UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
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__ No _____
--------------
As of May 15, 2000, the registrant had outstanding 26,779,023 shares of $0.007
par value common stock.
PART I - FINANCIAL INFORMATION
I-LINK INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS March 31, 2000 December 31,
(Unaudited) 1999
------------------ -----------------
Current assets:
Cash and cash equivalents $ 5,757,030 $ 2,950,730
Accounts receivable, less allowance for doubtful accounts of $1,070,516 and
$1,789,000 as of March 31, 2000 and December 31, 1999, respectively 4,650,159 4,344,406
Certificates of deposit - restricted 53,980 53,500
Other current assets 212,350 308,691
------------------ -----------------
Total current assets 10,673,519 7,657,327
Furniture, fixtures, equipment and software, net 7,775,908 7,019,361
Other assets:
Intangible assets, net 5,832,383 6,551,453
Certificates of deposit - restricted 76,136 76,136
Other assets 453,920 353,922
------------------ -----------------
$24,811,866 $ 21,658,199
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 3,535,810 $ 4,131,675
Accrued liabilities 5,222,496 2,629,046
Current portion of long-term debt 751,660 751,660
Notes payable to related parties 1,300,000 -
Current portion of obligations under capital leases 1,366,507 1,380,957
Net liabilities of discontinued operations 82,629 82,629
------------------ -----------------
Total current liabilities 12,259,102 8,975,967
Notes payable to related parties 7,768,000 7,768,000
Accrued interest on long-term notes payable 1,586,363 1,345,801
Obligations under capital leases 506,404 544,724
------------------ -----------------
22,119,869 18,634,492
------------------ -----------------
Commitments and contingencies (Note 8)
Redeemable preferred stock - Class M 11,734,820 11,734,820
Redeemable preferred stock - Class F - 2,338,784
Redeemable common stock to be issued (Note 6) 1,397,973 -
------------------ -----------------
13,132,793 14,073,604
------------------ -----------------
Stockholders' deficit:
Preferred stock, $10 par value, authorized 10,000,000 shares, issued and
outstanding 34,223 and 49,992 at March 31, 2000 and December 31, 1999,
respectively, liquidation preference of $16,655,917 at March 31, 2000. 342,230 499,920
Common stock, $.007 par value, authorized 150,000,000 shares,
issued and outstanding 26,662,252 and 24,150,829 at March 31,
2000 and December 31, 1999, respectively 186,636 169,056
Additional paid-in capital 103,378,458 98,734,475
Deferred compensation (362,315) (499,377)
Accumulated deficit (113,985,805) (109,953,971)
------------------ -----------------
Total stockholders' deficit (10,440,796) (11,049,897)
------------------ -----------------
$24,811,866 $ 21,658,199
================================================================================== ================== ==== =================
The accompanying notes are an integral part of these consolidated financial
statements
1
I-LINK INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the Three Months Ended March 31, 2000 and 1999 (Unaudited)
2000 1999
------------------ -----------------
Revenues:
Telecommunication services $ 5,287,208 $ 6,182,698
Marketing services 464,354 759,872
Technology licensing and development 4,506,500 294,416
Other 701,103 -
------------------ -----------------
Total revenues 10,959,165 7,236,986
------------------ -----------------
Operating costs and expenses:
Telecommunication network expense 6,113,062 4,323,430
Marketing services 349,034 1,216,309
Selling, general and administrative 3,919,088 2,837,123
Provision for doubtful accounts 325,716 905,706
Depreciation and amortization 1,488,889 1,343,420
Write-down of capitalized software costs - 1,847,288
Research and development 832,912 573,035
------------------ -----------------
Total operating costs and expenses 13,028,701 13,046,311
------------------ -----------------
Operating loss (2,069,536) (5,809,325)
------------------ -----------------
Other income (expense):
Interest expense (443,842) (1,125,889)
Interest and other income 37,827 23,579
Settlement expense (Note 6) (1,359,950) -
------------------ -----------------
Total other income (expense) (1,765,965) (1,102,310)
------------------ -----------------
Loss from continuing operations (3,835,501) (6,911,635)
Loss from discontinued operations (less applicable income tax provision of $0
for the three months ended March 31, 2000
and 1999) - (350,000)
------------------ -----------------
Net loss $(3,835,501) $(7,261,635)
================== =================
Calculation of net loss per common share:
Loss from continuing operations $(3,835,501) $(6,911,635)
Cumulative preferred stock dividends not paid in current period (407,393) (453,036)
Dividends paid on Class F redeemable preferred stock (18,214) (39,874)
------------------ -----------------
Loss from continuing operations applicable to
common stock $(4,261,108) $(7,404,545)
================== =================
Basic and diluted weighted average shares outstanding 24,901,536 19,266,499
================== =================
Net loss per common share - basic and diluted:
Loss from continuing operations $(0.17) $(0.38)
Loss from discontinued operations 0.00 $(0.02)
------------------ -----------------
Net loss per common share $(0.17) $(0.40)
================== =================
The accompanying notes are an integral part of these consolidated financial
statements
2
I-LINK INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
(Unaudited)
Preferred Stock Common Stock
----------------- -----------------
Additional
Paid-in Deferred Accumulated
Shares Amount Shares Amount Capital Compensation Deficit
------ ------ ------ ------ ------- ------------ -----------
Balance at December 31, 1999 49,992 $499,920 24,150,829 $169,056 $ 98,734,475 $(499,377) $(109,953,971)
Conversion of preferred stock into
common stock (16,017) (160,170) 1,884,544 13,192 146,980
Reclassification of Class F redeemable
preferred stock from mezzanine due to
conversion to common stock 248 2,480 2,336,305
Common stock dividend paid to holders of
class F redeemable preferred stock 87,477 612 195,721 (196,333)
Reclassification of redeemable common stock
to be issued to mezzanine (660,481) (4,622) (1,393,352)
Exercise of stock options and warrants 1,199,883 8,398 3,303,427
Stock options issued for services 54,902 (54,902)
Amortization of deferred compensation on
stock options issued for services 191,964
Net loss (3,835,501)
---------- --------- ------------ ----------- ------------- ----------- --------------
Balance at March 31, 2000 34,223 $342,230 26,662,252 $186,636 $103,378,458 $(362,315) $(113,985,805)
========== ========= ============ =========== ============= =========== ==============
The accompanying notes are an integral part of the accompanying financial
statements
3
I-LINK INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended
March 31,
-----------------------------------------
2000 1999
------------------- ------------------
Cash flows from operating activities:
Net loss $(3,835,501) $(7,261,635)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 1,488,889 1,343,420
Provision for doubtful accounts 325,716 905,706
Amortization of discount on notes payable - 659,180
