<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
Date of report (Date of earliest event reported): June 2, 1999
Commission File No. 0-24833
FUTURELINK DISTRIBUTION CORP.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Colorado 95-3895211
- --------------------------------------------------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
300, 250 - 6th Avenue S.W., Calgary, Alberta CANADA T2P 3H7
- --------------------------------------------------------------------------------
(Address of principal executive offices) (ZIP Code)
(403) 216-6000
- --------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Not Applicable
- --------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On June 2, 1999, the Registrant entered into an arm's length agreement
to acquire all of the issued and outstanding shares of Executive LAN Management,
Inc. of Irvine, California, which carries on business as Micro Visions ("Micro
Visions"). Founded in 1987, Micro Visions is one of North America's leading
server-based computing systems integrators. As well as Irvine, Micro Visions has
branch offices in Atlanta, Las Vegas, Los Angeles, Phoenix and Raleigh/Durham.
Micro Visions has approximately 80 employees and had revenues of $13.7 million
in 1998.
In 1998, Micro Visions was the no. 1 (1997 - no. 2) reseller and
integrator of products from Citrix Systems Inc. in North America. Citrix
products provide the foundation for the Registrant's main Application Service
Provider (ASP) business.
The closing of the acquisition, expected by September of 1999, is
subject to several conditions, including approval by the Registrant's
shareholders. Under the agreement, Micro Vision' shareholders (the family of
Glen Holmes) will receive $12 million in cash and 6 million post-reverse split
shares of the Registrant's common stock upon closing. In addition, Micro
Visions' shareholders could gain a further 2.4 million post-reverse split shares
of the Registrant based on achievement of certain performance criteria in 1999.
The Registrant has advanced a $1 million deposit toward the cash portion of the
acquisition price in conjunction with the signing of the acquisition agreement.
Based on the Registrant's stock price at close of market on June 2, 1999, the
consideration to be paid to Micro Visions' shareholders (not including the up to
2.4 million additional shares of the Registrant, which can be earned) is worth
approximately $51 million.
The initial $1 million deposit was funded from the proceeds of the
Registrant's recently completed private placement offering through Commonwealth
Associates (see the Form 8-K of the Registrant filed May 7, 1999). The
Registrant plans to fund the remaining $11 million cash portion of the purchase
price by raising additional debt and equity financing between now and the
closing which is anticipated to occur in late September, 1999.
Upon closing, it is anticipated that Cameron Chell, currently the
Registrant's President and Chief Executive Officer ("CEO"), will remain CEO of
the combined companies. Glen Holmes, 42, the founder and CEO of Micro Visions,
will become President of the Registrant and is to be nominated to the
Registrant's board of directors. It is intended that the merged company will be
renamed FutureLink Corp. (subject to shareholder approval) and be headquartered
in Irvine, California, with the Registrant retaining executive offices in
Calgary, Alberta.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS OF BUSINESS TO BE ACQUIRED:
The financial statements for Micro Visions for the 12 month periods
ended December 31, 1997 and 1998 and for the three month periods ended March 31,
1998 and 1999 required by this item are attached.
2
<PAGE> 3
(B) PRO FORMA FINANCIAL INFORMATION:
Pro forma financial information for the merged companies based on
financial statements for the three month period ended March 31, 1999
and for the twelve month period ended December 31, 1998 are attached.
EXHIBITS:
10.1 Agreement and Plan of Reorganization and Merger dated June 2,
1999 among the Registrant, FutureLink California Acquisition
Corp., Executive LAN Management, Inc. (d.b.a. Micro Visions),
and Holmes Trust, Glen C. Holmes and Christine M. Holmes
(without schedules).*
99.1 News Release of the Registrant dated June 3, 1999. Note: These
Exhibits are attacked to the original form 8-K filed by the
Registrant with regard to these matters on June 16, 1999.*
* Note: These Exhibits are attached to the original Form 8-K filed by the
Registrant with regard to these matters on June 16, 1999.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FUTURELINK DISTRIBUTION CORP.
