United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report Under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended January 31, 2006
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or
[ ] Transition Report Under Section 13 or 15(d) of the Exchange Act
For the transition period from ______ to _____
Commission File Number 0-22636
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RAPID LINK, INCORPORATED
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(Exact name of small business issuer as specified in its charter)
Delaware 75-2461665
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
17383 Sunset Boulevard, Suite 350
Los Angeles, California, 90272
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(Address of principal executive offices) (Zip Code)
(310) 566-1700
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(Issuer's Telephone number)
N/A
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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.
Yes [X] No [ ]
Indicate by checkmark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of March 10, 2006, 30,398,816 shares of common stock, $.001 par value per
share, were outstanding.
Transitional small business disclosure format (Check One): Yes [ ] No [X]
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
RAPID LINK, INCORPORATED AND SUBSIDIARIES
(FORMERLY DIAL THRU INTERNATIONAL CORPORATION)
CONSOLIDATED BALANCE SHEETS
ASSETS
------ January 31, October 31,
2006 2005
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(unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 106,009 $ 172,164
Trade accounts receivable, net of allowance
for doubtful accounts of $439,476 at
January 31, 2006 and $427,099 at
October 31, 2005 668,049 564,039
Prepaid expenses and other current assets 217,737 164,978
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Total current assets 991,795 901,181
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PROPERTY AND EQUIPMENT, net 267,848 353,726
GOODWILL, net 1,796,917 1,796,917
OTHER ASSETS, net 200,017 219,043
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TOTAL ASSETS $ 3,256,577 $ 3,270,867
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LIABILITIES AND SHAREHOLDERS' DEFICIT
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CURRENT LIABILITIES
Capital lease obligation $ 126,196 $ 126,196
Trade accounts payable 3,407,804 3,451,801
Accrued liabilities 848,210 887,975
Advances from shareholder 500,000 -
Accrued interest (including $926,934 to related
parties at January 31, 2006 and $901,849 at
October 31, 2005) 1,079,019 1,007,322
Deferred revenue 396,773 401,640
Deposits and other payables 418,109 418,109
Convertible debentures, current portion, net of
debt discount of $217,476 at January 31, 2006
and $223,167 at October 31, 2005 1,064,981 481,833
Net current liabilities from
discontinued operations 1,162,000 1,162,000
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Total current liabilities 9,003,092 7,936,876
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CONVERTIBLE DEBENTURES, net of current portion and
net of debt discount of $946,969 at January 31,
2006 and $1,140,824 at October 31, 2005 303,031 686,633
CONVERTIBLE NOTES PAYABLE TO RELATED PARTIES, net
of debt discount of $68,936 at January 31, 2006
and $77,208 at October 31, 2005 934,454 926,182
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COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' DEFICIT
Preferred stock, $.001 par value; 10,000,000
shares authorized; none issued and outstanding - -
Common stock, $.001 par value; 175,000,000 shares
authorized; 29,297,183 shares issued at January
31, 2006 and October 31, 2005 29,298 29,298
Additional paid-in capital 42,858,862 42,858,862
Accumulated deficit (49,817,290) (49,112,114)
Treasury stock, 12,022 common shares at cost (54,870) (54,870)
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Total shareholders' deficit (6,984,000) (6,278,824)
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TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 3,256,577 $ 3,270,867
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
RAPID LINK, INCORPORATED AND SUBSIDIARIES
(FORMERLY DIAL THRU INTERNATIONAL CORPORATION)
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
January 31,
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2006 2005
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REVENUES $ 1,986,112 $ 2,784,252
COSTS AND EXPENSES
Costs of revenues 1,528,115 1,997,414
Sales and marketing 142,382 54,609
General and administrative 657,424 750,081
Depreciation and amortization 104,212 146,234
Gain on sale of property and equipment - (8,800)
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Total costs and expenses 2,432,133 2,939,538
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Operating loss (446,021) (155,286)
OTHER INCOME (EXPENSE)
Interest expense and financing costs (248,381) (54,089)
Related party interest expense and
financing costs (33,057) (36,772)
Foreign currency exchange gains 22,283 10,147
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Total other income (expense), net (259,155) (80,714)
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NET LOSS $ (705,176) $ (236,000)
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NET LOSS PER COMMON SHARE:
Basic and diluted net loss per share $ (0.02) $ (0.01)
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WEIGHTED AVERAGE COMMON SHARES USED IN THE
CALCULATION OF PER SHARE AMOUNTS:
Basic and diluted 29,285,161 23,022,129
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
RAPID LINK INCORPORATED AND SUBSIDIARIES
(FORMERLY DIAL THRU INTERNATIONAL CORPORATION)
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
January 31,
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2006 2005
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CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (705,176) $ (236,000)
Adjustments to reconcile net loss to
net cash used in operating activities:
Gain from sale of property and equipment - (8,800)
Bad debt expense 12,377 (10,000)
Non-cash interest expense 208,808 -
Depreciation and amortization 104,212 146,234
(Increase) decrease in:
Trade accounts receivable (116,386) (217,728)
Prepaid expenses and other current assets (52,759) (19,420)
Other assets - (3,960)
Increase (decrease) in:
Trade accounts payable (43,997) 92,887
Accrued liabilities 31,932 (26,794)
Deferred revenue (4,867) (1,690)
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Net cash used in operating activities (565,856) (285,271)
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (299) (19,447)
Proceeds from sale of property and equipment - 10,000
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Net cash used in investing activities (299) (9,447)
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from shareholder advance 500,000 -
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NET DECREASE IN CASH AND CASH EQUIVALENTS (66,155) (294,718)
Cash and cash equivalents at beginning of period 172,164 586,389
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Cash and cash equivalents at end of period $ 106,009 $ 291,671
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
RAPID LINK, INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - OPERATIONS AND BASIS OF PRESENTATION
The consolidated financial statements of Rapid Link, Incorporated and its
subsidiaries, "Rapid Link" or "the Company", included in this Form 10-QSB
are unaudited and do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring adjustments) considered necessary for a fair presentation
of the financial position and operating results for the three month periods
ended January 31, 2006 and 2005 have been included. Operating results for
the three month period ended January 31, 2006 are not necessarily indicative
of the results that may be expected for the fiscal year ending October
31, 2006. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on
Form 10-KSB for the fiscal year ended October 31, 2005.
Historically, Rapid Link has served as a facilities-based, global Internet
Protocol ("IP") communications company providing connectivity to
international markets experiencing significant demand for IP enabled
services. Rapid Link provides a variety of international telecommunications
services targeted to small and medium sized enterprises ("SME's") that
include the transmission of voice and data traffic and the provision of
Web-based and other communications services. The Company also sells
telecommunications services for both the foreign and domestic termination of
international long distance traffic into the wholesale market. Rapid Link
utilizes Voice over Internet Protocol ("VoIP") packetized voice technology
(and other compression techniques) to improve both cost and efficiencies
of telecommunication transmissions. Rapid Link utilizes international
satellites and the Internet to transport the Company's communications.
Beginning in the fourth quarter of fiscal 2004, the Company shifted its
retail product focus to value-added VoIP communication services to
customers, both domestically and internationally, although to date the
Company has not derived significant revenues from this new offering. Rapid
Link focuses on the US military and other key niche markets. The Company
offers PC-to-PC, PC-to-phone, and phone-to-phone calling on their unique
set of Internet Access Device's ("IAD's") that provide a new low cost phone
service that is delivered through a broadband connection. Rapid Link offers
VoIP service plans to residential and business customers in addition to
serving the military. The Company's flat rate service plans enable the
users to speak unlimited to their party. These plans include free features
such as voice mail, call forwarding, three way calling and others as a part
of the service. Rapid Link's VoIP IAD's for consumers and businesses
consists of single and two-line routers, which enables customers to convert
their traditional phone into a VoIP phone, or a headset that plugs directly
into the customers computer. All of the services connect through the
Internet. The customer can then make and receive calls through their
customized phone number using VoIP.
Estimates and Assumptions
-------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
NOTE 2 - GOING CONCERN
The Company is subject to various risks in connection with the operation of
its business including, among other things, (i) changes in external
competitive market factors, (ii) inability to satisfy anticipated working
capital or other cash requirements, (iii) changes in the availability of
transmission facilities, (iv) changes in the Company's business strategy or
an inability to execute is strategy due to unanticipated changes in the
market, (v) various competitive factors that may prevent the Company from
competing successfully in the marketplace, and (vi) the Company's lack of
liquidity and its ability to raise additional capital. As of January 31,
2006 the Company has an accumulated deficit of approximately $49.8 million
as well as a working capital deficit of approximately $8.0 million. In
addition, approximately 73% of the Company's trade accounts payable and
accrued liabilities are past due. Funding of the Company's working capital
deficit, its current and future anticipated operating losses, and growth of
the Company's retail revenues will require continuing capital investment.
Historically, the Company has received significant funding from a major
shareholder. The Company's strategy is to fund these cash requirements
through debt facilities and additional equity financing.
Although the Company has been able to arrange debt facilities and equity
financing to date, there can be no assurance that sufficient debt or equity
financing will continue to be available in the future or that it will be
available on terms acceptable to the Company. Failure to obtain sufficient
capital would materially affect the Company's operations in the short term
and expansion strategies. The Company will continue to explore external
financing opportunities and renegotiation of its short-term debt with its
current financing partners in order to extend the terms or retire these
obligations. Currently, the Company is in negotiations with multiple parties
to obtain additional financing, and the Company will continue to explore
financing opportunities with additional parties (see Note 9 - Subsequent
Events). At January 31, 2006, approximately 37% of the gross debt is due to
the senior management and a Director of the Company.
As a result of the aforementioned factors and related uncertainties,
there is substantial doubt about the Company's ability to continue as a
going concern. The consolidated financial statements do not include any
adjustments to reflect the possible effects of recoverability and
classification of assets or classification of liabilities, which may result
from the inability of the Company to continue as a going concern.
NOTE 3 - CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
The Company provided wholesale services to one customer who accounted for
19% of the overall revenue of the Company for the three months ended January
31, 2006 and 11% of the Company's trade accounts receivable at January 31,
2006. During the same period, two of the Company's suppliers accounted for
approximately 14% and 10%, respectively, of the Company's total costs of
revenues.
