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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to ________
Commission file number 333-84845
9278 COMMUNICATIONS, INC.
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(Name of small business registrant in its charter)
Nevada 98-0207906
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1942 Williamsbridge Road, Bronx, New York 10461
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (718) 792-5150
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None Not Applicable
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Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of class)
Check whether the registrant (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days. [X] Yes [ ] No
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not 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-KSB
or any amendment to this Form 10-KSB. [X]
The registrant's revenues for its most recent fiscal year were
$78,089,670.
The aggregate market value of the voting and non-voting stock held by
non-affiliated stockholders of the registrant, as of March 21, 2000, was
$25,257,343.
APPLICABLE ONLY TO CORPORATE REGISTRANTS
The number of shares outstanding of the registrant's common stock, as
of March 21, 2000, was 20,460,168.
Transitional Small Business Disclosure Format (Check one):
Yes ; No X
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DOCUMENTS INCORPORATED BY REFERENCE
None
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
9278 Communications, Inc. (the "Company" or "9278") is a value-added
integrator of telecommunications services and technologies, specializing in the
distribution of prepaid phone cards. The Company has a network of over 300
private distributors, retailing over 100 different prepaid card products,
including 13 private label cards, primarily in the New York, New Jersey and
Connecticut markets, through approximately 10,000 retail outlets.
The Company plans to introduce several new telecommunications related
products into its growing distribution channels, including prepaid wireless
products and prepaid internet services, and to expand upon its existing business
relationships with the United States telecommunications companies and the large
national prepaid card providers. Further, with the coming launch of its
e-commerce services website, 9278 will provide sales, access and support for its
existing distributors and develop a mechanism for establishing new markets for
the Company's products.
CORPORATE BACKGROUND
Aquasol Technologies, Inc.
The Company was originally incorporated in Colorado on December 10,
1997, under the name Aquasol, Inc. ("Aquasol"). On January 9, 1998, the Company
changed its corporate domicile to Delaware and changed its name to Aquasol
Technologies, Inc.
On January 15, 1998, the Company acquired Noralta Technologies Corp.,
an Alberta corporation, in a share-for-share exchange. The name of Noralta was
subsequently changed to Aquasol Technologies Inc. This company was engaged in
the business of designing, engineering, manufacturing and installing wastewater
treatment systems for government, industrial, commercial and agricultural
customers.
On July 14, 1998, Aquasol Technologies, Inc., a Nevada corporation
originally incorporated as AFD Capital Group, Inc., merged with Aquasol
Technologies, Inc., a Delaware corporation, in a one-for-one stock exchange, and
the surviving entity continued under the laws of the state of Nevada.
On February 3, 1999, the Company disposed of Aquasol Technologies Inc.,
an Alberta corporation, by returning the shares of common stock of that
corporation to the former holders thereof in exchange for the return of the
992,000 shares of Common Stock originally issued in the Noralta acquisition on
January 15, 1998. The Company has no further interest in the business of Aquasol
Technologies Inc.
Acquisition of iLink B.C.
On February 14, 1999, the Company consolidated its share
capital by way of reverse stock split on the basis of one new share of its
Common Stock for each five old shares of its Common Stock and changed its name
to iLink Telecom, Inc. ("iLink").
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Pursuant to a share purchase agreement, dated February 26, 1999, with
ABDE Holdings Ltd., a British Columbia company, the Company acquired all of the
issued and outstanding common shares of 579782 B.C. Ltd. in exchange for the 145
shares of the Company's Series A Convertible Preferred Stock. On March 11, 1999,
579782 B.C. Ltd. changed its name to iLink Telecom (B.C.), Inc. The assets of
iLink B.C. consisted of an IVR Agreement with BCT.Telus as well as miscellaneous
telecommunications and computer equipment and office furniture.
Merger with 9278 Distributor, Inc. and Name Change
On December 10, 1999, 9278 Distributor, Inc., a New York corporation
involved in the distribution of prepaid phone cards, was merged with and into
9278 Distributor Acquisition Corp., a wholly-owned subsidiary of the Company,
which had been incorporated on December 7, 1999 specifically for that purpose
(the "Merger"). For accounting purposes, the Merger has been treated as a
reverse acquisition. The shareholders of 9278 Distributor, Inc. were issued an
aggregate of 14,900,000 shares of the Company's Common Stock, as well as a
dividend of $3.0 million, of which $1.0 million was paid in December 1999 and
the balance of $2.0 million was in the form of a two-year promissory note.
Subsequently, on December 22, 1999, the Company changed its name to 9278
Communications, Inc.
Sale of iLink B.C.
On February 28, 2000, the Company sold all of the assets of its
subsidiary iLink Telecom (B.C.), Inc. for gross consideration of $37,000.
INDUSTRY OVERVIEW
Prepaid phone cards have been widely used throughout Europe and Asia
for more than fifteen years. Currently being issued in 140 countries, the
prepaid phone card market has grown to an estimated $20 billion dollar worldwide
industry.
Prepaid phone cards were introduced into the North American marketplace
by small long distance consolidators and resellers, which purchase a high volume
of long distance minutes from major carriers at rates significantly lower than
those that could be obtained by individuals and small businesses and resell
those minutes to their established customer base. Originally introduced to meet
very specific telephony applications, and oriented towards the credit challenged
components of the marketplace, prepaid services have evolved into a widely
accepted solution by both businesses and consumers. More recently, major long
distance carriers such as AT&T, MCI/Worldcom and Sprint have committed
considerable resources to the prepaid phone card market.
Prepaid phone cards are a reliable, convenient and cost-effective
alternative to coin-operated calling, collect calling, operator assisted calls
and standard credit calling cards. Unlike credit calling cards, which provide
virtually unlimited credit and impose surcharges on long distance services,
prepaid phone cards are paid for in advance and provide finite amounts of
calling time. Shaped like a credit card, the prepaid phone card easily fits into
a standard wallet. Generally, the front face denotes the denomination of the
card. The back of the cards contains a scratch-off surface covering the card
number and personal identification number (a "PIN").
Most domestic prepaid cards utilize remote memory technology, which
permits users to place local, long distance and international calls from any
touch-tone phone by dialing a toll-free or local access number to connect to a
prepaid phone card switching platform. After being prompted to enter a PIN, the
caller is advised of the value remaining on the card and is prompted to enter
the telephone number to be
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called. The call is then routed to its destination. The per-minute charges for
the call are automatically decremented from the prepaid account corresponding
to the PIN as the call progresses.
Prepaid phone cards are distributed through a vast network of retail
outlets, including convenience stores, newsstands, grocery stores and discount
stores. While prepaid phone card products are also sold through vending machines
and, more recently, over Internet websites, the vast majority of phone card
sales are still made through retail outlets. In the New York metropolitan area,
where the majority of the Company's distribution occurs, the Company estimates
that prepaid phone cards are sold at tens of thousands of retail outlets.
The retail outlets are serviced by independent distributors, which
often distribute newspapers or other items to the retail outlets. Typically, a
wholesale distributor, such as the Company, purchases large quantities of
prepaid phone cards from a long distance carrier or reseller, and sells the
cards in smaller quantities, together with cards from other carriers, to the
independent distributor for ultimate distribution to the retail outlet. The
discount from face value at which cards are bought and sold by the participants
in the distribution chain varies depending upon the carrier and the features of
the card, such as local versus toll free dial-up access, or the rates and
geographic regions for which the card can be used.
PRODUCTS AND SERVICES
Prepaid Phone Cards
9278 is primarily a wholesale distributor of prepaid phone cards,
distributing over 100 different types of prepaid phone cards issued from over 60
telecommunications carriers, including 13 private label cards. The long distance
rates available to users of such cards are between 10% and 50% less than the
rates for international calls placed by traditional methods. Generally, each
type of prepaid phone card is available in $5, $10 and $20 denominations. With
the exception of the private label phone cards, which 9278 prints and activates
itself, 9278 purchases pre-printed, pre-activated phone cards from each of the
applicable telecommunications carriers and distributes the cards through its
network of over 300 independent distributors, predominantly in the New York
metropolitan area.
The Company distributes prepaid phone cards for most of the major
telecommunications carriers, including PT-1 Communications, MCI/Worldcom, Qwest
Communications and AT&T. The Company is a major distributor for PT-1
Communications, responsible for over 80% of PT-1's prepaid phone card sales in
the Bronx, New York area. Sales of phone cards supplied by Cominex, LLC
constituted approximately 55% of the Company's sales in 1999. In September 1999,
the Company stopped purchasing products from Cominex and has subsequently
increased its purchases from other carriers to offset these quantities. There
was no company whose products accounted for in excess of 10% of 9278's sales in
1998.
Included in the Company's offering of over 100 prepaid phone cards, are
13 private label cards, serviced by 10 different long distance carriers,
including, "New York Call," which is serviced by PT-1, "9278 Number 1," which is
serviced by MCI/Worldcom and "Bollywood," which is serviced by Telstar. Each of
these 9278 private label cards is developed by the Company in conjunction with
the carrier. The design, rates and target market of the cards are generally
determined by 9278 based upon its perception of market demand. Private label
cards serve as lucrative promotional items and can also be used to help generate
brand name awareness. The private label cards are exclusive to 9278 and, unlike
the other types of prepaid phone cards which 9278 distributes, 9278 controls the
discounts for these products, leading to higher margins for the Company. Private
label cards constituted over 60% of the Company's sales in 1999.
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The Company's retail customers can use the prepaid phone cards it
distributes at any touch tone telephone by dialing an access number, followed by
a PIN assigned to each card and the telephone number the customer seeks to
reach. The carrier's switch completes the call, and its debit card platform
reduces the outstanding balance of the card during the call. The Company
believes that many of its customers use prepaid cards as their primary means of
making long distance calls due to (i) attractive rates, (ii) reliable service,
(iii) ease of monitoring and budgeting their long distance spending and (iv) the
appealing variety of calling cards offered to different market segments.
One of the Company's focuses has been on distribution in certain ethnic
markets in the U.S. that generate high levels of international traffic to
specific countries. As a result, 9278 has become one of the premiere phone card
distribution channels in the New York City area, which has many such ethnic
markets. Recent immigrants and members of ethnic communities are heavy users of
international long distance, given their desire to keep in touch with family
members and friends back home. In addition, recent immigrants often do not have
established credit histories necessary to establish accounts with traditional
long distance carriers. One example of a 9278 product marketed to a specific
ethnic group is the Bollywood Phone Card, from which 9278 generated over
$15,000,000 in revenues in 1999. There are approximately 465,000 Indians,
Pakistanis, and Bengalis residing in the vicinity of New York City. The
Bollywood Phone Card is designed for and has become a household name for
peoples from the sub-continent of India, who, by using the card to place
long distance calls to that region, receive deep discounts on rates.
The Company has over 300 independent wholesalers and retailers
throughout the New York, New Jersey and Connecticut area and is continually
seeking to add distributors in other areas. These customers serve as a network,
purchasing cards from 9278 and further distributing them to approximately 10,000
retail outlets. Generally, each customer operates on a net 30 payment cycle. In
1999, one of 9278's customers, Sohel Distributor, Inc., accounted for over 10%
of 9278's revenues. None of 9278's customers accounted for over 10% of 9278's
revenues in 1998. In February 2000, the Company entered into a Letter of
Intent to acquire Sohel Distributor Inc., a company owned by the brother of the
Company's Chief Executive Officer and controlling stockholder.
Switching Solutions
During 1999, iLink conducted IVR services through its switching
facility located in Calgary, Alberta (the "Switching Facility"). The Switching
Facility was comprised of computer equipment, telecom equipment and IVR
programming. The software (VoiceCard) technology was licensed through
Telephony Experts. Pursuant to an IVR Agreement, iLink provided services to one
major customer at the Calgary site, namely BCT.Telus Communications Inc.,
Canada's third largest telephone company. Such services included account
processing, customer service and time billing for their brand name phone cards
distributed in Alberta and British Columbia. Revenues were generated through the
charge of a transaction fee to BCT.Telus based upon the number of minutes passed
through the Switching Facility each month by BCT.Telus phone card customers.
Through December 10, 1999, when iLink merged with 9278 Distributor, Inc.,
revenues from the Switching Facility, aggregating approximately $30,000,
represented 100% of iLink's total revenues.
On February 28, 2000, in connection with the sale of assets of its
subsidiary, iLink Telecom (B.C.), Inc., the Company sold the Switching Facility
for gross consideration of $37,000.
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Wireless Services in Trinidad and Tobago
The Company has submitted a proposal, which, if accepted, would allow
it to offer a digital mobile phone service and wireless infrastructure to the
people of Trinidad and Tobago. The Government of Trinidad and Tobago plans on
deregulating the telecommunications industry that is currently comprised of a
sole national wireless phone provider, the Telephone Service of Trinidad and
Tobago. The Trinidad Government will select providers for their new services
based on submissions which were provided prior to June 30, 1999. It is unclear
when the government of Trinidad and Tobago will be making a final decision. The
government has hired a European consultant to assist in the application review
process. If awarded this license, the Company intends to offer this service
through a joint venture with a third party, or to sell the license.
STRATEGY
The Company's goal is to become a broad-based, value added
telecommunications services corporation, providing the customer with services
ranging from prepaid phone cards, to 1+ dialing, to custom branded prepaid phone
cards. The Company plans to extend its distribution and add a host of telecom
related products into its growing distribution channels, including:
* Prepaid wireless phones;
* Prepaid paging;
* Prepaid local dialtone;
* Prepaid internet services; and
* Prepaid consumer products.
The Company is implementing both a business-to-business (B2B) and
retail e-commerce strategy that will expand the geographic reach of the
Company's distribution, create operational efficiencies and ultimately increase
margins. Use of this service will enable the various participants in 9278's
distribution chain to access the Company through a dynamic, internet-based
supply chain management interface, permitting the user to interact with all
aspects of the Company's purchasing, manufacturing, inventory and payment
processing functions. The Company intends to launch this service in June 2000.
The Company anticipates substantial growth in its client base and
market share of the prepaid card industry through internal expansion and by
strategic acquisition of other distributors. The competition's fragmented
approach has improved market accessibility without truly creating stable brand
awareness and distribution chain efficiency. The Company believes that this
presents the opportunity for 9278 to secure a significant share of the North
American market.
9278 plans to introduce several new telecommunications related
products, including prepaid wireless services, Internet, and paging, and expand
upon existing business relationships with U.S. telecommunications companies and
the large national prepaid card providers. 9278 will offer assistance in
developing these companies' consumer product/value-added service offerings.
These products will be distributed through the Company's existing distribution
network. 9278 also plans to create private label prepaid card systems for select
customers. These prepaid private label cards are geared towards large
corporations and business travelers. 9278 is focusing on reaching clients with
existing sales and marketing forces.
One such prepaid telecommunications product is the EZ2Phone, for which
the Company has exclusive distribution rights in the New York area. The EZ2Phone
is a fully functional telephone, which operates virtually the same as a standard
residential telephone. The telephone is sold with an established prepaid long
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distance account, to allow the purchaser to make long distance calls at
reduced rates with a preset spending limit. With the prepaid funds credited,
the user places a call as they would for a traditionally placed long distance
or international call from a home phone. No dial access code or PIN is needed.
