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SECURITIES AND EXCHANGE COMMISSION Washington,
D.C. 20549  FORM
10-K/A#3  ýANNUAL REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002   Commission
File No. 0-17973  
  I-LINK
  INCORPORATED(Name of registrant as
  specified in its charter)Florida
  
  52-2291344(State or other
  jurisdiction
  of incorporation or organization)
  
  (I.R.S. Employer
  Identification Number)9775 Business Park Avenue, San
  Diego, California 92131 (858) 547-5700(Address and telephone
  number of principal executive offices)
  Securities registered pursuant to Section 12(b) of the Exchange Act: None.  Securities registered pursuant to Section 12(g) of the Exchange Act: Common Stock, $.007 par value.  Check
whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past twelve months (or for such
period that the Registrant was required to file such reports); and (2) has
been subject to such filing requirements for the past 90
days.    YesýNoo  Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-K contained in this form, and no disclosure will
be contained, to the best of Registrants knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.o  The aggregate market value of Common Stock held by non-affiliates based
upon the closing price on June 28, 2002, as reported by the Electronic Bulletin
Board, was approximately $16,317,000.  Check whether the registrant is an accelerated filed (as defined in
Rule 12b-2 of the Act). Yeso      
No  ý  As of March 27, 2003, there were 116,549,547 shares of Common Stock,
$.007 par value, outstanding.




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TABLE OF CONTENTS



|Item
  No. |                                                                                        
|---------- | ---------------------------------------------------------------------------------------
|Part I    
|          
|1.         | Description of Business                                                                
|2.         | Description of
  Properties                                                            
|3.         | Legal Proceedings                                                                      
|4.         | Submission
  of Matters to a Vote of Security Holders                                  
|           |                                                                                        
|Part II   
|          
|5.         | Market
  for the Registrants Common Equity and Related Stockholder Matters            
|6.         | Selected Financial Data                                                                
|7.         | Managements
  Discussion and Analysis of Financial Condition and Results of Operations
|7A.        | Quantitative
  and Qualitative Disclosures About Market Risk                           
|8.         | Financial
  Statements and Supplementary Data                                          
|9.         | Changes
  in and Disagreements with Accountants on Accounting and Financial Disclosure 
|           |                                                                                        
|Part III  
|          
|10.        | Directors
  and Executive Officers of the Registrant                                   
|11.        | Executive Compensation                                                                 
|12.        | Security
  Ownership of Certain Beneficial Owners and Management                       
|13.        | Certain
  Relationships and Related Transactions                                       
|           |                                                                                        
|Part IV   
|          
|14.        | Controls and
  Procedures                                                              
|15.        | Exhibits,
  Financial Statements Schedules and Reports on Form 8-K                     



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## Explanatory Note



This Amendment No. 3 to Form 10-K/A (this Amendment)
amends our Annual Report on Form 10-K/A (Amendment No.2)
 for the fiscal year ended December 31, 2002, filed on October 15, 2003.  I-Link (the Company)
 has filed this Amendment No. 3 to 1) recognize deemed interest
expense for a beneficial conversion feature (BCF) embedded in certain of
its indebtedness as required by Emerging Issues Task Force Issue No.
00-27 (EITF 00-27) as fully outlined in Note 3 to these
Consolidated Financial Statements, and to 2) revise Part IV - Item 14 - Controls and
 Procedures. The BCF-related error affects 2001, 2002 and
2003. The cumulative effect on earnings through the third quarter of
2002 is immaterial and has been recorded in the fourth quarter of 2002 as
a charge to interest expense. Although we have revised our previously filed form 10
K/A (Amendment No. 2) for fiscal year 2002 to give effect to these
matters, other information contained therein has not been updated.



PART I



Item
1.  Description of Business



Overview



I-Link Incorporateds (I-Link, the Company, our
or we) vision is to be the preferred supplier of communications products and
services to targeted markets that will deliver profitable growth while creating
value for all stakeholders.  The mission
of I-Link is to provide businesses and consumers with competitively priced
voice, data and enhanced communications services via direct and indirect
channels.  Through the dedication of our
employees, we deliver industry leading customer care, customized product
solutions and full back office support, building long-term loyalty and trust
with all of our customers.



History and Development of the
Business



I-Link was incorporated in Florida in 1983 under the
name Medcross, Inc. It changed its name to I-Link Incorporated in 1997. In
1994, I-Link began operating as an Internet service provider (ISP) with a
business model built around providing both network access and value-added
services.  I-Link quickly identified
that the emerging Internet Protocol (IP) environment was a promising basis
for enhanced service delivery, and soon turned to designing and building an IP
telecommunication platform consisting of I-Link proprietary software, hardware
and leased telecommunication lines.  The
goal was to create a platform with the quality and reliability necessary for
voice transmission.  By 1996, I-Link
released its first IP-based service called Fax-4-Less.  This service provided users with a more
efficient and cost-effective way to distribute facsimile information.



In 1997, I-Link started offering enhanced services
over a mixed IP-and-circuit-switched network platform. These services offered a
blend of traditional and enhanced communication services and combined the
inherent cost advantages of the IP-based network with the reliability of the
existing public switched telephone network (PSTN).  The suite of services included a one number follow me service,
long distance calling, unified messaging, conference calling, message
broadcasting, and web-based interface to manage messages and maintain personal
account settings.  In 1997 we formed our
subsidiary I-Link Worldwide, LLC through which we began marketing our products
and services thorough a network marketing channel.



In August 1997, I-Link acquired MiBridge, Inc.
(MiBridge), a New Jersey-based communications technology company engaged in
the design, development, integration and marketing of a range of software
telecommunication products that support multimedia communications over the
PSTN, local area networks (LAN) and IP networks.  Historically, MiBridge concentrated its development efforts



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on compression systems such
as voice- and fax-over-IP (VoIP).  As
part of I-Link, MiBridge continued to develop patent-pending technologies
combining sophisticated compression capabilities with IP telephony technology.  The acquisition of MiBridge permitted us to
accelerate the development and deployment of IP technology across our network
platform.



In 1998, we first deployed our real-time, IP
communications network platform.  With
this new platform, all core-operating functions such as switching, routing, and
media control, became software-driven. 
This new platform represented the first nationwide, commercially viable
VoIP platform of its kind.  Following
the launch of its software-defined VoIP platform in 1998, I-Link has continued
to refine and enhance the platform to make it even more efficient and capable
for our partners and customers.



In February 2000, we transitioned our direct-sales
marketing program to Big Planet, Inc. (Big Planet), a subsidiary of Nu Skin
Enterprises, Inc., whereupon Big Planet became one of our wholesale
customers.  The transition of the
network marketing sales channel to Big Planet has allowed us to focus our
efforts on the expansion of the VoIP platform and the development and
deployment of new enhanced services and products, while at the same time
maintaining existing channels for retail sales.



On March 1, 2001, I-Link became a majority-owned
subsidiary of Counsel Communications, LLC, which is now a wholly owned
subsidiary of Counsel Corporation, (collectively, Counsel).   Since taking a controlling position in
I-Link Counsel has advanced approximately $60.7 million in cash to I-Link.  Of this amount, approximately $20.5 million
was utilized to acquire certain assets of WorldxChange Communications, Inc. and
RSL COM U.S.A. Inc., while the remaining approximate $40.2 million has been
used directly in operations, principally to fund operating losses and bring
I-Links technology to market. Through December 31, 2002, $5.5 million of these
advances have been repaid and pursuant to a debt restructuring agreement,
Counsel has agreed to convert approximately $29.3 million of its existing debt,
including accrued interest, to capital (subject to shareholder approval).  Additionally, Counsel has committedto fund, through long-term inter-company advances
or equity contributions, all capital investment, working capital or other
operational cash requirements of I-Link through April 15, 2004..  Related to our association with Counsel, on
April 17, 2001, I-Link acquired WebToTel, Inc. (WebToTel), a subsidiary of
Counsel, and also its subsidiary, Nexbell Communications Inc. (Nexbell), in a
stock-for-stock transaction.  Nexbell
was sold in December 2001 (see note 8 of financial statements included in Item
8 hereof).



In June 2001, our wholly owned subsidiary WorldxChange
Corp. (WorldxChange) purchased certain assets and assumed certain liabilities
of WorldxChange Communications, Inc. from a bankruptcy proceeding.  WorldxChange is a facilities-based
telecommunications carrier that provides international and domestic
long-distance service to retail customers. 
Telecommunication services provided by WorldxChange initially consisted
primarily of a dial-around product that allows a customer to make a call from
any phone by dialing a 10-10-XXX prefix. 
Historically, WorldxChange marketed its services through consumer mass
marketing techniques, including direct mail and direct response television and
radio. In 2002, WorldxChange amended its channel strategy, de-emphasized the
direct mail channel and devoted its efforts to pursue more profitable methods
of attracting and retaining customers. 
WorldxChange also utilizes commercial agents as well as a network of
independent commission agents recruited through its multi-level marketing
programs to retain and attract new customers.



On December 6, 2002, we entered into a definitive
purchase and sale agreement to sell substantially all of the assets and
customer base of I-Link Communications Inc. (ILC), a wholly owned subsidiary
of I-Link, to Buyers United, Inc. (BUI). The sale is anticipated to close in
the second quarter of 2003. The sale includes the physical assets required to
operate I-Links nationwide network using its patented VoIP technology
(constituting the core business of ILC) and a fully paid perpetual license to
use our proprietary software-based network convergence solution for voice and
data. In January 2003, we entered into our second domestic agreement with a
communications company, to license and assist that company in deploying a
similar network solution for voice and data ( see note 6 of financial
statements included in Item 8 hereof).



We have three issued patents and utilize the
technology underlying those patents in providing our



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products and services. We
have also licensed certain portions of that technology to third parties. We
have several patent applications that are currently pending before United
States Patent and Trademark Office (USPTO). 
See Item #2 Description of Properties below for a more full explanation
of our patents.



On December 10, 2002, WorldxChange completed the
purchase of the Enterprise and Agent business of RSL COM U.S.A. Inc (RSL)
from a bankruptcy proceeding.  The acquisition included the assets used by RSL
to provide long distance voice and data services, including frame relay, to
small and medium size businesses (Direct business), and the assets used to
provide long distance and other voice services to small businesses and the
consumer/residential market (A&R business), together with the existing
customer base of the Enterprise and Agent business.



Today, I-Link remains focused on delivering voice and
data services and solutions to our partners and customers.  With over eight years experience developing
VoIP technologies, I-Link continues to offer a proven and time-tested solution
for companies to use our technology to reduce telecommunication costs and/or
who wish to enter the enhanced communications market.  At present, I-Link continues to actively market its voice and
data services and solutions through wholesale and retail channels, and licenses
its enhanced services platform to partners and service providers domestically
who wish to offer voice services without incurring high development costs.



As of December 31, 2002, I-Link had 356 employees with
whom we feel we have a generally good relationship.  We are not subject to any collective bargaining agreements.



Business
Reorganization



At the next shareholders meeting, we intend to ask
shareholders to approve a proposal to change the name of I-Link Incorporated to
Acceris Communications Inc.



In late 2002, we reorganized I-Link into three
operating segments.  Acceris
Communications Partners (Acceris Partners), 
Acceris Communications Solutions (Acceris Solutions) and Acceris
Communications Technologies (Acceris Technologies).  These segments are discussed below.



Acceris Partners is a combination of the WorldxChange
assets acquired in June 2001 and the A&R business of RSL, which we acquired
in December 2002.  Acceris Partners is a
facilities-based provider of circuit-switched long distance telecommunication
services to end users. Acceris Partners, through WorldxChange, initially
approached the market through a combination of direct mailings (primarily of a
dial-around product that allows a customer to make a call from any phone by
dialing a 10-10-XXX prefix) and multi-level marketing (MLM).  In 2002, Acceris Partners amended its
channel strategy, de-emphasizing the direct mail channel and devoting our
efforts to the agent channel.  It is
focused on two distinct agent channels: MLM and commercial agent.  In addition, Acceris Partners expanded its
product offerings in 2002 to focus on 1+ switched (1+ is when a customer can
pick up the phone and directly dial a long distance number by pushing 1-area
code-phone number), dedicated circuits, and data.  Further, the Company began to offer a 1+plus calling plan to its
existing customer base in the dial around business (10-10-XXX prefix). ).  This segment accounted for approximately 95%
of the revenue from continuing operations in 2002 and is expected to be the
largest contributor to revenue in 2003, but at a lesser percentage as Acceris
Solutions contributes a larger proportion. There were no customers in 2002 that
accounted for over 10% of this segments revenues, which revenues were
generated in the United States of America.



Acceris Solutions is the Enterprise business of RSL,
which was acquired in December 2002. 
Acceris Solutions provides customized integrated communications
solutions for voice and data. Our innovative approach to networking,
connectivity and telecommunications products and services leverages technology
to improve the way our customers do business. Our solutions help our customers
increase revenues and reduce the total cost of technology ownership. What
differentiates Acceris Solutions from other network providers is that we will
work with our customers to develop a customized solution that is designed and
implemented specifically for the way they do business. As this business was
acquired in



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December 2002, this
segment accounted for approximately 2% of the revenue from continuing
operations in 2002. The revenue contribution from this source will increase
dramatically in 2003 as it operates for the full year in 2003. In 2002, Acceris
Solution s two largest customers accounted for 12% and 10% respectively of the
revenues of this segment which revenues were generated in the United States of
America.



Acceris Technologies is the former technology
licensing and development business of I-Link. 
Acceris Technologies offers a fully developed network convergence
solution for voice and data.  Over the
last five years, Acceris Technologies has sold several technology licenses in
international markets based on its IP communications technology, which are
supported by three patents.  Acceris
Technologies refined its technology over the last five years by proving and
resolving quality of service integration while developing numerous enhanced
features that create incremental revenue for communications providers.  This maturing of the technology was enabled
by the building and operation of an IP network across the United States. This
segment accounted for approximately 3% of the revenue from continuing
operations in 2002. The revenue contribution from this source is expected to
increase in 2003, however its contribution as a percentage of total revenue
will remain relatively consistent with 2002. 
There were three customers in 2002 each of which accounted for over 10%
of the total revenues and which, combined, accounted for 100% of this segments
revenues, which revenues were with US subsidiaries of international
companies.  However, as of the end of
2002 these customers were no longer our customers.



Competition



Our long-term success will be founded in our ability
to provide quality service, enhanced features and new product offerings, which
offer greater convenience to the Consumer and Enterprise markets.  These products must be offered at value for
service pricing, through our selected distribution channels.



The Acceris Solutions and Acceris Partners businesses
face competition from numerous telecommunications organizations offering
service in the United States. Providers include such large organizations as
AT&T, Sprint and Verizon, as well as numerous small, less widely known,
service providers.



The Acceris Partners business, consistent with its
competitors, sees significant attrition in its customer base over short periods
of time. In order to attract new customers and minimize attrition, we must
develop and market product offerings that appeal to people demanding long
distance services originating in the United States.  Factors that influence the highly mobile customer base include,
among other things, premium quality of service, enhanced features offerings and
premium customer service, at value pricing. 
Long-term success in the Acceris Partners market is sustained by
attracting new customers and developing customer loyalty.



The Acceris Solutions business differs significantly
from the Acceris Partners business.  In
this business, customers tend to remain with the Company for many years.  This longer term retention results in
recurring revenue streams, which result from our ability to offer specific
solutions to each individual customer. 
Acceris Solutions differentiates itself from its competitors by offering
customized, integrated solutions that enhance its customers productivity and,
ultimately, improve profitability.



Acceris Technologies offers an internally developed
patented technology solution that operates in both a convergence and IP
world.  Acceris Technologies provides a
100% software solution for VoIP deployment. 
The solution unlike some competition does not rely on hardware to
provide switching, conference or enhanced services.  Additionally, the solution provides an open Application
Programming Interface (API), to enable development of a wide variety of voice
applications and services. Commencing in late 2002, we made the decision to
pursue the development of the domestic market providing software based IP
solutions to United States domestic carriers which assists those companies by
reducing their internal costs and/or allows them to offer enhanced service
products (such as One-number) to retail customers.  Prior to late 2002, we had offered these products internationally
and marketed our enhanced service products to customers on a retail basis.  Formalizing this directional decision of our
overall business strategy, in December we entered into an agreement to sell our
IP network operations based in Draper, Utah



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to BUI.  We do not see any direct competition to our
current technology although there are many competitors with certain portions of
our technology, but not as an entire package. 
Our competition would include the traditional switched telephony
infrastructure providers, such as Nortel and Lucent, which this technology
displaces.  While our competition offers
products with similar features, our competitive product is software based
versus hardware based and as such can be deployed at a significantly lower
cost.  Also the software nature of our
product makes it easier and more economically feasible to develop additional
features and services to meet ever-changing customer needs.



Government Regulation



General.We believe many of the
services we provide are subject to the provisions of the Telecommunications Act
of 1996 (the 1996 Act), the regulations promulgated thereunder, as well as
the applicable laws and regulations of the various states administered by the
relevant state authorities.  While the
recent trend in the U.S., for both federal and state regulation of
telecommunication service providers has been toward less regulation rather then
more, the Federal Communications Commission (FCC) and relevant state
authorities continue to regulate telecommunication carriers and the terms and
conditions under which telecommunication services are provided.



Federal.The FCC modifies its
regulations of telecommunication carriers from time to time.  In March 2001, the FCC issued an order
requiring non-dominant carriers to remove their international exchange service
tariffs from the FCC by January 28, 2002. 
We believe we are in compliance with the FCCs detariffing orders and
that achieving such compliance did not significantly impact us.



In 1997 the FCC issued an order implementing those
provisions of the 1996 Act, which promote universal telephone service (the USF
Order).  The USF Order requires
interstate telecommunication carriers to contribute toward a fund for schools
and libraries, a fund for rural health care and a fund to develop regions
characterized by low income levels and high telecommunication costs
(collectively USF). Our USF contributions are assessed based on certain end
user telecommunication revenues, which we calculate in accordance with the
FCCs legislative rules.  The amounts we
contribute to USF may be billed to our end-users and we have elected to pass
those charges along to our end user customers. If we continue to bill these
amounts to our end-user customers, our customers may choose to purchase similar
services from our competitors. If we elect not to bill these amounts to our
end-user customers in the future, our profit margins may be less.



During the past year the FCC increased the USF
contribution percentages.  Originally in
May 2001 and subsequently in February 2002, the FCC proposed changes to the USF
regulations that, if adopted, would alter the basis on which we determine our
USF contributions and the ability and means by which such contributions may be
recovered from our customers.  For
example, although the FCC has not proposed to prevent carriers from passing USF
charges through to customers, the FCC has recently ruled that it will limit the
extent to which carrier costs for administering USF charges may be passed
through to customers.  In addition, the
FCC is considering alternative mechanisms under which it will assess USF
charges to carriers.  Although we
believe that certain proposals may benefit the Company, we cannot predict the
outcome of these proceedings. It remains possible that the FCC could adopt a
USF contribution mechanism that would have a negative effect upon our
operations.



State.In addition to regulation
by the FCC, the majority of the states require us to register or apply for
certification prior to initiating intrastate interexchange telecommunications
services.  To date, our subsidiaries,
ILC and WorldxChange, are authorized through certification to provide
intrastate interexchange telecommunications services and, in certain states,
local exchange services.  These
subsidiaries are subject to the obligations that the applicable state laws
place on all similarly certificated carriers including the regulation of
services, the payment of regulatory fees and the preparation and submission of
reports. If state regulators or legislators change current regulations or adopt
new regulations it may negatively impact our ability to provide
telecommunication services.



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Available Information



I-Link is subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(Exchange Act), which requires that I-Link file reports, proxy statements and
other information with the Securities and Exchange Commission (SEC). The SEC
maintains a website on the Internet that contains reports, proxy and
information statements and other information regarding registrants, including
I-Link, that file electronically with the SEC. The SECs website address is
www.sec.gov. In addition, I-Links Exchange Act filings may be inspected and
copied at the public reference facilities of the SEC located at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549; and at the SECs
regional offices at Citicorp Center, 500 West Madison Street, Room 1400,
Chicago, IL 60661, and at 233 Broadway, New York, NY 10279. Copies of the
material may also be obtained upon request and payment of the appropriate fee
from the Public Reference Section of the SEC located at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, DC 20549.



Item 2.  Description of Properties



At December 31, 2002, I-Link leased approximately
26,300 square feet of space for office and other facilities in Draper, Utah
pursuant to commercial leases with original terms of five to seven years.  These leases expire between 2003 and 2005
subject to our right to extend for an additional five years.  The current aggregate base rent is
approximately $28,000 per month.  I-Link
also leases several other co-location facilities throughout the United States
to house its Communication Engines. 
Such spaces vary in size and length of term.



Of the 26,300 square feet leased as of December 31,
2002, I-Link subleased approximately 12,000 square feet on a month to month
basis at approximately $14,000 per month which was the same as our cost. In
February 2003, I-Link was released from this lease (12,000 square feet) and
cancelled its related sublease agreement.



In December 2002, I-Link entered into an agreement
wherein it was released from the lease of approximately 14,300 square feet
(approximately $14,000 per month) subject to the closing of its sale of certain
assets to BUI, which we anticipate will close in the second quarter of 2003.



WorldxChange rents approximately 24,000 square feet of
office space in San Diego, California under a five-year commercial lease dated
August 1, 1997, which was extended to March 2003, at a cost of approximately
$25,000 per month. WorldxChange also leases several other co-location
facilities throughout the United States to house its network equipment.  Such spaces vary in size and length of term.



WorldxChange also rents approximately 46,000 square
feet of office space in Pittsburgh, Pennsylvania under a lease dated December
11, 2002 and expiring on June 30, 2005, at a cost of approximately $54,000 per
month.  A $200,000 irrevocable letter of
credit is in place until December 2004 as security for the lease.



We have three issued patents and utilize the
technology underlying those patents in providing our products and
services.  We have also licensed certain
portions of that technology to third parties. We have several patent
applications that are currently pending before USPTO.  In August 2002, our voice internet transmission system patent
(VoIP Patent) was issued (No. 6,438,124) The VoIP Patent joins I-Links two
other IP patents, filed in 1996, which are related to the delivery of high
quality conference calls with compressed signals (No. 5,898,675; No.
5,754,534).  Together, these patented
technologies have been successfully deployed and commercially proven in a
nationwide IP network and in I-Links unified messaging service, application
programming interface, and software licensing businesses.  I-Link plans to further leverage these
patents as it packages an IP solution for the growing Enterprise and
applications markets. While we are using the technology underlying the VoIP
Patent in our business, we are also investigating whether and to what extent
the VoIP Patent is licensable to third parties. The Company is currently
reviewing the results of that review and considering its alternatives.



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Item
3. Legal Proceedings



In the Arbitration Matter of Red Cube International
AG, v. I-Link Incorporated, before the American Arbitration
Association, New York, New York, AAA # 50 T 117 0002B 01.



On or about January 24, 2001 Red Cube International,
AG (Red Cube AG) delivered to us a written demand for arbitration under a May
2000 Cooperation and Framework Agreement between the parties.  Red Cube AGs demand constituted written
notice of an alleged breach of the Cooperation and Framework Agreement.  We denied these allegations, filed a
counterclaim against Red Cube, AG and filed a third-party claim against Red
Cube, Inc, seeking compensatory and/or punitive damages for Red Cube Inc.s
default under a subsequent agreement to provide approximately $60,000,000 in
equity funding to us, engaging in a scheme to drive us out of business and
obtain control of our proprietary technology, telecommunications network, key
employees and customers.



On July 9, 2002 an evidentiary
arbitration hearing was held in New York before a panel of arbitrators of the
AAA and the AAA panel issued its award effective October 7, 2002.  The AAA panel dismissed all of Red Cubes
claims with prejudice and determined that Red Cube had breached the agreements
between the parties.  The arbitration
panel awarded I-Link $6,741,835 in damages against Red Cube International AG
and Red Cube International, Inc., jointly and severally.  In addition the AAA panel ordered Red Cube
to pay I-Link $18,210 as reimbursement for certain administrative fees and
expenses and $64,033 as reimbursement for a portion of the arbitrators
compensation.  As uncertainty exists at
this time as to the ultimate collectibility of the awarded amount, management
has not recorded any benefit relating to this reward in the financial
statements.



D/Vit, Inc. v I-Link Incorporated,
Civil No. H-00-3914, United States District Court, Southern District of Texas,
Houston Division.



On November 9, 2000 D/Vit, Inc (Dvit) filed an
action against I-Link in federal court in Texas alleging that I-Links use of
the V-Link trademark infringed upon Dvits intellectual property rights in
the mark V Linc.  Dvits complaint
sought damages and an injunction enjoining I-Links use of the mark
V-Link.  On August 22, 2001 the court
issued a preliminary injunction enjoining I-Links use of the V-Link
mark.  I-Link had already elected to
change the name of its product to I-Link One Number.  On February 14, 2002, I-Link filed a motion
for summary judgment asking the court to rule as a matter of law that I-Links
past use of the V-Link mark did not constitute an infringement upon Dvits
intellectual property rights in the V Linc mark.  Also on February 14, 2002, Dvit filed a motion for partial
summary judgment asking the court to determine as a matter of law that I-Links
prior use of the V-Link mark infringed upon Dvits rights in the V Linc
mark.  On May 8, 2002, the court issued
a Memorandum and Order (Order) denying I-Links motion for summary judgment
and granting Dvits partial motion for summary judgment.  The Order permanently enjoined I-Link from
using the V-Link mark in association with the sale, marketing, description,
development or service of its telecommunications products.  The courts order did not address possible
damages.  In December 2002, we settled
the claim for $180,000 of which $120,000 was previously reserved.



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



Item 4. Submission of Matters to a
Vote of Security Holders



No matter was submitted during the fourth quarter of
the fiscal year ended December 31, 2002, to a vote of our security holders.



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PART II



Item
5. Market for I-Link Incorporateds Common Stock and Related Stockholder
Matters



Price Range of Common Stock



I-Links common stock is traded on the OTC-Electronic
Bulletin Board under the symbol ILNK.



The
following table sets forth the high and low prices for our common stock for the
period as quoted on Nasdaq from January 1, 2000 to September 30, 2001 and on
the Electronic Bulletin Board from October 1, 2001 to December 31, 2002 (as
reported by Commodity Systems, Inc.) based on interdealer quotations, without
retail markup, markdown, commissions or adjustments and may not represent
actual transactions:



Quarter Ended
  
  High
  
  LowMarch 31, 2001
  
  $
  1.22
  
  $
  0.25June 30, 2001
  
  0.75
  
  0.38September 30,
  2001
  
  0.57
  
  0.19December 31,
  2001
  
  0.24
  
  0.07March 31, 2002
  
  $
  0.50
  
  $
  0.07June 30, 2002
  
  0.29
  
  0.13September 30,
  2002
  
  0.24
  
  0.09December 31,
  2002
  
  0.17
  
  0.07




On March 27, 2003, the closing price for a share of
our common stock was $0.13.



Holders



As of March 18, 2003, we had approximately 800
stockholders of common stock of record and approximately 11,700 beneficial
owners.



Dividends



To date, we have not paid and do not anticipate that
we will pay dividends on our common stock in the foreseeable future.  As of December 31, 2002, we do not have any
preferred stock outstanding which has any preferential dividend.  Preferred stock dividends in the amount of
$0, $0 and $196,333 were paid in 2002, 2001 and 2000, respectively, in common
stock (non-cash) on the converted shares of Series F redeemable preferred
stock.  A preferred stock dividend in
the amount of $630,313 was paid in 2001 in common stock (non-cash) on the Class
C preferred stock.



10



---



##### 





Item 6. Selected Financial Data



The following selected consolidated financial
information was derived from the audited consolidated financial statements and
notes thereto.  The information set
forth below is not necessarily indicative of the results of future operations
and should be read in conjunction with Item 7  Managements Discussion and
Analysis of Financial Condition and Results of Operations and the Consolidated
Financial Statements and Notes thereto included elsewhere in this Form 10-K.



|                                                                          |  | 2002            |             | 2001        |   | 2000        |   | 1999        |             | 1998        |  
|------------------------------------------------------------------------- |  | --------------- | ----------- | ----------- | - | ----------- | - | ----------- | ----------- | ----------- | -
|                                                                          |  | (as
  restated) |             |             |   |             |   |             |             |             |  
|Statement of Operations Data:                                             |  |                 |             |             |   |             |   |             |             |             |  
|                                                                          |  |                 |             |             |   |             |   |             |             |             |  
|Revenues:                                                                 |  |                 |             |             |   |             |   |             |             |             |  
|Telecommunications
  services                                             |  | $               | 85,252,480  |             | $ | 50,288,917  |   | $           |            |             | $
|Marketing
  services                                                      |  |                |             |            |   | 463,740     |   | 3,672,988   |             | 4,548,421   |  
|Technology
  licensing and Development                                    |  | 2,836,655       |             | 5,696,893   |   | 8,972,828   |   | 2,506,701   |             | 1,466,315   |  
|Other                                                                     |  |                |             |            |   | 400,000     |   |            |             |            |  
|Net sales                                                                 |  | 88,089,135      |             | 55,985,810  |   | 9,836,568   |   | 6,179,689   |             | 6,014,736   |  
|                                                                          |  |                 |             |             |   |             |   |             |             |             |  
|Operating costs
  and expenses:                                           |  |                 |             |             |   |             |   |             |             |             |  
|Telecommunications
  network expenses (exclusive of depreciation expense) |  | 50,935,474      |             | 35,545,611  |   |            |   |            |             |            |  
|Marketing
  services costs                                                |  |                |             |            |   | 456,354     |   | 5,400,149   |             | 5,850,873   |  
|Selling,
  general, administrative and other                              |  | 44,683,709      |             | 42,392,038  |   | 22,893,902  |   | 18,265,390  |             | 14,615,105  |  
|Total operating
  expenses                                                |  | 95,619,183      |             | 77,937,649  |   | 23,350,256  |   | 23,665,539  |             | 20,465,978  |  
|                                                                          |  |                 |             |             |   |             |   |             |             |             |  
|Operating loss                                                            |  | (7,530,048      | )           | (21,951,839 | ) | (13,513,688 | ) | (17,485,850 | )           | (14,451,242 | )
|                                                                          |  |                 |             |             |   |             |   |             |             |             |  
|Other income
  (expense)                                                  |  | (7,799,526      | )           | (4,023,016  | ) | (1,639,109  | ) | (4,856,201  | )           | (8,070,501  | )
|                                                                          |  |                 |             |             |   |             |   |             |             |             |  
|Loss from
  continuing operations                                         |  | (15,329,574     | )           | (25,974,855 | ) | (15,152,797 | ) | (22,342,051 | )           | (22,521,743 | )
|                                                                          |  |                 |             |             |   |             |   |             |             |             |  
|Loss from
  discontinued operations                                       |  | (12,508,374     | )           | (19,614,588 | ) | (10,599,381 | ) | (2,317,237  | )           | (5,436,336  | )
|Loss before
  extraordinary gain                                          |  | (27,837,948     | )           | (45,589,443 | ) | (25,752,178 | ) | (24,659,288 | )           | (27,958,079 | )
|                                                                          |  |                 |             |             |   |             |   |             |             |             |  
|Extraordinary
  gain on extinguishment of debt                            |  |                |             | 1,092,818   |   |            |   |            |             |            |  
|Net loss                                                                  |  | $               | (27,837,948 | )           | $ | (44,496,625 | ) | $           | (25,752,178 | )           | $
|                                                                          |  |                 |             |             |   |             |   |             |             |             |  
|Loss from
  continuing operations applicable to common stock              |  | $               | (15,329,574 | )           | $ | (10,759,019 | ) | $           | (16,799,615 | )           | $
|                                                                          |  |                 |             |             |   |             |   |             |             |             |  
|Net loss per
  common share - basic and diluted:                          |  |                 |             |             |   |             |   |             |             |             |  
|                                                                          |  |                 |             |             |   |             |   |             |             |             |  
|Loss from
  continuing operations                                         |  | $               | (0.13       | )           | $ | (0.11       | ) | $           | (.63        | )           | $
|Loss from
  discontinued operations                                       |  | (0.11           | )           | (0.20       | ) | (.40        | ) | (0.11       | )           | (0.31       | )
|Extraordinary
  gain                                                      |  |                |             | 0.01        |   |            |   |            |             |            |  
|Net
  loss per common share                                               |  | $               | (0.24       | )           | $ | (0.30       | ) | $           | (1.03       | )           | $
|                                                                          |  |                 |             |             |   |             |   |             |             |             |  
|Balance Sheet Data:                                                       |  |                 |             |             |   |             |   |             |             |             |  
|                                                                          |  |                 |             |             |   |             |   |             |             |             |  
|Working capital
  deficit                                                 |  | $               | (17,244,372 | )           | $ | (40,812,272 | ) | $           | (30,060,766 | )           | $
|Property and
  equipment, net                                             |  | 11,479,111      |             | 21,023,696  |   | 10,983,273  |   | 7,019,361   |             | 7,262,781   |  
|Total assets                                                              |  | 41,446,037      |             | 46,780,149  |   | 21,657,492  |   | 21,658,199  |             | 23,855,363  |  
|Long-term
  obligations                                                   |  | 58,409,354      |             | 19,661,184  |   | 2,801,592   |   | 9,658,525   |             | 8,785,933   |  
|Stockholders
  deficit                                                   |  | (57,815,466     | )           | (36,997,854 | ) | (28,839,061 | ) | (11,049,897 | )           | (16,953,363 | )



On April 17, 2001, we acquired WebToTel Incorporated
and its subsidiaries (including Nexbell Communications Inc.) in a stock for
stock transaction.  However, as WebToTel
(which was a subsidiary of Counsel) and I-Link were under common control of
Counsel (the majority shareholder of I-Link) as of March 1, 2001 (the date
Counsel obtained its ownership in I-Link), we have accounted for the
acquisition



11



---



##### 





on an accounting method
consistent with the pooling-of-interests method of accounting as of March 1,
2001.  Accordingly, we have included the
financial results of WebToTel and its subsidiaries (including Nexbell which was
sold in December 2001) subsequent to March 1, 2001.



On June 4, 2001, I-Link, through WorldxChange,
purchased certain assets and assumed certain liabilities of WorldxChange
Communications, Inc. from a bankruptcy proceeding. WorldxChange is a
facilities-based telecommunications carrier that provides international and
domestic long-distance service to residential and commercial customers.  WorldxChange operations are part of our
Acceris Partners segment of operations.



On December 6, 2002, I-Link entered into an agreement
to sell substantially all of the assets of ILC.  The sale includes the physical assets required to operate
I-Links nationwide network using its patented VoIP technology (constituting
the core business of ILC) and a license in perpetuity to use I-Links
proprietary software platform.  Additionally,
I-Link is selling its customer base that was serviced by ILC. The sale is
anticipated to close in the second quarter of 2003.  Pursuant to Statement of Financial Accounting Standards No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, operating
results of ILC have been reclassified in the years from 1998 to 2002 to
discontinued operations.  The operations
of ILC had previously been reported as part of a business segment referred to
as Telecommunication Services, which was a separate segment different than our
current business segments.



On December 10, 2002, WorldxChange completed the
purchase of the Enterprise and Agent business of RSL. The acquisition included the assets used by RSL to provide long distance
voice and data services, including frame relay, to small and medium size
businesses (Direct business), and the assets used to provide long distance
and other voice services to small businesses and the consumer/residential
market (A&R business), together with the existing customer base of the
Enterprise and Agent business.  
The Direct and A&R businesses are included in our Acceris Partners
segment while the Enterprise and Agent business is included in our Acceris
Solutions segment.



Item 7.          Managements Discussion and Analysis of Financial Condition
and Results of Operations



The Chief Executive Officer and Chief Financial
Officer of I-Link have evaluated the disclosure controls and procedures of
I-Link and determined that there were significant deficiencies and material
weaknesses.  For more information regarding
these findings and corrective actions taken, see the discussion in Item 14 -
Controls and Procedures below.



Forward-Looking Information



This
report contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, Section 21E of the
Securities Exchange Act of 1934, as amended, and information relating to I-Link
that are based on managements exercise of business judgment 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:



The
Companys ability to:

finance
and manage expected growth;

provide
ongoing competitive services and pricing;

retain
and attract key personnel;



12



---



##### 





operate
effective network facilities;

maintain
favorable relationships with local exchange carriers (LECs), long distance
providers and other vendors; including our ability to meet our usage
commitments.

attract
new subscribers while minimizing subscriber attrition;

adjust
the channel of distribution for Acceris Partners from a direct 10-10-xxx and
MLM agent channel strategy to a commercial agent and MLM strategy;

revitalize
the sales efforts of the business operations acquired out of bankruptcy (RSL);

efficiently
integrate completed and currently contemplated acquisitions;

address
legal proceeding in a effective manner;



Changes
in federal and state governmental regulation of the long distance
telecommunications and internet industries;

The
adoption of new, or changes in, accounting principles;

Our
ability to maintain, operate and upgrade our information systems network;

Our
ability to complete our debt restructuring agreement with Counsel;

Counsels
continued commitment and ability to finance funds required by the operations of
the business as well as our own ability to funds any cash requirements;

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.



Critical
Accounting Policies



A summary of our significant accounting policies is
included in Footnote 4 to our Consolidated Financial Statements.  Our Consolidated Financial Statements are
based on the selection and application of significant accounting policies, some
of which require management to make estimates and assumptions which affect the
reported amounts of assets, liabilities, revenues and expenses and also affect
the disclosure of contingent items. 
Critical accounting policies are those that may have a material impact
on our Consolidated Financial Statements and also require management to
exercise significant judgement.  We
believe our more critical judgment areas in the application of our accounting
policies that currently affect our financial condition and results of
operations include those addressing the recognition of revenue, provision for
doubtful accounts and the recoverability and useful lives of tangible and
intangible assets.



