<PAGE> 1
As Filed with the Securities and Exchange Commission on December 21, 1998
Commission File No. 333-62133
----------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 4
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
FUTURELINK DISTRIBUTION CORP.
(Exact name of registrant as specified in its charter)
250 6th Avenue S.W., Suite 300
Calgary, Alberta CANADA T2P 3H7
(403) 216-6000
(Address, including zip code, and
telephone number, including area
code, of registrant's principal
executive offices)
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<S> <C> <C>
Colorado 7371 95-3895211
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) Number)
</TABLE>
CAMERON CHELL
CHIEF EXECUTIVE OFFICER
FUTURELINK DISTRIBUTION CORP.
250 6th Avenue S.W., Suite 300
Calgary, Alberta CANADA T2P 3H7
(403) 216-6000
(Name and address, including zip code, and telephone number,
including area code, of agent for service)
Approximate Date of Commencement of Proposed Sale to the Public: As soon as
possible after the Registration Statement is declared effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<PAGE> 2
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============================================================================================================================
CALCULATION OF REGISTRATION FEE
============================================================================================================================
Title of Each Proposed Maximum Proposed Maximum
Class of Securities Amount To Offering Price Per Aggregate Offering Amount of
To Be Registered Be Registered Security (1) Price Registration Fee(2)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock Underlying Bialik 4,250,000 Shares of $1.00 $4,250,000 $ 1253.75
Exchangeable Shares Common Stock
- ----------------------------------------------------------------------------------------------------------------------------
Common Stock Underlying 10% 9,615,385 Shares of $1.00 $9,615,385 $ 2836.54
Convertible Debentures, Principal Common Stock
Amount $5,000,000
- ----------------------------------------------------------------------------------------------------------------------------
Common Stock Underlying Thomson 1,000,000 Shares of $1.00 $1,000,000 $ 295.00
Kernaghan Warrants Common Stock
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL 14,865,385 Shares of $1.00 $14,865,385 $ 4,385.29
$4,385.29 Common Stock
============================================================================================================================
</TABLE>
(1) Calculated pursuant to Rule 457(c) and (g).
(2) Based on the average closing bid and asked price of the Registrant's
Common Stock on August 18, 1998, on the NASD OTC Bulletin Board.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
THE INFORMATION IN THIS REGISTRATION STATEMENT IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS REGISTRATION
STATEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
<PAGE> 3
FUTURELINK DISTRIBUTION CORP.
CROSS REFERENCE SHEET
<TABLE>
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ITEM NUMBER AND HEADING IN LOCATION
FORM SB-2 REGISTRATION STATEMENT IN PROSPECTUS
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1. Front of the Registration Statement and Outside
Front Cover Page of Prospectus............................... Facing Page and Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of Prospectus...... Inside Front Cover and Outside Back Cover Pages
of Prospectus
3. Summary Information and Risk Factors......................... Prospectus Summary; Risk Factors
4. Use of Proceeds.............................................. Use of Proceeds
5. Determination of Offering Price.............................. Not Applicable
6. Dilution..................................................... Not Applicable
7. Selling Security Holders..................................... Selling Security Holders; Security Ownership of Certain
Beneficial Owners and Management
8. Plan of Distribution......................................... Plan of Distribution
9. Legal Proceedings............................................ Business
10. Directors, Executive Officers, Promoters and Control Persons. Management; Certain Transactions; Risk Factors
11. Security Ownership of Certain Beneficial Owners and Management Security Ownership of Certain Beneficial Owners
and Management
12. Description of Securities.................................... Description of Securities
13. Interest of Named Experts and Counsel........................ Not Applicable
14 Disclosure of Commission Position on Indemnification
for Securities Act Liabilities............................... Not Applicable
15. Organization Within Last Five Years.......................... The Company; Business
16. Description of Business...................................... Business; Prospectus Summary; Risk Factors; Management's
Discussion and Analysis
17. Management's Discussion and Analysis or Plan of Operations... Management's Discussion and Analysis
18. Description of Property ..................................... Business
19. Certain Relationships and Related Transactions............... Certain Relationships and Related Transactions
20. Market for Common Equity and Related Stockholder Matters..... Market for Common Equity and Related Stockholder Matters;
Description of Securities
21. Executive Compensation....................................... Management; Executive Compensation
22. Financial Statements......................................... Financial Statements
23. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure.......................... Not Applicable
</TABLE>
<PAGE> 4
PROSPECTUS December 21, 1998
FUTURELINK DISTRIBUTION CORP.
4,250,000 SHARES OF COMMON STOCK UNDERLYING BIALIK EXCHANGEABLE SHARES
9,615,384 SHARES OF COMMON STOCK UNDERLYING $5,000,000 CONVERTIBLE DEBENTURES
1,000,000 SHARES OF COMMON STOCK UNDERLYING THOMSON KERNAGHAN WARRANTS
This Prospectus relates to (i) 4,250,000 shares of common stock underlying
Exchangeable Shares in FutureLink/SysGold issued to Don and Olivia Bialik in
FutureLink Distribution Corp., a Colorado corporation (the "Company" or
"FutureLink USA") held by Don and Olivia Bialik (the "Bialik Exchangeable
Shares") (ii) 9,615,384 shares of common stock of the Company issuable upon
exercise of a 10% Convertible Debenture with a US$5,000,000 principal amount
held by Thomson Kernaghan & Co., Ltd. ("Convertible Debenture") and (iii)
1,000,000 warrants ("Warrants") to purchase 1,000,000 shares of common stock of
the Company, issued to Thomson Kernaghan & Co., Ltd. The securities issued to
the Bialiks' and to Thomson Kernaghan were each issued in Reg S transactions by
the Company on August 4, 1998 and August 14, 1998 respectively and amended by
agreement dated August 21, 1998. See "Selling Security Holder" and "Plan of
Distribution".
The Exchangeable Shares issued to Don and Olivia Bialik allow the Company to
issue 4,250,000 shares of the Company's common stock in consideration for
exchange of the Exchangeable Shares. The Convertible Debenture issued allows
Thomson Kernaghan & Co., Ltd. to convert to common shares of the Company at a
conversion price equal to the lesser of $.75 cents or 78 percent of the average
closing bid price on the OTC Bulletin Board for the Company 's common shares in
the three trading days prior to the date of notice of conversion, which must be
on or before August 14, 2001. The 1,000,000 warrants issued to Thomson Kernaghan
& Co., Ltd. are at an exercise price $1.00 per share expiring August 14, 2001.
Don and Olivia Bialik and Thomson Kernaghan & Co. Ltd.(the "Selling Security
Holders") may be deemed underwriters within the meaning of the 1933 Act, with
respect to the securities offered, and any profits realized or commissions
received may be deemed underwriting compensation.
The Company will not receive any proceeds upon the exercise of the conversion
rights by Don and Olivia Bialik. In the event, that all the Thomson Kernaghan
Warrants and Debenture conversion feature are exercised, the Company will
receive gross proceeds not to exceed $1,000,000. The Company will have already
received the proceeds from the initial placement of the Debenture in the amount
of up to $5,000,000. See "Selling Security Holders", "Plan of Distribution" and
"Use of Proceeds". The Company will pay all of the expenses of this prospectus
estimated at approximately $50,000.
FutureLink USA's Common Stock is traded on the NASD OTC Bulletin Board under the
symbol FLNK, and traded at $.40 on December 14, 1998.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. FOR INFORMATION
REGARDING CERTAIN RISKS RELATING TO THE COMPANY, SEE THE SECTION MARKED "RISK
FACTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE COMMISSION OR ANY
STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 5
AVAILABLE INFORMATION
The Company has filed with the Commission a registration statement under the
Securities Act with respect to the Securities registered hereby. This Prospectus
omits certain information contained in said registration statement as permitted
by the rules and regulations of the Commission. For further information with
respect to the Company and the Common Stock, reference is made to the
registration statement, including the exhibits thereto. Statements contained
herein concerning the contents of any contract or any other document are not
necessarily complete, and in each instance, reference is made to such contract
or other document filed with the Commission as an exhibit to the registration
statement, or otherwise, each such statement being qualified in all respects by
such reference. The registration statement, including exhibits and schedules
thereto, may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549. Copies of such materials can be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates and at the Commission's web site at www.sec.gov.
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in or incorporated by reference into this Prospectus. Except where
otherwise indicated, all share and per share data and information included in
this Prospectus relating to the number of shares of Common Stock assume no
exercise of (i) the Warrants, (ii) the options available for grant under the
Company's 1998 Incentive Stock Option Plan or (iii) the Bialik Reserved Shares.
ALL REFERENCES HEREIN ARE IN US DOLLARS UNLESS OTHERWISE REFERENCED. AS OF CLOSE
OF BUSINESS ON DECEMBER 11, 1998, THE CONVERSION RATE ON THE CANADIAN DOLLAR WAS
$1.5411 CANADIAN ON $1.00 US.
THE COMPANY
DESCRIPTION OF THE COMPANY
FUTURELINK DISTRIBUTION CORP. (A COLORADO CORPORATION) ("FUTURELINK USA")
FutureLink USA is a Colorado company which transacts business through the
following subsidiaries: (i) a 96.47% interest in FutureLink Distribution Corp.
(an Alberta corporation) ("FutureLink Alberta") located in Calgary, Alberta;
(ii) a 50% interest in NextClick, an Alberta corporation; (iii) a 100% interest
in FutureLink Acquisition Corp. (an Alberta corporation) which owns 100% of the
Class "B", "J" and "K" shares in FutureLink/SysGold (see "Certain Relationships
and Related Transactions"). FutureLink USA is in the process of attempting to
acquire substantially all of the remaining issued and outstanding securities of
FutureLink Alberta.
FutureLink USA is a total solution provider that supplies integrated business
and information technology ("IT") solutions in the areas of management
consulting, land and land systems, accounting, software development and
infrastructure management. FutureLink USA strives to understand its clients'
organizational processes and
<PAGE> 7
information requirements and provides a full suite of information management
services.
FutureLink USA believes itself to be the world's first computer utility company
(see "Patents & Trademarks"). It is dedicated to providing small to medium sized
businesses (50-1000 seats) with the most efficient and cost effective system for
the delivery of computer hardware, software and electronic content at an
attractive cost for installation, administration and maintenance. It is
FutureLink USA's objective to make computer use as affordable and convenient to
use as the telephone.
FutureLink USA's key technology platform to deliver its computing model is thin
client computing. A thin client is a computer that has a central processing unit
(CPU), a keyboard, a mouse and a monitor that is connected to a network. Thin
clients have no hard drive, floppy disks or CD-ROM drives nor any moving parts
thus greatly reducing operating and maintenance costs. The thin client is
connected to a network that delivers any software application to any desktop
from a server. The thin client is designed to eliminate the need for constant
computer upgrades, reduce the initial capital investment of buying PCs and
reduce the time and money spent on computer maintenance. FutureLink USA is
branding this service W.A.T.C.H.(TM) (Wide Area Thin Client Hookup(TM)) (see
"Patents and Trademarks").
FutureLink USA is offering its W.A.T.C.H.TM service as an integrated IT
outsourcing service to the mid-market (companies with 50 -- 1000 seats).
FutureLink USA's management believes that strategic acquisitions could
tremendously enhance FutureLink USA's growth and profitability over the next
several years. On August 3, 1998, as amended by agreement dated September 28,
1998, FutureLink USA entered into an agreement with FutureLink Alberta
("FutureLink Alberta Acquisition Agreement"), which provided that, subject to
regulatory approval and certain exceptions, FutureLink USA would acquire all of
the FutureLink Alberta Securities in consideration of the issuance of FutureLink
USA Common Shares to the FutureLink Alberta Security holders on a one-for-one
basis for each such security. Management of FutureLink Alberta is identical to
that of FutureLink USA and certain security holders of FutureLink Alberta are
also security holders of FutureLink USA. On November 6, 1998, the FutureLink
Alberta Acquisition Agreement was closed and FutureLink USA obtained a 96.47%
interest in FutureLink Alberta.
<PAGE> 8
In addition, by agreement among FutureLink Alberta, FutureLink USA, Donald A.
Bialik, Olivia B. Bialik, Bialik Family Trust, Riverview Management Corporation
(now known as FutureLink/SysGold) and SysGold Ltd. dated August 4, 1998, as
amended by agreement dated August 21, 1998, FutureLink USA has acquired all of
the issued and outstanding shares of FutureLink/SysGold (the "SysGold
Acquisition Agreement"). The consideration was CDN$8,685,000 paid by
CDN$3,000,000 cash on closing (August 21, 1998), CDN$685,000 by a promissory
note payable within 90 days of closing, and by the issuance of 4,250,000
FutureLink/SysGold shares exchangeable into 4,250,000 FutureLink USA Common
Shares (attributed value $0.85/share).
THE OFFERING
Common Stock Offered Hereby 14,865,385 shares(1)
Common Stock Outstanding as of October 1, 1998 16,168,065 shares
NASD OTC Bulletin Board Symbol FLNK
SUMMARY FINANCIAL DATA
A. PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The summary pro forma financial data in the table are derived from the pro forma
consolidated financial statements and related notes thereto of the Company. The
data should be read in conjunction with the pro forma consolidated financial
statements and the related notes contained elsewhere herein.
(1) As of October 1, 1998 only 668,762 shares of the 14,865,385 shares offered
hereby had been issued by the Company. If all of these shares are issued,
the Company will have 30,364,688 shares of Common Stock outstanding.
<PAGE> 9
SUMMARY OF SELECTED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION (1)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Nine Months Ended September 30 Year Ended December 31
1998 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Statement of Income Data:
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Revenues $ 7,167,581 $ 6,665,460
- ----------------------------------------------------------------------------------------
Total operating expenses $ 16,710,764 $ 12,329,204
- ----------------------------------------------------------------------------------------
Loss from operations ($ 9,687,198) ($ 5,673,666)
- ----------------------------------------------------------------------------------------
Net loss ($ 9,690,680) ($ 6,408,518)
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Balance Sheet Data:
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Current assets $ 1,292,460 --
- ----------------------------------------------------------------------------------------
Working capital (deficiency) ($ 801,038) --
- ----------------------------------------------------------------------------------------
Total assets $ 7,613,417 --
- ----------------------------------------------------------------------------------------
Total liabilities $ 4,612,840 --
- ----------------------------------------------------------------------------------------
Stockholders' equity $ 3,000,577 --
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</TABLE>
Note:
(1) The pro forma financial statements as at September 30, 1998, for the nine
months ended September 30, 1998 and for the year ended December 31, 1997 give
effect to the acquisition of all the outstanding shares in FutureLink Alberta
and all the outstanding shares of FutureLink/SysGold as if the effective dates
of these transactions were September 30, 1998 for the balance sheet data and
January 1, 1997/January 1, 1998 for the income statement data.
<PAGE> 10
B. FUTURELINK DISTRIBUTION CORP., A COLORADO CORPORATION
The summary financial data in the table are derived from the consolidated
financial statements and related notes thereto of the Company. The data should
be read in conjunction with the consolidated financial statements and the
related notice contained elsewhere herein.
SUMMARY OF SELECTED CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
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------------------------------------------------------------------------------
Nine Months Ended Years Ended
September 30 December 31
1998 1997 1996
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Statement of Income Data:
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Revenues $622,854 $0 $0
------------------------------------------------------------------------------
Total operating expenses $4,197,833 $122,049 $6,864
------------------------------------------------------------------------------
Loss from operations ($3,574,979) ($122,049) ($6,864)
------------------------------------------------------------------------------
Net loss ($4,366,754) ($737,049) ($6,864)
------------------------------------------------------------------------------
Net loss per common share ($0.32) ($1.65) ($2.75)
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Balance Sheet Data:
------------------------------------------------------------------------------
Current assets $1,200,590 $0 $0
------------------------------------------------------------------------------
Working capital (deficiency) ($489,408) ($23,932) ($11,377)
------------------------------------------------------------------------------
Total assets $7,411,768 $0 $515,000
------------------------------------------------------------------------------
Total liabilities $4,154,681 $23,932 $11,377
------------------------------------------------------------------------------
Stockholders' equity $3,257,087 ($23,932) $503,623
------------------------------------------------------------------------------
</TABLE>
FORWARD-LOOKING STATEMENTS
When included in this Prospectus, the words "expects," "intends," "anticipates,"
"plans," "projects" and "estimates," and analogous or similar expressions are
intended to identify forward-looking statements. Such statements, which include
statements contained in "Prospectus Summary," "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business," are inherently subject to a variety of risks and uncertainties that
could cause actual results to differ materially from those reflected in such
forward-looking statements. For a discussion of certain of such risks, see "Risk
Factors." These forward-looking statements speak only as of the date of this
Prospectus. The Company expressly disclaims any obligation or undertaking to
release publicly any updates or revisions to any forward-looking statement
contained herein to reflect any change in the Company's expectations with regard
thereto or any change in events, conditions or circumstances on which any such
statement is based.
RISK FACTORS
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THE PROSPECTUS, PROSPECTIVE
INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS BEFORE MAKING AN
INVESTMENT. THIS PROSPECTUS CONTAINS CERTAIN FORWARD LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES, SUCH AS STATEMENTS OF THE COMPANY'S PLANS,
OBJECTIVES, EXPECTATIONS AND INTENTIONS. THE CAUTIONARY STATEMENTS MADE IN THIS
PROSPECTUS
<PAGE> 11
SHOULD BE READ AS BEING APPLICABLE TO ALL RELATED FORWARD-LOOKING STATEMENTS
WHEREVER THEY APPEAR IN THIS PROSPECTUS. THE COMPANY'S ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR
CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE DISCUSSED BELOW, AS WELL AS THOSE
DISCUSSED ELSEWHERE HEREIN.
RISKS CONCERNING FUTURELINK USA
FutureLink USA is a Colorado company which transacts business through the
following subsidiaries (i) a 96.47% interest in FutureLink Distribution Corp.
(an Alberta corporation) ("FutureLink Alberta") located in Calgary, Alberta;
(ii) a 50% interest in NextClick, an Alberta corporation; (iii) a 100% interest
in FutureLink Acquisition Corp. (an Alberta corporation) which owns 100% of the
Class "B", "J" and "K" shares in FutureLink/SysGold (see "Certain Relationships
and Related Transactions"). FutureLink USA is in the process of attempting to
acquire substantially all of the remaining issued and outstanding securities of
FutureLink Alberta.
Limited Control and Influence on the Company. The current officers and
directors, including the controlling beneficial shareholders of the Company in
the aggregate, directly or beneficially, currently own approximately 20.6% of
the total outstanding Common Stock. As a result, these individuals will probably
be able to elect a majority of the Company's directors and thereby control the
management policies of the Company, as well as determine the outcome of
corporate actions requiring shareholder approval by majority action, regardless
of how other shareholders of the Company may vote. Such ownership of Common
Stock may have the effect of delaying, deferring or preventing a change in
control of the Company and may adversely affect the voting rights of holders of
Common Stock. This ownership of stock could increase significantly, to more than
forty percent (40%), following option exercises and debt conversions.
Limitation of Liability of Directors. As permitted by the Colorado Business
Corporation Act, the Company has Articles of Incorporation, as amended,
eliminates, with certain exceptions, the personal liability of its directors to
the Company and its shareholders for monetary damages as a result of a breach of
fiduciary duty. Such a provision makes it more difficult to assert a claim and
obtain damages from a director in the event of a breach of his fiduciary duty.
The Colorado Business Corporation Act provides that a corporation has the power
to (i) indemnify directors, officers, employees and agents of the corporation
against judgments, fines and amounts paid in settlement in connection with
suits, actions and proceedings and against certain expenses incurred by such
parties if specified standards of conduct are met: and (ii) purchase and
maintain insurance on behalf of any of the foregoing parties against liabilities
incurred by such parties in the foregoing capacities. The Bylaws of the Company
provide for indemnification of its officers and directors against expenses
actually and necessarily incurred by them in connection with the defense of any
action, suit or proceeding in which they are made parties by reason of being or
having been officers or directors of the Company; except in relation to matters
as to which any such director or officer is adjudged in such action, suit or
proceeding to be liable for gross negligence or willful misconduct in the
performance of duty. However, such indemnification is not exclusive of any other
rights to which those indemnified may be entitled under any bylaw, agreement,
vote of shareholders or otherwise.
Solvency of FutureLink USA. FutureLink Alberta was in a research and development
stage until early 1998, and accordingly it incurred significant losses borne by
the Company. In addition, the Company and its subsidiaries are a party to
certain lawsuits described under "Legal Proceedings". The Company can not
conclusively predict the outcome of these lawsuits and could be directed to pay
penalties to the other parties in the suits. Should this happen, it could put a
considerable cash burden on the Company. FutureLink USA may also require
additional financing in order to carry on its business. There can be no
assurance that such financing will be available or, if available, that it will
be upon terms satisfactory to FutureLink USA.
Dependence on Key Personnel. The success of the Company is highly dependent on
the efforts and abilities of its directors, officers and employees. The
unexpected loss or departure of any of FutureLink USA's key directors, officers
or employees could be detrimental to the future operations of FutureLink USA.
The success of FutureLink USA's business will depend, in part, upon FutureLink
USA's ability to attract and retain qualified personnel as they are needed.
There can be no assurance that FutureLink USA will be able to engage the
services of such personnel or retain its current personnel.
<PAGE> 12
Risks Related to Possible Acquisitions. The Company may expand its operations
through the acquisition of additional businesses. There can be no assurance that
the Company will be able to identify, acquire or profitably manage additional
businesses or successfully integrate any acquired businesses into the Company
without substantial expenses, delays or other operational or financial problems.
Further, acquisitions may involve a number of special risks or effects,
including diversion of management's attention, failure to retain key acquired
personnel, unanticipated events or circumstances, legal liabilities and
amortization of acquired intangible assets and other one-time or ongoing
acquisition related expenses, some or all of which could have a material adverse
effect on the Company's business, operating results and financial condition.
Client satisfaction or performance problems of a single acquired firm could have
a material adverse impact on the reputation of the Company as a whole. In
addition, there can be no assurance that the acquired businesses, if any, will
achieve anticipated revenues and earnings. The failure of the Company to arrange
its acquisition strategy successfully could have a material adverse effect upon
the Company's business, operating results and financial condition As of the date
of this Registration Statement, the Company has not entered into any discussions
with any person or entity regarding
<PAGE> 13
future acquisitions.
Creditworthiness of Clients. The value of FutureLink USA's computer equipment,
software, and intellectual property thereto may depend on the credit and
financial stability of FutureLink USA's customers. FutureLink USA's projected
income would be adversely affected if a significant number of customers were
unable to meet their obligations to FutureLink USA or if FutureLink USA were
unable to continue to collect its accounts receivables. In the event of default
by customers, FutureLink USA may experience delays in enforcing its rights as a
vendor and may incur substantial costs in protecting its investment.
Speculative Nature of Computer Business. The acquisition and management of
computer services may result in a failure to produce income or revenue.
Moreover, the industry is subject to significant risk factors including changes
in general economic conditions, competition from other properties, the failure
of customers to meet their obligations and other operating costs
Competition. The market for IT services is very competitive because of the large
number of competitors and the rapidly changing environment. Primary competitors
include participants from a variety of market segments, including "Big Five"
accounting firms, systems consulting and implementation firms, application
software firms, service groups of computer equipment companies, facilities
management companies, general management consulting firms and programming
companies. Many of these competitors have significantly greater financial,
technical and marketing resources and greater name recognition than FutureLink
USA. In addition, FutureLink USA competes with its client's internal resources,
particularly where these resources represent a fixed cost to the client. Such
competition may impose additional pricing pressures on FutureLink USA. There can
be no assurances that FutureLink USA will compete successfully with its existing
competitors or with any new competitors.
Tradename A number of U.S. international companies currently use all or a
portion of the name "FutureLink" in connection with products or services in
similar industries as that engaged in by the Company. While the Company is
attempting to qualify under a trademark its name throughout the U.S. and Canada,
significant issues may be present as to the ability to widely use the name in
connection with the products or services to be rendered by the Company.
Rapid Technological Change; Dependance on New Solutions. FutureLink USA's
success will depend in part on its ability to develop IT solutions that keep
pace with continuing changes in IT, evolving industry standards and changing
client preferences. There can be no assurance that FutureLink USA will be
successful in adequately addressing these developments on a timely basis or
that, if these developments are addressed, FutureLink USA will be successful in
the marketplace. In addition, there can be no assurance that products or
technologies developed by others will not render FutureLink USA's services
uncompetitive or obsolete. FutureLink USA's failure to address these
developments could have a material adverse effect on FutureLink USA's business,
operating results and financial conditions.
Attraction and Retention of Employees. FutureLink USA's business involves the
delivery of professional services and is labor-intensive. FutureLink USA's
success depends in large part upon its ability to attract, develop, motivate and
retain highly skilled technical employees. Qualified technical employees are in
great demand and are likely to remain a limited resource for the foreseeable
future. There can be no assurance that FutureLink USA will be able to attract
and retain sufficient numbers of highly skilled technical employees in the
future. FutureLink
<PAGE> 14
USA has historically experienced turnover rates which it believes are consistent
with industry norms. An increase in this rate could have a material adverse
effect on FutureLink USA's business, operating results and financial condition,
including its ability to secure and complete engagements.
Project Risks. Many of FutureLink USA's engagements involve projects that are
critical to the operations of its clients' businesses and provide benefits that
may be difficult to quantify. FutureLink USA's failure or inability to meet a
client's expectations in the performance of its services could result in a
material adverse change to the client's operations and therefore could give rise
to claims against FutureLink USA or damage FutureLink USA's reputation,
adversely affecting its business, operating results and financial condition.
Fixed-Bid Projects. FutureLink USA undertakes many projects billed on a
fixed-bid basis, which is distinguishable from the Company's other method of
billing on a time and materials basis. The failure of the Company to complete
such projects within budget would expose the Company to risks associated with
cost overruns, which could have a material adverse effect on FutureLink
<PAGE> 15
USA's business, operating results and financial condition.
RISKS CONCERNING THE SECURITIES OF FUTURELINK USA
Limited Trading History of FutureLink USA Common Shares; Stock Price Volatility.
Between January 1, 1998 and September 30, 1998, the closing sale price has
ranged from a low of $0.34 per share to a high of $4.34 per share. The market
price of the FutureLink USA Common Shares could continue to fluctuate
substantially due to a variety of factors, including quarterly fluctuations in
results of operations, adverse circumstances affecting the introduction of
market acceptance of new products and services offered by the Company,
announcements of new products and services by competitors, changes in the IT
environment, changes in earnings estimates by analysts, changes in accounting
principles, sales of FutureLink USA Common Shares by existing holders, loss of
key personnel and other factors. The market price for the FutureLink USA Common
Shares may also be affected by the Company's ability to meet analysts'
expectations, and any failure to meet such expectations, even if minor, could
have a material adverse effect on the market price of FutureLink USA Common
Shares. In addition, the stock market is subject to extreme price and volume
fluctuations. This volatility has had a significant effect on the market prices
of securities issued by many companies for reasons unrelated to the operating
performance of these companies. In the past, following periods of volatility in
the market price of a company's securities, securities class action litigation
has often been instituted against such a company. Any such litigation instigated
against the Company could result in substantial costs and a diversion of
management's attention and resources, which could have a material adverse effect
upon the Company's business, operating results and financial condition.
<PAGE> 16
Risks of Low-Priced or Penny Stock. The common stock of the Company is traded on
the NASD OTC Bulletin Board. As such it is subject to Rule 15(g)-(9) under the
1934 Act such Rule adversely effects the ability of purchasers in this Offering
to sell the securities acquired hereby in the secondary market.
