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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>0001047469-01-500007.txt : 20010518
<SEC-HEADER>0001047469-01-500007.hdr.sgml : 20010518
ACCESSION NUMBER:		0001047469-01-500007
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		1
CONFORMED PERIOD OF REPORT:	20010331
FILED AS OF DATE:		20010517

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			I LINK INC
		CENTRAL INDEX KEY:			0000849145
		STANDARD INDUSTRIAL CLASSIFICATION:	TELEGRAPH & OTHER MESSAGE COMMUNICATIONS [4822]
		IRS NUMBER:				592291344
		STATE OF INCORPORATION:			FL
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10-Q
		SEC ACT:		
		SEC FILE NUMBER:	000-17973
		FILM NUMBER:		1642163

	BUSINESS ADDRESS:	
		STREET 1:		13751 S WADSWORTH PK DR SUITE 200
		STREET 2:		STE 200
		CITY:			DRAPER
		STATE:			UT
		ZIP:			84020
		BUSINESS PHONE:		8015765000

	MAIL ADDRESS:	
		STREET 1:		13751 S WADSWORTH PK DR
		STREET 2:		STE 200
		CITY:			DRAPER
		STATE:			UT
		ZIP:			84020

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	MEDCROSS INC
		DATE OF NAME CHANGE:	19920703
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>a2049212z10-q.txt
<DESCRIPTION>FORM 10-Q
<TEXT>

<PAGE>

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934

                  For the quarterly period ended March 31, 2001

                                       OR

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934


               For the transition period from ________ to ________

                         Commission file number: 0-17973

                               I-LINK INCORPORATED
             (Exact name of registrant as specified in its charter)

            FLORIDA                                      59-2291344
(State or other jurisdiction of            (I.R.S. Employer  Identification No.)
incorporation or organization)

          13751 S. WADSWORTH PARK DRIVE, SUITE 200, DRAPER, UTAH 84020
                    (Address of principal executive offices)

                                 (801) 576-5000
                         (Registrant's telephone number)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter time period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /

                                 --------------

As of May 7, 2001, the registrant had outstanding 112,569,863 shares of $0.007
par value common stock.

<PAGE>

PART I - FINANCIAL INFORMATION

                      I-LINK INCORPORATED AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                           ASSETS                           March 31, 2001             December 31,
                                                                             (Unaudited)                   2000
                                                                            --------------             ------------
<S>                                                                         <C>                       <C>
Current assets:
   Cash and cash equivalents                                                 $   2,701,648             $   2,155,628
   Accounts receivable, less allowance for doubtful
      accounts of $75,496 and $100,665 as of
      March 31, 2001 and December 31, 2000, respectively                         1,851,182                 3,357,856
   Certificates of deposit - restricted                                             53,500                    53,500
   Other current assets                                                            299,302                   332,391
                                                                             -------------             -------------
       Total current assets                                                      4,905,632                 5,899,375

Furniture, fixtures, equipment and software, net                                10,133,925                10,983,273

Other assets:
   Intangible assets, net                                                        3,391,489                 3,939,226
   Certificates of deposit - restricted                                            220,000                   222,636
   Other assets                                                                    676,619                   612,982
                                                                             -------------             -------------
                                                                             $  19,327,665             $  21,657,492
                                                                             =============             =============

                      LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
   Accounts payable                                                          $   2,759,821             $   5,370,490
   Accrued liabilities                                                           3,698,861                 3,327,900
   Unearned revenue                                                             14,885,541                14,885,592
   Notes payable                                                                 2,267,060                   785,971
   Notes payable to related parties                                                     --                 7,768,000
   Accrued interest on notes payable to a related party                                 --                 2,376,498
   Current portion of obligations under capital leases                           1,465,091                 1,445,690
                                                                             -------------             -------------
       Total current liabilities                                                25,076,374                35,960,141

Notes payable                                                                      785,634                   796,662
Note payable - related party, net of discount                                    4,120,664                        --
Unearned revenue                                                                   416,667                 1,666,667
Obligations under capital leases                                                   304,296                   338,263
                                                                             -------------             -------------
                                                                                30,703,635                38,761,733
                                                                             -------------             -------------
Commitments and contingencies (Note 7)

Redeemable preferred stock - Class M                                                    --                11,734,820
                                                                             -------------             -------------
Stockholders' deficit:
   Preferred stock, $10 par value, authorized 10,000,000 shares,
      issued and outstanding 10,018 and 24,435 at March 31, 2001
      and December 31, 2000, respectively, liquidation preference
      of $1,837,409 at March 31, 2001                                              100,180                   244,350
   Common stock, $.007 par value, authorized 150,000,000 shares,
      issued and outstanding 95,111,665 and 28,136,506 at
      March 31, 2001 and December 31, 2000, respectively                           665,783                   196,957
   Additional paid-in capital                                                  114,164,734               106,622,114
   Accumulated deficit                                                        (126,306,667)             (135,902,482)
                                                                             -------------             -------------
      Total stockholders' deficit                                              (11,375,970)              (28,839,061)
                                                                             -------------             -------------
                                                                             $  19,327,665             $  21,657,492
                                                                             =============             =============
</TABLE>

              The accompanying notes are an integral part of these
                        consolidated financial statements

                                       1
<PAGE>

                      I-LINK INCORPORATED AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
         FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 (UNAUDITED)

<TABLE>
<CAPTION>
                                                                             2001                  2000
                                                                         ------------          ------------
<S>                                                                      <C>                   <C>
Revenues:
   Telecommunication services                                            $  4,127,856          $  5,287,208
   Marketing services                                                              --               464,354
   Technology licensing and development                                     1,436,899             4,506,500
   Other                                                                      666,583               701,103
                                                                         ------------          ------------
      Total revenues                                                        6,231,338            10,959,165
                                                                         ------------          ------------

Operating costs and expenses:
   Telecommunication network expense                                        5,728,641             6,113,062
   Marketing services                                                              --               349,034
   Selling, general and administrative                                      3,579,781             3,919,088
   Provision for doubtful accounts                                             52,283               325,716
   Depreciation and amortization                                            1,484,133             1,488,889
   Research and development                                                 1,066,758               832,912
                                                                         ------------          ------------
      Total operating costs and expenses                                   11,911,596            13,028,701
                                                                         ------------          ------------

Operating loss                                                             (5,680,258)           (2,069,536)
                                                                         ------------          ------------