Write-down of capitalized software costs - 1,847,288
Amortization of deferred compensation on stock options issued for services 191,964 314,417
Increase (decrease) from changes in operating assets and liabilities:
Accounts receivable (631,469) (1,407,032)
Other assets (4,137) (166,572)
Accounts payable, accrued liabilities and interest 486,969 597,703
Discontinued operations - noncash charges and working capital changes 72,639 320,652
------------------- ------------------
Net cash used in operating activities (1,904,930) (2,846,873)
------------------- ------------------
Cash flows from investing activities:
Purchases of furniture, fixtures and equipment (1,526,367) (406,523)
Proceeds received from maturity of certificate of deposit - restricted - 76,666
Investing activities of discontinued operations - 30,000
------------------- ------------------
Net cash used in investing activities (1,526,367) (299,857)
------------------- ------------------
Cash flows from financing activities:
Proceeds from note payable to related party 1,300,000 4,200,000
Proceeds from advance under strategic marketing agreement 1,751,183 -
Payment of long-term debt - (254,344)
Payment of related party debt - (287,500)
Payment of capital lease obligations (52,772) (114,577)
Proceeds from exercise of common stock warrants and options 3,311,825 5,000
------------------- ------------------
Net cash provided by financing activities 6,310,236 3,548,579
------------------- ------------------
Increase in cash and cash equivalents 2,878,939 401,849
Cash and cash equivalents at beginning of period 2,996,004 1,368,927
------------------- ------------------
Cash and cash equivalents at end of period $ 5,874,943 $ 1,770,776
=================== ==================
Cash and cash equivalents at end of period:
Continuing operations $ 5,757,030 $ 1,712,200
Discontinued operations 117,913 58,576
------------------- ------------------
Total cash and cash equivalents at end of period $ 5,874,943 $ 1,770,776
=================== ==================
Supplemental schedule of non-cash investing and financing activities:
Reclassification of common stock to be issued to mezzanine $1,397,973 -
Reclassification of Class F redeemable preferred stock from mezzanine $2,338,785 $1,310,851
Warrants issued in connection with a standby letter of credit - $735,720
Equipment acquired under capital lease obligations - $1,654,653
Stock options issued for services $54,902 $237,351
Sale of assets of discontinued operations for note receivable - $35,000
The accompanying notes are an integral part of the accompanying financial
statements
4
I-LINK INCORPORATED AND SUBSIDIAIRES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------
Note 1 - Description of Business, Principles of Consolidation and Liquidity
The consolidated financial statements include the accounts of I-Link
Incorporated and its subsidiaries (the "Company"). The Company is 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), fax and Internet technologies. Through its wholly owned
subsidiaries I-Link Communications, Inc., and I-Link Systems, Inc., the Company
provides enhanced telecommunications services on a wholesale and retail basis.
Through its wholly-owned subsidiaries MiBridge, Inc., and ViaNet Technologies
Ltd., the Company undertakes the research and development of new
telecommunications services, products, and technologies, and the licensing of
certain of these products and technologies to other telecommunications
companies.
All significant intercompany accounts and transactions have been eliminated in
consolidation.
On March 23, 1998, the Company's Board of Directors approved a plan to dispose
of the Company's medical services businesses in order to focus its efforts on
the sale of telecommunication services and technology licensing. The Company has
sold or intends to sell all of the assets of the medical services subsidiaries,
with the proceeds being used to satisfy outstanding obligations of the medical
services subsidiaries. During 1998, the Company received $310,000 from the sale
of assets from the medical service subsidiaries. In January 1999, the Company
sold additional assets for $15,000 and a note receivable of $35,000. In April
2000, the Company completed the sale of certain non-operating assets located in
China, which had experienced unexpected delays in disposal. As of March 31,
2000, there were no revenue generating activities remaining from the medical
services operations. On-going administrative costs primarily consist of fees
associated with collecting outstanding accounts receivable. These anticipated
costs have been accrued for as part of management's best estimate of the
expected ultimate loss on disposal. The results of the medical services
operations have been classified as discontinued operations for all periods
presented in the Consolidated Statements of Operations. The assets and
liabilities of the discontinued operations have been classified in the
Consolidated Balance Sheets as "Net liabilities of discontinued operations".
Discontinued operations have also been segregated for all periods presented in
the Consolidated Statements of Cash Flows.
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 periods ended March 31, 2000 and
1999, (b) the financial position at March 31, 2000, and (c) cash flows for the
three-month periods ended March 31, 2000 and 1999. The year-end 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, 1999.
The results of operations for the three-month period ended March 31, 2000 are
not necessarily indicative of those to be expected for the entire year.
The Company incurred a net loss from continuing operations of $3,835,501 for the
three-month period ended March 31, 2000, and as of March 31, 2000 had an
accumulated deficit of $113,985,805 and negative working capital of $1,585,583.
The Company anticipates that revenues generated from its continuing operations
will not be sufficient during 2000 to fund ongoing operations, the continued
expansion of its private telecommunications network facilities, development and
manufacturing of its Indavo product and anticipated growth in subscriber base.
In order to provide for capital needs, the Company entered into two agreements
subsequent to March 31, 2000, namely a line of credit agreement with Winter
Harbor and a strategic alliance with Red Cube Group (See Note 10).
While the Company believes that the aforementioned sources of funds combined
with ongoing revenues and other available sources of financing will be
sufficient to fund its operations in 2000, the Company anticipates that
additional funds will be necessary after such time to fund its operations and
finance the planned expansion of the Company's business communications services,
product development and manufacturing, and to discharge the financial
obligations of the
5
I-LINK INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------
Note 1 - Description of Business, Principles of Consolidation and Liquidity,
continued
Company. The availability of such funds will depend on prevailing market
conditions, interest rates, and financial position and results of operations of
the Company. There can be no assurance that such funds will be available, or if
available that they will be on terms and conditions favorable to the Company.
