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 September 30, 1998
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)
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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 November 16, 1998, the registrant had outstanding 18,754,352 shares of $0.007 par value common stock.
PART I - FINANCIAL INFORMATION
I-LINK INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS September 30,
1998 December 31,
(Unaudited) 1997
------------- -------------
Current assets:
Cash and cash equivalents $ 2,075,996 $ 1,643,805
Accounts receivable, less allowance for
doubtful accounts of $1,759,000 and
$1,385,000 as of September 30, 1998 and
December 31, 1997, respectively 5,066,966 3,233,207
Certificates of deposit - restricted 780,661 1,628,500
Other current assets 989,891 321,488
Net assets of discontinued operations 487,371 -
---------- ----------
Total current assets 9,400,885 6,827,000
Furniture, fixtures and equipment, net 5,912,859 3,551,917
Other assets:
Intangible assets, net 10,143,806 12,314,080
Certificates of deposit - restricted 217,624 259,000
Other assets 204,764 705,502
Net assets of discontinued operations - 595,377
---------- ----------
Total assets $ 25,879,938 $ 24,252,876
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 4,514,060 $ 4,833,452
Accrued liabilities 3,539,459 2,770,997
Current portion of long-term debt 10,234,850 2,008,416
Current portion of obligations under
capital leases 95,130 169,315
---------- ----------
Total current liabilities 18,383,499 9,782,180
Long-term debt - 1,854,341
Obligations under capital leases - 67,159
---------- ----------
Total liabilities 18,383,499 11,703,680
---------- ----------
Commitments and contingencies (note 6)
Redeemable preferred stock (note 4) 9,470,000 -
---------- ----------
Stockholders' equity (deficit):
Preferred stock, $10 par value, authorized
10,000,000 shares, issued and outstanding
50,951 and 119,926 at September 30, 1998
and December 31, 1997, respectively,
liquidation preference of $26,572,156
at September 30, 1998 509,510 1,199,260
Common stock, $.007 par value, authorized
75,000,000 shares, issued and outstanding
18,692,352 and 16,036,085 at September 30,
1998 and December 31, 1997, respectively 130,846 112,251
Additional paid-in capital 78,868,200 70,511,697
Deferred compensation ( 1,273,572) 2,289,765
Accumulated deficit (80,208,545) (56,984,247)
---------- ----------
Total stockholders' equity (deficit) ( 1,973,561) 12,549,196
---------- ----------
Total liabilities and stockholders'
equity (deficit) $ 25,879,938 $ 24,252,876
========== ==========
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The accompanying notes are an integral part of these consolidated financial statements.
I-LINK INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
Revenues:
Telecommunication services $ 5,020,650 $ 2,705,135 $ 13,936,594 $ 7,119,960
Marketing services, net 1,328,949 902,736 3,634,158 1,623,226
Technology licensing and development 406,779 139,700 987,389 139,700
---------- ---------- ---------- ----------
Total revenues 6,756,378 3,747,571 18,558,141 8,882,886
---------- ---------- ---------- ----------
Operating costs and expenses:
Telecommunication network expense 5,095,263 3,500,867 14,605,813 10,566,657
Marketing services 1,364,110 1,082,543 4,575,067 1,723,282
Selling, general and administrative 2,591,078 2,290,498 7,523,170 6,442,415
Provision for doubtful accounts 875,651 440,000 2,324,313 785,000
Acquired in-process research
and development - 4,235,830 - 4,235,830
Depreciation and amortization 1,059,406 680,821 3,109,232 1,493,972
Research and development 607,903 282,320 1,752,058 627,654
---------- ---------- ---------- ----------
Total operating costs and expenses 11,593,411 12,512,879 33,889,653 25,874,810
---------- ---------- ---------- ----------
Operating loss ( 4,837,033) ( 8,765,308) (15,331,512) (16,991,924)
---------- ---------- ---------- ----------
Other income (expense):
Interest expense ( 303,835) ( 1,270,508) ( 7,944,412) ( 1,843,779)
Interest and other income 96,168 43,973 159,632 184,697
---------- ---------- ---------- ----------
Total other income (expense) ( 207,667) ( 1,226,535) ( 7,784,780) ( 1,659,082)
---------- ---------- ---------- ----------
Loss from continuing operations ( 5,044,700) ( 9,991,843) (23,116,292) (18,651,006)
Loss from discontinued operations
(less applicable income tax
provision of $0 for the three- and
nine-month periods ended September
30, 1998 and 1997) - ( 12,865) ( 108,006) ( 103,342)
---------- ---------- ---------- ----------
Net loss $( 5,044,700) $(10,004,708) $(23,224,298) $(18,754,348)
========== ========== ========== ==========
Net loss per common share - basic and diluted:
Loss from continuing operations $( 0.71) $( 0.88) $( 1.86) $( 1.78)
Loss from discontinued operations - - ( 0.01) ( 0.01)
---------- ---------- ---------- ----------
Net loss per common share $( 0.71) $( 0.88) $( 1.87) $( 1.79)
========== ========== ========== ==========
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The accompanying notes are an integral part of these consolidated financial statements.
I-LINK INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(UNAUDITED)
Preferred Stock Common Stock Additional
------------------- -------------------- Paid-in Deferred Accumulated
Shares Amount Shares Amount Capital Compensation Deficit
------- ---------- ---------- -------- ----------- ------------ -------------
Balance at
December 31, 1997 119,926 $1,199,260 16,036,085 $112,251 $70,511,697 $(2,289,765) $(56,984,247)
Conversion of
preferred stock
into common stock (68,975) ( 689,750) 2,256,727 15,798 673,952 - -
Amortization of
deferred
compensation on
stock options
issued for
services - - - - - 742,598 -
Forfeiture of
stock options
issued for
services - - - - (273,595) 273,595 -
Exercise of stock
options - - 399,540 2,797 682,146 - -
Warrants issued in
connection with
certain convertible
notes payable - - - - 7,274,000 - -
Net loss - - - - - - (23,224,298)
------- ---------- ---------- -------- ----------- ------------ -------------
Balance at
September 30,1998 50,951 $ 509,510 18,692,352 $130,846 $78,868,200 $(1,273,572) $(80,208,545)
======= ========== ========== ======== =========== ============ =============
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The accompanying notes are an integral part of these consolidated financial statements.
I-LINK INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Nine Months Ended
September 30,
----------------------------
1998 1997
------------- -------------
Cash flows from operating activities:
Net loss $(23,224,298) $(18,754,348)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 3,109,232 1,493,972
Provision for doubtful accounts 2,324,313 785,000
Provision for asset valuation - 213,944
Amortization of discount on notes payable 7,274,000 1,299,600
Amortization of deferred compensation
on stock options issued for services 742,598 435,583
Interest expense associated with
issuance of convertible notes - 320,000
Acquired in-process research and development - 4,235,830
Increase (decrease) from changes in
operating assets and liabilities, net of
effects of acquisitions and dispositions:
Accounts receivable ( 4,158,072) ( 2,310,137)
Other assets ( 167,665) ( 848,532)
Accounts payable and accrued liabilities 449,070 5,355,537
Discontinued operations ( 48,944) 165,148
---------- ----------
Net cash used in operating activities (13,699,766) ( 7,608,403)
---------- ----------
Cash flows from investing activities:
Purchases of furniture, fixtures and equipment ( 3,299,900) ( 1,176,428)
Cash received from the purchase of I-Link
Communications, Inc. - 435,312
Cash received from the purchase of MiBridge, Inc. - 79,574
Maturity of restricted certificates of deposit 889,215 -
Investing activities of discontinued operations 310,000 -
---------- ----------
Net cash used in investing activities ( 2,100,685) ( 661,542)
---------- ----------
Cash flows from financing activities:
Proceeds from issuance of notes payable
and warrants 7,768,000 5,000,000
Payment of long-term debt ( 1,395,907) ( 499,435)
Payment of capital lease obligations ( 141,344) ( 137,670)
Proceeds from issuance of redeemable preferred
stock and warrants 10,000,000 -
Offering costs from issuance of preferred stock ( 530,000) -
Proceeds from exercise of common stock
warrants and options 684,943 50,625
Financing activities of discontinued operations ( 170,465) ( 85,791)
---------- ----------
Net cash provided by financing activities 16,215,227 4,327,729
---------- ----------
Increase (decrease) in cash and cash equivalents 414,776 ( 3,942,216)
Cash and cash equivalents at beginning of period 1,727,855 4,500,227
---------- ----------
Cash and cash equivalents at end of period $ 2,142,631 $ 558,011
========== ==========
Cash and cash equivalents at end of period:
Continuing operations $ 2,075,996 $ 489,237
Discontinued operations 66,635 68,774
---------- ----------
Total cash and cash equivalents at end of period $ 2,142,631 $ 558,011
========== ==========
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Continued
The accompanying notes are an integral part of these consolidated financial
statements.
I-LINK INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(UNAUDITED)
For the Nine Months Ended
September 30,
----------------------------
1998 1997
------------- -------------
Supplemental schedule of non-cash investing
and financing activities:
Common stock issued in connection with the
acquisition of I-Link Communications $ - $ 2,414,583
Preferred stock and note payable issued in
connection with the acquisition of MiBridge, Inc. - 8,250,000
Common stock issued in connection with the
acquisition of I-Link Worldwide, Inc. - 8,875,000
Stock warrants issued in connection with
litigation settlement - 821,000
Stock options issued for services - 5,342,155
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The accompanying notes are an integral part of these consolidated financial statements.