Restatement

The accompanying consolidated financial statements as of December 31, 2002 and
for the year then ended have been restated from those originally issued October
15, 2003 to account for 1) revenues from the Companys network service offering
when the actual cash collections to be retained by the Company are finalized,
and 2) deemed interest expense for beneficial conversion features
(BCF) embedded in
certain of the Companys indebtedness as required by Emerging Issues Task
Force Issue No. 00-27. Both restatements had no effect on loss from
discontinued operations or net loss per share from discontinued operations. The
network service offering restatement increased the net loss for the fourth
quarter and year ended December 31, 2002 by $3,505,043 and the net loss per
share by $0.03. The BCF restatement increased the net loss for the fourth
quarter and year ended December 31, 2002 by $301,000 but had no effect on the
net loss per share. Both matters are discussed in more detail below.

1)
Network Service Offering - SAB 101/103

I-Link commenced the sale of a network service
offering in November 2002 and ceased offering the service on July 23, 2003.
Revenue from this service offering was recorded as an element of
telecommunication services which we had initially recorded on the accrual basis
and estimated uncollectible revenue.  In
the second quarter of 2003, we determined that collectibility of the amounts
billed to customers was not reasonably assured at the time of billing.  Accordingly, we have revised our method of
accounting for revenues from this network service offering, from the accrual
method to recognition of revenue when the amount of our actual cash collections
are known and retained by us. Under our agreement with the LECs, cash
collections remitted to us are subject to adjustment generally within two to
four months.  Commissions (included in
selling, general and administrative expense) and estimated bad debt expenses
associated with the eliminated revenues have also been eliminated.  All other direct expenses such as
telecommunications network expenses are expensed as incurred and totaled
$1,994,000 in the fourth quarter. 
Commission expense (which is based on cash collected) will be recognized
when amounts collected can be reasonably estimated. The effect of this change
is an increase in the net loss for the fourth quarter and year ended December
31, 2002 of $3,505,043, or $.03 per share. 
We anticipate recognizing revenue from this program commencing in the
second quarter and ending in the fourth quarter of 2003.  The first quarter of 2003 is also being
restated.



13



---



##### 





The effect of this change is set out in the below
table:



|Net
  loss as originally reported                          |  | $          | (24,031,905 | )
|---------------------------------------------------------- |  | ---------- | ----------- | -
|Reduction
  of telecommunication services revenue          |  | (5,158,460 | )          
|Reduction
  of provision for doubtful accounts             |  | 331,783    |            
|Reduction
  of selling, general and administrative expense |  | 1,321,634  |            
|Net
  loss as restated on Form 10-K/A#1                    |  | $          | (27,536,948 | )
|                                                           |  |            |            
|Net
  loss per share as originally reported                |  | $          | (0.21       | )
|Net
  loss per share as restated on Form 10-K/A#1          |  | $          | (0.24       | )



The following sets forth the effects of these restatements on the
Consolidated Balance Sheet as of December 31, 2002:



As
  Originally Reported
  
  Adjustments
  
  As
  Restated on Form 10-K/A#1Accounts
  Receivable, Net
  
  $
  21,750,826
  
  $
  (4,826,677
  )
  $
  16,924,149Accrued
  Liabilities
  
  19,411,946
  
  (1,321,634
  )
  18,090,312Shareholders Deficit
  
  (60,419,423
  )
  (3,505,043
  )
  (63,924,466
  )




2)
Beneficial Conversion Feature - Emerging Issues Task Force Issue No. 00-27







On September 20, 2004, management of the Company concluded that the accounting
principles as set forth in EITF 00-27, regarding BCF, had not been properly applied in current and prior
periods to its convertible debentures issued under a March 2001 loan agreement
for which the Company had previously determined BCF of $1.1 million. The
initial determination of the BCF in 2001 at the respective issue dates of such
debt was correct. However, adjustments to the conversion price and the number
of conversion shares were made under the debentures anti-dilution provisions.
The various anti-dilution events and their respective impacts on the number of
shares and the conversion price were disclosed in the Companys previous public
filings. However, the principles under EITF 00-27 also require a
redetermination of the BCF at each date an anti-dilution event occurred. This
redetermination was not completed in prior reporting periods. Additionally, the
accumulation of unpaid interest costs which are required by the debt terms to
be added to principal and which are payable at maturity on these same
convertible debentures has been deemed to be interest paid in kind (PIK);
such interest also contains a conversion feature, and the payment of such
interest in the form of PIK interest is non-discretionary requiring the
determination of a BCF in the PIK interest. This determination was not made by
the Company in its prior reportings.




The Companys management has now concluded that a restatement is required and
has brought these matters for consideration before the Audit Committee and the
full Board of Directors of the Company. Having considered the circumstances
underlying the accounting errors and their effects upon the Companys prior
filings, and having discussed these matters with the Companys management, the
Audit Committee concluded that the previously issued financial statements
should not be relied upon and approved and authorized the Companys management
to amend certain previously filed public reports to reflect deemed interest
expense from such BCF.




Although the error affects
2001, 2002 and 2003, the $23 cumulative effect on earnings through
the third quarter of 2002 was recorded in the fourth quarter of 2002
as a charge to interest expense. Therefore, the correction is an increase in deemed interest expense and net loss, in all
reporting periods from the fourth quarter of 2002 through the first quarter of
2004, and a reduction in reported liabilities and stockholders deficit in all
reporting periods from the fourth quarter of 2002 through the first quarter of
2004. The effect of these errors is detailed, by reporting period, below. The
restatement had no
effect on loss from discontinued operations or net loss per share from
discontinued operations.


Effect of the restatements on the consolidated statements of operations
(in thousands of dollars except per share amounts)
(per share information reported on a post 20:1 stock consolidation basis for all periods shown. Stock consolidation enacted in the fourth quarter of 2003)

Three months
    
    Three months
    
    Three months
    
    Three months
    
    Three months
    
    Three monthsended
    
    ended
    
    ended
    
    ended
    
    ended
    
    endedDec. 31, 2002
    
    March 31, 2003
    
    June 30, 2003
    
    Sept. 30, 2003
    
    Dec. 31, 2003
    
    March 31, 2004(unaudited)
    
    (unaudited)
    
    (unaudited)
    
    (unaudited)
    
    (unaudited)
    
    (unaudited)Net income (loss) as previously reported
on Form 10-K or 10-Q
    
    $
    (11,117
    )
    
    $
    (14,895
    )
    
    $
    (3,713
    )
    
    $
    (3,257
    )
    
    $
    (4,456
    )
    
    $
    594Correction of EITF 00-27 errors
    
    
    (301
    )
    
    
    (902
    )
    
    
    (1,089
    )
    
    
    (1,337
    )
    
    
    (1,779
    )
    
    
    (1,801
    )Net loss as currently reported on
revised Form 10-K or 10-Q
    
    $
    (11,418
    )
    
    $
    (15,797
    )
    
    $
    (4,802
    )
    
    $
    (4,594
    )
    
    $
    (6,235
    )
    
    $
    (1,207
    )Net income (loss) per share as previously
reported on Form 10-K or 10-Q
    
    $
    (1.92
    )
    
    $
    (2.55
    )
    
    $
    (0.64
    )
    
    $
    (0.56
    )
    
    $
    (0.44
    )
    
    $
    0.03Net loss per share as currently
reported on revised Form 10-K or
10-Q
    
    $
    (1.96
    )
    
    $
    (2.71
    )
    
    $
    (0.82
    )
    
    $
    (0.79
    )
    
    $
    (0.59
    )
    
    $
    (0.06
    )


Effect of the restatements on the consolidated balance sheets
(in thousands of dollars)

As at
    
    As at
    
    As at
    
    As at
    
    As at
    
    As atDec. 31, 2002
    
    March 31, 2003
    
    June 30, 2003
    
    Sept. 30, 2003
    
    Dec. 31, 2003
    
    March 31, 2004(unaudited)
    
    (unaudited)
    
    (unaudited)
    
    (unaudited)
    
    (unaudited)
    
    (unaudited)Notes payable to a related party:As previously reported on
Form 10-K or 10-Q
    
    $
    30,058
    
    
    $
    30,496
    
    
    $
    30,985
    
    
    $
    33,483
    
    
    $
    35,073
    
    
    $
    41,060Correction of EITF 00-27 errors
    
    
    (6,109
    )
    
    
    (5,364
    )
    
    
    (4,437
    )
    
    
    (3,265
    )
    
    
    (6,356
    )
    
    
    (4,834
    )As currently reported on
revised Form 10-K or 10-Q
    
    $
    23,949
    
    
    $
    25,132
    
    
    $
    26,548
    
    
    $
    30,218
    
    
    $
    28,717
    
    
    $
    36,226Additional paid-in capital:As previously reported on
Form 10-K or 10-Q
    
    $
    129,553
    
    
    $
    129,553
    
    
    $
    129,618
    
    
    $
    129,618
    
    
    $
    171,115
    
    
    $
    171,192Correction of EITF 00-27 errors
    
    
    6,410
    
    
    
    6,567
    
    
    
    6,729
    
    
    
    6,894
    
    
    
    11,764
    
    
    
    12,043As currently reported on
revised Form 10-K or 10-Q
    
    $
    135,963
    
    
    $
    136,120
    
    
    $
    136,347
    
    
    $
    136,512
    
    
    $
    182,879
    
    
    $
    183,235Accumulated deficit
As previously reported on
Form 10-K or 10-Q
    
    $
    (194,301
    )
    
    $
    (209,196
    )
    
    $
    (212,909
    )
    
    $
    (216,166
    )
    
    $
    (220,622
    )
    
    $
    (220,028
    )Correction of EITF 00-27 errors
    
    
    (301
    )
    
    
    (1,203
    )
    
    
    (2,292
    )
    
    
    (3,629
    )
    
    
    (5,408
    )
    
    
    (7,209
    )As currently reported on
revised Form 10-K or 10-Q
    
    $
    (194,602
    )
    
    $
    (210,399
    )
    
    $
    (215,201
    )
    
    $
    (219,795
    )
    
    $
    (226,030
    )
    
    $
    (227,237
    )Stockholders equity (deficit):As previously reported on
Form 10-K or 10-Q
    
    $
    (63,925
    )
    
    $
    (78,820
    )
    
    $
    (82,468
    )
    
    $
    (85,725
    )
    
    $
    (49,309
    )
    
    $
    (47,292
    )Correction of EITF 00-27 errors
    
    
    6,109
    
    
    
    5,364
    
    
    
    4,437
    
    
    
    3,265
    
    
    
    6,356
    
    
    
    4,834As currently reported on
revised Form 10-K or 10-Q
    
    $
    (57,816
    )
    
    $
    (73,456
    )
    
    $
    (78,031
    )
    
    $
    (82,460
    )
    
    $
    (42,953
    )
    
    $
    (42,458
    )


Results of Continuing Operations

When considering the review of the results of
continuing operations for 2002 compared to 2001, and 2001 compared to 2000, it
is important to note the following significant changes in our operations that
occurred in 2002 and 2001.  Namely:



1.On
June 4, 2001, WorldxChange completed the purchase of certain assets and
liabilities of WorldxChange Communications, Inc. WorldxChange continues to
offer the dial-around telecommunications product, which WorldxChange
Communications, Inc. had previously offered. 
We did not offer a comparable product prior to June 4, 2001.



2.On
December 10, 2002, WorldxChange acquired the Enterprise and Agent Business of
RSL, including the assumption of certain liabilities.  RSL offers voice services to residential and small business
customers through an indirect sales channel. 
It also offers voice and data solutions to small and medium size
enterprise customers through a direct sales channel.    The RSL operations from December 11, 2002 to December 31, 2002
have been included in the statement of operations for 2002.



3.On
December 6, 2002, we entered into an agreement to sell substantially all of the
assets and customer base of ILC. The sale is anticipated to close in the second
quarter of 2003.  As a result of the
agreement, the operational results related to ILC have been reclassified as
discontinued operations in the current and prior years and accordingly are not
specifically included in the following analysis of continuing operations for
the past three years.



Revenues



Telecommunications services revenue increased to $85.3
million in 2002 from  $50.3 million in
2001.  The increase is primarily related
to the following events:



(1)In June 2001, we acquired the long
distance operations of WorldxChange Communications Inc. from bankruptcy. The
purchase was accounted for under the purchase method of accounting.  Accordingly, revenue in 2001 is limited to
revenue from the date of acquisition in June 2001 through the end of 2001
(approximately seven months).  In 2002,
revenue for twelve months of operations of WorldxChange is included in the
reported revenue.



(2)In December 2002, we acquired the assets
of the Agent and Residential business (A&R) and the Enterprise business
of RSL COM USA, Inc. (RSL) from bankruptcy. 
The acquisition has been accounted for under the purchase method of
accounting; accordingly, revenue subsequent to the acquisition, which is
approximately three weeks of 2002, has been included in the reported revenue.



14



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##### 





In the segment reporting section of the consolidated
financial statements, we segment the telecommunications revenue by its
operating segments, known as Acceris Partners and Acceris Solutions. The
Acceris Partners business includes the operations of the former WorldxChange
and the former A&R business of RSL, while the Acceris Solutions business is
comprised of the former Enterprise business of RSL.



Acceris
Partners:The Acceris Partners business accounted for
$83.7 million of the continuing telecommunications services revenue in 2002 and
all of the 2001 telecommunications services revenue.  There were no 2000 telecommunications services revenues (or
expenses) from continuing operations, as the telecommunications services
revenues from continuing operations began in June 2001.  Excluded from Acceris Partners
telecommunication services revenues is approximately $4.8 million related to
services rendered through December 31, 2002 that have not been recognized as
revenues because of uncertainty related to the ultimate cash collection.  This revenue related to the network service
offering introduced in November 2002 that we ceased to offer on July 23,
2003.  Net cash receipts from this
network service offering will be recognized as revenue in the future periods,
beginning in the second quarter of 2003, when the actual cash collection to be
retained by us are finalized.



Comparing Acceris Partners 2002 revenues to annualized
2001 revenue shows a small increase in revenue.  Understanding the change in revenue requires a more detailed
review as follows.  Telecommunications
services revenues are the result of three primary elements, specifically,
volume of minutes, rate per minute and the number of customers.



In 2002, the Acceris Partners business experienced an
increase of approximately 12% in the volume of minutes over its network
compared to 2001 on an annualized basis. 
This increased network utilization was offset by a 23% decrease in the
average rate per minute due to significant price decreases in the long distance
market throughout most of 2002 which decreases we do not expect to continue in 2003.  The average number of customers in 2002
increased over 2001 by 3%.   Part of the
source of that increase began in the fourth quarter of 2001, when Acceris
Partners embarked on an aggressive direct advertising campaign which resulted
in large increases in the number of customers on the network in late
2001 and
into the first half of 2002.  While the
investment in direct advertising increased revenues, its contribution was not
as profitable as we had expected. 
Accordingly in early 2002, we ceased our direct advertising campaign and
pursued more profitable methods of attracting and retaining customers.  Among the alternative methods being used to
attract profitable customers was our decision to focus on and grow our
commercial agent and MLM channels, while also expanding our product offerings
to include 1+ long distance services, network provisioning, wholesale carriage,
and conference call services.  The
acquisition of the A&R business of RSL is expected to act as an accelerator
to our commercial agent strategy.



Acceris Partners expects to show increasing revenue in
2003. We believe the increase will be achieved by (1) increasing the customer
base, which in turn increases network utilization and (2) the effect of a full
year inclusion of the A&R business of RSL. 
The expected increase in customer base will come from the customer
attraction and retention programs in place, the completing and maturing of the
channel transition coupled with the rounding out of Acceris Partners products
offerings.



Acceris
Solutions:Revenue from Acceris Solutions in 2002 came
from the Enterprise business of RSL, which we acquired out of bankruptcy on
December 10, 2002.  Revenue of $1.5
million has been included in 2002 for the period from December 11, 2002 through
December 31, 2002.  While in bankruptcy,
the Enterprise business of RSL found it nearly impossible to attract new
customers.  Despite competitive pricing,
prospective customers were unwilling to make contractual commitments given
RSLs financial uncertainty.  This financial
uncertainty also affected the existing customer base as their contracts
expired, resulting in higher than normal customer turnover.  We expect price competition to continue in
2003, however we believe that our contribution margin from our revenues in this
segment will remain comparable with 2002.



While in bankruptcy, the Enterprise business of RSL
concentrated on maintaining its customer base. 
Upon our acquisition of the business, we have focused on stabilizing the
existing customer base and have instituted a customer acquisition plan which we
expect will take several months to put in place before we see significant
customer acquisitions.  We expect to see
a steady growth in revenue from our sales efforts beginning in the second half
of 2003 and beyond.



15



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##### 





We expect Acceris Solutions to be self-funding beyond
its acquisition capitalization.  Like
Acceris Partners, in order to obtain working capital, Acceris Solutions will
enter into an asset backed debt facility based on the quality of its accounts
receivable; such debt will be senior to the debt of Counsel.  We do not anticipate making debt repayments
in 2003 to Counsel on our debt instrument used to acquire RSL.



Acceris
Technologies:Acceris Technologies is the segment
responsible for licensing and development revenue, which revenues were $2.8
million in 2002, $5.7 million in 2001 and $9.0 million in 2000.  Revenues in 2002 ($1.7 million), 2001 ($5.0
million) and 2000 ($3.3 million) were from a $10 million licensing agreement
entered into May 2000 between Red Cube and I-Link that was recorded as revenue
over a twenty-four month period, which ended in May 2002. When examining the
technology licensing market it is important to appreciate that the revenue is
project based and as such revenue will vary from year to year based on timing
of technology licensing, development projects and payments.



The primary decrease in revenue in 2002 from 2001 was
due to the reduction in revenue recorded relating to the Red Cube
agreement.  Historically, Acceris
Technologies has focused its sales on international markets while focusing
domestically on its own network development, which we intended to take to
market.  In December 2002, we entered
into an agreement to sell the domestic network operations (ILC) to BUI as part
of a formal plan of disposal pursuant to a refocusing of strategy by Acceris.
The sale is anticipated to close in the second quarter of 2003.  While we sold the operations of ILC, we
retained ownership of the technology that was licensed to BUI.  While the licensing to BUI was the first
domestic licensing of our technology, in January 2003, we entered into our
second domestic licensing agreement and expect to sell several additional
licenses throughout 2003.



The decrease from 2000 to 2001 was primarily a result
of licensing agreements in 2000 that did not recur in 2001, primarily two
agreements that resulted in revenues of nearly $4.0 million in 2000 which did
not recur in 2001.  This decrease was
offset by increased revenues from the Red Cube agreement and $680,000 from a
new foreign license agreement in 2001.



Other
revenues



In 2000, we had marketing services revenues of
$463,740.  The business to which this
revenue related was sold in February 2000 and accordingly there have been no
such revenues since then.  Additionally,
in 2000 we had revenues of $400,000 relating to the sale of products, which
product has not been sold since that date nor is there anticipated to be any
comparable sales in the future.



Operating
costs and expenses



Acceris Partners telecommunication network expense
was $49.7 million in 2002 and $35.5 million in 2001.  The increase in 2002 over 2001 relates primarily to inclusion of
a full year of WorldxChange operations in Acceris Partners as opposed to seven
months in 2001.  On an annualized basis,
telecommunications network expense decreased from 2001 to 2002.  The decrease on an annualized basis correlates
with a 14% increase in telecommunications services revenue margin (telecommunication
services revenue compared to telecommunication network expense) in 2002 over
2001, primarily relating to improved network efficiency derived from reductions
in operating costs, efficiencies relating to more scaled utilization of the
network.  The telecommunications
services revenue margin was negatively impacted in 2002 by the expensing of
$2.0 million of network service offering costs for which no revenue was
recognized (see discussion of accounting for this network service offering in
Restatement above).   As outlined in
the revenue discussions, price erosion was pervasive throughout 2002, however
this erosion was mitigated by price protection clauses in our contracts with
our underlying carriers that also reduce our carrier costs.  In 2003, excluding revenues and expenses
related to the network service offering, we expect telecommunication network
expense will directly correlate with telecommunication services revenues and
that the telecommunications services margin will remain consistent with
2002.  The margin on the network service
offering will be higher than normal in 2003 due to revenue to be recognized in
2003 on services provided in the fourth quarter of 2002.  Acceris Solutions accounted for $1.2 million
of the total network expense in 2002 and we anticipate its telecommunications
network expense will increase in 2003 at a slower rate than its revenue growth
thus increasing telecommunications services margins.



16



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##### 





Acceris Partners
selling, general, administrative and other expense was $27.8 million in 2002 up
from $20.4 million in 2001. The increase in 2002 over 2001 primarily relates to
a full year of operations of Acceris Partners, primarily WorldxChange, in 2002
as compared to seven months of operations in 2001. Selling, general,
administrative and other expense will increase in 2003 due to the inclusion of
the A&R business of RSL which we acquired in December 2002.  Selling, general, administrative and other
expense for 2002 includes advertising costs of $1,590,000 as compared to
$7,266,000 in 2001. The decrease in 2002 compared to 2001 relates to the
curtailment of a direct advertising program in the first quarter of 2002 that
commenced in 2001. The program was curtailed, as the returns from the program
did not justify the investment.  
Subsequent to the curtailment of the direct advertising program in early
2002, management focused its attention on the reorganization of its channel
strategy by placing larger emphasis on the commercial agent and
Multi-Level-Marketing (MLM) channels. The transition in strategy reduced
advertising costs but introduced a higher level of sales commissions.  Acceris Solutions accounted for $777,000 of
selling, general, administrative and other expense in 2002.  It is anticipated that this expense will
remain constant on an annualized basis in 2003.  Acceris Technologies selling, general, administrative and other
expense was $451,000 as compared to $1.6 million in 2001 and $1.8 million in
2000.  The decrease is directly related
to our efforts to refocus our resources to better match our revenues.  We anticipate that Acceris Technologies
selling, general, administrative and other expense in 2003 will approximate
2002.  In 2002, there were selling,
general, administrative and other expenses of $4.1 million relating to
corporate overhead which will be less in 2003 as a result of our termination of
the Draper Utah operations in December 2002. 
Likewise in 2000 we incurred $196,000 in selling, general, administrative
and other expense in the Marketing Services segment which did not recur after
2000.



Acceris Partners provision for doubtful accounts was
$6.0 million in 2002 as compared to $2.9 million in 2001. The increase in 2002
over 2001 primarily relates to a full year of revenue from Acceris Partners,
primarily WorldxChange, in 2002 as compared to seven months of operations in
2001.  Other than the increase due to a
full year of operations, the provision increase in 2002 relates to a change in
channels resulting in more direct billing of customers which incurs a larger
percentage of uncollectible accounts. 
Acceris Solutions recorded a provision of $33,000 in 2002.  Acceris Solutions anticipates that its 2003
provision for doubtful accounts as a percentage of revenue will remain
consistent with 2002.  Acceris
Technologies had no bad debts in any year presented due to the nature of the
revenues and revenue recognition policies.



Acceris Partners depreciation and amortization was
$4.1 million in 2002 compared to $2.3 million in 2001. The increase in 2002
over 2001 primarily relates to a full year of operations from Acceris Partners,
primarily WorldxChange, in 2002 as compared to seven months of operations in
2001.  We anticipate the dollar amount
of 2003 depreciation to remain constant with 2002.  Acceris Solutions recorded $158,000 in depreciation and
amortization in 2002.  It is anticipated
that the dollar amount of their depreciation and amortization will remain
constant on an annualized basis in 2003. 
Acceris Technologies recorded depreciation of $11,000 in 2002 compared
to $126,000 in 2001 and $98,000 in 2000. 
We anticipate that Acceris Technologies will incur depreciation
consistent with 2002 in 2003.



Acceris Technologies incurred research and development
costs of $1.4 million in 2002 compared to $2.3 million in 2001 and $4.2 million
in 2000.  The decreases over the past
three years are a result of our decision to consolidate our research operations
and to curtail research and development activities in order to concentrate our
financial resources on sales and marketing of existing products.  With the sale of the ILC business in
December 2002, we have stopped our research and development activities and
expect that there will be minimal research and development activities in 2003
as we continue to concentrate on sales of existing products.



In 2000, we incurred marketing service costs of
$456,354.  The business to which this
expense related was sold in February 2000 and accordingly there have been no
such expenses since then.





Other
Income (expense)



Interest
expense was $8.2 million in 2002 as compared
to $4.7 million in 2001 and $1.5 million in 2000.   Overall the increase is directly related to our increased debt
from loans from Counsel (necessary to fund our continued cash operating
requirements and acquisitions), inclusion of interest from Acceris



17



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##### 





Partners capital leases
for twelve months in 2002 as compared to seven months in 2001 and from Acceris
Partners revolving credit facility which originated in December 2001.  Interest expense in 2003 should decrease
significantly due to the agreement with Counsel to convert approximately $29.3
million in debt into common stock of I-Link and our sale of the ILC business
which will significantly decrease our operational cash requirements in the
future.  This decrease will be offset by
the interest related to the new $8.5 million notes related to our acquisition
of RSL in December 2002.



Interest and other income were $395,000 in 2002,
$81,000 in 2001 and $487,000 in 2000. Other income in 2002 was primarily
related to Acceris Partners, who in the fourth quarter was informed that it had
funds on deposit with certain carriers that it had not previously known
existed.  Upon verification of such
deposits, we recorded the asset and recognized other income of approximately
$200,000. We did not have similar transactions in 2001 or 2000, nor do we
anticipate similar transactions in 2003.  
The other changes from year to year relate to various items which do not
recur from year to year and a decrease in interest earned in 2002 compared to
2001 and 2000 which corresponds to the decrease in average cash balances on
hand during the respective years and the reduction in interest rates during the
same periods.



In December 2001 we sold our subsidiary Nexbell to an unrelated
party.  The sale was a sale of Nexbells
stock and accordingly the assets and liabilities of Nexbell were assumed by the
purchaser with no further financial obligation on our part.  At the time of the sale, the liabilities
exceeded the assets of Nexbell and accordingly we have recorded a gain on sale
of subsidiary in the amount of $588,943 (the amount by which the liabilities of
Nexbell exceeded its assets).



A settlement expense of $639,565 was recorded in 2000.  This expense is the result of an obligation
to issue129,519
shares of common stock in exchange for trading restrictions imposed on JNC
Opportunity Fund Ltd. (JNC) in relation to the common stock to be issued to JNC
pursuant to a settlement and release agreement entered into in February
2000.  The settlement and release
agreement settled the litigation between JNC and us over unconverted Series F
preferred stock held by JNC. The amount of this expense was based upon the
market price of our common stock on May 24, 2000 when the common stock was
issued.  There was no comparable expense
in 2002 or 2001.





Extraordinary
gain



In 2001, an
extraordinary gain on extinguishment of debt was recorded. In the third quarter
of 2001, Nexbell (a wholly-owned subsidiary of I-Link at the time) was in
default on two leases and at the time of settlement we were liable for
$1,272,818.  As the liability was
settled for $180,000, we recorded an extraordinary gain in the amount of $1,092,818.  There was no comparable event in 2002 or
2000.





Segment
Profitability



For the year ended December 31, 2002, Acceris Partners
and Solutions incurred operating segment losses from continuing operations of
$6.7 million and $629,000, respectively. 
We anticipate that through revenue growth and continued control of
expenses, both segments will report operating income for 2003.  Acceris Technologies reported operating segment
income of $976,000 in 2002.  We
anticipate that this segment will also report segment income in 2003.  The measures of segment loss or income
discussed above exclude approximately $8.4 million of expenses which are
considered corporate expenses and which are not allocated to a specific segment.  These expenses consist primarily of interest
expense on debt from I-Link Incorporated to Counsel, which we anticipate will
decrease dramatically in 2003 when the debt restructuring with Counsel is
approved by the shareholders (see note 15).





Liquidity
and Capital Resources



Cash and cash equivalents as of December 31, 2002 were
$3.6 million compared to $4.7 million in 2001.



18



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##### 





Cash flow from operating
activities



The Companys working capital deficit declined to
$17.2 million as of December 31, 2002, down from the $40.8 million as of
December 31, 2001.  The reduction in the
working capital deficit is due primarily to the classification as long-term in
2002 of approximately $17.5 million in debt to Counsel which will be converted
to equity in 2003 when the 2003 shareholders meeting is held.  This $17.5 million in debt was classified as
a current liability at December 31, 2001. 
Additionally, $9.4 million in debt to Counsel was extended to 2004 and
thus reduced our current liabilities.



Cash used in operating activities during 2002 was $4.9
million compared to $29.3 million in 2001 and cash provided by operating
activities of $1.9 million in 2000.  The
decrease in cash used in operating activities in 2002 as compared to 2001 is
primarily due to a decrease in our net loss which resulted from improved
operating performance of Acceris Partners in 2002 as compared to 2001 and
continued downsizing of I-Links network and development operations.   The decrease in cash from operating
activities in 2001 from 2000 was primarily due to an increase in our net loss
and the difference in cash receipts and revenue recognition related to unearned
revenue.



Cash utilized in
investing activities



Net cash used by investing activities in 2002 was $9.2
million as compared to $15.4 million in 2001 and $6.9 million in 2000.



In December 2002, we expended $8.3 million related to
the acquisition of the A&R and Enterprises assets of RSL.  In addition to the RSL purchase, we expended
$1.6 million on purchases of furniture, fixtures, equipment, software and
intangible assets as we expanded our Acceris Partners operations and continued
to improve our network in order to reduce its overall cost.  These expenditures were offset by proceeds
of $692,000 from the sale of a building.



The net increase in cash used by investing activities
in 2001 as compared to 2000 was primarily due to a $13.5 million purchase of
WorldxChange assets, which purchase was offset by a reduction in the purchase
of furniture, fixtures, equipment and software of $4.9 million.



Cash provided by
financing activities



Net cash provided by financing activities in 2002 was
$13.1 million as compared to $47.2 million in 2001 and $4.2 million in 2000.



In 2002, our largest shareholder, Counsel loaned us
$16.8 million, including $7.5 million to fund the cash requirements for the
asset purchase of RSL.  Offsetting these
advances from Counsel was a repayment of $3.0 million to Counsel.   During 2002, we borrowed a net additional
$2.1 million on Acceris Partners revolving credit facility.



In 2002, Counsel reimbursed the Company $498,000 for
certain expenses.  This amount, as well
as the sources discussed above, was offset by payments of $2.5 million pursuant
to our capital lease obligations and long-term debt.



Cash provided from financing activities in 2001
included cash borrowings (net of repayments of $2.5 million) from notes payable
to a related party (Counsel) of $41.4 million and net borrowings from a
revolving line of credit of $7.0 million. 
Additionally, I-Link received $15,000 from the sale of I-Link common
stock under its employee stock purchase plan. 
During 2001, we repaid $1.2 million in long-term debt and capital lease
obligations.  Cash provided in 2000
included $4.3 million from exercise of options and warrants and employee
purchases under the employee stock purchase plan.  During 2000, we repaid $146,000 in long-term debt and capital
lease obligations.



19



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##### 





We have various commitments in addition to our
debt.  The following table summarizes
our contractual obligations at December 31,2002 (in thousands):



|Contractual obligations:                          |  | Total |        | 2003  |   | 2004   |  | 2005  |        | 2006 |   | 2007  | 
|------------------------------------------------- |  | ----- | ------ | ----- | - | ------ |  | ----- | ------ | ---- | - | ----- | 
|                                                  |  |       |        |       |   |        |  |       |        |      |   |       | 
|Debt (notes
  payable)*                           |  | $     | 37,055 |       | $ | 12,073 |  | $     | 24,982 |      | $ |      | 
|                                                  |  |       |        |       |   |        |  |       |        |      |   |       | 
|Capital lease
  obligations                       |  | $     | 6,860  |       | $ | 2,714  |  | $     | 3,015  |      | $ | 1,514 | 
|                                                  |  |       |        |       |   |        |  |       |        |      |   |       | 
|Operating leases
  for office space and equipment |  | 7,569 |        | 2,452 |   | 2,094  |  | 1,718 |        | 959  |   | 346   | 






*Excludes short-term debt of $29,282 to Counsel which is to be
converted into common stock in 2003.





Current
Position/Future Requirements



We have incurred substantial
operating losses and negative cash flows from operations since inception and
had a net capital deficiency of $57.8 million and negative working capital of
$17.2 million at December 31, 2002. We financed our operations during 2002
through related party debt with an outstanding balance of $53.2 million and a
revolving credit facility with an outstanding balance of $9.1 million as of
December 31, 2002. We have taken steps to improve our cash flow from
operations, which include the curtailment of our Draper, Utah operation, the
sale of our former telecommunications segment to Buyers United Inc. that was
completed in May 2003 and the acquisition of RSL. We are pursuing additional
third party funding and have also taken steps to improve our capital structure,
which include the conversion of amounts owed to Counsel of $29.3 million to
equity as described below.   This conversion
is subject to shareholder approval, which is expected to occur at the next
shareholders meeting.  The remaining
$23.9 million of related party debt which is not subject to the debt
restructuring, matures on June 30, 2004. We also have an ongoing commitment
from Counsel to fund, through long-term intercompany advances or equity
contributions, all capital investment, working capital or other operational
cash requirements of the Company through April 15, 2004.



At
December 31, 2002, we had $53.2
million of related party debt.  In order
to reduce our cash requirements to pay this debt, we entered into an amended
debt restructuring agreement with Counsel whereby approximately $29.3 million
will be converted into common stock, reducing our debt obligation and related
interest charges without expending cash. 
Additionally, in March 2003, Counsel extended the due date of a $9.4
million note from I-Link to June 30, 2004. 
As a result, the remaining $23.9 million of related party debt matures
on June 30, 2004. Subsequent to April 15, 2004, should Counsel not extend its
commitment to provide financial support to the Company, and in the event cash
flow from operations is insufficient to cover the maturing debt, we will be
required to restructure our debt with Counsel to further extend payments of
principal and interest or find alternative funding to replace the Counsel debt.



The acquisition of RSL added
additional business channels and customers and we believe will begin generating
positive cash flows in the latter part of 2003.  The sale of our telecommunications segment, which contributed the
most significant portion of our negative cash flows in prior years, and the
closure of our Draper, Utah operation will also help reduce our negative cash
flow from operations.



There is no assurance that we will
be able to improve our cash flow from operations, obtain additional third party
financing, extend, repay or refinance on acceptable terms amounts owing to
Counsel that are due on June 30, 2004 or obtain an extension of the existing
funding commitment from Counsel. Additionally, there is no assurance that
Counsel will continue to provide financial support to the Company.  These matters raise substantial doubt about
our ability to continue as a going concern. 
We have received a report from our independent auditors for the year
ended December 31, 2002 containing an explanatory paragraph that describes the
uncertainty as to our ability to continue as a going concern due to our net
operating losses, negative cash flows from operations and capital deficiency.







20



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Other Items



Recent
Accounting Pronouncements



See Note 4 to the Consolidated Financial Statements
for recent accounting pronouncements and how we anticipate they will impact our
financial statements





Item 7A.       Quantitative and Qualitative Disclosures
about Market Risk



Our exposure to market risk is limited to interest
rate sensitivity, which is affected by changes in the general level of U.S.
interest rates.  Our cash equivalents
are invested with high quality issuers and limit the amount of credit exposure
to any one issuer.  Due to the
short-term nature of the cash equivalents, we believe that we are not subject
to any material interest rate risk as it relates to interest income.  As to interest expense, we have two debt
instruments that have variable interest rates based on the prime rate of
interest.  Assuming debt amounts at
December 31, 2002 were constant during the next twelve-month period, the impact
of a one percent increase in the prime interest rate would be an increase in
interest expense of approximately $110,000 for the next twelve-month
period.  However, as one debt instrument
is subject to an interest rate floor, a one percent decrease in the prime interest
rate would only reduce interest expense by $20,000 during the next twelve-month
period.



We did not have any foreign currency hedges or other
derivative financial instruments as of December 31, 2002.  We do not enter into financial instruments
for trading or speculative purposes and do not currently utilize derivative
financial instruments. Our operations are conducted primarily in the United
States and as such are not subject to material foreign currency exchange rate
risk.





Item
8.Financial Statements and Supplementary
Data



See Consolidated Financial
Statements and supplementary data beginning on pages F-1 and S-1.





Item
9.Changes
in and Disagreements with Accountants on Accounting and Financial Disclosure



None



PART III



Item
10.Directors,
Executive Officers, Promoters, and Control Persons; Compliance with Section
16(a) of the Exchange Act



I-Links
Articles of Incorporation provide that the Board of Directors shall be divided
into three classes, and that the total number of directors shall not be less
than five but no more than nine. Each director shall serve a term of three
years.  At the December 6, 2002 meeting,
the Board of Directors of I-Link resolved, among other items, to expand the
size of the Board of Directors by adding one seat to the existing Board of
Directors and to appoint Mr. John Walter to the Board of Directors to serve as
a Class III director.  At the February
12, 2003 meeting, the Board of Directors appointed Ms. Kelly Murumets to fill
the vacancy created by the resignation of Norman Chirite, a Class II
director.  As of April 25, 2003, the
Board of Directors currently consists of eight members: two Class I Directors
(Messrs. Shimer and Wasserson), three Class II Directors (Messrs. Toh, Heaton
and Silber), and three Class III Directors (Messrs. Reichmann and Walter and
Ms. Murumets).  Messrs. Shimer and
Wasserson, the Class I Director



21



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##### 





nominees, will stand for
election for another three-year term at the 2003 Annual Meeting.  Messrs. Shimer and Wasserson were appointed
on April 15, 2001 to fill two vacancies of the Class I Directors created by the
resignation in 2001 of a former director and an unfilled board seat.