Rule 15g-9 requires additional disclosure, relating to the market for penny
stocks, in connection with trades in any stock defined as a penny stock. The
Commission defines a penny stock to be any equity security that has a market
price of less than $5.00 per share (exclusive of commissions), subject to
certain exceptions. Such exceptions include any equity security listed on Nasdaq
and any equity security issued by an issuer that has (i) net tangible assets of
at least $2,000,000, if such issuer has been in continuous operation for three
years, (ii) net tangible assets of at least $5,000,000, if such issuer has been
in continuous operation for less than three years, or (iii) average annual
revenue of at least $6,000,000, if such issuer has been in continuous operation
for less than three years. Unless an exemption is available, the regulations
require the delivery, prior to any transaction involving a penny stock, of a
disclosure schedule explaining the penny stock market and the risks associated
therewith.
In addition, trading in the common stock would be covered by Rules 15g-1 through
15g-6 trading in the Common Stock would be covered by Rules 15g-1 through 15g-6
under the 1934 Act for non-Nasdaq and non-exchange listed securities. Under such
rules, broker/dealers who recommend such securities to persons other than
established customers and accredited investors must make a special written
suitability determination for the purchaser and receive the purchaser's written
agreement to a transaction prior to sale. Securities also are exempt from these
rules if the market price is at least $5.00 per share.
Although the Company's securities are, as of the date of this Prospectus,
outside the definitional scope of penny stocks as they are listed on Nasdaq, in
the event the Company's securities were subsequently to become characterized as
penny stocks, the market liquidity for the Company's securities could be
severely affected. In such an event, the regulations on penny stocks could limit
the ability of broker/dealers to sell the Company's securities and thus the
ability of purchasers of the Company's securities to sell their securities in
the secondary market.
No Dividends Anticipated on Common Stock. The Company has not paid any dividends
on its Common Stock to date. The Company currently transacts all of its business
through its subsidiaries. The Company does not currently intend to declare or
pay any dividends on its Common Stock in the foreseeable future, but plans to
retain earnings, if any, for development and expansion of its business
operations.
Current Prospectus and State Registration Required to Exercise Warrants. The
purchasers of the Warrants will only be able to exercise the Warrants if: (i) a
current Registration Statement under the 1933 Act relating to the Common Stock
is qualified for sale or exempt from qualification under the 1933 Act and; (ii)
such Common Stock is qualified for sale or exempt from qualification under the
applicable securities laws of the states in which the various holders of the
Warrants reside. Although the Company will use its best efforts to maintain the
effectiveness of the current Registration Statement covering the Common Stock
issuable upon the exercise of the Warrants, there can be no assurance the
Company will be able to continue to do so. The value of the Warrants may be
greatly reduced if a current Registration Statement covering the Common Stock
issuable upon the exercise of the Warrants is not kept effective or if such
Common Stock is not qualified or exempt from qualification in the states in
which the holders of the Warrants reside.
USE OF PROCEEDS
With the exception of the exercise price of the Warrants, the Company will not
receive any proceeds from the sale of securities offered hereby. It is currently
anticipated that the net proceeds from the exercise of the Warrants, estimated
at $1,000,000 will be added to the general funds of the Company and used for
working capital and other general corporate purposes. The Company will pay all
the expenses of this Prospectus, estimated to be approximately $50,000.
<PAGE> 17
MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock of the Company commenced quotation on the OTC Bulletin Board
under the symbol "CVNK" in early 1995. Subsequent to the share acquisition
agreement of January 20, 1998(See "Certain Relationships and Related
Transactions") the Company changed its name from Core Ventures Inc. to
FutureLink Distribution Corp. and trading commenced under the symbol "FLNK" in
early 1998. Until the third quarter of 1995 no substantial public trading market
had developed for the common stock of the Company.
NASD OTC Bulletin Board Symbol
Common Stock FLNK
The closing price of the Common Stock of the Company as reported on the NASD
OTC Bulletin Board Issues on December 14, 1998, by brokers making a market, was
$.40.
As of October 15, 1998, there were approximately 255 beneficial holders of the
Common Stock of the Company. The following table summarizes the trading activity
of FutureLink USA from January 1998.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
Price Range USD Trading Volume Share Value
Note 1
------------------------------------------------------------------------------------------------------
High Low USD
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE> 18
<TABLE>
<S> <C> <C> <C> <C>
January, 1998 3.56 1.75 1,294,400 $ 3,849,893
February, 1998 3.50 2.90 714,100 2,241,748
March, 1998 4.12 2.75 1,834,300 6,253,275
April, 1998 4.34 3 .06 5,333,400 14,219,948
May, 1998 4.00 1.37 7,575,200 19,470,561
June 1-5, 1998 1.31 1.00 1,001,300 1,044,374
June 8-12, 1998 1.25 1.03 572,000 632,511
June 15-19, 1998 1.02 0.73 1,763,500 1,407,873
June 22-26, 1998 1.03 0.80 688,200 583,900
June28-July 3, 1998 0.81 0.66 744,000 518,001
July 6-10, 1998 0.64 0.57 978,700 599,967
July 13-17, 1998 1.68 0.72 2,724,100 3,510,358
July 20-29, 1998 1.25 1.00 1,033,000 2,092,682
August 3-7, 1998 1.20 1.04 959,600 1,117,851
August 10-14, 1998 1.21 1.02 702,500 784,019
August 17-21, 1998 1.01 0.96 423,700 415,750
August 24-28, 1998 0.89 0.83 326,200 283,398
August 31-Sep 4, 1998 0.92 0.71 510,100 409,243
September 7-11, 1998 0.69 0.61 606,500 389,026
September 14-18, 1998 0.56 0.43 1,385,400 633,132
September 21-25, 1998 0.47 0.38 1,845,600 778,063
------------------------------------------------------------------------------------------------------
Totals 33,015,800 $61,235,573
======================================================================================================
</TABLE>
Note 1) Calculated by mutiplying the average daily price reported by
Bloomberg by the daily volume. This is only an estimate of the true
share values traded. This method would tend to overstate the true share
value.
On December 14, 1998 the high and low prices of FutureLink USA's Common Stock
were $.42 and $.40 per share, respectively.
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
consolidated financial statements and the related notes thereto and the other
financial information included elsewhere in this Prospectus. When used in the
following discussions, the words "believes", "anticipates", "intends", "expects"
and similar expressions are intended to identify forward-looking statements.
Such statements are subject to certain risks and uncertainties, which could
cause actual results to differ materially from those projected, including, but
not limited to, those set forth in "Risk Factors." readers are cautioned not to
place undue reliance on forward-looking statements, which speak only as of the
date hereof.
FUTURELINK USA
SEPTEMBER 30, 1997 VS. SEPTEMBER 30, 1998
On January 20, 1998, Core Ventures, Inc.(now known as FutureLink Distribution
Corp.) acquired a 46% interest in FutureLink Alberta.
On November 6, 1998 FutureLink USA acquired a further 50% interest in
FutureLink Alberta bringing its total ownership in FutureLink Alberta to 96%
FutureLink Alberta is the world's first computing utility and specializes in
providing IT services to mid-sized companies. FutureLink USA accounted for its
investment in FutureLink Alberta for the nine months ended September 30, 1998,
using the equity method for accounting for investments.
On August 21, 1998, FutureLink USA acquired Riverview Management Corporation.
Riverview owned SysGold (now called FutureLink/SysGold), a leading Western
Canadian IT services focusing on providing outsourcing IT services to the
mid-sized companies in the oil and gas sector.
In the nine months ended September 30, 1998, FutureLink USA recorded revenues of
$622,854. These revenues relate to FutureLink/SysGold's revenues for the period
August 21, to September 30, 1998. FutureLink USA recorded a loss from operations
of $3,574,979. Significant non-cash expenses included in this operating loss
were $2,114,000 of payroll and benefits expense related to the 3,500,000 shares
issued to employees, officers and directors in July 1998 and $1,205,357 of
interest expense related to conversion options and underwriter's warrants
included in the convertible debenture agreement signed in August 1998.
FutureLink USA's equity in FutureLink Alberta losses during this period was
$807,279.
FutureLink USA has no revenues or expenses in the similar period in 1997.
Liquidity and Capital Resources
FutureLink USA raised $3,814,709 in equity, convertible debt net of expenses and
advances from shareholders. FutureLink USA has invested $1,694,879 in FutureLink
Alberta via advances in 1998 to date and paid $2,019,149 in cash consideration
for the Riverview Management purchase. As of September 30, 1998, the company's
investment in FutureLink Alberta had a book value (net of its equity loss) of
$903,000. FutureLink USA had consolidated liabilities of $4,154,681 related to
bank debt, accounts payable, due to shareholders, notes payable, leases and
convertible debentures.
FISCAL 1997 VS. FISCAL 1996
For the year ended December 31, 1997, revenues were $0 compared to $0 in the
year ended December 31, 1996, as FutureLink USA had no active operations.
Operating expenses increased from $115,189 to $122,049 as FutureLink USA
unsuccessfully attempted to acquire the operations of Printscan Technologies
Inc.
Share capital income increased $39,494 as a result of the forgiveness of a loan
from a shareholder.
Other non-operation losses in 1997 included the write-off of mining assets
recorded on the balance sheet at a book value of $515,000 and a loss of a
non-refundable deposit of $100,000 related to the failed attempt to acquire the
assets of Printscan.
Liquidity and Capital Resources
In 1997, FutureLink USA raised $170,000 from the issuance of common shares.
These funds were used to pay operating
<PAGE> 20
administration expenses and the non-refundable deposit in the failed attempt to
acquire the assets of Printscan. At the end of 1997, FutureLink USA had no
recorded assets and current account payables were $23,932.
1996
FutureLink USA has been an inactive company for a number of years. In 1996,
FutureLink USA incurred nominal administrative expenses of $6,864 in maintaining
the FutureLink USA legal entity.
Liquidity and Capital Resources
FutureLink USA received shareholder advances of $3,602 in 1996 and ended the
year with mining assets with a book value of $515,000 and liabilities (accounts
payable and shareholder advances) of $11,377.
FUTURELINK ALBERTA
SEPTEMBER 30, 1998 VS. SEPTEMBER 30, 1997
In January and November 1998, FutureLink USA acquired a 96% interest in
FutureLink Alberta with plans to acquire the remaining 4% of FutureLink Alberta
in early 1999. During the first six months of 1998, FutureLink Alberta launched
its information technology services business focused on distributed thin client
technology.
In the nine months ended September 30, 1998, FutureLink Alberta recognized
revenues of CDN$99,503 from information technology services and
hardware/software sales. Operating expenses were CDN$2,116,563 in the nine
months ended September 30, 1998, versus CDN$391,548 of operating expenses in the
nine months ended September 30, 1997.
The tremendous increase in operating expenses in 1998 vs. 1997 can be attributed
to an increase in office premises, administrative, marketing and technical
management, marketing efforts and the addition of employees in conjunction with
the launch of FutureLink Alberta's IT services business. In addition, in July
1998 FutureLink Alberta discontinued its web page development activities and
sold its interest in the business to NextClick Ltd. in exchange for equity. This
equity was recorded at CDN$1.00 in its books and records.
As at September 30, 1998, FutureLink Alberta has signed significant multi-year
IT service contracts with revenues to be recognized over the next 3-5 years.
Liquidity and Capital Resources
During the nine months ended September 30, 1998, FutureLink Alberta raised net
financing of CDN$2,720,650 of financing which included CDN$378,775 of common
share equity financing and CDN$2,352,858 of shareholder advances from FutureLink
USA. The financing helped fund CDN$1,793,714 of operating activities and
CDN$702,524 of capital asset investments. As of September 30, 1998, FutureLink
Alberta had CDN$75,600 of cash, CDN$324,287 of negative working capital, net
capital assets of CDN$709,432 and long-term liabilities of CDN$2,524,476
(including shareholder loans and capital leases.).
FISCAL 1997 VS. FISCAL 1996
During the fiscal 1997 year, there was a shift in FutureLink Alberta's business
as the interactive cafe initiative was discontinued in favor of distribution of
computing services to businesses via thin client networks.
In 1997, FutureLink Alberta had nominal interest income of CDN$4,820 versus
CDN$2,752 in 1996. FutureLink Alberta had operating expenses of CDN$805,568,
with consulting expenses of CDN$401,320 being the major category of expense.
Operating expenses in 1997 increase tremendously from 1996 levels of CDN$200,845
as the company increased its development expenditures with respect to the
distribution of information technology services and ceased its interactive cafe
development expenditures. FutureLink Alberta's discontinued web page development
activities had a net loss of CDN$14,179 in 1997.
<PAGE> 21
Liquidity and Capital Resources
In fiscal 1997, FutureLink Alberta raised CDN$593,454 of equity and debt
financing to help fund operating activities of CDN$392,897 (net of working
capital decrease) and capital asset purchases of CDN$279,523. At December 31,
1997, FutureLink Alberta had cash of CDN$10,886, a working capital deficit of
CDN$413,508 and capital assets of CDN$239,330. In addition, FutureLink Alberta
had long term debt obligations (including capital leases) of CDN$106,753.
FISCAL 1996
FutureLink Alberta commenced operations as 689936 Alberta Ltd. In March 1996
FutureLink Alberta was initially focused on developing a chain of internet cafes
focused on exposing and distributing new information technology to consumers.
From the date of commencement of operations to December 31, 1996, FutureLink
Alberta had nominal interest income of CDN$2,752 and incurred CDN$200,845 of
operating expenses in developing the interactive cafe business model.
CDN$109,625 of the expenses were for consultants who assisted the company in
developing its business model and planning its internet cafes.
Liquidity and Capital Resources
In 1996, FutureLink Alberta raised CDN$370,329 in equity financing. In addition
to funding CDN$269,817 of operations, the company loaned CDN$104,500 to a
company owned by a director. The loan was repaid in 1997. As of December 31,
1996, FutureLink Alberta had CDN$89,852 of cash, CDN$104,500 of notes
receivables and CDN$10,545 of other assets. The company had CDN$40,458 of trade
payables and accrued liabilities as of December 31, 1996.
FUTURELINK/SYSGOLD
8 MONTHS ENDED JUNE 30, 1998 COMPARED TO 8 MONTHS ENDED JUNE 30, 1997
For the 8 months ended June 30, 1998, revenues increased CDN$2,351,872 (43%) to
CDN$7,844,545 from CDN$5,492,673 recorded in the 8 months ended June 30, 1997.
This increase resulted from several factors. The number of major clients
increased by 13 (29%) to 58 from 45. The number of staff increased by 28 (58%)
to 76 from 48.
Hardware and software sales increased by CDN$982,497 (37%) to CDN$4,232,998 from
CDN$2,863,237 for the same period in the previous fiscal year. Cost of goods
sold rose proportionately by CDN$911,046 (38%) to CDN$3,314,946 from
CDN$2,403,900.
The major cost of system consulting revenue - system consultant salaries,
benefits, and contract costs increased by CDN$1,283,238 (58%) to CDN$3,500,311
from CDN$2,217,073. This greater than proportional increase in staffing costs
rose from competitive pressure on staff salaries.
General and administrative expenses increased by CDN$332,435 (76%) to
CDN$769,665 (9.8% of revenue) from CDN$437,230 (8.0% of revenue) in the prior
year. This increase in overhead costs occurred because we had to add
supervisory, purchasing and administrative staff to handle our larger number of
consultants. Advertising and Promotional costs went up by CDN$33,380 (64%) to
CDN$85,851 (1.1% of revenue) from CDN$52,471 (1.0% of revenue) for the same
period.
After provision for income taxes, FutureLink/SysGold recorded a decrease in
profit of CDN$33,668 to CDN$143,716 for the 8 months ended June 30, 1998,
compared to CDN$177,384 for the 8 months ended June 30, 1997.
<PAGE> 22
FISCAL YEAR 1997 AS COMPARED TO FISCAL YEAR 1996
For the year ended October 31, 1997, revenues increased CDN$4,233,532 (80%) to
CDN$9,520,789 from CDN$5,287,257 recorded in the year ended October 31, 1996.
This increase resulted from several factors. The number of major clients
increased by 9 (22%) to 49 from 40. The number of staff increased by 21 (60%) to
58 from 35. FutureLink/SysGold's client base spent more on expansion of their
management information systems in 1997 compared to 1996.
Hardware and software sales increased by CDN$1,961,878 (66%) to CDN$4,929,610
from CDN$2,967,732 the previous fiscal year. Cost of goods sold rose
proportionately by CDN$1,776,779 (65%) to CDN$4,500,816 from CDN$2,724,037.
The major cost of system consulting revenue - system consultant salaries,
benefits, and contract costs increased by CDN$1,921,208 (100%) to CDN$3,835,563
from CDN$1,914,355. This greater than proportional increase in staffing costs
arose mainly from competitive pressure on staff salaries, prior to revenue
contract renewal dates with clients.
Advertising and Promotional costs went up by CDN$55,467 (130%) to CDN$97,897
(1.0% of revenue) from CDN$42,430 (0.8% of revenue) the previous fiscal year.
This low marketing cost basically reflected FutureLink/SysGold's policy of
obtaining new customers by reference from our staff and clients.
General and administrative expenses increased by CDN$217,975 (39%) to
CDN$773,921 (8.1% of revenue) from CDN$555,946 (10.5% of revenue) in the prior
year. This increase in overhead costs occurred generally because
FutureLink/SysGold added supervisory, purchasing and administrative staff to
handle its larger number of consultants. As well, a favorable tenant sub-lease
ended and FutureLink/SysGold moved, incurring increased rent costs of
CDN$48,000, additional furniture rent and lease costs of CDN$28,000, and
telephone cost of CDN$11,000.
After provision for income taxes, the Company recorded an increase in profit of
CDN$114,635 (430%) to CDN$141,311 for the year ended October 31, 1997, compared
to CDN$26,676 for the year ended October 31, 1996.
BUSINESS
HISTORY
FutureLink USA was incorporated under the Colorado Corporation Code on April 4,
1955 under the name of Cortez Uranium and Mining Co. On February 25, 1957, the
Company changed its name to Core Oil, Inc. On June 16, 1983, it changed its name
to Core Mineral Recoveries, Inc. and on July 20, 1997, changed its name again to
Core Ventures, Inc. Finally, on February 17, 1998, the Company changed its name
to FutureLink Distribution Corp. In conjunction with these name changes, the
Company has undertaken a number of changes to its authorized capital. Upon
incorporation, the authorized capital was 10,000,000 shares with a par value of
$0.01. On June 16, 1983, the authorized capital was altered to authorize the
issuance of 15,000,000 shares with a par value of $0.01/share. On October 7,
1986, the authorized capital was altered to authorize the issuance of 30,000,000
shares with a par value of $0.01/share. On July 20, 1997, the articles were
amended to provide for a par value of $0.001 per share. On July 20, 1997,
FutureLink USA effected a 200:1 reverse split. On December 2, 1997, FutureLink
USA effected a 30:1 reverse split. On January 20, 1998, the articles were
amended to authorize the issuance of 100,000,000 common shares with a par value
of $0.0001 per share and 5,000,000 preferred shares with no par value.
<PAGE> 23
On January 19, 1998 the shareholders of FutureLink USA ratified a share purchase
agreement between FutureLink USA, FutureLink Alberta, Cameron Chell, Linda
Carling, Colleen Rudolph, Bernie March, and Gerald Albert whereby FutureLink USA
agreed to acquire 1,540,000 Class "A" Common Voting Shares of FutureLink Alberta
(48% of the outstanding shares of such Company) in consideration of the issuance
of 1,540,000 FutureLink USA Common Shares. The shares were issued subject to an
escrow agreement. The agreement provided that 3,500,000 FutureLink USA Common
Shares would be issued to various employees for the consideration of $3,500 USD.
FutureLink Alberta was added as a party for the purpose of making
representations and warranties to induce FutureLink USA to enter into the
agreement.
On September 28, 1998, FutureLink USA issued a take-over bid circular offering
to purchase the remaining 52% of FutureLink Alberta on the basis of one
FutureLink USA Common Share for each FutureLink Alberta Class "A" Common Voting
Share. Management of FutureLink Alberta is identical to that of FutureLink USA
and certain security holders of FutureLink Alberta are also security holders of
FutureLink USA. This take-over bid closed on November 6, 1998 with FutureLink
USA subsequently owning 96.47% of FutureLink Alberta.
In addition, by agreement among FutureLink Alberta, FutureLink USA, Donald A.
Bialik, Olivia B. Bialik, Bialik Family Trust, Riverview Management Corporation
(now known as FutureLink/SysGold) and SysGold Ltd. dated August 4, 1998, as
amended by agreement dated August 21, 1998, FutureLink USA has acquired all of
the issued and outstanding
<PAGE> 24
shares of FutureLink/SysGold (the "SysGold Acquisition Agreement"). The
consideration was CDN$8,685,000 paid by CDN$3,000,000 cash on closing (August
21, 1998), CDN$685,000 by a promissory note payable within 90 days of closing,
and by the issuance of 4,250,000 FutureLink/SysGold shares exchangeable into
4,250,000 FutureLink USA Common Shares (attributed value $0.85/share).
Subsequent to this transaction, SysGold Ltd. and SysGold Inc. were rolled up
into FutureLink/SysGold.
FutureLink/SysGold (formerly known as Riverview Management Corporation)
purchased a 33% minority interest in its subsidiary SysGold Ltd. from a minority
shareholder for a purchase price of CDN$315,000 on July 24, 1998. The buy out
was based on an effective evaluation dated April 30, 1996. At that date, the
valuation for 100% of SysGold Ltd. was approximately CDN$950,000. The
acquisition by FutureLink USA valued SysGold Ltd. at CDN$8,000,000 on an arms
length basis. FutureLink USA believed this to be a reasonable valuation at the
time and substantially higher than the valuation of SysGold Ltd. at April 30,
1996. The reasons for the increased valuation over the past 28 months are
primarily as follows:
a) SysGold's revenues increased from approximately CDN$3 million
for the year ended October 31, 1995 to approximately CDN$9.7
million for the year ended October 31, 1997.
b) SysGold's employee/consultant base (one of its key assets)
increased from approximately 30 at the end of fiscal 1995 to a
current of 75.
<PAGE> 25
c) SysGold had a strong management team, excellent reputation, blue
ship client base and proven technology service delivery
platform.
FutureLink USA entered into a Debenture Acquisition Agreement dated August 14,
1998, as amended by agreement dated August 21, 1998 with Thompson Kernaghan &
Co., Ltd. an Ontario corporation ("TK"). Pursuant to this agreement TK purchased
from FutureLink USA up to $5,000,000 of a 10% convertible debenture
("Debenture") and $1,000,000 in a series of warrants in FutureLink USA. (see
"Certain Relationships and Related Transactions")
GENERAL
FutureLink USA is a total solution provider that supplies integrated business
and IT solutions in the areas of management consulting, land and land systems,
accounting, software development and infrastructure management. FutureLink USA
strives to understand its clients' organizational processes and information
requirements and provides a full suite of information management services.
It is dedicated to providing small to medium sized businesses (50-1000 seats)
with the most efficient and cost effective system for the delivery of computer
hardware, software and electronic content at an attractive cost for
installation, administration and maintenance.
FutureLink USA's key technology platform to deliver its computing model is the
thin client computing. A thin client is a computer that has a central processing
unit (CPU), a keyboard, a mouse and a monitor that is connected to a network.
Thin clients have no hard drive, floppy disks or CD-ROM drives nor any moving
parts thus greatly reducing operating and maintenance costs. The thin client is
connected to a network that delivers any software application to any desktop
from a server. The thin client is designed to eliminate the need for constant
computer upgrades, reduce the initial capital investment of buying PCs and
reduce the time and money spent on computer maintenance.
Since 1995, FutureLink USA has been engaged in the development of its own thin
client service: Wide Area Thin Client Hook-up(TM) (W.A.T.C.H.(TM)). For a
monthly fee of approximately $200 per desktop (depending on the number of
desktops and applications required) FutureLink USA's customers will receive:
1. access to common business software applications including Microsoft
Office;
<PAGE> 26
2. access to a secured Internet or Intranet connection and all the necessary
software;
3. the ability to use existing proprietary applications and databases;
4. security enabled workstations for each employee including monitor, mouse,
keyboard and thin client network computer; and
5. system management and support including installation, software upgrades,
help desk and technical support.
<PAGE> 27
SERVICES
Management believes that FutureLink USA is among the first companies to take the
next step in IT delivery and services: the outsourcing of small and mid-sized
company's computer networks (those companies with between 50 and 1000 computer
users or seats) through the use of the thin client computers. FutureLink USA
delivers this service by subscription (the customer signs a service agreement)
over highly secure, remote wide area networks (WAN) to its clients. In addition,
FutureLink USA allies itself with value added resellers (VARs) who will
incorporate or bundle FutureLink USA's products and service into their own, thus
allowing FutureLink USA to quickly enter and capture lucrative vertical industry
markets such as oil and gas, independent insurance brokerage companies and
automobile dealerships.
Applications Software
FutureLink USA offers its customers access to the following high-use software
programs as part of FutureLink USA's service contract price: Microsoft Office 97
(Word, Excel and PowerPoint) and either Netscape Navigator or Microsoft's
Internet Explorer Web Browser. It should be noted that these programs are just a
sample of the available programs.
Internet Services
FutureLink USA offers customers seamless integration and access to the Internet,
and a secured Intranet environment due to FutureLink USA's extensive use of
firewalls designed to prevent unauthorized access to the customer's network. For
additional charges, FutureLink USA provides its customers with a Web presence
and/or the ability to conduct electronic commerce (e-commerce) over the
Internet.
Industry and Company Specific Software
In certain industries, customers use industry specific or proprietary software
programs to conduct business, as an example, in the insurance industry many
brokers use Agency Manager. FutureLink USA's W.A.T.C.H.TM service provides users
with access to industry specific software, as well as their existing proprietary
applications and databases. However, it should be noted that these custom or
industry specific applications must first be tested to ensure proper operation
in the thin client environment.
Customer Premise Equipment and Software
FutureLink USA is using Citrix Systems Software as its' primary network
operating system, WYSE Technologies as the main thin client hardware supplier,
and Network Computing Devices Inc. (NCD) as an additional source for thin client
hardware.
<PAGE> 28
Citrix Systems, Inc. is known in the IT industry as the pace-setter and a world
leader in thin-client/Server software solutions. Their award winning WinFrame(R)
and MetaFrame(TM) software, based on the innovative ICA(R) and MultiWin(TM)
technologies, provides access to virtually any application, across any type of
network connection to any type of client.
The Wyse(R) Winterm(TM) thin client family delivers the broadest range of
innovative, cost-effective terminals for accessing 32-bit Windows(R), Java(TM),
and browser-based applications. Winterm(TM) thin clients combine the ease of
management and inherent security of a terminal environment with the application
and performance capabilities of desktop PCs. Wyse(R) was named the worldwide
leader in unit shipments for the thin client/enterprise network computer (NC)
market segments in 1997 according to a report released by industry analyst firm
International Data Corporation (IDC).
NCD was founded in 1988 and since then has shipped more than 500,000 thin
clients to various companies including Federal Express, Barclays' Bank and the
University of Washington.
FutureLink USA's Server Farm
Many of FutureLink USA's thin clients will be connected to a server facility. A
server facility consists of many servers linked together that act as the central
nervous system of the network, in that they store and receive all the programs
or data that the thin clients execute. It is through the servers that FutureLink
USA performs all the network maintenance and hardware upgrade functions, thus
eliminating the time and cost of upgrading applications on each individual
computer. The client to server ratio is highly variable, depending on the
resource requirements of the applications, the performance requirements of the
user, and the fundamental processing power of the server itself. The use of
multiple servers permits dynamic load balancing and assures maximum performance
for all users.
FutureLink USA connects its server farm to its customers on-site thin clients
via the best available high capacity data transmission service (ie. phone line,
fiber optic network, coaxial cable network, ADSL (Asymmetric Digital Subscriber
Lines), ATM (Asynchronous Transfer Mode)) in the customer's area. ADSL and ATM
are high-speed lines that are dedicated for data transmission.
