===============================================================================================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X]/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended JuneSeptember 30, 2001
OR
[ ]/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEsEXCHANGE ACT
OF 1934
For the transition period from _____________________ to
Commission file number: 0-17973
I-LINK INCORPORATED
(Exact name of registrant as specified in its charter)
FLORIDA 59-2291344
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
13751 S. WADSWORTH PARK DRIVE, SUITE 200, DRAPER, UTAH 84020
(Address of principal executive offices)
(801) 576-5000
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter time 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/X/ No --- -----
--------------/ /
-----------
As of August 10,November 6, 2001, the registrant had outstanding 112,600,636116,549,667 shares of
$0.007 par value common stock.
The disclosures set forth Part II Item 1 in Forms 8-Kthe registrant's Form 10-Q for the
period ended June 30, 2001 filed on March 16, 2001, May 2, 2001
and June 19, 2001 areAugust 20, 2001are incorporated in Part II
Item 21 herein.
===============================================================================================================================================================
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
I-LINK INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS JuneSeptember 30, 2001 December 31,
2001 2000
ASSETS (Unaudited)
2000
--------------- ----------------------------- --------------
Current assets:
Cash and cash equivalents $ 1,744,5561,712,934 $ 2,155,628
Accounts receivable, less allowance for doubtful accounts of $1,667,000 and
$100,665 as of JuneSeptember 30, 2001 and December 31, 2000, respectively 17,702,13616,202,362 3,357,856
Prepaid expenses 3,579,417 -
Other current assets 2,382,9031,988,759 385,891
--------------- ----------------------------- --------------
Total current assets 21,829,59523,483,472 5,899,375
Furniture, fixtures, equipment and software, net 24,432,09823,567,913 10,983,273
Other assets:
Intangible assets, net 11,340,6282,294,040 3,939,226
Other assets 1,620,6221,693,250 835,618
--------------- ----------------------------- --------------
$ 59,222,94351,038,675 $ 21,657,492
=============== ============================= ==============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 7,623,5227,292,663 $ 5,370,490
Accrued liabilities 8,234,74012,869,492 3,327,900
Unearned revenue 4,708,0583,533,596 14,885,592
Current portion of long-term debt 2,139,0191,646,988 785,971
Notes payable to a related party 25,360,96422,090,259 7,768,000
Accrued interest on notes payable to a related party 349,137657,850 2,376,498
Current portion of obligations under capital leases 4,778,8604,895,897 1,445,690
--------------- ----------------------------- --------------
Total current liabilities 53,194,30052,986,745 35,960,141
Notes payable 1,587,8951,577,235 796,662
Notes payable and accrued interest - related party 11,618,972 -
Unearned revenue - 1,666,667
Obligations under capital leases 7,234,0047,458,964 338,263
--------------- ---------------
62,016,199-------------- --------------
73,641,916 38,761,733
--------------- ----------------------------- --------------
Commitments and contingencies (Note 8)
Redeemable preferred stock - Class M - 11,734,820
--------------- ----------------------------- --------------
Stockholders' deficit:
Preferred stock, $10 par value, authorized 10,000,000 shares,
issued and outstanding 10,018769 and 24,435 at JuneSeptember 30, 2001 and
December 31, 2000, respectively, liquidation preference of
$1,848,478$761,310 at JuneSeptember 30, 2001 100,1807,690 244,350
Common stock, $.007 par value, authorized 150,000,000300,000,000 shares,
issued and outstanding 112,569,743116,549,547 and 28,136,506 at JuneSeptember 30, 2001
and December 31, 2000, respectively 787,991815,849 196,957
Additional paid-in capital 127,494,197128,851,786 106,622,114
Notes receivable from stockholders (30,000) -
Accumulated deficit (131,145,624)(152,278,566) (135,902,482)
--------------- ----------------------------- --------------
Total stockholders' deficit (2,793,256)(22,603,241) (28,839,061)
--------------- ----------------------------- --------------
$ 59,222,94351,038,675 $ 21,657,492
=============== ============================= ==============
The accompanying notes are an integral part of these consolidated
financial statementsstatements.
1
I-LINK INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended June 30, SixNine Months Ended
JuneSeptember 30, ---------------------------------- ----------------------------------September 30,
------------------------------- -----------------------------------
2001 2000 2001 2000
--------------- --------------- ----------------------------- ------------- ---------------
RevenuesRevenues:
Telecommunication services $ 19,408,44125,274,900 $ 4,589,1123,666,119 $ 23,829,42449,104,324 $ 9,876,31913,542,438
Marketing services - - - 464,354463,740
Technology licensing and development 1,419,998 1,739,906 2,856,897 6,246,4061,432,301 4,276,895 7,678,707
Other 518,459 1,008,563 1,185,042 1,709,667
--------------- --------------- --------------- ---------------433,174 444,582 1,618,216 2,154,862
-------------- -------------- -------------- --------------
Total revenues 21,346,898 7,337,581 27,871,363 18,296,746
--------------- --------------- --------------- ---------------27,128,072 5,543,002 54,999,435 23,839,747
-------------- -------------- -------------- --------------
Operating costs and expenses:
Telecommunication network expense 13,715,806 5,537,946 20,025,512 11,651,00822,988,640 5,736,946 43,014,152 17,387,954
Marketing services - - - 349,034456,354
Selling, general and administrative 5,703,360 5,724,953 9,441,741 9,644,0419,894,235 4,242,074 19,335,976 13,778,795
Provision for (benefit from) doubtful accounts 1,269,397 54,187 1,377,756 379,9031,276,740 (300,667) 2,654,496 79,236
Depreciation and amortization 2,330,806 1,560,816 3,981,791 3,049,7053,204,871 1,565,065 7,186,662 4,614,770
Research and development 523,614 841,446 1,590,372 1,674,358
--------------- --------------- --------------- ---------------434,651 1,085,236 2,025,023 2,759,594
Impairment of goodwill 8,040,054 - 8,040,054 -
-------------- -------------- -------------- --------------
Total operating costs and expenses 23,542,983 13,719,348 36,417,172 26,748,049
--------------- --------------- --------------- ---------------45,839,191 12,328,654 82,256,363 39,076,703
-------------- -------------- -------------- --------------
Operating loss (2,196,085) (6,381,767) (8,545,809) (8,451,303)
--------------- --------------- --------------- ---------------(18,711,119) (6,785,652) (27,256,928) (15,236,956)
-------------- -------------- -------------- --------------
Other income (expense):
Interest expense (666,792) (350,481) (1,014,633) (794,323)(1,816,722) (339,429) (2,831,354) (1,133,752)
Interest and other income 23,590 112,969 51,661 150,79625,212 249,940 76,872 400,737
Settlement expense - 720,385- - (639,565)
--------------- --------------- --------------- ----------------------------- -------------- -------------- --------------
Total other income (expense) (643,202) 482,873 (962,972) (1,283,092)
--------------- --------------- --------------- ---------------(1,791,510) (89,489) (2,754,482) (1,372,580)
-------------- -------------- -------------- --------------
Net loss $ (2,839,287) $ (5,898,894) $ (9,508,781) $ (9,734,395)
=============== =============== =============== ===============$(20,502,629) $(6,875,141) $(30,011,410) $(16,609,536)
============== ============== ============== ==============
CALCULATION OF NET INCOME (LOSS)LOSS PER COMMON SHARE:
Net Loss $ (2,839,287) $ (5,898,894) $ (9,508,781) $ (9,734,395)$(20,502,629) $(6,875,141) $(30,011,410) $(16,609,536)
Cumulative preferred stock dividends (11,068) (393,095) (22,015) (800,488)(5,595) (402,529) (27,610) (1,221,231)
Dividends accrued and paid on Class M
redeemable preferred stock - - (269,027) -
Net effect on retained earnings of redemption
and reissuance of Class M and N preferred
stock, including beneficial conversion
features - - 15,512,473 -
Dividends paid on Class F preferred stock - - - (18,214)
--------------- --------------- --------------- ----------------------------- -------------- -------------- --------------
Net income (loss)loss applicable to common stock $ (2,850,355) $ (6,291,989) $ 5,712,650 $ (10,553,097)
=============== =============== =============== ===============$(20,508,224) $(7,277,670) $(14,795,574) $(17,830,767)
============== ============== ============== ==============
Basic and diluted weighted average shares
outstanding 112,569,657 24,901,536 82,995,083 26,026,948
=============== =============== =============== ===============113,672,070 27,850,335 93,333,115 26,639,187
============== ============== ============== ==============
Net income (loss)loss per common share - basic and diluted $ (.03)(0.18) $ (0.25)(0.26) $ .07(0.16) $ (0.41)
=============== =============== =============== ===============(0.67)
============== ============== ============== ==============
The accompanying notes are an integral part of these consolidated
financial statementsstatements.
2
I-LINK INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTSTATEMENTS OF CHANGES IN STOCKHOLDERS' DEFECITDEFICIT
(UNAUDITED)
Preferred Stock Common Stock
-------------------------- --------------------------------------------- ----------------------
Additional Paid-inAccumulated
Shares Amount Shares Amount Paid-in Capital ------------ ------------ ------------ ------------ --------------Deficit
-------- --------- ----------- -------- ---------------- -------------
BALANCE AT DECEMBER 31, 2000 24,435 $ 244,350 28,136,506 $196,957$ 196,957 $ 106,622,114 $(135,902,482)
Conversion of convertible debt and accrued interest into
Class M mezzanine preferred stock and common warrants - - - - 6,377,673 -
Common stock issued and accumulated deficit acquired as a
result of WebToTel acquisition and conversion of notes
payable - - 17,454,333 122,182 11,822,812 (1,246,834)
Stock issued - employee stock purchase plan - - 3,745 26 2,07534,518 241 15,338 -
Repurchase of Class M mezzanine preferred stock - - - - - -
Repurchase of Class N preferred stock (14,404) (144,040) - - (14,164,060) -
Net contribution from repurchase/settlement
with stockholders of Class M and N preferred stock - - - - (5,000,000) 30,292,319
Contingent beneficial conversion feature
on Class N preferred stock - - - - 9,779,846 (9,779,846)
Issuance of common shares to related party
to repurchase warrants outstanding - - 5,000,000 35,000 (35,000) -
Reissuance and conversion of Class M redeemable
preferred stock into common stock - - 50,442,857 353,100 3,696,900 -
Reissuance and conversion of Class N
preferred stock into common stock - - 11,523,159 80,662 869,338 -
Beneficial conversion feature on the reissuance
of Class M and N preferred stock - - - - 5,000,000 (5,000,000)
Other conversions of Class N preferred stock
into common stock (13) (130) 9,143 64 66 -
Warrants issued in connection with
certain notes payable to related party - - - - 1,430,2902,079,456 -
Beneficial conversion feature on
certain convertible note payable to related party - - - - 1,092,143 -
Conversion of Class C preferred stock
into common stock (9,249) (92,490) 3,415,015 23,905 68,585 -
Dividend on Class C preferred stock paid in the
form of common stock - - 534,016 3,738 626,575 (630,313)
Net loss - - - - - ------------ ------------ ------------ ------------(30,011,410)
-------- --------- ----------- --------- -------------- --------------
BALANCE AT JUNESEPTEMBER 30, 2001 10,018769 $ 100,180 112,569,7437,690 116,549,547 $ 787,991815,849 $ 127,494,197
============ ============ ============ ============128,851,786 $(152,278,566)
======== ========= =========== ========= ==============
Stockholder
Notes Accumulated
Receivable Deficit
-------------- ---------------
BALANCE AT DECEMBER 31, 2000 - $ (135,902,482)
Conversion of convertible debt and accrued interest
into Class M mezzanine preferred stock and common
warrants - -
Common stock issued and accumulated deficit
acquired as a result of WebToTel acquisition and
conversion of notes payable $(30,000) (1,246,834)
Stock issued - employee stock purchase plan - -
Repurchase of Class M mezzanine preferred stock - -
Repurchase of Class N preferred stock - -
Net contribution from repurchase/settlement with
stockholders of Class M and N preferred stock - 30,292,319
Contingent beneficial conversion feature on Class N
preferred stock - (9,779,846)
Issuance of common shares to related party to
repurchase warrants outstanding - -
Reissuance and conversion of Class M redeemable
preferred stock into common stock - -
Reissuance and conversion of Class N preferred
stock into common stock - -
Beneficial conversion feature on the reissuance of
Class M and N preferred stock - (5,000,000)
Other conversions of Class N preferred stock into
common stock - -
Warrants issued in connection with certain notes
payable to related party - -
Beneficial conversion feature on certain convertible
note payable to related party - -
Net loss - (9,508,781)
-------------- ---------------
BALANCE AT JUNE 30, 2001 $(30,000) $ (131,145,624)
============== ===============
The accompanying notes are an integral part of these consolidated financial
statementsstatements.
