Edgar Filing: ILINC COMMUNICATIONS INC

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

______________

FORM 10-K

For Annual and Transition Reports
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

(MARK ONE)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED MARCH 31, 2006.
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from _________ to _________.
Commission file number _________

ILINC COMMUNICATIONS, INC.
(exact name of Registrant as specified in its charter)

DELAWARE 76-0545043
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)

2999 N. 44TH STREET, SUITE 650
PHOENIX, ARIZONA 85018
(Address of principal executive offices)
(Registrant's telephone number, including area code) (602) 952-1200
______________

Securities registered pursuant to Name of Exchange on Which Registered
Section 12(b) of the Act AMERICAN STOCK EXCHANGE
COMMON, $0.001 PAR VALUE PER SHARE

Securities registered pursuant to
Section 12(g) of the Act
NONE

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |_|

Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2). Yes ( ) No (X)

Indicate by check mark whether the registrant is a small company (as
defined in Rule 12b-2 of the Exchange Act). Yes ( ) No (X)

The aggregate market value of the registrant's voting and non-voting
common stock held by non-affiliates of the registrant computed by reference to
the price at which the common equity was last sold on the American Stock
Exchange as of March 31, 2006, was approximately 8,933,603 using a closing price
of $0.41 per share.

The number of shares of common stock of the registrant, par value
$0.001 per share, outstanding at June 26, 2006 was 32,909,703, net of shares
held in treasury.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement relating to the Annual
Meeting of Stockholders of the registrant to be held on August 18, 2006 are
incorporated by reference into Part III of this Report.

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FORM 10-K REPORT INDEX

PART I
Item 1. Business...................................................................................4
Item 1A. Risk Factors...............................................................................9
Item 2. Properties.................................................................................13
Item 3. Legal Proceedings..........................................................................13
Item 4. Submission of Matters to a Vote of Security Holders........................................13
Item 4A. Executive Officers.........................................................................14

PART II
Item 5. Market for Registrant's Common Stock and Related Shareholder Matters.......................15
Item 6. Selected Financial Data....................................................................16
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations......17
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.................................34
Item 8. Financial Statements and Supplementary Data................................................35
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.......68
Item 9A. Controls and Procedures....................................................................68
Item 9B. Other......................................................................................69

PART III
Item 10. Directors and Executive Officers of the Registrant.........................................69
Item 11. Executive Compensation ....................................................................69
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Shareholder Matters.....................................................................69
Item 13. Certain Relationships and Related Transactions.............................................69
Item 14. Principal Accountant Fees..................................................................70

PART IV
Item 15. Exhibits and Financial Statement Schedules.................................................70

FORWARD-LOOKING STATEMENTS

Unless the context requires otherwise, references in this document to
"iLinc Communications," "iLinc" the "Company," "we," "us," and "our" refer to
iLinc Communications, Inc.

Statements contained in this Annual Report on Form 10-K that involve
words like "anticipates," "expects," "intends," "plans," "believes," "seeks,"
"estimates," and similar expressions are intended to identify forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995, the Securities Act of 1933, as amended, and the Securities Exchange Act of
1934, as amended. These are statements that relate to future periods and
include, but are not limited to, statements as to our ability to: sell our
products and services; improve the quality of our software; derive overall
benefits of our products and services; introduce new products and versions of
our existing products; sustain and increase revenue from existing products;
integrate current and emerging technologies into our product offerings; control
our expenses including those related to sales and marketing, research and
development, and general and administrative expenses; control changes in our
customer base; support our customers and provide sufficient technological
infrastructure; obtain sales or increase revenues; impact the results of legal
proceedings; control and implement changes in our employee headcount; obtain
sufficient cash flow; manage liquidity and capital resources; realize positive
cash flow from operations; or realize net earnings.

Such forward-looking statements involve certain risks and uncertainties
that could cause actual results to differ materially from anticipated results.
These risks and uncertainties include, but are not limited to, our dependence on
our products or services, market demand for our products and services, our
ability to attract and retain customers and channel partners, our ability to
expand our technological infrastructure to meet the demand from our customers,
our ability to recruit and retain qualified employees, the ability of channel
partners to successfully resell our products, the status of the overall economy,
the strength of competitive offerings, the pricing pressures created by market
forces, and the risks discussed herein (see "Managements Discussion and Analysis
of Financial Condition and Results of Operations"). All forward-looking
statements included in this report are based on information available to us as
of the date hereof. We expressly disclaim any obligation or undertaking to
release publicly any updates or revisions to any forward-looking statements
contained herein, to reflect any change in our expectations or in events,
conditions or circumstances on which any such statement is based. Readers are
urged to carefully review and consider the various disclosures made in this
report and in our other reports filed with the SEC that attempt to advise
interested parties of certain risks and factors that may affect our business.
Our reports are available free of charge as soon as reasonably practicable after
such material is electronically filed with the SEC and may be obtained through
our Web site located at www.ilinc.com.

iLinc, iLinc Communications, iLinc Suite, MeetingLinc, LearnLinc,
ConferenceLinc, SupportLinc, iLinc On-Demand, and their respective logo are
trademarks or registered trademarks of iLinc Communications, Inc. All other
company names and products may be trademarks of their respective companies.

PART I

ITEM 1. BUSINESS

COMPANY OVERVIEW

Headquartered in Phoenix, Arizona, iLinc Communications, Inc. is a
leading provider of Web conferencing, audio conferencing and collaboration
software and services. We develop and sell software that provides real-time
collaboration and training using Web-based tools. Our four-product iLinc Suite,
comprised of LearnLinc, MeetingLinc, ConferenceLinc, and SupportLinc, is an
award winning virtual classroom, Web conferencing and collaboration suite of
software. With our Web collaboration, conferencing and virtual classroom
products, we provide simple, reliable and cost-effective tools for remote
presentations, meetings and online events. Our software is based on a
proprietary architecture and code that finds its origins as far back as 1994, in
what we believe to be the beginnings of the Web collaboration industry. Versions
of the iLinc Suite have been translated into six languages, and it is currently
available in version 8.01. Our customers may choose from several different
pricing and licensing options for the iLinc Suite depending upon their needs.
Uses for our four-product suite of Web collaboration software include online
business meetings, sales presentations, training sessions, product
demonstrations and technical support assistance. We sell our software solutions
to large and medium-sized corporations inside and outside of the Fortune 1000.
We market our products using a direct sales force and a distribution channel
consisting of agents and value added resellers. We allow customers to choose
between purchasing a perpetual license and subscribing to a term license,
providing for flexibility in pricing and payment methods. Our revenues are a
mixture of high margin perpetual licenses of software and monthly recurring
revenues from annual maintenance, hosting and support agreements, and other
products and services.

PRODUCTS AND SERVICES

WEB CONFERENCING AND WEB COLLABORATION

The iLinc Suite is a four-product suite of software that addresses the
most common business collaboration needs.

LearnLinc is an Internet-based software that is designed for training
and education of remote students. With LearnLinc, instructors and students can
collaborate and learn remotely providing an enhanced learning environment that
replicates and surpasses traditional instructor-led classes. Instructors can
create courses and classes, add varied agenda items, enroll students, deliver
live instruction, and deliver content that includes audio, video, and
interactive multimedia. In combination with TestLinc, LearnLinc permits users to
administer comprehensive tests, organize multiple simultaneous breakout
sessions, and record, edit, play back, and archive entire sessions for future
use.

MeetingLinc is an online collaboration software designed to facilitate
the sharing of documents, PowerPoint(TM) presentations, graphics, and
applications between meeting participants without leaving their desks.
MeetingLinc allows business professionals, government employees, and educators
to communicate more effectively and economically through interactive online
meetings using Voice-over IP technology to avoid the expense of travel and long
distance charges. MeetingLinc allows remote participants to give presentations,
demonstrate their products and services, annotate on virtual whiteboards, edit
documents simultaneously, and take meeting participants on a Web tour. Like all
of the Web collaboration products in the Suite, MeetingLinc includes integrated
voice and video conferencing services.

ConferenceLinc is a presentation software designed to deliver the
message in a one-to-many format providing professional management of Web
conferencing events. ConferenceLinc manages events such as earning
announcements, press briefings, new product announcements, corporate internal
mass communications and external marketing events. ConferenceLinc is built on
the MeetingLinc software platform and code to combine the best interactive
features with an easy-to-use interface providing meaningful and measurable
results to presenters and participants alike. Its design includes features that
take the hassle out of planning and supporting a hosted Web seminar.
ConferenceLinc includes automatic email invitations, "one-click join"
capabilities, online confirmations, update notifications, and customized
attendee registration. With ConferenceLinc, presenters may not only present
content, but may also gain audience feedback using real-time polling, live chat,
question and answer sessions, and post-event assessments. The entire
presentation is easily recordable for viewing offline and review after the show
with the recorder capturing the content and the audio, video, and participant
feedback.

SupportLinc is an online technical support and customer sales support
software designed to give customer service organizations the ability to provide
remote hands-on support for products, systems, or software applications.
SupportLinc manages the support call volume and enhances the effectiveness of
traditional telephone-based customer support systems. SupportLinc's custom
interface is designed to be simple to use so as to improve the interaction and
level of support for both customers and their technical support agents.

Our Web collaboration software is sold on a perpetual license or
periodic license basis. A customer may choose to acquire a one-time perpetual
license (the "Purchase Model") or may rent our software on an annual basis on
either a per seat or per minute basis (the "ASP Model"). Should they choose to
acquire the software using the Purchase Model, then they may either elect to
host our software behind their own firewall or they may choose to have iLinc
host it for them, depending upon their preferences, budget and IT capabilities.
Customers who select the Purchase Model, whether hosted by iLinc or the
customer, may also subscribe for ongoing customer support and maintenance
services, using a support and maintenance contract with terms from one to five
years. iLinc launched the Enterprise Unlimited perpetual licensing model during
fiscal 2006, which enables customers to pay a one-time up-front fee for
unlimited, organization-wide Web conferencing. The maintenance and support fee
charged is between 15% and 18% of the purchase license fee that is paid for the
perpetual licenses and varies depending upon the length of the support
agreement. If a customer chooses to have iLinc host their Purchase Model
licenses, then the customer is charged a hosting fee equal to 10% of the
purchase license fee that was paid for the perpetual license. Those customers
who qualify for the iLinc Enterprise Unlimited site license may subscribe to an
unlimited use license. The initial iLinc Enterprise Unlimited license fee is
determined based upon the number of employees within the customer's
organization, or other factors. The annual maintenance and support fees and
hosting fees associated with an iLinc Enterprise Unlimited license are then
based upon a fixed rate per-seat license that is active on each annual
anniversary of the iLinc Enterprise Unlimited license agreement. Customers may
expand the number of active seats available to them at any time with a
corresponding increase in annual maintenance and hosting fees being charged.

Customers choosing the ASP Model pay per seat (concurrent connection)
on either a per month or per year basis depending upon the length and term of
the subscription agreement. Hosting and maintenance are included as a part of
the monthly or annual rental fees. Customers may also obtain Web conferencing
and audio conferencing on a per minute basis using the iLinc On-Demand product.
Those choosing the iLinc On-Demand product pay on a monthly basis typically
without contractual commitment.

AUDIO CONFERENCING

Through its acquisition of substantially all of the assets of Glyphics
Communications, Inc. ("Glyphics") in June 2004, the Company also delivers
comprehensive audio conferencing solutions that help businesses provide virtual
meetings, corporate events, distance learning programs, and daily conference
calls. Our audio conferencing offering includes a wide array of services and
products that include the following:

o AUDIO ON-DEMAND (NO RESERVATIONS NEEDED): With pre-established
calling accounts for each user, you can create or participate
in conference calls with no advance notice, 24/7;

o RESERVED AUTOMATED: The solution for recurring calls, each
participant has a permanent number and passcode;

o OPERATOR ASSISTED: For important calls, this service includes
an iLinc conference operator to host, monitor, and coordinate
the call; and,

o ONLINE SEMINARS: High quality event services that include
invitation and user management, scripting, presentation
preparation, post show distribution, and dedicated operator
assistance from iLinc.

Customers may purchase our audio conferencing products and services,
without an annual contract commitment, on a monthly recurring usage basis, and
often subscribe for a fixed per-minute rate.

OTHER PRODUCTS AND SERVICES

In addition to the iLinc Suite of products and services, we offer to
our customers an array of e-Learning and training products and services. We
offer training software products that, like iLinc, promote online collaboration
with products that integrate with our LearnLinc software. These include:
TestLinc which is an assessment and quizzing tool that allows for formal testing
and evaluation of students and i-Canvas which is a training content development
software that allows non-technical training professionals to create Web-based
training courses without programming. i-Canvas is sold on an individual user
perpetual license basis. We offer custom content development services through a
subcontractor relationship. We also offer a library of online courses focused
upon the training of executives on essential business topics. Our off-the-shelf
online library of content includes an online mini-MBA program co-developed with
the Tuck School of Business at Dartmouth College.

MARKETING

Marketing has developed a plan that incorporates public relations,
tradeshows, Web events, Web marketing initiatives, and direct marketing (mail
and email) efforts messaged in campaigns that speak to the needs of our specific
target markets. The goal of our marketing strategy is to drive new business into
our customer base and then cross sell our synergistic Web, audio, and event
product and drive usage of all products to increase the propensity for our
customers to make additional purchases.

DIRECT SALES

The direct sales team is organized by geographic territory and is
broken down into distinct groups: Direct Sales sells to organizations that are
not yet iLinc customers; Enterprise Sales sells into large existing accounts;
and our Event Sales team sells our High-Touch Event Services offering to all
sizes of organizations. All of these groups focus their outbound activity on our
specific vertical markets of financial services, high technology, and
professional service organizations. We believe that the target vertical markets
have a commonality of meeting four criteria: we have an established customer
base in the market; our product feature set is specifically appropriate to the
needs of the market; analysts have identified a need within that market for
increasing use of Web and audio conferencing; and we believe that we have the
potential to capture a portion of the share of such markets.

INDIRECT SALES

iLinc has formed relationships with several organizations that market
and sell our products and services through their sales distribution channels.
The relationships can be categorized into those that act as agents which sell on
behalf of iLinc and value added resellers (VAR's) that actively sell our
products and provide product support typically to their own existing customer
base. As of March 31, 2006, we had over 30 organizations selling our products
providing indirect sales in North America and in countries outside North
America, including the United Kingdom, Spain, Italy, Germany, Colombia, and
Japan. Our value added resellers execute agreements to resell our products to
their customers through direct sales and in some cases through integration of
our products into their products or service offerings. Our distribution
agreements typically have terms of one to three years and are automatically
renewed for an additional like term unless either party terminates the agreement
for breach or other financial reasons. In most of these agreements, the VAR
licenses the product from us and resells the product to its customers. Under
those VAR agreements, we record only the amount paid to us by the VAR as revenue
and recognize revenue when all revenue recognition criteria have been met.

CUSTOMERS

Approximately 3,000 corporate, higher education, and government
customers use iLinc inside of their organizations for their Web and audio
conferencing needs, including 25 Fortune 500 companies. Our corporate customer
list includes notable customers in financial services such as Aetna, Allianz
Life, Guardian Life Insurance, JPMorgan Chase, St. Paul Travelers Insurance and
Citigroup; high tech, with customers such as California Software Corporation,
Qualcomm, Sabre Holdings, Inc., Sony and Xerox Corporation; and professional
services organizations, such as EDS, Greenberg Traurig, and McKinsey & Company.
We have more than 80 higher education organizations including Benedictine
University, Creighton University, Kent State University, University of New
Hampshire, National University, The State Universities of New York, Tulane and
Villanova University. iLinc also has an impressive list of state and Federal
Government clients such as the State of Louisiana, the State of Oregon, the U.S.
Army, U.S. Navy, the Coast Guard and the Department of Defense. Our reach
includes customers both within the United States, Canada, Mexico, and outside
North America.

AWARDS AND ACKNOWLEDGEMENTS

We are proud of the recognition received by the Company from leading
industry experts including Forrester Research and Front & Sullivan. In June
2006, Forrester Research, an independent research firm, names iLinc as a "Strong
Performer" in their report titled "The Forrester WaveTM: Web Conferencing Q2
2006." In January 2006, the Company received the 2006 Excellence in Technology
Award from industry analyst Frost & Sullivan in which the firm noted that iLinc
delivers "...breakthrough technology that addresses real issues facing
organizations deploying Web conferencing enterprise-wide." Together with our
predecessors, we have been honored with more than 60 awards from notable
authorities such as the American Society for Training and Development ("ASTD"),
analyst Brandon Hall, and e-Learning Magazine, which selected iLinc as a Best of
e-Learning company in 2005. The list of awards includes four National Telly
Awards, six Software Service Provider of the Year Awards, and two Gold Medals
from e-Learning authority Brandon Hall. Software from our organization has taken
first place in two Software Shootouts held at the Online Learning conference in
which e-Learning professionals decided which products were best-of-class based
on functionality and ease of use. Notably, in 2002 our Web conferencing software
was voted first place at the synchronous software shootout held at Online
Learning Expo besting industry leaders WebEx, Centra and PlaceWare (purchased by
Microsoft and now Microsoft Live Meeting). In late 2005, Web conferencing
Analysts Wainhouse Research noted "iLinc offers a licensing model that supports
organizations that have made a strategic commitment to Web conferencing," and in
a May 2005 report iLinc was noted to be the "1st virtual classroom product &
still a technology leader" by the analyst firm Bersin and Associates. We
continue to receive recognition from analysts and notable experts as we maintain
a leadership position in the conferencing and collaboration market.

TECHNOLOGY & INTELLECTUAL PROPERTY

Our existing technology and intellectual property were originally
developed by organizations that we have acquired, including the assets from the
Mentergy and Glyphics transactions, (see public filings for further description
of those transactions). We host our software and provide Internet connectivity
from our dedicated servers in Los Angeles, California; Phoenix, Arizona;
Springville, Utah; and Troy, New York. We maintain a network infrastructure
on-premises in our Phoenix, Springville, and Troy offices, and through leased
data centers in Los Angeles. Our data network is redundant in design and is
secure from unauthorized access. Our Web collaboration software products are
client/server applications that operate in a Windows environment. Our hosted Web
conferencing product utilizes this Windows environment but also operates an
extended front-end system that operates in a Linux environment using an Oracle
database, with redundant load balancing hardware to ensure maximum system
availability.

RESEARCH & DEVELOPMENT

The Company invested a substantial portion of its working capital and
resources in the continued development of its software and technologies. We
employ full-time engineers, programmers and developers that are located in Troy,
New York and Phoenix, Arizona, who are constantly focused on developing new
features and enhancements to our existing software offering and expanding that
offering with new products and services. The primary focus of our research and
development efforts is on improving the functionality and performance of the
iLinc Suite as well as developing new features that meet changing market
demands. In the 2005 fiscal year, we invested over $1.5 million in direct and
indirect research and development activities and $1.4 million in the 2006 fiscal
year. We expect to continue to make significant investments in research and
development for the next several years.

CUSTOMER SERVICE

We employ full-time Tier 1 and Tier 2 customer support and technical
support representatives, who are located in Troy, New York and Springville,
Utah, and are constantly focused on the delivery of high-quality service and
support to our existing customer base and channel partners. We offer varying
levels of support, depending upon the maintenance and support agreement executed
by the customer, that include telephone support through a toll-free number and
an email support request system. We also offer access to self-help information
that includes a database of frequently asked questions, quick reference and

advanced end-user guides, online tutorials, and access to a real-time searchable
knowledge database. Our response times vary depending upon the issue, but the
vast majority of our customer support questions are addressed during the initial
support call. Customer issues and support tickets are tracked within our CRM
database for use by our technical support teams and customers searching the
knowledge database.

COMPETITION

We believe that our current Web conferencing software has specific and
unique characteristics that match the needs of our customers and target markets.
The Company intends to leverage these strengths as well as direct product
development efforts to continue to enhance the software to meet the specific
needs of these markets.

With our emphasis on our Web collaboration four-product suite, we face
competition from various Web conferencing and collaboration software companies
including WebEx, Microsoft Live Meeting, and Centra, as well as providers of
similar software such as Interwise and Breeze. The Web collaboration, virtual
classroom, and Web conferencing industry continues to change and evolve rapidly,
and we expect continued consolidation within the industry. Many of our current
and potential competitors have longer operating histories, significantly greater
financial, technical, and other resources and greater name recognition than we
have. We have identified what we believe to be the principal competitive factors
in our markets, including: ease of use, breadth and depth of feature set,
quality and reliability of products, pricing, security, and our ability to
develop and support software license sales. Although we believe our products
compete favorably, we may not be able to maintain a competitive position against
current and potential competitors, especially those with greater financial
resources.

ACQUISITIONS

As a part of our external growth strategy, we acquired the Web
conferencing, audio conferencing, and several e-Learning companies providing the
Company with expertise, tangible and intangible assets, technology, customer
base, recurring revenues, and a global VAR network.

November 2002 - Mentergy, Inc. ("Mentergy"), a provider of virtual
classroom software. We acquired from Mentergy all assets associated with
LearnLinc and TestLinc software, an existing customer base, a VAR network and a
recurring maintenance revenue stream.

June 2004 - Glyphics Communications, Inc., ("Glyphics") a provider of
comprehensive audio conferencing products and services. On June 3, 2004, the
Company executed an agreement to acquire substantially all of the assets of and
assume certain liabilities of Glyphics Communications, Inc., a Utah based
private company. The acquisition had a stated effective date of June 1, 2004 and
was fully consummated on June 14, 2004. The purchase price was $5.349 million.
The purchase price was paid with the assumption of $2.466 million in specific
liabilities, with the balance paid using the Company's common stock, which
included the issuance of 2,820,355 shares valued at $0.98 per share upon
execution of the agreement, and 308,133 shares valued at $0.39 per share upon
release of escrow pending the settlement of certain acquisition contingencies.
Subsequent to March 31, 2006, 704,839 shares were released from escrow related
to the acquisition of Glyphics. Of that amount, 396,706 shares were returned to
iLinc Communications due to the Company assuming obligations of $377,815 greater
than scheduled in the purchase agreement. The remaining 308,133 shares were
issued to the Glyphics shareholders at $0.39 per share based on the closing
price of the agreement date of April 18, 2006. These shares were recorded as
outstanding on March 31, 2006 pursuant to the terms of the Escrow Agreement.

EMPLOYEES

As of March 31, 2006 we employed 78 employees (including seven
part-time employees). This includes 30 employees at our corporate offices in
Phoenix, Arizona and 36 employees in our Springville, Utah facility. We also
have 9 employees located in our development office in Troy, New York and 3
employees who work remotely in other states. None of our employees are
represented by collective bargaining agreements.

The populations of our functional organizations on March 31, 2006
included 13 sales employees, three marketing employees, 18 programming and
technical support employees, 34 audio conferencing operators and support
employees, and 13 finance, executive and administrative employees.

LEGACY DENTAL PRACTICE MANAGEMENT BUSINESS TREATED AS DISCONTINUED OPERATIONS

The Company began its operations in March of 1998, with the
simultaneous roll-up of 50 dental practices (an "Affiliated Practice") and an
initial public offering. The Company's initial goals were to provide training
and practice enhancement services nationwide to our Affiliated Practices using
our proprietary Web-based learning management and financial reporting system.
Beginning in April of 2000, the Company modified its affiliated service
agreements and commensurate with that change the Company recorded certain
charges against earnings during the fiscal years ended March 31, 2002 and March
31, 2001. The Company modified its business plan moving away from its dental
practice management business during its fiscal year ended March 31, 2002.
Effective January 1, 2004, the Company was no longer engaged in the dental
practice management business and has reflected such business segment as a
discontinued operation.

ITEM 1A. RISK FACTORS

You should carefully consider the risks described below. The risks and
uncertainties described below are not the only ones we face. If any of the
following risks actually occur, our business, financial condition or results of
operations could be materially and adversely affected. In that case, the trading
price of our common stock could be adversely affected.

WE HAVE A LIMITED OPERATING HISTORY, WHICH MAKES IT DIFFICULT TO EVALUATE OUR
BUSINESS.

We have a limited operating history in the Web conferencing and audio
conferencing business. While the organizations that we have acquired have been
engaged in their respective businesses for over five years, we only recently
acquired those assets and have undertaken to integrate their assets into our
operations at varying levels. Since the acquisition of these businesses, we have
made significant changes to our product mix and service mix, our growth
strategies, our sales and marketing plans, and other operational matters. Given
our recent investment in technology, we cannot be certain that our business
model and future operating performance will yield the results that we intend. In
addition, the competitive and rapidly changing nature of the Web conferencing
and audio conferencing markets makes it difficult for us to predict future
results. Our business strategy may be unsuccessful and we may be unable to
address the risks we face.

WE FACE RISKS INHERENT IN INTERNET-RELATED BUSINESSES AND MAY BE UNSUCCESSFUL IN
ADDRESSING THESE RISKS.

We face risks frequently encountered by companies in new and rapidly
evolving markets such as Web conferencing and audio conferencing. We may fail to
adequately address these risks and, as a consequence, our business may suffer.
To address these risks among others, we must successfully introduce and attract
new customers to our products and services; successfully implement our sales and
marketing strategy to generate sufficient sales and revenues to sustain
operations; foster existing relationships with our customers to provide for
continued or recurring business and cash flow; and successfully address and
establish new products and technologies as new markets develop. We may not be
able to sufficiently address and overcome risks inherent in our business
strategy.

OUR QUARTERLY OPERATING RESULTS ARE UNCERTAIN AND MAY FLUCTUATE SIGNIFICANTLY.

Our operating results have varied significantly from quarter to quarter
and are likely to continue to fluctuate as a result of a variety of factors,
many of which we cannot control. Factors that may adversely affect our quarterly
operating results include: the size and timing of product orders; the mix of
revenue from custom services and software products; the market acceptance of our
products and services; our ability to develop and market new products in a
timely manner; the timing of revenues and expenses relating to our product
sales; and revenue recognition rules. Expense levels are based, in part, on
expectations as to future revenue and to a large extent are fixed in the short
term. To the extent we are unable to predict future revenue accurately, we may
be unable to adjust spending in a timely manner to compensate for any unexpected
revenue shortfall.

WE HAVE LIMITED FINANCIAL RESOURCES AND MAY NOT REMAIN PROFITABLE.

We have incurred substantial operating losses and have limited
financial resources at our disposal. We have long-term obligations that we will
not be able to satisfy without additional debt and/or equity capital and/or
ultimately generating profits and cash flows from our Web conferencing and audio
conferencing operations. If we are unable to remain profitable, we will face
increasing demands for capital. We may not be successful in raising additional
debt or equity capital and may not remain profitable. As a result, we may not
have sufficient financial resources to satisfy our obligations as they come due
in the short term.

LISTING QUALIFICATIONS MAY NOT BE MET.

The American Stock Exchange's continued listing standards require that
we maintain stockholders' equity of at least $4.0 million if we have losses from
continuing operations and/or net losses in three of our four most recent fiscal
years. We have sustained losses in three of our four most recent fiscal years
and therefore must maintain stockholders' equity of at least $4.0 million. If
now or in the future, we fail to maintain a sufficient level of stockholders'
equity in compliance with those and other listing standards of the American
Stock Exchange, then we would be required to submit a plan to the American Stock
Exchange describing how we intended to regain compliance with the requirements.
In the event that our shares of common stock are diluted, the liquidity and
price per share of our common stock may be adversely affected.

DILUTION TO EXISTING STOCKHOLDERS WILL OCCUR UPON ISSUANCE OF SHARES WE HAVE
RESERVED FOR FUTURE ISSUANCE.