Network Maintenance and Support
FutureLink USA provides its customers with technical support five days a week
(Monday to Friday) for ten hours a day, a so-called 5 X 10 system. The support
includes installation and upgrade of software, daily maintenance and back-up of
the network and the customers' files (tape, mirrored or redundant storage) and
an emergency four-hour battery power back-up system, with the goal of providing
99.9% up-time reliability.
In addition, FutureLink USA provides its customers the following support
services:
- - Year 2000 (Y2K) compliant general business application software. Y2K is
a serious problem for most companies that use computers, especially if
the company uses a legacy computer operating system (pre 1985 software).
When computer programmers were first designing programs, they decided
that in order to save space on the computer's memory, they only allowed
two digits to express dates. The accidental outcome of this shortcut is
that computer programs will recognize January 1, 2000 as January 1,
1900. This problem could have dramatic effects on corporate and
government payroll and accounts payable and receivable programs. It has
been estimated that the Y2K problem will cause 50% of all companies
(with more than 20 networked computer users) to reshape and/or delay
major IT deployment decisions and will consume 15% to 20% of the
company's IT budget (The Gartner Group Report: Future, September 22,
1997, page 7);
- - security enabled workstations for each employee, allowing access to only
the appropriate or approved programs.
It should be noted that:
- - the cost of the data transmission service is not included in the $200 a
month service fee. The connection is leased from the telecom, cable or
satellite provider and is managed by FutureLink USA;
<PAGE> 29
- - the customer requires a minimum of a 56 kps baud rate per station to
allow the user to receive information from FutureLink USA's remote
server. An example: a customer that has 10 thin clients would therefore
requires a 560 kps data transmission pipeline. Bandwidth costs are
highly variable, depending on local infrastructure and competition.
These costs are dropping rapidly in many jurisdictions as cable
television companies and independent providers compete with telephone
companies for this new and lucrative business; and
- - through the use of FutureLink USA's W.A.T.C.H.TM program, companies may
be able to integrate a company's multiple locations under one system.
Prior to installing any equipment for a client, FutureLink USAwould first
conduct a needs analysis of the customer's computing and software requirements.
The needs analysis consists of:
- - determining what are the requirements of the customer (Y2K software
compliance, data security, reducing the cost of managing a computer
network, etc.),
- - evaluating the customer's hardware and software needs and how they are
being addressed, and
- - conducting a cost/benefit analysis to demonstrate the economic viability
of FutureLink USA's service in comparison to other options.
FutureLink USA also offers traditional IT outsourcing in that, should the client
either not be suited to a thin client environment(uses a lot of local processing
power or uses a high number of computer peripherals) or not wish a thin client
environment, FutureLink USA will provide a traditional network environment with
all the hardware, software and maintenance.
INDUSTRY SUMMARY
The outsourcing of computer service, whereby a client company obtains all or
part of its information processing requirements (including systems design,
software and hardware, communications, training, maintenance, and support) from
an information technology provider such as FutureLink USA, continues to be a
growing trend. FutureLink USA believes that it is generally significantly more
cost-effective and efficient for its clients to outsource information processing
services to FutureLink USA than it would be to provide equivalent services for
themselves by hiring or contracting for service and support personnel.
Outsourcing provides clients with the following benefits:
- - The refocus of personnel, financial and technological resources on core
business and client related activities.
- - Access to highly skilled personnel and technology resources.
- - Access to experienced resources to perform selected information
processing functions.
- - Reduction of operating costs.
The information technology ("IT") industry encompasses everything from mainframe
computers to personal computers to the Internet to computer service companies.
As such, the IT industry is in a constant state of evolution. At present, the
industry is undergoing three main revolutions:
1. the shift to a networked computer environment,
2. the desire of organizations to reduce their cost of operating and
maintaining their IT departments thereby increasing their operating
efficiencies, and
3. the ability to conduct business electronically without regard to
distance via the Internet or an Intranet (an internal or corporate
Internet).
The Networked Computer
Companies have shifted their computational resources away from mainframes,
developed in the 1960s, which required a legion of programmers and technicians
to manage the system. The problem with the mainframes of the 1960s was that they
used proprietary software and were difficult to manage, maintain and customize.
The advent of the desktop personal computers (PCs) in the 1980s changed the
dynamics of the computer industry, for it allowed individual users to create,
manage and distribute information throughout an organization. In the 1990s,
companies realized that by harnessing the
<PAGE> 30
power of individual PCs together to form a network computing environment they
could further streamline operations while at the same time increase the
communication capabilities of the users. The networked computer or PC
environment refers to having PCs connected to servers (high-powered PCs,
workstations or mainframe computers), which act as information gatekeepers and
route data over a local or wide area network (LAN or WAN). The servers also
maintain the databases that provide information to the PCs.
IT Outsourcing
In the 1980s, organizations, as part of their drive to cut costs to become more
competitive, started to view their IT department as a cost center that should be
managed for cost efficiency and effectiveness. One of the ways that companies
optimized this cost was by outsourcing all or part of their IT functions to a
third party. As part of the outsourcing process, the third party may buy the
company's hardware and software and then supply it back to the company via a
services agreement. According to International Data Corp, (IDC) of Framingham,
Mass., outsourcing is a $84 billion world-wide industry and this market is
projected to grow to over $120 billion by 2001. Part of the reason for the
explosive growth in IT outsourcing is that companies are realizing that they
can:
- - receive better IT products or service than the company could normally
afford,
- - receive a cash infusion. Normally when a company outsources its IT
department, there is a sale of assets (computer hardware and software
and the customers IT personnel) from the customer to the service
provider, - concentrate their resources on their core products and
services, and
- - increase return on their assets -- by outsourcing they can take their IT
assets off the balance sheet.
The Internet
The Internet is changing the dynamics of how business is conducted. Through the
use of electronic or Internet commerce (e-commerce) businesses can increase
their purchasing options, expand their geographic territory, and reduce their
delivery time while decreasing their costs. A case in point, Dell Computers of
Austin, TX, is selling over $4 million a day of computers over the Internet, up
from $750,000 a day just a year ago. According to market research firm Jupiter
Communications Co., e-commerce could balloon to $37.5 billion by 2002, up from
$2.6 billion in 1997. However, most of these benefits (network PCs, IT
outsourcing and the Internet) are generally unavailable to small companies
(those with between 50 to 1000 computer users) for they may not have:
- - the financial resources to keep upgrading their computer's processing
and storage capacity to accommodate the larger and slower application
software,
- - the corporate data security knowledge or backup storage technology that
is necessary in a networked PC environment,
- - calculated the true cost and time required to maintain their network. It
has been estimated that the yearly cost of maintaining and upgrading a
networked PC environment ranges from $7,000 to $12,000 per unit,
- - the opportunity to outsource their IT department to traditional
outsourcers, as most outsourcing companies cater to larger corporations
(those with 1,000 plus seats), and
- - the ability or resources to purchase and install the latest Internet
software & hardware technology.
COMPETITION AND COMPETITIVE ANALYSIS
Status Quo (the networked PC)
A market researcher, Computer Intelligence, recently conducted a survey of 319
technology decision-makers at large U.S. companies and found that 42% of them
had no plans to evaluate or adopt thin clients in the next year. However, 51% of
those same respondents were not familiar with thin clients. Management believes
that the status quo is FutureLink USA's biggest roadblock to success, in that:
- - companies may be reluctant to try new technology;
<PAGE> 31
- - it will upset Chief Information Officers (CIOs) at some companies, who
will view FutureLink USA's product and service as a threat to their
department;
- - employees may resist the fact that FutureLink USA's products have no
storage devices or CD-ROMs; and
- - businesses have started to cut the costs of managing a PC network by
tightening up their computer management, maintenance and administration
practices (for example, by restricting users access to floppy disks),
using automated management tools and the standardization among PC
platforms and end-user configurations. These businesses may feel that
they can better manage their IT costs than an IT outsourcing company.
Computer Outsourcing Companies
According to EDS, the market for managed network services or IT outsourcing in
the United States is expected to generate $36 billion in revenue in 1998 and $70
billion by the year 2000.
IDC estimates that there are 22 million desktops in the USA in the small to
mid-market range. FutureLink USA has conservatively added 10 percent to this
number to come up with an estimated 25 million desktops in Canada and the United
States in companies that have 50-1000 employees. The IT outsourced service
market opportunity for small to mid sized businesses in North America is $60
billion a year (assuming each seat was outsourced at $200 per seat per month).
FutureLink USA believes this market has great potential for conversion to its
W.A.T.C.H.(TM) environment over the next 3 to 5 years as these companies move to
upgrade their current computer networks.
The computer outsourcing market in the United States alone is estimated to have
generated over $30 billion in revenue in 1997. The four largest firms are IBM,
EDS, GE Capital Services and Computer Sciences Corp. These companies take over
the complete management and administration of large corporate IT networks
(1,000+ computer users) or government agency computer needs.
IBM Global Service is the world's largest information technology service company
with 1997 revenue of approximately $26 billion. IBM's 110,000 service employees
serve customers in 164 countries providing business and information technology
consulting, systems integration, application development, product-specific
support and managed network services to Fortune 500 companies.
EDS is the world's second largest global information service provider with 1997
revenue of $15.2 billion. EDS' 110,000 employees serve 9,000 customers in 44
countries, providing business and information technology consulting, systems
integration, application development, product-specific support and managed
network services to Fortune 500 companies and governments. It should be noted
that EDS and Bell South have recently formed a new alliance to develop and
market network solutions to mid-size companies. The new company is to be called
MNS Alliance and will target companies with 500 to 10,000 employees. MNS will
provide companies with an integrated telecommunication and IT (software and
hardware) management solution.
GE's IT Solutions is one of the leading global desktop service providers with
1997 revenue of $10 billion. IT Solutions provides desktop and client server
products, operating and application software, local and wide area network
design, and IT consulting service to government and commercial customers in over
20 countries.
Computer Sciences Corporation (CSC) is a world leader in IT management with 1997
revenues of $6.3 billion of which $1.2 billion is derived from outsourcing
contracts. CSC's 44,000 employees serve clients from 600 offices world-wide
providing customers with management consulting, information systems consulting
and integration and operation support.
The Company does not view mainstream outsourcers as direct competition for
FutureLink USA as FutureLink USA is addressing a mid-market niche that the
management believes other IT outsourcers are not focusing on.
<PAGE> 32
FutureLink USA's Competitive Advantages
- - Less expensive to operate than a networked PC. A W.A.T.C.H.(TM) station
can offer all the convenience of a networked PC(unless it uses a lot of
local processing power(eg: graphic designers) or uses a high number of
computer peripherals) without the problems associated with networked PCs
such as having to upgrade programs, replace parts or manage the network.
According to the Gartner Group of Stamford, CT, the five-year cost of
owning a PC with Windows 3.1 is $44,250. The cost would be $38,900 for
Windows 95 and $38,400 for Windows NT (Byte Magazine, April 1997 issue).
This is compared with FutureLink USA's cost of $200 per W.A.T.C.H.TM
station per month over a five-year period or $12,000 in total.
- - PC users often try to solve technical problems themselves -- which
sometimes makes the problems worse, interferes with their real jobs, and
lowers their productivity. With FutureLink USA's off-site
troubleshooting, the customer is ensured that a professional corrects
the problem.
- - Its products and services provide intruder security through
state-of-the-art firewalls, mirrored (duplicated) servers and databases,
and sophisticated data access permissions. This level of protection is
usually only available in Fortune 500 companies and government agencies
- - It removes management's requirement to continually upgrade their PCs to
handle the latest software programs as most hardware upgrades occur on
FutureLink's server.
- - FutureLink USA's target market is companies with 50-1000 users, where
there is little competition from other IT service companies.
- - FutureLink USA is vendor-neutral. FutureLink USA has no vested interest
in pushing particular products and is free to help clients choose
products best suited to their needs.
FutureLink USA's Challenges
- - FutureLink USA is a new company with a new method of distributing
computer services and applications. FutureLink must develop a brand name
and reference customer base to increase its market penetration.
- - W.A.T.C.H.TM may not be appropriate for people who require extensive
amount of local processing power or those users who use many different
computer peripherals.
- - W.A.T.C.H.TM works most effectively with software programs that are
Windows NT compliant.
<PAGE> 33
INDUSTRY ANALYSIS
Thin Client Computer Environment
The thin client computing model is just in its infancy. Even though the products
have been available for nearly ten years, they have been directed at very narrow
market segments. Their broader application potential is just now coming to
light. Leading computer market research firms have come up with a wide variety
of estimates regarding thin client penetration and adoption.
- - International Data Corp, (IDC) estimates that about 300,000 thin clients
will be shipped in 1998 and 7 million units by the year 2000.
- - Dataquest (San Jose, CA) estimates that 2.5 million thin client
computers will be shipped by the year 2000.
- - The Gartner Group predicts that by the year 2000, 20 -- 30% of all
computers, or 18 million units, will be thin clients.
- - Zona Research Inc. predicts that the thin client market will grow from
approximately 1.7 million in 1997 to over 6.7 million in 2000 for the
commercial market and up to 70 million units for the consumer
marketplace.
BUSINESS STRATEGY
FutureLink USA's objective is to provide a comprehensive computer outsourcing
alternative to meet all or part of its clients' information technology
requirements. FutureLink USA's strategy includes the following key elements:
Industry Specific Outsourcing Services FutureLink USA develops and acquires
industry-specific outsourcing applications and services, so that FutureLink
USA's in-depth knowledge of a particular industry can then be applied to
servicing multiple clients in that field. FutureLink USA currently provides
outsourcing services to approximately 4000 seats, many of which are in the oil
and gas sector.
Customer Service and Support FutureLink USA believes that close attention to
customer service and support has been, and will continue to be, crucial to its
success. FutureLink USA provides a high degree of customer service and support,
including customized training and rapid response to customer needs.
Service Flexibility FutureLink USA attempts to maximize utilization of its
services by offering a wide range of services to each client.
<PAGE> 34
System Optimization FutureLink USA's technical expertise is in networks, PC's,
AS/400s, NetWare, Windows, Windows 95 and NT. Their strength lies in their Total
Quality Management approach to system improvement. While many people can
"optimize" a single PC, FutureLink USA is strongest at assessing the needs of
the client and meeting those needs whether it be setting up a traditional
networked PC environment, implementing a W.A.T.C.H(TM) environment or
combination of both. The process of optimization includes work and data flow
analysis, user training and support, and strong implementation of standards.
Facilities Management (Outsourcing) In most sites, FutureLink USA can save money
and improve the service to users. They have the technical and management
experience to "outsource" the entire IT function, or any part of it. They can
supply full-time, part-time, or variable staffing as an organization's needs
change. The most significant economy from outsourcing is reducing duplicated
effort. For example, they will convert many sites to Windows NT in the coming
year, but only do the research once.
Network Design and Installation FutureLink USA designs simple, effective
networks. They get installed on time, within budget, and with a minimum of
disruption to existing systems. Installation is followed by training and support
to help users quickly become efficient.
Application Design, Development and Implementation FutureLink USA's technical
expertise is in software development, including the latest Internet / Intranet /
Extranet tools. Their strength is in the Total Quality Management approach to
software development. They design simple, effective applications that meet
client expectations.
Training FutureLink USA provides in-house, hands-on training for groups of up to
8 people at a time. They cover the most popular user software such as the
individual products in Microsoft Office and Lotus Smartsuite, as well as
specialized training on specific other packages. This type of training is
cheaper and more effective than sending your staff out to a training service.
Users learn on their own computer, on their own network, and print to the exact
network printer they use everyday.
Hardware and Software Procurement Services Most of FutureLink USA's clients ask
the Company to procure their hardware and software for them. As a service to
their clients, they have set themselves up as a re-seller, enabling them to
purchase at wholesale prices.
Information Technology Planning FutureLink USA provides technology planning
services to a range of clients. The objective is to help clients determine their
technology needs, select the appropriate technologies, and implement and use
these technologies in ways that add value to their business operations.
Customer and Billing Arrangements The needs of the Company's clients are
diverse. Some large clients contract to have several FutureLink USA employees
on-site all of the time. Other smaller clients utilize FutureLink USA resources
on a "on call" hourly basis. The service commitments FutureLink USA makes vary
from client to client, depending on client needs and their ability to meet them.
Flexibility FutureLink USA's responsibility can be for total systems management,
or limited to a specific system. Contracts are tailored to suit the needs of a
particular client. Billing is done on a cost plus model based on a per hour
rate, based on a flat monthly fee, or per-user-per-month. Contracts can be
multi-year, or month to month.
MARKETING STRATEGY
Management believes FutureLink USA is among the first companies to take the next
step in information technology delivery and services -- the outsourcing of a
company's computer network and delivering the software applications by
subscription over a highly-secure, remote wide area networks (WAN) to a
mainstream corporate client base via thin client desktop computers. It is the
objective of FutureLink USA to create a new model of network computing services
that has the cost and convenience of a telephone and will be the dominant player
in this market.
<PAGE> 35
FutureLink USA has chosen Calgary as its first market due to its proximity to
the advanced telecommunication infrastructure that Telus, Shaw Cable and
MetroNet have installed in the downtown core. Over the next 18 months,
FutureLink USA will expand its service offering to other cities in Western
Canada and the United States.
FutureLink USA will initially target:
1. companies with between 50 and 1000 users,
2. industries where the giants have chosen to outsource their IT
departments (ie: the oil and gas sector), thus giving a frame of
reference for mid-sized industry players,
3. marketing alliances with niche telecom service providers targeting the
business market, and
4. strategic alliances with value added resellers (VARs) of applications
and services.
FutureLink USA will initially target these market segments because of the
following:
These industries use a few standard software programs. The key factor is that
these users rarely need new applications. Most industry segments will need some
standard word processor and spreadsheet package. Then there are typically a few
industry specific software packages that dominate each market segment. There is
seldom a need for a broad range of software offerings.
Users share desktops. The old business model of full-time employees and one
person per office is giving way to a workplace with part-time employees,
independent contractors, temporary workers, and telecommuters. It makes little
sense to reserve a PC for everyone who might need occasional use of a computer
at the office. Because thin clients are stateless, employees can share them and
enjoy their own personalized working environment while sharing desktops.
Services remote users who are difficult to support. If a PC breaks down at a
remote location (ie. an oil field), MIS must either send someone to fix the
problem or talk the user through the repairs. Because thin clients lack extras
such as persistent storage, there are lower failure risks. With a true hardware
failure, MIS can easily replace a stateless client with a new machine because
there's no local software or data files to restore.
Jobs revolve around remote data instead of local data. An order-entry person who
spends the day checking data in a centralized database and filling in electronic
forms is well served by a simple, foolproof machine. So is a factory foreman who
needs to view the latest engineering drawings in a database. These jobs are
highly specific and network-centric, so the workers aren't sacrificing
flexibility by switching to a network-centric device.
Security is paramount. Conventional desktop and laptop PCs can be security
nightmares because they store everything locally and users have virtually
unrestricted access to local storage. Every loss, theft, virus attack,
breakdown, or break-in is potentially catastrophic if it endangers strategic
data. Thin clients that store everything on a server are generally safer because
server closets are more physically secure and professionals regularly back up
the servers.
Companies need replacements for older, text-based terminals. Analysts estimate
that there are 30 million to 50 million dumb terminals (refers to terminals that
allowed only text-based information processing with all information being
processed by the company's mainframe). The insurance and the health care
industry continue to use dumb terminals for most of their data entry staff.
Today's thin clients can use the same legacy programs and data that these dumb
terminals use, yet they provide a graphic user interface (GUI), as well as,
access to the Internet and corporate Intranets.
In addition, FutureLink USA will target companies that do not have a Chief
Information or Technology Officer. FutureLink USA plans to target the
Owner/Chief Executive Officer or the Chief Financial or Operating Officers of
these small to mid-size companies because they can understand the cost benefit
of outsourcing of their MIS department, and the MIS department may not be
powerful enough to resist the change.
The key to the sales of services is an impressive client reference list.
FutureLink USA is starting to generate a reference base through its initial
clients and also plans to build its client base and reputation via strategic
acquisitions
<PAGE> 36
of IT outsourcing and other information technology firms with solid
client bases, product and service offerings, and outstanding reputations.
It should be noted that FutureLink USA will not initially target companies whose
users need a lot of local processing power, frequently need to install new
software, or use a variety of peripherals.
SALES STRATEGY
FutureLink USA's sales strategy is to educate the customer on the benefits of
outsourcing their IT department by using the W.A.T.C.H.(TM) service. As part of
the sales process, FutureLink USA will emphasize to its customers:
- - Total Cost of Ownership (TCO). FutureLink USA's W.A.T.C.H.(TM) program
is less expensive than even a well managed networked PC environment,
- - the relief in not having their hardware become obsolete, as all hardware
upgrades are done on FutureLink USA's server,
- - state-of-the-art data security, back-up and encryption technology that
FutureLink USA provides which ensures that the customer's data is secure
against unwanted internal or external threats,
- - the removal of all the problems associated with the computer
administration and support functions, and
- - the customer receives extensive customer service and support, including
5 days a week, 10 hours a day on-line support.
FutureLink USA plans to sell its services through two sources:
- - FutureLink USA will hire sales representatives experienced in selling
information technology services or computeroutsourcing services.
- - FutureLink USA will form strategic alliance partnerships (SAPs) within
specific sectors. SAPs will be companies that offer a product or service
that can be easily integrated into the W.A.T.C.H.(TM) program. The SAPs
must create a win-win situation for FutureLink USA, the partner and
their customers.
ADVERTISING AND PROMOTION STRATEGY
FutureLink USA's advertising strategy is to place ads in vertical and business
publications that are read by its targeted industries (oil and gas, insurance,
hotels, etc). In addition, it plans to run direct marketing campaigns and
advertise extensively over the Internet.
STRATEGIC GROWTH OPPORTUNITIES
The plans and projections of the Company are based on internal growth via sales
of computer utility services to small to medium sized businesses and growth
through strategic acquisitions.
FutureLink USA is in discussions with several large customers concerning
outsourced IT services agreements using thin client technology and other
technology platforms. The opportunities are in such sectors as hospitality and
e-commerce in the office stationery sector.
In particular, FutureLink USA has been awarded the Information Technology
Services contract for Willson Stationers Ltd., a major Western Canadian retail
chain. Under the terms of the agreement, FutureLink USA will be
<PAGE> 37
responsible for the design, implementation and management of Willson's complete
network systems and functions at all stores and the head office. The
installation will involve more than 175 computing stations and will provide
FutureLink USA with contracted revenues of approximately CND$4,000,000 over the
term of the contract.
Willson Stationers Ltd., founded in 1890, is one of the most widely recognized
and respected business names in Western Canada. Today, Willson's operates 25
retail outlets and four telemarketing/commercial sales offices in six cities, as
well as, a distribution centre and custom products division.
Each of the other large strategic initiatives involves potential multi-million
dollar IT services contracts, and the closing of even one of these deals
significantly enhances FutureLink USA's reputation, revenue base, revenue
backlog and income.
FutureLink USA's management believes that strategic acquisitions could
tremendously enhance FutureLink USA's growth and profitability over the next
several years. FutureLink USA plans to aggressively search out strategic
acquisitions in the short term in the USA and Canada. These purchases would
provide FutureLink USA with the following:
- - a blue chip client base which gives FutureLink USA customer references
for sales proposals,
- - quality management and client service delivery personnel critical to
success in the IT services sector,
- - bases for entry into new geographic and industry markets,
- - additional sources of potential revenues from customer sales of
additional IT.
FutureLink USA's general acquisition criteria are:
1. IT service companies in the outsourcing, network management, application
development and maintenance and Y2K consulting fields;
2. target is located in Canada or the United States;
3. target has strong customer base and valuable existing service contracts;
and
4. target has talented management and client service delivery teams that
can integrate into FutureLink USA's service organization.
As of the date of this Registration Statement, the Company has not entered into
discussions with any potential acquisition targets.
The principal executive office of FutureLink USA is located at Suite 300-250
6th Avenue S.W. Calgary, Alberta, T2P 3H7. The contact telephone number is
(403) 216-6000. The registered and records office of the Company is located at
5025 South Federal Boulevard, Englewood, Colorado, 80110.
PATENTS AND TRADEMARKS
Although FutureLink USA's business has not depended on trademark or patent
protection, it recognizes the increasing value of its various trade names,
trademarks, and technical innovations. FutureLink USA has applied for federal
trademark registration of the names "FutureLink", "Flink", "FutureServe", "Wide
Area Thin Client Hook-up", "W.A.T.C.H.", "Your Way Ahead", "The world's first
computer utility company", "Information Utility", "Application Portal", and
"Computer Utility" and of our two logos in both Canada and the United States. In
addition, FutureLink USA may seek patents on its inventions in the future.
FutureLink USA's ability to compete may be enhanced by its ability to protect
its proprietary information, including the issuance of patents and trademarks.
The process of seeking patent protection can be expensive and can consume
significant management resources. FutureLink USA believes that patents may
strengthen its negotiating position with respect to future disputes that may
arise regarding its technology and processes. However, it believes that its
continued success depends primarily on such factors as the technological skills
and innovative abilities of its personnel rather than on any patents that it may
obtain. In addition, there can be no assurance that patents will issue from
pending or future applications or that any patents that are issued will provide
meaningful protection or other
<PAGE> 38
commercial advantage to FutureLink USA.
ENVIRONMENTAL MATTERS
FutureLink USA believes it is in material compliance with all relevant federal,
state, and local environmental regulations and does not expect to incur any
significant costs to maintain compliance with such regulations in the
foreseeable future.
RESEARCH AND DEVELOPMENT
During each of the last two fiscal years FutureLink USA did not expend in excess
of Ten Thousand Dollars ($10,000) on research and development of products.
During fiscal year 1997, FutureLink USA did not capitalize research, development
or engineering costs, and such costs were expensed during the period of their
occurrence.
GOVERNMENTAL MATTERS
Except for usual and customary business and tax licenses and permits, and the
licenses and permits described elsewhere herein, no governmental approval is
required for the principal products/services of FutureLink USA, nor does
FutureLink USA know of any existing or probable governmental regulations
affecting FutureLink USA's activities.
INSURANCE
FutureLink USA maintains a $2,000,000 directors and officers liability insurance
policy. The Company also maintains a $2,000,000 commercial liability insurance
policy, an employee health insurance policy, business interruption insurance to
fund its operation in the event of catastrophic damage to any of its operation
centres and insurance for the loss and reconstruction of its computer systems.
FutureLink USA also maintains extensive data backup procedures to protect both
client and company data. It currently does not, however, maintain a product
liability insurance policy or an errors and omissions policy to cover the sale
of its services. There can be no assurance that its insurance will be adequate
to cover future claims or that FutureLink USA will be able to maintain adequate
liability insurance at commercially reasonable rates.
EMPLOYEES
As of October 15, 1998, FutureLink USA employed a total of 97 persons.
FutureLink USA has experienced no work stoppages and is not a party to a
collective bargaining agreement. It believes that it maintains good relations
with its employees.
<PAGE> 39
DESCRIPTION OF PROPERTY
FutureLink USA currently maintains offices and a computer center at two
locations. The first facility is of approximately 6,970 square feet in Calgary,
Alberta under a lease that expires April 30, 2002. This lease has an aggregate
minimum annual rental payments of approximately CDN$61,440 plus operating
expenses and is subject to escalation.
The second facility is of approximately 19,639 square feet in Calgary, Alberta
under a lease that expires January 31, 2002. This lease has an aggregate minimum
annual rental payments of approximately CDN$373,312 plus operating expenses and
is subject to escalation.
FutureLink USA may consolidate the two facilities in the near future.
FutureLink USA generally leases its equipment under standard commercial leases,
in some cases with purchase options which the Company exercises from time to
time. FutureLink USA's equipment is generally covered by standard commercial
maintenance agreements.