3
I-LINK INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
CONTINUED
(UNAUDITED)
For the SixNine Months Ended
JuneSeptember 30,
--------------------------------------------------------------------------
2001 2000
------------------- ------------------------------- -------------
Cash flows from operating activities:
Net loss $ (9,508,781)(30,011,410) $ (9,734,395)(16,609,536)
Adjustments to reconcile net loss to net cash used in (provided by)
operating activities:
Depreciation and amortization 3,981,791 3,049,7057,186,662 4,614,770
Impairment of goodwill 8,040,054 -
Provision for doubtful accounts 1,377,756 379,9032,654,496 79,236
Common stock issued as payment of accrued liabilities - 740,588740,587
Amortization of discount on notes payable to a related party 103,919888,468 -
Amortization of deferred compensation on stock options issued for services - 381,417503,257
Increase (decrease) from changes in operating assets and liabilities (net of
effects of acquisition of businesses):
Accounts receivable (3,629,463) (10,821,262)(3,376,429) 818,117
Other assets (1,475,736) (76,073)(4,733,639) (294,856)
Unearned revenue (10,177,534) 19,166,667(11,427,632) 17,916,667
Accounts payable, accrued liabilities and accrued interest 4,304,467 657,5138,858,967 (271,573)
Discontinued operations - noncash charges and working capital changes - (26,141)
------------------- ------------------66,162
------------- -------------
Net cash provided by (used in) operating activities (15,023,581) 3,717,922
------------------- ------------------(21,920,463) 7,562,831
------------- -------------
Cash flows from investing activities:
Purchases of furniture, fixtures, equipment and software (716,953) (2,970,434)(1,527,514) (4,687,910)
Acquisition of WorldxChange assets (13,000,000) -
Cash received from purchase of WebToTel 233,787 -
Investing activities of discontinued operations - 19,674
------------------- ------------------29,537
------------- -------------
Net cash used in investing activities (13,483,166) (2,950,760)
------------------- ------------------(14,293,727) (4,658,373)
------------- -------------
Cash flows from financing activities:
Proceeds from issuance of notes payable to related party 28,325,70036,189,534 2,600,000
Proceeds from advance under strategic marketing agreement - 1,751,183
Payment of related party debt - (2,600,000)
Payment of advance under strategic marketing agreement - (1,751,183)
Payment of long-term debt (9,136)(29,040) -
Payment of capital lease obligations (222,989) (66,544)(404,578) (104,979)
Proceeds from exercise of common stock warrants and options
and issuances under stock purchase plan 2,100 3,532,71915,580 4,274,879
Financing activities of discontinued operations - (24,719)
------------------- ------------------(24,204)
------------- -------------
Net cash provided by financing activities 28,095,675 3,441,456
------------------- ------------------35,771,496 4,145,696
------------- -------------
Increase (decrease) in cash and cash equivalents (411,072) 4,208,618(442,694) 7,050,154
Cash and cash equivalents at beginning of period 2,155,628 2,996,004
------------------- ------------------------------- -------------
Cash and cash equivalents at end of period $1,744,556 $ 7,204,622
=================== ==================1,712,934 $ 10,046,158
============= =============
Cash and cash equivalents at end of period:
Continuing operations $ 1,744,5561,712,934 $ 7,190,5209,929,375
Discontinued operations - 14,102
------------------- ------------------116,783
------------- -------------
Total cash and cash equivalents at end of period $ 1,744,5561,712,934 $ 7,204,622
=================== ==================10,046,158
============= =============
The accompanying notes are an integral part of these consolidated
financial statements
4
I-LINK INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
CONTINUED
(UNAUDITED)
For the SixNine Months Ended
JuneSeptember 30,
--------------------------------------------------------------------------
2001 2000
------------------- ------------------------------- -------------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Reclassification of Class F redeemable preferred stock from mezzanine - $2,338,784
Warrants issued in connection with a$ 2,338,784
Discount on note payable to related party $1,430,290due to warrants issued with the note $ 2,079,456 -
Stock options issued for services - $54,90254,902
Equipment acquired under capital lease obligations $9,000,0009,523,590 -
Conversion of notes payable to a related party and associated accrued interest
to Class M redeemable preferred stock $10,305,07210,305,072 -
Reclassification of Class M redeemable preferred stock from mezzanine $22,039,89222,039,892 -
Conversion of notes payable to a related party and associated accrued
interest to common stock $10,326,93810,326,938 -
The accompanying notes are an integral part of these consolidated
financial statements
5
NOTE 1 - DESCRIPTION OF BUSINESS, PRINCIPLES OF CONSOLIDATION AND LIQUIDITY
The consolidated financial statements include the accounts of I-Link
Incorporated and its subsidiaries ("I-Link" or the "Company"). The Company's
principal operation isoperations are two-fold. First, for the development, salepast five years the Company
has developed and delivery ofmarketed enhanced communications products and services
utilizing its own private intranet and both owned and leased network switching
and transmission facilities. The Company
provides unique communications solutions are delivered through
its use ofthe Company's proprietary technologies. TelecommunicationsEnhanced communications products and
services are marketed primarily through master agent and wholesale distributor
arrangements with I-Link Communications Inc., a wholly owned subsidiary of the
Company that is aan FCC licensed long-distance carrier. The Company develops and
licenses communications applications products and software that support
multimedia communications (voice, fax and audio) over the public switched
network, local area networks and the Internet. On March 1, 2001, I-Link became a majority owned subsidiary of Counsel
Communications LLC which was a wholly-owned subsidiary of Counsel Corporation,
(collectively, "Counsel"). On April 17, 2001, I-Link merged with WebToTel, Inc.
("WebToTel"), a subsidiary of Counsel, and it's subsidiary Nexbell
Communications Inc. ("Nexbell") as more fully described in Note 9. As the
entities were under common control as of March 1, 2001, the financial statements
for the three and six months ended June 30, 2001 include the financial results
of WebToTel and Nexbell as if I-Link's merger with these two entities had
occurredThe second principal operation
began on March 1, 2001. As the entities were under common control of Counsel
at the time of the merger, the acquisition of WebToTel has been accounted for
similar to a pooling-of-interests using Counsel's book values of the WebToTel
assets and liabilities. The impact of the consolidation of the WebToTel results
of operations and retained deficit for the period from March 31, 2001 are as
shown below:
I-Link results of
operations for the first WebToTel I-Link results I-Link results
quarter of 2001 as results of of operations of operations
reported in 3/31/01 operations for for the second for the six months
Form 10-Q March 2001 quarter of 2001 ended June 30, 2001
------------------------------------------------------------------------------
Revenues $ 6,231,338 $ 293,127 $ 21,346,898 $ 27,871,363
Net Loss $ 5,916,658 $ 752,836 $ 2,839,287 $ 9,508,781
I-Link balance at WebToTel I-Link results Balance as
March 31, 2001 WebToTel accumulated of operations reported in
as reported in net loss for deficit acquired for the second the June 30,
3/31/01 Form 10-Q March 2001 as of 3-1-01 quarter of 2001 2001 Form 10-Q
------------------------------------------------------------------------------------
Accumulated
deficit $126,306,667 $752,836 $1,246,834 $2,839,287 $131,145,624
On June 4, 2001, when I-Link Incorporated, through it'sits wholly-owned
subsidiary WorldxChange Corp. ("WorldxChange"), purchased certain assets and
assumed certain liabilities of WorldxChange Communications, Inc. from a
bankruptcy proceeding as more fully described in Note 9.proceeding. WorldxChange is a facilities-based telecommunications
carrier that provides international and domestic long-distance service to retail
customers. Telecommunication services provided by WorldxChange consist primarily
of a dial-around product that allows a customer to make a call from any phone by
dialing a 10-10-XXX prefix. The phone call willis then be billed directly to the
customer. Billings to these customers are primarily done through the customers'
local exchange carrier ("LEC"). Marketing of the dial around product is
primarily done through independent marketing agents that receive a commission.
WorldxChange's retail base is comprised of residential and commercial customers.
6
customers
located throughout the United States.
On March 1, 2001, I-Link became a majority owned subsidiary of Counsel
Communications LLC, which is a wholly-owned subsidiary of Counsel Corporation
(US), (collectively, "Counsel"). On April 17, 2001, I-Link, WebToTel, Inc.
("WebToTel"), a subsidiary of Counsel, and its subsidiary Nexbell Communications
Inc. ("Nexbell") in a stock-for-stock transaction.
All significant intercompany accounts and transactions have been eliminated in
consolidation.
The interim financial data are unaudited; however, in the opinion of the
management of the Company, the interim data includes all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of (a)
the results of operations for the three-month and six-monthnine-month periods ended
JuneSeptember 30, 2001 and 2000, (b) the financial position at JuneSeptember 30, 2001,
and (c) cash flows for the six-monthsnine-month periods ended JuneSeptember 30, 2001 and 2000.
The year-endDecember 31, 2001 balance sheet was derived from audited financial
statements, but does not include all disclosures required by generally accepted
accounting principles. The financial statements should be read in conjunction
with the Company's annual report on Form 10-K for the year ended December 31,
2000 and quarterly reportreports on Form 10-Q for the three-monthsthree and six-months ended March
31 and June 30, 2001.
The results of operations for the three and six-monthnine-month periods ended JuneSeptember
30, 2001 are not necessarily indicative of those to be expected for the entire
year.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NET LOSS PER SHARE
Basic earnings per share is computed based on the weighted average number of
common shares outstanding during the period. The weighted average number of
shares outstanding includes 17,454,333 shares issued by I-Link in April 2001 to
acquire WebToTel as if the mergeracquisition and related stock issuance had occurred
on March 1, 2001 (see Notes 1 and 9).2001. Options, warrants, convertible preferred stock and convertible
debt are included in the calculation of diluted earnings per share, except when
their effect would be anti-dilutive. As the Company had a net loss applicable to
common stock for the three-monththree and nine-month periods ending JuneSeptember 30, 2001 and 2000 and the six-month period ending June 30,
2000, basic and diluted loss per share are the same.
As of June 30, 2001, all potential common stock was
anti-dilutive and therefore excluded from weighted average shares outstanding.
The net incomeloss per common share basic and diluted for the six-monthsnine-months ending
JuneSeptember 30, 2001 includes a net gainincrease to retained earnings forof $30,292,319
attributedattributable to the redemption on March 1, 2001 of the Class M redeemable
preferred stock and all Class N preferred stock owned by Winter Harbor,
including redemption of the beneficial conversion feature related to such
6
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
preferred stock. In addition, there was a charge to retained earnings of
$9,779,846 representing a contingent beneficial conversion feature on the Class
N preferred stock resulting from the reset of the conversion price. The net incomeloss
per common share basic and diluted also reflects a $5,000,000 charge to retained
earnings for the beneficial conversion feature related to the reissuance on
March 1, 2001of2001 of the Class M and Class N preferred stock to Counsel
Communications, LLC.
During the six-month period ended June 30, 2000, holders of the Series F
Redeemable preferred stock converted 248 shares. Accordingly, they were paid
stock dividends of 87,477 shares of common stock on the converted shares during
the first six-months of 2000. All Series F preferred stock had been converted to
common stock as of June 2000.
AMORTIZATION OF INTANGIBLES
WebToTel acquired Nexbell on February 22, 2001 and accounted for that
acquisition using the purchase method of accounting. As part of that
acquisition, WebToTel recorded $9,136,427 of goodwill. This goodwill iswas being
amortized over a five-year period.
The Company continuously reviews the products it offers and their
contribution to our Company and our overall strategy. As of September 30,
2001, our analysis determined that it was not economically justified to
continue to maintain a portion of the Company's network related to leased
lines for local access origination and Nexbell's METS product. Subsequent to
September 30 2001, the company approved a plan to discontinue offering the
METS product. With this determination, the Company performed an impairment
analysis of the goodwill recorded in connection with the acquisition of
WebToTel and its subsidiary Nexbell ("WebToTel"). The analysis was performed
in response to projected losses on the METS product acquired in the WebToTel
acquisition. As a result of this review, an $8,040,054 impairment charge,
representing the remaining balance of the goodwill, was recorded as of
September 30, 2001. The Company anticipates incurring additional operating
losses in the fourth quarter of 2001 of approximately $1.3 million related to
the wind down the METS product and a portion of the Company's network related
to leased lines used for local access origination.
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 141, ("SFAS 141"), "Business Combinations."
SFAS 141 requires the purchase method of accounting for business combinations
initiated after June 30, 2001 and eliminates the pooling-of-interests method.
The Company believes that the adoption of SFAS 141 will not have a significant
impact on its financial statements.
7
In July 2001, the FASB issued Statement of Financial Accounting Standards No.
142, ("SFAS 142"), "Goodwill and Other Intangible Assets", which is effective for fiscal years
beginning after MarchDecember 15, 2001. SFAS 142 requires, among other things, the
discontinuance of goodwill amortization. In addition, the standard includes
provisions upon adoption for the reclassification of certain existing recognized
intangibles as goodwill, reassessment of the useful lives of existing recognized
intangibles, reclassification of certain intangibles out of previously reported
goodwill and the testing for impairment of existing goodwill and other
intangibles. The Company is currently assessing, but has not yet determined the
impact of SFAS 142 on its financial position and results of operations.
In August 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement
Obligations", effective for years beginning after June 15, 2002. SFAS 143
addresses financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. It applies to legal obligations associated with the retirement of
long-lived assets that result from the acquisition, construction, development
and (or) the normal operation of a long-lived asset, except for certain
obligations of lessees. The Company is currently evaluating the effects of this
Statement.
In August 2001, the FASB issued the Statement of Financial Accounting Standards
No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS 144
addresses financial accounting and reporting for the disposal of long-lived
assets. FAS 144 is effective for fiscal years beginning after December 15, 2001.
The Company is currently evaluating the potential impact, if any, the adoption
of SFAS 144 will have on its financial position and results of operation.
7
NOTE 3 - SHORT TERM BORROWINGS
On June 6, 2001, I-Link and Counsel agreed to enterentered into a Loan and Security Agreement
("Loan Agreement"). Any monies advanced to I-Link between June 6, 2001 and April
15, 2002, (in the amount not to exceed $10,000,000) will be governed by the Loan
Agreement. In connection with the Loan Agreement, I-Link will execute a note
payable to Counsel, due June 6, 2002. The loan is secured by all of the assets
of I-Link. Outstanding balances (including any accrued and unpaid interest)
under the loan bear interest at 10% per annum and which interest is payable
quarterly in arrears following the last business day of each quarter. However,
Counsel may (and has) at its sole election allow interest to accrue and become
payable at the end of the term. As of JuneSeptember 30, 2001, advances under this
loan agreement totaled $1,475,700.$9,159,536.
To fund the acquisition of the assets purchased and liabilities assumed by
WorldxChange, (as more fully described in Note 9), Counsel provided a loan to I-LinkWorldxChange in the aggregate amount of
$15,000,000. The loan is collateralized against all assets of I-Link Incorporated and WorldxChange andWorldxChange. The
loan is also guaranteed by I-Link Incorporated.and collateralized by the assets of I-Link.
Outstanding balances (including any accrued and unpaid interest) under the loan
bear interest of 10% per annum and are payable quarterly in arrears and in cash
on the last business day of each quarter. The payment of cash interest by
WorldxChange or I-Link may be waived by Counsel. The loan will mature on June 4, 2002 but
may be extended upon mutual agreement of both Counsel and I-Link. The loan may
be prepaid at any time prior to the maturity, without penalty.
In connection with the $15,000,000 loan, I-Link issued to Counsel a warrant to
purchase 15,000,000 shares of common stock of I-Link at an exercise price of
$0.60 per share. The shareswarrants are exercisable in three tranches as follows;
5,000,000 on the date of the agreement, 5,000,000 on September 4, 2001 and
December 4, 2001, respectively, in the event the loan is still outstanding on
those dates. The warrants expire on June 4, 2003. The Company has recorded
$1,430,290$2,079,455 as a discount against the $15,000,000 loan from Counsel representing
the relative fair value attributed to the 5,000,00010,000,000 shares exercisable immediately.as of
September 30, 2001. The value of the warrant waswarrants is calculated using the Black
Scholes Model and is being amortized over the term of the loan. In the event the
Company issues the second and third tranche of warrants as
described above,become exercisable, the Company will record additional
interest expense related to the fair value of the warrants when issued.exercisable.
NOTE 4 - LONG-TERM DEBT
The Company borrowed $12,000,000 under a loan agreement with Counsel
Communications during 2001. Interest on the note (9% per annum) is automatically
added to principal at the end of each calendar quarter. The note is convertible
into I-Link's common stock at a conversion rate of $.56 per share. At any time
the Company made a draw on the loan agreement and the market price of the
Company's common stock was higher than the conversion rate, a debt discount was
recorded equal to this beneficial conversion feature. As of September 30, 2001,
debt discount of $1,092,143 has been recorded on the borrowings of $12,000,000.
This discount is being accreted to interest expense over the term (three years)
of the loan agreement.
Included in the liabilities assumed with the WorldxChange acquisition,
the
CompanyWorldxChange and I-Link Incorporated agreed to a non-interest-bearing noteobligation
of $1,350,000 payable in installments of $37,500 per month for 36 months to a
carrier. The Company has recorded this debt at its fair market value with an
imputed interest rate of 10%, resulting in a liability in the amount of
$1,162,171. The noteobligation is subject to reduced payments based upon future
usage with the carrier.
NOTE 5 - 5 FURNITURE, FIXTURES, EQUIPMENT AND SOFTWARE
In connection with the purchase of certain assets from WorldxChange
Communications Inc, (see Note 9), the Company recorded $5,247,709 in equipment and cables,
including Indefeasible Rights of Use ("IRU") in telecommunication cable systems.