On March 31, 2006, 28,923,168 shares of our common stock were issued,
of which 1,432,412 were held in treasury, and 17,138,028 additional shares of
our common stock were reserved for issuance as the result of the exercise of
warrants or the conversion of convertible notes and convertible preferred stock.
The issuance of these additional shares will reduce the percentage ownership of
our existing stockholders. The existence of these reserved shares coupled with
other factors, such as the relatively small public float, could adversely affect
prevailing market prices for our common stock and our ability to raise capital
through an offering of equity securities.

THE LOSS OF THE SERVICES OF OUR SENIOR EXECUTIVES AND KEY PERSONNEL WOULD LIKELY
CAUSE OUR BUSINESS TO SUFFER.

Our success depends to a significant degree on the performance of our
senior management team. The loss of any of these individuals could harm our
business. We do not maintain key person life insurance for any officers or key
employees other than on the life of James M. Powers, Jr., our Chairman,
President and CEO, with that policy providing a death benefit to the Company of
$1.0 million. Our success also depends on the ability to attract, integrate,
motivate and retain additional highly skilled technical, sales and marketing,
and professional services personnel. To the extent we are unable to attract and
retain a sufficient number of additional skilled personnel, our business will
suffer.

OUR INTELLECTUAL PROPERTY MAY BECOME SUBJECT TO LEGAL CHALLENGES, UNAUTHORIZED
USE OR INFRINGEMENT, ANY OF WHICH COULD DIMINISH THE VALUE OF OUR PRODUCTS AND
SERVICES.

Our success depends in large part on our proprietary technology. If we
fail to successfully enforce our intellectual property rights, the value of
these rights, and consequently, the value of our products and services to our
customers, could diminish substantially. It may be possible for third parties to
copy or otherwise obtain and use our intellectual property or trade secrets
without our authorization, and it may also be possible for third parties to
independently develop substantially equivalent intellectual property. Currently,
we do not have patent protection in place related to our products and services.
Litigation may be necessary in the future to enforce our intellectual property
rights, to protect trade secrets or to determine the validity and scope of the
proprietary rights of others. While we have not received any notice of any claim
of infringement of any of our intellectual property, from time to time we may
receive notice of claims of infringement of other parties' proprietary rights.
Such claims could result in costly litigation and could divert management and
technical resources. These types of claims could also delay product shipment or
require us to develop non-infringing technology or enter into royalty or
licensing agreements, which agreements, if required, may not be available on
reasonable terms, or at all.

COMPETITION IN THE WEB CONFERENCING AND AUDIO CONFERENCING SERVICES MARKET IS
INTENSE AND WE MAY BE UNABLE TO COMPETE SUCCESSFULLY, PARTICULARLY AS A RESULT
OF RECENT ANNOUNCEMENTS FROM LARGE SOFTWARE COMPANIES.

The markets for Web conferencing and audio conferencing products and
services are relatively new, rapidly evolving and intensely competitive.
Competition in our market will continue to intensify and may force us to reduce
our prices, or cause us to experience reduced sales and margins, loss of market
share and reduced acceptance of our services. Many of our competitors have
larger and more established customer bases, longer operating histories, greater
name recognition, broader service offerings, more employees and significantly
greater financial, technical, marketing, public relations, and distribution
resources than we do. We expect that we will face new competition as others
enter our market to develop Web conferencing and audio conferencing services.

These current and future competitors may also offer or develop products or
services that perform better than ours. In addition, acquisitions or strategic
partnerships involving our current and potential competitors could harm us in a
number of ways.

FUTURE REGULATIONS COULD BE ENACTED THAT EITHER DIRECTLY RESTRICT OUR BUSINESS
OR INDIRECTLY IMPACT OUR BUSINESS BY LIMITING THE GROWTH OF INTERNET-BASED
BUSINESS AND SERVICES.

As commercial use of the Internet increases, federal, state, and
foreign agencies could enact laws or adopt regulations covering issues such as
user privacy, content, and taxation of products and services. If enacted, such
laws or regulations could limit the market for our products and services.
Although they might not apply to our business directly, we expect that laws or
rules regulating personal and consumer information could indirectly affect our
business. It is possible that such legislation or regulation could expose us to
liability which could limit the growth of our Web conferencing and audio
conferencing products and services. Such legislation or regulation could dampen
the growth in overall Web conferencing usage and decrease the Internet's
acceptance as a medium of communications and commerce.

WE DEPEND LARGELY ON ONE-TIME SALES TO GROW REVENUES WHICH MAKE OUR REVENUES
DIFFICULT TO PREDICT.

While audio conferencing provides a more recurring revenue base, a high
percentage of our revenue is attributable to one-time purchases by our customers
rather than long-term, recurring, conferencing ASP type contracts. As a result,
our inability to continue to obtain new agreements and sales may result in lower
than expected revenue, and therefore, harm our ability to achieve or sustain
operations or profitability on a consistent basis, which could also cause our
stock price to decline. Further, because we face competition from larger,
better-capitalized companies, we could face increased downward pricing pressure
that could cause a decrease in our gross margins. Additionally, our sales cycle
varies depending on the size and type of customer considering a purchase.
Potential customers frequently need to obtain approvals from multiple decision
makers within their company and may evaluate competing products and services
before deciding to use our services. Our sales cycle, which can range from
several weeks to several months or more, combined with the license purchase
model makes it difficult to predict future quarterly revenues.

OUR OPERATING RESULTS MAY SUFFER IF WE FAIL TO DEVELOP AND FOSTER OUR VALUE
ADDED RESELLER OR DISTRIBUTION RELATIONSHIPS.

We have an existing channel and distribution network that provides
growing revenues and contributes to our high margin software sales. These
distribution partners are not obligated to distribute our services at any
minimum level. As a result, we cannot accurately predict the amount of revenue
we will derive from our distribution partners in the future. The inability or
unwillingness of our distribution partners to sell our products to their
customers and increase their distribution of our products could result in
significant reductions in our revenue, and therefore, harm our ability to
achieve or sustain profitability on a consistent basis.

SALES IN FOREIGN JURISDICTIONS BY OUR INTERNATIONAL DISTRIBUTOR NETWORK AND US
MAY RESULT IN UNANTICIPATED COSTS.

We continue to expand internationally through our value added reseller
network and OEM partners. We have limited experience in international operations
and may not be able to compete effectively in international markets. We face
certain risks inherent in conducting business internationally, such as:

o our inability to establish and maintain effective distribution
channels and partners;
o the varying technology standards from country to country;
o our inability to effectively protect our intellectual property
rights or the code to our software;
o our inexperience with inconsistent regulations and unexpected
changes in regulatory requirements in foreign jurisdictions;
o language and cultural differences;
o fluctuations in currency exchange rates;
o our inability to effectively collect accounts receivable; or
o our inability to manage sales and other taxes imposed by
foreign jurisdictions.

THE GROWTH OF OUR BUSINESS SUBSTANTIALLY DEPENDS ON OUR ABILITY TO SUCCESSFULLY
DEVELOP AND INTRODUCE NEW SERVICES AND FEATURES IN A TIMELY MANNER.

We acquired our Web conferencing software and business in November of
2002 and we acquired our audio conferencing business in June of 2004. With our
focus on those products and services, our growth depends on our ability to
continue to develop new features, products, and services around that software
and product line. We may not successfully identify, develop, and market new
products and features in a timely and cost-effective manner. If we fail to
develop and maintain market acceptance of our existing and new products to
offset our continuing development costs, then our net losses will increase and
we may not be able to achieve or sustain profitability on a consistent basis.

IF WE FAIL TO OFFER COMPETITIVE PRICING, WE MAY NOT BE ABLE TO ATTRACT AND
RETAIN CUSTOMERS.

Because the Web conferencing market is relatively new and still
evolving, the prices for these services are subject to rapid and frequent
changes. In many cases, businesses provide their services at significantly
reduced rates, for free or on a trial basis in order to win customers. Due to
competitive factors and the rapidly changing marketplace, we may be required to
significantly reduce our pricing structure, which would negatively affect our
revenue, margins and our ability to achieve or sustain profitability on a
consistent basis. We have an existing channel and distribution network that
provides growing revenues and contributes to our high margin software sales.
These distribution partners are not obligated to distribute our services at any
particular minimum level. As a result, we cannot accurately predict the amount
of revenue we will derive from our distribution partners in the future. The
inability of our distribution partners to sell our products to their customers
and increase their distribution of our products could result in significant
reductions in our revenue, and, therefore, harm our ability to achieve or
sustain profitability on a consistent basis.

IF WE ARE UNABLE TO COMPLETE OUR ASSESSMENT AS TO THE ADEQUACY OF OUR INTERNAL
CONTROLS OVER FINANCIAL REPORTING AS REQUIRED BY SECTION 404 OF THE
SARBANES-OXLEY ACT OF 2002, INVESTORS COULD LOSE CONFIDENCE IN THE RELIABILITY
OF OUR FINANCIAL STATEMENTS, WHICH COULD RESULT IN A DECREASE IN THE VALUE OF
OUR COMMON STOCK.

As directed by Section 404 of the Sarbanes-Oxley Act of 2002, the
Securities and Exchange Commission adopted rules requiring non-accelerated
public companies to include in their annual reports on Form 10-K for fiscal
years beginning after December 16, 2006 a report of management on their
company's internal control over financial reporting, including management's
assessment of the effectiveness of their company's internal control over
financial reporting as of the company's fiscal year end. In addition, the
accounting firm auditing a public company's financial statements must also
attest to and report on management's assessment of the effectiveness of the
company's internal control over financial reporting as well as the operating
effectiveness of the company's internal controls. There is a risk that we may
not comply with all of its requirements. If we do not timely complete our
assessment or if our accounting firm determines that our internal controls are
not designed or operating effectively as required by Section 404, our accounting
firm may either disclaim its opinion as it is related to management's assessment
of the effectiveness of its internal controls or may issue a qualified opinion
on the effectiveness of our internal controls. If our accounting firm disclaims
its opinion or qualifies its opinion as to the effectiveness of our internal
controls, then investors may lose confidence in the reliability of our financial
statements, which could cause the market price of our common stock to decline.

WE MAY ACQUIRE OTHER BUSINESSES THAT COULD NEGATIVELY AFFECT OUR OPERATIONS AND
FINANCIAL RESULTS AND DILUTE EXISTING STOCKHOLDERS.

We may pursue additional business relationships through acquisitions
which may not be successful. We may have to devote substantial time and
resources in order to complete acquisitions and we therefore may not realize the
benefits of those acquisitions. Further, these potential acquisitions entail
risks, uncertainties and potential disruptions to our business. For example, we
may not be able to successfully integrate a company's operations, technologies,
products and services, information systems, and personnel into our business.
These risks could harm our operating results and could adversely affect
prevailing market prices for our common stock.

OUR CURRENT STOCK COMPENSATION EXPENSE NEGATIVELY IMPACTS OUR EARNINGS, AND WHEN
WE ARE REQUIRED TO REPORT THE FAIR VALUE OF EMPLOYEE STOCK OPTIONS AS AN EXPENSE
IN CONJUNCTION WITH THE NEW ACCOUNTING STANDARDS, OUR EARNINGS WILL BE ADVERSELY
AFFECTED, WHICH MAY CAUSE OUR STOCK PRICE TO DECLINE.

Under our current accounting practice, stock compensation expense is
recorded on the date of the grant only if the current market price of the
underlying stock exceeds the exercise price. Beginning with the fiscal quarter
April 1, 2006, we will be required to report all employee stock options as an
expense based on a change in the accounting standards and our earnings will be
negatively impacted, which could adversely affect prevailing market prices for
our common stock and increase our anticipated net losses.

ITEM 2. PROPERTIES

We maintain corporate headquarters in Phoenix, Arizona and have
occupied that 14,000 square foot Class A facility since the Company's inception
in 1998. The Phoenix lease began in 1998 and has a term of 10 years. The Phoenix
office can accommodate up to 85 employees and is fully equipped with up-to-date
computer equipment and server facilities. Subsequent to March 31, 2006, the
Company amended the lease on its Phoenix location, which was set to expire
February 28, 2007. The term was extended to February 28, 2012, the square
footage was reduced to 9,100 and the related rent expense was therefore reduced
as a result of the amendment. After this amendment, the Phoenix lease requires a
monthly rent and operating expenses of approximately $25,000.

We also maintain a 2,500 square foot Class B facility in Troy, New York
costing $4,600 per month with an emphasis in that location on research and
development, and technical support.

In addition, we maintain offices in Springville, Utah, occupying a
Class A facility in two adjacent buildings. The first building houses its
administrative and IT functions, with 10,000 square feet of space, with the
second housing the operator complex and sales organizations with 6,122 square
feet. The Springville lease began in 2003 and has a term of five years. The
Springville offices can accommodate up to 100 employees and is fully equipped
with up-to-date computer equipment. The facility also provides a fully redundant
co-location and server facility for audio conferencing activities and hosted Web
conferencing services. The Springville lease requires a monthly rent of
approximately $13,500.

ITEM 3. LEGAL PROCEEDINGS

On June 14, 2002, the Company acquired the assets of Quisic.
Subsequently, on November 4, 2002, two former employees of Quisic (Mr.
Weathersby, their former CEO and Mr. Alper, their former CIO), filed a lawsuit
in the Superior Court of the State of California styled George B. Weathersby, et
al. vs. Quisic, et al. claiming damages against Quisic and the Board of
Directors of Quisic arising from their employment termination by the Quisic
Board. The Company was also added as a third party defendant with an allegation
of successor liability, but only to the extent that Quisic is found liable, and
then only to the extent the plaintiffs prove their successor liability claim
against the Company. Through arbitration, the claims of Alper against all of the
defendants were dismissed. The Company only acquired certain assets of Quisic in
an asset purchase transaction. Based upon the facts and circumstances known, the
Company believes that the plaintiffs' claims are without merit, and furthermore,
that the Company is not the successor of Quisic, and therefore the Company
intends to vigorously defend this aspect of the lawsuit. While in the opinion of
management, resolution of these matters is not expected to have a material
adverse effect on the Company's financial position, results of operations or
cash flows, the ultimate outcome of any litigation is uncertain. Were an
unfavorable outcome to occur that awarded large sums to the Plaintiff against
defendant Quisic, and then the court determined that the Company is a successor
to Quisic, then the impact is likely to be material to the Company. The claims
by Mr. Weathersby against Quisic remain with the trial proceeding in the
discovery phase.

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

NONE

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth certain information concerning the
executive officers of the Company (ages are as of March 31, 2006):

James M. Powers, Jr. 50 Chairman, President and Chief Executive Officer
James L. Dunn, Jr. 44 Senior Vice President, Chief Financial Officer
and General Counsel
Nathan Cocozza 33 Senior Vice President of Sales
Gary Moulton 37 Senior Vice President of Audio Conferencing
Services

JAMES M. POWERS, JR.
Chairman, President and Chief Executive Officer

Dr. James M. Powers, Jr. has served as Chairman, President and CEO of
the Company since December 1998. Dr. Powers led the Company through its initial
growth and acquisition phase and subsequent transformation to an integrated
communications company providing Web, audio, video, and Voice-over IP solutions.
Dr. Powers joined the Company through the merger with Liberty Dental Alliance,
Inc., a Nashville-based company where he was the founder, Chairman, and
President from 1997 to 1998. Dr. Powers was a founder and Chairman of Clearidge,
Inc., a privately held bottled water company in Nashville, Tennessee from 1993
to 1999, where he led Clearidge through 13 acquisitions over three years to
become one of the largest independent bottlers in the Southeast, before selling
the company to Suntory Water Group, Inc. Dr. Powers also was a founder and
Director of Barnhill's Buffet, Inc., a privately held chain of 48 restaurants in
the Southeast with over $100 million in annual revenues, which was sold in early
2005. He received his Bachelor of Science Degree from the University of Memphis,
a Doctor of Dental Surgery Degree from The University of Tennessee, and his MBA
from Vanderbilt University's Owen Graduate School of Management.

JAMES L. DUNN, JR.
Senior Vice President, Chief Financial Officer and General Counsel

James L. Dunn, Jr., assisted with the formation of the Company and was
an integral part of the Company's initial public offering. Since the Company's
inception, Mr. Dunn has been responsible for all corporate development
activities, including most recently the acquisition of its Web conferencing and
audio conferencing assets. Mr. Dunn is an attorney and assumed the role of
General Counsel in March of 2000. He managed the legal transition of the Company
from its legacy business beginnings to its current Web and audio conferencing
focus. Mr. Dunn is also a CPA and assumed the role of Chief Financial Officer in
June of 2005. He received his law degree from Southern Methodist University
School of Law in 1987 and his Bachelor's Degree in Business
Administration-Accounting from Texas A & M University in 1984.

NATHAN COCOZZA
Senior Vice President of Sales

Nathan Cocozza joined the Company in early January of 2004 as Senior
Vice President of Sales. Mr. Cocozza has had extensive sales experience,
specifically in the Web conferencing, audio conferencing, and Web collaboration
industry. He was previously the Vice President of strategic development for
PlaceWare where he was responsible for their growth in their major accounts
department from five to 50 people, obtaining contracts from organizations
representing over 50% of the Fortune 100, and a major factor in PlaceWare's
overall growth in revenue to over $50 million annually. PlaceWare was a leading
provider of Web conferencing services that began in 1997 and ultimately was
purchased by Microsoft for reportedly $200 million. Mr. Cocozza subsequently
served as Vice President of North American Web sales for Genesys Conferencing
(NasdaqNM:GNSY), where he was responsible for the launch of the Genesys Web
collaboration services in the United States. Genesys, a French-based company,
provides primarily audio conferencing as well as integrated Web conferencing
services in 20 countries.

GARY MOULTON
Senior Vice President of Audio Conferencing Services

Gary Moulton joined the Company as Senior Vice President of Audio
Conferencing Services with the Glyphics transaction in June 2004. Mr. Moulton
brings more than 10 years of service, management, and customer support
experience to iLinc in the audio conferencing industry. He founded Glyphics in
1995 and managed its growth into a leading provider of phone conferencing and
audio conferencing services and events. As a member of the Glyphics' Board of
Directors and as President and Chief Executive Officer, he was responsible for
developing and implementing corporate vision and strategy. Prior to starting
Glyphics, Mr. Moulton was manager of inside sales and customer service for
Cookietree Bakeries, Inc., a national food service company. Mr. Moulton also
served for four years in the United States Marine Corps.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS

MARKET INFORMATION, HOLDERS, AND DIVIDENDS

The Company's common stock has been traded on the American Stock
Exchange system under the symbol "ILC" since February 6, 2004. The following
table sets forth the range of the reported high and low sales prices of the
Company's common stock for the years ended March 31, 2006 and 2005:

2006 HIGH LOW
--------- ------- ------
First Quarter................................................ $0.38 $0.25
Second Quarter............................................... $0.30 $0.18
Third Quarter................................................ $0.34 $0.15
Fourth Quarter............................................... $0.49 $0.24

2005 HIGH LOW
--------- ------- ------
First Quarter ............................................... $1.37 $0.77
Second Quarter............................................... $0.92 $0.41
Third Quarter................................................ $0.60 $0.40
Fourth Quarter............................................... $0.54 $0.32

As of June 26, 2006, the closing price of our common stock was $0.54
per share and there were approximately 250 holders of record, as shown on the
records of the transfer agent and registrar of common stock. The number of
record holders does not bear any relationship to the number of beneficial owners
of the common stock.

The Company has not paid any cash dividends on its common stock in the
past and does not plan to pay any cash dividends on its common stock in the
foreseeable future. The Company's Board of Directors intends, for the
foreseeable future, to retain earnings to finance the continued operation and
expansion of the Company's business.

EQUITY COMPENSATION PLANS

The table below provides information relating to our equity
compensation plans as of March 31, 2006.

Number of Securities
Remaining Available for
Future Issuance Under
Number of Securities to Weighted-Average Compensation Plans
be Issued Upon Exercise Exercise Price of (Excluding Securities
of Outstanding Options, Outstanding Options, Reflected in First
Plan Category Warrants and Rights Warrants and Rights Column)
------------------------------------------------------------------------------------------------------------------

Equity compensation plans approved by
security holders 2,637,864 $1.07 2,230,768

Equity compensation plans approved by
security holders 450,000 $8.50 ----

Equity compensation plans not approved
by security holders ---- ---- ----

-------------------------- -------------------------
Total 3,087,864 2,230,768
========================== =========================

In December 2001, the Company, under the initiative of the Compensation
Committee with the approval of the Board of Directors, issued its Chief
Executive Officer an incentive stock grant under the 1997 Stock Compensation
Plan of 450,000 restricted shares of the Company's common stock as a means to
retain and incentivize the Chief Executive Officer. The shares were valued at
$405,000 based on the closing price of the stock on the date of grant, which is
recorded as compensation expense ratably over the vesting period. The shares
100% vest after 10 years from the date of grant or upon attaining the following
price performance criteria: 150,000 shares vest if the share price trades for
$4.50 per share for 20 consecutive days; 150,000 shares vest if the share price
trades for $8.50 per share for 20 consecutive days; and 150,000 shares vest if
the share price trades for $12.50 per share for 20 consecutive days.

Subsequent to March 31, 2006, the Compensation Committee of the Board
of Directors amended the vesting performance criteria hurdles as follows:
150,000 shares vest if the share price trades for $1.00 per share for 20
consecutive days; 150,000 shares vest if the share price trades for $2.00 per
share for 20 consecutive days; and 150,000 shares vest if the share price trades
for $3.00 per share for 20 consecutive days. All other aspects of the grant
remained the same.

SALES OF UNREGISTERED SECURITIES

Set forth below are the securities we issued during the 2006 fiscal
year in private placement transactions which at the time were not registered
under the Securities Act of 1933, as amended (the "Securities Act"). Further
included is the consideration, if any, we received for such securities and
information relating to the section of the Securities Act, or rule of the
Securities and Exchange Commission, under which exemption from registration was
claimed.

On September 30, 2005, the Company executed definitive agreements with
nine investors to issue 70,000 unregistered shares of its Series B Preferred
Stock, par value $0.001 (the "Series B Preferred Stock") and warrants to
purchase 700,000 shares of its common stock (the "Warrants") in a private
transaction that was exempt from registration under Section 4(2) of the
Securities Act. Of the total Series B Preferred Stock issued, 15,000 shares of
Series B Preferred Stock with Warrants to purchase 150,000 shares of common
stock were issued to four individuals in exchange for their cash investment of
$150,000; 15,000 shares of Series B Preferred Stock with Warrants to purchase
150,000 shares of common stock were issued to two vendors in exchange for an
offset of their accounts payable balance in the amount of $150,000; and 40,000
shares of Series B Preferred Stock with Warrants to purchase 400,000 shares of
common stock (effective August 29, 2005 as previously disclosed on Form 8-K
dated September 2, 2005) were issued to three institutional investors in
exchange for the offset of accrued liabilities in the amount of $400,000 that
arose from the acquisition of certain assets from Quisic Corporation in June of
2002. The Company recorded a gain in debt conversion of $50,000 associated with
this transaction since the liabilities outstanding were $450,000. The Series B
Preferred Stock bears an 8% dividend, was sold using a deemed $10.00 per share
issue price, and is convertible into 2,800,000 shares of the Company's common
stock using a conversion price of $0.25 per share. The Warrants that are
exercisable at an exercise price equal to $0.50 per share expire on the third
anniversary of the issue date of September 30, 2005. The issuance of these
securities was made in reliance upon the exemptions from registration set forth
in Section 4(2) of the Securities Act and Regulation D under the Securities Act.
The aggregate value of the warrants of $55,000 is considered a deemed dividend
in the calculation of loss per share.

Subsequent to March 31, 2006, on June 9, 2006, the Company completed a
private placement of 5,405,405 unregistered, restricted shares of common stock
providing the Company $1.7 million in net cash proceeds. The Company paid its
placement agent an underwriting commission of $180,000, of which $25,000 was
recorded as deferred offering costs at March 31, 2006, and incurred additional
offering expenses of approximately $50,000. Within 30 days of the closing date,
the Company will file a Registration Statement on Form S-3 to enable the resale
of the shares by the Investors. The Company intends to use the proceeds for
working capital and general corporate purposes.

ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth selected financial data of the Company
(AMEX:ILC) that has been derived from the audited consolidated financial
statements. Effective January 1, 2004, the Company discontinued its dental
practice management services. The Company has restated its historical results to
reflect that business segment as a discontinued operation. The Company began its
current Web conferencing operations during the 2002 fiscal year. The selected
financial data should also be read in conjunction with the Company's
consolidated financial statements and notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this report.

STATEMENT OF OPERATIONS DATA: YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2006 2005 2004(*) 2003(*) 2002(*)
-------- -------- -------- -------- --------

Revenues
Licenses ...................................... $ 3,014 $ 3,274 $ 2,240 $ 446 $ 92
Software and audio services ................... 7,070 5,052 1,195 1,117 --
Maintenance and professional services ......... 2,448 2,043 2,471 2,513 2,590
-------- -------- -------- -------- --------
Total revenue ............................... 12,532 10,369 5,906 4,076 2,682
Cost of revenues and operating expenses ......... 11,789 13,743 7,293 6,748 3,446
-------- -------- -------- -------- --------
Income (loss) from operations ................... 743 (3,374) (1,387) (2,672) (764)
-------- -------- -------- -------- --------
Loss from continuing operations before income
taxes ......................................... (1,254) (5,199) (2,293) (3,889) (1,062)
Income tax expense .............................. -- -- -- -- --
-------- -------- -------- -------- --------
Loss from continuing operations ................. (1,254) (5,199) (2,293) (3,889) (1,062)
Income (loss) from discontinued operations ...... 83 (128) 275 133 6,867
-------- -------- -------- -------- --------
Net income (loss) ............................... (1,171) (5,327) (2,018) (3,756) 5,805
Preferred stock dividends ....................... (130) (105) (75) -- --
Imputed preferred stock dividends ............... (55) -- (247) -- --
-------- -------- -------- -------- --------
Income (loss) available to common shareholders... $ (1,356) $ (5,432) $ (2,340) $ (3,756) $ 5,805
======== ======== ======== ======== ========

Earnings (loss) per common share - basic and
Diluted
From continuing operations ................... $ (0.05) $ (0.23) $ (0.16) $ (0.25) $ (0.09)
From discontinued operations ................. -- -- 0.02 0.01 0.58
-------- -------- -------- -------- --------
Net earnings (loss) per common share ......... $ (0.05) $ (0.23) $ (0.14) $ (0.24) $ 0.49
======== ======== ======== ======== ========

BALANCE SHEET DATA:
Cash and cash equivalents ....................... $ 466 $ 532 $ 292 $ 409 $ 1,498
Working capital (deficit) ....................... (1,941) (4,251) (3,113) (2,984) (1,538)
Assets of discontinued operations ............... -- 114 301 620 7,350
Total assets .................................... 16,000 17,229 12,460 12,423 15,587
Long-term debt, less current maturities ......... 8,467 8,822 6,404 7,901 7,361
Long-term debt discount ......................... (1,493) (2,120) (1,960) (2,038) (2,264)
Liabilities of discontinued operations .......... 53 263 -- -- --
Total shareholders' equity ...................... 4,370 3,670 3,366 2,320 4,666

______________
(*) Effective January 1, 2004, the Company discontinued its dental practice
management services. The Company has restated its historical results and
selected financial data to reflect its dental segment as a discontinued
operation.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

STATEMENTS CONTAINED IN THIS ANNUAL REPORT ON FORM 10-K THAT INVOLVE
WORDS LIKE "ANTICIPATES," "EXPECTS," "INTENDS," "PLANS," "BELIEVES," "SEEKS,"
"ESTIMATES," AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995, THE SECURITIES ACT OF 1933, AS AMENDED, AND THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED. SUCH FORWARD-LOOKING STATEMENTS INVOLVE CERTAIN RISKS AND
UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
ANTICIPATED RESULTS. THESE RISKS AND UNCERTAINTIES INCLUDE, BUT ARE NOT LIMITED
TO, OUR DEPENDENCE ON OUR PRODUCTS OR SERVICES, MARKET DEMAND FOR OUR PRODUCTS
AND SERVICES, OUR ABILITY TO ATTRACT AND RETAIN CUSTOMERS AND CHANNEL PARTNERS,
OUR ABILITY TO EXPAND OUR TECHNOLOGICAL INFRASTRUCTURE TO MEET THE DEMAND FROM
OUR CUSTOMERS, OUR ABILITY TO RECRUIT AND RETAIN QUALIFIED EMPLOYEES, THE
ABILITY OF CHANNEL PARTNERS TO SUCCESSFULLY RESELL OUR SERVICES, THE STATUS OF
THE OVERALL ECONOMY, THE STRENGTH OF COMPETITIVE OFFERINGS, THE PRICING
PRESSURES CREATED BY MARKET FORCES, AND THE OTHER RISKS DISCUSSED HEREIN. ALL
FORWARD-LOOKING STATEMENTS INCLUDED IN THIS REPORT ARE BASED ON INFORMATION
AVAILABLE TO US AS OF THE DATE HEREOF. WE EXPRESSLY DISCLAIM ANY OBLIGATION OR
UNDERTAKING TO RELEASE PUBLICLY ANY UPDATES OR REVISIONS TO ANY FORWARD-LOOKING
STATEMENTS CONTAINED HEREIN, TO REFLECT ANY CHANGE IN OUR EXPECTATIONS OR IN
EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH ANY SUCH STATEMENT IS BASED. OUR
REPORTS ARE AVAILABLE FREE OF CHARGE AS SOON AS REASONABLY PRACTICABLE AFTER WE
FILE THEM WITH THE SEC AND MAY BE OBTAINED THROUGH OUR WEB SITE.