LEGAL PROCEEDINGS
The Company and its subsidiaries are aware of the following lawsuits:
1. Midland Walwyn Capital Inc. has commenced an action in the Supreme Court
of Ontario against Core Ventures, Inc. (now known as FutureLink USA),
Abecorn Enterprises Limited, Alixe Cormick, Venture Law Corporation, and
Raymond Kompani. At the time of the alleged transactions, John Xinos of
Abecorn Enterprises Limited was a director of Core Ventures Inc. Alixe
Cormick of Venture Law Corporation acted as corporate legal counsel for
both Abecorn and Core Ventures. Ray Kompani was a third party with no
relation to Core Ventures. Midland Walwyn Capital Inc. is seeking
judgement in the amount of CDN$500,000 against all defendants. The
action against Core Ventures, Inc. alleges fraudulent misrepresentation,
negligent misrepresentation, intentional or negligent interference with
contractual relations. The action was commenced in October 1997. Core
Ventures, Inc. has filed a defense. The action relates to a share sale
transaction between Abecorn Enterprises Limited and Raymond Kompani.
Raymond Kompani apparently failed to pay Abecorn Enterprises Limited for
50,000 FutureLink USA Common Shares. Alixe Cormick, as solicitor for
Core Ventures Inc., was instructed to advise the General Securities
Transfer Agency, Inc. to stop transfer share certificate #3190 in the
amount of 50,000 FutureLink USA Common Shares standing in the name of
Abecorn Enterprises Limited. The General Securities Transfer Agency,
Inc. stop transferred share certificate #3190. Raymond Kompani deposited
share certificate #3190 with Midland Walwyn Capital Inc. Midland Walwyn
Capital Inc. proceeded to sell 50,000 FutureLink Common Shares on behalf
of Raymond Kompani. When Midland Walwyn Capital Inc. sent share
certificate #3190 to the Depository Trust Company (clearing house), the
clearing house advised Midland Walwyn Capital Inc. that the shares had
been stop transferred by the transfer agent for Core Ventures, Inc.
Midland Walwyn Capital Inc. had paid the net sale proceeds to Raymond
Kompani before they were advised by Depository Trust Company of the
problem. Midland Walwyn Capital Inc. was required to repurchase 50,000
FutureLink USA Common Shares on the market. The cost was $325,000.
Midland Walwyn Capital Inc. demanded the repayment of the funds from
Raymond Kompani. Raymond Kompani has not repaid the monies to Midland
Walwyn Capital Inc. Midland Walwyn Capital Inc. is suing to recover its
losses. John Anastasios Xinos and Core Ventures, Inc. entered into an
indemnity agreement dated January 19, 1998 whereby John Anastasios Xinos
agreed to indemnify Core Ventures, Inc. for any losses suffered by Core
Ventures, Inc. arising from the Midland Walwyn Capital Inc.
<PAGE> 40
lawsuit. FutureLink USA has minimal exposure in this litigation due to the
Indemnity Agreement and does not believe that there would be a material impact
if the plaintiff was successful.
2. US Bankruptcy Proceedings. FutureLink USA is aware that on April 4,
1995, Core Mineral Recoveries, Inc. voluntarily filed a petition under
Chapter 11 of the US Bankruptcy Code (95-70091) seeking protection from
its creditors. FutureLink USA was not bankrupt. The petition was
dismissed thereby not compromising any of the creditors. It was a term
of the January 20, 1998 share acquisition agreement that there were no
debts in FutureLink USA.
3. 554495 Alberta Ltd. commenced an action against Coffee.com Interactive
Cafe Corp. (now known as FutureLink Alberta) in October 1997 in the
Court of Queen's Bench of Alberta, Judicial District of Calgary, Action
# 9701-15514. The action relates to a purported lease agreement with
respect to space in Calgary. The Plaintiff seeks judgement in an amount
in excess of CDN$285,000. FutureLink Alberta has defended and
counterclaimed. The parties are proceeding to discovery of corporate
officers. FutureLink Alberta believes it has minimal exposure but
should 554495 Alberta Ltd. win this case and FutureLink should not win
it's counterclaim, FutureLink Alberta would incur damages of
approximately CDN$500,000.
<PAGE> 41
4. A Statement of Claim was issued by TAP Consulting Ltd. on August 19, 1998
in the Court of Queen's Bench of Alberta, Judicial District of Calgary
naming SysGold Ltd. as a defendant. The suit alleges that SysGold Ltd.
wrongfully terminated a management services contract dated January 19, 1991
between SysGold Ltd. and TAP Consulting Ltd. without cause or reasonable
notice. The Plaintiff seeks CDN$150,000 plus court costs. SysGold Ltd.
believes it has a sustainable defence to the action and intends to
vigorously defend it and to file a counterclaim. FutureLink USA and Don
Bialik entered into an indemnity agreement dated August 21, 1998 whereby
Don Bialik agreed to indemnify FutureLink USA for any losses suffered by
FutureLink USA arising from the TAP Consulting Ltd. lawsuit. FutureLink USA
has minimal exposure in this litigation due to the Indemnity Agreement and
does not believe that there would be a material impact if the plaintiff was
successful.
<PAGE> 42
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of October 15, 1998 for (i) each of
the Company's directors; (ii) each of the Company's executive officers; (iii)
all executive officers and directors as a group; and (iv) each person who
beneficially owns 5% or more of the outstanding shares of Common Stock. The
Company believes that the persons named in the table below have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them, subject to community property law, where applicable.
<PAGE> 43
<TABLE>
<CAPTION>
Percent Owned
Name and Address(1) Amount Percent of Class(2) Following Offering(3)
<S> <C> <C> <C>
Cameron Chell 1,067,750(4) 6.5% 3.5%
Don Bialik 4,375,000(5) 21.3% .4%
Raghunath Kilambi 550,000(4) 3.3% 1.9%
Linda M. Murray 61,000(6) 0.4% .2%
F. Bryson Farrill 350,000(7) 2.1% 1.2%
Philip Ladouceur 500,000(8) 3.0% 1.6%
Robert Kubbernus 350,000(7) 2.1% 1.2%
Robert Kohn 475,000(9) 2.9% 1.6%
Thomson Kernaghan 9,615,385(10) 37.3% 0%
All directors and executive
officers a group(8 persons) 7,728,750 41.6% 11.5%
</TABLE>
Notes:
1) Unless otherwise stated, the business address of each of the
stockholders named in the table is c/o the Company at 250 6th Avenue
S.W., Suite 300, Calgary, Alberta T2P 3H7 Canada.
2) Based upon 16,168,065 shares of Common Stock outstanding as of October
1, 1998 and for each person or group, any securities that person or
group has the right to acquire within 60 days pursuant to options,
warrants or other rights.
3) Based upon 30,364,688 shares of Common Stock outstanding after the
offering is complete. This number includes (i) 16,168,065 shares
outstanding as of October 1, 1998; (ii) 4,250,000 shares underlying the
Bialik Exchangeable shares; (iii) 8,946,623 shares underlying the 10%
Convertible Debenture issued to Thomson Kernaghan; and (iii) 1,000,000
shares underlying the Thomson Kernaghan Warrants. With the exception of
668,762 shares issued to Thomson Kernaghan, none of the shares being
registered pursuant to this Registration Statement have been issued by
the Company and the Company does not know when, if at all, these shares
will be issued and, if issued, when they would be sold pursuant to this
Registration Statement.
4) Includes options for the purchase of 250,000 shares of Common Stock
exercisable at $0.76 per share which vested on June 29, 1998. Does not
include options to purchase 250,000 shares of Common Stock exercisable
upon the same terms subject to vesting on June 29, 1999.
5) Donald A. Bialik and Olivia B. Bialik do not currently own any shares
of FutureLink USA. However, Donald A. Bialik owns 1,418,084
FutureLink/SysGold Ltd. Exchangeable Shares and Olivia B. Bialik owns
2,831,916 FutureLink/SysGold Ltd. Exchangeable Shares. Because the
FutureLink/SysGold Ltd. Exchangeable Shares may be converted into
FutureLink USA Common Shares by Donald A. Bialik and Olivia B. Bialik
without the payment of any further consideration, FutureLink USA has
deemed these shares to be issued for the purpose of this calculation.
Includes options for the purchase of 125,000 shares of Common Stock
exercisable at $1.17 per share which vested on August 5, 1998. Does not
include options to purchase 125,000 share of Common Stock exercisable
at $1.17 per share which vest on August 5, 1999.
6) Includes options for the purchase of 25,000 shares of Common Stock
exercisable at $0.76 per share which vested on June 29, 1998 and options
future purchase of 25,000 shares of Common Stock exercisable at $0.76
per share which vest on December 29, 1998. Does not include options to
purchase 25,000 shares of Common Stock exercisable upon the same terms
subject to vesting on June 29, 1999.
7) Includes options for the purchase of 125,000 shares of Common Stock
exercisable at $0.76 per share which vested on June 29, 1998. Does not
include options to purchase 125,000 share of Common Stock exercisable
upon the same terms subject to vesting on June 29, 1999.
8) Options for the purchase of 250,000 shares of Common Stock exercisable
at $0.76 per share which vested on July 16, 1998. Does not include
options for the purchase of 250,000 shares of Common Stock under the
same conditions which vest July 16, 1999.
9) Includes Options for the purchase of 100,000 shares of Common Stock
exercisable at $0.76 per share which vested on June 29, 1998. Does not
include options to purchase 100,000 shares of Common Stock exercisable
upon the same terms subject to vesting on June 29, 1999.
10) As of October 1, 1998, Thomson Kernaghan owned 668,762 shares of Common
Stock. These shares were purchased pursuant to the terms of the
Debenture Agreement (see "Business-History"). The remaining 8,946,623
shares may be issued to Thomson Kernaghan subject to certain conditions
set forth in the Debenture Agreement.
<PAGE> 44
MANAGEMENT
<TABLE>
<CAPTION>
% of Time Devoted to
Name Age Position Held FutureLink
<S> <C> <C> <C>
Cameron B. Chell 30 Chairman of the Board and
Chief Executive Officer 75
Don Bialik 43 Director, President 100
Raghunath Kilambi 33 Director, V.P.-Corporate Finance and
Chief Financial Officer 90
Linda M. Murray 32 Corporate Secretary 100
Philip Ladouceur 57 Director 10
Robert Kubbernus 40 Director 20
F. Bryson Farrill 71 Director 10
Robert H. Kohn 41 Director 10
</TABLE>
The following is a brief description of the background of the key management and
directors of FutureLink USA. Each of the Board members were reelected in an
annual general meeting held in November 1998.
CAMERON CHELL - CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER -- Mr. Chell's
primary responsibility has been to assemble a leading edge professional
technology and business team to implement the FutureLink Alberta and FutureLink
USA business plans. His secondary responsibility is to seek financing for
FutureLink Alberta and FutureLink USA. Mr. Chell has helped build several
technology companies over the past 10 years. He is a Vice President of JAWS
Technologies Inc., an internet based encryption technology company (OTC -- BB
symbol JAWZ), C.E. O. of Willson Stationers and a director of NextClick Ltd.. He
is also a principal of the investment banking firm of Chell McNeill Inc. From
1994 to May 1997 Mr. Chell was employed as a registered representative of a
brokerage firm in Calgary, Alberta. Prior to 1994, Mr. Chell was self employed
in computer sales and other non related positions.
On November 6, 1998 Cameron Chell entered into a Settlement Agreement with
the Alberta Stock Exchange to resolve a pending investigation into alleged
breaches by Mr. Chell of Alberta Stock Exchange rules and bylaws. As part of the
Settlement Agreement, (i) Mr. Chell acknowledged that he had breached certain
duties of supervision, disclosure, or compliance in connection with various
offers and sales of securities and (ii) Mr. Chell was prohibited from receiving
Alberta Stock Exchange approval for a five year period, subjected to a
CDN$25,000 fine and a three year period of enhanced supervision.
DON BIALIK -- DIRECTOR/PRESIDENT -- Mr. Don Bialik received his Bachelor of
Applied Science (B. A. Sc.) in Civil Engineering from University of Toronto in
1980 and an MBA from the University of Calgary in 1988. Mr. Bialik's focus as
President will be on the opening and integration of new markets and
acquisitions. Mr. Bialik is a highly respected, successful entrepreneur and the
founder of SysGold Ltd. with 15 years in the Information Systems business, he is
a pioneer in the outsourcing sector. Mr. Bialik offers clients 10 years of
specific information systems expertise.
RAGHUNATH KILAMBI -- DIRECTOR/VICE PRESIDENT OF CORPORATE FINANCE AND CHIEF
FINANCIAL OFFICER - Mr. Kilambi has been Chief Financial Officer of FutureLink
USA since March 1998. As President of New Economy Capital Inc., Mr. Kilambi has
raised significant equity and debt financing for Canadian and US public and
private high technology corporations. Mr. Kilambi also serves as a director of
Willson Stationers. Previously, Mr. Kilambi was the Director, Financial Services
and Taxation and Corporate Secretary for Canada Starch Company Inc., a CDN$400
million subsidiary in the US multinational Bestfoods group of companies. Mr.
Kilambi graduated from McGill University with a Bachelor of Finance and
Accounting. Mr. Kilambi is a Chartered Accountant. Mr. Kilambi is also a
director of Advanced Vision Systems Corp. (ASE:AVD) and NextClick Ltd.
LINDA M. MURRAY - CORPORATE SECRETARY - Ms. Murray has extensive experience in
the hospitality industry and administration of companies. In 1996 and 1997, Ms.
Murray was an independent office administration contractor with three publicly
<PAGE> 45
traded clients(Advanced Vision Systems Corp.(ASE:AVD), Imaging Dynamics
Corp.(ASE:ID) and Reliance Energy Inc.(ASE:RLA)). From 1990 to 1996, Ms.
Murray's focus was in the hospitality industry at the Banff Park Lodge in
positions varying from Tour Coordinator to Executive Secretary to the General
Manager.
PHILIP LADOUCEUR -- DIRECTOR -- Mr. Ladouceur has served MetroNet as a director
since October 1996 and was President of MetroNet from October 1996 to October
1997. When Mr. Ladouceur joined MetroNet, the company was a local Calgary
telecom concern. He has led the company through equity and debt financings of
more than CDN$2 billion as well as the company's initial public offering on the
NASDAQ and Toronto Stock Exchanges. Also, Mr. Ladouceur guided the company
through its recent acquisition of Rogers Communications' Telecom business, a
transaction valued at over CDN$1 billion. MetroNet has now become a major
national presence and the largest competitive local exchange carrier in Canada.
Prior to joining MetroNet, Mr. Ladouceur was Executive Vice President,
Operations at Bell Canada International Inc., from February 1995 to October 1996
where he led key restructuring efforts and the formation of a major joint
venture with IBM Canada. From October 1992 to February 1995, Mr. Ladouceur was
the founding President and Chief Executive Officer of ISM Information Systems
Management (Alberta) Ltd., ("ISM") a Canadian computer and network management
outsourcing company. Under Mr. Ladouceur's direction, ISM grew to CDN$75 million
in revenue on an annual basis, and over 700 employees in a two-year period from
start-up. Mr. Ladouceur founded and, from June 1990 to October 1992, was the
Managing Director of HDL Capital Corporation, a Toronto-based merchant bank that
specializes in business turnarounds, management buyouts, and financing for
medium and small businesses in the telecommunications, technology, software, and
retail sectors. From 1986 to 1989, Mr. Ladouceur was Senior Vice President,
Finance, Chief Financial Officer and a director of Rogers Communications Inc.,
one of the largest cable, cellular and broadcasting companies in North America.
While there, he oversaw the completion of over CDN$3 billion in public and
private financings. Additionally, Mr. Ladouceur is currently serving as the
Chairman of the Competitive Telecommunications Association of Canada.
ROBERT KUBBERNUS -- DIRECTOR -- Prior to 1992, Mr. Kubbernus was the Chief
Financial Officer of Bankers Capital Group. His responsibilities included the
development of new products and markets as well as overseeing the financial
controls of the Company. Since 1992, Mr. Kubbernus has been the President of
Bankton Financial Corporation, which specializes in the placement of debt
instruments with institutional and private lenders. Bankton Financial
Corporation is also involved in corporate restructuring and planning. Mr.
Kubbernus is the President of JAWS Technologies, Inc. (OTC --BB symbol JAWZ).
F. BRYSON FARRILL -- DIRECTOR --Until 1989 Mr. Farrill had various positions
with Scotia McLeod and McLeod Young Wier including acting in the capacity as the
former Chairman of Scotia McLeod (USA) Inc. and McLeod Young Weir Ltd. Mr.
Farrill brings to FutureLink USA more than 30 years of equity, fixed income and
corporate finance experience in North America and Europe. He is the President
and Chairman of Solar Pharmaceuticals Ltd. (VSE.SLR) and Director of Panther
Resources Ltd. (OTC-BB -- PATHR), Devine Entertainment Inc. (TSE-BBD), and Home
Life Inc. (OTC-BB-HLMF).
ROBERT KOHN -- DIRECTOR -- Mr. Kohn has a Bachelor's degree in Business
Administration from California State University in Northridge. Mr. Kohn has a
law degree from Loyola Law School in Los Angeles. From 1983 to 1985 he worked as
corporate counsel to Ashton-Tate Corporation, a developer and marketer of
personal computer software. From October 1985 to March 1987 Mr. Kohn was
associate general counsel for Candel Corporation, a developer of software for
IBM mainframes. From March of 1987 to September 1996, Mr. Kohn was a Senior
Vice-President of Borland International, Inc. (now Inprise Corp.), a developer
and marketer of personal computer software (Inprise Corp. trades on
NASDAQ-National Board INPR). From October 1996 to December 1997, Mr. Kohn was
Vice President of Business Development and General Counsel of Pretty Good
Privacy, Inc. a data encryption company. From January 1998 to present Mr. Kohn
has been the Chairman of GoodNoise Corporation (OTC-BB symbol GDNO), an internet
record company. Mr. Kohn is also an Adjunct Professor of Law and Business
Organisations of the Monterey College of Law.
<PAGE> 46
EXECUTIVE COMPENSATION
FutureLink USA pays its non-employee directors an honorarium of $250.00 per
board meeting at which they are in physical attendance. FutureLink USA may
reimburse expenses incurred due to their attendance at such meetings. No other
payments have been made to directors. The directors are eligible to receive
stock options under the FutureLink USA's stock option plan.
<PAGE> 47
FutureLink USA has adopted a stock option plan (the "FutureLink USA's Stock
Option Plan") for senior officers, directors and full-time employees of the
Company, which does not restrict the number of options which may be granted. The
number of options and the exercise price of all options is set by the board of
directors of FutureLink USA, or a committee thereof, at the time of grant.
<PAGE> 48
The following table sets forth compensation in respect of the senior officers
and Directors of the Company and it's subsidiaries for the fiscal year ended
December 31, 1997 and the period from January 1 to September 30, 1998.
<TABLE>
<CAPTION>
Annual Compensation Long Term
Compensation
Securities
Name and Period Other Under
Principal Ended Annual Options All Other
Position Salary Bonus Compensation Granted Compensation
($) ($) ($) (#) ($)(1)
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE> 49
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Chief Executive Officer 1997 Nil Nil Nil Nil CDN$121,580
Cameron Chell 1998 CDN$87,500 Nil Nil 500,000 CDN$13,417
Past President 1997 N/A N/A N/A N/A N/A
Murray Korth 1998 CDN$28,214 Nil Nil Nil CDN$1,128
Chief Financial Officer 1997 N/A N/A N/A N/A N/A
Raghu Kilambi 1998 CDN$62,500 Nil Nil 500,000 CDN$9,500
Director 1997 N/A N/A N/A N/A N/A
Philip Ladouceur 1998 Nil CDN$100,000 Nil 500,000 N/A
Director 1997 N/A N/A N/A N/A N/A
Robert Kohn 1998 Nil Nil Nil 200,000 $6,000
Director 1997 Nil Nil Nil Nil N/A
Bryson Farrill 1998 Nil Nil NIl 250,000 N/A
Director, President
Don Bialik 1998 CDN$19,846 Nil Nil 250,000 CDN$600
Corporate Secretary 1997 Nil Nil Nil 15,000(2) CDN$12,900
Linda M. Murray 1998 CDN$24,125 CDN$1750 Nil 75,000 CDN$4,229
</TABLE>
NOTES:
1) Other Compensation:
a) for Cameron Chell for 1997 consisted of consulting fees. In
1998, Other Compensation consists of consulting fees of
CDN$10,417 having been paid plus CDN$3,000 of vacation pay
owing.
b) for Murray Korth for 1998 was vacation pay owed.
c) for Raghu Kilambi in 1998 was for CDN$7,000 of consulting fees
having been paid and CDN$2,500 of vacation pay owing.
d) for Robert Kohn in 1998 was for consulting fees in USD having
been paid.
e) for Don Bialik in 1998 was for vacation pay owing.
f) for Linda Murray in 1997 was for consulting fees and in 1998 was
for consulting fees in the amount of CDN$2750 for the first two
months of 1998 and the remainder is vacation pay owing. As of
February 1, 1998, Ms. Murray became an employee.
2) These represent options in FutureLink Alberta that expired on July 31,
1998 and were not exercised.
BOARD COMMITTEES
The Compensation Committee currently consists of Messrs. Farrill, Kohn and
Kubbernus. The Compensation Committee establishes salaries, incentives and other
forms of compensation for officers of FutureLink USA and FutureLink Alberta. The
Audit Committee consists of Messrs. Kohn, Kubbernus and Farrill.
<PAGE> 50
SELLING SECURITYHOLDERS
For information on Selling Security Holders see "Security Ownership of
Beneficial Owners and Management".
DESCRIPTION OF SECURITIES
As of the date of this Registration Statement, FutureLink USA is authorized to
issue: (a) 100,000,000 FutureLink USA Common Shares with par value of $.001 per
share; and (b) 5,000,000 FutureLink USA Preferred Shares with no par value.
There are 26,499,303 FutureLink USA Common Shares issued and outstanding as
fully paid and non-assessable. As of October 15, 1998, FutureLink USA has
reserved for issuance: (a) 3,730,000 FutureLink USA Common Shares pursuant to a
stock option plan (See "FutureLink USA Stock Options"); (b) 255,813 FutureLink
USA Common Shares pursuant to warrant and (c) 1,127,240 FutureLink USA Common
Shares pursuant to a debt for share exchange agreement and an additional
1,127,240 FutureLink USA Common Shares pursuant to warrants granted in the same
debt for share exchange agreement. There are no issued and outstanding
FutureLink USA Preferred Shares.
In an annual general meeting of shareholders held on November 30, 1998, the
shareholders authorized the Board of Directors to implement a reverse stock
split of up to one for thirty, with a cash out option to minority shareholders
for fractional shares. At present, the Company has no intentions of
implementing the reverse stock split but wanted the ability to proceed in the
future should the Board recommend such action. At present, there is no
potential impact on security holders as the reverse stock split is not being
contemplated by the Board.
The following is a general description of the material rights, privileges and
restrictions and conditions attaching to each class of shares:
<PAGE> 51
The authorized capital stock of the Company consists of 100,000,000 shares of
Common Stock, $.001 par value, and 5,000,000 shares of Preferred Stock, having
no par value.
As of October 1, 1998, there were 16,168,065 shares of Common Stock outstanding
held of record by approximately 255 stockholders.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on all matters to be
voted upon by the stockholders. Subject to preferences that may be applicable to
the holders of outstanding shares of Preferred Stock, if any, the holders of
Common Stock are entitled to receive ratably such dividends, if any, as may be
declared from time to time by the Board of Directors out of funds legally
available therefor. See "Dividend Policy". In the event of liquidation,
dissolution or winding up of the Company, and subject to the prior distribution
rights of the holders of outstanding shares of Preferred Stock, if any, the
holders of shares of Common Stock shall be entitled to receive pro rata all of
the remaining assets of the Company available for distribution to its
stockholders. The Common Stock has no preemptive or conversion rights or other
subscription rights. There are no redemption or sinking fund provisions
applicable to the Common Stock. All outstanding shares of Common Stock are fully
paid and nonassessable.
PREFERRED STOCK
The Board of Directors is authorized, subject to any limitations prescribed by
the laws of the State of Colorado, with approval by the Company's stockholders,
to provide for the issuance of up to 5,000,000 shares of Preferred Stock in one
or more series, to establish from time to time the number of shares to be
included in each such series, to fix the designations, powers, preferences and
rights of the shares of each such series and any qualifications, limitations or
restrictions thereof, and to increase or decrease the number of shares of any
such series (but not below the number of shares of such series then outstanding)
without any further vote or action by the stockholders. The Board of Directors
may authorize and issue Preferred Stock with voting or conversion rights that
could adversely affect the voting power or other rights of the holders of
Shares.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for FutureLink USA is General Securities
Transfer Agency, Inc. in Albuquerque, New Mexico.
<PAGE> 52
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SHARE ACQUISITION AGREEMENT
In the Share Acquisition Agreement dated January 20, 1998, between Core
Ventures, Inc. (now known as FutureLink USA), FutureLink Alberta, Cameron
Chell, Linda Carling, Colleen Rudolph, Bernie March, and Gerald Albert,
FutureLink USA agreed to acquire 1,540,000 Class "A" Common Voting Shares
of FutureLink Alberta (48% of such Company's issued shares) in
consideration of the issuance of 1,540,000 FutureLink USA Common Shares.
The shares were issued subject to an escrow agreement. The agreement
provided that 3,500,000 FutureLink USA Common Shares would be issued to
various employees for the consideration of $3,500. FutureLink Alberta was
added as a party for the purpose of making representations and warranties
to induce FutureLink USA to enter into the agreement. All parties involved
were at one point principles in FutureLink Alberta and Cameron Chell is
currently C.E.O. of both companies.
TAKE-OVER BID CIRCULAR
The Take-Over Bid Circular dated September 28, 1998 was an offer by
FutureLink USA to purchase the remaining 52% of the outstanding shares of
FutureLink Alberta. The Take-Over Bid closed on November 6, 1998 with
FutureLink USA subsequently owning 96.47% of FutureLink Albera. The board
of directors and officers of both companies are essentially the same.
See "Business--History."
ESCROW AGREEMENT
The Escrow Agreement dated, January 20, 1998, is an agreement among the
General Securities Transfer Agency, Inc., FutureLink USA, Cameron Chell
(as to 500,000 FutureLink USA Common Shares), Linda Carling (as to 490,000
FutureLink USA Common Shares), Bernie March (as to 200,000 FutureLink USA
Common Shares), Colleen Rudolph (as to 250,000 FutureLink USA Common
Shares) and Gerald Albert (as to 100,000 FutureLink USA Common Shares)
pursuant to which an aggregate of 1,540,000 FutureLink USA Common Shares
were deposited in escrow. The agreement states that one half of the
FutureLink USA Common Shares be released on July 20, 1998 and one half be
released on January 20, 1999. All parties involved were at one point
principles in FutureLink Alberta and Cameron Chell is currently C.E.O. of
the Company and FutureLink Alberta.
SYSGOLD AGREEMENT
Agreement by and among FutureLink Alberta, FutureLink USA, Donald A.
Bialik, Olivia B. Bialik, Bialik Family Trust, Riverview Management
Corporation (now known as FutureLink/SysGold) and SysGold Ltd. ("SysGold")
dated August 4, 1998, and amended by agreement August 21, 1998 ("SysGold
Acquisition Agreement") wherein FutureLink USA agreed to acquire all of
the issued and outstanding shares of FutureLink/SysGold which in turn owns
all of the issued and outstanding shares of SysGold. The consideration was
CDN$8,685,000 payable by CDN$3,000,000 cash on closing (August 21, 1998),
CDN$685,000 by a promissory note payable within 90 days of closing, and
partly by the issuance of 4,250,000 shares in FutureLink/SysGold
exchangeable into shares of FutureLink USA Common Shares (attributed value
$0.85/share). Don Bialik is currently the President of FutureLink USA and
FutureLink Alberta.