8
On June 27, 2001, WorldxChange entered into a capital lease agreement to lease
certain telecommunications equipment with a value of $9,000,000.$9,524,000. Lease payment
termspayments
for the first six months of the lease term will be $150,000$159,000 per month. The
remaining forty-two payments will be $231,361are $245,000 per month.
8
NOTE 6 - INCOME TAXES
The Company recognized no income tax benefit from the losses generated in 2001
and 2000 because of the uncertainty of the realization of the related deferred
tax asset.
NOTE 7 - STOCK-BASED COMPENSATION PLANS
During the sixnine months ended JuneSeptember 30, 2001, approximately 3,080,0003,500,000 options
to purchase the Company's common stock previously issued to employees expired or
were forfeited. During the same six months,period, there were approximately 1,791,0001,800,000
options to purchase common stock issued to employees. There were no exercises of
options during the six-monthnine-month period ended JuneSeptember 30, 2001.
NOTE 8 - PURCHASE COMMITMENTS The Company has an agreementAND CONTINGENCIES
I-Link's subsidiaries have various agreements with a national carriercarriers to lease
local access spans.spans and to purchase carrier services. The agreement includesagreements include
minimum usage commitments of $2,160,000 per
year for the two years beginning July 2000. If I-Link werewith termination penalties up to terminate the
agreement early, it would be required to pay 25 percent of any remaining
minimum monthly usage requirements.
NOTE 9 - ACQUISITION OF SUBSIDIARIES
ACQUISITION OF WEBTOTEL
On April 17, 2001, I-Link completed its merger with WebToTel and it's
subsidiary Nexbell, for 17,454,333 shares of I-Link common stock. WebToTel
was an entity established to acquire telecommunication companies. Nexbell is
a wholesale network telecommunications provider which operates a private,
managed IP telephony network that delivers packet voice services to over 400
key metropolitan areas in the United States. Nexbell's first product
offering, Multi-Exchange Transport Service (METS), provides customers with
VoIP based local access origination and termination services through 32
(subsequently consolidated to 13) domestic points of presence. The merger of
I-Link and WebToTel has been accounted for using the book values of WebToTel,
effective March 1, 2001, the earliest dated that all three entities were
under common control of Counsel.
PURCHASE OF CERTAIN WORLDXCHANGE COMMUNICATIONS, INC. ASSETS AND LIABILITIES
On June 4, 2001, I-Link Incorporated, through it's wholly-owned subsidiary
WorldxChange, purchased certain assets and assumed certain liabilities of
WorldxChange Communications, Inc. ("Debtor") from a bankruptcy proceeding.
The purchased assets included all100% of the assets employed in the Debtor's
operations in the United States and consisted of the Debtor's equipment,
inventory, retail long distance business, accounts receivable, licenses,
permits, authorizations, software programs and related technology. On June 4,
2001, the Debtor transferred the purchased assets to WorldxChange in exchange
for $13,000,000.
To fund the acquisition of the assets and provide working capital, Counsel
agreed to provide a collateralized loan to I-Link in the aggregate amount of
$15,000,000 (of which $13,000,000 was used for the purchase) as more fully
described in Note 4.
9
The preliminary estimate of the fair values of assets acquired and
liabilities assumed as of June 4, 2001remaining
commitment. Minimum usage commitments are as follows:
Accounts receivable and other current
assets $12,096,000
Furniture, fixtures, and equipment 5,247,000
Accounts payable and accrued liabilities (2,187,000)
Notes payable (1,162,000)
Obligations under capital leases (994,000)
--------------
Net cash paid
$13,000,000
==============2001 (fourth quarter of 2001) $ 1,600,000
2002 5,400,000
2003 3,600,000
2002 3,100,000
2003 1,300,000
Unaudited pro forma resultsAs of operationsSeptember 30, 2001, I-Link's subsidiary Nexbell had defaulted on two
equipment leases. As of September 30, Nexbell was in default on $690,000 in
arrearages. Nexbell is currently in discussions with the leasing companies and
has recorded its best estimate of the liability under these leases as of
September 30, 2001. However, the potential range of the liability could be
approximately $1.6 million greater than the recorded liability.
As of September 30, 2001, I-Link was in default on an equipment lease. This
lease was secured by a letter of credit issued by an affiliate of Winter
Harbor LLC, a former majority shareholder of I-Link. On October 11, 2001, the
leasing company drew against the letter of credit in the amount of
$1,998,681. As of September 30, 2001, I-Link continues to carry the liability
related to this lease in its financial statements. On October 26, 2001,
I-Link received a demand for payment from Winter Harbor LLC for the six months ended June 30, 2001
and 2000 as if the acquisitions had been completed asamount of
the beginningdraw on the letter of credit and interest since October 11, 2001. The
Company is evaluating Winter Harbor's demand in light of the period are shown below. The pro forma results includevarious
agreements entered into between the historical result of
operations of I-LinkCompany, Counsel Communications LLC and
WebToTel forWinter Harbor. While the six-months ended June 30, 2001. The
pro forma results include the historical result of operations of WorldxChange
for the six-months ended March 31, 2001. The pro forma results include estimates
and assumptions which managementCompany believes are reasonable. However, pro forma
results dothat it will not include any anticipated cost savings or other effectsbe required to pay
cash to Winter Harbor of the planned integrationamount claimed, there can be no assurance as to
the ultimate outcome of this matter.
WorldxChange has entered into operating lease agreements to lease space at
various switch sites and at its headquarters. These lease agreements include
commitments as follows:
2001 $ 1,000,000 (fourth quarter of 2001)
2002 3,000,000
2003 1,200,000
2004 500,000
2005 500,000
Thereafter through 2010 11,000,000
------------
Total $ 17,200,000
9
NOTE 9 - PREFERRED STOCK
On September 6, 2001, all outstanding shares of the operations, and are not necessarily indicativeCompany's Class C preferred
stock automatically converted into shares of common stock according to the terms
of the results which would have occurred ifdesignation of the business combinations had occurredClass C preferred stock. Accordingly, 9,249 shares of
Class C preferred stock were converted into 3,415,015 shares of common stock. In
addition to the conversion of the preferred stock, the Company was obligated to
pay dividends declared but unpaid and other dividends not paid on the dates indicated, or which may resultpreferred
stock through the conversion date. Accordingly, dividends in the future.
For the Six-Months Ended
-----------------------------
June 30, 2001 June 30, 2000
-------------- ------------
Revenues $ 65,385,000 $ 48,471,000
Net Loss $(48,584,000) $(46,366,000)
Loss Per Share $ (.38) $(1.09)
amount of
$630,313 were paid through the issuance of 534,016 shares of common stock.
NOTE 10 - LEGAL PROCEEDINGS
On January 18, 2001, I-Link Incorporated ("I-Link") filed action against Red Cube, International AG and
Red Cube, Inc. ("Red Cube") in federal court in Utah seeking damages against Red
Cube, for an alleged default on an agreement to provide approximately
$60,000,000 in equity funding to I-Link, and instituting a scheme to drive
I-Link out of business and obtain control of I-Link's proprietary technology,
telecommunications network, key employees and customers. I-Link obtained a
temporary restraining order against Red Cube preventing Red Cube from
interfering with I-Link's employees, vendors and customers. Red Cube commenced
an arbitration proceeding in New York (see next paragraph) and then filed a
motion to dismiss the federal court action and compel arbitration based upon a
mandatory arbitration provision in the May 2000 Cooperation and Framework
Agreement by and between Red Cube and I-Link. The court found that I-Link's
claims were "related to" the Cooperation and Framework Agreement and granted Red
Cube's motion to dismiss for lack of subject matter jurisdiction. The dismissal
resulted in this issue being submitted for AAA arbitration pursuant to the
Cooperation and Framework Agreement.
On January 24, 2001, Red Cube, after the federal court action described above
had been commenced against it by I-Link, delivered a written demand for
arbitration and commenced an arbitration proceeding in New York alleging that
I-Link breached the Cooperation and Framework Agreement by (i) threatening a
shut-down of I-Link's IP telecommunications network, (ii) the resignation of
Dror Nahumi as an employee of I-Link (which Red Cube claims will cause I-Link to
breach its undertaking to provide certain consulting services in the event
I-Link is unable to perform under the Agreement and Red Cube is required to
assume primary operation and maintenance of it's own IP telecommunications
network based upon I-Link's technology), and (iii) I-Link's alleged failure to
update the escrowed copy of its source code to the current version of the source
code employed to maintain the IP telecommunications network. When the federal
court action was dismissed in favor of the arbitration proceeding, I-Link filed
a response in the arbitration proceeding denying all of Red Cube's claims.
I-Link also filed a counterclaim against Red Cube virtually identical to the
claims it initially brought against Red Cube in the
10
federal court action seeking compensatory and/or punitive damages for Red Cube's
default under a subsequent agreement to provide approximately $60,000,000 in
equity funding to I-Link, and engaging in a scheme to drive I-Link out of
business and obtain control of I-Link's proprietary technology,
telecommunications network, key employees and customers. In May 2001 Red Cube
amended its claim to include additional allegations that I-Link undertook
certain unspecified "significant transactions" in violation of its agreements
with I-Link's then majority shareholder, Winter Harbor, LLC (with which Red Cube
is also currently engaged in arbitration) which resulted in damage to Red Cube.
I-Link has denied these additional allegations. The arbitration proceeding is in
the discovery stage.
In June 2001, I-Link gave notice to Red Cube that it intended to cease providing
international carrier services to Red Cube (representing the vast majority of
all services performed for Red Cube) as a result of Red Cube's failure to
provide I-Link adequate assurance of ongoing payment for such services. Red Cube
sought emergency relief in the arbitration attempting to prohibit I-Link from
terminating these services. A hearing was held before the arbitration panel in
July 2001 and Red Cube's request for relief was denied. I-Link ceased providing
international carrier services to Red Cube immediately thereafter.
On February 8, 2001, The Nasdaq Stock Market, Nasdaq Listing Qualifications
Department (the "Staff"), notified the Company that its securities would be
de-listed from the Nasdaq SmallCap Market (the "SmallCap Market") for the
Company's inability to meet a SmallCap Market continued inclusion requirement
for $35,000,000 in market capitalization. Subsequently, the Staff, in its March
8, 2001 correspondence, notified I-Link that the Company no longer complied with
the minimum bid price requirement of $1.00 per share as set forth in National
Association of Securities Dealers, Inc. ("NASD") Rule 4310(c)(4). Subsequently,
on June 11, 2001, the Staff raised additional concern regarding the Company's
issuances of stock and debt to Counsel Corporation in connection with the Loan
and NexBell transactions (as defined below) (it was alleged that said stock
issuances by I-Link should have been approved by I-Link's stockholders). On May
17, 2001, an oral hearing was held before a panel of the Nasdaq Listing
Qualifications Panel (the "Panel"), relating to the various concerns raised by
the Staff.
On July 17, 2001, the Panel issued a decision to continue the listing of
I-Link's securities on the SmallCap Market in accordance with the exception from
certain continued listing criteria. Under the terms and conditions of the
exception, I-Link is required, on or before August 3, 2001, to file a proxy
statement with the Securities and Exchange Commission (the "SEC") and Nasdaq
evidencing I-Link's intent (1) to seek shareholder approval for a reverse stock
sufficient to evidence a closing bid price of at least $1.00 per share, and (2)
to seek shareholder ratification for the issuance of shares of its common stock
to Counsel Corporation in connection with (i) March 1, 2001 Senior Convertible
Loan and Security Agreement with Counsel Communications LLC, a wholly-owned
subsidiary of Counsel Corporation (the "Loan transaction") and (ii) April 17,
2001 Agreement and Plan of Merger by and among I-Link and I-Link Acquisition
Corp., a Delaware corporation and I-Link's wholly owned subsidiary, on the one
hand, and WebToTel, Inc., a Delaware corporation, Counsel Corporation, and
certain other shareholders, on the other hand (the "NexBell transaction").
On July 30, 2001, the Company filed a revised preliminary proxy statement with
the SEC and Nasdaq. I-Link's compliance with the first requirement necessary for
continued listing on the SmallCap was acknowledged in the Staff correspondence
dated August 9, 2001. As a result of its compliance with the foregoing
requirement, the Panel determined to continue the continued listing exception
through September 5, 2001. On August 16, 2001, the Nasdaq Staff satisfied
I-Link's request for an extension to effect the proposed reverse stock split and
extended the compliance deadline from September 5, 2001 to September 13, 2001.
Pursuant to the terms of the August 16, 2001 reiteration of the Panel's
determination, on or before September 13, 2001, I-Link is required to submit to
Nasdaq documentation evidencing receipt of shareholder ratification for stock
issuances to Counsel Corporation in connection with the Loan and NexBell
transactions. In addition, the Company, on or before September 13, 2001, must
demonstrate closing bid price of at least $1.00 per share and, immediately
thereafter, a closing bid price of at least $1.00 per share for a minimum of 10
consecutive trading days. Further, the Company, on or before September 13, 2001,
must demonstrate a market capitalization of at least $35,000,000 and,
immediately after, a market capitalization of at least $35,000,000 for a minimum
of 10 consecutive trading days. As of the date of this filing, I-Link is not in
compliance with the SmallCap Market capitalization continued listing criterion.
There is no assurance that I-Link will comply with this requirement even if the
proposed reverse stock split is effected as described in this proxy statement.
Under the terms of the Panel's July 17, 2001 decision (as well as its August 16,
2001 reiteration), I-Link's non-
11
compliance with the market capitalization criterion, on or before September 13,
2001, will result in the de-listing of its securities from the SmallCap Market.
I-Link must comply with all of the foregoing continued listing requirements in
order to for its securities to remain listed on the SmallCap Market. In the
event the Company fails to meet any one of the requirements as set forth in the
July 17, 2001 Panel decision (as well as the August 16, 2001 reiteration of the
same), the Company's common stock will be de-listed from the SmallCap Market.
Should I-Link's securities cease to be listed on the SmallCap Market, its
securities may continue to be listed on the OTC-Bulletin Board.
NOTE 11 - SEGMENT OF BUSINESS REPORTING
The Company's four reportable segments are as follows:
o Telecommunications services - includes long-distance toll services (I-Link
and Nexbell) and enhanced calling features such as V-Link. The
telecommunications services products are marketed primarily to residential
and small business customers.
o Dial-around telecommunication services - includes operations of WorldxChange
that offers a dial around telecommunications product through independent
marketing agents. This business was entered into effective June 4, 2001 with
the Company's purchase of certain assets and liabilities of WorldxChange
Communications, Inc.
o Marketing services - includes training and promotional materials to
independent sales representatives (IRs) in the network marketing sales
channel. Additionally, revenues are generated from registration fees paid by
IRs to attend regional and national sales conferences. This segment ceased
operations in February 2000.
o Technology licensing and development - provides research and development to
enhance the Company's product and technology offerings. Products developed by
this segment include V-Link, Indavo, and other proprietary technology. The
Company licenses certain developed technology to third party users, such as
Red Cube, Lucent, Brooktrout and others.