Other income (expense):
   Interest expense                                                          (266,203)             (443,842)
   Interest and other income                                                   29,803                37,827
   Settlement expense                                                              --            (1,359,950)
                                                                         ------------          ------------
      Total other income (expense)                                           (236,400)           (1,765,965)
                                                                         ------------          ------------

           Net loss                                                      $ (5,916,658)         $ (3,835,501)
                                                                         ============          ============

CALCULATION OF NET INCOME (LOSS) PER COMMON SHARE:

Net loss                                                                 $ (5,916,658)         $ (3,835,501)
Cumulative preferred stock dividends not paid in current period               (10,947)             (407,393)
Dividends accrued and paid on Class M redeemable preferred stock             (269,027)                   --
Dividends paid on Class F redeemable preferred stock                               --               (18,214)

Net effect on retained earnings of redemption and reissuance
   of Class M and N preferred stock, including beneficial
   conversion features                                                     15,512,473                    --
                                                                         ------------          ------------
      Income (loss) applicable to common stock                           $  9,315,841          $ (4,261,108)
                                                                         ============          ============
Basic and diluted weighted average shares outstanding                      47,079,855            24,901,536
                                                                         ============          ============
      Net income (loss) per common share - basic and diluted:            $       0.20          $      (0.17)
                                                                         ============          ============
</TABLE>

              The accompanying notes are an integral part of these
                    consolidated financial statements

                                       2
<PAGE>

                      I-LINK INCORPORATED AND SUBSIDIARIES
           CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                   Preferred Stock              Common Stock
                                                 ---------------------     ------------------------
                                                                                                        Additional
                                                                                                         Paid-in       Accumulated
                                                 Shares       Amount         Shares         Amount       Capital          Deficit
                                                 -------     ---------     -----------     --------    ------------   -------------
<S>                                              <C>         <C>           <C>             <C>         <C>            <C>
BALANCE AT DECEMBER 31, 2000                      24,435     $ 244,350      28,136,506     $196,957    $106,622,114   $(135,902,482)

Conversion of convertible debt and
   accrued interest into Class M
   mezzanine preferred stock and
   common warrants (Note 4)                                                                               6,377,673

Repurchase of Class M mezzanine
  preferred stock (Note 2)

Repurchase of Class N preferred stock            (14,404)     (144,040)                                 (14,164,060)

Net contribution from repurchase/
   settlement of shareholders of
   Class M and Class N preferred stock                                                                   (5,000,000)     30,292,319

Contingent beneficial conversion
   feature on Class N preferred stock                                                                     9,779,846      (9,779,846)

Issuance of common shares to related
   party to repurchase warrants outstanding                                  5,000,000       35,000         (35,000)

Reissuance and conversion of Class M
   redeemable preferred stock into
   common stock                                                             50,442,857      353,100       3,696,900

Reissuance and conversion of Class N
   preferred stock into common stock                                        11,523,159       80,662         869,338

Beneficial conversion feature on the
   reissuance of Class M and Class N
   preferred stock                                                                                        5,000,000      (5,000,000)

Other conversions of Class N preferred
   stock into common stock                           (13)         (130)          9,143           64              66

Beneficial conversion feature on certain
   convertible notes payable to related party                                                             1,017,857

Net loss                                                                                                                 (5,916,658)
                                                 -------     ---------     -----------     --------    ------------   -------------
BALANCE AT MARCH 31, 2001                         10,018     $ 100,180      95,111,665     $665,783    $114,164,734   $(126,306,667)
                                                 =======     =========     ===========     ========    ============   =============

</TABLE>

              The accompanying notes are an integral part of these
                        consolidated financial statements


                                       3
<PAGE>

                      I-LINK INCORPORATED AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                          For the Three Months Ended
                                                                                                   March 31,
                                                                                       -------------------------------
                                                                                           2001               2000
                                                                                       ------------       ------------
<S>                                                                                    <C>                <C>
Cash flows from operating activities:

   Net loss                                                                            $ (5,916,658)      $ (3,835,501)
    Adjustments to reconcile net loss to net cash used in operating activities:
       Depreciation and amortization                                                      1,484,133          1,488,889
       Provision for doubtful accounts                                                       52,283            325,716
       Amortization of discount on notes payable to a related party                          29,822                 --
       Amortization of deferred compensation on stock options issued for services                --            191,964
       Increase (decrease) from changes in operating assets and liabilities:
            Accounts receivable                                                           1,454,391           (631,469)
            Other assets                                                                    (27,912)            (4,137)
            Unearned revenue                                                                    (51)                --
            Accounts payable, accrued liabilities and interest                           (1,819,238)           486,969
       Discontinued operations - noncash charges and working capital changes                     --             72,639
                                                                                       ------------       ------------
                     Net cash used in operating activities                               (4,743,230)        (1,904,930)
                                                                                       ------------       ------------
Cash flows from investing activities:
   Purchases of furniture, fixtures, equipment and software                                 (87,048)        (1,526,367)
                                                                                       ------------       ------------
                     Net cash used in investing activities                                  (87,048)        (1,526,367)
                                                                                       ------------       ------------
Cash flows from financing activities:
   Proceeds from note payable to related party                                            5,400,000          1,300,000
   Proceeds from advance under strategic marketing agreement                                     --          1,751,183
   Payment of long-term debt                                                                 (9,136)                --
   Payment of capital lease obligations                                                     (14,566)           (52,772)
   Proceeds from exercise of common stock warrants and options                                   --          3,311,825
                                                                                       ------------       ------------
                     Net cash provided by financing activities                            5,376,298          6,310,236
                                                                                       ------------       ------------
Increase in cash and cash equivalents                                                       546,020          2,878,939

Cash and cash equivalents at beginning of period                                          2,155,628          2,996,004
                                                                                       ------------       ------------
Cash and cash equivalents at end of period                                             $  2,701,648       $  5,874,943
                                                                                       ============       ============
Cash and cash equivalents at end of period:
   Continuing operations                                                               $  2,701,648       $  5,757,030
   Discontinued operations                                                                       --            117,913
                                                                                       ------------       ------------
       Total cash and cash equivalents at end of period                                $  2,701,648       $  5,874,943
                                                                                       ============       ============
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