Upon entering the phone number, a computerized message tells the caller the
amount of time they can talk to the destination called, based upon the
prevailing rates and the credit balance of the phone, and the call is then
connected. The phone's account balance can be supplemented through the purchase
of "re-load" cards, also distributed by the Company.
The Company is developing promotional/marketing applications of its
prepaid cards to provide the marketer of consumer products or services with an
interactive medium to further enhance product loyalty through placing
advertising and information directly on the prepaid service card. The card users
hear a short promotional message each time a long distance call is placed or the
service is used. If the card has been customized to a promotion, a prepaid card
can provide both a specific, coordinated visual and audio memory impressions. In
addition, companies may include a prepaid card with their products, that
provides customer service access and/or free calling services as an added
benefit to purchasing their products.
To date, the ultimate consumer of mass market prepaid phone cards have
been travelers, niche market card collectors, new immigrants and credit
challenged consumers needing access to the North American and/or International
telecommunications systems servicing these customers. To remain competitive,
9278 will be conducting a targeted marketing program to distributors, retailers
and corporations. In addition, 9278 will seek out strategic partners who
currently provide distribution and marketing of prepaid cards to different
customers or regions as a means of increasing market penetration.
COMPETITION
The telecommunications services industry generally, and the prepaid
phone card industry specifically, is intensely competitive, rapidly evolving and
subject to constant technological change. There are several large and numerous
small competitors in the industry, and the Company expects to face continuing
competition based on price and service offerings from existing competitors and
new market entrants. In addition, the increasing prevalence of the Internet and
emerging technologies seeking to establish Internet telephony pose potential
competitive threats to the market for long distance telephone services. The
principal competitive factors in the market include price, quality of service,
breadth of geographic presence, customer service, reliability, network capacity
and the availability of enhanced communications services. Our competitors
include:
* Other distributors of prepaid products, such as Union Telecard
Alliance;
* Telecommunications companies that produce their own prepaid products,
such as IDT and PT-1 Communications; and
* Other telecommunications companies, such as AT&T, MCI/Worldcom and
Total-Tel USA.
Many of our competitors have substantially greater financial, technical
and marketing resources, larger customer bases, longer operating histories,
greater name recognition and more established relationships in the industry than
we have. As a result, certain of these competitors may be able to adopt more
aggressive pricing policies, which could hinder our growth.
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GOVERNMENT REGULATION
The provision of telecommunications services is regulated by the
federal and state governments of the United States. Federal laws and regulations
promulgated by the Federal Communications Commission ("FCC") apply to interstate
and international telecommunications, while state regulatory authorities have
jurisdiction over telecommunications services that originate and terminate
within the same state. Various other international authorities also may seek to
regulate telecommunications services originating in their respective countries.
However, as of the date of this report, we do not require any government
approvals to manufacture, distribute and/or market prepaid phone cards.
EMPLOYEES
As of March 21, 2000, the Company had 15 full-time employees. Of these,
three were sales and marketing personnel, three were management and finance
personnel and nine were general and administrative personnel. None of the
Company's personnel is covered by a collective bargaining agreement. The Company
has never experienced an employment-related work stoppage and considers its
employee relations to be satisfactory.
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ITEM 2. DESCRIPTION OF PROPERTY.
The Company's executive offices are located at 1942 Williamsbridge
Road, Bronx, New York, where it leases approximately 3,500 square feet, pursuant
to a sublease agreement that expires on November 30, 2008. The aggregate annual
base rental for such space is $63,000. The Company sublets these premises from
an officer and director of the Company, on terms substantially the same as those
under which the officer leases the space.
The Company also leases approximately 1,100 square feet, located at
1938 Williamsbridge Road, Bronx, New York, as a warehouse location for the
off-site storage of their products, on a month-to-month basis. The monthly rent
for such space is $2,100.
Through February 28, 2000, the Company leased approximately 200 square
feet located at #304, 320 23rd Avenue, Calgary Alberta T2S 0J2, at a monthly
rate of Cdn$625.00, pursuant to a sublease. This space housed the Company's
switching platform, which the Company sold on that date. In connection with such
sale, the lease was assigned.
ITEM 3. LEGAL PROCEEDINGS.
On November 12,1999, the Company commenced an action against Cominex,
LLC in New York Supreme Court, Bronx County, alleging claims for breach of
contract and promissory estoppel arising out of Cominex's disabling of over $5.2
million of its prepaid telephone cards and asserting damages of approximately
$1.5 million as a direct result thereof. This action has been removed to Federal
Court and will be consolidated with the matter entitled "Cominex, LLC and Atlas
Communications, Inc. v. 9278 Distributors, Inc., Sajid Kapadia and Sohel
Kapadia," described below, in the event that action does not settle.
In addition to the foregoing, on November 15, 1999 Cominex, LLC and
Atlas Communications Inc. commenced an action against 9278 Distributors, Inc.,
Sajid Kapadia and Sohel Kapadia in the Federal Court for the Southern District
of New York, alleging various claims against the defendants arising out of the
defendants' purported failure to make timely payments for certain Cominex
prepaid telephone cards and asserting damages of approximately $6.6 million as a
direct result thereof. The Company filed and Answer and Counterclaims alleging
various claims seeking approximately $2.4 million in damages. The parties
subsequently agreed to stay all discovery pending on-going settlement
negotiations and hope to resolve this matter without further proceedings. The
Company believes it has meritorious defenses aginst the claims asserted against
it and plans to vigorously defend against these claims in the event the parties
do not reach a settlement.
The Company is subject to certain legal proceedings and claims which
have arisen in the ordinary course of its business. These actions when
ultimately concluded will not, in the opinion of management, have a material
adverse effect upon the financial position, results of operations or liquidity
of the Company.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the fourth quarter of the year ended December 31, 1999, the
following items were submitted for the approval of the Company's security
holders:
* On December 20, 1999, the Company's security holders, by written
consent, approved an Amendment to the Company's Articles of
Incorporation, to change the Company's name from iLink Telecom, Inc.
to 9278 Communications, Inc.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION
The Company's Common Stock is quoted on the over-the-counter bulletin
board ("OTCBB") of the Nasdaq Stock Market under the symbol "NTSE", since
January 4, 2000. Prior to January 4, 2000, the Company's Common Stock was traded
under the symbol "ILTE", beginning February 16, 1999. Prior to this, the
Company's Common Stock was traded under the symbol "AQUS". The following table
sets forth the range of the high and low quotations for the common stock for the
periods indicated. Such market quotations reflect inter-dealer prices, without
mark-up, mark-down or commission and may not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1999
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First quarter(1).......................... $ 5.63 $0.95
Second quarter ........................... 6.00 3.87
Third quarter(2).......................... 1.75 1.75
Fourth quarter ........................... 6.50 0.63
1998
----
First quarter ............................ $ 1.25 $1.25
Second quarter........................... 2.50 1.13
Third quarter ............................ 10.63 5.00
Fourth quarter ........................... 5.63 0.95
</TABLE>
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(1) Effective February 14, 1999, the Company consolidated its share capital by
way of reverse stock split on the basis of one new share of Common Stock for
each five old shares of Common Stock. The prices listed have been adjusted
to reflect the effect of the one-for-five reverse stock split.
(2) Amounts derived from the Company's listing in the NASD "pink sheets."
At March 21, 2000, there were 352 holders of record of the Company's
common stock and the closing bid quotation of the common stock on the OTCBB was
$3.625 per share.
DIVIDEND POLICY
Immediately prior to the closing of the Merger, the Company declared
a $3.0 million dividend, of which $1.0 million was paid in cash and the
balance of $2.0 million in the form of a two-year promissory note. In addition,
$375,000 was reflected as a dividend based upon a beneficial conversion feature
of preferred stock issued by the Company. The Company does not intend to pay
future dividends and intends to reinvest any earnings in its business to
finance future growth. Accordingly, the Board of Directors does not anticipate
declaring any cash dividends in the foreseeable future.
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RECENT SALES OF UNREGISTERED SECURITIES
* On March 21, 2000, the Company issued an aggregate of 404,000 shares of
its Common Stock to 7 different investors at a price of $2.00 per share
for gross proceeds to the Company of $808,000. Two of the investors,
Sajid Kapadia and Haris Syed, are officers and directors of the
Company. This transaction was exempt from registration pursuant to
Section 4(2) of the Securities Act of 1933 (the "Act").
* On March 15, 2000, the Company issued an aggregate of 300,000 shares of
its Common Stock to 6 different investors at a price of $2.00 per share
for gross proceeds to the Company of $600,000. This transaction was
exempt from registration pursuant to Rule 506 of Regulation D of the
Act.
* On March 15, 2000, pursuant to its non-qualified stock option plan, the
Company granted non-qualified options to purchase 25,000 shares of
Common Stock of the Company, at an exercise price of $4.00 per share,
to Raymond Akwule, a newly appointed director of the Company. The
options vest 50% on September 15, 2000 and 50% on March 15, 2001 and
are exercisable for a period of ten years from the date of the grant.
This transaction was exempt from registration pursuant to Rule 701 of
the Act.
* On January 18, 2000, January 19, 2000 and February 7, 2000, holders of
the Company's Series B Convertible Preferred Stock converted 100, 100
and 25 of such shares into 42,496, 42,839 and 11,204 shares of Common
Stock of the Company, respectively. These transactions were exempt from
registration pursuant to Section 4(2) of the Act.
* On December 10, 1999, iLink issued an aggregate of 14,900,00
shares to the shareholders of 9278 Distributor, Inc., a New York
Corporation, in connection with the Merger. This transaction was exempt
from registration pursuant to Section 4(2) of the Act.
* On December 10, 1999, iLink issued 500,000 shares of its common stock
at a purchase price of $2.00 per share to one investor. In addition,
iLink sold an aggregate of 1,500 shares of its Series B Convertible
Preferred Stock at a purchase price of $1,000 per share. The Series B
Convertible Preferred Stock is convertible into shares of common stock
of the Company based on a per share conversion price equal to 75% of
the prevailing market price of the Common Stock for the ten trading
days prior to conversion. These transactions were exempt from
registration pursuant to Rule 506 of Regulation D of the Act.
* On June 8, 1999, pursuant to its non-qualified stock option plan, iLink
granted non-qualified options to purchase an aggregate of 23,000 shares
of Common Stock of iLink, at an exercise price of $5.25 per share, to
three employees of iLink. The options vested upon grant and are
exercisable for a period of one year from the date of the grant. None
of the grantees are currently employed by the Company. This transaction
was exempt from registration pursuant to Rule 701 of the Act.
* On May 25, 1999, iLink issued 250,000 shares of its Common Stock to
Marketsource Direct Holdings Ltd., a company controlled by Peter
Schriber, who was a director of iLink, as compensation for services
rendered to iLink. The deemed value for which this Common Stock was
issued was $250 ($0.001 per share). This transaction was exempt from
registration pursuant to Section 4(2) of the Act. These shares were
subject to a Vesting Agreement. All of these shares were surrendered
by the holder to the Company on December 10, 1999.
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* On May 20, 1999, iLink issued 22,259 shares of its Common Stock to
Century Capital Management Ltd. as consideration for the acquisition of
certain leasehold improvements, furniture and telephone equipment
valued at $44,518. The value for which this Common Stock was issued was
$44,518 ($2.00 per share). This transaction was exempt from
registration pursuant to Section 4(2) of the Act.
* On April 6, 1999, iLink issued 353,500 shares of its Common Stock to 22
different investors at a price of $1.00 per share for gross cash
proceeds to iLink of $353,500. This transaction was exempt from
registration pursuant to Rule 504 of Regulation D of the Act.
* On April 2, 1999, iLink issued 1,300,000 shares of its Common Stock to
4 different investors at a price of $0.05 per share for gross cash
proceeds to iLink of $65,000. This transaction was exempt from
registration pursuant to Rule 504 of Regulation D of the Act.
* On March 31, 1999, iLink issued 145 shares of Series A Convertible
Preferred Stock to ABDE Holdings Ltd. in consideration for the
acquisition of all of the shares of iLink B.C. The deemed value for
which this preferred stock was issued was $145,000 ($1,000 per share).
This transaction was exempt from registration pursuant to Section 4(2)
of the Act.
* On March 25, 1999, iLink issued 1,590,000 shares of its Common Stock to
certain of its directors and employees as compensation for services
rendered to iLink and to induce them to remain in iLink's employ and to
perform their duties and responsibilities to the best of their
abilities. The deemed value of which this Common Stock was issued was
$1,590 ($0.001 per share). This transaction was exempt from
registration pursuant to Section 4(2) of the Act. These shares were
subject to a Vesting Agreement. Subsequently, 1,500,000 of these
shares were surrendered by a holder to the Company.
* On March 25, 1999, iLink issued 300,000 shares of its Common Stock to
Century Capital Management Ltd. pursuant to the terms of an engagement
letter dated March 25, 1999, between iLink and Century Capital
Management Ltd., pursuant to which Century Capital Management Ltd.
provides the Company with financial consulting services. The deemed
value of this Common Stock was issued was $300 ($0.001 per share). This
transaction was exempt from registration pursuant to Section 4(2)
of the Act. This engagement letter terminates on March 31, 2000.
* On March 16, 1999, iLink issued 250,000 shares of its Common Stock to 2
different investors at a price of $0.05 per share for gross cash
proceeds to iLink of $12,500. This transaction was exempt from
registration pursuant to Rule 504 of Regulation D of the Act.
* On June 26, 1998, Aquasol merged with Aquasol Technologies, Inc.
(formerly AFD Capital Group, Inc.), a Nevada corporation, on the basis
of one share of Aquasol's Common Stock for each share of common stock
of Aquasol Technologies Inc. then outstanding. As a result of this
merger, Aquasol issued 2,080,000 (416,000*) shares of its Common Stock
to the stockholders of Aquasol Technologies, Inc., the Nevada
corporation. The estimated value for which this Common Stock was issued
was $15,650 (ranging from $0.0017 to $0.05 per share). The merger was
exempt from registration pursuant to Rule 504 of Regulation D of the
Act. Subsequent to the merger, 1,020,000 shares of Aquasol's Common
Stock issued to the stockholders of Aquasol Technologies, Inc. were
surrendered to Aquasol's treasury for cancellation. Prior to the date
of the merger Aquasol Technologies, Inc. had issued the following
securities:
13
<PAGE>
(i) On March 31, 1998, Aquasol Technologies, Inc. issued 80,000
(16,000*) shares of common stock to one investor at a price of
$0.05 ($0.25*) per share for gross proceeds of $4,000. This
transaction was exempt from registration pursuant to Rule 504 of
Regulation D of the Act.
(ii) On April 1, 1997, Aquasol Technologies, Inc. issued 1,000,000
(200,000*) shares of common stock to five investors at a price
of $0.01 ($0.05*) per share for gross proceeds of $10,000. This
transaction was exempt from registration pursuant to Rule 504 of
Regulation D of the Act.