There are no intersegment revenues. The Company's business is conducted
principally in the U.S.; foreign operations are not material. The table below
presents information about revenues from external customers and net loss for the
three-month and six-month periods ended June 30, 2001 and 2000. There has been
no material change in segment assets from the amounts reported in the Company's
annual report on Form 10-K for the year ended December 31, 2000 except that
segment assets for telecommunication services has increased by approximately
$10,000,000 due to the acquisition of WebToTel and segment assets for
dial-around telecommunication services has increased by approximately
$33,000,000 due to the acquisition of WorldxChange.
FOR THE THREE-MONTH FOR THE SIX-MONTH
PERIOD ENDED PERIOD ENDED
-------------------------------------- ---------------------------------------
JUNE 30, 2001 JUNE 30, 2000 JUNE 30, 2001 JUNE 30, 2000
---------------- ------------------ ----------------- -----------------
REVENUES FROM EXTERNAL CUSTOMERS:
Telecommunications services $13,995,000 $5,598,000 $19,082,000 $11,187,000
Dial-around telecommunication services 5,932,000 - 5,932,000 -
Marketing services - - - 464,000
Technology licensing and development 1,420,000 1,740,000 2,857,000 6,646,000
---------------- ------------------ ----------------- -----------------
Total revenues from external customers
for reportable segments $ 21,347,000 $ 7,338,000 $27,871,000 $18,297,000
================ ================== ================= =================
12
SEGMENT INCOME (LOSS):
Telecommunications services $ 714,000 $ (1,558,000) $(2,142,000) $(3,787,000)
Dial-around telecommunication services (1,242,000) - (1,242,000) -
Marketing services - (58,000) - (154,000)
Technology licensing and development 406,000 309,000 378,000 3,971,000
---------------- ------------------ ----------------- -----------------
Total segment income (loss) for reportable
segments (122,000) (1,307,000) (3,006,000) 30,000
Unallocated non-cash amounts in consolidated net loss:
Settlement expense - 720,000 - (640,000)
Amortization of discount on notes
payable (74,000) - (104,000) -
Amortization of deferred
compensation on stock options
issued for services - (189,000) - (381,000)
Amortization of intangible assets (548,000) (719,000) (1,096,000) (1,438,000)
Other corporate expenses (2,095,000) (4,404,000) (5,303,000) (7,305,000)
---------------- ------------------ ----------------- -----------------
$(2,839,000) $(5,899,000) $(9,509,000) $(9,734,000)
================ ================== ================= =================
13
ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the information
contained in the financial statements of the Company and the notes thereto
appearing elsewhere herein and in conjunction with the Management's Discussion
and Analysis set forth in our Form 10-K for the year ended December 31, 2000 and
Form 10-Q for the quarter ended March 31, 2001.
FORWARD LOOKING INFORMATION
THIS REPORT CONTAINS CERTAIN "FORWARD-LOOKING STATEMENTS" WITHIN THE
MEANING OF SECTION 27-A OF THE SECURITIES ACT OF `1933, AS AMENDED, SECTION 21-E
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, AND INFORMATION RELATING TO
I-LINK THAT ARE BASED ON MANAGEMENT'S EXERCISE OF BUSINESS JUDGEMENT AS WELL AS
ASSUMPTIONS MADE BY AND INFORMATION CURRENTLY AVAILABLE TO MANAGEMENT. WHEN USED
IN THIS DOCUMENT, THE WORDS "ANTICIPATE," "BELIEVE," "ESTIMATE," "EXPECT," AND
"INTEND" AND WORDS OF SIMILAR IMPORT, ARE INTENDED TO IDENTIFY ANY
FORWARD-LOOKING STATEMENTS. YOU SHOULD NOT PLACE UNDUE RELIANCE ON THESE
FORWARD-LOOKING STATEMENTS. THESE STATEMENTS REFLECT OUR CURRENT VIEW OF FUTURE
EVENTS AND ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES AS NOTED BELOW. SHOULD
ONE OR MORE OF THESE RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD UNDERLYING
ASSUMPTIONS PROVE INCORRECT, OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS. .
Although we believe that our expectations are based on reasonable assumptions,
we can give no assurance that our expectations will materialize. Many factors
could cause actual results to differ materially from our forward-looking
statements. Several of these factors include, without limitation: our ability to
efficiently integrate our recent acquisitions; our ability to finance and manage
expected rapid growth; the impact of competitive services and pricing; our
ongoing relationship with our long distance carriers and vendors; dependence
upon key personnel; subscriber attrition; the adoption of new, or changes in,
accounting principles; legal proceedings; federal and state governmental
regulation of the long distance telecommunications and internet industries; our
ability to maintain, operate and upgrade our information systems network; our
success in deploying our Communication Engine network in internet telephony; the
existence of demand for and acceptance of our products and services (including
but not limited to METS, dial-around service, V-Link(TM) and Indavo(TM)); the
migrating of subscribers from a retail billing basis to a wholesale billing
basis; the continued increasing revenues from GateLink(TM) and other wholesale
clients as well as other risks referenced from time to time in our filings with
the SEC.
We undertake no obligation and do not intend to update, revise or otherwise
publicly release any revisions to these forward-looking statements to reflect
events or circumstances after the date hereof or to reflect the occurrence of
any unanticipated events.
OPERATIONS
We are an integrated voice and data communications company focused on
simplifying the delivery of "Unified Communication." Unified Communication is
the integration of traditional telecommunications with new data IP (Internet
Protocol) communications systems with the effect of simplifying communications,
increasing communication capabilities and lowering overall communication costs.
Unified Communication platforms integrate telecommunication, mobile
communication, paging, voice-over-IP (VoIP) and Internet technologies. We
provide enhanced telecommunications services on a wholesale and retail basis. We
also undertake research and development of new telecommunications services,
products and technologies, and the licensing of certain of these products and
technologies to other telecommunications companies. We are a leader in the
delivery of unified communications as a result of our core technology offerings:
I-Link's Intranet, Softswitch Plus(TM), GateLink(TM) and Indavo(TM).
We merged with WebToTel Inc. ("WebToTel") and its subsidiary Nexbell
Communications Inc. ("Nexbell") on April 17, 2001. However as I-Link, WebToTel
and Nexbell were under common control of Counsel Communications LLC, a wholly
owned subsidiary of Counsel Corporation (collectively "Counsel") as of March 1,
2001, we have reflected the merger as if it had occurred on March 1, 2001. As a
result of the merger, we purchased a private, managed IP telephony network that
delivers packet voice services to over 400 key metropolitan areas in the United
States. Nexbell's first product offering, Multi-Exchange
14
Transport Service ("METS"), provides customers with VoIP based local access
origination and termination services through 13 domestic points of presence.
On June 4, 2001, I-Link Incorporated, through it's wholly owned subsidiary
WorldxChange Corp. ("WorldxChange"), purchased certain assets and assumed
certain liabilities of WorldxChange Communications, Inc. out a bankruptcy.
WorldxChange is a facilities-based telecommunications carrier that provides
international and domestic long-distance service to retail customers.
Telecommunication services provided by WorldxChange consist primarily of a
dial-around product. A dial-around product allows a customer to make a call from
any phone by dialing a 10-10-XXX prefix. The phone call will then be billed
directly to the customer. Billings to these customers are primarily done through
the customers' local exchange carrier ("LEC"). Marketing of the dial-around
product is primarily done through independent marketing agents that receive a
commission. WorldxChange's retail base is comprised of residential and
commercial customers.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents as of June 30, 2001 were $1,744,556 and the working
capital deficit was $31,364,705. Cash used by operating activities during the
six-month period ended June 30, 2001 was $15,023,581 as compared to cash
provided by operations of $3,717,922 during the same period ended June 30, 2000.
The primary reason for the change from 2000 was that cash provided by operating
activities in 2000 included $10,000,000 received as of June 30, 2000 from a
customer, Red Cube, International AG and Red Cube, Inc. ("Red Cube"), which did
not recur in 2001.
Net cash used by investing activities in the six-month period ended June 30,
2001 was $13,483,166 as compared to net cash used of $2,950,760 in the same
period ended June 30, 2000. Cash used by investing activities in 2001 was
attributed to $13,000,000 used to purchase the net assets of WorldxChange and
$716,953 used to purchase equipment. These uses of cash were offset by cash of
$233,787 received as part of the WebToTel acquisition. Cash used by investing
activities in 2000 was primarily attributable to the purchase of network
equipment of $2,970,434 which was offset by $19,674 received from the sale of
certain assets from discontinued operations.
Financing activities provided net cash of $28,095,675 in the first six-months of
2001 as compared to cash provided of $3,441,456 in the same period of 2000. Cash
provided in the first six-months of 2001 included loans from Counsel of
$28,325,700 and $2,100 from issuances of common stock which were offset by
repayment of notes payable and capital lease obligations of $232,125. Cash
provided in 2000 included proceeds of $2,600,000 from a note payable to a
related party, $3,532,719 in net proceeds from exercises of common stock
warrants and options and a $1,751,183 advance received under the strategic
marketing and channel agreement with a customer. The $2,600,000 note and
$1,751,183 advance were both repaid during the second quarter of 2000.
Repayments of capital lease obligations of $66,544 and repayments of $24,719 on
certain notes in discontinued operations offset these proceeds.
We incurred a net loss from continuing operations of $9,508,781 for the first
six-months of 2001, and as of June 30, 2001 had an accumulated deficit of
$131,145,624. We anticipate that revenue generated from continuing operations
will not be sufficient during the remainder of 2001 to fund our operations or
continued expansion of our private telecommunications network facilities and
anticipated growth in subscriber base. We continue to be dependent upon funding
from Counsel to fund our operational cash needs.
CURRENT POSITION/FUTURE REQUIREMENTS
While revenues from operations have increased significantly, operational
expenses have also increase thus continuing our need for sources of operational
funds other than from operations. Our operational cash needs continue to be
funded through our agreement with Counsel wherein Counsel committed to fund,
through long-term inter-company advances or equity contribution, all capital
investment, working capital or other operational cash requirements through April
15, 2002. We anticipate that additional funds will be necessary after such time
to fund our operations and finance the planned expansion of our business
communications services, product development and manufacturing, and to discharge
our financial obligations. The availability of such funds will depend on
prevailing market conditions, interest rates, and the financial position and
15
results of our operations. There can be no assurance that such funds will be
available or if available that they will be on terms and conditions favorable to
I-Link.
RESULTS OF OPERATIONS
In order to more fully understand the comparison of the three and six months
ended June 30, 2001 as compared to the same three and six months in 2000, you
must understand two significant business transactions that are reflected in our
2001 financial results, for which there are not comparable transactions in 2000.
Specifically:
1. We acquired WebToTel Incorporated and its subsidiary
Nexbell Communications in a stock for stock transaction on
April 17, 2001. However, as WebToTel and I-Link were under
common control of Counsel as of March 1, 2001 (the date
Counsel obtained its ownership in I-Link), we have
accounted for the acquisition on an accounting method
consistent with the pooling-of-interests method of
accounting as of March 1, 2001. Accordingly, we have
included the financial results of WebToTel subsequent to
March1, 2001.
2. On June 4, 2001 we completed the purchase
of certain assets and liabilities of WorldxChange
Communication, Inc. We continue to offer the dial-around
telecommunications product, which this company had
previously offered. We did not offer a comparable product
prior to June 4, 2001.
THREE-MONTH PERIOD ENDED JUNE 30, 2001 COMPARED TO THREE-MONTH PERIOD ENDED JUNE
30, 2000
REVENUES
Telecommunications service revenue increased $14,819,329 to $19,408,441 in the
three months ended June 30, 2001 as compared to $4,589,112 in the three months
ended June 30, 2000. The increase is primarily the result of the recognition of
previously reported unearned revenue related to a prepayment from Red Cube and
two acquisitions during 2001. According to the terms of the agreement, Red Cube
was to use services related to the prepayment prior to June 30, 2001. Unused
services as of June 30, 2001were approximately $9,543,000. As the Company has no
further obligation under the prepayment arrangement, the $9,543,000 was
recognized as revenue as of June 30, 2001. We do not expect any significant
revenues from Red Cube in the future. Revenues also increased due to the
acquisition of two companies. Revenue in the second quarter increased $5,932,000
related to the dial-around business of WorldxChange and $868,000 related to
telecommunications services offered by Nexbell. Excluding the above revenues,
recurring revenues decreased as a direct result of a shift in focus from retail
to wholesale sales resulting in a decrease in revenues of $1,524,000 which was
due to a combination of a 44% drop in the rate per minute and a 52% increase in
minutes billed. We anticipate that reported revenues for the third quarter from
WorldxChange will be approximately three times those for the second quarter (due
to inclusion of three months of revenue in the third quarter versus one month in
the second quarter). We anticipate revenues from other recurring sources will
increase slightly in the third quarter.
Technology licensing and development revenue decreased $319,908 to $1,419,998 in
the second quarter of 2001 as compared to $1,739,906 in the same quarter of
2000. During the three months ended June 30, 2001, licensing revenues were
primarily from a $10,000,000 licensing agreement in May 2000, between Red Cube
and I-Link that is being recorded over a two-year period. Accordingly,
$1,250,000 was recorded in the second quarter of 2001 as compared to $833,333 in
the same quarter of 2000. As of June 30, 2001, the unearned balance of
$4,166,667 has been recorded as unearned revenue. Other than Red Cube as
discussed above, technology licensing and development revenues decreased
$737,000 due to the contracts occurring in the second quarter of 2000 which did
not recur in the same period of 2001. Revenue from this source will vary from
quarter to quarter based on timing of future technology licensing and
development projects.
Other revenues in the second quarter of 2001 decreased $490,104 to $518,459 as
compared to $1,008,563 in the same period of 2000. The revenues relate primarily
to customer care, billing and accounts receivable services performed primarily
for our single largest customer. The decrease from the second quarter of 2000 to
the second quarter of 2001 was anticipated as many of the services previously
rendered to this customer were transitioned to the customer. Revenues from these
services are expected
16
to remain constant in the third quarter of 2001. However,
revenues from these types of services vary from period to period based upon
services requested.
OPERATING COSTS AND EXPENSES
Telecommunication network expense increased $8,177,860 in the second quarter of
2001 to $13,715,806 as compared to $5,537,946 for the same quarter of 2000. The
primary increase was related to inclusion of network expense related to the
dial-around business that we began to offer June 4, 2001 when we acquired
certain assets and liabilities of WorldxChange Communications, Inc. These
expenses include the costs related to the continuing development and deployment
of our communication network and expenses related to the generation of
telecommunication service revenue. The inclusion of WebToTel as of March 1,
2001, increased telecommunication expenses $1,750,000. The inclusion of
WorldxChange for the month of June 2001 increased telecommunication expenses
$5,315,000. Telecommunications network expense will increase dramatically in the
third quarter as a direct result of additional revenues and the corresponding
network expense from WorldxChange in the same period.
Selling, general and administrative expense decreased $21,593 to $5,703,360 in
the second quarter of 2001 as compared to $5,724,953 in the second quarter of
2000. The primary components of the net decrease consisted of an approximate
$1,100,000 due to decreases in salaries and benefits as a result of the work
force reductions in January and May of 2001 and a $573,000 reduction in other
corporate expenses related to the work force reduction (facilities, materials
etc.) and other cost cutting measures instituted by management. These reductions
were offset by additional selling, general and administrative cost of
approximately $1,144,000 related to the WorldxChange dial-around business that
began June 4, 2001and $553,000 relating to WebToTel.