COMPANY OVERVIEW

Headquartered in Phoenix, Arizona, iLinc Communications, Inc. is a
leading provider of Web conferencing, audio conferencing and collaboration
software and services. We develop and sell software that provides real-time
collaboration and training using Web-based tools. Our four-product iLinc Suite,
comprised of LearnLinc, MeetingLinc, ConferenceLinc, and SupportLinc, is an
award winning virtual classroom, Web conferencing and collaboration suite of
software. With our Web collaboration, conferencing and virtual classroom
products, we provide simple, reliable and cost-effective tools for remote
presentations, meetings and online events. Our software is based on a
proprietary architecture and code that finds its origins as far back as 1994, in
what we believe to be the beginnings of the Web collaboration industry. Versions
of the iLinc Suite have been translated into six languages, and it is currently
available in Version 8.01. Our customers may choose from several different
pricing and licensing options for the iLinc Suite depending upon their needs.
Uses for our four-product suite of Web collaboration software include online
business meetings, sales presentations, training sessions, product
demonstrations and technical support assistance. We sell our software solutions
to large and medium-sized corporations inside and outside of the Fortune 1000.
We market our products using a direct sales force and a distribution channel
consisting of agents and value added resellers. We allow customers to choose
between purchasing a perpetual license and subscribing to a term license,
providing for flexibility in pricing and payment methods. Our revenues are a
mixture of high margin perpetual licenses of software and monthly recurring
revenues from annual maintenance, hosting and support agreements, and other
products and services.

PRODUCTS AND SERVICES

WEB CONFERENCING AND WEB COLLABORATION

The iLinc Suite is a four-product suite of software that addresses the
most common business collaboration needs.

MeetingLinc is an online collaboration software designed to facilitate
the sharing of documents, PowerPoint(TM) presentations, graphics, and
applications between meeting participants without leaving their desks.
MeetingLinc allows business professionals, government employees, and educators
to communicate more effectively and economically through interactive online
meetings using Voice-over IP technology to avoid the expense of travel and long
distance charges. MeetingLinc allows remote participants to give presentations,
demonstrate their products and services, annotate on virtual whiteboards, edit
documents simultaneously and take meeting participants on a Web tour. Like all
of the Web collaboration products in the Suite, MeetingLinc includes integrated
voice and video conferencing services.

During Fiscal 2006, iLinc launched its Enterprise Unlimited perpetual
licensing model that enables customers to pay a one-time up-front fee for
unlimited, organization-wide Web Conferencing. Those customers who qualify for
the iLinc Enterprise Unlimited site license may subscribe to an unlimited use
license. The initial iLinc Enterprise Unlimited license fee is determined based
upon the number of employees within the customer's organization and various
other factors. The annual maintenance and support fees and hosting fees
associated with an iLinc Enterprise Unlimited license are then based upon a
fixed rate per-seat license that is active on each annual anniversary of the
iLinc Enterprise Unlimited license agreement. Customers may expand the number of
active seats available to them at any time with a corresponding increase in
annual maintenance and hosting fees being charged.

AUDIO CONFERENCING

o AUDIO ON-DEMAND (NO RESERVATIONS NEEDED): With pre-established
calling accounts for each user, you can create or participate
in conference calls with no advance notice, 24/7;

o RESERVED AUTOMATED: The solution for recurring calls, each
participant has a permanent number and passcode;

o OPERATOR ASSISTED: For important calls, this service includes
an iLinc conference operator to host, monitor, and coordinate
the call; and,

o ONLINE SEMINARS: High-quality event services that include
invitation and user management, scripting, presentation
preparation, post show distribution, and dedicated operator
assistance from iLinc.

Customers may purchase our audio conferencing products and services
without an annual contract commitment on a monthly recurring usage basis, and
often subscribe for a fixed per-minute rate.

OTHER PRODUCTS AND SERVICES

In addition to the iLinc Suite of products and services, we offer to
our customers an array of e-Learning and training products and services. We
offer training software products that, like iLinc, promote online collaboration
with products that integrate with our LearnLinc software. These include:
TestLinc which is an assessment and quizzing tool that allows for formal testing
and evaluation of students and i-Canvas, which is a training content development
software that allows non-technical training professionals to create Web-based
training courses without programming. i-Canvas is sold on an individual user
perpetual license basis. We offer custom content development services through a
subcontractor relationship. We also offer a library of online courses focused
upon the training of executives on essential business topics. Our off-the-shelf
online library of content includes an online mini-MBA program co-developed with
the Tuck School of Business at Dartmouth College.

INDUSTRY TRENDS

Industry analyst Frost and Sullivan in their recent World Web
Conferencing Market report separates the Web Conferencing vendor community into
distinct groups that include: service providers ("Service Providers") and
software providers ("Software Providers"). The difference between Service
Providers and Software Providers is that the Service Providers effectively only
offer Web conferencing as an ASP service or rental model basis. However,
Software Providers offer Web conferencing as a solution that can be purchased
and owned by customers (whether the software is installed internally by
customers or hosted by the software provider). iLinc is one of the only
providers that effectively competes in both the Service Provider and Software
Provider markets. While we also offer our iLinc Suite as an ASP or per-minute
service, the predominate licensing arrangement selected by our customer base
remains the Purchase Model. The Web conferencing software market is the faster
growing segment, representing about $227 million of the current Web conferencing
market. A Frost and Sullivan forecast projects a 40% Compound Annual Growth Rate
("CAGR") between 2002 and 2010 (as compared with the service provider market
which is projected to grow at a 22% CAGR for the same time period). The Software
Provider market, based upon its higher growth rate, is expected to outgrow the
Service Provider market by the end of 2009.

Another important trend in the industry is the convergence of
communication technologies such as audio and Web conferencing and the increase
in demand for a single source for both of these capabilities. Frost and Sullivan
has noted, in a separate report on audio conferencing, that the demand for
integrated audio, Web, and video conferencing solutions continues to surge as
end user needs for easy-to-use, single-source solutions swell. Developing and
providing a truly converged user environment and experience, including the
integration of audio, Web and video conferencing technologies, is essential.
With the addition of audio conferencing capabilities, we have been able to
provide a single source for deeply integrated Web, audio, video as well as
Voice-over IP. Increasingly, the option a vendor chooses for Web conferencing
determines their selection for audio conferencing. We believe we have already
made significant progress in selling audio conferencing to the iLinc customer
base and we actively cross sell all of our products and services to all
customers. We believe that another benefit of the integrated conferencing
approach is customer retention. According to the same Frost and Sullivan report,
when Web conferencing and audio conferencing are sold together as an integrated
package there is a significant increase in retention of the audio conferencing
service. We are continuing to create incentives for our audio customers to be
both Web and audio customers to drive this retention.

MARKET POSITION - DIFFERENTIATORS

We view our position in the market as the best solution for the
enterprise-wide buyer that has already adopted Web conferencing, as well as
organizations that believe their usage of Web conferencing will grow quickly. As
mentioned earlier, a growing number of these organizations are using four or
more different vendors for Web or audio conferencing services and, therefore,
not realizing the economies of scale that consolidating to one or two vendors
for these services can provide. There are also other important considerations
revolving around Web conferencing such as security and bandwidth availability
that are forcing the buying decision for Web and audio conferencing out of the
business units and into the IT department. We believe that our solution uniquely
maps to critical IT requirements among these mature buyers in four important
areas.

First, we offer WEB CONFERENCING SOFTWARE WITH FLEXIBLE LICENSING
OPTIONS that allows organizations to pay a one-time license fee to install the
software inside of their environment, or to purchase perpetual licenses and have
those licenses hosted in our co-location facility. We find this flexibility to
be an important differentiator to address the needs of customers that are ready
to make an enterprise-wide decision as well as customers that think their usage
may grow throughout their organization. We believe this licensing structure also
enables us to maintain a consistent revenue stream of smaller sized purchases
while also winning larger enterprise-wide deals that help substantially increase
revenue growth.

Second, we believe we offer the HIGHEST LEVEL OF DATA SECURITY
commercially available. We believe that we are the only Web conferencing
provider that offers a customer-hosted solution with a purchase license option
and true point-to-point security with our unique combination of Advanced
Encryption Standard and secure socket layer (SSL). All information within a
session can be transmitted between meeting attendees securely without any
reduction in performance. We believe this aspect of our software has been
extremely attractive to government, military, and financial organizations as
well as to the companies that supply to these entities. We also believe that
this solution, combined with other aspects of our software, enables us to be a
more reliable solution than our Web conferencing software competitors.

Third, our solution is SUITABLE AND SCALABLE FOR ENTERPRISE-WIDE
DEPLOYMENT. The iLinc Suite contains four modes that address the most common
needs for business collaboration within the enterprise. We offer virtual
classroom software with our LearnLinc mode, presentation and sales demonstration
capabilities with MeetingLinc, customer support with SupportLinc, and a mode for
Web casts and marketing events with ConferenceLinc. Each of these modes shares a
common interface enabling users of one mode to easily understand any of our
other modes. We believe this reduces the learning curve for Web conferencing
enterprise-wide roll out and we believe increases adoption success. All users
can have access to all four modes of the suite. This is an important
differentiation because our competition typically charges separate licensing
fees for the use of separate modes. Giving users access to the full suite
supports the natural migration of Web conferencing usage from department to
department. Each of the modes has functionality built specifically for a
particular type of activity.

Fourth, we provide what we believe to be an EXCEPTIONAL "TOTAL COST OF
OWNERSHIP" VALUE. Our software and services are competitively priced but, unlike
our competitors, a customer's installation of our product is a very short and
non-labor intensive process. Maintenance of our software also requires minimal
attention from an IT perspective. We believe most of our Web conferencing
software competitors require very complex and costly implementations.

We believe that all of these factors make our solution compelling to
organizations that have already adopted the practice of Web conferencing as a
best practice as well as companies that are just starting to use Web
conferencing, but anticipate that their usage will grow quickly. We recognize
that in order to grow our market share we need to develop products that are easy
to implement and that scale with our customer needs.

SALES AND MARKETING FOCUS

To leverage these advantages, our organization continually creates new
marketing and sales campaigns that focus in four target markets.

o We sell to prospects that are using other Web conferencing
service providers that are ready to migrate to Web
conferencing software. We find that these organizations
appreciate the cost and feature advantages that our technology
offers.
o We target organizations that have a natural fit for highly
secure Web conferencing software such as government, military,
and financial organizations as well as the companies that
supply to these entities.
o We target organizations looking to deploy live, Web-based
training. Our software was originally built for training and
we have maintained a competitive technology advantage in this
area.
o We continue to cross sell all of our products and services to
our large database of existing customers.

RESULTS OF OPERATIONS

As of March 31, 2006, we provide integrated Web and audio conferencing
software and services with what we believe to be a very robust feature set that
includes integrated video and Voice-over IP. The iLinc Suite includes:
LearnLinc, which permits live instructor-led training and education over the
Internet to remote students replicating the instructor-led environment;
MeetingLinc, which facilitates more effective and economical communication
through online meetings using Voice-over IP technology to avoid the expense of
travel and long-distance charges; ConferenceLinc, which delivers your message
more consistently in a one-to-many format replicating professionally managed
conferencing events; and SupportLinc, which gives customer service organizations
the ability to provide remote, hands-on support for products, systems, or
software applications. The iLinc Suite is available in both a periodic license
rental model and perpetual license purchase model. Since its beginnings in 1994,
LearnLinc and MeetingLinc have been installed and operational in corporate,
government, and educational organizations in the United States and
internationally. Our iLinc suite of products includes the ability to use
integrated Voice-over IP and two-way live video. We have also completely
integrated audio conferencing services into the Web conferencing products. These
services supplement the Web product but can also be purchased separately.

The operations of the Company involve many risks, which, even through a
combination of experience, knowledge, and careful evaluation, may not be
overcome. These risks include the fact that the market for Web conferencing
products and services is in the early stages of development and may not grow to
a sufficient size or at a sufficient rate to sustain the Company's business. The
Company also faces intense competition from other Web conferencing and audio
conferencing providers and may be unable to compete successfully. Many of the
Company's existing and potential competitors have longer operating histories and
significantly greater financial, technical, and other resources and therefore
may be able to more quickly respond to changing opportunities or customer
requirements. New competitors are also likely to enter this market in the future
due to the lack of significant barrier to entry in the market share. See
"Additional Risk Factors That May Affect Our Operating Results and The Market
Price of Our Common Stock."

REVENUES FROM CONTINUING OPERATIONS

Total revenues generated from continuing operations for the 12 months
ended March 31, 2006 ("fiscal 2006") and March 31, 2005 ("fiscal 2005") were
$12.5 million and $10.4 million, respectively, an increase of $2.1 million.
License revenues from continuing operations decreased $260,000 from $3.3 million
in fiscal 2005 to $3.0 million in fiscal 2006. Software and audio services
revenues increased $2.0 million from $5.1 million in fiscal 2005 to $7.1 million
in fiscal 2006, and maintenance and professional services revenues increased
$405,000 from $2.0 million in fiscal 2005 to $2.4 million in fiscal 2006. The
overall increase in revenue is primarily a result of the Company's audio
services revenue for a full twelve months in fiscal 2006 versus only ten months
in fiscal 2005 due to the Glyphics acquisition, as well as continuing expansion
into the Web and audio conferencing marketplace and concentrated sales and
marketing strategies focused on promoting the iLinc Suite of products. Software
license sales were relatively flat between fiscal 2006 and 2005.

Total revenues from continuing operations generated for the 12 months
ended March 31, 2005 and March 31, 2004 ("fiscal 2004") were $10.4 million and
$5.9 million, respectively, an increase of $4.5 million. License revenues from
continuing operations increased $1.0 million from $2.2 million in fiscal 2004 to
$3.3 million in fiscal 2005, software and audio services revenue increased $3.9
million from $1.2 million in fiscal year 2004 to $5.1 million in fiscal 2005,
and service and maintenance revenues decreased $428,000 from $2.5 million in
fiscal 2004 to $2.0 million in fiscal 2005. The increase in revenue is a result
of the Company's continuing expansion into the Web conferencing marketplace and
concentrated sales and marketing strategies focused on promoting the iLinc Suite
of products.

COST OF REVENUES FROM CONTINUING OPERATIONS

Cost of license revenues is driven by the amount of software licenses
sold. It consists of royalty and usage fees paid to third parties on sale of
certain product licenses and costs for fulfillment and materials. Cost of
license revenues for the 12 months ended March 31, 2006 and March 31, 2005 were
$51,000 and $154,000 respectively, a decrease of $103,000. The decrease is
related to a decrease in third party usage fees for the Company's online
learning management product. Cost of license revenues for the 12 months ended
March 31, 2005 and March 31, 2004 were $154,000 and $219,000, respectively, a
decrease of $65,000. The decrease is related to a decrease in third party usage
fees for the Company's online learning management product.

Cost of software and audio services revenue include salaries and
related expenses for our Web conferencing and audio services organizations, an
overhead allocation consisting primarily of a portion of our facilities,
communications, and depreciation expenses that are attributable to providing
these services, an allocation of technical support costs attributable to
providing support for these services and direct costs related to our ASP,
hosting, and audio services offerings. Cost of software and audio services for
the 12 months ended March 31, 2006 and March 31, 2005 were $3.9 million and $3.8
million, respectively, an increase of $82,000. The overall increase in costs is
due to the inclusion of the Glyphics audio conferencing acquisition for a full
year in fiscal 2006 compared to ten months in the prior year. The increase is
partially offset by a reduction of estimates of liabilities assumed with that
acquisition of $355,000, primarily in the second and third quarters of fiscal
2006. During fiscal 2006, it was determined through review of the liabilities
and confirmation with Glyphics vendors that these liabilities were not owed and
could be eliminated as a one-time reduction to expenses. Cost of software and
audio services revenues for the 12 months ended March 31, 2005 and March 31,
2004 were $3.8 million and $526,000, respectively, an increase of $3.3 million.
This increase is primarily a result of the acquisition of the Glyphics' audio
conferencing assets and business in June of 2004.

Cost of maintenance and professional services revenue include an
allocation of technical support costs related to the maintenance services, an
overhead allocation consisting primarily of a portion of our facilities costs,
communications and depreciation expenses that are attributable to providing
these services and third party costs related to our custom content revenues.
Cost of maintenance and professional services for the 12 months ended March 31,
2006 and March 31, 2005 was $827,000 and $792,000, respectively, an increase of
$35,000. Cost of maintenance and professional services revenue for the 12 months
ended March 31, 2005 and March 31, 2004 was $792,000 and $1.2 million,
respectively, a decrease of $456,000. This decrease is primarily attributable to
a decrease of $640,000 in revenue from custom content contracts.

Amortization of acquired developed technology consists of amortization
of acquired software technology from the Mentergy, Glyphics, and Quisic
acquisitions. Amortization of acquired technology for the 12 months ended March
31, 2006 and March 31, 2005 was $376,000 and $451,000, respectively, a decrease
of $75,000 which is related to the full amortization of the software technology
from the Mentergy and Quisic acquisitions.

Amortization of acquired developed technology for the 12 months ended
March 31, 2005 and March 31, 2004 was $451,000 and $233,000, respectively, an
increase of $218,000, due primarily to the amortization of the Glyphics software
technology.

OPERATING EXPENSES FROM CONTINUING OPERATIONS

Operating expenses from continuing operations consist of research and
development, sales and marketing, general and administrative expenses. The
Company incurred operating expenses from continuing operations of $6.7 million
in fiscal 2006, a decrease of $1.8 million from $8.5 million in fiscal 2005.
This decrease is due to a decrease in research and development costs of
$153,000, a decrease in sales and marketing costs of $1.0 million and a decrease
in general and administrative costs of $737,000.

Fiscal 2005 operating expenses from continuing operations were $8.5
million, a $3.4 million increase from fiscal 2004 operating expenses of $5.1
million. The increase is primarily due to an increase in research and
development costs of $511,000, an increase in sales and marketing costs of $1.9
million and an increase in general and administrative costs of $1.1 million.

Research and development expenses from continuing operations represent
expenses incurred in connection with the provision of Web and audio conferencing
services, development of new products and new product versions and consist
primarily of salaries and benefits, communication equipment and supplies.
Research and development expenses for fiscal 2006 and fiscal 2005 were $1.4
million and $1.5 million respectively, a decrease of $153,000. The decrease is
primarily the result of decreased salaries and benefits of $178,000 related to
an overall decrease in the number of employees.

Fiscal 2005 research and development expenses from continuing
operations were $1.5 million, an increase of $511,000 from fiscal 2004 research
and development expenses of $1.0 million. The increase is primarily the result
of increased salaries and benefits of $302,000 related to an overall increase in
the number of employees and additional compensation and benefits of $215,000 as
a result of the Glyphics acquisition.

Sales and marketing expenses from continuing operations consist
primarily of sales and marketing salaries and benefits, travel, advertising, and
other marketing literature. Sales and marketing expenses were $3.1 million and
$4.1 million for fiscal 2006 and fiscal 2005, respectively, a decrease of $1.0
million. The decrease is primarily a result of decreased salaries and related
benefits of $547,000 due to a decrease in the average number of sales and
marketing employees, decreases in marketing expenses of $298,000 related to lead
generation activities, trade show attendance, and advertising costs. As a result
of management's cost reduction program that was implemented in August 2005,
overall overhead was reduced primarily in the second and third quarter of fiscal
2006. In 2006 as compared to 2005, travel and entertainment expenses decreased
$51,000, recruiting fees decreased by $57,000 and general office and other
overhead expenses decreased by $154,000. This amount also included costs related
to the amortization of customer lists and intangibles from the Glyphics
acquisition of $200,000 in fiscal 2006.

Sales and marketing expenses were $4.1 million and $2.2 million for
fiscal 2005 and fiscal 2004, respectively, an increase of $1.9 million. The
increase is primarily a result of increased salaries and related benefits of
$787,000 due to an increase in the average number of sales and marketing
employees, increases in marketing expenses of $487,000 related to lead
generation activities, trade show attendance, and advertising costs. This amount
also included costs directly associated with sales and marketing expenses
related to the Glyphics acquisition of $321,000 and costs related to the
amortization of customer lists and intangibles from the Glyphics acquisition of
$167,000.

Advertising costs are expensed as incurred. The Company's advertising
expense at March 31, 2006, 2005 and 2004 was $40,000, $22,000 and $122,000,
respectively.

General and administrative expenses from continuing operations consist
of the corporate expenses of the Company. These corporate expenses include
salaries and benefits of executive, finance, and administrative personnel, rent,
bad debt expense, professional services, travel, office costs, and other general
corporate expenses. During fiscal 2006 and 2005, general and administrative
expenses from continuing operations were $2.2 million and $2.9 million,
respectively, a decrease of $737,000. General and administrative expenses
decreased primarily due to a cost cutting initiative led by management, which
took effect primarily in the second and third quarters of fiscal 2006. The
overall decrease in general and administrative expense was primarily comprised
of a decrease in bad debt expense of $102,000, salaries and related benefits of
$21,000, contract labor of $61,000, accounting fees of $198,000, consulting fees
of $94,000, recruiting fees of $33,000, legal fees of $21,000 and investor
relations expense of $23,000. Tax liabilities also decreased by $83,000 of which
$81,000 related to the release of a tax liability that was recorded as an
estimate as part of the Glyphics acquisition. After further review and
confirmation from the tax authority, the Company determined that the tax
liability would not be realized, and therefore the liability was eliminated and
a corresponding reduction of the expense was recorded as a one-time reduction.

During fiscal 2005 and 2004, general and administrative expenses from
continuing operations were $2.9 million and $1.8 million, respectively, an
increase of $1.1 million. General and administrative expenses increased
primarily due to the expansion of the business, which included the Glyphics
acquisition. The overall increase in general and administrative expense was
primarily comprised of an increase in bad debt expense of $331,000, salaries and
related benefits of $208,000, accounting fees of $166,000, consulting fees of
$145,000, warrant expense of $91,000, and investor relations expense of $85,000.

INTEREST EXPENSE FROM CONTINUING OPERATIONS

Interest expense from continuing operations was $1.9 million in fiscal
2006 and in fiscal 2005. Interest expense from continuing operations increased
from $1.2 million in fiscal 2004 to $1.9 million in fiscal 2005 primarily as a
result of the $3.2 million issuance on senior notes and debt acquired from
Glyphics.

INCOME TAX EXPENSE FROM CONTINUING OPERATIONS

The Company recorded no tax benefit during fiscal 2006 because it
concluded it is not likely it would be able to recognize the tax asset created
due to the lack of operating history of its Web and audio conferencing business
strategy. At March 31, 2006, the Company has a net deferred tax asset of
$13,627,000 with a corresponding valuation allowance. The Company's tax
benefits are scheduled to expire over a period of five to 13 years.

The Company recorded no tax expense during fiscal 2006 and 2005 as a
result of the losses it incurred in those years and did not record a tax benefit
during fiscal 2004 due to the utilization of its fully reserved net operating
loss carry-forward.

RESULTS OF DISCONTINUED OPERATIONS

Effective January 1, 2004, the Company discontinued its dental practice
management services. Results of operations from this segment are presented as
discontinued operations for the fiscal years ended March 31, 2006, 2005, and
2004 in accordance with SFAS 146 "Accounting for Costs Associated with Exit or
Disposal Activities."

Net income/(loss) from discontinued operations for fiscal 2006, 2005
and 2004 was $83,000, ($128,000), and $275,000, respectively. Cash flows (used
in)/provided by discontinued operations were ($13,000), $116,000, and $387,000
during the fiscal years 2006, 2005, and 2004, respectively.

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 2006, the Company had a working capital deficit of $1.9
million. Current assets included $466,000 in cash and $2.2 million in net
accounts receivable and $42,000 in prepaids and other assets. Current
liabilities consisted of $917,000 of deferred revenue, $269,000 of current
maturities of long-term debt and capital leases and $3.5 million in accounts
payable and accrued liabilities.

We have generated cash from operations during 2006, specifically
$457,000 in the third quarter and $249,000 in the fourth quarter, resulting in
net cash provided by operating activities of $634,000 for the year ending March
31, 2006. Subsequent to March 31, 2006, the Company raised $2,000,000 of gross
proceeds in a private placement of 5.4 million shares of common stock. A portion
of the Company's plans to address its working capital deficiency includes
further reductions in overhead and continued development, marketing and
licensing of our iLinc suite of products and services through the internal sales
efforts and external channel partnerships. Although we continue to pursue these
plans, there is no assurance that the Company will be successful in obtaining
sufficient revenues from its Web conferencing and audio conferencing products
and services to provide adequate cash flows to sustain our operations.

CASH FLOWS FROM CONTINUING OPERATIONS

Cash provided by operating activities was $634,000 during fiscal 2006.
Cash used in operating activities was $2.6 million during fiscal 2005. Cash
provided by operating activities during fiscal 2006 was primarily attributable
to non-cash expenses of depreciation and amortization of $1.7 million, accretion
of debt discount to interest expense of $626,000 and net debt conversion expense
of $249,000. These items were partially offset by increases in accounts
receivable of $352,000, decreases in accounts payable and accrued liabilities of
$452,000 and a net loss of $1.2 million.

Cash used in operating activities was $2.6 million during fiscal 2005.
Cash used in operating activities during fiscal 2005 was primarily attributable
to a net loss of $5.2 million and increases in accounts receivable of $450,000.
These items were partially offset by increases in accounts payable and accrued
liabilities of $465,000 and non-cash expenses and revenues totaling $2.6
million.

Cash used in operating activities during fiscal 2004 was $1.1 million
and was primarily attributable to a net loss of $2.3 million and an increase in
accounts receivable of $352,000. These items were partially offset by increases
in accounts payable and accrued liabilities of $753,000 and non-cash expenses
and revenues totaling $1.0 million.

Cash used by investing activities was $292,000, $194,000, and $364,000
in fiscal years 2006, 2005, and 2004, respectively. Cash used by investing
activities during fiscal 2006 was primarily due to acquisition royalty earnout
of $261,000 and capital expenditures of $55,000. Cash used by investing
activities during fiscal 2005 was primarily due to capital expenditures of
$153,000. Cash used by investing activities during fiscal 2004 was primarily due
to capital expenditures of $66,000 and acquisitions, net of cash acquired of
$367,000.