<PAGE> 53
INDEMNITY AGREEMENT
FutureLink USA, FutureLink Alberta, FutureLink Acquisition Corp., SysGold
Ltd. and Riverview Management Corporation (now known as
"FutureLink/SysGold) entered into an Indemnity Agreement dated August 21,
1998 whereby Riverview Management Corporation agreed to indemnify all of
the parties from any loss, damage, liability, deficiency, claim, cost
recovery, expense, assessment or re-assessment arising from the claim
filed by TAP Consulting Ltd., without limitation as well as any claims by
Kevin Sebastion or other employees of SysGold Inc. or SysGold Ltd. with
respect to any claim for options, warrants or other similar rights. Don
Bialik was the President of Riverview Management Corporation at the time
of signing this agreement and is now the President of FutureLink USA,
FutureLink Alberta and FutureLink Acquisition Corp.
<PAGE> 54
WILLSON STATIONERS CONTRACT
Willson Stationers Ltd. has entered into the Company's standard Service
Provider Agreement. The contract is material because of the potential
size of the transaction and because of the relationship with Cameron
Chell. Mr. Chell is the Chief Executive Officer of Willson Stationers
Ltd. He also has an option to acquire 50% of the issued and outstanding
shares in Willson Stationers Ltd.
<PAGE> 55
ACCOUNTING AND FINANCIAL DISCLOSURE
Due to the lack of activity for numerous years, FutureLink USA did not engage
the services of an accounting firm. The Company is not currently aware of any
disagreements on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure which Ernst & Young may
have had with the Company's past auditors.
In May, 1998 FutureLink USA engaged Ernst & Young as their independent chartered
accountants, to audit the financial statements for the years ended December 31,
1997 and December 31, 1996. Ernst & Young reported without reservation on those
financial statements.
Ernst & Young will act as independent chartered accountants for all subsidiaries
of FutureLink USA to audit the financial statements of the year ended December
31, 1998 and thereafter.
FutureLink Alberta retained Halpin Anthony Owen & Mayer(HAOM) since its
incorporation in March of 1996. During the term of HAOM's engagement, there were
no disagreements on any matter of accounting principle or practice, financial
statement disclosure, or auditing scope or procedure which, if not resolved to
the satisfaction of HAOM, would have caused it to make reference to the subject
matter of the disagreement in connection with its report.
FutureLink/SysGold retained Buchanan Barry & Co. as accountants and then
auditors since 1993. During the term of Buchanan Barry's engagement there were
no disagreements on any matter of accounting principle or practice, financial
statement disclosure, or auditing scope or procedure which, if not resolved to
the satisfaction of Buchanan Barry, would have caused it to make reference to
the subject matter of the disagreement in connection with its report.
PLAN OF DISTRIBUTION
The Selling Securityholders (or pledges, donees, transferees or successors in
interest) may sell all or a portion of the respective Selling Securityholders'
Securities held by them from time to time while the registration statement of
which this Prospectus is a part remains effective. The aggregate proceeds to the
Selling Securityholders from the sale of the respective Selling Securityholders'
Securities offered by the Selling Securityholders hereby will be the prices at
which such securities are sold, less any commissions. There is no assurance that
the Selling Securityholders will sell any or all of the Selling Securityholders'
Securities offered hereby.
The Selling Securityholders' Securities may be sold by the Selling
Securityholders in transactions on the NASDAQ Bulletin Board, in negotiated
transactions, or by a combination of these methods, at fixed prices that may be
changed, at market prices prevailing at the time of sale, at prices related to
such market prices or at negotiated prices or through the writing of options on
the Selling Securityholders' Securities. The Selling Securityholders may elect
to engage a
<PAGE> 56
broker or dealer to effect sales in one or more of the following transactions:
(a) block trades in which the broker or dealer so engaged will attempt to sell
the Selling Securityholders' Securities as agent but may position and resell a
portion of the block as principal to facilitate the transaction, (b) purchases
by a broker or dealer as principal and resale by such broker or dealer for its
account pursuant to this Prospectus, and (c) ordinary brokerage transactions and
transactions in which the broker solicits purchasers. In effecting sales,
brokers and dealers engaged by the Selling Securityholders may arrange for other
brokers or dealers to participate. Brokers or dealers may receive commissions or
discounts from the Selling Securityholders in amounts to be negotiated (and, if
such broker-dealer acts as agent for the purchaser of such Selling
Securityholders' Securities, from such purchaser). Broker-dealers may agree with
the Selling Securityholders to sell a specified number of such Selling
Securityholders' Securities at a stipulated price per Selling Securityholder's
Security, and to the extent that such broker-dealer is unable to do so, acting
as agent for the Selling Securityholders to purchase as principal any unsold
Selling Securityholders' Securities at the price required to fulfill the
broker-dealer commitment to the Selling Securityholders. Broker-dealers who
acquire Selling Securityholders' Securities as principal may thereafter resell
such Selling Securityholders' Securities from time to time in transactions
(which may involve crosses and block transaction and sales to and through other
broker-dealers, including transactions of the nature described above) in the
over-the-counter market, or otherwise at prices and on terms then prevailing at
the time of sale, at prices then related to the then-current market price or in
negotiated transactions and, in connection with such resales, may pay to or
receive from the purchasers of such Selling Securityholders' Securities
commissions as described above.
The Selling Securityholders and any broker-dealers or agents that participate
with the Selling Securityholders in sales of the Selling Securityholders'
Securities may be deemed to be "underwriters" within the meaning of the
Securities Act of 1933 in connection with such sales. In such event, any
commissions received by such broker-dealers or agent and any profit on the
resale of the Selling Securityholders' Securities purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act of
1933.
The Company will pay all expenses incidental to this offering and sale of the
Selling Securityholders' Securities to the public other than selling commissions
and fees.
The Selling Securityholders have been advised that during the time they are
engaged in "distribution" (as defined under Regulation M under the Securities
Exchange Act of 1934, as amended) of the securities covered by this Prospectus,
they must comply with Regulation M under the Securities Exchange Act of 1934, as
amended, and pursuant thereto: (i) shall not engage in any stabilization
activity in connection with the Company's securities; and (ii) shall not bid for
or purchase any securities of the Company or attempt to include any person to
purchase any of the Company's securities other than as permitted under the
Securities Exchange Act of 1934, as amended. Any Selling Securityholders who are
"affiliated purchasers" of the Company, as defined in Regulation M, have been
further advised that they and their affiliates must coordinate their sales under
this Prospectus and otherwise with the Company and any other "affiliated
purchasers" of the Company for purposes of Regulation M. The Selling
Securityholders must also furnish each broker through which Selling
Securityholders' Securities are sold copies of this Prospectus.
LEGAL OPINION
The validity of certain of the Securities offered hereby will be passed upon for
the Company by Jeffer, Mangels, Butler & Marmaro LLP, Los Angeles, California.
EXPERTS
The audited Financial Statements of FutureLink USA including in this Prospectus
as at December 31, 1997 and December 31, 1996 and for the years then ended have
been audited by Ernst & Young LLP, Independent Chartered Accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing.
<PAGE> 57
The audited Financial Statements of FutureLink/SysGold including in this
Prospectus as at October 31, 1996 and October 31, 1997 and for the years then
ended have been audited by Buchanan Barry & Co., Independent Chartered
Accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in accounting and
auditing.
<PAGE> 58
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Description Pages
<S> <C> <C>
1. FutureLink USA Unaudited Pro Forma Consolidated Statement of Income for
year ended December 31, 1997.
2. FutureLink USA Unaudited Pro Forma Consolidated Statement of Income for
nine months ended September 30, 1998 and Unaudited Pro Forma Consolidated
Balance Sheet as of September 30, 1998.
3. FutureLink USA Unaudited September 30, 1998 Financial Statements, Audited
December 31, 1997 Financial Statements and Audited December 31, 1996
Financial Statements
4. FutureLink Alberta Unaudited September 30, 1998 Financial Statements,
Audited December 31, 1997 and December 31, 1996 Financial Statements
5. RMC Unaudited June 30, 1998 and 1997 Financial Statements
6. RMC Audited October 31, 1997 and 1996 Financial Statements
</TABLE>
<PAGE> 59
FUTURELINK DISTRIBUTION CORP.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(All amounts stated in $U.S.)
Year ended December 31, 1997
<TABLE>
<CAPTION>
Riverview FutureLink
FutureLink FutureLink Pro Forma Management Pro Forma USA Pro Forma
USA Alberta Adjustments Corporation Adjustments Consolidated
$ $ $ $ $ $
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUE -- 3,373 -- 6,662,087 -- 6,665,460
----------- ----------- ----------- ----------- ----------- -----------
EXPENSES
Salaries and employee benefits -- 48,946 (3.4) 2,117,500 2,052,751 -- 4,219,197
Staff development -- -- -- 120,253 -- 120,253
Consulting -- 280,820 -- 631,150 -- 911,970
Travel -- 13,293 -- 14,734 -- 28,027
Accounting and legal fees 109,992 9,818 -- 60,870 -- 180,680
Hardware and software purchases -- -- -- 3,149,406 -- 3,149,406
Advertising and promotion -- 21,057 -- 68,503 -- 89,560
Depreciation and amortization -- 35,084 (3.1) 169,316 51,604 (3.2) 1,497,507 1,753,511
Office 12,057 22,438 -- 133,515 -- 168,010
Rent -- 25,078 -- 70,628 -- 95,706
Equipment rental -- 20,780 -- 8,901 -- 29,681
Internet -- 13,961 -- -- -- 13,961
Architectural and design fees -- 47,922 -- -- -- 47,922
Automotive -- -- -- 26,492 -- 26,492
Other -- 24,492 54,547 79,039
Interest on long term debt -- -- -- -- (3.3) 915,789 915,789
Development costs -- -- (3.1) 500,000 -- -- 500,000
----------- ----------- --------------- ----------- ------------- -----------
122,049 563,689 -- 6,443,354 -- 12,329,204
----------- ----------- --------------- ----------- ------------- -----------
LOSS BEFORE DISCONTINUED OPERATIONS (122,049) (560,316) -- 218,733 -- (5,663,744)
LOSS FROM DISCONTINUED OPERATIONS -- (9,922) -- -- -- (9,922)
----------- ----------- --------------- ----------- ------------- -----------
LOSS FROM OPERATIONS (122,049) (570,238) -- 218,733 -- (5,673,666)
WRITE-OFF MINING RELATED ASSETS (515,000) -- -- -- -- (515,000)
LOSS ON NON-REFUNDABLE DEPOSIT (100,000) -- -- -- -- (100,000)
----------- ----------- --------------- ----------- ------------- -----------
LOSS FOR THE YEAR BEFORE INCOME TAXES (737,049) (570,238) -- 218,733 -- (6,288,666)
INCOME TAXES -- -- -- (94,409) -- (94,409)
----------- ----------- --------------- ----------- ------------- -----------
(737,049) (570,238) -- 124,324 -- (6,383,075)
MINORITY INTEREST -- -- -- (24,443) -- (25,443)
----------- ----------- --------------- ----------- ------------- -----------
NET EARNINGS (LOSS) FOR THE YEAR (737,049) (570,238) -- 98,881 -- (6,408,518)
----------- ----------- --------------- ----------- ------------- -----------
</TABLE>
See accompanying notes to the unaudited pro forma
consolidated financial statement
<PAGE> 60
1. The accompanying unaudited pro forma consolidated statement of income has
been prepared by management from the audited financial statements as at
December 31, 1997 and for the year then ended of FutureLink Distribution
Corp. (a Colorado corporation) ("FutureLink USA") and FutureLink
Distribution Corp. (an Alberta corporation) ("FutureLink Alberta"), and
from the audited financial statements as at October 31, 1997 and for the
year then ended of Riverview Management Corporation ("Riverview") together
with other information available to the companies. In the opinion of the
management of FutureLink USA, this pro forma consolidated financial
statement includes all adjustments necessary for fair presentation in
accordance with accounting principles generally accepted in the United
States. This pro forma consolidated financial statement may not be
indicative of the results of operations that actually would have occurred
if the events reflected therein had been in effect on the dates indicated
nor of the results of operations which may be obtained in the future.
This pro forma consolidated financial statement should be read in
conjunction with the audited financial statements of the companies
included elsewhere in this registration document.
2. The pro forma consolidated statement of income for the year ended December
31, 1997 gives effect to the following assumptions and transactions, all
of which will become effective on the date of the fulfillment or waiver of
the conditions of the FutureLink Alberta Acquisition Agreement and the
SysGold acquisition agreement as if the effective dates of those
agreements were January 1, 1997:
2.1 The initial acquisition of 1,540,000 common shares of FutureLink
Alberta in exchange for an equal number of common shares of
FutureLink USA and the subsequent acquisition of all remaining
outstanding shares of FutureLink Alberta in exchange for an equal
number of common shares of FutureLink USA have been reflected as
though both acquisitions occurred on December 31, 1997.
The initial and subsequent acquisitions have been accounted for in
this pro forma financial statement using the purchase method. Based
on a value of $0.01 per common share, the total value ascribed to the
initial acquisition was $15,400. Based on an independent valuation
report dated September 1998 that attributed a value of $0.59 to
common shares of FutureLink Alberta, the total value ascribed to the
subsequent acquisition was $1,035,019. The aggregate purchase price
of $1,050,419 has been allocated to the net assets acquired based on
their estimated fair values, as follows:
<TABLE>
<CAPTION>
Purchase Price
Allocation
$
----------
<S> <C>
Net assets acquired 303,841
Goodwill 746,578
----------
Purchase price 1,050,419
----------
</TABLE>
<PAGE> 61
The amount shown above for "Net assets acquired" includes an allocation of
$500,000 of the purchase price to an intangible asset representing management's
estimate of the fair market value of development costs acquired, which have been
immediately written off as an expense in the accompanying pro forma consolidated
statement of income.
2.2 The allocation to goodwill of the estimated costs of the acquisition
described in 2.1 above, in the amount of $100,000 financed through
bank credit facilities of FutureLink USA.
2.3 The acquisition of all of the outstanding common shares of Riverview
for cash consideration of $3,100,000 Canadian, as well as a
promissory note for $585,000 Canadian and 4,250,000 common shares of
FutureLink USA with an ascribed value of $2,550,000 U.S.
The acquisition has been accounted for in these pro forma
consolidated financial statements by the purchase method. The
purchase price has been allocated to the net assets acquired based
on their estimated fair values, as follows:
<TABLE>
<CAPTION>
Purchase Price
Allocation
$
--------------
<S> <C>
Net assets acquired 3,299,347
Goodwill 1,829,199
----------
Purchase price 5,128,546
----------
</TABLE>
<PAGE> 62
<TABLE>
<S> <C>
Consideration:
Promissory note payable 409,349
Debt component of 10% convertible debenture* 1,607,143
Equity component of 10% convertible debenture* 642,857
Common shares of FutureLink USA 2,550,000
Excess cash (80,803)
----------
Total consideration 5,128,546
----------
</TABLE>
* the proceeds from the convertible debenture will be drawn in an initial
amount of $2,250,000, with the excess cash of $80,803 being held by
FutureLink USA for general use. The difference between the amount
attributed to the debt component and the face value represents
additional interest expense, to be recognized immediately.
2.4 The allocation to goodwill of the estimated costs of the
acquisition described in 2.3 above, in the amount of $325,000
financed through bank credit facilities of FutureLink USA.
2.5 The issuance of 3.5 million common shares to officers, directors
and employees that took place in July 1998 has been reflected as if
the transaction had taken place on December 31, 1997. The shares
were issued for consideration of $0.001 per share. The fair value
of these shares at the date of issuance was $2,117,500. The excess
of fair value over the issue price has been included in salaries
and employee benefits.
3. The pro forma consolidated statement of income for the year ended December
31, 1997 gives effect to the acquisitions by FutureLink USA as described
in 2.1 and 2.3 above which will become effective on the date of the
fulfillment or waiver of the conditions of the FutureLink Alberta
Acquisition Agreement and the SysGold acquisition agreement, as if the
transactions had occurred January 1, 1997. The following adjustments are
reflected:
3.1 The amortization of Goodwill attributable to the allocation of the
purchase price of FutureLink Alberta in excess of the carrying
value of the net assets acquired, (see 2.1 and 2.2 above)
calculated on a straight-line basis over a period of 5 years, and
the immediate writeoff of the fair value attributed to development
costs (see 2.1 above).
3.2 The amortization of Goodwill and Employee/Consultant Base
attributable to the allocation of the purchase price of Riverview in
excess of the carrying value of the net assets acquired, (see 2.3
and 2.4 above) calculated on a straight-line basis over a period of
5 years for Goodwill and a period of 3 years for Employee/Consultant
Base.
<PAGE> 63
3.3 The inclusion of interest expense on the convertible debenture for
one year, at an annual rate of 10%, together with the difference
between the value initially attributable to the debt component of
the convertible debenture and its face value.
3.4 The inclusion in salaries and employee benefits of $2,117,500
related to the issuance of common shares to officers, directors and
employees as described in note 2.5 above.
4. The amounts shown in these pro forma consolidated financial statements for
FutureLink Alberta and for Riverview have been translated into United
States dollars from Canadian dollars at a rate of $1 US equal to $1.4291
Canadian.
<PAGE> 64
FUTURELINK DISTRIBUTION CORP.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(All amounts stated in $U.S.)
September 30, 1998
<TABLE>
<CAPTION>
FutureLink
FutureLink USA
USA FutureLink Pro Forma Pro Forma
Consolidated Alberta Adjustments Consolidated
$ $ $ $
------------ ---------- --------------- ------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT
Cash and short term deposits 68 49,418 (2.2) (100,000) (50,164)
(2.3) 350
Accounts receivable 1,100,475 59,257 -- 1,159,732
Inventory and work in progress 74,167 -- 74,167
Prepaid expenses 25,880 82,845 -- 108,725
--------- ---------- ---------- ----------
1,200,590 191,520 (99,650) 1,292,460
Intangible assets 5,158,682 -- (2.1) 448,775 5,707,457
(2.2) 100,000
Capital assets 149,496 463,742 -- 613,238
Investment 903,000 -- (2.1) (903,000) --
Discontinued operations -- 1 -- 1
Incorporation Costs -- 261 -- 261
========= ========== ========== ==========
7,411,768 655,524 (453,875) 7,613,417
========= ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT
Bank indebtedness 564,754 -- -- 564,754
Accounts payable and accrued liabilities 833,126 370,474 -- 1,203,600
Current portion of capital leases -- 31,041 -- 31,041
Due to stockholders 292,118 -- -- 292,118
Notes payable -- 1,985 -- 1,985
--------- ---------- ---------- ----------
1,689,998 403,500 -- 2,093,498
--------- ---------- ---------- ----------
Due to stockholders -- 9,928 -- 9,928
--------- ---------- ---------- ----------
Obligations under capital leases 13,048 44,731 -- 57,779
--------- ---------- ---------- ----------
Due to FutureLink USA -- 1,694,879 (2.1)(1,694,879) --
--------- ---------- ---------- ----------
Convertible debentures 2,070,602 -- -- 2,070,602
--------- ---------- ---------- ----------
Notes payable 381,033 -- -- 381,033
--------- ---------- ---------- ----------
Stockholders' equity
Share capital -- issued 2,042 726,542 (2.1) (726,542) 1,052,811
(2.1) 1,050,419
(2.3) 350
-- to be issued 732,706 -- -- 732,706
Capital in excess of par value 7,133,899 -- (2.3) 2,117,150 9,251,049
Contributed surplus 1,205,357 -- -- 1,205,357
Deficit (5,816,917) (2,224,056) (2.1) 1,416,777 (9,241,346)
(2.2) (500,000)
(2.3)(2,117,150)
--------- ---------- ---------- ----------
3,257,087 (1,497,514) 1,241,004 3,000,577
--------- ---------- ---------- ----------
7,411,768 655,524 (453,875) 7,613,417
========= ========== ========== ==========
</TABLE>
See accompanying notes to the unaudited pro forma
consolidated financial statements.
<PAGE> 65
FUTURELINK DISTRIBUTION CORP.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(All amounts stated in $U.S.)
Nine months ended September 30, 1998
<TABLE>
<CAPTION>
FutureLink
Riverview USA
FutureLink FutureLink Pro Forma Management Pro Forma Pro Forma
USA Alberta Adjustments Corporation Adjustments Consolidated
$ $ $ $ $ $
---------- ---------- ---------------- --------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
REVENUE 622,854 65,043 -- 6,479,684 -- 7,167,581
---------- ---------- ---------------- --------- --------------- ----------
EXPENSES
Contracts, salaries and employee
benefit 2,527,457 396,058 (3.7) 2,117,500 2,922,399 -- 7,963,414
Staff development -- -- -- 215,548 -- 215,548
Consulting -- 260,850 -- 42,684 -- 303,534
Travel -- 100,256 -- 11,007 -- 111,263
Accounting and legal fees 45,509 232,635 -- 61,275 -- 339,419
Hardware and software purchases 143,991 -- -- 2,654,449 -- 2,798,440
Advertising and promotion -- 92,566 -- 75,527 -- 168,093
Depreciation and amortization 166,856 112,436 (3.1) 82,316 78,707 (3.4) 1,088,098 1,528,413
Office 2,545 87,965 -- 212,266 -- 302,776
Rent -- 50,153 -- 64,396 -- 114,549
Investor relations -- 49,169 -- -- -- 49,169
Equipment rental -- 28,651 -- 10,391 -- 39,042
Internet -- 24,839 -- -- -- 24,839
Automotive -- -- -- -- -- --
Other 81,108 91,283 -- 37,900 -- 210,291
Interest on long term debt 1,230,367 -- -- -- (3.5) 811,607 2,041,974
Equity in loss of an affiliate 807,279 -- (3.6) (807,279) -- -- --
Development costs -- -- (3.1) 500,000 -- -- 500,000
---------- ---------- ---------------- --------- --------------- ----------
5,005,112 1,526,861 1,892,537 6,386,549 1,899,705 16,710,764
---------- ---------- ---------------- --------- --------------- ----------
INCOME (LOSS) BEFORE DISCONTINUED
OPERATIONS (4,382,258) (1,461,818) (1,892,537) 93,135 (1,899,705) (9,543,183)
LOSS FROM DISCONTINUED OPERATIONS -- (144,015) -- -- -- (144,015)
---------- ---------- ---------------- --------- --------------- ----------
INCOME (LOSS) FOR THE YEAR BEFORE
INCOME TAXES (4,382,258) (1,605,833) (1,892,537) 93,135 (1,899,705) (9,687,198)
INCOME TAXES 15,504 -- -- (45,400) -- (29,896)
---------- ---------- ---------------- --------- --------------- ----------
(4,366,754) (1,605,833) (1,892,537) 47,735 (1,899,705) (9,717,094)
MINORITY INTEREST -- -- -- 26,414 -- 26,414
---------- ---------- ---------------- --------- --------------- ----------
NET EARNINGS (LOSS) FOR THE YEAR (4,366,754) (1,605,833) (1,892,537) 21,321 (1,899,705) (9,690,680)
========== ========== ================ ========= =============== ==========
</TABLE>
See accompanying notes to the unaudited pro forma
consolidated financial statements
<PAGE> 66
1. The accompanying unaudited pro forma consolidated financial statements
have been prepared by management from the unaudited financial statements
as at September 30, 1998 of FutureLink Distribution Corp. (a Colorado
corporation) ("FutureLink USA"), FutureLink Distribution Corp. (an Alberta
corporation) ("FutureLink Alberta") and Riverview Management Corporation
("Riverview"), and for the nine month period then ended together with
other information available to the companies. In the opinion of the
management of FutureLink USA, these pro forma consolidated financial
statements include all adjustments necessary for fair presentation in
accordance with accounting principles generally accepted in the United
States. These pro forma consolidated financial statements may not be
indicative of the financial position or the results of operations that
actually would have occurred if the events reflected therein had been in
effect on the dates indicated nor of the financial position or the
results of operations which may be obtained in the future.
These pro forma consolidated financial statements should be read in
conjunction with the audited and unaudited financial statements of the
companies included elsewhere in this registration document.
2. The pro forma consolidated balance sheet as at September 30, 1998 gives
effect to the following assumptions and transactions, all of which will
become effective on the date of the fulfillment or waiver of the
conditions of the FutureLink Alberta Acquisition Agreement as if the
effective date of that agreement was September 30, 1998:
2.1 The acquisition of all of the outstanding common shares of
FutureLink Alberta in exchange for an equal number of common shares
of FutureLink USA. This acquisition has been reflected as though the
initial acquisition of 1,540,000 common shares and the subsequent
acquisition of all the remaining common shares at a later date both
occurred on September 30, 1998.
The initial and subsequent acquisitions have been accounted for in
these pro forma financial statements using the purchase method.
Based on a value of $0.01 per common share of FutureLink Alberta,
the total value ascribed to the initial acquisition was $15,400.
Based on an independent valuation report dated September 1998 that
attributed a value of $0.59 to common shares of FutureLink Alberta,
the total value ascribed to the subsequent acquisition was
$1,035,019. The aggregate purchase price of $1,050,419 has been
allocated to the net assets acquired based on their estimated fair
values, as follows:
<PAGE> 67
<TABLE>
<CAPTION>
Purchase Price
Allocation
$
-------------
<S> <C>
Net assets acquired 601,644
Goodwill 448,775
---------
Purchase price 1,050,419
---------
</TABLE>
The amount shown above for "net assets acquired" includes an
allocation of $500,000 of the purchase price to an intangible asset
representing management's estimates of the fair market value of
development costs acquired, which have been immediately written off.
These are recorded as an adjustment to deficit in the accompanying
pro forma consolidated balance sheet.
2.2 The allocation to goodwill of the estimated costs of the acquisition
described in 2.1 above, in the amount of $100,000 financed through
bank credit facilities of FutureLink USA.
<PAGE> 68
2.3 The issuance of 3.5 million common shares to officers, directors and
employees that took place in July 1998 has been reflected as if the
transaction had taken place on January 1, 1998. The shares were
issued for consideration of $0.001 per share. The fair value of
these shares at the date of issuance was $2,117,500. The excess of
fair value over the issue price has been included in salaries and
employee benefits.
3. The pro forma consolidated statement of income for the nine months ended
September 30, 1998 gives effect to the acquisition by FutureLink USA as
described in 2.1 above together with the SysGold Acquisition Agreement
described in 3.2 below, as if the transaction had occurred January 1,
1998. The following adjustments are reflected:
3.1 The amortization of Goodwill attributable to the allocation of the
purchase price of FutureLink Alberta in excess of the
<PAGE> 69
carrying value of the net assets acquired, (see 2.1 and 2.2 above)
calculated on a straight-line basis over a period of 5 years, and
the immediate writeoff of the fair value attributed to development
costs (see 2.1 above).
3.2 The acquisition of all of the outstanding common shares of Riverview
for cash consideration of $3,100,000 Canadian, as well as a
promissory note for $585,000 Canadian and 4,250,000 common shares of
FutureLink USA with an ascribed value of $2,550,000 US.
The acquisition has been accounted for in the pro forma statement of
income by the purchase method. The purchase price has been allocated
to the net assets acquired based on their estimated fair values, as
follows:
<TABLE>
<CAPTION>
Purchase Price
Allocation
$
--------------
<S> <C>
Net assets acquired 3,363,156
Goodwill 1,595,656
---------
Purchase Price 4,958,812
---------
Consideration:
Promissory note payable 382,403
Debt component of 10% convertible debenture 1,607,143
Equity component of 10% convertible debenture 642,857
Common shares of FutureLink USA 2,550,000
Excess cash (223,591)
---------
Total consideration 4,958,812
=========
</TABLE>
The proceeds from the convertible debenture will be drawn in an
initial amount of $2,250,000 with the excess cash of $223,591 being
held by FutureLink USA for general use. The difference between the
amount attributed to the debt component and the face value
represents additional interest expense, recognized immediately.
3.3 The allocation to goodwill of the estimated costs of the acquisition
described in 3.2 above, in the amount of $325,000 financed through
bank credit facilities of FutureLink USA.