The provision for doubtful accounts increased $1,215,210 to $1,269,397 in the
second quarter of 2001 as compared to $54,187 in the same quarter of 2000. The
increase was directly due to necessary provisions for doubtful accounts
associated with two sources of revenues. During the second quarter of 2001 we
recorded an allowance for accounts receivable from a major customer in the
amount of $975,000 due to the termination of their agreement and pending
arbitration. Additional reserves of $280,000 were recorded related to
WorldxChange dial-around business, which began June 4, 2001, and WebToTel
accounts receivable.
Depreciation and amortization increased $769,990 to $2,330,806 in the second
quarter of 2001 as compared to $1,560,816 in the second quarter of 2000. The
increase is primarily due to depreciation and amortization relating to assets
(primarily goodwill amortization of $457,000) acquired in the WebToTel and
WorldxChange acquisitions. Additionally, WorldxChange entered into a $9,000,000
capital lease in June of 2001 that resulted in approximately $188,000 of the
increase. Depreciation will continue to increase in the third quarter primarily
as a result of three months of depreciation, rather than one month in the second
quarter, related to WorldxChange assets.
Research and development decreased $317,832 to $523,614 in the second quarter of
2001 as compared to $841,446 in the same period of 2000. The decrease was
primarily a result of our decision to consolidate our research operations at our
headquarters in Draper, Utah. We anticipate that research and development
expense will continue at a comparable amount during the remainder of 2001.
OTHER INCOME (EXPENSE)
Interest expense increased $316,311 to $666,792 in the second quarter of 2001 as
compared to $350,481 in the same quarter of 2000. Interest in the second quarter
of 2001 was primarily due to interest on related party debt which was $58,000
higher in the second quarter of 2001 compared to the same period of 2000 due to
higher average balances outstanding during the six months ended June 30, 2001.
We also recorded non-cash interest expense of $172,000 in the second quarter of
2001 related to the amortization of a beneficial conversion feature on
convertible debt with Counsel and non-cash interest related to the value of
warrants issued to Counsel in connection with a loan. Interest on other debt
increased $86,000 as a result of increased average balances of debt outstanding.
Interest expense in the third quarter will increase significantly as the Company
continues to accrue
17
interest on borrowings from Counsel and non-cash interest
related to the value of warrants issued to Counsel in connection with a loan.
Interest expense in the third quarter will also increase due to inclusion of
interest on WorldxChange's debt related to its capital leases.
Interest and other income decreased $89,379 to $23,590 in the second quarter of
2001 as compared to $112,969 in the same quarter of 2000. The decrease was
primarily due to a decrease in the average balance of cash on hand in the second
quarter of 2001 as compared to the same quarter of 2000.
SIX-MONTH PERIOD ENDED JUNE 30, 2001 COMPARED TO THE SIX-MONTH PERIOD ENDED JUNE
30, 2000
REVENUES
Telecommunications service revenue increased $13,953,105 to $23,829,424 in the
first six months of 2001 as compared to $9,876,319 in the first six months of
2000. The increase is primarily the result of the recognition of previously
reported unearned revenue related to a prepayment from Red Cube and two
acquisitions during 2001. According to the terms of the agreement, Red Cube was
to use services related to the prepayment prior to June 30, 2001. Unused
services as of June 30, 2001were approximately $9,543,000. As the Company has no
further obligation under the prepayment arrangement, the $9,543,000 was
recognized as revenue as of June 30, 2001. We do not expect any significant
revenues from Red Cube in the future. Revenues also increased due to the
acquisition of two companies. Revenue in the first six months of 2001 increased
$5,932,000 related to the dial-around business of WorldxChange and $1,161,000
(representing revenues from March to June of 2001) related to Nexbell's METS
product. Excluding the above revenues, recurring revenues decreased as a direct
result of a shift in focus from retail to wholesale sales resulting in a
decrease in revenues of $2,683,000 which was due to a combination of a 52% drop
in the rate per minute and a 68% increase in minutes billed.
Marketing services revenue, which included revenue from independent
representatives for promotional and presentation materials, WebCentre, and
ongoing administrative support decreased $464,354 to $0 in the first six-months
of 2001 as compared to $464,354 in the same period of 2000. The decrease was a
result of transition of this network-marketing channel to Big Planet in February
2000, which with such transition, marketing service revenues ceased.
Technology licensing and development revenue decreased $3,389,509 to $2,856,897
in the first six months of 2001 as compared to $6,246,406 in the first six
months of 2000. During the first six months of 2001, the revenues were primarily
from a $10,000,000 licensing agreement in May 2000, between Red Cube and I-Link
that is being recorded over a two-year period. Accordingly, $2,500,000 was
recorded in the first six months of 2001 as compared to $833,333 in the first
six months of 2000. As of June 30, 2001, the unearned balance of $4,166,667 has
been recorded as unearned revenue. During the first six months of 2000, revenues
of $4,000,000 were recorded related to two licensing agreements that did not
recur in 2001. Revenue from this source will vary from quarter to quarter based
on timing of technology licensing and development projects.
Other revenues in the first six months of 2001 decreased $524,625 to $1,185,042
as compared to $1,709,667 in the first six months of 2000. The first six months
of 2001 includes $999,000 as compared to $1,310,000 in the same period of 2000,
which represent revenues relating to customer care, billing and accounts
receivable services performed for our single largest customer. The decrease from
the first six months of 2000 to the first six months of 2001 was an anticipated
decrease as many of the services rendered in 2000 to this customer were
transitioned to the customer. However, revenues from these types of services
vary from period to period based upon services requested. During the first six
months of 2000 other revenues also included royalties of $400,000 from the sale
of Indavo units to a company which will not use the Indavo units over the I-Link
Network. There were no comparable sales of Indavo in 2001.
OPERATING COSTS AND EXPENSES
Telecommunication network expense increased $8,374,504 in the six months ended
June 30, 2001 to $20,025,512 as compared to $11,651,008 for the same period in
2000. These expenses include the costs related to the continuing
18
development and deployment of our communication network and expenses related
to the generation of telecommunication service revenue. While
telecommunication network expense is directly related to telecommunication
services revenues, the relationship is not comparable with the same period in
2000 due to the transition to wholesale rather than retail revenues as a
result of the agreement with Big Planet. The inclusion of Nexbell for the
period from March to June 2001 increased telecommunication expenses
$2,325,000. The inclusion of WorldxChange for the month of June 2001
increased telecommunication expenses $5,315,000. Telecommunications network
expense will increase dramatically in the third quarter as a direct result of
additional revenues from WorldxChange in the same period.
Marketing service costs decreased $349,034 to $0 in the first six months of 2001
as compared to $349,034 for the same period in 2000. The decrease in expense is
directly related to the transition of the network-marketing channel to Big
Planet in February 2000, which resulted in the cessation of marketing service
revenues and accordingly the related expenses.
Selling, general and administrative expense decreased $202,300 to $9,441,741 in
the first six months of 2001 as compared to $9,644,041 in the first six months
in 2000. The primary components of the net decrease consisted of approximately
$1,654,000 due to decreases in salaries and benefits as a result of the work
force reductions in January and May of 2001 and a $573,000 reduction in other
corporate expenses related to the work force reduction (facilities, materials
etc.) and other cost cutting measures instituted by management. These reductions
were primarily offset by additional selling, general and administrative cost of
approximately $1,143,000 related to WorldxChange dial-around business that began
June 4, 2001and $721,000 relating to WebToTel.
The provision for doubtful accounts increased $997,853 to $1,377,756 in the six
months of 2001 as compared to $379,903 in the same period in 2000. The increase
was directly due to necessary provisions for doubtful accounts associated with
two sources of revenues. During the second quarter of 2001 we recorded an
allowance for accounts receivable from a major customer in the amount of
$975,000 due to the termination of their agreement and pending arbitration.
Additional reserves of $350,000 were recorded related to the WorldxChange
dial-around business, which began June 4, 2001, and revenues related to the
WebToTel acquisition included in our financial statements after March 1, 2001.
Excluding the impact of Red Cube, WorldxChange and WebToTel, our provision for
doubtful accounts for the first six months of 2001 decreased from 2000 due to
the transition of most of our retail business to wholesale effective February
2000 which reduced our bad debt expense.
Depreciation and amortization increased $932,086 to $3,981,791 in the first six
months of 2001 as compared to $3,049,705 in the first six months of 2000. The
increase is primarily due to depreciation and amortization relating to assets
(primarily goodwill amortization of $610,000) acquired in the WebToTel and
WorldxChange acquisitions. Additionally, WorldxChange entered into a $9,000,000
capital lease in June of 2001 that resulted in approximately $188,000 of the
increase. Depreciation will continue to increase in the third quarter primarily
as a result of three months of depreciation, rather than one month in the second
quarter, related to WorldxChange assets.
Research and development decreased $83,986 to $1,590,372 in the first six months
of 2001 as compared to $1,674,358 in the same period in 2000. The decrease was
primarily a result of our decision to consolidate our research operations at our
headquarters in Draper, Utah. We anticipate that research and development
expense will approximate $500,000 in the third quarter of 2001.
OTHER INCOME (EXPENSE)
Interest expense increased $220,310 to $1,014,633 in the first six months of
2001 as compared to $794,323 in the same period of 2000. We recorded non-cash
interest expense of $201,500 in the first six months of 2001 related to the
amortization of a beneficial conversion feature on convertible debt with Counsel
and interest related to the value of warrants issued to Counsel in connection
with a loan. Interest on other debt, including related party debt, in the first
six months of 2001 was comparable to the same period of 2000. Interest expense
in the third quarter will increase significantly as we continue to accrue
interest on borrowings from Counsel and record non-cash interest related to the
beneficial conversion feature on convertible debt and the value of warrants
issued to Counsel in connection with a loan. Interest expense in the third
quarter will also increase due to inclusion of three months interest on
WorldxChange debt related to its capital leases, as compared to one month in the
second quarter.
19
Interest and other income decreased $99,135 to $51,661 in the first six months
of 2001 as compared to $150,796 in the same period of 2000. The decrease was
primarily due to a decrease in the average balance of cash on hand in the first
six months of 2001.
A settlement expense of $639,565 was recorded in the first six months of 2000.
This expense is the result of an obligation to issue 129,519 shares of common
stock in exchange for certain trading restrictions imposed on JNC Opportunity
Fund Ltd. ("JNC") in relation to the common stock to be issued to JNC pursuant
to a settlement and release agreement entered into in February 2000. There was
no comparable expense in the first six months of 2001.
ITEM 3- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk is limited to interest income sensitivity, which is
affected by changes in the general level of U.S. interest rates. Our cash
equivalents are invested with high quality issuers and limit the amount of
credit exposure to any one issuer. Due to the short-term nature of the cash
equivalents, we believe that we are not subject to any material interest rate
risk. We did not have any foreign currency hedges or other derivative financial
instruments as of March 31, 2001.
We do not enter into financial instruments for trading or speculative purposes
and do not currently utilize derivative financial instruments. Our operations
are conducted primarily in the United States and as such are not subject to
material foreign currency exchange rate risk.
20
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
We have previously reported the lawsuit and arbitration proceeding that were
brought against I-Link and I-Link Worldwide LLC by Steven J. Little, a former
independent representative of I-Link Worldwide, L.L.C. From April 23, 2001
through April 27, 2001 and on May 14, 2001 an evidentiary arbitration hearing,
which is the functional equivalent of trial, was conducted by the arbitrator.
During the six day arbitration hearing Mr. Little fully presented his claims
against I-Link and I-Link Worldwide, LLC and I-Link and I-Link Worldwide, LLC
presented their defenses. On June 1, 2001 the arbitrator issued a written
decision concluding that neither I-Link nor I-Link Worldwide, LLC owe Mr. Little
any monetary reward. On June 25, 2001, Mr. Little filed a motion to modify the
arbitration award in the arbitration proceeding which the arbitrator denied.
Also, on June 25, 2001, Mr. Little filed a motion to vacate or modify the
arbitration award in the litigation preceding in State Court of Utah. The court
denied Mr. Little's motion and confirmed the arbitrator's decision.
On January 18, 2001, I-Link Incorporated ("I-Link") filed action against Red
Cube, International AG and Red Cube, Inc. ("Red Cube") in federal court in Utah
seeking damages against Red Cube, for an alleged default on an agreement to
provide approximately $60,000,000 in equity funding to I-Link, and instituting a
scheme to drive I-Link out of business and obtain control of I-Link's
proprietary technology, telecommunications network, key employees and customers.
I-Link obtained a temporary restraining order against Red Cube preventing Red
Cube from interfering with I-Link's employees, vendors and customers. Red Cube
commenced an arbitration proceeding in New York (see next paragraph) and then
filed a motion to dismiss the federal court action and compel arbitration based
upon a mandatory arbitration provision in the May 2000 Cooperation and Framework
Agreement by and between Red Cube and I-Link. The court found that I-Link's
claims were "related to" the Cooperation and Framework Agreement and granted Red
Cube's motion to dismiss for lack of subject matter jurisdiction. The dismissal
resulted in this issue being submitted for AAA arbitration pursuant to the
Cooperation and Framework Agreement.
On January 24, 2001, Red Cube, after the federal court action described above
had been commenced against it by I-Link, delivered a written demand for
arbitration and commenced an arbitration proceeding in New York alleging that
I-Link breached the Cooperation and Framework Agreement by (i) threatening a
shut-down of I-Link's IP telecommunications network, (ii) the resignation of
Dror Nahumi as an employee of I-Link (which Red Cube claims will cause I-Link to
breach its undertaking to provide certain consulting services in the event
I-Link is unable to perform under the Agreement and Red Cube is required to
assume primary operation and maintenance of it's own IP telecommunications
network based upon I-Link's technology), and (iii) I-Link's alleged failure to
update the escrowed copy of its source code to the current version of the source
code employed to maintain the IP telecommunications network. When the federal
court action was dismissed in favor of the arbitration proceeding, I-Link filed
a response in the arbitration proceeding denying all of Red Cube's claims.
I-Link also filed a counterclaim against Red Cube virtually identical to the
claims it initially brought against Red Cube in the federal court action seeking
compensatory and/or punitive damages for Red Cube's default under a subsequent
agreement to provide approximately $60,000,000 in equity funding to I-Link, and
engaging in a scheme to drive I-Link out of business and obtain control of
I-Link's proprietary technology, telecommunications network, key employees and
customers. In May 2001, Red Cube amended its claim to include additional
allegations that I-Link undertook certain unspecified "significant transactions"
in violation of its agreements with I-Link's then majority shareholder, Winter
Harbor, LLC (with which Red Cube iswas also currentlyat the time engaged in arbitration)
which resulted in damage to Red Cube. I-Link has denied these additional
allegations. The arbitration proceeding is in the discovery stage. In its
Quarterly Report dated September 30, 2001, Ventis, a Swiss private equity
investment firm and an investor in Red Cube, stated that Red Cube and Winter
Harbor LLC had settled their arbitration subject to a confidentiality agreement.