Furthermore, the Company may need to raise funds prior to 2001 if, for example,
the Company accelerates the expansion of its network, pursues acquisitions or
experiences operating losses that exceed our current expectation.
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. 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 from continuing operations for the three-month periods
ending March 31, 2000 and 1999, basic and diluted loss per share are the same.
Note 3 - Discontinued Operations
Net assets of the Company's discontinued operations (excluding intercompany
balances which have been eliminated against the net equity of the discontinued
operations) are as follows:
March 31, 2000 December 31,
(Unaudited) 1999
------------------ ----------------
Assets:
Current assets:
Cash and cash equivalents $ 117,913 $ 45,274
Accounts receivable 289,725 391,590
Inventory 555,291 555,291
Other 33,233 33,233
------------------ ----------------
Total current assets 996,162 1,025,388
Furniture, fixtures and equipment, net 37,850 37,850
Other non-current assets 854 854
------------------ ----------------
Total assets 1,034,866 1,064,092
------------------ ----------------
Liabilities:
Current liabilities:
Accounts payable and accrued liabilities 875,833 905,060
Notes payable 241,662 141,661
------------------ ----------------
Total current liabilities 1,117,495 1,046,721
------------------ ----------------
Note Payable - 100,000
------------------ ----------------
Net liabilities of discontinued operations $ (82,629) $ (82,629)
================== ================
The net liabilities of the discontinued operations as of March 31, 2000 and
December 31, 1999 are shown as a current liability in the Consolidated Balance
Sheets as it is anticipated that the disposal of the medical services remaining
assets will be completed by the third quarter of 2000. Revenues of the
discontinued operations were $0 and $130,623 for the three-month periods ending
March 31, 2000 and 1999, respectively.
6
I-LINK INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------
Note 4 - Capital Financing
In March 2000, the Company entered into a new lease facility providing for
equipment purchases of up to $5,000,000. The equipment will be used in expanding
the Company's IP network. The lease agreement requires monthly payments over the
three-year term. As of March 31, 2000, the Company had not purchased any
equipment under the lease facility.
Note 5 - Income Taxes
The Company recognized no income tax benefit from the losses generated in 2000
and 1999 because of the uncertainty of the realization of the related deferred
tax asset.
Note 6 - Stockholder's Equity and Redeemable Common Stock to be Issued
On March 10, 2000 the Company and JNC Opportunity Fund, Ltd. ("JNC") entered
into a settlement and release agreement relating to certain litigation with
respect to shares of Series F Preferred stock then held by JNC. The shares of
Series F Preferred stock then held by JNC were convertible into 1,104,972 shares
of common stock under the original agreement with JNC prior to the commencement
of the litigation. On March 10, 2000, the Company issued 531,968 shares of
common stock to JNC pursuant to the settlement agreement in cancellation of the
Series F shares then held by JNC. The balance of the shares required to be
issued pursuant to the settlement agreement will need to be registered for
resale under the Securities Act of 1933, as amended, and will require
shareholder approval at a special meeting of the shareholders scheduled to be
held on May 23, 2000. Due to the delay in issuance of the shares required to be
issued pursuant to the settlement agreement until shareholder approval is
received and the related common shares are registered, the Company agreed to
issue "Additional Shares" of common stock in an amount equal to 790,000 times
.0825 times a fraction the numerator of which is the number of days from
February 1, 2000 to the date such Additional Shares are actually issued, and the
denominator of which is 360. In addition to the "Additional Shares", the Company
is subject to other late fees to be paid in common shares (the "Late Shares") in
the event the additional shares are not issued by May 24, 2000. Further, if the
Company fails to deliver any of the above shares by May 24, 2000, the Company
must issue additional Late Shares ("Additional Late Shares"). In the event that
the common shares are not issued by May 24, 2000 (or June 28, 2000 in the event
the Company has received a registration comment letter related to the
registration of such shares prior to May 24, 2000), upon written notice from
JNC, the Company would be required to pay JNC (in lieu of delivering the shares)
the amount determined by multiplying the higher of the average closing share
price of the common stock for the ten trading day period ending on the deadline
(May 24 or June 28, 2000 as applicable) or the notice date by the number of
undelivered shares.
The issuance of 87,477 shares representing dividends associated with the Series
F stock have been recorded in the Company's financial statements as dividends
paid and 129,519 shares have been recorded as a settlement payable (included in
accrued liabilities) and settlement expense. As of March 31, 2000, the Company
has also recorded interest expense and interest payable (included in accrued
liabilities) of $114,062 representing the common stock issuable as Additional
Shares, Late Shares and Additional Late Shares (10,863). The settlement and
interest payables and expense were determined by the respective shares issuable
as of March 31, 2000, multiplied by the market price of the Company's common
stock on March 31, 2000.
Because of the possibility that the Company may have to redeem the common stock
yet to be issued as discussed above, the common stock to be issued is presented
as a separate line item above stockholder's deficit.
Note 7 - Stock-based Compensation Plans
During the three months ended March 31, 2000 the Company issued approximately
4,700,000 options to purchase common shares to employees of the Company at
prices ranging from $2.75 to $8.75. Of the options granted, 2,550,000 were to
executives of the Company, of which 2,050,000 are subject to shareholder
approval at the next annual meeting. During the same three months, approximately
840,000 options to purchase common shares were exercised.
7
I-LINK INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------
Note 8 - Purchase Commitments
The Company has commitments to purchase long-distance telecommunications
capacity on lines from a national provider in order to originate and/or
terminate long-distance telephone calls in certain geographic areas outside of
the Company's dedicated telecommunications network. The Company's minimum
monthly commitment is approximately $550,000. The agreement is effective through
May 2000. Failure to achieve the minimum will require shortfall payments by the
Company equal to 50% of the remaining monthly minimum usage amounts.
