FUTURELINK CORP
SB-2/A, 2000-06-09
COMPUTER PROGRAMMING SERVICES
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<PAGE>   1


      AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 9, 2000


                                                      REGISTRATION NO. 333-30178
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------


                               AMENDMENT NO. 4 TO


                                   FORM SB-2
                             REGISTRATION STATEMENT
                                     UNDER
                           THE SECURITIES ACT OF 1933

                                FUTURELINK CORP.
                 (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)

<TABLE>
<S>                                    <C>                                    <C>
               DELAWARE                                 7371                                95-4763404
     (STATE OR OTHER JURISDICTION           (PRIMARY STANDARD INDUSTRIAL                 (I.R.S. EMPLOYER
  OF INCORPORATION OR ORGANIZATION)         CLASSIFICATION CODE NUMBER)                IDENTIFICATION NO.)
</TABLE>

                              6 MORGAN, SUITE 100
                            IRVINE, CALIFORNIA 92618
                                 (949) 837-8252
         (ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)

                              6 MORGAN, SUITE 100
                            IRVINE, CALIFORNIA 92618
(ADDRESS OF PRINCIPAL PLACE OF BUSINESS OR INTENDED PRINCIPAL PLACE OF BUSINESS)

                              PHILIP R. LADOUCEUR
                      CHAIRMAN AND CHIEF EXECUTIVE OFFICER
                                FUTURELINK CORP.
                              6 MORGAN, SUITE 100
                            IRVINE, CALIFORNIA 92618
                                 (949) 837-8252
           (NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)

                                   COPIES TO:

<TABLE>
<S>                                    <C>                                    <C>
       STEPHEN D. COOKE, ESQ.                 THOMAS R. POLLOCK, ESQ.               PAMELA B. KELLY, ESQ.
PAUL, HASTINGS, JANOFSKY & WALKER LLP  PAUL, HASTINGS, JANOFSKY & WALKER LLP           LATHAM & WATKINS
  695 TOWN CENTER DRIVE, 17TH FLOOR         399 PARK AVENUE, 31ST FLOOR        633 WEST 5TH STREET, SUITE 4000
    COSTA MESA, CALIFORNIA 92626           NEW YORK, NEW YORK 10022-4697      LOS ANGELES, CALIFORNIA 90071-2007
           (714) 668-6200                         (212) 318-6000                        (213) 485-1234
</TABLE>

        APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
  As soon as practicable after this Registration Statement becomes effective.

    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,
check the following box.  [ ]


                        CALCULATION OF REGISTRATION FEE


<TABLE>
<S>                                      <C>                     <C>                     <C>
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
                                                                    PROPOSED MAXIMUM        PROPOSED MAXIMUM
TITLE OF EACH CLASS OF                        AMOUNT TO BE           OFFERING PRICE        AGGREGATE OFFERING
SECURITIES TO BE REGISTERED                    REGISTERED              PER SHARE                 PRICE
---------------------------------------------------------------------------------------------------------------
Common Stock, par value $0.0001 per
  share................................       5,750,000(1)             $22.75(1)            $130,812,500(1)
Common Stock, par value $0.0001 per
  share................................       1,150,000(2)              $8.91(3)               $9,487,500
---------------------------------------------------------------------------------------------------------------
Total..................................        6,900,000
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------

<S>                                      <C>
----------------------------------------------------------------
TITLE OF EACH CLASS OF                         AMOUNT OF
SECURITIES TO BE REGISTERED                 REGISTRATION FEE
---------------------------------------------------------------------------------------
Common Stock, par value $0.0001 per
  share................................        $34,535(1)
Common Stock, par value $0.0001 per
  share................................          $2,705
--------------------------------------------------------------------------------------------------------------
Total..................................         $37,240
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
</TABLE>



(1) We initially registered 5,750,000 shares pursuant to this Registration
    Statement. The proposed maximum offering price per share, proposed maximum
    aggregate offering price and amount of registration fee (previously paid)
    with respect to those shares was calculated in accordance with Rules 457(c)
    as of February 9, 2000. Includes 750,000 shares issuable upon exercise of
    the Underwriters' overallotment option.



(2) Includes 150,000 shares issuable upon exercise of the Underwriters'
    overallotment option.



(3) Estimated solely for the purpose of calculating the registration fee in
    accordance with Rules 457(c), based upon the average of the high and low
    closing prices as of June 2, 2000 as reported on the Nasdaq National Market.
    Pursuant to Rule 457(a), an additional filing fee of $2,705 is paid herewith
    for the additional 1,150,000 shares of our Common Stock registered by this
    Amendment No. 4.


    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 COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>   2

      THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
      MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
      THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
      NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING AN OFFER
      TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT
      PERMITTED.


                   SUBJECT TO COMPLETION, DATED JUNE 9, 2000


PRELIMINARY PROSPECTUS

                                6,000,000 SHARES


                               [FUTURELINK LOGO]

                                  COMMON STOCK

                           -------------------------


This is a public offering of 6,000,000 shares of common stock of FutureLink
Corp.


Our common stock currently trades on the Nasdaq National Market under the symbol
"FTRL."

SEE "RISK FACTORS" BEGINNING ON PAGE 5 TO READ ABOUT RISKS THAT YOU SHOULD
CONSIDER BEFORE BUYING SHARES OF OUR COMMON STOCK.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS
APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

                           -------------------------

<TABLE>
<CAPTION>
                                                                PER
                                                               SHARE      TOTAL
                                                              --------   --------
<S>                                                           <C>        <C>
Public offering price.......................................  $          $
Underwriting discounts and commissions......................  $          $
Proceeds, before expenses, to us............................  $          $
</TABLE>

                           -------------------------


Under certain circumstances, the underwriters may purchase up to an additional
900,000 shares of common stock from us at the public offering price, less
underwriting discounts and commissions.


The underwriters are severally underwriting the shares being offered. The
underwriters expect to deliver the shares against payment in New York, New York
on                  , 2000.

                           -------------------------


BEAR, STEARNS & CO. INC.                                 C. E. UNTERBERG, TOWBIN


             The date of this prospectus is                  , 2000
<PAGE>   3

                                 [FRONT COVER]

           [INSERT GRAPHIC DISPLAYING LIGHT SWITCH, TELEPHONE OUTLET,
            THERMOSTAT AND COMPUTER DISPLAYING HOW OUR SERVICES ARE
           INTENDED TO BE OFFERED WITH THE RELIABILITY OF A UTILITY]

                              [INSIDE FRONT COVER]

 [INSERT GRAPHIC SHOWING COMPONENTS OF APPLICATION HOSTING SERVICES, INCLUDING
 THE METHODS OF DELIVERY OF SOFTWARE APPLICATIONS FROM OUR DATA CENTERS TO OUR
                                   CUSTOMERS]
<PAGE>   4

                               PROSPECTUS SUMMARY

     You should read the entire prospectus carefully, especially the risks of
investing in our common stock discussed under "Risk Factors" and our financial
statements and related notes included elsewhere in this prospectus.

OUR COMPANY

     We provide server-based computing services and are an application service
provider, or ASP. Our services enable software applications to be deployed,
managed, supported and upgraded from centrally located servers, rather than on
individual desktop computers. We are North America's largest integrator of
server-based computing systems using Citrix software, which is deployed with
Microsoft Windows NT Terminal Server software. The ASP market is expected to
grow to over $11.0 billion in 2003. We intend to use our server-based computing
capabilities to grow our ASP business.

     We believe that the following factors are driving the growth of our
server-based computing and ASP services:

     - the increasing complexity of software applications, the constant need to
       upgrade software applications and the growing demand for faster software
       integration and deployment, which necessitate more centralized
       information management systems,

     - the scarcity of information technology professionals, making it expensive
       and difficult for companies to operate and manage software on their own,

     - the decline in telecommunication costs and the increasing availability of
       bandwidth, making it less costly to connect remote users to a central
       data center,

     - the growing demand for remote and shared access to software applications,
       and

     - the increasing number of software applications and types of computer
       devices requiring integration expertise that is not available to, or is
       increasingly expensive for, many companies.

     Our goal is to provide our ASP services with the speed, simplicity and
reliability of a utility service. By outsourcing all or part of their
information technology needs, our customers are able to reduce their information
technology staff and can focus on their core competencies. Our secure, reliable
and high-performance system for delivering software applications to multiple
users over a variety of hardware systems provides a flexible, cost-effective
solution for our customers.

OUR ADDRESS AND TELEPHONE NUMBER


     The address of our principal executive office is 6 Morgan, Suite 100,
Irvine, California 92618. Our telephone number is (949) 837-8252. Our website
address is www.futurelink.net. Information contained on our website does not
constitute part of this prospectus and our address should not be used as a
hyperlink to our website.


                           -------------------------

     This prospectus contains trademarks and names of persons other than
FutureLink, which are the property of their respective owners.

                                        1
<PAGE>   5

                                  THE OFFERING


     The share numbers in the following table assume that we have issued all the
shares of our common stock included in the purchase price for Charon Systems
Inc. They do not include the following securities outstanding as of May 31,
2000: (a) options to purchase 9,905,509 shares of our common stock at a weighted
average exercise price of $10.76 per share, (b) warrants to purchase 8,205,491
shares of our common stock at a weighted average exercise price of $11.81 per
share, and (c) debentures convertible into 67,965 shares of our common stock at
a conversion price of $1.15 per share. We are considering undertaking a private
placement of shares of convertible preferred stock promptly following this
offering. Although we have not determined any of the terms of the convertible
preferred stock we expect to offer between $50.0 and $75.0 million of our
convertible preferred stock. The convertible preferred stock will not be
registered under the Securities Act of 1933 and may not be offered or sold in
the United States absent registration or an applicable exemption from
registration requirements.



Common stock being offered by us....     6,000,000 shares



Common stock outstanding after this
offering............................     69,696,328 shares assuming the
                                         underwriters do not exercise their
                                         over-allotment option to purchase
                                         900,000 shares


Use of proceeds.....................     We intend to use the net proceeds from
                                         this offering to fund part of the cash
                                         portion of current and possible future
                                         acquisitions, to retire debt incurred
                                         to finance our acquisitions, to fund
                                         our operations, to develop our ASP data
                                         centers and for working capital and
                                         other general corporate purposes. See
                                         "Use of Proceeds."

Nasdaq National Market symbol.......     FTRL

                                        2
<PAGE>   6

                      SUMMARY CONSOLIDATED FINANCIAL DATA

     In the table below, we provide you with our actual and pro forma summary
consolidated financial data. We have prepared this information using our
consolidated financial statements for the years ended December 31, 1998 and 1999
and for the three months ended March 31, 1999 and 2000.

     When you read this summary consolidated financial data, it is important
that you also read our financial statements and our pro forma condensed
consolidated financial information and notes to that financial information
included elsewhere in this prospectus, as well as "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

     The pro forma column of the consolidated balance sheet data gives effect to
the following items as if each had occurred at March 31, 2000:

     - our pending acquisition of Charon Systems Inc.,


     - repayment of $18.3 million of shareholder notes issued to finance our
       acquisitions of KNS Holdings Limited and Madison Group Holdings, and to
       be issued to finance our acquisition of Charon Systems Inc.,


     - our $15.0 million private placement of equity securities with Pequot
       Private Equity Fund II, L.P. and Pequot Endowment Fund, L.P. in April
       2000,


     - conversion of $0.6 million of convertible debt in April 2000, and


     - this offering.

The pro forma column in the table of consolidated statements of operations data
gives effect to the items listed above and to the following as if each had
occurred on January 1, 1999:

     - our completed acquisitions,

     - our $50.0 million private placement of equity securities with Pequot
       Private Equity Fund II, L.P. and other investors in October 1999,


     - conversion of $22.7 million of convertible debt prior to March 31, 2000,



     - Pequot Private Equity Fund II, L.P.'s and certain other investors'
       exercise of warrants to purchase 2,401,041 shares of common stock in
       February 2000, and



     - the payment of $5.0 million cash and the issuance of warrants to purchase
       3,000,000 shares of common stock for the March 2000 settlement of the
       Small Caps litigation.


                                        3
<PAGE>   7


<TABLE>
<CAPTION>
                                             YEARS ENDED DECEMBER 31,            THREE MONTHS ENDED MARCH 31,
                                        -----------------------------------   -----------------------------------
                                                ACTUAL           PRO FORMA            ACTUAL           PRO FORMA
                                        ----------------------   ----------   ----------------------   ----------
                                          1998         1999         1999        1999         2000         2000
                                        ---------   ----------   ----------   ---------   ----------   ----------
                                                        (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S>                                     <C>         <C>          <C>          <C>         <C>          <C>
CONSOLIDATED STATEMENTS OF OPERATIONS
  DATA:
Revenue...............................  $   2,437   $   13,600   $  114,959   $   1,744   $   22,644   $   31,364
Expenses:
  Cost of hardware and software.......        880        7,013       64,766         353       14,074       18,390
  Cost of service delivery............      1,548       10,527       24,793       1,108        3,666        4,044
  Selling, general and
    administrative....................      3,064       12,611       39,290       1,845       14,426       18,164
  Goodwill and other intangibles
    amortization......................        668        4,981       61,074         500       11,783       14,774
  Depreciation and amortization.......        203        1,709        1,919         161        1,494        1,518
                                        ---------   ----------   ----------   ---------   ----------   ----------
Loss from operations..................     (3,926)     (23,241)     (76,883)     (2,223)     (22,799)     (25,526)
Interest expense, net(1)..............      1,333       11,658       11,880         998          203          204
Equity in loss of investee............        826           --           --          --           --           --
                                        ---------   ----------   ----------   ---------   ----------   ----------
Loss before benefit for income taxes
  and extraordinary item..............     (6,085)     (34,899)     (88,763)     (3,221)     (23,002)     (25,730)
Provision (benefit) for income
  taxes...............................       (205)          --          126        (119)         118          162
                                        ---------   ----------   ----------   ---------   ----------   ----------
Loss before extraordinary item........     (5,880)     (34,899)  $  (88,889)     (3,102)     (23,120)  $  (25,892)
                                                                 ==========                            ==========
Extraordinary item....................         --         (845)                      --           --
                                        ---------   ----------                ---------   ----------
Net loss..............................  $  (5,880)  $  (35,744)               $  (3,102)  $  (23,120)
                                        =========   ==========                =========   ==========
Loss per share -- basic and diluted:
  Loss before extraordinary item......  $   (1.86)  $    (2.44)  $    (2.12)  $   (0.53)  $    (0.42)  $    (0.37)
                                                                 ==========                            ==========
  Extraordinary item..................         --        (0.06)                      --           --
                                        ---------   ----------                ---------   ----------
Net loss..............................  $   (1.86)  $    (2.50)               $   (0.53)  $    (0.42)
                                        =========   ==========                =========   ==========
Weighted average shares(2)............  3,169,413   14,279,647   41,972,844   5,813,993   55,369,965   69,374,417
                                        =========   ==========   ==========   =========   ==========   ==========
OTHER DATA:
EBITDA(3).............................  $  (3,881)  $  (16,551)  $  (13,890)  $  (1,562)  $   (9,522)  $   (9,234)
</TABLE>



<TABLE>
<CAPTION>
                                                                       MARCH 31, 2000
                                                            ------------------------------------
                                                                                      PRO FORMA
                                                             ACTUAL     PRO FORMA    AS ADJUSTED
                                                            --------    ---------    -----------
                                                                   (DOLLARS IN THOUSANDS)
<S>                                                         <C>         <C>          <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.................................  $  3,395    $ 15,695      $ 53,696
Goodwill and other intangible assets......................   262,687     262,687       282,747
Total assets..............................................   317,369     332,369       390,860
Total debt................................................    26,710      26,135        12,200
Stockholders' equity......................................   263,458     279,079       349,195
</TABLE>


-------------------------
(1) Includes amortization of deferred financing fees and debt discount.

(2) Gives effect to a 5 for 1 reverse stock split on June 1, 1999 as if it had
    occurred as of January 1, 1999.

(3) EBITDA is defined as net loss plus:


     - interest expense, net,


     - provision (benefit) for income taxes,


     - goodwill and other intangibles amortization,



     - depreciation and amortization, and



     - extraordinary items.


     EBITDA is presented not as an alternative measure of operating results or
     cash flows from operations as determined in accordance with generally
     accepted accounting principles, but because it is a widely accepted
     financial indicator of a company's ability to incur and service debt.
                                        4
<PAGE>   8

                                  RISK FACTORS

     An investment in our common stock involves a high degree of risk. You
should read the following risk factors carefully before purchasing our common
stock. The risks and uncertainties described below are not the only ones we
face. Other risks and uncertainties, including those that we do not currently
consider material, may impair our business. If any of the risks discussed below
actually occur, our business, financial condition, operating results or cash
flows could be materially adversely affected. This could cause the trading price
of our common stock to decline, and you may lose all or part of your investment.

WE INTEND THAT OUR ASP SERVICES WILL BECOME AN INCREASING PERCENTAGE OF OUR
OVERALL BUSINESS. IF WE ARE NOT SUCCESSFUL IN GROWING OUR ASP BUSINESS, OUR
PROSPECTS WILL BE ADVERSELY AFFECTED AND OUR STOCK PRICE MAY DECLINE.

     To date, most of our revenues have come from computer consulting, software
integration, hardware installation and training services. Our ASP services were
introduced in March 1999 and are therefore a relatively new line of business for
us. Our business strategy includes the expansion of our ASP services. In the
future, we expect that revenue from ASP services will comprise a greater portion
of our revenue. However, our business plan may not be successful and we may not
be able to increase our ASP revenues. We may not be successful in addressing
these risks, and if we are not successful, our business, results of operations
and financial condition will be materially adversely affected.

BECAUSE WE HAVE A LIMITED OPERATING HISTORY AND OUR BUSINESS MODEL IS STILL
EVOLVING, WE MAY NOT BE ABLE TO SUCCESSFULLY MANAGE OUR BUSINESS OR ACHIEVE
PROFITABILITY.

     Our business is new, evolving and unproven, and our range of services
continues to change. In order to achieve our business plan we must:

     - convince customers to purchase our ASP services,

     - increase awareness and market penetration of our brand,

     - attract, retain and motivate qualified personnel,

     - maintain our existing, and develop new, relationships with software
       providers and vendors,

     - raise additional capital, and

     - convince customers that we can provide reliable and cost-effective
       services.

     Because we have limited operating history and our business model is
evolving, investors will have difficulty evaluating us and our prospects.

OUR PAST FINANCIAL RESULTS MAY NOT BE REPRESENTATIVE OF OUR FUTURE FINANCIAL
RESULTS AND THEREFORE INVESTORS WILL HAVE DIFFICULTY EVALUATING US AND OUR
PROSPECTS.

     We commenced our current business plan in September 1998 and since that
time have grown our business rapidly through acquisitions. Because we have grown
through acquisitions, our pro forma financial results cover periods when we did
not control or manage our subsidiaries and may not be indicative of our future
financial results. Investors will have difficulty evaluating us and our
prospects and therefore our stock price may be adversely affected as well as our
ability to raise money in the future.

                                        5
<PAGE>   9

WE HAVE A HISTORY OF SUBSTANTIAL LOSSES AND NEGATIVE CASH FLOWS. WE EXPECT THESE
LOSSES AND NEGATIVE CASH FLOWS TO CONTINUE AND INCREASE IN THE FUTURE. IF WE ARE
UNABLE TO MAKE A PROFIT, WE MAY NOT BE ABLE TO CONTINUE TO OPERATE OUR BUSINESS,
AND YOU MAY LOSE YOUR INVESTMENT.


     We have experienced net losses and negative cash flows since we began
implementing our current business plan. We expect that the ongoing
implementation of our current business plan will increase our net losses and our
negative cash flows for the foreseeable future as we invest in personnel,
technology and other assets to support our expected growth. In addition, our
business plan includes expansion through acquisitions. As of March 31, 2000, on
a pro forma basis, after giving effect to our pending acquisition, we had
approximately $283.0 million in goodwill as a result of our acquisitions. The
respective amount from each acquisition will be amortized over a five year
period and will substantially increase our net losses. In addition, acquisitions
are likely to increase our cash needs. We may not be able to operate profitably
in the future or generate positive cash flows. If we cannot operate profitably
or generate positive cash flows, we may be unable to continue to operate our
business, and you may lose your investment.



IN ORDER TO EXECUTE OUR BUSINESS PLAN, WE WILL NEED TO RAISE ADDITIONAL CAPITAL.
IF WE ARE UNABLE TO RAISE ADDITIONAL CAPITAL, WE WILL NOT BE ABLE TO ACHIEVE OUR
BUSINESS PLAN AND YOU COULD LOSE YOUR INVESTMENT.



     We need to raise additional funds through public or private debt or equity
financings to be able to fully execute our business plan. Any additional capital
raised through the sale of equity may dilute your ownership interest. We may not
be able to raise additional funds on favorable terms, or at all. If we are
unable to obtain additional funds, we will be unable to execute our business
plan and you could lose your investment.


THE GROWTH IN DEMAND FOR OUR ASP SERVICES IS HIGHLY UNCERTAIN. THE ASP MARKET
MAY NOT DEVELOP AS WE ANTICIPATE AND, ACCORDINGLY, WE MAY NOT BE ABLE TO EXPAND
OUR BUSINESS OR OPERATE IT PROFITABLY.

     The market for ASP services has only recently begun to develop and is
evolving rapidly. Future demand for these services is highly uncertain. We
believe that many of our potential customers are not fully aware of the benefits
of ASP services. We must educate potential customers regarding these benefits
and convince them of our ability to provide complete and reliable services. The
market for ASP services may never become viable or grow further. If the market
for our ASP services does not grow or grows more slowly than we currently
anticipate, our business, financial condition and operating results will be
materially adversely affected.

OUR INTERNAL ACCOUNTING AND FINANCIAL CONTROLS HAVE WEAKNESSES RESULTING
PRIMARILY FROM THE GROWTH OF OUR BUSINESS. IF WE ARE UNABLE TO RECRUIT AND
RETAIN QUALIFIED ACCOUNTING AND FINANCIAL STAFF, WE MAY CONTINUE TO EXPERIENCE
WEAKNESSES IN THESE MANAGEMENT SYSTEMS AND WE THEREFORE MAY NOT BE ABLE TO
PROPERLY EXECUTE OUR BUSINESS PLAN. IF WE CAN NOT PROPERLY EXECUTE OUR PLAN, OUR
BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION COULD BE MATERIALLY
ADVERSELY AFFECTED.

     When auditing our consolidated financial statements for the year ended
December 31, 1999, our independent auditors reported to us conditions they
believed to be material weaknesses in our system of internal accounting and
financial controls related to the financial statement close process and the
reconciliation and analysis of general ledger account balances. In response to
this report, in early 2000 we hired a new vice president controller, financial
reporting manager, assistant controller, and additional subsidiary accounting
personnel. We have begun to identify measures to improve our system of internal
controls, implement more rigorous internal accounting policies, procedures and
controls, and conduct accounting systems training. However, these measures may
not be successful in correcting the noted deficiencies and we may experience
similar or other deficiencies in the future as we continue to further expand our
operations. If we are unable to establish and maintain effective internal
accounting and financial controls, we will not be able to timely and accurately
account for and monitor the operations of

                                        6
<PAGE>   10


our business and we therefore may not be able to properly execute our business
plan, which could materially adversely affect our business, results of
operations and financial condition.


PERSONS FORMERLY ASSOCIATED WITH OUR BUSINESS MAY HAVE ENGAGED IN UNLAWFUL
ACTIVITIES DESIGNED TO MANIPULATE OUR STOCK. WE MAY BE SUBJECT TO CRIMINAL AND
CIVIL SANCTIONS, FINES AND PENALTIES BECAUSE OF THEIR ACTIONS. IF WE ARE FOUND
TO HAVE LIABILITY RELATING TO THE ACTIVITIES OF THESE PERSONS, WE MAY HAVE TO
PAY SIGNIFICANT MONETARY FINES AND PENALTIES AND WE COULD BE SUBJECT TO MATERIAL
SANCTIONS THAT WOULD MATERIALLY ADVERSELY AFFECT BOTH OUR STOCK AND OUR ABILITY
TO OPERATE OUR BUSINESS.

     In the past, persons formerly associated with us, which may include some of
our former officers and directors, may have engaged in activities as part of an
effort to profit from unlawful trading activity in our stock. As a result, we
may be subject to civil or criminal actions, fines or penalties. If any
proceedings are commenced against us, we will need to spend significant money
and management time in our defense. If a court determined that we participated
in these activities, we could be liable for damages or penalties that would have
a material adverse effect on our financial condition.

WE ARE INVOLVED AND MAY BECOME INVOLVED IN LEGAL PROCEEDINGS WITH FORMER
EMPLOYEES, CONSULTANTS AND SERVICE PROVIDERS WHICH, IF DETERMINED AGAINST US,
COULD CAUSE US TO ISSUE A SIGNIFICANT AMOUNT OF OUR SHARES OF COMMON STOCK AND
PAY A SIGNIFICANT AMOUNT OF DAMAGES. THE ISSUANCE OF A SIGNIFICANT NUMBER OF
SHARES OF OUR COMMON STOCK ESPECIALLY IF AT A LARGE DISCOUNT TO THE THEN CURRENT
MARKET PRICE, WILL DILUTE OUR STOCKHOLDERS AND THE PAYMENT OF SIGNIFICANT
DAMAGES WILL MATERIALLY ADVERSELY AFFECT OUR FINANCIAL CONDITION AND THEREFORE
OUR ABILITY TO ACHIEVE OUR BUSINESS PLAN.

     We are party to two lawsuits from individuals. In one case, the plaintiff
was employed by us, and in another case, the plaintiff provided managerial
services on a contractual basis to us. These persons seek damages of more than
$2.0 million which includes approximately 50,000 stock options and monetary
damages. We are currently aware of other former employees, consultants and
service providers who may make claims against us relating to the payment for
past services that represent, in the aggregate, $1.5 million in damages which
includes approximately 95,000 stock options and monetary damages.

     In the past, we have entered into contracts with third parties in the
normal course of business and with advisors and consultants based on business
plans that we are no longer pursuing. We believe that those contracts are no
longer effective. However, it is possible that the other parties to those
contracts could claim that we did not fulfill our obligations under the
contracts. If a court found that we are obligated under any of those contracts
we could be liable for an undeterminable amount of compensation.

     Our stockholders may suffer material dilution if a material number of
options or other securities are awarded. If awarded, the options or securities
may have a strike price that is at a significant discount to the current market
price. All of these litigations are likely to be expensive for us. If such suits
are determined against us and a court awards a material amount of cash damages,
our business, results of operations and financial condition will be materially
adversely affected. In addition, any such litigation could divert management's
attention and resources.

WE HAVE GROWN AND PLAN TO CONTINUE TO GROW, IN PART, THROUGH THE ACQUISITION OF
OTHER COMPANIES. HOWEVER, WE MAY NOT BE ABLE TO SUCCESSFULLY INTEGRATE THE
COMPLETED AND PENDING ACQUISITIONS OR IDENTIFY, ACQUIRE AND SUCCESSFULLY
INTEGRATE FUTURE ACQUISITIONS INTO OUR OWN OPERATIONS, WHICH MAY MATERIALLY
ADVERSELY AFFECT OUR GROWTH AND OUR OPERATING RESULTS.

     We have made a number of significant acquisitions within the last seven
months. These acquisitions have increased our revenue from $2.4 million for the
year ended December 31, 1998 to $115.0 million for the year ended December 31,
1999, on a pro forma basis after giving effect to our pending and completed
acquisitions as if each had occurred as of January 1, 1999. We have a definitive
agreement to acquire Charon Systems Inc. However, this pending transaction may
not close. If the acquisition of Charon

                                        7
<PAGE>   11

Systems Inc. does not close, pro forma annual revenue for 1999 would decrease by
$13.5 million. We have not yet fully integrated any of these companies. We may
not be able to successfully integrate these acquisitions into our business. Our
failure to acquire suitable companies or to successfully integrate any acquired
companies into our operations could have a material adverse effect upon our
business, operating results and financial condition.

OUR INDUSTRY IS CHARACTERIZED BY RAPIDLY CHANGING TECHNOLOGY WITH CONTINUOUS
IMPROVEMENTS IN BOTH COMPUTER HARDWARE AND SOFTWARE. IF WE DO NOT RESPOND
EFFECTIVELY AND ON A TIMELY BASIS TO RAPID TECHNOLOGICAL CHANGE IN OUR INDUSTRY,
WE WILL NOT BE ABLE TO EFFECTIVELY SELL OUR SERVICES AND OUR SALES WILL
MATERIALLY DECLINE.

     We must continually buy new computer hardware and license new computer
software systems to effectively compete in our industry. In addition, our
software delivery applications must be able to support changes in the underlying
software applications that are delivered to our customers. The rapid development
of new technologies increases the risk that current or new competitors could
develop products or services that would reduce the competitiveness of our
products or services. We rely on software providers to produce software
applications that keep pace with our customers' demands.

     We may not successfully develop or adopt new technologies, introduce new
services or enhance our existing services on a timely basis and new
technologies, new services or enhancements we use or develop may never achieve
market acceptance. If we fail to address these developments, we will lose sales
to our competitors and our business, operating results and financial condition
will be materially adversely affected.

OUR CURRENT DATA CENTERS ARE LOCATED IN ONLY THREE LOCATIONS, IRVINE,
CALIFORNIA, CALGARY, CANADA, AND NEWBURY, UNITED KINGDOM, WHICH LEAVES US
VULNERABLE TO DISRUPTIONS THAT AFFECT OUR DATA CENTERS. IF OUR DATA CENTERS ARE
DISRUPTED, WE COULD LOSE OUR CUSTOMERS AND FAIL TO ATTRACT NEW CUSTOMERS, WHICH
COULD MATERIALLY ADVERSELY AFFECT OUR BUSINESS, RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.

     Our ASP business strategy depends on the consistent performance of our
three data centers located in Irvine, California, Calgary, Canada and Newbury,
United Kingdom. We offer back-up storage of data for customers in the United
States and Canada that elect this service, but do not yet offer this service for
European customers. We plan to develop additional data centers in the eastern
United States and in Europe. However, our current data centers are vulnerable to
interruption from fire, earthquake, flood, power loss, telecommunications
failure, break-ins and other events beyond our control. If a data center is
damaged, a customer storing its data on that data center may lose its data if it
is not backed up. If our Irvine or Calgary data center were damaged, the loss of
data may affect a significant portion of our customers. We have experienced
periodic systems disruptions in the past and anticipate that such disruptions
will occur in the future. In the event that we experience significant
disruptions that affect our data centers, we could lose customers and fail to
attract new customers, and our business, results of operations and financial
condition would be materially adversely affected.

WE RELY ON SOFTWARE APPLICATION AND SOFTWARE SYSTEMS INTEGRATION COMPANIES TO
REFER MANY OF OUR CLIENTS TO US. ANY FAILURE BY THESE THIRD PARTIES TO PROVIDE
US WITH THESE REFERRALS WILL CAUSE OUR SALES TO MATERIALLY DECLINE.

     We rely on referrals from software application and technology integrators
for a portion of our business. These software application and software
integrators refer their customers to us because we can provide an array of
services which complement the products and services they offer. However, these
software application and software integrators may stop or substantially diminish
referring business to us or they may decide to cooperate with our competitors
and thereby adversely impact or eliminate the amount of referrals made to us. If
these third-party referrals cease or materially decline, our sales will
materially decline and our business, results of operations and financial
condition will be materially adversely affected.

                                        8
<PAGE>   12

WE MUST LICENSE THE SOFTWARE APPLICATIONS WE PROVIDE TO OUR CUSTOMERS FROM THIRD
PARTIES. IF WE CANNOT OBTAIN THESE SOFTWARE APPLICATIONS WE WILL NOT BE ABLE TO
OFFER ASP SERVICES.

     We depend on third-party software manufacturers agreeing to allow their
software applications to be hosted or run at our data centers and provided to
our customers. We have entered into non-exclusive agreements with Microsoft,
Onyx, Great Plains, SalesLogix and others that allow us to host some of their
software applications at our data centers or re-license their software
applications to our customers. Under most of these agreements, the software
manufacturer can terminate its relationship with us for any reason by giving us
as little as 30 days notice. In these instances, the software manufacturer is
not liable to us or our customers for any damages resulting from termination. If
our relationships with these software manufacturers are terminated or if these
or other software manufacturers do not allow our customers to obtain a license
to operate the software application on our data centers, our business, operating
results and financial condition could be materially adversely affected.

IF WE ARE UNABLE TO OBTAIN CITRIX OR MICROSOFT PRODUCTS, AS WELL AS OTHER KEY
HARDWARE COMPONENTS AND SOFTWARE APPLICATIONS FROM OTHER VENDORS, WE WOULD BE
UNABLE TO DELIVER OUR SERVICES, AND UNTIL WE REPLACE THESE PRODUCTS, OUR
BUSINESS WOULD BE MATERIALLY ADVERSELY AFFECTED.

     We depend on third-party suppliers to provide us with key hardware
components and software applications for our infrastructure and with sufficient
communications lines to allow our customers to access their software
applications. Some components or applications are only available from limited
sources. Citrix Systems, Inc. and Microsoft Corporation are our key suppliers of
software that we utilize to connect our customers to software applications.
Although there are other competing software applications on the market, we
believe that Citrix software, deployed with Windows NT Terminal Server software
from Microsoft, is currently best suited to serve this function. If we are
unable to obtain these products or services such as telecommunications services
from other vendors, in a timely manner, at an acceptable cost or at all, we
would be unable to deliver our services. Until we replace these products, our
business, results from operations and financial condition will be materially
adversely affected.

IF THE SOFTWARE WE UTILIZE CONTAINS DEFECTS, OUR CUSTOMERS' SERVICE COULD BE
DISRUPTED AND THEIR DATA COULD BE LOST. THIS COULD RESULT IN OUR INCURRING
LIABILITY AND LOSING CUSTOMERS FOR OUR SERVICES, WHICH WOULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR OPERATIONS.

     Our service offerings depend on complex software which may contain defects,
particularly when first introduced or when new versions are released. Although
we test software applications prior to deployment, we may not discover software
defects that affect our new or current services or enhancements until after they
are deployed. These defects could cause service interruptions or data loss which
could damage our reputation or increase our service costs, cause us to lose
revenue, delay market acceptance or divert our development resources. Any
software modifications we perform as part of our integration services could
cause problems in application delivery. Also, because we offer a one-source
solution to our customers, they are likely to hold us accountable for any
problems associated with their software, even if the problem results from
software defects the manufacturer causes. Typically, software manufacturers
disclaim liability for any damages suffered as a result of software defects or
provide only limited warranties. As a result, we may have no recourse against
the providers of defective software applications.

BREACHES OF OUR SECURITY COULD DISRUPT THE OPERATION OF OUR DATA CENTERS AND
JEOPARDIZE OUR SECURE TRANSMISSION OF CONFIDENTIAL INFORMATION. THESE BREACHES
COULD CAUSE OUR CUSTOMERS TO LOSE CONFIDENCE IN OUR SERVICES AND CANCEL THEIR
CONTRACTS WITH US OR PROSPECTIVE CUSTOMERS NOT TO PURCHASE OUR SERVICES.

     The growth of our business depends upon our ability to securely transmit
confidential information to and from our data centers or the servers of our
customers. Despite our design and implementation of a variety of delivery system
security measures, unauthorized access, computer viruses and accidental or
intentional disturbances could occur. We may need to devote substantial capital
and resources to protect

                                        9
<PAGE>   13

against the threat of unauthorized penetration of our delivery system or to
remedy any problems that the penetration of our delivery system security
creates. The occurrence of any of these events could cause us to lose customers
and expose us to liability, all of which could have a material adverse effect on
us.

MANY OF OUR CONSULTING CONTRACTS HAVE FIXED PRICES, WHICH EXPOSE US TO COST
OVERRUNS. IF WE ARE NOT ABLE TO CONTROL COST OVERRUNS, OUR OPERATING RESULTS
COULD BE MATERIALLY ADVERSELY AFFECTED.

     We undertake certain consulting projects on a fixed-price basis rather than
billing on a time and materials basis or on a per employee or user basis. The
failure to complete these projects without cost overruns would cause our
expenses to increase and materially adversely affect our business, operating
results and financial condition.

OUR ASP SERVICE CONTRACTS GUARANTEE CERTAIN SERVICE LEVELS. IF WE DO NOT MEET
SUCH SERVICE LEVELS, WE MAY BE REQUIRED TO GIVE OUR CUSTOMERS CREDIT FOR FREE
SERVICE AND OUR CUSTOMERS MAY BE ENTITLED TO CANCEL THEIR ASP SERVICE CONTRACTS,
WHICH COULD MATERIALLY ADVERSELY AFFECT OUR BUSINESS.

     Our ASP contracts contain service level guarantees which obligate us to
provide our hosted applications at a guaranteed level of performance. To the
extent we fail to meet those service levels, we may be obligated to provide our
customers credit for free service. If we continue to fail to meet these service
levels, our ASP customers have the right to cancel their contracts with us.
These credits or cancellations will cost us money, damage our reputation with
our customers and prospective customers and could materially adversely affect
our business, results of operations and financial condition.

IF WE ARE UNABLE TO RETAIN OUR KEY EMPLOYEES AT ALL LEVELS OF OUR BUSINESS, WE
WILL NOT BE ABLE TO GROW OUR BUSINESS AND MEET OUR BUSINESS PLAN. IF WE FAIL TO
ACHIEVE OUR BUSINESS PLAN WE WILL NOT BE ABLE TO CONTINUE TO OPERATE OUR
BUSINESS AND YOU MAY LOSE YOUR INVESTMENT.

     Our success depends in significant part on the continued services of our
key officers. Losing one or more of our key personnel will seriously impair our
ability or could cause us to fail to successfully implement our business plan.
This will have a material adverse effect on our business, results of operations
and financial condition and you could lose your investment.

WE OPERATE IN AN INDUSTRY WHERE IT IS DIFFICULT TO ATTRACT AND RETAIN QUALIFIED
PERSONNEL. IF WE ARE UNABLE TO ATTRACT AND RETAIN QUALIFIED PERSONNEL, OUR
OPERATIONS WOULD SUFFER AND WE COULD LOSE OUR CUSTOMERS OR FAIL TO ATTRACT NEW
CUSTOMERS.

     Our business is labor-intensive, and our success depends in large part upon
our ability to attract, develop, motivate and retain highly skilled personnel.
We are currently experiencing rapid growth in personnel and intend to continue
expanding. We have grown from over 100 employees as of December 31, 1998 to
approximately 570 as of March 31, 2000. We believe that we will need to hire a
significant number of additional personnel. Qualified technical employees are in
great demand and are likely to remain a limited resource for the foreseeable
future. We may not be able to engage the services of such personnel or retain
our current personnel. If we do not succeed in attracting new, qualified
personnel or successfully retain our current personnel, our business could
suffer.

MANY COMPANIES USE THE NAME "FUTURELINK." INTELLECTUAL PROPERTY INFRINGEMENT
CLAIMS AGAINST US FOR THE USE OF THE "FUTURELINK" NAME, EVEN IF WITHOUT MERIT,
COULD BE EXPENSIVE TO DEFEND AND DIVERT MANAGEMENT'S ATTENTION FROM OUR
BUSINESS. IF A CLAIM TO STOP US FROM USING OUR NAME IS SUCCESSFUL, WE WILL HAVE
TO EITHER BUY THE RIGHT TO USE OUR NAME OR CHANGE OUR NAME, WHICH IN EITHER CASE
MAY BE EXPENSIVE.

     We are aware that other companies have claimed prior use of the name
"FutureLink" for products or services similar to our own. We are in the process
of investigating the rights, if any, others may have to

                                       10
<PAGE>   14

the name. In addition, we are attempting to register "FutureLink" as a service
mark in the United States, Canada and the United Kingdom. However, we may not be
able to obtain proprietary rights to the use of this name. We will incur
expenses if called to defend our use of the "FutureLink" name. Any litigation,
even if without merit, may be time consuming and expensive to defend. It also
could divert management's attention and resources and require us to enter into
costly royalty or licensing agreements. In addition, if any company in our
industry is able to establish a use of the "FutureLink" name that is prior to
our use, we could be liable for damages and could be forced to stop using the
name unless we are able to buy the right to use the name. If we are unable to
buy the right to use our name after we lose an infringement claim, we would have
to change our name, which may require us to spend money to build new brand
recognition and incur other costs. Third parties may assert other infringement
claims against us. Any of these events could have a material adverse effect on
our business, financial condition and results of operations.

WE ARE A TECHNOLOGY COMPANY. HOWEVER, OUR PREVIOUS BUSINESS ACTIVITIES INCLUDED
NATURAL RESOURCE MINING AND EXPLORATION. AS A RESULT WE MAY BE EXPOSED TO
UNKNOWN ENVIRONMENTAL LIABILITY THAT COULD REQUIRE US TO EXPEND OUR FINANCIAL
RESOURCES AND MATERIALLY ADVERSELY AFFECT OUR FINANCIAL CONDITION.

     We merged with a publicly-traded company that prior to 1992 was engaged in
the natural resource exploration and development business, including mining and
oil and gas. The mining, mineral processing and oil and gas industries are
subject to extensive governmental regulations for the protection of the
environment, including regulations relating to air and water quality, site
reclamation, solid and hazardous waste handling and disposal and the promotion
of occupational safety. We could be held responsible for any liabilities
relating to our previous involvement in mining or oil and gas exploration and
development, which liabilities would result in our spending our cash resources
and could have a material adverse effect on our business, financial condition
and results of operations.

                           FORWARD-LOOKING STATEMENTS

     This prospectus contains forward-looking statements. We have identified
forward-looking statements in this prospectus using words such as "believes,"
"intends," "expects," "may," "will," "should," "plan," "projected,"
"contemplates," "anticipates," and similar statements. These statements are
based on our beliefs as well as assumptions we made using information currently
available to us. Because these statements reflect our current views concerning
future events, these statements involve risks, uncertainties and assumptions.
Actual future results may differ significantly from the results discussed in the
forward-looking statements. Some, but not all, of the factors that may cause
these differences include those discussed in the Risk Factors section of this
prospectus. You should not place undue reliance on these forward-looking
statements, which apply only as of the date of this prospectus.

                                       11
<PAGE>   15

                                USE OF PROCEEDS


     The net proceeds to us from this offering are estimated to be approximately
$53.7 million, or $62.2 million if the underwriters exercise their overallotment
option in full, after deducting underwriting discounts and commissions and
estimated offering expenses. These amounts assume an offering price of $10.13
per share, the last sale price of our common stock as reported on the Nasdaq
National Market on June 6, 2000. We have allocated only $16.1 million of the net
proceeds from this offering for the following purposes:



     - fund approximately $0.5 million of the purchase price for Charon Systems
       Inc.,



     - retire $4.0 million aggregate principal amount of indebtedness we
       incurred to finance in part our acquisition of KNS Holdings Limited,
       which is due and payable June 20, 2000 and bears interest at a rate equal
       to the London Interbank Offering Rate plus 1%,



     - retire $7.3 million aggregate principal amount of indebtedness we
       incurred to finance in part our acquisition of MicroLAN Systems, Inc. and
       its affiliates, which is due and payable July 29, 2000 and bears interest
       at a rate increasing from 9% to 12%, and



     - retire $4.3 million aggregate principal amount of indebtedness we will
       incur to finance in part our acquisition of Charon Systems Inc., which is
       due and payable upon closing of this offering, and bears interest at a
       rate increasing from 9% to 13.5%.



     We currently have no commitments as to how we will spend the remaining
$37.6 million of the net proceeds but our current estimates are:



     - $9.9 million to fund our operations and working capital needs during
       2000,



     - $8.5 million to develop our ASP data centers,



     - $14.2 million to acquire additional businesses, and



     - $5.0 million for general corporate uses.



     The amounts and timing of our actual expenditures of these proceeds will
depend upon numerous factors, including the number and size of our acquisitions,
our marketing activities, the response of the market to our introduction of
products and services and the amount of cash our operations generate. In
addition, because we have allocated only $16.1 million of the net proceeds from
this offering, our management will have significant flexibility in applying most
of the net proceeds of this offering with respect to the items set forth above
or for other purposes at their discretion. The failure of our management to use
such funds effectively could have a material adverse effect on our business,
financial condition and operating results. Pending application of the net
proceeds, we intend to invest the net proceeds of this offering in short-term,
investment-grade, interest-bearing securities.


                                DIVIDEND POLICY

     We currently intend to retain all of our future earnings, if any, for use
in our business and therefore we do not anticipate paying any cash dividends on
our common stock in the foreseeable future. Any future determination to pay cash
dividends will be at the discretion of our board of directors and will depend
upon our financial condition, operating results, capital requirements,
restrictions contained in our agreements and other factors which our board of
directors deems relevant.

                                       12
<PAGE>   16

                        PRICE RANGE OF OUR COMMON STOCK

     On January 4, 2000, our common stock began trading on the Nasdaq National
Market under the trading symbol "FTRL." Before our listing on the Nasdaq
National Market, our common stock traded on the OTC Bulletin Board under the
trading symbol "FLNK" from 1998 through 1999 and under the trading symbol "CVNK"
from 1995 to 1998. Trading activity in our common stock has been limited,
sporadic and highly volatile. The high and low closing sales prices, as adjusted
to reflect the one-for-five reverse stock split effected June 1, 1999, are as
follows:


<TABLE>
<CAPTION>
                                                              HIGH      LOW
                                                             ------    ------
<S>                                                          <C>       <C>
2000
2nd Quarter (through June 8, 2000).........................  $21.50    $ 5.50
1st Quarter................................................  $35.88    $17.31
1999
4th Quarter................................................  $35.75    $ 8.50
3rd Quarter................................................  $ 9.31    $ 6.06
2nd Quarter................................................  $ 8.69    $ 1.35
1st Quarter................................................  $ 2.60    $ 1.45
1998
4th Quarter................................................  $ 4.00    $ 1.25
3rd Quarter................................................  $ 8.45    $ 1.95
2nd Quarter................................................  $21.10    $ 3.30
1st Quarter................................................  $21.25    $ 7.50
</TABLE>



     On June 8, 2000, the last reported sale price of our common stock was
$11.0625 per share. As of May 31, 2000, there were 61,496,355 shares of our
common stock issued and outstanding and approximately 700 holders of record of
our common stock.



     Prior to this offering, the public market for our common stock has been
limited, sporadic and highly volatile. Between January 1, 1999 and June 8, 2000,
the closing trading price of our common stock ranged from a low of $1.35 to a
high of $35.88 per share. There can be no assurance that a more active trading
market for our common stock will develop or be sustained. Even if a more active
trading market does develop, the market price of the common stock is likely to
be highly volatile and could fluctuate widely in response to factors such as:


     - actual or anticipated variations in our revenues, earnings and cash flow,

     - announcements of new products and services by us or our competitors and
       consumer acceptance of such new products and services,

     - changes in the information technology environment,

     - announcements of mergers or acquisitions by ourselves or our competitors,

     - sales of shares of our common stock by existing shareholders,

     - financial estimates by securities analysts,

     - fluctuations in the market price of our competitors' publicly-traded
       stock,

     - adoption of new accounting standards affecting our industry, and

     - general market conditions and other factors.

                                       13
<PAGE>   17

     Further, the stock markets have recently experienced extreme price and
volume fluctuations that have affected the market prices of equity securities of
many companies, including many companies in our industry. Some of these
fluctuations have been unrelated or disproportionate to the operating
performance of such companies. These broad market factors may adversely affect
the market price of our common stock. Such fluctuation may adversely affect our
ability to raise additional capital and your ability to liquidate your
investments at a favorable price.

                                       14
<PAGE>   18

                                 CAPITALIZATION

     The following table sets forth at March 31, 2000:

     - our actual cash and cash equivalents and capitalization,

     - our cash and cash equivalents and capitalization, after giving pro forma
       effect to each of the following as if each had occurred on March 31,
       2000:

        - repayment of $2.7 million of shareholder notes issued to finance in
          part the acquisition of KNS Holdings Limited in April 2000,

        - our $15.0 million private placement of equity securities with Pequot
          Private Equity Fund II, L.P. and Pequot Endowment Fund, L.P. in April
          2000, and

        - conversion of $0.6 million of convertible debt in April 2000.

     - our cash and cash equivalents and capitalization, on the pro forma basis
       described above, as adjusted to reflect:

        - the estimated net proceeds from this offering after deducting
          underwriting discounts and commissions and estimated offering
          expenses,

        - our pending acquisition of Charon Systems Inc., and


        - repayment of $15.6 million of shareholder notes to finance in part our
          acquisitions of KNS Holdings Limited and Madison Group Holdings and to
          be issued to finance our acquisition of Charon Systems Inc.


     This table should be read with "Use of Proceeds," "Pro Forma Condensed
Consolidated Financial Information" and related notes and our consolidated
financial statements and related notes included elsewhere in this prospectus.


<TABLE>
<CAPTION>
                                                                         MARCH 31, 2000
                                                              ------------------------------------
                                                                                        PRO FORMA
                                                               ACTUAL     PRO FORMA    AS ADJUSTED
                                                              --------    ---------    -----------
                                                                     (DOLLARS IN THOUSANDS)
<S>                                                           <C>         <C>          <C>
Cash and cash equivalents...................................  $  3,395    $ 15,695      $ 53,696
                                                              ========    ========      ========
Total long-term obligations.................................  $  7,884    $  7,309      $  7,309
Stockholders' equity:
Preferred stock, no par value; 20,000,000 shares authorized,
  none issued or outstanding................................        --          --            --
Common stock, $0.0001 par value, 300,000,000 shares
  authorized, 59,025,364 issued and outstanding; 61,496,355
  issued and outstanding, pro forma; and 69,696,328 issued
  and outstanding, pro forma as adjusted....................         7           7             7
Common stock issuable for completed acquisitions............    42,636      42,636        42,636
Additional paid-in capital..................................   231,311     246,932       317,048
Deferred compensation.......................................    (2,488)     (2,488)       (2,488)
Loan receivable from officer................................    (1,250)     (1,250)       (1,250)
Issuable warrants...........................................    60,000      60,000        60,000
Accumulated deficit.........................................   (66,195)    (66,195)      (66,195)
Cumulative foreign currency translation adjustment..........      (563)       (563)         (563)
                                                              --------    --------      --------
Total stockholders' equity..................................   263,458     279,079       349,195
                                                              --------    --------      --------
          Total capitalization..............................  $271,342    $286,388      $356,504
                                                              ========    ========      ========
</TABLE>


                                       15
<PAGE>   19

                                    DILUTION


     As of March 31, 2000, the net tangible book value of our common stock was
$0.8 million or $0.01 per share and the pro forma net tangible book value of our
common stock was $12.7 million or $0.20 per share. Net tangible book value per
share represents the amount of our stockholders' equity, less intangible assets,
divided by the number of shares of common stock outstanding before this
offering.


     The pro forma net tangible book value per share of common stock as of March
31, 2000 is based on the net tangible book value per share as of March 31, 2000,
as adjusted for:

     - our pending acquisition of Charon Systems Inc.,


     - the payment of $18.3 million of shareholder notes issued to finance the
       acquisitions of KNS Holdings Limited, Madison Group Holdings, and Charon
       Systems Inc.,


     - our $15.0 million private placement of equity securities with Pequot
       Private Equity Fund II, L.P. and Pequot Endowment Fund, L.P. in April
       2000, and

     - conversion of $0.6 million of convertible debt in April 2000.

     The pro forma net tangible book value dilution per share represents the
difference between:

     - the amount purchasers of common stock pay per share in this offering, and

     - the adjusted pro forma net tangible book value per share of shares of
       common stock purchased in this offering immediately after completion of
       this offering.


     After giving effect to our sale of 6,000,000 shares of common stock in this
offering, our adjusted pro forma net tangible book value as of March 31, 2000,
based on the offering price of $10.13 per share, was $66.4 million or $0.96 per
share of common stock. This represents an immediate increase in pro forma net
tangible book value of $0.76 per share to existing stockholders and an immediate
dilution of pro forma net tangible book value of $9.17 per share to you. The
following table illustrates this dilution:



<TABLE>
<S>                                                           <C>     <C>
Public offering price per share of common stock.............          $10.13
Pro forma net tangible book value per share of common stock
  as of March 31, 2000......................................  $0.20
Net increase in pro forma net tangible book value per share
  of common stock attributable to cash payment from this
  offering..................................................  $0.76
                                                              -----
Pro forma as adjusted net tangible book value per share as
  of March 31, 2000 after giving effect to this offering....          $ 0.96
                                                                      ------
Immediate dilution per share to new investors...............          $ 9.17
                                                                      ======
</TABLE>



     In addition, the table above assumes no exercise of outstanding options or
warrants or conversion of debt. As of May 31, 2000, there were 9,905,509 shares
of common stock issuable upon exercise of outstanding options at a weighted
average exercise price of $10.76 per share, 8,205,491 shares of common stock
issuable upon exercise of outstanding warrants at a weighted average exercise
price of $11.81 per share and 67,965 shares of common stock issuable upon the
conversion of $78,160 aggregate principal amount of our convertible debentures
outstanding at a conversion price of $1.15 per share. The tables above also
assume no exercise of the underwriters' overallotment option. To the extent that
any shares are issued upon exercise or conversion of outstanding options,
warrants, convertible debentures or the underwriters' overallotment option, you
will experience further dilution.


                                       16
<PAGE>   20

                                  ACQUISITIONS


     As part of our growth strategy, from October 15, 1999 through May 31, 2000,
we acquired six businesses. In addition, we have announced a definitive
agreement to acquire Charon Systems Inc. The following table presents certain
information with respect to these completed and pending acquisitions.



<TABLE>
<CAPTION>
                                                                                         REVENUE FOR THE
                                                                                           YEAR ENDED
COMPLETED ACQUISITIONS                       CLOSING DATE        PURCHASE PRICE         DECEMBER 31, 1999       PRIMARY MARKETS
----------------------                       ------------     ---------------------   ---------------------     ---------------
                                                              (DOLLARS IN MILLIONS)   (DOLLARS IN MILLIONS)
<S>                                        <C>                <C>                     <C>                     <C>

Executive LAN Management, Inc.,            October 15, 1999           $86.0                   $20.7           Southern California
  doing business as Micro Visions

CN Networks, Inc.                          November 5, 1999           $19.9                   $ 8.2           Northern California

Async Technologies, Inc.                   November 26, 1999          $35.0                   $ 9.4           Midwest

KNS Holdings Limited                       December 22, 1999          $44.0                   $19.2           United Kingdom

Vertical Software, Inc.                    January 31, 2000           $27.6                   $13.1           Mid-Atlantic

MicroLAN Systems, Inc., doing business as  February 29, 2000          $57.5                   $23.6           New York and New
  Madison Technology Group, Madison                                                                           Jersey
  Consulting Resources, Inc. and Madison
  Consulting Resources NJ, Inc.

PENDING ACQUISITION
-------------------

Charon Systems Inc.                        Pending                    $21.4                   $13.5           Canada
</TABLE>


     The figures under the column "Purchase Price" comprise the total purchase
price, including cash paid, notes payable and common stock issued, the dollar
values of which were valued using the quoted market price on the date of the
signing of the definitive agreement for each respective acquisition. The
purchase price for each of Executive LAN Management, Inc. and Async
Technologies, Inc. includes the value of the shares of our common stock earned
upon the satisfaction of specified performance criteria in 1999.

COMPLETED ACQUISITIONS

Executive LAN Management, Inc.

     On October 15, 1999, we acquired Executive LAN Management, Inc., which
conducted business as Micro Visions, for total consideration of $86.0 million,
consisting of $12.0 million in cash, 6,000,000 shares of our common stock,
contingent consideration of 2,400,000 shares of our common stock valued in the
aggregate at $71.2 million to be issued upon the satisfaction of specified
performance criteria in 1999 and options to acquire 475,000 shares of our common
stock valued at $2.8 million. At December 31, 1999, 1.2 million of the
contingent shares had been issued and the remaining 1.2 million shares had been
earned but not yet issued. Executive LAN Management, Inc., was founded in
Irvine, California in 1993 and was a leading reseller and service provider of
thin client/server-based computing systems. Its principal markets were in
California, Arizona, Nevada, Georgia and North Carolina. Executive LAN
Management, Inc. was among North America's leading server-based computing
integrators using Citrix products in 1998. It is headquartered in Irvine,
California which we recently made our corporate head offices.

CN Networks, Inc.

     On November 5, 1999, we acquired CN Networks, Inc. for total consideration
of $19.9 million, consisting of $3.9 million in cash, 1,181,816 shares of our
common stock valued at $9.1 million, and options to acquire 500,000 shares of
common stock valued at $6.9 million. CN Networks, Inc. was founded in 1991. It
was headquartered in Pleasanton, California. CN Networks was one of the leading
server-based computing integrators using Citrix products in Northern California.

                                       17
<PAGE>   21

Async Technologies, Inc.

     On November 26, 1999, we acquired Async Technologies, Inc. for total
consideration of $35.0 million, consisting of $6.0 million in cash, 1,298,705
shares of our common stock issued upon closing and contingent consideration of
439,850 shares of our common stock valued in the aggregate at $21.4 million, and
options to acquire 500,000 shares of our common stock valued at $7.6 million. At
December 31, 1999, the selling shareholders had earned the contingent shares,
but we had not yet issued them. Async Technologies, Inc. was founded in 1994 in
Walled Lake, Michigan. It provided computer software and hardware installation,
maintenance services and technical training to medium and large businesses
located in the mid-western United States. Async Technologies, Inc. was one of
the leading server-based computing integrators using Citrix products in the
Great Lakes region of the United States.

KNS Holdings Limited

     On December 22, 1999, we acquired KNS Holdings Limited, which conducted
business as KNS Distribution, for a total consideration of $44.0 million
consisting of $5.0 million in cash, 2,160,307 shares of our common stock valued
at $32.3 million, and notes payable in the amount of $6.7 million. KNS Holdings
Limited was incorporated in 1997 in the United Kingdom. It was the largest
distributor of Citrix products and related services outside of the United States
and distributed other services including video internet teleconferencing.

Vertical Software, Inc.

     On January 31, 2000, we acquired Vertical Software, Inc. for total
consideration of $27.6 million, consisting of $8.1 million in cash and 1,026,316
shares of our common stock valued at $19.5 million. Vertical Software, Inc. was
a U.S. mid-Atlantic regional provider of system integration and information
technology services. Vertical Software, Inc. was among the leading server-based
computing integrators using Citrix products in the metropolitan Washington, D.C.
area.

MicroLAN Systems, Inc.

     On February 29, 2000, we acquired MicroLAN Systems, Inc., doing business as
Madison Technology Group, Madison Consulting Resources, Inc. and Madison
Consulting Resources NJ, Inc. for total consideration of $57.5 million,
consisting of $6.5 million in cash, a note payable in the amount of $7.3 million
and 1,975,170 shares of our common stock valued at $43.7 million. The note
payable is secured by the shares of our subsidiary formed in this acquisition.
MicroLAN Systems, Inc., doing business as Madison Technology Group, installed,
serviced and provided integration services for computer hardware systems,
software systems and networks. It was an authorized dealer for Novell,
Microsoft, Citrix, Cisco and various other major companies. Madison Consulting
Resources, Inc. provided information technology through placement of computer
consultants on a temporary and permanent basis to Fortune 1000 companies.
Madison Consulting Resources NJ, Inc. was a leading provider of information
technology through placement of computer consultants on a temporary and
permanent basis to Fortune 1000 companies. These companies were among the
leading server-based computing integrators using Citrix products in the New York
and New Jersey markets.

PENDING ACQUISITION

Charon Systems Inc.


     We have a definitive agreement to acquire Charon Systems Inc. The purchase
price will be $21.4 million consisting of approximately $0.7 million in cash, a
note payable in the amount of $4.3 million which is due and payable the earlier
of December 31, 2000, or the completion of a placement of equity securities by
the Company in excess of $50 million, and 2,199,973 shares of our common stock
valued at $16.4 million. Charon Systems Inc. was incorporated in Ontario, Canada
in 1991 and is


                                       18
<PAGE>   22

headquartered in Toronto, Canada. Charon Systems Inc. is a leading server-based
computing integrator using Citrix products in central and eastern Canada.

FUTURE ACQUISITIONS

     As part of our general growth strategy, we intend to identify and acquire
other distributors and resellers of Citrix and other products. To successfully
grow our business through acquisitions, our management must:

     - integrate any acquired businesses into our operations,

     - identify appropriate acquisition candidates and negotiate acquisitions on
       favorable terms,

     - obtain financing on favorable terms,

     - continue to operate our current businesses,

     - retain and expand the key personnel and key customers of any acquired
       company, and

     - properly identify and account for all liabilities we assume in each
       acquisition.

     Our primary criterion in considering acquisition opportunities is the
financial return we expect to ultimately realize. Other specific factors we
consider in acquiring a company include:

     - the customer base and the extent to which we believe we can leverage
       those customers to build our ASP business,

     - the market share held in a geographic region,

     - revenues and operating cash flow,

     - the qualifications and industry experience of management and key
       employees, and

     - the extent to which we believe we can successfully integrate the
       operations of a company into our operations.

                                       19
<PAGE>   23

        UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

     The following Unaudited Pro Forma Condensed Consolidated Balance Sheet (the
"Pro Forma Balance Sheet") has been prepared based upon the historical condensed
consolidated balance sheet of FutureLink Corp. as of March 31, 2000, and the
balance sheet as of March 31, 2000 of Charon Systems Inc. The Pro Forma Balance
Sheet gives effect to the following as if each had occurred as of March 31,
2000:

     - our pending acquisition of Charon Systems Inc.,


     - repayment of $18.3 million shareholder notes issued to finance in part
       our acquisitions of KNS Holdings Limited, Madison Group Holdings, and
       Charon Systems Inc.,


     - our $15.0 million private placement of equity securities with Pequot
       Equity Fund II, L.P. and Pequot Endowment Fund, L.P. in April 2000,

     - conversion of $0.6 million of convertible debt in April 2000, and

     - this offering.

     The Unaudited Pro Forma Condensed Consolidated Statement of Operations (the
"Pro Forma Statement of Operations") for the year ended December 31, 1999 and
the three months ended March 31, 2000 gives effect to the items listed above and
to the following as if each had occurred as of January 1, 1999:

     - our completed acquisitions,

     - our $50.0 million private placement of equity securities with Pequot
       Private Equity Fund II, L.P. and other investors in October 1999,

     - conversion of $22.7 million of convertible debt prior to March 31, 2000,

     - Pequot Private Equity Fund II, L.P.'s and certain other investors'
       exercise of warrants to purchase 2,401,041 shares of common stock in
       February 2000, and

     - the payment of $5.0 million cash and the issuance of warrants to purchase
       3,000,000 shares of common stock for the March 2000 settlement of the
       SmallCaps litigation.

     Pro forma adjustments are described in the accompanying Notes to Unaudited
Pro Forma Condensed Consolidated Financial Information.

     The Unaudited Pro Forma Condensed Consolidated Statement of Operations does
not necessarily indicate the actual results of operations that we would have
reported if the events described above had occurred as of January 1, 1999, nor
does it necessarily indicate the results of our future operations. Furthermore,
the pro forma results do not give effect to any cost savings or incremental
costs that may occur as a result of the integration and consolidation of our
completed or pending acquisitions. In the opinion of management, we have made
all adjustments necessary to fairly present this pro forma financial
information.

     We have accounted for all of our acquisitions using the purchase method of
accounting.

     The Unaudited Pro Forma Financial Information should be read with the
related notes, the "Capitalization" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" sections of this prospectus, and
the financial statements and the notes to financial statements for us and our
completed or pending acquisitions included elsewhere in this prospectus.

                                       20
<PAGE>   24

                                FUTURELINK CORP.

            UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
                                 MARCH 31, 2000
                             (DOLLARS IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                                     PENDING                      PRO FORMA WITH
                                                               PRO FORMA WITH      ACQUISITION                    COMPLETED AND
                                                                 COMPLETED       ---------------                     PENDING
                                   FUTURELINK    PRO FORMA    ACQUISITIONS AND   CHARON SYSTEMS     PRO FORMA    ACQUISITIONS AND
                                     CORP.      ADJUSTMENTS    THIS OFFERING         INC.(1)       ADJUSTMENTS    THIS OFFERING
                                   ----------   -----------   ----------------   ---------------   -----------   ----------------
<S>                                <C>          <C>           <C>                <C>               <C>           <C>
ASSETS
Cash and cash equivalents........   $  3,395      $50,472(A)      $ 53,867           $  330          $  (501)(C)     $ 53,696
Restricted cash..................      2,138           --            2,138               --               --            2,138
Accounts receivable, net.........     22,230           --           22,230            2,721               --           24,951
Inventory........................      5,981           --            5,981              269               --            6,250
Prepaid expenses and other
  current assets.................      3,409           --            3,409               92               --            3,501
                                    --------      -------         --------           ------          -------         --------
         Total current assets....     37,153       50,472           87,625            3,412             (501)          90,536
Property and equipment, net......     16,467           --           16,467              215               --           16,682
Goodwill and other intangibles...    262,687           --          262,687               --           20,060(C)       282,747
Other long-term assets...........      1,062           --            1,062               --             (167)(C)          895
                                    --------      -------         --------           ------          -------         --------
         Total assets............   $317,369      $50,472         $367,841           $3,627          $19,392         $390,860
                                    ========      =======         ========           ======          =======         ========
LIABILITIES AND STOCKHOLDERS'
  EQUITY
Line of credit...................   $    961           --         $    961           $   --          $    --         $    961
Accounts payable and accrued
  liabilities....................     24,692          (46)(B)       24,646            2,310               --           26,956
Current portion of long-term
  debt...........................     17,865      (18,275)(B)         (410)              --            4,340(D)         3,930
Deferred revenue.................      1,921           --            1,921               --               --            1,921
                                    --------      -------         --------           ------          -------         --------
         Total current
           liabilities...........     45,439      (18,321)          27,118            2,310            4,340           33,768
Long-term debt, net of current
  portion........................      7,231           --            7,231               --               --            7,231
Convertible debentures, net......        653         (575)(B)           78               --               --               78
Deferred taxes...................        588           --              588               --               --              588
Stockholders' equity.............    263,458       69,368(B)       332,826            1,317           15,052(D)       349,195
                                    --------      -------         --------           ------          -------         --------
         Total liabilities and
           stockholders' equity
           (deficit).............   $317,369      $50,472         $367,841           $3,627          $19,392         $390,860
                                    ========      =======         ========           ======          =======         ========
</TABLE>


-------------------------
(1) The functional currency of Charon Systems Inc. is the Canadian Dollar.
    Accordingly, we have translated the assets and liabilities into U.S. dollars
    at an exchange rate of CDN $1.4556 per US $1.00, the exchange rate in effect
    at March 31, 2000. We included gains and losses that result from translation
    assets and liabilities into U.S. dollars in stockholders' equity as a
    cumulative foreign currency translation adjustment.

                                       21
<PAGE>   25

                                FUTURELINK CORP.

       UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
                   FOR THE THREE MONTHS ENDED MARCH 31, 2000
                   (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                             COMPLETED ACQUISITIONS
                                           --------------------------                                     PENDING
                                                                                      PRO FORMA WITH    ACQUISITION
                                                             MADISON                    COMPLETED      -------------
                                              VERTICAL      GROUP OF                   ACQUISITIONS       CHARON
                              FUTURELINK   SOFTWARE, INC.   COMPANIES    PRO FORMA       AND THIS      SYSTEMS INC.     PRO FORMA
                                CORP.           (1)          (1)(2)     ADJUSTMENTS      OFFERING           (3)        ADJUSTMENTS
                              ----------   --------------   ---------   -----------   --------------   -------------   -----------
<S>                           <C>          <C>              <C>         <C>           <C>              <C>             <C>
Revenue:
  Hardware and software.....  $   17,324      $   588       $   2,294   $       --      $   20,206       $   2,781       $    --
  Service delivery..........       5,320          471           1,160           --           6,951           1,426            --
                              ----------      -------       ---------   ----------      ----------       ---------       -------
                                  22,644        1,059           3,454           --          27,157           4,207            --
Operating expenses:
  Cost of hardware and
    software................      14,074          453           1,573           --          16,100           2,290            --
  Cost of service
    delivery................       3,666           19             240           --           3,925             119            --
  Selling, general and
    administrative..........      14,426          218           2,003           --          16,647           1,517            --
  Depreciation and
    amortization of goodwill
    and other intangible
    assets..................      13,277            4              20        1,988(E)       15,289              --         1,003(F)
                              ----------      -------       ---------   ----------      ----------       ---------       -------
Income (loss) from
  operations................     (22,799)         365            (382)      (1,988)        (24,804)            281        (1,003)
Interest expense, net(3)....         203            1              --           --             204              --            --
                              ----------      -------       ---------   ----------      ----------       ---------       -------
Income (loss) before
  provision for income
  taxes.....................     (23,002)         364            (382)      (1,988)        (25,008)            281        (1,003)
Provision for income
  taxes.....................         118           --              --           --             118              44            --
                              ----------      -------       ---------   ----------      ----------       ---------       -------
Income (loss) from
  continuing operations.....  $  (23,120)     $   364       $    (382)  $   (1,988)     $  (25,126)      $     237       $(1,003)
                              ==========      =======       =========   ==========      ==========       =========       =======
Loss per share from
  continuing
  operations -- basic and
  diluted...................  $    (0.42)
Weighted average shares.....  55,369,965      349,563       1,302,310   10,152,606      67,174,444       2,199,973            --

<CAPTION>

                              PRO FORMA WITH
                              COMPLETED AND
                                 PENDING
                               ACQUISITIONS
                                 AND THIS
                                 OFFERING
                              --------------
<S>                           <C>
Revenue:
  Hardware and software.....    $   22,987
  Service delivery..........         8,377
                                ----------
                                    31,364
Operating expenses:
  Cost of hardware and
    software................        18,390
  Cost of service
    delivery................         4,044
  Selling, general and
    administrative..........        18,164
  Depreciation and
    amortization of goodwill
    and other intangible
    assets..................        16,292
                                ----------
Income (loss) from
  operations................       (25,526)
Interest expense, net(3)....           204
                                ----------
Income (loss) before
  provision for income
  taxes.....................       (25,730)
Provision for income
  taxes.....................           162
                                ----------
Income (loss) from
  continuing operations.....    $  (25,892)
                                ==========
Loss per share from
  continuing
  operations -- basic and
  diluted...................    $    (0.37)
                                ==========
Weighted average shares.....    69,374,417
                                ==========
</TABLE>


-------------------------
(1) Balances represent the statements of operations from January 1, 2000 to date
    of acquisition.

(2) Reflects a combination of MicroLAN Systems, Inc. doing business as Madison
    Technology Group, Madison Consulting Resources, Inc. and Madison Consulting
    Resources NJ, Inc. All material intercompany transactions have been
    eliminated.

(3) The functional currency of Charon Systems Inc. is the Canadian Dollar.
    Accordingly, we have translated the assets and liabilities into U.S. dollars
    at an exchange rate of CDN $1.4538 per US $1.00, the average exchange rate
    in effect for the three months ended March 31, 2000.