The Company provided wholesale services to a single customer who accounted
for 14% of the overall revenue of the Company for the three months ended
January 31, 2005. During the same period, three of the Company's suppliers
accounted for approximately 22%, 11% and 11%, respectively, of the Company's
total costs of revenues.
NOTE 4 - STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees," and complies with
the disclosure provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation," as amended by SFAS No. 148 "Accounting for Stock-Based
Compensation - Transition and Disclosure". Under APB Opinion No. 25,
compensation expense for employees is based on the excess, if any, on the
date of grant, of fair value of the Company's stock over the exercise price.
Accordingly, no compensation cost has been recognized for its employee stock
options in the financial statements during the three months ended January
31, 2006 and January 31, 2005 as the fair market value on the grant date
approximates the exercise price. Had the Company determined compensation
cost based on the fair value at the grant date for its stock options under
SFAS No.123, as amended by SFAS No. 148, the Company's pro forma net loss
for the three months ended January 31, 2006 and 2005 would have been as
follows:
Three Months
Ended January 31,
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2006 2005
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Net loss $ (705,176) $ (236,000)
Deduct: Stock based employee
compensation expense determined
under fair value based method (2,748) (3,634)
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Pro forma net loss $ (707,924) $ (239,634)
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Net loss per share
As reported
Basic and diluted $ (0.02) $ (0.01)
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Proforma
Basic and diluted $ (0.02) $ (0.01)
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For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting periods. Because
options vest over a period of several years and additional awards are
generally made each year, the pro forma information presented above is not
necessarily indicative of the effects on reported or pro forma net earnings
or losses for future periods.
No options were granted during the three months ended January 31, 2006 and
2005.
In December 2004, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 (revised 2004) ("Statement
123(R)"), "Share-Based Payment", which revised SFAS No. 123 and supercedes
APB Opinion No. 25. The revised statement addresses the accounting for
share-based payment transactions with employees and other third parties,
eliminates the ability to account for share-based compensation transactions
with employees using APB Opinion No. 25 and requires that the fair value of
such share based payments be recognized in the consolidated statement of
operations. The revised statement is effective as of the first annual
financial reporting period beginning after December 15, 2005. The Company
will adopt the statement on November 1, 2006 as required. The impact of
adoption of Statement 123(R) cannot be predicted at this time because it
will depend on levels of share-based payments granted in the future.
However, had the Company adopted Statement 123(R) in prior periods, the
impact of that standard would have approximated the impact of SFAS No. 123
as described in the disclosure of pro forma net loss and net loss per share
above.
NOTE 5 - RESOLUTION OF VENDOR DISPUTE
During the first quarter of fiscal year 2005, the Company recorded a
reduction of $283,138 to Costs of Revenues in its Consolidated Statement of
Operations. This amount represents the favorable resolution of a dispute
with one of the Company's vendors. This amount had been recorded as Costs
of Revenues in prior periods.
NOTE 6 - CONVERTIBLE DEBENTURES AND CONVERTIBLE NOTES PAYABLE TO RELATED
PARTIES
On June 1, 2005, the Company and GCA Strategic Investment Fund ("GCA")
agreed to extend the maturity dates of the Company's two 6% convertible
debentures, each convertible debenture providing financing of $550,000 in
January 2002 and July 2003, respectively. For the convertible debenture
originally issued in January 2002, the maturity date was extended to
November 26, 2005 (see Note 9 - Subsequent Events). The gross balance of
this debenture was $455,000 at January 31, 2006. In connection with the
extension, the Company issued GCA warrants to acquire 110,000 shares of
common stock at an exercise price of $0.11 and 150,000 warrants to acquire
our common stock at an exercise price of $0.38. Both warrants expire in
June 2010. The Company recorded $104,693 as debt discount, representing the
relative fair value of the warrants on June 1, 2005. This amount was
calculated using the Black-Scholes pricing model with the following
assumptions: applicable risk-free interest rate based on the current
treasury-bill interest rate at the grant date of 4%; dividend yields of 0%;
volatility factors of the expected market price of the Company's common
stock of 1.64; and an expected life of the warrants of three years. The
debt discount was amortized over the extension period of the convertible
debenture and is fully amortized at January 31, 2006. In addition, the
Company issued to GCA 100,000 shares of common stock valued at $0.45 per
share, the Company's closing stock price on June 1, 2005, the date of
issuance. In connection with the stock issuance, the Company has recorded
$45,000 as debt discount, and is amortizing the debt discount over the
extension period of the convertible debenture. For the three months ended
January 31, 2006, approximately $23,000 of deferred financing fees and debt
discount amortization has been recorded as interest expense. For the
convertible debenture originally issued in July 2003, the maturity date was
extended to November 26, 2006. The gross balance of this debenture
was approximately $550,000 at January 31, 2006. In connection with the
extension, the Company issued GCA warrants to acquire 150,000 shares of
common stock at an exercise price of $0.38, which expire in June 2010. The
Company recorded $58,458 as debt discount, representing the fair value of
the warrants on June 1, 2005. This amount was calculated using the Black-
Scholes pricing model with the following assumptions: applicable
risk-free interest rate based on the current treasury-bill interest
rate at the grant date of 4%; dividend yields of 0%; volatility
factors of the expected market price of the Company's common stock of
1.64; and an expected life of the warrants of three years. The debt
discount is being amortized over the extension period of the convertible
debenture. In addition, the Company issued to GCA 40,000 shares of common
stock valued at $0.45 per share, the Company's closing stock price on June
1, 2005, the date of issuance. In connection with the stock issuance, the
Company recorded $18,000 as debt discount and is amortizing the debt
discount over the extension period of the convertible debenture. For the
three months ended January 31, 2006, approximately $13,000 of deferred
financing fees and debt discount amortization has been recorded as interest
expense.
During fiscal 2005, GCA elected to convert $35,000 of the gross principal
balance of the January 2002 convertible debenture into approximately
352,000 shares of common stock. There were no conversions during the
quarter ended January 31, 2006.
On June 1, 2005, the Company and Global Capital Funding Group, LP ("Global")
agreed to extend the maturity date of the Company's 12% note payable (the
"GC-Note"), which provided financing of $1,250,000 in November 2002. The
maturity date was extended to February 29, 2008. In connection with the
extension, the GC-Note was converted to a 10.08% Convertible Note ("GC-
Conote"). The conversion price is equal to 80% of the average of the three
lowest volume weighted average sales prices as reported by Bloomberg L.P.
during the twenty Trading Days immediately preceding the related Notice of
Conversion (the "Formula Conversion Price"). The Company calculated the
beneficial conversion feature embedded in the GC-Conote in accordance with
EITF 98-5 "Accounting for Convertible Securities with Beneficial Conversion
Features or Contingently Adjustable Conversion Ratios" ("EITF-98-5") and
EITF 00-27 "Application of Issue No. 98-5 to Certain Convertible
Instruments" ("EITF 00-27") and recorded $1,013,032 as debt discount. This
debt discount is being amortized over the life of the GC-Conote. The
Company also issued to the holder of the GC-Conote warrants to acquire an
aggregate of 500,000 shares of common stock at an exercise price of $0.38,
and 125,000 warrants to purchase common stock at $0.11 per share, both
warrants expiring in June 2010. The Company recorded $200,498 as debt
discount, the relative fair value of the warrants on June 1, 2005. This
amount was calculated using the Black-Scholes pricing model with the
following assumptions: applicable risk-free interest rate based on the
current treasury-bill interest rate at the grant date of 4%; dividend
yields of 0%; volatility factors of the expected market price of the
Company's common stock of 1.64; and an expected life of the warrants
of three years. The debt discount is being amortized over the life of the
GC-Conote. In addition, the Company issued to Global 100,000 shares of
common stock valued at $0.45 per share, the Company's closing stock price on
June 1, 2005, the date of issuance. The Company recorded $36,469 as debt
discount, the relative fair value of the stock issued, and is amortizing the
debt discount over the life of the GC-Conote. For the three months ended
January 31, 2006, approximately $114,000 of debt discount amortization has
been recorded as interest expense.
In connection with the extension of the maturity date of the GC-Note, the
interest due on the GC-Note of approximately $350,000 as of May 31, 2005 was
converted to a $400,000 non-interest bearing convertible Note Payable (the
"GC-Note2) to Global Capital Funding Group, LP. The GC-Conote2 requires
quarterly payments of $50,000 on the last day of March, June, September and
December of each year until the March 31, 2007 maturity Date, commencing on
June 30, 2005. In addition, the GC-Conote2 provides for conversion based on
a conversion price equal to 80% of the average of the three lowest volume
weighted average sales prices as reported by Bloomberg L.P. during the
twenty Trading Days immediately preceding the related Notice of Conversion
(the "Formula Conversion Price"). The Company calculated the beneficial
conversion feature embedded in the GC-Note2 in accordance with EITF 98-5 and
recorded approximately $350,000 as debt discount. This debt discount is
being amortized over the life of the GC-Note2. The approximate $50,000
difference between the accrued interest at May 31, 2005 and the value of the
GC-Note2 represents a financing fee and was recorded as debt discount and is
being amortized over the life of the GC-Note2. For the three months ended
January 31, 2006, $50,000 of debt discount amortization has been recorded
as interest expense. The gross balance of the GC-Note2 was $275,000 at
January 31, 2006.
During fiscal year 2005, GCA elected to convert $75,000 of the GC-Note2 into
approximately 657,000 shares of common stock. There were no conversions
during the three months ended January 31, 2006. Although the Company has
not made its scheduled September and December 2005 payments, Global has not
declared the note to be in default, and continues to convert the balance
into shares of common stock (see Note 9 - Subsequent Events).