(iii) On March 27, 1997, Aquasol Technologies, Inc. issued 1,000,000
(200,000*) shares of common stock to two investors at a price of
$0.01 ($0.05*) per share for gross proceeds of $10,000. This
transaction was exempt from registration pursuant to
Section 4(2) of the Act.
* On January 15, 1998, Aquasol issued 992,000 (198,400*) shares of its
Common Stock to the seven stockholders of Aquasol Technologies Inc. (an
Alberta corporation) formerly named Noralta Technologies Inc. in
exchange for all of the shares of Aquasol Technologies Inc. (the
Alberta corporation). This transaction was exempt from registration
pursuant to Rule 504 of Regulation D of the Act. On January 15, 1999,
this transaction was unwound and Aquasol returned all of the shares of
Aquasol Technologies Inc. (the Alberta corporation) to the seven former
stockholders of that corporation and Aquasol canceled the 992,000
shares of its Common Stock, which were issued to them.
* On January 12, 1998, Aquasol issued 4,000,000 (800,000*) shares of its
Common Stock to one investor at a price of $0.0001 ($0.0005*) per share
for gross proceeds to Aquasol of $400. This transaction was exempt from
registration pursuant to Rule 504 of Regulation D of the Act.
* On January 9, 1998, Aquasol merged with Aquasol Technologies Inc. (a
Delaware corporation) on the basis of one share of Aquasol's Common
Stock for each share of common stock of Aquasol Technologies Inc. then
outstanding. As a result of this merger Aquasol issued 100 (20*) shares
of its common stock to the sole stockholder of Aquasol Technologies,
Inc., the Delaware corporation. The estimated value for which this
Common Stock was issued was $10.00 ($0.10 per share). The merger was
exempt from registration by Rule 504 of Regulation D. The 100 shares of
common stock outstanding in Aquasol Technologies, Inc., the Delaware
corporation, immediately prior to the merger had been issued on
December 18, 1997, at a price of $0.10 per share. This transaction was
exempt from registration pursuant to Rule 504 of Regulation D of
the Act.
* On December 26, 1997, Aquasol effectuated a plan of share exchange with
the holders of shares of Series I common stock issued by STB Corp. on
the basis of one share of Aquasol's Common Stock for each one share of
Series I common stock outstanding in STB Corp. Pursuant to this
transaction Aquasol issued 175,456 (35,091*) shares of its Common Stock
to 293 different holders of Series I common stock of STB Corp. The
estimated value for which this Common Stock was issued was $175
($0.0001 per share). This transaction was exempt from registration
pursuant to Rule 504 of Regulation D.
14
<PAGE>
* On December 11, 1997, Aquasol sold 1,500,000 (300,000*) shares of its
Common Stock to one investor for gross proceeds to Aquasol of $5,000.
This transaction was exempt from registration pursuant to Section 4(2)
of the Securities Act.
- ----------
* The parenthetical amounts reflect the adjustment for the 1-for-5 reverse stock
split which was effective as of February 14, 1999.
15
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto set forth in Item 7 of this
Annual Report. In addition to historical information, this discussion and
analysis contains forward-looking statements that involve risks, uncertainties
and assumptions, which could cause actual results to differ materially from
Management's expectations. Factors that could cause differences include, but are
not limited to, expected market demand for the Company's products, fluctuations
in pricing for products distributed by the Company and products offered by
competitors, as well as general conditions of the telecommunications
marketplace.
OVERVIEW
To date, the Company's principal source of revenue has been the
marketing and distribution of prepaid phone cards. The Company markets and
distributes branded prepaid phone cards produced by a variety of
telecommunications long distance carriers and resellers, as well as private
label proprietary prepaid phone cards produced exclusively for the Company by
various long distance carriers and/or resellers.
Prepaid phone cards are distributed through a vast network of retail
outlets, including convenience stores, newsstands, grocery stores and discounts
stores. The retail outlets are serviced by independent distributors, which often
distribute newspapers or other items to the retail outlets. The Company
purchases large volumes of branded prepaid phone cards from the long distance
carrier or reseller and sells the cards in smaller quantities, together with
cards from other carriers and/or private label cards distributed by the Company,
to the independent distributor, for ultimate distribution to retailer outlet.
Branded cards are purchased by the Company at a discount from the face
value of the card, and resold to the distributor at a slightly lower discount.
The difference between the two discount rates, typically from 1% to 3%,
represents the gross margin retained by the Company. Purchases of branded cards
by the Company are made on varying terms, from C.O.D. to a net 30 basis,
although the majority of the Company's purchases are made on credit terms of 10
days or less. Sales by the Company of its product are generally made on a net 30
basis.
Private label cards are generally designed and produced by the Company,
utilizing card numbers and PINs provided by the telecommunications' carrier or
reseller providing the long distance service for the card. The Company incurs
the upfront expense of printing the phone cards. However, the Company does not
pay the long distance carrier until it activates the cards, which occurs upon
the sale by the Company to the distributor. Accordingly, through the use of
private label cards, the Company's cost of inventory is significantly reduced,
as purchases are effectively made on an as-needed basis. In addition, private
label cards generally provide the Company with the ability to achieve a greater
gross margin percentage, typically ranging from 3% to 6%.
The Company is seeking to develop and acquire rights to additional
prepaid telecommunications services and other prepaid products or services to
diversify its product offerings and increase its overall gross margin.
16
<PAGE>
RESULTS OF OPERATIONS
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Net sales increased $56 million to $78 million for the year ended
December 31, 1999, up 255% from net sales of $22 million for the year-ended
December 31, 1998. The increase in net sales was due to the addition of
distributors during the 1999 calendar year, as well as an increase in the number
of brands of prepaid phone cards distributed by the Company. During 1999, the
Company began actively marketing and distributing private label phone cards.
Gross profit increased to $2,617,000 in 1999, as compared to $682,000
in 1998, as a result of increased volume. As a percentage of sales, gross profit
for 1999 increased 3.35%, as compared to 3.07% for the year ended December 31,
1998. This increase in gross profit was attributable to the addition of higher
margin private label cards, slightly offset by the decrease in margins
attributable to branded products and increasing competition from additional
cards entering the marketplace.
Operating expenses for the year ended December 31, 1999 increased
$2,003,000 to $2,605,000, an increase of 332% over operating expenses of
$602,000 for the year ended December 31, 1998. Included in operating expenses
for 1999 was a loss of $554,000, attributable to the cancellation of private
label phone cards resulting from the closing of a long distance reseller
providing telecommunications services for such private label card of the
Company, rendering some of the Company's private label cards worthless. In
addition, general and administrative expenses increased to $1,202,000 for 1999,
as compared to $87,000 for 1998. This increase was primarily due to the increase
in salaries, constituting $184,000 in 1999, as compared to $27,000 in 1998, the
addition of $125,000 of advertising costs in 1999, as a result of the Company's
introduction of its private label cards, and an increase in professional fees to
$442,000 in 1999 as compared to $4,000 in 1998. The increase in professional
fees was due to legal, accounting and consulting fees incurred primarily in
connection with the Merger.
The Company generated net income of $7,000 for 1999 as compared to
$72,000 for the year ended December 31, 1998. The decrease in net income was
primarily due to the loss of $554,000 described above and the significant
non-recurring professional fees incurred by the Company in connection with its
merger activity. For purposes of earnings per share, net income (loss)
attributable to common stock reflects a net loss of $368,000. This gives
effect to a recognition of a beneficial conversion feature of $375,000
attributable to the outstanding series B convertible preferred stock issued
by the Company in December 1999.
Year Ended December 31, 1998 compared to Year Ended December 31, 1997.
The Company began substantial operations in 1998. Accordingly, the
results of operations for the year ended December 31, 1997 are not comparative
to those for the year ended December 31, 1998.
17
<PAGE>
CAPITAL RESOURCES
At December 31, 1999, the Company had total current assets of
approximately $5,179,000. This included $26,000 in cash, $1,302,000 of inventory
and $3,821,000 of accounts receivable. The Company's cash balances vary
significantly from day-to-day due the large volume of purchases and sales made
by the Company from the various prepaid phone cards companies and the numerous
distributors to whom the Company sells cards. Due to the shorter credit terms
made available to the Company from the telecommunications companies from whom it
buys branded cards, as compared to the credit terms made available by the
Company to its customers, the Company, from time-to-time, requires infusions of
cash in order to maintain its preferential buying/purchasing terms with its
carriers. Such cash flow needs are also affected by the timing of large
purchases by the Company, which are made by the Company from time-to-time to
take advantage of favorable pricing opportunities. To date, the Company has
satisfied such cash requirements by loans from its principals and/or private
sales of the Company's equity securities. The Company is seeking to secure
financing to provide the Company with liquidity to meet its future needs. There
can be no assurance that the Company will be able to obtain such financing on
commercially reasonable terms, or otherwise, or that it will be able to
otherwise satisfy it short-term cash flow needs from other sources in the
future.
18
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
9278 COMMUNICATIONS INC. AND SUBSIDIARY
(FORMERLY 9278 DISTRIBUTOR INC.)
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
TABLE OF CONTENTS
Independent Auditors' Report ...................................... F-2
Consolidated Financial Statements
Balance Sheet at December 31, 1999 ............................. F-3
Statement of Income
Years Ended December 31, 1999 and 1998 ....................... F-4
Statement of Changes in Shareholders' Equity
Years Ended December 31, 1999 and 1998 ....................... F-5
Statement of Cash Flows
Years Ended December 31, 1999 and 1998 ....................... F-6
Notes to Consolidated Financial Statements ..................... F-7 - F-14
F-1
<PAGE>
1700 BROADWAY
FRIEDMAN NEW YORK, NY 10019
ALPREN & 212-582-1600
GREEN LLP FAX 212-265-4761
CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS www.nyccpas.com
INDEPENDENT AUDITORS' REPORT
----------------------------
TO THE BOARD OF DIRECTORS OF 9278 COMMUNICATIONS INC.
We have audited the accompanying consolidated balance sheet of 9278
COMMUNICATIONS INC. AND SUBSIDIARY (formerly 9278 Distributor Inc.) as of
December 31, 1999, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for each of the years in the two-year period
ended December 31, 1999. 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 in accordance with generally accepted
auditing standards. 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. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of 9278
COMMUNICATIONS INC. AND SUBSIDIARY as of December 31, 1999, and the results of
their operations and their cash flows for each of the years in the two-year
period ended December 31, 1999 in conformity with generally accepted accounting
principles.
Friedman Alpren & Green LLP
New York, New York
January 24, 2000, except for
Note 9, as to which the
date is March 2, 2000
F-2
<PAGE>
9278 COMMUNICATIONS INC. AND SUBSIDIARY
(FORMERLY 9278 DISTRIBUTOR INC.)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
ASSETS
------
<TABLE>
<S> <C>
Current assets
Cash ....................................................... $ 26,192
Accounts receivable, less allowance for doubtful accounts
of $125,000 .............................................. 3,820,503
Inventories ................................................ 1,302,171
Prepaid expenses and other current assets .................. 30,749
-----------
Total current assets ............................... 5,179,615
Property and equipment - at cost, less accumulated
depreciation and amortization .............................. 349,869
Goodwill, less accumulated amortization of $11,205 ............ 593,857
Other assets .................................................. 15,339
-----------
$ 6,138,680
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities
Accounts payable and accrued expenses ...................... $ 2,805,579
Current maturities of note and advances payable, shareholder 1,633,521
Current maturities of debt obligations ..................... 69,102
Income taxes payable ....................................... 2,000
-----------
4,510,202
Total current liabilities
Note payable, shareholder, less current maturities ............ 1,000,000
Debt obligations, less current maturities ..................... 108,002
-----------
5,618,204
-----------
Commitments and contingencies ................................. --
Shareholders' equity
Convertible preferred stock
Class B, $.001 par value; 5,000,000 shares authorized,
1,500 shares issued and outstanding .................... 1,500,000
Common stock, $.001 par value; 25,000,000 shares
authorized, 19,659,629 shares issued and outstanding ..... 19,659
Additional paid-in capital ................................. 2,361,382
Accumulated deficit ........................................ (3,360,565)
-----------
520,476
-----------
$ 6,138,680
===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE>
9278 COMMUNICATIONS INC. AND SUBSIDIARY
(FORMERLY 9278 DISTRIBUTOR INC.)
CONSOLIDATED STATEMENT OF INCOME
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net sales .......................................... $78,089,670 $22,169,108
Cost of sales ...................................... 75,472,736 21,486,747
---------- ----------
Gross profit ............................ 2,616,934 682,361
---------- ----------
Operating expenses
Selling ......................................... 240,255 --
General and administrative ...................... 1,201,585 87,382
Depreciation and amortization ................... 66,296 22,139
Loss attributable to major supplier ............. 553,547 --
Provision for doubtful accounts ................. 519,962 489,087
Interest expense ................................ 23,454 3,469
---------- ----------
2,605,099 602,077
---------- ----------
Income before income taxes .............. 11,835 80,284
Income taxes ....................................... 5,000 8,551
---------- ----------
Net income .............................. $ 6,835 $ 71,733
=========== ===========
Pro forma income data (unaudited) - 1998
Income before income taxes as reported .......... $ 80,284
Pro forma income taxes .......................... 40,000
-----------
Pro forma net income ............................ $ 40,284
==========
Basic and diluted earnings (loss) per share ........ $ (.02) $ -0-
=========== ===========
Shares used in the calculation of earnings per share 19,659,629 14,900,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE>
9278 COMMUNICATIONS INC. AND SUBSIDIARY
(FORMERLY 9278 DISTRIBUTOR INC.)
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
ADDITIONAL RETAINED
COMMON STOCK PAID-IN PREFERRED TREASURY EARNINGS
SHARES AMOUNT CAPITAL STOCK STOCK (DEFICIT)
------ ------ ------- ----- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1998 .......... 200 $ 1,000 $ 199,000 $ -- $ -- $ 867
Net income for the year ended
December 31, 1998 ............... -- -- -- -- -- 71,733
----------- ----------- ----------- ----------- ----------- -------------
Balance, December 31, 1998 ........ 200 1,000 199,000 -- -- 72,600
Contribution of common shares by
founding shareholder ........... 22.75 -- 350,721 -- 350,721 --
Reissuance of treasury shares ..... (22.75) -- -- -- (350,721) --
Effective stock split of 74,500
shares to 1 at merger ........... 14,899,800 13,900 (13,900) -- -- --
Effective acquisition of iLink
excluding contemporaneous
private placements .............. 4,259,629 4,259 451,061 -- -- --
Issuance of common stock through
private placement ............... 500,000 500 999,500 -- -- --
Issuance of preferred stock through
private placement ............... -- -- -- 1,500,000 -- --
Dividends paid and declared ....... -- -- -- -- -- (3,065,000)
Imputed preferred stock dividend
attributable to the beneficial
conversion feature .............. -- -- 375,000 -- -- (375,000)
Net income for the year ended
December 31, 1999 ............... -- -- -- -- -- 6,835
----------- ----------- ----------- ----------- ----------- -------------
Balance, December 31, 1999 ........ 19,659,629 $ 19,659 $ 2,361,382 $ 1,500,000 $ -0- $ ( 3,360,565)
=========== =========== =========== =========== =========== =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE>
9278 COMMUNICATIONS INC. AND SUBSIDIARY
(FORMERLY 9278 DISTRIBUTOR INC.)