By: [signed: C. Chell] Date: July 27, 1999
--------------------------------------
Cameron Chell, Chief Executive Officer
By: [signed: R. Kilambi] Date: July 27, 1999
--------------------------------------
Raghu Kilambi, Chief Financial Officer
3
<PAGE> 4
<PAGE> 5
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C> <C>
A.1 Financial Statements of Executive LAN Management, Inc., dba Micro
Visions, for the twelve months ended December 31, 1998 and 1997
Report of Independent Auditors....................................... F-1
Financial Statements
Balance Sheets..................................................... F-2
Statements of Income............................................... F-3
Statements of Shareholders' Equity................................. F-4
Statements of Cash Flows........................................... F-5
Notes to Financial Statements...................................... F-6
A.2 Financial Statements of Executive LAN Management, Inc., dba Micro
Visions, for the three months ended March 31, 1999 and 1998
Financial Statements
Balance Sheets..................................................... F-14
Statements of Income and Retained Earnings......................... F-15
Statements of Changes in Stockholders' Equity...................... F-16
Consolidated Statements of Cash Flows.............................. F-17
Notes to Consolidated Financial Statements......................... F-18
B.1 Pro forma financial information for the merged companies based on
financial statements for the 12 month period ended December, 31
1998 and the three month period ended March 31, 1999
Financial Statements
March 31, 1999 Pro Forma Balance Sheet............................. F-19
March 31, 1999 Pro Forma Statement of Income and Loss.............. F-20
December 31, 1998 Pro Forma Statement of Income and Loss........... F-21
Notes to Unaudited Pro Forma Consolidated Financial Statements..... F-22
</TABLE>
5
<PAGE> 6
Report of Independent Auditors
The Board of Directors
Executive LAN Management, Inc., dba Micro Visions
We have audited the accompanying balance sheets of Executive LAN Management,
Inc., dba Micro Visions as of December 31, 1998 and 1997, and the related
statements of income, shareholders' 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Executive LAN Management, Inc.,
dba Micro Visions at December 31, 1998 and 1997, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
[Signed: Ernst & Young LLP]
Irvine California,
April 30, 1999,
Except for Note 8, as to which the date is
June 24, 1999
F-1
<PAGE> 7
Executive LAN Management, Inc.,
dba Micro Visions
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 157,000 $ 690,000
Accounts receivable, less allowance for doubtful accounts of
$115,000 in 1998 and $79,000 in 1997 2,063,000 1,052,000
Inventories 815,000 231,000
Advances due from officers 2,000 72,000
Other current assets 15,000 1,000
---------- ----------
Total current assets 3,052,000 2,046,000
Property and equipment, less accumulated depreciation of $122,000 in
1998 and $83,000 in 1997 389,000 83,000
Other assets 146,000 33,000
---------- ----------
Total assets $3,587,000 $2,162,000
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 797,000 $ 169,000
Line of credit 261,000 150,000
Income taxes payable 153,000 237,000
Deferred income taxes 435,000 235,000
Accrued expenses and other liabilities 464,000 432,000
Deferred revenues 73,000 90,000
---------- ----------
Total current liabilities 2,183,000 1,313,000
Commitments
Shareholders' equity
Common stock, no par value:
Authorized shares - 1,000,000
Issued and outstanding shares - 200 in 1998 and 1997 10,000 10,000
Retained earnings 1,394,000 839,000
---------- ----------
Total shareholders' equity 1,404,000 849,000
---------- ----------
Total liabilities and shareholders' equity $3,587,000 $2,162,000
========== ==========
</TABLE>
See accompanying notes.
F-2
<PAGE> 8
Executive LAN Management, Inc.,
dba Micro Visions
Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Revenues:
Consulting revenues $ 5,088,000 $ 2,709,000
Software revenues 3,274,000 1,478,000
Computer equipment sales 4,797,000 4,972,000
Training revenues 290,000 62,000
Maintenance revenues and other income 220,000 344,000
------------ ------------
13,669,000 9,565,000
Costs and expenses:
Cost of revenues 8,867,000 6,734,000
Selling, general and administrative 3,937,000 1,951,000
Interest expense (income), net 10,000 (53,000)
------------ ------------
12,814,000 8,632,000
------------ ------------
Income before income taxes 855,000 933,000
Provision for income taxes 178,000 395,000
------------ ------------
Net income $ 677,000 $ 538,000
============ ============
Basic and diluted earnings per share $ 3,385 $ 2,690
============ ============
Weighted average shares (basic and diluted) 200 200
============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 9
Executive LAN Management, Inc.,
dba Micro Visions
Statements of Shareholders' Equity
<TABLE>
<CAPTION>
COMMON STOCK
-------------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
------ ------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 200 $10,000 $ 301,000 $ 311,000
Net income -- -- 538,000 538,000
--- ------- ----------- -----------
Balance at December 31, 1997 200 10,000 839,000 849,000
--- ------- ----------- -----------
Net income -- -- 677,000 677,000
Distributions to shareholders -- -- (122,000) (122,000)
--- ------- ----------- -----------
Balance at December 31, 1998 200 $10,000 $ 1,394,000 $ 1,404,000
=== ======= =========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 10
Executive LAN Management, Inc.,
dba Micro Visions
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------
1998 1997
------------ ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 677,000 $ 538,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 39,000 20,000
Change in operating assets and liabilities:
Accounts receivable (1,011,000) (495,000)
Inventories (584,000) (183,000)
Other current assets (14,000) --
Advance due from officers 70,000 (72,000)
Other assets (113,000) (25,000)
Accounts payable and accrued expenses 660,000 281,000
Income taxes payable (84,000) 237,000
Deferred income taxes 200,000 141,000
Deferred revenues (17,000) 90,000
------------ ----------
Net cash (used in) provided by operating activities (177,000) 532,000
INVESTING ACTIVITIES
Purchases of equipment (345,000) (50,000)
FINANCING ACTIVITIES
Distribution to shareholders (122,000) --
Net borrowings (repayment) from/of line of credit 111,000 (93,000)
------------ ----------
Net cash used in financing activities (11,000) (93,000)
Increase (decrease) in cash (533,000) 389,000
Cash at beginning of year 690,000 301,000
------------ ----------
Cash at end of year $ 157,000 $ 690,000
============ ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 4,000 $ 11,000
Income taxes paid 62,000 17,000
</TABLE>
See accompanying notes.