On July 21, 2005, the Company and the three executives that hold a 10%
convertible debenture (the "Notes") with an outstanding balance of
$1,470,891 at July 31, 2005, agreed to extend the maturity date of the Notes
to February 29, 2008. The original maturity date was October 24, 2003. In
connection with the extension, the Company issued to the three executives
warrants to acquire 640,000 shares of common stock at an exercise price of
$0.16. The warrants expire in July 2010. The Company recorded $88,238 as
debt discount, the fair value of the warrants on June 1, 2005. This amount
was calculated using the Black-Scholes pricing model with the following
assumptions: applicable risk-free interest rate based on the current
treasury-bill interest rate at the grant date of 4%; dividend yields of
0%; volatility factors of the expected market price of the Company's
common stock of 1.65; and an expected life of the warrants of three
years. The debt discount is being amortized over the extension period of
the Notes. For the three months ended January 31, 2006, approximately $8,000
of debt discount amortization has been recorded as interest expense. The
gross balance of the Notes was $1,003,390 at January 31, 2006.
NOTE 7 - ADVANCES FROM SHAREHOLDER
During the three months ended January 31, 2006, the Company's chief
executive officer, and significant shareholder, John Jenkins, has advanced
funds to the Company in the aggregate amount of $500,000. The Company has
not yet formalized the terms of these advances, but expects to enter into an
agreement with Mr. Jenkins on substantially the same terms and conditions as
our next round of debt financing, or will pay off this advance with the
proceeds received from the debt financing (See Note 9 - Subsequent Events).
NOTE 8 - DISCONTINUED OPERATIONS
During the first quarter of fiscal year 2004, the Company determined based
on final written communications with the State of Texas that the Company had
a liability for sales taxes (including penalties and interest) totaling $1.1
million. The Company had previously accrued an estimated settlement amount
of $350,000 during fiscal year 2003. During the first quarter of fiscal
year 2004, the Company accrued an additional $750,000. On August 5, 2005,
the State of Texas filed a lawsuit in the 53rd Judicial District Court of
Travis County, Austin, Texas against the Company. The lawsuit requests
payment of approximately $1.162 million including penalties and interest for
state and local sales tax. During the fiscal year 2005, the Company accrued
an additional $62,000 in amounts due. The sales tax amount due is
attributable to audit findings of the State of Texas for the years 1995 to
1999 associated with Canmax Retail Systems, a current subsidiary of ours,
and former operating subsidiary providing retail automation software and
related services to the retail petroleum and convenience store industries.
The State of Texas determined that Canmax Retail Systems did not properly
remit sales tax on certain transactions. Management believes that it will
be able to negotiate a reduced settlement amount with the state, although
there can be no assurance that the Company will be successful with respect
to such negotiations. These operations were previously classified as
discontinued after the Company sold its retail automation software business
in December 1998 and changed its business model to international wholesale
and retail business, operating as a facilities-based global Internet
protocol communications company providing connectivity to international
markets. Since this sales tax liability represents an adjustment to amounts
previously reported in discontinued operations, the amount was classified as
Discontinued Operations. The amount that the State of Texas assessed of
$1.162 million has been accrued as a liability and is included in the
October 31, 2005 Balance Sheet as discontinued operations.
NOTE 9 - SUBSEQUENT EVENTS
On February 14, 2006, Rapid Link, Incorporated entered into a binding letter
of intent to acquire all of the issued and outstanding shares of capital
stock of Telenational Communications Inc. ("Telenational"), a privately
owned Delaware corporation that is a provider of domestic and international
long distance services. Pursuant to the terms of the letter of intent, as
payment of the purchase price, the Company will issue common stock and cash
consideration to the shareholders of Telenational as follows; (a) $1.0
million in cash and 9,587,500 shares of common stock, within five days of
the closing of the acquisition, provided that Telenational's monthly retail
and wholesale gross margin combined averages at least $300,000 per month
("Average Gross Margin") for the calendar year ended December 31, 2005. If
the actual gross margin is less than the Average Gross Margin, the stock
portion of the purchase price will be reduced proportionately; (b) $500,000
in cash, payable within 90 days of closing, provided that the actual gross
margin during this 90-day period is greater than the Average Gross Margin.
If the actual gross margin is less than the Average Gross Margin, this cash
payment will be reduced proportionately; (c) 9,875,500 shares immediately
following the 12-month anniversary of the closing, provided gross margin for
the 12-month period is not less than $3.6 million ("Target Gross Margin"),
subject to adjustment based on any shortfall as determined in accordance
with (a) above. The purchase price (adjusted downward for this calculation
by 25%) will be proportionately reduced by the percentage shortfall of the
actual gross margin achieved against the Target Gross Margin. Any reduction
in the adjusted purchase price will be applied against the stock portion of
the purchase price. The Company agreed to grant piggy-back registration
rights to Telenational, whereby the Company will register the common stock
issued in connection with the acquisition if the Company files a
registration statement after the closing date, subject to certain approvals
and customary conditions and limitations.
At the closing date of this acquisition, the shareholders of Telenational
will provide a working capital loan to the Company in the amount of
$200,000. This loan will be payable in 12 equal monthly installments of
principal and interest. The loan will accrue interest at the rate of eight
percent per annum and will mature on the 12-month anniversary of the closing
of this transaction.
Completing the acquisition of Telenational is subject to the execution of a
definitive acquisition agreement with additional mutually acceptable terms
and closing conditions. In the event either party terminates the letter of
intent prior to the execution of a definitive agreement, it must pay the
other party a break-up fee in the amount of $150,000, payable in cash.
However, neither party will be required to pay a break-up fee if the letter
of intent is terminated prior to the execution of a definitive agreement due
to a breach of the letter of intent for any reason beyond the control of
either party, or by the Company if certain conditions are not met, including
the Company's ability to obtain financing necessary to fund the cash portion
of the purchase price.
On February 24, 2006, GCA converted $31,150 of principal and interest due on
its January 2002 convertible debenture into 407,189 shares of common stock.
On February 24, 2006, Global converted $50,000 of principal due on its June
2005 $400,000 note payable into 694,444 shares of common stock.
On March 8, 2006, the Company and GCA Strategic Investment Fund ("GCA")
agreed to extend the maturity date of the Company's 6% convertible
debenture, which originally provided providing financing of $550,000 in
January 2002 (GCA-Debenture). The maturity date for the GCA-Debenture was
extended to November 26, 2006. The GCA-Debenture originally matured in
November 2005. The remaining balance of the GCA-Debenture was $455,000 at
January 31, 2006. The Company is currently seeking a debt facility or
equity financing that will allow it to either convert its outstanding debt
obligations with GCA into the new financing, and/or pay down a portion or
all of the amounts outstanding. There can be no assurance that sufficient
debt or equity financing will be available or available on terms acceptable
to the Company.
On March 8, 2006, the Company completed a private placement of two one year
10% convertible debentures ("Debentures"), for gross proceeds of $1,000,000.
In connection with the Debentures, the Company agreed to issue the investors
a total of 2,000,000 immediately exercisable five year warrants to purchase
the Company's common stock at an exercise price of $0.14 for 1,000,000
warrants, and $0.25 for an additional 1,000,000 warrants. In addition, the
investors will receive an additional 50,000 warrants to vest and become
exercisable on the last day of each month prior to the Company's
satisfaction in full of the Debentures, or the complete conversion of the
Debentures, at an exercise price of $0.25. A portion of the proceeds have
been used to repay the Advances from Shareholder (see Note 7 - Advances From
Shareholder).
ITEM 2. MANAGEMENT'S DISCUSSION AND ANAYLYSIS OR PLAN OF OPERATION.
The following discussion and analysis of financial condition and results of
operations covers the three months ended January 31, 2006 and 2005 and
should be read in conjunction with our financial statements and the notes
thereto.
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-QSB contains "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934. These statements relate to
expectations concerning matters that are not historical facts. Words such as
"projects", "believe", "anticipates", "estimate", "plans", "expect",
"intends", and similar words and expressions are intended to identify
forward-looking statements. Although we believe that such forward-looking
statements are reasonable, we cannot assure you that such expectations will
prove to be correct. Factors that could cause actual results to differ
materially from such expectations are disclosed in our annual report on Form
10-KSB for the year ended October 31, 2005 and throughout this report on
Form 10-QSB. All of our forward-looking statements are expressly qualified
in their entirety by such language and we do not undertake any obligation to
update any forward-looking statements.
General
On November 2, 1999, we acquired substantially all of the business and
assets of Dial Thru International Corporation, a California corporation,
and, on January 19, 2000, we changed our name from ARDIS Telecom &
Technologies, Inc. to "Dial Thru International Corporation." In the second
quarter of fiscal 2000, we shifted focus toward our global Voice over
Internet Protocol, or VoIP, strategy. This strategy allows us to form local
partnerships with foreign postal, telephone and telegraph companies
(entities that are responsible for providing telecommunications services in
foreign markets and which are usually government owned or controlled) and to
provide IP enabled services based on the in-country regulatory environment
affecting telecommunications and data providers.
On October 12, 2001, we completed the acquisition from Rapid Link,
Incorporated ("RLI") of certain assets and executory contracts of Rapid
Link, USA, Inc. and 100% of the common stock of Rapid Link
Telecommunications, GmbH, a German company. RLI provided integrated data
and voice communications services to both wholesale and retail customers
around the world. RLI built a large residential retail customer base in
Europe and Asia, using RLI's network to make international calls anywhere in
the world. Furthermore, RLI developed a VoIP network using Clarent and
Cisco technology which we have used to take advantage of wholesale
opportunities where rapid deployment and time to market are critical.
On August 1, 2003, our German subsidiary, Rapid Link Telecommunications
GmbH, received approval for its insolvency filing and was turned over to a
trustee who is responsible for liquidating the operation. We determined
that we no longer controlled the operations of this subsidiary and that our
parent entity has no legal obligation to pay the liabilities of Rapid Link
Telecommunications GmbH.
On October 25, 2005, at our annual shareholders meeting, our shareholders
approved a change in the Company's name to Rapid Link, Incorporated. The
Company believes that the name "Rapid Link, Incorporated" better reflects
the Company's business strategies and opportunities, and will receive better
market recognition and acceptance than its previous name, especially as the
Company continues to roll out Voice over Internet Protocol related services.
In addition, the Company also believes that the name, which was the name of
the Company we acquired in October 2001, is a recognized brand name with
members of the United States Military, a significant source of retail
revenue for the Company since the acquisition. The name change became
effective on November 1, 2005.