Cash used in financing activities was $395,000 during fiscal 2006. Cash
provided in financing activities was $2.9 million during fiscal 2005 and
$926,000 during fiscal 2004. Cash used in financing activities in fiscal 2006
was primarily a result of repayment of long-term debt and capital lease
liabilities of $308,000 and $157,000, respectively. Cash provided by financing
activities during fiscal 2005 was primarily due to proceeds from the issuance of
long-term debt of $4.3 million, partially offset by the repayment of long-term
debt and capital lease liabilities of $514,000 and $328,000, respectively. Cash
provided by financing activities during fiscal 2004 was primarily due to
proceeds from the issuance of preferred stock of $1.5 million and issuance of
long-term debt of $500,000. These were partially offset by the repayment of
long-term debt and capital lease liabilities of $559,000 and $242,000,
respectively and $212,000 in financing costs.

ACTIVITIES RELATED TO ACQUISITIONS AND CAPITAL RAISE ACTIVITIES

In connection with the Company's initial public offering (IPO) in March
of 1998, the Company issued notes to certain shareholders who had provided
capital prior to the IPO. These notes were originally due in April of 2005 and
required quarterly payments of interest only at the rate of 10%. During the
first quarter of fiscal 2006, many of the noteholders agreed to extend the
maturity date and accept installment payments that were due during the year
ended March 31, 2006. The outstanding principal balance on these notes is
$157,000 as of March 31, 2006. The Company has agreed to make installment
payments for the outstanding principal balance plus accrued interest. As of
March 31, 2006, the Company owed installment payments for principal of $87,000
on those IPO Notes, with no claims of default by the holders of the outstanding
IPO notes.

In March 2002, the Company completed a private placement offering (the
"Convertible Note Offering") raising capital of $5,775,000 that was used to
extinguish an existing line of credit. Under the terms of the Convertible Note
Offering, the Company issued unsecured subordinated convertible notes (the
"Convertible Notes"). The Convertible Notes bear interest at the rate of 12% per
annum and require quarterly interest payments, with the principal due at
maturity on March 29, 2012. The holders of the Convertible Notes may convert the
principal into shares of the Company's common stock at the fixed price of $1.00
per share. The Company may force redemption by conversion of the principal into
common stock at the fixed conversion price, if at any time the 20 trading day
average closing price of the Company's common stock exceeds $3.00 per share. The
notes are subordinated to any present or future senior indebtedness. As a part
of the Convertible Note Offering the Company also issued warrants to purchase
5,775,000 shares of the Company's common stock for an exercise price of $3.00
per share. Those warrants expired on March 29, 2005 without exercise. The fair
value of the warrants was estimated using a Black-Scholes pricing model with the
following assumptions: contractual and expected life of three years, volatility
of 75%, dividend yield of 0%, and a risk-free rate of 3.87%. A discount to the
Convertible Notes of $1,132,000 was recorded using this value, which is being
amortized to interest expense over the 10-year term of the Convertible Notes. As
the carrying value of the notes is less than the conversion value, a beneficial
conversion feature of $1,132,000 was calculated and recorded as an additional
discount to the notes and is being amortized to interest expense over the 10
year term of the Convertible Notes. Upon conversion, any remaining discount and
beneficial conversion feature will be expensed in full at the time of
conversion. During fiscal 2004, holders with a principal balance totaling
$150,000 converted their notes into 150,000 common shares of the Company. During
fiscal 2006, holders with a principal balance of $525,000 converted their notes
and $8,000 of accrued interest into 1,971,088 shares of the Company's common
stock that had been registered with the SEC at a price of $0.25, $0.26 and $0.30
per share. Since the actual conversion price for the convertible debt was less
than the fixed conversion price of $1.00, the Company recorded conversion
expense of $338,000 for the year ending March 31, 2006. During fiscal 2006, the
Company accelerated the amortization of the deferred offering costs and the
discount and beneficial conversion feature associated with the debt by expensing
$50,000 and $137,000, respectively at the time of conversion.

On September 16, 2003, the Company completed its private placement of
series A convertible preferred stock(the "Series A Preferred Stock") with
detachable warrants. The Company sold 30 units at $50,000 each and raised a
total of $1,500,000. Each unit consisted of 5,000 shares of Series A Preferred
Stock, par value $0.001 and a warrant to purchase 25,000 shares of common stock.
The Series A Preferred Stock is convertible into the Company's common stock at a
price of $0.50 per share, and the warrants are immediately exercisable at a
price of $1.50 per share with a three-year term. Accordingly, each share of
preferred stock is convertible into 20 shares of common stock and retains a $10
liquidation preference. The Company pays an 8% dividend to holders of the Series
A Preferred Stock, and the dividend is cumulative. The Series A Preferred Stock
is non-voting and non-participating. The shares of Series A Preferred Stock will
not be registered under the Securities Act of 1933, as amended, and were offered
in a private placement providing exemption from registration. The cash proceeds
of the private placement of Series A Preferred Stock were allocated pro rata
between the relative fair values of the Series A Preferred Stock and warrants at
issuance using the Black-Scholes valuation model for valuing the warrants. The
aggregate value of the warrants and the beneficial conversion discount of
$247,000 are considered a deemed dividend in the calculation of loss per share.
During the 2005 fiscal year, holders of 22,500 shares of Series A Preferred
Stock converted those shares into 450,000 shares of the Company's common stock.
The underlying common stock that would be issued upon conversion of the Series A
Preferred Stock and upon exercise of the associated warrants have been
registered with the SEC and may be sold pursuant to a resale prospectus dated
May 24, 2004.

In April of 2004, the Company completed a private placement offering of
unsecured senior notes (the "2004 Senior Note Offering") that provided gross
proceeds of $4.25 million. Under the terms of the 2004 Senior Note Offering, the
Company issued $3,187,000 in unsecured senior notes and 1,634,550 shares of the
Company's common stock. The senior notes were issued as a series of notes
pursuant to a unit purchase and agency agreement. The senior notes are
unsecured. The placement agent received a commission equal to 10% of the gross
proceeds together with a warrant for the purchase of 163,455 shares of the
Company's common stock with an exercise price equal to 120% of the price paid by
investors. The senior notes bear interest at a rate of 10% per annum and accrued
interest is due and payable on a quarterly basis beginning July 15, 2004, with
principal due at maturity on July 15, 2007. The senior notes are redeemable by
the Company at 100% of the principal value at any time after July 15, 2005. The
notes and common stock were issued with a debt discount of $768,000. The fair
value of the warrants was estimated and used to calculate a discount of $119,000
of which $68,000 was allocated to the notes and $51,000 was allocated to equity.
The total discount allocated to the notes of $836,000 is being amortized as a
component of interest expense over the term of the notes which is approximately
39 months. The senior notes are unsecured obligations of the Company but are
senior in right of payment to all existing and future indebtedness of the
Company. The common stock issued in the 2004 Senior Note Offering was registered
with the SEC pursuant to a resale prospectus dated August 2, 2005. Effective
August 1, 2005, holders with a principal balance totaling $225,000 converted
their senior notes and accrued interest of $800 into 903,205 shares of the
Company's common stock at a price of $0.25 per share. Since the actual
conversion price for the debt was greater than the market value of the stock at
the date of conversion, the Company recorded a gain on conversion of $9,000 for
the period ended December 31, 2005. During fiscal 2006, the Company accelerated
the amortization of the deferred offering costs and the discount associated with
the debt by expensing $10,000 and $35,000, respectively at the time of
conversion. On November 9, 2005, placement agent warrants originally issued with
an exercise price of $0.78 per common share were converted to 163,455 common
shares at an exercise price of $0.25 per share, in which the Company received
$41,000 in cash. The transaction resulted in an increase in deferred offering
costs of $7,000 and an adjustment to additional paid-in capital of $7,000.

On June 3, 2004, the Company executed an agreement to acquire
substantially all of the assets of and assume certain liabilities of Glyphics
Communications, Inc., ("Glyphics"), a Utah based private company, and a provider
of comprehensive audio conferencing products and services. The acquisition had a
stated effective date of June 1, 2004 and was fully consummated on June 14,
2004. The purchase price was $5.349 million. The purchase price was paid with
the assumption of $2.466 million in specific liabilities, with the balance paid
using the Company's common stock, which included the issuance of 2,820,355
shares valued at $0.98 per share upon execution of the agreement, and 308,133
shares valued at $0.39 per share upon release of escrow pending the settlement
of certain acquisition contingencies.

Subsequent to March 31, 2006, 704,839 shares were released from escrow
related to the acquisition of Glyphics. Of that amount, 396,706 were returned to
iLinc Communications due to the Company assuming obligations of $377,815 greater
than scheduled in the purchase agreement. The remaining 308,133 shares were
issued to the Glyphics shareholders at $0.39 per share based on the closing
price of the agreement date of April 18, 2006. These shares were recorded as
outstanding on March 31, 2006 pursuant to the terms of the Escrow Agreement.

On September 30, 2005, the Company executed definitive agreements with
nine investors to issue 70,000 unregistered shares of its Series B Preferred
Stock, par value $0.001 (the "Series B Preferred Stock") and warrants to
purchase 700,000 shares of its common stock (the "Warrants") in a private
transaction that was exempt from registration under Section 4(2) of the
Securities Act of 1933. Of the total Series B Preferred Stock issued, 15,000
shares of Series B Preferred Stock with Warrants to purchase 150,000 shares of
common stock were issued to four individuals in exchange for their cash
investment of $150,000; 15,000 shares of Series B Preferred Stock with Warrants
to purchase 150,000 shares of common stock were issued to two vendors in
exchange for an offset of their accounts payable balance in the amount of
$150,000; and 40,000 shares of Series B Preferred Stock with Warrants to
purchase 400,000 shares of common stock (effective August 29, 2005 as previously
disclosed on Form 8-K dated September 2, 2005) were issued to three
institutional investors in exchange for the offset of accrued liabilities in the
amount of $400,000 that arose from the Quisic acquisition. The Company recorded
a gain on debt conversion of $50,000 associated with this transaction since the
liabilities outstanding were $450,000 at the time of the transaction. The Series
B Preferred Stock bears an 8% dividend, was sold using a deemed $10.00 per share
issue price, and is convertible into 2,800,000 shares of the Company's common
stock using a conversion price of $0.25 per share. The Warrants that are
exercisable at an exercise price equal to $0.50 per share expire on the third
anniversary of the issue date of September 30, 2005. The aggregate value of the
warrants of $55,000 is considered a deemed dividend in the calculation of loss
per share.

Subsequent to March 31, 2006, on June 9, 2006, the Company completed a
private placement of 5,405,405 unregistered, restricted shares of common stock
for approximately $1.7 million in net cash proceeds. The Company paid its
placement agent an underwriting commission of $180,000 of which $25,000 was
recorded as deferred offering costs at March 31, 2006 and incurred additional
offering expenses of approximately $50,000. Within 30 days of the closing date,
the Company will file a Registration Statement on Form S-3 to enable the resale
of the shares by the investors. The Company intends to use the proceeds for
working capital and general corporate purposes.

CONTRACTUAL OBLIGATIONS

The following schedule details all of the Company's indebtedness and
the required payments related to such obligations at March 31, 2006 (IN
THOUSANDS):

DUE IN DUE IN YEARS
LESS THAN DUE IN DUE IN YEAR FOUR AND DUE AFTER
TOTAL ONE YEAR YEAR TWO THREE FIVE FIVE YEARS
---------------------------------------------------------------------------------------

Long term debt................ $ 8,666 $ 199 $ 3,364 $ 2 $ 1 $ 5,100
Capital lease obligations..... 70 70 -- -- -- --
Interest Expense.............. 4,099 953 698 612 1,224 612
Operating lease obligations... 2,072 539 412 282 570 269
Base salary commitments
under employment
agreements................. 774 399 375 -- -- --
---------------------------------------------------------------------------------------
Total contractual obligations. $ 15,681 $ 2,160 $ 4,849 $ 896 $ 1,795 $ 5,981
=======================================================================================

The lease obligations above include commitments in accordance with
amendments to the lease for the Phoenix location that was renegotiated and
extended subsequent to March 31, 2006 (see Note 17).

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company's discussion and analysis of its financial condition and
results of operations are based upon its consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States of America. The preparation of these consolidated
financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and liabilities. The more
significant areas requiring use of estimates relate to revenue recognition,
accounts receivable and notes receivable valuation reserves, realizability of
intangible assets, realizability of deferred income tax assets, and the
evaluation of contingencies and litigation. Management bases its estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances. The results of such estimates form the basis
for making judgments about the carrying values of assets and liabilities that
are not readily apparent from other sources. Actual results may materially
differ from these estimates under different assumptions or conditions.

Management believes the following critical accounting policies affect
its more significant judgments and estimates used in the preparation of its
consolidated financial statements.

REVENUE RECOGNITION

Our revenues are generally classified into three main categories:
license revenue, software and audio service revenue and maintenance and
professional service revenue. License revenue is generated from the sale of our
iLinc suite of Web conferencing software on a software purchase model basis and
from the sale of our off-the-shelf courseware, primarily the online Bridge
(Mini-MBA) program. Software and audio service revenue is generated from the
sale of our iLinc Suite of Web conferencing software on an Application Service
Provider ("ASP") model basis, the sale of our iLinc Suite software on a
per-minute basis, and includes all revenue from the provision of audio
conferencing services, as well as, all service contracts that might include
hosting and training services. Maintenance and professional service revenue is
generated from the sale of maintenance contracts related to our iLinc suite of
Web conferencing software on a purchase model basis, when hosted by the
customer, and from the sale of professional services that are associated with
our custom content development services.

Sales of Software Licenses

Because we offer the iLinc Suite software in one of two forms, the
first being a purchase model and the second being an ASP or per-minute model, we
have separate revenue recognition policies applicable to each licensing model.
With each sale of our Web conferencing products and services, we execute written
contracts with our customers that govern the terms and conditions of each
software license sale, hosting agreement, maintenance and support agreement, and
other services arrangements. We do not typically execute written agreements for
the sale of audio conferencing services.

In connection with the Company's sales of software licenses, whether on
a purchase model basis or periodic license basis, the Company adopted Statement
of Position ("SOP") 97-2 "Software Revenue Recognition" as issued by the
American Institute of Certified Public Accountants. In accordance with SOP 97-2,
the Company recognizes revenue from the sale of software licenses if all of the
following conditions are met: first, there is persuasive evidence of an
arrangement with the customer; second, the product has been delivered to the
customer; third, the amount of the fees to be paid by the customer is fixed or
determinable; and, fourth, collection of the fee is probable.

Each of these factors, particularly the determination of whether a fee
is fixed and determinable and the collectability of the resulting receivable,
requires the application of the judgment and the estimates of management.
Therefore, significant management judgment is utilized and estimates must be
made in connection with the revenue we recognize in any accounting period. We
analyze various factors, including a review of the nature of the license or
product sold, the terms of each specific transaction, the vendor specific
objective evidence of the elements required by SOP 97-2, any contingencies that
may be present, our historical experience with like transactions or with like
products, the creditworthiness of the customer, and other current market and
economic conditions. Changes in our judgment based upon these factors and others
could impact the timing and amount of revenue that we recognize, and ultimately
the results of operations and our financial condition. Therefore, the
recognition of revenue is a key component of our results of operations.

At the time of the sale of our software license on a purchase license
basis, we assess whether the fee associated with the transaction is fixed or
determinable based on the payment terms associated with the transaction before
recording immediate revenue recognition, assuming all other elements of revenue
recognition are present. Billings to our customers are generally due within 30
to 90 days, with payment terms up to 180 days available to certain credit worthy
customers. We believe that we have sufficient history of collecting all amounts
within these normal payment terms and to conclude that the fee is fixed or
determinable at the time of the perpetual license sale. We consider all
arrangements with payment terms longer than 180 days not to be fixed or
determinable and for arrangements involving the extended payment terms exceeding
180 days, revenue recognition occurs when payments are collected, assuming all
other elements of revenue recognition are present.

In addition, in assessing whether collection is probable or not for a
given transaction, and therefore whether we should recognize the revenue, we
make estimates regarding the creditworthiness of the customer. Initial
creditworthiness is assessed through internal credit check processes, such as
credit applications or third party reporting agencies. Creditworthiness for
transactions to existing customers primarily relies upon a review of their prior
payment history. We do not request collateral or other security from our
customers. If we determine that collection of a fee is not reasonably assured,
we defer the fee and recognize revenue at the time collection becomes reasonably
assured, which is generally upon the receipt of payment or other change in
circumstance.

During Fiscal 2006, iLinc launched its Enterprise Unlimited perpetual
licensing model, that enables customers to pay a one-time up-front fee for
unlimited, organization-wide Web conferencing, with revenue recognized at the
time of the sale of the Enterprise Unlimited perpetual license. The annual
maintenance and support fees and hosting fees associated with an iLinc
Enterprise Unlimited license are based upon a fixed rate per seat license that
is active on each annual anniversary of the iLinc Enterprise Unlimited license
agreement and that is approximately equivalent to the 15% to 18% charged for
concurrent seat perpetual license contracts.

Customers may expand the number of active seats available to them at
any time with a corresponding increase in annual maintenance and hosting fees
being charged with the additional revenue recognized on a straight-line basis
over the period of the contract.

Sales of Concurrent Licenses on an ASP and Per-Minute Basis

Historically and on a continuing basis, a majority of our license
revenue has been generated under the software purchase model basis, with revenue
recognized based on a one-time sale of a perpetual license. In addition to that
purchase model software sale, we also offer a more flexible concurrent
connection seat license and a pay-per-minute usage based model. Under our ASP
model, a customer may subscribe to a certain number of concurrent connections or
seats for a fixed period, often a year. Under this ASP method, we recognize the
revenue associated with these monthly, fixed-fee subscription arrangements each
month on a straight-line basis over the term of the agreement. Other customers
choose to avoid annual commitments and instead use our Web conferencing and
audio conferencing products and services based upon a per-minute or usage-based
pricing model. Per-minute customers may also include those customers on an ASP
model that incur overage fees for usage in excess of the permitted number of
seats or minutes in excess of the minimum commitment. The per-minute fees that
include overage fees are charged at the end of each month and recorded as
revenue at the end of each month as the services are provided. Customers with
contractually established minimum per-minute fees are assessed the greater of
the established minimum or the actual usage at the end of each month. Customers
wishing to avoid monthly commitments may use the e-commerce portion of our Web
site that permits the use of our Web conferencing services on a pay-per-use
basis, with no monthly minimum, purchasing the services and paying for those
services online by credit card.

Sales of Maintenance, Hosting, and Other Related Services

The Company offers with each sale of its software products a software
maintenance, upgrade, and support arrangement. These contracts may be elements
in a multiple-element arrangement or may be sold in a stand-alone basis.
Revenues from maintenance and support services are recognized ratably on a
straight-line basis over the term that the maintenance service is provided.
Maintenance contracts typically provide for 12-month terms with maintenance
contracts available up to 36 months. The Company typically charges 15% to 18% of
the software purchase price for a 12-month contract with discounts available for
longer-term agreements. The annual maintenance and support fees and hosting fees
associated with an iLinc Enterprise Unlimited license are based upon a fixed
rate per seat license that is active on each annual anniversary of the iLinc
Enterprise Unlimited license agreement and that is approximately equivalent to
the 15% to 18% charged for concurrent seat perpetual license contracts.

The Company also typically charges 5% to 10% for hosting of purchase
model software sales for customers who do not wish to install and host the iLinc
Suite on their own premises or that of a co-location facility. Charges for
hosting are likewise spread ratably over the term of the hosting agreement, with
the typical hosting agreement having a term of 12 months, with renewal on an
annual basis.

Revenues from consulting, training, and education services are
recognized either as the services are performed, ratably over a subscription
period, or upon completing a project milestone if defined in the agreement.
These consulting, training, and education services, are not considered essential
to the functionality of our products as these services do not alter the product
capabilities, do not require specialized skills, and are often performed by the
customer or our VAR's customers without access to those services.

Implementation, consulting, training, translation, and other event-type
services may also be sold in conjunction with the sale of our software products.
Those services are generally recognized as the services are performed or earlier
when all other revenue recognition criteria have been met. Although the Company
may provide implementation, training, and consulting services on a time and
materials basis, a significant portion of these services have been provided on a
fixed-fee basis.

Should the sale of our software involve an arrangement with multiple
elements (for example, the sale of a software license along with the sale of
maintenance and support to be delivered over the contract period), we allocate
revenue to each component of the arrangement using the residual-value method
based on the fair value of the undelivered elements. We defer revenue from the
arrangement equivalent to the fair value of the undelivered elements and
recognize the remaining amount at the time of the delivery of the product or
when all other revenue recognition criteria have been met. Fair values for the
ongoing maintenance and support obligations are based upon separate sales of
renewals of maintenance contracts. Fair value of services, such as training or
consulting, is based upon separate sales of these services to other customers.
Thus, these types of arrangements require us to make judgments about the fair
value of undelivered arrangements.

Sales of Custom Content Development Services

A component of our maintenance and professional services revenue is
derived from custom content development services. The sale of custom content
development services often involves the execution of a master service agreement
and corresponding work orders describing the deliverable due, the costs
involved, the project milestones, and the payments required. These custom
content development services are primarily outsourced to a subcontractor,
Interactive Alchemy. For contracts and revenues related exclusively to custom
content development services, the Company recognizes revenue and profit as work
progresses on custom content service contracts using the
percentage-of-completion method. This method relies on estimates of total
expected contract revenue and costs as each job progresses throughout the
relevant contract period. The Company follows this method since reasonably
dependable estimates of the costs applicable to various stages of a custom
content service contract can be made. Recognized revenues and profit are subject
to revisions as the custom content service contract progresses to completion.
Revisions in profit estimates are charged to income in the period in which the
facts that give rise to the revision become known. Customers sometimes request
modifications to projects in progress which may result in significant revisions
to cost estimates and profit recognition, and the Company may not be successful
in negotiating additional payments related to the changes in scope of requested
services. Should this arise, the provision for any estimated losses on
uncompleted custom content service contracts are made in the period in which
such losses become evident. There were no such losses at March 31, 2006 for any
custom content development services. For arrangements requiring customer
acceptance, revenue is deferred until the earlier of the end of the acceptance
period or until written notice of acceptance is received from the customer.

Sales by VARs and Agents

The Company has engaged organizations within the United States of
America and in 12 other countries that market and sell its products and services
through their sales distribution channels that are value added resellers (VARs).
The VARs primarily sell, on a non-exclusive basis, our iLinc suite of Web
conferencing products and predominately sell purchase-model perpetual licenses
for installation and hosting by the VAR's customer. The Company's VAR contracts
have terms of one to two years and are automatically renewed for an additional
like term unless either party terminates the agreement for breach or other
financial reasons. Each VAR purchases the product from the Company and resells
the product to its customers. Under those VAR agreements, the Company records
only the amount paid by the VAR as revenue and recognizes revenue when all
revenue recognition criteria have been met. The Company also engages
organizations that act as mere agents or distributors of its products
("Agents"), without title passing to the Agent and with the Agent only receiving
a commission on the consummation of the sale to our customer. The Company
records revenue on sales by Agents on a gross basis before commissions due to
the Agent and only when all revenue recognition criteria are met as would be
with a sale by the Company directly to a customer not involving an agent.

Sales Reserves

The sales reserve is an estimate for losses on receivables resulting
from customer credits, cancellations and terminations and is recorded, if at
all, as a reduction in revenue at the time of the sale. Increases to sales
reserve are charged to revenue, reducing the revenue otherwise reportable. The
sales reserve estimate is based on an analysis of the historical rate of
credits, cancellations, and terminations. The accuracy of the estimate is
dependent on the rate of future credits, cancellations, and terminations being
consistent with the historical rate. If the rate of actual credits,
cancellations and terminations is different than the historical rate, revenue
would be different from what was reported. As of March 31, 2006, we did not
believe that an accrual for sales reserves was necessary, and we will continue
to assess the adequacy of the sales reserve account balance on a quarterly
basis.

Allowance for Doubtful Accounts

We record an allowance for doubtful accounts to provide for losses on
accounts receivable due to customer credit risk. Increases to the allowance for
doubtful accounts are charged to general and administrative expense as bad debt
expense. Losses on accounts receivable due to financial distress or failure of
the customer are charged to the allowance for doubtful accounts. The allowance
estimate is based on an analysis of the historical rate of credit losses. The
accuracy of the estimate is dependent on the future rate of credit losses being
consistent with the historical rate. If the rate of future credit losses is
greater than the historical rate, then the allowance for doubtful accounts may
not be sufficient to provide for actual credit losses.

The allowance for doubtful accounts is, as of March 31, 2006, $120,000
and $84,000, respectively, as March 31, 2006 and 2005 and is based on our
historical collection experience. Any adjustments to these accounts are
reflected in the income statement for the current period, as an adjustment to
revenue in the case of the sales reserve and as a general and administrative
expense in the case of the allowance for doubtful accounts.

SOFTWARE DEVELOPMENT COSTS

The Company accounts for software development costs in accordance with
Statements of Financial Accounting Standards ("SFAS") No. 86, "Accounting for
the Costs of Computer Software to be Sold, Leased or Otherwise Marketed,"
whereby costs for the development of new software products and substantial
enhancements to existing software products are expensed as incurred until
technological feasibility has been established, at which time any additional
costs are capitalized. Technological feasibility is established upon completion
of a working model. Costs of maintenance and customer support are charged to
expense when related revenue is recognized or when those costs are incurred,
whichever occurs first. Software development costs incurred subsequent to the
establishment of technological feasibility have not been significant to date,
and all software development costs have been charged to research and development
expense in the accompanying consolidated statements of operations.

INTANGIBLE ASSETS

On April 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other
Intangible Assets" and as a result, the Company's goodwill is no longer
amortized. SFAS No. 142 requires that goodwill be tested annually (or more
frequently if impairment indicators arise) for impairment. Upon initial
application of SFAS No. 142, the Company determined there was no impairment of
goodwill. The Company has established the date of March 31 on which to value its
goodwill.

The Company has made acquisitions of companies having operations or
technology in areas within its strategic focus and has recorded goodwill and
other intangible assets associated with its acquisitions. Future adverse changes
in market conditions or poor operating results of the underlying acquired
operations could result in losses or an inability to recover the carrying value
of the goodwill and other intangible assets thereby possibly requiring an
impairment charge in the future. The Company, based in part on a third party
full scope valuation with a valuation date of March 31, 2006, has determined
that impairment of that goodwill and intangible assets was not required. Based
upon that third party valuation and further analysis performed, the Company's
management believes no such impairment exists at March 31, 2006.

Debt issuance costs are amortized using the straight-line method over
the term of the related debt obligations.

Other intangibles primarily consist of the LearnLinc and Glyphics
purchase consideration that was allocated to purchased software and customer
relationship intangibles. Such other intangibles are amortized over their
expected benefit period of 24 to 72 months.

INCOME TAXES

The Company utilizes the liability method of accounting for income
taxes in accordance with SFAS No. 109 "Accounting for Income Taxes." Under this
method, deferred taxes are determined based on differences between the financial
reporting and tax basis of assets and liabilities and are measured using the
enacted marginal tax rates currently in effect when the differences reverse.

The Company has recorded a full valuation allowance to reduce the
carrying value of its net deferred tax assets because it has concluded that it
is more likely than not that it will not be realized. The Company has considered
future taxable income and ongoing prudent and feasible tax planning strategies
in assessing the need for the valuation allowance. In the event the Company was
to determine that it would be able to realize its deferred tax assets in the
future in excess of its net recorded amount, an adjustment to the deferred tax
asset would increase net income in the period such a determination was made.