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities
Net income ......................................... $ 6,835 $ 71,733
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Depreciation and amortization ................. 66,296 22,139
Provision for doubtful accounts ............... 519,962 489,087
Changes in assets and liabilities
Accounts receivable ......................... (1,689,999) (3,084,553)
Inventories ................................. (917,787) (334,384)
Prepaid expenses and other current assets ... (30,749) --
Other assets ................................ (5,339) (10,000)
Accounts payable and accrued expenses ....... (132,023) 3,079,234
Income taxes payable ........................ (6,551) 8,551
----------- -----------
Net cash provided by (used in) operating
activities .............................. (2,189,355) 241,807
----------- -----------
Cash flows from investing activities
Cash received in merger ............................ 5,410 --
Acquisition of property and equipment .............. (122,104) (14,000)
Merger transaction costs ........................... (55,681) --
----------- -----------
Net cash used in investing activities ..... (172,375) (14,000)
----------- -----------
Cash flows from financing activities
Advances payable, shareholder ...................... 633,521 (29,300)
Principal payments on debt obligations ............. (45,567) (39,539)
Issuance of common stock ........................... 1,000,000 199,000
Issuance of preferred stock ........................ 1,500,000 --
Dividends paid ..................................... (1,065,000) --
----------- -----------
Net cash provided by financing activities .. 2,022,954 130,161
----------- -----------
Net increase (decrease) in cash ...................... (338,776) 357,968
Cash, beginning of year .............................. 364,968 7,000
----------- -----------
Cash, end of year .................................... $ 26,192 $ 364,968
=========== ===========
Supplemental cash flow disclosures
Interest paid ...................................... $ 16,787 $ 3,469
Income taxes paid .................................. 11,551 --
Noncash investing and financing activities
Note issued for accrued dividends .................. 2,000,000 --
Issuance of common stock for net noncash assets
received in merger ............................... 455,320 --
Additional paid-in capital arising from contribution
of treasury shares ............................... 350,721 --
Transportation and other equipment acquired under
debt obligations ................................. 121,240 140,970
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE>
9278 COMMUNICATIONS INC. AND SUBSIDIARY
(FORMERLY 9278 DISTRIBUTOR INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
9278 Communications Inc. is the successor consolidated entity formed by
the merger, on December 10, 1999, of 9278 Distributor Inc. (the "Company")
and its subsidiary, iLink Telecom, Inc. ("iLink"). iLink was originally
incorporated in Colorado on December 10, 1997 and was reincorporated in
Nevada on July 14, 1998. The Company was incorporated in New York on April
17, 1997.
Concurrent with the merger, iLink, a publicly held company and the
legally surviving parent company, changed its name to 9278 Communications
Inc. For accounting purposes, the merger has been treated as a reverse
acquisition, with the Company as the acquiror, and is accounted for as a
purchase.
The Company sells telephone cards to small retail establishments and
distributors, primarily in the New York, New Jersey and Connecticut areas.
Acquisition
The Company consummated the reverse acquisition of iLink on December
10, 1999. The Company's shareholders were issued 14,900,000 iLink shares in
exchange for the 200 shares of the Company. For accounting purposes, the
shares retained by the original shareholders of iLink, subject to certain
adjustments, are treated as being issued by the Company to effect the
merger, hence the term "reverse acquisition". These shares were valued at
$155,000 based upon an independent valuation of iLink. In addition to the
value of these shares, the Company's acquisition cost includes the eight
shares (post split equivalent of 596,000 shares) issued to a creditor of
iLink valued at $123,330, legal fees of $42,455, and investment banker fees
of $13,226, for total acquisition costs of $334,011.
Concurrent with the closing of the merger, iLink completed two private
placements pursuant to which it sold 500,000 new common shares for
$1,000,000 and 1,500 convertible preferred shares for $1,500,000.
Immediately prior to the closing of the merger, the Company declared a
$3,000,000 dividend ($15,000 per share), of which $1,000,000 was paid in
cash and the balance of $2,000,000 in the form of a two-year promissory
note. The payment of $1,000,000 was funded by the private placements
consummated as of that date.
(Continued)
F-7
<PAGE>
9278 COMMUNICATIONS INC. AND SUBSIDIARY
(FORMERLY 9278 DISTRIBUTOR INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Also prior to the merger, iLink issued 300,000 shares in satisfaction
of $300,000 in debt; issued 190,000 shares for services upon the
achievement of certain vesting provisions and also issued 200,000 common
shares for advisory and related services in connection with the private
placement and merger.
The following unaudited pro forma information presents the results of
operations of the Company as if the acquisition had taken place on January
1, 1998:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1999 1998
------ ------
<S> <C> <C>
Net sales ............... $ 78,121,200 $ 22,169,108
Net earnings (loss) ..... (1,497,438) 48,019
Earnings (loss) per share (.08) -0-
</TABLE>
These unaudited pro forma results of operations have been prepared for
comparative purposes only and do not purport to be indicative of the
results of operations which actually would have resulted had the
acquisition occurred on the date indicated, or which may result in the
future.
Use of Estimates
Management uses estimates and assumptions in preparing financial
statements. Those estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and
liabilities, and the reported revenues and expenses. Actual results could
differ from those estimates.
Basis of Presentation
The accompanying consolidated balance sheet as of December 31, 1999
includes the accounts of the Company and iLink. The related accompanying
consolidated statements of income, changes in shareholders' equity and cash
flows include the results of operations and cash flows of the Company for
the entire year and of iLink for the period beginning December 11, 1999.
All significant intercompany transactions and balances have been
eliminated.
(Continued)
F-8
<PAGE>
9278 COMMUNICATIONS INC. AND SUBSIDIARY
(FORMERLY 9278 DISTRIBUTOR INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Inventories
Inventories, which consist of telephone cards, are stated at the lower
of cost (first-in, first-out) or market.
Property and Equipment
Property and equipment are stated at cost. Depreciation, including
depreciation on assets held under capital leases, is computed on accelerated
methods over the estimated useful lives of five to seven years. Leasehold
improvements are amortized primarily over 39 years.
Goodwill
Goodwill represents cost in excess of fair value of net assets
acquired in the merger transaction, and is being amortized over 3 years.
The Company periodically re-evaluates its recoverability. In management's
opinion, there has been no impairment of goodwill at December 31, 1999.
Revenue Recognition
Revenue is recognized at the time of sale.
Income Taxes
Prior to the merger with iLink, the Company had elected S Corporation
status for Federal and New York State income tax purposes. Under these
elections, the Company's taxable income or loss was reportable by the
shareholders on their individual income tax returns, and the Company made
no provision for Federal income tax. Provisions were recorded for New York
State S Corporation tax and New York City General Corporation tax.
Concurrent with the merger with iLink on December 10, 1999, the S
Corporation elections terminated and the Company became subject to all
Federal, state and city corporation income taxes.
(Continued)
F-9
<PAGE>
9278 COMMUNICATIONS INC. AND SUBSIDIARY
(FORMERLY 9278 DISTRIBUTOR INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Concentrations of Credit Risk
At December 31, 1999, the Company maintained cash balances in two
banks. Balances are insured for up to $100,000 by the Federal Deposit
Insurance Corporation.
Earnings Per Share
Basic earnings per common share for 1999 is calculated by dividing net
income (loss) available to common stockholders by the average number of
common shares outstanding during the year. Diluted earnings per common
share is calculated by adjusting outstanding shares, assuming conversion of
any potentially dilutive securities, such as stock options or warrants. The
Company has no material potentially dilutive securities outstanding.
The numerator in calculating basic and diluted earnings (loss) per
share is reported net income less the beneficial conversion feature of
preferred stock. In 1999, reported net income of $6,835 was reduced by the
beneficial conversion feature of $375,000 to arrive at net loss
attributable to common shareholders totaling $368,165. In 1998, there was
no beneficial conversion feature and all of reported net income of $71,733
was available for common shareholders.
Basic earnings per common share for 1998, which gives retroactive
effect to the stock split, has been computed on a pro forma basis by
dividing net income by 14,900,000 shares, which represents the number of
shares of iLink issued to the shareholders of the Company.
2 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<S> <C>
Transportation and other equipment
under capital leases ....................... $185,970
Furniture and equipment ...................... 39,410
Automobiles .................................. 154,566
Computer equipment ........................... 48,799
Leasehold improvements ....................... 15,000
--------
443,745
Less - Accumulated depreciation and
amortization.............................. 93,876
--------
$349,869
========
</TABLE>
Accumulated depreciation on equipment held under capital leases was
$63,653 at December 31, 1999.
(Continued)
F-10
<PAGE>
9278 COMMUNICATIONS INC. AND SUBSIDIARY
(FORMERLY 9278 DISTRIBUTOR INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3 - NOTE AND ADVANCES PAYABLE, SHAREHOLDER
On December 10, 1999, the Company declared $3,000,000 in dividends, of
which $1,000,000 was paid at that time. On December 13, 1999, the Company
executed a promissory note for the benefit of the shareholders in the
amount of $2,000,000, payable to the Company's chief executive officer, who
is also a shareholder. A principal payment of $1,000,000 is due on June 13,
2000, and the second payment is payable on December 13, 2001. However, the
final payment is accelerated if the Company's gross revenues exceed $10
million in each of any six consecutive calendar months or exceed $60
million in any six-month period. Management does not anticipate this
occurring prior to January 10, 2001. Interest is payable at the time of
each principal payment at a rate of 10%. Interest expense accrued at
December 31, 1999 was $6,667.
In addition, the Company's chief executive officer made advances which
are noninterest-bearing and due on demand.
4 - DEBT OBLIGATIONS
In 1999, the Company entered into two automobile loans for $76,240.
The loans require total monthly payments of $2,277, including interest at
10%.
In addition, the Company leases transportation and other equipment
under capital leases. Future loan principal and minimum lease payments at
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Year Ending Capital Automobile
December 31, Leases Loans
------------ ------ ----------
<S> <C> <C>
2000................................... $ 58,563 $ 21,423
2001................................... 38,963 12,346
2002................................... 11,522 12,842
2003................................... 11,522 12,521
2004................................... 6,721 9,507
-------- --------
Total minimum loan and lease payments.. 127,291 68,639
Less - Amount representing interest ... 18,826 --
-------- --------
Present value of minimum loan and lease
payments ............................ 108,465 68,639
Less - Current maturities ............. 47,679 21,423
-------- --------
Long-term debt obligations ............ $ 60,786 $ 47,216
======== ========
</TABLE>
Interest expense on the automobile loans and capital lease obligations
for the years ended December 31, 1999 and 1998 was $16,787 and $3,469,
respectively.
(Continued)
F-11
<PAGE>
9278 COMMUNICATIONS INC. AND SUBSIDIARY
(FORMERLY 9278 DISTRIBUTOR INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5 - CAPITAL STOCK TRANSACTIONS
On November 17, 1999, the Company's sole shareholder sold 22.75 of his
common shares in the Company to three new shareholders. Of these, 14.75
shares were issued to affiliates of two providers of advisory services.
Such services were in large part related to the Company's general merger
and business development activities, but had no specific connection to the
merger with iLink. The remaining eight shares were issued to a creditor of
iLink as consideration for services directly related to the merger. (This
creditor subsequently converted $300,000 of loans payable to 300,000 shares
of iLink.) The issuance of all of these shares furthered the Company's
interest to varying degrees; accordingly, their issuance has been
attributed directly to the Company, as if they had first been contributed
to the Company by the sole shareholder. These shares were recorded as
treasury stock at their fair value and reissued to the three new
shareholders. The Company recognized $227,391 of advisory fee expense for
the 14.75 shares. The remaining eight shares with a fair value of $123,330
have been added to the Company's acquisition cost for the merger.
6 - RELATED PARTY TRANSACTIONS
Sales to a customer who is related to an officer were approximately
$9,500,000 and $2,208,000 for the years ended December 31, 1999 and 1998,
respectively. The amount receivable from this related party at December 31,
1999 and 1998 was approximately $215,000 and $880,000, respectively, all of
which had been subsequently collected as of January 24, 2000. On March 2,
2000, the Company entered into a letter of intent to acquire this
customer's business (see Note 9).
7 - LITIGATION WITH MAJOR SUPPLIER
For the year ended December 31, 1999, purchases from one telephone
card supplier were approximately 55% of total purchases. In November 1999,
the Company commenced an action against this supplier to recover damages
resulting from cancellation of telephone cards purchased by the Company.
The supplier subsequently countersued. In the Company's opinion, with which
its legal counsel concurs, no material liability will result from the
countersuit. The Company incurred a loss of $553,547, which was reflected
in the fourth quarter of 1999. The Company is doubtful as to the prospects
for recovery against such loss. The Company subsequently mitigated, in
substantial part, its reliance on this supplier by increasing its purchases
from other vendors.
(Continued)
F-12
<PAGE>
9278 COMMUNICATIONS INC. AND SUBSIDIARY
(FORMERLY 9278 DISTRIBUTOR INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8 - COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company was assigned a noncancelable operating lease for warehouse
and office space by its chief executive officer. The assignment was
structured as a sublease. Approximate future minimum rentals at December
31, 1999 are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
2000.............................. $ 63,000
2001.............................. 66,000
2002.............................. 70,000
2003.............................. 73,000
2004.............................. 77,000
Thereafter........................ 340,000
--------
$689,000
========
</TABLE>
Rent expense for the years ended December 31, 1999 and 1998 was
$68,910 and $16,708, respectively.
Employment Agreement
On December 10, 1999, the Company entered into a three-year employment
agreement with its chief executive officer. Base salary for each of the
three years will be $200,000, $225,000 and $250,000, respectively. At the
end of the three-year period, the employment agreement will automatically
be extended for an additional year without any action by the Company or the
chief executive officer, unless there is a submitted written notice four
months prior to expiration of the agreement by either party. In addition to
the base salary, the Company will compensate the chief executive officer
with cash bonuses and stock option grants based on the Company's economic
performance.
Contracts
The Company has various commitments with certain vendors requiring
minimum periodic purchases. Such contracts are common in the Company's
industry.
(Continued)
F-13
<PAGE>
9278 COMMUNICATIONS INC. AND SUBSIDIARY
(FORMERLY 9278 DISTRIBUTOR INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8 - COMMITMENTS AND CONTINGENCIES (Continued)
Stock Options
Prior to the acquisition, iLink had established a non-qualified stock
option plan pursuant to which options to acquire a maximum of 500,000
common shares would be granted. On June 9, 1999, the Company granted
options to individuals, who were employees at that time, to acquire 23,000
common shares at an exercise price of $5.25. These options are exercisable
on June 9, 2000 and expire after that date if not exercised.
9 - SUBSEQUENT EVENTS
Between January 18, 2000 and February 7, 2000, certain holders of
preferred stock converted 225 preferred shares into 96,539 common shares.
On February 28, 2000, the Company sold the assets acquired in the
acquisition of iLink and will recognize a loss on the sale of approximately
$400,000, primarily attributable to the write-off of the related goodwill.