I-LINK INCORPORATED AND SUBSIDIARIES
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's principal operation is the development, sale and delivery of enhanced communications products and services utilizing its own private intranet and both owned and leased network switching and transmission facilities. The Company provides unique communications solutions through its use of proprietary technology developed by its wholly-owned subsidiaries I-Link Systems, Inc., MiBridge, Inc. and Vianet Technologies, Inc. Telecommunications services are marketed primarily through independent representatives to subscribers throughout the United States.
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 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. The Company recognized a $1,007,453 loss on disposal of these subsidiaries during the quarter ended December 31, 1997. 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 assets - 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 and nine- month periods ended September 30, 1998 and 1997, (b) the financial position at September 30, 1998, and (c) cash flows for the nine-month periods ended September 30, 1998 and 1997. 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, 1997 and its quarterly reports on Form 10-Q for the three months ended March 31, 1998 and for the six months ended June 30, 1998.
The results of operations for the three-month and nine-month periods ended September 30, 1998 are not necessarily indicative of those to be expected for the entire year.
The Company incurred a net loss from continuing operations of $23,116,292 and $5,044,700 for the nine and three-month periods ended September 30, 1998, and as of September 30, 1998 had an accumulated deficit of $80,208,545 and negative working capital of $8,982,614. Revenues generated from continuing operations will not be sufficient during the remainder of 1998 to fund ongoing operations or, the continued expansion of the Company's private telecommunications network facilities, and anticipated growth in subscriber base. To provide a portion of the required capital, the Company has entered into two financing arrangements as follows: (1) during the first six months of 1998, the Company obtained an aggregate of $7.768 million in new interim debt financing from Winter Harbor, L.L.C. and (2) in July 1998, the Company entered into an agreement for the sale of a new series of Preferred Stock for consideration in the amount of $10,000,000 (net proceeds received of $9.47 million) with JNC Opportunity Fund Ltd. ("JNC") (see note 4). The $7.768 million Winter Harbor debt financing is due on demand. Additional funds will be necessary from public or private financing markets to fund continued operations and to successfully integrate and finance the planned expansion of the business communications services and to discharge the financial obligations of the Company.
Note 2 - Summary of Significant Accounting Policies
Net loss per share
The Company has adopted SFAS No. 128, "Earnings per Share" for 1998 and 1997. The standard requires presentation of basic and diluted earnings 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 nine-month and three-month periods ended September 30, 1998 and 1997, basic and diluted loss per share are the same. Basic and diluted loss per common share were calculated as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
Loss from continuing operations $( 5,044,700) $( 9,991,843) $(23,116,292) $(18,651,006)
Deemed preferred stock dividends
on Class E and Class F convertible
redeemable preferred stock ( 7,472,737) - ( 7,472,737) -
Cumulative preferred stock
dividends not paid in the
current period ( 678,679) ( 288,815) ( 1,580,903) ( 866,738)
---------- ---------- ---------- ----------
Loss from continuing operations
applicable to common stock $(13,196,116) $(10,280,658) $(32,169,932) $(19,517,744)
========== ========== ========== ==========
Loss from discontinued operations $ - $( 12,865) $( 108,006) $( 103,342)
========== ========== ========== ==========
Weighted average shares outstanding 18,492,434 11,684,775 17,248,713 10,989,906
========== ========== ========== ==========
Loss from continuing operations $( 0.71) $( 0.88) $( 1.86) $( 1.78)
Loss from discontinued operations - - ( 0.01) ( 0.01)
---------- ---------- ---------- ----------
Net loss per common share $( 0.71) $( 0.88) $( 1.87) $( 1.79)
========== ========== ========== ==========
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The deemed preferred stock dividends on Class E and Class F convertible cumulative redeemable preferred stock equal the sum of the difference between the conversion price per common share per the agreements and the market price of the common stock as of the date the agreements were finalized and the difference between the fair value of the Class F preferred stock issued and the carrying value of the Class E stock at the date of redemption (see note 4). The deemed dividends are implied only and do not represent obligations to pay a dividend.
Net loss per share
Potential common shares that were not included in the computation of diluted EPS because they would have been anti-dilutive are as follows as of September 30:
Note 2 - Summary of Significant Accounting Policies, continued
1998 1997
------------ ------------
Assumed conversion of Class B preferred stock - 183,542
Assumed conversion of Class C preferred stock 1,093,224 5,232,432
Assumed conversion of Class D preferred stock - 738,003
Assumed conversion of Class F preferred stock 4,364,233 -
Assumed conversion of Class M preferred stock 4,400,000 -
Assumed conversion of convertible debt 3,107,200 286,800
Shares to be issued - acquisition of ILC - 400,000
Assumed exercise of options and warrants to
purchase shares of common stock 33,095,042 11,013,872
---------- ----------
46,059,699 17,854,649
========== ==========
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As of September 30, 1998, Winter Harbor, the sole holder of Series M Preferred Stock, held warrants, exercisable at any time, for the purchase of up to 17,540,000 shares of common stock. In addition, should Winter Harbor elect to convert its $7.768 million in promissory notes into additional shares of Series M Preferred Stock, it is entitled to receive additional warrants to purchase 5,000,000 shares of common stock. The exercise prices of all of such warrants varied at the time of their respective, however, all are subject to adjustment downward to equal the market price of common stock in the event the common stock market price is below the original exercise price at the time of exercise, subject to an exercise price lower limit of the lesser of the original exercise price or $2.75 per share.
Recently issued financial accounting standards
The Accounting Standards Executive Committee issued Statement of Position No. 98-1 (SOP 98-1), "Accounting for the Cost of Computer Software Developed or Obtained for Internal Use". The SOP was issued to address the diversity in practice regarding whether and under what conditions the costs of internal-use software should be capitalized. SOP 98-1 is effective for financial statements for years beginning after December 15, 1998. The Company has not determined the effect that SOP 98-1 will have on its consolidated financial position or results of operations.
Reclassifications
Certain balances in the September 30, 1997 financial statements have been reclassified to conform to the current year presentation. These changes had no effect on previously reported net loss, net assets or stockholders' equity.
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 as of September 30, 1998 and
December 31, 1997:
1998 1997
(Unaudited)
----------- -----------
Assets:
Current assets:
Cash and cash equivalents $ 66,635 $ 84,050
Accounts receivable 1,071,135 1,033,376
Inventory 555,291 555,939
Other 18,962 24,951
--------- ---------
Total current assets 1,712,023 1,698,316
Furniture, fixtures and equipment, net 386,510 958,153
Intangible assets 391,757 391,757
Other non-current assets 6,230 8,706
--------- ---------
Total assets 2,496,520 3,056,932
--------- ---------
Liabilities:
Current liabilities:
Accounts payable and accrued liabilities 1,555,878 1,781,541
Notes payable 241,661 412,126
--------- ---------
Total current liabilities 1,797,539 2,193,667
Other liabilities 211,610 267,888
--------- ---------
Total liabilities 2,009,149 2,461,555
--------- ---------
Net assets - discontinued operations $ 487,371 $ 595,377
========= =========
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The net assets of the discontinued operations as of September 30, 1998 are shown as a current asset in the consolidated balance sheet as it is anticipated that the disposal of the medical services business will be completed by the first quarter of 1999. Revenues of the discontinued operations were $296,835 and $1,259,763 and $620,566 and $1,800,121 for the three-month and nine-month periods ending September 30, 1998 and 1997, respectively.
Note 4 - Capital Financing
During the first and second quarters of 1998 the Company obtained an aggregate of $7.768 million in new interim debt financing from Winter Harbor, L.L.C. As consideration for Winter Harbor's commitment to make the loan, the Company agreed to issue 6,740,000 warrants (Loan Warrants) to purchase common stock of the Company at exercise prices ranging from $5.50 to $7.22 based upon 110% of the closing price of the common stock on the day loan funds were advanced. The warrants have exercise periods of 7.5 years from issuance. The Company also agreed to extend the exercise period on all warrants previously issued to Winter Harbor (10,800,000) to seven and one-half years. Pursuant to the terms of the loan agreement with Winter Harbor, the initial borrowings of $5,768,000 were payable upon demand by Winter Harbor no earlier than May 15, 1998, and were collateralized by essentially all of the assets of the Company's subsidiaries. Because the loan was not repaid by May 15, 1998, the total loan, including additional borrowings of $2,000,000 obtained in the second quarter, continues on a demand basis with interest accruing at prime plus four percent. Additionally, Winter Harbor has the right at any time until the loan is repaid to elect to convert the unpaid balance of the loan into additional shares of the Company's Series M Preferred Stock, reduce the exercise
Note 4 - Capital Financing, continued
price of the 6,740,000 Loan Warrants to $2.50 per share, and receive an additional 5,000,000 warrants to purchase common stock of the Company at an exercise price of $2.50 per share.
During the six-month period ended June 30, 1998, the Company recorded $7,274,000 as a discount against the new debt representing the relative fair value attributed to the new warrants, the change of the exercise period on prior warrants and the equity instruments associated with the assumed conversion of the debt into equity. The debt discount was amortized over the original terms of the respective borrowings. The debt discount was fully amortized during the six-month period ended June 30, 1998.
On July 9, 1998 the Company obtained a $10 million equity investment, net of $530,000 in closing costs, from JNC Opportunity Fund Ltd. ("JNC"). Under the original terms of the equity investment, JNC purchased shares of the Company's newly created 5% Series E Convertible Preferred Stock (the "Series E Preferred Stock"), which were convertible into the Company's common shares at a conversion price of the lesser of 110% of the market price of the Company's publicly traded common shares as of the date of closing, and 90% of a moving average market price at the time of conversion. In addition, JNC obtained a warrant to purchase 250,000 shares of the Company's common stock at an exercise price of $5.873 (equal to 120% of the market price of the Company's publicly traded common shares as of the date of closing).