On October 31, 2005, we completed the acquisition of the customer base of
Integrated Telecommunications, Inc., ("Integrated") an international long
distance carrier providing Voice over Internet Protocol services to retail
customers in the United States, and wholesale services to customers
worldwide.
The telecommunications industry continues to evolve towards an increased
emphasis on IP related products and services. We have focused our business
towards these types of products and services for the last couple of years.
Furthermore, we believe the use of the Internet to provide IP related
telephony services to the end user customer, either as a stand alone
solution or bundled with other IP products, will continue to impact the
industry as large companies like Time Warner and AT&T look to capitalize on
their existing cable infrastructures, and smaller companies look to provide
innovative solutions to attract commercial and residential users to their
product offerings.
We are focused on the growth of our VoIP business by adding new products and
services that we can offer to end user customers. We are attempting to
transition our current customers, and attract new customers through the sale
of specialized VoIP Internet Access Devices, or IAD's, that allow customers
to connect their phones to their existing high-speed Internet connections.
These IADs allow the user to originate phone calls over the Internet,
thereby bypassing the normal costs associated with originating phone calls
over existing land lines. By avoiding these costs, we are able to offer
lower priced services to these customers, which we believe will allow us to
attract additional users. We also believe there will be considerable demand
for this type of product in certain foreign markets where end users pay a
significant premium to their local phone companies to make long distance
phone calls. We are targeting business and residential customers, as well
as members of the US military. While we expect the growth in our customers
and suppliers and the introduction of innovative product offerings to retail
users, specifically IADs, to have a positive impact on our revenues and
earnings, we cannot predict our ability to significantly grow this line of
business. To date, we have not attracted a significant number of new
customers. The revenue and costs associated with the IAD product offerings
will depend on the number of customers and contracts we obtain. In many
ways, our ability to maintain operations in the foreseeable future will be
dictated by our ability to quickly deploy VoIP products into selected
markets and to realize high quality revenues from these products and related
telecommunications sources. Any delay in our expansion of VoIP products and
services will adversely affect our financial condition and cash flow and
could ultimately cause us to greatly reduce or even cease operations.
Our common stock currently trades on the OTC Bulletin Board under the symbol
"RPID."
We continue to seek opportunities to grow our business through strategic
acquisitions that will complement our retail strategy as well as adding key
personnel that have demonstrated a proven track record in sales, marketing
and operations of retail telecommunications organizations, especially in the
area of retail VoIP.
Critical Accounting Policies
The consolidated financial statements include accounts of our Company and
all of our majority-owned subsidiaries. The preparation of financial
statements in conformity with accounting principles generally accepted in
the United States requires us to make estimates and assumptions in certain
circumstances that affect amounts reported in the accompanying consolidated
financial statements and related footnotes. In preparing these financial
statements, we have made our best estimates and judgments of certain amounts
included in the financial statements, giving due consideration to
materiality. We do not believe there is a great likelihood that materially
different amounts would be reported related to estimates associated with
the accounting policies described below. However, application of these
accounting policies involves the exercise of judgment and use of assumptions
as to future uncertainties and, as a result, actual results could differ
from these estimates.
Revenue Recognition
For a majority of our products, our revenues are generated at the time a
customer uses our network to make a phone call. We sell our services to
SMEs and end-users who utilize our network for international re-origination
and dial thru services, and to other providers of long distance usage who
utilize our network to deliver domestic and international termination of
minutes to their own customers. At times we receive payment from our
customers in advance of their usage, which we record as deferred revenue,
recognizing revenue as calls are made.
For our newer VoIP product offerings, specifically our Rapid Link service,
we are required to recognize revenue in accordance with Emerging Issues Task
Force ("EITF") consensus No. 00-21, "Accounting for Revenue Arrangements
with Multiple Deliverables" which requires that revenue arrangements with
multiple deliverables be divided into separate units of accounting if the
deliverables in the arrangement meet specific criteria. In addition,
arrangement consideration must be allocated among the separate units of
accounting based on their relative fair values, with certain limitations.
The provisioning of the Rapid Link service with the accompanying desktop
terminal adapter or other customer premise equipment constitutes a revenue
arrangement with multiple deliverables. In accordance with the guidance of
EITF No. 00-21, we allocate Rapid Link revenues, including activation fees,
among the customer premise equipment and subscriber services. Revenues
allocated to the customer premise equipment are recognized as product
revenues at the end of 30 days after order placement, provided the customer
does not cancel their Rapid Link service. All other revenues are recognized
as license and service revenues when the related services are provided. We
defer the cost of goods sold of products sold for which the end customer or
distributor has a right of return. The cost of the products sold is
recognized, contemporaneously with the recognition of revenue, when the
subscriber has accepted the service. To date, our new VoIP product
offerings have generated insignificant revenues.
The Securities and Exchange Commission's Staff Accounting Bulletin No. 104,
"Revenue Recognition", provides guidance on the application of generally
accepted accounting principles to selected revenue recognition issues. We
have concluded that our revenue recognition policy is appropriate and in
accordance with generally accepted accounting principles and Staff
Accounting Bulletin No. 104.
Allowance for Uncollectible Accounts Receivable
Accounts receivable are reduced by an allowance for amounts that may become
uncollectible in the future. All of our receivables are due from commercial
enterprises and residential users in both domestic and international
markets. The estimated allowance for uncollectible amounts is based
primarily on our evaluation of the financial condition of the customer, and
our estimation of the customer's willingness to pay amounts due. We review
our credit policies on a regular basis and analyze the risk of each
prospective customer individually in order to minimize our risk.
Goodwill
Effective November 1, 2001, we adopted SFAS No, 141, "Business Combinations"
("SFAS 141") and SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS
142"). SFAS 141 requires that the purchase method of accounting be used for
all business combinations initiated after June 30, 2001, and also specifies
the criteria for the recognition of intangible assets separately from
goodwill. Under SFAS 142, goodwill is no longer amortized but is subject to
an impairment test at least annually or more frequently if impairment
indicators arise. In accordance with SFAS 142, an annual impairment test of
goodwill was performed by an independent valuation firm in each of the
fourth quarters of fiscal year 2005 and 2004. The valuation process
appraised our assets and liabilities using a combination of present value
and multiple of earnings valuation techniques. The results of both
impairment tests indicated goodwill was not impaired.
We record goodwill when the consideration paid for an acquisition exceeds
the fair value of net tangible and identifiable intangible assets acquired.
We measure and test goodwill for impairment on an annual basis or more
frequently if we believe indicators of impairment exists. Performance of the
impairment test involves a two-step process. The first step compares the
fair value of our single reporting unit to its carrying amount. The fair
value of the reporting unit is determined by calculating the market
capitalization of the reporting unit as derived from quoted market prices,
and further substantiated through the use of other generally accepted
valuation methods. A potential impairment exists if the fair value of the
reporting unit is lower than its carrying amount. Historically, the
impairment test has shown that the carrying value is less than fair value.
The second step of the process is only performed if a potential impairment
exists, as indicated by step one, and involves determining the difference
between the fair values of the reporting unit's net assets, other than
goodwill, as compared to the fair value of the reporting unit. If the
difference is less than the net book value of goodwill, impairment exists
and is recorded. We determine our reporting units, for purposes of testing
for impairment, by determining (i) how we manage our operations, (ii) if a
component of an operating unit constitutes a business for which discrete
financial information is available and our management regularly review such
financial information, and (iii) how the acquired entity is integrated with
our operations. Based on these criteria, we determined that we have a single
reporting unit.
In order to determine the fair value of our reporting unit under SFAS
142, we consider the following two approaches:
* Market Approach - Under the market approach, recent sales of
comparable companies or securities are analyzed to determine
the value for a particular asset under study. Adjustments are
made to the sales data to account for differences between the
subject asset and the comparables. The market approach is most
applicable to assets that are homogenous in nature and are
actively traded. Relative to other approaches to value, the
key strength of the market approach is that it provides
objective indications of value while requiring relatively few
assumptions be made.
* Income Approach - This approach measures the present worth of
anticipated future net cash flows generated by the business.
Net cash flows are forecast for an appropriate period and then
discounted to present value using an appropriate discount rate.
Net cash flow forecasts require analysis of the significant
variables influencing revenues, expenses, working capital,
and capital investment. An income approach methodology is
generally useful because it accounts for the specific
contribution of fundamental factors impacting those variables
that affect the value of the business.
According to SFAS 142, quoted market prices in active markets are the best
evidence of fair value and shall be used as the basis for the measurement
of fair value, if available. As of October 31, 2005, our market
capitalization was $3,222,690, determined by taking the shares outstanding
as of that date multiplied by our stock price of $0.11. We added interest
bearing debt and operating liabilities (excluding net current liabilities
of discontinued operations), adjusted downward to a fair value estimate of
25%, resulting in a fair value of assets of approximately $5.3 million.
This amount exceeds the carrying value of our assets (the value of our
assets as reported in our financial statements), including goodwill, of
$3,218,596. While our market capitalization renders a minority interest
valuation, because shares of our Company represent minority interests, the
fair value of assets exceeds its carrying value even without the
application of a control premium as recommended by SFAS 142. However, we
believe that the application of the market approach necessitates additional
analysis for three reasons (i) we have generated no analyst coverage to
provide information about our stock to the public, suggesting that the
market price may not reflect available information, (ii) our stock price
demonstrated volatility as of the valuation date, and (iii) our stock is
thinly traded with no organization making an active market in the stock.
These factors suggest that our stock price, when taken in isolation, may
not be sufficient evidence of fair value. In estimating the fair value of a
reporting unit, a valuation technique based on multiples of earnings or
revenues or a similar performance measure may be used if that technique is
consistent with the objective of measuring fair value. As further support
for our market approach, we calculated the Business Enterprise Value
("BEV") for five other telecommunications companies, which provide services
similar to those that we provide. The BEV is determined by taking the
market capitalization of a public enterprise, adding their debt and
subtracting any cash equivalents. The resulting value is divided by annual
revenue in order to determine a reasonable multiple that can be applied to
us. We averaged the multiple of these five companies, trading on average
at 2.6 times their annual revenue obtained from their most recent published
financials, and applied the result to our 2005 fiscal year revenues. The
resulting BEV for our Company was well in excess of the fair value of our
assets calculated above. As a result, we determined that the fair value of
our Company exceeds its carrying amount, and therefore that goodwill is not
impaired.