F-5
<PAGE> 11
Executive LAN Management, Inc.,
dba Micro Visions
Notes to Financial Statements
December 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Executive LAN Management dba Micro Visions (the "Company") was incorporated in
California in 1993 and is a leading reseller and service provider of thin
client/server-based computing systems. The Company also provides a full line of
information technology consulting services including internet/intranet
consulting, LAN/WAN implementation, internetworking analysis and design,
application deployment and desktop management, and Year 2000 consulting. The
Company's principal markets are in the U.S.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
effect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company recognizes consulting revenues upon delivery of service. Software
license revenues are recognized upon delivery of the software. Computer
equipment sales are recognized upon shipment of the equipment. Training revenues
are recognized upon delivery of training services. Maintenance revenues are
recognized ratably over the period of the maintenance contract.
UNBILLED ACCOUNTS RECEIVABLES
Unbilled accounts receivable, representing unbilled consulting services, of
$89,000 and $65,000 at December 31, 1998 and 1997, respectively, are included in
accounts receivable on the accompanying balance sheets.
INVENTORY
Inventory is stated at the lower of cost (first-in, first out) or market and
primarily consists of prepackaged third party computer software.
F-6
<PAGE> 12
Executive LAN Management, Inc.,
dba Micro Visions
Notes to Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is computed on a
straight-line method based upon the estimated useful lives of the related assets
which range from five to seven years. Leasehold improvements are depreciated
using the straight-line method over seven years. Property and equipment were
comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------
1998 1997
---------- ----------
<S> <C> <C>
Office furniture $ 90,000 $ 15,000
Computer equipment 376,000 149,000
Leasehold improvements 45,000 2,000
---------- ----------
511,000 166,000
Less accumulated depreciation and amortization (122,000) (83,000)
---------- ----------
$ 389,000 $ 83,000
========== ==========
</TABLE>
LONG-LIVED ASSETS
Effective January 1, 1997, the Company adopted Statement of Financial Accounting
Standards No. 121 ("SFAS No. 121"), Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of, which requires impairment
losses to be recorded on long-lived assets used in operations when indicators of
impairment are present. Implementation of SFAS No. 121 was immaterial to the
financial statements of the Company.
INCOME TAXES
Prior to July 1, 1998, the Company utilized the liability method to account for
income taxes as set forth in SFAS No. 109, Accounting for Income Taxes. Under
the liability method, deferred taxes are determined based on differences between
the financial statement and tax bases of assets and liabilities using enacted
tax rates.
F-7
<PAGE> 13
Executive LAN Management, Inc.,
dba Micro Visions
Notes to Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES (CONTINUED)
Effective July 1, 1998, the stockholders of the Company elected, under
Subchapter S of the Internal Revenue Code, to include the Company's income in
their own income for federal income tax purposes. Accordingly, the Company is
generally not subject to federal income taxes.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist principally of cash, receivables,
accounts payable, and borrowings. The Company believes all the financial
instruments' recorded values approximate current values.
CONCENTRATION OF CREDIT RISK
The Company sells the majority of its products and provides services to various
customers, which include a variety of large companies and distributors
throughout the United States. In 1998, sales to the Company's largest customer
accounted for 10% of total sales. Accounts receivable from that customer
represented 12% of total accounts receivable at December 31, 1998. In 1997,
sales to the Company's two largest customers accounted for 47% and 19% of total
sales. Accounts receivable from those customers aggregated 44% of total accounts
receivable at December 31, 1997. The Company provides for uncollectible amounts
upon recognition of revenue and when specific credit problems arise. During 1998
and 1997, the Company did not perform credit evaluations on its customers,
however, the Company required a twenty-five percent deposit for its first time
customers. The Company generally does not require collateral on its accounts
receivable.
ADVERTISING
The Company expenses advertising costs as incurred. These costs include
promotional literature, direct mailing brochures, telemarketing, and trade
shows. Advertising expense for the years ended December 31, 1998 and 1997 was
$106,000 and $11,000, respectively.
F-8
<PAGE> 14
Executive LAN Management, Inc.,
dba Micro Visions
Notes to Financial Statements (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET INCOME PER SHARE
Effective January 1, 1998, the Company adopted SFAS No. 128, Earnings Per Share,
and restated all prior period earnings per share (EPS) data, as required. SFAS
No. 128 replaced the presentation of primary and fully diluted EPS pursuant to
APB Opinion No. 15, Earnings Per Share, with the presentation of basic and
diluted EPS. Basic EPS excludes dilution and is computed by dividing net income
by the weighted average number of common shares outstanding for the period.
Diluted net income per share is computed by dividing net income by the weighted
average number of common shares outstanding for the period and the dilutive
effect, if any, of stock options and warrants outstanding for the period.