On July 28, 1998, the terms of the JNC equity investment were amended to provide a floor to the conversion price, and to effect the amendment the Company created a 5% Series F Convertible Preferred Stock (the "Series F Preferred Stock") with which the Series E Preferred Shares originally issued to JNC were exchanged. Pursuant to the amendment, the Series F Preferred Shares were originally convertible into common shares at a conversion price of the lesser of $4.00 per common share or 87% of a moving average market price of the Company's common shares at the time of conversion, subject to a $2.50 floor. The Series F Preferred Shares provide for adjustments in the initial conversion price and as of November 6, 1998, the conversion price has been adjusted to the lesser of $3.76 or 81% of a moving average market price of the Company's common shares at the time of conversion. In the event the market price remains below $2.50 for five consecutive trading days, the floor will be re-set to the lower rate, provided, however, that the floor shall not be less than $1.25. As of November 6, 1998, the floor was reset to $2.163. JNC also received an additional warrant to purchase 100,000 shares of the Company's common stock at an exercise price of $4.00 per common share. The Series F Preferred shares may be converted at any time, are automatically converted at the end of three years, and are subject to specific provisions that would prevent any issuance of I-Link common stock at a discount if and to the extent that such shares would equal or exceed in the aggregate 20% percent of the number of common shares outstanding on July 9, 1998 absent shareholder approval as contemplated by the Nasdaq Stock Market Non-Quantitative Designation Criteria.
In certain instances, including the Company's failure to have a registration statement covering the conversion shares declared effective within 180 days of the original issuance date or the stock is not listed on NASDAQ or a subsequent market or is suspended for more than three non-consecutive trading days, the holders of the Series F Preferred Stock may require that the Company redeem their Series F Preferred Stock. Because these redemption provisions are not entirely within the control of the Company, the Series F Preferred Stock is presented as a spearate line item above stockholders' equity.
In addition, the Company issued warrants to purchase 75,000 shares of the Company's common stock at a price of $4.89 per share to two individuals as a brokerage fee in connection with the JNC equity investment.
In November 1998, Winter Harbor loaned an additional $1,041,712 to the Company which was used to pay the second of two installment payments which were part of the MCI arbitration settlement. Terms concerning the loan have not been finalized, but it is anticipated that repayment will be on a demand basis.
Note 5 - Income Taxes
The Company recognized no income tax benefit from the losses generated in 1998 and 1997 because of the uncertainty of the realization of the related deferred tax asset.
Note 6 - Purchase commitments
In November 1998 the Company amended the terms of its contract with Sprint for the supply of inbound and outbound telephone services. Among other things, the new agreement, which is effective through May 2000, reduces the minimum monthly usage amounts for the remaining term of the agreement to $550,000. Failure to achieve the minimum will require shortfall payments by the Company equal to 50% of the remaining monthly minimum usage amounts.
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, 1997 and Form 10-Q for the quarters ended June 30 and March 31, 1998.
Forward Looking Information
This report contains certain forward-looking statements and information relating to the Company that is 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", "believe", "estimate", "expect", and "intend" 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. 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.
Among many factors that could cause actual results to differ materially are the following: the Company's ability to finance and manage expected rapid growth; the Company's ability to attract, support and motivate a rapidly growing number of independent representatives; competition in the long distance telecommunications and ancillary industries; 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 and network; the Company's success in deploying its Communication Engine network in internet telephony and the Company's success in the offering of other enhanced service products.
Actual events, transactions and results may materially differ from the anticipated events, transactions or results described in such statements. The Company's ability to consummate such transactions and achieve such results is subject to certain risks and uncertainties. Such risks and uncertainties include, but are not limited to, the existence of demand for and acceptance of the Company's products and services, regulatory approvals and developments, economic conditions, the impact of competition and pricing, results of the Company's financing efforts and other factors affecting the Company's business that are beyond the Company's control. The Company undertakes no obligation and does not intend to update, revise or otherwise publicly release the result of any revisions to these forward-looking statements that may be made to reflect future events or circumstances.
Operations
In January 1997 the Company acquired I-Link Communications ( "ILC") and in August 1997 the Company acquired MiBridge, Inc. In 1997, the Company launched operations of a network marketing program through I-Link Worldwide, L.L.C., to market its products. 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 nine and three-month periods ending September 30, 1998 and 1997 have been reported as discontinued operations. In the first quarter of 1998, the Company formed ViaNet Technologies, Ltd. ("ViaNet"), its third research and development group.
The Company's principal operation is the development, sale and delivery of enhanced communications products and services utilizing its own private intranet and both owned and leased network switching and transmission facilities. The Company provides unique communications solutions through its use of proprietary technology acquired and developed by its subsidiaries, I-Link Systems, Inc., ViaNet and MiBridge, Inc. Telecommunications services are marketed primarily through independent representatives to subscribers throughout the United States. The Company's telecommunication services operations began primarily with the acquisition
of ILC, an FCC licensed long-distance carrier.
The technology that distinguishes I-Link from other telecommunications companies is the capability to carry high volumes of long-distance traffic at significantly reduced cost and provide enhanced services through its proprietary combination of Internet Protocol (IP) and compression technologies, while maintaining the ease of use, high quality, and reliability of traditional phone systems. During the first and second quarters of 1998, the Company benefited from the commercial deployment of its technology through its Communication Engines established at its facilities in Los Angeles, Dallas/Ft. Worth, Phoenix and Salt Lake City, and steadily increased the commercial telecommunications traffic carried over its Communications Engines. In Addition, in March 1998, the Company announced the nationwide availability of V-Link[TM]. V-Link[TM] is a fully integrated communications service that enhances the utilization of telephones, cellular phones, pagers and fax machines by combining them into a single communications environment. V-Link also provides conference calling, e-mail, fax-on-demand and V-Link One Number[TM] calling features. This permitted the Company to announce a new 4.9-cent-per-minute long- distance calling rate to customers whose long distance calls both originate and terminate in the more than 25 calling areas located in these metropolitan markets. The Company intends to continue to expand the geographic areas covered by its Communications Engines.
During the second quarter of 1998, the Company announced the development of a communications product that would increase the telephone line capacity in any household or business. Initially dubbed "C4" (Customer Communications Control Center), the product will provide home and small business customers the capacity of up to 24 phone lines using the existing telephone lines and wires that are connected to their homes or offices today. In addition, C4 will provide around-the-clock Internet access and access to the enhanced services I-Link currently offers, including voice mail, fax, paging, e-mail, conference calling and follow-me-anywhere One-Number service. C4 uses existing telecommunications networks, including the standard copper-wire lines currently installed in nearly every home and business, as well as high-speed data lines and infrastructure that have been announced or are being installed by local and long-distance telecommunications companies. C4 is expected to undergo early field trials in the fourth quarter of 1998 and the Company anticipates shipping in 1999.
Liquidity and Capital Resources
Cash and cash equivalents as of September 30, 1998 were $2,075,996, restricted certificates of deposits were $780,661 and the working capital deficit was $8,982,614. Cash used by operating activities during the nine- month period ended September 30, 1998 was $13,699,766 as compared to $7,608,403 during the same period ended September 30, 1997. The increase in cash used by operating activities in 1998 was primarily due to an increase in accounts receivable and the increased operating loss as the Company continued to develop its infrastructure and product base.
Net cash used by investing activities in the nine-month period ended September 30, 1998 was $2,100,685 as compared to net cash used of $661,542 in the same period ended September 30, 1997. Cash used by investing activities in 1998 was attributable to the purchase of furniture, fixtures and equipment of $3,299,900 which was offset by $310,000 received from the sale of certain assets from discontinued operations and the maturity of certificates of deposits in the amount of $889,215. In the first nine months of 1997 cash used by investing activities was primarily due to purchase of furniture, fixtures and equipment of $1,176,428 which was offset by cash received of $514,886 in the acquisition of ILC and MiBridge, Inc.
Financing activities provided net cash of $16,215,227 in the first nine months of 1998 as compared to cash provided of $4,327,729 in the same period of 1997. Cash provided in 1998 included proceeds of $7,768,000 from short-term debt and common stock warrants, and $9,470,000 in net proceeds from the issuance of preferred stock and common stock warrants, $684,943 in proceeds from exercises of common stock warrants and options. Repayments of $1,537,251 on long-term debt, notes payable and capital lease obligations from continuing operations and $170,465 from discontinued operations offset these proceeds. During the same nine months in 1997, cash provided by financing activities included $5,000,000 in proceeds from issuance of long-term debt and warrants and $50,625 from the exercise of common stock warrants and options which sources were offset by repayments of $637,105 on long-term debt and capital
lease obligations from continuing operations and $85,791 from discontinued operations.
The Company incurred a net loss from continuing operations of $23,116,292 for the first nine months of 1998, and as of September 30, 1998 had an accumulated deficit of $80,208,545. Revenue generated from continuing operations will not be sufficient during the remainder of 1998 to fund the Company's operations or, continued expansion of its private telecommunications network facilities and anticipated growth in subscriber base. To provide a portion of its capital needs, the Company has entered into financing arrangements as described below. Additional funds will be necessary from public or private financing markets to fund continued operations and to successfully integrate and finance the planned expansion of the business communications services and to discharge the financial obligations of the Company.