Financing, Warrants and Amortization of Warrants and Fair Value Determination
We have traditionally financed our operations through the issuance of debt
instruments that are convertible into our common stock, at conversion rates
at or below the fair market value of our common stock at the time of
conversion, and typically include the issuance of warrants. We have
recorded debt discounts in connection with these financing transactions in
accordance with Emerging Issues Task Force Nos. 98-5 and 00-27.
Accordingly, we recognize the beneficial conversion feature imbedded in the
financings and the fair value of the related warrants on the balance sheet
as debt discount. The debt discount is amortized over the life of the
respective debt instrument.
Carrier Disputes
We review our vendor bills on a monthly basis and periodically dispute
amounts invoiced by our carriers. We review our outstanding disputes on a
quarterly basis, as part of the overall review of our accrued carrier costs,
and adjust our liability based on management's estimate of amounts owed.
RESULTS OF OPERATIONS
The following table presents our operating results for the three month
periods ended January 31, 2006 and 2005 as well as a comparison of the
percentage change of our operating results from the three month period ended
January 31, 2005 to the corresponding period ended January 31, 2006:
% of Revenue
Three Months Ended Three Months Ended
January 31, January 31,
----------------------- ------------
2006 2005 2006 2005
----------------------- ------------
REVENUES $1,986,112 $2,784,252 100% 100%
COSTS AND EXPENSES
Costs of revenues 1,528,115 1,997,414 77% 72%
Sales and marketing 142,382 54,609 7% 2%
General and administrative 657,424 750,081 33% 27%
Depreciation and amortization 104,212 146,234 5% 5%
Gain on sale of property and
equipment - (8,800) - -%
----------------------- ------------
Total costs and expenses 2,432,133 2,939,538 122% 106%
----------------------- ------------
Operating loss (446,021) (155,286) (22%) (6%)
OTHER INCOME (EXPENSE)
Interest expense and
financing costs (248,381) (54,089) (12%) (2%)
Related party interest expense
and financing costs (33,057) (36,772) (2%) (1%)
Foreign currency exchange gains 22,283 10,147 1% -%
----------------------- ------------
Total other expense, net (259,155) (80,714) (13%) (3%)
----------------------- ------------
NET LOSS $ (705,176) $(236,000) (36%) (9%)
======================= ============
RESULTS OF OPERATIONS - COMPARISON OF THE THREE MONTH PERIODS ENDED
JANUARY 31, 2006 and 2005
REVENUES
For the three-month period ended January 31 2006, 55% and 45% of our
revenues were derived from our wholesale and retail customers, respectively,
compared to 71% and 29%, respectively, for the three-month period ended
January 31 2005. Our wholesale revenues have decreased by 45% from the
three-month period ended January 31, 2005 compared to the three-month period
ended January 31, 2006, while our retail revenues have increased by 11%
during the three month period ended January 31, 2006 over the comparable
period in 2005.
The decrease in wholesale revenues for the three month period ended January
31, 2006 compared to the same period in fiscal 2005 is attributable to a
decrease in the number of termination opportunities available to us to offer
our customers. We establish relationships in foreign countries with vendors
who specialize in the termination of wholesale telecommunications traffic at
negotiated rates. These are usually high volume opportunities that we make
available to other telecommunications companies and provide those customers
with a wholesale rate. These opportunities are typically low margin. Due
to the competitive nature of the wholesale telecommunications business, our
customers frequently request a reduction in the per minute termination rates
that we offer them. At times, our suppliers are not able to offer us lower
rates in order to maintain the minutes we are terminating to them. As a
result, our wholesale revenues fluctuate depending on the number of these
vendor relationships that we are able to maintain. We are working with new
vendors in an effort to recapture our lost revenue, though the ultimate
results of these discussions cannot be predicted with any certainty. If we
are unable to attract and retain new wholesale customers and establish new
vendor relationships in order to increase the number of terminating
opportunities available to us, our wholesale revenues will continue to
erode.
The increase in retail revenues for the three month period ended January 31,
2006 compared to the same period in fiscal 2005 is attributable to
the acquisition of the customer base of Integrated, which contributed
approximately $326,000 of retail revenue. Without this acquisition, our
retail revenue would have decreased by $239,000. We continue to experience
increased competition in our largest foreign markets, including competition
from the incumbent phone company in each market. Furthermore, a significant
portion of our retail business comes from members of the United States
military stationed in foreign markets. The March 2003 redeployment of
troops into Iraq, where we have not historically provided long distance
service, resulted in a decline in our retail sales to these military
customers who were previously stationed in foreign markets that we serviced.
We are exploring opportunities to grow our retail business, utilizing our
in-house sales group and our outside agents, through the introduction of new
products and services, focusing our efforts principally on the sale of VoIP
services which allow users to make phone calls over their existing broadband
internet connections. Furthermore, we will continue to seek out acquisitions
that will allow us to quickly grow our business. If we are unable to
stabilize our retail revenues from the U.S. military and grow our retail
revenues from VoIP-based products, our retail revenues will remain flat or
decline.
COSTS OF REVENUES
Our costs of revenues as a percentage of revenues have increased 5% from 72%
for the three-month period ended January 31, 2006 to 77% for the three-
month period ended January 31, 2006. Included within our costs of revenues
for the three-month period ended January 31, 2005 is a reduction of costs in
the amount of $283,138 relating to the favorable resolution of a dispute
with one of our vendors. These costs were originally recorded to costs of
revenues in prior periods. Had this dispute resolution not occurred during
the three-month period ended January 31, 2005, our costs of revenues as a
percentage of revenues would have decreased by 10% for the three-month
period ended January 31, 2006 compared to the three-month period ended
January 31, 2005. This decrease was primarily due to a change in the mix of
our revenue with a greater percentage of our revenue coming from our retail
products, which realize a higher margin than our wholesale services. As a
majority of our costs of revenues are variable, based on per minute
transportation costs, costs of revenues as a percentage of revenues will
fluctuate, from period to period, depending on the traffic mix between our
wholesale and retail products and total revenue for each period.
SALES AND MARKETING EXPENSES
A significant component of our revenue is generated by outside agents or
through periodic newspaper advertising, which is managed by a small in-house
sales and marketing organization.
Our sales and marketing costs have increased from 2% to 7% of revenues,
respectively, for the three months ended January 31, 2006 compared to the
prior year period. The increase in our sales and marketing costs is
primarily due to additional personnel and commission's incurred as a result
of the Integrated acquisition of approximately $74,000, or 4% or revenues.
During the three month period ended January 31, 2006, we have focused our
attention on increasing revenues through the efforts of our agents and the
initiation of advertising on military websites. We will continue to focus
our sales and marketing efforts on periodic newspaper and internet
advertising, the establishment of distribution networks to facilitate the
introduction and growth of new products and services, and agent related
expenses to generate additional revenues.
GENERAL AND ADMINISTRATIVE EXPENSES
Our general and administrative expenses have increased to 33% of revenues
for the three months ended January 31, 2006 from 27% for the three months
ended July 31, 2005. Although general and administrative expenses as a
percentage of revenues has increased for the three months ended January 31,
2006 compared to the prior fiscal year, in absolute dollars, general and
administrative expenses have decreased by approximately $93,000. This
reduction has been accomplished primarily through the elimination of
personnel and personnel related costs, consulting and professional fees and
bad debt expense. However, due to the overall decline in revenue and the
primarily fixed nature of our general and administrative expenses, as a
percentage of revenue, these expenses have increased for the three months
ended January 31, 2006 compared to the prior period. We review our general
and administrative expenses regularly and continue to manage the costs
accordingly to support our current and anticipated future business, however
it will be difficult to achieve significant reductions in future periods due
to the fixed nature of our general and administrative expenses.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization has decreased primarily as the result of
significant components of our property and equipment reaching the end of
their useful lives each quarter. Our major property and equipment additions
were the result of the RLI acquisition in fiscal 2001. In addition,
depreciation and amortization has decreased as we have stopped depreciating
certain telecommunications switching equipment that is currently not in use.
We have not determined whether or not this equipment will be utilized for
current or future business, however we believe we will have a plan to either
use this equipment or dispose of it during the second quarter of 2006. The
net book value of this equipment as of the period ended January 31, 2006 is
not significant. A majority of our depreciation and amortization expense
relates to the equipment utilized in our VoIP network.
INTEREST EXPENSE AND FINANCING COSTS
Interest expense and financing costs for the three month period ended
January 31, 2006 and 2005 were due primarily to interest expense of
approximately $74,000 and $54,000, respectively, on our convertible
debentures and notes payable to related parties. In addition, for the three
month period ended January 31, 2006, interest expense includes approximately
$208,000 of amortization of deferred financing fees and debt discount
relating to the extension of the maturity dates on our debts to GCA, Global
and related parties. The increase in interest expense and financing costs
from the three months ended January 31, 2005 to the three month period ended
January 31, 2006 primarily relates to the extension of the maturity dates of
our convertible debt instruments with both our third party and related party
lenders during the third quarter of fiscal 2005.
LIQUIDITY AND CAPITAL RESOURCES
Our operating loss has increased and to date we have been generally unable
to achieve positive cash flow on a quarterly basis primarily due to the fact
that our present lines of business do not generate a volume of business
sufficient to cover our overhead costs. Our audit report for the fiscal
year ended October 31, 2005 includes an explanatory paragraph indicating
substantial doubt about our ability to continue as a going concern.
We have violated certain requirements of our convertible debt agreements
relating to failure to register the underlying securities, and timely
payment of principal and interest, including payment in full on the maturity
date of the notes, either through the issuance of common stock, or payment
in cash. Our lenders have not declared us in default and have allowed us to
continue to operate. On June 1, 2005, we and our third-party lenders agreed
to amendments to our notes payable and convertible debenture agreements to
extend the maturity dates to various times ranging from November 26, 2006
(see Note 9 - Subsequent Events regarding the further extension of our
January 2002 convertible debenture with GCA) through February 29, 2008.