On March 2, 2000, the Company entered into a letter of intent to
acquire a company which is owned by a family member of an officer of the
Company.
F-14
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On December 28, 1999, the Company dismissed Ernst & Young LLP ("E&Y")
as its independent certified public accountant. The reports of E&Y on the
Company's financial statements for the fiscal years ended December 31, 1998 and
1997 did not contain an adverse opinion, or disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope or accounting principle.
The Company's Board of Directors approved the decision to change accountants.
During the Company's two most recent fiscal years and subsequent interim
periods, there were no disagreements with E&Y on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedures, which disagreements, if not resolved to the satisfaction of E&Y
would have caused it to make reference to such disagreement in its reports.
The Company engaged Friedman Alpern & Green LLP ("Friedman") to act as
its independent certified public accountant, effective December 28, 1999. During
the two most recent fiscal years and subsequent interim periods, the Company has
not consulted Friedman regarding the application of accounting principles to a
specified transaction, either completed or proposed, or the type of audit
opinion that might be rendered on the Company's financial statements, or any
matter that was the subject of a disagreement or a reportable event.
19
<PAGE>
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following persons are our executive officers and directors:
<TABLE>
<CAPTION>
NAME AGE OFFICES HELD
- ---- --- ------------
<S> <C> <C>
Sajid Kapadia 25 Chairman, Chief Executive Officer and Director
Amar Bahadoorsingh 29 President, Secretary and Director
Haris Syed 25 Vice President and Director
Raymond Akwule 44 Director
</TABLE>
SAJID KAPADIA. Mr. Kapadia has been the Chairman, Chief Executive Officer and a
Director of the Company since December 1999. In October 1996, Mr. Kapadia
founded 9278 Distributor Inc., which was merged with and into 9278 Distributor
Acquisition Corp., a wholly owned subsidiary of iLink, and served as its
President from inception. Prior to this, Mr. Kapadia was involved in several
short-term telemarketing positions. Mr. Kapadia has a degree in mechanical
engineering from Gandhi Engineering College in Gujrat, India.
AMAR BAHADOORSINGH. Mr. Bahadoorsingh has been the President, Secretary and a
director of the Company since December 1999. Prior to the Merger, he was Chief
Executive Officer, President, Secretary and a director of iLink, beginning
February 1999. Prior to this, Mr. Bahadoorsingh was the Corporate Finance
Director for Insync Securities Ltd., from August 1997 through December 1998.
Before this, Mr. Bahadoorsingh was President of ABDE Holdings Ltd. from April
1992 through July 1997. Mr. Bahadoorsingh holds a Masters of Business
Administration degree from Queen's University, in Ontario, Canada, with a focus
on management and marketing strategy.
HARIS SYED. Mr. Syed has been Vice President and a Director of the Company,
since December 1999. Prior to this, from November 1996 through December 1999, he
was the Vice President of TCI Telecom of NY, a telecom switching and Voice Over
Internet Protocol integrator. Prior to this, he was a student, enrolled in the
Business Administration and Marketing program at Columbus University in Los
Angeles.
RAYMOND AKWULE, PH.D. Dr. Akwule has been a Director of the Company since March
15, 2000. Dr. Akwule is a tenured professor at George Mason University, with
more than 18 years of teaching, research and project implementation experience
in the fields of telecommunications policy, information technology
implementation and mass communication. He is the author of Global
Telecommunications: The Technology, Administration and Policies
(Butterworth-Heinemann, 1992), used as a text in several major universities in
the United States and abroad. Dr. Akwule holds a Doctor of Philosophy degree
from Howard University and a Masters of Arts degree and Bachelor of Arts degree
from the University of Iowa.
All directors hold office until the next annual meeting of stockholders
and the election and qualification of their successors. Executive officers are
elected annually by the Board of Directors to hold office until the first
meeting of the Board following the next annual meeting of stockholders and until
their successors are chosen and qualified.
20
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION
Set forth below is the aggregate compensation for services rendered in
all capacities to the Company during its fiscal years ended December 31, 1999
and 1998 by its Chief Executive Officer. No executive officer of the Company had
compensation in excess of $100,000 during the fiscal year ended December 31,
1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
NAME AND ANNUAL COMPENSATION COMPENSATION AWARDS
ANNUAL ---------------------------- ----------------------
PRINCIPAL SECURITIES UNDERLYING
POSITION YEAR SALARY BONUS OTHER OPTIONS/SARS
- --------- ---- ------ ----- ----- ----------------------
<S> <C> <C> <C> <C> <C>
Sajid Kapadia,
Chairman and 1999 $ 80,815 $ -- $ -- --
Chief Executive Officer 1998 $ 24,000 $ -- $ -- --
</TABLE>
Set forth below is information with respect to options to purchase the
Company's Common Stock granted in the year ended December 31, 1999 and prior
years under the Company's Stock Option Plan.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
NUMBER OF UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS
ACQUIRED DECEMBER 31, 1999 AT DECEMBER 31, 1999
UPON VALUE ----------------- --------------------
NAME YEAR EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sajid Kapadia 1999 -- $ -- -- -- $ -- $ --
1998 -- $ -- -- -- $ -- $ --
</TABLE>
21
<PAGE>
EMPLOYMENT AGREEMENTS
Consulting Agreement with Devmar Holdings Ltd.
On February 27, 1999, iLink entered into a five-year consulting
agreement dated February 27, 1999, with Devmar Holdings Ltd., a company
controlled by Mr. Amar Bahadoorsingh, an officer and director of the Company.
Pursuant to this consulting agreement the Company agreed to pay Devmar Holdings
Ltd. $5,000 per month for management consulting service provided by Mr.
Bahadoorsingh. This consulting agreement was terminated as of December 31, 1999.
Contract with Sajid Kapadia
On December 10, 1999, the Company entered into an Employment Agreement
with Sajid Kapadia. Under the terms of this agreement, Mr. Kapadia will serve as
Chairman of the Board and Chief Executive Officer of the Company for an initial
term of 3 years, which term will be automatically extended for additional one
year periods unless either party submits a notice of non-extension to the other
not less than four months prior to the expiration of the term.
Pursuant to the agreement, Mr. Kapadia shall receive a base salary of
$200,000, $225,000 and $250,000 during his first, second and third years of
employment, respectively. In addition, during each year of employment Mr.
Kapadia shall receive cash bonuses and stock option grants in amounts to be
determined by the Company's Board of Directors. The Company shall also lease an
automobile for Mr. Kapadia's exclusive use. Mr. Kapadia is entitled to
participate in all plans adopted for the general benefit of the Company's
employees and executive employees.
The agreement with Mr. Kapadia automatically terminates upon his death.
In addition, the Company can terminate the agreement based on Mr. Kapadia's
continued disability, for due cause or without due cause. Mr. Kapadia can
terminate his employment for good reason. If the agreement is terminated for
death disability or due cause, the Company will pay Mr. Kapadia any unpaid base
salary and bonus through the date of termination. If the Company terminates Mr.
Kapadia's employment for any other reason, or if he terminates it for good
reason, the Company will pay him his base salary for the remaining term of the
agreement, but in no event less than 24, nor more than 35 months.
Mr. Kapadia's agreement contains standard provisions regarding
confidentiality and non-competition during the term of his employment.
STOCK OPTION PLAN
The Company has adopted a Non-Qualified Stock Option Plan. The Option
Plan authorizes the issuance of options to purchase up to 500,000 shares of the
Company's Common Stock. The Option Plan became effective on June 1, 1999. The
Company's employees, directors, officers, consultants and advisors are eligible
to be granted options pursuant to the Option Plan. The exercise price of the
options is determined by the Board of Directors.
Options granted pursuant to the Option Plan terminate on the date
established by the Board of Directors when the options are granted.
The Option Plan is administered by the Company's Board of Directors.
The Board of Directors has the authority to interpret the provisions of the
Option Plan and supervise the administration of the Option Plan. In addition,
the Board of Directors is empowered to select those persons to whom options
22
<PAGE>
are to be granted, to determine the number of shares subject to each grant of
an option and to determine when, and upon what conditions or options granted
under the Option Plan will vest or otherwise be subject to forfeiture and
cancellation.
In the discretion of the Board of Directors, any option granted
pursuant to the Option Plan may include installment exercise terms so that the
option becomes fully exercisable in a series of cumulating portions. The Board
of Directors may also accelerate the date upon which any option (or any part of
any options) is first exercisable. In the discretion of the Board of Directors
payment for shares of Common Stock underlying options may be paid through the
delivery of shares of our Common Stock having an aggregate fair market value
equal to the option price, provided that such shares have been owned by the
option holder for at least one year prior to the exercise. A combination of cash
and shares of Common Stock may also be permitted at the discretion of the Board
of Directors. Options are generally non-transferable except upon death of the
option holder.
The Company's Board of Directors may at any time, and from time to
time, amend, terminate, or suspend the Option Plan in any manner it deems
appropriate, provided that the amendment, termination or suspension cannot
adversely affect rights or obligations with respect to shares or options
previously granted.
The Option Plan is not qualified under Section 401(a) of the Internal
Revenue Code, and is not subject to any provisions of the Employee Retirement
Income Security Act of 1974. No directors or officers have been granted any
incentive stock options.
On June 9, 1999, iLink granted non-qualified options to purchase an
aggregate of 23,000 shares of Common Stock of the Company, at an exercise price
of $5.25 per share, to three of its employees. The options vested upon grant and
are exercisable for a period of one year from the date of the grant. None of the
grantees are currently employed by the Company.
On March 15, 2000, the Company granted non-qualified options to
purchase 25,000 shares of Common Stock of the Company, at an exercise price of
$4.00 per share, to Raymond Akwule, a newly appointed director of the Company.
The options vest 50% on September 15, 2000 and 50% on March 15, 2001 and are
exercisable for a period of ten years from the date of the grant.
23
<PAGE>
DIRECTORS' COMPENSATION
The Company reimburses its directors for expenses incurred in
connection with attending Board meetings but it does not pay director's fees or
other cash compensation for services rendered as a director.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Section 78.7502 of the Nevada Revised Statutes provides that a
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any litigation by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, against expenses,
including attorneys' fees, judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with the action if he
acted in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. Any indemnification made under section 78.7502 must be determined
to be proper, on a case-by-case basis, by either the Company's stockholders, a
quorum of its Board of Directors (excluding any directors named in the action)
or by the written opinion of its legal counsel. The Company's Articles of
Incorporation and its Bylaws provide for indemnification of its directors,
officers, employees or agents against expenses, including attorneys' fees,
judgments, fines and amounts paid in settlement if they acted in good faith and
reasonably believed their conduct or action to be in the Company's best
interest.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Each member of the Board of Directors participates in the
determination of the level of compensation of the Company's executive officers.
Three of such directors, Sajid Kapadia, Amar Bahadoorsingh and Haris Syed, are
officers of the Company.
24
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information as of March 25, 2000 based on
information obtained from the persons named below, with respect to the
beneficial ownership of shares of the Company's Common Stock by (i) each
director of the Company, (ii) certain executive officers of the Company, (iii)
each person known by the Company to be the owner of more than 5% of its
outstanding shares of Common Stock and (iv) all executive officers and directors
as a group:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF APPROXIMATE
BENEFICIAL HOLDER SHARES PERCENTAGE OF CLASS
- ----------------- ------ -------------------
<S> <C> <C>
Sajid Kapadia ...................... 13,455,125 65.8%
Haris Syed ......................... 37,500 *
Amar Bahadoorsingh ................. 0 *
Raymond Akwule(1) .................. 0 *
All executive officers ............. 13,492,625 65.9%
and directors as a group
(4 persons)
</TABLE>
- ----------
* Less than 1%
(1) Does not include 25,000 options to purchase shares of common stock of the
Company, which have not vested.
25
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In March 2000, the Company sold an aggregate of 404,000 shares of its
Common Stock to seven different investors at a price of $2.00 per share. Sajid
Kapadia, the Chairman, Chief Executive Officer and a director of the Company and
Haris Syed, the Vice President and a director of the Company, purchased 250,000
and 37,500 shares, respectively. Sohel Kapadia, Mr. Kapadia's brother, also
purchased 32,500 shares in this offering.
In December 1999, iLink agreed to purchase 9278 Distributor Inc., a
company controlled by Sajid Kapadia. Mr. Kapadia was not an officer or director
of iLink. In connection with the Merger, the shareholders of 9278 Distributor
were issued an aggregate of 14,900,000 shares of common stock of the Company, as
well as a dividend of $3.0 million, of which $1.0 million was paid in December
1999 and the balance of $2.0 million was in the form of a two-year promissory
note. Of such shares, 13,205,125 were issued to Mr. Kapadia. In addition to such
shares, Mr. Kapadia was granted proxies to vote an aggregate of 2,150,000
additional shares of common stock of the Company. As a result of such
shareholdings and proxies, Mr. Kapadia currently has the right to vote
approximately 78% of the outstanding common stock of the Company.
In December 1999, the Company entered into a sublease agreement with
Sajid Kapadia, pursuant to which it subleases the entire premises at 1942
Williamsbridge Road, Bronx, New York as its corporate offices, at an annual rent
of $63,000. The rental terms of the sublease agreement are substantially the
same as the terms under which Mr. Kapadia leases the space.
In February 1999, iLink agreed to purchase all of the shares of iLink
B.C. from ABDE Holdings Ltd., a company controlled by Amar Bahadoorsingh, the
President and a director of the Company, in exchange for 145 shares of our
Series A Convertible Preferred Stock. At the time of this agreement Mr.
Bahadoorsingh was not a director or officer of iLink. Subsequent to the
agreement, Mr. Bahadoorsingh and Peter Schriber were appointed as directors of
iLink and the prior director resigned. Upon consummation of the Merger, Mr.
Schriber resigned as a director of the Company. Each share of Series A
Convertible Preferred Stock entitled ABDE to convert into $1,000 worth of the
Company's Common Stock at a 25% discount to the average market price of the
Company's Common Stock for the five trading days immediately preceding the
conversion. On September 30, 1999, our Board of Directors (with Mr.
Bahadoorsingh abstaining) and ABDE agreed to exchange the 145 shares of Series A
Preferred Stock for 96,666 shares of the Company's Common Stock. The acquisition
of iLink B.C. was valued at $145,000, which was based upon arm's length
negotiations between the Company and ABDE, however, no independent appraisal was
obtained. ABDE acquired these assets from Revere Communications, Inc. on January
13, 1999 for $123,165.
iLink entered into a five-year consulting agreement, dated February 27,
1999, with Devmar Holdings, Ltd., which is controlled by Mr. Bahadoorsingh. The
agreement provided for monthly payments of $5,000 per month for the consulting
services of Mr. Bahadoorsingh. On March 25, 1999, iLink issued 1,500,000 of its
restricted common stock to Mr. Bahadoorsingh as compensation for services
rendered and to induce Mr. Bahadoorsingh to remain in iLink's employ, which was
deemed essential for the Company's future business developments. These
transactions were approved by iLink's Board of Directors with Mr. Bahadoorsingh
abstaining. Subsequently, the consulting agreement with Devmar Holdings was
terminated.