In January 1999, the Company entered into an agreement with a national carrier
to lease local access spans. The three-year agreement includes minimum usage
commitments of $1,512,000 during the first year and $2,160,000 in the second and
third years. If the Company were to terminate the agreement early, it would be
required to pay 25 percent of any remaining second and third year minimum
monthly usage requirements.
In December 1999, the Company entered into an agreement with a national carrier
to provide long-distance capacity in order to originate and/or terminate
long-distance telephone calls in certain geographic areas outside of the
Company's dedicated telecommunications network. The eighteen-month agreement
includes minimum monthly usage commitments of $250,000 beginning in the sixth
month of the agreement. Either party may terminate the agreement with 90 days
notice.
Note 9- Segment of Business Reporting
Segment of business reporting is based upon the "management" approach as defined
in SFAS 131. The management approach designates the internal organization that
is used by management for making operating decisions and assessing performance
as the source of the Company's reportable segments. Based on the management
approach, the Company's three reportable segments are as follows:
o Telecommunications services - includes long-distance toll services and
enhanced calling features such as V-Link. The telecommunications services
products are marketed primarily to residential and small business
customers.
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 operation 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 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 periods ended March 31, 2000 and 1999. 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, 1999.
8
I-LINK INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------
Note 9- Segment of Business Reporting, continued
For the Three For the Three
Months Ended Months Ended
March 31, 2000 March 31, 1999
--------------------- ---------------------
Revenues from external customers:
Telecommunications services $5,287,000 $ 6,183,000
Marketing services 464,000 760,000
Technology licensing and developing 4,907,000 294,000
--------------------- ---------------------
Total revenues from external customers for reportable segments $10,658,000 $ 7,237,000
===================== =====================
Segment income ( loss):
Telecommunications services $(2,229,000) $ 316,000
Marketing services (96,000) (469,000)
Technology licensing and developing 3,662,000 (422,000)
--------------------- ---------------------
Total segment loss for reportable segments 1,337,000 (575,000)
Unallocated non-cash amounts in consolidated net loss:
Amortization of discount on notes payable - (659,000)
Settlement expense (1,360,000)
Write-down of capitalized software costs - (1,847,000)
Amortization of deferred compensation on stock options issued
for services (192,000) (314,000)
Amortization of intangible assets (719,000) (723,000)
Other corporate expenses (2,902,000) (2,794,000)
Loss from discontinued operations - (350,000)
--------------------- ---------------------
$(3,836,000) $ (7,262,000)
===================== =====================
Telecommunication services revenues during the first quarter of 2000 of
$1,993,000 were from one customer.
Note 10 - Subsequent Events
Strategic Alliance with Red Cube Group
On May 9, 2000, the Company and Red Cube Group, a leading international provider
of Internet Protocol (IP) Telephony and enhanced Web-based communications
services based in Zurich Switzerland, announced an alliance to offer global,
enhanced IP communications to the customers of each of the two companies.
Under the terms of the agreement, Red Cube Group will license I-Link's IP
Telephony technology, standardize on I-Link's software-based platform Softswitch
Plus(TM) network and deploy it throughout its existing networks in Europe and
other parts of the world. In addition, the two companies will interconnect their
IP Telephony networks, creating a single, unified network, giving customers from
both companies global access to enhanced IP services.
Red Cube Group, upon signing of the agreement, paid the Company $10,000,000 that
consisted of a $7,500,000 licensing fee and $2,500,000 for consulting services.
The Company and Red Cube Group are obligated to use their best commercially
reasonable efforts to complete certain milestones defined in the agreement and
to negotiate in good faith a revenue sharing agreement by June 23, 2000. In the
event the Companies cannot reach agreement on the revenue sharing agreement, the
9
I-LINK INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-----------
Note 10 - Subsequent Events, continued
agreement with Red Cube may unwind and the Company would be liable to repay any
monies received from Red Cube Group up to that date. Red Cube Group is further
obligated to pay to the Company an additional $10,000,000 for prepaid services
prior to July 30, 2000 if the Company has substantially completed implementation
of I-Link network gateways in Europe as defined in the agreement.
Line of credit with Winter Harbor
On April 13, 2000, Winter Harbor, LLC, agreed to provide I-Link with a line of
credit of up to an aggregate amount of $15,000,000 (with interest at 12.5% per
annum). By its terms, this commitment was to expire on the earlier of April 12,
2001 or the date I-Link received net cash proceeds of not less than $15,000,000
pursuant to one or more additional financings or technology sales, as well as
licensing or consulting agreements outside the normal and historical course of
business. The $15,000,000 aggregate commitment was reduced by $2,600,000 (plus
accrued interest at 8% per annum) of which $1,300,000 was advanced to I-Link in
the first quarter of 2000 and $1,300,000 in the second quarter prior to April
13, 2000 by Winter Harbor and interest accruing on any other advances under such
commitment. In addition, any net cash proceeds received by I-Link in the future
from additional financings or technology sales as well as licensing or
consulting agreements outside the normal and historical course of business
reduce the aggregate commitment. Amounts outstanding under the loan were due and
payable no later than April 12, 2001. As part of this agreement, I-Link agreed
to use its best effort to consummate as soon as possible one or more additional
financings, technology sales or licensing or consulting agreements and to repay
amounts outstanding under the loan with any net cash proceeds received by it
from any such transaction. On May 12, 2000, the Company repaid borrowings under
the line of $2,600,000 plus interest (from proceeds received from the Red Cube
agreement) and terminated the line of credit, thus avoiding any future issuance
of warrants that would have been issuable had the Company kept the line of
credit open after May 15, 2000.
10
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 the Company's Form 10-K for the year ended December
31, 1999.
Forward Looking Information
This report contains certain forward-looking statements and information relating
to the Company that are based on the beliefs of management as well as
assumptions made by and information currently available to management. When used
in this document, the words "anticipate," "may," "will," "believe," "estimate,"
"expect," "plan," and "intended" and similar expressions, as they relate to the
Company or its management, are intended to identify forward-looking statements.
Such statements reflect the current view of the Company respecting 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, actual results may vary materially from those
described herein as anticipated, believed, estimated, expected or intended.
Although the Company believes that its expectations are based on reasonable
assumptions, it can give no assurance that its expectations will be achieved.