Approximately $2.4 million of principal and interest is due to two of our
executives and a director.
Furthermore, we frequently are not able to make timely payment to our trade
creditors. As of January 31, 2006, approximately $4.3 million, representing
approximately 73% of our trade accounts payable and accrued liabilities,
were past due. A majority of the amounts past due are to foreign vendors
that have supplied us with low margin wholesale opportunities and we are no
longer sending significant, or any, telecommunications traffic to them. We
will continue to work with them to arrange for a reduction in the amount
owed to them through either formal or informal payment plans. We continue
to seek sources of working capital sufficient to fund delinquent balances
and meet ongoing obligations, though our success on this process has been
limited.
Our future operating success is dependent on our ability to quickly generate
positive cash flow from our VoIP lines of products and services. Our major
growth areas are anticipated to include the establishment of additional
wholesale points of termination to offer our existing wholesale and retail
customers, and the introduction of new retail VoIP products, both
domestically and internationally. We anticipate a $500-700,000 cash
shortfall from operations during the next 12 months, however we are
currently pursuing retail and wholesale opportunities and acquisitions that
we believe will reduce this shortfall. There can be no assurance that we
will be successful in implementing these opportunities. We do not have any
capital equipment commitments during the next 12 months. We are actively
pursuing debt or equity financing opportunities to continue our business.
Any failure of our business plan, including the risk and timing involved in
rolling out retail products to end users, to generate positive cash flow
could result in a significant cash flow crisis and could force us to seek
alternative sources of financing as discussed, or to greatly reduce or
discontinue operations. Although various possibilities for obtaining
financing or effecting a business combination (see Note 9 - Subsequent
Events) have been discussed from time to time, and we are having ongoing
discussions with two potential financing sources, there are no definitive
agreements with any party to raise money and we cannot assure you that we
will be successful in our search for investors or lenders. Any additional
financing we may obtain will involve material and substantial dilution to
existing stockholders. In such event, the percentage ownership of our
current stockholders will be materially reduced, and any new equity
securities sold by us may have rights, preferences or privileges senior to
our current common stockholders. If we are unable to obtain additional
financing, our operations in the short term will be materially affected and
we may not be able to remain in business. These circumstances raise
substantial doubt as to the ability of our Company to continue as a going
concern.
On March 8, 2006, the Company completed a private placement of two one year
10% convertible debentures ("Debentures"), for gross proceeds of $1,000,000.
In connection with the Debentures, the Company agreed to issue the investors
a total of 2,000,000 immediately exercisable five year warrants to purchase
the Company's common stock at an exercise price of $0.14 for 1,000,000
warrants, and $0.25 for an additional 1,000,000 warrants. In addition, the
investors will receive an additional 50,000 warrants to vest and become
exercisable on the last day of each month prior to the Company's
satisfaction in full of the Debentures, or the complete conversion of the
Debentures, at an exercise price of $0.25. A portion of the proceeds have
been used to repay the Advances from Shareholder (see Note 7).
On February 14, 2006, the Company entered into a binding letter of intent
to acquire all of the issued and outstanding shares of capital stock
of Telenational Communications Inc. ("Telenational"), a privately owned
Delaware corporation that is a provider of domestic and international long
distance services. As payment for the purchase price, the Company has
agreed to issue to the shareholders of Telenational a combination of stock
and and cash. The cash portion of the purchase price totals $1.5 million,
with $1.0 million due on closing, and another $500,000 due within ninety
days of closing. In order to complete this transaction, the Company will
need to raise additional debt or equity financing, in addition to the amount
raised in connection with the Company's March 8, 2006 private placement, to
cover the entire cash portion of the purchase price.
At January 31, 2006, we had cash and cash equivalents of $106,000, a
decrease of $66,000 from the balance at October 31, 2005. We had
significant working capital deficits at both January 31, 2006 and October
31, 2005.
Net cash used in operating activities was $566,000 and $285,000 for the
three months ended January 31, 2006 and 2005, respectively. The net cash
used in operating activities for the three months ended January 31, 2006 was
primarily due to a net loss of $705,000 adjusted for: non-cash interest
expense of $208,000, depreciation and amortization of $104,000 and net
changes in operating assets and liabilities of ($186,000). For the three
month period ended January 31, 2005, the net cash provided by operating
activities was due to a net loss from continuing operations of $236,000
adjusted for depreciation and amortization of $146,000 and net changes in
operating assets and liabilities of ($177,000).
Net cash used in investing activities for the three-month periods ended
January 31, 2006 and 2005 was $300 and $9,000, respectively, and primarily
relates to the purchase of property and equipment.
Net cash provided by financing activities for the three months ended January
31, 2006 was $500,000. This amount represents proceeds received on a
temporary loan from our chief executive officer.
We have an accumulated deficit of approximately $49.8 million as of January
31, 2006 as well as a significant working capital deficit. Funding of our
working capital deficit, current and future operating losses, and expansion
will require continuing capital investment which may not be available to us.
Since the beginning of April 2001, we have raised $5.7 million in debt
financing.
Although to date we have been able to arrange debt facilities and equity
financing, there can be no assurance that sufficient debt or equity
financing will continue to be available in the future or that it will be
available on terms acceptable to us (See Note 9 - Subsequent Events). As of
January 31, 2006 we have approximately $1,000,000 principal balance of
convertible debentures which will mature within the next year as well as a
significant amount of trade payables and accrued liabilities which are past
due. We will continue to explore external financing opportunities in order
to fund these past due amounts. Our management is committed to the success
of our Company as is evidenced by the level of financing it has made
available to our Company. Failure to obtain sufficient capital will
materially affect our Company's operations and financial condition. As a
result of the aforementioned factors and related uncertainties, there is
significant doubt about our Company's ability to continue as a going
concern.
Our current capital expenditure requirements are not significant, primarily
due to the equipment acquired from Rapid Link. We have committed to
purchase approximately $70,000 of telecommunications equipment and billing
software over the next four months. We do not anticipate significant
spending for the remainder of fiscal year 2006.
In October 2001, we executed 10% convertible notes (the "Notes") with three
of our executives, which provided financing of $1,945,958. With an original
maturity date of October 24, 2003, these Notes were amended subsequent to
fiscal year 2002 to extend the maturity date to February 24, 2004. These
Notes are secured by selected Company assets and are convertible into our
common stock at the option of the holder at any time. The conversion price
is equal to the closing bid price of our common stock on the last trading
day immediately preceding the conversion. We also issued to the holders of
the Notes warrants to acquire an aggregate of 1,945,958 shares of common
stock at an exercise price of $0.78 per share, which expire on October 24,
2006. For the year ended October 31, 2002, an additional $402,433 was added
to the Notes and an additional 402,433 warrants to acquire our common stock
were issued in connection with the financing. During fiscal year 2004, the
holders of the Notes elected to convert $877,500 of the Notes into 6,750,000
shares of our common stock. On July 21, 2005, the Company and the three
executives agreed to extend the maturity date of the Notes to February 29,
2008. In connection with the extension, the Company issued to the three
executives warrants to acquire 640,000 shares of common stock at an exercise
price of $0.16. The warrants expire in July 2010. The gross outstanding
balance of these Notes at January 31, 2006 totals $1,003,390.
In January 2002, we executed a 6% convertible debenture (the "Debenture")
with GCA Strategic Investment Fund Limited ("GCA"), which provided
financing of $550,000 and had an original maturity date of January 28,
2003. We also issued to the holder of the Debenture warrants to acquire an
aggregate of 50,000 shares of common stock at an exercise price of $0.41
per share, which expire on January 28, 2007. The Debenture was amended in
January 2003 to extend the maturity date to November 8, 2004. In
connection with this January 2003 amendment we adjusted the exercise price
of the previously issued warrants to $0.21 per share and also issued to the
holder of the Debenture warrants to acquire an aggregate of 100,000 shares
of common stock at an exercise price of $0.21 per share, which expire on
February 8, 2008. The Debenture was amended again in June 2005 to extend
the maturity date to November 26, 2005 (see Note 9 - Subsequent Events).
In connection with this June 2005 amendment of the Debenture, we also
issued to the holder of the Debenture 100,000 shares of our common stock,
warrants to purchase 150,000 shares of our common stock at an exercise
price of $0.38 per share and warrants to purchase 110,000 shares of our
common stock at an exercise price of $0.11 per share, all of which warrants
expire on June 1, 2010. The conversion price of the Debenture is equal to
the lesser of (i) 100% of the volume weighted average of sales price as
reported by the Bloomberg L.P. of the common stock on the last trading day
immediately preceding the closing date and (ii) 85% of the average of the
three lowest volume weighted average sales prices as reported by Bloomberg
L.P. during the 20 trading days immediately preceding but not including the
date of the related notice of conversion (the "Formula Conversion Price").
In an event of default the amount declared due and payable on the Debenture
shall be automatically converted into shares of our common stock at the
Formula Conversion Price. During fiscal year 2003, GCA converted $50,000
of the Debenture and $3,463 of accrued interest into approximately 374,000
shares of common stock. During fiscal year 2004, GCA converted $10,000 of
the Debenture and $730 of accrued interest into approximately 82,000 shares
of our common stock. The gross outstanding balance on the Debenture was
$455,000 at January 31, 2006.
In November 2002, we executed a 12% note payable (the "GC-Note") with
Global Capital Funding Group, L.P., ("Global") which provided financing of
$1,250,000. The GC-Note matured on November 8, 2004. We also issued to
the holder of the GC-Note warrants to acquire an aggregate of 500,000
shares of common stock at an exercise price of $0.14 per share, which
expire on November 8, 2007. In June 2005, the GC-Note was replaced by a
convertible note ("GC-Conote"). The GC-Conote matures on February 29,
2008, and the annual interest rate due on this convertible note is 10.08%.