Current Position/Future Requirements
During the remainder of 1998, the Company plans to use available cash and funds raised from the sale of debt or equity securities to fund the development and marketing of I-Link products and services. During the third quarter of 1998 revenue from continuing operations increased $1,282,789 (23.4%) from the second quarter of 1998 as shown below:
Three Months Ended
----------------------
9/30/98 6/30/98 Increase % Increase
---------- ---------- ---------- ----------
Telecommunications services $5,020,650 $4,134,967 $ 885,683 21.4%
Marketing services 1,328,949 963,962 364,987 37.9%
Technology licensing
and development 406,779 374,660 32,119 8.6%
--------- --------- ---------
Net operating revenue $6,756,378 $5,473,589 $1,282,789 23.4%
========= ========= =========
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The increase in telecommunications services was a direct result of the growth in the Company's Network Marketing channel of distribution. In early 1998 the Company decided to refocus its resources to concentrate on the channels of product distribution with better profit margins (primarily Network Marketing). The effect of this decision was to terminate the Company's relationship with several accounts during the second quarter of 1998 including its single largest wholesale marketing group. Terminating these relationships resulted in decreased revenue of $852,000 in the second quarter as compared to the first quarter of 1998. Continued growth in the Network Marketing channel has resulted in third quarter telecommunications services revenue which is greater than the first quarter of 1998 ($4.8 million) in effect overcoming the $852,000 decrease in the second quarter.
The increase in marketing services revenue was primarily due to an increase in revenue from independent representatives for the national convention (which occurs in the first and third quarters) and training, promotional and presentation materials. The Company anticipates that revenues from marketing services will decrease somewhat during the fourth quarter as there will be no national convention revenues and due to cyclical downturns in network marketing activities during that time of the year. Technology licensing and development revenue was up slightly from the second quarter and it is anticipated that they will continue to increase from new development agreements and royalties on existing software licensing contracts.
The Company believes that total revenue from all sources of continuing operations will continue to grow in the fourth quarter of 1998 and will increasingly contribute to the cash requirements of the Company. The Company released V-Link in early 1998 and has deployed several of its Communication Engines (CE's) both of which continue to increase revenues and/or profit margins. The Company also believes that revenue and cash flows from software sales and development will continue to increase in 1998 due to maturation of its products and development and licensing agreements.
The Company anticipates that cash requirements for operations and the continued market penetration, deployment of I-Link products and services, and anticipated deployment of the Company's CE's will be at increasingly higher levels than those experienced in 1997. The Company also expects that expenditures for research and development will continue at approximately the same level as the first nine months for the remainder of 1998 as it continues development of new technology. In March 1998, the Company committed approximately $2.2 million (of which $1.32 million had been paid as of September 30, 1998) to development of a new internal information system that will encompass nearly all computer systems.
In order to provide for capital expenditure and working capital needs, during the first six months of 1998 the Company obtained a total of $7.768 million in new interim debt financing from Winter Harbor, L.L.C. On July 9, 1998 the Company obtained a $10 million equity investment by JNC Opportunity Fund Ltd. which resulted in net proceeds to the Company of $9.470 million.
In November 1998, Winter Harbor loaned an additional $1,041,712 to the Company which was used to pay the second of two installment payments which were part of the MCI arbitration settlement. Terms concerning the loan have not been finalized, but it is anticipated that repayment will be on a demand basis.
Additional funds will be necessary from public or private financing markets to fund continued operations and to successfully integrate and finance the planned expansion of the business communications services and to discharge the financial obligations of the Company. The availability of such capital sources 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 financing will be available, that the Company will receive any proceeds from the exercise of outstanding options and warrants or that the Company will not be required to arrange for additional debt, equity or other type of financing.
Three-Month Period Ended September 30, 1998 Compared to the Three-Month Period Ended September 30, 1997
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 September 30, 1998 and 1997 have been reported as discontinued operations.
Revenue
Telecommunications service revenue increased $2,315,515 to $5,020,650 in the third quarter of 1998 as compared to $2,705,135 in the third quarter of 1997. The increase was a direct result of customer growth from the Company's Network Marketing channel of distribution and increased sales from the Company's V-Link products. The Network Marketing channel was started in the second quarter of 1997 with telecommunications revenue from these new customers beginning in the third quarter of 1997.
Marketing services revenue, which includes revenue recognized from independent representatives for national conventions, training, promotional and presentation materials, and ongoing administrative support increased $426,213 to $1,328,949 in the third quarter of 1998 as compared to $ 902,736 in the same quarter of 1997. The increase reflects the continued growth of the network marketing channel and its related product offerings which began late in the second quarter of 1997.
Technology licensing and development revenue was $406,779 in the third quarter of 1998 as compared to $139,700 in the same quarter of 1997, an increase of $267,079. These revenues are from the licensing and development of technology through MiBridge, Inc., which was acquired in September 1997. Accordingly there was three months of revenue reported in the quarter ended September 30, 1998 as compared to only one month in the same quarter of 1997.
Operating costs and expenses
Telecommunications network expenses increased $1,594,396 in the third quarter of 1998 to $5,095,263 as compared to $3,500,867 for the same quarter of 1997. These expenses include the costs related to the continued development and deployment of the Company's communication network and expenses related to providing telecommunication services. The increase in expense was primarily due to the increase in telecommunications service revenue. The Company expects that telecommunications network expense will increase as telecommunications service revenue increases, but at a lesser rate of growth due to economies of scale and increased traffic on the Company's enhanced IP (internet protocol) telephony network.
Marketing service costs were $1,364,110 for the third quarter of 1998 as compared to $1,082,543 for the same quarter of 1997, an increase of $281,567. The increase in costs relates directly to the Company's continued growth in marketing service revenue that began late in the second quarter of 1997. Marketing service expenses include commissions and the costs of national conventions, providing training, promotional and presentation materials and ongoing administrative support.
Selling, general and administrative expense increased $300,580 to $2,591,078 in the third quarter of 1998 as compared to $2,290,498 in the third quarter of 1997. The increase is primarily due to increased overhead and personnel costs associated with growth of the Company's telecommunications business. The Company expects that these expenses will continue to increase as the Company grows and expands.
The provision for doubtful accounts increased $435,651 to $875,651 in the third quarter of 1998 as compared to $440,000 in the same quarter of 1997. This increase is primarily due to growth in the Company's telecommunication service revenue.
Acquired in-process research and development of $4,235,830 in the third quarter of 1997 related to the acquisition of MiBridge, Inc. in September 1997. This non-cash amount was expensed because technological feasibility had not yet been established and the technology had no alternative future use. No such expense existed in the third quarter of 1998.
Depreciation and amortization increased $378,585 to $1,059,406 in the third quarter of 1998 as compared to $680,821 in the third quarter of 1997. The increase in amortization expense is primarily due to increased amortization of intangible assets associated with the acquisition of MiBridge, Inc. in the third quarter of 1997. This resulted in $3,461,410 of additional intangible assets. Depreciation expense also increased due to continued acquisition of telecommunication equipment.
Research and development increased $325,583 to $607,903 in the third quarter of 1998 as compared to $282,320 in the same period of 1997. The increase is associated with the Company's acquisition of MiBridge, Inc in the third quarter of 1997 and the formation of ViaNet, in early 1998. Both subsidiaries perform research and development activities for the Company.
Interest expense decreased $966,673 to $303,835 in the third quarter of 1998 as compared to $1,270,508 in the same quarter of 1997. The net decrease is primarily due to a decrease of $1,100,000 (non-cash) in amortization of debt issuance costs related to certain warrants granted in connection with certain loans to the Company in the second and third quarters of 1997 and interest of $91,000 on the loans which did not recur in the third quarter of 1998. The decrease was offset by interest of $249,000 on loans to the Company in 1998 from Winter Harbor L.L.C. of $7,678,000 during the first six months of 1998.
Interest and other income increased $52,195 to $96,168 in the third quarter of 1998 as compared to $43,973 in the same quarter of 1997. The increase was primarily a result of an increase in the average balance of cash on hand in the third quarter of 1998 compared to the same quarter of 1997, due to proceeds from the Series F Cumulative Preferred Stock issued in the third quarter of 1998.
Nine-Month Period Ended September 30, 1998 Compared to the Nine-Month Period Ended September 30, 1997
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 nine-month periods ending September 30, 1998 and 1997 have been reported as discontinued operations.
Revenue
Telecommunications service revenue increased $6,816,634 to $13,936,594 in the first nine months of 1998 as compared to $7,119,960 in the first nine months of 1997. The increase is due primarily to the new customers obtained through the Network Marketing channel, which channel's telecommunications service revenues didn't begin until the third quarter of 1997.
Marketing services revenue, which includes revenues recognized from independent representatives for the national conventions, training, promotional and presentation materials, V-Phone and Netlink 1+ product sales, and ongoing administrative support was $3,634,158 in the first nine months of 1998 as compared to $1,623,226 in the same period of 1997, an increase of $2,010,932. The primary reason for the increase is that the network marketing channel began late in the second quarter of 1997, and thus 1998 year-to-date revenues include nine months of product sales whereas 1997 year to date revenues include approximately four months of product sales.
Technology licensing and development revenue increased $847,689 to $987,389 in the first nine months of 1998 as compared to $139,700 in the same period of 1997. These revenues are from the licensing and development of technology through MiBridge, Inc., which was acquired in September 1997. Accordingly, 1998 year-to-date revenue represents nine months of revenue whereas year-to-date 1997 revenue represents only one month of revenue.
Operating costs and expenses
Telecommunications network expenses increased $4,039,156 in the first nine months of 1998 to $14,605,813 as compared to $10,566,657 for the same period in 1997. These expenses include the costs related to the continued development and deployment of the Company's communication network and expenses related to providing telecommunication services. The increase in expense was primarily due to the increase in telecommunications service revenue. The Company expects that telecommunications network expense will increase as telecommunications service revenue increases, but at a lesser rate of growth due to economies of scale and increased traffic on the Company's enhanced IP (Internet protocol) telephony network.