                                       22
<PAGE>   26

                                FUTURELINK CORP.

       UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
                      FOR THE YEAR ENDED DECEMBER 31, 1999
                   (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)


<TABLE>
<CAPTION>
                                                   PRO FORMA WITH                                PRO FORMA WITH
                                                     COMPLETED        PENDING                    COMPLETED AND
                                                    ACQUISITIONS    ACQUISITION                     PENDING
                                                      AND THIS      ------------                  ACQUISITIONS
                                                      OFFERING         CHARON       PRO FORMA       AND THIS
                                                    (SCHEDULE 1)    SYSTEMS INC.   ADJUSTMENTS      OFFERING
                                                   --------------   ------------   -----------   --------------
<S>                                                <C>              <C>            <C>           <C>
Revenue:
  Hardware and software..........................    $   67,770      $   9,807       $    --       $   77,577
  Service delivery...............................        33,713          3,669            --           37,382
                                                     ----------      ---------       -------       ----------
                                                        101,483         13,476            --          114,959
Operating expenses:
  Cost of hardware and software..................        56,413          8,353            --           64,766
  Cost of service delivery.......................        22,630          2,163            --           24,793
  Selling, general and administrative............        36,621          2,669            --           39,290
  Depreciation and amortization..................        58,940             41         4,012(F)        62,993
                                                     ----------      ---------       -------       ----------
Income (loss) from operations....................       (73,121)           250        (4,012)         (76,883)
Interest expense, net............................        11,875              5            --           11,880
                                                     ----------      ---------       -------       ----------
Income (loss) before provision for income
  taxes..........................................       (84,996)           245        (4,012)         (88,763)
Provision for income taxes.......................            46             80            --              126
                                                     ----------      ---------       -------       ----------
Income (loss) from continuing operations.........    $  (85,042)     $     165       $(4,012)      $  (88,889)
                                                     ==========      =========       =======       ==========
Loss per share from continuing operations --basic
  and diluted....................................                                                  $    (2.12)
                                                                                                   ==========
Weighted average shares..........................    39,772,871      2,199,973            --       41,972,844
                                                                                                   ==========
</TABLE>


     The functional currency of Charon Systems Inc. is the Canadian Dollar.
Accordingly, we have translated the revenue and expenses into U.S. dollars at an
exchange rate of CDN $1.4854 per U.S. $1.00, the average exchange rate in effect
for the year ended December 31, 1999.

     The amounts related to the pending acquisition of Charon Systems Inc.,
include amortization of deferred financing fees and debt discount.

     The weighted average number of shares outstanding and the loss per share
have been adjusted to reflect a 5 for 1 reverse stock split on June 1, 1999.

                                       23
<PAGE>   27

                                   SCHEDULE 1
                                FUTURELINK CORP.

       UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
                      FOR THE YEAR ENDED DECEMBER 31, 1999
                   (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                                 COMPLETED ACQUISITIONS
                                                      ----------------------------------------------------------------------------
                                                       EXECUTIVE
                                                          LAN          CN           ASYNC          KNS       VERTICAL     MADISON
                                        FUTURELINK    MANAGEMENT,   NETWORKS,   TECHNOLOGIES,   HOLDINGS    SOFTWARE,      GROUP
                                           CORP.         INC.         INC.          INC.         LIMITED       INC.      HOLDINGS
                                        -----------   -----------   ---------   -------------   --------    ----------   ---------
<S>                                     <C>           <C>           <C>         <C>             <C>         <C>          <C>
Revenue:
 Hardware and software................  $    6,748     $  11,204     $ 5,706      $   6,540     $  19,082   $   8,357    $  10,133
 Service delivery.....................       6,852         6,181       1,233          1,232            --       4,761       13,454
                                        ----------     ---------     -------      ---------     ---------   ---------    ---------
                                            13,600        17,385       6,939          7,772        19,082      13,118       23,587
Operating expenses:
 Cost of hardware and software........       7,013         9,576       4,446          4,884        15,560       6,657        8,277
 Cost of service delivery.............      10,527         1,720         414            696            --         316        8,957
 Selling, general and
   administrative.....................      12,611         6,913       1,946          1,477         2,686       4,822        6,166
 Depreciation and amortization........       6,690            84          --             35            --          50           --
                                        ----------     ---------     -------      ---------     ---------   ---------    ---------
Income (loss) from operations.........     (23,241)         (908)        133            680           836       1,273          187
Interest expense, net.................      11,658            12          35             36            --           3          131
                                        ----------     ---------     -------      ---------     ---------   ---------    ---------
Income (loss) before provision for
 income taxes.........................     (34,899)         (920)         98            644           836       1,270           56
Provision for income taxes............          --            --          27             --            --          --           19
                                        ----------     ---------     -------      ---------     ---------   ---------    ---------
Income (loss).........................  $  (34,899)    $    (920)    $    71      $     644     $     836   $   1,270    $      37
                                        ==========     =========     =======      =========     =========   =========    =========
Loss per share -- basic and diluted...  $    (2.44)
Weighted average shares...............  14,279,647     6,623,077     999,998      1,585,715     2,106,893   1,026,316    1,975,170

<CAPTION>
                                                       PRO FORMA
                                                          WITH
                                                       COMPLETED
                                                      ACQUISITIONS
                                         PRO FORMA      AND THIS
                                        ADJUSTMENTS     OFFERING
                                        -----------   ------------
<S>                                     <C>           <C>
Revenue:
 Hardware and software................  $       --     $   67,770
 Service delivery.....................          --         33,713
                                        ----------     ----------
                                                --        101,483
Operating expenses:
 Cost of hardware and software........          --         56,413
 Cost of service delivery.............          --         22,630
 Selling, general and
   administrative.....................          --         36,621
 Depreciation and amortization........      52,081(E)      58,940
                                        ----------     ----------
Income (loss) from operations.........     (52,081)       (73,121)
Interest expense, net.................          --         11,875
                                        ----------     ----------
Income (loss) before provision for
 income taxes.........................     (52,081)       (84,996)
Provision for income taxes............          --             46
                                        ----------     ----------
Income (loss).........................  $  (52,081)    $  (85,042)
                                        ==========     ==========
Loss per share -- basic and diluted...
Weighted average shares...............  11,176,055     39,772,871
</TABLE>


     For acquisitions completed prior to December 31, 1999, the amounts
represent the statements of operations from January 1, 1999 to the date of
acquisition.
     The functional currency of KNS Holdings Limited is the United Kingdom Pound
Sterling. Accordingly, we have translated the revenue and expenses into U.S.
dollars at an exchange rate of L0.6189 per U.S. $1.00, the average exchange rate
during the period translated.
     The Statement of Operations for Madison Group Holdings reflects a
combination of MicroLAN Systems, Inc., doing business as Madison Technology
Group, Madison Consulting Resources, Inc., and Madison Consulting Resources NJ,
Inc. All material intercompany transactions have been eliminated.
     Interest expense includes amortization of deferred financing fees and debt
discount.
     The weighted average number of shares outstanding and the loss per share
have been adjusted to reflect a 5 for 1 reverse stock split on June 1, 1999.

                                       24
<PAGE>   28

                          NOTES TO UNAUDITED PRO FORMA
                  CONDENSED CONSOLIDATED FINANCIAL INFORMATION
BALANCE SHEETS

     We have agreed to pay $21.4 million for the acquisition of Charon Systems
Inc. We will allocate the excess of the purchase price over the book value of
the net assets acquired to tangible and intangible assets, based on our estimate
of the fair value of the net assets acquired. It is not practicable at this time
for us to determine the fair value of each asset acquired and liability assumed
in this acquisition. As a result, we have used the net book value of certain
assets and liabilities as an estimate of fair value for pro forma purposes.
Accordingly, the allocation of the aggregate purchase price illustrated below
should be considered preliminary and may be further adjusted upon completion of
all procedures necessary to determine the fair value of the assets acquired and
liabilities assumed (in millions).


Pending Acquisition:

<TABLE>
<S>                                                           <C>
Current assets..............................................  $ 3.4
Property and equipment, net.................................    0.2
Goodwill....................................................   20.1
Current liabilities.........................................   (2.3)
                                                              -----
          Purchase price of pending acquisition.............  $21.4
                                                              =====
</TABLE>



     We have assumed our pending acquisition will be financed with common stock,
a note payable and the net proceeds from this offering, as follows (in
millions):


Pending Acquisition:

<TABLE>
<S>                                                           <C>
Fair value of common stock issued...........................  $16.4
Issuance of note to former shareholders.....................    4.3
Proceeds from the public offering...........................    0.5
Application of deposit......................................    0.2
                                                              -----
          Purchase price of pending acquisition.............  $21.4
                                                              =====
</TABLE>


     The accompanying Pro Forma Balance Sheet as of March 31, 2000 reflects the
following pro forma adjustments:
          (A) Pro forma adjustments to assets consist of the following (in
     millions):


<TABLE>
<CAPTION>
                                                              ASSETS
                                                              ------
<S>                                                           <C>
Capital Financing Adjustments:
Receipt of funds from public equity offering, net of
  offering costs............................................    53.7
Proceeds from the April 2000 Pequot private placement.......    15.0
                                                              ------
          Total capital financing adjustments...............    68.7
                                                              ------
Use of Proceeds Adjustments:
Cash paid for notes payable -- KNS Holdings Limited, Madison
  Group Holdings, and Charon Systems Inc. ..................   (18.2)
                                                              ------
          Total use of proceeds adjustment..................   (18.2)
                                                              ------
          Total proforma adjustments........................  $ 50.5
                                                              ======
</TABLE>


                                       25
<PAGE>   29

          (B) Pro forma adjustments to liabilities and stockholders' equity
     consist of the following (in millions):


<TABLE>
<CAPTION>
                                                              CURRENT      CONVERTIBLE    STOCKHOLDERS'
                                                            LIABILITIES    DEBENTURES        EQUITY
                                                            -----------    -----------    -------------
<S>                                                         <C>            <C>            <C>
Use of Proceeds Adjustments:
Repayment of notes payable -- KNS Holdings Limited,
  Madison Group Holdings, and Charon Systems Inc..........    $(18.2)         $  --           $  --
                                                              ------          -----           -----
          Total use of proceeds adjustments...............     (18.2)            --              --
                                                              ------          -----           -----
Capital Financing Adjustments:
Conversion of debt to common stock........................        --           (0.6)            0.6
Record common stock issued in the April 2000 Pequot
  private placement.......................................        --                           15.0
Record common stock issued in public offering, net........        --                           53.7
                                                              ------          -----           -----
          Total capital financing adjustments.............        --           (0.6)           69.3
                                                              ------          -----           -----
          Total pro forma adjustments.....................    $(18.2)         $(0.6)          $69.3
                                                              ======          =====           =====
</TABLE>


          (C) Pro forma adjustments to assets consist of the following (in
     millions):


<TABLE>
<CAPTION>
                                                              ASSETS     GOODWILL
                                                              -------    --------
<S>                                                           <C>        <C>
Acquisition Adjustments:
Record goodwill related to acquired company.................   $  --      $20.1
Reversal of deposits paid to acquired company...............    (0.2)        --
                                                               -----      -----
          Total acquisition adjustments.....................    (0.2)      20.1
                                                               -----      -----
Use of Proceeds Adjustment:
Record cash used in acquisition.............................    (0.5)        --
                                                               -----      -----
          Total use of proceeds adjustment..................    (0.5)        --
                                                               -----      -----
          Total pro forma adjustments.......................   $(0.7)     $20.1
                                                               =====      =====
</TABLE>


          (D) Pro forma adjustments to liabilities and stockholders' equity
     consist of the following (in millions):


<TABLE>
<CAPTION>
                                                              STOCKHOLDERS'
                                                                 EQUITY
                                                              -------------
<S>                                                           <C>
Acquisition Adjustments:
Eliminate equity of Charon Systems Inc. ....................      $(1.3)
Note payable issued to Charon Systems Inc. .................        4.3
Stock issued as consideration for pending acquisition.......       16.4
                                                                  -----
          Total acquisition adjustments.....................       19.4
                                                                  -----
          Total pro forma adjustments.......................      $19.4
                                                                  =====
</TABLE>


                                       26
<PAGE>   30

STATEMENT OF OPERATIONS
Pro Forma Adjustments
     The accompanying Pro Forma Statement of Operations reflects the following
pro forma adjustments (in millions):


<TABLE>
<CAPTION>
                                                                 DECEMBER 31,   MARCH 31,
                                                                     1999         2000
                                                                   EXPENSES     EXPENSES
                                                                 ------------   ---------
<S>  <C>                                                         <C>            <C>
(E)  To adjust goodwill amortization based on an amortization       $52.1         $2.0
     rate of five years for the 12 months ended December 31,
     1999 and three months ended March 31, 2000 for closed
     acquisitions
(F)  To adjust goodwill amortization based on an amortization       $ 4.0         $1.0
     rate of five years for the 12 months ended December 31,
     1999 and three months ended March 31, 2000 for Charon
     Systems Inc.
</TABLE>


PRO FORMA AVERAGE SHARES
     The weighted average number of shares outstanding has been adjusted to give
effect to the shares issued upon the acquisitions of Vertical Software, Inc.,
and Madison Group Holdings as though the shares had been outstanding from the
beginning of the period. The weighted average number of shares outstanding has
also been adjusted for the exercise of warrants related to the October 1999
Pequot private placement and the April 2000 Pequot private placement as though
the shares had been outstanding from the beginning of the period or the date of
issuance, if later. The weighted average number of shares outstanding includes
all contingent share consideration as if all performance criteria had been met.
The weighted average shares -- basic and diluted, has been calculated as
follows:


<TABLE>
<CAPTION>
                                                                           NUMBER OF SHARES
                                                      NUMBER OF SHARES     FOR THREE MONTHS
                                                       FOR YEAR ENDED           ENDED
                                                      DECEMBER 31, 1999     MARCH 31, 2000
                                                      -----------------    ----------------
<S>                                                   <C>                  <C>
FutureLink..........................................     14,279,647           55,369,965
Executive LAN Management, Inc. .....................      6,623,077                   --
CN Networks, Inc. ..................................        999,998                   --
Async Technologies, Inc. ...........................      1,585,715                   --
KNS Holdings Limited................................      2,106,893                   --
Vertical Software, Inc. ............................      1,026,316              349,563
Madison Group Holdings..............................      1,975,170            1,302,310
Warrant exercises...................................      2,545,783            1,524,413
April 2000 Pequot private placement.................      1,764,704            1,764,704
Conversion of convertible debt......................        865,568              863,489
Public offering.....................................      6,000,000            6,000,000
                                                         ----------           ----------
          Total.....................................     39,772,871           67,174,444
                                                         ==========           ==========
</TABLE>


                                       27
<PAGE>   31

BALANCE SHEET -- PENDING ACQUISITION
     The weighted average number of shares outstanding has been further adjusted
to give effect to the shares issued upon acquisition of Charon Systems Inc. as
though they had been outstanding as at the beginning of the period. The weighted
average number of shares outstanding has been calculated as follows:


<TABLE>
<CAPTION>
                                                      NUMBER OF SHARES     NUMBER OF SHARES
                                                       FOR YEAR ENDED       FOR YEAR ENDED
                                                      DECEMBER 31, 1999     MARCH 31, 2000
                                                      -----------------    ----------------
<S>                                                   <C>                  <C>
Charon Systems Inc. ................................      2,199,973           2,199,973
                                                          =========           =========
</TABLE>


                                       28
<PAGE>   32

                      SELECTED CONSOLIDATED FINANCIAL DATA
     The following historical selected consolidated financial data are derived
from the consolidated financial statements of FutureLink Corp. which Ernst &
Young LLP, Independent Auditors, have audited. This data should be read with the
consolidated financial statements, related notes, and other financial
information included in this prospectus.

<TABLE>
<CAPTION>
                                                             YEAR ENDED             THREE MONTHS ENDED
                                                            DECEMBER 31,                 MARCH 31,
                                                       -----------------------    -----------------------
                                                         1998          1999         1999          2000
                                                       ---------    ----------    ---------    ----------
                                                         (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                    <C>          <C>           <C>          <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenue..............................................  $   2,437    $   13,600    $   1,744    $   22,644
                                                       ---------    ----------    ---------    ----------
Expenses:
  Cost of hardware and software......................        880         7,013          353        14,074
  Cost of service delivery...........................      1,548        10,527        1,108         3,666
  Selling, general and administrative................      3,064        12,611        1,845        14,426
  Goodwill and other intangibles amortization........        668         4,981          500        11,783
  Depreciation and amortization......................        203         1,709          161         1,494
                                                       ---------    ----------    ---------    ----------
Loss from operations.................................     (3,926)      (23,241)      (2,223)      (22,799)
Interest expense, net(1).............................      1,333        11,658          998           203
Equity in loss of investee...........................        826            --           --            --
                                                       ---------    ----------    ---------    ----------
Loss before benefit for income taxes and
  extraordinary item.................................     (6,085)      (34,899)      (3,221)      (23,002)
Provision (benefit) for income taxes.................       (205)           --         (119)          118
                                                       ---------    ----------    ---------    ----------
Loss before extraordinary item.......................     (5,880)      (34,899)      (3,102)      (23,120)
Extraordinary item...................................         --          (845)          --            --
                                                       ---------    ----------    ---------    ----------
Net loss.............................................  $  (5,880)   $  (35,744)   $  (3,102)   $  (23,120)
                                                       =========    ==========    =========    ==========
Loss per share -- basic and diluted:
  Loss before extraordinary item.....................  $   (1.86)   $    (2.44)   $   (0.53)   $    (0.42)
  Extraordinary item.................................         --         (0.06)          --            --
                                                       ---------    ----------    ---------    ----------
  Net loss...........................................  $   (1.86)   $    (2.50)   $   (0.53)   $    (0.42)
                                                       =========    ==========    =========    ==========
  Weighted average shares(2).........................  3,169,413    14,279,647    5,813,993    55,369,965
                                                       =========    ==========    =========    ==========
OTHER DATA:
  EBITDA(3)..........................................  $  (3,881)   $  (16,551)   $  (1,562)   $   (9,522)
</TABLE>

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,        MARCH 31,
                                                              -------------------    ---------
                                                               1998        1999        2000
                                                              -------    --------    ---------
                                                                   (DOLLARS IN THOUSANDS)
<S>                                                           <C>        <C>         <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents...................................  $     7    $ 19,185    $   3,395
Total assets................................................   10,646     240,678      317,369
Total debt..................................................    3,002      15,201       26,710
Stockholders' equity........................................    2,837     202,748      263,458
</TABLE>

-------------------------
(1) Includes amortization of deferred financing fees and debt discount.

(2) Gives effect to a reverse stock split of 5 to 1 on June 1, 1999 as if it had
    occurred on January 1, 1999.

(3) EBITDA is defined as net loss plus:

    - interest expense, net,


    - provision (benefit) for income taxes,


    - goodwill and other intangibles amortization,


    - depreciation and amortization, and


    - extraordinary items.


     EBITDA is presented not as an alternative measure of operating results or
     cash flow from operations as determined in accordance generally accepted
     accounting principles, but because it is a widely accepted financial
     indicator of a company's ability to incur and service debt.

                                       29
<PAGE>   33

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     The following discussion of our financial condition and results of
operations should be read with the consolidated financial statements and the
related notes included elsewhere in this prospectus. This discussion contains
forward-looking statements the accuracy of which involves risks and
uncertainties. Our actual results could differ materially from those anticipated
in the forward-looking statements for many reasons including, but not limited
to, those discussed in "Risk Factors" and elsewhere in this prospectus. We
disclaim any obligation to update information contained in any forward-looking
statement.

OVERVIEW

     We provide server-based computing services and are an application service
provider, or ASP. Our services enable software applications to be deployed,
managed, supported and upgraded from centrally located servers, rather than on
individual desktop computers. For our server-based computing customers, we
install and integrate software applications on our customers' servers. For our
ASP customers, we host software applications on our servers at our data centers,
and rent computing services to our customers for a monthly fee. Our ASP
customers connect to our facilities over the Internet, through a dedicated
telecommunications line or by wireless connection. Our goal is to provide our
ASP services with the speed, simplicity and reliability of a utility service.

     We had no significant active operations in 1997.

     On January 20, 1998, we acquired a 46% interest in FutureLink Distribution
Corp., a private Alberta corporation, which we refer to as FutureLink Alberta,
and changed our name from Core Ventures, Inc. to FutureLink Distribution Corp.
Effective November 23, 1998, we acquired a further 50.4% interest in FutureLink
Alberta, bringing our total ownership to 96.4%. FutureLink Alberta focused on
providing ASP services to mid-sized businesses. We accounted for our investment
in FutureLink Alberta for the period January 20, 1998 to November 23, 1998 using
the equity method of accounting for investments. As such, results from
operations for our 46% ownership percentage of FutureLink Alberta's losses is
included in our statement of operations under the caption "Equity in loss of
investee." Subsequent to November 23, 1998, FutureLink Alberta's results are
consolidated into our results. On February 26, 1999, FutureLink Alberta became
our wholly owned subsidiary when we acquired the remaining 3.6% minority shares.

     Effective August 24, 1998, we acquired all of the outstanding shares of
Riverview Management Corporation, which we renamed FutureLink/SysGold Ltd. This
company was a western Canadian information technology services company focused
on outsourcing information technology services to mid-sized companies in the oil
and gas sector. We consolidated the results of operations of FutureLink/SysGold
Ltd. into our results of operations upon our acquisition of FutureLink/SysGold
Ltd. on August 24, 1998.

     On August 1, 1999, we merged FutureLink Alberta and FutureLink/SysGold Ltd.
into a single operating subsidiary continuing under the FutureLink Alberta name.

     We introduced our ASP services in March 1999 and launched our sales program
for ASP services in July 1999. We have built our server-based computing business
through six acquisitions that we closed between October 15, 1999 and February
29, 2000. In addition, we have agreed to acquire Charon Systems Inc.

     Our acquisitions reflect our strategy to rapidly expand our market
penetration and our ability to deliver our server-based computing and ASP
services. All of the companies we have acquired to date, and Charon Systems
Inc., who we have agreed to acquire, offer their customers information
technology services, specializing in server-based applications relying on
software from Citrix Systems, Inc., which interacts with Windows NT Terminal
Server software from Microsoft, the same software used by us to run our ASP
servers. The acquisitions have allowed us to enter other major markets through
an established
                                       30
<PAGE>   34

market participant, with local sales and marketing teams and technical staff now
able to offer both server-based integration and outsourcing services and ASP.


     The completed acquisitions together with our pending acquisition of Charon
Systems Inc. will result in approximately $283 million of purchase price in
excess of net assets acquired that we have allocated to goodwill. We believe
that in respect of our acquisitions we will be able to realize the value of the
goodwill acquired through the overall expansion of our ASP business based on our
strategic business plan. We will periodically evaluate the goodwill based upon
the future undiscounted cash flows using the forecasts in our strategic business
plan. If our estimate of future undiscounted cash flow should change or our
strategic business plan is not achieved, future analyses may indicate
insufficient future undiscounted cash flows to recover the carrying value of the
goodwill, in which case the goodwill would be written down to fair value.


     Our historical financial statements as of and for the year ended December
31, 1998 reflect FutureLink's historical Canadian consulting business and
Canadian ASP operations and only reflect the results of FutureLink Alberta and
FutureLink/SysGold Ltd. for the periods after our acquisition of them. Our
historical financial statements as of and for the two years ended December 31,
1999 do not reflect any United States server-based computing, ASP business or
server-based computing distribution business until the effective dates of the
acquisitions listed above. These acquired businesses now represent a significant
portion of our revenue, operations and employees.

     Our analysis of operations for the years ended December 31, 1998 and 1999
and for the three months ended March 31, 1999 and 2000, follows. We have omitted
a comparison of operations from year to year as our significant acquisition
activity during 1999 distorts the comparison.

     We have and expect to continue to experience significant fluctuations in
our operating results because of a variety of factors, many of which are outside
of our control, including:

     - size and timing of customer installations and related payments,

     - fluctuations in data and voice communications costs,

     - timing and magnitude of capital expenditures,

     - costs relating to the expansion of operations,

     - costs and revenue fluctuations due to acquisitions,

     - the timing of delivery of services under new ASP contracts,

     - customer discounts and credits,

     - changes in our pricing policies or those of our competitors, and

     - economic conditions specific to our industry, as well as general economic
       conditions.

     Our revenues are subject to further variations from period to period
because a large portion of our current revenues are non-recurring. For these and
other reasons, in some future periods, our results of operations may fluctuate
and fall below the expectations of securities analysts or investors, which could
materially adversely affect the market price of our common stock.

                                       31
<PAGE>   35

RESULTS OF OPERATIONS -- THREE MONTHS ENDED MARCH 31, 1999 AND 2000

Revenue

     The components of our revenue for the three months ending March 31, 1999
and 2000 were as follows (in millions):

<TABLE>
<CAPTION>
                                                              MARCH 31,    MARCH 31,
                                                                1999         2000
                                                              ---------    ---------
<S>                                                           <C>          <C>
Sale of hardware and software...............................    $0.4         $17.3
Service delivery............................................     1.3           5.3
                                                                ----         -----
     Total..................................................    $1.7         $22.6
                                                                ====         =====
</TABLE>

     Revenue for the three months ended March 31, 1999 consisted of $1.3 million
of information technology outsourcing revenue. We also purchase and resell
hardware and software to our customers as part of our services, which accounted
for $0.4 million of revenue for the three months ended March 31, 1999.

     Revenue for the three months ended March 31, 2000 consisted of $5.3 million
of information technology outsourcing revenue, of which $0.5 million related to
ASP service revenue. The purchase and resale of hardware and software to our
customers accounted for $17.3 million of revenue for the three months ended
March 31, 2000.

Cost of Goods Sold

     Cost of goods sold reflects costs of hardware and software purchased for
resale to customers. Cost of goods sold for the three months ended March 31,
1999 was $0.4 million, or 92% of hardware and software sales.

     Our cost of goods sold for the three months ended March 31, 2000 was $14.1
million, or 81% of related hardware and software sales.

Cost of Service Delivery

     Our cost of service delivery for the three months ended March 31, 1999 was
$1.1 million, or 81% of service delivery revenue. This includes amounts related
to the cost of service delivery of information technology outsourcing and the
direct cost related to the development of our ASP services, including operating
a "beta test" data center for early customers.

     Our cost of service delivery for the three months ended March 31, 2000 was
$3.7 million, or 69% of service delivery revenue. Our cost of service delivery
reflects payroll and benefit costs for our outsourcing consultants who support
the information technology activities of our clients and payroll, benefit, and
operational costs related to testing and operating our data center and
installing and supporting software applications related to our ASP and
information technology outsourcing businesses.

Selling, General and Administrative Expenses

     Our selling, general and administrative expenses include travel, payroll,
operations, advertising, and marketing expenses to secure customers and to
develop business partnerships, as well as for meeting and developing
relationships with industry analysts and financiers. Our selling, general and
administrative expenses for the three months ended March 31, 1999 were $1.8
million. This includes $0.1 million of non-cash compensation charges relating to
the issuance of our common stock, options and warrants.

     Selling, general and administrative expenses for the three months ended
March 31, 2000 were $14.4 million. This resulted primarily from building
infrastructure required to support the expansion of our

                                       32
<PAGE>   36

ASP business which resulted in increased payroll and operating costs, additional
costs for our financing and marketing activities, and the additional selling,
general and administrative costs of the subsidiaries that we acquired during
1999 and the first quarter of 2000. The 2000 amount also includes $1.3 million
of non-cash compensation charges relating to the issuance of our common stock,
options and warrants.

Amortization of Goodwill and Other Intangible Assets and Depreciation

     Our depreciation and amortization costs for the three months ended March
31, 1999 and 2000 are comprised of the following (in millions):

<TABLE>
<CAPTION>
                                                              THREE MONTHS
                                                                  ENDED
                                                                MARCH 31,
                                                              -------------
                                                              1999    2000
                                                              ----    -----
<S>                                                           <C>     <C>
Goodwill and other intangibles amortization.................  $0.5    $11.8
Depreciation and amortization...............................   0.2      1.5
                                                              ----    -----
                                                              $0.7    $13.3
                                                              ====    =====
</TABLE>

     Amortization of goodwill for the three months ended March 31, 2000 relates
to the acquisitions made during 1999 and the three months ended March 31, 2000.
Our depreciation and other amortization expense for the three months ended March
31, 2000 includes depreciation on the expansion of our Irvine and Canadian data
centers, software user licenses, and office and leasehold improvements, and
amortization of our assembled workforce.

     Our amortization of goodwill and other intangible assets for the three
months ending March 31, 1999 relates to the amortization of the assembled
workforce that we acquired during 1998.

Interest Expense, Net

     Our interest expense of $1.0 million for the three months ended March 31,
1999 includes a non-cash charge of $0.9 million related to amortization of
intrinsic value of conversion features related to convertible debenture
financing and $0.1 million related to interest on bank indebtedness and lines of
credit, capital lease obligations and convertible debt outstanding during the
three months.

     Our interest expense of $0.4 million for the three months ended March 31,
2000 reflects non-cash charges of $0.1 million related to, among other factors,
amortization of deferred financing fees and debt discount, and $0.3 million
related to interest on bank indebtedness and lines of credit, capital lease
obligations and convertible debt outstanding during the three months. Interest
expense was offset by $0.2 million of interest income.

PRO FORMA RESULTS OF OPERATIONS -- THREE MONTHS ENDED MARCH 31, 2000

Revenue

     Revenue for the three months ended March 31, 2000 on a pro forma basis was
$31.4 million, comprised of $8.4 million of service revenue and $23.0 million of
revenue from hardware and software sales.

Cost of Goods Sold

     Our cost of goods sold for the three months ended March 31, 2000 on a pro
forma basis was $18.4 million, or 80% of pro forma hardware and software sales.

                                       33
<PAGE>   37

Cost of Service Delivery

     Our cost of service delivery for the three months ended March 31, 2000 on a
pro forma basis was $4.0 million or 48% of service revenue. The companies
acquired during the period and included in the pro forma consolidated financial
information did not incur the cost of installing and supporting software
applications related to our ASP and information technology outsourcing
businesses. This resulted in a cost of service delivery percentage lower than
the actual March 31, 2000 results.

Selling, General and Administrative Expenses

     Our selling, general and administrative expenses for the three months ended
March 31, 2000 on a pro forma basis were $18.2 million. These costs are mainly
attributable to the increased payroll, operations, marketing and administrative
costs incurred by us to secure customers and to develop business partnerships,
as well as for meeting and developing relationships with industry analysts and
financiers.

Amortization of Goodwill and Other Intangible Assets and Depreciation


     Our amortization of goodwill and other intangible assets and depreciation
for the three months ended March 31, 2000 on a pro forma basis was $17.2
million.


RESULTS OF OPERATIONS -- YEARS ENDED DECEMBER 31, 1998 AND 1999

Revenue

     The components of our revenue for the years ending December 31, 1998 and
1999 were as follows (dollars in millions):

<TABLE>
<CAPTION>
                                                             DECEMBER 31,    DECEMBER 31,
                                                                 1998            1999
                                                             ------------    ------------
<S>                                                          <C>             <C>
Information technology outsourcing, consulting and other...      $1.4           $ 6.9
Sale of hardware/software..................................       1.0             6.7
                                                                 ----           -----
                                                                 $2.4           $13.6
                                                                 ====           =====
</TABLE>

     Revenue for the year ended December 31, 1998 consisted of $1.4 million of
information technology outsourcing and business consulting revenue, and $1.0
million of hardware and software sales. The revenue for this period reflects the
operations of our FutureLink/SysGold Ltd. subsidiary, which we acquired on
August 24, 1998, and our FutureLink Alberta subsidiary for the period November
23, 1998 to December 31, 1998. Prior to that date, we only held a 46% interest
in FutureLink Alberta, and we accounted for those results under the equity
method of accounting and reflected those results in equity of loss of investee.

     Revenue for the year ended December 31, 1999 consisted of $1.7 million of
information technology, outsourcing and ASP service revenue generated by the
United States companies that we acquired during the year, and $5.2 million of
information technology outsourcing and consulting services that our Canadian
companies generated, which they provided to mostly oil and gas industry
customers. We also purchase and resell hardware and software to our customers as
part of our services, which accounted for $6.7 million of revenue in 1999, of
which $4.7 million related to revenues generated by the acquired companies.

Cost of Goods Sold

     Cost of goods sold reflects costs of hardware and software purchased for
resale to customers. Cost of goods sold for the year ended December 31, 1998 was
$0.9, or 91% of hardware and software sales.

     Our cost of goods sold for the year ended December 31, 1999 was $7.0
million, or 103% of related hardware and software sales. The cost of sales for
the year ended December 31, 1999 exceeded related

                                       34
<PAGE>   38

revenue primarily because we wrote off $232,000 of inventory during the period
that existed on the books of the companies we acquired.

Cost of Service Delivery

     Our cost of service delivery for the year ended December 31, 1998 was $1.5
million. This includes amounts related to the cost of delivering our outsourcing
services and the direct cost related to the development of our ASP services,
including operating a "beta test" data center for early customers. The costs of
service delivery for this period reflects costs resulting from the operations of
our FutureLink/SysGold Ltd. subsidiary, which we acquired on August 24, 1998,
and from Futurelink Alberta for the period November 23, 1998 to December 31,
1998. Prior to that date, we only held a 46% interest in FutureLink Alberta, and
we accounted for those results under the equity method of accounting and
reflected those results in loss of investee.

     Our cost of service delivery for the year ended December 31, 1999 was $10.5
million. Our cost of service delivery reflects payroll and benefit costs for our
outsourcing consultants who support the information technology activities of our
clients and payroll, benefit, and operational costs related to testing and
operating our data centers and installing and supporting software applications
related to our ASP and information technology outsourcing businesses.

Selling, General and Administrative

     Our selling, general and administrative expenses for the year ended
December 31, 1998 were $3.1 million and included selling, general and
administrative costs resulting from the operations of our FutureLink/SysGold
Ltd. subsidiary, which we acquired on August 24, 1998. The 1998 amount includes
selling, general and administrative costs from our FutureLink Alberta subsidiary
for the period November 23, 1998 to December 31, 1998. Prior to that date, we
only held a 46% interest in FutureLink Alberta, and we accounted for those
results under the equity method of accounting and reflected those results in
loss of investee. The 1998 amount also includes $2.1 million of non-cash
compensation charges relating to the issuance of our common stock, options and
warrants.

     Our selling, general and administrative expenses include travel, payroll,
operations, advertising, and marketing expenses to secure customers and to
develop business partnerships, as well as for meeting and developing
relationships with industry analysts and financiers. Selling, general and
administrative expenses for the year ended December 31, 1999 increased $9.5
million to $12.6 million, from $3.1 million in the comparable period in 1998.
The increase in such costs results from the expansion of our ASP business which
resulted in increased payroll and operating costs, additional costs to our
financing and marketing activities, and $4.6 million additional selling, general
and administrative costs of the subsidiaries that we acquired during the year.
The 1999 amount also includes $3.3 million of non-cash compensation charges
relating to the issuance of our common stock, options and warrants.

Interest Expense

     Our 1998 interest expense of $1.3 million includes a non-cash charge
related to amortization of deferred financing fees of $1.2 million.

     Our interest expense, including amortization of deferred financing fees and
debt discount, of $12.1 million for the year ended December 31, 1999, reflects
non-cash charges of $11.1 million related to, among other factors, the
difference between the market value of the debt conversion features on the date
of the debt agreement and the price of conversion. The cash interest expense of
$1.0 million relates to interest on bank indebtedness and lines of credit,
capital lease obligations and convertible debt and promissory notes outstanding
during the year.

                                       35
<PAGE>   39

Amortization of Goodwill and Other Intangible Assets and Depreciation

     Our depreciation and amortization costs for the years ended December 31,
1998 and 1999 are comprised of the following (dollars in millions):

<TABLE>
<CAPTION>
                                                              1998    1999
                                                              ----    ----
<S>                                                           <C>     <C>
Amortization of goodwill and other intangible assets........  $0.7    $5.0
Depreciation and amortization...............................   0.2     1.7
                                                              ----    ----
                                                              $0.9    $6.7
                                                              ====    ====
</TABLE>

     Our amortization of intangible assets for the year ended December 31, 1998
relates to the amortization of the assembled workforce that we acquired during
1998.

     Our depreciation for the year ended December 31, 1999 includes depreciation
on the expansion of our Canadian data center, software user licenses, and office
and leasehold improvements. Our amortization of intangible assets for the year
ending December 31, 1999 relates to the amortization of goodwill on the
acquisitions made during the year and from the assembled workforce acquired
during the year ended December 31, 1998.

Equity in Loss of Investee

     On January 20, 1998, we acquired a 46% interest in FutureLink Alberta.
Effective November 23, 1998, we acquired a further 50.4% interest in FutureLink
Alberta, bringing our total ownership to 96.4%. We accounted for our investment
in FutureLink Alberta for the period January 20, 1998 to November 23, 1998 using
the equity method of accounting for investments, and included 46% of FutureLink
Alberta's net loss on our statement of operations as "Equity in loss of
investee." Upon the November 24, 1998 acquisition of the additional 50.4%
interest, we consolidated FutureLink Alberta's results of operations into our
results of operations. In 1999, we consolidated FutureLink Alberta's operations
with our operations for the full year.

Extraordinary Item

     During the year ended December 31, 1999, we renegotiated the terms of our
10% convertible debentures having an original aggregate principal amount of $6.0
million. We issued additional warrants to holders of our convertible debentures
and also retired a portion of the principal amount of these convertible
debentures at a premium. As a result of this series of transactions, we recorded
an extraordinary loss of $0.8 million.

PRO FORMA RESULTS OF OPERATIONS -- YEAR ENDED DECEMBER 31, 1999

Revenue

     Revenue for the year ended December 31, 1998 on a pro forma basis was $78.5
million, comprised of $19.3 million of service revenue and $59.2 million of
revenue from hardware and software sales. Revenue for the year ended December
31, 1999 on a pro forma basis was $115.0 million, comprised of $37.4 million of
service revenue and $77.6 million of revenue from hardware and software sales.
The increase in revenue was a result of the overall increase in demand for
Citrix products, as well as for service-based computing services, particularly
as they related to delivering software applications from remote locations.

Cost of Goods Sold

     Our cost of goods sold for the year ended December 31, 1998 on a pro forma
basis was $53.2 million, or 89.7% of pro forma hardware and software sales. Our
cost of goods sold for the year ended December 31, 1999 on a pro forma basis was
$64.8 million, or 83.5% of pro forma hardware and software

                                       36
<PAGE>   40

sales. The change in the cost of goods sold percentage was due primarily to a
change in product mix and better pricing in 1999.

Cost of Service Delivery

     Our cost of service delivery for the year ended December 31, 1998 on a pro
forma basis was $5.2 million or 26.9% of service revenue as compared to $24.8
million or 66.3% of service revenue on a pro forma basis for the year ended
December 31, 1999. The increase in cost of service delivery percentage is due
primarily to the 1999 amount including a substantial amount of ASP service
development and engineering costs, which had a limited amount of offsetting
revenue.

Selling, General and Administrative Expenses

     Our selling, general and administrative expenses for the year ended
December 31, 1998 on a pro forma basis were $20.5 million, as compared to $39.3
million on a pro forma basis for the year ended December 31, 1999. The increase
in expenses was mainly attributable to the increased payroll, operations,
marketing and administrative costs incurred by us in 1999 to secure customers
and to develop business partnerships, as well as for meeting and developing
relationships with industry analysts and financiers. The increase in costs is
also consistent with the overall increase in operations resulting from the
increased sales activity.

Depreciation and Amortization of Goodwill and Other Intangible Assets


     Our depreciation and amortization of goodwill and other intangible assets
for the year ended December 31, 1998 on a pro forma basis was $60.0 million as
compared to $63.0 million on a pro forma basis for the year ended December 31,
1999.


LIQUIDITY AND CAPITAL RESOURCES

     During the quarter ended March 31, 2000, we had net cash outflows from
operating activities of $13.2 million and utilized another $16.4 million for
acquisitions. These outflows related mainly to the expansion of our ASP
business, our significant acquisition activity and a payment of $5.0 million to
SmallCaps Online Group LLC. In addition, during the three months ended March 31,
2000 we invested $0.5 million in property and equipment, mostly in expanding our
existing data centers, and for the acquisition of software, hardware and other
infrastructure costs necessary to host our ASP customers. These net cash
outflows are significantly greater than net cash outflows for the same period in
1999.

     We acquired two companies during the three months ended March 31, 2000. The
total consideration for these acquisitions was $85.1 million, consisting of
$16.4 million cash, 3,001,486 shares of our common stock valued at $63.2 million
and a note payable of $7.3 million, which is due in 2000.

     We used the following sources of financing to fund operations, our
acquisitions, expansion of our ASP business, expansion into the United States,
investments in property and equipment, and for the acquisition of software,
hardware and other infrastructure costs necessary to host our ASP customers:

     Issuance of common stock and warrants -- During 1999, we completed a
private placement of $50.0 million of common equity with institutional private
equity investors and received net proceeds of approximately $46.1 million after
deducting commissions and fees. As part of this placement, we issued warrants
which allowed their holders to acquire 2,401,041 shares of common stock to the
investors and the placement agent. The holders exercised these warrants in
February 2000, resulting in net proceeds to the Company of $18.0 million. On
April 28, 2000, we completed a private placement of common equity to
institutional private investors from which we received approximately $15
million. As part of this placement, we issued to the investors 1,764,704 shares
of common stock and warrants to purchase 441,176 shares of common stock at an
exercise price of $9.25 per share.
                                       37
<PAGE>   41

     Lease Financing -- During the three months ended March 31, 2000, we
utilized several capital asset lease lines with financial lenders and computer
hardware vendors. These lines allow us to lease up to $22.5 million of computer
hardware and related infrastructure. As of March 31, 2000, we had used $7.3
million of these lines. Aggregate monthly payments under these lines are
currently $0.4 million, including interest implicit in the lease at rates
ranging from 9% to 14% per year. We have available borrowings of $15.2 million
under the various lease lines as of March 31, 2000. These lines have been
partially used to build and expand our Irvine and Canadian data centers.

     Bank Financing -- We have various lines of credit with banks and financial
institutions that allow us to borrow up to $6.1 million. As of March 31, 2000,
we had aggregate borrowing outstanding of $1.0 million under the various lines.
The lines bear interest at various rates ranging from prime plus 1% to prime
plus 3% per annum, and mature at various intervals ending November 30, 2000. The
prime rate was 9.0% at March 31, 2000. Certificates of deposit aggregating $1.1
million, receivables, other assets of certain of our subsidiaries and shares of
certain of our North American subsidiaries secure these lines. We currently have
available borrowings of $5.1 million under the various lines of credit.


     Upon completion of this offering, we believe that our available cash will
be sufficient to meet our anticipated cash needs to fund our operating losses,
working capital and capital expenditures for at least the next twelve months.
However, we may need additional capital to fund our expansion. This financing
may involve incurring debt or selling equity securities. We may undertake
subsequent to this offering a private placement of shares of convertible
preferred stock in order to raise between $50.0 and $75.0 million. The
convertible preferred stock will not be registered under the Securities Act of
1933 and may not be offered or sold in the United States absent registration or
an applicable exemption from registration requirements. We may not be able to
raise any additional monies through an offering of convertible preferred stock
or any other debt or equity securities, and even if we can, we may not be able
to raise monies on commercially reasonable terms. If we incur debt, the risks
associated with our business and with owning our common stock would increase. If
we raise capital through the sale of equity securities, the percentage ownership
of our shareholders would be diluted. In addition, any new equity securities may
have rights, preferences or privileges senior to those of our common stock. If
we are unable to obtain additional financing, our ability to meet our current
plans for expansion could be materially adversely affected.


Foreign Currency Translation and Hedging

     We are exposed to foreign currency fluctuations through our operations in
Canada and the United Kingdom. At March 31, 2000, on a pro forma basis adjusted
for all closed and pending acquisitions, approximately 19% of our revenue and
19% of our receivables are in Canadian dollars and approximately 21% of our
revenue and 20% of our receivables are in British pounds. We do not enter into
forward exchange contracts or any derivative financial investments for trading
purposes. Thus, we do not currently hedge our foreign currency exposure.

                                       38
<PAGE>   42

                                    BUSINESS

OUR COMPANY

     We provide server-based computing services and are an application service
provider, or ASP. Our services enable software applications to be deployed,
managed, supported and upgraded from centrally located data centers, rather than
on individual desktop computers. For our server-based computing customers, we
install and integrate software applications on our customers' servers. For our
ASP customers, we host applications on our servers at our data centers, and rent
computing services to our customers for a monthly fee. Our ASP customers connect
to our facilities over the Internet, through a dedicated telecommunications line
or by wireless connection. Our goal is to provide our ASP services with the
speed, simplicity and reliability of a utility service. We introduced our ASP
services in March 1999 and our goal is to make our ASP services a much larger
portion of our overall business.

     We are the largest integrator in North America of server-based computing
systems using Citrix software. Citrix software is one of the leading
technologies for delivering software applications from remote locations. We
typically install Citrix software along with Windows NT Terminal Server software
from Microsoft. Customers for our server-based computing services have included
Cisco Systems, The Walt Disney Company, Allied Signal, General Motors, Ford
Motor Company, Bank of America, Apple Computer and Delta Airlines. We are
building upon our server-based computing expertise to develop our ASP services.

     We believe that through our experience in the server-based computing
business, we have developed a number of strengths that position us to
successfully grow our ASP business, including:

     - a recognizable customer base, lending credibility to our ASP services,

     - technical expertise in enabling a variety of software applications to
       operate in a server-based computing environment, and

     - relationships with sales channels, including software vendors and
       software application integrators.

     In addition to our operations in the United States, we currently conduct
business in Canada and the United Kingdom. A material part of our growth
strategy is based on expanding our operations internationally. We anticipate
that Canadian and European sales will account for a significant amount of our
future revenue.

     There are certain risks inherent in doing business in international
markets, such as:

     - different telecommunications access fees,

     - different technology standards,

     - different liability standards,

     - less protective intellectual property laws,

     - changes in political conditions,

     - changes in regulatory requirements,

     - increased expenses due to tariffs and other trade barriers,

     - fluctuations in currency exchange rates,

     - restrictions on currency transfers,

     - potentially adverse tax consequences, and

     - difficulties in managing or overseeing foreign operations.

     Any of these risks may have a material adverse effect on our current or
future international operations and, consequently, on our business, results of
operations and financial condition.

                                       39
<PAGE>   43

OUR MARKET OPPORTUNITY

     Both the ASP and the server-based computing markets are growing. According
to Forrester Research, Inc., the size of the ASP market in 1999 was less than
$1.0 billion. Forrester Research, Inc. projects this market to grow to over
$11.0 billion in 2003 and that 22% of all U.S.-based application revenue will
flow through ASPs' such as us. In 1999, server-based computing accounted for
substantially all of our revenues. Our business strategy is to leverage our
server-based computing business to grow our ASP business into a larger portion
of our business.

     We believe the growth of the server-based computing and ASP services
markets is being driven by the following factors:

     - Software Complexity.  Software applications are increasingly more complex
       and need to be continually upgraded, integrated and supported. This is
       beyond the expertise of many companies.

     - Shortage of Information Technology Professionals.  According to
       International Data Corporation, by 2002 there will be a shortage of
       850,000 information technology professionals in the United States and an
       even greater shortage of one million information technology personnel in
       Europe. Companies are finding it increasingly more difficult and
       expensive to maintain their information technology departments.

     - Telecommunication Costs Have Been Declining.  The greater availability of
       telecommunications capacity and declining costs over the last several
       years have made the use of centralized computing more economical to
       businesses.

     - Increasing Demand for Remote and Shared Access to Software
       Applications.  Many companies require that their employees be able to
       access software applications both from their desktops and from locations
       away from their offices. These companies are using server-based computing
       and ASP solutions to meet these requirements.

OUR SOLUTIONS

     Our solutions offer the following key benefits:

     - Reliable service. By offering service level agreements and utilizing the
       latest technology, we are able to provide increased levels of service
       which our customers cannot easily replicate.

     - Reduce dependency on information technology staff. The maintenance of a
       complete, professionally-managed information technology team necessary to
       effectively manage complex software and information technology
       infrastructures is increasingly expensive and difficult. By outsourcing
       all or part of their information technology needs, our customers are able
       to reduce their information technology staff and can focus on their core
       competencies.

     - Lower costs. By spreading information technology costs among many
       customers, we are able to achieve economies of scale not possible for our
       target customers and as a result offer our customers significant cost
       savings. Customers of our server-based computing services are able to
       reduce their information technology costs. Our ASP customers realize the
       same benefits, and are able to forecast and budget their ongoing
       information technology costs and reduce their upfront information
       technology investment.

     - Rapid deployment. By having their software applications hosted at central
       locations, our customers are able to rapidly deploy and quickly upgrade
       their software, allowing them to more rapidly realize returns on their
       information technology expenditures. For our ASP customers, we are able
       to offer applications installed at our servers to customers almost
       immediately.

     - Ability to run on a variety of hardware systems. We can integrate
       different computer systems and devices, including a company's existing
       personal computer terminals, without the need for significant hardware
       upgrades. This allows our customers to implement our solutions without
       replacing existing computer hardware, extending the useful life of their
       existing computer systems.

                                       40
<PAGE>   44

     - Flexibility. We are not committed to any particular software package or
       linked to any single software manufacturer. Instead, we seek to deliver
       software applications best suited for our customers. We can accommodate
       virtually any software application. Our customers have the flexibility to
       host some or all of their software applications on our servers.

OUR STRATEGY

     We seek to build a global ASP and continue to develop our server-based
computing business by:

     - Leveraging our existing server-based computing capabilities to build our
       ASP business. Our expertise in providing server-based computing solutions
       makes us well-positioned to provide ASP services. Through our
       acquisitions, we have built a strong base of technical experts. We plan
       to continue to build this base, and to transition technical professionals
       from server-based computing services to ASP services in order to
       implement our business plan.

     - Rapidly penetrating the market through our third-party distribution
       channels. We market our ASP services primarily through third-party
       distribution channels, including software application and system
       integrators. We believe these distribution channels will allow us to
       rapidly increase our market penetration without incurring significant
       capital expenditures. This should also allow us to shorten the sales
       cycle for our service offerings by targeting the customer closer to the
       time of the customer's decision to purchase software. We also believe
       this strategy gives us access to market leading products and technology
       and allows us to focus on service delivery rather than software
       development. We currently maintain relationships with over 60 software
       applications and systems integrators.

     - Broadening our relationships with software vendors. We have established
       relationships with software application vendors in key application areas,
       including Microsoft, Great Plains Software, Onyx Software and SalesLogix.
       Our agreements with software application providers generally enable us to
       deploy software applications for a monthly fee, without the need to
       establish a separate licensing arrangement for each customer. Our
       relationships with these providers also enable us to provide our
       customers with an economically attractive service offering, and afford us
       co-marketing and co-branding opportunities. We plan to enter into
       relationships with other software application providers. This will enable
       us to expand our portfolio of software applications and reduce our
       reliance on any one software application provider.

     - Expanding through acquisitions. We intend to expand our business through
       both internal growth and strategic acquisitions in the United States and
       abroad. Our acquisitions allow us to accelerate our penetration of key
       geographical markets, broaden our service offerings, and expand our
       trained technical staff and our sales force. Our acquisition plan is to
       acquire leading Citrix resellers in several geographic areas that enable
       us to gain the market presence, technical expertise, and superior
       management capabilities of implementing this software that enables us to
       connect customers to our software applications hosted in centrally
       managed data centers.

OUR SERVICE OFFERINGS

Server-Based Computing Services

     Our server-based computing services are aimed at customers who have or wish
to install their own data centers and operate these with their own information
technology staff, but need expertise to assist in addressing certain aspects of
their information technology needs. For the year ended December 31, 1999, on a
pro forma basis, after giving effect to our completed and pending acquisitions,
our server-based computing services accounted for a substantial portion of our
revenues on a pro forma basis and we expect these services to account for a
substantial portion of our revenues for the year ending December 31, 2000. We
currently serve customers which range from small organizations to Fortune 100
companies. Our server-based computing services include the following:

     - installing and integrating software applications on our customers'
       servers using Citrix server-based computing software,

                                       41
<PAGE>   45

     - maintaining, onsite and remotely, our customers' server-based computing
       environments, and

     - training information technology professionals to use Citrix and Microsoft
       operating software.

     Our typical contract for server-based computing services provides for the
installation of one or more servers to deliver software applications to our
customers' desktops through their own local area network and the integration of
software at their servers. Depending on the type and length of the project,
pricing for these services is based on an hourly rate, at a daily rate, on a
project by project basis, on a monthly price per consultant or on a monthly fee
per employee or user. We also offer maintenance services and training.
Maintenance services are typically charged on a fixed fee basis or on an hourly
rate for employees who maintain the system. Our direct sales force sells our
server-based computing services.

ASP Services

     Our ASP services involve deploying, managing and supporting software
applications hosted at our data centers for our customers. Our ASP services are
designed so that our customers can choose the combination of software
applications that best meet their business requirements, technical needs and
financial resources. Depending on the requirements of our software providers, we
sometimes enter into sublicensing agreements with our customers granting the
right to use certain software applications.

     Most of our ASP customers are small to mid-sized businesses having 5 to 200
employees. Our customers are primarily in the oil and gas and in the financial
services industries. To date, our ASP services have accounted for a small
portion of our business. However, we expect our ASP services to account for an
increasingly larger portion of our business in the future. We typically enter
into three year agreements with our customers and charge them a flat monthly fee
depending on the software applications we host for them. Our customers pay for
our ASP services on a monthly basis. Our prices are based on the number of
users, types of applications hosted and number of support services that our
customers use.

     Growth in the demand for our ASP services is dependent upon the following
factors:

     - the compatability between our ASP services and technology that our
       customers use,

     - our ability to reliably deliver ASP services to our customers,

     - other ASP providers providing quality services so as not to diminish
       consumer confidence in ASP services,

     - mitigating the effects of defects in software applications delivered from
       our data centers that are beyond our control,

     - our ability to strengthen awareness of our brand and differentiate the
       services we offer from those of our competitors,

     - our ability to market our services in a cost-effective manner to new
       customers, and

     - satisfying customer concerns over data security and user privacy.

Other Services

     We provide video conferencing for our European customers. We also provide
consulting and other complementary services to our customers, usually as a
supplementary service to our server-based computing and ASP offerings.

                                       42
<PAGE>   46

SOFTWARE APPLICATIONS

     We have assisted our server-based computing customers with the hosting and
delivery of the following software applications, among others:

<TABLE>
<CAPTION>
    SOFTWARE APPLICATION
          PROVIDER                        PRODUCT                    TYPE OF SOFTWARE APPLICATION
    --------------------                  -------                    ----------------------------
<S>                           <C>                              <C>
Microsoft                     Exchange                         Messaging
                              FoxPro                           Database
                              Microsoft Office                 Office productivity suite
                              Microsoft Publisher              Desktop publishing
Adobe Systems                 Adobe Acrobat Reader             PDF reader
                              Adobe PageMaker                  Desktop publishing
Autodesk                      AutoCAD                          Computer aided design
Clarify                       Clarify Client 5.0               Customer relationship management
Epicor                        Platinum                         Accounting
Great Plains                  Dynamics                         Accounting
Hyperion                      Enterprise                       Financial reporting
JD Edwards                    One World                        Enterprise resource planning
Lotus                         Lotus Notes                      Messaging
NetObjects                    Fusion                           Web design
Oracle                        Oracle Financials                Financial and enterprise resource
                                                                 planning
PeopleSoft                    PeopleSoft Financials            Financial reporting
                              PeopleSoft HR                    Enterprise resource planning
Sage                          Mas 90                           Accounting
SAP                           R/3                              Enterprise resource planning
Solomon                       Solomon IV                       Accounting
Wall Data                     Rhumba                           Terminal emulation
</TABLE>

     Our experience in delivering a variety of software applications to our
server-based computing customers gives us the expertise to host such software
applications for our ASP customers. Among the software applications already
offered for delivery as part of our ASP services are the following:

<TABLE>
<CAPTION>
    SOFTWARE APPLICATION
          PROVIDER                        PRODUCT                    TYPE OF SOFTWARE APPLICATION
    --------------------                  -------                    ----------------------------
<S>                           <C>                              <C>
Microsoft                     Office 2000                      Office productivity software, including
                              Exchange Project                   word processing, e-mail, project
                              SQL                                management, data base and charting
                              Visio
Corel                         WordPerfect                      Word processing, spreadsheet, graphics
                              QuattroPro                         and other office productivity tools
                              Corel Draw
Great Plains                  Dynamics                         Integrated accounting software
                              e Enterprise
Onyx                          Customer Center 5.0              Customer relationship management
Pivotal                       eRelationship 2                  Customer relationship management
SalesLogix                    4.0                              Integrated customer contact management
Epicor                        Clientelle                       Integrated accounting software, customer
                              Era                                relationship management, manufacturing
                              Vantage                            and resource planning
</TABLE>

                                       43
<PAGE>   47

KEY RELATIONSHIPS

     In implementing our growth strategy, we have developed important commercial
relationships with the following:

     CITRIX. Citrix Systems, Inc. provides technology that enables users to
access software applications from virtually any computing device, including
desktops, mobile computers, network computers, terminals, information
appliances, palmtops or other devices, across virtually any network. Citrix
provides what we believe is the most advanced technology for delivering software
applications to remote users as well as the most scalable and flexible tools for
server-based computing. Citrix's software is designed to work within a
Microsoft's Windows NT-compatible server environment, allowing virtually any
computer terminal to access standard Windows applications running on the server.
We are the largest integrator of server-based computing solutions using Citrix
technology in North America.

     COMPAQ. In the fourth quarter of 1999, Compaq Computer Corporation invested
$2.2 million in our company and extended us a $20.0 million lease line of credit
to provide our data centers with Compaq servers on an exclusive basis. We have
deployed Compaq's products in our Irvine and Calgary data centers. Compaq's
equity investment will be used for joint marketing efforts to promote our ASP
services featuring Compaq hardware. These promotions will principally occur
through our joint participation at industry trade shows, the publication and
distribution of marketing materials and the advertisement of these products in
trade journals and other media. We also indicate in our product materials that
our internal data centers operate on Compaq servers. We believe our joint
marketing programs will allow us to align the strengths of our respective sales
and distribution channels.

     SOFTWARE APPLICATION PROVIDERS. We have significant commercial
relationships with a variety of leading software providers, including Microsoft,
Citrix, Onyx Software, SalesLogix and Great Plains. We believe our ability to
deliver a broad array of applications is a significant competitive advantage.
Our agreements with these software suppliers allow us to deploy applications on
a monthly subscription basis without the need to establish a separate licensing
arrangement for each customer. The agreements also generally include
co-marketing, specialized product training and preferred pricing on the licenses
to the software.

     Certain important relationships with software application providers are
described below.

     - Microsoft. We have been selected to participate in Microsoft
       Corporation's Back Office software pilot program to host its Back Office
       software for delivery to ASP customers. We have been approved to host
       Microsoft Office 2000 at our data centers as part of Microsoft's new
       service offering, Microsoft Office Online. In addition, we are a
       participant in Microsoft's Complete Commerce program which showcases our
       ASP offerings for Great Plains and Pivotal offerings. The term of our
       agreement with Microsoft expires June 30, 2001. Either party may
       terminate the agreement for cause by giving the other party 30 days
       written notice.

     - Citrix. We are a participant in Citrix's ASP license program. This allows
       us to use Citrix technology in our data centers to deliver applications
       to our ASP customers. We are the largest integrator of server-based
       computing solutions using Citrix technology in North America. Our
       subsidiaries are parties to several agreements with Citrix covering
       various geographic territories. These agreements typically have a one
       year term and may be terminated by either party for any reason by giving
       the other party 30 days written notice.

     - Onyx Software Corp. We have entered into a strategic relationship with
       Onyx Software. Onyx has agreed to provide us with ASP customers
       purchasing a minimum of $25,000 per month of our ASP services. We have
       agreed to spend $300,000 on joint marketing and advertising promoting
       Onyx products and our ASP services. The agreement may be terminated by
       either party on 30 days notice if the other party materially breaches the
       agreement and fails to cure the breach within 30 days.

                                       44
<PAGE>   48

     - SalesLogix. We have been approved to host SalesLogix software
       applications. Our agreement with SalesLogix terminates when either party
       gives the other party written notice of termination at least 60 days
       prior to November 1 of the then current year, in which case the agreement
       terminates on November 1 of such year.

     - Great Plains. We have been approved to host Great Plains software
       applications. Our agreement with Great Plains may be terminated by either
       party for any reason by giving the other party 180 days notice.

     SOFTWARE APPLICATION INTEGRATORS. Many companies rely on software
application integrators with expertise in business software applications to
evaluate, install, integrate, modify and customize software applications for
them. We have developed significant commercial relationships with software
integrators to provide us with an additional sales channel without requiring us
to make a significant capital investment to develop an extensive direct sales
force. Software application integrators desire to work with us so that they can
expand their sales offerings.

SALES AND MARKETING

     We offer our services through our direct sales force, the sales forces of
software application providers, and independent software distributors and
application integrators. We are initially targeting our ASP services to small-
to medium-sized businesses, which we believe represent a strong market
opportunity, and market these services through our independent software
distribution sales channel. We plan to expand our marketing to larger businesses
in the future. We currently have strategic relationships with over 10 software
application providers and over 60 independent resellers, software distributors
and applications integrators. Our direct sales force consists of over 70
professionals, who are focused on offering our server-based computing services
and ASP services to existing and new customers in the small- and medium-sized
business markets. In 1999, we allocated $1.5 million for our advertising and
promotional strategies. In 2000, we currently plan to increase this amount to
approximately $8.0 million to build our brand name and create market awareness.
As part of our efforts to continue end user and channel education about the ASP
concept, we will be initiating a $2.0 million print advertising campaign in the
United States and Canada in several major business publications (Business Week,
The Wall Street Journal, Wired Magazine, Industry Standard and others) targeting
chief executive officers, chief technology officers, chief information officers
and chief financial officers. This campaign will extend from June to December of
this year. Our strategy is to educate our channel sales partners while
simultaneously generating end user demand. To service that demand effectively,
we are investing in building a call center and lead management process. We are
also developing new ASP and server-based computing sales tools for both our
direct sales force and our channel sales partners to support them throughout the
sales process, as well as allocating over $1.0 million to our continued
participation in end user and channel-focused tradeshows. We will continue our
strategy to develop our channel sales through cooperative seminars and events
with our independent software vendor and channel sales partners. We are
leveraging our relationships with brand name partners such as Microsoft, Citrix
and Compaq as well as our independent software vendor partners in co-marketing
arrangements to extend the reach and effectiveness of our marketing efforts.

OUR ASP DELIVERY SYSTEM

     We have developed a secure, reliable and high-performance system for
delivering software applications to multiple users, which we believe provides us
with a significant competitive advantage. Our personnel in Irvine, California
monitor our system on a continual basis. We combine internally created
technology innovations with technologies from leading software and hardware
providers, including, among others, Citrix delivery software, Compaq, IBM and
Sun MicroSystems computer servers, Cisco Systems routers and firewall protection
software, and EMC(2) storage devices. To address the diverse requirements of our
customers, we offer our ASP services on all of the leading operating systems and
computing platforms including Solaris, which operates on a Sun MicroSystems,
Inc. platform, and Microsoft Windows NT Terminal Server software, which operates
on an Intel personal computer platform. Our delivery system is

                                       45
<PAGE>   49

scalable, allowing servers to be added to support additional users without
disrupting other servers that are concurrently running software applications.

     We operate state-of-the-art data centers in Irvine, California, Calgary,
Canada and Newbury, United Kingdom, from which we deliver our ASP services. Each
facility features separate, back-up network and power connections, cooling
systems and on-site back-up diesel generators to ensure a continuous power
supply. We employ several security measures including:

     - 24-hour security guards,

     - electronic surveillance,

     - limited access electronic card key measures,

     - the physical separation of servers from administrative workstations, and

     - firewalls at each entry point to our data centers.

     We offer connectivity to our systems from virtually anywhere in the world,
providing customers with global access to software applications. Customers can
access us:

     - via the Internet,

     - through high speed connections in more than 105 countries, and

     - over Frame Relay through AT&T Corp., Sprint Corporation and MCI Worldcom,
       Inc., or over dedicated, private lines.

     We have designed our network to minimize the effect of any interruptions.
We monitor the performance and security of our entire infrastructure. We have
also implemented security measures to identify potential sources of failure or
interruption. Although we have attempted to build complete back-up into our
network and hosting facilities, our delivery system is currently subject to
several single points of failure, and a problem with one of our servers, routers
or switches could cause an interruption in the services we provide to some of
our customers.

     The design of our data centers enables systems administrators and support
staff to be promptly alerted to problems and rapidly resolve any technical
issues.

     Our success depends upon our ability to increase the capacity of our data
centers and related communications systems in a timely and cost-effective
manner. Expanding our delivery system significantly and rapidly in response to
any increased demand for our ASP services will place additional stress upon our
hardware, traffic management systems and hosting facilities as well as our
financial, operational and management resources. We may be unable to manage our
growth successfully, in which case our business, financial condition and results
of operation could be materially adversely affected.

COMPETITION

     The markets for our services are extremely competitive. The tremendous
growth and potential size of these markets have attracted many start-ups, as
well as extensions of existing businesses from different industries. The
principal competitive factors in this market include:

     - quality of service, including performance, scalability, reliability and
       functionality,

     - customer service and support,

     - variety of services offered,

     - price,

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<PAGE>   50

     - name recognition, and

     - network security.

     Our current and prospective competitors include other ASPs, systems
integrators, Internet service providers, hardware and software suppliers and
telecommunications companies.

     ASPS. We compete with other companies whose core business is providing ASP
services. These competitors include, among others, USinternetworking, Corio,
Interliant, Breakaway Solutions, and Telecomputing. Many of these competitors
are targeting the same small and medium-sized enterprises that we are initially
targeting.

     SYSTEMS INTEGRATORS. We compete with commercial systems integrators who
bundle their services with software and hardware providers and perform an
outsourcing role for the customer. Examples of these competitors include EDS,
Andersen Consulting, PricewaterhouseCoopers and MCI Systemhouse, among others.
These companies provide professional consulting services in the use and
integration of software applications in single-project customer engagements.
Systems integrators may establish strategic relationships with software
application providers to offer services similar to our ASP offerings. Their
strengths include local customer awareness and relationships with hardware and
software companies. Additionally, regional systems integrators may align
themselves with Internet service providers to offer complex website management
combined with professional implementation services.

     INTERNET SERVICE PROVIDERS AND WEBSITE HOSTING COMPANIES. Our current
competitors include business-focused Internet service providers and website
hosting companies with a significant national presence, such as, among others,
UUNet Technologies, GTE Internetworking, PSINet, Concentric, DIGEX, Frontier and
Exodus Communications. These companies intend to expand their service offerings
by bundling their Internet access and website hosting service offerings with the
delivery of software applications on a subscription basis.

     HARDWARE AND SOFTWARE COMPANIES. We compete with hardware and software
companies in providing software application solutions as well as delivery system
infrastructure. In order to build market share, both hardware and software
providers may establish strategic relationships to enhance their service
offerings. IBM Solutions currently provides applications outsourcing of its
Lotus Notes products and delivers the service via the IBM network
infrastructure. J.D. Edwards & Company, a developer of enterprise resource
planning software, has announced that it will offer its software in an
outsourced model. SAP Aktiengesellschaft has formed an outsourcing organization
to develop key partnerships with leading consulting firms with the intent of
offering SAP software and PeopleSoft and Oracle have announced an ASP strategy.
We believe that additional hardware and software providers, potentially
including our current software partners, may enter the outsourcing market in the
future.

     TELECOMMUNICATIONS COMPANIES. Many long distance companies, regional Bell
operating companies and competitive local exchange carriers offer Internet
access services. In order to address the Internet connectivity requirements of
their current business customers, we believe that there is a move towards
horizontal integration through acquisitions of, joint ventures with, and
purchasing connectivity from, Internet service providers. Accordingly, we expect
that we will experience increased competition from the traditional
telecommunications carriers. Many of these telecommunications carriers, in
addition to their substantially greater network coverage, market presence, and
financial, technical and personnel resources, also have large existing
commercial customer bases. We believe that our local presence, our strong
technical and data-oriented sales force and our offering a single source
computing solution are important features distinguishing us from the
telecommunications companies.

     OTHER POTENTIAL COMPETITORS. It is possible that new competitors or
alliances may emerge and gain market share. Such competitors could materially
affect our ability to obtain new contracts. Further, competitive pressure could
require us to reduce the price of our products and services thus affecting our
business, financial condition and results from operations.

                                       47
<PAGE>   51

     Many of our competitors have substantially greater financial, technical and
marketing resources, larger customer bases, longer operating histories, greater
name recognition and more established relationships in the industry than we do.
As a result, certain of these competitors may be able to develop and expand
their service offerings more rapidly, adapt to new or emerging technologies and
changes in customer requirements more quickly, take advantage of acquisition and
other opportunities more readily, devote greater resources to the marketing and
sale of their services and adopt more aggressive pricing policies than we can.

INTELLECTUAL PROPERTY

     Our intellectual property is important to our business. We rely on a
combination of copyright, trademark, and trade secret laws, confidentiality
procedures and contractual provisions to protect our intellectual property. We
have no patented technology, and patented technology is not material to our
business.

     We enter into agreements with many of our employees giving us proprietary
rights to certain technology these employees develop while we employ them. We
cannot assure you that a court will enforce these agreements. In addition, we
may be inadequately protected against the use of technology employees develop
who have not entered into such agreements.

     We have applied for federal trademark or service mark 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,"
"ApplicationPortal," "The Computer Utility Company," "Computer Utility" and "The
Application Utility Company" and for our various logos in both Canada, the
United States and the United Kingdom. In addition, we may seek further
trademarks and may in the future take other steps, such as seeking copyrights or
patents on some of our intellectual property. We are aware of other companies
using the "FutureLink" name, and are in the process of investigating the rights,
if any, others may have in the name. If any such company engaged in businesses
in our industry can establish prior use to such name and damages caused by our
use of the name, we may incur liability and be forced to cease using the name.

     Our efforts to protect our intellectual property may not be adequate. We
may need to commence lawsuits from time to time to protect our intellectual
property.

     Our competitors may independently develop similar technology or duplicate
our products or services. Unauthorized parties may infringe upon or
misappropriate our products, services or proprietary information. In the future,
litigation may be necessary to enforce our intellectual property rights or to
determine the validity and scope of the proprietary rights of others. Any such
litigation could be time-consuming and costly.

     In order to safeguard the flow of personal information over the Internet,
we intend to offer our customers various forms of encryption technology. The
United States government regulates the export of this technology and may require
a license or other authorization. There is no guarantee that we will be able to
obtain such a license. In addition, many other countries regulate the export,
import, or use of encryption technology. There is no guarantee that we will be
able to obtain the necessary permission to engage in our contemplated
activities.