3.4 The amortization of Goodwill and Employee/Consultant Base
attributable to the allocation of the purchase price of Riverview in
excess of the carrying value of the net assets acquired, (see 3.2
and 3.3 above) calculated on a straight-line basis over a period of
5 years for goodwill and period of 3 years for Employee/Consultant
Base.
3.5 The inclusion of interest expense on the convertible debenture for
nine months, at an annual rate of 10%, together with the difference
between the value initially attributable to the debt component of
the convertible debenture and its face value.
3.6 The reversal of FutureLink USA's equity in the loss of FutureLink
Alberta.
3.7 The inclusion in salaries and employee benefits of $2,117,500
related to the issuance of common shares to officers, directors and
employees as described in note 2.5 above.
4. The amounts shown in these pro forma consolidated financial statements for
FutureLink Alberta and for Riverview have been translated into United
States dollars from Canadian dollars at a rate of $1 US equal to $1.5298
Canadian.
<PAGE> 70
CONSOLIDATED FINANCIAL STATEMENTS
FUTURELINK DISTRIBUTION CORP.
(A COLORADO CORPORATION)
DECEMBER 31, 1997
DECEMBER 31, 1996
SEPTEMBER 30, 1998 (UNAUDITED)
<PAGE> 71
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
FUTURELINK DISTRIBUTION CORP.
We have audited the accompanying balance sheet of FUTURELINK DISTRIBUTION CORP.
as at December 31, 1997 and 1996 and the related statements of loss and deficit,
changes in stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audits in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Futurelink Distribution Corp.
as at December 31, 1997 and 1996 and the results of its operations and its cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States.
Calgary, Canada [signed: Ernst & Young LLP]
August 20, 1998 Chartered Accountants
<PAGE> 72
FUTURELINK DISTRIBUTION CORP.
CONSOLIDATED BALANCE SHEETS
(All amounts stated in $U.S.)
<TABLE>
<CAPTION>
DECEMBER 31
SEPTEMBER 30, -------------------------
1998 1997 1996
(UNAUDITED)
$ $ $
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CURRENT ASSETS
Cash 68 -- --
Accounts receivable 1,100,475 -- --
Prepaid expenses 74,167 -- --
Inventory and work in progress 25,880 -- --
- ---------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 1,200,590 -- --
- ---------------------------------------------------------------------------------------------------------
CAPITAL ASSETS [NOTE 5] 149,496 -- 515,000
INVESTMENT [NOTE 4] 903,000 -- --
INTANGIBLE ASSETS [NOTE 6] 5,158,682 -- --
- ---------------------------------------------------------------------------------------------------------
6,211,178 -- --
- ---------------------------------------------------------------------------------------------------------
7,411,768 -- 515,000
=========================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT
Bank indebtedness 564,754 -- --
Accounts payable and accrued liabilities 833,126 23,932 6,873
Due to stockholders [note 9] 292,118 -- 4,504
- ---------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,689,998 23,932 11,377
- ---------------------------------------------------------------------------------------------------------
NOTES PAYABLE [NOTE 3] 381,033 -- --
CAPITAL LEASE 13,048 -- --
CONVERTIBLE DEBENTURES [NOTE 8] 2,070,602 -- --
CONTINGENCIES [NOTE 12]
STOCKHOLDERS' EQUITY [NOTE 7]
Authorized
5,000,000 preferred shares without
par value
100,000,000 common shares
with par value of $0.0001
Issued
20,418,075, 10,203,500 and 2,500 common
shares issued and outstanding at September
30, 1998 and December 31, 1997 and 1996,
respectively 2,042 1,020 25
To be issued [note 9] 732,706 -- --
Capital in excess of par value 7,133,899 1,425,211 1,216,712
Contributed surplus 1,205,357 -- --
Deficit (5,816,917) (1,450,163) (713,114)
- ---------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 3,257,087 (23,932) 503,623
- ---------------------------------------------------------------------------------------------------------
7,411,768 -- 515,000
=========================================================================================================
</TABLE>
See accompanying notes
On behalf of the Board:
Director Director
<PAGE> 73
FUTURELINK DISTRIBUTION CORP.
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT
(All amounts stated in $U.S.)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEARS ENDED
SEPTEMBER 30 DECEMBER 31
------------- --------------------------
1998 1997 1996
$ $ $
- --------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
REVENUE 622,854 -- --
- --------------------------------------------------------------------------------------------------------
EXPENSES
Hardware and software purchases 143,991 -- --
Contracts, payroll and benefits [note 7] 2,527,457 -- --
Accounting and legal 45,509 109,992 3,803
General and administrative 81,108 12,057 3,061
Interest on long term debt [note 8] 1,230,367 -- --
Other interest expense 2,545 -- --
Depreciation and amortization 166,856 -- --
- --------------------------------------------------------------------------------------------------------
4,197,833 122,049 6,864
- --------------------------------------------------------------------------------------------------------
Loss from operations (3,574,979) (122,049) (6,864)
- --------------------------------------------------------------------------------------------------------
Write-off mining related assets [note 5] -- (515,000) --
Loss on non-refundable deposit [note 10] -- (100,000) --
Equity in loss of affiliate [note 4] (807,279) -- --
- --------------------------------------------------------------------------------------------------------
(807,279) (615,000) --
- --------------------------------------------------------------------------------------------------------
LOSS BEFORE INCOME TAXES (4,382,258) (737,049) (6,864)
Income taxes [note 11] 15,504 -- --
- --------------------------------------------------------------------------------------------------------
Net loss for the period (4,366,754) (737,049) (6,864)
Deficit, beginning of period (1,450,163) (713,114) (706,250)
- --------------------------------------------------------------------------------------------------------
DEFICIT, END OF PERIOD (5,816,917) (1,450,163) (713,114)
========================================================================================================
LOSS PER COMMON SHARE (0.32) (1.65) (2.75)
========================================================================================================
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 13,578,965 447,445 2,500
========================================================================================================
</TABLE>
See accompanying notes
<PAGE> 74
FUTURELINK DISTRIBUTION CORP.
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY
(All amounts stated in $U.S.)
<TABLE>
<CAPTION>
CAPITAL IN CONTRIBUTED
COMMON STOCK EXCESS OF PAR SURPLUS DEFICIT
------------------------ ------------- ----------- -------
SHARES $ $ $ $
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 AND 1995 2,500 25 1,216,712 -- (713,114)
Issuance of share capital 1,000 10 9,990 -- --
- -----------------------------------------------------------------------------------------------------------------------------
3,500 35 1,226,702 -- (713,114)
Change of par value from .01 to .0001 -- (35) 35 -- --
Issuance of share capital for cash 10,200,000 1,020 158,980 -- --
Forgiveness of shareholder debt -- -- 39,494 -- --
Net loss for the period -- -- -- -- (737,049)
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 10,203,500 1,020 1,425,211 -- (1,450,163)
Issuance of share capital on
exercise of special warrants 255,813 26 846,774 -- --
Issuance of share capital under
Share Purchase Agreement with
Futurelink Distribution Corp., an
Alberta, Canada corporation 1,540,000 154 15,246 -- --
Forgiveness of shareholder debt -- -- 60,200 -- --
Issue of share capital to
employees, officers and directors
of the company 3,500,000 350 2,117,150 -- --
Warrants issued with issuance of
convertible debentures -- -- -- 562,500 --
Equity component of convertible
debentures -- -- -- 642,857 --
Shares issued upon conversion of
convertible debt 668,762 67 201,632 -- --
Issuance of share capital under Share
Purchase Agreement with Riverview
Management Corporation 4,250,000 425 2,549,575 -- --
Share issue costs -- -- (81,889) -- --
Net loss for the period -- -- -- -- (4,390,042)
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 1998 20,418,075 2,042 7,133,899 1,205,357 (5,840,205)
============================================================================================================================
</TABLE>
The above statement gives retroactive effect to a share rollback of 200 to 1 on
July 20, 1997 and a rollback of 30 to 1 on December 2, 1997.
See accompanying notes
<PAGE> 75
FUTURELINK DISTRIBUTION CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts stated in $U.S.)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEARS ENDED
SEPTEMBER 30 DECEMBER 31
------------ --------------------------
1998 1997 1996
$ $ $
- ----------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES
Net loss for the period (4,366,754) (737,049) (6,864)
Adjustments to reconcile net loss to net cash
provided by operating activities
Write off mining related assets [note 5] -- 515,000 --
Equity in loss of affiliate 807,279 -- --
Non cash interest expense on convertible -- --
debentures [note 8] 1,205,357
Non cash expenses included with contracts, -- --
payroll and benefits expense [note 7] 2,114,000
Depreciation and amortization 166,856 -- --
Loss on refundable deposit -- 100,000 --
- ----------------------------------------------------------------------------------------------------------
(73,262) (122,049) (6,864)
Changes in non-cash working capital balances 557,532 17,059 3,802
- ----------------------------------------------------------------------------------------------------------
484,270 (104,990) (3,062)
- ----------------------------------------------------------------------------------------------------------
CASH FLOWS USED IN INVESTING ACTIVITIES
Advances to Futurelink Distribution Corp. (Alberta)
[note 4] (1,694,879) -- --
Capital assets purchased (20,266)
Cash consideration on acquisition of Riverview
Management Corporation (2,019,149) -- --
Loss on refundable deposit -- (100,000) --
- ----------------------------------------------------------------------------------------------------------
(3,734,294) (100,000) --
- ----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from stockholders 1,024,824 (4,504) 3,062
Issuance of common stock net of issue expenses
[note 7] 764,885 170,000 --
Forgiveness of shareholder debt [note 7] -- 39,494 --
Issuance of convertible debentures net of issue
expenses 2,025,000 -- --
- ----------------------------------------------------------------------------------------------------------
3,814,709 204,990 3,062
- ----------------------------------------------------------------------------------------------------------
DECREASE IN CASH (564,685) -- --
Cash, beginning of period -- -- --
- ----------------------------------------------------------------------------------------------------------
CASH LESS BANK INDEBTEDNESS, END OF PERIOD (564,685) -- --
==========================================================================================================
</TABLE>
See accompanying notes
<PAGE> 76
1. INCORPORATION AND OPERATIONS
The Company was formed on April 4, 1955 in the state of Colorado, USA, as Cortez
Uranium and Mining Co. The company was involved in several mining related
projects and had changed its name several times. On July 20, 1997, the company
changed its names to Core Ventures, Inc. The company changed its name to
Futurelink Distribution Corp. effective February 17, 1998.
The Company had no operations in the first nine months of 1997. Accordingly
comparative interim financial statements are not presented for this period.
In early 1998, the Company changed its focus to concentrate on the acquisition
and development of companies in the business of information technology
outsourcing. Its future viability is dependent upon acquiring or developing
profitable operations and securing additional financing to support these
activities.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements have, in management's opinion, been properly prepared
in accordance with accounting principles generally accepted in the United
States. Differences between accounting principles generally accepted in Canada
and the United States would have no material impact on these financial
statements.
USE OF ESTIMATES
Because a precise determination of many assets and liabilities is dependent upon
future events, the preparation of financial statements for a period necessarily
involves the use of estimates which would affect the amount of recorded assets,
liabilities, revenues and expenses. Actual amounts could differ from these
estimates.
INVENTORY AND WORK IN PROGRESS
Inventories of computer hardware and work in process are recorded at the lower
of actual cost or net realizable value.
CAPITAL ASSETS
Capital assets are recorded at cost. Depreciation is provided at rates designed
to depreciate the cost of the assets over their estimated useful lives.
INVESTMENT
The Company's investment in Futurelink Distribution Corp. (an Alberta, Canada
corporation), representing a 46% interest in the outstanding common shares at
September 30, 1998, is accounted for using the equity method.
INTANGIBLE ASSETS
(a) Employee/consultants base
The employee/consultants base is recorded at cost and is being amortized on
a straight-line basis over three years. The recoverability of the
employee/consultants base is assessed periodically based on retention of
employees and consultants in relation to management estimates of future
revenue from provided information technology services.
(b) Goodwill
<PAGE> 77
Goodwill is recorded at cost and is being amortized on a straight line
basis over five years. The recoverability of goodwill is assessed
periodically based on management estimates of undiscounted future operating
income from each of the acquired businesses to which the goodwill relates.
REVENUE
Revenue from information technology services is recognized when the service is
delivered. Revenue from information technology outsourcing contracts is
recognized over the term of the contracts.
INCOME TAXES
The Company records its provision for income taxes using the liability method.
Under this method deferred tax assets and liabilities are recognized based on
the anticipated future tax effects arising from the differences between the
financial statement carrying amounts of assets and liabilities and their
respective tax bases.
FINANCIAL INSTRUMENTS
The carrying values of financial instruments, including accounts payable and
accrued liabilities, and amounts due to stockholders approximate their fair
values. It is management's opinion that the Company is not exposed to
significant interest, currency or credit risks arising from these financial
instruments.
<PAGE> 78
FOREIGN CURRENCY TRANSLATION
The functional currency of the Company's investment is Canadian dollars.
Adjustments arising from translating the investee's financial statements into
United States dollars are recorded in stockholders' equity as a cumulative
translation adjustment.
INTERIM FINANCIAL STATEMENTS
The interim financial statements as at and for the nine month period ended
September 30, 1998, in the opinion of management, include all adjustments
(consisting of normal recurring adjustments and accruals) necessary to present
fairly the results for the interim period presented. Operating results for the
period ended September 30, 1998 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1998.
NET LOSS PER SHARE
Net loss per common share is net loss for the period divided by the weighted
average number of common shares outstanding. Net loss per common share assuming
dilution includes the dilutive effect of stock options outstanding.
3. ACQUISITION OF RIVERVIEW MANAGEMENT CORPORATION
Effective August 24, 1998, the Company acquired all of the outstanding shares of
Riverview Management Corporation ("Riverview"), an information technology
outsourcing and services firm. The consideration for the purchase, totalling
$4,950,182, consisted of a cash payment of $2,019,149, promissory notes payable
for $381,033, and 4,250,000 common shares of the Company with an ascribed value
of $2,550,000. The acquisition was accounted for using the purchase method.
The results of Riverview and its wholly-owned subsidiary from the date of
acquisition are included in these consolidated financial statements. Net assets
acquired are as follows:
<TABLE>
<CAPTION>
$
- --------------------------------------------------
<S> <C>
NET ASSETS ACQUIRED
Non cash working capital (179,251)
Capital assets 135,291
Intangible assets 5,319,142
- --------------------------------------------------
Net assets acquired 5,275,182
Less acquisition costs (325,000)
- --------------------------------------------------
NET ASSETS ACQUIRED 4,950,182
==================================================
</TABLE>
4. INVESTMENT
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31
------------- ---------------------
1998 1997 1996
$ $ $
- -------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
Futurelink Distribution Corp. (an Alberta,
Canada corporation)
1,540,000 common shares (47%) 15,400 -- --
Advances, non-interest bearing 1,694,879 -- --
Equity loss (807,279) -- --
- --------------------------------------------------------------------------------------------------
903,000 -- --
=================================================================================================
</TABLE>
<PAGE> 79
On January 20, 1998 the Company issued 1,540,000 common shares in exchange for
1,540,000 common shares of Futurelink Distributions Corp., an Alberta, Canada
corporation ("Futurelink Alberta") representing 48% of the issued and
outstanding shares at that time. Based on a value of $0.01 per common share, the
total value ascribed to the investment was $15,400. The Company has also
advanced Futurelink Alberta $1,694,879. This amount is non-interest bearing and
has no repayment terms.
SUMMARY FINANCIAL INFORMATION OF FUTURELINK ALBERTA
Summary financial information of FutureLink Alberta is presented below:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- ------------
1998 1997
$ $
- ------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Current assets 345,758 52,091
Non-current assets 465,220 167,889
Current liabilities (2,167,972) (341,439)
Long-term debt (44,849) (74,700)
- ------------------------------------------------------------------------------------------------
NET ASSETS (1,401,843) (196,159)
- ------------------------------------------------------------------------------------------------
GROSS REVENUES 99,503 3,373
- ------------------------------------------------------------------------------------------------
NET LOSS BEFORE DISCONTINUED OPERATIONS (2,017,060) (560,316)
================================================================================================
</TABLE>
<PAGE> 80
5. CAPITAL ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
-----------------------------------------
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
$ $ $
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computers and equipment 50,470 3,484 46,986
Leasehold improvements 25,029 617 24,412
Software 1,561 421 1,141
Office equipment 24,900 878 24,022
Equipment under capital lease 53,932 996 52,935
- ---------------------------------------------------------------------------------------------------
155,892 6,396 149,496
===================================================================================================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------------------------
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
$ $ $
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mining concessions 85,000 -- 85,000
Proprietary mining process 430,000 -- 430,000
- --------------------------------------------------------------------------------------------------
515,000 -- 515,000
==================================================================================================
</TABLE>
During 1997 the Company wrote off the above mining assets to their estimated net
realizable value of nil. The Company is no longer in the mining business.
6. INTANGIBLE ASSETS
Intangible assets consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
----------------------------------------------
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
$ $ $
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Goodwill 2,119,142 43,565 2,075,577
Other intengible assets 3,200,000 116,895 3,083,105
- --------------------------------------------------------------------------------------------------
5,319,142 160,460 5,158,682
==================================================================================================
</TABLE>
7. SHARE CAPITAL
On January 20, 1998 the articles of the Company were amended to increase the
authorized share capital to 100,000,000 common shares and 5,000,000 preferred
shares.
83,334 warrants were issued to the share subscribers who were issued shares on
January 29, 1998. The warrants allow the holder to purchase additional shares at
$3.00 on or before one year and $3.30 before two years from the date of
acquisition. None of the outstanding warrants have been exercised as at June 30,
1998.
105,813 warrants were issued to the share subscribers who were issued shares on
April 3, 1998. The warrants allow the holder to purchase additional shares at
$3.75 on or before one year and $4.00 before two years from the date of
acquisition. None of the outstanding warrants have been exercised as at June 30,
1998.
66,666 warrants were issued to the share subscribers who were issued shares on
April 22, 1998. The warrants allow the holder to purchase additional shares at
$3.25 on or before two years from the date of acquisition. None of the
outstanding warrants have been exercised as at June 30, 1998.
<PAGE> 81
Of the 20,418,075 shares issued at September 30, 1998, 8,522,516 are restricted
and 11,895,559 are freely trading. Restricted shares held by non-affiliates of
the Company must be held for at least one year. Restricted shares held by
affiliates of the Company must be held for 1 to 2 years.
The 1,540,000 common shares issued to purchase a 48% investment in Futurelink
Alberta, are subject to a hold period. One half of the shares given to the
vendors will be released from escrow on July 20, 1998 and the balance will be
released on January 20, 1999.
<PAGE> 82
On June 29, 1998, the Company issued stock options to purchase 3,080,000 common
shares to employees and non-employee directors with an exercise price of $0.755.
These stock options were all outstanding as at September 30, 1998. The options
expire on June 29, 2001.
On July 7, 1998, the Company issued 3,500,000 shares to employees, officers and
directors of the Company for $3,500. The fair value of these shares at that time
was $2,117,500. The difference between the fair value and the cash consideration
received has been included with capital in excess of par and with expenses under
contracts, payroll and benefits.
A stockholder of the Company forgave $60,200 in 1998 and $39,494 in 1997 which
he had advanced to the Company during that period.
<PAGE> 83
8. CONVERTIBLE DEBENTURES
On August 21, 1998, the Company issued $2,250,000 10% convertible debentures,
due August 20, 2001. The holders have the right to convert the debentures in
increments of at least $100,000, at a price equal to the lower of $0.75 and 78%
of the average closing bid price of the
<PAGE> 84
Company's common stock for the three trading days immediately preceding the
Notice of Conversion served on the Company. The Company may prepay any or all of
the outstanding principal amounts at any time, upon thirty days' notice, subject
to the holders' right to convert into common shares. At the holders' election,
interest can be settled in common stock of the Company based on market prices.
Of the total initial principal amount of the debentures of $2,250,000, an amount
of $642,857 has been attributed to the value of the conversion option and
included with contributed surplus.
Upon entering into the convertible debenture agreement, the Company issued
1,041,687 common share purchase warrants to the underwriter of the issue. Each
warrant gives the holders the right to purchase one common share of the Company
at $0.96 until August 20, 2001. An amount of $562,500 has been included with
contributed surplus as the value attributed to these warrants.
The amount attributed to the conversion option of $642,857 and the amount
attributed to the warrants issued to underwriters of $562,500, together
totalling $1,205,357, has been included with interest on long term debt.
On September 21, 1998, $200,000 of the convertible debentures, together with
accrued interest, were converted into 668,762 common shares of the Company.
9. RELATED PARTY TRANSACTIONS
During 1998, two of the Company's stockholders advanced the Company $289,264.
Interest for the period of $2,854 has been added to the principal amount owing.
The loans have no set repayment terms.
During 1998, Linear Strategies Ltd., a stockholder, advanced the Company
$729,802. The Company in turn advanced the money to Futurelink Alberta. Interest
incurred on the loan in the amount of $2,904 has been added to the principal
amount owing $300,000 of the loan was assigned to another shareholder on July
2, 1998. On the same date, both portions of the loan were converted into
1,127,250 common shares with an ascribed value of $732,706, and an equal number
of common share purchase warrants. The share certificates were not yet issued as
at September 30, 1998. Each warrant entitles the holder to purchase one common
share at $1.00 until June 30, 1999 and at $1.25 until June 30, 2000.
The amount of $4,504 due to a stockholder of the Company at December 31, 1996
was non-interest bearing and had no repayment terms.
10. LOSS ON NON-REFUNDABLE DEPOSIT
During 1997, the Company made a $100,000 non-refundable deposit to purchase
Printscan Technology; however, the Company did not raise sufficient funds to
complete the purchase, and the deposit was forfeited.
11. INCOME TAXES
The provision for income taxes differs from the Company's statutory rate of 40
percent as follows:
<PAGE> 85
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED
ENDED DECEMBER 31
SEPTEMBER 30 ----------------------
1998 1997 1996
$ $ $
- --------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
Provision for income taxes based on net loss as 1,955,364 294,820 2,746
reported
Add temporary differences not recognized
Write-off of mining related assets -- (206,000) --
Equity in loss of affiliate (360,208) -- --
Non-deductible amortization of purchase price
discrepancy (83,605) -- --
Loss carryforwards (1,527,055) (88,820) (2,746)
- --------------------------------------------------------------------------------------------------
Provision for income taxes (recovery) (15,504) -- --
=================================================================================================
</TABLE>
The Company has cumulative temporary differences related to mining operations
written off in prior years and loss carryforwards which would give rise to
deferred tax assets. The Company has lost the tax records that would quantify
such as the result of a complete management turnover. Therefore, the Company
does not know the extent of its loss carryforwards nor in what years they
expire. Were the losses quantified, then valuation allowances would reduce all
such assets to zero as there is significant uncertainty as to whether the
Company will generate taxable income. Present management is endeavoring to be
more diligent concerning the corporate records.
12. CONTINGENCIES
A statement of claim has been filed against the Company in the amount of
approximately of $350,000 plus any interest on any damages awarded, costs on a
solicitor client basis and other damages the court may award. The statement of
claim alleges that the Company made certain misrepresentations and interfered
with contractual relations in respect of a sale transaction between two third
parties involving the Company's common shares. It is management's position that
the claim is without merit; consequently, no liability in respect of the claim
has been recorded in the financial statements.
13. SUBSEQUENT EVENTS
On September 28, 1998 the Company issued a takeover bid circular in order to
acquire all outstanding common shares of Futurelink Alberta in exchange for
common shares in the Company. Management anticipates that it will complete the
acquisition during the fourth quarter of 1998.
<PAGE> 86
FINANCIAL STATEMENTS
FUTURELINK DISTRIBUTION CORP. ("FutureLink Alberta")
(Unaudited)
(AN ALBERTA CORPORATION)
DECEMBER 31, 1997
DECEMBER 31, 1996
SEPTEMBER 30, 1998 (UNAUDITED)
<PAGE> 87
FUTURELINK DISTRIBUTION CORP. ("FutureLink Alberta")
BALANCE SHEETS (all amounts
stated in $ Cdn.)
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
-----------------------------------------------
1998 1997 1996
(Unaudited)
$ $ $
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
CURRENT
Cash and short term deposits 75,600 10,886 89,852
Accounts receivable 90,651 53,122 8,158
Prepaid expenses and deposits 126,736 10,436 1,669
Notes receivable [note 7] -- -- 104,500
- ----------------------------------------------------------------------------------------------------------
292,987 74,444 204,179
CAPITAL ASSETS [NOTE 3] 709,432 239,330 9,745
DISCONTINUED OPERATIONS [NOTE 10] 1 -- --
INCORPORATION COSTS [NOTE 4] 400 600 800
- ----------------------------------------------------------------------------------------------------------
1,002,820 314,374 214,724
==========================================================================================================
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT
Accounts payable and accrued liabilities 566,751 361,581 40,458
Current portion of obligation under capital leases
[note 5] 47,486 30,871 --
Notes payable [note 7] 3,037 95,500 --
- ----------------------------------------------------------------------------------------------------------
617,274 487,952 40,458
- ----------------------------------------------------------------------------------------------------------
DUE TO SHAREHOLDERS [NOTE 7] 15,188 87,545 2,030
- ----------------------------------------------------------------------------------------------------------
OBLIGATION UNDER CAPITAL LEASES [NOTE 5] 68,430 19,208 --
- ----------------------------------------------------------------------------------------------------------
DUE TO FUTURELINK DISTRIBUTION CORP., A COLORADO
CORPORATION [NOTE 7] 2,352,858 -- --
- ----------------------------------------------------------------------------------------------------------
DUE TO FUTURELINK/SYSGOLD LTD 88,000 -- --
- ----------------------------------------------------------------------------------------------------------
SHAREHOLDERS' DEFICIENCY
Share capital [note 6] 1,111,464 732,689 370,329
Deficit (3,250,394) (1,013,020) (198,093)
- ----------------------------------------------------------------------------------------------------------
(2,138,930) (280,331) 172,236
- ----------------------------------------------------------------------------------------------------------
1,002,820 314,374 214,724
==========================================================================================================
</TABLE>
Contingency [note 11]
See accompanying notes
Behalf of the Board:
Director Director
<PAGE> 88
FUTURELINK DISTRIBUTION CORP. ("FutureLink Alberta")
STATEMENTS OF INCOME AND RETAINED EARNINGS
(all amounts stated in $ Cdn.)
<TABLE>
<CAPTION>
NINE MONTHS ENDED PERIOD FROM
SEPTEMBER 30 YEAR ENDED MARCH 28 TO
--------------------------- DECEMBER 31 DECEMBER 31
1998 1997 1997 1996
(Unaudited) (Unaudited)
$ $ $ $
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE
Sales 99,503 -- -- --
Interest income -- 4,805 4,820 2,752
- --------------------------------------------------------------------------------------------------------------
99,503 4,805 4,820 2,752
- --------------------------------------------------------------------------------------------------------------
EXPENSES
Salaries and employee benefits 605,889 69,950 69,949 7,716
Consulting 399,048 155,208 401,320 109,625
Travel 153,372 8,520 18,997 12,196
Accounting and legal fees 121,314 9,593 14,031 17,172
Advertising and promotion 154,931 19,705 30,093 11,778
Depreciation and amortization 172,005 4,828 50,138 2,145
Office 135,028 20,915 32,066 12,674
Rent 76,724 13,424 35,839 3,300
Investor relations 76,779 -- -- --
Equipment rental 43,831 22,374 29,696 6,569
Internet 37,998 11,712 19,952 --
Architectural and design fees -- -- 68,485 --
Other 139,644 55,319 35,002 17,670
- --------------------------------------------------------------------------------------------------------------
2,116,563 391,548 805,568 200,845
- --------------------------------------------------------------------------------------------------------------
LOSS BEFORE DISCONTINUED OPERATIONS (2,017,060) (386,743) (800,748) (198,093)
INCOME (LOSS) FROM DISCONTINUED
OPERATIONS [NOTE 10] (220,314) 15,960 (14,179) --
- --------------------------------------------------------------------------------------------------------------
NET LOSS FOR THE PERIOD (2,237,374) (370,783) (814,927) (198,093)
DEFICIT, BEGINNING OF PERIOD (1,013,020) (198,093) (198,093) --
- --------------------------------------------------------------------------------------------------------------
DEFICIT, END OF PERIOD (3,250,394) (568,876) (1,013,020) (198,093)
==============================================================================================================
</TABLE>
See accompanying notes
<PAGE> 89
FUTURELINK DISTRIBUTION CORP. ("FutureLink Alberta")
STATEMENTS OF CASH FLOWS
(all amounts stated in $ Cdn.)