Marketing service costs increased $2,851,785 to $4,575,067 in the first nine months of 1998 as compared to $1,723,282 for the same period in 1997. The expenses relate directly to the Company's marketing service revenue that began late in the second quarter of 1997 and accordingly expenses incurred in the first nine months of 1998 and 1997 are not directly comparable. Marketing service expenses include commissions, the costs of national conventions, providing training, promotional and presentation materials and ongoing administrative support.
Selling, general and administrative expense increased $1,080,755 to $7,523,170 in the first nine months of 1998 as compared to $6,442,415 in the first nine months in 1997. The increase is primarily due to increased overhead and personnel costs associated with growing the Company's telecommunications business. The Company expects that these expenses will continue to increase as the Company grows and expands.
The provision for doubtful accounts increased $1,539,313 to $2,324,313 in the first nine months of 1998 as compared to $785,000 in the same period in 1997. This increase is primarily due to the following: (1) the growth in the Company's telecommunication service revenue, and (2) an increase in uncollectible accounts receivable associated with the Company's decision in early 1998 to concentrate its resources on those channels of distribution of its products with higher profit margins (primarily Network Marketing), the effect of which was to terminate relationships with several accounts in
the second quarter of 1998, including the Company's single largest wholesale marketing group.
Acquired in-process research and development of $4,235,830 in the nine- month period ended September 30, 1997 related to the acquisition of MiBridge, Inc. in September 1997. This non-cash amount was expensed because technological feasibility had not yet been established and the technology had no alternative future use. No such expense existed in the same period of 1998.
Depreciation and amortization increased $1,615,260 to $3,109,232 in the first nine months of 1998 as compared to $1,493,972 in the first nine months of 1997. The increase is primarily due to increased amortization of intangible assets associated with the issuance of the final 1,000,000 shares of common stock in the third quarter of 1997 in connection with the acquisition of I-Link Worldwide Inc. in 1996 and the acquisition of MiBridge in the third quarter of 1997. This resulted in $12,336,410 of additional intangible assets. Depreciation expense also increased due to continued acquisition of telecommunication equipment.
Research and development increased $1,124,404 to $1,752,058 in the first nine months of 1998 as compared to $627,654 in the same period in 1997. The increase is associated with the Company's acquisition of MiBridge, Inc in the third quarter of 1997 and the formation of ViaNet, in early 1998. Both subsidiaries perform research and development activities for the Company.
Interest expense increased $6,100,633 to $7,944,412 in the first nine months of 1998 as compared to $1,843,779 in the same period in 1997. The net increase is primarily due to $7,274,000 (non-cash) in amortization of debt discount related to certain warrants granted in connection with $7,768,000 in loans to the Company in the first nine months of 1998. In the same period of 1997, interest expense included $1,299,600 (non-cash) in amortization of debt discount related to certain warrants granted in connection with $5,000,000 in loans to the Company in the first nine months of 1997 and $320,000 (non-cash) imputed interest on certain convertible notes.
Interest and other income decreased $25,065 to $159,632 in the first nine months of 1998 as compared to $184,697 in the same period of 1997. The decrease was primarily due to a decrease in the average balance of cash on hand in the first nine months of 1998.
Year 2000 Issues
The "Year 2000" issue results from computer programs and embedded computer chips that do not differentiate between the 1900 century and the 2000 century because they are written using two digit rather than four digit dates to define the applicable year. If not corrected, many computer applications and date-sensitive devices could fail or produce erroneous results when processing data involving dates after December 31, 1999. The Year 2000 issue affects virtually all companies and organizations, including the Company. The Company has formed a Year 2000 team whose responsibility it is to evaluate its information technology (IT) systems as well as its non-IT devices (such as building security, heating and air- conditioning, safety devices and other devices containing embedded electronic circuits). Both IT systems and non-IT devices are subject to failure due to the Year 2000 issue.
The Company is in the "inventory and assessment" phases of its Year 2000 project with regard to its state of readiness related to IT and non-IT devices and issues related to third parties with which the Company has material relationships. While the Company has its own communications network to carry some of its traffic, the Company's system (as it is for all telecommunications companies) is completely dependent upon origination or termination of that traffic on significant third party vendors such as Sprint (the Company's current underlying carrier) and LECs (local exchange carriers) such as U.S. West. The Company is watching closely the progress of these significant third party vendors. In the event its third party vendors do not become Year 2000 compliant, the Company would need to switch vendors or face a significant negative impact on its ability to deliver its telecommunication services. The inability to deliver these services would have a substantial negative impact on the Company and its results of operations, liquidity and financial position.
Upon completion of the inventory and assessment phases of the Year 2000 project, the Company will explore alternative solutions and develop contingency plans for handling critical areas in the event a remedy is not identified or is unsuccessful. Such plans have not yet been developed, but the Company intends to develop them as necessary to address each area of the Year 2000 risk. Completion of the Year 2000 project, including contingency plans, is expected by September 30, 1999.
Costs. The Company is using both internal and external resources to identify, correct or reprogram, and test its systems for minimizing Year 2000 consequences and expects to incur consulting and other expenses related to infrastructure and facilities enhancements necessary to prepare its systems for the Year 2000. The total cost of modifications and conversions is not known at this time; however, it is not expected, at this time, to be material to the Company's financial position, results of operations or cash flows and will be expensed as incurred. As of September 30, 1998 the Company has not expended any funds but anticipates expending approximately $40,000 before December 31, 1998 which amount may vary subject to the results of the inventory and assessment phases in progress. Funds related to Year 2000 expenditures are expected to come from operations.
Risks. The failure to correct a material Year 2000 problem could result in an interruption to or a failure of normal business activities or operations. Such failures could materially and adversely affect the Company's results of operations, liquidity and financial condition. Due to the general uncertainty inherent in the Year 2000 problem, resulting in part from the uncertainty of the Year 2000 readiness of third-party suppliers, the Company is unable to determine at this time whether the consequences of Year 2000 failure will have a material impact on the Company's results of operation, liquidity or financial condition. The Company's Year 2000 project to inventory and assess Year 2000 issues and implement plans to fix identified Year 2000 issues is expected to significantly reduce the Company's level of uncertainty about the Year 2000 problems and, in particular, about the Year 2000 compliance and readiness of its major suppliers such as Sprint. The Company believes that, with the implementation of its enhanced services billing platform (which is being designed to be Year 2000 compliant) and completion of the Year 2000 project as scheduled, the possibility of significant interruptions of normal operations should be reduced.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
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 6(a) - Exhibits
Exhibit
Number Item
------ ---- 3.2 By-laws. 27 Financial data schedule. |
Item 6(b) - Reports on Form 8-K
None
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: November 18, 1998 By: /s/ John W. Edwards
John W. Edwards
President, Chief Executive Officer
By: /s/ Karl S. Ryser, Jr.
Karl S. Ryser, Jr.
Chief Financial Officer, Chief
Accounting Officer, and Treasurer
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BY-LAWS
OF
MEDCROSS, INC.
(AS AMENDED THROUGH NOVEMBER 8, 1993)
ARTICLE I - OFFICERS
The principal office of the corporation shall be at 3227 Bennet Street North, St. Petersburg, Florida, 33713, or at such other place as the Board of Directors may from time to time direct.
ARTICLE II - MEETINGS OF STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS. The annual meeting of the stockholders of the corporation for the election of directors and for the transaction of such other business as may properly come before such meeting shall be held on a day and at a time and place designated from time to time by the Board of Directors.
SECTION 2. SPECIAL MEETINGS. A special meeting of the stockholders may be called at any time by the President or the Board of Directors, and shall be called by the President upon the written request of stockholders of record holding in the aggregate 10% of the outstanding shares of the capital stock of the corporation entitled to vote, such written request to state the purpose or purposes of the meeting and to be delivered to the President. Such written request shall further comply with the requirements of Section 13 of this Article II.
SECTION 3. PLACE OF MEETINGS. The meetings of the stockholders of the corporation shall be held in the State of Florida, or any place in the world, as from time to time may be designated by the Board of Directors.
SECTION 4. NOTICE OF MEETINGS AND RECORD DATE. Except as otherwise required by statute, notice of each meeting of the stockholders, whether annual or special, shall be in writing over the name of the President or the Secretary. Such notice shall state the purpose or purposes for which the meeting is called and the time and place where it is to be held, and a copy thereof shall be served, either personally or by first-class mail, or at the direction of the President, the Secretary, or the officer or person calling the meeting, upon each stockholder of record entitled to vote at such meeting not less than 10 or more than 60 days before such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail addressed to the stockholder at his address as it appears on the stock transfer books of the corporation, with postage thereon prepaid. If the notice is mailed at least 30 days before the date of the meeting, it may be done by a class of United States mail other than first class. If mailed, it shall be directed to a stockholder at his or her address as it appears on the stock books of the corporation unless he or she shall have filed with the Secretary of the corporation a written request that notices intended for him or her be mailed to some other address, in which case it shall be mailed to the address designated in such request. If any stockholder in person or by attorney thereunto authorized shall waive in writing notice of any meeting, notice thereof need not be given to him or her.
