8-K/A 1 a2055163z8-ka.txt 8-K/A SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K / A#2 CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES AND EXCHANGE ACT OF 1934 APRIL 17, 2001 Date of Report (date of Earliest Event Reported) I-LINK INCORPORATED (Exact Name of Registrant as Specified in its Charter) FLORIDA 0-17973 59-2291344 (State or Other Jurisdiction of (Commission File No.) (I.R.S. Employer Incorporation or Organization) Identification No.) 13571 SOUTH WADSWORTH PARK DRIVE, SUITE 200, DRAPER, UTAH 84020 (Address of principal executive offices and zip code) (801) 576-5000 (Registrant's telephone number, including area code) NOT APPLICABLE (Former name or former address, if changed from last report) ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS On May 2, 2001, Registrant filed a Current Report on form 8-K to announce the acquisition of WebToTel, Inc., a Delaware corporation. This amendment to Registrant's Current Report on Form 8-K is being filed to include the Financial Statements and Pro Forma Financial Information required by Item 7 of Form 8-K. This Form 8K/A#2 amends I-Link's Form 8K/A#1 filed on June 29, 2001. Specifically, the Unaudited Pro Forma Combined Condensed Statement of Operations for the year ended December 31, 2000 has been amended as more fully disclosed in Note 4 on Page F-20 herein. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (a) Financial Statement of the Business Acquired. See Index to Financial Statements and Pro Forma Financial Information on Page F-1 of this Report (b) Pro Forma Financial Information. See Index to Financial Statements and Pro Forma Financial Information on Page F-1 of this Report 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 duly authorized undersigned. Date: July 27, 2001 I-Link Incorporated /s/ James A. Giauque --------------------------- James A. Giauque Chief Accounting Officer I-LINK INCORPORATED INDEX TO FINANCIAL STATEMENTS AND PRO FORMA FINANCIAL INFORMATION
NEXBELL COMMUNICATIONS INC. PAGE ---- Report of Independent Accountants F-1 Balance Sheet F-2 Statement of Operations F-3 Statement of Stockholders' Equity (Deficit) F-4 Statement of Cash Flows F-5 Notes to Financial Statements F-6 PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) Unaudited Pro Forma Combined Condensed Financial Statements F-16 Unaudited Pro Forma Combined Condensed Balance Sheet F-17 Unaudited Pro Forma Combined Condensed Statement of Operations F-18 Notes to Unaudited Pro Forma Combined Condensed Financial Statements F-19
NEXBELL COMMUNICATIONS, INC. FINANCIAL STATEMENTS DECEMBER 31, 2000 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Nexbell Communications, Inc. In our opinion, the accompanying balance sheet and the related statements of operations, of stockholders' equity (deficit) and of cash flows present fairly, in all material respects, the financial position of Nexbell Communications, Inc. at December 31, 2000, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP June 15, 2001 Salt Lake City, Utah F-1 NEXBELL COMMUNICATIONS, INC. BALANCE SHEET
December 31, 2000 ASSETS Current assets: Cash and cash equivalents $ 366,855 Accounts receivable, net of allowance for doubtful accounts of $161,858 330,093 Prepaid expenses and other current assets 78,063 ----------- Total current assets 775,011 Property and equipment, net 667,592 Deferred costs 36,656 Other non-current assets 47,331 ----------- Total assets $ 1,526,590 =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 450,047 Accrued liabilities 250,982 Deferred revenue 379,149 Lease incentive 255,288 Capital lease obligations, current 185,140 ----------- Total current liabilities 1,520,606 Deposits 210,807 Notes payable 6,119,504 Capital lease obligations, non-current 109,910 ----------- Total liabilities 7,960,827 ----------- Commitments (Note 5) Stockholders' deficit: Preferred stock: $0.001 par value; 20,000,000 shares authorized; 0 shares issued and outstanding -- Common stock: $0.001 par value; 30,000,000 shares of Class A and 10,000,000 Class B common stock authorized; 20,246,000 shares of Class A issued and outstanding 20,246 Additional paid-in capital 1,174,854 Notes receivable from stockholders (30,000) Accumulated deficit (7,599,337) ----------- Total stockholders' deficit (6,434,237) ----------- Total liabilities and stockholders' deficit $ 1,526,590 ===========
The accompanying notes are an integral part of these financial statements. F-2 NEXBELL COMMUNICATIONS, INC. STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2000 REVENUES: Telecommunication services $ 1,455,456 ----------- Total revenues 1,455,456 OPERATING COSTS AND EXPENSES: Telecommunication network expense 4,048,943 Selling, general and administrative 2,788,040 Provision for doubtful accounts 164,921 Depreciation and amortization 265,257 ----------- Total operating costs and expenses 7,267,161 OPERATING LOSS (5,811,705) OTHER INCOME (EXPENSE): Interest expense 256,878 Interest and other income (21,457) Other expense 139,606 ----------- Total other expense 375,027 Net loss $(6,186,732) ===========