STOCK-BASED COMPENSATION

In December 2002, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure - an Amendment to SFAS No. 123." SFAS No. 148 provides alternative
methods of transition for a voluntary change to the fair value based method on
accounting for stock-based employee compensation. The Company has adopted the
disclosure provisions of SFAS No. 123 and accordingly the implementation of SFAS
No. 148 did not have a material affect on the Company's consolidated financial
position or results of operations.

In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment"
("SFAS 123R"). Under this new standard, companies will no longer be able to
account for share-based compensation transactions using the intrinsic method in
accordance with APB 25. Instead, companies will be required to account for such
transactions using a fair-value method and to recognize the expense over the
service period. SFAS 123R will be effective for periods beginning after June 15,
2005 and allows for several alternative transition methods. The Company expects
to adopt SFAS 123R in its first quarter of fiscal 2007 on a prospective basis,
which will require recognition of compensation expense for all stock option or
other equity-based awards that vest or become exercisable after the effective
date. We are currently assessing the impact of this proposed Statement on our
share-based compensation programs, however, we expect that the requirement to
expense stock options and other equity interests that have been or will be
granted to employees will increase our operating expenses and result in lower
earnings per share.

GUARANTEES AND INDEMNIFICATIONS

The Company provides a limited 90-day warranty for certain of its
software products. Historically, claims by customers under this limited warranty
have been minimal, and as such, no warranty accrual has been provided for in the
Company's consolidated financial statements.

In November 2002, the FASB issued FASB Interpretation ("FIN") No. 45
"Guarantor's Accounting and Disclosure Requirements for Guarantees, including
Indirect Guarantees of Indebtedness of Others -- an interpretation of FASB
Statements No. 5, 57 and 107 and rescission of FIN 34." The following is a
summary of the Company's agreements that the Company has determined are within
the scope of FIN No. 45.

Under its bylaws, the Company has agreed to indemnify its officers and
directors for certain events or occurrences arising as a result of the officers
or directors serving in such capacity. The term of the indemnification period is
for the officer or director's lifetime. The maximum potential amount of future
payments the Company could be required to make under these indemnification
agreements is unlimited. However, the Company has a director and officer
liability insurance policy that limits its exposure and enables it to recover a
portion of any future amounts paid. As a result of its insurance policy
coverage, the Company believes the estimated fair value of these indemnification
agreements is minimal and has no liabilities recorded for these agreements as of
March 31, 2006.

The Company enters into indemnification provisions under (i) its
agreements with other companies in its ordinary course of business, typically
with business partners, contractors, and customers, landlords and (ii) its
agreements with investors. Under these provisions the Company generally
indemnifies and holds harmless the indemnified party for losses suffered or
incurred by the indemnified party as a result of the Company's activities or, in
some cases, as a result of the indemnified party's activities under the
agreement. The maximum potential amount of future payments the Company could be
required to make under these indemnification provisions is unlimited. The
Company has not incurred material costs to defend lawsuits or settle claims
related to these indemnification agreements. As a result, the Company believes
the estimated fair value of these agreements is minimal. Accordingly, the
Company has no liabilities recorded for these agreements as of March 31, 2006.

RECENT ACCOUNTING PRONOUNCEMENTS

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The following discusses our exposure to market risk related to changes
in interest rates, equity prices and foreign currency exchange rates. Market
risk generally represents the risk of loss that may result from the potential
change in the value of a financial instrument as a result of fluctuations in
interest rates and market prices. We have not traded or otherwise bought and
sold derivatives nor do we expect to in the future. We also do not invest in
market risk sensitive instruments for trading purposes.

We provide our products and services to customers in the United States,
Europe and elsewhere throughout the world. Sales are predominately made in U.S.
Dollars, however, we have sold products that were payable in Euros and Canadian
Dollars. A strengthening of the U.S. Dollar could make our products and services
less competitive in foreign markets.

The primary objective of the Company's investment activity is to
preserve principal while at the same time maximizing yields without
significantly increasing risk. To achieve this objective, the Company maintains
its portfolio of cash equivalents in a variety of money market funds.

As of March 31, 2006, the carrying value of our outstanding convertible
redeemable subordinated notes and unsecured senior notes was approximately $8.2
million at fixed interest rates of 10% to 12%. In certain circumstances, we may
redeem this long-term debt. Our other components of indebtedness of $447,000
bear interest rates of 6% to 26.99%. Increases in interest rates could increase
the interest expense associated with future borrowings, if any. We do not hedge
against interest rate increases.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

INDEX TO FINANCIAL STATEMENTS

PAGE(S)
FINANCIAL STATEMENTS:
Report of Independent Registered Public Accounting Firm.................. 36
Report of Independent Registered Public Accounting Firm.................. 37
Consolidated Balance Sheets at March 31, 2006 and 2005................... 38
Consolidated Statements of Operations
for the years ended March 31, 2006, 2005 and 2004 ................. 39
Consolidated Statements of Shareholders' Equity
for the years ended March 31, 2006, 2005 and 2004................... 40
Consolidated Statements of Cash Flows
for the years ended March 31, 2006, 2005 and 2004................... 42
Notes to Consolidated Financial Statements............................... 43

FINANCIAL STATEMENTS SCHEDULE:
Report of Independent Registered Public Accounting Firm.................. 74
Report of Independent Registered Public Accounting Firm.................. 75
Schedule II - Valuation and Qualifying Accounts
for the years ended March 31, 2006, 2005 and 2004................... 76

All other schedules are omitted because they are not applicable.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
-------------------------------------------------------

To the Stockholders and Board of Directors
of iLinc Communications, Inc. and Subsidiaries:

We have audited the accompanying consolidated balance sheets of iLinc
Communications, Inc. and subsidiaries as of March 31, 2006 and 2005 and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the years then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of iLinc
Communications, Inc. and its subsidiaries as of March 31, 2006 and 2005, and the
consolidated results of its operations and cash flows for each of the years then
ended, in conformity with accounting principles generally accepted in the United
States of America.

/s/ Epstein, Weber & Conover, PLC
Scottsdale, Arizona
June 13, 2006

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
-------------------------------------------------------

The Board of Directors and Shareholders
iLinc Communications, Inc. and Subsidiaries

We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of iLinc Communications, Inc. for the year
ended March 31, 2004. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements, assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated results of operations and
cash flows of iLinc Communications, Inc. and its subsidiaries for the year ended
March 31, 2004, in conformity with accounting principles generally accepted in
the United States of America.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company has a significant
working capital deficiency and has suffered substantial recurring losses and
negative cash flows from operations. These matters, among others, raise
substantial doubt about the Company's ability to continue as a going concern.
The long-term continuation of the Company is dependent on the Company's ability
to raise additional equity or debt capital, to increase its revenues, to
generate positive cash flows from operations and to achieve profitability. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

/s/ BDO Seidman, LLP

Costa Mesa, California
May 21, 2004

ILINC COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

MARCH 31, MARCH 31,
2006 2005
-------- --------

ASSETS
Current assets:
Cash and cash equivalents ....................................................... $ 466 $ 532
Accounts receivable, net of allowance for doubtful accounts of $120 and
$84, at March 31, 2006 and 2005, respectively ................................. 2,207 1,949
Note receivable ................................................................. 12 25
Prepaid expenses and other current assets ....................................... 30 69
-------- --------
Total current assets ........................................................ 2,715 2,575

Property and equipment, net ..................................................... 336 1,221
Goodwill ........................................................................ 11,206 10,797
Intangible assets, net .......................................................... 1,731 2,504
Other assets .................................................................... 12 18
Assets of discontinued operations ............................................... -- 114
-------- --------
Total assets ................................................................ $ 16,000 $ 17,229
======== ========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt .............................................. $ 199 $ 885
Accounts payable and accrued liabilities ....................................... 3,470 4,731
Current portion of capital lease liabilities ................................... 70 196
Deferred revenue ............................................................... 917 1,014
-------- --------
Total current liabilities ................................................... 4,656 6,826

Long-term debt, less current maturities, net of discount and beneficial conversion
feature of $1,493 and $2,120, at March 31, 2006 and 2005, respectively ...... 6,974 6,702
Capital lease liabilities, less current maturities .............................. -- 31
-------- --------
Total liabilities ........................................................... 11,630 13,559
-------- --------

Commitments and contingencies

Shareholders' Equity:
Preferred stock series A and B, 10,0000,000 shares authorized:
Preferred stock series A, $.001 par value, 127,500 and 127,500 shares issued
and outstanding, liquidation preference of $1,275,000 and $1,275,000, at
March 31, 2006 and 2005, respectively ........................................ -- --
Preferred stock series B, $.001 par value, 70,000 and no shares issued and
outstanding, liquidation preference of $700,000 and $0, at March 31, 2006 and
2005 respectively ............................................................ -- --
Common stock, $.001 par value, 100,000,000 shares authorized, 28,923,168 and
25,577,287 issued, at March 31, 2006 and 2005, respectively .................. 29 26
Additional paid-in capital ..................................................... 44,228 42,175
Accumulated deficit ............................................................ (38,479) (37,123)
Less: 1,432,412 treasury shares at cost ........................................ (1,408) (1,408)
-------- --------
Total shareholders' equity .................................................. 4,370 3,670
-------- --------

Total liabilities and shareholders' equity .................................. $ 16,000 $ 17,229
======== ========

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS.

ILINC COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, MARCH 31, MARCH 31,
2006 2005 2004
-------- -------- --------
Revenues
Software Licenses .................................. $ 3,014 $ 3,274 $ 2,240
Software and audio services ........................ 7,070 5,052 1,195
Maintenance and professional services .............. 2,448 2,043 2,471
-------- -------- --------
Total revenues ................................. 12,532 10,369 5,906
-------- -------- --------

Cost of revenues
Software Licenses .................................. 51 154 219
Software and audio services ........................ 3,881 3,799 526
Maintenance and professional services .............. 827 792 1,248
Amortization of acquired developed technology ...... 376 451 233
-------- -------- --------
Total cost of revenues ........................... 5,135 5,196 2,226
-------- -------- --------

Gross profit .......................................... 7,397 5,173 3,680
-------- -------- --------

Operating expenses
Research and development ........................... 1,392 1,545 1,034
Sales and marketing ................................ 3,075 4,078 2,202
General and administrative ......................... 2,187 2,924 1,831
-------- -------- --------
Total operating expenses ......................... 6,654 8,547 5,067
-------- -------- --------
Income/(loss) from operations ......................... 743 (3,374) (1,387)
-------- -------- --------

Interest expense ...................................... (1,041) (1,081) (825)
Amortization of beneficial debt conversion ............ (856) (853) (408)
-------- -------- --------
Total interest expense .......................... (1,897) (1,934) (1,233)
Interest income and other ............................. 117 25 6
Gain on sale of assets ................................ 40 -- --
Net (loss)/ gain on settlement of debt and other
obligations ........................................... (257) 82 349
Gain/ (loss) on foreign currency translation .......... -- 2 (28)
-------- -------- --------
Other loss from continuing operations ................. (1,997) (1,825) (906)
-------- -------- --------

Loss from continuing operations before income taxes ... (1,254) (5,199) (2,293)
Income tax expense .................................... -- -- --
-------- -------- --------

Loss from continuing operations ....................... (1,254) (5,199) (2,293)
Income/ (loss) from discontinued operations ........... 83 (128) 275
-------- -------- --------

Net loss .............................................. (1,171) (5,327) (2,018)
Series A and B preferred stock dividends .............. (130) (105) (75)
Imputed preferred stock dividends ..................... (55) -- (247)
-------- -------- --------

Loss available to common shareholders ................. $ (1,356) $ (5,432) $ (2,340)
======== ======== ========

Income/ (Loss) per common share, basic and diluted
From continuing operations ......................... $ (0.05) $ (0.23) $ (0.16)
From discontinued operations ....................... -- -- 0.02
-------- -------- --------
Net loss per common share .......................... $ (0.05) $ (0.23) $ (0.14)
======== ======== ========

Number of shares used in calculation of income/ (loss)
per share basic and diluted: ........................ 26,075 23,179 16,743
======== ======== ========

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS.

ILINC COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)

CONVERTIBLE PREFERRED
STOCK COMMON STOCK ADDITIONAL TOTAL
--------------------- --------------------- PAID - IN ACCUMULATED TREASURY SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT STOCK EQUITY
------------------------------------------------------------------------------------------
Balances, April 1, 2003 ............ -- $ -- 17,018 $ 17 $ 32,854 $(29,300) $ (1,251) $ 2,320

Issuances of common stock .......... -- -- 25 -- 14 -- -- 14
Repricing of warrants .............. -- -- -- -- 12 -- -- 12
Vesting of restricted
stock grant ...................... -- -- -- -- 40 -- -- 40
Issuance of convertible
preferred stock in
private placement (net
of expenses of $212) ............ 150 -- -- -- 1,288 -- -- 1,288
Convertible subordinated
notes converted to
common stock ..................... -- -- 1,572 2 1,099 -- -- 1,101
Convertible redeemable
subordinated notes
converted to common
stock ........................... -- -- 150 -- 150 -- -- 150
Beneficial conversion
feature associated with
convertible redeemable
notes .............................. -- -- -- -- 214 -- -- 214
Debt and accrued liability
converted to common stock .......... -- -- 492 -- 456 -- -- 456
Preferred stock dividends .......... -- -- -- -- -- (75) -- (75)
Warrant grant ...................... -- -- -- -- 21 -- -- 21
Affiliate Practice
terminations ....................... -- -- -- -- -- -- (157) (157)
Imputed preferred stock
dividends .......................... -- -- -- -- 247 (247) -- --
Net loss ........................... -- -- -- -- -- (2,018) -- (2,018)
------------------------------------------------------------------------------------------
Balances, March 31, 2004 ........... 150 -- 19,257 19 36,395 (31,640) (1,408) 3,366

Glyphics acquisition ............... -- -- 2,819 3 2,760 -- -- 2,763
Warrant expense .................... -- -- -- -- 90 -- -- 90
Vesting of restricted stock grant .. -- -- -- -- 40 -- -- 40
Issuance of common stock in private
placement (net of expenses) ..... -- -- 1,635 2 1,734 (51) -- 1,685
Convertible notes converted to
common stock .................... -- -- 714 1 493 -- -- 494
Preferred stock conversions ........ (23) -- 450 -- -- -- -- --
Debt converted to common stock ..... -- -- 551 -- 583 -- -- 583
Preferred stock dividends .......... -- -- -- -- -- (105) -- (105)
Stock option exercises ............. -- -- 151 1 80 -- -- 81
Net loss ........................... -- -- -- -- -- (5,327) -- (5,327)
------------------------------------------------------------------------------------------
Balances, March 31, 2005 ........... 127 -- 25,577 26 42,175 (37,123) (1,408) 3,670

Warrant grant ...................... -- -- -- -- 6 -- -- 6
Series A preferred stock dividends . -- -- -- -- -- (103) -- (103)
Series B preferred stock dividends . -- -- -- -- -- (27) -- (27)
Vesting of restricted stock grant .. -- -- -- -- 40 -- -- 40
Warrant exercise ................... -- -- 164 1 40 -- -- 41
Warrant conversion expense
due to warrant repricing ........ -- -- -- -- 7 -- -- 7
Issuance of Series B preferred stock
in private placement from
accounts payable and accrued
liabilities conversion .......... 55 -- -- -- 550 -- -- 550
Issuance of Series B preferred stock
in private placement ............ 15 -- -- -- 150 -- -- 150
Imputed preferred stock dividend ... -- -- -- -- 55 (55) -- --
Conversion of 2002 convertible
redeemable subordinated notes
and accrued interest to
common stock .................... -- -- 1,971 2 531 -- -- 533

Conversion expense associated with
conversion of 2002 convertible
redeemable subordinated notes to
common stock .................... -- -- -- -- 338 -- -- 338
Conversion of 2004 senior
unsecured promissory
notes to common stock ........... -- -- 903 -- 225 -- -- 225
Gain on conversion of 2004
senior unsecured
promissory notes to
common stock .................... -- -- -- -- (9) -- -- (9)
Issuance of common shares
held in escrow to
Glyphics shareholders ........... -- -- 308 -- 120 -- -- 120

Net loss ........................... -- -- -- -- -- (1,171) -- (1,171)
------------------------------------------------------------------------------------------
Balances, March 31, 2006 ........... 197 $ -- 28,923 $ 29 $ 44,228 $(38,479) $(1,408) $ 4,370
==========================================================================================

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL STATEMENTS.

ILINC COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED MARCH 31, ENDED MARCH 31, ENDED MARCH 31,
2006 2005 2004
------- ------- -------
Cash flows from continuing operating activities:
Loss from continuing operations .............................. $(1,254) $(5,199) $(2,293)
Adjustments to reconcile loss from continuing operations to
cash provided by/ (used in) continuing operating activities:
Provision for/ (recovery of) bad debts .................... 111 212 (148)
Loss on disposal of fixed assets .......................... -- 6 --
Depreciation and amortization ............................. 1,684 1,657 462
Warrant expense ........................................... 6 90 33
Loss on CNLearn note receivable settlement ................ 8 -- --
Debt conversion expense, net .............................. 249 -- --
Gain on sale of assets to Learn Something ................. (40) -- --
Stock compensation expense ................................ 40 40 40
Net gain on settlement of debt and other obligations ...... -- (82) (349)
Accretion of debt discount to interest expense ........... 626 676 292
Stock issued for contingent compensation .................. 60 -- 300
Changes in operating assets and liabilities, net of
business acquisitions:
(Increase) in accounts receivable ....................... (352) (450) (352)
Decrease/ (increase) in prepaid expenses and other
current assets ........................................ 39 39 (76)
Decrease in other assets ................................ 6 13 5
(Decrease)/ increase in accounts payable and accrued
liabilities ........................................... (452) 465 753
(Decrease)/ increase in deferred revenue ................ (97) (85) 267
------- ------- -------
Net cash provided by/ (used in) operating activities . 634 (2,618) (1,066)
------- ------- -------

Cash flows from investing activities:
Capital expenditures ...................................... (55) (153) (66)
Acquisitions, net of cash acquired ........................ (4) 4 (367)
Acquisition royalty earnout ............................... (261) (70) --
Deferred acquisitions costs ............................... -- -- 44
Proceeds from sale of software ............................ 20 -- --
Repayment of notes receivable ............................. 8 25 25
------- ------- -------
Net cash used in investing activities ................ (292) (194) (364)
------- ------- -------

Cash flows from financing activities:
Proceeds from issuance of preferred stock ................. 150 -- 1,500
Preferred stock dividends ................................. (116) (105) (75)
Proceeds from issuance of long-term debt .................. 19 4,250 500
Stock issuance expense .................................... -- -- 14
Proceeds from exercise of stock options ................... -- 81 --
Proceeds from exercise of stock warrants .................. 41 -- --
Repayment of long-term debt ............................... (308) (514) (559)
Repayment of capital lease liabilities .................... (157) (328) (242)
Financing costs incurred .................................. (24) (448) (212)
------- ------- -------
Net cash (used in)/ provided by financing activities . (395) 2,936 926
------- ------- -------

Cash flows from continuing operations ........................ (53) 124 (504)
Cash flows from discontinued operations ...................... (13) 116 387
------- ------- -------

Net change in cash and cash equivalents .............. (66) 240 (117)

Cash and cash equivalents, beginning of period ............... 532 292 409
------- ------- -------

Cash and cash equivalents, end of period ..................... $ 466 $ 532 $ 292
======= ======= =======

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Headquartered in Phoenix, Arizona, iLinc Communications, Inc. is a
leading provider of Web conferencing, audio conferencing and collaboration
software and services. The Company develops and sells software that provides
real-time collaboration and training using Web-based tools. Our four-product
iLinc Suite, led by LearnLinc (which also includes MeetingLinc, ConferenceLinc,
and SupportLinc), is an award winning virtual classroom, Web conferencing and
collaboration suite of software. With its Web collaboration, conferencing and
virtual classroom products, the Company provides simple, reliable and
cost-effective tools for remote presentations, meetings and online events. The
Company's software is based on a proprietary architecture and code that finds
its origins as far back as 1994, in what the Company believes to be the
beginnings of the Web collaboration industry. Versions of the iLinc Suite have
been translated into six languages, and it is currently available in version
8.01. The Company's customers may choose from several different pricing options
for the iLinc Suite, and may receive its products on a stand-alone basis or
integrated with one or a number of its other award-winning products, depending
upon their needs. Uses for the four-product suite of Web collaboration software
include online business meetings, sales presentations, training sessions,
product demonstrations and technical support assistance. The Company sells its
software solutions to large and medium-sized corporations inside and outside of
the Fortune 1000, targeting certain vertical markets. The Company markets its
products using a direct sales force and a distribution channel consisting of
agents and value added resellers. The Company allows customers to choose between
purchasing a perpetual license and subscribing to a term license to its
products, providing for flexibility in pricing and payment methods.

The Company began operations in March of 1998. Its formation included
the simultaneous rollup of fifty private businesses and an initial public
offering. The Company's initial goals included providing training enhancement
services over the Internet using a browser based system. In 2002, the Company
began shifting its focus away from its legacy business, settling on its current
focus of Web conferencing and audio conferencing and in doing so ultimately
changed its name to iLinc Communications, Inc. in February 2004.

The Company's consolidated financial statements for the year ended
March 31, 2004 were prepared on a basis which assumed that it would continue as
a going concern, and which contemplated the realization of its assets and the
satisfaction of its liabilities and commitments in the normal course of
business.

2. DISCONTINUED OPERATIONS

Effective January 1, 2004, the Company discontinued its dental practice
management services. In accordance with SFAS 144 "ACCOUNTING FOR IMPAIRMENT ON
DISPOSAL OF LONG-LIVED ASSETS," the Company has restated its historical results
to reflect its dental practice management service business segment as a
discontinued operation.

A summary of the results from discontinued operations for the years
ended March 31, 2006, 2005, and 2004 are as follows:

FOR THE YEARS ENDED MARCH 31,
---------------------------------
2006 2005 2004
----- ----- -----
(IN THOUSANDS)

Net revenue ................................................ $ -- $ -- $ 128
Operating expenses ......................................... 3 -- (87)
----- ----- -----
Income/ (loss) from operations ............................. (3) -- 215
Interest expense ........................................... (1) (36) (86)
Interest income ............................................ -- -- 29
Gain on termination of service agreements with Affiliated
Practices ................................................ 87 42 63
Gain on debt forgiveness ................................... -- 15 54
Loss on settlement of capital lease ........................ -- (149) --
Tax expense ................................................ -- --
----- ----- -----
Net income/ (loss) from discontinued operations ............ $ 83 $(128) $ 275
===== ===== =====

Interest expense of $1,000, $36,000, and $86,000 for fiscal years 2006,
2005, and 2004, respectively, was allocated to the discontinued dental practice
management services business segment since it relates to specific debts that
were incurred in order to provide the dental practice management services.

Discontinued operations are expected to generate cash flows through the
third quarter of fiscal 2007.

A summary of the assets and liabilities of its discontinued operations
are as follows:

AS OF MARCH 31,
2006 2005
------------ ------------
(IN THOUSANDS)

Notes receivable, net........................... $ -- $ 114
Capital lease settlement liability.............. $ 53 $ 263

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements of the Company include the
accounts of the Company and its wholly owned subsidiaries. All significant
inter-company accounts and transactions have been eliminated in consolidation.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses and related disclosure of contingent assets and
liabilities. The more significant areas requiring use of estimates and judgment
relate to revenue recognition, accounts receivable and notes receivable
valuation reserves, realizability of intangible assets, realizability of
deferred income tax assets and the evaluation of contingencies and litigation.
Management bases its estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances. The
results of such estimates form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources. Actual results may materially differ from these estimates under
different assumptions or conditions.

REVENUE RECOGNITION

Our revenues are generally classified into three main categories:
license revenue, software and audio service revenue and maintenance and
professional service revenue. License revenue is generated from the sale of its
iLinc suite of Web conferencing software on a software purchase model basis
under the traditional perpetual model or the iLinc Enterprise Unlimited model
launched in fiscal 2006 and from the sale of its off-the-shelf courseware,
primarily the online Bridge (Mini-MBA) program. Software and audio service
revenue is generated from the sale of its iLinc Suite of Web conferencing
software on an Application Service Provider ("ASP") model basis, the sale of its
iLinc Suite software on a per-minute basis, and includes all revenue from the
provision of audio conferencing services, as well as, all service contracts that
might include hosting, and training services. Maintenance and professional
service revenue is generated from the sale of maintenance contracts related to
its iLinc suite of Web conferencing software on a purchase model basis, when
hosted by the customer, and from the sale of professional services that are
associated with its custom content development services.

Sales of Software Licenses

Because the Company offers the iLinc Suite software in one of two
forms, the first being a purchase model and the second being an ASP or
per-minute model, we have separate revenue recognition policies applicable to
each licensing model. With each sale of its Web conferencing products and
services, the Company executes written contracts with its customers that govern
the terms and conditions of each software license sale, hosting agreement,
maintenance and support agreement and other services arrangements. The Company
does not typically execute written agreements for the sale of audio conferencing
services.

Each of these factors, particularly the determination of whether a fee
is fixed and determinable and the collectability of the resulting receivable,
requires the application of the judgment and the estimates of management.
Therefore, significant management judgment is utilized and estimates must be
made in connection with the revenue the Company recognizes in any accounting
period. The Company analyzes various factors, including a review of the nature
of the license or product sold, the terms of each specific transaction, the
vendor specific objective evidence of the elements required by SOP 97-2, any
contingencies that may be present, its historical experience with like
transactions or with like products, the creditworthiness of the customer, and
other current market and economic conditions. Changes in its judgment based upon
these factors and others could impact the timing and amount of revenue that the
Company recognizes, and ultimately the results of operations and its financial
condition. Therefore, the recognition of revenue is a key component of its
results of operations.

At the time of the sale of its software license on a purchase license
basis, we assess whether the fee associated with the transaction is fixed or
determinable based on the payment terms associated with the transaction before
recording immediate revenue recognition, assuming all other elements of revenue
recognition are present. Billings to its customers are generally due within 30
to 90 days, with payment terms up to 180 days available to certain credit worthy
customers. The Company believes that it has sufficient history of collecting all
amounts within these normal payment terms and to conclude that the fee is fixed
or determinable at the time of the perpetual license sale. The Company considers
all arrangements with payment terms longer than 180 days not to be fixed or
determinable and for arrangements involving the extended payment terms exceeding
180 days, revenue recognition occurs when payments are collected, assuming all
other elements of revenue recognition are present.

In addition, in assessing whether collection is probable or not for a
given transaction, and therefore whether the Company should recognize the
revenue, the Company makes estimates regarding the creditworthiness of the
customer. Initial creditworthiness is assessed through internal credit check
processes, such as credit applications or third party reporting agencies.
Creditworthiness for transactions to existing customers primarily relies upon a
review of their prior payment history. The Company does not request collateral
or other security from its customers. If the Company determines that collection
of a fee is not reasonably assured, it defers the fee and recognizes revenue at
the time collection becomes reasonably assured, which is generally upon the
receipt of payment or other change in circumstance.