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income, which establishes standards for reporting and displaying
comprehensive income and its components in the financial statements. For the
years ended December 31, 1998 and 1997, the Company did not have any components
of comprehensive income as defined by SFAS No. 130.
SEGMENTS OF A BUSINESS ENTERPRISE
Effective January 1, 1998, the Company adopted SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information, SFAS 131 superseded SFAS No.
14, Financial Reporting for Segments of a Business Enterprise. SFAS No. 131
establishes standards for the way that public business enterprises report
information about operating segments in annual consolidated financial statements
and requires that those enterprises report selected information about operating
segments in interim financial reports. SFAS No. 131 also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. The adoption of SFAS No. 131 did not affect the consolidated results
of operations or financial position of the Company.
F-9
<PAGE> 15
Executive LAN Management, Inc.,
dba Micro Visions
Notes to Financial Statements (continued)
2. INCOME TAXES
Provision (benefit) for income taxes is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1998 1997
--------- --------
<S> <C> <C>
Current:
Federal $ (22,000) $201,000
State -- 53,000
--------- --------
(22,000) 254,000
--------- --------
Deferred:
Federal 162,000 120,000
State 38,000 21,000
--------- --------
200,000 141,000
--------- --------
Total provision for income taxes $ 178,000 $395,000
========= ========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets (liabilities) are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------
1998 1997
---------- ----------
<S> <C> <C>
Deferred tax assets:
Depreciation $ 1,000 $ 1,000
---------- ----------
Total deferred tax assets 1,000 1,000
---------- ----------
Deferred tax liabilities:
Inventory adjustment (213,000) (92,000)
Accrual to cash adjustment (223,000) (144,000)
---------- ----------
Net deferred tax liabilities (436,000) (236,000)
---------- ----------
Total net deferred tax liabilities $ (435,000) $ (235,000)
========== ==========
</TABLE>
On July 1, 1998, the Company changed its tax status, as defined by the Internal
Revenue Code, to Subchapter S, which eliminated the requirement for the Company
to pay federal income taxes as net income is passed through and taxable to the
individual stockholders. A state provision for income taxes will be recorded
based on a California statutory rate of 1.5% for Subchapter S Corporations.
F-10
<PAGE> 16
Executive LAN Management, Inc.,
dba Micro Visions
Notes to Financial Statements (continued)
2. INCOME TAXES (CONTINUED)
Income tax benefit computed at the statutory federal income tax rate (34%) and
income tax expense provided in the financial statements differ as follows for
the years ended December 31:
<TABLE>
<CAPTION>
1998 1997
---------- --------
<S> <C> <C>
Benefit computed at the statutory rate $ 291,000 $317,000
S Corp income not subject to tax (111,000) --
Nondeductible expenses (6,000) 6,000
Statement income tax, net of federal income tax benefit 19,000 54,000
Other (15,000) 18,000
---------- --------
Income tax expense $ 178,000 $395,000
========== ========
</TABLE>
3. LINE OF CREDIT
The Company entered into a $2.5 million line of credit agreement with a
financial institution to finance its inventory purchases. The available credit
line is based on a percentage of the Company's eligible accounts receivable
balance less the outstanding balance owed to the financial institution. The
outstanding balance bears interest at prime plus 3.03% (10.78% at December 31,
1998). At December 31, 1998, the unused credit line was $2,134,000.
Substantially all of the Company's assets are collateral under the credit
agreement.
4. COMMITMENTS
The Company has entered into various operating leases ranging from three to five
years for its facilities. Rentals under certain leases have rent escalation
clauses as set forth in their respective lease agreements. Future minimum rental
commitments as of December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999 $ 279,000
2000 267,000
2001 244,000
2002 181,000
2003 91,000
----------
$1,062,000
==========
</TABLE>
Rent expense was $135,000 and $36,000 for the years ended December 31, 1998 and
1997, respectively.
F-11
<PAGE> 17
Executive LAN Management, Inc.,
dba Micro Visions
Notes to Financial Statements (continued)
5. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1998 1997
-------- --------
<S> <C> <C>
Numerator:
Net income $677,000 $538,000
Denominator:
Shares used in computing basic and
diluted earnings per share
200 200
======== ========
Basic and diluted earnings per share $ 3,385 $ 2,690
======== ========
</TABLE>
6. RELATED PARTY TRANSACTIONS
During 1997 and 1998, the Company made various advances to its officers.
Advances in 1997 aggregated $72,000 with one advance to a shareholder in the
amount of $68,000. This advance was canceled by the Company in 1998 and recorded
as a bonus payment. Outstanding advances to officers at December 31, 1998 was
$2,000.
7. PENSION PLANS
The Company has three defined contribution pension plans covering employees over
the age of 21 years with one year of service. The Company's contribution
requirements under these plans range from zero percent to one hundred percent of
participants' eligible annual compensation as defined in the plan documents. The
Company's combined contributions to these plans for the years ended December 31,
1998 and 1997 were $108,000 and $15,000, respectively.