The accompanying notes are an integral part of these financial statements. F-3 NEXBELL COMMUNICATIONS, INC. STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) FOR THE YEAR ENDED DECEMBER 31, 2000
Notes from Additional Receivable Total Members' Common Stock Paid-In Members and Accumulated Stockholders' Capital Shares Amount Capital Stockholders Deficit Deficit Balance at January 1, 2000 $ 1,051,100 -- $ -- $ -- $(424,000) $(1,412,605) $ (785,505) Payment on notes receivable from members -- -- -- -- 424,000 -- 424,000 Issuance of notes receivable from stockholders -- -- -- -- (30,000) -- (30,000) Issuance of common stock upon recapitalization (1,051,100) 20,102,000 20,102 1,030,998 -- -- -- Exercise of common stock options -- 144,000 144 29,856 -- -- 30,000 Stock compensation expense -- -- -- 114,000 -- -- 114,000 Net loss -- -- -- -- -- (6,186,732) (6,186,732) ----------- ----------- ------- ---------- --------- ----------- ----------- Balance at December 31, 2000 $ -- 20,246,000 $20,246 $1,174,854 $ (30,000) $(7,599,337) $(6,434,237) =========== =========== ======= ========== ========= =========== ===========
The accompanying notes are an integral part of these financial statements. F-4 NEXBELL COMMUNICATIONS, INC. STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2000 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(6,186,732) Adjustments to reconcile net loss to net cash used in operating activities: Provision for doubtful accounts 164,922 Loss on disposal of assets 103,897 Depreciation and amortization 265,257 Amortization of lease incentive (382,932) Stock compensation expense 114,000 Increase (decrease) from changes in operating assets and liabilities: Accounts receivable (460,558) Prepaid expenses and other current assets 2,844 Accounts payable (93,996) Accrued liabilities 258,653 Deferred revenue 352,630 Deposits 191,666 ----------- Net cash used in operating activities (5,670,349) ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (410,767) ----------- Net cash used in investing activities (410,767) ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from notes receivable 148,686 Payments on notes receivable from members 424,000 Proceeds from notes payable 5,866,098 ----------- Net cash provided by financing activities 6,438,784 ----------- Net increase in cash and cash equivalents 357,668 Cash and cash equivalents at beginning of year 9,187 ----------- Cash and cash equivalents at end of year $ 366,855 =========== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for income taxes $ -- =========== Cash paid for interest $ -- =========== SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITY: Property and equipment acquired under capital leases $ 295,050 =========== Common stock acquired through issuance of notes receivable $ 30,000 ===========
The accompanying notes are an integral part of these financial statements. F-5 NEXBELL COMMUNICATIONS, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000 1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES THE COMPANY Nexbell Communications, Inc. (the "Company") is a wholesale network telecommunications provider, enabling the Company's customers to provide Voice over Internet Protocol ("VoIP") solutions to their customers. The Company was formed and registered in the State of Ohio as Intelligent Communications LLC in May 1999. Effective March 31, 2000, the assets and liabilities of the Company were transferred to Nexbell Communications, Inc., a Delaware C-Corporation owned by the members of Intelligent Communications LLC, in a transaction accounted for at historical cost as a reorganization of entities under common control. The Company incurred a net loss of $6,186,732 for the year ended December 31, 2000 and as of December 31, 2000 had an accumulated deficit of $7,599,337 and negative working capital of $745,595. The Company anticipates that revenues generated from its operations will not be sufficient during 2001 to fund ongoing operations, product development and anticipated growth in its subscriber base. The Company entered into an acquisition agreement with WebToTel, Inc., ("WebToTel") on February 22, 2001 (a subsidiary of Counsel Communications, LLC) and WebToTel was subsequently acquired by I-Link Corporation on April 17, 2001 (see Note 9). As a result of Counsel Communications, LLC ("Counsel") being the majority stockholder of WebToTel and I-Link Corporation, Counsel has committed to fund, through long-term inter-company advances or equity contributions, all capital investments, working capital or other operational cash requirements of the companies through April 15, 2002. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. REVENUE RECOGNITION The Company recognizes revenues as services are provided to the customer. Payment is received on a monthly basis for the following month's services. This revenue is deferred until service has been provided. CASH EQUIVALENTS The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The Company deposits cash and cash equivalents with high credit quality financial institutions located in Ohio. At times, such amounts may exceed the F.D.I.C. limits. The Company limits the amount of credit exposure with any one financial institution and believes that no significant concentration of credit risk exists with respect to cash investments. F-6 NEXBELL COMMUNICATIONS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 CONCENTRATION OF RISK Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, cash equivalents and accounts receivable. The Company's accounts receivable are derived from revenue earned from customers located in the U.S. The Company maintains an allowance for doubtful accounts receivable based upon the expected collectibility of accounts receivable. For the year ended December 31, 2000, two customers accounted for 26.6% and 21.5% of net revenues, respectively. Additionally, at December 31, 2000, these customers accounted for 11.3% and 3.1% of net accounts receivable, respectively. The Company relies primarily on one supplier for network services. The loss of this supplier could be detrimental to the Company's operations if there was a significant delay in finding a replacement supplier. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the lesser of the asset life or lease term (if applicable). The following are the estimated useful lives of the assets: Furniture and fixtures 7 years Office and computer equipment 7 years Leasehold improvements 3 years Computer software 3 years
LONG-LIVED ASSETS The Company evaluates the recoverability of its long-lived assets in accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS 121"). SFAS 121 requires recognition of impairment of long-lived assets in the event the net book value of such assets exceeds the future undiscounted cash flows attributable to such assets. Through December 31, 2000, the Company had recorded no impairment of long-lived assets. STOCK-BASED COMPENSATION The Company accounts for stock-based employee compensation arrangements in accordance with provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," ("APB No. 25") and complies with the disclosure provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). SOFTWARE DEVELOPMENT COSTS Costs related to the development of internal use software are capitalized in accordance with Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use". Capitalized software is amortized on a straight-line basis over 3 years. F-7 NEXBELL COMMUNICATIONS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 INCOME TAXES The Company records deferred taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," ("SFAS No. 109"). SFAS 109 requires recognition of deferred tax assets and liabilities for temporary differences between the tax bases of assets and liabilities and the amounts at which they are carried in the financial statements, based upon the enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," ("SFAS 133"). SFAS 133 establishes new standards of accounting and reporting for derivative instruments and hedging activities. SFAS 133 requires that all derivatives be recognized at fair value in the statement of financial position, and that the corresponding gains or losses be reported either in the statement of operations or as a component of comprehensive income, depending on the type of hedging relationship that exists. The Company will adopt SFAS 133 in the first quarter of 2001. The Company does not currently hold derivative instruments or engage in hedging activities. Accordingly, the adoption of SFAS 133 is not expected to have a material effect on the Company's financial position or results of operations. 2. BALANCE SHEET COMPONENTS
PROPERTY AND EQUIPMENT DECEMBER 31, 2000 Computer equipment under capital leases $ 295,050 Computer equipment and software 285,574 Telecommunications network equipment 87,540 Leasehold improvements 86,474 Furniture and fixtures 63,429 --------- 818,067 Less: Accumulated depreciation (150,475) --------- $ 667,592 =========
Accumulated depreciation of computer equipment under capital leases totaled $34,419 at December 31, 2000. F-8 NEXBELL COMMUNICATIONS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000
DECEMBER 31, 2000 DEFERRED COSTS Installation costs $ 207,719 Less: Accumulated amortization (171,063) --------- $ 36,656 =========
Capitalized costs related to the network service provider installation are being amortized on a straight-line basis over the three year life of the service contract.
