HGBL

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended March 31, 2003, for I-Link Incorporated (intending to change its name to Acceris Communications, Inc.). The company operates primarily in the telecommunications sector through three segments: Acceris Partners (dial-around and agent services), Acceris Solutions (enterprise voice and data), and Acceris Technologies (licensing). The company is currently restructuring, having sold its I-Link Communications (ILC) business (classified as discontinued operations) and acquired the RSL Com U.S.A. Inc. business in late 2002.

Key Financial Metrics

Debt and Liquidity: The company holds significant related-party debt totaling approximately $60.5 million. As of March 31, 2003, $8.5 million remained available under its revolving credit facility. The company maintains a stockholders' deficit of $63.3 million.

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased by $17.6 million (72%) compared to Q1 2002. This was driven primarily by the inclusion of the RSL business (acquired Dec 2002) contributing $11.4 million and a new supplier content product contributing another $11.4 million.
• Improved Loss Position: Net loss decreased by $2.7 million year-over-year. This improvement is attributed to a reduction in operating losses and a significant decrease in losses from discontinued operations (from $3.1 million in 2002 to $0.3 million in 2003).
• Operating Cash Flow: Cash used in operating activities improved significantly, dropping from $3.3 million in Q1 2002 to $1.3 million in Q1 2003, largely due to a lower net loss and better working capital management.
• Segment Performance: Acceris Partners generated an operating income of $589,000, while Acceris Solutions (newly acquired) incurred a loss of $1.3 million. Acceris Technologies had no revenue in Q1 2003 compared to $1.6 million in Q1 2002.

Outlook, Risks, and Contingencies

• Going Concern & Funding: The company's ability to continue as a going concern is dependent on funding from its majority shareholder, Counsel Corporation. Counsel has committed to fund operational requirements through April 15, 2004. There is no assurance of funding beyond this date.
• Debt Restructuring: An amended debt restructuring agreement is pending shareholder approval, which would convert approximately $30.0 million of related-party debt into common stock, reducing the debt burden without cash outflow.
• Discontinued Operations: The sale of the ILC business to Buyers United closed on May 1, 2003. The consideration includes preferred stock and contingent earn-out shares.
• Supplier Concentration: A single supplier accounted for 27% of telecommunications service revenues. The company negotiated a $4.5 million cost concession from this supplier, $3.0 million of which was realized in Q1 2003.
• Future Guidance: Management anticipates operations will be cash flow positive for the year ending December 31, 2003. They expect Acceris Partners revenues to increase in Q2 2003 and steady growth in Acceris Solutions in the second half of the year.

Investor Verification Checklist

• Funding Commitment Expiry: Verify the status of Counsel Corporation's funding commitment beyond April 15, 2004, and the likelihood of securing alternative financing if needed.
• Debt Restructuring Approval: Confirm if the shareholder vote to convert $30 million of debt to equity has been approved and executed.
• Supplier Concession Sustainability: Assess the long-term viability of the $4.5 million cost concession from the major supplier and the impact on margins once the concession expires.
• Discontinued Operations Settlement: Monitor the finalization of the ILC sale settlement and the realization of contingent consideration (earn-out shares).
• Accounts Receivable Quality: Review the allowance for doubtful accounts, which increased significantly to $10.3 million, representing a high percentage of gross receivables.