8. SUBSEQUENT EVENTS
On June 2, 1999, the Company and the Company's shareholders signed an Agreement
and Plan of Reorganization and Merger (the "Agreement") with FutureLink
Distribution Corp. ("FutureLink"). The Agreement provides for a merger of the
Company with a subsidiary of FutureLink such that the Company's outstanding
stock shall be converted into and become a right to receive the consideration as
set forth in the agreement. The merger is to take place as soon as practicable
after the satisfaction or waiver of the conditions set forth in the Agreement
and is anticipated to be completed by October 1999.
F-12
<PAGE> 18
Executive LAN Management, Inc.,
dba Micro Visions
Notes to Financial Statements (continued)
9. IMPACT OF YEAR 2000 (UNAUDITED)
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. The Company has completed
an assessment of their IT systems as well as the software and hardware sold to
its customers noting that they are Year 2000 compliant. The Company's IT systems
primarily consist of its financial reporting system. In July 1998, the Company
purchased and implemented a Year 2000 compliant financial reporting software
package totaling $42,000. The Company's non-IT systems primarily consist of
heating, sprinklers and security equipment at the Company's facilities. The
Company will complete its review and remediation of its non-IT systems and its
IT systems other than the financial reporting system by October 1, 1999. The
Company estimates that the total remaining costs to complete any required
modifications, upgrades or replacements of its IT and non-IT systems will not
have a material adverse effect on its business or results of operations. The
Company has obtained Year 2000 compliant certification letters from its major
software and hardware vendors noting that their software and hardware sold by
the Company are Year 2000 compliant. However, the failure of the Company's other
vendors and suppliers to be fully Year 2000 compliant with regards to their
products by January 1, 2000 could result in interruptions in the Company's
normal business work operations. The Company is currently developing contingency
plans to address the year 2000 issues that may pose a significant risk to the
Company's ongoing operations. The Company expects to complete the contingency
plans by October 31, 1999.
F-13
<PAGE> 19
EXECUTIVE LAN MANAGEMENT, INC.,
dba MICROVISIONS
BALANCE SHEETS
(See basis of presentation - Note 1)
(All amounts stated in $U.S.)
<TABLE>
<CAPTION>
MARCH 31
--------------------------
1999 1998
UNAUDITED $ $
- -------------------------------------------------- ---------- ----------
<S> <C> <C>
ASSETS
CURRENT
Cash 49,000 1,125,000
Accounts receivable, net 2,358,000 961,000
Inventory 422,000 129,000
Other current assets 62,000 35,000
---------- ----------
TOTAL CURRENT ASSETS 2,891,000 2,250,000
---------- ----------
Capital assets, net 441,000 102,000
Other assets 155,000 104,000
---------- ----------
596,000 206,000
---------- ----------
TOTAL ASSETS 3,487,000 2,456,000
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT
Line of credit 158,000 223,000
Accounts payable 713,000 78,000
Income taxes payable 242,000 237,000
Deferred income taxes 435,000 374,000
Accrued expenses and other liabilities 319,000 268,000
Deferred revenues 83,000 144,000
---------- ----------
TOTAL CURRENT LIABILITIES 1,950,000 1,324,000
---------- ----------
STOCKHOLDERS' EQUITY
Common stock, no par value:
Authorized
Authorized shares - 1,000,000
Issued and outstanding - 200 in 1999 and 1998 10,000 10,000
Retained earnings 1,527,000 1,122,000
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 1,537,000 1,132,000
---------- ----------
3,487,000 2,456,000
========== ==========
</TABLE>
See accompanying notes
F-14
<PAGE> 20
EXECUTIVE LAN MANAGEMENT, INC.,
dba MICROVISIONS
STATEMENTS OF INCOME AND RETAINED EARNINGS
(All amounts stated in $U.S.)
<TABLE>
<CAPTION>
3 month period ended
March 31
--------------------------
1999 1998
UNAUDITED $ $
- ---------------------------------------------- ---------- ----------
<S> <C> <C>
REVENUE
Consulting services 1,838,000 1,146,000
Hardware and software sales 2,013,000 1,451,000
Other 181,000 56,000
---------- ----------
4,032,000 2,653,000
---------- ----------
EXPENSES
Hardware and software purchases 1,678,000 1,240,000
Consulting 609,000 420,000
Selling, general and administrative 1,500,000 520,000
Interest 2,000 --
Depreciation 20,000 2,000
---------- ----------
3,809,000 2,182,000
---------- ----------
INCOME BEFORE INCOME TAXES 223,000 471,000
Provision for income taxes [note 2] 90,000 188,000
---------- ----------
INCOME FOR THE PERIOD 133,000 283,000
========== ==========
RETAINED EARNINGS, BEGINNING OF PERIOD 1,394,000 839,000
RETAINED EARNINGS, END OF PERIOD 1,527,000 1,122,000
========== ==========
</TABLE>
See accompanying notes
F-15
<PAGE> 21
EXECUTIVE LAN MANAGEMENT, INC.,
dba MICROVISIONS
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(All amounts stated in $U.S.)