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<PAGE>   52

FACILITIES

     In late 1999 we relocated our headquarters from Calgary, Alberta, Canada to
Irvine, California, where we currently lease approximately 35,000 square feet of
office space. We also lease approximately 1,000 square feet at another facility
in Irvine, which serves as our primary data center. We also lease office
facilities in Los Angeles and Pleasanton, California; Phoenix, Arizona; Atlanta,
Georgia; Ft. Lauderdale, Florida; Walled Lake, Michigan; Cincinnati and
Columbus, Ohio; Pittsburgh, Pennsylvania; Beltsville, Maryland; and Chantilly
and Richmond, Virginia. In addition, we lease a 2,500 square foot training
facility in Pleasanton, California. In Canada, we lease a facility that is
approximately 31,500 square feet and contains both our offices and our Calgary
data center. We also lease 9,000 square feet of office space in Newbury
Berkshire, United Kingdom. Our leases have expiration dates ranging from 2000 to
2004. We believe our facilities are adequate for our current operations and that
we can obtain additional leased space if needed.

EMPLOYEES

     As of March 31, 2000, we employed 568 persons, including 373 information
technicians, 71 sales and marketing personnel and 124 administration and
management staff. We have never experienced work stoppages, and we are not a
party to any collective bargaining agreement. We believe our employee
relationships to be generally good.

LITIGATION AND OTHER PROCEEDINGS

     From time to time we are a defendant or plaintiff in litigation arising in
the ordinary course of our business. To date, other than litigation SmallCaps
OnLine Group LLC brought and the subsequent settlement of that action, no
litigation has had a material effect on us and, as of the date of this
prospectus, we are not a party to any material litigation except as described
below.

     In the past, persons formerly associated with us, which may include one or
more of our former executive officers and directors, may have engaged in
activities as part of an effort to profit from unlawful trading activity in our
stock. We are aware that in October 1998, the SEC announced the filing of an
enforcement action against the publisher of an Internet newsletter called The
Future Superstock, written by Jeffrey Bruss. According to the SEC's litigation
release, the SEC's complaint alleged that The Future Superstock recommended to
the newsletter's more than 100,000 subscribers and to visitors to the
newsletter's website the purchase of approximately 25 microcap stocks which it
predicted to double or triple in the next three to twelve months. According to
the SEC's release, in most instances, the prices of recommended securities
increased for a short period of time after The Future Superstock newsletter made
a recommendation, after which the prices of those stocks dropped substantially.
The SEC alleged that in making its recommendations, the Internet newsletter:

     - failed to adequately disclose compensation it had received from profiled
       companies,

     - failed to disclose that it had sold stock in many of the issuers it
       recommended shortly after disseminating such recommendation,

     - had conducted little, if any, research into companies it recommended, and

     - made false and misleading statements about the success of certain prior
       stock picks.

According to press reports, Jeffrey C. Bruss claimed that he received $300,000
from us to promote our stock. The SEC sought civil penalties against the
publisher of the newsletter. The SEC did not bring any action against us. We
believe that we made no payments to Mr. Bruss, but one or more persons who were
associated with our predecessor company prior to 1998 may have made payments. We
are unable to determine whether, as a result of the alleged activities of Mr.
Bruss, any stockholder suffered any losses for which we might be liable.

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<PAGE>   53

     In addition, we recently received a subpoena from the SEC requesting any
documentation in our possession with respect to a confidential investigation
regarding Internet newsletters. This investigation regards the use of the
Internet to engage in fraudulent transactions with respect to the offer,
purchase and sale of securities. We have responded to the SEC's request for
documents.

     As a result of these activities, we may be subject to civil or criminal
actions, fines or penalties. If any proceedings are commenced against us, we
will need to spend significant money and management time on our defense. If we
participated in these activities, we could be liable for damages or penalties
that would have a material adverse effect on our financial condition, results of
operations and liquidity. See "Risk Factors -- Persons formerly associated with
our business may have engaged in activities designed to manipulate our stock."

     SmallCaps OnLine Group LLC, previously known as Bridge Technology Group
LLC, sued us on January 12, 2000 in the New York County Supreme Court to recover
fees we allegedly owed for advisory and investor relations services. SmallCaps'
complaint requested compensation for fees totaling $5.1 million, as well as
warrants to purchase an aggregate of 3,289,689 shares of our common stock at
exercise prices ranging from $1.00 to $8.50 per share. The total value of the
damages SmallCaps claimed was $110.0 million. On February 11, 2000, we settled
SmallCaps' complaint by agreeing to pay SmallCaps $5.0 million on or before
March 14, 2000, and to issue to SmallCaps warrants to purchase an aggregate of
3,000,000 shares of our common stock at exercise prices ranging from $8.50 to
$22.50 per share, subject to anti-dilution protection. Since the issuance of
these warrants, their exercise prices have been adjusted and now range from
$8.33 to $22.05 per share. We issued the warrants to SmallCaps on March 1, 2000
and paid SmallCaps the $5.0 million on March 14, 2000. The total value of the
settlement on February 11, 2000 was $65.0 million which has been recorded in our
financial statements as a charge to paid-in capital.

     On November 6, 1998, our former Chief Executive Officer and a director, Mr.
Cameron Chell, entered into a Settlement Agreement with The Alberta Stock
Exchange to resolve a pending investigation into Mr. Chell's alleged breaches of
Alberta Stock Exchange rules and by-laws. As part of the Settlement Agreement,
Mr. Chell acknowledged that he had breached certain duties of supervision,
disclosure, or compliance relating to various offers and sales of securities,
and Mr. Chell was prohibited from receiving Alberta Stock Exchange approval in
any capacity for a five year period, subjected to a CDN$25,000 fine and a three
year period of enhanced supervision. We cannot be certain that the Settlement
Agreement with the Alberta Stock Exchange ends all proceedings with regard to
these matters.

     On January 20, 2000, we commenced a proceeding in Canada against Mr. Chell,
various other former employees of and consultants to our company and various
other defendants alleging that these defendants misappropriated a corporate
opportunity in breach of fiduciary and contractual obligations. Most of these
defendants made counterclaims against us seeking, among other things, damages
for interference with their economic interests and for severance compensation in
the form of cash and stock options. We entered into a settlement agreement with
the defendants effective April 26, 2000 that has the following key terms:

     - Mr. Chell will be entitled to exercise options to acquire 175,000 shares
       of common stock that were scheduled to vest June 1, 2000,

     - Mr. Chell or his nominee shall pay to us $400,000 in settlement of a
       related party debt that involved Mr. Chell, and

     - All other claims will be dropped by all parties, who have provided mutual
       releases, with the claim and counterclaims to be discontinued.


     On January 7, 2000, Tony Bryson, an individual who had previously been
employed by us, filed a lawsuit against us in the Court of Queen's Bench of
Alberta, Judicial District of Calgary seeking $180,000 for the value of lost
stock options, salary and benefits we allegedly promised him, and other damages
he allegedly sustained as a result of our alleged actions. This lawsuit has been
filed under Canadian law. Canadian law provides for severance pay to any
employee of our Canadian operations in an amount that is


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<PAGE>   54

appropriate based on, among other things, the nature of the position held by the
employee and the length of time the employee worked for the company, unless the
employer can establish that the termination was for just cause. The exact amount
of severance pay is often disputed between employers and employees in Canada.
Accordingly, there is a risk that in addition to this lawsuit, one or more other
former employees will make claims for cash severance pay as well as options.

     On January 26, 2000, Michael Chan filed a suit in the Court of Queen's
Bench of Alberta, Judicial District of Calgary alleging that FutureLink Alberta
breached its contract to deliver him options to purchase 250,000 Class "A"
common shares of FutureLink Alberta at $1.00 per share. Mr. Chan seeks 50,000
shares of our common stock or, alternatively, damages of approximately $1.5
million in cash, general damages of approximately $200,000 and punitive damages
of approximately $200,000. We have filed a Statement of Defense in this action
refuting Mr. Chan's claims.

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<PAGE>   55

                                   MANAGEMENT

EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS

     Our executive officers, key employees and directors are as follows:


<TABLE>
<CAPTION>
                NAME                   AGE                           POSITION
                ----                   ---                           --------
<S>                                    <C>   <C>
Philip R. Ladouceur..................  59    Chairman, Chief Executive Officer and Director
Glen C. Holmes.......................  43    President, Chief Operating Officer and Director
Raghu N. Kilambi.....................  34    Executive Vice President, Chief Financial Officer and
                                             Director
Vincent L. Romano, Jr. ..............  54    Executive Vice President, Special Projects
William R. Botti.....................  49    Senior Vice President, Application Service Provision
James C. Harvey......................  40    Senior Vice President, Server-Based Computing
Solveig Whittle......................  36    Senior Vice President, Marketing
Roger J. Gallego.....................  31    Senior Vice President, Operations Strategy
Michael R. Krieger...................  49    Senior Vice President, Strategic Planning and Corporate
                                               Development
James A. Smith, Jr. .................  51    Senior Vice President, Operations
Richard M. White.....................  56    Senior Vice President, Administration
Yuri M. Pasea........................  38    Managing Director (Europe)
William V. Arnett....................  45    Senior Vice President and Chief Operating Officer
                                             (Canada)
Kyle B.A. Scott......................  35    Vice President, Secretary and General Counsel
F. Bryson Farrill....................  71    Director
Michael S. Falk......................  38    Director
Timothy P. Flynn.....................  49    Director
Gerald A. Poch.......................  53    Director
James P. McNiel......................  37    Director
</TABLE>


     MR. LADOUCEUR has served as our Chairman since June 1999, Chief Executive
Officer since August 1999 and as a director since August 1998. From October 1996
to April 1998, Mr. Ladouceur was President, Chairman and Chief Executive Officer
of MetroNet Communications Corp. and served as MetroNet's Executive Chairman
until its merger with AT&T Canada in June, 1999. From February 1995 to October
1996, Mr. Ladouceur was Executive Vice President of Operations at Bell Canada
International Inc. From October 1992 to February 1995, Mr. Ladouceur was the
founding President and Chief Executive Officer of ISM Information Systems
Management (Alberta) Ltd., a computer and network management outsourcing company
which IBM Global Services acquired. Mr. Ladouceur founded, and from June 1990 to
October 1992, was the Managing Director of HDL Capital Corporation, a private
merchant bank specializing in business turnarounds, management buyouts and
financing for companies 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.
Mr. Ladouceur currently serves as a director of AT&T Canada, Cell-Loc Inc., Plan
B Communications and Intellispan, Inc.

     MR. HOLMES was elected to our Board of Directors and has served as our
President and Chief Operating Officer since September 1999. Mr. Holmes is the
founder of Micro Visions, a leading server-based computing integrator, and
served as its Chairman and President from 1987 until our acquisition of Micro
Visions in October 1999.

     MR. KILAMBI has served as our Executive Vice President since October 1999,
our Chief Financial Officer since March 1998 and as a director since June 1998.
From November 1995 to March 1998, Mr. Kilambi invested in and arranged equity
financing for high technology companies as President of New Economy Capital
Inc., a merchant banking firm. From May 1993 to November 1995, Mr. Kilambi was
an independent corporate finance consultant to public and private technology
companies. From October 1990 until May 1993, Mr. Kilambi was the Director,
Financial Services and Taxation and Corporate Secretary

                                       52
<PAGE>   56

for Canada Starch Company Inc., a subsidiary of CPC International, now known as
Bestfoods. From November 1989 to July 1990, Mr. Kilambi was Chief Accountant of
Morgan Financial Corporation. From June 1987 to November 1989, Mr. Kilambi was
an accountant with Touche Ross & Co., now a part of Deloitte & Touche. Mr.
Kilambi is a Chartered Accountant (Canada).

     MR. ROMANO has served as our Executive Vice President, Special Projects
since May 2000, and served as our Executive Vice President, Application Service
Provision between December 1999 and May 2000. Prior to that, Mr. Romano served
as our Executive Vice President, Sales and Marketing, from August 1999. From
July 1998 to August 1999, Mr. Romano was Senior Vice President of World-Wide
Sales at USinternetworking, Inc. From March 1989 to July 1998, Mr. Romano was
Vice President and Director of Worldwide Sales Operations for Motorola's
Computer Group.

     MR. BOTTI has served as our Senior Vice President, Application Service
Provision since May 2000, and served as our Senior Vice President, Server-Based
Computing, between November 1999 and May 2000. Mr. Botti founded CN Networks,
Inc. in November 1991, and, until we acquired that company in November 1999, he
served as its President and Chief Executive Officer and as a director.

     MR. HARVEY has served as our Senior Vice President, Server-Based Computing,
since May 2000, and between February 2000 and May 2000, he served as our
Southeastern Regional Director. Mr. Harvey founded Vertical Solutions, Inc. in
1989, and, until we acquired that company in January 2000, he served as its Vice
President.

     MS. WHITTLE has served as our Senior Vice President, Marketing since
January 2000. From October 1999 to December 1999, Ms. Whittle was a consultant
with Duke Communications. From April 1992 until October 1999, Ms. Whittle served
as Product Manager at Microsoft Corporation where she helped formulate
Microsoft's ASP products strategy, and also served as Lead Product Manager for
Microsoft's Terminal Server product line and as Product Manager for the Windows
NT product line. From 1984 to 1992, Ms. Whittle held various technical and
marketing positions at AT&T Bell Laboratories.

     MR. GALLEGO has served as our Senior Vice President, Strategic Business
Unit, since October 1999. Between June 1992 and October 1999, he served in a
variety of roles with Micro Visions, including Executive Vice President.

     MR. KRIEGER has served as our Senior Vice President, Strategic Planning and
Corporate Development since February 2000. Previously, from December 1996 to
October 1999, he served as Vice President, PC Servers for Hitachi Data Systems.
From May 1996 to December 1996, Mr. Krieger served as Senior Vice President,
Business Development for J & L ChatCom, Inc. and from January 1996 to May 1996
he served as President and Chief Executive Officer of CommVision Corporation.
From June 1995 to December 1995 he was Vice President, Marketing for CommVision
Corporation and from May 1993 to May 1995 he was a Director for Ziff-Davis
Magazine Networks.

     MR. SMITH has served as our Senior Vice President, Operations since the
beginning of February 2000. From May 1998 until joining us, Mr. Smith was the
Senior Vice President of Operations for AT&T Canada, which was formerly MetroNet
Communications Corp. From October 1996 until May 1998, Mr. Smith was Senior Vice
President of West Coast Operations and Senior Vice President of Long Distance
Operations for Brooks Fiber Communications Inc. From October 1985 to October
1996, Mr. Smith served as the President of Execuline Inc., a long distance
telephone company.

     MR. WHITE has served as our Senior Vice President, Administration since May
2000, and served as our Vice President, Administration between January 2000 and
May 2000. From August 1997 to January 2000, he served as Vice President
Administration -- Telecommunications for AT&T Canada, which was formerly
MetroNet Communications Corp. Between October 1995 and August 1997, he served as
Executive Vice President and Chief Financial Officer for American Louver of
Canada. From April 1994 to September 1995, he was a partner of Core Plus
International. Mr. White is a Chartered Accountant (Canada) and was previously a
partner with KPMG.

                                       53
<PAGE>   57

     MR. PASEA has served as the Managing Director of our European Operations
since December 1999. Between March 1998 and December 1999, he served as Director
for KNS Holdings, Limited. From January 1992 to February 1998, Mr. Pasea served
as Associate Director for Kerridge Computer Company.

     MR. ARNETT has served as our Senior Vice President and Chief Operating
Officer (Canada) since March 1999. Mr. Arnett served as Vice President of
Operations for FutureLink Alberta from August 1998 through March 1999. He served
as Vice President for SysGold Ltd. from August 1996 through August 1998, when
FutureLink acquired it. From January 1995 to August 1996, Mr. Arnett served as
Manager, Information Technology, for Numac Energy Inc.

     MR. SCOTT has served as Vice President since October 1999 and as our
Secretary and General Counsel since March 1999. From April 1998 to February
1999, Mr. Scott was an associate with the law firm of Howard Mackie, now Borden
Ladner Gervais LLP., specializing in corporate and securities law. From April
1997 to March 1998, Mr. Scott served with the Listings Department of The Alberta
Stock Exchange, now the Canadian Venture Exchange. From September 1996 to
February 1997, Mr. Scott served as Associate (Corporate Finance) with Oxbow
Capital Corporation, a venture capital company. From September 1993 to August
1996, Mr. Scott served as General Counsel for Kedon Waste Services.

     MR. FARRILL has been a director since January 1998. Since April 1989, Mr.
Farrill has been a consultant and advisor to various companies unrelated to us.
Since May 1996, Mr. Farrill has served as a director for Devine Entertainment,
LTD. From January 1978 until March 1989, Mr. Farrill held various positions with
Scotia McLeod and McLeod Young Weir, including acting as Chairman of Scotia
McLeod (USA) Inc. and McLeod Young Weir Ltd. Since July 1997, Mr. Farrill has
held the position of President and Chairman of Solar Pharmaceuticals Ltd. Mr.
Farrill is currently a director of Power Technology, Inc., Devine Entertainment
Inc. and Home Life Inc.

     MR. FALK has been a director since May 1999. Mr. Falk is the co-founder of
Commonwealth Associates, a New York-based merchant bank and investment bank
established in May 1988 that specializes in early stage investments in Internet,
technology and telecommunications businesses. Mr. Falk has served as
Commonwealth Associate's Chairman and Chief Executive Officer since 1995. Mr.
Falk currently serves as a director of Intellispan Inc.

     MR. FLYNN has been a director since May 1999. Since August 1996, Mr. Flynn
has been a principal at Flynn Corporation. Previously, Mr. Flynn co-founded and
served as a director of Valujet Airlines from June 1993 until November 1996. Mr.
Flynn also co-founded WestAir Holdings, Inc., a company which owned WestAir, a
California-based commuter airline that operated as a United Express affiliate of
United Airlines. Mr. Flynn served as an executive officer and a director of
WestAir until its merger with Mesa Airlines in May 1992, and served as a
director of Mesa Airlines until March 1993. Mr. Flynn currently serves on the
board of directors of Mpower Communications Corp.

     MR. POCH has been a director since October 1999. Since August 1998, Mr.
Poch has been a Manager Director/Portfolio Manager of Pequot Capital Management,
Inc. From August 1996 to August 1998, Mr. Poch acted as Chairman and President
of GE Capital Information Technology Solutions. From September 1992 to August
1998, Mr. Poch was President of AmeriData Technologies, Inc. Mr. Poch is
co-chairman and director of MessageMedia, Inc. and serves as a director of Brite
Smile, Inc. Channel Health, Inc., Elastic Networks, NewRiver Communications,
Lucent Digital Radio, Everest Broadband Networks, Online Retail Partners,
WatchMark and HomeSpace.com.

     MR. MCNIEL has been a director since October 1999. Since July 1999, Mr.
McNiel has been a Senior Vice President at Pequot Capital Management. From May
1997 until joining Pequot, Mr. McNeil was President of McNeil Group Ltd., a
technology consulting and investment firm. From March 1990 until May 1997, Mr.
McNeil served at Cheyenne Software, initially as Vice President of Business
Development, then as Executive Vice President of Business Development and
ultimately as Executive Vice President of Corporate Development. Mr. McNeil is a
member of the board of directors for Netegrity, Inc. and Asia Online.

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<PAGE>   58

APPOINTMENT OF DIRECTORS

     In an Agency Agreement we entered into with Commonwealth Associates, L.P.
on April 14, 1999, we granted Commonwealth Associates, L.P. the right, until
April 2001, to appoint one person to serve on our board of directors.

     In a Securities Purchase Agreement we entered into with Pequot Private
Equity Fund II, L.P. and other investors on October 15, 1999 relating to a
private placement of equity securities, we granted Pequot Private Equity Fund
II, L.P. and the other investors in such financing the right to appoint two
directors as long as they hold 50% or more of the common stock purchased in the
private placement. Pequot Private Equity Fund II, L.P. and these investors will
lose the right to appoint two directors if their ownership falls below 50% of
the common stock purchased in the private placement. In such instance, Pequot
Private Equity Fund II, L.P. and these investors will retain the right to
appoint one director as long as they hold 25% or more of the common stock
purchased in the private placement. Pequot Private Equity Fund II, L.P. and
these investors can transfer these rights to other investors that purchased our
common stock from us under the Securities Purchase Agreement of October 15,
1999.

     In the Agreement and Plan of Reorganization and Merger dated June 2, 1999,
between us, The Holmes Trust and various other parties relating to our
acquisition of Executive LAN Management, Inc., doing business as Micro Visions,
we agreed to elect to the board one director that The Holmes Trust designates to
serve until the next annual meeting of shareholders or until a successor is
appointed or elected.

COMMITTEES OF OUR BOARD OF DIRECTORS

     Our board of directors currently has three committees: an audit committee,
a compensation committee and an executive committee.

     The audit committee consists of Timothy P. Flynn, who serves as Chairman,
and Gerald A. Poch. The audit committee has the authority to review our
financial reporting and financial statements and to sign quarterly and annual
financial statements on behalf of the board of directors. The audit committee
acts on and reports to the board of directors with respect to various auditing
and accounting matters, including the engagement of our auditors, the scope of
the annual audits, the reasonableness of fees to be paid to the auditors, the
performance of our independent auditors and our accounting practices.

     The compensation committee consists of F. Bryson Farrill,who serves as
Chairman, James P. McNiel and Timothy P. Flynn. The compensation committee has
the authority to review and approve executive compensation, make recommendations
for the appointment of executive officers and to act as the plan administrator
of our stock option plan.

     The executive committee consists of Gerald A. Poch, who serves as Chairman,
Philip R. Ladouceur, Glen C. Holmes and Michael S. Falk. The executive committee
has the authority to approve:

     - our daily operational matters,

     - our corporate policies and strategy, and

     - our contractual commitments, payments of funds or issuances of securities
       up to a level of $1.0 million.

COMPENSATION OF OUR DIRECTORS

     The Company's outside directors currently receive compensation of $25,000
per year plus $5,000 for each committee of our board of directors on which they
serve, payable in stock. They also receive $500 for each meeting of the board of
directors or board committee they attend in person, and $250 for each

                                       55
<PAGE>   59

meeting attended by telephone. We also reimburse our outside directors for their
expenses in attending board of directors and committee meetings.

     At the time Mr. Ladouceur joined our board of directors he entered into an
agreement dated July 16, 1998. Under the terms of this agreement, we paid
Mardale Investments Ltd., of which Mr. Ladouceur is a principal, a fee of
$68,000 and we granted Mr. Ladouceur options to purchase 100,000 shares of our
common stock at an exercise price of $3.80 per share.

     We have granted options to each of the outside directors of the Company
upon their election to our board of directors. We granted Mr. Falk, Mr. Farrill,
Mr. Flynn, Mr. Poch and Mr. McNeil options to purchase 100,000 shares of common
stock with exercise prices ranging from $3.15 to $8.97 per share. We expect to
grant additional options to outside directors upon their joining the board of
directors for the first time and their subsequent re-election as a director.

SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION

     The following table summarizes the compensation earned by or paid to our
chief executive officers and the other four most highly compensated executive
officers whose total salary and bonuses exceeded $100,000 for services rendered
in all capacities to us and our subsidiaries during 1999. We refer to these
individuals as our named executive officers in other parts of this prospectus.

                           SUMMARY COMPENSATION TABLE


<TABLE>
<CAPTION>
                                                                                              LONG-TERM
                                                                                            COMPENSATION
                                                                                               AWARDS
                                            ANNUAL COMPENSATION                           -----------------
                                     ----------------------------------    OTHER ANNUAL   SHARES UNDERLYING
    NAME AND PRINCIPAL POSITION      FISCAL YEAR   SALARY($)   BONUS($)    COMPENSATION      OPTIONS(#)
    ---------------------------      -----------   ---------   --------    ------------   -----------------
<S>                                  <C>           <C>         <C>         <C>            <C>
Cameron B. Chell(1)................     1999       $149,658          --            --           350,000(2)
  Former Chairman, President and        1998       $ 84,291          --      $  7,000           100,000
  Chief Executive Officer
Philip R. Ladouceur................     1999       $110,000    $200,000(3)         --         1,300,000
  Executive Chairman and Chief
  Executive Officer
Glen C. Holmes.....................     1999       $ 58,435    $ 90,000(4)         --           100,000
  President and Chief Operating
  Officer
Raghu N. Kilambi...................     1999       $146,771    $ 90,000(5)         --           500,000
  Executive Vice President and          1998       $ 67,433          --      $  4,700           100,000
  Chief Financial Officer
Vincent L. Romano, Jr..............     1999       $ 75,000    $185,000(6)   $278,359           250,000
  Executive Vice President, Special
  Projects
</TABLE>


-------------------------
 (1) Mr. Chell served as Chief Executive Officer from April 1998 through August
     1999 and was our President from March 1999 through August 1999. We no
     longer employ him in any capacity. Other annual compensation for 1998
     includes consulting fees. On March 13, 2000, Mr. Chell exercised 275,000
     vested stock options.

 (2) Excludes 350,000 shares underlying options granted in 1999 which expired
     under our Stock Option Plan when Mr. Chell's employment with us terminated.

 (3) Accrued in 1999 but paid in 2000.

 (4) Includes $50,000 accrued in 1999 but paid in 2000.

 (5) Accrued in 1999 but paid in 2000.

 (6) Includes $90,000 accrued in 1999 but paid in 2000.

                                       56
<PAGE>   60

OPTION GRANTS IN LAST FISCAL YEAR

     The following table provides information related to options granted to our
named executive officers during fiscal year ended December 31, 1999. The
information in this table reflects options granted under our Amended and
Restated Stock Option Plan. We granted options to purchase 6,559,000 shares of
our common stock to our employees and directors in 1999. We granted all options
at an exercise price equal to the fair market value of our common stock on the
date of grant as determined based on the closing price of our common stock on
the day preceding the grant, except options granted to Mr. Holmes on May 14,
1999, which grant has an exercise price based on the average closing bid and ask
prices for the ten trading days prior to the date of the grant. The options
granted on May 14, 1999 have an exercise price that is 74% of the market value
of the common stock on such date, on which date the average of the closing bid
and ask price was $6.72. Options granted to our named executive officers during
the 1999 fiscal year vest in either three or four yearly increments and expire
between March 2000 and June 2004.


<TABLE>
<CAPTION>
                                     OPTIONS GRANTED IN LAST FISCAL YEAR
                           --------------------------------------------------------   POTENTIAL REALIZABLE
                                        PERCENT OF                                      VALUE AT ASSUMED
                                          TOTAL                                           ANNUAL RATES
                           NUMBER OF     OPTIONS                                         OF STOCK PRICE
                           SECURITIES   GRANTED TO                                      APPRECIATION FOR
                           UNDERLYING   EMPLOYEES    EXERCISE                              OPTION TERM
                            OPTIONS     IN FISCAL    PRICE PER                        ---------------------
          NAME              GRANTED        YEAR        SHARE      EXPIRATION DATE        5%         10%
          ----             ----------   ----------   ---------   ------------------   --------   ----------
<S>                        <C>          <C>          <C>         <C>                  <C>        <C>
Cameron B. Chell.........   350,000(1)      5.3%       $3.15     September 15, 2000   $ 55,125   $  110,250
Philip R. Ladouceur .....   700,000(2)     10.7%       $3.15           June 1, 2004   $609,242   $1,346,153
                            600,000(3)      9.1%       $7.56        August 31, 2003   $977,508   $2,105,158
Glen C. Holmes...........   100,000         1.5%       $5.00           June 1, 2004   $357,674   $  582,256
Raghu N. Kilambi.........   500,000         7.6%       $3.15           June 1, 2004   $435,172   $  961,538
Vincent L. Romano,
  Jr. ...................   250,000(4)      3.8%       $6.08          June 30, 2004   $419,976   $  927,960
</TABLE>


-------------------------
(1) 350,000 of the options granted to Mr. Chell in 1999 expired under the Stock
    Option Plan when Mr. Chell's employment with us terminated. On March 13,
    2000, Mr. Chell exercised 275,000 stock options.


(2) 500,000 of the options were granted under the Stock Option Plan. The
    remaining 200,000 options were granted by our Board of Directors outside of
    our Stock Option Plan.



(3) All of the options were granted by our Board of Directors outside of our
    Stock Option Plan.



(4) Mr. Romano exercised options to purchase 62,500 shares of common stock in
    early January 2000.


     The potential realizable values in the table above represent amounts, net
of exercise price before taxes, that may be realized upon exercise of the
options immediately prior to the expiration of their terms assuming appreciation
of 5% and 10% over the option term. The 5% and 10% are calculated based on SEC
rules and do not reflect our estimate of future stock price growth. The actual
value realized may be greater or less than the potential realizable value set
forth in the table.

AGGREGATED OPTION EXERCISES IN 1999 AND LAST FISCAL YEAR-END OPTION VALUES

     The following table shows the number of shares our named executive officers
acquired upon exercise of stock options during 1999, the aggregate value
received from those exercises, the number of shares underlying both exercisable
and unexercisable options as of December 31, 1999 and the year-end value of
exercisable and unexercisable options as of December 31, 1999.

                                       57
<PAGE>   61

     The value of unexercised in-the-money options at December 31, 1999, is
based on a year-end stock price of $26.00, the last reported trade of our common
stock on the OTC Bulletin Board on December 31, 1999.

<TABLE>
<CAPTION>
                                                          NUMBER OF SECURITIES
                                                         UNDERLYING UNEXERCISED         VALUE OF UNEXERCISED
                                NUMBER                         OPTIONS AT              IN-THE-MONEY OPTIONS AT
                                SHARES                      DECEMBER 31, 1999             DECEMBER 31, 1999
                               ACQUIRED      VALUE     ---------------------------   ---------------------------
            NAME              ON EXERCISE   REALIZED   EXERCISABLE   UNEXERCISABLE   EXERCISABLE   UNEXERCISABLE
            ----              -----------   --------   -----------   -------------   -----------   -------------
<S>                           <C>           <C>        <C>           <C>             <C>           <C>
Cameron B. Chell............    0            0           275,000        175,000(1)   $ 6,283,750    $3,998,750
Philip R. Ladouceur.........    0            0           950,000        450,000      $20,981,000    $8,298,000
Glen C. Holmes..............    0            0            50,000         50,000      $ 1,050,000    $1,050,000
Raghu N. Kilambi............    0            0           225,000        375,000      $ 5,076,250    $8,568,750
Vincent L. Romano, Jr.(2)...    0            0            62,500        187,500      $ 1,245,000    $3,735,000
</TABLE>

-------------------------
(1) During 1999, Mr. Chell held an additional 350,000 options that expired under
    the terms of our Stock Option Plan when Mr. Chell's employment with us
    terminated.

(2) Mr. Romano exercised options to purchase 62,500 shares of common stock in
    early January 2000.

EMPLOYMENT AGREEMENTS

     We have entered into employment agreements with each of our named executive
officers. Each agreement provides for a fixed base salary and an annual
performance bonus that our compensation committee or the board of directors
determines.

     Our employment agreements with Mr. Ladouceur and Mr. Kilambi are at-will
and either party can terminate the agreement at any time. Mr. Romano's agreement
has a three-year term which expires on August 1, 2002. Mr. Ladouceur's and Mr.
Kilambi's employment agreements provide that if there is a change in our
control, and either of them is terminated without just cause within six months
of a change in control of us, his level of responsibility or compensation is
reduced and he elects within six months of such change in control to treat his
employment as terminated, or he elects within three months of such change in
control to terminate his employment, we must pay him an amount equal to one
year's salary, his most recent performance bonus, and one year's premium
contributions to our employee benefit plan paid on his behalf, provide up to
$10,000 in relocation and financial consulting services, or, at his option, pay
him $10,000, and cause his unvested stock options to accelerate and become
exercisable for three months. If we terminate either Mr. Ladouceur's or Mr.
Kilambi's employment without just cause or change his level of responsibility,
and he elects to terminate, we must pay him an amount equal to one year's
salary, his most recent performance bonus, and one year's premium contributions
to our employee benefit plan paid on his behalf, and provide him with up to
$10,000 in relocation and financial consulting services or, at his option, pay
him $10,000.

     Mr. Ladouceur's employment agreement provides for an annual base salary of
$200,000, and he is eligible to earn an annual performance bonus of up to
$400,000.

     Mr. Holmes' employment agreement provides for an annual base salary of
$200,000. Mr. Holmes is also entitled to receive a minimum bonus of $50,000 each
quarter and is eligible to receive a discretionary bonus to be determined by the
board of directors. His agreement also provides for 18 months severance pay
(including the minimum bonus for such period), if we terminate Mr. Holmes
without cause, his employment is terminated within 18 months of a change of our
control, or Mr. Holmes voluntarily terminates because we materially reduce his
duties or his compensation, or we move his place of business out of Orange
County, California.

     Mr. Kilambi's employment agreement provides for an annual base salary of
$180,000, and he is eligible to earn an annual bonus of up to $180,000.

     Mr. Romano's employment agreement provides for an annual base salary of
$180,000. He is eligible to earn an annual bonus of up to $180,000. Upon
commencement of his employment, Mr. Romano

                                       58
<PAGE>   62

received a signing bonus of $95,000, a one time payment of $5,000 to cover
certain fees relating to his joining us, and 250,000 stock options. His
employment agreement provides for a separate loan agreement between us and Mr.
Romano under which we loaned Mr. Romano $2.0 million at an annual interest rate
of 5.625% to purchase 232,829 shares of our common stock. The loan is forgiven
in quarterly installments of $250,000. In October 1999, we forgave the first
installment of $250,000 of this loan, comprising most of Mr. Romano's "other
compensation" in 1999.

STOCK OPTION PLAN


     Our Stock Option Plan became effective on June 29, 1998, and we amended it
on each of November 30, 1998, September 23, 1999, November 17, 1999 and December
10, 1999. Our Stock Option Plan provides for the issuance of incentive and
non-qualified stock options. The aggregate number of shares which may be issued
upon the exercise of options under the Stock Option Plan may not exceed twenty
percent of our shares of common stock issued and outstanding on a fully diluted
basis.


     Our board of directors administers our Stock Option Plan. Generally, our
board may amend or terminate our Stock Option Plan if it does not cause any
adverse affect on any then outstanding options or unexercised portions of any
then outstanding options. Our board of directors must obtain the consent of the
stockholders to increase the number of shares that the Stock Option Plan covers,
to change the class of persons eligible to receive options, or to extend the
term of the Stock Option Plan beyond 10 years. Our board of directors sets the
consideration for each option award. All options must generally have an exercise
price equal to at least 85% of the fair market value of the underlying common
stock on the date of the grant. Incentive stock options must have an exercise
price equal to at least 100% of the fair market value of the underlying common
stock on the date of the grant, and options granted to a person who owns more
than 10% of the voting power of our outstanding stock and any outstanding stock
of our subsidiaries must have an exercise price equal to at least 110% of the
fair market value of the underlying common stock on the date of the grant.

     Options granted under the Stock Option Plan are non-transferable except
through will or the laws of descent and distribution upon the death of the
option holder. If we liquidate, reorganize, merge or consolidate and we are not
the surviving entity, each outstanding stock option shall become exercisable
prior to such event unless the options are assumed in a merger.

401(k) PLAN

     We assumed several 401(k) plans as a result of our acquisitions in 1999,
all of which have been rolled into one plan. The 401(k) plans covers our
full-time U.S. employees. It is intended to qualify under Section 401(k) of the
Internal Revenue Code of 1986 so that we can deduct any contributions that we
make to the plan at the time they are made. The plan provides that employees may
elect to reduce their current compensation by up to the statutorily prescribed
annual limit and have the amount of such reduction contributed to the plan. The
plan permits us, but does not require us to make, additional matching
contributions on behalf of all participants in the plan. Although we have not
made any contributions to the plan to date, we have instituted an employee
contribution plan under which we shall match 100% of the amounts each employee
contributes to the plan, up to 5% of the employee's annual compensation. We also
operate a defined contribution pension plan on behalf of our directors and
employees in the United Kingdom.

LIMITATIONS OF LIABILITY AND INDEMNIFICATION MATTERS

     Our certificate of incorporation provides that, to the fullest extent the
Delaware General Corporation Law permits, our directors shall not be personally
liable to us or our stockholders for monetary damages for breach of fiduciary
duty as a director. Under Delaware law, the directors have a fiduciary duty to
us that this provision of our certificate does not eliminate and, in appropriate
circumstances, equitable

                                       59
<PAGE>   63

remedies such as injunctive or other forms of non-monetary relief will remain
available. In addition, each director will continue to be subject to liability
under Delaware law for breach of the director's duty of loyalty to us for acts
or omissions which a court of competent jurisdiction finds to be not in good
faith or that involve intentional misconduct, or knowing violations of law, for
actions leading to improper personal benefit to the director, and for payment of
dividends or approval of stock repurchases or redemptions that Delaware law
prohibits. This provision also does not affect the director's responsibilities
under any other laws, such as federal securities laws.

     Section 145 of the Delaware General Corporation Law empowers a corporation
to indemnify its directors and officers and to purchase insurance with respect
to liability arising out of their capacity or status as directors and officers,
provided that this provision shall not eliminate or limit the liability of a
director:

     - for any breach of the director's duty of loyalty to a corporation or its
       stockholders,

     - for acts or omissions not in good faith or which involve intentional
       misconduct or a knowing violation of law,

     - arising under Section 174 of the Delaware General Corporation Law as a
       result of unlawful payments of dividends or stock purchases or
       redemptions, or

     - for any transaction from which the director derived an improper personal
       benefit.

     Delaware law provides further that the indemnification that Delaware law
permits is not exclusive of any other rights to which the directors and officers
may be entitled under a corporation's bylaws, any agreement, a vote of
stockholders or otherwise. Our bylaws provide that we shall indemnify, to the
maximum extent and in the manner the Delaware General Corporation Law permits,
any person against expenses, including attorneys' fees, judgments, fines and
amounts paid in settlement actually and reasonably incurred as a result of any
threatened, pending or completed action, suit or proceeding in which such person
was or is a party or is threatened to be made a party by reason of the fact that
such person is or was our director or officer, or is or was serving at our
request as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, or is or was a director or officer of a
corporation which was our predecessor corporation or of another enterprise at
the request of such predecessor corporation.

     We have insured our directors, officers, employees and agents and persons
serving at our request as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against such person and incurred by such person in any such
capacity or arising out of such person's status as such, regardless of whether
indemnification would be permitted under Delaware law.

CERTAIN PROVISIONS OF DELAWARE LAW

     We are a Delaware corporation, and the provisions of Section 203 of the
Delaware General Corporation Law, an anti-takeover law, apply to us. In general,
the statute prohibits a publicly held Delaware corporation from engaging in a
business combination with an interested stockholder for a period of three years
after the date of the transaction by which that person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
For purposes of Section 203, a business combination includes a merger, asset
sale or other transaction resulting in a financial benefit to the interested
stockholder, and an interested stockholder is a person who, together with
affiliates and associates, owns, or within three years prior, did own 15% or
more of our voting stock.

                                       60
<PAGE>   64

                             PRINCIPAL STOCKHOLDERS


     The following table sets forth specified information with respect to the
beneficial ownership of our common stock as of May 31, 2000 by:


     - each person or group of affiliated persons that we know beneficially owns
       5% or more of our outstanding shares of common stock,

     - each of our directors,

     - each of our named executive officers, and

     - all of our directors and executive officers as a group.


     The number and percentage of shares beneficially owned are based on
61,496,355 shares of common stock outstanding as of May 31, 2000; 2,627,242
shares of common stock issuable upon the exercise of options exercisable within
60 days of May 31, 2000; 8,205,491 shares issuable upon the exercise of warrants
exercisable within 60 days of May 31, 2000 and 67,965 shares issuable upon the
conversion of convertible debentures convertible within 60 days of May 31, 2000.
Beneficial ownership is determined in accordance with the rules of the SEC. In
general, a person who has voting power or investment power with respect to
securities is treated as a beneficial owner of those securities. These rules
treat the person holding any options, warrants or rights of the beneficial owner
of the shares underlying these options, warrants or rights currently exercisable
or exercisable within 60 days of May 31, 2000 as the beneficial owner. We
believe the persons named in the table below have sole voting and investment
power with respect to all shares beneficially owned unless otherwise indicated
and except as otherwise may be affected by community property laws.



     The amounts reflected in the Ownership After Offering column of the table,
assume the underwriters' overallotment option is not exercised and that we have
issued 2,199,973 shares for the acquisition of Charon Systems Inc. prior to the
completion of the offering. In the event that the underwriters' overallotment
option is exercised in full, an additional 900,000 shares of our common stock
will be sold in the offering.



<TABLE>
<CAPTION>
                                                   OWNERSHIP PRIOR TO THE      OWNERSHIP AFTER THE
                                                          OFFERING                  OFFERING
                                                   -----------------------    ---------------------
     NAME AND ADDRESS OF BENEFICIAL OWNER            NUMBER       PERCENT       NUMBER      PERCENT
     ------------------------------------          -----------    --------    ----------    -------
<S>                                                <C>            <C>         <C>           <C>
The Holmes Trust(1)(2).........................     8,400,000       13.7%      8,400,000      12.4%
Glen C. Holmes(1)(2)(3)........................     8,475,000       13.8%      8,475,000      12.5%
Pequot Capital Management, Inc.(4).............    10,247,656       16.6%     10,247,656      15.1%
Philip R. Ladouceur(5).........................       998,000        1.6%        998,000       1.5%
Raghu N. Kilambi(6)............................       570,563        0.9%        570,563       0.8%
F. Bryson Farrill(7)...........................       120,000        0.2%        120,000       0.2%
Michael S. Falk(8).............................     3,602,146        5.8%      3,602,146       5.3%
Timothy P. Flynn(9)............................       775,133        1.3%        775,133       1.1%
Gerald A. Poch(4)(10)..........................    10,272,656       16.6%     10,272,656      15.1%
James P. McNiel(4)(11).........................    10,272,656       16.6%     10,272,656      15.1%
Vincent Romano, Jr.............................       345,408        0.6%        345,408       0.5%
Cameron Chell..................................       929,733        1.5%        929,733       1.4%
Robert Priddy(12)..............................     3,495,885        5.7%      3,495,885       5.2%
All directors and executive officers as a group
  (20 persons)(13).............................    29,203,757       45.1%     29,203,757      41.3%
</TABLE>


-------------------------
 (1) The business address of Glen C. Holmes, the trustee of The Holmes Trust, is
     6 Morgan, Suite 100, Irvine, California 92618.


 (2) On May 26, 2000, The Holmes Trust granted to us an option to purchase up to
     600,000 shares of our common stock at a purchase price of $5.50 per share
     (the fair market value at the date of the grant). On the same date, The
     Holmes Trust granted two of our employees options to purchase 2,400,000
     shares of our common stock at a purchase price of $5.50 per share. The
     3,000,000 shares shall continue to be beneficially held by The Holmes Trust
     until the options are exercised.



 (3) Includes 75,000 shares issuable upon the exercise of stock options
     exercisable within 60 days of May 31, 2000. Also includes 8,400,000 shares
     of common stock held by The Holmes Trust as a result of Mr. Holmes' power
     to control The Holmes Trust.

                                       61
<PAGE>   65


 (4) Includes 441,176 shares issuable upon the exercise of currently exercisable
     warrants held by Pequot Private Equity Fund II, L.P. and Pequot Endowment
     Fund, L.P. The address of Pequot Capital Management, Inc., Gerald A. Poch
     and James P. McNiel is 500 Nyala Farm Road, Westport, Connecticut 06880.



 (5) Includes 950,000 shares issuable upon the exercise of currently exercisable
     stock options and 48,000 shares attributable to Mr. Ladouceur as a result
     of his power to control Mardale Investments Ltd.



 (6) Includes 350,000 shares issuable upon the exercise of stock options
     exercisable within 60 days of May 31, 2000.



 (7) Includes 75,000 shares issuable upon the exercise of stock options
     exercisable within 60 days of May 31, 2000.



 (8) Includes 50,000 shares issuable upon the exercise of stock options which
     are exercisable within 60 days of May 31, 2000. Also includes 82,574 shares
     attributable to Mr. Falk as a result of his control of the Michael Falk
     IRA. Also includes 34,353 shares issuable upon the exercise of currently
     exercisable warrants that Mr. Falk holds. Also includes 2,433,828 shares of
     common stock and 104,198 shares issuable upon the exercise of warrants that
     Commonwealth Associates, L.P. holds. Mr. Falk is Chairman and Chief
     Executive Officer of Commonwealth Associates, L.P. Mr. Falk disclaims
     beneficial ownership of the shares and warrants that Commonwealth
     Associates, L.P. holds.



 (9) Includes 50,000 shares issuable upon the exercise of stock options which
     are exercisable within 60 days of May 31, 2000, and 213,021 shares issuable
     upon the exercise of currently exercisable warrants.



(10) Includes 25,000 shares issuable upon the exercise of stock options which
     are exercisable within 60 days of May 31, 2000. Includes 441,176 shares
     issuable upon the exercise of currently exercisable warrants held by Pequot
     Private Equity Fund II, L.P. and Pequot Endowment Fund, L.P. Also includes
     9,806,480 shares of common stock that Pequot Private Equity Fund II, L.P.,
     Pequot Partners Fund, L.P., Pequot International Fund, Inc. and Pequot
     Endowment Fund, L.P. hold. Pequot Capital Management, Inc. manages these
     entities. Mr. Poch is a principal of Pequot Capital Management, Inc. Mr.
     Poch disclaims beneficial ownership of the shares attributed to Pequot
     Capital Management, Inc.



(11) Includes 25,000 shares issuable upon the exercise of stock options which
     are exercisable within 60 days of May 31, 2000. Includes 441,176 shares
     issuable upon the exercise of currently exercisable warrants held by Pequot
     Private Equity Fund II, L.P. and Pequot Endowment Fund, L.P. Also includes
     9,806,480 shares of common stock that Pequot Capital Management, Inc.
     manages. Mr. McNiel is a principal of Pequot Capital Management, Inc. Mr.
     McNiel disclaims beneficial ownership of the shares attributed to Pequot
     Capital Management, Inc.



(12) Includes 198,021 shares of common stock issuable upon the exercise of
     currently exercisable warrants. Also includes 2,433,828 shares of common
     stock and 104,198 shares issuable upon the exercise of warrants that
     Commonwealth Associates holds. Mr. Priddy disclaims beneficial ownership of
     the shares and warrants attributed to Commonwealth Associates, L.P.



(13) Includes shares listed in footnotes 2, 4-10 and 12 above, as well as
     1,755,007 shares our other executives not listed in this table hold,
     2,199,000 shares issuable upon the exercise of stock options which are
     exercisable within 60 days of May 31, 2000 and 1,006,519 shares issuable on
     exercise of currently exercisable warrants.



     Upon completion of this offering, our executive officers, directors and
holders of over 5% of our common stock and their affiliates will own
approximately 41% of the outstanding shares of our common stock, or 40% if the
underwriters exercise their overallotment option in full. If these holders act
as a group, they may be able to control us and direct our affairs, including the
election of directors and approval of significant corporate transactions. This
concentration of ownership also may delay, defer or prevent a change in our
control, and make some transactions more difficult or impossible without the
support of these stockholders. These transactions might include proxy contests,
mergers, tender offers, open market purchase programs or other purchases of
common stock that could give our stockholders the opportunity to realize a
premium over the then prevailing market price of our common stock.


                                       62
<PAGE>   66

                 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     In 1997, Mr. Chell loaned FutureLink Alberta, approximately $137,000 at an
annual interest rate equal to the prime rate plus 1%. FutureLink Alberta repaid
the entire balance of the loan between April and June 1998.

     On January 20, 1998, Core Ventures, Inc., our predecessor-in-interest,
purchased 46% of FutureLink Alberta in exchange for 308,000 shares of our common
stock. On November 23, 1998, Core Ventures purchased another 50.4% of FutureLink
Alberta in exchange for 334,755 shares of our common stock, and on February 26,
1999, it acquired the remaining 3.6% of FutureLink Alberta in exchange for
23,500 shares of our common stock. Cameron Chell was the President and Chief
Executive Officer of FutureLink Alberta, and after the first purchase in January
1998, Mr. Chell became our President, a director and a significant stockholder.
Mr. Chell resigned as our President and a director effective August 27, 1999.

     Mr. Chell and Robert Kubbernus were directors and holders of stock of both
us and JAWS Technology Inc. at the time we entered into an Alliance Partner
Agreement dated February 12, 1999.

     On August 12, 1998, Mr. Chell loaned us approximately $145,000 at an annual
interest rate of 8%. On February 22, 1999, we issued Mr. Chell a convertible
debenture in the principal amount of approximately $150,000, the outstanding
balance of his loan to us. This convertible debenture was convertible at $2.00
per share after adjustment for our five-for-one reverse stock split, for a total
of 75,310 shares. Mr. Chell also received a warrant to acquire 75,310 shares at
$2.00 per share for the first year, $3.00 per share for the second year, and
$4.00 per share for the third year. On April 29, 1999, Mr. Chell surrendered his
debenture having an outstanding balance of approximately $153,000, our notes
payable having an outstanding balance of approximately $67,000 and our trade
loans payable having an outstanding balance of $30,000 in return for a $250,000
aggregate principal amount 8% convertible note convertible at $1.50 per share
and a warrant to acquire 125,000 shares at $1.50 per share. We reduced the
conversion and exercise prices for these securities from $1.50 per share to
$1.335 per share due to the effect of anti-dilution provisions. Mr. Chell has
exercised and converted all of these securities.

     In May 1999, Commonwealth Associates privately placed our units consisting
of 8% senior subordinated convertible notes convertible to shares of common
stock at $1.00 per share after adjustment for our five-for-one reverse stock
split and warrants to purchase 500 shares of common stock at $1.25 per share
after adjustment for our five-for-one reverse stock split for each $1,000
invested. Mr. Chell purchased $250,000 of our units and Mr. Kilambi purchased
$127,500 of our units.

     Michael Falk, Chief Executive Officer of Commonwealth Associates, L.P. was
appointed to our board of directors on May 7, 1999 following the consummation of
the private placement of our securities concluded in April 1999 for which we
retained Commonwealth Associates as our placement agent. We subsequently
retained Commonwealth Associates as placement agent on July 1, 1999.

     As of December 31, 1999, we had provided $550,000 in services and products
to Willson Stationers Ltd. and e-Supplies Inc. At December 31, 1999, $543,000
remained due from these entities. An allowance for doubtful accounts was
recorded for the entire amount because of the uncertainty of collection. We have
recently settled this account for $400,000. Mr. Chell was a director of both
companies at the time some of the transactions took place. In addition, we have
reason to believe that Mr. Chell was a principal of e-Supplies Inc., at the time
of the transactions. Mr. Kilambi served on the board of directors of Willson
Stationers, Ltd., as our representative, at the request of Willson Stationers,
Ltd., for approximately one month in early 1999.

     On August 1, 1999, we loaned Vincent Romano, one of our executive officers,
$2.0 million, which he used to purchase 232,829 shares of our common stock. Mr.
Romano deposited the shares in escrow and the escrow agent releases
approximately 12.5% of the shares quarterly as the loan is forgiven in quarterly
installments of $250,000. We loaned the money to Mr. Romano under the terms of
his employment agreement. As of January 31, 2000, we have forgiven $500,000 of
this loan.

                                       63
<PAGE>   67

     In October 1999, we issued warrants to acquire 1,658,350 shares of common
stock to Pequot Private Equity Fund II, L.P., Pequot Partners Fund and Pequot
International Fund, which, after giving effect to anti-dilution adjustments
since their issuance, entitled the holders to purchase 1,678,139 shares of
common stock at $8.40 per share. On February 29, 2000, the funds exercised their
warrants to acquire all 1,678,139 shares of our common stock, with net proceeds
to us of approximately $12.6 million, taking into account the warrant exercise
fee of $0.90 for each warrant exercised. On April 28, 2000, in a private
placement we issued to Pequot Private Equity Fund II, L.P. and Pequot Endowment
Fund, L.P. for just under $15.0 million, 1,764,704 shares of common stock and
warrants to purchase at a purchase price of $9.25 per share 441,176 shares of
common stock. Pequot Capital Management, Inc. manages the funds and therefore
has the power to direct the vote of the common stock that the funds hold, which
constitute more than 5% of our outstanding common stock both before and after
this warrant exercise. In addition, James McNiel, one of our directors, is a
Senior Vice President at Pequot Capital Management, Inc., and Gerald Poch, also
a director, is a Manager Director/Portfolio Manager at Pequot Capital
Management, Inc.

     The two securities purchase agreements we have entered into with the Pequot
funds and two other institutional investors restrict us and our material
subsidiaries without the prior written consent of the Pequot funds from:

     - completing any merger, acquisition or sale of assets if our assets or
       revenues are likely to be increased or decreased by 25% or more,

     - buying any of our equity securities with a fair market value in excess of
       $5.0 million, or

     - changing the business in which we are currently engaged.

     These restrictions will no longer apply at the earliest to occur of:

     - the investors under these securities purchase agreements hold less than
       5% of our fully-diluted common stock,

     - the investors under these securities purchase agreements no longer have
       the right to nominate any of our directors under these agreements, and

     - October 15, 2002.


     On May 26, 2000, Glen Holmes, our President and Chief Operating Officer and
one of our directors, granted to us an option to purchase 600,000 shares of
common stock at $5.50 per share, the fair market value at the date of grant. We
may only exercise this option to the extent employees to whom we granted
reciprocal options exercise those options.


                                       64
<PAGE>   68

                          DESCRIPTION OF CAPITAL STOCK

     Our authorized capital stock consists of 300 million shares of common
stock, par value $0.0001 per share, and 20 million shares of preferred stock, no
par value.

     The following is a summary of certain provisions of our common stock,
preferred stock, certificate of incorporation and bylaws. Copies of our articles
and bylaws are available from us upon request.

COMMON STOCK


     As of May 31, 2000, there were 61,496,355 shares of common stock
outstanding, held by approximately 700 shareholders of record. All outstanding
shares of common stock are, and the common stock to be issued in this offering
will be, fully paid and nonassessable.


     Each share of our common stock has identical rights and privileges in every
respect. The holders of our common stock are entitled to vote upon all matters
submitted to a vote of our shareholders and are entitled to one vote for each
share of common stock held. There are no cumulative voting rights.

     The holders of our common stock are entitled to share equally in dividends
and other distributions that our board of directors may declare from time to
time out of funds legally available for that purpose, if any, after the
satisfaction of any prior rights and preferences of any outstanding preferred
stock.

     If we liquidate, dissolve or wind up, the holders of shares of common stock
will be entitled to share ratably in the distribution of all of our assets
remaining available for distribution after satisfaction of all our liabilities
and the payment of the liquidation preference of any outstanding preferred
stock.

     The holders of our common stock have no preemptive or other subscription
rights to purchase shares of our stock, nor are they entitled to the benefits of
any redemption or sinking fund provisions.

PREFERRED STOCK

     There are no shares of preferred stock outstanding. Our board of directors,
however, has the authority to issue 20 million shares of preferred stock in one
or more series, and to fix for each series, the designation of, and number of
shares to be included in, each such series, and our board of directors is also
authorized to set the powers, privileges, preferences, and relative
participating, optional or other rights, if any, of the shares of each such
series and the qualifications, limitations or restrictions of the shares of each
such series.

     Unless our board of directors provides otherwise, the shares of all series
of preferred stock will rank on a parity with respect to the payment of
dividends and to the distribution of assets upon liquidation. Although we have
no present plans to issue any shares of or rights to purchase, preferred stock,
such issuance may have the effect of delaying, deferring or preventing a change
of our control or an unsolicited acquisition proposal. The issuance of preferred
stock also could decrease the amount of earnings and assets available for
distribution to the holders of common stock or could adversely affect the rights
and powers, including voting rights, of the holders of common stock.

REGISTRATION RIGHTS

     The holders of an aggregate of 59,649,200 shares of common stock that are
either outstanding or issuable upon the conversion of debentures or the exercise
of currently exercisable warrants or options, or their transferees, are entitled
to certain rights with respect to the registration of such shares under the
Securities Act.

     We agreed to file a registration statement by April 30, 2000 in respect of
1,207,867 shares of common stock issued on exercise of warrants or issued for
services that Thomson Kernaghan & Co. Limited

                                       65
<PAGE>   69

provided. Nearly all of these shares will be eligible for resale under Rule 144
as of April 26, 2000. Additional shares that this entity holds have registration
rights which must be waived if the underwriter of a public offering advises us
to limit such rights. After May 1, 2000, Thomson Kernaghan & Co. Limited may
demand that we file such a registration statement for their shares, and on or
thereafter we must use our reasonable best efforts to effect such registration.
As of May 15, 2000, Thomson Kernaghan and Co. Limited had not made such a
demand.

     We agreed to file a registration statement by June 29, 1999 in respect of
382,389 shares of our common stock underlying senior subordinated convertible
debentures and warrants we issued to Augustine Fund LP in March 1999 all of
which have converted into common stock. As of March 10, 2000, 26,553 of these
shares remained entitled to registration rights. Augustine has waived its
registration rights with respect to this offering and all penalties for failure
to register.

     We agreed to use our best efforts to file a registration statement by
January 31, 2000 covering 44,505 shares issuable upon exercise of warrants
issued to Global Equity Partners Limited. Global also held a $278,160 debenture
which has underlying shares also entitled to registration rights. Of this
debenture, $200,000 of principal plus accrued interest recently converted into
189,160 shares of common stock. Global agreed not to sell any stock until one
year following its initial investment on March 26, 1999. We are currently in
breach of these obligations.


     Under the terms of various subscription agreements, we agreed to file a
registration statement by September 7, 1999, covering securities issued in May
1999 to Commonwealth Associates, L.P. and various other investors, and to use
our best efforts to cause such registration statement to become effective by
November 3, 1999. As of May 31, 2000, 16,605,914 shares of common stock and
287,750 shares of common stock issuable upon exercise of outstanding warrants
were subject to those rights.


     Under the terms of certain other subscription agreements, we agreed to file
a registration statement by April 1, 2000 covering securities issued in July
1999 to Commonwealth Associates, L.P. and various other investors, and to use
our best efforts to cause such registration statement to become effective as
soon as practicable thereafter. As of April 3, 2000, 2,727,172 shares of common
stock and 3,195,299 shares of common stock issuable upon exercise of warrants
were entitled to those rights.

     We agreed to use our best efforts to file a registration statement by
January 31, 2000 in respect of 232,829 shares of common stock that Vincent
Romano owns and to use our best efforts to cause such registration statement to
become effective by March 31, 2000.

     We agreed to file a registration statement by June 26, 2000 in respect of
2,160,307 shares of common stock that the former shareholders of KNS Holdings
Limited acquired, and to use commercially reasonable efforts to cause this
registration statement to become effective as soon after that date as
practicable and no later than December 22, 2000. All of the former shareholders
of KNS have waived their registration rights with respect to this offering.

     The holders of 9,806,480 shares of common stock and warrants to purchase
441,176 shares of common stock issued to these investors in our October 1999 and
April 2000 private placements may make up to two demands after April 15, 2000
that we file a registration statement covering at least 3% of our outstanding
shares of common stock, or the number of shares of common stock that have a
combined market value of at least $5.0 million. If the holders make such a
demand, they may select the underwriters for the offering, provided we consent
to such selection. We also have granted these holders piggyback registration
rights allowing them to include their shares in a registered offering that we
make. The holders of 3,450,174 shares of common stock acquired in October 1999
have the same registration rights as Pequot Private Equity Fund II, L.P. and the
other investors. The holders of warrants to purchase 1,655,593 shares of common
stock acquired in October 1999 have the same registration rights as Pequot
Private Equity Fund II, L.P. and the other Pequot investors. Pequot Private
Equity Fund II, L.P. and two other holders of shares or warrants issued in the
October 1999 and the April 2000 private placements have waived the registration
rights of all holders of such shares and warrants with regard to this offering.

                                       66
<PAGE>   70

     At the same time we granted piggyback registration rights to Pequot Private
Equity Fund II, L.P. and other investors, we granted registration rights under
the same terms to the Holmes Trust and Glen C. Holmes, in respect of 8,400,000
securities held by or currently issuable to them. Mr. Holmes has waived his
registration rights with respect to this offering.

     TBCC Funding Trust II has piggyback rights to require us to register 29,413
shares of common stock underlying its warrants if we file a registration
statement for our common stock. However, TBCC Funding Trust II has agreed to
waive any notice rights and any rights to participate in the offering. TBCC has
waived their registration rights with respect to this offering.

     CPQ Holdings, Inc., has piggyback rights to require us to register 112,590
shares of common stock if we file a registration statement for our common stock.

     Sicola, Martin, Koons & Frank, Inc., the holder of 53,552 shares of common
stock and warrants to purchase 33,467 shares of common stock, has the right to
request up to four times that we register their securities. Sicola, Martin,
Koons & Frank, Inc. has waived its registration rights with respect to this
offering.

     EMC(2) Corporation has piggyback rights to require us to register 13,140
shares of common stock underlying warrants.

     We agreed to register 1,181,816 shares of common stock that the selling
shareholders of CN Networks, Inc. hold by November 5, 2000. The principal
selling shareholder has waived its registration rights with respect to this
offering.

     We agreed to register 1,738,555 shares of our common stock that the selling
shareholders of Async Technologies, Inc. hold by November 26, 2000.

     We also agreed to register 1,026,316 shares of common stock that the
selling shareholders of Vertical Software, Inc. hold by January 31, 2001. The
selling shareholders of Vertical Software, Inc. have waived their registration
rights with respect to this offering.

     We also agreed to register 1,975,170 shares of common stock that the
selling shareholders of MicroLAN Systems, Inc., doing business as Madison
Technology Group, Madison Consulting Resources, Inc., and Madison Consulting
Resources NJ, Inc. hold by February 28, 2001. The selling shareholders of these
companies have waived their registration rights with respect to this offering.

     We granted registration rights to SmallCaps OnLine Group LLC with respect
to 3,000,000 shares of our common stock underlying warrants we issued to
SmallCaps. SmallCaps is entitled to register all or a portion of these shares to
the same extent we register shares that Pequot Private Investment Fund II, L.P.,
or Commonwealth Associates, L.P. hold upon exercise of registration rights we
previously granted to such limited partnerships.


     We intend to fulfill our registration obligations as described above
shortly after the offering. Even after registration, most shares will be
restricted under lock up agreements from further sale for at least six months
following this offering.


WARRANTS


     As of May 31, 2000, there were warrants outstanding to purchase 8,205,491
shares of our common stock. The warrants have exercise prices ranging from $1.11
per share to $24.38 per share. The weighted average exercise price of all
currently outstanding warrants is $11.81 per share. The warrants have various
expiration dates, ranging from June 2000 to April 2006. Most outstanding
warrants have anti-dilution protection, and most provide for registration
rights.


                                       67
<PAGE>   71

LISTING

     We are listed for quotation in the Nasdaq National Market under the symbol
"FTRL."

TRANSFER AGENT AND REGISTRATION

     American Stock Transfer & Trust, New York is the transfer agent and
registrar for our common stock.

                                       68
<PAGE>   72

                        SHARES ELIGIBLE FOR FUTURE SALE


     Sales of substantial amounts of common stock in the public market, or the
perception that such sales could occur, could adversely affect the market price
of our common stock and could impair our future ability to raise capital through
the sale of equity securities. Upon completion of this offering, we expect to
have an aggregate of 69,696,328 shares of our common stock outstanding, which
includes our anticipated issuance of 2,199,973 shares of our common stock
issuable upon the closing of our acquisition of Charon Systems Inc., but
excludes 900,000 shares issuable to the underwriters if they exercise their
overallotment option.


     Upon completion of this offering, we also expect to have the following
options, warrants and convertible debentures outstanding:


     - 9,905,509 shares of our common stock issuable upon exercise of stock
       options at a weighted average exercise price of $10.76 per share as of
       May 31, 2000,



     - 8,205,491 shares of our common stock issuable upon the exercise of
       warrants at a weighted average exercise price of $11.81 per share as of
       May 31, 2000, and



     - 67,965 shares of our common stock issuable upon the conversion of $78,160
       aggregate principal amount of our convertible debenture outstanding as of
       May 31, 2000 convertible at $1.15 per share.


     All of the shares sold in this offering will be freely tradable.

     At this time, approximately 10.1 million shares of our common stock are
freely trading or eligible to trade. The remaining 51.4 million shares are
currently restricted. Approximately 2.2 million of these shares will become
freely tradeable between March 26 and December 15, 2000, and will not be subject
to any agreement restricting their sale. We currently plan to register under the
Securities Act most of the remaining 49.2 million shares within six months
following the date of this prospectus, and to keep this registration effective
for up to six months after the SEC declares it effective although 46.8 million
of such shares are either currently subject to or are expected to be subject to
lock-up restrictions limiting their resale in the public market until 180 days
after the date of this prospectus. We issued nearly 5.2 million shares of the
49.2 million shares we intend to register in recently completed acquisitions.
These shares are subject to escrow restrictions with release of such shares
staggered over the next three years. The earliest any of these shares may be
released from escrow is November 5, 2000. The nearly 1.1 million shares which we
expect to issue on closing of our proposed acquisition of Charon Systems Inc.
will be subject to similar release restrictions imposed by the escrow.


     Most of the 7.9 million shares underlying our currently issued stock
options are registered for resale under the Securities Act, and we intend to
register the balance of the underlying shares under the Securities Act within
six months following the date of this prospectus. Just over 2.6 million options
are exercisable within 60 days of May 31, 2000 and 0.7 million currently
outstanding options will vest between May 10 and December 15, 2000. Of these 3.3
million options, senior officers and directors hold 2.6 million and such
securities will be locked up for a period of 180 days following the date of this
prospectus.


     All of our currently outstanding warrants entitling holders to acquire 8.2
million shares of our common stock can now be exercised. Holders of warrants to
purchase 7.1 million shares of our common stock agreed that they will not trade
their warrants or underlying shares for a period of 180 days following the date
of this prospectus. Warrants to purchase another 0.2 million shares of our
common stock do not have registration rights and resales of the underlying
shares would be restricted under Rule 144 commencing on their exercise. The
remaining warrants to purchase 0.9 million shares are not subject to any lock-up
agreement and contain provisions which may allow their holders to accelerate
tradeability of the underlying stock in accordance with certain provisions of
Rule 144.

     Of the 0.1 million shares issuable on conversion of our outstanding
convertible debenture, all are eligible for resale under Rule 144 as of May 7,
2000.

                                       69
<PAGE>   73

     Shortly after this offering, we expect to file a registration statement
covering the sale of up to 5,000,000 shares of our common stock that we may use
in connection with our acquisition of other companies in the future.

RULE 144

     In general, under Rule 144 as currently in effect, a person who has
beneficially owned restricted securities for at least one year, including
persons who may be deemed our "affiliates", would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of 1% of
the number of shares of common stock then outstanding or the average weekly
trading volume of the common stock on all exchanges and/or reported through the
automated quotation system of a registered securities association during the
four calendar weeks immediately preceding the SEC filing with respect to such
sale. Manner of sale provisions, notice requirements and the availability of
current public information about us also apply to these sales. However, if a
person is not deemed to have been our affiliate at any time during the 90 days
immediately preceding the sale, he or she may sell his or her restricted shares
under Rule 144(k) without regard to the limitations described above if at least
two years have elapsed since the later of the date the shares were acquired from
us or from our affiliate. This paragraph summarizes Rule 144 and is not intended
to be a complete description of it.

RULE 701

     In general, under Rule 701 of the Securities Act as currently in effect,
any of our employees, consultants or advisors who purchases shares from us
pursuant to a compensatory stock or option plan or other written agreement is
eligible to resell such shares 90 days after the effective date of this offering
in reliance on Rule 144, but without compliance with certain restrictions,
including the holding period, contained in Rule 144.

                                       70
<PAGE>   74

                                  UNDERWRITING

     The underwriters named below have agreed to purchase from us upon the terms
and conditions of the underwriting agreement the number of shares of common
stock set forth opposite its name below:


<TABLE>
<CAPTION>
                        UNDERWRITERS                          NUMBER OF SHARES
                        ------------                          ----------------
<S>                                                           <C>
Bear, Stearns & Co. Inc.....................................
                                                                 ---------
C.E. Unterberg, Towbin......................................
                                                                 ---------
          Total.............................................     6,000,000
                                                                 =========
</TABLE>


     The underwriters have agreed to purchase all of the shares of common stock
being sold upon the terms and conditions of the underwriting agreement if any of
such shares are purchased. This obligation does not apply to shares covered by
the overallotment option.

     The underwriters have advised us that they propose to offer the common
stock to the public initially at the public offering price set forth on the
cover page of this prospectus and to certain dealers at such price less a
concession of not more than $     per share. Additionally, the underwriters may
allow, and such dealers may reallow, a discount of not more than $          per
share on sales to certain other dealers. After the public offering of the
shares, the underwriters may change the offering price and other selling terms.


     We have granted the underwriters an option to purchase up to 900,000
additional shares of common stock at the public offering price, less the
underwriting discounts and commissions set forth on the cover page of this
prospectus, solely to cover overallotments, if any. This option may be exercised
in whole or in part at any time within 30 days after the date of this
prospectus. To the extent that the underwriters exercise this option, each
underwriter will have a firm commitment to purchase upon the satisfaction of
certain conditions a number of shares of common stock proportionate to such
underwriter's purchase obligations set forth in the table above.


     The following table shows the per share and total underwriting discounts
and commissions we must pay to the underwriters. Such amounts are shown assuming
both no exercise and full exercise of the underwriters option to purchase
additional shares.

<TABLE>
<CAPTION>
                                                              NO EXERCISE    FULL EXERCISE
                                                              -----------    -------------
<S>                                                           <C>            <C>
Per share...................................................    $               $
Total.......................................................    $               $
</TABLE>

     The offering of the shares is made for delivery, when, as and if accepted
by the underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.

     Certain of our executive officers and directors, who beneficially own in
the aggregate                shares of common stock, have agreed that they will
not, without the prior written consent of Bear, Stearns & Co. Inc., directly or
indirectly, issue, sell, offer or agree to sell, grant any option for the sale
of, pledge, make any short sale of, maintain any short position with respect to,
establish or maintain a "put equivalent position" with respect to, enter into
any swap, derivative transaction or other arrangement that transfers any of the
economic consequences of ownership of any shares of common stock or any
securities convertible into, exercisable into or exchangeable for common stock
they beneficially own during the 180-day period following the date of this
prospectus. For these purposes, "put equivalent position" has the meaning set
forth in Rule 16a-1(h) of the Securities Exchange Act of 1934.