   Reclassification of common stock to be issued to mezzanine                                    --       $  1,397,973
   Reclassification of Class F redeemable preferred stock from mezzanine                         --       $  2,338,785
   Conversion of notes payable to a related party and associated accrued interest
      to Class M redeemable preferred stock                                            $ 10,305,072                 --
   Reclassification of Class M redeemable preferred stock from mezzanine               $ 22,039,892                 --
   Stock options issued for services                                                             --       $     54,902

</TABLE>

              The accompanying notes are an integral part of these
                        consolidated financial statements

                                       4
<PAGE>

                       I-LINK INCORORATED AND SUBSIDIAIRES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   -----------

NOTE 1 - DESCRIPTION OF BUSINESS, PRINCIPLES OF CONSOLIDATION AND LIQUIDITY

The consolidated financial statements include the accounts of I-Link
Incorporated and its subsidiaries ("I-Link" or 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
technologies. Telecommunications services are marketed primarily through master
agent and wholesale distributor arrangements with I-Link Communications, a
wholly owned subsidiary of the Company that is an FCC licensed long-distance
carrier. The Company develops and licenses communications applications products
and software that support multimedia communications (voice, fax and audio) over
the public switched network, local area networks and the Internet.

All significant intercompany accounts and transactions have been eliminated in
consolidation.

The interim financial data are unaudited; however, in the opinion of the
management of the Company, the interim data includes all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of (a)
the results of operations for the three-month periods ended March 31, 2001 and
2000, (b) the financial position at March 31, 2001, and (c) cash flows for the
three-month periods ended March 31, 2001 and 2000. 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, 2000.

The results of operations for the three-month period ended March 31, 2001 are
not necessarily indicative of those to be expected for the entire year.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NET INCOME (LOSS) PER SHARE

Basic earnings per share is computed based on the weighted average number of
common shares outstanding during the period. Options, warrants, convertible
preferred stock and convertible debt are included in the calculation of diluted
earnings per share, except when their effect would be anti-dilutive. As the
Company had either a net loss or no dilutive potential common shares outstanding
for the three-month periods ending March 31, 2001 and 2000, basic and diluted
income (loss) per share are the same.

The net income per common share basic and diluted for the three-months ending
March 31, 2001 includes a net gain to retained earnings for $30,292,319
attributed to the redemption on March 1, 2001 of the Class M redeemable
preferred stock and all Class N preferred stock owned by Winter Harbor as
discussed in Note 3, including redemption of the beneficial conversion feature
related to such preferred stock. In addition, there was a charge to retained
earnings of $9,779,846 representing a contingent beneficial conversion feature
on the Class N preferred stock resulting from the reset of the conversion price.
The net income per common share basic and diluted also reflects a $5,000,000
charge to retained earnings for the beneficial conversion feature related to the
reissuance on March 1, 2001of the Class M and Class N preferred stock to Counsel
Communications, LLC.

NOTE 3 - TRANSACTIONS WITH SIGNIFICANT OWNERS

TRANSACTIONS WITH WINTER HARBOR:

On March 1, 2001, Winter Harbor elected to convert a note payable from I-Link
for $7,768,000 plus accrued interest of $2,537,072 into 4,122 shares of Class M
convertible redeemable preferred stock of I-Link and 5,000,000 common stock
warrants under the original terms of the loan agreement. Upon conversion of the
note and accrued interest, current liabilities in the amount of $10,305,072 were
satisfied without use of cash.

On March 1, 2001 the Company entered into a Warrant Exchange Agreement with
Winter Harbor. Pursuant to the terms and provisions of this Agreement, Winter
Harbor agreed to assign, transfer, convey and deliver to I-Link, warrants to
acquire

                                       5
<PAGE>

                       I-LINK INCORORATED AND SUBSIDIAIRES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   -----------

NOTE 3 - TRANSACTIONS WITH SIGNIFICANT OWNERS, CONTINUED

33,540,000 (including the 5,000,000 warrants issued upon conversion of the
convertible debt discussed above) shares of common stock of I-Link beneficially
owned by Winter Harbor in exchange for the issuance of 5,000,000 shares of
I-Link's common stock to Winter Harbor. The repurchase of the common warrants
was accounted for similar to the repurchase of treasury stock.

TRANSACTIONS WITH COUNSEL:

On March 1, 2001, I-Link entered into a Senior Convertible Loan and Security
Agreement, (the "Loan Agreement") with Counsel Communications, LLC, ("Counsel
LLC") and a wholly-owned subsidiary of Counsel Corporation, (collectively,
"Counsel"). Pursuant to the terms and provisions of the Loan Agreement, Counsel
LLC agreed to make periodic loans to I-Link in the aggregate principal amount
not to exceed $10,000,000. Of that amount, $5,400,000 was borrowed during the
first quarter of 2001. Draw downs against the $10,000,000 Loan Agreement are
structured as a 3-year convertible note with interest at 9% per annum,
compounded quarterly. On May 8, 2001 the aggregate principal amount under the
facility was increased to $12,000,000. Counsel LLC can convert the loan into
shares of common stock of I-Link at a conversion price of $0.56 per common
share. At any time after September 1, 2002, the outstanding debt including
accrued interest shall automatically convert into common stock using the then
current conversion rate, on the first date that is the twentieth consecutive
trading day that the common stock has closed at a price per share that is
equal to or greater than $1.00 per share. The conversion price is subject to
adjustment in accordance with the terms and provisions of the Loan Agreement.
The Loan Agreement provides for traditional anti-dilution protection and is
subject to certain events of default. Total proceeds available to the Company
will be $12,000,000 less debt issuance costs of $600,000, which are being
amortized over three years.

By executing the above Loan Agreement, I-Link granted Counsel LLC a first
priority security interest in all of I-Link's assets owned at the time of the
execution of the Loan Agreement or subsequently acquired, including but not
limited to I-Link's accounts receivable, general intangibles, inventory,
equipment, books and records, and negotiable instruments held by the Company
(collectively, the "Collateral"). The Loan Agreement also included demand
registration rights for common stock issuable upon conversion of the Loan
Agreement.

In addition to the foregoing agreements, I-Link and Counsel LLC executed a
Securities Support Agreement, dated March 1, 2001 (the "Support Agreement") for
the purpose of providing certain representations and commitments by I-Link to
Counsel LLC. In accordance with the terms and provisions of a separate agreement
(the "Securities Purchase Agreement") with Winter Harbor and First Media L.P., a
limited partnership and the parent company of Winter Harbor (collectively the
"Winter Harbor Parties"), Counsel agreed to purchase from the Winter Harbor
Parties all of their equity securities in I-Link, including shares of Class M
and Class N preferred stock of I-Link, beneficially owned by the Winter Harbor
Parties for an aggregate consideration of $5,000,000 cash.