Sales of Concurrent Licenses on an ASP and Per-minute Basis

Historically and on a continuing basis, a majority of its license
revenue has been generated under the software purchase model basis, with revenue
recognized based on a one-time sale of a perpetual license. In addition to that
purchase model software sale, the Company also offers a more flexible concurrent
connection seat license and a pay-per-minute usage based model. Under its ASP
model, a customer may subscribe to a certain number of concurrent connections or
seats for a fixed period, often a year. Under this ASP method, the Company
recognizes the revenue associated with these monthly, fixed-fee subscription
arrangements each month on a straight-line basis over the term of the agreement.
Other customers choose to avoid annual commitments and instead use its Web
conferencing and audio conferencing products and services based upon a
per-minute or usage-based pricing model. Per-minute customers may also include
those customers on an ASP model that incur overage fees for usage in excess of
the permitted number of seats or minutes in excess of the minimum commitment.
The per-minute fees that include overage fees are charged at the end of each
month and recorded as revenue at the end of each month as the services are
provided. Customers with contractually established minimum per-minute fees are
assessed the greater of the established minimum or the actual usage at the end
of each month. Customers wishing to avoid monthly commitments may use the
e-commerce portion of its Web site that permits the use of its Web conferencing
services on a pay-per-use basis, with no monthly minimum, purchasing the
services and paying for those services online by credit card.

Sales of Maintenance, Hosting and other Related Services

The Company offers with each sale of its software products a software
maintenance, upgrade and support arrangement. These contracts may be elements in
a multiple-element arrangement or may be sold in a stand-alone basis. Revenues
from maintenance and support services are recognized ratably on a straight-line
basis over the term that the maintenance service is provided. Maintenance
contracts typically provide for 12-month terms with maintenance contracts
available up to 36 months. The Company typically charges 15% to 18% of the
software purchase price for a 12-month contract with discounts available for
longer-term agreements. The Company also typically charges 5% to 10% of the
software purchase price for hosting of purchase model software sales for
customers who do not wish to install and host the iLinc Suite on their own
premises or that of a co-location facility. Charges for hosting are likewise
spread ratably over the term of the hosting agreement, with the typical hosting
agreement having a term of 12 months, with renewal on an annual basis. The
annual maintenance and support fees and hosting fees associated with an iLinc
Enterprise Unlimited license are based upon a fixed rate per seat license that
is active on each annual anniversary of the iLinc Enterprise Unlimited license
agreement and that is approximately equivalent to the 15% to 18% charged for
concurrent seat perpetual license contracts.

Revenues from consulting, training and education services are
recognized either as the services are performed, ratably over a subscription
period, or upon completing a project milestone if defined in the agreement.
These consulting, training and education services, are not considered essential
to the functionality of its products as these services do not alter the product
capabilities, do not require specialized skills, and are often performed by the
customer or its VAR's customers without access to those services.

Implementation, consulting, training, translation, and other event type
services may also be sold in conjunction with the sale of its software products.
Those services are generally recognized as the services are performed or earlier
when all other revenue recognition criteria have been met. Although the Company
may provide implementation, training and consulting services on a time and
materials basis, a significant portion of these services have been provided on a
fixed-fee basis.

Should the sale of its software involve an arrangement with multiple
elements (for example, the sale of a software license along with the sale of
maintenance and support to be delivered over the contract period), the Company
allocates revenue to each component of the arrangement using the residual value
method based on the fair value of the undelivered elements. The Company defers
revenue from the arrangement equivalent to the fair value of the undelivered
elements and recognizes the remaining amount at the time of the delivery of the
product or when all other revenue recognition criteria have been met. Fair
values for the ongoing maintenance and support obligations are based upon
separate sales of renewals of maintenance contracts. Fair value of services,
such as training or consulting, is based upon separate sales of these services
to other customers. Thus, these types of arrangements require us to make
judgments about the fair value of undelivered arrangements.

Sales of Custom Content Development Services

A component of its maintenance and professional services revenue is
derived from custom content development services. The sale of custom content
development services often involves the execution of a master service agreement
and corresponding work orders describing the deliverable due, the costs
involved, the project milestones and the payments required. These custom content
development services are primarily outsourced to a subcontractor, Interactive
Alchemy. For contracts and revenues related exclusively to custom content
development services, the Company recognizes revenue and profit as work
progresses on custom content service contracts using the
percentage-of-completion method. This method relies on estimates of total
expected contract revenue and costs as each job progresses throughout the
relevant contract period. The Company follows this method since reasonably
dependable estimates of the costs applicable to various stages of a custom
content service contract can be made. Recognized revenues and profit are subject
to revisions as the custom content service contract progresses to completion.
Revisions in profit estimates are charged to income in the period in which the
facts that give rise to the revision become known. Customers sometimes request
modifications to projects in progress which may result in significant revisions
to cost estimates and profit recognition, and the Company may not be successful
in negotiating additional payments related to the changes in scope of requested
services. Should this arise, the provision for any estimated losses on
uncompleted custom content service contracts are made in the period in which
such losses become evident. There were no such losses at March 31, 2006, 2005,
and 2004 for any custom content development services. For arrangements requiring
customer acceptance, revenue is deferred until the earlier of the end of the
acceptance period or until written notice of acceptance is received from the
customer.

Sales by VARs and Agents

The Company has engaged organizations within the United States of
America and in 12 other countries that market and sell its products and services
through their sales distribution channels that are value added resellers (VARs).
The VARs primarily sell, on a non-exclusive basis, its iLinc suite of Web
conferencing products and predominately sell purchase-model perpetual licenses
for installation and hosting by the VAR's customer. The Company's VAR contracts
have terms of one to two years and are automatically renewed for an additional
like term unless either party terminates the agreement for breach or other
financial reasons. Each VAR purchases the product from the Company and resells
the product to its customers. Under those VAR agreements, the Company records
only the amount paid by the VAR as revenue and recognizes revenue when all
revenue recognition criteria have been met. The Company also engages
organizations that act as mere agents or distributors of its products
("Agents"), without title passing to the Agent and with the Agent only receiving
a commission on the consummation of the sale to its customer. The Company
records revenue on sales by Agents on a gross basis before commissions due to
the Agent and only when all revenue recognition criteria are met as would be
with a sale by the Company directly to a customer not involving an agent.

Sales Reserve

The sales reserve is an estimate for losses on receivables resulting
from customer credits, cancellations and terminations and is recorded, if at
all, as a reduction in revenue at the time of the sale. Increases to sales
reserve are charged to revenue, reducing the revenue otherwise reportable. The
sales reserve estimate is based on an analysis of the historical rate of
credits, cancellations, and terminations. The accuracy of the estimate is
dependent on the rate of future credits, cancellations and terminations being
consistent with the historical rate. If the rate of actual credits,
cancellations and terminations is different than the historical rate, revenue
would be different from what was reported. As of March 31, 2006, the Company did
not believe that an accrual for sales reserve was necessary, but continues to
assess the adequacy of the sales reserve account balance on a quarterly basis.

Allowance for Doubtful Accounts

The Company records an allowance for doubtful accounts to provide for
losses on accounts receivable due to customer credit risk. Increases to the
allowance for doubtful accounts are charged to general and administrative
expense as bad debt expense. Losses on accounts receivable due to financial
distress or failure of the customer are charged to the allowance for doubtful
accounts. The allowance estimate is based on an analysis of the historical rate
of credit losses. The accuracy of the estimate is dependent on the future rate
of credit losses being consistent with the historical rate. If the rate of
future credit losses is greater than the historical rate, then the allowance for
doubtful accounts may not be sufficient to provide for actual credit losses.

The allowance for doubtful accounts for iLinc Web collaboration product
sales is $120,000 and $84,000, respectively, as of March 31, 2006 and 2005 and
is based on its historical collection experience. Any adjustments to these
accounts are reflected in the income statement for the current period, as an
adjustment to revenue in the case of the sales reserve and as a general and
administrative expense in the case of the allowance for doubtful accounts.

SOFTWARE DEVELOPMENT COSTS

The Company accounts for software development costs in accordance with
SFAS No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased
or Otherwise Marketed," whereby costs for the development of new software
products and substantial enhancements to existing software products are expensed
as incurred until technological feasibility has been established, at which time
any additional costs are capitalized. Technological feasibility is established
upon completion of a working model. Costs of maintenance and customer support
are charged to expense when related revenue is recognized or when those costs
are incurred, whichever occurs first. Software development costs incurred
subsequent to the establishment of technological feasibility have not been
significant to date, and all software development costs have been charged to
research and development expense in the accompanying consolidated statements of
operations.

ADVERTISING COSTS

Advertising costs are expensed as incurred. The Company's advertising
expense at March 31, 2006, 2005 and 2004 was $40,000, $22,000 and $122,000,
respectively.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid debt investments with remaining
maturities of three months or less at the date of acquisition to be cash
equivalents.

The Company maintains cash balances at various financial institutions.
Accounts at each institution are insured by the Federal Deposit Insurance
Corporation ("FDIC") up to $100,000. The Company's accounts at these
institutions may, at times, exceed the federally insured limits. At March 31,
2006 and 2005, the Company had approximately $350,000 and $403,000,
respectively, in excess of FDIC insured limits.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation is provided
using the straight-line method over the estimated useful life of the various
classes of depreciable assets as follows:

Furniture & Fixtures 5 years
Equipment 5 years
Computer Equipment 3 years
Leasehold improvements shorter of 5 years or lease term

Maintenance and repairs are charged to expense whereas renewals and
major replacements are capitalized. Gains and losses from dispositions are
included in continuing operations.

INTANGIBLE ASSETS

The Company has made acquisitions of companies having operations or
technology in areas within its strategic focus and has recorded goodwill and
other intangible assets associated with the acquisitions (see Note 8). Future
adverse changes in market conditions or poor operating results of the underlying
acquired operations could result in losses or an inability to recover the
carrying value of the goodwill and other intangible assets thereby possibly
requiring an impairment charge in the future. Based in part on a third party
full scope valuation that was performed with the valuation date of March 31,
2006, the Company's management believes that no impairment exists at March 31,
2006.

Debt issuance costs, which are included in other intangible assets, are
amortized using the straight-line method over the term of the related debt
obligations. At March 31, 2006 and 2005, debt issuance costs, net of accumulated
amortization, were $587,000 and $784,000, respectively. Amortization of debt
issuance costs have been reflected in interest expense in the accompanying
consolidated statements of operations and total $229,000, $194,000, and $104,000
for the years ended March 31, 2006, 2005, and 2004, respectively. These
intangibles are amortized over their expected lives of between 39 months and 120
months. The $229,000 of amortization includes $131,000 related to the March 2002
Convertible Note Offering and $98,000 related to the 2004 Private Placement
Offering. Included in the March 2002 Convertible Note Offering, amortization of
$50,000 was accelerated due to the conversion of $525,000 of the
notes into 1,917,088 shares of the Company's common stock. Included in the April
2004 Private Placement Offering, amortization of $10,000 was accelerated
due to the conversion of $225,000 or the offering debt into 903,205
shares of the Company's common stock.

Other intangibles primarily consist of the Glyphics, Quisic and
LearnLinc purchase consideration (see Note 8), that was allocated to purchased
software and customer relationship intangibles (see Note 6). Such other
intangibles are amortized over their expected benefit period of 24 to 72 months.

LONG-LIVED ASSETS

The Company reviews for the impairment of long-lived assets whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. The carrying amount of a long-lived asset is considered
impaired when anticipated undiscounted cash flows expected to result from the
use of the asset and its eventual disposition are less than its carrying amount.
No impairment charges were recorded for the years ended March 31, 2006, 2005 and
2004.

CUSTOMER CONCENTRATIONS

Accounts receivable represent license agreements entered into and
services rendered by the Company with its customers. The Company performs
periodic credit reports before recognizing sales to certain customers, but does
not receive collateral related to the receivables.

Revenues included one customer with transactions approximating 8%, 6%,
and 24% of net revenues for the years ended March 31, 2006, 2005, and 2004,
respectively of the trade accounts receivable balance. Revenues from
international customers for the years ended March 31, 2006, 2005, and 2004
approximated $566,000, $391,000, and $975,000, respectively.

Accounts receivable balances for two customers totaled approximately 9%
and 7%, respectively, at March 31, 2006 and one customer approximated 7% as a
percentage of the total balance outstanding at March 31, 2005.

INCOME TAXES

The Company has recorded a full valuation allowance to reduce the
carrying value of its net deferred tax assets because it has concluded that it
is more likely than not that it will not be realized due to continuing operating
losses. The Company has considered future taxable income and ongoing prudent and
feasible tax planning strategies in assessing the need for the valuation
allowance. In the event the Company was to determine that it would be able to
realize its deferred tax assets in the future in excess of its net recorded
amount, an adjustment to the deferred tax asset would increase net income in the
period such a determination was made.

STOCK-BASED COMPENSATION

In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure - an Amendment to SFAS No.
123." SFAS No. 148 provides alternative methods of transition for a voluntary
change to the fair value based method on accounting for stock-based employee
compensation. The Company has adopted the disclosure provisions of SFAS No. 123
and accordingly, the implementation of SFAS No. 148 did not have a material
effect on the Company's consolidated financial position or results of
operations.

In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment"
("SFAS 123R"). Under this new standard, companies will no longer be able to
account for share-based compensation transactions using the intrinsic method in
accordance with APB 25. Instead, companies will be required to account for such
transactions using a fair-value method and to recognize the expense over the
service period. SFAS 123R will be effective for periods beginning after March
31, 2006 and allows for several alternative transition methods. The Company
expects to adopt SFAS 123R in its first quarter of fiscal 2007 on a prospective
basis, which will require recognition of compensation expense for all stock
option or other equity-based awards that vest or become exercisable after the
effective date. The Company is currently assessing the impact of this proposed
Statement on our share-based compensation programs, however, it expects that the
requirement to expense stock options and other equity interests that have been
or will be granted to employees will increase its operating expenses and result
in lower earnings per share.

The fair value for options granted was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for the years ended March 31, 2006, 2005, and 2004:

2006 2005 2004
---- ---- ----
Risk free interest rate 4.18 - 4.55% 4.19 - 4.71% 3.73-4.40%
Dividend yield 0% 0% 0%
Volatility factors of the expected
market price of the Company's
common stock 110% - 125% 73-90% 70-139%
Weighted-average expected life of
Options 10 years 10 years 5-9 years

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS):

2006 2005 2004
---- ---- ----
Net loss available to common
shareholders, as reported $(1,356) $(5,432) $(2,340)
Plus: Stock-based employee
compensation expense
included in reported net
loss 40 40 --
Less: Total stock-based
employee compensation
expense determined using
fair value based method (191) (352) (168)
------- ------- -------
Pro forma net loss $(1,507) $(5,744) $(2,508)
======= ======= =======

Loss per share
Basic and Diluted - as reported $ (0.05) $ (0.23) $ (0.14)
======= ======= =======
Basic and Diluted - pro forma $ (0.06) $ (0.25) $ (0.15)
======= ======= =======

INCOME/LOSS PER SHARE

Basic income/loss per share is computed by dividing net income/loss
available to common stockholders by the weighted-average number of common shares
outstanding for each reporting period presented. Diluted earnings per share are
computed similar to basic earnings per share while giving effect to all
potential dilutive common stock equivalents that were outstanding during each
reporting period. For the twelve months ended March 31, 2006, 2005, and 2004,
options and warrants to purchase 5,285,528, 4,524,137 and 9,930,519 shares of
common stock, respectively, were excluded from the computation of diluted
earnings per share because of their anti-dilutive effect. Additionally, for the
twelve months ended March 31, 2006, 2005 and 2004 preferred stock and debt
convertible into 10,450,000, 8,175,000 and 8,175,000 shares of common stock,
respectively, were excluded from the computation of diluted income/loss per
share because inclusion of such would be antidilutive. Furthermore, a restricted
stock grant of 450,000 shares has been excluded from the income/loss per share
calculations.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of cash and cash equivalents, accounts receivables
and accounts payable approximate fair values due to the short-term maturities of
these instruments. The carrying amounts of the Company's long-term borrowings
and notes receivables (presented in assets both from continuing and discontinued
operations) as of March 31, 2006 and 2005, approximate their fair value based on
the Company's current incremental borrowing rates for similar type of borrowing
arrangements.

GUARANTEES AND INDEMNIFICATIONS

The Company provides a limited 90-day warranty for certain of its
software products. Historically, claims by customers under this limited warranty
have been minimal, and as such, no warranty accrual have been provided for in
the Company's consolidated financial statements.

Under its bylaws, the Company has agreed to indemnify its officers and
directors for certain events or occurrences arising as a result of the officer's
or director's serving in such capacity. The term of the indemnification period
is for the officer's or director's lifetime. The maximum potential amount of
future payments the Company could be required to make under these
indemnification agreements is unlimited. However, the Company has a director and
officer liability insurance policy that limits its exposure and enables it to
recover a portion of any future amounts paid. As a result of its insurance
policy coverage, the Company believes the estimated fair value of these
indemnification agreements is minimal and has no liabilities recorded for these
agreements as of March 31, 2006.

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment"
("SFAS 123R"). Under this new standard, companies will no longer be able to
account for share-based compensation transactions using the intrinsic method in
accordance with APB 25. Instead, companies will be required to account for such
transactions using a fair-value method and to recognize the expense over the
service period. SFAS 123R will be effective for periods beginning after March
31, 2006 and allows for several alternative transition methods. The Company
expects to adopt SFAS 123R in its first quarter of fiscal 2007 on a prospective
basis, which will require recognition of compensation expense for all stock
option or other equity-based awards that vest or become exercisable after the
effective date. The Company is currently assessing the impact of this proposed
Statement on its share-based compensation programs, however, we expect that the
requirement to expense stock options and other equity interests that have been
or will be granted to employees will increase its operating expenses and result
in lower earnings per share.

RECLASSIFICATIONS

Certain prior year balances in the consolidated financial statements
have been reclassified to conform to the fiscal 2006 presentation.

4. NOTE RECEIVABLE

Note receivable consisted of the following:
MARCH 31,
-----------------------
2006 2005
----------- -----------
(IN THOUSANDS)

Note receivable.............................................................. $ 12 $ 25
Less: allowance for doubtful accounts........................................ -- --
----------- -----------
12 25
Less: note receivable, current............................................... (12) (25)
----------- -----------
$ -- $ --
=========== ===========

In June 2005, a note receivable relating to the sale of software in the
amount of $25,000 was settled for $17,500. The Company recognized a loss on
settlement of $7,500. The remaining note receivable bears interest at 10%, with
interest and principal due in monthly installments through October 31, 2006.
This note relates to the September 2005 sale of software acquired during the
acquisition of Quisic for $40,000, of which $20,000 was paid up front and the
remainder recorded as a note receivable, which resulted in a gain on sale of
software for $40,000.

5. PROPERTY AND EQUIPMENT, NET

Property and equipment consisted of the following:
MARCH 31,
----------------------
2006 2005
----------- ----------
(IN THOUSANDS)
Furniture and fixtures.................................................... $ 349 $ 349
Equipment................................................................. 298 294
Computer equipment........................................................ 2,400 2,354
Leasehold improvements.................................................... 29 24
----------- ----------
Total property and equipment 3,076 3,021
Less: accumulated depreciation............................................ (2,740) (1,800)
----------- ----------
Property and equipment, net............................................ $ 336 $ 1,221
=========== ==========

Depreciation expense for the years ended March 31, 2006, 2005, and 2004
was $940,000, $845,000, and $221,000, respectively.

6. GOODWILL AND INTANGIBLE ASSETS, NET

Goodwill consisted of the following:
MARCH 31,
----------------------
2006 2005
---------- ----------
(IN THOUSANDS)
Goodwill................................................................... $ 11,206 $ 10,797
========== ==========

The changes in the carrying amount of the goodwill for the years ended
March 31, 2006 and 2005 (IN THOUSANDS):

Balance, March 31, 2004.................................................... $ 9,190
Mentergy acquisition, royalty accrual................................... 618
Glyphics acquisition.................................................... 989
----------
Balance, March 31, 2005.................................................... 10,797
Mentergy acquisition, royalty accrual................................... 280
Glyphics acquisition.................................................... 9
Issuance of Glyphics escrow shares...................................... 120
----------
Balance, March 31, 2006.................................................... $ 11,206
==========

During fiscal 2002, the Company acquired certain assets of LearnLinc
Corporation, a wholly owned subsidiary of Mentergy, Inc. As part of the
agreement, the Company agreed to pay a royalty of 20% for all cash revenues
collected from the sale or license of LearnLinc software over a three-year
period up to November 4, 2005. The offset to the royalty accrual was recorded as
goodwill. The Company included $618,000 in fiscal 2005 and $280,000 in fiscal
2006 up to November 4, 2005.

The Company acquired Glyphics in the first quarter of fiscal 2005,
which resulted in the Company recording $989,000 of goodwill. See note 8 for
further details.

At March 31, 2006, the Company also recorded $120,000 to goodwill for
the issuance of shares to the Glyphics shareholders that had been held in
escrow. See note 10 for further details.

In accordance with SFAS 142, the Company does not amortize goodwill.
SFAS 142 requires that goodwill be tested annually (or more frequently if
impairment indicators arise) for impairment. The Company has established the
date of March 31 on which to conduct its annual impairment test. Future adverse
changes in market conditions or poor operating results of the underlying
acquired operations could result in losses or an inability to recover the
carrying value or the goodwill and other intangible assets thereby possibly
requiring an impairment charge in the future. Based in part on a third party
full scope valuation that was performed with the valuation date of March 31,
2006, the Company's management believes that no impairment exists at March 31,
2006.

-----------------------------------------------------------------
MARCH 31, 2006
-----------------------------------------------------------------
WEIGHTED
AVERAGE
REMAINING GROSS CARRYING ACCUMULATED
LIVES AMOUNT AMORTIZATION NET
-----------------------------------------------------------------
(YEARS) (IN THOUSANDS)
AMORTIZED INTANGIBLE ASSETS:
Deferred financing costs 5.10 $ 1,080 $ (493) $ 587
Purchased software 1.17 1,481 (1,169) 312
Customer relationships 4.17 1,230 (398) 832
----------------------------------------------------
$ 3,791 $ (2,060) $ 1,731
====================================================

-----------------------------------------------------------------
MARCH 31, 2005
-----------------------------------------------------------------
WEIGHTED
AVERAGE
REMAINING GROSS CARRYING ACCUMULATED
LIVES AMOUNT AMORTIZATION NET
-----------------------------------------------------------------
(YEARS) (IN THOUSANDS)
AMORTIZED INTANGIBLE ASSETS:
Deferred financing costs 5.84 $ 1,113 $ (329) $ 784
Purchased software 1.92 1,481 (792) 689
Customer relationships 4.46 1,230 (199) 1,031
----------------------------------------------------
$ 3,824 $ (1,320) $ 2,504
====================================================

AGGREGATE AMORTIZATION EXPENSE FOR INTANGIBLES (IN THOUSANDS) :

For the year ended March 31, 2006 $744
For the year ended March 31, 2005 $812
For the year ended March 31, 2004 $241

ESTIMATED AMORTIZATION EXPENSE (IN THOUSANDS):
Fiscal Year
-----------
2007 $655
2008 341
2009 276
2010 276
2011 108
Thereafter 75
-----------------
$1,731
=================

7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities consisted of the following:

MARCH 31,
-----------------------
2006 2005
---------- -----------
(IN THOUSANDS)
Accounts payable trade...................................................... $ 1,257 $ 1,771
Accrued state sales tax..................................................... 233 119
Accrued interest............................................................ 343 241
Amount payable to Quisic shareholders ...................................... -- 450
Amounts related to acquisitions............................................. 8 315
Amounts payable to third party providers.................................... 1,006 1,000
Amounts payable to Interactive Alchemy...................................... 36 59
Accrued salaries and related benefits....................................... 453 422
Deferred rent liability..................................................... 27 54
Liabilities from discontinued operations.................................... 53 263
Other....................................................................... 54 37
---------- -----------
Total accounts payable and accrued liabilities........................... $ 3,470 $ 4,731
========== ===========

8. BUSINESS COMBINATIONS

GLYPHICS CORPORATION

The Company executed an agreement to acquire substantially all of the
assets of and assume certain liabilities of Glyphics, a Utah based, private
company. The acquisition had a stated effective date of June 1, 2004 and was
fully consummated on June 14, 2004. The purchase price of $5.349 million was
based on a multiple of the Glyphics' 2003 annual audio conferencing business
revenues (as defined in the asset purchase agreement). The purchase price was
paid with the assumption of specific liabilities, with the balance paid using
its common stock at the fixed price of $1.05 per share.

In exchange for the assets received, the Company assumed $2.466 million
in debt and issued 3.1 million shares of its common stock at the date of
acquisition. 704,839 shares of the Company's common stock were held in escrow
subject to the claims of the Company for: (1) the amount, if any, that the
audited audio conferencing business revenues (as defined in the asset purchase
agreement) earned by the Company during the 12 months after the closing date are
less than the audited audio conferencing business revenues (as defined in the
asset purchase agreement) recorded by Glyphics during the 12 months ending
December 31, 2003, (2) the representations and warranties made by Glyphics and
its shareholders in the asset purchase agreement, and (3) the amount if any that
the liabilities accrued or paid by the Company are in excess of those
specifically scheduled and assumed as part of the asset purchase agreement.
Subsequent to March 31, 2006, 704,839 shares were released from escrow related
to the acquisition of Glyphics. Of that amount, 396,706 were returned to iLinc
Communications due to the Company assuming obligations of $377,815 greater than
scheduled in the purchase agreement. The remaining 308,133 shares were issued to
the Glyphics shareholders at $0.39 per share based on the closing price of the
agreement date of April 18, 2006. These shares were recorded as outstanding on
March 31, 2006, pursuant to the terms of the Escrow Agreement. The Glyphics'
shareholders receiving the Company's common stock as a result of the transaction
have the right to demand registration of their common stock upon written notice,
one year from the date of the transaction, to the Company and also have
piggyback registration rights should the Company file a registration statement
before the shares are otherwise registered. Operating results associated with
audio conferencing operations are included as of June 1, 2004. The purchase
price recorded was calculated as follows:

AMOUNT
------------
Issuance of iLinc's common stock (valued at $0.98 per share
using the five day average closing price) ............ $ 2,763
Issuance of iLinc's common stock (valued at $0.39 per share
using the closing price at April 18, 2006............. 120
Assumed liabilities........................................... 2,466
------------
Total purchase price....................................... $ 5,349
============

The total purchase price was allocated to assets acquired, in
accordance with SFAS No. 141 "Business Combinations," based upon estimated fair
market values as determined by an appraisal report obtained from an independent
appraisal firm. The excess purchase price over the estimated fair market value
of the tangible and intangible assets acquired was allocated to goodwill. As
this transaction is intended to qualify as a tax-free acquisition, the tax bases
of the acquired assets remain unchanged. As a result, a deferred tax liability
of $1,132,000 has been established in an amount equal to the Company's statutory
tax rate multiplied by the difference between the allocated book value of
acquired non-goodwill assets and the tax bases of those assets. This increase to
deferred tax liability resulted in a corresponding increase to the acquired
goodwill. However, due to the presence of a valuation allowance against the net
deferred tax asset, a second entry was then recorded to report the impact of the
necessary decrease to the valuation allowance, with the offset being a reduction
in acquired goodwill. The purchase price may change due to the ultimate
resolution of charges against the escrow account, if any. The net result of
these entries was to increase the deferred tax liability and decrease the
valuation allowance by the same amount.

The purchase price of Glyphics has been allocated as follows:

PURCHASE
PRICE ALLOCATION
----------------
(IN THOUSANDS)
Current assets............................................... $ 618
Property and equipment....................................... 1,609
Goodwill .................................................... 1,118
Identifiable intangible assets .............................. 2,004
Current liabilities.......................................... (1,356)
Notes payable................................................ (753)
Capital leases............................................... (357)
Common stock................................................. (3)
Additional paid-in capital................................... (2,880)
----------------
Total $ --
================

Operating results of Glyphics are included in the accompanying
statement of operations for the year ended March 31, 2005 for the period June 1,
2004 through March 31, 2005. The following unaudited pro forma summary of
condensed financial information presents the Company's combined results of
operations as if the acquisition of Glyphics had occurred at the beginning of
each period presented, after including the impact of certain adjustments
including: (i) elimination of sales between the two companies and (ii) increase
in amortization of the identifiable intangible assets and an increase in
depreciation expense recorded as part of the acquisition.