Biographical information with respect to the present
executive officers, directors, and key employees are set forth below.  There are no family relationships between
any present executive officers and directors.



|Name                 |  | Age(1) |  | Title                                                                                 | 
|-------------------- |  | ------ |  | ------------------------------------------------------------------------------------- | 
|Allan C. Silber      |  | 54     |  | Chairman of the Board and Director, Interim Chief
  Executive Officer and President   | 
|Hal B. Heaton        |  | 52     |  | Director                                                                              | 
|Albert Reichmann     |  | 72     |  | Director                                                                              | 
|Samuel L. Shimer     |  | 39     |  | Director and Senior Vice President, Mergers &
  Acquisitions and Business Development | 
|Henry Y.L. Toh.      |  | 45     |  | Director                                                                              | 
|John R. Walter       |  | 55     |  | Director                                                                              | 
|Gary J.
  Wasserson  |  | 45     |  | Director, President of Acceris Communications
  Technologies, Inc.                    | 
|Ralph Brandifino     |  | 58     |  | Chief Financial Officer, WorldxChange Corp.                                           | 
|Gary M. Clifford     |  | 34     |  | Vice President of Finance and Chief Financial
  Officer                               | 
|James Ducay          |  | 44     |  | President, Acceris Communications Solutions                                           | 
|Kenneth L.
  Hilton  |  | 50     |  | Chief Executive Officer, WorldxChange Corp.                                           | 
|Barbara
  Jamaleddin |  | 56     |  | Senior Vice President of Network Operations,
  WorldxChange Corp.                     | 
|Kelly Murumets       |  | 39     |  | Executive Vice President                                                              | 






(1)           As of April 25, 2003



Allan C. Silber, Chairman of the Board and Director;
Interim Chief Executive Officer and President. 
Mr. Silber was elected to the Board of Directors as a Class II director
in September 2001 and appointed as chairman of the board in November 2001.  Mr. Silber is the chairman and CEO of
Counsel Corporation, which he founded in 1979. 
Mr. Silber attended McMaster University and received a Bachelor of
Science degree from the University of Toronto.



Hal B. Heaton, Director.  Dr. Heaton was appointed by the Board of Directors as a Class II
director on June 14, 2000 to fill a board vacancy.  From 1982 to present he has been a professor of Finance at
Brigham Young University and between 1988 and 1990 was a visiting professor of
Finance at Harvard University.  Dr.
Heaton is a director of MITY Enterprises, Inc., a publicly traded manufacturer
of furniture in Orem, Utah.  Dr. Heaton
holds a Bachelors degree in Computer Science/Mathematics and a Masters in
Business Administration from Brigham Young University, as well as a Masters
degree in Economics and a Ph.D. in Finance from Stanford University.



Albert Reichmann, Director.  Mr. Reichmann was elected to the Board of Directors as a Class
III director in September 2001.  From
1996 to present, Mr. Reichmann served as the Chairman and Chief Executive
Officer of Heathmount A.E. Corporation, a company established for the creation
and development of sports and amusement parks in North America and Asia.  Mr. Reichmann is internationally recognized
for his humanitarian and charitable efforts which range from Armenian
earthquake relief to medical relief for child victims of the Chernobyl nuclear
disaster to arranging the first cabinet-level meetings between the governments
of Israel and the Soviet Union since the end of the Six-Day War.  Mr. Reichmann holds an honorary Degree of
Laws from the Faculty of Administrative Studies of York University.  Mr. Reichmann has served on the Steering
Committee of York Universitys International



22



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Management Center located
in Budapest, Hungary since 1988 and is an Advisor to its East-West Enterprise
Exchange initiative.  Mr. Reichmann is a
founder of the Canada-USSR Business Council established in 1989 by
intergovernmental agreement.



Samuel L. Shimer, Director, Senior Vice President,
Merger & Acquisitions and Business Development.  Mr. Shimer was appointed by the Board of Directors as a Class I
director on April 15, 2001 to fill a board vacancy and was appointed Senior
Vice President, Merger & Acquisitions and Business Development on February
12, 2003.  From 1997 to present he has
been employed by Counsel Corporation, serving as a Managing Director since
1998.  Mr. Shimer is currently serving as
a director of Counsel Communications, the parent of I-Link.  From 1991 to 1997, Mr. Shimer worked at two
merchant banking funds affiliated with Lazard Frères & Co., Centre Partners
and Corporate Partners, ultimately serving as a Principal.  Mr. Shimer earned a Bachelor of Science in
Economics degree from The Wharton School of the University of Pennsylvania, and
a Masters of Business Administration degree from Harvard Business School.



Henry Y.L. Toh, Director.  The Board of Directors elected Mr. Toh as a Class II director and
as Vice Chairman of the Board of Directors in April 1992.  Mr. Toh became President of I-Link in May
1993, Acting Chief Financial Officer in September 1995 and Chairman of the
Board in May 1996, and served as such through September 1996.  Mr. Toh has served as a director of:
National Auto Credit, Inc. (previously an originator of sub-prime automobile
financing that is transitioning into new lines of business) from 1998 through
the present; Bigmark Inc., a pharmaceutical company, since early 2002, and
Teletouch Communications, Inc., a retail provider of internet, cellular and
paging services, beginning in November 2001. 
He is also a director of Four M International Inc., a private investment
firm.  He is a graduate of Rice
University.



John R. Walter, Director.  Mr. Walter was appointed by the Board of Directors as a Class III
Director on December 6, 2002.  Mr.
Walter is the retired President and Chief Operating Officer of AT & T,
where he was responsible for day-to-day operations of the companys core
long-distance, local, wireless and on-line services businesses, as well as its
credit card and outsourcing businesses. 
He is Chairman of Ashlin Management Company, a private management
consulting firm with an emphasis on corporate strategic planning and
development of corporate employee and management culture.  Mr. Walter began his career in 1969 at R.R.
Donnelley & Sons, becoming President in 1987.  In 1989, he was appointed Chairman, President, and Chief
Executive Officer, a position he retained through 1996, when he resigned to
join AT&T.  He serves on the board
of directors of Abbott Laboratories, Deere & Company, Manpower, Inc.,
Applied Graphics Technologies and SNP Corporation of Singapore.  He is a trustee of the Chicago Symphony Orchestra
and Northwestern University.  Mr. Walter
also serves on the International Advisory Council of the Singapore Economic
Development Board and is a director of the Evanston Northwestern Healthcare
Corporation, the Executives Club of Chicago, Chicago Council on Foreign
Relations and Steppenwolf Theatre.  He
is a member of the Board of Advisors of Brookfield Zoo.



Gary J. Wasserson, Director, President of Acceris
Communications Technologies, Inc..  Mr.
Wasserson was appointed by the Board of Directors as a Class I Director on
April 15, 2001 to fill a Board vacancy. 
In May 2001, Mr. Wasserson was appointed CEO of I-Link which position he
held until his resignation in December 2001. 
In June 2001, Mr. Wasserson became President and CEO of WorldxChange
Corp which position he held until May 2002. 
From December 2002, Mr. Wasserson has served as President of Acceris
Communications Technologies, Inc.  From
1999 to October 31, 2001, he was President and Chief Executive Officer of
Counsel Communications and since November 1, 2001 he has been a Managing
Director of Counsel Corporation (US)). 
From 1997 to 1999, he was President and Chief Executive Officer of Call
SciencesTM/VirtelTM, a major provider of enhanced telecommunications services
deliverable over global intelligent networks. 
From 1992 to 1997, he served as Chief Executive Officer of Global
Links/GTS, a company instrumental in creating the calling card industry trade
association and its regulatory initiatives within the industry. Mr. Wasserson
holds a Bachelors degree from Babson College. On February 13, 2003, a grand
jury empanelled in the United States District Court for the Eastern District of
Pennsylvania issued an indictment (the Indictment) against Mr. Wasserson
charging him with three felony counts of violations of the Resource
Conservation and Recovery Act (RCRA) which is administered by the United
State Environmental Protection Agency, and one count of aiding and abetting.



23



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The Indictment alleges
violations of RCRA in connection with the unauthorized transportation and
disposal of hazardous substances (specifically, dry cleaning supplies) in an
un-permitted municipal landfill facility. 
The municipal landfill quickly identified the disposal of hazardous
substances and remediated the site.  Mr.
Wasserson reimbursed the landfill for the cleanup.  Mr. Wasserson has informed I-Link that at no time was there a
risk to the public as a result of the disposal of the hazardous
substances.  Mr. Wasserson is contesting
the charges and has informed I-Link that he believes he has substantial
defenses.



Ralph Brandifino, Chief Financial Officer/Treasurer of
WorldxChange Corp., I-Links wholly owned subsidiary. Mr. Brandifino joined
WorldxChange Corporation in July 2001 after serving as Chief Financial Officer
for three other international telecommunication organizations over the past
five years: Justice Telecommunications, Pittsburgh International Telecom, and
WorldxChange Communications.  Prior to
those appointments, he served as the Senior Vice President and Chief Financial
Officer for Terex Corporation, a Fortune 500 global producer of industrial
equipment.  He also served as Senior
Vice President and Chief Financial Officer for Long Island Lighting Company, a
Fortune 500 company and the 20th largest utility in the United States, and for
Chicago Pneumatic Tool Company, a Fortune 500 multinational manufacturer of
diverse capital goods products.  Mr.
Brandifino received a Bachelors Degree in business from Hofstra University in
1966 and a Masters Degree from the Wharton School of Business in 1980.  He also earned a Juris Doctor degree from
St. Johns University and is a member of the New York Bar.



Gary M. Clifford, Vice President of Finance, Chief
Financial Officer.  Mr. Clifford joined
Counsel Corporation in November 2002 as and presently is its Chief Financial
Officer.  From June 1998 to October
2002, Mr. Clifford has held various senior roles at Leitch Technology
Corporation in Finance, Operations and Corporate Development.  From February 1996 to June 1996, Mr.
Clifford worked for NetStar Communications Inc.  Mr. Clifford is a Chartered Accountant, who articled with Coopers
& Lybrand.  A graduate of the
University of Toronto, with a Bachelor degree in Management, he has also
lectured at Ryerson Polytechnic University in Toronto, Canada.  Mr. Clifford was appointed as Vice President
of Finance of I-Link on December 6, 2002 and Chief Financial Officer on
February 12, 2003.



James Ducay. 
Jim Ducay was named President of Acceris Communications Solutions on
December 10, 2002.  Previously, Mr.
Ducay was Executive Vice President and Chief Operating Officer of RSL COM USA
with responsibility for Marketing, Sales and Account Services, Engineering and
Operations, and Information Technology. 
Before joining RSL COM USA, Mr. Ducay was Vice President of Marketing
and Sales for Ameritech Interactive Media Services where he was responsible for
managing Ameritechs Internet products and related sales channels.  He also served as Managing Director and Vice
President for Bell Atlantic/NYNEX.  Mr.
Ducay has a Masters Degree in Engineering from the University of Illinois and
a Masters Degree in Business Administration from the University of Chicago.



Kenneth L. Hilton, Chief Executive Officer of
WorldxChange Corp.  Kenneth L. Hilton
was appointed Chief Executive Officer of WorldxChange Corporation in May
2002.  From June 1999 to December 2001,
Mr. Hilton served as the Chief Executive Officer of Handtech.com, an
Internet-based start-up company in Austin, TX. that provided customized
E-commerce storefronts, supply chain management and back office services to
value-added resellers. Prior to Handtech, from October 1995 to May 1999, he was
the Executive Vice President of North American Consumer Sales for Excel
Communications, where he also served as the Chairman of the Board for Excel
Canada.  Prior to his 5 years at Excel,
he ran North America operations for PageMart Wireless where he launched the
Canadian business and also served as the Chairman of the Canadian Board. Prior
to PageMart, Mr. Hilton held numerous sales and management positions with IBM.
His 14-year career with IBM included sales, sales management, branch management
and regional management positions.



Barbara Jamaleddin, Senior Vice President for Network
Operations of WorldxChange Corp.  Prior
to this position, Ms. Jamaleddin held the position of Senior Vice President for
WorldxChange Communications from 1995 to 2001. 
Prior to WorldxChange, Ms. Jamaleddin spent seven years with Sprint,
where she served as Director of Product Development & Support and Director,
National Operations Control Center. 
While at Sprint, Ms. Jamaleddin was named inventor of a patent for
enhanced services and was the founder of the Womens Organization.  Ms. Jamaleddins early career was with
Michigan Bell, and



24



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from 1966 through 1987,
she led Michigan Bells quest to upgrade more than 200 of its central offices
to Stored Program Control. Ms. Jamaleddin attended Wayne State University.



Kelly Murumets, Executive Vice President.  Ms. Murumets joined Counsel Corporation in
2002 as Executive Vice President.  Over
the past fifteen years, most recently as a Vice President with Managerial
Design, Ms. Murumets was an advisor to clients throughout North America giving
leaders the insight and guidance required to achieve consensus, build cohesive
and committed leadership teams, and implement change.  Ms. Murumets received her BA from Bishops University in 1985,
her MBA from the University of Western Ontarios Ivey School of Business in
1988 and her MSW from Wilfrid Laurier University in 1996.  Ms. Murumets was appointed as Executive Vice
President of I-Link on December 6, 2002.



Each officer of I-Link is appointed by the Board of
Directors and holds his office at the pleasure and direction of the Board of
Directors or until such time of his/her resignation or death.



There
are no material proceedings to which any director, officer or affiliate of
I-Link, any owner of record or beneficially of more that five percent of any
class of voting securities of I-Link, or any associate of any such director,
officer, affiliate of I-Link or security holder is a party adverse to I-Link or
any of its subsidiaries or has a material interest adverse to I-Link or any of
its subsidiaries.



During
the 2002 fiscal year, all members of the Board of Directors attended 75% or
more of the Board meetings except for Mr. Reichmann who attended two out of
three meetings.



Section 16(a) Beneficial Ownership
Reporting Compliance



Section 16(a) of the Exchange Act requires our
officers and directors, and persons who own more than ten percent of a
registered class of our equity securities, to file reports of ownership and
changes in ownership of equity securities of I-Link with the SEC.  Officers, directors, and greater than ten
percent stockholders are required by the SEC regulation to furnish us with
copies of all Section 16(a) forms that they file.



Based solely upon a review of Forms 3 and Forms 4
furnished to us pursuant to Rule 16a-3 under the Exchange Act during our most
recent fiscal year, to I-Links knowledge, all reporting persons complied with
all applicable filing requirements of Section 16(a) of the Securities Exchange
Act of 1934, as amended, with the following exceptions: A. Silber, K. Murumets,
G. Clifford, Stephen Weintraub (Senior Vice President and Secretary of I-Link),
J. Walter, K. Hilton, J. Ducay each inadvertently failed to file their
respective Forms 3 upon their appointments as officers or directors of I-Link
or subsidiaries in December 2002.  As of
the date of this Annual Report, the foregoing reporting persons have regained
compliance with Section 16(a) reporting requirements.



Audit Committee Financial Expert



The I-Link Board of Directors has determined that
I-Link does not have an audit committee financial expert serving on its Audit
Committee.  I-Link does not have an
audit committee financial expert because it has been unable to attract such a
person.



Code of Ethics



I-Link has adopted a code of ethics that applies to
its principal executive, financial and accounting
officers.  I-Link will provide a copy of its code of ethics,
without charge, to any person that requests it.  Requests should be addressed in writing to Mr. Stephen Weintraub
, Corporate Secretary, The Exchange Tower, 130 King Street West, Suite 1300,
P.O. Box 435, Toronto, Ontario M5X1E3



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Item 11. Executive Compensation



The following table sets forth the aggregate cash
compensation paid for services rendered during the last three years by each
person serving as our Chief Executive Officer during the last year and our
other most highly compensated executive officers serving as such at the end of
the year ended December 31, 2002 whose compensation was in excess of $100,000
(Named Executive Officers).



|                              |  |                     |  |           |  |          |  |                                  |  | Long-Term Compensation         |  |                                              | 
|----------------------------- |  | ------------------- |  | --------- |  | -------- |  | -------------------------------- |  | ------------------------------ |  | -------------------------------------------- | 
|                              |  | Annual Compensation |  | Awards    |  | Payouts  |  |                                  | 
|Name and
  Principal Position |  | Year                |  | Salary($) |  | Bonus($) |  | Other
  Annual
  Compensation($) |  | Restricted
  Stock
  Awards($) |  | Securities
  Underlying
  Options/
  SARs(#) | 
|Allan Silber(1)               |  | 2002                |  |          |  |         |  |                                 |  |                               |  |                                             | 
|                              |  | 2001                |  |          |  |         |  |                                 |  |                               |  |                                             | 
|                              |  | 2000                |  |          |  |         |  |                                 |  |                               |  |                                             | 
|                              |  |                     |  |           |  |          |  |                                  |  |                                |  |                                              | 
|Helen Seltzer(2)              |  | 2002                |  | 267,360   |  | 309,375  |  |                                 |  |                               |  |                                             | 
|                              |  | 2001                |  |          |  |         |  |                                 |  |                               |  |                                             | 
|                              |  | 2000                |  |          |  |         |  |                                 |  |                               |  |                                             | 
|                              |  |                     |  |           |  |          |  |                                  |  |                                |  |                                              | 
|Ralph Brandifino(5)           |  | 2002                |  | 226,050   |  | 63,025   |  |                                 |  |                               |  |                                             | 
|Chief Financial Officer,      |  | 2001                |  | 95,897    |  | 15,250   |  |                                 |  |                               |  |                                             | 
|WorldxChange Corp.            |  | 2000                |  |          |  |         |  |                                 |  |                               |  |                                             | 
|                              |  |                     |  |           |  |          |  |                                  |  |                                |  |                                              | 
|Kenneth L. Hilton(6)          |  | 2002                |  | 183,333   |  | 183,333  |  |                                 |  |                               |  |                                             | 
|Chief Executive               |  | 2001                |  |          |  |         |  |                                 |  |                               |  |                                             | 
|Officer, WorldxChange         |  | 2000                |  |          |  |         |  |                                 |  |                               |  |                                             | 
|Corp.                         |  |                     |  |           |  |          |  |                                  |  |                                |  |                                              | 
|                              |  |                     |  |           |  |          |  |                                  |  |                                |  |                                              | 
|Barbara Jamaleddin            |  | 2002                |  | 205,500   |  | 67,750   |  |                                 |  |                               |  |                                             | 
|Senior Vice President of      |  | 2001                |  | 115,256   |  | 18,092   |  |                                 |  |                               |  |                                             | 
|Network Operations,           |  | 2000                |  |          |  |         |  |                                 |  |                               |  |                                             | 
|WorldxChange                  |  |                     |  |           |  |          |  |                                  |  |                                |  |                                              | 






(1)Mr.
Silber was appointed as Interim Chief Executive Officer and President of I-Link
as of December 19, 2002.

(2)Ms.
Seltzer served as the Chief Executive Officer of I-Link from January 3, 2002
through December 19, 2002.  Bonus amount
includes severance payment of $171,875.

(3)Mr.
Brandifino became the Chief Financial Officer of WorldxChange Corp. on July 25,
2001.

(4)Mr.
Hilton became the Chief Executive Officer of WorldxChange Corp. on May 1, 2002.

(5)Ms.
Jamaleddin became the Senior Vice President for Network Operations of WorldxChange
on June 4, 2001.



Option/SAR
Grants in Last Fiscal Year (2002)



No options were granted to any of the Named Executive
Officers during the year ended December 31, 2002.



Aggregated
Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR Values



None of the Named Executive Officers exercised any
options during 2002; nor did any of them hold any unexercised options at the
end of 2002.



Compensation
Committee Report on Executive Compensation



The Compensation Committee administers the compensation
program for executive officers and other senior management of I-Link and bases
its decisions on both individual performance and the financial



26



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results achieved by I-Link.



The principal elements of the compensation program for
executive officers are base salary and stock options. The goals of the program
are to give the executive officers incentives to work toward the improved
financial performance of I-Link and to reward them for their contributions to
I-Links success. For a summary of fiscal 2002 compensation, see Compensation
of Executive Officers and Directors above.



Base
Salaries.  The
committee has based its decisions on salaries for I-Links executive officers,
including the Chief Executive Officer and President on a number of factors,
both objective and subjective. 
Objective factors considered include increases in the cost of living,
I-Links overall historical performance and comparable industry data, although
no specific formulas based on such factors have been used to determine
salaries.  Salary decisions are based
primarily on the committees subjective analysis of the factors contributing to
I-Links long-term success and of the executives individual contributions to
such success.



Stock
Options.  The
committee views stock options as its primary long-term compensation vehicle for
I-Links executive officers.  Stock
options generally are granted at the prevailing market price on the date of
grant and will have value only if I-Links stock price increases.  Options granted to executive officers
generally vest in quarterly increments over three years beginning on the date
of the grant.  Some options vest in increments
upon the attainment by I-Link of certain performance benchmarks.  Grants of stock options generally are based
upon the performance of I-Link, the level of the executives position within
I-Link and an evaluation of the executives past and expected future
performance.  The committee grants stock
options periodically, but not necessarily on an annual basis.



| | By the Compensation Committee:
| | ------------------------------
| |                               
| | Hal B. Heaton                 





Comparison
of Cumulative Total Return Among I-Link Incorporated, The Russell 2000 Index
and A Peer Group





Performance
Graph



The following graph compares I-Links cumulative total
stockholder return with that of the Russell 2000 index of small-capitalization
companies and a peer group index. During 2002 and beginning with this Proxy
Statement, I-Link reevaluated the composition of its performance peer group and
determined that a change was appropriate. 
I-Link is making this change in light of the most recent changes in the
strategic direction of the company and re-orientation of its business
priorities.



During this transition year, both the 2001 peer group
(consisting of IDT Corporation, ICG Communications, Inc. and AlphaNet
Solutions, Inc.) and the new 2003 peer group (consisting of ATX Communications,
Inc., deltathree, Inc., Universal Access Global Holdings, Inc., IDT
Corporation, Buyers United, Inc. and Primus Telecommunications Group, Inc.)
indexes are shown so that stockholders may compare them for the most recent 5
year performance period. I-Link chose the companies comprising the
2003 peer group because they are similar in size, are similar in their lines of
business to I-Link and represent I-Links competitors in various geographical
markets subsequent to the most recent changes in I-Links business.  The graph assumes an initial investment of
$100.00 made on December 31, 1997, and the reinvestment of dividends (where
applicable). I-Link has never paid a dividend on its common stock.



27



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Total Return
Analysis



|              |  | 12/31/97 |        | 12/31/98 |   | 12/31/99 |  | 12/31/00 |        | 12/31/01 |   | 12/31/02 | 
|------------- |  | -------- | ------ | -------- | - | -------- |  | -------- | ------ | -------- | - | -------- | 
|ILINK, Inc.   |  | $        | 100.00 |          | $ | 34.69    |  | $        | 45.41  |          | $ | 12.76    | 
|New Peergroup |  | $        | 100.00 |          | $ | 89.82    |  | $        | 153.18 |          | $ | 114.46   | 
|Old Peergroup |  | $        | 100.00 |          | $ | 55.05    |  | $        | 53.11  |          | $ | 17.97    | 
|Russell 2000  |  | $        | 100.00 |          | $ | 96.55    |  | $        | 115.50 |          | $ | 110.64   | 





Director
Compensation



On the first business day in January of each year
prior to 2002, each director then serving was to receive an option to purchase
20,000 shares of common stock and for each committee on which the director
serves an option to purchase 5,000 shares of common stock.  The exercise price of such options is equal
to the fair market value of the common stock on the date of grant. The
directors are also eligible to receive options under our stock option plans at
the discretion of the Board of Directors.



In 2002 the Board of Directors voted to only award
options to the independent directors in accordance with the above-described
arrangement. In addition, each independent director will be paid $1,000 for each
in-person board meeting attended and $500 for each telephonic board meeting
attended. In addition, during 2002, Messrs. Heaton and Toh received $22,500 and
$34,000, respectively, in connection with the services that they rendered for
the Special Committee.



Employment
Contracts and Termination of Employment and Change-in-Control Arrangements



Helen Seltzer Employment Contract.On January 3, 2002, Springwell Capital Corporation, I-Link,
Counsel and Helen Seltzer entered into an agreement whereby Ms. Seltzer became
I-Links Chief Executive Officer.  The
term of the agreement was four years at an annual base salary of $275,000. Ms.
Seltzer is eligible for a discretionary bonus in an amount to be determined by
the Board of Directors of WorldxChange Corp. up to 100% of her annual base
salary. In 2002, she was guaranteed a minimum bonus of $137,500.  Ms. Seltzer also entered into an agreement
on January 3, 2002 with Counsel Communications and Counsel.  Under that agreement, Ms. Seltzer was issued
approximately 0.2% of the common units of Counsel Communications, which common
units vest over a four-year period commencing on January 3, 2003.  In addition to serving as CEO of I-Link, Ms.
Seltzer agreed to serve as a member of the Management Executive Committee of Counsel
Communications.  Mr. Seltzer also had
the right to



28



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participate in Counsels
2001 Executive Stock Purchase Plan.  Ms.
Seltzer was terminated as I-Links Chief Executive Officer on December 12, 2002.  As of the date of this report, all
obligations under Ms. Seltzer employment agreement have been satisfied.



Kenneth Hilton Employment Contract.On May 1, 2002, WorldxChange Corp. and Kenneth L. Hilton
entered into a four-year employment agreement pursuant to which Mr. Hilton
became the Chief Executive Officer of WorldxChange Corp., I-Links wholly-owned
subsidiary. Mr. Hiltons annual salary is $275,000, and he is eligible for a
discretionary bonus in an amount to be determined by the Board of Directors of
WorldxChange Corp. up to 100% of his annual salary.  Counsel Communications and Counsel also entered into an agreement
with Mr. Hilton dated May 1, 2002, under which agreement, Mr. Hilton was issued
approximately 0.2% of the common units of Counsel Communications, which common
units vest over a four-year period commencing on May 1, 2003.  In addition to serving as CEO of
WorldxChange Corp., Mr. Hilton agreed to serve as a member of the Management
Executive Committee of Counsel Communications. 
For disclosure of a loan to Mr. Hilton see Item 13.



James Ducay Employment Contract.  On July 1, 2002, WorldxChange Corp. and
James Ducay entered into an employment agreement, which became effective on
December 10, 2002, the date on which WorldxChange completed its acquisition of
the assets of RSL, and expires on December 10, 2003.  Mr. Ducays annual salary is $275,000, and he is eligible for a
discretionary bonus in an amount to be determined by the Board of Directors of
WorldxChange Corp. up to 100% of his annual salary.  Mr. Ducay also agreed to serve as a member of the Management
Executive Committee of Counsel Communications.



Director
Stock Option Plan



I-Links Director Stock Option Plan (DSOP) authorizes
the grant of stock options to directors of I-Link. Options granted under the
DSOP are non-qualified stock options exercisable at a price equal to the fair
market value per share of common stock on the date of any such grant. Options
granted under the DSOP are exercisable not less than six (6) months or more
than ten (10) years after the date of grant.





As of December 31, 2002, options for the purchase of
4,668 shares of common stock at prices ranging from $0.875 to $3.875 per share
were outstanding.  As of the same date,
options to purchase 15,895 shares of common stock have been exercised.  In connection with adoption of the 1995
Director Plans (as defined below) the board of directors authorized the
termination of future grants of options under the DSOP; however, outstanding
options granted under the DSOP will continue to be governed by the terms
thereof until exercise or expiration of such options.



1995
Director Stock Option Plan



In October 1995, the stockholders of I-Link approved
adoption of I-Links 1995 Director Stock Option and Appreciation Rights Plan,
which plan provides for the issuance of incentive options, non-qualified
options and stock appreciation rights (1995 Director Plan).



The 1995 Director Plan provides for automatic and
discretionary grants of stock options which qualify as incentive stock options
(Incentive Options) under Section 422 of the Internal Revenue Code of 1986, as
amended (Code), as well as options which do not so qualify (Non-Qualified
Options) to be issued to directors.  In
addition, stock appreciation rights (SARs) may be granted in conjunction with
the grant of Incentive Options and Non-Qualified Options. No SARs have been
granted to date.



The 1995 Director Plan provides for the grant of
Incentive Options, Non-Qualified Options and SARs to purchase up to 250,000
shares of common stock (subject to adjustment in the event of stock dividends,
stock splits and other similar events). 
To the extent that an Incentive Option or Non-Qualified Option is not
exercised within the period of exercisability specified therein, it will expire
as to the then-unexercised portion.  If
any Incentive Option, Non-Qualified Option or SAR terminates prior to exercise
thereof and during the duration of the 1995 Director Plan, the shares of common
stock as to which such option or right was not exercised will become available
under the 1995 Director Plan for the grant of



29



---



##### 





additional options or
rights to any eligible employees.  The
shares of common stock subject to the 1995 Director Plan may be made available
from either authorized but unissued shares, treasury shares, or both.



The 1995 Director Plan also provides for the grant of
Non-Qualified Options on a non-discretionary basis pursuant to the following
formula: each member of the board of directors then serving shall receive a
Non-Qualified Option to purchase 10,000 shares of common stock at an exercise
price equal to the fair market value per share of the common stock on that
date.  Pursuant to such formula,
directors received options to purchase 10,000 shares of common stock as of
October 17, 1995, options to purchase 10,000 shares of common stock on January
2, 1996, and will receive options to purchase 10,000 shares of common stock on
the first business day of each January. 
The number of shares granted to each board member was increased to
20,000 in 1998.  In addition, the board
member will receive 5,000 options for each committee membership. Each option is
immediately exercisable for a period of ten years from the date of grant.  I-Link has 190,000 shares of common stock
reserved for issuance under the 1995 Director Plan.  As of December 31, 2002, options exercisable to purchase 170,000
shares of common stock at prices ranging from $1.00 to $1.25 per share are
outstanding under the 1995 Director Plan. 
As of December 31, 2002, options to purchase 60,000 shares have been
exercised under the 1995 Director Plan.



1995
Employee Stock Option Plan



In October 1995, the stockholders of I-Link approved
adoption of I-Links 1995 Employee Stock Option and Appreciation Rights Plan
(1995 Employee Plan), which plan provides for the issuance of Incentive
Options, Non-Qualified Options and SARs.



Directors of I-Link are not eligible to participate in
the 1995 Employee Plan.  The 1995
Employee Plan provides for the grant of stock options which qualify as
Incentive Stock Options under Section 422 of the Code, to be issued to officers
who are employees and other employees, as well as Non-Qualified Options to be
issued to officers, employees and consultants. 
In addition, SARs may be granted in conjunction with the grant of
Incentive Options and Non-Qualified Options. 
No SARs have been granted to date.



The 1995 Employee Plan provides for the grant of
Incentive Options, Non-Qualified Options and SARs of up to 400,000 shares of
common stock (subject to adjustment in the event of stock dividends, stock
splits and other similar events).  To
the extent that an Incentive Option or Non-Qualified Option is not exercised
within the period of exercisability specified therein, it will expire as to the
then-unexercised portion.  If any
Incentive Option, Non-Qualified Option or SAR terminates prior to exercise
thereof and during the duration of the 1995 Employee Plan, the shares of common
stock as to which such option or right was not exercised will become available
under the 1995 Employee Plan for the grant of additional options or rights to
any eligible employee.  The shares of
common stock subject to the 1995 Employee Plan may be made available from
either authorized but unissued shares, treasury shares, or both. I-Link has
400,000 shares of common stock reserved for issuance under the 1995 Employee
Plan.  As of December 31, 2002, options
to purchase 302,000 shares of common stock have been granted under the plan and
135,250 were outstanding with an exercise price of $3.90 per share have been
granted under the 1995 Employee Plan. 
As of December 31, 2002, 119,250 options have been exercised under the
1995 Employee Plan.



1997
Recruitment Stock Option Plan



In October 1997, the stockholders of I-Link approved
adoption of I-Links 1997 Recruitment Stock Option and Appreciation Rights
Plan, which plan provides for the issuance of incentive options, non-qualified
options and SARs (1997 Plan).



The 1997 Plan provides for automatic and discretionary
grants of stock options, which qualify as incentive stock options (Incentive
Options) under Section 422 of the Code, as well as options which do not so
qualify (Non-Qualified Options).  In
addition, stock appreciation rights (SARs) may be granted in conjunction with
the grant of Incentive Options and Non-Qualified Options.  No SARs have been granted to date.



30



---



##### 





The 1997 Plan, as amended in 2000, provides for the
grant of Incentive Options, Non-Qualified Options and SARs to purchase up to
7,400,000 shares of common stock (subject to adjustment in the event of stock
dividends, stock splits and other similar events).  The price at which shares of common stock covered by the option
can be purchased is determined by I-Links board of directors; however, in all
instances the exercise price is never less than the fair market value of
I-Links common stock on the date the option is granted.  To the extent that an Incentive Option or
Non-Qualified Option is not exercised within the period of exercisability
specified therein, it will expire as to the then unexercised portion.  If any Incentive Option, Non-Qualified
Option or SAR terminates prior to exercise thereof and during the duration of
the 1997 Plan, the shares of common stock as to which such option or right was
not exercised will become available under the 1997 Plan for the grant of
additional options or rights.  The
shares of common stock subject to the 1997 Plan may be made available from
either authorized but unissued shares, treasury shares, or both.  As of December 31, 2002, options to purchase
5,938,563 shares of common stock have been granted under the plan and 2,118,024
were outstanding with exercise prices of $0.07 to $13.88 per share.  As of December 31, 2002, 411,545 options
have been exercised under the 1997 Plan.



2000
Employee Stock Purchase Plan



In October 2000, the stockholders of I-Link approved
adoption of I-Links 2000 Employee Stock Purchase Plan which plan provides for
the purchase and issuance of common stock to all eligible employees (Stock
Purchase Plan).



The purpose of the Stock Purchase Plan is to induce
all eligible employees of I-Link (or any of its subsidiaries) who have been
employees for at least three months to encourage stock ownership of I-Link by
acquiring or increasing their proprietary interest in I-Link.  The Stock Purchase Plan is designed to
encourage employees to remain in the employ of I-Link.  It is the intention of I-Link to have the
Stock Purchase Plan qualify as an employee stock purchase plan within the
meaning of Section 423 of the Code, as amended (Code) to issue shares of common
stock to all eligible employees of I-Link (or any of I-Links subsidiaries) who
have been employees for at least three months.



The Stock Purchase Plan provides for the purchase of
common stock in the aggregate, up to 2,500,000 shares of common stock (which
number is subject to adjustment in the event of stock dividends, stock splits
and other similar events).  As of
December 31, 2002, 58,012 shares of common stock had been purchased under the
Stock Purchase Plan.  To the extent that
an option is not exercised within the period of exercisability specified in the
option, it will expire as to the then unexercised portion.  If any option terminates prior to its
exercise and during the duration of the Stock Purchase Plan, the shares of
common stock as to which the option or right was not exercised will become
available under the Stock Purchase Plan for the grant of additional options or
rights to any eligible employee.



2001
Stock Option and Appreciation Rights Plan



Under this plan, I-Link may issue options which will
result in the issuance of up to an aggregate of 14,000,000 shares of I-Link
common stock, par value $.007 per share. The Plan provides for options which
qualify as incentive stock options (Incentive Options) under Section 422 of the
Internal Revenue Code of 1986, as well as the issuance of non-qualified options
(Non-Qualified Options). The shares issued by I-Link under the Plan may be
either treasury shares or authorized but unissued shares as I-Links board of
directors may determine from time to time.



Pursuant to the terms of the Plan, I-Link may grant
Non-Qualified Options and SARs only to officers, directors, employees and
consultants of I-Link or any of I-Links subsidiaries as selected by the board
of directors or a committee appointed by the board.  The Plan also provides for the Incentive Options available only
to officers, directors, employees and consultants of I-Link or any of I-Links
subsidiaries as selected by the board of directors or a committee appointed by
the board.



Options granted under the Plan must be evidenced by a
stock option agreement in a form consistent with the provisions of the
Plan.  In the event that employment or
service provided by a Plan participant is terminated for cause, any vested or
unvested options, rights to any options, or SARs of the



31



---



##### 





Plan participant will
terminate immediately regardless of whether the option is qualified or
non-qualified.  In the event a Plan
participant is terminated for any reason other than for cause, death or
disability, any non-qualified or qualified options, options rights or SARs held
by the Plan participant may be exercised for three months after termination or
at any time prior to the expiration of the of the option, whichever is shorter,
but only to the extent vested on the termination date.



The price at which shares of common stock covered by
the option can be purchased is determined by I-Links board of directors;
however, in all instances the exercise price is never less than the fair market
value of I-Links common stock on the date the option is granted.  To the extent that an Incentive Option or Non-Qualified
Option is not exercised within the period in which it may be exercised in
accordance with the terms and provisions of the Plan described above, the
Incentive Option or Non-Qualified Option will expire as to the then unexercised
portion. To exercise an option, the Plan participant must tender an amount
equal to the total option exercise price of the underlying shares and provide
written notice of the exercise to the Company. 
The right to purchase shares is cumulative so that once the right to purchase
any shares has vested, those shares or any portion of those shares may be
purchased at any time thereafter until the expiration or termination of the
Option.



The Company intends to approve a new stock option plan
at its 2003 annual meeting.  In the
event the new plan is approve, it is the intent of the Company to withdraw this
2001 Stock Option and Appreciation Rights Plan.