I-Link's commitments to Counsel LLC set forth in the Support Agreement included
I-Link's agreement to appoint two designees of Counsel (which was done in May
2001) to the Company's board of directors. The Company also agreed that
immediately following the initial funding of the Loan agreement, I-Link would
solicit the proxies of I-Link's shareholders to elect three additional nominees
designated by Counsel, thus, increasing the size of the Company's board of
directors to nine members.

Under the Support Agreement, I-Link also agreed to engage appropriate advisors
and proceed to take all steps necessary to merge Nexbell Communications Inc. (a
subsidiary of Counsel LLC) into I-Link. The merger was completed on April 17,
2001 (see Note 9). Nexbell is a designated Cisco Powered Network member in the
VoIP category and operates a private, managed packet telephony network
delivering packet voice services to over 400 metropolitan areas in the United
States.

On March 7, 2001, as part of the agreements discussed above, Counsel
converted all of the Class M and N convertible preferred stock it obtained
from Winter Harbor for $5,000,000 into 61,966,016 shares of I-Link's common
stock. The Class N shares were converted at $1.25 per common share and Class
M at $.56 per common share, in accordance with their respective conversion
rights.

                                       6
<PAGE>

                       I-LINK INCORORATED AND SUBSIDIAIRES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   -----------

NOTE 3 -TRANSACTIONS WITH SIGNIFICANT OWNERS, CONTINUED

As a result of Counsel LLC's purchase of Winter Harbor's security holdings in
I-Link, Counsel LLC became the single largest shareholder of the Company. In
addition to the above transactions, Counsel Corporation and its subsidiary
Counsel LLC committed to fund, through long-term intercompany advances or equity
contribution, all capital investment, working capital or other operational cash
requirements of the Company through April 15, 2002.

ACCOUNTING TREATMENT OF COUNSEL AND WINTER HARBOR TRANSACTIONS:

The repurchase of Winter Harbor's 33,540,000 warrants for 5,000,000 common
shares was recorded at market value of the common stock issued in the exchange
amounting to $3,750,000. The repurchase was accounted for similar to the
repurchase of treasury stock. Accordingly, common stock and additional paid in
capital was increased by $3,750,000 which was offset by a charge to additional
paid in capital of $3,715,000 to reflect the warrant repurchase. The net effect
of this transaction was the recording of additional par value of $35,000 for the
5,000,000 shares issued.

As the conversion price for Class M preferred stock had dropped to $1.25 per
share (from its original conversion price of $2.78), an amount reflecting the
increase in the beneficial conversion feature was recorded as an increase in
additional paid in capital and a charge to accumulated deficit for $9,779,846.
The purchase and sale of the Class M and Class N preferred stock between Winter
Harbor and Counsel, as described above, have been imputed in I-Link's financial
statements as if the transactions had been effected through I-Link as a
repurchase of the preferred stock from Winter Harbor and a reissuance to
Counsel. Accordingly, the transaction was considered a repurchase of Winter
Harbor's Class M and N preferred stock in exchange for $5,000,000. The
difference between the carrying value of the Class M and N preferred stock and
the $5,000,000 paid was recorded as an adjustment to retained earnings reflected
in the form of a $30,292,319 contribution from settlement of these transactions
between shareholders and has been reflected as such in the statement of changes
in stockholders' deficit. In addition, the transaction considered that I-Link
resold the Class M and N preferred stock to Counsel for $5,000,000 (Counsel's
payment to Winter Harbor). However, since the conversion price on the Class M
shares was below the market price on the day the transaction closed, a
beneficial conversion feature was recorded as the difference between the market
price of the common shares and the conversion price per share multiplied by the
number of common shares into which the Class M and Class N could convert. This
amount was limited to the proceeds.

The Company has also recorded a beneficial conversion feature (debt discount) in
the amount of $1,017,857 on the convertible debt funded by Counsel that was
received through March 31, 2001. The amount of the discount, if applicable, is
calculated as the difference between the conversion price ($.56) and the market
price of the common stock (if higher than the conversion price on the date funds
are drawn on the loan), multiplied by the number of shares of common stock into
which the note can be converted. The beneficial conversion feature is being
amortized over the life of the note payable (three years).

NOTE 4 - LONG TERM DEBT

As described in Note 3, Winter Harbor elected to convert a note payable from
I-Link for $7,768,000 plus accrued interest of $2,537,072 into Class M
convertible redeemable preferred stock during the first quarter of 2001. The
effect of this conversion was a non-cash reduction of current liabilities of
$10,305,072.

As described in Note 3, the Company borrowed $5,400,000 under a $10 million loan
agreement with Counsel Communications during the first quarter of 2001. Interest
on the note (9% per annum) is automatically added to principal at the end of
each calendar quarter. The note is convertible into I-Link's common stock at a
conversion rate of $.56 per share. When the Company draws on the loan agreement
and the market price of the Company's common stock is higher than the conversion
rate, a debt discount is recorded equal to this beneficial conversion feature.
As of March 31, 2001, the debt discount of $1,017,857 on the borrowings of
$5,400,000 during the quarter is being accreted to interest expense over the
term (three years) of the loan agreement. On May 8, 2001 the aggregate principal
amount was increased to $12,000,000.

                                       7
<PAGE>

                       I-LINK INCORORATED AND SUBSIDIAIRES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   -----------

NOTE 5 - INCOME TAXES

The Company recognized no income tax benefit from the losses generated in 2001
and 2000 because of the uncertainty of the realization of the related deferred
tax asset.

NOTE 6 - STOCK-BASED COMPENSATION PLANS

During the three months ended March 31, 2001, approximately 2,100,000 options to
purchase the Company's common shares previously issued to employees expired or
were forfeited. During the same three months, there were no exercises of
options.

NOTE 7 - PURCHASE COMMITMENTS

The Company has an agreement with a national carrier to lease local access
spans. The agreement includes minimum usage commitments of $2,160,000 in the two
years beginning July 2000. If the Company were to terminate the agreement early,
it would be required to pay 25 percent of any remaining minimum usage
requirements.