<TABLE>
<CAPTION>
NINE MONTHS ENDED PERIOD FROM
SEPTEMBER 30 YEAR ENDED MARCH 28 TO
------------------------------ DECEMBER 31 DECEMBER 31
1998 1997 1997 1996
(Unaudited) (Unaudited)
$ $ $ $
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CASH WAS PROVIDED BY (USED FOR):
Loss before discontinued operations (2,017,060) (386,743) (800,748) (198,093)
Add items not affecting cash:
Depreciation and amortization 172,005 4,828 50,138 2,145
- -------------------------------------------------------------------------------------------------------------------
(1,845,055) (381,915) (750,610) (195,948)
Net change in non-cash working capital
related to operating activities 51,341 56,568 371,892 (73,869)
[note 9]
- -------------------------------------------------------------------------------------------------------------------
Cash used for continuing operations (1,793,714) (325,347) (378,718) (269,817)
- -------------------------------------------------------------------------------------------------------------------
Income (loss) from discontinued
operations (220,314) 15,960 (14,179) --
Add item not affecting cash:
Loss on discontinuance 60,616 -- -- --
- -------------------------------------------------------------------------------------------------------------------
Cash provided by (used for)
discontinued operations (159,698) 15,960 (14,179) --
- -------------------------------------------------------------------------------------------------------------------
(1,953,412) (309,387) (392,897) (269,817)
- -------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of capital assets (702,524) (23,442) (279,523) (11,690)
Incorporation costs -- -- -- (1,000)
- -------------------------------------------------------------------------------------------------------------------
(702,524) (23,442) (279,523) (12,690)
- -------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from issuance of common shares 378,775 230,856 362,360 370,329
Advances from (repayments to)
shareholders (72,357) 8,414 85,515 2,030
Advances from Futurelink Distribution
Corp 2,352,858 -- -- --
Advances from Futurelink Sysgold Ltd. 88,000 -- -- --
Increase in capital lease obligation 65,837 -- 50,079 --
Increase (decrease) in note payable (92,463) -- 95,500 --
- -------------------------------------------------------------------------------------------------------------------
2,720,650 239,270 593,454 372,359
- -------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH 64,714 (93,559) (78,966) 89,852
CASH AND SHORT TERM DEPOSITS, BEGINNING
OF PERIOD 10,886 89,852 10,886 --
- -------------------------------------------------------------------------------------------------------------------
CASH AND SHORT TERM DEPOSITS, END OF
PERIOD 75,600 (3,707) 89,852 89,852
===================================================================================================================
</TABLE>
See accompanying notes
<PAGE> 90
1. DESCRIPTION OF BUSINESS
The Company was incorporated under the Business Corporations Act (Alberta) on
March 28, 1996 as 689936 Alberta Ltd. The name of the Company was changed to
Coffee.com Interactive Cafe Corp. by articles of amendment on June 19, 1996. The
name of the Company was subsequently changed to Futurelink Distribution Corp. on
November 17, 1997.
The Company is in the initial stages of development. Its future viability is
dependent upon management's ability to generate revenues or secure additional
financing to support continued service.
2. SIGNIFICANT ACCOUNTING POLICIES
The financial statements of the Company have been prepared in accordance with
accounting principles generally accepted in Canada. Differences between
accounting principles generally accepted in the United States and Canada would
have no material impact on these financial statements. Because a precise
determination of many assets and liabilities is dependent upon future events,
the preparation of financial statements for a period necessarily involves the
use of estimates and approximations which have been made using careful judgment.
The financial statements have, in management's opinion, been properly prepared
within reasonable limits of materiality and within the framework of the
significant account policies summarized below.
CAPITAL ASSETS
Capital assets are recorded at cost. Depreciation is recorded at the following
rates:
<PAGE> 91
Furniture and fixtures 20% declining balance
Computer hardware 30% declining balance
Computer software 100% declining balance
Leasehold improvements 5 years straight line
One half of the normal depreciation is taken in the year of acquisition.
INCORPORATION COSTS
Incorporation costs are recorded at cost and are amortized on a straight line
basis over five years.
FINANCIAL INSTRUMENTS
The carrying values of financial instruments, including cash, accounts
receivable, accounts payable and accrued liabilities, notes payable, due to
shareholders, note payable, and long term debt, approximate their fair values.
3. CAPITAL ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
--------------------------------------------
ACCUMULATED
COST DEPRECIATION NET BOOK VALUE
$ $ $
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Furniture and fixtures 124,032 11,709 112,323
Computer hardware 511,668 109,710 401,958
Computer software 223,068 94,917 128,151
Leasehold improvements 74,352 7,352 67,000
- ------------------------------------------------------------------------------
933,120 223,688 709,432
==============================================================================
</TABLE>
<PAGE> 92
<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------------------------------
ACCUMULATED
COST DEPRECIATION NET BOOK VALUE
$ $ $
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Furniture and fixtures 33,385 4,346 29,039
Computer hardware 226,854 35,239 191,615
Computer software 20,830 11,284 9,546
Leasehold improvements 10,145 1,015 9,130
- ---------------------------------------------------------------------------------------------------
291,214 51,884 239,330
===================================================================================================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------------------
ACCUMULATED
COST DEPRECIATION NET BOOK VALUE
$ $ $
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Furniture and fixtures 5,595 559 5,036
Computer hardware 4,747 712 4,035
Computer software 1,348 674 674
- ----------------------------------------------------------------------------------------------------
11,690 1,945 9,745
====================================================================================================
</TABLE>
Included in computer hardware at September 30, 1998 are assets under capital
lease of $96,165 (December 31, 1997 - $61,069; December 31, 1996 - $Nil) and
related accumulated depreciation of $28,052 (December 31, 1997 - $9,160).
4. INCORPORATION COSTS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
----------------------------------------------
ACCUMULATED
COST AMORTIZATION NET BOOK VALUE
$ $ $
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Incorporation costs 1,000 600 400
======================================================================================================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------------------
Accumulated
Cost Amortization Net Book Value
$ $ $
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Incorporation costs 1,000 400 600
====================================================================================================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------
Accumulated
Cost Amortization Net Book Value
$ $ $
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Incorporation costs 1,000 200 800
====================================================================================================
</TABLE>
5. LEASE COMMITMENTS
The future minimum lease payments at September 30, 1998 under capital and
operating leases are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
$ $
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
1998 30,041 72,903
1999 50,419 131,740
2000 31,633 131,184
2001 16,207 124,938
2002 -- 40,952
- ------------------------------------------------------------------------------------------------
Total future minimum lease payments 128,300 501,717
=========
Less: imputed interest (12,384)
- -----------------------------------------------------------------------------------
Balance of obligations under capital lease 115,916
Less: current portion (47,486)
- -----------------------------------------------------------------------------------
Long term obligation under capital lease 68,430
===================================================================================
</TABLE>
<PAGE> 93
6. SHARE CAPITAL
AUTHORIZED:
Unlimited Class "A" common shares
Unlimited Class "B" non-voting common shares
Unlimited first preferred shares
<TABLE>
<CAPTION>
ISSUED Shares $
-----------------------
<S> <C> <C>
Class A common shares
Balance at December 31, 1996 3,660,000 370,329
Rollback of initial founder shares (1,400,000) (140)
Shares issued for cash during the year, net of issue costs of 367,500 362,500
$5,000
Shares issued to key employees 325,000 --
- ------------------------------------------------------------------------------------------------
Balance, December 31, 1997 2,952,500 732,689
Shares issued for cash 190,000 190,000
Shares issued as compensation 188,775 188,775
- ------------------------------------------------------------------------------------------------
Balance, September 30, 1998 3,331,275 1,111,464
================================================================================================
</TABLE>
7. RELATED PARTY TRANSACTIONS
At September 30, 1998, the Company had amounts due to shareholders of $15,188
(December 31, 1997 - $87,545; 1996 - $2,030).
At September 30, 1998, the Company had amounts owing to 679132 Alberta Ltd., a
corporation controlled by a director and officer of the Company of $3,037 (1997
- - $95,500).
During the period, the Company received $2,352,858 of cash advances from a
significant shareholder, FutureLink Distribution Corp., a Colorado corporation,
which remains payable at September 30, 1998. The amount does not carry interest
and has no set repayment terms. The Company has been advised by its shareholder
that it does not intend to demand repayment within the next year; consequently,
this amount has been classified as long-term in the financial statements.
As at December 31, 1996 there is an amount of $104,500 including accrued
interest owing from a corporation controlled by a director of the Company. This
amount was repaid during 1997.
8. INCOME TAXES
As at December 31, 1997, the Company has approximately $950,000 of non-capital
loss carry forwards for tax purposes. The potential future benefit of these
losses has not been recognized in these financial statements.
These losses expire in 2004 and 2005.
<PAGE> 94
9. NET CHANGE IN NON-CASH WORKING CAPITAL BALANCES RELATED TO OPERATING
ACTIVITIES
<TABLE>
<CAPTION>
NINE MONTHS ENDED PERIOD FROM
SEPTEMBER 30 YEAR ENDED MARCH 28 TO
---------------------- DECEMBER 31 DECEMBER 31
1998 1997 1997 1996
$ $ $ $
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Accounts receivable (37,529) 40,035 (44,964) (8,158)
Prepaid expenses and deposits (116,300) (35,522) (8,767) (1,669)
Notes receivable -- -- 104,500 (104,500)
Accounts payable and accrued liabilities 205,170 52,055 321,123 40,458
- ---------------------------------------------------------------------------------------------------
51,341 56,568 371,892 (73,869)
===================================================================================================
</TABLE>
<PAGE> 95
10. DISCONTINUED OPERATIONS
Effective April 23, 1998, the Company discontinued its operations that provided
Internet web page design services. The remaining assets and liabilities related
to these operations have been written down to $1 resulting in a loss on
discontinuance of $60,616. On July 1, 1998, the Company disposed of the
discontinued operations in exchange for an investment in 50% of the common
shares of NextClick Ltd. The fair market value of this investment has been
estimated at $1.
During the period, revenues and results of the discontinued operations were as
follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED PERIOD FROM
SEPTEMBER 30 YEAR ENDED MARCH 28 TO
----------------------- DECEMBER 31 DECEMBER 31
1998 1997 1997 1996
$ $ $ $
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue 21,190 22,585 22,585 --
===================================================================================================
Results of operations (159,698) 15,960 (14,179) --
Loss on discontinuance (60,616) -- -- --
- ---------------------------------------------------------------------------------------------------
(220,314) 15,960 (14,179) --
===================================================================================================
</TABLE>
11. CONTINGENCY
A statement of claim has been filed against the Company in the amount of
$285,000 seeking damages and loss of rent related to a purported lease agreement
with respect to a building in Calgary, Alberta. The Company is counter claiming
an amount of $360,000 against the claimant. It is impossible at this time for
the Company to predict with any certainty the outcome of such litigation.
However, management is of the opinion that the claim is without merit and will
defend the Company's position vigorously. These financial statements contain no
provision for loss related to the claims.
<PAGE> 96
RIVERVIEW MANAGEMENT CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
(ALL AMOUNTS STATED IN $ CDN.)
JUNE 30, 1998 and 1997
(Unaudited)
<PAGE> 97
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
REVIEW ENGAGEMENT REPORT 1
FINANCIAL STATEMENTS
Consolidated Balance Sheets 2
Consolidated Statements of Earnings and Retained Earnings 3
Consolidated Statements of Changes in Financial Position 4
Notes to Consolidated Financial Statements 5 - 8
</TABLE>
<PAGE> 98
REVIEW ENGAGEMENT REPORT
To the Directors of
Riverview Management Corporation
We have reviewed the consolidated balance sheets of Riverview Management
Corporation as at June 30, 1998 and 1997 and the consolidated statements of
earnings and retained earnings and changes in financial position for the eight
months then ended. Our review was made in accordance with generally accepted
standards for review engagements and accordingly consisted primarily of enquiry,
analytical procedures and discussion related to information supplied to us by
the company.
A review does not constitute an audit and consequently we do not express an
audit opinion on these financial statements.
Based on our review, nothing has come to our attention that causes us to believe
that these financial statements are not, in all material respects, in accordance
with generally accepted accounting principles.
Calgary, Alberta
August 13, 1998, expect as to Note 5 and 6(b) [signed: Buchanan Barry & Co.]
which is as September 24, 1998 CHARTERED ACCOUNTANTS
<PAGE> 99
RIVERVIEW MANAGEMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
(all amounts stated in $ Cdn.)
JUNE 30, 1998 AND 1997
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
CURRENT
Cash $ 66,806 $ 36,559
Accounts receivable (net of allowance for doubtful
accounts, (1998 - $13,974, 1997 - $3,922)) 1,510,276 1,539,994
Prepaid expenses 15,725 15,679
Inventory 19,041 51,840
---------- ----------
1,611,848 1,644,072
CAPITAL ASSETS (Note 2) 206,577 111,552
DEPOSITS 8,183 6,663
---------- ----------
$1,826,608 $1,762,287
========== ==========
LIABILITIES
CURRENT
Bank indebtedness $ 240,930 $ 137,960
Accounts payable and accrued liabilities 937,919 1,162,768
Income taxes payable 162,250 141,550
Loan payable 28,136 33,782
Shareholder loan 128,933 24,577
Current portion of obligation under capital lease 49,821 --
---------- ----------
1,547,989 1,500,637
OBLIGATION UNDER CAPITAL LEASE (Note 3) 17,250 --
---------- ----------
1,565,239 1,500,637
MINORITY INTEREST 21,676 83,600
---------- ----------
1,586,915 1,584,237
---------- ----------
SUBSEQUENT EVENTS (Note 6)
COMMITMENTS (Note 7)
SHAREHOLDERS' EQUITY
SHARE CAPITAL (Note 4) 40 40
RETAINED EARNINGS 239,653 178,010
---------- ----------
239,693 178,050
---------- ----------
$1,826,608 $1,762,287
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE> 100
RIVERVIEW MANAGEMENT CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS
(all amounts stated in $ Cdn.)
EIGHT MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
REVENUE
System consulting $ 4,232,998 $ 2,863,237
Hardware and software sales 3,611,356 2,628,859
Sundry 191 577
----------- -----------
7,844,545 5,492,673
----------- -----------
EXPENSES
Advertising and promotion 85,851 52,471
Amortization 68,510 43,775
Automotive 38,590 18,662
Bad debts 7,475 3,300
Bank charges and interest 23,764 11,283
Equipment rental 7,280 8,498
Hardware and software purchases 3,314,946 2,403,900
Interest on capital lease obligation 12,161 --
Office 95,677 41,926
Professional fees 63,321 40,821
Rent 75,501 57,308
Salaries 3,500,311 2,217,073
Staff development 253,452 125,243
Telephone 109,917 78,351
Travel 14,017 8,063
----------- -----------
7,670,773 5,110,674
----------- -----------
EARNINGS BEFORE INCOME TAXES 173,772 381,999
INCOME TAXES 65,275 141,550
----------- -----------
108,497 240,449
MINORITY INTEREST (35,219) 63,065
----------- -----------
NET EARNINGS 143,716 177,384
RETAINED EARNINGS, beginning of period 141,937 46,626
----------- -----------
285,653 224,010
DIVIDENDS (46,000) (46,000)
----------- -----------
RETAINED EARNINGS, end of period $ 239,653 $ 178,010
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE> 101
RIVERVIEW MANAGEMENT CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
(all amounts stated in $ Cdn.)
EIGHT MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 143,716 $ 177,384
Adjustments to operations not involving cash
Amortization 68,510 43,775
Minority interest (35,219) 63,065
Change in non-cash working capital items
Accounts receivable (144,732) (459,733)
Prepaid expense (6,714) (15,014)
Inventory (7,368) (45,000)
Accounts payable and accrued liabilities (53,779) 245,041
Deferred revenue -- (13,778)
Income taxes payable 28,060 127,289
Bonus payable (184,500) (108,600)
--------- ---------
(192,026) 14,429
--------- ---------
INVESTING ACTIVITIES
Acquisition of capital assets (72,264) (88,005)
Advancement of deposits (1,520) (6,663)
--------- ---------
(73,784) (94,668)
--------- ---------
FINANCING ACTIVITIES
Advances from shareholder 126,454 21,050
Repayment of loan payable (5,646) --
Proceeds on bank financing 223,018 113,430
Repayment of capital lease obligation (21,053) --
Repayment of long-term debt -- (5,555)
Dividends paid (46,000) (46,000)
--------- ---------
276,773 82,925
--------- ---------
NET CHANGE IN CASH 10,963 2,686
CASH, beginning of period 55,843 33,873
--------- ---------
CASH, end of period $ 66,806 $ 36,559
========= =========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE> 102
RIVERVIEW MANAGEMENT CORPORATION
NOTES TO FINANCIAL CONSOLIDATED STATEMENTS
(all amounts stated in $ Cdn.)
JUNE 30, 1998 AND 1997
(Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
These consolidated financial statements include the accounts of the
company, its wholly-owned subsidiary Sysgold Inc. and it's 67/100 owned
subsidiary Sysgold Ltd. The consolidated financial statements represent
nine months of the parent company and eight months of the subsidiaries as
a result of different fiscal year-ends.
The consolidated financial statements are prepared in accordance with
accounting principles generally accepted in Canada, which conform in all
material respects to accounting principles generally accepted in the
United States.
INVENTORY
Inventory has been valued at the lower of cost or net realizable value.
Cost being determined on a first-in first-out basis.
CAPITAL ASSETS
Capital assets are recorded at cost. Amortization is provided annually at
rates calculated to write-off the assets over their estimated useful
lives as follows:
Cellular phones 2.7% per month straight line
Computer hardware 4% per month straight line
Computer software 100% per annum declining balance
Leasehold improvements straight-line over the term
of the lease
Office equipment 20% per annum declining balance
Equipment under capital lease 20% per annum declining balance
INCOME TAXES
The Company follows the deferral method of income tax allocation.
Deferred income taxes arise as a result of timing differences between the
recognition of accounting income and taxable income. Because the
company's depreciation rates and methods closely approximate those
allowable by the taxation authorities, there are no material differences
between the tax bases and book bases of the company's capital assets.
MEASUREMENT UNCERTAINTY
The amount recorded for amortization of capital assets is based on
<PAGE> 103
estimates. Management requires estimates to forecast economic indicators
for determining the net recoverable amount of such assets under generally
accepted accounting principles. By their nature, these estimates are
subject to measurement uncertainty and the effect of any changes in such
estimates on the financial statements of future periods could be
material. Management periodically reviews the useful lives of these
assets to determine the adequacy of the amortization policy.
FINANCIAL INSTRUMENTS
The Company is exposed to credit risk from customers. The Company does
not obtain collateral or other security to support financial instruments
subject to credit risk but mitigates this risk by dealing only with
financially sound counterparties and, accordingly, does not anticipate
unaccounted for losses arising from trade receivables.
The majority of trade receivables are concentrated in the oil and gas
industry, and accordingly are exposed to the risks associated with that
industry. The Company does not have a significant exposure to any
individual customer or counterparty as at June 30, 1998 nor as at June
30, 1997.
<PAGE> 104
RIVERVIEW MANAGEMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
(Unaudited)
2. CAPITAL ASSETS
<TABLE>
<CAPTION>
1998 1997
--------------------------------------------------
Accumulated Net Book Net Book
Cost Amortization Value Value
<S> <C> <C> <C> <C>
Cellular phones $ 44,529 $ 23,007 $ 21,522 $ 15,844
Computer hardware 254,812 201,962 52,850 49,339
Computer software 28,752 25,883 2,869 4,354
Leasehold improvements 39,081 11,692 27,389 30,795
Office equipment 24,564 7,945 16,619 11,220
Equipment under capital lease 104,377 19,049 85,328 --
-------- -------- -------- --------
$496,115 $289,538 $206,577 $111,552
======== ======== ======== ========
</TABLE>
<PAGE> 105
3. OBLIGATION UNDER CAPITAL LEASE
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
The following is a schedule of future minimum lease
payments under capital leases expiring between July
1999 and July 2000
Year ending October 31,
1998 $ 49,819 $ --
1999 30,222 --
2000 2,090 --
-------- --------
Total minimum lease payments 82,131 --
Less amount representing interest imputed at rates of 14 - 34% (15,060) --
-------- --------
Balance of obligation 67,071 --
Less current portion (49,821) --
-------- --------
Long-term portion of obligation $ 17,250 $ --
======== ========
</TABLE>
4. SHARE CAPITAL
<TABLE>
<CAPTION>
Authorized 1998 1997
------ ------
<S> <C> <C>
Unlimited number of Class A common voting shares Class B common
non-voting shares
Class C common non-voting redeemable shares
Class D common non-voting 8% cumulative preferred shares
with a redemption price of $1 per share
Issued
100 Class A shares $ 10 $ 10
100 Class B shares 10 10
100 Class C shares 10 10
10 Class D shares 10 10
------ ------
$ 40 $ 40
====== ======
</TABLE>
<PAGE> 106
RIVERVIEW MANAGEMENT CORPORATION
NOTES TO FINANCIAL CONSOLIDATED STATEMENTS
JUNE 30, 1998 AND 1997
(Unaudited)
5. INCOME TAXES
Income taxes presented in the consolidated statements of earnings and
retained earnings differs from the combined statutory income tax rate as
follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Income taxes based on the combined statutory rate of 45% $ 78,197 $ 171,900
Utilization of the small business deduction for
Canadian controlled private corporations (34,466) (36,600)
Unrecognized benefit of loss carry forwards of a
wholly owned subsidiary 15,818 1,895
Permanent differences 3,658 5,360
Other 2,068 (1,005)
--------- ---------
$ 65,275 $ 141,550
========= =========
</TABLE>
The potential income tax benefits resulting from losses carried forward
are not recorded in the financial statements. As at October 31, 1997,
Sysgold Inc., a wholly owned subsidiary, had non-capital loss carry
forwards of $1,800 and $14,113 which expire in 2002 and 2003
respectively. Under Untied States GAAP, the $6,800 (1996 - $785)
potential tax benefit associated with the losses carried forward would
have been offset entirely by a valuation allowance.
6. SUBSEQUENT EVENT
(a) The company purchased the remaining 33% interest in its subsidiary
Sysgold Ltd. from the minority shareholder for cash proceeds of
$315,000 on July 24, 1998. The purchase was accounted for using the
purchase method. The purchase price allocation is estimated as
follows:
<TABLE>
<S> <C>
Net Assets Acquired
Current assets $514,182
Capital assets 67,257
Other assets 20,728
Goodwill 222,886
</TABLE>
<PAGE> 107
<TABLE>
<S> <C>
825,053
Current liabilities 411,740
Other liabilities 98,313
510,053
Net Assets $315,000
========
</TABLE>
(b) A statement of claim was filed on August 19, 1998 against the
corporation in the amount of $150,000 seeking damages for wrongful
termination of a consulting contract. Management does not believe
there is any merit to the lawsuit and it will be vigorously defended.
<PAGE> 108
RIVERVIEW MANAGEMENT CORPORATION
NOTES TO FINANCIAL CONSOLIDATED STATEMENTS
JUNE 30, 1998 AND 1997
(Unaudited)
7. COMMITMENTS
The company is committed under various operating leases including: office
equipment lease; $930 per month expiring May 2000, premises lease; $3,653
per month expiring January 2002 and vehicle lease; $1,693 expiring March
2001. The basic minimum lease payments for the duration of the agreements
is as follows:
<TABLE>
<S> <C>
1999 $ 75,311
2000 74,381
2001 59,068
2002 25,571
--------
$234,331
========
</TABLE>
<PAGE> 109
RIVERVIEW MANAGEMENT CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1997 and 1996
<PAGE> 110
<TABLE>
<CAPTION>
Page
----
<S> <C>
AUDITORS' REPORT 1
FINANCIAL STATEMENTS
Consolidated Balance Sheets 2
Consolidated Statements of Earnings and Retained Earnings 3
Consolidated Statements of Changes in Financial Position 4
Notes to Consolidated Financial Statements 5 - 8
</TABLE>
<PAGE> 111
AUDITORS' REPORT
To the Directors of
Riverview Management Corporation
We have audited the consolidated balance sheets of Riverview Management
Corporation as at October 31, 1997 and 1996 and the consolidated statements of
earnings and retained earnings and changes in financial position for 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
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the company as at October 31, 1997
and 1996 and the results of its operations and the changes in its financial
position for the years then ended in accordance with accounting principles
generally accepted in Canada.
Calgary, Alberta
August 13, 1998, except as to
Note 5 and Note 6(b) [signed: Buchanan Barry & Co.]
which are as of September 24, 1998 CHARTERED ACCOUNTANTS
<PAGE> 112
RIVERVIEW MANAGEMENT CORPORATION
CONSOLIDATED BALANCE SHEETS (all
amounts stated in $ Cdn.)
OCTOBER 31, 1997 AND 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
CURRENT
Cash $ 55,843 $ 33,873
Accounts receivable (net of allowance for doubtful
accounts, (1997 - $6,499, 1996 - $622)) 1,365,544 1,080,261
Prepaid expenses 9,011 665
Inventory 11,673 6,840
---------- ----------
1,442,071 1,121,639
CAPITAL ASSETS (Note 2) 202,823 67,319
DEPOSITS 6,663 --
$1,651,557 $1,188,958
========== ==========
LIABILITIES
CURRENT
Bank indebtedness $ 17,912 $ 24,530
Accounts payable and accrued liabilities 991,698 917,725
Bonus payable 184,500 108,600
Income taxes payable 134,190 14,261
Deferred revenue -- 13,778
Loan payable 33,782 33,782
Shareholder loans 2,479 3,527
Current portion of obligation under capital lease (Note 3) 32,821
----------
Current portion of long-term debt -- 5,555
---------- ----------
1,397,382 1,121,758
OBLIGATION UNDER CAPITAL LEASE (Note 3) 55,303 --
---------- ----------
1,452,685 1,121,758
MINORITY INTEREST 56,895 20,534
---------- ----------
1,509,580 1,142,292
---------- ----------
SUBSEQUENT EVENTS (Note 6)
COMMITMENTS (Note 7)
SHAREHOLDERS' EQUITY
SHARE CAPITAL (Note 4) 40 40
RETAINED EARNINGS 141,937 46,626
---------- ----------
141,977 46,666
---------- ----------
$1,651,557 $1,188,958
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE> 113
RIVERVIEW MANAGEMENT CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS
(all amounts stated in $ Cdn.)