Compensation
Committee Interlocks and Insider Participation



Messrs. Heaton, Toh, Reichmann and Walter are
non-employee directors of I-Link. 
Messrs. Silber, Weintraub, Clifford and Ms. Murumets are
employee-officers of Counsel.  Messrs.
Hilton and Brandifino and Ms. Jamaleddin are officers of WorldxChange Corp.,
I-Links subsidiary.



Item
12. Security Ownership of Certain Beneficial Owners and Management



The following table shows, as of March 18, 2003, the
common stock and any preferred stock owned by each director, executive officer
and to the best of our knowledge, all other parties know to be beneficial
owners of more than 5% of the common stock. As of the same date, there were
116,549,667 shares of common stock and 769 shares of Series N preferred stock
issued and outstanding.  As of the same
date, all of the present directors, as a group of eight persons, own
beneficially 526,182 shares (a beneficial ownership of less than 1%) and all of
our present directors and executive officers, as a group of 13 persons, own
beneficially 526,182 shares (a beneficial ownership of less than 1%) of our
common stock.



|Name and Address of Beneficial
  Owner (1) |  | Number of
  Shares
  Beneficially Owned |      | % of
  Common Stock
  Beneficially Owned(2) |  
|------------------------------------------ |  | --------------------------------------- | ---- | ------------------------------------------- | -
|                                           |  |                                         |      |                                             |  
|Ralph Brandifino                           |  | 0                                       |      | *                                           | %
|Gary M. Clifford                           |  | 0                                       | (3)  | *                                           | %
|James Ducay                                |  | 0                                       | (4)  | *                                           | %
|Hal B. Heaton                              |  | 123,958                                 | (5)  | *                                           | %
|Kenneth L.
  Hilton                        |  | 0                                       | (11) | *                                           | %
|Barbara
  Jamaleddin                       |  | 0                                       | (12) | *                                           | %
|Kelly Murumets                             |  | 0                                       | (6)  | *                                           | %
|Albert Reichmann                           |  | 49,548                                  | (5)  | *                                           | %
|Samuel L. Shimer                           |  | 0                                       | (7)  | *                                           | %
|Allan C. Silber                            |  | 0                                       | (8)  | *                                           | %
|Henry Y.L. Toh                             |  | 341,494                                 | (9)  | *                                           | %
|John R. Walter                             |  | 25,329                                  | (5)  | *                                           | %



32



---



##### 





|Name and Address of Beneficial
  Owner (1)                                     |  | Number of
  Shares
  Beneficially Owned |      | % of
  Common Stock
  Beneficially Owned(2) |  
|------------------------------------------------------------------------------ |  | --------------------------------------- | ---- | ------------------------------------------- | -
|Gary J.
  Wasserson                                                            |  | 0                                       | (10) | *                                           | %
|Counsel
  Communications LLC One Landmark Square, Suite 315 Stamford, CT 06901 |  | 222,647,837                             | (13) | 86                                          | %
|All Executive
  Officers and Directors as a Group (13 people)                  |  | 540,329                                 | (14) | *                                           | %






|*    |  | Indicates less than one percent                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1)  |  | Unless otherwise noted, all listed shares of common
  stock are owned of record by each person or entity named as beneficial owner
  and that person or entity has sole voting and dispositive power with respect
  to the shares of common stock owned by each of them.  All addresses are c/o I-Link Incorporated
  unless otherwise indicated.                                                                                                                                                                                                                                                                               
|(2)  |  | As to each person or entity named as beneficial
  owners, that persons or entitys percentage of ownership is determined based
  on the assumption that any options or convertible securities held by such
  person or entity which are exercisable or convertible within 60 days have
  been exercised or converted, as the case may be.                                                                                                                                                                                                                                                                                      
|(3)  |  | Mr. Clifford is the Chief Financial Officer of
  Counsel Corporation, the parent corporation and majority owner of interest in
  Counsel Communications LLC.  At the
  December 6, 2002 meeting of the Board of Directors of I-Link, Mr. Clifford
  was appointed to the office of Vice President of Finance of I-Link.  At the Boards February 12, 2003 meeting,
  Mr. Clifford was appointed Chief Financial Officer of I-Link.  Mr. Clifford disclaims beneficial
  ownership of the shares of I-Links common stock beneficially owned by
  Counsel via its majority ownership of its subsidiary, Counsel Communications.  
|(4)  |  | Mr. Ducay is the President of Acceris Communications
  Solutions, a division of WorldxChange Corp., a subsidiary of I-Link.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(5)  |  | Represents shares of common stock issuable pursuant
  to options and warrants.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(6)  |  | Ms. Murumets is an Executive Vice President of
  Counsel.  At the December 6, 2002
  meeting of the Board of Directors of I-Link, Ms. Murumets was appointed to
  the office of Executive Vice President of I-Link.  Ms. Murumets is a Class III director of I-Link.  Ms. Murumets disclaims beneficial
  ownership of the shares of I-Links common stock beneficially owned by Counsel
  via its majority ownership of Counsel Communications LLC.                                                                                                                                                                            
|(7)  |  | Mr. Shimer is a managing director of Counsel and was
  appointed as a Senior Vice President, Mergers & Acquisitions and business
  Development of I-Link effective February 12, 2003.  Mr. Shimer disclaims beneficial ownership of I-Links common
  stock beneficially owned by Counsel via its majority ownership of Counsel
  Communications LLC.                                                                                                                                                                                                                                                                           
|(8)  |  | Allan C. Silber is the Chairman, Chief Executive
  Officer and a stockholder of Counsel. Mr. Silber was elected to I-Links
  Board of Directors in September 2001 and became Chairman in November
  2001.  Mr. Silber was appointed an
  Interim Chief Executive Officer and President of I-Link in December 2002 and
  is to serve in such capacity at the discretion of the Board of Directors and
  until the latter appoints a successor officer.  Mr. Silber disclaims beneficial ownership of the shares of
  I-Links common stock beneficially owned by Counsel via its majority
  ownership of Counsel Communications.
|(9)  |  | Represents shares of common stock issuable pursuant
  to options.  Does not include shares
  held of record by Four M International, Ltd., of which Mr. Toh is a
  director.  Mr. Toh disclaims any
  beneficial ownership of such shares.                                                                                                                                                                                                                                                                                                                                                                                      
|(10) |  | Mr. Wasserson is a director of Counsel
  Communications LLC and a managing director of Counsel.  Mr. Wasserson disclaims beneficial
  ownership of the shares of I-Links common stock beneficially owned by
  Counsel Communications LLC and by Counsel via its majority ownership of
  Counsel Communications.                                                                                                                                                                                                                                                                                                                
|(11) |  | Mr. Hilton is the Chief Executive Officer of
  WorldxChange Corp., I-Links wholly-owned subsidiary.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(12) |  | Ms. Jamaleddin is the Senior Vice President of
  Network Operations of WorldxChange Corp., I-Links wholly-owned subsidiary.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    



33



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##### 





|(13) |  | Includes 61,966,057 shares of I-Links common stock
  issued upon conversion of Series M and N redeemable preferred stock in March
  2001 which were obtained from Winter Harbor L.L.C. on March 7, 2001, based on
  information included in a Schedule 13D filed by Counsel on March 13, 2001 and
  amended by Counsel and filed with the SEC on May 2, 2001.  Also includes 36,207,490 shares of
  I-Links common stock issuable upon conversion of a convertible promissory
  note in the principal amount (and including accrued interest) of $14,261,406
  loaned to I-Link as of March 18, 2003, at the conversion price of
 approximately $0.39
  per share, under the terms of the Senior Convertible Loan and Security
  Agreement, dated March 1, 2001, as amended on May 8, 2001 (Loan
  Agreement).  Under the terms of the
  Loan Agreement, Counsel may convert the aggregate principal amount and
  interest loaned to I-Link into shares of I-Links common stock. Also includes
  17,434,489 shares of I-Links common stock issued on April 17, 2001 to
  Counsel under the terms of the Agreement and Plan of Merger, dated April 17,
  2001.  Also includes 92,039,801 shares
  of I-Links common stock issuable upon conversion of the loan from Counsel
  Communications to I-Link, which loan is convertible into the shares of
  I-Links common stock at the conversion rate of $0.084 per share, which rate
  represented the average closing price of I-Links common stock for 20 trading
  days preceding the date of the purchase agreement by and between Counsel
  Communications and RSL COM U.S.A., Inc. (see Proposal 3 of this Proxy
  Statement for additional information on this loan and transaction).  Also includes 15,000,000 warrants to
  purchase shares of I-Links common stock issued to Counsel in connection with
  its loan to I-Link dated June 4, 2001 at the exercise price of $0.60 per
  share. The beneficial ownership figure excludes approximately 158,258,000 (as
  of December 31, 2002) shares issuable if the Amended Debt Restructuring
  Agreement is approved by the stockholders at the next annual meeting.  The issuance of shares under the Amended
  Debt Restructuring Agreement would also cause a reset to the conversion price
  of the convertible promissory note ($14,261,406 as of March 18, 2003)
  referred to above, from $0.39 to approximately $0.31 which would
result in approximately an
  additional 9,300,000 shares of common stock being issued, which shares have
  also been excluded.
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(14) |  | Represents 540,329 of shares of common stock that
  may be obtained pursuant to options and warrants exercisable within 60 days
  of the date hereof.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  



Equity
Compensation Plan Information



The following
table sets forth, as of December 31, 2002, with respect to compensation plans
(including individual compensation arrangements) under which equity securities
of I-Link are authorized for issuance.



|Plan Category                                                                                                |  | Number of
  securities to 
  be issued upon exercise
  of outstanding options, 
  warrants and rights
  (a) |  | Weighted-average
  exercise price of
  outstanding options, 
  warrants and rights
  (b) |      | Number of
  securities
  remaining available
  for future issuance
  under equity
  compensation plans
  (excluding securities
  reflected in column (a)) 
  (c) |           
|------------------------------------------------------------------------------------------------------------ |  | ----------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------- | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------
|Equity compensation plans approved
  by security holders:                                                    |  |                                                                                                             |  |                                                                                          |      |                                                                                                                                                                  |           
|2001
  Stock option and Appreciation Rights Plan                                                             |  | none                                                                                                        |  |                                                                                         |      | 14,000,000                                                                                                                                                       |           
|1997
  Recruitment Stock Option Plan                                                                         |  | 2,118,026                                                                                                   |  | $                                                                                        | 3.67 |                                                                                                                                                                  | 3,607,449 
|1995
  Directors Stock Option and Appreciation Rights Plan                                                   |  | 170,000                                                                                                     |  | $                                                                                        | 1.13 |                                                                                                                                                                  | 0         
|1995
  Employee Stock Option and Appreciation Rights Plan                                                    |  | 135,250                                                                                                     |  | $                                                                                        | 3.90 |                                                                                                                                                                  | 145,500   
|Director
  Stock Option Plan                                                                                 |  | 4,668                                                                                                       |  | $                                                                                        | 2.38 |                                                                                                                                                                  | 0         
|                                                                                                             |  |                                                                                                             |  |                                                                                          |      |                                                                                                                                                                  |           
|Equity compensation plans not approved
  by security holders:                                                |  |                                                                                                             |  |                                                                                          |      |                                                                                                                                                                  |           
|Series N
  preferred Stock convertible into common stock                                                     |  | 615,200                                                                                                     |  | $                                                                                        | 1.25 |                                                                                                                                                                  | 0         
|Convertible debt
  to Counsel in connection with RSL purchase                                                |  | 90,099,502                                                                                                  |  | $                                                                                        | 0.08 |                                                                                                                                                                  |           
|Convertible debt
  to Counsel in connection with loan to I-Link in 2001                                      |  | 35,341,107                                                                                                  |  | $                                                                                        | 0.39 |                                                                                                                                                                  |           
|Warrants issued
  to Counsel in connection with WorldxChange purchase                                        |  | 15,000,000                                                                                                  |  | $                                                                                        | 0.60 |                                                                                                                                                                  | 0         
|Debt to Counsel
  to be converted into common stock subject to shareholder approval at next
  Annual Meeting |  | 155,226,800                                                                                                 |  | $                                                                                        | 0.19 |                                                                                                                                                                  |           
|Warrants issued
  in connection with private placement in 1998                                               |  | 408,000                                                                                                     |  | $                                                                                        | 5.27 |                                                                                                                                                                  | 0         
|Issuance of non
  -qualified options to employees and outside consultants                                    |  | 7,333,330                                                                                                   |  | $                                                                                        | 3.55 |                                                                                                                                                                  | 0         
|Total                                                                                                        |  | 306,451,883                                                                                                 |  | $                                                                                        | 0.32 |                                                                                                                                                                  | 17,752,949



34



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##### 








*Additional
shares will be issuable in the future related to accrued interest on the
principal balance.

**Additional
shares will be issuable in the future related to accrued interest on the
principal balance and changes in the conversion price allowed for in the debt
instrument.

***Additional shares
will be issuable in the future related to accrued interest on the principal
balance. Conversion of this loan has been approved by the Board of Directors and
is to be voted upon by the shareholders at the next Annual Meeting





Item
13. Certain Relationships and Related Transactions



Transactions
with Management and Others



See Item 11 hereof
for descriptions of the terms of employment, consulting and other agreements
between us and certain officers, directors and other related parties.  Additionally, in June 2002, the Company made
a relocation loan of $100,000 (non-interest bearing) to Mr. Hilton.  The loan is due on the



35



---



##### 





earlier of June 2007 or upon sale of his former residence.  While the loan is outstanding, payments are
required, equal to 20% of any incentive awards (after the first $50,000) paid
to Mr. Hilton.  As of December 31, 2002,
no payments on the loan had been made.



Transactions with Counsel Corporation



General



Amendments to the Articles of Incorporation .In July 2002, the Board of
Directors approved an amendment to I-Links Amended and Restated Articles of
Incorporation (Articles of Incorporation) to delete Article VI thereof. Article
VI of the Articles of Incorporation was added pursuant to an amendment and
restatement of the Articles of Incorporation dated March 1, 1989 to read as
follows:



Any liquidation,
reorganization, merger, consolidation, sale of substantially all of the
corporations assets, or the reclassification of its securities shall be
approved by (a) holders of at least a majority of the issued and outstanding
Common Stock held by other than officers, directors, and those persons who hold
5% or more of the outstanding Common Stock, and (b) a vote of a majority of
shares of issued and outstanding Common Stock held by the Companys officers,
directors, and those persons who hold 5% or more of the outstanding Common
Stock.



Subsequently, the following required vote clause was
added to Article VI as a result of the March 14, 1989 amendment to the Articles
of Incorporation:



Notwithstanding anything
contained in these Articles of Incorporation to the contrary, the affirmative vote
of the holders of at least 67% of the outstanding shares of the corporation
then entitled to vote in the election of directors shall be required to amend,
alter, or repeal, or to adopt any provision inconsistent with this Article VI.



The original purpose of this Article VI was to provide
an additional measure designed to reduce I-Links vulnerability to unsolicited
takeover attempts through amendment of the corporate charter or bylaws or
otherwise. Since Counsel Communications holds in excess of 68% of the Companys
voting equity securities, the Board of Directors believes that Article VI is no
longer required to fulfill its original purpose and instead effectively
restricts I-Links ability to enter into transactions that may be in the best
interests of its stockholders. 
Furthermore, under the terms and provisions of the Debt Restructuring
Agreement (as discussed below), the Board of Directors is required to recommend
approval and adoption of this proposal to stockholders and to include this
proposal in the proxy statement materials distributed to I-Link stockholders in
connection with the Annual Meeting of Stockholders..



If this proposal is approved, Counsel will be able to
cause the stockholder approval of any liquidation, reorganization, merger, consolidation,
sale of substantially all of the assets of I-Link, or the reclassification of
its securities.  In addition, Counsel
might be able to take I-Link private. 
Under Section 607.1104 of the Florida Act, if Counsel Communications
owned more than 80% of each class of I-Links equity securities and if Proposal
3 is approved (the mechanics of the parent-subsidiary merger under the Florida
Act is described below in this Proposal 3). 
Counsel Communications would be able to merge I-Link into Counsel Communications
without the approval of stockholders other than Counsel Communications.  However, under the terms of the Amended Debt
Restructuring Agreement, Counsel Communications has agreed not take any such
action at any time prior to June 30, 2003.



The Amended Debt Restructuring Agreement.  Historically, I-Link has suffered
substantial operating deficits and has required substantial infusions of
working capital on an on-going basis. 
In early 2001, having been notified of its then majority stockholders
unwillingness to commit more funds to the company, I-Link commenced efforts to
seek alternative financing.  Soon
thereafter, I-Link commenced negotiations with Counsel in contemplation of
Counsel making an investment in the company. 
Counsel is a publicly traded company engaged primarily in the ownership
and development of companies providing services and products in the United
States and Canada.  In February 2000,
Counsel formed Counsel Communications LLC, a Delaware limited liability company
and wholly owned subsidiary of Counsel, to



36



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##### 







focus on acquiring, consolidating and operating Internet telephony and
other telecommunications-related businesses. 
(Counsel Communications LLC subsequently changed its name to Counsel
Springwell Communications LLC, but has recently reverted to its original name
and is referred to below as Counsel Communications.)



On March 1, 2001, Counsel through Counsel
Communications acquired an approximate 65% interest in I-Link from the
companys then majority stockholder in exchange for $5,000,000.  I-Link entered into a Senior Convertible
Loan and Security Agreement (Senior Loan Agreement) with Counsel Communications
under the terms and provisions of which agreement Counsel Communications was
required to make periodic loans to I-Link in an aggregate principal amount not
to exceed $10,000,000 (this agreement was amended in May 2001 to increase the
aggregate principal amount to $12,000,000). 
During 2001, the full $12,000,000 was loaned to I-Link pursuant to this
agreement and was utilized by it for working capital purposes.



On June 6, 2001, I-Link and Counsel entered into a
Loan and Security Agreement (Security Agreement) under the terms of which
agreement Counsel agreed to advance up to $10,000,000 to I-Link. In connection
with the Security Agreement, I-Link executed a note in favor of Counsel due and
payable June 6, 2002 and secured the note with all of I-Links assets.
Outstanding balances (including any accrued and unpaid interest) under the loan
carried interest at 10% per annum which interest was payable quarterly in
arrears on the last business day of each quarter.  However, at its sole election, Counsel could allow interest on
the loan to accrue and to become payable at the end of the term.  The full amount available under the Security
Agreement was advanced to I-Link during 2001. 
Under the terms of an April 15, 2001 letter, Counsel committed to I-Link
to fund, through long-term inter-company advances or equity contributions, all
capital investment working capital or other operational cash requirements of
I-Link to continue as a going concern through April 15, 2002, and Counsel
delivered a similar letter dated April 3, 2002 committing to provide such funds
as might be required in order for I-Link to continue as a going concern through
April 15, 2003 (Keep Well Letters). 
Counsel and I-Link agreed that the conditions and terms of repayment of
amounts advanced pursuant to the Keep Well Letters would be similar to those
contained in the Security Agreement. 
Accordingly, on June 27, 2002, I-Link and Counsel amended the Security
Agreement, effective October 5, 2002, to increase the indebtedness represented
thereby to $24,306,865.



WorldxChange Transaction.On December 10, 2002, I-Links wholly-owned
subsidiary, WorldxChange Corp. (WorldxChange), completed the purchase of the
Direct and Agent businesses of RSL COM U.S.A. Inc. (RSL).  The acquisition included the assets used by
RSL to provide long distance voice and data services, including frame relay, to
small and medium size businesses (Direct Business), and the assets used to
provide long distance and other voice services to small businesses and the
consumer/residential market (Agent Business), together with the existing
customer base of the Direct and Agent Businesses.



The purchase agreement was originally entered into
between Counsel Communications and RSL and was assigned to WorldxChange in May
2002.  The closing occurred on December
10, 2002 following receipt of all regulatory approvals.  WorldxChange paid a purchase price of
approximately $7.5 million, subject to certain closing balance sheet
adjustments, and agreed to pay up to an additional $3 million on March 31,
2004, which contingent upon the achievement of certain revenue levels by the
Direct and Agent Businesses for the year 2003. 
The purchase price of $7.5 million was financed by a loan from I-Link to
WorldxChange that is due March 1, 2004. I-Links loan to WorldxChange was
financed by a convertible loan from Counsel Communications.  The loan from Counsel Communications is
convertible into common stock of I-Link at the exchange rate of $0.084 per
share, which rate represented the average closing price of I-Links common
stock for the twenty trading days preceding December 10, 2002.



Of the additional $3.0 million purchase price, a
minimum of $1 million was payable March 31, 2004.  The remaining $2 million payment was contingent upon achievement
of certain revenue levels by the Direct and Agent Businesses for the year
2003.  The actual amount due will be
prorated based upon 2003 Direct and Agent Businesses revenues between $44
million ($0 amount payable) to $55 million ($2.0 million payable).



37



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##### 





Debt Restructuring Agreement.Under the terms of the Debt
Restructuring Agreement by and among I-Link, Counsel and Counsel Communications
dated July 25, 2002 (Original Agreement), $25.9 million of indebtedness that
was due on June 6, 2002 would have been exchanged for shares of common stock of
I-Link at a price of $0.18864 per share, the average closing transaction price
for the month of May 2002.  Interest on
the $25.9 million would have ceased to accrue after July 12, 2002.  The balance of the indebtedness, $13.4
million, was owed under the Senior Loan Agreement between Counsel
Communications and I-Link and would have continued to be convertible, at the
option of Counsel Communications, into shares of common stock of I-Link
pursuant to the existing terms of that convertible indebtedness.  The conversion price was set at $0.56 per
share, but, as a result of the issuance of the shares of common stock in
exchange for the $25.9 million of I-Link indebtedness, the conversion price
would have been adjusted to $0.39221.



The Original Agreement also provided that I-Links
guarantee of indebtedness in the amount of $12.5 million owed by WorldxChange
to Counsel would be cancelled.  In
addition, Counsel Communications agreed to surrender for cancellation by I-Link,
warrants to purchase 15,000,000 shares of common stock of I-Link which were
issued in connection with the loan by Counsel to WorldxChange.  I-Link would also have transferred to
Counsel Communications all the outstanding shares of capital stock of WorldxChange.  Finally, Counsel Communications also agreed
to pay I-Link $1.0 million for expenses incurred by I-Link in connection with
the acquisition of WorldxChange.



Under the terms of the Original Agreement, Counsel
Communications also agreed to continue to provide I-Link with funding in the amount
of $2.3 million through December 31, 2002 to fund I-Links operating cash
needs.  Such funding would have
constituted additional purchases of I-Links common stock at a purchase price
of $0.18864 per share.  Counsel
Communications also agreed to pay I-Links expenses incurred in connection with
this transaction.  In addition, Counsel
and Counsel Communicationss current commitment under the Keep Well Letters to
fund all capital investment, working capital or other operational cash
requirements of I-Link would have been extended from April 15, 2003 to December
31, 2003. Under the terms of the Original Agreement, such funding in 2003 would
have constituted purchases of additional shares of I-Links common stock at a
purchase price equal to the average closing transaction price for a share of
I-Links common stock for the immediately preceding month.



Amended and Restated Debt Restructuring Agreement.I-Links Board of Directors
subsequently determined that the Original Agreement was not in the best interests
of the stockholders.  As a result, the
parties entered into an Amended and Restated Debt Restructuring Agreement dated
October 15, 2002 (Amended Agreement). 
The issuance of I-Links common stock pursuant to the Amended Agreement
will result in a weighted average conversion price adjustment pursuant to the
provisions of the Senior Loan Agreement, i.e., the conversion price under the
Senior Loan Agreement had been $0.56, the new conversion price will be
approximately $0.31 after taking into consideration the issuance of
the convertible note to fund the RSL acquisition.  The Amended
Agreement includes the following terms:



The
principal amount of $24,306,866 outstanding under the Security Agreement,
together with accrued and unpaid interest, and any additional amounts advanced
by Counsel to I-Link since July 25, 2002 under the Keep Well Letters, together
with interest accrued on such amounts at a rate of 10% per annum, will be
exchanged for common stock of the company at a price of $0.18864 per share
(Effective Price);



Amounts
advanced by Counsel to I-Link under the Keep Well Letters from July 25 to
December 31, 2002 will constitute additional purchases of I-Links common stock
at the Effective Price, and such funding in 2003 would constitute purchases of
additional shares of I-Links common stock at a purchase price equal to the
average closing price for a share of I-Links common stock for the twenty (20)
trading days preceding the funding; provided that in the event that the Board
of Directors determines to acquire the assets or equity interests of any other
entity, I-Link and Counsel Communications agree that any acquisition cost
related to such acquisition will be financed, at the option of Counsel
Communications, either by way of equity from Counsel Communications
constituting a purchase of additional shares of I-Links common stock for a purchase
price per share equal to the average closing transaction price of a share of
common stock on the twenty (20) trading days preceding the funding or



38



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alternatively a purchase
money loan arrangement similar in form and substance to the Security Agreement;



Counsel
Communications will advance to I-Link all amounts paid or payable by I-Link to
its stockholders that exercise their dissenters rights in connection with the
transactions subject to the debt restructuring transaction and the
amount for the annual premium to renew the existing directors and officers
insurance coverage through November 2003.



Counsel
Communications further agreed to reimburse I-Link for all costs, fees and
expenses in connection with the Amended Agreement, whether incurred and yet to
be incurred, including the Special Committees costs to negotiate the Amended
Agreement and costs related to obtaining stockholder approval.  The costs, fees and expenses to be so
reimbursed to I-Link will not be treated as advances, loans or stock purchases;
nor will such amounts be subject to conversion into I-Links common stock.



I-Link agreed to solicit the approval of its
stockholders for this agreement and for a proposal to increase the authorized
capital of I-Link.  I-Link also agreed
to increase its authorized capital to make available shares of common stock
into which debt owed to Counsel and its affiliates could be converted into
stock pursuant to the Amended and Restated Debt Restructuring Agreement.



I-Links Special Committee, consisting of two
independent directors, negotiated and approved the Amended Agreement on behalf
of I-Link, recommended its adoption and approval to the I-Link Board of
Directors and has also recommended that it be approved by the stockholders of
I-Link.  The Special Committee retained
a financial advisor, who advised the Special Committee that the Amended
Agreement was fair, from a financial point of view, to the stockholders of
I-Link, other than Counsel and its affiliates. 
The Board of Directors of I-Link unanimously approved and recommended
the Amended Agreement and also unanimously approved and recommended an
amendment to the Articles of Incorporation of I-Link to delete Article VI.





If the debt restructuring transaction is consummated,
Counsel Communications will own 86% (based on advances through March 18, 2003)
of voting equity securities of I-Link. 
If Counsel Communications owned more than 80% of each class of I-Links
equity securities and if this agreement is approved, it could, under Section
607.1104 of the Florida Act, merge I-Link into Counsel Communications without
the approval of stockholders other than Counsel Communications.  However, under the terms of the Amended
Agreement, Counsel Communications has agreed not take any such action at any
time prior to June 30, 2003.



PART IV



Item
14.  Controls and Procedures



In accordance with Item 307 of
Regulation S-K promulgated under the Securities Act of 1933, as amended, and
within 90 days of the date of this Annual Report on Form 10-K, the Chief
Executive Officer and Chief Financial Officer of the Company (the Certifying
Officers) conducted evaluations of the Companys disclosure controls and
procedures, as of the end of the period covered by this Annual Report.  As defined under Rules 13a-15(e) and
15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended
(the Exchange Act), the term disclosure controls and procedures means
controls and other procedures of an issuer that are designed to ensure that
information required to be disclosed by the issuer in the reports that it files
or submits under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Commissions rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by an
issuer in the reports that it files or submits under the Exchange Act is
accumulated and communicated to the issuers management, including its
principal executive officer or officers and principal financial officer or
officers, or persons performing similar functions, as appropriate to allow
timely decisions regarding required disclosure.



On March 13, 2003, the
Certifying Officers conducted an evaluation of the Companys internal controls
and disclosure controls and procedures and concluded that the Companys
disclosure controls and procedures, as of the end of the period covered by this
Annual Report, were not effective.  An
explanation of the deficiencies and remedies is set forth below.  In compliance with Section 302 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350), each of the Certifying Officers
executed an Officers Certification included in this Annual Report on Form
10-K.



As of the March 13, 2003
evaluation, the Certifying Officers determined
that the following matters involving internal controls constituted material
weaknesses, as of the end of the period covered by this Annual Report.  The deficiencies related to the process of
calculating allowance for doubtful accounts, the timeliness of general ledger
account reconciliations and analysis, and financial reporting expertise. A
material weakness is a condition in which the design or operation of one or
more of the internal control components does not reduce to a relatively low
level the risk that misstatements caused by error or fraud in amounts that
would be material in relation to the financial statements may occur and not be
detected within a timely period by employees in the normal course of performing
their assigned functions.  More specific
discussion is set forth below.



39



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Allowance For
 Doubtful Accounts.  The Companys information systems necessary to analyze its reserves for
 uncollectible accounts receivable were not effective.  The affected information systems
 became ineffective during the year 2002 due to the rapid growth of the revenue base and
 related accounts receivable during the year.  The fundamental problem creating the
 ineffectiveness was the lack of a reliable aging analysis.  The systems used to track the
 receivables became inadequate as a result of increasing volume of business and what was
 ultimately determined to be the inadequacy of the personnel that had responsibility to
 manage the aging process.  As a result, the aging reports were prepared manually.  To correct
 this situation, management implemented a system to generate reports addressing the aging and
 collectibility of accounts receivable to assist management in the timely and accurate analysis
 of accounts receivable, and management increased the monitoring of that information.  These
 improvements to the Companys disclosure controls were completed on or about March 31, 2003.

General Ledger Account Reconciliation and Analysis.  Certain of the
Companys general ledger accounts were not reconciled on a timely basis.  The Company
 has implemented procedures that require the timely preparation and review of reconciliations
 and analyses of these general ledger accounts on a monthly basis.  Those procedures were put
 in place on or about March 31, 2003.

Financial Reporting Expertise.  Following the acquisition of certain assets of RSL
 COM USA Inc. from bankruptcy on December 10, 2002, the Companys management concluded that
 it did not have adequate financial reporting and accounting expertise.  This conclusion
 was based upon the Companys growth, as well as the accounting and financial reporting
 complexities that arose by virtue of the integration, consolidation and reorganization of
 the Company.  In order to address this deficiency, the Company commenced a search for a
 qualified CFO and a qualified Corporate Controller.  A new CFO was appointed in February 2003
 and a new Corporate Controller was hired in March 2003.

The Companys response timeline to the foregoing deficiency was as follows: the material
 weakness was detected on or about January 31, 2003; the Company commenced its efforts to
 address the matter on or about January 31, 2003, and completed its remedial steps by March 2003.
  Upon completion of the foregoing modifications in controls and procedures in March 2003,
 the Certifying Officers determined that the Companys disclosure controls and procedures
 had regained their effectiveness and that the underlying material weakness has been remedied.
 The changes necessary to address the material weakness relating to
the Companys ability to produce accurate financial information on a timely basis have
 been completed and the weakness remedied.  The Companys
independent auditors have confirmed this conclusion.

There
were no changes in the Companys internal control over financial reporting,
as that term is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the
Exchange Act, identified in connection with the above-described evaluations
that occurred during the fourth fiscal quarter of the period addressed by this
Annual Report, that has materially affected or is reasonably likely to
materially affect, the Companys internal control over financial reporting.



On July 13, 2003,
under the supervision and with the participation of the Companys management,
including the companys Chief Executive Officer (CEO) and Chief Financial
Officer (CFO), the Company carried out a subsequent evaluation of the
effectiveness of its disclosure controls and procedures (as the term is
defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and
15d-15(e)).  Based on this evaluation,
the CEO and CFO  concluded that the Companys disclosure controls and
procedures were effective to ensure that material information was recorded,
processed, summarized and reported by management of the Company on a timely
basis in order to comply with the Companys disclosure obligations under the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.

In connection with the filing of the Companys Form 10-Q for the quarter ended June 30, 2004, the Company carried out, under
 the supervision of and with the participation of the Companys management, including the
 Companys Certifying Officers, an evaluation of the effectiveness of its disclosure controls and procedures (as the term
 is defined under Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act
 of 1934, as amended (the Exchange Act)) as those
controls existed as of June 30, 2004, the end of the period covered
by the subject quarterly report. Based on this evaluation, the Certifying Officers
 concluded that the Companys disclosure controls and procedures were not effective to
 ensure that material information is recorded, processed, summarized and reported by management
 of the Company on a timely basis in order to comply with the
Companys disclosure obligations
 under the Exchange Act, and the rules and regulations promulgated thereunder.  This deficiency
 constitutes a material weakness, and detailed below are the facts
surrounding this matter.

On September 20, 2004, management of the Company concluded that the requirements of Emerging
 Issues Task Force Issue No. 00-27 (EITF 00-27), regarding the accounting for Beneficial
 Conversion Features (BCF) present on convertible debt and preferred stock instruments had
 not been properly applied in current and prior years to its convertible debentures issued in
 March 2001.  While the initial accounting for the BCF at the time of the issuance of the
 debentures was correct, the Company failed to remeasure the BCF as required by EITF 00-27
 when at subsequent dates the number of shares and effective conversion prices changes as
 the result of the debentures anti-dilution provisions.  These anti-dilution events and
 their respective impacts on the number of shares and the conversion price were disclosed
 in the Companys previous public filings.  However, under EITF 00-27 the BCF should also
 have been remeasured at the date of each anti-dilution event. Additionally, the debentures
 called for the addition of accruing interest to the debentures, as a result of which such
 accruing interest is deemed to have been paid in kind
(PIK) and the Company failed, as
 required by EITF 00-27, to measure the BCF upon the deemed issuance of the PIK convertible
 debentures.

This matter was raised by the Companys recently appointed independent auditors, BDO Seidman, LLP
 (BDO), in the course of their review of the Companys prior public filings.  After discussions
 among the Companys management, BDO, and the Companys prior auditors, PricewaterhouseCoopers,
 LLP (PwC), the Companys management concluded that a correction of the prior accounting on this
 matter was required.  The Companys management brought the matter for consideration before the
 Audit Committee and the full Board of Directors of the Company.  Having considered the
 circumstances underlying the accounting errors and their effects
upon the Companys prior
 filings, and having discussed the matter with the BDO and PwC representatives as well as the
 Companys management, the Audit Committee concluded that the previously issued financial
 statements should not be relied upon and approved and authorized the
Companys management to
 amend certain previously filed public reports.

Additionally, management and the Audit Committee considered what changes, if any, were necessary
 to the Companys disclosure controls and procedures to ensure that the errors described above
 would not reoccur and to provide that material information is recorded, processed, summarized
 and reported by management of the Company on a timely basis in order
to comply with the Companys
 disclosure obligations under the Exchange Act, and the rules and regulations promulgated
 thereunder.  In its review the Audit Committee noted that the errors described above (i)
 related principally to periods that preceded changes the Company has already made to consolidate
 and upgrade its accounting staff and function, and (ii) that the errors described above did not
 result from the failure of the Companys disclosure controls and procedures to make known to the
 appropriate officials and auditors the facts concerning the
Companys convertible debentures or
 the occurrence of the anti-dilution events.  As a result management and the Audit Committee
 determined that education and professional development of accounting staff on the complications
 of EITF 00-27 and its application would be sufficient to prevent a reoccurrence.  These
 educational steps and development have been completed as of September 2004.  No additional
 changes to the Companys disclosure controls and procedures were needed in response to the
 discovery of the errors described above.

40



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Item 15. Exhibits, Financial
Statement Schedules and Reports on Form 8-K



(a)The
following financial statements and those financial statement schedules required
by Item 8 hereof are filed as part of this report:



1.Financial
Statements:



Report of Independent
Accountants

Consolidated Balance Sheets
as of December 31, 2002 and 2001

Consolidated
Statements of Operations for the years ended December 31, 2002, 2001 and 2000

Consolidated
Statement of Changes in Stockholders Equity (Deficit) for the years ended
December 31, 2002, 2001 and 2000

Consolidated Statements
of Cash Flows for the years ended December 31, 2002, 2001 and 2000

Notes to
Consolidated Financial Statements



2.Financial
Statement Schedule:



Schedule II  Valuation and Qualifying Accounts



All other schedules are
omitted because of the absence of conditions under which they are required or
because the required information is presented in the Financial Statements or
Notes thereto.



(b)Reports
on Form 8-K during the fourth quarter of 2002.



A Current Report on Form
8-K was filed on December 16, 2002 to announce I-Links agreement to sell the
operations of I-Links subsidiary, I-Link Communications, Inc.



A Current Report on Form
8-K was filed on December 26, 2002 to announce that I-Links subsidiary
WorldxChange Corp. completed the purchase of the Enterprise and Agent business
of RSL Com U.S.A. Inc.