NOTE 8 - SEGMENT OF BUSINESS REPORTING

Segment of business reporting is based upon the "management" approach as defined
in SFAS 131. The management approach designates the internal organization that
is used by management for making operating decisions and assessing performance
as the source of the Company's reportable segments. Based on the management
approach, the Company's three reportable segments are as follows:

o    Telecommunications services - includes long-distance toll services and
     enhanced calling features such as V-Link. The telecommunications services
     products are marketed primarily to residential and small business
     customers.

o    Marketing services - includes training and promotional materials to
     independent sales representatives (IRs) in the network marketing sales
     channel. Additionally, revenues are generated from registration fees paid
     by IRs to attend regional and national sales conferences. This segment
     ceased operation in February 2000.

o    Technology licensing and development - provides research and development to
     enhance the Company's product and technology offerings. Products developed
     by this segment include V-Link, Indavo, and other proprietary technology.
     The Company licenses certain developed technology to third party users,
     such as Lucent, Brooktrout and others.

There are no intersegment revenues. The Company's business is conducted
principally in the U.S.; foreign operations are not material. The table below
presents information about revenues from external customers and net loss for the
three-month periods ended March 31, 2001 and 2000. There has been no material
change in segment assets from the amounts reported in the Company's annual
report on Form 10-K for the year ended December 31, 2000.

<TABLE>
<CAPTION>
                                                                      FOR THE THREE      FOR THE THREE
                                                                       MONTHS ENDED       MONTHS ENDED
                                                                      MARCH 31, 2001     MARCH 31, 2000
                                                                      --------------     --------------
<S>                                                                   <C>                <C>
REVENUES FROM EXTERNAL CUSTOMERS:
   Telecommunications services                                         $  4,794,000       $  5,588,000
   Marketing services                                                            --            464,000
   Technology licensing and developing                                    1,437,000          4,907,000
                                                                       ------------       ------------
   Total revenues from external customers for reportable segments      $  6,231,000       $ 10,659,000
                                                                       ============       ============
SEGMENT INCOME ( LOSS):
   Telecommunications services                                         $ (2,319,000)      $ (2,229,000)
   Marketing services                                                            --            (96,000)
</TABLE>

                                       8
<PAGE>

                       I-LINK INCORORATED AND SUBSIDIAIRES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   -----------

<TABLE>
<S>                                                                   <C>                <C>
   Technology licensing and developing                                      (12,000)         3,662,000
                                                                       ------------       ------------
   Total segment income (loss) for reportable segments                   (2,331,000)         1,337,000

   Unallocated non-cash amounts in consolidated net loss:

      Amortization of discount on notes payable                             (30,000)                --
      Settlement expense                                                         --         (1,360,000)
      Amortization of deferred compensation on stock
         options issued for services                                             --           (192,000)
      Amortization of intangible assets                                    (548,000)          (719,000)
      Other corporate expenses                                           (3,008,000)        (2,902,000)
                                                                       ------------       ------------
                                                                       $ (5,917,000)      $ (3,836,000)
                                                                       ============       ============
</TABLE>

Revenues from each of the Company's two largest customers accounted for 57% and
15% of telecommunication services revenues during the first quarter of 2001.

NOTE 9 - SUBSEQUENT EVENTS

On April 17, 2001, the Company completed its acquisition of Nexbell
Communications for 17,454,333 shares of I-Link common stock. Nexbell operates
a private, managed IP telephony network that delivers packet voice services
to over 400 key metropolitan areas in the United States. Nexbell's first
product offering, Multi-Exchange Transport Service (METS), provides customers
with VoIP based local access origination and termination services through 32
domestic points of presence. As Counsel controlled both entities at the time
the acquisition was concluded, the assets and liabilities of Nexbell will be
consolidated in I-Link's future financial statements based upon Nexbell's
historical cost.

In May 2001, certain employees of the Company (including the Chief Executive
officer and Chief Financial Officer) terminated employment. Under employment
agreements with these employees, the Company incurred an obligation to pay
severance payments of $565,000 of which $265,000 was paid immediately and
$300,000 will be paid out over 15 months.


                                       9
<PAGE>

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, 2000.

FORWARD LOOKING INFORMATION

     THIS REPORT CONTAINS CERTAIN "FORWARD-LOOKING STATEMENTS" WITHIN THE
MEANING OF SECTION 27-A OF THE SECURITIES ACT OF `1933, AS AMENDED, SECTION 21-E
OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, AND INFORMATION RELATING TO
I-LINK THAT ARE BASED ON MANAGEMENT'S EXERCISE OF BUSINESS JUDGEMENT AS WELL AS
ASSUMPTIONS MADE BY AND INFORMATION CURRENTLY AVAILABLE TO MANAGEMENT. WHEN USED
IN THIS DOCUMENT, THE WORDS "ANTICIPATE," "BELIEVE," "ESTIMATE," "EXPECT," AND
"INTEND" AND WORDS OF SIMILAR IMPORT, ARE INTENDED TO IDENTIFY ANY
FORWARD-LOOKING STATEMENTS. YOU SHOULD NOT PLACE UNDUE RELIANCE ON THESE
FORWARD-LOOKING STATEMENTS. THESE STATEMENTS REFLECT OUR CURRENT VIEW OF FUTURE
EVENTS AND ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES AS NOTED BELOW. SHOULD
ONE OR MORE OF THESE RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD UNDERLYING
ASSUMPTIONS PROVE INCORRECT, OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS. .

Although we believe that our expectations are based on reasonable assumptions,
we can give no assurance that our expectations will materialize. Many factors
could cause actual results to differ materially from our forward-looking
statements. Several of these factors include, without limitation: our ability to
finance and manage expected rapid growth; the impact of competitive services and
pricing; our ongoing relationship with our long distance carriers and vendors;
dependence upon key personnel; subscriber attrition; the adoption of new, or
changes in, accounting principles; legal proceedings; federal and state
governmental regulation of the long distance telecommunications and internet
industries; our ability to maintain, operate and upgrade our information systems
network; our success in deploying our Communication Engine network in internet
telephony; the existence of demand for and acceptance of our products and
services (including but not limited to V-Link(TM) and Indavo(TM)); the migrating
of subscribers from a retail billing basis to a wholesale billing basis; the
continued increasing revenues from GateLink(TM) and other wholesale clients as
well as other risks referenced from time to time in our filings with the SEC.

We undertake no obligation and do not intend to update, revise or otherwise
publicly release any revisions to these forward-looking statements to reflect
events or circumstances after the date hereof or to reflect the occurrence of
any unanticipated events.