Among many factors that could cause actual results to differ materially from the
forward looking statements herein include, without limitation, the following:
the Company's ability to finance and manage expected rapid growth; the impact of
competitive services and pricing; the Company's ongoing relationship with its
long distance carriers and vendors; dependence upon key personnel; subscriber
attrition; the adoption of new, or changes in, accounting policies, litigation,
federal and state governmental regulation of the long distance
telecommunications and internet industries; the Company's ability to maintain,
operate and upgrade its information systems network; the Company's success in
further expanding its dedicated IP telecommunications network; the existence of
demand for and acceptance of the Company's technology, products and services; as
well as other risks referenced from time to time in the Company's filings with
the SEC. The Company undertakes no obligation and does 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 unanticipated events.
Operations
In January 1997, I-Link Incorporated (the "Company") acquired I-Link
Communications ("ILC"); in August 1997, the Company acquired MiBridge, Inc.; and
in the first quarter of 1998 the Company formed ViaNet Technologies, Ltd.
("ViaNet"). In March 1998, the Company made the decision to dispose of the
operations of the subsidiaries of the Company operating in the medical services
industry in order to concentrate on its telecommunications and technology
sectors. Accordingly, medical services operations during the three-month periods
ending March 31, 2000 and 1999 have been reported as discontinued operations.
I-Link Incorporated (the "Company") is 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. Through its wholly owned
subsidiaries I-Link Communications, Inc., and I-Link Systems, Inc., the Company
provides enhanced telecommunications services on a wholesale and retail basis.
Through its wholly-owned subsidiaries MiBridge, Inc., and ViaNet Technologies
Ltd., the Company undertakes the research and development of new
telecommunications services, products, and technologies, and the licensing of
certain of these products and technologies to other telecommunications
companies. I-Link is a leader in the delivery of unified communications as a
result of six core technology offerings: I-Link's Intranet, Softswitch Plus(TM),
GateLink(TM), V-Link(TM), Indavo(TM), and I-Link TalkFree.
11
Prior to February 15, 2000 and as of December 31, 1999, the Company's
telecommunication and marketing service revenues were primarily dependent upon
the sales efforts of independent representatives (IRs) functioning within a
Network Marketing channel of distribution which targets residential and small
businesses in the United States. These revenue sources depended directly upon
the efforts of IRs. IRs personally solicited potential individual and business
customers via one to one sales presentations wherein customers sign order forms
for I-Link telecommunication products and services (telecommunication service
revenues). Growth in revenue for both telecommunications and marketing services
required an increase in the productivity of IRs and/or growth in the total
number of IRs.
On February 15, 2000, the Company signed a strategic marketing and channel
agreement with Big Planet, a wholly owned subsidiary of Nu Skin Enterprises,
Inc. Under terms of the agreement, I-Link's independent network marketing sales
force (the IR's) transitioned to Big Planet, and Big Planet was granted the
exclusive worldwide rights to market and sell I-Link's products and services
through the Network Marketing (sometimes referred to as "Multi-Level") sales
channel to residential and small business users. Other I-Link sales channels
into the residential, small business, and other markets are unaffected by the
agreement with Big Planet. The result of the agreement with Big Planet is that
the Network Marketing channel became part of I-Link's wholesale distribution
channel.
On May 9, 2000, the Company and Red Cube Group, a leading international provider
of Internet Protocol (IP) Telephony and enhanced Web-based communications
services, announced an alliance to offer global, enhanced IP communications to
the customers of each of the two companies. Under the terms of the agreement,
Red Cube Group will license I-Link's IP Telephony technology, standardize on
I-Link's software-based Softswitch Plus(TM) network platform and deploy it
throughout its existing networks in Europe and other parts of the world. In
addition, the two companies will interconnect their IP Telephony networks,
creating a single, unified network, giving customers from both companies global
access to enhanced IP services. As part of a longer-term agreement, the two
companies will also administer ongoing revenue sharing. (See more detailed
discussion of this agreement in the "Current Position/Future Requirements"
section below).
During the first quarter of 2000, the Company began limited commercial
deployment of its Indavo (Integrated Data and Voice) communications services
gateway product (development name "C4" (Customer Communications Control
Center)). The initial device called Indavo V6 provides small office, home office
and small business, including branch office and remote office customers, the
capacity of up to six simultaneous voice and fax lines using any data service
over network facilities that are already available to their homes or offices
today. Indavo also provides access to I-Link's other enhanced services,
including voice mail, fax, paging, e-mail, conference calling and
follow-me-anywhere One-Number service. Indavo installations include both
stand-alone and customer phone system integrated service configurations. Indavo
devices and services are being marketed and deployed through both wholesale and
retail channels utilizing both general Internet access and fully managed access
facilities.
Liquidity and Capital Resources
Cash and cash equivalents as of March 31, 2000 were $5,757,030, short-term
certificates of deposits were $53,980 and the working capital deficit was
$1,585,583. Cash used by operating activities during the three-month period
ended March 31, 2000 was $1,904,930 as compared to $2,846,873 during the same
period ended March 31, 1999. The decrease in cash used in 2000 was primarily
due: (1) a decrease in cash used of $579,251 associated with timing of
collections and payments related to accounts receivable, other assets, accounts
payable and accrued expenses, and (2) a decrease of $362,692 in the Company's
net loss after allowance for non-cash expenses.
Net cash used by investing activities in the three-month period ended March 31,
2000 was $1,526,367 as compared to net cash used of $299,857 in the same period
ended March 31, 1999. Cash used by investing activities in 2000 was attributable
to the purchase of furniture, fixtures and equipment. In the first three months
of 1999, cash used by investing activities was attributable to the purchase of
furniture, fixtures and equipment of $406,523, offset by $30,000 received from
the sale of certain assets from discontinued operations and the maturity of
certificates of deposits in the amount of $76,666.
Financing activities provided net cash of $6,310,236 in the first three months
of 2000 as compared to cash provided of $3,548,579 in the same period of 1999.