----------------------------------
YEAR ENDED YEAR ENDED
MARCH 31, 2005 MARCH 31, 2004
----------------------------------

Revenues........................................................ $ 10,906 $ 10,026
Loss from continuing operations................................. (3,604) (3,157)
Net loss from continuing operations............................ (5,440) (4,773)

Loss per basic and diluted share from continuing operations..... $ (0.24) $ (0.25)

Weighted average shares outstanding:
Basic and diluted........................................... 23,328 19,562

The pro forma financial information presented does not purport to
indicate what the combined results of operations would have been had the
combination occurred at the beginning of the periods presented or the results of
operations that may be obtained in the future.

9. LONG-TERM DEBT

Long-term debt consisted of the following:

MARCH 31,
------------------------
2006 2005
------------ -----------
(IN THOUSANDS)

2002 Convertible redeemable subordinated notes ............................. $ 5,100 $ 5,625
2004 Senior unsecured promissory notes....................................... 2,962 3,187
Shareholders' notes payable.................................................. 157 282
Notes payable................................................................ 447 613
------------ -----------
8,666 9,707

Less: Current portion of long-term debt................................... (199) (885)
Discount............................................................. (896) (1,349)
Beneficial conversion feature....................................... . (597) (771)
------------ -----------
Long-term debt, net of current portion....................................... $ 6,974 $ 6,702
============ ===========

In March 2002, the Company completed a private placement offering (the
"Convertible Note Offering") raising capital of $5,775,000. Under the terms of
the Convertible Note Offering, the Company issued convertible redeemable
subordinated notes and warrants to purchase 5,775,000 shares of the Company's
common stock. The convertible notes bear interest at the rate of 12% per annum
and require quarterly interest payments, with the principal due at maturity on
March 29, 2012. The note holders may convert the principal into shares of the
Company's common stock at the fixed price of $1.00 per share. The Company may
force redemption by conversion of the principal into shares of the Company's
common stock at the fixed conversion price, if at any time the 20 trading day
average closing price of the Company's common stock exceeds $3.00 per share.
These notes are subordinated to any present or future senior indebtedness with
no waiver required. Those warrants expired on March 29, 2005 without exercise.
The exercise price of the warrants was $3.00 per share. The Company could have
forced exercise of the warrants at the exercise price, if at any time the
closing price of the Company's common stock equaled or exceeded $5.50 per share
for 20 consecutive trading days. The fair value of the warrants was estimated
using the Black-Scholes pricing model with the following assumptions:
contractual and expected life of three years, volatility of 75%, dividend yield
of 0%, and a risk-free rate of 3.87%. The fair value was then used to calculate
a discount of $1,132,000, which is being amortized to interest expense over the
ten-year term of the notes. Since the carrying value of the notes was less than
the conversion value, a beneficial conversion feature of $1,132,000 was
calculated and recorded as an additional discount to the notes and is being
amortized to interest expense over the ten year term of the notes. Upon
conversion of these convertible notes, any remaining discount and beneficial
conversion feature associated with these convertible notes will be expensed in
full at the time of conversion. The common stock underlying these notes was
registered with the SEC and may be sold if converted into common stock pursuant
to a resale prospectus dated May 24, 2004. During fiscal 2004 holders with a
principal balance totaling $150,000 converted their notes into 150,000 common
shares of the Company. During fiscal 2006 holders with a principal balance of
$525,000 converted their notes and $8,000 of accrued interest into 1,971,088
shares of the Company's common stock at a price of $0.25, $0.26 and $0.30 per
share. Since the actual conversion price for the convertible debt was less than
the fixed conversion price of $1.00, the Company recorded conversion expense of
$338,000 for the period ending March 31, 2006. During fiscal 2006, the Company
accelerated the amortization of the deferred offering costs and the discount and
beneficial conversion feature associated with the debt by expensing $50,000 and
$137,000, respectively at the time of conversion.

Company's common stock with an exercise price equal to 120% of the price paid by
investors. The senior notes bear interest at a rate of 10% per annum and accrued
interest is due and payable on a quarterly basis beginning July 15, 2004, with
principal due at maturity on July 15, 2007. The senior notes are redeemable by
the Company at 100% of the principal value at any time after July 15, 2005. The
notes and common stock were issued with a debt discount of $768,000. The fair
value of the warrants was estimated and used to calculate a discount of $119,000
of which $68,000 was allocated to the notes and $51,000 was allocated to equity.
The total discount allocated to the notes of $836,000 is being amortized as a
component of interest expense over the term of the notes which is approximately
39 months. The senior notes are unsecured obligations of the Company but are
senior in right of payment to all existing and future indebtedness of the
Company. The common stock issued in the 2004 Senior Note Offering was registered
with the SEC pursuant to a resale prospectus dated August 2, 2005. Effective
August 1, 2005, holders with a principal balance totaling $225,000 converted
their senior notes and accrued interest of $800 into 903,205 shares of the
Company's common stock at a price of $0.25 per share. Since the actual
conversion price for the debt was greater than the market value of the stock at
the date of conversion, the Company recorded a gain on conversion of $9,000 for
the year ended March 31, 2006. During fiscal 2006, the Company accelerated the
amortization of the deferred offering costs and the discount associated with the
debt by expensing $10,000 and $35,000, respectively at the time of conversion.
On November 9, 2005, placement agent warrants originally issued with an exercise
price of $0.78 per common share were converted to 163,455 common shares at an
exercise price of $0.25 per share, in which the Company received $41,000 in
cash. The transaction resulted in an increase in deferred offering costs of
$7,000 and an adjustment to additional paid-in capital of $7,000.

In connection with the Company's acquisition of Glyphics (Note 8), the
Company assumed $753,000 in loan obligations, the unpaid balance of which
$43,000 at March 31, 2006 is currently due in the short term. The rates of
interest on such notes range from 6% to 9.5% per annum. Subsequent to March 31,
2006, the loan amount for $397,000 was extended to April 1, 2007 and was
therefore recorded as long-term debt at March 31, 2006.

The aggregate maturities of long-term debt excluding capital leases for
each of the next five years subsequent to March 31, 2006 were as follows (IN
THOUSANDS):

2007.............................................................. $ 199
2008.............................................................. 3,364
2009.............................................................. 2
2010.............................................................. 1
2011.............................................................. --
Thereafter........................................................ 5,100
-----------
$ 8,666
===========

10. CAPITALIZATION

PREFERRED STOCK

The Company has the authority to issue ten million shares of preferred
stock, par value $.001 per share. On September 16, 2003, the Company completed
its private placement of Series A Preferred Stock with detachable warrants. The
Company sold 30 units at $50,000 each and raised a total of $1,500,000. Each
unit consisted of 5,000 shares of Series A Preferred Stock and a warrant to
purchase 25,000 shares of common stock, par value $.001. The Series A Preferred
Stock is convertible into the Company's common stock at a price of $0.50 per
share, and the warrants are immediately exercisable at a price of $1.50 per
share with a three-year term. Accordingly, each share of Series A Preferred
Stock is convertible into 20 shares of common stock and retains a $10
liquidation preference. The Company pays an 8% dividend to holders of the Series

A Preferred Stock, and the dividend is cumulative. The Series A Preferred Stock
is non-voting and non-participating. The shares of Series A Preferred Stock will
not be registered under the Securities Act of 1933, as amended, and were offered
in a private placement providing exemption from registration. The cash proceeds
of the private placement of Series A Preferred Stock was allocated pro-rata
between the relative fair values of the Series A Preferred Stock and warrants at
issuance using the Black-Scholes valuation model for valuing the warrants. After
allocating the proceeds between the Series A Preferred Stock and warrant, an
effective conversion price was calculated for the Series A Preferred Stock to
determine the beneficial conversion discount for each share. During the year
ended March 31, 2004, the aggregate value of the warrants and the beneficial
conversion discount of $247,000 were considered a deemed dividend in the
calculation of loss per share. During fiscal 2005, holders of 22,500 shares
converted to 450,000 shares of common stock. The underlying common stock that
would be issued upon conversion of the preferred stock and upon exercise of the
associated warrants have been registered with the SEC and may be sold pursuant
to a resale prospectus dated May 24, 2004.

On September 30, 2005, the Company executed definitive agreements with
nine investors to issue 70,000 unregistered shares of its Series B Preferred
Stock, par value $0.001 and warrants to purchase 700,000 shares of its common
stock (the "Warrants") in a private transaction that was exempt from
registration under Section 4(2) of the Securities Act of 1933. Of the total
Series B Preferred Stock issued, 15,000 shares of Series B Preferred Stock with
Warrants to purchase 150,000 shares of common stock were issued to four
individuals in exchange for their cash investment of $150,000; 15,000 shares of
Series B Preferred Stock with Warrants to purchase 150,000 shares of common
stock were issued to two vendors in exchange for an offset of their accounts
payable balance in the amount of $150,000; and 40,000 shares of Series B
Preferred Stock with Warrants to purchase 400,000 shares of common stock
(effective August 29, 2005 as previously disclosed on Form 8-K dated September
2, 2005) were issued to three institutional investors in exchange for the offset
of accrued liabilities in the amount of $400,000 that arose from the Quisic
acquisition. The Company recorded a gain on debt conversion of $50,000
associated with this transaction since the liabilities outstanding were $450,000
at the time of the transaction. The Series B Preferred Stock bears an 8%
dividend, was sold using a deemed $10.00 per share issue price, and is
convertible into 2,800,000 shares of the Company's common stock using a
conversion price of $0.25 per share. The Warrants that are exercisable at an
exercise price equal to $0.50 per share expire on the third anniversary of the
issue date of September 30, 2005. The aggregate value of the warrants of $55,000
is considered a deemed dividend in the calculation of loss per share.

COMMON STOCK

As of March 31, 2006, the Company is authorized to issue 100 million
shares of common stock. The Company has acquired treasury stock from certain
affiliated practices for the payment of receivables and purchase of property and
equipment as a part of its discontinued operations.

In December 2001, the Company, under the initiative of the Compensation
Committee with the approval of the Board of Directors, issued its Chief
Executive Officer an incentive stock grant under the 1997 Stock Compensation
Plan of 450,000 restricted shares of the Company's common stock as a means to
retain and incentivize the Chief Executive Officer. The shares were valued at
$405,000 based on the closing price of the stock on the date of grant, which is
recorded as compensation expense ratably over the vesting period. The shares
100% vest after 10 years from the date of grant or upon attaining the following
share price performance criteria: 150,000 shares vest if the share price trades
for $4.50 per share for 20 consecutive days; 150,000 shares vest if the share
price trades for $8.50 per share for 20 consecutive days; and 150,000 shares
vest if the share price trades for $12.50 per share for 20 consecutive days.

In connection with the restricted stock grant, the Company loaned the
Chief Executive Officer $179,000 to fund the immediate tax consequences of the
grant. The Company recognized a $179,000 charge to income at the date of grant.

Subsequent to March 31, 2006, on June 9, 2006, the Company completed a
private placement of 5,405,405 unregistered, restricted shares of common stock
for approximately $1.7 million in net cash proceeds. The Company paid its
placement agent an underwriting commission of $180,000 of which $25,000 was
recorded as deferred offering costs at March 31, 2006 and incurred additional
offering expenses of approximately $50,000. Within 30 days of the closing date,
the Company will file a Registration Statement on Form S-3 to enable the resale
of the shares by the Investors. The Company intends to use the proceeds for
working capital and general corporate purposes.

WARRANTS

On November 19, 2003, the Company issued a warrant to purchase 250,000
shares of common stock to an advisor of the Company in exchange for certain
advisory and consulting services pursuant to a written advisory agreement that
will be provided to the Company over a three-year contractual period. The
warrants are exercisable for shares of the Company's common stock at a price of
$0.40. The warrants contain a provision that prohibited the delivery of shares
even if exercised until after February 5, 2004. The warrants are currently
treated as a variable plan grant; accordingly, the warrants will be revalued at
each quarter end and the portion related to the cumulative expired services
period less prior charges recorded will be recorded as a charge to expense
during the period. The warrants were valued using the Black-Scholes model to
calculate a fair value of $0.73 per share at March 31, 2004. A portion of the
fair value totaling $20,000 was recognized for fiscal 2004. During fiscal 2005,
the remaining balance of the warrants was expensed for $90,000.

In January 2005, in connection with the restructuring of the payments
on loan obligations due in connection with the acquisition of Glyphics, the
Company issued a warrant for 50,000 shares with an exercise price of $0.55. The
loan was guaranteed by Gary Moulton, the Company's senior vice president of
audio services, as well as a shareholder of the Company, both of whom were
formerly owners of Glyphics. The warrant expires in January 2007. The fair value
of the warrant of $8,000 was estimated using the Black-Scholes pricing model
with the following assumptions: contractual and expected life of two years,
volatility of 72%, dividend yield of 0%, and a risk-free rate of 3.1%. In June
2005, in connection with the restructuring of the payments, the Company issued a
warrant for 50,000 shares to the Glyphics shareholder with an exercise price of
$0.32. The warrant expires in June 2007. The fair value of the warrant of $6,500
was estimated using the Black-Scholes pricing model with the following
assumptions: contractual and expected life of two years, volatility of 71%,
dividend yield of 0%, and a risk-free rate of 3.6%. Subsequent to yearend, on
April 1, 2006, the Company issued an additional warrant for 50,000 shares with
an exercise price of $0.40. The warrant expires in April 2009. The fair value of
the warrant of $15,000 was estimated using the Black-Scholes pricing model with
the following assumptions: contractual and expected life of three years,
volatility of 125%, dividend yield of 0%, and a risk-free rate of 4.83%.
Subsequent to yearend, the expiration dates of the warrants issued in January
2005 and August 2005 were extended to March 31, 2009. Based on an analysis using
the Black-Scholes pricing model, no adjustment was made to the fair value of the
two extended warrants.

11. INCOME TAXES

Significant components of the provision for income taxes were as
follows (IN THOUSANDS):

YEAR ENDED YEAR ENDED
MARCH 31, MARCH 31,
2006 2005
------------ ------------
Current tax expense:
Federal........................................ (1,010) (2,033)
State.......................................... (1,915) (359)
------------ ------------
Total current................................ (2,925) (2,392)
------------ ------------
Deferred tax expense:
Federal........................................ 1,010 2,033
State.......................................... 1,915 359
------------ ------------
Total deferred............................... 2,925 2,392
------------ ------------
Expense for income taxes.......................... -- --
============ ============

The Company incurred no tax expense for the years ending March 31, 2006
March 31, 2005 and March 31, 2004 due to the losses incurred in all periods
presented.

Significant components of the Company's deferred tax assets
(liabilities) were as follows (IN THOUSANDS):

MARCH 31,
-------------------------
2006 2005
----------- ------------
Deferred tax assets:

Reserves for uncollectible accounts................................. $ 48 $ 34
Deferred revenue.................................................... 17 440
Accrued expenses.................................................... 194 200
Property and equipment.............................................. 269 --
Net operating loss carryforward..................................... 15,355 12,418
----------- ------------
Total deferred tax assets........................................ $ 15,883 $ 13,092
----------- ------------

Deferred tax liabilities:
Glyphics book/tax differences....................................... (1,132) (1,132)
Property and equipment.............................................. -- (47)
Intangible assets................................................... (1,124) (199)
----------- ------------
Total deferred tax liabilities.................................... (2,256) (1,378)
----------- ------------

Net deferred tax asset................................................. 13,627 11,714
Less: valuation allowance........................................... (13,627) (11,714)
----------- ------------
Net deferred tax asset.......................................... $ -- $ --
=========== ============

The differences between the statutory federal tax rate and the
Company's effective tax rate on continuing operations were as follows (IN
THOUSANDS):

YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, MARCH 31, MARCH 31,
2006 2005 2004
----------- ---------- -----------
Tax (benefit) at U.S. Statutory rate (34%)............... $(398) $ (1,811) $ (780)
State income taxes (benefit), net of federal tax......... (70) (319) (62)
Non-deductible expenses and other........................ 6 (18) (68)
Change in valuation allowance, net....................... 462 2,148 910
----------- ---------- -----------
Total tax expense (benefit)........................... $ -- $ -- $ --
=========== ========== ===========

At March 31, 2006, the Company had federal and State of Arizona net
operating loss carry-forwards available to reduce future taxable income of
approximately $41,282,000 and $21,981,000, respectively, which begin to expire
in 2013 and 2006, respectively. The Company has certain net operating losses in
other states relating to its acquisitions (see Note 8). The Company is currently
quantifying such net operating losses and evaluating the Company's ability to
use them. The Company recorded a valuation allowance for its entire deferred tax
asset because it concluded it is not likely it would be able to realize the tax
assets due to the lack of profitable operating history of its implementation of
the Web conferencing and audio conferencing business plan.

In accordance with Internal Revenue Code Section 382, the annual
utilization of net operating loss carry-forwards and credits existing prior to a
change in control, as defined, in the Company or a company the Company has
acquired may be substantially limited. Accordingly, the utilization of a
substantial portion of the Company's net operating loss carry-forwards is
limited, such as net operating loss carry-forwards are either related to the
acquisition of ThoughtWare Technologies, Learning-Edge, Inc., Glyphics, and
other acquired entities, or are related to current operations during which
change in control events may have occurred. The net change in the valuation
allowance for the year ended March 31, 2006 was $1,913,000. The net change in
the valuation allowance for the year ended March 31, 2006 was $1,913,000. The
net change in the valuation allowance for the year ended March 31, 2005 was
$1,016,000 which includes the reduction for the $1,132,000 deferred tax
liability assumed in the Glyphics acquisition.

12. STOCK OPTION PLANS AND WARRANTS

The Company grants stock options under its amended and restated 1997
Stock Compensation Plan (the "Plan"). The Company recognizes stock-based
compensation issued to employees at the intrinsic value between the exercise
price of options granted and the fair value of stock for which the options may
be exercised. However, pro forma disclosures as if the Company recognized
stock-based compensation at the fair value of the options themselves are
presented below.

Under the Plan, as amended, the Company is authorized to issue
5,500,000 shares of common stock pursuant to "Awards" granted to officers and
key employees in the form of stock options. The number of shares authorized as
available for issue under the plan were increased from 3,500,000 at the 2005
Annual Meeting of Stockholders held on August 19, 2005.

There were 2,637,864 and 2,438,018 options granted under the Plan, at
March 31, 2006 and 2005, respectively. The Compensation Committee of the Board
of Directors administers the Plan. Stock options granted to employees have a
contractual term of 10 years (subject to earlier termination in certain events)
and have an exercise price no less than the fair market value of the Company's
common stock on the date grant. The options vest at varying rates over a one to
five year period.

Following is a summary of the status of the Company's stock options as
of March 31, 2006:

WEIGHTED
NUMBER OF AVERAGE WEIGHTED AVERAGE
SHARES UNDERLYING EXERCISE FAIR-VALUE OF
OPTIONS PRICES OPTIONS GRANTED
------------------- ------------- ---------------------
Outstanding at March 31, 2003................... 1,835,865 1.82

Granted......................................... 632,500 0.67 $ 0.56
=====================
Exercised....................................... -- --
Forfeited....................................... (185,510) 2.64
Expired......................................... -- --
------------------- -------------
Outstanding at March 31, 2004................... 2,282,855 $ 1.43

Granted......................................... 702,900 0.66 $ 0.56
=====================
Exercised....................................... (151,160) 0.51
Forfeited....................................... (370,688) 0.72
Expired......................................... (25,889) 6.13
------------------- -------------
Outstanding at March 31, 2005................... 2,438,018 $1.32

Granted......................................... 815,500 0.29 $ 0.22
=====================
Exercised....................................... -- --
Forfeited....................................... (606,307) 1.01
Expired......................................... (9,347) 1.05
------------------- -------------
Outstanding at March 31, 2006................... 2,637,864 $1.07
=================== =============

The following table summarizes information about stock options
outstanding at March 31, 2006:

OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------------- ----------------------------
WEIGHTED WEIGHTED
AVERAGE WEIGHTED AVERAGE AVERAGE
NUMBER OF EXERCISE REMAINING CONTRACTUAL NUMBER OF EXERCISE
SHARES PRICE LIFE (YEARS) SHARES PRICE
-------------- ------------- --------------------------- ------------- -------------

$ 0.01 - $ 0.99 2,013,349 $ 0.50 7.13 1,461,320 $ 0.55
$ 1.00 - $ 1.99 104,125 $ 1.61 4.78 96,688 $ 1.65
$ 2.00 - $ 2.99 430,000 $ 2.22 3.28 430,000 $ 2.22
$ 3.00 - $ 8.50 90,390 $ 7.70 2.43 90,390 $ 7.70
-------------- -------------
2,637,864 2,078,398
============== =============

During the 2006 fiscal year, no stock options were exercised by
employees of the Company.

The following table summarizes information about stock purchase
warrants outstanding at March 31, 2006:

WARRANTS OUTSTANDING WARRANTS EXERCISABLE
------------------------------------------------------ ----------------------------
WEIGHTED WEIGHTED
AVERAGE WEIGHTED AVERAGE AVERAGE
NUMBER OF EXERCISE REMAINING CONTRACTUAL NUMBER OF EXERCISE
SHARES PRICE LIFE (YEARS) SHARES PRICE
-------------- ------------- ------------------------- ------------- -------------

$ 0.32 - $ 0.32 50,000 $ 0.32 1.19 50,000 $ 0.32
$ 0.40 -$ 0.40 250,000 $ 0.40 0.64 250,000 $ 0.40
$ 0.42 -$ 0.42 543,182 $ 0.42 5.39 543,182 $ 0.42
$ 0.44 -$ 0.44 132,972 $ 0.44 5.45 132,972 $ 0.44
$ 0.50 -$ 0.50 700,000 $ 0.50 2.50 700,000 $ 0.50
$ 0.55 -$ 0.55 50,000 $ 0.55 0.76 50,000 $ 0.55
$ 1.50 -$ 1.50 921,510 $ 1.50 1.39 921,510 $ 1.50
-------------- --------------
2,647,664 2,647,664
============== ==============

13. COMMITMENTS AND CONTINGENCIES

LEASE COMMITMENTS

The Company leases a portion of its property and equipment under the
terms of capital and operating leases. The capital leases bear interest at
varying rates ranging from 5.6% to 15.0% and require monthly payments.

Assets recorded under capital leases, at March 31, 2006, consisted of
the following (IN THOUSANDS):

Cost.......................................................... $ 412
Less: accumulated amortization................................ (376)
-------------
Total......................................................... $ 36
=============

Future minimum lease payments under capital leases and non-cancelable
operating leases with initial or remaining terms of one or more years consisted
of the following at March 31, 2006 (IN THOUSANDS):

CAPITAL OPERATING
----------- -------------
Amounts past due.................................... $ -- $ 7
2007................................................ 71 532
2008................................................ -- 412
2009................................................ -- 282
2010................................................ -- 279
2011................................................ -- 290
Thereafter.......................................... -- 269
----------- -------------
Total minimum obligations........................... 71 $ 2,071
=============
Less: amount representing interest.................. (1)
-----------
Present value of minimum obligations................ 70

Less: current portion............................... (70)
-----------
Long-term obligation at March 31, 2006.............. $ 0
===========

The Company incurred rent expense of $604,000, $569,000, and $470,000
in fiscal 2006, 2005, and 2004, respectively. The Company occupies space in
Phoenix, Arizona, where the Company is headquartered. The Company also leases
space in Springville, Utah as a result of the acquisition of Glyphics, and space
in Troy, New York, with an emphasis in that location on research and development
and technical support.

Subsequent to March 31, 2006, the Company amended the lease on its
Phoenix location, which was set to expire February 28, 2007. The term was
extended to February 28, 2012, and square footage and the related expense was
reduced as a result of the amendment. In addition, a cancellation clause was
added. Under the cancellation terms, the Company may cancel the lease, with nine
months' notice effective February 28, 2009 or February 28, 2010 with a
nine-month or six-month base rent penalty, respectively.

SUBCONTRACTOR AGREEMENT

Subsequent to March 31, 2006, the Company amended its agreement with
its custom content subcontractor, Interactive Alchemy. The original agreement
was a three-year agreement effective May 1, 2003. The amendment dated April 29,
2006 extends the agreement for an additional non-cancelable two-year term
effective May 1, 2006. Under the revised agreement, Interactive Alchemy will
continue to provide custom content development services to the Company for its
customers in exchange for a fixed percentage of the Company's custom content
fee. The Company will also receive a specified amount of fees from Interactive
Alchemy limited to a cap of $200,000 in the first year and $450,000 in the
second year of the amended agreement.

ROYALTY AGREEMENTS

In conjunction with the acquisition of certain assets from Mentergy,
Inc. ("Mentergy"), the Company agreed to provide a royalty earn-out payment that
is due upon collection of cash received from the sales of its Web conferencing
software. The royalty earn-out was originally equal to 20% for all revenues
collected from the sale of that Web conferencing software over a three-year
period beginning November 4, 2002, with the first $600,000 of collected revenues
not subject to the royalty, and the maximum amount being $5,000,000. After
negotiating a settlement with one of the original participants in the Mentergy
transaction during fiscal 2005, the royalty was reduced to 18.7%. The Company
accounts for any such amounts collected as additional purchase consideration in
accordance with EITF 95-8: "Accounting For Contingent Consideration Paid To The
Shareholders Of An Acquired Enterprise In A Purchase Business Combination" at
the time such amounts are accrued as revenue. The Company had accrued Mentergy
royalties totaling $890,000 and $872,000 as of March 31, 2006 and March 31,
2005, respectively (the "Royalty Accrual Amount"). In the prior year, the
royalty was calculated on the accrual basis for consistency with the Company's
revenue recognition policies. Since the royalty agreement term ended on November
4, 2005 the obligation at March 31, 2006 has been adjusted to reflect amounts
due on the collection of cash received on the sales of Web conferencing software
through November 4, 2005. On October 10, 2005, Mentergy and the Company executed
a payment agreement that provides, notwithstanding the termination of the

royalty accrual, negotiated payment terms that would require an initial payment
of $100,000 within 15 days of approval of the agreement followed by 12 level
installment payments of $76,212 plus interest per month and a balloon payment
for the entire remaining balance due on November 15, 2006, but with the accrual
of additional royalties terminating as originally intended on November 4, 2005.
As of March 31, 2006, the Company paid $252,000, net of interest, to Mentergy in
accordance with the payment agreement. Subsequent to March 31, 2006 through the
date of this report, the Company paid an additional $229,000, net of interest,
to Mentergy.

EMPLOYMENT AGREEMENTS

The Company has entered into employment agreements with Mr. Powers, Mr.
Dunn, Mr. Cocozza, and Mr. Moulton. All are or were officers, and Mr. Powers is
also Chairman of the Board of Directors. Mr. Cocozza's employment agreement with
the Company expired on January 6, 2006 and is currently being renegotiated. Each
of these agreements provides for an annual base salary in an amount not less
than the initial specified amount and entitles the employee to participate in
all of the Company's compensation plans. Each agreement establishes a base
annual salary and provides the eligibility for an annual award of bonuses based
on the management incentive compensation plan (as adopted and amended by the
Compensation Committee of the Board of Directors from year to year), and is
subject to the right of the Company to terminate their respective employment at
any time without cause. Mr. Powers' and Mr. Dunn's employment agreements provide
for continuous employment for a one-year term that renews automatically unless
otherwise terminated. Mr. Dunn's employment agreement permits Mr. Dunn to work
outside the corporate offices, and Mr. Dunn relocated to Houston in June of
2005. Mr. Moulton's agreement provides for continuous employment for a two-year
term. Under each of the employment agreements, if the Company terminates the
employee's employment without cause (as therein defined), Mr. Powers, Mr. Dunn,
and Mr. Moulton will be entitled to a payment equal to 12 months' salary.
Additionally, Mr. Powers' and Mr. Dunn's employment agreements provide for a
severance payment equal to one (1) year's compensation in the event of
termination of employment following a "change in control" of the Company (as
defined therein) except that should Mr. Dunn obtain employment with the
successor organization in a comparable position, then the Company shall not be
responsible for the severance payment. Each of the foregoing agreements also
contains a covenant limiting competition with iLinc for one year following
termination of employment except for Mr. Moulton's which limits competition with
iLinc for nine months following termination.