In June 2001, I-Link gave notice to Red Cube that it intended to cease providing
international carrier services to Red Cube (representing the vast majority of
all services performed for Red Cube) as a result of Red Cube's failure to
provide I-Link adequate assurance of ongoing payment for such services. Red Cube
sought emergency relief in the arbitration attempting to prohibit I-Link from
terminating these services. A hearing was held before the arbitration panel in
July 2001 and Red Cube's request for relief was denied. I-Link ceased providing
international carrier services to Red Cube immediately thereafter.
On September 28, 2001, The Nasdaq Stock Market Inc. issued an order delisting
I-Link's common stock from The Nasdaq SmallCap Market, effective October 1,
2001. I-Link's common stock is now traded on the OTC-Electronic Bulletin Board.
We are involved in litigation relating to claims arising out of its operations
in the normal course of business, none of which are expected, individually or in
the aggregate, to have a material adverse affect to us.
10
NOTE 11 - SEGMENT OF BUSINESS REPORTING
The Company's four reportable segments are as follows:
- - Telecommunications services - includes long-distance toll services,
origination and termination services (I-Link and Nexbell) and enhanced
calling features such as the One-Number service (formerly know as V-Link).
The telecommunications services products are marketed primarily to
residential and small business customers.
- - Dial-around telecommunication services - includes operations of
WorldxChange that offers a dial around telecommunications product through
independent marketing agents. This business was entered into effective June
4, 2001 with the Company's purchase of certain assets and liabilities of
WorldxChange Communications, Inc.
- - Marketing services - includes training and promotional materials to
independent sales representatives (IRs) in the network marketing sales
channel. Additionally, revenues are generated from registration fees paid
by IRs to attend regional and national sales conferences. This segment
ceased operations in February 8,2000.
- - Technology licensing and development - provides research and development to
enhance the Company's product and technology offerings. Products developed
by this segment include One Number, Indavo, and other proprietary
technology. The Company licenses certain developed technology to third
party users such as Red Cube.
There are no intersegment revenues. The Company's business is conducted
principally in the U.S.; foreign operations are not material. The table below
presents information about revenues from external customers and net loss for the
three-month and six-month periods ended September 30, 2001 and 2000. There has
been no material change in segment assets from the amounts reported in the
Company's annual report on Form 10-K for the year ended December 31, 2000 except
that segment assets for dial-around telecommunication services has increased by
approximately $34,000,000 due to the acquisition of WorldxChange.
FOR THE THREE-MONTH FOR THE NINE-MONTH
PERIOD ENDED PERIOD ENDED
------------------------------------ -------------------------------------
SEPT. 30, 2001 SEPT. 30, 2000 SEPT. 30, 2001 SEPT. 30, 2000
-------------- --------------- ---------------- ---------------
REVENUES FROM EXTERNAL CUSTOMERS:
Telecommunications services $ 4,221,000 $ 4,111,000 $ 23,303,000 $ 15,297,000
Dial-around telecommunication services 21,487,000 - 27,419,000 -
Marketing services - - - 464,000
Technology licensing and development 1,420,000 1,432,000 4,277,000 8,079,000
-------------- --------------- ---------------- ---------------
Total revenues from external customers
for reportable segments $ 27,128,000 $ 5,543,000 $ 54,999,000 $ 23,840,000
============== =============== ================ ===============
SEGMENT INCOME (LOSS):
Telecommunications services $ (13,274,000) $(2,761,000) $ (15,416,000) $ (6,548,000)
Dial-around telecommunication services (3,001,000) - (4,243,000) -
Marketing services - (50,000) - (204,000)
Technology licensing and development 573,000 (96,000) 951,000 3,875,000
-------------- --------------- ---------------- ---------------
Total segment income (loss) for reportable
Segments (15,702,000) (2,907,000) (18,708,000) (2,877,000)
11
FOR THE THREE-MONTH FOR THE NINE-MONTH
PERIOD ENDED PERIOD ENDED
-------------------------------------- -------------------------------------
SEPT. 30, 2001 SEPT. 30, 2000 SEPT. 30, 2001 SEPT. 30, 2000
-------------- -------------- -------------- --------------
Unallocated non-cash amounts in
consolidated net loss:
Settlement expense - - - (640,000)
Amortization of discount on notes
payable (784,000) - (888,000) -
Amortization of deferred
compensation on stock options
issued for services - (122,000) - (503,000)
Amortization of intangible assets (549,000) (626,000) (1,645,000) (2,064,000)
Other corporate expenses (3,468,000) (3,220,000) (8,770,000) (10,526,000)
-------------- -------------- -------------- --------------
$ (20,503,000) $(6,875,000) $ (30,011,000) $(16,610,000)
============== ============== ============== ==============
12
ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the information
contained in the financial statements of the Company and the notes thereto
appearing elsewhere herein and in conjunction with the Management's Discussion
and Analysis set forth in our Form 10-K for the year ended December 31, 2000 and
Form 10-Q for the quarters ended March 31 and June 30, 2001.
FORWARD LOOKING INFORMATION
THIS REPORT CONTAINS CERTAIN "FORWARD-LOOKING STATEMENTS" WITHIN THE
MEANING OF SECTION 27-A OF THE SECURITIES ACT OF 1933, AS AMENDED, SECTION 21-E
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, AND INFORMATION RELATING TO
I-LINK INCORPORATED AND SUBSIDIARIES (I-LINK) THAT ARE BASED ON MANAGEMENT'S
EXERCISE OF BUSINESS JUDGEMENT AS WELL AS ASSUMPTIONS MADE BY AND INFORMATION
CURRENTLY AVAILABLE TO MANAGEMENT. WHEN USED IN THIS DOCUMENT, THE WORDS
"ANTICIPATE," "BELIEVE," "ESTIMATE," "EXPECT," AND "INTEND" AND WORDS OF SIMILAR
IMPORT, ARE INTENDED TO IDENTIFY ANY FORWARD-LOOKING STATEMENTS. YOU SHOULD NOT
PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS. THESE STATEMENTS
REFLECT OUR CURRENT VIEW OF FUTURE EVENTS AND ARE SUBJECT TO CERTAIN RISKS AND
UNCERTAINTIES AS NOTED BELOW. SHOULD ONE OR MORE OF THESE RISKS OR UNCERTAINTIES
MATERIALIZE, OR SHOULD UNDERLYING ASSUMPTIONS PROVE INCORRECT, OUR ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING
STATEMENTS.
Although we believe that our expectations are based on reasonable assumptions,
we can give no assurance that our expectations will materialize. Many factors
could cause actual results to differ materially from our forward-looking
statements. Several of these factors include, without limitation:
- - our ability to finance and manage expected rapid growth;
- - the impact of competitive services and pricing;
- - our ongoing relationship with our long distance carriers and vendors;
- - our ability to meet our usage commitments with carriers;
- - our dependence upon key personnel;
- - subscriber attrition;
- - the adoption of new, or changes in, accounting principles; |X| legal
proceedings;
- - federal and state governmental regulation of the long distance
telecommunications and internet industries;
- - our ability to maintain, operate and upgrade our information systems network;
- - our success in deploying our Communication Engine network in internet
telephony;
- - the existence of demand for and acceptance of our products and services
(including but not limited to dial-around service and One-Number service
(formerly V-Link(TM)));
- - our ability to efficiently integrate our recent acquisitions;
- - the migrating of subscribers from a retail billing basis to a wholesale
billing basis;
- - the ultimate financial liability related to certain leases in default as of
September 30, 2001;
- - other risks referenced from time to time in our filings with the SEC.
WE UNDERTAKE NO OBLIGATION AND DO NOT INTEND TO UPDATE, REVISE OR OTHERWISE
PUBLICLY RELEASE ANY REVISIONS TO THESE FORWARD-LOOKING STATEMENTS TO REFLECT
EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF
ANY UNANTICIPATED EVENTS.
Our principal operations are two-fold:
First, for the past five years we have been an integrated voice and data
communications company focused on simplifying the delivery of "Unified
Communication." Unified Communication is the integration of traditional
telecommunications with new data IP (Internet Protocol) communications
systems with the effect of simplifying communications, increasing
communication capabilities and lowering overall communication costs.
Unified Communication platforms integrate telecommunication, mobile
communication, paging, voice-over-IP (VoIP) and
13
Internet technologies. We have developed and marketed enhanced
communications products and services utilizing our own private intranet
and both owned and leased network switching and transmission facilities.
The communications solutions are delivered through our proprietary
technologies. Our enhanced communications products and services are
marketed through master agent and wholesale distributor arrangements
with I-Link Communications, our wholly owned subsidiary, that is an FCC
licensed long-distance carrier. We also undertake research and
development of new telecommunications services, products and
technologies, and the licensing of certain of these products and
technologies to other telecommunications companies.
Second, beginning June 4, 2001, we purchased, through our wholly-owned
subsidiary WorldxChange Corp. ("WorldxChange"), certain assets and
assumed certain liabilities of WorldxChange Communications, Inc. from a
bankruptcy proceeding. WorldxChange is a facilities-based
telecommunications carrier that provides international and domestic
long-distance service to retail customers. Telecommunication services
provided by WorldxChange consist primarily of a dial-around product that
allows a customer to make a call from any phone by dialing a 10-10-XXX
prefix. The phone call is then billed directly to the customer. Billings
to these customers are primarily done through the customers' local
exchange carrier ("LEC"). Marketing of the dial around product is
primarily done through independent marketing agents that receive a
commission. WorldxChange's retail base is comprised of residential and
commercial customers.
On March 1, 2001, we became a majority owned subsidiary of Counsel
Communications LLC which was a wholly-owned subsidiary of Counsel Corporation
(US), (collectively, "Counsel"). On April 17, 2001, we acquired WebToTel, Inc.
("WebToTel"), a subsidiary of Counsel, and its subsidiaries including Nexbell
Communications Inc. ("Nexbell") in a stock-for-stock transaction. Nexbell
continued to offer a Multi-Exchange Transport Service ("METS") product
originally offered by NexBell that provided customers with VoIP-based local
access origination and termination services. However, Nexbell determined it is
not economically justified to continue selling its product and accordingly
stopped taking new orders for the product and initiated steps toward an orderly
discontinuance for existing customers (expected December 1, 2001).
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents as of September 30, 2001 were $1,712,934 and the
working capital deficit was $29,503,273 (including $22,748,109 payable to our
parent company). Cash used by operating activities during the nine-month period
ended September 30, 2001 was $21,920,463 as compared to cash provided by
operations of $7,562,831 during the same period ended September 30, 2000. The
primary reason for the change from 2000 was cash provided by operating
activities in 2000 included $20,000,000 received as of September 30, 2000 from a
customer, Red Cube, International AG and Red Cube, Inc. ("Red Cube"), which did
not recur in 2001.
Net cash used by investing activities in the nine-month period ended September
30, 2001 was $14,293,727 as compared to net cash used of $4,658,373 in the same
period ended September 30, 2000. Cash used by investing activities in 2001 was
attributed to $13,000,000 used to purchase the net assets of WorldxChange and
$1,527,514 used to purchase equipment. These uses of cash were offset by cash of
$233,787 received as part of the WebToTel acquisition. Cash used by investing
activities in 2000 was primarily attributable to the purchase of network
equipment of $4,687,910, which was offset by $29,537 received from the sale of
assets from discontinued operations.
Financing activities provided net cash of $35,771,496 in the first nine-months
of 2001, as compared to cash provided of $4,145,696 in the same period of 2000.
Cash provided in the first nine-months of 2001 included loans from Counsel of
$36,189,534 and $15,580 from issuances of common stock which were offset by
repayment of notes payable and capital lease obligations of $433,618. Cash
provided in 2000 included proceeds of $2,600,000 from a note payable to a
related party, $4,274,879 in net proceeds from exercises of common stock
warrants and options and a $1,751,183 advance received under the strategic
marketing and channel agreement with a customer. The $2,600,000 note and
$1,751,183 advance were both repaid during the second quarter of 2000.
Repayments of capital lease obligations of $104,979 and repayments of $24,204 on
certain notes in discontinued operations offset these proceeds.
14
We incurred a net loss from continuing operations of $30,011,410 (including an
$8 million non-cash impairment of goodwill) for the first nine-months of 2001,
and as of September 30, 2001 had an accumulated deficit of $ 152,278,566. While
we anticipate that revenues during the fourth quarter of 2001 will be greater
than recorded in the third quarter of 2001, we anticipate that revenue generated
from continuing operations will not be sufficient during the remainder of 2001
and into 2002 to fund our operations or continued expansion of our private
telecommunications network facilities and anticipated growth in subscriber base.
As of September 30, 2001, we were in default on a lease with a potential current
liability of approximately $2 million and Nexbell was in default on certain
leases with a potential current liability of approximately $3 million. While we
are working on settlement of these potential liabilities on a favorable basis to
us, the ultimate liability could have a negative effect on our liquidity and
financial resources. We continue to be dependent upon funding from Counsel to
fund our operational cash needs (see discussion below).
CURRENT POSITION/FUTURE REQUIREMENTS
While revenues from operations have increased significantly, operational
expenses have also increased, thus continuing our need for sources of
operational funds other than from operations. Our operational cash needs
continue to be funded through our agreement with Counsel wherein Counsel
committed to fund, through long-term inter-company advances or equity
contribution, all capital investment, working capital or other operational cash
requirements through April 15, 2002. On June 6, 2001, we entered into a Loan and
Security Agreement with Counsel, pursuant to which Counsel agreed to advance up
to $10 million. We no longer have any availability under that facility, and we
have entered into discussions with Counsel with respect to the terms under which
Counsel will advance additional funds. There can be no assurance that Counsel
will continue to provide funding after April 15, 2002. We anticipate that
additional funds will be necessary after such time to fund our operations and
finance the planned expansion of our business communications services, product
development and manufacturing, and to discharge our financial obligations. The
availability of such funds will depend on prevailing market conditions, interest
rates, our financial position and results of our operations. There can be no
assurance that such funds will be available or if available that they will be on
terms and conditions favorable to I-Link.
RESULTS OF OPERATIONS
In order to more fully understand the comparison of the three and nine months
ended September 30, 2001 as compared to the same three and nine months in 2000,
you must understand two significant business transactions that are reflected in
our 2001 financial results, for which there are not comparable transactions in
2000. Specifically:
1. We acquired WebToTel Incorporated and its subsidiaries (including
Nexbell) in a stock for stock transaction on April 17, 2001. However, as
WebToTel and I-Link were under common control of Counsel as of March 1,
2001 (the date Counsel obtained its ownership in I-Link), we have
accounted for the acquisition on an accounting method consistent with
the pooling-of-interests method of accounting as of March 1, 2001.
Accordingly, we have included the financial results of WebToTel and its
subsidiaries subsequent to March 1, 2001.
2. On June 4, 2001 WorldxChange completed the purchase of certain assets
and liabilities of WorldxChange Communication, Inc. WorldxChange
continues to offer the dial-around telecommunications product, which
WorldxChange Communications, Inc. had previously offered. We did not
offer a comparable product prior to June 4, 2001.