(c)The
following exhibits are filed as part of this Registration Statement:



|Number |  | Title of
  Exhibit                                                                                                                                                                         
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |  |                                                                                                                                                                                            
|3.1(6) |  | Amended and Restated Articles of Incorporation, as
  further amended.                                                                                                                      
|4.2(3) |  | Securities Purchase Agreement by and between I-Link
  and Winter Harbor, dated as of September 30, 1997.                                                                                   
|4.3(7) |  | Amended and Restated Registration Rights Agreement
  dated as of January 15, 1999 by and between I-Link and Winter Harbor,
  amending Registration Rights Agreement dated October 10, 1997.
|4.4(3) |  | Form of Shareholders Agreement by and among I-Link
  and Winter Harbor and certain holders of I-Links securities, which
  constitutes Exhibit D to the Purchase Agreement.                
|4.5(3) |  | Form of Warrant Agreement by and between Medcross,
  Inc. and Winter Harbor, which                                                                                                         



41



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|          |  | constitutes Exhibit F to the Purchase Agreement.                                                                                                                                                       
|--------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.6(10)   |  | Senior Convertible Loan and Security Agreement dated
  March 1, 2001, by and between Counsel Communications, LLC and I-Link
  Incorporated.                                                            
|4.7(10)   |  | Loan Note, dated as of March 1, 2001, by and between
  Counsel Communications LLC and I-Link Incorporated.                                                                                             
|4.8(10)   |  | Security Agreement, dated as of March 1, 2001, by
  and between I-Link Communications, MiBridge Inc and Counsel Communications,
  LLC.                                                                 
|10.1(1)   |  | 1997 Recruitment Stock Option Plan.                                                                                                                                                                    
|10.2(2)   |  | 2001 Stock Option and Appreciation Rights Plan                                                                                                                                                         
|10.3(5)   |  | Agreement dated April 14, 1998, by and between
  I-Link and Winter Harbor.                                                                                                                             
|10.4(5)   |  | Pledge Agreement dated April 14, 1998, by and
  between I-Link and Winter Harbor.                                                                                                                      
|10.5(5)   |  | Security Agreement dated April 14, 1998, by and
  among certain of I-Links subsidiaries and Winter Harbor.                                                                                            
|10.6(5)   |  | Form of Promissory Notes issued to Winter Harbor.                                                                                                                                                      
|10.7(5)   |  | Warrant to purchase 250,000 shares of Common Stock
  of I-Link, dated June 30, 1998, issued to JNC.                                                                                                    
|10.8(5)   |  | Warrant to purchase 100,000 shares of Common Stock
  of I-Link, dated July 28, 1998, issued to JNC.                                                                                                    
|10.9(7)   |  | Loan Agreement dated as of January 15, 1999 by and
  between I-Link and Winter Harbor.                                                                                                                 
|10.10(7)  |  | First Amendment to Loan Agreement dated March 4,
  1999 by and between I-Link and Winter Harbor.                                                                                                       
|10.11(7)  |  | Promissory Note dated November 10, 1998, in
  principal amount of $8,000,000 executed by I-Link in favor of Winter Harbor.                                                                             
|10.12(7)  |  | Series K Warrant Agreement dated as of January 15,
  1999 by and between I-Link and Winter Harbor and form of Series K Warrant.                                                                        
|10.13(7)  |  | Agreement dated as of January 15, 1999 by and
  between I-Link and Winter Harbor.                                                                                                                      
|10.14(7)  |  | First Amendment to Security Agreement dated as of
  January 15, 1999, by and among I-Link, five of its wholly-owned subsidiaries
  and Winter Harbor, amending Security Agreement dated April 14, 1997.
|10.15(7)  |  | First Amendment to Pledge Agreement dated as of
  January 15, 1999, by and among I-Link and Winter Harbor, amending Pledge
  Agreement dated April 14, 1997.                                           
|10.16(7)  |  | Series D, E, F, G, H, I and J Warrant Agreement
  dated as of January 15, 1999 by and between I-Link and Winter Harbor, and
  related forms of warrant certificates.                                   
|10.17(4)  |  | Amended and Restated Employment Agreement with Helen
  Seltzer dated January 3, 2002                                                                                                                   
|10.18(8)  |  | Form of Wholesale Service Provider and Distribution
  Agreement between I-Link and Big Planet, Inc. dated February 1, 2000                                                                             
|10.19(9)  |  | Form of Cooperation and Framework Agreement between
  I-Link Incorporated and CyberOffice International AG dated May 8, 2000                                                                           
|10.20(9)  |  | Form of Revenue Sharing Agreement between I-Link
  Incorporated and Red Cube International AG (formerly known as CyberOffice
  International AG.) dated June 30, 2000.                                 
|10.21(9)  |  | Form of Letter dated June 30, 2000, clarifying a
  Cooperation and Framework Agreement issue.                                                                                                          
|10.22(11) |  | Loan and Security Agreement, dated December 10,
  2001, by and among WorldxChange Corp. and Foothill Capital Corporation.                                                                              
|10.23(13) |  | Employment agreement with James Ducay dated July 1,
  2002                                                                                                                                             
|10.24(13) |  | Employment agreement with Kenneth Hilton dated May
  1, 2002                                                                                                                                           
|10.25(12) |  | Form of Asset Purchase Agreement by and between
  Counsel Springwell Communications LLC and RSL Com U.S.A., Inc.                                                                                       
|10.26(12) |  | Form of Amendment No. 1 to Asset Purchase Agreement
  between Counsel Springwell Communications LLC and RSL U.S.A., Inc.                                                                               
|10.27(13) |  | Amended and Restated Debt Restructuring Agreement
  dated October 15, 2002.                                                                                                                            
|10.28(13) |  | Form of Asset Purchase Agreement between Buyers
  United Inc., I-Link Communications Inc., and I-Link Incorporated dated
  December 6, 2002                                                           
|10.29(13) |  | I-Link Convertible Promissory Note for $7,500,000
  between I-Link and Counsel Corporation (US) dated December 10, 2002                                                                                
|23.1(14)  |  | Consent of Independent Accountants.                                                                                                                                                                    



42



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|31.1(14) |  | Certification pursuant to Rule 13a-14(a) and
  15d-14(a)                                                                      
|-------- |  | ------------------------------------------------------------------------------------------------------------------------------
|31.2(14) |  | Certification pursuant to Rule 13a-14(a) and
  15d-14(a)                                                                      
|32.1(14) |  | Certification pursuant to Section 1350 of Chapter 63
  of title 18 of the United States Code                                  
|32.2(14) |  | Certification pursuant to Section 1350 of Chapter 63
  of title 18 of the United States Code                                  
|99.1(10) |  | Warrant Exchange Agreement, dated as of March 1,
  2001, by and between Winter Harbor, LLC and I-Link Incorporated.           
|99.2(10) |  | Securities Support Agreement, dated as of March 1,
  2001, by and between Counsel Communications, LLC and I-Link Incorporated.






(1)Incorporated
by reference to our Annual Report on Form 10-KSB for the year ended December
31, 1996, file number 0-17973.

(2)Incorporated
by reference to our Quarterly Report on Form 10-Q for the period ended
September 30, 2001, file number 0-17973.

(3)Incorporated
by reference to our Current Report on Form 8-K, dated September 30, 1997, file
number 0-17973.

(4)Incorporated
by reference to our Quarterly Report on Form 10-Q for the period ended March
31, 2002, file number 0-17973.

(5)Incorporated
by reference to our Quarterly Report on Form 10-Q for the period ended June 30,
1998, file number 0-17973.

(6)Incorporated
by reference to our Annual report on Form 10-K for the year ended December 31,
1998, file number 0-17973.

(7)Incorporated
by reference to our Current Report on Form 8-K filed on March 23, 1999, file
number 0-17973.

(8)Incorporated
by reference to our Quarterly Report on Form 10-Q for the period ended March
31, 2000, file number 0-17973.

(9)Incorporated
by reference to our Quarterly Report on Form 10-Q for the period ended June 30,
2000, file number 0-17973.

(10)Incorporated
by reference to our Current Report on Form 8-K filed on March 16, 2001, file
number 0-17973.

(11)Incorporated by reference to our Annual report on Form 10-K for the year ended
December 31, 2001, file number 0-17973.

(12)Incorporated
by reference to our Current Report on Form 8-K filed on December 26, 2002,
2001, file number 0-17973.

(13)Incorporated
by reference to our Annual report on Form 10-K for the year ended December 31,
2002, file number 0-17973.

(14)Filed
herewith.



43



---



##### 





SIGNATURES



In accordance with
Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on our behalf by the undersigned, hereunto
duly authorized.



|                        | I-LINK INCORPORATED
|----------------------- | -------------------
|                        | (Registrant)       
|                        |                    
|Dated:
October 25, 2004 |                    
|                        |                    
|                        |                    



In accordance with
Section 13 of the Securities Exchange Act of 1934, this report has been signed
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.



|Signature            |  | Title                                 |                                     | Date |                 
|-------------------- |  | ------------------------------------- | ----------------------------------- | ---- | ----------------
|                     |  |                                       |                                     |      |                 
|/s/ Allan C. Silber  |  |                                       | Chairman of the Board, Director,    |      | October 25, 2004
|Allan C. Silber      |  | President and Chief Executive Officer |                                     |      |                 
|                     |  |                                       |                                     |      |                 
|/s/ Gary M. Clifford |  |                                       | Chief
  Financial Officer and VP of |      | October 25, 2004
|Gary M. Clifford     |  | Finance                               |                                     |      |                 
|                     |  |                                       |                                     |      |                 
|/s/ Henry Y. L. Toh  |  |                                       | Director                            |      | October 25, 2004
|Henry Y.L. Toh       |  |                                       |                                     |      |                 
|                     |  |                                       |                                     |      |                 
|/s/ Hal B. Heaton    |  |                                       | Director                            |      | October 25, 2004
|Hal B. Heaton        |  |                                       |                                     |      |                 
|                     |  |                                       |                                     |      |                 
|/s/ Samuel L. Shimer |  |                                       | Director                            |      | October 25, 2004
|Samuel L. Shimer     |  |                                       |                                     |      |                 
|                     |  |                                       |                                     |      |                 
|/s/ Kelly Murumets   |  |                                       | Director                            |      | October 25, 2004
|Kelly Murumets       |  |                                       |                                     |      |                 



44



---



##### 





INDEX OF
FINANCIAL STATEMENTS & SUPPLEMENTAL SCHEDULES



|Title of Document                                                                                                           
|----------------------------------------------------------------------------------------------------------------------------
|                                                                                                                            
|Report of Independent
  Accountants                                                                                         
|                                                                                                                            
|Consolidated Balance Sheets
  as of December 31, 2002 and 2001                                                              
|                                                                                                                            
|Consolidated
  Statements of Operations for the years ended December 31, 2002, 2001 and 2000                                
|                                                                                                                            
|Consolidated
  Statement of Changes in Stockholders Equity (Deficit) for the years ended
  December 31, 2002, 2001 and 2000
|                                                                                                                            
|Consolidated Statements
  of Cash Flows for the years ended December 31, 2002, 2001 and 2000                                
|                                                                                                                            
|Notes to Consolidated
  Financial Statements                                                                                
|                                                                                                                            
|Schedule of Valuation
  and Qualifying Accounts                                                                             





---



##### 





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors and Stockholders of
I-Link Incorporated and Subsidiaries:





In our opinion, the consolidated financial statements listed in the accompanying index present
fairly, in all material respects, the financial position of I-Link Incorporated and its
subsidiaries at December 31, 2002 and 2001, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2002 in conformity
with accounting principles generally accepted in the United States of America.  In addition,
in our opinion, the financial statement schedule listed in the accompanying index presents
fairly, in all material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.  These financial statements are the
responsibility of the Companys management.  Our responsibility is to express an opinion
on these financial statements based on our audits.  We conducted our audits of these
statements in accordance with the standards of the Public Company Accounting Oversight Board
(United States).  Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement.  An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant estimates made
by management, and evaluating the overall financial statement presentation.  We believe that
our audits provide a reasonable basis for our opinion.



The accompanying consolidated financial statements have been prepared assuming that the
Company will continue as a going concern.  As discussed in Note 2 to the consolidated financial
statements, the Company has suffered recurring losses and negative cash flows from operations
and has a net capital deficiency.  These matters raise substantial doubt about the Companys
ability to continue as a going concern.  Managements plans in regard to these matters are also
described in Note 2.  The consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.



As explained in Note 3 to the consolidated financial statements, the Company has
restated its financial statements for the year ended December 31, 2002.





Salt Lake City, Utah

March 25, 2003, except for Note 2 and
    paragraph 2 of Note 3 as to which the
     date is September 8, 2003 and paragraph 3
     as of Note 3 as to which the date is
     September 28, 2004



F-1



---



##### 





I-LINK
INCORPORATED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

as of
December 31, 2002 and 2001



|                                                                                                                                                                                                       |  | 2002          |            | 2001         |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------- | ---------- | ------------ | -
|                                                                                                                                                                                                       |  | (as restated) |            |              |  
|                                                                                                                                                                                                       |  |               |            |              |  
|ASSETS                                                                                                                                                                                                 |  |               |            |              |  
|Current assets:                                                                                                                                                                                        |  |               |            |              |  
|Cash and cash
  equivalents                                                                                                                                                                            |  | $             | 3,619,642  |              | $
|Accounts receivable,
  less allowance for doubtful accounts of $2,783,571 and $1,862,988 as of
  December 31, 2002 and 2001, respectively                                                              |  | 16,924,149    |            | 16,009,386   |  
|Other current
  assets                                                                                                                                                                                 |  | 3,063,986     |            | 2,632,629    |  
|Total current assets                                                                                                                                                                                   |  | 23,607,777    |            | 23,304,547   |  
|                                                                                                                                                                                                       |  |               |            |              |  
|Furniture, fixtures,
  equipment and software, net                                                                                                                                                     |  | 11,479,111    |            | 21,023,696   |  
|                                                                                                                                                                                                       |  |               |            |              |  
|Other assets:                                                                                                                                                                                          |  |               |            |              |  
|Intangible assets, net                                                                                                                                                                                 |  | 2,747,262     |            | 1,330,839    |  
|Other assets                                                                                                                                                                                           |  | 2,261,887     |            | 1,121,067    |  
|Net assets of discontinued
  operations                                                                                                                                                                |  | 1,350,000     |            |             |  
|                                                                                                                                                                                                       |  |               |            |              |  
|Total assets                                                                                                                                                                                           |  | $             | 41,446,037 |              | $
|                                                                                                                                                                                                       |  |               |            |              |  
|LIABILITIES AND STOCKHOLDERS DEFICIT                                                                                                                                                                  |  |               |            |              |  
|                                                                                                                                                                                                       |  |               |            |              |  
|Current liabilities:                                                                                                                                                                                   |  |               |            |              |  
|Accounts payable                                                                                                                                                                                       |  | $             | 7,016,628  |              | $
|Accrued liabilities                                                                                                                                                                                    |  | 18,090,312    |            | 12,270,231   |  
|Unearned revenue                                                                                                                                                                                       |  | 958,185       |            | 1,986,675    |  
|Revolving credit
  facility and other current debt                                                                                                                                                     |  | 12,073,374    |            | 10,004,862   |  
|Notes payable to a
  related party                                                                                                                                                                     |  |              |            | 29,101,163   |  
|Current portion of
  obligations under capital leases                                                                                                                                                  |  | 2,713,650     |            | 3,034,293    |  
|Total current
  liabilities                                                                                                                                                                            |  | 40,852,149    |            | 64,116,819   |  
|                                                                                                                                                                                                       |  |               |            |              |  
|Notes payable                                                                                                                                                                                          |  | 1,033,024     |            | 1,147,364    |  
|Notes payable to a
  related party, net of unamortized Beneficial Conversion Features                                                                                                                  |  | 23,948,635    |            | 11,527,512   |  
|Obligations under
  capital leases                                                                                                                                                                     |  | 4,145,711     |            | 6,986,308    |  
|Note payable to a related
  party, to be converted into common stock                                                                                                                                   |  | 29,281,984    |            |             |  
|Total liabilities                                                                                                                                                                                      |  | 99,261,503    |            | 83,778,003   |  
|                                                                                                                                                                                                       |  |               |            |              |  
|Commitments and
  contingencies  (notes 11 and 16)                                                                                                                                                     |  |               |            |              |  
|                                                                                                                                                                                                       |  |               |            |              |  
|Stockholders equity
  (deficit):                                                                                                                                                                      |  |               |            |              |  
|Preferred stock, $10
  par value, authorized 10,000,000 shares, issued and outstanding 769 as of
  December 31, 2002 and 2001, respectively; liquidation preference of $761,310
  at December 31, 2002 |  | 7,690         |            | 7,690        |  
|Common stock, $.007 par
  value, authorized 300,000,000 shares, issued and outstanding 116,549,547 at
  December 31, 2002 and 2001                                                                     |  | 815,849       |            | 815,849      |  
|Additional paid-in
  capital                                                                                                                                                                           |  | 135,962,725   |            | 128,942,389  |  
|Accumulated deficit                                                                                                                                                                                    |  | (194,601,730  | )          | (166,763,782 | )
|Total stockholders
  deficit                                                                                                                                                                          |  | (57,815,466   | )          | (36,997,854  | )
|                                                                                                                                                                                                       |  |               |            |              |  
|Total liabilities and
  stockholders deficit                                                                                                                                                          |  | $             | 41,446,037 |              | $



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



F-2



---



##### 





I-LINK
INCORPORATED AND SUBSIDIARIES

CONSOLIDATED
STATEMENTS OF OPERATIONS

for the
years ended December 31, 2002, 2001 and 2000



|                                                                            |  | 2002            |             | 2001        |   | 2000        |  
|--------------------------------------------------------------------------- |  | --------------- | ----------- | ----------- | - | ----------- | -
|                                                                            |  | (as
  restated) |             |             |   |             |  
|Revenues:                                                                   |  |                 |             |             |   |             |  
|Telecommunication
  services                                                |  | $               | 85,252,480  |             | $ | 50,288,917  |  
|Marketing
  services                                                        |  |                |             |            |   | 463,740     |  
|Technology
  licensing and development                                      |  | 2,836,655       |             | 5,696,893   |   | 8,972,828   |  
|Other                                                                       |  |                |             |            |   | 400,000     |  
|Total
  revenues                                                            |  | 88,089,135      |             | 55,985,810  |   | 9,836,568   |  
|                                                                            |  |                 |             |             |   |             |  
|Operating
  costs and expenses:                                             |  |                 |             |             |   |             |  
|Telecommunication
  network expense (exclusive of depreciation shown below) |  | 50,935,474      |             | 35,545,611  |   |            |  
|Marketing
  services                                                        |  |                |             |            |   | 456,354     |  
|Selling,
  general, administrative and other                                |  | 33,015,176      |             | 30,789,736  |   | 14,682,985  |  
|Provision
  for doubtful accounts                                           |  | 5,999,422       |             | 2,860,892   |   |            |  
|Depreciation
  and amortization                                             |  | 4,270,302       |             | 6,408,817   |   | 3,990,584   |  
|Research
  and development                                                  |  | 1,398,809       |             | 2,332,593   |   | 4,220,333   |  
|Total
  operating costs and expenses                                        |  | 95,619,183      |             | 77,937,649  |   | 23,350,256  |  
|                                                                            |  |                 |             |             |   |             |  
|Operating
  loss                                                            |  | (7,530,048      | )           | (21,951,839 | ) | (13,513,688 | )
|                                                                            |  |                 |             |             |   |             |  
|Other
  income (expense):                                                   |  |                 |             |             |   |             |  
|Interest
  expense                                                          |  | (8,194,754      | )           | (4,692,974  | ) | (1,486,676  | )
|Interest
  and other income                                                 |  | 395,228         |             | 81,015      |   | 487,132     |  
|Gain
  on sale of subsidiary                                                |  |                |             | 588,943     |   |            |  
|Settlement
  expense                                                        |  |                |             |            |   | (639,565    | )
|Total
  other expense                                                       |  | (7,799,526      | )           | (4,023,016  | ) | (1,639,109  | )
|                                                                            |  |                 |             |             |   |             |  
|Loss
  from continuing operations                                           |  | (15,329,574     | )           | (25,974,855 | ) | (15,152,797 | )
|                                                                            |  |                 |             |             |   |             |  
|Loss
  from discontinued operations (net of $0 tax):                        |  | (12,508,374     | )           | (19,614,588 | ) | (10,599,381 | )
|                                                                            |  |                 |             |             |   |             |  
|Loss
  before extraordinary gain                                            |  | (27,837,948     | )           | (45,589,443 | ) | (25,752,178 | )
|                                                                            |  |                 |             |             |   |             |  
|Extraordinary
  gain on extinguishment of debt (net of $0 tax)              |  |                |             | 1,092,818   |   |            |  
|                                                                            |  |                 |             |             |   |             |  
|Net
  loss                                                                  |  | $               | (27,837,948 | )           | $ | (44,496,625 | )



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



F-3



---



##### 





|                                                                                                                                            |  | 2002            |             | 2001       |   | 2000        |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------- | ----------- | ---------- | - | ----------- | -
|                                                                                                                                            |  | (as
  restated) |             |            |   |             |  
|Calculation
  of net loss per common share:                                                                                                 |  |                 |             |            |   |             |  
|                                                                                                                                            |  |                 |             |            |   |             |  
|Loss
  from continuing operations                                                                                                           |  | $               | (15,329,574 | )          | $ | (25,974,855 | )
|Cumulative
  preferred stock dividends not paid in current year                                                                             |  |                |             | (27,610    | ) | (1,646,818  | )
|Dividends
  accrued and paid on Class M redeemable preferred stock                                                                          |  |                |             | (269,027   | ) |            |  
|Net
  effect on retained earnings of redemption and reissuance of Class M and N
  preferred stock, including beneficial conversion features |  |                |             | 15,512,473 |   |            |  
|                                                                                                                                            |  |                 |             |            |   |             |  
|Loss
  from continuing operations applicable to common stock                                                                                |  | $               | (15,329,574 | )          | $ | (10,759,019 | )
|                                                                                                                                            |  |                 |             |            |   |             |  
|Basic
  and diluted weighted average shares outstanding                                                                                     |  | 116,549,547     |             | 99,184,427 |   | 26,669,058  |  
|                                                                                                                                            |  |                 |             |            |   |             |  
|Net
  loss per common share  basic and diluted:                                                                                            |  |                 |             |            |   |             |  
|                                                                                                                                            |  |                 |             |            |   |             |  
|Loss
  from continuing operations                                                                                                           |  | $               | (0.13       | )          | $ | (0.11       | )
|Loss
  from discontinued operations                                                                                                         |  | (0.11           | )           | (0.20      | ) | (0.40       | )
|Extraordinary
  gain from extinguishment of debt                                                                                            |  |                |             | 0.01       |   |            |  
|Net
  loss per common share                                                                                                                 |  | $               | (0.24       | )          | $ | (0.30       | )



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



F-4



---



##### 





I-LINK
INCORPORATED AND SUBSIDIARIES

CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY (DEFICIT)

for the
years ended December 31, 2002, 2001 and 2000



|                                                                                                           |                |         |        |          |         | Additional
  Paid-in
  Capital |            | Deferred
  Compensation |   | Accumulated
  Deficit | 
|---------------------------------------------------------------------------------------------------------- | -------------- | ------- | ------ | -------- | ------- | ------------------------------ | ---------- | ----------------------- | - | --------------------- | 
|Preferred
  Stock                                                                                          | Common
  Stock
|Shares                                                                                                     |                | Amount  | Shares |          | Amount 
|                                                                                                           |                |         |        |          |         |                                |            |                         |   | (as restated)         | 
|                                                                                                           |                |         |        |          |         |                                |            |                         |   |                       | 
|Balance at
  December 31, 1999                                                                             |                | 49,992  |        | $        | 499,920 |                                | 24,150,829 |                         | $ | 169,056               | 
|                                                                                                           |                |         |        |          |         |                                |            |                         |   |                       | 
|Conversion of preferred stock into common stock                                                            |                | (25,805 | )      | (258,050 | )       | 2,158,413                      |            | 15,109                  |   | 242,941               | 
|Reclassification of Series F redeemable preferred
  stock from mezzanine due to conversion to common stock |                | 248     |        | 2,480    |         |                               |            |                        |   | 2,336,305             | 
|Common stock dividend paid to holders of Series F
  redeemable preferred stock                             |                |        |        |         |         | 87,477                         |            | 612                     |   | 195,721               | 
|Exercise of stock options, warrants and issuances
  under stock purchase plan                              |                |        |        |         |         | 1,589,810                      |            | 11,129                  |   | 4,330,530             | 
|Stock options issued for services                                                                          |                |        |        |         |         |                               |            |                        |   | 42,605                | 
|Common stock issued as payment of settlement and
  interest expense                                        |                |        |        |         |         | 149,977                        |            | 1,051                   |   | 739,537               | 
|Amortization of deferred compensation on stock
  options issued for services                               |                |        |        |         |         |                               |            |                        |   |                      | 
|Net loss                                                                                                   |                |        |        |         |         |                               |            |                        |   |                      | 
|                                                                                                           |                |         |        |          |         |                                |            |                         |   |                       | 
|Balance at December 31, 2000                                                                               |                | 24,435  |        | $        | 244,350 |                                | 28,136,506 |                         | $ | 196,957               | 



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



F-5



---



##### 





|                                                                                                                           |  | Preferred
  Stock |   | Common
  Stock |         | Additional
  Paid-in Capital |             | Accumulated
  Deficit |  
|-------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | - | -------------- | ------- | ---------------------------- | ----------- | --------------------- | -
|Shares                                                                                                                     |  | Amount            |   | Shares         |         | Amount                      
|                                                                                                                           |  |                   |   |                |         |                              |             |                       |  
|                                                                                                                           |  |                   |   |                |         |                              |             |                       |  
|Balance at
  December 31, 2000                                                                                             |  | 24,435            |   | $              | 244,350 |                              | 28,136,506  |                       | $
|Conversion of convertible debt and accrued
  interest into Class M mezzanine preferred stock and common warrants           |  |                  |   |               |         |                             |             |                      |  
|Common stock issued and accumulated deficit
  acquired as a result of WebToTel acquisition and conversion of notes payable |  |                  |   |               |         | 17,454,333                   |             | 122,182               |  
|Stock issued  employee stock purchase plan                                                                                |  |                  |   |               |         | 34,518                       |             | 241                   |  
|Repurchase of Class M mezzanine preferred stock                                                                            |  |                  |   |               |         |                             |             |                      |  
|Repurchase of Class N preferred stock                                                                                      |  | (14,404           | ) | (144,040       | )       |                             |             |                      |  
|Net contribution from repurchase/settlement with
  stockholders of Class M and N preferred stock                           |  |                  |   |               |         |                             |             |                      |  
|Contingent beneficial conversion feature on Class
  N preferred stock                                                      |  |                  |   |               |         |                             |             |                      |  
|Issuance of common shares to related party to
  repurchase warrants outstanding                                            |  |                  |   |               |         | 5,000,000                    |             | 35,000                |  
|Reissuance and conversion of Class M redeemable
  preferred stock into common stock                                        |  |                  |   |               |         | 50,442,857                   |             | 353,100               |  
|Reissuance and conversion of Class N preferred
  stock into common stock                                                   |  |                  |   |               |         | 11,523,159                   |             | 80,662                |  
|Beneficial conversion feature on the reissuance of
  Class M and N preferred stock                                         |  |                  |   |               |         |                             |             |                      |  
|Other conversions of Class N preferred stock into
  common stock                                                           |  | (13               | ) | (130           | )       | 9,143                        |             | 64                    |  
|Warrants issued in connection with notes payable
  to related party                                                        |  |                  |   |               |         |                             |             |                      |  
|Beneficial conversion feature on certain
  convertible note payable to related party                                       |  |                  |   |               |         |                             |             |                      |  
|Conversion of Class C preferred stock into common
  stock                                                                  |  | (9,249            | ) | (92,490        | )       | 3,415,015                    |             | 23,905                |  
|Dividend on Class C preferred stock paid in the
  form of common stock                                                     |  |                  |   |               |         | 534,016                      |             | 3,738                 |  
|Net loss                                                                                                                   |  |                  |   |               |         |                             |             |                      |  
|Balance at December 31, 2001                                                                                               |  | 769               |   | $              | 7,690   |                              | 116,549,547 |                       | $
|                                                                                                                           |  |                   |   |                |         |                              |             |                       |  



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



F-6



---



##### 





|                                                                                      |  | Preferred
  Stock |  | Common
  Stock |       | Additional
  Paid-in Capital |             | Accumulated
  Deficit |  
|------------------------------------------------------------------------------------- |  | ----------------- |  | -------------- | ----- | ---------------------------- | ----------- | --------------------- | -
|Shares                                                                                |  | Amount            |  | Shares         |       | Amount                      
|                                                                                      |  |                   |  |                |       |                              |             |                       |  
|                                                                                      |  |                   |  |                |       |                              |             |                       |  
|Balance at December 31, 2001                                                          |  | 769               |  | $              | 7,690 |                              | 116,549,547 |                       | $
|                                                                                      |  |                   |  |                |       |                              |             |                       |  
|Beneficial conversion feature on certain
  convertible notes payable to related party |  |                  |  |               |       |                             |             |                      |  
|I-Link costs paid by related party                                                    |  |                  |  |               |       |                             |             |                      |  
|Net loss, as restated                                                                 |  |                  |  |               |       |                             |             |                      |  
|Balance at December 31, 2002, as
  restated                                           |  | 769               |  | $              | 7,690 |                              | 116,549,547 |                       | $



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



F-7



---



##### 





I-LINK
INCORPORATED AND SUBSIDIARIES

CONSOLIDATED
STATEMENTS OF CASH FLOWS

for the
years ended December 31, 2002, 2001 and 2000



|                                                                                                                             |  | 2002            |             | 2001        |   | 2000        |  
|---------------------------------------------------------------------------------------------------------------------------- |  | --------------- | ----------- | ----------- | - | ----------- | -
|                                                                                                                             |  | (as
  restated) |             |             |   |             |  
|Cash flows from operating activities:                                                                                        |  |                 |             |             |   |             |  
|Net loss                                                                                                                     |  | $               | (27,837,948 | )           | $ | (44,496,625 | )
|Adjustments
  to reconcile net loss to net cash provided by (used in) operating activities:                                  |  |                 |             |             |   |             |  
|Depreciation
  and amortization                                                                                              |  | 8,135,291       |             | 10,166,790  |   | 6,399,318   |  
|Provision
  for doubtful accounts                                                                                            |  | 6,109,863       |             | 4,066,690   |   | 113,168     |  
|Impairment
  of long-lived assets                                                                                            |  | 3,608,770       |             | 8,040,054   |   |            |  
|Amortization
  of discount and debt issuance costs on notes payable and capital leases                                       |  | 1,764,789       |             | 1,518,443   |   |            |  
|Accrued
  interest added to loan principal                                                                                   |  | 3,650,973       |             | 1,267,223   |   |            |  
|Amortization
  of deferred compensation on stock options issued for services                                                 |  |                |             |            |   | 541,982     |  
|Common
  stock issued as payment of settlement and interest expense                                                          |  |                |             |            |   | 740,588     |  
|Loss
  on disposal of assets                                                                                                 |  | 266,259         |             |            |   |            |  
|Extraordinary
  gain on extinguishment of debt                                                                               |  |                |             | (1,092,818  | ) |            |  
|Gain
  on sale of subsidiary                                                                                                 |  |                |             | (588,943    | ) |            |  
|Increase
  (decrease) from changes in operating assets and liabilities, net of effects
  of acquisitions:                    |  |                 |             |             |   |             |  
|Accounts
  receivable                                                                                                        |  | (1,269,178      | )           | (4,527,719  | ) | 873,382     |  
|Other
  assets                                                                                                               |  | (1,164,173      | )           | (1,126,625  | ) | (429,260    | )
|Accounts
  payable, accrued liabilities and interest payable                                                                 |  | 3,507,057       |             | 12,056,323  |   | 2,830,096   |  
|Unearned
  revenue                                                                                                           |  | (1,643,167      | )           | (14,565,584 | ) | 16,552,259  |  
|Net
  cash provided by (used in) operating activities                                                                        |  | (4,871,464      | )           | (29,282,791 | ) | 1,869,355   |  
|                                                                                                                             |  |                 |             |             |   |             |  
|Cash
  flows from investing activities:                                                                                      |  |                 |             |             |   |             |  
|Purchases
  of furniture, fixtures, equipment and software                                                                   |  | (1,648,868      | )           | (1,963,115  | ) | (6,881,466  | )
|Business
  acquisitions (net of cash of $286,910 and $233,787 in 2002 and 2001
  respectively, acquired in the acquisitions) |  | (8,275,539      | )           | (13,447,213 | ) |            |  
|Cash
  received from sale of building                                                                                        |  | 691,513         |             |            |   |            |  
|Net
  cash used in investing activities                                                                                      |  | (9,232,894      | )           | (15,410,328 | ) | (6,881,466  | )
|                                                                                                                             |  |                 |             |             |   |             |  



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



F-8



---



##### 





|                                                                                                                         |  | 2002          |            | 2001       |           | 2000       |          
|------------------------------------------------------------------------------------------------------------------------ |  | ------------- | ---------- | ---------- | --------- | ---------- | ---------
|                                                                                                                         |  | (as restated) |            |            |           |            |          
|                                                                                                                         |  |               |            |            |           |            |          
|Cash flows from financing activities:                                                                                    |  |               |            |            |           |            |          
|Proceeds from issuance of notes payable to a related party                                                               |  | $             | 16,823,345 |            | $         | 43,920,320 |          
|Payment
  of notes payable to related party                                                                              |  | (3,000,000    | )          | (2,500,000 | )         | (2,600,000 | )        
|Proceeds
  from revolving credit facility, net                                                                           |  | 2,089,448     |            | 6,996,604  |           |           |          
|Proceeds
  from advance under strategic marketing agreement                                                              |  |              |            |           |           | 1,751,183  |          
|Payment
  of advance under strategic marketing agreement                                                                 |  |              |            |           |           | (1,751,183 | )        
|Payment
  of capital lease obligations                                                                                   |  | (2,544,350    | )          | (1,052,387 | )         | (141,728   | )        
|I-Link
  costs paid by related party                                                                                     |  | 498,396       |            |           |           |           |          
|Payment
  of long-term debt                                                                                              |  | (805,371      | )          | (180,093   | )         | (3,992     | )        
|Proceeds
  from exercise of stock options and warrants and issuances under stock
  purchase plan                         |  |              |            | 15,579     |           | 4,341,659  |          
|Other                                                                                                                    |  |              |            |           |           | (24,204    | )        
|Net
  cash provided by financing activities                                                                              |  | 13,061,468    |            | 47,200,023 |           | 4,171,735  |          
|                                                                                                                         |  |               |            |            |           |            |          
|Increase
  (decrease) in cash and cash equivalents                                                                       |  | (1,042,890    | )          | 2,506,904  |           | (840,376   | )        
|                                                                                                                         |  |               |            |            |           |            |          
|Cash
  and cash equivalents at beginning of year                                                                         |  | 4,662,532     |            | 2,155,628  |           | 2,996,004  |          
|                                                                                                                         |  |               |            |            |           |            |          
|Cash
  and cash equivalents at end of year                                                                               |  | $             | 3,619,642  |            | $         | 4,662,532  |          
|                                                                                                                         |  |               |            |            |           |            |          
|Supplemental schedule of non-cash investing and financing
  activities:                                                  |  |               |            |            |           |            |          
|RSL acquisition costs
  financed through note payable to seller                                                          |  | $             | 875,000    |            |          |            |         
|Reclassification of Series
  F redeemable preferred stock from mezzanine                                                 |  |              |            |           |           | $          | 2,338,785
|Warrants issued in connection with notes payable
  to related party                                                      |  |              |            | $          | 2,170,059 |            |         
|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 |           |           |          
|Conversion of notes
  payable to a related party and associated accrued interest to common stock                         |  |              |            | 10,326,938 |           |           |          
|Building mortgage incurred                                                                                               |  |              |            |           |           | 840,000    |          
|Stock
  options issued for services                                                                                      |  |              |            |           |           | 42,605     |          
|Equipment
  acquired under capital lease obligations and note payable                                                    |  |              |            | 9,887,835  |           |           |          
|                                                                                                                         |  |               |            |            |           |            |          
|Supplemental cash flow information:                                                                                      |  |               |            |            |           |            |          
|Interest
  paid                                                                                                          |  | $             | 2,164,472  |            | $         | 1,269,605  |          



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



F-9



---



##### 





I-LINK
INCORPORATED AND SUBSIDIARIES

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 wholly-owned subsidiaries WorldxChange, Corp.
(WorldxChange), I-Link Communications Inc. (ILC) which is included in
discontinued operations and the Enterprise and Agent business of RSL Com U.S.A.
Inc (RSL) which the Company purchased on December 10, 2002 (see note 8).  These entities combined are referred to
as  I-Link or the Company in these
financial statements.



At the next shareholders
meeting, I-Link intends to change its name to Acceris Communications, Inc.
(Acceris)



For the past six years, I-Link developed and marketed enhanced
communications products and services utilizing its own private intranet and
both owned and leased network switching and transmission facilities.  The communications solutions are delivered
through I-Links proprietary technologies. 
Enhanced communications products and services were marketed through master
agent and wholesale distributor arrangements with ILC, which is an FCC licensed
long-distance carrier.  The Company
developed and licensed communications applications products and software that
support multimedia communications (voice, fax and audio) over the public
switched network, local area networks and the Internet.  The second principal operation began on June
4, 2001, when I-Link, through its wholly owned subsidiary WorldxChange Corp.
(WorldxChange), purchased certain assets and assumed certain liabilities of
WorldxChange Communications, Inc. from a bankruptcy proceeding.  WorldxChange is a facilities-based
telecommunications carrier that provides international and domestic
long-distance service to retail customers. 
Telecommunication services provided by WorldxChange consisted primarily
of a dial-around product, which allows a customer to make a call from any phone
by dialing a 10-10-XXX prefix, and a 1+ product (1+ is when a customer can pick
up the phone and directly dial a long distance number by pushing 1-area
code-phone number). Billings to these customers are primarily done through the
customers local exchange carrier (LEC). 
Marketing of the WorldxChange products is primarily done through a MLM
channel.