Cash provided in 2000 included proceeds of $1,300,000 from note payable to
related party, $3,311,823 in net proceeds from exercises of common stock
warrants and options and a $1,751,183 advance received
12
under the strategic marketing and channel agreement with Big Planet (to be
repaid in second quarter of 2000). Repayments of $52,770 on capital lease
obligations from continuing operations offset these proceeds. During the same
three months in 1999, cash provided by financing activities included $4,200,000
in proceeds from issuance of short-term debt and warrants and $5,000 in net
proceeds from exercises of common stock warrants and options which sources were
offset by repayments of $656,421 on long-term debt, notes payable and capital
lease obligations from continuing operations.
The Company incurred a net loss from continuing operations of $3,835,501 for the
first three months of 2000, and as of March 31, 2000 had an accumulated deficit
of $113,985,805. Revenue generated from continuing operations will not be
sufficient during the remainder of 2000 to fund the Company's operations or
continued expansion of its private telecommunications network facilities and
anticipated growth in subscriber base. The Company has entered into additional
financing arrangements as described below in order to obtain the additional
funds required for its continuing operations in 2000.
Current Position/Future Requirements
During the first quarter of 2000 revenue from continuing operations increased
$2,862,112 (35.3%) from the fourth quarter of 1999 as shown below:
Three Months Ended Increase % Increase
12/31/99 3/31/00 (Decrease) (Decrease)
Telecommunications services $7,044,799 $5,287,208 $(1,757,591) (24.9%)
Marketing services 447,869 464,354 16,485 3.7%
Technology licensing and development 604,385 4,506,500 3,902,115 645.6%
Other - 701,103 701,103 n/a
Net operating revenue $8,097,053 $10,959,165 $2,862,112 35.3%
================ ============== ==============
- --------------------------------------------------------------------------------
The decrease in telecommunications services was a direct result of an agreement
with Big Planet effective February 15, 2000. Prior to February 15, 2000, the
Company's telecommunication services revenues were primarily dependent upon the
sales efforts of independent representatives (IRs) functioning within a Network
Marketing channel of distribution which targeted residential users and small
businesses in the United States. These revenue sources were recorded at retail.
Under terms of the agreement, I-Link's independent network marketing sales force
(the IR's) transitioned to Big Planet. A substantial decrease in
telecommunication services revenues for the quarter ended March 31, 2000 was the
financial impact as the Company migrated from retail sales to sell its services
to the same subscribers through Big Planet at wholesale prices. The reduction in
telecommunications service revenues is partially offset by a reduction in
commissions paid to IRs related to telecommunication services revenues.
Marketing services revenue was comparable during the periods presented. However,
due to the Company's transitioning of this network marketing channel to Big
Planet in February 2000, marketing service revenues ceased in February 2000.
Technology licensing and development revenue increased in the first quarter of
2000. During the first quarter, the Company's increase in these revenues was
primarily related with two licensing agreements that resulted in revenues of
nearly $4,000,000. The Company did not have agreements of this magnitude in the
past, nor does the Company anticipate contracts of this magnitude in the near
future. Revenue from this source will vary from quarter to quarter based on
timing of technology licensing and development projects.
Other revenues in the first quarter of 2000 represent revenues from two new
sources, namely: (1) royalties of $400,000 receivable from the sale of Indavo
units through a distributor of the Company; and (2) revenues of $301,103
relating to services performed for Big Planet as part of the transitioning of
the network marketing channel.
13
The Company anticipates improved cash flow in the remainder of 2000 primarily
from the following sources:
o Up to $20,000,000 in licensing fees, consulting services and prepaid
services associated with an agreement between Red Cube Group and the
Company in May 2000 (see discussion below).
o Anticipated increase in monthly recurring subscription revenues from
marketing of Indavo product.
o Anticipated revenues from its Gatelink product offering commencing in the
second quarter of 2000.
o The affiliation with Big Planet effective February 15, 2000 is anticipated
to have a positive overall financial impact in the long-term to the Company
by increasing revenues, reducing expenses and increasing profit margins
through customer growth.
The Company anticipates that in preparation for continued market penetration and
deployment of I-Link products, cash requirements for operations and the
continued development and marketing of I-Link services will be at increasingly
higher levels than experienced in the first quarter of 2000.
Since December 31, 1999, the Company entered into four agreements as follow:
o On May 9, 2000, the Company and Red Cube Group, a leading international
provider of Internet Protocol (IP) Telephony and enhanced Web-based
communications services, announced an alliance to offer global, enhanced IP
communications to the customers of each of the two companies. Red Cube Group,
upon signing of the agreement, paid the Company $10,000,000 that consisted of
a $7,500,000 licensing fee and $2,500,000 for consulting services. The
Company and Red Cube Group are obligated to use their best commercially
reasonable efforts to complete certain milestones defined in the agreement
and to negotiate in good faith a revenue sharing agreement by June 23, 2000.
In the event the Companies cannot reach agreement on the revenue sharing
agreement, the agreement with Red Cube may unwind and the Company would be
liable to repay any monies received from Red Cube Group up to that date. Red
Cube Group is further obligated to pay to the Company an additional
$10,000,000 for prepaid services prior to July 30, 2000 if the Company has
substantially completed implementation of I-Link network gateways in Europe
as defined in the agreement.
o On April 13, 2000, Winter Harbor, LLC, agreed to provide I-Link with a line
of credit of up to an aggregate amount of $15,000,000. This commitment
expired on the earlier of April 12, 2001 or the date I-Link has received
net cash proceeds of not less than $15,000,000 pursuant to one or more
additional financings or technology sales, as well as licensing or consulting
agreements outside the normal and historical course of business. On
May 12, 2000 the Company repaid borrowings under the line of $2,600,000 plus
interest (from proceeds received from the Red Cube Agreement) and terminated
the line of credit, thus avoiding any future issuance of warrants that would
have been issuable had the Company kept the line of credit open after
May 15, 2000.
o On February 25, 2000, the Company obtained a leasing arrangement for certain
network equipment up to $5,000,000 dollars.
o The due date of the Company's existing obligation to Winter Harbor in the
amount of $7,768,000 and accrued interest of $1,345,801 as of
December 31, 1999, which was due April 15, 2000, was extended to
April 15, 2001.