THREE-MONTH PERIOD ENDED SEPTEMBER 30, 2001 COMPARED TO THREE-MONTH PERIOD ENDED
SEPTEMBER 30, 2000
REVENUES
Telecommunications service revenue increased $21,608,781 to $25,274,900 in the
three months ended September 30, 2001 as compared to $3,666,119 in the three
months ended September 30, 2000. The increase is primarily the result of the
acquisition of two companies. Revenue in the third quarter increased $21,487,000
related to the dial-around business of WorldxChange and $1,191,000 related to
the METS product offered by Nexbell. Excluding the above revenues, recurring
15
revenues decreased $1,069,000 which was due to a decrease in revenues billed
to wholesale customers in the third quarter 2001 as compared to the third
quarter of 2000. We anticipate that reported revenues for the fourth quarter
will be higher than the third quarter primarily because WorldxChange will
begin its first major advertising campaign that the Company anticipates will
result in higher revenues than those for the third quarter. The Company has
determined to discontinue maintaining a potion of the Company's network
related to leased lines used for local access origination and to cease
offering its METS product, effectively ceasing revenues from METS as of
approximately December 1, 2001. We anticipate revenues from other recurring
sources will remain constant in the fourth quarter.
Technology licensing and development revenue decreased $12,303 to $1,419,998 in
the third quarter of 2001 as compared to $1,432,301 in the same quarter of 2000.
During the three months ended September 30, 2001, licensing revenues were
primarily from a $10,000,000 licensing agreement in May 2000 between Red Cube
and I-Link that is being recorded over a two-year period. Accordingly,
$1,250,000 was recorded in the third quarters of 2001 and 2000. As of September
30, 2001, the unearned balance of $2,917,000 has been recorded as unearned
revenue. Revenue from this source will vary from quarter to quarter based on
timing of future technology licensing and development projects.
Other revenues in the third quarter of 2001 decreased $11,408 to $433,174 as
compared to $444,582 in the same period of 2000. These revenues relate primarily
to customer care, billing and accounts receivable services performed primarily
for our single largest customer. Revenues from these services are expected to
remain constant in the fourth quarter of 2001. However, revenues from these
types of services vary from period to period based upon services requested.
OPERATING COSTS AND EXPENSES
Telecommunication network expense increased $17,251,694 in the third quarter of
2001 to $22,988,640 as compared to $5,736,946 for the same quarter of 2000. The
primary increase was related to inclusion of network expense ($15,727,405)
related to the dial-around business that we began to offer June 4, 2001 when we
acquired the operations of and certain assets and liabilities of WorldxChange
Communications, Inc. These expenses include the costs related to the continuing
development and deployment of our communication network and expenses related to
the generation of telecommunication service revenue. The remaining increase in
telecommunication network expense was primarily due to the inclusion of the
expense associated with the METS product in 2001. We anticipate that
telecommunication network expense for the fourth quarter will be significantly
different from the third quarter due to two events. First, in the fourth quarter
WorldxChange will begin its first major advertising campaign which the Company
anticipates will result in significantly higher revenues and related
telecommunication network expense than those for the third quarter. Second, the
Company has determined to discontinue offering its METS product effectively
ceasing revenues as of December 1, 2001. Certain related telecommunication
network expenses from METS will begin to decrease during December 2001 and
continue to decline into the first quarter of 2002.
Selling, general and administrative expense increased $5,652,161 to $9,894,235
in the third quarter of 2001 as compared to $4,242,074 in the third quarter of
2000. The primary components of the net increase consisted of an approximate
$5,862,000 related to the WorldxChange dial-around business that began June 4,
2001. Additional increases related to Nexbell were offset by a reduction in
other corporate expenses relating to the workforce reductions implemented in the
first six months of 2001. We anticipate that selling, general and administrative
expenses will increase dramatically as a result of the advertising campaign by
WorldxChange in the fourth quarter of 2001.
The provision for doubtful accounts increased $1,577,407 to $1,276,740 in the
third quarter of 2001 as compared to a negative expense of ($300,667) in the
same quarter of 2000. The overall increase was due to (1) provision for doubtful
accounts associated with two sources of revenues, WorldxChange ($1,171,000) and
Nexbell ($93,000), both of which came into existence in 2001; and (2) during the
third quarter of 2000 we settled a lawsuit wherein we sued a former wholesale
customer for non-payment of its bills. Prior to the third quarter of 2000 we had
written off the receivable from this customer. Upon settling the lawsuit we
received $300,000 for past billings, which amount reduced our bad debt expense
in the third quarter of 2000. We anticipate that the relationship between
telecommunication service revenues and the bad debt provision for the fourth
quarter will be comparable to the third quarter.
16
Depreciation and amortization increased $1,639,806 to $3,204,871 in the third
quarter of 2001 as compared to $1,565,065 in the third quarter of 2000. The
increase is primarily due to depreciation and amortization relating to assets
and goodwill acquired in the WebToTel and WorldxChange acquisitions.
Depreciation of WorldxChange assets resulted in approximately $1,149,000 of
the increase. The remainder of the increase in depreciation and amortization
was due to $457,000 amortization of goodwill recorded in the WebToTel
acquisition. While we anticipate depreciation will be comparable in the
fourth quarter, there will be no amortization of goodwill on the WebToTel
acquisition in future periods as a result of the impairment of goodwill
recorded in the third quarter (see discussion on impairment of goodwill
expense below).
Research and development decreased $650,585 to $434,651 in the third quarter of
2001 as compared to $1,085,236 in the same period of 2000. The decrease was
primarily a result of our decision to consolidate our research operations at our
headquarters in Draper, Utah and an overall decrease in research and development
activities during 2001. We anticipate that research and development expense will
continue at a comparable amount during the fourth quarter of 2001.
During the third quarter of 2001, we performed a review of the products we
offer and their contribution to our Company and our overall strategy. As of
September 30, 2001, our analysis determined that it was not economically
justified to continue to maintain a portion of the Company's network related
to leased lines used for local access origination and Nexbell's METS product.
Accordingly, we performed an impairment analysis of the goodwill recorded in
connection with the acquisition of WebToTel and subsidiaries ("WebToTel").
The analysis was performed in response to projected losses on the METS
product acquired in the WebToTel acquisition. Additionally, subsequent to
September 30, 2001, we approved a plan to discontinue offering the METS
product. As a result of this review, an $8,040,054 impairment charge was
recorded during the quarter. We do not anticipate any impairment expense in
the fourth quarter of 2001.
OTHER INCOME (EXPENSE)
Interest expense increased $1,477,293 to $1,816,722 in the third quarter of 2001
as compared to $339,429 in the same quarter of 2000. The increase was due
primarily to increased interest on related-party debt and non-cash interest
expense. Interest in the third quarter of 2001 on related party debt was
$525,000 higher compared to the same period of 2000 due to higher average
balances outstanding during the three months ended September 30, 2001. We also
recorded non-cash interest expense of $785,000 in the third quarter of 2001
related to the amortization of a beneficial conversion feature on convertible
debt with Counsel and non-cash interest related to the value of warrants issued
to Counsel in connection with a loan. Interest expense in the fourth quarter is
anticipated to increase as the Company continues to accrue interest on
borrowings from Counsel and continues to record non-cash interest related to the
amortization of beneficial conversion feature on convertible debt and
amortization of the value of warrants issued to Counsel in connection with a
loan. There were no similar non-cash interest expenses recorded in the third
quarter of 2000.
Interest and other income decreased $224,728 to $25,212 in the third quarter of
2001 as compared to $249,940 in the same quarter of 2000. The decrease was
primarily due to a decrease in the average balance of cash on hand in the third
quarter of 2001 as compared to the same quarter of 2000.
NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2001 COMPARED TO THE NINE-MONTH PERIOD
ENDED SEPTEMBER 30, 2000
REVENUES
Telecommunications service revenue increased $35,561,886 to $49,104,324 in
the first nine months of 2001 as compared to $13,542,438 in the first nine
months of 2000. The increase is primarily the result of the recognition of
previously reported unearned revenue related to a prepayment from Red Cube
and two acquisitions during 2001. According to the terms of the agreement,
Red Cube was to use services related to the prepayment prior to June 30,
2001. Unused services as of June 30, 2001 were approximately $9,543,000. As
the Company has no further obligation under the prepayment arrangement, the
$9,543,000 was recognized as revenue as of June 30, 2001. We do not expect
any significant revenues from Red Cube in the future. Revenues also increased
due to the acquisition of two companies. Revenue in the first nine months of
2001 increased $27,420,000 (representing revenues from June to September of
2001) related to the dial-around business of WorldxChange and $2,352,000
(representing revenues from March to September of 2001) related to Nexbell's
METS product. These increases in telecommunications services revenues were
offset by decreases in revenue which were a direct result of a shift in focus
from retail to wholesale sales in addition to decreases in revenues billed to
wholesale customers in 2001 as compared to revenues billed to wholesale
customers in 2000.
17
Marketing services revenue, which included revenue from independent
representatives for promotional and presentation materials, WebCentre, and
ongoing administrative support decreased $463,740 to $0 in the first nine-months
of 2001 as compared to $463,740 in the same period of 2000. The decrease was a
result of transition of this network-marketing channel to Big Planet in February
2000, which caused marketing service revenues to cease.
Technology licensing and development revenue decreased $3,401,812 to $4,276,895
in the first nine months of 2001 as compared to $7,678,707 in the first nine
months of 2000. During the first nine months of 2001, the revenues were
primarily from a $10,000,000 licensing agreement in May 2000, between Red Cube
and I-Link that is being recorded over a two-year period. Accordingly,
$3,750,000 was recorded in the first nine months of 2001 as compared to
$2,083,333 in the first nine months of 2000. As of September 30, 2001, the
unearned balance of $2,917,000 has been recorded as unearned revenue. During the
first nine months of 2000, revenues of $4,000,000 were recorded related to two
licensing agreements that did not recur in 2001. The additional overall decrease
in technology licensing revenue was due to several other licensing agreements in
2000 which did not recur in 2001. Technology licensing revenue will vary from
quarter to quarter based on timing of technology licensing and development
projects.
Other revenues in the first nine months of 2001 decreased $536,646 to $1,618,216
as compared to $2,154,862 in the first nine months of 2000. During the first
nine months of 2000, other revenues also included royalties of $400,000 from the
sale of Indavo units to a company which will not use the Indavo units over the
I-Link Network. There were no comparable sales of Indavo in 2001. Decreases in
other revenues relating to customer care, billing and accounts receivable
services performed for our single largest customer accounted for the balance of
the decrease in other revenues. Revenues from these types of services vary from
period to period based upon services requested.
OPERATING COSTS AND EXPENSES
Telecommunication network expense increased $25,626,198 in the nine months ended
September 30, 2001 to $43,014,152 as compared to $17,387,954 for the same period
in 2000. These expenses include the costs related to the continuing development
and deployment of our communication network and expenses related to the
generation of telecommunication service revenue. The primary increase was
related to inclusion of network expense ($21,043,000) related to the dial-around
business that we began to offer June 4, 2001 when we acquired certain assets and
liabilities of WorldxChange Communications, Inc. The remaining increase in
telecommunication network expense was due to the inclusion of the expense
associated with the METS product in 2001 in addition to increased expenses in
2001 related to the network buildout which began in late 2000.
Marketing service costs decreased $456,354 to $0 in the first nine months of
2001 as compared to $456,354 for the same period in 2000. The decrease in
expense is directly related to the transition of the network-marketing channel
to Big Planet Inc. in February 2000, which resulted in the cessation of
marketing service revenues and accordingly the related expenses.
Selling, general and administrative expense increased $5,557,181 to $19,335,976
in the first nine months of 2001 as compared to $13,778,795 in the first nine
months in 2000. The primary components of the net increase were due to
additional selling, general and administrative cost of approximately $7,000,000
related to WorldxChange dial-around business that began June 4, 2001. Further
increases relating to WebToTel were offset by a reduction in other corporate
expenses relating to the workforce reductions in the first six months of 2001
including reduction in facilities, materials etc. and other cost cutting
measures instituted by management.
The provision for doubtful accounts increased $2,575,260 to $2,654,496 in the
nine months of 2001 as compared to $79,236 in the same period in 2000. The
increase was directly due to necessary provisions for doubtful accounts
associated with two sources of revenues. During the second and third quarters of
2001 we recorded an allowance for accounts receivable from a major customer in
the amount of $975,000 due to the termination of their agreement and pending
arbitration. Additional reserves of $1,453,000 were recorded related to the
WorldxChange dial-around business, which began June 4, 2001. Further increases
relate to the WebToTel (primarily the Nexbell METS product) acquisition included
in our financial statements after March 1, 2001.
18
Depreciation and amortization increased $2,571,892 to $7,186,662 in the first
nine months of 2001 as compared to $4,614,770 in the first nine months of 2000.
The increase is primarily due to depreciation of $1,477,000 relating to
WorldxChange assets and 1,066,000 from amortization of goodwill acquired in the
WebToTel acquisition.
Research and development decreased $734,571 to $2,025,023 in the first nine
months of 2001 as compared to $2,759,594 in the same period in 2000. The
decrease was primarily a result of our decision to consolidate our research
operations at our headquarters in Draper, Utah and a decrease in research and
development activities during 2001.
During the third quarter of 2001, we performed a review of the products we
offer and their contribution to our Company and our overall strategy. As of
September 30, 2001, our analysis determined that it was not economically
justified to continue to maintain a portion of the Company's network related
to leased lines used for local access origination and Nexbell's METS product.
Accordingly, we performed an impairment analysis of the goodwill recorded in
connection with the acquisition of WebToTel and subsidiaries ("WebToTel").
The analysis was performed in response to projected losses on the METS
product acquired in the WebToTel acquisition. Additionally, subsequent to
September 30, 2001, we approved a plan to discontinue offering the METS
product. As a result of this review, an $8,040,054 impairment charge was
recorded during the quarter. We do not anticipate any impairment expense in
the fourth quarter of 2001.
OTHER INCOME (EXPENSE)
Interest expense increased $1,697,602 to $2,831,354 in the first nine months of
2001 as compared to $1,133,752 in the same period of 2000. We recorded non-cash
interest expense of $888,000 in the first nine months of 2001 related to the
amortization of a beneficial conversion feature on convertible debt with Counsel
and amortization of the discount related to the value of warrants issued to
Counsel n connection with a loan. Interest on other debt increased $522,000 as a
result of increased average balances of debt outstanding.
Interest and other income decreased $323,865 to $76,872 in the first nine months
of 2001 as compared to $400,737 in the same period of 2000. The decrease was
primarily due to a decrease in the average balance of cash on hand in the first
nine months of 2001.
A settlement expense of $639,565 was recorded in the first nine months of 2000.
This expense is the result of an obligation to issue 129,519 shares of common
stock in exchange for certain trading restrictions imposed on JNC Opportunity
Fund Ltd. ("JNC") in relation to the common stock to be issued to JNC pursuant
to a settlement and release agreement entered into in February 2000. There was
no comparable expense in the first nine months of 2001.
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations."
SFAS 141 requires the purchase method of accounting for business combinations
initiated after June 30, 2001 and eliminates the pooling-of-interests method.
The Company believes that the adoption of SFAS 141 will not have a significant
impact on its financial statements.
In July 2001, the FASB issued Statement of Financial Accounting Standards No.