OPERATIONS

We are an integrated voice and data communications company focused on
simplifying the delivery of "Unified Communication." Unified Communication is
the integration of traditional telecommunications with new data IP (Internet
Protocol) communications systems with the effect of simplifying communications,
increasing communication capabilities and lowering overall communication costs.
Unified Communication platforms integrate telecommunication, mobile
communication, paging, voice-over-IP (VoIP) and Internet technologies. We
provide enhanced telecommunications services on a wholesale and retail basis. We
also undertake research and development of new telecommunications services,
products and technologies, and the licensing of certain of these products and
technologies to other telecommunications companies. We are a leader in the
delivery of unified communications as a result of our core technology offerings:
I-Link's Intranet, Softswitch Plus(TM), GateLink(TM) and Indavo(TM).

Prior to February 15, 2000, our telecommunication and marketing service revenues
were primarily dependent upon the sales efforts of independent representatives
(IRs) functioning within a Network Marketing channel of distribution which
targets residential and small businesses in the United States. These revenue
sources depended directly upon the efforts of IRs. IRs personally solicited
potential individual and business customers via one to one sales presentations
wherein customers sign order forms for I-Link telecommunication products and
services (telecommunication service revenues). Growth in revenue for both
telecommunications and marketing services required an increase in the
productivity of IRs and/or growth in the total number of IRs.

                                       10
<PAGE>

On February 15, 2000, we signed a strategic marketing and channel agreement with
Big Planet, a wholly owned subsidiary of Nu Skin Enterprises, Inc. Under terms
of the agreement, I-Link's independent network marketing sales force (the IRs)
transitioned to Big Planet, and Big Planet was granted worldwide rights to
market and sell I-Link's products and services through the Network Marketing
(sometimes referred to as "Multi-Level") sales channel to residential and small
business users. Our other sales channels into the residential, small business,
and other markets are unaffected by the agreement with Big Planet. The result of
the agreement with Big Planet is that the Network Marketing channel became part
of our wholesale distribution channel.

In April 2001, we acquired Nexbell Communications, which management expects will
bring significant growth in telecommunication services revenue from Nexbell's
existing customers. We plan to continue their marketing efforts and augment
Nexbell's product offerings with our products. We intend to increase our
customer base by internal marketing efforts and acquisition of existing
companies.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents as of March 31, 2001 were $2,701,648, short-term
certificates of deposits were $53,500 and the working capital deficit was
$20,170,742 (which includes deferred revenue of $14,885,541). Cash used by
operating activities during the three-month period ended March 31, 2001 was
$4,743,230 as compared to $1,904,930 during the same period ended March 31,
2000. The increase in cash used in 2001 was primarily due: (1) an increase in
cash used of $244,173 associated with timing of collections and payments related
to accounts receivable, other assets, accounts payable and accrued expenses, and
(2) an increase of $2,521,488 in our net loss after allowance for non-cash
expenses.

Net cash used by investing activities in the three-month period ended March 31,
2001 was $87,048 as compared to net cash used of $1,526,367 in the same period
ended March 31, 2000. Cash used by investing activities in 2001 was attributable
to the purchase of furniture, fixtures and equipment. In the first three months
of 2000, cash used by investing activities was attributable to the purchase of
furniture, fixtures and equipment of $1,526,367. In the first three months of
2001, we curtailed equipment purchases due to financial limitations and the
decision to grow our revenues before expanding network.

Financing activities provided net cash of $5,376,298 in the first three months
of 2001 as compared to cash provided of $6,310,236 in the same period of 2000.
Cash provided in 2001 included $5,400,000 in proceeds from notes to a related
party, which was offset by repayments of long-term debt and capital lease
obligations of $23,702. Cash provided in 2000 included proceeds of $1,300,000
from notes payable to related party, $3,311,825 in net proceeds from exercises
of common stock warrants and options and a $1,751,183 advance received under the
strategic marketing and channel agreement with Big Planet. Repayments of $52,772
on capital lease obligations from continuing operations offset these proceeds.

CURRENT POSITION/FUTURE REQUIREMENTS

During the first quarter of 2001 revenue from continuing operations decreased
$333,070 (5.1%) from the fourth quarter of 2000 as shown below:

<TABLE>
<CAPTION>
                                              Three Months Ended
                                          --------------------------       Increase       % Increase
                                           12/31/00        3/31/01        (Decrease)      (Decrease)
                                          ----------      ----------      ----------      ----------
<S>                                       <C>             <C>             <C>             <C>
Telecommunications services               $4,758,110      $4,127,856      $ (630,254)       (13.2%)
Technology licensing and development       1,294,121       1,436,899         142,778         11.0%
Other                                        512,177         666,583         154,406         11.0%
                                          ----------      ----------      ----------
Net operating revenue                     $6,564,408      $6,231,338      $ (333,070)        (5.1)%
                                          ==========      ==========      ==========
</TABLE>

The decrease in telecommunications services was primarily the result of
significant decreases in the amounts billed to our two largest wholesale
customers, who accounted for approximately 79% of our telecommunications
services revenues in the fourth quarter of 2000 compared to 73% in the first
quarter of 2001. The number of minutes billed through these wholesale

                                       11
<PAGE>

customers decreased approximately 24% from those billed in the prior quarter
which decrease is primarily responsible for the decrease in revenues. Due to
perceived risks relative to our financial condition (prior to the Counsel
Corporation transaction in March 2001), our single largest customer signed an
agreement to transition its business to another service provider in the third or
fourth quarter of 2001, contingent upon the new service provider meeting certain
milestones of product and service development. Hence we cannot predict what
future telecommunication services revenue from this customer may be. In April
2001, we acquired Nexbell Communications, which management expects will bring
significant growth in telecommunication services revenues (and increase in the
related expenses) from Nexbell's existing customers. We plan to continue
Nexbell's marketing efforts and augment Nexbell's product offerings with our
products. We intend to increase our customer base by internal marketing efforts
and acquisition of existing companies.

Technology licensing and development revenues increased due to additional
licensing of our technology. We anticipate that the revenues in the second
quarter of 2001 should approximate the first quarter of 2001.

Other revenues in the first quarter of 2001 of $666,583 represent revenues
relating to customer care, billing and accounts receivable services performed
for our single largest customer. Revenues from these services are expected to
decrease slightly in the second quarter. Should our single largest customer
transition its business to another service provider (as discussed above) in the
third or fourth quarter of 2001, a significant decrease in this revenue source
may occur. However, revenues from these types of services from new customers may
occur in the future. During the fourth quarter of 2000, other revenues of
$512,177 were primarily from services performed for the same customer.