While the Company believes that the aforementioned sources of funds will be
sufficient to fund its operations in 2000, the Company anticipates that
additional funds will be necessary after such time to fund its operations and
finance the planned expansion of the Company's business communications services,
product development and manufacturing, and to discharge the financial
obligations of the Company. The availability of such funds will depend on
prevailing market conditions, interest rates, and the financial position and
results of operations of the Company. There can be no assurance that such funds
will be available or if available that they will be on terms and conditions
favorable to the Company. Furthermore, the Company may need to raise funds prior
to 2001 if, for example, the Company accelerates the expansion of its network
and services, pursue acquisitions or experience operating losses that exceed our
current expectations.
14
Three-Month Period Ended March 31, 2000 Compared to Three-Month Period Ended
March 31, 1999
In March 1998, the Company made the decision to dispose of the operations of the
subsidiaries of the Company operating in the medical services industry in order
to concentrate on its telecommunications and technology sectors. Accordingly,
medical services operations during the three-month periods ending March 31, 2000
and 1999 have been reported as discontinued operations.
Revenues
Telecommunications services revenue decreased $895,490 to $5,287,208 in the
first quarter of 2000 as compared to $6,182,698 in the first quarter of 1999.
The decrease is a direct result of agreement with Big Planet effective February
15, 2000. Prior to February 15, 2000, the Company's telecommunication services
revenues were primarily dependent upon the sales efforts of independent
representatives (IRs) functioning within a Network Marketing channel of
distribution. These revenue sources were recorded at retail. Under terms of the
agreement, I-Link's independent network marketing sales force (the IR's)
transitioned to Big Planet. A substantial decrease in telecommunication services
revenues for the quarter ended March 31, 2000 was the financial impact as the
Company sells its services to the same subscribers but through Big Planet at
wholesale prices
Marketing services revenue, which includes revenues recognized from independent
representatives for promotional and presentation materials, national conference
fees and various product sales decreased $295,518 to $464,354 in the first
quarter of 2000 as compared to $759,872 in the first quarter of 1999. The
decrease was primarily 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 increased $4,212,084 to $4,506,500
in the first quarter of 2000 as compared to $294,416 in the first quarter of
1999. These revenues are from the licensing and development of technology
through MiBridge, Inc. and are due to increased acceptance of its products in
the market place. During the first quarter, the Company's increase in these
revenues was primarily related with two licensing agreements that resulted in
revenues of nearly $4,000,000. The Company did not have agreements of this
magnitude in the past, nor does it anticipate such contracts in the near future.
Revenue from this source will vary from quarter to quarter based on timing of
technology licensing and development projects.
Other revenues in the first quarter of 2000 represent revenues from two new
sources, namely: (1) royalties of $400,000 receivable from the sale of Indavo
units through a distributor of the Company; and (2) revenues of $301,103
relating to services performed for Big Planet as part of the transitioning of
the network marketing channel.
Operating costs and expenses
Telecommunications expenses increased $1,789,632 in the first quarter of 2000 to
$6,113,062 as compared to $4,323,430 for the same quarter of 1999. These
expenses include the costs related to the continuing development and deployment
of the Company's 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 quarter in 1999 due to the transition to wholesale
rather than retail revenues as a result of the agreement with Big Planet
discussed above in telecommunication services revenue above.
Marketing service costs decreased $867,275 to $349,034 in the first quarter of
2000 as compared to $1,216,309 for the same quarter of 1999. The expenses relate
directly to the Company's marketing service revenue. Marketing service expenses
included commissions and the costs of providing promotional and presentation
materials, national and regional conventions and ongoing administrative support.
The decrease in expense is directly related to the transition of this network
marketing channel to Big Planet in February 2000, which resulted in the
cessation of marketing service revenues and accordingly the related expenses.
15
Selling, general and administrative expense increased $1,081,965 to $3,919,088
in the first quarter of 2000 as compared to $2,837,123 in the first quarter of
1999. The increase was primarily due to general increases in overhead and
personnel expenses associated with growing the Company's business.
The provision for doubtful accounts decreased $579,990 to $325,716 in the first
quarter of 2000 as compared to $905,706 in the same quarter of 1999. The
decrease is directly related to the transitioning of the network channel
subscribers to Big Planet in February 2000. With the transition, Big Planet
assumed the risk of collections from individual subscribers. Accordingly, the
Company continues to assess its risks of collections of accounts receivable, the
effect of which resulted in reduced provision for the three months ended March
31, 2000 as compared to the same period of 1999.
Depreciation and amortization increased $145,469 to $1,488,889 in the first
quarter of 2000 as compared to $1,343,420 in the first quarter of 1999. The
increase is due to increased depreciation on continuing acquisitions of
furniture, fixtures and equipment as well as an increase in amortization on
assets acquired through leases capitalized for accounting purposes.
Research and development increased $259,877 to $832,912 in the first quarter of
2000 as compared to $573,035 in 1999. The Company expects that expenditures for
research and development will continue at a comparable amount during the
remainder of 2000.
In the first quarter of 1999, the Company recorded a write-down of capitalized
software costs of $1,847,288. In early 1998 the Company contracted with an
outside consulting company to develop a billing and operations information
system. As of March 31, 1999 the Company had capitalized $2,284,574 in costs
associated with this in-process system development. The Company continually
evaluated the functionality and progress of the in-process system development.
In May 1999, the Company'smanagement and its Board of Directors concluded that
the new system would not significantly enhance the Company's existing billing
and information systems or meet its ultimate needs and accordingly did not
justify paying additional contracted expenses of approximately $1,000,000.
Negotiations to discontinue work under the contract were concluded in May 1999
with the consulting company forgoing any future payments on the project while
retaining amounts paid to date of $1,847,288. Accordingly the Company has
recorded a write-down on the in-process system development of $1,847,288.
Interest expense decreased $682,047 to $443,842 in the first quarter of 2000 as
compared to $1,125,889 in the same quarter of 1999. The net decrease is
primarily due amortization of debt discount and debt issuance costs (non-cash)
of $659,180 in the first quarter of 1999 for which there was no comparable
expense in the first quarter of 2000. The debt discount and debt issuance costs
in 1999 are related to warrants granted in connection with certain financing
arrangements entered into in 1999. The Company also incurred a decrease of
$22,867 in actual interest on notes payable in the first three months of 2000 as
compared to the same period in 1999.