In March 1999, iLink issued 25,000 shares of the Company's restricted
common stock to Peter Schriber, a former officer and director of iLink, and in
May 1999, iLink issued 250,000 shares of its
26
<PAGE>
restricted common stock to Marketsource Direct Holdings, Ltd., a company
controlled by Mr. Schriber, as compensation for services rendered to iLink. The
number of shares issued was based upon Mr. Schriber's past services to iLink and
to induce his continued employment with iLink, which was deemed to be vital to
the Company's future business development. This transaction was approved by the
Company's Board of Directors with Mr. Schriber abstaining.
The 1,500,000 shares issued to Mr. Bahadoorsingh and the 275,000 shares
issued to Mr. Schriber referred to above were subject to a Vesting Agreement,
dated May 25, 1999. The Vesting Agreement provided for vesting of the shares,
if:
(a) the Holder remained an officer, director or employee of iLink; and
(b) (i) certain operating milestones were achieved, or (ii) if iLink
was granted a PCS License in Trinidad and Tobago, or (iii) if
iLink became subject to a takeover bid. Pursuant to the Vesting
Agreement, shares not vested by May 25, 2000 would be forfeited
and returned to iLink for cancellation.
On December 10, 1999, 1,750,000 of such shares were surrendered to the
Company by the holders for cancellation and the remaining 25,000 shares, held by
Mr. Schriber, vested.
In March 1999, iLink issued 300,000 shares of the its Common Stock to
Century Capital Management Ltd., a company controlled by Andrew Hromyk, a former
director of Aquasol, as compensation for services rendered. The agreement with
Century Capital also provides for an initial payment of $12,500 and monthly
consulting fees of $5,000 for the term of agreement, which is for 12 months.
This agreement terminates on March 31, 2000.
In May 1999, Century Capital assigned its interest in a lease covering
certain office space to iLink. The lease was assigned to iLink on the same terms
and conditions that existed for Century Capital except that iLink agreed to
indemnify Century Capital for any liabilities which may arise under the lease
after the assignment and Century Capital was issued 22,259 shares of iLink's
Common Stock as consideration for certain leasehold improvements, furniture and
telephone equipment. In December 1999, Century Capital agreed to the
cancellation of the assignment.
In March 1999, iLink entered into indemnification agreements with Mr.
Bahadoorsingh and Mr. Schriber, two of iLink's directors. In these agreements
the iLink agreed to indemnify the directors from and against any and all costs,
charges and expenses, however arising, or incurred by either of them in relation
to iLink's affairs by reason of them being directors. As required by Nevada
corporate law, the indemnification must be determined to be proper, on a
case-by-case basis, by either a company's stockholders, a quorum of its Board of
Directors, excluding any directors named in the action, or by the written
opinion of a company's legal counsel.
27
<PAGE>
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
(1) Financial Statements. See Index to Consolidated Financial Statements in
Item 8 hereof.
(2) Financial Statement Schedules.
None
(3) Exhibits.
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
2.1 Agreement and Plan of Merger, dated December 17, 1999, among iLink
Telecom, Inc., 9278 Distributors Acquisition Corp. and 9278
Distributor, Inc.***
3.1 Certificate of Incorporation of the Company, as amended.** a.
Amendment to Certificate of Incorporation, dated December 22, 1999.*
3.2 Bylaws of the Company.**
4.1 Specimen Common Stock Certificate of the Company.**
4.2 Non-Qualified Stock Option Plan of the Company.*
10.1 Employment Agreement, dated December 10, 1999, between the Company
and Sajid Kapadia.*
10.2 Consulting Agreement , dated February 27, 1999, between iLink and
Devmar Holdings Ltd.**
16.1 Letter from Ernst & Young LLP, dated January 10, 2000, addressed to
the Securities and Exchange Commission in compliance with Item 304 of
Regulation S-K.****
21.1 Subsidiaries of the Company.*
27.1 Financial Data Schedule.*
- ----------
* Filed herewith
** Incorporated by reference from the Company's registration statement on Form
SB-2 (Registration No. 333-84845)
*** Incorporated by reference from the Company's report on Form 8-K, dated
December 22, 1999
**** Incorporated by reference from the Company's report on Form 8-K, dated
December 28, 1999
28
<PAGE>
(b) Reports on Form 8-K. The Company filed the following Current Reports on Form
8-K during the fiscal year ended December 31, 1999:
(1) On December 23, 1999, the Company filed a Current Report on Form
8-K to report a change in control of the Company as a result of the Company
consummating a merger among the Company, 9278 Acquisition Corp., a wholly-owned
subsidiary of the Company ("Acquisition Corp."), and 9278 Distributor Inc., a
New York corporation ("Distributor"), pursuant to which Distributor was merged
with and into Acquisition Corp., thereby becoming a wholly-owned subsidiary of
the Company. As a result of such Merger, the shareholders of Acquisition Corp.
were issued an aggregate of 14,900,000 shares of common stock of the Company, as
well as $1,000,000 and a promissory note in the amount of $2,000,000. Of such
shares, 13,205,125 were issued to Sajid Kapadia, President and Chief Executive
Officer of Distributor. In addition to such shares, Mr. Kapadia was granted
proxies to vote an aggregate of 2,150,000 additional shares of common stock of
the Company. As a result of such shareholdings and proxies, Mr. Kapadia
currently has the right to vote approximately 78% of the outstanding common
stock of the Company. In connection with the Merger, certain members of
management agreed to forgive 1,750,000 shares of common stock of the Company,
which were subject to issuance under existing agreements with the Company. As a
result of such transactions, the aggregate number of issued and outstanding
shares of the Company increased to 19,659,629 shares.
(2) On December 29, 1999, the Company filed a Current Report on Form
8-K to report that it had (i) dismissed Ernst & Young LLP as its independent
certified public accountant and engaged Friedman Alpern & Green LLP to act as
its independent certified public accountant, effective December 28, 1999, (ii)
filed a Certificate of Amendment to its Articles of Incorporation, to change its
name from iLink Telecom, Inc. to 9278 Communications, Inc., and (iii) changed
its fiscal year from February 28 to December 31.
29
<PAGE>
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report on Form 10-KSB
to be signed on its behalf by the undersigned, thereunto duly authorized.
9278 COMMUNICATIONS, INC.
Date: March 30, 2000 By:/s/ Sajid Kapadia
---------------------------------
Sajid Kapadia
Chairman, Chief Operating Officer
and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report on Form 10-KSB has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<S> <C> <C>
/s/ Sajid Kapadia Chairman, March 30, 2000
- --------------------------- Chief Executive Officer,
Sajid Kapadia Principal Executive Officer
and Director
/s/ Amar Bahadoorsingh President, Principal March 30, 2000
- --------------------------- Accounting and Financial
Amar Bahadoorsingh Officer and Director
/s/ Haris Syed Vice President March 30, 2000
- --------------------------- and Director
Haris Syed
</TABLE>
30
<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
2.1 Agreement and Plan of Merger, dated December 17, 1999, among iLink
Telecom, Inc., 9278 Distributors Acquisition Corp. and 9278
Distributor, Inc.***
3.2 Certificate of Incorporation of the Company, as amended.** a.
Amendment to Certificate of Incorporation, dated December 22, 1999.*
3.3 Bylaws of the Company.**
4.2 Specimen Common Stock Certificate of the Company.**
4.2 Non-Qualified Stock Option Plan of the Company.*
10.2 Employment Agreement, dated December 10, 1999, between the Company
and Sajid Kapadia.*
10.2 Consulting Agreement , dated February 27, 1999, between iLink and
Devmar Holdings Ltd.**
16.1 Letter from Ernst & Young LLP, dated January 10, 2000, addressed to
the Securities and Exchange Commission in compliance with Item 304
of Regulation S-K.****
21.1 Subsidiaries of the Company.*
27.1 Financial Data Schedule.*
- ----------
* Filed herewith
** Incorporated by reference from the Company's registration statement on Form
SB-2 (Registration No. 333-84845)
*** Incorporated by reference from the Company's report on Form 8-K, dated
December 22, 1999
**** Incorporated by reference from the Company's report on Form 8-K, dated
December 28, 1999
<PAGE>
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
ILINK TELECOM, INC.
- --------------------------------------------------------------------------------
Pursuant to Section 78.390 of the
General Corporation Law of the State of Nevada
- --------------------------------------------------------------------------------
The undersigned President and Secretary of iLink Telecom, Inc. (the
"Corporation"), a Nevada corporation, hereby certify as follows:
FIRST: The Board of Directors of the Corporation duly adopted a
resolution setting forth and declaring advisable the amendment of Article I of
the Articles of Incorporation of the Corporation so that, as amended, said
Article shall read as follows:
"ARTICLE I
The name of this corporation is 9278 Communications, Inc."
SECOND: The number of shares outstanding and entitled to vote on an
amendment of the Articles of Incorporation is 19,659,629 shares of Common Stock.
In lieu of a vote of stockholders, written consent to the foregoing amendment
has been given by a majority of the outstanding stock entitled to vote thereon
in accordance with the provisions of Section 78.320 of the General Corporation
Law of the State of Nevada.
IN WITNESS WHEREOF AND UNDER PENALTIES OF PERJURY, iLink Telecom, Inc.
has caused this Certificate of Amendment of Articles of Incorporation to be
signed by its President and Secretary this 21st day of December, 1999.
ILINK TELECOM, INC.
By: /s/ Amar Bahadoorsingh
----------------------
Amar Bahadoorsingh,
President and Secretary
<PAGE>
ACKNOWLEDGMENT
--------------
PROVINCE OF BRITISH COLUMBIA )
) SS.:
CITY OF VANCOUVER )
On December 21st , 1999, before me, personally appeared Amar
Bahadoorsingh, the President of iLink Telecom, Inc., personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person whose name
is subscribed to on the attached Certificate of Amendment of Articles of
Incorporation and acknowledged to me that he executed the same in his authorized
capacity, and that by his signature on the Certificate of Amendment the entity
upon behalf of which the person acted, executed the instrument.
Witness my hand and official seal.
Signature /s/ John W. Legg
----------------
[NOTARY SEAL]
<PAGE>
ILINK TELECOM, INC.
NON-QUALIFIED STOCK OPTION PLAN
1. Purspose. This Non-Qualified Stock Option Plan (the "Plan") is
intended to advance the interests of iLink Telecom, Inc. (the "Company") and its
shareholders, by encouraging and enabliing selected officers, directors,
consultants and key employees upon whose judgment, initiative and effort the
Company is largely dependent for the successful conduct of its business, to
acquire and retain a proprietary interest in the Company by ownership of its
stock. Options granted under the Plan are intended to be Options which do not
meet the requirements of Section 422 of the Internal Revenue Code of 1954, as
amended (the "Code").
2. Definititions.
(a) "Board" means the Board of Directors of the Company.
(b) "Committee" means the directors duly appointed to administer
the Plan
(c) "Comon Stock" means the Company's Common Stock.
(d) "Date of Grant" means the date on which an Option is granted
under the Plan.
(e) "Option" means an Option granted under the Plan.
(f) "Optionee" means a person to whom an Option, which has not
expired, has been granted under the Plan.
(g) "Successor" means the legal representative of the estate of a
deceased optionee or the person or persons who acquire the right to exercise an
Option by bequest or inheritance or by reason of the death of any Optionee.
3. Administration of Plan. The Plan shall be administered by the
Company's Board of Directors or in the alternative, by a committee of two or
more directors appointed by the Board (the "Committee"). If a Committee should
be appointed, the Committee shall report all action taken by it to the Board.
The Committee shall have full and final authority in its discretion, subject to
the provisions of the Plan, to determine the individuals to whom and the time or
times at which Options shall be granted and the number of shares and purchase
price of Common Stock covered by each Option; to construe and interpret the
Plan; to determine the terms and provisions of the respective Option agreements,
which need not be identical, including, but without limitation, terms covereing
the payment of the Option Price; and to make all other determinations and take
all other actions deemed necessary or advisable for the proper administration of
the Plan. All such actions and determinations shall be conclusively binding for
all purposes and upon all persons.
4. Common Stock Subject to Options. The aggregate number of shares of
the Company's Common Stock which may be issued upon the exercise of Options
granted under the Plan shall not exceed 500,000, subject to adjustment under the
provisions of paragraph 7. The shares of Common Stock to be issued upon the
exercise of Options may be authorized but unissued shares, shares issued and
reacquired by the Company or shares bought on the market for the purposes of the
Plan. In the event any Option shall, for any reason, terminate or expire or be
surrendered without having been exercised in full, the shares subject to such
Option but not purchased thereunder shall again be available for Options to be
granted under the Plan.
<PAGE>
5. Participants. Options may be granted under the Plan the Company's
employees, directors and officers, and consultants or advisors to the Company,
provided however that bona fide services shall be rendered by such consultants
or advisors and such services must not be in connection with the offer or sale
of securities in a capital-raising transaction.
6. Terms and Conditions of Options. Any Option granted under the Plan
shall be evidenced by an agreement executed by the Company and the recipient and
shall contain such terms and be in such form as the Committee may from time to
time approve, subject to the following limitatiosn and conditions:
(a) Option Price. The Option Price per share with respect to each
Option shall be determined by the Committee but shall in no instance be less
than the par value of the Common Stock.
(b) Period of Option. The period during which each option may be
exercised, and the expiration date of each Option shall be fixed by the
Committee, but, notwithstanding any provision of the Plan to the contrary, such
expiration date shall not be more than ten years from the date of Grant.
(c) Vesting of Shareholders Rights. Neither an Optionee nor his
successor shall have any rights as a shareholder of the Company until the
certificates evidencing the shares purchased are properly delivered to such
Optionee or his successor.
(d) Exercise of Option. Each Option shall be exercisable from time
to time during a period (or periods) determined by the Committee and ending upon
the expiration or termination of the Option; provided, however, the Committee
may, by the provisions of any Option Agreement, limit the number of shares
purchasable thereunder in any period or periods of time during which the Option
is exercisable.
(e) Nontransferability of Option. No Option shall be transferable or
assignable by an Optionee, otherwise than by will or the laws of descent and
distribution and each Option shall be exercisable, during the Optionee's
lifetime, only by him. No Option shall be pledged or hypothecated in any way and
no Option shall be subject to execution, attachment, or similar process except
with the express consent of the Committee.
(f) Death of Optionee. If an Optioneee dies while holding an Option
granted hereunder, his Option privileges shall be limited to the shares which
were immediately purchasable by him at the date of death and such Option
privileges shall expire unless exercised by his successor within four months
after the date of death.
7. Reclassification, Consolidation, or Merger. If and to the extent
that the number of issued shares of Common Stock of the Corporation shall be
increased or reduced by change in par value, split up, reclassification,
distribution of a dividend payable in stock, or the like, the number of shares
subject to Option and the Option price per share shall be proportionately
adjusted by the Committee, whose determination shall be conclusive. If the
Corporation is reorganized or consolidated or merged with another corporation,
an Optionee granted an Option hereunder shall be entitled to receive Options
covering shares of such reorganized, consolidated, or merged company in the same
proportion, at an equivalent price, and subject to the same conditions. The new
Option or assumption of the old Option shall not give Optionee additional
benefits which he did not have under the old Option, or deprive him of benefits
which he had under the old Option.