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK EARNINGS
--------------------- ---------
UNAUDITED SHARES $ $
- -------------------------------- -------- ------ ---------
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1997 200 10,000 839,000
Net income 283,000
-------- ------ ---------
BALANCE, MARCH 31, 1998 200 10,000 1,122,000
Net income 394,000
Distributions to stockholders (122,000)
-------- ------ ---------
BALANCE, DECEMBER 31, 1998 200 10,000 1,394,000
Net income 133,000
-------- ------ ---------
BALANCE, MARCH 31, 1999 200 10,000 1,527,000
======== ====== =========
</TABLE>
See accompanying notes
F-16
<PAGE> 22
EXECUTIVE LAN MANAGEMENT, INC.,
dba MICROVISIONS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts stated in $U.S.)
<TABLE>
<CAPTION>
3 MONTH PERIOD ENDED
MARCH 31
-------------------------
1999 1998
UNAUDITED $ $
- ----------------------------------------------------------- -------- ----------
<S> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES
Net income for the period 133,000 283,000
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation 20,000 2,000
Changes in operating assets and liabilities:
Accounts receivable (295,000) 92,000
Inventories 393,000 102,000
Other current assets (45,000) 38,000
Other assets (9,000) (71,000)
Accounts payable and accrued expenses (137,000) (117,000)
Deferred revenues 10,000 54,000
-------- ----------
70,000 383,000
-------- ----------
CASH FLOWS USED IN INVESTING ACTIVITIES
Capital assets purchased (75,000) (21,000)
-------- ----------
(75,000) (21,000)
-------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (repayment) from/of line of credit (103,000) 73,000
-------- ----------
(103,000) 73,000
-------- ----------
INCREASE/(DECREASE) IN CASH (108,000) 435,000
Cash, beginning of period 157,000 690,000
-------- ----------
CASH, END OF PERIOD 49,000 1,125,000
======== ==========
</TABLE>
See accompanying notes
F-17
<PAGE> 23
EXECUTIVE LAN MANAGEMENT, INC.,
dba MICROVISIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999 and 1998
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying financial statements have been prepared on a consistent basis
with that of the annual financial statements and reflect all adjustments which
are, in the opinion of management, necessary to reflect a fair presentation for
the periods being presented.
2. INCOME TAXES
On July 1, 1998, the Company changed its tax status, as defined by the Internal
Revenue Code, to Subchapter S, which eliminated the requirement for the Company
to pay federal income taxes as net income is passed through and taxable to the
individual stockholders. The March 31, 1999 income tax figure includes the
federal income taxes related to the income earned by the Company for the period.
3. SUBSEQUENT EVENTS
On June 2, 1999, the Company and the Company's shareholders signed an Agreement
and Plan of Reorganization and Merger (the "Agreement") with FutureLink
Distribution Corp. ("FutureLink"). The Agreement provides for a merger of the
Company with a subsidiary of FutureLink such that the Company's outstanding
stock shall be converted into and become a right to receive the consideration as
set forth in the agreement. The merger is to take place as soon as practicable
after the satisfaction or waiver of each of the conditions set forth in the
Agreement and is anticipated to be completed by October, 1999.
F-18
<PAGE> 24
FUTURELINK DISTRIBUTION CORP.
MARCH 31, 1999 PRO FORMA BALANCE SHEET
UNAUDITED
(all amounts in United States thousands of dollars except Earnings Per Share)
<TABLE>
<CAPTION>
Pro Forma Note Pro Forma
FutureLink Micro Visions Adjustments Reference Consolidated
---------- ------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
CURRENT
Cash 5 49 -- 54
Accounts receivable 1,809 2,358 -- 4,167
Due from related parties 64 -- -- 64
Prepaid expenses 98 -- (39) (2.2) 59
Inventory 543 422 -- 965
Other current assets -- 62 -- 62
------- ------- ------- ----------- -------
2,519 2,891 (39) 5,371
------- ------- ------- ----------- -------
Capital assets 1,679 441 -- 2,120
Other assets -- 155 -- 155
Goodwill 4,822 -- 44,161 (2.1),(2.3) 48,983
Employee and consultants base 2,551 -- -- 2,551
Other investments 40 -- -- 40
------- ------- ------- ----------- -------
9,092 596 44,161 53,849
------- ------- ------- ----------- -------
TOTAL ASSETS 11,611 3,487 44,122 59,220
CURRENT
Bank debt 946 158 -- 1,104
Accounts payable and accrued liabilities 2,995 1,032 284 (2.2) 4,311
Income taxes payable -- 242 -- 242
Deferred income taxes -- 435 -- 435
Due to other related 113 -- -- 113
Due to former shareholders of Micro Visions -- -- 12,000 (2.1) 12,000
Deferred revenues -- 83 -- 83
------- ------- ------- ----------- -------
4,054 1,950 12,284 18,288
------- ------- ------- ----------- -------
Capital lease obligation 30 -- -- 30
Convertible debentures principle 4,271 -- -- 4,271
Convertible debentures discount and other (457) -- -- (457)
Accrued interest 124 -- -- 124
Other long term debt 248 -- -- 248
Deferred taxes 1,093 -- -- 1,093
------- ------- ------- ----------- -------
TOTAL LIABILITIES 9,363 1,950 12,284 23,597
------- ------- ------- ----------- -------
Paid up shares 3 10 6 (2.1)
(10) (2.2) 9
Exchangeable shares 851 -- -- 851
Capital in excess of par 9,736 -- 33,369 (2.1) 43,105
Contributed surplus 2,229 -- -- 2,229
Cumulative translation account (138) -- -- (138)
Retained Earnings/(Deficit) (10,433) 1,527 (1,527) (2.2) (10,433)
------- ------- ------- ----------- -------
2,248 1,537 31,838 35,623
------- ------- ------- ----------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 11,611 3,487 44,122 59,220
======= ======= ======= =========== =======
</TABLE>
See accompanying notes to unaudited proforma financial statements.