On March 1, 2001, I-Link became a majority-owned subsidiary of Counsel
Communications, LLC (subsequently reorganized and renamed Counsel
Communications LLC), which is a majority-owned subsidiary of Counsel
Corporation, (collectively, Counsel).  
Since taking a controlling position in I-Link, Counsel has advanced
approximately $62 million in cash and cash equivalents to I-Link.  Of this amount, approximately $20 million
was utilized to acquire the assets of WorldxChange and RSL, while the remaining
approximate $42 million has been used directly in operations, principally to
bring the technology to market. To date, $3 million of these advances have been
repaid and pursuant to a debt restructuring agreement Counsel has agreed to
convert $29 million of its existing debt to capital.



In December 2002, I-Link through its subsidiary WorldxChange, completed
the purchase of the Enterprise and Agent business of RSL. (see note 8). The acquisition included the assets used by RSL
to provide long distance voice and data services, including frame relay, to
small and medium size businesses (Direct business), and the assets used to
provide long distance and other voice services to small businesses and the
consumer/residential market (A&R business), together with the existing
customer base of the Enterprise and Agent business.



In order to reduce I-Links need for continuous infusion of capital and
to refocus its efforts, I-Link began, over the past year, to resize ILCs
operations (which offered enhanced communications services) in relationship to
its revenue base.  This process
culminated in the sale of the business operations of ILC to Buyers United in
December 2002 (see note 6).  Future
operational results of I-Link will consist primarily of the operational results
of WorldxChange and RSL, and the technology licensing business of I-Link.



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



F-10



---



##### 





Note  2  Liquidity
and Capital Resources



The Company incurred substantial operating losses and
negative cash flows from operations since inception and had a net capital
deficiency of $57,815,466 and negative working capital of $17,244,372 at
December 31, 2002. The Company financed its operations during 2002 through
related party debt with an outstanding balance of $53,230,619 and a revolving
credit facility with an outstanding balance of $9,086,051 as of December 31,
2002.



The Company has taken steps to improve its cash flow from
operations, which include the curtailment of its Draper, Utah operation, the
sale of its former telecommunications segment to Buyers United Inc. that was
completed in May 2003 (note 6) and the acquisition of RSL (note 8). The Company
is pursuing additional third party funding and has also taken steps to improve
its capital structure, which include the conversion of amounts owed to its
controlling shareholder of $29,281,984 to equity as described below.   This conversion is subject to shareholder
approval, which is expected to occur at the next shareholders
meeting.  The remaining $23,948,635 of related party
debt which is not subject to the debt restructuring, matures on June 30,
2004.  The Company also has an ongoing
commitment from its controlling shareholder to fund, through long-term
intercompany advances or equity contributions, all capital investment, working
capital or other operational cash requirements of the Company through April 15,
2004.



At
December 31, 2002, the Company had $53,230,619 of related
party debt.  In order to reduce the cash
requirements to pay this debt, the Company entered into an amended debt restructuring
agreement with its controlling shareholder whereby $29,281,984 will be
converted into common stock, reducing the Companys debt obligation and related
interest charges without expending cash.Additionally,
in March 2003, the controlling shareholder extended the due date of a
$9,350,000 note from the Company to June 30, 2004.  As a result,
the remaining $23,948,635 of related party debt
matures on June 30, 2004. Subsequent to April 15, 2004, should the controlling
shareholder not extend its commitment to provide financial support to the
Company, and in the event cash flow from operations is insufficient to cover
the maturing debt, the Company will be required to restructure its debt with
the controlling shareholder to further extend payments of principal or interest
or find alternative funding to replace the related party debt.



There is no assurance that the Company will be able to
improve its cash flow from operations, obtain additional third party financing,
extend, repay or refinance on acceptable terms amounts owing to its controlling
shareholder that are due on June 30, 2004 or obtain an extension of the
existing funding commitment from its controlling shareholder. Additionally,
there is no assurance that the controlling shareholder will continue to provide
financial support to the Company.  These
matters raise substantial doubt about the Companys ability to continue as a
going concern.  The accompanying
consolidated financial statements do not include any adjustments to reflect the
possible future effects on the recoverability of assets and liquidation of
liabilities that may result from this uncertainty.



Note 3- Restatement

The accompanying consolidated financial statements as of December 31, 2002 and
for the year then ended have been restated from those originally issued October
15, 2003 to account for 1) revenues from the Companys network service offering
when the actual cash collections to be retained by the Company are finalized,
and 2) deemed interest expense for beneficial conversion features
(BCF) embedded in
certain of the Companys indebtedness as required by Emerging Issues Task
Force Issue No. 00-27. Both restatements had no effect on loss from
discontinued operations or net loss per share from discontinued operations. The
network service offering restatement increased the net loss for the fourth
quarter and year ended December 31, 2002 by $3,505,043 and the net loss per
share by $0.03. The BCF restatement increased the net loss for the fourth
quarter and year ended December 31, 2002 by $301,000 but had no effect on the
net loss per share. Both matters are discussed in more detail below.



1) Network Service Offering - SAB 101/103


In November 2002, the Company, through its Acceris
Partners segment, began to offer a network service offering. The Company ceased
offering this network service offering on July 23, 2003.  The Company initially recorded the revenue
and expenses related to this service offering using the accrual method of
accounting.  In the second quarter of
2003, the Company determined that collectibility of the amounts billed to
customers was not reasonably assured at the time of billing.  Accordingly, the Company has revised its
method of accounting for revenues from this network service offering from the
accrual method to recognition of revenue when the amount of our actual cash
collections are known and retained by the Company.  Under the Companys agreements with the LECs, cash collections
remitted to the Company are subject to adjustment, generally within two to four
months.  Commissions (included in
selling, general and administrative expense) and estimated bad debt expenses
associated with the eliminated revenues have also been eliminated.  All other direct expenses such as
telecommunications network expenses are expensed as incurred.  Commission expense (which is based on cash
collected) will be recognized when amounts collected can be reasonably
estimated.




The following sets forth the effect of these
restatements on the net loss and net loss per share for the year ended December
31, 2002.



|Net
  loss as originally reported                                                  |  | $          | (24,031,905 | )
|---------------------------------------------------------------------------------- |  | ---------- | ----------- | -
|Reduction
  of telecommunication services revenue                                  |  | (5,158,460 | )          
|Reduction
  of provision for doubtful accounts                                     |  | 331,783    |            
|Reduction
  of commissions included in selling, general and administrative expense |  | 1,321,634  |            
|Net
  loss as restated on Form 10-K/A#1                                            |  | $          | (27,536,948 | )
|                                                                                   |  |            |            
|Net
  loss per share as originally reported                                        |  | $          | (0.21       | )
|Net
  loss per share as restated on Form 10-K/A#1                                  |  | $          | (0.24       | )



F-11



---



##### 



The following sets forth the effect of these restatements on the
consolidated balance sheet as of December 31, 2002.



|                         |  | As Originally
  Reported |            | Adjustments |   | As
Restated on Form 10-K/A#1 |  
|------------------------ |  | ------------------------ | ---------- | ----------- | - | ---------------------------- | -
|Accounts receivable, net |  | $                        | 21,750,826 |             | $ | (4,826,677                   | )
|Accrued liabilities      |  | 19,411,946               |            | (1,321,634  | ) | 18,090,312                   |  
|Shareholders deficit    |  | (60,419,423              | )          | (3,505,043  | ) | (63,924,466                  | )
|                         |  |                          |            |             |   |                              |  



2) Beneficial Conversion Feature - Emerging Issues Task Force Issue No. 00-27










The Companys management has now concluded that a restatement is required and
has brought these matters for consideration before the Audit Committee and the
full Board of Directors of the Company. Having considered the circumstances
underlying the accounting errors and their effects upon the Companys prior
filings, and having discussed these matters with the Companys management, the
Audit Committee concluded that the previously issued financial statements
should not be relied upon and approved and authorized the Companys management
to amend certain previously filed public reports to reflect deemed interest
expense from such BCF.

Although the error affects
2001, 2002 and 2003, the $23 cumulative effect on earnings through
the third quarter of 2002 was recorded in the fourth quarter of 2002
as a charge to interest expense. Therefore, the correction is an increase in deemed interest expense and net loss, in all
reporting periods from the fourth quarter of 2002 through the first quarter of
2004, and a reduction in reported liabilities and stockholders deficit in all
reporting periods from the fourth quarter of 2002 through the first quarter of
2004. The effect of these errors is detailed, by reporting period, below. The
restatement had no
effect on loss from discontinued operations or net loss per share from
discontinued operations.

Effect of the restatements on the consolidated statements of operations
(in thousands of dollars except per share amounts)
(per share information reported on a post 20:1 stock consolidation basis for all periods shown. Stock consolidation enacted in the fourth quarter of 2003)

Three months
    
    Three months
    
    Three months
    
    Three months
    
    Three months
    
    Three monthsended
    
    ended
    
    ended
    
    ended
    
    ended
    
    endedDec. 31, 2002
    
    March 31, 2003
    
    June 30, 2003
    
    Sept. 30, 2003
    
    Dec. 31, 2003
    
    March 31, 2004(unaudited)
    
    (unaudited)
    
    (unaudited)
    
    (unaudited)
    
    (unaudited)
    
    (unaudited)Net income (loss) as previously reported
on Form 10-K or 10-Q
    
    $
    (11,117
    )
    
    $
    (14,895
    )
    
    $
    (3,713
    )
    
    $
    (3,257
    )
    
    $
    (4,456
    )
    
    $
    594Correction of EITF 00-27 errors
    
    
    (301
    )
    
    
    (902
    )
    
    
    (1,089
    )
    
    
    (1,337
    )
    
    
    (1,779
    )
    
    
    (1,801
    )Net loss as currently reported on
revised Form 10-K or 10-Q
    
    $
    (11,418
    )
    
    $
    (15,797
    )
    
    $
    (4,802
    )
    
    $
    (4,594
    )
    
    $
    (6,235
    )
    
    $
    (1,207
    )Net income (loss) per share as previously
reported on Form 10-K or 10-Q
    
    $
    (1.92
    )
    
    $
    (2.55
    )
    
    $
    (0.64
    )
    
    $
    (0.56
    )
    
    $
    (0.44
    )
    
    $
    0.03Net loss per share as currently
reported on revised Form 10-K or
10-Q
    
    $
    (1.96
    )
    
    $
    (2.71
    )
    
    $
    (0.82
    )
    
    $
    (0.79
    )
    
    $
    (0.59
    )
    
    $
    (0.06
    )


Effect of the restatements on the consolidated balance sheets
(in thousands of dollars)

As at
    
    As at
    
    As at
    
    As at
    
    As at
    
    As atDec. 31, 2002
    
    March 31, 2003
    
    June 30, 2003
    
    Sept. 30, 2003
    
    Dec. 31, 2003
    
    March 31, 2004(unaudited)
    
    (unaudited)
    
    (unaudited)
    
    (unaudited)
    
    (unaudited)
    
    (unaudited)Notes payable to a related party:As previously reported on
Form 10-K or 10-Q
    
    $
    30,058
    
    
    $
    30,496
    
    
    $
    30,985
    
    
    $
    33,483
    
    
    $
    35,073
    
    
    $
    41,060Correction of EITF 00-27 errors
    
    
    (6,109
    )
    
    
    (5,364
    )
    
    
    (4,437
    )
    
    
    (3,265
    )
    
    
    (6,356
    )
    
    
    (4,834
    )As currently reported on
revised Form 10-K or 10-Q
    
    $
    23,949
    
    
    $
    25,132
    
    
    $
    26,548
    
    
    $
    30,218
    
    
    $
    28,717
    
    
    $
    36,226Additional paid-in capital:As previously reported on
Form 10-K or 10-Q
    
    $
    129,553
    
    
    $
    129,553
    
    
    $
    129,618
    
    
    $
    129,618
    
    
    $
    171,115
    
    
    $
    171,192Correction of EITF 00-27 errors
    
    
    6,410
    
    
    
    6,567
    
    
    
    6,729
    
    
    
    6,894
    
    
    
    11,764
    
    
    
    12,043As currently reported on
revised Form 10-K or 10-Q
    
    $
    135,963
    
    
    $
    136,120
    
    
    $
    136,347
    
    
    $
    136,512
    
    
    $
    182,879
    
    
    $
    183,235Accumulated deficit
As previously reported on
Form 10-K or 10-Q
    
    $
    (194,301
    )
    
    $
    (209,196
    )
    
    $
    (212,909
    )
    
    $
    (216,166
    )
    
    $
    (220,622
    )
    
    $
    (220,028
    )Correction of EITF 00-27 errors
    
    
    (301
    )
    
    
    (1,203
    )
    
    
    (2,292
    )
    
    
    (3,629
    )
    
    
    (5,408
    )
    
    
    (7,209
    )As currently reported on
revised Form 10-K or 10-Q
    
    $
    (194,602
    )
    
    $
    (210,399
    )
    
    $
    (215,201
    )
    
    $
    (219,795
    )
    
    $
    (226,030
    )
    
    $
    (227,237
    )Stockholders equity (deficit):As previously reported on
Form 10-K or 10-Q
    
    $
    (63,925
    )
    
    $
    (78,820
    )
    
    $
    (82,468
    )
    
    $
    (85,725
    )
    
    $
    (49,309
    )
    
    $
    (47,292
    )Correction of EITF 00-27 errors
    
    
    6,109
    
    
    
    5,364
    
    
    
    4,437
    
    
    
    3,265
    
    
    
    6,356
    
    
    
    4,834As currently reported on
revised Form 10-K or 10-Q
    
    $
    (57,816
    )
    
    $
    (73,456
    )
    
    $
    (78,031
    )
    
    $
    (82,460
    )
    
    $
    (42,953
    )
    
    $
    (42,458
    )


Note 4 - Summary of Significant Accounting Policies



Revenue recognition



Revenue is recognized
when persuasive evidence of an arrangement exists, delivery has occurred or
services have been rendered, the Companys price to the customer is fixed or
determinable, and collection of the resulting receivable is reasonably assured.  Revenue is derived from telecommunications
usage, based on minutes of use.  Revenue
derived from usage is recognized as services are provided, based on agreed upon
usage rates.  Revenue is recorded net of
estimated customer credits and billing errors, which are recorded at the same
time the corresponding revenue is recognized. 
Revenues from billings for services rendered where collectibility is not
assured are recognized when the final cash collections to be retained by the Company
are finalized.



Revenue from the sale of
software licenses is recognized when a non-cancelable agreement is in force,
the license fee is fixed or determinable, acceptance has occurred and
collectibility is reasonably assured. 
Maintenance and support revenues are recognized ratably over the term of
the related agreements.  When a license
of I-Link technology requires continued support or involvement of I-Link,
contract revenues are spread over the period of the required support or
involvement.  In the event that
collectibility is in question, revenue (deferred or recognized) is recorded
only to the extent of cash receipts.



During the second quarter
of 2000, the Company entered into an agreement with Red Cube International AG
(Red Cube).  The agreement with Red
Cube consisted of a $7,500,000 licensing fee and $2,500,000 for consulting
services.  This $10,000,000 aggregate
amount was nonrefundable and was recorded as revenue ratably over a two-year
period.  Accordingly, $1,666,667,
$5,000,000 and $3,333,333 were recorded as technology licensing revenue in
2002, 2001 and 2000, respectively.  In
July 2000, the Company received an additional nonrefundable payment of
$10,000,000.  This payment was a service
prepayment that was to be credited against services performed for and/or
provided to Red Cube by June 30, 2001. As of June 30, 2001, there remained
$9,543,000 which had not been used by Red Cube and as the Company had no
further obligation under the prepayment arrangement, the $9,543,000 was
recognized as revenue as of June 30, 2001.



Marketing services
revenues from the network marketing channel primarily included revenues
recognized from Independent Representatives (IRs) for promotional and
presentation materials and national conference registration fees.  Revenue from the sale of promotional and
presentation materials (included in Marketing services revenue) was recognized
at the time the materials were shipped. 
The portion of the sign-up fee, including a normal profit margin,
relating to on-going administrative support was deferred and recognized over
twelve months (the initial term of the IRs agreement).  Marketing services revenues are presented
net of estimated refunds on returns of network marketing materials.



Use of estimates



The preparation of
financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period.  Actual results
could differ from those estimates.



Examples of significant estimates include revenue recognition, the
allowance for doubtful accounts, the ultimate recoverability of intangibles and
other long-lived assets.



F-12



---



##### 





Cash and cash equivalents



The Company considers all
highly liquid investments with an original maturity of three months or less to
be cash equivalents. The Company maintains its cash and cash equivalents
primarily with financial institutions in Utah, California, and
Pennsylvania.  These accounts may from
time to time exceed federally insured limits. 
The Company has not experienced any losses on such  accounts.



Provision
for doubtful accounts



The
Company evaluates the collectibility of its receivables at least quarterly,
based upon various factors including the financial condition and payment
history of major customers, and overall review of collections experience on
other accounts and economic factors or events expected to affect the Companys
future collections experience.



Furniture, fixtures, equipment and
software



Furniture, fixtures,
equipment and software are stated at cost. 
Depreciation is calculated using the straight-line method over the
following estimated useful lives:



|Telecommunications
  network equipment     |  | 3-5 years  | 
|------------------------------------------ |  | ---------- | 
|Furniture,
  fixtures and office equipment |  | 3-10 years | 
|Software                                   |  | 3 years    | 



Long-lived assets that are to be disposed of by sale are measured at
the lower of book value or estimated net realizable value

less costs to sell.



Betterments and renewals
that extend the life of the assets are capitalized.  Other repairs and maintenance charges are expensed as
incurred.  The cost and related
accumulated depreciation applicable to assets retired are removed from the
accounts and the gain or loss on disposition is recognized in operations.  The Company regularly evaluates whether
events or circumstances have occurred that indicate the carrying value of its
furniture, fixtures, equipment and software may not be recoverable.  When factors indicate the asset may not be
recoverable, the Company compares the related undiscounted future net cash
flows to the carrying value of the asset to determine if impairment
exists.  If the expected future net cash
flows are less than the carrying value, impairment is recognized based on the
fair value of the asset.



Intangible assets



Effective January 1, 2002, the Company accounts for intangible assets
in accordance with Statement of Financial Accounting Standards (SFAS) No.
141, Business Combinations (SFAS 141) and SFAS No. 142, Goodwill and Other
Intangible Assets (SFAS 142).  The
adoption of SFAS 141 and 142 did not materially impact the results of
operations or financial condition of the Company.  All business combinations are accounted for using the purchase
method and goodwill and intangible assets with indefinite useful lives are not
amortized, but are tested for impairment at least annually.



The Company regularly
evaluates whether events or circumstances have occurred that indicate the
carrying value of its intangible assets may not be recoverable.  When factors indicate the asset may not be
recoverable, the Company compares the related undiscounted future net cash
flows to the carrying value of the asset to determine if impairment
exists.  If the expected future net cash
flows are less than carrying value, impairment is recognized based on the fair
value of the asset.  Amortization of
intangible assets is calculated using the straight-line method over the
following periods:



|Customer
  contracts and relationships |  | 60 months | 
|-------------------------------------- |  | --------- | 
|Agent
  relationships                  |  | 36 months | 
|Agent
  contracts                      |  | 12 months | 



As discussed in Note 9, the Company recorded an $8,040,054 impairment
charge in 2001, representing the remaining balance of the goodwill associated
with the WebToTel acquisition.



F-13



---



##### 





Advertising costs



Advertising production costs are expensed the first time the
advertisement is run.  Media (TV and
print) placement costs are expensed in the month the advertising appears.  The Company incurred $1.59 million, $7.27
million and  $0 in advertising costs in
the years ended December 31, 2002, 2001 and 2000, respectively.



Research and development costs



The Company expenses internal research and development costs, which
primarily consist of salaries.



Computer software costs



The Company capitalizes
qualified costs associated with developing computer software for internal
use.  Such costs are amortized over the
expected useful life, usually three years.



Concentrations of credit risk



The
Companys retail telecommunications subscribers are primarily residential and
small business subscribers in the United States.  The Companys customers are generally concentrated in the areas
of highest population in the United States, more specifically California,
Florida, New York, Texas and Illinois. 
The Companys wholesale customers are primarily based in Utah.  No single customer accounted for over 10% of
the revenues in 2002.  The only customer
that accounted for over 10% of the revenues for the year 2001 was Red Cube, which
accounted for approximately 18% of revenues. 
In 2000, a single wholesale customer, Big Planet, accounted for
approximately 36% of revenues (including discontinued operations revenues) and
Red Cube accounted for approximately 11% of revenues (including discontinued
operations revenues).



Concentration
of third party service providers



WorldxChange
utilizes the services of certain Local Exchange Carriers (LECs) to bill and
collect from customers.  Substantially
all of revenues in the year ended December 31, 2002 and the period from June 5,
2001 (inception) to December 31, 2001 were derived from customers billed to
LECs.  If the LECs were to refuse to
provide such services in the future, the Company would be required to
significantly enhance its billing and collection capabilities in a short amount
of time and its collection experience could be adversely affected during this
transition period.



The
Company depends on certain large telecommunications carriers to provide network
services for significant portions of the Companys telecommunications
traffic.  If these carriers were to refuse
to provide such services in the future, the Companys ability to provide
services to its customers would be adversely affected and the Company might not
be able to obtain similar services from alternative carriers on a timely basis.



Income taxes



The Company records
deferred taxes in accordance with Statement of Financial Accounting Standards
(SFAS) 109, Accounting for Income Taxes. 
The statement requires recognition of deferred tax assets and
liabilities for temporary differences between the tax bases of assets and
liabilities and the amounts at which they are carried in the financial
statements, based upon the enacted tax rates in effect for the year in which
the differences are expected to reverse. 
A valuation allowance is established when necessary to reduce deferred
tax assets to the amount expected to be realized.



Stock-based
compensation



At December 31, 2002, the Company has five stock-based employee
compensation plans, which are described more fully in Note 18. The Company
accounts for those plans under the recognition and measurement principles of
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees (APB 25), and related Interpretations.  No stock-based employee compensation cost is reflected in net income,
as all options granted under those plans had an exercise price equal to the
market value of the underlying common stock on the date of grant. The following
table illustrates the effect on



F-14



---



##### 





net income (loss) and earnings (loss) per share if the Company had
applied the fair value method for the recognition and measurement provisions of
SFAS Statement No. 123, Accounting for Stock-Based Compensation, to its
stock-based employee compensation.



|                                                                                                    |  | Year ended
  Dec. 31, 2002 |             | Year ended
  Dec. 31, 2001 |   | Year ended
  Dec. 31, 2000 |  
|--------------------------------------------------------------------------------------------------- |  | -------------------------- | ----------- | -------------------------- | - | -------------------------- | -
|                                                                                                    |  | (as
  restated)            |             |                            |   |                            |  
|Net loss as
  reported                                                                              |  | $                          | (27,837,948 | )                          | $ | (44,496,625                | )
|Deduct:                                                                                             |  |                            |             |                            |   |                            |  
|Total
  compensation cost determined under fair value based method for all awards,
  net of 0- tax |  | (1,300,371                 | )           | (2,933,069                 | ) | (7,510,031                 | )
|Pro forma net
  loss                                                                                |  | $                          | (29,138,319 | )                          | $ | (47,429,694                | )
|                                                                                                    |  |                            |             |                            |   |                            |  
|Earning (loss)
  per share                                                                          |  |                            |             |                            |   |                            |  
|Basic and
  diluted  as reported                                                                   |  | $                          | (0.24       | )                          | $ | (0.30                      | )
|Basic and
  diluted  pro forma                                                                     |  | $                          | (0.25       | )                          | $ | (0.32                      | )



Segment
reporting



The Company reports its segment information based upon the internal
organization that is used by management for making operating decisions and
assessing performance. In late 2002, I-Link was reorganized  into three operating segments.  Acceris Communications Partners (Acceris
Partners),  Acceris Communications Solutions
(Acceris Solutions) and Acceris Technologies (Acceris Technologies).  See note 19 for a more detailed discussion
of the segments.



Reclassifications



Certain balances in the December 31, 2001 and 2000 financial statements
have been reclassified to conform to current year presentation.  These changes had no effect on previously
reported net loss, total assets, liabilities or stockholders deficit.



Recent
accounting pronouncements



On August 15, 2001, the Financial Accounting Standards Board (FASB)
issued SFAS No. 143, Accounting for Asset Retirement Obligations (SFAS
143). SFAS 143 establishes accounting standards for the recognition and
measurement of an asset retirement obligation and its associated asset
retirement cost.  SFAS 143 is effective
January 1, 2003 and is not expected to have a material impact on the Companys
results of operations or financial condition.



In October 2001, the FASB issued SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS
144).  SFAS 144 requires that
long-lived assets that are to be disposed of by sale be measured at the lower
of book value or fair value less costs to sell.  All provisions of SFAS 144 were adopted on January 1, 2002 and
did have an impact on the Companys results of operations and financial
position (see note 6).



In April 2002, the FASB issued SFAS No. 145, Recission of FAS Nos. 4,
44 and 64, Amendment of FAS 13 and Technical Corrections as of April 2002,
which rescinds FAS Nos. 4, 44 and 64 and amends other existing authoritative
pronouncements to make various technical corrections, clarify meaning, or
describe their applicability under changed conditions.  SFAS 145 is effective for fiscal years
beginning after May 15, 2002 and will require the modification of the Companys
prior financial statements to reclassify the 2001 gain on debt extinguishment
from extraordinary to income from continuing operations.



In June 2002, the FASB issued SFAS No. 146 Accounting for Costs
Associated with Exit or Disposal Activities (SFAS 146).  SFAS 146 requires the recognition of a
liability for costs associated with an exit or disposal activity when incurred.
SFAS 146 also establishes that the liability should initially be measured and
recorded at fair value. The provisions of SFAS 146 will be effective for any
exit and disposal activities initiated after December 31, 2002 and is not expected
to have a material impact on the Companys results of operations or financial
condition.



F-15



---



##### 







In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation  Transition and Disclosure  an amendment of FASB
Statement No. 123 (SFAS 148).  SFAS
148, which is effective for years ending after December 15, 2002, provides
alternative methods for a voluntary change to the fair value based method of
accounting for stock-based employee compensation and requires prominent
disclosure about the method of accounting for stock-based employee compensation
and the effect of the method used on reported results.  The Company expects to continue following
the provisions of APB 25 for its stock-based compensation plans.



In November 2002, the FASB issued FASB Interpretation Number, or FIN,
45, Guarantors Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others (an interpretation of
SFAS No. 5, 57, and 107 and rescission of FIN 34). FIN 45 clarifies the
requirements of SFAS No. 5, Accounting for Contingencies, relating to a
guarantors accounting for, and disclosure of, the issuance of certain types of
guarantees. The adoption of FIN 45 is not expected to have a significant effect
on the Companys results of operations or financial condition.



On January 17, 2003, the FASB issued FASB Interpretation No. 46,
Consolidation of Variable Interest Entities  an Interpretation of ARB No. 51
(FIN 46).  FIN 46 clarifies the
application of Accounting Research Bulletin No. 51, Consolidated Financial
Statements,
to certain entities in which equity investors do not have the characteristics
of a controlling financial interest or do not have sufficient equity at risk
for the entity to finance its activities without additional subordinated
financial support from other parties. 
FIN 46 is effective for the Company after January 31, 2003 and is not
expected to have a material impact on the Companys results of operations or
financial condition.





Note 5  Net Loss per Share



Basic earnings per share is computed based on the weighted average
number of common shares outstanding during the period.  Options, warrants, convertible preferred
stock and convertible debt are included in the calculation of diluted earnings
per share, except when their effect would be anti-dilutive.  As the Company had a net loss from
continuing operations for 2002, 2001 and 2000, basic and diluted loss per share
are the same.



The basic and diluted net loss per common share for the year ending
December 31, 2001 includes a net increase to retained earnings of $30,292,319
attributable to the redemption on March 1, 2001 of the Class M redeemable
preferred stock and all Class N preferred stock owned by Winter Harbor,
including redemption of the beneficial conversion feature related to such
preferred stock.  In addition, there was
a charge to retained earnings in 2001 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
basic and diluted net loss per common share in 2001 also reflects a $5,000,000
charge to retained earnings for the beneficial conversion feature related to
the reissuance on March 1, 2001 of the Class M and Class N preferred stock to
Counsel.   The net effect of these
transactions was a benefit included in the net loss per common share of
$15,512,473 for the year ended December 31, 2001.



On September 6,
2001, all outstanding shares of the Companys Class C preferred stock
automatically converted into shares of common stock according to the terms of
the designation of the Class C preferred stock.  Accordingly, 9,249 shares of Class C preferred stock were
converted into 3,415,015 shares of common stock.  In addition to the conversion of the preferred stock, the Company
was obligated to pay dividends declared but unpaid and other dividends not paid
on the preferred stock through the conversion date.  Accordingly, dividends in the amount of $630,313 were satisfied
through the issuance of 534,016 shares of common stock.



During 2000,
holders of the Series F redeemable preferred stock converted 248 of those
preferred shares.  Accordingly, they
were paid stock dividends of 87,477 shares of common stock on the converted
shares.



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 December 31:



F-16



---



##### 





|                                                                              |  | 2002        |  | 2001       |  | 2000       | 
|----------------------------------------------------------------------------- |  | ----------- |  | ---------- |  | ---------- | 
|                                                                              |  |             |  |            |  |            | 
|Assumed conversion of
  Series C preferred stock                              |  |            |  |           |  | 374,959    | 
|Assumed conversion of
  Series M convertible preferred stock                  |  |            |  |           |  | 8,175,676  | 
|Assumed conversion of
  Series N preferred stock                              |  | 615,200     |  | 615,200    |  | 10,260,810 | 
|Assumed conversion of
  convertible debt                                      |  | 125,440,609 |  | 22,852,506 |  | 7,539,830  | 
|Assumed exercise of
  warrants issued on conversion of convertible debt       |  |            |  |           |  | 5,000,000  | 
|Assumed exercise of
  options and warrants to purchase shares of common stock |  | 25,169,274  |  | 28,033,464 |  | 45,354,992 | 
|                                                                              |  | 151,225,083 |  | 51,501,170 |  | 76,706,267 | 



The above table excludes the potential dilutive effect of the Amended
Debt Restructuring Agreement (see note 15). 
Should that Agreement be approved by the shareholders at its annual
meeting in 2003, additional shares (as of December 31, 2002) of common stock of
approximately  8,800,000 would be
issued (which are not included in the above table).





Note 6  Discontinued Operations



On December 6, 2002, the Company entered into an agreement to sell
substantially all of the assets and customer base of I-Link Communications Inc.
(ILC), a wholly owned subsidiary of I-Link to Buyers United.  The sale includes the physical assets required
to operate I-Links nationwide network using its patented VoIP technology
(constituting the core business of ILC) and a license in perpetuity to use
I-Links proprietary software platform. The sale is anticipated to close in the
second quarter of 2003. The sale price consists of 300,000 shares of Series B
convertible preferred stock (8% dividend) of Buyers United, subject to
adjustment in certain circumstances, of which 75,000 are subject to an earn-out
provision (contingent consideration) based on future events related to ILCs
single largest customer.  The earn-out
takes place over a fourteen-month period beginning January 2003, on a monthly
basis.  The Company will recognize the
value of the earn-out shares when and if earned.



As the transaction had not closed as of December 31, 2002, the assets
to be sold have been reclassified as assets held for sale.  The book value of the assets to be sold as
of December 31, 2002 was $2,936,531. The fair value of the 225,000 shares
(non-contingent consideration to be received) of Buyers United convertible
preferred stock was determined to be $1,350,000 as of December 31, 2002, based
on the value of the underlying common stock of Buyers United and adjusted for
other qualitative issues such as the common stock underlying the preferred
stock would be restricted by Rule 144 and the common stock is thinly
traded.  As the value of the
consideration to be received is less than the book value of the assets sold,
I-Link recorded an impairment charge of $1,586,531 which has been included in
the loss from discontinued operations for 2002.  In prior years, the results of operations related to ILC had been
reported as a part of our Telecommunications segment which segment has been
discontinued as of December 31, 2002. 
As the contingent consideration is received, it will be recorded as a
modification to the impairment loss or as a gain on the sale of ILC.



Net assets of the discontinued operations are as follows:



Furniture,
  fixtures equipment and software
  
  $
  2,666,531Intangible
  assets
  
  270,000Impairment
  charge
  
  (1,586,531
  )Net assets 
  discontinued operations
  
  $
  1,350,000




Revenues of the discontinued operation were $7,806,000, $26,624,000 and
$20,567,000 in 2002, 2001 and 2000, respectively.



F-17



---



##### 





Note 7  Composition of Certain
Financial Statements Captions



Furniture,
fixtures, equipment and software consisted of the following at December 31:



2002
  
  2001Telecommunications
  network equipment
  
  $
  14,361,276
  
  $
  27,040,503Furniture,
  fixtures and office equipment
  
  2,938,729
  
  5,680,912Building
  /leasehold improvements
  
  218,727
  
  1,200,000Software
  and information systems
  
  296,209
  
  1,848,20117,814,941
  
  35,769,616Less
  accumulated depreciation and amortization
  
  (6,335,830
  )
  (14,745,920
  )$
  11,479,111
  
  $
  21,023,696




Included in
telecommunications network equipment are $9,781,469 and $10,137,861 in assets
acquired under capital leases at December 31, 2002 and 2001, respectively.  Accumulated amortization on these leased
assets was $3,930,306 and $1,674,967 at December 31, 2002 and 2001,
respectively.



Accrued liabilities consisted of the following at December 31:



2002
  
  2001Telecommunications
  and related costs
  
  $
  6,866,396
  
  $
  4,542,651Regulatory
  fees
  
  3,123,965
  
  2,352,772Other
  
  8,099,951
  
  5,374,808$
  18,090,312
  
  $
  12,270,231






Note 8 - Acquisition of Subsidiaries



Acquisition of WebToTel



On April 17, 2001, I-Link completed its acquisition of WebToTel and its
subsidiary Nexbell, for 17,454,333 shares of I-Link common stock issued to
Counsel, the owner of WebToTel.  The
acquisition of I-Link and WebToTel has been accounted for similar to a
pooling-of-interests using Counsels book values of the WebToTel assets and
liabilities, effective March 1, 2001, the earliest date that all three entities
were under common control of Counsel.



In December 2001 and subsequent to the time the Company recorded the
impairment of goodwill charge (see note 9) related to Nexbell, the Company sold
Nexbell to an unrelated party.  The sale
was a sale of Nexbells common stock and accordingly the assets and liabilities
of Nexbell were assumed by the purchaser with no further financial obligation
to I-Link.  At the time of the sale, the
liabilities exceeded the assets of Nexbell and accordingly a gain on sale of
subsidiary in the amount of $588,943 (the amount by which the liabilities of
Nexbell exceeded the assets) was recorded.



Purchase
of certain WorldxChange Communications, Inc. assets and liabilities



On June 4, 2001, I-Link Incorporated, through its wholly-owned
subsidiary WorldxChange, purchased certain assets and assumed certain
liabilities of WorldxChange Communications, Inc. (Debtor) from a bankruptcy
proceeding.  The purchased assets
included all of the assets employed in the Debtors operations in the United
States and consisted of the Debtors equipment, inventory, retail long distance
business, accounts receivable, deposits, licenses, permits, authorizations,
software programs and related technology. 
On June 4, 2001, the Debtor transferred the purchased assets to
WorldxChange in exchange for $13,000,000.



To fund the acquisition of the assets and provide working capital,
Counsel agreed to provide a collateralized loan to I-Link in the aggregate
amount of $15,000,000 (of which $13,000,000 was used for the purchase) as more
fully described in Note 10.



F-18



---



##### 





The purchase price was allocated to the fair values of assets acquired
and liabilities assumed as of June 4, 2001 as follows:



|Accounts receivable and
  other current assets              |  | $          | 12,386,687 | 
|----------------------------------------------------------- |  | ---------- | ---------- | 
|Furniture, fixtures,
  equipment and other long term assets |  | 4,580,285  |           
|Accounts payable and
  accrued liabilities                  |  | (2,061,753 | )         
|Obligations under
  capital leases                          |  | (1,224,219 | )         
|Net cash paid                                               |  | $          | 13,681,000 | 



Also, in connection with the acquisition, WorldxChange agreed to pay
$727,000 to a supplier for services rendered prior to the acquisition to
continue services with that vendor.  The
Company also incurred $681,000 of transaction costs related to the purchase.



In the Companys amended filing for the quarter ended September 30,
2002, the Company has recorded corrections of errors related to purchase
accounting for the acquisition of WorldxChange.  The impact of the errors is primarily a reclassification of non
current assets between furniture, fixtures and equipment and deposits recorded
as other long term assets.  The
corrections did not modify the total purchase price paid (see note 20 for
additional discussion).



Purchase
of the Enterprise and Agent business of RSL Com U.S.A. Inc.



On December 10, 2002, I-Link through its subsidiary WorldxChange,
completed the purchase of the Enterprise and Agent business of RSL Com U.S.A.
Inc (RSL). The purchase of RSL was to advance the Companys commercial agent
business, to increase network utilization and to provide an entry into the
management of information technology services for enterprise clients.  WorldxChange
paid a purchase price of $7,500,000 in cash and assumed a non-interest bearing
note for $1,000,000 which matures on March 31, 2004, subject to certain closing
balance sheet adjustments, and has agreed to pay up to an additional $2,000,000
in consideration due on March 31, 2004, which is contingent upon the
achievement of  certain revenue levels
by the Direct business for the year 2003. 
The actual amount due will be prorated based upon 2003 direct business
revenues between $25,000,000 ($0 amount payable) to $35,000,000 ($2,000,000
payable).  The cash element of the
purchase price of $7,500,000 was financed by a loan from I-Link to WorldxChange
that is due March 1, 2004.  I-Links
loan to WorldxChange was financed by a convertible loan from a wholly owned
subsidiary of Counsel Corporation (I-Links single largest stockholder) to
I-Link.  The loan from Counsel
Corporations subsidiary is convertible into common stock of I-Link at the
exchange rate of $0.084 per share, which rate represents the average closing
price of I-Links common stock for the twenty trading days preceding December
10, 2002.