<PAGE>
8. Restrictions on Issuing Shares. The exercise of each Option shall be
subject to the condition that if at any time the Company shall determine in its
discretion that the satisfaction of withholding tax or other withholding
liabilities, or that the listing, registration, or qualification of any shares
otherwise deliverable upon such exercise upon any securities exchange or under
any state or federal law, or that the consent or approval of any regulatory
body, is necessary or desirable as a conditon of, or in connection with, such
exercise or the delivery or purchase of shares purchased thereto, then in any
such event, such exercise shall not be effective unless such withholding,
listing, registration, qualfication, consent, or approval shall have been
effected or obtained free of any conditons not acceptable to the Company.
Unless the shares of stock covered by the Plan have been registered
with Securities and Exchange Commission pursuant to Section 5 of the Securities
Act of 1933, each optionee shall, by accepting an option, represent and agree,
for himself and his transferees by will or the laws of descent and distribution,
that all shares of stock purchased upon the exercise of the option will be
acquired for investment and not for resale or distribution. Upon such exercise
of any portion of an option, the person entitled to exercise the same shall,
upon request of the Company, furnish evidence satisfactory to the Company
(including a written and signed representation) to the effect that the shares of
stock are being acquired in good faith for investment and not for resale or
distribution. Furthermore, the Company may, if it deems appropriate, affix a
legend to certificates representing shares of stock purchased upon exercise of
options indicating that such shares have not been registered with the Securities
and Exchange Commission and may so notify the Company's transfer agent. Such
shares may be disposed of by the optionee in the following manner only: (1)
pursuant to an effective registration statement covering such resale of reoffer,
(2) pursuant to an applciable exemption from registration as indicated in a
written option of counsel acceptable to the Company, or (3) in a transaction
that meets all the requirements of Rule 144 of the Securities and Exchange
Commission. If shares of stock covered by the Plan have been registered with the
Securities and Exchange Commission, no such restrictions on resale shall apply,
except in the case of optionees who are directors, officers, or principal
shareholders of the Company. Such persons may dispose of shares only by one of
the three aforesaid methods.
9. Use of Proceeds. The proceeds received by the Company from the sale
of Common Stock pursuant to the exercise of Options granted under the Plan shall
be added to the Company's general funds and used for general corporate purposes.
10. Amendment, Suspension, and Termination of Plan. The Board of
Directors may alter, suspend, or discontinue the Plan at any time but may not
make any material change in the terms of any options previously granted
pursuant to this Plan.
Unless the Plan shall theretofore have been terminated by the Board,
the Plan shall terminate ten years after the effective date of the Plan.
No Option may be granted during any suspension or after the termination of the
Plan. No amendment, suspension, or termination of the Plan shall, without
an Optionee's consent, alter or impair any of the rights or obligations under
any Option theretofore granted to such Optionee under the Plan.
11. Limitations. Every right of action by or on behalf of the Company
or by any shareholder against any past, present or future member of the Board,
or any officer or employee of the Company arising out of or in connection with
this Plan shall, irrespective of the place where such action may be brought and
irrespective of the place of residence of any such director, officer or employee
cease and be barred by the expiration of one year from whichever is the later of
(a) the date of the act or omission in respect of which such right of action
arises; or (b) the first date upon which there has been made a generally
available to shareholders an annual report of the Company or any proxy statement
for the annual meeting of shareholders following the issuance of such annual
report, which annual report and proxy statement alone or together set
<PAGE>
forth, for the related period, the number of shares issuable upon the exercise
of the options granted pursuant to this Plan; and any and all right of action by
any employee (past, present or future) against the Company arising out of or in
connection with this Plan shall, irrespective of the place where such action may
be brought, cease and be barred by the expiration of one year from the date of
the act or ommission in respect of which such right of action raises.
12. Governing Law. The Plan shall be governed by the laws of the State
of Nevada.
13. Expenses of Administration. All costs and expenses incurred in the
operation and administration of this Plan shall be borne by the Company.
<PAGE>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of the 10th day of December, 1999 (the
"AGREEMENT"), by and among (i) ILINK TELECOM, INC. ("ILINK"), a Nevada
corporation having its principal office at 666 Burrard Street, Suite 1170,
Vancouver, British Columbia, V6C 2X8, (ii) 9278 DISTRIBUTORS INC. ("9278"), a
New York corporation having its principal office at 1942 Williamsbridge Rd.,
Bronx, New York 10461, and (iii) SAJID KAPADIA (the "Executive"). Each of iLink
and 9278 are sometimes hereinafter individually referred to as a "COMPANY" and
together as the "COMPANIES."
R E C I T A L S:
Each of the Companies desires to employ the Executive, and the
Executive desires to accept such employment by the Companies, upon the terms and
conditions hereinafter set forth.
In consideration of the mutual covenants and agreements set forth
herein, the parties agree as follows:
1. Employment and Duties.
(a) iLink agrees to employ the Executive as its Chairman of the Board
and Chief Executive Officer and the Executive accepts such
employment and agrees to perform all duties and services
consistent with the Executive's position. The Executive shall be
the highest ranking official of iLink and shall hold the highest
executive authority within iLink
(b) 9278 agrees to employ the Executive as its Chairman of the Board
and Chief Executive Officer and the Executive accepts such
employment and agrees to perform all duties and services
consistent with the Executive's position. The Executive shall be
the highest ranking official of 9278 and shall hold the highest
executive authority within 9278. iLink, in its capacity as a
shareholder of 9278, shall take no action inconsistent with this
Agreement.
(c) The Executive agrees to devote at least two-thirds of the
Executive's business time, attention and energy to perform the
Executive's duties and services hereunder; provided, however, that
the Executive may conduct other projects which do not detract a
significant amount of the Executive's time and attention from his
duties and services hereunder. The Executive shall not be required
to perform his duties hereunder at a location other than at the
corporate headquarters of 9278, which shall be located in the City
of New York, except for reasonable travel which may be required of
the Executive.
-1-
<PAGE>
(d) Each Company agrees that it shall nominate the Executive to be a
director of such Company at each election of directors of such
Company to be held during the Employment Period (as defined
below), and to recommend to the shareholders of such Company to
vote their shares in favor of the election of the Executive as a
director of such Company at all such meetings. The Executive
agrees to serve as a director of each Company for no additional
consideration, except as may be provided to all directors
generally.
2. Term of Employment. This Agreement shall commence on the date hereof
and end on the third anniversary of the date hereof, unless sooner terminated as
provided in Section 5 hereof, and subject to extension as hereinafter provided
(the "EMPLOYMENT PERIOD"). At the expiration of the initial three (3) year
Employment Period, and any extension thereof, the Employment Period shall
automatically be extended, without any action on the part of either Company or
the Executive for an additional period of one (1) year, unless a Company shall
have submitted a written notice of non-extension to the Executive or the
Executive shall have submitted a written notice of non-extension to one or both
of the Companies, in each case not less than four (4) months prior to the
expiration of the then scheduled Employment Period.
3. Compensation and Benefits.
3.1 Base Salary. ILink shall pay the Executive a base salary per annum
("BASE SALARY") in each year of Employment Period as follows:
YEAR BASE SALARY
---- -----------
First $200,000
Second $225,000
Third $250,000
The Base Salary may be increased from time to time in the sole
discretion of the Compensation Committee of the Board of Directors of iLink and
in any event will be increased annually to reflect corresponding increases in
the United States Department of Labor, Bureau of Labor Statistics, Consumer
Price Index, All Urban Consumers, United States City Average. The Base Salary
shall be payable at such intervals as salaries are paid by iLink to its other
executive employees.
3.2 Cash Bonuses and Stock Option Grants. In addition to the Base
Salary, with respect to each fiscal year during the Employment Period, iLink
shall compensate the Executive with cash bonuses and stock option grants in
amounts to be determined by the Compensation Committee of the Board of Directors
of iLink, in its sole discretion, based upon, among other things, the growth of
such Company through acquisitions, iLink's economic performance and, if iLink's
Common Stock is publicly traded, increases in the market price of iLink's Common
Stock.
-2-
<PAGE>
3.3 Benefit Plans. During the Employment Period, the Executive shall be
entitled to participate in all plans adopted for the general benefit of iLink's
employees or executive employees, such as pension plans, medical plans,
investment plans and group or other insurance plans and benefits, to the extent
that the Executive is and remains eligible to participate therein and subject to
the eligibility provisions of such plans in effect from time to time. The
Executive shall be reimbursed for his reasonable out-of-pocket expenses incurred
in the performance of his duties upon submission of appropriate evidence thereof
in conformity with iLink's normal company policy.
3.4 Automobile. The Companies shall lease a luxury automobile for the
exclusive use and benefit of the Executive. If an automobile is currently leased
by either Company for the benefit of the Executive, the replacement automobile
shall be of a type similar to the one currently leased. The lease shall contain
a clause allowing the Executive to purchase the automobile at the termination of
the term of the lease.
3.5 Indemnification. Each Company hereby agrees to indemnify and hold
harmless the Executive to the full extent permitted by the corporate law and
other relevant statutes in the applicable jurisdiction of incorporation. Each
Company agrees to advance to the Executive, as and when incurred by the
Executive, all costs and expenses arising from any claim as to which such
Company is providing indemnification hereunder.
4. Vacation. For each year during the Employment Agreement, the
Executive shall be entitled to paid vacation in accordance with iLink's standard
policy, but in no event shall the Executive be entitled to less than four (4)
weeks vacation per annum.
5. Termination.
5.1 Death. This Agreement shall automatically terminate upon the death
of the Executive, whereupon the Companies shall be obligated to pay to the
Executive's estate any unpaid Base Salary through the date of death and Bonus,
if any, as determined by the Board of Directors. Amounts payable under this
Section 5.1 shall be payable at the times and intervals set forth in Sections
3.1 and 3.2 hereof.
5.2 Disability. The Companies shall have the right to terminate this
Agreement during the continuance of any Disability of the Executive, as
hereafter defined, upon fifteen (15) days' prior notice to the Executive during
the continuance of the Disability. "Disability" for purposes of this Section 5.2
shall mean an inability by the Executive to perform a substantial portion of the
Executive's duties hereunder by reason of physical or mental incapacity or
disability for a total of one hundred eighty (180) days or more in any
consecutive period of three hundred and sixty-five (365) days, as determined by
the Board of Directors in its good faith judgment. In the event of a termination
by reason of the Executive's Disability, the Companies shall be obligated to pay
the Executive any unpaid Base Salary through the date of termination,
-3-
<PAGE>
and Bonus, if any, as determined by the Board of Directors. Amounts payable
under this Section 5.2 shall be payable at the times and intervals set forth in
Sections 3.1 and 3.2 hereof.
5.3 Termination by the Company for Due Cause. Nothing herein shall
prevent a Company from terminating Executive's employment for Due Cause.
Executive shall continue to receive salary for the period ending with the date
of such termination as provided in this Section 5.3. Any rights and benefits he
may have in respect of any other compensation or employee benefit plans or
programs of such Company shall be determined in accordance with the terms of
such other compensation arrangements or such other plans or programs.
The term "Due Cause", as used herein, shall mean that (a) the Executive
has committed a willful, serious act, such as embezzlement, against the Company
intending to enrich himself at the expense of the Company or (b) the Executive,
in carrying out his duties hereunder, has been guilty of willful, gross
negligence resulting in either case in material harm to the Company (this
provision shall not apply to any particular instance which is merely the result
of any good faith error in judgment), (c) the willful and continued failure by
Executive to substantially perform his duties with the Company (other than any
such failure resulting from Executive's incapacity due to physical or mental
illness), after a demand for substantial performance is delivered to Executive
by the Board which specifically identifies the manner in which the Board
believes that Executive has not substantially performed his duties, or (d) the
willful engaging by Executive in gross misconduct materially and demonstrably
injurious to the Company. For purposes of this paragraph, no act, or failure to
act, on Executive's part shall be considered "willful"unless done, or omitted
to be done, by Executive, not in good faith and without reasonable belief that
Executive's action or omission was in the best interest of the Company.
Notwithstanding the foregoing, Executive shall not be deemed
to have been terminated for Due Cause unless and until there shall have been
delivered to him a copy of a resolution duly adopted by the affirmative vote of
not less than two-thirds (2/3) of the entire membership of the Board at a
meeting of the Board called and held for the purpose (after reasonable notice to
Executive and an opportunity for Executive, together with his counsel, to be
heard before the Board), finding that, in the good faith opinion of the Board,
Executive was guilty of conduct set forth above and specifying the particulars
thereof in detail.
5.4 Termination by the Company other than for Due Cause. The
foregoing notwithstanding, a Company may terminate the Executive's employment
for whatever reason it deems appropriate, provided, however, that in the event
such termination is not due to permanent disability as provided in Section 5.2,
or based on Due Cause as provided in Section 5.3, the Executive will continue to
receive his Base Salary as provided in Section 3 for the remaining Term of the
Agreement (as it may be extended), but in no event for more than thirty-five
(35) months or less than twenty-four (24) months from the date of such
termination. During the period of salary continuation hereunder, the Executive
will be entitled to continued benefit coverage and benefit credits as provided
in Section 3 hereof or the economic equivalent.
-4-
<PAGE>
5.5 Termination by the Executive for Good Reason. Executive may
terminate his employment by either Company under this Agreement for Good Reason
in which event the Company shall still have the same obligations to Executive
under this Agreement as provided for in Section 5.4.
(a) "Good Reason" shall mean:
(i) Without Executive's express written consent, the assignment
to Executive of any duties inconsistent with his positions,
duties, responsibilities and status with the Company or a
change in his reporting responsibilities, title or offices,
or any removal of Executive from or any failure to re-elect
him to any of such positions, except in connection with the
termination of his employment for Due Cause, Disability or
Retirement or as a result of his death, or by Executive other
than for Good Reason;
(ii) A reduction in Executive's Base Salary or benefits or a
breach of the Company's obligations undertaken in this
Agreement;
(iii) In the event of the occurrence of a Change in Control, this
Agreement may be terminated by Executive upon the occurrence
thereafter of one or more of the following events (in
addition to those enumerated above):
(A) Any failure to elect or re-elect Executive, or removal of
Executive, as a director of the Company (or any successor
thereto), if Executive shall have been a director of the
Company immediately prior to the Change in Control, or
the office of the Company which Executive held
immediately prior to a Change in Control;
(B) A significant adverse change in the nature or scope of
the authorities, powers, functions, responsibilities or
duties attached to the position with the Company which
Executive had immediately prior to the Change in Control,
or the termination of Executive's rights to any Benefits
to which he was entitled immediately prior to the Change
in Control or a reduction in scope or value thereof
without the prior
-5-
<PAGE>
written consent of Executive, any of which is not
remedied with ten (10) calendar days after receipt by the
Company of written notice from Executive of such change,
reduction or termination, as the case may be;
(C) A determination by Executive made in good faith that as a
result of a Change in Control and a change in
circumstances thereafter significantly affecting his
position, he has been rendered substantially unable to
carry out, or has been substantially hindered in the
performance of, any of the authorities, powers,
functions, responsibilities or duties attached to his
position immediately prior to the Change in Control,
which situation is not remedied within ten (10) calendar
days after receipt by the Company of written notice from
Executive of such determination;
(D) The liquidation, dissolution, merger, consolidation or
reorganization of the Company or transfer of all or a
significant portion of its business and/or assets unless
the successor or successors (by liquidation, merger,
consolidation, reorganization or otherwise) to which all
or a significant portion of its business and/or assets
have been transferred (directly or by operation of law)
shall have assumed all duties and obligations of the
Company under this Agreement; or
(E) The Company shall relocate its principal executive
offices or require Executive to have as his principal
location of work any location which is in excess of 50
miles from the location thereof immediately prior to the
Termination Date or to travel away from his office in the
course of discharging his responsibilities or duties
hereunder more than thirty (30) consecutive calendar days
or an aggregate of more than sixty (60) calendar days in
any consecutive 365-calendar day period without in either
case his prior consent.