DECEMBER 31, 2000 ACCRUED LIABILITIES: Payroll and related expenses $116,028 Service fees and installation costs 58,574 Service provider expenses 55,093 Other 21,287 -------- $250,982 ========
F-9 NEXBELL COMMUNICATIONS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 3. INCOME TAXES The Company recognized no income tax benefit from its net loss for the year ended December 31, 2000. Deferred tax assets and liabilities consist of the following:
DECEMBER 31, 2000 DEFERRED TAX ASSETS: Net operating loss carryforwards $ 2,753,000 Accruals and reserves 79,000 ----------- 2,832,000 =========== Net deferred tax asset 2,832,000 Valuation allowance (2,832,000) ----------- $ -- ===========
Management believes that, based on a number of factors, it is more likely than not that the net deferred tax asset will not be utilized. Therefore, a full valuation allowance has been recorded at December 31, 2000. At December 31, 2000, the Company had approximately $7,379,500 of federal and state net operating loss carryforwards available to offset future taxable income which expire in varying amounts beginning in 2020. Under the Tax Reform Internal Revenue Code regulations, the amounts of and benefits from net operating loss carryforwards may be limited in certain circumstances. Events which cause limitations in the amount of net operating losses that the Company may utilize in any one year include, but are not limited to, a cumulative ownership change of more than 50%, as defined, over a three year period. F-10 NEXBELL COMMUNICATIONS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 4. BORROWINGS NOTE PAYABLE The Company has a note payable to Counsel, a related party (see Note 9). Effective July 2000, Counsel managed certain aspects of the Company's business based on a preliminary acquisition agreement. The note is collateralized by accounts receivable and intangible assets. The Revolving Loan Agreement ("Agreement") allows Counsel to make periodic loans to the Company capped at an aggregate principal amount of $10,000,000. All principal and interest outstanding incurs interest that is compounded quarterly at a rate of 10 percent per annum. No interest has been paid on the note as of December 31, 2000. The Agreement terminates upon the earlier of: 1) The closing of the equity financing in respect of the asset purchase transaction between PT-1 Communications, Inc. and Counsel, 2) or April 5, 2002. As of December 31, 2000, the PT-1 equity financing had not occurred. The loan balance as of December 31, 2000 is $6,119,504, which includes accrued interest of $253,406. Under the Agreement, the Company is not required to maintain specific financial covenants. 5. COMMITMENTS AND CONTINGENCIES LEASES The Company leases office space and equipment under noncancelable operating and capital leases with various expiration dates through 2004. Upon inception, the Company received a lease incentive payment of $875,000 under a certain equipment lease, which is being amortized over the term of the related lease as a reduction of rental expense. Total rent expense for the year ended December 31, 2000 was $1,847,723, net of $382,932 of lease incentive amortization. The Company recognizes rent expense as it is paid. F-11 NEXBELL COMMUNICATIONS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 Future minimum lease payments under noncancelable operating and capital leases at December 31, 2000 are as follows:
YEAR ENDED CAPITAL OPERATING DECEMBER 31, LEASES LEASES 2001 $ 235,025 $2,761,570 2002 117,513 1,127,438 2003 -- 419,734 --------- ---------- Total minimum lease payments 352,538 $4,308,742 ========== Less: Amount representing interest (57,488) --------- Present value of capital lease obligations 295,050 Less: current portion (185,140) --------- Long-term portion of capital lease obligations $ 109,910 =========
Subsequent to December 31, 2000, the Company acquired additional equipment under operating lease agreements which expire in 2004. Future minimum payments under these leases are as follows:
YEAR ENDED DECEMBER 31, 2001 $ 156,177 2002 217,971 2003 217,971 2004 61,794 --------- $ 653,913 =========