Any amount of the $2,000,000 contingent payable
which is paid in the future will result in a future adjustment to the purchase
price.



The preliminary allocation of fair values of assets acquired and
liabilities assumed as of December 10, 2002 are as follows:



|Accounts receivable and
  other current assets |  | $          | 6,527,108 | 
|---------------------------------------------- |  | ---------- | --------- | 
|Furniture, fixtures,
  and equipment           |  | 3,101,966  |          
|Intangible assets                              |  | 2,623,507  |          
|Accounts payable and
  accrued liabilities     |  | (2,815,131 | )        
|Net cash paid                                  |  | $          | 9,437,450 | 



F-19



---



##### 





Components of the intangible assets are as follows:



Amount
  
  Amortization
  PeriodIntangible
  assets subject to amortization:Customer
  contracts and relationships
  
  $
  1,786,000
  
  60 monthsAgent
  relationships
  
  587,507
  
  36 monthsAgent contracts
  
  250,000
  
  12 months$
  2,623,507




Unaudited pro forma results of operations for the years ended December
31, 2002 and 2001 as if the acquisitions had been completed as of the beginning
of each period presented are shown below. 
The pro forma results for 2002 include the results of operations for RSL
for the period from January 1, 2002 to December 10, 2002.  The pro forma results for 2001 include the
historical result of operations of WorldxChange for the twelve months ended
September 30, 2001 and RSL for the year ended December 31, 2001.  The pro forma results include estimates and
assumptions which management believes are reasonable.  However, pro forma results do not include any anticipated cost
savings or other effects of the planned integration of the operations, and are
not necessarily indicative of the results which would have occurred if the
business combinations had occurred on the dates indicated, or which may result
in the future.



|                                            |  | For the
  Year Ended  |            
|------------------------------------------- |  | --------------------- | -----------
|                                            |  | December
  31,
  2002 |            
|                                            |  | (as
  restated)       |            
|                                            |  |                       |            
|Revenues                                    |  | $                     | 143,338,000
|Net loss from
  continuing operations       |  | $                     | (19,743,000
|Net loss                                    |  | $                     | (32,252,000
|Loss per share
  from continuing operations |  | $                     | (0.17      
|Loss per share                              |  | $                     | (0.28      





Note 9  Intangible Assets



Amortization
of intangibles from WebToTel acquisition



I-Links wholly owned subsidiary WebToTel acquired Nexbell on February
22, 2001 and accounted for that acquisition using the purchase method of
accounting.  As part of that
acquisition, WebToTel recorded $9,136,427 of goodwill which was included in our
Telecommunications segment.



The Company continuously reviews the products it offers and their
contribution to the Company and its overall strategy.  These reviews resulted in a determination that it was not
economically justified to continue to maintain a portion of the Companys
network related to leased lines for local access origination and Nexbells METS
product.   In the fourth quarter of
2001, the Company approved a plan to discontinue offering the METS
product.  With this determination, the
Company performed an impairment analysis of the goodwill recorded in connection
with the acquisition of WebToTel and its subsidiary Nexbell.  The analysis was performed in response to
projected losses on the METS product acquired in the WebToTel acquisition.  As a result of this review, an $8,040,054
impairment charge, representing the remaining balance of the goodwill, was
recorded in September 2001.  This charge
is included in the loss for discontinued operations.



F-20



---



##### 





Amortization of intangibles from RSL
acquisition



I-Links wholly
owned subsidiary, WorldxChange acquired the Enterprise and Agent Business of
RSL on December 10, 2002 and accounted for that acquisition using the purchase
method of accounting.  As part of that
acquisition, the Company recorded $2,623,507 of intangible assets (see note 8),
of which $1,786,000 and $837,507 are part of the Acceris Solutions and Acceris
Partners segments, respectively, as of December 31, 2002.



Other intangible assets



Intangible assets
consisted of the following at December 31:



2002
  
  2001Intangible assets subject to amortization:Acquired
  technology
  
  $
  8,875,000
  
  $
  8,875,000Customer
  contracts and relationships
  
  1,786,000
  
  Agent
  relationships
  
  587,507
  
  Agent
  contracts
  
  250,000
  
  Accumulated
  amortization
  
  (8,924,584
  )
  (7,987,500
  )Net
  intangible asset
  
  2,573,923
  
  887,500Intangible
  assets not subject to amortization:Goodwill
  
  173,339
  
  173,339Other
  intangible assets
  
  0
  
  270,000173,339
  
  443,339Total
  intangible assets
  
  $
  2,747,262
  
  $
  1,330,839




Aggregate amortization expense of intangibles for the
year ended December 31, 2002 and 2001 was $937,085 and $3,287,323,
respectively.  Anticipated amortization
expense for intangible assets for the next five years are as follows:



2003
  
  $
  1,045,9792004
  
  472,5852005
  
  361,1242006
  
  357,2002007
  
  337,035




The following represents what the net loss for the years ended December
31, 2001 and 2000 would have been exclusive of amortization expense recognized
in that period related to goodwill and intangible assets that are no longer
being amortized.



2001
  
  2000Reported net
  loss
  
  $
  (44,496,625
  )
  $
  (25,752,178
  )Add back:
  goodwill amortization
  
  1,456,655
  
  360,282Add back:
  amortization of other intangible assets not subject to amortization
  
  54,000
  
  54,000Less adjustment
  to goodwill impairment
  
  (1,096,373
  )
  Adjusted net
  loss
  
  $
  (44,082,343
  )
  $
  (25,337,896
  )




F-21



---



##### 





The following
represents what the net loss per share applicable to common stock for the years
ended December 31, 2001 and 2000 would have been exclusive of amortization
expense recognized in that period related to goodwill and intangible assets
that are no longer being amortized.



|                                    |  | 2001  |       | 2000 |  
|----------------------------------- |  | ----- | ----- | ---- | -
|Net loss per
  share                |  | $     | (0.30 | )    | $
|Goodwill
  amortization             |  | 0.02  |       | 0.02 |  
|Other
  intangibles amortization    |  | 0.00  |       | 0.00 |  
|Adjustment to
  goodwill impairment |  | (0.01 | )     | 0.00 |  
|Adjusted net
  loss per share       |  | $     | (0.29 | )    | $





Note 10  Debt



Debt, the carrying value of which approximates market, consists of the
following at December 31:



|                                                                                                              |  | 2002        |            | 2001        |  
|------------------------------------------------------------------------------------------------------------- |  | ----------- | ---------- | ----------- | -
|                                                                                                              |  |             |            |             |  
|Note payable to a service provider, interest at
  7.0%, due on demand                                         |  | $           | 746,625    |             | $
|                                                                                                              |  |             |            |             |  
|Building
  mortgage payable to a bank, interest at 9.84%, payable in monthly installments
  of $10,028        |  |            |            | 797,329     |  
|                                                                                                              |  |             |            |             |  
|Note
  payable to a network service provider, interest at 10%, payable in monthly
  installments of  $22,500  |  | 393,861     |            | 612,454     |  
|                                                                                                              |  |             |            |             |  
|Revolving
  credit facility                                                                                   |  | 9,086,051   |            | 6,996,603   |  
|                                                                                                              |  |             |            |             |  
|Note
  payable, Winter Harbor, interest at prime plus 9%                                                      |  | 1,999,215   |            | 1,999,215   |  
|                                                                                                              |  |             |            |             |  
|Note
  payable, RSL estate, 10% imputed interest, due March 31, 2004                                          |  | 880,645     |            |            |  
|                                                                                                              |  |             |            |             |  
|Note
  payable, Counsel Corporation, interest at 9%, due June 30, 2004                                        |  | 7,162,247   |            | 11,527,512  |  
|                                                                                                              |  |             |            |             |  
|Note
  payable, Counsel Corporation, interest at 10%, due June 6, 2002, (to be
  converted into common stock) |  | 29,281,984  |            | 17,540,140  |  
|                                                                                                              |  |             |            |             |  
|Note
  payable, Counsel Corporation, interest at 10%, due June  30, 2004                                      |  | 9,350,000   |            | 11,561,023  |  
|                                                                                                              |  |             |            |             |  
|Note
  Payable, Counsel Corporation, interest at 10%, due June 30, 2004                                       |  | 7,436,389   |            |            |  
|                                                                                                              |  | 66,337,017  |            | 51,780,901  |  
|Less current portion                                                                                          |  | (12,073,374 | )          | (39,106,025 | )
|Long-term debt, less current portion                                                                          |  | $           | 54,263,643 |             | $



Maturities
of long-term obligations during 2003 and 2004 are $12,073,374 and
$24,981,659
respectively.  These maturities exclude
the June 6, 2002 loan of $29,281,247 as it will be satisfied by the issuance of
common stock (see note 15).



In December 2001, WorldxChange entered into a three-year loan and
security agreement with a financial institution, which consists of an accounts
receivable based revolving credit facility. 
The facility allows WorldxChange to borrow up to a maximum of $20
million subject to certain restrictions and borrowing base limitations.  The maximum available borrowing base is
determined as a specific percentage of eligible accounts receivable.  The balance outstanding is reduced by the application
of payments received on collection of accounts receivable.  Outstanding balances under the loan bear
interest at the prime rate plus 1.75% with a minimum interest rate of 6% (rate
averaged 6% in 2002 and 2001 due to the floor) and are



F-22



---



##### 





collateralized by substantially all the assets of the
WorldxChange.  At December 31, 2002,
$2,634,000 remains available under the revolving credit facility based on
borrowing base limitations. 
Additionally, the loan contains certain financial covenants related to
WorldxChange for fiscal 2003 and 2004. 
In conjunction with executing the credit facility, an Intercreditor
Agreement was entered into between WorldxChange and Counsel whereby the
promissory note between WorldxChange and Counsel due June 2004 was subordinated
to the credit facility.  Further, the
cumulative principal repayments of the promissory note are not to exceed
$11,500,000 during the term of the facility. An intercreditor agreement
prohibits repayment under the Counsel note except under the achievement of
specific financial results at WorldxChange. 
In 2002, such financial results were achieved and $3,000,000 was repaid
to Counsel.



As of September 30, 2001, I-Link was in default on an equipment
lease.  This lease was secured by a
letter of credit issued by an affiliate of Winter Harbor LLC, a former majority
shareholder of I-Link.  On October 11,
2001, the leasing company drew against the letter of credit in the amount of
$1,999,215.  As of December 31, 2002 and
2001, I-Link has reflected the principal and interest related to this draw on
the letter of credit in its consolidated financial statements.  On October 26, 2001, I-Link received a
demand for payment from Winter Harbor LLC for the amount of the draw on the
letter of credit and interest (at prime plus 9%) since October 11, 2001.  The Company is evaluating Winter Harbors
demand in light of the various agreements entered into between the Company,
Counsel Communications LLC and Winter Harbor. 
While the Company believes that it will not be required to pay cash to
Winter Harbor of the amount claimed, there can be no assurance as to the
ultimate outcome of this matter.



The
Company borrowed $12,000,000 under a loan agreement with Counsel Communications
during 2001(see note 15).  Interest on
the note (9% per annum) is automatically added to principal at the end of each
calendar quarter.  The note was due
March 1, 2004, but in March 2003, the due date was extended to June 30,
2004.  The note is convertible into
I-Links common stock at a conversion rate of $0.56 per share, which conversion
price was reset to  $0.39 upon issuance
of  the $7,500,000 convertible loan to
Counsel (discussed below ) pursuant to automatic reset provisions of the
original loan agreement.  At any time
the Company made a draw on the loan agreement and the market price of the
Companys common stock was higher than the conversion rate, a debt discount was
recorded equal to this beneficial conversion feature
(BCF).  Further debt discounts were recorded
resulting from dilutionary adjustments to the conversion price from
the issuance of new convertible securities. Additionally, the
accumulation of unpaid interest costs on the convertible debt is
deemed to be interest paid in kind (PIK) containing a
conversion feature which once assessed as PIK interest requires the
determination of a debt discount. A debt discount of $7,501,914 was recorded on the borrowings of
$12,000,000 plus accrued interest.  This discount is being
accreted to interest expense over the term of the loan
agreement, at the point of advance or maturity of the BCF.



On June 6, 2001, I-Link and Counsel entered into a Loan and Security
Agreement (Loan Agreement).  Any monies
advanced to I-Link between June 6, 2001 and April 15, 2002, (in the amount not
to exceed $10,000,000) will be governed by the Loan Agreement. In connection
with the Loan Agreement, I-Link executed a note payable to Counsel, due June 6,
2002.  The loan is secured by all of the
assets of I-Link.  Outstanding balances
(including any accrued and unpaid interest of $2,888,318 as of December 31,
2002) under the loan bear interest at 10% per annum which interest is payable
quarterly in arrears following the last business day of each quarter.  However, Counsel may (and has elected to do
so through December 31, 2002) at its sole election allow interest to accrue and
become payable at the end of the term. 
This Loan Agreement was amended on June 27, 2002 under which the
borrowing amount was increased to $24,306,866. The amended agreement also
allowed for additional advances as needed to I-Link, which advances totaled
$2,086,800 through December 31, 2002 (See more detailed discussion of the
Amended Agreement in Footnote 15). 
Counsel has indicated their intent to convert this note into common
stock as allowed for in the Amended Agreement and as Counsel controls
sufficient shares to vote as required to bring to pass the authority to effect
the conversion, the amounts due under this note have been classified as debt to
be converted to common stock in the long-term liability section of the balance
sheet as of December 31, 2002.



On June 4, 2001, WorldxChange entered into a $15,000,000 loan and
security agreement and promissory note with Counsel (as the lender) and I-Link
Incorporated (as the guarantor).  The
loan is collateralized by all assets of WorldxChange.  The  loan is also
guaranteed by I-Link and collateralized by the assets of I-Link.  Outstanding balances under the loan bear
interest at 10% per annum. The proceeds of the loan were used to purchase and
operate certain of the business assets purchased under the court-supervised
sale in the bankruptcy proceeding of World Access, Inc.  The proceeds were also utilized to pay fees
and expenses related to such asset acquisition and operation and pay certain
assumed liabilities related to the transaction.  In 2002 and 2001, WorldxChange repaid $3,000,000 and $2,500,000
of the principal amount outstanding under the promissory note and as of
December 31, 2002, the outstanding balance was $9,350,000, of which $6,000,000
is permitted to be repaid under



F-23



---



##### 





certain conditions, during the three-year term of the revolving credit
facility discussed above.  The
promissory note matured in June 2002, however the loan has been subordinated to
the revolving credit facility.  In March
2003, Counsel extended the due date of the note to June 30, 2004



In connection with the $15,000,000 loan, I-Link issued to Counsel a
warrant to purchase 15,000,000 shares of common stock of I-Link at an exercise
price of $0.60 per share.  The warrants
expire on June 4, 2003.  The Company
recorded $2,170,059 in 2001 as a discount against the $15,000,000 loan from
Counsel representing the relative fair value attributed to the warrant. The
value of the warrants was calculated using the Black Scholes Model and is being
amortized over the original one-year term of the loan.  As of December 31, 2002, the debt discount
was fully amortized.



In connection with the acquisition of RSL in December 2002, I-Link
entered into a $7,500,000 note payable to Counsel Corporation which is
convertible into common stock of I-Link at a conversion rate of $0.08375 per
share.  The note was due March 1, 2004,
but in March 2003, the due date was extended to June 30, 2004. The Company
recorded $111,874 as a discount against the $7,500,000 loan representing a
beneficial conversion feature as the conversion price was less than the market
price of I-Links common stock at the date of the note. The beneficial
conversion feature is being amortized to interest expense over the life of the
note.  As of December 31, 2002, the
unamortized discount was $104,861.



Note 11  Commitments



Agreements classified as
operating leases have terms ranging from one to six years.  The Companys rental expense for operating
leases was approximately $4,547,000, $13,547,000, and $6,946,000 for 2002, 2001
and 2000, respectively.



Future minimum rental
payments required under non-cancelable capital and operating leases with
initial or remaining terms in excess of one year consist of the following at
December 31, 2002:



Capital
  Leases
  
  Operating
  LeasesYear ending December 31:2003
  
  $
  3,036,000
  
  $
  2,452,0002004
  
  3,015,000
  
  2,094,0002005
  
  1,514,000
  
  1,718,0002006
  
  
  
  959,0002007
  
  
  
  346,000Total
  minimum payments
  
  7,565,000
  
  $
  7,569,000Less
  amount representing interest
  
  (705,000
  )Present
  value of net minimum lease payments
  
  6,860,000Less
  current portion
  
  (2,714,000
  )Long-term
  obligations under capital leases
  
  $
  4,146,000




Subsequent
to year-end, the Company was released from certain operating leases in the
amounts of $324,000, $168,000 and $84,000 in 2003, 2004 and 2005, respectively,
subject to the closing of the Buyers United transaction.



I-Links
subsidiaries have various agreements with national carriers to lease local
access spans and to purchase carrier services. The agreements include minimum
usage commitments with termination penalties up to 100% of the remaining commitment.  Minimum usage commitments are as follows:



|Year ending
  December 31 |  |         |           
|------------------------- |  | ------- | ----------
|2003                      |  | $       | 14,184,000
|2004                      |  | 923,000 |           
|                          |  |         |           





F-24



---



##### 





Note 12  Extraordinary Gain on
Extinguishment of Debt



During the third quarter of 2001, Nexbell was in default on two leases
and at the time of settlement, Nexbell was liable for $1,272,818.  The debt was settled during the fourth
quarter of 2001 for a one-time payment of $180,000 and accordingly the Company
recorded an extraordinary gain in the amount of $1,092,818.





Note 13
 Potential Acquisitions



On
July 22, 2002, the Company agreed to purchase certain assets and related
liabilities of Transpoint Communications, LLC (Transpoint) and Local Telecom
Holdings, LLC (Local Telecom), completion of which is pending subject to
regulatory approvals.  The total
purchase price shall not exceed $1,850,000, $250,000 of which is fixed and the
remainder of which is variable depending on revenues achieved by the acquired
businesses in June 2003.  At the same
time, the Company and Local Telecom entered into a management agreement,
pursuant to which the Company provides certain management services to Local
Telecom for a monthly fee of $15,000, and a wholesale telecommunications
services agreement, pursuant to which the Company provides network services to
Local Telecom.  The Company recorded
revenues from Local Telecom for management and wholesale telecommunications
services totaling $160,000 during the year ended December 31, 2002.  As part of the management agreement, the
Company collected customer accounts on behalf of Local Telecom and paid certain
costs and expenses of Local Telecom from the date of the agreement through
December 31, 2002.  At December 31,
2002, the Company had a receivable from Local Telecom of $1,412,000 that
represented uncollected revenues from Local Telecom plus costs and expenses
paid for Local Telecom, less collections on accounts receivable of Local
Telecom.  This receivable will be
applied against the purchase price and, as a result, has been recorded as a
long-term asset.





Note 14 - Income Taxes



The
Company recognized no income tax benefit from its losses in 2002, 2001 and
2000. The reported benefit from income taxes varies from the amount that would
be provided by applying the statutory U.S. Federal income tax rate to the loss
from continuing operations before taxes for the following reasons:



2002
  
  2001
  
  2000(as restated)Expected federal statutory tax benefit
  
  $
  (5,212,055
  )
  $
  (8,831,451
  )
  $
  (5,151,951
  )Increase (reduction)
  in taxes resulting from:State income taxes
  
  (429,908
  )
  (505,729
  )
  (478,690
  )Foreign loss not subject to domestic tax
  
  1,071
  
  233,999
  
  1,584,313Non-deductible interest on certain notes
  
  774,043
  
  356,993
  
  Exercise of stock options issued for services
  
  
  
  
  
  (1,277,402
  )Non-deductible goodwill
  
  
  
  3,096,030
  
  Change in valuation allowance attributable to continuing
  operations
  
  4,858,940
  
  7,457,214
  
  6,373,667Other
  
  7,909
  
  (1,807,056
  )
  (1,049,937
  )$
  
  
  $
  
  
  $
  




The
change in the valuation allowance, including discontinued operations, was
$9,522,620, $14,356,375 and $10,695,573 for the years ended 2002, 2001 and
2000 respectively.



At December 31, 2002, the Company had total net operating loss
carryforwards for federal income tax purposes of approximately
$138,000,000.  These net operating loss
carryforwards expire between 2006 and 2022. 
The Companys utilization of
approximately $79,000,000 of the total net operating loss carryforward against
future taxable income will be subject to an annual limitation of approximately
$2,246,000 per year because of the change in ownership that occurred in 2001,
as required by Internal Revenue Code Section 382.  Due to the expiration of the net operating loss carryforwards,
the Company may only be able to utilize approximately $45,000,000 of the total
$79,000,000 net operating loss carryforward that is subject to the annual
limitation under Internal Revenue Code Section 382.   The Company also has net operating losses for state
income tax purposes.  Certain entities
are subject to state income tax in multiple jurisdictions.  Available state tax loss carryforwards differ
by jurisdiction.



F-25



---



##### 







The components of the deferred tax asset and liability of continuing
and discontinued operations as of December 31, 2002 and 2001 are as follows:



|                                                                     |  | 2002          |            | 2001        |  
|-------------------------------------------------------------------- |  | ------------- | ---------- | ----------- | -
|                                                                     |  | (as restated) |            |             |  
|Deferred tax assets:                                                 |  |               |            |             |  
|Tax net operating loss carryforwards                                 |  | $             | 51,689,887 |             | $
|Acquired in-process research and development and intangible
  assets |  | 3,434,686     |            | 3,503,450   |  
|Amortization of deferred compensation on stock options               |  | 1,933,060     |            | 1,933,060   |  
|Reserve for loss on disposal of discontinued operations              |  | 304,173       |            | 304,173     |  
|Reserve for accounts receivable and inventory valuation              |  | 658,555       |            | 694,895     |  
|Accrued officers wages                                               |  | 74,600        |            | 101,545     |  
|Accrued vacation                                                     |  | 80,427        |            | 145,511     |  
|Accrued interest                                                     |  |              |            |            |  
|Unearned revenue                                                     |  | 1,924,106     |            | 741,030     |  
|Other                                                                |  | 150,317       |            | 20,228      |  
|Depreciation and amortization                                        |  | 1,707,705     |            |            |  
|Valuation allowance                                                  |  | (61,957,516   | )          | (52,434,896 | )
|Total deferred tax asset                                             |  |              |            | 8,209       |  
|Deferred tax
  liability:                                            |  |               |            |             |  
|Excess tax depreciation and amortization                             |  |              |            | (8,209      | )
|Total deferred tax liability                                         |  |               |            | (8,209      | )
|Net deferred tax asset                                               |  | $             |           |             | $



The valuation allowance at December 31, 2002 and 2001 has been provided
to reduce the total deferred tax assets to the amount which is considered more
likely than not to be realized, primarily because the Company has not generated
taxable income from its business communications services.  The change in the valuation allowance is due
primarily to the increase in net operating loss carryforwards.



Note 15  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 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, and a wholly owned subsidiary of Counsel
Corporation, (collectively, Counsel). 
Pursuant to the terms and provisions of the Loan Agreement, Counsel
agreed to make periodic loans to I-Link in the aggregate principal amount not
to exceed $10,000,000.  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 can convert the loan into shares of
common stock of I-Link at a



F-26



---



##### 





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 were $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 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 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.  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.



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) into I-Link.  The merger was completed on April 17, 2001
(see note 8).



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 $0.56 per common share, in
accordance with their respective conversion rights.



On June 6, 2001, I-Link and Counsel entered into a Loan and Security
Agreement (Loan Agreement).  Any monies
advanced to I-Link between June 6, 2001 and April 15, 2002, (in the amount not
to exceed $10,000,000) will be governed by the Loan Agreement. In connection
with the Loan Agreement, I-Link executed a note payable to Counsel, due June 6,
2002.  The loan is secured by all of the
assets of I-Link. As of December 31, 2001, advances under this loan agreement
totaled $10,000,000. On June 27, 2002 the June 6, 2001 loan was amended to an
amount of $24,306,866.  The amended
agreement also allowed for additional advances as needed to I-Link, which
advances totaled $2,086,800 through December 31, 2002. (see below and note 10)



On October 15,
2002, I-Link and Counsel entered into an Amended and Restated Debt Restructuring
Agreement (Amended Agreement) amending an earlier restructuring agreement
dated July 25, 2002.   The Amended Agreement includes the following
terms:



1.Principal
($24,306,866) and associated accrued interest ($2,284,351), as of October 15,
2002, under the June 6, 2001 loan agreement 
(as amended on June 27, 2002) (the June 6, 2001 Loan Agreement) will
be exchanged for common stock of I-Link at $0.18864 (representing the average
closing price of I-Links common stock during May 2002).  This will result in the issuance of
140,962,770 shares of I-Link Common stock upon closing.



F-27



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##### 





2.Counsel currently
has a written commitment to fund, through long-term inter-company advances or
equity contributions, all capital investment working capital or other
operational cash requirements (which amounts are currently unknown) of I-Link
through April 15, 2003 (subsequent to this agreement the commitment has been
extended to April 15, 2004).  In
addition to this commitment, Counsel shall fund the operations of I-Link
through the date of adoption of an Operating Plan, which is yet to be adopted
by the I-Link Board of Directors and Counsel. Counsel has also agreed to
advance to I-Link:



any and all
amounts paid or payable by I-Link to shareholders of I-Link that exercise their
dissenters rights in connection with the transactions subject to this
Agreement;



the amount for
the annual premium to renew the existing Directors and Officers insurance
coverage (which is and shall be separate and distinct from insurance policies
maintained by Counsel Entity or their affiliated entities) for an additional
one year from the current date of its expiration in November 2002, and Counsel
represents and covenants that they will do any and all things reasonably
necessary to cause such insurance to be continued in effect until at least
November 2003 in types and amounts that are, at a minimum, currently in force,
so long as such insurance is available on commercially reasonable terms;



3.Counsel shall
reimburse I-Link for all costs, fees and expenses, in connection with the
Agreement and Amended Agreement and transactions contemplated thereby including
all expenses incurred and yet to be incurred, including the Special Committees
costs to negotiate the Agreement, Amended Agreement and costs related to
obtaining shareholder approval.  During
2002, Counsel reimbursed I-Link $492,323 for certain reimbursable expenses, the
receipt of which has been recorded as additional paid-in capital.



4.The issuance of
common stock by I-Link pursuant to this Agreement will result in a weighted
average conversion price adjustment pursuant to the provisions of the March 1,
2002 Loan Agreement.  Whereas the
conversion price for the March 1, 2002 Loan Agreement had been $0.56, the new
conversion price will be approximately $0.31 after taking into
consideration the issuance of the convertible note to fund the RSL
acquisition.



5.Counsel agrees
that, if the Amended Agreement is approved by the I-Link shareholders, it shall
not take any action under Section 607.1104 of the Florida Business Corporation
Act prior to June 30, 2003.  Section
607.1104 allows a shareholder of 80% or more of the outstanding voting
securities of a Florida corporation to cause that corporation to be merged with
the shareholder or a corporation formed by that shareholder.  The net result of a Short Form Merger is
that the minority shareholders are involuntarily removed as shareholders of the
corporation and are paid an amount of money considered to be the fair market
value of their shares in the corporation. 
Upon the closing of the Amended Agreement, Counsel will own over 80% of
I-Links outstanding common stock.



Funding provided by Counsel pursuant to this Amended Agreement
($2,086,800) prior to the closing of this transaction and prior to December 31,
2002, shall, together with interest subsequent to October 15, 2002 at 10% per
annum on the note amount and borrowings subsequent to October 15, 2002 (which
totals $1,996,033), constitute a purchase of common stock for a purchase price
per share of $0.18864.  Any funding
provided by Counsel in each month during the 2003 calendar year (of which there
has been none through March 31, 2003) shall constitute a purchase of additional
shares of common stock for a purchase price per share equal to the average
closing price of a share of I-Link common stock on the twenty (20) days
preceding the funding.



As a result of Counsels purchase of Winter Harbors security holdings
in I-Link, Counsel 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, 2004.



F-28



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##### 



To fund the acquisition of the assets purchased and liabilities assumed
by WorldxChange, Counsel provided a loan to WorldxChange in the aggregate
amount of $15,000,000.  The loan is
subordinated to the revolving credit facility described above and is
collateralized against all assets of WorldxChange.  (see note 10)



In connection with the acquisition of RSL in December 2002, I-Link
entered into a $7,500,000 note payable to Counsel Corporation which is
convertible into common stock of I-Link at a conversion rate of $0.08375 per
share.  (see note 10)



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 $7,501,914 on the convertible debt funded by Counsel
that was received through June 30, 2001. 
The amount of the initial discount, if applicable, is calculated as the
difference between the conversion price ($0.56) 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). Further debt discounts have been recorded resulting from
dilutionary adjustments to the conversion price from the issuance of
new convertible securities. Additionally, the accumulation of unpaid
interest costs on the convertible debt is deemed to be interest paid
in kind (PIK) containing a conversion feature which once
assessed as PIK interest requires the determination of a debt
discount. The beneficial conversion feature is being amortized over
the life of the convertible note.



Note 16  Legal Proceedings



On or about January 24, 2001 Red Cube International, AG (Red Cube AG)
delivered to the Company a written demand for arbitration under the May 2000
Cooperation and Framework Agreement between the parties.  Red Cube AGs demand constituted written
notice of an alleged breach of the Cooperation and Framework Agreement. The
Company denied these allegations, filed a counterclaim against Red Cube, AG and
filed a third-party claim against Red Cube, Inc, seeking compensatory and/or
punitive damages for Red Cube Inc.s default under a subsequent agreement to
provide approximately $60,000,000 in equity funding to us, engaging in a scheme
to drive the Company out of business and obtain control of the Companys
proprietary technology, telecommunications network, key employees and
customers.



F-29



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##### 





On July 9, 2002 an evidentiary arbitration hearing was held in New York
before a panel of arbitrators of the AAA and the AAA panel issued its award
effective October 7, 2002.  The AAA
panel dismissed all of Red Cubes claims with prejudice and determined that Red
Cube had breached the agreements between the parties.  The arbitration panel awarded I-Link $6,741,835 in damages
against Red Cube International AG and Red Cube International, Inc., jointly and
severally.  In addition the AAA panel
ordered Red Cube to pay I-Link $18,210 as reimbursement for certain
administrative fees and expenses and $64,033 as reimbursement for a portion of
the arbitrators compensation.  As
uncertainty exists at this time as to the ultimate collectibility of the
awarded amount, management has not recorded any benefit relating to this reward
in the financial statements.



On November 9, 2000 D/Vit, Inc (Dvit) filed an action against I-Link
in federal court in Texas alleging that I-Links use of the V-Link trademark
infringed upon Dvits intellectual property rights in the mark V Linc.  Dvits complaint sought damages and an
injunction enjoining I-Links use of the mark V-Link.  On August 22, 2001 the court issued a
preliminary injunction enjoining I-Links use of the V-Link mark.  I-Link had already elected to change the
name of its product to I-Link One Number. 
On February 14, 2002 I-Link filed a motion for summary judgment asking
the court to rule as a matter of law that I-Links past use of the V-Link
mark did not constitute an infringement upon Dvits intellectual property
rights in the V Linc mark.  Also on
February 14, 2002, Dvit filed a motion for partial summary judgment asking the
court to determine as a matter of law that I-Links prior use of the V-Link
mark infringed upon Dvits rights in the V Linc mark.  On May 8, 2002 the court issued a Memorandum
and Order (Order) denying I-Links motion for summary judgment and granting
Dvits partial motion for summary judgment. 
The Order permanently enjoined I-Link from using the V-Link mark in
association with the sale, marketing, description, development or service of
its telecommunications products.  The
courts Order did not address possible damages. In December 2002, the Company
settled for $180,000 of which $120,000 was previously reserved.



On March 10, 2000, the Company and JNC Opportunity Fund, Ltd. (JNC)
entered into a settlement and release agreement relating to certain litigation
concerning shares of Series F Preferred stock held by JNC.  The shares of Series F Preferred stock held
by JNC were convertible into 1,104,972 shares of common stock under the
original agreement with JNC.  On March
10, 2000, the Company issued 531,968 shares of common stock to JNC pursuant to
the settlement agreement in cancellation of the Series F shares held by
JNC.  The balance of the shares required
to be issued pursuant to the settlement agreement required approval at a
special meeting of the shareholders held on May 23, 2000, at which time
approval of the shareholders was received. 
Due to the delay in issuance of the shares required to be issued
pursuant to the settlement agreement until shareholder approval was received
and the related common shares were registered, the Company issued 20,458
Additional Shares of common stock in accordance with the agreement.



In 2000, I-Link issued 87,477 shares representing dividends associated
with the Series F stock and has been recorded in the Companys financial
statements as dividends paid, and 129,519 shares have been recorded as
settlement expense.  The Company
recorded interest expense of $111,021 representing the market value of the
common stock issued.  The amount of  settlement and interest expense was
determined by reference to the market value of the Companys common stock on
the date of issuance multiplied by the common shares issued.  Accordingly, the total settlement and
interest expense was $639,565 and $111,021, respectively.



The Company is involved in litigation relating to other claims arising
out of its operations in the normal course of business. The litigation and
arbitration referred to above is not expected, individually or in the
aggregate, to have a material adverse affect on the Company.



F-30



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##### 





Note 17 - Stockholders Equity



Series N preferred stock



On July 23, 1999, the Company completed its offering of 20,000 shares
of Series N preferred stock.  The
offering was fully subscribed through cash subscriptions and the Company
exercised its rights to exchange notes payable to Winter Harbor of $8,000,000
and $4,000,000, plus accrued interest. 
In total the Company received $7,281,086 in cash (before expenses of
$486,679) and exchanged $12,718,914 in debt and accrued interest.  The Series N conversion price was initially
set at $2.78. The conversion rate was adjusted to $1.48 as of December 31, 2000
and $1.25 in January 2001 based on 110% of the average trading price for any 20
day period following the date that Series N preferred stock is first issued
subject to a floor of $1.25.  The Series
N preferred stock votes with the common stock on an as converted basis and is
senior to all other preferred stock of the Company.  Dividends, if any, will be paid on an as converted basis equal to
common stock dividends.



During 2001 and 2000, holders of the Series N
preferred stock converted 14,417 (including the shares issued to Winter Harbor
 see Note 15) and 1,129 of those shares into 11,532,343 and 467,169 shares of
common stock, respectively, at conversion prices ranging between $2.78 and
$1.25.  As of December 31, 2002 and
2001, there were 769 shares of Series N preferred stock outstanding.



At December 31, 2002, of the 10,000,000 shares of preferred stock
authorized, 9,486,500 remain undesignated and unissued.



Series C preferred stock



The Companys Articles of Incorporation provide for up to 240,000
shares of preferred stock as Series C Convertible Cumulative preferred stock
(the Series C preferred stock).  The
Series C preferred stock has a par value of $10 per share and holders are
entitled to receive cumulative preferential dividends equal to 8% per annum of
the liquidation preference per share of $60. 
Unless previously redeemed, the Series C preferred stock was initially
convertible into 24 shares of the Companys common stock (Conversion Shares) at
the option of the holder (subject to certain anti-dilution adjustments).  The Series C stock exchange price did allow
for downward resets based upon certain conditions subject to a floor of $1.25. On September 6, 2001, all outstanding shares of
the Companys Class C preferred stock automatically converted into shares of
common stock according to the terms of the designation of the Class C preferred
stock.  Accordingly, 9,249 shares of
Class C preferred stock were converted into 3,415,015 shares of common
stock.  In addition to the conversion of
the preferred stock, the Company was obligated to pay dividends declared but
unpaid and other dividends not paid on the preferred stock through the
conversion date.  Accordingly, dividends
in the amount of $630,313 were satisfied through the issuance of 534,016 shares
of common stock.



During 2000, 24,428 of Series C preferred stock were converted into
common shares.  At December 31, 2002,
there were no Series C preferred shares outstanding.



Series M
preferred stock



On October 10, 1997, the Company closed an agreement with Winter Harbor
pursuant to which Winter Harbor invested $12,100,000 in a new series of the
Companys convertible preferred stock (the Series M convertible preferred
stock).  The Series M convertible
preferred stock was entitled to receive cumulative dividends in the amount of
10% per annum before any other Series of preferred (other than Series F) or
common stock receives any dividends. 
Thereafter, the Series M convertible preferred stock was to participate
with the common stock in the issuance of any dividends on a per share
basis.  The Series M convertible
preferred stock had the right to veto the payment of dividends on any other
class of stock.



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.  During 2001, all
8,522 shares of Series M preferred stock outstanding were converted into
41,849,107 shares of common stock (at an equivalent common share price of $0.56
in accordance with its conversion features). 
In addition, the Company was obligated to pay a dividend in the amount
of $4,812,214 on the Series M preferred stock being converted, which dividend
was paid by issuance of 8,593,239 shares of common stock.  At December 31, 2002, there were no Series M
preferred shares outstanding.



F-31



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##### 





Series F preferred stock



On July 9, 1998 the Company obtained a $10,000,000 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 1,000 shares of the Companys newly created 5% Series
E convertible preferred stock, which were convertible into the Companys common
stock.  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 for which the Series
E preferred shares originally issued to JNC were exchanged one for one.  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 the moving average
market price of the Companys common shares at the time of conversion, subject
to a $1.25 floor.  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. 
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.



