Form 10-KSB, as applicable). If
such audited financial statements are not available at closing, or within time
parameters necessary to insure compliance with the reporting requirements under
federal securities laws, or if the audited financial statements provided do not
conform to the representations made by the business to be acquired, we will
attempt to negotiate a provision in the definitive closing documents to void the
transaction. However, there is no guarantee that we will be successful in
including such a provision and, in such case, the continued ability of the
post-transaction company to remain a reporting company and publicly trading may
be in jeopardy.
Competition
We are an insignificant participant among the firms which engage in the
reverse merger of shell companies into an operating business. There are many
established venture capital and financial concerns that have significantly
greater financial and personnel resources and technical expertise than we have.
In view of our limited financial resources and limited management availability,
we will continue to be at a significant competitive disadvantage compared to our
competitors. As a result, we may not be able to find suitable target companies
with which to complete a reverse merger transaction.
15
ITEM 3. CONTROLS AND PROCEDURES
As of the end of the period covered by this Report, the Company conducted
an evaluation, under the supervision and with the participation of the Chief
Executive Officer and Chief Financial Officer, of the Company's disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) under the
1934 Act. Based on this evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls and
procedures are effective to ensure that information required to be disclosed by
the Company in reports that it files or submits under the 1934 Act is recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms. There was no change in the
Company's internal control over financial reporting during the Company's most
recently completed fiscal quarter that has materially affected, or is reasonably
likely to materially affect, the Company's internal control over financial
reporting.
16
PART II
ITEM 1. LEGAL PROCEEDINGS
We are not aware of any pending or threatened legal proceedings in which
we are involved.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company filed a proxy statement with the SEC on April 18, 2005 and
mailed the same to stockholders on April 20, 2005. Pursuant to the proxy
materials, the Company has called a special meeting of stockholders for May 23,
2005 to vote on a proposal to amend the Company's articles of incorporation to
increase the number of authorized shares of common stock from 20,000,000 to
150,000,000. The board of director has approved this action and has recommended
to stockholders to vote in favor of the proposal. A majority of the voting
shares of common stock entitled to vote of the matter have indicated their
intention to approve this increase in the Company's authorized common stock
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
We are not aware of any defaults upon senior securities during the first
quarter of the fiscal year ended March 31, 2005.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of our stockholders during the
first quarter of the fiscal year ended March 31, 2005.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
31 Certification pursuant to Rule 13a-14(a) or 15d-14(a) under
the Securities Exchange Act of 1934, as amended.
32 Certification of Chief Executive Officer and President of the
Company, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
17
(b) Reports on Form 8-K
The following current reports were filed during the quarter ended
March 31, 2005:
On March 23, 2005, the Company filed a Current Report on Form 8-K
dated March 18, 2005 announcing the execution of a Securities
Purchase Agreement and an Assumption Agreement and the closing of
the transactions resulting in a change of control of the Company,.
On March 30, 2005, the Company filed a Current Report on Form 8-K
March 28, 2005 announcing the resignation of an officer and director
and the appointment of a new officer and director, and the change in
the Company's Plan of Operation.
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SIGNATURES
In accordance with Section 13 or 15(d) 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.
Date: May 16, 2005 By: /s/ Kevin R. Keating
-------------------------
Kevin R. Keating
President and Chief Executive Officer
19
Exhibit Index
Exhibit
Number Description of Exhibit
------- ----------------------
31 Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32 Certification of Chief Executive Officer and Chief
Financial Officer of the Company, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
20