6. COMMON STOCK The Company's Articles of Incorporation, as amended, authorize the Company to issue 60,000,000 shares of stock consisting of 30,000,000 shares of Class A Voting Common Stock with a par value of $0.001 per share, 10,000,000 shares of Class B Non-Voting Common Stock with a par value of $0.001 per share, and 20,000,000 shares of Preferred Stock with a par value of $0.001 per share. As of December 31, 2000, there were 20,246,000 shares of Class A Voting Common Stock issued and outstanding and no shares of Class B Non-Voting Common Stock or Preferred Stock issued or outstanding. A portion of the shares previously sold are subject to a right of repurchase by the Company (at the price paid by employees) subject to vesting, which is generally over a four year period from the F-12 NEXBELL COMMUNICATIONS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 earlier of grant date or employee hire date, as applicable, until vesting is complete. At December 31, 2000, there were 24,000 shares subject to repurchase. Effective March 31, 2000, the members of Intelligent Communications LLC, (the "LLC") exchanged their membership interests for shares of Class A Common Stock in Nexbell Communications, Inc. (a Delaware C-Corporation). The members received stock in Nexbell Communications, Inc. in proportion to their ownership interests in the LLC. 7. STOCK OPTIONS In May 1999, the Company adopted the 1999 Stock Option Plan (the "1999 Plan"). The 1999 Plan provides for the granting of stock options to employees of the Company. Options granted under the 1999 Plan are nonqualified stock options (NSO). Options under the 1999 Plan may be granted for periods of up to ten years and at prices no less than 85% of the estimated fair value of the shares on the date of grant as determined by the Board of Directors, provided, however, that a) the exercise price of a NSO shall not be less than 100% and 85% of the estimated fair value of the shares on the date of grant, respectively, and b) the exercise price of a NSO granted to a 10% stockholder shall not be less than 110% of the estimated fair value of the shares on the date of grant. Options typically vest over three years. Unexercised options expire one year from the date of vesting. The following table sets forth the stock option activity: YEAR ENDED DECEMBER 31, 2000 WEIGHTED AVERAGE SHARES EXERCISE PRICE Options outstanding at January 1, 2000 2,130,000 $ 0.05 Options granted 44,000 1.00 Options exercised (144,000) 0.21 Options canceled (1,000) 1.00 --------- Outstanding at December 31, 2000 2,029,000 $ .06 ========= Options exercisable at December 31, 2000 1,209,999 =========
F-13 NEXBELL COMMUNICATIONS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 The following table summarizes information on stock options outstanding:
OPTIONS EXERCISABLE AT OPTIONS OUTSTANDING AT DECEMBER 31, 2000 DECEMBER 31, 2000 WEIGHTED AVERAGE WEIGHTED WEIGHTED RANGE OF REMAINING AVERAGE AVERAGE EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE PRICE OUTSTANDING LIFE (YEARS) PRICE OUTSTANDING PRICE $ 0.05 2,010,000 3 years $ .05 1,209,999 $ 0.05 1.00 19,000 1.5 years 1.00 -- 1.00 --------- --------- $0.05 to 1.00 2,029,000 2.9 years $ .06 1,209,999 $ 0.06 ========= =========
As permitted under APB No. 25, no compensation cost was recognized in the statement of operations for the Company's outstanding stock options. Had compensation cost for the Company's stock-based compensation plan been recognized ratably over the options' vesting periods, in accordance with SFAS 123, the Company's pro forma net loss would have been $6,195,661 for the year ended December 31, 2000. The weighted-average fair value of options granted during the year ended December 31, 2000 was $0.12. Option grant date fair values were determined using a Black-Scholes option pricing model. The following table summarizes the underlying assumptions used. Risk-free interest rate 6.27% Expected stock price volatility 0 Expected dividend yield 0 Expected option term 2 years
Due to a pending merger agreement with WebToTel, Inc., dated August 7, 2000, all employees were given the opportunity to exercise their options immediately. Several Company employees exercised their options, acquiring 144,000 shares for $30,000. The Company allowed the employees to exercise their options utilizing non-recourse notes receivable which are due on demand, with no interest. In accordance with APB No. 25, the Company recognized a compensation charge of $114,000 in the statement of operations for the incremental fair value of the common stock at December 31, 2000 over the purchase price for those options exercised with notes receivable. This compensation charge will continue to be remeasured until such time as the notes receivable are paid or forgiven. F-14 NEXBELL COMMUNICATIONS, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 8. EMPLOYEE BENEFIT PLANS The Company sponsors a 401(k) defined contribution plan covering all employees. Contributions made by the Company are determined annually by the Board of Directors. Employer contributions under this plan amounted to $76,123 for the year ended December 31, 2000. 