142, "Goodwill and Other Intangible Assets", which is effective for fiscal years
beginning after December 15, 2001. SFAS 142 requires, among other things, the
discontinuance of goodwill amortization. In addition, the standard includes
provisions upon adoption for the reclassification of certain existing recognized
intangibles as goodwill, reassessment of the useful lives of existing recognized
intangibles, reclassification of certain intangibles out of previously reported
goodwill and the testing for impairment of existing goodwill and other
intangibles. The Company is currently assessing, but has not yet determined the
impact of SFAS 142 on its financial position and results of operations.
In August 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement
Obligations", effective for years beginning after June 15, 2002. SFAS 143
addresses financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. It applies to legal obligations associated with the retirement of
long-lived assets that result from the acquisition, construction, development
and (or) the normal operation of a long-lived asset, except for certain
obligations of lessees. The Company is currently evaluating the effects of this
Statement.
19
In August 2001, the FASB issued the Statement of Financial Accounting Standards
No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS 144
addresses financial accounting and reporting for the disposal of long-lived
assets. FAS 144 is effective for fiscal years beginning after December 15, 2001.
The Company is currently evaluating the potential impact, if any, the adoption
of SFAS 144 will have on its financial position and results of operation.
ITEM 3- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk is limited to interest income sensitivity, which is
affected by changes in the general level of U.S. interest rates. Our cash
equivalents are invested with high quality issuers and limit the amount of
credit exposure to any one issuer. Due to the short-term nature of the cash
equivalents, we believe that we are not subject to any material interest rate
risk. We did not have any foreign currency hedges or other derivative financial
instruments as of September 30, 2001.
We do not enter into financial instruments for trading or speculative purposes
and do not currently utilize derivative financial instruments. Our operations
are conducted primarily in the United States and as such are not subject to
material foreign currency exchange rate risk.
20
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
On January 18, 2001, I-Link filed action against Red Cube, International AG and
Red Cube, Inc. ("Red Cube") in federal court in Utah seeking damages against Red
Cube, for an alleged default on an agreement to provide approximately
$60,000,000 in equity funding to I-Link, and instituting a scheme to drive
I-Link out of business and obtain control of I-Link's proprietary technology,
telecommunications network, key employees and customers. I-Link obtained a
temporary restraining order against Red Cube preventing Red Cube from
interfering with I-Link's employees, vendors and customers. Red Cube commenced
an arbitration proceeding in New York (see next paragraph) and then filed a
motion to dismiss the federal court action and compel arbitration based upon a
mandatory arbitration provision in the May 2000 Cooperation and Framework
Agreement by and between Red Cube and I-Link. The court found that I-Link's
claims were "related to" the Cooperation and Framework Agreement and granted Red
Cube's motion to dismiss for lack of subject matter jurisdiction. The dismissal
resulted in this issue being submitted for arbitration pursuant to the
Cooperation and Framework Agreement.
On January 24, 2001, Red Cube, after the federal court action described above
had been commenced against it by I-Link, delivered a written demand for
arbitration and commenced an arbitration proceeding in New York alleging that
I-Link breached the Cooperation and Framework Agreement by (i) threatening a
shut-down of I-Link's IP telecommunications network, (ii) the resignation of
Dror Nahumi as an employee of I-Link (which Red Cube claims will cause I-Link to
breach its undertaking to provide certain consulting services in the event
I-Link is unable to perform under the Agreement and Red Cube is required to
assume primary operation and maintenance of its own IP telecommunications
network based upon I-Link's technology), and (iii) I-Link's alleged failure to
update the escrowed copy of its source code to the current version of the source
code employed to maintain the IP telecommunications network. When the federal
court action was dismissed in favor of the arbitration proceeding, I-Link filed
a response in the arbitration proceeding denying all of Red Cube's claims.
I-Link also filed a counterclaim against Red Cube virtually identical to the
claims it initially brought against Red Cube in the federal court action seeking
compensatory and/or punitive damages for Red Cube's default under a subsequent
agreement to provide approximately $60,000,000 in equity funding to I-Link, and
engaging in a scheme to drive I-Link out of business and obtain control of
I-Link's proprietary technology, telecommunications network, key employees and
customers. In May 2001 Red Cube amended its claim to include additional
allegations that I-Link undertook certain unspecified "significant transactions"
in violation of its agreements with I-Link's then majority shareholder, Winter
Harbor, LLC (with which Red Cube was also at the time engaged in arbitration)
which resulted in damage to Red Cube. I-Link has denied these additional
allegations. The arbitration proceeding is in the discovery stage. In its
Quarterly Report dated September 30, 2001, Ventis, a Swiss private equity
investment firm and an investor in Red Cube, stated that Red Cube and Winter
Harbor had settled their arbitration subject to a confidentiality agreement.
In June 2001, I-Link gave notice to Red Cube that it intended to cease providing
international carrier services to Red Cube (representing the vast majority of
all services performed for Red Cube) as a result of Red Cube's failure to
provide I-Link adequate assurance of ongoing payment for such services. Red Cube
sought emergency relief in the arbitration attempting to prohibit I-Link from
terminating these services. A hearing was held before the arbitration panel in
July 2001 and Red Cube's request for relief was denied. I-Link ceased providing
international carrier services to Red Cube immediately thereafter.
The information in Part II, Item 1 of I-link's quarterly report on Form 10-Q for
the period ending June 30, 2001 relating to the Company's proceedings before The
Nasdaq Stock Market, Nasdaq Listing Qualifications Department (the "Staff"("Nasdaq"), notified the Company that its securities would be
de-listed from the Nasdaq SmallCap Market (the "SmallCap Market") for the
Company's inability to meet a SmallCap Market continued inclusion requirement
for $35,000,000 in market capitalization. Subsequently, the Staff, in its March
8, 2001 correspondence, notified I-Link that the Company no longer complied with
the minimum bid price requirement of $1.00 per share as set forth in National
Association of Securities Dealers, Inc. ("NASD") Rule 4310(c)(4). Subsequently,
on June 11, 2001, the Staff raised additional
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concern regarding the Company's issuances of stock and debt to Counsel
Corporation in connection with the Loan and NexBell transactions (as defined
below) (it was alleged that said stock issuances by I-Link should have been
approved by I-Link's stockholders). On May 17, 2001, an oral hearing was held
before a panel of the Nasdaq Listing Qualifications Panel (the "Panel"),
relating to the various concerns raised by the Staff.
On July 17, 2001, the Panel issued a decision to continue the listing of
I-Link's securities on the SmallCap Market in accordance with the exception from
certain continued listing criteria. Under the terms and conditions of the
exception, I-Link is required, on or before August 3, 2001, to file a proxy
statement with the Securities and Exchange Commission (the "SEC") and Nasdaq
evidencing I-Link's intent (1) to seek shareholder approval for a reverse stock
sufficient to evidence a closing bid price of at least $1.00 per share, and (2)
to seek shareholder ratification for the issuance of shares of its common stock
to Counsel Corporation in connection with (i) March 1, 2001 Senior Convertible
Loan and Security Agreement with Counsel Communications LLC, a wholly-owned
subsidiary of Counsel Corporation (the "Loan transaction") and (ii) April 17,
2001 Agreement and Plan of Merger by and among I-Link and I-Link Acquisition
Corp., a Delaware corporation and I-Link's wholly owned subsidiary, on the one
hand, and WebToTel, Inc., a Delaware corporation, Counsel Corporation, and
certain other shareholders, on the other hand (the "NexBell transaction").
On July 30, 2001, the Company filed a revised preliminary proxy statement with
the SEC and Nasdaq. I-Link's compliance with the first requirement necessary for
continued listing on the SmallCap was acknowledged in the Staff correspondence
dated August 9, 2001. As a result of its compliance with the foregoing
requirement, the Panel determined to continue the continued listing exception
through September 5, 2001. On August 16, 2001, the Nasdaq Staff satisfied
I-Link's request for an extension to effect the proposed reverse stock split and
extended the compliance deadline from September 5, 2001 to September 13, 2001.
Pursuant to the terms of the August 16, 2001 reiteration of the Panel's
determination, on or before September 13, 2001, I-Link is required to submit to
Nasdaq documentation evidencing receipt of shareholder ratification for stock
issuances to Counsel Corporation in connection with the Loan and NexBell
transactions. In addition, the Company, on or before September 13, 2001, must
demonstrate closing bid price of at least $1.00 per share and, immediately
thereafter, a closing bid price of at least $1.00 per share for a minimum of 10
consecutive trading days. Further, the Company, on or before September 13, 2001,
must demonstrate a market capitalization of at least $35,000,000 and,
immediately after, a market capitalization of at least $35,000,000 for a minimum
of 10 consecutive trading days. As of the date of this filing, I-Link is not in
compliance with the SmallCap Market capitalization continued listing criterion.
There is no assurance that I-Link will comply with this requirement even if the
proposed reverse stock split is effected as described in this proxy statement.
Under the terms of the Panel's July 17, 2001 decision (as well as its August 16,
2001 reiteration), I-Link's non-compliance with the market capitalization
criterion, on or before September 13, 2001, will result in the de-listing of its
securities from the SmallCap Market. I-Link must comply with all of the
foregoing continued listing requirements in order to for its securities to
remain listed on the SmallCap Market. In the event the Company fails to meet any
one of the requirements as set forth in the July 17, 2001 Panel decision (as
well as the August 16, 2001 reiteration of the same), the Company's common stock
will be de-listed from the SmallCap Market. Should I-Link's securities cease to
be listed on the SmallCap Market, its securities may continue to be listed on
the OTC-Bulletin Board.
ITEM 2 - CHANGES IN SECURITIES
The disclosure set forth in Items 2 and 5 of Form 8-K filed on March 16, 2001 is
incorporated herein by reference. On September 28, 2001, Nasdaq issued an order
delisting I-Link's common stock from The disclosure set forthNasdaq SmallCap Market, effective
October 1, 2001. I-Link's common stock is now traded on the OTC-Electronic
Bulletin Board.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
As of September 30, 2001 I-Link's subsidiary Nexbell had defaulted on two
equipment leases. As of September 30, Nexbell was in Item 2default on $690,000 in
arrearages and approximately $3,000,000 in total.
As of Form 8-K filedSeptember 30, 2001, I-Link was in default on May 2,an equipment lease. This
lease was secured by a letter of credit issued by an affiliate of Winter Harbor
LLC, a former majority shareholder of I-Link. On October 11, 2001, is
incorporated herein by reference.
The disclosure set forththe leasing
company drew against the letter of credit in Item 2the amount of Form 8-K filed$1,998,681. As of
September 30, 2001, I-link continues to carry the liability related to this
lease in its financial statements. On October 26, 2001, I-Link received a demand
for
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payment from Winter Harbor LLC for the amounts of the draw on June 19, 2001 is
incorporated herein by reference.the letter of
credit and interest since October 11, 2001.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NoneOur annual meeting of shareholders was held on September 20, 2001 where the
stockholders considered five proposals as follows:
1. Messrs. Norman Chirite and Albert Reichmann were elected as Class III
Directors of I-Link. Mr. Allan C. Silber was elected as a Class II Director.
Mr. Chririte, Mr. Reichmann and Mr. Silber each received the following vote
totals: 68,481,245 votes for and 629,672 votes withheld. Messrs. Henry Y. L.
Toh, Hal B. Heaton, Gary J. Wasserson and Samuel L. Shimer continued as
Directors.
2. A proposal to approve a discretionary reverse split of I-Link's common stock
was defeated. For the vote on this proposal, the common stock voted in two
groups. One group (the "Affiliates") consisted of those who were officers,
directors or greater than 5% holders of the common stock. The other group
("Non-Affiliates") consisted of all other holders of common stock. The
affirmative vote of a majority of the outstanding shares of BOTH GROUPS was
required to approve the proposal. The voting was as follows: Affiliates: of
79,400,546 shares outstanding in the group, 61,966,057 voted for, none voted
against, and none abstained. Non-Affiliates: of 33,825,290 shares outstanding
in the group, 6,285,007 voted for, 821,033 voted against, and 38,160
abstained. The Non-Affiliates group did not pass the proposal, therefore it
was defeated.
3. A proposal to approve an increase in the Company's authorized shares of
common stock from 150 million to 300 million was approved. The vote was
67,949,361 for, 1,126,946 against and 34,610 abstained.
4. The 2001 Stock Option and Appreciation Rights Plan was approved. The vote was
67,925,946 for, 1,151,260 against and 33,711 abstained.
5. Issuances by I-Link of shares of its common stock in connection with the
March 1, 2001 Senior Convertible Loan and Security Agreement between Counsel
Communications LLC and I-Link and with the April 17, 2001 Agreement and Plan
of Merger between WebToTel, Inc. and I-Link were ratified. The vote was
68,339,581 for, 737,931 against and 32,905 abstained.
ITEM 6(a) - EXHIBITS
Exhibit
Number Item
- ------ -----
10.1 LoanEXHIBIT NO. EXHIBIT
4.11 2001 Stock Option and security agreement as of June 6, 2001 by and between I-Link
Incorporated and Counsel Corporation
10.2 Loan and security agreement as of June 4, 2001 by and between
WorldxChange Corp., I-Link Incorporated and Counsel Corporation (US).
10.3 Warrant agreement by and between Counsel Corporation (US) and I-Link
Incorporated 10.4 Form of Lease Agreement effective on June 2, 2001 between
Telecommunications Finance Group of Siemens Carrier Networks LLC. and
WorldxChange Corp.
10.5 Agreement and plan of merger dated April 17, 2001 by and among WebToTel,
Inc., Counsel Communications LLC, I-Link Incorporated and other
shareholders of WebToTel.
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Appreciation Rights Plan, filed herewith
ITEM 6(b) - REPORTS ON FORM 8-K
An 8-KA Current Report on Form 8-K/A#1 was filed on May 2, 2001 to announce I-Link's entering into an Agreement
and Plan of Merger to acquire WebToTel, Inc.
An 8-K was filed on May 4, 2001 to announce the resignation of John M. Ames as
Chief Financial Officer.
An 8-K was filed on June 19, 2001 to announce that I-Link Incorporated, through
it wholly-owned subsidiary WorldxChange Corp., had acquired certain assets and
liabilities out of the bankruptcy proceedings of WorldxChange Communications,
Inc. The 8-K also disclosed the financing arrangements of such purchase.
An 8-K/A#2 was filed on June 29,August 20, 2001 as an amendment to
ana Form 8-K filed on May 2,June 19, 2001, in order to include financial statements and
pro forma financial information relative to I-Link's purchase of WebToTel.WorldxChange.
A Current Report on Form 8-K/A#2 was filed on July 27, 2001 as an amendment to a
Form 8-K/A#1 filed on June 29, 2001, to amend certain information in the
unaudited pro forma combined condensed statement of operation for the year ended
December 31, 2000 as originally reported in the 8-K/A#1.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunder duly authorized.
I-Link IncorporatedI-LINK INCORPORATED
----------------------
(Registrant)
Date: August 20,November 13, 2001 By: /s/ GaryGARY S. Wasserson
---------------------------------WASSERSON
-------------------------------
Gary S. Wasserson
Chief Executive Officer
By: /s/ JamesJAMES A. GiauqueGIAUQUE III
----------------------------------------------------------------
James A. Giauque III
Chief Accounting Officer
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