During the remainder of 2001, we plan to use available cash to fund the
development and marketing of I-Link products and services. We anticipate that
revenues from all sources of continuing operations will grow in 2001 and will
increasingly contribute to meeting our cash requirements. Our business plan of
continued market penetration and deployment of I-Link products and services
anticipates needed financial resources at somewhat lower levels than those
experienced in 2000 due to the cost cutting measures we have undertaken. In
order to provide for and/or reduce capital expenditure and working capital
needs, we entered into the following agreements in 2001:

o    On March 1, 2001, Winter Harbor elected to convert a note payable from
     I-Link for $7,768,000 plus accrued interest of $2,537,072 into 4,122 shares
     of Class M convertible preferred stock of I-Link pursuant to the original
     loan agreement. Upon conversion, these current liabilities were satisfied
     without requiring cash.

o    On March 1, 2001, we entered into a Senior Convertible Loan and Security
     Agreement with Counsel Communications, LLC, and ("Counsel"). Pursuant to
     the Loan Agreement, Counsel agreed to make periodic loans to us in the
     aggregate principal amount not to exceed $10,000,000, of which $5,400,000
     was borrowed during the first quarter of 2001. The $10,000,000 is
     structured as a 3-year note convertible with interest at a rate of 9% per
     annum, compounded quarterly. On May 8, 2001 the aggregate principal amount
     was increased to $12,000,000.

o    In January and May 2001, we undertook strategic work force reductions to
     reduce overhead and streamline operations.

In March 2001, Counsel purchased Winter Harbor's security holdings in I-Link and
became our single largest shareholder. In addition to the above transactions,
Counsel has committed to fund, through long-term intercompany advances or equity
contribution, all capital investment, working capital or other operational cash
requirements of I-Link through April 15, 2002.

While we believe that the aforementioned sources of funds will be sufficient to
fund operations into 2002, we anticipate that additional funds will be necessary
from public or private financing markets to successfully integrate and finance
the planned expansion of our business communications services, product
development and manufacturing, and to discharge our financial obligations. The
availability of these capital sources will depend on prevailing market
conditions, interest rates, and our financial position and results of
operations. There can be no assurance that such financing will be available,
that we will receive any additional proceeds from the exercise of outstanding
options and warrants or that we will not be required to arrange for additional
debt, equity or other financing.

                                       12
<PAGE>

THREE-MONTH PERIOD ENDED MARCH 31, 2001 COMPARED TO THREE-MONTH PERIOD ENDED
MARCH 31, 2000

REVENUES

Telecommunications services revenue decreased $1,159,352 to $4,127,856 in the
first quarter of 2001 as compared to $5,287,208 in the first quarter of 2000.
The primary reason for the decrease was our agreement with Big Planet effective
February 15, 2000. Prior to February 15, 2000, our telecommunication services
revenues were primarily dependent upon the sales efforts of independent
representatives (IRs) functioning within a Network Marketing channel of
distribution. These revenue sources were recorded at retail. Under terms of the
agreement, I-Link's IRs transitioned to Big Planet. A substantial decrease in
telecommunication services revenues for the quarter ended March 31, 2001
occurred as we sold our services to the same subscribers but through Big Planet
at wholesale prices.

Marketing services revenue, which included revenues recognized from independent
representatives for promotional and presentation materials, national conference
fees and various product sales decreased $464,354 to $0 in the first quarter of
2001 as compared to $464,354 in the first quarter of 2000. The decrease was a
result of the transition of this network-marketing channel to Big Planet in
February 2000, which with such transition, marketing service revenues ceased.

Technology licensing and development revenue decreased $3,069,601 to $1,436,899
in the first quarter of 2001 as compared to $4,506,500 in the first quarter of
2000. During the first quarter of 2001, we recorded $1,250,000 in licensing
revenue from the licensing agreement we entered into with Red Cube in May 2000.
During the first quarter of 2000, revenue was primarily related with two
licensing agreements that resulted in revenues of nearly $4,000,000 which did
not recur in 2001. Revenue from this source will vary from quarter to quarter
based on timing of technology licensing and development projects.

Other revenues in the first quarter of 2001 of $666,583 represent revenues
relating to customer care, billing and accounts receivable services performed
primarily for our single largest customer as part of the transitioning of
customers of the network-marketing channel to Big Planet, which began in the
first quarter of 2000. Other revenues in the first quarter of 2000 from this
same customer were $301,103. The increase is primarily a result of having three
months of billings in 2001 versus one and one-half months in 2000. Revenues in
the first quarter of 2000 also included royalties of $400,000 received from the
sale of Indavo units through a distributor that did not recur in 2001.

OPERATING COSTS AND EXPENSES

Telecommunications expenses decreased $384,421 in the first quarter of 2001 to
$5,728,641 as compared to $6,113,062 for the same quarter of 2000. These
expenses include the costs related to the continuing development and deployment
of our communication network and expenses related to the generation of
telecommunication service revenue. While telecommunication network expense is
directly related to telecommunication services revenues, the relationship is not
comparable with the same quarter in 2000 due to the transition to wholesale
rather than retail revenues as a result of the agreement with Big Planet
discussed above in telecommunication services revenue.

Marketing service costs decreased $349,034 to $0 in the first quarter of 2001 as
compared to $349,034 for the same quarter of 2000. Expenses related directly to
our marketing service revenue. The decrease in expense is directly related to
the transition of this network marketing channel to Big Planet in February 2000,
which resulted in the cessation of marketing service revenues and accordingly
the related expenses.

Selling, general and administrative expense decreased $339,307 to $3,579,781 in
the first quarter of 2001 as compared to $3,919,088 in the first quarter of
2000. The decrease was largely a result of our strategic work force reduction in
January 2001.

The provision for doubtful accounts decreased $273,433 to $52,283 in the first
quarter of 2001 as compared to $325,716 in the same quarter of 2000. The
decrease is directly related to the transitioning of the network marketing
channel subscribers to Big

                                       13
<PAGE>

Planet in February 2000. With this transition, Big Planet assumed the risk of
collections from individual subscribers, which resulted in a reduction in the
provision in first quarter of 2001 as compared to the same period in 2000.