The conversion price is equal to 80% of the average of the three (3) lowest
volume weighted average sales prices as reported by Bloomberg L.P. during
the twenty (20) trading days immediately preceding the date of the related
notice of conversion. In addition, we issued to the holder of the GC-
Conote 100,000 shares of our common stock, warrants to purchase 500,000
shares of our common stock at an exercise price of $0.38 per share and
warrants to purchase 125,000 shares of our common stock at an exercise
price of $0.11 per share, all of which warrants expire on June 1, 2010. In
addition, interest of approximately $350,000 due on the GC-Note at the time
of replacement by the GC-Conote was converted into a $400,000 non-interest
bearing note payable ("GC-Note2"), which matures on March 30, 2007. The
approximate $50,000 difference between the accrued interest at the time of
replacement and the value of this new note was recorded as deferred
financing fees, and is being amortized over the life of the GC-Note2. The
gross outstanding balance of the GC-Note2 was $275,000 at January 31, 2006.
In July 2003, we executed a 10% note payable (the "GCA-Note") with GCA
Strategic Investment Fund Limited, which provided financing of $550,000.
The GCA-Note's maturity date was December 23, 2003. We also issued to the
holder of the GCA-Note warrants to acquire an aggregate of 100,000 shares of
common stock at an exercise price of $0.14 per share, which expire on July
24, 2008. Per the terms of the GCA-Note agreement, in the event the GCA-
Note is not repaid in full within ten days of the maturity date, the terms
of the GCA-Note shall become the same as those of the Debenture. Effective
January 2, 2004, the GCA-Note was replaced by a convertible debenture ("GCA-
Debenture") with the same terms as those of the Debenture, which had a
maturity date of November 8, 2004. The principal balance of the GCA-
Debenture was $574,597, which included $24,597 of interest due on the GCA-
Note at the time it was replaced by the GCA-Debenture. The GCA-Debenture
was amended in June 2005, to extend the maturity date to November 26, 2006.
In connection with this amendment, we also issued to the holder of the GCA-
Debenture 40,000 shares of our common stock, and warrants to purchase
150,000 shares of our common stock at an exercise price of $0.38 per share,
which warrants expire on June 1, 2010. The gross outstanding balance on the
GCA-Debenture was approximately $550,000 at January 31, 2006.
Risk Factors
Our cash flow may not be sufficient to satisfy our operations
For the three-month period ended January 31, 2006, we recorded a net loss of
approximately $705,000, and for the year ended October 31, 2005, we recorded
a net loss of approximately $2,565,000. As a result of these loses, and
prior losses, we currently have a significant working capital deficit. In
addition, we have a significant amount of trade accounts payables and
accrued liabilities, of which approximately 73% is past due. To be able to
service our debt obligations over the remainder of the 2006 fiscal year we
must generate significant cash flow and obtain additional financing. If we
are unable to do so or otherwise unable to obtain funds necessary to make
required payments on our trade debt and other indebtedness, it is likely
that we will not be able to continue our operations.
Our independent auditors have included a going concern paragraph in their
audit opinion on our consolidated financial statements for the fiscal year
ended October 31, 2005, which states that "The Company has suffered
recurring losses from continuing operations during each of the last two
fiscal years. Additionally, at October 31, 2005, the Company's current
liabilities (which includes significant amounts of past due payables)
exceeded its current assets by $7.0 million and the Company has a
shareholders' deficit totaling $6.3 million. These conditions raise
substantial doubt about the Company's ability to continue as a going
concern."
Our operating history makes it difficult to accurately assess our general
prospects in the VoIP portion of the telecommunications industry and the
effectiveness of our business strategy. In addition, we have limited
meaningful historical financial data upon which to forecast our future sales
and operating expenses. Our future performance will also be subject to
prevailing economic conditions and to financial, business and other factors.
Accordingly, we cannot assure you that we will successfully implement our
business strategy or that our actual future cash flows from operations will
be sufficient to satisfy our debt obligations and working capital needs.
To implement our business strategy, we will also need to seek additional
financing (See Note 9 - Subsequent Events). There is no assurance that
adequate levels of additional financing will be available at all or on
acceptable terms. In addition, any additional financing will likely result
in significant dilution to our existing stockholders. If we are unable to
obtain additional financing on terms that are acceptable to us, we could be
forced to dispose of assets to make up for any shortfall in the payments due
on our debt under circumstances that might not be favorable to realizing the
highest price for those assets. A portion of our assets consist of
intangible assets, the value of which will depend upon a variety of factors,
including the success of our business. As a result, if we do need to sell
any of our assets, we cannot assure you that our assets could be sold
quickly enough, or for amounts sufficient, to meet our obligations.
We face competition from numerous, mostly well-capitalized sources
The market for our products and services is highly competitive. We face
competition from multiple sources, virtually all of which have greater
financial resources and a substantial presence in our markets and offer
products or services similar to our services. Therefore, we may not be able
to successfully compete in our markets, which could result in a failure to
implement our business strategy, adversely affecting our ability to attract
and retain new customers. In addition, competition within the industries in
which we operate is characterized by, among other factors, price and the
ability to offer enhanced services. Significant price competition would
reduce the margins realized by us in our telecommunications operations.
Many of our competitors have greater financial resources to devote to
research, development and marketing, and may be able to respond more quickly
to new or merging technologies and changes in customer requirements. If we
are unable to provide value-added Internet products and services then we
will be unable to compete in certain segments of the market, which could
have an adverse impact on our business.
The regulatory environment in our industry is very uncertain
The legal and regulatory environment pertaining to the Internet is uncertain
and changing rapidly as the use of the Internet increases. For example, in
the United States, the FCC is considering whether to impose surcharges or
additional regulations upon certain providers of Internet telephony.
In addition, the regulatory treatment of Internet telephony outside of the
United States varies from country to country. There can be no assurance
that there will not be legally imposed interruptions in Internet telephony
in these and other foreign countries. Interruptions or restrictions on the
provision of Internet telephony in foreign countries may adversely affect
our ability to continue to offer services in those countries, resulting in a
loss of customers and revenues.
New regulations could increase the cost of doing business over the Internet
or restrict or prohibit the delivery of our products or services using the
Internet. In addition to new regulations being adopted, existing laws may be
applied to the Internet. Newly existing laws may cover issues that include
sales and other taxes, access charges, user privacy, pricing controls,
characteristics and quality of products and services, consumer protection,
contributions to the Universal Service Fund, an FCC-administered fund for
the support of local telephone service in rural and high-cost areas, cross-
border commerce, copyright, trademark and patent infringement, and other
claims based on the nature and content of Internet materials.
Changes in the technology relating to Internet telephony could threaten our
operations
The industries in which we compete are characterized, in part, by rapid
growth, evolving industry standards, significant technological changes and
frequent product enhancements. These characteristics could render existing
systems and strategies obsolete and require us to continue to develop and
implement new products and services, anticipate changing consumer demands
and respond to emerging industry standards and technological changes. No
assurance can be given that we will be able to keep pace with the rapidly
changing consumer demands, technological trends and evolving industry
standards.
We need to develop and maintain strategic relationships around the world to
be successful
Our international business, in part, is dependent upon relationships with
distributors, governments or providers of telecommunications services in
foreign markets. The failure to develop or maintain these relationships
could have an adverse impact on our business.
We rely on three key senior executives
Our success is dependent on our senior management team of John Jenkins,
David Hess and Allen Sciarillo and our future success will depend, in large
part, upon our ability to retain these three individuals.
The expansion of our VoIP product offerings is essential to our survival
We intend to expand our VoIP network and the range of enhanced
telecommunications services that we provide. Our expansion prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies in new and rapidly evolving markets.
Our OTC Bulletin Board listing negatively affects the liquidity of our
common stock
Our common stock currently trades on the OTC Bulletin Board. Therefore, no
assurances can be given that a liquid trading market will exist at the time
any stockholder desires to dispose of any shares of our common stock. In
addition, our common stock is subject to the so-called "penny stock" rules
that impose additional sales practice requirements on broker-dealers who
sell such securities to persons other than established customers and
accredited investors (generally defined as an investor with a net worth in
excess of $1 million or annual income exceeding $200,000, or $300,000
together with a spouse). For transactions covered by the penny stock rules,
a broker-dealer must make a suitability determination for the purchaser and
must have received the purchaser's written consent to the transaction prior
to sale. Consequently, both the ability of a broker-dealer to sell our
common stock and the ability of holders of our common stock to sell
their securities in the secondary market may be adversely affected. The
Securities and Exchange Commission has adopted regulations that define a
"penny stock" to be an equity security that has a market price of less than
$5.00 per share, subject to certain exceptions. For any transaction
involving a penny stock, unless exempt, the rules require the delivery,
prior to the transaction, of a disclosure schedule relating to the penny
stock market. The broker-dealer must disclose the commissions payable to
both the broker-dealer and the registered representative, current quotations
for the securities and, if the broker-dealer is to sell the securities as a
market maker, the broker-dealer must disclose this fact and the broker-
dealer's presumed control over the market. Finally, monthly statements must
be sent disclosing recent price information for the penny stock held in the
account and information on the limited market in penny stocks.
ITEM 3. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures. Our management
carried out an evaluation, under the supervision and with the participation
of our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures as of the end of the period covered by this report. Based on
this evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that as of the end of the period covered by this report, our
disclosure controls and procedures were effective. Disclosure controls and
procedures mean our controls and other procedures that are designed to
ensure that information required to be disclosed by us in our reports that
we file or submit under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information
required to be disclosed by us in our reports that we file or submit under
the Securities Exchange Act of 1934 is accumulated and communicated to
management, including our Chief Executive Officer and Chief Financial
Officer, as appropriate to allow timely decisions regarding required
disclosure.