LITIGATION

On June 14, 2002, the Company acquired the assets of Quisic.
Subsequently, on November 4, 2002, two former employees of Quisic (Mr.
Weathersby their former CEO and Mr. Alper their former CIO), filed a lawsuit in
the Superior Court of the State of California styled George B. Weathersby, et
al. vs. Quisic, et al. claiming damages against Quisic and the Board of
Directors of Quisic arising from their employment termination by the Quisic
Board. The Company was also added as a third party defendant with an allegation
of successor liability, but only to the extent that Quisic is found liable, and
then only to the extent the plaintiffs prove their successor liability claim
against the Company. Subsequent to the defendants' answers being filed, the
trial court ordered that an arbitration of the merits be held, which is
currently pending. The claims of Alper and Weathersby were being arbitrated
separately. As of the date of this report, the arbitrator dismissed all of
Alper's claims against the defendants, except for the only remaining defamation
claim. The Company is not liable for the defamation claim and therefore has no
further liability to Alper. The Company only acquired certain assets of Quisic
in an asset purchase transaction in exchange for 2,000,000 shares of the
Company's common stock and the assumption of $223,000 of liabilities, together
with an additional 500,000 shares of the Company's common stock that were placed
into escrow to secure a revenue performance requirement. That revenue
performance target was not achieved, and the Company demanded the return of the
shares of common stock. The shareholders of Quisic do not dispute the right of
the Company to obtain those shares. However, the shares will remain in escrow
pending resolution of the party's respective claims. Based upon the facts and
circumstances known, the Company believes that the plaintiffs' claims are
without merit, and furthermore, that the Company is not the successor of Quisic,
and therefore the Company intends to vigorously defend this aspect of the
lawsuit. While in the opinion of management, resolution of these matters is not
expected to have a material adverse effect on the Company's financial position,
results of operations or cash flows, the ultimate outcome of any litigation is
uncertain. Were an unfavorable outcome to occur that awarded to the Plaintiffs
against defendant Quisic large sums, and then the court determined that the
Company is a successor to Quisic, then the impact is likely to be material to
the Company.

14. RELATED PARTY TRANSACTIONS

In December 2001, the Company, under the initiative of the Compensation
Committee with the approval of the Board of Directors, issued its Chief
Executive Officer an incentive stock grant under the 1997 Stock Compensation
Plan of 450,000 restricted shares of the Company's common stock as a means to
retain and incentivize the Chief Executive Officer. The shares were valued at
$405,000 based on the closing price of the stock on the date of grant, which is
recorded as compensation expense ratably over the ten-year vesting period. The
shares 100% vest after 10 years from the date of grant or upon attaining the
following share price performance criteria: 150,000 shares vest if the share
price trades for $4.50 per share for 20 consecutive days; 150,000 shares vest if
the share price trades for $8.50 per share for 20 consecutive days; and 150,000
shares vest if the share price trades for $12.50 per share for 20 consecutive
days.

During fiscal 2006, 2005 and 2004, the Company recognized $30, $900 and
$18,200 respectively of legal expense to the Bogatin law firm of which a member
of the Company's Board of Directors is a partner.

In May of 2003, Barnhill's Buffet purchased 50 LearnLinc Core Licenses
with Voice-over IP and 2- way Live Videoconferencing plus annual maintenance for
$62,000. The remaining balance due under this contract was $0 at March 31, 2006
and 2005, respectively. The price paid and the payment terms granted to
Barnhill's was consistent with price paid and the terms extended to other
customers of the Company. During fiscal 2006, the Company recorded revenue of
$31,000 in relationship to the maintenance contract for licenses sold to
Barnhill's Buffet. James M. Powers, Jr. is a co-founder and was a director of
Barnhill's Buffet.

On July 21, 2005, James L. Dunn Jr., the Company's CFO, purchased a
note from one of the IPO Note holders. The note had a principal balance of
$8,375 and was purchased at a discount. Mr. Dunn extended the term of the note
that was then due until April 1, 2006. On September 30, 2005, the father of
James L. Dunn Jr. invested $25,000 in the Company's Series B Preferred Stock
Offering and acquired 2,500 shares of iLinc Communications' Series B Preferred
Stock and a Warrant to purchase 25,000 shares of the Company's common stock. The
warrant is exercisable immediately at an exercise price of $0.50 and expires on
September 30, 2008. Mr. James L. Dunn Jr. has no direct and beneficial interest
in his father's investment.

On July 31, 2005, the Company exchanged a convertible promissory note
that had been issued in March of 2002 to Peldawn, LLC, of which Mr. Dan
Robinson, a member of the Company's Board of Directors, is a partner. The note
had an original principal balance of $25,000 and was originally convertible at
$1.00 per share. As part of the Company's plan to decrease debt and increase
shareholders' equity, in combination with holders of $525,000 principal balance
of 2002 convertible redeemable notes, the note including principal and accrued
interest was exchanged using a price of $0.30 per share into 84,183 shares of
the Company's common stock. Due to the revised conversion terms of the
convertible notes, the Company recorded $12,000 of conversion expense. The
transaction resulted in accelerated amortization of the deferred offering costs
and the discount and beneficial conversion features associated with the debt by
expensing $2,400 and $6,500, respectively at the time of conversion. The
conversion price was above the fair market value of the Company's common stock
on the date of conversion and was on the same terms as like holders.

On August 16, 2005, Dr. James Powers, the Company's CEO, and his wife,
exchanged convertible promissory notes that had been issued in March 2002. The
notes had an original balance of $50,000 and were originally convertible at
$1.00 per share. As part of the Company's plan to decrease debt and increase
shareholders' equity, in combination with holders of $525,000 principal balance
of 2002 convertible redeemable notes, the notes were converted at a price of
$0.26 per share into 192,308 share of the Company's common stock. Due to the
revised conversion terms of the convertible notes, the Company recorded $36,000
of conversion expense. The transaction resulted in accelerated amortization of
the deferred offering costs and the discount and beneficial conversion features
associated with the debt by expensing $4,800 and $13,000, respectively at the
time of conversion. The conversion price was above the market value of the
Company's common stock on the date of the conversion and was on the same terms
as like holders.

On September 30, 2005, Mr. Kent Petzold, a member of the Company's
Board of Directors, invested in the Company's Series B Preferred Stock offering
and acquired 5,000 shares of iLinc Communications Series B Preferred Stock and a
Warrant exercisable for 50,000 shares of the Company's common stock. Mr. Petzold
paid $50,000 in the aggregate for such securities on the same terms as all other
investors in the offering. The Warrant is immediately exercisable at an exercise
price of $0.50 and expires on September 30, 2008.

At March 31, 2006, the Company owed the four Board of Directors' fees
totaling $69,000 for services performed during the 2006 fiscal year.

15. SUPPLEMENTAL CASH FLOW INFORMATION

YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, MARCH 31, MARCH 31,
2006 2005 2004
------------ ------------- -------------
(IN THOUSANDS)

Cash paid
Interest...................................................... $ 933 $ 1,010 $ 1,047
Income taxes.................................................. -- -- --
Supplemental information on non-cash transactions
Subordinated notes, Series A conversion into common shares.... -- -- 849

Debt conversion into common shares........................... 225 583 156
Convertible redeemable subordinated notes and accrued
interest converted into common shares....................... 533 494 150

Issuance of common stock in connection with acquisitions...... 120 2,763 --
Accounts Payable and Accrued liabilities converted into
common shares............................................... 550 -- --

Warrants issued with preferred stock.......................... 55 -- --

Warrant conversion expense due to warrant repricing........... 7 -- --

16. QUARTERLY FINANCIAL DATA (UNAUDITED)

The following table sets forth summary quarterly results of operations
for the Company for the years ended March 31, 2006 and 2005:

FIRST SECOND THIRD FOURTH
2006 QUARTER QUARTER QUARTER QUARTER
-------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
Net revenue .................................................... $ 2,673 $ 3,005 $ 3,274 $ 3,580
Cost of revenues and operating expenses ........................ 3,131 2,693 2,855 3,110
Income/ (loss) from operations ................................. (458) 312 419 470
Income/ (loss) from continuing operations before income taxes .. (892) (526) 137 27
Income taxes ................................................... -- -- -- --
Income/ (loss) from continuing operations ...................... (892) (526) 137 27
Income from discontinued operations ............................ 7 5 70 1
Net income/ (loss) ............................................. $ (885) $ (521) $ 207 $ 28
Income/ (loss) available to common shareholders ................ $ (910) $ (602) $ 167 $ (11)
Basic and diluted per share data: (1)
Income/ (loss) per common share from continuing operations ... $ (0.04) $ (0.02) $ (0.01) $ (0.00)
Income/ (loss) per common share from discontinued
operations ............................................... -- -- -- --
Weighted average common share outstanding:

Basic ........................................................ 24,145 25,855 27,114 27,186
Diluted ...................................................... 24,145 25,855 27,115 27,186

FIRST SECOND THIRD FOURTH
2005 QUARTER QUARTER QUARTER QUARTER
-------- --------- --------- -------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
Net revenue .................................................... $ 1,970 $ 2,734 $ 2,568 $ 3,096
Cost of revenues and operating expenses ........................ 2,824 4,100 3,315 3,503
Loss from operations ........................................... (854) (1,366) (747) (407)
Loss from continuing operations before income taxes ............ (1,456) (1,802) (1,159) (782)
Income taxes ................................................... -- -- -- --
Loss from continuing operations ................................ (1,456) (1,802) (1,159) (782)
Income/ (loss) from discontinued operations .................... -- -- 15 (143)
Net loss ....................................................... $ (1,456) $ (1,802) $ (1,144) $ (925)
Loss available to common shareholders .......................... $ (1,485) $ (1,828) $ (1,170) $ (949)
Basic and diluted per share data: (1)
Loss per common share from continuing operations.............. $ (0.07) $ (0.08) $ (0.05) $ (0.03)
Income/ (loss) per common share from discontinued
operations ............................................... $ -- $ -- $ -- $ (0.01)
Weighted average common share outstanding:
Basic and diluted ............................................ 20,297 24,132 24,146 24,145

____________

(1) Earnings per share are computed independently for each of the quarters
presented. Therefore, the sum of the quarterly earnings per share does not
equal the total computed for the year due to stock transactions that
occurred.

17. SUBSEQUENT EVENTS

Subsequent to March 31, 2006, the maturity date of a $400,000 note
payable, assumed in the Glyphics acquisition with a principal balance of
$397,000 was extended from April 1, 2006 to April 1, 2007, with quarterly
interest-only payments at 7.5% due until maturity.

Subsequent to year end, on April 1, 2006, the Company issued a warrant
for 50,000 shares with an exercise price of $0.40 in connection with the
extension of a $397,000 loan. The warrant expires in April 2009. The fair value
of the warrant of $15,000 was estimated using the Black-Scholes pricing model
with the following assumptions: contractual and expected life of three years,
volatility of 125%, dividend yield of 0%, and a risk-free rate of 4.83%.
Subsequent to year end, the expiration dates of the warrants issued in January
2005 and August 2005, also issued in connection with the $397,000 loan, were
extended to March 31, 2009. Based on an analysis using the Black-Scholes pricing
model, no adjustment was made to the fair value of the two extended warrants.

On April 29, 2006, the Company amended its agreement with its custom
content subcontractor, Interactive Alchemy. The original agreement was a
three-year agreement effective May 1, 2003. The amendment extends the agreement
for an additional non-cancelable two-year term effective May 1, 2006. Under the
revised agreement, Interactive Alchemy will continue to provide custom content
development services to the Company for its customers in exchange for a fixed
percentage of the Company's custom content fee. The Company will also receive a
specified amount of fees from Interactive Alchemy limited to a cap of $200,000
in the first year and $450,000 in the second year of the amended agreement.

Subsequent to March 31, 2006, on June 9, 2006, the Company completed a
private placement of 5.4 million unregistered, restricted shares of common stock
for approximately $2.0 million in gross proceeds. The Company paid its placement
agent an underwriting commission of $180,000 of which $25,000 was recorded as
deferred offering costs at March 31, 2006 and incurred additional offering
expenses of approximately $50,000. Within 30 days of the closing date, the
Company will file a Registration Statement on Form S-3 to enable the resale of
the shares by the Investors. The Company intends to use the proceeds for working
capital and general corporate purposes.

Subsequent to March 31, 2006, the Compensation Committee of the Board
of Directors amended the vesting performance criteria hurdles in the Restricted
Stock Award issued to its Chief Executive Officer, James M. Powers, Jr., as
follows: 150,000 shares vest if the share price trades for $1.00 per share for
20 consecutive days; 150,000 shares vest if the share price trades for $2.00 per
share for 20 consecutive days; and 150,000 shares vest if the share price trades
for $3.00 per share for 20 consecutive days. All other aspects of the grant
remained the same.(For further information see the discussion in Item 5.)

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None

ITEM 9A. CONTROLS AND PROCEDURES

The Company evaluated the design and operation of its disclosure
controls and procedures to determine whether they are effective in ensuring that
it discloses the required information in a timely manner and in accordance with
the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the
rules and forms of the Securities and Exchange Commission. Management, including
its principal executive officer and principal financial officer, supervised and
participated in the evaluation. The principal executive officer and principal
financial officer concluded, based on their review, that its disclosure controls
and procedures, as defined by Exchange Act Rules 13a-15(e) and 15d-15(e), are
effective and ensure that (i) it discloses the required information in reports
that it files under the Exchange Act and that the filings are recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms and (ii) information required
to be disclosed in reports that it files under the Exchange Act is accumulated
and communicated to the Company's management, including its principal executive
officer and principal financial officer, to allow timely decisions regarding
required disclosure.

During the fourth quarter ended March 31, 2006, no changes were made to
its internal controls over financial reporting that materially affected or were
reasonably likely to materially affect these controls subsequent to the date of
their evaluation.

ITEM 9B. OTHER

None

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this item with respect to the Company's
directors and executive officers and compliance by the Company's directors,
executive officers and certain beneficial owners of the Company's common stock
with Section 16(a) of the Exchange Act will be set forth under the captions
"Election of Directors' and "Section 16 Reports" in the Company's definitive
Proxy Statement (the "2006 Proxy Statement") for its 2006 annual meeting of
stockholders, which sections are incorporated herein by reference. The Company's
Code of Ethics is incorporated herein by this reference and available at the
Company' Website located at www.ilinc.com.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item will be set forth in the section
entitled "Executive Compensation" in the 2006 Proxy Statement, which section is
incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED SHAREHOLDER MATTERS

The information required by this item will be set forth in the section
entitled "Security Ownership of Certain Beneficial Owners and Management" in the
2006 Proxy Statement, which section is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item will be set forth in the section
entitled "Certain Transactions" in the 2006 Proxy Statement, which section is
incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Epstein, Weber & Conover, PLC audited the Company's consolidated
financial statements for the years ended March 31, 2005 and 2006. BDO Seidman,
LLP audited its consolidated financial statements for the year ended March 31,
2004.

AUDIT AND NON-AUDIT FEES

Aggregate fees for professional services rendered to the Company by
Epstein, Weber & Conover, PLC, by BDO Seidman, LLP and by Evers & Company, LTD.
for the year ended March 31, 2006 were $111,280, $30,350 and $3,500,
respectively. Total aggregate fees for professional services for the years ended
March 31, 2006 and 2005, respectively were as follows:

SERVICES PROVIDED 2006 2005
-------------------------------
Audit Fees $109,600 $149,392
Audit Related Fees -- 13,474
Tax Fees 3,500 --
All Other Fees 1,680 --
-------------------------------
Total $114,780 $162,866
===============================

Audit Fees

The aggregate fees billed for the years ended March 31, 2006 and 2005,
were for the audits of the Company's consolidated financial statements and
reviews of the Company's interim consolidated financial statements included in
the Company's annual and quarterly reports, and for services provided with
respect to the Company's other regulatory filings. The fees reflected above for
2006 do not include fees paid to BDO Seidman, LLP of $30,350 for the fiscal year
ended March 31, 2006.

Audit Related Fees

The aggregate fees billed for the years ended March 31, 2006 and 2005
were primarily for services provided for review and consultation on acquisition,
capital raising, and tender offer transactions.

Tax Fees

The aggregate fees billed for the years ended March 31, 2006 and 2005
were for miscellaneous tax consulting services performed by Evers and Company,
LTD.

Audit Committee Pre-Approval Policies and Procedures

The Audit Committee has implemented pre-approval policies and
procedures related to the provision of audit and non-audit services. Under these
procedures, the Audit Committee pre-approves both the type of services to be
provided by its auditor and the estimated fees related to these services.

During the approval process, the Audit Committee considers the impact
of the types of services and the related fees on the independence of the
auditor. The services and fees must be deemed compatible with the maintenance of
the auditor's independence, including compliance with SEC rules and regulations.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(1) FINANCIAL STATEMENTS

Reports of Independent Registered Public Accounting Firms.

Consolidated Balance Sheets as of March 31, 2006 and 2005.

Consolidated Statements of Operations for the years ended March 31, 2006, 2005,
and 2004.

Consolidated Statements of Shareholders' Equity for the years ended March 31,
2006, 2005, and 2004.

Consolidated Statements of Cash Flows for the years ended March 31, 2006, 2005,
and 2004.

Notes to the Consolidated Financial Statements.

(a)(2) FINANCIAL STATEMENT SCHEDULES

Reports of Independent Registered Public Accounting Firms

The following financial statement schedule is filed as a part of this Report
under Schedule II on page 76. Schedule II -- Valuation and Qualifying Accounts
for the three fiscal years ended March 31, 2006. All other schedules called for
by Form 10-K are omitted because they are inapplicable or the required
information is shown in the financial statements, or notes thereto, included
herein.

(a)(3) EXHIBITS.

EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------ -----------------------

3.1(1) Restated Certificate of Incorporation of the Company
3.2(1) Bylaws of the Company
3.3(7) Restated Certificate of Incorporation of the Company
3.4(7) Amendment of Bylaws of the Company
3.5(8) Restated Certificate of Incorporation of the Company
3.6(14) Certificate of Designations of Series A Preferred Stock
3.7(15) Certificate of Amendment of Restated Certificate of Incorporation of
the Company
3.8 Revised Certificate of Designations of Series B Preferred Stock
4.1(1) Form of certificate evidencing ownership of Common Stock of the
Company
4.6(7) Form of certificate evidencing ownership of Common Stock of the
Company
4.7(8) Form of Convertible Redeemable Subordinated Note
4.9(14) Form of Redeemable Warrant (2003 Private Placement Offering)
*10.1(20) The Company's amended and restated stock compensation plan
*10.9(7) Employment Agreement dated November 12, 2000 between the Company and
James M. Powers, Jr.
*10.11(21) Employment Agreement dated February 15, 2001 between the Company and
James L. Dunn, Jr. with Amendments
10.14(9) Plan of Reorganization and Agreement of Merger by and among the
Company, Edge Acquisition Subsidiary, Inc. and the Stockholders of
Learning-Edge, Inc.
10.15(10) Plan of Reorganization and Agreement of Merger by and among the
Company, TW Acquisition Subsidiary, Inc., ThoughtWare Technologies,
Inc. and the Series B Preferred Stockholder of ThoughtWare
Technologies, Inc.
10.16(11) Asset Purchase Agreement by and among the Company and Quisic
Corporation. Common Stock Purchase Agreement by and between the
Company, Investor Growth Capital Limited, A Guernsey Corporation and
Investor Group, L.P., A Guernsey Limited Partnership and Leeds
Equity Partners III, L.P.
10.16(12) Asset Purchase Agreement by and among the Company, and Mentergy,
Inc. and its wholly-owned subsidiaries, LearnLinc Corp and
Gilat-Allen Communications, Inc.
+10.17 Subcontractor Agreement between the Company and Interactive Alchemy,
Inc. with Amendments
*10.18(17) Employment Agreement dated January 6, 2004 between the Company and
Nathan Cocozza
10.19(17) Note Purchase Agreement dated February 12, 2004 between the Company
and certain creditors
10.20(17) Unit Purchase and Agency Agreement dated April 19, 2004 between the
Company and Cerberus Financial, Inc.
10.21(17) Placement Agency Agreement dated March 10, 2004 between the Company
and Peacock, Hislop, Staley, and Given, Inc.
10.22(16) Asset Purchase Agreement and Plan of Reorganization by and between
the Company and Glyphics Communications, Inc.
*10.23(18) Employment Agreement dated June 1, 2004 between the Company and Gary
L. Moulton
*10.24(18) Employment Agreement dated July 19, 2004 between the Company and
John S. Hodgson
*10.25(19) Employment Agreement dated March 14, 2005 between the Company and
David Iannini
+10.26 Securities Purchase Agreements effective June 9, 2006
+10.27 Registration Rights Agreements effective June 9, 2006 +12Ratio of
Earnings to Fixed Charges
14.1(18) Code of Ethics
16(13) Letter re Change in Certifying Accountant
+21.1 Subsidiaries of the Registrant
+23.1 Consent of Epstein, Weber & Conover, PLC
+23.2 Consent of BDO Seidman, LLP
+31.1 Chief Executive Officer Section 302 Certification
+31.2 Principal Financial Officer Section 302 Certification
+32.1 Chief Executive Officer Section 906 Certification
+32.2 Principal Financial Officer Section 906 Certification

________________

(1) Previously filed as an exhibit to iLinc's Registration Statement on
Form S-1 (No. 333-37633), and incorporated herein by reference.
(2) Previously filed as an exhibit to iLinc's Registration Statement on
Form S-4 (No. 333-78535), and incorporated herein by reference.
(3) Previously filed as an exhibit to iLinc's Registration Statement on
Form S-4 (No. 333-64665), and incorporated herein by reference.
(4) Previously filed as an exhibit to iLinc's Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 1998.
(5) Previously filed as an exhibit to iLinc's Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 1998.
(6) Previously filed as an exhibit to iLinc's Annual Report on Form 10-K
for the year ended March 31, 2000.
(7) Previously filed as an exhibit to iLinc's Annual Report on Form 10-K
for the year ended March 31, 2001.
(8) Previously filed as an exhibit to iLinc's Annual Report on Form 10-K
for the year ended March 31, 2002.
(9) Previously filed as an exhibit to iLinc's Form 8-K filed October 16,
2001.
(10) Previously filed as an exhibit to iLinc's Form 8-K filed January 30,
2002.
(11) Previously filed as an exhibit to iLinc's Form 8-K filed July 2, 2002.
(12) Previously filed as an exhibit to iLinc's Form 8-K filed December 20,
2002.
(13) Previously filed as an exhibit to iLinc's Form 8-K filed April 3,
2003.
(14) Previously filed as an exhibit to iLinc's Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 2003.
(15) Previously filed as an exhibit to iLinc's Quarterly Report on Form
10-Q for the fiscal quarter ended December 31, 2003.
(16) Previously filed as an exhibit to iLinc's Form 8-K filed June 14,
2004.
(17) Previously filed as an exhibit to iLinc's Annual Report on Form 10-K
for the year ended March 31, 2004.
(18) Previously filed as an exhibit to iLinc's Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 2004.
(19) Previously filed as an exhibit to iLinc's Annual Report on Form 10-K
for the year ended March 31, 2005.
(20) Previously filed as an exhibit to iLinc's Annual Proxy Statement dated
July 14, 2005.
(21) Previously filed as an exhibit to iLinc's Quarterly Report on Form
10-Q for the fiscal quarter ended December 31, 2005.

* Management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to the requirements of Item 15 of Form 10-K.
+ Furnished herewith as an Exhibit

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
-------------------------------------------------------

To the Stockholders and Board of Directors
of iLinc Communications, Inc. and Subsidiaries:

In connection with our audit of the consolidated financial statements of iLinc
Communications, Inc. and subsidiaries referred to in our report dated June 13,
2006, which is included in the Company's annual report on Form 10-K, we have
also audited Schedule II for the year ended March 31, 2006. In our opinion, this
schedule presents fairly, in all material respects, the information to be set
forth therein.

/s/ Epstein, Weber & Conover, PLC
Scottsdale, Arizona
June 13, 2006

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON
FINANCIAL STATEMENT SCHEDULES

To the Board of Directors and Shareholders
iLinc Communications, Inc. and Subsidiaries

The audit referred to in our report dated May 21, 2004 (which contains an
explanatory paragraph indicating substantial doubt about iLinc Communications,
Inc.'s ability to continue as a going concern), relating to the consolidated
financial statements of iLinc Communications, Inc. as of March 31, 2004 and for
the year ended March 31, 2004, which is contained in Item 8 of this Form 10-K
included the audit of the consolidated financial statement schedule as of March
31, 2004 and for the year ended March 31, 2004 listed in the accompanying index.
This consolidated financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statement schedules based upon our audits.

In our opinion such consolidated financial statement schedule for the year ended
March 31, 2004 presents fairly, in all material respects, the information set
forth therein.

/s/ BDO Seidman, LLP

Costa Mesa, California

May 21, 2004

ILINC COMMUNICATIONS, INC.
VALUATION AND QUALIFYING ACCOUNTS
SCHEDULE II

ADDITION DEDUCTIONS
------------ ----------------------------
BALANCE AT CHARGED
THE TO BAD WRITE-OFFS BALANCE AT
FISCAL BEGINNING OF DEBT RECOVERIES CHARGED TO END OF
YEAR DESCRIPTION PERIOD EXPENSE (1) ALLOWANCE PERIOD
--------- ---------------------------------- ------------- ------------ ----------- ---------- ---------

2006 Accounts receivable - allowance
for doubtful accounts........... $ 84 $ 114 $ 3 $ 75 $ 120

2005 Accounts receivable - allowance
for doubtful accounts........... $ 24 $ 233 $ 5 $ 168 $ 84

2004 Accounts receivable - allowance
for doubtful accounts........... $ 172 $ 24 $ 142 $ 30 $ 24

(1) This amount represents recoveries for accounts which were not charged off;
accordingly, these recoveries are reflected as a decrease in allowance and
decrease to bad debt expense as the collection of recoveries are reflected as
applications to the respective accounts and notes receivable.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned; thereunto duly authorized, in the City of
Phoenix, State of Arizona, on June 29, 2006.

ILINC COMMUNICATIONS, INC.

By: /s/ JAMES M. POWERS, JR.
------------------------------------
James M. Powers, Jr.,
Chairman of the Board, President and
Chief Executive Officer

By: /s/ JAMES L. DUNN, JR.
------------------------------------
James L. Dunn, Jr.
Senior Vice President and
Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the date indicated.

NAME CAPACITY DATE
---- -------- ----

/s/ JAMES M. POWERS, JR. Chairman of the Board, President and Chief June 29, 2006
-------------------------------- Executive Officer (Principal Executive Officer)
James M. Powers, Jr.

/s/ JAMES H. COLLINS Director June 29, 2006
--------------------------------
James H. Collins

/s/ KENT PETZOLD Director June 29, 2006
--------------------------------
Kent Petzold

/s/ DANIEL T. ROBINSON, JR. Director June 29, 2006
--------------------------------
Daniel T. Robinson, Jr.

/s/ CRAIG W. STULL Director June 29, 2006
--------------------------------
Craig W. Stull