Depreciation and amortization decreased $4,756 to $1,484,133 in the first
quarter of 2001 as compared to $1,488,889 in the first quarter of 2000. While
the depreciation and amortization expense remained comparable, depreciation
expense on capitalized leased assets decreased and depreciation expense
increased from the significant additions to property and equipment in the second
half of 2000.

Research and development increased $233,846 to $1,066,758 in the first quarter
of 2001 as compared to $832,912 in 2000. Research and development expenditures
for the remainder of 2001 are expected to decrease as we decided to consolidate
our research operations to headquarters in Draper, Utah. Accordingly, we are
shutting down operations in our subsidiary, Vianet Technologies, in Israel. This
consolidation of locations with reduced facilities and personnel will result in
reduced research and development expenses

Interest expense decreased $177,639 to $266,203 in the first quarter of 2001 as
compared to $443,842 in the same quarter of 2000. The decrease is due to the
effect of the following:

o    During the first quarter of 2001, our note payable to Winter Harbor in the
     amount of $7,768,000 was converted into Class M preferred stock (see Note
     4), thus reducing interest expense on this note by $85,023 as compared to
     the same period of 2000.

o    In the first quarter of 2001 we entered into a borrowing arrangement with
     Counsel Communications for borrowings up to $10 million. The borrowing
     arrangement with Counsel includes a right to convert outstanding principal
     of the borrowing and the associated accrued interest to common stock of
     I-Link at conversion rate of $.56 per share. In connection with the
     borrowing arrangement, the Company recorded as debt discount $1,017,857
     associated with the beneficial conversion feature on borrowings through
     March 31, 2001. The debt discount is being accreted to interest expense
     over the three-year life of the note. Accretion of this debt discount and
     debt offering costs resulted in $29,822 of interest expense being recorded
     in the first quarter of 2001. Interest expense on the Counsel borrowing was
     $23,700 during the first quarter of 2001. On May 8, 2001 the aggregate
     principal amount was increased to $12,000,000.

o    In the first quarter of 2000 we incurred interest expense of $114,062 in
     settlement of outstanding litigation which did not recur in 2001.

o    Interest expense on other loans and notes was $43,107 in the first quarter
     of 2001 versus $84,183 for the same quarter of 2000.

OTHER INCOME (EXPENSE)

Interest and other income decreased $8,024 to $29,803 in the first quarter of
2001 as compared to $37,827 in the same quarter of 2000. The decrease was
primarily due to a decrease in average balance of cash on hand during 2001 as
compared to 2000.

A settlement expense of $1,359,950 was recorded in the first three months of
2000 as a result of a settlement between I-Link and JNC Opportunity Fund Ltd.
("JNC") in relation to common stock to be issued to JNC pursuant to a settlement
and release agreement entered into in February 2000. There was no comparable
expense in 2001.

NET INCOME (LOSS) PER SHARE

The net income per common share basic and diluted for the three-months ending
March 31, 2001 includes a net gain to retained earnings for $15,512,473
attributed to the redemption and reissuance on March 1, 2001of the Class M
redeemable preferred stock and all Class N preferred stock owned by Winter
Harbor as discussed in Note 3 to the financial statements for the quarter ended
March 31, 2001. This adjustment to retained earnings represents the net effect
on retained earnings of the redemption of the Class M and N preferred stock
including the associated beneficial conversion features related to the original
issuance of the preferred stock. The adjustment also reflects a charge to
retained earnings for the beneficial conversion features related to the
reissuance on March 1, 2001 of that Class M and N preferred stock to Counsel
Communications, LLC.

                                       14
<PAGE>

PART II - OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

We are involved in litigation relating to claims arising out of its operations
in the normal course of business, none of which are expected, individually or in
the aggregate, to have a material adverse affect to us.

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

ITEM 5 - OTHER INFORMATION

On February 14, 2001, we were notified by the Nasdaq Listing Qualifications
Department (the "Nasdaq Staff") that our securities would be de-listed from The
Nasdaq SmallCap Market due to our inability to maintain our market
capitalization above the minimum $35,000,000 required for continued listing on
The Nasdaq SmallCap Market in accordance with the National Association of
Securities Dealers, Inc. rules. Pursuant to the NASD Rules, we have requested an
oral hearing before the Nasdaq Listing Qualifications Panel (the "Panel") to
appeal the Nasdaq Staff's decision to de-list our securities. The hearing was
postponed from its original date and is now scheduled for May 17, 2001. Pursuant
to the same NASD Rule 4820(a), a request for a hearing has stayed the scheduled
de-listing of our securities pending issuance of the Panel's decision. Should
our securities cease to be listed on the Nasdaq SmallCap Market, I-Link's
securities may be listed on the Over-the-Counter Bulletin Board market.

ITEM 6(a) - EXHIBITS

None

ITEM 6(b) - REPORTS ON FORM 8-K

A report on Form 8-K was filed on January 23, 2001 reporting that on January 22,
2001, I-Link issued a press release announcing that it had filed a lawsuit in
federal district court in Salt Lake City, Utah against Red Cube International,
AG, and it US affiliate, Red Cube, Inc.

On March 16, 2001 I-Link filed a Form 8-K detailing certain transactions with
Winter Harbor, LLC. ("Winter Harbor") and Counsel Communications, LLC
("Counsel"). Items listed therein included:

o    conveyance of 33,540,000 warrants held by Winter Harbor, LLC. in exchange
     for 5,000,000 shares of I-Link's common stock.

o    establishment of a $10,000,000 Senior Convertible Loan and Security
     Agreement between I-Link and Counsel.

o    resignation of Thomas A. Keenan as a Class I Director of I-Link on February
     21, 2001.

o    an agreement between Winter Harbor and Counsel to which I-Link was not a
     party. Pursuant to the agreement Counsel purchased from Winter Harbor all
     of the equity securities Winter Harbor held in I-Link including shares of
     Class M and N preferred stock for an aggregate consideration for
     $5,000,000. Prior to the agreement, Winter Harbor had converted all of its
     debt in I-Link into equity securities of I-Link.
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunder duly authorized.


                                       I-LINK INCORPORATED
                                       -------------------
                                          (Registrant)


Date: May 16, 2001                     By: /s/ Gary J. Wasserson
                                           -------------------------------------
                                           Gary  J. Wasserson
                                           President and Chief Executive Officer

                                       By: /s/ James A. Giauque, III
                                           -------------------------------------
                                           James A. Giauque III, CPA
                                           Chief Accounting Officer

</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