-6-
<PAGE>
(iv) Executive is not elected a director or appointed Chairman of
the Board of the Company.
(b) Change in Control. For purposes of this Agreement, a "Change in
Control" of a Company shall have occurred if at any time durin g the term (as
that term is hereafter defined), any of the following events shall occur:
(i) The Company is merged, or consolidated, or reorganized into
or with another corporation or other legal person, and as a
result of such merger, consolidation or reorganization less
than 51% of the combined voting power of the
then-outstanding securities of such corporation or person
immediately after such transaction are held in the aggregate
by the holders of voting securities of the Company
immediately prior to such transaction;
(ii) The Company sells all or substantially all of its assets to
any other corporation or other legal person and thereafter
less than 51% of the combined voting power of the
then-outstanding voting securities of the acquiring or
consolidated entity are held in the aggregate by the holders
of voting securities of the Company immediately prior to
such sale;
(iii) There is a report filed after the date of this Agreement on
Schedule 13D or Schedule 14D-1 (or any successor schedule,
form or report), each as promulgated pursuant to the
Securities Exchange Act of 1934 (the "Exchange Act")
disclosing that any person (as the term "person" is used in
Section 13(d)(3) or Section 14(d)(2) of the Exchange Act)
has become the beneficial owner (as the term "beneficial
owner" is defined under Rule 13 d-3 or any successor rule or
regulation promulgated under the Exchange Act) representing
25% or more of the combined voting power of the
then-outstanding voting securities of the Company;
(iv) The Company shall file a report or proxy statement with the
Securities and Exchange Commission pursuant to the Exchange
Act disclosing in response to Item 1 of Form 8-K thereunder
or Item 5(f) of Schedule 14A thereunder (or any successor
schedule, form or report or item therein) that the change in
control of the Company has or may have
-7-
<PAGE>
occurred or will or may occur in the future pursuant to any
then-existing contract or transaction; or
(v) During any period of two consecutive years, individuals who
at the beginning of any such period constitute the directors
of the Company cease for any reason to constitute at least a
majority thereof, unless the election or the nomination for
election by the Company's shareholders of each director of
the Company first elected during such period was approved by
a vote of at least two-thirds of the directors of the
Company then still in office who were directors of the
Company at the beginning of such period.
5.6 Notice of Termination. Any Notice of Termination by a Company
pursuant to Section 5.4 or by Executive pursuant to Section 5.5 shall be
communicated by written Notice of Termination to the other party hereof. For
purposes of this Agreement, a "Notice of Termination" shall mean a notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
5.7 Date of Termination. "Date of Termination" shall mean:
(a) If Executive's employment is terminated pursuant to Section
5.5, the date specified in the Notice of Termination, and
(b) If Executive's employment is terminated for any other reason,
the date on which a Notice of Termination is given; provided that if within
thirty (30) days after any Notice of Termination is given, one party notifies
the other party that a dispute exists concerning the termination, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding and final arbitration
award or by a final judgment, order or decree of a court of competent
jurisdiction (the time for appeal thereof having expired and no appeal having
been perfected).
6. Restrictions.
6.1 Confidentiality.
(a) The Executive recognizes that the Executive's position
with the Companies is one of trust and confidence. The Executive acknowledges
that, during the course of the Executive's employment with the Companies, the
Executive has been and will necessarily become acquainted with confidential
information relating to the customers and suppliers (including names, addresses
and telephone numbers) of each Company, and trade secrets,
-8-
<PAGE>
processes, methods of operation and other information, which such Company
regards as confidential and in the nature of trade secrets (collectively
"Confidential Information"). The Executive acknowledges and agrees that the
Confidential Information is of incalculable value to the Company and that the
Company would suffer damage if any of the Confidential Information was
improperly disclosed.
(b) The Executive covenants and agrees that the Executive
will not, at any time during or after the termination of the Executive's
relationship with the Companies, reveal, divulge, or make known to any person,
firm or corporation, any Confidential Information made known to the Executive or
of which the Executive has become aware, regardless of whether developed,
prepared, devised or otherwise created in whole or in part by the efforts of the
Executive, except and to the extent that such disclosure is necessary to carry
out the Executive's duties for a Company. The Executive further covenants and
agrees that the Executive shall retain all Confidential Information in trust for
the sole benefit of the respective Company, and will not divulge or deliver or
show any Confidential Information to any unauthorized person including, without
limitation, any other employer of the Executive.
6.2 Non-Competition. 9278 is in the business of wholesaling
prepaid phone cards (the "BUSINESS"). Executive acknowledges and the highly
competitive nature of the industry in which the Business is involved.
Accordingly, in consideration of the premises contained herein, the
consideration to be received hereunder, stock options to be granted Executive,
Executive shall not, during the Non-Competition Period (as defined below): (i)
directly or indirectly engage, whether or not such engagement shall be as a
partner, stockholder, affiliate or other participant, in any Competitive
Business (as defined below), or represent in any way any Competitive Business,
whether or not such engagement or representation shall be for profit providing
services to customers of iLink or its affiliates; (ii) interfere with, disrupt
or attempt to disrupt the relationship, contractual or otherwise, between iLink
or 9278 and any other person or entity, including, without limitation, any
customer, supplier, employee or consultant iLink or 9278; (iii) induce any
employee of iLink or 9278 to terminate his employment with such Company or to
engage in any Competitive Business in any manner described in the foregoing
clause (i) (as well as an officer or director of any Competitive Business); or
(iv) affirmatively assist or induce any other person or entity to engage in any
Competitive Business in any manner described in the foregoing clause (i) (as
well as an officer or director of any Competitive Business). Anything contained
in this Section 6.2 to the contrary notwithstanding, an investment by Executive
in any publicly-traded company in which Executive and his affiliates exercise no
operational or strategic control and which constitutes less than 5% of the
capital of such entity shall not constitute a breach of this Section 6.2.
Notwithstanding anything to the contrary contained in this Agreement,
Executive shall not be prohibited from serving as a non-employee director of any
other business entity during the Non-Competition Period; provided, however, that
such service does not constitute an impermissible conflict of interest under the
law of the applicable jurisdiction of incorporation
-9-
<PAGE>
and does not interfere in any material respect with Executive's ability to
perform his duties hereunder.
As used herein, "Non-Competition Period" shall mean the period
commencing on the date hereof and terminating on the Termination Date; provided,
however, that if the Term of Employment shall have been terminated by the
Company, pursuant to Section 5.3, or by the Executive other than pursuant to
Section 5.5, then "Non-Competition Period" shall mean the period commencing on
the date hereof and ending on the first anniversary of the Termination Date.
"Competitive Business" shall mean any business in any State of the United States
in any line of business in which the iLink or 9278 was engaged or had a formal
written plan to enter as of the Termination Date.
Executive understands that the foregoing restrictions may limit his
ability to earn a livelihood in a business similar to the business of the
Company, but he nevertheless believes that he has received and will receive
sufficient consideration and other benefits as an employee of the Company and as
otherwise provided hereunder and pursuant to other agreements between the
Company and Executive to justify clearly such restrictions which, in any event
(given his education, skills and ability), Executive does not believe would
prevent him from earning a living.
If at any time the provisions of this Section 6 shall be determined to
be invalid or unenforceable, by reason of being vague or unreasonable as to
area, duration or scope of activity, this Section 6 shall be considered
divisible and shall become and be immediately amended to only such area,
duration and scope of activity as shall be determined to be reasonable and
enforceable by the court or other body having jurisdiction over the matter; and
the Executive agrees that this Section 6 as so amended shall be valid and
binding as though any invalid or unenforceable provision had not been included
herein.
7. Enforcement. The Executive acknowledges that iLink or 9278 will
suffer substantial and irreparable damages not readily ascertainable or
compensable in terms of money in the event of the breach of any of the
Executive's obligations under Section 6 and hereof. The Executive therefore
agrees that the provisions of Section 6 shall be construed as an agreement
independent of the other provisions of this Agreement and any other agreement
and that iLink or 9278, in addition to any other remedies (including damages)
provided by law, shall have the right and remedy to have such provisions
specifically enforced by any court having equity jurisdiction thereof. The
rights and remedies set forth in this Section 7 shall be in addition to, and not
in lieu of, any other rights and remedies available to such Company under law or
equity.
-10-
<PAGE>
8. Miscellaneous Provisions.
8.1 Entire Agreement. This Agreement sets forth the entire
agreement and understanding between the parties with respect to the subject
matter hereof and supersedes all prior agreements, arrangements, and
understandings between the parties with respect to the subject matter hereof.
8.2 Modification. This Agreement may be amended, modified,
superseded, canceled, renewed or extended, and the terms or covenants hereof may
be waived, only by a written instrument executed by both of the parties or in
the case of a waiver, by the party waiving compliance.
8.3 Waiver. The failure of either party at any time or times to
require performance of any provision hereof in no manner shall affect the right
at a later time to enforce the same. No waiver by either party of a breach of
any term or covenant contained in this Agreement, whether by conduct or
otherwise, in any one or more instances, shall be deemed to be or construed as a
further or continuing waiver of any such breach or a waiver of any other term or
covenant contained in this Agreement.
8.4 Notices. All notices, demands, consents or other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given) upon the earlier of receipt, one business day
after being sent by telecopier or three business days after being sent by
registered or certified mail: (i) if to either Company, at the principal
business address of such Company in the City of New York, (ii) if to the
Executive, at the home address of Executive as set forth on the payroll records
of the Company, or in either case, to such other address as either party shall
hereafter specify by notice to the other party. Copies of all notices given
pursuant to this paragraph shall be simultaneously sent to Craig S. Libson,
Esq., c/o Parker Duryee Rosoff & Haft, 529 Fifth Avenue, 8th Floor, New York,
New York 10017. Irrespective of the foregoing, notice of change of address shall
be effective only upon receipt.
8.5 Governing Law. This Agreement shall be construed in accordance
with and governed by the laws of the State of New York applicable to contracts
made and to be performed wholly within such state.
8.6 Arbitration. Any controversy or claim arising out of or
relating to this Agreement, the making, interpretation or the breach thereof,
other than a claim solely for injunctive relief for any alleged breach of the
provisions of Section 6 as to which the parties shall have the right to apply
for specific
-11-
<PAGE>
performance to any court having equity jurisdiction, shall be resolved by
arbitration in New York, New York in accordance with the Commercial Arbitration
Rules of the American Arbitration Association and judgment upon the award
rendered by the arbitrators may be entered in any court having jurisdiction
thereof and any party to the arbitration may, if such party so elects, institute
proceedings in any court having jurisdiction for the specific performance of any
such award. The powers for the arbitrator or arbitrators shall include, but not
be limited to, the awarding of injunctive relief. The arbitrator shall include
in any award in the prevailing party's favor the amount of his or its reasonable
attorney's fees and expenses and all other reasonable costs and expenses of the
arbitration. In the event the arbitrator does not rule in favor of the
prevailing party in respect of all the claims alleged by such party, the
arbitrator shall include in any award in favor of the prevailing party the
amount of his or its reasonable costs and expenses of the arbitration as he
deems just and equitable under the circumstances. Except as provided above, each
party shall bear his or its own attorney's fees and expenses and the parties
shall bear equally all other costs and expenses of the arbitration.
8.7 Assignability. This Agreement, and the Executive's rights and
obligations hereunder, may not be assigned by the Executive. A Company may
assign its rights, together with its obligations hereunder, only to a successor
by merger or by the purchase of all or substantially all of the assets and
business of such Company and such rights and obligations shall inure to, and be
binding upon, any such successor.
8.8 Binding Effect. This Agreement shall be binding upon and shall
inure to the benefit of the parties and their respective legal representatives,
heirs, permitted successors and permitted assigns.
8.9 Headings and Word Meanings. Headings and titles in this
Agreement are for convenience of reference only and shall not control the
construction or interpretation of any provisions hereof. The words "herein,"
"hereof," "hereunder" and words of similar import, when used anywhere in this
Agreement, refer to this Agreement as a whole and not merely to a subdivision in
which such words appear, unless the context otherwise requires. The singular
shall include the plural unless the context otherwise requires.
8.10 Separability. Any term or provision of this Agreement which
is invalid or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction.
8.11 Currency. All amounts to be paid hereunder shall be paid in
lawful money of the United States of America.
-12-
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
ILINK TELECOM INC.
By: /s/ Amar Bahadorrsingh
----------------------
Name: Amar Bahadoorsingh
Title: President
9278 DISTRIBUTORS INC.
By: /s/ Amar Bahadoorsingh
----------------------
Name: Amar Bahadoorsingh
Title: President
/s/ Sajid Kapadia
----------------------
Sajid Kapadia
-13-
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF 9278 COMMUNICATIONS, INC.
-----------------------------------------
9278 Communications, Inc. has three subsidiaries, as follows:
* iLink Telecom (B.V.I.), Inc., incorporated in Roadtown, British
Virgin Islands on July 2, 1999;
* iLink Telecom (B.C.) Inc., incorporated in Victoria, British
Columbia on February 9, 1999; and
* 9278 Distributors Acquisition Corp., incorporated in the State of New
York on December 7, 1999.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
the financial statements of 9278 Communications, Inc. as of December 31, 1999
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 26,192
<SECURITIES> 0
<RECEIVABLES> 3,945,503
<ALLOWANCES> 125,000
<INVENTORY> 1,302,171
<CURRENT-ASSETS> 5,179,615
<PP&E> 443,745
<DEPRECIATION> 93,876
<TOTAL-ASSETS> 6,138,680
<CURRENT-LIABILITIES> 4,510,202
<BONDS> 0
<COMMON> 19,659
0
1,500,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,138,680
<SALES> 78,089,670
<TOTAL-REVENUES> 78,089,670
<CGS> 75,472,736
<TOTAL-COSTS> 75,472,736
<OTHER-EXPENSES> 2,581,645
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,454
<INCOME-PRETAX> 11,835
<INCOME-TAX> 5,000
<INCOME-CONTINUING> 6,835
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,835
<EPS-BASIC> .02
<EPS-DILUTED> .02
</TABLE>