     We have agreed that we will not, without the prior written consent of Bear,
Stearns & Co. Inc., directly or indirectly, issue, sell, offer or agree to sell,
grant any option for the sale of, pledge, make any short sale of, maintain any
short position with respect to, establish or maintain a "put equivalent
position"

                                       71
<PAGE>   75

with respect to, enter into any swap, derivative transaction or other
arrangement that transfers any portion of the economic consequences of any
shares of common stock or any securities convertible into, exercisable into or
exchangeable for common stock during the 180-day period following the date of
this prospectus, except that we may issue shares of common stock and options to
purchase common stock under our stock option and stock purchase plans and upon
exercise of warrants issued and outstanding on the date of this prospectus, and
may issue stock as part of strategic relationships and to acquire businesses,
technologies or products complementary to those of our company, so long as the
recipients of such stock agree to be bound by a lock-up agreement for the
remainder of the 180-day lock-up period.


     C.E. Unterberg, Towbin Capital Partners I, L.P., an affiliate of C.E.
Unterberg, Towbin, holds 128,028 shares of our common stock and warrants to
purchase 49,364 shares of our common stock. This resulted from the conversion of
8% senior subordinated notes and warrants which C.E. Unterberg, Towbin Capital
Partners I, L.P. purchased from us in private offerings that Commonwealth
Associates, Ltd. arranged between April and July of 1999. C.E. Unterberg, Towbin
Capital Partners I, L.P. made these purchases upon the same terms and conditions
as each of the other investors in the offerings.


     A prospectus in electronic format may be made available on the web sites
maintained by one or more of the underwriters participating in this offering.
The underwriters may agree to allocate a number of shares to underwriters for
sale to their online brokerage account holders.

     We have agreed to indemnify the underwriters against certain civil
liabilities, including liabilities under the Securities Exchange Act of 1934,
and to contribute to payments the underwriters may be required to make in
respect of these liabilities.

     The underwriters have advised us that, under Regulation M promulgated under
the Securities Exchange Act of 1934, certain persons participating in the
offering may engage in transactions, including stabilizing bids, syndicate
covering transactions or the imposition of penalty bids, which may have the
effect of stabilizing or maintaining the market price of our common stock at a
level above that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of the common stock on behalf of
the underwriters for the purpose of pegging, fixing or maintaining the price of
the common stock. A "syndicate covering transaction" is a bid for or the
purchase of the common stock on behalf of the underwriters to reduce a short
position created as part of the offering process. The underwriters may also
cover all or a portion of such short position by exercising the overallotment
option. A "penalty bid" is an arrangement permitting the underwriters to reclaim
the selling concession otherwise accruing to an underwriter or syndicate member
as part of the offering if the common stock that such underwriter or syndicate
member originally sold is purchased by the underwriters in a syndicate covering
transaction and has therefore not been effectively placed by such underwriter or
syndicate member. The underwriters have advised us such transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.


     We estimate that the total expenses of this offering, excluding
underwriting discounts and commissions, will be approximately $2.8 million.


                                       72
<PAGE>   76

                                 LEGAL MATTERS

     Paul, Hastings, Janofsky & Walker LLP, Costa Mesa, California, will pass
upon the validity of the shares of common stock offered by this prospectus for
us. Latham & Watkins, Los Angeles, California will pass upon certain legal
matters relating to this offering for the underwriters.

                                    EXPERTS

     The consolidated financial statements of FutureLink Corp. as of December
31, 1998 and 1999 and for each of the two years in the period ended December 31,
1999, appearing in this prospectus and registration statement have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere in this prospectus, and are included in reliance upon such
report given on the authority of such firm as experts in accounting and
auditing.

     The financial statements of Vertical Software, Inc. as of December 31,
1997, 1998 and 1999 and for each of the three years in the period ended December
31, 1998, appearing in this prospectus and registration statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon appearing elsewhere in this prospectus, and are included in reliance
upon such report given on the authority of such firm as experts in accounting
and auditing.

     The financial statements of Madison Consulting Resources, Inc. and MicroLAN
Systems, Inc. "DBA" Madison Technology Group as of December 31, 1998 and 1999
and for each of the two years in the period ended December 31, 1999 and Madison
Consulting Resources NJ, Inc. as of December 31, 1998, its initial year of
operations, appearing in this prospectus have been audited by Joel E. Sammet &
Co., independent auditors, as set forth in their reports with respect to such
audits appearing elsewhere in this prospectus, and are included in reliance upon
such reports given on the authority of such firm as experts in accounting and
auditing.

     The financial statements of Executive LAN Management, Inc., dba Micro
Visions, as of December 31, 1997 and 1998 and for each of the two years in the
period ended December 31, 1998 and at September 30, 1999 and for the nine months
ended September 30, 1999, appearing in this prospectus and registration
statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere in this prospectus, and are
included in reliance upon such report given on the authority of such firm as
experts in accounting and auditing.

     The audited financial statements of CN Networks, Inc. included in this
registration statement as at December 31, 1997 and 1998 and for the years then
ended have been audited by Moreland & Davis, C.P.A.s, independent auditors, as
indicated in their report with respect to such audit, and are included in this
prospectus in reliance upon the authority of said firm as experts in accounting
and auditing.

     The audited combined financial statements of Async Technologies, Inc. and
Async Technical Institute, Inc. included in this registration statement as at
December 31, 1997 and 1998 and for the years then ended have been audited by M.
Jevahirian & Co., independent auditors, as indicated in their report with
respect to such audit, and are included in this prospectus in reliance upon the
authority of said firm as experts in accounting and auditing.

     The financial statements of KNS Holdings Limited as of February 28, 1998
and 1999 and for each of the two years in the period ended February 28, 1999,
appearing in this prospectus have been audited by Ernst & Young, independent
auditors and registered auditor, as set forth in their report thereon appearing
elsewhere in this prospectus, and are included in reliance upon such report
given on the authority of such firm as experts in accounting and auditing.

                                       73
<PAGE>   77

                      WHERE YOU CAN FIND MORE INFORMATION

     We have filed with the Securities and Exchange Commission a registration
statement on Form SB-2, of which this prospectus is a part, under the Securities
Act with respect to the shares of common stock offered by this prospectus. This
prospectus does not contain all of the information included in the registration
statement. Statements contained in this prospectus concerning the provisions of
any document are not necessarily complete. You should refer to the copy of these
documents filed as an exhibit to the registration statement or otherwise filed
by us with the Securities and Exchange Commission for a more complete
understanding of the matter involved. Each statement concerning these documents
is qualified in its entirety by such reference.

     We must comply with the informational requirements of the Securities
Exchange Act of 1934. In accordance with the Exchange Act, we file reports,
proxy statements and other information with the Securities and Exchange
Commission. The registration statement, including the attached exhibits and
schedules, may be inspected and copied at the public reference facilities
maintained by the Securities and Exchange Commission, Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional
offices of the SEC located at Seven World Trade Center, New York, New York
10048, and 500 West Madison Street, Chicago, Illinois 60661. Please call the
Securities and Exchange Commission at 1-800-SEC-0330 for further information
about the public reference rooms. The Securities and Exchange Commission
maintains a website that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Securities and Exchange Commission. Copies of the registration statement and the
reports, proxy and information statements and other information that we file
with the Securities and Exchange Commission may be obtained from the Securities
and Exchange Commission's Internet address at http://www.sec.gov.

     You may request a copy of these documents, at no cost, by writing or
telephoning us at the following address:

                                FutureLink Corp.
                              6 Morgan, Suite 100
                           Irvine, California, 92618
                                 (949) 837-8252

                                       74
<PAGE>   78

                         INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                              PAGE
                                                              -----
<S>                                                           <C>
FINANCIAL STATEMENTS OF FUTURELINK CORP.
  December 31, 1998 and 1999................................    F-3
     Report of Independent Auditors.........................    F-4
     Consolidated Balance Sheets............................    F-5
     Consolidated Statements of Operations..................    F-6
     Consolidated Statements of Stockholders' Equity........    F-7
     Consolidated Statements of Cash Flows..................    F-8
     Notes to Consolidated Financial Statements.............    F-9
  March 31, 1999 and 2000...................................   F-29
     Condensed Consolidated Balance Sheets..................   F-30
     Unaudited Condensed Consolidated Statements of
      Operations............................................   F-31
     Unaudited Condensed Consolidated Statements of Cash
      Flows.................................................   F-32
     Notes to Unaudited Condensed Consolidated Financial
      Statements............................................   F-33

  VERTICAL SOFTWARE, INC. ..................................   F-39
  December 31, 1997, 1998 and 1999
     Report of Independent Auditors.........................   F-40
     Balance Sheets.........................................   F-41
     Statements of Operations...............................   F-42
     Statements of Stockholders' Equity.....................   F-43
     Statements of Cash Flows...............................   F-44
     Notes to Financial Statements..........................   F-45

  MICROLAN SYSTEMS, INC. DBA MADISON TECHNOLOGY GROUP.......   F-50
  December 31, 1998 and 1999
     Independent Auditor's Report...........................   F-51
     Balance Sheets.........................................   F-52
     Statement of Operations................................   F-53
     Statement of Stockholders' Equity......................   F-54
     Statement of Cash Flows................................   F-55
     Notes to Financial Statements..........................   F-56

  MADISON CONSULTING RESOURCES, INC. .......................   F-61
  December 31, 1998 and 1999
     Independent Auditor's Report...........................   F-62
     Balance Sheets.........................................   F-63
     Statements of Income...................................   F-64
     Statement of Shareholders' Equity......................   F-65
     Statement of Cash Flows................................   F-66
     Notes to Financial Statements..........................   F-67

  MADISON CONSULTING RESOURCES NJ, INC. ....................   F-70
  December 31, 1998 and 1999
     Independent Auditor's Report...........................   F-71
     Balance Sheets.........................................   F-72
     Statements of Income...................................   F-73
     Statement of Shareholders' Equity......................   F-74
     Statement of Cash Flows................................   F-75
     Notes to Financial Statements..........................   F-76
</TABLE>

                                       F-1
<PAGE>   79


<TABLE>
<CAPTION>
                                                              PAGE
                                                              -----
<S>                                                           <C>
  EXECUTIVE LAN MANAGEMENT, INC. DBA MICRO VISIONS..........   F-78
  December 31, 1997 and 1998, and September 30, 1998 and
     1999
     Report of Independent Auditors.........................   F-79
     Balance Sheets.........................................   F-80
     Statements of Operations...............................   F-81
     Statements of Shareholders' Equity.....................   F-82
     Statements of Cash Flows...............................   F-83
     Notes to Financial Statements..........................   F-84
  CN NETWORKS, INC. ........................................   F-90
  December 31, 1997 and 1998
     Report of Independent Auditors.........................   F-91
     Balance Sheets.........................................   F-92
     Statements of Income...................................   F-93
     Statements of Cash Flows...............................   F-94
     Notes to Financial Statements..........................   F-95
  September 30, 1998 and 1999
     Report of Independent Auditors.........................   F-99
     Balance Sheets.........................................  F-100
     Statements of Income and Retained Earnings.............  F-101
     Statements of Cash Flows...............................  F-102
     Notes to Financial Statements..........................  F-103
  ASYNC TECHNOLOGIES, INC. AND ASYNC TECHNICAL INSTITUTE,
     INC. ..................................................  F-107
  December 31, 1997 and 1998
     Independent Auditors' Report...........................  F-108
     Combined Balance Sheets................................  F-109
     Combined Statements of Operations and Retained
      Deficit...............................................  F-110
     Combined Statements of Cash Flows......................  F-111
     Notes to Combined Financial Statements.................  F-112
  September 30, 1998 and 1999
     Report of Independent Public Accountants...............  F-116
     Combined Balance Sheets................................  F-117
     Combined Statements of Operations and Retained
      (Deficit) Earnings....................................  F-118
     Combined Statements of Cash Flows......................  F-119
     Notes to the Combined Financial Statements.............  F-120
  KNS HOLDINGS LIMITED......................................  F-124
  February 28, 1998 and 1999, and November 30, 1999
     Report of the Independent Auditors.....................  F-126
     Consolidated Profit and Loss Account...................  F-127
     Consolidated Balance Sheets............................  F-128
     Consolidated Statement of Movements in Shareholders'
      Funds.................................................  F-129
     Consolidated Cash Flow Statements......................  F-130
     Reconciliation of Net Cash Flow to Movement in Net
      Debt..................................................  F-131
     Notes to the Accounts..................................  F-132
</TABLE>


                                       F-2
<PAGE>   80

                                FUTURELINK CORP.
                       CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1998 AND 1999

                                       F-3
<PAGE>   81

                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
FutureLink Corp.

     We have audited the accompanying consolidated balance sheets of FutureLink
Corp. as of December 31, 1998 and 1999, and the related consolidated statements
of operations, stockholders' equity, and cash flows for each of the two years in
the period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 consolidated financial position of FutureLink
Corp. at December 31, 1998 and 1999, and the consolidated results of its
operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States.

                                          /s/ ERNST & YOUNG LLP

Orange County, California
March 14, 2000,
except for Notes 13 and 16, as to which the date is
April 29, 2000

                                       F-4
<PAGE>   82

                                FUTURELINK CORP

                          CONSOLIDATED BALANCE SHEETS
                   (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              -------------------
                                                               1998        1999
                                                              -------    --------
<S>                                                           <C>        <C>
ASSETS
Current assets:
Cash and cash equivalents...................................  $     7    $ 19,185
Restricted cash.............................................       --       3,099
Accounts receivable, less allowance for doubtful accounts of
  $115 and $1,363 in 1998 and 1999, respectively............    1,532      14,284
Inventory...................................................       22       4,964
Prepaid expenses............................................      116         536
                                                              -------    --------
          Total current assets..............................    1,677      42,068
Property and equipment, less accumulated depreciation of
  $203 and $2,276 in 1998 and 1999, respectively............    1,123      10,972
Goodwill and other intangibles, less accumulated
  amortization of $668 and $6,033 in 1998 and 1999,
  respectively..............................................    7,846     186,866
Deposits for acquisitions...................................       --         543
Other assets................................................       --         229
                                                              -------    --------
          Total assets......................................  $10,646    $240,678
                                                              =======    ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Lines of credit.............................................  $   819    $  1,657
Accounts payable and accrued liabilities....................    3,595      15,811
Settlement payable..........................................       --       5,000
Current portion of long-term debt...........................       --       8,554
Deferred revenue............................................       --       1,330
                                                              -------    --------
          Total current liabilities.........................    4,414      32,352
Long-term debt, less current portion........................       30       4,116
Convertible debentures, net.................................    2,153         874
Deferred taxes..............................................    1,212         588
                                                              -------    --------
          Total liabilities.................................    7,809      37,930
Commitments and contingencies...............................
Stockholders' equity:
  Preferred stock, no par value, 20,000,000 shares
     authorized,
     no shares issued and outstanding in 1998 and 1999......       --          --
  Common stock, $.0001 par value, 300,000,000 shares
     authorized,
     4,908,072 and 52,743,169 shares issued and outstanding
     at December 31, 1998 and 1999, respectively............        2           7
  Common stock issuable; 1,639,850 shares...................    2,600      42,636
  Additional paid-in capital................................    7,662     146,150
  Issuable warrants.........................................       --      60,000
  Deferred compensation.....................................       --      (1,393)
  Loan receivable from officer..............................       --      (1,500)
  Accumulated other comprehensive loss:
     Cumulative foreign currency translation adjustment.....      (96)        (77)
  Accumulated deficit.......................................   (7,331)    (43,075)
                                                              -------    --------
          Total stockholders' equity........................    2,837     202,748
                                                              -------    --------
          Total liabilities and stockholders' equity........  $10,646    $240,678
                                                              =======    ========
</TABLE>

See notes to consolidated financial statements.
                                       F-5
<PAGE>   83

                                FUTURELINK CORP

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                   (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                              -----------------------
                                                                1998          1999
                                                              ---------    ----------
<S>                                                           <C>          <C>
Revenue:
Hardware and software.......................................  $     966    $    6,748
Service delivery............................................      1,471         6,852
                                                              ---------    ----------
                                                                  2,437        13,600
Expenses:
Cost of hardware and software...............................        880         7,013
Cost of service delivery....................................      1,548        10,527
Selling, general and administration.........................      3,064        12,611
Goodwill and other intangibles amortization.................        668         4,981
Depreciation and amortization...............................        203         1,709
                                                              ---------    ----------
                                                                  6,363        36,841
                                                              ---------    ----------
Loss from operations........................................     (3,926)      (23,241)
Interest expense............................................      1,333        12,095
Interest income.............................................         --          (437)
Equity in loss of investee..................................        826            --
                                                              ---------    ----------
Loss before income taxes and extraordinary item.............     (6,085)      (34,899)
Provision (benefit) for income taxes........................       (205)           --
                                                              ---------    ----------
Loss before extraordinary item..............................     (5,880)      (34,899)
Extraordinary item..........................................         --          (845)
                                                              ---------    ----------
Net loss....................................................  $  (5,880)   $  (35,744)
                                                              =========    ==========
Loss per share -- basic and diluted
  Loss before extraordinary item............................  $   (1.86)   $    (2.44)
  Extraordinary item........................................         --         (0.06)
                                                              ---------    ----------
Net loss....................................................  $   (1.86)   $    (2.50)
                                                              =========    ==========
Weighted average shares.....................................  3,169,413    14,279,647
                                                              =========    ==========
</TABLE>

See notes to consolidated financial statements.

                                       F-6
<PAGE>   84

                                FUTURELINK CORP.
                           CONSOLIDATED STATEMENTS OF
                              STOCKHOLDERS' EQUITY
                   (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
                                                                                                            LOAN       ACCUMULATED
                                    COMMON STOCK        COMMON    ADDITIONAL                             RECEIVABLE       OTHER
                                 -------------------    STOCK      PAID-IN     ISSUABLE     DEFERRED        FROM      COMPREHENSIVE
                                   SHARES     AMOUNT   ISSUABLE    CAPITAL     WARRANTS   COMPENSATION    OFFICER         LOSS
                                 ----------   ------   --------   ----------   --------   ------------   ----------   -------------
<S>                              <C>          <C>      <C>        <C>          <C>        <C>            <C>          <C>
BALANCE AT JANUARY 1, 1998.....   2,040,700     $1     $    --     $  1,425    $    --      $    --       $    --         $  --
 Issuance of common stock on
   acquisitions................   1,158,000     --       2,550           15         --           --            --            --
 Forgiveness of stockholder
   debt........................          --     --          --           70         --           --            --            --
 Issuance of common stock......     751,163     --          --        2,963         --           --            --            --
 Warrants issued with issuance
   of convertible debt.........          --     --          --          563         --           --            --            --
 Common stock issued, net......     133,752     --          --          763         --           --            --            --
 Common stock to be issued upon
   conversion of loan..........          --     --         733           --         --           --            --            --
 Issuance of common stock......     824,457      1        (683)       1,907         --           --            --            --
 Financing fees associated with
   converted debentures........          --     --          --          (44)        --           --            --            --
 Foreign currency translation
   adjustment..................          --     --          --           --         --           --            --           (96)
 Net loss for the year.........          --     --          --           --         --           --            --            --
                                 ----------     --     -------     --------    -------      -------       -------         -----
BALANCE AT DECEMBER 31, 1998...   4,908,072      2       2,600        7,662         --           --            --           (96)
 Exchange of exchange shares...         424     --      (2,550)       2,550         --           --            --            --
 Shares issued or issuable for
   acquisitions................  13,542,490      1      42,636      109,568         --           --            --            --
 Shares issued for cash........   9,203,499      1          --       48,317         --           --            --            --
 Shares issued upon conversion
   of debt.....................  15,859,796      2          --       22,496         --           --            --            --
 Shares issued for services....      95,431     --         (50)         525         --           --            --            --
 Exercise of warrants..........   8,648,256      1          --          300         --           --            --            --
 Equity components of
   convertible debentures and
   warrants....................          --     --          --        7,290         --           --            --            --
 Value of warrants issued with
   convertible debentures......          --     --          --        5,649         --           --            --            --
 Value of options and warrants
   issued for services.........          --     --          --          923         --           --            --            --
 Shares issued under loan
   agreement to officer........     232,829     --          --        2,000         --           --        (1,500)           --
 Shares issued upon exercise of
   employee stock options......     252,372     --          --        1,103         --           --            --            --
 Cost of warrants to be issued
   on settlement...............          --     --          --      (65,000)    60,000           --            --            --
 Deferred compensation.........          --     --          --        2,767         --       (2,767)           --            --
 Amortization of deferred
   compensation................          --     --          --           --         --        1,374            --            --
 Foreign currency translation
   adjustment..................          --     --          --           --         --           --            --            19
 Net loss for the year.........          --     --          --           --         --           --            --            --
                                 ----------     --     -------     --------    -------      -------       -------         -----
BALANCE AT DECEMBER 31, 1999...  52,743,169     $7     $42,636     $146,150    $60,000      $(1,393)      $(1,500)        $ (77)
                                 ==========     ==     =======     ========    =======      =======       =======         =====

<CAPTION>

                                                   TOTAL
                                 ACCUMULATED   STOCKHOLDERS'   COMPREHENSIVE
                                   DEFICIT        EQUITY           LOSS
                                 -----------   -------------   -------------
<S>                              <C>           <C>             <C>
BALANCE AT JANUARY 1, 1998.....   $ (1,451)      $    (25)       $     --
 Issuance of common stock on
   acquisitions................         --          2,565              --
 Forgiveness of stockholder
   debt........................         --             70              --
 Issuance of common stock......         --          2,963              --
 Warrants issued with issuance
   of convertible debt.........         --            563              --
 Common stock issued, net......         --            763              --
 Common stock to be issued upon
   conversion of loan..........         --            733              --
 Issuance of common stock......         --          1,225              --
 Financing fees associated with
   converted debentures........         --            (44)             --
 Foreign currency translation
   adjustment..................         --            (96)            (96)
 Net loss for the year.........     (5,880)        (5,880)         (5,880)
                                  --------       --------        --------
BALANCE AT DECEMBER 31, 1998...     (7,331)         2,837          (5,976)
                                                                 ========
 Exchange of exchange shares...         --             --              --
 Shares issued or issuable for
   acquisitions................         --        152,205              --
 Shares issued for cash........         --         48,318              --
 Shares issued upon conversion
   of debt.....................         --         22,498              --
 Shares issued for services....         --            475              --
 Exercise of warrants..........         --            301              --
 Equity components of
   convertible debentures and
   warrants....................         --          7,290              --
 Value of warrants issued with
   convertible debentures......         --          5,649              --
 Value of options and warrants
   issued for services.........         --            923              --
 Shares issued under loan
   agreement to officer........         --            500              --
 Shares issued upon exercise of
   employee stock options......         --          1,103              --
 Cost of warrants to be issued
   on settlement...............         --         (5,000)             --
 Deferred compensation.........         --             --              --
 Amortization of deferred
   compensation................         --          1,374              --
 Foreign currency translation
   adjustment..................         --             19              19
 Net loss for the year.........    (35,744)       (35,744)        (35,744)
                                  --------       --------        --------
BALANCE AT DECEMBER 31, 1999...   $(43,075)      $202,748        $(35,725)
                                  ========       ========        ========
</TABLE>

See notes to consolidated financial statements.

                                       F-7
<PAGE>   85

                                FUTURELINK CORP.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                              -----------------------
                                                               1998            1999
                                                              -------        --------
<S>                                                           <C>            <C>
OPERATING ACTIVITIES
Net loss....................................................  $(5,880)       $(35,744)
Adjustments to reconcile net loss to net cash used in
  operating activities:
Depreciation and amortization...............................      871           6,690
Deferred income taxes.......................................     (205)             --
Amortization of deferred compensation.......................       --           1,374
Warrants issued with convertible debt.......................       --           5,649
Common stock, warrants and options issued for services......    2,125           1,898
Non-cash interest expense...................................    1,294           7,290
Loss on sale of assets......................................       48              --
Change in operating assets and liabilities,
  net of effect from business acquisitions:
  Accounts receivable.......................................   (1,406)            574
  Inventory.................................................      (22)         (2,393)
  Prepaid expenses..........................................     (116)           (247)
  Other assets..............................................       --            (229)
  Accounts payable and accrued expenses.....................    2,302          (2,556)
  Deferred revenue..........................................       --           1,330
                                                              -------        --------
  Net cash used in operating activities.....................     (989)        (16,364)
                                                              -------        --------
INVESTING ACTIVITIES
Purchases of property and equipment.........................     (819)         (3,244)
Disposition of assets.......................................       33              --
Business acquisitions, net of cash balances acquired........   (2,019)        (28,413)
Deposits for acquisitions...................................     (110)           (543)
Cash advances to investees..................................     (990)             --
Restricted cash.............................................       --          (3,099)
Other.......................................................      (69)             --
                                                              -------        --------
  Net cash used in investing activities.....................   (3,974)        (35,299)
                                                              -------        --------
FINANCING ACTIVITIES
Net cash advanced (paid) under lines of credit..............      819            (119)
Proceeds from issuance of common shares, net................      681          48,318
Proceeds from exercise of employee stock options............       --           1,103
Proceeds from exercise of warrants..........................       --             301
Repayment of capital lease obligations......................      (67)             --
Issuance of common shares upon debt conversion, net of
  costs.....................................................    2,447          22,498
Repayment of convertible debentures and promissory notes....       --          (1,279)
Other financing fees........................................       89              --
Advances from stockholders..................................    1,097              --
                                                              -------        --------
  Net cash provided by financing activities.................    5,066          70,822
                                                              -------        --------
Effect of currency rate changes.............................      (96)             19
                                                              -------        --------
Increase in cash............................................        7          19,178
Cash at beginning of period.................................       --               7
                                                              -------        --------
CASH AT END OF PERIOD.......................................  $     7        $ 19,185
                                                              =======        ========
NON CASH INVESTING AND FINANCING ACTIVITIES
Business acquisitions:
  Assets acquired...........................................  $ 8,999        $189,756
  Liabilities assumed.......................................    2,934           2,453
  Notes payable issued......................................      436           6,685
  Common stock and options issued...........................    3,610         152,205
                                                              -------        --------
    Cash paid for acquisitions..............................  $ 2,019        $ 28,413
                                                              =======        ========
SmallCaps settlement payable................................  $    --        $  5,000
Capital lease obligations...................................       --           5,763
Loan to officer for common stock............................       --           2,000
SUPPLEMENTAL INFORMATION, CASH PAID FOR:
Interest....................................................  $    38        $  1,007
Income taxes................................................       37              --
</TABLE>

See notes to consolidated financial statements.

                                       F-8
<PAGE>   86

                                FUTURELINK CORP.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               DECEMBER 31, 1999

1. BASIS OF PRESENTATION

THE COMPANY

     FutureLink Corp. (the "Company") is a Delaware corporation headquartered in
Irvine, California. The Company provides server-based computing services, and is
an application services provider, or ASP. The Company's services enable software
applications to be deployed, managed, supported and upgraded from centrally
located servers, rather than on individual desktop computers. For server-based
computing customers, the Company installs and integrates software applications
on customers' servers. For our ASP customers, the Company hosts software
applications on servers at data centers, and rents computing services to
customers for a monthly fee. ASP customers connect to facilities over the
Internet, through a dedicated telecommunications line or by wireless connection.
ASP services were introduced in March 1999.

     The Company has experienced net losses over the past two years and had an
accumulated deficit of approximately $43.1 million at December 31, 1999. Such
losses are attributable to both cash losses resulting from costs incurred in the
development of the Company's services and infrastructure, interest expense and
non cash amortization charges. The Company expects operating losses to continue
for the foreseeable future as it continues to develop and promote its services.

BASIS OF PRESENTATION

     The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

REVENUE RECOGNITION

     The Company generates revenue from ASP services, information technology
services, outsourcing contract services, and from the resale of computer
hardware and software. Service revenue is recognized when the service is
delivered, or over the term of the applicable contracts. Payments received in
advance, even if non-refundable, are recorded as deferred revenue. ASP
implementation fees are generally paid in advance, and are deferred and
recognized ratably over the term of the ASP service contract, generally two to
five years. Revenue from the resale of computer hardware and software is
recorded upon shipment, or upon installation when required under contract terms.

FAIR VALUE OF FINANCIAL INSTRUMENTS

     Financial instruments consisting principally of cash, accounts receivable,
payables, accrued liabilities, and short-term and long-term obligations, and
their carrying values in the accompanying consolidated balance sheets
approximate their fair value. It is management's opinion that the Company is not
exposed to significant currency or credit risks arising from these financial
instruments.

                                       F-9
<PAGE>   87
                                FUTURELINK CORP.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

CONCENTRATION OF CREDIT RISK AND KEY SUPPLIER

     The Company sells the majority of its services and products throughout
North America. Sales to the Company's recurring customers are generally made on
an open account while sales to occasional customers may be made on a prepaid
basis. The Company performs periodic credit evaluations of its ongoing customers
and generally does not require collateral. Reserves are maintained for potential
credit losses.

     Citrix Systems, Inc. ("Citrix") is one of the Company's key suppliers. The
Company uses Citrix software almost exclusively to connect its customers to
software applications.

CASH AND CASH EQUIVALENTS

     Cash and cash equivalents consist of money market accounts and other
short-term investments with a maturity of three months or less when purchased.

INVENTORY

     Inventory, consisting of computer hardware and software held for resale, is
recorded at the lower of cost (first in, first out) or market.

SOFTWARE LICENSES

     The Company capitalizes the costs associated with the purchase of licenses
for major business process application software used in providing ASP services.
The licenses specify the maximum number of users permitted to utilize the
license in connection with the Company's service. All amounts are
non-refundable, regardless of the actual number of users assigned a license in
connection with ASP services. The licenses are amortized over the life of the
contract.

PROPERTY AND EQUIPMENT

     Property and equipment is carried at cost. Depreciation and amortization
are provided using the straight-line method over the assets' estimated useful
lives ranging from two to five years. Assets recorded under capital leases are
depreciated over the shorter of their estimated useful lives or the related
lease terms using the straight-line method. This depreciation is included in
depreciation and amortization in the accompanying consolidated financial
statements.

LONG-LIVED ASSETS

     The Company follows Financial Accounting Standards Board Statement ("FAS")
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.

     Long-lived assets and certain identifiable intangibles held and used by the
Company are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. The
recoverability test is performed at the individual entity level based on
undiscounted cash flows. Based upon its analysis, the Company believes that no
impairment of the carrying value of its long-lived assets, inclusive of
goodwill, existed at December 31, 1999. The Company's analysis was based on an
estimate of future undiscounted cash flows using forecasts contained in the
Company's strategic plan. It is at least reasonably possible that the Company's
estimate of future undiscounted cash

                                      F-10
<PAGE>   88
                                FUTURELINK CORP.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

flows may change during 2000. If the Company's estimate of future undiscounted
cash flows should change or if the strategic plan is not achieved, future
analyses may indicate insufficient future undiscounted cash flows to recover the
carrying value of the Company's long-lived assets, in which case such assets
would be written down to estimated fair value.

GOODWILL

     Goodwill is recorded at cost and is being amortized using the straight-line
method over five years. The recoverability of goodwill is assessed periodically
based on management estimates of undiscounted future operating cash flows from
each of the acquired businesses to which the goodwill relates.

ASSEMBLED WORKFORCE

     Assembled workforce represents the valuation placed on the knowledge,
expertise, and contacts of employees and consultants upon acquisition, and is
being amortized using the straight-line method over three years.

FOREIGN CURRENCY TRANSLATION

     The assets and liabilities of the Company's foreign operations are
generally translated into U.S. dollars at current exchange rates. Revenue and
expenses are translated at average exchange rates in effect for the year. The
resulting cumulative translation adjustments have been recorded as a separate
component of consolidated stockholders' equity. Foreign currency transaction
gains and losses, if any, are included in the consolidated net loss.

INCOME TAXES

     The Company utilizes the liability method of accounting for income taxes as
set forth in FAS No. 109, "Accounting for Income Taxes." 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 of
assets and liabilities using enacted tax rates.

STOCK-BASED COMPENSATION

     The Company accounts for stock-based awards to employees in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations and has adopted the disclosure-only
alternative of FAS No. 123, "Accounting for Stock-Based Compensation." Options
granted to consultants, independent representatives and other non-employees are
accounted for using the fair value method as prescribed by FAS No. 123.

STOCK SPLIT

     On June 1, 1999, the Company completed a 5 for 1 reverse stock split of its
common stock. Accordingly, all share and per share amounts have been
retroactively restated in the consolidated financial statements to reflect this
split.

                                      F-11
<PAGE>   89
                                FUTURELINK CORP.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

LOSS PER SHARE

     Basic loss per share is calculated by dividing the net loss by the average
number of common shares outstanding during the year. Diluted loss per share is
calculated by adjusting outstanding shares, assuming any dilutive effects of
options, warrants, and convertible securities. For all years presented, the
effect of stock options, warrants, and convertible securities were not included
as the results would be anti-dilutive. Consequently, there is no difference
between the basic and dilutive net loss per share.

SEGMENTS OF A BUSINESS ENTERPRISE

     FAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," 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. FAS No. 131 also establishes
standards for related disclosures about products and services, geographic areas,
and major customers. The Company operates in one segment, information technology
solutions.

COMPREHENSIVE INCOME

     FAS No. 130, "Reporting Comprehensive Income," establishes standards for
reporting and displaying comprehensive income and its components in the
consolidated financial statements. Comprehensive loss includes cumulative
translation adjustments for the years ended December 31, 1998 and 1999. These
adjustments are accumulated within the accompanying Consolidated Statements of
Stockholders' Equity under the caption "Comprehensive Loss."

RECLASSIFICATIONS

     Certain amounts in the 1998 consolidated financial statements have been
reclassified to conform to the current year presentation.

RECENT ACCOUNTING PRONOUNCEMENTS

     In June 1998, FAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued, which establishes new standards for recording
derivatives in interim and annual financial statements. This statement requires
recording all derivative instruments as assets or liabilities, measured at fair
value. Statement No. 133, as amended, is effective for all fiscal quarters of
all fiscal years beginning after June 15, 2000. Management does not anticipate
the adoption of the new statement will have a significant impact on the
consolidated results of operations or financial position of the Company.

3. ACQUISITIONS

     The Company completed the following acquisitions during the years ended
December 31, 1998 and 1999.

EXECUTIVE LAN MANAGEMENT, INC.

     On October 15, 1999, the Company finalized an Agreement and Plan of
Reorganization and Merger with Executive LAN Management Inc. ("Micro Visions").
The agreement provided for a merger of Micro Visions with a subsidiary of the
Company such that all of Micro Visions' outstanding stock was sold to the
Company in exchange for total consideration of $86.0 million, consisting of
$12.0 million cash, 6,000,000 common shares issued upon closing, and a further
2,400,000 common shares earned during 1999 as

                                      F-12
<PAGE>   90
                                FUTURELINK CORP.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

contingent consideration valued in the aggregate at $71.2 million and options to
acquire 475,000 shares of common stock valued at $2.8 million. Of the contingent
shares, 1,200,000 were earned as of December 31, 1999 but had not been issued.
The value of the contingent shares, determined based on the share price of $31.2
million when earned, is included in stockholder's equity as common stock
issuable. The acquisition was accounted for by the purchase method of
accounting, and the excess purchase price of $85.9 million over the estimated
fair value of net assets acquired was allocated to goodwill and is being
amortized over five years.

CN NETWORKS, INC.

     On November 5, 1999, the Company finalized an Agreement and Plan of
Reorganization and Merger with CN Networks, Inc. ("CNI"). The agreement provides
for a merger of CNI with a subsidiary of the Company such that all of CNI's
outstanding stock was sold to the Company in exchange for total consideration of
$19.9 million consisting of $3.9 million cash and 1,181,816 common shares of the
Company's common stock valued at $9.1 million, and options to acquire 500,000
shares of common stock valued at $6.9 million. The acquisition was accounted for
by the purchase method of accounting, and the excess purchase price of $20.4
million over the estimated fair value of net assets acquired was allocated to
goodwill and is being amortized over five years.

ASYNC TECHNOLOGIES, INC.

     On November 26, 1999, FutureLink finalized an Agreement and Plan of
Reorganization and Merger with Async Technologies, Inc. and Async Technical
Institute, Inc. The Agreement provides for an initial merger between Async
Technologies, Inc. and Async Technical Institute, Inc., with Async Technologies,
Inc. ("Async") being the surviving entity, and then a subsequent merger of Async
with a subsidiary of the Company such that Async's outstanding stock was sold to
the Company in exchange for total consideration of $35.0 million consisting of
$6.0 million cash, 1,298,705 common shares issued upon closing, and a further
439,850 common shares earned during 1999 as contingent consideration valued in
the aggregate at $21.4 million, and options to acquire 500,000 shares of common
stock valued at $7.6 million. The contingent shares were earned as of December
31, 1999 but had not yet been issued. The value of the contingent shares of
$11.4 million, determined based on the share price when earned, has been
included in stockholders' equity as common stock issuable. The acquisition was
accounted for by the purchase method of accounting, and the excess purchase
price of $36.2 million over the estimated fair value of net assets acquired was
allocated to goodwill and is being amortized over five years.

KNS HOLDINGS LIMITED


     On December 22, 1999, the Company finalized an Agreement for the Sale and
Purchase of the entire issued share capital of United Kingdom based KNS Holdings
Limited ("KNS"). The Agreement provided for a merger of KNS with a subsidiary of
the Company such that all of KNS' outstanding stock was sold to the Company. The
total purchase price was $44.0 million consisting of $5.0 million cash,
2,160,307 shares of the Company's common stock valued at $32.3 million and notes
payable in the amount of $2.7 million and $4.0 million due April 2000 and June
2000, respectively. The acquisition was accounted for by the purchase method of
accounting, and the excess purchase price of $42.7 million over the estimated
fair value of net assets acquired was allocated to goodwill and is being
amortized over five years.


                                      F-13
<PAGE>   91
                                FUTURELINK CORP.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FUTURELINK ALBERTA

     On January 20, 1998 the Company issued 308,000 common shares in exchange
for 1,540,000 common shares (46%) of FutureLink Alberta. The total value
ascribed to the investment was $15,400. Effective November 23, 1998, the Company
issued 334,755 common shares in exchange for an additional 1,673,775 common
shares (50.4%) of FutureLink Alberta. The total value ascribed to the investment
was $987,527.

     On February 26, 1999, FutureLink Alberta became a wholly owned subsidiary
when the Company purchased the remaining 117,500 shares (3.6%) of FutureLink
Alberta in exchange for 23,500 common shares of the Company. FutureLink Alberta
was consolidated from November 24, 1998. From January 20, 1998 to November 23,
1998 the Company's share in FutureLink Alberta's loss, accounted for using the
equity method, was $860,000.

     The following pro forma results of operations give effect to the
acquisition of the above companies as if the transactions had occurred January
1, 1998 (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                         YEAR ENDED DECEMBER 31,
                                                         ------------------------
                                                            1998          1999
                                                         ----------    ----------
<S>                                                      <C>           <C>
Revenue................................................   $ 46,112      $ 64,778
Net loss...............................................   $(42,058)     $(68,681)
Loss per share.........................................   $ (13.27)     $  (4.81)
</TABLE>

4. DEPOSITS ON ACQUISITIONS

     On December 2, 1999, the Company entered into an Agreement and Plan of
Reorganization and Merger with Vertical Software, Inc. ("VSI"). The agreement
provides for a merger of VSI with a subsidiary of the Company such that all of
VSI's outstanding stock will be sold to the Company in exchange for
consideration of $27.6 million consisting of $8.1 million cash and 1,026,316
common shares of the Company's common stock valued at $19.5 million. The
transaction closed on January 31, 2000 (see Note 16). At December 31, 1999, the
Company paid $543,000 relating to deposits and acquisition costs on the proposed
acquisition of VSI.

5. PROPERTY AND EQUIPMENT

     Property and equipment are comprised of the following at December 31, 1998
and 1999 (in thousands):

<TABLE>
<CAPTION>
                                                             1998      1999
                                                            ------    -------
<S>                                                         <C>       <C>
Computers and equipment...................................  $  606    $ 3,932
Software licenses.........................................     185        678
Office and other equipment................................     181      1,136
Equipment under capital lease.............................     136      6,937
Leasehold improvements....................................     218        565
                                                            ------    -------
                                                             1,326     13,248
Less accumulated depreciation and amortization............    (203)    (2,276)
                                                            ------    -------
                                                            $1,123    $10,972
                                                            ======    =======
</TABLE>

     Included in accumulated depreciation at December 31, 1998 and 1999 is
$19,000 and $735,000 respectively, related to equipment under capital leases.
                                      F-14
<PAGE>   92
                                FUTURELINK CORP.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. GOODWILL AND OTHER INTANGIBLES

     Goodwill and other intangible assets are comprised of the following at
December 31, 1998 and 1999 (in thousands):

<TABLE>
<CAPTION>
                                                            1998       1999
                                                           ------    --------
<S>                                                        <C>       <C>
Goodwill.................................................  $5,314    $189,699
Assembled workforce......................................   3,200       3,200
                                                           ------    --------
                                                            8,514     192,899
Less accumulated amortization............................    (668)     (6,033)
                                                           ------    --------
                                                           $7,846    $186,866
                                                           ======    ========
</TABLE>

7. LINE OF CREDIT AGREEMENTS

     The Company and its subsidiaries have various lines of credit allowing
aggregate borrowings of $5.4 million. The lines bear interest at various rates
ranging from prime (8.5% at December 31, 1999) plus 1% to prime plus 3% per
annum, and mature at various intervals through November 30, 2000. The lines are
secured by certificates of deposits aggregating $3.1 million (reflected as
restricted cash on the accompanying consolidated balance sheet at December 31,
1999) and receivables and other assets of certain subsidiaries of the Company.
Aggregate borrowings under the line of credit agreements at December 31, 1998
and 1999 were $819,000 and $1.7 million, respectively. At December 31, 1999, the
aggregate unused amount under the agreements was approximately $3.7 million.

8. LONG-TERM DEBT

     Long-term debt consists of the following at December 31, 1998 and 1999 (in
thousands):

<TABLE>
<CAPTION>
                                                              1998     1999
                                                              ----    -------
<S>                                                           <C>     <C>
Capital lease obligations, net of original issue discount of
  $727......................................................  $30     $ 5,985
Note payable to former KNS stockholders.....................   --       6,685
                                                              ---     -------
                                                               30      12,670
Less current portion of long-term debt......................   --       8,554
                                                              ---     -------
Long-term debt..............................................  $30     $ 4,116
                                                              ===     =======
</TABLE>

     Capital lease obligations are for the lease of up to $22.5 million of
computer hardware and related infrastructure costs. Aggregate monthly payments
are currently $195,000 and are based upon thirty-six to forty-one month
amortization periods, including interest implicit in the lease at rates ranging
from 9% to 14% per annum. As of December 31, 1999, the Company had available
borrowings of $19.4 million under the various lease lines. In addition to the
lease payments, the Company issued to the lessors warrants valued at $727,000 to
acquire 42,553 shares of common stock at $8.50 per share. The value of the
warrants has been reflected as a discount of the related debt, and is being
amortized to interest expense over the life of the debt.

     Notes payable to KNS consist of notes of $2.7 million and $4.0 million and
are due April 6, 2000 and June 30, 2000, respectively. The notes are unsecured
and bear interest at LIBOR plus 1% per annum which is payable at maturity.

                                      F-15
<PAGE>   93
                                FUTURELINK CORP.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     Principal maturities of long-term debt outstanding, including original
issue discount of $727,000, at December 31, 1999 occur as follows (in
thousands):

<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,                                         AMOUNT
------------                                         -------
<S>                                                  <C>
   2000............................................  $ 8,706
   2001............................................    2,147
   2002............................................    2,177
   2003............................................      367
                                                     -------
   Total...........................................  $13,397
                                                     =======
</TABLE>

9. CONVERTIBLE DEBENTURES

     Convertible debentures consist of the following at December 31, 1998 and
1999 (in thousands);

<TABLE>
<CAPTION>
                                                               1998     1999
                                                              ------    ----
<S>                                                           <C>       <C>
10% TK convertible debentures...............................  $2,153    $ --
8% Senior subordinated convertible promissory notes.........      --     629
10% Convertible debentures..................................      --     245
                                                              ------    ----
                                                              $2,153    $874
                                                              ======    ====
</TABLE>

10% TK CONVERTIBLE DEBENTURES

     During 1998, the Company entered into a 10% convertible debenture agreement
with Thomson Kernaghan & Co. Ltd. ("TK") as agent, to provide up to $5.0 million
of financing. The financing included the issuance of 208,333 share purchase
warrants at an exercise price of $4.80 per share. During 1998, the Company
received an aggregate $2.7 million under the financing arrangement, and $500,000
of this debt plus accrued interest was converted into 374,955 common shares.

     During 1999, the Company amended the terms of the 10% TK convertible
debentures which increased the total available financing from $5.0 million to
$6.0 million, of which the Company received an additional $3.3 million in 1999
bringing aggregate borrowings under the agreement to $5.5 million. An additional
129,534 warrants at an exercise price of $4.80 per share were issued in
connection with the increase in available funding. The fair value of these
warrants of $129,500 was recorded as additional paid-in capital with an
offsetting entry to original issue discount on debt.

     Of the total principal amount of the debentures, approximately $1.7 million
has been attributed to the intrinsic value of the beneficial conversion option.
Of this amount, $911,990 related to debentures received during the year ended
December 31, 1999. The amount attributed to the beneficial conversion option has
been included in interest expense as the option was exercisable upon issuance.

     On April 26, 1999, the Company amended the terms of the 10% TK convertible
debenture agreement. Previously, the debenture holders had the right to convert
the debentures at a price equal to the lower of $3.75 per share and 78% of the
average closing bid price of the Company's common stock for the three trading
days immediately preceding the conversion. Following the amendment, the
debenture conversion price was fixed at $1.00 per common share. In addition, the
previously issued warrants were re-priced such that the exercise price of $4.80
became $1.25 per common share. An amount of $1.2 million has been included in
additional paid-in capital as the estimated value attributed to the warrants as
they were

                                      F-16
<PAGE>   94
                                FUTURELINK CORP.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

exercisable upon issuance. The Company also issued an additional warrant to
purchase 862,132 shares of common stock at an exercise price of $1.25 per share
such that a total of 1,200,000 warrants were outstanding related to this
convertible debenture agreement. An amount of $1.0 million attributable to the
intrinsic value of the conversion feature of the amended debt was included as
interest expense with a corresponding credit to additional paid-in capital as
the conversion option was exercisable upon issuance.

     During 1999, $4.0 million of the convertible debentures were converted into
4,018,602 shares of common stock. In addition, the Company paid approximately
$1.9 million as consideration for the cancellation of $1.5 million of the
principal balance. The extinguishment of this debt resulted in an $844,552
extraordinary item during the year ended December 31, 1999. This amount includes
charges of $259,318 for unamortized finance fees, $174,000 for unamortized debt
discount associated with the $3.5 million of debt existing at the time, and
$411,000 relating to the cost of settling $1.5 million of debt.

     During the year ended December 31, 1999, 1,291,921 shares of common stock
were issued on the exercise of all the outstanding warrants issued to TK. In
connection with the exercise of the warrants, the Company issued an additional
125,000 shares to the note holders for agreeing to a lock up provision.

8% SENIOR SUBORDINATED CONVERTIBLE PROMISSORY NOTES

     During 1999, the Company completed an $8.0 million financing of 8% senior
subordinated convertible promissory notes, of which management and directors of
the Company purchased $433,000. The notes were convertible at the option of the
note holders at a conversion price of $1.00 per share, except those issued to
management and directors, that were convertible at $1.50 per share, subject to a
12-month lock up provision. Issue costs of $780,000 were paid relating to the
issuance of the debentures and were recorded as original issue discount on debt.
$7.4 million of the notes were converted during the year ended December 31, 1999
into 8,579,019 shares of common stock. The remaining balance of the notes due at
December 31, 1999 of $620,000 plus accrued interest is due April 30, 2000. An
amount of $4.9 million was attributed to the intrinsic value of the beneficial
conversion option and has been included in additional paid-in capital with an
offsetting entry to interest expense.

     Upon entering into the agreement, the Company issued warrants to purchase
3,802,750 shares of common stock at $1.25 per share to the external holders of
the debentures and warrants to purchase 216,500 shares of common stock at $1.50
per share to directors and management of the Company. An amount of $2.4 million
based on the Black Scholes pricing model has been included in additional paid-in
capital as the estimated value of the warrants. During the year ended December
31, 1999, the board of directors offered the warrant holders an option to
exchange 100 warrants for 95 shares on a cashless basis. As such, 3,696,500 of
these warrants were exercised on a cashless basis and exchanged for 3,517,933
shares of common stock.

     In addition, warrants to purchase 2,000,000 shares at an exercise price of
$1.25 per share were provided to the agent as a placement fee. An amount of $1.8
million based on the Black Scholes pricing model has been attributed to the
value of the warrants and has been recorded to additional paid-in capital. The
placement fee is attributable to the equity portion of the debt and, therefore,
this issue cost has also been recorded as a charge against additional paid-in
capital. On May 1, 1999, the Company entered into an agreement to retain the
holder of the majority of the notes as a financial advisor for a period of one
year. Compensation for the services received under the agreement include payment
of $5,000 per month and issuance of warrants to purchase 2,000,001 shares of
common stock at par value. A value of $1.2 million, based on the Black Scholes
pricing model, has been assigned as the estimated value of the warrants, which
is being amortized to consulting expense at the rate of $100,000 per month over
the one-year contract term. During the year ended December 31, 1999, the board
of directors offered the warrant

                                      F-17
<PAGE>   95
                                FUTURELINK CORP.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

holders an option to exchange 100 warrants for 95 shares on a cashless basis. As
such, 4,000,001 warrants were exercised on a cashless basis and exchanged for
3,799,974 shares of common stock.

     The initial terms of the notes contained certain anti-dilution provisions.
The subsequent issuance of securities at terms and conditions preferential to
that of the promissory notes resulted in an additional 289,599 shares issued to
those noteholders. An amount of $246,000 was attributed to these additional
shares and has been included in contributed capital with an offsetting entry to
interest expense. These anti-dilution privileges also resulted in the remaining
$620,000 of unconverted notes at December 31, 1999 having a conversion price of
$0.89 for noteholders and $1.34 for management.

10% CONVERTIBLE DEBENTURE

     During 1999, the Company issued a $275,000 promissory note that was
subsequently converted into a 10% debenture that can be converted into shares of
the Company's common stock at $1.15 per share. The note matures on April 20,
2002, and the Company may prepay upon 30 days advance notice. Accrued interest
of $18,000 at December 31, 1999 is due at maturity. In the accompanying
consolidated financial statements as of December 31, 1999, the balance due on
the convertible debt and the accrued interest is reflected net of $50,000
unamortized debt discount and finder's fee, which is being amortized to interest
expense over the life of the debenture.

     An amount of $79,821 was attributed to the intrinsic value of the
beneficial conversion option and has been reflected as interest expense during
the year and included in additional paid-in capital. Upon entering the
agreement, the Company issued warrants to purchase 44,505 shares of common stock
of the Company at $1.25 per share to the holder of the debenture. The warrants
expire April 30, 2001. An amount of $41,800 has been included in additional
paid-in capital as the estimated value of the warrants and debt discount.

10. STOCKHOLDERS' EQUITY

     On October 15, 1999, the Company amended its authorized preferred shares
from 5,000,000 to 20,000,000 and its authorized common shares from 100,000,000
to 300,000,000.

ISSUANCE OF COMMON STOCK AND WARRANTS FOR CASH

     During 1999, the Company completed a private placement which resulted in
net proceeds to the Company of $46.1 million through the issuance of 9,090,909
common shares and warrants to purchase 2,401,041 shares of common stock. The
warrants are exercisable for up to five years at an exercise price of $8.50 per
share. A finance fee of $3.0 million was paid to the placement agent. The
Company also issued 909,091 warrants to purchase shares of common stock to the
placement agent. The warrants are exercisable for up to five years at an
exercise price of $8.50 per share. Subsequent to year end, the warrant holders
exercised all the outstanding warrants (see Note 16).

     During 1998, the Company issued 51,163 common shares and 51,163 warrants
for $847,000 cash. Of the warrants, 16,667 are exercisable at $15.50 on or
before January 29, 2000 (which have subsequently expired); 21,163 are
exercisable at $20.00 on or before April 20, 2000; and 13,333 are exercisable at
$16.25 on or before April 22, 2000. At December 31, 1999, none of the warrants
have been exercised.

                                      F-18
<PAGE>   96
                                FUTURELINK CORP.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

ISSUANCE OF COMMON STOCK UPON CONVERSION OF CONVERTIBLE DEBT

     During 1999, the Company issued $301,241 aggregate principal amount of its
10% convertible debentures, due on June 30, 1999 in exchange for stockholders'
advances of $289,000 including interest existing at December 31, 1998. Upon
entering into the convertible debenture agreement, the Company issued warrants
to purchase 150,621 shares of common stock to the holders of the debentures.
Each warrant gives the holder the right to purchase one common share of the
Company for $2.00 per share on or before February 22, 2000, for $3.00 per share
between February 23, 2000 and February 22, 2001 and $4.00 per share between
February 23, 2001 and February 22, 2002. An amount of $20,000 has been included
in additional paid-in capital as the estimated value attributed to the 150,621
warrants. During 1999, the Company repaid $253,000 of the principal amount and
$55,000 of principal and interest was converted into 27,431 common shares such
that the full principal and interest relating to the note has been settled.

     During 1999, the Company issued $500,000 aggregate principal amount of its
8% convertible debentures, due February 28, 2002, convertible at $1.51 per
share. An amount of $125,000 was attributed to the intrinsic value of the
conversion option and was included in additional paid-in capital. Upon entering
into the 8% convertible debenture agreement, the Company issued warrants to
purchase 26,553 of common stock of the Company to the holder of the 8%
convertible debentures at $1.88 per share. The warrants expire on February 28,
2001. An amount of $36,000 was reflected as original issue discount and included
in additional paid-in capital as the estimated value of the warrants. On August
21, 1999, $500,000 of principal and $37,000 of accrued interest and other fees
were converted into 355,836 common shares.

     During 1999, the Company issued 8% senior subordinated convertible
promissory notes and warrants for gross proceeds of $15.0 million. In addition,
warrants to purchase 2,250,000 shares of common stock were issued to note
holders at an exercise price of $8.50 per common share. The notes were initially
due on the earlier of (i) July 19, 2001; (ii) the consummation of a public
offering of the Company's securities; (iii) the completion of a private
placement resulting in gross proceeds of at least $15.0 million; and (iv) the
consummation of a merger, combination or the sale of substantially all of the
Company's assets, or the purchase by a single entity or person of more than 50%
of the Company's voting stock. The notes were initially convertible into common
stock at an exercise price of $8.50 per common share. However, if prior to
maturity, the Company completed a private placement of debt or equity securities
resulting in gross proceeds of at least $15.0 million, and the terms of this
subsequent placement are acceptable to the agent and the noteholders, the notes
will automatically convert as payment for an investment into the securities sold
in the subsequent conversion, and were to be converted at the same price and
terms as that private placement. Concurrent with the private placement described
above, the notes were converted into 2,727,172 common shares. Additional
warrants to purchase 711,818 shares of common stock were also issued. The
warrants are exercisable for up to five years at an exercise price of $8.50 per
common share. As part of the transaction, the Company paid $1.4 million cash and
issued 225,000 warrants to the placement agent as a finance fee. These warrants
are exercisable at $8.50 per share and expire July 27, 2001. Additional issue
costs of $42,592 were incurred. The warrants to purchase 2,475,000 shares of
common stock initially issued under this offering were recorded as a component
of equity since it was known that the notes would convert into the securities of
a subsequent offering. Accordingly, no amount has been recorded to additional
paid-in capital.

     During 1999, the Company issued $8.0 million of 8% Senior Convertible
Promissory notes, of which $7.4 million of notes were converted into 8,579,019
shares of common stock. In addition, 7,696,501 warrants related to these notes
were exercised during 1999.

     During 1998, a stockholder advanced the Company $729,802. Interest incurred
on the loan to July 2, 1998 in the amount of $2,849 was added to the principal
amount owing. $350,000 of the loan was assigned

                                      F-19
<PAGE>   97
                                FUTURELINK CORP.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

to another stockholder on July 2, 1998. On the same date, both portions of the
loan were converted into 225,448 common shares with an ascribed value of
$732,651, and an equal number of warrants. Each warrant entitles the holders to
purchase one common share at $5.00 on or before June 30, 1999 and $6.25 on or
before June 30, 2000. At December 31, 1999, none of the warrants have been
exercised.

LOAN RECEIVABLE FROM OFFICER

     On August 1, 1999, the Company loaned $2.0 million to an executive with
recourse which was then used by the executive to purchase 232,829 common shares
of the Company. The loan receivable has been recorded as a reduction of
stockholders' equity (deficit). The shares have been escrowed. On October 1,
1999, 29,129 shares were released from escrow. An additional 29,100 shares will
be released from escrow on a quarterly basis commencing January 1, 2000. So long
as the executive remains employed by the Company, $250,000 of the principal
amount of the loan shall be forgiven on a quarterly basis. The loan bears
interest at 5.625% per year. Interest is payable annually; however, should the
executive be employed at the end of each annual period, the interest will be
forgiven at such time. During the year ended December 31, 1999, the Company
recognized $500,000 as salary expense relating to the services received from the
employee in relation to the loan agreement.

ISSUANCE OF COMMON STOCK FOR SERVICES

     On July 27, 1998, the Company issued 700,000 shares of common stock to
employees, officers and directors of the Company for $3,500. The fair value of
these shares at that time was approximately $2.1 million. The difference between
the fair value and the cash consideration received has been included as
additional paid-in capital and as salary expense for the year ended December 31,
1998.

     During 1998, the Company entered into an agreement for consulting services
which provided for the settlement of fees with shares of the Company's common
stock. The number of shares issued was based on 95% of the average closing price
of the Company's stock during the trading days for the month in question as
quoted on the NASD Over the Counter Bulletin Board. At December 31, 1998,
$50,000 was owing for consulting services in relation to this agreement,
equating to 23,051 shares. During 1999, the 23,051 shares were issued along with
an additional 41,652 shares relating to services performed in 1999.

STOCK OPTION PLAN

     The Company's Stock Option Plan (the "Plan") became effective on June 29,
1998, and was amended on November 30, 1998, September 23, 1999, November 17,
1999 and December 10, 1999. The Plan provides for the issuance of incentive and
non-qualified stock options. The aggregate number of shares which may be issued
pursuant to options under the Plan may not exceed twenty percent of our shares
of common stock issued and outstanding on a fully diluted basis. The maximum
number of shares which may be issued pursuant to options was fixed at 11,000,000
by the Company's board of directors.

     The Plan is administered by the Company's board of directors. Generally,
the board may amend or terminate the Plan if it does not cause any adverse
effect on any then outstanding options or unexercised portions thereof. The
board of directors must obtain the consent of the stockholders to increase the
number of shares covered by the Plan, to change the class of persons eligible to
receive options, or to extend the term of the Plan beyond 10 years. The board of
directors sets the consideration for each option award. All options must
generally have an exercise price equal to at least 85% of the fair market value
of the underlying common stock on the date of the grant. Incentive stock options
must have an exercise price equal to at least 100% of the fair market value of
the underlying common stock on the date of the grant, and options granted to a
person who owns more than 10% of the voting power of our outstanding stock and

                                      F-20
<PAGE>   98
                                FUTURELINK CORP.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

any outstanding stock of our subsidiaries must have an exercise price equal to
at least 110% of the fair market value of the underlying common stock on the
date of the grant.

     Activity under the Plan is as follows:

<TABLE>
<CAPTION>
                                                                                  OPTIONS OUTSTANDING
                                                                             ------------------------------
                                                                 NUMBER                         WEIGHTED
                                                                   OF         PRICE PER         AVERAGE
                                                                 SHARES         SHARE        EXERCISE PRICE
                                                                ---------    ------------    --------------
<S>                                                             <C>          <C>             <C>
Balance at January 1, 1998..................................           --              --           --
Options granted.............................................      872,500    $2.25-$ 5.85        $4.05
Options canceled............................................      (40,000)   $3.80-$ 5.85        $4.31
                                                                ---------    ------------        -----
Balance at December 31, 1998................................      832,500    $2.25-$ 5.85        $4.05
Options granted.............................................    6,559,000    $1.40-$23.13        $7.90
Options expired.............................................     (117,900)   $1.40-$ 8.50        $3.90
Options exercised...........................................     (252,600)   $1.40-$ 5.85        $4.39
                                                                ---------    ------------        -----
Balance at December 31, 1999................................    7,021,000    $1.40-$23.13        $8.01
                                                                =========    ============        =====
</TABLE>

     The weighted average remaining contractual life and weighted average
exercise price of options outstanding and of options exercisable as of December
31, 1999 were as follows:

<TABLE>
<CAPTION>
                                                     WEIGHTED          OPTIONS
                                   WEIGHTED          AVERAGE        EXERCISABLE AT      WEIGHTED
RANGE OF            OPTIONS        AVERAGE          REMAINING        DECEMBER 31,       AVERAGE
EXERCISE PRICES   OUTSTANDING   EXERCISE PRICE   CONTRACTUAL LIFE        1999        EXERCISE PRICE
---------------   -----------   --------------   ----------------   --------------   --------------
<S>               <C>           <C>              <C>                <C>              <C>
 $ 1.40-$ 3.80     2,893,500        $ 3.10             2.81           1,054,166          $3.38
 $ 5.00-$ 8.97     2,857,500        $ 6.76             4.11             672,500          $6.28
 $       14.69       500,000        $14.69             4.84                  --             --
 $22.69-$23.13       770,000        $23.01             4.94                  --             --
</TABLE>

     The price at which options were granted during 1998 and 1999 were generally
based upon the market value of the Company's common stock at the time of the
grants. At December 31, 1999, there were options to purchase 11,000,000 shares
of common stock available to grant.

     The weighted average fair value of options granted during 1998 and 1999 was
$2.49 and $8.02 per share, respectively. Pursuant to FAS No. 123, the Company
has elected to continue using the intrinsic value method of accounting for
stock-based awards granted to employees and directors in accordance with APB
Opinion No. 25 and related Interpretations in accounting for its stock option
and purchase plans.

     The Company recorded approximately $1.6 million of net deferred
compensation in the year ended December 31, 1999, for the difference between the
exercise price of certain of the Company's stock options granted under the Plan
and the fair market value of the underlying common stock. Such amount has been
presented as a reduction of stockholders' equity and is being amortized ratably
over the vesting period of the applicable options. The Company amortized an
aggregate of $524,000 of deferred compensation during 1999.

                                      F-21
<PAGE>   99
                                FUTURELINK CORP.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Accordingly, no compensation cost has been recognized for its stock option plans
and its stock purchase plan other than that described above. For pro forma
purposes, the estimated value of the Company's stock options to employees is
amortized over the vesting period of the underlying instruments. The results of
applying FAS No. 123 to the Company's options to employees would approximate the
following:

<TABLE>
<CAPTION>
                                                        1998          1999
                                                     ----------    -----------
<S>                                                  <C>           <C>
Net loss
  As reported......................................  $   (5,880)   $   (35,744)
  Pro forma........................................  $   (7,197)   $   (89,041)
Basic and fully diluted loss per share:
  As reported......................................  $    (1.86)   $     (2.50)
  Pro forma........................................  $    (2.27)   $     (6.23)
Basic and diluted weighted average common shares...   3,169,413     14,279,647
</TABLE>

     The pro forma effect on net loss for 1998 and 1999 is not likely to be
representative of the effects on reported net loss for future years.

     The fair value of options granted under the Company's stock option plan
during 1998 and 1999 was estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions:

<TABLE>
<CAPTION>
                                                           1998          1999
                                                        ----------    ----------
<S>                                                     <C>           <C>
Weighted average risk-free interest rates.............        5.03%         5.03%
Expected years from vest date to exercise date........  2.1 to 3.5    2.1 to 3.5
Expected stock volatility.............................       135.5%        135.5%
Dividend yield........................................        None          None
</TABLE>

WARRANTS

     The Company has issued warrants to purchase the Company's common stock to
certain individuals or organizations at December 31, 1999 as follows:

     Warrants to acquire 225,448 shares of common stock. Each warrant entitles
the holders to purchase one common share at $6.25 by June 30, 2000.

     Warrants to acquire 51,163 shares of common stock. 16,667 of the warrants
entitles the holders to purchase one common share at $15.50 by January 29, 2000
(which have subsequently expired); 21,163 of the warrants entitles the holders
to purchase one common share at $20.00 per share by April 20, 2000, and; 13,333
of the warrants entitle the holders to purchase one common share at $16.25 per
share by April 22, 2000.

     Warrants to acquire 2,401,041 shares of common stock. Each warrant
initially entitled the holders to purchase one common share at $8.50 by June 30,
2000. However, to induce holders to exercise such warrants, subsequent to
December 31, 1999, the Company offered to pay each holder $0.95 per underlying
share of common stock to compensate such holders for committing their capital to
an early exercise of their warrants per share for aggregate net proceeds to the
Company of $18,008,000 (see Note 16).

     Warrants to acquire 2,475,000 shares of common stock. Each warrant entitles
the holders to purchase one common share at $8.50 by July 27, 2001.

                                      F-22
<PAGE>   100
                                FUTURELINK CORP.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     Warrants to acquire 310,250 shares of common stock, of which 27,750 are
owned by members of management. Each warrant entitles the holders to purchase
one common share at $1.11 or $1.34 by April 6, 2000, by management.

     Warrants to acquire 1,620,909 shares of common stock. Each warrant entitles
the holders to purchase one common share at $8.50 by October 15, 2001.

     Warrants to acquire 150,621 shares of common stock. Each warrant entitles
the holders to purchase one common share at $2.00 by February 23, 2013.

     Warrants to acquire 261,124 shares of common stock. Each warrant entitles
the holders to purchase one common share at prices ranging from $1.25 to $8.50
through 2004.

COMMON STOCK ISSUABLE

     At December 31, 1999, the following shares of common stock are issuable
for:

<TABLE>
<S>                                                           <C>
Warrants....................................................   7,495,556
Common stock options........................................   7,021,000
Convertible debentures......................................     918,283
Acquisitions................................................   4,074,426
                                                              ----------
                                                              19,509,265
                                                              ==========
</TABLE>

11. INCOME TAXES

     The income tax benefit differs from the amount computed by applying the
U.S. federal statutory rate to the loss before income taxes as follows (in
thousands):

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                              -----------------------
                                                                1998          1999
                                                              ---------    ----------
<S>                                                           <C>          <C>
Tax benefit at U.S. statutory rate (34%)....................   $(2,069)     $(11,866)
Increase (decrease) in taxes resulting from:
  Valuation allowance.......................................     1,690         3,240
  State taxes...............................................      (121)           --
  Non deductible expenses...................................       541         5,717
  Foreign tax rate differences and foreign losses without
     benefit................................................      (258)        2,909
  Other.....................................................        12            --
                                                               -------      --------
Provision (benefit) for income taxes........................   $  (205)     $     --
                                                               =======      ========
</TABLE>

                                      F-23
<PAGE>   101
                                FUTURELINK CORP.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of the assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the deferred taxes are as follows at December 31, 1998 and 1999
(in thousands):

<TABLE>
<CAPTION>
                                                               1998       1999
                                                              -------    -------
<S>                                                           <C>        <C>
Deferred tax liability:
  Assembled workforce.......................................  $(1,212)   $  (808)
  Depreciation..............................................       --       (467)
  Cash to accrual adjustment................................       --       (392)
                                                              -------    -------
     Total deferred tax liability...........................   (1,212)    (1,667)
                                                              -------    -------
Deferred tax asset:
  Net operating loss carryforwards..........................    1,905      7,084
  Bad debt reserve..........................................       --        475
  Inventory reserve.........................................       --        100
  Deferred compensation.....................................       --        224
  Other.....................................................      368        293
                                                              -------    -------
Deferred tax assets.........................................    2,273      8,176
Valuation allowance.........................................   (2,273)    (7,097)
                                                              -------    -------
                                                                   --      1,079
                                                              -------    -------
Net deferred tax liability..................................  $(1,212)   $  (588)
                                                              =======    =======
</TABLE>

     The Company has recorded a valuation allowance for the full amount of
deferred tax assets in light of its history of operating losses since its
inception. When recognized, $288,000 of the valuation allowance will reduce
goodwill. The remaining balance may be available to offset future tax expense.
The net change in the valuation allowance for deferred tax assets was an
increase of approximately $4.8 million resulting primarily from an increase in
net operating losses.

     The Company has U.S. net operating losses carryforward of $8.7 million
which begins to expire in 2012. Certain Company ownership changes can
significantly limit the utilization of net operating loss carryforwards in the
period following the ownership change. The Company has not determined whether
such changes have occurred and the effect such changes could have on its ability
to carry forward all or some of the U.S. net operating losses.

     The Company has non-capital losses carried forward for Canadian income tax
purposes of $10.6 million. These losses expire beginning in 2001.

12. RELATED PARTY TRANSACTIONS

     On August 1, 1999, the Company loaned $2.0 million to an officer of the
Company that was used to purchase 232,829 shares of common stock (see Note 10).

     During the year ended December 31, 1999, management of the Company
participated in the 8% senior subordinated convertible promissory note offering
by purchasing notes totaling $433,000 (see Note 9).

                                      F-24
<PAGE>   102
                                FUTURELINK CORP.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     During the year ended December 31, 1999, the Company provided services and
products of $78,000 to Jaws Technologies Inc., an entity of which a Director was
also a Director of the Company. An amount of $57,000 is owing from Jaws
Technologies Inc. at December 31, 1999. In addition, the Company obtained
services from Jaws Technologies Inc. in the amount of $12,000. At December 31,
1999, $2,000 remains owing by the Company.

     During the year ended December 31, 1998, the Company provided services and
products of $40,000 to Jaws Technologies Inc. An amount of $37,000 was owing
from Jaws Technologies Inc. at December 31, 1998.

     During the year ended December 31, 1999, the Company provided services and
products of $550,000 to Willson Stationers Ltd. and e-Supplies Inc., related
entities of which a previous Director was also a Director of these companies. At
December 31, 1999, $543,000 remained due from these entities. An allowance for
doubtful accounts has been recorded for the entire amount due to the uncertainty
of collection.

     During the year ended December 31, 1998, the Company provided services and
products of $64,000 to Willson Stationers Ltd. At December 31, 1998, an amount
of $59,000 was owing from Willson Stationers Ltd. In addition, the Company
obtained $21,000 of products from Willson Stationers Ltd. during the period. At
December 31, 1999, $25,000 remains due to this entity.

     During 1998, two of the Company's stockholders advanced the Company
$289,000. In addition, one of the Company's stockholders advanced the Company an
additional $17,000 which was outstanding at December 31, 1998. These amounts
were repaid during 1999.

13. COMMITMENTS AND CONTINGENCIES

COMMITMENTS

     The Company has various leases for office premises which expire on various
dates through 2004. The future minimum lease payments at December 31, 1999 under
operating leases are as follows (in thousands):

<TABLE>
<S>                                                             <C>
2000........................................................    $1,515
2001........................................................     1,081
2002........................................................       399
2003........................................................       165
2004........................................................        71
                                                                ------
Total future minimum lease payments.........................    $3,231
                                                                ======
</TABLE>

     Rent expense was $118,000 and $937,000 for the years ended December 31,
1998 and 1999, respectively.