SECTION 5. CLOSING OF TRANSFER BOOKS. In order to determine the holders of record of the capital stock of the corporation who are entitled to notice of meetings, to vote at a meeting or adjournment thereof, to receive payment of any dividend, or for any other purpose, the Board of Directors may fix a date not more than 60 days prior to the date set for any of the above-mentioned activities for such determination of stockholders. If the stock transfer books shall be closed for the purpose of determining stockholders entitled to notice of or to vote at a meeting of stockholders, such books shall be closed for at least 10 days immediately preceding such meeting. In lieu of closing the stock transfer books, the Board of Directors may fix in advance a date as the date for any such determination of stockholders, such date in any case to be not more than 60 days prior to the date on which the particular action requiring such determination of stockholders is to be taken. If the stock transfer
books are not closed and no record date is fixed for the determination of stockholders entitled to notice or to vote at a meeting of stockholders, or to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of stockholders. When a determination of stockholders entitled to vote at any meeting of stockholders has been made as provided in this Section 5, such determination shall apply to any adjournment thereof, unless the Board of Directors fixes a new record date under this Section 5 for the adjourned meeting.
SECTION 6. QUORUM. At all meetings of the stockholders the presence in person or by proxy of the holders of record of a majority of the shares then issued and outstanding and entitled to vote shall be necessary and sufficient to constitute a quorum for the transaction of business. In the absence of a quorum, a majority in interest of the stockholders entitled to vote, present in person or by proxy, or, if no stockholder entitled to vote is present in person or by proxy, any officer entitled to preside at or act as secretary of such meeting may adjourn the meeting from time to time.
SECTION 7. NOTICE OF ADJOURNED MEETING. Notice need not be given of any adjourned meeting of stockholders if the time and place to which the meeting is adjourned are announced at the meeting at which the adjournment is taken. Any business may be transacted at the adjourned meeting that might have been transacted on the original date of the meeting. If, however, after the adjournment, the Board of Directors fixed a new record date for the adjourned meeting, a notice of the adjourned meeting shall be given as provided in Section 4 of this Article II to each stockholder of record on the new record date entitled to vote at such meeting.
SECTION 8. PRESIDING OFFICER; ORDER OF BUSINESS. Meetings of the stockholders shall be presided over by the Chairman of the Board or, if he or she is not present or if there is no Chairman of the Board, by the President. The presiding officer of any meeting of the stockholders may delegate his or her duties and obligations as the presiding officer and he or she sees fit. The Secretary of the corporation or, in his or her absence, an Assistant Secretary shall act as secretary of every meeting of stockholders, but if neither the Secretary nor an Assistant Secretary is present, the presiding officer of the meeting shall choose any person present to act as secretary of the meeting. The order and topics of business to be transacted at any meeting shall be determined by the presiding officer of the meeting in his or her sole discretion.
SECTION 9. INSPECTORS OF ELECTION. The Board of Directors shall appoint at each annual meeting two persons, who need not be stockholders, to act as Inspectors of Election at all meetings of the stockholders until the close of the next annual meeting. No candidate for the office of director shall act as Inspector of Election. If there be a failure to appoint Inspectors, or if any Inspector appointed be absent or refuse to act, or if his or her office becomes vacant, the Board of Directors present at the meeting may choose temporary Inspectors of the number required. The Inspectors appointed to act at any meeting of the Board, before entering upon the discharge of their duties, shall be sworn faithfully to execute the duties of Inspectors at such meeting with strict impartiality, and according to the best of their ability.
SECTION 10. VOTING. Each outstanding share entitled to vote shall be entitled to one vote on each matter submitted to a vote at a meeting of stockholders. In case the transfer books have not been closed, and no date has been fixed as a record date for the determination of the stockholders entitled to vote, no share of stock shall be voted on at any election of directors which has been transferred on the books of the corporation within 20 days next preceding such election of directors. Any stockholder entitled to vote may vote by proxy, provided that the instrument authorizing such proxy to act shall have been executed in writing (which shall include telegraphing, cabling, and telephonic facsimile transmission) by the stockholder himself or herself or by his or her duly authorized attorney and filed with the Secretary of the corporation. The President, a Vice President, and the Secretary of the corporation shall constitute a Credentials Committee and shall pass upon the validity of all proxies submitted for use at any meeting. No proxy shall be valid after 11 months from the date of the proxy unless otherwise provided in the proxy. The decision of the Credentials Committee upon the validity of the proxies
shall be conclusive. At all meetings of the stockholders, except as otherwise required by statute, the Articles of Incorporation, or these By-Laws, all matters shall be decided by the vote of a majority in interest of the stockholders entitled to vote present in person or by proxy. Election for directors need not be by ballot.
The presiding officer at any meeting of the stockholders shall have the power to determine the method and means of voting when any matter is to be voted upon. The method and means of voting may include, but shall not be limited to, vote by ballot, vote by hand, or vote by voice. No method of voting may be adopted, however, which fails to take account of any stockholder's right to vote by proxy as provided for in this Article II.
SECTION 11. LIST OF STOCKHOLDERS. The directors shall cause the Secretary, or other officer designated by them who has charge of the transfer books and the stock books, to make at least 10 days before every election a full, true, and complete list, arranged by voting group and in alphabetical order within such group, of all the stockholders entitled to vote at the ensuing election, and the post office address and the number of shares held by each. The Board of Directors shall produce such stockholders' list at the time and place of election, to remain there during the election.
SECTION 12. WAIVER OF IRREGULARITIES. All informalities and irregularities in calls, notices of meeting, the manner of voting, form of proxy, credentials, and methods of ascertaining those present shall be deemed waived if no objection is made thereto at the meeting.
SECTION 13. STOCKHOLDER PROPOSALS. No proposal by a stockholder shall be presented for vote at a special or annual meeting of stockholders unless such stockholder shall, not later than the close of business on the fifth day following the date on which notice of the meeting is first given to stockholders, provide the Board of Directors or the Secretary of the corporation with written notice of intention to present a proposal for action at the forthcoming meeting of stockholders which notice shall include the name and address of such stockholder, the number of voting securities he holds of record and which he holds beneficially, the text of the proposal to be presented at the meeting and a statement in support of the proposal.
Any stockholder may make any other proposal at an annual meeting or special meeting of stockholders and the same may be discussed and considered, but unless stated in writing and filed with the Board of Directors or the Secretary prior to the date set forth hereinabove, such proposal shall be laid over for action at an adjourned, special, or annual meeting of the stockholders taking place 60 days or more thereafter. This provision shall not prevent the consideration and approval or disapproval at the annual meeting of reports of officers, directors, and committees; but in connection with such reports, no new business shall be acted upon at such annual meeting unless stated and filed as herein provided.
Notwithstanding any other provision of these By-Laws, the corporation shall be under no obligation to include any stockholder proposal in its proxy statement materials or otherwise present any such proposal to stockholders at a special or annual meeting of stockholders if the Board of Directors reasonably believes the proponents thereof have not complied with Sections 13 and 14 of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder nor shall the Corporation be required to include any stockholder proposal not required to be included in its proxy materials to stockholders in accordance with any such section, rule or regulation.
ARTICLE III - BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS AND QUALIFICATIONS. The property, affairs, and business of the corporation shall be managed under the direction of the Board of Directors. The Board of Directors may exercise all of the powers of the corporation, except such as are by law or by the Articles of Incorporation or by these By-Laws expressly conferred upon or reserved to the stockholders. The directors shall act only as a board; an individual director shall have no power to take any actions on behalf of the corporation unless the action is authorized by the Board of Directors. The Board of Directors may, by contract or otherwise, give general, limited, or special power and authority to the officers and employees of
the corporation to transact the corporation's general business or any special businesses, and may give powers of attorney to agents of the corporation to transact any special business requiring that authorization.
SECTION 2. NUMBER, ELECTION AND TERM OF OFFICE. The number of directors shall be such number as set forth in or as determined in accordance with the provisions of the Articles of Incorporation. Subject to the provisions of the Articles of Incorporation and Section 6 of this Article III, the directors shall be elected annually by the stockholders entitled to vote at the annual meeting of stockholders, by a plurality of the votes at such election. Subject to the provisions of the Articles of Incorporation, each director (whether elected at an annual meeting or to fill a vacancy or otherwise) shall continue in office until the annual meeting of stockholders held next after his or her election and until his or her successor shall have been elected and qualified or until his or her death, resignation, or removal in the manner hereinafter provided.
SECTION 3. MEETINGS. A meeting of the Board of Directors shall be held for organization, for the election of officers, and for the transaction of such other business as properly may come before the meeting, within 30 days after each annual election of directors upon the notice hereinafter provided for a special meeting. The directors, however, may hold such meeting, without notice, at the place where the annual meeting of stockholders is held, immediately following such meeting.
The Board of Directors by resolution may provide for the holding of regular meetings, with or without notice, and may fix the times and places at which such meetings shall be held.
Special meetings of the Board of Directors may be called by the President, any Vice President, or by a majority of the members of the Board of Directors. Notice of each special meeting shall be mailed to each director, addressed to him or her at his or her address as it appears upon the records of the corporation, at least one day before the day on which the meeting is to be held, or shall be sent to him or her at such place by telegraph, telephone facsimile transmission, or cable, or telephoned or delivered to him or her personally, not later than the day before the day on which the meeting is to be held. Such notice shall state the time and place (which may be within or outside the State of Florida) of such meeting, but unless otherwise required by statute, the Articles of Incorporation, or these By-Laws, need not state the purposes thereof. Notice of any meeting need not be given to any director, however, if waived by him or her, before or after such meeting, in writing or by telegraph, telephone facsimile transmission, or cable. No notice need be given of any meeting at which every member of the Board of Directors shall be present.
Members of the Board of Directors may participate in a meeting of the Board by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other at the same time. Participation by such means shall constitute presence in person at a meeting.