F-19
<PAGE> 25
FUTURELINK DISTRIBUTION CORP.
MARCH 31, 1999 PRO FORMA STATEMENT OF INCOME AND LOSS
UNAUDITED
(all amounts in United States thousands of dollars except Earnings Per Share)
<TABLE>
<CAPTION>
Pro Forma Note Pro Forma
FutureLink Micro Visions Adjustments Reference Consolidated
---------- ------------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C>
REVENUES
Consulting 1,197 1,838 -- 3,035
Hardware and software sales 383 2,013 -- 2,396
Server farm sales 164 -- -- 164
Other -- 181 -- 181
---------- ------ ------ ---- -----------
1,744 4,032 -- 5,776
---------- ------ ------ ---- -----------
EXPENSES
Contracts, payroll and benefits 1,596 609 -- 2,205
Hardware and software purchases 353 1,678 2,031
Selling, general and administration 770 1,500 -- 2,270
Interest expense 998 2 -- 1,000
Depreciation 132 20 -- 152
Goodwill and other amortization 529 -- 2,208 (3.1) 2,737
Other expenses 587 -- -- 587
---------- ------ ------ ---- -----------
4,965 3,809 2,208 10,982
---------- ------ ------ ---- -----------
NET PROFIT/(LOSS) BEFORE TAX (3,221) 223 (2,208) (5,206)
Deferred tax benefit 119 (90) -- 29
---------- ------ ------ ---- -----------
NET PROFIT/(LOSS) AFTER TAX (3,102) 133 (2,208) (5,177)
========== ===========
LOSS PER COMMON SHARE $ (0.53) $ (0.44)
========== ===========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 5,813,793 (4) 11,813,993
========== ===========
</TABLE>
See accompanying notes to unaudited proforma financial statements.
F-20
<PAGE> 26
FUTURELINK DISTRIBUTION CORP.
DECEMBER 31, 1998 PRO FORMA STATEMENT OF INCOME AND LOSS
UNAUDITED
(all amounts in United States thousands of dollars except Earnings Per Share)
<TABLE>
<CAPTION>
Pro Forma Note Pro Forma
FutureLink Micro Visions Adjustments Reference Consolidated
---------- ------------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C>
REVENUES
Consulting 1,471 5,088 -- 6,559
Hardware and software sales 963 8,071 -- 9,034
Other 3 510 -- 513
---------- ------- ------ ---- ----------
2,437 13,669 -- 16,106
---------- ------- ------ ---- ----------
EXPENSES
Contracts, payroll and benefits 3,662 2,092 -- 5,754
Hardware and software purchases 880 6,775 -- 7,655
Selling, general and administration 691 3,898 -- 4,589
Interest expense 1,304 10 -- 1,314
Depreciation 119 39 -- 158
Amortization 697 -- 8,832 (3.1) 9,529
Other expenses 295 -- -- 295
---------- ------- ------ ---- ----------
7,648 12,814 8,832 29,294
---------- ------- ------ ---- ----------
PROFIT/(LOSS) FROM OPERATIONS (5,211) 855 (8,832) (13,188)
Loss on sale of assets (48) -- -- (48)
Equity loss of affiliate (860) -- -- (860)
Minority interest 34 -- -- 34
---------- ------- ------ ---- ----------
(874) -- -- (874)
---------- ------- ------ ---- ----------
PROFIT/(LOSS) BEFORE INCOME TAXES (6,085) 855 (8,832) (14,062)
Provision for income taxes 205 (178) -- 27
---------- ------- ------ ---- ----------
NET PROFIT/(LOSS) AFTER TAX (5,880) 677 (8,832) (14,035)
---------- ------- ------ ---- ----------
LOSS PER COMMON SHARE $ (1.86) $ (1.53)
========== ==========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 3,169,314 (4) 9,169,314
========== ==========
</TABLE>
See accompanying notes to unaudited proforma financial statements.
F-21
<PAGE> 27
FUTURELINK DISTRIBUTION CORP.