CONTINGENCIES

     From time to time the Company is a defendant or plaintiff in litigation
arising in the ordinary course of business. To date, other than litigation
SmallCaps OnLine Group LLC brought and the subsequent settlement of that action,
no litigation has had a material effect on the Company and, the Company is not a
party to any material litigation except as described below.

     In the past, persons formerly associated with the Company, which may
include one or more of our former executive officers or directors, may have
engaged in activities as part of an effort to profit from unlawful trading
activity in our stock. As a result, the Company may be subject to civil or
criminal actions, fines or penalties. If any proceedings are commenced against
the Company, the Company will need to spend significant money and management
time in the Company's defense. If a court determined

                                      F-25
<PAGE>   103
                                FUTURELINK CORP.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

that the Company participated in these activities, the Company could be liable
for damages or penalties that would have a material adverse effect on the
Company's financial condition and results of operation.

     SmallCaps OnLine Group LLC, previously known as Bridge Technology Group
LLC, sued the Company on January 12, 2000 in the New York County Supreme Court
to recover fees the Company allegedly owed for advisory and investor relations
services. SmallCaps' complaint requested compensation for fees totaling $5.1
million, as well as warrants to purchase an aggregate of 3,289,689 shares of
common stock at exercise prices ranging from $1.00 to $8.50 per share. The total
value of the damages SmallCaps claimed was $110.0 million. On February 11, 2000,
the Company settled SmallCaps' complaint by agreeing to pay SmallCaps $5.0
million on or before March 14, 2000, and to issue to SmallCaps warrants to
purchase an aggregate of 3,000,000 shares of our common stock at exercise prices
ranging from $8.50 to $22.50 per share, subject to anti-dilution protection.
Since the issuance of these warrants, their exercise prices have been adjusted
and now range from $8.33 to $22.05 per share. The Company issued the warrants to
SmallCaps on March 1, 2000 and paid SmallCaps the $5.0 million on March 14,
2000. The total value of the settlement on February 11, 2000 was $65.0 million
which has been recorded in the accompanying consolidated balance sheets as a
charge to paid-in capital.

     On November 6, 1998, the Company's former Chief Executive Officer and a
director, Mr. Cameron Chell, entered into a Settlement Agreement with The
Alberta Stock Exchange to resolve a pending investigation into Mr. Chell's
alleged breaches of Alberta Stock Exchange rules and by-laws. As part of the
Settlement Agreement, Mr. Chell acknowledged that he had breached certain duties
of supervision, disclosure, or compliance relating to various offers and sales
of securities, and Mr. Chell was prohibited from receiving Alberta Stock
Exchange approval in any capacity for a five year period, subjected to a
CDN$25,000 fine and a three year period of enhanced supervision. The Company
cannot be certain that the Settlement Agreement with the Alberta Stock Exchange
ends all proceedings with regard to these matters.

     On January 20, 2000, the Company commenced a proceeding in Canada against
Mr. Chell, various other former employees of and consultants to the Company and
various other defendants alleging that these defendants misappropriated a
corporate opportunity in breach of fiduciary and contractual obligations. Most
of these defendants made counterclaims seeking, among other things, damages for
interference with their economic interests and for severance compensation in the
form of cash and stock options. The Company entered into a settlement agreement
with the defendants effective April 26, 2000 that has the following key terms:

     - Mr. Chell will be entitled to exercise options to acquire 175,000 shares
       of common stock that were scheduled to vest June 1, 2000,

     - Mr. Chell or his nominee shall pay to us $400,000 in settlement of a
       related party debt that involved Mr. Chell, and

     - All other claims have been dropped by all parties, who have provided
       mutual releases, with the claim and counterclaims to be discontinued.

     On January 7, 2000, Tony Bryson, an individual who had previously been
employed by the Company, filed a lawsuit against the Company seeking $180,000
for the value of lost stock options, salary and benefits the Company allegedly
promised him, and other damages he allegedly sustained as a result of alleged
actions by the Company. This lawsuit has been filed under Canadian law. Canadian
law provides for severance pay to any employee of the Company Canadian
operations in an amount that is appropriate based on, among other things, the
nature of the position held by the employee and the length of time the employee
worked for the company, unless the employer can establish that the termination
was for just

                                      F-26
<PAGE>   104
                                FUTURELINK CORP.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

cause. The exact amount of severance pay is often disputed between employers and
employees in Canada. Accordingly, there is a risk that in addition to this
lawsuit, one or more other former employees will make claims for cash severance
pay as well as options.

     On January 26, 2000, Michael Chan filed a suit in the Court of Queen's
Bench of Alberta, Judicial District of Calgary alleging that FutureLink Alberta
breached its contract to deliver him options to purchase 250,000 shares of
FutureLink Alberta at $1.00 per share. Mr. Chan seeks 50,000 shares of common
stock or, alternatively, damages of approximately $1.5 million in cash, general
damages of approximately $200,000 and punitive damages of approximately
$200,000. We have filed a statement of defense in this action refuting Mr.
Chan's claims.

     Under certain California State regulatory requirements, the Company was to
offer a rescission of certain options granted to California employees. The
Company applied for and has received an order from the State of California
approving the proposed terms of the rescission offer. The rescission offer was
made with respect to 1,240,500 options at an exercise price of $8.50, and 40,000
shares issued in relation to other options exercised to date which offer will
remain open subsequent to December 31, 1999. In light of market prices for the
Company's common stock recently being significantly in excess of the exercise
price, the Company received rescission notices from only three option holders in
January 2000 for a total of 29,000 options. The Company paid $31,800 plus
interest to these option holders in exchange for cancellation of their options
under the rescission offer.

     A claim has been filed against the Company in the amount of approximately
$340,000 plus costs for damages from alleged Company misrepresentations and
interference with contractual relations regarding a sale transaction between two
third parties involving shares of the Company's common stock. The Company has
entered into an indemnity agreement with a former principal of the Company
whereby the former principal defends this action on behalf of the Company, bears
the costs of legal counsel and agrees to indemnify the Company for any losses.
Management believes the claim is without merit.

     A claim has been filed against the Company's subsidiary, FutureLink Alberta
in the amount of $194,000 plus costs for damages and loss of rent related to a
purported lease agreement with respect to a building in Calgary, Alberta,
Canada. The Company is counter claiming an amount of approximately $266,000
against the claimant. The plaintiff has now leased the premises in question to a
third party, thereby mitigating its alleged losses. However, it is impossible at
this time for the Company to predict with any certainty the outcome of such
litigation. Management believes the claim is without merit and will defend the
Company's position vigorously.

     A claim was filed against the Company's subsidiary, SysGold (now merged
into FutureLink Alberta) by TAP Consulting Ltd. in the amount of approximately
$102,000 for damages and loss of compensation relating to services provided to
the Company. Management believes the claim is without merit. An indemnity
agreement has been obtained from the previous stockholders of SysGold.

     The Company is currently aware of other former employees and consultants
who may make claims against the Company that represent, in the aggregate, $1.5
million in damages which includes approximately 95,000 stock options and
monetary damages. At this time, management is unable to determine an amount, if
any, it may ultimately be required to pay to settle these issues.

     The Company's pending lawsuits involve complex questions of fact and law
and could require the expenditure of significant costs and diversion of
resources to defend. Although management believes the outcome of the Company's
outstanding legal proceedings, claims and litigation will not have a material
adverse effect on the Company's business, results of operations or financial
position, the results of litigation are inherently uncertain. The Company is
unable to make an estimate of the range of possible loss from outstanding
litigation, except as noted, and no amounts have been provided for such matters
in the consolidated financial statements.

                                      F-27
<PAGE>   105
                                FUTURELINK CORP.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14. SEGMENT INFORMATION

     The Company's activities are conducted in one operating segment with all
activities relating to the sales and support of information technology
solutions. These activities for all of 1998 and virtually all of 1999 were
carried out in two geographic segments, Canada and the United States. On
December 22, 1999, the Company acquired KNS which is located in the United
Kingdom.

<TABLE>
<CAPTION>
                                                         DECEMBER 31, 1998
                                              ----------------------------------------
                                              CANADA      U.S.      EUROPE     TOTAL
                                              ------    --------    ------    --------
<S>                                           <C>       <C>         <C>       <C>
Revenue.....................................  $2,437    $     --     $ --     $  2,437
Long-lived assets...........................  $8,966    $      3     $ --     $  8,969
</TABLE>

<TABLE>
<CAPTION>
                                                         DECEMBER 31, 1999
                                              ----------------------------------------
                                              CANADA      U.S.      EUROPE     TOTAL
                                              ------    --------    ------    --------
<S>                                           <C>       <C>         <C>       <C>
Revenue.....................................  $7,178    $  6,215     $207     $ 13,600
Long-lived assets...........................  $9,556    $187,560     $722     $197,838
</TABLE>

     Long-lived assets consist of property and equipment, goodwill, and
assembled workforce.

15. 401(k) PLAN

     The Company assumed several 401(k) plans in connection with the
acquisitions in 1999. Pursuant to these plans, employees may elect to reduce
their current compensation by up to the statutorily prescribed annual limit and
to have the amount of such reduction contributed to these plans. These plans
permit the Company, but do not require, additional matching contributions to
these plans on behalf of all participants in these plans. Through December 31,
1999, the Company has not made any contributions to these plans.

16. SUBSEQUENT EVENTS

     On January 31, 2000, the Company completed the acquisition of Vertical
Software, Inc. and on February 29, 2000 the Madison Technology Group of
Companies for an aggregate purchase price of $85.1 million consisting of cash of
$14.6 million, a promissory note of $7.3 million due July 2000; and 3,001,486
shares of common stock valued at $63.2 million. The acquisitions will be
accounted for by the purchase method, and the estimated excess purchase price
over the estimated fair value of net assets acquired of $82.9 million will be
allocated to goodwill and amortized over five years.

     On February 3, 2000, the Company entered into a definitive agreement to
acquire Charon Systems Inc. for $6.9 million in cash and 1,072,940 shares of
common stock.

     On February 11 and February 29, 2000, warrant holders exercised their
rights to acquire 2,401,041 shares of common stock at an effective price of
$7.50 per share for aggregate net proceeds to the Company of $18.0 million. The
warrants had an adjusted (for anti-dilution) exercise price of $8.40 per share
and the holders of these warrants effectively paid $7.50 per share after
adjustment for a warrant exercise fee of $0.90 for each warrant exercised.

     On April 28, 2000, the Company completed a private placement of
approximately $15 million of common equity with institutional private equity
investors. As part of this private placement, the Company issued to the
investors 1,764,704 shares of common stock and warrants to purchase 441,176
shares of common stock at $9.25 per share.

     From January 1, 2000 through April 29, 2000, certain note holders of
convertible debt converted $796,000 of debt into 865,568 shares of common stock
in accordance with the terms contained in the convertible debt agreements.

                                      F-28
<PAGE>   106

                                FUTURELINK CORP.
                  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                            MARCH 31, 1999 AND 2000

                                      F-29
<PAGE>   107

                             FINANCIAL INFORMATION

                                FUTURELINK CORP.

                     CONDENSED CONSOLIDATED BALANCE SHEETS
                       (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                              DECEMBER 31,     MARCH 31,
                                                                  1999           2000
                                                              ------------    -----------
                                                                              (UNAUDITED)
<S>                                                           <C>             <C>
ASSETS
Current assets:
  Cash and cash equivalents.................................    $ 19,185       $  3,395
  Restricted cash...........................................       3,099          2,138
  Accounts receivable, less allowance of $1,363 and $2,160
     in 1999 and 2000, respectively.........................      14,284         22,230
  Inventory.................................................       4,964          5,981
  Prepaid expenses..........................................         536          1,628
  Deferred offering costs...................................          --          1,781
                                                                --------       --------
          Total current assets..............................      42,068         37,153
Property and equipment, less accumulated depreciation of
  $2,276 and $3,606 in 1999 and 2000, respectively..........      10,972         16,467
Goodwill and other intangibles, net.........................     186,866        262,687
Deposits and acquisition costs..............................         543            688
Other assets................................................         229            374
                                                                --------       --------
          Total assets......................................    $240,678       $317,369
                                                                ========       ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Lines of credit...........................................    $  1,657       $    961
  Accounts payable and accrued liabilities..................      15,811         24,692
  Settlement payable........................................       5,000             --
  Current portion of long-term debt.........................       8,554         17,865
  Deferred revenues.........................................       1,330          1,921
                                                                --------       --------
          Total current liabilities.........................      32,352         45,439
Long-term debt -- less current portion......................       4,116          7,231
Convertible debentures, net.................................         874            653
Deferred taxes..............................................         588            588
                                                                --------       --------
          Total liabilities.................................      37,930         53,911
Commitments and contingencies...............................          --             --
Stockholders' equity:
  Preferred stock, no par value, 20,000,000 million shares
     authorized, no shares issued and outstanding in 1999
     and 2000...............................................          --             --
  Common stock, $.0001 par value, 300,000,000 shares
     authorized, 52,743,169 and 59,025,364 shares issued and
     outstanding at December 31, 1999 and March 31, 2000,
     respectively...........................................           7              7
  Common stock issuable; 1,639,850 shares...................      42,636         42,636
  Additional paid-in capital................................     146,150        231,311
  Warrants..................................................      60,000         60,000
  Deferred compensation.....................................      (1,393)        (2,488)
  Loan receivable from officer..............................      (1,500)        (1,250)
  Cumulative foreign currency translation adjustment........         (77)          (563)
  Accumulated deficit.......................................     (43,075)       (66,195)
                                                                --------       --------
          Total stockholders' equity........................     202,748        263,458
                                                                --------       --------
          Total liabilities and stockholders' equity........    $240,678       $317,369
                                                                ========       ========
</TABLE>

      See notes to unaudited condensed consolidated financial statements.
                                      F-30
<PAGE>   108

                                FUTURELINK CORP.

           UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                       (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                THREE MONTHS ENDED
                                                                     MARCH 31,
                                                              -----------------------
                                                                1999          2000
                                                              ---------    ----------
<S>                                                           <C>          <C>
Revenue:
  Hardware and software.....................................  $     383    $   17,324
  Service delivery..........................................      1,361         5,320
                                                              ---------    ----------
                                                                  1,744        22,644
                                                              ---------    ----------
Expenses:
  Cost of hardware and software.............................        353        14,074
  Cost of service delivery..................................      1,108         3,666
  Selling, general and administration.......................      1,845        14,426
  Goodwill amortization.....................................        500        11,783
  Depreciation and other amortization.......................        161         1,494
                                                              ---------    ----------
                                                                  3,967        45,443
                                                              ---------    ----------
Loss from operations........................................     (2,223)      (22,799)
  Interest expense..........................................        998           429
  Interest income...........................................         --          (226)
                                                              ---------    ----------
Loss before income taxes....................................     (3,221)      (23,002)
Provision (benefit) for income taxes........................       (119)          118
                                                              ---------    ----------
Net loss....................................................  $  (3,102)   $  (23,120)
                                                              =========    ==========
Loss per share -- basic and diluted.........................  $   (0.53)   $    (0.42)
                                                              =========    ==========
Weighted average shares -- basic and diluted................  5,813,993    55,369,965
                                                              =========    ==========
</TABLE>

      See notes to unaudited condensed consolidated financial statements.
                                      F-31
<PAGE>   109

                                FUTURELINK CORP.


           UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED
                                                                   MARCH 31,
                                                              -------------------
                                                               1999        2000
                                                              -------    --------
<S>                                                           <C>        <C>
OPERATING ACTIVITIES

Net loss....................................................  $(3,102)   $(23,120)
Adjustments to reconcile net loss to net cash used in
  operating activities:
Depreciation and amortization...............................      661      13,277
Deferred income taxes.......................................     (120)         --
Amortization of deferred compensation.......................               (1,095)
Common stock, warrants and options issued for services......      125       2,309
Non-cash interest expense...................................      981          --
Change in operating assets and liabilities, net of effect of
  business acquisitions:
  Accounts receivable.......................................     (277)     (1,239)
  Inventory.................................................     (522)        185
  Prepaid expenses..........................................       18      (1,030)
  Deferred offering costs...................................       --      (1,781)
  Other assets..............................................     (104)        (22)
  Accounts payable and accrued expenses.....................     (157)      4,478
  Settlement payable........................................       --      (5,000)
  Deferred revenues.........................................       --        (161)
                                                              -------    --------
     NET CASH USED IN OPERATING ACTIVITIES..................   (2,497)    (13,199)
                                                              -------    --------
INVESTING ACTIVITIES
Purchases of property and equipment.........................     (639)       (444)
Business acquisitions, net of cash balances acquired........       --     (16,439)
Deposits on acquisitions....................................       --        (145)
Decrease in restricted cash.................................       --         961
                                                              -------    --------
     NET CASH USED IN INVESTING ACTIVITIES..................     (639)    (16,067)
                                                              -------    --------
FINANCING ACTIVITIES
Net cash advanced (paid) under lines of credit..............      127      (4,196)
Proceeds from issuance of common shares, net................       (5)         --
Proceeds from exercise of employee stock options............       --         958
Proceeds from exercise of warrants..........................       --      18,009
Proceeds from issuance of notes payable.....................      248
Repayment of capital lease obligation.......................      (14)       (809)
Issuance of convertible debentures, net of costs............    3,201          --
Repayment of convertible debentures and promissory notes....     (381)         --
                                                              -------    --------
     NET CASH PROVIDED BY FINANCING ACTIVITIES..............    3,176      13,962
                                                              -------    --------
Effect of currency rate changes.............................      (42)       (486)
                                                              -------    --------
Increase in cash............................................       (2)    (15,790)
Cash at beginning of period.................................        7      19,185
                                                              -------    --------
Cash at end of period.......................................  $     5    $  3,395
                                                              =======    ========
NON CASH INVESTING AND FINANCING ACTIVITIES
Acquisition of businesses:
  Assets acquired...........................................  $    42    $ 96,349
  Liabilities assumed.......................................       --       8,655
  Notes payable issued......................................       --       7,250
  Common stock and options issued...........................       42      63,249
                                                              -------    --------
     Cash paid for acquisitions.............................       --      17,195
Capital lease obligations...................................       14       5,985
Conversion of convertible debt to equity....................    1,561         218
SUPPLEMENTAL INFORMATION, CASH PAID FOR:
Interest....................................................  $    17    $    429
Income taxes................................................       --         118
</TABLE>

      See notes to unaudited condensed consolidated financial statements.
                                      F-32
<PAGE>   110

                                FUTURELINK CORP.

         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                   THREE MONTHS ENDED MARCH 31, 1999 AND 2000

NOTE 1. BASIS OF PRESENTATION

     The accompanying unaudited condensed consolidated financial statements
reflect the consolidated financial position and the results of operations for
FutureLink Corp. and its wholly owned subsidiaries, in accordance with generally
accepted accounting principles for interim financial information, and have been
prepared in accordance with the instructions to Form 10-QSB and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals and adjustments) considered necessary for a fair
presentation have been included. Operating results for the three-month period
ended March 31, 2000 are not necessarily indicative of the results that may be
expected for any future period. For further information, refer to the audited
consolidated financial statements and footnotes thereto of FutureLink Corp. for
the year ended December 31, 1999 included elsewhere in this Registration
Statement.

     FutureLink Corp. (the "Company") is a Delaware corporation headquartered in
Irvine, California. The Company provides server-based computing services, and is
an application services provider, or ASP. The Company's services enable software
applications to be deployed, managed, supported and upgraded from centrally
located servers, rather than on individual desktop computers. For server-based
computing customers, the Company installs and integrates software applications
on customers' servers. For our ASP customers, the Company hosts software
applications on servers at data centers, and rents computing services to
customers for a monthly fee. ASP customers connect to facilities over the
Internet, through a dedicated telecommunications line or by wireless connection.
ASP services were introduced in March 1999.

     The Company has experienced net losses over the past two years and had an
accumulated deficit of approximately $66.2 million at March 31, 2000. Such
losses are attributable to both cash losses resulting from costs incurred in the
development of the Company's services and infrastructure, interest expense and
non-cash charges. The Company expects operating losses to continue for the
foreseeable future as it continues to develop and promote its services.

NOTE 2. ACQUISITIONS

  MicroLAN Systems, Inc.

     On February 29, 2000, the Company acquired MicroLAN Systems, Inc. (doing
business as Madison Technology Group), Madison Consulting Resources, Inc. and
Madison Consulting Resources NJ, Inc. The companies were acquired for total
consideration of $57.5 million, consisting of $6.5 million cash, a note payable
in the amount of $7.3 million that is secured by the Company's shares of a new
subsidiary formed for the acquisition, and 1,975,170 shares of common stock
valued at $43.7 million. The acquisition was accounted for by the purchase
method of accounting. In connection therewith, $12.4 million of the purchase
price was allocated to assembled workforce and is being amortized over three
years, and $45.2 million of the excess purchase price over the estimated fair
value of net assets acquired was allocated to goodwill and is being amortized
over five years.

  Vertical Software, Inc.

     On January 31, 2000, the Company acquired Vertical Software, Inc. ("VSI"),
a U.S. mid-Atlantic regional provider of system integration and information
technology services. The agreement provides for a merger of VSI with a
subsidiary of the Company such that all of VSI's outstanding stock was sold to
the

                                      F-33
<PAGE>   111
                                FUTURELINK CORP.

   NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Company in exchange for consideration of $27.6 million consisting of $8.1
million cash and 1,026,316 common shares of the Company's common stock valued at
$19.5 million. The acquisition was accounted for by the purchase method of
accounting, and the excess purchase price of $26.7 million over the estimated
fair value of net assets acquired was allocated to goodwill and is being
amortized over five years.

     The following pro forma results of operations give effect to the
acquisition of the above companies, as well as the Company's 1999 acquisitions,
as if the transactions had occurred January 1, 1999 (dollars in thousands):

<TABLE>
<CAPTION>
                                                               THREE MONTHS ENDED
                                                                   MARCH 31,
                                                              --------------------
                                                                1999        2000
                                                              --------    --------
                                                                  (UNAUDITED)
<S>                                                           <C>         <C>
Revenue.....................................................  $ 20,830    $ 27,131
Net loss....................................................   (15,456)    (23,810)
Loss per share..............................................  $  (0.68)   $  (0.43)
</TABLE>

  Pending Acquisition


     On February 3, 2000, and subsequently amended May 31, 2000, the Company
entered into a definitive agreement to acquire Charon Systems Inc. for $0.7
million in cash, a note payable in the amount of $4.3 million due the earlier of
December 31, 2000, or the completion of a placement of equity securities by the
Company in excess of $50 million, and 2,199,973 shares of common stock.


3. GOODWILL AND OTHER INTANGIBLES

     Goodwill and other intangible assets are comprised of the following at
December 31, 1999 and March 31, 2000 (in thousands):

<TABLE>
<CAPTION>
                                                              DECEMBER 31,    MARCH 31,
                                                                  1999          2000
                                                              ------------    ---------
<S>                                                           <C>             <C>
Goodwill....................................................    $189,699      $265,361
Assembled workforce.........................................       3,200        15,114
                                                                --------      --------
Total.......................................................     192,899       280,475
Less accumulated amortization...............................      (6,033)      (17,788)
                                                                --------      --------
Goodwill and other intangibles..............................    $186,866      $262,687
                                                                ========      ========
</TABLE>

                                      F-34
<PAGE>   112
                                FUTURELINK CORP.

   NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. LONG-TERM DEBT

     Long-term debt consists of the following at December 31, 1999 and March 31,
2000 (in thousands):

<TABLE>
<CAPTION>
                                                              DECEMBER 31,    MARCH 31,
                                                                  1999          2000
                                                              ------------    ---------
<S>                                                           <C>             <C>
Capital lease obligations, net of original issue discount of
  $672 and $727, respectively...............................    $ 5,985       $ 11,161
Notes payable to former KNS stockholders....................      6,685          6,685
Note payable to former MicroLAN stockholders................         --          7,250
                                                                -------       --------
                                                                 12,670         25,096
Less current portion of long-term debt......................     (8,554)       (17,865)
                                                                -------       --------
Long-term debt..............................................    $ 4,116       $  7,231
                                                                =======       ========
</TABLE>

     Capital lease obligations are for the lease of up to $22.5 million of
computer hardware and related infrastructure costs. Aggregate monthly payments
are currently $425,000 and are based upon thirty-six to forty-one month
amortization periods, including interest implicit in the lease at rates ranging
from 9% to 14% per annum. As of March 31, 2000, the Company had available
borrowings of $15.2 million under the various lease lines. In addition to the
lease payments, the Company issued to the lessors warrants valued at $727,000 to
acquire 42,553 shares of common stock at $8.50 per share. The value of the
warrants has been reflected as a discount of the related debt, and is being
amortized to interest expense over the life of the debt.


     Notes payable to former KNS stockholders consist of notes of $2.7 million
and $4.0 million and are due April 2000 and June 2000, respectively. The notes
are unsecured and bear interest at LIBOR plus 1% per annum which is payable at
maturity. Subsequent to March 31, 2000, the Company paid the $2.7 million
obligation.


     Note payable to former MicroLAN stockholders consists of a note payable in
the amount of $7.25 million due July 31, 2000. The note is secured by the shares
of the Company's subsidiary that was formed in the acquisition. Interest is
payable monthly at a beginning rate of 9% per annum for April 2000, increasing
1% per month to a maximum rate of 12% per annum. If the note is not paid by July
31, 2000, the Company may be obligated to pay an additional $500,000, to extend
the note, with a default interest rate of 15% per annum on the unpaid amount.

5. STOCKHOLDERS' EQUITY

     On February 11 and February 29, 2000, warrant holders exercised their
rights to acquire 2,401,041 shares of common stock at an effective price of
$7.50 per share for aggregate net proceeds to the Company of $18.0 million. The
warrants had an adjusted (for anti-dilution) exercise price of $8.40 per share
and the holders of these warrants effectively paid $7.50 per share after
adjustment for a warrant exercise fee of $0.90 for each warrant exercised.

     On March 30, 2000 certain note holders of convertible debt converted
$200,000 of debt and accrued interest into 189,160 shares of common stock in
accordance with the terms contained in the convertible debt agreement.

     The Company recorded approximately $1.1 million in deferred compensation
for the quarter, for the difference between the exercise price of certain of the
Company's stock options granted under the Plan and the fair market value of the
underlying common stock. Such amount has been presented as a reduction to
stockholders' equity and is being amortized ratably over the vesting period of
the applicable options. The Company amortized an aggregate of $792,000 of
deferred compensation during the first quarter of 2000.

                                      F-35
<PAGE>   113
                                FUTURELINK CORP.

   NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     During the three months ended March 31, 2000, 545,766 shares of common
stock were issued to employees who exercised their stock options, resulting in
$1.0 million in cash.

6. CONTINGENCIES

     From time to time the Company is a defendant or plaintiff in litigation
arising in the ordinary course of business. To date, other than litigation
SmallCaps OnLine Group LLC brought and the subsequent settlement of that action,
no litigation has had a material effect on the Company and the Company is not a
party to any material litigation except as described below.

     In the past, persons formerly associated with the Company, which may
include one or more of our former executive officers or directors, may have
engaged in activities as part of an effort to profit from unlawful trading
activity in our stock. As a result, the Company may be subject to civil or
criminal actions, fines or penalties. If any proceedings are commenced against
the Company, the Company will need to spend significant money and management
time in the Company's defense. If a court determined that the Company
participated in these activities, the Company could be liable for damages or
penalties that would have a material adverse effect on the Company's financial
condition and results of operation.

     SmallCaps OnLine Group LLC, previously known as Bridge Technology Group
LLC, sued the Company on January 12, 2000 in the New York County Supreme Court
to recover fees the Company allegedly owed for advisory and investor relations
services. SmallCaps' complaint requested compensation for fees totaling $5.1
million, as well as warrants to purchase an aggregate of 3,289,689 shares of
common stock at exercise prices ranging from $1.00 to $8.50 per share. The total
value of the damages SmallCaps claimed was $110.0 million. On February 11, 2000,
the Company settled SmallCaps' complaint by agreeing to pay SmallCaps $5.0
million on or before March 14, 2000, and to issue to SmallCaps warrants to
purchase an aggregate of 3,000,000 shares of common stock at exercise prices
ranging from $8.50 to $22.50 per share, subject to anti-dilution protection.
Since the issuance of these warrants, their exercise prices have been adjusted
and now range from $8.33 to $22.05 per share. The Company issued the warrants to
SmallCaps on March 1, 2000 and paid SmallCaps the $5.0 million on March 14,
2000. The total value of the settlement on February 11, 2000 was $65.0 million
which has been recorded in the accompanying condensed consolidated balance
sheets as a charge to paid-in capital.

     On November 6, 1998, the Company's former Chief Executive Officer and a
director, Mr. Cameron Chell, entered into a Settlement Agreement with The
Alberta Stock Exchange to resolve a pending investigation into Mr. Chell's
alleged breaches of Alberta Stock Exchange rules and by-laws. As part of the
Settlement Agreement, Mr. Chell acknowledged that he had breached certain duties
of supervision, disclosure, or compliance relating to various offers and sales
of securities, and Mr. Chell was prohibited from receiving Alberta Stock
Exchange approval in any capacity for a five year period, subjected to a
CDN$25,000 fine and a three year period of enhanced supervision. The Company
cannot be certain that the Settlement Agreement with the Alberta Stock Exchange
ends all proceedings with regard to these matters.

     On January 20, 2000, the Company commenced a proceeding in Canada against
Mr. Chell, various other former employees of and consultants to the Company and
various other defendants alleging that these defendants misappropriated a
corporate opportunity in breach of fiduciary and contractual obligations. Most
of these defendants made counterclaims seeking, among other things, damages for
interference with their economic interests and for severance compensation in the
form of cash and stock

                                      F-36
<PAGE>   114
                                FUTURELINK CORP.

   NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

options. The Company entered into a settlement agreement with the defendants
effective April 26, 2000 that has the following key terms:

     - Mr. Chell will be entitled to exercise options to acquire 175,000 shares
       of common stock that were scheduled to vest June 1, 2000,

     - Mr. Chell or his nominee shall pay the Company $400,000 in settlement of
       a related party debt that involved Mr. Chell, and

     - All other claims have been dropped by all parties, who have provided
       mutual releases, with the claim and counterclaims to be discontinued.

     On January 7, 2000, Tony Bryson, an individual who had previously been
employed by the Company, filed a lawsuit against the Company seeking $180,000
for the value of lost stock options, salary and benefits the Company allegedly
promised him, and other damages he allegedly sustained as a result of alleged
actions by the Company. This lawsuit has been filed under Canadian law. Canadian
law provides for severance pay to any employee of the Company's Canadian
operations in an amount that is appropriate based on, among other things, the
nature of the position held by the employee and the length of time the employee
worked for the company, unless the employer can establish that the termination
was for just cause. The exact amount of severance pay is often disputed between
employers and employees in Canada. Accordingly, there is a risk that in addition
to this lawsuit, one or more other former employees will make claims for cash
severance pay as well as options.

     On January 26, 2000, Michael Chan filed a suit in the Court of Queen's
Bench of Alberta, Judicial District of Calgary, alleging that the Company's
subsidiary, FutureLink Alberta, breached its contract to deliver him options to
purchase 250,000 shares of FutureLink Alberta at $1.00 per share. Mr. Chan seeks
50,000 shares of common stock or, alternatively, damages of approximately $1.5
million in cash, general damages of approximately $200,000 and punitive damages
of approximately $200,000. On May 10, 2000, the Company filed a Statement of
Defense in response to this claim.

     Under certain California State regulatory requirements, the Company was to
offer a rescission of certain options granted to California employees. The
Company applied for and has received an order from the State of California
approving the proposed terms of the rescission offer. The rescission offer was
made with respect to 1,240,500 options at an exercise price of $8.50, and 40,000
shares issued in relation to other options exercised to date which offer will
remain open subsequent to December 31, 1999. In light of market prices for the
Company's common stock recently being significantly in excess of the exercise
price, the Company received rescission notices from only three option holders in
January 2000 for a total of 29,000 options. The Company paid $31,800 plus
interest to these option holders in exchange for cancellation of their options
under the rescission offer.

     A claim has been filed against the Company in the amount of approximately
$340,000 plus costs for damages from alleged Company misrepresentations and
interference with contractual relations regarding a sale transaction between two
third parties involving shares of the Company's common stock. The Company has
entered into an indemnity agreement with a former principal of the Company
whereby the former principal defends this action on behalf of the Company, bears
the costs of legal counsel and agrees to indemnify the Company for any losses.
Management believes the claim is without merit.

     A claim has been filed against FutureLink Alberta in the amount of $194,000
plus costs for damages and loss of rent related to a purported lease agreement
with respect to a building in Calgary, Alberta, Canada. The Company is counter
claiming an amount of approximately $266,000 against the claimant. The plaintiff
has now leased the premises in question to a third party, thereby mitigating its
alleged losses.

                                      F-37
<PAGE>   115
                                FUTURELINK CORP.

   NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

However, it is impossible at this time for the Company to predict with any
certainty the outcome of such litigation. Management believes the claim is
without merit and will defend the Company's position vigorously.

     A claim was filed against the Company's subsidiary, SysGold (now merged
into FutureLink Alberta) by TAP Consulting Ltd. in the amount of approximately
$102,000 for damages and loss of compensation relating to services provided to
the Company. Management believes the claim is without merit. An indemnity
agreement has been obtained from the previous stockholders of SysGold.

     The Company is currently aware of other former employees and consultants
who may make claims against the Company that represent, in the aggregate, $1.5
million in damages which includes approximately 95,000 stock options and
monetary damages. At this time, management is unable to determine an amount, if
any, it may ultimately be required to pay to settle these issues.

     The Company's pending lawsuits involve complex questions of fact and law
and could require the expenditure of significant costs and diversion of
resources to defend. Although management believes the outcome of the Company's
outstanding legal proceedings, claims and litigation will not have a material
adverse effect on the Company's business, results of operations or financial
position, the results of litigation are inherently uncertain. The Company is
unable to make an estimate of the range of possible loss from outstanding
litigation, except as noted, and no amounts have been provided for such matters
in the consolidated financial statements.

7. SUBSEQUENT EVENTS

     On April 28, 2000, the Company completed a private placement of
approximately $15 million of common equity with institutional private equity
investors. A total of 1,764,704 restricted shares of common stock were issued,
in addition to warrants to purchase 441,176 shares of common stock at an
exercise price of $9.25 per share. The warrants expire at the end of April 2003.

     On April 29, 2000, certain holders of convertible debt and accrued interest
converted $621,000 of debt into 676,408 shares of common stock in accordance
with the terms contained in the convertible debt agreement.


     On May 26, 2000, Glen Holmes, the Company's President and Chief Operating
Officer and one of its directors, granted to the Company an option to purchase
600,000 shares of the Company's common stock at $5.50 per share, the fair market
value at the date of grant. The Company may only exercise this option to the
extent employees to whom the Company granted reciprocal options exercise those
options. On the same date, Mr. Holmes also granted to two of the Company's
employees options to purchase 2,400,000 shares of the Company's common stock at
$5.50 per share, the fair market value at the date of grant. The options were
granted covering shares personally owned by Mr. Holmes to employees who were
formerly employed at Executive LAN Management, Inc.


                                      F-38
<PAGE>   116

                            VERTICAL SOFTWARE, INC.
                              FINANCIAL STATEMENTS

                                      F-39
<PAGE>   117

                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders of
Vertical Software, Inc.

     We have audited the accompanying balance sheets of Vertical Software, Inc.
as of December 31, 1998 and 1999, and the related statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 Vertical Software, Inc. at
December 31, 1998 and 1999, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States.

                                          /s/ ERNST & YOUNG LLP

McLean, Virginia
January 28, 2000

                                      F-40
<PAGE>   118

                            VERTICAL SOFTWARE, INC.

                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                     DECEMBER 31,
                                                                -----------------------
                                                                   1998         1999
                                                                ----------   ----------
<S>                                                             <C>          <C>
ASSETS
Current assets:
  Cash......................................................    $  206,178   $   46,458
  Accounts receivable:
     Trade..................................................     1,693,700    2,369,446
     Related party..........................................        51,056       67,782
  Inventory.................................................       270,424      172,310
  Employee advances and prepaid expenses....................        12,092       37,150
                                                                ----------   ----------
          Total current assets..............................     2,233,450    2,693,146
Property and equipment, net.................................       157,193      140,410
Other asset.................................................         5,547        6,142
                                                                ----------   ----------
          Total assets......................................    $2,396,190   $2,839,698
                                                                ==========   ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Demand note payable.......................................    $        -   $  400,000
  Accounts payable:
     Trade..................................................       526,443      299,548
     Related party..........................................        17,395       26,600
  Accrued expenses..........................................       241,675      307,579
  Customer deposits.........................................       148,026      120,032
  Deferred revenue..........................................       381,710      461,394
  Demand notes payable -- related parties...................       201,623       45,092
                                                                ----------   ----------
          Total current liabilities.........................     1,516,872    1,660,245
Stockholders' equity:
  Common stock -- $1 par value, 100,000 shares authorized,
     102 shares issued and outstanding......................           102          102
  Additional paid-in capital................................           898          898
  Retained earnings.........................................       878,318    1,178,453
                                                                ----------   ----------
          Total stockholders' equity........................       879,318    1,179,453
                                                                ----------   ----------
          Total liabilities and stockholders' equity........    $2,396,190   $2,839,698
                                                                ==========   ==========
</TABLE>

See accompanying notes.

                                      F-41
<PAGE>   119

                            VERTICAL SOFTWARE, INC.

                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                     DECEMBER 31,
                                                        ---------------------------------------
                                                           1997          1998          1999
                                                        ----------    ----------    -----------
<S>                                                     <C>           <C>           <C>
Net revenues:
  Equipment sales.....................................  $3,220,679    $6,774,585    $ 8,357,469
  Installation, services, and other fees..............   1,897,846     3,014,287      4,760,548
                                                        ----------    ----------    -----------
Total net revenues....................................   5,118,525     9,788,872     13,118,017
Costs and expenses:
  Costs of equipment sales............................   2,501,350     5,382,931      6,656,798
  Costs of services and other fees....................     167,753       246,964        315,852
  Sales and marketing.................................     192,573       360,156        732,960
  General and administrative..........................   1,406,058     2,499,222      4,084,556
  Depreciation........................................      31,323        37,737         49,853
                                                        ----------    ----------    -----------
Total costs and expenses..............................   4,299,057     8,527,010     11,840,019
                                                        ----------    ----------    -----------
Income from operations................................     819,468     1,261,862      1,277,998
Other expense:
  Loss on disposal of equipment.......................      (5,073)      (11,115)        (5,396)
  Interest (expense) income, net......................      (3,818)       15,888         (2,967)
                                                        ----------    ----------    -----------
                                                            (8,891)        4,773         (8,363)
Net income............................................  $  810,577    $1,266,635    $ 1,269,635
                                                        ==========    ==========    ===========
Unaudited pro forma information:
Pro forma income tax expense..........................  $  313,353    $  482,601    $   491,845
                                                        ==========    ==========    ===========
Pro forma net income..................................  $  497,224    $  784,034    $   777,790
                                                        ==========    ==========    ===========
</TABLE>

See accompanying notes.

                                      F-42
<PAGE>   120

                            VERTICAL SOFTWARE, INC.

                       STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                            ADDITIONAL    RETAINED        TOTAL
                                                   COMMON    PAID-IN      EARNINGS    STOCKHOLDERS'
                                                   STOCK     CAPITAL     (DEFICIT)       EQUITY
                                                   ------   ----------   ----------   -------------
<S>                                                <C>      <C>          <C>          <C>
Balance, December 31, 1996.......................   $102       $898      $  182,610    $  183,610
  Net income.....................................      -          -         810,577       810,577
  Distributions..................................      -          -        (449,304)     (449,304)
                                                    ----       ----      ----------    ----------
Balance, December 31, 1997.......................    102        898         543,883       544,883
  Net income.....................................      -          -       1,266,635     1,266,635
  Distributions..................................      -          -        (932,200)     (932,200)
                                                    ----       ----      ----------    ----------
Balance, December 31, 1998.......................    102        898         878,318       879,318
  Net income.....................................     --         --       1,269,635     1,269,635
  Distributions..................................     --         --        (969,500)     (969,500)
                                                    ----       ----      ----------    ----------
Balance, December 31, 1999.......................   $102       $898      $1,178,453    $1,179,453
                                                    ====       ====      ==========    ==========
</TABLE>

See accompanying notes.

                                      F-43
<PAGE>   121

                            VERTICAL SOFTWARE, INC.

                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                                         -------------------------------------
                                                           1997          1998          1999
                                                         ---------    ----------    ----------
<S>                                                      <C>          <C>           <C>
OPERATING ACTIVITIES
Net income.............................................  $ 810,577    $1,266,635    $1,269,635
Adjustments to reconcile net income to net cash
  provided by operating activities:
  Depreciation.........................................     31,323        37,737        49,853
  Loss on disposal of equipment........................      5,073        11,115         5,396
  Changes in operating assets and liabilities:
     Accounts receivable -- trade......................    (30,732)   (1,089,788)     (675,746)
     Accounts receivable -- related party..............         --       (51,056)      (16,726)
     Inventory.........................................    109,533      (194,139)       98,114
     Employee advances and prepaid expenses............       (422)        1,460       (25,058)
     Accounts payable -- trade.........................   (267,305)      386,561      (226,895)
     Accounts payable -- related party.................         --        17,395         9,205
     Accrued expenses..................................     42,192       132,268        65,904
     Customer deposits.................................     82,793        37,110       (27,994)
     Deferred revenue..................................    102,226       177,578        79,684
                                                         ---------    ----------    ----------
Net cash provided by operating activities..............    885,258       732,876       605,372
INVESTING ACTIVITIES
Proceeds from sale of equipment........................         --           818         8,905
Purchases of property and equipment....................    (36,693)     (101,382)      (47,966)
                                                         ---------    ----------    ----------
Net cash used in investing activities..................    (36,693)     (100,564)      (39,061)
FINANCING ACTIVITIES
Net borrowings (repayments) on credit line.............   (245,000)           --       400,000
Proceeds from issuance of demand notes
  payable -- related parties...........................     42,863       184,045        77,371
Payments on demand notes payable -- related parties....    (44,265)      (75,379)     (233,902)
Distributions to stockholders..........................   (449,304)     (932,200)     (969,500)
                                                         ---------    ----------    ----------
Net cash used in financing activities..................   (695,706)     (823,534)     (726,031)
                                                         ---------    ----------    ----------
Net (decrease) increase in cash........................    152,859      (191,222)     (159,720)
Cash at beginning of year..............................    244,541       397,400       206,178
                                                         ---------    ----------    ----------
Cash at end of year....................................  $ 397,400    $  206,178    $   46,458
                                                         =========    ==========    ==========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest.................................  $  13,000    $    8,000    $   12,000
                                                         =========    ==========    ==========
</TABLE>

See accompanying notes.

                                      F-44
<PAGE>   122

                            VERTICAL SOFTWARE, INC.

                         NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION

     Vertical Software, Inc. (the "Company") is a regional provider of system
integration and information technology services. The Company was incorporated in
1989 under the laws of the State of Maryland. The Company expects to continue to
focus on increasing its client base in Maryland, Virginia and Washington D.C.
and expand into the southern states market.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

INVENTORIES

     Inventories consist primarily of computer equipment purchased for specific
contracts and are carried at the lower of cost or market. Cost of inventories
purchased for contracts is determined on a specific identification basis.
Inventory also consists of computer equipment frequently used in fulfilling
installation contracts. These items are carried at the lower of cost or market,
under the first in first out method (FIFO).

PROPERTY AND EQUIPMENT

     Property and equipment are recorded at cost. Depreciation is calculated
over the estimated useful lives of the assets ranging between five and seven
years for furniture and equipment and three years for computer software.
Maintenance and repairs are charged to expense as incurred and the costs of
improvements that extend the useful lives of assets are capitalized.

IMPAIRMENT OF LONG-LIVED ASSETS

     The Company reviews the recoverability of long-lived assets whenever events
or changes in circumstances indicate that the carrying value of such assets may
not be recoverable. If the expected future cash flows from the use of such
assets (undiscounted and without interest charges) are less than the carrying
value, the Company's policy is to record a write-down that is determined based
on the difference between the carrying value of the asset and its estimated fair
value.

REVENUE RECOGNITION AND COST OF REVENUE

     The Company provides services through time and material contracts and
effective October 1, 1999, through fixed fee contracts. For time and material
contracts, the Company recognizes equipment and software sales at the time of
shipment and installation revenue on a time-and-material basis based upon time
(at established rates) and direct costs as incurred. For fixed fee contracts,
the Company recognizes revenue on the percentage of completion method based on
costs incurred in relation to total estimated costs. The Company also offers
maintenance contracts for technical support services that are generally paid for
in advance by customers. The Company defers recognition of revenue on these
advance payments and

                                      F-45
<PAGE>   123
                            VERTICAL SOFTWARE, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

amortizes such amounts as services are provided. The Company writes off
uncollectible accounts for customers who are provided credit terms based on
specific identification.

     Costs of revenues consist primarily of computer equipment, software, and
labor costs inherent in the provision of network and Internet integration and
infrastructures services.

ADVERTISING COSTS

     Advertising and promotion costs are expensed as incurred. For the years
ended December 31, 1997, 1998, and 1999, advertising and promotion costs were
$12,788, $56,845, and $80,126 respectively.

INCOME TAXES

     Historically, the Company has elected, by the consent of its stockholders,
to be taxed under the provisions of Subchapter S of the Internal Revenue Code
(the "Code"). Under provisions of the Code, the stockholders include the
Company's corporate income in their personal income tax returns. The Company has
elected to be treated under similar provisions for state income tax reporting
purposes. Accordingly, the Company was not subject to federal and state
corporate income taxes during the period for which it was an S Corporation.

FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK

     The carrying value of cash, accounts receivable, accounts payable and
accrued expenses approximates their fair value based on the liquidity of these
financial instruments or based on their short-term nature.

     Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash and accounts receivable.
The Company places its cash with its principal bank, which is a high credit
quality financial institution. Accounts receivable are subject to credit limits,
ongoing credit evaluations and account monitoring procedures to minimize the
risk of loss. In certain instances, customer deposits are obtained which would
also reduce the risk of loss. Collateral is generally not required. During the
years ended December 31, 1997, 1998, and 1999, four of the Company's clients
comprised approximately 34%, 39%, and 27%, respectively, of total revenue.

SOURCES OF SUPPLIES

     The Company relies on computer and computer equipment distributors to
provide computer hardware, software and supplies. Although management believes
alternative suppliers could be found in a timely manner, any disruption of these
services could have an adverse effect on operating results. In addition, if the
suppliers are unable to meet the Company's needs as its business and market
share grow, then delays and increased costs in the expansion of the Company's
integration and information technology solutions service could potentially
result in an adverse effect on the Company's operating results.

BUSINESS SEGMENTS

     In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 (Statement No. 131), Disclosures About
Segments of an Enterprise and Related Information, which was required to be
adopted for the year ended December 31, 1998. Statement No. 131 changes the way
public companies report segment information in annual financial statements and
also requires those companies to report selected segment information in interim
reports to stockholders. The Company has only one reportable segment, system
integration and information technology services.

                                      F-46
<PAGE>   124
                            VERTICAL SOFTWARE, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

3. PROPERTY AND EQUIPMENT

     Property and equipment consist of the following:

<TABLE>
<CAPTION>
                                                                  DECEMBER 31
                                                              --------------------
                                                                1998        1999
                                                              --------    --------
<S>                                                           <C>         <C>
Furniture, fixtures, and office equipment...................  $204,804    $239,193
Vehicles....................................................    50,308      29,769
Other.......................................................     4,874       6,201
                                                              --------    --------
                                                               259,986     275,163
Less accumulated depreciation...............................   102,793     134,753
                                                              --------    --------
                                                              $157,193    $140,410
                                                              ========    ========
</TABLE>

4. ACCRUED EXPENSES

     Accrued expenses consist of the following:

<TABLE>
<CAPTION>
                                                                  DECEMBER 31
                                                              --------------------
                                                                1998        1999
                                                              --------    --------
<S>                                                           <C>         <C>
Payroll and related costs...................................  $176,505    $256,001
Sales tax payable...........................................    38,072      20,126
Employee benefits payable...................................    27,098      31,452
                                                              --------    --------
Total accrued expenses......................................  $241,675    $307,579
                                                              ========    ========
</TABLE>

5. RELATED PARTY TRANSACTIONS

     Commencing in 1998, the Company is reimbursed monthly from a commonly owned
affiliate for payroll and benefits provided to its employees by Vertical
Software, Inc. Amounts received from the related party were $37,675 and $280,091
for the years ended December 31, 1998 and 1999, respectively, and were netted
against the related expenses. The Company discontinued these activities with the
affiliate effective January 1, 2000. The Company also purchases computer
software, for resale, from this affiliate.

     During August of 1999, the Company entered into a month to month agreement
for travel services with a party related by common ownership. The agreement
terms require monthly reimbursements of $1,000 for the Company's portion of
expenses.

     The Company also has $201,623 and $45,092 of unsecured demand notes payable
to related parties at December 31, 1998 and 1999, respectively. These notes bear
interest in a range of 7 1/2% to 8%, per annum. Interest expense related to the
notes was $8,344 and $15,787 for the years ended December 31, 1998 and 1999,
respectively.

6. DEMAND NOTES PAYABLE

     The Company maintains a $1 million ($520,000 at December 31, 1998) line of
credit with its principal bank. Borrowings against the line bear interest at
9 1/2% per annum. The line is secured by accounts receivable and inventory and
is personally guaranteed by the Company's stockholders. There were no borrowings
related to this line outstanding at December 31, 1998. Borrowings of $400,000
related to this line of credit were outstanding as of December 31, 1999.

                                      F-47
<PAGE>   125
                            VERTICAL SOFTWARE, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

     During 1998, and 1999, the Company maintained a $275,000 line of credit
with a financial service corporation. This borrowing arrangement is secured by a
second collateral position in the Company's accounts receivable and inventory
and is used to make significant inventory purchases for contracts. No borrowings
related to this line of credit were outstanding as of December 31, 1998 and
1999. The Company will terminate this arrangement in February, 2000.

7. RETIREMENT PLAN

     The Company maintains a defined contribution pension plan covering
substantially all employees. Under this plan, participants may elect to defer a
portion of their wages subject to the annual limitations imposed by section 402
of the Internal Revenue Code. Matching and profit sharing contributions to the
plan are made at the discretion of the Board of Directors. Matching
contributions charged to expense, for the years ended December 31, 1997 and 1998
were $15,945 and $28,051, respectively. No contributions were made to this plan
in 1999.

     Effective June 1, 1999, the Company adopted a qualified 401(k) profit
sharing plan for substantially all employees. Under this plan, participants can
elect to contribute a portion of their compensation, subject to limitations
imposed by the Internal Revenue Code, to the plan. The Company may make annual
discretionary matching and qualified non-elective contributions to the plan.
Matching 401(k) Plan contributions, charged to expense, for the year ended
December 31, 1999, were $77,058.

     The Company intends to make all future contributions to the 401(k) profit
sharing plan and discontinue payments to the defined contribution pension plan.

8. COMMITMENTS AND CONTINGENCIES

     The Company leases its office space under a non-cancelable operating lease
that expires on February 28, 2000. Rent expense was $70,280, $96,919, and
$106,338 for the years ended December 31, 1997, 1998 and 1999, respectively.
During 1999, the Company entered into two operating leases for office space in
Virginia. These leases require monthly rentals of $1,537 and expire through
October 2001. The Company has also entered into a new operating lease for its
Maryland offices commencing March 1, 2000 through February 28, 2010. This lease
requires initial monthly rentals of $14,720 that increase 3% each year.

     Future minimum lease payments under all leases are:

<TABLE>
<S>                                                           <C>
2000........................................................     181,816
2001........................................................     190,476
2002........................................................     186,472
2003........................................................     192,072
2004........................................................     197,834
Thereafter..................................................   1,318,056
                                                              ----------
Total.......................................................  $2,266,726
                                                              ==========
</TABLE>

                                      F-48
<PAGE>   126
                            VERTICAL SOFTWARE, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

9. INCOME TAX

     Upon consummation of an agreement to sell the outstanding stock of the
Company to FutureLink Corp. and FutureLink Maryland Acquisition Corp.
(collectively "FutureLink"; see Note 10), the Company's status as an S
Corporation under the Code will automatically terminate and normal Federal and
state corporate income tax rates will apply.

     On a pro forma basis (unaudited), assuming the Company's status as an S
corporation terminated as of December 31, 1996, the Company would have had pro
forma federal and state income tax expense of $313,353, $482,601, and $491,845
for the years ended 1997, 1998, and 1999, respectively. The Company would have
had pro forma net deferred tax liabilities of approximately $91,000 and $148,000
at December 31, 1998 and 1999, respectively.

10. SUBSEQUENT EVENTS

     The Company's stockholders have entered into an agreement to sell their
shares of capital stock in the Company to FutureLink. The Company's stockholders
will exchange their shares in the Company for cash and shares of common stock of
FutureLink. Upon consummation of the agreement, FutureLink will become the sole
stockholder of the Company. The related party unsecured demand note payable as
described in Note 5 will be paid upon consummation of the merger discussed
above.

                                      F-49
<PAGE>   127

                             MICROLAN SYSTEMS, INC.
                         "DBA" MADISON TECHNOLOGY GROUP
                           DECEMBER 31, 1998 AND 1999

                                      F-50
<PAGE>   128

                          INDEPENDENT AUDITOR'S REPORT

To the Board of Directors
Microlan Systems, Inc.
"DBA" Madison Technology Group
New York, New York

     We have audited the accompanying balance sheets of Microlan Systems, Inc.
"DBA" Madison Technology Group as of December 31, 1998 and 1999 and the related
statements of operations, 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 audit.

     We have conducted our audits in accordance with generally accepted audited
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. 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 Microlan Systems Inc. "DBA"
Madison Technology Group as of December 31, 1998 and 1999, and the results of
its operations and cash flows for the years then ended in conformity with
generally accepted accounting principles.

                                          /s/ JOEL E. SAMMET & CO.
                                          Certified Public Accountants

New York, New York
February 14, 2000

                                      F-51
<PAGE>   129

                             MICROLAN SYSTEMS, INC.
                         "DBA" MADISON TECHNOLOGY GROUP

                                 BALANCE SHEETS
                           DECEMBER 31, 1998 AND 1999

<TABLE>
<CAPTION>
                                                                 1998          1999
                                                              ----------    ----------
<S>                                                           <C>           <C>
ASSETS
Current Assets
  Cash and cash equivalents (Note 3)........................  $   53,572    $   31,867
  Accounts receivable, less allowance for doubtful accounts
     of $40,149 and $33,008 (Note 2)........................   1,964,688     4,347,545
  Inventory (Note 2)........................................     278,747       462,145
  Due from related parties..................................      16,204             0
  Other current assets......................................       6,789        11,014
  Due from shareholders (Note 7)............................           0       550,000
                                                              ----------    ----------
          Total Current Assets..............................   2,320,000     5,402,571
                                                              ----------    ----------

Property and Other Assets
  Property and equipment (net of accumulated depreciation of
     $177,647 and $265,503).................................     238,509       357,958
  Other assets..............................................      30,000        51,263
                                                              ----------    ----------
          Total Property, Equipment and Other Assets........     268,509       409,221
                                                              ----------    ----------
          Total Assets......................................  $2,588,509    $5,811,792
                                                              ==========    ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
  Cash overdraft............................................  $        0    $   86,749
  Line of credit (Note 4)...................................     950,000     2,000,000
  Loans payable -- due to related parties (Note 5)..........     150,000       269,775
  Accounts payable..........................................     742,755     1,780,574
  Accrued purchases and expenses............................     390,000       316,720
  Legal settlement payable (Note 6).........................           0       550,000
  Other current liabilities (Note 2)........................           0       209,883
                                                              ----------    ----------
          Total Current Liabilities.........................   2,232,755     5,213,701
                                                              ----------    ----------

Shareholders' Equity
  Capital stock, 200 shares authorized 100 shares issued and
     outstanding............................................      20,863        20,863
  Additional paid-in capital (Note 7).......................           0       550,000
  Retained earnings.........................................     334,891        27,228
                                                              ----------    ----------
          Total Shareholders' Equity........................     355,754       598,091
                                                              ----------    ----------
          Total Liabilities and Shareholders' Equity........  $2,588,509    $5,811,792
                                                              ==========    ==========
</TABLE>

See the Accompanying Notes to Financial Statements.

                                      F-52
<PAGE>   130

                             MICROLAN SYSTEMS, INC.
                         "DBA" MADISON TECHNOLOGY GROUP

                            STATEMENT OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999

<TABLE>
<CAPTION>
                                                                 1998          1999
                                                              ----------    -----------
<S>                                                           <C>           <C>
Revenue
  Hardware and software.....................................  $3,794,190    $10,132,508
  Service and delivery......................................   2,003,934      3,324,869
Cost of sales
  Hardware and software.....................................   2,619,991      8,276,675
  Service and delivery......................................   1,290,483      1,657,068
Selling, general and administrative expenses................   1,779,576      2,955,230
Legal settlement............................................           0        744,293
                                                              ----------    -----------
Income (Loss) from operations...............................     108,074       (175,889)
Interest income.............................................       1,947          1,300
Interest expense............................................     (99,521)      (132,027)
                                                              ----------    -----------
Income (Loss) before income taxes...........................      10,500       (306,616)
Provision for State and City taxes..........................       7,581          1,047
                                                              ----------    -----------
Net Income (Loss)...........................................  $    2,919    $  (307,663)
                                                              ==========    ===========
Unaudited pro forma information:
  Pro forma provision for income taxes......................  $    4,305    $        --
                                                              ==========    ===========
  Pro forma net income......................................  $    6,195    $  (307,663)
                                                              ==========    ===========
</TABLE>

See the Accompanying Notes to Financial Statements.

                                      F-53
<PAGE>   131

                             MICROLAN SYSTEMS, INC.
                         "DBA" MADISON TECHNOLOGY GROUP

                       STATEMENT OF STOCKHOLDERS' EQUITY
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999

<TABLE>
<CAPTION>
                                          COMMON STOCK       ADDITIONAL
                                        -----------------     PAID-IN      RETAINED
                                        SHARES    AMOUNT      CAPITAL      EARNINGS       TOTAL
                                        ------    -------    ----------    ---------    ---------
<S>                                     <C>       <C>        <C>           <C>          <C>
BALANCES AS OF DECEMBER 31, 1997......   100      $20,863     $      0     $ 385,141    $ 406,004
Net income............................     0            0            0         2,919        2,919
Distribution to shareholders..........     0            0            0       (53,169)     (53,169)
                                         ---      -------     --------     ---------    ---------
BALANCES AS OF DECEMBER 31, 1998......   100       20,863            0       334,891      355,754
                                         ---      -------     --------     ---------    ---------
Net income............................                                      (307,663)    (307,663)
Additional paid-in capital............     0            0      550,000             0      550,000
                                         ---      -------     --------     ---------    ---------
BALANCES AS OF DECEMBER 31, 1999......   100      $20,863     $550,000     $  27,228    $ 598,091
                                         ===      =======     ========     =========    =========
</TABLE>

See the Accompanying Notes to Financial Statements.

                                      F-54
<PAGE>   132

                             MICROLAN SYSTEMS, INC.
                         "DBA" MADISON TECHNOLOGY GROUP

                            STATEMENT OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999

<TABLE>
<CAPTION>
                                                                1998          1999
                                                              ---------    -----------
<S>                                                           <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income................................................  $   2,919    $  (307,663)
  Adjustments to reconcile net income to net cash used
     provided by operating activities:
     Provision for losses on accounts receivable............     59,490         43,865
     Depreciation...........................................     69,137         87,855
     (Increase) decrease in operating assets:
       Inventory............................................   (219,332)      (183,398)
       Accounts receivable..................................    349,329     (2,426,721)
       Due from related parties.............................    (12,088)        16,204
       Other current assets.................................     (6,302)        (4,225)
       Other assets.........................................     10,000        (21,263)
     Increase (decrease) in operating liabilities:
       Accounts payable.....................................   (294,957)     1,037,819
       Accrued purchases and expenses.......................    205,256        (73,280)
       Other current liabilities............................    (86,506)       209,883
       Legal settlement payable.............................          0        550,000
                                                              ---------    -----------
          Net Cash Provided (Used) By Operating
            Activities......................................     76,946     (1,070,924)
                                                              ---------    -----------
CASH FLOWS (USED BY) INVESTING ACTIVITIES:
  Purchase of computers, office equipment and leasehold
     improvements...........................................    (65,993)      (207,305)
                                                              ---------    -----------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
  Proceeds from line of credit..............................    200,000      1,050,000
  (Payments) proceeds of loans from shareholders and related
     party..................................................    (90,539)       119,775
  Distribution to shareholders..............................    (53,169)             0
                                                              ---------    -----------
          Net Cash Provided By Financing Activities.........     56,292      1,169,775
                                                              ---------    -----------
Net increase (decrease) in cash.............................     67,245       (108,454)
Cash, at beginning of period................................    (13,673)        53,572
                                                              ---------    -----------
Cash, at end of period......................................  $  53,572    $   (54,882)
                                                              =========    ===========
Comprised of:
  Cash and checking (overdraft).............................  $  23,034    $   (86,749)
  Certificate of deposit....................................     30,538         31,867
                                                              ---------    -----------
Cash, at end of period......................................  $  53,572    $   (54,882)
                                                              =========    ===========
Supplemental Schedule of Non-Cash Investing and Financing
  Activities:
  Amounts due from shareholders for legal settlement........  $       0    $   550,000
                                                              =========    ===========
</TABLE>

Cash paid for income taxes for the years ended December 31, 1998 and 1999 was
$14,325 and $1,895, respectively. Cash paid for interest for the years ended
December 31, 1998 and 1999 was $96,978 and $171,274, respectively.

See the Accompanying Notes to Financial Statements.

                                      F-55
<PAGE>   133

                             MICROLAN SYSTEMS, INC.
                         "DBA" MADISON TECHNOLOGY GROUP

                         NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1998 AND 1999

NOTE 1  NATURE OF BUSINESS

     Microlan Systems, Inc. doing business as Madison Technology Group (the
"Company") installs, services and provides consultant, design and integration
services for computer hardware systems, software systems and networks. The
Company is an authorized dealer for Novell, Microsoft, Citrix, Cisco and various
other major companies.

NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

REVENUE RECOGNITION

     Revenue from sales of computer hardware and software is recognized when
products are shipped or upon installation, when required under contract terms.
Revenue from training revenue is recognized when performed. Income from service
contracts is recognized over the life of the contract on a pro rata basis.
Revenue is reflected net of all provisions for estimated returns and allowances.

INVENTORY

     Inventory consists primarily of hardware and software products and other
related parts. It is valued at the lower of cost or market on a first-in,
first-out basis. Market is current selling price.

PROPERTY AND EQUIPMENT

     Property and equipment are recorded at cost. The Company provides for
depreciation by charges to operations based upon estimated useful lives of the
assets using the straight-line method. Maintenance and repair costs are charged
to expense when incurred.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

     The Company reflects accounts receivable at net realizable value. There is
an allowance for doubtful accounts of $40,149 and $33,008 at December 31, 1998
and 1999, respectively.

INCOME TAXES

     The Company has elected under the Internal Revenue Service Code to be taxed
as an S corporation which is also effective for state tax purposes. In lieu of
corporate income taxes, the shareholders of an S corporation are taxed on their
proportionate share of the company's taxable income. Therefore, no provision or
liability for federal income tax has been included in the financial statements.
However, state and city taxes calculated at the greater of minimum, regular or
alternative tax methods have been provided for in the financial statements.

                                      F-56
<PAGE>   134
                             MICROLAN SYSTEMS, INC.
                         "DBA" MADISON TECHNOLOGY GROUP

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
     Upon consummation of an agreement to sell the outstanding stock of the
Company to Futurelink Corp. (see Note 13), the Company's status as an S
corporation under the Code will automatically terminate and normal federal and
state corporate income tax rates will apply.

     On a pro forma basis (unaudited), assuming the Company's status as an S
corporation terminated as of December 31, 1997, the Company would have had pro
forma federal and state tax expense of $4,305 and $0 for the years ended
December 31, 1998 and 1999, respectively.

DEFERRED SERVICE CONTRACT INCOME

     The Company sells service contracts which may cover a period of time of one
year or more. At December 31, 1999 several service contracts were prepaid.
Management determines deferred service contract income based upon the contract
period. The amount of deferred service contract income is shown as other current
liabilities.

NOTE 3  CASH AND CASH EQUIVALENTS

     Cash and cash equivalents include a certificate of deposit which represents
an investment in a three month certificate of deposit, which is being held as
collateral pursuant to the Company's line of credit arrangement (Note 4). The
investment is shown at cost. At December 31, 1998 and 1999, the Company held a
certificate of deposit of $30,538 and $31,867, respectively.

NOTE 4  LINE OF CREDIT

     The Company has a line of credit with a bank, which is in the form of a
time secured loan maturing March 14, 2000. The loan is secured by eligible
accounts receivable and a certificate of deposit held with the bank (see Note
3). The Company can borrow up to 70% of eligible accounts receivable
(outstanding 90 days or less) up to $1,000,000 and $2,000,000 at December 31,
1998 and 1999, respectively. Interest is payable monthly at 1.50% over the
bank's prime rate which amounted to 10.00% at December 31, 1998 and 1999. As of
December 31, 1998 and 1999, outstanding borrowings under the line of credit are
$950,000 and $2,000,000, respectively. Loans payable to shareholders are
subordinated to this time secured loan.

NOTE 5  LOANS PAYABLE -- RELATED PARTIES

     Loans payable to shareholders and related parties consists of borrowings
for working capital purposes and are summarized as follows:

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                         --------------------
                                                           1998        1999
                                                         --------    --------
<S>                                                      <C>         <C>
Shareholders...........................................  $150,000    $150,000
Related Parties --
  Madison Resources Consulting, Inc....................         0     100,940
  Madison Resources Consulting NJ, Inc.................         0      18,835
                                                         --------    --------
                                                         $150,000    $269,775
                                                         ========    ========
</TABLE>

                                      F-57
<PAGE>   135
                             MICROLAN SYSTEMS, INC.
                         "DBA" MADISON TECHNOLOGY GROUP

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 5  LOANS PAYABLE -- RELATED PARTIES (CONTINUED)
     Loans payable to shareholders are unsecured, bear interest at a rate of
8.5%, and are subordinated to the bank line of credit. Loans from related
parties are unsecured and do not bear interest.

NOTE 6  LEGAL SETTLEMENT PAYABLE

     In 1999, the Company agreed to pay a settlement in the amount of $550,000
relating to a lawsuit in which the plaintiff alledged that the Company took key
employees away from the plaintiff by offering them positions. The payment of
this settlement is personally guaranteed by the shareholders of the corporation.
Additional capital has been contributed to the corporation to fund this
liability. $250,000 was paid in early 2000.

NOTE 7  ADDITIONAL PAID IN CAPITAL

     The shareholders contributed additional capital of $550,000 for the purpose
of funding the payment due on the legal settlement (Note 6). This contribution
was still due to the corporation on December 31, 1999. $250,000 was contributed
in early 2000.

NOTE 8  RELATED PARTY TRANSACTIONS

     During 1998 and 1999, the Company had transactions with affiliated
companies, Madison Consulting Resources, Inc., a Company which is owned by the
father of the shareholders of the Company and Madison Consulting Resources NJ,
Inc. During 1998 and 1999, the Company shared office space with these affiliated
companies, and charged overhead, primarily for rent and shared administrative
salaries. Management believes that the allocation of common expenses to the
affiliated companies are reasonable and consistent with what the expenses would
have been on a stand-alone basis.

     Following is a summary of transactions and balances with these affiliated
companies for 1998 and 1999:

<TABLE>
<CAPTION>
                                                                1998        1999
                                                              --------    --------
<S>                                                           <C>         <C>
Sales.......................................................  $435,558    $ 46,794
                                                              ========    ========
Outsourced labor expenses...................................  $      0    $285,352
                                                              ========    ========
Accounts receivable (included in the accompanying balance
  sheets)...................................................  $ 72,102    $  1,108
                                                              ========    ========
Due from affiliated company (included in the accompanying
  balance sheets)...........................................  $ 16,204    $      0
                                                              ========    ========
Account payable (included in the accompanying balance
  sheets)...................................................  $      0    $107,616
                                                              ========    ========
Due to affiliated company (included in the accompanying
  balance sheets)...........................................  $      0    $119,775
                                                              ========    ========
Overhead charged (included as a reduction to general and
  administrative expenses)
  Madison Consulting Resources, Inc.........................  $202,912    $ 19,152
  Madison Consulting Resources NJ, Inc......................    15,291      22,848
                                                              --------    --------
                                                              $218,203    $ 42,000
                                                              ========    ========
</TABLE>

                                      F-58
<PAGE>   136
                             MICROLAN SYSTEMS, INC.
                         "DBA" MADISON TECHNOLOGY GROUP

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 9  LEASES

     The Company leases office space under an operating lease expiring in 2007.
Total rental expense recorded in the financial statements under this office
lease was $130,953 and $179,811 for 1998 and 1999, respectively.

     Future minimum rental payments at December 31, 1999, under this operating
lease is as follows:

<TABLE>
<S>                                                           <C>
Year ended December 31,
  2000......................................................  $  273,726
  2001......................................................     273,726
  2002......................................................     273,726
  2003......................................................     273,726
  2004......................................................     212,296
  Thereafter................................................     349,267
                                                              ----------
                                                              $1,656,467
                                                              ==========
</TABLE>

     There is an informal agreement with an affiliated company, Madison
Consulting Resources NJ, Inc. to share rent related to shared office space. In
1999, $51,614 of Madison Technology's lease payments were paid by this
affiliate.

NOTE 10  INCOME TAXES

     Income tax expense for the years ended December 31, 1998 and 1999 is
comprised of the following:

<TABLE>
<CAPTION>
                                                              1998      1999
                                                             ------    ------
<S>                                                          <C>       <C>
New York State franchise tax...............................  $  325    $  425
New York City corporation tax..............................   7,256       622
                                                             ------    ------
                                                             $7,581    $1,047
                                                             ======    ======
</TABLE>

NOTE 11  PENSION PLAN

     The Company has adopted a qualified pension plan (the "Plan") under
provisions of Section 401(k) of the Internal Revenue Code. Under the provisions
of the Plan, each participant is able to defer a percentage of his compensation
up to statutory maximums. The plan is administered by a professional retirement
plan consulting firm and assets are held in trust in mutual funds run by a major
insurance company. The Company has not made any contributions to the Plan for
the years ending December 31, 1998 and 1999, respectively.

NOTE 12  CONCENTRATION OF CREDIT RISK

     Financial instruments, which potentially subject the Company to
concentration of credit risk, consist principally of cash and cash equivalents
and trade receivables. The Company places its cash with federally insured
financial institutions and as of December 31, 1998 and 1999, the Company's
balances do not exceed federally insured limits. Fair value of these financial
instruments approximates their carrying values.