(b) Changes in Internal Controls. There have been no changes in our
internal control over financial reporting that occurred during the period
covered by this report that has materially affected, or is reasonably likely
to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
2.1 Agreement and Plan of Merger dated as of January 30, 1998, among
Canmax Inc., CNMX MergerSub, Inc. and US Communications Services,
Inc. (filed as Exhibit 2.1 to Form 8-K dated January 30, 1998 (the
"USC 8-K"), and incorporated herein by reference)
2.2 Rescission Agreement dated June 15, 1998 among Canmax Inc., USC and
former principals of USC (filed as Exhibit 10.1 to Form 8-K dated
January 15, 1998 (the "USC Rescission 8-K"), and incorporated herein
by reference)
2.3 Asset Purchase Agreement by and among Affiliated Computed Services,
Inc., Canmax and Canmax Retail Systems, Inc. dated September 3, 1998
(filed as Exhibit 10.1 to the Company's Form 8-K dated December 7,
1998 and incorporated herein by reference)
2.4 Asset Purchase Agreement dated November 2, 1999 among ARDIS Telecom &
Technologies, Inc., Dial Thru International Corporation, a Delaware
corporation, Dial Thru International Corporation, a California
corporation, and John Jenkins (filed as Exhibit 2.1 to the Company's
Current Report on Form 8-K dated November 2, 1999 and incorporated
herein by reference)
2.5 Stock and Asset Purchase Agreement, dated as of September 18, 2001,
by and among Rapid Link USA, Inc., Rapid Link Inc., and Dial Thru
International Corporation. (filed as Exhibit 2.1 to the Company's
Form 8-K dated October 29, 2001 and incorporated herein by reference)
2.6 First Amendment to Stock and Asset Purchase Agreement, dated as of
September 21, 2001, by and among Rapid Link USA, Inc., Rapid Link
Inc., and Dial Thru International Corporation. (filed as Exhibit 2.2
to the Company's Form 8-K dated October 29, 2001 and incorporated
herein by reference)
2.7 Second Amendment to Stock and Asset Purchase Agreement, dated as of
October 12, 2001, by and among Rapid Link USA, Inc., Rapid Link Inc.,
and Dial Thru International Corporation. (filed as Exhibit 2.3 to the
Company's Form 8-K dated October 29, 2001 and incorporated herein by
reference)
2.8 Third Amendment to Stock and Asset Purchase Agreement, dated as of
October 30, 2001, by and among Rapid Link USA, Inc., Rapid Link Inc.,
and Dial Thru International Corporation. (filed as Exhibit 2.4 to the
Company's Form 8-K dated December 28, 2001 and incorporated herein by
reference)
2.9 Fourth Amendment to Stock and Asset Purchase Agreement, dated as of
November 30, 2001, by and among Rapid Link USA, Inc., Rapid Link
Inc., and Dial Thru International Corporation. (filed as Exhibit 2.5
to the Company's Form 8-K dated December 28, 2001 and incorporated
herein by reference)
2.10 Asset Purchase Agreement, dated as of October 25, 2005, by and
between Integrated Communications, Inc. and Dial Thru International
Corporation (filed as Exhibit 2.5 to the Company's Form 8-K dated
October 31, 2005 and incorporated herein by reference)
3.1 Certificate of Incorporation, as amended (filed as Exhibit 3.1 to the
Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 1999 (the "1999 Form 10-K") and incorporated herein by
reference)
3.2 Amended and Restated Bylaws of Dial Thru International Corporation
(filed as Exhibit 3.2 to the 1999 Form 10-K and incorporated herein
by reference)
3.3 Amendment to Certificate of Incorporation dated January 11, 2005 and
filed with the State of Delaware on January 13, 2005 (filed as
Exhibit 3.3 to the 2004 Form 10-K and incorporated herein by
reference)
3.4 *Amendment to Certificate of Incorporation dated October 28, 2005 and
filed with the State of Delaware on November 1, 2005
4.1 Securities Purchase Agreement issued January 28, 2002 between Dial
Thru International Corporation and GCA Strategic Investment Fund
Limited (filed as Exhibit 4.1 to the Company's Form S-3, File 333-
82622, filed on February 12, 2002 and incorporated herein by
reference)
4.2 Registration Rights Agreement dated January 28, 2002 between Dial
Thru International Corporation and GCA Strategic Investment Fund
Limited (filed as Exhibit 4.2 to the Company's Form S-3, File 333-
82622, filed on February 12, 2002 and incorporated herein by
reference)
4.3 6% Convertible Debenture of Dial Thru International Corporation and
GCA Strategic Investment Fund Limited (filed as Exhibit 4.3 to the
Company's Form S-3, File 333-82622, filed on February 12, 2002 and
incorporated herein by reference)
4.4 Common Stock Purchase Warrant dated January 28, 2002 between GCA
Strategic Investment Fund Limited and Dial Thru International
Corporation (filed as Exhibit 4.4 to the Company's Form S-3, File
333-82622, filed on February 12, 2002 and incorporated herein by
reference)
4.5 Securities Purchase Agreement issued November 8, 2002 between Dial
Thru International Corporation and Global Capital Funding Group, L.P.
(filed as Exhibit 4.1 to the Company's Form 8-K filed on September
23, 2003, and incorporated herein by reference)
4.6 Secured Promissory Note issued November 8, 2002 between Dial Thru
International Corporation and Global Capital Funding Group, L.P.
(filed as Exhibit 4.2 to the Company's Form 8-K filed on September
23, 2003, and incorporated herein by reference)
4.7 Common Stock Purchase Warrant issued November 8, 2002 between Dial
Thru International Corporation and Global Capital Funding Group, L.P.
(filed as Exhibit 4.3 to the Company's Form 8-K filed on September
23, 2003, and incorporated herein by reference)
4.8 Registration Rights Agreement issued November 8, 2002 between Dial
Thru International Corporation and Global Capital Funding Group, L.P.
(filed as Exhibit 4.4 to the Company's Form 8-K filed on September
23, 2003, and incorporated herein by reference)
4.9 Securities Purchase Agreement issued July 24, 2003 between Dial Thru
International Corporation and GCA Strategic Investment Fund Limited
(filed as Exhibit 4.5 to the Company's Form 8-K filed on September
23, 2003, and incorporated herein by reference)
4.10 Promissory Note issued July 24, 2003 between Dial Thru International
Corporation and GCA Strategic Investment Fund Limited (filed as
Exhibit 4.6 to the Company's Form 8-K filed on September 23, 2003,
and incorporated herein by reference)
4.11 Common Stock Purchase Warrant issued July 24, 2003 between Dial Thru
International Corporation and GCA Strategic Investment Fund Limited
(filed as Exhibit 4.6 to the Company's Form 8-K filed on September
23, 2003, and incorporated herein by reference)
4.12 Secured Promissory Note dated June 1, 2005 between Global Capital
Funding Group, L.P. and Dial Thru International Corporation (filed as
Exhibit 4.1 to the Company's Form 8-K filed on June 7, 2005, and
incorporated herein by reference)
4.13 Common Stock Purchase Warrant dated June 1, 2005 between Global
Capital Funding Group, L.P. and Dial Thru International Corporation
(filed as Exhibit 4.2 to the Company's Form 8-K filed on June 7,
2005, and incorporated herein by reference)
4.14 Common Stock Purchase Warrant dated June 1, 2005 between Global
Capital Funding Group, L.P. and Dial Thru International Corporation
(filed as Exhibit 4.3 to the Company's Form 8-K filed on June 7,
2005, and incorporated herein by reference)
4.15 Common Stock Purchase Warrant dated June 1, 2005 between GCA
Strategic Investment Fund Limited and Dial Thru International
Corporation (filed as Exhibit 4.5 to the Company's Form 8-K filed on
June 7, 2005, and incorporated herein by reference
4.16 Common Stock Purchase Warrant dated June 1, 2005 between GCA
Strategic Investment Fund Limited and Dial Thru International
Corporation (filed as Exhibit 4.6 to the Company's Form 8-K filed on
June 7, 2005, and incorporated herein by reference
4.17 Common Stock Purchase Warrant dated June 1, 2005 between GCA
Strategic Investment Fund Limited and Dial Thru International
Corporation (filed as Exhibit 4.7 to the Company's Form 8-K filed on
June 7, 2005, and incorporated herein by reference
10.1 Employment Agreement, dated June 30, 1997 between Canmax Retail
Systems, Inc. and Roger Bryant (filed as Exhibit 10.3 to the
Company's Registration Statement on Form S-3, File No. 333-33523 (the
"Form S-3"), and incorporated herein by reference)
10.2 Commercial Lease Agreement between Jackson--Shaw/Jetstar Drive Tri-
star Limited Partnership and the Company (filed as Exhibit 10.20 to
the Company's Annual Report on Form 10-K dated October 31, 1998, and
incorporated herein by reference)
10.3 Employment Agreement, dated November 2, 1999 between ARDIS Telecom &
Technologies, Inc. and John Jenkins (filed as Exhibit 4.3 to the 2000
Form 10-K and incorporated herein by reference)
10.4 Amendment Number 1 to Securities Purchase Agreement dated June 1,
2005 between Global Capital Funding Group, L.P. and Dial Thru
International Corporation (filed as Exhibit 10.1 to the Company's
Form 8-K filed on June 7, 2005, and incorporated herein by reference)
10.5 Amendment Number 1 to Securities Purchase Agreement dated June 1,
2005 between GCA Strategic Investment Fund Limited and Dial Thru
International Corporation (filed as Exhibit 10.2 to the Company's
Form 8-K filed on June 7, 2005, and incorporated herein by reference)
10.6 Amendment Number 1 to Securities Purchase Agreement dated June 1,
2005 between GCA Strategic Investment Fund Limited and Dial Thru
International Corporation (filed as Exhibit 10.3 to the Company's
Form 8-K filed on June 7, 2005, and incorporated herein by reference)
14.1 Code of Business Conduct and Ethics for Employees, Executive Officers
and Directors (filed as Exhibit 14.1 to the 2003 Form 10-K and
incorporated herein by reference)
31.1 Certificate of Chief Executive Officer pursuant to Rule 13a-14(a) and
Rule 15d-14(a) of the Securities Exchange Act of 1934*
31.2 Certificate of Chief Financial Officer pursuant to Rule 13a-14(a) and
Rule 15d-14(a) of the Securities Exchange Act of 1934*
32.1 Certificate of Chief Executive Officer pursuant to 18 U.S.C. Section
1350*
32.2 Certificate of Chief Financial Officer pursuant to 18 U.S.C. Section
1350*
* Filed herewith.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Rapid Link, Incorporated
By: /s/ Allen Sciarillo
--------------------------------------------
Allen Sciarillo
Chief Financial Officer and Executive Vice
President (Principal Financial and Principal
Accounting Officer)
Dated March 17, 2006