Interest and other income increased $14,248 to $37,827 in the first quarter of
2000 as compared to $23,579 in the same quarter of 1999. The increase was
primarily due to an increase in average balance of cash on hand during 2000.
A settlement expense of $1,359,950 was recorded in the first three 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. The settlement and release agreement settled certain litigation between
the Company and JNC over non-converted Series F preferred stock held by JNC.
There was no comparable expense in 1999. The amount of this expense is subject
to change in the future in relation to the changes in the market price of the
Company's common stock until such time as the common stock is issued or the
liability is paid in cash in the event the Company is unable to issue the common
stock.
The Company recorded a loss of $350,000 from discontinued operation in the first
three months of 1999. No such loss was recorded during the same period in 2000.
16
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
On March 10, 2000 the Company and JNC entered into a settlement and release
agreement relating to certain litigation with respect to shares of Series F
Preferred stock then held by JNC. The shares of Series F Preferred stock then
held by JNC were convertible into 1,104,972 shares of common stock under the
original agreement with JNC prior to the commencement of the litigation. On
March 10, 2000, the Company issued 531,968 shares of common stock to JNC
pursuant to the settlement agreement in cancellation of the Series F shares then
held by JNC. The balance of the shares required to be issued pursuant to the
settlement agreement will need to be registered for resale under the Securities
Act of 1933, as amended, and will require shareholder approval at a special
meeting of the shareholders scheduled to be held on May 23, 2000. Due to the
delay in issuance of the shares required to be issued pursuant to the settlement
agreement until shareholder approval is received and the related common shares
are registered, the Company agreed to issue "Additional Shares" of common stock
in an amount equal to 790,000 times .0825 times a fraction the numerator of
which is the number of days from February 1, 2000 to the date such Additional
Shares are actually issued, and the denominator of which is 360. In addition to
the "Additional Shares", the Company is subject to other late fees to be paid in
common shares (the "Late Shares") in the event the additional shares are not
issued by May 24, 2000. Further, if the Company fails to deliver any of the
above shares by May 24, 2000, the Company must issue additional Late Shares
("Additional Late Shares"). In the event that the common shares are not issued
by May 24, 2000 (or June 28, 2000 in the event the Company has received a
registration comment letter related to the registration of such shares prior to
May 24, 2000), upon written notice from JNC, the Company would be required to
pay JNC (in lieu of delivering the shares) the amount determined by multiplying
the higher of the average closing share price of the common stock for the ten
trading day period ending on the deadline (May 24 or June 28, 2000 as
applicable) or the notice date by the number of undelivered shares.
The issuance of 87,477 shares representing dividends associated with the Series
F stock have been recorded in the Company's financial statements as dividends
paid and 129,519 shares have been recorded as a settlement payable (included in
accrued liabilities) and settlement expense. As of March 31, 2000, the Company
has also recorded interest expense and interest payable (included in accrued
liabilities) of $114,062 representing the common stock issuable as Additional
Shares, Late Shares and Additional Late Shares (10,863). The settlement and
interest payables and expense were determined by the respective shares issuable
as of March 31, 2000, multiplied by the market price of the Company's common
stock on March 31, 2000.
The Company is 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 on the
Company.
Item 4 - Submission of Matters to a Vote of Security Holders
The Company held a special meeting of stockholders on February 11, 2000, at
which one proposal was considered and not passed by the stockholders:
The proposal voted upon was " to approve the issuance of a number of shares of
common stock equal to or greater than 20% of the number of share of common stock
outstanding immediately before the initial issuance of the Series F preferred
stock as shall be appropriate upon conversion of the remaining outstanding
shares of Series F preferred held by JNC Opportunity Fund Ltd."
The result of the voting was:
In favor 3,248,635
Against 18,309,359
Abstain 25,135
17
Item 5 - Other Information
On May 9, 2000, the Company and Red Cube Group, a leading international provider
of Internet Protocol (IP) Telephony and enhanced Web-based communications
services based in Zurich Switzerland, announced an alliance to offer global,
enhanced IP communications to the customers of each of the two companies.
Under the terms of the agreement, Red Cube Group will license I-Link's IP
Telephony technology, standardize on I-Link's software-based platform Softswitch
Plus(TM) network and deploy it throughout its existing networks in Europe and
other parts of the world. In addition, the two companies will interconnect their
IP Telephony networks, creating a single, unified network, giving customers from
both companies global access to enhanced IP services.
Red Cube Group, upon signing of the agreement, paid the Company $10,000,000 that
consisted of a $7,500,000 licensing fee and $2,500,000 for consulting services.
The Company and Red Cube Group are obligated to use their best commercially
reasonable efforts to complete certain milestones defined in the agreement and
to negotiate in good faith a revenue sharing agreement by June 23, 2000. In the
event the Companies cannot reach agreement on the revenue sharing agreement, the
agreement with Red Cube may unwind and the Company would be liable to repay any
monies received from Red Cube Group up to that date. Red Cube Group is further
obligated to pay to the Company an additional $10,000,000 for prepaid services
prior to July 30, 2000 if the Company has substantially completed implementation
of I-Link network gateways in Europe as defined in the agreement.
Item 6(a) - Exhibits
Exhibit
Number Item
10.1 Employment agreement with Dror Nahumi dated January 3, 2000
10.2 Employment agreement with David E. Hardy dated January 3, 2000
10.3 Employment agreement with John M. Ames dated January 3, 2000
10.4 Employment agreement with Alex Radulovic dated January 3, 2000
10.5 Form of Wholesale Service Provider and Distribution Agreement between
the Company and Big Planet, Inc. dated February 1, 2000.
27 Financial data schedule.
Item 6(b) - Reports on Form 8-K
None
18
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 Incorporated
---------------------
(Registrant)
Date: May 18, 2000 By: /s/ John W. Edwards
-------------------------
John W. Edwards
Chief Executive Officer
By: /s/ John M. Ames
-------------------------
John M. Ames, CPA
Chief Operating Officer and
Acting Chief Financial Officer
19