9. SUBSEQUENT EVENTS On February 22, 2001, the Company was acquired by WebToTel, a subsidiary of Counsel. On April 17, 2001, WebToTel and the Company were acquired by I-Link Corporation, a company controlled by Counsel. F-15 I-LINK INCORPORATED UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS The following unaudited pro forma combined condensed financial statements have been prepared to give effect to the merger with WebToTel, Inc. ("WebToTel") and it's subsidiary Nexbell Communications Inc. ("Nexbell"). Effective March 2001, I-Link Incorporated ("I-Link") became a majority owned subsidiary of Counsel Corporation ("Counsel"). The historic financial statements of I-Link do not reflect the transaction between Counsel and I-Link. As a result of the transaction, I-Link, WebToTel and Nexbell were under common control of Counsel at the time of I-Link's acquisition of WebToTel. The merger of I-Link and WebToTel has been accounted for using Counsel's purchase price allocated to the assets and liabilities pursuant to APB 16. WebToTel acquired Nexbell on February 22, 2001 and accounted for that acquisition using the purchase method of accounting, the effects of which are reflected in the accompanying pro forma financial statements. The unaudited pro forma combined condensed balance sheet as of December 31, 2000 gives effect to the merger as if it had occurred on December 31, 2000, and combines the historical consolidated balance sheet of I-Link and the historical consolidated balance sheets of WebToTel and Nexbell as of such date. The unaudited pro forma combined condensed statement of operations combines the historical consolidated statements of operations of I-Link, WebToTel and Nexbell as if the merger had occurred as of January 1, 2000. The unaudited pro forma combined condensed statement of operations for the year ended December 31, 2000 combines the historical consolidated statement of operations of I-Link with the historical consolidated statements of operations of WebToTel and Nexbell for the year ended December 31, 2000. Unaudited pro forma combined condensed financial information is presented for illustrative purposes only and is not necessarily indicative of the financial position or results of operations that would have actually been reported had the merger occurred at the beginning of the period presented, nor is it necessarily indicative of future financial position or results of operations. These unaudited pro forma combined condensed financial statements are based upon the respective historical consolidated financial statements of I-Link, WebToTel and Nexbell and notes thereto. These unaudited pro forma combined condensed financial statements do not incorporate, nor do they assume, any benefits from cost savings or synergies of operations of the combined company. F-16 UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET as of December 31, 2000
I-LINK NEXBELL WEBTOTEL ADJUSTMENTS PRO FORMA ------------- ----------- ----------- ------------ ------------- ASSETS Current assets: Cash $ 2,155,628 $ 366,855 -- -- $ 2,522,483 Accounts receivable, net 3,357,856 330,093 -- -- 3,687,949 Other current assets 385,891 78,063 $ 196,506 -- 660,460 ------------- ----------- ----------- ------------ ------------- Total current assets 5,899,375 775,011 196,506 -- 6,870,892 ------------- ----------- ----------- ------------ ------------- Furniture, fixtures, equipment and software, net 10,983,273 667,592 -- -- 11,650,865 Other assets: Intangibles, net 3,939,226 -- -- $ 9,002,864 (C) 12,942,090 Deferred costs -- 36,656 748,838 -- 785,494 Certificates of deposit - restricted 222,636 -- -- -- 222,636 Other 612,982 47,331 40,544 (40,544)(C) 660,313 ------------- ----------- ----------- ------------ ------------- $ 21,657,492 $ 1,526,590 $ 985,888 $ 8,962,320 $ 33,132,290 ============= =========== =========== ============ ============= LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable $ 5,370,490 $ 450,047 -- -- $ 5,820,537 Accrued liabilities 3,327,900 