     Trade receivables are primarily short-term receivables which arise in the
normal course of business. The Company generally does not require collateral,
and all of its trade receivables are unsecured. At

                                      F-59
<PAGE>   137
                             MICROLAN SYSTEMS, INC.
                         "DBA" MADISON TECHNOLOGY GROUP

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 12  CONCENTRATION OF CREDIT RISK (CONTINUED)
December 31, 1999, the Company had one customer which had an accounts receivable
balance of approximately 15% of the total accounts receivable balance. There
were no other customers that individually had accounts receivable balances
exceeding 10% of the total accounts receivable balance for the years ended
December 31, 1998 and 1999, respectively.

NOTE 13  SUBSEQUENT EVENTS

     On February 1, 2000, Microlan Systems, Inc., doing business as Madison
Technology Group, as well as sister companies Madison Consulting Resources Inc.
and Madison Consulting Resources of New Jersey (collectively "Madison"), entered
into an agreement to sell all of their existing and outstanding shares to
Futurelink Corp. ("Futurelink") Under the terms of the agreement, Futurelink
will pay total consideration of $57.5 million consisting of $6.5 million in
cash, $7.25 million in short term notes and 1.975 million common shares of
Futurelink for 100% of Madison. The transaction is expected to close by February
29, 2000.

                                      F-60
<PAGE>   138

                       MADISON CONSULTING RESOURCES, INC.
                           DECEMBER 31, 1998 AND 1999

                                      F-61
<PAGE>   139

                          INDEPENDENT AUDITOR'S REPORT

To the Board of Directors
Madison Consulting Resources, Inc.
New York, New York

     We have audited the accompanying balance sheets of Madison Consulting
Resources, Inc. as of December 31, 1998 and 1999, 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 have conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. Our audits include examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our audits
also include 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 Madison Consulting
Resources, Inc. as of December 31, 1998 and 1999, and the results of its
operations and cash flows for the years then ended in conformity with generally
accepted accounting principles.

                                          /s/ JOEL E. SAMMET & CO.
                                          Certified Public Accountants

New York, New York
February 15, 2000

                                      F-62
<PAGE>   140

                       MADISON CONSULTING RESOURCES, INC.

                                 BALANCE SHEETS
                           DECEMBER 31, 1998 AND 1999

<TABLE>
<CAPTION>
                                                                 1998          1999
                                                              ----------    ----------
<S>                                                           <C>           <C>
ASSETS
Current Assets
  Cash......................................................  $   51,186    $    4,448
  Accounts receivable (less allowance for doubtful accounts
     of $10,000 at December 31, 1999) (Note 2)..............     620,914       695,473
  Due from affiliate (Note 6)...............................           0       100,940
  Due from related party (Note 4)...........................     672,238       738,225
  Prepaid expenses..........................................           0        11,512
  Other current assets......................................           0         1,713
                                                              ----------    ----------
          Total Current Assets..............................   1,344,338     1,552,311
  Other assets..............................................       7,000         1,185
                                                              ----------    ----------
          Total Assets......................................  $1,351,338    $1,553,496
                                                              ==========    ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
  Accounts payable and accrued expenses.....................  $  154,556    $  130,039
  Due to affiliate (Note 6).................................      16,204             0
  Line of credit (Note 3)...................................     785,000       900,000
  Income taxes payable......................................       1,028        12,801
                                                              ----------    ----------
          Total Current Liabilities.........................     956,788     1,042,840
Long-Term Liabilities
  Loan payable -- shareholder (Note 5)......................     437,400       437,400
                                                              ----------    ----------
          Total Liabilities.................................   1,394,188     1,480,240
                                                              ----------    ----------
Shareholders' Equity
  Capital stock -- 50 shares issued and outstanding.........      20,000        20,000
  Retained (deficit) earnings...............................     (62,850)       53,256
                                                              ----------    ----------
          Total Shareholders' Equity........................     (42,850)       73,256
                                                              ----------    ----------
          Total Liabilities and Shareholders' Equity........  $1,351,338    $1,553,496
                                                              ==========    ==========
</TABLE>

See the Accompanying Notes to Financial Statements.

                                      F-63
<PAGE>   141

                       MADISON CONSULTING RESOURCES, INC.

                              STATEMENTS OF INCOME
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999

<TABLE>
<CAPTION>
                                                                 1998          1999
                                                              ----------    ----------
<S>                                                           <C>           <C>
Service revenues............................................  $2,577,819    $3,725,665
Cost of service revenues....................................   1,980,654     2,534,937
Selling, general and administrative expenses................     568,357     1,061,821
                                                              ----------    ----------
  Operating income before income taxes......................      28,808       128,907
Provision for state and city taxes..........................       1,028        12,801
                                                              ----------    ----------
Net income..................................................  $   27,780    $  116,106
                                                              ==========    ==========
Unaudited pro forma information:
  Pro forma provision for income taxes......................  $   11,811    $   52,852
                                                              ==========    ==========
  Pro forma net income......................................  $   16,997    $   76,055
                                                              ==========    ==========
</TABLE>

See the Accompanying Notes to Financial Statements.

                                      F-64
<PAGE>   142

                       MADISON CONSULTING RESOURCES, INC.

                       STATEMENT OF SHAREHOLDERS' EQUITY
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999

<TABLE>
<CAPTION>
                                                        COMMON STOCK       RETAINED
                                                      -----------------    EARNINGS
                                                      SHARES    AMOUNT     (DEFICIT)     TOTAL
                                                      ------    -------    ---------    --------
<S>                                                   <C>       <C>        <C>          <C>
BALANCES AS OF DECEMBER 31, 1997....................    50      $20,000    $(90,630)    $(70,630)
Net income..........................................     0            0      27,780       27,780
                                                        --      -------    --------     --------
BALANCES AS OF DECEMBER 31, 1998....................    50       20,000     (62,850)     (42,850)
Net income..........................................     0            0     116,106      116,106
                                                        --      -------    --------     --------
BALANCES AS OF DECEMBER 31, 1999....................    50      $20,000    $ 53,256     $ 73,256
                                                        ==      =======    ========     ========
</TABLE>

See the Accompanying Notes to Financial Statements.

                                      F-65
<PAGE>   143

                       MADISON CONSULTING RESOURCES, INC.

                            STATEMENT OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999

<TABLE>
<CAPTION>
                                                                1998         1999
                                                              ---------    ---------
<S>                                                           <C>          <C>
CASH FLOW FROM OPERATING ACTIVITIES:
  Net income................................................  $  27,780    $ 116,106
  Adjustments to reconcile net income to net cash provided
     (used) by operating activities:
     Provision for losses on accounts receivable............          0       84,998
     (Increase) decrease in operating assets:
       Accounts receivable..................................   (370,062)    (159,557)
       Due from affiliate...................................          0     (100,940)
       Prepaid expenses.....................................          0      (11,512)
       Other current assets.................................          0       (1,713)
       Other assets.........................................     (7,000)       5,815
     Increase (decrease) in operating liabilities:
       Accounts payable and accrued expenses................     35,089      (24,517)
       Due to affiliate.....................................     12,088      (16,204)
       Income taxes payable.................................      1,028       11,773
                                                              ---------    ---------
          Net Used By Operating Activities..................   (301,077)     (95,751)
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net proceeds from line of credit..........................    785,000      115,000
  Amounts received on loans from shareholder................    187,400            0
  Payments on loans due from related party..................   (672,238)     (65,987)
                                                              ---------    ---------
          Net Cash Provided By Financing Activities.........    300,162       49,013
                                                              ---------    ---------
Net decrease in cash........................................       (915)     (46,738)
Cash at January 1, 1998 and 1999............................     52,101       51,186
                                                              ---------    ---------
Cash at December 31, 1998 and 1999..........................  $  51,186    $   4,448
                                                              =========    =========
</TABLE>

Cash paid for income taxes for the years ended December 31, 1998 and 1999 was
$625 and $1,028, respectively. Cash paid for interest for the years ended
December 31, 1998 and 1999 was $17,865 and $79,106, respectively.

See the Accompanying Notes to Financial Statements.

                                      F-66
<PAGE>   144

                       MADISON CONSULTING RESOURCES, INC.

                         NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1998 AND 1999

NOTE 1  NATURE OF BUSINESS

     Madison Consulting Resources, Inc. (the "Company") was formed in 1997 and
is a provider of information technology through placement of computer
consultants on a temporary and permanent basis to Fortune 1000 companies.

NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

REVENUE RECOGNITION

     Revenue is recognized from the temporary placement of computer consultants
as services are performed. Permanent placement revenues are recognized when
computer consultants are placed. Revenue is reflected net of estimated returns
and allowances.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

     The Company reflects accounts receivable at net realizable value. There is
no allowance for doubtful accounts at December 31, 1998. There is an allowance
for doubtful accounts at December 31, 1999 of $10,000.

INCOME TAXES

     The Company has elected under the Internal Revenue Service Code to be taxed
as an S corporation, which is also effective for state tax purposes. In lieu of
corporate income taxes, the shareholders of an S corporation are taxed on their
proportionate share of the company's taxable income. Therefore, no provision or
liability for federal income tax has been included in the financial statements.
However, state and city taxes calculated at the greater of minimum, regular or
alternative tax methods have been provided for in the financial statements.

     Upon consummation of an agreement to sell the outstanding stock of the
Company to Futurelink Corp. (see Note 8), the Company's status as an S
corporation under the Code will automatically terminate and normal federal and
state corporate income tax rates will apply.

     On a pro forma basis (unaudited), assuming the Company's status as an S
corporation terminated as of December 31, 1997, the Company would have had pro
forma federal and state tax expense of $11,811 and $52,852 for the years ended
December 31, 1998 and 1999, respectively.

NOTE 3  LINE OF CREDIT

     The Company has a line of credit with a bank, which is in the form of a
time secured loan maturing March 14, 2000. The loan is secured by eligible
accounts receivable. The Company can borrow up to 80%

                                      F-67
<PAGE>   145
                       MADISON CONSULTING RESOURCES, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 3  LINE OF CREDIT (CONTINUED)
of eligible accounts receivable (outstanding 90 days or less) up to $1,000,000
and $2,000,000 at December 31, 1998 and 1999, respectively. Interest is payable
monthly at 1.50% over the bank's prime rate which amounted to 10.00% at December
31, 1998 and 1999. As of December 31, 1998 and 1999, outstanding borrowings
under the line of credit was $785,000 and $900,000, respectively. Loan payable
to shareholder is subordinated to this time secured loan.

NOTE 4  DUE FROM RELATED PARTY

     During 1998 and 1999, the Company had transactions with an affiliated
company, Madison Consulting Resources NJ, Inc. ("MCR NJ") a company which is
majority owned by the sole shareholder of the Company. During 1998 and 1999, the
Company shared office expenses with MCR NJ, and charged it for common office and
administrative expenses paid for or incurred by the Company primarily based on
an allocation of monthly sales or outstanding accounts receivable balances. In
addition, the Company charged MCR NJ $120,000 for management services for the
year ended December 31, 1998. Management believes that the allocation of common
expenses from Microlan Systems, Inc. are reasonable and consistent with what the
expenses would have been on a stand-alone basis.

     The Company also loaned MCR NJ amounts for working capital purposes. At
December 31, 1998 and 1999, the Company had balances due from MCR NJ in the
amount of $672,238 and $738,225, respectively.

NOTE 5  LOAN PAYABLE -- SHAREHOLDER

     Loan payable to shareholder consists of borrowings for working capital
purposes and amounted to $437,400 at December 31, 1998 and 1999.

     Loan payable to shareholder is unsecured and is subordinated to the bank
line of credit.

NOTE 6  RELATED PARTY TRANSACTIONS

     During 1998 and 1999, the Company had transactions with an affiliated
company, Microlan Systems, Inc. DBA Madison Technology Group, a company which is
owned by the sons of the sole shareholder of the Company. During 1998 and 1999,
the Company shared office space with this affiliated company, and was charged
for overhead, primarily for rent and shared administrative salaries.

                                      F-68
<PAGE>   146
                       MADISON CONSULTING RESOURCES, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

NOTE 6  RELATED PARTY TRANSACTIONS (CONTINUED)
     Following is a summary of transactions and balances with this affiliated
company for 1998 and 1999:

<TABLE>
<CAPTION>
                                                                1998        1999
                                                              --------    --------
<S>                                                           <C>         <C>
Sales.......................................................  $      0    $285,352
                                                              ========    ========
Purchase of computer consultants labor (included in cost of
  sales)....................................................  $435,558    $ 46,784
                                                              ========    ========
Accounts receivable (included in the accompanying balance
  sheets)...................................................  $      0    $107,616
                                                              ========    ========
Due from affiliated company (included in the accompanying
  balance sheets)...........................................  $      0    $100,940
                                                              ========    ========
Accounts payable (included in the accompanying balance
  sheets)...................................................  $ 72,102    $  1,108
                                                              ========    ========
Due to affiliated company (included in the accompanying
  balance sheets)...........................................  $ 16,204    $      0
                                                              ========    ========
Overhead charged, reduced by $15,291 and $22,848 in 1998 and
  1999, respectively, for amounts allocated to MCR NJ
  (included in general and administrative expenses).........  $202,912    $ 19,152
                                                              ========    ========
</TABLE>

NOTE 7  CONCENTRATION OF CREDIT RISK

     Financial instruments, which potentially subject the Company to
concentration of credit risk, consist principally of cash and cash equivalents
and trade receivables. The Company places its cash with federally insured
financial institutions and as of December 31, 1998 and 1999, the Company's
balances do not exceed federally insured limits. Fair value of these financial
instruments approximates their carrying values.

     Trade receivables are primarily short-term receivables which arise in the
normal course of business. The Company generally does not require collateral,
and all of its trade receivables are unsecured. At December 31, 1998,
approximately 38% of the Company's trade receivables were represented by two
customers, with one customer representing approximately 25% of the outstanding
trade receivable balance. At December 31, 1999, approximately 38% of the
Company's trade receivables were represented by two customers, with one customer
representing approximately 22% of the outstanding trade receivable balance.
There were no other customers that individually had accounts receivable balances
exceeding 10% of the total accounts receivable balance for the year ended
December 31, 1998 and 1999, respectively.

NOTE 8  SUBSEQUENT EVENTS

     On February 1, 2000, Microlan Systems, Inc., doing business as Madison
Technology Group, as well as sister companies Madison Consulting Resources Inc.
and Madison Consulting Resources of New Jersey (collectively "Madison"), entered
into an agreement to sell all of their existing and outstanding shares to
Futurelink Corp. ("Futurelink") Under the terms of the agreement, Futurelink
will pay total consideration of $57.5 million consisting of $6.5 million in
cash, $7.25 million in short term notes and 1.975 million common shares of
Futurelink for 100% of Madison. The transaction is expected to close by February
29, 2000.

                                      F-69
<PAGE>   147

                     MADISON CONSULTING RESOURCES NJ, INC.
                           DECEMBER 31, 1998 AND 1999

                                      F-70
<PAGE>   148

                          INDEPENDENT AUDITOR'S REPORT

To the Board of Directors
Madison Consulting Resources NJ, Inc.
New York, New York

     We have audited the accompanying balance sheets of Madison Consulting
Resources NJ, Inc. as of December 31, 1998 and 1999, and the related statements
of income, shareholders' equity and cash flows for the year then ended and for
the period from inception January 22, 1998 to December 31, 1998. 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 have conducted our audit in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. 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 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 Madison Consulting Resources
NJ, Inc. as of December 31, 1998 and 1999, and the results of its operations and
cash flows for the year and the initial period then ended in conformity with
generally accepted accounting principles.

                                          /s/ JOEL E. SAMMET & CO.
                                          Certified Public Accountants

New York, New York
February 15, 2000

                                      F-71
<PAGE>   149

                     MADISON CONSULTING RESOURCES NJ, INC.

                                 BALANCE SHEETS
                           DECEMBER 31, 1998 AND 1999

<TABLE>
<CAPTION>
                                                                  1998          1999
                                                                --------     ----------
<S>                                                             <C>          <C>
ASSETS
Current Assets
  Cash......................................................    $ 43,320     $    3,442
  Accounts receivable -- trade (less allowance for doubtful
     accounts of $10,000 at December 31, 1999)..............     670,738      1,159,172
  Loan receivable -- shareholder............................       8,000         25,500
  Due from affiliate (Note 4)...............................           0         18,835
  Prepaid expenses..........................................           0         22,447
  Other current assets......................................           0            305
                                                                --------     ----------
          Total Current Assets..............................     722,058      1,229,701
                                                                --------     ----------
Property and Other Assets
  Property and equipment (net of accumulated depreciation of
     $11,772)...............................................           0         52,347
  Other assets..............................................           0            442
                                                                --------     ----------
          Total Property, Equipment and Other Assets........           0         52,789
                                                                --------     ----------
          Total Assets......................................    $722,058     $1,282,490
                                                                ========     ==========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
  Accounts payable and accrued expenses.....................    $  7,920     $  263,460
  Loan payable -- shareholder...............................           0          5,000
  Income taxes payable......................................         200          4,796
  Due to related party (Note 3).............................     672,238        738,225
                                                                --------     ----------
          Total Current Liabilities.........................     680,358      1,011,481
                                                                --------     ----------
Shareholders' Equity
  Capital stock -- 200 shares issued and outstanding........      20,000         20,000
  Retained earnings.........................................      21,700        251,009
                                                                --------     ----------
          Total Shareholders' Equity........................      41,700        271,009
                                                                --------     ----------
          Total Liabilities and Shareholders' Equity........    $722,058     $1,282,490
                                                                ========     ==========
</TABLE>

See the Accompanying Notes to Financial Statements.

                                      F-72
<PAGE>   150

                     MADISON CONSULTING RESOURCES NJ, INC.

                              STATEMENTS OF INCOME
              FROM INCEPTION JANUARY 22, 1998 TO DECEMBER 31, 1998
                      AND THE YEAR ENDED DECEMBER 31, 1999

<TABLE>
<CAPTION>
                                                                 1998          1999
                                                              ----------    ----------
<S>                                                           <C>           <C>
Service revenues............................................  $2,512,757    $6,404,652
Cost of service revenues....................................   1,850,451     4,765,283
Selling, general and administrative expenses................     640,406     1,405,064
                                                              ----------    ----------
  Income before income taxes................................      21,900       234,305
Provision for state taxes...................................         200         4,996
                                                              ----------    ----------
Net income..................................................  $   21,700    $  229,309
                                                              ==========    ==========
Unaudited pro forma information:
  Pro forma income tax expense..............................  $    8,979    $   96,065
                                                              ==========    ==========
  Pro forma net income......................................  $   12,921    $  133,244
                                                              ==========    ==========
</TABLE>

See the Accompanying Notes to Financial Statements.

                                      F-73
<PAGE>   151

                     MADISON CONSULTING RESOURCES NJ, INC.

                       STATEMENT OF SHAREHOLDERS' EQUITY
              FROM INCEPTION JANUARY 22, 1998 TO DECEMBER 31, 1998
                      AND THE YEAR ENDED DECEMBER 31, 1999

<TABLE>
<CAPTION>
                                                        COMMON STOCK
                                                      -----------------    RETAINED
                                                      SHARES    AMOUNT     EARNINGS     TOTAL
                                                      ------    -------    --------    --------
<S>                                                   <C>       <C>        <C>         <C>
Common stock issued.................................   200      $20,000    $      0    $ 20,000
Net income..........................................     0            0      21,700      21,700
                                                       ---      -------    --------    --------
BALANCES AS OF DECEMBER 31, 1998....................   200       20,000      21,700      41,700
Net income..........................................     0            0     229,309     229,309
                                                       ---      -------    --------    --------
BALANCES AS OF DECEMBER 31, 1999....................   200      $20,000    $251,009    $271,009
                                                       ===      =======    ========    ========
</TABLE>

See the Accompanying Notes to Financial Statements.

                                      F-74
<PAGE>   152

                     MADISON CONSULTING RESOURCES NJ, INC.

                            STATEMENT OF CASH FLOWS
              FROM INCEPTION JANUARY 22, 1998 TO DECEMBER 31, 1998
                      AND THE YEAR ENDED DECEMBER 31, 1999

<TABLE>
<CAPTION>
                                                                1998         1999
                                                              ---------    ---------
<S>                                                           <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income................................................  $  21,700    $ 229,309
  Adjustments to reconcile net income to net cash provided
     (used) by operating activities:
     Provision for losses on accounts receivable............          0       13,923
     Depreciation...........................................          0       11,772
     (Increase) decrease in operating assets:
       Accounts receivable..................................   (670,738)    (502,357)
       Due from affiliate...................................          0      (18,835)
       Prepaid expenses.....................................          0      (22,447)
       Other current assets.................................          0         (305)
       Other assets.........................................          0         (442)
     Increase (decrease) in operating liabilities:
       Accounts payable and accrued expenses................      7,920      255,540
       Income taxes payable.................................        200        4,596
                                                              ---------    ---------
          Net Cash Used By Operating Activities.............   (640,918)     (29,246)
CASH FLOWS (USED BY) INVESTING ACTIVITIES:
  Purchase of computers, office equipment and furniture and
     fixtures...............................................          0      (64,119)
                                                              ---------    ---------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
  Payments on loan receivable to shareholder................     (8,000)     (17,500)
  Amounts received from loan payable to shareholder.........          0        5,000
  Amounts received on loan payable to related party.........    672,238       65,987
  Proceeds from issuance of capital stock...................     20,000            0
                                                              ---------    ---------
          Net Cash Provided By Financing Activities.........    684,238       53,487
                                                              ---------    ---------
Net increase (decrease) in cash.............................     43,320      (39,878)
Cash at January 1, 1998 and 1999............................          0       43,320
                                                              ---------    ---------
Cash at December 31, 1998 and 1999..........................  $  43,320    $   3,442
                                                              =========    =========
</TABLE>

Cash paid for income taxes for the years ended December 31, 1998 and 1999 was
$-0- and $400, respectively. Cash paid for interest for the years ended December
31, 1998 and 1999 was $-0- and $96,958, respectively.

See the Accompanying Notes to Financial Statements.

                                      F-75
<PAGE>   153

                     MADISON CONSULTING RESOURCES NJ, INC.

                         NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1998 AND 1999

NOTE 1  NATURE OF BUSINESS

     Madison Consulting Resources NJ, Inc. (the "Company") was formed in 1998
and is a top provider of information technology through placement of computer
consultants on a temporary and permanent basis to Fortune 1000 companies.

NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

REVENUE RECOGNITION

     Revenue is recognized from the temporary placement of computer consultants
as services are performed. Permanent placement revenues are recognized when
computer consultants are placed. Revenue is reflected net of estimated returns
and allowances.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

     The Company reflects accounts receivable at net realizable value. There is
no allowance for doubtful accounts at December 31, 1998. There is an allowance
for doubtful accounts at December 31, 1999 of $10,000.

INCOME TAXES

     The Company has elected under the Internal Revenue Service Code to be taxed
as an S corporation. In lieu of corporate income taxes, the shareholders of an S
corporation are taxed on their proportionate share of the company's taxable
income. Therefore, no provision or liability for federal income tax has been
included in the financial statements. However, state taxes calculated at the
greater of minimum, regular or alternative tax methods have been provided for in
the financial statements.

     Upon consummation of an agreement to sell the outstanding stock of the
Company to Futurelink Corp. (see Note 6), the Company's status as an S
corporation under the Code will automatically terminate and normal federal and
state corporate income tax rates will apply.

     On a pro forma basis (unaudited), assuming the Company's status as an S
corporation terminated as of December 31, 1997, the Company would have had pro
forma federal and state tax expense of $8,979 and $96,065 for the years ended
December 31, 1998 and 1999.

NOTE 3  DUE TO RELATED PARTY

     During 1998 and 1999, the Company had transactions with an affiliated
company, Madison Consulting Resources, Inc. ("MCR"), a company which is owned by
the majority shareholder of the Company. During 1998 and 1999, the Company
shared office expenses with MCR, and was charged for common

                                      F-76
<PAGE>   154
                     MADISON CONSULTING RESOURCES NJ, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

office and administrative expenses paid or incurred by MCR primarily based on an
allocation of monthly sales or outstanding accounts receivable balances. In
addition, MCR charged the Company $120,000 for management services for the year
ended December 31, 1998.

     The Company also had borrowings from MCR for working capital purposes. At
December 31, 1998 and 1999, the Company had balances due to MCR in the amount of
$672,238 and $738,225, respectively.

NOTE 4  RELATED PARTY TRANSACTIONS

     During 1998 and 1999, the Company was allocated with overhead charges by
MCR from an affiliated company, Microlan Systems, Inc. DBA Madison Technology
Group, a company which is owned by the sons of the majority shareholder of the
Company. For the year ending December 31, 1998 and 1999, overhead allocated by
MCR from this affiliate amounted to $15,291 and $22,848, respectively, and is
included in general and administrative expenses in the accompanying statements
of income. Management believes that the allocation of common expenses from
Microlan Systems, Inc. are reasonable and consistent with what the expenses
would have been on a stand-alone basis.

     At December 31, 1999, the Company had a balance due from this affiliated
company in the amount of $18,835.

NOTE 5  CONCENTRATION OF CREDIT RISK

     Financial instruments, which potentially subject the Company to
concentration of credit risk, consist principally of cash and cash equivalents
and trade receivables. The Company places its cash with federally insured
financial institutions and as of December 31, 1998 and 1999, the Company's
balances do not exceed federally insured limits. Fair value of these financial
instruments approximates their carrying values.

     Trade receivables are primarily short-term receivables which arise in the
normal course of business. The Company generally does not require collateral,
and all of its trade receivables are unsecured. At December 31, 1998,
approximately 75% of the Company's trade receivables were represented by three
customers, with one customer representing approximately 40% of the outstanding
trade receivable balance. At December 31, 1999, approximately 70% of the
Company's trade receivables were represented by two customers, with one customer
representing approximately 52% of the outstanding trade receivable balance.
There were no other customers that individually had accounts receivable balances
exceeding 10% of the total accounts receivable balance for the year ended
December 31, 1998 and 1999, respectively.

NOTE 6  SUBSEQUENT EVENTS

     On February 1, 2000, Microlan Systems, Inc., doing business as Madison
Technology Group, as well as sister companies Madison Consulting Resources Inc.
and Madison Consulting Resources of New Jersey (collectively "Madison"), entered
into an agreement to sell all of their existing and outstanding shares to
Futurelink Corp. ("Futurelink") Under the terms of the agreement, Futurelink
will pay total consideration of $57.5 million consisting of $6.5 million in
cash, $7.25 million in short term notes and 1.975 million common shares of
Futurelink for 100% of Madison. The transaction is expected to close by February
29, 2000.

                                      F-77
<PAGE>   155

                        EXECUTIVE LAN MANAGEMENT, INC.,
                               DBA MICRO VISIONS
                              FINANCIAL STATEMENTS

                                      F-78
<PAGE>   156

                         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 (the "Company") as of December 31, 1997 and
1998 and September 30, 1999, and the related statements of operations,
shareholders' equity, and cash flows for the years ended December 31, 1997 and
1998 and the nine months ended September 30, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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, 1997 and 1998 and September 30, 1999,
and the results of its operations and its cash flows for the years ended
December 31, 1997 and 1998 and the nine months ended September 30, 1999, in
conformity with accounting principles generally accepted in the United States.

                                          /s/ ERNST & YOUNG LLP

Orange County, California
November 17, 1999

                                      F-79
<PAGE>   157

                        EXECUTIVE LAN MANAGEMENT, INC.,
                               DBA MICRO VISIONS

                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                            DECEMBER 31,   DECEMBER 31,   SEPTEMBER 30,   SEPTEMBER 30,
                                                1997           1998           1998            1999
                                            ------------   ------------   -------------   -------------
                                                                           (UNAUDITED)
<S>                                         <C>            <C>            <C>             <C>
ASSETS
Current assets:
  Cash....................................   $  690,000     $  157,000     $  234,000      $  135,000
  Accounts receivable, less allowance for
     doubtful accounts of $79,000 and
     $115,000 at December 31, 1997 and
     1998, respectively, and $50,000 and
     $531,000 at September 30, 1998 and
     1999, respectively...................    1,052,000      2,063,000      2,679,000       4,235,000
  Inventories.............................      231,000        815,000        501,000         594,000
  Advances due from officers..............       72,000          2,000             --              --
  Other current assets....................        1,000         15,000         15,000              --
                                             ----------     ----------     ----------      ----------
     Total current assets.................    2,046,000      3,052,000      3,429,000       4,964,000
Property and equipment, less accumulated
  depreciation of $83,000 and $122,000 at
  December 31, 1997 and 1998,
  respectively, and $93,000 and $206,000
  at September 30, 1998 and 1999,
  respectively............................       83,000        389,000        323,000       1,019,000
Other assets..............................       33,000        146,000         77,000          44,000
                                             ----------     ----------     ----------      ----------
Total assets..............................   $2,162,000     $3,587,000      3,829,000      $6,027,000
                                             ==========     ==========     ==========      ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable........................   $  169,000     $  797,000     $  511,000      $2,333,000
  Line of credit..........................      150,000        261,000        588,000       1,394,000
  Income taxes payable....................      237,000        153,000        218,000              --
  Deferred income taxes...................      235,000        435,000        487,000         588,000
  Bonuses payable.........................      141,000             --             --         444,000
  Commissions payable.....................       40,000        157,000        168,000         306,000
  Payroll taxes payable...................           --             --             --         186,000
  Other accrued expenses and other
     liabilities..........................      251,000        307,000        129,000         245,000
  Deferred revenue........................       90,000         73,000        303,000         124,000
                                             ----------     ----------     ----------      ----------
Total current liabilities.................    1,313,000      2,183,000      2,404,000       5,620,000
Commitments
Shareholders' equity:
  Common stock, no par value:
     Authorized shares -- 1,000,000
     Issued and outstanding shares -- 200
       in 1999, 1998, and 1997............       10,000         10,000         10,000          10,000
  Retained earnings.......................      839,000      1,394,000      1,415,000         397,000
                                             ----------     ----------     ----------      ----------
     Total shareholders' equity...........      849,000      1,404,000      1,425,000         407,000
                                             ----------     ----------     ----------      ----------
Total liabilities and shareholders'
  equity..................................   $2,162,000     $3,587,000     $3,829,000      $6,027,000
                                             ==========     ==========     ==========      ==========
</TABLE>

See accompanying notes.

                                      F-80
<PAGE>   158

                        EXECUTIVE LAN MANAGEMENT, INC.,
                               DBA MICRO VISIONS

                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                          NINE MONTHS     NINE MONTHS
                                            YEAR ENDED     YEAR ENDED        ENDED           ENDED
                                           DECEMBER 31,   DECEMBER 31,   SEPTEMBER 30,   SEPTEMBER 30,
                                               1997           1998           1998            1999
                                           ------------   ------------   -------------   -------------
                                                                          (UNAUDITED)
<S>                                        <C>            <C>            <C>             <C>
Revenue:
  Hardware and software..................   $6,450,000    $ 8,071,000     $4,071,000      $10,458,000
  Service delivery.......................    3,115,000      5,598,000      5,445,000        6,099,000
                                            ----------    -----------     ----------      -----------
                                             9,565,000     13,669,000      9,516,000       16,557,000
                                            ----------    -----------     ----------      -----------
Costs and expenses:
  Cost of hardware and software..........    5,749,000      6,687,000      4,515,000        9,123,000
  Cost of service delivery...............      758,000      1,808,000      2,254,000        1,651,000
  Selling, general and administrative....    2,158,000      4,270,000      1,909,000        6,594,000
  Depreciation and amortization..........       20,000         39,000         10,000           84,000
  Interest expense.......................       10,000         44,000             --           19,000
  Interest income........................      (63,000)       (34,000)            --           (7,000)
                                            ----------    -----------     ----------      -----------
                                             8,632,000     12,814,000      8,688,000       17,464,000
                                            ----------    -----------     ----------      -----------
(Loss) income before income taxes........      933,000        855,000        828,000         (907,000)
Provision for income taxes...............      395,000        178,000        252,000               --
                                            ----------    -----------     ----------      -----------
Net income (loss)........................   $  538,000    $   677,000     $  576,000      $  (907,000)
                                            ==========    ===========     ==========      ===========
Unaudited pro forma information:
  Pro forma income tax expense
     (benefit)...........................   $  395,000    $   329,000     $  317,000      $  (357,000)
                                            ==========    ===========     ==========      ===========
  Pro forma net income (loss)............   $  538,000    $   526,000     $  511,000      $  (550,000)
                                            ==========    ===========     ==========      ===========
</TABLE>

See accompanying notes.

                                      F-81
<PAGE>   159

                        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 (unaudited)........................    --           --       576,000       576,000
  Distributions to shareholders (unaudited).....    --           --            --            --
                                                   ---      -------    ----------    ----------
Balance at September 30, 1998 (unaudited).......   200       10,000     1,415,000     1,425,000
                                                   ---      -------    ----------    ----------
  Net income (unaudited)........................    --           --       101,000       101,000
  Distribution to shareholders (unaudited)......    --           --      (122,000)     (122,000)
                                                   ---      -------    ----------    ----------
Balance at December 31, 1998....................   200       10,000     1,394,000     1,404,000
                                                   ---      -------    ----------    ----------
  Net loss......................................    --           --      (907,000)     (907,000)
  Distributions to shareholders.................    --           --       (90,000)      (90,000)
                                                   ---      -------    ----------    ----------
Balance at September 30, 1999...................   200      $10,000    $  397,000    $  407,000
                                                   ===      =======    ==========    ==========
</TABLE>

See accompanying notes.

                                      F-82
<PAGE>   160

                        EXECUTIVE LAN MANAGEMENT, INC.,
                               DBA MICRO VISIONS

                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                          NINE MONTHS     NINE MONTHS
                                            YEAR ENDED     YEAR ENDED        ENDED           ENDED
                                           DECEMBER 31,   DECEMBER 31,   SEPTEMBER 30,   SEPTEMBER 30,
                                               1997           1998           1998            1999
                                           ------------   ------------   -------------   -------------
                                                                          (UNAUDITED)
<S>                                        <C>            <C>            <C>             <C>
OPERATING ACTIVITIES
Net (loss) income........................   $ 538,000     $   677,000     $   576,000    $   (907,000)
Adjustments to reconcile net (loss)
  income to net cash (used in) provided
  by operating activities:
     Depreciation and amortization.......      20,000          39,000          10,000          84,000
     Change in operating assets and
       liabilities:
       Accounts receivable...............    (495,000)     (1,011,000)     (1,627,000)     (2,172,000)
       Inventories.......................    (183,000)       (584,000)       (270,000)        221,000
       Other current assets..............          --         (14,000)        (14,000)         15,000
       Advance due from officers.........     (72,000)         70,000          72,000           2,000
       Other assets......................     (25,000)       (113,000)        (44,000)        102,000
       Accounts payable and accrued
          expenses.......................     281,000         660,000         207,000       2,253,000
       Income taxes payable..............     237,000         (84,000)        (19,000)       (153,000)
       Deferred income taxes.............     141,000         200,000         252,000         153,000
       Deferred revenue..................      90,000         (17,000)        213,000          51,000
                                            ---------     -----------     -----------    ------------
          Net cash (used in) provided by
            operating activities.........     532,000        (177,000)       (644,000)       (351,000)
INVESTING ACTIVITIES
Purchases of equipment...................     (50,000)       (345,000)       (250,000)       (714,000)
FINANCING ACTIVITIES
Distribution to shareholders.............          --        (122,000)             --         (90,000)
Net borrowings (repayment) from/of line
  of credit..............................     (93,000)        111,000         438,000       1,133,000
                                            ---------     -----------     -----------    ------------
Net cash provided by (used in) financing
  activities.............................     (93,000)        (11,000)        438,000       1,043,000
                                            ---------     -----------     -----------    ------------
Increase (decrease) in cash..............     389,000        (533,000)       (456,000)        (22,000)
Cash at beginning of period..............     301,000         690,000         690,000         157,000
                                            ---------     -----------     -----------    ------------
Cash at end of period....................   $ 690,000     $   157,000     $   234,000    $    135,000
                                            =========     ===========     ===========    ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
  INFORMATION
Interest paid............................   $  11,000     $     4,000     $     3,000    $     19,000
Income taxes paid........................      17,000          62,000          55,000             800
</TABLE>

See accompanying notes.

                                      F-83
<PAGE>   161

                         EXECUTIVE LAN MANAGEMENT, INC.
                               DBA MICRO VISIONS

                         NOTES TO FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

     Executive LAN Management, Inc., 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 United States.

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 service delivery revenue upon delivery of service.
Hardware and software revenue is recognized upon delivery, or upon installation
when required under contract terms.

UNBILLED ACCOUNTS RECEIVABLES

     Unbilled accounts receivable, representing unbilled consulting services, of
$65,000 and $89,000 at December 31, 1997 and 1998, respectively, and $88,000 and
$0 at September 30, 1998 and 1999, respectively, are billable upon attainment of
performance milestones and included in accounts receivable on the accompanying
balance sheets. The Company expects such amounts to be billed and collected
within twelve months of each respective balance sheet date.

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-84
<PAGE>   162
                         EXECUTIVE LAN MANAGEMENT, INC.
                               DBA MICRO VISIONS

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

PROPERTY AND EQUIPMENT

     Property and equipment is stated at cost. Depreciation is computed using
the straight-line method based upon the estimated useful lives of the related
assets which range from five to seven years. Leasehold improvements are
amortized using the straight-line method over seven years. Property and
equipment were comprised of the following:

<TABLE>
<CAPTION>
                                           DECEMBER 31,   DECEMBER 31,   SEPTEMBER 30,   SEPTEMBER 30,
                                               1997           1998           1998            1999
                                           ------------   ------------   -------------   -------------
<S>                                        <C>            <C>            <C>             <C>
Office furniture.........................    $ 15,000      $  90,000       $ 47,000       $  124,000
Computer equipment.......................     149,000        376,000        329,000          978,000
Computer software........................          --             --             --           52,000
Leasehold improvements...................       2,000         45,000         40,000           71,000
                                             --------      ---------       --------       ----------
                                              166,000        511,000        416,000        1,225,000
Less accumulated depreciation and
  amortization...........................     (83,000)      (122,000)       (93,000)        (206,000)
                                             --------      ---------       --------       ----------
                                             $ 83,000      $ 389,000       $323,000       $1,019,000
                                             ========      =========       ========       ==========
</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.

     Effective July 1, 1998, the shareholders 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.

     The unaudited pro forma information included on the accompanying Statements
of Operations is presented to show the pro forma income tax expense (benefit) on
the separate return basis for periods subsequent to July 1, 1998.

FAIR VALUE OF FINANCIAL INSTRUMENTS

     The Company's financial instruments consist principally of cash,
receivables, payables, and borrowings. The Company believes all the financial
instruments' recorded values approximate current values.

                                      F-85
<PAGE>   163
                         EXECUTIVE LAN MANAGEMENT, INC.
                               DBA MICRO VISIONS

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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 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. 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 1999, there were no individual
customers which accounted for 10% of total sales. The Company provides for
uncollectible amounts upon recognition of revenue and when specific credit
problems arise. The Company performs credit evaluations on all new customers.
During 1998, 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, 1997 and 1998 was $11,000
and $106,000, respectively, and $71,000 and $80,000 for the nine months ended
September 30, 1998 and 1999, respectively.

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. The Company
did not have any components of comprehensive income as defined by SFAS No. 130
for any period presented.

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 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 results of operations or
financial position of the Company. The Company views its business as a single
segment, a network service solution company, and therefore has no reportable
segments under FAS 131. All segment disclosures are included in or can be
derived from the Company's financial statements.

CERTAIN RECLASSIFICATIONS

     Certain amounts in the 1998 and 1997 financial statements have been
reclassified to conform to the current period presentation.

                                      F-86
<PAGE>   164
                         EXECUTIVE LAN MANAGEMENT, INC.
                               DBA MICRO VISIONS

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

INTERIM FINANCIAL INFORMATION

     The unaudited financial statements for the nine month period ended
September 30, 1998 included herein are unaudited; however, they contain all
normal recurring accruals and adjustments which, in the opinion of management,
are necessary to present fairly the consolidated financial position of the
Company at September 30, 1998 and the results of its operations and cash flows
for the nine months ended September 30, 1998.

2. INCOME TAXES

     Provision (benefit) for income taxes is comprised of the following:

<TABLE>
<CAPTION>
                                                                      NINE MONTHS      NINE MONTHS
                                      YEAR ENDED      YEAR ENDED         ENDED            ENDED
                                     DECEMBER 31,    DECEMBER 31,    SEPTEMBER 30,    SEPTEMBER 30,
                                         1997            1998            1998             1999
                                     ------------    ------------    -------------    -------------
<S>                                  <C>             <C>             <C>              <C>
Current:
  Federal..........................    $201,000        $(22,000)       $     --            $--
  State............................      53,000              --              --            --
                                       --------        --------        --------            --
                                        254,000         (22,000)             --            --
Deferred:
  Federal..........................     120,000         162,000         180,000            --
  State............................      21,000          38,000          72,000            --
                                       --------        --------        --------            --
                                        141,000         200,000         252,000            --
                                       --------        --------        --------            --
Total provision for income taxes...    $395,000        $178,000        $252,000            $--
                                       ========        ========        ========            ==
</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,   DECEMBER 31,   SEPTEMBER 30,   SEPTEMBER 30,
                                                1997           1998           1998            1999
                                            ------------   ------------   -------------   -------------
<S>                                         <C>            <C>            <C>             <C>
Deferred tax assets:
  Depreciation............................   $   1,000      $   1,000       $   1,000       $      --
  Other...................................          --             --         151,000              --
                                             ---------      ---------       ---------       ---------
Total deferred tax assets.................       1,000          1,000         152,000              --
Deferred tax liabilities:
  Inventory adjustment....................     (92,000)      (213,000)       (167,000)       (213,000)
  Accrual to cash adjustment..............    (144,000)      (223,000)       (472,000)       (223,000)
  Other...................................          --             --              --        (152,000)
                                             ---------      ---------       ---------       ---------
Net deferred tax liabilities..............    (236,000)      (436,000)       (639,000)       (588,000)
                                             ---------      ---------       ---------       ---------
Total net deferred tax liabilities........   $(235,000)     $(435,000)      $(487,000)      $(588,000)
                                             =========      =========       =========       =========
</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 shareholders. A state provision for income taxes will be
recorded based on a California statutory rate of 1.5% for Subchapter S
Corporations.

                                      F-87
<PAGE>   165
                         EXECUTIVE LAN MANAGEMENT, INC.
                               DBA MICRO VISIONS

                   NOTES TO FINANCIAL STATEMENTS (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:

<TABLE>
<CAPTION>
                                                                       NINE MONTHS     NINE MONTHS
                                         YEAR ENDED     YEAR ENDED        ENDED           ENDED
                                        DECEMBER 31,   DECEMBER 31,   SEPTEMBER 30,   SEPTEMBER 30,
                                            1997           1998           1998            1999
                                        ------------   ------------   -------------   -------------
<S>                                     <C>            <C>            <C>             <C>
Benefit computed at the statutory
  rate................................    $317,000      $ 291,000       $ 282,000       $(308,000)
S Corporation income not subject to
  tax.................................          --       (111,000)        (24,000)        308,000
Nondeductible expenses................       6,000         (6,000)         (6,000)             --
State income tax, net of federal
  income tax benefit..................      54,000         19,000              --              --
Other.................................      18,000        (15,000)             --              --
                                          --------      ---------       ---------       ---------
Income tax expense....................    $395,000      $ 178,000       $ 252,000       $      --
                                          ========      =========       =========       =========
</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 (8.25% at September 30, 1999) plus
3.03%. At September 30, 1999, the unused credit line was $1,106,000.
Substantially all of the Company's assets are collateral under the line of
credit agreement. This debt is guaranteed by the shareholders of the Company.

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 September 30, 1999 are as follows:

<TABLE>
<S>                                                        <C>
1999.....................................................  $  117,000
2000.....................................................     382,000
2001.....................................................     267,000
2002.....................................................     182,000
2003.....................................................      91,000
                                                           ----------
                                                           $1,039,000
                                                           ==========
</TABLE>

     Rent expense was $36,000 and $135,000 for the years ended December 31, 1997
and 1998, respectively, and $105,000 and $206,000 for the nine months ended
September 30, 1998 and 1999, respectively.

5. RELATED PARTY TRANSACTIONS

     During 1997 and 1998, the Company made various advances to its officers.
Advances in 1997 aggregated $72,000, including 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,
1997 and 1998 was $72,000 and $2,000, respectively, and $0 and $0 at September
30, 1998 and 1999, respectively.

                                      F-88
<PAGE>   166
                         EXECUTIVE LAN MANAGEMENT, INC.
                               DBA MICRO VISIONS

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

     During the period ended September 30, 1999, the Company entered into
transactions with FutureLink Distribution Corp. ("FutureLink"). At September 30,
1999, there was a receivable from FutureLink of $107,000, which is included in
accounts receivable on the accompanying balance sheet (see Note 7).

6. 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,
1997 and 1998 were $15,000 and $108,000, respectively, and $54,000 and $104,000
for the nine months ended September 30, 1998 and 1999, respectively.

7. 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. 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.

     On October 15, 1999, the Agreement was approved and finalized. In addition,
the name of the Company was changed from Executive LAN Management, Inc. dba
Micro Visions to FutureLink Micro Visions Corporation.

8. 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 has completed its review and remediation of its non-IT
systems and its IT systems other than the financial reporting system. 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 has completed contingency plans to
address the year 2000 issues that may pose a significant risk to the Company's
ongoing operations.

                                      F-89
<PAGE>   167

                               CN NETWORKS, INC.
                             DBA COMPUTER NETWORKS
                              FINANCIAL STATEMENTS

                                      F-90
<PAGE>   168

To The Board of Directors
CN Networks, Inc.
dba Computer Networks
Pleasanton, California

     We have audited the accompanying balance sheets of Computer Networks, Inc.
as of December 31, 1997 and 1998 and the related statements of income,
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 have conducted our audits in accordance with generally accepted audited
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. 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 CN Networks, Inc. dba
Computer Networks as of December 31, 1997 and 1998, and the results of its
operations and cash flows for the years then ended in conformity with generally
accepted accounting principles.

                                                 /s/ MORELAND & DAVIS

Livermore, California
August 30, 1999

                                      F-91
<PAGE>   169

                               CN NETWORKS, INC.
                             DBA COMPUTER NETWORKS

                                 BALANCE SHEETS
                 FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998

<TABLE>
<CAPTION>
                                                                          1997            1998
                                                                       ----------      ----------
      <S>                                                              <C>             <C>
      Current Assets
        Cash.....................................................      $   13,913      $   37,628
        Accounts Receivable......................................       1,077,401       1,060,736
        Prepaid Federal Taxes....................................               0           6,805
        Inventory, at cost.......................................         229,783         206,672
                                                                       ----------      ----------
                Total Current Assets.............................       1,321,096       1,311,840
                                                                       ----------      ----------
      Property, Plant & Equipment
        Property, Plant & Equipment, at cost.....................         209,409         226,832
        Accumulated Depreciation.................................         (99,642)       (182,534)
                                                                       ----------      ----------
                Total Property, Plant & Equipment................         109,767          44,297
                                                                       ----------      ----------
      Other assets
        Lease Security Deposits..................................          10,383          11,440
        Deferred Tax Asset.......................................           7,923          14,635
                                                                       ----------      ----------
                Total Other Assets...............................          18,306          26,075
                                                                       ----------      ----------
                Total Assets.....................................      $1,449,169      $1,382,213
                                                                       ==========      ==========
      LIABILITIES AND EQUITY
      Current Liabilities
        Accounts Payable.........................................      $  605,072      $  381,923
        Notes Payable, Current Portion (See Note 3)..............         402,564         509,381
        Sales Tax Payable........................................          23,389          34,224
        Federal Income Taxes Payable.............................          13,900               0
        State Franchise Taxes Payable............................           3,031             584
        Deferred Tax Liability...................................           1,055               0
                                                                       ----------      ----------
                Total Current Liabilities........................       1,049,011         926,112
                                                                       ----------      ----------
        Notes Payable, Long Term (See Note 3)....................          41,899          17,119
                                                                       ----------      ----------
                Total Liabilities................................       1,090,910         943,231
                                                                       ----------      ----------
      Stockholders' Equity
        Common Stock, no par, 1,000,000 Shares Authorized, 10,000
           Shares Issued and Outstanding.........................          10,000          10,000
        Retained Earnings........................................         348,258         428,981
                                                                       ----------      ----------
                Total Stockholders' Equity.......................         358,258         438,981
                                                                       ----------      ----------
                Total Liabilities and Equity.....................      $1,449,169      $1,382,213
                                                                       ==========      ==========
</TABLE>

See Accompanying Notes to the Financial Statements.

                                      F-92
<PAGE>   170

                               CN NETWORKS, INC.
                             DBA COMPUTER NETWORKS

                              STATEMENTS OF INCOME
                 FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998

<TABLE>
<CAPTION>
                                                                 1997          1998
                                                              ----------    ----------
<S>                                                           <C>           <C>
Revenue
  Net Sales.................................................  $6,439,637    $5,540,938
  Sales Discounts...........................................      (3,802)       (2,703)
  Freight...................................................      40,645        30,003
                                                              ----------    ----------
     Total Revenue..........................................   6,476,480     5,568,238
                                                              ----------    ----------
Cost of Sales...............................................   4,308,540     3,179,433
Purchase Returns............................................        (147)            0
                                                              ----------    ----------
     Gross Profit...........................................   2,168,087     2,388,805
General and Administrative Expenses.........................   1,964,094     2,229,931
                                                              ----------    ----------
     Net Income from Operations.............................     203,993       158,874
                                                              ----------    ----------

Other Income and (Expense)
  Miscellaneous Income......................................       1,570           187
  Interest Expense..........................................     (44,092)      (41,176)
                                                              ----------    ----------
     Total Other Income and (Expense).......................     (42,521)      (40,989)
                                                              ----------    ----------
     Earnings Before Income Taxes...........................     161,471       117,885

Provision for Income Taxes
  Federal Income Taxes......................................      43,337        24,885
  State Franchise Taxes.....................................      14,863        12,277
                                                              ----------    ----------
     Net Income.............................................  $  103,271    $   80,723
                                                              ==========    ==========
</TABLE>

                               CN NETWORKS, INC.
                             DBA COMPUTER NETWORKS
                       STATEMENT OF STOCKHOLDERS' EQUITY
                 FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998

<TABLE>
<CAPTION>
                                                      COMMON STOCK
                                                  --------------------    RETAINED
                                                   SHARES      AMOUNT     EARNINGS    TOTAL
                                                  ---------    -------    --------   --------
<S>                                               <C>          <C>        <C>        <C>
Balances as of December 31, 1996................  1,000,000    $10,000    $244,987   $254,987
  Net Income....................................         --        --     103,271     103,271
                                                  ---------    -------    --------   --------
Balances as of December 31, 1997................  1,000,000    $10,000    348,258     358,258
  Net Income....................................         --        --      80,723      80,723
                                                  ---------    -------    --------   --------
Balances as of December 31, 1998................  1,000,000    $10,000    $428,981   $438,981
                                                  =========    =======    ========   ========
</TABLE>

              See Accompanying Notes to the Financial Statements.
                                      F-93
<PAGE>   171

                               CN NETWORKS, INC.
                             DBA COMPUTER NETWORKS

                            STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998

<TABLE>
<CAPTION>
                                                                1997         1998
                                                              --------    ----------
<S>                                                           <C>         <C>
Cash Flows from Operating Activities
  Net Income................................................  $103,271    $   80,723
  Adjustments to Reconcile Net Income to Net Cash (Used)
     Provided by Operating Activities
     Depreciation...........................................    58,339        82,892
     Deferred Income Tax....................................    (9,931)       (7,767)
  (Increase) Decrease In:
     Accounts Receivable....................................  (332,659)       16,664
     Inventory..............................................  (153,611)       23,111
     Other Assets...........................................        15        (1,057)
     Prepaid Income Taxes...................................         0        (6,805)
  Increase (Decrease) In:
     Accounts Payable.......................................   169,757      (223,149)
     Sales Tax Payable......................................    16,855        10,835
     Income Taxes Payable...................................     3,992       (16,347)
                                                              --------    ----------
     Net Cash (Used) by Operating Activities................  (143,971)      (40,899)
                                                              --------    ----------
Cash Flows from Investing Activities
  Acquisition of Property and Equipment.....................  (126,554)      (17,423)
                                                              --------    ----------
     Net Cash (Used) by Investing Activities................  (126,554)      (17,423)
                                                              --------    ----------
Cash Flows from Financing Activities Acquisition of Debt....   618,707       410,000
  Repayment of Debt.........................................  (364,387)     (327,962)
                                                              --------    ----------
     Net Cash Provided by Financing Activities..............   254,320        82,038
                                                              --------    ----------
Net (Decrease) Increase in Cash.............................   (16,205)       23,716
Cash at January 1, 1997 and 1998............................    30,118        13,913
                                                              --------    ----------
Cash at December 31, 1997 and 1998..........................  $ 13,913    $   37,628
                                                              ========    ==========
</TABLE>

Cash paid for income taxes for the years ended December 31, 1997 and 1998 was
$51,210 and $68,081, respectively. Cash paid for interest for the years ended
December 31, 1997 and 1998 was $44,092 and $41,176, respectively.

              See Accompanying Notes to the Financial Statements.
                                      F-94
<PAGE>   172

                               CN NETWORKS, INC.
                             DBA COMPUTER NETWORKS

                         NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1998

NOTE 1 -- ORGANIZATION

Organization and Purpose

     CN Networks, Inc., doing business as Computer Networks, Inc. (the Company)
was founded in 1991 and incorporated under the laws of the State of California
in 1994 with its main office located in Pleasanton, California. The Company
provides expert consulting, design and integration services for corporate remote
LAN access and dial-out needs.

     The Company is governed by a Board of Directors, comprised of the president
and corporate secretary. Financial Statements are prepared in-house and reviewed
by the directors on a monthly basis.

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash and Cash Equivalents

     For purposes of the Statement of Cash Flows, the Company considers all
highly liquid investments with an initial maturity of three months or less to be
cash equivalents. At the financial statement date, the Company had no
investments other than cash on the books.

Inventories

     Inventories are stated at the lower of cost or market, cost being
determined by the average cost method, market being replacement cost.

Property, Plant & Equipment

     The cost of property, plant, and equipment is depreciated over the
estimated useful lives of the related assets. For financial reporting purposes,
the useful lives of assets are 18 to 24 months for Computer Hardware and three
years for Office Furniture and Certain Software. Useful lives for tax purposes
are five years for Computer Hardware and Software and seven years for Office
Furniture. Depreciation is computed on the straight line method for financial
reporting purposes and on the double declining balance for income tax purposes.
Maintenance and repairs are charged to operations when incurred. Betterments and
renewals are capitalized.

Advertising Costs

     Advertising costs are charged to operations when incurred.

Revenue Recognition

     Revenue from sales of computer and hardware sales are recognized when
products are shipped or upon installation, where applicable. Revenues from
support contracts are recognized based on the terms of the contracts, and
training revenue is recognized when performed. Revenue is reflected net of
estimated returns and allowances.

                                      F-95
<PAGE>   173
                               CN NETWORKS, INC.
                             DBA COMPUTER NETWORKS

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                           DECEMBER 31, 1997 AND 1998

Income Taxes

     The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109 (SFAS 109). SFAS 109
requires, among other things, that deferred income taxes be provided for
temporary differences between the financial reporting basis and the tax basis of
the Company's assets and liabilities as part of the income tax provisions.

NOTE 3 -- INVENTORIES

     Inventories at December 31, 1997 and 1998 consist of:

<TABLE>
<S>                         <C>
Hardware..................    87,318
Software..................   142,465
                            --------
     Total................  $229,783
                            ========
Hardware..................    75,347
Software..................   131,325
                            --------
     Total................  $206,672
                            ========
</TABLE>

NOTE 4 -- LONG-TERM DEBT

     Following is a summary of long-term debt at December 31, 1997 and 1998:

<TABLE>
<S>                                                           <C>          <C>
10.5% note payable to bank in monthly principal installments
  of $1,370 plus
  interest, through November 19, 2000, secured by the assets
  of the Company............................................  $  47,934    $  31,494
10.5% note payable to bank in monthly principal installments
  of $695 plus interest, through March 18, 2000, secured by
  the assets of the Company.................................     18,745       10,405
11.0% note payable to bank in monthly principal installments
  of $564 plus interest, through May 18, 1998, secured by
  the assets of the Company.................................      2,808            0
Line of credit with bank, maturing March 31, 1999. Interest
  payable monthly at 10%, maximum line of credit is $700,000
  in 1997 and $1,000,000 in 1998. Secured by accounts
  receivable, expected to be refinanced. The line of credit
  was renewed March 23, 1999 in the amount of $1,000,000
  maturing March 31, 2000 with a rate of 9.75%..............    374,976      484,601
                                                              ---------    ---------
                                                                444,463      526,500
Less: Current maturities included in current liabilities....   (402,564)    (509,381)
                                                              ---------    ---------
                                                              $  41,899    $  17,119
                                                              =========    =========
</TABLE>

     Following are maturities of long-term debt for each of the next two years:

<TABLE>
<S>                                                         <C>
Year ended December 31,
  1999....................................................  $509,381
  2000....................................................    17,119
                                                            --------
                                                            $526,500
                                                            ========
</TABLE>

NOTE 5 -- LEASES

     The Company leases it's main office and a training facility under operating
leases expiring in 2001. The Company has entered into a new lease agreement for
it's main office effective September 1, 1999 and expiring 2004. Total rental
expense recorded in the financial statements for the years under these leases
was $96,514 for 1997 and $113,893 for 1998. In addition, on February 3, 1999 the
Company signed a lease

                                      F-96
<PAGE>   174
                               CN NETWORKS, INC.
                             DBA COMPUTER NETWORKS

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                           DECEMBER 31, 1997 AND 1998

for additional space to accommodate an expansion of the training facility.
Occupancy is scheduled for April, 1999. The Company also pays lease payments on
an automobile effective February, 1997 for 60 months. The automobile lease
expense recorded in the financial statements was $24,775 for 1997 and $19,551
for 1998. Future minimum rental payments under these operating leases are as
follows:

<TABLE>
<S>                                                        <C>
Year ended December 31,
  1999...................................................  $  209,133
  2000...................................................     245,329
  2001...................................................     254,259
  2002...................................................     211,691
  2003...................................................     210,062
                                                           ----------
                                                           $1,130,474
                                                           ==========
</TABLE>

NOTE 6 -- INCOME TAXES

     Income tax expense for the year ended December 31, 1997 and 1998 is
comprised of the following:

<TABLE>
<CAPTION>
                                                        1997                          1998
                                             ---------------------------   ---------------------------
                                             CURRENT   DEFERRED   TOTAL    CURRENT   DEFERRED   TOTAL
                                             -------   --------   ------   -------   --------   ------
<S>                                          <C>       <C>        <C>      <C>       <C>        <C>
Federal....................................  48,538     5,201     43,337   31,505     6,620     24,885
State......................................  16,010     1,147     14,863   14,485     2,208     12,277
                                             ------     -----     ------   ------     -----     ------
                                             64,548     6,348     58,200   45,990     8,828     37,162
                                             ======     =====     ======   ======     =====     ======
</TABLE>

     Deferred tax (liabilities) assets comprise the following at December 31,
1997 and 1998:

<TABLE>
<S>                                                           <C>        <C>
Depreciation................................................   (1,055)         0
  Gross deferred tax liabilities............................   (1,055)         0
State taxes, net of federal benefit.........................    5,808      4,564
Depreciation................................................    2,115     10,071
  Gross deferred tax assets.................................    7,923     14,635
                                                              -------    -------
  Net deferred tax assets...................................  $ 6,868    $14,635
                                                              =======    =======
</TABLE>

     The net deferred tax asset represents temporary differences for future tax
deductions which can generally be realized by carryback to taxable income in
prior years.

     The provisions for income taxes differ from the amount of income tax
determined by applying the applicable U.S. statutory income tax rate to pre-tax
income as follows for the years ended December 31, 1997 and 1998:

<TABLE>
<S>                                                           <C>    <C>
Federal statutory rate......................................   30%    25%
State income taxes, net of federal tax benefit and
  credits...................................................    6%     7%
                                                              ---    ---
                                                               36%    32%
                                                              ===    ===
</TABLE>

                                      F-97
<PAGE>   175
                               CN NETWORKS, INC.
                             DBA COMPUTER NETWORKS

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                           DECEMBER 31, 1997 AND 1998

NOTE 7 -- CONCENTRATION OF CREDIT RISK

     Financial instruments, which potentially subject the Company to
concentration of credit risk, consist principally of cash and cash equivalents
and trade receivables. The Company places its cash with federally insured
financial institutions and as of December 31, 1997 and 1998, the Company's
balances do not exceed federally insured limits. Fair value of these financial
instruments approximates their carrying values.

     The Company believes any risk of accounting loss is significantly reduced
due to the diversity of its services, end customers, and geographic sales areas.
The Company performs credit evaluations of its customers' financial condition
whenever necessary. The Company generally does not require cash collateral or
other security to support customer receivables and has historically had little
problems with collecting their accounts receivable. For the year ended December
31, 1997 the Company had two customers that individually had accounts receivable
balances exceeding 10% of the total accounts receivable balance. For the year
ended December 31, 1998 no individual customer exceeded 10% of the total
accounts receivable balance.

                                      F-98
<PAGE>   176

To The Board of Directors
CN Networks, Inc.
dba Computer Networks, Inc.
Pleasanton, California

     We have reviewed the accompanying balance sheets of CN Networks, Inc. dba
Computer Networks as of September 30, 1998 and 1999 and the related statements
of income and retained earnings and cash flows for the nine months then ended,
in accordance with Statements on Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants. All
information included in these financial statements is the representation of the
management of CN Networks, Inc.

     A review consists principally of inquiries of company personnel and
analytical procedures applied to financial data. It is substantially less in
scope than an audit in accordance with generally accepted auditing standards,
the objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.

     Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements in order for them to be
in conformity with generally accepted accounting principles.

                                                     MORELAND & DAVIS
                                                     Accountancy firm

Alameda County, California
November 3, 1999

                                      F-99
<PAGE>   177

                               CN NETWORKS, INC.
                             DBA COMPUTER NETWORKS

                                 BALANCE SHEETS
                          SEPTEMBER 30, 1998 AND 1999

<TABLE>
<CAPTION>
                                                                 1998          1999
                                                              -----------   -----------
                                                              (UNAUDITED)   (UNAUDITED)
<S>                                                           <C>           <C>
ASSETS
Current Assets
  Cash......................................................  $  146,665    $  272,314
  Accounts Receivable.......................................     916,227     1,759,730
  Inventory, at cost........................................     263,537       201,807
                                                              ----------    ----------
       Total Current Assets.................................   1,326,428     2,233,850
                                                              ----------    ----------
Property, Plant & Equipment
  Property, Plant & Equipment, at cost......................     209,409       242,570
  Accumulated Depreciation..................................    (166,729)     (205,273)
                                                              ----------    ----------
       Total Property, Plant & Equipment....................      42,680        37,297
                                                              ----------    ----------
Other Assets
  Lease Security Deposits...................................      10,383        28,389
  Deferred Tax Asset........................................      10,976        18,188
                                                              ----------    ----------
       Total Other Assets...................................      21,359        46,577
                                                              ----------    ----------
       Total Assets.........................................  $1,390,468    $2,317,724
                                                              ==========    ==========
LIABILITIES AND EQUITY
Current Liabilities
  Accounts Payable..........................................  $  444,091    $1,143,632
  Notes Payable, Current Portion (See Note 3)...............     454,670       549,186
  Sales Tax Payable.........................................      30,237        51,983
  Payroll Taxes Payable.....................................      19,676        36,456
  Federal Income Taxes Payable..............................         354        11,970
  State Franchise Taxes Payable.............................       2,329         2,516
                                                              ----------    ----------
       Total Current Liabilities............................     951,358     1,795,743
                                                              ----------    ----------
  Notes Payable, Long Term (See Note 3).....................      23,314         2,724
                                                              ----------    ----------
       Total Liabilities....................................     974,672     1,798,467
                                                              ----------    ----------
Stockholders' Equity
  Common Stock, no par, 1,000,000 Shares Authorized, 10,000
     Shares Issued and Outstanding..........................      10,000        10,000
  Retained Earnings.........................................     405,796       509,257
                                                              ----------    ----------
       Total Stockholders' Equity...........................     415,796       519,257
                                                              ----------    ----------
       Total Liabilities and Equity.........................  $1,390,468    $2,317,724
                                                              ==========    ==========
</TABLE>

See Accountant's Review Report and Accompanying Notes.

                                      F-100
<PAGE>   178

                               CN NETWORKS, INC.
                             DBA COMPUTER NETWORKS

                   STATEMENTS OF INCOME AND RETAINED EARNINGS
             FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999

<TABLE>
<CAPTION>
                                                                   1998           1999
                                                                -----------    -----------
                                                                (UNAUDITED)    (UNAUDITED)
<S>                                                             <C>            <C>
Revenue
  Net Sales.................................................    $3,962,871     $5,862,391
  Sales Discounts...........................................        (2,101)        (1,012)
  Freight...................................................        17,055         38,068
                                                                ----------     ----------
     Total Revenue..........................................     3,977,825      5,899,447
                                                                ----------     ----------
Cost of Sales...............................................     2,229,366      3,850,358
                                                                ----------     ----------
     Gross Profit...........................................     1,748,459      2,049,089
General and Administrative Expenses.........................     1,630,072      1,899,508
                                                                ----------     ----------
       Net Income from Operations...........................       118,387        149,581
                                                                ----------     ----------
Other Income and (Expense)
  Miscellaneous Income......................................           187             --
  Interest Expense..........................................       (28,362)       (34,527)
                                                                ----------     ----------
     Total Other Income and (Expense).......................       (28,175)       (34,527)
                                                                ----------     ----------
     Earnings Before Income Taxes...........................        90,212        115,054
Provision for Income Taxes
  Federal Income Taxes......................................        22,117         20,663
  State Franchise Taxes.....................................        10,558         14,116
                                                                ----------     ----------
                                                                    32,675         34,779
                                                                ----------     ----------
     Net Income.............................................        57,537         80,275
Retained Earnings at Beginning of Year......................       348,259        428,982
                                                                ----------     ----------
Retained Earnings at End of Year............................    $  405,796     $  509,257
                                                                ==========     ==========
</TABLE>

See Accountant's Review Report and Accompanying Notes.

                                      F-101
<PAGE>   179

                               CN NETWORKS, INC.
                             DBA COMPUTER NETWORKS

                            STATEMENTS OF CASH FLOWS
                          SEPTEMBER 30, 1998 AND 1999

<TABLE>
<CAPTION>
                                                                 1998           1999
                                                              -----------    -----------
                                                              (UNAUDITED)    (UNAUDITED)
<S>                                                           <C>            <C>
Cash Flows from Operating Activities
  Net Income................................................   $  57,537      $  80,275
  Adjustments to Reconcile Net Income to Net
     Cash (Used) Provided by Operating Activities
       Depreciation.........................................      67,087         22,739
       Deferred Income Tax..................................      (3,053)        (3,553)
  (Decrease) Increase In:
       Accounts Receivable..................................     161,174       (698,995)
       Inventory............................................     (33,754)         4,865
       Other Assets.........................................          --        (16,949)
       Prepaid Income Taxes.................................          --          6,805
  (Decrease) Increase In:
       Accounts Payable.....................................    (160,981)       761,709
       Sales Tax Payable....................................       6,848         17,759
       Payroll Taxes Payable................................      19,676         36,456
       Income Taxes Payable.................................     (15,303)        13,902
                                                               ---------      ---------
          Net Cash Provided by Operating Activities.........      99,231        225,014
                                                               ---------      ---------
Cash Flows from Investing Activities
  Acquisition of Property and Equipment.....................          --        (15,738)
                                                               ---------      ---------
          Net Cash (Used) by Investing Activities...........          --        (15,738)
                                                               ---------      ---------
Cash Flows from Financing Activities
  Acquisition of Debt.......................................      54,914         42,819
  Repayment of Debt.........................................     (21,393)       (17,409)
                                                               ---------      ---------
          Net Cash Provided by Financing Activities.........      33,521         25,410
                                                               ---------      ---------
Net Increase (Decrease) in Cash.............................     132,752        234,686
Cash at January 1, 1998 and 1999............................      13,913         37,628
                                                               ---------      ---------
Cash at September 30, 1998 and 1999.........................   $ 146,665      $ 272,314
                                                               =========      =========
</TABLE>

Cash paid for income taxes for the nine months ended September 30, 1998 and 1999
was $34,100 and $23,216, respectively. Cash paid for interest for the nine
months ended September 30, 1998 and 1999 was $28,362 and $34,527, respectively.

See Accountant's Review Report and Accompanying Notes.

                                      F-102
<PAGE>   180

                               CN NETWORKS, INC.
                             DBA COMPUTER NETWORKS

                         NOTES TO FINANCIAL STATEMENTS
                          SEPTEMBER 30, 1998 AND 1999
                                  (UNAUDITED)

NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION

Organization and Purpose

     CN Networks, Inc., doing business as Computer Networks, Inc. (the Company)
was founded in 1991 and incorporated under the laws of the State of California
in 1994 with its main office located in Pleasanton, California. The Company
provides expert consulting, design and integration services for corporate remote
LAN access and dial-out needs.

     The Company is governed by a Board of Directors, comprised of the president
and corporate secretary. Financial Statements are prepared in-house and reviewed
by the directors on a monthly basis.

     The interim financial statements included herein are unaudited; however,
they contain all normal recurring accruals and adjustments which, in the opinion
of management, are necessary to present fairly the financial position of the
Company at September 30, 1998 and 1999 and for the nine months ended September
30, 1998 and 1999. It should be understood that accounting measurements at
interim dates inherently involve greater reliance on estimates than at year end.
The results of operations for the nine months ended September 30, 1999 are not
necessarily indicative of the results to be expected for the full year.

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash and Cash Equivalents

     For purposes of the Statement of Cash Flows, the Company considers all
highly liquid investments with an initial maturity of three months or less to be
cash equivalents. At the financial statement date, the Company had no
investments other than cash on the books.

Inventories

     Inventories are stated at the lower of cost or market, cost being
determined by the average cost method, market being replacement cost.

Property, Plant & Equipment

     The cost of property, plant, and equipment is depreciated over the
estimated useful lives of the related assets. For financial reporting purposes,
the useful lives of assets are 18 to 24 months for Computer Hardware and three
years for Office Furniture and Certain Software. Useful lives for tax purposes
are five years for Computer Hardware and Software and seven years for Office
Furniture. Depreciation is computed on the straight line method for financial
reporting purposes and on the double declining balance for income tax purposes.
Maintenance and repairs are charged to operations when incurred. Betterments and
renewals are capitalized.