During 2000, JNC converted 248 shares of Series F redeemable preferred
stock into 1,104,972 shares of common stock. 
In addition, during 2000, JNC was paid a stock dividend of 87,477 shares
of common stock on the converted shares. 
As of December 31, 2002 all of the Series F redeemable preferred stock
had been converted.



Note 18 - Stock-based Compensation
Plans



At December 31, 2002, the Company has several stock-based compensation
plans, which are described below.  The
Company applies APB Opinion No. 25 and related interpretations in accounting
for its plans.  Accordingly, no
compensation cost has been recognized for its fixed option plans.



The fair value of each option grant is estimated on the date of the
grant using the Black-Scholes option pricing model with the following weighted
average assumptions: expected volatility of 150%, 120% and 102% in 2002, 2001
and 2000, respectively, risk free rates ranging from 2.02% to 4.40%, 3.17% to
6.62% and 4.67% to 6.83% in 2002, 2001 and 2000, respectively, expected lives
of 3 years for each year, and dividend yield of zero for each year.



|                                                                              |  | 2002                   |   | 2001                                  |      | 2000                   |           
|----------------------------------------------------------------------------- |  | ---------------------- | - | ------------------------------------- | ---- | ---------------------- | ----------
|                                                                              |  | Options
  and Warrants |   | Weighted
  Average
  Exercise
  Price |      | Options and
  Warrants |           
|Outstanding at
  beginning of year                                            |  | 28,033,464             |   | $                                     | 2.27 |                        | 45,354,992
|Granted                                                                       |  | 95,000                 |   | 0.07                                  |      | 20,509,559             |           
|Exercised                                                                     |  |                       |   |                                      |      |                       |           
|Expired                                                                       |  | (2,605,410             | ) | 6.34                                  |      | (1,643,177             | )         
|Forfeited                                                                     |  | (353,780               | ) | 4.27                                  |      | (36,187,910            | )         
|Outstanding at end of
  year                                                  |  | 25,169,274             |   | $                                     | 1.82 |                        | 28,033,464
|                                                                              |  |                        |   |                                       |      |                        |           
|Options and warrants exercisable
  at year end                                |  | 25,136,567             |   |                                       |      | 27,090,203             |           
|Weighted-average fair
  value of options and warrants granted during the year |  |                        |   | $                                     | 0.03 |                        |           



F-32



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##### 





The following table summarizes information about fixed stock options
and warrants outstanding at December 31, 2002.



|Exercise price  |  | Options and
  Warrants
  Outstanding |  | Weighted
  Average
  Remaining
  Life (years) |  | Weighted
  Average
  Exercise
  Price |      | Number
  Exercisable
  at December
  31, 2002 |            | Weighted
  Average
  Exercise
  Price |  
|--------------- |  | ------------------------------------ |  | --------------------------------------------- |  | ------------------------------------- | ---- | --------------------------------------------- | ---------- | ------------------------------------- | -
|$0.07 to $1.00  |  | 15,335,660                           |  | 0.60                                          |  | $                                     | 0.60 |                                               | 15,310,660 |                                       | $
|$1.13 to $3.00  |  | 2,813,278                            |  | 6.32                                          |  | 2.61                                  |      | 2,811,613                                     |            | 2.61                                  |  
|$3.14 to $5.87  |  | 6,402,718                            |  | 4.25                                          |  | 3.93                                  |      | 6,402,718                                     |            | 3.93                                  |  
|$6.25 to $13.88 |  | 617,618                              |  | 7.09                                          |  | 6.55                                  |      | 611,576                                       |            | 6.55                                  |  
|                |  | 25,169,274                           |  | 2.32                                          |  | $                                     | 1.82 |                                               | 25,136,567 |                                       | $



2001 Stock option and appreciation
rights plan



In September 2001, the shareholders of the Company approved the 2001
Stock Option and Appreciation Rights Plan which provides for the issuance of
incentive stock options, non-qualified stock options and stock appreciation
rights (SARs) up to an aggregate of 14,000,000 shares of common stock (subject
to adjustment in the event of stock dividends, stock splits, and other similar
events).  The price at which shares of
common stock covered by the option can be purchased is determined by the
Companys Board of Directors or its committee; however, in the case of
incentive stock options the exercise price shall not be less than the fair
market value of the Companys common stock on the date the option is
granted.  There were no options granted
under this plan in 2002 or 2001.



1997 Recruitment stock option plan



In October 2000, the shareholders of the Company approved an amendment
of the 1997 Recruitment Stock Option Plan which provides for the issuance of
incentive stock options, non-qualified stock options and stock appreciation
rights (SARs) up to an aggregate of 7,400,000 shares of common stock (subject
to adjustment in the event of stock dividends, stock splits, and other similar
events).  The price at which shares of
common stock covered by the option can be purchased is determined by the
Companys Board of Directors; however, in all instances the exercise price is
never less than the fair market value of the Companys common stock on the date
the option is granted.



As of December 31, 2002, there were options to purchase 2,118,024
shares of the Companys common stock outstanding.  The outstanding options vest over three years at exercise prices
of $0.07 to $13.88 per share.  Options
issued under the plan must be exercised within ten years of grant and can only
be exercised while the option holder is an employee of the Company.  The Company has not awarded any SARs under
the plan.  During 2002, 2001 and 2000,
options to purchase  859,356, 2,600,430,
and 439,542 shares of common stock, respectively, were forfeited or expired.  There were no exercises during 2002.



Director stock option plan



The Companys Director Stock Option Plan authorizes the grant of stock
options to directors of the Company. 
Options granted under the Plan are non-qualified stock options
exercisable at a price equal to the fair market value per share of common stock
on the date of any such grant.  Options
granted under the Plan are exercisable not less than six months or more than
ten years after the date of grant.



As of December 31, 2002, options for the purchase of 4,668 shares of
common stock at prices ranging from $0.875 to $3.875 per share were outstanding,
all of which are exercisable.  In
connection with the adoption of the 1995 Director Plan, the Board of Directors
authorized the termination of future grants of options under the plan; however,
outstanding options granted under the plan will continue to be governed by the
terms thereof until exercise or expiration of such options.  In 2002, no options were exercised and 2,334
expired.



F-33



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##### 





1995 Director stock option and
appreciation rights plan



The 1995 Director Stock Option and Appreciation Rights Plan (the 1995
Director Plan) provides for the issuance of incentive options, non-qualified
options and SARs to directors of the Company up to 250,000 shares of common
stock (subject to adjustment in the event of stock dividends, stock splits, and
other similar events).



The 1995 Director Plan also provides for the grant of non-qualified
options on a discretionary basis to each member of the Board of Directors then
serving to purchase 10,000 shares of common stock at an exercise price equal to
the fair market value per share of the common stock on that date.  Each option is immediately exercisable for a
period of ten years from the date of grant. 
The Company has 190,000 shares of common stock reserved for issuance
under the 1995 Director Plan.  As of
December 31, 2002, options to purchase 170,000 shares of common stock at prices
ranging from $1.00 to $1.25 per share are outstanding and exercisable.  No options were granted or exercised under
this plan in 2002, 2001 or 2000.



1995 Employee stock option and
appreciation rights plan



The 1995 Employee Stock Option and Appreciation Rights Plan (the 1995
Employee Plan) provides for the issuance of incentive options, non-qualified
options, and SARs.  Directors of the
Company are not eligible to participate in the 1995 Employee Plan.  The 1995 Employee Plan provides for the
grant of stock options which qualify as incentive stock options under Section
422 of the Internal Revenue Code, to be issued to officers who are employees
and other employees, as well as non-qualified options to be issued to officers,
employees and consultants.  In addition,
SARs may be granted in conjunction with the grant of incentive options and
non-qualified options.



The 1995 Employee Plan provides for the grant of incentive options,
non-qualified options and SARs of up to 400,000 shares of common stock (subject
to adjustment in the event of stock dividends, stock splits, and other similar
events).  To the extent that an
incentive option or non-qualified option is not exercised within the period of
exercisability specified therein, it will expire as to the then unexercisable
portion.  If any incentive option,
non-qualified option or SAR terminates prior to exercise thereof and during the
duration of the 1995 Employee Plan, the shares of common stock as to which such
option or right was not exercised will become available under the 1995 Employee
Plan for the grant of additional options or rights to any eligible employee.  The shares of common stock subject to the
1995 Employee Plan may be made available from either authorized but unissued
shares, treasury shares or both.  The
Company has 400,000 shares of common stock reserved for issuance under the 1995
Employee Plan.  As of December 31, 2002, options to purchase 135,250 shares of
common stock with an exercise price of $3.90 are outstanding under the 1995
Employee Plan.  During 2002, 2001 and
2000, options to purchase 10,000, 37,500 and 3,333, respectively, of common
stock were forfeited or expired.  No
options were exercised in 2002.



Other warrants and options



In 1996, the Company approved the issuance of 1,750,000 options to
executives of the Company, as part of their employment agreements, and 64,000
options to a consultant.  The options
expire in 2006 and have an option price of $3.90.  In 2000, 250,000 options were exercised.  As of December 31, 2002, there remained
1,564,000 options outstanding.



On July 1, 1996, the Company approved the issuance of options to
purchase 2,000,000 shares of common stock to two officers as part of their
employment agreements.  Each option had
an exercise price of $7.00 per share. 
The options expired in 2002.



During 1997, the Company issued options to purchase 1,210,000 shares of
common stock (210,000 of which were issued under the 1997 recruitment stock
option plan) to consultants at exercise prices ranging from $4.875 to $8.438
(repriced to $3.90 on December 13, 1998), which was based on the closing price
of the stock at the grant date.  The
fair value of the options issued was recorded as deferred compensation of
$4,757,134 to be amortized over the expected period the services were to be
provided.  As a result of the repricing,
the Company recorded additional deferred compensation expense totaling $262,200
(of which $21,103 was expensed in 2000), representing the incremental fair
value of the repriced options over the original options.  During 2000, $279,150 of the deferred
compensation was amortized to expense. 
All deferred compensation expense related to these options was
recognized as of December 31, 2000. During 2001 and 2000, options to purchase 0
and 91,000, respectively, shares of common stock expired.  During 2000, 169,000 options were exercised.  The remaining options must be exercised
within ten years of the grant date. As of December 31, 2002 there remained
890,000 options outstanding.



F-34



---



##### 





During 1997, the Company issued non-qualified options to purchase
2,295,000 shares of common stock to certain executive employees.  The options must be exercised within ten
years of the grant date and have an exercise price of $3.90.  There were no options forfeited in 2002,
2001 or 2000.  There were 78,000 options
exercised in 2000.  No options expired
or were exercised during 2002. As of December 31, 2002 there remained 2,118,219
options outstanding.



During 1998, the Company issued non-qualified options to purchase
935,000 shares of common stock to certain executive employees at exercise
prices ranging from $2.563 to $3.125, which price was based on the closing
price of the stock at the grant date. 
The options must be exercised within ten years of the grant date.  During 2002, 2001 and 2000, options to
purchase 0, 0, and 43,332 shares of common stock, respectively, were
forfeited.  No options were exercised
during 2002. As of December 31, 2002 there remained 809,446 options
outstanding.



In 1998 the Company issued warrants in connection with a financing
arrangement.  As of December 31, 2002,
there were 408,000 warrants outstanding with exercise prices from $4.89 to
$5.87.  The warrants expire in June
2003.



During 1999, the Company issued non-qualified options to purchase
655,000 shares of common stock to certain executive employees at exercise
prices ranging from $2.50 to $3.563, which price was based on the closing price
of the stock at the grant date.  The
options must be exercised within ten years of the grant date.  No options were exercised during 2002.  During 2001, 50,000 of these options were
forfeited.  During 2000, options to
purchase 230,000 shares of common stock were exercised.  As of December 31, 2002, there remained
375,000 options outstanding.



During 1999, the Company issued non-qualified options to purchase
200,000 shares of common stock to a consultant at an exercise price of $3.00,
which was based on the closing price of the stock at the grant date.  The fair value of the options issued was
recorded as deferred compensation of $300,000 to be amortized over the expected
period the services were to be provided.  
During 2000 and 1999 deferred compensation of $137,500 and $162,500,
respectively, was amortized to expense. As of December 31, 2002 there remained
200,000 options outstanding.



During 2000, the Company issued non-qualified options to purchase
2,585,000 shares of common stock to certain executive employees at exercise
prices ranging from $2.75 to $6.375, which price was based on the closing price
of the stock at the grant date.  The
options must be exercised within ten years of the grant date.   During 2001, 1,208,335 of these options
were forfeited. As of December 31, 2002, there remained 1,376,665 options
outstanding.



In June 2001, the Company issued to Counsel Communications (the
Companys largest shareholder) 15,000,000 warrants to purchase common stock at
$0.60 per share.  The grant of the
warrants was associated with the acquisition of WorldxChange.  These warrants were outstanding as of
December 31, 2002.



During 2000 the Company obtained approval from its shareholders to
establish the 2000 Employee Stock Purchase Plan.  This plan allows all eligible employees of the Company to have
payroll withholding of 1 to 15 percent of their wages.  The amounts withheld during a calendar
quarter are then used to purchase common stock at a 15 percent discount off the
lower of the closing sale price of the Companys stock on the first or last day
of each quarter.  This plan was approved
by the Board of Directors, subject to shareholder approval, and was effective
beginning the third quarter of 2000.  The
Company issued 34,518 and 23,494 shares to employees based upon payroll
withholdings during 2001 and 2000, respectively.  There were no issuances in 2002.



F-35



---



##### 





Note 19  Segment of Business
Reporting



The Companys reportable segments are as follows:



Acceris Solutions  is comprised of the enterprise
business of RSL which was acquired in December 2002.  This segment offers voice and data solutions to enterprise
customers through an in-house sales force.



Acceris Partners 
 includes operations of WorldxChange (began operations in June 2001 and
was formerly reported as the dial-around segment) and the agent and residential
business of RSL which was acquired in December 2002.  This segment offers a dial around telecommunications product and
a 1+ product through two channels, namely, multi-level marketing (MLM) and
commercial agents.



Acceris Technologies  is the former technology
licensing and development segment, which segment offers a fully developed
network convergence solution for voice and data.  The Company licenses certain developed technology to third party
users.



Marketing services  includes training and
promotional materials to IRs in the network marketing sales channel and
WebCentre set-up and monthly recurring fees. 
Additionally, revenues were generated from registration fees paid by IRs
to attend regional and national sales conferences.  This segment and revenue source was terminated in February 2000.



There are no material inter-segment revenues.  The Companys business is conducted
principally in the U.S.; foreign operations are not significant.   The table below presents information about
net loss and segment assets used by the Company as of and for the three years
ended December 31, 2002.  Information as
to year ending December 31, 2002 is as restated.



|                                      |  | For
  the Year Ending December 31, 2002 |          
|------------------------------------- |  | --------------------------------------- | ---------
|                                      |  | Acceris
  Solutions                     |          
|                                      |  |                                         |          
|Revenues from external
  customers    |  | $                                       | 1,547,000
|Interest and other income             |  | 1,000                                   |          
|Interest expense                      |  | 19,000                                  |          
|Depreciation and amortization expense |  | 158,000                                 |          
|Segment income (loss)                 |  | (629,000                                | )        
|                                      |  |                                         |          
|Other significant non-cash items:     |  |                                         |          
|Provision for doubtful accounts       |  | 33,000                                  |          
|                                      |  |                                         |          
|Expenditures for long-lived assets    |  | 3,102,000                               |          
|                                      |  |                                         |          
|Segment assets                        |  | 9,573,000                               |          
|                                      |  |                                         |          
|                                      |  |                                         |          



F-36



---



##### 





|                                        |  | For
  the Year Ending December 31, 2001 |           
|--------------------------------------- |  | --------------------------------------- | ----------
|                                        |  | Acceris
  Partners                      |           
|                                        |  |                                         |           
|Revenues from external
  customers      |  | $                                       | 50,289,000
|Interest revenue                        |  |                                        |           
|Interest expense                        |  | 2,499,000                               |           
|Depreciation and amortization
  expense |  | 2,286,000                               |           
|Segment income (loss)                   |  | (13,927,000                             | )         
|                                        |  |                                         |           
|Other significant non-cash items:       |  |                                         |           
|Provision for doubtful accounts         |  | 2,861,000                               |           
|                                        |  |                                         |           
|Expenditures for long-lived assets      |  | 14,797,000                              |           
|Segment assets                          |  | 32,206,000                              |           
|                                        |  |                                         |           
|                                        |  |                                         |           



|                                      |  | For
  the Year Ending December 31, 2000 |        
|------------------------------------- |  | --------------------------------------- | -------
|                                      |  | Marketing
  Services                    |        
|                                      |  |                                         |        
|Revenues from external
  customers    |  | $                                       | 464,000
|Interest revenue                      |  |                                        |        
|Interest expense                      |  |                                        |        
|Depreciation and amortization expense |  | 15,000                                  |        
|Segment income (loss)                 |  | (204,000                                | )      
|                                      |  |                                         |        
|Other significant non-cash items:     |  |                                         |        
|Provision for doubtful accounts       |  |                                        |        
|                                      |  |                                         |        
|Expenditures for long-lived assets    |  |                                        |        
|                                      |  |                                         |        
|Segment assets                        |  |                                        |        
|                                      |  |                                         |        



F-37



---



##### 





The following table reconciles reportable segment information to the
consolidated financial statements of the Company:



|                                                                                                        |  | 2002          |             | 2001        |   | 2000        |        
|------------------------------------------------------------------------------------------------------- |  | ------------- | ----------- | ----------- | - | ----------- | -------
|                                                                                                        |  | (as restated) |             |             |   |             |        
|                                                                                                        |  |               |             |             |   |             |        
|Total interest and other income
  for reportable segments                                               |  | $             | 357,000     |             | $ |            |        
|Unallocated interest revenue from corporate accounts                                                    |  | 38,000        |             | 81,000      |   | 487,000     |        
|                                                                                                        |  | $             | 395,000     |             | $ | 81,000      |        
|                                                                                                        |  |               |             |             |   |             |        
|Total interest expense for reportable segments                                                          |  | $             | 3,298,000   |             | $ | 2,499,000   |        
|Unallocated amortization of discount on notes payable                                                   |  |              |             |            |   |            |        
|Unallocated interest expense from related party debt                                                    |  | 4,512,000     |             | 1,556,000   |   | 1,054,000   |        
|Other unallocated interest expense from corporate debt                                                  |  | 385,000       |             | 638,000     |   | 433,000     |        
|                                                                                                        |  | $             | 8,195,000   |             | $ | 4,693,000   |        
|                                                                                                        |  |               |             |             |   |             |        
|Total depreciation and amortization for reportable
  segments                                           |  | $             | 4,225,000   |             | $ | 2,412,000   |        
|Unallocated amortization expense from intangible assets                                                 |  |              |             | 2,608,000   |   | 2,612,000   |        
|Other unallocated depreciation from corporate assets                                                    |  | 45,000        |             | 1,389,000   |   | 1,266,000   |        
|                                                                                                        |  | $             | 4,270,000   |             | $ | 6,409,000   |        
|                                                                                                        |  |               |             |             |   |             |        
|Total segment loss                                                                                      |  | $             | (6,368,000  | )           | $ | (12,316,000 | )      
|Unallocated non-cash amounts in consolidated net loss:                                                  |  |               |             |             |   |             |        
|Amortization of discount on notes payable                                                               |  | (861,000      | )           | (253,000    | ) |            |        
|Litigation settlement expense                                                                           |  |              |             |            |   | (640,000    | )      
|Gain on sale of subsidiary                                                                              |  |              |             | 589,000     |   |            |        
|Amortization of deferred compensation on stock options
  issued for services                            |  |              |             |            |   | (542,000    | )      
|Amortization of intangible assets                                                                       |  |              |             | (2,608,000  | ) | (2,612,000  | )      
|Other corporate expenses (primarily corporate level
  interest,  general and
  administrative expenses) |  | (8,101,000    | )           | (11,387,000 | ) | (14,373,000 | )      
|                                                                                                        |  | $             | (15,330,000 | )           | $ | (25,975,000 | )      
|                                                                                                        |  |               |             |             |   |             |        
|Total amortization of deferred
  compensation for reportable segments                                   |  |              |             |            |   |            |        
|Unallocated amortization of
  deferred compensation                                                     |  |              |             |            |   | $           | 542,000
|                                                                                                        |  |              |             |            |   | $           | 542,000
|                                                                                                        |  |               |             |             |   |             |        
|Expenditures for segment
  long-lived assets                                                            |  | $             | 6,849,000   |             | $ | 14,805,000  |        
|Other unallocated expenditures
  for corporate assets                                                   |  | 309,000       |             | 1,274,000   |   | 5,621,000   |        
|                                                                                                        |  | $             | 7,158,000   |             | $ | 16,079,000  |        
|                                                                                                        |  |               |             |             |   |             |        
|Segment assets                                                                                          |  | $             | 37,623,000  |             | $ | 32,343,000  |        
|Intangible assets not allocated
  to segments                                                           |  |              |             | 1,331,000   |   | 3,939,000   |        
|Other assets not allocated to
  segments*                                                               |  | 3,823,000     |             | 13,106,000  |   | 17,517,000  |        
|                                                                                                        |  | $             | 41,446,000  |             | $ | 46,780,000  |        






* Other assets not allocated to segments includes assets associated
with segments reported in previous periods which are no longer classified as
reportable segments, primarily assets of and related to the discontinued
operations of ILC (former telecommunications services segment).



F-38



---



##### 





Note 20  Summarized Quarterly Data
(unaudited)



Following is a summary of the quarterly results of operations for the
years ended December 31, 2002 and 2001. The amounts for all quarters of 2001
and the first three quarters of 2002 have been restated to reclassify amounts
as discontinued operations related to the sale of ILC in December 2002 (see
note 6) which had previously been reported in continuing operations.



|(in thousands of dollars, except
  per share amounts)                                                       |  |      |  | March 31 |        | June 30 |   | September
  30 |   | December
  31 |       
|----------------------------------------------------------------------------------------------------------- |  | ---- |  | -------- | ------ | ------- | - | -------------- | - | ------------- | ------
|Net sales:                                                                                                  |  | 2002 |  | $        | 24,392 |         | $ | 21,872         |   | $             | 20,156
|                                                                                                            |  | 2001 |  | 1,437    |        | 7,352   |   | 22,907         |   | 24,289        |       
|                                                                                                            |  |      |  |          |        |         |   |                |   |               |       
|Operating loss:                                                                                             |  | 2002 |  | $        | (340   | )       | $ | (246           | ) | $             | (851  
|                                                                                                            |  | 2001 |  | (3,515   | )      | (2,931  | ) | (5,457         | ) | (10,050       | )     
|                                                                                                            |  |      |  |          |        |         |   |                |   |               |       
|Net loss from
  continuing operations before discontinued operations and extraordinary item:                |  | 2002 |  | $        | (2,504 | )       | $ | (2,297         | ) | $             | (2,476
|                                                                                                            |  | 2001 |  | (3,813   | )      | (3,554  | ) | (7,228         | ) | (11,380       | )     
|                                                                                                            |  |      |  |          |        |         |   |                |   |               |       
|Loss from
  discontinued operations (2)                                                                     |  | 2002 |  | $        | (3,099 | )       | $ | (4,581         | ) | $             | (1,463
|                                                                                                            |  | 2001 |  | (2,856   | )      | 714     |   | (13,275        | ) | (4,198        | )     
|                                                                                                            |  |      |  |          |        |         |   |                |   |               |       
|Net loss: (1)                                                                                               |  | 2002 |  | $        | (5,603 | )       | $ | (6,878         | ) | $             | (3,939
|                                                                                                            |  | 2001 |  | (6,669   | )      | (2,839  | ) | (20,503        | ) | (14,486       | )     
|                                                                                                            |  |      |  |          |        |         |   |                |   |               |       
|Basic and
  diluted income (loss) before discontinued operations and extraordinary item
  per common share: |  | 2002 |  | $        | (0.02  | )       | $ | (0.02          | ) | $             | (0.02 
|                                                                                                            |  | 2001 |  | 0.22     |        | (0.03   | ) | (0.06          | ) | (0.11         | )     
|                                                                                                            |  |      |  |          |        |         |   |                |   |               |       
|Basic and
  diluted income (loss) per common share:                                                         |  | 2002 |  | $        | (0.05  | )       | $ | (0.06          | ) | $             | (0.03 
|                                                                                                            |  | 2001 |  | 0.16     |        | (0.03   | ) | (0.18          | ) | (0.15         | )     






(1)In the fourth quarter of
2001, the Company recorded an extraordinary gain on extinguishment of debt of
$1,092,818.



(2)In the third quarter of
2001, the Company recorded an impairment of goodwill of $8,040,054, which has
been included in discontinued operations in the above presentation.  In the fourth quarter of 2002, the Company
recorded an impairment charge in the amount of $1,586,531 related to the sale
of its ILC assets.



The summary financial
information above for the quarter ended September 30, 2002 reflects the impact
of correction of errors as reflected in the Companys amended Form 10-Q for the
period ended September 30, 2002.  The
amendment was necessary to correct errors primarily related to (i) the reversal
of certain liabilities and (ii) eliminate the Companys recognition of other
income from the establishment of long term deposit assets and the recognition
of an impairment loss on certain long-lived assets, both related to the June
2001 purchase of certain assets of WorldxChange Communications, Inc  which were reflected in the Form 10-Q as
originally filed for the period ended September 30, 2002 (see note 8).  The restatement increased the net loss for
the three and nine months ended September 30, 2002 by $576,944.

The summary financial information above for the quarter ended December 31, 2002 has
been restated from those originally issued to account for 1) revenues from the
 Companys network service offering when the actual cash collections to be retained by the
 Company are finalized, and 2) deemed interest expense for BCF
embedded in certain of the Companys indebtedness as required on
Emerging Issues Task Force Issue No. 00-27.  Both restatements had no
 effect on loss from discontinued operations or net loss per share from discontinued operations.
 The network service offering restatement increased the net loss for the fourth quarter and year
 ended December 31, 2002 by $3,505,043 and the net loss per share by $0.03.  The BCF restatement
 increased the net loss for the fourth quarter and year ended December 31, 2002 by $301,000 but
 had no effect on the net loss per share.  Both matters are discussed in more detail below.

1) Network Service Offering - SAB 101/103


In November 2002, the Company, through its Acceris
Partners segment, began to offer a network service offering. The Company ceased
offering this network service offering on July 23, 2003.  The Company initially recorded the revenue
and expenses related to this service offering using the accrual method of
accounting.  In the second quarter of
2003, the Company determined that collectibility of the amounts billed to
customers was not reasonably assured at the time of billing.  Accordingly, the Company has revised its
method of accounting for revenues from this network service offering from the
accrual method to recognition of revenue when the amount of our actual cash
collections are known and retained by the Company.  Under the Companys agreements with the LECs, cash collections
remitted to the Company are subject to adjustment, generally within two to four
months.  Commissions (included in
selling, general and administrative expense) and estimated bad debt expenses
associated with the eliminated revenues have also been eliminated.  All other direct expenses such as
telecommunications network expenses are expensed as incurred.  Commission expense (which is based on cash
collected) will be recognized when amounts collected can be reasonably
estimated.




The following sets forth the effect of these
restatements on the net loss and net loss per share for the year ended December
31, 2002.



|Net
  loss as originally reported                                                  |  | $          | (24,031,905 | )
|---------------------------------------------------------------------------------- |  | ---------- | ----------- | -
|Reduction
  of telecommunication services revenue                                  |  | (5,158,460 | )          
|Reduction
  of provision for doubtful accounts                                     |  | 331,783    |            
|Reduction
  of commissions included in selling, general and administrative expense |  | 1,321,634  |            
|Net
  loss as restated on Form 10-K/A#1                                            |  | $          | (27,536,948 | )
|                                                                                   |  |            |            
|Net
  loss per share as originally reported                                        |  | $          | (0.21       | )
|Net
  loss per share as restated on Form 10-K/A#1                                  |  | $          | (0.24       | )

The following sets forth the effect of these restatements on the
consolidated balance sheet as of December 31, 2002.



|                         |  | As Originally
  Reported |            | Adjustments |   | As
Restated on Form 10-K/A#1 |  
|------------------------ |  | ------------------------ | ---------- | ----------- | - | ---------------------------- | -
|Accounts receivable, net |  | $                        | 21,750,826 |             | $ | (4,826,677                   | )
|Accrued liabilities      |  | 19,411,946               |            | (1,321,634  | ) | 18,090,312                   |  
|Shareholders deficit    |  | (60,419,423              | )          | (3,505,043  | ) | (63,924,466                  | )
|                         |  |                          |            |             |   |                              |  



2) Beneficial Conversion Feature - Emerging Issues Task Force Issue No. 00-27




The
consolidated financial statements of the Company have also been
restated in each reporting period from the fourth quarter of 2002
through to the first quarter of 2004 to record additional deemed
interest for BCF as required by Emerging Issues Task Force No. 00-27
(EITF 00-27.




On September 20, 2004, management of the Company concluded that the accounting
principles as set forth in EITF 00-27, regarding BCF, had not been properly applied in current and prior
periods to its convertible debentures issued under a March 2001 loan agreement
for which the Company had previously determined BCF of $1.1 million. The
initial determination of the BCF in 2001 at the respective issue dates of such
debt was correct. However, adjustments to the conversion price and the number
of conversion shares were made under the debentures anti-dilution provisions.
The various anti-dilution events and their respective impacts on the number of
shares and the conversion price were disclosed in the Companys previous public
filings. However, the principles under EITF 00-27 also require a
redetermination of the BCF at each date an anti-dilution event occurred. This
redetermination was not completed in prior reporting periods. Additionally, the
accumulation of unpaid interest costs which are required by the debt terms to
be added to principal and which are payable at maturity on these same
convertible debentures has been deemed to be interest paid in kind (PIK);
such interest also contains a conversion feature, and the payment of such
interest in the form of PIK interest is non-discretionary requiring the
determination of a BCF in the PIK interest. This determination was not made by
the Company in its prior reportings.




The Companys management has now concluded that a restatement is required and
has brought these matters for consideration before the Audit Committee and the
full Board of Directors of the Company. Having considered the circumstances
underlying the accounting errors and their effects upon the Companys prior
filings, and having discussed these matters with the Companys management, the
Audit Committee concluded that the previously issued financial statements
should not be relied upon and approved and authorized the Companys management
to amend certain previously filed public reports to reflect deemed interest
expense from such BCF.




Although the error affects
2001, 2002 and 2003, the $23 cumulative effect on earnings through
the third quarter of 2002 was recorded in the fourth quarter of 2002
as a charge to interest expense. Therefore, the correction is an increase in deemed interest expense and net loss, in all
reporting periods from the fourth quarter of 2002 through the first quarter of
2004, and a reduction in reported liabilities and stockholders deficit in all
reporting periods from the fourth quarter of 2002 through the first quarter of
2004. The effect of these errors is detailed, by reporting period, below. The
restatement had no
effect on loss from discontinued operations or net loss per share from
discontinued operations.


Effect of the restatements on the consolidated statements of operations
(in thousands of dollars except per share amounts)
(per share information reported on a post 20:1 stock consolidation basis for all periods shown. Stock consolidation enacted in the fourth quarter of 2003)

Three months
    
    Three months
    
    Three months
    
    Three months
    
    Three months
    
    Three monthsended
    
    ended
    
    ended
    
    ended
    
    ended
    
    endedDec. 31, 2002
    
    March 31, 2003
    
    June 30, 2003
    
    Sept. 30, 2003
    
    Dec. 31, 2003
    
    March 31, 2004(unaudited)
    
    (unaudited)
    
    (unaudited)
    
    (unaudited)
    
    (unaudited)
    
    (unaudited)Net income (loss) as previously reported
on Form 10-K or 10-Q
    
    $
    (11,117
    )
    
    $
    (14,895
    )
    
    $
    (3,713
    )
    
    $
    (3,257
    )
    
    $
    (4,456
    )
    
    $
    594Correction of EITF 00-27 errors
    
    
    (301
    )
    
    
    (902
    )
    
    
    (1,089
    )
    
    
    (1,337
    )
    
    
    (1,779
    )
    
    
    (1,801
    )Net loss as currently reported on
revised Form 10-K or 10-Q
    
    $
    (11,418
    )
    
    $
    (15,797
    )
    
    $
    (4,802
    )
    
    $
    (4,594
    )
    
    $
    (6,235
    )
    
    $
    (1,207
    )Net income (loss) per share as previously
reported on Form 10-K or 10-Q
    
    $
    (1.92
    )
    
    $
    (2.55
    )
    
    $
    (0.64
    )
    
    $
    (0.56
    )
    
    $
    (0.44
    )
    
    $
    0.03Net loss per share as currently
reported on revised Form 10-K or
10-Q
    
    $
    (1.96
    )
    
    $
    (2.71
    )
    
    $
    (0.82
    )
    
    $
    (0.79
    )
    
    $
    (0.59
    )
    
    $
    (0.06
    )


Effect of the restatements on the consolidated balance sheets
(in thousands of dollars)

As at
    
    As at
    
    As at
    
    As at
    
    As at
    
    As atDec. 31, 2002
    
    March 31, 2003
    
    June 30, 2003
    
    Sept. 30, 2003
    
    Dec. 31, 2003
    
    March 31, 2004(unaudited)
    
    (unaudited)
    
    (unaudited)
    
    (unaudited)
    
    (unaudited)
    
    (unaudited)Notes payable to a related party:As previously reported on
Form 10-K or 10-Q
    
    $
    30,058
    
    
    $
    30,496
    
    
    $
    30,985
    
    
    $
    33,483
    
    
    $
    35,073
    
    
    $
    41,060Correction of EITF 00-27 errors
    
    
    (6,109
    )
    
    
    (5,364
    )
    
    
    (4,437
    )
    
    
    (3,265
    )
    
    
    (6,356
    )
    
    
    (4,834
    )As currently reported on
revised Form 10-K or 10-Q
    
    $
    23,949
    
    
    $
    25,132
    
    
    $
    26,548
    
    
    $
    30,218
    
    
    $
    28,717
    
    
    $
    36,226Additional paid-in capital:As previously reported on
Form 10-K or 10-Q
    
    $
    129,553
    
    
    $
    129,553
    
    
    $
    129,618
    
    
    $
    129,618
    
    
    $
    171,115
    
    
    $
    171,192Correction of EITF 00-27 errors
    
    
    6,410
    
    
    
    6,567
    
    
    
    6,729
    
    
    
    6,894
    
    
    
    11,764
    
    
    
    12,043As currently reported on
revised Form 10-K or 10-Q
    
    $
    135,963
    
    
    $
    136,120
    
    
    $
    136,347
    
    
    $
    136,512
    
    
    $
    182,879
    
    
    $
    183,235Accumulated deficit
As previously reported on
Form 10-K or 10-Q
    
    $
    (194,301
    )
    
    $
    (209,196
    )
    
    $
    (212,909
    )
    
    $
    (216,166
    )
    
    $
    (220,622
    )
    
    $
    (220,028
    )Correction of EITF 00-27 errors
    
    
    (301
    )
    
    
    (1,203
    )
    
    
    (2,292
    )
    
    
    (3,629
    )
    
    
    (5,408
    )
    
    
    (7,209
    )As currently reported on
revised Form 10-K or 10-Q
    
    $
    (194,602
    )
    
    $
    (210,399
    )
    
    $
    (215,201
    )
    
    $
    (219,795
    )
    
    $
    (226,030
    )
    
    $
    (227,237
    )Stockholders equity (deficit):As previously reported on
Form 10-K or 10-Q
    
    $
    (63,925
    )
    
    $
    (78,820
    )
    
    $
    (82,468
    )
    
    $
    (85,725
    )
    
    $
    (49,309
    )
    
    $
    (47,292
    )Correction of EITF 00-27 errors
    
    
    6,109
    
    
    
    5,364
    
    
    
    4,437
    
    
    
    3,265
    
    
    
    6,356
    
    
    
    4,834As currently reported on
revised Form 10-K or 10-Q
    
    $
    (57,816
    )
    
    $
    (73,456
    )
    
    $
    (78,031
    )
    
    $
    (82,460
    )
    
    $
    (42,953
    )
    
    $
    (42,458
    )






F-39



---



##### 





I-LINK INCORPORATED AND SUBSIDIARIES

SCHEDULE OF
VALUATION AND QUALIFYINGACCOUNTS



|Description                       |  | Balance at
  Beginning
  of Period |  | Charged to
  Costs and
  Expenses |     | Deductions
  (a) |   | Other   |      | Balance at
  End of
  Period | 
|--------------------------------- |  | ---------------------------------- |  | --------------------------------- | --- | ---------------- | - | ------- | ---- | ---------------------------- | 
|                                  |  |                                    |  |                                   |     |                  |   |         |      |                              | 
|Allowance for doubtful  accounts: |  |                                    |  |                                   |     |                  |   |         |      |                              | 
|December 31, 2000                 |  | 1,789,000                          |  | 113,168                           |     | (1,801,503       | ) |        |      | 100,665                      | 
|December 31, 2001                 |  | 100,665                            |  | 4,066,690                         |     | (2,304,367       | ) |        |      | 1,862,988                    | 
|December 31, 2002                 |  | 1,862,988                          |  | 5,999,422                         | (b) | (5,031,556       | ) | (47,283 | )(c) | 2,783,571                    | 






(a)Deductions represents allowance amounts written off as uncollectible and
recoveries of previously reserved amounts.

(b)Amounts include charges and deductions related to continuing operations
only.

(c)Other includes an increase of $1,018,007 for the beginning allowance
acquired in the acquisition of RSL in December 2002 and a decrease of  $1,065,290 for the net change in
discontinued operations during the year which are not included in charged to
costs and expenses or deductions.



S-1