250,982 -- $ 175,000 (A) 3,753,882 Unearned revenue 14,885,592 379,149 -- -- 15,264,741 Accrued interest on note payable to related party 2,376,498 -- $ 23,718 (23,718)(B) 2,376,498 Current portion lease incentive -- 255,288 -- -- 255,288 Note payable to related party 7,768,000 -- 2,073,373 (2,073,373)(B) 7,768,000 Current portion of long-term debt 785,971 -- -- -- 785,971 Current portion of obligations under capital leases 1,445,690 185,140 -- -- 1,630,830 ------------- ----------- ----------- ------------ ------------- Total current liabilities 35,960,141 1,520,606 2,097,091 (1,922,091) 37,655,747 Notes payable 796,662 6,119,504 -- (6,119,504)(B) 796,662 Deposits -- 210,807 -- -- 210,807 Obligations under capital lease 338,263 109,910 -- -- 448,173 Unearned revenue 1,666,667 -- -- -- 1,666,667 ------------- ----------- ----------- ------------ ------------- Total liabilities 38,761,733 7,960,827 2,097,091 (8,041,595) 40,778,056 ------------- ----------- ----------- ------------ ------------- Redeemable preferred stock - Series M 11,734,820 -- -- -- 11,734,820 ------------- ----------- ----------- ------------ ------------- Stockholders deficit: Preferred stock 244,350 -- -- -- 244,350 Common stock 196,957 20,246 50,000 51,934 (B) 319,137 Additional paid-in capital 106,622,114 1,174,854 -- 9,527,644 (B,C) 117,324,612 Note receivables from stockholders -- (30,000) -- -- (30,000) Accumulated deficit (135,902,482) (7,599,337) (1,161,203) 7,424,337 (A,C) (137,238,685) ------------- ----------- ----------- ------------ ------------- Total stockholders' deficit (28,839,061) (6,434,237) (1,111,203) 17,003,915 (19,380,586) ------------- ----------- ----------- ------------ ------------- $ 21,657,492 $ 1,526,590 $ 985,888 $ 8,962,320 $ 33,132,290 ============= =========== =========== ============ =============
The accompanying notes are an integral part of these unaudited pro forma combined condensed financial statements F-17 UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS for the year ended December 31, 2000
I-LINK NEXBELL WEBTOTEL ADJUSTMENTS PRO FORMA ------------ ----------- ----------- ------------ ------------ Revenues: Telecommunication services $ 18,300,548 $ 1,455,456 -- -- $ 19,756,004 Marketing services 463,740 -- -- -- 463,740 Technology licensing and development 8,972,828 -- -- -- 8,972,828 Other 2,667,039 -- -- -- 2,667,039 ------------ ----------- ----------- ------------ ------------ 30,404,155 1,455,456 -- -- 31,859,611 Operating costs and expenses: Telecommunication network expense 24,958,320 4,048,943 -- -- 29,007,263 Marketing services 456,354 -- -- -- 456,354 Selling, general and administrative 18,353,731 2,788,040 -- -- 21,141,771 Unsuccessful acquisition costs -- -- $ 1,137,485 -- 1,137,485 Provision for doubtful accounts 113,168 164,921 -- -- 278,089 Depreciation and amortization 6,399,318 265,257 -- $ 1,800,573 (D) 8,465,148 Research and development 4,220,333 -- -- -- 4,220,333 ------------ ----------- ----------- ------------ ------------ Total operating costs and expenses 54,501,224 7,267,161 1,137,485 1,800,573 64,706,443 Operating loss (24,097,069) (5,811,705) (1,137,485) (1,800,573) (32,846,832) ------------ ----------- ----------- ------------ ------------ Other income (expense): Interest expense (1,502,676) (256,878) (23,718) -- (1,783,272) Interest and other income 487,132 21,457 -- -- 508,589 Loss on sale of assets -- (139,606) -- -- (139,606) Settlement expense (639,565) -- -- -- (639,565) ------------ ----------- ----------- ------------ ------------ Total other income (expense) (1,655,109) (375,027) (23,718) -- (2,053,854) ------------ ----------- ----------- ------------ ------------ Net loss ($25,752,178) ($6,186,732) ($1,161,203) ($ 1,800,573) ($34,900,686) ============ =========== =========== ============ ============ Calculation of net loss per common share: Net loss ($25,752,178) ($6,186,732) ($1,161,203) ($ 1,800,573) ($34,900,686) Cumulative preferred stock dividends not paid in current year (1,646,818) -- -- -- (1,646,818) ------------ ----------- ----------- ------------ ------------ Loss applicable to common stock ($27,398,996) ($6,186,732) ($1,161,203) ($ 1,800,573) ($36,547,504) ============ =========== =========== ============ ============ Basic and diluted weighted average shares outstanding 26,669,058 -- -- 17,454,333 (E) 44,123,391 ============ =========== =========== ============ ============ Net loss per common share - basic and diluted $ (1.03) $ (0.83) ============ ============