SECTION 4. QUORUM. The presence at any meeting of a majority of the total number of directors constituting the entire Board of Directors shall be necessary and sufficient to constitute a quorum for the transaction of business, and except as otherwise required by statute, the Articles of Incorporation, or these By-Laws, the act of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. In the absence of a quorum, a majority of the directors present at the time and place of any meeting may adjourn such meeting from time to time until a quorum is present. Notice of any adjourned meeting need not be given.
SECTION 5. RESIGNATIONS AND REMOVAL. Any director may resign at any time by giving written notice of such resignation to either the Board of Directors, the President, a Vice President, the Secretary, or an Assistant Secretary of the corporation. Unless otherwise specified therein, such resignation shall take effect upon receipt thereof by the Board of Directors or by any such officer.
SECTION 6. VACANCIES. If any vacancy shall occur among the directors by reason of death, resignation, disqualification, removal, or otherwise, such vacancy may be filled by a majority vote of the remaining directors, though less than a quorum. Any such vacancy may also be filled
by a majority of the stockholders present and entitled to vote at any meeting held during the existence of such vacancy, provided that the filling of such vacancy is included in the corporation's proxy material for the meeting. If a vacancy shall occur by an increase in the number of directors, the additional directors authorized by such increase shall be elected by the vote of a majority of the directors in office at the time of such increase.
SECTION 7. COMPENSATION. Directors may be compensated for services as directors and as members of Committees of the Board of Directors. Nothing herein contained shall prevent any director from serving the corporation in any other capacity and receiving compensation therefor. The Board of Directors and any members of any Committee of the Board of Directors shall be entitled to reimbursement for any reasonable expenses incurred in attending any Board or Committee meeting.
SECTION 8. NOMINATION OF DIRECTORS. Subject to the rights of holders of any class or series of stock having a preference over the common stock as to dividends or upon liquidation, nominations for the election of directors may be made by the Board of Directors or by any stockholder entitled to vote in the election of directors generally. However, any stockholder entitled to vote in the election of directors generally may nominate one or more persons for election as directors at a meeting only if written notice of such stockholders' intent to make such nomination or nominations has been given, either by personal delivery or by United States mail, postage prepaid, to the Secretary of the corporation not later than the close of business on the fifth day following the date on which notice of such meeting is first given to stockholders. Each such notice shall set forth: (a) the name and address of the stockholder who intends to make the nomination and of the person or persons to be nominated; (b) a representation that the stockholder is a holder of record of stock of the corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (c) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; (d) such other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission, had the nominee been nominated, or intended to be nominated, by the board of directors, and (e) the consent of each nominee to serve as a director of the corporation if so elected. The presiding officer at the meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure.
ARTICLE IV - EXECUTIVE AND OTHER COMMITTEES
SECTION 1. POWERS. Except as otherwise provided by statute or by these By-Laws, all the powers of the Board of Directors when not in session may be vested, to the extent from time to time determined by the Board of Directors, in Committees established for specific purposes, the members of which shall be appointed in accordance with Section 2 of this Article IV.
SECTION 2. APPOINTMENT, QUALIFICATION, AND TERM OF OFFICE. The Board of Directors, by the affirmative vote of a majority of the directors then in office, may appoint Committee members from among its members. The Board of Directors may designate as Chairman of any Committee one of the members so appointed. Each member of each Committee shall continue in office until the first meeting of the Board of Directors held after the annual meeting of stockholders next following his or her election and until his or her successor is appointed and qualifies or until his or her death, resignation, or removal in the manner hereinafter provided, or until he or she shall cease to be a director. The Chairman of each Committee shall preside at all meetings of the Committee at which he or she shall be present.
SECTION 3. MEETINGS. Each Committee, by resolution, may provide for the holding of regular meetings, with or without notice, and may fix the time and place (within or outside the State of Florida) at which such meetings shall be held. Special meetings of each Committee may be called from time to time by any member of the Committee. Notice of each special meeting shall be mailed to each member of the Committee addressed to him or her at his or her address as it appears upon the records of the corporation, at least two days before the day on which the meeting is to be held, or shall be sent to him or her at such place by telephone, telephone facsimile transmission, or cable, or telephoned or delivered to him or her personally, not later than the day before the day on which such meeting is to be held. Such notice shall state the time and place (which may be within or outside the State of Florida) but, unless otherwise required by statute, the Articles of Incorporation, or these By-Laws, need not state the purpose of such meeting. Notice of any meeting need not be given to any member of a Committee, however, if waived by him or her, before or after such meeting, in writing or by telegraph, telephone facsimile transmission, or cable. Any meeting of a Committee shall be a legal meeting without any notice or waiver of notice therefor having been given if all the members of the Committee shall be present thereat.
SECTION 4. RESIGNATIONS AND REMOVAL. Any member of a Committee may resign at any time by giving written notice of such resignation to either the Board of Directors, the President, a Vice President, the Secretary, or an Assistant Secretary of the corporation. Unless otherwise specified therein, such resignation shall take effect upon receipt thereof by the Board of Directors or by any such officer.
Any member of a Committee may be removed either with or without cause at any time by the affirmative vote of a majority of the directors then in office, given at a meeting of the Board of Directors called for that purpose.
SECTION 5. VACANCIES. If the office of any member of a Committee becomes vacant by reason of death, removal, or otherwise, the Board of Directors may appoint one of the directors as a member of the Committee to fill such vacancy.
SECTION 6. QUORUM. The presence, at any meeting of a Committee, of a majority of the members then in office shall constitute a quorum for the transaction of business. A majority of such quorum may decide any questions that may come before such meeting.
ARTICLE V - OFFICERS
SECTION 1. NUMBER. The officers of the corporation shall be a
Chairman of the Board of Directors, a President, one or more Vice
Presidents, one or more of whom may be designated as an Executive or Senior
Vice President, a Medical Director, a Secretary, a Treasurer, and such
other officers as may be appointed in accordance with the provisions of
Section 3 of this Article V.
SECTION 2. ELECTION, TERM OF OFFICE, AND QUALIFICATIONS. Each officer specifically designated in Section 1 of this Article V shall be chosen by the Board of Directors and shall hold his or her office until his or her successor shall have been duly chosen and qualified or until his or her death or until he or she shall resign or shall have been removed in the manner provided in Section 4 of this Article V.
SECTION 3. SUBORDINATE OFFICERS. The Board of Directors from time to time may appoint other officers or agents, including one or more Assistant Treasurers and one or more Assistant Secretaries, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these By-Laws or as the Board of Directors from time to time may determine. The Board of Directors may delegate to any officer or Committee the power to appoint any such subordinate officers or agents and to prescribe their respective authorities and duties.
SECTION 4. REMOVAL. Any officer may be removed either with or without cause by a majority of the directors then in office.
SECTION 5. RESIGNATIONS. Any officer may resign at any time by giving written notice of such resignation to the Board of Directors or to the President, a Vice President, the Secretary, or any Assistant Secretary. Unless otherwise specified therein, such resignation shall take effect upon receipt thereof by the Board of Directors or by the President, a Vice President, the Secretary, or an Assistant Secretary.
SECTION 6. VACANCIES. A vacancy in any office because of death, resignation, removal, disqualification, or any other cause shall be filled for the unexpired portion of the term in the manner prescribed by
these By-Laws for the regular election or appointment to such office.
SECTION 7. THE CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the Board of Directors shall preside over all meetings of the Board of Directors and over all meetings of the stockholders subject to such rules as to the conduct of such meetings as are established by the Board of Directors.
SECTION 8. THE PRESIDENT. The President shall be the chief executive officer of the corporation and, subject to the direction of the Board of Directors, shall have general charge of the business, affairs, and property of the corporation as well as control over the corporation's other officers. The President shall preside at all meetings of the stockholders and of the Board of Directors in the absence of the Chairman of the Board of Directors. The President shall do and perform such other duties and may exercise such other powers as from time to time may be assigned to him or her by these By-Laws or by the Board of Directors.
SECTION 9. THE VICE PRESIDENTS. At the request of the President or in his or her absence or disability, the Vice President, or in the case there shall be more than one Vice President, the Vice President designated by the President (or in the absence of such designation, the Vice President designated by the Board of Directors) shall perform all the duties of the President, and when so acting, shall have all the powers of, and be subject to all the restrictions upon, the President. Any Vice President shall perform such other duties and may exercise such other powers as from time to time may be assigned to him or her by these By-Laws or by the Board of Directors or the President.
SECTION 10. THE MEDICAL DIRECTOR. The Medical Director shall keep informed and advise the Board of Directors and the officers of the corporation as to those medical technologies that are related to the current operations of the corporation, as to those related to areas determined by the Board of Directors to be of interest to the corporation by way of expansion, and as to the needs of the medical community as they relate to the corporation's operations. The Medical Director shall perform such other duties as from time to time may be assigned to him or her by these By-Laws or by the Board of Directors.
SECTION 11. THE SECRETARY. The Secretary of the corporation shall keep the minutes of the meetings of the stockholders of the corporation and, unless provided otherwise by the Chairman at any meeting of the Board of Directors, the Secretary shall keep the minutes of the meetings of the Board of Directors of the corporation. The Secretary shall be the custodian of the minute books of the corporation and such other books and records of the corporation as the Board of Directors of the corporation may direct. The Secretary of the corporation shall have the general responsibility for maintaining the stock transfer books of the corporation or of supervising the maintenance of the stock transfer books of the corporation by the transfer agent, if any, of the corporation. The Secretary shall be the custodian of the corporate seal of the corporation and shall affix the corporate seal of the corporation on contracts and other instruments as the Board of Directors may direct. The Secretary shall perform such other duties as are assigned to him from time to time by the Board of Directors or the President of the corporation.