                         See Accountant's Review Report
                                      F-103
<PAGE>   181
                               CN NETWORKS, INC.
                             DBA COMPUTER NETWORKS

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                          SEPTEMBER 30, 1998 AND 1999
                                  (UNAUDITED)

Advertising Costs

     Advertising costs are charged to operations when incurred.

Revenue Recognition

     Revenue from computer hardware and software sales are recognized when
products are shipped, or upon installation, where applicable. Revenues from
support contracts are recognized based on the terms of the contracts, and
training revenue is recognized when performed. Losses on returns and contract
costs are recorded when they occur. Revenue is reflected net of estimated
returns and allowances.

Income Taxes

     The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109 (SFAS 109). SFAS 109
requires, among other things, that deferred income taxes be provided for
temporary differences between the financial reporting basis and the tax basis of
the Company's assets and liabilities as part of the income tax provisions.

NOTE 3 -- LONG-TERM DEBT

     Following is a summary of long-term debt at September 30, 1998 and 1999:

<TABLE>
<S>                                                           <C>          <C>
10.5% note payable to bank in monthly principal installments
of $1,370.00 plus interest, through November 19, 2000,
secured by the assets of the Company........................  $  35,604    $  20,369

10.5% note payable to bank in monthly principal installments
of $695.00 plus interest, through March 18, 2000, secured by
the assets of the Company...................................     12,490        4,120

Line of credit with bank, maturing March 31, 1999. Interest
payable monthly at 10%, maximum line of credit is
$700,000.00 in 1997 and $1,000,000.00 in 1998. Secured by
accounts receivable, expected to be refinanced..............    429,890      527,420
                                                              ---------    ---------
                                                                477,984      551,909
Less: Current maturities included in current liabilities....   (454,670)    (549,185)
                                                              ---------    ---------
                                                              $  23,314    $   2,724
                                                              =========    =========
</TABLE>

     Following are maturities of long-term debt for each of the next two years:

<TABLE>
<S>                                                         <C>
Year ended September 30,
  2000....................................................  $549,215
  2001....................................................     2,724
                                                            --------
                                                            $551,939
                                                            ========
</TABLE>

NOTE 4 -- LEASES

     The Company leases it's main office and a training facility under operating
leases expiring in 2001. The Company has entered into a new lease agreement for
it's main office effective September 1, 1999 and expiring 2004. Total rental
expense recorded in the financial statements for the nine months ended

                         See Accountant's Review Report
                                      F-104
<PAGE>   182
                               CN NETWORKS, INC.
                             DBA COMPUTER NETWORKS

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                          SEPTEMBER 30, 1998 AND 1999
                                  (UNAUDITED)

September 30, under these leases was $87,835 for 1998 and $123,585 for 1999. In
addition, on February 3, 1999 the Company signed a lease for additional space to
accommodate an expansion of the training facility. Occupancy is scheduled for
April, 1999. The Company also pays lease payments on an automobile effective
February, 1997 for 60 months. The automobile lease expense recorded in the
financial statements was $24,775 for 1998 and $19,551 for 1999. Future minimum
rental payments under these operating leases are as follows:

<TABLE>
<S>                                                        <C>
Year ended December 31,
  1999...................................................  $  209,133
  2000...................................................     245,329
  2001...................................................     254,259
  2002...................................................     211,691
  2003...................................................     210,062
                                                           ----------
                                                           $1,130,474
                                                           ==========
</TABLE>

NOTE 5 -- INCOME TAXES

     Income tax expense for the period ended September 30, 1998 and 1999 is
comprised of the following:

<TABLE>
<CAPTION>
                                               1998                             1999
                                   -----------------------------    -----------------------------
                                   CURRENT    DEFERRED    TOTAL     CURRENT    DEFERRED    TOTAL
                                   -------    --------    ------    -------    --------    ------
<S>                                <C>        <C>         <C>       <C>        <C>         <C>
Federal..........................  25,894      3,777      22,117    26,966       6,303     20,663
State............................  10,889        331      10,558    11,366      (2,750)    14,116
                                   ------      -----      ------    ------      ------     ------
                                   36,783      4,108      32,675    38,332       3,553     34,779
                                   ======      =====      ======    ======      ======     ======
</TABLE>

     Deferred tax (liabilities) assets comprise the following at September 30,
1998 and 1999:

<TABLE>
<S>                                                           <C>        <C>
Depreciation................................................        0          0
  Gross deferred tax liabilities............................        0          0
State taxes, net of federal benefit.........................    3,423      3,650
Depreciation................................................    7,553     14,538
                                                              -------    -------
  Gross deferred tax assets.................................   10,976     18,188
                                                              -------    -------
  Net deferred tax assets...................................  $10,976    $18,188
                                                              =======    =======
</TABLE>

     The net deferred tax asset represents temporary differences for future tax
deductions which can generally be realized by carryback to taxable income in
prior years.

     The provisions for income taxes differ from the amount of income tax
determined by applying the applicable U.S. statutory income tax rate to pretax
income as follows for the periods ended September 30, 1998 and 1999:

<TABLE>
<S>                                                           <C>    <C>
Federal statutory rate......................................   27%    28%
State income taxes, net of federal tax benefit and
  credits...................................................   10%     3%
                                                              ---    ---
                                                               37%    31%
                                                              ===    ===
</TABLE>

                         See Accountant's Review Report
                                      F-105
<PAGE>   183
                               CN NETWORKS, INC.
                             DBA COMPUTER NETWORKS

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                          SEPTEMBER 30, 1998 AND 1999
                                  (UNAUDITED)

NOTE 6 -- CONCENTRATION OF CREDIT RISK

     Financial instruments, which potentially subject the Company to
concentration of credit risk, consist principally of cash and cash equivalents
and trade receivables. The Company places its cash with federally insured
financial institutions and as of September 30, 1998 and 1999, the Company's
balances do not exceed federally insured limits. Fair value of these financial
instruments approximates their carrying values.

     The Company believes any risk of accounting loss is significantly reduced
due to the diversity of its services, end customers, and geographic sales areas.
The Company performs credit evaluations of its customers' financial condition
whenever necessary. The Company generally does not require cash collateral or
other security to support customer receivables and has historically had little
problems with collecting their accounts receivable. For the periods ended
September 30, 1998 and 1999 the Company had one customer that individually had
an accounts receivable balance exceeding 10% of the total accounts receivable
balance.

                        See Accountant's Review Report.

                                      F-106
<PAGE>   184

          ASYNC TECHNOLOGIES, INC. AND ASYNC TECHNICAL INSTITUTE, INC.

                         COMBINED FINANCIAL STATEMENTS

                                      F-107
<PAGE>   185

                          INDEPENDENT AUDITORS' REPORT

To the Director and Shareholders
Async Technologies, Inc.
Async Technical Institute, Inc.
Walled Lake, Michigan

     We have audited the accompanying combined balance sheets of Async
Technologies, Inc. (a Michigan corporation) and Async Technical Institute, Inc.
(a Michigan corporation) as of December 31, 1997 and 1998, and the related
combined statements of operations, retained deficit, and cash flows for the
years then ended. These combined financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
combined 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 combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of Async Technologies,
Inc. and Async Technical Institute, Inc. as of December 31, 1997 and 1998, and
the results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.

/s/ M. JEVAHIRIAN & CO.
Birmingham, Michigan

February 3, 2000

                                      F-108
<PAGE>   186

                            ASYNC TECHNOLOGIES, INC.
                        ASYNC TECHNICAL INSTITUTE, INC.

                            COMBINED BALANCE SHEETS
                           DECEMBER 31, 1997 AND 1998

<TABLE>
<CAPTION>
                                                                1997          1998
                                                              ---------    ----------
<S>                                                           <C>          <C>
ASSETS
Current Assets
  Cash......................................................  $   5,981    $   13,478
  Accounts receivable.......................................    557,867     1,541,773
  Inventory
     Purchased from unrelated parties.......................     73,983       220,673
     Purchased from related parties.........................         --         8,970
  Prepaid expenses..........................................     12,223            --
  Other current assets......................................         --         2,264
                                                              ---------    ----------
          Total Current Assets..............................    650,054     1,787,158
Property and equipment, net.................................     57,925        77,638
Other assets................................................      2,952         4,702
                                                              ---------    ----------
          Total Assets......................................  $ 710,931    $1,869,498
                                                              =========    ==========
LIABILITIES AND SHAREHOLDER EQUITY
Current Liabilities
  Line of credit............................................  $ 234,067    $  518,689
  Accounts payable
     Due to unrelated parties...............................    321,534     1,119,220
     Due to related parties.................................     20,199        76,153
  Accrued wages and other current liabilities...............     62,418       106,295
  Deferred revenue..........................................    238,444       322,295
                                                              ---------    ----------
          Total Current Liabilities.........................    876,662     2,142,652
                                                              ---------    ----------
Shareholder Equity
  Common stock
     Async Technologies, Inc. (60,000 shares authorized;
      1,000 shares issued and outstanding; no par value)....      1,000         1,000
     Async Technical Institute, Inc. (60,000 shares
      authorized; 100 shares issued and outstanding; no par
      value)................................................         --           100
  Retained deficit..........................................   (166,731)     (274,254)
                                                              ---------    ----------
          Total Shareholder Equity..........................   (165,731)     (273,154)
                                                              ---------    ----------
          Total Liabilities and Shareholder Equity..........  $ 710,931    $1,869,498
                                                              =========    ==========
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

                                      F-109
<PAGE>   187

                            ASYNC TECHNOLOGIES, INC.
                        ASYNC TECHNICAL INSTITUTE, INC.

             COMBINED STATEMENTS OF OPERATIONS AND RETAINED DEFICIT
                 FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998

<TABLE>
<CAPTION>
                                                                 1997           1998
                                                              -----------    -----------
<S>                                                           <C>            <C>
Revenue:
  Hardware and software.....................................  $ 3,984,151    $ 5,076,079
  Service delivery..........................................      614,408        980,159
                                                              -----------    -----------
       Total revenue........................................    4,598,559      6,056,238
                                                              -----------    -----------
Cost of sales:
  Hardware and software
     Purchased from unrelated parties.......................   (2,988,661)    (4,015,660)
     Purchased from related parties.........................           --        (79,703)
  Service delivery..........................................     (237,988)      (266,559)
                                                              -----------    -----------
       Total cost of sales..................................   (3,226,649)    (4,361,922)
                                                              -----------    -----------
Selling, general and administrative expenses
  Provided by unrelated parties.............................   (1,013,840)    (1,162,506)
  Provided by related parties...............................     (124,732)      (260,351)
                                                              -----------    -----------
       Total selling, general and administrative expenses...   (1,138,572)    (1,422,857)
                                                              -----------    -----------
Depreciation................................................      (41,185)       (37,982)
                                                              -----------    -----------
       Income from Operations...............................      192,153        233,477
Interest income.............................................          131              8
Interest expense............................................      (39,539)       (33,453)
Other.......................................................       (5,621)       (16,988)
                                                              -----------    -----------
  Net Income................................................      147,124        183,044
Retained deficit -- Beginning of year.......................     (170,985)      (166,731)
  Shareholder distributions, net............................     (142,870)      (290,567)
                                                              -----------    -----------
Retained deficit -- End of year.............................  $  (166,731)   $  (274,254)
                                                              ===========    ===========
Unaudited pro forma information:
  Pro forma income tax expense..............................  $    46,256    $    61,074
                                                              ===========    ===========
  Pro forma net income......................................  $   100,868    $   121,970
                                                              ===========    ===========
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

                                      F-110
<PAGE>   188

                            ASYNC TECHNOLOGIES, INC.
                        ASYNC TECHNICAL INSTITUTE, INC.

                       COMBINED STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998

<TABLE>
<CAPTION>
                                                                1997         1998
                                                              ---------    --------
<S>                                                           <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net Income................................................  $ 147,124    $183,044
  Adjustments to reconcile net income to net cash provided
     by operating activities:
     Depreciation...........................................     41,185      37,982
     Other..................................................      5,621      16,988
  Changes in working capital:
     Accounts receivable....................................    125,828    (983,906)
     Inventory
       Unrelated parties....................................     40,007    (146,690)
       Related parties......................................         --      (8,970)
     Prepaid expenses.......................................     (9,403)     12,223
     Other current assets...................................         --      (2,264)
     Accounts payable
       Unrelated parties....................................   (235,063)    777,487
       Related parties......................................         --      76,153
     Accrued wages and other current liabilities............    (16,307)     43,877
     Deferred revenue.......................................    166,188      83,851
                                                              ---------    --------
  Net Cash Provided by Operating Activities.................    265,180      89,775
                                                              ---------    --------
CASH FLOWS FROM INVESTING ACTIVITIES
  Purchases of property and equipment.......................    (28,630)    (75,433)
  Proceeds from disposal of property and equipment..........         --         750
  Payments for other assets.................................       (320)     (1,750)
                                                              ---------    --------
  Net Cash Used in Investing Activities.....................    (28,950)    (76,433)
                                                              ---------    --------
CASH FLOWS FROM FINANCING ACTIVITIES
  Issuance of common stock..................................         --         100
  Proceeds from (payments on) line of credit, net...........   (149,933)    284,622
  Distributions to shareholder, net.........................   (142,870)   (290,567)
                                                              ---------    --------
  Net Cash Used in Financing Activities.....................   (292,803)     (5,845)
                                                              ---------    --------
Net (Decrease) Increase in Cash.............................    (56,573)      7,497
Cash -- Beginning of year...................................     62,554       5,981
                                                              ---------    --------
Cash -- End of year.........................................  $   5,981    $ 13,478
                                                              =========    ========
Supplemental Cash Flow Information:
  Cash paid for interest during the year....................  $  37,170    $ 34,539
                                                              =========    ========
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

                                      F-111
<PAGE>   189

                            ASYNC TECHNOLOGIES, INC.
                        ASYNC TECHNICAL INSTITUTE, INC.

                   NOTES TO THE COMBINED FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1998

 1. DESCRIPTION OF BUSINESS

     Async Technologies, Inc. ("ATI") provides computer software and hardware
installation and maintenance services to medium and large businesses located in
the mid-western United States. Certain sales involve installations to multiple
locations reaching international markets.

     The financial statements are prepared on a combined basis with Async
Technical Institute, Inc. ("ATII"), a company under common control. ATII began
operations in September, 1998, and provides technical training to customers of
ATI.

     As described in Note 11 to the combined financial statements, the companies
were merged on October 7, 1999. The combined entities are hereinafter referred
to as the Company.

 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting

     The Company's combined financial statements are prepared in accordance with
generally accepted accounting principles.

Use of Estimates

     The preparation of combined financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.

Allowance for Doubtful Accounts

     The Company considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is reported.

Inventory

     Inventory consists primarily of software products and is valued at the
lower of cost or market on a first-in, first-out basis. Market is current
selling price less estimated selling costs.

Property and Equipment

     Property and equipment are recorded at cost. The Company provides for
depreciation by charges to operations based upon estimated useful lives of the
assets using the straight-line method. Maintenance and repair costs are charged
to expense when incurred.

Income Taxes

     Historically each company, with the consent of the shareholder, has elected
under the Internal Revenue Code to be taxed as an S corporation. In lieu of
corporate income taxes, the shareholders of an S corporation are taxed on their
proportionate share of the company's taxable income. Therefore, no provision or
liability for federal income tax has been included in the combined financial
statements.

                                      F-112
<PAGE>   190
                            ASYNC TECHNOLOGIES, INC.
                        ASYNC TECHNICAL INSTITUTE, INC.

             NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
                           DECEMBER 31, 1997 AND 1998

Deferred Revenue

     The Company sells maintenance contracts and recognizes the related revenue
over the life of the contract.

Revenue Recognition

     Revenue from the sale and installation of computer software and hardware is
recognized at the point of delivery, or upon installation when required under
contract terms.

 3. NOTES RECEIVABLE

     At December 31, 1998, the Company has non-interest bearing notes receivable
in the amount of $2,264 from an employee which are due on demand. The notes
receivable are included in other current assets in the attached financial
statements.

 4. PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>
                                                                1997        1998
                                                              --------    --------
<S>                                                           <C>         <C>
Computer equipment..........................................  $111,802    $ 98,224
Furniture and fixtures......................................     8,151      13,110
Leasehold improvements......................................     9,110       9,110
                                                              --------    --------
                                                               129,063     120,444
Accumulated depreciation....................................   (71,138)    (42,806)
                                                              --------    --------
       Property and equipment, net..........................  $ 57,925    $ 77,638
                                                              ========    ========
</TABLE>

 5. LINE OF CREDIT

     The Company has a $550,000 line of credit with a bank, which is due on
demand, secured by all assets, and personally guaranteed by the shareholder.
Interest is payable monthly at 1.50% over the bank's prime rate which amounted
to 9.50% and 10.00% at December 31, 1997 and 1998, respectively. As of December
31, 1997 and 1998, outstanding borrowings under the line of credit are $234,067
and $518,689, respectively.

 6. ADVERTISING COSTS

     The Company follows the policy of charging the costs of advertising to
expense as incurred. Advertising costs for the years ended December 31, 1997 and
1998 amounted to $16,001 and $25,348, respectively.

                                      F-113
<PAGE>   191
                            ASYNC TECHNOLOGIES, INC.
                        ASYNC TECHNICAL INSTITUTE, INC.

             NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
                           DECEMBER 31, 1997 AND 1998

 7. OPERATING LEASE

     The Company has entered into a non-cancelable operating lease for its
corporate facilities which expires July 31, 2002. Scheduled payments for the
term of the lease are as follows:

<TABLE>
<S>                                                         <C>
1999......................................................  $ 31,212
2000......................................................   105,834
2001......................................................   110,283
2002......................................................    61,610
</TABLE>

     Rent expense for the years ended December 31, 1997 and 1998 amounted to
$47,956 and $55,444, respectively.

 8. PENSION PLAN

     Effective January 1, 1998, the Company adopted a qualified pension plan
(the "Plan") under provisions of Section 401(k) of the Internal Revenue Code.
Under the provisions of the Plan, each participant is able to defer up to 20% of
their compensation. The Company has not made any contributions to the Plan for
the year ending December 31, 1998.

 9. RELATED PARTY TRANSACTIONS

     The Company purchases products and services from certain related parties.

     Management and administrative services are purchased from Intelligent
Signage, Inc., an entity owned by the shareholder's parent.

     The Company also purchases computer software products developed by Lakeside
Software, Inc., an entity owned by the shareholder's brother.

10. INCOME TAXES

     Upon consummation of an Agreement and Plan of Reorganization and Merger
with FutureLink Michigan Acquisition Corp. (see Note 11), the Company's status
as an S corporation under the Internal Revenue Code will automatically terminate
and normal federal corporate income tax rates will apply.

     On a proforma basis (unaudited), assuming the Company's status as an S
corporation terminated as of December 31, 1996, the Company would have proforma
federal income tax expense of $46,256 and $61,074 for the years ended December
31, 1997 and 1998, respectively.

11. SUBSEQUENT EVENTS

     Effective August 30, 1999, Async Technologies, Inc. authorized 60,000
additional shares of common stock. The total authorized shares (120,000) are
divided into two equal classes of voting and non-voting shares. ATI also
authorized the issuance of 54,000 shares during September and October, 1999.

     Effective October 7, 1999, ATI entered into a Plan of Merger with ATII.
Under the terms of the merger, all of the outstanding shares of ATII will be
converted into voting shares of ATI. Upon consummation of the merger, the
separate corporate existence of ATII shall terminate.

                                      F-114
<PAGE>   192
                            ASYNC TECHNOLOGIES, INC.
                        ASYNC TECHNICAL INSTITUTE, INC.

             NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
                           DECEMBER 31, 1997 AND 1998

     Effective September 7, 1999, and subject to the consummation of the above
described events, the Company entered into an Agreement and Plan of
Reorganization and Merger with Futurelink Michigan Acquisition Corp., a wholly
owned subsidiary of Futurelink Distribution Corp. (the "Parent"). Under the
terms of the agreement, all outstanding shares of the Company will be exchanged
for cash and common stock of the Parent. Upon consummation of the merger, the
separate corporate existence of the Company shall terminate.

                                      F-115
<PAGE>   193

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Director and Shareholders
Async Technologies, Inc.
Async Technical Institute, Inc.
Walled Lake, Michigan

     We have reviewed the accompanying combined balance sheets of Async
Technologies, Inc. (a Michigan corporation) and Async Technical Institute, Inc.
(a Michigan corporation) as of September 30, 1998 and 1999 and the related
combined statements of operations and retained (deficit) earnings and cash flows
for the nine months then ended, in accordance with Statements on Standards for
Accounting and Review Services issued by the American Institute of Certified
Public Accountants. All information included in these combined financial
statements is the representation of the management of Async Technologies, Inc.
and Async Technical Institute, Inc.

     A review consists principally of inquiries of company personnel and
analytical procedures applied to financial data. It is substantially less in
scope than an audit in accordance with generally accepted auditing standards,
the objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.

     Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying combined financial statements in order for
them to be in conformity with generally accepted accounting principles.

/S/ M. JEVAHIRIAN & CO.

Birmingham, Michigan
February 3, 2000

                                      F-116
<PAGE>   194

                            ASYNC TECHNOLOGIES, INC.
                        ASYNC TECHNICAL INSTITUTE, INC.

                            COMBINED BALANCE SHEETS
                          SEPTEMBER 30, 1998 AND 1999
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                 1998           1999
                                                              -----------    -----------
<S>                                                           <C>            <C>
ASSETS
Current Assets
  Cash......................................................  $   54,930     $   68,958
  Accounts receivable.......................................     914,807      1,409,200
  Inventory
     Purchased from unrelated parties.......................     198,397        316,179
     Purchased from related parties.........................      41,860             --
  Other current assets......................................       2,264          1,709
                                                              ----------     ----------
       Total Current Assets.................................   1,212,258      1,796,046
Property and equipment, net.................................      82,296        128,187
Other assets................................................       4,552          6,890
                                                              ----------     ----------
       Total Assets.........................................  $1,299,106     $1,931,123
                                                              ==========     ==========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
  Line of credit............................................  $  405,989     $  323,989
  Accounts payable
     Due to unrelated parties...............................     573,513      1,102,714
     Due to related parties.................................      10,129             --
  Accrued wages and other current liabilities...............      55,557        120,985
  Deferred revenue..........................................     334,794        303,874
                                                              ----------     ----------
       Total Current Liabilities............................   1,379,982      1,851,562
                                                              ----------     ----------
Shareholders' Equity
  Common stock
     Async Technologies, Inc.
       (120,000 shares authorized; 1,000 and 36,900 shares
      issued and outstanding; no par value).................       1,000          1,000
     Async Technical Institute, Inc.
       (60,000 shares authorized; 100 shares issued and
      outstanding; no par value)............................         100            100
  Retained (deficit) earnings...............................     (81,976)        78,461
                                                              ----------     ----------
       Total Shareholders' Equity...........................     (80,876)        79,561
                                                              ----------     ----------
       Total Liabilities and Shareholders' Equity...........  $1,299,106     $1,931,123
                                                              ==========     ==========
</TABLE>

(The accompanying notes are an integral part of these combined financial
statements.)

(See accountants' review report.)

                                      F-117
<PAGE>   195

                            ASYNC TECHNOLOGIES, INC.
                        ASYNC TECHNICAL INSTITUTE, INC.

       COMBINED STATEMENTS OF OPERATIONS AND RETAINED (DEFICIT) EARNINGS
             FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                 1998           1999
                                                              -----------    -----------
<S>                                                           <C>            <C>
Revenue:
  Hardware and software.....................................  $ 3,157,009    $ 5,050,090
  Service delivery..........................................      679,337      1,158,375
                                                              -----------    -----------
       Total revenue........................................    3,836,346      6,208,465
                                                              -----------    -----------
Cost of sales:
  Hardware and software
     Purchased from unrelated parties.......................   (2,320,534)    (3,749,366)
     Purchased from related parties.........................      (40,365)       (33,134)
  Service delivery..........................................     (192,334)      (461,140)
                                                              -----------    -----------
       Total cost of sales..................................   (2,553,233)    (4,243,640)
                                                              -----------    -----------
Selling, general and administrative expenses
  Provided by unrelated parties.............................     (821,886)    (1,158,402)
  Provided by related parties...............................     (155,873)      (113,033)
                                                              -----------    -----------
       Total selling, general and administrative expenses...     (977,759)    (1,271,435)
                                                              -----------    -----------
Depreciation................................................      (28,934)       (36,061)
                                                              -----------    -----------
  Income from Operations....................................      276,420        657,329
Interest income.............................................            8             --
Interest expense............................................      (21,711)       (30,266)
Other.......................................................      (12,553)            --
                                                              -----------    -----------
  Net Income................................................      242,164        627,063
Retained deficit -- Beginning of period.....................     (166,731)      (274,254)
  Shareholder distributions, net............................     (157,409)      (274,348)
                                                              -----------    -----------
Retained (deficit) earnings -- End of period................  $   (81,976)   $    78,461
                                                              ===========    ===========
Unaudited pro forma information
  Pro forma income tax expense..............................  $    80,221    $   215,509
                                                              ===========    ===========
  Pro forma net income......................................  $   161,943    $   411,554
                                                              ===========    ===========
</TABLE>

(The accompanying notes are an integral part of these combined financial
statements.)

(See accountants' review report.)

                                      F-118
<PAGE>   196

                            ASYNC TECHNOLOGIES, INC.
                        ASYNC TECHNICAL INSTITUTE, INC.

                       COMBINED STATEMENTS OF CASH FLOWS
             FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                                 1998           1999
                                                              -----------    -----------
<S>                                                           <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net Income................................................   $ 242,164      $ 627,063
  Adjustments to reconcile net income to net cash provided
     by operating activities:
     Depreciation...........................................      28,934         36,061
     Other..................................................      12,553             --
  Changes in working capital:
     Accounts receivable....................................    (356,940)       132,573
     Inventory
       Unrelated parties....................................    (124,414)       (95,506)
       Related parties......................................     (41,860)         8,970
     Prepaid expenses.......................................      12,223             --
     Other current assets...................................      (2,264)           555
     Accounts payable
       Unrelated parties....................................     251,979        (16,506)
       Related parties......................................     (10,070)       (76,153)
     Accrued wages and other current liabilities............      (6,861)        14,690
     Deferred revenue.......................................      96,350        (18,421)
                                                               ---------      ---------
          Net Cash Provided By Operating Activities.........     101,794        613,326
                                                               ---------      ---------
CASH FLOWS FROM INVESTING ACTIVITIES
  Purchases of property and equipment.......................     (66,608)       (86,610)
  Proceeds from disposal of property and equipment..........         750             --
  Payments for other assets.................................      (1,600)        (2,188)
                                                               ---------      ---------
          Net Cash Used in Investing Activities.............     (67,458)       (88,798)
                                                               ---------      ---------
CASH FLOWS FROM FINANCING ACTIVITIES
  Issuance of common stock..................................         100             --
  Proceeds from (payments on) line of credit, net...........     171,922       (194,700)
  Distributions to shareholder, net.........................    (157,409)      (274,348)
                                                               ---------      ---------
          Net Cash Provided By (Used in) Financing
            Activities......................................      14,613       (469,048)
                                                               ---------      ---------
NET INCREASE IN CASH........................................      48,949         55,480
Cash -- Beginning of period.................................       5,981         13,478
                                                               ---------      ---------
Cash -- End of period.......................................   $  54,930      $  68,958
                                                               =========      =========
SUPPLEMENTAL CASH FLOW INFORMATION:
  Cash paid for interest during the period..................   $  20,162      $  31,688
                                                               =========      =========
</TABLE>

(The accompanying notes are an integral part of these combined financial
statements.)

(See accountants' review report.)

                                      F-119
<PAGE>   197

                            ASYNC TECHNOLOGIES, INC.
                        ASYNC TECHNICAL INSTITUTE, INC.

                   NOTES TO THE COMBINED FINANCIAL STATEMENTS
                          SEPTEMBER 30, 1998 AND 1999
                                  (UNAUDITED)

 1. DESCRIPTION OF BUSINESS

     Async Technologies, Inc. ("ATI") provides computer software and hardware
installation and maintenance services to medium and large businesses located in
the mid-western United States. Certain sales involve installations to multiple
locations reaching international markets.

     The financial statements are prepared on a combined basis with Async
Technical Institute, Inc. ("ATII"), a company under common control. ATII began
operations in September, 1998, and provides technical training to customers of
ATI.

     As described in Note 12 to the combined financial statements, the companies
were merged on October 7, 1999. The combined entities are hereinafter referred
to as the Company.

 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting

     The Company's combined financial statements are prepared in accordance with
generally accepted accounting principles.

     The interim financial statements included herein are unaudited; however,
they contain all normal recurring accruals and adjustments which, in the opinion
of management, are necessary to present fairly the financial position of the
Company at September 30, 1998 and 1999 and the results of operations and cash
flows for the nine months ended September 30, 1998 and 1999. The results of
operations for the nine months ended September 30, 1998 and 1999 are not
necessarily indicative of the results to be expected for the full years.

Use of Estimates

     The preparation of combined financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.

Allowance for Doubtful Accounts

     The Company considers accounts receivable to be fully collectible;
accordingly, no allowance for doubtful accounts is reported.

Inventory

     Inventory consists primarily of software products and is valued at the
lower of cost or market on a first-in, first-out basis. Market is current
selling price less estimated selling costs.

                       (See accountants' review report.)
                                      F-120
<PAGE>   198
                            ASYNC TECHNOLOGIES, INC.
                        ASYNC TECHNICAL INSTITUTE, INC.

             NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
                          SEPTEMBER 30, 1998 AND 1999
                                  (UNAUDITED)

Property and Equipment

     Property and equipment are recorded at cost. The Company provides for
depreciation by charges to operations based upon estimated useful lives of the
assets using the straight-line method. Maintenance and repair costs are charged
to expense when incurred.

Income Taxes

     Historically, each company has elected under the Internal Revenue Code to
be taxed as an S corporation. In lieu of corporate income taxes, the
shareholders of an S corporation are taxed on their proportionate share of the
company's taxable income. Therefore, no provision or liability for federal
income tax has been included in the combined financial statements.

Deferred Revenue

     The Company sells maintenance contracts and recognizes the related revenue
over the life of the contract.

Revenue Recognition

     Revenue from the sale and installation of computer software and hardware is
recognized at the point of delivery, or upon installation when required under
contract terms.

 3. NOTES RECEIVABLE

     At September 30, 1998, the Company has non-interest bearing notes
receivable in the amount of $2,264 from an employee which are due on demand. The
notes receivable are included in other current assets in the attached financial
statements.

 4. PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>
                                                                1998        1999
                                                              --------    --------
<S>                                                           <C>         <C>
Computer equipment..........................................  $108,895    $155,920
Furniture and fixtures......................................    13,521      22,248
Leasehold improvements......................................     9,110      19,776
                                                              --------    --------
                                                               131,526     197,944
Accumulated depreciation....................................   (49,230)    (69,757)
                                                              --------    --------
       Property and equipment, net..........................  $ 82,296    $128,187
                                                              ========    ========
</TABLE>

 5. LINE OF CREDIT

     The Company has a $550,000 line of credit with a bank, which is due on
demand, secured by all assets, and personally guaranteed by the shareholder.
Interest is payable monthly at 1.50% over the bank's prime rate which amounted
to 10.14% and 9.89% at September 30, 1998 and 1999, respectively. As of
                       (See accountants' review report.)
                                      F-121
<PAGE>   199
                            ASYNC TECHNOLOGIES, INC.
                        ASYNC TECHNICAL INSTITUTE, INC.

             NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
                          SEPTEMBER 30, 1998 AND 1999
                                  (UNAUDITED)

September 30, 1998 and 1999, outstanding borrowings under the line of credit are
$405,989 and $323,989, respectively.

 6. ADVERTISING COSTS

     The Company follows the policy of charging the costs of advertising to
expense as incurred. Advertising costs for the nine months ended September 30,
1998 and 1999 amounted to $21,136 and $6,609, respectively.

 7. OPERATING LEASE

     The Company has entered into a non-cancelable operating lease for its
corporate facilities which expires July 31, 2002. Scheduled payments for the
term of the lease are as follows:

<TABLE>
<S>                                                         <C>
2000......................................................  $ 95,565
2001......................................................   117,342
2002......................................................   102,278
</TABLE>

     Rent expense for the nine months ended September 30, 1998 and 1999 amounted
to $36,934 and $47,541, respectively.

 8. PENSION PLAN

     Effective January 1, 1998, the Company adopted a qualified pension plan
(the "Plan") under provisions of Section 401(k) of the Internal Revenue Code.
Under the provisions of the Plan, each participant is able to defer up to 20% of
their compensation. The Company has not made any contributions to the Plan for
the periods ending September 30, 1998 and 1999.

 9. RELATED PARTY TRANSACTIONS

     The Company purchases products and services from certain related parties.

     Management and administrative services are purchased from Intelligent
Signage, Inc., an entity owned by the shareholders' parent.

     The Company also purchases computer software products developed by Lakeside
Software, Inc., an entity owned by a shareholder of the Company.

10. ISSUANCE OF COMMON STOCK

     Effective August 30, 1999, Async Technologies, Inc. authorized 60,000
additional shares of common stock. The total authorized shares (120,000) are
divided into two equal classes of voting and non-voting shares.

                       (See accountants' review report.)
                                      F-122
<PAGE>   200
                            ASYNC TECHNOLOGIES, INC.
                        ASYNC TECHNICAL INSTITUTE, INC.

             NOTES TO THE COMBINED FINANCIAL STATEMENTS (CONTINUED)
                          SEPTEMBER 30, 1998 AND 1999
                                  (UNAUDITED)

     Under a non-compensatory agreement, 35,900 shares of ATI common stock were
issued to the existing shareholders and other related parties of the Company.
The shares were issued during September, 1999, as follows:

<TABLE>
<CAPTION>
                                                                   SHARES
                                                              ----------------
<S>                                                           <C>       <C>
Beginning balance of common stock -- all Class A............             1,000
  Class A Common Stock -- with full voting rights...........  32,900
  Class B Common Stock -- with no voting rights.............   3,000
                                                              ------
                                                                        35,900
                                                                        ------
Ending balance of common stock..............................            36,900
                                                                        ======
</TABLE>

     An additional 16,200 shares of Class B Common Stock and 1,900 of Class C
Common Stock (with limited voting rights) were issued to employees of the
Company during October, 1999.

11. INCOME TAXES

     Upon consummation of an Agreement and Plan of Reorganization and Merger
with FutureLink Michigan Acquisition Corp. (see Note 12), the Company's status
as an S corporation under the Internal Revenue Code will automatically terminate
and normal federal corporate income tax rates will apply.

     On a proforma basis (unaudited), assuming the Company's status as an S
corporation terminated as of December 31, 1996, the Company would have proforma
federal income tax expense of $80,221 and $215,509 for the periods ended
September 30, 1998 and 1999, respectively.

12. SUBSEQUENT EVENTS

     Effective October 7, 1999, ATI entered into a Plan of Merger with ATII.
Under the terms of the merger, all of the outstanding shares of ATII will be
converted into voting shares of ATI. Upon consummation of the merger, the
separate corporate existence of ATII shall terminate.

     Effective September 7, 1999, and subject to the consummation of the above
described events, the Company entered into an Agreement and Plan of
Reorganization and Merger with Futurelink Michigan Acquisition Corp., a wholly
owned subsidiary of Futurelink Distribution Corp. (the "Parent"). Under the
terms of the agreement, all outstanding shares of the Company will be exchanged
for cash and common stock of the Parent. Upon consummation of the merger, the
separate corporate existence of the Company shall terminate.

                       (See accountants' review report.)
                                      F-123
<PAGE>   201

                              KNS HOLDINGS LIMITED

                       CONSOLIDATED FINANCIAL STATEMENTS

                                      F-124
<PAGE>   202

                              KNS HOLDINGS LIMITED

                       CONSOLIDATED FINANCIAL STATEMENTS
                      FOR THE YEAR ENDED FEBRUARY 28, 1999

                               TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                              PAGE
                                                              -----
<S>                                                           <C>
Report of the Independent Auditors..........................  F-126
Consolidated Profit and Loss Account........................  F-127
Consolidated Balance Sheets.................................  F-128
Consolidated Statement of Movements in Shareholders'
  Funds.....................................................  F-129
Consolidated Cash Flow Statements...........................  F-130
Reconciliation of Net Cash Flow to Movement in Net Debt.....  F-131
Notes to the Accounts.......................................  F-132
</TABLE>


                                      F-125
<PAGE>   203

                       REPORT OF THE INDEPENDENT AUDITORS

To the directors of KNS Holdings Limited

     We have audited the consolidated balance sheets of KNS Holdings Limited as
at February 28, 1998 and February 28, 1999, and the related consolidated profit
and loss accounts and statements of movements in invested capital and cash flows
for the periods then ended. These financial statements are the responsibility of
KNS Holdings Limited's management. Our responsibility is to express an opinion
on these financial statements based on our audits.

     We conducted our audits in accordance with United Kingdom auditing
standards which do not differ in any significant respect from 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 that our audits provide a
reasonable basis of our opinion.

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of KNS Holdings
Limited at February 28, 1998 and February 28, 1999 and the consolidated results
of its operations and its consolidated cash flows for the periods then ended in
conformity with accounting principles generally accepted in the United Kingdom
which differ in certain respects from those generally accepted in the United
States (see Note 21 of Notes to the Financial Statements).

                                          /S/ ERNST & YOUNG
                                          Registered Auditor

Reading, England
March 28, 2000

                                      F-126
<PAGE>   204

                              KNS HOLDING LIMITED

                      CONSOLIDATED PROFIT AND LOSS ACCOUNT
                      FOR THE YEAR ENDED FEBRUARY 28, 1999

<TABLE>
<CAPTION>
                                                    PERIOD ENDED    YEAR ENDED     9 MONTHS ENDED
                                                    FEBRUARY 28     FEBRUARY 28     NOVEMBER 30
                                            NOTE        1998           1999             1999
                                            ----    ------------    -----------    --------------
                                                                                    (UNAUDITED)
<S>                                         <C>     <C>             <C>            <C>
TURNOVER..................................   2        $947,872      $18,324,373     $17,391,380
Cost of sales.............................             786,042       14,979,474      12,499,410
                                                      --------      -----------     -----------
                                                       161,830        3,344,899       4,891,970
GROSS PROFIT
Distribution expenses.....................               3,911           99,947          37,383
Selling and marketing expenses............              80,515        1,650,021       3,423,314
Establishment expenses....................              13,618          367,561         266,782
Administration expenses...................              36,044          593,427         421,404
                                                      --------      -----------     -----------
OPERATING PROFIT..........................   3          27,742          633,943         743,087
Exception Item: continuing operations
  Profit/(loss) on disposal of fixed asset
  investments.............................                  --         (283,387)         99,884
Profit on disposal of fixed assets........                  --               --          11,459
Other income..............................   5             853           57,528          98,640
Interest payable and similar charges......   6         (17,290)        (336,892)       (200,383)
                                                      --------      -----------     -----------
PROFIT ON ORDINARY ACTIVITIES BEFORE
  TAXATION................................              11,305           71,192         752,687
Taxation on profit on ordinary
  activities..............................              (7,447)        (116,127)       (249,528)
                                                      --------      -----------     -----------
PROFIT/(LOSS) ON ORDINARY ACTIVITIES AFTER
  TAXATION................................               3,858          (44,935)        503,159
Minority interests: equity................                  --          (17,884)       (150,948)
                                             --       --------      -----------     -----------
PROFIT FOR THE FINANCIAL YEAR ATTRIBUTABLE
  TO MEMBERS OF THE PARENT COMPANY (i)....            $  3,858      $   (62,819)    $   352,211
                                                      ========      ===========     ===========
</TABLE>

     There are no recognized gains or losses other than the loss of $62,819 for
the year ended February 28, 1999 and profit of $3,858 for the year ended
February 28, 1998.
-------------------------
(i) A summary of the significant adjustments to profit for the year that would
    be required if US generally accepted accounting principles were to be
    applied instead of those generally in the United Kingdom is set forth in
    Note 21 to the Financial Statements.

                                      F-127
<PAGE>   205

                              KNS HOLDING LIMITED

                          CONSOLIDATED BALANCE SHEETS
                      FOR THE YEAR ENDED FEBRUARY 28, 1999

<TABLE>
<CAPTION>
                                                       FEBRUARY 28    FEBRUARY 28    NOVEMBER 30
                                               NOTE       1998           1999           1999
                                               ----    -----------    -----------    -----------
                                                                                     (UNAUDITED)
<S>                                            <C>     <C>            <C>            <C>
FIXED ASSETS
Tangible fixed assets........................    8     $  410,109     $  694,643     $  732,376
Investments..................................    9        344,935        522,882             99
                                                       ----------     ----------     ----------
                                                          755,044      1,217,525        732,475
CURRENT ASSETS
Stocks.......................................   10      1,998,377      2,093,636      1,624,828
Debtors......................................   11      3,537,736      3,592,460      7,046,317
Cash at bank and in hand.....................           1,221,645        539,999      1,014,813
                                                       ----------     ----------     ----------
                                                        6,757,758      6,226,095      9,685,958
CREDITORS: amounts falling due within one
  year.......................................   12      6,271,137      5,902,080      8,541,019
                                                       ----------     ----------     ----------
  NET CURRENT ASSETS.........................             486,621        324,015      1,144,939
                                                       ----------     ----------     ----------
  TOTAL ASSETS LESS CURRENT LIABILITIES......           1,241,665      1,541,540      1,877,414
  PROVISIONS FOR LIABILITIES & CHARGES.......   13             --         12,959             --
  ACCRUALS AND DEFERRED INCOME...............   14        297,644        379,163        238,120
                                                       ----------     ----------     ----------
                                                          944,021      1,149,418      1,639,294
  MINORITY INTERESTS: EQUITY.................                  --        291,739        421,794
                                                       ----------     ----------     ----------
                                                          944,021        857,679      1,217,500
                                                       ==========     ==========     ==========
CAPITAL AND RESERVES
Called up share capital......................          $  237,096     $  237,096     $  237,096
Other reserves...............................             703,056        421,022        421,022
Profit & loss account........................               3,858        224,428        576,639
Cumulative translation adjustment............                  11        (24,867)       (17,257)
                                                       ----------     ----------     ----------
  Total shareholders' funds..................          $  944,021     $  857,679     $1,217,500
                                                       ==========     ==========     ==========
</TABLE>

-------------------------
(i) A summary of the adjustments to invested capital that would be required if
    US generally accepted accounting principles were to be applied is set forth
    in Note 21 of Notes to the Financial Statements.

                                      F-128
<PAGE>   206

                              KNS HOLDING LIMITED

           CONSOLIDATED STATEMENT OF MOVEMENTS IN SHAREHOLDERS' FUNDS
                              AT FEBRUARY 28, 1999

<TABLE>
<CAPTION>
                                                                                      9 MONTHS
                                                      PERIOD ENDED    YEAR ENDED        ENDED
                                                      FEBRUARY 28     FEBRUARY 28    NOVEMBER 30
                                                          1998           1999           1999
                                                      ------------    -----------    -----------
                                                                                     (UNAUDITED)
<S>                                                   <C>             <C>            <C>
Recognized profit/(loss)............................    $  3,858       $(62,819)     $  352,211
Other movements:
  New shares issued.................................     940,152             --              --
  Exchange movements................................          11        (23,523)          7,610
                                                        --------       --------      ----------
          Total movements in the periods............     944,021        (86,342)        359,821
Shareholders' funds at March 1......................          --        944,021         857,679
                                                        --------       --------      ----------
Shareholders' funds at February 28/November 30......    $944,021       $857,679      $1,217,500
                                                        ========       ========      ==========
</TABLE>

                                      F-129
<PAGE>   207

                              KNS HOLDING LIMITED

                       CONSOLIDATED CASH FLOW STATEMENTS
                              AT FEBRUARY 28, 1999

<TABLE>
<CAPTION>
                                                        PERIOD ENDED    YEAR ENDED    9 MONTHS ENDED
                                                         FEBRUARY 28    FEBRUARY 28    NOVEMBER 30
                                                 NOTES      1998           1999            1999
                                                 -----  -------------   -----------   --------------
                                                                                       (UNAUDITED)
<S>                                              <C>    <C>             <C>           <C>
NET CASH (OUTFLOW)/INFLOW FROM OPERATING
  ACTIVITIES...................................     17    $ (62,432)    $1,133,929     $(1,876,157)
                                                          ---------     ----------     -----------
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
  Interest received............................                  --         57,528          98,640
  Interest paid................................                  --       (336,892)       (200,383)
                                                          ---------     ----------     -----------
Net cash outflow from returns on investments
  and servicing of finance.....................                  --       (279,364)       (101,743)
                                                          ---------     ----------     -----------
TAXATION
  Corporation tax paid.........................                  --       (142,101)        (49,364)
                                                          ---------     ----------     -----------
Tax paid.......................................                  --       (142,101)        (49,364)
                                                          ---------     ----------     -----------
INVESTING ACTIVITIES
  Payments to acquire tangible fixed assets....             (87,190)      (554,350)       (336,663)
  Receipts from sales of tangible fixed
     assets....................................                  --         47,499         101,119
  Receipts from sale of fixed asset
     investment................................                  --             --         626,390
  Loan to fixed asset investment...............            (259,404)      (193,394)             --
                                                          ---------     ----------     -----------
Net cash (outflow)inflow from investing
  activities...................................            (346,594)      (700,245)        390,846
                                                          ---------     ----------     -----------
Net cash (outflow)/inflow before financing.....            (409,026)        12,219      (1,636,418)
                                                          ---------     ----------     -----------
FINANCING
  Other loan advances..........................             959,246             --       2,120,728
  Loan repayments..............................                  --       (682,064)             --
                                                          ---------     ----------     -----------
Net cash inflow from financing.................             959,246       (682,064)      2,120,728
                                                          ---------     ----------     -----------
Increase/(decrease) in cash and cash
  equivalents..................................  17...    $ 550,220     $ (669,845)    $   484,310
                                                          =========     ==========     ===========
</TABLE>

                                      F-130
<PAGE>   208

                              KNS HOLDING LIMITED

                       CONSOLIDATED CASH FLOW STATEMENTS
                              AT FEBRUARY 28, 1999

            RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT

<TABLE>
<CAPTION>
                                                     PERIOD ENDED     YEAR ENDED     9 MONTHS ENDED
                                                     FEBRUARY 28     FEBRUARY 28      NOVEMBER 30
                                             NOTES       1998            1999             1999
                                             -----   ------------    ------------    --------------
                                                                                      (UNAUDITED)
<S>                                          <C>     <C>             <C>             <C>
Increase/(decrease) in cash................          $   550,220     $  (669,845)     $   484,310
Cash inflow from increase in loans.........             (959,246)             --       (2,120,728)
Repayment of loans.........................                   --         682,064               --
                                                     -----------     -----------      -----------
Change in net debt resulting from cash
  flows....................................             (409,026)         12,219       (1,636,418)
Exchange differences.......................               (7,888)         75,923           37,376
Other movements............................           (2,406,528)             --               --
                                                     -----------     -----------      -----------
Movement in Net Debt.......................           (2,823,442)         88,142       (1,599,042)
Net Debt at March 1........................                   --      (2,823,442)      (2,735,300)
                                                     -----------     -----------      -----------
Net Debt at February 28/November 30........          $(2,823,442)    $(2,735,300)     $(4,334,342)
                                                     ===========     ===========      ===========
</TABLE>

                                      F-131
<PAGE>   209

                              KNS HOLDING LIMITED

                             NOTES TO THE ACCOUNTS
                              AT FEBRUARY 28, 1999
 1. ACCOUNTING POLICIES

Basis of accounting

     The accounts have been prepared under the historical cost convention and in
accordance with all applicable accounting standards.

     KNS Holdings Limited was incorporated on November 25, 1997 and had no
operations until its acquisition of KNS Limited, on January 15, 1998. The
accompanying financial statements for the period ended February 28, 1998 consist
of the operations of KNS Limited for the period January 15, 1998 to February 28,
1998. On November 12, 1998, the company granted options to three directors of
KNS Limited to purchase from the company 50,000 L1 ordinary shares each in KNS
Limited. These options were exercised by the directors on November 12, 1998.
Consequently, KNS Holdings Limited now owns 70% of KNS Limited.

     The interim financial statements included herein are unaudited; however,
they contain all normal recurring accruals and adjustments which, in the opinion
of the directors, are necessary to present fairly the financial position of the
company at November 30, 1999 and for the nine months ended November 30, 1999. It
should be understood that accounting measurements at interim dates inherently
involve greater reliance on estimates than at year end. The results of
operations for the nine months ended November 30, 1999 are not necessarily
indicative of the results to the expected for the full year.

Turnover

     Turnover represents the net invoiced value of goods and services excluding
Value Added Tax.

Fixed assets

     Depreciation is provided to write off the cost of the assets over their
expected useful lives at the following annual rates/lives on a straight line
basis:

<TABLE>
<S>                                                           <C>
Computers and other equipment...............................  25%
Motor vehicles..............................................  25%
Office equipment............................................  25%
</TABLE>

Stocks

     Stocks and work in progress are stated at the lower of cost and net
realizable value, having made appropriate provisions for obsolete or slow moving
items. Cost represents the net purchase price of stock less trade discounts and
allowances.

Leased assets and hire purchase agreements

     Where assets are financed by leasing or hire purchase agreements which give
risks and rewards approximating to ownership (finance leases) they are treated
as if they had been purchased outright on credit. They are therefore initially
recorded as a fixed asset and a liability at a sum equal to the fair value of
the asset. Leasing payments on such assets are regarded as consisting of a
capital element which reduces the outstanding liability and an interest charge.

     All other asset leases are regarded as operating leases and the total
payments made under them are charged to the profit and loss account on a
straight line basis over the lease term.
                                      F-132
<PAGE>   210
                              KNS HOLDING LIMITED

                       NOTES TO THE ACCOUNTS (CONTINUED)
                              AT FEBRUARY 28, 1999

 1. ACCOUNTING POLICIES (CONTINUED)
Use of estimates

     The preparation of the financial statements in conformity with generally
accepted accounting principles in the United Kingdom requires management to make
estimates and assumptions that affect reported revenues, expenses, assets and
liabilities. Actual amounts could differ from such estimates.

Pension schemes

     The company operates defined contribution pension schemes on behalf of the
directors and employees. Contributions payable for the period are charged to the
profit and loss account.

Foreign currency translation

     The functional currency of the group is sterling (StgL).

     Transaction gains or losses arising on changes in the exchange rates
between the functional currency and foreign currencies are included in net
income/(loss) for the period.

     Translation adjustments arising from the translation of the results, assets
and liabilities of the group into US dollars (US$) are reported as a component
of shareholders' funds.

 2. TURNOVER

     The turnover and profit on ordinary activities before taxation are
attributable to the one principal activity of the company.

     An analysis of turnover is given below:

<TABLE>
<CAPTION>
                                               PERIOD ENDED   YEAR ENDED    9 MONTHS ENDED
                                               FEBRUARY 28    FEBRUARY 28    NOVEMBER 30
                                                   1998          1999            1999
                                               ------------   -----------   --------------
                                                                             (UNAUDITED)
<S>                                            <C>            <C>           <C>
United Kingdom...............................    $937,320     $18,075,874    $17,150,888
Europe.......................................       3,845         109,738        104,122
Rest of world................................       6,707         138,761        136,370
                                                 --------     -----------    -----------
                                                 $947,872     $18,324,373    $17,391,380
                                                 ========     ===========    ===========
</TABLE>

                                      F-133
<PAGE>   211
                              KNS HOLDING LIMITED

                       NOTES TO THE ACCOUNTS (CONTINUED)
                              AT FEBRUARY 28, 1999

 3. OPERATING PROFIT

     The operating profit is stated after charging:

<TABLE>
<CAPTION>
                                                PERIOD ENDED   YEAR ENDED    9 MONTHS ENDED
                                                FEBRUARY 28    FEBRUARY 28    NOVEMBER 30
                                                    1998          1999            1999
                                                ------------   -----------   --------------
                                                                              (UNAUDITED)
<S>                                             <C>            <C>           <C>
Depreciation of tangible fixed assets.........    $22,489       $213,227        $104,721
Rent on buildings held under operating
  lease.......................................      7,427        184,843         204,843
Hire on other assets..........................      2,510          8,395           8,502
Exchange loss.................................      1,934         54,822          24,432
Auditors' remuneration:
  -- audit services...........................    $ 2,736       $ 13,135        $ 14,525
                                                  =======       ========        ========
</TABLE>

 4. DIRECTORS AND EMPLOYEES

     Staff costs during the period were as follows:

<TABLE>
<CAPTION>
                                    PERIOD ENDED    YEAR ENDED     9 MONTHS ENDED
                                    FEBRUARY 28     FEBRUARY 28     NOVEMBER 30
                                        1998           1999             1999
                                    ------------    -----------    --------------
                                                                    (UNAUDITED)
<S>                                 <C>             <C>            <C>
Wages and salaries................    $286,351      $2,724,882       $2,331,542
Value of benefits in kind.........      21,936         211,746           41,347
Social security costs.............      29,834         277,627          241,573
Other pension costs...............      12,586         121,923           96,027
                                      --------      ----------       ----------
                                      $350,707      $3,336,178       $2,710,489
                                      ========      ==========       ==========
</TABLE>

     The average weekly number of employees of the company, included above, was
as follows:

<TABLE>
<CAPTION>
                                                    PERIOD ENDED    YEAR ENDED
                                                    FEBRUARY 28     FEBRUARY 28
                                                        1998           1999
                                                    ------------    -----------
<S>                                                 <C>             <C>
Office and management.............................        5              5
Production and sales..............................       19             34
                                                         --             --
                                                         24             39
                                                         ==             ==
</TABLE>

     Remuneration in respect of directors of the company, included above, was
payable by the company as follows:

<TABLE>
<CAPTION>
                                                    PERIOD ENDED    YEAR ENDED
                                                    FEBRUARY 28     FEBRUARY 28
                                                        1998           1999
                                                    ------------    -----------
<S>                                                 <C>             <C>
Emoluments........................................    $63,051        $754,571
Pension contributions.............................      2,579          26,394
                                                      -------        --------
                                                      $65,630        $780,965
                                                      =======        ========
</TABLE>

                                      F-134
<PAGE>   212
                              KNS HOLDING LIMITED

                       NOTES TO THE ACCOUNTS (CONTINUED)
                              AT FEBRUARY 28, 1999

 4. DIRECTORS AND EMPLOYEES (CONTINUED)
     Pension contributions are payable under defined contributions schemes on
behalf of three directors.

<TABLE>
<CAPTION>
                                                    PERIOD ENDED    YEAR ENDED
                                                    FEBRUARY 28     FEBRUARY 28
                                                        1998           1999
                                                    ------------    -----------
<S>                                                 <C>             <C>
Highest paid director
  Emoluments......................................    $21,466        $256,199
  Pension contributions...........................        789           8,303
                                                      -------        --------
                                                      $22,255        $264,502
                                                      =======        ========
</TABLE>

 5. OTHER INCOME

<TABLE>
<CAPTION>
                                            PERIOD ENDED    YEAR ENDED     9 MONTHS ENDED
                                            FEBRUARY 28     FEBRUARY 28     NOVEMBER 30
                                                1998           1999             1999
                                            ------------    -----------    --------------
                                                                            (UNAUDITED)
<S>                                         <C>             <C>            <C>
Loan interest receivable..................      $853          $33,311         $98,640
Bank interest receivable..................        --           24,217              --
                                                ----          -------         -------
                                                $853          $57,528         $98,640
                                                ====          =======         =======
</TABLE>

 6. INTEREST PAYABLE AND SIMILAR CHARGES

<TABLE>
<CAPTION>
                                            PERIOD ENDED    YEAR ENDED     9 MONTHS ENDED
                                            FEBRUARY 28     FEBRUARY 28     NOVEMBER 30
                                                1998           1999             1999
                                            ------------    -----------    --------------
                                                                            (UNAUDITED)
<S>                                         <C>             <C>            <C>
Loan interest payable.....................    $17,290        $334,347         $200,383
                                              =======        ========         ========
</TABLE>

 7. TAXATION ON PROFIT ON ORDINARY ACTIVITIES

     The tax charge on the profit on ordinary activities for the year was as
follows:

<TABLE>
<CAPTION>
                                            PERIOD ENDED    YEAR ENDED     9 MONTHS ENDED
                                            FEBRUARY 28     FEBRUARY 28     NOVEMBER 30
                                                1998           1999             1999
                                            ------------    -----------    --------------
                                                                            (UNAUDITED)
<S>                                         <C>             <C>            <C>
UK Corporation tax........................     $7,447        $102,291         $262,583
Deferred tax..............................         --          12,959          (13,055)
                                               ------        --------         --------
                                               $7,447        $115,250         $249,528
                                               ======        ========         ========
</TABLE>

                                      F-135
<PAGE>   213
                              KNS HOLDING LIMITED

                       NOTES TO THE ACCOUNTS (CONTINUED)
                              AT FEBRUARY 28, 1999

 8. TANGIBLE FIXED ASSETS

<TABLE>
<CAPTION>
                                 COMPUTERS
                                 AND OTHER     MOTOR       OFFICE EQUIPMENT,
                                 EQUIPMENT    VEHICLES    FIXTURES & FITTINGS       TOTAL
                                 ---------    --------    --------------------    ----------
<S>                              <C>          <C>         <C>                     <C>
Cost:
  At March $1, 1998............  $233,320     $325,100          $ 30,289          $  588,709
  Additions....................   234,756      165,402           154,192             554,350
  Disposals....................    (4,636)     (31,907)           (8,780)            (45,323)
  Difference on exchange.......   (13,593)     (13,015)           (5,425)            (32,033)
                                 --------     --------          --------          ----------
  At February 28, 1999.........   449,847      445,580           170,276           1,065,703
                                 --------     --------          --------          ----------
Depreciation:
  At March 1, 1998.............    89,517       84,640             4,443             178,600
  Provided during year.........    86,302       98,526            28,399             213,227
  Disposals....................       (83)      (8,459)             (943)             (9,485)
  Difference on exchange.......    (5,151)      (5,142)             (989)            (11,282)
                                 --------     --------          --------          ----------
  At February 28, 1999.........   170,585      169,565            30,910             371,060
                                 --------     --------          --------          ----------
Net book value:
  At February 28, 1999.........   279,262      276,015           139,366             694,643
                                 ========     ========          ========          ==========
  At March 1, 1998.............   143,803      240,460            25,846             410,109
                                 ========     ========          ========          ==========
  At November 30, 1999
     (unaudited)...............  $229,648     $387,147          $115,581          $  732,376
                                 ========     ========          ========          ==========
</TABLE>

 9. INVESTMENTS

<TABLE>
<CAPTION>
                                                                   LOAN TO
                                                   INVESTMENT    FIXED ASSET
                                                   IN SHARES     INVESTMENT      TOTAL
                                                   ----------    -----------    --------
<S>                                                <C>           <C>            <C>
Cost
  At March 1, 1998...............................     $99         $344,836      $344,935
  Additions......................................      --          193,394       193,394
  Difference on exchange.........................      --          (15,447)      (15,447)
                                                      ---         --------      --------
  At February 28, 1999...........................      99          522,783       522,882
                                                      ===         ========      ========
  At November 30, 1999 (unaudited)...............     $99         $     --      $     99
                                                      ===         ========      ========
</TABLE>

     The investment in shares relates to 30% holding in the issued ordinary
share capital of Panic Systems Limited. Panic Systems Limited is incorporated in
England and Wales and its principal activity is the design and manufacture of
communications equipment. The company's accounting date is 31 March.

     The following information was taken from the Panic Systems Limited accounts
for the year end 31 March 1998.

<TABLE>
<CAPTION>
                                                          1998         1997
                                                        ---------    --------
<S>                                                     <C>          <C>
Loss for the financial year...........................  $(293,100)   $(60,831)
                                                        =========    ========
Aggregate capital & reserves..........................  $(343,486)   $(44,004)
                                                        =========    ========
</TABLE>

                                      F-136
<PAGE>   214
                              KNS HOLDING LIMITED

                       NOTES TO THE ACCOUNTS (CONTINUED)
                              AT FEBRUARY 28, 1999

10. STOCKS

<TABLE>
<CAPTION>
                                               FEBRUARY 28    FEBRUARY 28    NOVEMBER 30
                                                  1998           1999           1999
                                               -----------    -----------    -----------
                                                                             (UNAUDITED)
<S>                                            <C>            <C>            <C>
Goods for resale.............................  $1,998,377     $2,093,636     $1,624,828
                                               ==========     ==========     ==========
</TABLE>

11. DEBTORS

<TABLE>
<CAPTION>
                                               FEBRUARY 28    FEBRUARY 28    NOVEMBER 30
                                                  1998           1999           1999
                                               -----------    -----------    -----------
                                                                             (UNAUDITED)
<S>                                            <C>            <C>            <C>
Trade debtors................................  $3,457,846     $3,281,822     $6,085,923
Prepayments..................................      79,890        221,624        114,530
Other debtors................................          --         89,014        845,864
                                               ----------     ----------     ----------
                                               $3,537,736     $3,592,460     $7,046,317
                                               ==========     ==========     ==========
</TABLE>

12. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR

<TABLE>
<CAPTION>
                                               FEBRUARY 28    FEBRUARY 28    NOVEMBER 30
                                                  1998           1999           1999
                                               -----------    -----------    -----------
                                                                             (UNAUDITED)
<S>                                            <C>            <C>            <C>
Trade creditors..............................  $2,136,434     $2,490,899     $2,287,506
Other creditors..............................   4,045,087      3,275,299      5,851,577
Social security & other taxes................          --         86,801        142,721
Corporation tax..............................      89,616         49,082        259,215
                                               ----------     ----------     ----------
                                               $6,271,137     $5,902,081     $8,541,019
                                               ==========     ==========     ==========
</TABLE>

13. PROVISIONS FOR LIABILITIES AND CHARGES

     Deferred taxation provided in the accounts and amounts not provided are as
follows:

<TABLE>
<CAPTION>
                                               FEBRUARY 28    FEBRUARY 28    NOVEMBER 30
                                                  1998           1999           1999
                                               -----------    -----------    -----------
                                                                             (UNAUDITED)
<S>                                            <C>            <C>            <C>
PROVIDED
Capital allowances in advance of
  depreciation...............................   $     --        $12,959       $     --
                                                ========        =======       ========
</TABLE>

<TABLE>
<CAPTION>
                                               FEBRUARY 28    FEBRUARY 28    NOVEMBER 30
                                                  1998           1999           1999
                                               -----------    -----------    -----------
                                                                             (UNAUDITED)
<S>                                            <C>            <C>            <C>
NOT PROVIDED
Capital allowances in advance of
  depreciation...............................   $(14,069)       $    --       $(36,908)
                                                ========        =======       ========
</TABLE>

                                      F-137
<PAGE>   215
                              KNS HOLDING LIMITED

                       NOTES TO THE ACCOUNTS (CONTINUED)
                              AT FEBRUARY 28, 1999

14. ACCRUALS AND DEFERRED INCOME

<TABLE>
<CAPTION>
                                                       FEBRUARY 28    FEBRUARY 28    NOVEMBER 30
                                                          1998           1999           1999
                                                       -----------    -----------    -----------
                                                                                     (UNAUDITED)
<S>                                                    <C>            <C>            <C>
  Accruals...........................................   $161,047       $310,053       $140,809
  Deferred income....................................    136,597         69,110         97,311
                                                        --------       --------       --------
                                                        $297,644       $379,163       $238,120
                                                        ========       ========       ========
</TABLE>

15. SHARE CAPITAL

<TABLE>
<CAPTION>
                                                       FEBRUARY 28    FEBRUARY 28    NOVEMBER 30
                                                          1998           1999           1999
                                                       -----------    -----------    -----------
                                                                                     (UNAUDITED)
<S>                                                    <C>            <C>            <C>
Authorized:
  Ordinary shares of L0.01p each.....................   $237,096       $237,096       $237,096
                                                        ========       ========       ========
Allotted, issued and fully paid:
  Ordinary shares of L0.01p each.....................   $237,096       $237,096       $237,096
                                                        ========       ========       ========
</TABLE>

16. MOVEMENTS IN RESERVES

<TABLE>
<CAPTION>
                                                                            CUMULATIVE        TOTAL
                                       SHARE       OTHER       PROFIT &     TRANSLATION   SHAREHOLDERS'
                                      CAPITAL    RESERVES    LOSS ACCOUNT   ADJUSTMENT        FUNDS
                                      --------   ---------   ------------   -----------   -------------
<S>                                   <C>        <C>         <C>            <C>           <C>
At March 1, 1997....................  $     --   $      --     $     --      $     --      $       --
  Arising on share issues...........   237,096     703,056           --            --         940,152
  Retained profit...................        --          --        3,858            --           3,858
  Exchange gain.....................        --          --           --            11              11
                                      --------   ---------     --------      --------      ----------
At February 28, 1998................   237,096     703,056        3,858            11         944,021
  Retained loss.....................        --          --      (62,819)           --         (62,819)
  Exchange loss.....................        --          --           --       (23,523)        (23,523)
  Transfer from other reserves......        --    (282,034)     283,389        (1,355)             --
                                      --------   ---------     --------      --------      ----------
At February 28, 1999................   237,096     421,022      224,428       (24,867)        857,679
                                      ========   =========     ========      ========      ==========
At November 30, 1999 (unaudited)....  $237,096   $ 421,022     $576,639      $(17,257)     $1,217,500
                                      ========   =========     ========      ========      ==========
</TABLE>

                                      F-138
<PAGE>   216
                              KNS HOLDING LIMITED

                       NOTES TO THE ACCOUNTS (CONTINUED)
                              AT FEBRUARY 28, 1999

17. NOTES TO THE STATEMENT OF CASH FLOWS

     (a) Reconciliation of operating profit to net cash inflow from operating
activities

<TABLE>
<CAPTION>
                                            PERIOD ENDED    YEAR ENDED     9 MONTHS ENDED
                                            FEBRUARY 28     FEBRUARY 28     NOVEMBER 30
                                                1998           1999             1999
                                            ------------    -----------    --------------
                                                                            (UNAUDITED)
<S>                                         <C>             <C>            <C>
Operating profit..........................   $  22,743      $  633,945      $   743,088
Depreciation..............................      22,489         213,227          204,843
Profit on sale of fixed assets............          --         (11,667)              --
(Increase)/decrease in debtors............     502,848        (154,152)      (3,520,967)
(Increase)/decrease in stocks.............    (560,965)       (155,256)         462,733
Increase/(decrease) in creditors..........     (54,547)        607,832          234,146
                                             ---------      ----------      -----------
Net cash inflow from operating
  activities..............................   $ (62,432)     $1,133,929      $(1,876,157)
                                             =========      ==========      ===========
</TABLE>

     (b) Analysis of net debt

<TABLE>
<CAPTION>
                                       AT                                         AT
                                     MARCH 1        CASH        EXCHANGE      FEBRUARY 28
                                      1998          FLOW       DIFFERENCES       1999
                                   -----------    ---------    -----------    -----------
<S>                                <C>            <C>          <C>            <C>
Cash at bank and in hand.........  $ 1,221,645    $(669,845)    $(11,801)     $   539,999
Loans............................   (4,045,087)     682,064       87,724       (3,275,299)
                                   -----------    ---------     --------      -----------
                                   $(2,823,442)   $  12,219     $ 75,923      $(2,735,300)
                                   ===========    =========     ========      ===========
</TABLE>

<TABLE>
<CAPTION>
                                                                                   AT
                                      AT                                       30 NOVEMBER
                                    MARCH 1         CASH         EXCHANGE         1999
                                     1999           FLOW        DIFFERENCES    (UNAUDITED)
                                  -----------    -----------    -----------    -----------
<S>                               <C>            <C>            <C>            <C>
Cash at bank and in hand........  $   539,999    $   484,310      $(9,496)     $ 1,014,813
Loans...........................   (3,275,299)    (2,120,728)      46,872       (5,349,155)
                                  -----------    -----------      -------      -----------
                                  $(2,735,300)   $(1,636,418)     $37,376      $(4,334,342)
                                  ===========    ===========      =======      ===========
</TABLE>

18. RELATED PARTY TRANSACTIONS

     The group's ultimate controlling parties are the Bennett family
settlements.

     During the year the group undertook the following transactions with
Kerridge Computer Limited, a company which is controlled by the same parties as
KNS Holdings Limited:

     - The group sold good and services totaling $679,229 of which a balance of
       $91,809 was outstanding at the period end.

     - The group bought goods and services totaling $122,695 of which a balance
       of $74,519 was outstanding at the period end.

     - Kerridge Computer Company Limited incurred expenditure totaling
       $2,189,876 on behalf of the group which has not been repaid at the period
       end.

                                      F-139
<PAGE>   217
                              KNS HOLDING LIMITED

                       NOTES TO THE ACCOUNTS (CONTINUED)
                              AT FEBRUARY 28, 1999

18. RELATED PARTY TRANSACTIONS (CONTINUED)
     - Kerridge Computer Company Limited has charged a management charge
       amounting to $111,677 which was outstanding at the period end.

     - Kerridge Computer Company Limited has charged interest on the loan
       amounting to $336,892 which was outstanding at the period end.

     - KNS Limited has loaned Panic Systems Limited $160,083 to assist in the
       development of a new product. KNS Limited has charged interest of $33,310
       on this loan. The loan and accrued interest are outstanding at the period
       end.

19. COMMITMENTS UNDER OPERATING LEASES

     At February 28, 1999 the group had annual commitments under non-cancelable
operating leases as set out below:

<TABLE>
<CAPTION>
                                                    1998                    1999
                                             -------------------    --------------------
                                              LAND &                 LAND &
                                             BUILDINGS    OTHER     BUILDINGS     OTHER
                                             ---------    ------    ---------    -------
<S>                                          <C>          <C>       <C>          <C>
Operating leases which expire:
  within one year..........................  $     --     $2,282    $     --     $    --
  within two to five years.................   189,348         --     184,230      10,525
                                             --------     ------    --------     -------
                                             $189,348     $2,282    $184,230     $10,525
                                             ========     ======    ========     =======
</TABLE>

20. PENSION SCHEMES

     The group operates defined contribution pension schemes on behalf of the
directors and employees, the assets of which are held separately from those of
the group in independently administered funds. Pension costs are charged to the
profit and loss account as incurred. At February 28, 1999 unpaid contributions
totaled $nil.

21. DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES

     The consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United Kingdom ("UK GAAP") which
differ in certain respects from those generally accepted in the United States
("US GAAP"). The significant differences applicable to KNS Holdings Limited are
described below.

Deferred taxation

     Under UK GAAP provision is made for deferred taxation using the liability
method on short-term timing differences and all material timing differences
which are not expected to continue in the future. Under US GAAP, deferred
taxation is provided on a full liability basis on all temporary differences
between the tax and book bases of assets and liabilities including the
differences between the assigned fair values and tax bases of assets and
liabilities acquired. Future tax benefits are recognized as deferred tax assets,
subject to a valuation allowance to the extent that it is more likely than not
that any part will be realized.