The accompanying notes are an integral part of these unaudited pro forma combined condensed financial statements F-18 I-LINK INCORPORATED.. NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS NOTE 1--BASIS OF PRESENTATION: On April 17, 2001, I-Link Incorporated ("I-Link") completed the merger with WebToTel, Inc ("WebToTel") and its subsidiary Nexbell Communications Inc. ("Nexbell"). WebToTel was an entity established to acquire telecommunication companies. Nexbell is a wholesale network telecommunications provider. I-Link acquired WebToTel and its subsidiary Nexbell for consideration consisting of 17,454,333 shares of I-Link's common stock and acquisition costs of approximately $175,000. Each share of WebToTel stock was exchanged for .1313 shares of I-Link common stock. This transaction was recorded using book value purchase accounting (similar to the pooling-of-interests method of accounting) as all three entities were under common control of Counsel Communications LLC (a wholly owned subsidiary of Counsel Corporation) at the time of the merger. The merger was a tax-free reorganization under Section 368(a) of the Internal Revenue Code of 1986, as amended. NOTE 2--PRO FORMA ADJUSTMENTS: The following pro forma adjustments were applied to the historical consolidated financial statements of I-Link, WebToTel and Nexbell to arrive at the unaudited pro forma combined condensed financial information. (A) Adjustment to record the accrual of the estimated costs resulting from the merger of I-Link and Nexbell. Estimated transaction and merger costs include the following: -- Financial advisory fees. $ 75,000 -- Legal and accounting professional fees. 100,000 -------- $175,000 ========
These estimated costs are not reflected in the pro forma combined condensed statement of operations because they are non-recurring in nature. (B) Adjustment related to the issuance of 17,454,333 shares of I-Link common stock in exchange for all of the outstanding stock of WebToTel. Includes adjustment for note payable from WebToTel ($2,073,373) to Counsel and related accrued interest ($23,718) which were converted into capital of WebToTel in April 2001. F-19 I-LINK INCORPORATED NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS NOTE 2--PRO FORMA ADJUSTMENTS, CONTINUED (C) Adjustment to reflect purchase accounting adjustments including the addition of goodwill from the acquisition of Nexbell by WebToTel in February 2001, and the elimination of Nexbell's equity accounts as of December 31, 2000. This transaction was recorded using the purchase method of accounting. The allocation of the aggregate purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed in connection with this acquisition was based on the estimated fair values as determined by Counsel's management. The purchase price allocation resulted in $9 million of goodwill, which will be amortized over five years. (D) Pro forma adjustment to record amortization of the intangible asset recorded in entry C above. (E) Adjustment to the weighted average shares outstanding to reflect I-Link shares issued (17,454,333) upon acquisition of WebToTel and Nexbell. NOTE 3--PRO FORMA NET LOSS PER SHARE: Basic and diluted weighted average shares outstanding were calculated based upon the historical basic and diluted weighted average shares outstanding of I-Link, increased by the shares I-Link issued upon acquisition of WebToTel and Nexbell which assumes the shares had been outstanding during all of 2000. Because the companies are in a net loss position on a pro forma combined condensed basis, inclusion of potential common stock in the computation of pro forma net loss per share is anti-dilutive; therefore, potential common stock is excluded from the per share amounts. NOTE 4--AMENDED FILING: This Form 8K/A#2 amends I-Link's Form 8K/A#1. Specifically, the Unaudited Pro Forma Combined Condensed Statement of Operations for the year ended December 31, 2000 originally reported an adjustment to depreciation and amortization of $750,239 (see Note 2(D) above). This amendment revises that amount to $1,800,573. Accordingly the pro forma loss and loss per share have been restated as follows:
as originally reported as restated ------------- ----------- Net Loss $ 33,850,352 $ 34,900,113 Loss per common share - basic and diluted $ (0.80) $ (0.83)
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