SECTION 12. THE TREASURER. The Treasurer of the corporation shall have custody of all funds and securities owned by the corporation. The Treasurer shall cause to be entered regularly in the proper books of account of the corporation full and accurate accounts of the receipts and disbursements of the corporation. The Treasurer of the corporation shall render a statement of the cash, financial, and other accounts of the corporation whenever he is directed to render such a statement by the Board of Directors or by the President of the corporation. The Treasurer shall at all reasonable times make available the corporation's books and financial accounts to any director of the corporation during normal business hours. The Treasurer shall perform all other acts incident to the office of treasurer of the corporation, and he shall have such other duties as are assigned to him from time to time by the Board of Directors or the President of the Corporation.
SECTION 13. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The Assistant Secretaries and Assistant Treasurers shall have such duties as from time to time may be assigned to them by the Board of
Directors or by the President.
SECTION 14. SALARIES. The salaries or other compensation of the officers shall be fixed from time to time by the Board of Directors, and no officer shall be prevented from receiving such salary or other compensation by reason of the fact that he or she is also a director of the corporation.
ARTICLE VI - EXECUTION OF INSTRUMENTS
All documents, instruments, or writings of any nature shall be signed, executed, verified, acknowledged, and delivered by such officers, agents, or employees of the corporation as may be determined from time to time by the Board of Directors.
ARTICLE VII - CAPITAL STOCK
SECTION 1. CERTIFICATES OF STOCK. Every stockholder shall have a certificate, signed by the President or a Vice President and either the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary, certifying the number of shares owned by him or her in the corporation. When the certificate is signed by a transfer agent or an assistant transfer agent or by a transfer clerk on behalf of the corporation and registrar, the signatures of the President, Vice President, Treasurer, Assistant Treasurer, Secretary, or Assistant Secretary may be facsimiles.
Certificates for shares of the stock of the corporation shall be in such form as shall be approved by the Board of Directors, and the seal of the corporation or a facsimile thereof shall be affixed thereto. There shall be entered upon the stock books of the corporation the number of each certificate issued, the name of the person owning the shares represented thereby, the number of shares, and the date thereof.
SECTION 2. LOST OR DESTROYED CERTIFICATES. The Board of Directors may direct a new certificate to be issued in place of any certificate theretofore issued by the corporation, alleged to have been lost or destroyed, upon the making of an affidavit of the fact by the person claiming the certificate of stock to have been lost or destroyed. When authorizing such issue of a new certificate, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost or destroyed certificate, or his or her legal representatives, to advertise the same in such manner as it shall require or to give the corporation a bond sufficient to indemnify the corporation on account of the alleged loss of any such certificate or the issuance of such new certificate.
SECTION 3. RIGHTS AND LIABILITIES OF STOCKHOLDERS OF RECORDS. The corporation shall be entitled to treat the holder of record of any share or shares of stock as the owner thereof and shall not be bound to recognize any legal, equitable, or other claims to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise expressly provided by the laws of the State of Florida.
SECTION 4. REGULATIONS. The Board of Directors may make such rules and regulations as it may deem expedient concerning the issuance and transfer of certificates for shares of the stock of the corporation, including the issuance of new certificates to replace lost or destroyed certificates, and may appoint transfer agents or registrars or both of any class of stock of the corporation.
SECTION 5. CONTROL-SHARE ACQUISITIONS. Section 607.0902, Florida Statutes, shall not apply to control-shares acquisitions of share of the corporation.
ARTICLE VIII - CORPORATE SEAL
The corporate seal shall be in the form of a circle and shall bear the name of the corporation and year of its incorporation and shall indicate its formation under the laws of the State of Florida; provided, that the form of such seal shall be subject to alteration from time to time by the Board of Directors.
ARTICLE IX - INDEMNIFICATION
SECTION 1. LEGAL PROCEEDINGS. The corporation shall indemnify any person who was or is a party, or is threatened to be made a party, to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative (other than an action by, or in the right of, the corporation), by reason of the fact that he or she is or was a director, officer, employee, or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise against expenses (including attorneys' fees), judgements, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit, or proceeding, including any appeal thereof, if he or she acted in good faith and in a manner he or she reasonably believed to be in, and not opposed to, the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit, or proceeding by judgment, order, settlement, or conviction or upon a plea of nolo contendre or its equivalent shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he or she reasonably believed to be in, or not opposed to, the best interests of the corporation or, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was unlawful.
SECTION 2. ACTIONS BY THE CORPORATION. The corporation shall indemnify any person who was or is a party, or is threatened to be made a party, to any threatened, pending, or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he or she is or was a director, officer, employee, or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise against expenses, including attorneys' fees, actually and reasonably incurred by him or her in connection with the defense or settlement of such action or suit, including any appeal thereof, if he or she acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the corporation, except that no indemnification shall be made in respect of any claim, issue, or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his or her duty to the corporation unless, and only to the extent that, the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper.
SECTION 3. EXPENSES. To the extent that a director, officer,
employee, or agent of the corporation has been successful on the merits or
otherwise in defense of any action, suit, or proceeding referred to in
Section 1 or Section 2, or in defense of any claim, issue, or matter
therein, he or she shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him or her in
connection therewith.
SECTION 4. DETERMINATION TO INDEMNIFY. Any indemnification under
Section 1 or Section 2, unless pursuant to a determination by a court,
shall be made by the corporation only as authorized in the specific case
upon a determination that indemnification of the director, officer,
employee, or agent is proper in the circumstances because he or she has met
the applicable standard of conduct set forth in Section 1 or Section 2.
Such determination shall be made:
(a) by the Board of Directors by a majority vote of a quorum consisting of directors who are not parties to such proceeding;
(b) if such a quorum is not obtainable or, even if obtainable, by majority vote of a Committee duly designated by the Board of Directors (in which directors who are parties may participate) consisting solely of two or more directors not at the time parties to the proceeding;
(c) by independent legal counsel:
i) selected by the Board of Directors prescribed in Section
4(a) or the Committee prescribed in Section 4(b); or
ii) if a quorum of the directors cannot be obtained for Section 4(a) and the Committee cannot be designated under Section 4(b), selected by majority vote of the full Board of Directors (in which directors who are parties may participate); or
(d) by the stockholders by a majority vote of a quorum consisting of stockholders who were not parties to such proceeding or, if no such quorum is obtainable, by a majority vote of the stockholders who are not parties to such proceeding.
SECTION 5. ADVANCE OF EXPENSES. Expenses, including attorneys'
fees, incurred in defending a civil or criminal action, suit, or proceeding
may be paid by the corporation in advance of the final disposition of such
action, suit, or proceeding upon a preliminary determination following one
of the procedures set forth in Section 4 that the director, officer,
employee, or agent met the applicable standard of conduct set forth in
Section 1 or Section 2 as authorized by the Board of Directors in the
specific case and, in either event, upon receipt of an undertaking by or on
behalf of the director, officer, employee, or agent to repay such amount,
unless it shall ultimately be determined that he is entitled to be
indemnified by the corporation as authorized in this Article.
SECTION 6. OTHER INDEMNIFICATION. The corporation or the stockholders may make any other or further indemnification of any of the corporation's directors, officers, employees, or agents under any agreement, vote of stockholders or disinterested directors, or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office, except as prohibited by law.
SECTION 7. CONTINUATION. Indemnification as provided in this Article shall continue as to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of such a person.
SECTION 8. INSURANCE. The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity or arising out of his or her status as such, whether or not the corporation would have the power to indemnify him or her against such liability under the provisions of this Article.
SECTION 9. NOTICE TO STOCKHOLDERS. If any expenses or other amounts are paid by way of indemnification other than by court order or action by the stockholders or by an insurance carrier pursuant to insurance maintained by the corporation, the corporation shall, not later than the time of delivery to stockholders of written notice of the next annual meeting of stockholders, unless such meeting is held within three months after the date of such payment, and, in any event, within 15 months after the date of such payment, deliver either personally or by mail to each stockholder of record at the time entitled to vote for the election of directors a statement specifying the persons paid, the amounts paid, and the nature and status at the time of such payment of the litigation or threatened litigation.
SECTION 10. INTERPRETATION. This Article IX shall be interpreted to permit indemnification to the fullest extent permitted by law. If any part of this Article shall be found to be invalid or ineffective in any action, suit, or proceeding, the validity and effect of the remaining part therefor shall not be affected.
| ARTICLE 5 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS DATED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS. |
| PERIOD TYPE | 6 MOS |
| FISCAL YEAR END | DEC 31 1998 |
| PERIOD END | JUN 30 1998 |
| CASH | 2075996 |
| SECURITIES | 0 |
| RECEIVABLES | 6825966 |
| ALLOWANCES | 1759000 |
| INVENTORY | 0 |
| CURRENT ASSETS | 9400885 |
| PP&E | 7916468 |
| DEPRECIATION | 2003609 |
| TOTAL ASSETS | 25879938 |
| CURRENT LIABILITIES | 18383499 |
| BONDS | 0 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 509510 |
| COMMON | 130846 |
| OTHER SE | (2613917) |
| TOTAL LIABILITY AND EQUITY | 25879938 |
| SALES | 18558141 |
| TOTAL REVENUES | 18558141 |
| CGS | 0 |
| TOTAL COSTS | 33889653 |
| OTHER EXPENSES | 0 |
| LOSS PROVISION | 0 |
| INTEREST EXPENSE | 7944412 |
| INCOME PRETAX | (23116292) |
| INCOME TAX | 0 |
| INCOME CONTINUING | (23116292) |
| DISCONTINUED | (108006) |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | (23224298) |
| EPS PRIMARY | (1.87) |
| EPS DILUTED | (1.87) |