                                      F-140
<PAGE>   218
                              KNS HOLDING LIMITED

                       NOTES TO THE ACCOUNTS (CONTINUED)
                              AT FEBRUARY 28, 1999

21. DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY ACCEPTED
    ACCOUNTING PRINCIPLES (CONTINUED)
PROFIT FOR THE PERIOD

<TABLE>
<CAPTION>
                                            PERIOD ENDED    YEAR ENDED     9 MONTHS ENDED
                                            FEBRUARY 28     FEBRUARY 28     NOVEMBER 30
                                                1998           1999             1999
                                            ------------    -----------    --------------
                                                                            (UNAUDITED)
<S>                                         <C>             <C>            <C>
Profit/(loss) for the period as reported
  in the consolidated profit and loss
  account under UK GAAP...................     $3,858        $(62,819)        $352,211
                                               ------        --------         --------
Adjustments:
  Deferred taxation Methodology...........      1,169              --           36,908
                                               ------        --------         --------
Net income as adjusted to accord with US
  GAAP....................................     $5,027        $(62,819)        $389,119
                                               ======        ========         ========
</TABLE>

INVESTED CAPITAL

<TABLE>
<CAPTION>
                                            PERIOD ENDED    YEAR ENDED     9 MONTHS ENDED
                                            FEBRUARY 28     FEBRUARY 28     NOVEMBER 30
                                                1998           1999             1999
                                            ------------    -----------    --------------
                                                                            (UNAUDITED)
<S>                                         <C>             <C>            <C>
Invested capital as reported in the
  consolidated balance sheet under UK
  GAAP....................................    $944,021       $857,679        $1,217,500
                                              --------       --------        ----------
Adjustments:
  Deferred taxation methodology...........      14,069             --            36,423
                                              --------       --------        ----------
Invested capital as adjusted to accord
  with US GAAP............................    $958,090       $857,679        $1,253,923
                                              ========       ========        ==========
</TABLE>

REVENUE RECOGNITION

     The group recognizes revenues in accordance with American Institute of
Certified Public Accountants statement of Position 97-2, Software Revenue
Recognition, as amended. Accordingly, no adjustment is necessary under US GAAP.

CONSOLIDATED STATEMENT OF CASH FLOWS

     The consolidated statements of cash flows prepared under UK GAAP present
substantially the same information as those required under US GAAP but they
differ, however, with regard to classification of items within them and as
regards the definition of cash and cash equivalents.

     Under UK GAAP, cash is defined as cash in hand and at bank and deposits
repayable on demand less bank overdrafts. Under US GAAP, cash and cash
equivalents would not include bank overdrafts but would include cash deposits
repayable within three months at inception. Under UK GAAP, cash flows are
presented separately for operating activities, returns on investments and
servicing of finance, taxation,

                                      F-141
<PAGE>   219
                              KNS HOLDING LIMITED

                       NOTES TO THE ACCOUNTS (CONTINUED)
                              AT FEBRUARY 28, 1999

21. DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY ACCEPTED
    ACCOUNTING PRINCIPLES (CONTINUED)
capital expenditure and financial investment, acquisitions, equity dividends,
management of liquid resources and financing. US GAAP require only three
categories of cash flow activity to be reported: operating, investing and
financing. Cash flows from taxation and returns on investments and servicing of
finance shown under UK GAAP would be included in the determination of cash flows
from operating activities under US GAAP. Under US GAAP, the payment of dividends
would be included as a financing activity and capital expenditure and financial
investment and acquisitions would be included within investing activities.

     The categories of cash flow activity under US GAAP can be summarized as
follows:

<TABLE>
<CAPTION>
                                            PERIOD ENDED    YEAR ENDED     9 MONTHS ENDED
                                            FEBRUARY 28     FEBRUARY 28     NOVEMBER 30
                                                1998           1999             1999
                                            ------------    -----------    --------------
                                                                            (UNAUDITED)
<S>                                         <C>             <C>            <C>
Cash (outflow)/inflow from operating
  activities..............................   $ (62,432)      $ 712,464      $(2,027,264)
Cash (outflow)/inflow on investing
  activities..............................    (346,594)       (700,245)         390,846
Cash inflow/(outflow) from financing
  activities..............................     959,246        (682,064)       2,120,728
                                             ---------       ---------      -----------
Increase/(Decrease) in cash and cash
  equivalents.............................   $ 550,220       $(669,845)     $   484,310
                                             =========       =========      ===========
</TABLE>

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

     KNS Holdings Limited has no amounts which, under US GAAP, would be reported
as other comprehensive income.

CONCENTRATIONS OF CREDIT RISK

     KNS Holdings Limited did not consider there to be any significant
concentration of credit risk at February 28, 1999.

FINANCIAL INSTRUMENTS

     The carrying amounts and fair values of the material financial instruments
of KNS Holdings Limited which comprise cash and external borrowings, approximate
their carrying amounts. KNS Holdings Limited has not utilized derivatives.

                                      F-142
<PAGE>   220
                              KNS HOLDING LIMITED

                       NOTES TO THE ACCOUNTS (CONTINUED)
                              AT FEBRUARY 28, 1999

21. DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY ACCEPTED
    ACCOUNTING PRINCIPLES (CONTINUED)
DEFERRED TAXATION

     The analysis of the deferred taxation balance under US GAAP is as follows:

<TABLE>
<CAPTION>
                                            PERIOD ENDED    YEAR ENDED     9 MONTHS ENDED
                                            FEBRUARY 28     FEBRUARY 28     NOVEMBER 30
                                                1998           1999             1999
                                            ------------    -----------    --------------
                                                                            (UNAUDITED)
                                                                           --------------
<S>                                         <C>             <C>            <C>
Deferred taxation liabilities
Excess of book value over taxation value
  of fixed assets.........................    $    --        $(12,959)        $    --
                                              -------        --------         -------
                                                   --         (12,959)             --
                                              -------        --------         -------
Deferred taxation assets
  Excess of taxation value over book value
     of fixed assets......................     14,069              --          36,423
                                              -------        --------         -------
                                               14,069              --          36,423
                                              -------        --------         -------
Net deferred taxation asset/(liability)...    $14,069        $(12,959)        $36,423
                                              =======        ========         =======
</TABLE>

INVESTMENT IN PANIC SYSTEMS LIMITED

     Under US GAAP, the investment in Panic Systems is accounted for under the
equity method. In the opinion of the directors, no write down is required
against the investment under this method.

                                      F-143
<PAGE>   221

                                  [BACK COVER]

 [INSERT GRAPHIC DISPLAYING COMPONENTS OF SERVER-BASED SERVICES, INCLUDING THE
   METHODS OF DELIVERY OF SOFTWARE APPLICATIONS FROM OUR DATA CENTERS TO OUR
                                   CUSTOMERS]
<PAGE>   222

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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT OR ADDITIONAL INFORMATION.
THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR IS IT SEEKING AN OFFER TO BUY SHARES
OF OUR COMMON STOCK IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF THE DELIVERY OF THIS
PROSPECTUS OR ANY SALE OF OUR COMMON STOCK.

                           -------------------------

                               TABLE OF CONTENTS

                           -------------------------

<TABLE>
<CAPTION>
                                        PAGE
                                        ----
<S>                                     <C>
Prospectus Summary....................    1
Risk Factors..........................    5
Forward-Looking Statements............   11
Use of Proceeds.......................   12
Dividend Policy.......................   12
Price Range of Our Common Stock.......   13
Capitalization........................   15
Dilution..............................   16
Acquisitions..........................   17
Unaudited Pro Forma Condensed
  Consolidated Financial
  Information.........................   20
Selected Consolidated Financial
  Data................................   29
Management's Discussion and Analysis
  of Financial Condition and Results
  of Operations.......................   30
Business..............................   39
Management............................   52
Principal Stockholders................   61
Certain Relationships and Related
  Transactions........................   63
Description of Capital Stock..........   65
Shares Eligible for Future Sale.......   69
Underwriting..........................   71
Legal Matters.........................   73
Experts...............................   73
Where You Can Find More Information...   74
Index to Financial Statements.........  F-1
</TABLE>

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                               [FUTURELINK LOGO]


                                6,000,000 SHARES


                                  COMMON STOCK

                           -------------------------
                                   PROSPECTUS
                           -------------------------

                            BEAR, STEARNS & CO. INC.

                             C.E. UNTERBERG, TOWBIN


                                            , 2000

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<PAGE>   223

                                    PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.


<TABLE>
<S>                                                           <C>
SEC registration fee........................................  $37,240
NASD filing fee.............................................   13,581
Blue Sky fees and expenses..................................    7,500
Attorneys' fees and expenses................................
Accountants' fees and expenses..............................
Transfer Agent's and Registrar's fees and expenses..........
Printing and engraving fees.................................
Miscellaneous...............................................
                                                              -------
          Total.............................................  $
                                                              =======
</TABLE>


     The amounts set forth above are estimates except for the SEC registration
fee and the NASD filing fee.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

     Section 145 of the Delaware General Corporation Law provides, in summary,
that directors and officers of Delaware corporations are entitled, under certain
circumstances, to be indemnified against all expenses and liabilities, including
attorneys' fees, incurred by them as a result of suits brought against them in
their capacity as a director or officer, if they acted in good faith and in a
manner they reasonably believed to be in or not opposed to the best interests of
the Company, and, with respect to any criminal action or proceeding, if they had
no reasonable cause to believe their conduct was unlawful; provided that no
indemnification may be made against expenses in respect of any claim, issue or
matter as to which they shall have been adjudged to be liable to the Company,
unless and only to the extent that the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, they are fairly and
reasonably entitled to indemnity for such expenses which the court shall deem
proper. Any such indemnification may be made by the Company only as authorized
in each specific case upon a determination by the shareholders or disinterested
directors that indemnification is proper because the indemnitee has met the
applicable standard of conduct.

     The Company's Certificate of Incorporation provides that to the fullest
extent permitted by the laws of the State of Delaware, as the same may be
amended from time to time, a director of the Company shall not be personally
liable to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director.

     The Certificate of Incorporation and By-Laws provide for indemnification of
its directors and officers to the fullest extent permitted by Delaware law, as
the same may be amended from time to time.

     In addition, the Company maintains liability insurance for its directors
and officers.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

     Since January 1, 1997, we have issued the following securities without
registration under the Securities Act. Each of the disclosures take into account
the stock splits referred to in the prospectus.

 1. On June 9, 1997, we issued 6,000 shares of common stock to two non-U.S.
    residents. In exchange for the issuance, we received total consideration of
    $10,000. We issued these securities under an exemption provided by Rule 903
    of Regulation S under the Securities Act Rules. We made no

                                      II-1
<PAGE>   224

    directed selling efforts of these securities within the United States. The
    purchasers of the securities certified that they are not U.S. persons, that
    they were not acquiring the securities for the account or benefit of any
    U.S. person and that they would not resell the securities in the U.S. for at
    least one year. The securities issued by us were appropriately legended to
    reflect these restrictions and we have the right to refuse to register any
    transfer of these securities not made in accordance with Regulation S.

 2. On July 23, 1997, we issued 10,000 shares of common stock to twenty-three
    non-U.S. residents. In exchange for the issuance, we received total
    consideration of $100,000. We issued these securities under an exemption
    provided by Rule 903 of Regulation S under the Securities Act Rules. We made
    no directed selling efforts of these securities within the United States.
    Each purchaser of the securities certified that it is not a U.S. person, was
    not acquiring the securities for the account or benefit of any U.S. person
    and would not resell the securities in the U.S. for at least one year. The
    securities issued by us were appropriately legended to reflect these
    restrictions and we have the right to refuse to register any transfer of
    these securities not made in accordance with Regulation S.

 3. On December 18, 1997, we issued 2,000,000 shares of common stock to
    twenty-five non-U.S. residents. In exchange for the issuance, we received
    total consideration of $100,000. We issued these securities under an
    exemption provided by Rule 903 of Regulation S under the Securities Act
    Rules. We made no directed selling efforts of these securities within the
    United States. The purchasers of the securities certified they are not U.S.
    persons, and were not acquiring the securities for the account or benefit of
    any U.S. person.

 4. On January 20, 1998, we issued 308,000 shares of common stock to 5 non-US
    residents. In exchange for the issuances, we received 1,540,000 Class A
    Common Voting shares of FutureLink Alberta. We also issued 700,000 shares of
    common stock to 18 entities or individuals who were officers, directors, or
    employees of FutureLink Alberta, or their nominees, in exchange for prior
    services. We issued these securities under an exemption provided by Rule 903
    of Regulation S under the Securities Act Rules. We made no directed selling
    efforts of these securities within the United States. Each recipient of
    these securities certified that it is not a U.S. person, was not acquiring
    the securities for the account or benefit of any U.S. person and would not
    resell the securities in the U.S. for at least one year. The securities
    issued by us were appropriately legended to reflect these restrictions and
    we have the right to refuse to register any transfer of these securities not
    made in accordance with Regulation S.

 5. On January 29, 1998, we issued 16,666 shares of common stock and a warrant
    to purchase up to 16,666 shares of common stock, which is now expired, to a
    non-U.S. entity. In exchange for this issuance, we received total
    consideration of $250,000. We issued these securities under an exemption
    provided by Rule 903 of Regulation S under the Securities Act Rules. We made
    no directed selling efforts of these securities within the United States.
    The purchaser of the securities certified that it is not a U.S. person, was
    not acquiring the securities for the account or benefit of any U.S. person
    and would not resell the securities in the U.S. for at least one year. The
    securities issued by us were appropriately legended to reflect these
    restrictions and we have the right to refuse to register any transfer of
    these securities not made in accordance with Regulation S.

 6. On April 3, 1998, we issued 13,696 shares of common stock and a warrant to
    purchase up to 13,696 shares of common stock to a non-U.S. entity. In
    exchange for the issuances, we received total consideration of $256,000. We
    issued these securities under an exemption provided by Rule 903 of
    Regulation S under the Securities Act Rules. We made no directed selling
    efforts of these securities within the United States. The purchaser of the
    securities certified that it is not a U.S. person, was not acquiring the
    securities for the account or benefit of any U.S. person and would not
    resell the securities in the U.S. for at least one year. The securities
    issued by us were appropriately legended to reflect these restrictions and
    we have the right to refuse to register any transfer of these securities not
    made in accordance with Regulation S.

                                      II-2
<PAGE>   225

 7. On April 3, 1998, we issued 7,467 shares of common stock and a warrant to
    purchase up to 7,467 shares of common stock to a non-U.S. entity. In
    exchange for the issuances, we received total consideration of $140,000. We
    issued these securities under an exemption provided by Rule 903 of
    Regulation S under the Securities Act Rules. We made no directed selling
    efforts of these securities within the United States. The purchaser of the
    securities certified that it is not a U.S. person, was not acquiring the
    securities for the account or benefit of any U.S. person and would not
    resell the securities in the U.S. for at least one year. The securities
    issued by us were appropriately legended to reflect these restrictions and
    we have the right to refuse to register any transfer of these securities not
    made in accordance with Regulation S.

 8. On April 22, 1998, we issued 9,333 shares of common stock and a warrant to
    purchase up to 9,333 shares of common stock to a non-U.S. entity. In
    exchange for the issuances, we received total consideration of $140,000. We
    issued these securities under an exemption provided by Rule 903 of
    Regulation S under the Securities Act Rules. We made no directed selling
    efforts of these securities within the United States. The purchaser of the
    securities certified that it is not a U.S. person, was not acquiring the
    securities for the account or benefit of any U.S. person and would not
    resell the securities in the U.S. for at least one year. The securities
    issued by us were appropriately legended to reflect these restrictions and
    we have the right to refuse to register any transfer of these securities not
    made in accordance with Regulation S.

 9. On April 24, 1998, we issued 4,000 shares of common stock and a warrant to
    purchase up to 4,000 shares of common stock to a non-U.S. entity. In
    exchange for the issuances, we received total consideration of $60,000. We
    issued these securities under an exemption provided by each of Rule 903 of
    Regulation S under the Securities Act Rules. We made no directed selling
    efforts of these securities within the United States. The purchaser of the
    securities certified that it is not a U.S. person, was not acquiring the
    securities for the account or benefit of any U.S. person and would not
    resell the securities in the U.S. for at least one year. The securities
    issued by us were appropriately legended to reflect these restrictions and
    we have the right to refuse to register any transfer of these securities not
    made in accordance with Regulation S.

10. On April 29, 1998, we issued 117,756 shares of common stock and a warrant to
    purchase up to 117,756 shares of common stock to a non-U.S. entity. In
    exchange for this issuance, we received total consideration of $382,706. We
    also issued 107,692 shares of common stock and a warrant to purchase up to
    107,692 shares of common stock to a second non-US entity. In exchange for
    this issuance, we received total consideration of $350,000. We issued all of
    these securities under an exemption provided by Rule 903 of Regulation S
    under the Securities Act Rules. We made no directed selling efforts of these
    securities within the United States. Each purchaser of these securities
    certified that it is not a U.S. person, was not acquiring the securities for
    the account or benefit of any U.S. person and would not resell the
    securities in the U.S. for at least one year. The securities issued by us
    were appropriately legended to reflect these restrictions and we have the
    right to refuse to register any transfer of these securities not made in
    accordance with Regulation S.

11. On August 14, 1998, we financed, with Thomson Kernaghan & Co. Limited, a
    non-U.S. entity, a $5 million convertible debenture facility consisting of
    10% convertible debentures and warrants to subscribe for 208,333 shares of
    common stock. We placed in an escrow account 3,800,000 shares of common
    stock underlying the convertible debenture and warrants. We also compensated
    Thomson Kernaghan & Co. Limited for acting as a financial consultant to us
    by issuing it 64,703 shares of common stock. In February 1999, we increased
    the total of this debenture facility to $6,000,000. On April 26, 1999, we
    repriced the warrants and set a new fixed conversion price for the
    debentures. At that time, we also issued to Thomson Kernaghan & Co. Limited
    additional warrants to purchase 1,121,201 shares of common stock. On June 1,
    1999, we issued 36,706 shares of common stock to Thomson Kernaghan & Co.
    Limited to cover interest accrued on $1,470,000 of outstanding convertible
    debentures which had been called by us in accordance with the April 26, 1999
    amendment. Effective December 7, 1999, we entered into another agreement
    with Thomson

                                      II-3
<PAGE>   226

    Kernaghan & Co. Limited its remaining $1.53 million of convertible
    debentures and exercised its remaining warrants, under which it converted
    these debentures the accrued interest on the debentures plus these warrants
    into 2,882,867 shares of common stock and received an additional 125,000
    shares. A portion of the securities were registered under Amendment No. 4 to
    our registration statement on Form SB-2 filed December 21, 1998. The rest of
    the securities were issued under an exemption provided by Rule 903 of
    Regulation S under the Securities Act Rules. We made no directed selling
    efforts of these securities within the United States. Thomson Kernaghan &
    Co. Limited certified that it is not a U.S. person, was not acquiring the
    securities for the account or benefit of any U.S. person and would not
    resell the securities in the U.S. for at least one year, except in
    accordance with the registration statement. The securities issued by us were
    appropriately legended to reflect these restrictions and we have the right
    to refuse to register any transfer of these securities not made in
    accordance with Regulation S. Rule 506 of Regulation D under the Securities
    Act Rules could also be relied upon to exempt this transaction from
    registration requirements.

12. On August 24, 1998, we issued 4,250,000 exchangeable shares convertible into
    850,000 shares of common stock to two non-US residents. In exchange for the
    issuance, we received all of the outstanding stock of Riverview Management
    Corporation, (renamed FutureLink/SysGold Ltd. at closing) and, indirectly,
    its wholly-owned subsidiaries SysGold Inc., and SysGold Ltd. We issued these
    securities under an exemption provided by Rule 903 of Regulation S under the
    Securities Act Rules. We made no directed selling efforts of these
    securities within the United States. Both purchasers of the securities
    certified that they are not U.S. persons, were not acquiring the securities
    for the account or benefit of any U.S. person and would not resell the
    securities in the U.S. for at least one year. The securities issued by us
    were appropriately legended to reflect these restrictions and we have the
    right to refuse to register any transfer of these securities not made in
    accordance with Regulation S.

13. On November 23, 1998, we issued 334,755 shares of common stock to 77
    non-U.S. investors. In exchange for the issuances, we received 1,673,775
    shares of Class A Common Voting shares of FutureLink Alberta, giving us
    96.4% of FutureLink Alberta's voting stock. We issued these securities under
    an exemption provided by Rule 903 of Regulation S under the Securities Act
    Rules. We made no directed selling efforts of these securities within the
    United States. The purchasers of the securities certified that they are not
    U.S. persons, were not acquiring the securities for the account or benefit
    of any U.S. person and would not resell the securities in the U.S. for at
    least one year. The securities issued by us were appropriately legended to
    reflect these restrictions and we have the right to refuse to register any
    transfer of these securities not made in accordance with Regulation S.

14. On February 22, 1999, we issued a $150,620.62 convertible debenture to two
    non-U.S. residents, and granted to each of these persons warrants to
    purchase up to 75,310 shares of common stock. The issuances were made in
    exchange for the satisfaction of the principal and interest due on loans of
    $144,632 that each purchaser had made to us on August 11, 1998. On August
    18, 1999, we issued 27,431 shares to one of the purchasers on conversion of
    the remaining $54,862 of debenture principal outstanding. During February
    2000, we issued 144,742 shares to these purchasers upon the exercise of
    their warrants. We issued these securities under an exemption provided by
    Rule 903 of Regulation S under the Securities Act Rules. We made no directed
    selling efforts of these securities within the United States. The purchasers
    of the securities certified that they are not U.S. persons, were not
    acquiring the securities for the account or benefit of any U.S. person and
    would not resell the securities in the U.S. for at least one year. The
    securities issued by us were appropriately legended to reflect these
    restrictions and we have the right to refuse to register any transfer of
    these securities not made in accordance with Regulation S.

15. On February 26, 1999, we issued an aggregate of 23,500 shares of our common
    stock to the remaining 12 minority shareholders of FutureLink Alberta, all
    of whom are non-US residents. In exchange for the issuances, we received the
    final 107,500 Class A Common Voting Shares of FutureLink Alberta which we
    did not already own. We issued these securities under an exemption provided
    by Rule 903

                                      II-4
<PAGE>   227

    of Regulation S under the Securities Act Rules. We made no directed selling
    efforts of these securities within the United States. The purchasers of the
    securities certified that they were not U.S. persons, were not acquiring the
    securities for the account or benefit of any U.S. person and would not
    resell the securities in the U.S. for at least one year. The securities
    issued by us were appropriately legended to reflect these restrictions and
    we have the right to refuse to register any transfer of these securities not
    made in accordance with Regulation S.

16. On March 2, 1999, we issued an aggregate of $500,000 in 8% convertible
    debentures, and warrants to purchase up to 26,553 shares of common stock to
    a U.S.-based entity. In exchange for this issuance, we received total
    consideration of $500,000. In August 1999, we issued 355,836 shares to such
    entity upon conversion of the principal amount of the debenture together
    with interest and penalties. In December 1999, this entity it exercised its
    warrants to acquire 26,553 shares of common stock. We issued these
    securities under an exemption provided by Rule 506 of Regulation D under the
    Securities Act Rules. The purchaser of these securities certified that it
    was an "accredited investor" as defined in Rule 501 of Regulation D, was
    acquiring the securities as an investment and not with a view to
    distribution, and would not resell the securities unless they became
    registered or another exemption from registration was available. The
    securities issued by us were appropriately legended to reflect these
    restrictions.


17. Between April 29 and May 7, 1999, we issued 8% Senior Subordinated
    Convertible Notes totaling $8,038,500 to various investors, including
    $433,000 in notes to certain members of management. We also issued warrants
    to acquire up to 3,802,750 shares of common stock to the various investors
    and warrants to purchase 216,500 shares to members of our management.
    Commonwealth Associates, L.P. acted as our placement agent and advisor in
    the offering in exchange for $723,465 (9% of the gross proceeds of the
    offering) and 4,000,001 agent's warrants. Between August 23, 1999 and
    November 8, 1999 we issued 8,579,020 shares upon the conversion of
    $7,418,000 of principal outstanding on the notes. We also issued 7,329,782
    shares upon the exercise of 7,709,001 warrants and agent's warrants.
    Effective April 29, 2000, the remaining $620,500 of notes converted into
    676,408 shares of our common stock. Between May 1 and May 31, 2000, 20,704
    shares of common stock were issued upon the exercise of a further 22,500
    warrants. These securities were issued by us pursuant to an exemption from
    registration requirements provided by Rule 506 of Regulation D under the
    Securities Act Rules. The purchasers of these securities certified that they
    were "accredited investors" as defined in Rule 501 of Regulation D, were
    acquiring the securities as an investment and not with a view to
    distribution, and would not resell the securities unless they became
    registered or another exemption from registration was available. The
    securities issued by us were appropriately legended to reflect these
    restrictions.


18. On May 7, 1999, we issued a 10% convertible debenture in the amount of
    $278,160 and a warrant to purchase up to 44,505 shares of common stock to a
    non-U.S. entity. We made these issuances in satisfaction of a debt in the
    amount of $278,160 owed to that entity. On March 30, 2000, this entity
    elected to convert $200,000 of the principal amount of its convertible
    debenture plus accrued interest into 189,160 shares of common stock. We
    issued these securities pursuant to an exemption provided by Rule 903 of
    Regulation S under the Securities Act Rules. We made no directed selling
    efforts of these securities within the United States. The purchaser of the
    securities certified that it is not a U.S. person, was not acquiring the
    securities for the account or benefit of any U.S. person and would not
    resell the securities in the U.S. for at least one year. The securities
    issued by us were appropriately legended to reflect these restrictions and
    we have the right to refuse to register any transfer of these securities not
    made in accordance with Regulation S.

19. On June 1, 1999, we effected a one-for-five reverse stock split. We issued
    227 new shares to round fractional shares up to the nearest whole share as
    directed by the Securities and Exchange Commission.

20. On July 27, 1999, we issued $15 million in units, consisting of 8% senior
    subordinated convertible notes and warrants to purchase up to 2,250,000
    shares of common stock, to various investors. In
                                      II-5
<PAGE>   228

    exchange for those issuances, we received gross proceeds of $15 million.
    Commonwealth Associates, L.P. acted as our placement agent and advisor in
    the offering in exchange for commissions and placement fees equal to
    $1,350,000 (9% of the gross proceeds of the offering) and 225,000 agent's
    warrants. In October 1999, we issued 2,727,172 shares and warrants which
    currently entitle their holders to purchase an additional 727,042 shares of
    common stock upon the automatic conversion of the notes. We issued these
    securities under an exemption provided by Rule 506 of Regulation D under the
    Securities Act Rules. The purchaser of these securities certified that they
    were "accredited investors" as defined in Rule 501 of Regulation D, were
    acquiring the securities as an investment and not with a view to
    distribution, and would not resell the securities unless they became
    registered or another exemption from registration was available. The
    securities issued by us were appropriately legended to reflect these
    restrictions.

21. On August 1, 1999, we issued 232,829 shares of common stock to Vincent L.
    Romano and delivered such shares to an escrow account. In exchange for the
    issuance, Mr. Romano agreed to serve as our Executive Vice President of
    Sales and Marketing. We issued these securities to Mr. Romano under an
    exemption provided by Rule 506 of Regulation D under the Securities Act
    Rules. Mr. Romano certified that he was an "accredited investor" as defined
    in Rule 501 of Regulation D, was acquiring the securities as an investment
    and not with a view to distribution, and would not resell the securities
    unless they became registered or another exemption from registration was
    available. The securities issued by us were appropriately legended to
    reflect these restrictions.

22. Effective August 7, 1999, we issued 53,552 shares of common stock and 33,467
    warrants to purchase shares of common stock to a U.S. entity. In exchange
    for the issuances and certain other consideration, we retained that entity
    to provide us with marketing and advertising services. We issued these
    securities under an exemption provided by Rule 506 of Regulation D under the
    Securities Act Rules. The purchaser of these securities certified that it
    was an "accredited investor" as defined in Rule 501 of Regulation D, was
    acquiring the securities as an investment and not with a view to
    distribution, and would not resell the securities unless they became
    registered or another exemption from registration was available. The
    securities issued by us were appropriately legended to reflect these
    restrictions.

23. On October 15, 1999, we issued 7,200,000 shares of common stock to the
    Holmes Trust, a trust formed pursuant to the laws of California. In exchange
    for this issuance and certain other consideration, we acquired all of the
    outstanding shares of Executive LAN Management, Inc., doing business as
    Micro Visions. Pursuant to our agreement to acquire Micro Visions, on April
    14, 2000 we issued a further 1,200,000 shares of common stock to the Holmes
    Trust. We issued these securities under an exemption provided by Rule 506 of
    Regulation D under the Securities Act Rules. The Holmes Trust certified that
    it was an "accredited investor" as defined in Rule 501 of Regulation D, was
    acquiring the securities as an investment and not with a view to
    distribution, and would not resell the securities unless they became
    registered or another exemption from registration was available. The
    securities issued by us were appropriately legended to reflect these
    restrictions.

24. On October 15, 1999, we issued 9,090,909 shares of common stock and warrants
    to purchase up to 2,372,727 shares of common stock to various U.S.-based
    investment funds. In exchange for the issuances, we received total
    consideration of $50 million. During February 2000, we issued 2,401,041
    shares of common stock to such investment funds upon the conversion of these
    warrants, which gives effect to antidilution since their issuance. Gerard
    Klauer Mattison & Co., Inc. acted as our placement agent in the offering and
    received commissions and placement fees equal to $3 million (6% of the gross
    proceeds of the offering) and agent's warrants which currently allow that
    firm to acquire 928,551 shares of common stock. We issued these securities
    under an exemption provided by Rule 506 of Regulation D under the Securities
    Act Rules. Each purchaser of these securities certified that it was an
    "accredited investor" as defined in Rule 501 of Regulation D, was acquiring
    the securities as an investment and not with a view to distribution, and
    would not resell the securities unless they became registered or another
    exemption from registration was available. The securities issued by us were
    appropriately legended to reflect these restrictions.

                                      II-6
<PAGE>   229

25. On November 3, 1999, we issued warrants to purchase up to 29,413 shares of
    our common stock to TBCC Funding Trust. The issuance was made at the same
    time as a lease financing arrangement with Transamerica Business Credit
    Corporation. We issued these securities under an exemption provided by Rule
    506 of Regulation D under the Securities Act Rules. TBCC Funding Trust
    certified that it was an "accredited investor" as defined in Rule 501 of
    Regulation D, was acquiring the securities as an investment and not with a
    view to distribution, and would not resell the securities unless they became
    registered or another exemption from registration was available. The
    securities issued by us were appropriately legended to reflect these
    restrictions.

26. On November 5, 1999, we issued 1,181,816 shares of our common stock to the
    11 former shareholders of CN Networks, Inc. In exchange for the issuances
    and certain other consideration, we acquired all of CN Networks, Inc.'s
    outstanding shares. We issued these securities under an exemption provided
    by Rule 506 of Regulation D under the Securities Act Rules. Of the selling
    shareholders, all of whom reside in California, one was accredited and 10
    were non-accredited. The non-accredited investors were furnished with
    information on our company in compliance with the provisions of Rule 502(b)
    of Regulation D. The single accredited investor certified to us that it is
    an "accredited investor" as defined in Rule 501 of Regulation D. All of the
    former shareholders of CN Networks, Inc. certified that they were acquiring
    the securities as an investment and not with a view to distribution and
    would not resell the securities unless they became registered or another
    exemption from registration was available. The securities issued by us were
    appropriately legended to reflect these restrictions.

27. On November 26, 1999, we issued 1,298,705 shares of our common stock to the
    16 former shareholders of Async Technologies, Inc. In exchange for the
    issuances and certain other consideration, we acquired all of the
    outstanding shares of Async Technologies, Inc. Pursuant to our agreement to
    acquire Async Technologies, Inc., on April 7, 2000 we issued a further
    439,850 shares of common stock to certain former shareholders of Async
    Technologies, Inc. We issued these securities under an exemption provided by
    Rule 506 of Regulation D under the Securities Act Rules of the selling
    shareholders, all of whom reside in Michigan, two were accredited and 14
    were non-accredited. The non-accredited investors were furnished with
    information on our company in compliance with the provisions of Rule 502(b)
    of Regulation D. The accredited investors certified to us that they were
    "accredited investors" as defined in Rule 501 of Regulation D. All of the
    former shareholders of Async Technologies, Inc. certified that they were
    acquiring the securities as an investment and not with a view to
    distribution and would not resell the securities unless they became
    registered or another exemption from registration was available. The
    securities issued by us were appropriately legended to reflect these
    restrictions.

28. On December 12, 1999, we issued 112,590 shares of common stock to a U.S.
    entity. In exchange for the issuance, we received total consideration of
    $2.2 million. We issued these securities under an exemption provided by Rule
    506 of Regulation D under the Securities Act Rules. The purchaser of these
    securities certified that it was an "accredited investor" as defined in Rule
    501 of Regulation D, was acquiring the securities as an investment and not
    with a view to distribution, and would not resell the securities unless they
    became registered or another exemption from registration was available. The
    securities issued by us were appropriately legended to reflect these
    restrictions.

29. On December 16, 1999, we issued a warrant to acquire up to 13,140 shares of
    common stock to EMC(2) Corporation. The issuance was made as partial
    consideration for an equipment financing arrangement. We issued these
    securities under an exemption provided by Rule 506 of Regulation D under the
    Securities Act Rules. EMC(2) Corporation certified that it was an
    "accredited investor" as defined in Rule 501 of Regulation D, was acquiring
    the securities as an investment and not with a view to distribution, and
    would not resell the securities unless they became registered or another
    exemption from registration was available. The securities issued by us were
    appropriately legended to reflect these restrictions.

30. On December 22, 1999, we issued 2,160,307 shares of common stock to the
    selling shareholders of KNS Holdings Limited, a foreign entity, all of such
    selling shareholders being non-U.S. residents or
                                      II-7
<PAGE>   230

    entities. In exchange for the issuances and certain other consideration, we
    acquired all of the outstanding shares of KNS Holdings Limited. We issued
    these securities under an exemption provided by Rule 903 of Regulation S
    under the Securities Act Rules. We made no directed selling efforts of these
    securities within the United States. The purchasers of the securities
    certified that they were not U.S. persons, were not acquiring the securities
    for the account or benefit of any U.S. person and would not resell the
    securities in the U.S. for at least one year. The securities issued by us
    were appropriately legended to reflect these restrictions and we have the
    right to refuse to register any transfer of these securities not made in
    accordance with Regulation S.

31. On January 31, 2000, we issued 1,026,316 shares of common stock to the two
    selling shareholders of Vertical Software, Inc. d.b.a VSI Technology
    Solutions. In exchange for the issuances and certain other consideration, we
    acquired all of the outstanding shares of VSI Technology Solutions. We
    issued these securities under an exemption provided by Rule 506 of
    Regulation D under the Securities Act Rules both selling shareholders were
    accredited investors and certified to us that they complied with Rule 501 of
    Regulation D. These former shareholders of Vertical Software, Inc. certified
    that they were acquiring the securities as an investment and not with a view
    to distribution and would not resell the securities unless they became
    registered or another exemption from registration was available. The
    securities issued by us were appropriately legended to reflect these
    restrictions.

32.  On February 29, 2000, we issued 1,975,170 shares of common stock to the
     four selling shareholders of MicroLAN Systems, Inc., doing business as
     Madison Technology Group, Madison Consulting Resources, Inc. and Madison
     Consulting Resources NJ, Inc. to acquire all of the outstanding shares of
     such companies. We issued these securities pursuant to an exemption
     provided by Rule 506 of Regulation D under the Securities Act Rules. All
     four selling shareholders certified to us that they are "accredited
     investors" as defined in Rule 501 of Regulation D. All of the former
     shareholders of these companies also certified that they were acquiring the
     securities as an investment and not with a view to distribution and would
     not resell the securities unless they became registered or another
     exemption from registration was available. The securities issued by us were
     appropriately legended to reflect these restrictions. The shares were
     issued under a stock purchase agreement that was entered into prior to the
     filing of this registration statement and had no conditions to closing for
     the selling shareholders that were within their control.


33. Between June 29, 1998 and May 31, 2000, we issued an aggregate of 11,938,100
    stock options to directors, officers and employees at various exercises
    prices of which 4,000,000 underlying shares were registered by our
    registration statement on Form S-8 filed August 6, 1999 and 4,500,000
    underlying shares were registered by our registration statement on Form S-8
    filed February 29, 2000. We issued these securities under Rule 701 of
    Regulation E under the Securities Act Rules.


34. On February 11, 2000 we agreed to, and on March 1, 2000 did issue, warrants
    to acquire, in the aggregate, up to 3,000,000 shares of common stock to a
    U.S. entity to settle litigation commenced against us by such entity
    claiming fees for financial advisory services earned between April 1999 and
    November 1999. We issued these securities under an exemption provided for
    Rule 506 of Regulation D under the Securities Act Rules. The party to whom
    we issued these securities is an "accredited investor" as defined in Rule
    501 of Regulation D, acquired the securities as an investment and not with a
    view to distribution, and has agreed to not resell the securities unless
    they became registered or another exemption from registration was available.
    The securities issued by us were appropriately legended to reflect these
    restrictions.


35. On February 3, 2000 we entered into a definitive agreement to acquire all of
    the outstanding shares of Charon Systems Inc., a foreign entity, from its 14
    current shareholders, all of whom being non-US residents or entities. At
    closing, we intend to issue 2,199,973 shares of common stock as part of the
    consideration payable to these non-U.S. selling shareholders pursuant to an
    exemption provided by Rule 903 of Regulation S under the Securities Act
    Rules. The selling shareholders will be required to certify that they are
    not U.S. persons, that they are not acquiring the securities for the account
    or


                                      II-8
<PAGE>   231

    benefit of any U.S. person and that they will not resell the securities in
    the U.S. for at least one year. When we issue these securities, we intend to
    appropriately legend the certificates representing these securities to
    reflect these restrictions and we will retain the right to refuse to
    register any transfer of these securities not made in accordance with
    Regulation S.

36. On April 28, 2000, we issued 1,746,704 shares of common stock and warrants
    to purchase up to 441,176 shares of common stock to two U.S.-based
    investment funds. In exchange for the issuances, we received total
    consideration of $15.0 million. We issued these securities under an
    exemption provided by Rule 506 of Regulation D under the Securities Act
    Rules. Each purchaser of these securities certified that it was an
    "accredited investor" as defined in Rule 501 of Regulation D, was acquiring
    the securities as an investment and not with a view to distribution, and
    would not resell the securities unless they became registered or another
    exemption from registration was available. The securities issued by us were
    appropriately legended to reflect these restrictions.

     Except as otherwise set forth above, no underwriters were engaged in the
     sales of securities described above.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) EXHIBITS


<TABLE>
<CAPTION>
EXHIBIT
NUMBER                              DESCRIPTION
-------                             -----------
<C>         <S>
     1.1**  Form of Underwriting Agreement
     2.1    Share Purchase Agreement dated August 4, 1998 between
            FutureLink Distribution Corp., a Colorado corporation,
            Donald A. Bialik, Olivia B. Bialik, Bialik Family Trust,
            Riverview Management Corporation, SysGold Ltd., and
            FutureLink Distribution Corp., an Alberta corporation(1)
     2.2    Targetco Acquisition Agreement dated August 3, 1998 between
            FutureLink Distribution Corp., a Colorado corporation, and
            FutureLink Alberta(1)
     2.3    Amending Agreement to Share Purchase Agreement dated August
            21, 1998 between FutureLink Distribution Corp., a Colorado
            corporation, Donald A. Bialik, Olivia B. Bialik, Bialik
            Family Trust, Riverview Management Corporation, SysGold
            Ltd., and FutureLink Alberta(3)
     2.4    Agreement and Plan of Reorganization and Merger dated June
            2, 1999 between FutureLink Distribution Corp., FutureLink
            California Acquisition Corp., Executive LAN Management,
            Inc., dba Micro Visions, and the selling shareholders of
            Micro Visions(6)
     2.5    Agreement and Plan of Merger dated August 1, 1999 between
            FutureLink Distribution Corp. and FutureLink California
            Acquisition Corporation, a Delaware corporation(8)
     2.6    Agreement and Plan of Reorganization and Merger dated
            September 7, 1999 between FutureLink Distribution Corp.,
            FutureLink Pleasanton Acquisition Corp., CN Networks, Inc.,
            and the selling shareholders of CN Networks, Inc.(9)
     2.7    Agreement and Plan of Reorganization and Merger dated
            September 7, 1999 between FutureLink Distribution Corp.,
            FutureLink Michigan Acquisition Corp., Async Technologies,
            Inc., and the selling shareholders of Async Technologies,
            Inc.(10)
     2.8    Certificate of Merger dated October 15, 1999 of FutureLink
            Distribution Corp., a Colorado corporation, into FutureLink
            California Acquisition Corp., a Delaware corporation(8)
     2.9    Amending Agreement dated October 15, 1999 to Agreement and
            Plan of Reorganization and Merger between FutureLink Corp.,
            FutureLink California Acquisition Corp., and the selling
            shareholders of Executive LAN Management, Inc.(8)
     2.10   Amending Agreement dated October 29, 1999 to Agreement and
            Plan of Reorganization and Merger, between FutureLink
            Distribution Corp., FutureLink Michigan Acquisition Corp.,
            Async Technologies, Inc., and the selling shareholders of
            Async Technologies, Inc.(10)
</TABLE>


                                      II-9
<PAGE>   232


<TABLE>
<CAPTION>
EXHIBIT
NUMBER                              DESCRIPTION
-------                             -----------
<C>         <S>
     2.11   Amending Agreement dated October 31, 1999 to Agreement and
            Plan of Reorganization and Merger between FutureLink Corp.,
            FutureLink Pleasanton Acquisition Corp., CN Networks, Inc.
            and the selling shareholders of CN Networks, Inc.(9)
     2.12   Amending Agreement dated November 14, 1999 to Agreement and
            Plan of Reorganization and Merger between FutureLink Corp.,
            FutureLink Michigan Acquisition Corp., Async Technologies,
            Inc., and the selling shareholders of Async Technologies,
            Inc.(10)
     2.13   Agreement for the Sale and Purchase of the Entire Issued
            Share Capital of KNS Holdings Limited dated November 15,
            1999 between FutureLink Corp. and the selling shareholders
            of KNS Holdings Limited(11)
     2.14   Amending Agreement dated November 26, 1999 to Agreement and
            Plan of Reorganization and Merger between FutureLink Corp.,
            FutureLink Michigan Acquisition Corp., Async Technologies,
            Inc., and the selling shareholders of Async Technologies,
            Inc.(10)
     2.15   Supplemental Agreement dated December 20, 1999 to Agreement
            for Sale and Purchase of the Entire Issued Share Capital of
            KNS Holdings Limited, between FutureLink Corp. and the
            selling shareholders of KNS Holdings Limited(11)
     2.16   The Agreement and Plan of Reorganization and Merger dated
            December 2, 1999 by and among FutureLink Corp., FutureLink
            Maryland Acquisition Corp., Vertical Software, Inc., Curtis
            Eshelman and James C. Harvey(13)
     2.17   The Agreement and Plan of Reorganization and Merger dated
            February 1, 2000 by and among FutureLink Corp., FutureLink
            Delaware Acquisition Corp., MicroLAN Systems Inc., Madison
            Consulting Resources Inc., Madison Consulting Resources (NJ)
            Inc., Ira Silverman, Richard Silverman, Adam Silverman and
            Adam Fox(14)
     3.1    Certificate of Incorporation of FutureLink Corp.(8)
     3.2    Bylaws of FutureLink Corp.(8)
     5.1**  Opinion of Paul, Hastings, Janofsky & Walker LLP with
            respect to the validity of the securities being offered
    10.1    Stock Option Plan dated June 29, 1998(1)
    10.2    First Amendment to Second Amended and Restated Stock Option
            Plan dated December 10, 1999, as amended(12)
    10.3    Agency Agreement dated April 14, 1999 between FutureLink
            Distribution Corp. and Commonwealth(5)
    10.4    Letter Agreement dated December 6, 1999 between FutureLink
            Distribution Corp. and Thomson Kernaghan & Co. Limited(12)
    10.5    Advisory Agreement dated May 1, 1999 between FutureLink
            Distribution Corp. and Commonwealth Associates, L.P.(5)
    10.6    Agency Agreement dated July 1, 1999 between FutureLink
            Distribution Corp. and Commonwealth Associates, L.P.(7)
    10.7    Loan Agreement dated August 1, 1999 between FutureLink Corp.
            and Vincent L. Romano(7)
    10.8    Securities Purchase Agreement dated October 15, 1999 between
            FutureLink Corp., Pequot Private Equity Investment Fund II,
            L.P. and certain other investors(8)
    10.9    Amended and Restated Registration Rights Agreement dated
            April 28, 2000 between FutureLink Corp., Pequot Private
            Investment Fund II, L.P., and certain other investors
            (blacklined to the Registration Rights Agreement dated
            October 15, 1999 between the parties which was filed as an
            Exhibit to the Registration Statement on Form SB-2 filed on
            February 11, 2000)(16)
    10.10   Securities Purchase Agreement dated April 28, 2000 between
            FutureLink Corp., Pequot Private Equity Investment Fund II,
            L.P. and Pequot Endowment Fund, L.P.(16)
    10.11   Form of Warrant to Purchase Shares of Common Stock(16)
    10.12   Registration Rights Agreement dated December 6, 1999 between
            FutureLink Corp. and CPQ Holdings, Inc.(12)
</TABLE>


                                      II-10
<PAGE>   233

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                              DESCRIPTION
-------                             -----------
<C>         <S>
    10.13   Securities Purchase Agreement dated December 6, 1999 between
            FutureLink Corp. and CPQ Holdings, Inc.(12)
    10.14   Employment Agreement dated June 1, 1999 between Philip R.
            Ladouceur and FutureLink Distribution Corp.(12)(17)
    10.15   Employment Agreement dated September 30, 1999 between Glenn
            C. Holmes and FutureLink Corp.(12)
    10.16   Employment Agreement dated August 1, 1999 between Vincent L.
            Romano and FutureLink Corp.(12)
    10.17   Client/Agency Agreement dated August 7, 1999 between Sicola,
            Martin, Koons & Frank, Inc. and FutureLink Distribution
            Corp., as revised(12)
    10.18   Master Loan and Security Agreement dated November 3, 1999
            between Transamerica Business Credit Corporation, FutureLink
            Corp. and FutureLink Micro Visions Corp.(12)
    10.19   Security Agreement dated November 3, 1999 between
            Transamerica Business Credit Corporation and FutureLink
            Distribution Corp.(12)
    10.20   Master Lease and Financing Agreement dated November 15, 1999
            between Compaq Financial Services and FutureLink Corp.(12)
    10.21   Master Lease Agreement dated December 16, 1999 between
            EMC(2) and FutureLink Corp.(12)
    10.22   Revised Offer to Lease dated March 24, 1998 between Bow
            Valley Square Management Ltd. and SysGold, Ltd., as amended,
            for 250 6th Avenue, Calgary(1)
    10.23   Lease Agreement dated September 23, 1999 between Kilroy
            Realty, L.P., Kilroy Realty Corporation, and FutureLink
            Distribution Corporation for 220 Technology Drive, Irvine
            and assignment of Lease Agreement dated October 15, 1999(12)
    10.24   Microsoft Certified Solution Provider Agreement dated
            January 28, 2000 between Microsoft Corporation and
            FutureLink Corp.(15)(18)
    10.25   Microsoft Application Services Agreement dated December 23,
            1999 between Microsoft Corporation and FutureLink
            Corp.(12)(18)
    10.26   Final Invoice/Enrollment Contract (MSCP) dated April 28,
            1998 between Microsoft Corporation and FutureLink Corp.(1)
    10.27   Direct Commercial Service License Agreement dated May 21,
            1999 between Microsoft Corporation and FutureLink
            Distribution Corp.(12)(18)
    10.28   Service Agreement dated June 1, 1998 between Willson
            Stationers Ltd. and FutureLink Alberta(1)
    10.29   Solution Provider Contract dated July 27, 1998 between IBM
            Canada Ltd. and FutureLink/SysGold Ltd.(1)
    10.30   Hosting Services Distributor Agreement (version 4) dated
            November 12, 1998 between Onyx Software Corp. and FutureLink
            Distribution Corp.(12)
    10.31   Onyx Software License Agreement dated August 5, 1998 between
            Onyx Software Corp. and FutureLink Distribution Corp.(12)
    10.32   Alliance Partner Agreement dated October 26, 1998 between
            Great Plains Software and FutureLink Distribution Corp.(12)
    10.33   Citrix Solutions Network Gold Renewal Membership Agreement
            dated July 16, 1999 between Citrix Systems, Inc. and
            FutureLink Distribution Corp.(12)(18)
    10.34   Citrix Solutions Network Platinum Renewal Membership
            Agreement dated April 20, 1999 between Citrix Systems, Inc.
            and Async Technologies, Inc.(12)(18)
    10.35   Information Systems Services Agreement dated January 19,
            1999 between FutureLink Alberta and Numac Energy, Inc.(12)
    10.36   Information Systems Services Agreement dated July 1, 1999
            between Canadian Natural Resources, Ltd. and FutureLink
            Alberta(12)
    10.37   Alliance Partner Agreement dated February 12, 1999 between
            FutureLink Alberta and JAWS Technologies, Inc.(1)
</TABLE>

                                      II-11
<PAGE>   234


<TABLE>
<CAPTION>
EXHIBIT
NUMBER                              DESCRIPTION
-------                             -----------
<C>         <S>
    10.38   Master Consulting Agreement dated December 1, 1998 between
            Ameriquest Mortgage Company and Micro Visions(12)
    10.39   Internet Data Center Services Agreement dated May 7, 1999
            between Exodus Communications, Inc. and Executive LAN
            Management, Inc.(12)
    10.40   Form of EMC(2) Corporation Software License Agreement(12)
    15.1**  Letter of Acknowledgement, Moreland & Davis, Alameda County,
            California
    15.2**  Letter of Acknowledgement, M. Jevahirian & Co., Birmingham,
            Michigan
    21.0    List of Subsidiaries(16)
    23.1**  Consent of Paul, Hastings, Janofsky & Walker LLP (consent
            included in 5.1)
    23.2**  Consent of Ernst & Young LLP, Independent Auditors, Orange
            County, California
    23.3**  Consent of Ernst & Young LLP, Independent Auditors, McLean,
            Virginia
    23.4**  Consents of Joel E. Sammet & Co., Certified Public
            Accountants
    23.6**  Consent of Ernst & Young LLP, Independent Auditors, Orange
            County, California
    23.7**  Consent of Moreland & Davis, Alameda County, California
    23.8**  Consent of M. Jevahirian and Co., Independent Auditors,
            Birmingham, Michigan
    23.9**  Consent of Ernst & Young, Independent Auditors, Reading,
            England
    24.1    Power of Attorney(12) (included in signature page)
</TABLE>


-------------------------
 * To be filed in an amendment.

** Filed herewith.

 (1) Included as an Exhibit to FutureLink's registration statement on Form SB-2
     filed August 24, 1998.

 (2) Included as an Exhibit to FutureLink's Amendment No. 1 to registration
     statement on Form SB-2 filed October 23, 1998.

 (3) Included as an Exhibit to FutureLink's Amendment No. 2 to registration
     statement on Form SB-2 filed November 24, 1998.

 (4) Included as an Exhibit to FutureLink's Amendment No. 3 to registration
     statement on Form SB-2 filed December 14, 1998.

 (5) Included as an Exhibit to FutureLink's Quarterly Report on Form 10-QSB for
     period ended March 31, 1999, filed May 20, 1999.

 (6) Included as an Exhibit to FutureLink's Current Report on Form 8-K filed
     June 16, 1999.

 (7) Included as an Exhibit to FutureLink's Quarterly Report on Form 10-QSB for
     period ended June 30, 1999, filed August 18, 1999.

 (8) Included as an Exhibit to FutureLink's Current Report on Form 8-K filed
     October 27, 1999.

 (9) Included as an Exhibit to FutureLink's Current Report on Form 8-K filed
     November 23, 1999.

(10) Included as an Exhibit to FutureLink's Current Report on Form 8-K filed
     December 8, 1999.

(11) Included as an Exhibit to FutureLink's Current Report on Form 8-K filed
     January 6, 2000.

(12) Included as an Exhibit to FutureLink's registration statement on Form SB-2
     filed February 11, 2000.

(13) Included as an Exhibit to FutureLink's Current Report on Form 8-K filed
     February 14, 2000.

(14) Included as an Exhibit to FutureLink's Current Report on Form 8-K filed
     March 15, 2000.

(15) Included as an Exhibit to FutureLink's First Amendment to Registration
     Statement on Form SB-2 filed April 14, 2000.

(16) Included as an Exhibit to FurtureLink's Second Amendment to Registration
     Statement on Form SB-2 filed May 3, 2000.

(17) We entered into an employment agreement with Raghu Kilambi on June 1, 1999,
     which we amended on October 8, 1999 that is substantially identical in all
     material respects to our

                                      II-12
<PAGE>   235

     employment agreement with Mr. Ladouceur, except as to salary and bonus
     provisions. Mr. Kilambi's base salary is $180,000 per year and he is
     entitled to receive a performance bonus of up to $180,000.

(18) Some of our subsidiaries are parties to agreements with the same party that
     are substantially identical in all material respects.

(b) FINANCIAL STATEMENT SCHEDULES.

ITEM 17. UNDERTAKINGS

     (a) The undersigned registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriters to permit prompt delivery to each purchaser.

     (b) To the extent that indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant under the above 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
Securities Act of 1933 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 respect of 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 Securities
Act of 1933 and will be governed by the final adjudication of such issue.

     The undersigned registrant hereby undertakes that:

          (1) For purposes of determining any liability under the Securities Act
     of 1933, the information omitted from the form of prospectus filed as part
     of this registration statement in reliance upon Rule 430A and contained in
     a form of prospectus filed by the registrant under Rule 424(b)(1) or (4) or
     497(h) under the Securities Act of 1933 shall be deemed to be part of this
     registration statement as of the time it was declared effective.

          (2) For the purposes of determining any liability under the Securities
     Act of 1933, each post-effective amendment that contains a form of
     prospectus shall be deemed to be a new registration statement relating to
     the securities offered in that prospectus, and the offering of such
     securities at that time shall be deemed to be the initial bona fide
     offering of such securities.

                                      II-13
<PAGE>   236

                                   SIGNATURES


     Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has duly caused this Amendment No. 4 to
Registration Statement on Form SB-2 to be signed on its behalf by the
undersigned, thereunto duly authorized, in Irvine, California on June 9, 2000.


                                          FUTURELINK CORP.

                                          By: /s/ PHILIP R. LADOUCEUR
                                            ------------------------------------
                                              Philip R. Ladouceur
                                              Chairman and Chief Executive
                                              Officer

                                      II-14
<PAGE>   237

                                   SIGNATURES


     Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 4 to Registration Statement on Form SB-2 has been signed
below by the following persons in the capacities and on the dates indicated.



<TABLE>
<CAPTION>
                    NAME                                       TITLE                         DATE
                    ----                                       -----                         ----
<C>                                            <S>                                       <C>
           /s/ PHILIP R. LADOUCEUR             Chairman, Chief Executive Officer and     June 9, 2000
---------------------------------------------  Director
             Philip R. Ladouceur

                      *                        President, Chief Operating Officer and    June 9, 2000
---------------------------------------------  Director
               Glen C. Holmes

            /s/ RAGHU N. KILAMBI               Executive Vice President, Chief           June 9, 2000
---------------------------------------------  Financial Officer, Principal
              Raghu N. Kilambi                 Accounting Officer and Director

                      *                        Director                                  June 9, 2000
---------------------------------------------
              F. Bryson Farrill

                      *                        Director                                  June 9, 2000
---------------------------------------------
              Timothy P. Flynn

                      *                        Director                                  June 9, 2000
---------------------------------------------
               Michael S. Falk

                      *                        Director                                  June 9, 2000
---------------------------------------------
               Gerald A. Poch

                      *                        Director                                  June 9, 2000
---------------------------------------------
               James P. McNiel

                      *                        Vice President, Secretary and General     June 9, 2000
---------------------------------------------  Counsel
               Kyle B.A. Scott
</TABLE>



*By: /s/  PHILIP R. LADOUCEURT


--------------------------------
PHILIP R. LADOUCEUR
ATTORNEY-IN-FACT


                                      II-15
<PAGE>   238

                                 EXHIBIT INDEX


<TABLE>
<CAPTION>
EXHIBIT
NUMBER                              DESCRIPTION
-------                             -----------
<C>         <S>
     1.1**  Form of Underwriting Agreement
     2.1    Share Purchase Agreement dated August 4, 1998 between
            FutureLink Distribution Corp., a Colorado corporation,
            Donald A. Bialik, Olivia B. Bialik, Bialik Family Trust,
            Riverview Management Corporation, SysGold Ltd., and
            FutureLink Distribution Corp., an Alberta corporation(1)
     2.2    Targetco Acquisition Agreement dated August 3, 1998 between
            FutureLink Distribution Corp., a Colorado corporation, and
            FutureLink Alberta(1)
     2.3    Amending Agreement to Share Purchase Agreement dated August
            21, 1998 between FutureLink Distribution Corp., a Colorado
            corporation, Donald A. Bialik, Olivia B. Bialik, Bialik
            Family Trust, Riverview Management Corporation, SysGold
            Ltd., and FutureLink Alberta(3)
     2.4    Agreement and Plan of Reorganization and Merger dated June
            2, 1999 between FutureLink Distribution Corp., FutureLink
            California Acquisition Corp., Executive LAN Management,
            Inc., dba Micro Visions, and the selling shareholders of
            Micro Visions(6)
     2.5    Agreement and Plan of Merger dated August 1, 1999 between
            FutureLink Distribution Corp. and FutureLink California
            Acquisition Corporation, a Delaware corporation(8)
     2.6    Agreement and Plan of Reorganization and Merger dated
            September 7, 1999 between FutureLink Distribution Corp.,
            FutureLink Pleasanton Acquisition Corp., CN Networks, Inc.,
            and the selling shareholders of CN Networks, Inc.(9)
     2.7    Agreement and Plan of Reorganization and Merger dated
            September 7, 1999 between FutureLink Distribution Corp.,
            FutureLink Michigan Acquisition Corp., Async Technologies,
            Inc., and the selling shareholders of Async Technologies,
            Inc.(10)
     2.8    Certificate of Merger dated October 15, 1999 of FutureLink
            Distribution Corp., a Colorado corporation, into FutureLink
            California Acquisition Corp., a Delaware corporation(8)
     2.9    Amending Agreement dated October 15, 1999 to Agreement and
            Plan of Reorganization and Merger between FutureLink Corp.,
            FutureLink California Acquisition Corp., and the selling
            shareholders of Executive LAN Management, Inc.(8)
     2.10   Amending Agreement dated October 29, 1999 to Agreement and
            Plan of Reorganization and Merger, between FutureLink
            Distribution Corp., FutureLink Michigan Acquisition Corp.,
            Async Technologies, Inc., and the selling shareholders of
            Async Technologies, Inc.(10)
     2.11   Amending Agreement dated October 31, 1999 to Agreement and
            Plan of Reorganization and Merger between FutureLink Corp.,
            FutureLink Pleasanton Acquisition Corp., CN Networks, Inc.
            and the selling shareholders of CN Networks, Inc.(9)
     2.12   Amending Agreement dated November 14, 1999 to Agreement and
            Plan of Reorganization and Merger between FutureLink Corp.,
            FutureLink Michigan Acquisition Corp., Async Technologies,
            Inc., and the selling shareholders of Async Technologies,
            Inc.(10)
     2.13   Agreement for the Sale and Purchase of the Entire Issued
            Share Capital of KNS Holdings Limited dated November 15,
            1999 between FutureLink Corp. and the selling shareholders
            of KNS Holdings Limited(11)
     2.14   Amending Agreement dated November 26, 1999 to Agreement and
            Plan of Reorganization and Merger between FutureLink Corp.,
            FutureLink Michigan Acquisition Corp., Async Technologies,
            Inc., and the selling shareholders of Async Technologies,
            Inc.(10)
     2.15   Supplemental Agreement dated December 20, 1999 to Agreement
            for Sale and Purchase of the Entire Issued Share Capital of
            KNS Holdings Limited, between FutureLink Corp. and the
            selling shareholders of KNS Holdings Limited(11)
     2.16   The Agreement and Plan of Reorganization and Merger dated
            December 2, 1999 by and among FutureLink Corp., FutureLink
            Maryland Acquisition Corp., Vertical Software, Inc., Curtis
            Eshelman and James C. Harvey(13)
</TABLE>

<PAGE>   239


<TABLE>
<CAPTION>
EXHIBIT
NUMBER                              DESCRIPTION
-------                             -----------
<C>         <S>
     2.17   The Agreement and Plan of Reorganization and Merger dated
            February 1, 2000 by and among FutureLink Corp., FutureLink
            Delaware Acquisition Corp., MicroLAN Systems Inc., Madison
            Consulting Resources Inc., Madison Consulting Resources (NJ)
            Inc., Ira Silverman, Richard Silverman, Adam Silverman and
            Adam Fox(14)
     3.1    Certificate of Incorporation of FutureLink Corp.(8)
     3.2    Bylaws of FutureLink Corp.(8)
     5.1**  Opinion of Paul, Hastings, Janofsky & Walker LLP with
            respect to the validity of the securities being offered
    10.1    Stock Option Plan dated June 29, 1998(1)
    10.2    First Amendment to Second Amended and Restated Stock Option
            Plan dated December 10, 1999, as amended(12)
    10.3    Agency Agreement dated April 14, 1999 between FutureLink
            Distribution Corp. and Commonwealth(5)
    10.4    Letter Agreement dated December 6, 1999 between FutureLink
            Distribution Corp. and Thomson Kernaghan & Co. Limited(12)
    10.5    Advisory Agreement dated May 1, 1999 between FutureLink
            Distribution Corp. and Commonwealth Associates, L.P.(5)
    10.6    Agency Agreement dated July 1, 1999 between FutureLink
            Distribution Corp. and Commonwealth Associates, L.P.(7)
    10.7    Loan Agreement dated August 1, 1999 between FutureLink Corp.
            and Vincent L. Romano(7)
    10.8    Securities Purchase Agreement dated October 15, 1999 between
            FutureLink Corp., Pequot Private Equity Investment Fund II,
            L.P. and certain other investors(8)
    10.9    Amended and Restated Registration Rights Agreement dated
            April 28, 2000 between FutureLink Corp., Pequot Private
            Investment Fund II, L.P., and certain other investors
            (blacklined to the Registration Rights Agreement dated
            October 15, 1999 between the parties which was filed as an
            Exhibit to the Registration Statement on Form SB-2 filed on
            February 11, 2000)(16)
    10.10   Securities Purchase Agreement dated April 28, 2000 between
            FutureLink Corp., Pequot Private Equity Investment Fund II,
            L.P. and Pequot Endowment Fund, L.P.(16)
    10.11   Form of Warrant to Purchase Shares of Common Stock(16)
    10.12   Registration Rights Agreement dated December 6, 1999 between
            FutureLink Corp. and CPQ Holdings, Inc.(12)
    10.13   Securities Purchase Agreement dated December 6, 1999 between
            FutureLink Corp. and CPQ Holdings, Inc.(12)
    10.14   Employment Agreement dated June 1, 1999 between Philip R.
            Ladouceur and FutureLink Distribution Corp.(12)(17)
    10.15   Employment Agreement dated September 30, 1999 between Glenn
            C. Holmes and FutureLink Corp.(12)
    10.16   Employment Agreement dated August 1, 1999 between Vincent L.
            Romano and FutureLink Corp.(12)
    10.17   Client/Agency Agreement dated August 7, 1999 between Sicola,
            Martin, Koons & Frank, Inc. and FutureLink Distribution
            Corp., as revised(12)
    10.18   Master Loan and Security Agreement dated November 3, 1999
            between Transamerica Business Credit Corporation, FutureLink
            Corp. and FutureLink Micro Visions Corp.(12)
    10.19   Security Agreement dated November 3, 1999 between
            Transamerica Business Credit Corporation and FutureLink
            Distribution Corp.(12)
    10.20   Master Lease and Financing Agreement dated November 15, 1999
            between Compaq Financial Services and FutureLink Corp.(12)
    10.21   Master Lease Agreement dated December 16, 1999 between
            EMC(2) and FutureLink Corp.(12)
</TABLE>

<PAGE>   240


<TABLE>
<CAPTION>
EXHIBIT
NUMBER                              DESCRIPTION
-------                             -----------
<C>         <S>
    10.22   Revised Offer to Lease dated March 24, 1998 between Bow
            Valley Square Management Ltd. and SysGold, Ltd., as amended,
            for 250 6th Avenue, Calgary(1)
    10.23   Lease Agreement dated September 23, 1999 between Kilroy
            Realty, L.P., Kilroy Realty Corporation, and FutureLink
            Distribution Corporation for 220 Technology Drive, Irvine
            and assignment of Lease Agreement dated October 15, 1999(12)
    10.24   Microsoft Certified Solution Provider Agreement dated
            January 28, 2000 between Microsoft Corporation and
            FutureLink Corp.(15)(18)
    10.25   Microsoft Application Services Agreement dated December 23,
            1999 between Microsoft Corporation and FutureLink
            Corp.(12)(18)
    10.26   Final Invoice/Enrollment Contract (MSCP) dated April 28,
            1998 between Microsoft Corporation and FutureLink Corp.(1)
    10.27   Direct Commercial Service License Agreement dated May 21,
            1999 between Microsoft Corporation and FutureLink
            Distribution Corp.(12)(18)
    10.28   Service Agreement dated June 1, 1998 between Willson
            Stationers Ltd. and FutureLink Alberta(1)
    10.29   Solution Provider Contract dated July 27, 1998 between IBM
            Canada Ltd. and FutureLink/SysGold Ltd.(1)
    10.30   Hosting Services Distributor Agreement (version 4) dated
            November 12, 1998 between Onyx Software Corp. and FutureLink
            Distribution Corp.(12)
    10.31   Onyx Software License Agreement dated August 5, 1998 between
            Onyx Software Corp. and FutureLink Distribution Corp.(12)
    10.32   Alliance Partner Agreement dated October 26, 1998 between
            Great Plains Software and FutureLink Distribution Corp.(12)
    10.33   Citrix Solutions Network Gold Renewal Membership Agreement
            dated July 16, 1999 between Citrix Systems, Inc. and
            FutureLink Distribution Corp.(12)(18)
    10.34   Citrix Solutions Network Platinum Renewal Membership
            Agreement dated April 20, 1999 between Citrix Systems, Inc.
            and Async Technologies, Inc.(12)(18)
    10.35   Information Systems Services Agreement dated January 19,
            1999 between FutureLink Alberta and Numac Energy, Inc.(12)
    10.36   Information Systems Services Agreement dated July 1, 1999
            between Canadian Natural Resources, Ltd. and FutureLink
            Alberta(12)
    10.37   Alliance Partner Agreement dated February 12, 1999 between
            FutureLink Alberta and JAWS Technologies, Inc.(1)
    10.38   Master Consulting Agreement dated December 1, 1998 between
            Ameriquest Mortgage Company and Micro Visions(12)
    10.39   Internet Data Center Services Agreement dated May 7, 1999
            between Exodus Communications, Inc. and Executive LAN
            Management, Inc.(12)
    10.40   Form of EMC(2) Corporation Software License Agreement(12)
    15.1**  Letter of Acknowledgement, Moreland & Davis, Alameda County,
            California
    15.2**  Letter of Acknowledgement, M. Jevahirian & Co., Birmingham,
            Michigan
    21.0    List of Subsidiaries(16)
    23.1**  Consent of Paul, Hastings, Janofsky & Walker LLP (consent
            included in 5.1)
    23.2**  Consent of Ernst & Young LLP, Independent Auditors, Orange
            County, California
    23.3**  Consent of Ernst & Young LLP, Independent Auditors, McLean,
            Virginia
    23.4**  Consents of Joel E. Sammet & Co., Certified Public
            Accountants
    23.6**  Consent of Ernst & Young LLP, Independent Auditors, Orange
            County, California
    23.7**  Consent of Moreland & Davis, Alameda County, California
    23.8**  Consent of M. Jevahirian and Co., Independent Auditors,
            Birmingham, Michigan
    23.9**  Consent of Ernst & Young, Independent Auditors, Reading,
            England
    24.1    Power of Attorney(12) (included in signature page)
</TABLE>

<PAGE>   241

-------------------------
 * To be filed in an amendment.

** Filed herewith.

 (1) Included as an Exhibit to FutureLink's registration statement on Form SB-2
     filed August 24, 1998.

 (2) Included as an Exhibit to FutureLink's Amendment No. 1 to registration
     statement on Form SB-2 filed October 23, 1998.

 (3) Included as an Exhibit to FutureLink's Amendment No. 2 to registration
     statement on Form SB-2 filed November 24, 1998.

 (4) Included as an Exhibit to FutureLink's Amendment No. 3 to registration
     statement on Form SB-2 filed December 14, 1998.

 (5) Included as an Exhibit to FutureLink's Quarterly Report on Form 10-QSB for
     period ended March 31, 1999, filed May 20, 1999.

 (6) Included as an Exhibit to FutureLink's Current Report on Form 8-K filed
     June 16, 1999.

 (7) Included as an Exhibit to FutureLink's Quarterly Report on Form 10-QSB for
     period ended June 30, 1999, filed August 18, 1999.

 (8) Included as an Exhibit to FutureLink's Current Report on Form 8-K filed
     October 27, 1999.

 (9) Included as an Exhibit to FutureLink's Current Report on Form 8-K filed
     November 23, 1999.

(10) Included as an Exhibit to FutureLink's Current Report on Form 8-K filed
     December 8, 1999.

(11) Included as an Exhibit to FutureLink's Current Report on Form 8-K filed
     January 6, 2000.

(12) Included as an Exhibit to FutureLink's registration statement on Form SB-2
     filed February 11, 2000.

(13) Included as an Exhibit to FutureLink's Current Report on Form 8-K filed
     February 14, 2000.

(14) Included as an Exhibit to FutureLink's Current Report on Form 8-K filed
     March 15, 2000.

(15) Included as an Exhibit to FutureLink's First Amendment to Registration
     Statement on Form SB-2 filed April 14, 2000.

(16) Included as an Exhibit to FurtureLink's Second Amendment to Registration
     Statement on Form SB-2 filed May 3, 2000.

(17) We entered into an employment agreement with Raghu Kilambi on June 1, 1999,
     which we amended on October 8, 1999 that is substantially identical in all
     material respects to our employment agreement with Mr. Ladouceur, except as
     to salary and bonus provisions. Mr. Kilambi's base salary is $180,000 per
     year and he is entitled to receive a performance bonus of up to $180,000.

(18) Some of our subsidiaries are parties to agreements with the same party that
     are substantially identical in all material respects.


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