YEARS ENDED OCTOBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
REVENUE
System consulting $ 4,587,504 $ 2,309,576
Hardware and software sales 4,929,610 2,967,732
Sundry 3,675 9,949
----------- -----------
9,520,789 5,287,257
----------- -----------
EXPENSES
Advertising and promotion 97,897 42,430
Amortization 73,747 57,218
Automotive 37,860 25,947
Bad debts 5,878 3,556
Bank charges and interest 15,986 13,474
Employee benefits 343,976 173,462
Equipment rental 12,720 --
Hardware and software purchases 4,500,816 2,724,037
Interest on long-term debt and capital lease obligation 4,629 4,150
Management fees -- 74,357
Memberships and subscriptions 26,161 27,351
Office 58,304 37,917
Out sourced administration 3,802 12,679
Professional fees 86,990 74,264
Rent 100,935 32,520
Repairs and maintenance 2,770 3,177
Salaries 2,589,611 1,386,708
Staff development 171,853 69,812
Supplies 18,727 23,067
System consultants 901,976 354,185
Telephone 132,503 78,360
Travel 21,056 18,097
----------- -----------
9,208,197 5,236,768
----------- -----------
EARNINGS BEFORE INCOME TAXES 312,592 50,489
INCOME TAXES 134,920 14,991
----------- -----------
177,672 35,498
MINORITY INTEREST 36,361 8,822
----------- -----------
NET EARNINGS 141,311 26,676
RETAINED EARNINGS, beginning of year 46,626 65,950
----------- -----------
187,937 92,626
DIVIDENDS (46,000) (46,000)
----------- -----------
RETAINED EARNINGS, end of year $ 141,937 $ 46,626
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE> 114
RIVERVIEW MANAGEMENT CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
(all amounts stated in $ Cdn.)
YEARS ENDED OCTOBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 141,311 $ 26,676
Adjustments to operations not involving cash
Amortization 73,747 57,218
Minority interest 36,361 8,822
Change in non-cash working capital items
Accounts receivable (285,283) (636,392)
Prepaid expense (8,346) 335
Inventory (4,833) 16,528
Accounts payable and accrued liabilities 73,973 552,704
Deferred revenue (13,778) (496)
Income taxes payable 119,929 (6,017)
Bonus payable 75,900 78,600
--------- ---------
208,981 97,978
--------- ---------
INVESTING ACTIVITIES
Acquisition of capital assets (209,251) (66,001)
Advancement of deposits (6,663) --
--------- ---------
(215,914) (66,001)
--------- ---------
FINANCING ACTIVITIES
Advances (to) from shareholders (1,048) 5,423
Proceeds (repayment) on bank financing (6,618) 24,530
Dividends paid to minority shareholders -- (2,128)
Advancement of capital lease obligation 104,376 --
Repayment of capital lease obligation (16,252) --
Repayment of long-term debt (5,555) (13,332)
Dividends paid (46,000) (46,000)
--------- ---------
28,903
--------- ---------
NET CHANGE IN CASH 21,970 470
CASH, beginning of year 33,873 33,403
--------- ---------
CASH, end of year $ 55,843 $ 33,873
--------- ---------
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE> 115
RIVERVIEW MANAGEMENT CORPORATION
NOTES TO FINANCIAL CONSOLIDATED STATEMENTS
(all amounts stated in $ Cdn.)
OCTOBER 31, 1997 AND 1996
1. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
These consolidated financial statements include the accounts of the
company, its wholly-owned subsidiary Sysgold Inc. and it's 67/100 owned
subsidiary Sysgold Ltd.. The fiscal year of the parent company is
September 30th and the fiscal year of the two subsidiaries is October
31st.
The consolidated financial statements are prepared in accordance with
accounting principles generally accepted in Canada, which conform in all
material respects to accounting principles generally accepted in the
United States.
INVENTORY
Inventory has been valued at the lower of cost or net realizable value.
Cost being determined on a first-in first-out basis.
CAPITAL ASSETS
Capital assets are recorded at cost. Amortization is provided annually at
rates calculated to write-off the assets over their estimated useful
lives as follows:
Cellular phones 2.7% per month straight line
Computer hardware 4% per month straight line
Computer software 100% per annum declining balance
Leasehold improvements straight-line over the
term of the lease
Office equipment 20% per annum declining balance
Equipment under capital lease 20% per annum declining balance
INCOME TAXES
The Company follows the deferral method of income tax allocation.
Deferred income taxes arise as a result of timing differences between the
recognition of accounting income and taxable income. Because the
company's depreciation rates and methods closely approximate those
allowable by the taxation authorities, there are no material differences
between the tax bases and book bases of the company's capital assets.
MEASUREMENT UNCERTAINTY
The amount recorded for amortization of capital assets is based on
estimates. Management requires estimates to forecast economic indicators
<PAGE> 116
for determining the net recoverable amount of such assets under generally
accepted accounting principles. By their nature, these estimates are
subject to measurement uncertainty and the effect of any changes in such
estimates on the financial statements of future periods could be
material. Management periodically reviews the useful lives of these
assets to determine the adequacy of the amortization policy.
FINANCIAL INSTRUMENTS
The Company is exposed to credit risk from customers. The Company does
not obtain collateral or other security to support financial instruments
subject to credit risk but mitigates this risk by dealing only with
financially sound counterparties and, accordingly, does not anticipate
unaccounted for losses arising from trade receivables.
The majority of trade receivables are concentrated in the oil and gas
industry, and accordingly are
<PAGE> 117
exposed to the risks associated with that industry. Furthermore, the
Company has a trade receivable of $543,105 (1996 - $149,005) from a
customer which accounts for 40% (1996 - 14%) of the total trade
receivables.
<PAGE> 118
RIVERVIEW MANAGEMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1997 AND 1996
2. CAPITAL ASSETS
<TABLE>
<CAPTION>
1997 1996
--------------------------------------------------------
Accumulated Net Book Net Book
Cost Amortization Value Value
<S> <C> <C> <C> <C>
Cellular phones $ 31,125 $ 15,551 $ 15,574 $ 11,323
Computer hardware 215,111 167,779 47,332 44,460
Computer software 21,896 19,444 2,452 1,723
Leasehold improvements 36,272 6,676 29,596 204
Office equipment 15,071 5,658 9,413 9,609
Equipment under capital lease 104,377 5,921 98,456 --
-------- -------- -------- --------
$423,852 $221,029 $202,823 $ 67,319
-------- -------- -------- --------
</TABLE>
<PAGE> 119
RIVERVIEW MANAGEMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1997 AND 1996
3. OBLIGATION UNDER CAPITAL LEASE
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
The following is a schedule of future minimum lease payments under
capital leases expiring between July 1999 and July 2000
Year ending October 31,
1998 $ 49,819 $ --
1999 46,155 --
2000 19,370 --
--------- ---------
Total minimum lease payments 115,344 --
Less amount representing interest imputed at rates of 14 - 34% (27,220) --
--------- ---------
Balance of obligation 88,124 --
Less current portion of obligation 32,821 --
--------- ---------
Long-term portion of obligation $ 55,303 $ --
--------- ---------
</TABLE>
4. SHARE CAPITAL
<TABLE>
<CAPTION>
Authorized 1997 1996
------ ------
<S> <C> <C>
Unlimited number of
Class A common voting shares
Class B common non-voting shares
Class C common non-voting shares
Class D common non-voting 8% non-cumulative
preferred shares with a redemption price
of $1 per share
Issued
100 Class A shares $ 10 $ 10
100 Class B shares 10 10
100 Class C shares 10 10
10 Class D shares 10 10
------ ------
$ 40 $ 40
------ ------
</TABLE>
No changes in share capital occurred in the year ended October 31, 1996.
<PAGE> 120
RIVERVIEW MANAGEMENT CORPORATION
NOTES TO FINANCIAL CONSOLIDATED STATEMENTS
OCTOBER 31, 1997 AND 1996
5. INCOME TAXES
Income taxes presented in the consolidated statements of earnings and
retained earnings differs from the combined statutory income tax rate as
follows;
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Income taxes based on the combined statutory rate of 45% $ 140,666 $ 22,720
Utilization of the small business deduction for
Canadian controlled private corporations (36,480) (20,109)
Unrecognized benefit of loss carry forwards of a
wholly owned subsidiary 6,800 785
Permanent differences 17,327 7,213
Other 6,607 4,382
--------- ---------
$ 134,920 $ 14,991
--------- ---------
</TABLE>
The potential income tax benefits resulting from losses carried forward
are not recorded in the financial statements. As at October 31, 1997,
Sysgold Inc., a wholly owned subsidiary, had non-capital loss carry
forwards of $1,800 and $14,113 which expire in 2002 and 2003
respectively. Under Untied States GAAP, the $6,800 (1996 - $785)
potential tax benefit associated with the losses carried forward would
have been offset entirely by a valuation allowance.
6. SUBSEQUENT EVENTS
(a) The company purchased the remaining 33% interest in its subsidiary
Sysgold Ltd. from the minority shareholder for cash proceeds of $315,000
on July 24, 1998. The purchase was accounted for using the purchase
method. The purchase price allocation is estimated as follows:
<TABLE>
<S> <C>
Net Assets Acquired
Current assets $514,182
Capital assets 67,257
Other assets 20,728
Goodwill 222,886
--------
825,053
Current liabilities 411,740
Other liabilities 98,313
510,053
Net assets $315,000
========
</TABLE>
<PAGE> 121
Goodwill will be amortized on a straight-line basis over the next
twenty years.
(b) A statement of claim was filed on August 19, 1998 against the
corporation in the amount of $150,000 seeking damages for wrongful
termination of a consulting contract. Management does not believe there
is any merit to the lawsuit and it will be vigorously defended.
<PAGE> 122
RIVERVIEW MANAGEMENT CORPORATION
NOTES TO FINANCIAL CONSOLIDATED STATEMENTS
OCTOBER 31, 1997 AND 1996
7. COMMITMENTS
The company is committed under various operating leases including: office
equipment lease; $930 per month expiring May 2000, premises lease; $3,653
per month expiring January 2002 and vehicle lease; $1,693 per month
commencing March 1998 and expiring March 2001. The basic minimum lease
payments for the duration of the agreements are as follows:
<TABLE>
<S> <C>
1998 $ 68,535
1999 75,311
2000 70,661
2001 64,151
2002 10,958
--------
$289,616
--------
</TABLE>
<PAGE> 123
================================================================================
NO DEALER, SALES REPRESENTATIVE OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS
AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY THE COMMON STOCK BY ANYONE IN
ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE AN IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PROSPECTUS SUMMARY).............................................................
THE OFFERING....................................................................
RISK FACTORS....................................................................
USE OF PROCEEDS.................................................................
DIVIDEND POLICY.................................................................
CAPITALIZATION..................................................................
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................................
BUSINESS........................................................................
MANAGEMENT......................................................................
CERTAIN TRANSACTIONS............................................................
SELLING SHAREHOLDERS............................................................
DESCRIPTION OF CAPITAL STOCK....................................................
PLAN OF DISTRIBUTION............................................................
LEGAL OPINION...................................................................
EXPERTS.........................................................................
INDEX TO FINANCIAL STATEMENTS................................................F-1
</TABLE>
---------------
14,865,385 SHARES
FUTURELINK DISTRIBUTION CORP.
4,250,000 SHARES OF COMMON STOCK
UNDERLYING BIALIK EXCHANGEABLE SHARES
9,615,384 SHARES OF COMMON STOCK
UNDERLYING $5,000,000 CONVERTIBLE DEBENTURES
1,000,000 SHARES OF COMMON STOCK UNDERLYING THOMSON KERNAGHAN
WARRANTS
---------------
PROSPECTUS
---------------
December 21, 1998
<PAGE> 124
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
FutureLink USA's Articles state that it may, in its sole discretion indemnify
and advance expenses to any person who incurs liability or expense by reason of
such person acting as a director, officer, employee or agent of FutureLink USA,
to the fullest extent allowed by the Colorado Business Corporation Act.
Sections 7-109-102 and 7-109-107 of the Colorado Business Corporation Act
provides that a corporation may indemnify its current and former officers,
directors, employees and agents against reasonable expenses (including
attorneys' fees), judgments, penalties, fines and amounts paid in settlement
which, in each case, were incurred in connection with actions, suits, or
proceedings in which such persons are parties by reason of the fact that they
are or were an officer, director, employee or agent of the corporation, if: (i)
they acted in good faith; (ii) in the case of conduct in an official capacity
with the corporation; the conduct was in the corporation's best interests; (iii)
in all other cases, the conduct was at least not opposed to the corporation's
best interests; and (iv) in the case of a criminal proceeding, they had no
reasonable cause to believe the conduct was unlawful. The corporation may not
indemnify an officer, director, employee or agent of the corporation: (i) in
connection with a proceeding by the corporation or enforcing rights of the
corporation in which such person is adjudged liable to the corporation or (ii)
in connection with any proceeding charging improper personal benefit, whether or
not acting in an official capacity, in which such person is adjudged liable on
the basis that personal benefit was improperly received. Unless limited by its
articles of incorporation, a corporation shall be required to indemnify an
officer, director, employee, or agent who was wholly successful in defense of a
proceeding, against reasonable attorneys' fees.
The articles of incorporation of FutureLink USA provide that FutureLink USA will
exercise, to the extent permitted by law, its power of indemnification, and that
the foregoing right of indemnification shall not be exclusive of other rights to
which a person shall be entitled as a matter of law.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
Effective July 1, 1998, FutureLink USA purchased Directors and Officers
Liability insurance with coverage of $2,000,000 from AON Financial Management
out of Denver, CO.
II-1
<PAGE> 125
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following tables sets forth the various expenses in connection with the sale
and distribution of the securities being registered, other than underwriting
discounts and commissions and non-accountable expense allowance. All of the
amounts shown are estimates, except the Securities and Exchange Commission
registration and NASD filing fees.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee ......... $ 4,385.29
Accounting fees and expenses ................................ $ 5,000.00
Printing and engraving expenses ............................. $ 5,000.00
Transfer agent and registrar (fees and expenses) ............ $ 2,000.00
Blue sky fees and expenses (including counsel fees) ......... $ 2,000.00
Other legal fees and legal expenses ......................... $ 25,000.00
Miscellaneous expenses ...................................... $ 8,000.00
Total ....................................................... $ 51,385.29
</TABLE>
II-2
<PAGE> 126
ITEM 26. RECENT SALE OF UNREGISTERED SECURITIES.
The following securities have been sold by FutureLink USA since June 1997
and until October 15, 1998:
1. Two Subscription Agreements dated June 9, 1997 pursuant to
which the Company sold 6,000,000 shares of Common Stock at $0.0166 per share for
an aggregate investment of $10,000 to two individuals, both residing outside the
United States. The Offering was made pursuant to an exemption provided by Rule
504 of Regulation D promulgated under the Securities Act of 1933, as amended
(the "Act")("Rule 504 Exemption")
2. Subscription Agreements dated July 23, 1997 pursuant to which
the Company sold 10,000,000 shares of Common Stock (following a 200:1 reverse
stock split) at $0.01 per share for an aggregate investment of $100,000. The
Offering was made pursuant to an exemption provided by Rule 506 of Regulation D
promulgated under the Act ("Rule 506 Exemption") and Regulation S. The sale of
shares was to twenty three investors.(1)
3. Subscription Agreements dated December 18, 1997 pursuant to
which the Company sold 10,000,000 shares of Common Stock at $0.01 per share for
an aggregate investment of $100,000. The Offering was made pursuant to a Rule
506 Exemption and Regulation S. The sale of shares was to twenty five different
investors.(1)
4. Subscription Agreements dated January 29, 1998 pursuant to
which the Company sold 83,344 shares of Common Stock at $3.00 per share for an
aggregate investment of $250,000. The sale of shares was to Bank August Roth AG
("Bank Roth"), a Swiss entity. In connection with the investment, the Company
granted Roth a warrant for the purchase of 83,334 shares of Common Stock
exercisable at US$3.00 per share until January 20, 1999 or at US$3.10 per share
at any time prior to January 20, 2000. The Offering was made pursuant to a Rule
504 Exemption.
5. Subscription Agreement dated April 3, 1998 pursuant to which
the Company sold 64,480 shares of Common Stock at $3.75 per share for an
aggregate investment of $256,800. The sale of shares was to Bank Roth. The
Company also granted Bank Roth a warrant for the purchase of 64,480 shares of
Common Stock at US$3.75 if exercised prior to April 3, 1999 or at US$4.00 if
exercised prior to April 3, 2000. The Offering was made pursuant to a Rule 504
Exemption.
6. Subscription Agreement dated April 3, 1998 pursuant to which
the Company sold 37,333 shares of Common Stock at $3.75 per share for an
aggregate investment of $140,000. The sale of shares was to Tidewater
Enterprises Limited, a Canadian entity. The Company also granted the investor a
warrant for the purchase of 37,333 shares of Common Stock at US$3.75 if
exercised prior to April 3, 1999 or at US$4.00 if exercised prior to April 3,
2000. The Offering was made pursuant to a Rule 504 Exemption.
7. Subscription Agreement dated April 22, 1998 pursuant to which
the Company sold 46,666 shares of Common Stock at $3.00 per share for an
aggregate investment of $140,000. The sale of shares was to Deremie Enterprises
Limited, a foreign entity. The Company also granted the investor a warrant to
purchase up to 46,666 shares of Common Stock at US$3.25 per share exercisable at
any time prior to May 4, 2000. The Offering was made pursuant to a Rule 504
Exemption.
8. Subscription Agreement dated April 24, 1998 pursuant to which
the Company sold 20,000 shares of Common Stock at $3.00 per share for an
aggregate investment of $60,000. The sale of shares was to Linear Strategies
Ltd., a Canadian entity. The Company also granted the investor a warrant for
the purchase of up to 20,000 shares of Common Stock at US$3.25 per share
exercisable at any time prior to May 4, 2000. The Offering was made pursuant
to a Rule 504 Exemption.
(1) Each of these sales was made to a non-U.S. resident and legended to restrict
any trading for a minimum of one year. The securities are legended to that
effect and to the knowledge of the Company, no transfers have been made since
the date of issuance on any of these shares. Therefore, these issuances may be
exempt from U.S. Securities laws in accordance with Regulation S or other
applicable exemptions from registration relating to offers and sales that occur
outside of the United States and are not resold for a one year period in the
U.S. market.
II-3
<PAGE> 127
(a) EXHIBITS
The following exhibits pursuant to Rule 601 of Regulation SB are included
herein.
<TABLE>
<S> <C>
3.1.1 Articles of Incorporation of Cortez Uranium and Mining Co.
(now known as FutureLink USA), as amended dated April 4,
1955.(3)
3.1.2 Articles of Incorporation of FutureLink Alberta dated March
28, 1996 as amended dated June 13, 1996 and November 17,
1997.(1)
3.1.3 Articles of Incorporation of Riverview Management Corporation
dated August 18, 1987, as amended.(1)
3.2.1 ByLaws of Core Ventures, Inc. (now known as FutureLink USA),
as adopted July 20, 1997.(1)
3.2.2 By-Laws of FutureLink Alberta.(1)
3.2.3 By-Laws of Riverview Management Corporation, as adopted
September 9, 1987.(1)
4.1.1 Agreement by and between FutureLink and Thomson Kernaghan &
Co. Ltd. dated August 14, 1998.(1)
4.1.2 Share Purchase Agreement by and among FutureLink USA, Donald
A. Bialik, Olivia B. Bialik, Bialik Family Trust, Riverview
Management Corporation, SysGold Ltd., and FutureLink Alberta
dated August 4, 1998 and related Indemnity Agreement.(2)
Amendment to the Share Purchasing Agreement dated August 21,
1998.(3)
4.1.3 Targetco Acquisition Agreement by and between FutureLink USA
and FutureLink Alberta, dated August 3, 1998.(1)
4.1.4 Take-Over Bid Circular dated September 28, 1998.(2)
5 Jeffer, Mangels, Butler & Marmaro LLP Legal Opinion.(3)
10.1.1 Commercial Insurance Policy with Financial Management Alberta
Ltd., dated February 10, 1998.(1)
10.1.2 Indemnity Agreement by and between Core Ventures, Inc. (now
known as FutureLink USA) and John Anastasios Xinos, dated
January 19, 1998.(1)
10.1.3 Letter of Intent from Core Ventures, Inc. (now known as
FutureLink USA) to Printscan International, Inc., dated
August 22, 1997.(1)
</TABLE>
(1) Previously filed on August 24, 1998.
(2) Previously filed on October 22, 1998.
(3) Previously filed on November 24, 1998.
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<TABLE>
<S> <C>
10.1.4 Lease Agreement, as amended by and between Coffee.Com
Interactive Cafe Corp. (now known as FutureLink Alberta) and
Manufacturers Life Insurance Company, dated
March 20, 1997.(1)
10.1.5 Employment Agreement by and between SysGold Ltd. and
Apprentice of Calgary dated January 1, 1998.(1)
10.1.6 Consulting and Confidentiality Agreement by and between
SysGold, Inc. and S.1.Systems Ltd., dated August 13, 1997.(1)
10.1.7 Independent Contractor Agreement by and SysGold Ltd. and BV
Ridge Consulting dated March 10, 1997.(1)
10.1.8 Revised Offer to Lease by and between SysGold Ltd. and Bow
Valley Square Management Ltd., dated March 24, 1998.(1)
Amendment to Offer to Lease dated February 23, 1998.(4)
Amendment to Offer to Lease dated June 2, 1998.(4)
Amendment to Offer to Lease dated August 24, 1998.(4)
10.1.9 Generic Contract Information Systems Services Agreement by and
between UMC Resources CANADA Ltd. and SysGold Ltd., dated
July 1, 1998.(1)
10.1.10 Business Partner Agreement with addendum by and between
SysGold Ltd. and Lotus Development Canada Limited.(1)
10.1.11 Final Invoice/Enrollment Contract by and between SysGold Ltd.
and Microsoft Certified Solution Provider, dated December 12,
1997.(1)
10.1.12 Agreement of understanding by and between SysGold Ltd. and
Seanix.(1)
10.1.13 Industry Partner Agreement by and between MISSolutions D.B.A.
ETI Solutions and SysGold Ltd.(1)
10.1.14 Arbor Systems Integration Partner Agreement by and between
Arbor Software Corporation and SysGold, Inc., dated March 1,
1998.(1)
10.1.15 Citrix Solutions Network Membership Agreement by and between
Citrix Systems, Inc. and FutureLink Alberta, dated May 5,
1998.(1)
10.1.16 Solution Provider Contract by and between IBM Canada Ltd. and
SysGold Ltd. dated July 17, 1998.(1)
10.1.17 Distributor Authorized Reseller Agreement by and between
Hewlett Packard and SysGold, Inc., dated March 19, 1998.(1)
</TABLE>
(1) Previously filed on August 24, 1998.
(4) Previously filed on December 14, 1998.
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<PAGE> 129
<TABLE>
<S> <C>
10.1.18 Security Agreement by and between Canadian Imperial Bank of
Commerce and Riverview Management Corporation, dated December
11, 1997.(1)
10.1.19 Letter Agreement by and between FutureLink USA and NTN
Network, dated April 29, 1998.(1)
10.1.20 Enrollment Agreement by and between Microsoft Corporation and
FutureLink, dated April 28, 1998.(1)
10.1.21 Service Agreement by and between FutureLink USA and Willson
Stationers Ltd., dated June 1, 1998.(1)
10.1.22 Service Agreement by and between FutureLink USA and Jaws
Technologies, Inc., dated June 1, 1998.(1)
10.1.23 Service Agreement by and between FutureLink USA and Financial
Management Alberta, Ltd.(1)
10.1.24 Service Agreement by and between FutureLink USA and Chell
McNeill, Inc., dated April 17, 1998.(1)
10.1.25 Service Agreement by and between FutureLink USA and Sheraton
Business Forms Ltd. dated July 1, 1998.(1)
10.1.26 Service Agreement by and between FutureLink and Bankton
Financial Corporation, dated April 17, 1998.(1)
10.1.27 Business Credit Agreement by and between Canadian Imperial
Bank of Commerce and SysGold Ltd., dated April 16, 1998.(1)
10.1.28 Share Purchase Agreement by and among Core Ventures, Inc.
(now known as FutureLink USA), FutureLink Alberta, Cameron
Chell, and Linda Carling, dated January 20, 1998.(1)
10.1.29 FutureLink USA Stock Option Plan dated June 29, 1998.(1)
10.1.30 Employment Agreement by and between FutureLink USA,
FutureLink/SysGold Ltd. and Donald A. Bialik dated
August 1998.(2)
10.1.31 Agreement by and between 692594 Alberta Ltd. and FutureLink
USA dated March 1998.(2)
21 Subsidiaries of Issuer include:
1. FutureLink Alberta
2. Riverview Management Corporation
23.1 Consent of Jeffer, Mangels, Butler & Marmaro LLP.
</TABLE>
(1) Previously filed on August 24, 1998.
(2) Previously filed on October 22, 1998.
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<PAGE> 130
<TABLE>
<S> <C>
23.2.1 Consent of Ernst & Young.
23.2.2 Consent of Buchanan Barry & Co.
</TABLE>
ITEM 28. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration
Statement:
(i) To include any Prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events
arising after the effective date of the Registration
Statement (or the most recent post-effective
amendment thereof) which, individually, or in the
aggregate, represent a fundamental change in the
information set forth in the Registration Statement;
notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the
total dollar value of securities offered would not
exceed that which was registered) and any deviation
from the low or high end of the estimated maximum
Offering range may be reflected in the form of
prospectus filed with the Commission pursuant to
Rule 424(b) (Section 230.424(b) of this Chapter) if,
in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum
aggregate Offering price set forth in the
"Calculation of Registration Fee" table in the
effective registration statement; and
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the Registration Statement or any material change to
such information in the Registration Statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new Registration
Statement relating to the securities offered therein, and
the Offering of such securities at that time shall be
deemed to be the initial bona fide Offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which
remain unsold at the termination of the Offering.
Insofar as indemnification for liabilities arising from the Securities Act of
1933 (the "Act") may be permitted to directors, officers, and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
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<PAGE> 131
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Calgary,
Province of Alberta on the 21st day of December, 1998.
FUTURELINK DISTRIBUTION CORP.
By: /s/ CAMERON CHELL
--------------------------------------
Cameron Chell, Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints
Cameron Chell or Raghu Kilambi, or either of them, his true and lawful
attorney-in-fact and agent, acting alone, with full powers of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, any Amendments thereto and any Registration
Statement for the same Offering which is effective upon filing pursuant to Rule
462(b) under the Securities Act of 1933, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent, each acting
alone, full powers and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all said attorney-in-fact and agent, acting alone, or his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons on behalf
of the Company in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
*
- ------------------------------------ Director December 21, 1998
Robert Kubbernus
*
- ------------------------------------ Director December 21, 1998
Bryson Farrill
*
- ------------------------------------ Director, Vice President December 21, 1998
Raghu Kilambi Corporate Finance, CFO and
Chief Accounting Officer
*
- ------------------------------------ Corporate Secretary December 21, 1998
Linda M. Murray
*
- ------------------------------------ Director December 21, 1998
Philip Ladouceur
*
- ------------------------------------ President December 21, 1998
Don Bialik
*
- ------------------------------------ Director December 21, 1998
Robert H. Kohn
*By: /s/ CAMERON CHELL
-------------------------------- December 21, 1998
Cameron Chell
CEO and Director
</TABLE>
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<PAGE> 1
EXHIBIT 23.1
CONSENT OF JEFFER, MANGELS, BUTLER & MARMARO LLP
We consent to the reference to our firm under the caption "Legal Opinion" and to
the inclusion of our opinion as an Exhibit to Amendment No. 4 of the Form SB-2
Registration Statement of FutureLink Distribution Corp. as filed with the
Securities and Exchange Commission on December 21, 1998.
/s/ JEFFER, MANGELS, BUTLER & MARMARO LLP
<PAGE> 1
[ERNST & YOUNG LETTERHEAD]
EXHIBIT 23.2.1
CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated August 20, 1998 on the financial statements included in
the Prospectus filed as part of Amendment No. 4 (dated December 21, 1998) to
the registration statement on Form SB-2 of FutureLink Distribution Corp., a
Colorado corporation.
Calgary, Canada ERNST & YOUNG LLP
December 21, 1998 Chartered Accountants
<PAGE> 1
EXHIBIT 23.2.2
CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated August 13, 1998, except as to Note 5 and 6(b) which is
as September 24, 1998 on the financial statements listed in Amendment No. 4 to
Form SB-2 of Futurelink Distribution Corp. a Colorado Corporation.
/s/ BUCHANAN BARRY & CO.
----------------------------------------
Chartered Accountants
Calgary, Alberta
December 21, 1998