NOTES TO UNAUDITED PRO FROMA CONSOLIDATED FINANCIAL STATEMENTS
(all amounts in United States dollars)
MARCH 31, 1999
On June 2, 1999, FutureLink Distribution Corp. ("FutureLink") entered into an
Agreement and Plan of Reorganization and Merger (the "Agreement") with Executive
LAN Management, Inc. ("Micro Visions"). The Agreement provides for a merger of
Micro Visions with FutureLink such that Micro Visions' outstanding stock shall
be sold to FutureLink in exchange for $12,000,000 cash and 6,000,000 FutureLink
common shares, as well as contingent consideration of 2,400,000 common shares
subject to the achievement of certain targets. The merger is to take place as
soon as practicable after the satisfaction or waiver of the conditions set forth
in the Agreement and is anticipated to be completed by October 1999.
1. The accompanying unaudited pro forma consolidated financial statements have
been prepared by management from the unaudited financial statements of
FutureLink and Micro Visions as at March 31, 1999 for the three month
period then ended and the audited financial statements of FutureLink and
Micro Visions as at December 31, 1998 and for the year then ended, together
with other information available to the companies. In the opinion of the
management of FutureLink, 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 financial statements should be read in conjunction with the
audited and unaudited financial statements of the companies.
2. The pro forma consolidated balance sheet at March 31, 1999 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
Micro Visions Acquisition Agreement as if the effective date of that
agreement was March 31, 1999:
2.1 The acquisition of all of the outstanding common shares of Micro
Visions in exchange for cash consideration of $12,000,000 and
6,000,000 common shares of FutureLink with an ascribed value of
$33,375,000 ($6,000 to paid up shares and $33,369,000 to capital in
excess of par).
F-22
<PAGE> 28
FUTURELINK DISTRIBUTION CORP.
NOTES TO UNAUDITED PRO FROMA CONSOLIDATED FINANCIAL STATEMENTS
(all amounts in United States dollars)
MARCH 31, 1999
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
Allocation
$(000's)
----------
<S> <C>
Net assets acquired 1,537
Goodwill 44,161
-------
Purchase price $45,698
-------
Consideration:
Cash 12,000
Common shares of FutureLink 33,375
Acquisition costs 323
-------
Total consideration $45,698
-------
</TABLE>
2.2 The allocation to goodwill of the estimated costs of the acquisition
described in 2.1 above, in the amount of $323,000, $284,000 of which
was payable and $39,000 of which had been incurred prior to March 31,
1999 and the elimination of the share capital ($10,000) and retained
earnings ($1,527,000) of Micro Visions on its acquisition.
2.3 Additional consideration payable to the former shareholders of Micro
Visions has not been reflected in the pro forma consolidated financial
statements as the outcome of the contingency cannot be reasonably
determined at this time. The additional share consideration, which
will be recorded as additional purchase price consideration (goodwill)
if and when it becomes payable, is based upon the achievement of the
following performance criteria as described in the Agreement for the
period from January 1, 1999 to December 31, 1999:
a) 1,200,000 FutureLink common shares to be issued if Micro Visions
achieves sales in excess of $18,000,000;
b) 720,000 FutureLink common shares to be issued if FutureLink and
Micro Visions together enlist 100 new customers; and
c) 480,000 FutureLink common shares to be issued if FutureLink and
Micro Visions together install and integrate at least 200 new
servers.
2.4 A dividend which may be declared by Micro Visions prior to closing has
not been reflected in the pro forma consolidated financial statements
as the amount cannot be reasonably estimated at this time. As per the
Agreement, the dividend amount, if any, will be equivalent to the
federal and state income tax in respect of income earned by Micro
Visions from the beginning of the current fiscal year of Micro Visions
(being October 1, 1998) through to closing of the Agreement. The
amount of any dividend paid would result in a corresponding amount
being allocated to goodwill.
F-23
<PAGE> 29
FUTURELINK DISTRIBUTION CORP.
NOTES TO UNAUDITED PRO FROMA CONSOLIDATED FINANCIAL STATEMENTS
(all amounts in United States dollars)
MARCH 31, 1999
3. The pro forma consolidated statements of income for the three months ended
March 31, 1999 and the year ended December 31, 1998 give effect to the
acquisition of Micro Visions as described in 2.1 and 2.2 above which will
become effective on the date of the fulfillment or waiver of the conditions
of the Agreement as if the transactions had occurred January 1, 1999, and
January 1, 1998, respectively. The following adjustments are reflected:
3.1 The amortization of goodwill attributable to the allocation of the
purchase price of Micro Visions 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.
4. The weighted average number of shares outstanding and the loss per share
give retroactive effect to the share consolidation of 5 to 1 on June 1,
1999.
The weighted average number of shares outstanding has been adjusted to give
effect to the shares issued upon acquisition of Micro Visions as though
they had been outstanding as at the beginning of the period. The weighted
average number of shares outstanding does not include the contingent share
consideration.
Fully diluted earnings per share does not differ from basic earnings per
share.
F-24
<PAGE> 30
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No: Page
- ----------- ----
<S> <C>
10.1* Agreement and Plan of Reorganization and Merger
dated June 2, 1999 among the Registrant, FutureLink
California Acquisition Corp., Executive LAN Management, Inc.
(d.b.a. Micro Visions), and Holmes Trust, Glen C. Holmes and
Christine M. Holmes (without schedules).
99.1* News Release of the Registrant dated June 3, 1999
</TABLE>
* Previously filed.
